SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission File No. 0-15360
BIOJECT MEDICAL TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Oregon 93-1099680
- -------------------------------------- -----------------------------
(Jurisdiction of incorporation) (I.R.S. identification no.)
7620 SW Bridgeport Road
Portland, Oregon 97224
- -------------------------------------- -----------------------------
(Address of principal executive offices) (Zip code)
(503) 639-7221
-------------------------------------------------------
(Registrant's telephone number, including areas code)
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 [ ]
At October 31, 1999 there were 5,802,248 outstanding shares of common stock
of the registrant.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited consolidated financial statements of Bioject Medical
Technologies Inc. ("BMTI"), an Oregon corporation, and its subsidiaries have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. The Company's needle-free injector operations are conducted
by Bioject Inc. ("Bioject"), an Oregon corporation formed in February 1985,
which is a wholly owned subsidiary of BMTI and its blood glucose monitoring
system operations are conducted by Marathon Medical Technologies Inc.
("Marathon"), an Oregon corporation formed in October 1997, which is wholly
owned by BMTI.
The following 10-Q report reflects the consolidated results of operations, cash
flows and financial position for the second quarter of the year ending March 31,
2000. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the year.
- Consolidated Statements of Operations for the quarters ended September
30, 1999 and September 30, 1998
- Consolidated Statements of Operations for the six months ended
September 30, 1999 and September 30, 1998
- Consolidated Balance Sheets dated September 30, 1999 and March 31,
1999
- Consolidated Statements of Cash Flows for the six months ended
September 30, 1999 and September 30, 1998
<PAGE>
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter Ended
September 30,
1999 1998
----------- ---------
REVENUES:
Net sales of products $ 330,702 $ 311,401
Licensing/technology fees 250,000 887,558
----------- ---------
580,702 1,198,959
----------- ---------
EXPENSES:
Manufacturing 548,355 499,314
Research and development 314,457 236,324
Selling, general and administrative 689,257 757,074
------------ ------------
Total operating expenses 1,552,069 1,492,712
----------- ------------
Operating loss (971,367) (293,753)
Other income 50,850 34,449
------------ ------------
Loss from continuing operations
before taxes (920,517) (259,304)
Provision for income -- --
------------ -----------
Loss from continuing operations
before preferred stock dividend (920,517) (259,304)
Preferred Stock dividend (264,505) (348,912)
------------ ------------
Loss from continuing operations
allocable to common shareholders (1,185,022) (608,216)
Loss from discontinued operations
allocable to common shareholders -- (927,913)
----------- ------------
Net loss allocable to
Common shareholders $(1,185,022) $(1,536,129)
=========== ============
Basic and diluted net loss per
common share $ (.20) $ (.27)
=========== ============
Shares used in per share calculation
post one-for-five reverse stock split
effective October 13, 1999) 5,802,248 5,700,134
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six-Months Ended
September 30,
1999 1998
------------ -----------
REVENUES:
Net sales of products $ 443,384 $ 453,812
Licensing/technology fees 350,000 1,025,559
----------- ----------
793,384 1,479,371
------------ ----------
EXPENSES:
Manufacturing 909,800 770,328
Research and development 568,241 480,910
Selling, general and administrative 1,290,857 1,365,694
----------- ------------
Total operating expenses 2,768,898 2,616,932
----------- ------------
Operating loss (1,975,514) (1,137,561)
Other income 67,817 57,161
----------- ------------
Loss from continuing operations
before taxes (1,907,697) (1,080,400)
Provision for income taxes -- --
----------- ------------
Loss from continuing operations
before preferred stock dividend $ (1,907,697) $(1,080,400)
Preferred Stock dividend (639,341) (695,262)
----------- ------------
Loss from continuing operations
allocable to common shareholders $ (2,547,038) $( 1,775,662)
Loss from discontinued operations
allocable to common shareholders (449,786) (1,913,562)
Gain on sale of discontinued operations 2,852,666 --
----------- ------------
Net loss allocable to
common shareholders $ (144,158) $ (3,689,224)
Basic and diluted net loss per common share $ (.02) $ (.67)
=========== ============
Shares used in per share calculation
(post one-for-five reverse stock split
effective October 13, 1999) 5,802,248 5,542,158
=========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, March 31,
1999 1999
------------ ------------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 3,815,778 $ 1,274,311
Accounts receivable, net 216,702 305,064
Stock subscription receivable -- 2,400,000
Inventories 988,289 1,251,186
Other current assets 55,589 53,599
Current assets of discontinued operations -- 597,000
------------ ------------
Total current assets 5,076,358 5,881,160
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 2,293,239 2,235,733
Production molds 2,055,322 2,051,697
Furniture and fixtures 179,376 170,436
Leasehold improvements 94,115 94,115
------------ ------------
4,622,052 4,551,981
Less - Accumulated depreciation (2,962,479) (2,615,536)
------------ ------------
1,659,573 1,936,445
OTHER ASSETS 544,398 535,092
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS -- 238,583
------------ ------------
$ 7,280,329 $ 8,591,280
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 245,937 $ 190,676
Accrued payroll 101,990 135,445
Other accrued liabilities 57,446 54,388
Deferred revenue 150,000 --
Current liabilities of
discontinued operations 481,906 2,462,906
------------ ------------
Total current liabilities 1,037,279 2,843,415
SHAREHOLDERS' EQUITY:
Preferred stock, no par, 10,000,000
shares authorized; no shares issued
and outstanding
Series A Convertible- 692,694 shares,
$15 stated value 11,780,357 9,163,025
Series B Convertible - 134,333 shares,
$15 stated value -- 1,566,762
Series C Convertible - 391,830 2,400,000 2,400,000
Common stock, no par, 100,000,000 shares
authorized; issued and outstanding
5,802,248 and 5,802,248 shares
at September 30, 1999 and
March 31, 1999, respectively 50,182,884 50,594,111
Accumulated deficit (58,120,191) (57,976,033)
------------ ------------
Total shareholders' equity 6,243,050 5,747,865
------------ ------------
$ 7,280,329 $ 8,591,280
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six-Months Ended
September 30,
1999 1998
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss allocable to common shareholders $ (144,158) $ (3,689,224)
Adjustments to reconcile net loss
to net cash used in operating activities
from continuing operations:
Net loss from discontinued operations 449,786 1,913,562
Gain on sale of discontinued operations (2,852,666) --
Depreciation and amortization 366,425 365,474
Contributed capital for services -- 27,636
Preferred stock dividends 639,341 695,262
Net changes in assets and liabilities:
Accounts receivable 88,362 (339,209)
Inventories 262,897 (28,598)
Other current assets (1,990) (14,605)
Accounts payable 55,264 (186,081)
Accrued payroll (33,455) (2,361)
Other accrued liabilities 3,058 (72,871)
Deferred revenue 150,000 240,000
----------- ------------
Net cash used in operating activities
of continuing operations (1,017,136) (1,091,015)
Net cash provided by operating activities
of discontinued operations 1,588,918 (479,066)
----------- ------------
Net cash provided by operating activities 571,782 (1,570,081)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Marathon Stock (331,456) --
Capital expenditures of
continuing operations (70,071) (50,767)
Capital expenditures of
discontinued operations -- (200,297)
Other assets (28,788) (41,030)
----------- ------------
Net cash used in investing activities (430,315) (292,094)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from the sale of Series C
Preferred stock 2,400,000 --
Cash proceeds from common stock -- 2,934,049
----------- ------------
Net cash provided by financing activities 2,400,000 2,934,049
----------- ------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and
cash equivalents 2,541,467 1,071,874
Cash and cash equivalents at beginning
of period 1,274,311 1,900,839
----------- ------------
Cash and cash equivalents at end
of period $3,815,778 $ 2,972,713
=========== ============
The accompanying notes are an integral part of these consolidated financial
Statements.
<PAGE>
BIOJECT MEDICAL TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
The consolidated financial statements of Bioject Medical Technologies Inc. (the
"Company"), include the accounts of Bioject Medical Technologies Inc. ("BMTI"),
an Oregon Corporation, and its wholly owned subsidiary, Bioject Inc., an Oregon
Corporation ("Bioject"), and its wholly owned subsidiary, Marathon Medical
Technologies, ("Marathon") (formerly Bioject JV Subsidiary Inc.), an Oregon
corporation. All significant intercompany transactions have been eliminated.
Although Bioject Inc. commenced operations in 1985, BMTI was formed in December
1992 for the purpose of acquiring all of the capital stock of Bioject Medical
Systems Ltd., a Company organized under the laws of British Columbia, Canada, in
a stock-for-stock exchange in order to establish a U.S. domestic corporation as
the publicly traded parent company for Bioject Inc. and Bioject Medical Systems
Ltd. Bioject Medical Systems Ltd. was terminated in fiscal 1997. Marathon
Medical Technologies Inc. was formed in October 1997. At that time, Marathon
acquired the license to certain continuous blood glucose monitoring technology
from Elan Corporation, plc. ("Elan") and entered into a joint venture
arrangement with Elan to develop and commercialize the blood glucose monitoring
technology. On June 30, 1999, Marathon completed the sale of its license to the
blood glucose monitoring technology. In connection with the sale of the license,
BMTI acquired Elan's 19.9% ownership of the stock of Marathon. BMTI now owns
100% of Marathon's stock. Marathon's operations are reported as "Discontinued
Operations" in the financial statements and other financial information included
as a part of this report. All references to the Company include Bioject Medical
Technologies Inc. and its subsidiaries, unless the context requires otherwise.
The Company commenced operations in 1985 for the purpose of developing,
manufacturing and distributing a new drug delivery system. Since its formation,
the Company has been engaged principally in organizational, financing, research
and development, and marketing activities. In the last quarter of fiscal 1993,
the Company launched U.S. distribution of its Biojector 2000 system primarily to
the hospital and large clinic market. The Company's products and manufacturing
operations are subject to extensive government regulation, both in the U.S. and
abroad. In the U.S., the development, manufacture, marketing and promotion of
medical devices is regulated by the Food and Drug Administration ("FDA") under
the Federal Food, Drug, and Cosmetic Act ("FFDCA"). In 1987, the Company
received clearance from the FDA under Section 510(k) of the FFDCA to market a
hand-held CO2-powered needle-free injection system. In June 1994, the Company
received clearance from the FDA under Section 510(k) to market a version of its
Biojector 2000 system in a configuration targeted at high volume injection
applications. In October 1996, the Company received 510(k) clearance for a
needle-free disposable vial access device. In March 1997, the Company received
additional 510(k) clearance for certain enhancements to its Biojector 2000
system. In January 1999, the Company received ISO9001 and EN46001 certification
and in November 1999, the Company received CE Mark certification for the
Company's jet injection systems which allows the products to be sold in the
European Union. On March 23,1998, the Company entered into a transaction with
Vitajet Corporation ("Vitajet") whereby the Company acquired, along with certain
other assets, the rights to the Vitajet(R), a spring-powered, needle-free
self-injection device which currently has regulatory clearance for administering
injections of insulin. On September 30, 1997, the Company entered into a joint
venture agreement with Elan for the development and commercialization of certain
blood glucose monitoring technology which the Company licensed from Elan. On
June 30, 1999, Marathon completed a sale of the license to the blood glucose
monitoring technology, along with certain fixed assets related to the
development of that technology.
Since its inception the Company has incurred operating losses and at September
30, 1999, has an accumulated deficit of approximately $58.1 million. The
Company's revenues to date have been derived primarily from licensing and
technology fees for the jet injection technology and from limited product sales
of the Biojector 2000 system and Biojector syringes. The product sales were
principally sales to dealers to stock their inventories. More recently, the
Company has sold its products to end-users, primarily public health clinics for
vaccinations and to nursing organizations for flu immunization. Future revenues
will depend upon acceptance and use by healthcare providers and on the Company
successfully entering into license and supply agreements with major
pharmaceutical and biotechnology companies. Uncertainties over government
regulation and competition in the healthcare industry may impact healthcare
provider expenditures and third party payer reimbursements and, accordingly, the
Company cannot predict what impact, if any, subsequent healthcare reforms and
industry trends might have on its business. In the future the Company is likely
to require substantial additional financing. Failure to obtain such financing on
favorable terms could adversely affect the Company's business.
<PAGE>
BIOJECT MEDICAL TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES:
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined in a
manner which approximates the first-in, first out (FIFO) method. Costs utilized
for inventory valuation purposes include labor, materials and manufacturing
overhead. Net inventories consist of the following:
September 30, March 31,
1999 1999
----------- ----------
Raw Materials $ 289,191 $ 289,214
Work in Process 4,647 --
Finished Goods 694,451 961,972
----------- ----------
$ 988,289 $1,251,186
=========== ==========
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities 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.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's expenses to conform
to the current year's presentation.
NET LOSS PER SHARE
The following post one-for-five reverse split common stock equivalents are
excluded from earnings per share calculations as their effect would have been
antidilutive:
Six Months Ended September 30, 1999 1998
--------- ---------
Warrants and stock options 2,562,912 1,709,489
Convertible preferred stock 2,377,040 1,654,054
-------------- --------------
4,939,952 3,363,543
========== ==========
3. SUBSEQUENT EVENTS
On October 19, 1999, Bioject announced a strategic alliance with AngioSense,
Inc. to jointly develop innovative delivery systems to treat cardiovascular
disease. Bioject's needle-free drug delivery systems will be modified for
delivering bio-therapeutic solutions as a surgical instrument for minimally
invasive surgical procedures with several proprietary catheters being developed
by AngioSense for catheter-based cardiology interventions.
<PAGE>
BIOJECT MEDICAL TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SUBSEQUENT EVENTS (Continued)
The alliance grants AngioSense an exclusive license to Bioject's Biojector
2000(R) and Vitajet 3(R) jet injectors, as well as a customized version of
Bioject's Iject(TM), a single-use disposable jet injector with a self-contained,
pre-filled medication cartridge to treat or diagnose cardiac or cardiovascular
diseases. According to the terms of the agreement, Bioject will receive an
equity position of approximately 10 percent in AngioSense upon completion of
certain product development milestones. Bioject has already accomplished
milestones representing 50 percent of the scheduled equity and anticipates
completing the remaining milestones early next year. In addition to a long-term
manufacturing and supply agreement with AngioSense, Bioject will receive
royalties on future product sales, and will receive significant funding to
support the development of the disposable injector portion of the AngioSense
delivery system. See "Forward Looking Statements."
AngioSense, Inc., a private company founded in March 1999, is focused on
developing innovative and cost effective surgical and cardiology based devices
for gene therapy application. The company is currently developing catheter-based
and minimally invasive surgical devices for precision- targeted delivery of gene
therapy solutions. The company's unique system design platform reaches sites
that are inaccessible to conventional syringe-based injection methods currently
employed. The company's products can be used in any procedural setting and in
conjunction with other technologies.
4. CHANGES IN SHAREHOLDERS' EQUITY
In connection with the Company's purchase of Elan's interest in Marathon at June
30, 1999, the Company and Elan agreed to certain changes in the terms of Elan's
Series A Convertible Preferred Stock ("Series A Stock"). The modified terms
fixed the conversion price of the Series A Stock at $1.50, eliminating a prior
provision that, in certain circumstances, allowed the Series A Stock to be
converted at 80% of the then current fair market value of the Company's stock,
if such value was less than $1.50. The terms were also modified to give the
Company the right to redeem the Series A Stock for cash within ninety days of
receiving notice of the intent to redeem all or part of the Series A Stock into
common stock of the Company. The redemption price is the original issuance price
of the Series A Stock being converted plus accumulated preferred stock dividends
thereon from the date of issuance of the Series A Stock. Modifying the terms of
the Series A Stock required shareholder approval of an amendment to the
Company's Articles of Incorporation. Amended Articles of Incorporation,
reflecting the modified terms, was referred to the Company's shareholders at the
Company's annual meeting in September, 1999, and shareholders approved the
amendment to the Company's Articles of Incorporation to modify the terms to fix
the conversion price to $1.50. The one-for-five reverse stock split of the
Company's common stock, which was effected on October 13, 1999, adjusted the
fixed conversion price to $7.50.
<PAGE>
BIOJECT MEDICAL TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. CHANGES IN SHAREHOLDERS' EQUITY (Continued)
On July 9, 1999, the last sale price of the Company's common stock as reported
on the NASDAQ National Market System was ($0.50) per share. The Board of
Directors believed that the recent per share price of the Common Stock affected
the marketability of the existing shares, increased the amount and percentage of
transaction costs paid by individual stockholders, and affected the potential
ability of the Company to raise capital by issuing additional shares. As a means
of improving marketability of the Common Stock, reducing stockholders'
transaction costs, increasing the number of shares available for future
issuances, and other considerations, on July 15, 1999, the Board of Directors
approved, subject to the shareholder approval, a proposal to amend the Articles
of Incorporation to effect a reverse stock split by exchanging five outstanding
shares of the Company's common stock for one new share of the Company's common
stock. At the Company's annual meeting in September, 1999, the shareholders
approved the amendment to the Company's Articles of Incorporation to effect a
one-for-five reverse stock split. The effective date of the reverse was October
13, 1999. At July 15,1999, 29,011,236 shares of Common Stock were outstanding,
as well as options, warrants and convertible preferred stock to acquire an
additional 24,378,928 shares of Common Stock. The Reverse Stock Split, decreased
the number of outstanding shares of Common Stock to approximately 5.8 million
shares and approximately 4.8 million shares are reserved for issuance upon
exercise of outstanding options, warrants and the conversion of convertible
preferred stock, Approximately 89.3 million shares are available for future
issuances. Earnings per share reflect post split shares of common stock
outstanding.
On the effective date, the total number of shares of Common Stock held by each
stockholder converted automatically into a right to receive a number of shares
and fractions thereof of New Common Stock equal to the number of shares of
Common Stock owned immediately prior to the Reverse Stock Split divided by five.
No fractional shares or scrip were issued and, in lieu thereof, each stockholder
who would otherwise have been entitled to a fraction of a share of New Common
Stock would received a whole share of New Common Stock.
Approval of the Reverse Stock Split did not affect any stockholder's percentage
ownership interest in the Company or proportional voting power except for minor
differences resulting from fractional shares. The Reverse Stock Split did not
reduce the number of shareholders of the Company. The shares of New Common Stock
issued upon approval of the Reverse Stock Split were fully paid and
nonassessable. The voting rights and other privileges of the holders of Common
Stock was not affected substantially by adoption of the Reverse Stock Split or
the subsequent implementation thereof.
5. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying, unaudited consolidated financial statements do not include all
information and footnote disclosures normally included in audited financial
statements. However, in the opinion of management, all adjustments (which
include only normal, recurring adjustments) necessary to present fairly the
financial position, cash flows, and results of operations have been made. It is
suggested that these statements be read in conjunction with the financial
statements included in the Company's Annual Report on Form 10-K for the year
ended March 31, 1999.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company continues to target its direct sales efforts toward: i) sales to
existing markets, specifically flu immunization providers, public health
agencies and public school systems; ii) sales in states such as California,
where the Company believes that needle-syringe safety legislation makes the
Company's products more price competitive; and iii) sales to the U.S. military.
Sales through distributors will target the home self-injection market. The
Company is also focusing its sales and marketing efforts on entering into
licensing and supply arrangements with leading pharmaceutical and biotechnology
companies for whose products the Biojector technology provides either increased
medical effectiveness or a higher degree of market acceptance. See
"Forward-Looking Statements."
The Company's revenues to date have not been sufficient to cover manufacturing
and operating expenses. However, the Company believes that if its products
attain significantly greater general market acceptance and if the Company is
able to enter into large volume supply agreements with major pharmaceutical and
biotechnology companies, the Company's product sales volume would increase.
Significantly higher product sales volume should allow the Company to realize
volume-related manufacturing cost efficiencies. This, in turn, should result in
reduced costs of goods as a percentage of sales, which could eventually allow
the Company to achieve positive gross profit. The Company believes that positive
gross profit from product sales, together with licensing and technology revenues
from agreements entered into with large pharmaceutical and biotechnology
companies would eventually allow the Company to operate profitably. The level of
revenues required to generate net income will be affected by a number of factors
including the mix of revenues between product sales and licensing and technology
fees, pricing of the Company's products, its ability to attain volume-related
and automation-related manufacturing efficiencies, and the impact of inflation
on the Company's manufacturing and other operating costs. There can be no
assurance that the Company will achieve sufficient cost reductions or sell its
products at prices or in volumes sufficient to achieve profitability or offset
increases in its costs should they occur. Further, there can be no assurance
that, in the future, the Company will be able to interest major pharmaceutical
or biotechnology companies in entering licensing or supply agreements. See
"Forward-Looking Statements."
On June 30, 1999 the Company entered into a binding letter agreement with a
major biotechnology company that provided for an evaluation of Bioject's jet
injection technology for use with certain biopharmaceutical products. Terms of
the agreement provided for up to $500,000 in licensing and technology fees based
upon meeting certain milestones. To date the Company has received $500,000 with
revenue of $100,000 recognized in the first quarter of fiscal 2000 and $250,000
in the current fiscal quarter. The balance to be recognized upon completion of
the final milestone on or before December 31, 1999. Concurrent with meeting the
final milestone, the Company is in negotiation for a long-term licensing and
supply agreement. There can be no assurance that the Company will be successful
in its negotiations for a long-term licensing and supply agreement. See "Forward
Looking Statements."
<PAGE>
On October 19, 1999, Bioject announced a strategic alliance with AngioSense,
Inc. to jointly develop innovative delivery systems to treat cardiovascular
disease. Bioject's needle-free drug delivery systems will be modified for
delivering bio-therapeutic solutions as a surgical instrument for minimally
invasive surgical procedures with several proprietary catheters being developed
by AngioSense for catheter-based cardiology interventions.
The alliance grants AngioSense an exclusive license to Bioject's Biojector
2000(R) and Vitajet 3(R) jet injectors, as well as a customized version of
Bioject's Iject(TM), a single-use disposable jet injector with a self-contained,
pre-filled medication cartridge to treat or diagnose cardiac or cardiovascular
diseases. According to the terms of the agreement, Bioject will receive an
equity position of approximately 10 percent in AngioSense upon completion of
certain product development milestones. Bioject has already accomplished
milestones representing 50 percent of the scheduled equity and anticipates
completing the remaining milestones early next year. In addition to a long-term
manufacturing and supply agreement with AngioSense, Bioject will receive
royalties on future product sales, and will receive significant funding to
support the development of the disposable injector portion of the AngioSense
delivery system. There can be no assurance that any developed product will
receive regulatory approval or market acceptance such that Bioject can expect to
receive royalties from future product sales. See "Forward Looking Statements."
AngioSense, Inc., a private company founded in March 1999, is focused on
developing innovative and cost effective surgical and cardiology-based devices
for gene therapy application. The company is currently developing catheter-based
and minimally invasive surgical devices for precision-targeted delivery of gene
therapy solutions. The company's unique system design platform reaches sites
that are inaccessible to conventional syringe-based injection methods currently
employed. The company's products can be used in any procedural setting and in
conjunction with other technologies.
The Iject(TM) will require FDA approval and clinical trials. The Company will
assist AngioSense to obtain such approval, although there can be no assurance
that such approval process can be completed on a timely basis or at all.
The Company's clinical research efforts are aimed primarily at clinical research
collaborations in the area of DNA-based vaccines and medications. Currently, the
B-2000 is being used in over 25 studies. Product development efforts are focused
primarily in three areas: i) developing low cost disposable "Iject(TM)"
jet-injector targeted for both clinical and home use markets; ii) developing
pre-filled syringes for use with the B-2000 and with other needle-free injectors
presently being developed; and iii) further developing the intradermal adapter
for the B-2000.
Revenues and results of operations have fluctuated and can be expected to
continue to fluctuate significantly from quarter to quarter and from year to
year. Various factors may affect quarterly and yearly operating results
including: i) length of time to close product sales; ii) customer budget cycles;
iii) implementing cost reduction measures; iv) uncertainties and changes in
product sales due to third party payer policies and proposals relating to
healthcare cost containment; v) timing and amount of payments under licensing
and technology development agreements; and vii) timing of new product
introductions by the Company and its competition. The Company does not expect to
report net income from operations in fiscal 2000. See "Forward-Looking
Statements."
<PAGE>
QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998.
Product sales increased from $311,000 in the second quarter of fiscal 1999 to
$331,000 in the second quarter of fiscal 2000, a result of increased sales of
the vial adapter to a major pharmaceutical company. License and technology fees
decreased from $888,000 in the second quarter of fiscal 1999 to $250,000 in the
second quarter of fiscal 2000. Fiscal 1999 license and technology fees were
primarily a result of $750,000 received from Merck. Fiscal 2000 fees are the
result of fees from a major biotechnology company in connection with meeting
certain milestones.
Manufacturing expense increased from the second quarter of fiscal 1999 to the
second quarter of fiscal 2000 by $49,000. As a result of adequacy of existing
supply inventories of B-2000 devices and Biojector syringes the Company did not
manufacture material quantities to absorb current manufacturing overhead.
Research and development expenses increased from $236,000 in the second quarter
of fiscal 1999 to $314,000 in the second quarter of fiscal 2000 primarily due to
increased activity in the development of the disposable injector, pre-filled
syringes, and the intradermal spacer. Selling, general and administrative
expense decreased from $757,000 in the second quarter of fiscal 1999 compared to
$689,000 in the second quarter of fiscal 2000 in part due to decreased reliance
on outside consultants.
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1998. Revenues for the six months ended September 30, 1999 consist of product
sales of $443,000 and licensing and technology revenues of $350,000. This
compares to $454,000 in product sales and $1.03 million in licensing and
technology revenues for the six months ended September 30, 1998. Product sales
remained relatively constant. The $1.03 million in licensing and technology
revenues in fiscal 1999 was primarily due to receipt of a $750,000 payment under
the agreement signed with Merck in July 1998. Licensing fees for fiscal 2000 are
from fees received from a major biotechnology company.
Manufacturing expense increased from $770,000 for the first six months of fiscal
1999 to $910,000 for the six months ended September 30, 1999. The increase was
primarily due to lower production levels in the current fiscal year, resulting
in a decrease of manufacturing overhead absorbed into inventory during the six
months ended September 30, 1999. The Company anticipates drawing primarily on
current inventories to fill most of its product orders through the end of fiscal
2000. Accordingly, the Company anticipates that production levels, and related
absorption of manufacturing overhead, for the remainder of fiscal 2000 will
remain relatively constant when compared to production levels in the
corresponding period of fiscal 1999. See "Forward-Looking Statements."
Research and development expense increased from $481,000 in the six months ended
September 30, 1998 to $568,000 in the first six months of fiscal 1999. The
increase was principally due to research and development cost relating to the
development of the disposable injector, pre-filled syringes and the intradermal
spacer. Selling, general and administrative expense decreased from $1.37 million
in the six months ended September 30, 1998 to $1.29 million in the six months
ended September 30, 1999. Selling expense for the first six months of fiscal
2000 decreased by $20,000 when compared with the same period a year ago. Savings
of $54,000 in administrative expense was a result of decreased consulting fees.
Other income consists of earnings on available cash balances and fluctuates
based on available cash balances.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1985, the Company has financed its operations, working
capital needs and capital expenditures primarily from private placements of
securities, exercises of stock options and warrants, proceeds received from its
initial public offering in 1986, proceeds received from a public offering of
common stock in November 1993, licensing and technology revenues, revenues from
sales of products and proceeds from the sale of the blood glucose monitoring
technology. Net proceeds received from issuance of securities from inception
through September 30, 1999 totaled approximately $50.2 million.
Cash, cash equivalents and marketable securities totaled $3.8 million at
September 30, 1999 compared to $1.3 million at March 31, 1999. The increase
resulted primarily from cash proceeds received from issuance of the Company's
Series C Preferred Stock of $2.4 million and a minority interest capital
contribution to Marathon Medical of $597,000 and the sale of Marathon Medical
with net proceeds of approximately $2.9 million, offset by operating cash
requirements and capital asset purchases.
The Company believes that its current cash position, combined with revenues,
other cash receipts, and net proceeds from the sale of the glucose monitoring
technology will be sufficient to fund the Company's operations through the
second quarter of fiscal 2001. In addition, the Company is considering other
potential financing alternatives. Even if the Company is successful in obtaining
additional financing, unforeseen costs and expenses or lower than anticipated
cash receipts from product sales or research and development activities could
accelerate or increase the financing requirements. The Company has been
successful in raising required financing in the past and believes that
sufficient funds will be available to fund future operations. However, there can
be no assurance that the Company's efforts will be successful and there can be
no assurance that such financing will be available on terms which are not
significantly dilutive to existing shareholders. Failure to obtain needed
additional capital on terms acceptable to the Company, or at all, would
significantly restrict the Company's operations and ability to continue product
development and growth and materially adversely affect the Company's business.
The Company has no banking line of credit or other established source of
borrowing. See "Forward Looking Statements."
YEAR 2000 ISSUES. The Company has completed the assessment of and has taken
remedial action to correct any deficiency of internal systems with regard to
potential Year 2000 ("Y2K") issues. The assessment included steps to review and
obtain vendor certification of Y2K compliance for current systems, testing
system compliance and implementing corrective action where necessary. A Y2K team
composed of manager-level members from Manufacturing, Purchasing, Information
Services and Finance continues to conduct the assessment. Assessment of the
compliance of all critical systems, plans for remedial action, if any, and
estimates of the cost of such remedial action have been completed. The cost to
address the Company's Y2K issues have been estimated to be immaterial and funds
expended are expected to be derived from normal maintenance and upgrade
operating budgets. See "Forward-Looking Statements."
PRODUCTS. The Company's products do not incorporate either application or
embedded software and are therefore not subject to Y2K issues.
INFORMATION SYSTEMS. The Company utilizes packaged application software for all
critical information systems functions, which have been certified by the vendors
as being Y2K compliant. This includes financial software, operating and
networking systems, application and data servers, PC and communications hardware
and core office automation software. The company has tested the reliability of
the application software and replaced systems where necessary and reasonably
believes it to be Y2K compliant. See "Forward-Looking Statements."
<PAGE>
MANUFACTURING SYSTEMS. The Company has received manufacturer certification of
Y2K compliance for all critical automated components used in manufacturing the
Company's products.
SUPPLIER BASE. The Company implemented a Y2K audit program of suppliers critical
to the Company's operations. These suppliers have certified Y2K compliance of
systems critical to maintaining a continuing source of supply to the Company.
RISK. The Company will be at risk from external infrastructure failures that
could arise from Y2K failures, including failure of electrical power and
telecommunications. Investigation and assessment of the risk of failure of such
infrastructure is beyond the scope and resources of the Company. The Company
intends to rely on vendor certification of Y2K compliance and does not plan to
audit vendor systems to test their compliance. The Company will be at risk with
respect to vendors who certify their systems as being Y2K compliant but who are
unable to deliver potentially critical supplies and services to the Company on
account of Y2K noncompliance.
Business risks to the Company of not successfully identifying Y2K issues and
undertaking effective remedial action include the inability to ship product,
delay or loss of revenue and delay in manufacturing operations. The Company
believes that it has successfully identified critical Y2K issues and has
substantially completed required remedial action. Other than risks created by
infrastructure failures or by the Company's dealings with third parties, where
the actions of such third parties are beyond the Company's control, the Company
believes that it will have no material business risk from Y2K issues. There can
be no assurance that infrastructure failures will not occur or that third
parties, over which the Company has no control will successfully address their
own Y2K issues. See "Forward-Looking Statements."
FORWARD LOOKING STATEMENTS This report contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements concern, among other things, anticipated
revenues from product sales and licensing and technology fees, anticipated
funding from third parties for development projects, the Company's ability to
enter into long-term licensing and supply agreements, expected sufficiency of
capital resources to meet the Company's future requirements, future sources of
working capital, and Year 2000 issues. Paragraphs of this Report that include
forward-looking statements are often identified with a cross-reference to this
section. Forward-looking statements are based on expectations, assumptions,
estimates and projections about the Company and the industry in which the
Company operates that involve risks and uncertainties. These forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the Company's actual results or industry results to be materially
different from the results, performance, or achievements discussed or implied in
the forward-looking statements. These risks and uncertainties include the
uncertainty of market acceptance of the Company's jet injection products,
uncertain successful completion of research and development projects, the
Company's need to enter into additional strategic corporate licensing
arrangements, the Company's history of losses and its accumulated deficit and
need for additional financing, the Company's limited manufacturing experience,
the Company's dependence on the performance of existing and future corporate
partners and other third parties, uncertainties related to regulation by the FDA
and the need to obtain approval of new products and their application to
additional drugs, the possibility of product liability claims, dependence on key
employees and the risks related to competition.
Forward-looking statements are based on the estimates and opinions of management
on the date the statements are made. The Company assumes no obligation to update
forward-looking statements if conditions or management's estimates or opinions
should change, even if new information becomes available or other events occur
in the future. For a more detailed description and discussion of such risks,
uncertainties and other factors, readers of this report are referred to the
Company's filings with the Securities and Exchange Commission, including the
Company's Annual Report on Form 10-K for the year ended March 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None during the quarter ended September 30, 1999.
Item 2. Changes in Securities
In connection with the Company's purchase of Elan's interest in Marathon at June
30, 1999, the Company and Elan agreed to certain changes in the terms of Elan's
Series A Convertible Preferred Stock ("Series A Stock"). The modified terms
fixed the conversion price of the Series A Stock at $1.50, eliminating a prior
provision that, in certain circumstances, allowed the Series A Stock to be
converted at 80% of the then current fair market value of the Company's stock,
if such value was less than $1.50. The terms were also modified to give the
Company the right to redeem the Series A Stock for cash within ninety days of
receiving notice of the intent to redeem all or part of the Series A Stock into
common stock of the Company. The redemption price is the original issuance price
of the Series A Stock being converted plus accumulated preferred stock dividends
thereon from the date of issuance of the Series A Stock. Modifying the terms of
the Series A Stock required shareholder approval of an amendment to the
Company's Articles of Incorporation. Amended Articles of Incorporation,
reflecting the modified terms, was referred to the Company's shareholders at the
Company's annual meeting in September, 1999. The shareholders approved the
amendment to the Company's Articles of Incorporation to modify the terms to fix
the conversion price to $1.50. As a result of the Reverse Stock Split, the
conversion rate was adjusted to $7.50 per share.
On July 9, 1999, the last sale price of the Company's common stock as reported
on the NASDAQ National Market System was ($0.50) per share. The Board of
Directors believed that the recent per share price of the Common Stock affected
the marketability of the existing shares, increased the amount and percentage of
transaction costs paid by individual stockholders, and affected the potential
ability of the Company to raise capital by issuing additional shares. As a means
of improving marketability of the Common Stock, reducing stockholders'
transaction costs, increasing the number of shares available for future
issuances, and other considerations, on July 15, 1999, the Board of Directors
approved, subject to the shareholder approval, a proposal to amend the Articles
of Incorporation to effect a reverse stock split by exchanging five outstanding
shares of the Company's common stock for one new share of the Company's common
stock. At the Company's annual meeting in September, 1999, the shareholders
approved the amendment to the Company's Articles of Incorporation to effect a
one-for-five reverse stock split. The effective date of the reverse was October
13, 1999. At July 15,1999, 29,011,236 shares of Common Stock were outstanding,
as well as options, warrants and convertible preferred stock to acquire an
additional 24,378,928 shares of Common Stock. The Reverse Stock Split, decreased
the number of outstanding shares of Common Stock to approximately 5.8 million
shares and approximately 4.8 million shares are reserved for issuance upon
exercise of outstanding options, warrants and the conversion of convertible
preferred stock, Approximately 89.3 million shares are available for future
issuances. Earnings per share reflect post split shares of common stock
outstanding
On the effective date, the total number of shares of Common Stock held by each
stockholder converted automatically into a right to receive a number of shares
and fractions thereof of New Common Stock equal to the number of shares of
Common Stock owned immediately prior to the Reverse Stock Split divided by five.
No fractional shares or scrip were issued and, in lieu thereof, each stockholder
who would otherwise have been entitled to a fraction of a share of New Common
Stock would received a whole share of New Common Stock.
Approval of the Reverse Stock Split did not affect any stockholder's percentage
ownership interest in the Company or proportional voting power except for minor
differences resulting from fractional shares. The Reverse Stock Split did not
reduce the number of shareholders of the Company. The shares of New Common Stock
issued upon approval of the Reverse Stock Split were fully paid and
nonassessable. The voting rights and other privileges of the holders of Common
Stock was not affected substantially by adoption of the Reverse Stock Split or
the subsequent implementation thereof.
<PAGE>
Item 3. Defaults Upon Senior Securities
None during the quarter ended September 30, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
At the annual general meeting of the shareholders of the Company held at 9:00 am
on September 16, 1999 in Portland, Oregon, the following matters were submitted
to a vote of the shareholders:
Election of directors. The slate of directors was approved by the Company's
shareholders with no director receiving less than 22,754,544 votes in favor and
no more than 299,578 withheld. David de Weese received 22,755,544 votes in favor
and 298,578 votes withheld; William A. Gouveia received 22,755,544 votes in
favor and 298,578 votes withheld; Edward Flynn received 22,755,544 votes in
favor and 298,578 votes withheld. Shares voted totaled 23,054,122.
Amend Articles to amend the terms of the Series A Preferred Stock. The proposal
passed receiving 11,859,655 votes in favor, 1,338,834 votes against and 333,225
votes abstaining, out of shares voted totaling 13,531,714.
Amend Articles of Incorporation and grant the Board of Directors the authority
to effect a reverse split. The proposal passed receiving 20,520,691 votes in
favor, 1,936,771 votes against and 2,877,085 votes abstaining, out of shares
voted totaling 25,334.547.
There were 29,011,236 common shares outstanding as of the date of record of July
24, 1999.
Item 5. Other Information
None during the quarter ended September 30, 1999.
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS
Exhibit
Number Description
- ------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company
10.67* Agreement I between Bioject, Inc. and AngioSense, Inc. dated
September 21, 1999
10.68* Agreement II between Bioject, Inc. and AngioSense, Inc. dated
September 21, 1999
10.69+ Letter Agreement dated June 29, 1999
27.1 Financial Data Schedule
- -----------------------
* To be filed by amendment.
+ 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.
REPORTS ON FORM 8K:
On July 13, 1999, the Company filed a report on Form 8-K regarding the
sale of Marathon's technology license.
<PAGE>
SIGNATURE
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 thereunto duly authorized.
BIOJECT MEDICAL TECHNOLOGIES INC.
(Registrant)
Date: November 12, 1999 /s/ James O'Shea
---------------------------------
James O'Shea
Chairman, Chief Executive Officer
and President
/s/ Christine M. Farrell
---------------------------------
Christine M. Farrell
Controller and Secretary
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company
10.67* Agreement I between Bioject, Inc. and AngioSense, Inc. dated
September 21, 1999
10.68* Agreement II between Bioject, Inc. and AngioSense, Inc. dated
September 21, 1999
10.69+ Letter Agreement dated June 29, 1999
27.1 Financial Data Schedule
- -----------------------
* To be filed by amendment.
+ 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 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
BIOJECT MEDICAL TECHNOLOGIES INC.
ARTICLE I
Name
The name of the corporation (the "Corporation") shall be Bioject Medical
Technologies Inc.
ARTICLE II
Duration
The Corporation's duration shall be perpetual.
ARTICLE III
Purposes
The purposes for which the Corporation is organized are:
Section 1. In general, to carry on any lawful business whatsoever which is
calculated, directly or indirectly, to promote the interests of the Corporation
or to enhance the value of its properties.
Section 2. To engage in and carry on any lawful business or trade and
exercise all powers granted to a corporation formed under the Oregon Business
Corporation Act, including any amendments thereto or successor statute that may
hereinafter be enacted.
ARTICLE IV
Authorized Capital Stock
Section 1. Classes. After giving effect to the reverse stock split set
forth in Section 1.1, the Corporation shall be authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock";
the total number of shares which the Corporation shall have authority to issue
is One Hundred Ten Million (110,000,000); the authorized number of shares of
Common Stock shall be One Hundred Million (100,000,000), without par value; the
authorized number of shares of Preferred Stock shall be Ten Million
(10,000,000), without par value.
1
<PAGE>
Section 1.1. Each five shares of issued and outstanding Common Stock of
this Corporation are, on the effective date hereof, automatically reclassified
into one share of Common Stock of this Corporation, thereby giving effect to a
one-for-five reverse stock split (the "Reverse Stock Split"). All outstanding
rights and obligations (including option plans, stock options and the exercise
price thereof, stock purchase warrants and the exercise prices thereof and the
conversion terms of the Corporation's shares of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred
Stock) relating to this Corporation's Common Stock shall be mathematically
adjusted to reflect the Reverse Stock Split so that the proportionate ratio of
such rights and obligations to the reclassified shares will be equal to the
proportionate ratio of such rights and obligations to the shares outstanding
immediately prior to such reclassification. In lieu of the issuance of any
fractional shares that would otherwise result from the Reverse Stock Split, the
Corporation shall issue to any shareholder that would otherwise receive
fractional shares one whole share, the additional shares hereby issued being
taken from authorized but theretofore unissued shares of Common Stock.
Section 2. Preferred Stock. Shares of Preferred Stock may be issued from
time to time in one or more series. Shares of Preferred Stock which may be
redeemed, purchased or acquired by the Corporation may be reissued except as
otherwise provided by law. The board of directors of the Corporation is hereby
authorized to fix the designations and powers, preferences and relative
participating, optional or other rights, if any, and qualifications, limitations
or other restrictions thereof, including, without limitation, the dividend rate
(and whether or not dividends are cumulative), conversion rights, if any, voting
rights, rights and terms of redemption (including sinking fund provisions, if
any), redemption price and liquidation preferences of any wholly unissued series
of Preferred Stock and the number of shares constituting any such series and the
designation thereof, or any of them; and to increase or decrease the number of
shares of any series subsequent to the issue of shares of that series, but not
below the number of shares of such series then outstanding.
Designation of Rights and Preferences of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock and Series C Convertible
Preferred Stock
Section 2.1. Definitions. The following terms shall have the respective
meanings ascribed to them below.
"Board" shall mean the Board of Directors of the Corporation.
"Business Day" shall mean any day other than Saturday, Sunday or a day on
which federally-chartered banks located in New York, New York or Portland,
Oregon are permitted by law to be closed.
"Closing Date" shall mean October 15, 1997.
"Closing Price" at any date shall mean the last reported sale price of the
Common Stock on the NASDAQ Stock Market or other principal market of the Common
Stock on such date.
2
<PAGE>
"Common Stock" shall mean, collectively, the Corporation's Common Stock and
any capital stock of any class of the Corporation (other than any Preferred
Stock) hereafter authorized that is not limited to a fixed amount of percentage
of par or stated value in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Corporation.
"Conversion Stock" shall mean shares of the Corporation's Common Stock
issuable upon the conversion of any shares of Preferred Stock.
"Excluded Stock" shall mean (i) shares of Common Stock issued or reserved
for issuance by the Corporation as a stock dividend payable in shares of Common
Stock, or upon any subdivision or split-up of the outstanding shares of Common
Stock, or upon conversion of shares of the Preferred Stock, (ii) up to 3,650,000
shares of Common Stock (or Rights (as defined below)) therefor issued to
directors, officers or employees of the Corporation or its affiliates (or in the
case of options, granted at an exercise price) at less than Fair Value under a
duly-enacted stock option or compensation plan, or (iii) any shares of Common
Stock issuable upon exercise of any warrants currently outstanding or warrants
which the Corporation has committed, as of October 15, 1997, to issue in the
future.
"Fair Value" shall mean the fair market value of any securities or assets
as reasonably and in good faith determined by the Board.
"Junior Securities" shall mean any of the Corporation's equity securities
(whether or not currently authorized) that are junior in liquidation preference
to the Preferred Stock.
"Liquidation Value" of any share of Series A Preferred Stock or Series B
Preferred Stock as of any particular date shall be equal to $15.00 per share.
Liquidation Value of Series C Preferred Stock is the Series C Issuance Price.
"Market Price" of any security shall mean the average of the closing prices
of such security's sales on all securities exchanges on which such security may
at the time be listed, or, if there have been no sales on any such exchange on
any day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ Stock Market as of 4:00 p.m., New York time, or, if on any day such
security is not quoted in the NASDAQ Stock Market, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of the 10
trading days preceding the determination date. If at any time such security is
not listed on any securities exchange or quoted in the NASDAQ Stock Market or
the over-the-counter market, the "Market Price" shall be the Fair Value thereof.
3
<PAGE>
"Person" shall mean an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Preferred Stock" shall mean the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock, or, as the context requires,
all such series of preferred stock of the Corporation.
"Preferred Issuance Price" shall mean the purchase price per share for the
Series A Preferred Stock, which is $15.00, and the purchase price per share for
the Series B Preferred Stock, which is $15.00.
"Series C Issuance Price" means the original price per share at which
Series C Preferred Stock is issued.
"Subsidiary" shall mean any Person of which the shares of outstanding
capital stock or other equity interests, as the case may be, possessing the
voting power under ordinary circumstances in electing the board of directors
are, at the time as of which any determination is being made, owned by the
Corporation either directly or indirectly through subsidiaries.
Section 2.2. Preferred Stock. (a) Series A Preferred Stock. 1,235,000
shares of the preferred stock, without par value, of the Corporation are hereby
constituted as a series of preferred stock of the Corporation designated as
Series A Convertible Preferred Stock (the "Series A Preferred Stock"). Such
amount shall be adjusted by the Corporation in the event that any adjustments to
the Series A Preferred Stock are required as set forth herein, including Section
2.7 hereof, and, in connection therewith, the Corporation shall promptly take
all necessary or appropriate actions and make all necessary or appropriate
filings in connection therewith.
(b) Series B Preferred Stock. 200,000 shares of the preferred stock,
without par value, of the Corporation are hereby constituted as a series of
preferred stock of the Corporation designated as Series B Convertible Preferred
Stock (the "Series B Preferred Stock"). Such amount shall be adjusted by the
Corporation in the event that any adjustments to the Series B Preferred Stock
are required as set forth herein, including Section 2.7 hereof, and, in
connection therewith, the Corporation shall promptly take all necessary or
appropriate action and make all necessary or appropriate filings in connection
therewith.
(c) Series C Preferred Stock. 500,000 shares of the preferred stock,
without par value, of the Corporation are hereby constituted as a series of
preferred stock of the Corporation designated as Series C Convertible Preferred
Stock (the "Series C Preferred Stock"). Such amount shall be adjusted by the
Corporation in the event that any adjustments to the Series C Preferred Stock
are required as set forth herein, including Section 2.7 hereof, and, in
connection therewith, the Corporation shall promptly take all necessary or
appropriate action and make all necessary or appropriate filings in connection
therewith.
4
<PAGE>
Section 2.3. Dividends. (a) General. (1) Series A Preferred Stock. Each
outstanding share of Series A Preferred Stock shall accrue a dividend equal to
9% per annum of the Preferred Issuance Price of Series A Preferred Stock,
compounded semi-annually beginning six months from the date of first issuance of
Series A Preferred Stock; such dividend shall be paid by issuance of additional
shares of Series A Preferred Stock, based upon a value equal to the Preferred
Issuance Price.
(2) Series B Preferred Stock. The holder of each share of Series B
Preferred Stock shall be entitled to receive, pro rata among such holders and on
a pari passu basis with the holders of the Series C Preferred Stock and the
holders of Common Stock, as if the Series B Preferred Stock had been converted
into Common Stock immediately prior to the record date in respect thereof, when
and as declared by the Board out of funds legally available for the declaration
and payment of dividends, cash dividends at the same rate and in the same amount
per share as any and all dividends declared and paid in respect of the Common
Stock. Except as set forth above, such holders shall not be entitled to receive
any dividends.
(3) Series C Preferred Stock. The holder of each share of Series C
Preferred Stock shall be entitled to receive, pro rata among such holders and on
a pari passu basis with the holders of the Series B Preferred Stock and the
holders of Common Stock, as if the Series C Preferred Stock had been converted
into Common Stock immediately prior to the record date in respect thereof, when
and as declared by the Board out of funds legally available for the declaration
and payment of dividends, cash dividends at the same rate and in the same amount
per share as any and all dividends declared and paid in respect of the Common
Stock. Except as set forth above, such holders shall not be entitled to receive
any dividends.
(b) Payment of Dividends. (1) Series A Preferred Stock. Dividends accrued
and unpaid on shares of Series A Preferred Stock as of the Mandatory Conversion
Date (as defined in Section 2.6(a)(1) below) shall be payable in accordance with
Section 2.6 below.
(2) Series B Preferred Stock. Dividends payable in respect of the Series B
Preferred Stock shall be paid as and when dividends are paid in respect of the
Common Stock.
(3) Series C Preferred Stock. Dividends payable in respect of the Series C
Preferred Stock shall be paid as and when dividends are paid in respect of the
Common Stock.
(4) Change in Dividend Rate. If the Corporation shall fail to declare or
pay a dividend on a date on which dividends are to be compounded pursuant to
Section 2.3(a)(1) hereof, dividends on each share of Series A Preferred Stock
shall thereupon begin to accrue at the rate of 9% of the sum of (a) the
Preferred Issuance Price and (b) accrued and unpaid dividends on such date. If a
dividend that was accrued and unpaid on a date dividends are to be compounded is
subsequently paid, the rate at which dividends accrue shall thereupon be lowered
to reflect such payment.
5
<PAGE>
Section 2.4. Liquidation. Upon any liquidation, dissolution or winding up
of the Corporation, each holder of Preferred Stock shall be entitled to receive
from amounts remaining after satisfaction of creditors and holders of securities
(if any) with liquidation preferences senior to the Preferred Stock, and pro
rata based on the respective outstanding liquidation preferences with holders of
securities with a liquidation preference pari passu to the Preferred Stock, an
amount equal to the Liquidation Value, plus accrued and unpaid dividends
thereon, per share multiplied by the number of shares of Preferred Stock, held
by such holder, until paid in full, in preference and priority to any
distribution to any holder of Junior Securities. The Corporation shall provide
written notice of such liquidation, dissolution or winding up, not less than 30
days prior to the payment date stated therein, to each record holder of any
shares of Preferred Stock.
Section 2.5. Voting Rights. (a) No Voting. Except as provided in Section
2.5(b) below or as required by the Oregon Business Corporation Act, the
outstanding shares of Preferred Stock shall not be entitled to vote on any
matter as to which stockholders of the Corporation shall be entitled to vote.
(b) Special Voting Rights. The Corporation shall not, without first
obtaining the affirmative vote or written consent of a majority in interest of
the Series A Preferred Stock, voting as a class:
(1) amend or repeal any provision of, or add any provision to, the
Corporation's Articles of Incorporation or By-laws if such action would
adversely alter preferences, rights, privileges or powers of, or the
restrictions provided herein for the benefit of, the Series A Preferred Stock;
(2) create a series of Preferred Stock with a liquidation preference senior
to the Series A Preferred Stock;
(3) effect any merger, consolidation or similar transaction; or
(4) increase or decrease the number of authorized shares of Series A
Preferred Stock, except as required by Section 2.2 hereof.
Section 2.6. Conversion. (a) Series A Preferred Stock. (1) Mandatory
Conversion. All holders of Series A Preferred Stock shall be required to convert
all of the outstanding shares of Series A Preferred Stock as of the seventh
anniversary of the Closing Date (the "Mandatory Conversion Date"), in which case
the aggregate Preferred Issuance Price of all shares of the Series A Preferred
Stock plus accrued and unpaid dividends thereon held by each holder shall be
converted into a number of shares of Common Stock determined by dividing such
sum by a price per share of Common Stock equal to $1.50 per share (the "Fixed
Mandatory Conversion Rate"). In the event that any holder shall provide notice
to the Corporation of its intention to convert such holder's shares of Series A
Preferred Stock, as provided above, the Corporation shall have the right, within
90 days of receipt of such notice and upon five business days' notice to the
holders, to cause to be redeemed for cash the shares of Series A Preferred Stock
subject to such notice, at a price equal to aggregate purchase price for such
shares of Series A
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Preferred Stock plus mandatory dividends thereon at a rate equal to 9% per
annum, from the date of issuance until the date redeemed in full. In the event
that such cash amount is not paid within such 90-day period, such redemption
right shall lapse and be of no further force and effect, and the holders shall
thereupon have the right once again to convert such shares of Series A Preferred
Stock into shares of the Corporation's Common Stock. During such 90-day (or
shorter, if redeemed, as set forth above) period, the holders of Series A
Preferred Stock shall not convert such stock into the Corporation's Common
Stock, whether or not the Corporation exercises its right of redemption.
(2) Conversion Prior to Mandatory Conversion Date. Prior to the Mandatory
Conversion Date, all holders of Series A Preferred Stock shall have the right to
convert each share of Series A Preferred Stock into ten shares of Common Stock,
without giving effect to accrued and unpaid dividends, but subject to Section
2.6(e) below (the "Anti-dilution Adjustments").
(b) Series B Preferred Stock. Series B Preferred Stock is convertible in
the same manner and subject to the same terms and conditions as provided for in
Section 2.6(a) above with respect to the holders of Series A Preferred Stock.
(c) Series C Preferred Stock. (1) Mandatory Conversion. All holders of
Series C Preferred Stock shall be required to convert all of the outstanding
shares of Series C Preferred Stock as of the Mandatory Conversion Date, in which
case the aggregate Preferred Issuance Price of all shares of the Series C
Preferred Stock plus accrued and unpaid dividends thereon held by each holder
shall be converted into a number of shares of Common Stock determined by
dividing such sum by one-tenth of the Series C Issuance Price.
(2) Conversion Prior to Mandatory Conversion Date. Prior to the Mandatory
Conversion Date, all holders of Series C Preferred Stock shall have the right to
convert each share of Series C Preferred Stock into ten shares of Common Stock,
without giving effect to accrued and unpaid dividends, but subject to the
Anti-dilution Adjustments.
(c) Conversion Procedure. (1) Before any holder of shares of Preferred
Stock shall be entitled to convert any of such shares into shares of Common
Stock, such holder shall surrender the certificate or certificates, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Preferred Stock, and shall give written notice to the Corporation at its
principal corporate office of the election to convert such shares and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued.
(2) Each conversion of any shares of Preferred Stock shall be deemed to
have been effected on the close of business on the date on which the certificate
or certificates representing such Preferred Stock to be converted have been
surrendered at the principal corporate office of the Corporation or the office
of any transfer agent for the Preferred Stock. At such time as such conversion
has been effected, the rights of the holder of such Preferred Stock as a holder
shall cease, the Person or Persons in whose name or names any certificate or
certificates for shares of Conversion Stock are to be issued upon such
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conversion shall be deemed to have become the holder or holders of record of the
shares of Conversion Stock represented thereby.
(3) As soon as possible after a conversion has been effected (but in any
event within five business days in the case of clause (6) below), the
Corporation or its transfer agent shall deliver to the converting holder:
(i) a certificate or certificates representing the number of shares of
Conversion Stock issuable by reason of such conversion in such name or names and
such denomination or denominations as the converting holder has specified; and
(ii) payment in an amount equal to the amount payable under clause (6)
below with respect to such conversion.
(4) The issuance of certificates for shares of Conversion Stock upon
conversion of the Preferred Stock shall be made without charge to the holders of
such Preferred Stock for any cost incurred by the Corporation in connection with
such conversion and the related issuance of shares of Conversion Stock. Upon
conversion of each share of Preferred Stock, the Corporation shall take all such
actions as are necessary in order to ensure that the Conversion Stock issuable
with respect to such conversion shall be validly issued, fully paid and
nonassessable.
(5) The Corporation shall not close its books against the transfer of the
Preferred Stock or of Conversion Stock issued or issuable upon conversion of the
Preferred Stock in any manner which interferes with the timely conversion of the
Preferred Stock. The Corporation shall assist and cooperate with any holder of
the Preferred Stock or Conversion Stock required to make any governmental
filings or obtain any governmental approval prior to or in connection with any
conversion of shares hereunder (including, without limitations, making any
filings required to be made by the Corporation).
(6) If any fractional interest in a share of Conversion Stock would, except
for the provisions of this clause (6), be deliverable upon any conversion of the
Preferred Stock, the Corporation, in lieu of delivering the fractional share
therefor, shall pay an amount to the holder thereof equal to the Market Price of
such fractional interest as of the date of conversion.
(7) The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Conversion Stock, solely for the purpose
of issuance upon the conversion of the Preferred Stock, such number of shares of
Conversion Stock issuable upon the conversion of all outstanding shares of
Preferred Stock. All shares of Conversion Stock which are so issuable shall,
when issued, be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges. The Corporation shall take all such actions
as may be necessary to ensure that all such shares of Conversion Stock may be so
issued without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange or market upon which shares of
Conversion Stock may be listed (except for official notice of issuance which
shall be immediately delivered by the Corporation upon each such
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issuance and except for filings, notices of applicability and permissions solely
within the control of, or laws and regulations solely applicable to, the holders
of the Preferred Stock).
(e) Anti-dilution Adjustments. (1) Changes in Common Stock. In case the
Corporation shall at any time or from time to time after the date of filing
these Articles of Amendment (i) pay a dividend or make any other distribution
with respect to its Common Stock in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock or (iv) issue any
shares of its capital stock or other assets in a reclassification or
reorganization of the Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Corporation is the
continuing entity), then the number and kind of shares of capital stock of the
Corporation or other assets that may be received upon the conversion of the
Preferred Stock shall be adjusted to the number of shares of Conversion Stock
and amount of any such securities, cash or other property of the Corporation
which the holders would have owned or have been entitled to receive after the
happening of any of the events described above had the Preferred Stock been
converted immediately prior to the record date (or, if there is no record date,
the effective date) for such event. An adjustment made pursuant to this clause
(1) shall become effective upon the effective date of such payment,
sub-division, combination or issuance as described above. Any Conversion Stock
or other assets to be acquired as a result of such adjustment shall not be
issued prior to the effective date of such event. For the purposes of this
clause (1), the number of shares of Common Stock at any time outstanding shall
not include shares held in the treasury of the Corporation. Notwithstanding any
other provision of this Section 2.6(e)(1), an action described in Section
2.6(e)(1)(i), (ii) or (iii) hereof shall not affect the number of shares of
Conversion Stock issued upon mandatory conversion of the Preferred Stock except
by operation of Section 2.6(e)(5) hereof.
(2) Issuance of Rights. In case the Corporation shall issue to all holders
of its Common Stock rights, options or warrants to subscribe for or purchase, or
other securities exchangeable for or convertible into, shares of Common Stock
that are not distributed to holders of Preferred Stock (any such rights,
options, warrants or other securities, collectively, "Rights") (excluding rights
to purchase Common Stock pursuant to a Corporation plan for reinvestment of
dividends or interest and excluding any Excluded Stock) at a subscription
offering, exercise or conversion price per share (as defined below, the
"offering price per share") which, before deduction of customary discounts and
commissions, is lower than the current Market Price per share of Common Stock on
the record date of such issuance or grant, whether or not, in the case of
Rights, such Rights are immediately exercisable or convertible, then the number
of shares of Conversion Stock issuable upon conversion of the Preferred Stock
shall be adjusted by multiplying the number of shares of Conversion Stock
issuable upon conversion of the Preferred Stock immediately prior to any
adjustment in connection with such issuance or grant by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
(exclusive of any treasury shares) on the record date of issuance or grant of
such Rights plus the number of shares which the aggregate offering price (as
defined below) of the total number of shares of Common Stock so offered would
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purchase at the current Market Price per share of Common Stock on the record
date, and the numerator of which is the number of shares of Common Stock
outstanding plus the aggregate number of shares of Common Stock issuable upon
exercise of the rights. Such adjustment shall be made immediately after the
record date for the issuance or granting of such Rights. For purposes of this
clause, the "offering price per share" of Common Stock shall, in the case of
Rights, be determined by dividing (x) the total amount received or receivable by
the Corporation in consideration of the issuance of such Rights plus the total
consideration payable to the Corporation upon exercise thereof (the "aggregate
offering price"), by (y) the total number of shares of Common Stock covered by
such Rights.
(3) Dividends and Distributions. In case the Corporation shall distribute
to all holders of Common Stock any dividend or other distribution of evidences
of its indebtedness or other assets (in each case other than cash dividends and
other than as provided in clause (1) above in which the holders of the Preferred
Stock are otherwise entitled to share, as provided herein) or Rights, then, in
each case, all holders of the Preferred Stock shall be entitled to receive all
of the same dividends, distributions or Rights, as the case may be, as the
holders of Common Stock, on an as-converted basis, as and when distributed to
the holders of Common Stock, at such time, if any, that the holders of the
Preferred Stock shall have elected to convert such stock to Common Stock, as
provided herein.
(4) Computations. For the purpose of any computation under clauses (1) and
(2) above, the current Market Price per share of Common Stock at any date shall
be as set forth in (i) the definition of Market Price for the 10 consecutive
trading days commencing 20 trading days prior to the earlier to occur of (A) the
date as of which the Market Price is to be computed or (B) the last full trading
day before the commencement of "ex-dividend" trading in the Common Stock
relating to the event giving rise to the adjustment required by clause (1) or
(2) or (ii) any other arm's-length adjustment formula that the Board may use in
good faith. In the event the Common Stock is not then publicly traded or if for
any other reason the current market price per share cannot be determined
pursuant to the foregoing provisions of this clause (4) the current market price
per share shall be the Fair Value thereof.
(5) Adjustment. Whenever the number of shares of Conversion Stock issuable
upon voluntary conversion of the Series A Preferred Stock and Series B Preferred
Stock is adjusted as provided under clause (1) or (2), the Fixed Mandatory
Conversion Rate shall be adjusted by multiplying such prices immediately prior
to such adjustment by a fraction, the numerator of which shall be the number of
shares of Conversion Stock issuable upon voluntary conversion of any shares of
Series A Preferred Stock or Series B Preferred Stock immediately prior to such
adjustment, and the denominator of which shall be the number of shares of
Conversion Stock issuable upon voluntary conversion of any shares of Series A
Preferred Stock or Series B Preferred Stock immediately thereafter. Whenever the
number of shares of Conversion Stock issuable upon voluntary conversion of the
Series C Preferred Stock is adjusted as provided under clause (1) or (2), the
Series C Issuance Price shall be adjusted by multiplying such prices immediately
prior to such adjustment by a fraction, the numerator of which shall be the
number of
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shares of Conversion Stock issuable upon voluntary conversion of any shares of
Series C Preferred Stock immediately prior to such adjustment, and the
denominator of which shall be the number of shares of Conversion Stock issuable
upon voluntary conversion of any shares of Series C Preferred Stock immediately
thereafter.
(6) Securities. For the purpose of this Section 2.6, the term "shares of
Common Stock" shall mean (i) the class of stock designated as Common Stock,
without par value, of the Corporation on the date of filing this Certificate or
(ii) any other class of stock resulting from successive changes or
reclassifications of such shares consisting solely of changes in par value, or
from par value to no par value, or from no par value to par value.
(7) Re-Adjustment. If, at any time after any adjustment to the number of
Shares of Conversion Stock issuable upon conversion of the Preferred Stock and
the Conversion Price shall have been made pursuant to clause (2) of this Section
2.6, any rights, options, warrants or other securities convertible into or
exchangeable for shares of Common Stock shall have expired, or any thereof shall
not have been exercised, the Conversion Price and the number of shares of
Conversion Stock issuable upon conversion of the Preferred Stock shall, upon
such expiration, be readjusted and shall thereafter be such as it would have
been had it been originally adjusted (or had the original adjustment not been
required, as the case may be) as if (A) the only shares of Common Stock offered
were the shares of Common Stock, if any, actually issued or sold upon the
exercise of such rights, options or warrants and (B) such shares of Common
Stock, if any, were issued or sold for the consideration actually received by
the Corporation for the issuance, sale or grant of all such rights, options or
warrants whether or not exercised; provided, further that no such readjustment
shall have the effect of increasing the Conversion Price or decreasing the
number of shares of Conversion Stock issuable upon conversion of the Preferred
Stock by an amount (calculated by adjusting such increase or decrease as
appropriate to account for all other adjustments pursuant to this Section 2.6
following the date of the original adjustment referred to above) in excess of
the amount of the adjustment initially made in respect of the issuance, sale or
grant of such rights, options or warrants.
(e) Reorganization, Reclassification Consolidation, Merger or Sale. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Corporation's assets to another Person or
other transaction which is effected in such a manner that holders of Common
Stock are entitled to receive (either directly or upon subsequent liquidation)
stock, securities or assets with respect to or in exchange for Common Stock is
referred to herein as an "Organic Change". Prior to the consummation of any
Organic Change, the Corporation shall make appropriate provisions to ensure that
each of the holders of each share of the Preferred Stock shall thereafter have
the right to acquire and receive, in lieu of or in addition to (as the case may
be) the shares of Conversion Stock immediately theretofore acquirable and
receivable upon the conversion of such holder's Preferred Stock, such shares of
stock, securities or assets as such holder would have received in connection
with such Organic Change if such holder had converted its Preferred Stock
immediately prior to such Organic Change. In each such case, the Corporation
shall also make appropriate provisions to ensure that the provisions of this
Section 2.6 hereof shall thereafter be applicable to the Preferred Stock. The
Corporation shall not effect any such
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consolidation, merger or sale, unless prior to the consummation thereof, the
successor corporation (if other than the Corporation) resulting from
consolidation or merger or the corporation purchasing such assets assumes by
written instrument the obligation to deliver to each such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
(f) Notices. (1) Immediately upon any adjustment of the number of shares
issuable upon conversion of the Preferred Stock, the Corporation shall give
written notice thereof to all holders of the Preferred Stock, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(2) The Corporation shall give written notice to all holders of the
Preferred Stock at least 10 days prior to the date on which the Corporation
closes its books or takes a record of determining rights to receive any
dividends or distributions. The Corporation shall also give written notice to
the holders of the Preferred Stock at least 30 days prior to the date on which
Organic Change shall occur.
Section 2.7. Redemption. (a) Series A Preferred Stock. (i) General. Subject
to the provisions of Section 2.6 above, shares of Series A Preferred Stock may
be redeemed by the Corporation, 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
Preferred Issuance Price of the Series A Preferred Stock plus accrued and unpaid
dividends. From and after the third anniversary of the Closing Date, if the
Closing Price shall be equal to or greater than $2.25 (subject to the
anti-dilution adjustments described in Section 2.6(e)(1) above) 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) (the "Redemption Price Condition"), the Corporation shall have the
right to redeem one-third of the Series A Preferred Stock (as to the Preferred
Issuance Price thereof), together with one-third of the then-accrued and unpaid
dividends through such date. From and after the fourth anniversary of the
Closing Date, if the Redemption Price Condition is met, the Corporation shall
have the right to redeem an additional one-third of the Series A Preferred Stock
(as to the Preferred Issuance Price thereof), together with one-half of the
then-accrued and unpaid dividends at such date (or two-thirds of then-accrued
and unpaid dividend at the second date if no Series A Preferred Stock was
previously redeemed at or after the first such date). From and after the fifth
anniversary of the Closing Date, if the Redemption Price Condition is met, the
Corporation shall have the right to redeem the balance of the Series A Preferred
Stock, together with the remaining accrued and unpaid dividends at such date.
Prior to redemption, the Corporation must provide the applicable redemption
notice within 60 days of the achievement of the Redemption Price Condition.
(ii) Early Redemption. The Series A Preferred Stock (or any portion
thereof) may be redeemed by the Corporation prior to such three, four or
five-year period, as applicable, only in the event the Corporation shall have
reasonably determined, in good faith, after consultation with the original
holder of shares of Series A Preferred Stock to abandon the development of the
Technology (as defined in the Securities Purchase Agreement dated as of the
Closing Date among the Corporation and Elan International Services, Ltd., a
Bermuda corporation) or products based on the Technology.
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(iii) Notice of Redemption. Not less than 45 days but not more than 90 days
prior to the date of any redemption (each, a "Redemption Date"), as permitted by
this Section 2.7(a), the Corporation shall send a written notice of redemption
(the "Notice") to each holder of Series A Preferred Stock to be redeemed in the
manner provided herein. The notice shall identify:
(1) the Redemption Date;
(2) the redemption price to be paid to such holder, as provided above (the
"Redemption Price"), and applicable to such Series A Preferred Stock;
(3) the number of shares of Common Stock into which a share of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as the
case may be, is convertible;
(4) the name and address of the transfer agent, if any, in respect of the
Series A Preferred Stock;
(5) that Series A Preferred Stock called for redemption may be converted by
the holder, as otherwise provided herein, at any time before the close of
business on the Redemption Date; and
(6) that Series A Preferred Stock called for redemption must be surrendered
to the transfer agent at the office of the Corporation or its transfer agent to
collect the Redemption Price.
(iv) Effect of Notice of Redemption. Upon the Notice, Series A Preferred
Stock called for redemption shall become due and payable on the Redemption Date,
unless converted prior to such date, and at the Redemption Price stated in the
Notice. Upon surrender to the Corporation or transfer agent shares shall be
redeemed and the Redemption Price stated in the Notice shall be paid in cash in
full.
(b) Series B Preferred Stock. Shares of Series B Preferred Stock shall be
redeemable by the Corporation in the same manner and subject to the same terms
and conditions as set forth for redemption of shares of Series A Preferred Stock
in Section 2.7(a) above.
(c) Series C Preferred Stock. Shares of Series C Preferred Stock shall be
redeemable by the Corporation in the same manner and subject to the same terms
and conditions as set forth for redemption of shares of Series A Preferred Stock
in Section 2.7(a) above, except that shares of Series C Preferred Stock shall be
redeemed at a price equal to the sum of the aggregate Series C Issuance Price
plus accrued and unpaid dividends.
Section 2.8. Registration of Transfer. The Corporation shall keep a
register for the registration of the record holders of the Preferred Stock. Upon
the surrender of any certificate representing any shares of Preferred Stock, the
Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense,
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provided that the holder will be responsible for any transfer taxes if the
certificate is register in a new name) a new certificate or certificates in
exchange therefore representing in the aggregate the number of shares of the
Preferred Stock, as applicable, represented by the surrendered certificate. Each
such new certificate shall be registered in such name and shall represent such
number of shares of the Preferred Stock, as applicable, as is requested by the
holder of the surrendered certificate and shall be substantially identical in
form to the surrendered certificate, and dividends shall accrue on the Preferred
Stock represented by such new certificate from the date to which dividends have
been fully paid on such Preferred Stock represented by the surrendered
certificate.
Section 2.9. Replacement. Upon receipt of evidence reasonably satisfactory
to the Corporation (an affidavit of the registered holder and an undertaking of
indemnity from a creditworthy indemnitor shall be satisfactory) of the ownership
and the loss, theft, destruction or mutilation of any certificate evidencing
shares of the Preferred Stock, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation, or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of such series represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate, and dividends shall accrue on the Preferred Stock represented by
such new certificate from the date to which dividends have been fully paid on
such lost, stolen, destroyed or mutilated certificate.
Section 2.10. Amendment and Waiver. No amendment, modification or waiver
shall be binding or effective with respect to any provision of Section 2.1
through Section 2.11 of these Articles of Incorporation without the prior
written consent of a Majority in Interest of each of the Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock outstanding at the
time such action is taken.
Section 2.11. Notices. Except as otherwise expressly provided hereunder,
all notices referred to herein shall be in writing and shall be delivered by
registered or certified mail, return receipt requested and postage prepaid, or
by reputable overnight courier or telecopy service, charges prepaid, and shall
be deemed to have been given when so mailed or sent (a) to the Corporation, at
its principal executive offices and (b) to any stockholder, at such holder's
address as it appears in the stock records of the Corporation (unless otherwise
indicated by any such holder).
ARTICLE V
Preemptive Rights
The owners of shares of stock of the Corporation shall not have preemptive
rights to subscribe for or purchase any part of new or additional issues of
stock, or securities convertible into stock, of any class whatsoever, whether
now or hereafter authorized, and whether issued for cash, property, services, by
way of dividends, or otherwise.
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ARTICLE VI
Cumulative Voting
Each shareholder entitled to vote at any election for directors shall have
the right to vote, in person or by proxy, the number of shares owned by him for
as many persons as there are directors to be elected and for those election he
has a right to vote, and no shareholder shall be entitled to cumulate his votes.
ARTICLE VII
Limitation of Directors' Liability
A director shall have no liability to the Corporation or its shareholders
for monetary damages for conduct as a director, except for (a) any breach of the
director's duty of loyalty to the Corporation or its shareholders; (b) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law by the director; (c) conduct violating ORS 60.367; or (d) any
transaction from which the director derives an improper personal benefit. If the
Oregon Business Corporation Act is hereafter amended to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director shall be eliminated or limited to the full extent
permitted by the Oregon Business Corporation Act as so amended. Any repeal or
modification of this Article shall not adversely affect any right or protection
of a director that exists at the time of such repeal or modification and that
extends to an act or omission of such director occurring prior to such repeal or
modification.
ARTICLE VIII
Bylaws; Amendment of Articles
Section 1. Bylaws. The board of directors shall have full power to adopt,
alter, amend or repeal the Bylaws or adopt new Bylaws. Nothing herein shall deny
the concurrent power of the shareholders to adopt, alter, amend or repeal the
Bylaws.
Section 2. Amendment of Articles. The Corporation reserves the right to
amend, alter, change or repeal any provisions contained in its Articles of
Incorporation in any manner now or hereafter prescribed or permitted by statute.
All rights of shareholders of the Corporation are granted subject to this
reservation.
ARTICLE IX
Registered Office and Agent
The address of the registered office of the Corporation is 601 SW Second
Avenue, Suite 2050, Portland, Oregon 97204, and the name of the registered agent
at such address is CT Corporation System. The registered office and registered
agent of the Corporation
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may be changed from time to time by the Board of Directors but may not be
located outside of the State of Oregon.
ARTICLE X
Directors
Section 1. Number of Directors. The Board of Directors shall consist of not
less than six nor more than eleven, the exact number to be set as provided
herein. Until increased or decreased as provided herein, the Board of Directors
shall consist of eight members. The Board of Directors is authorized to increase
or decrease the size of the Board of Directors (within the range specified
above) at any time by the affirmative vote of two-thirds of the directors then
in office. Without the unanimous consent of the directors then in office, no
more than two additional directors shall be added to the Board of Directors in
any 12-month period. Without the unanimous approval of the directors then in
office, no person who is affiliated as an owner, director, officer, employee or
consultant of a company or business deemed by the Board of Directors to be
competitive with that of the Corporation shall be eligible to serve of the Board
of Directors of the Corporation.
Section 2. Classified Board.
The Board shall be divided into three classes: Class I Directors, Class II
Directors and Class III Directors. Each such class of directors shall be nearly
equal in number of directors as possible. Each director shall serve for a term
ending at the third annual shareholders' meeting following the annual meeting at
which such director was elected; provided, however, that the directors first
elected as Class I Directors shall serve for a term ending at the annual meeting
to be held in the year following the first election of directors by classes, the
directors first elected as Class II Directors shall serve for a term ending at
the annual meeting to be held in the second year following the first election of
directors by classes and the directors first elected as Class III directors
shall serve for a term ending at the annual meeting to be held in the third year
following the first election of directors by classes. Notwithstanding the
foregoing, each director shall serve until his or her successor shall have been
elected and qualified or until his or her earlier death, resignation or removal.
At each annual election, the directors chosen to succeed those whose terms
then expire shall be identified as being of the same class as the directors they
succeed, unless, by reason of any intervening changes in the authorized number
of directors, the Board shall designate one or more directorships whose term
then expire as directorships of another class in order more nearly to achieve
equality in the number of directors among the classes. When the Board fills a
vacancy resulting from the death, resignation or removal of a director, the
director chosen to fill that vacancy shall be of the same class as the director
he or she succeeds, unless, by reason of any previous changes in the authorized
number of directors, the Board shall designate the vacant directorship as a
directorship of another class in order more nearly to achieve equality in the
number of
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directors among the classes. The terms of any director elected by the Board to
fill a vacancy will expire at the next shareholders meeting at which directors
are elected, despite the class such director has been elected to fill.
Notwithstanding the rule that the three classes shall be as nearly equal in
number of directors as possible, upon any change in the authorized number of
directors, each director then continuing to serve as such will nevertheless
continue as a director of the class of which he or she is a member, until the
expiration of his or her current term or his or her earlier death, resignation
or removal.
Newly created directorships resulting from any increase in the number of
directors and any vacancies on the Board of Directors resulting from death,
resignation, removal or other cause shall be filled by the affirmative vote of a
majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Section 3. Initial Directors as Classified.
The directors of the Corporation first elected to classes are eight (8) in
number and their names and class are:
Name Class
- ---- -----
James C. O'Shea III
John Ruedy, MD III
William A. Gouveia I
Grace Keeney Fey II
Eric T. Herfindal II
Richard Plestina II
David H. DeWeese I
Michael T. Sember III
Section 4. Removal of Directors.
Directors may be removed only for cause. For purposes of this Amendment,
"cause" shall mean that the director has: (i) committed an act of fraud or
embezzlement against the Corporation; (ii) been convicted of, or plead nolo
contendre to a crime involving moral turpitude; (iii) failed to perform the
director's duties as a director and such failure constitutes a breach of the
director's duty of loyalty to the Corporation or provides an improper personal
benefit to the director.
17
<PAGE>
ARTICLE XI
Incorporator
The name and address of the incorporator are:
Name Address
---- -------
Benjamin F. Stephens c/o Bogle & Gates
Two Union Square
601 Union Street
Seattle, Washington 98101-2346
ARTICLE XII
Shareholder Approval Of Certain Events
Notwithstanding any provision of Articles of Incorporation, as amended, or
Bylaws of the Corporation, and notwithstanding the fact that some lesser
percentage may be allowed by law, any amendment, change or repeal of Articles X
or XII, or any other amendment of the Articles of Incorporation, as amended,
which would have the effect of modifying or permitting circumvention of the
provisions of Articles X or XII, shall require the following shareholder votes:
(i) the affirmative votes of 75 percent of all outstanding shares of the
Corporation entitled to vote on the matter, voting together as a single class;
and (ii) if any shares of the Corporation are entitled to vote on the matter as
a separate group, the affirmative vote of 75 percent of such shares, voting
separately.
DATED: October 11, 1999.
/s/ James C. O'Shea
--------------------------------------
EXHIBIT 10.69
June 29, 1999
Via Federal Express
Mr. Jim O'Shea
Chairman, President and CEO
Bioject Inc.
7620S.W. Bridgeport Road
Portland, Oregon 97224
Re: Binding Letter Agreement
Dear Mr. O'Shea:
We are pleased to have reached an agreement in principle with Bioject for the
development by Bioject of a disposable, prefilled needle-free injector for ***
pursuant to the following terms of this Binding Letter Agreement:
1. Within fifteen (15) days of the execution of this Binding Letter Agreement,
*** shall pay to Bioject a one-time sum of $250,000. In consideration thereof,
Bioject shall:
(a) not negotiate with, solicit offers from, or hold discussions with, any
third party, in any territory, regarding the development of a disposable,
needle-free injector for use in the treatment of *** and/or *** ("Exclusive
Negotiation") for the period beginning as of the date of this Binding
Letter Agreement and ending on the later of: (i) August 31, 1999, or (ii)
five (5) business days following delivery of the deliverables set forth in
paragraph 1(b) below, but in no case later than March 31, 2000; and
(b) develop a disposable, prefilled needle-free injector and deliver to ***
the first set of deliverables set forth on Schedule "A" hereto on or before
August 31, 1999.
* It is understood and agreed by the parties that the aforesaid payment by
*** of $250,000 is apportioned as follows: (i) $100,000 for the Exclusive
Negotiation period through August 31, 1999, and (ii) $150,000 for the
development and deliverables.
2. On or before the later of (i) August 31, 1999, or (ii) five (5) business days
following delivery of the deliverables set forth in paragraph 1(b) above, ***
may elect to extend the Exclusive Negotiation period and the development by
giving written notice to Bioject of its intention to do so, in which case ***
shall, within fifteen (15) days of such notice, pay to Bioject an additional
one-time sum of $250,000, and Bioject shall:
(a) extend the Exclusive Negotiation period up to and including the later
of: (i) December 31, 1999, or (ii) fifteen (15) days following delivery of
1
*** Confidential portions omitted pursuant to a confidential treatment request
submitted pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
as amended. Omitted portions have been filed separately with the Securities
and Exchange Commission.
<PAGE>
the deliverables set forth in paragraph 2(b) below, but in no case later
than March 31, 2000; and
(b) continue development of a disposable, prefilled needle-free injector
and deliver to *** the second set of deliverables set forth on Schedule "A"
hereto on or before December 31, 1999.
* It is understood and agreed by the parties that the aforesaid payment by
*** of $250,000 is apportioned as follows: (i) $100,000 for the extension
of Exclusive Negotiation period through December 31, 1999, and (ii)
$150,000 for the development and deliverables.
3. During the Exclusive Negotiation period, at ***'s sole discretion and option,
the parties shall negotiate in good faith toward execution of a definitive
agreement for the potential future development, license and supply by Bioject to
*** of disposable, prefilled needle-free injectors.
4. Any intellectual property and/or know-how arising out of the development work
provided for in paragraphs 1(b) and 2(b) above shall be exclusively owned by
Bioject; provided, however, that any industrial designs contributed by *** shall
be exclusively owned by ***.
5. In the event that Bioject fails to deliver any or all of the aforesaid
deliverables, Bioject shall refund to *** that portion of the applicable
one-time fee apportioned to such deliverable(s).
6. The Confidential Disclosure Agreement dated October 1, 1997, as amended on
March 22, 1999 (the "CDA"), between the parties is incorporated herein by
reference.
7. Except as provided in the CDA, neither party shall use the name of the other
party or make any press release or other disclosure of the existence or terms of
this Binding Letter Agreement without the prior written consent of the other
party.
8. This Binding Letter Agreement shall be governed by *** law.
9. No Amendment or modification of this Binding Letter Agreement shall be
effective unless made in writing and signed by authorized representatives of
each of the parties.
10. Except as set forth in paragraph 6 above, this Binding Letter Agreement
constitutes the entire agreement between the parties and supercedes all prior
and/or contemporaneous agreements and undertakings between the parties, both
written and oral, relating to the subject matter hereof.
2
*** Confidential portions omitted pursuant to a confidential treatment request
submitted pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
as amended. Omitted portions have been filed separately with the Securities
and Exchange Commission.
<PAGE>
Please acknowledge your acceptance of the terms of this Binding Letter Agreement
by executing where indicated below. Please sign both originals and return one
(1) original to my attention.
Sincerely,
/s/ ***
Senior Vice President
***
Accepted and Agreed To:
Bioject Inc.
/s/ Jim O'Shea
- ------------------------------------
Jim O'Shea
Chairman, President and CEO
3
*** Confidential portions omitted pursuant to a confidential treatment request
submitted pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
as amended. Omitted portions have been filed separately with the Securities
and Exchange Commission.
<PAGE>
Schedule "A"
Bioject Deliverables
Due on or before August 31, 1999:
1. Initial development specifications for the device that meet *** product
profiles, design requirements and criteria. The package is to include
individual specifications for each of the major device components:
o Primary product storage container including
-- Glass Cartridge
-- Rubber Plunger
-- Rubber Stopper
-- Rubber O-Ring
o Nozzle
o Injector Body and Components
o Gas Cartridge
2. Updated plans and timelines for device development.
3. Materials specifications.
4. Initial CAD/Pro-Engineer based parts drawings.
5. Updated Cost Estimates
6. 5 Design breadboard models incorporating *** industrial design. These
models are not required to be functional; however, they should be
representative of actual product size, shape weight and appearance. All
customer interface mechanisms should be indicative of the working function.
Due on or before December 31, 1999:
1. 50 prototype injectors incorporating *** industrial design. These injectors
will be constructed with part pieces created from a combination of
prototype aluminum tooling and machining processes. The devices will be
manually assembled using appropriate fixtures and equipment.
2. Product Testing Plan - Details on what testing is required and how it is to
be implemented. Plan should account for Functional Testing, ISO Testing,
and Failure Modes Testing.
3. Product Assembly Flow Plan - Detailing the entire filling and product
assembly process. The plan should be divided into logical, modular steps
and account for logistics and sub-contractor activities.
4. Assembly Equipment Procurement Plan - Detailing estimated costs and
production lead-time for automated assembly equipment.
4
*** Confidential portions omitted pursuant to a confidential treatment request
submitted pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
as amended. Omitted portions have been filed separately with the Securities
and Exchange Commission.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> SEP-30-1999
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<SECURITIES> 0
<RECEIVABLES> 216,702
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0
14,180,357
<COMMON> 50,182,884
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<TOTAL-LIABILITY-AND-EQUITY> 7,280,329
<SALES> 443,384
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