UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
-----------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------------- -----------------------
Commission File Number: 0-21214
ORTHOLOGIC CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0585310
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(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2850 S. 36th Street, #16, Phoenix, Arizona 85034
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(Address of principal executive offices) (Zip Code)
(602) 437-5520
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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.
[X]Yes [ ]No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
25,102,846 shares of common stock outstanding as of July 31, 1997
<PAGE>
ORTHOLOGIC CORP.
INDEX
Page No.
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 ...........................1
Consolidated Statements of Operation
Three Months and Six Months ended June 30, 1997 and 1996 ......2
Consolidated Statements of Cash Flows
Six Months ended June 30, 1997 and 1996 .......................3
Notes to Consolidated Financial Statements ........................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......7
Part II Other Information
Item 1. Legal Proceedings .......................................11
Item 3. Quantitative and Qualitative Disclosures
About market Risk ..................................11
Item 4. Submission of Matters to a Vote of Security Holders .....11
Item 5. Other Information .......................................11
Item 6. Exhibits and Reports on Form 8-K ........................12
<PAGE>
OrthoLogic Corp.
Condensed Consolidated Balance Sheets
(in thousands)
June 30, December 31,
1997 1996
--------- ---------
ASSETS (Unaudited)
Cash and cash equivalents $ 9,046 $ 13,494
Short-term investments 12,933 35,307
Accounts receivable 31,247 26,856
Inventory 9,814 6,551
Prepaids and other current assets 1,858 1,195
Deferred income taxes 2,599 2,401
--------- ---------
Total current assets 67,497 85,804
Furniture, rental fleet and equipment 15,488 11,364
Accumulated depreciation (3,782) (2,282)
--------- ---------
Furniture and equipment, net 11,706 9,082
Intangibles, net 35,605 17,847
Deposits and other assets 91 93
Note receivable - Officer -- 200
--------- ---------
Total Assets $ 114,899 $ 113,026
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 3,093 $ 2,042
Loan payable - current portion 455 --
Accrued liabilities 10,521 8,777
--------- ---------
Total current liabilities 14,069 10,819
Deferred rent and capital lease obligation 189 280
Loan payable - long term portion 625 --
Obligations under co-promotion agreement 1,000 --
--------- ---------
Total liabilities 15,883 11,099
--------- ---------
Commitments -- --
Stockholders' Equity
Common stock 13 13
Additional paid-in capital 118,980 118,832
Deficit (19,977) (16,918)
--------- ---------
Total stockholders' equity 99,016 101,927
--------- ---------
Total Liabilities and Stockholders' Equity $ 114,899 $ 113,026
========= =========
See notes to consolidated financial statements.
Page 1
<PAGE>
OrthoLogic Corp.
Consolidated Statements of Operations
Unaudited
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 9,377 $ 7,912 $ 18,949 $ 14,671
Net rentals 8,940 -- 16,670 --
-------------------- --------------------
Total Revenues 18,317 7,912 35,619 14,671
-------------------- --------------------
COST OF REVENUES
Cost of goods sold 2,304 1,252 5,018 2,374
Cost of rentals 2,274 -- 4,306 --
-------------------- --------------------
Total Cost of Revenue 4,578 1,252 9,324 2,374
-------------------- --------------------
GROSS PROFIT 13,739 6,660 26,295 12,297
OPERATING EXPENSES
Selling, general and administrative 16,311 5,527 29,200 9,951
Research and development 613 546 1,189 1,097
-------------------- --------------------
Total Operating Expenses 16,924 6,073 30,389 11,048
-------------------- --------------------
OPERATING INCOME (LOSS) (3,185) 587 (4,094) 1,249
OTHER INCOME
Grant revenue 25 45 99 94
Interest income 389 863 951 1,102
-------------------- --------------------
Total Other Income 414 908 1,050 1,196
-------------------- --------------------
INCOME (LOSS) BEFORE INCOME TAXES (2,771) 1,495 (3,044) 2,445
Provision for income taxes -- 15 -- 30
-------------------- --------------------
NET INCOME (LOSS) $ (2,771) $ 1,480 $ (3,044) $ 2,415
==================== ====================
NET INCOME (LOSS) PER COMMON SHARE $ (0.11) $ 0.06 $ (0.12) $ 0.11
==================== ====================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 25,096 24,769 25,066 22,734
==================== ====================
</TABLE>
See notes to consolidated financial statements.
Page 2
<PAGE>
OrthoLogic Corp.
Consolidated Statements of Cash Flows
Unaudited
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
--------------------
June 30, June 30,
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $ (3,044) $ 2,415
Noncash items:
Depreciation and amortization 3,078 183
Other (15) --
Net change in Other Operating items:
Accounts receivable 524 (5,109)
Inventory (610) (1,035)
Prepaids and other current assets (657) (668)
Deposits and other assets 2 5
Accounts payable (496) 254
Accrued liabilities (423) 882
-------- --------
Cash Flows (used in) Operating Activities (1,641) (3,073)
-------- --------
INVESTING ACTIVITIES
Purchase of fixed assets, net (2,797) (318)
Cash paid for acquisitions, net of other effects (20,907) --
Sales (Purchases) of short term investments 22,373 (13,628)
Collection of note receivable 200 125
Payments under co-promotion agreement (1,011) --
Intangible from dealer transactions (486) (3,676)
-------- --------
Cash Flows (used in) Investing Activities (2,628) (17,497)
-------- --------
FINANCING ACTIVITIES
Payments on Capital Leases (32) --
Payments on Loan Payable (295) --
Proceeds from issuance of common stock -- 74,867
Net proceeds from stock option exercises 148 --
-------- --------
Cash Flows (used in) provided by (179) 74,867
-------- --------
Financing Activities
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (4,448) 54,297
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 13,494 8,831
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,046 $ 63,128
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 52 $ 0
======== ========
Income Taxes $ 238 $ 10
======== ========
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE>
ORTHOLOGIC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Financial Statement Presentation
--------------------------------
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and include the accounts of the
OrthoLogic Corporation and its subsidiaries (the "Company"). All significant
intercompany accounts and transactions have been eliminated.
The condensed consolidated balance sheet as of June 30, 1997, the consolidated
statements of operations for the three months and six months ended June 30, 1997
and 1996 and the consolidated statement of cash flows for the six months ended
June 30, 1997 and 1996 are unaudited; however, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of financial position, results of operations and cash flows
have been included. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the complete fiscal
year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto included
in the Company's 1996 Annual Report on Form 10-K.
2. New Accounting Pronouncements
-----------------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", effective for both interim and annual periods ending after December 15,
1997. This statement specifies the computation, presentation and disclosure of
earnings per share for entities with publicly held common stock or potential
common stock. The Company will provide the required disclosures in its year-end
report. The effect on the Company's earnings per share disclosure is not
material for the periods presented.
The Financial Accounting Standards Board recently issued SFAS No. 130 on
"Reporting Comprehensive Income" and SFAS No. 131 on "Disclosures about Segments
of an Enterprise and Related Information." The "Reporting Comprehensive Income"
standard is effective for fiscal years beginning after December 15, 1997. The
standard changes the reporting of certain items currently reported in the common
stock equity section of the balance sheet. The Company is currently evaluating
what impact this standard will have on the Company's financial statements. The
"Disclosures about Segments of an Enterprise and Related Information" standard
is effective for fiscal years beginning after December 15, 1997. This standard
requires that public companies report certain information about operating
segments in their financial statements. It also establishes related disclosures
about products and services, geographic areas, and major customers. The Company
is currently evaluating what impact this standard will have on its disclosures.
3. Preferred Stock Purchase Rights
-------------------------------
On February 25, 1997 the Company declared a dividend distribution of one
Preferred Stock Purchase Right (the "Rights") for each outstanding share of the
Company's common stock, payable March 12, 1997 to holders of record on that
date. The Rights will expire on March 11, 2007.
Page 4
<PAGE>
ORTHOLOGIC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Each Right will entitle shareholders to buy 1/100 of a share of Series A
Preferred Stock at an exercise price of $25.00.
Initially, no separate Rights certificates will be distributed; the Rights will
trade with the Company's common stock and will not be exercisable until the
earlier of 10 business days following the acquisition of 15% or more of the
Company's common stock by a person or group or 15 business days following the
commencement of a tender offer for 20% or more of the Company's common stock.
At the discretion of the Board of Directors of the Company, the Rights can be
redeemed at any time prior to the 10th day following the date the Rights become
exercisable. If the Rights are not redeemed by the Board, and the Company is
acquired, holders of the Rights (other than an "acquiring person") will be
entitled to purchase additional shares of common stock of either the Company or
the acquiring corporation (whichever survives) at one-half the market price.
4. Acquisitions
------------
On March 3, 1997 and March 12, 1997, the Company acquired certain assets and
assumed certain liabilities of Toronto Medical Corp. (Toronto) and Danninger
Medical Technology, Inc. (DMTI). After paying certain of the assumed
liabilities, the net cash outlay was approximately $7.5 million for Toronto and
$10.7 million for DMTI. Both acquisitions were accounted for as a purchase which
resulted in goodwill of $4 million for Toronto and $7.7 million for DMTI. The
goodwill is being amortized over 20 years.
Management is restructuring the operations related to these acquisitions and
Sutter Corporation (acquired in August 1996). The restructuring activities,
which will continue through the third quarter, include closing and/or relocating
duplicate facilities and terminating or relocating certain employees. Once the
estimated costs related to these activities are determined, they will be accrued
and reflected as additional acquisition costs in the allocation of purchase
price.
Had the Toronto and DMTI acquisitions occurred on January 1, 1996, combined
unaudited pro forma results for the six months ended June 30, 1997 and 1996,
would have been: net revenues - $38.9 million and $23.3 million; net (loss) -
$(3.0) million and $(224,000); net (loss) per common share - $(0.12) and
$(0.01).
The pro forma amounts disclosed above include revenue and net income derived
from product sales to competing independent dealers of orthopaedic
rehabilitation products. Subsequent to the acquisition, the Company discontinued
selling products to these dealers. Excluding the dealer product sales, combined
unaudited pro forma results for the six months ended June 30, 1997 and 1996,
would have been: net revenues - $37.5 million and $19.7 million; net (loss) -
$(3.4) million and $(665,000); net (loss) per common share - $(0.14) and
$(0.03).
5. Co-promotion Agreement
----------------------
The Company entered into an exclusive co-promotion agreement (the "agreement")
with Sanofi Pharmaceuticals, Inc. ("Sanofi") on June 23, 1997 for the purpose of
marketing Hyalgan, a hyaluronic acid sodium salt, to orthopaedic surgeons in the
United States for the treatment of pain in patients with
Page 5
<PAGE>
ORTHOLOGIC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
osteoarthritis of the knee. The initial term of the agreement ends on December
31, 2002. Upon the expiration of the initial term, Sanofi may terminate the
agreement, extend the agreement for an additional one year period, or enter into
a revised agreement with the Company. Upon termination of the agreement, Sanofi
shall pay the Company an amount equal to 50% of the gross compensation paid to
the Company, pursuant to the agreement, for the immediately preceding year.
Under the terms of the agreement, the Company is obligated to use its best
efforts to market and promote Hyalgan; to pay Sanofi a royalty of 10% of the net
selling price, as defined; and to pay the manufacturer of Hyalgan certain
pre-determined amounts and a pro-rata portion of a 10% royalty on combined
annual net sales of Hyalgan by Sanofi and the Company in excess of $30.0
million. In addition, the Company is obligated to pay a total of $4.0 million in
payments during the first eighteen months of the agreement. During the second
quarter, the Company incurred a $1.0 million payment of this amount. The Company
has recorded the remaining $3 million in its financial statements.
The Company's sales force will commence efforts to promote Hyalgan in the third
quarter of 1997. The Company does not anticipate significant revenues from the
product until after the current year.
Page 6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion of significant factors that affected
the Company's interim financial condition and results of operations. This should
be read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
Results of Operations
OrthoLogic has completed three recent acquisitions which affect the
year-to-year comparability of its consolidated financial position and
results of operations: the acquisition of Sutter Corporation (Sutter)
on August 30, 1996 and the acquisition of certain assets and the
assumption of certain liabilities of two other orthopaedic
rehabilitation related companies in March 1997.
Six Months Ended June 30, 1997 and June 30, 1996
Revenues
OrthoLogic's revenues increased 143% from $14.7 million for the six
months ended June 30, 1996 to $35.6 million for the six months ended
June 30, 1997. The increase in revenue was due primarily to revenues
from its orthopaedic rehabilitation products ($22.1 million). The
Company believes that revenues for its orthopaedic rehabilitation
products may be seasonal, with the strongest sales occurring in the
fourth quarter. Excluding the effects of the Company's acquisitions,
revenues from the OrthoLogic 1000 were down 9% to $12.8 million for the
six months ended June 30, 1997 from $14.1 million for the comparable
period in 1996. The Company does not believe that there is a single
factor causing the decline in OrthoLogic 1000 sales. The Company
attributes the decline to multiple factors, including the shift from a
distribution network to a direct sales force, a lower number of total
salespeople selling the OrthoLogic 1000 in 1997 compared to 1996,
quality and effectiveness of sales management, and increased
competitive pressures.
Additionally, during the second quarter of 1997, the Company changed
its estimate for allowance for bad debt expense, increasing its
allowance by $2.0 million related to Medicare receivables for the
OrthoLogic 1000 which are outside Medicare's coverage definition. Prior
to the second quarter, Medicare reimbursed for the OrthoLogic 1000 even
when physicians prescribed use of the device outside Medicare's own
definition of a non-union fracture. Prescriptions of that kind covered
by Medicare typically accounted for 7 percent to 9 percent of
OrthoLogic 1000 revenue. The Company no longer recognizes Medicare
revenue from prescriptions outside the coverage definition.
Gross Profit
Gross profit increased from $12.3 million for the six months ended June
30, 1996 to $26.3 million for the six months ended June 30, 1997. The
increase in gross profit was due primarily to the gross profit of
Sutter ($13.3 million) and the recently acquired operations ($1.8
million). Gross profit as a percentage of revenue was 73.8% for the six
months ended June 30, 1997 compared to 83.8% for the comparable period
during 1996. The overall gross profit percentage declined as a result
of the recently acquired orthopaedic rehabilitation operations which
have a lower gross profit percentage than the Company's fracture
healing products.
Page 7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses for the six months
ended June 30, 1997 were $29.2 million, up $19.2 million from the
comparable 1996 period. The 1997 period included the SG&A from the
acquisitions, which comprise a significant portion of the Company's
SG&A. The increase from 1996 is also due, in part, to the variable
costs (commissions, bad debts and royalties) associated with the
increased revenue. Additionally, SG&A includes $2.0 million in bad debt
expense related to Medicare receivables for the OrthoLogic 1000 which
are outside Medicare's coverage definition. During late 1996, the fixed
component of SG&A increased due to the addition of employees, including
salespeople added to support the Company's transition to a direct sales
force, and other infrastructure required to support the growing and
projected revenue volume.
OrthoLogic is currently consolidating duplicate facilities and
eliminating expenses from redundant operations from within the three
businesses that were recently acquired.
Research and Development
Research and Development (R&D) expenses were $1.2 million for the six
months ended June 30, 1997 compared to $1.1 million for the comparable
1996 period. The increase in R&D expenses was due to the acquisitions,
while R&D for the remainder of the Company remained stable.
Other Income
Other income of $1.1 million for the six months ended June 30, 1997
consisted of interest income of $951,000 and grant revenue of $99,000.
Other income for the comparable 1996 period consisted of interest
income of $1.1 million and grant revenue of $94,000. The decrease in
interest income was due to cash used for acquisitions of $18.2 million
at the end of the first quarter 1997.
Three Months Ended June 30, 1997 and June 30, 1996
Revenues increased 132% to $18.3 million for the second quarter of
fiscal 1997, as compared to $7.9 million for the same period in 1996.
Gross profit rose 106% to $13.7 million for the second quarter of
fiscal 1997 from $6.7 million for the second quarter of fiscal 1996.
During the second quarter, SG&A expenses rose 195% to $16.3 million as
compared to $5.5 million for the same period last year. Other income
fell 54% to $414,000 for the second quarter of fiscal 1997 compared to
$908,000 for the second quarter of fiscal 1996. The business factors
resulting in these changes and relevant trends affecting the Company's
business during the second quarters of 1997 and 1996 are comparable to
those described in the preceding discussion for the six-month period.
Page 8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources
At June 30, 1997, the Company had cash and investments of $22.0 million
compared to $48.8 million at December 31, 1996. Working capital
decreased from $75.0 million at December 31, 1996 to $53.4 million at
June 30, 1997. The decrease in cash and investments is primarily the
result of cash used for acquisitions and related costs of $20.9
million. Other uses of cash included $1.6 million for operating
activities and $2.8 million for the purchase of fixed assets, primarily
rental assets for its orthopedic rehabilitation division. In January
1997, the Company paid $486,000 to a former independent dealer for the
return of territory rights and convenants not to compete, as the
Company completed its transition to a direct sales force.
Under the terms of the co-promotion agreement with Sanofi, the Company
is obligated to pay a total of $4 million in payments during the first
eighteen months of the agreement. During the second quarter, the
Company paid $1.0 million of the required payment under the
co-promotion agreement for the right to market and promote Hyalgan.
The Company currently believes that cash generated from product sales
and rentals and its available cash resources will be sufficient to meet
its current operating requirements and internal development and
integration initiatives for the foreseeable future. There can be no
assurance, however, that the Company will not require additional
financing in the future. If the Company were required to obtain
additional financing in the future, there can be no assurance that such
sources of capital will be available on terms favorable to the Company,
if at all.
The Company plans to relocate its corporate offices in the fourth
quarter of 1997 to a 100,000 square foot office/manufacturing facility
in Tempe, Arizona. The proposed terms of the lease are for a ten year
period commencing December 1, 1997.
There are currently no other material definitive commitments for future
use of the Company's available cash resources; however, management
continually evaluates opportunities to expand its operations, which
includes internal development of new products and may include
additional acquisitions.
Page 9
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this document that are not historical
facts, including, without limitation, statements of future expectations of
revenue from Hyalgan sales, availability of cash, and projections of results of
operations and financial condition, are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, which are
subject to known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the Company to differ
materially from those contemplated in such forward- looking statements. In
addition to the specific matters referred to herein, important factors which may
cause actual results to differ from those contemplated in such forward-looking
statements include: (i) the results of the Company's efforts to implement its
business strategy; (ii) actions of the Company's competitors and the Company's
ability to respond to such actions; (iii) changes in governmental regulation,
tax rates and similar matters; (iv) other risks detailed in the Company's other
filings with the Commission; and (v) the costs and results of pending
litigation. Additional factors which might affect such forward-looking
statements are discussed in Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
Page 10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See the information under the caption "Item 3 Legal Proceedings" of the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company was held on May 16,
1997 to vote on the election of Class III Directors (Proposal 1); an
amendment to the Company's 1987 Stock Option Plan to increase the
number of shares of common stock available for grant thereunder by
160,000 shares (Proposal 2); the ratification and approval of the
Company's 1997 Stock Option Plan (Proposal 3); and the ratification of
appointment of Deloitte & Touche, LLP as independent accountants for
the fiscal year ending December 31, 1997 (Proposal 4). The results are
as follows:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAINED NON-VOTES
--- ------- --------- ---------
<S> <C> <C> <C> <C>
Proposal 1
Allan M. Weinstein, Ph.D. 22,409,585 826,670 0 0
Elwood D. Howse, Jr. 22,457,710 778,545 0 0
Proposal 2 19,946,990 3,196,325 92,940 0
Proposal 3 19,934,307 3,208,932 93,016 0
Proposal 4 23,074,833 91,299 70,123 0
</TABLE>
A more detailed discussion of each proposal is included in the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders.
Item 5. Other Information
On May 21, 1997, the Company's Vice President - Marketing and Sales for
Fracture Healing Products, David E. Derminio, resigned.
Page 11
<PAGE>
PART II - OTHER INFORMATION (continued)
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index following the Signatures page which is
incorporated herein by reference.
(b) Reports on Form 8-K
1) On March 18, 1997, the Company filed a Current Report on
Form 8-K dated March 3, 1997, to report in Item 2, the
consummation of its acquisition of all the assets and
business and the assumption of substantially all of the
liabilities of Toronto Medical Corp., an Ontario
corporation, pursuant to a Purchase and Sale Agreement
dated as of December 30, 1996. The Form 8-K was amended
on May 19, 1997 to include in Item 7 the following
financial statements:
Unaudited Pro-Forma Consolidated Statements of
Income/(Loss) for the three month period ended March
31, 1997 and for the year ended December 31, 1996.
Audited Consolidated Balance Sheet at May 31, 1996
and 1995; Consolidated Statements of Income/(Loss)
and Consolidated Statements of Cash Flows for the
years ended May 31, 1996 and 1995; and independent
auditor's report.
2) On March 27, 1997, the Company filed a Current Report on
Form 8-K dated March 12, 1997 to report in Item 2, the
consummation of its acquisition of certain assets and
the assumption of certain liabilities of each of
Danninger Medical Technology, Inc., a Delaware
corporation ("DMTI"), and Danninger Healthcare, Inc., an
Ohio corporation and a wholly-owned subsidiary of DMTI,
pursuant to an Asset Purchase Sale Agreement dated March
12, 1997. The Form 8-K was amended on June 11, 1997 to
include in Item 7 the following financial statements:
Unaudited Pro-Forma Consolidated Statements of
Income/(Loss) for the three month period ended March
31, 1997 and for the year ended December 31, 1996.
Unaudited Consolidated Statement of Net Assets as of
March 12, 1997.
Unaudited Consolidated Statement of Revenues and
Expenses of Net Assets for the period January 1, 1997
to March 12, 1997 and for the period January 1, 1996
to March 12, 1996.
Audited Consolidated Statement of Net Assets at
December 31, 1996 and Consolidated Statement of
Revenues and Expenses of Net Assets for the year
ended December 31, 1996 and independent auditor's
report.
Page 12
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORTHOLOGIC CORP.
- ----------------
(Registrant)
Signature Title Date
- --------- ----- ----
/s/ Allan M. Weinstein Chairman of the Board of August 14, 1997
- ------------------------- Directors, President and Chief
Allan M. Weinstein Executive Officer (Principal
Executive Officer)
/s/ Allen R. Dunaway Vice-President and Chief Financial August 14, 1997
- -------------------------- Officer (Principal Financial and
Allen R. Dunaway Accounting Officer)
Page 13
<PAGE>
ORTHOLOGIC CORP.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Exhibit Incorporated by Filed
No. Description Reference to: Herewith
- ---------------- --------------------------------------- ------------------------------------- -----------
<S> <C> <C> <C>
2.1 Stock Purchase Agreement dated August Exhibit 2.1 to the Company's Current
30, 1996 by and among the Company, Report on Form 8-K filed on September
Sutter Corporation and Smith 13, 1996
Laboratories, Inc.
2.2 Purchase and Sale Agreement dated as of Exhibit 2.1 to the Company's Current
December 30, 1996 by and among the Report on Form 8-K filed on March 18,
Company and Toronto Medical Corp., an 1997 ("March 18, 1997 8-K")
Ontario corporation
2.3 Amendment to Purchase and Sale Exhibit 2.2 to March 18, 1997 8-K
Agreement dated as of January 13, 1997
by and among the Company and Toronto
Medical Corp., an Ontario corporation
2.4 Second Amendment to Purchase and Sale Exhibit 2.3 to March 18, 1997 8-K
Agreement dated as of March 1,
1997 by and among the Company and
Toronto Medical Corp., an Ontario
corporation
2.5 Assignment of Purchase and Sale Exhibit 2.4 to March 18, 1997 8-K
Agreement dated as of March 1, 1997 by
and among the Company, Toronto Medical
Orthopaedics Ltd., a Canada corporation
and Toronto Medical Corp., an Ontario
corporation
2.6 Asset Purchase Agreement dated March Exhibit 2.1 to the Company's Current
12, 1997 by and among the Company, Report on Form 8-K filed on March 27,
Danninger Medical Technology, Inc., a 1997
Delaware corporation, and Danninger
Healthcare, Inc., an Ohio corporation
3.1 Composite Certificate of Incorporation Exhibit 3.1 to the Company's Current
of the Company, as amended, including Report on Form 10-Q filed on May 15,
Certificate of Designation in respect 1997 ("First Quarter 1997 10-Q")
of Series A Preferred Stock
3.2 Bylaws of the Company Exhibit 3.4 to Company's Amendment No.
2 to Registration Statement on Form S-1
(No. 33-47569) filed with the SEC on
January 25, 1993 ("January 1993 S-1")
</TABLE>
<PAGE>
ORTHOLOGIC CORP.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 (continued)
<TABLE>
<CAPTION>
Exhibit Incorporated by Filed
No. Description Reference to: Herewith
- ---------------- --------------------------------------- ------------------------------------- -----------
<S> <C> <C> <C>
4.1 Articles 5, 9 and 11 of Certificate of Exhibit 3.1 above
Incorporation of the Company
4.2 Articles II and III.2(c)(ii) of Bylaws Exhibit 3.4 to January 1993 S-1
of the Company
4.3 Specimen Common Stock Certificate Exhibit 4.1 to January 1993 S-1
4.4 1987 Stock Option Plan of the Company, X
as amended and approved by stockholders
4.5 1997 Stock Option Plan of the Company X
4.6 Stock Purchase Warrant, dated August Exhibit 4.6 to the Company's Form 10-K
18, 1993, issued to CyberLogic, Inc. for the fiscal year ended December 31,
1994
4.7 Stock Purchase Warrant, dated September Exhibit 4.6 to Company's Registration
20, 1995, issued to Registered Statement on Form S-1 (No. 33-97438)
Consulting Group, Inc. filed with the SEC on September 27, 1995
4.8 Stock Purchase Warrant, dated October Exhibit 4.7 to the Company's Form 10-K
15, 1996, issued to Registered for the fiscal year ended December 31,
Consulting Group, Inc. 1996 ("1996 10-K")
4.9 Rights Agreement dated as of March 4, Exhibit 4.1 to the Company's
1997 between the Company and Bank of Registration Statement on Form 8-A
New York, and Exhibits A, B and C filed with the SEC on March 6, 1997
thereto
10.1 Co-promotion Agreement dated June 23,
1997 by and between the Company and X
Sanofi Pharmaceuticals, Inc.
11 Statement of Computation of Net Income
(Loss) per Weighted Average Number of X
Common Shares Outstanding
27 Financial Data Schedule X
</TABLE>
OrthoLogic Corp. 1987 Stock Option Plan
As Amended
1. Purpose
-------
The purpose of the OrthoLogic Corp Stock Option Plan (the "Plan") is to
attract and retain the best available employees, consultants and directors for
positions of substantial responsibility, to provide additional incentive to such
employees, consultants and directors of OrthoLogic Corp, a Delaware corporation
(the "Company") or any parent or subsidiary of the Company which now exists or
hereafter is organized or acquired by or acquires the Company, and to promote
the success of the business of the Company.
2. Incentive and Nonqualified Stock Options
----------------------------------------
Two types of options (referred to herein as "Options," without distinction
between such two types) may be granted under the Plan: options intended to
qualify as incentive stock options ("incentive stock options") under Section
422A of the Internal Revenue Code of 1986, as amended (the "Code"); and other
options not specifically authorized or qualified for favorable income tax
treatment by the Code ("nonqualified stock options").
3. Eligibility and Administration
------------------------------
(a) Any employee (including any officer or director who is an employee) of
the Company or any of its subsidiaries shall be eligible to receive incentive
stock options under the Plan. An employee may receive more than one type of
option under the Plan.
(b) Any director of the Company or consultant to the Company who is not an
employee of the Company or any of its subsidiaries or a member of the
Compensation Committee of the Board of Directors of the Company shall be
eligible to receive nonqualified stock options under the Plan. Any director of
the Company who is a member of the Compensation Committee of the Board of
Directors and is not an employee of the Company (a "Compensation Committee
Member") shall be eligible to receive options only as set forth in Section 9.
(c) The Plan shall be administered by the Board of Directors of the Company
or a committee appointed by the Board of Directors. No director or committee
member shall be liable for any action or determination made in good faith with
respect to the Plan or any option granted under it.
4. Shares Subject to Options
-------------------------
The stock available for grant of options under the Plan shall be shares of
the Company's authorized but unissued, or reacquired Common Stock. The aggregate
number of shares which may be issued
<PAGE>
pursuant to exercise of incentive stock options and nonqualified stock options
granted under the Plan shall be 4,160,000 shares. If any outstanding option
under the Plan for any reason expires or is terminated, the shares of Common
Stock allocable to the unexercised portion of the option shall again be
available for options under the Plan as if no options had been granted with
respect to such shares.
5. Terms and Conditions of Options
-------------------------------
Options granted under the Plan shall be evidenced by agreements ("Letter of
Grant") in such form and containing such provisions which are consistent with
the Plan as the Board or committee shall from time to time approve. Each Letter
of Grant shall specify whether the option granted thereby is an incentive stock
option or a nonqualified stock option. Such Letters of Grant may incorporate all
or any of the terms hereof by reference and shall comply with and be subject to
the following terms and conditions:
(a) Each Letter of Grant shall specify the number of incentive stock
options and/or nonqualified stock option shares subject to the option.
(b) The purchase price for the shares subject to (i) a nonqualified option
may be any amount determined in good faith by the Board or committee and (ii) an
incentive option shall not be less than 100% of the fair market value of the
stock on the date the option is granted, provided, however, the option price on
an incentive stock option shall not be less than 110% of the fair market value
of such stock on the date the option is granted to an individual then owning
(after the application of the family and other attribution rules of Section
425(d) of the Code), more than 10% of the total combined voting power of all
classes of stock of the Company or any subsidiary or parent corporation. For
purposes of the Plan, "fair market value" at any date shall be (i) the reported
closing price of such stock on the New York Stock Exchange or other established
stock exchange or the National Market System of NASDAQ on such date, or if no
sale of such stock shall have been made on that date, on the preceding date on
which there was such a sale, (ii) if such stock is not then listed on an
exchange or the National Market System of NASDAQ, the average of the closing bid
and asked prices per share for such stock in the over-the-counter market as
quoted on NASDAQ on such date, or (iii) if such stock is not then listed or
quoted as referenced above, an amount determined in good faith by the Board or
the committee.
(c) The purchase price for any share purchased pursuant to an option
previously granted or to be granted under the Plan shall be paid in full upon
exercise of the option by any of the following methods: (i) by cash, (ii) by
check, or (iii) unless provided otherwise in the particular grant agreement, by
transferring to the Company shares of stock of the Company at their fair market
value as of the date of exercise of the option as determined in accordance with
paragraph 5(b). The Company may arrange for or
<PAGE>
cooperate in permitting cashless exercise procedures and may extend and
maintain, or arrange for the extension or maintenance of, credit to an optionee
to finance the optionee's purchase of shares pursuant to the exercise of
options, on such terms as may be approved by the Board or the committee, subject
to applicable regulations of the Federal Reserve Board and any other applicable
laws or regulations in effect at the time such credit is extended.
(d) No option shall be exercisable after the expiration of the earliest of
(i) in the case of an incentive stock option, ten years from the date the option
is granted or, five years from the date the option is granted in the case of an
incentive stock option granted to an individual owning (after the application of
the family and other attribution rules of Section 425(d) of the Code) at the
time such option was granted, more than 10% of the total combined voting power
of all classes of stock of the Company or any subsidiary or parent corporation,
(ii) in the case of a nonqualified option, eleven years from the date the option
is granted, (iii) in the case of an incentive stock option, three months after
the date the optionee's employment with the Company and its subsidiaries
terminates, if such termination is for any reason other than permanent
disability, death or cause, (iv) the date the optionee's employment with the
Company and its subsidiaries terminates, if termination is for cause, as
determined by the Board or committee in its sole discretion, or (v) one year
after the date the optionee's employment or directorship with the Company and
its subsidiaries terminates if such termination is the result of death or
permanent disability; provided, however, that the option agreement for any
option may provide for shorter periods in each of the foregoing instances.
Options to directors or consultants who are not employees may be exercised
within such time period as the Board or committee determines after the person
ceases to be a director or consultant. The term "permanent disability" shall
mean a disability of the type defined in Section 105(d)(4) of the Code.
(e) No option shall be exercisable during the lifetime of an optionee by
any person other than the optionee, his guardian or legal representative. The
Board or committee shall have the power to set the time or times within which
each option shall be exercisable and to accelerate the time or times of exercise
which conditions shall be set forth specifically in each individual Letter of
Grant. To the extent that an optionee has the right to exercise an option and
purchase shares pursuant to the Letter of Grant, the option may be exercised
from time to time by written notice to the Company stating the number of shares
being purchased and accompanied by payment in full of the purchase price for
such shares.
(f) No option shall be transferable by an optionee otherwise than by will
or the laws of descent and distribution.
(g) The aggregate fair market value (determined as of the time the option
is granted) of the stock with respect to which
<PAGE>
incentive stock options are exercisable for the first time by such optionee
during any calendar year (under all such plans of the Company and any subsidiary
corporation) shall not exceed $100,000.
(h) Unless the shares of stock covered by the Plan have been registered
with the Securities and Exchange Commission pursuant to Section 5 of the
Securities Act of 1933, as amended, each optionee shall by accepting an option
represent and agree, for himself and his transferees by will or the laws of
descent and distribution, that all shares of stock purchased upon the exercise
of the option will be acquired for investment and not for resale or
distribution. If the shares of stock under the Plan have not been registered
with the Securities and Exchange Commission as described above, the optionee, at
the time of exercise shall represent that he is qualified to exercise an option
as required by the securities laws. If an optionee is not qualified to purchase
securities, the Company shall not be required to issue shares to such an
optionee. Upon such exercise of any portion of an option, the person entitled to
exercise the same shall upon request of the Company furnish evidence
satisfactory to the Company (including a written and signed representation) to
the effect that the shares of stock are being acquired in good faith for
investment and not for resale or distribution. Furthermore, the Company may if
it deems appropriate affix a legend to certificates representing shares of stock
purchased upon exercise of options indicating that such shares have not been
registered with the Securities and Exchange Commission and may so notify its
transfer agent.
(i) An optionee or transferee of an option shall have no rights as a
shareholder of the Company with respect to any shares covered by any option
until the date of the issuance of a share certificate for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether cash,
securities or other property) or distributions or other rights for which the
record date is prior to the date such share certificate is issued, except as
provided for in paragraph 5(k). Nothing in the Plan or in any Letter of Grant
shall confer upon any employee any right to continue in the employ of the
Company or any of its subsidiaries, or interfere in any way with any right of
the Company or any subsidiary to terminate the optionee's employment at any
time.
(j) The Company shall not be required to issue fractional shares upon the
exercise of an option.
(k) If the outstanding shares of stock of the class then subject to this
Plan are increased or decreased, or are changed into or exchanged for a
different number or kind of shares or securities, as a result of one or more
reorganizations, recapitalizations, stock splits, reverse stock splits, stock
dividends and the like, appropriate adjustments shall be made in the number
and/or type of shares or securities for which options may thereafter be granted
under this Plan and for which options then outstanding under this Plan may
thereafter be exercised. Any such adjustments in outstanding options shall be
made without
<PAGE>
changing the aggregate exercise price applicable to the unexercised portions of
such options.
(l) Subject to the terms and conditions and within the limitations of the
Plan, the Board or committee may modify, extend or renew outstanding options
granted under the Plan, accept the surrender of outstanding options (to the
extent not theretofore exercised), and authorize the granting of new options in
substitutions therefor (to the extent not theretofore exercised).
Notwithstanding the foregoing, no modification of an option shall, without the
consent of the optionee, alter or impair any rights of the optionee under the
option. Notwithstanding anything herein to the contrary, the Board or committee
may not reprice outstanding options nor may the Board or the committee accept
the surrender of outstanding options in conjunction with a grant of new options
in substitution therefor at an exercise price lower than the price of the
options surrendered, and this sentence may not be amended without consent of the
Board and ratification by the Company's stockholders.
(m) Each option may contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Board or committee, such
as without limitation discretionary performance standards, mandatory purchase of
shares on the open market on a pro rata basis or tax withholding provisions.
6. Termination or Amendment of the Plan
------------------------------------
The Board or committee may at any time terminate or amend the Plan;
provided that, without approval of the shareholders of the Company there shall
be, except by operation of the provisions of paragraph 5(k), no increase in the
total number of shares covered by the Plan, and no change in the class of
persons eligible to receive options under the Plan; and provided further that,
without the consent of the optionee, no amendment or termination may adversely
affect any outstanding option or any unexercised portion thereof.
7. Shareholder Approval and Term of the Plan
-----------------------------------------
The Plan shall be effective as of October 1987, subject to ratification by
the shareholders of the Company. Unless sooner terminated by the Board, in its
sole discretion, the Plan will expire in October 1997.
8. Acceleration of Exercisability and Vesting Under Certain
--------------------------------------------------------
Circumstances.
-------------
Notwithstanding any provision in the Plan to the contrary, unless the
particular letter of grant provides otherwise, 75% of the unvested options held
by each optionee shall automatically become exercisable and vested upon the
occurrence, before the expiration or termination of such option, of the
acquisition by a third party of 100% of the Company's outstanding equity
securities, a merger in which the Company is not the surviving corporation, a
<PAGE>
sale of all or substantially all of the Company's assets, or a similar
reorganization of the Company (collectively, "Accelerating Events"). The balance
of each optionee's unvested options will vest and become exercisable in 12 equal
monthly installments following the occurrence of any Accelerating Event, or
according to the optionee's individual vesting schedule as applicable without
regard to this Section 8, whichever is earlier. If an optionee loses his
position with the Company as a result of or subsequent to the occurrence of an
Accelerating Event, 100% of the unexpired and unvested options granted pursuant
to this Plan (other than options granted pursuant to Section 9 of this Plan)
held by such optionee shall automatically become vested upon such loss of
position. This Section 8 shall apply to options granted before and after the
effective date of this Section 8.
9. Automatic Grants to Certain Directors.
-------------------------------------
(a) Effective May 21, 1993, each Compensation Committee Member shall
automatically be granted options to acquire 36,000 shares of the Company's
Common Stock.
(b) Effective upon the date of the Annual Meeting of the Company's
stockholders held in 1996, (i) each Compensation Committee Member elected on
that date for a three-year term as a member of the Company's Board of Directors
shall automatically be granted options to acquire 36,000 shares of the Company's
Common Stock; (ii) each Compensation Committee Member then serving as a member
of the class of directors whose terms expire at the 1997 Annual Meeting of
Stockholders shall automatically be granted options to acquire 12,000 shares of
the Company's Common Stock; and (iii) each Compensation Committee Member then
serving as a member of the class of directors whose terms expire at the 1998
Annual Meeting of Stockholders shall automatically be granted options to acquire
24,000 shares of the Company's Common Stock.
(c) Thereafter, each Compensation Committee Member shall automatically be
granted options for 36,000 shares of the Company's Common Stock on each date
upon which such person is elected to a three-year term as a member of the
Company's Board of Directors.
(d) Any person who becomes a Compensation Committee Member on the date of
such person's election to the Board of Directors shall, effective upon the
initial date of such person's membership on the Board of Directors and the
Compensation Committee thereof, automatically be granted options for a number of
shares determined by multiplying 1,500 by the number of calendar quarters
remaining prior to the scheduled expiration of the term of such person as a
member of the Company's Board of Directors.
(e) Options granted pursuant to this Section 9 shall have a ten-year term
and shall vest at the rate of 3,000 shares at the end of each three-month period
following the effective date of grant, provided that options can vest only while
the optionee remains a member of the Company's Board of Directors. The exercise
price of
<PAGE>
options granted pursuant to this Section 9 shall be the fair market value of the
Company's Common Stock on the date of grant.
(f) This Section 9 shall not be amended more than once every six months
other than to comport with changes in the Internal Revenue Code of 1986, as
amended, the Employee Retirement Income Security Act, or the rules thereunder.
ORTHOLOGIC CORP.
1997 STOCK OPTION PLAN
1. Purpose
The purposes of the 1997 Stock Option Plan ("Plan") of OrthoLogic
Corp., a Delaware corporation, are to attract and retain the best available
employees and directors of OrthoLogic Corp. or any parent or subsidiary or
affiliate of OrthoLogic Corp. which now exists or hereafter is organized or
acquired by or acquires OrthoLogic Corp. (collectively or individually as the
context requires the "Company") as well as appropriate third parties who can
provide valuable services to the Company, to provide additional incentive to
such persons and to promote the success of the business of the Company. This
Plan is intended to comply with Rule 16b-3 under Section 16 of the Securities
Exchange Act of 1934, as amended or any successor rule ("Rule 16b-3"), and the
Plan shall be construed, interpreted and administered to comply with Rule 16b-3.
2. Definitions
a. "Affiliate" means any corporation, partnership, joint venture or
other entity, domestic or foreign, in which the Company, either directly or
through another affiliate or affiliates, has a 50% or more ownership interest.
b. "Affiliated Group" means the group consisting of the Company and any
entity that is an "affiliate," a "parent" or a "subsidiary" of the Company.
c. "Board" means the Board of Directors of the Company.
d. "Committee" means the Compensation or Stock Option Committee of the
Board (as designated by the Board), if such a committee has been appointed.
e. "Code" means the United States Internal Revenue Code of 1986, as
amended.
f. "Incentive Stock Options" means options intended to qualify as
incentive stock options under Section 422 of the Code, or any successor
provision.
g. "ISO Group" means the group consisting of the Company and any
corporation that is a "parent" or a "subsidiary" of the Company.
h. "Nonemployee Director" means a director of the Company who is not an
employee of the Company or any Affiliated Group Member.
<PAGE>
i. "Nonqualified Stock Options" means options that are not intended to
qualify for favorable income tax treatment under Sections 421 through 424 of the
Code.
j. "Parent" means a corporation that is a "parent" of the Company
within the meaning of Code Section 424(e).
k. "Section 16" means Section 16 of the Securities Exchange Act of
1934, as amended.
l. "Subsidiary" means a corporation that is a "subsidiary" of the
Company within the meaning of Code Section 424(f).
3. Incentive and Nonqualified Stock Options
Two types of options (referred to herein as "options," without
distinction between such two types) may be granted under the Plan: Incentive
Stock Options and Nonqualified Stock Options.
4. Eligibility and Administration
a. Eligibility. The following individuals shall be eligible to receive
grants pursuant to the Plan as follows:
(1) Any employee (including any officer or director who is an
employee) of the Company or any ISO Group member shall be eligible to receive
either Incentive Stock Options or Nonqualified Stock Options under the Plan. An
employee may receive more than one option under the Plan.
(ii) Any director of the Company or consultant to the Company
who is not an employee of the Company or any of its subsidiaries shall be
eligible to receive Nonqualified Stock Options under the Plan.
(iii) Any other individual whose participation the Board or
the Committee determines is in the best interests of the Company shall be
eligible to receive Nonqualified Stock Options.
b. Administration. The Plan may be administered by the Board or by a
Committee appointed by the Board which is constituted so to permit the Plan to
comply under Rule 16b-3 and 162(m) of the Code. The Company shall indemnify and
hold harmless each director and Committee member for any action or determination
made in good faith with respect to the Plan or any option. Determinations by the
Committee or the Board shall be final and conclusive upon all parties.
5. Shares Subject to Options
The stock available for grant of options under the Plan shall be shares
of the Company's authorized but unissued or reacquired voting common stock. The
aggregate number of shares that may be issued pursuant to exercise of options
granted under the Plan shall
<PAGE>
be 1,040,000 shares; provided, however, that, in any one calendar year, no
individual may receive grants of options covering more than 200,000 shares. If
any outstanding option grant under the Plan for any reason expires or is
terminated, the shares of common stock allocable to the unexercised portion of
the option grant shall again be available for options under the Plan as if no
options had been granted with respect to such shares.
6. Terms and Condition of Options
Option grants under the Plan shall be evidenced by agreements in such
form and containing such provisions as are consistent with the Plan as the Board
or the Committee shall from time to time approve. Each agreement shall specify
whether the option(s) granted thereby are Incentive Stock Options or
Nonqualified Stock Options. Such agreements may incorporate all or any of the
terms hereof by reference and shall comply with and be subject to the following
terms and conditions:
a. Shares Granted. Each option grant agreement shall specify the number
of Incentive Stock Options and/or Nonqualified Stock Options being granted; one
option shall be deemed granted for each share of stock. In addition, each option
grant agreement shall specify the exercisability and/or vesting schedule of such
options, if any.
b. Purchase Price. The purchase price for a share subject to (i) a
Nonqualified Stock Option may be any amount determined in good faith by the
Committee, and (ii) an Incentive Stock Option shall not be less than 100% of the
fair market value of the share on the date the option is granted, provided,
however, the option price of an Incentive Stock Option shall not be less than
110% of the fair market value of such share on the date the option is granted to
an individual then owning (after the application of the family and other
attribution rules of Section 424(d) or any successor rule of the Code) more than
10% of the total combined voting power of all classes of stock of the Company or
any ISO Group member. For purposes of the Plan, "fair market value" at any date
shall be (i) the reported closing price of such stock on the New York Stock
Exchange or other established stock exchange or Nasdaq National Market on such
date, or if no sale of such stock shall have been made on that date, on the
preceding date on which there was such a sale, (ii) if such stock is not then
listed on an exchange or the Nasdaq National Market, the last trade price per
share for such stock in the over-the-counter market as quoted on Nasdaq or the
pink sheets or successor publication of the National Quotation Bureau on such
date, or (iii) if such stock is not then listed or quoted as referenced above,
an amount determined in good faith by the Board or the Committee.
c. Termination. Unless otherwise provided herein or in a specific
option grant agreement which may provide for accelerated vesting and/or longer
or shorter periods of exercisability, no option shall be exercisable after the
expiration of the earliest of
<PAGE>
(i) in the case of an Incentive Stock Option:
(1) 10 years from the date the option is granted, or
five years from the date the option is granted to an
individual owning (after the application of the family and
other attribution rules of Section 424(d) of the Code) at the
time such option was granted, more than 10% of the total
combined voting power of all classes of stock of the Company
or any ISO Group member,
(2) three months after the date the optionee ceases
to perform services for the Company or any ISO Group member,
if such cessation is for any reason other than death,
disability (within the meaning of Code Section 22(e)(3)), or
cause,
(3) one year after the date the optionee ceases to
perform services for the Company or any ISO Group member, if
such cessation is by reason of death or disability (within the
meaning of Code Section 22(e)(3)), or
(4) the date the optionee ceases to perform services
for the Company or any ISO Group member, if such cessation is
for cause, as determined by the Board or the Committee in its
sole discretion;
(ii) in the case of a Nonqualified Stock Option;
(1) 10 years from the date the option is granted,
(2) two years after the date the optionee ceases to
perform services for the Company or any Affiliated Group
member, if such cessation is for any reason other than death,
permanent disability, retirement or cause,
(3) three years after the date the optionee ceases to
perform services for the Company or any Affiliated Group
member, if such cessation is by reason of death, permanent
disability or retirement, or
(4) the date the optionee ceases to perform services
for the Company or any Affiliated Group member, if such
cessation is for cause, as determined by the Board or the
Committee in its sole discretion;
provided, that, unless otherwise provided in a specific option grant agreement,
an option shall only be exercisable for the periods above following the date an
optionee ceases to perform services to the extent the option was exercisable on
the date of such cessation.
d. Method of Payment. The purchase price for any share purchased
pursuant to the exercise of an option granted under the Plan shall be paid in
full upon exercise of the option by any of
<PAGE>
the following methods, (i) by cash, (ii) by check, or (iii) to the extent
permitted under the particular grant agreement, by transferring to the Company
shares of stock of the Company at their fair market value as of the date of
exercise of the option as determined in accordance with paragraph 6(b), provided
that the optionee held the shares of stock for at least six months.
Notwithstanding the foregoing, the Company may arrange for or cooperate in
permitting broker-assisted cashless exercise procedures. The Company may also
extend and maintain, or arrange for the extension and maintenance of, credit to
an optionee to finance the optionee's purchase of shares pursuant to the
exercise of options, on such terms as may be approved by the Board or the
Committee, subject to applicable regulations of the Federal Reserve Board and
any other applicable laws or regulations in effect at the time such credit is
extended.
e. Exercise. Except for options which have been transferred pursuant to
paragraph 6(f), no option shall be exercisable during the lifetime of an
optionee by any person other than the optionee, his or her guardian or legal
representative. The Board or the Committee shall have the power to set the time
or times within which each option shall be exercisable and to accelerate the
time or times of exercise; provided, however, no options may be exercised prior
to the later of the expiration of six months from the date of grant thereof or
stockholder approval, unless otherwise provided by the Board or Committee. To
the extent that an optionee has the right to exercise one or more options and
purchase shares pursuant thereto, the option(s) may be exercised from time to
time by written notice to the Company stating the number of shares being
purchased and accompanied by payment in full of the purchase price for such
shares. Any certificate for shares of outstanding stock used to pay the purchase
price shall be accompanied by a stock power duly endorsed in blank by the
registered owner of the certificate (with the signature thereon guaranteed). If
the certificate tendered by the optionee in such payment covers more shares than
are required for such payment, the certificate shall also be accompanied by
instructions from the optionee to the Company's transfer agent with respect to
the disposition of the balance of the shares covered thereby.
f. Nontransferability. No option shall be transferable by an optionee
otherwise than by will or the laws of descent and distribution, provided that
the Committee in its discretion may grant options that are transferable, without
payment of consideration, to immediate family members of the optionee or to
trusts or partnerships for such family members; the Committee may also amend
outstanding options to provide for such transferability.
g. ISO $100,000 Limit. If required by applicable tax rules regarding a
particular grant, to the extent that the aggregate fair market value (determined
as of the date an Incentive Stock Option is granted) of the shares with respect
to which an Incentive Stock Option grant under this Plan (when aggregated, if
appropriate, with
<PAGE>
shares subject to other Incentive Stock Option grants made before said grant
under this Plan or another plan maintained by the Company or any ISO Group
member) is exercisable for the first time by an optionee during any calendar
year exceeds $100,000 (or such other limit as is prescribed by the Code), such
option grant shall be treated as a grant of Nonqualified Stock Options pursuant
to Code Section 422(d).
h. Investment Representation. Unless the shares of stock covered by the
Plan have been registered with the Securities and Exchange Commission pursuant
to Section 5 of the Securities Act of 1933, as amended, each optionee by
accepting an option grant represents and agrees, for himself or herself and his
or her transferees by will or the laws of descent and distribution, that all
shares of stock purchased upon the exercise of the option grant will be acquired
for investment and not for resale or distribution. Upon such exercise of any
portion of any option grant, the person entitled to exercise the same shall upon
request of the Company furnish evidence satisfactory to the Company (including a
written and signed representation) to the effect that the shares of stock are
being acquired in good faith for investment and not for resale or distribution.
Furthermore, the Company may if it deems appropriate affix a legend to
certificates representing shares of stock purchased upon exercise of options
indicating that such shares have not been registered with the Securities and
Exchange Commission and may so notify its transfer agent.
i. Rights of Optionee. An optionee or transferee holding an option
grant shall have no rights as a stockholder of the Company with respect to any
shares covered by any option grant until the date one or more of the options
granted thereunder have been properly exercised and the purchase price for such
shares has been paid in full. No adjustment shall be made for dividends
(ordinary or extraordinary, whether cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such share certificate is issued, except as provided for in paragraph 6(k).
Nothing in the Plan or in any option grant agreement shall confer upon any
optionee any right to continue performing services for the Company or any
Affiliated Group member, or interfere in any way with any right of the Company
or any Affiliated Group member to terminate the optionee's services at any time.
j. Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of an option. The value of any fractional
share subject to an option grant shall be paid in cash in connection with an
exercise that results in all full shares subject to the grant having been
exercised.
k. Reorganizations, Etc. Subject to paragraph 9 hereof, if the
outstanding shares of stock of the class then subject to this Plan are increased
or decreased, or are changed into or exchanged for a different number or kind of
shares or securities, as a result of one or more reorganizations, stock splits,
reverse stock splits,
<PAGE>
stock dividends, spin-offs, other distributions of assets to stockholders,
appropriate adjustments shall be made in the number and/or type of shares or
securities for which options may thereafter be granted under this Plan and for
which options then outstanding under this Plan may thereafter be exercised. Any
such adjustments in outstanding options shall be made without changing the
aggregate exercise price applicable to the unexercised portions of such options.
l. Option Modification. Subject to the terms and conditions and within
the limitations of the Plan, the Board or the Committee may modify, extend or
renew outstanding options granted under the Plan, or accept the surrender of
outstanding options (to the extent not theretofore exercised). Notwithstanding
the foregoing, no modification of an option (either directly or through
modification of the Plan) shall, without the consent of the optionee, alter or
impair any rights of the optionee under the option. Notwithstanding anything
herein to the contrary, the Board or Committee may not reprice outstanding
options nor may the Board or the Committee accept the surrender of outstanding
options in conjunction with a grant of new options in substitution therefor at
an exercise price lower than the price of the options surrendered, and this
sentence may not be amended without consent of the Board and ratification by the
Company's stockholders.
m. Grants to Foreign Optionees. The Board or the Committee in order to
fulfill the Plan purposes and without amending the Plan may modify grants to
optionees who are foreign nationals or performing services for the Company or an
Affiliated Group member outside the United States to recognize differences in
local law, tax policy or custom.
n. Other Terms. Each option grant agreement may contain such other
terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Board or the Committee, such as without limitation
discretionary performance standards, tax withholding provisions, or other
forfeiture provisions regarding competition and confidential information.
7. Termination or Amendment of the Plan
The Board may at any time terminate or amend the Plan; provided, that
stockholder approval shall be obtained of any action for which stockholder
approval is required in order to comply with Rule 16b-3, the Code or other
applicable laws or regulatory requirements within such time periods prescribed.
8. Stockholder Approval and Term of the Plan
The Plan shall be effective as of March 26, 1997, the date as of which
it was adopted by the Board, subject to ratification by the stockholders of the
Company within (each of) the time period(s) prescribed under Rule 16b-3, the
Code, and any other applicable laws or regulatory requirements, and shall
continue thereafter
<PAGE>
until terminated by the Board. Unless sooner terminated by the Board, in its
sole discretion, the Plan will expire on March 25, 2007, solely with respect to
the granting of Incentive Stock Options or such later date as may be permitted
by the Code for Incentive Stock Options, provided that options outstanding upon
termination or expiration of the Plan shall remain in effect until they have
been exercised or have expired or been forfeited.
9. Merger, Consolidation or Reorganization
In the event of a merger, consolidation or reorganization with another
corporation in which the Company is not the surviving corporation, the Board,
the Committee (subject to the approval of the Board) or the board of directors
of any corporation assuming the obligations of the Company hereunder shall take
action regarding each outstanding and unexercised option pursuant to either
clause (a) or (b) below:
a. Appropriate provision may be made for the protection of such option
by the substitution on an equitable basis of appropriate shares of the surviving
corporation, provided that the excess of the aggregate fair market value (as
defined in paragraph 6(b)) of the shares subject to such option immediately
before such substitution over the exercise price thereof is not more than the
excess of the aggregate fair market value of the substituted shares made subject
to option immediately after such substitution over the exercise price thereof;
or
b. Appropriate provision may be made for the cancellation of such
option. In such event, the Company, or the corporation assuming the obligations
of the Company hereunder, shall pay the optionee an amount of cash (less normal
withholding taxes) equal to the excess of the highest fair market value (as
defined in paragraph 6(b)) per share of the Common Stock during the 60-day
period immediately preceding the merger, consolidation or reorganization over
the option exercise price, multiplied by the number of shares subject to such
options (whether or not then exercisable).
10. Dissolution or Liquidation
Anything contained herein to the contrary notwithstanding, on the
effective date of any dissolution or liquidation of the Company, the holder of
each then outstanding option (whether or not then exercisable) shall receive the
cash amount described in paragraph 9(b) hereof and such option shall be
cancelled.
11. Acceleration of Exercisability and Vesting Under Certain
Circumstances
Notwithstanding any provision in the Plan to the contrary, unless the
particular letter of grant provides otherwise, 75% of the unvested options held
by each optionee shall automatically become exercisable and vested upon the
occurrence, before the
<PAGE>
expiration or termination of such option, of the acquisition by a third party of
100% of the Company's outstanding equity securities, a merger in which the
Company is not the surviving corporation, a sale of all or substantially all of
the Company's assets, or a similar reorganization of the Company (collectively,
"Accelerating Events"). The balance of each optionee's unvested options will
vest and become exercisable in 12 equal monthly installments following the
occurrence of any Accelerating Event, or according to the optionee's individual
vesting schedule as applicable without regard to this Section 11, whichever is
earlier. If an optionee loses his position with the Company as a result of or
subsequent to the occurrence of an Accelerating Event, 100% of the unexpired and
unvested options granted pursuant to this Plan held by such optionee shall
automatically become vested upon such loss of position.
12. Withholding Taxes
a. General Rule. Pursuant to applicable federal and state laws, the
Company is or may be required to collect withholding taxes upon the exercise of
an option. The Company may require, as a condition to the exercise of an option
or the issuance of a stock certificate, that the optionee concurrently pay to
the Company (either in cash or, at the request of optionee but in the discretion
of the Board or the Committee and subject to such rules and regulations as the
Board or the Committee may adopt from time to time, in shares of Common Stock of
the Company) the entire amount or a portion of any taxes which the Company is
required to withhold by reason of such exercise, in such amount as the Committee
or the Board in its discretion may determine.
b. Withholding from Shares to be Issued. In lieu of part or all of any
such payment, the optionee may elect, subject to such rules and regulations as
the Board or the Committee may adopt from time to time, or the Company may
require that the Company withhold from the shares to be issued that number of
shares having a fair market value (as defined in paragraph 6(b)) equal to the
amount which the Company is required to withhold.
c. Special Rule for Insiders. Any such request or election (to satisfy
a withholding obligation using shares) by an individual who is subject to the
provisions of Section 16 shall be made in accordance with the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
CO-PROMOTION AGREEMENT
BETWEEN
ORTHOLOGIC
AND
SANOFI PHARMACEUTICALS, INC.
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 - Definitions and Interpretation ................................ 1
ARTICLE II - Committee .................................................... 8
ARTICLE III - Term and Termination ........................................ 9
ARTICLE IV - Disclaimer of Warranties Limitation of Liability ............. 11
ARTICLE V - Co-promotional Activities ..................................... 12
ARTICLE VI - Compensation / Obligations ................................... 16
ARTICLE VII - Reports and Records ......................................... 18
ARTICLE VIII - Trademark and Corporate Name ............................... 19
ARTICLE IX - Food and Drug Administration Compliance and Discontinuance
of Product ................................................................ 20
ARTICLE X - Indemnification ............................................... 21
ARTICLE XI - Insurance .................................................... 23
ARTICLE XII - Confidential Information .................................... 23
ARTICLE XIII - Relationship of the Parties ................................ 25
ARTICLE XIV - Termination for Breach or Default ........................... 25
ARTICLE XV - Property of the Parties ...................................... 26
ARTICLE XVI - Injunctive Relief ........................................... 26
ARTICLE XVII - General Representations and Warranties ..................... 26
ARTICLE XVIII - Force Majeure ............................................. 28
ARTICLE XIX - Successors and Assignment ................................... 29
ARTICLE XX - Entire Agreement - Modifications ............................. 29
ARTICLE XXI - Compliance with Law ......................................... 29
ARTICLE XXII - Severability ............................................... 30
ARTICLE XXIII - Dispute Resolution and Governing Law ...................... 30
ARTICLE XXIV - Waiver ..................................................... 31
ARTICLE XXV - Survivability ............................................... 31
ARTICLE XXVI - Notices .................................................... 32
ARTICLE XXVII - Heading ................................................... 33
ARTICLE XXVIII- Language .................................................. 33
<PAGE>
PAGE
----
ARTICLE XXIX - Exhibits and Schedules ..................................... 33
ARTICLE XXX - No Third Party Rights ....................................... 33
ARTICLE XXXI - Counterparts ............................................... 33
ARTICLE XXXII - Currency .................................................. 34
<PAGE>
CO-PROMOTION AGREEMENT
This exclusive co-promotion agreement (this "Agreement"), is made and entered
into as of the 23rd day of June, 1997 (the "Effective Date") between SANOFI
PHARMACEUTICALS, INC., a Delaware corporation, with its principal place of
business located at 90 Park Avenue, New York, New York 10016-1389 ("Sanofi") and
ORTHOLOGIC CORP., a Delaware corporation, with its principal place of business
located at 2850 South 36th Street, Phoenix, Arizona 85034 ("OrthoLogic").
WITNESSETH:
-----------
WHEREAS, Sanofi owns certain rights in and to the Product as per the License
Agreement;
WHEREAS, OrthoLogic has expertise in promoting device products; and
WHEREAS, Sanofi and OrthoLogic desire to enter into this Agreement with respect
to OrthoLogic's promotion of the Product to the Target Audience.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, Sanofi and OrthoLogic hereby agree as follows:
ARTICLE I
---------
DEFINITIONS AND INTERPRETATION
1.1 Definitions - The following terms, as used herein (unless a clear
contrary interpretation appears), have the following meanings:
"Affiliate" means (i) with respect to (a) Sanofi; (b) Sanofi, a societe
anonyme organized under the laws of France, and ( c) any successor thereto
("Sanofi France") and any Person directly or indirectly controlled by Sanofi
France and (ii) with respect to OrthoLogic or any other Person, any Person,
directly or indirectly, controlled by, controlling or under common control with
such Person. For the purposes of this definition, "control" (including, with
correlative meaning, the terms "controlling" and "controlled") shall mean the
possession, directly or
<PAGE>
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement" has the meaning specified in the preliminary statements.
"Attributable Unit" means the Units, net of returns, that are purchased
by a Third Party and shipped to OrthoLogic's Target Audience.
"Claims" has the meaning specified in Article 1 0.1.1
"Committee" means the joint committee composed of representatives from
OrthoLogic and Sanofi established pursuant to Article 2.1 hereof.
"Competitive Product" means drugs or devices that include the same
indications as the Product.
"Complaint" has the meaning specified in Article 9.3.l.
"Confidential Information" has the meaning specified in Article 12.1.
"Contract Year" means each sequential twelve (12) month period during
the Term with the first such period commencing on January 1, 1998.
"Customers" means Persons involved in the distribution and utilization
of the Product, including, but not limited to, wholesalers, physicians and
managed care organizations.
"Detail" or "Detailing" means a personal contact by a professional
sales representative with a health care practitioner, health care institution,
their employees or agents for the purpose of providing information on or
stimulating interest in the use of purchase of pharmaceutical or health care
products.
"Effective Date" means the date the last Party executes this Agreement.
2
<PAGE>
"FDA" means the United States Food and Drug Administration or any other
government body or agency that succeeds it.
"FDA Approval" means receipt of all approvals from the FDA required to
market the Product in the Territory.
"Fidia" means Fidia S.p.A., an Italian corporation in amministrazione
straordinaria under the laws of Italy, with its principal place of business
located at Via Ponte della Fabbrica 3/A, Abano Terme (PD), Italy.
"GSI" has the meaning specified in Schedule B.
"Indemnified Party" has the meaning specified in Article 10.3.
"Indemnifying Party" has the meaning specified in Article 10.3.
"License Agreement" has the meaning specified in Article 3.2(e).
"Licensed Use" means the use of the Product in the Territory.
"Marketing Plan" has the meaning specified in Article 2.1.
"Minimum Promotional Amount" has the meaning specified in Article
5.3.4.
"Minimum Unit Sales Amount" has the meaning specified in Article 5.3.5.
"Net Sales" means the gross sales invoiced for the Product by Sanofi
and its Affiliates to Third Parties less deductions:. (i) distribution, quantity
and/or cash discounts, allowances and/or Rebates actually allowed or given, and
transportation and insurance costs for shipments to customers; (ii) credits or
refunds actually allowed for returned Units, and (iii) sales and other excise
taxes directly related to that sale, to the extent that such items are included
in the gross invoice price (but not including taxes assessed against the income
derived from such sale). Sales between or among Sanofi and its Affiliates shall
be excluded from the computation
3
<PAGE>
of Net Sales except where such Affiliates are end users but Net Sales shall
include the subsequent final sales to Third Parties by such Affiliate. In the
event of a Recall, Net Sales will be adjusted mutually between the Parties.
"Net Selling Price" or "NSP" for any calendar period means Net Sales
for that period divided by the number of Units, net of returns, sold by Sanofi
and its Affiliates during the same period.
"Nonsalable Returns" means Returns that cannot be resold.
"OCU" means OrthoLogic's compensation per Unit, net of returns, which
is calculated as the Net Selling Price minus the Trade Transfer Price minus
payments made to Sanofi pursuant to Articles 6.2.2 (i) and (ii) of this
Agreement.
"OrthoLogic" has the meaning specified in the preliminary statements.
"OrthoLogic's Annual Unit Forecast" has the meaning specified in
Article 5.3.2.
".Party" means Sanofi or OrthoLogic and, when used in the plural, shall
mean OrthoLogic and Sanofi.
"Payment Period" means the period commencing on the first day of the
launch of the Product and ending on the last day of each of the succeeding
calendar quarters during the Term.
"Person" means any natural person, corporation, firm, business trust,
joint venture, association, organization, company, partnership or other business
entity, or any government or any agency or political subdivision thereof.
"Product" means Hyalgane hyaluronic acid sodium salt as an
intra-articular device or drug for human use for the treatment of arthropathies,
the manufacturing specifications of which are described in the License
Agreement.
4
<PAGE>
"Providing Party" has the meaning specified in Article 12.l..
"Rebate" means the return of a payment or a charge back to the customer
based on certain criteria set forth in the contract that the customer must meet
for the contracted products and/or any Federal or state statutory requirements
(i.e., market share, formulary acceptance, dollar volume or growth over some
average).
"Recall" shall mean any action (including replacement and repair) to
correct misbranded, adulterated or unmarketable Product, which is either (i)
specifically mandated by the FDA or other regulatory authorities; (ii) agreed
upon by Sanofi and Fidia, or (iii) determined by either Sanofi or Fidia in good
faith, after consultation with the other party, for reasons of safety, efficacy
or other material Product defect materially affecting Product marketability.
"Receiving Party" has the meaning specified in Article 12.l.
"Renewal Term" has the meaning specified in Article 3.1.
"Residual Period" has the meaning specified in Article 3.1 (a).
"Returns" means the Product that is returned and attributable to the
Target Audience.
"Sample Product" means a Unit which is used to promote the use of
"Hyalgan" at no cost to the Target Audience and which is provided by Fidia in
reasonable quantities and identified with appropriate wording.
"Sanofi" has the meaning specified in the preliminary statements.
"Sanofi Group" has the meaning specified in Article 10.2.l.
"Shared Accounts" means accounts which are involving orthopedic
surgeons and other types of physicians who prescribe the Product, including, but
not limited to, health maintenance organizations, group purchasing
organizations, co-operative purchasing groups and multi- disciplined practices.
5
<PAGE>
"Target Audience" means orthopedic surgeons, who graduated from an
accredited program, as well as accounts which are deemed to be "Shared Accounts"
in the Territory, which shall use the Product for the Licensed Use.
"Term" has the meaning specified in Article 3. 1.
"Territory" means the USA, which includes the 50 states, the District
of Columbia and USA military bases around the world.
"Third Party" means any Person who or which is neither a Party nor an
Affiliate of a Party.
"Trademark" means the mark "Hyalgan" United States Registration No.
1,420,772 (12/16/86) owned by Fidia, and any other marks owned or controlled by
Fidia and used by Sanofi pursuant to the License Agreement.
"Trade Transfer Price" means an amount of 30% of Net Selling Price as
defined in the License Agreement, provided, however, that during the first four
(4) years of the term of the License Agreement, the Trade Transfer Price shall
not be less than Sixteen Dollars ($16.00) per Unit (the "Floor") nor more than
Eighteen Dollars ($18.00) per Unit (the "Cap"). On or before September 30, 2001,
the Floor and the Cap shall be negotiated in good faith by Sanofi and Fidia
based upon the prevailing economic and competitive dynamics affecting the
marketplace. If Sanofi and Fidia do not reach agreement prior to the
commencement of the next calendar year, the Floor and the Cap agreed upon for
the previous calendar year will be adjusted by an amount equal to the percentage
increase or decrease in the all items index of the US Department of Labor
(Bureau of Labor Statistics) Consumer Price Index ("CPI") for the USA from the
base month of August 1999, provided, however, that at no time shall the annual
increase or decrease exceed 4%. During the remainder of the term of the License
Agreement, the new Floor and the new Cap will be annually adjusted by an amount
equal to the percentage increase or decrease in the CPI from the base month of
August 2001, provided, however, that at no time shall the annual increase or
decrease exceed four percent (4%), nor
6
<PAGE>
shall the Trade Transfer Price exceed 30% of Net Selling Price as defined in the
License Agreement.
"Unit" means one (1) 2ml-vial or pre-filled syringe containing 20mg of
the Product, as requested by Sanofi in its purchase order of the Product plus
package insert.
"USA" means the United States of America.
"Wholesaler Acquisition Cost" means the published price a
wholesaler/distributor will pay Sanofi for the Product.
1.2 Interpretation - In this Agreement, unless a clear contrary
intention appears:
(i) the singular number includes the plural number and
vice versa;
(ii) reference to any person or entity includes such
person's or entity's successors and assigns;
(iii) reference to this Agreement means such agreement as
amended, modified or supplemented from time to time
in accordance with the terms hereof;
(iv) reference to any law, rule, regulation, order,
decree, requirement, policy, guideline, directive or
interpretation means as amended, modified, codified,
replaced or reenacted in whole or in part, and in
effect on the determination date, including rules and
regulations promulgated thereunder;
(v) "hereundee", "hereof", "hereto" and words of similar
import shall be deemed references to this Agreement
as a whole and not to any particular Article, Section
or other provision hereof;
(vi) "including" (and with correlative meaning "include")
means including without limiting the generality of
any description preceding such term; and
(vii) relative to the determination of any period of time,
"from" means "from and including to" and "to" means
"to but excluding".
7
<PAGE>
ARTICLE 11
----------
COMMITTEE
2.1 The Parties with FIDIA shall establish the Committee consisting of
a mutually agreed number of employees of Sanofi, OrthoLogic and FIDIA, which
shall meet periodically, as the Parties and FIDIA agree, but not less than every
quarter. For purposes of the Committee, FIDIA's role will be advisory and
observational. The Parties and FIDIA will meet to direct the marketing and
promotion of the Product to the Target Audience, including, but not limited to
the following: (a) to review and coordinate marketing and sales plans; (b) set
sales forecasts; (c ) coordinate development and allocation by market of
promotional materials; (d) discuss Detailing efforts for OrthoLogic; (e) discuss
research and development activities of the Product; (f) report on the status of
clinical studies; (g) establish sampling and marketing unit strategies and
procedures; (h) establish and update Target Audience account lists; (i)
establish and periodically review procedures for handling inquires to the
Product, including but not limited to, medical, product inquires, technical,
product complaints, safety issues and adverse reactions, and adverse events ;
and (j) to discuss any other issues or topics concerning promotion of the
Product. In particular, the Committee shall determine the initial plan for
OrthoLogic's marketing and promotion of the Product to the Target Audience (the
"Marketing Plan"). In addition, with respect to Shared Accounts, the Committee,
on a quarterly basis, will approve, for purposes of Compensation, a percentage,
which will vary from time to time based on a joint written presentation of the
Parties from an account by account analysis performed by Sanofi Division
Managers and OrthoLogic's Area Vice Presidents, to be used when calculating
Attributable Units allocated from the Shared Accounts to OrthoLogic. Each Party
shall have an equal opportunity to express its views regarding decisions to be
taken by the Committee. In the event of a difference of opinion within the
Committee regarding a decision, either Party shall be afforded an opportunity to
convey its views to the senior executives of the other Party, but Sanofi shall
have the ultimate decisional authority.
8
<PAGE>
ARTICLE III
-----------
TERM AND TERMINATION
3.1 Term. This Agreement shall continue in force for an initial period
commencing as of the Effective Date and, unless sooner terminated as provided in
this Agreement, shall terminate on December 31, 2002 unless renewed pursuant to
Article 3.1 (b) (the "Term"). Thereafter, Sanofi may, at its sole option, invoke
one of the following:
(a) at the expiration of the Term or any Renewal Term, Sanofi
shall pay to OrthoLogic an amount equal to 50% of the gross compensation paid
OrthoLogic pursuant to this Agreement for the last calendar year, which will be
paid on a quarterly basis during the next calendar year (the "Residual Period");
or
(b) Sanofi shall renew this Agreement under the same terms and
conditions hereunder for an additional one (1) year period (the "Renewal
Term")and the Minimum Sales Unit requirement for that year shall be at 50% of
the last calendar year's Attributable Units; or
(c) Sanofi shall enter into a "revised" co-promotion agreement
with OrthoLogic on terms and conditions established by the Committee that are
mutually beneficial to the Parties.
Sanofi shall notify OrthoLogic one hundred twenty (120) days prior to
the expiration of the Term as to which option in Article 3.1 above Sanofi shall
exercise.
3.2 Termination. Notwithstanding the provisions of Article 3.1 above,
this Agreement may be terminated in accordance with the following provisions:
(a) Either Party hereto may terminate this Agreement at any
time upon written notice to the other Party if the other Party: (i) files a
petition of any type as to its bankruptcy (which petition is not dismissed
within ninety (90) days); (ii) is declared bankrupt; (iii) becomes insolvent;
(iv) makes an assignment for the benefit of creditors; (v) goes into liquidation
or receivership; or (vi) otherwise loses legal control of its business;
9
<PAGE>
(b) Either Party may terminate this Agreement upon written
notice to the other Party if Minimum Unit Sales as described in Article 5.3.5 of
this Agreement are not met.
(c) Either Party may terminate this Agreement upon written
notice to the other Party if an event of Force Majeure continues for more than
six (6) months as provided in Article XVIII below;
(d) Either Party may terminate this Agreement upon written
notice to the other Party if the other Party is in material breach or default of
this Agreement and not cured as provided in Article XIV of this Agreement;
(e) Sanofi may terminate this Agreement immediately upon the
termination of the Exclusive License and Distribution Agreement made and entered
into on the same date as the Effective Date by and between Fidia and Sanofi (the
"License Agreement");
(f) Sanofi may terminate this Agreement upon thirty (30) days
written notice to OrthoLogic in the event that conditions are not met as
described in Article 5.3.4 and 5.3.5 of this Agreement
3.3 Non-Compete. During the Term and for a period of one (1) year after
the early termination or expiration of the Term, or any renewal thereafter,
OrthoLogic shall not market, promote, distribute or sell in the Territory any
Competitive Product.
3.4 Effect of Termination. Termination, expiration, cancellation or
abandonment of this Agreement through any means and for any reason shall not
relieve the Parties of any obligation accruing prior thereto and shall be
without prejudice to the rights and remedies of either Party with respect to any
antecedent breach of any of the provisions of this Agreement
3.5 Surviving Obligations. Notwithstanding any termination of this
Agreement, the indemnification provisions of Article X of this Agreement and the
confidentiality provisions of Article XII of this Agreement shall survive.
10
<PAGE>
ARTICLE IV
----------
DISCLAIMER OF WARRANTIES
LIMITATION OF LIABILITY
4.1 Warranty and Disclaimers and Limitations.
4.1.1 Sanofi warrants and represents that all quantities of
the Product shall meet all specifications and quality standards described in the
License Agreement, as may be amended from time to time by Sanofi and Fidia, and
that Sanofi shall adhere to all applicable governmental laws and regulations
relating to the distribution, sale and shipment of the Product in the Territory.
Sanofi further warrants that all necessary approvals from government agencies
relating to the sale of the Product hereunder have been obtained.
4.1.2 THE LIMITED WARRANTY PROVIDED IN ARTICLE 4.1.1 IS
SANOFI'S SOLE WARRANTY WITH RESPECT TO THE PRODUCT AND IS MADE IN LIEU OF ANY
AND ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF QUALITY,
PERFORMANCE, MERCHANTABILITY AND FITNESS FOR A PARTICULAR USE OR PURPOSE. SANOFI
MAKES NO OTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND WITH RESPECT TO THE
PRODUCT.
4.2 Limitation of Liability. EXCEPT WITH RESPECT TO CLAIMS FOR
INDEMNIFICATION UNDER ARTICLE X OF THIS AGREEMENT, IN NO EVENT SHALL EITHER
PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES,
INCLUDING LOSS OR PROFITS, REVENUE, DATA OR USE, INCURRED BY THE OTHER PARTY,
WHETHER IN CONTRACT OR TORT OR BASED ON A WARRANTY, EVEN IF THE OTHER PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
11
<PAGE>
ARTICLE V
---------
CO-PROMOTIONAL ACTIVITIES
5.1 Appointment. Sanofi hereby appoints OrthoLogic as its exclusive
co-promotion marketing agent for sales of the Product to the Target Audience as
specified in Section 3.3. 1. OrthoLogic and Sanofi shall use commercially
reasonable efforts to simultaneously (i) conduct the training for each Party's
respective sales organization and (ii) commence Detailing. OrthoLogic will not
appoint sub-agents without Sanofi's prior written approval, except that
OrthoLogic is permitted to utilize independent contractors equal to 10% of their
sales force at any one time during the Term.
5.2 Publicity. Neither Party shall issue any press release or public
announcement or otherwise divulge the existence of this Agreement or its terms
without the prior written consent of the other Party except as and to the extent
that such Party shall be obligated by law, rules or regulations of any
governmental or regulatory body. Notwithstanding the foregoing, the Parties
hereto agree to prepare a mutually agreeable press release for dissemination
subsequent to the execution hereof.
5.3 OrthoLogic's Obligations.
5.3.1 Marketing and Forecasts. OrthoLogic shall use best
efforts to market and promote the Product to the Target Audience and shall
conduct face to face Detailing with a minimum of 50% of the Target Audience at
least six (6) times per calendar year during the Term and shall afford Sanofi a
reasonable opportunity to verify the level of such promotional activity by
providing, among other things, OrthoLogic's internal promotional sales activity
reports. OrthoLogic shall maintain an adequate and competent marketing and sales
organization for Detailing to the Target Audience and agrees to promote the
Product by accepted promotional practices and in accordance with FDA
requirements.
5.3.2 Annual Unit Production Forecast. OrthoLogic shall advise
Sanofi in writing on or before the 15" day of September for each year of this
Agreement as to its estimated Unit requirements, exclusive of Samples, for the
next Contract Year ("OrthoLogic's Annual Unit Forecast"). OrthoLogic shall
advise Sanofi as well for the Unit requirements for
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the Product Samples for the following Contract Year. OrthoLogic's Annual Unit
Forecast and the requirements for the Product Samples shall be provided by
OrthoLogic on a monthly-based schedule. OrthoLogic further agrees that, to the
extent its failure to achieve the Unit Sales equal to OrthoLogic's Annual Unit
Forecast requires Sanofi to incur additional inventory carrying charges, that
these additional charges shall be borne by OrthoLogic and deducted from payments
to OrthoLogic.
5.3.3 Record Keeping. OrthoLogic shall maintain complete and
accurate records regarding its performance hereunder for such periods as may be
required by applicable law.
5.3.4 Promotional Materials. OrthoLogic shall be responsible,
at its own sole expense and cost, for the advertising, promotion and medical
education of the Target Audience, including, but not limited to, the
distribution of promotional materials provided by Sanofi or Fidia pursuant to
Section 5.4.6 below, samples, reminder pieces, promotional materials, seminars,
symposia, luncheons and Continuing Medical Education programs. OrthoLogic agrees
to spend at a minimum the amounts specified in Schedule A, which is attached
hereto and made part of this Agreement, in connection with the foregoing during
the Term (the "Minimum Promotional Amount"). Notwithstanding the foregoing, the
Minimum Promotional Amount shall specifically exclude costs and expenses
associated with OrthoLogic's sales force, managed care, sales support and
marketing personnel expenses. OrthoLogic shall not use any promotional materials
for the Product other than materials provided by Sanofi or Fidia, or except as
developed by OrthoLogic and expressly authorized in advance of use in writing by
Sanofi. The cost of any such authorized (i.e., non-Sanofi) materials shall be
borne by OrthoLogic. OrthoLogic shall provide Sanofi with copies of all head
office correspondence to its field sales force with regard to promotion of the
Product.
5.3.5 Minimum Unit Sales. OrthoLogic agrees that Attributable
Units will be equal to or greater than 50% of , 425,000 and 450,000 for Contract
years 4 and 5 respectively (the "Minimum Unit Sales").
5.3.6 Performance. Anything in this Agreement to the contrary
notwithstanding, if any performance or activity of OrthoLogic, that is required
or contemplated by this
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Agreement, is prevented or impeded by any action of Fidia or Sanofi, by any
Force Majeure under Article XVIII of this Agreement or by any other condition or
event beyond the control of OrthoLogic, (i) any failure or shortfall in
OrthoLogic's performance shall be excused for the duration of the condition or
event; (ii) an identical amount of time shall be added to any time period
contemplated by this Agreement which is affected by such delay; and (iii) an
equitable adjustment shall be made with respect to any quantitative requirements
to address such factors as reallocation of resources by OrthoLogic and loss of
momentum in the marketplace.
5.4 Sanofi's Obligations.
5.4.1 Product Supply. Sanofi shall use commercially reasonable
efforts to supply the Product for customer orders on a timely basis. If the
Product becomes unavailable, including a recall, during the Term for any reason
and the period of such unavailability extends beyond two (2) months,
OrthoLogic's Detailing obligation as set forth in Article 5.3.1 herein above
shall be suspended. If the period of unavailability extends beyond six (6)
months, then, either Party may upon sixty (60) days prior written notice to the
other Party terminate this Agreement without further obligation, except for
obligations already accrued.
5.4.2 Sale Prices and Term. All sales of the Product shall be
at prices and upon terms established by Sanofi in conjunction with Article 11 of
this Agreement and Sanofi shall have the right, in its sole discretion, from
time to time, to establish, change, alter or amend prices and other terms and
conditions of sale, provided that it provides OrthoLogic with at least seven (7)
days written notice in advance of any such change. The Parties agree that it may
be necessary from time to time to offer customers discounts from the established
list prices. Periodically, Committee will establish guidelines for the amount
and duration of such discounts. OrthoLogic shall not process orders for the
Product, or make price quotations or delivery promises without Sanofi's prior
written approval, provided, however, that OrthoLogic is permitted to have its
sales force complete Sanofi approved order forms and submit the order forms to
Sanofi.
5.4.3 Processing Orders. Sanofi is responsible for the Product
distribution in the Territory. All orders received by Sanofi are subject to its
approval and acceptance and Sanofi reserves the right to accept, reject, in
whole or in part, any or all orders received and/or
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accepted for the Product at any time, for any reason. If OrthoLogic receives any
orders it shall refer such to Sanofi. All the Product sales shall be invoiced by
Sanofi and shall be made in accordance with Sanofi's terms and conditions of
sale including, without limitation, prices, credit terms, cash discounts,
returns and allowances. Sanofi shall be responsible for all credit risks and
collections of all payments due from customers for the shipped Product. Sanofi
shall not be liable to OrthoLogic for any rejection, cancellation or
modification of any customer order referred to Sanofi by OrthoLogic, or any
failure to deliver the Product ordered pursuant to such order.
5.4.4 Delivery of the Product. Sanofi shall ship and deliver
the Product to customers placing orders pursuant to this Agreement. As between
OrthoLogic and Sanofi, all risk of loss or damage to or destruction of the
Product shall be borne by Sanofi.
5.4.5 Invoicing. Sanofi shall invoice the customer for the
Units ordered and shipped pursuant to such order.
5.4.6 Promotional Materials. Sanofi shall supply at
OrthoLogic's sole expense, reasonable quantities of relevant promotional
materials at Sanofi's cost to OrthoLogic at a fixed location as OrthoLogic may
specify. If OrthoLogic requests shipment to more than one location, it shall
bear the incremental expense thereof. All such promotional material shall comply
with FDA regulations.
5.4.7 Training. Sanofi shall be responsible for providing
reasonable quantities of existing training materials to OrthoLogic's sales force
and shall make available at times and places to be agreed reasonable numbers of
Sanofi personnel for training purposes. Sanofi and OrthoLogic agree to, prior to
the date of the Product launch, a co-launch meeting which shall be held at a
time and place mutually agreed to by the Parties. Sanofi and OrthoLogic shall
each be responsible for their respective travel and accommodation expenses
associated with sending their employees and representatives to said co-launch
meeting. Sanofi and OrthoLogic shall share all other costs and expenses
associated with said co-launch meeting in proportion to the number of their
respective attendees.
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5.4.8 Access to Account Files. Sanofi shall provide OrthoLogic
with access to account files purchased by Sanofi from the distributor showing
Units purchased by account. If OrthoLogic wishes to access information not
purchased by Sanofi, Sanofi will authorize such access, but at OrthoLogic's
expense.
5.4.9 Sampling. Sanofi shall supply to OrthoLogic, in
reasonable quantities, the Sample Product at a cost of 50% of the Trade Transfer
Price for the first twelve (12) months of the Term and 75% of the Trade Transfer
Price for the remainder of the Term consistent with OrthoLogic's forecast.
ARTICLE VI
----------
COMPENSATION / OBLIGATIONS
6.1 Compensation.
6.1.1 Commission to OrthoLogic:
As compensation hereunder, OrthoLogic shall be paid by Sanofi an amount
equal to the Attributable Units times OCU, as illustrated in the example in
Schedule B attached hereto and made part of this Agreement. OrthoLogic's
commission payments shall be made monthly by Sanofi within ten (10) business
days of receipt of wholesaler report and shall equal thirty five percent (35%)
of Net Sales attributable to Target Audience for that month. Within thirty (30)
days after the end of each calendar quarter, the commission paid to OrthoLogic
shall be adjusted and payments made between the Parties within ten (10) business
days, based on the actual Attributable Units times OCU in that quarter.
6.1.2 If at any time during the Term, the GSI is less than
Seventy Dollars ($70.00), the Parties mutually agree to discuss a revised
commission structure.
6.2 Obligations.
6.2.1 (i) Milestone Payments to Fidia. OrthoLogic agrees to
pay Fidia the below listed milestone payments to be received by Sanofi, on
behalf of Fidia, in connection with the
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Product and which payments shall be directly passed through to Fidia. The total
of these milestone payments will not be less than Four Million Dollars
($4,000,000) and shall be paid as follows:
(a) One Million Dollars ($1,000,000) payable upon execution of
this Agreement;
(b) One Million Dollars ($1,000,000) payable six (6) months
after the launch of the Product by OrthoLogic;
(c) One Million Dollars payable twelve (12) months after the
launch of the Product by OrthoLogic; and.
(d) One Million Dollars payable eighteen (18) months after the
launch of the Product, but not later than December 31, 1998.
(ii) OrthoLogic agrees to pay Sanofi a royalty which
will be passed through to Fidia on combined annual Net Sales of Sanofi and
OrthoLogic in excess of $30 Million Dollars. The Parties shall share the 10%
royalty payment due Fidia in accordance with the respective Party's pro rata
share of combined sales for that year. Sanofi will invoice OrthoLogic any amount
due on a quarterly basis and OrthoLogic will pay said amounts within 10 business
days. The aggregate royalty payments by OrthoLogic and Sanofi to Fidia shall not
exceed $20 Million Dollars for the term of the License Agreement. At any time
during the Term, if the GSI is less than Seventy Dollars ($70.00), the Parties
mutually agree to discuss a lower royalty rate.
6.2.2. Obligations to Sanofi:
OrthoLogic agrees to compensate Sanofi the following:
(i) A Royalty equal to 10% of the Net Selling Price
per Unit times the Attributable Units.
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(ii) Overhead in the amount equal to $6.75 per Unit
times the Attributable Units. This amount shall be fixed for a period of 12
months from the Effective Date, thereafter the per Unit amount shall be adjusted
annually by an amount equal to the percentage increase or decrease in the all
items index of the US Department of Labor (Bureau of Labor Statistics) Consumer
Price Index ("CPI") for the USA from the base month of August 1997, provided,
however, that at no time shall the annual increase or decrease exceed four
percent (4%).
ARTICLE VII
-----------
REPORTS AND RECORDS
7.1 Reports. Sanofi shall keep true and accurate accounts of Actual
Unit Sales and the OCU and of sums payable to OrthoLogic hereunder. Commencing
with the Product launch under this Agreement and at the end of every calendar
quarter thereafter, Sanofi shall deliver to OrthoLogic written sale and payment
reports containing the calculations by Units or other forms or reports used to
compute payments due OrthoLogic hereunder for the Payment Period covered by the
report. Each sale and payment report and other reports required hereunder shall
be delivered within forty-five (45) business days after the end of the Payment
Period which it covers.
7.2 Examination of Records. During the Term and for a period of two (2)
years thereafter, OrthoLogic shall have the right, at its own expense, to have a
public accounting firm, to which Sanofi has no reasonable objection, examine the
relevant books and records of account of Sanofi during reasonable business hours
not more often than once each calendar year, to determine whether accurate
accounting and payment have been made by Sanofi hereunder. The public accounting
firm shall treat as confidential, and shall not disclose to OrthoLogic, any
information other than information which relates to the accuracy of Sanofi's
accounting of amounts payable hereunder to OrthoLogic.
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ARTICLE VIII
------------
TRADEMARK AND CORPORATE NAME
8.1 Use of Trademark. OrthoLogic shall use the Trademark only in the
form, manner, and logotype, including identifying the Trademark by any necessary
notices of Trademark registration, specifically approved by Sanofi unless the
Parties agree together, in writing, on further uses of the Trademark.
8.2 Acknowledgment. Sanofi represents that it has certain rights to the
Trademark and that all rights accruing from its use shall inure to the benefit
of Sanofi. OrthoLogic agrees not to contest or deny the validity of the
Trademark or Sanofi's rights to the Trademark. OrthoLogic agrees that it will
not register the Trademark or any colorable imitation thereof or in any way
assist a Third Party to do so.
8.3 Rights on Termination. OrthoLogic agrees that, following
termination of this Agreement for any reason, it will claim no right, title or
interest in, or any right to use the Trademark by reason of its previous
activities under this Agreement. Immediately upon termination of this Agreement,
OrthoLogic shall cease all use of the Trademark and shall turn over to Sanofi or
destroy all stocks of advertising and promotional materials which use the
Trademark.
8.4 Use of Corporate Names. It is the intent of the Parties to promote
sales of the Product through the use of their respective corporate names. Except
as otherwise authorized pursuant to this Article VIII or required by Federal or
state laws and regulations, the Parties agree that each will obtain the consent
of the other Party prior to using the other Party's corporate name, which
consent shall not be unreasonably withheld.
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ARTICLE IX
----------
FOOD AND DRUG ADMINISTRATION COMPLIANCE
AND DISCONTINUANCE OF PRODUCT
9.1 Relations with the FDA. Sanofi and Fidia, as applicable, shall be
responsible for all interactions with the FDA regarding the Product, including
the filing of required reports, but shall keep OrthoLogic informed of such
contacts insofar as they relate to the Target Audience.
9.2 Relationship with Customers. OrthoLogic shall have all inquires
relating to the Product including, but not limited to, medical, product
inquires, technical, product complaints, safety issues and adverse reactions,
adverse events routed directly to Sanofi Medical staff. OrthoLogic will develop,
in cooperation with Sanofi, a system to immediately forward requests from
Customers associated with the Product to Sanofi.
9.3 Complaints and Records.
9.3.1 Complaints. The Parties agree to report to each other
any and all complaints and medical device reports (as per FDA regulations),
including, but not limited to, adverse reactions, product anomalies or stability
problems relative to or having a bearing on the Product or its performance
(collectively, the "Complaint") which they receive with respect to the Product
within the time required by applicable law and regulations. In any event, the
Party learning of the Complaint will notify the other Party as soon as possible
the next working day . For purposes of this Agreement, Sanofi will assume
responsibility for reporting the Complaint to the FDA as provided in the License
Agreement. In any event, either Party shall promptly notify the other of any
Complaint received by such Party in sufficient detail and in sufficient time to
allow compliance with any and all regulatory requirements imposed in the
Territory.
9.3.2 Records. Each of Sanofi and OrthoLogic shall maintain a
record of all Complaints which they receive. Each Party shall have the right,
upon reasonable notice and at reasonable intervals during normal business hours,
to examine the complaint files, medical device reports, and other filings or
records of the other Party, which are related to the Product.
9.4 Recall. In the event that Sanofi and/or Fidia determines that an
event, incident or circumstance has occurred which may result in the need for
removal of the Product from the
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market, in whole or in part, it shall advise and consult OrthoLogic with respect
thereto. If Sanofi and/or Fidia removes the Product from the marketplace, Sanofi
and Fidia shall be responsible as provided in the License Agreement for the
recall process including communications with the FDA and shall bear all costs
and expenses of recall, including, without limitation, expenses or obligations
to Third Parties, the cost of notifying customers and costs associated with
shipment of the recalled Product from a customer to Sanofi or Fidia, provided,
however, that if the Recall results from an action by OrthoLogic, OrthoLogic
shall promptly pay all costs and expenses of Sanofi and Fidia in connection with
the Recall.
9.5 Record Keeping. Sanofi shall maintain complete and accurate
records, for such periods as may be required by applicable law, but in no event
less than three (3) years, of all the Product sold by it.
9.6 Discontinuance. Sanofi or Fidia may at any time make changes in, or
discontinue the manufacture, sale or use of the Product if safety, regulatory,
or manufacturing reasons, in Sanofi's or FIDIA's opinion warrant such action.
Sanofi shall promptly notify OrthoLogic of any discontinuance or significant
change in the Product, giving OrthoLogic as much notice as reasonably possible
under the circumstances, attempting, in any event, to provide OrthoLogic at
least six (6) months' advance notice of any discontinuance.
ARTICLE X
---------
INDEMNIFICATION
10.1 Indemnification by Sanofi.
10.1.1 Indemnification by Sanofi. Except for any Claims
(defined below) arising under Article 10.2, Sanofi shall indemnify, defend and
hold OrthoLogic harmless from and against all claims, damages, losses, costs and
expenses, including reasonable attorney's fees (collectively, "Claims"), which
OrthoLogic may incur by reason of any Claims (a) alleging that the Product or
the Trademark, or their use as provided hereunder, violate any patent,
trademark, trade secret, know-how or other intellectual property rights of any
sort; (b) resulting from an injury, illness or death of any Person, to the
extent that such Claim arises out of or results from the tortious conduct or
inaction of Sanofi or its officers, employees or agents in
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connection with the Product; ( c) arising out of or resulting from the material
breach of Sanofi's representations and warranties in Article 17.2 of this
Agreement; or (d) resulting from injury, illness or death of any person arising
out of or relating to the distribution or use of the Product.
10.1.2 If such Claim in Article 1 0.1.1 above arises in whole
or in part from OrthoLogic's tortious conduct or inaction, then the amount of
such Claim that Sanofi shall indemnify OrthoLogic for pursuant to Article 10.1.1
above shall be reduced by an amount in proportion to the percentage of
OrthoLogic's responsibilities for such Claim as determined by a court of
competent jurisdiction in a final and non-appealable decision or in a binding
settlement between the Parties.
10.2 Indemnification by OrthoLogic.
10.2.1 Indemnification by OrthoLogic. Except for any Claims
arising under Article 10.1 above, OrthoLogic shall indemnify, defend and hold
Sanofi and its Affiliates and their respective officers, directors, employees
and agents (the "Sanofi Group") harmless from and against all Claims, which the
Sanofi Group may incur by reason of any Claims (a) arising out of the activities
of OrthoLogic's marketing, promotion and sales efforts which are not authorized
by Sanofi pursuant to this Agreement; (b) any breach by OrthoLogic of its
representations or obligations under this Agreement; (c ) resulting from an
injury, illness or death of any Person, to the extent that such Claim arises out
of or results from the tortious conduct or inaction of OrthoLogic or its
officers, employees or agents in connection with the Product; or (d) arising out
of or resulting from any material breach of OrthoLogic's representations and
warranties in Article 17.2 of this Agreement above.
10.2.2 If such Claim in Article 10.2 above arises in whole or
in part from the Sanofi's tortious conduct or inaction, then the amount of such
Claim that OrthoLogic shall indemnify the Sanofi Group for pursuant to Article
10.2.1 above shall be reduced by an amount in proportion to the percentage of
Sanofi's responsibilities for such Claim as determined by a court of competent
jurisdiction in a final and non-appealable decision or in a binding settlement
between the Parties.
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10.3 Indemnification Procedure. The party seeking indemnification under
this Article X (the "Indemnified Party") shall (a) give the other party (the
"Indemnifying Party") notice of the relevant Claim, (b) reasonably cooperate
with the Indemnifying Party, at the Indemnifying Party's expense, in the defense
of such Claim, and (c ) give the Indemnifying Party the sole right to control
the defense and settlement of any such Claim, except that the Indemnifying Party
shall not enter into any settlement that affects the Indemnified Party's rights
or interest without the Indemnified Party's prior written consent, which consent
shall not be unreasonably withheld. The Indemnified Party shall have no
authority to settle any Claim on behalf of the Indemnifying Party. The
Indemnified Party may, at its option and its own expense, participate in the
defense of any such claim with legal counsel of its own choice.
ARTICLE XI
----------
INSURANCE
11.1 Unless otherwise agreed to in writing, each Party shall, at its
own expense, carry and maintain during the Term, with companies satisfactory to
the other, product liability insurance against losses arising out of, including,
but not limited to, its activities in respect to the distribution, the
marketing, promotion and sale of the Product and all components thereof, naming
the other Party as an additional named insured under such policy (or policies)
of insurance, and in an amount of not less than Five Million Dollars
($5,000,000) per occurrence and in the annual aggregate. Such policy (or
policies) of insurance shall contain a Broad Form Vendors Endorsement, and shall
be written on an occurrence basis, or if on a claims made basis shall have a
retroactive date at least equal to the Effective Date. Each Party agrees that it
shall provide to the other Party within thirty (30) days of the Effective Date,
and from time to time thereafter upon the Parties reasonable request, a
certificate of insurance evidencing compliance with these provisions.
ARTICLE XII
-----------
CONFIDENTIAL INFORMATION
12.1 Sanofi and OrthoLogic agree that all materials, documents and
information provided to them or their employees or agents by the providing Party
hereto (the "Providing Party") and all information developed by the Party
receiving said materials, documents and
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information (the "Receiving Party") exclusively pursuant to this Agreement, is
and shall be considered as confidential information to the Providing Party
(collectively, the "Confidential Information") and the sole property of the
Providing Party. The Receiving Party agrees to hold such Confidential
Information in strict confidence for five (5) years after the expiration of the
Term and shall disclose the Confidential Information to the Receiving Party's
respective agents, employees, officers and directors, and representatives only
on a need-to-know basis and only if the foregoing Parties are bound and
obligated by the same provisions of confidentiality as used by the Receiving
Party; provided that (a) the Receiving Party will have no obligations with
respect to any Confidential Information that is now or later becomes publicly
available through no fault of the Receiving Party, (b) the Receiving Party
obtains such Confidential Information from a Third Party entitled to disclose
it, (c ) the Receiving Party already has in its possession such Confidential
Information as indicated in its written records, or (d) such Confidential
Information is required by any law, rule, regulation, order, decision, decree or
subpoena or other judicial, administrative or legal process to be disclosed,
provided, however, that the Receiving Party gives the Providing Party sufficient
advance written notice to permit it to seek a protective order or other similar
order with respect to such Confidential Information and thereafter discloses
only the minimum Confidential Information required to be disclosed in order to
comply. The Receiving Party shall include in its contracts with their respective
agents, subcontractors, employees, officers and directors, and representatives,
confidentiality undertaking consistent with this Article XII.
12.2 Upon the expiration of the Term, the Receiving Party will promptly
return to the Providing Party or destroy or delete, as appropriate, all of the
Confidential Information, as well as all written material or electronic storage
which incorporates any Confidential Information, except that one (1) copy of the
Confidential Information may be retained for archival purposes.
12.3 The Receiving Party acknowledges that the disclosure of
Confidential Information without the Providing Party's express written
permission will cause the Providing Party irreparable harm and that the breach
or threatened breach of the nondisclosure provisions of Article XII of this
Agreement will entitle the Providing Party to injunctive relief, in addition to
any other legal remedies that may be available to it.
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12.4 All obligations of confidentiality and non-disclosure set forth in
this Agreement will survive, without limitation, upon expiration of the Term.
ARTICLE XIII
------------
RELATIONSHIP OF THE PARTIES
13.1 Nothing contained in this Agreement shall be deemed to create a
partnership or joint venture between the Parties, and each of the Parties shall
in all matters connected herewith be independent contractors. Except as required
by this Agreement, which provides for OrthoLogic to represent Sanofi in the
promotion of the Product, neither of the Parties shall hold itself out as the
agent of the other, nor shall either of the Parties incur any indebtedness or
obligation in the name of, or which shall be binding on the other, without the
prior written consent of the other. The personnel of Sanofi are paid by Sanofi
and the personnel of OrthoLogic are paid by OrthoLogic, and each Party assumes
full responsibility for its own personnel under the laws and regulations of
governmental authority in the Territory. In the event that either of the Parties
violates the provisions of this Article XIII, said Party shall indemnify the
other against any debt or obligation so incurred and shall hold the other Party
harmless therefrom.
ARTICLE XIV
-----------
TERMINATION FOR BREACH OR DEFAULT
14.1 In addition to the provisions of Article III hereof, either Party
may terminate this Agreement for material breach or default if such material
breach or default is not cured within ninety (90) days after the giving of
notice by the other Party specifying such breach or default. In addition,
OrthoLogic may terminate upon the discontinuance of manufacture, sale or use of
the Product by Sanofi.
14.2 In promoting sale of the Product, OrthoLogic agrees to act in
accordance with accepted marketing standards and FDA requirements. If Sanofi
believes that OrthoLogic has breached or is in default of this Agreement for
failure to comply with such standards or requirements, Sanofi will give
OrthoLogic prompt notice thereof, and the Parties will work together to cure any
breach or default. If the breach or default is not cured within ninety (90)
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days after the giving of the notice described in the preceding sentence, Sanofi
may terminate this Agreement.
14.3 The failure of either Party to terminate pursuant to this Article
XIV shall not preclude said Party from thereafter terminating for any subsequent
violation whether similar or not.
ARTICLE XV
----------
PROPERTY OF THE PARTIES
15.1 In the event of termination of this Agreement for whatever cause,
in addition to either Party's obligations hereunder, a Party in possession of
property of the other Party shall return such property to the other Party or its
designee no later than thirty (30) days after the effective date of termination.
ARTICLE XVI
-----------
INJUNCTIVE RELIEF
16.1 The Parties acknowledge that the covenants in Article XII of this
Agreement in respect of the Confidential Information it obtains hereunder are
unique and integral to this Agreement and that monetary damages would be an
inadequate remedy at law in the event of a breach. For that reason, the Parties
consent that such covenants shall be enforceable in a court of equity by
temporary or permanent injunction, restraining order or a decree of specific
performance. The remedies provided above shall be cumulative and not exclusive,
and in addition to any other remedies which the other Party may have under this
Agreement or applicable law.
ARTICLE XVII
------------
GENERAL REPRESENTATIONS AND WARRANTIES
17.1 Representation and Warranties of OrthoLogic. OrthoLogic hereby
represents and warrants to Sanofi that:
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17.1.1 it is a corporation duly organized, validly existing
and in good standing under the laws of the state and country of its
incorporation and has the corporate power to own its assets and properties and
to carry on its business as now being and heretofore conducted;
17.1.2 OrthoLogic is duly authorized to execute and deliver
this Agreement and to perform its obligations hereunder;
17.1.3 the execution, delivery and performance of this
Agreement have been duly authorized, do not violate its certificate of
incorporation, by laws or similar governing instruments or applicable law and do
not, and with the passage of time will not, materially conflict with or
constitute a breach under any other agreement, judgment or instrument to which
it is a party or by which it is bound; and
17.1.4 it shall promote, market, and sell the Product only in
accordance with the term of this Agreement (including, but not limited to,
Article 14.2 of this Agreement and the Marketing Plan), and shall not take
customer orders or distribute the Product except as expressly provided
hereunder.
17.2 Representation and Warranties of Sanofi. SANOFI hereby represents
and warrants to OrthoLogic that:
17.2.1 it is a corporation duly organized, validly existing
and in good standing under the laws of the state and country of its
incorporation and has the corporate power to own its assets and properties and
to carry on its business as now being and heretofore conducted;
17.2.2 Sanofi is duly authorized to execute and deliver this
Agreement and to perform its obligations hereunder;
17.2.3 the execution, delivery, and performance of this
Agreement have been duly authorized, do not violate its certificate of
incorporation, by-laws or similar governing instruments or applicable law and do
not, and with the passage of time will not, materially
27
<PAGE>
conflict with or constitute a breach under any other agreement, judgment or
instrument to which it is a party or by which it is bound;
17.2.4 to the best of Sanofi's knowledge, the Product and the
Trademark, and their use as permitted or contemplated hereunder, do not infringe
upon any Third Party intellectual property rights, including, without
limitation, any Patent, trademark, copyright or trade secret; and
17.2.5 that Sanofi has taken commercially reasonable efforts
to secure a source of supply of the Product under the License Agreement for
purposes of this Agreement.
17.3 Joint Representations of the Parties. Sanofi and OrthoLogic hereby
represent and warrant the following:
17.3.1 that Fidia is a third party beneficiary with respect to
payment of the milestone payments described in Article 6.2.1 of this
Agreement. The Parties agree that upon written request by Fidia, Sanofi
shall assign to Fidia, without recourse, all right, title and interest
of Sanofi in said milestone payments, including any cause of action
arising thereunder against OrthoLogic.
ARTICLE XVIII
-------------
FORCE MAJEURE
18.1 Neither Party shall be liable for any default or delay in such
Party's performance if such default or delay is caused by any event beyond the
reasonable control of such Party, including, but not limited to, acts of God,
fire, explosion, weather, disease, war, insurrection, civil strife, riots,
government action, power failure or other similar event; provided, however, that
such performance shall be excused only to the extent of and during such
disability. The Party so affected will give prompt notice of such event, and
shall use its commercial reasonable effort to avoid, remove, or alleviate such
causes of nonperformance and shall
28
<PAGE>
continue performance hereunder with the utmost dispatch whenever such causes are
removed.
ARTICLE XIX
-----------
SUCCESSORS AND ASSIGNMENT
19.1 This Agreement shall be binding upon and inure to the benefit of
the Parties hereto and their respective successors and permitted assigns. Except
as stated herein, neither Party shall assign any rights or obligations under
this Agreement without the prior written consent of the other Party. Any
purported assignment in violation of the preceding sentence shall be void.
Either Party may assign any rights or obligations under this Agreement without
the written consent of the other Party to, an Affiliate or to a purchaser of all
or substantially all of the assets to which this Agreement relates, whether by
merger or acquisition. Any permitted assignee shall assume all obligations of
its assignor under this Agreement.
ARTICLE XX
----------
ENTIRE AGREEMENT - MODIFICATIONS
20.1 This Agreement sets forth and constitutes the entire agreement and
understanding between the Parties with respect to the subject matter hereof, and
supersedes any and all prior agreements, understandings, promises and
representations, whether written or oral, between the Parties with respect to
the subject matter hereof. This Agreement may not be released, discharged,
amended or modified in any manner except by an instrument in writing, making
specific reference to this Agreement, and signed duly by authorized
representatives of both Parties.
ARTICLE XXI
-----------
COMPLIANCE WITH LAW
21.1 Each Party shall comply with, and shall not be in violation of,
any valid applicable, federal, state or local statutes, laws, ordinances, rules,
regulations, or other governmental orders including, without limitation, those
of the FDA which materially affect the
29
<PAGE>
research, purchase, promotion, sale, manufacture, shipment, distribution or
storage of the Product in the Territory.
ARTICLE XXII
------------
SEVERABILITY
22.1 If and solely to the extent that any provision of this Agreement
shall be invalid or unenforceable, or shall render this entire Agreement to be
unenforceable or invalid, such offending provision shall be of no effect and
shall not affect the validity of the remainder of this Agreement or any of its
provisions; provided, however, that the Parties shall use their respective
reasonable efforts to renegotiate the offending provisions to best accomplish
the original intentions of the Parties.
ARTICLE XXIII
-------------
DISPUTE RESOLUTION AND GOVERNING LAW
23.1 Dispute Resolution. The Parties agree that any disputes between
them concerning this Agreement shall be resolved by a meeting or meetings
between the senior executives of Sanofi and OrthoLogic and other Parties
familiar with this Agreement as determined by such senior executives. In the
event that Sanofi and OrthoLogic are unable to satisfactorily resolve the
dispute(s) as specified herein within 30 calendar days, then such disputes shall
be finally settled in accordance with Articles 23.2, 23.3 and 23.4.
23.2 Governing Law. This Agreement is a New York contract. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York without reference to the choice of law doctrine of such state.
23.3 Consent to Jurisdiction.
23.3.1 Any claim, suit, action or proceeding arising out of or
in any way relating to this Agreement shall be adjudicated by a court of
competent jurisdiction in the State New York, City of New York, County of New
York,
30
<PAGE>
with respect to any claim, suit, action or proceeding arising out of or in any
way relating to this Agreement, and undertake to bring any such claim, suit,
action or proceeding against the other Party only in said courts in the State of
New York, City of New York, County of New York.
23.3.2 Each Party hereto irrevocably waives, to the fullest
extent permitted by applicable law, any defense or objection it may now or
hereafter have to the laying of venue of any proceeding hereunder brought in the
courts of the State of New York or of the United States sitting in the Borough
of Manhattan and any claim that any proceeding hereunder brought in any such
court has been brought in an inconvenient forum.
23.4 Jury Waiver. Sanofi and OrthoLogic hereby waive trial by jury in
any judicial proceeding involving, directly or indirectly, any matter (whether
in tort, contract or otherwise) in any way arising out of, related to, or
connected with this Agreement or the relationship established hereunder.
ARTICLE XXIV
------------
WAIVER
24.1 No waiver of any right under this Agreement shall be deemed
effective unless contained in writing and signed by the Party charged with such
waiver, and no waiver of any right shall be deemed to be a waiver of any future
right or any other right arising under this Agreement. All rights, remedies,
undertakings, obligations and agreements contained in this Agreement shall be
cumulative and none of them shall be a limitation of any other remedy, right,
undertaking, obligation, or agreement.
ARTICLE XXV
-----------
SURVIVABILITY
25.1 The provisions of this Agreement that are expressly or by their
sense and context intended to survive the termination of this Agreement shall do
so.
31
<PAGE>
ARTICLE XXVI
------------
NOTICES
26.1 Any notice, consent or approval permitted or required under this
Agreement shall be in writing and shall be sent by registered or certified mail,
postage prepaid, or by recognized domestic overnight courier or by facsimile to
the addresses set forth below or to such other address in the USA as the Party
to whom notice is to be given has furnished in writing to the other Party. A
notice of change in address shall not be deemed to have been given until
received by the addressee.
If to OrthoLogic: OrthoLogic Corp.
2850 South 36th Street
Phoenix, Arizona 85034
Attn: Chairman/CEO
Fax: (602) 470-7080
with copy to:
Quarles & Brady
One Camelback Road
Suite 400
Phoenix, AZ 85012
Fax: (602) 230-5598
If to Sanofi: Sanofi Pharmaceuticals, Inc.
90 Park Avenue
New York, New York 10016
Attn: President
Fax: (212) 551-4900
with copy to:
Sanofi, Inc.
90 Park Avenue
New York, New York 10016
Attn: General Counsel
Fax- (212) 551-4921
All notices shall be deemed to be effective on the date of receipt.
32
<PAGE>
ARTICLE XXVII
-------------
HEADINGS
27.1 The descriptive headings in this Agreement are inserted for
convenience only, and do not constitute a part of this Agreement.
ARTICLE XXVIII
--------------
LANGUAGE
28.1 The governing language of this Agreement is English. In the event
of any dispute concerning the construction or meaning of this Agreement,
reference shall be made only to this Agreement as written in English and not to
any translation into any other language.
ARTICLE XXIX
------------
EXHIBITS AND SCHEDULES
29.1 Each of the exhibits and schedules to this Agreement forms an
integral part hereof and is incorporated herein by reference.
ARTICLE XXX
-----------
NO THIRD PARTY RIGHTS
30.1 Except as otherwise provided herein, this Agreement is intended to
be solely for the benefit of the Parties and is not intended to confer any
benefits upon, or create any rights in favor of, any Person other than the
Parties hereto.
ARTICLE XXXI
------------
COUNTERPARTS
31.1 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which together shall constitute
a single instrument.
33
<PAGE>
ARTICLE XXXII
-------------
CURRENCY
32.1 In this Agreement, unless expressly stated otherwise, all
references to money payments mean lawful currency of the USA and payment in that
currency.
34
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
ORTHOLOGIC CORP. SANOFI PHARMACEUTICALS, INC.
By: /s/ Allan M. Weinstein By: /s/ George M. Doherty
------------------------------ --------------------------------
Name: Allan M. Weinstein Name: George M. Doherty
---------------------------- ------------------------------
Title: Chairman/CEO Title: President and CEO
--------------------------- -----------------------------
35
<PAGE>
Scheduled A
Minimum Promotional Amount
($000)
1997(1) 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
Promotional
Spend $ 750 $1,500 $2,000 $2,750 $2,750 $2,750
(1) Launch Period (Effective Date to December 31, 1997).
<PAGE>
Schedule B(1)
OrthoLogic Compensation Schedule for Illustrative Purposes Only
(Example: $100.00 WAC, 1000 Units Sold, 4% Returns)
<TABLE>
<CAPTION>
Price Units Sales OCU
Sold
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wholesaler Acquisition Cost (WAC): $ 100.00
Quantity Discounts 0%
Free Goods 0%
Gross Sales Invoice: ("GSI"): $ 100.00 1000 $100,000
Less:
Distribution (% GSI) 7% $ 7,000
Rebates (% GSI) 5% $ 5,000
Returns (% GSI) 4% 40 $ 4,000
Discounts (% GSI) 3% $ 3,000
Net Selling Price Per Unit "NSP": $ 81.00 960 $ 81,000 $ 84.38
Less:
Trade Transfer Price (% of NSP) $ 18.00 960 $ 17,280 $ 18.00
Nonsalable Returns 18.00 10 $ 180 $ 0.19
Overhead to Sanofi 6.75 960 $ 6,480 $ 6.75
Royalty to Sanofi (% of Net Sales) 10% 8,100 $ 8.44
Payment to OrthoLogic: $ 48,960 $ 51.00
</TABLE>
(1) The referenced Net Sales deductions are consistent with and reflect the
entirety of the deductions contained in the Net Sales definition.
ORTHOLOGIC CORP.
STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
Net income (loss) $ (2,771) $ 1,480 $ (3,044) $ 2,415
==================== ====================
Common shares outstanding at end of period 25,103 24,981 25,103 24,981
Adjustment to reflect weighted average for
shares issued during the period (7) (1,588) (37) (3,472)
Adjustment to reflect assumed exercise
of outstanding stock options -- 1,376 -- 1,225
-------------------- --------------------
Weighted average number of common shares
outstanding 25,096 24,769 25,066 22,734
==================== ====================
Net income (loss) per weighted average
number of common shares outstanding $ (0.11) $ 0.06 $ (0.12) $ 0.11
==================== ====================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements in OrthoLogic Corp.'s Form 10-Q for the quarterly period ended June
30, 1997 and is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 9,046
<SECURITIES> 12,933
<RECEIVABLES> 41,425
<ALLOWANCES> 10,178
<INVENTORY> 9,814
<CURRENT-ASSETS> 67,497
<PP&E> 15,488
<DEPRECIATION> 3,782
<TOTAL-ASSETS> 114,899
<CURRENT-LIABILITIES> 14,069
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 99,003
<TOTAL-LIABILITY-AND-EQUITY> 114,899
<SALES> 18,949
<TOTAL-REVENUES> 35,619
<CGS> 5,018
<TOTAL-COSTS> 9,324
<OTHER-EXPENSES> 26,355
<LOSS-PROVISION> 4,034
<INTEREST-EXPENSE> 52
<INCOME-PRETAX> (3,044)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,044)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,044)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
