<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1997
REGISTRATION STATEMENT NO. 333-38993
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
----------------
ANIKA THERAPEUTICS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
MASSACHUSETTS 8731 04-3145961
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
----------------
236 WEST CUMMINGS PARK
WOBURN, MASSACHUSETTS 01801
(781) 932-6616
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
----------------
J. MELVILLE ENGLE
PRESIDENT
ANIKA THERAPEUTICS, INC.
236 WEST CUMMINGS PARK
WOBURN, MASSACHUSETTS 01801
(781) 932-6616
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
----------------
COPIES TO:
H. DAVID HENKEN, ESQ. RICHARD R. PLUMRIDGE, ESQ.
GOODWIN, PROCTER & HOAR LLP BROBECK, PHLEGER & HARRISON LLP
EXCHANGE PLACE 1633 BROADWAY, 47TH FLOOR
BOSTON, MASSACHUSETTS 02109 NEW YORK, NY 10019
(617) 570-1000 (212) 581-1600
----------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED NOVEMBER 10, 1997
3,000,000 SHARES
[LOGO OF ANIKA THERAPEUTICS APPEARS HERE]
COMMON STOCK
Of the shares of Common Stock, par value $.01 per share (the "Common Stock"),
offered hereby, 2,500,000 shares are being sold by Anika Therapeutics, Inc.
("Anika" or the "Company") and 500,000 shares are being sold by certain
stockholders of the Company (the "Selling Stockholders"). See "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from
the sale of shares by the Selling Stockholders.
The Common Stock of the Company is traded on the Nasdaq Small-Cap Market
under the symbol "ANIK." The Company has applied to have its Common Stock
listed on the Nasdaq National Market under such symbol. On November 6, 1997,
the last sale price of the Common Stock as reported on the Nasdaq Small-Cap
Market was $8.5625 per share. See "Price Range of Common Stock and Dividend
Policy."
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
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Total(3)...................... $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $500,000.
(3) The Company and certain stockholders of the Company have granted to the
Underwriters a 30-day option to purchase up to an aggregate of 225,000 and
225,000 additional shares of Common Stock, respectively, on the same terms
and conditions as set forth above solely to cover over-allotments, if any.
If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to
Selling Stockholders will be $ , $ , $ and $ , respectively. See
"Underwriting."
-----------------
The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
Underwriters and to certain further conditions. It is expected that delivery of
certificates for the shares of Common Stock will be made at the offices of
Furman Selz LLC, New York, New York, on or about , 1997.
FURMAN SELZ
VOLPE BROWN WHELAN & COMPANY
LEERINK SWANN & COMPANY
-----------------
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
Inside Front Cover
(1) Color photograph of Anika commercialized products (AMVISC, AMVISC PLUS,
HYVISC and ORTHOVISC).
Legend: Anika Therapeutics' family of ultra-pure, natural hyaluronic acid
(HA) products is intended to promote protection and healing of
bone, cartilage and soft tissue. Based on hyaluronic acid (HA), a
naturally-occurring, biocompatible polymer found throughout the
body, Anika's HA products are intended to restore the elasticity
and viscosity of synovial fluid and provide lubrication and
protection of tissues. Anika's currently marketed product line
consists of ORTHVISC(R), an injectable, high molecular weight HA
product used in the treatment of some forms of osteoarthritis and
HYVISC(R), an HA product used in the treatment of equine
osteoarthritis. Also, Anika manufactures AMVISC(R) and AMVISC
Plus(R), HA products used as viscoelastic supplements in opthalmic
surgery, for Chiron Vision, a subsidiary of Chiron Corporation.
(ORTHOVISC(R), is approved for marketing in Canada and Europe; in
the U.S.; it is currently limited to investigational use only.)
(2) Color medical illustration depicting knee anatomy as treated with ORTHOVISC.
Legend: This diagram illustrates the knee joint coated within the synovial
membrane by synovial fluid, the body's natural biomaterial which
cushions and lubricates the knee; the inset illustration depicts a
close-up, cross-sectional view of a bone's articulating surface
coated by the synovial fluid of which hyaluronic acid (HA) is a
major component. ORTHOVISC(R), Anika's ultra-pure, high molecular
weight HA product, is intended to be injected into the synovial
fluid space of an osteoarthritic joint to provide
viscosupplementation. It can help to restore the elasticity and
viscosity of the synovial fluid which can provide relief and
improve joint mobility for up to six months after treatment.
HYVISC(R), ORTHOVISC(R), and INCERT(R) are registered trademarks of the
Company. All other trademarks, servicemarks or tradenames referred to in this
Prospectus, including AMVISC(R), AMVISC(R) Plus and OSSIGEL(TM), are the
property of their respective owners.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET-MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON NASDAQ IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Investors should carefully consider the information set forth under the heading
"Risk Factors" and elsewhere in this Prospectus, before purchasing the
securities offered hereby. Except as otherwise noted, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option and
gives effect to the automatic conversion of all outstanding shares of Series A
Preferred Stock upon consummation of this offering. This Prospectus contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Prospective investors are cautioned that such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. The Company's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference include, among other factors noted herein, the
factors set forth under the heading "Risk Factors."
THE COMPANY
Anika Therapeutics, Inc. develops, manufactures and commercializes
therapeutic products and devices intended to promote the protection and healing
of bone, cartilage and soft tissue. These products are based on hyaluronic acid
("HA"), a naturally-occurring, biocompatible polymer found throughout the body.
Due to its unique biophysical and biochemical properties, HA plays an important
role in a number of physiological functions such as the protection and
lubrication of soft tissues and joints, the maintenance of the structural
integrity of tissues, and the transport of molecules to and within cells. The
Company has been developing HA and HA based products since 1983. The Company's
currently marketed products consist of ORTHOVISC(R), which is an HA product
used in the treatment of some forms of osteoarthritis ("OA") in humans and
HYVISC(R), which is an HA product used in the treatment of equine
osteoarthritis. ORTHOVISC is currently approved for marketing in Canada and
Europe; in the U.S. ORTHOVISC is currently limited to investigational use only.
The Company manufactures AMVISC(R) and AMVISC Plus(R), which are HA products
used as viscoelastic supplements in ophthalmic surgery, for Chiron Vision, a
subsidiary of Chiron Corporation. The Company is currently developing
INCERT(R), which is an HA based product designed for use in the prevention of
post-surgical adhesions. In addition, the Company is collaborating with
Orquest, Inc. to develop OSSIGEL(R), an injectable formulation of basic
fibroblast growth factor combined with HA designed to accelerate the healing of
bone fractures.
The Company is a leading manufacturer of ultra-pure, high molecular weight
HA. The purity level and molecular weight of HA is important because if HA
contains even trace levels of proteins, an immunogenic or inflammatory response
may be elicited when the HA is introduced into the body and preclinical and
clinical data suggest that high molecular weight HA correlates with increased
efficacy of HA products. The Company believes its expertise and proprietary
know-how in the development and manufacture of ultra-pure, high molecular
weight HA products are difficult to replicate and provide it with a competitive
advantage.
The Company's goal is to leverage its position as a leading manufacturer of
ultra-pure, high molecular weight HA for significant therapeutic applications.
Key elements of the Company's strategy are to: (i) identify additional medical
applications for HA; (ii) develop proprietary therapeutic products both on its
own and in collaboration with strategic partners; (iii) capitalize on its
existing proprietary high-quality and cost-effective HA manufacturing
expertise; and (iv) establish strategic alliances for the marketing and
distribution of its products.
PRODUCTS
The Company has been manufacturing AMVISC for use in ophthalmic surgery since
1983. Ophthalmic surgeons inject HA during cataract surgery to protect delicate
tissues and to maintain the shape of the corneal chamber of the eye. The
Company estimates that worldwide sales of HA ophthalmic products approximated
$300 million in 1996. Industry sources indicate that there were over 2 million
cataract surgeries and approximately
3
<PAGE>
2.3 million viscoelastic units for ophthalmic surgery sold in the United States
in 1996. The Company manufactures AMVISC and AMVISC Plus for Chiron Vision for
distribution in the United States and internationally. In 1996, sales of AMVISC
and AMVISC Plus represented approximately 20% of total sales of HA ophthalmic
products in the United States.
The Company has developed ORTHOVISC (currently limited to investigational use
only in the U.S.) for the treatment of OA of the knee in humans. According to
the Arthritis Foundation, osteoarthritis of some form afflicts approximately 16
million people in the U.S. ORTHOVISC is intended to be injected into the knee
to restore the elasticity and viscosity of the synovial fluid. The Company's
clinical studies have indicated that injection of HA into the knee joint can
provide pain relief and improved joint mobility for up to six months after
treatment. The Company's preclinical and clinical studies and experience with
other HA products indicate that treatment with HA does not have the adverse
side effects that often accompany alternative treatments for OA, such as non-
steroidal anti-inflammatory drugs ("NSAIDs") or steroid injections. While
ORTHOVISC is not currently approved for marketing in Japan, HA products for the
treatment of OA have been sold in Japan since the mid-1980s and total sales in
Japan have grown to approximately $300 million in 1996. HA products for the
treatment of OA have been more recently introduced in Europe and Canada.
ORTHOVISC is approved for marketing in Canada for treatment of OA of the knee
and temporomandibular joint ("TMJ") and in Europe for the treatment of OA in
synovial joints. In the United States, the Company has completed a pivotal
clinical trial investigating the use of ORTHOVISC for treatment of OA of the
knee which included 226 patients at ten centers. The Company is preparing a
Pre-Market Approval Application ("PMA") for this use which it plans to file
with the United States Food and Drug Administration ("FDA") before the end of
1997. On November 7, 1997, the Company entered into a distribution agreement
with Zimmer, Inc., a subsidiary of Bristol-Myers Squibb Company ("Zimmer"),
granting Zimmer the exclusive marketing and distribution rights to ORTHOVISC in
the United States, Canada and certain selected countries in the Asia-Pacific
region. The Company received an up-front non-refundable payment of $2.5 million
upon signing and may receive up to an additional $20.5 million in payments
contingent upon the achievement of certain regulatory and sales milestones. The
Company has also entered into third-party arrangements for the distribution of
ORTHOVISC in Spain, Portugal, Israel, Turkey and Egypt, and is currently
selling ORTHOVISC in Canada and Turkey. The Company has also developed and
sells an HA product, HYVISC, primarily for the treatment of OA in racehorses
that is distributed in the U.S. by Boehringer Ingelheim Animal Health, Inc.
The Company is also developing INCERT, a bioabsorbable, cross-linked HA
membrane that is designed to be placed between tissues during surgery to
prevent post-surgical adhesions, in particular in abdominal, obstetric,
gynecological and back surgeries. Adhesions that form after surgery are a major
medical complication that can lead to intestinal blockage, female infertility
and recurrent back pain. Costly secondary surgeries are often performed in an
attempt to correct problems caused by adhesions. According to Medical Device
International ("M.D.I."), over 1.8 million abdominal surgeries are performed
annually in the United States and over 400,000 secondary surgeries were
performed in 1994 to remove adhesions. M.D.I. and other industry sources
estimate that the total worldwide market potential for all anti-adhesion
products is approximately $900 million. The Company has completed preclinical
studies of INCERT and currently plans to commence testing in humans in Europe
during 1998.
The Company, in collaboration with scientists and other companies, is also
participating in the development of other applications of HA, including its
potential as a drug delivery vehicle for pharmaceutical and biologic compounds.
OSSIGEL, which is in preclinical development by Orquest, uses HA as a drug
delivery vehicle for basic fibroblast growth factor to accelerate the healing
of bone fractures. In addition, in collaboration with Tufts University and
Massachusetts General Hospital, the Company is studying the use of HA
oligosaccharides (discrete pieces of the HA molecule) to inhibit cancer
metastasis. The Company's collaborative research has indicated that the HA
oligosaccharides bind and block HA receptors on the surface of cancer cells
that play a role in cancer metastasis. Neither of these products has been
approved for clinical investigation or commercial distribution in the U.S. or
any other market.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the 2,500,000 shares
Company......................
Common Stock offered by 500,000 shares
Selling Stockholders.........
Total Common Stock offered.. 3,000,000 shares
Common Stock to be outstanding
after the offering........... 9,381,879 shares(1)
Use of proceeds............... To expand the Company's manufacturing facility,
fund the Company's product research and
development efforts, including clinical trials,
and for working capital and other general
corporate purposes. See "Use of Proceeds."
Nasdaq symbol................. ANIK
</TABLE>
- ----------
(1) Assumes cashless exercise of all outstanding warrants to acquire shares of
Series A Preferred Stock which are convertible into 453,638 shares of
Common Stock. Excludes (i) 1,871,495 shares of Common Stock issuable upon
the exercise of stock options outstanding as of October 31, 1997 with a
weighted average exercise price of $3.68 per share and an additional
785,000 shares of Common Stock reserved for issuance under the Company's
1993 Stock Option Plan (the "Stock Option Plan") and an additional 17,500
shares of Common Stock reserved for issuance under the Company's 1993
Directors' Stock Option Plan (the "Directors' Plan") and (ii) 203,700
shares of Common Stock issuable upon the exercise of warrants outstanding
as of October 31, 1997 with a weighted average exercise price of $3.28 per
share. See "Management -- Executive Compensation," "Certain Transactions,"
"Description of Capital Stock" and "Shares Eligible for Future Sale."
5
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
FOUR MONTHS NINE MONTHS
ENDED ENDED
YEAR ENDED AUGUST 31, DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------- ---------------
1994 1995 1996 1995(1) 1996(1) 1996 1997
------- ------- ------- ------- ------- ------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 4,663 $ 3,356 $ 4,613 $1,191 $ 1,212 $ 3,630 $5,962
Cost of sales........... 3,934 3,118 4,472 1,263 1,309 3,404 3,016
Gross profit (loss)..... 728 238 141 (72) (97) 226 2,946
Total operating
expenses............... 2,230 2,222 3,104 840 2,619 2,589 2,749
Income (loss) before
income taxes........... (1,440) (1,955) (2,849) (907) (2,658) (2,240) 302
Net income (loss)....... (1,440) (1,955) (2,849) (907) (2,658) (2,240) 286
Earnings (loss) per
common share and common
share equivalents(2)... (.45) (.63) (.76) (.30) (.56) (.54) .03
Common shares and common
share equivalents
outstanding............ 3,177 3,225 4,053 3,294 4,905 4,479 6,358
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 3,055 $22,463
Working capital......................................... 5,186 24,594
Total assets............................................ 8,131 27,539
Accumulated deficit..................................... (9,088) (9,088)
Stockholders' equity.................................... 3,159 25,272
</TABLE>
- ----------
(1) The Company changed its fiscal year end from August 31 to December 31,
effective December 31, 1996. Represents data for the four month
transitional year ended December 31, 1996 and the comparable period in
1995. See Note 1 of Notes to Financial Statements.
(2) See Note 2 of Notes to Financial Statements for a description of the method
of computing earnings (loss) per common share and common share equivalents.
(3) Adjusted to reflect (i) the sale by the Company of 2,500,000 shares of
Common Stock at an assumed public offering price of $8.5625 per share
(after deducting the estimated underwriting discounts and commissions and
estimated expenses of the offering) and the application of the net proceeds
therefrom as set forth under "Use of Proceeds" and (ii) the exercise of all
outstanding warrants to acquire Series A Preferred Stock.
6
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in this Prospectus before purchasing the Common
Stock offered hereby. This Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Discussions containing such
forward-looking statements may be found in the material set forth under the
headings "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as in this Prospectus
generally. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties. The Company's actual results could differ materially from those
set forth in the forward-looking statements. Certain factors that might cause
such a difference include, among other factors noted herein, the factors set
forth below.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has incurred annual operating losses since its inception in May
1993 and had an accumulated deficit of approximately $9.1 million as of
September 30, 1997. The continued development of the Company's products will
require the commitment of substantial resources to conduct research and
preclinical and clinical development programs, and to establish sales and
marketing capabilities. The Company incurred substantial and increasing
operating losses through December 31, 1996 and, although the Company had net
income of $286,000 for the nine months ended September 30, 1997, the ability
of the Company to reach sustained profitability is highly uncertain. To
achieve sustained profitability the Company must, among other things,
successfully complete development of certain of its products, obtain
regulatory approvals and establish sales and marketing capabilities for
certain of its products. There can be no assurance that the Company will be
able to achieve sustained profitability. See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
COMPETITION
The Company competes with many companies, including large pharmaceutical
companies and specialized medical products companies. Many of these companies
have substantially greater financial and other resources, larger research and
development staffs, more extensive marketing and manufacturing organizations
and more experience in the regulatory process than the Company. The Company
also competes with academic institutions, governmental agencies and other
research organizations which may be involved in research, development and
commercialization of products. Because a number of companies are developing HA
products for similar applications, the successful commercialization of a
particular product will depend in part upon the ability of the Company to
complete clinical studies and obtain FDA marketing and foreign regulatory
approvals prior to its competitors. There can be no assurance that the Company
will be able to compete against current or future competitors or that
competition will not have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Competition."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results may fluctuate as a result of a
number of factors, including timing of approvals of new products of the
Company, its competitors or its customers, slower-than-anticipated market
penetration rates of current products, temporary delays in obtaining certain
product components from suppliers and the ability of the Company to establish
marketing and distribution arrangements with strategic partners. A significant
portion of the Company's expenses is relatively fixed in nature and the
Company may not be able to reduce spending in response to shortfalls or delays
in revenues. Such shortfalls or delays may result in a material adverse effect
on the Company's business, financial condition and results of operations. As a
result, the Company believes that period-to-period comparisons of its results
of operations are not necessarily meaningful and should not be relied upon as
indicators of future performance. Due to the foregoing factors, it is likely
that in one or more future fiscal quarters the Company's operating results may
be below the expectations of equity research analysts and investors. Such an
occurrence could have a material adverse effect on the market price of the
7
<PAGE>
Common Stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Quarterly Results of Operations."
COMPREHENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF FDA APPROVAL
The Company's product development activities, manufacturing processes, and
current and future sales and marketing are subject to extensive and rigorous
regulation by the FDA and comparable agencies in foreign countries. In the
United States, the FDA regulates the marketing, advertising, promotion, and
distribution of medical devices, drugs, and biologics, as well as testing,
manufacturing, labeling, recordkeeping, and reporting activities for such
products.
Medical products regulated by the FDA are generally classified as devices
and/or drugs and/or biologics. Product development and approval within the FDA
framework takes a number of years and involves the expenditure of substantial
resources. There can be no assurance that the FDA will grant approval for the
Company's new products on a timely basis if at all, or that FDA review will
not involve delays that will adversely affect the Company's ability to
commercialize additional products or expand permitted uses of existing
products, or that the regulatory framework will not change, or that additional
regulation will not arise at any stage of the Company's product development
process which may adversely affect approval of or delay an application or
require additional expenditures by the Company. In the event the Company's
future products are regulated as human drugs or biologics, the FDA's review
process typically would be substantially longer and more expensive than the
review process for devices.
The Company's ORTHOVISC product is currently regulated as a Class III device
by the FDA. Class III devices are those that generally must receive pre-market
approval by the FDA to ensure their safety and effectiveness (e.g. life-
sustaining, life-supporting and implantable or new devices which have not been
found to be substantially equivalent to legally marketed devices) and require
clinical testing to ensure safety and effectiveness and FDA approval prior to
marketing and distribution. In order for the Company to commercially
distribute ORTHOVISC in the U.S., it must obtain FDA approval of a PMA. The
Company is currently preparing a PMA for ORTHOVISC and plans to submit it by
the end of 1997. The PMA approval process can be expensive, uncertain and
lengthy. A number of devices for which pre-market approval has been sought
have never been approved for marketing. The review of an application often
occurs over a protracted time period and may take two years or more from the
filing date to complete. There can be no assurance that the FDA will approve a
PMA application for ORTHOVISC on a timely basis, if at all, or that the FDA
review will not involve delays that will affect the Company's ability to
commercialize additional products or expand permitted uses of existing
products. Furthermore, even if granted, the approval may include significant
limitations on the indications for use for which the product may be marketed.
The Company's developmental HA products, including INCERT and HA
oligosaccharides, have not obtained regulatory approval in the U.S. for
investigational use and/or commercial marketing and sale. The Company believes
that INCERT will be regulated as a Class III medical device and HA
oligosaccharides will be regulated as a drug, although there can be no
assurance that such products will not be otherwise classified. Before
undertaking clinical trials in the U.S. to support a PMA, the Company must
apply for and obtain FDA and/or institutional review board ("IRB") approval of
an investigation device exemption ("IDE"). There can be no assurance that the
Company will be permitted to undertake clinical trials of these or other
future products in the U.S. or that clinical trials will demonstrate that the
products are safe and effective or otherwise satisfy the FDA's pre-market
approval requirements. Orquest has not received regulatory approval in the
U.S. for the investigational use and/or commercial marketing and sale of
OSSIGEL. OSSIGEL may be regulated as a Class III medical device, a biologic, a
drug or a combination thereof. There can be no assurance that Orquest will be
permitted to undertake clinical trials of OSSIGEL or, if clinical trials are
permitted, that such clinical trials will demonstrate that OSSIGEL is safe and
effective or otherwise satisfy FDA requirements.
Once obtained, marketing clearance can be withdrawn by the FDA due to
failure to comply with regulatory standards or the occurrence of unforeseen
problems following initial clearance. The Company may be required to make
further filings with the FDA under certain circumstances. The FDA's
regulations require agency
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approval of a PMA supplement for certain changes if they affect the safety and
effectiveness of an approved device, including, but not limited to, new
indications for use, labeling changes, the use of a different facility to
manufacture, process or package the device, changes in manufacturing methods
or quality control systems and changes in performance or design
specifications. Failure by the Company to receive approval of a PMA supplement
regarding the use of a different manufacturing facility or any other change
affecting the safety or effectiveness of an approved device on a timely basis,
or at all, would have a material adverse effect on the Company's business,
financial condition and results of operations. The FDA could also limit or
prevent the manufacture or distribution of the Company's products and has the
power to require the recall of such products. Significant delay or cost in
obtaining, or failure to obtain FDA clearance to market products, any FDA
limitations on the use of the Company's products, or any withdrawal or
suspension of clearance by the FDA could have a material adverse effect on the
Company's business, financial condition and results of operations.
In addition, all FDA-approved products manufactured by the Company must be
manufactured in compliance with the standards established by the FDA's Good
Manufacturing Practices ("GMP") regulations. Ongoing compliance with GMP and
other applicable regulatory requirements is monitored through periodic
inspection by state and federal agencies, including the FDA. The FDA may
inspect the Company and its facilities from time to time to determine whether
the Company is in compliance with regulations relating to medical device and
manufacturing companies, including regulations concerning manufacturing,
testing, quality control and product labeling practices. There can be no
assurance that the Company will be able to comply with current or future FDA
requirements applicable to the manufacture of products.
FDA regulations depend heavily on administrative interpretation and there
can be no assurance that the future interpretations made by the FDA or other
regulatory bodies, with possible retroactive effect, will not adversely affect
the Company. In addition, changes in the existing regulations or adoption of
new governmental regulations or policies could prevent or delay regulatory
approval of the Company's products.
Failure to comply with applicable regulatory requirements could result in,
among other things, warning letters, fines, injunctions, civil penalties,
recall or seizure of products, total or partial suspension of production,
refusal of the FDA to grant pre-market clearance or pre-market approval for
devices, withdrawal of approvals and criminal prosecution.
In addition to regulations enforced by the FDA, the Company is subject to
other existing and potential future federal, state, local and foreign
regulations. International regulatory bodies often establish regulations
governing product standards, packing requirements, labeling requirements,
import restrictions, tariff regulations, duties and tax requirements. To
enable the Company to market its products in Europe, the Company was required
to receive a "CE" marking certification, an international symbol of quality
and compliance with the applicable European medical device directive. In
October 1996, the Company received an EC Design Examination and an EC Quality
System Certificate from a European Notified Body, which entitles the Company
to affix a CE marking on ORTHOVISC for the treatment of osteoarthritis in
synovial joints. There can be no assurance that the Company will be able to
achieve and/or maintain compliance required for CE marking or other foreign
regulatory approvals for any or all of its products or that it will be able to
produce its products in a timely and profitable manner while complying with
applicable requirements. Federal, state, local and foreign regulations
regarding the manufacture and sale of medical products are subject to change.
The Company cannot predict what impact, if any, such changes might have on its
business. The requirements relating to the conduct of clinical trials, product
licensing, pricing and reimbursement also vary widely from country to country.
The process of obtaining approvals from the FDA and other regulatory
authorities can be costly, time consuming, and subject to unanticipated
delays. There can be no assurance that approvals of the Company's products
will be granted or that the Company will have the necessary funds to develop
certain of such products. Any failure to obtain, or delay in obtaining, such
approvals could adversely affect the ability of the Company to market its
products. See "Business -- Government Regulation."
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UNCERTAINTY REGARDING SUCCESS OF CLINICAL TRIALS
Several of the Company's products, including INCERT and HA oligosaccharides,
as well as the products of the Company's collaborative partners, including
OSSIGEL, will require clinical trials to determine their safety and efficacy
in humans for various conditions. There can be no assurance that the Company
or its collaborative partners will not encounter problems that will cause it
to delay or suspend clinical trials of any of these products. In addition,
there can be no assurance that such clinical trials, if completed, will
ultimately demonstrate these products to be safe and efficacious. See
"Business -- Clinical Applications."
DEPENDENCE UPON MARKETING PARTNERS
The Company does not plan to directly market and sell its current products
to customers. Therefore, the Company's success will be dependent upon the
efforts of its marketing partners and the terms and conditions of the
Company's relationships with such marketing partners. The Company currently
manufactures AMVISC and AMVISC Plus for Chiron Vision under a non-exclusive
fixed price, five-year supply agreement which contains stated minimum annual
purchase obligations and terminates on December 31, 2001. Bausch & Lomb, Inc.
recently announced that it has signed definitive agreements to acquire Chiron
Vision, as well as Storz Instrument Company, a subsidiary of American Home
Products and a competitor of Chiron Vision. Since January 1, 1997, Chiron
Vision has purchased AMVISC and AMVISC Plus in amounts substantially in excess
of the minimum purchase obligations set forth in the AMVISC supply contract.
There can be no assurance that the acquisitions will be consummated or if
consummated, that Bausch & Lomb, Inc. will continue to purchase AMVISC and
AMVISC Plus at levels beyond the stated minimum annual purchase obligations.
Any such decrease in orders under the AMVISC supply contract could have a
material adverse effect on the Company's business, financial condition and
results of operations. For the nine months ended September 30, 1997 and 1996,
AMVISC and AMVISC Plus sales through Chiron Vision accounted for 84% and 90%
of net sales, respectively.
On November 7, 1997, the Company entered into a distribution agreement with
Zimmer for the exclusive marketing and distribution of ORTHOVISC in the United
States, Canada and selected countries in the Asia-Pacific region. While the
agreement provides for future payments to the Company of up to $20.5 million
(which includes the right upon attaining certain milestones, at Zimmer's
election, to make an equity investment in the Company equal to the greater of
$2.5 million or 9.9% of the then outstanding Common Stock (but not to exceed
19.9% of the then outstanding Common Stock) at a premium to the then current
market price), such payments are contingent upon the achievement of certain
enumerated regulatory approval and sales milestones. There can be no assurance
that such milestones will be met on a timely basis or at all and, accordingly,
that any such payments will be received by the Company. In addition, Zimmer
has the right to terminate the agreement on August 1, 1998 if certain
specified events occur prior to that date and upon payment to Anika of $1.0
million in cash. These circumstances include (i) the failure of Zimmer to sell
a stated minimum number of units of ORTHOVISC during the second quarter of
1998 or the failure of a competitor of the Company to report enumerated sales
minimums during the first two quarters of 1998, (ii) an FDA requirement of
additional clinical trials for ORTHOVISC or the FDA's acceptance for filing by
a party other than Anika or its primary competitors of a PMA for an injectable
HA product for the treatment of OA in humans without requiring submission of
an IDE clinical study to support the application, (iii) both Synvisc and
Hyalgan are either voluntarily or involuntarily withdrawn from the U.S.
market, or (iv) if Zimmer undergoes a company-wide restructuring prior to June
30, 1998 which results in Zimmer's determination that the knee implant product
line is not a core product. There can be no assurance that any of these events
will not occur or, if any such event does occur, that Zimmer will not elect to
terminate the agreement. Any such termination would have a material adverse
effect on the Company's ability to market ORTHOVISC, which may have a material
adverse effect on the Company's future operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview."
The Company will need to obtain the assistance of additional marketing
partners for new products which are brought to market and existing products
brought to new markets. There can be no assurance that such additional
partners will be available or that such partners will agree to market the
Company's products on acceptable terms. The failure to establish strategic
partnerships for the marketing and distribution of the
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Company's products on acceptable terms would have a material adverse effect on
the Company's business, financial condition and results of operations.
UNCERTAINTY OF MARKET ACCEPTANCE OF NEW PRODUCTS
The Company's success will depend in part upon the acceptance of the
Company's new products by the medical community, hospitals and physicians and
other health care providers, and third-party payors. Such acceptance may
depend upon the extent to which the medical community perceives the Company's
products as safer, more effective or cost-competitive than other similar
products. Ultimately, for the Company's new products to gain general market
acceptance, it will also be necessary for the Company to develop marketing
partners for the distribution of its products. There can be no assurance that
the Company's new products will achieve significant market acceptance on a
timely basis, or at all. Failure of some or all of the Company's new products
to achieve significant market acceptance could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Competition."
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend, in part, on its ability to obtain and
enforce patents, protect trade secrets, obtain licenses to technology owned by
third parties when necessary, and conduct its business without infringing the
proprietary rights of others. The patent positions of pharmaceutical, medical
products and biotechnology firms, including the Company, can be uncertain and
involve complex legal and factual questions. There can be no assurance that
any patent applications will result in the issuance of patents or, if any
patents are issued, whether they will provide significant proprietary
protection or commercial advantage, or will not be circumvented by others. In
the event a third party has also filed one or more patent applications for any
of its inventions, the Company may have to participate in interference
proceedings declared by the U.S. Patent and Trademark Office ("PTO") to
determine priority of invention (see below), which could result in failure to
obtain or the loss of patent protection for the inventions and the loss of any
right to use the inventions. Even if the eventual outcome is favorable to the
Company, such interference proceedings could result in substantial cost to the
Company. Filing and prosecution of patent applications, litigation to
establish the validity and scope of patents, assertion of patent infringement
claims against others and the defense of patent infringement claims by others
can be expensive and time consuming. There can be no assurance that in the
event that any claims with respect to any of the Company's patents, if issued,
are challenged by one or more third parties, that any court or patent
authority ruling on such challenge will determine that such patent claims are
valid and enforceable. An adverse outcome in such litigation could cause the
Company to lose exclusivity covered by the disputed rights. If a third party
is found to have rights covering products or processes used by the Company,
the Company could be forced to cease using the technologies or marketing the
products covered by such rights, could be subject to significant liabilities
to such third party, and could be required to license technologies from such
third party. Furthermore, even if the Company's patents are determined to be
valid, enforceable, and broad in scope, there can be no assurance that
competitors will not be able to design around such patents and compete with
the Company using the resulting alternative technology.
The Company has a policy of seeking patent protection for patentable aspects
of its proprietary technology. The Company co-owns certain United States
patents and a patent application which claim certain adhesion prevention uses
and certain drug delivery uses of HA, and solely owns patents directed to
certain manufacturing processes. The Company also holds an exclusive license
from Tufts University to use technologies claimed in a United States patent
application which relate to the anti-metastasis applications of HA
oligosaccharides. The Company's issued patents expire between 2007 and 2015
and the license expires upon expiration of all related patents. The Company
intends to seek patent protection with respect to products and processes
developed in the course of its activities when it believes such protection is
in its best interest and when the cost of seeking such protection is not
inordinate. However, no assurance can be given that any patent application
will be filed, that any filed applications will result in issued patents or
that any issued patents will provide the Company with a competitive advantage
or will not be successfully challenged by third parties. The protections
afforded by patents will depend upon their scope and validity, and others may
be able to design around the Company's patents. The
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Company's issued patents and any patents which arise from the Company's
licensed application would provide competitive protection, if at all, only in
the United States. The Company has not, to date, pursued foreign patents
equivalent to those issued or applied for in the United States.
Other entities have filed patent applications for or have been issued
patents concerning various aspects of HA-related products or processes. There
can be no assurance that the products or processes developed by the Company
will not infringe the patent rights of others in the future. Any such
infringement may have a material adverse effect on the Company's business,
financial condition and results of operations. In particular, the Company has
received notice from the PTO that a third party is attempting to provoke a
patent interference with respect to one of the Company's co-owned patents
covering the use of INCERT for post-surgical adhesion prevention. Although the
Company believes that an interference will be declared by the PTO, it is too
early to determine the merits of the interference or the effect, if any, the
interference will have on the Company's marketing of INCERT for this use. The
existence of the interference proceeding may have a negative impact on the
marketing of the INCERT product, and no assurance can be given that the
Company would be successful in any such interference proceeding. If the third-
party interference were to be decided adversely to the Company, involved
claims of the Company's patent would be cancelled, the Company's marketing of
the INCERT product may be materially and adversely affected and the third
party may enforce patent rights against the Company which could prohibit the
sale and use of the INCERT products, which could have a material adverse
effect on the Company's future operating results. See "Business -- Patents and
Proprietary Rights."
The Company also relies upon trade secrets and proprietary know-how for
certain unpatented aspects of its technology. To protect such information, the
Company requires all employees, consultants and licensees to enter into
confidentiality agreements limiting the disclosure and use of such
information. There can be no assurance that these agreements provide
meaningful protection or that they will not be breached, that the Company
would have adequate remedies for any such breach, or that the Company's trade
secrets, proprietary know-how, and technological advances will not otherwise
become known to others. In addition, there can be no assurance that, despite
precautions taken by the Company, others have not and will not obtain access
to the Company's proprietary technology. Further, there can be no assurance
that third parties will not independently develop substantially equivalent or
better technology.
Pursuant to the AMVISC supply contract the Company has agreed to grant
Chiron Vision a royalty-free, worldwide, exclusive license to the Company's
manufacturing and product inventions which relate to AMVISC products,
effective on December 31, 2001, the termination date of the AMVISC supply
contract which became effective on January 1, 1997. Upon expiration of the
AMVISC supply contract, there can be no assurance that Chiron Vision will
continue to use the Company to manufacture AMVISC and AMVISC Plus. If Chiron
Vision discontinues the use of the Company as a manufacturer after such time,
the Company's business, financial condition and results of operations could be
materially and adversely affected.
RISKS ASSOCIATED WITH MANUFACTURING
The Company's results of operations are dependent upon the continued
operation of its manufacturing facility in Woburn, Massachusetts. The
operation of biomedical manufacturing plants involves many risks, including
the breakdown, failure or substandard performance of equipment, natural and
other disasters, and the need to comply with the requirements of directives of
government agencies, including the FDA. In addition, the Company relies on a
single supplier for syringes and a small number of suppliers for a number of
other materials required for the manufacturing and delivery of its HA
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations -- Nine months ended September
30, 1997 compared to nine months ended September 30, 1996." Furthermore,
manufacturing processes and research and development efforts of the Company
involve animals and products derived from animals. The utilization of animals
in research and development and product commercialization is subject to
increasing focus by animal rights activists. The activities of animal rights
groups and other organizations that have protested animal based
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research and development programs or boycotted the products resulting from
such programs could cause an interruption in the Company's manufacturing
processes and research and development efforts. The occurrence of material
operational problems, including but not limited to the events described above,
could have a material adverse effect on the Company's business, financial
condition and results of operations during the period of such operational
difficulties. See "Business -- Manufacturing of Hyaluronic Acid."
NO ASSURANCE OF ABILITY TO MANAGE GROWTH
The Company's future success depends on substantial growth in product sales.
There can be no assurance that such growth can be achieved or, if achieved,
can be sustained. There can be no assurance that if substantial growth in
product sales and the demand for the Company's products is achieved, the
Company will be able to (i) develop the necessary manufacturing capabilities,
(ii) obtain the assistance of additional marketing partners, (iii) attract,
retain and integrate the required key personnel, or (iv) implement the
financial, accounting and management systems needed to manage growing demand
for its products, should it occur. Failure of the Company to successfully
manage future growth could have a material adverse effect on the Company's
business, financial condition and results of operations.
THIRD PARTY REIMBURSEMENT AND HEALTH CARE COST CONTAINMENT INITIATIVES
In the U.S. and other markets, health care providers, such as hospitals and
physicians, that purchase health care products, such as the Company's
products, generally rely on third party payors, including Medicare, Medicaid
and other health insurance and managed care plans, to reimburse all or part of
the cost of the health care product. Reimbursement by a third party payor may
depend on a number of factors, including the payor's determination that the
use of the Company's products are clinically useful and cost-effective,
medically necessary and not experimental or investigational. Since
reimbursement approval is required from each payor individually, seeking such
approvals can be a time consuming and costly process which, in the future,
could require the Company or its marketing partners to provide supporting
scientific, clinical and cost-effectiveness data for the use of the Company's
products to each payor separately. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and third party
payors are increasingly attempting to contain the costs of health care
products and services by limiting both coverage and the level of reimbursement
for new therapeutic products and by refusing in some cases to provide coverage
for uses of approved products for disease indications for which the FDA has
not granted marketing approval. In addition, Congress and certain state
legislatures have considered reforms that may affect current reimbursement
practices, including controls on health care spending through limitations on
the growth of Medicare and Medicaid spending. There can be no assurance that
third party reimbursement coverage will be available or adequate for any
products or services developed by the Company. Outside the U.S., the success
of the Company's products is also dependent in part upon the availability of
reimbursement and health care payment systems. Lack of adequate coverage and
reimbursement provided by government and other third party payors for the
Company's products and services could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Third Party Reimbursement."
NEED FOR ADDITIONAL FUNDS; LIQUIDITY
The Company anticipates that its cash and cash equivalents of approximately
$3.1 million on September 30, 1997, together with the $2.5 million payment
received upon signing of the distribution agreement with Zimmer, the net
proceeds from the offering and cash flow from operations will be adequate to
fund its operations for 24 months from the date of this Prospectus. The
Company's future capital requirements and the adequacy of available funds will
depend, however, on numerous factors, including market acceptance of its
existing and future products, the successful commercialization of products in
development, progress in its product development efforts, the magnitude and
scope of such efforts, progress with preclinical studies, clinical trials and
product clearances by the FDA and other agencies, the cost and timing of its
efforts to expand its manufacturing capabilities, the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments, and the
development of strategic
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alliances for the marketing of certain of its products. To the extent that
funds generated from the Company's operations, together with the Company's
existing capital resources and the net proceeds of this offering are
insufficient to meet future requirements, the Company will be required to
obtain additional funds through equity or debt financings, strategic alliances
with corporate partners and others, or through other sources. The terms of any
future equity financings may be dilutive to the Company's stockholders and the
terms of any debt financings may contain restrictive covenants which limit the
Company's ability to pursue certain courses of action. The ability of the
Company to obtain financing is dependent on the status of the Company's future
business prospects as well as conditions prevailing in the relevant capital
markets. No assurance can be given that any additional financing will be made
available to the Company or will be available on acceptable terms should such
a need arise. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
EXPOSURE TO PRODUCT LIABILITY CLAIMS
The testing, marketing and sale of human health care products entail an
inherent risk of allegations of product liability, and there can be no
assurance that substantial product liability claims will not be asserted
against the Company. Although the Company has not received any material
product liability claims to date and has a $1 million insurance policy to
cover such claims should they arise, there can be no assurance that material
claims will not arise in the future or that the Company's insurance will be
adequate to cover all situations. Moreover, there can be no assurance that
such insurance, or additional insurance, if required, will be available in the
future or, if available, will be available on commercially reasonable terms.
Any product liability claim, if successful, could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business -- Product Liability."
DEPENDENCE UPON KEY PERSONNEL
The Company is highly dependent on the members of its management and
scientific staff, the loss of one or more of whom could have a material
adverse effect on the Company. In addition, the Company believes that its
future success will depend in large part upon its ability to attract and
retain highly skilled, scientific, managerial and manufacturing personnel. The
Company faces significant competition for such personnel from other companies,
research and academic institutions, government entities and other
organizations. There can be no assurance that the Company will be successful
in hiring or retaining the personnel it requires. The failure to hire and
retain such personnel could have a material adverse effect on the Company's
business, financial condition and results of operations.
UNCERTAINTY OF ESTIMATES
To assist investors in evaluating the Company, this Prospectus contains
certain estimates of market size and market share for the Company's and its
competitors' HA products. These estimates have been derived by the Company on
the basis of its analysis of industry reports, press releases and market
research reports compiled by independent third-party sources which the Company
believes to be reliable. However, all such estimates are inherently subject to
uncertainties, and the Company is unable to determine with a degree of
certainty the size of the market for certain HA based products and the market
share held by its products.
This Prospectus also reflects the Company's estimates regarding future
regulatory submission dates. Regulatory submissions can be delayed, or plans
to submit applications for product approvals can be canceled, for a number of
reasons, including the receipt of unfavorable preclinical or clinical study
results, changes in regulations, adoption of new or unanticipated enforcement
of existing regulations, technological developments and competitive
developments. Accordingly, no assurances can be given that the Company's
anticipated submissions will be made on their target dates, or at all. Delays
in such submissions could have a material adverse effect on the Company's
business, financial condition and results of operations.
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BROAD MANAGEMENT DISCRETION AS TO USE OF PROCEEDS
The Company expects to use most of the net proceeds of this offering for
expansion of its manufacturing facilities, to fund its research and
development efforts, including clinical trials, and for working capital and
general corporate purposes. A portion of the net proceeds of the offering may
also be used to acquire or invest in products, technologies or other
businesses. There are no current agreements or understandings with respect to
any acquisitions, investments or other transactions. Accordingly, the
Company's management will retain broad discretion as to the allocation of a
substantial portion of the net proceeds from this offering. Pending such uses,
the Company intends to invest the net proceeds in short-term, investment-
grade, interest-bearing securities. See "Use of Proceeds."
ENVIRONMENTAL REGULATION
The Company is subject to a variety of local, state and federal government
regulations relating to the storage, discharge, handling, emission,
generation, manufacture and disposal of toxic, or other hazardous substances
used in the manufacture of the Company's products. Any failure by the Company
to control the use, disposal, removal or storage of hazardous chemicals or
toxic substances could subject the Company to significant liabilities, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Environmental Laws."
RISKS RELATING TO INTERNATIONAL OPERATIONS
Approximately 10% of the Company's product sales during 1996 were generated
in international markets through marketing partners. The Company's
representatives, agents and distributors which sell products in international
markets are subject to the laws and regulations of the foreign jurisdictions
in which they operate and in which the Company's products are sold. A number
of risks are inherent in international sales and operations. For example, the
volume of international sales may be limited by the imposition of government
controls, export license requirements, political instability, trade
restrictions, changes in tariffs, difficulties in managing international
operations, import restrictions and fluctuations in foreign currency exchange
rates. Such changes in the volume of sales may have an adverse effect on the
Company's business, financial condition and results of operations.
POTENTIAL VOLATILITY OF STOCK PRICE; NO CONTROL OVER MARKET MAKING
The market price of shares of the Company's Common Stock may be highly
volatile. Factors such as announcements of new commercial products or
technological innovations by the Company or its competitors, disclosure of
results of clinical testing or regulatory proceedings, governmental regulation
and approvals, developments in patent or other proprietary rights, public
concern as to the safety of products developed by the Company and general
market conditions may have a significant effect on the market price of the
Company's Common Stock. The trading price of the Company's Common Stock could
be subject to wide fluctuations in response to quarter-to-quarter variations
in the Company's operating results, material announcements by the Company or
its competitors, governmental regulatory action, conditions in the health care
industry generally or in the medical products industry specifically, or other
events or factors, many of which are beyond the Company's control. In
addition, the stock market has experienced extreme price and volume
fluctuations which have particularly affected the market prices of many
medical products companies and which often have been unrelated to the
operating performance of such companies. The Company's operating results in
future quarters may be below the expectations of equity research analysts and
investors. In such event, the price of the Common Stock would likely decline,
perhaps substantially.
No person is under any obligation to make a market in the Common Stock or
publish research reports on the Company, and any person making a market in the
Common Stock or publishing research reports on the Company may discontinue
market making or publishing such reports at any time without notice. There can
be no assurance that an active public market in the Common Stock will develop
or, if developed, will be sustained.
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LACK OF PAYMENT OF DIVIDENDS ON COMMON STOCK
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying such dividends in the foreseeable future. The Company
currently intends to retain any future earnings for use in the Company's
business. See "Price Range of Common Stock and Dividend Policy."
CONTROL BY PRINCIPAL STOCKHOLDERS, DIRECTORS AND OFFICERS
Upon completion of this offering, the present directors, executive officers
and principal stockholders of the Company and their affiliates will
beneficially own approximately 24.8% of the outstanding shares of Common
Stock. As a result, these stockholders may be able to exercise significant
influence over matters requiring shareholder approval, including the election
of directors and approval of significant corporate transactions. Such
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company. See "Principal and Selling Stockholders."
RISKS INVOLVING SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock (including shares issued upon
the exercise of outstanding options and warrants) in the public market after
this offering, or the perception that such sales may occur, could adversely
affect prevailing market prices for the Common Stock following this offering.
Upon completion of this offering, the Company will have a total of 9,381,879
of Common Stock outstanding (assuming the exercise of all outstanding warrants
to purchase Series A Preferred Stock). Of these shares, 8,123,051 shares of
Common Stock, including the 3,000,000 offered hereby, will be freely tradable
without restriction or registration under the Securities Act of 1933
("Securities Act") by persons other than "affiliates" of the Company, as that
term is defined in Rule 144 ("Rule 144") promulgated under the Securities Act
("Affiliates"). The remaining 1,258,828 shares of Common Stock, and an
additional 203,700 shares of Common Stock issuable from time to time upon the
exercise of outstanding warrants, are "restricted" securities that may be sold
only if registered under the Securities Act, or sold in accordance with an
applicable exemption from registration, such as Rule 144. As of October 31,
1997, 3,000,000 shares of Common Stock were reserved for issuance under the
Stock Option Plan of which 1,871,495 shares were issuable upon the exercise of
outstanding stock options, and 40,000 shares of Common Stock were reserved for
issuance under the Directors' Plan, of which 22,500 shares were issuable upon
the exercise of outstanding stock options. In June 1993 and June 1996, the
Company filed registration statements on Form S-8 under the Securities Act to
register all shares of Common Stock reserved for issuance under the Stock
Option Plan and the Directors' Plan. Shares of Common Stock issued upon the
exercise of options under either plan generally are available for sale in the
open market, subject to Rule 144 limitations with respect to affiliates, and
subject to the lock-up arrangements described below.
The Company's executive officers, directors and certain other stockholders
who, in the aggregate, will hold upon completion of this offering 1,279,880
shares of the outstanding Common Stock have entered into lock-up agreements
which provide that, for a period of 180 days from the effective date of the
Registration Statement of which this Prospectus is a part, they will not,
directly or indirectly, offer, sell, offer to sell, contract to sell, or
otherwise dispose of (or enter into any transaction which is designed to, or
could be expected to, result in the disposition by any such person of) any
shares of Common Stock or any securities convertible into or exercisable for
Common Stock, or any right to purchase or acquire Common Stock without the
prior written consent of Furman Selz LLC. Furman Selz LLC will have complete
discretion in determining whether to consent to early releases from the lock-
up agreements delivered in connection with the offering, and there can be no
assurance that it will not consent to the early release of all or a portion of
the shares of Common Stock and options covered by such lock-up agreements. See
"Shares Eligible for Future Sale."
POSSIBLE ADVERSE EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Articles of Organization and
Amended and Restated By-laws could have the effect of discouraging a third
party from pursuing a non-negotiated takeover of the Company and preventing
certain changes in control. These provisions include a classified Board of
Directors, advance notice
16
<PAGE>
to the Board of Directors of stockholder proposals, limitations on the ability
of stockholders to remove directors and to call stockholder meetings, the
provision that vacancies on the Board of Directors be filled by a majority of
the remaining directors, the ability of the Board of Directors to issue,
without further stockholder approval, preferred stock with rights and
privileges which could be senior to the Common Stock and the ability of the
Board of Directors to adopt a shareholder rights plan without seeking
stockholder approval. The Company also is subject to Chapter 110F of the
Massachusetts General Laws which, subject to certain exceptions, prohibits a
Massachusetts corporation from engaging in any of a broad range of business
combinations with any "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder.
These provisions could discourage a third party from pursuing a takeover of
the Company at a price considered attractive by many stockholders, since such
provisions could have the effect of preventing or delaying a potential
acquiror from acquiring control of the Company and its Board of Directors. See
"Description of Capital Stock."
17
<PAGE>
THE COMPANY
The Company was a division of MedChem Products, Inc. ("MedChem") until 1993.
The Company was incorporated under the laws of Massachusetts and became an
independent publicly-traded entity in May 1993 when MedChem distributed all of
the then outstanding shares of Common Stock of the Company to MedChem
stockholders as a dividend. The Company's principal executive offices are
located at 236 West Cummings Park, Woburn, Massachusetts 01801, and its
telephone number is (781) 932-6616.
As used in this Prospectus, the terms "Anika" and the "Company" refer to
Anika Therapeutics, Inc. and its predecessor unless the context otherwise
requires.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company hereby are estimated to be $19,408,000
($21,200,000 if the Underwriters' overallotment option is exercised in full)
at an assumed public offering price of $8.5625 per share after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company. The Company will not receive any of the proceeds from the sale
of shares of Common Stock by the Selling Stockholders. See "Principal and
Selling Stockholders." The Company intends to use the net proceeds of this
offering for expansion of its manufacturing facilities, to fund the Company's
product research and development efforts, including clinical trials, and for
working capital and other general corporate purposes. The Company may also use
a portion of the net proceeds of this offering to acquire or invest in new
products or technologies or to acquire other businesses. The Company is not
currently a party to any agreements or understandings with respect to any such
acquisitions. Pending such uses, the Company will invest the net proceeds from
this offering in short-term, investment-grade, interest-bearing securities.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources."
18
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq Small-Cap Market under
the symbol "ANIK." The following table sets forth, for the periods indicated,
the high and low sale prices of the Common Stock on the Nasdaq Small-Cap
Market. These prices represent prices between dealers and do not include
retail mark-ups, markdowns or commissions and may not represent actual
transactions.
<TABLE>
<CAPTION>
PRICE RANGE
-------------
HIGH LOW
------ ------
<S> <C> <C>
1995
First Quarter................................................... $2 7/8 $1 3/4
Second Quarter.................................................. 2 1/4 1 1/2
Third Quarter................................................... 2 7/8 1 7/8
Fourth Quarter.................................................. 3 2 1/4
1996
First Quarter................................................... $3 1/8 $2 5/8
Second Quarter.................................................. 4 5/8 2 7/8
Third Quarter................................................... 7 7/8 3 1/2
Fourth Quarter.................................................. 6 5/8 4 3/8
Transitional Year(1)............................................ 6 1/4 3 3/8
1997
First Quarter................................................... $6 1/4 $3 1/2
Second Quarter.................................................. 7 5
Third Quarter................................................... 9 1/4 6 3/8
Fourth Quarter (through November 6, 1997)....................... 9 1/4 7 1/2
</TABLE>
- ----------
(1) Represents the four-month transitional year ended December 31, 1996.
On November 6, 1997, the last reported sale price per share of the Common
Stock on the Nasdaq Small-Cap Market was $8.5625. At September 30, 1997, there
were 294 holders of record of the Common Stock. The Company has applied to
have the Common Stock listed for quotation on the Nasdaq National Market
effective upon completion of this offering under its current symbol "ANIK."
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain earnings, if any, for use in
its business and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. Payment of future dividends, if any, on the Common
Stock will be at the discretion of the Company's Board of Directors after
taking into account various factors, including the Company's financial
condition, operating results, anticipated cash needs and plans for expansion.
See "Description of Capital Stock -- Authorized and Outstanding Capital
Stock."
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 on an actual basis and as adjusted to give effect to (i)
the sale by the Company of 2,500,000 shares of Common Stock offered hereby at
an assumed public offering price of $8.5625 per share and receipt and
application of the net proceeds therefrom as described in "Use of Proceeds"
and (ii) the cashless exercise of all outstanding warrants to acquire Series A
Preferred Stock and conversion of all outstanding shares of Series A Preferred
Stock upon completion of the offering on a 10-for-1 basis. This table should
be read in conjunction with the Company's Financial Statements and the Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------
ACTUAL(1) AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Redeemable convertible preferred stock, $.01 par value:
750,000 shares authorized; 130,211 shares issued and
outstanding, actual; none issued and outstanding, as
adjusted .............................................. $ 2,706 --
Stockholders' equity:
Undesignated preferred stock, $.01 par value:
1,250,000 shares authorized; no shares issued and
outstanding actual and as adjusted................... -- --
Common stock, $.01 par value: 15,000,000 shares
authorized; 5,123,051 shares issued and outstanding,
actual; 9,381,879 shares issued and outstanding, as
adjusted(1).......................................... 51 $ 94
Additional paid-in capital............................ 12,196 34,266
Accumulated deficit................................... (9,088) (9,088)
------- -------
Total stockholders' equity.......................... $ 3,159 $25,272
======= =======
</TABLE>
- ----------
(1) Excludes (i) 1,871,495 shares of Common Stock issuable upon exercise of
options outstanding as of October 31, 1997 with a weighted average
exercise price of $3.68 per share and an additional 785,000 shares of
Common Stock reserved for future grants under the Stock Option Plan and an
additional 17,500 shares reserved for future grants under the Director's
Plan and (ii) 203,700 shares of Common Stock issuable upon the exercise of
warrants outstanding as of October 31, 1997 with a weighted average
exercise price of $3.28 per share. See "Management -- Executive
Compensation," "Certain Transactions," "Description of Capital Stock," and
"Shares Eligible for Future Sale."
20
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" as of and for the nine-month period
ended September 30, 1997, as of and for the four-month transitional year ended
December 31, 1996, and as of and for each of the years in the three-year
period ended August 31, 1996, have been derived from the financial statements
of Anika Therapeutics, Inc. which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The financial statements, including
the independent auditors' report thereon, as of and for the nine-month period
ended September 30, 1997, as of and for the four-month transitional year ended
December 31, 1996 and for the year ended August 31, 1996, are included
elsewhere in this Prospectus. The selected financial data presented below as
of and for the nine-month period ended September 30, 1996 and as of and for
the four-month period ended December 31, 1995 are derived from the unaudited
financial statements of the Company.
<TABLE>
<CAPTION>
FOUR MONTHS NINE MONTHS
ENDED ENDED
YEAR ENDED AUGUST 31, DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------- ---------------
1994 1995 1996 1995(1) 1996(1) 1996 1997
------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 4,662 $ 3,356 $ 4,613 $1,191 $ 1,212 $ 3,630 $5,962
Cost of sales........... 3,934 3,118 4,472 1,263 1,309 3,404 3,016
------- ------- ------- ------ ------- ------- ------
Gross profit (loss)..... 728 238 141 (72) (97) 226 2,946
------- ------- ------- ------ ------- ------- ------
Operating expenses:
Research and
development............ 1,496 1,318 1,635 456 1,310 1,348 1,477
Selling, general and
administrative......... 734 904 1,469 384 1,309 1,241 1,272
------- ------- ------- ------ ------- ------- ------
Total operating
expenses............... 2,230 2,222 3,104 840 2,619 2,589 2,749
------- ------- ------- ------ ------- ------- ------
Interest income, net.... (62) (29) (114) (5) (58) (123) (105)
------- ------- ------- ------ ------- ------- ------
Income (loss) before
income taxes........... (1,440) (1,955) (2,849) (907) (2,658) (2,240) 302
Income taxes............ -- -- -- -- -- -- 16
------- ------- ------- ------ ------- ------- ------
Net income (loss)....... $(1,440) $(1,955) $(2,849) $ (907) $(2,658) $(2,240) $ 286
======= ======= ======= ====== ======= ======= ======
Earnings (loss) per
common share and common
share equivalents(2)... $ (.45) $ (.63) $ (.76) $ (.30) $ (.56) $ (.54) $ .03
Common shares and common
share equivalents
outstanding............ 3,177 3,225 4,053 3,294 4,905 4,479 6,358
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------- ----------------
1994 1995 1996 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 2,584 $ 2,825 $ 3,651 $ 1,743 $ 2,705 $ 3,399 $ 3,055
Working capital......... 5,520 4,972 5,858 3,943 4,226 5,701 5,186
Total assets............ 7,698 8,046 8,580 7,280 6,920 8,400 8,131
Redeemable convertible
preferred stock........ -- 2,326 2,523 2,394 2,603 2,543 2,706
Accumulated deficit..... (1,913) (3,867) (6,716) (4,774) (9,374) (7,014) (9,088)
Stockholders' equity.... 5,378 3,544 4,415 2,591 2,369 4,216 3,159
</TABLE>
- ----------
(1) The Company changed its fiscal year end to December 31, effective December
31, 1996. The financial data presented are for the four-month transitional
year ended December 31, 1996 and the comparable period in 1995. See Note 1
of Notes to Financial Statements.
(2) See Note 2 of Notes to Financial Statements for a description of the
method of computing earnings (loss) per common share and common share
equivalents.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations of Anika should be read in conjunction with the accompanying
financial statements and footnotes. This Prospectus contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Discussions containing
such forward-looking statements may be found in the material set forth below
as well as in the Prospectus generally. Prospective investors are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. The Company's actual results
could differ materially from those set forth in the forward-looking
statements. Certain factors that might cause such a difference include, among
other factors noted herein, the factors set forth under the heading "Risk
Factors."
OVERVIEW
The Company develops, manufactures and commercializes therapeutic products
and devices intended to promote the protection and healing of bone, cartilage
and soft tissue. These products are based on hyaluronic acid, a naturally-
occurring, biocompatible polymer found throughout the body. Due to its unique
biophysical and biochemical properties, HA plays an important role in a number
of physiological functions such as the protection and lubrication of soft
tissues and joints, the maintenance of the structural integrity of tissues,
and the transport of molecules to and within cells. The Company has been
developing HA and HA based products since 1983. The Company's currently
marketed products consist of ORTHOVISC(R), which is an HA product used in the
treatment of some forms of osteoarthritis in humans, and HYVISC(R), which is
an HA product used in the treatment of equine osteoarthritis. ORTHOVISC is
currently approved for marketing in Canada and Europe; in the U.S. ORTHOVISC
is currently limited to investigational use only. The Company manufactures
AMVISC(R) and AMVISC Plus(R), which are HA products used as viscoelastic
supplements in ophthalmic surgery, for Chiron Vision. The Company is currently
developing INCERT(R), which is an HA based product designed for use in the
prevention of post-surgical adhesions. In addition, the Company is
collaborating with Orquest, Inc. to develop OSSIGEL(R), an injectable
formulation of basic fibroblast growth factor combined with HA designed to
accelerate the healing of bone fractures.
The Company receives a substantial portion of its revenue from the sale of
AMVISC and AMVISC Plus to Chiron Vision. For the nine months ended September
30, 1997 and 1996, AMVISC sales accounted for 84% and 90% of total revenue,
respectively. In addition, sales of ORTHOVISC to the Company's marketing
partner in Turkey accounted for 10% of net sales for the nine months ended
September 30, 1997. The Company also sells ORTHOVISC in Canada directly, and
sells HYVISC in the United States through Boehringer Ingelheim Animal Health,
Inc.
The Company supplies AMVISC to Chiron Vision under a five-year supply
contract (the "AMVISC Supply Contract") that expires in December 2001. Chiron
Vision assumed the AMVISC Supply Contract when it purchased IOLAB from Johnson
& Johnson in March 1995. Bausch & Lomb, Inc. recently announced that it has
signed definitive agreements to acquire Chiron Vision, as well as Storz
Instrument Company, a subsidiary of American Home Products and a competitor of
Chiron Vision. There can be no assurance, however, that such acquisitions will
be consummated or, if consummated, will not adversely affect the Company's
business. The current AMVISC Supply Contract has stated minimums with
substantially higher unit selling prices than a previous six-year supply
contract with Chiron Vision which expired on December 31, 1996. Under the
previous supply contract, the Company was obligated to supply AMVISC at unit
selling prices that approximated the Company's unit manufacturing cost. This
previous supply contract was a component of MedChem's sale of the AMVISC
product line to IOLAB in connection with the settlement in January 1991 of
patent litigation between Pharmacia, IOLAB and MedChem. The Company has no
additional obligations to Chiron Vision as a result of the settlement of such
litigation.
22
<PAGE>
In November 1997, the Company entered into a long-term distribution
agreement with Zimmer, Inc., a subsidiary of Bristol-Myers Squibb Company (the
"Zimmer Distribution Contract"). The Zimmer Distribution Contract provides
Zimmer with exclusive marketing and distribution rights to ORTHOVISC in the
United States, Canada, Australia, Hong Kong, Indonesia, Malaysia, New Zealand,
the Philippines, Singapore, Taiwan and Thailand. Zimmer also has the option
under the agreement to seek regulatory approval for and market ORTHOVISC in
Japan and has a right of first offer with respect to China. Upon signing of
the agreement, the Company received an up-front non-refundable payment of $2.5
million. Zimmer has also agreed to make payments aggregating up to $20.5
million upon the achievement of certain regulatory approval and enumerated
sales milestones. As an alternative to a $2.5 million milestone payment,
Zimmer has the right to elect to acquire shares of the Company's Common Stock
equal to the greater of $2.5 million or 9.9% of the then outstanding Common
Stock (but not to exceed 19.9% of the then outstanding Common Stock) at a
premium to the then current market price. There can be no assurance that any
of such milestones will be met on a timely basis or at all. In addition,
Zimmer has the right to terminate the agreement on August 1, 1998 if certain
specified events occur prior to that date and upon payment to Anika of $1.0
million in cash. These circumstances include (i) the failure of Zimmer to sell
a stated minimum number of units of ORTHOVISC during the second quarter of
1998 or the failure of a competitor of the Company to report enumerated sales
minimums during the first two quarters of 1998, (ii) an FDA requirement of
additional clinical trials for ORTHOVISC or the FDA acceptance for filing by a
party other than Anika or its primary competitors of a PMA for an injectable
HA product for the treatment of OA in humans without requiring submission of
an IDE clinical study to support the application, (iii) both Synvisc and
Hyalgan are either voluntarily or involuntarily withdrawn from the U.S.
market, or (iv) if Zimmer undergoes a company-wide restructuring prior to June
30, 1998 which results in Zimmer's determination that the knee implant product
line is not a core product. There can be no assurance that any of these events
will not occur or, if any such event does occur, that Zimmer will not elect to
terminate the agreement. Any such termination would have a material adverse
effect on the Company's ability to market ORTHOVISC, which may have a material
adverse effect on the Company's future operating results.
On October 28, 1997, the Company amended the Stock Option Plan to reserve an
additional 1,000,000 shares of Common Stock for issuance under the Stock
Option Plan, and granted to certain executive officers and employees options
to acquire 235,000 shares of Common Stock at an exercise price of $7.625 per
share, vesting over a four-year period. Such grants are subject to the
completion of this offering and stockholder approval of the amendment to the
Stock Option Plan. The amendment to the Plan will be submitted for
stockholders' approval at the Company's next annual meeting of stockholders.
If the amendment is approved by stockholders, the Company will be required to
record compensation expense with respect to the 235,000 options granted
October 28, 1997 over the four-year vesting period equal to the difference, if
any, between the exercise price and the market value of the Common Stock at
the time of such approval.
23
<PAGE>
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the percentage
relationship that certain statement of operations items bear to net sales:
<TABLE>
<CAPTION>
FOUR MONTHS NINE MONTHS
ENDED ENDED
YEAR ENDED AUGUST 31, DECEMBER 31, SEPTEMBER 30,
------------------------- ------------- --------------
1994 1995 1996 1995 1996 1996 1997
------- ------- ------- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit (loss)..... 15.6 7.1 3.1 (6.0) (8.0) 6.2 49.4
Research and development
expense................ 32.1 39.3 35.4 38.2 108.1 37.1 24.8
Selling, general and
administrative
expense................ 15.7 26.9 31.9 32.2 108.0 34.2 21.3
Total operating
expenses............... 47.8 66.2 67.3 70.4 216.1 71.3 46.1
Interest income, net.... (1.3) (0.9) (2.5) (0.4) (4.8) (3.4) (1.8)
Net income (loss)....... (30.9) (58.3) (61.8) (76.2) (219.3) (61.7) 4.8
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Net sales. Net sales of HA products for the nine months ended September 30,
1997 totaled $6.0 million, an increase of $2.4 million, or 67%, over the $3.6
million recorded for the prior year. The increase in sales was primarily
attributable to an increase in sales of AMVISC and ORTHOVISC. Sales of AMVISC
as measured in units declined by 9% from the prior period, which was more than
offset by a 67% increase in the average unit selling price of AMVISC under the
AMVISC Supply Contract. Future increases in selling prices under the AMVISC
Supply Contract will be limited to annual adjustments based on changes in the
producer price index during the term of the contract, which expires December
31, 2001. Sales of ORTHOVISC as measured in units increased 475% over the
prior period. ORTHOVISC sales began in late 1996. Customer orders received for
units of AMVISC and ORTHOVISC scheduled for delivery during the nine months
ended September 30, 1997 exceeded the prior year by 11%. At September 30,
1997, the Company had $1.0 million of AMVISC and ORTHOVISC customer back
orders that were not shipped in September due to a quality problem in syringes
supplied by a third party used to deliver the Company's HA products which
resulted in a shortage of these syringes. The Company and the supplier have
rectified the quality problem, the supplier replaced the faulty syringes and
the Company anticipates that all of the $1.0 million in customer back orders
will be shipped during the fourth quarter of 1997.
Gross profit. The Company's gross profit as a percentage of sales increased
to 49% for the nine months ended September 30, 1997 versus 6% in the prior
year. The increase in the gross profit was primarily due to a 67% increase in
the average unit selling price of AMVISC under the new AMVISC Supply Contract
and increased sales volume of ORTHOVISC, which has a higher gross margin per
unit than AMVISC.
Research and development. Research and development expenses for the nine
months ended September 30, 1997 increased by $129,000, or 9.6%, to $1.5
million from $1.3 million recorded in the prior year. The increase was
primarily due to expenses associated with the ORTHOVISC clinical trial.
Selling, general and administrative. Selling general and administrative
expenses for the nine months ended September 30, 1997 increased by $30,000, or
2.4%, to $1.3 million from $1.2 million in the prior year. The staffing level
was substantially the same and the increase was due primarily to salary
increases.
FOUR MONTHS ENDED DECEMBER 31, 1996 COMPARED TO FOUR MONTHS ENDED DECEMBER 31,
1995
Net sales. Net sales of HA products for the four month transitional period
ended December 31, 1996 totaled $1.2 million, which was substantially
unchanged from the net sales recorded for the comparable four month period of
the prior year.
Gross loss. The Company's gross loss as a percentage of net sales was 8.0%
for the four month transitional year ended December 31, 1996, an increase of
two percentage points from the 6.0% gross loss recorded for the same period in
1995. The increase was primarily attributable to increased sales of HA
products with lower margins.
24
<PAGE>
Research and development. Research and development expenses for the four-
month transitional year ended December 31, 1996 increased by $854,000, or
187.3%, to $1.3 million from $456,000 for the same period last year. The
increase was primarily attributable to $600,000 in expenses related to the
clinical trial for ORTHOVISC and the amortization of $375,000 of unearned
stock option compensation related to the amendment of the employment agreement
of the Company's chief scientist.
Selling, general and administrative. Selling, general and administrative
expenses for the four-month transitional year ended December 31, 1996
increased by $925,000, or 240.9%, to $1.3 million from $384,000 for the same
period last year. The increase was primarily attributable to the hiring of
additional marketing and administrative staff, a $544,000 write-off of
leasehold improvements and lease expenses resulting from closing one of the
Company's facilities, and $200,000 in severance costs associated with the
departure of the Company's former president.
YEAR ENDED AUGUST 31, 1996 COMPARED TO YEAR ENDED AUGUST 31, 1995
Net sales. Net sales of HA products totaled $4.6 million in the fiscal year
ended August 31, 1996 representing an increase of $1.3 million, or 38.2%, from
the $3.4 million for fiscal 1995. The increase was primarily attributable to
an increase in the volume of AMVISC sales.
Gross profit. The Company's gross profit as a percentage of net sales
declined to 3% in the fiscal year ended August 31, 1996, from 7% in fiscal
1995. During the year ended August 31, 1996 the balance in the AMVISC
manufacturing reserve of $521,000 was written off to cost of goods sold since
the previous AMVISC supply contract was marginally profitable and it expired
on December 31, 1996. The Company determined that the reserve was no longer
required as the previous AMVISC supply contract was expected to remain
marginally profitable through the end of the contract period. The decrease in
gross profit as a percentage of net sales is attributable to higher
manufacturing costs per unit in the fiscal year ended August 31, 1996 versus
fiscal 1995 and an unfavorable mix of product sales in the fiscal year ended
August 31, 1996 versus fiscal 1995.
Research and development. Research and development expenses increased by
$317,000, or 24.0%, to $1.6 million in the fiscal year ended August 31, 1996
from $1.3 million in fiscal 1995. The increase was attributable primarily to
the commencement of the pivotal ORTHOVISC clinical trial in the United States.
Selling, general and administrative. Selling, general and administrative
expenses for the fiscal year ended August 31, 1996 increased by $565,000, or
62.5%, to $1.5 million from $904,000 in fiscal 1995. The increase was
attributable primarily to additions to administration staffing for the fiscal
year ended August 31, 1996, increased selling and marketing costs associated
with the international commercialization of ORTHOVISC and severance payments
to the Company's former president.
Net interest income. The Company's net interest income increased to
$114,000, or 293.0%, in the fiscal year ended August 31, 1996 from $29,000 in
fiscal 1995. The increase is attributable to the Company having more cash to
invest on average in the fiscal year ended August 31, 1996 as compared to
fiscal 1995.
Income tax benefit. The Company has not recorded income tax benefits for the
fiscal years ended August 31, 1996 and 1995. The Company will not be able to
record income tax benefits from the operating losses incurred after May 1,
1993 until the Company has operating profits, since the realization of these
benefits cannot be reasonably assured.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited quarterly results of
operations for each of the three quarters ended September 30, 1997, the four-
month transitional year ended December 31, 1996 and each of the three quarters
ended August 31, 1996, together with such data as percentages of net sales. In
the opinion of management, this quarterly information has been prepared on a
basis consistent with the fiscal year Financial Statements presented elsewhere
in this Prospectus and includes all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the information for the
periods presented when read in conjunction with the Financial Statements and
the Notes thereto. The operating results for any period set forth below are
not necessarily indicative of results for the full fiscal year or any future
quarter.
<TABLE>
<CAPTION>
PERIOD ENDED
---------------------------------------------------------------------
FEB. 29, MAY 31, AUG. 31, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996(1) 1997 1997 1997
-------- ------- -------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $1,020 $1,461 $1,270 $ 1,212 $1,927 $2,450 $1,584
Cost of sales........... 1,187 1,293 1,167 1,309 1,019 1,188 809
------ ------ ------ ------- ------ ------ ------
Gross profit (loss)... (167) 168 103 (97) 908 1,262 775
------ ------ ------ ------- ------ ------ ------
Operating expenses:
Research and
development........... 391 465 477 1,310 323 509 645
Selling, general and
administrative........ 309 307 591 1,309 394 436 441
------ ------ ------ ------- ------ ------ ------
Total operating
expenses............. 700 772 1,068 2,619 717 945 1,086
------ ------ ------ ------- ------ ------ ------
Interest income
(expense), net......... 1 (53) (51) (58) (29) (30) (46)
------ ------ ------ ------- ------ ------ ------
Income (loss) before
income taxes........... (868) (551) (914) (2,658) 220 347 (265)
Income taxes............ -- -- -- -- 4 10 2
------ ------ ------ ------- ------ ------ ------
Net income (loss)..... $ (868) $ (551) $ (914) $(2,658) $ 216 $ 337 $ (267)
====== ====== ====== ======= ====== ====== ======
<CAPTION>
AS PERCENTAGE OF NET SALES
---------------------------------------------------------------------
PERIOD ENDED
---------------------------------------------------------------------
FEB. 29, MAY 31, AUG. 31, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996(1) 1997 1997 1997
-------- ------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 116.4 88.5 91.9 108.0 52.9 48.5 51.1
------ ------ ------ ------- ------ ------ ------
Gross profit (loss)... (16.4) 11.5 8.1 (8.0) 47.1 51.5 48.9
Operating expenses:
Research and
development........... 38.3 31.8 37.6 108.1 16.8 20.8 40.7
Selling, general and
administrative........ 30.3 21.0 46.5 108.0 20.4 17.8 27.8
------ ------ ------ ------- ------ ------ ------
Total operating
expenses............. 68.6 52.8 84.1 216.1 37.2 38.6 68.5
Interest income
(expense), net......... 0.1 (3.6) (4.0) (4.8) (1.5) (1.2) (2.9)
Income (loss) before
income taxes........... (85.1) (37.7) (72.0) (219.3) 11.4 14.2 (16.7)
Income taxes............ -- -- -- -- 0.2 0.4 0.2
------ ------ ------ ------- ------ ------ ------
Net income (loss)..... (85.1)% (37.7)% (72.0)% (219.3)% 11.2% 13.8% (16.9)%
====== ====== ====== ======= ====== ====== ======
</TABLE>
- ----------
(1) Represents four-month transitional year following change of fiscal year
from August 31 year end to December 31 year end.
The Company's quarterly operating results may fluctuate as a result of a
number of factors, including timing of approvals of new products by the
Company, its competitors or its customers, slower-than-anticipated market
penetration rates of current products, temporary delays in obtaining certain
product components from suppliers or the ability to establish marketing and
distribution relationships with strategic partners. A significant portion of
the Company's expenses is relatively fixed in nature and the Company may not
be able to reduce spending in
26
<PAGE>
response to shortfalls or delays in revenues. Such shortfalls or delays may
result in a material adverse effect on the Company's business, financial
condition and results of operations. As a result, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indicators of future performance.
Due to the foregoing factors, it is likely that in one or more future fiscal
quarters the Company's operating results may be below the expectations of
equity research analysts and investors. Such an occurrence could have a
material adverse effect on the market price of the Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred annual operating losses since its inception on May
1, 1993 that have resulted in an accumulated deficit of $9.1 million as of
September 30, 1997. The Company has funded these operating losses from the
sale of $5.8 million in equity securities and the receipt of $5.9 million in
equity capital from MedChem on May 1, 1993 when the Company was spun-off to
the shareholders of MedChem.
In March 1996, the Company completed a financing involving the private
placement of 1,455,000 shares of newly issued Common Stock to institutional
and private accredited investors. Total gross proceeds were approximately $4.0
million and net proceeds to the Company after fees and expenses were
approximately $3.5 million. In connection with the private placement, the
Company issued to the private placement agent warrants to purchase 57,036
shares of Common Stock at $4.00 per share and warrants to purchase 146,664
shares of Common Stock at $3.00 per share. The proceeds from the private
placement were used to repay $1.0 million of indebtedness and for working
capital.
On May 17, 1995, the Company raised through a private placement $2,235,642,
net of offering costs, from the issuance of 120,970 shares of Series A
Preferred Stock at a selling price of $20.00 per share. Each share of the
Series A Preferred Stock is entitled to receive an annual dividend on May 1 of
each year at a rate of $1.80 per share, payable in additional shares of Series
A Preferred Stock, with the number of dividend shares determined by the price
of the Company's Common Stock. The Company may elect to pay the dividend in
cash if certain financial covenants are met. During each consecutive 90 day
period in which the average quarterly price of the Company's Common Stock
remains above $6.00 per share, no dividend will accrue. Each outstanding share
of Series A Preferred Stock will automatically convert into 10 shares of
Common Stock effective upon completion of this offering. At September 30,
1997, there were an aggregate of 130,211 shares of Series A Preferred Stock
outstanding which were convertible at such date into 1,302,110 shares of
Common Stock.
At September 30, 1997, the Company had cash and cash equivalents of $3.1
million and working capital of $5.2 million. The Company believes that the
$2.5 million payment received upon signing of the Zimmer Distribution
Contract, the net proceeds from this offering, cash from operations and
current cash balances will be sufficient to meet its operating requirements
for at least 24 months from the date of this Prospectus. Thereafter, the
Company may require additional financing to fund its operations and for the
construction of a new manufacturing facility. The Company's future capital
requirements and the adequacy of available funds will depend, however, on
numerous factors, including market acceptance of its existing and future
products, the successful commercialization of products in development,
progress in its product development efforts, the magnitude and scope of such
efforts, progress with preclinical studies, clinical trials and product
clearances by the FDA and other agencies, the cost and timing of its efforts
to expand its manufacturing capabilities, the cost of filing, prosecuting,
defending and enforcing patent claims and other intellectual property rights,
competing technological and market developments, and the development of
strategic alliances for the marketing of certain of its products. To the
extent that funds generated from the Company's operations, together with the
Company's existing capital resources and the net proceeds of this offering are
insufficient to meet future requirements, the Company will be required to
obtain additional funds through equity or debt financings, strategic alliances
with corporate partners and others, or through other sources. The terms of any
future equity financings may be dilutive to the Company's stockholders and the
terms of any debt financings may contain restrictive covenants which limit the
Company's ability to pursue certain courses of action. The ability of the
Company to obtain financing
27
<PAGE>
is dependent on the status of the Company's future business prospects as well
as conditions prevailing in the relevant capital markets. No assurance can be
given that any additional financing will be made available to the Company or
will be available on acceptable terms should such a need arise. The Company's
estimate of the time period for which cash and cash equivalents, net proceeds
from this offering and cash from operations will be adequate to fund
operations is a forward looking statement within the meaning of the Private
Securities Litigation Reform Act of 1995 and is subject to risks and
uncertainties. Actual results may differ materially from those contemplated in
such forward looking statements. In addition to those described above, factors
which may cause such a difference are set forth under the caption "Risk
Factors" as well as in this Prospectus generally.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
which requires presentation of basic earnings per share ("Basic EPS") and
diluted earnings per share ("Diluted EPS") by all entities that have publicly
traded common stock or potential common stock (options, warrants, convertible
securities or contingent stock arrangements). SFAS 128 also requires a
presentation of earnings per share by an entity that has made a filing or is
in the process of filing with a regulatory agency in preparation for the sale
of those securities in a public market. Basic EPS is computed by dividing
income available to common stockholders by the weighted-average number of
common shares outstanding during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period. The
computation of Diluted EPS does not assume conversion, exercise or contingent
exercise of securities that would have an antidilutive effect on earnings.
SFAS 128 is effective for both interim and annual periods ending after
December 15, 1997. The Company does not believe that the effect on the
Company's earnings per share resulting from the adoption of SFAS 128 will be
material.
28
<PAGE>
BUSINESS
OVERVIEW
The Company develops, manufactures and commercializes therapeutic products
and devices intended to promote the protection and healing of bone, cartilage
and soft tissue. These products are based on HA, a naturally-occurring,
biocompatible polymer found throughout the body. Due to its unique biophysical
and biochemical properties, HA plays an important role in a number of
physiological functions such as the protection and lubrication of soft tissues
and joints, the maintenance of the structural integrity of tissues, and the
transport of molecules to and within cells. The Company has been developing HA
and HA based products since 1983. The Company's currently marketed products
consist of ORTHOVISC(R), which is an HA product used in the treatment of some
forms of osteoarthritis in humans and HYVISC(R), which is an HA product used
in the treatment of equine osteoarthritis. ORTHOVISC is currently approved for
marketing in Canada and Europe; in the U.S. ORTHOVISC is currently limited to
investigational use only. The Company manufactures AMVISC(R) and AMVISC
Plus(R), which are HA products used as viscoelastic supplements in ophthalmic
surgery, for Chiron Vision, a subsidiary of Chiron Corporation. The Company is
currently developing INCERT(R), which is an HA based product designed for use
in the prevention of post-surgical adhesions. In addition, the Company is
collaborating with Orquest, Inc. to develop OSSIGEL(R), an injectable
formulation of basic fibroblast growth factor combined with HA designed to
accelerate the healing of bone fractures.
The Company is a leading manufacturer of ultra-pure, high molecular weight
HA. The purity level and molecular weight of HA is important because if HA
contains even trace levels of proteins, an immunogenic or inflammatory
response may be elicited when the HA is introduced into the body and
preclinical and clinical data suggest that high molecular weight HA correlates
with increased efficacy of HA products. The Company believes its expertise and
proprietary know-how in the development and manufacture of ultra-pure, high
molecular weight HA products are difficult to replicate and provide it with a
competitive advantage.
CLINICAL APPLICATIONS
OPHTHALMIC SURGERY
HA products are used in surgical procedures such as cataract extraction and
intraocular lens implantation to help maintain the shape of the eye and
protect and lubricate the delicate eye tissues. Over two million cataract
surgeries were performed in the U.S. and approximately 2.3 million
viscoelastic units for ophthalmic surgery were sold in the U.S. in 1996. The
Company estimates that annual sales of HA products for ophthalmology are
approximately $100 million in the U.S. and approximately $300 million
worldwide.
The Company has developed and currently manufactures AMVISC and AMVISC Plus,
high molecular weight, ultra-pure HA gels that are used during ophthalmic
surgery. AMVISC and AMVISC Plus are distinguished from other HA viscoelastics
by their purity, high molecular weight and viscosity. Because of their high
viscosity, AMVISC and AMVISC Plus excel in inflating and maintaining the shape
of the anterior chamber of the eye, an essential product characteristic for
the implantation of an intraocular lens. AMVISC and AMVISC Plus also provide
the ophthalmic surgeon with improved optical clarity, an important property
because bubbles or particulates can obscure the view of the surgical field.
The Company has manufactured AMVISC and AMVISC Plus since 1983, first for
Johnson & Johnson's IOLAB division and since 1994 for Chiron Vision, following
Chiron Vision's acquisition of IOLAB. The Company currently manufactures
AMVISC and AMVISC Plus for Chiron Vision under a fixed-price, five-year supply
agreement with stated minimum annual purchase obligations. This supply
agreement became effective January 1, 1997 and contains substantially higher
prices than the Company's previous agreement with Chiron Vision. The Company
estimates that AMVISC and AMVISC Plus represented approximately 20% of sales
of HA products for ophthalmic surgery in the U.S. in 1996. Major competing
products include Healon (manufactured by Pharmacia) and Viscoat (manufactured
by Alcon). The Company estimates that these two products combined held
approximately 56% of the U.S. market in 1996. See "-- Competition."
29
<PAGE>
OSTEOARTHRITIS
Description of Osteoarthritis. Where two bones meet in a normal joint the
ends are coated with cartilage, a smooth, slippery cushion that protects the
bone and reduces friction during movement. A tough capsule called the synovial
membrane seals the joint and produces a lubricating synovial fluid composed
primarily of HA. Osteoarthritis is a painful degenerative joint disease
characterized by gradual breakdown of the cartilage in a joint due to the
effects of mechanical stress and a variety of factors, including the normal
aging process. In an osteoarthritic joint, particular regions of articulating
surfaces are exposed to irregular forces which result in the remodeling of
tissue surfaces that disrupt the normal equilibrium or mechanical function. As
osteoarthritis advances the joint gradually loses its ability to regenerate
cartilage tissue and the cartilage layer attached to the bone deteriorates.
This breakdown of the cartilage is often associated with pain and inflammation
and may eventually create bone on bone contact in the joint and loss of
movement.
(GRAPHICS)
[Description: a graphic representation of the anatomy of a healthy knee,
indicating the joint capsule, synovial membrane, synovial fluid, bursa,
bone, cartilage, tendon and muscle and a graphic representation showing the
anatomy of an osteoarthritic knee, indicating cartilage destruction, loose
cartilage particles and bone spurs.)
According to the Arthritis Foundation, approximately 16 million people in
the U.S. are afflicted with some form of OA. OA is a very debilitating,
degenerative disease that most commonly afflicts the middle to older age group
and can range in severity from mild to very severe. Patients with OA have
persistent, significant problems performing physical tasks and may have
significant restrictions on their mobility. The most common joints afflicted
with OA are the weight bearing joints of the knees, hip and back. Although age
is the leading cause of OA, other factors such as sports injuries, obesity and
repetitive movement of the joint are also associated with OA.
The primary reason patients with OA seek treatment is pain. The mode of
therapy for OA depends upon its severity and each current therapy has
significant drawbacks. In mild cases, patients may be encouraged to lose
weight and physical therapy is employed to strengthen the muscles supporting
the joint. As the severity increases doctors may initially prescribe
analgesics and subsequently NSAIDs. While NSAIDs are widely prescribed, their
repeated use can cause gastrointestinal ulcers and bleeding and renal failure.
As the severity of OA increases and the mobility of the joint decreases,
physicians may inject steroids into the joint to decrease the inflammation and
relieve pain. While intra-articular steroids are effective in reducing pain
and inflammation, they are effective generally for only a short period of
time. In addition, the repeated use of intra-articular steroids may be
associated with the destruction of the cartilage in the joint and may have a
profound adverse metabolic effect on the body. Therefore, physicians may be
hesitant to use steroids on a repetitive basis to treat osteoarthritic
patients.
30
<PAGE>
When OA progresses to the point at which the cartilage is almost completely
destroyed, there is bone on bone contact which severely limits mobility and
causes a high level of pain. At this stage, an orthopedic surgeon may pursue
arthroscopic surgery and ultimately may elect to replace the osteoarthritic
joint with an artificial implant.
Treatment of Osteoarthritis with HA. Because of the problems associated with
the available treatments of OA, patients and physicians are currently seeking
safer and more effective treatment alternatives for OA. Although much of the
research in OA focuses on cartilage and bone, it has been recognized for some
time that the synovial fluid for osteoarthritic joints has a much lower
viscosity and elasticity than healthy joints. These observations have led to
the practice of viscosupplementation therapy for the treatment of OA.
Physicians inject HA into the joint to restore the elasticity and viscosity of
the synovial fluid. Injections of HA into an osteoarthritic joint can reduce
pain and improve joint mobility without the adverse side effects that often
accompany the use of NSAIDs or steroids.
The following chart depicts the treatment alternatives as OA progresses, and
shows the point at which treatment with HA would be appropriate:
(GRAPHICS)
[Graphic representation of treatment alternatives for OA indicating the use of
topical analgesics, asprin/acetaminophen, NSAIDS, HA therapy, intra-articular
steroids, arthroscopic surgery and joint replacement with the severity of the
disease increasing along a horizonal axis and the agressiveness of therapy
increasing along a vertical axis].
HA products for the treatment of osteoarthritis have been widely used in
Japan since the mid 1980s. The Company estimates, based on reported sales of
competing products, that sales of HA products for the treatment of OA in Japan
have grown to approximately $300 million in 1996, with Artz (manufactured by
Seikagaku Corporation ("Seikagaku"), representing a majority of such sales. HA
products for the treatment of OA have been more recently introduced in Europe
and Canada. In the United States, Hyalgan (manufactured by Fidia S.P.A.
("Fidia")) and Synvisc (manufactured by Biomatrix, Inc. ("Biomatrix"))
received FDA marketing approval (regulated as Class III medical devices)
during 1997 and are currently in the initial distribution stage.
ORTHOVISC. ORTHOVISC is an ultra-pure, high molecular weight, injectable HA
product for the treatment of OA in humans. ORTHOVISC received Communautee
European ("CE mark") approval in October 1996. The CE mark, a certification
required under European Community ("EC") medical device regulation, allows
ORTHOVISC to be marketed without further approvals in most of the EC nations
as well as countries that recognize EC device regulation. ORTHOVISC has also
been approved for sale in Canada, Turkey and Israel. Registrations for
marketing approval have been filed in Australia, New Zealand and Egypt.
In the U.S., ORTHOVISC is limited to investigational use only. The Company
received FDA approval of an IDE to conduct a clinical trial in the U.S. in
1996. The Company completed its pivotal clinical trial in August of 1997. The
trial was a randomized, double-blind, placebo-controlled study of 226 patients
at 10 centers in the United States. Patients in the study received three
injections of ORTHOVISC over a two week period and the patients were then
evaluated for a twenty-six week period. The Company believes the results of
the clinical study are sufficient to support a PMA application for submission
to the FDA for ORTHOVISC. The Company is preparing such an application and
plans to file it by the end of 1997. The Company will supplement the data from
this clinical study with clinical data collected in Europe, supporting data
from studies relating to the
31
<PAGE>
treatment of temperomandibular joint dysfunction with ORTHOVISC and years of
safety data from the use of the Company's other HA products. In November 1997,
the Company entered into a long-term distribution agreement with Zimmer, Inc.,
a subsidiary of Bristol-Myers Squibb Company. The Zimmer Distribution Contract
provides Zimmer with exclusive marketing and distribution rights to ORTHOVISC
in the United States, Canada, Australia, Hong Kong, Indonesia, Malaysia, New
Zealand, the Philippines, Singapore, Taiwan and Thailand. Zimmer also has the
option under the agreement to seek regulatory approval for and market
ORTHOVISC in Japan and has a right of first offer in China. Upon signing of
the agreement, the Company received an up-front non-refundable payment of $2.5
million. Zimmer has also agreed to make payments aggregating up to $20.5
million upon the achievement of certain regulatory approval and enumerated
sales milestones. As an alternative to a $2.5 million milestone payment,
Zimmer has the right to elect to acquire shares of the Company's Common Stock
equal to the greater of $2.5 million or 9.9% of the then outstanding Common
Stock (but not to exceed 19.9% of the then outstanding Common Stock) at a
premium to the then current market price. There can be no assurance that any
of such milestones will be met on a timely basis or at all. In addition,
Zimmer has the right to terminate the agreement on August 1, 1998 if certain
specified events occur prior to that date and upon payment to Anika of $1.0
million in cash. There can be no assurance that any of these events will not
occur or, if any such event does occur, that Zimmer will not elect to
terminate the agreement. Any such termination would have a material adverse
effect on the Company's ability to market ORTHOVISC, which may have a material
adverse effect on the Company's future operating results. The Company has also
entered into third-party arrangements for the distribution of ORTHOVISC in
Spain, Portugal, Israel, Turkey and Egypt.
The Company believes, based on preclinical, clinical and other data, that
the viscosity and purity of the HA used in products are important in
determining the efficacy and safety of the product. The two primary factors
which determine viscosity are HA concentration and molecular weight of the HA
molecule. High HA concentration combined with high molecular weight HA results
in higher viscosity. The Company believes that more viscous HA products may
provide an extended duration of effect from fewer injections potentially
resulting in improved patient compliance and lower cost of treatment. The
purity of an HA preparation is measured primarily by protein concentration.
Protein concentration is important because even low levels of protein have the
potential for causing an immunogenic or inflammatory response when the HA is
injected into the joint. Based on tests conducted on a limited number of
competing product samples by Company personnel in its facilities, the Company
believes ORTHOVISC is the purest HA product currently used for the treatment
of OA, although there can be no assurance that other HA products will not
ultimately be shown to be purer than ORTHOVISC.
The following table sets forth certain selected product characteristics for
the HA products of the Company and its principal competitors used in the
treatment of OA:
<TABLE>
<CAPTION>
MEASURES OF VISCOSITY
----------------------------------------------
VISCOSITY MOLECULAR HA INJECTIONS NATURAL/
(IN CENTISTOKES) WEIGHT OF HA CONCENTRATION PER COURSE CROSS-
PRODUCT MANUFACTURER (1) (MM DALTONS)(1) (MG/ML) OF TREATMENT(2) LINKED(2)
------- ------------ ---------------- --------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ORTHOVISC(3)............ Anika 35,000 1.55 14.7(2) 3 Natural
Artz(3)................. Seikagaku 1,947 0.86 11.0(1) 5 Natural
Hyalgan................. Fidia 185 0.60 10.8(2) 5 Natural
Synvisc................. Biomatrix 45,000 * 8.0(2) 3 Cross-linked
</TABLE>
- ----------
(1) Data obtained from tests conducted on limited product samples by Company
personnel in its facilities. Results may vary from sample to sample.
(2) Data derived from product labeling.
(3) Not currently approved for sale in the U.S.
* The molecular weight of HA used in SYNVISC cannot be determined because it
is a cross-linked product.
The above table indicates that ORTHOVISC has the highest molecular weight
and high viscosity when compared with the HA products currently being used for
the treatment of OA. The Company's HA products have a favorable safety profile
and the Company has manufactured more than three million units of AMVISC,
AMVISC Plus and HYVISC without receiving any reports of adverse reactions. To
date, there have been no
32
<PAGE>
reported adverse reactions from the use of ORTHOVISC. The Company believes
that ORTHOVISC will have a commercial advantage over Artz and Hyalgan because
only three injections of ORTHOVISC are required per course of treatment as
compared to five injections for Artz and Hyalgan. Unlike ORTHOVISC, Synvisc is
cross-linked through a chemical modification process using formaldehyde and
vinyl sulphone to achieve a high viscosity.
VETERINARY APPLICATIONS
Veterinarians use HA for the ongoing prevention and treatment of joint
dysfunction in horses due to non-infectious synovitis associated with equine
osteoarthritis. HYVISC, a high end product which is used primarily to treat
racehorses, is a high molecular weight injectable HA product which lubricates
and protects the tissues in horse joints. HYVISC is distributed for the
Company in the United States by Boehringer Ingelheim Animal Health, Inc.
("Boehringer Ingelheim") under an exclusive agreement terminating in 2002. The
Company and Boehringer Ingelheim have entered into an agreement to distribute
HYVISC internationally and the Company expects to begin clinical testing in
horses in Europe in 1998.
POST-SURGICAL ADHESION PREVENTION
Post-surgical adhesions occur when fibrous bands of tissue form between
adjacent tissue layers during the wound healing process after surgery, in
particular in abdominal, obstetric, gynecological and back surgeries. Although
surgeons attempt to minimize the formation of adhesions, nevertheless
adhesions often form after surgery and cause major medical problems such as
intestinal blockage, female infertility and recurrent back pain. Costly
secondary surgeries are often performed in an attempt to correct problems
caused by adhesions. According to Medical Device International, over 1.8
million abdominal surgeries are performed annually in the United States, 70 to
90 percent of which resulted in postsurgical adhesion formation. Over 400,000
abdominal operations were performed in 1994 in the United States in which
adhesions were removed. M.D.I. estimates that the total worldwide market
potential for all anti-adhesion products is approximately $900 million.
First generation products for prevention of post-surgical adhesions such as
oxidized cellulose (Interceed(R), manufactured by Johnson & Johnson) and PTFE
(Goretex(R), manufactured by W.L. Gore & Associates, Inc.), serve as a
mechanical means of separating tissues and have been available for some time.
However, these products have not been shown to significantly reduce post-
surgical adhesion formation and, in some cases, require post-surgical removal.
More recently, second generation products have been developed or are in
development stage which are biocompatible and which have superior therapeutic
effect. Seprafilm, an HA product manufactured by Genzyme Corporation
("Genzyme"), received FDA approval in 1997. In addition, anti-adhesion
products in human clinical testing include Adcon (a carbohydrate polymer
manufactured by Gliatech, Inc.), Lubricoat Gel (an HA product manufactured by
LifeCore Biomedical, Inc. ("LifeCore")) and Repel-CV (manufactured by Life
Medical Sciences, Inc.).
INCERT, the Company's product in development for the prevention of post-
surgical adhesions, is a bioabsorbable, implantable membrane made from cross-
linked HA. INCERT is placed over the surgical site and surrounding organs and
tissues before an incision is closed and functions as a physical barrier to
prevent post-surgical adhesions. The Company believes INCERT will be
particularly useful for surgeons because it remains in place during and after
surgery and has superior handling characteristics. The Company has performed
toxicology testing of INCERT and has tested INCERT in animal studies at Duke
University. Both of these studies have indicated the biocompatibility and
efficacy of INCERT. Based on the results of these studies, the Company plans
to commence the testing of INCERT in humans in Europe during 1998. The Company
is seeking a strategic partner for the further development, marketing and
distribution of INCERT.
The Company co-owns an issued United States patent covering the use of
INCERT for adhesion prevention. The Company has received notification from the
PTO that a third party is attempting to provoke an interference with respect
to the Company's patent covering INCERT. See "-- Patents and Proprietary
Rights."
33
<PAGE>
DRUG DELIVERY
The Company is also investigating HA's potential as a drug delivery vehicle
for pharmaceutical and biologic compounds. The Company believes HA based
products have potential application to the delivery of drugs. Particular
properties of HA, including (i) its site specific mode of delivery, (ii) its
persistence at the site and (iii) its biocompatible properties, may have
application to certain drugs and modes of therapy where such properties are
important or beneficial. In June of 1997, the Company executed a multi-year
collaboration agreement with Orquest to develop and manufacture OSSIGEL, a
formulation of basic fibroblast growth factor and HA designed to accelerate
the healing of bone fractures. Orquest is a privately held orthobiologics
company headquartered in Mountain View, California, and was founded in 1994 to
develop products for bone and cartilage regeneration. OSSIGEL has been shown
in animal models to accelerate the healing of bone fractures. Orquest plans to
complete preclinical testing of OSSIGEL in animals by the end of 1997. If
favorable preclinical results are achieved and FDA approval of an IDE
application is received, Orquest plans to commence clinical testing of OSSIGEL
in humans in the U.S. during 1998. Orquest has filed an application with the
U.S. Patent and Trademark Office for a patent covering the use of OSSIGEL in
accelerating fracture healing.
OTHER APPLICATIONS FOR HA
HA may have additional medical applications which do not utilize HA's
biophysical properties but rather influence cell function. One of the critical
events in the metastasis of cancer is the interaction between tumor cells and
the host tissue stroma. This interaction is mediated by certain cell surface
receptors. Preclinical studies have indicated that the interaction between one
of these cell surface receptors, the hyaluronan receptor CD44, and HA
contained in the host tissue stroma enhances the growth of certain tumors.
Preclinical studies conducted by the Company, working in collaboration with
Tufts University and Massachusetts General Hospital, have indicated that HA
oligosaccharides, by binding to the CD44 receptor and blocking the interaction
with HA in the host tissue stroma, have inhibited the metastasis of human
melanoma cancer cells inserted in mice. In addition, studies in an in vitro
model have indicated that HA oligosaccharides have inhibited the metastasis of
human ovarian cancer cells.
The Company has obtained an exclusive worldwide license to this technology
from Tufts University, which has filed an application for a patent to protect
this technology. During 1998 the Company plans to continue the preclinical
testing of HA oligosaccharides and will seek a strategic partner to assist in
the further development of this technology.
BUSINESS STRATEGY
The Company's goal is to leverage its position as a leading manufacturer of
ultra-pure, high molecular weight HA for significant therapeutic applications.
Key elements of the Company's strategy are to:
Identify additional medical applications for HA. The Company will seek to
identify additional medical applications of HA alone and in combination with
other biologic materials and drugs. The Company is currently pursuing a broad
range of HA product applications in osteoarthritis, ophthalmology, veterinary
uses, post-surgical adhesion prevention, drug delivery and inhibition of
cancer metastasis. For example, the Company will seek approval for ORTHOVISC
to treat OA in joints in addition to the knee such as the hip, shoulder and
TMJ. As the Company expands its product offering, it will seek to broaden its
intellectual property rights and will apply for patents whenever possible to
protect its intellectual property and technology.
Develop proprietary therapeutic products both on its own and in
collaboration with strategic partners. The Company will seek to develop its
own proprietary therapeutic products. In addition, the Company plans to form
collaborations with scientists and other companies for the co-development of
new products that will utilize the Company's development, manufacturing and
regulatory capabilities. For example, the Company is currently involved in
collaborations with Orquest for the development of OSSIGEL and with
researchers at Tufts University and Massachusetts General Hospital in the area
of cancer treatment.
34
<PAGE>
Capitalize on its existing proprietary, high-quality and cost-effective HA
manufacturing expertise. The Company will seek to leverage its expertise in
the manufacture of ultra-pure, high molecular weight HA by focusing on new
applications in which these characteristics provide safety, efficacy and other
advantages over the products of its competitors. The Company already has in
place manufacturing processes that would require significant capital and
proprietary know-how to replicate. The Company will also seek to apply its
existing proprietary HA manufacturing expertise across other areas.
Establish strategic alliances for the marketing and distribution of its
products. The Company will seek to establish strategic alliances with partners
that have strong marketing, selling and distribution capabilities. The Company
has established relationships with Chiron Vision for the distribution of
AMVISC and AMVISC Plus, and Boehringer Ingelheim Animal Health for the
distribution of HYVISC. The Company has entered into distribution arrangements
for ORTHOVISC with Zimmer in the United States, Canada and certain selected
countries in the Asia-Pacific region and with Grupo Ferrer in Spain and
Portugal. The Company also has arrangements with other distribution partners
in Turkey, Israel and Egypt.
MANUFACTURING OF HYALURONIC ACID
The Company has been manufacturing HA since 1983 in its manufacturing
facility located in Woburn, Massachusetts. In 1996, the Company received an
International Standards Organization ("ISO") 9001 certification of its
manufacturing facility and HA manufacturing process. An ISO 9001 designation
is an internationally recognized certification for quality standards governed
by the International Organization for Standards based in Geneva, Switzerland.
The certifications for ISO 9001 were awarded to the Company after a rigorous
assessment and audit of the Company's quality system by a private, third-party
European accredited Notified Body. ISO 9001 is the highest level of
achievement possible in the ISO certification system.
The Company has developed a proprietary HA manufacturing process for the
extraction and purification of HA from rooster combs that yields an ultra-pure
HA which consistently has a high molecular weight. The Company believes its
proprietary extraction and purification process for manufacturing high
molecular weight ultra-pure HA will be difficult to replicate because most HA
purification methods result in the degradation of the HA molecule leading to a
final HA product that is pure but with a lower molecular weight than the
Company's products.
A substantial supply of rooster combs is available and the Company believes
that all the other materials required for the manufacture of its HA products
are also readily available from a number of sources. In addition, the Company
currently obtains rooster combs from two suppliers. The Company obtains
syringes used to deliver its HA products from a single supplier, however, it
generally keeps sufficient syringes in its inventory to meet anticipated
demand for at least six months. The Company also employs strict quality
control procedures to ensure the quality of its products, inventory and raw
materials. The Company believes that its facility in Woburn, Massachusetts,
has the present manufacturing capacity to accommodate anticipated demand
through 1999. The Company believes that with expansion and improvements to the
facility, capacity can be increased to accommodate anticipated demand through
2001. The Company anticipates a new, larger manufacturing facility will be
required to meet increased demand beyond 2001. The Company expects that
construction and regulatory approval of a new facility would take between two
and three years.
PATENT AND PROPRIETARY RIGHTS
The Company's success will depend, in part, on its ability to obtain and
enforce patents, protect trade secrets, obtain licenses to technology owned by
third parties when necessary, and conduct its business without infringing the
proprietary rights of others. The patent positions of pharmaceutical, medical
products and biotechnology firms, including the Company, can be uncertain and
involve complex legal and factual questions. There can be no assurance that
any patent applications will result in the issuance of patents or, if any
patents are issued, whether they will provide significant proprietary
protection or commercial advantage, or will not be circumvented by others. In
the event a third party has also filed one or more patent applications for any
of its
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inventions, the Company may have to participate in interference proceedings
declared by the PTO to determine priority of invention (see below), which
could result in the loss of any opportunity to secure patent protection for
the inventions and the loss of any right to use the inventions. Even if the
eventual outcome is favorable to the Company, such interference proceedings
could result in substantial cost to the Company. Filing and prosecution of
patent applications, litigation to establish the validity and scope of
patents, assertion of patent infringement claims against others and the
defense of patent infringement claims by others can be expensive and time
consuming. There can be no assurance that in the event that any claims with
respect to any of the Company's patents, if issued, are challenged by one or
more third parties, that any court or patent authority ruling on such
challenge will determine that such patent claims are valid and enforceable. An
adverse outcome in such litigation could cause the Company to lose exclusivity
covered by the disputed rights. If a third party is found to have rights
covering products or processes used by the Company, the Company could be
forced to cease using the technologies or marketing the products covered by
such rights, could be subject to significant liabilities to such third party,
and could be required to license technologies from such third party.
Furthermore, even if the Company's patents are determined to be valid,
enforceable, and broad in scope, there can be no assurance that competitors
will not be able to design around such patents and compete with the Company
using the resulting alternative technology.
The Company has a policy of seeking patent protection for patentable aspects
of its proprietary technology. The Company co-owns certain United States
patents and a patent application which claim certain adhesion prevention uses
and certain drug delivery uses of HA, and the Company solely owns patents
covering certain manufacturing processes. The Company also holds an exclusive
license from Tufts University to use technologies claimed in a United States
patent application which relate to the anti-metastasis applications of HA
oligosaccharides. The Company's issued patents expire between 2007 and 2015
and the license expires upon expiration of all related patents. The Company
intends to seek patent protection with respect to products and processes
developed in the course of its activities when it believes such protection is
in its best interest and when the cost of seeking such protection is not
inordinate. However, no assurance can be given that any patent application
will be filed, that any filed applications will result in issued patents or
that any issued patents will provide the Company with a competitive advantage
or will not be successfully challenged by third parties. The protections
afforded by patents will depend upon their scope and validity, and others may
be able to design around the Company's patents. The Company's issued patents
and any patents which arise from the Company's licensed application would
provide competitive protection, if at all, only in the United States. The
Company has not, to date, pursued foreign patents equivalent to those issued
or applied for in the United States.
Other entities have filed patent applications for or have been issued
patents concerning various aspects of HA-related products or processes. There
can be no assurance that the products or processes developed by the Company
will not infringe the patent rights of others in the future. Any such
infringement may have a material adverse effect on the Company's business,
financial condition and results of operations. In particular, the Company has
received notice from the PTO that a third party is attempting to provoke a
patent interference with respect to one of the Company's co-owned patents
covering the use of INCERT for post-surgical adhesion prevention. Although the
Company believes that an interference will be declared by the PTO, it is too
early to determine the merits of the interference or the effect, if any, the
interference will have on the Company's marketing of INCERT for this use. The
existence of the interference proceeding may have a negative impact on the
marketing of the INCERT product, and no assurance can be given that the
Company would be successful in any such interference proceeding. If the third
party interference were to be decided adversely to the Company, involved
claims of the Company's patent would be cancelled, the Company's marketing of
the INCERT product may be materially and adversely affected and the third
party may enforce patent rights against the Company which could prohibit the
sale and use of the INCERT products, which could have a material adverse
effect on the Company's future operating results.
The Company also relies upon trade secrets and proprietary know-how for
certain unpatented aspects of its technology. To protect such information, the
Company requires all employees, consultants and licensees to enter into
confidentiality agreements limiting the disclosure and use of such
information. There can be no assurance
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that these agreements provide meaningful protection or that they will not be
breached, that the Company would have adequate remedies for any such breach,
or that the Company's trade secrets, proprietary know-how, and technological
advances will not otherwise become known to others. In addition, there can be
no assurance that, despite precautions taken by the Company, others have not
and will not obtain access to the Company's proprietary technology. Further,
there can be no assurance that third parties will not independently develop
substantially equivalent or better technology.
The Company has agreed to grant Chiron Vision a royalty-free, worldwide,
exclusive license to the Company's manufacturing and product inventions which
relate to AMVISC products, effective on December 31, 2001, the termination
date of the AMVISC supply contract which became effective on January 1, 1997.
Upon expiration of the AMVISC supply contract, there can be no assurance that
Chiron Vision will continue to use the Company to manufacture AMVISC and
AMVISC Plus. If Chiron Vision discontinues the use of the Company as a
manufacturer after such time, the Company's business, financial condition and
results of operations could be materially and adversely affected.
RESEARCH AND DEVELOPMENT
The Company intends to continue development of its existing product
candidates, ORTHOVISC, INCERT and HA oligosaccharides, to expand the
therapeutic applications of its existing products and to develop new
therapeutic applications for HA-based products. The Company will seek to
expand the use of ORTHOVISC as a therapy for OA to other joints such as the
hip and shoulder and to develop ORTHOVISC as a treatment for TMJ dysfunction.
The Company's research and development efforts consist primarily of research
relating to new medical applications for its HA-based products and the
management of clinical trials for product candidates and the preparation and
processing of applications for regulatory approvals at all relevant stages of
development. The Company's development of new products is accomplished
primarily through in-house research and development personnel and resources as
well as with collaborations with other companies and scientific researchers.
For the fiscal years ended August 31, 1995 and 1996, the four-month
transitional year ended December 31, 1996 and for the nine months ended
September 30, 1997, research and development expenses were $1.3 million, $1.6
million, $1.3 million and $1.5 million, respectively. The Company anticipates
that it will continue to commit substantial resources to research and
development in the future. As of September 30, 1997, the Company had seven
employees engaged primarily in research and development.
THIRD PARTY REIMBURSEMENT
In the U.S. and other markets, health care providers, such as hospitals and
physicians, that purchase health care products, such as the Company's
products, generally rely on third party payors, including Medicare, Medicaid
and other health insurance and managed care plans, to reimburse all or part of
the cost of the health care product. Reimbursement by a third party payor may
depend on a number of factors, including the payor's determination that the
use of the Company's products are clinically useful and cost-effective,
medically necessary and not experimental or investigational. Since
reimbursement approval is required from each payor individually, seeking such
approvals can be a time consuming and costly process which, in the future,
could require the Company or its marketing partners to provide supporting
scientific, clinical and cost-effectiveness data for the use of the Company's
products to each payor separately. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and third party
payors are increasingly attempting to contain the costs of health care
products and services by limiting both coverage and the level of reimbursement
for new therapeutic products and by refusing in some cases to provide coverage
for uses of approved products for disease indications for which the FDA has
not granted marketing approval. In addition, Congress and certain state
legislatures have considered reforms that may affect current reimbursement
practices, including controls on health care spending through limitations on
the growth of Medicare and Medicaid spending. There can be no
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assurance that third party reimbursement coverage will be available or
adequate for any products or services developed by the Company. Outside the
U.S., the success of the Company's products is also dependent in part upon the
availability of reimbursement and health care payment systems. Lack of
adequate coverage and reimbursement provided by government and other third
party payors for the Company's products and services could have a material
adverse effect on the Company's business, financial condition and results of
operations.
GOVERNMENT REGULATION
The Company's current and future products and product research, development,
manufacturing, sales and activities are subject to extensive and rigorous
regulation by the FDA and comparable agencies in foreign countries. In the
United States, the FDA regulates the marketing, advertising, promotion, and
distribution of medical devices, drugs, biologics, and animal drugs, as well
as testing, manufacturing, labeling, and recordkeeping and reporting
procedures for these products.
Product development and approval within the FDA regulatory framework takes a
number of years and involves the expenditure of substantial resources. There
can be no assurance that this regulatory framework will not change or that
additional regulation will not arise at any stage of the Company's product
development process which may affect approval of or delay an application or
require additional expenditures by the Company.
Any products manufactured or distributed by the Company are subject to
pervasive and continuing regulation by the FDA including record keeping
requirements, reporting of adverse experience with the use of the product,
post-market surveillance, post-market registry and other actions deemed
necessary by the FDA. In addition, all products manufactured by the Company
must be manufactured in compliance with the standards established by the FDA's
GMP regulations. Ongoing compliance with GMP and other applicable regulatory
requirements is monitored through periodic inspection by state and federal
agencies, including the FDA.
FDA regulations depend heavily on administrative interpretation, and there
can be no assurance that future interpretations made by the FDA or other
regulatory bodies, with possible retroactive effect, will not adversely affect
the Company. In addition, changes in the existing regulations or adoption of
new governmental regulations or policies could prevent or delay regulatory
approval of the Company's products.
Failure to comply with applicable regulatory requirements could result in,
among other things, warning letters, fines, injunctions, civil penalties,
recall or seizure of products, total or partial suspension of production,
refusal of the government to grant pre-market clearance or pre-market approval
for devices, withdrawal of approvals and criminal prosecution.
Medical products regulated by the FDA are generally classified as drugs
and/or medical devices and/or biologics. AMVISC is approved as a Class III
device in the United States for ophthalmic surgical procedures in intraocular
use in humans. HYVISC is approved as an animal drug for intra-articular
injection in horse joints to treat degenerative joint disease associated with
synovitis. In the past, most HA products have been regulated by the FDA as
medical devices. ORTHOVISC for osteoarthritis of the knee is currently
considered a Class III device. The Company believes INCERT will be regulated
by the FDA as a Class III device. There can be no assurance, however, that
such products will not be classified as drugs or as both devices and drugs.
The Company believes HA oligosaccharides for use in the treatment of certain
proliferative diseases will be regulated as drugs.
Devices. The FDA regulates the research, testing, manufacture, safety,
labeling, storage, record keeping, advertising, distribution and production of
medical devices in the United States. Medical devices are classified into one
of three classes, Class I, II, or III on the basis of the controls deemed by
the FDA to be necessary to reasonably ensure their safety and effectiveness.
Class I devices are subject to general controls (e.g., labeling, pre-market
notification and adherence to GMP standards). Class II devices are subject to
general controls and special controls (e.g., performance standards, post-
market surveillance, patient registries and FDA guidelines). The FDA also has
the authority to require clinical testing of Class I and Class II devices.
Generally, Class III devices are those that must receive pre-market approval
by the FDA to ensure their safety and effectiveness (e.g.,
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life-sustaining, life-supporting and implantable or new devices which have not
been found to be substantially equivalent to legally marketed devices), and
require clinical testing to ensure safety and effectiveness and FDA approval
prior to marketing and distribution.
Generally, before a new device can be introduced into the market in the
United States, the manufacturer or distributor must obtain FDA clearance of a
pre-market notification ("510(k) notification") submission or approval of a
PMA application. If a medical device manufacturer or distributor can establish
that a device is "substantially equivalent" to a legally marketed Class I or
Class II device, or to a Class III device for which the FDA has not called for
PMA applications, the manufacturer or distributor may seek clearance from the
FDA to market the device by filing a 510(k) notification. The 510(k)
notification may need to be supported by appropriate data establishing the
claim of substantial equivalence to the FDA. The FDA recently has been
requiring a more rigorous demonstration of substantial equivalence.
Following submission of the 510(k) notification, the manufacturer or
distributor may not place the device into commercial distribution until an
order is issued by the FDA. At this time, the FDA typically responds to the
submission of a 510(k) notification within 90 to 200 days. An FDA order may
declare that the device is substantially equivalent to a legally marketed
device and allow the proposed device to be marketed in the United States. The
FDA, however, may determine that the proposed device is not substantially
equivalent or requires further information, including clinical data, to make a
determination regarding substantial equivalence. Such determination or request
for additional information could delay market introduction of the product that
is the subject of the 510(k) notification.
If human clinical trials of a device are required and if the device presents
a "significant risk," the manufacturer or distributor of the device is
required to file an investigational device exemption ("IDE") application with
the FDA prior to commencing human clinical trials. The IDE application must be
supported by data, typically the result of animal, and, possibly, mechanical
testing. If the IDE application is approved by the FDA, human clinical trials
may begin at a specific number of investigational sites with a maximum number
of patients, as approved by the FDA.
If a manufacturer or distributor of medical devices cannot establish that a
proposed device is substantially equivalent to a legally market device, the
manufacturer or distributor must seek premarket approval of the proposed
device through submission of a PMA application. A PMA application must be
supported by extensive data, including data from preclinical studies and human
clinical trials, extensive literature, non-clinical data, a full description
of the device and its components, a full description of the methods,
facilities, and controls used for manufacturing, and proposed labeling to
prove the safety and effectiveness of the device. Following receipt of a PMA
application, if the FDA determines that the application is sufficiently
complete to permit a substantive review, the agency will "file" the
application. The FDA has 180 days to review a filed PMA application, although
the review of an application more often occurs over a protracted time period,
and generally takes approximately two years or more from the filing date to
complete.
The PMA approval process can be expensive, uncertain and lengthy. A number
of devices for which pre- market approval has been sought have never been
approved for marketing. The review time is often significantly extended by the
FDA, which may require more information or clarification of information
already provided in the submission. During the review period, an advisory
committee likely will be convened by the FDA to review and evaluate the
application and provide recommendations to the agency as to whether the device
should be approved. In addition, the FDA will inspect the manufacturing
facility to ensure compliance with the GMP regulations for medical devices
prior to approval of the PMA application. If granted, the approval may include
significant limitations on the indicated uses for which a product may be
marketed.
Even if regulatory clearance to market a device is obtained from the FDA,
this clearance may entail limitations on the indicated uses of the device.
Marketing clearance can also be withdrawn by the FDA due to failure to comply
with regulatory standards or the occurrence of unforeseen problems following
initial clearance. The Company may be required to make further filings with
the FDA under certain circumstances. The FDA's
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regulations require agency approval of a PMA or 510(k) supplement for certain
changes if they affect the safety and effectiveness of the device, including,
but not limited to, new indications for use, labeling changes, the use of a
different facility to manufacture, process or package the device, changes in
manufacturing methods or quality control systems and changes in performance or
design specifications. Failure by the Company to receive approval of a PMA or
510(k) supplement regarding the use of a different manufacturing facility or
any other change affecting the safety or effectiveness of an approved or
cleared device on a timely basis, or at all, would have a material adverse
effect on the Company's business, financial condition and results of
operations. The FDA could also limit or prevent the manufacture or
distribution of the Company's products and has the power to require the recall
of such products. Significant delay or cost in obtaining, or failure to obtain
FDA clearance to market products, any FDA limitations on the use of the
Company's products, or any withdrawal of clearance by the FDA could have a
material adverse effect on the business, financial condition and results of
operations of the Company.
In the U.S. the Company has completed a clinical study of the use of
ORTHOVISC for treatment of OA of the knee in humans. The Company is currently
preparing a PMA for ORTHOVISC for this use which it plans to submit to the FDA
by the end of 1997. The Company cannot predict the timing for approval, if
ever, of its PMA for ORTHOVISC. Internationally, the Company has received the
CE mark for the marketing in Europe of ORTHOVISC for use in synovial joints
and approval in Canada for use of the product in the knee and TMJ.
Drugs. Medical products may meet both the definition of a medical device and
a drug. In these instances, the FDA may regulate these products as drugs or as
both medical devices and drugs. The steps required before a drug may be
marketed in the United States include (i) preclinical laboratory and animal
tests, (ii) submission to the FDA of an Investigational New Drug Application
which must become effective before human clinical trials to establish the
safety and efficacy of the drug may commence, (iii) submission of a New Drug
Application ("NDA") to the FDA and (iv) FDA approval of the NDA prior to any
commercial sales or shipment of the drug. A clinical study program designed to
demonstrate the safety and effectiveness of a drug usually proceeds in three
phases: (i) phase I involves testing the drug for safety and tolerance in a
small group of health volunteers; (ii) phase II involves testing for efficacy
and identifying possible side effects in a target patient group; and (iii)
phase III involves additional testing for efficacy, optimal dosage and safety
with an expanded patient group, preferably using a comparative control agent.
The results of the clinical testing, together with manufacturing
information, are then submitted to the FDA in the form of an NDA. In the event
the Company's products are classified as drugs, it may take five to ten years
to complete this process, which typically would be substantially longer than
the review process for devices. The extended review process is also
substantially more expensive.
Furthermore, the Company or the FDA may suspend clinical trials at any time
upon a determination that the subjects or patients are being exposed to an
unacceptable adverse health risk ascribable to the Company's products. If
clinical studies are suspended, the Company may be unable to continue the
development of the investigational products affected.
In addition to regulations enforced by the FDA, the Company is subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation
and Recovery Act and other existing and potential future federal, state and
local regulations of foreign governments. Federal, state and foreign
regulations regarding the manufacture and sale of medical products are subject
to change. The Company cannot predict what impact, if any, such changes might
have on its business.
For marketing outside the United States, the Company will be subject to FDA
regulations regarding the export of products within its jurisdiction and to
foreign regulatory requirements governing human clinical trials and marketing
approval for drugs and devices. The requirements relating to the conduct of
clinical trials, product licensing, pricing and reimbursement vary widely from
country to country. The process of obtaining approvals from the FDA and other
regulatory authorities can be costly, time consuming, and subject to
unanticipated
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delays. There can be no assurance that approvals of the Company's products,
processes or facilities will be granted or that the Company will obtain the
financing needed to develop certain of such products. Any failure to obtain,
or delay in obtaining, such approvals could adversely affect the ability of
the Company to market its products.
In addition to regulations enforced by the FDA, the Company is subject to
other existing and potential future federal, state and local regulations of
foreign governments. International regulatory bodies often establish
regulations governing product standards, packing requirements, labeling
requirements, import restrictions, tariff regulations, duties and tax
requirements. To enable the Company to market its products in Europe, the
Company was required to receive a "CE" marking certification, an international
symbol of quality and compliance with the applicable European medical device
directive. In October 1996, the Company received an EC Design Examination and
an EC Quality System Certificate from a European Notified Body, which entitles
the Company to affix a CE marking on its ORTHOVISC product for osteoarthritis
and the treatment of TMJ. There can be no assurance that the Company will be
able to achieve and/or maintain compliance required for CE marking or other
foreign regulatory approvals for any or all of its products or that it will be
able to produce its products in a timely and profitable manner while complying
with applicable requirements. Federal, state and foreign regulations regarding
the manufacture and sale of medical products are subject to change. The
Company cannot predict what impact, if any, such changes might have on its
business. The requirements relating to the conduct of clinical trials, product
licensing, pricing and reimbursement also vary widely from country to country.
COMPETITION
The Company competes with many companies, including large pharmaceutical
companies and specialized medical products companies. Many of these companies
have substantially greater financial and other resources, larger research and
development staffs, more extensive marketing and manufacturing organizations
and more experience in the regulatory process than the Company. The Company
also competes with academic institutions, governmental agencies and other
research organizations which may be involved in research, development and
commercialization of products. Because a number of companies are developing HA
products for similar applications, the successful commercialization of a
particular product will depend in part upon the ability of the Company to
complete clinical studies and obtain FDA marketing and foreign regulatory
approvals prior to its competitors. There can be no assurance that the Company
will be able to compete against current or future competitors or that
competition will not have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company is aware of several companies, including Genzyme, Biomatrix,
Inc., Hyal Pharmaceutical Corp., Fidia S.P.A. and LifeCore, that are
developing and/or marketing products utilizing HA for a variety of human
applications. In some cases, competitors have obtained product approvals,
submitted for approval or have commenced human clinical studies, either in the
United States or in certain foreign countries. Major competing products for
the use of HA in ophthalmic surgery include Healon (manufactured by Pharmacia)
and Viscoat (manufactured by Alcon). The FDA has recently approved for
marketing two HA products for the treatment of osteoarthritis in the knee,
Hyalgan and Synvisc. Hyalgan is manufactured by Fidia S.P.A. and is
distributed in the United States by Sanofi Pharmaceuticals and OrthoLogic
Corp. Fidia S.P.A. is selling Hyalgan throughout Europe. Synvisc is
manufactured by Biomatrix Inc. and is distributed in the United States by
Wyeth-Ayerst Laboratories, a division of American Home Products Corp.
Biomatrix, Inc. is marketing this product in Canada, Italy and Sweden. Artz is
manufactured by Seikagaku Corporation and is distributed in Japan, Spain and
Sweden. Genzyme has received marketing approvals in Europe and the U.S. for a
chemically modified HA for the prevention of post-surgical adhesions. LifeCore
is conducting a Phase III human clinical trial testing HA to prevent surgical
adhesions.
ENVIRONMENTAL LAWS
The Company believes that it is in compliance with all federal, state and
local environmental regulations with respect to its manufacturing facilities
and that the cost of ongoing compliance with such regulations does
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not have a material effect on the Company's operations. The Company's
manufacturing facility is located within the Wells G&H Superfund site in
Woburn, MA. The Company has not been named and is not a party to any such
legal proceedings regarding the Wells G&H Superfund site.
PRODUCT LIABILITY
The testing, marketing and sale of human health care products entail an
inherent risk of allegations of product liability, and there can be no
assurance that substantial product liability claims will not be asserted
against the Company. Although the Company has not received any material
product liability claims to date and has coverage under its insurance policy
of $1,000,000, as of September 30, 1997, there can be no assurance if material
claims arise in the future, that the Company's insurance will be adequate to
cover all situations. Moreover, there can be no assurance that such insurance,
or additional insurance, if required, will be available in the future or, if
available, will be available on commercially reasonable terms. Any product
liability claim, if successful, could have a material adverse effect on the
Company's business, financial condition and results of operations.
LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
FACILITIES AND EMPLOYEES
The Company leases its corporate headquarters located at 236 West Cummings
Park, Woburn, Massachusetts. The Company leases approximately 22,000 square
feet of space at this location for the manufacture of HA products and for its
corporate headquarters. This facility has received all FDA and state
regulatory approvals to operate as a sterile device and drug manufacturer. The
lease for this facility terminates in February 2001. The Company also leases
approximately 15,000 square feet of administrative and research and
development space in Woburn, Massachusetts. The lease for this facility
terminates in October 2001. For the year ended August 31, 1996, the Company
had aggregate lease costs of approximately $370,000.
As of September 30, 1997, the Company had approximately 43 full-time
employees. The Company considers its relations with its employees to be good.
No employees are represented by labor unions.
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MANAGEMENT
EXECUTIVE OFFICERS, SIGNIFICANT EMPLOYEES AND DIRECTORS
The executive officers, significant employees and directors of the Company
and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
J. Melville Engle................. 47 President, Chief Executive Officer and
Director
Sean F. Moran..................... 39 Vice President of Finance and
Administration, Chief Financial Officer,
Clerk and Treasurer
Jing-wen Kuo, Ph.D. .............. 51 Vice President of Technical and Clinical
Affairs
Shawn D. Kinney................... 38 Vice President of Operations
Edward Ross, Jr................... 41 Vice President, Sales and Marketing
Mary Ellen Freddo................. 41 Vice President, Quality Systems and
Regulatory Affairs
David A. Swann, Ph.D. ............ 61 Chairman and Chief Scientific Officer
Joseph L. Bower(1)(2)............. 59 Director
Eugene A. Davidson, Ph.D.(1)...... 67 Director
Jonathan D. Donaldson(2).......... 48 Director
Samuel F. McKay(1)................ 58 Director
Harvey S. Sadow, Ph.D............. 75 Director
Steven E. Wheeler(1)(2)........... 50 Director
</TABLE>
- ----------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
EXECUTIVE OFFICERS
Mr. Engle was appointed President and Chief Executive Officer of the Company
in September 1996. Previously, he served as President and Chief Executive
Officer for U.S. Medical Products, Inc., a manufacturer and distributor for
orthopedic implants, from 1995 to 1996, and was Senior Vice President, U.S.
Sales and Canadian Operations from 1994 to 1995, Senior Vice President, Latin
America and Canada from 1990 to 1994, Vice President, Managing Director,
Allergan Canada from 1986 to 1990 and Vice President of Finance/Chief
Financial Officer from 1982 to 1986 for Allergan, Inc. Mr. Engle received a
B.S. from the University of Colorado and an M.B.A. from the University of
Southern California.
Mr. Moran was appointed Treasurer of the Company in February 1992 and Vice
President of Finance and Administration and Chief Financial Officer in
February 1993. From July 1996 to September 1996, Mr. Moran served as one of
two members of the Office of the President. He served as Treasurer of MedChem
from May 1991 to May 1993. Mr. Moran also served as Controller of MedChem from
September 1990 to May 1991. Previously, Mr. Moran served as Corporate
Manufacturing Controller at Instron Corporation, a manufacturer of materials
testing instrumentation, from January 1988 to August 1990. Mr. Moran received
a B.S. in Business Administration and an M.B.A. from Babson College.
Dr. Kuo was appointed Vice President of Technical and Clinical Affairs of
the Company in August 1996. He served as Vice President of Research and
Development from February 1993 to January 1996 and as Vice President of
Technical Affairs from January 1996 to August 1996. He also served as Vice
President of Research and Development of MedChem from July 1992 to May 1993,
Director of Basic Research from September 1989 to July 1992, Senior Chemist
from 1986 to 1989 and Research Chemist from 1984 to 1986. Dr. Kuo received an
M.S. and a Ph.D. from the State University of New York at Stony Brook.
Mr. Kinney was appointed Vice President of Operations of the Company in
January 1996. From July 1996 to September 1996 he served as one of two members
of the Office of the President. He served as Director of Technology from
January 1995 to January 1996 and Manager, Analytical Laboratory from 1994 to
1995. He
43
<PAGE>
also served as a consultant to the Company and MedChem from 1991 to 1994. Mr.
Kinney received a B.S. from Southeastern Massachusetts University, an M.S.
from Northeastern University and is currently pursuing a Ph.D. from the
University of Massachusetts.
Mr. Ross joined the Company in December 1996 as Vice President Sales and
Marketing from Gliatech, Inc., where he also served as Vice President of
Marketing and Sales and was responsible for worldwide commercialization of
anti-adhesion and related therapeutic technologies. Before joining Gliatech in
1995, Mr. Ross was Business Director of biological reconstruction with
Genetics Institute from 1992 to 1995. From 1985 to 1992, he held several
marketing and sales positions with the Zimmer division of Bristol-Myers Squibb
Company. Mr. Ross has a B.A. in Political Science from Dickinson College and
an M.B.A. from the University of Rochester.
Ms. Freddo joined the Company in May 1997 as Vice President, Quality Systems
and Regulatory Affairs. Prior to joining the Company, Ms. Freddo was with U.S.
Medical Products, Inc., where she was Director, Quality Systems, Regulatory
Affairs, Operations and ISO Management Representative. From 1991 to 1996, she
was employed by or served as a consultant to Johnson & Johnson Medical, Inc.
overseeing ISO 9001 compliance and other quality assurance programs. Ms.
Freddo has a B.A. in Biology from the State University of New York at Geneseo
and Master's Degrees in Microbiology and Business Administration from the
University of South Florida.
DIRECTORS
Dr. Swann is a founder of the Company and was appointed Chairman of the
Board in February 1993. In February 1996, he was appointed Chief Scientific
Officer of the Company. Previously, Dr. Swann served as President of the
Company and Chief Executive Officer. He has served on the Board of Directors
of the Company since February 1992. He served in various capacities with
MedChem from 1970 through 1993 including Chairman, Chief Executive Officer and
Chief Scientific Officer. From 1970 to 1987, Dr. Swann was a Biochemist at
Shriners Burn Institute (Boston Unit), serving from 1984 to 1987 as Director
of Research. In addition, Dr. Swann has held numerous research and teaching
positions at Massachusetts General Hospital, Harvard College and Harvard
Medical School. Dr. Swann received a B.S. with honors from Reading University
in England, an M.S. from Cornell University, and a Ph.D. from Leeds
University.
Dr. Bower joined the Board of Directors of the Company in February 1993. He
has held various positions at the Harvard University Graduate School of
Business Administration since 1963. He was named Donald Kirk David Professor
of Business Administration at the Harvard Business School in 1972, served as
Chairman of the Doctoral Programs and Director of Research from 1989 to 1995,
and as Senior Associate Dean for External Relations from 1985 to 1989. Dr.
Bower received an A.B. from Harvard University and an M.B.A. and a D.B.A. from
the Harvard Business School. He is a director of the Brown Group, Inc., ML Lee
Funds I and II, New America High Income Fund, and Sonesta International Hotels
Corporation.
Dr. Davidson joined the Board of Directors of the Company in February 1993.
He has been the Chairman of the Department of Biochemistry at Georgetown
University Medical School since April 1988. Prior to this position, he was the
Chairman of the Department of Biological Chemistry at The Milton S. Hershey
Medical Center of the Pennsylvania State University from October 1967 to April
1988. Dr. Davidson also served as Associate Dean for Education at the Milton
S. Hershey Medical Center from November 1975 to January 1987. Dr. Davidson
received a B.S. in Chemistry from the University of California, Los Angeles,
and a Ph.D. in Biochemistry from Columbia University.
Mr. Donaldson joined the Board of Directors in February 1993. He is
currently President of Biomorphics Group. He served as Chairman of the Board
of the Kevlin Corporation from August 1995 to March 1996 and served as a
director from 1993 to 1996. Mr. Donaldson was Vice President of the Company
from February 1992
44
<PAGE>
until February 1993 and has served on the Board of Directors of the Company
since February 1992. He served in various capacities for MedChem from November
1986 to June 1994, including Chief Executive Officer, President and Chief
Operating Officer. Mr. Donaldson received a B.A. from Harvard University and
an M.B.A. from the Amos Tuck School of Business Administration at Dartmouth
College.
Mr. McKay joined the Board of Directors in May 1995. He is currently a
general partner of Axiom Venture Partners Limited Partnership, a venture
capital firm. He is also a general partner of Connecticut Seed Ventures
Limited Partnership, a venture capital firm. Prior to Axiom, Mr. McKay was
Director of Venture Capital Investments at Connecticut General Insurance
Company and a scientist at the Avco-Everett Research Laboratory. Mr. McKay is
also a director of Open Solutions, Inc., CoStar Corporation and Sabre
Communications, Inc. Mr. McKay received a B.S. in Physics from the University
of New Hampshire and an M.B.A. from the Whittemore School of Business at the
University of New Hampshire.
Dr. Sadow joined the Board of Directors in December 1995. He is currently
Chairman of the Board of Cortex Pharmaceuticals, Inc. and Cholestech Corp. Dr.
Sadow is also a director of Penederm, Inc., Trega Biosciences, Inc. From 1971
through 1992, Dr. Sadow served as President and Chief Executive Officer,
Director and later, Chairman of the Board of Boehringer Ingelheim Corporation.
He was also a member of the Board of Directors of the Pharmaceutical
Manufacturers Association and Chairman of the Pharmaceutical Manufacturers
Association Foundation. Dr. Sadow received a B.S. from the Virginia Military
Institute, an M.S. from the University of Kansas and a Ph.D. from the
University of Connecticut.
Mr. Wheeler joined the Board of Directors of the Company in February 1993.
He is currently the President of Wheeler & Co., a private investment firm.
Between 1993 and February 1996 he was Managing Director and a director of
Copley Real Estate Advisors and President, Chief Executive Officer and a
director of Copley Properties, Inc., a publicly traded real estate investment
trust. He was the Chairman and Chief Executive Officer of Hancock Realty
Investors, which manages an equity real estate portfolio, from 1991 to
February 1993. Prior to this position, he was an Executive Vice President of
Bank of New England Corporation from 1990 to 1991. Mr. Wheeler received a B.S.
in Engineering from the University of Virginia, an M.S. in Nuclear Engineering
from the University of Michigan and an M.B.A. from the Harvard Business
School.
BOARD OF DIRECTORS AND COMMITTEES
The Company's Board of Directors is divided into three classes: Class I,
consisting of Messrs. Bower and Davidson, with a term expiring in 2000; Class
II, consisting of Messrs. Donaldson, McKay and Sadow, with a term expiring in
1998; and Class III, consisting of Messrs. Engle, Swann and Wheeler, with a
term expiring in 1999. Each class of directors serves for a three-year term
with one class of directors being elected by the Company's stockholders at
each annual meeting.
The Company has a standing Audit Committee of the Board of Directors, which
provides the opportunity for direct contact between the Company's independent
auditors and the Board. The Audit Committee makes recommendations to the Board
relative to the selection of the Company's independent accountants, confers
with the Company's independent accountants regarding the scope, method and
result of the audit of the Company's books and records, reports the same to
the Board and establishes and monitors policy relative to non-audit services
provided by the independent accountants in order to ensure their independence.
The current Audit Committee members are Mr. Donaldson, Dr. Bower and Mr.
Wheeler.
The Company has a standing Compensation Committee of the Board of Directors,
which makes recommendations to the Board regarding compensation issues with
respect to the officers of the Company. Non-employee director members of the
Compensation Committee recommend grants of stock options under the Company's
stock option plans. The current members of the Compensation Committee are Dr.
Davidson, Dr. Bower, Mr. Wheeler and Mr. McKay.
45
<PAGE>
BOARD COMPENSATION
During the fiscal year ending August 31, 1996, each director who was not an
employee of the Company was entitled to receive a director's fee of $10,000
per year. Pursuant to elections by each non-employee director, in lieu of the
$10,000 director's fee, the Company issued 10,000 stock options to purchase
Common Stock with an exercise price of $3.125. All non-employee directors are
reimbursed for expenses incurred in attending meetings of the Board of
Directors and any committees thereof.
Non-employee directors are also entitled to participate in the Company's
1993 Director Stock Option Plan (the "Directors' Plan"). Under the terms of
the Directors' Plan, each non-employee director, upon his or her initial
election to the Board of Directors, is entitled to receive the grant of an
option to purchase 4,500 shares of Common Stock. Each option granted under the
Directors' Plan has, or will have, an exercise price equal to the fair market
value of the Common Stock on the date of grant. Options granted under the
Directors' Plan will become exercisable in equal annual installments over a
three-year period, but will automatically accelerate upon a "Change in Control
of the Company" (as defined in the Directors' Plan) which, subject to certain
exceptions, shall be deemed to occur in the event that (i) a person becomes
the beneficial owner of 20% or more of the combined voting power of the
Company's then outstanding securities, (ii) individuals who constituted the
Board of Directors on April 26, 1993, and subsequent directors approved by
such persons, cease to constitute at least a majority of the Board of
Directors, (iii) the Company engages in certain mergers, consolidations or
recapitalizations or (iv) the stockholders approve a plan of complete
liquidation or an agreement for the sale of all or substantially all of the
Company's assets. The term of each option granted under the Directors' Plan is
ten years, provided that, in general, an option may be exercised only while
the director continues to serve as a director of the Company or within 90 days
thereafter.
46
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the last three completed
fiscal years and the transition fiscal year, for the Company's Chief Executive
Officer during fiscal 1996, the Company's two most highly compensated current
executive officers (other than the Chief Executive Officer) and two former
executive officers, whose cash compensation exceeded $100,000 in fiscal 1996
(the Chief Executive Officer and such other executive officers are hereinafter
referred to as the "Senior Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION AWARDS
--------------- ---------------------------
SECURITIES
UNDERLYING ALL OTHER
YEAR SALARY OPTIONS COMPENSATION(2)
------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
David A. Swann, Ph.D....... 1996(3) $ 38,365 168,750(4) $ 3,118
Chairman, Former President 1996(5) 103,010 168,750(4) 5,150
and Former Chief 1995 162,115 106,000(6) 18,239
Executive Officer 1994 210,750 355,500(7) 4,497
Sean F. Moran.............. 1996(3) 128,654 30,000(8) 13,863
Vice President of Finance, 1996(5) 120,000 -- 6,000
Chief Financial Officer, 1995 111,139 20,000 11,557
Clerk and Treasurer 1994 107,200 91,500(9) 5,360
Jing-wen Kuo, Ph.D. ....... 1996(3) 108,462 10,000(10) 11,173
Vice President of 1996(5) 105,000 -- 5,250
Technical 1995 97,090 30,000 10,105
and Clinical Affairs 1994 93,588 48,250(11) 4,385
Robert S. DuFresne.........
Former President and 1996(3) 102,409 -- 4,577
Former Chief Operating 1996(5) 161,255 -- 6,865
Officer 1995 19,615 180,000 --
Bernard P. Sullivan........ 1996(3) 133,846 -- 6,692
Former Senior Vice 1996(5) 129,231 -- 6,462
President of Operations 1995 118,126 20,000 11,906
1994 117,294 46,000(12) 5,865
</TABLE>
- ----------
(1) The Company did not pay any bonuses for its 1994, 1995 and 1996 fiscal
years and for the period from January 1, 1996 to December 31, 1996.
(2) For the period January 1, 1996 to December 31, 1996 and the 1995 fiscal
year, constitutes matching contributions to the Company's 401(k) Plan
together with the Company's discretionary contribution to the 401(k) Plan
and for all other periods constitutes the Company's matching
contributions to the 401(k) Plan.
(3) Represents compensation for the period January 1, 1996 to December 31,
1996, the Company's new fiscal year end.
(4) As part of the amended employment agreement dated February 1, 1996,
options to purchase a total of 168,750 shares of Common Stock were
granted that vest over a 27 month period. These options expire on
February 1, 2006.
(5) Represents compensation for the period September 1, 1995 to August 31,
1996, the Company's former fiscal year end.
(6) Includes options to purchase 86,000 shares of Common Stock in lieu of
three months compensation.
(7) Includes 60,000 stock options granted under the Stock Option Plan during
the Company's 1994 fiscal year and options to purchase 295,500 shares of
Common Stock granted during previous fiscal years, all of which were
repriced effective as of August 12, 1994.
47
<PAGE>
(8) Includes options to purchase 30,000 shares of Common Stock granted under
the stock option plan during the period January 1, 1996 to December 31,
1996.
(9) Includes options to purchase 30,000 shares of Common Stock granted under
the Stock Option Plan during the Company's 1994 fiscal year and options
to purchase 61,500 shares of Common Stock during previous fiscal years,
all of which were repriced effective as of August 12, 1994.
(10) Includes options to purchase 10,000 shares of Common Stock granted under
the stock option plan during the period January 1, 1996 to December 31,
1996.
(11) Includes options to purchase 10,000 shares of Common Stock granted under
the Stock Option Plan during the Company's 1994 fiscal year and options
to purchase 38,250 shares of Common Stock during the previous years all
of which were repriced effective as of August 12, 1994.
(12) Includes options to purchase 15,000 shares of Common Stock under the
Stock Option Plan during the Company's 1994 fiscal year and options to
purchase 31,000 shares of Common Stock granted during previous fiscal
years, all of which were repriced effective as of August 12, 1994.
OPTION GRANTS
The following table sets forth certain information concerning grants of
stock options made to each of the Senior Executives during the sixteen-month
period ended December 31, 1996, consisting of the fiscal year ended August 31,
1996 and the four-month transitional year ended December 31, 1996:
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL OPTIONS MARKET
SECURITIES GRANTED TO EXERCISE PRICE
UNDERLYING EMPLOYEES IN PRICE PER ON DATE EXPIRATION
NAME OPTIONS GRANTED FISCAL YEAR SHARE OF GRANT DATE
- ---- --------------- ------------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
David A. Swann, Ph.D. .. 168,750(1) 22.8% $ .50 $4.25 2/01/06
Sean F. Moran........... 30,000(2) 4.0 4.75 4.75 9/04/06
Jing-wen Kuo, Ph.D. .... 10,000(2) 1.3 4.75 4.75 9/04/06
</TABLE>
- ----------
(1) Dr. Swann received options to purchase 168,750 shares of Common Stock
which vest over 27 months. These options expire on February 1, 2006.
(2) The exercisability of each option automatically accelerates upon a "Change
in Control of the Company" (as defined in the Stock Option Plan). These
options vest in three equal annual installments commencing on the first
anniversary of grant and continuing on the next two succeeding
anniversaries of such date.
48
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information concerning exercises of
stock options during the sixteen-month period ended December 31, 1996,
consisting of the fiscal year ended August 31, 1996 and the four-month
transitional year ended December 31, 1996 by each of the Senior Executives and
the number and value of options held by each of the Senior Executives as of
December 31, 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NUMBER OF FY-END FY-END(1)
SHARES ---------------------- -----------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
----------- -------- ---------------------- -----------------
<S> <C> <C> <C> <C>
David A. Swann, Ph.D. .. -- -- 579,750/100,000 $936,976/$325,000
Robert S. DuFresne...... 10,000 $32,343 50,000/0 56,250/0
Bernard P. Sullivan..... 24,038 52,295 48,167/13,333 56,687/20,000
Sean F. Moran........... 9,000 35,355 91,867/43,333 103,487/20,000
Jing-wen Kuo, Ph.D. .... 16,799 59,758 41,750/30,000 49,969/30,000
</TABLE>
- ----------
(1) Based on the fair market value of the Common Stock on December 31, 1996 of
$3.75 per share, less the option exercise price.
EMPLOYMENT AGREEMENTS
Dr. Swann is a party to an employment agreement with the Company which was
entered into on April 29, 1993. The employment agreement with Dr. Swann was
amended on February 1, 1996. The amended agreement is for a term ending May 3,
1998 and entitles Dr. Swann to a salary of $2,000 per month, stock options for
168,750 shares of Common Stock, accelerated vesting with respect to existing
options to acquire 151,875 shares of Common Stock, benefits and bonuses at the
discretion of the Board.
Mr. Engle is a party to an employment agreement with the Company which
commenced September 26, 1996. Under the agreement, Mr. Engle is entitled to an
annual base salary of $200,000, a grant of stock options for 250,000 shares of
Common Stock vesting in equal installments over four years, benefits and
performance bonuses upon attainment of objectives determined by the Board. If
Mr. Engle's employment is terminated without cause, the agreement entitles him
to severance in the amount of six months base salary and six months medical
benefits. In the event of a constructive termination due to a "hostile" change
of control, Mr. Engle will receive severance of 12 months salary (and medical
benefits) if he is not retained in a substantially equivalent position.
Mr. DuFresne, the Company's former President and Chief Operating Officer,
entered into an employment agreement with the Company in July 1995 which
provided a base salary of $170,000, a grant of 180,000 stock options vesting
over a period of three years and benefits and bonuses at the discretion of the
Board. The agreement was terminated effective August 1, 1996 pursuant to a
letter agreement the terms of which entitled Mr. DuFresne to continue
receiving his base salary of $170,000 until January 31, 1997, and to receive
paid medical benefits.
Mr. Sullivan, the Company's former Senior Vice President of Operations
entered into an employment agreement with the Company in April 1993 for a
five-year term. The agreement entitled Mr. Sullivan to receive an initial base
salary of $117,294 plus bonuses and benefits at the discretion of the Board.
Mr. Sullivan's employment agreement was terminated effective February 5, 1996.
Mr. Sullivan entered into a consulting agreement with the Company effective
February 6, 1996 to February 5, 1997. The agreement entitled Mr. Sullivan to a
salary of $120,000 during the term of the agreement and to certain benefits
and expenses.
49
<PAGE>
1993 STOCK OPTION PLAN
The Company's Stock Option Plan was initially adopted by the Board of
Directors on March 3, 1993 and was subsequently approved by the Company's
stockholders. The Stock Option Plan permits the grant of incentive stock
options ("Incentive Stock Options") meeting the requirements of Section 422 of
the Internal Revenue Code of 1986 (the "Code") and options not meeting such
requirements ("Non-qualified Stock Options"), as well as outright grants of
Common Stock. Grants may be made to employees, officers or directors of, or
consultants or advisors to, the Company. Prior to October 28, 1997, the Stock
Option Plan provided for the grant of options to acquire up to 2,000,000
shares of Common Stock. On October 28, 1997, the Company amended the Stock
Option Plan to reserve an additional 1,000,000 shares of Common Stock for
issuance under the Stock Option Plan, and granted to certain executive
officers and employees options to acquire 235,000 shares of Common Stock at an
exercise price of $7.625 per share, vesting over a four-year period. Such
grants are subject to the completion of this offering and stockholder approval
of the amendment to the Stock Option Plan. The amendment to the Plan will be
submitted for stockholders' approval at the Company's next annual meeting of
stockholders. As of October 31, 1997, options to purchase 1,871,495 shares
were outstanding at a weighted average exercise price of $3.68 per share.
The Stock Option Plan is administered by the Board of Directors which may
delegate its authority to the Compensation Committee. Subject to the
provisions of the Stock Option Plan, the Board or Compensation Committee has
full power to determine the eligible individuals to whom grants will be made
and the specific terms of each grant, including the exercise price and the
vesting schedule. Members of the Board may be granted options or outright
grants of Common Stock under the Stock Option Plan.
The purchase price per share of stock deliverable upon the exercise of an
option will be determined by the Board of Directors at the time of grant;
provided, however, that in the case of an Incentive Stock Option, the exercise
price shall not be less than 100% of the fair market value of such stock at
the time of grant of such option, or less than 110% of such fair market value
in the case of Incentive Stock Options awarded to a 10% stockholder.
Each option and all rights thereunder will expire on such date as is set
forth in the applicable option agreement, except that, in the case of an
Incentive Stock Option, such date will not be later than ten years after the
date on which the option is granted and, in all cases, options shall be
subject to earlier termination as provided in the Stock Option Plan. Each
option granted under the Stock Option Plan will be exercisable either in full
or in installments at such time or times and during such period as shall be
set forth in the agreement evidencing such option, subject to the provisions
of the Stock Option Plan. Unless sooner terminated, the Stock Option Plan
shall terminate, with respect to Incentive Stock Options, upon the earlier of
(i) the close of business on the day next preceding the tenth anniversary of
the date of its adoption by the Board of Directors, or (ii) the date on which
all shares available for issuance under the Stock Option Plan shall have been
issued pursuant to the exercise of options granted under the Stock Option Plan
or cancelled. Unless sooner terminated, the Stock Option Plan will terminate
with respect to options which are not Incentive Stock Options on the date
specified in (ii) above. If the date of termination is determined under (i)
above, then options outstanding on such date will continue to have force and
effect in accordance with the provisions of the instruments evidencing such
options. Options granted under the Stock Option Plan will automatically
accelerate and become exercisable upon a "Change in Control of the Company"
(as defined in the Stock Option Plan).
50
<PAGE>
CERTAIN TRANSACTIONS
On March 1, 1996 the Company sold 1,455,000 shares of Common Stock in a
private placement, at a price per share of $2.75 resulting in net proceeds to
the Company of approximately $3.5 million. In connection with the sale of
Common Stock, the Company issued warrants to Leerink, Swann, Garrity, Sollami,
Yaffe and Wynn, Inc. ("Leerink Swann & Company"), the placement agent, for
146,664 shares of Common Stock exercisable at $3.00 per share and 57,036
shares of Common Stock exercisable at $4.00 per share. The Company paid
Leerink Swann & Company $320,000 as placement agent fees in connection with
the private placement. In August 1997, the Company granted demand registration
rights to Leerink Swann & Company with respect to shares of Common Stock which
may be acquired upon exercise of such warrants. L. Eric Swann, an officer,
director and shareholder of Leerink Swann & Company, is the son of David A.
Swann, Chairman of the Board of Directors of the Company.
On May 17, 1995, the Company sold 120,970 shares of Series A Preferred Stock
in a private placement at a price of $20.00 per share, resulting in net
proceeds to the Company of approximately $2.2 million. In connection with the
sale of the Series A Preferred Stock, the Company also issued warrants to the
holders of Series A Preferred Stock to purchase 60,485 additional shares of
Series A Preferred Stock at an exercise price of $20.00 per share. Axiom
Venture Partners Limited Partnership acquired 100,000 shares of such Series A
Preferred Stock and 50,000 of such warrants. In connection with its investment
in the Company and pursuant to the terms of the Shareholders' Agreement, Axiom
nominated and the Board of Directors elected Samuel McKay, a general partner
of the general partner of Axiom, as a member of the Company's Board of
Directors. Axiom subsequently nominated and the Board of Directors elected
Harvey Sadow as an additional member of the Company's Board of Directors.
Substantially all of the remaining outstanding shares of Series A Preferred
Stock and warrants were issued to directors and executive officers of the
Company, including 5,000 shares of Series A Preferred Stock and 2,500 warrants
to each of Jonathan Donaldson and Steven Wheeler, Directors of the Company,
3,800 shares of Series A Preferred Stock and 1,900 warrants to David Swann,
the Chairman and Chief Scientific Officer of the Company, 2,000 shares of
Series A Preferred Stock and 1,000 warrants to Joseph Bower, a Director of the
Company, 1,200 shares of Series A Preferred Stock and 600 warrants to Eugene
Davidson, a Director of the Company, 750 shares of Series A Preferred Stock
and 375 warrants to Alan Ezekowitz, a former Director of the Company and a
member of the Company's Scientific Advisory Board, 700 shares of Series A
Preferred Stock and 350 warrants to Sean Moran, the Company's Vice President
of Finance and Administration, Chief Financial Officer, Treasurer and Clerk,
and 20 shares of Series A Preferred Stock and ten warrants to Jing-wen Kuo,
the Company's Vice President of Technical and Clinical Affairs.
On March 17, 1997, the Company made a loan of $75,000 to J. Melville Engle,
President and Chief Executive Officer of the Company which is payable upon the
earlier of March 11, 2002 or 120 days after the termination of Mr. Engle's
employment with the Company for any reason. The loan accrues current interest
at a rate of 6%, payable on a monthly basis.
51
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth the beneficial ownership of the Company's
voting stock as of October 27, 1997 and as adjusted to reflect the sale of the
shares of Common Stock offered hereby of (i) each director, (ii) each Senior
Executive, (iii) each person which is known by the Company to beneficially own
5% or more of its voting stock and (iv) all current directors and executive
officers as a group. Except as otherwise indicated, the Company believes that
the beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect
to such shares.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP AFTER
OFFERING UPON
SHARES TO BE EXERCISE IN FULL
BENEFICIAL OWNERSHIP SOLD UPON OF UNDERWRITERS'
BENEFICIAL OWNERSHIP AFTER EXERCISE OF OVERALLOTMENT
BEFORE OFFERING OFFERING(2)(3)(4) UNDERWRITERS' OPTION(5)
------------------------ SHARES ----------------------- OVERALLOTMENT -----------------
SHARES(2) PERCENT(3) OFFERED(4) SHARES PERCENT OPTION(5) SHARES PERCENT
--------- ---------- ---------- ------------ ---------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Directors(1)
David A. Swann, Ph.D.... 809,795(6) 10.8% -- 809,795 8.1% 80,000 729,795 7.3%
Joseph L. Bower......... 75,520(7) 1.1 -- 75,520 * -- 75,520 *
Eugene A. Davidson,
Ph.D. ................. 62,440(8) * -- 62,440 * -- 62,440 *
Jonathan D. Donaldson... 170,670(9) 2.5 -- 170,670 1.8 17,000 153,670 1.6
J. Melville Engle....... 64,980(10) * -- 64,980 * 6,400 58,580 *
Samuel F. McKay......... 1,452,390(11) 21.1 500,000 952,390 10.2 90,860 861,530 9.2
Harvey S. Sadow,
Ph.D. ................. 14,000(12) * -- 14,000 * -- 14,000 *
Steven E. Wheeler....... 120,570(13) 1.7 -- 120,570 1.3 12,000 108,570 1.2
Other Senior Executives
Sean F. Moran........... 114,801(14) 1.7 -- 114,801 1.2 11,040 103,761 1.1
Jing-wen Kuo, Ph.D...... 43,907(15) * -- 43,907 * 4,300 39,607 *
Robert S. DuFresne...... -- (16) -- -- -- -- -- -- --
Bernard P. Sullivan..... -- (17) -- -- -- -- -- -- --
Shawn Kinney............ 34,266(18) * -- 34,266 * 3,400 30,866 *
5% Stockholders
Axiom Venture Partners
Limited Partnership.... 1,452,390(19) 21.1 500,000 952,390 10.2 90,860 861,530 9.2
All current directors
and executive officers
as a group (15
persons)............... 2,989,400(20) 37.4 500,000 2,489,400 23.7 225,000 2,264,400 21.6
</TABLE>
- ----------
* Less than 1%.
(1) The address of Samuel F. McKay is c/o Axiom Venture Partners, City Place
II, 17th Floor, 185 Asylum Street, Hartford, Connecticut 06103. The
address of all other Directors and Senior Executives is c/o Anika
Therapeutics, Inc., 236 West Cummings Park, Woburn, MA 01801.
(2) The number of shares deemed beneficially owned includes shares of Common
Stock (a) beneficially owned as of October 27, 1997, (b) subject to
receipt upon conversion of shares of Series A Preferred Stock outstanding
as of October 27, 1997 and (c) subject to receipt upon exercise of Series
A Preferred Stock Subscription Warrants ("Warrants") outstanding as of
October 27, 1997 (assuming cashless exercise) and conversion of the
resulting shares of Series A Preferred Stock. The inclusion of any shares
of stock deemed beneficially owned does not constitute an admission of
beneficial ownership of those shares. Any reference below to shares
subject to outstanding stock options held by the person in question
refers to stock options that are currently exercisable within 60 days
after October 27, 1997. Each outstanding Warrant is exercisable for one
share of Series A Preferred Stock, and all 10,485 outstanding Warrants
are currently exercisable in full.
52
<PAGE>
(3) All percentages have been determined in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934.
(4) Assumes no exercise of the Underwriters' overallotment option.
(5) Assumes exercise in full of the underwriters' overallotment option.
Certain members of senior management of the Company will sell shares of
Common Stock solely in connection with the exercise of the underwriters'
overallotment option.
(6) This amount includes 30,055 shares owned by the wife of Dr. Swann, 50,625
shares owned jointly by Dr. Swann and his wife, 13,217 shares held by
three trusts established by Dr. Swann for the benefit of his children,
12,509 shares allocated to Dr. Swann's account under the Anika
Therapeutics, Inc. Employee Savings, Retirement Plan (the "401(k) Plan")
and 5,515 shares of Series A Preferred Stock. This amount also includes
648,083 shares subject to outstanding stock options.
(7) This amount includes 39,500 shares subject to outstanding stock options
and 2,902 shares of Series A Preferred Stock.
(8) This amount includes 39,500 shares subject to outstanding stock options
and 1,741 shares of Series A Preferred Stock.
(9) This amount includes 94,100 shares subject to outstanding stock options
and 7,257 shares of Series A Preferred Stock.
(10) This amount includes 2,480 shares allocated to Mr. Engle's account under
the 401(k) Plan and 62,500 shares subject to outstanding stock options.
(11) Represents 145,139 shares of Series A Preferred Stock (see Note 17
hereto). Mr. McKay, Alan Mendleson and Martin Chanzit are the general
partners (the "Axiom General Partners") of Axiom Venture Associates
Limited Partnership, the general partner of Axiom, and share voting and
investment power with respect to such shares. The Axiom General Partners
disclaim beneficial ownership of such shares except to the extent of each
partner's proportionate pecuniary interest therein.
(12) This amount includes 13,000 shares subject to outstanding stock options.
(13) This amount includes 39,500 shares subject to outstanding stock options
and 7,257 shares of Series A Preferred Stock.
(14) This amount includes 12,103 shares allocated to Mr. Moran's account under
the 401(k) Plan and 92,533 shares subject to outstanding stock options
and 1,016 shares of Series A Preferred Stock.
(15) This amount includes 10,279 shares allocated to Dr. Kuo's account under
the 401(k) Plan, 33,333 shares subject to outstanding stock options and
30 shares of Series A Preferred Stock.
(16) Mr. DuFresne was employed as President of the Company until August 1,
1996.
(17) Mr. Sullivan was employed as Senior Vice President of Operations until
February 5, 1996.
(18) This amount includes 4,766 shares allocated to Mr. Kinney's account under
the 401(k) Plan and 29,500 shares subject to outstanding stock options.
(19) This amount includes 145,139 shares of Series A Preferred Stock. Axiom
owns approximately 83% of the issued and outstanding Series A Preferred
Stock.
(20) This amount includes 43,198 shares in the aggregate allocated to the
accounts of the executive officers under the 401(k) Plan, 1,116,549
shares subject to outstanding stock options and 170,857 shares of Series
A Preferred Stock (see Notes 10 and 17 above).
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The Company's Restated Articles of Organization (the "Articles of
Organization") authorize the issuance of up to 15,000,000 shares of Common
Stock, $.01 par value per share, and 2,000,000 shares of undesignated
preferred stock (the "Preferred Stock") issuable in series by the Board of
Directors of which 750,000 have been designated as Series A Preferred Stock.
The following summary description of the capital stock of the Company is
qualified in its entirety by reference to the Articles of Organization and the
Company's Amended and Restated By-laws (the "By-laws"), copies of which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part. The Articles of Organization and By-laws have been adopted by the
stockholders and the Board of Directors of the Company.
Common Stock. Holders of Common Stock are entitled to one vote per share on
all matters to be voted on by stockholders. Holders of Common Stock are not
entitled to cumulative voting rights. Therefore, the holders of a plurality of
the shares voted in the election of directors can elect all of the directors
then standing for election, subject to the rights of the holders of Preferred
Stock. The holders of Common Stock have no preemptive rights.
The holders of Common Stock are entitled to receive such dividends, if any,
as may be declared from time to time by the Board of Directors from funds
legally available therefor, subject to any preferential dividend rights of any
outstanding Preferred Stock.
Upon the dissolution or liquidation of the Company, holders of Common Stock
will be entitled to receive all assets of the Company available for
distribution to its stockholders, subject to any preferential rights of the
then outstanding Preferred Stock.
There are no redemption or sinking fund provisions with respect to the
Common Stock. All outstanding shares of Common Stock, including the shares
offered hereby, are, or will be upon completion of this offering, fully paid
and non-assessable and subject to any preferential dividend rights of any
outstanding Preferred Stock.
The Company's By-laws provide that the number of directors shall be fixed by
vote of the stockholders or the Board of Directors. The directors, other than
those who may be elected by the holders of any Preferred Stock, are divided
into three classes, as nearly equal in number as possible, with each class
serving for a three-year term, except with respect to the initial term of each
class of directors. Subject to the rights of the holders of any Preferred
Stock to elect directors or remove any director whom the holders of such stock
had the right to elect, any director of the Company may be removed from office
for cause by the affirmative vote of at least three-fourths of the then issued
and outstanding capital stock which would be eligible to be cast by
stockholders in the election of such director.
Warrants. As of September 30, 1997 a total of 146,664 shares of Common Stock
were issuable upon exercise of outstanding warrants at an exercise price of
$3.00 and 57,036 shares of Common Stock were issuable upon exercise of
outstanding warrants at an exercise price of $4.00 per share. For a
description of these warrants, see "Certain Transactions."
Undesignated Preferred Stock. The Board of Directors of the Company is
authorized as set forth in the Articles of Organization, without further
action of the stockholders of the Company, to issue up to 1,250,000 shares of
undesignated Preferred Stock in one or more series and to fix the
designations, powers, preferences and the relative participating, optional or
other special rights of the shares of each series and any qualifications,
limitations and restrictions thereon. Any such Preferred Stock issued by the
Company may rank prior to the Common Stock as to dividend rights, liquidation
preference or both, may have full or limited voting rights and may be
convertible into shares of Common Stock. The issuance of Preferred Stock could
have the effect of making it more difficult for a third-party to acquire, or
of discouraging a third-party from acquiring or seeking to acquire, a
significant portion of the outstanding stock of the Company.
54
<PAGE>
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF ORGANIZATION AND BY-LAWS
General. A number of provisions of the Articles of Organization and the By-
laws concern matters of corporate governance and the rights of stockholders.
Certain of these provisions, as well as the ability of the Board of Directors
to issue shares of Preferred Stock and to set the voting rights, preferences
and other terms thereof, may be deemed to have an anti-takeover effect and may
discourage takeover attempts not first approved by the Board of Directors
(including takeovers which certain stockholders may deem to be in their best
interests). To the extent takeover attempts are discouraged, temporary
fluctuations in the market price of the Common Stock, which may result from
actual or rumored takeover attempts, may be inhibited.
The Articles of Organization provide for the Board of Directors to be
divided into three classes, as nearly equal in size as possible, of directors
serving staggered three-year terms. As a result, approximately one-third of
the Board of Directors will be elected each year. In addition, the Articles of
Organization provide that shareholders may remove a director for cause by the
vote of the holders of three-fourths of the issued and outstanding capital
stock then entitled to vote at an election of directors. This provision, when
coupled with the provision of the Articles of Organization and the By-laws
authorizing only the Board of Directors to fill vacant directorships, will
preclude shareholders from removing incumbent directors without cause and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with their own nominees, and will make more
difficult, and therefore may discourage, a proxy contest to change control of
the Company. These provisions, together with the ability of the Board to issue
Preferred Stock without further stockholder action, also could delay or
frustrate the removal of incumbent directors or the assumption of control by
stockholders, even if such removal or assumption would be beneficial to
stockholders of the Company. In addition, these provisions could discourage or
make more difficult a merger, tender offer or proxy contest, even if they
could be favorable to the interests of stockholders, and could potentially
depress the market price of the Common Stock.
Meetings of Stockholders. The Company's By-laws provide that a special
meeting of stockholders may be called only by the President or the Chairman of
the Board of Directors. The Company's By-laws provide that only those matters
set forth in the notice of the special meeting may be considered or acted upon
at that special meeting. In addition, the Company's By-laws set forth certain
advance notice, informational requirements and time limitations on any
director nomination or any new business which a stockholder wishes to propose
for consideration at an annual meeting of stockholders.
No Stockholder Action by Written Consent. The Articles of Organization
provide that any action required or permitted to be taken by the stockholders
of the Company at an annual or special meeting of stockholders must be
effected at a duly called meeting and may not be taken or effected by a
written consent of stockholders in lieu thereof.
Indemnification and Limitation of Liability. The Articles of Organization of
the Company provide that directors and officers of the Company shall be
indemnified by the Company against all expenses and liabilities reasonably
incurred in connection with service for or on behalf of the Company. The
Articles of Organization of the Company also provide that the right of
directors and officers to indemnification shall not be exclusive of any other
right now possessed or hereafter acquired under any by-law, agreement, vote of
stockholders or otherwise.
Amendment of By-laws. The Articles of Organization provide that the By-laws
may be amended or repealed by the Board of Directors or by the stockholders.
Except with respect to any provision which requires action by the
stockholders, an amendment or repeal of the By-laws by the Board of Directors
requires the affirmative vote of a majority of the directors then in office.
Such action by the stockholders requires the affirmative vote of the holders
of at least a majority of shares of each class of capital stock at the time
outstanding and entitled to vote with respect to such amendment or repeal at
an annual meeting of stockholders or a special meeting called for such
purpose.
55
<PAGE>
Ability to Adopt Shareholder Rights Plan. The Board of Directors may in the
future resolve to issue shares of Preferred Stock or rights to acquire such
shares to implement a shareholder rights plan. A shareholder rights plan
typically creates voting or other impediments to discourage persons seeking to
gain control of the Company by means of a merger, tender offer, proxy contest
or otherwise if such change in control is not determined to be in the best
interests of the Company and its stockholders. The Board of Directors is not
aware of any attempt to obtain control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer and Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 9,381,879 shares of
Common Stock outstanding (assuming exercise of all outstanding warrants to
acquire Series A Preferred Stock), excluding shares issuable upon exercise of
stock options outstanding at September 30, 1997 granted pursuant to the Stock
Option Plan and to the Directors' Plan. Of the total shares outstanding,
8,123,051 shares (including the 3,000,000 shares sold in this offering) will
be freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by affiliates of the Company,
which will be subject to the limitations of Rule 144 under the Securities Act.
All of the remaining 1,258,828 shares outstanding (the "Restricted Shares")
may be sold only pursuant to an effective registration statement filed by the
Company or an applicable exemption, including an exemption under Rule 144
under the Securities Act. Certain holders of such shares have registration
rights, as described below.
In general, Rule 144 as currently in effect provides that any person (or
persons whose shares are aggregated), including a person who may be deemed an
"affiliate" of the Company (as defined under the Securities Act), whose
Restricted Shares have been fully paid for and held for at least one year from
the later of the date of issuance by the Company or acquisition from an
affiliate of the Company, is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of (i) the average weekly
trading volume in the over-the-counter market during the four calendar weeks
preceding the date on which notice of such sale is filed with the Securities
and Exchange Commission (the "Commission") or (ii) 1% of the shares of Common
Stock then outstanding (approximately 93,819 shares immediately after this
offering). Sales under Rule 144 are also subject to certain other restrictions
regarding the manner of sale, required notice and availability of public
information concerning the Company. In addition, a person who is not deemed to
have been an affiliate of the Company during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner except an affiliate),
would be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. Rule 144 also provides that affiliates who are
selling shares that are not Restricted Shares must nonetheless comply with the
same restrictions applicable to Restricted Shares with the exception of the
holding period requirement.
As of October 31, 1997, 3,000,000 shares of Common Stock were reserved for
issuance under the Stock Option Plan (assuming approval by stockholders at the
next annual meeting thereof of an amendment to the Stock Option Plan to
reserve an additional 1,000,000 shares of Common Stock for issuance
thereunder) of which 1,871,495 shares were issuable upon the exercise of
outstanding stock options (of which 235,000 are subject to stockholder
approval of the amendment to the Stock Option Plan), and 40,000 shares of
Common Stock were reserved for issuance under the Directors' Plan, of which
22,500 shares were issuable upon the exercise of outstanding stock options.
"See Management -- 1993 Stock Option Plan" and "-- Board Compensation". On
June 4, 1993, the Company filed a registration statement on Form S-8 under the
Securities Act to register all shares of Common Stock reserved for issuance
under the Stock Option Plan and the Directors' Plan. On June 19, 1996, the
Company filed a Registration Statement on Form S-8 under the Securities Act to
register additional shares of Common Stock reserved for issuance under the
Stock Option Plan. Shares of Common Stock issued upon the exercise of options
under either plan generally are available for sale in the open market, subject
to Rule 144 limitations with respect to affiliates, and subject to the lock-up
arrangements described below.
56
<PAGE>
LOCK-UP AGREEMENTS
The Company and its directors, officers and certain of its principal
stockholders holding in the aggregate, upon completion of the offering,
1,279,880 shares of Common Stock have agreed that they will not, without the
prior written consent of Furman Selz LLC, agree to sell, contract to sell or
otherwise dispose of any shares of Common Stock of the Company for a period of
180 days after the date of this Prospectus, provided, however, that the
Company may grant stock options under the Stock Option Plan, or issue shares
upon the exercise of options granted under the Stock Option Plan or pursuant
to the Directors' Plan.
REGISTRATION RIGHTS
Pursuant to the Series A Preferred Stock Purchase Agreement dated May 17,
1995, upon conversion of Series A Preferred Stock to Common Stock, holders of
at least 50 percent of such converted shares (the "Registrable Securities")
may request that the Company effect a registration with respect to all or part
of the converted shares. In addition, if the Company shall determine to
register any of its securities for its own account, the Company shall include
in such registration, all the Registrable Securities specified in a request by
any holder of such securities.
Pursuant to a letter agreement dated August 27, 1997, Leerink Swann &
Company may for a period of one year following the date of the letter
agreement, request that the Company effect a registration with respect to
Common Stock issuable upon the exercise of warrants issued to Leerink Swann &
Company as placement agent in March 1996. See "Certain Transactions."
57
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representatives
Furman Selz LLC, Volpe Brown Whelan & Company, LLC and Leerink Swann & Company
(the "Representatives") have severally agreed to purchase from the Company and
the Selling Stockholders the following respective numbers of shares of Common
Stock at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Furman Selz LLC..................................................
Volpe Brown Whelan & Company, LLC................................
Leerink Swann & Company..........................................
---------
Total........................................................ 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common Stock to the public at
the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the public
offering, the public offering price and other selling terms may be changed by
the Representatives of the Underwriters.
The Company and certain stockholders of the Company have granted the several
Underwriters an option, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to 225,000 and 225,000, respectively,
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to 450,000, and the Company and
such Selling Stockholders will be obligated, pursuant to the option, to sell
such shares to the Underwriters. The Underwriters may exercise such option
only to cover over-allotments, if any, made in connection with the sale of the
Common Stock offered hereby. If purchased, the Underwriters will offer such
additional shares on the same terms as those on which the 3,000,000 shares of
Common Stock are being offered.
In connection with this offering, certain Underwriters may engage in passive
market making transactions in the Common Stock on Nasdaq immediately prior to
the commencement of sales in this offering in accordance with Rule 103 of
Regulation M. Passive market making consists of displaying bids on Nasdaq
limited by the bid prices of independent market makers and making purchases
limited by such prices and effected in response to order flow. Net purchases
by a passive market maker on each day are limited to a specified percentage of
the passive market maker's average daily trading volume in the Common Stock
during a specified period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.
Subject to applicable limitations, the Underwriters, in connection with this
offering, may place bids for or make purchases of the Common Stock in the open
market or otherwise, for long or short account, or cover short positions
incurred, to stabilize, maintain or otherwise affect the price of the Common
Stock, which may be higher than the price that might otherwise prevail in the
open market. There can be no assurance that the price of the Common Stock will
be stabilized, or that stabilizing, if commenced, will not be discontinued at
any time. Subject
58
<PAGE>
to applicable limitations, the Underwriters may also place bids or make
purchases on behalf of the underwriting syndicate to reduce a short position
created in connection with this offering. The Underwriters are not required to
engage in these activities and may end these activities at any time.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
The Company and each of its directors and executive officers, the Selling
Stockholders and certain of its security holders, who in the aggregate will
hold, following this offering, 1,279,880 shares of Common Stock and options
and warrants to purchase 1,373,316 shares of Common Stock, have agreed that
they will not directly or indirectly, without the prior written consent of
Furman Selz LLC, offer, sell, offer to sell, contract to sell, or otherwise
dispose of any shares of Common Stock or securities exchangeable for or
convertible into Common Stock for a period of 180 days after the date of this
Prospectus, except that the Company may issue, and grant options to purchase,
shares of Common Stock under its current stock option plan and other currently
outstanding options.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Leerink Swann & Company, co-manager of the offering, commenced operations in
1995 and has not previously managed or co-managed any public offerings of
securities. Leerink Swann & Company has been a member of a public offering
underwriting syndicate on seven occasions. Leerink Swann & Company holds
warrants for 146,664 shares of Common Stock exercisable at $3.00 per share and
57,036 shares of Common Stock exercisable at $4.00 per share. L. Eric Swann,
an officer, director and shareholder of Leerink Swann & Company, is the son of
David A. Swann, Chairman of the Board of Directors of the Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
Certain legal matters related to this offering will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP. As of the date of this
Prospectus, a total of 2,691 shares of Series A Preferred Stock and 1,250
Warrants were beneficially owned by a partner of Goodwin, Procter & Hoar LLP.
EXPERTS
The financial statements of Anika Therapeutics, Inc. as of and for the nine-
month period ended September 30, 1997, as of and for the four-month
transitional year ended December 31, 1996, and for the year ended August 31,
1996, have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
The statements in this Prospectus under the captions "Risk Factors --
Dependence on Patents and Proprietary Technology" and "Business -- Patents
and Proprietary Rights" have been reviewed and approved by Hamilton, Brook,
Smith & Reynolds, P.C., patent counsel to the Company, as experts on such
matters, and are included herein in reliance upon that review and approval.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information filed by the Company can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room
59
<PAGE>
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission also maintains a web site
(http:///www.sec.gov) containing reports, proxy and information statements and
other information regarding registrants that file such material electronically
through the Commission's Electronic Data Gathering, Analysis, and Retrieval
(EDGAR) system. The Company has filed with the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, a Registration Statement (which shall include
all amendments, exhibits and schedules thereto) on Form SB-2 under the Act
with respect to the shares of Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission, to which Registration Statement reference is hereby made.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement
and the exhibits thereto may be inspected and copies at prescribed rates at
the public reference facilities at the addresses set forth above, and are also
publicly available through the Commission's web site.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Anika Therapeutics, Inc.
Report of Independent Accountants as of and for the nine-month period
ended September 30, 1997, as of and for the four-month transitional
year ended December 31, 1996, and for the fiscal year ended August 31,
1996................................................................... F-2
Balance Sheets at September 30, 1997 and December 31, 1996.............. F-3
Statements of Operations for the nine-month period ended September 30,
1997, the four-month transitional year ended December 31, 1996 and the
fiscal year ended August 31, 1996...................................... F-4
Statements of Stockholders' Equity for the nine-month period ended
September 30, 1997, the four- month transitional year ended December
31, 1996 and the fiscal year ended August 31, 1996..................... F-5
Statements of Cash Flows for the nine-month period ended September 30,
1997, the four-month transitional year ended December 31, 1996 and the
fiscal year ended August 31, 1996...................................... F-6
Notes to Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE>
ANIKA THERAPEUTICS, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Anika Therapeutics, Inc.:
We have audited the accompanying balance sheets of Anika Therapeutics, Inc.
(the Company) as of September 30, 1997 and December 31, 1996, and the related
statements of operations, stockholders' equity and cash flows for the nine-
month period ended September 30, 1997, the four-month transitional year ended
December 31, 1996 and the year ended August 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Anika Therapeutics, Inc.
as of September 30, 1997 and December 31, 1996, and the results of its
operations and its cash flows for the nine-month period ended September 30,
1997, the four-month transitional year ended December 31, 1996 and the year
ended August 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
October 22, 1997
F-2
<PAGE>
ANIKA THERAPEUTICS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF,
------------------------
SEPTEMBER DECEMBER
30, 1997 31, 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 3,055,045 $ 2,704,665
Accounts receivable............................... 1,020,825 539,004
Inventories....................................... 2,733,363 2,481,646
Prepaid expenses.................................. 525,666 306,537
----------- -----------
Total current assets............................ 7,334,899 6,031,852
----------- -----------
Property and equipment.............................. 3,879,615 3,865,330
Less accumulated depreciation....................... 3,246,606 3,046,286
----------- -----------
Net property and equipment...................... 633,009 819,044
----------- -----------
Loan receivable from officer........................ 75,000 --
Long term deposits.................................. 87,765 68,765
----------- -----------
Total Assets.................................... $ 8,130,673 $ 6,919,661
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 781,617 $ 550,314
Accrued expenses.................................. 1,167,512 1,055,234
Deferred revenue.................................. 200,000 200,000
----------- -----------
Total current liabilities....................... 2,149,129 1,805,548
----------- -----------
Advance rent payment................................ 117,015 142,775
Redeemable convertible preferred stock; $.01 par
value: authorized 750,000 shares; issued and
outstanding 130,211 shares and 126,259 shares,
respectively; at cost of $20.00 per share plus
accrued dividends.................................. 2,705,563 2,602,527
Stockholders' equity:
Undesignated preferred stock; $.01 par value:
authorized 1,250,000 shares; no shares issued and
outstanding...................................... -- --
Common stock; $.01 par value: authorized
15,000,000 shares; issued and outstanding
5,123,051 shares and 4,930,719 shares,
respectively..................................... 51,231 49,307
Additional paid-in capital........................ 12,195,385 11,693,070
Accumulated deficit............................... (9,087,650) (9,373,566)
----------- -----------
Total stockholders' equity...................... 3,158,966 2,368,811
----------- -----------
Total Liabilities and Stockholders' Equity...... $ 8,130,673 $ 6,919,661
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ANIKA THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS FOUR MONTHS YEAR
ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER AUGUST 31,
1997 31, 1996 1996
------------- ----------- -----------
<S> <C> <C> <C>
Net sales............................. $5,961,723 $ 1,212,041 $ 4,612,918
Cost of sales......................... 3,015,952 1,308,625 4,472,214
---------- ----------- -----------
Gross profit (loss)............... 2,945,771 (96,584) 140,704
Operating expenses:
Research and development............ 1,477,093 1,310,330 1,634,640
Selling, general and
administrative..................... 1,271,733 1,308,583 1,469,257
---------- ----------- -----------
Total operating expenses.......... 2,748,826 2,618,913 3,103,897
---------- ----------- -----------
Income (loss) from operations ...... 196,945 (2,715,497) (2,963,193)
Interest income, net................ (105,230) (57,898) (114,314)
---------- ----------- -----------
Income (loss) before income taxes..... 302,175 (2,657,599) (2,848,879)
Income taxes.......................... 16,259 -- --
---------- ----------- -----------
Net income (loss)................. $ 285,916 $(2,657,599) $(2,848,879)
========== =========== ===========
Earnings (loss) per common share and
common share equivalents............. $ 0.03 $ (0.56) $ (0.76)
========== =========== ===========
Common share and common share
equivalents outstanding.............. 6,357,978 4,905,382 4,052,596
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ANIKA THERAPEUTICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
$.01 PAR VALUE ADDITIONAL UNEARNED TOTAL
----------------- PAID-IN STOCK OPTION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY
--------- ------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31,
1995................... 3,291,475 $32,915 $ 7,378,514 $ -- $(3,867,088) $ 3,544,341
Exercise of common stock
options................ 74,804 748 158,752 -- -- 159,500
Issuance of common stock
to 401(k) plan......... 19,447 194 79,176 -- -- 79,370
Dividend on redeemable
preferred stock........ -- -- (224,605) -- -- (224,605)
Issuance of common stock
(net of expenses)...... 1,455,000 14,550 3,527,035 -- -- 3,541,585
Unearned stock option
compensation........... -- -- 632,813 (468,750) -- 164,063
Net loss................ -- -- -- -- (2,848,879) (2,848,879)
--------- ------- ----------- -------- ----------- -----------
Balance, August 31,
1996................... 4,840,726 48,407 11,551,685 (468,750) (6,715,967) 4,415,375
--------- ------- ----------- -------- ----------- -----------
Exercise of common stock
options................ 83,733 837 193,049 -- -- 193,886
Issuance of common stock
to 401(k) plan......... 6,260 63 27,381 -- -- 27,444
Dividend on redeemable
preferred stock........ -- (79,045) -- -- (79,045)
Unearned stock option
compensation........... -- -- -- 468,750 -- 468,750
Net loss................ -- -- -- -- (2,657,599) (2,657,599)
--------- ------- ----------- -------- ----------- -----------
Balance, December 31,
1996................... 4,930,719 49,307 11,693,070 -- (9,373,566) 2,368,811
--------- ------- ----------- -------- ----------- -----------
Exercise of common stock
options................ 161,567 1,616 454,661 -- -- 456,277
Issuance of common
stock.................. 30,765 308 150,690 -- -- 150,998
Dividend on redeemable
preferred stock........ -- -- (103,036) -- -- (103,036)
Net income.............. -- -- -- -- 285,916 285,916
--------- ------- ----------- -------- ----------- -----------
Balance, September 30,
1997................... 5,123,051 $51,231 $12,195,385 $ -- $(9,087,650) $ 3,158,966
========= ======= =========== ======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ANIKA THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE
MONTHS FOUR MONTHS FISCAL YEAR
ENDED, ENDED, ENDED,
SEPT. 30, DEC. 31, AUG. 31,
1997 1996 1996
---------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................... $ 285,916 $(2,657,599) $(2,848,879)
Adjustments to reconcile net income
(loss) to net cash provided by (used
for) operating activities:
Depreciation and amortization.......... 200,320 129,827 352,209
Impairment of leasehold improvements... -- 375,924 200,000
Amortization of unearned stock
compensation.......................... -- 468,750 164,063
Common stock issued to 401(k) plan and
Board of Directors.................... 150,998 27,444 79,370
Other long-term liabilities............ (25,760) (57,225) (520,757)
Changes in operating assets and
liabilities:
Accounts receivable................... (481,821) 92,912 (440,940)
Inventories........................... (251,717) 32,634 778,136
Prepaid expenses...................... (219,129) 195,672 (183,247)
Loan receivable from officer.......... (75,000) -- --
Accounts payable and accrued
expenses............................. 343,582 364,230 786,365
---------- ----------- -----------
Net cash used for operating
activities.......................... (72,611) (1,027,431) (1,633,680)
---------- ----------- -----------
Cash flows used for investing activities:
Long term deposits...................... (19,000) (68,765) --
Additions to property and equipment..... (14,286) (44,048) (413,752)
---------- ----------- -----------
Net cash used for investing
activities.......................... (33,286) (112,813) (413,752)
---------- ----------- -----------
Cash flows provided by financing
activities:
Proceeds from issuance of common stock
(net).................................. -- -- 3,541,585
Expenses from issuance of preferred
stock.................................. -- -- (27,293)
Proceeds from exercise of stock
options................................ 456,277 193,886 159,500
Payments on long-term debt.............. -- -- (800,000)
---------- ----------- -----------
Net cash provided by financing
activities.......................... 456,277 193,886 2,873,792
---------- ----------- -----------
Increase (decrease) in cash and cash
equivalents......................... 350,380 (946,358) 826,360
Cash and cash equivalents at beginning of
period.................................. 2,704,665 3,651,023 2,824,663
---------- ----------- -----------
Cash and cash equivalents at end of
period.................................. $3,055,045 $ 2,704,665 $ 3,651,023
========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest.................. $ 2,771 -- $ 42,222
========== =========== ===========
Supplemental disclosure of non cash
items:
Repayment of debt through future
deferred sublease payments............. $ -- $ -- $ 200,000
Dividend on redeemable preferred stock.. $ 103,036 $ 79,045 $ 224,605
========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ANIKA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Anika Therapeutics, Inc. (the Company) develops, manufactures and
commercializes therapeutic products and devices intended to promote the
protection and healing of bone, cartilage and soft tissue. These products are
based on hyaluronic acid (HA), a naturally-occurring, biocompatible polymer
found throughout the body. Due to its unique biophysical and biochemical
properties, HA plays an important role in a number of physiological functions
such as the protection and lubrication of soft tissues and joints, the
maintenance of the structural integrity of tissues, and the transport of
molecules to and within cells. The Company has been developing HA and HA based
products since 1983. The Company's currently marketed products consist of
ORTHOVISC(R), which is an HA product used in the treatment of some forms of
osteoarthritis in humans and HYVISC(R), which is an HA product used in the
treatment of equine osteoarthritis. ORTHOVISC is currently approved for
marketing in Canada and Europe; in the U.S. ORTHOVISC is currently limited to
investigational use only. The Company manufactures AMVISC(R) and AMVISC
Plus(R), which are HA products used as viscoelastic supplements in ophthalmic
surgery, for Chiron Vision, a subsidiary of Chiron Corporation. The Company is
currently developing INCERT(R), which is an HA based product designed for use
in the prevention of post-surgical adhesions. In addition, the Company is
collaborating with Orquest, Inc. to develop OSSIGEL(R), an injectable
formulation of basic fibroblast growth factor combined with HA designed to
accelerate the healing of bone fractures.
Commencing on December 31, 1996, the Company changed its fiscal year end
from August 31 to December 31.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Anika became an independent company in May 1993 when MedChem Products, Inc.
("MedChem"), distributed 3,154,812 shares of outstanding Anika common stock to
MedChem stockholders as a dividend.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consists of cash and investments with original
maturities of three months or less.
Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and redeemable convertible preferred stock
approximates fair value because of the short term maturity of these items.
Inventories
Inventories are stated at the lower of cost or market, with cost being
determined using the first-in, first-out (FIFO) method.
F-7
<PAGE>
ANIKA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company recognizes revenue on product sales when the products are
shipped and the customer takes ownership. The Company records advance payments
for products as deferred revenue and records the revenue when the product is
shipped.
Property and Equipment
Property and equipment is stated at cost and depreciated using the straight-
line method over the estimated useful lives of the respective assets, as
follows:
<TABLE>
<S> <C>
Machinery and equipment......................................... 5-10 years
Furniture and fixtures.......................................... 5 years
Leasehold Improvements.......................................... 4-10 years
</TABLE>
Amortization on leasehold improvements is calculated using the straight-line
method over the shorter of the lease term or estimated life of the asset.
Impairment of Long-Lived Assets and Assets to Be Disposed Of
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" (SFAS 121), on September 1, 1996. This
statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable.
During the four-month transitional year ended December 31, 1996 and the
fiscal year ended August 31, 1996 the Company recorded losses on impairment
for certain leasehold improvements of approximately $376,000 and $200,000,
respectively. The losses resulted from relocating the corporate offices and
the Company's unsuccessful attempts to obtain sublease income sufficient
enough to recover the amortization of the improvements.
Research and Development
Research and Development costs are expensed as incurred.
Earnings Per Common Share and Common Share Equivalents
Earnings per common share and common share equivalents is computed based on
the weighted average number of common and dilutive common equivalent shares
outstanding. Fully diluted earnings per share, when not determined to be
antidilutive, is computed using the most dilutive assumptions and by adjusting
the primary earnings per share data for the potential effect of the conversion
of the Series A Redeemable Convertible Preferred Stock.
The previously reported calculation of loss per common share and common
share equivalents for the fiscal year ended August 31, 1996 did not include
the dividend on Series A Redeemable Convertible Preferred Stock in the
calculation of net loss. Accordingly, the previously reported loss per common
share and common share equivalents of $0.70 has been adjusted to reflect the
preferred stock dividend resulting in a loss per common share and common share
equivalents of $0.76 for the fiscal year ended August 31, 1996.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
F-8
<PAGE>
ANIKA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
tax bases. Deferred tax assets and liabilities are measured using enacted
rates in effect for the year in which those temporary differences are expected
to be recovered or settled.
Stock Based Compensation
Prior to August 31, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25. "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded the
exercise price. On September 1, 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123), which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date
of grant. Alternatively, SFAS 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net earnings (loss)
disclosures for employee stock option grants made in fiscal 1996 and future
years as if the fair-value-based method defined in SFAS 123 had been applied.
The Company has elected to continue to apply the provisions of APB Opinion No.
25 and provide the pro forma disclosure of SFAS 123 (see note 8).
Significant Customers
Chiron Vision and its contract with the Company to purchase AMVISC and
AMVISC Plus, accounted for 84%, 94% and 89% of total net sales for the nine-
month period ended September 30, 1997, the four-month transitional year ended
December 31, 1996 and the fiscal year ended August 31, 1996, respectively. In
addition, another customer and its contract with the Company to purchase
ORTHOVISC(R) accounted for 10% of total net sales for the nine-month period
ended September 30, 1997.
Concentration of Credit Risks
The Company invests its excess cash in deposits with major U.S. financial
institutions and money market funds. The Company has established guidelines
relative to diversification and maturities that maintain safety and liquidity.
To date, the Company has not experienced any losses on its cash equivalents
and money market funds.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Raw materials................................... $ 588,407 $ 691,826
Work in process................................. 2,144,956 1,780,964
Finished goods.................................. -- 8,856
---------- ----------
Total......................................... $2,733,363 $2,481,646
========== ==========
</TABLE>
4. PROPERTY & EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Machinery and equipment........................ $2,190,415 $2,188,463
Leasehold improvements......................... 1,408,325 1,397,907
Furniture and fixtures......................... 280,875 278,960
---------- ----------
Total........................................ $3,879,615 $3,865,330
========== ==========
</TABLE>
F-9
<PAGE>
ANIKA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LOAN RECEIVABLE FROM OFFICER
Loan receivable consists of a loan to an officer of the Company made on March
17, 1997. The entire balance is due at the earlier of the end of five years or
at the termination of the officer's employment. Interest accrues at an annual
rate of 6% and is payable monthly over the term of the loan.
6. ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Accrued compensation............................ $ 250,569 $ 308,496
Other accrued expenses.......................... 916,943 746,738
---------- ----------
Total......................................... $1,167,512 $1,055,234
========== ==========
</TABLE>
7. LEASE OBLIGATIONS
The Company leases two facilities with one lease expiring in February 2001and
the other in October 2001. One facility was vacated and is currently being
partially sublet. These subleases are accounted for as operating leases. Net
rental payments in connection with the leases, totaled $264,691 for the nine
month period ended September 30, 1997, $115,074 for the four-month transitional
year ended December 31, 1996 and $369,928 for the fiscal year ended August 31,
1996. Future minimum lease payments under the operating leases and sublease
income for the years ending September 30 are as follows:
<TABLE>
<CAPTION>
LEASE SUBLEASE NET
PAYMENTS INCOME PAYMENTS
---------- -------- ----------
<S> <C> <C> <C>
1998........................................ $ 417,175 $ 52,412 $ 364,763
1999........................................ 433,556 53,311 380,245
2000........................................ 450,756 54,883 395,873
2001........................................ 244,918 55,548 189,370
2002........................................ 7,464 4,629 2,835
---------- -------- ----------
Total..................................... $1,553,869 $220,783 $1,333,086
========== ======== ==========
</TABLE>
F-10
<PAGE>
ANIKA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK OPTION PLAN
In 1993, the Company adopted the Anika Therapeutics, Inc. Stock Option Plan
(the "Plan") and reserved 1,000,000 shares of Anika common stock for the grant
of stock options for employees, officers, directors, consultants and advisors
of the Company. In addition, the Company also established the Directors Stock
Option Plan (the "Directors Plan") and reserved 40,000 shares for the Board of
Directors. On March 21, 1995 the Company's Board of Directors approved an
increase in the number of shares reserved for grant under the Plan by
1,000,000 to 2,000,000 shares and the Company's stockholders approved such an
increase at the Annual Meeting of Stockholders held on January 10, 1996.
Combined option activity for both plans is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVG EXERCISE
PRICE PER
SHARES SHARE
--------- ------------
<S> <C> <C>
Balance at September 1, 1995....................... 1,346,072 $2.55
Granted.......................................... 302,750 1.69
Canceled......................................... (146,391) 2.83
Exercised........................................ (74,804) 2.13
--------- -----
Balance at August 31, 1996......................... 1,427,627 2.36
Granted.......................................... 435,500 4.91
Canceled......................................... -- --
Exercised........................................ (83,732) 2.35
--------- -----
Balance at December 31, 1996....................... 1,779,395 2.99
Granted.......................................... 33,000 5.48
Canceled......................................... (14,333) 2.42
Exercised........................................ (161,567) 2.82
--------- -----
Balance at September 30, 1997...................... 1,636,495 $3.06
========= =====
</TABLE>
Generally, options vest in varying installments up to four years after the
date of grant and have an expiration date no later than ten years after the
date of grant. The price range of options exercisable as of September 30,
1997, December 31, 1996 and August 31, 1996 was from $2.25 to $4.75, $1.067 to
$2.625 and $1.383 to $4.781, respectively. Options for 1,636,495 shares were
exercisable at September 30, 1997.
During 1996, options for 302,750 shares of its $.01 par value common stock
were granted by the Company. The Company recorded deferred compensation of
$632,813 on options for 168,750 shares to account for the difference between
the market value of the stock at the time of grant and exercise price of the
options.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the plan. Accordingly, no compensation cost has been recognized
in the accompanying financial statements for its fixed stock option plan. Had
compensation cost for the Company's stock option plan been determined based on
the fair value at the grant dates for grants under this plan consistent with
the methodology of SFAS 123, the Company's net income (loss) for the nine
month period ended September 30, 1997, the four-month transitional year ended
December 31, 1996, and the fiscal year ended August 31, 1996 would have
changed to the pro forma amounts as follows:
<TABLE>
<CAPTION>
NINE MONTHS FOUR MONTHS FISCAL YEAR
ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER AUGUST 31,
1997 31, 1996 1996
------------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) reported........ $285,916 $(2,657,599) $(2,848,879)
Pro forma net loss................ $(43,876) $(2,765,290) $(3,162,717)
======== =========== ===========
</TABLE>
F-11
<PAGE>
ANIKA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The per share weighted-average fair value of stock options granted during
the nine month period ended September 30, 1997, the four-month transitional
year ended December 31, 1996, and the fiscal year ended August 31, 1996 was
$5.48, $4.91, and $1.69, respectively, estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions for grants: no dividend yield for all three years; expected
volatility of 56.15%, 57.8% and 57.9%, respectively; risk-free interest rates
of 6.0% for all periods; and expected lives of six years.
Pro forma net loss reflects only options granted in the nine month period
ended September 30, 1997, the four month transitional year ended December 31,
1996, and the fiscal year ending August 31, 1996. Therefore, the full impact
of compensation cost for stock options under SFAS 123 is not reflected in the
pro forma net loss amounts presented above because compensation cost is
reflected over the options' vesting period of up to four years, and
compensation cost for options granted prior to September 1, 1995 is not
considered.
9. REDEEMABLE CONVERTIBLE PREFERRED STOCK
On May 17, 1995, the Company issued 120,970 shares of Series A Preferred
Stock ("Series A stock") at a selling price of $20.00 per share for a total
consideration of $2,235,642, net of offering costs.
Each share of the Series A stock is convertible into 10 shares of common
stock at any time at the option of the holder. The Series A stock may be
converted into common stock, at the Company's option, upon closing of a public
offering if the proceeds to the Company are at least $20,000,000 and the sale
price per common share is at least $6.00. The stock contains provisions to
adjust the conversion ratio in the event of certain dilutive and other
transactions.
In addition, each share of the Series A stock is entitled to receive an
annual dividend on May 1 of each year, at a rate of $1.80 per share, payable
in additional shares of Series A stock, with the number of dividend shares
determined by the price of Anika's underlying common stock. The Company may
elect to pay the dividend in cash if certain financial covenants are met.
During each consecutive ninety day period in which the average quarterly price
of Anika's common stock remains above $6.00 per share, no dividend will
accrue. As of June 5, 1997, the Company ceased accruing dividends. For the
period May 1, 1996 to April 30, 1997 the Company issued 3,952 additional
shares of Series A stock to preferred Shareholders as a dividend payment. For
the period May 17, 1995 through April 30, 1996, Anika issued 5,289 additional
shares of Series A stock to the preferred shareholders as a dividend payment.
The total recorded values of the dividend payment were $227,266 and $208,227,
respectively. For the nine months ended September 30, 1997, the four month
transitional year ended December 31, 1996 and the fiscal year ended August 31,
1996, accrued dividends payable were $24,628, $158,737 and $79,693,
respectively.
The outstanding balance of Series A stock will be redeemed at $20.00 per
share plus accrued dividends at the option of the holder in three equal
installments beginning on May 17, 2000. The Company has the option to redeem
the Series A stock on or after May 17, 2000 if the common stock price is in
excess of $10.00 and a certain trading volume requirement is met.
The holders of the Series A stock are entitled to liquidation preference
over the common shareholders at $20.00 per share plus accrued dividends. Each
share of the Series A stock has voting rights equal to the number of common
shares into which each share of preferred is convertible at the time as such
vote. In addition, the holders of the Series A stock are entitled to certain
representation on the Company's Board of Directors based upon the number of
shares outstanding.
10. COMMON STOCK
In March, 1996 the Company completed a financing involving the private
placement of 1,455,000 shares of newly issued common stock to institutional
and private accredited investors. Total gross proceeds were
F-12
<PAGE>
ANIKA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$3,986,700 and net proceeds to the Company after fees and expenses were
$3,541,585. In addition, the Company granted certain registration rights and
filed a registration statement with the Securities and Exchange Commission
that was declared effective by the Securities and Exchange Commission on May
23, 1996. The proceeds from the private placement were used to repay a
$1,000,000 debt obligation and for general working capital purposes.
11. WARRANTS
In connection with the sale of Series A Redeemable Convertible Preferred
Stock ("Series A stock"), the Company issued warrants to the holders of Series
A stock to purchase 60,485 shares of Series A stock, exercisable at $20.00 per
share. The warrants expire on May 17, 2000. If the price of the Company's
common stock is in excess of $6.00 per share for a consecutive ninety day
period, the Company can require the exercise of the warrants. At October 22,
1997, the notice for the mandatory exercise of the warrants by the Company was
sent in accordance with this provision.
In connection with the private placement of newly issued common stock in
March, 1996, the Company issued warrants to Leerink, Swann, Garrity, Sollami,
Yaffe and Wynn, Inc., ("Leerink Swann & Company"), for 146,664 shares of
common stock exercisable at $3.00 per share and warrants for 57,036 shares of
common stock exercisable at $4.00 per share. L. Eric Swann, a partner of
Leerink, Swann & Company, is the son of David A. Swann, Chairman of the Board
of Directors of the Company.
12. EMPLOYEE BENEFIT PLAN
Full-time employees are eligible to participate in the Company 401(k)
savings plan. Employees may elect to contribute a percentage of their
compensation to the plan, and the Company will make matching contributions up
to a limit of 5% of an employee s compensation. In addition, the Company can
make annual discretionary contributions. For the nine month period ended
September 30, 1997, the four-month transitional year ended December 31, 1996,
and the fiscal year ended August 31, 1996, the Company's matching
contributions and any discretionary contributions to the plan were in the form
of Anika common stock. The Company's total 401(k) savings plan expense for
each respective period listed above was $107,248, $27,444 and $79,370,
respectively.
13. INCOME TAXES
Deferred tax assets, net of any valuation allowance, and liabilities arising
from temporary differences, income tax credit carryforwards and loss
carryforwards are measured by using tax rates expected to be in effect when
they reverse or are realized. The components of the net deferred tax asset are
as follows:
<TABLE>
<CAPTION>
NINE MONTHS FOUR MONTHS FISCAL YEAR
ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER AUGUST 31,
1997 31, 1996 1996
------------- ----------- -----------
<S> <C> <C> <C>
Gross deferred tax assets:
Depreciation......................... $ 737,061 $ 636,386 $ 461,151
Accrued expenses & other............. 234,234 186,201 149,368
Inventory loss reserve............... 89,301 35,430 158,969
Non-qualified stock option
amortization........................ 188,767 103,822 66,069
Uniform capitalization............... 82,996 62,861 50,754
Net operating loss carryforward...... 2,883,667 3,295,569 2,267,960
Credit carryforward.................. 203,347 154,347 18,388
----------- ----------- -----------
Gross deferred tax assets.............. 4,419,373 4,474,616 3,172,659
Less: valuation allowance............ (4,419,373) (4,474,616) (3,172,659)
----------- ----------- -----------
Net deferred tax asset................. $ -- $ -- $ --
=========== =========== ===========
</TABLE>
F-13
<PAGE>
ANIKA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense was $16,259 for the nine month period ended September 30,
1997 and zero for the four month transitional year ended December 31, 1996 and
the fiscal year ended August 31, 1996, respectively, and differs from the
amounts computed by applying the U.S. Federal income tax rate of thirty-four
percent to pretax income as a result of the following:
<TABLE>
<CAPTION>
NINE MONTHS FOUR MONTHS FISCAL
ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, AUGUST 31,
1997 1996 1996
------------- ------------ ----------
<S> <C> <C> <C>
Computed expected tax (benefit)
expense............................... $102,739 $ (903,584) $ (968,619)
State tax (benefit) expense (net of
federal benefit)...................... 18,946 (166,631) (178,323)
Nondeductible expenses................. 2,428 517 1,638
Increase in credit carryforward........ (49,000) (219,361) (9,200)
Other.................................. (61,617) 5,335 149
Change in valuation allowance related
to income tax benefit................. 2,763 1,283,724 1,154,355
-------- ---------- ----------
Tax expense............................ $ 16,259 $ -- $ --
======== ========== ==========
</TABLE>
The valuation allowance for deferred tax assets was $4,419,373 at September
30, 1997, a decrease of $55,243 over the balance of $4,474,616 at December 31,
1996. The valuation allowance for deferred tax assets was $4,474,616 at
December 31, 1996 an increase of $1,301,957 over the balance of $3,172,659 at
August 31, 1996. Subsequently recognized tax benefits relating to the
valuation allowance for deferred tax assets will be allocated as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
Income tax benefit........................................ $4,399,238
Additional paid in capital................................ 20,135
----------
$4,419,373
==========
</TABLE>
The Company has total Federal and state net operating losses of $7,098,910
and $6,886,255 for the nine months ended September 30, 1997, respectively.
The Federal net operating losses will begin to expire beginning 2008. The
state net operating losses will begin to expire in 1997. However, if changes
in the Company's stock ownership exceed 50% of the value of the Company Stock
during any three-year period, the utilization of the federal net operating
loss and credit-carryforwards may be subject to limitations.
F-14
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
The Company.............................................................. 18
Use of Proceeds.......................................................... 18
Price Range of Common Stock and Dividend Policy.......................... 19
Capitalization........................................................... 20
Selected Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 29
Management............................................................... 43
Certain Transactions..................................................... 51
Principal and Selling Stockholders....................................... 52
Description of Capital Stock............................................. 54
Shares Eligible for Future Sale.......................................... 56
Underwriting............................................................. 58
Legal Matters............................................................ 59
Experts.................................................................. 59
Additional Information................................................... 59
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 SHARES
LOGO
COMMON STOCK
---------------
PROSPECTUS
---------------
FURMAN SELZ
VOLPE BROWN WHELAN & COMPANY
LEERINK SWANN & COMPANY
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Massachusetts corporation. Reference is made to Chapter
156B, Section 13 of the Massachusetts Business Corporation Law (the "MBCL"),
which enables a corporation in its original articles of organization or an
amendment thereto to eliminate or limit the personal liability of a director
for monetary damages for violations of the director's fiduciary duty, except
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to
Sections 61 and 62 of the MBCL (providing for liability of directors for
authorizing illegal distributions and for making loans to directors, officers
and certain shareholders) or (iv) for any transaction from which a director
derived an improper personal benefit.
Reference also is made to Chapter 156B, Section 67 of the MBCL, which
provides that a corporation may indemnify directors, officers, employees and
other agents and persons who serve at its request as directors, officers,
employees or other agents of another organization or who serve at its request
in any capacity with respect to any employee benefit plan, to the extent
specified or authorized by the articles of organization, a by-law adopted by
the stockholders or a vote adopted by the holders of a majority of the shares
of stock entitled to vote on the election of directors. Such indemnification
may include payment by the corporation of expenses incurred in defending a
civil or criminal action or proceeding in advance of the final disposition of
such action or proceeding, upon receipt of an undertaking by the person
indemnified to repay such payment if he shall be adjudicated to be not
entitled to indemnification under Section 67 which undertaking may be accepted
without reference to the financial ability of such person to make repayment.
Any such indemnification may be provided although the person to be indemnified
is no longer an officer, director, employee or agent of the corporation or of
such other organization or no longer serves with respect to any such employee
benefit plan. No indemnification shall be provided, however, for any person
with respect to any matter as to which he shall have been adjudicated in any
proceeding not to have acted in good faith in the reasonable belief that his
action was in the best interest of the corporation or to the extent that such
matter relates to service with respect to any employee benefit plan, in the
best interests of the participants or beneficiaries of such employee benefit
plan.
The Articles of Organization of the Company (see Exhibit 3.1) provide for
indemnification of the officers and directors of the Company to the full
extent permitted by applicable law.
The Company and its directors and officers currently carry liability
insurance.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1)
The following table sets forth the estimated expenses payable by the Company
in connection with this offering (excluding underwriting discounts and
commissions):
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- --------
<S> <C>
SEC Registration Fee............................................ $ 8,233
NASD Filing Fee................................................. 3,217
Nasdaq National Market Listing Fee.............................. 40,955
Accounting Fees and Expenses.................................... 50,000
Legal Fees and Expenses......................................... 275,000
Printing Expenses............................................... 100,000
Blue Sky Qualification Fees and Expenses (including attorney's
fees).......................................................... 5,000
Miscellaneous................................................... 17,595
--------
Total......................................................... $500,000
========
</TABLE>
- ----------
(1) The amounts set forth above, except for the SEC, NASD and Nasdaq National
Market fees, are in each case estimated.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has issued unregistered securities
to a limited number of persons, as described below. No underwriters or
underwriting discounts or commissions were involved. There was no public
offering in any such transaction, and the Company believes that each
transaction was exempt from the registration requirements of the Securities
Act, by reason of Section 4(2) thereof, based on the private nature of the
transactions and the financial sophistication of the purchasers, all of whom
had access to complete information concerning the Company and acquired the
securities for investment and not with a view to the distribution thereof.
(1) In February 1996, the Company sold 1,455,000 shares of Common Stock
in a private placement, at a price per share of $2.75 per share, and in
connection therewith also issued warrants to Leerink, Swann, Garrity,
Sollami, Yaffe and Wynn, Inc., the placement agent, for 146,664 shares of
Common Stock at $3.00 per share and 57,036 shares of Common Stock at $4.00
per share, in reliance upon the exemption from registration under Section
4(2) of the Securities Act and Regulation D promulgated thereunder.
(2) In May, 1995, the Company sold 120,970 shares of Preferred Stock in a
private placement for a purchase price of $20 per share, and in connection
therewith also issued warrants to the holders of Preferred Stock to
purchase 60,485 additional shares of Preferred Stock at an exercise price
of $20 per share, in reliance upon the exemption from registration under
Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
ITEM 27. EXHIBITS
(a) Exhibits. The following is a complete list of Exhibits filed as part of
this Registration Statement.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
**2.1 Form of Stock Certificate.
+3.1 Amended and Restated Articles of Organization of Anika
Therapeutics, Inc. ("Anika") as amended.
+++3.2 Certificate of Vote of Directors Establishing A Series of
Convertible Preferred Stock.
+++++++3.3 Amendment to Amended and Restated Articles of Organization of
Anika, as amended.
+++++++3.4 By-Laws of Anika, as amended.
**5.1 Legal Opinion of Goodwin, Procter & Hoar LLP.
+*10.1 Settlement Agreement dated January 11, 1991 among MedChem
Products, Inc., ("MedChem"), Kabi Pharmacia AB, Pharmacia Inc.,
Dr. Endre Balazs and IOLAB corporation.
+*10.2 Third Amendment to Distribution Agreement dated as of January
11, 1991 between Anika and IOLAB Corporation, as amended.
++10.3 Fourth Amendment to Distribution Agreement dated as of August 1,
1994 between Anika and IOLAB Corporation, as amended.
++*10.4 Supply Agreement dated as of August 1, 1994 between Anika and
IOLAB Corporation.
+*10.5 Sponsored Research Agreement dated as of June 18, 1992 between
Tufts University and Anika, as amended.
+10.6 Form of TMJ Agreement dated as of April 29, 1993 between Anika
and MedChem.
+10.7 Form of Sublease Agreement dated as of April 29, 1993 between
Anika and MedChem.
+10.8 Form of Tax Matters Agreement dated as of April 29, 1993 between
Anika and MedChem.
+10.9 Form of Plan and Agreement of Distribution dated as of April 29,
1993 between MedChem and Anika.
++++++10.10 1993 Stock Option Plan, as amended.
++++++++10.11 1993 Directors Stock Option Plan.
+*10.12 License Agreement dated as of July 22, 1992 between Tufts
University and Anika, as amended.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
+++10.13 Series A Preferred Stock Purchase Agreement by and among the
Purchasers Listed on Schedule 1 thereto and Anika, dated as of May
17, 1995.
+++10.14 Shareholders' Agreement by and among Anika and the Stockholders
listed on Schedule 1 thereto, dated as of May 17, 1995.
+++10.15 Form of Stock Subscriptions Warrant to Purchase Series A Preferred
Stock of Anika.
++++10.16 Lease dated March 10, 1995 between Cummings Properties and Anika.
+++++10.17 Amended and Restated Employment Agreement with David A. Swann,
dated as of February 1, 1996.
+++++10.18 Non-Disclosure and Non-Competition Agreement with David A. Swann,
dated as of February 1, 1996.
+++++10.19 Non-Statutory Stock Option Agreement with David A. Swann, dated as
of February 1, 1996.
++++++10.20 Resignation and Consulting Agreement dated February 16, 1996
between Anika and Mr. Sullivan.
+++++10.21 Portion of Form of Stock Purchase Agreement dated as of March 1,
1996 containing undertaking by the Company to register shares of
Common Stock.
+++++10.22 (i) Warrant Agreement dated as of April 1, 1996 relating to
146,664 shares of Common Stock.
(ii) Warrant Agreement dated as of April 1, 1996 relating to
57,036 shares of Common Stock.
***10.23 Letter Agreement dated as of August 27, 1997 between the Company
and Leerink Swann & Company relating to Registration Rights.
++++++10.24 Employment Agreement dated September 24, 1996 between Anika and
Mr. Engle.
***10.25 Promissory note for $75,000 dated as of March 17, 1997 from J.
Melville Engle to the Company.
****10.26 Exclusive Distribution Agreement dated as of November 7, 1997
between Anika and Zimmer, Inc.
***11.1 Statement of Computation of Per Share Earnings.
23.1 Consent of Independent Accountants.
**23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1)
***23.3 Consent of Hamilton, Brook, Smith & Reynolds, P.C.
***27.1 Financial Data Schedule.
</TABLE>
- ----------
*Confidential treatment granted as to certain portions of this Exhibit.
**To be filed by amendment.
***Previously filed.
****Portions of the exhibit have been omitted pursuant to a request for
confidential treatment.
+ Incorporated by reference to Exhibits to the Registration Statement
of Form 10 (File No. 0-21326) filed by Anika on March 5, 1993.
++ Incorporated by reference to Exhibits to Anika's Form 10-K for the
fiscal year ended August 31, 1994 as filed on November 23, 1994.
+++ Incorporated by reference to Exhibits to Anika's Form 10-Q/A for the
quarterly period ended May 31, 1995 as filed by Anika on July 29,
1995.
++++ Incorporated by reference to Exhibits to Anika's Form 10-K for the
fiscal year ended August 31, 1995 as filed on November 28, 1995
+++++ Incorporated by reference to Exhibits to Anika's Form 10-Q for the
quarterly period ended February 29, 1996 as filed on April 15, 1996.
++++++ Incorporated by reference to Exhibits to Anika's Form 10-KSB for the
year ended August 31, 1996 as filed on November 27, 1996.
+++++++ Incorporated by reference to Exhibits to Anika's Form 10-QSB for the
quarterly period ended November 30, 1996 as filed on January 14,
1997.
++++++++ Incorporated by reference to Exhibits to Anika's Form 10/A (File No.
0-21326) as filed on April 28, 1993.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, the small business issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), Anika Therapeutics, Inc. certifies that it has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Boston, Massachusetts, on the 10th day of
November, 1997.
Anika Therapeutics, Inc.
/s/ J. Melville Engle
By: _________________________________
J. MELVILLE ENGLE
PRESIDENT (PRINCIPAL EXECUTIVE
OFFICER) AND DIRECTOR
Pursuant to the requirements of the Securities Act, Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE CAPACITY DATE
Chairman of the Board
_________________________________ November
DAVID A. SWANN 1997
* Director November ,
_________________________________ 1997
JOSEPH L. BOWER
* Director November ,
_________________________________ 1997
EUGENE A. DAVIDSON
Director
_________________________________ November
JONATHAN D. DONALDSON 1997
* Director November ,
_________________________________ 1997
SAMUEL MCKAY
* Director November ,
_________________________________ 1997
HARVEY SADOW
* Director November ,
_________________________________ 1997
STEVEN E. WHEELER
/s/ J. Melville Engle President (Principal
_________________________________ Executive Officer) and November 10,
J. MELVILLE ENGLE Director 1997
/s/ Sean F. Moran Vice President of Finance
_________________________________ and Treasurer (Principal November 10,
SEAN F. MORAN Financial and Accounting 1997
Officer)
/s/ Sean F. Moran
*By: _______________________
SEAN F. MORAN, ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement.
**2.1 Form of Stock Certificate.
+3.1 Amended and Restated Articles of Organization of Anika
Therapeutics, Inc. ("Anika") as amended.
+++3.2 Certificate of Vote of Directors Establishing A Series of
Convertible Preferred Stock.
+++++++3.3 Amendment to Amended and Restated Articles of
Organization of Anika, as amended.
+++++++3.4 By-Laws of Anika, as amended.
**5.1 Legal Opinion of Goodwin, Procter & Hoar LLP.
+*10.1 Settlement Agreement dated January 11, 1991 among MedChem
Products, Inc., ("MedChem"), Kabi Pharmacia AB, Pharmacia
Inc., Dr. Endre Balazs and IOLAB corporation.
+*10.2 Third Amendment to Distribution Agreement dated as of
January 11, 1991 between Anika and IOLAB Corporation, as
amended.
++10.3 Fourth Amendment to Distribution Agreement dated as of
August 1, 1994 between Anika and IOLAB Corporation, as
amended.
++*10.4 Supply Agreement dated as of August 1, 1994 between Anika
and IOLAB Corporation.
+*10.5 Sponsored Research Agreement dated as of June 18, 1992
between Tufts University and Anika, as amended.
+10.6 Form of TMJ Agreement dated as of April 29, 1993 between
Anika and MedChem.
+10.7 Form of Sublease Agreement dated as of April 29, 1993
between Anika and MedChem.
+10.8 Form of Tax Matters Agreement dated as of April 29, 1993
between Anika and MedChem.
+10.9 Form of Plan and Agreement of Distribution dated as of
April 29, 1993 between MedChem and Anika.
++++++10.10 1993 Stock Option Plan, as amended.
++++++++10.11 1993 Directors Stock Option Plan.
+*10.12 License Agreement dated as of July 22, 1992 between Tufts
University and Anika, as amended.
+++10.13 Series A Preferred Stock Purchase Agreement by and among
the Purchasers Listed on Schedule 1 thereto and Anika,
dated as of May 17, 1995.
+++10.14 Shareholders' Agreement by and among Anika and the
Stockholders listed on Schedule 1 thereto, dated as of
May 17, 1995.
+++10.15 Form of Stock Subscriptions Warrant to Purchase Series A
Preferred Stock of Anika.
++++10.16 Lease dated March 10, 1995 between Cummings Properties
and Anika.
+++++10.17 Amended and Restated Employment Agreement with David A.
Swann, dated as of February 1, 1996.
+++++10.18 Non-Disclosure and Non-Competition Agreement with David
A. Swann, dated as of February 1, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
+++++10.19 Non-Statutory Stock Option Agreement with David A. Swann,
dated as of February 1, 1996.
++++++10.20 Resignation and Consulting Agreement dated February 16,
1996 between Anika and Mr. Sullivan.
+++++10.21 Portion of Form of Stock Purchase Agreement dated as of
March 1, 1996 containing undertaking by the Company to
register shares of Common Stock.
+++++10.22 (i) Warrant Agreement dated as of April 1, 1996 relating to
146,664 shares of Common Stock.
(ii) Warrant Agreement dated as of April 1, 1996 relating
to 57,036 shares of Common Stock.
***10.23 Letter Agreement dated as of August 27, 1997 between the
Company and Leerink Swann & Company relating to
Registration Rights.
++++++10.24 Employment Agreement dated September 24, 1996 between Anika
and Mr. Engle.
***10.25 Promissory note for $75,000 dated as of March 17, 1997 from
J. Melville Engle to the Company.
****10.26 Exclusive Distribution Agreement dated as of November 7,
1997 between Anika and Zimmer, Inc.
***11.1 Statement of Computation of Per Share Earnings.
23.1 Consent of Independent Accountants.
**23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit
5.1)
***23.3 Consent of Hamilton, Brook, Smith & Reynolds, P.C.
***27.1 Financial Data Schedule.
</TABLE>
- ----------
*Confidential treatment granted as to certain portions of this Exhibit.
**To be filed by amendment.
***Previously filed.
****Portions of the exhibit have been omitted pursuant to a request for
confidential treatment.
+ Incorporated by reference to Exhibits to the Registration Statement
of Form 10 (File No. 0-21326) filed by Anika on March 5, 1993.
++ Incorporated by reference to Exhibits to Anika's Form 10-K for the
fiscal year ended August 31, 1994 as filed on November 23, 1994.
+++ Incorporated by reference to Exhibits to Anika's Form 10-Q/A for the
quarterly period ended May 31, 1995 as filed by Anika on July 29,
1995.
++++ Incorporated by reference to Exhibits to Anika's Form 10-K for the
fiscal year ended August 31, 1995 as filed on November 28, 1995
+++++ Incorporated by reference to Exhibits to Anika's Form 10-Q for the
quarterly period ended February 29, 1996 as filed on April 15, 1996.
++++++ Incorporated by reference to Exhibits to Anika's Form 10-KSB for the
year ended August 31, 1996 as filed on November 27, 1996.
+++++++ Incorporated by reference to Exhibits to Anika's Form 10-QSB for the
quarterly period ended November 30, 1996 as filed on January 14,
1997.
++++++++ Incorporated by reference to Exhibits to Anika's Form 10/A (File No.
0-21326) as filed on April 28, 1993.
<PAGE>
EXHIBIT 1.1
3,000,000 Shares
ANIKA THERAPEUTICS, INC.
Common Stock
Par Value $0.01 Per Share
FORM OF UNDERWRITING AGREEMENT
------------------------------
[Insert date]
FURMAN SELZ LLC
VOLPE, BROWN, WHELAN & COMPANY LLC
LEERINK, SWANN, GARRITY, SALLAMI,
YAFFEE & WYNN, INC.
As Representatives of the
several Underwriters
c/o Furman Selz Incorporated
230 Park Avenue
New York, New York 10169
Dear Sirs:
1. Introduction. Anika Therapeutics, Inc., a Massachusetts corporation
(the "Company"), proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "Underwriters"), for which Furman Selz LLC, Volpe, Brown,
- ----------
Whelan & Company LLC and Leerink, Swann, Garrity, Sallami, Yaffee & Wynn, Inc.
are acting as representatives (the "Representatives"), an aggregate of 2,500,000
shares of the Company's common stock, par value $0.01 per share (the "Common
Stock"). The stockholders listed in Schedule II hereto (the "Selling
-----------
Stockholders") propose severally to sell to the several Underwriters an
aggregate of 500,000 outstanding shares of Common Stock. The 2,500,000 shares
of Common Stock to be sold by the Company and the 500,000 shares of Common Stock
to be sold by the Selling Stockholders are referred to herein as the "Firm
Shares." The Company and the Selling Stockholders also propose to issue and
sell to the several Underwriters an aggregate of not more than _________ and
_________ additional shares of Common Stock, respectively, if requested by the
Underwriters in accordance with Section 9 hereof. The [__________] additional
shares of Common Stock to be sold by the Company and the [____________]
additional shares of Common Stock to be sold by the Selling Stockholders are
collectively referred to herein as the "Additional Shares"). The Firm Shares
and the Additional Shares are collectively referred to herein as the "Shares."
The words "you" and "your" refer to the Representatives of the Underwriters.
<PAGE>
The Company and each of the Selling Stockholders hereby severally agree
with the several Underwriters as follows:
2. Representations and Warranties.
(a) The Company and the Selling Stockholders represent, warrant and agree
with each of the Underwriters that:
(i) A registration statement on Form SB-2 (File No. 333-_____)
under the Securities Act of 1933 as amended (the "Act"), with respect to
the Shares, including a form of prospectus subject to completion, has been
prepared by the Company in conformity with the requirements of the Act and
the rules and regulations of the Securities and Exchange Commission (the
"Commission") thereunder (the "Rules and Regulations"). Such registration
statement has been filed with the Commission under the Act, and one or more
amendments to such registration statement may also have been so filed.
After the execution of this Agreement, the Company shall file with the
Commission either (A) if such registration statement, as it may have been
amended, has been declared by the Commission to be effective under the Act,
a prospectus in the form most recently included in an amendment to such
registration statement filed with the Commission (or, if no such amendment
shall have been filed, in such registration statement), with such
insertions and changes as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act as shall have been provided to and
approved by the Representatives prior to the filing thereof, or (B) if such
registration statement, as it may have been amended, has not been declared
by the Commission to be effective under the Act, an amendment to such
registration statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by the Representatives prior
to the filing thereof. As used in this Agreement, the term "Registration
Statement" means such registration statement, as amended at the time when
it was or is declared effective, including all financial schedules and
exhibits thereto and all documents incorporated by reference therein; the
Registration Statement shall be deemed to include any information omitted
therefrom pursuant to Rule 430A under the Act and included in the
Prospectus (as hereinafter defined) and shall also mean any registration
statement filed pursuant to Rule 462(b) under the Act; the term
"Preliminary Prospectus" means each prospectus subject to completion
contained in such registration statement or any amendment thereto
(including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto or filed pursuant to Rule
424(a) under the Act at the time it was or is declared effective); and the
term "Prospectus" means the prospectus first filed with the Commission
pursuant to Rule 424(b) under the Act or, if no prospectus is required to
be filed pursuant to said Rule 424(b), such term means the prospectus
included in the Registration Statement at the time such Registration
Statement becomes effective.
(ii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus and has not instituted or
threatened to institute any proceedings with respect to such an order.
When any Preliminary Prospectus was filed with the Commission it (A)
contained all statements required to be stated therein in
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accordance with, and complied in all material respects with the
requirements of, the Act and the Rules and Regulations and (B) did not
include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
When the Registration Statement or any amendment thereto was or is declared
effective, it (A) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the Rules and
Regulations and (B) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading. When the Prospectus and when any
amendment or supplement thereto is filed with the Commission pursuant to
Rule 424(b) (or, if the Prospectus or such amendment or supplement is not
required to be so filed, when the Registration Statement and when any
amendment thereto containing such amendment or supplement to the Prospectus
was or is declared effective) and at all times subsequent thereto up to and
including the Closing Date (as defined in Section 3 hereof) and the Option
Closing Date (as defined in Section 9 hereof), the Prospectus, as amended
or supplemented at any such time, (A) contained or will contain all
statements required to be stated therein in accordance with, and complied
or will comply in all material respects with the requirements of, the Act
and the Rules and Regulations and (B) did not or will not include any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (ii) shall not apply to statements or
omissions made in any Preliminary Prospectus, the Registration Statement or
any amendment thereto or the Prospectus or any amendment or supplement
thereto in reliance upon, and in conformity with, information furnished in
writing to the Company by or on behalf of the Underwriters through the
Representatives expressly for use therein.
(iii) The Company (A) is a duly incorporated and validly
existing corporation in good standing under the laws of its jurisdiction of
incorporation, with full power and authority (corporate and other) to own
or lease its properties and to conduct its business as described in the
Registration Statement and the Prospectus; and (B) is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction (x) in which the conduct of its business requires such
qualification (except for those jurisdictions in which the failure so to
qualify has not had and will not have a material adverse effect on the
business, properties, financial condition or results of operations of the
Company (a "Material Adverse Effect") and (y) in which it owns or leases
property. The Company has no subsidiaries.
(iv) The Company has full legal right, power and authority to
enter into this Agreement and to consummate the transactions provided for
herein. This Agreement has been duly authorized, executed and delivered by
the Company and, assuming it is a binding agreement of yours, constitutes a
legal, valid and binding agreement of the Company enforceable against the
Company in accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting the enforcement
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of creditors' rights and the application of equitable principles relating
to the availability of remedies and except as rights to indemnity or
contribution may be limited by federal or state securities laws and the
public policy underlying such laws), and none of the Company's execution or
delivery of this Agreement, its performance hereunder, its consummation of
the transactions contemplated herein, its application of the net proceeds
of the offering in the manner set forth under the caption "Use of Proceeds"
or the conduct of its business as described in the Registration Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), conflicts or will conflict with or results or will result in
any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, causes or will cause (or
permits or will permit) the maturation or acceleration of any liability or
obligation or the termination of any right under, or result in the creation
or imposition of any lien, charge, or encumbrance upon, any property or
assets of the Company pursuant to the terms of (A) the certificate of
incorporation or by-laws of the Company, (B) any indenture, mortgage, deed
of trust, voting trust agreement, stockholders' agreement, note agreement
or other agreement or instrument to which the Company is a party or by
which it is or may be bound or to which any of its property is or may be
subject or (C) any statute, judgment, decree, order, rule or regulation
applicable to the Company of any government, arbitrator, court, regulatory
body or administrative agency or other governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
activities or properties.
(v) No consent, approval, authorization or order of or filing
with any court, regulatory body, administrative agency or any other
governmental agency or body, domestic or foreign, is required for the
performance of this Agreement or the consummation of the transactions
contemplated hereby, except such as have been or may be obtained under the
Act or may be required under state securities or Blue Sky laws in
connection with the Underwriters' purchase and distribution of the Shares.
(vi) All executed agreements or copies of executed agreements
filed or incorporated by reference as exhibits to the Registration
Statement to which the Company is a party or by which it is or may be bound
or to which any of its assets, properties or businesses is or may be
subject have been duly and validly authorized, executed and delivered by
the Company and constitute the legal, valid and binding agreements of the
Company enforceable against it in accordance with their respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to enforcement of
creditors' rights generally, and general equitable principles relating to
the availability of remedies, and except as rights to indemnity or
contribution may be limited by federal or state securities laws and the
public policy underlying such laws). The descriptions in the Registration
Statement of contracts and other documents are accurate and fairly present
the information required to be shown with respect thereto by the Act and
the Rules and Regulations, and there are no contracts or other documents
which are required by the Act or the Rules and Regulations to be described
in the Registration Statement or filed as exhibits to the Registration
Statement which are not described or filed as required or incorporated
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therein by reference, and the exhibits which have been filed are complete
and correct copies of the documents of which they purport to be copies.
(vii) Subsequent to the most recent respective dates as of which
information is given in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), and except as expressly
contemplated therein, the Company has not incurred, other than in the
ordinary course of its business, any material liabilities or obligations,
direct or contingent, purchased any of its outstanding capital stock, paid
or declared any dividends or other distributions on its capital stock or
entered into any material transactions not in the ordinary course of
business, and there has been no material change in capital stock or debt or
any material adverse change in the business, properties, assets, net worth,
condition (financial or other), or results of operations or prospects of
the Company. The Company (and the manner in which it conducts its
business) is not in breach or violation of, or in default under, any term
or provision of (A) its certificate of incorporation or bylaws, (B) any
indenture, mortgage, deed of trust, voting trust agreement, stockholders'
agreement, note agreement or other agreement or instrument to which it is a
party or by which it is or may be bound or to which any of its property is
or may be subject, or any indebtedness, the effect of which breach or
default singly or in the aggregate may have a Material Adverse Effect, or
(C) any statute, judgment, decree, order, rule or regulation applicable to
the Company or of any arbitrator, court, regulatory body, administrative
agency or any other governmental agency or body, domestic or foreign,
having jurisdiction over the Company or any of its activities or properties
and the effect of which breach or default singly or in the aggregate may
have a Material Adverse Effect.
(viii) Except as disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
there is no pending action, suit, proceeding or investigation or threatened
action, suit, proceeding or investigation before or by any court,
regulatory body or administrative agency or any other governmental agency
or body, domestic or foreign, which (A) questions the validity of the
capital stock of the Company or this Agreement or of any action taken or to
be taken by the Company pursuant to or in connection with this Agreement,
(B) is required to be disclosed in the Registration Statement which is not
so disclosed (and such proceedings, if any, as are summarized in the
Registration Statement are accurately summarized in all respects), or (C)
may have a Material Adverse Effect.
(ix) The Company holds and at the Closing Date and any later
Option Closing Date, as the case may be, will hold, all franchises,
licenses, permits, approvals, certificates and other authorizations from
federal, state and foreign and other governmental or regulatory
authorities, including, but not limited to, the FDA and any foreign
regulatory authorities performing functions similar to those performed by
the FDA, necessary to the ownership, leasing and operation of its
properties or required for the present conduct of its business, and such
franchises, licenses, permits, approvals, certificates and other
governmental authorizations are in full force and effect and the Company is
in compliance therewith in all material respects except where the failure
so to obtain, maintain or comply with would not have a Material Adverse
Effect. All of the
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descriptions in the Registration Statement and Prospectus of the legal and
governmental proceedings by or before the FDA or any foreign, state or
local government body exercising comparable authority are true, complete
and accurate in all material respects.
(x) The Company is not (i) in violation of its certificate of
incorporation or bylaws, or (ii) in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any bond, debenture, note or other evidence of indebtedness, which default
would have a Material adverse Effect, or (iii) in default in the
performance or observance of any contract, indenture, mortgage, loan
agreement, joint venture or other agreement or instrument to which it is a
party or by which their or any of their properties are bound, which default
would have a Material Adverse Effect, or (iv) in violation of any law,
order, rule, regulation, writ, injunction, judgment or decree of any court
or government agency or body to which the Company is subject, including,
but not limited to, the United States Food and Drug Administration (the
"FDA").
(xi) The Company has the duly authorized and validly outstanding
capitalization set forth under the caption "Capitalization" in the
Registration Statement and Prospectus and will have the adjusted
capitalization set forth therein on the Closing Date and the Option Closing
Date, as the case may be, based on the assumptions set forth therein. The
authorized and outstanding capital stock of the Company conforms to the
description thereof contained in the Registration Statement and Prospectus
(and such description correctly states the substance of the provisions of
the instruments defining the capital stock of the Company). The
outstanding shares of capital stock outstanding have been duly authorized
and validly issued by the Company and are fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws,
were not issued in violation of any preemptive right, resale right, right
of first refusal or similar right. Except as created hereby or referred to
in the Prospectus, there are no outstanding options, warrants, rights or
other arrangements requiring the Company at any time to issue any capital
stock. Except as set forth in the Prospectus, no holders of outstanding
shares of capital stock of the Company are entitled as such to any
preemptive right, co-sale right, right of first refusal or other rights to
subscribe for any of the Shares and neither the filing of the registration
statement nor the offering or sale of the Shares as contemplated by this
Agreement gives rise to any rights, other than those which have been waived
or satisfied, for or relating to, the registration of any securities of the
Company. The Shares have been duly authorized; and on the Closing Date or
the Option Closing Date (as the case may be), after payment therefor in
accordance with the terms of this Agreement, (A) the Firm Shares and the
Additional Shares to be sold by the Company hereunder will be validly
issued, fully paid and nonassessable, and (B) good and marketable title to
the Shares will pass to the Underwriters on the Closing Date or the Option
Closing Date (as the case may be) free and clear of any lien, encumbrance,
security interest, claim or other restriction whatsoever. The Common Stock
is registered pursuant to Section 12(g) of the Exchange Act. The Company
has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act,
nor has the Company received any notification that the Commission is
contemplating terminating
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<PAGE>
such registration or listing. The Company has received, subject to notice
of issuance, approval to have the Shares quoted on the National Market
System of the National Association of Securities Dealers' Automated
Quotation System and the Company knows of no reason or set of facts which
is likely to adversely affect such approval.
(xii) The financial statements and the related notes and
schedules thereto included in the Registration Statement and the Prospectus
fairly present the financial condition, results of operations,
stockholders' equity and cash flows of the Company at the dates and for the
periods specified therein. Such financial statements and the related notes
and schedules thereto have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved (except as otherwise noted therein) and such financial statements
as are audited have been examined by KPMG Peat Marwick LLP, who are
independent public accountants within the meaning of the Act and the Rules
and Regulations, as indicated in their reports filed therewith. The
selected financial information and statistical data included in the
Registration Statement and the Prospectus present fairly the information
shown and have been prepared on a basis consistent with the financial
statements presented therein.
(xiii) Except as set forth in the Prospectus under the captions
"Risk Factors - Dependence on Patents and Proprietary Rights" and "Business
- Patents and Proprietary Rights," (i) the Company owns or possesses valid
and enforceable licenses for all inventions, patents, patent applications,
trademarks (registered or unregistered), trademark applications,
tradenames, copyrights, manufacturing processes, formulae, trade secrets,
know-how, and other intangible property and assets (collectively,
"Intellectual Property") necessary to the conduct of its business now
conducted as described in the Prospectus and the Company is not aware of
any facts which would form a reasonable basis for a claim that the Company
does not own or possess valid and enforceable licenses for all Intellectual
Property necessary to the conduct of the Company's business proposed to be
conducted as described in the prospectus; (ii) the Company has no knowledge
that it lacks or will be unable to obtain any rights or licenses to use any
of the Intellectual Property necessary to conduct the businesses now
conducted or proposed to be conducted by it as described in the Prospectus;
(iii) the Company believes that there are no third parties who have or will
be able to establish rights to any of the Intellectual Property, except for
the ownership rights of the owners of the Intellectual Property which is
licensed to the Company and except for the rights of secured parties under
security interests disclosed in the Prospectus; (iv) the Company's rights
in patents which it co-owns with Research Foundation of State University of
New York (the "Foundation"), namely Nos. 5,356 and 5,502,081 (the "Co-Owned
Patents") arose out of the certain Research Agreement dated February 3,
1987, between Medchem Products, Inc. and the Foundation, out of which the
Company now holds an undivided one-half ownership interest in the Co-Owned
Patents, as well as a worldwide, exclusive license to make, use, sell and
sublicense the technologies covered by the Co-Owned Patents; (v) to the
Company's knowledge, there is no infringement by third parties of any of
the Intellectual Property; (vi) there is no pending or, to the Company's
knowledge, threatened action, suit, proceeding or claim by others
challenging the Company's rights of title or other interest in or to any
Intellectual Property, and the Company is unaware of any facts
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<PAGE>
which would form a reasonable basis for any such claim; (vii) there is no
pending, or, to the Company's knowledge, threatened action, suit,
proceeding or claim by others challenging the validity and scope of any
Intellectual Property, and the Company is unaware of any facts which would
form a reasonable basis for any such claim; (viii) there is no pending or,
to the Company's knowledge, threatened action, suit, proceeding or claim by
others that the Company or its products or processes infringe or otherwise
violate any patent, trademark, copyright, trade secret or other proprietary
right of others, and the Company is unaware of any facts which would form a
reasonable basis for any such claim; (ix) to the Company's knowledge, there
are no grounds for an interference proceeding before the USPTO in relation
to any of the patents or patent applications currently owned by the
Company; (x) to the Company's knowledge, there are no facts which would bar
the grant of a patent from each of the patent applications within the
Intellectual Property; (xi) there is no pending or, to the Company's
knowledge, threatened action, suit, proceeding or claim by any current or
former employee, consultant or agent of the Company seeking either
ownership rights to any invention or compensation from the Company for any
invention made by such employee, consultant or agent in the course of
his/her employment with the Company, nor, to the Company's knowledge, can
any such action, suit, proceeding or claim, if instituted, be sustained;
and (xii) there is no act or omission of which the Company is aware that
may render any patent or patent application within the Intellectual
Property unpatentable, unenforceable or invalid. The Prospectus fairly and
accurately describes the Company's rights with respect to the Intellectual
Property.
(xiv) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities under the
Registration Statement (other than those that have been disclosed in the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), that have not been waived with respect to the
Registration Statement.
(xv) Since its inception, the Company has not incurred any
material liability arising under or as a result of the application of the
provisions of the Act.
(xvi) Neither the Company nor any of its officers, directors or
affiliates (within the meaning of the Rules and Regulations) has taken,
directly or indirectly, any action designed to stabilize or manipulate the
price of any security of the Company, or which has constituted or which
might in the future reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company,
to facilitate the sale or resale of the Shares or otherwise.
(xvii) The Company has good and marketable title to, or valid
and enforceable leasehold interests in, all properties and assets owned or
leased by it, free and clear of all liens, encumbrances, security
interests, claims, restrictions, equities, claims and defects, except (A)
such as are described in the Registration Statement and Prospectus, or such
as do not materially adversely affect the value of any of such properties
or assets
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taken as a whole and do not materially interfere with the use made and
proposed to be made of any of such properties or assets, and (B) liens for
taxes not yet due and payable as to which appropriate reserves have been
established and reflected in the financial statements included in the
Registration Statement. The Company owns or leases all such properties as
are necessary to its operations as now conducted, and as proposed to be
conducted as set forth in the Registration Statement and the Prospectus;
and the properties and business of the Company conform in all material
respects to the descriptions thereof contained in the Registration
Statement and the Prospectus. All the material leases and subleases of the
Company, and under which the Company holds properties or assets as lessee
or sublessee, constitute valid leasehold interests of the Company free and
clear of any lien, encumbrance, security interest, restriction, equity,
claim or defect, are in full force and effect, and the Company is not in
default in respect of any of the material terms or provisions of any such
material leases or subleases, and the Company does not have notice of any
claim which has been asserted by anyone adverse to the Company's rights as
lessee or sublessee under either the material lease or sublease, or
affecting or questioning the Company's right to the continued possession of
the leased or subleased premises under any such material lease or sublease,
which may have a Material Adverse Effect.
(xviii) The Company is (i) in compliance with any and all
applicable United States, foreign, state and local environmental laws,
rules, regulations, treaties, statutes and codes promulgated by any and all
governmental authorities relating to the protection of human health and
safety, the environment or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) has received all permits,
licenses or other approvals required of it under applicable Environmental
Laws to conduct its business as currently conducted, and (iii) is in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure
to receive required permit licenses or other approvals would not,
individually or in the aggregate, have a Material Adverse Effect. No
action, proceeding, revocation proceeding, writ, injunction or claim is
pending or threatened relating to the Environmental Laws or to the
Company's activities involving Hazardous Materials. "Hazardous Materials"
means any material or substance (i) that is prohibited or regulated by any
environmental law, rule, regulation, order, treaty, statute or code
promulgated by any governmental authority, or any amendment or modification
thereto, or (ii) that has been designated or regulated by any governmental
authority as radioactive, toxic, hazardous or otherwise a danger to health,
reproduction or the environment. The Company has not engaged in the
generation, use, manufacture, transportation or storage of any Hazardous
Materials on any of the Company's properties or former properties, except
where such use, manufacture, transportation or storage is in compliance
with Environmental Laws. No Hazardous Materials have been treated or
disposed of on any of the Company's properties or on properties formerly
owned or leased by the Company or Subsidiaries during the time of such
ownership or lease, except in compliance with Environmental Laws. No
spills, discharges, releases, deposits, emplacements, leaks or disposal of
any Hazardous Materials have occurred on or under or have emanated from any
of the Company's properties or former properties during the time of the
Company's ownership or lease thereof and except as disclosed in the
Prospectus, the Company is not
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aware of any spills, discharges, releases, deposits, emplacements, leaks or
disposal of any Hazardous Materials that have occurred on or under or have
emanated from any of the Company's or Subsidiaries' properties or former
properties prior to the Company's or Subsidiaries' ownership or lease
thereof.
(xix) The Company has obtained agreements from each person who
is a director or officer of the Company or who owns more than 5% of the
outstanding shares of Common Stock and each Selling Stockholder providing
that such person will not, for a period of 180 days after the date of the
Prospectus (the "Lock-up Period"), without the prior written consent of
Furman Selz LLC, directly or indirectly, offer, sell, solicit an offer to
buy, make any short sale, pledge, contract to sell, grant any option to
purchase, or otherwise dispose of or transfer, any shares of Common Stock
beneficially owned as of the date such lockup agreement is executed
(including, without limitation, shares of Common Stock which may be deemed
to be beneficially owned in accordance with the Rules and Regulations and
shares of Common Stock which may be issued upon exercise of a stock option
or warrant) or any securities convertible into or exercisable or
exchangeable for, or any rights to purchase or acquire, shares of Common
Stock now owned or hereafter acquired directly by such beneficial owner or
with respect to which such beneficial owner has or acquired the power of
disposition, otherwise than by (a) as a distribution to partners or
stockholders of such beneficial owner, provided that the distributees
thereof agree in writing to be bound by the terms of this restriction or
(b) pursuant to a bona fide gift to any person or other entity which agrees
in writing to be bound by this restriction. Furthermore, such person or
entity has also agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of
shares of Common Stock held by such person or entity, except in compliance
with the foregoing restriction. The Company has provided to counsel for
the Underwriters a complete and accurate list of all stockholders of the
Company and the number and type of securities held by each securityholder.
The Company has provided to counsel for the Underwriters true, accurate and
complete copies of all of the agreements pursuant to which its officers,
directors and stockholders have agreed to such or similar restrictions
(individually, a "Lock-up Agreement," and together, the "Lock-up
Agreements") presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers,
directors or other stockholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of Furman
Selz LLC.
(xx) The Company has timely and properly filed with the
Commission all reports and other documents required to have been filed by
it with the Commission pursuant to the Act and the Rules and Regulations.
True and complete copies of all such reports and other documents have been
delivered to you.
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(xxi) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company or the Subsidiaries to or for the
benefit of any of the officers or directors of the Company or any of the
members of the families of any of them that are required to be disclosed in
the Registration Statement, the Offering Memorandum and the Prospectus that
are not so disclosed. Except as disclosed in Prospectus, there are no
business relationships or related party transactions required to be
disclosed therein by Item 404 of Regulation S-K of the Commission.
(xxii) The Company maintains insurance of the types and in
amounts which it reasonably believes to be adequate for its business in
such amounts and with such deductibles as is customary for companies in the
same or similar business, all of which insurance is in full force and
effect.
(xxiii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xxiv) No labor disturbance by the employees of the Company
exists or is imminent which may have a Material Adverse Effect.
(xxv) The Company is in compliance with all provisions of
Florida Statutes (S)517.075 and the regulations thereunder, relating to
issuers doing business with Cuba.
(xxvi) The Company has not at any time during the last five
years (i) made any unlawful contribution to any candidate for foreign
office, or failed to disclose fully any contribution in violation of law,
or (ii) made any payment to any foreign, United States or state
governmental officer or official, or other person charged with similar
public of quasi-public duties, other than payments required or permitted by
the laws of the United States.
(xxvii) The Company has filed all necessary federal, state and
local income, franchise and other material tax returns and has paid all
taxes shown as due thereunder, and the Company has no knowledge of any tax
deficiency which might be assessed against the Company which, if so
assessed, may have a Materially Adverse Effect.
(b) Each Selling Stockholder severally represents and warrants
to, and agrees with, the several Underwriters that:
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(i) Such Selling Stockholder has full legal right, power and
authority to enter into this Agreement, the Power of Attorney in the form
heretofore furnished to you (the "Power of Attorney") and the Custody
Agreement in the form heretofore furnished to you (the "Custody
Agreement"). Each of this Agreement, the Power of Attorney and the Custody
Agreement has been duly executed and delivered by such Selling Stockholder,
and (assuming this Agreement is a binding agreement of yours) constitutes
the valid and binding agreement of such Selling Stockholder, enforceable
against such Selling Stockholder in accordance with their respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditor's rights and the
application of equitable principles relating to the availability of
remedies, and except as rights to indemnity or contribution may be limited
by federal or state securities law and the public policy underlying such
laws).
(ii) None of the execution, delivery or performance of this
Agreement, the Power of Attorney and the Custody Agreement and the
consummation of the transactions herein and therein contemplated, will
conflict with or result in a breach of, or default under, any indenture,
mortgage, deed of trust, voting trust agreement, stockholders' agreement,
note agreement, or other agreement or instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder is or may be
bound or to which any of his or its property is or may be subject, or any
statute, judgment, decree, order, rule or regulation applicable to such
Selling Stockholder of any government, arbitrator, court, regulatory body
or administrative agency or other governmental agency or body, domestic or
foreign, having jurisdiction over such Selling Stockholder or any of his
activities or properties.
(iii) At the date hereof such Selling Stockholder has, and at
the time of delivery of the Shares to be sold by such Selling Stockholder
to the several Underwriters, such Selling Stockholder will have, full
right, power and authority to sell, assign, transfer and deliver the Shares
to be sold by such Selling Stockholder hereunder. At the date hereof such
Selling Stockholder is, and at the time of delivery of the Shares to be
sold by such Selling Stockholder, such Selling Stockholder will be, the
lawful owner of and has and will have, good and marketable title to such
Shares free and clear of any liens, encumbrances, security interests,
claims, community property rights, restrictions on transfer or other
defects in title. Upon delivery of and payment for the Shares to be sold
by such Selling Stockholder hereunder, good and marketable title to such
Shares will pass to the Underwriters, free and clear of any liens,
encumbrances, security interests, claims, community property rights,
restrictions on transfer or other defects in title. Except as described in
the Registration Statement and the Prospectus (or, if there is no
Prospectus, the most recent Preliminary Prospectus) or created hereby,
there are no outstanding options, warrants, rights, or other agreements or
arrangements requiring such Selling Stockholder at any time to transfer any
Common Stock to be sold hereunder by such Selling Stockholder.
(iv) Such Selling Stockholder will not, without the prior
written consent of Furman Selz LLC, during the Lock-up Period, directly or
indirectly, offer, sell, solicit
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an offer to buy, make any short sale, pledge, grant any option to purchase,
contract to sell or otherwise dispose of, or transfer (collectively, a
"Disposition") any Common Stock now owned or hereafter acquired by such
Selling Stockholder or with respect to which such Selling Stockholder has
or hereafter acquires the power of disposition, otherwise than (i) as a
bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restrictions or (ii) as a distribution to
partners or stockholders of the undersigned, provided that the distributees
thereof agree in writing to be bound by the terms of this restriction. The
foregoing restriction is expressly agreed to preclude the holder of the
Common Stock from engaging in any hedging, equity swap or other transaction
which is designed to or reasonably expected to lead to or result in a
Disposition during the Lock-up Period, even if such Common Stock would be
disposed of by someone other than the Selling Stockholder. Such prohibited
hedging, equity swap, or other transactions would including, without
limitation, any short sale (whether or not against the box), or any
purchase, sale or grant of any right (including, without limitation, any
put or call option) with respect to any Common Stock or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from the Common
Stock. Such Selling Stockholder also agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the securities held by such Selling Stockholder except in
compliance with this restriction.
(v) Certificates in negotiable form for all Shares to be sold
by such Selling Stockholder under this Agreement, together with a stock
power or powers duly endorsed in blank by such Selling Stockholder,
signature guaranteed by an eligible guarantor institution (bank,
stockbroker, savings and loan association or credit union with membership
in an approved Medallion Program) pursuant to rule 17Ad-15 promulgated
under the Act, have been placed in custody with the custodian for the
purpose of effecting delivery hereunder .
(vi) Such Selling Stockholder has not distributed and will not
distribute offering material in connection with the offering and sale of
the Shares.
(vii) Such Selling Stockholder will review the Prospectus and
will comply with all agreements and satisfy all conditions on its part to
be complied with or satisfied pursuant to this Agreement on or prior to the
Closing Date, or any later date on which Option Shares are to be purchased,
as the case may be, and will advise one of its Attorneys and Furman Selz
LLC prior to the Closing Date or such later date on which Option Shares are
to be purchased, as the case may be, if any statement to be made on behalf
of such Selling Stockholder in the certificate contemplated by Section 7(j)
hereof would be inaccurate if made as of the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be.
(viii) Such Selling Stockholder does not have, or has waived
prior to the date hereof, any preemptive right, co-sale right or right of
first refusal or other similar right to purchase any of the Shares that are
to be sold by the Company or any of the other Selling Stockholders to the
Underwriters pursuant to this Agreement; such Selling
13
<PAGE>
Stockholder does not have, or has waived prior to the date hereof, any
registration right or other similar right to participate in the offering
made by the Prospectus, other than such rights of participation as have
been satisfied by the participation of such Selling Stockholder in the
transactions to which this Agreement relates in accordance with the terms
of this Agreement; and such Selling Stockholder does not own any warrants,
options or similar rights to acquire, and does not have any right or
arrangement to acquire, any capital stock, rights, warrants, options or
other securities from the Company, other than those described in the
Registration Statement and the Prospectus.
(ix) At the time when the Registration Statement becomes or
became effective, and at all times subsequent thereto up to and including
the Closing Date and the Option Closing Date, the Registration Statement
and any amendments thereto will not contain any untrue statement of a
material fact regarding such Selling Stockholder or omit to state a
material fact regarding such Selling Stockholder required to be stated
therein or necessary in order to make the statements therein regarding such
Selling Stockholder not misleading, and the Prospectus (and any supplements
thereto) (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) will not contain any untrue statement of a material
fact regarding such Selling Stockholder or omit to state a material fact
regarding such Selling Stockholder required to be stated therein or
necessary in order to make the statements therein regarding such Selling
Stockholder, in light of the circumstances under which they were made, not
misleading, and such Selling Stockholder is unaware of any material
misstatement in or omission from the Registration Statement or the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) or of any material adverse information regarding
the business or operations of the Company which is not set forth in the
Registration Statement and the Prospectus (or, if the Prospectus is not
then in existence, in the most recent Preliminary Prospectus).
(x) Such Selling Stockholder has not taken, directly or
indirectly, any action designed to stabilize or manipulate the price of any
security of the Company, or which has constituted or which might in the
future reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company, to facilitate the
sale or resale of the Shares or otherwise.
(xi) Nothing has come to the attention of such Selling
Stockholder to cause each Selling Stockholder to believe that the Company's
representations and warranties contained in this Agreement are not
accurate.
(xii) Each Selling Stockholder consents to the use of the
Prospectus and any amendment or supplement thereto by the Underwriters and
all dealers to whom the Shares may be sold, both in connection with the
offering or sale of the Shares and for such period of time thereafter as
the Prospectus is required by law to be delivered in connection therewith.
(xiii) There is not pending or threatened against such Selling
Stockholder any action, suit or proceeding which (A) questions the validity
of this Agreement or of
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<PAGE>
any action taken or to be taken by such Selling Stockholder pursuant to or
in connection with this Agreement or (B) is required to be disclosed in the
Registration Statement which is not so disclosed, and such actions, suits
or proceedings as are summarized in the Registration Statement, if any, are
accurately summarized.
3. Purchase, Sale and Delivery of the Shares. On the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, (A) the Company agrees to
sell to each Underwriter and each Underwriter, severally and not jointly, agrees
to purchase from the Company at a purchase price of $___________ per Share, the
number of Firm Shares set forth opposite the name of such Underwriter in Column
(1) of Schedule I hereto and (B) each Selling Stockholder, severally and not
----------
jointly, agrees to sell to each Underwriter, and each Underwriter, severally and
not jointly, agrees to purchase from such Selling Stockholder at a purchase
price of $______ per Share, the number of Firm Shares equal to the number of
Firm Shares set forth opposite the name of such Underwriter in Column (2) of
Schedule I, multiplied by the number of Firm Shares set forth opposite the name
- ----------
of such Selling Stockholder in Column (1) of Schedule II and divided by the
-----------
total number of Firm Shares to be sold by all Selling Stockholders, in each case
subject to such adjustments to eliminate any fractional shares as the
Representatives in their sole discretion shall make.
Certificates in negotiable form (endorsed in blank or accompanied by
stock powers in blank, with signatures appropriately guaranteed, and any funds
necessary for the purchase of stock transfer stamps) representing all of the
Shares to be sold by the Selling Stockholders have been placed in custody under
a Custody Agreement and each Selling Stockholder has duly executed and delivered
a Power of Attorney appointing [_______________] and [____________________] and
each of them as such Selling Stockholder's attorney-in-fact (the "Attorney-in-
Fact") with authority to execute this Agreement and to deliver this Agreement on
behalf of such Selling Stockholder, to authorize the delivery of the Shares to
be sold by such Selling Stockholder hereunder and otherwise to act on behalf of
such Selling Stockholder in connection with the transactions contemplated by
this Agreement and the Custody Agreement. Each Selling Stockholder agrees that
the shares represented by the certificates held in custody for such Selling
Stockholder under the Custody Agreement are subject to the interests of the
Underwriters hereunder and the arrangements made by such Selling Stockholder for
such custody, as well as the appointment by such Selling Stockholder of the
Attorney-in-Fact, are, to that extent, irrevocable. Each Selling Stockholder
specifically agrees that the obligations of such Selling Stockholder hereunder
shall not be terminated, except as otherwise provided herein, by any act of such
Selling Stockholder, operation of law or otherwise, whether by the death or
incapacity of such Selling Stockholder, if an individual, or by the occurrence
of any other event. If any Selling Stockholder, if an individual, should die or
become incapacitated, or if any other such event should occur, before the
delivery of the Shares hereunder, certificates representing the shares held in
custody for such Selling Stockholder shall be delivered pursuant to the terms
and conditions of this Agreement and the Custody Agreement, and the actions
taken by the Attorney-in-Fact pursuant to the Power of Attorney shall be as
valid as if such death, incapacity or other event had not occurred, whether or
not the Custodian or the Attorneys-in-Fact shall have received notice of such
death, incapacity or other event.
15
<PAGE>
Delivery of certificates, and payment of the purchase price, for the
Firm Shares shall be made at the offices of Furman Selz LLC at 230 Park Avenue,
New York, New York 10169, or such other location as shall be agreed upon by the
Company and the Representatives. Such delivery and payment shall be made at
10:00 a.m., New York City time, on __________, 1997 or at such other time and
date not more than ten business days thereafter as shall be agreed upon by the
Representatives and the Company. The time and date of such delivery and payment
are herein called the "Closing Date."
Delivery of the certificates for the Firm Shares shall be made to the
Representatives for the respective accounts of the several Underwriters against
payment by the several Underwriters through the Representatives of the purchase
price for the Firm Shares by certified or official bank checks in New York
Clearing House (next day) funds drawn to the order of the Company in the case of
Firm Shares sold by it and the Custodian in the case of Firm Shares sold by the
Selling Stockholders. The certificates for the Firm Shares to be so delivered
will be in definitive, fully registered form, will bear no restrictive legends
and will be in denominations and registered in such names as the Representatives
shall request, not less than two full business days prior to the Closing Date.
The certificates for the Firm Shares will be made available to the
Representatives at such office or such other place as the Representatives may
designate for inspection, checking and packaging not later than 9:30 a.m., New
York time on the business day prior to the Closing Date.
4. Public Offering of the Shares. It is understood that the
Underwriters propose to make a public offering of the Shares at the price and
upon the other terms set forth in the Prospectus.
5. Covenants of the Company and the Selling Stockholders.
The Company and the Selling Stockholders covenant and agree with
each of the Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto to become effective as promptly as
practicable. If required, the Company will file the Prospectus and any
amendment or supplement thereto with the Commission in the manner and
within the time period required by Rule 424(b) under the Act. During any
time when a prospectus relating to the Shares is required to be delivered
under the Act, the Company (A) will comply with all requirements imposed
upon it by the Act and the Rules and Regulations to the extent necessary to
permit the continuance of sales of or dealings in the Shares in accordance
with the provisions hereof and of the Prospectus, as then amended or
supplemented, and (B) will not file with the Commission the prospectus or
the amendment referred to in the third sentence of Section 2(a)(i) hereof,
any amendment or supplement to such prospectus or any amendment to the
Registration Statement of which the Representatives shall not previously
have been advised and furnished with a copy a reasonable period of time
prior to the proposed filing and as to which filing the Representatives
shall not have given their consent.
16
<PAGE>
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representatives (A) when the
Registration Statement, as amended, has become effective; if the provisions
of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective;
(B) of any request made by the Commission for amending the Registration
Statement, for supplementing any Preliminary Prospectus or the Prospectus
or for additional information, or (C) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or any post-effective amendment thereto or any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto or the institution or threat of any
investigation or proceeding for that purpose, and will use its best efforts
to prevent the issuance of any such order and, if issued, to obtain the
lifting thereof as soon as possible.
(c) The Company will (A) use its best efforts to arrange for the
qualification of the Shares for offer and sale under the state securities
or blue sky laws of such jurisdictions as the Representatives may
designate, (B) continue such qualifications in effect for as long as may be
necessary to complete the distribution of the Shares, and (C) make such
applications, file such documents and furnish such information as may be
required for the purposes set forth in clauses (A) and (B); provided,
--------
however, that the Company shall not be required to qualify as a foreign
-------
corporation or file a general or unlimited consent to service of process in
any such jurisdiction.
(d) The Company consents to the use of the Prospectus (and any
amendment or supplement thereto) by the Underwriters and all dealers to
whom the Shares may be sold, in connection with the offering or sale of the
Shares and for such period of time thereafter as the Prospectus is required
by law to be delivered in connection therewith. If, at any time when a
prospectus relating to the Shares is required to be delivered under the
Act, any event occurs as a result of which the Prospectus, as then amended
or supplemented, would include any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein not
misleading, or if it becomes necessary at any time to amend or supplement
the Prospectus to comply with the Act or the Rules and Regulations, the
Company promptly will so notify the Representatives and, subject to Section
5(a)(i) hereof, will prepare and file with the Commission an amendment to
the Registration Statement or an amendment or supplement to the Prospectus
which will correct such statement or omission or effect such compliance,
each such amendment or supplement to be reasonably satisfactory to counsel
to the Underwriters.
(e) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of
the Registration Statement occurs (90 days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), the Company
will make generally available to its security holders, in the manner
17
<PAGE>
specified in Rule 158(b) of the Rules and Regulations, and to the
Representatives, an earnings statement which will be in the detail required
by, and will otherwise comply with, the provisions of Section 11(a) of the
Act and Rule 158(a) of the Rules and Regulations, which statement need not
be audited unless required by the Act or the Rules and Regulations,
covering a period of at least 12 consecutive months after the effective
date of the Registration Statement.
(f) During a period of five years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings, and will deliver
to the Representatives:
(i) concurrently with furnishing such quarterly reports to
its stockholders, statements of income of the Company for each quarter in
the form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports to
its stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal year,
accompanied by a copy of the report thereon of independent public
accountants;
(iii) as soon as they are available, copies of all
information (financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports
and financial statements furnished to or filed with the Commission, the
National Association of Securities Dealers, Inc. ("NASD") or any securities
exchange;
(v) every press release and every material news item or
article of interest to the financial community in respect of the Company or
its affairs which was released or prepared by the Company; and
(vi) any additional information of a public nature
concerning the Company or its business which the Representatives may
reasonably request.
During such five-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(g) The Company will maintain a Transfer Agent and, if necessary
under the jurisdiction of incorporation of the Company, a Registrar (which
may be the same entity as the Transfer Agent) for its Common Stock.
18
<PAGE>
(h) The Company will furnish, without charge, to the
Representatives or on the Representatives' order, at such place as the
Representatives may designate, copies of the each Preliminary Prospectus,
the Registration Statement and any pre-effective or post-effective
amendments thereto (three of which copies will be signed and will include
all financial statements and exhibits) and the Prospectus, and all
amendments and supplements thereto, in each case as soon as available and
in such quantities as the Representatives may reasonably request.
(i) The Company shall not, during the 180 days following the
effective date of the Registration Statement, except with your prior
written consent as Representatives, file a registration statement covering
any of its shares of capital stock.
(j) The Company shall not, during the Lock-up Period, except with
your prior written consent as Representatives, issue, sell, offer or agree
to sell, grant, distribute or otherwise dispose of, directly or indirectly,
any shares of Common Stock, or any options, rights or warrants with respect
to shares of Common Stock, or any securities convertible into or
exchangeable for Common Stock, other than (i) the sale of Shares hereunder,
(ii) the grant of options or the issuance of shares of Common Stock under
the Company's stock option plans or stock purchase plan, as the case may
be, existing on the date hereof, and (iii) the issuance of shares of Common
Stock upon exercise of the currently outstanding options or warrants
described in the Registration Statement.
(k) The Company will use its best efforts to maintain listing of
its shares of Common Stock on the Nasdaq National Market.
(l) Neither the Company nor any of its officers or directors, nor
affiliates of any of them (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to, or which might
in the future reasonably be expected to cause or result in, stabilization
or manipulation of the price of any securities of the Company.
(m) The Company will apply the net proceeds of the offering
received by it in the manner set forth under the caption "Use of Proceeds"
in the Prospectus.
(n) The Company will timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Rules
and Regulations, the Exchange Act, and the rules and regulations
thereunder, and all such reports, forms and documents filed will comply as
to form and substance with the applicable requirements under the Act, the
Rules and Regulations, the Exchange Act and the rules and regulations
thereunder.
6. Expenses.
(a) Regardless of whether the transactions contemplated in this
Agreement are consummated, and regardless of whether for any reason this
Agreement is terminated, the
19
<PAGE>
Company and the Selling Stockholders will pay, and hereby agree to indemnify
each Underwriter against, all fees and expenses incident to the performance of
the obligations of the Company and the Selling Stockholders under this
Agreement, including, but not limited to, (i) fees and expenses of accountants
and counsels for the Company and the Selling Stockholders, (ii) all costs and
expenses incurred in connection with the preparation, duplication, printing,
filing, delivery and shipping of copies of the Registration Statement and any
pre-effective or post-effective amendments thereto, any Preliminary Prospectus
and the Prospectus and any amendments or supplements thereto (including postage
costs related to the delivery by the Underwriters of any Preliminary Prospectus
or Prospectus, or any amendment or supplement thereto), this Agreement, the
Agreement Among Underwriters, any Selected Dealer Agreement, Underwriters'
Questionnaire, Underwriters' Power of Attorney, Custody Agreement and Selling
Stockholders' Power of Attorney and all other documents in connection with the
transactions contemplated herein, including the cost of all copies thereof,
(iii) fees and expenses relating to qualification of the Shares under state
securities or blue sky laws, including the cost of preparing and mailing the
preliminary and final blue sky memoranda and filing fees and disbursements and
fees of counsel and other related expenses, if any, in connection therewith,
(iv) filing fees of the Commission and the NASD relating to the Shares, (v) any
fees and expenses in connection with the quotation of the Shares on the National
Association of Securities Dealers Automated Quotations National Market System,
(vi) costs and expenses incident to the preparation, issuance and delivery to
the Underwriters of any certificates evidencing the Shares, including transfer
agent's and registrar's fees and any applicable transfer taxes incurred in
connection with the delivery to the Underwriters of the Shares to be sold by the
Company and the Selling Stockholders pursuant to this Agreement and (vii) costs
and expenses incident to any meetings with prospective investors in the Shares
(other than as shall have been specifically approved by the Representatives to
be paid for by the Underwriters).
(b) If the purchase of the Shares as herein contemplated is not
consummated for any reason other than the Underwriters' default under this
Agreement or other than by reason of Section 11(a), the Company and the Selling
Stockholders shall reimburse the several Underwriters for their out-of-pocket
expenses (including reasonable counsel fees and disbursements) in connection
with any investigation made by them, and any preparation made by them in respect
of marketing of the Shares or in contemplation of the performance by them of
their obligations hereunder.
7. Conditions of the Underwriters' Obligations. The obligation of
each Underwriter to purchase and pay for the Shares set forth opposite the name
of such Underwriter in Schedule I is subject to the continuing accuracy of the
----------
representations and warranties of the Company and the Selling Stockholders
herein as of the date hereof and as of the Closing Date as if they had been made
on and as of the Closing Date; the accuracy on and as of the Closing Date of the
statements of officers of the Company and the Selling Stockholders made pursuant
to the provisions hereof; the performance by the Company and the Selling
Stockholders on and as of the Closing Date of their respective covenants and
agreements hereunder; and the following additional conditions:
(a) If the Company has elected to rely on Rule 430A under the Act, the
Registration Statement shall have been declared effective, and the Prospectus
(containing the
20
<PAGE>
information omitted pursuant to Rule 430A) shall have been filed with the
Commission not later than the Commission's close of business on the second
business day following the date hereof or such later time and date to which the
Representatives shall have consented; if the Company does not elect to rely on
Rule 430A, the Registration Statement shall have been declared effective not
later than 11:00 A.M., New York time, on the date hereof or such later time and
date to which the Representatives shall have consented; if required, in the case
of any changes in or amendments or supplements to the Prospectus in addition to
those contemplated above, the Company shall have filed such Prospectus as
amended or supplemented with the Commission in the manner and within the time
period required by Rule 424(b) under the Act; no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto shall have
been issued, and no proceedings for that purpose shall have been instituted or
threatened or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission; and the Company shall have complied with any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise).
(b) The Representatives shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representatives' opinion, is material, or omits to state a
fact which, in the Representatives' opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representatives' opinion, is material, or omits to state a
fact which, in the Representatives' opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Representatives shall have
received from counsel to the Underwriters, such opinion or opinions with respect
to the issuance and sale of the Firm Shares, the Registration Statement and the
Prospectus and such other related matters as the Representatives reasonably may
request and such counsel shall have received such documents and other
information as they request to enable them to pass upon such matters.
(d) On the Closing Date the Underwriters shall have received at no
cost to them the opinions, dated the Closing Date, of (i) Goodwin, Procter &
Hoar LLP, counsel to the Company ("Company Counsel"), (ii) King & Spalding,
special FDA counsel to the Company, (iii) Hamilton, Brook, Smith & Reynolds,
P.C., special patent counsel to the Company and (iv) _________, counsel to the
Selling Stockholders, in the forms attached hereto at Appendix A, addressed to
the Underwriters and with reproduced copies of signed counterparts thereof for
each of the Underwriters:
(e) On or prior to the Closing Date, counsel to the Underwriters shall
have been furnished such documents, certificates and opinions as they may
reasonably require in order to evidence the accuracy, completeness or
satisfaction of any of the representations or warranties of the Company or the
Selling Stockholders, or conditions herein contained.
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(f) On the Closing Date, the Underwriters shall have received, a
letter from the Accountants addressed to the Company and the Underwriters, dated
the Closing Date, confirming that it is an independent certified public
accountant with respect to the Company within the meaning of the Act and the
Rules and Regulations thereunder and based upon the procedures described in its
letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
three days prior to the Closing Date, (i) confirming that the statements and
conclusions set forth in the Original Letter are accurate as of the Closing
Date; and (ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter that are necessary to reflect any
changes in the facts described in the Original Letter since the date of such
letter, or to reflect the availability of more recent financial statements, data
or information. The letter shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company which, in your reasonable judgment, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. In addition, you shall have received from the Accountants a
letter addressed to the Company and made available to you for the use of the
Underwriters stating that its review of the Company's system of internal
accounting controls, to the extent it deemed necessary in establishing the scope
of its latest examination of the Company's financial statements, did not
disclose any weaknesses in internal controls that it considered to be material
weaknesses. All such letters shall be in a form reasonably satisfactory to the
Representatives and their counsel.
(g) On the Closing Date, the Underwriters shall have received a
certificate, dated the Closing Date, of the principal executive officer and the
principal financial or accounting officer of the Company to the effect that each
of such persons has carefully examined the Registration Statement and the
Prospectus and any amendments or supplements thereto and this Agreement, and
that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date,
and the Company has complied with all agreements and covenants and
satisfied all conditions contained in this Agreement on its part to be
performed or satisfied at or prior to the Closing Date;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose
have been instituted or are pending or, to the best knowledge of each of
such persons are contemplated or threatened under the Act and any and all
filings required by Rule 424 and Rule 430A have been timely made;
(iii) The Registration Statement and Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and neither the Registration
Statement nor any amendment thereto includes any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and
neither the Prospectus (or any supplement thereto) or any Preliminary
Prospectus includes or included any untrue statement of a material fact or
omits or omitted to state
22
<PAGE>
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus up to and
including the Closing Date, the Company has not incurred, other than in the
ordinary course of its business, any material liabilities or obligations,
direct or contingent; the Company has not purchased any of its outstanding
capital stock or paid or declared any dividends or other distributions on
its capital stock; the Company has not entered into any transactions not in
the ordinary course of business; and there has not been any change in the
capital stock or long-term debt or any increase in the short-term
borrowings (other than any increase in short-term borrowings in the
ordinary course of business) of the Company or any material adverse change
to the business properties, assets, net worth, condition (financial or
other), results of operations or prospects of the Company; the Company has
not sustained any material loss or damage to its property or assets,
whether or not insured; there is no litigation which is pending or
threatened against the Company which is required under the Act or the Rules
and Regulations to be set forth in an amended or supplemented Prospectus
which has not been set forth; and there has not occurred any event required
to be set forth in an amended or supplemented Prospectus which has not been
set forth.
References to the Registration Statement and the Prospectus in
this paragraph (g) are to such documents as amended and supplemented at the
date of the certificate.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus up to and including the
Closing Date there has not been (i) any change or decrease specified in the
letter or letters referred to in paragraph (f) of this Section 7 or (ii) any
change, or any development involving a prospective change, in the business or
properties of the Company which change or decrease in the case of clause (i) or
change or development in the case of clause (ii) makes it impractical or
inadvisable in the Representatives' judgment to proceed with the public offering
or the delivery of the Shares as contemplated by the Prospectus.
(i) No order suspending the sale of the Shares in any jurisdiction
designated by you pursuant to Section 5(a)(iii)(A) hereof has been issued on or
prior to the Closing Date and no proceedings for that purpose have been
instituted or, to your knowledge or that of the Company, have been or are
contemplated.
(j) On the Closing Date, the Underwriters shall have received a
certificate, dated the Closing Date, from each Selling Stockholder (which may be
signed by the Attorney-in-Fact) to the effect that each of such Selling
Stockholders has carefully examined the Registration Statement and the
Prospectus and this Agreement, and that:
(A) The representations and warranties of such Selling
Stockholder in this Agreement are true and correct, as if made at and as of the
Closing Date,
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<PAGE>
and such Selling Stockholder has complied with all the agreements and satisfied
all the conditions to be performed or satisfied by such Selling Stockholder at
or prior to the Closing Date; and
(B) The Registration Statement and Prospectus and, if any, each
amendment and each supplement thereto, contain all statements required to be
included therein regarding such Selling Stockholder, and none of the
Registration Statement nor any amendment thereto includes any untrue statement
of a material fact regarding such Selling Stockholder or omits to state any
material fact regarding such Selling Stockholder required to be stated therein
or necessary to make the statements therein regarding such Selling Stockholder
not misleading, and neither the Prospectus (and any supplements thereto) or any
Preliminary Prospectus includes or included any untrue statement of a material
fact regarding such Selling Stockholder or omits or omitted to state a material
fact regarding such Selling Stockholder required to be stated therein or
necessary in order to make the statements therein regarding such Selling
Stockholder, in light of the circumstances under which they were made, not
misleading.
(k) The Representatives shall have received a Lock-up Agreement from
each person who is a director or officer of the Company or who owns more than 5%
of the outstanding shares of Common Stock and each Selling Stockholder.
(l) The Company and the Selling Stockholders shall have furnished the
Underwriters with such further opinions, letters, certificates or documents as
you or counsel for the Underwriters may reasonably request. All opinions,
certificates, letters and documents to be furnished by the Company and the
Selling Stockholders will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriters and to
counsel for the Underwriters. The Company and the Selling Stockholders shall
furnish the Underwriters with conformed copies of such opinions, certificates,
letters and documents in such quantities as you reasonably request. The
certificates delivered under this Section 7 shall constitute representations,
warranties and agreements of the Company and the Selling Stockholders, as the
case may be, as to all matters set forth therein as fully and effectively as if
such matters had been set forth in Section 2 of this Agreement.
(m) The Shares have been duly authorized for quotation on the National
Association of Securities Dealers Automated Quotation National Market System.
8. Indemnification.
(a) Subject to the provisions of Section 8(e), the Company and the
Selling Stockholders, jointly and severally, agree to indemnify and hold
harmless each Underwriter and each person, if any, who controls such Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
against any and all losses, claims, damages or liabilities, joint or several
(and actions in respect thereof), to which such Underwriter or such controlling
person may become subject, under the Act or other federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or the Prospectus or any Preliminary Prospectus, or any
amendment or supplement thereto, or any blue sky application or other document
executed by
24
<PAGE>
the Company specifically for the purpose of qualifying, or based upon written
information furnished by the Company or the Selling Stockholders filed in any
state or other jurisdiction in order to qualify, any or all of the Shares under
the securities or blue sky laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application"), or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements not
misleading and will reimburse, as incurred, such Underwriter or such controlling
persons for any legal or other expenses incurred by such Underwriter or such
controlling persons in connection with investigating, defending or appearing as
a third party witness in connection with any such loss, claim, damage, liability
or action; provided, however, that the Company and such Selling Stockholder will
-------- -------
not be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in any of such
documents in reliance upon and in conformity with information furnished in
writing to the Company on behalf of such Underwriter through the Representatives
expressly for use therein, and provided, further, that such indemnity with
-------- -------
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling such Underwriter) from
whom the person asserting any such loss, claim, damage, liability or action
purchased Shares which are the subject thereof to the extent that any such loss,
claim, damage, liability or action (i) results from the fact that such
Underwriter failed to send or give a copy of the Prospectus (as amended or
supplemented) to such person at or prior to the confirmation of the sale of such
Shares to such person in any case where such delivery is required by the Act and
(ii) arises out of or is based upon an untrue statement or omission of a
material fact contained in such Preliminary Prospectus that was corrected in the
Prospectus (as amended and supplemented), unless such failure resulted from non-
compliance by the Company with Section 5(a)(viii) hereof. The Company and the
Selling Stockholders may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to the respective amounts of
such liability for which they each shall be responsible, and the provisions of
this Section 8(a) shall not affect any such agreement.
The indemnity agreement in this paragraph (a) shall be in addition to
any liability which the Company and the Selling Stockholders may otherwise have.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act and each Selling Stockholder against any and all losses,
claims, damages or liabilities (and actions in respect thereof) to which the
Company or any such Selling Stockholder, director, officer, or controlling
person may become subject, under the Act or other federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or the Prospectus or any Preliminary Prospectus, or any
amendment or supplement thereto or in any Blue Sky Application, or arise out of
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
not misleading, in each case to the extent, but only to the
25
<PAGE>
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with information
furnished in writing by that Underwriter through the Representatives to the
Company expressly for use therein; and will reimburse, as incurred, all legal or
other expenses reasonably incurred by the Company or any such Selling
Stockholder, director, officer, controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action.
The Company and the Selling Stockholders acknowledge that the statements with
respect to the public offering of the Shares set forth under the heading
"Underwriting," except for the ____ paragraph thereof, in the Prospectus have
been furnished by the Underwriters to the Company expressly for use therein and
constitute the only information furnished in writing by or on behalf of the
Underwriters for inclusion in the Prospectus. The indemnity agreement contained
in this subsection (b) shall be in addition to any liability which the
Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against one or more indemnifying parties
under this Section 8, notify such indemnifying party or parties of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a) or (b) of this Section 8 or to the extent
that the indemnifying party was not adversely affected by such omission. In
case any such action is brought against an indemnified party and it notifies an
indemnifying party or parties of the commencement thereof, the indemnifying
party or parties against which a claim is to be made will be entitled to
participate therein and, to the extent that it or they may wish, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party;
provided however, that if the defendants in any such action include both the
- -------- -------
indemnified party and the indemnifying party and the indemnified party has
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assume such legal defenses and otherwise
to participate in the defense of such action on behalf of such indemnified party
or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of its election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will not be
liable to such indemnified party under this Section 8 for any legal or other
expenses (other than the reasonable costs of investigation) subsequently
incurred by such indemnified party in connection with the defense thereof unless
(i) the indemnified party has employed such counsel in connection with the
assumption of such different or additional legal defenses in accordance with the
proviso to the immediately preceding sentence, (ii) the indemnifying party has
not employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action, or (iii) the indemnifying party has authorized in
writing the employment of counsel for the indemnified party at the expense of
the indemnifying party.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) above in respect of any losses, claims, damages, expenses
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
26
<PAGE>
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) (i) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified, on the other hand, from the offering of
the Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. In any case where the Company and/or
any Selling Stockholder are contributing parties and the Underwriters are the
indemnified party, the relative benefits received by the Company and/or the
Selling Stockholders on the one hand, and the Underwriters, on the other, shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Shares (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the cover page of the Prospectus. Relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Selling Stockholders or by the Underwriters, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this paragraph (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this paragraph (d), the Underwriters shall not
be required to contribute any amount in excess of the underwriting discount
applicable to the Shares purchased by the Underwriters hereunder. The
Underwriters' obligations to contribute pursuant to this paragraph (d) are
several in proportion to their respective underwriting obligations, and not
joint. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this
paragraph (d), (i) each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have
the same rights to contribution as such Underwriter and (ii) each director of
the Company, each officer of the Company who has signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act and each of the
Selling Stockholders shall have the same rights to contribution as the Company,
subject in each case to this paragraph (d). Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this paragraph (d), notify such
party or parties from whom contribution may be sought, but the omission so to
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any other obligation (x) it or they may have
hereunder or otherwise than under this paragraph (d) or (y) to the extent that
such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may otherwise have.
27
<PAGE>
(e) Notwithstanding any other provision of this Agreement, the
liability of each Selling Stockholder under this Section 8, solely in its
capacity as a Selling Stockholder herein and not with respect to any other
relationships any of the Selling Stockholders or any of its affiliates may have
with the Company, shall not exceed the lesser of (i) the amount equal to the
public offering price of the Shares sold by the Selling Securityholder to the
Underwriters minus the amount of the underwriting discount paid thereon to the
Underwriters by the Selling Stockholder, and (ii) such Selling Stockholder's
proportionate share of such liability, determined by dividing the number of
shares sold by such Selling Stockholder under this Agreement by the total number
of shares of Common Stock sold under this Agreement by the Company and the
Selling Stockholders.
9. Right to Increase Offering. At anytime during a period of 30 days
from the date of the Prospectus, the Underwriters, by no less than two business
days' prior notice to the Company and the Selling Stockholders may designate a
closing (which may be concurrent with, and part of, the closing on the Closing
Date with respect to the Firm Shares or may be a second closing held on a date
subsequent to the Closing Date, in either case such date shall be referred to
herein as the "Option Closing Date") at which the Underwriters may purchase all
or less than all of the Additional Shares in accordance with the provisions of
this Section 9 at the purchase price per share to be paid for the Firm Shares.
In no event shall the Option Closing Date be later than 10 business days after
written notice of election to purchase Additional Shares is given.
The Company and the Selling Stockholders agree, severally and not
jointly, to sell to the several Underwriters the respective numbers of
Additional Shares obtained by multiplying the number of Shares specified in such
notice by a fraction, of which the numerator is in the case of the Company, the
maximum number of Additional Shares offered by it, and, in the case of each of
the Selling Stockholders, the number of shares set forth opposite the name of
each Selling Stockholder set forth in Column (2) of Schedule II hereto, and the
-----------
denominator is the total number of Additional Shares (subject to adjustment by
you to eliminate fractions). Such Additional Shares shall be purchased from the
Company and each Selling Stockholder for the account of each Underwriter in the
same proportion as the number of Firm Shares set forth opposite the name of such
Underwriter in Column (3) of Schedule I bears to the total number of Firm Shares
----------
(subject to adjustment by you to eliminate fractions) and may be purchased by
the Underwriters only for the purpose of covering over-allotments made in
connection with the sale of the Firm Shares.
No Additional Shares shall be sold or delivered unless the Firm Shares
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Additional Shares or any portion thereof may be surrendered and
terminated at any time upon notice by you to the Company.
Except to the extent modified by this Section 9, all provisions of
this Agreement relating to the transactions contemplated to occur on the Closing
Date for the sale of the Firm Shares shall apply, mutatis mutandis, to the
Option Closing Date for the sale of the Additional Shares.
28
<PAGE>
10. Representations, etc. to Survive Delivery. The respective
representations, warranties, agreements, covenants, indemnities and statements
of, and on behalf of, the Company and its officers, the Selling Stockholders and
the Underwriters, respectively, set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of the Underwriters, and will survive delivery of and payment for the
Shares. Any successors to the Underwriters shall be entitled to the indemnity,
contribution and reimbursement agreements contained in this Agreement.
11. Effective Date and Termination.
(a) This Agreement shall become effective at 11:00 A.M., New York time
on the first business day following the date hereof, or at such earlier time
after the Registration Statement becomes effective as the Representatives, in
their sole discretion, shall release the Shares for the sale to the public
unless prior to such time the Representatives shall have received written notice
from the Company that it elects that this Agreement shall not become effective,
or the Representatives shall have given written notice to the Company that the
Representatives on behalf of the Underwriters elect that this Agreement shall
not become effective; provided, however, that the provisions of this Section and
-------- -------
of Section 6 and Section 8 hereof shall at all times be effective. For purposes
of this Section 11(a), the Shares to be purchased hereunder shall be deemed to
have been so released upon the earlier of notification by the Representatives to
securities dealers releasing such Shares for offering or the release by the
Representatives for publication of the first newspaper advertisement which is
subsequently published relating to the Shares.
(b) This Agreement (except for the provisions of Sections 6 and 8
hereof) may be terminated by the Representatives by notice to the Company and
the Attorney-in-Fact in the event that the Company or any of the Selling
Stockholders have failed to comply in any respect with any of the provisions of
this Agreement required on their respective parts to be performed at or prior to
the Closing Date or the Option Closing Date, or if any of the representations or
warranties of the Company or the Selling Stockholders are not accurate in any
respect or if the covenants, agreements or conditions of, or applicable to the
Company or the Selling Stockholders herein contained have not been complied with
in any respect or satisfied within the time specified on the Closing Date or the
Option Closing Date, respectively, or if prior to the Closing Date or the Option
Closing Date:
(i) the Company shall have sustained a loss by strike, fire, flood,
accident or other calamity of such a character as to interfere materially with
the conduct of the business and operations of the Company takes as a whole
regardless of whether or not such loss was insured;
(ii) trading in the Common Stock shall have been suspended by the
Commission or the National Association of Securities Dealers Automated
Quotations National Market System or trading in securities generally on the New
York Stock Exchange or the National Association of Securities Dealers Automated
Quotations National Market System shall have been suspended or a material
limitation on such trading shall have been imposed or minimum or maximum prices
shall have been established on any such exchange or market system;
29
<PAGE>
(iii) a banking moratorium shall have been declared by New York or
United States authorities;
(iv) there shall have been an outbreak or escalation of hostilities
between the United States and any foreign power or an outbreak or escalation of
any other insurrection or armed conflict involving the United States; or
(v) there shall have been a material adverse change in (A) general
economic, political or financial conditions or (B) the present or prospective
business or condition (financial or other) of the Company that, in each case, in
the Representatives' judgment makes it impracticable or inadvisable to make or
consummate the public offering, sale or delivery of the Company's Shares on the
terms and in the manner contemplated in the Prospectus and the Registration
Statement.
(c) Termination of this Agreement under this Section 11 or Section 12
after the Firm Shares have been purchased by the Underwriters hereunder shall be
applicable only to the Additional Shares. Termination of this Agreement shall
be without liability of any party to any other party other than as provided in
Sections 6 and 8 hereof.
12. Substitution of Underwriters. If one or more of the Underwriters
shall fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 7 or 11 hereof) to
purchase and pay for (a) in the case of the Closing Date, the number of Firm
Shares agreed to be purchased by such Underwriter or Underwriters upon tender to
you of such Firm Shares in accordance with the terms hereof or (b) in the case
of the Option Closing Date, the number of Additional Shares agreed to be
purchased by such Underwriter or Underwriters upon tender to you of such
Additional Shares in accordance with the terms hereof, and the number of such
Shares shall not exceed 10% of the Firm Shares or Additional Shares required to
be purchased on the Closing Date or the Option Closing Date, as the case may be,
then, each of the non-defaulting Underwriters shall purchase and pay for (in
addition to the number of such Shares which it has severally agreed to purchase
hereunder) that proportion of the number of Shares which the defaulting
Underwriter or Underwriters shall have so failed or refused to purchase on such
Closing Date or Option Closing Date, as the case may be, which the number of
Shares agreed to be purchased by such non-defaulting Underwriter bears to the
aggregate number of Shares so agreed to be purchased by all such non-defaulting
Underwriters on such Closing Date or Option Closing Date, as the case may be.
In such case, you shall have the right to postpone the Closing Date or the
Option Closing Date, as the case may be, to a date not exceeding seven full
business days after the date originally fixed as such Closing Date or the Option
Closing Date, as the case may be, pursuant to the terms hereof in order that any
necessary changes in the Registration Statement, the Prospectus or any other
documents or arrangements may be made.
If one or more of the Underwriters shall fail or refuse (otherwise than for
a reason sufficient to justify the termination of this Agreement under the
provisions of Section 7 or 11 hereof) to purchase and pay for (a) in the case of
the Closing Date, the number of Firm Shares agreed to be purchased by such
Underwriter or Underwriters upon tender to you of such Firm Shares in accordance
with the terms hereof or (b) in the case of the Option Closing Date, the
30
<PAGE>
number of Additional Shares agreed to be purchased by such Underwriter or
Underwriters upon tender to you of such Additional Shares in accordance with the
terms hereof, and the number of such Shares shall exceed 10% of the Firm Shares
or Additional Shares required to be purchased by all the Underwriters on the
Closing Date or the Option Closing Date, as the case may be, then (unless within
48 hours after such default arrangements to your satisfaction shall have been
made for the purchase of the defaulted Shares by an Underwriter or Underwriters)
and subject to the provisions of Section 11(b) hereof, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or on
the part of the Company or the Selling Stockholders except as otherwise provided
in Sections 6 and 8 hereof. As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this paragraph.
Nothing in this Section 12, and no action taken hereunder, shall relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
13. Notices. All communications hereunder shall be in writing and if sent
to the Representatives shall be mailed or delivered or telegraphed and confirmed
by letter or telecopied and confirmed by letter to c/o Furman Selz LLC at 230
Park Avenue, New York, New York 10169, Attention: Syndicate Department or, if
sent to the Company, shall be mailed or delivered or telegraphed and confirmed
to the Company at 236 West Cummings Park, Woburn, MA 01801, or if sent to the
Selling Stockholders, shall be mailed or delivered or telegraphed and confirmed
by letter or telecopied and confirmed by letter to [name[s] of Attorney[s]-in-
Fact and address].
14. Successors. This Agreement shall inure to the benefit of and be
binding upon the Company, the Selling Stockholders, and each Underwriter and the
Company's, the Selling Stockholders' and each Underwriter's respective
successors and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person, except that the
representations, warranties, indemnities and contribution agreements of the
Company and the Selling Stockholders contained in this Agreement shall also be
for the benefit of any person or persons, if any, who control any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
and except that the Underwriters' indemnity and contribution agreements shall
also be for the benefit of the directors of the Company, the officers of the
Company who have signed the Registration Statement, any person or persons, if
any, who control the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act and the Selling Stockholders. No purchaser of
Shares from the Underwriters will be deemed a successor because of such
purchase.
15. Applicable Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the choice of law or conflict of law principles thereof. Each party
hereto consents to the jurisdiction of each court in which any action is
commenced seeking indemnity or contribution pursuant to Section 8 above and
agrees to accept, either directly or through an agent, service of process of
each such court.
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16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
32
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
the Underwriters' acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
ANIKA THERAPEUTICS, INC.
By:
-----------------------------------------
Name:
Title:
SELLING STOCKHOLDERS
By:
-----------------------------------------
As Attorney-in-Fact for
the Selling Stockholders named in
Schedule II hereto
-----------
33
<PAGE>
Accepted as of the date first
above written:
FURMAN SELZ LLC
By: Furman Selz LLC
Acting on its own behalf and as one of
the Representatives of the
several Underwriters referred to
in the foregoing Agreement
By:
------------------------------------
Title:
---------------------------------
VOLPE, BROWN, WHELAN & COMPANY LLC
By: Volpe, Brown, Whelan & Company LLC
Acting on its own behalf and as one of the
Representatives of the several Underwriters
referred to in the foregoing Agreement
By:
------------------------------------
Title:
---------------------------------
LEERINK, SWANN, GARRITY, SALLAMI, YAFFEE & WYNN, INC.
By: Leerink Swann & Company
Acting on its own behalf and as one of the
Representatives of the several Underwriters
referred to in the foregoing Agreement
By:
------------------------------------
Title:
---------------------------------
34
<PAGE>
SCHEDULE I
----------
UNDERWRITERS
Underwriting Agreement dated ______________, 1997
<TABLE>
<CAPTION>
(2) (3)
(1) Number of Firm Aggregate
Number of Firm Shares to be Number of
Shares to be Purchased from Firm Shares
Purchased from the Selling to be
the Company Stockholders Purchased
-------------- -------------- -----------
Name and Address
- ----------------
<S> <C> <C> <C>
Furman Selz LLC................
-------------- -------------- -----------
Volpe, Brown, Whelan & Company
LLC...........................
-------------- -------------- -----------
Leerink, Swann, Garrity,
Sallami, Yaffee & Wynn, Inc...
-------------- -------------- -----------
-------------- -------------- -----------
Total..........................
============== ==============
</TABLE>
35
<PAGE>
SCHEDULE II
-----------
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
(1) (2)
Maximum Number
of
Name and Address of Firm Shares Additional Shares
Selling Stockholder to be Sold to be Sold
------------------- ----------- -----------------
<S> <C> <C>
Axiom Venture Partners Limited Partnership 500,000
c/o Axiom Venture Partners
City Place II, 17th Floor
185 Asylum Street
Hartford, CT 06103
------- -----------------
Total....................................... 500,000
======= =================
</TABLE>
36
<PAGE>
APPENDIX A
1. Opinion of Counsel to the Company
---------------------------------
(i) The Company (A) is a duly incorporated and validly existing
corporation in good standing under the laws of its jurisdiction of
incorporation with full power and authority (corporate and other) to own or
lease its properties and to conduct its business as described in the
Prospectus, and (B) is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction (x) in which the
conduct of its business requires such qualification (except for those
jurisdictions in which the failure so to qualify can be cured without
having a Material Adverse Effect) and (y) in which it owns or leases
property;
(ii) The authorized capital stock of the Company consists of ______
shares of Preferred Stock, of which there are no outstanding shares, and
______ shares of Common Stock, $.1 par value, of which there are
outstanding ___ shares (including the Shares plus the number of Option
Shares issued on the date hereof) [and such additional number of shares, if
any, as may have been issued after ___ and prior to the Closing Date,
pursuant to ________]; The Company does not own or control, directly or
indirectly, any corporation, association or other entity; the securities of
the Company conform in all material respects to the description thereof
contained in the Prospectus; the issued and outstanding shares of Common
Stock have been duly authorized and validly issued by the Company, are
fully paid and nonassessable and have been issued in compliance with all
federal and state securities laws and have not been issued in violation of
any preemptive right, co-sale right, registration right, right of first
refusal or other similar right known to such counsel, and are free of any
such rights;
(iii) The Company has duly authorized the issuance and sale of the Shares
to be sold by it hereunder; such Shares, when issued by the Company and
paid for in accordance with the terms hereof, will be validly issued, fully
paid and nonassessable and will conform in all material respects to the
description thereof contained in the Prospectus and will be sold free and
clear of any pledge, lien, security interests, encumbrance, claim, or
equitable interest, and, to the best knowledge of such counsel, not in
violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right, which
rights have not previously been waived, in connection with the purchase or
sale of any of the Shares and the Shares have been duly authorized for
quotation on the National Association of Securities Dealers Automated
Quotation National Market System;
(iv) The Registration Statement is effective under the Act; any required
filing of the Prospectus pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b) and any required
filing of an abbreviated registration statement pursuant to Rule 462(b) of
the Rules and Regulations has been made in the manner and within the time
period required by such rule 462(b); and no stop order
37
<PAGE>
suspending the effectiveness of the Registration Statement or any amendment
thereto has been issued, and no proceedings for that purpose have been
instituted or are pending or, to the best knowledge of such counsel, are
threatened or contemplated under the Act;
(v) The Registration Statement originally filed with respect to the
Shares and each amendment thereto and the Prospectus and, if any, each
amendment and supplement thereto (except for the financial statements,
schedules and other financial data included therein, as to which such
counsel need not express any opinion), complied as to form in all material
respects with the requirements of the Act and the Rules and Regulations;
the descriptions contained and summarized in the Registration Statement and
the Prospectus of contracts and other documents, are accurate and fairly
represent in all material respects the information required to be shown by
the Act and the Rules and Regulations;
(vi) To the best knowledge of such counsel, there are no contracts or
documents which are required by the Act to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement which are not described or filed as required by the Act and the
Rules and Regulations; to the best knowledge of such counsel, there is not
pending or threatened against the Company any action, suit, proceeding or
investigation before or by any court, regulatory body, or administrative
agency or any other governmental agency or body, domestic or foreign, of a
character required to be disclosed in the Registration Statement or the
Prospectus which is not so disclosed therein; and the statements set forth
under the headings "Risk Factors -Dependence on Marketing Partners," "Risk
Factors - Possible Adverse Effect of Certain Anti-Takeover Provisions,"
"Business - Environmental Laws," ["Business - [Partner Agreements],"] the
third paragraph of "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Management - Employment Agreements,"
"Management - 1993 Stock Option Plan" and "Description of Capital Stock,"
"Shares Eligible for Future Sale" and "Certain Transactions" and Items 14
and 15 of the Registration Statement in the Prospectus, insofar as such
statements constitute a summary of the legal matters, documents or
proceedings referred to therein, provide an accurate summary of such legal
matters, documents and proceedings;
(vii) The Company has full legal right, power, and authority to enter
into this Agreement and to consummate the transactions provided for herein;
this Agreement has been duly authorized, executed and delivered by the
Company; and this Agreement, assuming due authorization, execution and
delivery by each other party hereto, is a valid and binding agreement of
the Company, enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
now or hereafter in effect relating to or affecting creditors' rights
generally or by general principles of equity relating to the availability
of remedies and except as rights to indemnity and contribution may be
limited by federal or state securities laws or the public policy underlying
such laws.
(viii) None of the Company's execution or delivery of this Agreement, its
performance hereof, its consummation of the transactions contemplated
herein or its application of the net proceeds of the offering in the manner
set forth under the caption "Use of Proceeds",
38
<PAGE>
conflicts or will conflict with or results or will result in any breach or
violation of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon, any property or assets of the Company pursuant to the
terms of the certificate of incorporation or by-laws of the Company; the
terms of any indenture, mortgage, deed of trust, voting trust agreement,
stockholder's agreement, note agreement or other agreement or instrument
known to such counsel after reasonable investigation to which the Company
is a party or by which it is or may be bound or to which any of its
properties may be subject; any statute, rule or regulation of any
regulatory body or administrative agency or other governmental agency or
body, domestic or foreign, having jurisdiction over the Company or any of
its activities or properties; or any judgment, decree or order, known to
such counsel after reasonable investigation, of any government, arbitrator,
court, regulatory body or administrative agency or other governmental
agency or body, domestic or foreign, having such jurisdiction; and no
consent, approval, authorization or order of any court, regulatory body or
administrative agency or other governmental agency or body, domestic or
foreign, has been or is required for the Company's performance of this
Agreement or the consummation of the transactions contemplated hereby,
except such as have been obtained under the Act or may be required under
state securities or blue sky laws in connection with the purchase and
distribution by the Underwriters of the Shares;
(ix) To the best of such counsel's knowledge, the conduct of the
businesses of the Company is not in violation of any federal, state or
local statute, administrative regulation or other law, which violation is
likely to have a Material Adverse Effect; and the Company has obtained all
franchises, licenses, permits, approvals, certificates and other
authorizations from federal, state and foreign and other governmental or
regulatory authorities, including, but not limited to, the FDA and any
foreign regulatory authorities performing functions similar to those
performed by the FDA, as are necessary or required for the ownership,
leasing and operation of its properties and the conduct of its business as
presently conducted and as contemplated in the Prospectus;
(x) The statements in the Registration Statement and the Prospectus
summarizing statutes, rules and regulations, including the Massachusetts
general corporation law, and the description of the certificate of
incorporation and bylaws are accurate and fairly and correctly present the
information required to be presented by the Act or the Rules and
Regulations in all material respects; and such counsel does not know of any
statutes, rules or regulations required to be described in the Registration
Statement or the Prospectus that are not described or referred to therein
as required;
(xi) The Company is not in violation of its certificate of incorporation
or bylaws, and to the best of such counsel's knowledge, the Company is not
in breach of or default with respect to any provision of any agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit or
other instrument by which it or any of its properties may be bound or
affected, except where such default would not materially adversely affect
the Company and, to the best of such counsel's knowledge, the Company is in
compliance with all laws, rules, regulations, judgments, decrees, orders
and statutes of any court or
39
<PAGE>
jurisdiction to which it is subject, except where noncompliance would not
materially adversely affect the Company;
(xii) To the best of such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of shares of Common Stock
or other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company have
registration rights with respect to shares of Common Stock or other
securities have, with respect to the offering contemplated hereby, waived
such rights or such rights have otherwise been waived or such rights have
expired by reason of lapse of time following notification of the Company's
intent to file the Registration Statement.
(xiii) No transfer taxes are required to be paid in connection with the
sale or delivery to the Underwriters of the Firm Shares or the Option
Shares;
(xiv) The Company will not, upon consummation of the transactions
contemplated by this Agreement, be an "investment company," or a "promotor"
or "principal underwriter" for, a "registered investment company," as such
terms are defined in the Investment Company Act of 1940, as amended;
In addition, such counsel shall state that in the course of the preparation
of the Registration Statement and the Prospectus, such counsel has participated
in conferences with officers and representatives of the Company and with the
Company's independent public accountants, at which conferences such counsel made
inquiries of such officers, representatives and accountants and discussed the
contents of the Registration Statement and the Prospectus and (without taking
any further action to verify independently the statements made in the
Registration Statement and the Prospectus and, except as stated in the foregoing
opinion, without assuming responsibility for the accuracy, completeness or
fairness of such statements) nothing has come to such counsel's attention that
causes such counsel to believe that either the Registration Statement as of the
date it is declared effective and as of the Closing Date or the Prospectus as of
the date thereof and as of the Closing Date contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading (it being understood that such counsel need not express any opinion
with respect to the financial statements, schedules and other financial data
included in the Registration Statement or the Prospectus).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any jurisdiction other than the Commonwealth of
Massachusetts, State of Delaware or the United States.
References to the Registration Statement and the Prospectus in this
paragraph (d) shall include any amendment or supplement thereto at the date of
such opinion.
40
<PAGE>
2. Opinion of FDA Counsel
----------------------
King & Spalding shall indicate that they served as special counsel to the
Company with respect to FDA matters and shall opine that:
I. The statements in the Prospectus under the captions "Risk Factors
- -- Comprehensive Government Regulation; No Assurance of FDA Approval" and
"Business -- Government Regulation," insofar as such statements purport to
summarize applicable provisions of the Food, Drugs and Cosmetics Act and the
regulations promulgated thereunder, are accurate summaries in all material
respects of the provisions purported to be summarized under such captions in the
Prospectus; and
II. No facts have come to such counsel's attention which causes such
counsel to believe that the statements in the Prospectus under the captions
"Risk Factors -- Comprehensive Government Regulation; No Assurance of FDA
Approval" and "Business -- Government Regulation," insofar as such statements
relate to FDA regulatory matters, at the time the Registration Statement became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or as of the date hereof contains an untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
Such counsel may advise you that, in rendering their opinion, they
have relied on certain factual representations of the Company and that they have
not independently verified the accuracy and completeness of such
representations.
References to the Registration Statement and the Prospectus in this
paragraph (d) shall include any amendment or supplement thereto at the date of
such opinion.
41
<PAGE>
3. Opinion of Patent Counsel
-------------------------
For the purposes of rendering the opinions set forth below, such
counsel shall have reviewed the following (collectively the "Documents"):
1. the Underwriting Agreement;
2. that certain Form SB-2 as filed by the Company with the
Securities and Exchange Commission on [insert date], together
with any and all exhibits;
3. the Company's Prospectus dated [insert date];
4. the patents and patent applications listed on Schedule 1 attached
hereto, which include all of the patents and patent applications
held by the Company (the "Patents and Patent Applications") and
which are divided into category A, which are the patents and
patent applications owned by the Company (collectively, the
"Owned Patent Rights") collectively, and category B, which are
the patents and patent applications licensed by the Company
(collectively, the "Licensed Patent Rights");
5. copies of the license agreements listed on Schedule 2 attached
hereto (collectively, the "License Agreements");
6. copies of assignments relevant to ownership of the Patents and
Patent Applications;
7. the results of searches in the United States Patent and Trademark
Office ("USPTO"), completed on ____________ [date must be just
prior to the date of the opinion] in relation to the USPTO's
record of title to the United States patents and patent
applications within the Patents and Patent Applications;
8. the results of a search of the Uniform Commercial Code ("UCC")
records of the following jurisdictions [insert details of the
state(s) and county/counties] completed on ________ [date must be
just prior to the date of the opinion] against the current and
former names of the Company and the licensors specified in the
License Agreements (collectively, the "Licensors") [other
potential UCC searches to be discussed];
9. a litigation search of the ________ database completed on
___________ [date must be just prior to the date of the opinion];
42
<PAGE>
10. any and all references cited to, or by, the USPTO during the
prosecution of the United States patents and patent applications
included within the Patents and Patent Applications;
11. the documents referred to in those certain opinions of this firm
copies of which are attached as Exhibits hereto;
12. the internal files of this firm pertaining to the Company.
[insert details of other documents upon which counsel has relied in
preparing this opinion]
Whenever such counsel's opinions are qualified by the phrase "to our
best knowledge," except as may be further qualified below, such language means
that based upon the Documents, the actual knowledge of attorneys within such
firm (i.e., not including matters as to which such attorneys could be deemed to
have constructive knowledge) and inquiries of officers, directors and employees
of the Company, such counsel believes that such opinions are factually correct.
(a) To such counsel's best knowledge, the Company is the sole
owner of the Owned Patent Rights and has obtained valid, currently
effective licenses to the Licensed Patent Rights pursuant to the License
Agreements.
(b) The Company is listed in the records of the USPTO as the sole
owner of the United States patents and patent applications within the Owned
Patent Rights.
(c) The Licensors are listed in the records of the USPTO as the
sole owners of the United States patents and patent applications within the
Licensed Patent Rights.
(d) To such counsel's best knowledge, the Company has good and
marketable title to the Owned Patent Rights, free of any liens, pledges,
claims, security interests or other encumbrances.
(e) To such counsel's best knowledge, the Licensors have good and
marketable title to the Licensed Patent Rights, free of any liens, pledges,
claims, security interests or other encumbrances, except for the licenses
granted to the Company and the Subsidiaries pursuant to the License
Agreements.
(f) To such counsel's best knowledge, there are no facts which
would preclude the grant of a patent from each of the patent applications
within the Patents and Patent Applications.
43
<PAGE>
(g) To such counsel's best knowledge, the Company has complied
with USPTO's duty of candor and disclosure for each of the United States
patents and patent applications included in the Patents and Patent
Applications.
(h) To such counsel's best knowledge, except as disclosed in the
Prospectus, there are no facts which form a basis for a finding of
unenforceability or invalidity of any of the claims of the Patents and
Patent Applications. Specifically, in relation to U.S. patent no.
4,937,270 entitled "Water Insoluble Derivatives of Hyaluronic Acid" issued
on June 26, 1990 (the "Hamilton Patent"), based on the analysis set forth
in this firm's letter to the Company dated January 18, 1994, a copy of
which is attached hereto as Exhibit A, except as disclosed in the
---------
Prospectus, the Hamilton Patent and the disclosures made therein do not
invalidate any of the Patents and Patent Applications. Additionally, in
relation to U.S. patent no. 5,017,229 entitled "Water Insoluble Derivatives
of Hyaluronic Acid" issued on May 21, 1991 (the "Burns Patent"), based on
the analysis set forth in this firm's letter to the Company dated January
18, 1994, a copy of which is attached hereto as Exhibit B, except as
---------
disclosed in the Prospectus, the Burns patent and the disclosures made
therein do not invalidate any of the Patents and Patent Applications.
(i) To our best knowledge, at all times prior to the effective
date of the Registration Statement, the Company has qualified as a "small
entity" as defined in 37 CFR (S) 1.9. To our best knowledge, there were no
or omissions made in statements to or filings with the USPTO as to the
Company's status as a "small entity" or as to any change of status or
transfer of any of the United States patents and patent applications
included within the Patents and Patent Applications.
(j) To such counsel's best knowledge, no one other than the
Company and the Licensors have or will be able to establish any rights of
title or other interest to any of the Patents and Patent Applications,
trademarks (either registered and unregistered), trade names, copyrights or
trade secrets described in the Prospectus as being owned or licensed by the
Company or its Sublicensees (collectively, the "Intellectual Property").
(k) To such counsel's best knowledge, there are no facts known to
us that indicate that the Company lacks or will be unable to obtain any
rights or licenses which are necessary for its business as described in the
Prospectus.
(l) There is no pending or, to such counsel's best knowledge,
threatened action, suit, proceeding or claim by others challenging the
Company's or its Subsidiaries' ownership or license rights in or to any of
the Intellectual Property.
(m) Except as disclosed in the Prospectus, there is no pending
or, to our best knowledge, threatened action, suit, proceeding or claim by
others challenging the validity or scope of any of the Intellectual
Property.
44
<PAGE>
(n) There is no pending or, to such counsel's best knowledge,
threatened action, suit, proceeding or claim by the Company that a third
party has or will infringe or otherwise violate any of the Intellectual
Property.
(o) There is no pending or, to such counsel's best knowledge,
threatened action, suit, proceeding or claim by any third party that the
Company or its products and processes infringe or otherwise violate any
patent, trademark, copyright, trade secret, or other right of such third
party. Specifically:
(i) Based on the analysis set forth in this firm's letter
to the Company dated January 14, 1994, a copy of which is attached
hereto as Exhibit A, the Company and its products and processes do not
---------
infringe the Hamilton Patent. Based on the analysis set forth in this
firm's letter to the Company dated January 18, 1994, a copy of which
is attached hereto as Exhibit A, the Company and its products and
---------
processes do not infringe the Burns Patent.
(ii) Based on the analysis set forth in this firm's letter
to the Company dated January 18, 1994, a copy of which is attached
hereto as Exhibit B, the Company and its products and processes do not
---------
infringe the Burns Patent.
(p) The statements in the Registration Statement and Prospectus
under the captions "Risk Factors - Uncertainty Relating to Dependence on
Licenses, Patents and Proprietary Rights" and "Business - Patents, and
Proprietary Rights" and other references in the Prospectus to the
Intellectual Property and other patent, trade secret, trademark and
licensing matters (collectively the "Intellectual Property References"),
insofar as such statements constitute a summary of the legal matters,
documents or proceedings referred to therein, are accurate in all material
respects and fairly present the information purported to be disclosed
therein.
(q) To such counsel's best knowledge, there are no contracts or
other documents relating to the Intellectual Property that are of a
character required to be filed as an exhibit to the Registration Statement
or required to be described in the Registration Statement or Prospectus
that are not filed or described as required.
Such counsel has participated in conferences with officials and other
representatives of the Company, Company's counsel and others, at which
conferences the contents of the Intellectual Property References and related
matters were discussed, and although such counsel has not verified the accuracy
or completeness of the statements contained in the Registration Statement or the
Prospectus, nothing has come to such counsel's attention which leads them to
believe that, at the time the Registration Statement became effective and at all
times subsequent thereto up to and including the date hereof, the Intellectual
Property References in the Registration Statement and any amendment or
supplement thereto contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Intellectual Property References
in the Prospectus, as of the date of the Prospectus and all times subsequent
thereto up to and including the date hereof, contained any untrue statement of a
material fact or omitted
45
<PAGE>
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
46
<PAGE>
Schedule 1
----------
A. Patents and Patent Applications owned by the Company
----------------------------------------------------
[list all U.S. and foreign patents and patent applications within
this category, with the following details:
. patent number for patents and serial number for patent
applications
. date of issuance for patents and filing date for patent
applications
B. Patents and Patent Applications licensed by the Company
-------------------------------------------------------
[list all U.S. and foreign patents and patent applications within this
category, with the following details:
. patent number for patents and serial number for patent
applications
. date of issuance for patents and filing date for patent
applications
. name and address of licensor
47
<PAGE>
Schedule 2
----------
The License Agreements
----------------------
Exhibit A
---------
Copy of opinion to Company
regarding Hamilton Patent
48
<PAGE>
4. Opinion of Selling Securityholders
----------------------------------
(a) Each Selling Stockholder has full legal right, power and
authority to enter into this Agreement and to sell, assign, transfer and deliver
in the manner provided herein the Shares sold by such Selling Stockholder; this
Agreement has been duly executed and delivered by such Selling Stockholder; and
this Agreement, assuming due authorization, execution and delivery by each other
party hereto and further assuming it is a valid and binding agreement of each of
the Underwriters, is a valid and binding agreement of such Selling Stockholder,
enforceable against such Selling Stockholder in accordance with their respective
terms (except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws now or hereafter in effect relating to
or affecting creditors' rights generally and by general principles of equity
relating to the availability of remedies and except as rights to indemnity and
contribution may be limited by federal or state securities laws and the public
policy underlying such laws);
(b) None of the execution, delivery or performance of this Agreement,
the Power of Attorney and the Custody Agreement by such Selling Stockholder and
the consummation by such Selling Stockholder of the transactions herein and
therein contemplated, conflict with or result in a breach of, or default under,
any indenture, mortgage, deed of trust, voting trust agreement, stockholders
agreement, note agreement or other agreement or other instrument known to such
counsel to which such Selling Stockholder is a party or by which such Selling
Stockholder is bound or to which any of the property of any of the Selling
Stockholders is subject, or the charter or by-laws of any of the Selling
Stockholders that are corporations, and nothing has come to such counsel's
attention which causes such counsel to believe that such actions will result in
any violation of any law, rule, administrative regulation or court decree
applicable to such Selling Stockholder (other than state securities or blue sky
laws or regulations, as to which such counsel need not express any opinion);
(c) Each Selling Stockholder has full legal right, power and
authority to enter into a Power of Attorney and the Custody Agreement, and the
Power of Attorney and Custody Agreement have been duly executed and delivered by
each Selling Stockholder and, assuming the due authorization, execution and
delivery of the Custody Agreement by the other parties thereto, each constitutes
the valid and binding agreement of each Selling Stockholder enforceable in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general principles of
equity relating to the availability of remedies and except as rights to
indemnity or contribution may be limited by federal or state securities laws and
the public policy underlying such laws; and
(d) Upon the delivery of the Shares to be sold hereunder by the
Selling Stockholders and payment therefor in accordance with the terms of this
Agreement and assuming that each of the Underwriters which has severally
purchased such Shares acquires such Shares without notice of any adverse claim
(within the meaning of the Uniform Commercial Code), such Underwriter will have
acquired all of the rights of such Selling Stockholder to the Shares
49
<PAGE>
sold by such Selling Stockholder hereunder, and in addition will have acquired
title to such Shares free and clear of any adverse claim.
References to the Registration Statement and the Prospectus shall include
any amendment or supplement thereto at the date of such opinion.
In addition, such counsel shall state that in the course of the preparation
of the Registration Statement and the Prospectus, such counsel has participated
in conferences with officers and representatives of the Company and with the
Company's independent public accountants, at which conferences such counsel made
inquiries of such officers, representatives and accountants and discussed the
contents of the Registration Statement and the Prospectus and (without taking
any further action to verify independently the statements made in the
Registration Statement and the Prospectus and, except as stated in the foregoing
opinion, without assuming responsibility for the accuracy, completeness or
fairness of such statements) nothing has come to such counsel's attention that
causes such counsel to believe that either the Registration Statement as of the
date it is declared effective and as of the Closing Date or the Prospectus as of
the date thereof and as of the Closing Date contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading (it being understood that such counsel need not express any opinion
with respect to the financial statements, schedules and other financial data
included in the Registration Statement or the Prospectus).
50
<PAGE>
EXHIBIT 10.26
EXCLUSIVE DISTRIBUTION AGREEMENT
BETWEEN
ANIKA THERAPEUTICS, INC.
AND
ZIMMER, INC.
DATED AS OF NOVEMBER 7, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. APPOINTMENT AS EXCLUSIVE DISTRIBUTOR....................................1
2. UP-FRONT AND MILESTONE PAYMENTS.........................................2
3. TERRITORY...............................................................7
4. PURCHASE REQUIREMENTS...................................................8
5. ADDITIONAL APPLICATIONS AND INDICATIONS................................10
6. GENERAL TERMS OF SUPPLY................................................11
7. PRICE AND PAYMENT TERMS................................................15
8. PRODUCT SPECIFICATIONS; QUALITY CONTROL, REGULATORY
MATTERS AND COMPLIANCE WITH LAW........................................19
9. COMPANY'S GENERAL OBLIGATIONS..........................................25
10. COMPANY'S REPRESENTATIONS AND WARRANTIES...............................28
11. DISTRIBUTOR'S GENERAL OBLIGATIONS......................................30
12. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES...........................32
13. STEERING COMMITTEE.....................................................32
14. TRANSFER OF DATA; CONFIDENTIALITY......................................33
15. PATENTS................................................................35
16. TRADEMARKS, TRADE DRESS, AND BRANDING..................................37
17. TERM AND TERMINATION...................................................40
18. INDEMNIFICATION........................................................46
</TABLE>
<PAGE>
<TABLE>
<S> <C>
19. ASSIGNMENT AND SUB-DISTRIBUTION RIGHTS.................................50
20. GOVERNING LAW AND DISPUTE RESOLUTION...................................51
21. NOTICES................................................................52
22. WAIVER AND DELAY.......................................................53
23. FORCE MAJEURE..........................................................53
24. ENTIRE AGREEMENT.......................................................54
25. SEVERABILITY...........................................................54
26. DEFINITIONS............................................................54
27. PUBLIC ANNOUNCEMENTS...................................................59
28. MISCELLANEOUS..........................................................60
ANNEX A...........................................................62
ANNEX B...........................................................63
ANNEX C-1.........................................................64
ANNEX C-2.........................................................65
ANNEX D...........................................................66
ANNEX E...........................................................67
ANNEX F...........................................................68
ANNEX G...........................................................69
ANNEX H .........................................................71
EXHIBIT A.........................................................72
EXHIBIT B.........................................................73
</TABLE>
<PAGE>
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Securities and Exchange Commission (the "Commission").
EXCLUSIVE DISTRIBUTION AGREEMENT
Exclusive Distribution Agreement, effective as of November 7, 1997 (the
"Effective Date"), by and between ZIMMER, INC., a Delaware corporation having
its principal place of business at 345 East Main Street, P.O. Box 708, Warsaw,
Indiana 46581-0708 ("Distributor"), and ANIKA THERAPEUTICS, INC., a
Massachusetts corporation having its principal place of business at 236 West
Cummings Park, Woburn, Massachusetts 01801 ("Company"; and together with
Distributor sometimes referred to herein as the "Parties").
RECITALS
--------
A. Company has developed a hyaluronic acid ("HA") product for injection
into human joints for the treatment of osteoarthritis as defined in Annex A
-------
hereto (the "Product").
B. Distributor wishes to obtain the exclusive right to distribute and
sell the Product for use in the Field of Use throughout the Territory as
specified in Section 3 hereof, and Company wishes to grant such right to
Distributor, on the terms and conditions set forth in this Agreement.
C. Distributor also wishes to purchase from Company, and Company wishes
to supply to Distributor, Distributor's entire requirement of the Product in
finished form, on the terms and conditions set forth in this Agreement.
D. Unless defined elsewhere in this Agreement, capitalized terms used in
this Agreement shall have the meanings set forth in Section 26.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the Parties continued in this Agreement, the Parties agree as follows:
1. APPOINTMENT AS EXCLUSIVE DISTRIBUTOR
------------------------------------
Subject to the terms and conditions of this Agreement, Company hereby
appoints Distributor as its sole and exclusive distributor to market, distribute
and sell the Product in the Field of Use in the Territory during the Term of
this Agreement, and Distributor hereby accepts such appointment.
<PAGE>
2. UP-FRONT AND MILESTONE PAYMENTS
-------------------------------
(a) Up-Front Fee. As partial consideration to Company for the rights
------------
granted to Distributor under this Agreement, Distributor shall pay to Company
the sum of $2,500,000 upon the execution and delivery of this Agreement by both
Parties (the "Execution Payment").
(b) *. Within forty-five (45) days after * Distributor shall pay to
Company the sum of $2,500,000. At Distributor's sole option, this payment may be
made in exchange for common stock, par value $.01 per share, of Company
("Company Stock"). If Distributor elects to receive Company Stock, the Company
Stock shall be issued to Distributor or an Affiliate of Distributor, as
determined by Distributor in its sole discretion, pursuant to a Stock Purchase
Agreement to be executed by Company and Distributor or its Affiliate and in
substantially the form of Exhibit A. The number of shares of Company Stock to be
---------
received by Distributor or its Affiliate pursuant to the Distributor's election
under this Section 2(b) shall be equal to (i) $2,500,000, divided by (ii) *
percent (*%) of the average daily closing price of the Company Stock on each day
the U.S. securities markets are opened for trading during the sixty (60)
calendar day period immediately prior to the date Distributor makes the *
payment to Company pursuant to this Section 2(b). If the shares of Company Stock
to be received by Distributor or its Affiliate pursuant to the immediately
preceding sentence represent less than nine and nine-tenths percent (9.9%) of
the total outstanding shares of Company Stock at such time, Distributor or its
Affiliate shall have the right, but not the obligation, to purchase additional
shares of Company Stock from Company to increase its ownership of Company Stock
to an aggregate of not more than nine and nine-tenths percent (9.9%) of the
total number of shares of Company Stock outstanding immediately prior to the
date of such purchase, at the price specified in clause (ii) of the immediately
preceding sentence and on the other terms and conditions of the Stock Purchase
Agreement, with such purchase of additional shares to take place simultaneously
with the purchase described in the immediately preceding sentence.
Notwithstanding the foregoing, in the event the $2,500,000 payment specified in
this Section 2(b) entitles the Distributor to purchase more than nineteen and
nine-tenths precent (19.9%) of the total outstanding shares of Company Stock at
such time, Distributor agrees to purchase only nineteen and nine-tenths percent
of the total number of shares of Company Stock, and pay the balance of the
$2,500,000 in cash to Company. Notwithstanding anything herein to the contrary,
the $2,500,000 payment specified in this Section 2(b) may, at Distributor's sole
discretion, be made in whole (but not in part) by Distributor at any time prior
to *.
2
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
(c) Asian Regulatory Approvals.
--------------------------
(i) Japan. On or prior to the * anniversary of the Effective Date,
-----
Distributor shall notify Company in writing whether it intends to seek approval
for the marketing, sale and distribution of the Product in the Field of Use in
Japan. If Distributor, in its sole discretion, elects to seek such regulatory
approval, then Distributor shall promptly initiate the regulatory filings
necessary for such approval for the marketing, sale, and distribution of the
Product in Japan. If additional clinical data is required in connection with
such approval, Distributor shall use all commercially reasonable efforts to
commence all necessary pre-clinical and clinical trials promptly after the
necessary governmental approvals for such trials have been obtained. Company
shall bear * associated with all such regulatory filings, except that the *
associated with additional clinical data requirements necessary to support such
filings (*) will be borne * by Distributor and * by Company as provided in a
supplement to the Marketing Plan, which supplement Distributor will provide to
Company in draft form within * months following Distributor's election to
pursue distribution of the Product in Japan. Company shall have thirty (30) days
to review the supplement to the Marketing Plan and Company and Distributor shall
negotiate in good faith concerning any necessary changes. If the Parties cannot
agree on the terms of the supplement of the Marketing Plan, the matter shall be
submitted to the Steering Committee for resolution. Within fortyfive (45) days
after receipt by Distributor of the first approval for the marketing, sale and
distribution of the Product in the Field of Use in Japan, Distributor shall pay
to Company the sum of *. If prior to the * anniversary of the Effective Date,
Distributor notifies Company that it does not intend to seek such regulatory
approval or fails to notify Company prior to the * anniversary of the Effective
Date whether or not it seeks to obtain such regulatory approval, Company may
thereafter itself or through another Person seek such approval and market and
sell the Product without restriction in Japan (including without limitation use
in the Field of Use). In such event, Distributor shall have no obligation to
make the * payment referred to in this Section 2(c)(i) or create the supplement
to the Marketing Plan, and shall have no right with respect to the sale of the
Product in Japan, and all such rights shall remain in the Company.
(ii) China. Company grants to Distributor a right of first offer to
-----
seek approval for the marketing, sale and distribution of the Product in the
Field of Use in China. On or prior to the * anniversary of the Effective Date,
Distributor shall notify Company in writing whether it intends to exercise its
right of first offer. If Distributor, in its sole discretion, elects to seek
such regulatory approval, then Distributor shall promptly initiate the
regulatory filings necessary for such approval for the marketing, sale, and
distribution of the Product in China. If additional clinical data are required
in connection with such approval, Distributor shall use all commercially
reasonable efforts to commence all necessary pre-clinical and clinical trials
promptly after the necessary governmental approvals for such trials have been
obtained. Company shall bear * associated with all such regulatory filings,
except
3
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
that the * associated with additional clinical data requirements necessary to
support such filings * will be borne * by Distributor and * by Company as
provided in a supplement to the Marketing Plan, which supplement will contain a
reasonable incremental increase to the Territory-wide Purchase Requirement * as
provided in Section 4 herein, and which Distributor will provide to Company in
draft form by the * anniversary of the Effective Date. Company shall have thirty
(30) days to review the supplement to the Marketing Plan and Company and
Distributor shall negotiate in good faith concerning any necessary changes. If
the Parties cannot agree on the terms of the supplement of the Marketing Plan,
the matter shall be submitted to the Steering Committee for resolution. * (other
than as provided in Section 2(e)) solely as a result of electing to pursue
distribution of the Product in China. If prior to the * anniversary of the
Effective Date, Distributor notifies Company that it does not intend to exercise
its right of first offer, or fails to notify Company prior to the * anniversary
of the Effective Date, whether or not it intends to exercise its right of first
offer, Company may thereafter itself or through another Person seek such
approval and market and sell the Product without restriction in China (including
without limitation use in the Field of Use). In such event, Distributor shall
have no obligation to create the supplement to the Marketing Plan, and shall
have no right with respect to the sale of the Product in China, and all such
rights shall remain in the Company.
(iii) Australia, Korea, Taiwan. Company shall seek and use its
------------------------
commercially reasonable efforts to obtain all regulatory approvals for
Distributor to market, sell and distribute the Product in the Field of Use in
Australia, Korea, and Taiwan. Distributor shall assist and cooperate with
Company in obtaining such filings as Company may reasonably request. Within
forty five (45) days after the first approval for the marketing, sale, and
distribution of the Product in the Field of Use in one of these countries,
Distributor shall pay to Company the sum of *.
(d) Reimbursement Approvals. Distributor shall seek and use its
-----------------------
commercially reasonable efforts to obtain Reimbursement Approvals for the
Product in the Field of Use in all the Territory countries. If additional
clinical data are required in connection with such Reimbursement Approvals,
Company shall use all commercially reasonable efforts to obtain such data
commensurate with requirements of the authority from whom reimbursement is
sought. All costs associated with all such efforts to obtain Reimbursement
Approvals will be borne * by the Parties. Upon receipt of the first
Reimbursement Approval for use of the Product in the Field of Use by the
appropriate governmental body and/or private insurers representing in aggregate
more than * of the population in any one of the following three major Asian
markets (Australia, Korea, or Taiwan), Distributor shall pay Company the sum of
*. Upon receipt of a Reimbursement Approval for use of the Product in the Field
of Use by the appropriate governmental body (and/or private insurers
4
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
representing in aggregate more than * of the population in any other Asian
market, if applicable), Distributor will pay Company the one-time nonrefundable
sum of *. In addition, upon receipt of Reimbursement Approval for the use of the
Product for treatment of osteoarthritis by injection into the human knee joint
in the United States by at least * of the Qualified Primary National Medical
Insurance Organizations listed in the attached Annex H, Distributor shall pay
-------
Company the sum of *. The aggregate amount of payments made by Distributor to
Company pursuant to this section 2(d) shall not exceed * in any event.
"Reimbursement Approval" shall mean the written agreement of the insurer or
appropriate government authority to pay for the Product as a treatment in the
Field of Use, to the extent of at least * * of the Average Selling Price. The
payments specified in this Section 2(d) shall be made within forty-five (45)
business days after receipt of the applicable Reimbursement Approval.
(e) Sales Target Payments. Upon annual Net Sales first reaching or
---------------------
exceeding the target amounts set forth in the following table in any calendar
year, Distributor shall make the corresponding payment to Company within forty-
five (45) days after the end of such calendar year:
<TABLE>
<CAPTION>
Target Payment
------ -------
<S> <C> <C>
* in annual Net Sales *
* in annual Net Sales additional *
----------
* in annual Net Sales additional *
----------
* in annual Net Sales additional *
----------
* in annual Net Sales additional *
----------
</TABLE>
"Net Sales" shall mean the gross amount invoiced by Distributor or its
Affiliates for the sale of the Product to third parties in the Territory, less
(i) the cost of freight and freight insurance; (ii) returns, allowances,
discounts (including, without limitation, payment discounts of up to *); (iii)
credits, administrative fees and rebates related or attributable to the sale of
the Product (including, without limitation, allowances, discounts, credits,
rebates and administrative fees paid to purchasers and group purchasing
organizations or other Persons pursuant to contracts and arising from the sale
of the Product); and (iv) sales, use, value-added, excise, or other similar
taxes, including without limitation documented entry/exit duties and other
duties to the extent such taxes are included in the gross amount invoiced for
Product; provided, however, that no adjustment to Net Sales shall be permitted
-------- -------
for any sales discount, administration fee, rebate, credit or allowance
attributable solely to purchasing contracts for
5
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
other non-Product items sold by Distributor. Where Product is sold as part of
any purchasing contract generated by Distributor, any administrative fees,
credits and allowances will be charged on a pro-rata basis against the Net Sales
of the Product based on the Product's proportional share of the total sales of
the purchasing contract. A "sale" shall not include any sale or disposition of
Samples or Demonstration Units, or any transfer or disposition of the Product
for pre-clinical, clinical, regulatory or governmental purposes prior to
receiving marketing approval. For purposes of calculating "Net Sales," Product
shall be considered "sold" upon the invoicing of such Product by Distributor to
a third party (other than to any of its Affiliates), or upon invoicing of such
Product by any of Distributor's Affiliates to a third party. With respect to
Products sold outside of the United States and denominated in a foreign
currency, the Net Sales attributable thereto shall be converted from such
foreign currency into United States Dollars by utilizing the "Foreign Currency
Translation Rate Method." The Foreign Currency Translation Rate Method is the
conversion methodology used by Distributor from time to time in calculating
sales of its other products in its ordinary course of business. At the time this
Agreement is executed, the Foreign Currency Translation Rate Method is
calculated monthly on a prospective basis by reference to the average of the
"Noon Fed Fixing Rate" announced daily by the Federal Reserve. For example, for
sales made during the month of August, 1997, the straight average of the Noon
Fed Fixing Rate from June 20 through July 17 would be used. Distributor shall
have the right to modify the Foreign Currency Translation Rate Method from time
to time; provided, that the following conditions are met: (i) Distributor
implements the modified method for substantially all of its foreign currency
conversion transactions for substantially all of its products; (ii) the modified
method accords with generally accepted accounting principles (GAAP) as
established by the FASB; and (iii) Distributor provides prior written notice of
the modified method to Company.
(f) Potential Refund of Portion of Certain Payments; Adjustments to
---------------------------------------------------------------
Purchase Requirements. (A) The Purchase Requirement and payments made to
- ---------------------
Company under Sections 2(b), 2(c) and 2(d) following achievement of certain
regulatory approvals or reimbursement approvals, as the case may be, are subject
to partial refund only to the extent and in the manner provided in this Section
2(f); (B) In the event Section 6(d), 8(i)(3)(iii), 15(b), 15(c)(i) or 16(e) is
applicable, Distributor shall notify Company in writing if it determines that it
is entitled to an adjustment in the Purchase Requirement and/or a refund, the
amount of such adjustment and/or refund, the reasons for the forgoing as well as
the calculation thereof. Within ten (10) days after Distributor so notifies
Company, the Steering Committee shall meet and determine the amount, if any, by
which such payment(s) shall be refunded to Distributor and adjustments to be
made, if any. In determining the refunds, if any to be made, and the
adjustments if any to be made, the Steering Committee shall comply with the
following: (i) the Steering Committee will consider the adverse effects on
Distributors's ability to distribute Product in a particular country; (ii) the
portion of the payments made to Company under Sections 2(b), (c) and (d) and
Purchase Requirements applicable to such affected country; (iii) if the Steering
Committee determines a refund and/or adjustment is appropriate, the Steering
Committee will limit such refund and/or adjustment solely to that portion of the
relevant payment or Purchase
6
<PAGE>
Agreement related to the adversely affected country; and (iv) the duration of
any reduction in the Purchase Requirement, it being understood by the Parties
that any such reduction shall only be prospective in nature; and (v)
notwithstanding anything contained in this Agreement to the contrary, in the
case of any potential refund of payments made under Sections 2(b), (c) or (d),
as the case may be, the maximum amount, if any, refunded shall be limited to :
(I) * of the amount of the payment as determined by the Steering Committee as
provided above for the first year following Company's receipt of such payment;
(II) * of such payment for the second year following Company's receipt of such
payment; and (III) * of such payment for the third year following Company's
receipt of such payment. If the Steering committee fails to agree on a refund
amount within twenty (20) days after meeting, either Party may submit the matter
to arbitration as provided in Section 20. At Distributor's sole discretion, and
upon prior written notice to Company, any amounts determined by the Steering
Committee or in arbitration, as the case may be, to be payable to Distributor
under this Section 2(f) may be invoiced directly to Company, or in the
alternative, offset against existing and/or future invoices for Product or other
fees due from Distributor to Company. Such refund amount shall be paid by
Company to Distributor within thirty (30) days after the Steering Committee
agrees on such an amount, or within thirty (30) days after it is determined by
arbitration that such amount is to be paid by Company to Distributor.
3. TERRITORY
---------
(a) Distributor shall have the sole and exclusive right to market,
distribute and sell the Product solely for use in the treatment of
osteoarthritis by injection into human bone joints where the Product is the sole
and exclusive injectable product in such treatment, but excluding TMJ (the
"Field of Use") in the countries listed in Annex C1. The countries listed in
Annex C-1 within which Distributor has such exclusive distribution rights is
hereinafter referred to as the "Territory."
(b) The countries listed in Annex C2 comprise "Optional Territory" which
the Parties agree shall be considered "available" under the terms of this
Paragraph 3(b), * as of the date this Agreement is executed; provided, that to
exercise its option under this Section 3(b) with regard to any of the countries
in the Optional Territory, Distributor must produce a supplement to the
Marketing Plan listing the countries to be added to the Territory and a
reasonable incremental increase to the Territory-wide Purchase Requirement * as
provided in Section 4 herein, which supplement Distributor must provide to
Company in draft form within * months after the date this Agreement is executed,
and which supplement Company shall then have an additional * months to accept.
Distributor shall be deemed to have waived its option under this Section 3(b)
with regard to any country in the Optional Territory that is not included in
such supplement to the Marketing Plan or in the event Distributor fails to
provide such supplement
7
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
to the Marketing Plan within such * month period. If by the end of the * period
referred to above a supplement to the Marketing Plan has not been accepted by
both Parties, Distributor's option under this Paragraph with regard to the
countries listed in the supplemental Marketing Plan shall then lapse, and all
rights related to distribution of the Product in the Optional Territory shall
remain with Company.
4. PURCHASE REQUIREMENTS
---------------------
(a) Beginning with calendar year 1998, Distributor shall be required to
make at least such annual purchases of Units (excluding for purposes of this
Section 4 any purchased Samples and Demonstration Units) as are sufficient to
reach the following Territory-wide totals, at the purchase prices set forth in
Section 7(a) during the Term of this Agreement (the term "Purchase Requirement",
when used with respect to a calendar year shall mean (i) the minimum number of
units to be purchased for such calendar year as set forth in the table below, as
may be adjusted from time to time in accordance with the terms of this Agreement
(the "Territory-wide Units Requirement") or (ii) the Minimum Purchase Fee
requirement calculated with respect to such year, as applicable:
<TABLE>
<CAPTION>
Calendar Year Territory-wide Units Requirement
- ------------- --------------------------------
(Exclusive of Samples and
Demonstration Units)
<S> <C>
1998 (Year 1) * Units
1999 (Year 2) * Units
2000 (Year 3) * Units
2001 (Year 4) * Units
2002 (Year 5) and thereafter (annually) * Units
</TABLE>
(b) Notwithstanding the provisions of Section 4(a), Distributor shall not
be obligated to purchase more than * per year until the year in which the U.S.
FDA approves the Product for marketing and sale for use in the treatment of
osteoarthritis by injection in the human knee joint in the Field of Use in the
United States. Upon receipt of such FDA approval, Distributor shall be obligated
to purchase in that calendar year the prorated Year 2 annual Territory-wide
Units Requirement which shall be determined by multiplying the Year 2 annual
Territory-wide Units Requirement * by a fraction, the numerator of which is the
number of days remaining in the calendar year after the date on which FDA
approval is received and the denominator of which is 365. The Year 3 and Year 4
annual Territory-wide Units Requirements shall apply to the first and second
calendar years, respectively, immediately succeeding the calendar year during
which the FDA approval is received, and the Year 5 annual Territory-wide Units
Requirement shall apply to each calendar year thereafter during the Term. All
purchases of Product shall have a documented delivery
8
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
date assigned to them. For purposes of determining whether or not Distributor
has met the annual Territory-wide Units Requirement for any given year, the
documented delivery date shall be determinative, not the date of actual
delivery, if different.
(c) In the event Distributor fails to purchase the applicable annual
Territory-wide Units Requirement set forth in Sections 4(a) and 4(b) above
during any calendar year, Distributor, on or before March 31 of the immediately
succeeding calendar year, shall at its sole election, either (i) purchase
additional Units equal to the Unit difference between the applicable Territory-
wide Units Requirement and actual purchases at the applicable transfer price set
forth in Section 7 or (ii) pay Company an amount equal to * multiplied by the
difference between the applicable Territory-wide Units Requirement and actual
Units purchased (such product, the "Minimum Purchase Fee Requirement"). Company
agrees to accept such purchase or such payment, as the case may be, as Company's
sole and exclusive remedy for Distributor's failure to meet any annual
Territory-wide Units Requirement. Distributor shall not be obligated to pay any
Minimum Purchase Fee Requirement to the extent of any failure by Company to meet
quantity requirements in accordance with this Agreement in such year.
(d) Notwithstanding the provisions of Sections 4(a), 4(b) and 4(c), if at
any time and from time to time (i) Company for any reason cannot supply any
quantity of the Product ordered by Distributor in accordance with the terms of
this Agreement (or required to be ordered due to purchase obligations),
including but not limited to any failure to supply as a result of any Force
Majeure event described in Section 23 or (ii) the Steering Committee determines
that the Purchase Requirement shall be reduced for any period due to unforseen
circumstances or business conditions, Distributor shall be relieved of its
purchase obligation to the extent of that amount of Product not so supplied.
(e) Notwithstanding the provisions of Sections 4(a), 4(b) and 4(c), if any
of the Patents is found by a court of competent jurisdiction to be invalid or
the Product otherwise becomes (or Company reasonably believes the Product is
likely to become) infringing on the proprietary rights of third parties, the
applicable annual Purchase Requirement shall be suspended to the extent and for
the duration determined in accordance with Section 15(c). In addition, if a
third party is infringing any of the Patents and as a result of such
infringement the Product is taken off the market in a particular country, and
such infringement is brought to Company's attention, the Purchase Requirement
with respect to such country shall be suspended until such infringement ceases
or until the Parties otherwise agree.
5. ADDITIONAL APPLICATIONS AND INDICATIONS
---------------------------------------
(a) Company hereby grants to Distributor and its Affiliates a right of
first offer, as described in this Section 5, to review and consider any new HA-
based products derived from
9
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
Company's R&D Pipeline and developed for human use, the rights of which are
solely owned by Company (collectively referred to as the "Potential HA
Products"),but excluding products labeled and indicated exclusively for use in
---------
then TMJ, and all Excluded Products as that term is defined in Annex D. Any
-------
change in the existing Product, including any refinements, improvements or
performance enhancements, that are capable of being implemented under Section
8(a) by amending Annex A (whether or not such change in the Product would
require the filing of a PMA supplement if implemented in the United States)
shall be deemed not to alter the identity of the Product for purposes of this
Section 5, and the changed Product shall be deemed not to be a Potential HA
Product.
(b) If at any time during the development of Potential HA Products,
Company determines in its sole discretion to seek an unaffiliated distribution
or development partner, Company shall promptly notify Distributor and shall
supply to Distributor all available relevant information and data related
thereto as is reasonably necessary for Distributor to make an informed decision
of its interest in distributing the Potential HA Product and to develop a
proposal for the commercial terms for such distribution rights. The date of
such notification is hereinafter referred to as the "Disclosure Date."
Distributor shall have sixty (60) days from the Disclosure Date to review the
Potential HA Product on an exclusive basis and to determine if it or any of its
Affiliates wishes to negotiate distribution or licensing arrangements with
respect to such Potential HA Product. During such period, Distributor may
request that Company provide Distributor or its Affiliates with additional
information and data which Distributor reasonably considers relevant to
Distributor's consideration of the Potential HA Product, and Company shall
provide such additional information at Distributor's expense, but only to the
extent such information is in existence and easily accessed. If Distributor and
its Affiliates do not wish to pursue negotiations for the distribution or
license of such Potential HA Product and Distributor so notifies Company, or if
such sixty (60) day period expires without Distributor notifying Company as to
its interest, then Company shall be free to enter into an agreement with another
Person as to that Potential HA Product, as Company shall determine at its sole
discretion, without any further restriction or obligation to Distributor.
(c) If prior to the expiration of the sixty (60) day period referred to in
Section 5(b) Distributor or any of its Affiliates expresses in writing its
interest in obtaining the right to distribute or license the Potential HA
Product, the parties shall enter into good faith negotiations regarding the
right to distribute or license such Potential HA Product within the ninety (90)
day period immediately following the Disclosure Date. If at the end of such
ninety (90) day period the parties are unable to reach a preliminary heads of
agreement, and Company does not wish to continue the negotiations, as Company
shall determine at its sole discretion, Company shall be free to enter into an
agreement with any other Person without any further restriction or obligation to
Distributor.
6. GENERAL TERMS OF SUPPLY
-----------------------
10
<PAGE>
(a) During the Term of this Agreement, Distributor shall purchase from
Company, and Company shall supply to Distributor, all of Distributor's
requirements for the Product.
(b) The Parties agree that it is their mutual objective to plan for,
communicate, fill, and ship orders for the Product as efficiently as possible
while minimizing inventory costs. To further this goal, Distributor and Company
agree to work together to establish and incorporate an on-line system whereby
Distributor will supply Company on-going and frequently-updated information
regarding: (i) the orders received by Distributor for Product; (ii)
Distributor's current Product inventory levels and (iii) the updated Annual
Forecast as set forth in Section 6(g). Distributor agrees to train the
appropriate Company employees in the proper use of this on-line system. (This
training period shall be referred to as the "Purchasing System Training Period"
and shall last until both Parties agree that Company can operate the system on
its own.)
Distributor shall provide to Company the forecasts described in Paragraphs
6(f) and (g) herein, so that Company has access to Distributor's most current
forecasting information as soon as practicable. In addition, at least sixty
(60) days prior to the beginning of each calendar year during the Term (subject
to Company's compliance with the other provisions of this Agreement),
Distributor shall place a binding Blanket Purchase Order with Company for the
quantity of Units comprising Distributor's annual Purchase Requirement for the
coming calendar year, as such quantity is specified in Section 4 herein. For
example, subject to the terms and conditions of this Agreement, Distributor
shall place with Company by 1 November 1998 a Blanket Purchase Order for its
calendar 1999 Purchase Requirement. Orders for Units placed by Distributor
shall be made solely by either of the two following methods:
(i) During the Purchasing System Training Period, Distributor shall issue
to Company individual Order Releases against the Blanket Purchase Order, such
that the individual Order Releases shall be based on the updated Annual
Forecast, shall be delivered to Company by facsimile, and shall specify delivery
date(s) and quantities of Units to be shipped; provided, however, that in no
case shall any Order Release be for less than *. Distributor will issue such
individual Order Releases to Company with delivery dates at least sixty-five
(65) days after the date of such individual Order Releases to allow Company
adequate time to adjust its production schedules. Distributor agrees that each
such Order Release shall be a binding non-cancelable order for Product.
(ii) After the successful completion of the Purchasing System Training
Period, in addition to placing the Blanket Purchase Order at the beginning of
each calendar year, Distributor shall establish minimum and maximum Stocking
Level requirements based on the updates to the Annual Forecast, to which updates
and Stocking Level requirements Company will have direct on-line access, such
that Company shall plan, manufacture, and ship monthly (or at such more or less
frequent scheduled intervals as the Parties may by written agreement determine)
to maintain
11
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
such Stocking Levels, and Company shall be responsible for shipping the
quantities of Units necessary to maintain Distributor's Stocking Level
requirements, on Company's own issuance of Order Releases and without receiving
individual Order Releases from Distributor; provided, however, that in no case
will any quantity specified in the Order Release be less than *. In addition,
such individual Order Releases shall have delivery dates at least sixty-five
(65) days after the date of such individual Order Releases to allow Company
adequate time to adjust its production schedules.
Subject to Distributor's compliance with the other provisions of this
Section 6, and while individual Order Releases are issued in accordance with
method (i) described above, Company shall ship Units to Distributor within two
(2) working days of the individual Order Release delivery date ("Ordering
Window") in the quantity indicated on the individual Order Release; provided,
however, that in no case shall any given Order Release be for less than *.
During the time method (i) above is in effect, the Company will use commercially
reasonable efforts, but is not obligated, to fill individual Order Releases
placed by Distributor with delivery dates less than sixty-five (65) days from
the date of the Order Release. During the time method (ii) above is in effect,
and subject to Distributor's compliance with the other provisions of this
Section 6, Company shall be responsible for timely shipment of all quantities
necessary to maintain the established Stocking Level requirements; provided,
however, that in no case will any given shipment of Product be less than *, and
the Ordering Window shall be reduced to one (1) working day. During the time
either method (i) or (ii) above is in effect, Company shall invoice Distributor
for the actual quantity of Units shipped on the date shipped. Notwithstanding
anything contained herein to the contrary, in any calendar quarter, the Company
will use its commercially reasonable efforts, but it is not obligated, to ship
Unit quantities exceeding * of the Product ordered in an Order Release
(excluding the first Order Release under this Agreement), or shipped by Company,
as the case may be in method (i) or (ii), respectively, during the prior
quarter.
Both Parties agree that upon successful completion of the Purchasing System
Training Period (i.e., during the period method (ii) as provided in this Section
6(b) is in use), the decision regarding Distributor's obligation to either
purchase additional Units or pay a Purchase Penalty Fee, as provided in Section
4(c) herein, shall be at Distributor's sole discretion.
(c) Company shall deliver the Units ordered on the delivery date(s)
specified in Sections 6(b). If Company becomes aware of an event of Force
-----
Majeure under Section 23 or any other event that it expects would prevent it
- -------
from supplying Units ordered or forecasted to be ordered by Distributor on the
specified delivery date(s), Company shall promptly notify Distributor. In such
event, Company shall take all reasonable steps necessary to minimize production
delays (including, without limitation, securing a third party manufacturer that
is reasonably acceptable to Distributor as an additional source for the
manufacture of the Product,
12
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
in accordance with the terms of this Paragraph). In the event that any inability
to supply Units results in delays or shortages as described in this Paragraph,
Distributor shall be entitled to the forms of relief as provided in this Section
6(c). The Parties agree that, subject to the terms and conditions of Section
6(b) herein, Distributor's obligation to purchase the Purchase Requirements as
provided in Section 4 herein shall be determined according to the delivery dates
--------------
indicated in the Order Releases (as provided in method (i) of Section 6(b)
herein) or Stocking Levels (as provided in method (ii) of Section 6(b) herein),
and Distributor shall not have failed to meet its Purchase Requirement for a
---
given calendar year if deliveries of shipments are made after such delivery
dates for such calendar year. Order Releases with a scheduled delivery date in
one calendar year and that are shipped in a subsequent calendar year shall only
----
count toward the Purchase Requirement in the calendar year in which the delivery
date was scheduled. In addition, Company shall pay Distributor a late shipment
penalty fee of * per Unit (the "Late Shipment Penalty Fee"), on a per shipment
basis if:
(A) such shipment is delivered late (i.e., after 65 days from delivery
date as specified in Section 6(b));
(B) such shipment does not violate the rule (as provided in Section
6(b) herein) that the total quantity of Product ordered in each quarter
should not exceed * of the quantity of Product ordered or shipped in the
immediately preceding quarter (and Company is under no obligation to fill
such order to the extent it exceeds the prior quarter's total); and
(C) as a result of such late shipment, Distributor is forced to
process Distributor's customer orders of Product as "back orders" because
Distributor has insufficient inventory to fill such orders on a timely
basis, which such inventory shall include for these purposes inventory of
Product held by Distributor or Distributor's subdistributors, or Product
held on consignment in Distributor's Customers' possession.
(d) In the event Distributor terminates this Agreement as provided in
Section 17(c) herein, and such termination is caused by Company's failure to
fill orders for Product as provided in Section 6 herein the provisions of
Section 2(f) shall apply.
(e) Notwithstanding anything contained herein to the contrary, (A)
shipments that are less than *, or greater than *, of the amount ordered and/or
which are delivered outside the Ordering Window may be deemed, at the sole
discretion of Distributor, (i) goods shipped as an accommodation, (ii) non-
conforming goods which may be rejected or (iii) a partial order which may be
accepted by Distributor without waiving its rights to complete performance, (B)
all shipments with a quantity of Units that are within (+ or -) * (*) of the
quantity specified in the Order Release, shall be deemed to satisfy the quantity
specified in such Order Release, and (C) Distributor shall be responsible for
payment for only those Units actually shipped.
13
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
(f) During the Term of this Agreement, Distributor shall provide Company
with a twelve (12) month order, delivery and inventory forecast by month (the
"Annual Forecast") in dollars and Units (including all Samples and Demonstration
Units) no later than November 1 of each calendar year for the immediately
succeeding calendar year, except that for the first calendar year of this
Agreement, the Annual Forecast shall be delivered to Company within forty-five
(45) days of the Effective Date.
Within thirty (30) days of Company's receipt of the Annual Forecast,
Company shall provide Distributor with a twelve (12) month production capacity
plan (the "Annual Production Plan") which shall include information concerning
Company's ability to meet the Annual Forecast, including without limitation
information about Company's intended improvements in its production capacity to
meet the production requirements as provided in the Annual Forecast.
The Annual Forecast and the monthly updates are for planning purposes
only and shall not be binding on Distributor or Company.
(g) During the Term of this Agreement, on the tenth (10th) day of each
month covered in an Annual Forecast (or in the event of a technical information
systems malfunction, as soon as reasonably possible), commencing with February,
Distributor shall provide Company with an updated rolling twelve month forecast
of Units sold, inventory levels, sales and scheduled Order Releases (including
Samples and Demonstration Units), so as to allow Company a continuous, twelve-
month planning horizon. As the Parties develop the capability to do so (upon
the successful completion of the Purchasing System Training Period as provided
in Section 6(b) herein), Company shall access the updated forecast directly on-
line as needed, and shall conduct its planning activities without receiving
written updates. Company agrees that promptly following its receipt of such
updates, Company shall inform Distributor whether or not Company reasonably
expects to be able to meet Distributor's updated forecast requirements for
Product, and if applicable, the remedial measures Company intends to take in
order to meet such updated forecasted Product requirements. The monthly updates
are for planning purposes only and shall not be binding on Distributor or
Company. Beginning in calendar year 1998, Distributor shall provide Company
with quarterly reports of Units sold and Units on hand in the Distributor's
inventory no later than thirty (30) days after the end of each calendar quarter.
As the Parties develop the capability to do so, Company shall access such
reports, together with Distributor's Stocking Level requirements, directly on-
line as needed, and shall conduct its planning activities without receiving such
reports in writing.
(h) Company shall maintain a work-in-process bulk HA inventory of Product
in an amount not less than that sufficient to supply Distributor's individual
Order Releases or Stocking Level requirements, as the case may be, based on the
updates to the Annual Forecast provided by Distributor pursuant to Section 6(g).
14
<PAGE>
(i) In the event of a conflict between the terms of a Blanket Purchase
Order or individual Order Release issued by Distributor and this Agreement, the
terms of this Agreement shall control.
7. PRICE AND PAYMENT TERMS
-----------------------
(a) During the first three (3) years following the earlier of (i) the
First Commercial Sale of the Product by Distributor in any country in the
Territory or (ii) January 1, 1998, the purchase price payable by Distributor to
Company for each Unit shall equal the greater of (a) * or (B) * of the Average
Selling Price per Unit. Thereafter, the purchase price payable by Distributor to
Company for each Unit shall be the greater of (X) * or (Y) * of the Average
Selling Price per Unit. For purposes of this Agreement, "Average Selling Price
per Unit" shall be calculated annually during the Term of this Agreement
promptly after the end of each calendar year and shall equal (i) Net Sales for
that calendar year divided by (ii) "Net Units Sold" in such calendar year. "Net
Units Sold" shall mean the total number of Units sold by Distributor or its
Affiliates to third parties (excluding Samples and Demonstration Units), less
all returns of Units in the calendar year in question.
If at any time the annual Average Selling Price falls below * (the minimum
price necessary for Distributor to maintain a * gross margin at the * minimum
price), Distributor may request that the * minimum purchase price be reduced.
The Steering Committee shall convene within thirty (30) days after Distributor's
request to evaluate the basis for the request, and to determine the duration of
the reduction, if any. If the Steering Committee determines that market or other
competitive conditions so require, it shall establish a reduced minimum purchase
price, calculated as follows: once the annual Average Selling Price falls below
*per Unit, Company shall, subject to the provisions of this Section 7(a), reduce
its * per Unit floor price by * of the difference between (A) Distributor's
gross profit (assuming *) and (B) Distributor's gross profit (pre-adjustment),
but in no event shall the price paid to Company be less than *. For example, if
the annual Average Selling Price falls to * per Unit, the calculation as
follows:
15
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
Average Selling Price (pre-adjusted) = *
Original per Unit Purchase Price = *
Distributor's gross profit (pre-adjustment) *
Distributor's gross profit (assuming *) = *
Difference between Distributor's gross profit (assuming *
close-up) and Distributor's gross profit (pre-adjustment) * - * = *
Amount by which Company's * Average Selling Price is reduced
*
Company's New Average Selling Price *
Distributor's New Gross Profit *
Total *
Notwithstanding anything contained in this Agreement to the contrary, (i)
the provisions of this paragraph shall not apply unless and until the annual
Average Selling Price per Unit falls below *; (ii) this paragraph shall only
operate prospectively; (iii) any reduction in the purchase price payable per
Unit determined as provided in this paragraph shall only remain in effect for as
long as the Average Selling Price per Unit is below * and (iv) no event shall
the purchase price per Unit payable by Distributor to the Company be less than
*.
If the Average Selling Price per Unit falls below * (as calculated for
the entire Territory), Distributor reserves the right to reduce the spending
commitments described in the Marketing Plan to a more realistic level in order
for Distributor to maintain or recapture its *. At the time of
such reduction in spending, Distributor will submit to the Steering Committee a
proposal detailing on a country-by-country basis Distributor's recommendation
whether to continue or cease marketing the Product in each country, and the
Steering Committee shall meet within sixty (60) days to determine the
appropriate action to be taken by the Parties.
If the Steering Committee cannot come to a resolution on a price
adjustment, the matter will be submitted to arbitration as provided in Section
20. In arbitrating the issue of price reduction as provided in this Section
7(a), the arbitrator shall be bound by the formula for such reduction as
-----
provided in this Section 7(a).
(b) For purposes of determining the purchase price of the Product payable
by Distributor to Company prior to the final determination of the Average
Selling Price per Unit
16
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
for any calendar year (or portion thereof), the Parties agree that they shall
use an estimate of the Average Selling Price per Unit (the "Estimated Average
Selling Price") as provided in this Section 7(b). From the Effective Date to the
date the next Estimated Average Selling Price is determined pursuant to this
Section 7(b), the Estimated Average Selling Price shall be * per Unit. On or
before March 31, 1999 and March 31 of each year thereafter during the Term of
this Agreement, Distributor shall provide Company with a statement (the
"Statement") calculating the (i) Net Sales; (ii) Net Units Sold; and (iii) the
actual Average Selling Price per Unit for the most recently completed calendar
year in accordance with Section 7(a). The actual Average Selling Price per Unit
as determined by Distributor shall be used by the Parties as the Estimated
Average Selling Price for the immediately succeeding calendar year. If in any
completed calendar year the actual Average Selling Price per Unit for such
calendar year exceeds the Estimated Average Selling Price used for such calendar
year, Distributor shall pay to Company within thirty (30) days of the date the
calculation of the actual Average Selling Price per Unit is deemed final by the
Parties as provided in Section 7(c) of this Agreement, an amount equal *. If for
any calendar year the Estimated Average Selling Price exceeds the actual Average
Selling Price per Unit, Company shall pay to Distributor within thirty (30) days
of the date the calculation of the actual Average Selling Price per Unit is
deemed final by the Parties as provided in Section 7(c) of this Agreement an
amount equal to *.
(c) The calculation of the actual Average Selling Price per Unit set forth
in the Statement shall be deemed final and binding on the Parties unless Company
notifies Distributor in writing of its objection thereto (an "Objection") within
sixty (60) days after the completion of the Audit as provided in Section 7(d) or
sixty (60) days from Statement being delivered to Company following the end of
the calendar year, whichever is later. Any Objection shall be accompanied by a
detailed explanation of Company's basis for such Objection. Within thirty (30)
days after the delivery of the Objection to Distributor, the Parties shall in
good faith attempt to agree on the calculation of the Average Selling Price per
Unit. If the Parties fail to reach agreement within such thirty (30) day
period, the matter shall be submitted to arbitration in accordance with Section
20.
(d) Company shall have the right to appoint an independent public
accountant, mutually acceptable to the Parties (the "Accountant") to verify
Distributor's calculation of Net Sales, Net Units Sold and Average Selling Price
per Unit (the "Audit"). In the absence of any intentional misstatement of
material fact by Distributor, * shall bear the cost of such Audit unless
Distributor's calculation of the Net Sales, Net Units Sold or Average Selling
Price per Unit is more than * lower than the amounts determined by the Audit, in
which case Distributor shall bear the cost. If Distributor disagrees with the
17
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
calculation of the Audit, and Distributor and Company cannot resolve their
disagreement, the matter shall be submitted to arbitration in accordance with
Section 20.
(e) Company shall supply Distributor with samples of the Product
("Sample") at * per Unit. Unless the Parties otherwise agree, the total
number of Sample Units that Company is required to supply shall not exceed
* of Distributor's applicable annual purchase requirement set forth in Section
4. All Samples shall be labeled "Samples -Not For Resale." Company shall also
supply Distributor with Demonstration Units at * per Unit to be used solely for
demonstration purposes. Unless the Parties otherwise agree, the total number of
Demonstration Units that Company is required to supply shall not exceed * of
Distributor's applicable annual purchase requirement set forth in Section 4. All
"Demonstration Units" shall be labeled "For Demonstration Use Only -Not for
Human Use or Injection" and shall be defined as Units which need not meet
Product Specifications, but which should be representative examples of the
Product in finished, packaged form. Distributor agrees not to sell Samples or
Demonstration Units including without limitation, to any Affiliates or third
party sub-distributors.
(f) The purchase price for the Product is based on sales term * ready for
pick-up by such common carrier as Distributor may designate for shipment to
distribution locations in the Territory designated by Distributor. In addition,
Company shall document the common carrier billing mechanism as requested by
Distributor. Risk of loss to the Product shall pass to * upon delivery of the
Product to a carrier at *. Company shall cooperate with Distributor in
processing all claims for loss or damage to the Product. In addition to the
shipping and shipping-related expenses (including without limitation insurance
costs) incurred subsequent to the delivery by Company of Product to the common
carrier as designated by Distributor, * shall be responsible for and shall pay
for any and all demurrage, storage and other charges accruing after the arrival
of any shipment at the Distributor designated destination. Notwithstanding any
other terms of this Paragraph, risk of loss for all shipments shall shift to *
in the event Company's packaging does not maintain an average breakage rate
(calculated over a three-month period) of less that *, and shall remain with *
until the three-month average breakage rate again drops below *. Company agrees
to supply Distributor with specific instructions and packaging specifications
for re-packaging the Product, which such instructions will be incorporated into
Annex A
- -------
hereto. Distributor agrees that any breakage that results as a result of
Distributor's failure to properly use such instructions and specifications shall
be excluded in the calculation of the average breakage rate.
(g) Back Orders of Products shall be shipped * to Distributor's facility
in Warsaw, Indiana (or such other U.S. location as the Distributor may
designate), via overnight air carrier reasonably designated by Company. * shall
be responsible for all costs associated with priority and/or emergency shipment
of Back Orders of Products to the location designated in the immediately
preceding sentence. "Back Order" shall
18
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
be defined as an order shipped late to one of Distributor's customers because
Company failed to supply Distributor with Product in accordance with the terms
of this Agreement, such that Distributor did not have sufficient inventory in
the United States and Canada to meet such customer's order.
(h) Company shall invoice Distributor for each shipment separately and
shall reference the applicable Distributor purchase order number, mode of
transportation, date of shipment and payment terms on all invoices and bills of
lading. Any and all transfer, sales, use, registration and other taxes imposed
upon or with respect to or measured by the sale or delivery by Company to
Distributor of the Product in accordance with this Agreement shall be the
responsibility of and charged to the account of Distributor. Such amounts shall
be included on Company's invoices to Distributor for such Product. Anything to
the contrary notwithstanding, Distributor shall not have any obligation to pay
any of Company's income taxes which may result in connection with the
transactions contemplated by this Agreement.
(i) Payment terms for purchases of Product by Distributor shall be * days
from the date such Product is shipped by Company via common courier. In the
event payment has not been sent within * days after the shipment is so shipped,
Company shall have the right to suspend any and all shipments due or past due,
without incurring the Late Shipment Penalty Fee described in Section 6(c)
herein, until Distributor's payment for the delivered shipment is received.
8. PRODUCT SPECIFICATIONS; QUALITY CONTROL, REGULATORY MATTERS AND COMPLIANCE
--------------------------------------------------------------------------
WITH LAW
--------
(a) Company shall manufacture, package and label the Product in strict
accordance with the specifications and quality standards described in the
Registration Dossier(s) with respect to the Product in effect from time to time
in the applicable Territory, and other additional specifications agreed to by
the Parties, after submission to the Steering Committee, from time to time,
which additional specifications are written as amendments to Annex A as provided
-------
in Section 8(b) below (the "Specifications"). Either Party shall have the right
to request a change to the Specifications at any time during the Term of this
Agreement. In such event, the Party wishing to request a change (the
"Requesting Party") shall notify the other Party (the "Receiving Party") of its
request in writing. If the Receiving Party agrees to such request, the Parties
shall cooperate with each other to have such change to the Specifications
approved in each applicable country in the Territory, and Company shall maintain
sufficient inventory of the original Product to supply Distributor until the
change in Specifications is so approved and the new Product can be marketed and
sold. Changes requested by Company shall be made at *. Company shall not be
obligated to make any changes to the Specifications requested by Distributor,
other than those required by a regulatory agency having jurisdiction in the
country affected by such requested change. If any
19
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
regulatory agency having jurisdiction in any country in the Territory requires a
change to the Specifications, Company shall use all commercially reasonable
efforts to make such changes with respect to the Products sold in the affected
jurisdiction, and the actual, documented * for making such change as required by
such regulatory agency shall be * among Company and Distributor. * for any and
all expenses incurred by Company in connection with any and all changes to
Specifications requested by Distributor for any reason other than a regulatory
requirement. Notwithstanding any other terms of this Paragraph, in the event of
a change or improvement to the Product for which the Parties agree to implement
and modify Annex A, Distributor's purchase price for the improved or changed
Product shall be adjusted as follows: (i) Company shall not change any element
of such price relative to components, materials, and processes that remain
unchanged; (ii) Company shall provide detailed documentation of any changes in
such price attributed to changes in costs associated with changes in components,
materials, or processes; (iii) for any increase in price attributed to an
increase in such costs, Distributor shall have the right to appoint an
independent certified accountant mutually acceptable to both parties to audit
and verify the cost increase directly with Company's suppliers, or in the
alternative, to review Company's financial records pertaining directly to any
increased cost for components, materials, or processes. In addition, if the
change or improvement to the Product adopted in Annex A creates Obsolescence in
existing inventory, the actual, documented, * of such Obsolescence, together
with any actual, documented, *, *. Company shall have the right to appoint an
independent certified accountant mutually acceptable to both parties to audit
and review Distributor's financial records pertaining directly to such * costs
for obsolescence. Any disputes arising from a request for cost-sharing or
reimbursement of expenses incurred in connection with a change in Specifications
(or other provisions of Annex A) under this Paragraph and not resolved
informally within thirty (30) days shall be referred to the Steering Committee
for resolution. If the Steering Committee does not resolve the matter within
sixty (60) days, either Party may submit the matter to arbitration as provided
in Section 20.
(b) All changes to Specifications in Annex A allowed by the provisions in
-------
Section 8(a) made subsequent to the Effective Date of this Agreement, must be
made in the form of a written amendment to Annex A signed by both Parties.
-------
(c) Company shall conduct quality control testing, including stability
testing, of the Product prior to shipment in accordance with the Specifications
and regulatory requirements with respect to the Product as are in effect from
time to time in the Territory, and such other quality control testing procedures
agreed to by the Parties from time to time (the "Testing Methods"). Company
shall retain records pertaining to such testing. Testing Methods will be
reviewed and approved by both Parties prior to use of the Product.
(d) Company shall provide Distributor with a certificate of analysis of
each shipment of Product made to Distributor. Such data (and such other
relevant test data as the
20
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
Parties may agree) shall be provided at least monthly, on diskette and/or as
hard copy, or in such other format as the Parties may agree, in advance of each
shipment. Distributor may test or cause to be tested any Product in accordance
with its customary procedures within thirty (30) days of its receipt of the
Product. Distributor agrees to notify Company of any actual or potential defect
of which Distributor becomes aware. Distributor shall have the right to reject
any shipment of Product which does not meet the Specifications when tested in
accordance with the Testing Methods no later than (i) forty-five (45) days after
receipt of such shipment of Product, or (ii) forty-five (45) days after
Distributor is notified of a potential defect or other nonconformance by its
customer, the Company, or other source, as the case may be; provided, that in
either case described in clause (i) and clause (ii) of this sentence, the
standard payment terms specified in Section 7(i) of this Agreement shall apply,
and shall not be delayed pending resolution of any rejection claim. All such
claims shall be accompanied by a copy of the records pertaining to such testing
and a report of the Distributor's analysis (including a sample of the Product
from the batch analyzed) of the allegedly non-conforming Product, which records
and report shall have been made at the direction of the quality control group of
Distributor using the Testing Methods. If, after its own analysis of such
sample, Company confirms such non-conformity, Company shall replace such
shipment at its expense, together with payment to Distributor of a standard
handling fee equal to * of the purchase price of the non-conforming unit,
which handling fee shall be deemed to include all applicable charges incurred by
Distributor for shipping and/or storage, and/or disposal. If, after its own
analysis, Company does not confirm such non-conformity, the Parties shall agree
to retest the shipment or otherwise attempt in good faith to agree upon a
settlement of the issue. In the event that the Parties cannot resolve the issue,
the Parties shall submit the disputed Product to an independent testing
laboratory, to be mutually agreed upon by the Parties, for testing using the
Testing Methods. The findings of such laboratory shall be binding on the
Parties, absent manifest error. Expenses of such laboratory testing shall be
borne by the Party adversely affected by such findings. In the event that any
such shipment or batch thereof is ultimately agreed or found not to meet the
Specifications, Company shall replace such shipment at its expense, including
charges incurred by Distributor for shipping and/or storage, if applicable. If
instructed by Company, Distributor shall return any such rejected shipment to
Company at Company's expense. In the event that any such shipment or batch
thereof is ultimately agreed or found to meet the Specifications, Distributor
shall retain such shipment or batch, and all the terms and conditions of this
Agreement shall continue to apply to such Product.
(e) In addition to the obligations specified in this Agreement, each of
the Parties shall have the responsibilities assigned to it in the Coordinated
Sales, Marketing and Clinical Plan attached hereto as Annex B and incorporated
-------
herein by reference (the "Marketing Plan"), including, without limitation,
responsibilities with respect to product registrations, clinical trials and
other regulatory matters; provided however, that in case of a conflict between
-------- -------
the Marketing Plan and this Agreement, this Agreement shall control.
21
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
(f) Company shall notify all applicable regulatory authorities of
reportable events involving the Product for which Company receives appropriate
notification, as required by applicable Laws, including, without limitation, MDR
reports under the MedWatch program of the FDA and Device Vigilance Reports
required by the countries of the European Union. Distributor shall likewise
notify Company in writing of any such reportable events. The reporting party
shall notify the other within twenty-four (24) hours after such party becomes
aware of such reportable event, in a manner consistent with the requirements of
the Law in the applicable jurisdictions.
(g) Distributor shall communicate to Company via facsimile and follow-up
via express courier regarding any complaints received from users of the Product,
within twenty-four (24) hours after Distributor becomes aware of each complaint.
Each notification of a complaint shall contain, to the extent available to
Distributor within the 24 hour time frame, information as to the lot number,
dosage size, expiration date, indication for actual use and description of
circumstances involved in the alleged failure of the Product. Each complaint
notification will contain all the information available to Distributor at that
time, including the information required in the "Company Complaint Form"
(Annex E), and a summary of any proposed action to be taken by the Distributor
-------
and/or Company. Distributor will provide additional information as it becomes
available, or will turn the complaint over to Company for follow-up
investigation and any further action. No action, though, will be taken by
Distributor before consultation with and agreement from Company. Each month
during the term of the Agreement, Company will provide Distributor with a
summary of all complaint information (together with trend analysis) received
from all sources during the preceding month.
(h) Each Party agrees to notify the other Party as soon as practicable of
any information of which it becomes aware which relates to the safety or
efficacy of the Product. Upon receipt of any such information, the Parties shall
consult with each other in an effort to arrive at a mutually agreeable course of
action that is consistent with the obligations of the parties under this
Agreement.
(i) (1) If a Party is notified by a governmental agency that a Product
recall or other general corrective action with respect to the
Product is necessary ("Government Recall"), it shall immediately
advise the other Party in writing of such notification by such
governmental agency, and proceed with the recall or corrective
action as instructed by such governmental agency.
(2) In the event either Company or Distributor believes in good faith
(without notification by a governmental agency) that a Product
recall or other general corrective action with respect to the
Product is necessary or appropriate ("Proposed Recall"), the
party advocating the Proposed Recall shall notify the other party
in writing regarding its belief in this
22
<PAGE>
regard, and provide the other party with a complete written
explanation of the reason(s) for its belief regarding such
Proposed Recall. Within two (2) business days following delivery
of the written explanation, the Parties will jointly submit all
notifications from either Party regarding such Proposed Recall to
a subcommittee of the Steering Committee (consisting of one (1)
member from Distributor qualified to make a determination
regarding such Proposed Recall and the President of Company) to
determine what actions are appropriate regarding such Proposed
Recall. The subcommittee convened for the purpose of making the
determination in the immediately preceding sentence shall take
only those actions which the subcommittee has voted unanimously
to take. If the subcommittee is unable to make a unanimous
decision about the appropriate action regarding a Proposed Recall
within five (5) business days after such matter is submitted to
such subcommittee, the matter will be submitted to the full
Steering Committee, which will be given five (5) additional
business days to vote by simple majority to take appropriate
action regarding a Proposed Recall. If the full Steering
Committee is unable to make a decision about the appropriate
action to take regarding a Proposed Recall, the matter will be
submitted to arbitration as provided in Section 20, except that a
final decision shall be rendered within fifteen (15) days after a
party initiates arbitration. Distributor will keep detailed
distribution records for each lot number detailing the quantity
shipped and the location where the lot was shipped, so that in
the event of a recall Distributor will be able to contact all
physicians and/or end users.
(3) (i) In the event any recall or general corrective action is
taken with respect to the Product, whether ordered by a
governmental agency or otherwise, Distributor and Company
will jointly determine the cause(s) of the recall no later
than thirty (30) days after the date of such recall, in
order to establish preventive measures for the future and to
assess responsibility for costs and expenses arising from
the recall. At the end of this thirty (30) day period if the
matter has not been resolved by Distributor and Company, the
matter of costs and expenses will be submitted to the
Steering Committee for resolution. If the matter is not
resolved by the Steering Committee within sixty (60) days
either party may initiate arbitration pursuant to Section
20.
(ii) The responsibilities for costs and expenses associated with
the recall or corrective action shall be determined
according to the provisions of Section 18 (Indemnification)
herein. If it is determined by either the Steering Committee
or as a result of
23
<PAGE>
arbitration, as the case may be, that the recall or
corrective action is Company's responsibility according to
Section 18, Company shall refund the purchase price for such
Product and shall reimburse Distributor for Distributor's
documented actual out-of-pocket costs and expenses in
connection with such recall or general corrective action,
including, without limitation, Distributor's actual costs of
conducting the recall or corrective action. If it is
determined by either the Steering Committee or as a result
of arbitration, as the case may be, that the recall or
corrective action is Distributor's responsibility according
to Section 18, Distributor shall reimburse Company for
Company's documented actual out-of-pocket costs and expenses
in connection with such recall or corrective action,
including without limitation Company's actual costs of
conducting the recall or corrective action. In the event of
a recall for which it is determined by either the Steering
Committee or as a result of arbitration, as the case may be,
that both Parties bear a measure of responsibility according
to Section 18, it is the intent of both Parties that the
costs and expenses of conducting the recall or corrective
action shall be apportioned according to Section 18. The
Parties further agree that any unallocated share shall be *
the Parties (e.g., the Party determined to be * responsible
under Section 18 pays * of the costs and expenses incurred
in conducting the recall or corrective action; the Party
determined to be * responsible pays * of such costs and
expenses; and each Party pays * of the remaining *).
(iii) Within ten (10) days after any recall or general corrective
action is initiated, the Steering Committee shall meet and
determine (a) the time frame for Company to provide
replacement product and the transfer price to Distributor,
if any; (B) the amount, if any, by which Distributor's
minimum purchase requirement shall be reduced for the
remainder of the term (to the extent of the forecasted sales
in the affected country) determined as provided in Section
2(f); and (C) the amount, if any, by which any payment made
to Company under Section 2(b), (c) or (d), to the extent
applicable to the affected country, shall be refunded
determined as provided in Section 2(f) herein. If the
Steering Committee fails to resolve one or more of the above
issues within twenty (20) days after the meeting, either
Party may initiate arbitration as provided in Section 20.
24
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
(j) Each Party covenants that all of its activities (and the activities
of its suppliers in the case of Company, and in the case of Distributor, the
activities of Distributor's Affiliates and third party sub-distributors), under
or pursuant to this Agreement shall comply with all applicable laws, ordinances,
statutes, rules and regulations (collectively "Laws"), including, without
limitation, Laws arising under the federal Food, Drug and Cosmetic Act, the Safe
Medical Device Act and their respective amendments.
(k) Distributor and Company shall have the right to visit each other's
facilities where the Product is manufactured, stored or delivered from time to
time during the Term of this Agreement and, subject to Section 14, solely for
the purposes of performing a quality audit of the other Party's records
concerning the manufacturing procedures, and storage and distribution (including
shipping and handling) of the Products. Distributor agrees to obtain the rights
described in this Section 8(k) with respect to its Affiliates and sub-
distributors as applicable. Provided however, that such visits will be
restricted to only those persons directly involved in determining compliance
with the terms of this Agreement, and each Party shall be required to furnish to
the other party only that information necessary to make a determination of the
other Party's compliance with the terms of this Agreement. Such visits shall be
conducted upon reasonable written notice and during normal business hours.
9. COMPANY'S GENERAL OBLIGATIONS
-----------------------------
(a) During the Term of this Agreement, Company shall, in accordance with
the Marketing Plan:
(i) Train Distributor's management and sales force regarding the Product
and its labeled indications, and provide such assistance as
Distributor may, from time to time, reasonably require;
(ii) Provide to Distributor reasonable technical, scientific, sales and
marketing support with respect to the Product, to the extent
Distributor makes available opportunities to provide such support as
provided in Section 11(l) herein and in the Marketing Plan.
(iii) Maintain ISO 9001 certification to support the right to continue to
use the CE Mark in commerce on the Product, and audit its suppliers
annually, or as otherwise sufficient, to ensure that such
certification and requisite quality standards are maintained;
(iv) Refrain from supplying HA to any other Person for use as the primary
active ingredient (A) in any final product that has any applications
or indications associated with human osteoarthritis in the Field of
Use, or (B) in competition
25
<PAGE>
with the Product or other applications or indications of the Product
that Distributor or its Affiliates have an option to distribute,
unless Distributor has been first offered the right to distribute
such product in accordance with the right of first offer set forth in
Section 5;
(v) Use commercially reasonable efforts to ensure that products
manufactured by the Company (other than the Product) are not marketed
or used in the Field of Use in the Territory (the "Gray Market
Product"). If Distributor reasonably believes that Gray Market
Product is being marketed or used in any country in the Territory,
and has caused financial loss to Distributor of at least *
Distributor shall promptly notify Company of such belief, and provide
Company with a written description of the basis for Distributor's
belief. Within five (5) business days of Company's receipt of such
notice, the matter shall be submitted to the Steering Committee for
resolution of the following issues: (A) whether or not the goods
believed by Distributor to be Gray Market Product are actually goods
manufactured by Company; (B) whether or not the goods believed by
Distributor to be Gray Market Product are actually being marketed or
used in the Field of Use in the Territory; (C) upon determination
that the goods are in fact Gray Market Product, whether or not the
financial loss to distributor is at least *, and if so, the
approximate amount; and (D) upon determination that Gray Market
Product has caused financial loss to Distributor of at least *, what
commercially reasonable course of action Company shall be required to
take, including without limitation any or all of the following:
reimburse Distributor for all of its past and ongoing direct
financial losses attributable to the Gray Market Product; take such
action, including legal and/or equitable action as required to
prevent the Gray Market Product from entering the Territory and to
prevent it from being marketed or used therein; and adjusting
Distributor's annual purchase requirements. In the event the Steering
Committee does not reach a resolution concerning the Gray Market
Product within thirty (30) days after such issues are presented to
it, either Party may submit the matter to arbitration as provided in
Section 20 herein, for resolution of the same issues as outlined in
clauses (A) through (D) in the immediately preceding sentence. For
purposes of this Paragraph, Distributor's financial loss shall be
based on the amount determined by multiplying (i) the number of
additional Units that Distributor reasonably demonstrates it would
have sold if such Gray Market Product had not been so marketed or
used, by (ii) Distributor's average gross profit margin applicable to
the sale of Units, as demonstrated by Distributor.
(vi) Maintain at its own facilities and by contracting with qualified
suppliers if necessary, sufficient manufacturing capacity to satisfy
the quantities of Product
26
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
reasonably expected to be required by Distributor as indicated on
the Annual Forecast and updates to the Annual Forecast as provided
herein;
(vii) Maintain ownership of all Product regulatory approvals and be
responsible for making all regulatory filings for the Product within
the Territory;
(viii) Convey title to all Products shipped to Distributor free and clear
of any liens or other security interest. In the event such a lien or
other security interest is found to exist, Distributor, in addition
to any other remedy then available, shall have the right to
immediately satisfy such lien or other security interest and offset
such amount from amounts due and owing to Company or which later
become due and owing to Company; and
(ix) After consultation with and approval by the Steering Committee (as
defined in Section 13(a)), Company may hire or employ at its own
cost, technical specialists to support Distributor's sales and
marketing efforts in the field. These technical specialists shall
cooperate and work with Distributor's employees and agents by
invitation of Distributor and as may otherwise be specified in the
Marketing Plan.
(b) Make no modifications to the Product, including without limitation,
materials, design, manufacturing methods, manufacturing location, sterilization
methods or any other change which may require one or both Parties to obtain
additional regulatory approvals before such modified Product could be introduced
into commerce in any jurisdiction where approval has been obtained or is pending
for the current Product, without first notifying Distributor and obtaining its
prior written approval to make such change or changes, such approval not to be
unreasonably withheld. Distributor agrees that in the event a governmental
agency requires Company to make such change, Company shall notify Distributor of
such required change, but Company shall not have to submit such required changes
for Distributor's approval.
10. COMPANY'S REPRESENTATIONS AND WARRANTIES
----------------------------------------
Company hereby represents and warrants to Distributor as follows:
(a) Company is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts and has all
requisite corporate power and lawful authority to own, lease and operate its
assets and to carry on its business as heretofore conducted. Company has the
full legal right, corporate power and authority to execute and deliver this
Agreement and the other agreements contemplated hereby and to
27
<PAGE>
consummate the transactions contemplated hereby and thereby. This Agreement has
been duly executed and delivered by Company and constitutes the valid and
binding obligation of Company, enforceable against Company in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
or by general equitable principles.
(b) Company owns all rights, title and interest in the Product necessary
to grant the distribution rights contained in this Agreement to Distributor for
the Product in the Territory. The Product does not infringe upon any United
States patent or other proprietary right of any Person in the Territory.
Company does not have actual knowledge of any infringement by the Product on any
other issued patent; however, Company makes no other representations or
warranties regarding patents in foreign jurisdictions. Nothing contained in
this Agreement is in conflict with any other agreement to which Company is a
party or is otherwise bound.
(c) Company has not granted the right to market, sell or distribute the
Product in the Field of Use in the Territory to any other Person.
(d) At the time of delivery to a common carrier at the Company's plant,
and for the labeled shelf life, all Products delivered to such common carrier,
(i) shall conform to the Specifications of the Product in Annex A, including any
-------
amendments to Annex A (as provided in Section 8(b) herein) which are in effect
-------
at the time such delivery to a common carrier is made; (ii) shall have been
manufactured, sterilized, packaged, labeled, and otherwise handled in accordance
with the Registration Dossier with respect to the Product in effect in the
applicable country within the Territory at the time of delivery to such common
carrier; and (iii) shall have been manufactured, sterilized, packaged, labeled,
and otherwise handled in conformance with Good Manufacturing Practices (as such
term is generally understood in the medical device industry); (iv) shall not be
misbranded or adulterated as those terms are defined in laws and regulations
administered by the U.S. FDA (subject to Distributor's compliance with the terms
of Sections 11 and 12 herein); and (v) shall be otherwise free from defects in
material, fabrication and workmanship. The determination whether the Products
conform to the warranty requirements of this Section 10(d) for the labeled shelf
life shall be based on analysis of Reference Samples according to the procedures
set out in Sections 8(c) and 8(d) above. As used herein, the term "Reference
Samples" means units of finished, packaged, and sterilized Product documented to
be part of the same numbered manufacturing lot(s) as the delivered unit(s) in
question. At the time of delivery to a common carrier, Company shall segregate
the quantity of Reference Samples it deems reasonably sufficient to complete the
above analysis, and shall maintain the Reference Samples for at least 12 months
beyond their labeled shelf life.
(e) (i) Company shall continue to manufacture, sterilize, package, label,
and otherwise handle all Product, and conduct all of its business
operations respecting the Product and Distributor, in accordance
with all applicable
28
<PAGE>
international, national and local laws, including without
limitation, applicable drug and medical device laws.
(ii) Company shall promptly replace without charge (or at its option
refund the purchase price for) any Product which fails to meet
Specifications, or which otherwise fails to meet the warranty
requirements of this Section 10, in each case as determined by
analysis of the applicable Reference Samples, whether the Product
is owned at the time of such event by Distributor or a third
party. This warranty shall not apply to any Product to the extent
such Product has been misused, misbranded, adulterated or
modified by Distributor or any third party.
(f) Company has not knowingly furnished Distributor with any written
information or data relating to the safety or efficacy of the Product that is in
any material respect not supportable by valid, existing scientific or medical
studies or which, to the knowledge of Company, is otherwise misleading, nor has
Company, to its knowledge, omitted to disclose to Distributor any material
written information or data that is in the possession of Company or any of its
affiliates relating to the Product, the omission of which would render the
written information or data relating to the safety or efficacy of the Product
heretofore furnished to Distributor misleading in any material respect.
(g) COMPANY'S WARRANTIES SET FORTH IN THIS AGREEMENT ARE IN LIEU OF ANY
OTHER WARRANTY, WHETHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, AND COMPANY HEREBY
EXPRESSLY LIMITS ALL IMPLIED WARRANTIES, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, TO A PERIOD OF ONE YEAR
FROM THE DATE OF MANUFACTURE.
(h) EXCEPT AS OTHERWISE EXPRESSLY PROVIDED FOR IN THIS AGREEMENT, NEITHER
PARTY SHALL IN ANY EVENT BE LIABLE TO THE OTHER FOR INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED
TO LOSS OF PROFITS.
11. DISTRIBUTOR'S GENERAL OBLIGATIONS
---------------------------------
During the Term of this Agreement, Distributor shall:
(a) Store, distribute, market and sell Product in accordance with
directions for storage and use as indicated on Annex A, including any amendments
-------
to Annex A (as provided in Section 8(b) herein) which are in effect at the time
-------
such storage, distribution, marketing, or sales occur;
29
<PAGE>
(b) Use its commercially reasonable efforts to actively sell, promote and
market Product in the Territories;
(c) Make the expenditures in the amounts and within the time frames set
forth in Table 3 ("Proposed Marketing Activities Budget Summary") of the
Marketing Plan, and otherwise substantially perform the activities described in
the Marketing Plan in accordance with the guidelines and time frames set forth
in the Marketing Plan; provided, that Distributor may, as it deems appropriate
in its sole discretion, reallocate or direct its funds and efforts toward the
activities it judges most likely to increase sales of the Product;
(d) Be responsible for the entire cost of selling, marketing, advertising,
promoting and distributing Product, except as otherwise provided herein or in
the Marketing Plan;
(e) Supply Company with any information as required by the FDA or other
governmental agencies for U.S. and international regulatory filings related to
the sale of the Product in the Territory;
(f) Timely advise Company in writing of any suit, claim or complaint known
to Distributor resulting from the distribution or use of any Product;
(g) Advise and support Company regarding information required for
international regulatory filings within the Territory;
(h) Provide assistance as reasonably requested by Company to collect and
file clinical and other data required in connection with seeking Reimbursement
Approvals in the Territory, with the cost and expenses associated with such
efforts to be borne by the Parties as provided in the Marketing Plan;
(i) Refrain from soliciting orders from or selling Products to any Person
located outside the Territory or to any Person inside the Territory for sales
which Distributor knows are intended to be distributed to users outside the
Territory, except as may be required by applicable Law;
(j) Neither acquire directly or indirectly through its Affiliates from any
third party, any products containing HA as the sole primary active ingredient
for use in the Field of Use (a "Competing Product"), nor distribute such
Competing Product, except in the event of a "Permitted Acquisition." "Permitted
Acquisition" shall mean (i) acquisitions by Distributor or its Affiliates where
the Competing Product represents less than twenty percent (20%) of the sales of
the acquired
30
<PAGE>
Person or acquired product portfolio in the latest full fiscal year of the
acquired Person and Distributor takes no steps or actions to increase such
sales; or (ii) if the Competing Product represents more than twenty percent
(20%) of the sales of the acquired Person or acquired product portfolio, and the
Distributor or its Affiliates agree to divest of the Competing Product within
twelve (12) months of the consummation of the acquisition (or eighteen (18)
months if at the end of the 12-month period, Distributor or its Affiliates are
in the process of negotiating such divestiture);
(k) Furnish to Company all advertising, marketing and promotional
materials related to the Product, for review and approval as to conformance with
regulatory requirements, at least fifteen (15) days prior to utilizing such
materials. Company shall not unreasonably withhold approval in this regard and
shall have a maximum of ten (10) working days to issue its approval or propose
changes. In the event Company does not respond within ten (10) working days, the
Distributor will be free to utilize the specified materials. Distributor shall
not be required to accept changes proposed by Company; provided, that if Company
proposes changes Distributor does not accept, Distributor shall promptly refer
the matter to the Steering Committee, which shall convene to resolve the issue
within ten (10) business days after such referral;
(l) Provide, upon at least ten (10) days prior written invitation to
Company, access to such of its employees, customers, distributors, market
specialists, sales representatives and other parties associated with the
marketing and sales of the Product as Distributor deems in its sole discretion
appropriate, so that Company may provide supplemental technical, educational,
scientific and other support to maximize the sales of the Product as provided in
Section 9.
(m) Distributor, its Affiliates and subdistributors will, to the extent
required by applicable law, keep detailed distribution records for each lot
number detailing the quantity shipped and the first location where the lot was
shipped by Distributor, and will provide Company with reasonable access to
records for purposes of conducting quality control audits as provided in Section
8(k). Company will generate and promptly transfer to Distributor the same
detailed distribution records for any and all Units drop-shipped directly from
Company to a customer of Distributor.
12. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES
--------------------------------------------
Distributor hereby represents and warrants to Company as follows:
(a) Distributor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and lawful authority to own, lease and operate its assets and to
carry on its business as heretofore conducted. Distributor has the full legal
right, corporate power and authority to execute and deliver this Agreement and
the other agreements contemplated hereby and to consummate the transactions
contemplated hereby and thereby. This Agreement has been duly executed and
31
<PAGE>
delivered by Distributor and constitutes the valid and binding obligation of
Distributor, enforceable against Distributor in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally or by
general equitable principles.
(b) Nothing contained in this Agreement is in conflict with any other
agreement to which Distributor or its Affiliates or sub-distributors is or may
become a party or is otherwise bound;
(c) Distributor and its Affiliates and sub-distributors shall store,
distribute, market and sell Product in accordance with directions for storage
and use as indicated on Annex A and any amendments to Annex A.
------- --------
(d) Distributor and its Affiliates and sub-distributors shall distribute,
market and sell Product in accordance with all applicable international,
national and local laws of each country within the Territory, including without
limitation, applicable drug and medical device laws.
13. STEERING COMMITTEE
------------------
(a) Distributor and Company shall establish a Steering Committee (the
"Steering Committee") consisting of four (4) members. Each of Distributor and
Company shall appoint two (2) individuals to serve on the Steering Committee.
The Steering Committee shall review the sales and marketing strategy, regulatory
and clinical issues and the development of additional indications or changes to
labeling claims regarding the Product and such other matters as are identified
in the Marketing Plan. Notwithstanding any other provisions contained in this
Agreement, no decisions made by the Steering Committee or Steering Committee
actions will be deemed approved unless an equal number of Steering Committee
members from both Parties is present at the meeting where such decision is made
or action is taken as provided in Section 13(d).
(b) Within thirty (30) days after the execution and delivery of this
Agreement by both Parties, Company and Distributor shall each appoint its
initial representatives to serve on the Steering Committee. Each Party may
change its representatives upon notice to the other Party.
(c) The Steering Committee shall be chaired by one representative of
either Company or Distributor for each successive twelve (12) month period
during the Term of this Agreement, and the chair shall alternate between the
Parties. During the first twelve (12) month period, the Steering Committee
shall be chaired by a representative of Distributor.
32
<PAGE>
(d) The Steering Committee shall meet at least two (2) times each year
during the Term of this Agreement, at such dates and times as agreed to by the
Parties. Meetings in person shall alternate between the offices of the Parties
or such other place as may be mutually agreed upon by the Parties. The Steering
Committee may also convene or be polled or consulted from time to time by means
of telecommunications or correspondence, and members will be deemed "present" at
"meetings" for purposes of this Section 13 if participating by such means. All
decisions made or actions taken by the Steering Committee shall require the
affirmative vote of a majority of its members. A quorum for a meeting shall
require at least one Company member and at least one Distributor member.
(e) If there are issues which are not specifically addressed in this
Agreement and on which the Steering Committee cannot reach agreement because of
a deadlock, such matters shall be submitted to the President of Distributor and
the President of Company for prompt resolution. If the matter cannot be
resolved by the Presidents of Distributor and Company within sixty (60) days
after it is submitted to them, either Party may initiate dispute resolution
pursuant to Section 20.
14. TRANSFER OF DATA; CONFIDENTIALITY
---------------------------------
(a) The Parties acknowledge that Company is in the process of conducting
studies on the Product necessary to register the Product for marketing and sales
in the Territory. No earlier than fifteen (15) days after the execution and
delivery of this Agreement, upon Distributor's request, Company shall deliver to
Distributor copies of all data, studies and materials in Company's possession
relating to the patents and Know-How available as of such date which Company and
Distributor reasonably determine is relevant to the safety, efficacy, regulatory
status, sale, marketing or distribution of the Product.
(b) During the Term of this Agreement: (i) Company shall provide to
Distributor any subsequently acquired Know-How from time to time as such Know-
How is developed or acquired which Company and Distributor reasonably determine
is relevant to the safety, efficacy, regulatory status, sale, marketing or
distribution of the Product; and (ii) each of the Parties shall deliver to the
other Party all relevant data and Registration Dossier(s) relating to use of the
Product in the Field of Use, and results from any studies being conducted by or
on behalf of either Party in connection therewith promptly after such data
and/or Registration Dossier(s) become available.
(c) The Parties acknowledge that discussions between Company and
Distributor will necessarily require the exchange of information (including
detailed financial and product information) that is considered confidential and
proprietary by the disclosing Party. The Parties agree that any information
relating to the business of the disclosing Party which such Party discloses to
the other Party pursuant to this Agreement shall be considered "Confidential
33
<PAGE>
Information" and shall include, without limitation, (i) the Know-How; (ii)
earnings, costs, and other financial information; (iii) drawings, formulations,
samples, technical data, photographs, specifications, manufacturing methods,
testing procedures; and (iv) marketing, sales and customer information relating
to the disclosing Party's business; and (v) all clinical studies and data
developed by either party in connection with this Agreement.
(d) The Parties agree that both during the Term of this Agreement and for
a period of ten (10) years thereafter, each Party shall keep, and shall cause
the directors, officers, employees and agents of such Party or its Affiliates or
third party sub-distributors to keep, completely confidential any and all
Confidential Information acquired from the other Party, and shall not use or
disclose any Confidential Information received from the other Party to any other
Person, except to the extent the receiving Party's employees and/or agents
(including consultants) need to know such Confidential Information in order to
discharge such Party's obligations and exercise its rights hereunder.
(e) Confidential Information shall not include information which (i) is or
hereafter becomes available to the general public other than by reason of any
default with respect to a Party's confidentiality obligation hereunder, (ii) is
demonstrated by documentary evidence to have been known at the time of receipt
thereof by the receiving Party as evidenced by tangible records, (iii)
subsequently may be rightfully obtained from a third party without the third
party's breach of a duty to the disclosing Party, (iv) can be shown by
contemporary records to have been developed or acquired independently without
breach of any obligations contained herein, or (v) is required to be disclosed
as a result of a judicial order or decree or applicable Law or regulation,
provided however, that the Party whose Confidential Information is the subject
of such judicial order or decree is given the opportunity (to the extent not
violative of applicable law) to contest the judicial order or decree prior to
any disclosure.
(f) Each Party shall ensure that all third parties to whom Confidential
Information of the other Party is communicated, including without limitation
investors and potential investors of Company, Affiliates and Suppliers of
Company, Affiliates and sub-distributors of Distributor, sign non-disclosure and
confidentiality agreements.
15. PATENTS
-------
(a) Patent Prosecution.
------------------
(i) Company hereby represents and warrants to Distributor that, as of the
Effective Date, it has applied for and/or received no Patents with respect to
the Product in the countries specified in Annex C-1 and C-2. Company and
Distributor shall jointly determine the countries, if any, within the Territory
in which Patents should be filed, prosecuted and/or maintained. The Parties
acknowledge and agree that Company will file, prosecute and
34
<PAGE>
maintain, at its sole expense, Patents in all commercial markets within the
Territory where the Steering Committee determines such action is warranted,
provided that viable patent protection is available (such countries shall be
referred to as "Patent Countries"). All such Patents shall be owned solely by
Company. If the laws affecting patent protection or maintenance costs change
materially in any Patent Country, the Parties shall reassess the need to
continue to file, prosecute and maintain Patents in such country.
(ii) Company hereby grants to Distributor an exclusive royalty-free
license to use the Patents and Know-How (subject to the Confidentiality
provisions of Section 14 herein) in the Territory in connection with the
marketing, distribution and sale of the Product. Distributor shall acknowledge
Company's Patents (pending or granted) in Distributor's labeling and promotional
materials relating to the Product. Distributor shall not be liable for any
royalties to Company for the right to sell the Product.
(iii) All costs and expenses incurred with respect to the filing,
prosecution and/or maintenance of Patents shall be paid by Company, including
all reasonable costs for the prosecution issuance and maintenance of patent
applications and patents issuing thereon, and any divisional, continuation-in-
part, reissue applications or patents, patents of addition, patents of
revalidation or the registrations of any patent or the like.
(iv) Any dispute relating to patent filing, prosecution or maintenance
which cannot be resolved by the Parties shall be referred to the President of
Distributor and the President of Company for prompt resolution, If the matter
cannot be resolved by the Presidents of Distributor and Company within sixty
(60) days, either Party may initiate arbitration pursuant to Section 20.
(b) Patent Enforcement. If any of the Patents under which Distributor
------------------
is granted distribution rights hereunder is infringed by a third party, the
Steering Committee shall determine, within ninety (90) days after notice of such
infringement, whether Company shall bring an action for infringement against
such third party. If the Steering Committee determines that such action is
warranted, Company shall bring the infringement action at its sole expense
within ninety (90) days after the Steering Committee's determination. Company
shall promptly notify Distributor of any such infringement and shall keep
Distributor informed as to the prosecution of any action for such infringement.
No settlement, consent, decree or other voluntary final disposition of the suit
which adversely affects any Patent in a Patent Country or the marketing,
distribution or sale of the Product in the Territory may be entered into without
the prior written consent of Distributor, which consent shall not be
unreasonably withheld. In the event the Steering Committee determines that the
circumstances do not warrant prosecution of an infringement action, or if the
Steering Committee fails to reach agreement on whether an infringement action is
warranted, then the provisions of Section 2(f) shall apply.
35
<PAGE>
(c) Infringement Action by Third Parties.
------------------------------------
(i) In the event that Products become, or if Company reasonably believes
Products are likely to become, infringing upon the proprietary rights of a third
party, Company may at its option either, (I) modify the Product to make it non-
infringing; (II) obtain for Distributor the paid up right to continue to market,
distribute, sell and use the Product; (III) obtain for Distributor substitute
non-infringing products substantially equivalent in size, quality and cleared or
approved indications as the infringing Product which are reasonably acceptable
to Distributor; or (IV) if options I, II, and III above are not reasonably
available, Company may require Distributor to cease distribution in the affected
country and return the infringing Products to Company, whereupon Company will
refund Distributor the purchase price paid for any returned Products. In the
event Company exercises option (IV) in the immediately preceding sentence,
within ten (10) days of Distributor's receipt of Company's request to cease
distribution in the affected country, the provisions of Section 2(f) shall
apply.
(ii) In the event of the institution of any suit by a third party against
Distributor for patent infringement or infringement of other proprietary rights
involving the marketing, distribution or sale of the Product in the Territory,
Distributor shall promptly notify Company in writing of such suit. Company
shall defend or settle each such action on behalf of Distributor with attorneys
selected by Company and reasonably acceptable to Distributor, and Distributor
shall assist and cooperate with Company to the extent reasonably necessary in
the defense of such suit. Company shall bear the full costs and expenses of
such defense (including fees of attorneys and other professionals) and shall
assume full responsibility for the payment of any award for damages, or any
amount due pursuant to any settlement entered into by Company with such third
party. No settlement, consent decree or other voluntary final disposition of
the suit which adversely affects any Patent or the marketing, distribution or
sale of the Product may be entered into without the prior written consent of
Distributor, which consent shall not be unreasonably withheld, Distributor shall
be entitled to retain its own counsel in such proceedings, at Distributor's sole
expense.
(iii) If Company does not commence a defense or settlement of any
infringement action (for which Company has an obligation herein to defend)
within thirty (30) days after receiving written notice thereof, Distributor
shall have the right, but not the obligation, to defend such suit with attorneys
selected by it which are reasonably acceptable to Company, and Company shall
assist and cooperate with Distributor in the defense of such suit. Company shall
bear the full costs and expenses of such defense (including attorneys' fees) and
shall assume full responsibility for the payment of any award for damages, or
any amount due pursuant to any settlement entered into by Distributor.
Distributor shall not enter into any settlement, consent decree or other
voluntary final disposition of the suit without the prior written consent of
Company, which consent shall not be unreasonably withheld, and Company is not
responsible in any way whatsoever for any such settlement or compromise entered
into without such prior written consent.
36
<PAGE>
(iv) If as a result of any judgment, award, decree or settlement resulting
from an action instituted by a third party, Distributor is required to pay a
royalty to such third party, Distributor shall continue to pay the purchase
price for such Product in the country which is the subject of such action, but
shall be entitled to deduct against such purchase price an amount equal to the
royalty paid to such third party. In addition, if Distributor is required to
pay damages to such third party, and such damages are not otherwise reimbursed
by Company, Distributor shall be entitled to deduct against such purchase price
an amount equal to such damages, to the extent effectively paid by Distributor
to such third party.
16. TRADEMARKS, TRADE DRESS, AND BRANDING
-------------------------------------
(a) (i) Company hereby grants to Distributor for the Term of this
Agreement the exclusive, royalty-free right to use the registered trademark
"Orthovisc(R)" (the "Trademark") only in connection with the marketing,
distribution and sale of the Product in the Territory and only in the Field of
Use. Distributor expressly agrees that it will label all packaging containing
the Product with the following designation, "Orthovisc(R) is a registered
trademark of Anika Therapeutics, Inc.," and will sell all Product only under the
trademark "Orthovisc(R)."
(ii) In the event the name "Orthovisc" is not available for Company to
register in a country in the Territory, Company will promptly make reasonable
efforts at its sole cost and expense to obtain the use of the name. If unable
to secure use of the Orthovisc(R) name within 120 days, the Steering Committee
will select a new name from candidates proposed by Company and verified by
Company to be available in the country. The absence of a mutually agreed upon
useable Product name shall be deemed to be an event of force majeure excusing
----- -------
Distributor's performance of its obligations in the country, and Distributor's
total annual purchase requirement for the Calendar Year shall be reduced
proportionately by subtracting the yearly forecast for the country from the
overall Territory forecast.
(iii) Company and Distributor shall jointly determine the countries in
which applications for the registration of the Trademark should be filed and/or
maintained. All costs and expenses incurred with respect to the preparation of
Trademark applications, and with respect to the filing and/or maintenance of
Trademark registrations and other documentation required by government agencies
shall be paid by Company. Distributor shall assist and cooperate with Company
in connection with the filing and/or maintenance of any such Trademark
registrations and other documentation required by government agencies in the
Territory as may be reasonably requested by Company from time to time.
Distributor and Company hereby agree not to use or register the Trademark (or
any mark confusingly similar to the Trademark) in any country in the Territory,
except by their joint determination as provided in this Paragraph.
37
<PAGE>
(b) Distributor may not sublicense the Trademark to any third party
without Company's prior written consent.
(c) Company has the right to immediately terminate the license granted in
this Section 16 if Distributor uses the Trademark in any manner other than the
use stipulated in Section 16(a), or in any way inconsistent with the trade dress
guidelines as provided in Annex A attached hereto.
-------
(d) Company reserves all other rights in and to the Trademark, including,
without limitation, the right to license the Trademark in all countries outside
the Territory and, with the advance written permission of Distributor, all
countries within the Territory in which Distributor or its Affiliates or third
party sub-distributors are not distributing the Product according to the terms
of the Marketing Plan as provided for in this Agreement (such countries shall
include but are not limited to Japan and China, should Distributor choose not to
seek regulatory approval for either such country as provided for in Section
2(c)).
(e) Each of the Parties shall promptly notify the other Party of any
infringement of the Trademark by a third party in the Territory. If the
Trademark is infringed by a third party, Company shall either (i) bring an
action for infringement, at its sole expense, against such third party, in which
case Company shall be entitled to any and all proceeds resulting from such
action, and shall keep Distributor informed as to the prosecution of the action;
or (ii) notify Distributor in writing that it will not pursue an infringement
action against the third party. In the event Company exercises option (ii) in
the immediately preceding sentence, Distributor shall either (i) bring an action
for infringement, at its sole expense, against such third party, in which case
Distributor shall be entitled to any and all proceeds resulting from such
action, and shall keep Company informed as to the prosecution of the action; or
(ii) notify Company in writing that it will not pursue an infringement action
against the third party. In the event Distributor exercises option (ii) in the
immediately preceding sentence, the Steering Committee shall meet within ten
(10) days of Distributor's receipt of Company's notification to determine
whether the third party infringement prevents Distributor from competing
effectively in the affected market(s). If the Steering Committee determines
that the extent of the infringement so warrants, the provisions of Section 2(f)
shall apply.
(f) If Company does not commence a defense or settlement of any
infringement action (for which Company has an obligation under Section 16(e) to
defend) within thirty (30) days after receiving written notice thereof,
Distributor shall have the right, but not the obligation, to defend such suit
with attorneys selected by it which are reasonably acceptable to Company, and
Company shall assist and cooperate with Distributor in the defense of such suit.
* shall bear the full costs and expenses of such defense (including
reasonable attorneys' fees) and shall assume full responsibility for the payment
of any award for damages, or any amount due pursuant to any settlement entered
into by Distributor. Distributor shall not enter into any settlement, consent
decree or other voluntary final disposition of the suit without the prior
38
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
written consent of Company, which consent shall not be unreasonably withheld,
and * is not responsible in any way whatsoever for any such settlement or
compromise entered into without such prior written consent.
(g) Except as provided in Section 17(g), upon termination of this Agreement
for any reason, the license granted in this Section 16 shall immediately
terminate, and Distributor shall immediately cease all use of the Trademark.
(h) Branding Materials. Distributor shall bear the costs associated with its
------------------
efforts to establish and promote the Orthovisc brand in the Territory, as set
out in the Marketing Plan. The Parties agree that the materials and information
developed by Distributor for this purpose (the "Branding Materials"), are the
sole property of Distributor. As used herein, the term "Branding Materials"
includes without limitation promotional, training, and public relations
materials whether in print, video or other format, but expressly excludes the
Trademark, any logo, and "trade dress" of the Product's package, which
Trademark, logo and trade dress shall be the sole property of Company. Company
may, in its sole discretion, elect to purchase from Distributor a paid-up
perpetual license to sell, sublicense, reproduce and distribute any or all of
the Branding Materials for use outside the Territory. If Company so elects,
Distributor shall provide one copy of the digital file containing the Branding
Materials Company has selected, and Company shall pay to Distributor within 45
days after receipt of the digital file a one-time fee equal to * of
Distributor's documented hard costs for conceptualization, preproduction, and
production of the selected Branding Materials (excluding printing costs).
(i) Logo and Trade Dress. Within two (2) months after execution of this
--------------------
Agreement, the Steering Committee will determine whether to develop a new logo
for the Product and/or modify the Product's trade dress. At the Steering
Committee's direction, Distributor will submit a proposed design or designs to
the Steering Committee for review and approval. Within 45 days following
Steering Committee approval of a new design, Company shall reimburse Distributor
for 100% of Distributor's documented hard costs for development of a new logo
and modified trade dress up to a maximum aggregate amount of *. In consideration
for such reimbursement, Distributor shall assign to Company all of its rights
(including without limitation copyright) in and to the logo and trade dress
design approved by the Steering Committee.
17. TERM AND TERMINATION
--------------------
(a) With respect to Canada, this Agreement shall commence on the Effective
Date and shall continue for a period of ten (10) years from the Effective Date.
With respect to all other countries in the Territory, the term applicable to
each country shall commence on the date regulatory approval for the marketing
and sale of the Product for the first indication in the
39
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
Field of Use is obtained in such country and shall continue for ten (10) years
from such date. For purposes of this Agreement, the term "Term" shall mean the
period commencing on the Effective Date and terminating on the latest to expire
of the effective periods of this Agreement with respect to any country in the
Territory, as may be extended pursuant to Section 17(b) of this Agreement.
(b) Upon the tenth anniversary of the Effective Date, Distributor may, at
Distributor's sole option, choose to extend this Agreement for an additional
period of ten (10) years, which such ten (10) years shall be added to the Term
for each country in the following regions:
1. "Americas" Region = Canada and U.S.
2. "Central and South America" Region = Mexico, Puerto Rico, Argentina,
Brazil, Chile, Columbia, Peru, Venezuela
3. Japan
4. China
5. "Asia" Region = Australia, Hong Kong, Indonesia, South Korea, Malaysia,
New Zealand, Phillippines, Singapore, Taiwan, Thailand
Distributor agrees that its decision to extend this Agreement must be made on
a regional basis, and that Distributor may not choose to extend this Agreement
on a country-by-country basis. For example, if Distributor chooses to extend
this Agreement for the Asia region, the Term applicable to each country in the
region will be extended by the addition ten (10) years. For further
clarification, the following is a chart of the extension that would result if
Distributor chose to extend the Agreement for the Asia region, based on the
hypothetical information provided:
- ------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Start Date for
Original Term
(Regulatory
---------- End Date for Revised End Date
Approval) Original Term Applicable to
Country -------- -------------- Specific Country
------- (hypothetical) (hypothetical) ----------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<S> <C> <C> <C>
Australia 1-1-99 12-31-08 12-31-18
- ------------------------------------------------------------------
Hong Kong 6-1-99 5-31-09 5-31-19
- ------------------------------------------------------------------
Indonesia 6-1-98 5-31-08 5-31-18
- ------------------------------------------------------------------
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Start Date for
Original Term
(Regulatory
---------- End Date for Revised End Date
Approval) Original Term Applicable to
Country -------- -------------- Specific Country
------- (hypothetical) (hypothetical) ----------------
- ------------------------------------------------------------------
<S> <C> <C> <C>
South Korea 10-1-98 9-30-08 9-30-18
- ------------------------------------------------------------------
Malaysia 4-15-99 4-14-09 4-14-19
- ------------------------------------------------------------------
New Zealand 1-1-99 12-31-08 12-31-18
- ------------------------------------------------------------------
Phillippines 9-15-98 9-14-08 9-14-18
- ------------------------------------------------------------------
Singapore 3-1-00 2-28-10 2-28-20
- ------------------------------------------------------------------
Taiwan 6-1-00 5-31-10 5-31-20
- ------------------------------------------------------------------
Thailand 7-15-99 7-14-09 7-14-19
- ------------------------------------------------------------------
</TABLE>
NOTE: Distributor will have one opportunity, on the tenth anniversary of the
---
Effective Date, to choose to extend the Agreement for each region.
(c) Notwithstanding any of the foregoing, this Agreement may be terminated
by either Party upon written notice to the other party, upon the occurrence of
any of the following: (i) a material breach of any term or condition of this
Agreement by the other Party which is amenable to cure, and the breaching party
shall have failed to cure such breach within sixty (60) days from the receipt by
it of written notice thereof from the other Party; (ii) either Party commits a
material breach which is not amenable to cure; (iii) the other Party shall
commence any case, proceeding or other action (A) under any applicable Law
relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to it, or seeking to adjudicate
it as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
wind-up, liquidation, dissolution, composition or other relief with respect to
it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or any substantial part of its assets;
(iv) there shall be commenced against the other Party any such case, proceeding
or other action referred to in clause (iii) of this Section 17(c) which results
in the entry of an order for relief; (v) the other Party shall take any action
authorizing, or in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth above in clauses (iii) or (iv) of
this Section 17(c); or (vi) the other Party shall admit in writing its inability
to pay its debts as they become due; or (vii) either Party violates any
provision in Section 14 (regarding confidential information) that is not
amenable to cure.
(d) (i) On or prior to August 1, 1998, Distributor may terminate this
Agreement if any of the Special Termination Reasons shall have occurred and be
continuing; provided, that if Distributor terminates this Agreement pursuant to
this Section 17(d), it shall pay to Company upon the termination date the sum of
* within 45 days after the termination date as liquidated damages, in full and
final settlement and release of all claims Company may then or
41
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
thereafter have or assert against Distributor (except as provided within
Paragraph (ii) of this Section 17(d) below), all other provisions (including all
other termination provisions) of this Agreement notwithstanding. In the event
of a termination under this Section 17(d), the Company shall retain all payments
made by Distributor under Section 2 of this Agreement and all payments made by
Distributor to purchase Product prior to the termination date, and the
Distributor shall also make any such payments to which Company is then entitled
under this Agreement but payment of which have not previously been made by
Distributor; provided that such payments shall be subject to and net of any
amounts then owed to Distributor by Company. The Parties expressly intend this
Section 17(d) to supersede any inconsistent terms or provisions of this
Agreement, and Company expressly agrees and acknowledges that the payment
contemplated by this Section 17(d) constitutes Company's sole and exclusive
remedy in the event Distributor terminates the Agreement pursuant to this
Section 17(d). For purposes of this Agreement, "Special Termination Reasons"
shall mean any one of the following:
(A) Distributor's aggregate sales of Product from April 1, 1998 through
June 30, 1998, excluding Samples and Demonstration Units, comprise fewer than
*.
(B) Company is notified in writing by July 31, 1998, that either (1) the
Orthopaedic Device Advisory Panel (if convened by the FDA to review the IDE
for the Product) has determined that new and/or additional clinical trial
data will be required before the Advisory Panel will convene to review,
consider, and/or recommend the Product for PMA approval; or (2) the FDA
elects to proceed toward approval without an Advisory Panel and the FDA
requires that new and/or additional clinical data be generated before
approval will be granted (for purposes of this clause, the term "new and/or
additional clinical data" expressly excludes follow-up requirements for cases
included in the original IDE study). Notwithstanding the foregoing, if
Company is able to negotiate a resolution to the inquiries from the FDA or
the Advisory Panel as provided in numbers 1 and 2 in the immediately
preceding sentence prior to or by July 31, 1998, the terms of numbers 1 and 2
in the immediately preceding sentence shall not constitute a Special
Termination Reason, and shall not trigger Distributor's right to terminate
under this Section 17(d).
(C) * reports to the Securities and Exchange Commission on its
Form 10-Q net sales of HA (excluding license fees, royalties, and income from
other non-product sales) of less than * million for the calendar quarter
ending March 30, 1998, and less than * million for the calendar quarter
ending June 30, 1998.
(D) Before July 31, 1998, the FDA accepts for filing an application
(from a party other than Biomatrix, Fidia, or Company) for permission to
market an
42
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
injectable HA product for treatment of human osteoarthritis, without
requiring submission of an IDE clinical study to support the application.
(E) Both Synvisc and Hyalgan are withdrawn from the market in the United
States, either voluntarily or by order of the FDA, on or before July 31,
1998.
(F) On or before June 30, 1998, Distributor's organization is
restructured to such an extent as to significantly impair Distributor's
ability to perform its obligations under this Agreement, as evidenced by a
company-wide announcement of restructuring, together with a shift in
Distributor's strategic focus, such that the knee implant product line is
determined by Distributor's senior management not to be a core product.
(ii) Distributor's indemnification obligations under Section 18(b) herein
shall survive for a period of five (5) years from the date termination under
Section 17(d) becomes effective. Distributor may in its sole discretion elect to
discharge its obligations under this Paragraph 17(d)(ii) for any obligation in
excess of * (it being understood by the parties hereto, that with respect to the
first * in obligations, the Company may proceed directly against the
Distributor), at any time during the five-year period referenced in the
preceding sentence, by procuring and maintaining at its sole expense and for the
balance of such five-year period, a separate policy of insurance for the benefit
of Company, reasonably acceptable to the Company, having a per occurrence limit
of * and an aggregate limit commensurate with the claims history of the Product
up to *. In the event that Distributor elects to obtain such separate policy of
insurance, all of Distributor's remaining obligations in excess of * under
Section 18(b), and all of its obligations under this Section 17(d) in excess of
*, shall be fully satisfied and completely discharged, and Company shall,
following recourse of up to * directly against the Distributor and thereafter to
the policy of insurance described herein, be solely responsible for all claims
of every kind relating to the Product. The provisions of this Section 17(d)
shall survive termination of this Agreement under this Section.
(e) In addition to its right to terminate this Agreement under Section 17(c),
Distributor or Company may terminate this Agreement upon the occurrence of any
of the following events, so long as within sixty (60) days after the occurrence
of the event the Party wishing to terminate the Agreement gives the other Party
sixty (60) days prior written notice of such termination:
(i) Net Sales of the Product in the Territory fail to meet the minimum
levels specified in Section 4 for * consecutive years beginning with
calendar year 1998;
(ii) There shall be a material recall of the Product by the FDA or
similar regulatory agency outside the United States which has or is, in
Distributor's and
43
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
Company's reasonable joint opinion, expected to have a significant commercial
impact on the sales of the Product in the Territory taken as a whole. If the
matter cannot be resolved by the parties within sixty (60) days, either party
may initiate dispute resolution pursuant to Section 20; or
(iii) The FDA shall not have approved the Product for market in the
United States for the Field of Use on or before January 1, 2001.
(iv) Any of the Patents shall be determined by a court of competent
jurisdiction be invalid or otherwise infringing or the Product becomes
infringing upon the proprietary rights of third parties, and Company does not
resolve the matter as provided under Section 15 herein.
(f) The termination of this Agreement for any reason shall be without
prejudice to Company's right to receive all payments accrued and unpaid at the
effective date of termination or to the remedy, in accordance with the terms
herein, of either Party hereto in respect of any previous breach of any covenant
contained herein. The termination of this Agreement by Distributor shall not
release Company from its obligation to deliver all Products theretofore ordered
by Distributor unless such orders are canceled by Distributor, provided that
Distributor pays for such Products in accordance with the terms hereof, except
that such payments for Products delivered after termination will be due upon
delivery to a common carrier as provided in Section 7(f).
(g) Except as otherwise provided in this Section 17(g), upon the termination
of this Agreement, each Party shall promptly: (i) upon request return to the
requesting Party all of the requesting Party's records, materials and
Confidential Information relating to the Product in the possession or control of
the other Party, or its Affiliates, Suppliers or third party sub-distributors,
and (ii) discontinue all distribution of the Product and the use of the Know-How
in connection therewith. Notwithstanding the foregoing, or anything herein to
the contrary, if this Agreement is terminated by Distributor pursuant to Section
17(c) as a result of Company's failure to cure a material breach by Company of
this Agreement, Distributor shall have the right to continue to market, sell and
distribute the Product, and to use the Trademark for that purpose, during the
time period which would have been the remaining Term of this Agreement if this
Agreement had not been so terminated. In such event, Distributor shall (i)
continue to have the right to use the Patents and Know-How as provided in
Section 15 on a royalty-free basis as if this Agreement had not been terminated
and (ii) have the right to manufacture the Product itself or by a third party.
Company shall fully cooperate with Distributor to facilitate Distributor's
continued sale and distribution of the Product, including, without limitation,
disclosing to Distributor the Know-How necessary to enable Distributor or a
third party manufacturer to manufacture the Product. Distributor shall not be
obligated to make any payment to Company for any of the foregoing rights.
44
<PAGE>
(h) Notwithstanding anything herein to the contrary, upon termination of
this Agreement for any reason, Distributor shall have the right for one (1) year
to dispose of all Product then in Distributor's, Distributor's Affiliate's, or
third party sub-distributor's possession, and the purchase price shall be paid
to Company with respect to such Product as though this Agreement had not
terminated.
(i) Termination of this Agreement shall not terminate Distributor's
obligation to pay the purchase price for Product which has been shipped to
Distributor under this Agreement. Except as provided in Section 17(d), all of
the Parties' rights and obligations under Sections 10, 12, 14, 17, 18, 20 and 21
shall survive termination.
(j) Subject to Section 17(h) Company shall have the right upon termination
of this Agreement to purchase all of Distributor's unsold inventory in
merchantable condition or having a remaining shelf life acceptable to Company,
at the price Distributor paid less a maximum restocking charge of *.
18. INDEMNIFICATION
---------------
(a) Company shall indemnify, defend and hold harmless Distributor, its
subdistributors, and any Affiliates of Distributor, together with their
respective officers and directors, from and against any and all losses (except
consequential losses, such as, for example, loss of business profits) including
compensatory losses for personal injury, damages, liabilities, costs and
expenses, including without limitation reasonable attorney's fees, arising out
of or in connection with:
(i) the breach of any of Company's representations and warranties
made in Sections 8, 10 and 15;
(ii) the breach by Company of any of its obligations, covenants or
undertakings hereunder;
(iii) any product liability claim seeking damages under any legal
theory for personal injury to the extent attributable to any deficiency or
alleged deficiency (including without limitation Company's or its
suppliers' failure to warn of any adverse reaction, adverse effect or
contraindication) in the design, manufacture, packaging, testing, or
labeling of the Product provided by Company (subject to the provisions of
Subsections 18(b) and (c) below);
(iv) any act or omission of Company in connection with the design,
development, manufacture, packaging, testing, warehousing or handling of
the Product;
45
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
(v) any infringement or alleged infringement or a third party's
proprietary rights, in accordance with and to the extent provided in the
provisions and procedures of Section 15 (Patents).
(b) Distributor shall indemnify, defend and hold harmless Company and any
Affiliates of Company, together with their respective officers and directors,
from and against any and all losses (except consequential losses, such as, for
example, loss of business or of profits) including compensatory losses for
personal injury, damages, liabilities, costs and expenses, including without
limitation reasonable attorney's fees, arising out of or in connection with:
(i) the breach of any of Distributor's representations and
warranties made hereunder;
(ii) the breach by Distributor of any of its obligations, covenants
or undertakings hereunder;
(iii) any claim made by Distributor, its subdistributors or
Affiliates, as to the safety or effectiveness of the Product or the use to
be made of the Product by any purchaser of the Product, contained in any
advertising or other promotional material created and disseminated by
Distributor, its subdistributors or Affiliates, to the extent that such
claim (A) is not supported by the Product label and package insert as
approved by the FDA (or, in countries in the Territory other than the
United States, the appropriate governmental body having authority to
approve the Product, label, and package insert fort marketing in that
country) and (B) was not reviewed or approved in advance by Company;
(iv) any other act or omission of the Distributor, its
subdistributors or Affiliates, in connection with the marketing, promotion,
and sale of the Product, including the storage, handling and distribution
by Distributor, its subdistributors or Affiliates of the Product, other
than as contemplated by this Agreement to the extent the act or omission is
undertaken without the approval of Company.
(c) The Parties agree that in the event of a loss for which it is
determined under this Section 18 that both Parties bear a measure of
responsibility, it is the intent of both Parties that the liability for the loss
(including without limitation all damages, hard costs and expenses, together
with reasonable attorney's fees) be apportioned among the Parties according to
their respective measures of responsibility, as that responsibility is
determined according to this Section 18. The Parties further agree that any
portion of the loss not attributable to either party under this Section 18 (and
not otherwise recoverable from a third party or its insurer) shall be borne *
among the Parties. For example, the Party determined to be * responsible under
Section 18 pays * of the loss, the Party determined to be * responsible pays *
of the loss, and each Party pays one-half of the remaining *. Within ten (10)
46
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
business days after either Party so requests, the Steering Committee shall
convene to develop an equitable apportionment of liability for the loss
according to this Section 18. If the Steering Committee fails to agree on an
apportionment within twenty (20) days after meeting, either Party may submit the
matter to arbitration under Section 20.
(d) Notwithstanding anything contained in this Agreement to the contrary,
the Parties expressly agree that Company shall have no liability to Distributor
under this Section 18 for claims, losses, or liability of any kind based upon or
related to:
(i) Distributor's, its Affiliates' or subdistributors' use, sale or
disposition of Products where such Products incorporate changes made by
Distributor, its Affiliates or subdistributors, to the specifications and
directions for use for the Product in Annex A (and any amendments to Annex
------- -----
A as provided in Section 8(b) herein) which Company has not approved, or
-
changes made by Distributor, its Affiliates or subdistributors, to the
Registration Dossier with respect to the Product which Company has not
approved;
(ii) sale or disposition of Products by Distributor, its Affiliates
or subdistributors for any use other than the uses specified by the
accompanying package inserts;
(iii) use, sale of disposition of Products by Distributor, its
Affiliates or subdistributors in combination with devices or products not
purchased hereunder, where such combined sale or disposition is the sole
cause of an infringement claim and whereas such Products would not
themselves be infringing;
(iv) sale or disposition of Products by Distributor, its Affiliates
or subdistributors in or for an application or environment for which such
Products were not approved by the FDA or other applicable government
agency; or
(v) modifications of Products by Distributor, its Affiliates or
subdistributors;
to the extent such uses, sales, dispositions or modifications give rise to the
claim, loss or liability and have not been reviewed or approved by Company.
(e) Notwithstanding anything contained in this Agreement to the contrary,
the Parties expressly agree that Distributor shall have no liability to Company
under this Section for claims, losses or liability of any kind based upon or
related to:
(i) the design, development, manufacturing, packaging,
sterilization, testing, warehousing and handling of the Product by Company
or a contractor engaged by Company through delivery to the common carrier
for shipment to the first designated destination by Distributor;
47
<PAGE>
(ii) Company's use, sale or disposition of Products where such
Products incorporate changes made by Company to the description of the
Product in Annex A (and any amendments to Annex A as provided in Section
------- -------
8(b) herein) which Distributor has not approved, or changes made by company
to the Registration Dossier with respect to the Product which Distributor
has not approved and as to which Distributor has the right to approve under
this Agreement;
(iii) sale or disposition of Products by Company for any use other
than the uses specified by the accompanying package inserts;
(iv) use, sale or disposition of Products by Company or any
Affiliates or third parties engaged by Company (exclusive in any case of
Distributor, Affiliates of Distributor and subdistributors), whether or not
in combination with other devices or products, where such promotion, use,
sale or disposition is a cause of an infringement claim (subject to clause
(iii) of Section 18(d) above, and subject to the limitations on Company's
obligations as provided in Section 15 hereto);
(v) sale or disposition of Products by Company in or for an
application or environment for which such Products were not approved by the
FDA or other applicable government agency; or
(vi) modification of Products by Company which Distributor has not
approved and as to which Distributor has the right to approve under this
Agreement;
to the extent such activities, uses, sales, dispositions or modifications give
rise to the claim, loss or liability and have not been reviewed or approved by
Company.
(f) If Distributor or Company intends to claim indemnification under this
Section, such Party (the "Claiming Party") shall (i) promptly notify the other
Party in writing of any claim or loss for which it intends to claim such
indemnification, (ii) cooperate fully with the other Party and its legal
representatives in the investigation of any claim or loss covered by this
Section, and (iii) allow the other Party to control the defense and/or
disposition of such suit or claim; provided that the Claiming Party shall have
the right to participate at its own expense through counsel of its own choosing.
Neither Party shall have any indemnification obligations hereunder to the extent
that such Party's ability to defend such suit or redress such loss is prejudiced
by the Claiming Party's failure to perform the obligations set forth in the
preceding sentence. No claim shall be settled for which any Indemnifying Party
shall be liable without the advance written consent of both the indemnifying
Party and the Claiming Party, which consent shall not be unreasonably withheld.
(g) To provide sufficient protection to both Distributor and Company,
Company undertakes to obtain and maintain in effect during the entire Term of
this Agreement, at least
48
<PAGE>
* per occurrence product liability insurance covering the manufacture, sale and
distribution of the Product, with an aggregate annual policy limit not less than
*. In the event Company fails to pay any premiums as and when due under such
policy, the policy shall provide for notice to Distributor, which shall have
the right to effect payment of any such premiums directly to the insurer, and
shall then be entitled to invoice the defaulting Party or credit against
amounts owed for reimbursement of any such payment. Distributor shall maintain
in effect the * insurance described in Annex G.
-------
19. ASSIGNMENT AND SUB-DISTRIBUTION RIGHTS
--------------------------------------
(a) Except as set forth in Sections 19(b) and 19(c), neither Party shall
assign its rights and obligations under this Agreement to any Person without the
prior written consent of the other Party, except in connection with the sale of
all or substantially all of such Party's assets to a Person that is not a
---
Distributor Competitor (in the case of such sale by Company), or to a Person
that is not a Company Competitor (in the case of such sale by Distributor).
---
Subject to the preceding sentence, this Agreement shall be binding upon and
inure to the benefit of the successors and permitted assigns of the Parties
hereto. For the purposes of this Section 18, a Change in Control shall be
considered an assignment.
(b) Notwithstanding anything herein to the contrary, this Agreement shall
continue in full force and effect in the event of a Change in Control (as
defined below) involving either Party, unless as a result of or in connection
------
with such Change in Control, (i) a Distributor Competitor (as defined below)
becomes the beneficial owner of more than 50% of the voting capital stock of
Company or (ii) Company Competitor (as defined below) becomes the beneficial
owner of more than 50% of the voting capital stock of Distributor. In the case
of such circumstances as described in the immediately preceding sentence, the
non-transferring Party shall have the right, in its sole discretion, to
immediately terminate this Agreement; and in the case of termination by
Distributor in these circumstances, to have refunded to it all payments made to
Company under Sections 2(a), (b), (c) and (d) to the extent such payments exceed
Distributor's Net Profits as of the date of such termination in the markets
described in Sections 2(a) - (d). For purposes of this Agreement, (i) a "Change
in Control" means a transaction or a series of transactions as a result of which
a Person or group (as defined in Section 13(d) of the Securities Act of 1933, as
amended) acquires control (as defined in the definition of Affiliate) of a
Party, (ii) "Distributor Competitor" means any Person which derives more than
30% of its revenues from the sales of orthopedic medical devices, and (iii)
"Company Competitor" means any Person which markets or intends to market HA
products for use in the Field of Use.
(c) Distributor shall have the right to grant to its Affiliates and other
third parties distributing its other products sub-distribution rights of any
distribution rights granted to Distributor herein, provided that Distributor
shall be responsible for the making of all
49
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
payments due and the making of reports under this Agreement by reason of sales
of any Product by its Affiliates or third parties, and the compliance by all
Affiliates and third parties with all applicable terms of this Agreement.
20. GOVERNING LAW AND DISPUTE RESOLUTION
------------------------------------
(a) This Agreement shall be governed by and construed in all respects in
accordance with the laws of the State of New York, without giving effect to its
choice of law principles.
(b) Except for claims arising out of Section 19, any dispute, controversy
or claim arising out of or relating to this Agreement or to a breach hereof,
including its interpretation, performance or termination, shall be finally
resolved by dispute resolution. Except as otherwise provided in this Agreement,
in connection with any such disputed claim, the Parties hereto, shall
simultaneously (i) use their good faith efforts to resolve such dispute within
thirty (30) days after the delivery of notice of the dispute from one Party to
the other and (ii) refer the matter to J.A.M.S./Endispute, to be settled by
arbitration in New York, New York in accordance (except to the extent otherwise
noted below) with the commercial arbitration rules of J.A.M.S./Endispute. The
arbitrator shall be instructed that the arbitration hearing shall be commenced
no later than the ninetieth (90th) day following the date that the demand for
arbitration is served; provided, however, that such ninety (90)-day period may
be extended for a period not more than sixty (60) days for "Cause" (as defined
below) as determined by the arbitrator. Concurrent with serving the demand for
arbitration, each of the Parties shall produce to the other full and complete
disclosure of all facts, documents and relevant information (both favorable and
unfavorable) in any form, written or otherwise, known to such disclosing Party
or its agents which relates to the subject matter of the arbitration. The
obligation to disclose shall be continuing and each Party shall be required to
promptly supplement any disclosures as additional information is discovered. The
failure of either Party to either initially produce the required information or
to promptly supplement the produced information shall be cause for a continuance
as set forth above ("Cause"). The arbitrator shall be further instructed to
conduct the arbitration hearing without any unnecessary delays and to render a
final decision promptly following the conclusion of the hearing. In any event,
the Party prevailing in any such arbitration shall be entitled to recover (i)
all fees and expenses of the arbitrator and (ii) all costs and expenses relating
to the arbitration (including without limitation, legal, accounting and
consulting fees). The arbitrator shall award such fees, costs and expenses
consistent with the foregoing. The determination of the arbitrator as to the
amount, if any, of the disputed claim which is properly allowable shall be
nonappealable, conclusive, binding and final upon the Parties hereto and
judgement may be entered thereon in any court having jurisdiction thereof,
including, without limitation, any court in the State of New York. Upon receipt
of written instructions from the arbitrator, the non-prevailing Party shall use
its best efforts to make
50
<PAGE>
payment of such claims, as and to the extent allowed, to the prevailing Party
within three (3) business days following said determination or as soon
thereafter as possible.
21. NOTICES
-------
All notices given under this Agreement shall be in writing and shall be
delivered by first class mail or overnight courier or by facsimile transmission
(receipt verified) and addressed to the parties at their respective addresses
set forth below:
ANIKA THERAPEUTICS, INC.
236 West Cummings Park
Woburn, MA 01801
Telecopy Number: 617-932-3360
Attention: J. Melville Engle
President and Chief Executive Officer
With a copy to:
--------------
Goodwin, Procter & Hoar LLP
53 Exchange Place
Boston, MA 02109-2881
Telecopy Number: 617-570-8150
Attention: H. David Henken, Esq.
ZIMMER, INC.
P. O. Box 708
Warsaw, IN 46581-0708
Telecopy Number: 219/372-4988
Attention: Perry Karsen
With copies to:
--------------
Bristol-Myers Squibb Company
345 Park Avenue
New York, NY 10154
Attention: George P. Kooluris
Senior Vice President,
Corporate Development
Telecopy Number: 212-546-4390
51
<PAGE>
Timothy M. Wendt
Vice President and Senior Division Counsel
Zimmer, Inc.
P. O. Box 708
Warsaw, IN 46581-0708
Telecopy Number: 219/372-4133
Either Party may change its address or its telecopy number for purposes of this
Agreement by giving the other Party written notice of its new address or
telecopy number. Any such notice if given by first class mail or overnight
courier shall be deemed to have been received on the date actually received and
if given by telecopy transmission shall be deemed to have been received at the
time of dispatch or the next regular business day if received after 5:00 pm
local time of the recipient.
22. WAIVER AND DELAY
----------------
No waiver by either Party of any breach or series of breaches by the other
Party, and no failure, refusal or neglect of either Party to exercise any rights
granted to it hereunder or to insist upon strict compliance with or performance
of either Party's obligations under this Agreement shall constitute a waiver of
the provisions of this Agreement with respect to any subsequent breach thereof
or a waiver by either Party of its rights hereunder or otherwise at any time
thereafter.
23. FORCE MAJEURE
-------------
A Party shall be excused from performance of its obligations under this
Agreement if such failure to perform is caused by a Force Majeure and without
----- -------
the fault or negligence of such Party. For purposes of this Agreement, "Force
-----
Majeure" is defined as causes beyond the control of the Party, including,
- -------
without limitation, acts of God, fire, flood, earthquake, explosion, storm,
strikes, civil commotion, riots, wars or acts of government. Upon the
occurrence of a Force Majeure, the Party claiming Force Majeure shall
----- ------- ----- -------
immediately notify the other Party of such Force Majeure and its effect on such
----- -------
Party's ability to perform its obligations hereunder and the period during which
such inability is expected to continue. The duties and obligations of the
Parties shall be suspended for the duration of the event; provided, however,
-------- -------
that if such suspension shall continue in excess of ninety (90) days, the
Parties shall attempt to arrive at a mutually acceptable compromise within the
spirit and intent of this Agreement.
52
<PAGE>
24. ENTIRE AGREEMENT
----------------
This Agreement (with Annexes and Exhibits, including without limitation the
Marketing Plan) contains all of the terms and conditions agreed upon by the
Parties hereto with respect to the subject matter hereof. No other agreement,
oral or otherwise, shall be deemed to exist or to bind either of the Parties
hereto, and all prior agreements and understandings with respect to the subject
matter hereof are superseded hereby. This Agreement cannot be modified or
changed except by written instrument signed by both of the Parties hereto.
25. SEVERABILITY
------------
If any provision of this Agreement is declared invalid or unenforceable by a
court having competent jurisdiction, it is mutually agreed that this Agreement
shall survive except for the part declared invalid or unenforceable by order of
such court. The Parties shall consult and use all commercially reasonable
efforts to agree upon a valid and enforceable provision which shall be a
reasonable substitute for such invalid or unenforceable provision in light of
the intent of this Agreement.
26. DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the meanings set forth
in this Section unless the context dictates otherwise.
"Accountant" shall have the meaning set forth in Section 7(d) of this
----------
Agreement.
"Affiliate", with respect to any Party, shall mean any Person controlling,
---------
controlled by, or under common control with, such Party. For these purposes,
"control" shall refer to (i) the possession, directly or indirectly, of the
power to direct the management or policies of a Person or to veto any material
decision relating to the management or policies of a Person, in each case,
whether through the ownership of voting securities, by contract or otherwise, or
(ii) the ownership, directly or indirectly, of at least 50% of the voting
securities of a Person.
"Annual Forecast" shall have the meaning set forth in Section 6(f) of this
---------------
Agreement.
"Audit" shall have the meaning set forth in Section 7(d) of this Agreement.
-----
"Average Selling Price per Unit" shall have the meaning set forth in
------------------------------
Section 7(a) of this Agreement.
"Back Order" shall have the meaning set forth in Section 7(g) of this
----------
Agreement.
53
<PAGE>
"Blanket Purchase Order" shall mean a document sent once annually from
----------------------
Distributor to Company that orders Company to produce, and commits Distributor
to purchase, the quantity of Units specified on the face of the document over
the course of the twelve-month period for which the document is in effect.
"Cause" shall have the meaning set forth in Section 20(b) of this
-----
Agreement.
"Change in Control" shall have the meaning set forth in Section 19(b) of
-----------------
this Agreement.
"Claiming Party" shall have the meaning set forth in Section 18(f) of this
---------------
Agreement.
"Company" shall have the meaning set forth in the first paragraph of this
-------
Agreement.
"Company Competitor" shall have the meaning set forth in Section 19(b) of
------------------
this Agreement.
"Company Complaint Form" shall have the meaning in Section 8(g) and
----------------------
Annex E.
-------
"Company Stock" shall have the meaning set forth in Section 2(b) of this
-------------
Agreement.
"Competing Product" shall have the meaning set forth in Section 11(j) of
-----------------
this Agreement.
"Confidential Information" shall have the meaning set forth in Section
------------------------
14(c) of this Agreement.
"Demonstration Unit" shall have the meaning set forth in Section 7(e) of
------------------
this Agreement.
"Disclosure Date" shall have the meaning set forth in Section 5(b) of this
---------------
Agreement.
"Distributor" shall have the meaning set forth in the first paragraph of
-----------
this Agreement.
"Distributor Competitor" shall have the meaning set forth in Section 19(b)
----------------------
of this Agreement.
"Dollars" or "$" refers to United States dollars.
--------------
"Effective Date" shall have the meaning set forth in the first paragraph of
--------------
this Agreement.
54
<PAGE>
"Estimated Average Selling Price" shall have the meaning set forth in
-------------------------------
Section 7(b) of this Agreement.
"Excluded Products" shall have the meaning set forth in Annex D of this
----------------- -------
Agreement.
"Execution Payment" shall have the meaning set forth in Section 2(a).
-----------------
"FDA" shall have the meaning set forth in * of this Agreement.
---
"Field of Use" shall have the meaning set forth in Section 3(a) of this
------------
Agreement.
"First Commercial Sale" shall mean the first sale to a third party in
---------------------
connection with the introduction of the Product by Distributor in any country of
the Territory following marketing and/or pricing approval by the appropriate
governmental agency for that country.
"Force Majeure" shall have the meaning set forth in Section 23 of this
----- -------
Agreement.
"Government Recall" shall have the meaning set forth in Section 8(i) of
-----------------
this Agreement.
"Gray Market Product" shall have the meaning set forth in Section 9(a)(v)
-------------------
of this Agreement.
"HA" shall have the meaning set forth in Paragraph A of the recitals in
--
this Agreement.
"Know-How" shall mean any and all technical data, information, materials
--------
and other know-how owned, developed or acquired by Company, either as of the
Effective Date or at any time during the Term of this Agreement, which relates
to the use of Product in the Field of Use.
"Late Shipment Penalty Fee" shall have the meaning set forth in Section
-------------------------
6(c) of this Agreement.
"Laws" shall have the meaning set forth in Section 8(j) of this Agreement.
----
"Marketing Plan" shall have the meaning set forth in Section 8(e) and
--------------
Annex B of this Agreement.
- -------
"Minimum Purchase Fee Requirement" shall have the meaning set forth in
--------------------------------
Section 4(c) of this Agreement.
"Net Sales" shall have the meaning set forth in Section 2(e) of this
---------
Agreement.
55
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
"Net Units Sold" shall have the meaning set forth in Section 7(a) of this
--------------
Agreement.
"Objection" shall have the meaning set forth in Section 7(c) of this
---------
Agreement.
"Obsolescence" shall mean the Distributor's purchase price, together with
------------
invoiced or otherwise documented expenses for inbound transportation, and any
duties and fees associated with the procurement, distribution, and return of
obsolete product.
"Optional Territory" shall have the meaning set forth in Section 3(b) of
------------------
this Agreement.
"Order Release" shall mean a binding, non-cancelable, order to purchase the
-------------
quantity of Units specified therein on the delivery date specified therein, such
quantity of Units being a portion of the quantity specified in the then-current
Blanket Purchase Order.
"Ordering Window" shall have the meaning set forth in Section 6(b) of this
---------------
Agreement.
"Parties" shall have the meaning set forth in the first paragraph of this
-------
Agreement.
"Patent Countries" shall have the meaning set forth in Section 15(a) of
----------------
this Agreement.
"Patents" shall mean: (i) the patents and patent applications listed on
-------
Annex F, together with any and all patents that may issue or have issued
- -------
therefrom in the Territory, and (ii) any and all patents and patent applications
covering any Improvements; including any and all extensions, renewals,
continuations, continuations-in-part, divisions, patents of addition, reissues,
reexaminations and/or supplementary protection certificates to any of the
foregoing.
"Permitted Acquisitions" shall have the meaning set forth in Section 11(j)
----------------------
of this Agreement.
"Person" shall mean any natural person, corporation, firm, limited
------
liability corporation, limited liability partnership, business trust, joint
venture, association, organization, company, partnership or other business
entity, or any government or any agency or political subdivision thereof.
"Potential HA Products" shall have the meaning set forth in Section 5(a) of
---------------------
this Agreement.
"Product" shall have the meaning set forth in Paragraph (A) of the Recitals
-------
in this Agreement.
"Proposed Recall" shall have the meaning set forth in Section 8(i) of this
---------------
Agreement.
56
<PAGE>
"Purchase Requirement" shall have the meaning set forth in Section 4(a) of
--------------------
this Agreement.
"Purchasing System Training Period" shall have the meaning set forth in
---------------------------------
Section 6(a) of this Agreement.
"R&D Pipeline" shall mean the research and development projects developed
------------
in-house by Company and not as part of an acquisition of or by Company.
"Receiving Party" shall have the meaning set forth in Section 8(a) of this
---------------
Agreement.
"Registration Dossier" shall mean a written regulatory submission or
--------------------
document describing Product Specifications and manufacturing methods as
submitted by Company and approved by the applicable regulatory agency.
"Reimbursement Approval" shall have the meaning set forth in Section 2(d)
----------------------
of this Agreement.
"Requesting Party" shall have the meaning set forth in Section 8(a) of this
----------------
Agreement.
"Sample" shall have the meaning set forth in Section 7(e) of this
------
Agreement.
"Special Termination Reasons" shall have the meaning set forth in Section
---------------------------
17(d).
"Specifications" shall have the meaning set forth in Section 8(a) of this
--------------
Agreement.
"Statement" shall have the meaning set forth in Section 7(b) of this
---------
Agreement.
"Steering Committee" shall have the meaning set forth in Section 13(a) of
------------------
this Agreement.
"Stocking Level Requirements" shall mean the appropriate desired minimum
---------------------------
and maximum inventory levels of Product (including for these purposes, inventory
of Product held by Distributor or Distributor's subdistributors, or held on
consignment in Distributor's Customers' possession) based on updates to the
Annual Forecast; provided, however, in no event shall the minimum Stocking Level
Requirements be less than one-twelfth of the aggregate number of Units specified
for the twelve months reflected in the most recent monthly update to the Annual
Forecast.
"Term" shall have the meaning set forth in Section 17(a) of this Agreement.
----
"Territory" shall have the meaning set forth in Section 3(a) of this
---------
Agreement.
57
<PAGE>
"Territory-wide Units Requirement" shall have the meaning set forth in
--------------------------------
Section 4(a) of the Agreement.
"Testing Methods" shall have the meaning set forth in Section 8(c) of this
---------------
Agreement.
"TMJ" shall mean the human temporomandibular joint.
---
"Trademark" shall have the meaning set forth in Section 16(a) of this
---------
Agreement.
"Unit" shall mean each syringe containing 2.0 ml of the Product.
----
27. PUBLIC ANNOUNCEMENTS
--------------------
Except as required by applicable Law or any securities exchange or the NASD,
neither Party shall issue any press release or make any other public
announcement concerning this Agreement or the subject matter hereof without the
prior written consent of the other Party, which consent shall not be
unreasonably withheld. In the event of a required press release or other public
announcement, the Party making such announcement shall provide the other Party
with a copy of the proposed text prior to such announcement. Notwithstanding
the foregoing, (i) upon execution of this Agreement, the Company may issue a
press release in the form of Exhibit B, and (ii) Distributor acknowledges that
---------
Company will be required to file this Agreement with the Securities and Exchange
Commission, and the Company acknowledges in connection therewith that it will
seek confidential treatment of certain of the financial and business terms as
may be permitted in accordance with the rules for confidentiality promulgated by
the Securities and Exchange Commission. The Parties agree that if either Party
is required to file this Agreement with any governmental agency, such Party
shall redact the financial terms of this Agreement to the extent possible in
order to keep the terms of this Agreement confidential.
28. MISCELLANEOUS
-------------
(a) The Parties agree that each Party is an independent contractor.
Employees and agents of one Party are not employees or agents of the other,
shall not hold themselves out as such, and shall not have any authority or power
to bind the other Party to any contract or other obligation. Nothing in this
Agreement is intended or shall be deemed to constitute a partnership, agency,
employer-employee or joint venture relationship between the Parties.
58
<PAGE>
(b) Except as otherwise expressly provided in this Agreement, each Party
shall bear all of its cost and expenses associated with the performance of such
Party's obligation under this Agreement.
(c) Captions used in this Agreement are for convenience only and shall not be
deemed to affect the meaning or construction of this Agreement.
(d) This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
59
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their duly authorized representatives.
ANIKA THERAPEUTICS, INC.
By:
-----------------------------------
Name:
Title:
ZIMMER, INC.
By:
-----------------------------------
Name:
Title:
ACKNOWLEDGED AND AGREED TO:
BRISTOL-MYERS SQUIBB COMPANY
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
60
<PAGE>
ANNEX A
-------
DESCRIPTION OF PRODUCT AND DIRECTIONS FOR USE
---------------------------------------------
*
61
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
*
62
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
C. Bar Coding:
Current packaging does not contain bar coding. Should Distributor
require bar coding to be included in packaging specifications,
Distributor will include bar coding in updated packaging design and
provide all specifications to Company. Company shall develop validated
processes to ensure that bar coding on packaging (including Product
number and lot control numbers) will remain compatible with
requirements defined by Distributor as Distributor may notify Company
from time to time.
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
63
<PAGE>
*
64
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
*
65
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
STORAGE
- -------
Storage and warehouse under refrigeration (2-8(degrees) Centigrade). Protect
from freezing. Avoid excessive heat.
*
66
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
*
67
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with the
Commission.
<PAGE>
PACKAGE INSERT FOR CANADA
-------------------------
The accompanying package insert reflect approvals for ORTHOVISC with indications
for use in osteoarthritis and TMJ disorders. The insert would be modified to be
limited to 2.0ml size product and to use in osteoarthritis of the knee (and not
TMJ disorders).
68
<PAGE>
CANADA
ORTHOVISC(R)
Sodium Hyaluronate
FOR INTRA-ARTICULAR INJECTION
15 mg/ml
Non-surgical use STERILE INJECTION
DESCRIPTION: ORTHOVISC(R) is a sterile, non-pyrogenic solution of sodium
- -----------
hyalauronate.
ORTHOVISC(R) contains 15 mg/mL of sodium hyaluronate (NaHA) dissolved in
physiological saline. The kinematic viscosity of the solution is adjusted to
greater than 10,000 centistokes, and its osmolality is approximately 340
milliosmoles.
CHARACTERISTICS: Sodium hyaluronate is a high molecular weight polysaccharide
- ---------------
composed of sodium glucuronate and N-acetylglucosamine. Sodium hyaluronate is
ubiquitously distributed throughout the issues of the body and is present in
high concentrations in such tissues as vitreous humor, synovial fluid, umbilical
cord and dermis. Sodium hyaluronate functions as a tissue lubricant/1,2/ and is
thought to play an important role in modulating the interactions between
adjacent tissues. It can also act as a viscoelastic support maintaining a
separation between tissues. Different sodium hyaluronate preparations may have
different molecular weights, but are thought to have the same chemical
structure. The sodium hyaluronate in ORTHOVISC(R)/3/ has an average molecular
weight greater than one million. ORTHOVISC(R) is non-inflammatory, is non-
pyrogenic, and is well tolerated./4/ Sodium hyaluronate has been shown to be
non-antigenic./5,6/ ORTHOVISC(R) does not interfere with normal wound healing
processes.
INDICATIONS: ORTHOVISC(R) is indicated for the symptomatic treatment of
- -----------
temporomandibular joint dysfunction/7/ and osteoarthritis of the knee./8/
DIRECTIONS FOR USE: Intra-articular injection into joints. The required amount
- ------------------
of ORTHOVISC(R) is slowly infused through a sterile hypodermic needle of
suitable gauge into the selected joint space. A plastic-hubbed needle is
recommended.
The volume will vary depending upon the size of the joint space, not to exceed 1
mL for the temporomandibular joint, or 2 mL for the knee.
DO NOT OVERFILL JOINT SPACE
CONTRAINDICATIONS: At the present time there are no known contraindications to
- -----------------
the use of ORTHOVISC(R) when used in the symptomatic treatment of joint disease.
CANADA
ORTHOVISC(R)
Sodium Hyaluronate
FOR INTRA-ARTICULAR INJECTION
15 mg/ml
Non-surgical use STERILE INJECTION
DESCRIPTION: ORTHOVISC(R) est une solution sterile et non pyrogene de
- -----------
hyaluronate de sodium.
ORTHOVISC(R) contient 15 mg/mL de hyaluronate de sodium (NaHA) dissous dans du
serum physiologique. La viscosite cinematique de la solution est ajustee a plus
de 10.000 centistokes, et son osmolarite est approximativement de 340
milliosmoles.
CARACTERISTIQUES: Le hyaluronate de sodium est un polysaccharide de haute masse
- ----------------
moleculaire compose de glucuronate de sodium et de N-acetyle-glucosamine. Le
hyaluronate de sodium est distribue avec ubiquite dans tous les tissus du corps
et est trouve en fortes concentrations dans les tissus tels que: l'humeur
vitreuse, le liquide synovial, le cordon ombilical, et le derme. Le hyaluronate
de sodium fonctionne comme un lubrifiant tissulaire/1,2/ et est pense jouer un
rule important en tant que modulateur lors des interactions entre deux tissus
adjacents. Il peut aussi agir comme support visco-elastique dans le maintien de
la separation entre les tissus. Differentes preparations de solutions de
hyaluronate de sodium peuvent avoir des masses moleculaires differentes, mais
devraient posseder la meme structure chimique. Le hyaluronate de sodium contenu
dans ORTHOVISC(R)/3/ a une masse moleculaire moyenne superieure a un million.
ORTHOVISC(R) est non-inflammatoire, non-pyrogene et bien tolere./4/ Il a ete
demontre que le hyaluronate de sodium est non-antigenique./5,6/ ORTHOVISC(R)
n'interfere pas avec les processus de reparation normaux d'une blessure.
INDICATIONS: ORTHOVISC(R) est indique comme traitement symptomatique dans le
- -----------
dysfonctionnement de l'articulation temporo-mandibulaire/7/ et dans l'osteo-
arthrite du genou./8/
MODE D'EMPLOI: Injection intra-articulaire. La quantite requise d'ORTHOVISC(R)
- -------------
est injectee lentement par l'intermediaire d'une aiguille hypodermique sterile
de calibre adequat dans l'articulation appropriee. Il est recommande d'utiliser
une aiguille a embout de plastique.
Le volume injecte variera selon la taille de lespace articulaire, sans toutefois
exceder 1 mL pour l'articulation temporo-mandibulaire et 2 mL pour le genou.
NE PAS REMPLIR L'ESPACE ARTICULAIRE A L'EXCES
69
<PAGE>
Individuals prone to chicken-or chicken-derived product allergies could,
conceivably, experience an adverse reaction to sodium hyaluronate preparations.
However, such reactions have not been reported previously, despite wide usage of
sodium hyaluronate in the form of preparations identical to ORTHOVISC(R) during
other surgical procedures. There are minimal risks associated with the
procedure of injecting substances into joints in general; primarily infection
and bleeding. Pre-existing infections of skin in the region of the intended
injection or known systemic bleeding disorders may constitute relative or
absolute contraindications.
PRECAUTIONS: Those precautions normally considered during injection of
- -----------
substances into joints are recommended. Only individuals familiar with accepted
injection techniques for delivering agents to joint spaces should inject sodium
hyaluronate for this application. An excess quantity of sodium hyaluronate is
not to be used and the patient should be monitored closely. If pain increases
during the injection procedure, the injection should be stopped and the needle
withdrawn. The space should not be overfilled.
ADVERSE REACTIONS: Sodium hyaluronate is a natural component of the tissues of
- -----------------
the body. ORTHOVISC(R) is thoroughly tested to determine that each batch is non-
inflammatory. Since sodium hyaluronate molecules are non-inflammatory, any
phlogistic response is considered to be caused by the surgical procedures. Mild
to severe episodes of swelling and discomfort have been observed following
intra-articular injection of other sodium hyaluronate preparations into the
temporomandibular joint. The relationship of this occurrence to the use of
ORTHOVISC(R) has not been established.
HOW SUPPLIED: ORTHOVISC(R) is a sterile viscoelastic preparation supplied in a
- ------------
disposable glass syringe delivering 1.0 mL, appropriate for the
temporomandibular joint, of 2.0 mL, appropriate for the knee, of sodium
hyaluronate dissolved in physiological saline. Each mL of ORTHOVISC(R)contains
15mg of sodium hyaluronate adjusted to greater than 10,000 centistokes, 9 mg of
sodium chloride/mL and q.s. Sterile Water for Injection USP. ORTHOVISC(R)
exhibits an osmolality of approximately 340 millios-moles. ORTHOVISC(R) is
aseptically filled and terminally sterilized. Contents of unopened and
undamaged packages are sterile. Refrigerated ORTHOVISC(R) should be allowed to
reach room temperature, approximately 20 to 45 minutes, prior to use.
FOR INTRA-ARTICULAR USE. STORE AT 2-8(degrees)C. PROTECTED FROM FREEZING.
CAUTION: This device is restricted to sale by or on the order of a physician.
REFERENCES
CONTRE-INDICATIONS: Il n'existe pas actuellement de contre-indications conues a
- ------------------
l'usage d'ORTHOVISC(R) lorsquil est utilise en tant que traitement
sympotomatique des atteintes articulaires.
Les individus allergiques au poulet ou a ses derives, peuvent presenter une
reaction allergique aux preparations de hyaluronate de sodium. Neanmoins, il
n'a pas ete reporte jusqu'a present de reactions de ce genre, en depit de la
grande utilisation du hyaluronate de sodium sous la forme de preparations
indentiques a ORTHOVISC(R) dans les procedures chirugicales. Il este des
risques minimums lies de facon generale a l'injection de substances dans les
articulations; en particulier les risques d'infection et de saignements. Les
infections cutanees pre-existantes dans la region du site d'injection ou les
troubles de la coagulation connus peuvent constituer une contre-indication
relative ou absolue.
PRECAUTIONS: Les precautions sont les memes que celles habituellement prises
- -----------
dans le cadre d'une injection intra-articulaire. Seul le personnel connaissant
les techniques en vigueur concernant l'injection de substances dan les espaces
intra-articulaires, doivent etre autorises a effectuer une injection de
hyaluronate de soidum lorsque celle-ci est indiquee. Il faut absolument eviter
d'utiliser une quantite excessive de hyaluronate de sodium, et surveiller le
patient de tres pres. L'injection doit etre arretee et l'aiguille retiree en
cas de douleur croissante pendant l'injection. L'espace articulaire ne pas etre
rempli a l'exces.
REACTIONS SECONDAIRES: Le hyaluronate de sodium est un composant naturel des
- ---------------------
tissus. ORTHOVISC(R) est teste de facon approfondie pour assurer que chaque lot
est non-inflammatoire. Etant donne que les molecules de hyaluronate de sodium
sont non-inflammatoires, toute reponse phlogistique sera consideree avoir ete
causee par la procedure chirungicale. Des enflures et des reactions d'inconfort
allant de moderees a seve ont ete decrites a la suite d'injections de
hyaluronate de sodium dans l'artculation temporo-mandibulaire. La relation
entre ces reactions et l'emploi d'ORTHOVISC(R) n'a pas ete etablie.
PRESENTATION: ORTHOVISC(R) est une preparation visco-elastique presentee dans
- ------------
une seringue de verre a usage unique et pouvant delivrer 1 mL d'une solution de
hyaluronate de sodium dissous dans du serum physiologique dans le cas de
l'articulation temporo-mandibulaire, et 2 mL dans le cas de l'articulation du
genou. Chaque millitre d'ORTHOVISC(R) contient 15 mg de hyaluronate de sodium
adjuste a plus de 10.000 centistokes, 9 mg de chlorure de sodium et un excipient
d'eau sterile pour injection. ORTHOVISC(R) a une osmolarite d'environ 340
milliosmoles. ORTHOVISC(R) est prepare avec des methodes aseptiques et
sterilise en fin de preparation. Le contenu des emballages fermes et intacts
est sterile. A sa sortie du refrigeratueur, ORTHOVISC(R)
70
<PAGE>
1. Swann,D.A., Rqadin, E.L., Nazimier,M., Weisser,P.A., Curran, N and
Lewinnek, G. (1974) Role of Hyaluronic Acid in Joint Lubricatin. Ann.
Rheum. Dis. 33, 318.
2. Radin, E.L., Paul, IL, Swain, D.A. and Schottsteadt, E.S. (1971)
Lubrication of Synovial Membrane. Ann. Rheum. Dis. 30, 322.
3. Swann, D.A. (1968) Studies on Hyaluronic Acid. I. The Preparation and
Properties of Rooster Comb Hyaluronic Acid. Biochim, Biophys. Acta 156,
17.
4. Pruett, R.C., Schepens, C.L. and Swain, D.A. (1979) Hyaluronic Acid Viteous
Substitute. A Six Year Clinical Evaluation. Arch. Ophthalmol. 97,2325.
5. Richter, W. (1974) Non-immunogenicity of Purified Hyaluronic Acid
Preparations Tested by Passive Cutaneous Anaphylaxix. Int. Arc. Allergy
47,211.
6. Richter, W., Ryde, E.M. and Zetterstrom, E.O. (1979) Non-immunogenicity of
a Purified Sodium Hyaluronate Preparation in Man. Int. Arch. Appl. Immunol.
59,45.
7. Bertolami, C.N., Gray, T., Clark, G.T., Rendell, J., Shetty, V., Liu, C.,
Swann, D.A., (1993). Use of sodium hyaluronate in treating
temporomandibular joint disorders: a randomized, double-blind, placebo-
controlled clinical trial. J Oral Maxillofacial Surg., 51(3): 232-42.
8. Peyron, J., (1993) Intraarticular Hyaluronan Injections in the Treatment of
Osteoarthritis: State-of-the-Art Review. Journal of Rheumatology, Vol. 20,
Sup 39, 10-15.
ORTHOVISC(R) is a registered trademark of Anika Research, Inc.
Manufactured by: Size:
Anika Research, Inc. 1.0 mL
236 West Cummings Park 2.0 mL
Woburn MA 01801 U.S.A.
P/N 530-202
Copyright (C) 1996 Rev. 3/96
Anika Research, Inc.
doit etre laisse a la temperature ambiante, pendant environ 20 a 45 minutes,
avant d'etre utilise.
POUR USAG INTRA-ARTICULAIRE. STOCKER ENTRE 2(degrees) ET 8(degrees) C. A
PROTEGER DU GEL.
ATTENTION: Ce produit ne peut etre vendu qu'a un medecin ou sur ordonnance.
REFERENCES:
1. Swann, D.A., Radin, E.L., Nazimiec, M., Weisser, P.A., Curran, N and
Lewinnek, G. (1974) Role of Hyaluronic Acid in Joint Lubrication. Ann.
Rheum. Dis.33, 318.
2. Radin, E.L., Paul, I.L., Swann, D.A. and Schottsteadt, E.S. (1971)
Lubrication of Synovial Membrane. Ann. Rheum. Dis. 30, 322.
3. Swann, D.A., (1968) Studies on Hyaluronic Acid. I. The Preparation and
Properties of Rooster Comb Hyaluronic Acid. Biochim, Biophys. Acta 156, 17.
4. Pruett, R.C., Schepens, C.L. and Swann, D.A. (1979) Hyaluronic Acid
Vitreous Substitute A six Year Clinical Evaluation. Arch. Ophthalmol.
97,2325.
5. Richter, W. (1974) Non-immunogenicity of Purified Hyaluronic Acid
Preparations Tested by Passive cutaneous Anaphylaxis. Int. Are. Allergy
47,211.
6. Richter, W., Ryde, E.M. and Zetterstrom, E.O. (1979) Non-immunogenicity of
a Purified Sodium Hyaluronate Preparation in Man. Int. Arch. Appl. Immunol.
59, 45.
7. Bertolami, C.N., Gay, T., Clark, G.T., Rendell, J., Shetty, V., Liu, c.,
Swann, D.A., (1993). Use of sodium hyaluronate in treating
temporomandibular joint disorders: a randomized, double-blind, placebo-
controlled crinical trail. J Oral Maxillofacial Surg., 51 (3): 232-42.
8. Peyron, J., (1993) Intraarticular Hyaluronan Injections in the Treatment of
Osteoarthritis: State-of-the-Art Review. Journal of Rheumatology, Vol 20,
Sup 39, 10-15.
ORTHOVISC(R) est une marque deposee de Anika Research, Inc.
Fabrique par: Taille
71
<PAGE>
1 mL
Anika Research, Inc. 2 mL
236 West Cummings Park
Woburn MA 01801 U.S.A.
P/N 530-202
Tous droits reserve (C) 1996 Rev. 3/96
Anika Research, Inc.
72
<PAGE>
ANNEX B
-------
COORDINATED SALES, MARKETING AND CLINICAL PLAN
----------------------------------------------
*(Annex pages 1-56)
See attached.
73
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
ANNEX C-1
---------
COUNTRIES INCLUDED IN TERRITORY
-------------------------------
ASIA AMERICAS
---- --------
Australia Canada
China* United States of America
Hong Kong
Indonesia
Japan**
Korea, South
Malaysia
New Zealand
Phillippines
Singapore
Taiwan
Thailand
* Subject to the terms and conditions in Section 2(c)(ii)
** Subject to the terms and conditions in Section 2(c)(i)
74
<PAGE>
ANNEX C-2
---------
COUNTRIES INCLUDED IN OPTIONAL TERRITORY
----------------------------------------
Central and South America
-------------------------
Mexico
Puerto Rico
Argentina
Brazil
Chile
Columbia
Peru
Venezuela
75
<PAGE>
ANNEX D
-------
EXCLUDED PRODUCTS
-----------------
"Excluded Products" shall mean: all final products that contain as an ingredient
the HA manufactured by Company, including products obtained by Company as a
result of an acquisition, and products that contain the HA manufactured by
Company as a drug delivery vehicle or in combination with another active
ingredient; provided that such products are not labeled, indicated, promoted or
used for the treatment of human osteoarthritis.
76
<PAGE>
ANNEX E
-------
COMPANY COMPLAINT FORM
----------------------
77
<PAGE>
[ANIKA LOGO]
COMPLAINT FORM
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Complaint File Number: Complaint: Name
- -----------------------------------------------------------------------------------------
<S> <C>
- -----------------------------------------------------------------------------------------
Date Complaint Received: Address
- -----------------------------------------------------------------------------------------
Date Response Due: Address
- -----------------------------------------------------------------------------------------
Method of Communication of Complaint: Phone number
- -----------------------------------------------------------------------------------------
Date Complaint Receipt Letter sent to Complainant:
=========================================================================================
Product Name: Product Lot Number:
- -----------------------------------------------------------------------------------------
Complaint:
- -----------------------------------------------------------------------------------------
ADE or MDR Reportable Event? YES:_____ NO:_____
- -----------------------------------------------------------------------------------------
If YES:
Was there an actual device failure?______________________________________________________
Was the device/drug used to diagnose or treat patient?___________________________________
Was there a death, injury or serious illness?____________________________________________
Any relationship of the device/drug to the reported incident?____________________________
Description of specific medical intervention action taken or withheld:___________________
_________________________________________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________
Physician name:__________________________________________________________________________
Description of patient condition:________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________
If NO:
State Rationale:_________________________________________________________________________
_________________________________________________________________________________________
- -----------------------------------------------------------------------------------------
Date Failure Investigation Initiated: If investigation was not initiated, state reason:
Date Failure Investigation Closed:
- -----------------------------------------------------------------------------------------
Corrective Action: If corrective action is not required, state rationale:
- -----------------------------------------------------------------------------------------
Required Documentation Obtained and Complaint Closed:
QS/RA Signature: Date Closed:
- -----------------------------------------------------------------------------------------
</TABLE>
78
<PAGE>
- --------------------------------------------------------------------------------
Date close-out letter to complainant sent:
- --------------------------------------------------------------------------------
79
<PAGE>
[ANIKA LOGO]
FAILURE INVESTIGATION REPORT
Complaint File #:_______________________________________________________________
Product:________________________________________________________________________
Product Lot #:__________________________________________________________________
Date Received:__________________________________________________________________
Date Response Due:______________________________________________________________
- --------------------------------------------------------------------------------
COMPLAINT: (Restate complaint here)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RECOMMENDED COURSE OF ACTION: (To be completed by QS/RA)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RESPONSE - INVESTIGATION PERFORMED:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PREVENTATIVE ACTION:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Investigator: Date:
--------------------------------- -------------------
QS/RA: Date:
--------------------------------- -------------------
80
<PAGE>
ANNEX F
-------
PATENTS AND PATENT APPLICATIONS
-------------------------------
None.
81
<PAGE>
ANNEX G
-------
DISTRIBUTOR'S * LETTER
----------------------
*
82
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
*
83
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
ANNEX H
-------
QUALIFIED PRIMARY MEDICAL INSURANCE ORGANIZATIONS AND HMO PROVIDERS FOR
-----------------------------------------------------------------------
OBTAINING REIMBURSEMENT APPROVAL
--------------------------------
*
84
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately with
the Commission.
<PAGE>
EXHIBIT A
---------
ANIKA THERAPEUTICS, INC.
-------------------------
STOCK PURCHASE AGREEMENT
-------------------------
_________ SHARES OF COMMON STOCK,
OF
ANIKA THERAPEUTICS, INC.
Dated as of ___________, 199_
85
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Agreement to Sell and Purchase the Common Stock 1
2. Closing of Sale of Shares 1
3. Representations and Warranties of the Company. 1
3.1. Organization and Qualification; Authority 1
3.2. Corporate and Governmental Authorization; No Contravention 2
3.3. Validity and Binding Effect 2
3.4. Public Reports; No Material Adverse Change 2
3.5. Broker's or Finder's Commissions 2
4. Representations, Warranties and Covenants of the Purchaser 3
5. Restrictions on Transfer, Registration of Shares. 4
5.1. Restrictive Legends 4
5.2. Notice of the Proposed Transfer; Opinions of Counsel 4
5.3. Registration of Shares 5
5.4. Market Stand-Off 6
5.5. Information Required 6
5.6. Holding Period. 7
6. Definitions 7
7. Miscellaneous. 7
7.1. Expenses. 7
7.2. Survival of Representations and Warranties; Severability 7
7.3. Amendment and Waiver 7
7.4. Notices, Etc. 7
7.5. Successors and Assigns 8
7.6. Descriptive Headings 8
7.8. Governing Law 8
7.9. Counterparts 8
7.10. Entire Agreement 8
</TABLE>
(i)
<PAGE>
EXHIBITS
--------
SCHEDULES
---------
Schedule 3.4 -- Material Changes
(ii)
<PAGE>
STOCK PURCHASE AGREEMENT dated as of __________, 199_ between Anika
Therapeutics, Inc., a Massachusetts corporation (the "Company"), and
_________________ [ZIMMER OR AN AFFILIATE] (the "Purchaser").
WHEREAS, the Company and Zimmer, Inc. have entered into an Exclusive
Distribution Agreement dated as of ________ __, l997 (the "Distribution
Agreement"), which provides, among other things, that Zimmer, Inc. or an
Affiliate (as defined in the Distribution Agreement) shall have the right to
purchase certain shares of the Company's common stock under certain
circumstances (the "Stock Purchase Right"); and
WHEREAS, in full satisfaction of the Stock Purchase Right, the Purchaser
and the Company desire to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each of the Company and the
Purchaser respectively agrees with such other party, as so designated, as
follows:
1. Agreement to Sell and Purchase the Common Stock. At the Closing
-----------------------------------------------
provided for in Section 2, subject to the terms and conditions of this
Agreement, the Company will issue and sell to the Purchaser and the Purchaser
will purchase from the Company, _______ [SEE (S)2(b) OF THE DISTRIBUTION
AGREEMENT FOR DETERMINATION OF NUMBER OF SHARES] shares of the Company's common
stock, $.01 par value per share ("Common Stock"), at a purchase price of $_____
per share [SEE (S)2(b) OF THE DISTRIBUTION AGREEMENT FOR DETERMINATION OF PRICE
PER SHARE], for an aggregate purchase price of $_______. The term "Shares"
refers to the shares of Common Stock to be purchased by the Purchaser under this
Agreement.
2. Closing of Sale of Shares. The purchase and delivery of the Shares to
-------------------------
be purchased by the Purchaser shall take place at the offices of Goodwin,
Procter & Hoar LLP Exchange Place, Boston, Massachusetts, at a closing (the
"Closing") as of the date hereof or at such other place or on such other date as
the Purchaser and the Company may agree upon (such date on which the Closing
shall have actually occurred, the "Closing Date"). At the Closing, the Company
will deliver or cause to be delivered to the Purchaser the Shares to be
purchased by it against payment of the purchase price therefor registered in the
name of the Purchaser. Payment of the purchase price by Purchaser shall be by
wire transfer to an account designated in writing by the Company to the
Purchaser.
3. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants that:
3.1. Organization and Qualification; Authority. The Company is a
-----------------------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of the
<PAGE>
jurisdiction of its incorporation, has full corporate power and authority to own
and lease its properties and carry on its business as presently conducted, is
duly qualified, registered or licensed as a foreign corporation to do business
and is in good standing in each jurisdiction in which the ownership or leasing
of its respective properties or the character of its present operations makes
such qualification, registration or licensing necessary, except where the
failure so to qualify or be in good standing would not have a material adverse
effect on the condition (financial or otherwise), assets, business or results of
operations of (a "Material Adverse Effect" on) the Company.
3.2. Corporate and Governmental Authorization; No Contravention.
----------------------------------------------------------
The execution, delivery and performance by the Company of this Agreement, and
the issuance and sale to the Purchaser of the Shares pursuant to this Agreement
are within the Company's corporate powers, (a) have been duly authorized by all
necessary corporate action on the part of the Company; (b) do not require any
authorization or approval from any governmental authority (except such as have
been obtained); and (c) do not contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation of any
governmental authority, (ii) the charter documents of the Company, or (iii) any
judgment, injunction, order or decree binding upon the Company or any of its
properties, except where such contravention, default or violation would not have
a Material Adverse Effect on the Company. The Shares have been duly and validly
authorized and, when issued and delivered against payment therefor as provided
herein, will be duly and validly issued, fully paid and non-assessable, free and
clear of all liens, encumbrances or claims.
3.3. Validity and Binding Effect. This Agreement has been duly
---------------------------
executed and delivered by the Company and is a valid and binding agreement of
the Company, enforceable against the Company, in accordance with its terms,
subject to (a) the effect upon this Agreement of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights of creditors generally and (b) general principles of equity including
(without limitation) concepts of reasonableness, good faith and fair dealing
(regardless of whether considered in a proceeding in equity or at law).
3.4. Public Reports; No Material Adverse Change. As of the date
------------------------------------------
of this Agreement, each report the Company has filed with the Commission with
respect to events occurring, or periods ending, on or after __________, 199_
(the "SEC Filings") complies in all material respects with the requirements of
the 1934 Act and does not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which they
were made.
3.5. Broker's or Finder's Commissions. No person is entitled to
--------------------------------
payment of any broker's commission or finder's fee relating to the purchase and
sale of the Shares as the result of any actions taken by the Company.
2
<PAGE>
4. Representations, Warranties and Covenants of the Purchaser. The
----------------------------------------------------------
Purchaser represents and warrants to the Company that
(a) Purchaser is an accredited investor as defined in Regulation D
under the Securities Act, or by reason of its business and financial experience,
and the business and financial experience of those persons, if any, retained by
it to advise it with respect to its investment in the Shares, Purchaser together
with such advisers have such knowledge, sophistication and experience in
business and financial matters as to be capable of evaluating the merits and
risk of the prospective investment, and that it is purchasing the Shares for its
own account or for one or more separate accounts maintained by it or for the
account of one or more institutional investors on whose behalf the Purchaser has
authority to make this representation for investment and not with a view to the
distribution thereof or with any present intention of distributing or selling
any of the Shares except in compliance with the Securities Act and except to one
or more such institutional investors, provided that the disposition of the
Purchaser's or such investor's property shall at all times be within its
control. Purchaser understands and agrees that the Shares have not been
registered under the Securities Act and may be resold only if registered
pursuant to the provisions thereunder or if an exemption from registration is
available.
(b) Purchaser represents that it has full power and authority and has
taken all action necessary to authorize it to enter into and perform its
obligations under this Agreement and all other documents or instruments
contemplated hereby. This Agreement is the legal, valid and binding obligation
of the Purchaser, and is enforceable in accordance with its terms.
(c) Purchaser represents that it and/or its advisor(s) have had a
reasonable opportunity to ask questions of and receive answers from a person or
persons acting on behalf of the Company concerning the Company and the Shares
and all such questions have been answered to the full satisfaction of the
Purchaser.
(d) Purchaser represents that it is not purchasing Shares as a result
of any general solicitation or general advertising including, but not limited
to, advertisements, articles, notices or other communications, published in any
newspaper, magazine or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
(e) No person is entitled to the payment of any broker's commission or
finder's fee relating to the purchase and sale of the Shares as the result of
any actions taken by the Purchaser.
(f) Purchaser represents that it is not an ERISA benefit plan, a
trust, a so-called 501(c)(3) entity under the Internal Revenue Code, a bank,
broker/dealer, insurance company or SBIC licensed by the SBA. The Purchaser
represents it was not formed for the purpose of purchasing the Shares.
3
<PAGE>
(g) Purchaser represents that it has read the Company's SEC filings
and that it is relying solely upon the written information contained therein and
herein and not upon any oral statements regarding the Company or the Shares.
Purchaser agrees to comply with its obligations under U.S. and applicable state
securities law with regard to material, non-public information concerning the
Company. Purchaser further agrees to cooperate with all reasonable requests of
the Company, with respect to the Company's obligations under U.S. and state
securities laws in connection with or related to the purchase and sale of the
Shares hereunder.
5. Restrictions on Transfer, Registration of Shares.
------------------------------------------------
5.1. Restrictive Legends. Each certificate representing the
-------------------
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT
TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES
MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE ASSIGNED, EXCEPT IN ACCORDANCE WITH APPLICABLE "BLUE SKY"
LAWS AND PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR RULE
144A UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM REGISTRATION
UNDER SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT, IF REQUESTED BY
THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND
SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
Whenever the legend requirement imposed by this section 5.1 shall
terminate, as provided in Section 5.2, the holder of Shares for which such
legend requirements have terminated shall be entitled to receive from the
Company, at the Company's expense, certificates without such legend.
5.2. Notice of the Proposed Transfer; Opinions of Counsel. The
----------------------------------------------------
holder of each certificate representing the Shares bearing the restrictive
legend set forth in Section 5.1 above ("Restricted Security"), agrees that prior
to any proposed transfer of such Restricted Security, to give to the Company (a)
written notice describing the transferee and the circumstances, if any,
necessary to establish the availability of an exemption from the
4
<PAGE>
registration requirements of Securities Act and (b) upon reasonable request by
the Company to such transferring holder, an opinion of counsel (at the expense
of such holder), in form and substance reasonably satisfactory to the Company,
to the effect that the proposed transfer of such Restricted Security may be
effected without registration of such Restricted Security under the Securities
Act. If the holder of the Restricted Security delivers to the Company an opinion
of counsel in form and substance reasonably satisfactory to the Company that
subsequent transfers of such Restricted Security will not require registration
under the Securities Act, the Company will after such contemplated transfer
deliver new certificates for such Restricted Security which do not bear the
Securities Act legend set forth in Section 5.1 above. The restrictions imposed
by this Section 5 upon the transferability of any particular Restricted Security
shall cease and terminate when such Restricted Security has been sold pursuant
to an effective registration statement under the Securities Act or transferred
pursuant to Rule 144 promulgated under the Securities Act. As used in this
Section 5.2, the term "transfer" encompasses any sale, transfer or other
disposition of any securities referred to herein.
5.3. Registration of Shares.
----------------------
(a) So long as the Purchaser holds not less than fifty percent (50%)
of the Shares purchased under this Agreement, following the expiration of the
Holding Period (as defined below) upon written notice on one (1) occasion from
the Purchaser requesting that the Company effect the registration on Form S-3
under the Securities Act of the resale of all (but not part) of the Shares
purchased and sold pursuant to this Agreement and then held by the Purchaser,
the Company will use (subject to the other provisions of this Agreement) all
reasonable efforts to file a Form S-3 registration statement to effect the
registration, under the Securities Act, of such Shares (the "Demand
Registration"). The Company may postpone for a reasonable period or periods,
not to exceed an aggregate of up to 90 days, the filing of the registration
statement if the Company shall furnish to the Purchaser a certificate signed by
the President of the Company stating that, in the good faith judgment of the
President or the Board of Directors of the Company, the Demand Registration
would require the disclosure of a material transaction or other matter which
such disclosure is likely to have a material adverse effect on the Company and
its stockholders or otherwise would not be in the best interests of the Company
if so disclosed. The request for a Demand Registration pursuant to this Section
5.3 shall specify the number of Shares requested to be registered and the
intended method or methods of disposition. Subject to any limitations imposed
by any underwriter in the case of an underwritten offering, the Company shall
include in such Demand Registration all Shares. In addition, the Company shall
give notice to all holders of the Company's securities who are entitled by
contract with the Company to have securities included in such registration
("Other Stockholders") and shall provide a reasonable opportunity for such Other
Stockholders to participate in such registration, in accordance with the
contractual rights of such Other Stockholders, with the participation of the
Purchaser and such Other Stockholders to be on a basis consistent with the
contractual rights of such Other Stockholders. The Company will use its
reasonable efforts to keep the Demand Registration effective for up to
5
<PAGE>
the earlier of (i) thirty (30) days or (ii) the date all such Shares have been
disposed of thereunder.
(b) If at any time or times after the date hereof, the Company shall
determine to register any shares of its Common Stock (whether in connection with
a public offering of securities by the Company (a "primary offering"), a public
offering of securities by stockholders (a "secondary offering"), or both, but
not in connection with a registration effected solely to implement an employee
benefit plan or a transaction to which Rule 145 or any other similar rule of the
Commission under the Securities Act is applicable), the Company will promptly
give written notice thereof to the Purchaser. In connection with any such
registration, if within 10 days after their receipt of such notice the Purchaser
requests the inclusion in such registration of some or all of the Shares then
owned by the Purchaser (the "Registrable Securities"), the Company will use its
reasonable efforts to effect the registration under the Securities Act of all
Registrable Securities which the Purchaser so requests; provided, however, that
-------- -------
in the case of the registration of shares of the Common Stock by the Company in
connection with an underwritten public offering as a condition to inclusion of
any Shares therein, the Purchaser shall enter into an underwriting agreement on
the same terms as the Company or other selling security holders, as the case may
be, and, if the underwriter determines that a limitation on the number of shares
to be underwritten is required, the underwriter may (subject to the allocation
priority set forth below) exclude from such registration and underwriting some
or all of the Registrable Securities which would otherwise be underwritten
pursuant to the notice described herein. The Company shall advise the Purchaser
promptly after such determination by the underwriter and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated among the Purchaser and Other Stockholders in proportion, as
nearly as practicable, to their respective holdings of Registrable Securities or
securities convertible into Common Stock, and, in all cases, on a basis
consistent with the contractual rights of such Other Stockholders.
(c) The registration rights granted pursuant to this Agreement shall
expire upon the earlier to occur of (i) two (2) years from the date hereof, or
(ii) the date any of the Shares then held by the Purchaser are eligible for
resale pursuant to Rule 144 under the Securities Act or a similar exemption
under the Securities Act.
5.4 Market Stand-Off. Purchaser hereby agrees, notwithstanding
----------------
anything contained herein to the contrary, that, during the 180 days following
the effective date of a registration statement of the Company filed under the
Securities Act, it shall not to the extent requested by the Company or an
underwriter of an underwritten offering of securities of the Company, directly
or indirectly sell or otherwise transfer or dispose of any securities of the
Company held by it at any time during such period, and Purchaser will execute
such "Lock-up" agreement as is reasonably requested by the Company or our
underwriter consistent with the foregoing.
6
<PAGE>
5.5 Information Required. It shall be a condition precedent
--------------------
to the obligations of the Company to undertake any Registration of Shares
pursuant to this Agreement that Purchaser shall (i) furnish to the Company such
information regarding itself, the Shares held by it, and the intended method of
disposition of such securities as shall be required to effect the Registration
of Purchaser's Shares and (ii) agree to indemnify the Company with regard to any
loss or damage resulting from such information.
5.6 Holding Period. Notwithstanding anything in this Agreement
--------------
to the contrary, the Purchaser agrees that it will not sell, transfer or
otherwise convey the Shares prior to the first anniversary of the date hereof.
6. Definitions. As used herein the following terms have the following
-----------
respective meanings:
"1934 Act," means the Securities Exchange Act of 1934, and the rules
--------
and regulations of the Commission promulgated thereunder, as from time to time
amended.
"Rule 144" means Rule 144 as promulgated by the Commission under the
--------
Securities Act, and any successor rule or regulation thereto, as from time to
time amended.
"Securities Act" means the Securities Act of 1933, and the rules and
--------------
regulations of the Commission promulgated thereunder, as from time to time
amended.
7. Miscellaneous.
-------------
7.1. Expenses. Each party will be responsible for payment of its
--------
own expenses in connection with the purchase and sale of the Shares pursuant to
this Agreement.
7.2. Survival of Representations and Warranties; Severability.
--------------------------------------------------------
All representations and warranties contained in this Agreement of the Company
shall terminate at the Closing. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
7.3. Amendment and Waiver. This Agreement may be amended,
--------------------
modified or supplemented, and waivers or consents to departures from the
provisions hereof may be given, provided that the same are in writing and signed
by the Company and the Purchaser.
7.4. Notices, Etc. Except as otherwise provided in this
------------
Agreement, notices and other communications under this Agreement shall be in
writing and shall be delivered, or mailed by registered or certified mail,
return receipt requested, or by a nationally recognized overnight courier,
postage prepaid, addressed, (a) if to the Purchaser, at the address set forth on
the signature page hereto or such other address as the Purchaser shall have
furnished to the
7
<PAGE>
Company in writing, or (b) if to any other permitted holder of any Shares, at
such address as such other holder shall have furnished to the Company in
writing, or, until any such other holder so furnishes to the Company an address,
then to and at the address of the last holder of such Shares who has furnished
an address to the Company, or (c) if to the Company, at 160 New Boston Street,
Woburn, MA 01801, to the attention of President, or at such other address, or to
the attention of such other officer, as the Company shall have furnished to the
Purchaser and each such other holder in writing.
7.5. Successors and Assigns. Whenever in this Agreement any of
----------------------
the parties hereto are referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the respective parties which are contained in this
Agreement shall bind and inure to the benefit of the successors and assigns of
all other parties. This Agreement may not be assigned or transferred by either
party hereto without the prior written consent of the non-assigning party
hereto. Except as otherwise provided herein, the terms and provisions of this
Agreement shall inure to the benefit of and shall be binding upon any permitted
assignee or transferee of the Purchaser.
7.6. Descriptive Headings. The headings in this Agreement are
--------------------
for purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
7.8. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND
-------------
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
7.9. Counterparts. This Agreement may be executed simultaneously
------------
in two or more counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
7.10 Entire Agreement. This Agreement embodies the complete and
----------------
final agreement and understanding of the parties hereto with respect to the
subject matter hereof and related matters and supersedes and preempts any prior
understandings, agreements or representations by or between the parties, written
or oral, which may have related to the subject matter hereof in any way.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first written above.
ANIKA THERAPEUTICS, INC.
By:
--------------------------------
Name:
Title:
PURCHASER
By:
--------------------------------
Name:
Title:
Address:
Telephone:
Telecopy:
Tax I.D. Number:____________________
[TO BE USED IF PURCHASER IS AN AFFILIATE OF ZIMMER, INC.]
The undersigned acknowledges that this Agreement is in full satisfaction of
the Stock Purchase Right, and that it has assigned all of its rights in the
Stock Purchase Right to the above named Purchaser.
ZIMMER, INC.
By:
--------------------------------
Name:
Title:
9
<PAGE>
EXHIBIT B
---------
FORM OF PRESS RELEASE
---------------------
10
<PAGE>
ANIKA NEWS RELEASE
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE:
Contact: ANIKA THERAPEUTICS, INC. Or ZIMMER
SEAN MORAN PONDEL PARSONS & WILKINSON Brad Bishop
Chief Financial Officer Susan Klein (508) 358-4315 (212) 372-4291
(617) 932-6616, x102 Robert Whetstone (310) 207-9300
ANIKA THERAPEUTICS AND ZIMMER SIGN ORTHOVISC/R/
MARKETING AGREEMENT WORTH UP TO $23 MILLION
ZIMMER TO REPRESENT INNOVATIVE OSTEOARTHRITIS TREATMENT IN NORTH AMERICA
WOBURN, MASSACHUSETTS, November 10, 1997 ..... ANIKA THERAPEUTICS, INC. (NASDAQ
SMALL CAP: ANIK) today announced that it has signed an exclusive multi-year
marketing and distribution agreement with Zimmer, Inc., a billion-dollar
subsidiary of Bristol-Myers Squibb (NYSE:BMY). Zimmer will represent Anika's
innovative ORTHOVISC/R/ product (sodium hyaluronate for injection) for the
treatment of osteoarthritis of the knee in the United States, Canada and select
Asia-Pacific markets. The deal is potentially worth up to $23 million.
Zimmer paid Anika $2.5 million at signing and is obligated to pay up to an
additional $20.5 million contingent upon the attainment of certain regulatory
and sales milestones. According to the terms of the agreement, the two companies
will share in the revenues generated by Zimmer's sales and marketing efforts
and Anika will exclusively manufacture ORTHOVISC for Zimmer.
ORTHOVISC is used to treat osteoarthritis using a therapy called
viscosupplementation. The natural knee is surrounded by synovial fluid, which
contains hyaluronic acid (HA), which helps coat and lubricate the joint.
ORTHOVISC is designed to emulate the viscoelastic and cushioning properties of
natural HA.
"With the largest dedicated sales force addressing orthopaedic surgeons and
related specialties, we believe Zimmer will provide powerful commercialization
and distribution efforts to make ORTHOVISC the valued therapeutic option and
preferred brand in the treatment of osteoarthritis," said J. Melville Engle,
president and chief executive officer of Anika. "Zimmer is the established world
leader in knee replacement products and has a strong reputation with orthopaedic
surgeons and musculoskeletal specialists around the globe."
<PAGE>
ORTHOVISC has been cleared for marketing in Canada, where Zimmer will have
distribution rights. Registrations for marketing approval have also been filed
in Australia and New Zealand. Anika recently completed a pivotal clinical study
and plans to file by the end of this year with the U.S. Food and Drug
Administration for clearance to market the product in the United States.
"Zimmer is excited about offering musculoskeletal specialists another treatment
option to address knee pain associated with osteoarthritis," said J. Raymond
Elliott, Zimmer president. "ORTHOVISC gives physicians an alternative to
pharmaceutical therapies as they manage the course of the patient's disease.
Zimmer is uniquely equipped to represent ORTHOVISC among musculoskeletal
specialists. We are pleased to be associated with a company of Anika's high
caliber."
Zimmer is the world leader in the design, manufacture and distribution of
orthopaedic implants and related equipment and supplies. The company provides a
broad range of joint replacement, fracture management and patient care products.
Founded in 1927, Zimmer became a member of the Bristol-Meyers Squibb family of
companies in 1972.
Anika Therapeutics, Inc. develops, manufactures and commercializes therapeutic
products and devices intended to promote the protection and healing of bone,
cartilage and soft tissue. These products are based on hyaluronic acid (HA), a
naturally-occurring, biocompatible polymer found throughout the body.
###
Visit Zimmer on the Internet at http://www.zimmer.com
Visit Bristol-Meyers Squibb on the Internet at http://www.bms.com
This press release includes forward-looking statements within
the meaning of Section 27A of the Securities Exchange Act of
1933 and Section 21E of the Securities Exchange Act of 1934
including statements relating to amounts which may be
received under the Company's agreement with Zimmer. The
Company's actual results could differ materially from those
set forth in the forward-looking statements. Certain factors
that might cause such a difference include (i) the ability of
the Company to obtain FDA approval for marketing of ORTHOVISC
in the U.S., (ii) the ability of the Company and Zimmer to
achieve the regulatory and sales milestones set forth in the
agreement, (iii) the overall market acceptance of HA products
for the treatment of osteoarthritis, as well as those factors
set forth as Risk Factors in the Company's Form 10-QSB filed
with the Securities and Exchange Commission on August 13, 1997.
<PAGE>
EXHIBIT 23.1
The Board of Directors
Anika Therapeutics, Inc.:
We consent to the use of our reports included herein and to the references to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
KPMG Peat Marwick llp
Boston, Massachusetts
November 10, 1997
