<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For quarterly period ended June 30, 1998
------------------------------------
________ Transition report under Section 13 or 15 (d) of the Exchange Act
For the transition period from______________________ to ______________________
Commission file number 000-21326
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Anika Therapeutics, Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Massachusetts 04-3145961
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
236 West Cummings Park, Woburn, Massachusetts 01801
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(Address of Principal Executive Offices)
(781) 932-6616
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
On August 10, 1998, 9,959,090 shares of common stock, par value $0.01 per share,
were outstanding.
Transitional Small Business Disclosure Format(check one): Yes No x
----- -----
<PAGE>
This Form 10-QSB 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. 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 are discussed throughout this Form 10-QSB and
are discussed in the section entitled "Certain Factors Affecting Future
Operating Results" of this Form 10-QSB.
<PAGE>
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
ANIKA THERAPEUTICS, INC.
<TABLE>
<CAPTION>
Balance Sheets as of, June 30, 1998 December 31, 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,507,849 $ 22,679,820
Accounts receivable 2,742,191 1,918,293
Inventories 2,781,688 2,541,552
Prepaid expenses 621,599 610,364
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Total current assets 29,653,327 27,750,029
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Property and equipment 5,768,572 4,138,365
Less accumulated depreciation 3,563,822 3,325,321
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Net property and equipment 2,204,750 813,044
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Loan receivable due from officer 75,000 75,000
Long term deposits 196,160 111,265
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Total Assets $ 32,129,237 $ 28,749,338
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 906,381 $ 967,986
Accrued expenses 960,894 1,253,154
Deferred revenue 200,000 200,000
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Total current liabilities 2,067,275 2,421,140
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Advance rent payment 77,192 103,912
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 9,916,458 shares and
9,691,091 shares, respectively 99,554 96,911
Additional paid-in capital 34,506,105 32,156,504
Unearned stock option compensation (1,430,221) --
Accumulated deficit (3,190,668) (6,029,129)
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Total stockholders' equity 29,984,770 26,224,286
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Total Liabilities and Stockholders' Equity $ 32,129,237 $ 28,749,338
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</TABLE>
See accompanying notes to financial statements.
<PAGE>
ANIKA THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Product revenue $ 3,095,966 $ 2,350,073 $ 5,850,385 $ 4,277,423
Licensing payments 1,500,000 100,000 1,500,000 100,000
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Total revenue 4,595,966 2,450,073 7,350,385 4,377,423
Cost of sales 1,564,569 1,187,798 2,908,041 2,207,211
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Gross profit 3,031,397 1,262,275 4,442,344 2,170,212
Operating expenses:
Research and development 388,531 509,142 891,510 832,257
Selling, general and administrative 704,228 435,999 1,240,214 830,420
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Total operating expenses 1,092,759 945,141 2,131,724 1,662,677
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Income from operations 1,938,638 317,134 2,310,620 507,535
Interest income, net 318,468 29,418 610,568 59,802
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Income before income taxes 2,257,106 346,552 2,921,188 567,337
Income taxes 55,651 9,508 82,727 13,924
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Net income $ 2,201,455 $ 337,044 $ 2,838,461 $ 553,413
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Basic earnings per share $ 0.22 $ 0.06 $ 0.29 $ 0.09
---- ---- ---- ----
---- ---- ---- ----
Shares used for computing basic EPS 9,948,095 5,052,426 9,895,082 5,020,989
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted earnings per share $ 0.20 $ 0.04 $ 0.26 $ 0.06
---- ---- ---- ----
---- ---- ---- ----
Shares used for computing diluted EPS 11,197,949 7,336,833 11,039,747 7,224,872
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</TABLE>
See accompanying notes to financial statements.
<PAGE>
ANIKA THERAPEUTICS, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Six months ended,
June 30,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,838,461 $ 553,413
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 238,501 158,464
Amortization of unearned stock compensation 59,840 --
Common stock issued to 401(k) plan and Board of Directors -- 134,327
Changes in operating assets and liabilities:
Accounts receivable (823,898) (647,683)
Loan receivable due from officer -- (75,000)
Long term deposits (84,895) --
Inventories (240,136) 74,421
Prepaid expenses (11,235) (224,050)
Accounts payable and accrued expenses (353,867) 30
Other long-term liabilities (26,720) (18,888)
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Net cash provided by (used for) operating activities 1,596,051 (44,966)
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Cash flows used for investing activities:
Additions to property and equipment (1,630,207) (16,410)
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Net cash used for investing activities (1,630,207) (16,410)
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Cash flows provided by financing activities:
Proceeds from issuance of common stock (64,919) --
Proceeds from exercise of stock options and warrants 927,104 302,563
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Net cash provided by financing activities 862,185 302,563
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Increase in cash and cash equivalents 828,029 241,187
Cash and cash equivalents at beginning of period 22,679,820 2,704,665
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Cash and cash equivalents at end of period $ 23,507,849 $ 2,945,852
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Supplemental disclosure of cash flow information:
Cash paid for interest -- $ 2,771
---------------------------------
---------------------------------
Supplemental disclosure of non cash items:
Dividend on redeemable preferred stock -- $ 103,036
---------------------------------
---------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (Continued)
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 ("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 limited to investigational use only. The Company
manufactures AMVISC(R)(1) and AMVISC Plus(R), which are HA products
used as viscoelastic supplements in ophthalmic surgery, for Bausch &
Lomb Surgical, a subsidiary of Bausch & Lomb, Inc. 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(TM), an
injectable formulation of basic fibroblast growth factor combined with
HA designed to accelerate the healing of bone fractures.
(2) Basis of Presentation
---------------------
The accompanying financial statements have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of the Company, these financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position of the
Company as of June 30, 1998, the results of operations for the three
and six months ended June 30, 1998 and 1997 and the cash flows for the
six months ended June 30, 1998 and 1997.
1) AMVISC and AMVISC Plus are registered trademarks of Bausch & Lomb
Surgical. ORTHOVISC and HYVISC are registered trademarks of the
Company. Ossigel is a trademark of Orquest.
<PAGE>
The accompanying financial statements and related notes should be read
in conjunction with the Company's annual financial statements filed
with the Annual Report on Form 10-KSB for the year ended December 31,
1997. The results of operations for the six months ended June 30, 1998
are not necessarily indicative of the results to be expected for the
full year.
(3) Earnings Per Share
------------------
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings per Share, which establishes
standards for computing and presenting earnings per share, simplifying
previous standards and making them comparable to international earnings
per share standards. Basic earnings per share is computed by dividing
net income by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is computed by dividing
net income by the weighted average number of common shares and dilutive
potential common shares outstanding during the period. Under the
treasury stock method, weighted average options outstanding are
assumed to be exercised during the period. The assumed proceeds are
then used to purchase common shares at the average market price during
the period.
The following illustrates a reconciliation of the numerator and
denominator for the three and six months ended June 30, 1998 and
1997 for basic and diluted earnings per share computations.
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, 1998 ended June 30, 1998
------------------- -------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ --------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income $2,201,455 $2,838,461
Basic EPS
Income
available
to common
stock-
holders $2,201,455 9,948,095 $.22 2,838,461 9,895,082 $.29
---------- ---- ----
Effect of
Dilutive
Securities
Warrants
and
options 1,249,854 1,144,665
--------- ---------
Diluted EPS
Income
available
to common
stock-
holders $2,201,455 11,197,949 $.20 2,838,461 11,039,747 $.26
----------- ---------- ---- ---------- ---------- ----
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, 1997 ended June 30, 1997
------------------- -------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ --------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income $337,044 $553,413
Dividend on
Preferred
Stock (44,075) (103,035)
-------- -------
Basic EPS
Income
available
to common
stock-
holders $292,969 5,052,426 $.06 450,378 5,020,989 $.09
-------- ---- ------- ----
Effect of
Dilutive
Securities
Warrants
and
options 2,284,407 2,203,883
--------- ---------
Diluted EPS
Income
available
to common
stock-
holders $292,969 7,336,833 $.04 450.378 7,224,872 $.06
-------- --------- ---- ------- --------- ----
</TABLE>
(4) Significant Customers
---------------------
Sales of AMVISC products to Bausch & Lomb Surgical, accounted for 76%
and 88% of total product revenue for the six months ended June 30, 1998
and 1997, respectively. Sales of AMVISC products to Bausch & Lomb
Surgical accounted for 71% and 82% of total revenue for the three
months ended June 30, 1998 and 1997, respectively.
(5) Comprehensive Income
--------------------
The Company adopted SFAS No. 130, Reporting Comprehensive Income,
effective January 1, 1998. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in
financial statements. Comprehensive income is the total of net income
and all other nonowner changes in equity including items such as
unrealized holding gains/losses on securities classified as available
for sale, foreign currency translation adjustments and minimum pension
liability adjustments. The Company had no such items for the six months
ended June 30, 1998 and 1997 and therefore comprehensive income and net
income are the same.
(6) New Accounting Standard
-----------------------
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for
hedging instruments. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This
statement applies to all entities and is effective for all fiscal
quarters beginning after June 15, 1999. Initial application of this
Statement should be as of the beginning of an entity's fiscal quarter.
As of June 30, 1998 and during the quarter then ended, the Company did
not hold any derivative instruments or have any hedging activities.
The Company does not expect adoption of this Statement to have a
significant impact on its financial position or results of operations.
<PAGE>
PART I: FINANCIAL INFORMATION
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
This Form 10-QSB 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. 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 are
discussed throughout this Form 10-QSB and are discussed in the section
entitled "Certain Factors Affecting Future Operating Results" of this
Form 10-QSB.
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, which is an HA product used in the
treatment of some forms of osteoarthritis in humans, and HYVISC, 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 and AMVISC Plus, which are HA products
used as viscoelastic supplements in ophthalmic surgery, for Bausch &
Lomb Surgical. The Company is currently developing INCERT, 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, an injectable formulation of basic fibroblast
growth factor combined with HA designed to accelerate the healing of
bone fractures.
Results of Operations
---------------------
Product Revenue. Product revenue for the three months ended June 30,
1998 totalled $3,096,000, an increase of $746,000, or 32% over the
$2,350,000 in product revenue recorded for the comparable period last
year. The increase in product revenue for the three months ended June
30, 1998 was attributable to increased sales of AMVISC products and
ORTHOVISC. Unit sales of AMVISC products and ORTHOVISC for the three
months ended June 30, 1998 increased by 13% and 214%, respectively,
over the comparable period of last year. Product revenue for the six
months ended June 30, 1998 totalled $5,850,000, an increase of
$1,573,000, or 37% over
<PAGE>
the $4,277,000 in product revenue recorded for the six months ended
June 30, 1997. The increase in product revenue for the six months ended
June 30, 1998 was attributable to increased sales of AMVISC products
and ORTHOVISC. Unit sales of AMVISC products and ORTHOVISC for the six
months ended June 30, 1998 increased by 13% and 236%, respectively,
over the comparable period of last year.
Licensing Payments. Revenue from licensing payments increased to
$1,500,000 for the three and six months ended June 30, 1998 from
$100,000 for the comparable periods in the prior year. In June 1998,
the Company received a $1,500,000 licensing payment from Zimmer for the
granting of ORTHOVISC European and Latin American distribution rights.
Gross Profit. The Company's gross profit from Product Revenue as a
percentage of Product Revenue was 49.5% and 50.2%, respectively, for
the three and six months ended June 30, 1998, versus 49.5% and 48%
for the same periods last year. The improvement in gross margin for the
six months ended June 30, 1998 was attributable to increased sales of
ORTHOVISC which has a higher gross margin than AMVISC.
Research and Development Expenses. Research and development expenses
for the three months ended June 30, 1998 decreased by $121,000, or 24%,
to $389,000 from $509,000 for the same period last year. For the six
months ended June 30, 1998 research and development expenses increased
by $59,000 or 7% to $892,000 from $832,000 for the same period last
year. The increase in research and development expenses for the six
months ended June 30, 1998 was primarily attributable to development
expenses for INCERT and regulatory expenses for the ORTHOVISC
Pre-Market Approval application. The Company expects research and
development expenses for the second half of 1998 will be greater than
the first half of 1998 due to INCERT development expenses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended June 30, 1998
increased by $268,000, or 61%, to $704,000 from $436,000 for the same
period last year. Selling, general and administrative expenses for
the six months ended June 30, 1998 increased by 49% to $1,240,000
from $830,000 in the prior year. The increase in selling, general
and administrative expenses for the three and six months ended
June 30, 1998 was due to additional staffing and salary increases.
The Company expects that selling, general and administrative expenses
for the second half of 1998 will be greater than the first half of
1998 due to additional staffing and ORTHOVISC marketing expenses.
Interest Income. Interest income, net for the six months ended June 30,
1998 increased by $551,000 to $611,000 due to interest income earned
from an increase in the cash balance on hand as a result of the
Company's public offering of Common Stock completed in December 1997.
The Company had an average cash balance on hand for the first six
months of
<PAGE>
1998 and 1997 of $22,948,000 and $2,532,000, respectively.
Liquidity and Capital Resources
-------------------------------
In December 1997, the Company completed a public offering of 2,725,000
shares of its Common Stock that resulted in net proceeds of
approximately $17 million.
At June 30, 1998, the Company had cash and cash equivalents of
$23,508,000 and working capital of $27,586,000. The Company believes
that cash from operations and its cash on hand will be sufficient to
meet its operating requirements for at least the next 24 months.
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 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 from operations and its cash
on hand will be adequate to fund the Company's operating requirements
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 10-QSB
generally.
<PAGE>
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. 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. In January 1998, the Company sent a notice for mandatory
exercise of the warrants in accordance with the warrant provisions, all
warrants were converted into common stock and the Company received
$668,136.
Year 2000. The Company is in the process of upgrading its computer
hardware and software. The Company's present computer system runs
only financial applications. Management believes that the software
upgrade will resolve the Year 2000 issue for the Company. Installation
of the hardware and software is expected to occur in 1999 and all of
the software packages under review by the Company are Year 2000
compliant.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-QSB contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1934. 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 following:
History of Losses; Uncertainty of Future Profitability.
The Company incurred through the year ended December 31, 1996 annual
operating losses since its inception in May 1993 and had an accumulated
deficit of approximately $3.2 million as of June 30, 1998. 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 achieved
profitability for the six months ended June 30, 1998 and the year ended
December 31, 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.
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
<PAGE>
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.
Comprehensive Government Regulation; No Assurance of FDA Approval. The
Company's products, 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 has submitted a
PMA for ORTHOVISC and it was accepted for filing by the FDA in February
1998. The Company announced in July 1998 that it filed an amendment to
the PMA which could extend the review time for an additional 180 days.
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
<PAGE>
FDA will approve a PMA application for ORTHOVISC on a timely basis, if
at all, or that the FDA review will not involve delays (including a
requirement that the Company conduct additional clinical trials) 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 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
<PAGE>
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 FDA's Good Manufacturing Practices
("GMP") regulations or, for medical devices, FDA's Quality System
Regulations ("QSR"). Ongoing compliance with GMP, QSR 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
<PAGE>
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.
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 Bausch & Lomb Surgical under a
non-exclusive fixed price, five-year supply agreement which contains
stated minimum annual purchase obligations and terminates on December
31, 2001. Since January 1, 1997, Bausch & Lomb Surgical 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 Bausch & Lomb Surgical 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.
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. This agreement was subsequently amended in June 1998 to expand
the territories to also include Europe and Latin America. While the
agreement provides for future payments to the Company of up to $22.5
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.
<PAGE>
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 Company's products on acceptable terms would have a material
adverse effect on the Company's business, financial condition and
results of operations.
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.
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.
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
<PAGE>
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 has
been granted a Notice of Allowance from the U.S. Patent Office for 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
<PAGE>
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 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 granted Bausch &
Lomb Surgical 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
<PAGE>
became effective on January 1, 1997. Upon expiration of the AMVISC
supply contract, there can be no assurance that Bausch & Lomb Surgical
will continue to use the Company to manufacture AMVISC and AMVISC Plus.
If Bausch & Lomb Surgical 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. 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 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.
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,
<PAGE>
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.
Need for Additional Funds; Liquidity. The Company anticipates that its
cash and cash equivalents of approximately $23.5 million on June 30,
1998 will be adequate to fund its operations for an additional 24
months. 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
<PAGE>
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.
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.
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.
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
<PAGE>
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.
Risks' Relating to International Operations. Approximately 24% of the
Company's net sales for the six months ended June 30, 1998 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
<PAGE>
Stock will develop or, if developed, will be sustained.
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 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.
<PAGE>
Part II: OTHER INFORMATION
Item 5. Other Information
-----------------
The Company's by-laws establish an advance notice procedure with
respect to the introduction of business by stockholders at annual
meetings. In order to be properly brought before an annual meeting by
a stockholder, such business must have been specified in a written
notice given by or on behalf of a stockholder of record on the record
date for such meeting entitled to vote thereat or a duly authorized
proxy for such stockholder in accordance with all of the requirements
described below. Such notice must be delivered personally to or mailed
to and received at the principal executive office of the Company,
addressed to the attention of the Clerk, no later than April 1, 1999,
provided, however, that such notice shall not be required to be given
more than sixty days prior to an annual meeting of stockholders. Such
notice given by or on behalf of the stockholder shall set forth (i) a
full description of each such item of business proposed to be brought
before the meeting, (ii) the name and address of the person proposing
to bring such business before the meeting, (iii) the class and number
of shares held of record, held beneficially and represented by proxy by
such person as of the record date for the meeting (if such date has
been made publicly available) and as of the date of such notice, (iv)
if any item of such business involves a nomination for director, all
information regarding each such nominee that would be required to be
set forth in a definitive proxy statement filed with the SEC pursuant
to Section 14 of the Securities Exchange Act of 1934, as amended, or
any successor thereto, and the written consent of each such nominee to
serve if elected, and (v) all other information that would be required
to be filed with the SEC if, with respect to the business proposed to
be brought before the meeting, the person proposing such business was a
participant in a solicitation subject to Section 14 of the Securities
Exchange Act of 1934, as amended, or any successor thereto.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
<TABLE>
<CAPTION>
(a) Exhibit No. Description
----------- -----------
<S> <C> <C>
3.1 Articles of Amendment
10.1 First Amendment to Exclusive Distribution
Agreement Dated as of June 1, 1998 between
Anika and Zimmer, Inc.
10.2 1993 Stock Option Plan, as amended
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ANIKA THERAPEUTICS, INC.
DATE: August 14, 1998 BY: /s/ J. Melville Engle
---------------------
J. Melville Engle
Chief Executive Officer
DATE: August 14, 1998 BY: /s/ Sean F. Moran
-----------------
Sean F. Moran
Chief Financial Officer
<PAGE>
Exhibit 3.1
- -------------
Examiner
- -------------
Name
Approved
C --
P --
M --
R.A. --
- -------------
P.C.
FEDERAL IDENTIFICATION
NO. 04-3145961
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
We, J. Melville Engle, *President
----------------------------------------
and Sean F. Moran, *Clerk
----------------------------------------
of Anika Therapeutics, Inc. ,
---------------------------------------------------------------------------
(Exact name of corporation)
located at 236 West Cummings Park, Woburn, MA 01801 ,
------------------------------------------------------------------
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
3 and 4
- --------------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting held on June 3,
1998, by vote of: -------
- ----
6,057,862 shares of Common Stock of 9,937,731 shares outstanding,
- --------- ----------------------- ---------
(type, class & series, if any)
________ shares of _______________________ of __________ shares outstanding, and
(type, class & series, if any)
________ shares of _______________________ of ______________ shares outstanding,
(type, class & series, if any)
1**being at least a majority of each type, class or series outstanding and
entitled to vote thereon:
*Delete the inapplicable words **Delete the inapplicable clause.
1 For amendments adopted pursuant to Chapter 156B, Section 70.
2 For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of separate 8 1/2 x
11 sheets of paper with a Left margin of at least 1 inch. Additions to more than
one article may be made on a single sheet so long as each article requiring each
addition is clearly indicated.
<PAGE>
ADDENDUM A
TO THE
RESTATED ARTICLES OF ORGANIZATION OF
ANIKA THERAPEUTICS, INC.
ARTICLE IV
CAPITAL STOCK
The authorized capital stock of the Corporation shall consist of (i)
common stock, $.01 par value per share (the "Common Stock"), and (ii) preferred
stock, $.01 par value per share (the "Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. Common Stock
1. General. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors of the Corporation (the "Board of Directors") upon any issuance of
the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote
for each share held at all meetings of stockholders (and written actions in lieu
of meetings). There shall be no cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. Preferred Stock
Preferred Stock may be issued from time-to-time in one or more
series, each of such series to have such terms as stated or expressed herein and
in the resolution or resolutions providing for the issue of such series adopted
by the Board of Directors as hereinafter provided. Any shares of Preferred Stock
which may be redeemed, purchased or acquired by
2A
<PAGE>
the Corporation may be reissued except as otherwise provided by law. Different
series of Preferred Stock shall not be construed to constitute different classes
of shares for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time-to-time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by Chapter 156B
of the Massachusetts General Laws. Without limiting the generality of the
foregoing, the resolutions providing for issuance of any series of Preferred
Stock may provide that such series shall be superior or rank equally or be
junior to the Preferred Stock of any other series to the extent permitted by
law. No vote of the holders of the Preferred Stock or Common Stock shall be a
prerequisite to the issuance of any shares of any series of the Preferred Stock
authorized by and complying with the conditions of the Articles of Organization,
the right to have such vote being expressly waived by all present and future
holders of the capital stock of the Corporation.
At the time of acceptance for record of this Articles of Amendment, the
Board of Directors has duly established and designated Series B Junior
Participating Cumulative Preferred Stock of the Corporation, and fixed and
determined the relative rights and preferences of the shares of such series set
forth in the Certificate of Vote of Directors Establishing a Series of a Class
of Stock (the "Series B Certificate") filed with the Secretary of the
Commonwealth of Massachusetts on April 7, 1998 and included herein as follows:
C. Series B Junior Participating Cumulative Preferred Stock
1. Designation and Amount. The shares of such series shall be
designated as "Series B Junior Participating Cumulative Preferred Stock" (the
"Series B Preferred Stock"), and the number of shares constituting such series
shall be 150,000.
2. Dividends and Distributions.
(A) (i) Subject to the rights of the holders of any shares of any
series of preferred stock (or any similar stock) ranking prior and superior to
the Series B Preferred Stock with respect to dividends, the holders of shares of
Series B Preferred Stock, in preference to the holders of shares of common stock
and of any other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly
3A
<PAGE>
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series B Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $1.00 or (b) subject to the provisions for adjustment hereinafter set
forth, 1000 times the aggregate per share amount of all cash dividends, and 1000
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in shares of common stock
or a subdivision of the outstanding shares of common stock (by reclassification
or otherwise), declared on the common stock since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series B Preferred Stock. The multiple of cash and non-cash dividends
declared on the common stock to which holders of the Series B Preferred Stock
are entitled, which shall be 1000 initially but which shall be adjusted from
time to time as hereinafter provided, is hereinafter referred to as the
"Dividend Multiple." In the event the Corporation shall at any time after April
6, 1998 (the "Rights Declaration Date") (i) declare or pay any dividend on
common stock payable in shares of common stock, or (ii) effect a subdivision or
combination or consolidation of the outstanding shares of common stock (by
reclassification or otherwise than by payment of a dividend in shares of common
stock) into a greater or lesser number of shares of common stock, then in each
such case the Dividend Multiple thereafter applicable to the determination of
the amount of dividends which holders of shares of Series B Preferred Stock
shall be entitled to receive shall be the Dividend Multiple applicable
immediately prior to such event multiplied by a fraction, the numerator of which
is the number of shares of common stock outstanding immediately after such event
and the denominator of which is the number of shares of common stock that were
outstanding immediately prior to such event.
(ii) Notwithstanding anything else contained in this
paragraph (A), the Corporation shall, out of funds legally available for that
purpose, declare a dividend or distribution on the Series B Preferred Stock as
provided in this paragraph (A) immediately after it declares a dividend or
distribution on the common stock (other than a dividend payable in shares of
common stock); provided that, in the event no dividend or distribution shall
have been declared on the common stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $1.00 per share on the Series B Preferred Stock shall nevertheless
be payable on such subsequent Quarterly Dividend Payment Date.
(B) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series B Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series B Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series B Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such
4A
<PAGE>
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series B Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix in accordance with applicable law a
record date for the determination of holders of shares of Series B Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than such number of days prior to
the date fixed for the payment thereof as may be allowed by applicable law.
3. Voting Rights. In addition to any other voting rights required by
law, the holders of shares of Series B Preferred Stock shall have the following
voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series B Preferred Stock shall entitle the holder thereof to 1000
votes on all matters submitted to a vote of the stockholders of the Corporation.
The number of votes which a holder of a share of Series B Preferred Stock is
entitled to cast, which shall initially be 1000 but which may be adjusted from
time to time as hereinafter provided, is hereinafter referred to as the "Vote
Multiple." In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare or pay any dividend on common stock payable in
shares of common stock, or (ii) effect a subdivision or combination or
consolidation of the outstanding shares of common stock (by reclassification or
otherwise than by payment of a dividend in shares of common stock) into a
greater or lesser number of shares of common stock, then in each such case the
Vote Multiple thereafter applicable to the determination of the number of votes
per share to which holders of shares of Series B Preferred Stock shall be
entitled shall be the Vote Multiple immediately prior to such event multiplied
by a fraction, the numerator of which is the number of shares of common stock
outstanding immediately after such event and the denominator of which is the
number of shares of common stock that were outstanding immediately prior to such
event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series B Preferred Stock and the holders of shares of common stock and
the holders of shares of any other capital stock of this Corporation having
general voting rights, shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) Except as otherwise required by applicable law or as set forth
herein, holders of Series B Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are entitled
to vote with holders of common stock as set forth herein) for taking any
corporate action.
4. Certain Restrictions.
(A) Whenever dividends or distributions payable on the Series B
Preferred
5A
<PAGE>
Stock as provided in Section 2 are in arrears, thereafter and until all accrued
and unpaid dividends and distributions, whether or not declared, on shares of
Series B Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise
acquire for consideration any shares of stock ranking
junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Preferred
Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution
or winding up) with the Series B Preferred Stock, except
dividends paid ratably on the Series B Preferred Stock
and all such parity stock on which dividends are payable
or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) except as permitted in subsection 4(A)(iv) below,
redeem, purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding
up) with the Series B Preferred Stock, provided that the
Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series B
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series B Preferred Stock, or any shares of any
stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the
Series B Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of
such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend
rates and other relative rights and preferences of the
respective series and classes, shall determine in good
faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under subsection (A) of
this Section 4, purchase or otherwise acquire
6A
<PAGE>
such shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series B Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
preferred stock and may be reissued as part of a new series of preferred stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
6. Liquidation, Dissolution or Winding Up. Upon any liquidation
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made (x) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series B Preferred Stock unless, prior thereto, the holders of shares of Series
B Preferred Stock shall have received an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (1) $1000.00 per share or
(2) an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1000 times the aggregate amount to be
distributed per share to holders of common stock, or (y) to the holders of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series B Preferred Stock, except distributions made ratably
on the Series B Preferred Stock and all other such parity stock in proportion to
the total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time after the Rights Declaration Date (i) declare or pay any dividend on
common stock payable in shares of common stock, or (ii) effect a subdivision or
combination or consolidation of the outstanding shares of common stock (by
reclassification or otherwise than by payment of a dividend in shares of common
stock) into a greater or lesser number of shares of common stock, then in each
such case the aggregate amount per share to which holders of shares of Series B
Preferred Stock were entitled immediately prior to such event under clause (x)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of common stock
outstanding immediately after such event and the denominator of which is the
number of shares of common stock that were outstanding immediately prior to such
event.
Neither the consolidation of nor merging of the Corporation with or into
any other corporation or corporations, nor the sale or other transfer of all or
substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section 6.
7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of common stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series B Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
7A
<PAGE>
hereinafter set forth) equal to 1000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of common stock is changed or exchanged,
plus accrued and unpaid dividends, if any, payable with respect to the Series B
Preferred Stock. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare or pay any dividend on common stock payable in
shares of common stock, or (ii) effect a subdivision or combination or
consolidation of the outstanding shares of common stock (by reclassification or
otherwise than by payment of a dividend in shares of common stock) into a
greater or lesser number of shares of common stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series B Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
common stock outstanding immediately after such event and the denominator of
which is the number of shares of common stock that were outstanding immediately
prior to such event.
8. Redemption. The shares of Series B Preferred Stock shall not be
redeemable.
9. Ranking. Unless otherwise expressly provided in the Articles or a
Certificate of Vote of Directors Establishing a Class of Stock relating to any
other series of preferred stock of the Corporation, the Series B Preferred Stock
shall rank junior to every other series of the Corporation's preferred stock
previously or hereafter authorized, as to the payment of dividends and the
distribution of assets on liquidation, dissolution or winding up and shall rank
senior to the common stock.
10. Amendment. The Articles and the Series B Certificate shall not
be amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series B Preferred Stock so as to affect
them adversely (within the meaning of Section 77 of Chapter 156B of the
Massachusetts General Laws) without the affirmative vote of the holders of
two-thirds or more of the outstanding shares of Series B Preferred Stock, voting
separately as a class.
11. Fractional Shares. Series B Preferred Stock may be issued in
whole shares or in any fraction of a share that is one one-thousandth (1/1000th)
of a share or any integral multiple of such fraction, which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series B Preferred Stock. In lieu of
fractional shares, the Corporation may elect to make a cash payment as provided
in the Rights Agreement for fractions of a share other than one one-thousandth
(1/1000th) of a share or any integral multiple thereof.
8A
<PAGE>
To amend the Restated Articles of Organization (the "Articles"), as amended, of
Anika Therapeutics, Inc. (the "Corporation") by adopting the following
amendments: (1) to increase the aggregate number of authorized shares of Common
Stock from 15,000,000 to 30,000,000; and (2) eliminate the Certificate of Vote
of Directors Establishing Series A Preferred Stock and in conjunction (i) change
the aggregate number of authorized shares of Preferred Stock from 2,000,000 to
1,250,000 and (ii) amend Article IV, Capital Stock, in its entirety by replacing
the existing Article IV with a new Article IV, the full text of which is set
forth on Addendum A attached as pages 2A-8A.
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date: _________________________.
SIGNED UNDER THE PENALTIES OF PERJURY, this 3rd day of June, 1998
/s/ J. Melville Engle *President
- -------------------------------------------
/s/ Sean Moran *Clerk
- -------------------------------------------
"Delete the inapplicable words.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
======================================================
I hereby approve the within Articles of Amendment and,
the filing fee in the amount of $14,350.00 having been
paid, said articles are deemed to have been filed with
me this 3rd day of June 1998.
Effective date: ______________________________________
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
Diane Boissonneault, Esq.
----------------------------------------------
c/o Goodwin, Procter & Hoar LLP
Exchange Place
----------------------------------------------
Boston, MA 02109-2881
----------------------------------------------
<PAGE>
Exhibit 10.1
* 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").
FIRST AMENDMENT TO
EXCLUSIVE DISTRIBUTION AGREEMENT
THIS FIRST AMENDMENT TO EXCLUSIVE DISTRIBUTION AGREEMENT (the "Amendment")
is effective as of this June 1, 1998 (the "Amendment Effective Date") by and
between ZIMMER, INC., a Delaware corporation ("Distributor"), and ANIKA
THERAPEUTICS, INC., a Massachusetts corporation ("Company"). Reference is hereby
made to that certain Exclusive Distribution Agreement effective as of November
7, 1997, together with all Annexes and Exhibits thereto (the "Agreement"), by
and between Distributor and Company. All capitalized terms used herein and not
defined shall have the meanings given to them in the Agreement.
WHEREAS, Distributor and Company have previously entered into the
Agreement providing for the exclusive right of Distributor to distribute and
sell the Product in accordance with the terms set forth therein; and
WHEREAS, Distributor and Company desire to amend the terms of the
Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the Partes contained herein and in the Agreement, the Parties hereby agree as
follows:
SECTION 1. AMENDMENTS. The Agreement is hereby amended as follows:
1.1 Section 2(a) of the Agreement shall be amended by adding the following
sentence to the end of such Section:
"As partial consideration to Company for the rights granted to Distributor
under the Amendment, Distributor shall pay to Company the sum of $1,500,000 upon
the execution and delivery of the Amendment by both Parties."
1.2 Section 2(d) of the Agreement shall be deleted in its entirety and
replaced with the following:
"(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 ***.
(d.1) 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
<PAGE>
(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 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 ***.
(d.2) 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 representing in aggregate more than *** of the population in
Germany, Distributor shall pay Company the one-time nonrefundable sum of
***.
(d.3) 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 either of the United Kingdom or France, Distributor shall pay Company
the one-time nonrefundable sum of *** and thereafter upon receipt of such
Reimbursement Approval in such other country, Distributor shall pay
Company the one-time nonrefundable sum of ***.
(d.4) 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 countries (Italy, Sweden or the Netherlands),
Distributor shall pay Company the one-time nonrefundable sum of ***.
(d.5) 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 *** 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."
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately
with the Commission.
2
<PAGE>
1.3 The table comprising part of Section 4(a) of the Agreement shall be
amended by deleting such table in its entirety and replacing it with the
following:
<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) *** Units
2003 (Year 6) and thereafter (annually) *** Units
</TABLE>
1.4 Section 4(b) of the Agreement shall be deleted in its entirety and
replaced with the following:
"(b) Notwithstanding the provisions of Section 4(a), Distributor shall not
be obligated to purchase more than *** Units 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,
Year 4 and Year 5 annual Territory-wide Units Requirements shall apply to the
first, second and third calendar years, respectively, immediately succeeding the
calendar year during which the FDA approval is received, and the Year 6 annual
Territory-wide Units Requirement shall apply to each calendar year thereafter
during the Term. All purchases of Product shall have a documented delivery 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."
1.5 Annex C-1 of the Agreement shall be deleted in its entirety and
replaced by Annex C-1 attached hereto.
1.6 Annex C-2 of the Agreement shall be deleted in its entirety and
replaced by Annex C-2 attached hereto.
1.7 The first paragraph of Section 17(b) of the Agreement shall be deleted
in its entirety and replaced by the following:
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately
with the Commission.
3
<PAGE>
"(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, U.S. and Puerto Rico
2. "Latin America" Region = Argentina, Bolivia, Brazil, Chile,
Columbia, Costa Rica, Dominican Republic, Ecuador, El Salvador,
Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua,
Panama, Paraguay, Peru, Puerto Rico, Suriname, Trinidad and Tobago,
Uruguay, Venezuela
3. Japan
4. China
5. "Asia" Region = Australia, Hong Kong, Indonesia, South Korea,
Malaysia, New Zealand, Philippines, Singapore, Taiwan, Thailand
6. "Europe" Region = Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Italy, Luxembourg, The Netherlands, Norway, Sweden,
United Kingdom"
1.8 Section 27 of the Agreement shall be amended such that, upon execution
of this Amendment, Company may issue a press release in the form of Exhibit 1
attached hereto.
1.9 Table 3, (referred to therein as the "Proposed Marketing Activities
Budget Summary"), comprising part of the Marketing Plan attached as Annex B to
the Agreement, and Appendix A also comprising part of the Marketing Plan shall
both be amended in the form of Exhibit 2 attached hereto.
SECTION 2. MISCELLANEOUS.
2.1 Except as specifically amended by this Amendment, including the
Annexes and Exhibits hereto, the Agreement shall remain in full force and effect
in accordance with its terms. Except as specifically provided herein, all
references in the Agreement and in this Amendment to the "Agreement" shall mean
the Agreement as amended hereby. All references in the Agreement to the
Marketing Plan, including, without limitation, Table 3 thereof, shall mean the
Marketing Plan as amended hereby.
2.2 This Amendment 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.
2.3 This Amendment 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.
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately
with the Commission.
4
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed
by their duly authorized representatives.
ANIKA THERAPEUTICS, INC.
By: /s/ J. Melville Engle
----------------------------
Name: J. Melville Engle
Title: President, C.E.O.
ZIMMER, INC.
By: /s/ Ray Elliott
----------------------------
Name: Ray Elliott
Title: President
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately
with the Commission.
5
<PAGE>
ANNEX C-1
COUNTRIES INCLUDED IN TERRITORY
- -------------------------------
ASIA AMERICAS
- ---------------------------------------------------
Australia Canada
China* United States of America
Hong Kong Puerto Rico
Indonesia
Japan** LATIN AMERICA
Korea, South -------------
Malaysia
New Zealand Argentina
Philippines Bolivia
Singapore Brazil
Taiwan Chile
Thailand Columbia
Costa Rica
EUROPE Dominican Republic
- ------ Ecuador
Austria El Salvador
Belgium Guatemala
Denmark Guyana
Finland Haiti
France Honduras
Germany Jamaica
Greece Mexico
Italy Nicaragua
Luxembourg Panama
Netherlands, The Paraguay
Norway Peru
Sweden Suriname
United Kingdom Trinidad and Tobago
Uruguay
Venezuela
* Subject to the terms and conditions in Section 2(c)(ii)
** Subject to the terms and conditions in Section 2(c)(i)
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately
with the Commission.
6
<PAGE>
ANNEX C-2
COUNTRIES INCLUDED IN OPTIONAL TERRITORY
----------------------------------------
None.
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately
with the Commission.
7
<PAGE>
EXHIBIT 1
Form of Press Release
FOR IMMEDIATE RELEASE
Contact:
Anika Therapeutics, Inc. Pondel Parsons & Wilkinson Zimmer, Inc.
Sean Moran, C.F.O. Susan Klein (508) 358-4315 Brad Bishop
(781) 932-6616 ext. 102 Rob Whetstone (310) 207-9300 (219) 372-4291
ZIMMER AND ANIKA THERAPEUTICS ANNOUNCE AGREEMENT TO EXPAND
DISTRIBUTION OF ORTHOVISC(R) INTO EUROPE AND LATIN AMERICA
Innovative, Natural Osteoarthritis Treatment Also Launched
in Canada
WARSAW, INDIANA, June 3, 1998 Zimmer, Inc., a wholly owned subsidiary of Bristol
Myers Squibb (NYSE: BMS) and Anika Therapeutics, Inc. (Nasdaq: ANIK) today
announced that they have amended their agreement for sales, marketing and
distribution of ORTHOVISC(R) sodium hyaluronate to include European countries,
Scandinavia and Latin America.
Under terms of the exclusive, multi-year amended agreement, the potential
licensing payments to Anika from Zimmer will total up to $5.0 million,
contingent upon achievement of certain milestones, including an initial upfront
payment of $1.5 million. As part of the amended agreement, Zimmer will commit
significant additional sales and marketing resources to support ORTHOVISC(R)
commercialization.
The world leader in knee and hip replacements, Zimmer signed a multi-year
agreement with Anika in November 1997 to distribute ORTHOVISC(R) in the United
States, Canada and a number of Asian markets.
"We are excited about bringing this therapeutic product to the European and
Latin American markets and about the opportunity to further its
commercialization around the world," said Ray Elliott, Zimmer president.
"ORTHOVISC(R) is a natural extension of the products we currently provide to
physicians to help them improve the quality of life for their patients.
ORTHOVISC(R) offers physicians another treatment option for relieving pain and
improving function"
Noted J. Melville Engle, Anika president and chief executive officer, "We have
been extremely pleased with the results of our collaboration with Zimmer to date
and see
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately
with the Commission.
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opportunities in expanding the relationship to cover these additional markets.
Zimmer is the world leader in knee and hip replacement products, and has the
world's largest dedicated sales force working with orthopaedic surgeons and
related specialists. Extending our collaboration to cover Europe and Latin
America means ORTHOVISC(R) will have a cohesive, global representation."
ORTHOVISC(R) is an ultra-pure, high molecular weight, naturally derived HA
product, designed to restore the elasticity and viscosity of the synovial fluid
in joints. The product is injected into the knee joint space three times over a
two-week period intending to provide viscosupplementation and pain relief.
Osteoarthritis is a prevalent degenerative joint disease characterized by
chronic, debilitating symptoms such as joint pain, stiffness and loss of
mobility. In the U.S. and Canada nearly twenty million people reportedly suffer
from this disease.
The companies also announced that Zimmer has launched the innovative treatment
for osteoarthritis of the knee in Canada. where osteoarthritis affects over 12%
of the population.
Two major Canadian medical centers are now conducting additional follow-up
studies with ORTHOVISC(R). Dr. John Wade of the University of British Columbia
is leading a multi-center study in Canada, and Dr. Sandy Kirkley is conducting a
study at the Fowler Kennedy Sport Medicine Clinic at the University of Western
Ontario in London, Ontario. A multi-center trial is also underway in the United
States.
In addition to being for sale in Canada, ORTHOVISC(R) has received Communatee
European (CE) marking, permitting sale of the product throughout the European
Union. The product is currently approved as an investigational device in the
United States and its pre-market approval application has been accepted for
review by the U.S. Food and Drug Administration. In February 1998, the agency
informed Anika that the application would not require panel review.
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.
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately
with the Commission.
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Founded in 1927, Zimmer became a member of the Bristol-Myers 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.
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Visit Zimmer on the Worldwide Web at http//www.zimmer.com
Visit Anika on the Worldwide Web at http://www.anikatherapeutics.com
Visit Bristol-Myers Squibb on the Worldwide Web 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. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might create such a difference include the ability of
the Company to obtain regulatory approval of ORTHOVISC, the inability of
Zimmer to successfully market the product in the geographic areas covered
by the Company's agreements with Zimmer and those factors set forth under
the heading "Risk Factors" in the Company's 10-KSB filed with the
Securities and Exchange Commission on March 31, 1998.
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately
with the Commission.
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EXHIBIT 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.
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AMENDED APPENDIX A
*
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions have been filed separately
with the Commission.
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Exhibit 10.2
ANIKA THERAPEUTICS, INC.
1993 STOCK OPTION PLAN, as amended
March 3, 1993
1. Purpose.
The purpose of this plan (the "Plan") is to secure for Anika
Therapeutics, Inc. (the "Company") and its shareholders the benefits arising
from capital stock ownership by employees, officers and directors of, and
consultants or advisors to, the Company and its parent and subsidiary
corporations who are expected to contribute to the Company's future growth and
success and to provide options to holders of options to purchase the capital
stock of MedChem Products, Inc. ("MedChem") in connection with the distribution
of shares of the Company's Common Stock ("Common Stock") by MedChem. Except
where the context otherwise requires, the term "Company" shall include the
parent and all present and future subsidiaries of the Company as defined in
Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or
replaced from time to time (the "Code"). Those provisions of the Plan which make
express reference to Section 422 shall apply only to Incentive Stock Options (as
that term is defined in the Plan).
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-statutory options which are not intended to meet the requirements of
Section 422 of the Code.
(b) Outright Grant of Shares. The Board of Directors is also authorized
to make outright grants of shares of Common Stock of the Company in all
circumstances in which the Board of Directors deems such grants appropriate,
subject to such terms, conditions or vesting limitations as from time to time
determined by the Board of Directors.
(c) Administration. The Plan will be administered by the Board of
Directors of the Company, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The Board of Directors may
in its sole discretion grant options to purchase shares of the Company's Common
Stock and issue shares upon exercise of such options as provided in the Plan.
The Board shall have authority, subject to the express provisions of the Plan,
to construe the respective option agreements and the Plan, to prescribe, amend
and rescind rules and regulations relating to the Plan, to determine the terms
and provisions of the respective option agreements, which need not be identical,
and to make all other determinations in the judgment of the Board of Directors
necessary or desirable for the administration of the Plan. The Board of
Directors may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option agreement in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. No director or person acting pursuant
to authority delegated by the Board of Directors shall be liable for any action
or determination under the Plan made in good faith. The Board of Directors may,
to the full extent permitted by or consistent with applicable laws or
regulations (including, without limitation, applicable state law and Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), or
any successor rule ("Rule 16b-3")), delegate any or all of its powers under the
Plan to a committee (the "Committee") which consists solely of two or more
Non-Employee Directors (as defined in Rule 16b-3) appointed by the Board of
Directors, and if the Committee is so appointed all references to the Board of
Directors in the Plan shall mean and relate to such Committee.
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(d) Applicability of Rule 16b-3. Those provisions of the Plan which
make express reference to Rule 16b-3 shall apply only to such persons as are
required to file reports under Section 16(a) of the Exchange Act (a "Reporting
Person").
3. Eligibility.
(a) General. Options may be granted to persons who are, at the time of
grant, employees, officers or directors of, or consultants or advisors to, the
Company; provided, that the class of employees to whom Incentive Stock Options
may be granted shall be limited to all employees of the Company. A person who
has been granted an option may, if he or she is otherwise eligible, be granted
additional options if the Board of Directors shall so determine.
(b) MedChem Products, Inc. Notwithstanding the foregoing paragraph,
non-statutory options may also be granted under the Plan to persons who hold
options to purchase shares of Common Stock of MedChem as of the date on which
MedChem distributes the shares of Common Stock of the Company it holds to its
stockholders pursuant to the terms of the Plan and Agreement of Distribution to
be entered into between MedChem and the Company (the "MedChem Optionees").
(c) Grant of Options to Directors and Officers. From and after the
registration of the Common Stock of the Company under the Exchange Act, the
selection of a director or an officer (as the terms "director" and "officer" are
defined for purposes of Rule 16b-3) as a recipient of an option, the timing of
the option grant, the exercise price of the option and the number of shares
subject to the option shall be determined either (i) by the Board of Directors
or (ii) by two or more directors having full authority to act in the matter,
each of whom shall be a Non-Employee Director. For the purposes of the Plan, a
director shall be deemed to be a Non-Employee Director only if such person
qualifies as a Non-Employee Director within the meaning of Rule 16b-3, as such
term is interpreted from time to time.
4. Stock Subject to Plan.
Subject to adjustment as provided in Section 15 below, the maximum
number of shares of Common Stock of the Company which may be issued and sold
under the Plan is 3,000,000 shares. In no event shall stock options with respect
to more than 250,000 shares of Common Stock be granted to any one individual
during any one calendar year period. If an option granted under the Plan shall
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject to such option shall again be available for
subsequent option grants under the Plan. If shares issued upon exercise of an
option under the Plan are tendered to the Company in payment of the exercise
price of an option granted under the Plan, such tendered shares shall again be
available for subsequent option grants under the Plan; provided, that in no
event shall (i) the total number of shares issued pursuant to the exercise of
Incentive Stock Options under the Plan, on a cumulative basis, exceed the
maximum number of shares authorized for issuance under the Plan exclusive of
shares made available for issuance pursuant to this sentence or (ii) the total
number of shares issued pursuant to the exercise of options by Reporting
Persons, on a cumulative basis, exceed the maximum number of shares authorized
for issuance under the Plan exclusive of shares made available for issuance
pursuant to this sentence.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each recipient
of an option shall execute an option agreement in such form not inconsistent
with the Plan as may be approved by the Board of Directors. Such option
agreements may differ among recipients.
6. Purchase Price.
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(a) General. The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors, 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, as determined by
the Board of Directors, at the time of grant of such option, or less than 110%
of such fair market value in the case of options described in Section 11(b).
(b) Payment of Purchase Price. Options granted under the Plan may
provide for the payment of the exercise price by delivery of cash or a check to
the order of the Company in an amount equal to the exercise price of such
options, or, to the extent provided in the applicable option agreement, (i) by
delivery to the Company of shares of Common Stock of the Company already owned
by the optionee having a fair market value equal in amount to the exercise price
of the options being exercised, (ii) by any other means (including, without
limitations by delivery of a promissory note of the optionee payable on such
terms as are specified by the Board of Directors) which the Board of Directors
determines are consistent with the purpose of the Plan and with applicable laws
and regulations (including, without limitation, the provisions of Rule 16b-3 and
Regulation T promulgated by the Federal Reserve Board) or (iii) by any
combination of such methods of payment. The fair market value of any shares of
the Company's Common Stock or other non-cash consideration which may be
delivered upon exercise of an option shall be determined by the Board of
Directors.
7. Option Period.
Each option and all rights thereunder shall expire on such date as
shall be set forth in the applicable option agreement, except that, in the case
of an Incentive Stock Option, such date shall 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 Plan.
8. Exercise of Options.
Each option granted under the Plan shall 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
Plan.
9. Nontransferability of Options.
Incentive Stock Options, and all options granted to Reporting Persons,
shall not be assignable or transferable by the person to whom they are granted,
either voluntarily or by operation of law, except by will or the laws of descent
and distribution, and, during the life of the optionee, shall be exercisable
only by the optionee; provided, however, that non-statutory options may be
transferred pursuant to a qualified domestic relations order (as defined in Rule
16b-3).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, the Board of Directors shall
determine the period of time during which an optionee may exercise an option
following (i) the termination of the optionee's employment or other relationship
with the Company or, in the case of a MedChem Optionee, with MedChem or, (ii)
the death or disability of the optionee. Such periods shall be set forth in the
agreement evidencing such option.
11. Incentive Stock Options.
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
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(a) Express Designation. All Incentive Stock Options granted under the
Plan shall; at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock Option
is to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company (after taking into account the attribution
of stock ownership rules of Section 424(d) of the Code), then the following
special provisions shall be applicable to the Incentive Stock Option granted to
such individual:
(i) The purchase price per share of the Common Stock subject
to such Incentive Stock Option shall not be less than 110% of the fair market
value of one share of Common Stock at the time of grant; and
(ii) the option exercise period shall not exceed five years
from the date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other incentive stock
option plans of the Company) which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate fair market value
(determined as of the respective date or dates of grant) of more than $100,000.
(d) Termination of Employment, Death or Disability. No Incentive Stock
Option may be exercised unless, at the time of such exercise the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
(i) an Incentive Stock Option may be exercised within the
period of three months after the date the optionee ceases to be an employee of
the Company (or within such lesser period as may be specified in the applicable
option agreement), provided, that the agreement with respect to such option may
designate a longer exercise period and that the exercise after such three-month
period shall be treated as the exercise of a non-statutory option under the
Plan;
(ii) if the optionee dies while in the employ of the Company,
or within three months after the optionee ceases to be such an employee, the
Incentive Stock Option may be exercised by the person to whom it is transferred
by will or the laws of descent and distribution within the period of one year
after the date of death (or within such lesser period as may be specified in the
applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision thereto) while in the
employ of the Company, the Incentive Stock Option may be exercised within the
period of one year after the date the optionee ceases to be such an employee
because of such disability (or within such lesser period as may be specified in
the applicable option agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors may, in its
sole discretion, include additional provisions in option agreements covering
options granted under the Plan, including without limitation restrictions on
transfer, repurchase rights, commitments to pay cash bonuses, to make, arrange
for or guaranty loans or to transfer other property to optionees upon exercise
of options, or such other provisions as shall be
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determined by the Board of Directors; provided that such additional provisions
shall not be inconsistent with any other term or condition of the Plan and such
additional provisions shall not cause any Incentive Stock Option granted under
the Plan to fail to qualify as an Incentive Stock Option within the meaning of
Section 422 of the Code.
(b) Acceleration, Extension, Etc. The Board of Directors may, in its
sole discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular, option or options granted under the
Plan may be exercised; provided, however, that no such extension shall be
permitted if it would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3.
13. General Restrictions.
(a) Investment Representations. The Company may require any person to
whom an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option for
his or her own account for investment and not with any present intention of
selling or otherwise distributing the same and to such other effects as the
Company deems necessary or appropriate in order to comply with federal and
applicable state securities laws, or with covenants or representations made by
the Company in connection with any public offering of its Common Stock.
(b) Compliance With Securities Laws. Each option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with, the issuance or purchase
of shares thereunder, such option may not be exercised, in whole or in part,
unless such listing, registration, qualification, consent or approval, or
satisfaction of such condition shall have been effected or obtained on
conditions acceptable to the Board of Directors. Nothing herein shall be deemed
to require the Company to apply for or to obtain such listing, registration or
qualification, or to satisfy such condition.
14. Rights as a Shareholder.
The holder of an option shall have no rights as a shareholder with
respect to any shares covered by the option (including, without limitation any
rights to receive dividends or non-cash distributions with respect to such
shares) until the date of issue of a stock certificate to him or her for such
shares. No adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations and Related Transactions.
(a) General. If, through or as a result of any merger, consolidation,
sale of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of shares
or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment may be made in (x) the maximum number
and kind of shares reserved for issuance under the Plan, (y) the maximum number
of shares subject to stock options that can be granted to any one individual in
any one calendar year, (z) the number and kind of shares or other securities
subject to any then outstanding options under the Plan, and (xx) the price for
each share subject to any then outstanding options under the Plan, without
changing the aggregate purchase price as to which such options remain
exercisable. Notwithstanding the foregoing, no adjustment shall be made
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pursuant to this Section 15 if such adjustment would cause the Plan to fail to
comply with Section 422 of the Code.
(b) Board Authority to Make Adjustments. Any adjustments under this
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. In the event of a consolidation or merger or sale of all
or substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the Company,
the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may in its discretion, take
any one or more of the following actions, as to outstanding options: (i) provide
that such options shall be assumed, or equivalent options shall be substituted,
by the acquiring or succeeding corporation (or an affiliate thereof), provided
that any such options substituted for Incentive Stock Options shall meet the
requirements of Section 424(a) of the Code, (ii) upon written notice to the
optionees, provide that all unexercised options will terminate immediately prior
to the consummation of such transaction unless exercised by the optionee within
a specified period following the date of such notice, (iii) in the event of a
merger under the terms of which holders of the Common Stock of the Company will
receive upon consummation thereof a cash payment for each share surrendered in
the merger (the "Merger Price"), make or provide for a cash payment to the
optionees equal to the difference between (A) the Merger Price times the number
of shares of Common Stock subject to such outstanding options (to the extent
then exercisable at prices not in excess of the Merger Price) and (B) the
aggregate exercise price of all such outstanding options in exchange for the
termination of such options, and (iv) provide that all or any outstanding
options shall become exercisable in full immediately prior to such event.
(b) Substitute Options. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or, in the case of a MedChem Optionee, by MedChem or interfere in
any way with the right of the Company or, in the case of a MedChem Optionee,
MedChem at any time to terminate such employment or to increase or decrease the
compensation of the optionee.
18. Other Employee Benefits.
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
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19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that if at any time the approval
of the shareholders of the Company is required under Section 422 of the Code or
any successor provision with respect to Incentive Stock Options, the Board of
Directors may not effect such modification or amendment without such approval.
(b) The termination or any modification or amendment of the Plan shall
not, without the consent of an optionee, affect his or her rights under an
option previously granted to him or her. With the consent of the optionee
affected, the Board of Directors may amend outstanding option agreements in a
manner not inconsistent with the Plan. The Board of Directors shall have the
right to amend or modify (i) the terms and provisions of the Plan and of any
outstanding Incentive Stock Options granted under the Plan to the extent
necessary to qualify any or all such options for such favorable federal income
tax treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code and (ii) the terms and
provisions of the Plan and of any outstanding option to the extent necessary to
ensure the qualification of the Plan.
20. Withholding.
(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a fair
market value equal to such withholding obligation. The fair market value of the
shares used to satisfy such withholding obligation shall be determined by the
Company as of the date that the amount of tax to be withheld is to be
determined. An optionee who has made an election pursuant to this Section 20(a)
may only satisfy his or her withholding obligation with shares of Common Stock
which are not subject to any repurchase, forfeiture, unfulfilled vesting or
other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person,
no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of Rule
16b-3.
21. Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan became effective when adopted by the Board
of Directors, but no Incentive Stock Option granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the Company's
shareholders. If such shareholder approval is not obtained within twelve months
after the date of the Board's adoption of the Plan, no options previously
granted under the Plan shall be deemed to be Incentive Stock Options and no
Incentive Stock Options shall be granted thereafter. Amendments to the Plan not
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requiring shareholder approval shall become effective when adopted by the Board
of Directors; amendments requiring shareholder approval (as provided in Section
19) shall become effective when adopted by the Board of Directors, but no
incentive Stock Option granted after the date of such amendment shall become
exercisable (to the extent that such amendment to the Plan was required to
enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section
16, the 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, the tenth
anniversary of any amendment increasing the number of shares of Common Stock of
the Company which may be issued and sold under the Plan, or (ii) the date on
which all shares available for issuance under the Plan shall have been issued
pursuant to the exercise or cancellation of options granted under the Plan.
Unless sooner terminated in accordance with Section 16, the Plan shall 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 shall continue to have force and
effect in accordance with the provisions of the instruments evidencing such
options.
23. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
24. Change in Control.
Notwithstanding any other provision of the Plan and except as otherwise
provided in the relevant option agreement, in the event of a "Change in Control
of the Company" (as defined below) the exercise dates of all options then
outstanding shall be accelerated in full and any restrictions on exercising
outstanding options issued pursuant to the Plan prior to any given date shall
terminate. For purposes of the Plan, a "Change in Control of the Company" shall
occur or be deemed to have occurred only if any of the following events occur:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the
Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, or any corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportion as their
ownership of stock of the Company) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities; (ii) individuals who, as of the
date hereof, constitute the Board (as of the date hereof, the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders, was approved
by a vote of at least a majority of the directors then comprising the Incumbent
Board (other than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the directors of the Company, as such terms
are used in Rule 14a-11 of Regulation 14A under the Exchange Act) shall be, for
purposes of this Agreement, considered as though such person were a member of
the Incumbent Board; (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either
8
<PAGE>
by remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or (iv) the stockholders of
the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets. Notwithstanding the foregoing, the Board of Directors
of the Company may, in its sole discretion, by a resolution adopted by a
majority of the Incumbent Board prior to the occurrence of any of the events
otherwise constituting a Change in Control of the Company, declare that such
event will not constitute a Change in Control of the Company for the purposes of
the Plan. If such resolution is adopted, such event shall not constitute a
Change in Control of the Company for any purpose of the Plan.
Adopted by the Board of Directors on March 3, 1993.
Amended by the Board of Directors on April 26, 1993.
Approved by the Stockholders on April 26, 1993.
Amended by the Board of Directors on March 21, 1995.
Approved by the Stockholders on January 10, 1996.
Amended by the Board of Directors on October 1, 1996.
Amended by the Board of Directors on October 28, 1997.
Amended by the Board of Directors on January 6, 1998.
Approved by the Stockholders on June 3, 1998.
9
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