-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AwATd1AQTZN5k8Tj3XTHmJ0R6nbC5vzuaihOpZKsZrAQuRZENTs0dhIM57ASd4H4 rxgUw8F1fjwA2edzoN8TWQ== 0000810084-96-000016.txt : 19960814 0000810084-96-000016.hdr.sgml : 19960814 ACCESSION NUMBER: 0000810084-96-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOJECT MEDICAL TECHNOLOGIES INC CENTRAL INDEX KEY: 0000810084 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 931099680 STATE OF INCORPORATION: OR FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15360 FILM NUMBER: 96609231 BUSINESS ADDRESS: STREET 1: 7620 S W BRIDGEPORT RD CITY: PORTLAND STATE: OR ZIP: 97224 BUSINESS PHONE: 5036397221 FORMER COMPANY: FORMER CONFORMED NAME: BIOJECT MEDICAL SYSTEMS LTD DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED 06-30-96 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________________________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 OR For the quarterly period ended June 30, 1996 Commission File No. 0-15360 BIOJECT MEDICAL TECHNOLOGIES INC. (Exact name of registrant as specified in its charter) Oregon 93-1099680 (State of other jurisdiction of (I.R.S. identification no.) employer incorporation or organization) 7620 SW Bridgeport Road Portland, Oregon 97224 (Address of principal executive offices) (Zip code) (503) 639-7221 (Registrant's telephone number, including areas code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At June 30, 1996 there were 15,616,712 outstanding shares of common stock of the registrant. PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following unaudited consolidated financial statements of Bioject Medical Technologies Inc. (BMT) and its subsidiaries, Bioject Medical Systems Ltd. (BMSL) and Bioject Inc. (BI) (together, unless the context otherwise requires, the "Company"), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. BMT, BMSL and BI were formed for the purpose of developing, manufacturing and distributing a new drug delivery system, capable of injecting medications through the skin without the traditional needle puncture. The following 10-Q report reflects the consolidated results of operations, cash flows and financial position for the first quarter of the year ending March 31, 1997. The results of operations for interim periods are not necessarily indicative of the results to be expected for the year. - Consolidated Statements of Operations for the quarters ended June 30, 1996 and June 30, 1995 - Consolidated Balance Sheets dated June 30, 1996 and March 31, 1996 - Consolidated Statements of Cash Flows for the quarters ended June 30, 1996 and June 30, 1995 BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three-Month Period Ended June 30, 1996 1995 ------------------------- REVENUES: Net sales of products $ 176,869 $ 703,444 Licensing/technology fees 314,900 225,000 ----------- --------- 491,769 928,444 ----------- ----------- EXPENSES: Manufacturing 581,542 1,408,790 Research and development 408,368 367,806 Selling, general and administrative 747,427 866,309 Other (income) expense, net (21,672) (67,718) ----------- ----------- 1,715,665 2,575,187 ----------- ----------- INCOME (LOSS) BEFORE TAXES (1,223,896) (1,646,743) PROVISION FOR INCOME TAXES - - ----------- ----------- NET INCOME (LOSS) $(1,223,896) $(1,646,743) =========== =========== EARNINGS (LOSS) PER SHARE $ (.08) $ (.12) =========== =========== SHARES USED IN PER SHARE CALCULATION 15,585,232 13,259,197 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, March 31, 1996 1996 -------------------------- (unaudited) ASSETS - ------------------------------------------ CURRENT ASSETS: Cash and cash equivalents $ 2,753,489 $ 3,098,251 Securities available for sale - 993,056 Accounts receivable 72,710 424,859 Inventories 1,517,180 1,255,945 Prepaid and other current assets 47,782 45,714 ----------- ----------- Total current assets 4,391,161 5,817,825 CASH - RESTRICTED 173,163 - PROPERTY AND EQUIPMENT, at cost: Machinery and equipment 1,431,295 1,428,001 Production molds 780,980 777,353 Furniture and fixtures 163,116 163,116 Leasehold improvements 73,854 73,854 Equipment and molds under construction, pledged 279,559 - ----------- ----------- 2,728,804 2,442,324 Less - Accumulated depreciation (1,213,338) (1,048,638) ----------- ----------- 1,515,466 1,393,686 OTHER ASSETS 301,394 307,105 ----------- ----------- $ 6,381,184 $ 7,518,616 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY - -------------------------------------------- CURRENT LIABILITIES: Accounts payable $ 305,977 $ 550,174 Accrued payroll 136,158 158,225 Other accrued liabilities 225,702 216,924 Deferred revenue 300,600 566,000 ----------- ----------- Total current liabilities 968,437 1,491,323 LONG-TERM DEBT 450,000 - COMMITMENTS SHAREHOLDERS' EQUITY: Preferred stock, no par, 10,000,000 shares authorized; no shares issued and outstanding - - Common stock, no par, 100,000,000 shares authorized; issued and outstanding 15,616,712 shares at June 30, 1996 and 15,585,232 at March 31, 1996 36,160,508 36,001,158 Accumulated deficit (31,197,761) (29,973,865) ----------- ----------- Total shareholders' equity 4,962,747 6,027,293 ----------- ----------- $ 6,381,184 $ 7,518,616 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Three-Month Period Ended June 30, 1996 1995 -------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,223,896) $(1,646,743) Adjustments to net loss: Depreciation and amortization 172,200 132,600 Common stock issued for services 159,350 16,768 Net changes in assets and liabilities: Accounts receivable 352,149 (69,249) Inventories (261,235) (267,876) Prepaid and other current assets (2,068) 14,516 Accounts payable (244,197) 51,133 Accrued payroll (22,067) (49,808) Other accrued liabilities 8,778 14,316 Deferred revenue (265,400) (75,000) ----------- ----------- Net Cash Used in Operating Activities (1,326,386) (1,879,343) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Transfers to restricted cash (173,163) - Purchase of securities available for sale - (986,320) Sale of securities available for sale 993,056 3,989,468 Capital expenditures (286,480) (467,298) Other assets (1,789) (25,555) ----------- ----------- Net Cash Used in Investing Activities 531,624 2,510,295 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Insurance of long-term debt 450,000 - Cash proceeds from common stock - - ----------- ----------- Net Cash Provided by Financing Activities 450,000 - ----------- ----------- CASH AND CASH EQUIVALENTS: Net increase (decrease) in cash and cash equivalents (344,762) 630,952 Cash and cash equivalents at beginning of period 3,098,251 2,057,384 ----------- ----------- Cash and cash equivalents at end of period $ 2,753,489 $ 2,688,336 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY: The consolidated financial statements of Bioject Medical Technologies Inc. and its subsidiaries (the "Company"), include the accounts of Bioject Medical Technologies Inc. ("BMT") and its wholly owned subsidiaries, Bioject Medical Systems Ltd. ("BMSL") and Bioject Inc. ("BI"). All significant intercompany transactions have been eliminated. BMT was incorporated on December 17, 1992 under the laws of the State of Oregon for the purpose of acquiring all of the outstanding common shares of BMSL in exchange for an equivalent number of common shares of BMT stock under a plan of U.S. reincorporation approved by the Company's shareholders on November 20, 1992. BMSL was incorporated on February 14, 1985, under the laws of British Columbia, and BI was incorporated on February 8, 1985, under the laws of the State of Oregon. The Company commenced operations in 1985 for the purpose of developing, manufacturing and distributing a new drug delivery system. Since its formation, the Company has been engaged principally in organizational, financing, research and development, and marketing activities. In the last quarter of fiscal 1993, the Company launched U.S. distribution of its Biojector 2000 system primarily to the hospital and large clinic market. The Company's products and manufacturing operations are subject to extensive government regulation, both in the U.S. and abroad. In the U.S., the development, manufacture, marketing and promotion of medical devices is regulated by the Food and Drug Administration ("FDA") under the Federal Food, Drug, and Cosmetic Act ("FFDCA"). In 1987, the Company received clearance from the FDA under Section 510(k) of the FFDCA to market a hand-held CO2-powered jet injection system. In June 1994, the Company received clearance from the FDA under 510(k) to market a version of its Biojector 2000 system in a configuration targeted at high volume injection applications. The Company's revenues to date have been derived primarily from licensing and technology fees and more recently from sales of the Biojector 2000 system and Biojector syringes to public health clinics and to Health Management Inc. with whom the Company signed an two-year distribution agreement in fiscal 1995. Subsequent to year end this agreement was cancelled. Although not obligated to do so, the Company agreed to repurchase a portion of the goods sold (see Note 5). Future revenues will depend upon acceptance and use by healthcare providers of the Company's jet injection technology. Uncertainties over government regulation and competition in the healthcare industry may impact healthcare provider expenditures and third party payer reimbursements and, accordingly, the Company cannot predict what impact, if any, subsequent healthcare reforms might have on its business. In the future the Company may require additional financing. Failure to obtain such financing on favorable terms could adversely affect the Company's business. 2. ACCOUNTING POLICIES: INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined in a manner which approximates the first-in, first out (FIFO) method. Costs utilized for inventory valuation purposes include labor, materials and manufacturing overhead. Net inventories consist of the following: June 30, March 31, 1996 1996 ---------- ---------- Raw Materials $ 696,093 $ 697,694 Work in Process 12,467 12,467 Finished Goods 808,620 545,784 ---------- ---------- $1,517,180 $1,255,945 ========== ========== During the first quarter, although not obligated to do so, the Company committed to repurchase certain inventories from one customer. The purchase price totalled $660,000 of which $322,000 has been satisfied and the balance is to be acquired and paid in two equal installments in July and October 1996. PROPERTY AND EQUIPMENT AND LONG-TERM DEBT In the first quarter of fiscal 1997, the Company commenced acquiring tooling and molds under a contract with Schering AG. Under the contract, Schering has agreed to advance the Company up to $1.6 million on an agreed-upon schedule to acquire this capital equipment which is pledged to Schering subject to repayment of the loans. During the quarter, $450,000 of these loans were received from Schering. Unexpended funds advanced to the Company must be held in a separate account and are also pledged against repayment of the debt. The loans bear interest at Wells Fargo Bank prime plus 2 1/2%. Interest only is payable in annual installments until March 1998 at which time repayment of principal and interest will commence and be amortized over a 24-36 month period. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS The accompanying, unaudited consolidated financial statements do not include all information and footnote disclosures normally included in an audited financial statement. However, in the opinion of management, all adjustments (which include only normal, recurring adjustments except as described below) necessary to present fairly the financial position, cash flows, and results of operations have been made. It is suggested that these statements be read in conjunction with the financial statements included in the Company's Annual Report on Form 10-K for the year ended March 31, 1996. On June 3, 1996, the British Columbia Securities Commission informed the Company that its Executive Director (formerly the Superintendent of Brokers) consented to the release of all shares originally held in escrow pursuant to an escrow agreement dated May 30, 1986. This means that the 1.5 million shares of common stock which had been held under this escrow arrangement since the Company's initial public offering in July 1986 are now held by the owners of the shares without risk of cancellation and may be sold. As previously disclosed, a non-cash charge to compensation expense is required to be recorded for certain of the shares being released from the escrow account and transferred to certain former employees and consultants of the Company. Accordingly, a non-cash charge totalling $120,000 has been recorded in the financial statements during the quarter. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company has been developing a self-injection system for Schering AG, Germany, under a multi-year contract signed in March 1994. On June 26, 1996, the Company and Schering entered into a Supply Agreement which specifies the terms under which the Company will manufacture and sell the self-injection systems to Schering. Subject to Schering's satisfaction with certain product test results and receipt of regulatory approval in the United States and certain foreign countries, Bioject will manufacture the self-injection systems exclusively for Schering AG which will distribute the systems on a worldwide basis to multiple sclerosis patients using Betaseron. The agreement extends for an initial term of eight years and provides for minimum amounts which must be produced by Bioject and which must be purchased by Schering AG in order for both parties to maintain their rights under the agreement. The Company has commenced preparation to manufacture the self-injection systems, and initial shipments under the agreement are scheduled to commence in the first quarter of fiscal 1998. The Company's revenues to date have not been sufficient to cover operating expenses. However, the Company believes that if its products achieve market acceptance and the volume of sales increases, and its product costs are reduced, its costs of goods as a percentage of sales will decrease and eventually the Company will generate net income. (See "Forward Looking Statements") The level of sales required to generate net income will be affected by a number of factors including the pricing of the Company's products, its ability to attain efficiencies that can be attained through volume and automated manufacturing, and the impact of inflation on the Company's manufacturing and other operating costs. There can be no assurance that the Company will be able to successfully implement its manufacturing cost reduction program or sell its products at prices or in volumes sufficient to achieve profitability or offset increases in its costs should they occur. Revenues and results of operations have fluctuated and can be expected to continue to fluctuate significantly from quarter to quarter and from year to year. Various factors may affect quarterly and yearly operating results including (i) length of time to close product sales, (ii) customer budget cycles, (iii) implementation of cost reduction measures, (iv) uncertainties and changes in purchasing due to third party payor policies and proposals relating to national healthcare reform, (v) timing and amount of payments under technology development agreements and (vi) timing of new product introductions by the Company and its competition. On June 3, 1996, the British Columbia Securities Commission informed the Company that its Executive Director (formerly the Superintendent of Brokers) consented to the release of all shares originally held in escrow pursuant to an escrow agreement dated May 30, 1986. This means that the 1.5 million shares of common stock which had been held under this escrow arrangement since the Company's initial public offering in July 1986 are now held by the owners of the shares without risk of cancellation and may be sold. As previously disclosed, a non-cash charge to compensation expense is required to be recorded for certain of the shares being released from the escrow account and transferred to certain former employees and consultants of the Company. Accordingly, a non-cash charge totalling $120,000 has been recorded in the financial statements during the quarter. During fiscal 1997, the Company will continue to focus its efforts on expanding sales, reducing the cost of its products, developing injectors for Schering and Hoffmann-La Roche, pursuing additional alliances with pharmaceutical companies and conserving its fiscal resources. The Company does not expect to report net income from options in fiscal 1997. (See Forward Looking Statements). RESULTS OF OPERATIONS Product sales decreased from $703,000 in the first quarter of fiscal 1996 to $177,000 in the first quarter of fiscal 1997. Sales in the first quarter of fiscal 1996 consisted of approximately $650,000 of sales to Health Management Inc., and the remainder to hospitals, large clinics, and individual physician offices. Sales in the first quarter of fiscal 1997 consisted primarily of non-HMI sales to public health clinics. License and technology fees increased from $225,000 in the first quarter of fiscal 1996 to $315,000 in the first quarter of fiscal 1997. Both quarters consisted of product development fees recognized for work performed to develop a self injection device for the administration of Betaseron to multiple sclerosis patients under an agreement with Schering, AG, and product development fees for work to develop proprietary drug delivery systems under an agreement with Hoffmann-La Roche. The increase in fees reflected an increase in activity for the first quarter of fiscal 1997 compared to the first quarter in the prior year. Manufacturing expense decreased from the first quarter of fiscal 1996 to the first quarter of fiscal 1997 by $827,000. This decrease was the result of the decline in product sales and the elimination of certain excess materials and labor costs incurred in installing and validating the automated syringe assembly equipment and testing Biojector prototypes in the first quarter of the prior year. Research and development expenses were up from $368,000 in the first quarter of fiscal 1996 to $408,000 in the first quarter of fiscal 1997 due to a one-time non cash charge totalling $95,000 for past research and development consulting services resulting from the release of certain escrowed shares offset by a fluctuation in activity associated with the Schering and Hoffmann- La Roche projects. Selling, general and administrative expense decreased from $866,000 in the first quarter of fiscal 1996 to $747,000 in the first quarter of fiscal 1997. The decrease was due primarily to a reduction in personnel from the prior year's quarter offset by a one-time non cash charge totalling $25,000 for past selling and administrative employee services. Other income consists of earnings on available cash balances and, in fiscal 1997, such income is net of interest expense on a long-term debt due to Schering AG. Other income decreased from $68,000 in the first quarter of fiscal 1996 to $22,000 in the first quarter of fiscal 1997, as a result of decreases in cash balances and the offsetting effect of interest expense. LIQUIDITY AND CAPITAL RESOURCES Since its inception in 1985, the Company has financed its operations, working capital needs and capital expenditures primarily from private placements of securities, exercises of stock options, proceeds received from its initial public offering in 1986, proceeds received from a public offering of Common Stock in November 1993, licensing and technology revenues and more recently from sales of products and a private placement of common stock completed in fiscal 1996 with net proceeds of approximately $3.5 million. Net proceeds received upon issuance of securities from inception through June 30, 1996 totalled approximately $36.0 million. Cash, cash equivalents and marketable securities totalled, $2.8 million at June 30, 1996 and $4.1 million at March 31, 1996. The decrease resulted primarily from operating losses and from reductions in certain short term liabilities. Inventories increased from $1.3 million at March 31, 1996 to $1.5 million at June 30, 1996, due to the repurchase of certain inventories from HMI. The Company has committed to repurchase an additional $338,000 in inventories in July and October 1996. The repurchase of these inventories was optional and was at a substantial discount to the original selling price to HMI. The Company expects to expend approximately $2.0 million for capital equipment in fiscal 1997. Substantially all of these expenditures are related to ramp-up of manufacturing for the Schering product launch. Based on its contract with Schering, the Company believes that up to $1.6 million of these expenditures will be funded by interest bearing loans to be provided by Schering with repayment by Bioject over a period of 4 to 5.5 years. During the quarter, a total of $450,000 of these funds was advanced by Schering to the Company. Of this total, $277,000 was used as deposits on molds and $173,000 was held in a restricted cash account for future mold expenditures. The Company believes that its current cash position and loans from Schering combined with revenues and other cash receipts will be adequate to fund the Company's operations through fiscal 1997. (See "Forward Looking Statements"). Thereafter, the Company is likely to require additional financing. However, unforeseen costs and expenses or lower than anticipated cash receipts from product sales or research and development activities could accelerate the financing requirement. The Company has been successful in raising additional financing in the past and believes that sufficient funds will be available to fund future operations. (See "Forward Looking Statements"). However, there can be no assurance that such financing will be available on favorable terms or at all. Failure to obtain additional financing when required would significantly restrict the Company's operations and ability to continue product development, and materially adversely affect the Company's business. The Company has no banking line of credit or other established source of borrowing. FORWARD LOOKING STATEMENTS Certain statements in this report constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and factors are described in more detail in the Company's Annual Report on Form 10-K and other S.E.C. filings. PART II OTHER INFORMATION Item 1. Legal Proceedings None during the quarter ended June 30, 1997. Item 2. Changes in Securities None during the quarter ended June 30, 1997. Item 3. Defaults Upon Senior Securities None during the quarter ended June 30, 1997. Item 4. Submission of Matters to a Vote of Security Holders None during the quarter ended June 30, 1997. Item 5. Other Information None during the quarter ended June 30, 1997. Item 6. Exhibits and Reports on Form 8-K EXHIBITS: 10.32.1 Security Agreement dated June 26, 1996 between Bioject Inc. and Schering Aktiengesellschaft. REPORTS ON FORM 8-K: Form 8-K dated June 3, 1996 reporting the release of the WAM Partnership Escrowed Shares by the British Columbia Securities Commission. Form 8-K dated June 26, 1996 reporting the signing of a supply agreement between Schering Aktiengesellschaft and Bioject Inc. Confidential treatment has been requested with respect to certain portions of this agreement. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BIOJECT MEDICAL TECHNOLOGIES INC. (Registrant) Date: August 12, 1996 /S/ James C. O'Shea --------------------------------- James C. O'Shea Chairman, Chief Executive Officer and President /S/ Peggy J. Miller --------------------------------- Peggy J. Miller Vice President and Chief Financial Officer EX-10.32.1 2 SECURITY AGREEMENT BETWEEN BIOJECT AND SCHERING AG SECURITY AGREEMENT THIS SECURITY AGREEMENT (the "Agreement") is made as of the 26th day of June, 1996, between Bioject Inc. an Oregon corporation (the "Company"), and Schering Aktiengesellschaft, a corporation organized under the laws of Germany (the "Secured Party"). RECITALS A. Prior to the date of this Agreement, Secured Party's affiliate Berlex Laboratories, Inc. made a loan to the Company in the amount of $450,000. That loan was evidenced by a Secured Promissory Note dated April 22, 1996 (the "Berlex Note") and was secured in accordance with a Security Agreement dated April 22, 1996 (the "Berlex Security Agreement"). B. Secured Party has purchased the Berlex Note and has agreed to make additional advances to the Company as provided in Section 3.13 of a Supply Agreement between the Company and the Secured Party dated the same date as this Agreement (the "Supply Agreement"). All sums due under the Berlex Note are now reflected in the Supply Agreement, and the Berlex Note is cancelled and the Berlex Security Agreement is terminated upon the execution of this Agreement; and C. The Company has agreed to grant to Secured Party a security interest in certain assets of the Company as security for the prompt payment by the Company of its obligations to repay sums borrowed under Section 3.13 of the Supply Agreement as it may be modified or amended from time to time (the "Obligations"). NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 1. Security Interest. Pursuant to the provisions of the Oregon Uniform Commerce Code (the "Code"), the Company hereby grants to Secured Party a security interest in the following (the "Collateral"): 1.1 The deposit account, which will contain only the proceeds of the Berlex Note and the additional amounts loaned to the Company pursuant to Section 3.13 of the Supply Agreement until such time as the Equipment (as defined in Section 1.2) is purchased, plus interest earned on that deposit account (the "Deposit Account"). 1.2 All of the Company's right, title and interest in and to any and all tooling and equipment purchased by the Company in connection with the Supply Agreement with sums from the Deposit Account, including but not limited to, syringe molds, tooling and molds for autoinjectors, and equipment to automate the manufacture of syringes. 1.3 Any and all proceeds whether receivable or received from or upon the sale, lease, license, use, exchange or other disposition, whether voluntary or involuntary, of any Equipment, including "proceeds" as defined in Section 9-306 of the Code, any and all proceeds of any insurance, indemnity, warranty or guaranty payable to or for the account of the Company from time to time with respect to any of the Equipment, and any and all other amounts from time to time paid or payable under or in connection with any of the Equipment. Proceeds pursuant to this Agreement include (i) whatever is now or subsequently received by the Company upon the sale, exchange, collection or other disposition at anytime of Equipment, whether such proceeds constitute inventory, accounts, accounts receivable, general intangibles, instruments, securities, credits, documents, letters of credit, chattel paper, documents of title, warehouse receipts, leases, deposit accounts, money, contract rights, goods or equipment, and (ii) any such items which are now or subsequently acquired by the Company with any proceeds of Collateral. 2. Performance Secured. The security interest granted hereby secures the prompt payment of the Obligations. 3. Covenants of the Company. The Company covenants and agrees, unless compliance is waived in writing by Secured Party, that: 3.1 Maintenance of Collateral. The Company will properly maintain and care for the Collateral. 3.2 Sale of Collateral. The Company will not sell, transfer, trade or otherwise dispose of all or substantially all of the Collateral, except with the consent of Secured Party or as expressly contemplated in Section 1.2. 3.3 Change in Company. The Company will notify Secured Party in writing of any proposed or actual change of the Company's name, identity or corporate structure. 3.4 Payment of Taxes. The Company will pay prior to delinquency all taxes, liens and assessments which are levied or assessed against the Collateral. 3.5 Perfection Filing. The Company will file the Form UCC-1 Financing Statement (the "UCC-1") in the form mutually agreed upon with the Office of the Oregon Secretary of State within five (5) business days after the date of this Agreement. 4. Events of Default. The occurrence of any of the following shall constitute an Event of Default under this Agreement: 4.1 Payment of Notes. The Company fails to make any payment of principal or interest when required with respect to the Obligations. 4.2 Bankruptcy, Insolvency, etc. Commenced by the Company. If the Company: (a) shall commence any proceeding or any other action relating to it in bankruptcy or seek reorganization, arrangement, readjustment of its debts, dissolution, liquidation, winding-up, composition or any other relief under the United States Bankruptcy Act, as amended, or under any other insolvency, reorganization, liquidation, dissolution, arrangement, composition, readjustment of debt or any other similar act or law, of any jurisdiction, domestic or foreign, now or hereafter existing; (b) shall admit its inability to pay its debts as they mature in any petition or pleading in connection with any such proceeding; (c) shall apply for, or consent to or acquiesce in, an appointment of a receiver, conservator, trustee or similar officer of it or for all or substantially all of its assets and properties; or (d) shall make a general assignment for the benefit of creditors. 4.3 Bankruptcy, Insolvency, etc. Commenced Against the Company. If any proceedings are commenced or any other action is taken against the Company in bankruptcy or seeking reorganization, arrangement, readjustment of its debts, dissolution, liquidation, winding-up, composition or any other relief under the United States Bankruptcy Act, as amended, or under any other insolvency, reorganization, liquidation, dissolution, arrangement, composition, readjustment of debt or any other similar act or law, of any jurisdiction, domestic or foreign, now or hereafter existing; or a receiver, conservator, trustee or similar person for the Company or for all or substantially all of its assets and properties is appointed; and in each such case, such event continues for ninety (90) days undismissed, unbonded and undischarged. 5. Secured Party's Remedies after Default. Upon the occurrence of an Event of Default, Secured Party may, after delivering written notice of such Event of Default to the Company, do any one or more of the following: 5.1 Accelerate Obligations. Declare the outstanding principal balance of the Obligations, together with the accrued but unpaid interest thereon, immediately due and payable. 5.2 Actions Against the Company. Proceed against the Company with or without proceeding against the Collateral secured hereby. 5.3 Actions Against the Collateral. Exercise all of the rights and remedies provided to Secured Party by this Agreement, by the Code as then in effect, or any other applicable law. 6. General Provisions. 6.1 Construction. This Agreement shall be governed, construed and enforced in accordance with the internal laws of the State of Oregon. All terms not defined herein are used as set forth in the Code. 6.2 Entire Agreement. This Agreement, together with the agreements and documents referred to herein, constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior and contemporaneous negotiations, agreements and understandings. 6.3 Notices. All payments, notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) upon delivery if personally delivered or delivered by facsimile or (ii) on the third business day following the date deposited with a reputable overnight courier, to the party at the following address or at such other address as shall be given in writing by either party to the other party: Secured Party: Schering Aktiengesellschaft Mullerstrasse 170-178 13353 Berlin, Germany The Company: Bioject Inc. 7620 S.W. Bridgeport Road Portland, Oregon 97224 Attention: Chairman 6.4 Successors and Assigns. This Agreement shall inure to the benefit of, and shall be binding upon, the parties and their respective successors and assigns. 6.5 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 6.6 Further Assurances. Each party hereto will execute, acknowledge, and deliver any further assurances, documents and instruments reasonably requested by the other party hereto for the purpose of creating and perfecting Secured Party's security interest in the Collateral hereunder, including (without limitation) any financing statement, amended financing statement, continuation statement, or other instrument permitted or required by the Code or other applicable law. 6.7 Cooperation. The Company and Secured Party each agrees from time to time to execute and deliver, or cause to be executed and delivered, such further instruments and do and cause to be done such further acts as may be necessary or appropriate to carry out more effectively the provisions of this Agreement. 6.8 Amendments and Waiver. The rights of Secured Party hereunder and under any financing statement, amended financing statement, continuation statement, or other document or instrument creating or perfecting the Secured Party's security interest in the Collateral may be amended or waived at any time by the written consent of the Secured Party and the Company. 6.9 Termination. Upon payment in full of the Obligations, the security interest provided under this Agreement shall automatically terminate and shall be deemed null and void. Secured Party agrees to execute all appropriate instruments or other documentation (including one or more UCC-3 Termination Statements) to evidence the termination of such security interest. 6.10 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned have executed this Agreement, effective as of the date first written above. THE COMPANY: BIOJECT INC. By: /S/ James C. O'Shea Its: Chairman SECURED PARTY: SCHERING AKTIENGESELLSCHAFT By: [Confidential Portion Omitted] Its: [Confidential Portion Omitted] -----END PRIVACY-ENHANCED MESSAGE-----