-----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, Qy3+R50U0jwlRukVSA0m8AewDcvZ2N2pooFNEqqdQLrhWyJwLxcEKqA3F+QmNws0 lsBn+8n1f6K325687ggHbA== 0000810084-98-000032.txt : 19980218 0000810084-98-000032.hdr.sgml : 19980218 ACCESSION NUMBER: 0000810084-98-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980213 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: SEC FILE NUMBER: 000-15360 FILM NUMBER: 98538040 BUSINESS ADDRESS: STREET 1: 7620 S W BRIDGEPORT RD CITY: PORTLAND STATE: OR ZIP: 97224 BUSINESS PHONE: 5036397221 MAIL ADDRESS: STREET 1: 7620 S W BRIDGEPORT ROAD CITY: PORTLAND STATE: OR ZIP: 97224 FORMER COMPANY: FORMER CONFORMED NAME: BIOJECT MEDICAL SYSTEMS LTD DATE OF NAME CHANGE: 19920703 10-Q 1 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 December 31, 1997 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 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 December 31, 1997 there were 25,368,342 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), an Oregon Corporation, and its subsidiaries, (together, unless the context otherwise requires, the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The Company's needle-free injector operations are conducted by Bioject Inc. (BI), an Oregon corporation formed in February 1985, which is a wholly owned subsidiary of BMT, and its blood glucose monitoring systems operations are conducted by Bioject JV Subsidiary Inc. ("JV"), an Oregon corporation formed in October 1997, which is owned 80.1% by BMT. The following 10-Q report reflects the consolidated results of operations, cash flows and financial position for the second quarter of the year ending March 31, 1998. 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 December 31, 1997 and December 31, 1996 - Consolidated Statements of Operations for the nine months ended December 31, 1997 and December 31, 1996 - Consolidated Balance Sheets dated December 31, 1997 and March 31, 1997 - Consolidated Statements of Cash Flows for the quarters ended December 31, 1997 and December 31, 1996 - Consolidated Statements of Cash Flows for the nine months ended December 31, 1997 and December 31, 1996 Page 1 BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three-Month Period Ended December 31, 1997 1996 ------------------------- [S] [C] [C] REVENUES: Net sales of products $ 313,153 $ 325,791 Licensing/technology fees 125,000 80,000 ----------- --------- 438,153 405,791 ----------- ----------- EXPENSES: Manufacturing 401,050 325,071 Research and development 193,144 410,195 Selling, general and administrative 901,270 767,992 Acquired in-process R&D - - Interest expense 225,281 - Other (income) expense, net (32,061) (14,717) ------------ ----------- 1,688,684 1,488,541 ------------ ----------- (LOSS) BEFORE MINORITY INTERST (1,250,531) (1,082,750) MINORITY INTEREST ALLOCATION - - ----------- ----------- NET INCOME (LOSS) $ (1,250,531) $(1,082,750) =========== =========== EARNINGS (LOSS) PER SHARE $ (.05) $ (.07) =========== =========== SHARES USED IN PER SHARE CALCULATION 24,903,892 16,189,127 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. Page 2 BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Nine-Month Period Ended December 31, 1997 1996 ------------------------- [S] [C] [C] REVENUES: Net sales of products $ 1,300,620 $ 845,422 Licensing/technology fees 375,000 665,500 ----------- ----------- 1,675,620 1,510,922 ----------- ----------- EXPENSES: Manufacturing 1,452,684 1,369,321 Research and development 665,127 1,242,968 Selling, general and administrative 2,633,934 2,340,058 Acquired in-process R&D 15,000,000 - Interest expense 225,281 - Other (income) expense, net (64,392) (64,829) ----------- ----------- 19,912,634 4,887,518 ----------- ----------- LOSS BEFORE MINORITY INTEREST (18,237,014) (3,376,596) MINORITY INTEREST ALLOCATION 2,985,000 - ----------- ----------- NET INCOME (LOSS) $(15,252,014) $ (3,376,596) =========== =========== EARNINGS (LOSS) PER SHARE $ (.68) $ (.22) =========== =========== SHARES USED IN PER SHARE CALCULATION 22,356,973 15,807,517 ============ =========== The accompanying notes are an integral part of these consolidated financial statements. Page 3 BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, March 31, 1997 1997 -------------------------- ASSETS (unaudited) - ------------------------------------------ [S] [C] [C] CURRENT ASSETS: Cash and cash equivalents $ 1,001,990 $ 2,116,478 Securities available for sale 1,967,749 - Accounts receivable 513,163 311,856 Inventories 1,571,394 1,706,456 Prepaid and other current assets 54,531 45,222 ----------- ----------- Total current assets 5,108,827 4,180,012 PROPERTY AND EQUIPMENT, at cost: Machinery and equipment 2,234,433 1,923,174 Production molds 1,939,754 1,878,858 Furniture and fixtures 160,392 176,897 Leasehold improvements 94,115 80,447 ----------- ----------- 4,428,694 4,059,376 Less - Accumulated depreciation (1,830,090) (1,462,338) ----------- ----------- 2,598,604 2,597,038 OTHER ASSETS 332,059 310,981 ----------- ----------- $ 8,039,490 $ 7,088,031 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY - -------------------------------------------- CURRENT LIABILITIES: Accounts payable $ 579,139 $ 659,973 Accrued payroll 199,671 213,130 Other accrued liabilities 256,100 199,384 Accrued interest 225,281 - Deferred revenue - 250,000 ----------- ----------- Total current liabilities 1,260,191 1,322,487 LONG-TERM DEBT 12,015,000 - 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 25,368,342 shares at December 31, 1996 and 19,540,413 at March 31, 1997 44,286,505 40,035,736 Accumulated deficit (49,522,206) (34,270,192) ----------- ----------- Total shareholders' equity (5,235,701) 5,765,544 ----------- ------------ $ 8,039,490 $ 7,088,031 =========== ============ The accompanying notes are an integral part of these consolidated financial statements. Page 4 BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Three-Month Period Ended December 31, 1997 1996 -------------------------- [S] [C] [C] CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,250,531) $(1,082,750) Adjustments to net loss: Depreciation and amortization 128,332 49,000 Common stock and warrants issued for services 62,236 - Acquired in-process R&D, net of minority interest allocation - - Net changes in assets and liabilities: Accounts receivable 22,943 10,198 Inventories (212,224) (147,490) Prepaid and other current assets 8,836 (345) Accounts payable (74,365) 203,609 Accrued payroll (40,338) 3,430 Other accrued liabilities 19,620 (44,664) Interest payable 225,281 - Deferred revenue - (30,000) ------------ ----------- Net Cash Used in Operating Activities (1,110,210) (1,039,012) ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Transfers to restricted cash - (206,000) Transfers from restricted cash - 693,278 Purchase of securities available for sale (1,967,749) - Sale of securities available for sale - - Capital expenditures (71,470) (814,929) Other assets (9,095) (167) ------------ ----------- Net Cash Used in Investing Activities (2,048,314) (327,818) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt - 206,000 Cash proceeds from common stock 2,942,828 2,163,000 ------------ ----------- Net Cash Provided by Financing Activities 2,942,828 2,369,000 ------------ ----------- CASH AND CASH EQUIVALENTS: Net increase (decrease) in cash and cash equivalents (215,696) 1,002,170 Cash and cash equivalents at beginning of period 1,217,686 1,501,373 ------------ ----------- Cash and cash equivalents at end of period $ 1,001,990 $ 2,503,543 ============ =========== The accompanying notes are an integral part of these consolidated financial statements. Page 5 BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Nine-Month Period Ended December 31, 1997 1996 -------------------------- [S] [C] [C] CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(15,252,014) $(3,376,596) Adjustments to net loss: Depreciation and amortization 390,252 353,200 Common stock and warrants issued for services 82,941 159,350 Acquired in-process R&D, net of minority interest allocation 12,015,000 - Net changes in assets and liabilities: Accounts receivable (201,307) 165,471 Inventories 135,062 (467,529) Prepaid and other current assets (9,309) 1,519 Accounts payable (80,834) 95,734 Accrued payroll (13,459) 30,137 Other accrued liabilities 56,716 24,578 Accrued interest 225,281 - Deferred revenue (250,002) (566,000) ------------ ---------- Net Cash Used in Operating Activities (2,901,671) (3,580,136) ------------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Transfers to restricted cash - (1,606,000) Transfers from restricted cash - 1,297,442 Purchase of securities available for sale (1,967,749) - Sale of securities available for sale - 993,056 Investment in glucose monitoring technology (15,000,000) - Capital expenditures (369,318) (1,462,081) Other assets (43,578) (5,989) ------------- ----------- Net Cash Used in Investing Activities (17,380,645) (783,572) ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt 12,015,000 1,606,000 Cash proceeds from common stock 4,167,828 2,163,000 Proceeds from minority interest capital investment in joint venture subsidiary 2,985,000 - ------------ ----------- Net Cash Provided by Financing Activities 19,167,828 3,769,000 ------------ ----------- CASH AND CASH EQUIVALENTS: Net increase (decrease) in cash and cash equivalents (1,114,488) (594,708) Cash and cash equivalents at beginning of period 2,116,478 3,098,251 ------------ ----------- Cash and cash equivalents at end of period $ 1,001,990 $ 2,503,543 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. Page 6 BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY: The consolidated financial statements of Bioject Medical Technologies Inc. (the "Company"), include the accounts of Bioject Medical Technologies Inc. ("BMT"), an Oregon Corporation, and its wholly owned subsidiary, Bioject Inc., an Oregon Corporation ("BI"), and its 80.1% owned subsidiary, Bioject JV Subsidiary Inc. ("JV"), an Oregon corporation. All significant intercompany transactions have been eliminated. Although Bioject Inc. commenced operations in 1985, the Company was formed in December 1992 for the purpose of acquiring all of the capital stock of Bioject Medical Systems Ltd., a Company organized under the laws of British Columbia, Canada, in a stock-for-stock exchange in order to establish a U.S. domestic corporation as the publicly traded parent company for Bioject Inc. and Bioject Medical Systems Ltd. Bioject Medical Systems Ltd. was terminated in fiscal 1997. Bioject JV Subsidiary Inc. was formed in October 1997 in connection with a joint venture arrangement with Elan Corporation, plc ("Elan"). All references to the Company include Bioject Medical Technologies Inc. and its subsidiaries, unless the context requires otherwise. The Company commenced operations in 1985 for the purpose of developing, manufacturing and distributing a new drug delivery system. Since its formation, the Company has been engaged principally in organizational, financing, research and development, and marketing activities. In the last quarter of fiscal 1993, the Company launched U.S. distribution of its Biojector 2000 system primarily to the hospital and large clinic market. The Company's products and manufacturing operations are subject to extensive government regulation, both in the U.S. and abroad. In the U.S., the development, manufacture, marketing and promotion of medical devices is regulated by the Food and Drug Administration ("FDA") under the Federal Food, Drug, and Cosmetic Act ("FFDCA"). In 1987, the Company received clearance from the FDA under Section 510(k) of the FFDCA to market a hand-held CO2-powered 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. In October 1996, the Company received 510(k) clearance for a non-needle disposable vial access device. In March 1997, the Company received additional 510(k) clearance for certain enhancements to its Biojector 2000 system. On September 30, 1997, the Company entered into a joint venture agreement with Elan for the development and commercialization of certain blood glucose monitoring technology which the Company licensed from Elan (see Note 2 regarding "Accounting Policies-Long- term Debt and Development Agreement"). Such technology is also subject to government regulation in the U.S. by the FDA and abroad by various agencies. The Company's revenues to date have been derived primarily from licensing and technology fees for the jet injection technology and more recently from sales of the Biojector 2000 system and Biojector syringes to public health clinics, flu immunization clinics and physicians offices. Future revenues will depend upon acceptance and use by healthcare providers of the Company's jet injection technology and successful development, regulatory approval and market acceptance of its blood glucose monitoring 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 and industry trends might have on its business. In the future the Company is likely to require substantial additional financing. Failure to obtain such financing on favorable terms could adversely affect the Company's business. 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: December 31, March 31, 1997 1997 ---------- ---------- Raw Materials $ 505,531 $ 815,868 Work in Process 9,763 9,763 Finished Goods 1,056,100 880,825 ---------- ---------- $1,571,394 $1,706,456 ========== ========== Page 7 LONG-TERM DEBT AND DEVELOPMENT AGREEMENT On September 30, 1997, the Company signed a binding letter agreement (the "Agreement") with Elan Corporation, plc ("Elan") the goals of which included the development and commercialization of Elan's blood glucose monitoring technology and a collaborative arrangement to further develop the Company's needle-free technology. Among various terms, all of which were determined based on arms-length negotiation, the Agreement provides for: - - Investment by Elan of $3 million in Bioject in exchange for approximately 2.7 million shares of common stock and a five year warrant to purchase 1.75 million shares of common stock at $2.50 per share. - - Formation of JV which is owned 80.1% by Bioject and 19.9% by Elan to further develop and commercialize the blood glucose monitoring technology. - - Payment of a $15 million up front fee and substantial future milestone payments and royalties on net sales in exchange for North American rights to Elan's glucose monitoring technology. - - The loan of $12.015 million to Bioject on a long-term promissory note bearing interest at 9% per annum through December 31, 1997 and 12% thereafter for the purpose of Bioject's investment in the new subsidiary's common stock. The interest is payable quarterly commencing April 1998, and if not exchanged for preferred stock the Company or otherwise prepaid, the note is due October 15, 2001. - - The investment by Elan of $2.985 million in JV's common stock. - - The commitment by Elan to further develop the blood glucose monitoring technology until the earlier of human clinical trials, April 1, 1998 or $2.5 million is expended by Elan. - - The submission to Bioject's shareholders of a proposal to approve the exchange of the long-term promissory note for $10 million plus accrued interest of the Company's Series A Convertible Preferred Stock and $2.105 million of Series B Convertible Preferred Stock, with Series the A Convertible Preferred Stock accruing dividends at the rate of 9% per annum (compounded semi-annually) and the Series B Convertible Preferred Stock accruing no mandatory dividends. - - The submission to Bioject's shareholders of a proposal to approve the issuance of up to $4 million of Bioject's Series C Convertible Preferred Stock to Elan to provide Bioject with funds to contribute toward JV's additional development funding needs. - - The agreement by Elan to extend the license on a worldwide basis if the shareholders approve the exchange of the $12.015 million promissory note for convertible preferred stock. - - The agreement by Elan to provide a grant of $500,000 toward development of Bioject's needle-free technology in a pre-filled application. Final closing agreements were signed among the Company, Elan and the Company's new subsidiary on October 15, 1997. On that date the $3 million investment in the Company was made by Elan and approximately 2.7 million shares of common stock and a warrant to purchase 1.75 million shares at $2.50 per share were issued. Elan loaned Bioject $12.015 million which Bioject transferred to the new subsidiary in exchange for 801,000 shares of the subsidiary's common stock. Elan invested $2.985 million in the new subsidiary in exchange for 199,000 shares of the subsidiary's common stock. The new subsidiary paid $15 million to Elan as its initial payment on the licensing agreement. The Company believes that the license is likely to run for most of the useful life of the products that may be commercialized under it. The license itself is contingent, on a country-by-country basis, on JV's diligently seeking and obtaining regulatory marketing approval for licensed products and on JV's timely commercial launch of the licensed products in countries where such approval has been obtained. In addition, in the event that a significant percentage of JV's equity is acquired by any one of a number of specified companies identified by Elan as actual or potential competitors, or any other entity to which Elan does not consent (which consent shall not be unreasonably withheld in the case of such other, unspecified companies), the license may be immediately terminated at the option of Elan. As of September 30, 1997, the Company recorded an expense of $15 million related to acquired in-process research and development expenditures. Such expense relates to the blood glucose monitoring technology that has not yet established technological feasibility and at present has no alternate future uses. Accounting rules require that such costs be charged to expense as incurred. The Company believes that these research and development efforts will result in commercially viable products within the next three to four years at an additional cost to the Company of at least $10 million, exclusive of additional milestone payments due to Elan. RECLASSIFICATIONS Certain reclassifications have been made to the prior year's expenses to conform to the current year's presentation. 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. SEGMENT INFORMATION The Company has adopted the new segment reporting requirements of SFAS No.131, Disclosures about Segments of an Enterprise and Related Information. At present, the Company has two reportable segments which offer different products and are managed separately because each business requires different technology and marketing strategies. The following sets forth the unaudited results of operations of the Company for its two segments of operations - needle-free injection technology and blood glucose monitoring technology (in thousands of $): Qtr. Ended Nine Months Ended December 31, December 31, ------------- ---------------- 1997 1996 1997 1996 ----- ----- ----- ----- [S] [C] [C] [C] [C] NEEDLE-FREE INJECTION RESULTS OF OPERATIONS: REVENUES $438 $406 $1,676 $1,511 ---- ---- ------ ------ EXPENSES: Manufacturing 401 325 1,453 1,369 R&D 193 410 665 1,243 Selling, general & administrative 873 768 2,605 2,340 Acquired R&D - - - - Interest expense 225 - 225 - Other (income) (32) (14) (64) (64) ---- ----- ------ ------ (1,222) (1,083) (3,208) (3,377) MINORITY INTEREST ALLOCATION - - - - ------ ------- ------- ------ NET LOSS $(1,222) $(1,082) $(3,208) $(3,377) ====== ====== ======= ======= Qtr. Ended Nine Months Ended December 31, December 31, ------------------- ------------------- 1997 1996 1997 1996 ----- ------ ----- ----- [S] [C] [C] [C] [C] GLUCOSE MONITORING RESULTS OF OPERATIONS: REVENUES $ - $ - $ - $ - ------- ------- ------ ------ EXPENSES: Manufacturing - - - - R&D - - - - Selling, general & administrative 28 - 28 - Acquired R&D - - 15,000 - Interest expense Other (income) - - - - ------- ------ -------- ------- (28) - (15,028) - MINORITY INTEREST ALLOCATION - - 2,985 - ------- ------- -------- -------- NET LOSS $ (28) $ - $(12,043) $ - ======== ======= ======== ======== At December 31, 1997, no significant assets exist related to the blood glucose monitoring technology other than the acquired in-process research and development which, as discussed in Note 2 above, was required to be written off upon acquisition. Accordingly, the accompanying consolidated financial statements effectively represent the assets of the needle-free injection business segment. In the future, certain proceeds from the sale of equity or issuance of debt by JV may be restricted to JV operations only. To the extent that they meet certain reporting requirements, the separate assets, liabilities and equity of the parent and its subsidiary will be appropriately disclosed. 4. PRIVATE PLACEMENTS: In June and July 1997, the Company received net proceeds of $1.225 million in a private placement of 2.9 million shares of common stock and five year warrants to purchase 1.45 million shares of common stock at $0.71 per share. Of the total net proceeds, $750,000 was received and recorded in the financial statements as of June 30, 1997. The balance of $475,000 was received in July 1997 and was recorded in the financial statements for the quarter ended September 30, 1997. During the quarter ended December 31, 1997, the Company received net proceeds of $2.8 million from Elan in a private placement in exchange for approximately 2.7 million shares of common stock and a five year warrant to purchase 1.75 million shares of common stock at $2.50 per share. Common Stock activity for the nine months ended December 31, 1997 is summarized as follows: Shares Amount ------ ------ [S] [C] [C] Balances, March 31, 1997 19,540,413 $40,035,736 Private Placement of common stock in June/July 1997 2,906,977 1,225,000 Common stock issued for services 30,116 20,705 Common stock issued upon exercise of stock options 120,932 142,828 Common stock issued in private placement in October 1997 2,727,273 2,800,000 Common stock issued pursuant to 401(k) matching program 42,631 31,006 Recognition of warrant expense for services - 31,230 ---------- ----------- Balances, December 31, 1997 25,368,342 $44,286,505 ========== =========== Warrant activity for the nine months ended December 31, 1997 is summarized as follows: Shares Exercise Amount Price --------- ---------- --------- [S] [C] [C] [C] Balances, March 31, 1997, expiring February 1998 To December 2001 6,030,585 $.82-2.00 $8,438,319 Issued in private placement in June/July 1997 expiring June 2002 1,453,488 .71 1,031,976 Issued to placement agent, expiring June 2002 25,000 .50 12,500 Issued for private placement guarantee, expiring September 2002 350,000 1.00-1.10 365,000 Issued for fiscal 1998 investor relations consulting services, expiring September 2002 50,000 1.10 55,000 Placement agent warrant, subject to shareholder approval, expiring October 2002 100,000 .85 85,000 Issued in private placement in October 1997, expiring October 2002 1,750,000 2.50 4,375,000 --------- --------- ----------- Balances, December 31, 1997 9,759,073 $.50-2.50 $14,362,795 ========= ========= =========== All of the warrants are currently exercisable except for the placement agent warrants which are subject to shareholder approval and the investor relations consulting warrants which are not exercisable until April 1, 1998. In addition to the above warrants, the Company has committed to issue certain warrants for services (see Note 5). 5. CONSULTING CONTRACT During the quarter ended September 30, 1997, the Company engaged the consulting services of Mr. Robert Gonnelli for the purposes of overseeing the Company's investor relations functions, providing input to sales and marketing, advising Bioject's Board of Directors on various matters, identifying new manufacturing software and providing strategic and financial advice. For his services, Mr. Gonnelli will receive compensation as follows: a. Five year warrants to purchase 50,000 shares of Bioject common stock at $1.10 per share granted at the end of each of two fiscal years for his investor relations consulting services. b. At the end of fiscal 1998 and 1999, a five year warrant to purchase 100,000 and 50,000 shares, respectively, of common stock at $1.10 per share prorated based on product sales achieved to the applicable fiscal year's sales budget, for his sales and marketing advice. c. Effective August 1, 1997, the amount of $5,000 per month plus expenses for all other consulting services. This amount was increased to $8,500 per month plus expenses beginning January 1, 1998. Commencing October 1997, the Company is recording a non-cash charge to operating results as the result of the issuance of the warrants to Mr. Gonnelli. The warrants have been valued using the Black-Scholes model and resulted in a non-cash charge to selling, general and administrative expense for the quarter ended December 31, 1997 of $31,000. The consulting fees are charged to expense as due. The agreement is cancelable at either party's option upon 30 days written notice. If Bioject terminates the agreement without cause, all accrued and unpaid fees and expenses are due and all unearned warrants are immediately issuable. The Company also granted to Mr. Gonnelli a five year warrant to purchase 200,000 shares of common stock at $1.00 per share and 150,000 shares of common stock at $1.10 per share for his guarantee of back-up financing should Elan not have completed its $3 million equity investment. The effect of this guarantee has been reflected as an offset of proceeds from the Elan investment in the Company's common stock. On October 22, 1997, Mr. Gonnelli was elected Chairman of Bioject's joint venture subsidiary Board of Directors. Presently, he receives no fees for such services but will participate in any future subsidiary director compensation programs including any subsidiary stock incentive plans. 6. 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) 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, 1997. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company has been focused on expanding sales of its Biojector 2000 needle-free injection management system to the public health and flu immunization markets. It has also been focusing on raising additional capital and on expanding its business opportunities with large pharmaceutical company strategic partners. On September 30, 1997, the Company signed a binding letter agreement (the "Agreement") with Elan Corporation, plc ("Elan") the goals of which included commercialization of Elan's blood glucose monitoring technology and a collaborative arrangement to further develop the Company's needle-free technology and the development. Among various terms, the Agreement provides for: - - Investment by Elan of $3 million in Bioject in exchange for approximately 2.7 million shares of common stock and a five year warrant to purchase 1.75 million common shares at $2.50 per share. - - Formation of JV which is owned 80.1% by Bioject and 19.9% by Elan to further develop and commercialize the blood glucose monitoring technology. - - Payment by JV of a $15 million up front fee and substantial future milestone payments and royalties on net sales in exchange for North American rights to Elan's glucose monitoring technology. - - The loan of $12.015 million to Bioject on a long-term promissory note bearing interest at 9% per annum through December 31, 1997 and 12% thereafter for the purpose of Bioject's investment in the new subsidiary's common stock. The interest is payable quarterly commencing April 1998, and if not exchanged for preferred stock in the Company or otherwise prepaid, the note is due October 15, 2001. - - The investment by Elan of $2.985 million in JV's common stock. - - The commitment by Elan to further develop the blood glucose monitoring technology until the earlier of human clinical trials, April 1, 1998 or $2.5 million is expended by Elan. - - The submission to Bioject's shareholders of a proposal to approve the exchange of the long-term promissory note for $10 million plus accrued interest of the Company's Series A Convertible Preferred Stock and $2.105 million of Series B Convertible Preferred Stock, with the Series A Convertible Preferred Stock accruing dividends at the rate of 9% per annum (compounded semi-annually) and the Series B Convertible Preferred Stock accruing no mandatory dividends. - - The submission to Bioject's shareholders of a proposal to approve the issuance of up to $4 million of Bioject's Series C Convertible Preferred Stock or other similar convertible preferred stock to Elan to provide Bioject with funds to contribute toward JV's additional development funding needs. - - The agreement by Elan to extend the license on a worldwide basis if the shareholders approve the exchange of the $12.015 million promissory note for convertible preferred stock. - - The agreement by Elan to provide a grant of $500,000 toward development of Bioject's needle-free technology in a pre-filled application. Final closing agreements were signed among the Company, Elan and the Company's new subsidiary on October 15, 1997. On that date the $3 million investment in the Company was made by Elan and approximately 2.7 million shares of common stock and a warrant to purchase 1.75 million shares at $2.50 per share were issued. Elan loaned Bioject $12.015 million which Bioject transferred to the new subsidiary in exchange for 801,000 shares of the subsidiary's common stock. Elan invested $2.985 million in the new subsidiary in exchange for 199,000 shares of the subsidiary's common stock. The new subsidiary paid $15 million to Elan as its initial payment on the licensing agreement. In addition, JV is required under the license to pay Elan an aggregate of $15.5 million in further royalties as the following milestones are achieved: $1 million within 10 days of the commencement of pivotal clinical trials; $1.5 within 120 days of the successful completion of the clinical trials; $3 million within 10 days of the initial regulatory filing to obtain marketing approval; and $10 million within 120 days of the grant of U.S. marketing approval for the first product. If the Company's shareholders approve the two proposals described above at an upcoming special meeting of shareholders scheduled February 20, 1998, the territory of the license would be expanded to be worldwide, and the royalty payment called for upon the grant of US marketing approval will be split into two payments of $5 million each, one to be paid upon the grant of such US marketing approval and the other to be paid upon the grant of marketing approval in any other of certain major nations. Additionally, JV will be required under the license to pay Elan a continuing royalty equal to a percentage of the net revenues from sublicenses of the licensed technology or from the sale by JV or its sublicensees of products covered by the licensed patents or that incorporate or apply the licensed know-how. The term of the license is 15 years, or on a country by country basis for the life of the last patent to expire, whichever is longer. The license itself is contingent, on a country-by-country basis, on JV's diligently seeking and obtaining regulatory marketing approval for licensed products and on JV's timely commercial launch of the licensed products in countries where such approval has been obtained. In addition, in the event that 15% of JV's equity is acquired by any one of a number of specified companies identified by Elan as actual or potential competitors, or any other entity to which Elan does not consent (which consent shall not be unreasonably withheld in the case of such other, unspecified companies), the license may be immediately terminated at the option of Elan. As of September 30, 1997, the Company recorded an expense of $15 million related to acquired in-process research and development expenditures. Such expense relates to the blood glucose monitoring technology that has not yet established technological feasibility and at present has no alternative future uses. Accounting rules require that such costs be charged to expense as incurred. The Company believes that these research and development efforts will result in commercially viable products within the next three to four years at an additional cost to the Company of at least $10 million, exclusive of additional milestone payments due to Elan. See "Forward-looking Statements". Such technology is also subject to government regulation in the U.S. by the FDA and abroad by various agencies. In connection with the Elan investment, the Company engaged the consulting services of Raphael, LLC, to provide the initial introduction to Elan and advice regarding the transaction. For its services, Raphael, LLC, will receive a fee of $150,000 on January 2, 1998 and, if shareholders approve at a special meeting, a five year warrant to purchase 100,000 shares of the Company's common stock at $.85 per share. If shareholders do not approve the issuance of the warrant, Raphael, LLC, will receive an additional cash payment totaling $75,000, payable immediately following a special shareholders meeting scheduled February 20, 1998. During the quarter ended September 30, 1997, the Company engaged the consulting services of Mr. Robert Gonnelli for the purposes of overseeing the Company's investor relations functions, providing input to sales and marketing, advising Bioject's Board of Directors on various matters, identifying new manufacturing software and providing strategic and financial advice. For his services, Mr. Gonnelli will receive compensation as follows: a. Five year warrants to purchase 50,000 shares of Bioject common stock at $1.10 per share granted at the end of each of two fiscal years for his investor relations consulting services. b. At the end of fiscal 1998 and 1999, a five year warrant to purchase 100,000 and 50,000 shares, respectively, of common stock at $1.10 per share prorated based on product sales achieved to the applicable fiscal year's sales budget, for his sales and marketing advice. c. Effective August 1, 1997, the amount of $5,000 per month plus expenses for all other consulting services. This amount was increased to $8,500 per month plus expenses beginning January 1, 1998. Commencing October 1997, the Company is recording a non-cash charge to operating results as the result of the issuance of the warrants to Mr. Gonnelli. The warrants have been valued using the Black-Scholes model based on an estimated life of 2.5 years and resulted in a charge to selling, general and administrative expense for the quarter ended December 31, 1997 of $31,000. The consulting fees are charged to expense as due. The agreement is cancelable at either party's option upon 30 days written notice. If Bioject terminates the agreement without cause, all accrued and unpaid fees and expenses are due and all unearned warrants are immediately issuable. The Company also granted to Mr. Gonnelli a five year warrant to purchase 200,000 shares of common stock at $1.00 per share and 150,000 shares of common stock at $1.10 per share for his guarantee of back-up financing should Elan not have completed its $3 million equity investment. The effect of this guarantee has been reflected as an offset of proceeds from the Elan investment in the Company's common stock. On October 22, 1997, Mr. Gonnelli was elected Chairman of Bioject's joint venture subsidiary Board of Directors. Presently, he receives no fees for such services but will participate in any future subsidiary director compensation programs including any subsidiary stock incentive plans. Commencing September 1, 1997, the Company also engaged the services of Mr. Jim Weersing for his financial and operating advice. Mr. Weersing was paid fees of $10,000 per month plus expenses. The agreement was cancelled effective December 31, 1997. The Company's revenues to date have not been sufficient to cover operating expenses. The Company believes that as its jet injection products achieve market acceptance and the volume of sales increases and if its product costs are further reduced, its costs of goods with respect to the jet injection products as a percentage of sales will decrease and the Company will realize positive margins; however the Company now faces substantial research and development costs of the glucose monitoring technology. Since no revenue from glucose monitoring products is expected for a number of years, the Company expects larger losses unless sales of the Biojector 2000 increase substantially. (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 additional manufacturing cost reductions or sell its jet injection products at prices or in volumes sufficient to achieve profitability or offset increases in the Company's research and development expenses or other 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) timing of new product introductions by the Company and its competition, (ii) the costs of blood glucose monitoring development and commercialization, (iii) length of time to close product sales, (iv) customer budget cycles, (v) implementation of cost reduction measures, (vi) uncertainties and changes in purchasing due to third party payor policies and proposals relating to national healthcare reform, and (vii) the timing and amount of payments under technology development agreements. During fiscal 1998, the Company will continue to focus its efforts on expanding sales, reducing the cost of its products, developing an injector for Hoffmann-La Roche, pursuing additional alliances with pharmaceutical companies, developing the blood glucose monitoring technology and conserving its fiscal resources. The Company does not expect to report net income from operations in fiscal 1998. (See Forward Looking Statements). RESULTS OF OPERATIONS QUARTER ENDED DECEMBER 31,1997 COMPARED TO QUARTER ENDED DECEMBER 31,1996. Product sales decreased from $326,000 in the third quarter of fiscal 1997 to $313,000 in the third quarter of fiscal 1998 due to smaller flu season reorders. License and technology fees increased from $80,000 in the third quarter of fiscal 1997 to $125,000 in the third quarter of fiscal 1998 due to the fluctuation in timing of strategic partner development payments and expenses. Manufacturing expense increased from the third quarter of fiscal 1997 to the third quarter of fiscal 1998 by $76,000 due to lower production and, therefore, lower overhead absorption. Research and development expenses declined from $410,000 in the third quarter of fiscal 1997 to $193,000 in the third quarter of fiscal 1998 due to completion of the self-injector project. Selling, general and administrative expense increased from $768,000 in the third quarter of fiscal 1997 compared to $901,000 in the third quarter of fiscal 1998 due primarily to increases in consulting fees and new joint venture administrative expenses. Interest expense increased to $225,000 in the third quarter of the current year due to the debt due to Elan of $12.015 million. There was no corresponding interest expense in the third quarter of the prior year. Other income consists of earnings on available cash balances and fluctuates based on available cash balances. NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1996. Product revenues for the nine months ended December 31, 1997 increased to $1.3 million from $845,000 in the comparable period in the prior year due to greater flu season and public health clinic sales. Licensing and technology fees decreased due to completion of the self-injector project. Manufacturing costs increased from $1.4 million in the first nine months of the prior year to $1.5 million in the comparable period in the current year. This increase was due to greater product sales offset by decreases in manufacturing overhead and direct labor and materials costs. Research and product development expenses decreased approximately $578,000 due to completion of the self-injector project. Selling, general and administrative costs increased approximately $294,000 due to increases in consulting and travel expenses and greater total commissions on higher product sales. Interest expense increased to $225,000 in the first nine months of the current year due to the debt due to Elan of $12.015 million. There was no corresponding interest expense in the first nine months of the prior year. Other income consists of earnings on available cash balances and fluctuates based on available cash balances. 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 private placements of common stock completed in fiscal 1996, 1997 and 1998. Net proceeds received upon issuance of securities from inception through December 31, 1997 totaled approximately $44.0 million. Cash, cash equivalents and marketable securities totaled, $3.0 million at December 31, 1997 and $2.1 million at March 31, 1997. The increase resulted primarily from net of proceeds received in the private placements in June and July 1997 and October 1997, offset by operating losses and reductions in certain short term liabilities. Inventories decreased from $1.7 million at March 31, 1997 to $1.6 million at December 31, 1997, due to sales of the Company's syringe products exceeding manufacturing production. In connection with the Elan transaction, the Company incurred long-term debt of $12.015 million. This debt bears interest at 9% per annum until December 31, 1997 and 12% per annum thereafter, with interest payable quarterly commencing April 1998 and unpaid principal and interest due October 15, 2001. The debt was incurred to permit the Company to fund its share of the license payment to Elan. Under terms of the agreement with Elan, if the Company's shareholders approve, the debt plus accrued interest will be exchanged for Series A and Series B convertible preferred stock of Bioject. Of the total outstanding principal and accrued interest on the note at the date of exchange, $10 million plus accrued interest on the note will be exchanged for Series A Convertible Preferred Stock at $15.00 per share. The Series A Convertible Preferred Stock will accrue dividends at the rate of 9% per annum (compounded semi-annually). The remaining $2.015 million outstanding under the note will be exchanged for Series B Convertible Preferred Stock at $15.00 per share, which will not accrue dividends. JV will incur significant expenses in connection with the research and development of the glucose monitoring technology as well as substantial milestone payments to Elan upon the occurrence of certain events. In addition, JV is required under the license to pay Elan an aggregate of $15.5 million in further royalties as the following milestones are achieved: $1 million within 10 days of the commencement of pivotal clinical trials; $1.5 within 120 days of the successful completion of the clinical trials; $3 million within 10 days of the initial regulatory filing to obtain marketing approval; and $10 million within 120 days of the grant of U.S. marketing approval for the first product. If the Company's shareholders approve the two proposals described above at an upcoming Special Meeting of Shareholders, the territory of the license would be expanded to be worldwide, and the royalty payment called for upon the grant of US marketing approval will be split into two payments of $5 million each, one to be paid upon the grant of such US marketing approval and the other to be paid upon the grant of marketing approval in any other of certain major nations. Additionally, JV will be required under the license to pay Elan a continuing royalty equal to a percentage of the net revenues from sublicenses of the licensed technology or from the sale by JV or its sublicensees of products covered by the licensed patents or that incorporate or apply the licensed know-how. Elan has committed resources of up to $2.5 million of certain research and development expenses. If the shareholders approve, the Company may issue to Elan up to $4 million of Series C convertible preferred stock or other similar convertible preferred stock to assist Bioject in funding a portion of the development costs of the glucose monitoring technology. Unless further financing is provided by Bioject or Elan, additional financing will be the responsibility of JV which may be required to raise such financing through debt or equity issuances. There can be no assurance that Elan or Bioject will provide such financing to JV or that JV will be able to raise additional financing on favorable terms or at all. A special meeting of the Company's shareholders has been scheduled for February 20, 1998 to approve the exchange of the long-term debt for the Series A and Series B Convertible Preferred Stock and to approve the issuance of the Series C Convertible Preferred Stock or other similar convertible preferred stock in connection with these transactions. The effect of the transactions with Elan has resulted in the Company being in a deficit equity position at December 31, 1997. Although the Company believes that it has sufficient cash and other resources for current operations through fiscal year end and the second quarter of fiscal 1999, under rules of the National Association of Security Dealers Automatic Quotation System (NASDAQ), the Company must maintain, in addition to other requirements, a net tangible assets position of $4.0 million or more in order to continue to be listed on the exchange. If the Company's shareholders approve the exchange of the $12 million debt for preferred stock, the Company will then be in compliance with the NASDAQ's tangible assets requirement. The Company believes that its current cash position and expected advances from Elan for JV operations combined with revenues and other cash receipts will be adequate to fund the Company's operations through fiscal 1998 and the second quarter of fiscal 1999. (See "Forward Looking Statements"). Thereafter, the Company will 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 include: the uncertainty market acceptance of the Company's jet injection products, the Company's ability to develop the glucose monitoring products presently contemplated, the possibility of delays or unanticipated costs and expenses in the development of the glucose monitoring technology, the availability of adequate additional financing, the ownership and protection of proprietary technology relating to the glucose monitoring technology, the possibilities that competing monitoring technology could be developed by others and other risks are described in more detail in the Company's Annual Report on Form 10-K and other S.E.C. filings. The Company assumes no obligation to update forward-looking statements if circumstances change. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. PART II OTHER INFORMATION Item 1. Legal Proceedings None during the quarter ended December 31, 1997. Item 2. Changes in Securities On October 15, 1997, the Company completed a private placement to Elan International Services, Ltd. of 2,727,273 shares of the Company's Common Stock and a warrant to purchase an additional 1,750,000 shares of the Company's Common Stock. The warrant, which is exercisable in whole or from time to time in part, expires five years from the date of issuance, and has an exercise price of $2.50 per share. Aggregate proceeds to the Company before expenses totaled $3 million. The securities have been issued pursuant to an exemption from registration under Section 4(2) of the Securities Act. In relying upon such exemption (i) the Company did not engage in any "general solicitation", (ii) the purchaser represented and the Company reasonably believed that the purchaser had such knowledge and experience in financial and business matters such that it was capable of evaluating the merits and risks of the prospective investment and was able to bear the economic risk of such investment, (iii) the purchaser was provided access to all necessary and adequate information to enable the purchaser to evaluate the financial risk inherent in making an investment, (iv) the offer was part of an agreement to establish a joint venture with the purchaser and as such was made only to the purchaser and (v) the purchaser represented that it was acquiring the shares for itself and not for distribution. Item 3. Defaults Upon Senior Securities None during the quarter ended December 31, 1997. Item 4. Submission of Matters to a Vote of Security Holders None during the quarter ended December 31, 1997. Item 5. Other Information None during the quarter ended December 31, 1997. Item 6. Exhibits and Reports on Form 8-K EXHIBITS: 27.1 Financial Data Schedule 4.3 Bioject Medical Technologies Inc. 1992 Stock Incentive Plan, as amended through April 3, 1997 REPORTS ON FORM 8-K: Form 8-K filed on October 1, 1997 for the purpose of filing as an exhibit the press release announcing the agreement between Elan and the Company. Form 8-K filed on October 3, 1997 regarding a description of the agreement between Elan and Bioject and filing the agreement as Exhibit 10.39, for which confidential treatment was granted. Form 8-K filed on October 21, 1997 regarding the closing of the transactions contemplated by the agreement between Elan and Bioject. Form 8-K filed on October 31, 1997 filing Exhibits 10.41 (Securities Purchase Agreement), 10.42 (Registration Rights Agreement) and 10.43 (Series K Common Stock Purchase Warrant). Form 8-K filed on November 3, 1997 regarding the transactions contemplated by the agreement between Elan and Bioject and filing Exhibit 10.40 (License Agreement with Elan), Exhibit 10.44 (Promissory Note), Exhibit 10.45 (JV Subscription and Stockholders Agreement) and Exhibit 10.46 (JV Registration Rights Agreement). Confidential Treatment was requested with regard to portions of Exhibits 10.40 and 10.45. This Form 8-K was amended on Form 8-K/A filed on November 14, 1997 which filed Exhibit 10.47 (Proposed Terms of Series A, B and C Preferred Stock). This Form 8-K was amended on Form 8-K/A (Amendment No. 2) filed on January 22, 1998 which refiled Exhibit 10.40 and Exhibit 10.45. Confidential Treatment was granted with regard to portions of Exhibit 10.40. Form 8-K/A (Amendment No. 1) filed on January 22, 1998 amending Form 8-K originally filed on January 14, 1997 regarding a private placement in December 1996. Form 8-K filed on January 22, 1998 regarding amendments to Exhibit 10.40, Exhibit 10.41 and Exhibit 10.45 and filing such amendments as Exhibit 10.40.1, Exhibit 10.41.1 and Exhibit 10.45.1. 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: February 13, 1998 /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 [ARTICLE] 5 EXHIBIT 27.1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q. [MULTIPLIER] 1 [PERIOD-TYPE] 9-MOS [FISCAL-YEAR-END] MAR-31-1998 [PERIOD-END] DEC-31-1997 [CASH] 1,001,990 [SECURITIES] 1,967,749 [RECEIVABLES] 513,163 [ALLOWANCES] 0 [INVENTORY] 1,571,394 [CURRENT-ASSETS] 5,108,827 [PP&E] 4,428,694 [DEPRECIATION] 1,830,090 [TOTAL-ASSETS] 8,039,490 [CURRENT-LIABILITIES] 1,260,191 [BONDS] 12,015,000 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 44,286,505 [OTHER-SE] 0 [TOTAL-LIABILITY-AND-EQUITY] 8,039,490 [SALES] 1,300,620 [TOTAL-REVENUES] 1,675,620 [CGS] 1,452,684 [TOTAL-COSTS] 1,452,684 [OTHER-EXPENSES] 15,474,950 [LOSS-PROVISION] 0 [INTEREST-EXPENSE] 0 [INCOME-PRETAX] (15,252,014) [INCOME-TAX] 0 [INCOME-CONTINUING] (15,252,014) [DISCONTINUED] 0 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] (15,252,014) [EPS-PRIMARY] (.68) [EPS-DILUTED] (.68)
EX-4.3 2 Exhibit 4.3 BIOJECT MEDICAL TECHNOLOGIES INC. 1992 STOCK INCENTIVE PLAN (as amended through April 3, 1997) 1. Purpose. The purpose of this 1992 Stock Incentive Plan (the "Plan") is to enable Bioject Medical Technologies Inc., an Oregon corporation (the "Company"), to attract and retain the services of (a) selected employees, officers and directors of the Company or of any parent or subsidiary corporation of the Company, and (b) selected nonemployee agents, consultants, advisers and independent contractors of the Company or any parent or subsidiary. 2. Shares Subject to the Plan. Subject to adjustment as provided below and in paragraph 11, up to 3,000,000 shares of Common Stock of the Company (the "Shares") shall be offered and issued under the Plan. If an option or a stock appreciation right granted under the Plan expires, terminates or is cancelled, the unissued Shares subject to such option or stock appreciation right shall again be available under the Plan. If Shares sold or awarded as a bonus under the Plan are forfeited to the Company or repurchased by the Company, the number of Shares forfeited or repurchased shall again be available under the Plan. 3. Effective Date and Duration of Plan. (a) Effective Date. The Plan shall become effective when adopted by the Board of Directors of the Company (the "Board"). However, no option granted under the Plan shall become exercisable until the Plan is approved by the affirmative vote of the holders of a majority of the Common Stock of the Company represented at a shareholder meeting at which a quorum is present, and any such awards under the Plan prior to such approval shall be conditioned on and subject to such approval. Subject to this limitation, options and stock appreciation rights may be granted and Shares may be awarded as bonuses or sold under the Plan at any time after the effective date and before termination of the Plan. (b) Duration. No options or stock appreciation rights may be granted under the Plan, no stock bonuses may be awarded under the Plan, and no Shares may be sold pursuant to paragraph 8 of the Plan on or after July 29, 2002. However, the Plan shall continue in effect until all Shares available for issuance under the Plan have been issued and all restrictions on such Shares have lapsed. The Board may suspend or terminate the Plan at any time, except with respect to options, stock appreciation rights and Shares subject to restrictions then outstanding under the Plan. Termination shall not affect any outstanding options, stock appreciation rights, any right of the Company to repurchase Shares or the forfeitability of Shares issued under the Plan. 4. Administration. (a) The Plan shall be administered by a committee appointed by the Board consisting of not less than two directors (the "Committee"). The Committee shall determine and designate from time to time the individuals to whom awards shall be made, the amount of the awards, and the other terms and conditions of the awards; provided, however, that only the Board may amend or terminate the Plan as provided in paragraphs 3 and 14. At any time when the officers and directors of the Company are subject to Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), the Committee shall consist solely of "disinterested" directors as such term is defined from time to time in Rule 16b-3 under the Exchange Act. No member of the Committee shall be eligible to receive any award under the Plan while such person serves as a Committee member, except pursuant to paragraph 10. (b) Subject to the provisions of the Plan, the Committee may from time to time adopt and amend rules and regulations relating to administration of the Plan, advance the lapse of any waiting period, accelerate any exercise date, waive or modify any restriction applicable to Shares (except those restrictions imposed by law) and make all other determinations in the judgment of the Committee necessary or desirable for the administration of the Plan. The interpretation and construction of the provisions of the Plan and related agreements by the Committee shall be final and conclusive. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any related 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. 5. Types of Awards; Eligibility. The Committee may, from time to time, take the following actions under the Plan: (i) grant Incentive Stock Options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as provided in paragraph 6(b); (ii) grant options other than Incentive Stock Options ("Nonstatutory Stock Options") as provided in paragraph 6(c); (iii) award stock bonuses as provided in paragraph 7; (iv) sell Shares as provided in paragraph 8; and (v) grant stock appreciation rights as provided in paragraph 9. Any such awards may be made to employees (including employees who are officers or directors) of the Company or of any parent or subsidiary corporation of the Company, and to other individuals described in paragraph 1 who the Committee believes have made or will make an important contribution to the Company or its parent or subsidiaries; provided, however, that only employees of the Company or a parent or subsidiary shall be eligible to receive Incentive Stock Options under the Plan, and, provided further, that directors who are not employees shall receive awards only pursuant to paragraph 10. The Committee shall select the individuals to whom awards shall be made and shall specify the action taken with respect to each individual to whom an award is made under the Plan. At the discretion of the Committee, an individual may be given an election to surrender an award in exchange for the grant of a new award. 6. Option Grants (a) Grant. Each option granted under the Plan shall be evidenced by a stock option agreement in such form as the Committee shall prescribe from time to time in accordance with the Plan. With respect to each option grant, the Committee shall determine the number of Shares subject to the option, the option price, the period of the option, and the time or times at which the option may be exercised and whether the option is an Incentive Stock Option or a Nonstatutory Stock Option. (b) Incentive Stock Options. Incentive Stock Options granted under the Plan shall be subject to the following terms and conditions: (i) No employee may be granted Incentive Stock Options under the Plan such that the aggregate fair market value, on the date of grant, of the Shares with respect to which Incentive Stock Options are exercisable for the first time by that employee during any calendar year under the Plan and under any other incentive stock option plan (within the meaning of Section 422 of the Code) of the Company or of any parent or subsidiary corporation of the Company exceeds $100,000. (ii) An Incentive Stock Option may be granted under the Plan to an employee possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary corporation of the Company only if the option price is at least 110 percent of the fair market value, as described in paragraph 6(b)(iv), of the Shares subject to the option on the date it is granted, and the option by its terms is not exercisable more than five years from the date of grant. (iii) Subject to paragraphs 6(b)(ii) and 6(d), Incentive Stock Options granted under the Plan shall continue in effect for the period fixed by the Committee, except that no Incentive Stock Option shall be exercisable more than 10 years from the date of grant. (iv) The option price per Share shall be determined by the Committee at the time of grant. Subject to paragraph 6(b)(ii), the option price shall not be less than 100 percent of the fair market value of the Shares covered by the Incentive Stock Option at the date the option is granted. The fair market value shall be deemed to be the average of the closing bid and asked prices for the Common Stock of the Company as reported on the National Association of Securities Dealers, Inc. Automated Quotation System on the day preceding the day the option is granted, or if there has been no sale on that date, on the last preceding date on which a sale occurred, or such other reported value of the Common Stock of the Company as shall be specified by the Committee. (v) The Committee may at any time without the consent of the optionee convert an Incentive Stock Option into a Nonstatutory Stock Option. (c) Nonstatutory Stock Options. Nonstatutory Stock Options shall be subject to the following additional terms and conditions: (i) The option price for Nonstatutory Stock Options shall be determined by the Committee at the time of grant. The option price may not be less than 75 percent of the fair market value of the Shares covered by the Nonstatutory Stock Option on the date of grant. The fair market value of the Shares covered by a Nonstatutory Stock Option shall be determined pursuant to paragraph 6(b)(iv). (ii) Nonstatutory Stock Options granted under the Plan shall continue in effect for the period fixed by the Committee. (d) Exercise of Options. Except as provided in paragraph 6(f) or as determined by the Committee, no option granted under the Plan may be exercised unless at the time of such exercise the optionee is employed by or in the service of the Company or any parent or subsidiary corporation of the Company and shall have been so employed or have provided such service continuously since the date such option was granted. Absence on leave or on account of illness or disability under rules established by the Committee shall not, however, be deemed an interruption of employment for purposes of the Plan. Unless otherwise determined by the Committee, vesting of options shall not continue during an absence on leave (including an extended illness) or on account of disability. No option may be exercised by an officer or director of the Company within six months of the date of grant. Except as provided in paragraphs 6(f), 11 and 12, options granted under the Plan may be exercised from time to time over the period stated in each option in such amounts and at such times as shall be prescribed by the Committee, provided that options shall not be exercised for fractional shares. Unless otherwise determined by the Committee, if the optionee does not exercise an option in any one year with respect to the full number of Shares to which the optionee is entitled in that year, the optionee's rights shall be cumulative and the optionee may purchase those Shares in any subsequent year during the term of the option. (e) Nontransferability. Each option granted under the Plan by its terms shall be nonassignable and nontransferable by the optionee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death, and each option by its terms shall be exercisable during the optionee's lifetime only by the optionee. (f) Termination of Employment or Service. (i) In the event the employment or service of the optionee by the Company or a parent or subsidiary corporation of the Company terminates for any reason other than because of death or physical disability, the option may be exercised at any time prior to the expiration date of the option or the expiration of three months(one year in the case of officers and two years in the case of directors) after the date of such termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of such termination. (ii) In the event of the termination of the optionee's employment or service with the Company or a parent or subsidiary corporation of the Company because the optionee becomes disabled (within the meaning of Section 22(e)(3) of the Code), the option may be exercised at any time prior to the expiration date of the option or the expiration of one year after the date of such termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of such termination. (iii) In the event of the death of an optionee while employed by or providing service to the Company or a parent or subsidiary corporation of the Company, the option may be exercised at any time prior to the expiration date of the option or the expiration of one year after the date of such death, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option on the date of death, and only by the person or persons to whom such optionee's rights under the option shall pass by the optionee's will or by the laws of descent and distribution of the state or country of domicile at the time of death. (iv) The Committee, at the time of grant or at any time thereafter, may extend the three-month and one-year expiration periods any length of time not later than the original expiration date of the option, and may increase the portion of an option that is exercisable, subject to such terms and conditions as the Committee may determine. (v) To the extent that the option of any deceased optionee or of any optionee whose employment or service terminates is not exercised within the applicable period, all further rights to purchase Shares pursuant to such option shall cease and terminate. (g) Purchase of Shares. Unless the Committee determines otherwise, Shares may be acquired pursuant to an option only upon receipt by the Company of notice in writing from the optionee of the optionee's intention to exercise, specifying the number of Shares as to which the optionee desires to exercise the option and the date on which the optionee desires to complete the transaction, and, if required to comply with the Securities Act of 1933, as amended, or state securities laws, the notice shall include a representation that it is the optionee's present intention to acquire the Shares for investment and not with a view to distribution. The certificates representing the Shares shall bear any legends required by the Committee. Unless the Committee determines otherwise, on or before the date specified for completion of the purchase of Shares pursuant to an option, the optionee must have paid the Company the full purchase price of such Shares in cash (including, with the consent of the Committee, cash that may be the proceeds of a loan from the Company), or, with the consent of the Committee, in whole or in part, in Shares valued at fair market value, as determined pursuant to paragraph 6(b)(iv). Unless the Committee determines otherwise, all payments made to the Company in connection with the exercise of an option must be made by a certified or cashier's bank check or by the transfer of immediately available federal funds. No Shares shall be issued until full payment therefor has been made. With the consent of the Committee, an optionee may request the Company to apply automatically the Shares to be received upon the exercise of a portion of a stock option (even though stock certificates have not yet been issued) to satisfy the purchase price for additional portions of the option. Each optionee who has exercised an option shall immediately upon notification of the amount due, if any, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If additional withholding is or becomes required beyond any amount deposited before delivery of the certificates, the optionee shall pay such amount to the Company on demand. If the optionee fails to pay the amount demanded, the Company or any parent or subsidiary corporation of the Company may withhold that amount from other amounts payable to the optionee by the Company or the parent or subsidiary corporation, including salary, subject to applicable law. With the consent of the Committee, an optionee may deliver Shares to the Company to satisfy the withholding obligation. 7. Stock Bonuses. The Committee may award Shares under the Plan as stock bonuses. Shares awarded as a stock bonus shall be subject to such terms, conditions, and restrictions as shall be determined by the Committee, all of which shall be evidenced in a writing signed by the recipient prior to receiving the bonus Shares. The Committee may not require the recipient to pay any monetary consideration other than amounts necessary to satisfy tax withholding requirements. The certificates representing the Shares awarded shall bear any legends required by the Committee. The Company may require any recipient of a stock bonus to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the recipient fails to pay the amount demanded, the Company or any parent or subsidiary corporation of the Company may withhold that amount from other amounts payable to the recipient by the Company or the parent or subsidiary corporation, including salary, subject to applicable law. With the consent of the Committee, a recipient may deliver Shares to the Company to satisfy the withholding obligation. 8. Stock Sales. The Committee may issue Shares under the Plan for such consideration (including promissory notes and services) as determined by the Committee, provided that in no event shall the consideration be less than 75 percent of the fair market value of the Shares at the time of issuance, determined pursuant to paragraph 6(b)(iv). Shares issued under this paragraph 8 shall be subject to the terms, conditions and restrictions determined by the Committee. The restrictions may include restrictions concerning transferability, repurchase by the Company and forfeiture of the Shares issued, together with such other restrictions as may be determined by the Committee. The certificates representing the Shares shall bear any legends required by the Committee. The Company may require any purchaser of stock issued under this paragraph 8 to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the purchaser fails to pay the amount demanded, the Company or any parent or subsidiary corporation of the Company may withhold that amount from other amounts payable to the purchaser by the Company or any parent or subsidiary corporation, including salary, subject to applicable law. With the consent of the Committee, a purchaser may deliver Shares to the Company to satisfy the withholding obligation. 9. Stock Appreciation Rights. (a) Grant. Stock appreciation rights may be granted under the Plan by the Committee, subject to such rules, terms, and conditions as the Committee prescribes. (b) Exercise. (i) A stock appreciation right shall be exercisable only at the time or times established by the Committee. If a stock appreciation right is granted in connection with an option, the stock appreciation right shall be exercisable only to the extent and on the same conditions that the related option could be exercised. Upon exercise of a stock appreciation right, any option or portion thereof to which the stock appreciation right relates terminates. If a stock appreciation right is granted in connection with an option, upon exercise of the option, the stock appreciation right or portion thereof to which the option relates terminates. No stock appreciation right granted to an officer or director may be exercised during the first six months following the date of grant. (ii) The Committee may withdraw any stock appreciation right granted under the Plan at any time and may impose any conditions upon the exercise of a stock appreciation right or adopt rules and regulations from time to time affecting the rights of holders of stock appreciation rights. Such rules and regulations may govern the right to exercise stock appreciation rights granted before adoption or amendment of such rules and regulations as well as stock appreciation rights granted thereafter. (iii) Each stock appreciation right shall entitle the holder, upon exercise, to receive from the Company in exchange therefor an amount equal in value to the excess of the fair market value on the date of exercise of one Share over its fair market value on the date of grant (or, in the case of a stock appreciation right granted in connection with an option, the option price per Share under the option to which the stock appreciation right relates), multiplied by the number of Shares covered by the stock appreciation right or the option, or portion thereof, that is surrendered. No stock appreciation right shall be exercisable at a time that the amount determined under this subparagraph is negative. Payment by the Company upon exercise of a stock appreciation right may be made in Shares valued at fair market value, in cash, or partly in Shares and partly in cash, all as determined by the Committee. (iv) For purposes of this paragraph 9, the fair market value of the Shares shall be determined pursuant to paragraph 6(b)(iv), on the trading day preceding the date the stock appreciation right is exercised. (v) No fractional Shares shall be issued upon exercise of a stock appreciation right. In lieu thereof, cash may be paid in an amount equal to the value of the fraction or, if the Committee shall determine, the number of Shares may be rounded downward to the next whole Share. (vi) Each participant who has exercised a stock appreciation right shall, upon notification of the amount due, pay to the Company in cash amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the participant fails to pay the amount demanded, the Company or any parent or subsidiary corporation of the Company may withhold that amount from other amounts payable to the participant by the Company or any parent or subsidiary corporation, including salary, subject to applicable law. With the consent of the Committee, a participant may satisfy this obligation, in whole or in part, by having the Company withhold from any Shares to be issued upon the exercise that number of Shares that would satisfy the withholding amount due or by delivering Shares to the Company to satisfy the withholding amount. (vii) Upon the exercise of a stock appreciation right for Shares, the number of Shares reserved for issuance under the Plan shall be reduced by the number of Shares issued. Cash payments of stock appreciation rights shall not reduce the number of Shares reserved for issuance under the Plan. 10. Option Grants to Non-Employee Directors. (a) Automatic Grants. Immediately after the close of each annual shareholder meeting (commencing with the 1993 annual meeting), each person then serving as a Non-Employee Director, including any such person who is elected at such meeting, shall automatically be granted a Nonstatutory Stock Option to purchase 17,500 Shares. A "Non-Employee Director" is a director of the Company who is not an employee of the Company or of any parent or subsidiary corporation of the Company on the date the option is granted. (b) Terms of Options. The exercise price for options granted under this paragraph 10 shall be the fair market value of the Shares on the date of grant, determined pursuant to paragraph 6(b)(iv). Each such option shall have an eight-year term from the date of grant, unless earlier terminated as provided in paragraph 6(f), and shall become exercisable with respect to 8,750 shares six months after the date of grant, with the remaining 8,750 shares becoming exercisable on the first anniversary of the date of grant. 11. Changes in Capital Structure. If the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation by reason of any recapitalization, reclassification, stock split, combination of shares or dividend payable in shares, the Committee shall make appropriate adjustments (i) in the number and kind of shares available for awards under the Plan; and (ii) in the number and kind of shares as to which outstanding options and stock appreciation rights, or portions thereof then unexercised, shall be exercisable, so that the participant's proportionate interest before and after the occurrence of the event is maintained, provided that this paragraph 11 shall not apply with respect to transactions referred to in paragraph 12. The Committee may also require that any securities issued in respect of or exchanged for Shares issued hereunder that are subject to restrictions be subject to similar restrictions. Notwithstanding the foregoing, the Committee shall have no obligation to effect any adjustment that would or might result in the issuance of fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Committee. Any such adjustment made by the Committee shall be conclusive. 12. Effect of Reorganization or Liquidation. (a) Cash, Stock or Other Property for Stock. Except as provided in paragraph 12(b), upon a merger, consolidation, reorganization, plan of exchange or liquidation involving the Company, as a result of which the shareholders of the Company receive cash, stock or other property in exchange for or in connection with their Common Stock (any such transaction to be referred to in this paragraph 12 as an "Accelerating Event"), any option or stock appreciation right granted hereunder shall terminate, except as specified in the following sentence, but the optionee shall have the right during a 30-day period immediately prior to any such Accelerating Event to exercise his or her option or stock appreciation right, in whole or in part, without any limitation on exercisability. With respect to an option or stock appreciation right granted to an officer or director less than six months prior to any Accelerating Event, such officer or director shall have the right to require the Company to purchase such option or stock appreciation right at a purchase price computed pursuant to paragraph 12(c) during the 30-day period following the expiration of six months following the date of such grant, and this right shall apply even if the option or stock appreciation right has otherwise terminated pursuant to paragraph 6(f) following such Accelerating Event. (b) Stock for Stock. If the shareholders of the Company receive capital stock of another corporation ("Exchange Stock") in exchange for their Common Stock in any transaction involving a merger, consolidation, reorganization, or plan of exchange, all options granted hereunder shall be converted into options to purchase shares of Exchange Stock and all stock appreciation rights granted hereunder shall be converted into stock appreciation rights measured by the Exchange Stock, unless the Committee, in its sole discretion, determines that any or all such options or stock appreciation rights granted hereunder shall not be converted, but instead shall terminate in accordance with the provisions of paragraph 12(a). The amount and price of converted options and stock appreciation rights shall be determined by adjusting the amount and price of the options or stock appreciation rights granted hereunder to take into account the relative values of the Exchange Stock and the Common Stock in the transaction. (c) Purchase Price. With respect to an option granted to an officer or director less than six months prior to an Accelerating Event, the purchase price payable pursuant to paragraph 12(a) shall be computed as follows: (i) With respect to a Nonstatutory Stock Option and a stock appreciation right as to which no Incentive Stock Option has been granted, the purchase price shall be the product of (A) the excess, if any, of the higher of (1) the purchase price paid for each Share in the Accelerating Event, or (2) the highest fair market value of a Share (determined pursuant to paragraph 6(b)(iv)) during the 30-day period ending on the day the Accelerating Event occurs, over the option price, and (B) the number of Shares covered by the option or stock appreciation right. (ii) With respect to an Incentive Stock Option and a stock appreciation right as to which an Incentive Stock Option has been granted, the purchase price shall be the product of (A) the excess, if any, of the fair market value of each Share on the date of exercise over the option price, and (B) the number of Shares covered by the option or stock appreciation right. (iii) No option or stock appreciation right may be exercised in connection with an Accelerating Event if the purchase price determined under this paragraph 12(c) is negative. (d) The rights set forth in this paragraph 12 shall be transferable only to the extent the related option or stock appreciation right is transferable. 13. Corporate Mergers, Acquisitions, Etc. The Committee may also grant options, grant stock appreciation rights, award stock bonuses and sell stock under the Plan having terms, conditions and provisions that vary from those specified in the Plan; provided that any such awards are granted in substitution for, or in connection with the assumption of, existing options, stock appreciation rights, stock bonuses and stock sold or awarded by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a transaction involving a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation to which the Company or a parent or subsidiary corporation of the Company is a party. 14. Amendment of Plan. (a) The Board may at any time, and from time to time, modify or amend the Plan in such respects as it shall deem advisable because of changes in the law while the Plan is in effect or for any other reason. Except as provided in paragraphs 6(b)(v), 11, 12 and 13, however, no change in an award already granted shall be made without the written consent of the holder of such award. (b) Notwithstanding any other provision in the Plan, paragraph 10 may be amended or modified by the Board or the shareholders of the Company only once in any six-month period, except as may be required to comport with changes in the Code, or the Employee Retirement Income Security Act, or the rules promulgated thereunder. 15. Approvals. The obligations of the Company under the Plan are subject to the approval of state and federal authorities or agencies with jurisdiction in the matter. The Company shall not be obligated to issue or deliver Shares under the Plan if such issuance or delivery would violate applicable state or federal securities laws, or if compliance with such laws would, in the opinion of the Company, be unduly burdensome or require the disclosure of information which would not be in the Company's best interests. 16. Employment and Service Rights. Nothing in the Plan or any award pursuant to the Plan shall (i) confer upon any employee any right to be continued in the employment of the Company or any parent or subsidiary corporation of the Company or shall interfere in any way with the right of the Company or any parent or subsidiary corporation of the Company by whom such employee is employed to terminate such employee's employment at any time, for any reason, with or without cause, or to increase or decrease such employee's compensation or benefits; or (ii) confer upon any person engaged by the Company or any parent or subsidiary corporation of the Company any right to be retained or employed by the Company or the parent or subsidiary or to the continuation, extension, renewal, or modification of any compensation, contract, or arrangement with or by the Company or the parent or subsidiary. 17. Rights as a Shareholder. The recipient of any award under the Plan shall have no rights as a shareholder with respect to any Shares until the date of issue to the recipient of a stock certificate for such Shares. Except as otherwise expressly provided in the Plan, 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. -----END PRIVACY-ENHANCED MESSAGE-----