-----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, RHXzWkZlA0VBQsHGWydqdGfx5vD9w/3AMrG5z85XGisoX+actuS9Z2I5cQb94FQ1 8YC9usQZ6rxn8wVuM53G6Q== 0000810084-96-000009.txt : 19960629 0000810084-96-000009.hdr.sgml : 19960629 ACCESSION NUMBER: 0000810084-96-000009 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960627 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-15360 FILM NUMBER: 96586792 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-K405 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________________________ FORM 10-K (Mark one) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended March 31, 1996 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to ________ Commission File 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) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Title of Class Common Stock, no par value 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of voting stock held by non-affiliates of the registrant, as of May 31, 1996: $18,338,321 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of May 31, 1996: Common Stock, no par value, 15,585,232 shares. Documents Incorporated by Reference: Portions of the registrant's definitive Proxy Statement for the 1996 Annual Shareholders' Meeting are incorporated by reference into Part III Table of Contents PART I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters Item 6. Selected Consolidated Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8. Consolidated Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K PART I ITEM 1. BUSINESS 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, among others, those described under "Business -- Risk Factors." GENERAL Bioject Medical Technologies Inc. ("Bioject" or the "Company") develops, manufactures and markets a jet injection system for needle-free drug delivery. Using this technology for injections virtually eliminates the associated risk of contaminated needlestick injuries and resulting blood- borne pathogen transmission, a major concern throughout the healthcare industry. The Company manufactures and markets a professional jet injection system, the Biojector (registered trademark) 2000, which allows healthcare professionals to inject medications through the skin, both intramuscularly in the deltoid muscle and subcutaneously, without a needle. The Biojector 2000 system consists of two components: a hand-held, reusable jet-injector (the "Biojector 2000"); and a sterile, single-use disposable syringe ("Biojector syringe"). The system is capable of delivering variable dose needle-free injections up to 1 ml. Additionally, the Company is developing a self-injection system for delivery of Betaseron (registered trademark) to multiple sclerosis patients pursuant to an agreement with Schering AG, Germany, signed March 28, 1994 and the Company is also developing systems for Hoffmann-La Roche to use with certain of their products pursuant to an agreement signed January 10, 1995. See "Research and Product Development." Currently, medications are administered using various methods, each of which has advantages and limitations. The leading drug delivery techniques include oral ingestion, intravenous infusion, subcutaneous and intramuscular injection, inhalation and transdermal diffusion "patch." Many drugs are effective only when administered by injection. Studies indicate that there are more than four billion needle-syringes sold annually in the U.S. The Company believes that approximately 80% of these syringes are used for subcutaneous or intramuscular injections up to 1 ml. The deltoid muscle is the location of choice for intramuscular injections up to 1 ml. Injections using traditional needle-syringes suffer from many shortcomings including (i) the risk of needlestick injuries, (ii) the risk of penetrating a patient's vein and (iii) patients' aversion to needles and discomfort. The most important of these, the contaminated needlestick injury, occurs when a needle that has been exposed to a patient's blood accidentally penetrates a healthcare worker's skin. Contaminated needles can transmit deadly blood-borne pathogens including such viruses as HIV and hepatitis B. Published data indicate that the total number of reported needlestick injuries in the U.S. exceeds 800,000 annually. In recent years, with the growing awareness of blood-borne pathogen transmission, safety has become a critical concern for hospitals and healthcare professionals as well as patients. As a result, pressures on the healthcare industry to eliminate the risk of contaminated needlestick injuries have increased. For example, the U.S. Occupational Safety and Health Administration ("OSHA") issued regulations, effective in 1992, which require healthcare institutions to treat all blood and other body fluids as infectious. These regulations require the implementation of "engineering and work practice controls" to "isolate or remove the blood-borne pathogens hazard from the workplace." Among the required controls are special handling and disposal of contaminated "sharps" in biohazardous "sharps" containers and follow-up testing for victims of needlestick injuries. These regulations have significantly increased the cost of using needle-syringes. The costs resulting from needlestick injuries vary widely. Uncontaminated needlesticks involve relatively little cost, while investigating and following up contaminated needlestick injuries are much more expensive. Investigation typically includes identifying the source of contamination, testing the source for blood-borne pathogens and repeatedly testing the needlestick victim over an extended period. Some healthcare providers are requiring additional measures, including presuming that all needlestick injuries involve contaminated needles unless proven otherwise and, under certain circumstances, administering prophylactic treatment such as zidovudine (AZT) or other drugs. The costs associated with treating needlestick injuries that result in infection by life-threatening pathogens, such as HIV or hepatitis B, are dramatically higher. In an effort to protect healthcare workers from needlestick injuries, healthcare facilities have started adopting more expensive, alternative technologies. One such technology is an intravenous ("IV") port that permits the injection of medication directly into the IV line without requiring the use of a sharp needle for each administration. Another is the "safety syringe," generally a disposable needle-syringe with a plastic sheath mechanism intended to cover the needle after use. Despite many efforts to reduce the risk of needlestick injuries, such injuries remain a major health concern. The Company's long-term goal is to establish its jet injection technology as the preferred drug delivery method for all medications administered by intramuscular or subcutaneous injection. The Company currently markets the Biojector 2000 system to hospitals, large clinics, and physician offices, is developing a self-injection device for the delivery of Betaseron to be marketed by Schering AG and is developing application specific devices to be marketed by Hoffmann-La Roche. The Company is also seeking relationships with pharmaceutical and biotechnology companies to develop other application specific devices and companion syringes. THE COMPANY The Company's operations are conducted by Bioject Inc., an Oregon corporation, which is a wholly owned subsidiary of Bioject Medical Systems Ltd. Bioject Medical Systems Ltd., a Company organized under the laws of British Columbia, Canada, is, in turn, wholly owned by Bioject Medical Technologies Inc., an Oregon corporation (the "Company"). Although Bioject Inc. commenced operations in 1985, the Company was formed in December 1992 for the sole purpose of acquiring all the capital stock of Bioject Medical Systems Ltd. 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. All references to the Company herein are to Bioject Medical Technologies Inc. and its subsidiaries, unless the context requires otherwise. The Company's executive offices and operations are located at 7620 SW Bridgeport Road, Portland, Oregon 97224, and its telephone number is (503) 639-7221. "Biojector" and "Bioject" are trademarks of the Company. DESCRIPTION OF THE COMPANY'S PRODUCTS The Company's current product, the Biojector 2000 system, is a refinement of jet injection technology that enables healthcare professionals to reliably deliver measured variable doses of medication through the skin, either intramuscularly to the deltoid muscle or subcutaneously, without a needle. Giving an injection with a Biojector 2000 system is easy and straightforward. The healthcare worker checks the CO2 pressure on the easy- to-read gauge at the rear of the injector, draws up medication into the plastic syringe discarding the fill needle in a sharps container, inserts the syringe into the power injector, presses the syringe tip against the appropriate disinfected surface on the patient's skin, and then presses an actuator thereby injecting the medication. Medication is expelled rapidly through a precision molded, small diameter orifice in a thin stream at a velocity sufficient to penetrate the skin and force the medication into the tissue at the desired level. The Biojector 2000 system consists of two components: a hand-held, reusable jet injector; and a sterile, single-use disposable plastic syringe capable of delivering variable doses of medication up to 1 ml. The first component, the Biojector 2000, is a portable hand-held unit (about the size of a flashlight) which is designed to be easy to use by healthcare professionals, as well as attractive and non-threatening to patients. As described in the June 7, 1993 issue of BUSINESSWEEK, the Biojector 2000 won the 1993 Gold Industrial Design Excellence Award given by Industrial Designers Society of America for its aesthetically pleasing and ergonomic design. In July 1994, the Biojector 2000 also received the Alliance of Children's Hospitals Seal of Approval. The Biojector 2000 injector uses disposable CO2 cartridges as a power source. The CO2 cartridges, which are purchased by the Company from an outside supplier, give an average of ten injections before requiring replacement. The CO2 gas provides consistent, reliable pressure in order to push the syringe plunger and thereby propel the medication. The CO2 does not come into contact with the patient or medication. The second component, the Biojector single-use disposable syringe, is provided in a sterile, peel-open package and consists of a plastic, needle- free, variable dose syringe containing a plunger, accompanied by a needle used only for filling. The body of the syringe is transparent and has graduated markings to aid filling by healthcare workers in the same way as traditional needle-syringes are filled. However, unlike the traditional needle-syringe, the Biojector fill needle is designed to be immediately discarded in a "sharps" container as soon as the syringe is filled, so that a needle need never come near a patient when an injection is being given. More importantly, since no needle penetrates the patient's skin, the risk of contaminated needlestick injury is virtually eliminated. Under OSHA regulations, used Biojector syringes need not be disposed of in a special biohazardous "sharps" container. There are five different Biojector syringes, each of which is intended for a different injection depth or body type. The syringes are molded using the Company's patented manufacturing process. The healthcare worker selects the syringe appropriate for the intended type of injection. One syringe size is for subcutaneous injections, while the others are designed for intramuscular injections, depending on the patient's age and body characteristics. The current suggested retail list price for the Biojector 2000 professional jet injector is $995, and the suggested retail list price for syringes is $1.00 a piece. CO2 cartridges are sold for a suggested retail price of $0.50 per cartridge and average ten injections per cartridge. Discounts are offered for volume purchases. The Company has other products in development which are intended to address other markets or to enhance the Biojector 2000 system. See "Research and Product Development." INDUSTRY BACKGROUND In 1836, LaForgue developed the concept of placing medicine under the skin by means of a needle lance trochar. In 1853, Wood developed the hollow-needle hypodermic which was later improved by Hunter, Pravaz and many others. The basic needle-syringe in use across the healthcare market today is a direct derivation from the original Wood design and involves a hollow steel needle of various diameters and lengths attached to a plastic syringe body and plunger. The entire unit requires special handling and disposal. The next fundamental improvement in injection technique for parenteral administration was made approximately 100 years following Wood's development of the hollow-needle hypodermic. This improvement was the development of a pneumatically powered hypodermic device which was capable of injecting medication through the skin without a needle. These early needle-free injection devices were large and bulky devices which lent themselves to mass inoculations but were inappropriate for single-shot administrations of medication in the physician's office, hospital or in the home setting. During the last 20 years, there have been many attempts to develop portable one-shot needle-free hypodermic devices. Some of the problems which arose in these attempts to develop such devices include: (a) inadequate injection power; (b) little or no control of pressure and depth of penetration; (c) complexity of design with related difficulties in cost and performance; (d) difficulties in use, including filling and cleaning; and (e) the necessity for sterilization between patients. In recent years, several spring-driven needle-free injectors have been developed and marketed primarily for the injection of insulin. Each of these devices requires regular cleaning as well as filling from a separate medication bottle or vial. Current prices for such injectors range from approximately $400 to $800 per injector. The Company believes that due to the cost combined with the difficulties of use, market acceptance of these devices has been limited. Also in recent years, various versions of a "safety syringe" have been designed and marketed. These syringes generally involve as their basic design a standard or modified needle-syringe with a plastic guard or sheathing surrounding the needle. Such covering is usually retracted or removed in order to give the injection. Although the intent of the safety syringes is to reduce or eliminate needlestick injuries, the syringes require manipulation after injection and, therefore, still pose the risk of needlestick injury. They are also bulky and add to contaminated waste disposal problems. MARKETING AND COMPETITION The Company is currently focusing on gaining acceptance of the Biojector system in the U.S. hospital and large clinic markets. The Company is also working on arrangements to market the Biojector 2000 system to the U.S. physician office market and the home healthcare market. The Company plans eventually to expand into international markets. Different marketing and distribution approaches are required in each of these markets. As new products are developed, the Company intends to establish additional channels of distribution. For example, the Company is developing an injection system for self-injection by multiple sclerosis patients which is anticipated to be marketed by Schering AG, and the Company is developing an injection system for specific applications which is anticipated to be marketed by Hoffmann-La Roche. Pre-filled Biojector syringes, if developed, would be filled and marketed by the pharmaceutical or biotechnology companies involved. The Company employs up to nine sales representatives to be a dedicated sales force to sell the Company's Biojector 2000 system directly to the hospital and large clinic markets in key metropolitan areas. Bioject's direct and national account sales efforts have resulted in the signing of pricing agreements with certain large group purchasing organizations. Other than VNAA members, the Company has not had material sales under these agreements. In addition to signing these agreements, the Company has received the "Seal of Approval" from the Children's Health Alliance. In August 1994, Bioject signed an agreement with Homecare Management, Inc. (HMI), granting HMI exclusive rights to purchase Bioject's Needle-Free Injection Management System, the Biojector 2000, for use in the home healthcare market. Sales to HMI commenced in August 1994. In return for HMI's commitment to purchase a minimum of 8,000 Biojector units over the ensuing two years, the Company granted volume pricing discounts to HMI. Throughout the term of the contract the selling price of Biojectors to HMI exceeded their standard cost. During fiscal 1995 and 1996, the Company sold approximately 2,100 and 4,300 Biojectors to HMI for total sales revenue including syringes of $1.1 million and $2.2 million, respectively. HMI had not placed the great majority of these Biojectors with patients pending completion of negotiations with pharmaceutical companies for certain pricing concessions for medication to be administered with the Biojectors. In January 1996, HMI requested that further shipments under the contract be suspended. In February 1996, the Company learned from HMI's press releases that HMI expected to default under its loan, to take significant write-offs for accounts receivable and inventories, planned operational consolidations, and would restate certain prior period financial statements. Subsequent to year end, the Company agreed to repurchase certain of the Biojector inventories (including up to 6,000 devices) which HMI had on hand for a total of $660,000 including $322,000 of forgiveness of accounts receivable and payment of $338,000 in two installments, one-half each in July and October 1996. The Company was under no obligation to repurchase these inventories, and the repurchase is at a substantial discount to the original selling price to HMI. In January 1995, the Company signed a distribution agreement with General Injectables & Vaccines, Inc. (GIV) for distribution of Bioject products to office-based physicians. In September 1995, this program was terminated and all consigned inventory was returned to the Company. The sale of new technologies to hospitals and large clinics can be a lengthy process. Introduction of new technologies to a hospital or large clinic typically involves screening by many individuals and committees within the institution, including new product evaluation committees, infection control officers, medical staff and business office personnel. In order to shorten the sales cycle, the Company has adopted a strategy that focuses initially on one or two departments, such as the outpatient clinic or pediatric specialty unit, that have high volumes of injections. The Company determines the dynamics driving a sale at each institution, such as: risk management, budgetary restraints and needs. Bioject sales representatives then arrange for hospital personnel to conduct a one to two- week Biojector 2000 evaluation. Bioject sales personnel are present during the in-service training and much of the evaluation process. During each evaluation, Company sales representatives submit sales proposals to the customer. The medical equipment market is highly competitive, and competition is likely to intensify. Many of the Company's existing and potential competitors have been in business longer than the Company and have substantially greater technical, financial, marketing, sales and customer support resources. The Company believes the primary competition for the Biojector 2000 system and other jet injectors it may develop is the traditional disposable needle-syringe and the "safety syringe." Leading suppliers of needle-syringes include: Becton-Dickinson & Co., Sherwood Medical Co., a subsidiary of American Home Products Corp., and Terumo Corp. of Japan. Manufacturers of traditional needle-syringes compete primarily on price, which generally ranges from approximately $0.10 to $0.20 per unit. Manufacturers of "safety syringes" compete on features, quality and price. "Safety syringes" generally are priced in a range of $0.25 to $0.45 per unit. The Company expects to compete with traditional needle-syringes and "safety syringes" based on healthcare worker safety, ease of use, reduced cost of disposal, patient comfort, and compliance with OSHA regulations, but not on purchase price. However, the Company believes that when all indirect costs (including disposal of syringes and testing, treatment and workers' compensation expense related to needlestick injuries) are considered, the Biojector 2000 system will compete effectively. See "Forward Looking Statements" and "Risk Factors." The Company is not aware of any competing products with features and benefits comparable to the Biojector 2000 system. Manufacturers of needle- syringes, as well as other companies, may develop new products that compete directly or indirectly with the Company's products. There can be no assurance that the Company will be able to compete successfully in this market. See "Risk Factors - Competition," "- Dependence on Single Technology." A variety of new technologies (for example, transdermal patches) are being developed as alternatives to injection for drug delivery. While the Company does not believe such technologies have significantly affected the use of injection for drug delivery to date, there can be no assurance that they will not do so in the future. PATENTS AND PROPRIETARY RIGHTS The Company believes that technology incorporated in its injection device, single-dose disposable plastic syringes and products under development gives it significant advantages over the manufacturers of other jet injection systems and over prospective competitors seeking to develop similar systems. The Company attempts to protect its technology through a combination of trade secrets, confidentiality agreements and procedures and patent prosecution. The Company has three U.S. patents which were filed with respect to jet injection technology incorporated in earlier versions of its jet injection systems and which expire from July 2007 to November 2008. Six additional U.S. patents have been issued which protect developments incorporated in the Biojector 2000 system. These patents incorporate a number of claims including claims regarding the jet injection system's design, method of operation, certain aspects of the syringe design and the method of manufacturing the syringe orifice. The Company has also been granted patents relating to an electronic self-injection device and a drug mixing vial, newer technologies not yet incorporated in any product. The Company has made additional patent filings regarding pre-filled syringe technologies and adapters for drug vial access. The Company also generally files patent applications in Canada, Europe and Japan at the times and under the circumstances it deems filing to be appropriate under the procedures in place in each jurisdiction. There can be no assurance that any patents applied for will be granted or that patents held by the Company will be valid or sufficiently broad to protect the Company's technology or provide a significant competitive advantage. See "Risk Factors." The Company also relies on trade secrets and proprietary know-how that it seeks to protect through confidentiality agreements with its employees, consultants, suppliers and others. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known to or be developed independently by competitors. In addition, the laws of foreign countries may not protect the Company's proprietary rights to its technology, including patent rights, to the same extent as the laws of the U.S. Although the Company believes that it has independently developed its technology and attempts to assure that its products do not infringe the proprietary rights of others, if infringement were alleged and proved, there can be no assurance that the Company could obtain necessary licenses on terms and conditions that would not have an adverse affect on the Company. The Company is not aware of any asserted claim that the Biojector 2000 or any product under development violates the proprietary rights of any person. If a dispute arises concerning the Company's technology, litigation that could result in substantial cost to and diversion of effort by the Company might be necessary to enforce the Company's patents, to protect the Company's trade secrets or know-how or to determine the scope of the proprietary rights of others. Adverse findings in any proceeding could subject the Company to significant liabilities to third parties, require the Company to seek licenses from third parties or otherwise adversely affect the Company's ability to manufacture and sell its products. GOVERNMENTAL REGULATION The Company's products and manufacturing operations are subject to extensive government regulations, both in the U.S. and abroad. In the U.S., the Food and Drug Administration ("FDA") administers the Federal Food, Drug and Cosmetic Act (the "FFDCA") and has adopted regulations, including those governing the introduction of new medical devices, the observation of certain standards and practices with respect to the manufacturing and labeling of medical devices, the maintenance of certain records and the reporting of device-related deaths, serious injuries, and certain malfunctions to the FDA. Manufacturing facilities and certain Company records are also subject to FDA inspections. The FDA has broad discretion in enforcing the FFDCA and the regulations thereunder, and noncompliance can result in a variety of regulatory steps ranging from warning letters, product detentions, device alerts or field corrections to mandatory recalls, seizures, injunctive actions and civil or criminal penalties. The FFDCA provides that, unless exempted by regulation, medical devices may not be commercially distributed in the U.S. unless they have been cleared or approved by the FDA. The FFDCA provides two basic review procedures for pre-market clearance or approval of medical devices. Certain products qualify for a submission authorized by Section 510(k) of the FFDCA, wherein the manufacturer provides the FDA with a premarket notification ("510(k) notification") of the manufacturer's intention to commence marketing the product. The manufacturer must, among other things, establish in the 510(k) notification that the product to be marketed is substantially equivalent to another legally marketed product, (i.e., that it has the same intended use and that it as safe and effective as a legally marketed device and does not raise questions of safety and effectiveness that are different from those associated with the legally marketed device). Marketing may commence when the FDA issues a letter finding substantial equivalence to such a legally marketed device. The FDA may require, in connection with the 510(k) submission, that it be provided with animal and/or human test results. If a medical device does not qualify for the 510(k) procedure, the manufacturer must file a premarket approval ("PMA") application. A PMA must show that the device is safe and effective and is generally a much more complex submission than a 510(k) notification typically requiring more extensive prefilling testing and a longer FDA review process. A 510(k) notification is required when a device is being introduced into the market for the first time. A 510(k) notification is also required when the manufacturer makes a change or modification to an already marketed device that could significantly affect safety or effectiveness, or where there is a major change or modification in the intended use of the device. When any change or modification is made in a device or its intended use, the manufacturer is expected to make the initial determination as to whether the change or modification is of a kind that would necessitate the filing of a new 510(k) notification. The FDA's regulations provide only limited guidance in making this determination. In April 1987, the Company received 510(k) marketing clearance from the FDA allowing the Company to market a hand-held CO2-powered jet injection system. Although the Biojector 2000 system incorporates changes from the system with respect to which the Company's 1987 510(k) marketing clearance was received and expands its intended use, the Company made the determination that these were not major changes or modifications in intended use or changes in the device that could significantly affect the safety or effectiveness of the device and that, accordingly, the 1987 510(k) clearance permitted the Company to market the Biojector 2000 system in the U.S. 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 expects that the self-injection and other systems under development would require new 510(k) submissions. See "Research and Product Development" and "Forward Looking Statements". However, there can be no assurance that the FDA will concur with the Company's determination that the product can be cleared via a 510(k) submission. The Company continues to seek arrangements with pharmaceutical companies to develop pre-filled Biojector syringe applications to permit the pharmaceutical companies to market their products packaged in Biojector prefilled containers. See "Research and Product Development." Before pre- filled Biojector syringes may be distributed for use in the U.S., certain FDA-mandated stability tests may be required of those pharmaceutical companies. Pre-filled syringes involve drugs packaged as a component of a medical device. It is current FDA policy that such pre-filled syringes, which are considered to be combination products, are evaluated by the FDA as drugs rather than medical devices. Marketing of pre-filled syringes by pharmaceutical companies will require prior approval via a New or amended Drug Application ("NDA") or an Abbreviated New Drug Application ("ANDA"). An NDA is a complex submission required to establish that a drug will be safe and effective for its intended uses. An ANDA is a less detailed process which does not require, among other things, that the applicant provide complete reports of preclinical and clinical studies of safety and efficacy as are required for NDAs. Assuming that the drugs used in the pre- filled syringes have previously been approved by the FDA for injection, the FDA will likely require that ANDAs, rather than NDAs, be submitted. The Company believes that if a drug to be used in the Company's pre-filled syringe were already the subject of an approved NDA or ANDA for intramuscular or subcutaneous injection, the main issue affecting approval for use in the pre-filled syringe would be the adequacy of the syringe to store the drug, to assure its stability until used and to safely deliver the proper dose. See "Forward Looking Statements" and "Risk Factors - Government Regulation." The FDA also regulates the Company's quality control and manufacturing procedures by requiring the Company and its contract manufacturers to demonstrate compliance with current Good Manufacturing Practice ("GMP") Regulations. These regulations require, among other things, that (i) the manufacturing process must be regulated and controlled by the use of written procedures and (ii) the ability to produce devices which meet the manufacturer's specifications must be validated by extensive and detailed testing of every aspect of the process. They also require investigation of any deficiencies in the manufacturing process or in the products produced and detailed record-keeping. Further, the FDA's interpretation and enforcement of these requirements has been increasingly strict in recent years and seems likely to be even more stringent in the future. Failure to adhere to GMP requirements would cause the products produced to be considered in violation of the Act and subject to enforcement action. The FDA monitors compliance with these requirements by requiring manufacturers to register with the FDA, and subjecting them to periodic FDA inspections of manufacturing facilities. If the inspector observes conditions that might be violative, the manufacturer must correct those conditions or explain them satisfactorily, or face potential regulatory action that might include physical removal of the product from the marketplace. The FDA's Medical Device Reporting Regulation requires that the Company provide information to the FDA on the occurrence of any death or serious injuries alleged to have been associated with the use of the Company's products, as well as any product malfunction that would likely cause or contribute to a death or serious injury if the malfunction were to recur. In addition, FDA regulations prohibit a device from being marketed for unapproved or uncleared indications. If the FDA believes that the company is not in compliance with these regulations, it can institute proceedings to detain or seize products, issue a recall, seek injunctive relief or assess civil and criminal penalties against such company. The use and manufacture of the Company's products are subject to OSHA and other federal, state and local laws and regulations relating to such matters as safe working conditions for healthcare workers and Company employees, manufacturing practices, environmental protection and disposal of hazardous or potentially hazardous substances and the policies of hospitals and clinics relating to compliance therewith. There can be no assurance that the Company will not be required to incur significant costs to comply with such laws, regulations or policies in the future, or that such laws, regulations or policies will not increase the costs or restrictions related to the use of the Company's products or otherwise have a materially adverse effect upon the Company's ability to do business. See "Risk Factors." Laws and regulations regarding the manufacture, sale and use of medical devices are subject to change and depend heavily on administrative interpretations. There can be no assurance that future changes in regulations or interpretations made by the FDA, OSHA or other regulatory bodies, will not adversely affect the Company. Sales of medical devices outside of the United States are subject to foreign regulatory requirements. The requirements for obtaining premarket clearance or approval by a foreign country may differ from those required for FDA clearance or approval. Devices having an effective 510(k) clearance or PMA may be exported without further FDA authorization. FDA authorization is generally required in order to export other medical devices. The Company had in place a distribution agreement with Kobayashi Pharmaceutical Co. Ltd. An application was made to the Japan Ministry of Health and Welfare to obtain the necessary approvals to market the Biojector 2000 system in Japan which was not carried to completion by Kobayashi. By mutual consent, the agreement between the companies expired on June 30, 1995. RESEARCH AND PRODUCT DEVELOPMENT Research and development efforts are focused on enhancing the Company's current product offerings and developing both new jet injection technology and new products. The Company continues to use clinical, magnetic resonance imaging and tissue studies to determine the reliability and performance of new and existing products. As of March 31, 1996, the Company's research and product development staff consisted of 10 employees. During fiscal 1994, 1995 and 1996, the Company spent $1.3 million, $1.4 million, and $1.5 million, respectively, on research and development. In April 1992, the Company entered into a multi-year agreement with Eli Lilly and Company ("Lilly") to develop a new, portable, reusable electronic jet injection system suitable for insulin self-injection. Under terms of the agreement, Lilly purchased 664,011 shares of the Company's common stock for $4.0 million and paid a one-time $500,000 fee for access to the Company's technology. In addition, Lilly paid $1.0 million for Phase I (Proof of Concept) work, completed in March 1993. The Company also received $575,000 for initial Phase II (Design and Development) work completed in March 1994. During the last half of fiscal 1994, Lilly conducted its first market research utilizing three concept models for the insulin self injector. Following this market research, Lilly presented significant proposed revisions to the 1992 specifications for the device under development. Pending resolution of this matter, the project was put on hold. In August 1995 the Company met with Lilly representatives regarding the future development of an insulin self-injector. Because the Company's injector design does not meet Lilly's size and cost goals, the Company and Lilly agreed to suspend any further development of a specialized insulin self injection device. The Company does not anticipate attempting to complete development of this device without Lilly's participation. All costs of the Lilly development contract have previously been expensed as research and development expenses. In March 1994, the Company entered into an agreement with Schering AG, Germany, for the development of a self-injection device for delivery of Betaseron to multiple sclerosis patients. During fiscal 1995, the Company developed a proof-of-concept prototype and demonstrated this prototype to Schering. The Company and Schering finalized product specifications. The Company also commenced development of the preproduction clinical prototype. During fiscal 1996, the Company delivered the preproduction clinical prototypes to Schering and worked on finalizing the production prototype design. Upon completion of development, the agreement provides that Schering will have seven-year exclusive rights to market the product world- wide for beta interferon applications at prices dependent upon specific volumes. The Company maintains ownership of the underlying technology. Under terms of the agreement, in April 1994, Schering paid a one-time $500,000 licensing fee for access to the Company's technology and paid $600,000 as its contribution toward Phase I of the development. In October 1995 Schering paid $600,000 as its contribution toward Phase II development and $60,000 of additional costs associated with completion of Phase I. During fiscal 1997, the agreement provides for Schering to pay $300,000 for Phase III development costs on the schedule provided for in the agreement. As defined in the agreement, under certain circumstances, the licensing and product development fees are convertible by Schering into common stock of the Company. Schering has the right to cancel the agreement by notice to the Company before the end of Phase II or at any time during Phase III. In January 1995, the Company signed a joint development agreement with Hoffmann-La Roche to develop proprietary drug delivery systems for Roche products. The agreement provides for Bioject to develop, manufacture and sell Biojector needle-free drug delivery systems designed to Roche specifications. In return, Bioject has granted Roche exclusive worldwide rights to distribute these systems and their components for use with certain Roche products. Hoffmann-La Roche Inc. is the United States affiliate of the multinational group of companies headed by Roche Holding of Basel, Switzerland, one of the world's leading research-intensive healthcare companies. As of 1995 fiscal year end, the Company had commenced design of a prototype device and had agreed with Roche on product specifications. During fiscal 1996, the Company developed and delivered to Roche preproduction prototypes for testing and developed the clinical preproduction prototypes which were delivered to Roche in April 1996. In February 1995, Hoffmann-La Roche paid a one-time licensing fee totalling $500,000, and the agreement provides that it will pay specified product development fees on an agreed upon schedule of which $900,000 was paid in fiscal 1996. In addition to activities described above, the Company is seeking arrangements with pharmaceutical and biotechnology companies for the use of pre-filled syringes to eliminate the filling and measuring procedures associated with traditional injection of medications. Before pre-filled Biojector syringes may be distributed for use in the U.S., these companies must commit to the packaging and distribution of their products in this manner and to the time and financial resources necessary for FDA review and approval. This process could be lengthy. See "Business -- Government Regulation." There can be no assurance that such companies will commit efforts to develop pre-filled packaging and pursue regulatory approval or that regulatory approval of pre-filled Biojector syringes will be obtained. The Company intends to continue research and development efforts designed to further its understanding of the physics and physiology of jet injection. These efforts will include further clinical studies to demonstrate efficacy of jet injection and to evaluate new products and enhancements to the Company's existing products. To advance these studies, in April 1994 the Company formed a Department of Clinical Affairs research group, which initiates and coordinates these studies. MANUFACTURING The Company assembles the Biojector 2000 and related syringes from components purchased from outside suppliers. Prior to introduction of the Biojector 2000 system in 1993, the Company had not engaged in manufacturing on a commercial scale. However, in connection with that introduction, the Company increased its manufacturing capabilities and built inventories to support anticipated product sales. Throughout fiscal 1994 and 1995, the Company's manufacturing processes were primarily manual. These processes did not permit the Company to produce its products at costs which would allow it to operate profitably. During fiscal 1996, the Company implemented a plan to increase manufacturing capacity and refine production methods to meet anticipated future demand and to reduce product costs. For the Biojector 2000, cost reduction efforts included converting from a two piece to a one piece housing, converting to continuous process manufacturing and implementing volume purchasing programs from suppliers. For the Biojector syringes, these efforts included increasing supplier mold capacity and automating final assembly and packaging. See "Risk Factors - Limited Manufacturing Experience, Need to Reduce Unit Cost." During fiscal 1997, the Company's manufacturing activities will be focused on retesting the devices repurchased from HMI to ensure their continuing compliance with new product standards and to selectively upgrading certain of these units to current version configuration. Manufacturing will also be actively focused on finalizing product engineering and on planning for, designing and bringing up the new Schering device and syringe manufacturing lines in advance of product launch. In order to succeed in expanding manufacturing capacity and reducing unit production cost, the Company must attract and retain qualified assembly workers and must establish and maintain relationships with suppliers that can deliver large numbers of components meeting applicable quality standards in a timely and reliable manner at acceptable prices. EMPLOYEES As of March 31, 1996, the Company had 47 full-time employees with 10 employees engaged in research and product development, 8 in sales and marketing, 20 in manufacturing and 9 in administration. The Company engages a limited number of part-time consultants who participate in research activities. The Company also employs temporary contract workers primarily for assembly operations, the number of which varies, depending upon production requirements. As of March 31, 1996, there was one consultant and one contract/temporary worker employed by the Company. None of the Company's employees is represented by a labor union. PRODUCT LIABILITY The Company believes that its products reliably inject medications both subcutaneously and intramuscularly when used in accordance with product guidelines. The Company's current insurance policies provide coverage at least equal to an aggregate limit of $6 million with respect to certain product liability claims. The Company has not experienced any product liability claims to date. There can be no assurance, however, that the Company will not become subject to such claims, that the Company's current insurance would cover such claims, or that insurance will continue to be available to the Company in the future. The Company's business may be adversely affected by product liability claims. RISK FACTORS Investment in securities of the Company involves a high degree of risk. The following factors, among others, should be considered by investors. UNCERTAINTY OF MARKET ACCEPTANCE. The Company's success will depend upon market acceptance of its jet injection drug delivery system, the Biojector 2000 system, and, to other products under development. Currently, the dominant technology used for intramuscular and subcutaneous injections is the hollow-needle syringe. Needle-syringes, while low in cost, have limitations, particularly relating to contaminated needlestick injuries. Use of the Biojector 2000 system for intramuscular and subcutaneous injections virtually eliminates the associated risk of these injuries; however, the cost per injection is significantly higher. As with any new technology, there can be no assurance that the Biojector 2000 system will compete successfully. A previous jet injection system manufactured by the Company did not achieve market acceptance and is no longer being marketed. The Biojector 2000 was introduced in January 1993. To date the major portion of sales have been sales to HMI that were not placed in service and which the Company has agreed to repurchase at a substantial discount to the original selling price. Failure of the Biojector 2000 system to gain market acceptance would have a material adverse effect on the Company's financial condition and results of operations. HISTORY OF LOSSES; UNCERTAIN PROFITABILITY. Since its formation in 1985, the Company has incurred significant annual operating losses and negative cash flow. At March 31, 1996 the Company had an accumulated deficit of $30.0 million. The Company's revenues to date have been derived primarily from licensing and technology fees, and from product sales, which were principally sales to dealers for the stocking of inventories and to HMI. There can be no assurance that the Company will be able to generate significant revenues or achieve profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." NEED FOR ADDITIONAL FINANCING. The Company anticipates that the cash on hand at March 31, 1996 combined with revenues and other cash receipts, will be sufficient to meet the cash requirements of the Company's operations through fiscal 1997. See "Forward Looking Statements." Additional financing will be required at the beginning of fiscal 1998. However, the Company may require additional capital sooner for a number of reasons, including poor operating results, unanticipated expenses, growth which is more rapid than anticipated, or new product development programs. Failure to obtain needed additional capital on terms acceptable to the Company, or at all, would significantly restrict the Company's operations and ability to continue product development and growth and materially adversely affect the Company's business. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." LIMITED MANUFACTURING EXPERIENCE; NEED TO REDUCE UNIT COST. The Company has limited experience manufacturing its products in commercial quantities. The Company has increased its production capacity for the Biojector 2000 system through automation of, and changes in, production methods. The current cost per injection of the Biojector 2000 system is substantially higher than that of traditional needle-syringes, its principal competition. A key element of the Company's business strategy is to reduce the overall system cost through automating production and packaging. The Company has experienced and may continue to experience setbacks and delays in its cost reduction efforts including failure to deliver reduced cost parts to specifications. There can be no assurance that the Company will be able to develop and implement effective high volume production or achieve necessary unit cost reductions. Failure to do either would adversely affect the Company's financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operation" and "Manufacturing." GOVERNMENTAL REGULATION. 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 are 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. The FFDCA provides that new premarket notifications under Section 510(k) of the FFDCA are required to be filed when, among other things, there is a major change or modification in the intended use of a device or a change or modification to a legally marketed device that could significantly affect its safety or effectiveness. A device manufacturer is expected to make the initial determination as to whether the change to its device or its intended use is of a kind that would necessitate the filing of a new 510(k) notification. Although the Biojector 2000 system incorporates changes from the system with respect to which the Company's 1987 510(k) marketing clearance was received and expands its intended use, the Company made the determination that these were not major changes or modifications in intended use or changes in the device that could significantly affect the safety or effectiveness of the device and that, accordingly, the 1987 510(k) clearance permitted the Company to market the Biojector 2000 system in the U.S. 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. Future changes to manufacturing procedures could necessitate the filing of a new 510(k) notification. Also, future products, product enhancements or changes, or changes in product use may require clearance under Section 510(k), or they may require FDA premarket approval ("PMA") or other regulatory approvals. PMAs and these other regulatory approvals generally involve more extensive prefilling testing that a 510(k) clearance and a longer FDA review process. Under current FDA policy, applications involving prefilled syringes would he evaluated by the FDA as drugs rather than devices, requiring NDAs or ANDAs. See "Governmental Regulation." Depending on the circumstances, drug regulation can be more bureaucratic and time consuming than device regulation. FDA regulatory processes are time consuming and expensive, and there can be no assurance that product applications submitted by the Company will be cleared or approved by the FDA. In addition, the Company's products must be manufactured in compliance with Good Manufacturing Practices ("GMP") specified in regulations under the FDA Act. The FDA has broad discretion in enforcing the FDA Act, and noncompliance with the Act could result in a variety of regulatory actions ranging product detentions, device alerts or field corrections, to mandatory recalls, seizures, injunctive actions, and civil or criminal penalties. Distribution of the Company's products in countries other than the U.S. may be subject to regulation in those countries. An application was made to the Japan Ministry of Health and Welfare to obtain necessary approvals to market the Biojector 2000 system in Japan which was not carried to completion by the Company's then Japanese distributor. See "Governmental Regulation." UNCERTAINTY IN HEALTHCARE INDUSTRY; GOVERNMENT HEALTHCARE REFORM. The healthcare industry is subject to changing political, economic and regulatory influences that may affect the procurement practices and operations of healthcare facilities. During the past several years, the healthcare industry has been subject to increased government regulation of reimbursement rates and capital expenditures. Among other things, third party payers are increasingly attempting to contain healthcare costs by limiting both coverage and reimbursement levels for healthcare products and procedures. Because the price of the Biojector 2000 system exceeds the price of needle injection systems, cost control policies of third party payers, including government agencies, may adversely affect use of the Biojector 2000 system. DEPENDENCE ON THIRD-PARTY RELATIONSHIPS. The Company is dependent on third parties for distribution of the Biojector 2000 system to certain market segments, for the manufacture of component parts, and for assistance with the development and distribution of its future Betaseron self-injection and application specific systems. The Company intends to seek relationships to distribute to the physician office market in the future. Past dealer relationships have not been successful. There can be no assurance that the Company's future dealers will provide sufficient sales support to establish the Company's current product. See "Marketing and Competition." The Company's current manufacturing processes for the Biojector 2000 jet injector and disposable syringes consist primarily of assembly of component parts supplied by outside suppliers. Certain of these components are currently obtained from single sources, with some components requiring significant production lead times. In the past, the Company has experienced delays in the delivery of certain components, although to date no such delays have had a material adverse effect on the Company's operations. There can be no assurance that the Company will not experience delays in the future, or that such delays would not have a material adverse effect on the Company's financial condition and result of operations. See "Manufacturing." The Company has entered into agreements with certain major pharmaceutical companies for development and distribution of its jet injection systems. These companies have the right to terminate these agreements at certain phases as defined in the agreements. There can be no assurance these companies interest and participation in the projects will continue. Failure to receive additional funding from these companies could adversely affect the development and production of the products involved and, correspondingly, the Company's financial condition and results of operations. See "Research and Product Development." ABILITY TO MANAGE GROWTH. If the Company's products achieve market acceptance, the Company expects to achieve rapid growth. This growth strategy will require expanded customer services and support, increased personnel throughout the Company, expanded operational and financial systems, and the implementation of new control procedures. There can be no assurance that the Company will be able to attract qualified personnel or successfully manage expanded operations. As the Company expands, it may from time to time experience constraints that would adversely affect its ability to satisfy customer demand in a timely fashion. Failure to manage growth effectively could adversely affect the Company's financial condition and results of operations. COMPETITION. The medical equipment market is highly competitive and competition is likely to intensify. The Company's products compete primarily with traditional needle-syringes, "safety syringes" and also with other alternative drug delivery systems. While the Company believes its products provide a superior drug delivery method, there can be no assurance that the Company will be able to compete successfully with existing drug delivery products. Many of the Company's competitors have longer operating histories as well as substantially greater financial, technical, marketing and customer support resources than the Company. There can be no assurance that one or more of these competitors will not develop an alternative drug delivery system that competes more directly with the Company's products, or that the Company's products would be able to compete successfully with such a product. See "Marketing and Competition." DEPENDENCE ON SINGLE TECHNOLOGY. The Company's strategy has been to focus its development and marketing efforts on its jet injection technology. This focus renders the Company particularly sensitive to competing products and alternative drug delivery systems. The Company believes that healthcare providers' desire to minimize the use of the traditional needle-syringe has stimulated development of a variety of alternative drug delivery system such as "safety syringes," jet injection systems and transdermal diffusion "patches." In addition, pharmaceutical companies frequently attempt to develop drugs for oral delivery instead of injection. While the Company believes that for the foreseeable future there will continue to be a significant need for injections, there can be no assurance that alternative drug delivery methods will not be developed which are preferable to injection. See "Marketing and Competition." PATENTS AND PROPRIETARY RIGHTS. The Company relies on a combination of trade secrets, confidentiality agreements and procedures, and patent prosecution to protect its proprietary technologies. The Company has been granted six patents in the United States and two patents in certain other countries covering certain technology embodied in its current jet injection system and certain manufacturing processes. Additional patent applications are pending in the U.S and certain foreign countries. There can be no assurance that the claims contained in any patent application will be allowed, or that any patent will provide adequate protection for the Company's products and technology. In the absence of patent protection, the Company may be vulnerable to competitors who attempt to copy the Company's products or gain access to its trade secrets and know-how. In addition, the laws of foreign countries may not protect the Company's proprietary rights to this technology to the same extent as the laws of the U.S. The Company believes that it has independently developed its technology and attempts to ensure that its products do not infringe the proprietary rights of others, and the Company knows of no infringement claims. However, any such claims could have a material adverse affect on the Company's financial condition and results of operations. See "Patents and Proprietary Rights." PRODUCT LIABILITY. Producers of medical devices may face substantial liability for damages in the event of product failure or if it is alleged the product caused harm. The Company currently maintains product liability insurance and has not experienced any product liability claims to date. There can be no assurance, however, that the Company will not be subject to such claims, that the Company's current insurance would cover such claims and that adequate insurance will continue to be available on acceptable terms to the Company in the future. The Company's business could be adversely affected by product liability claims. See "Product Liability." DEPENDENCE UPON KEY EMPLOYEES. The Company's success is dependent upon the retention of its executive officers and other key employees. Competition exists for qualified personnel, and the Company's success will depend in part upon attracting and retaining such personnel. Failure in these efforts could have a material adverse effect on the Company's business, financial condition or results of operations. SHARES ELIGIBLE FOR FUTURE SALE. Of the 15,585,232 shares of common stock currently outstanding, 1,500,000 of these shares were held in escrow for WAM Partnership, a limited partnership of which Mr. Carl Wilcox is the managing partner. Subsequent to year end, the shares were released from escrow and may be sold. In November and December of 1995, the Company completed a private placement of 2,303,009 units (each unit representing one share of common stock and a warrant to purchase one share of common stock). The Company also granted a warrant to its placement agent in the private placement to purchase 137,086 shares of common stock. The shares issued in the private placement were registered for resale on a Registration Statement on Form S-3. The Company also granted registration rights with respect to the shares issuable upon exercise of the warrants. Sales of substantial numbers of shares of common stock in the public market, or the availability of such shares for sale, could adversely affect the market price for the common stock and make it more difficult for the Company to raise funds through equity offerings in the future. POSSIBLE ADVERSE EFFECTS ON TRADING MARKET. The Common Stock is quoted on the NASDAQ National Market. There are a number of continuing requirements that must be met in order for the Common Stock offered hereby to remain eligible for quotation on the NASDAQ National Market or the NASDAQ Small Cap Market. The failure to meet these maintenance criteria in the future could result in the delisting of the Company's Common Stock from NASDAQ. In such event, trading, if any, in the Common Stock may then continue to be conducted in the non-NASDAQ over-the-counter market. As a result, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the Company's Common Stock. In addition, if the Common Stock were delisted from trading on NASDAQ and the trading price of the Common Stock were less than $5.00 per share, trading in the Common Stock would be subject to the requirements of certain rules promulgated under the Exchange Act, which require broker-dealers to make additional disclosures and to implement additional procedures in connection with any trades involving a stock defined as a penny stock. The additional burdens imposed upon broker-dealers may discourage broker-dealers from effecting transactions in penny stocks, which could reduce the liquidity of the shares of Common Stock and thereby have a material adverse effect on the trading market for the securities. POSSIBLE VOLATILITY OF STOCK PRICE. The market for the Company's common stock and for the securities of other early stage, small market- capitalization companies is highly volatile. The Company believes that factors such as quarter-to-quarter fluctuations in financial results, new product introductions by the Company or its competition, public announcements, changing regulatory environments, sales of Common Stock by certain existing shareholders and substantial product orders could contribute to the volatility of the price of the Company's Common Stock, causing it to fluctuate dramatically. General economic trends such as recessionary cycles and changing interest rates may also adversely affect the market price of the Company's Common Stock. See "Market for the Registrant's Common Equity and Related Stockholder Matters." Item 2. PROPERTIES The Company's principal offices are located in Portland, Oregon in approximately 24,000 square feet of leased office and manufacturing space under a lease which expires in September 1997. The monthly minimum lease obligation for this facility is approximately $15,000. These facilities include the Company's sales and administration offices and equipment, research and engineering facilities, a clean room assembly area, assembly line, testing facilities and a warehouse area. During fiscal 1995, the Company leased additional warehouse space totalling approximately 5,000 square feet for finished goods storage and shipments to customers. This lease, which also expires in September 1997, has minimum monthly lease obligations totalling $1,900. The Company believes its current facilities will be sufficient to support its operations for the coming year. The Company has options to renew both leases for additional five-year terms. As the Company requires additional space to accommodate growth in its sales and manufacturing activities, it is the Company's intention to lease additional facilities adjacent to or near its present operations. The Company believes that, if necessary, it will be able to obtain facilities at rates and under terms comparable to those under the current leases. Item 3. LEGAL PROCEEDINGS None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the NASDAQ National Market under the Symbol "BJCT." Prior to November 3, 1993, the Company's Common Stock was quoted on the NASDAQ Small Cap Market under the symbol "BJCT." The following table sets forth the high and low closing sale prices of the Company's Common Stock on the NASDAQ National Market since November 2, 1993, and the high and low closing bid prices for the Company's Common Stock on the Small Cap Market through November 2, 1993, for the quarters indicated. The prices reflected for the periods through November 2, 1993 reflect inter- dealer quotations without retail mark-ups, mark-downs, or commissions and, therefore, may not necessarily reflect actual transactions.
High Low _____ _____ Fiscal Year Ending March 31, 1994: First Quarter $6.00 $3.88 Second Quarter 6.00 4.00 Third Quarter (through November 2, 1993) 5.25 4.50 Third Quarter (since November 2, 1993) 5.75 4.25 Fourth Quarter 5.13 3.50 Fiscal year Ended March 31, 1995: First Quarter 3.00 2.00 Second Quarter 4.13 3.25 Third Quarter 3.63 2.81 Fourth Quarter 2.50 1.50 Fiscal Year Ended March 31, 1996: First Quarter 3.00 1.44 Second Quarter 2.97 1.19 Third Quarter 2.81 1.81 Fourth Quarter 1.94 1.25
The closing sale price on March 29, 1996, as reported on the NASDAQ National Market, was $1.3125 per share. The Company has declared no dividends during its history and has no intention of declaring a dividend in the foreseeable future. As of March 31, 1996 the number of shareholders of record of the Company's Common Stock was 1,468. Item 6. SELECTED CONSOLIDATED FINANCIAL DATA FINANCIAL DATA The statement of operations and balance sheet data set forth below for the five fiscal years in the period ended March 31, 1996 have been derived from the consolidated financial statements of the Company. The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the detailed consolidated financial statements and notes thereto included elsewhere in this Report. SUMMARY FINANCIAL INFORMATION (in thousands, except per share data)
YEAR ENDED MARCH 31, 1996 1995 1994 1993 1992 ______ ______ ______ ______ ______ Statement of Operations Data: Revenues $4,209 $2,924 $1,463 $1,146 $ 17 Operating expenses 9,640 8,580 5,858 4,449 3,550 Net loss (5,431) (5,656) (4,395) (3,303) (3,533) Net loss per share (0.39) (0.43) (0.39) (0.34) (0.43) Shares used in per share calculation 14,074 13,167 11,230 9,686 8,222
AS OF MARCH 31, 1996 1995 1994 1993 1992 ______ ______ ______ ______ ______ Balance Sheet Data: Working capital $4,327 $6,404 $12,593 $4,264 $2,135 Total assets 7,519 9,498 13,836 5,727 2,577 Long-term debt - - - - - Shareholders' equity 6,027 7,964 13,377 4,752 2,409
The Company has declared no dividends during its history and has no intention of declaring a dividend in the foreseeable future. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Operating losses have resulted in an accumulated deficit of approximately $30.0 million as of March 31, 1996. In fiscal 1994, 1995 and 1996, the Company incurred significantly increased costs associated with the production and sales of the Biojector 2000 system, including sales and marketing efforts, manufacturing ramp-up and inventory build-up. The Company has been working on a product cost reduction program which commenced phase-in during fiscal 1996. Because of the significant changes in the Company's operations relating to introduction of the Biojector 2000 system and manufacturing changes, the financial position, results of operations and cash flows of the Company presented on an historical basis may not be indicative of future results. The Company's ability to achieve and sustain profitability will depend in part upon customer acceptance of the Biojector 2000 system, sustained product performance, implementing product cost reductions and attaining revenues sufficient to support profitable operations. In August 1994, Bioject signed an agreement with Homecare Management, Inc. (HMI), granting HMI exclusive rights to purchase Bioject's Needle-Free Injection Management System (trademark), the Biojector 2000, for use in the home healthcare market. In return for HMI's commitment to purchase a minimum of 8,000 Biojector units over the ensuing two years, the Company granted volume pricing discounts to HMI. During the term of the contract, the selling price of Biojectors to HMI exceeded their standard cost. During fiscal 1995 and 1996, the Company sold approximately 2,100 and 4,300 Biojectors to HMI for total sales revenue including syringes of $1.1 million and $2.2 million, respectively. HMI did not place the great majority of these Biojectors with patients pending completion of negotiations with pharmaceutical companies for certain pricing concessions for medication to be administered with the Biojectors. In January 1996 HMI requested that Bioject suspend shipments to HMI. In February 1996, the Company learned from HMI's press releases that HMI expected to default under its loan, to take significant write-offs for accounts receivable and inventories, planned operational consolidations, and would restate certain prior period financial statements. Subsequent to year end, although not obligated to do so, the Company agreed to repurchase certain of the HMI inventories, including up to 6,000 Biojector units, for cash and forgiveness of accounts receivable totalling $660,000. The repurchase of these inventories was on at a substantial discount to the original selling price to HMI. In March 1994, the Company entered into an agreement with Schering AG, Germany, for the development of a self-injection device for delivery of Betaseron to multiple sclerosis patients. During fiscal 1995, the Company developed a proof-of-concept prototype and demonstrated this prototype to Schering. The Company and Schering finalized product specifications. The Company also commenced development of the preproduction clinical prototype. During fiscal 1996, the Company delivered the preproduction clinical prototypes to Schering and worked on finalizing the production prototype design. Upon completion of development, the agreement provides that Schering will have a seven-year exclusive right to market the product world- wide for beta interferon applications at prices dependent upon specific volumes. The Company maintains ownership of the underlying technology. Under terms of the agreement, in April 1994, Schering paid a one-time $500,000 licensing fee for access to the Company's technology and paid $600,000 as its contribution toward Phase I of the development. In October 1995 Schering paid $600,000 as its contribution toward Phase II development and $60,000 of additional costs associated with completion of Phase I. During fiscal 1997, the agreement provides for Schering to pay $300,000 for Phase III development costs on the schedule provided for in the agreement. As defined in the agreement, under certain circumstances, the licensing and product development fees are convertible by Schering into common stock of the Company. Schering has the right to cancel the agreement by notice to the Company before the end of Phase II or at any time during Phase III. In January 1995, the Company signed a joint development agreement with Hoffmann-La Roche to develop proprietary drug delivery systems for Roche products. The agreement provides for Bioject to develop, manufacture and sell Biojector needle-free drug delivery systems designed to Roche specifications. In return, Bioject has granted Roche exclusive worldwide rights to distribute these systems and their components for use with certain Roche products. Hoffmann-La Roche Inc. is the United States affiliate of the multinational group of companies headed by Roche Holding of Basel, Switzerland, one of the world's leading research-intensive healthcare companies. As of 1995 fiscal year end, the Company had commenced design of a prototype device and had agreed with Roche on product specifications. During fiscal 1996, the Company developed and delivered to Roche preproduction prototypes for testing and developed the clinical preproduction prototypes which were delivered to Roche in April 1996. In February 1995, Hoffmann-La Roche paid a one-time licensing fee totalling $500,000 and the agreement provides that it will pay specified product development fees on an agreed upon schedule of which $700,000 was paid in fiscal 1996. Throughout fiscal 1994 and 1995, the Company's manufacturing processes were primarily manual. These processes did not permit the Company to produce its products at costs which would allow it to operate profitably. During fiscal 1996, the Company implemented a plan to increase manufacturing capacity and refine production methods to meet anticipated future demand and to reduce product costs. For the Biojector 2000, cost reduction efforts included converting from a two piece to a one piece housing, converting to continuous process manufacturing and implementing volume purchasing programs from suppliers. For the Biojector syringes, these efforts included increasing supplier mold capacity and automating final assembly and packaging. During fiscal 1997, the Company's manufacturing activities will be focused on retesting the devices repurchased from HMI to ensure their continuing compliance with new product standards and to electively upgrading certain of these units to current version configuration. Manufacturing will also be actively focused on finalizing product engineering and on planning for, designing and bringing up the new Schering device and syringe manufacturing lines in advance of product launch. 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" and "Business - Risk Factors." 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. Subsequent to year end, 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 approximately 150,000 of the shares being released from the escrow account. Such charge totalling $210,938 will be recorded in the financial statements in the first quarter of fiscal 1997. In the future, the Company may incur a non-cash charge to compensation expense in connection with the issuance of 100,000 shares of Common Stock to the Company's Chief Executive Officer. Under terms of his employment agreement, the Company's Chairman will receive 100,000 shares of common stock when the Company first achieves two consecutive quarters of positive earnings per share. Upon issuance of such shares the Company will record a non-cash charge to compensation at the fair market value of the stock on the last day of the quarter in which the shares are earned. During the next fiscal year, the Company will continue to focus its efforts on expanding sales, reducing the cost of its products, developing the self-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 operations in fiscal 1997. See "Forward Looking Statements" and "Risk Factors." RESULTS OF OPERATIONS Product sales increased from $513,000 in fiscal 1994 to $1.5 million in fiscal 1995 and to $3.1 million in fiscal 1996. Sales in fiscal 1994 consisted primarily of sales to hospital and physician office dealers for stocking orders. Sales in fiscal 1995 consisted of $1.1 million of sales to Health Management Inc., and the remainder to hospitals, large clinics, individual physician offices and certain selected distributors. Sales in fiscal 1996 consisted of $2.3 million of sales to HMI with the remainder primarily to public health and flu immunization clinics. License and technology fees varied from $950,000 in fiscal 1994 to $1.4 million in fiscal 1995 and $1.2 million in fiscal 1996. All of the fiscal 1994 fees related to amounts payable to the Company under a product development agreement with Lilly. The fiscal 1995 fees included a one-time $500,000 licensing fee for access to the Company's technology received from Schering and a similar one-time $500,000 licensing fee received from Hoffmann-La Roche with the balance of the fiscal 1995 fees consisting of product development revenues recognized in connection with the Schering agreement. The fiscal 1996 fees consisted entirely of product development revenues recognized for work performed under the Schering and Hoffmann-La Roche agreements. Manufacturing expense increased from $1.8 million in fiscal 1994 to $3.4 million in fiscal 1995, and $5.2 million in fiscal 1996 due to increased sales and, therefore, to increases in the total costs of product sold. The increase from fiscal 1994 to 1995 also reflects excess labor and materials expenses and greater manufacturing overhead costs due to the addition of manufacturing engineering staff. The increase from 1995 to 1996 reflects increased regulatory and quality assurance staff to support the higher level of manufacturing and increased depreciation expense associated with the automated assembly equipment installed during fiscal 1996. Research and development expense increased slightly from $1.3 million in fiscal 1994 to $1.4 million in fiscal 1995 and $1.5 million in fiscal 1996. Fiscal 1994 expenditures related primarily to product support for the Biojector 2000 and expanded research and development efforts associated with the Lilly agreement. Fiscal 1995 expenditures related to work associated with development of the Schering device and to initial work on the Hoffmann- La Roche device. Fiscal 1996 expenditures related entirely to work performed under the Schering and Hoffmann-La Roche agreements. Selling, general and administrative expense totalled $3.0 million, $4.2 million, and $3.2 million in fiscal 1994, 1995 and 1996, respectively. The increase from fiscal 1994 to 1995 related to several factors including expenses incurred in connection with C.E.O. transition totalling approximately $780,000 (or $0.06 per share) and to increases in legal, insurance, bad debt and certain promotional expenses. The decrease from fiscal 1995 to 1996 resulted from the CEO transition expenses incurred in fiscal 1995 that were not repeated in fiscal 1996 and from planned reduction in overhead personnel. Other income consists of earnings on available cash balances. Other income totalled $252,000 in fiscal 1994, $428,000 in fiscal 1995, and $211,000 in fiscal 1996 and varied as a result of changes in cash balances and interest rates. 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 March 31, 1996 totalled approximately $36.0 million. The Company has no long-term debt. Cash, cash equivalents and marketable securities totalled $11.9 million at March 31, 1994, $6.0 million at March 31, 1995, and $4.1 million at March 31, 1996, which represented a decrease of $5.9 million from 1994 to 1995 and a decrease of $1.9 million from 1995 to 1996. The decrease from 1994 to 1995 resulted from operating losses and from capital expenditures primarily for manufacturing operations. The decrease from 1995 to 1996 resulted from operating losses and capital expenditures offset in part by net proceeds from a private placement of common stock and warrants in November and December 1995. Inventories increased from $1.1 million at March 31, 1995 to $1.3 million at March 31, 1996 due to the build-up of inventories to support anticipated future product sales. The Company has fixed commitments for facilities rent, equipment leases and the repurchase of certain inventories which total approximately $922,000 for fiscal 1997. 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 discussions with Schering, the Company anticipates that up to $1.6 million of these expenditures will be funded by interest bearing loans to $1.6 million to be provided by Schering with repayment by Bioject over a period of 4 to 5.5 years. 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. EFFECT OF NEWLY ADOPTED ACCOUNTING STANDARDS In October 1995, the Financial Accounting Standards Board issued Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123), which establishes a fair value-based method of accounting for stock-based compensation plans and requires additional disclosures for those companies that elect not to adopt the new method of accounting. The Company will continue to account for stock options under APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123 disclosure requirements become applicable for the Company in fiscal 1997. In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of"(SFAS 121), which requires the Company to review for impairment of its long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. In certain situations, an impairment loss would be recognized. SFAS 121 will become effective for the Company's year ending March 31, 1997. The Company has studied the implications of SFAS 121 and, based on its initial evaluation, does not expect it to have a material impact on the Company's financial condition or results of operations. Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS TO FINANCIAL STATEMENTS Report of Independent Public Accountants Consolidated Balance Sheets at March 31, 1996 and 1995 Consolidated Statements of Operations for the years ended March 31, 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity for the years ended March 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended March 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Supplementary Data (none required) REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Bioject Medical Technologies Inc.: We have audited the accompanying consolidated balance sheets of Bioject Medical Technologies Inc. (an Oregon corporation) and subsidiaries as of March 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bioject Medical Technologies Inc. and subsidiaries, as of March 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1996, in conformity with generally accepted accounting principles. /S/ ARTHUR ANDERSEN LLP Portland, Oregon May 2, 1996 (except Note 4, with respect to Escrowed Shares for which the date is June 3, 1996) BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, 1996 1995 ____________ __________ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,098,251 $ 2,057,384 Securities available for sale 993,056 3,989,468 Accounts receivable, net of allowance for doubtful accounts of $55,000 and $14,000, respectively 424,859 730,723 Inventories 1,255,945 1,108,708 Other current assets 45,714 52,149 ____________ ___________ Total current assets 5,817,825 7,938,432 ____________ ___________ PROPERTY AND EQUIPMENT, at cost: Machinery and equipment 1,428,001 624,012 Production molds 777,353 390,127 Furniture and fixtures 163,116 142,769 Leasehold improvements 73,854 62,622 Equipment and molds under construction 0 625,694 ____________ ___________ 2,442,324 1,845,224 Less - accumulated depreciation (1,048,638) (548,238) ____________ ___________ 1,393,686 1,296,986 ____________ ___________ OTHER ASSETS 307,105 262,504 ____________ ___________ $ 7,518,616 $ 9,497,922 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 550,174 $ 807,878 Accrued payroll 158,225 250,737 Other accrued liabilities 216,924 319,005 Deferred revenue 566,000 156,000 ____________ ___________ Total current liabilities 1,491,323 1,533,620 ____________ ___________ COMMITMENTS (Note 5) 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 15,585,232 and 13,259,074 shares at March 31, 1996 and 1995, respectively 36,001,158 32,507,095 Accumulated deficit (29,973,865) (24,542,793) ____________ ___________ Total shareholders' equity 6,027,293 7,964,302 ____________ ___________ $ 7,518,616 $ 9,497,922 ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended March 31, 1996 1995 1994 _______________________________________ REVENUES: Net sales of products $ 3,059,018 $1,479,948 $ 513,134 Licensing/technology fees 1,150,000 1,444,000 949,500 ___________ __________ __________ 4,209,018 2,923,948 1,462,634 ___________ __________ __________ EXPENSES: Manufacturing 5,195,914 3,394,089 1,801,051 Research and development 1,486,607 1,427,861 1,284,839 Selling, general and administrative 3,168,618 4,186,549 3,023,862 Other (income) expense (211,049) (428,402) (251,632) ___________ ___________ __________ 9,640,090 8,580,097 5,858,120 ___________ ___________ __________ LOSS BEFORE TAXES (5,431,072) (5,656,149) (4,395,486) PROVISION FOR INCOME TAXES - - - ___________ ___________ ___________ NET LOSS $(5,431,072) $(5,656,149) $(4,395,486) =========== =========== =========== NET LOSS PER SHARE $ (0.39) $ (0.43) $ (0.39) ============ =========== =========== SHARES USED IN PER SHARE CALCULATION 14,074,349 13,167,301 11,229,670 ============ =========== ===========
The accompanying notes are an integral part of these consolidated financial statements BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK ________________________ Accumulated Shares Amount Deficit Total __________ ___________ ____________ ___________ BALANCES, MARCH 31, 1993 9,889,310 $19,242,737 $(14,491,158) $ 4,751,579 Issuance of common stock for cash under stock option agreements from April 1993 through January 1994 263,264 918,228 - 918,228 Issuance of common stock under a public offering of stock dated November 1, 1993 3,001,500 12,032,693 - 12,032,693 Issuance of common stock in exchange for services 4,000 19,500 - 19,500 Extension of stock option expiration date - 50,625 - 50,625 Net loss - - (4,395,486) (4,395,486) ________ __________ ____________ ___________ BALANCES, MARCH 31, 1994 13,158,074 32,263,783 (18,886,644) 13,377,139 Issuance of common stock in exchange for services 101,000 243,312 - 243,312 Net loss - - (5,656,149) (5,656,149) __________ __________ ____________ ___________ BALANCES, MARCH 31, 1995 13,259,074 32,507,095 (24,542,793) 7,964,302 Issuance of common stock in exchange for services 23,149 39,962 - 39,962 Issuance of Common Stock under a private placement dated November 21, 1995 2,303,009 3,454,101 - 3,454,101 Net loss - - (5,431,072) (5,431,072) __________ ___________ ____________ ___________ BALANCES, MARCH 31, 1996 15,585,232 $36,001,158 $(29,973,865) $ 6,027,293 ========== =========== ============ ============
The accompanying notes are an integral part of these consolidated financial statements. BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended March 31, 1996 1995 1994 ____________________________________________ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(5,431,072) $(5,656,149) $(4,395,486) Adjustments to net loss: Depreciation and amortization 520,714 247,183 138,396 Contributed capital for services 39,962 243,312 70,125 Net changes in assets and liabilities: Accounts receivable 305,864 (561,616) (163,859) Inventories (147,237) (144,982) (559,734) Other current assets 6,435 (6,773) 37,681 Accounts payable (257,704) 593,498 (162,488) Accrued payroll (92,512) 52,436 34,843 Other accrued liabilities (102,080) 273,305 (15,243) Deferred revenue 410,000 156,000 (374,500) __________ ___________ ___________ Net Cash Used in Operating Activities (4,747,630) (4,803,786) (5,390,265) __________ ___________ ___________ CASH FLOWS FROM INVESTING ACTIVITIES: Securities purchased (1,977,856) (6,951,390) (6,833,208) Securities sold 4,974,268 9,795,130 1,610,922 Property and equipment (597,100) (956,487) (348,187) Other assets (64,916) (65,723) (86,808) __________ ___________ ___________ Net Cash Provided By (Used In) Investing Activities 2,334,396 1,821,530 (5,657,281) __________ ___________ ___________ CASH FLOWS FROM FINANCING ACTIVITIES: Cash proceeds from common stock 3,454,101 - 12,950,921 __________ ___________ ___________ Net Cash Provided by Financing Activities 3,454,101 - 12,950,921 __________ ___________ ___________ CASH AND CASH EQUIVALENTS: Net increase (decrease) in cash and cash equivalents 1,040,867 (2,982,256) 1,903,375 Cash and cash equivalents at beginning of year 2,057,384 5,039,640 3,136,265 __________ ___________ ___________ Cash and cash equivalents at end of year $3,098,251 $ 2,057,384 $ 5,039,640 ========== =========== ===========
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: CASH EQUIVALENTS The Company considers cash equivalents to consist of short-term, highly liquid investments with an original maturity of less than three months. SECURITIES AVAILABLE FOR SALE Effective in fiscal 1995, the Company adopted Financial Accounting Standards Board Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115). Under provisions of SFAS 115, the Company is required to classify and account for its security investments as trading securities, securities available for sale or securities held to maturity depending on the Company's intent to hold or trade the securities at time of purchase. As of March 31, 1996 and 1995, all securities held by the Company consisting entirely of short-term debt instruments were available for sale and, accordingly, are stated on the balance sheet at their fair market value which approximate cost. Realized gains or losses are determined on the specific identification method and are reflected in the accompanying financial statements. There were no significant realized gains or losses for fiscal 1995 and 1996. 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:
March 31, 1996 1995 __________ __________ Raw Materials $ 697,694 $ 641,782 Work in Process 12,467 23,208 Finished Goods 545,784 443,718 __________ __________ $1,255,945 $1,108,708 ========== ==========
PROPERTY AND EQUIPMENT For financial statement purposes, depreciation expense on property and equipment is computed on the straight-line method using the following lives: Furniture and Fixtures............................5 years Machinery and Equipment...........................5 years Computer Equipment................................3 years Production Molds..................................3 years Leasehold improvements are amortized on the straight-line method over the shorter of the remaining terms of the lease or the estimated useful lives of the assets. OTHER ASSETS Other assets include costs incurred for the application of patents, net of amortization on a straight-line basis over 17 years. Accumulated amortization totalled $114,713 and $94,400 at March 31, 1996 and 1995, respectively. Amortization expense for the years ended March 31, 1996, 1995 and 1994 totalled $20,313, $31,086, and $19,962, respectively. ACCOUNTING FOR LONG-LIVED ASSETS In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of"(SFAS 121), which requires the Company to review for impairment of its long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. In certain situations, an impairment loss would be recognized. SFAS 121 will become effective for the Company's year ending March 31, 1997. The Company has studied the implications of SFAS 121 and, based on its initial evaluation, does not expect it to have a material impact on the Company's financial condition or results of operations. REVENUE RECOGNITION FOR PRODUCT SALES The Company records revenue from sales of its products upon shipment. In fiscal 1996 and 1995, sales to one customer accounted for 75% and 74% of net sales of products, respectively. In addition, 67% and 80% of accounts receivable at March 31, 1996 and 1995, respectively, were due from this customer. RESEARCH AND DEVELOPMENT AND LICENSING/TECHNOLOGY REVENUES Licensing fees are recognized as revenue when due and payable. Product development revenue is deferred upon receipt and is recognized as revenue as qualifying expenditures are incurred. Expenditures for research and development are charged to expense as incurred. In April 1992, the Company entered into a joint development agreement with Eli Lilly and Co., that provided for the development and marketing of application specific products. The agreement included a $500,000 licensing fee and a provision for partial funding of the product development expenses related to the program. The Company has received Phase I funding of $1,000,000 and initial Phase II funding of $575,000 as part of the joint product development effort. This product development revenue had been fully recognized at March 31, 1994. This project has been on hold since spring 1994 pending resolution of Lilly's request to modify product specifications. Because the Company's injector design does not meet Lilly's size and cost goals, the Company and Lilly agreed to suspend any further development of a specialized insulin self injection device and the Company does not anticipate attempting to complete development of this device without Lilly's participation. All costs of the Lilly development contract have previously been expensed as research and development expenses. There were no product development revenues received or recognized in fiscal 1995 and 1996. In March 1994, the Company entered into a joint development agreement with Schering AG, a major pharmaceutical manufacturer, for the development of application specific products. Under terms of the agreement, the Company received a $500,000 licensing fee in April 1994 and will receive partial funding of product development expenses on an agreed schedule. As defined in the agreement, under certain circumstances, the licensing and product development fees are convertible by the pharmaceutical company into common stock of the Company. The Board of Directors has reserved up to 285,715 shares for such potential conversion. In fiscal 1995, the Company received a total of $1.1 million from the pharmaceutical company, composed of $500,000 in licensing fees which were recognized as revenue during fiscal 1995 and $600,000 of Phase I product development revenues, $444,000 of which were recognized as revenue in fiscal 1995. In the third quarter of fiscal 1996, the Company received an additional $660,000. In fiscal 1996, $751,000 has been recognized as revenue. In January 1995, the Company entered into a joint development agreement with Hoffmann-La Roche, a major pharmaceutical manufacturer, for the development of application specific products. The Company received a licensing fee totalling $500,000 which was recognized as revenue in fiscal 1995. The Company will also receive specified product development fees on an agreed upon schedule. In fiscal 1996, the Company received $900,000, of which $399,000 has been recognized as revenue. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting For Income Taxes (SFAS 109). Under the liability method specified by SFAS 109, the deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates for the years in which the taxes are expected to be paid. At March 31, 1996, the Company had total deferred tax assets of approximately $10 million, consisting principally of available net operating loss carryforwards. No benefit for these operating losses has been reflected in the accompanying financial statements as they do not satisfy the recognition criteria set forth in SFAS 109. Total deferred tax liabilities were insignificant as of March 31, 1996. As of March 31, 1996, BMT has net operating loss carryforwards of approximately $584,000 available to reduce future federal taxable income, which expire in 2011. BI has net operating loss carryforwards of approximately $31 million available to reduce future federal taxable income, which expire in 2001 through 2011. Approximately $3.0 million of BI's carryforwards were generated as a result of deductions related to exercises of stock options. When utilized, this portion of BI's carryforwards, as tax effected, will be accounted for as a direct increase to contributed capital rather than as a reduction of that year's provision for income taxes. BMSL has a net operating loss carryforward of approximately $575,000 (Cdn) available to reduce future Canadian taxable income, which expires in 1996 through 2003. The principal differences between net operating loss carryforwards for tax purposes and the accumulated deficit result from capitalization of certain start-up costs and deductions related to the exercise of stock options for income tax purposes. 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. STOCK OPTION ACCOUNTING In October 1995, the Financial Accounting Standards Board issued Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123), which establishes a fair value-based method of accounting for stock-based compensation plans and requires additional disclosures for those companies that elect not to adopt the new method of accounting. The Company will continue to account for stock options under APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123 disclosure requirements become applicable for the Company in fiscal 1997. NET LOSS PER SHARE Net loss per share is computed based on the weighted average number of common shares outstanding during the period. The effects of common stock equivalents have not been included in the calculation as they would be anti- dilutive. 3. 401(K) RETIREMENT BENEFIT PLAN: The Company has a 401(k) Retirement Benefit Plan for its employees. All employees subject to certain age and length of service requirements are eligible to participate. The plan permits certain voluntary employee contributions to be excluded from the employees' current taxable income under provisions of the Internal Revenue Code Section 401(k) and regulations thereunder. Effective January 1, 1996, the Company amended the plan to provide for voluntary employer matches of employee contributions up to 6% of salary and for discretionary profit sharing contributions to all employees. Such employer matches and contributions may be in either cash or Company common stock. For calendar 1996, the Company has agreed to match 25% of employee contributions up to 6% of salary with Company stock. In fiscal 1996, the Company recorded an expense of $4,800 related to voluntary employer matches under the 401(k) Plan. 4. SHAREHOLDERS' EQUITY: PREFERRED STOCK The Company has authorized 10 million shares of preferred stock, without par value, to be issued from time to time with such designations and preferences and other special rights and qualifications, limitations and restrictions thereon, as permitted by law and as fixed from time to time by resolution of the Board of Directors. COMMON STOCK Holders of common stock are entitled to one vote for each share held of record on all matters to be voted on by shareholders. No shares have been issued subject to assessment, and there are no preemptive or conversion rights and no provision for redemption, purchase or cancellation, surrender or sinking or purchase funds. Holders of common stock are not entitled to cumulate their shares in the election of directors. As described in Note 2, up to 285,715 shares of the Company's common stock have been reserved for issuance. ESCROWED SHARES As a result of the Company's initial public offering on the Vancouver Stock Exchange, 1.5 million shares of the Company were held in escrow pursuant to an Escrow Agreement dated May 30, 1986, among the Company, WAM Partnership and the escrow agent, Montreal Trust Company. WAM Partnership is owned by Carl E. Wilcox, former Chairman and C.E.O., and J. Thomas Morrow, former Director, and managed by Mr. Wilcox. Both Mr. Wilcox and Mr. Morrow are founders of the Company. The Escrow Agreement provided that these escrowed shares would be released from escrow based on two times the excess of cumulative cash flow for five consecutive years (as defined in the agreement) over 25% of the per share price in the Company's initial public offering, multiplied by the number of shares in escrow, calculated on an annual basis. Alternatively, the shares could be released by making application and obtaining consent of the Superintendent of Brokers of British Columbia based on demonstrating company value. Under the escrow agreement, any shares not released by July 14, 1996 would be cancelled. In connection with Mr. Wilcox's resignation as Chairman and C.E.O. of the Company (see Note 6), the Board of Directors granted Mr. Wilcox a special power of attorney to exclusively perform all acts necessary to obtain extension of the escrow and/or release of the WAM Partnership escrow shares. In addition, the Board agreed to pay up to $10,000 of costs associated with such extension and/or release. 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. This means that the 1.5 million shares of common stock which had been held under this escrow arrangement are now held by the owners of the shares without risk of cancellation and may be sold. Upon release, approximately 150,000 of these shares are considered to have been contributed back to the Company and reissued to certain former employees in consideration for past services rendered on behalf of the Company. The Company will record the shares as contributed capital with a corresponding non-cash charge to compensation expense at the fair market value of the stock on the date of issuance. Accordingly, non-cash charge of $210,938 will be recorded in the financial statements in the first quarter of fiscal 1997 (quarter ending June 30, 1996). STOCK OPTIONS Options may be granted to directors, officers and employees of the Company by the Board of Directors under terms of the Bioject Medical Technologies Inc. 1992 Stock Incentive Plan (the "Plan"), which was approved by the Company's shareholders on November 20, 1992 and adopted by the Board effective December 17, 1992. Under the terms of the Plan, eligible employees may receive statutory and nonstatutory stock options, stock bonuses and stock appreciation rights for purchase of shares of the Company's common stock at prices and vesting as determined by a committee of the Board. Except for options whose terms were extended, options granted under a prior plan maintain their previous option price, vesting and expiration dates. As amended in fiscal 1995, a total of up to 3,000,000 shares of the Company's common stock including options outstanding at the date of initial shareholder approval of the Plan may be granted under the Plan. In September 1993, the Option Committee of the Board of Directors extended the expiration date of certain options granted to one employee. The difference between the option price and the fair market value at the date of extension aggregated $50,625, and has been reflected as compensation expense in the consolidated financial statements in fiscal 1994. Options outstanding at March 31, 1996 expire through May 25, 2005. Stock option activity is summarized as follows:
Exercise Shares Price Amount _________ ____________ __________ Balances March 31, 1993 1,368,100 $3.20 - 5.00 $5,363,634 Options granted 108,500 3.35 - 5.00 509,813 Options exercised (263,264) 3.20 - 5.00 (918,228) Options canceled or expired (144,711) 3.35 - 5.00 (530,967) _________ ____________ ___________ Balances March 31, 1994 1,068,625 3.20 - 5.00 4,424,252 Options granted 1,427,250 2.60 - 4.75 5,387,632 Options exercised - - - Options canceled or expired (952,225) 3.00 - 5.00 (3,904,917) _________ ____________ ___________ Balances March 31, 1995 1,543,650 2.60 - 5.00 5,906,967 Options granted 1,316,439 1.25 - 4.50 3,129,177 Options exercised - - - Options canceled or expired (1,161,150) 2.34 - 5.00 (4,302,332) __________ ____________ ___________ Balances March 31, 1996 1,698,939 $1.25 - 4.50 $ 4,733,812 ========== ============ ===========
At March 31, 1996, 1,043,312 of the total options outstanding were vested and exercisable. WARRANTS Warrant activity is summarized as follows:
Exercise Shares Price Amount _________ ____________ __________ Balances March 31, 1993 60,000 $ 4.50 $ 270,000 Warrants exercised - - - Warrants canceled or expired - - - _________ ____________ __________ Balances March 31, 1994 60,000 4.50 270,000 Warrants exercised - - - Warrants canceled or expired (60,000) 4.50 (270,000) _________ ____________ __________ Balances March 31, 1995 - - - Warrants issued 2,440,095 1.97 - 2.00 4,875,906 Warrants exercised - - - Warrants canceled or expired - - - _________ ____________ __________ Balances March 31, 1996 2,440,095 $1.97 - 2.00 $4,875,906 ========= ============ ==========
Of the total outstanding warrants, 575,752 expire February 28, 1998 and the remaining balance expire November 21, 2000. 5. COMMITMENTS: BI has operating leases for its manufacturing, sales and administrative facilities and warehouse facilities with options to renew for an additional five-year term upon expiration. BI also leases office equipment under operating leases for periods up to five years. At March 31, 1996, future minimum payments under noncancellable operating leases with terms in excess of one year are as follows:
Year Ending March 31, Facilities Equipment __________ _________ 1997 $210,516 $51,384 1998 105,258 41,408 1999 - 20,118
Lease expense for the years ended March 31, 1996, 1995 and 1994 totalled $220,770, $214,099, and $232,557, respectively. Subsequent to year end, 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 paid in two equal installments in July and October 1996. 6. RELATED PARTY TRANSACTIONS: On January 12, 1995, the Board of Directors announced the resignation of the Company's Chairman and Chief Executive Officer, Carl E. Wilcox. In consideration for Mr. Wilcox's long service to the Company, the Board granted Mr. Wilcox 100,000 shares of common stock valued at $241,000 and cash compensation totalling $247,000. The Board also vested 200,000 previously granted option shares at $4.00 per share and extended the expiration date to January 14, 1998. The Board granted Mr. Wilcox a special power of attorney to exclusively perform all acts necessary to obtain extension and/or release of the WAM Partnership escrow shares. On June 3, 1996, the British Columbia Securities Commission informed the Company that release of the escrow shares had been granted (see Note 4). The Board also agreed to pay Mr. Wilcox $20,000 per year for two years under a covenant not-to-compete. The value of the severance agreement totalling $488,000 was recorded as general and administrative expense in the accompanying financial statements in fiscal 1995. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The Company has omitted from Part III the information that will appear in the Company's definitive proxy statement for its annual meeting of shareholders to be held on September 19, 1996 (the "Proxy Statement"), which will be filed within 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is incorporated by reference to the information under the caption "DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT" in the Proxy Statement. Item 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to the information under the caption " "EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS" in the Proxy Statement. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to the information under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the Proxy Statement. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to the information under the caption "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in the Proxy Statement. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: (1) Consolidated Financial Statements and Report of Independent Public Accountants are included under Item 8, in Part II. (2) Consolidated Financial Statement Schedules and Report of Independent Public Accountants on those schedules: None required (3) Exhibits: The following exhibits are filed as part of this report. An asterisk (*) beside the exhibit number indicates the subset of the exhibits containing each management contract, compensatory plan, or arrangement required to be identified separately in this report.
Exhibit Number Exhibit Description _______ _________________________________________________________________ 3.1 Articles of Incorporation of Bioject Medical Technologies Inc. incorporated by reference to the same exhibit number of the Company's Form 10-K for the year ended January 31, 1993. 3.2 Amended and Restated By-laws of Bioject Medical Technologies Inc. Incorporated by reference to the same exhibit number of the Company's Form 10-Q for the quarter ended September 30, 1994. 4.3* Bioject Medical Technologies Inc. 1992 Stock Incentive Plan, as amended through September 21, 1994 10.4 Lease Agreement dated March 21, 1989 between Spieker-Hosford- Eddy-Souther #174, Limited Partnership and Bioject Inc. for the Portland, Oregon facility incorporated by reference to the same exhibit number of Company's Form 10-K for the year ended January 31, 1989. 10.4.1 Amended Lease Agreement dated June 18, 1992 between Bridgeport Woods Investors (successors in interest to Spieker-Hosford-Eddy- Souther #174 Limited Partnership) and Bioject Inc. for the Portland, Oregon facility incorporated by reference to the same exhibit number of the Company's Form 10-K for the year ended January 31, 1993. 10.7* Executive Employment Contract with Peggy J. Miller, dated January 18, 1993 incorporated by reference to the same exhibit number of the Company's Form 10-K for the year ended January 31, 1993. 10.8* Executive Employment Contract with J. Michael Redmond, dated February 8, 1996. 10.13 Employment Agreement with Richard B. Hollis dated December 5, 1991 Incorporated by reference to the same exhibit number of the Company's Form 8 dated May 30, 1989 amending the Company's Form 10-K for the year ended January 31, 1989. 10.14 Common Stock Purchase Agreement between Eli Lilly and Company and Bioject Medical Systems Ltd. dated April 29, 1992 incorporated by reference to the same exhibit number of Company's Form 8, dated May 28, 1992, amending Company's Form 10-K for the year ended January 31, 1992. 10.15 Joint Venture Agreement, between Astra Pharma, Inc. and Bioject Medical Systems Ltd. and Bioject Inc. incorporated by reference to the same exhibit number of Company's Form 8, dated October 9, 1992, amending Company's Form 10-K for the year ended January 31, 1992. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 10.17 Development and Licensing Agreement between Eli Lilly & Company and Bioject Inc., dated April 29, 1992 incorporated by reference to the same exhibit number of Company's Form 8, dated October 9, 1992, amending Company's Form 10-Q for the quarter ended April 30, 1992. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 10.17.1 Amendment to Development and Licensing Agreement between Eli Lilly and Company and Bioject Inc., effective May 5, 1993 incorporated by reference to the same exhibit number of Company's Form S-1, No. 33-68846, dated November 1, 1993. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 406 under the Securities Act of 1933, as amended. 10.20* Employment Contract with Carl E. Wilcox, dated November 14, 1991 incorporated by reference to the same exhibit number of Company's Form S-1, No. 33-68846, dated November 1, 1993. 10.20.1* Resignation Agreement with Carl E. Wilcox dated February 28, 1995 incorporated by reference to exhibit number 10.24 of the Company's Form 8 dated March 24, 1995. 10.20.2* Amendment to Resignation Agreement with Carl E. Wilcox dated August 19, 1995 incorporated by reference to the same exhibit number of the Company's Form 10-Q for the quarter ended September 30, 1995. 10.21* Employment Agreement with Steven F. Peterson dated April 17, 1991 incorporated by reference to the same exhibit number of Company's Form S-1, No. 33-68846, dated November 1, 1993. 10.22* Escrow Agreement -- Property among Montreal Trust of Vancouver, Bioject Medical Systems Ltd. and WAM Partnership incorporated by reference to the same exhibit number of Company's Form S-1, No. 33-68846, dated November 1, 1993. 10.23 Development and Licensing Agreement between Schering, AG, Bioject Inc. and Bioject Medical Technologies Inc. dated March 28, 1994 incorporated by reference to the same exhibit number of the Company's Form 10-K for the year ended March 31, 1994. 10.25 Purchase Agreement between Homecare Management, Inc. and Bioject Inc. dated August 2, 1994. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 24b-2 under the Securities Act of 1934. 10.26 Heads of Agreement between Hoffmann-La Roche Inc. and Bioject Inc. dated January 10, 1995. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 24b-2 under the Securities Act of 1934. 10.27* Employment Agreement with James C. O'Shea dated October 3, 1995 incorporated by reference to the same exhibit number of the Company's Form 10-Q for the quarter ended September 30, 1995. 10.28 Form of Amended and Restated Registration Rights Agreement between Bioject Medical Technologies Inc. and the participants in the 1995 private placement incorporated by reference to exhibit 4.2 of the Company's Registration Statement on Form S-3 (No. 33-80679). 10.29 Form of Amended and Restated Series "A" Common Stock Purchase Warrant incorporated by reference to exhibit 4.3 of the Company's Registration Statement on Form S-3 (No. 33-80679). 10.30 Form of Series "B" Common Stock Purchase Warrant incorporated by reference to exhibit 4.4. of the Company's Registration Statement on Form S-3 (No. 33-80679). 10.31 Form of Amended and Restated Series "C" Common Stock Purchase Warrant incorporated by reference to exhibit 4.5 of the Company's Registration Statement on Form S-3 (No. 33-80679). 21.1 List of Subsidiaries incorporated by reference to Exhibit No. 22.1 of Company's Form 10-K for the year ended January 31, 1993. 23.2 Consent of Independent Public Accountants 27.1 Financial Data Schedule
(b) Forms 8K filed since last report: Form 8-K filed January 26, 1996 reporting third quarter results and suspension of shipments to HMI SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Bioject Medical Technologies Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized: BIOJECT MEDICAL TECHNOLOGIES INC. (Registrant) By: /S/ JAMES C. O'SHEA James C. O'Shea Chairman of the Board, President and Chief Executive Officer Pursuant to the request of the Securities Exchange Act of 1934, this report has been signed below on behalf of the Registrant and in the capacities indicated on the dates shown. SIGNATURE TITLE /S/ JAMES C. O'SHEA Chairman of the Board, President James C. O'Shea and Chief Executive Officer /S/ PEGGY J. MILLER Vice President, Chief Financial Peggy J. Miller Officer and Secretary/Treasurer /S/ WILLIAM A. GOUVEIA Director William A. Gouveia /S/ JOHN RUEDY, M.D. Director John Ruedy, M.D. /S/ CECIL E. SPEARMAN Director Cecil E. Spearman /S/ GRACE K. FEY Director Grace K. Fey INDEX TO EXHIBITS
Exhibit Number Exhibit Description _______ ________________________________________________________________ 10.8 Executive Employment Contract with J. Michael Redmond, dated February 8, 1996. 23.2 Consent of Independent Public Accountants 27.1 Financial Data Schedule
EX-10.8 2 EMPLOYMENT AGREEMENT WITH J. MICHAEL REDMOND EXHIBIT 10.8 EXECUTIVE EMPLOYMENT AGREEMENT THIS AGREEMENT (hereafter the "Agreement") is dated and made effective this 8th day of FEBRUARY, 1996 and is made by and between: BIOJECT INC. ("BI"), a corporation incorporated under the laws of the State of Oregon having its principal offices at 7620 SW Bridgeport Road, Portland, Oregon 97224; (hereafter referred to as "Company") AND: MR. MICHAEL REDMOND, an individual residing at: 10 Canterbury Road Windham, New Hampshire 03087 (hereafter referred to as "Executive") RECITALS 1. Company is engaged in the business of manufacturing and marketing the Biojector Jet Injection System, a medical device that injects medication through a patient's skin without the use of a needle, and in producing sterile, single-use medication ampules for use with the Biojector. 2. Company desires to employ and retain the unique experience, abilities and services of Executive as Vice President of Sales and Marketing for Company; 3. Company has agreed to employ Executive on a full-time basis and Executive has agreed to enter into such employment, on the terms and conditions set forth in this Agreement; and 4. For purposes of this Agreement, the "parties" refers to Company and Executive. NOW THEREFORE, in consideration thereof and of the covenants and conditions contained herein, the parties agree as follows: SECTION 1 - EMPLOYMENT 1.1 Employment. Company agrees to employ Executive full-time as its Vice President of Sales and Marketing. Executive accepts such employment on the terms and conditions set forth in this Agreement and agrees to devote his full time and attention (periods of illness and vacation excepted), skill and efforts to the performance of his duties under this Agreement. Executive agrees not to continue nor undertake any other employment or self-employment during his employment with Company. Executive further agrees not to participate in any activities during his employment that may conflict with the best interests of Company. 1.2 Board Approval. Company represents that upon full execution of this Agreement, the appointment and employment of Executive to the positions referred to in Section 1.1 will be properly effected in compliance with all Company Bylaws including any required approval by the Board of Directors of Company. 1.3 Definitions. As used in this Agreement: a. "Confidential Information" means any of Company's customers, employees, products, processes, services, financial information, marketing techniques, merchandising, business strategies or plans, research, development, systems, inventions or any other trade secret or information in existence at any time during Executive's employment with Company. b. "Conflicting Product" means any product, process or service of any individual or organization other than Company, in existence or under development, which resembles or competes with any product, process or service of Company, including a product, process or service with which Executive worked on or obtained Confidential Information, at any time prior to the termination of his employment with Company. c. "Conflicting Organization" means any individual, entity or organization engaged or preparing to become engaged in research, development, production, marketing or selling of a Conflicting Product. d. "Inventions" means discoveries, concepts, and ideas, whether patentable or not and including, but not limited to, procedures, processes, methods, formulas, and techniques, as well as improvements thereof or know- how related thereto, concerning any present or prospective activities of Company which Executive obtains as a result of his employment with Company. SECTION 2 - EMPLOYMENT DUTIES 2.1 Duties. Executive is hereby employed full-time by Company as the Vice President of Sales and Marketing. In that capacity, Executive shall have overall responsibility for, and diligently oversee, the collective efforts of the Company's sales and marketing staff. This activity shall include, but not be limited to: designing and implementing strategic plans for sales and marketing within the United States of America and Canada; recruiting, directing and mentoring members of the Company's field sales team; researching and closing new major accounts; and, developing new markets for the Company's current and future products. Executive further agrees that in all aspects of such employment, Executive shall comply with the policies, standards and regulations of Company established from time to time, and shall perform his duties faithfully, intelligently, to the best of his ability, and in the best interests of Company. 2.2 Reporting. In carrying out his job duties and responsibilities under this Agreement, Executive shall report to the Chairman and Chief Executive Officer of Company. 2.3 Location. Executive shall perform his job duties and responsibilities under this Agreement through the principal offices of Company in Portland, Oregon, and at any other geographical location reasonably necessary from time to time to ensure the efficient and proper operation of Company. As specified in the Company's written employment offer, dated February 1, 1996, the Executive will not be required to relocate to Portland, Oregon. If, due to the Company's growth, this relocation is required at a later date, the Company agrees to pay reasonable and customary expenses associated with the relocation. If relocation is required, these expenses would include, but not be limited to: real estate commission, transportation of household goods, travel expenses, temporary living expenses and perdiem, and house- hunting expenses. 2.4 Compliance With SEC Reporting and Trading Restrictions. It is understood that BMT is a reporting company within the requirements of the Securities and Exchange Commission ("SEC"). Executive agrees to fully comply with all reporting and trading restrictions in carrying out his job duties and responsibilities for Company and in exercising or trading any BMT stock or options. Executive specifically agrees to comply with Section 16(b) of the Securities Exchange Act of 1934, which prohibits officers and designated insiders from exercising options granted by BMT earlier than six months from the date of grant or from selling shares of BMT if they have bought shares within six months previously, or from buying shares if they have sold shares within six months previously. SECTION 3 - COMPENSATION 3.1 Base Salary. In consideration for all services rendered by Executive to Company, Company shall pay Executive a minimum annual gross base salary of one hundred thousand dollars ($100,000), beginning February 8, 1996, payable bi-weekly and in accordance with Company's usual payroll policies and procedures. This salary is subject to annual increases or other periodic and necessary adjustments (which will not reduce the minimum annual gross base salary to less than $100,000) at the sole discretion of Company's Chairman and Board of Directors, considering Executive's achievements during the previous 12 months, business conditions, cost-of-living, and other factors. 3.2 Bonus Compensation. Executive shall be entitled to participate in any net profits pool, profit sharing or deferred compensation plan or program that may be established by Company during the duration of Executive's employment with Company, provided that Executive's entitlement will depend on the terms and conditions of any such pool, plan or program. 3.3 Reimbursement of Business Expenses. Company will reimburse Executive for all reasonable out-of-pocket business expenses necessarily incurred by Executive in the performance of his job duties and responsibilities under this Agreement, upon Executive's presentation of vouchers, bills and receipts verifying such expenses and in accordance with Company's reimbursement policies as established from time to time. 3.4 Paid Holidays, Vacation and Sick Leave Benefits. Executive will receive paid holidays, vacation and sick leave benefits in accordance with Company's benefits policy in effect from time to time and set forth in Company's Policy Manual. Company agrees to calculate Executive's accrual of vacation and sick leave benefits according to the maximum accrual formula available to employees having the longest duration of employment with Company in effect at the time. 3.5 Other Benefits. Executive shall be entitled to participate in and receive benefits under any retirement plan, pension plan, profit sharing plan, stock option or stock purchase plan, life insurance plan, health and dental plan, disability plan, or any other employee benefit plan or arrangement made available by Company to its employees from time to time, subject to the eligibility, contribution and other requirements of such plans and arrangements. Executive shall receive an additional auto allowance of five hundred dollars ($500) per month, which will be paid as part of the first paycheck each month. 3.6 Disability. Company will comply with all requirements of the Americans with Disabilities Act of 1990 ("ADA") in effect during Executive's employment. In addition and apart from compliance with the ADA, Company agrees to pay Executive partial compensation in the event Executive should become "disabled", as that term is expressly defined in this Section 3.6, during his employment with Company. As defined for purposes of this Section 3.6 only, "disabled" means: (1) any illness, health condition, accident, injury or other cause beyond Executive's control that prevents him from performing the majority of his essential job duties and responsibilities for a period of more than sixty (60) consecutive work days or for more than sixty (60) work days in the aggregate during any 12-month period; and (2) during the period Executive receives disability pay under this Section 3.6, Executive is unable to engage in any substantial gainful employment for which the employee is suited on the basis of age, education and experience. Company and Executive agree that whether Executive is disabled under the terms of this Section will be determined by an evaluation conducted by a physician selected by Executive from a list of physicians provided by Company. In the event it is determined that Executive is disabled as specifically defined in Section 3.6, Company agrees to pay Executive all base salary compensation and bonus previously earned and due Executive, together with a salary at seventy-five percent (75%) of his then-current salary during the duration of his disability up to a maximum six (6) month period from the disability date. Should Executive continue to be disabled beyond six (6) months, as reevaluated and determined by a physician selected by Executive from a list of physicians provided by Company, the Company will pay Executive salary at a rate of fifty percent (50%) of his then-current salary for an additional period up to six (6) months. During the period such disability payments are made (up to a maximum of twelve (12) months), Company agrees to continue Executive's health and dental insurance and other previously granted benefits coverage (excepting accrual of vacation and sick leave time). Should payments to Executive under worker's compensation and/or Company paid disability insurance policies or programs, when combined with the payments described herein, exceed the benefits described in this Section 3.6, Company will reduce its payment to Executive under this Section by the calculated excess amount. Company and Executive agree that during the term of Executive's disability as defined herein, Company may require periodic reevaluation and medical certification of Executive's disability by a physician selected by Executive from a list of physicians provided by Company. SECTION 4 - DURATION OF EMPLOYMENT 4.1 Term. Subject to Sections 4.2 through 4.5 below, the parties agree that Executive's employment with Company under this Agreement commenced on February 8, 1996 and shall continue for an initial term of one year. Thereafter, Executive's employment under this Agreement will automatically renew for additional one-year periods, subject to the termination provisions contained in Sections 4.2 through 4.6 below. Notwithstanding those periods, this Agreement will remain enforceable and in effect until all the parties' rights and obligations have been satisfied, terminated or have expired, as provided herein. 4.2 Termination by Company. a. By Company for Cause. Executive agrees that his employment with Company may be terminated immediately for cause at the discretion of the Chairman and Board of Directors of Company. "Cause" is defined to mean: (A) the willful and continued failure by Executive substantially to perform his duties and obligations to the Company (other than any such failure resulting from any illness, medical condition or physical or mental incapacity) which failure continues after Company has given written notice to Executive; (B) the willful engaging by Executive in misconduct which is significantly injurious to Company, monetarily or otherwise; (C) the material breach by Executive of any of his obligations as set forth in Section 6 of this Agreement; (D) the engaging by Executive in any fraud, dishonesty, or any other act of misconduct in the performance of Executive's duties on behalf of Company; (E) the commission by Executive of a civil or criminal offense which may adversely affect Company's reputation or interests, as determined by the Board of Directors, regardless of any legal proceeding; or (F) the action or conduct by Executive resulting in his being indicted or sanctioned in his personal capacity, or resulting in his entering into a consent decree, in connection with an investigation of, allegation of wrongdoing by, or other formal proceeding against Executive, by the United States Food and Drug Administration, the United States Securities and Exchange Commission or other federal or state agency, whether related to the business of Company or to any other employment or activity of Executive, past, present or future. For purposes of this definition, no act, or failure to act, on Executive's part will be considered "willful" unless done, or omitted to be done, by Executive in bad faith and without reasonable belief that his action or omission was in the best interests of Company. Termination of Executive's employment for cause will become effective five (5) business days after a written notice of intent to terminate Executive's employment is given to Executive by Company's Board of Directors or, alternatively, at Company's option, by paying Executive all compensation due him in lieu of part or all of the five (5) business days notice. Upon termination by Company for cause as stated in Section 4.2.a. herein, Company shall pay Executive all earned but unpaid base salary compensation (prorated to the date of such termination), together with any earned but unpaid bonus compensation as described in Section 3.2 herein, all accrued but unused vacation time, and any not yet reimbursed business expenses incurred for services provided through the date of termination, as provided for in Section 3.3 of this Agreement. All other compensation and benefits shall cease accrual on Executive's termination date. b. By Company Without Cause and With or Without Notice. Executive agrees that Company may terminate his employment at any time, for any reason and without cause by giving Executive fifteen (15) calendar days prior written notice or alternatively, at Company's option, by paying Executive all compensation due him in lieu of part or all of the fifteen (15) calendar days notice. Upon termination by Company without cause and with or without notice as stated in Section 4.2.b. above, Company will pay Executive all earned but unpaid base salary compensation (prorated to the date of such termination), together with any earned but unpaid bonus compensation as described in Section 3.2 herein, all accrued but unused vacation time, and any not yet reimbursed business expenses incurred for services provided through the date of termination, as provided for in Section 3.3 of this Agreement. Company will also, within thirty (30) calendar days after Executive's termination by Company under Section 4.2.b., pay to Executive an additional sum (hereafter "Additional Pay") not less than Executive's then-current gross base salary compensation for a period of four (4) months, commencing on the day of Executive's termination. If Executive's termination occurs at any point during the first twelve (12) months of his employment, the amount of Additional Pay will be equal to the remainder of Executive's annual gross base salary, but in no case less than four (4) months gross base salary. As a prior condition to Executive's receipt of this Additional Pay, Executive shall reconfirm, in writing, his agreement that any and all disputes arising out of or related to his employment with Company, his termination of employment or a breach of this Agreement will be resolved in compliance with the dispute resolution process described in Section 8.6 herein and that any action on his part to institute legal proceedings in any court of law to resolve such disputes will result in a full and complete forfeiture of his right to the Additional Pay described in this Section 4.2.b. (and entitle Company to recover any and all Additional Pay paid to Executive). All other compensation and benefits shall cease accrual on Executive's termination date. In addition, Company will, within thirty (30) days, vest that group of stock options which are scheduled to vest during that twelve (12) month period of Executive's employment to Executive. This vesting will follow the schedule described in paragraph 5.1, a, and 5.1, b, of Agreement. 4.3 Termination by Executive. Executive may terminate this Agreement at any time by giving sixty (60) calendar days prior written notice to Company. Upon termination by Executive as provided in Section 4.3 herein, Company will pay Executive all earned but unpaid base salary compensation (prorated to the date of such termination), together with any earned but unpaid bonus compensation as described in Section 3.2 herein, all accrued but unused vacation time, and any not yet reimbursed business expenses incurred for services provided through the date of termination, as provided for in Section 3.3 of this Agreement. All other compensation and benefits shall cease accrual on Executive's termination date. 4.4 Termination Upon Disability. Executive's employment with Company will terminate upon Executive's disability as defined in this Section 4.4. "Disability" is defined to mean a disability of Executive which renders him unable, with or without reasonable accommodation, to perform any of his essential job functions. Upon termination of Executive's employment with Company due to disability as defined in this Section 4.4, Company will pay Executive all earned but unpaid base salary compensation (prorated to the date of such termination), together with any earned but unpaid bonus compensation as described in Section 3.2 herein, all accrued but unused vacation time, and any not yet reimbursed business expenses incurred for services provided through the date of termination, as provided for in Section 3.3 of this Agreement. Unless Executive qualifies for disability pay under Section 3.6 of this Agreement, Executive will only be entitled to worker's compensation and/or payments under Company paid disability insurance policies or programs if Executive qualifies under the terms and conditions of such policies or programs. All other compensation and benefits shall cease accrual upon Executive's date of termination due to disability. The provisions in Section 4.2.b. of this Agreement are not applicable. 4.5 Termination Upon Death. Executive's employment with Company shall terminate immediately upon Executive's death. Upon termination of Executive's employment with Company due to death, Company shall pay to Executive's estate Executive's base salary compensation otherwise earned and payable to Executive pursuant to Section 3.1, together with any earned but unpaid bonus compensation as described in Section 3.2 herein, all accrued but unused vacation time, and any not yet reimbursed business expenses incurred for services provided through the date of termination, as provided for in Section 3.3 of this Agreement. In addition, Company shall pay Executive's estate a sum equal to Executive's then-current base salary from the date of termination through the last day of the calendar month in which Executive's death occurs and for a period of sixty (60) calendar days thereafter ("Additional Death Payment"). As a prior condition to Executive's receipt of this Additional Death Payment, Executive's estate or personal representative shall execute a general release of all claims which will have the effect of discharging any and all liability of Company to Executive arising out of or related to Executive's employment with Company, the termination of Executive's employment and/or any alleged breach of this Agreement. This Additional Death Payment will constitute a complete settlement of any and all disputes arising out of or related to Executive's employment with Company, the termination of Executive's employment and/or any alleged breach of this Agreement. All other compensation and benefits shall cease accrual upon Executive's date of termination due to death. 4.6 Termination Upon Company Reorganization, Merger or Sale. In the event Executive's employment is terminated on or prior to one (1) year after the effective date of: (1) a consolidation or merger of BMT, BMSL and/or BI with another corporation or entity; (2) the sale to a third party of stock of BMT, BMSL or BI which, when issued and outstanding, will constitute more than 50% of the issued and outstanding stock of BMT, BMSL, or BI, respectively; (3) the sale of all or substantially all of the assets of BMT, BMSL and/or BI to a third party; or (4) the liquidation, dissolution, reorganization or commencement of any proceeding under federal or state bankruptcy or insolvency laws by BMT, BMSL and/or BI, Company will pay Executive all earned but unpaid base salary compensation (prorated to the date of such termination), together with any earned but unpaid bonus compensation as described in Section 3.2 herein, all accrued but unused vacation time, and any not yet reimbursed business expenses incurred for services provided through the date of termination, as provided for in Section 3.3 of this Agreement. In addition, upon termination of Executive's employment with Company pursuant to Section 4.6 herein, Executive will be entitled to the following (hereafter "Additional Section 4.6 Pay"): (1) within thirty (30) calendar days of termination pursuant to Section 4.6 herein, a sum equal to Executive's then-current gross base salary compensation for a period of four (4) months; and (2) all stock options granted to Executive, pursuant to Section 5.1 of this Agreement or any other options previously granted Executive, will become immediately vested and exercisable. As a prior condition to Executive's receipt of this Additional Section 4.6 Pay, Executive shall execute a general release of all claims which will have the effect of discharging any and all liability of Company to Executive arising out of or related to Executive's employment with Company, the termination of Executive's employment and/or any alleged breach of this Agreement. This Additional Section 4.6 Pay will constitute a complete settlement of any and all disputes arising out of or related to Executive's employment with Company, the termination of Executive's employment and/or any alleged breach of this Agreement. All other compensation and benefits shall cease accrual upon Executive's date of termination pursuant to Section 4.6 herein. In the event it is determined that such payments in the preceding paragraph are determined to be contingent on a change in control as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and a determination is made that the aggregate amount of any payments made to Executive under this Section 4.6 constitutes an "excess parachute payment" as defined in Section 280G of the Code and is therefore subject to the excise tax provisions of Section 4999 of the Code, or any successor sections thereof, Executive shall be entitled to receive from Company, in addition to any other amounts payable hereunder, a lump sum payment equal to one hundred percent (100%) of such excise tax and any taxes owed on such lump sum payment. Such amount shall be payable to Executive as soon as practicable after such determination is made. Executive and Company shall mutually and reasonably determine whether or not such payments are subject to the provisions of Sections 280G and 4999 of the Code. Company agrees to request any successor or successors to all or substantially all of the business and/or assets of Company (whether direct or indirect, by purchase, merger, consolidation, liquidation or otherwise), upon or prior to such succession, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would be required to perform it if no such succession had taken place. A copy of such assumption and agreement will be delivered to Executive promptly after its execution by the successor. Company in no manner warrants that such agreement can and will be obtained from such successor. Failure by Company to obtain such agreement from successor will entitle Executive to benefits and pay from Company in the same amounts as Executive would be entitled in Section 4.6 herein upon termination. 4.7 Return of Company Property Upon Termination. Upon termination of Executive's employment with Company, regardless of how termination may be effected, or whenever termination is requested by Company or Executive, Executive agrees to immediately turn over to Company all of Company's property, including any Confidential Information or Inventions as defined in Section 1.3 herein, and any Company items used by Executive in rendering services hereunder or otherwise, that may be in Executive's possession, custody or control. The obligations of Executive as set forth in Section 6 of this Agreement shall survive any termination of Executive. SECTION 5 - STOCK OPTIONS 5.1 Grant of Stock Options. Executive and Company have entered into a Bioject Officer/Insider Stock Option Agreement granting Executive the following stock options: a. An option to purchase one hundred thousand (100,000) shares of BMT Common Stock at a strike price (not to exceed $1.50 per share) determined by the Stock Option Committee of the Board of Directors of BMT. The options shall vest at the following rate, and shall have a term of seven (7) years once vested: For 33,333 option shares, the options shall become vested and exercisable on February 8, 1997. For 33,333 option shares, the options shall become vested and exercisable on February 8, 1998. For 33,334 option shares, the options shall become vested and exercisable on February 8, 1999. b. An additional twenty-five thousand (25,000) shares of BMT Common Stock shall be granted at the start of the Company's fiscal year 1997, at a strike price determined by the Stock Option Committee of the Board of Directors of BMT, Inc. These options will vest based on the Executive meeting certain sales and other performance goals, and will have a term of eight years once vested. These options are subject to the provisions of BMT's stock option plan. SECTION 6 - PROTECTION OF COMPANY PROPERTY 6.1 Intellectual Properties. a. Company Ownership. All ownership, copyright, patent, trade secrecy and other rights and all works, programs, manuals, ideas, Inventions, improvements, discoveries, processes, or other properties ("Intellectual Properties") made or conceived by Executive during the term of his employment, shall be the sole property of Company, whether developed independently by Executive or jointly with others, whether developed or conceived during regular work hours or at Company's facilities, and whether or not Company uses, registers, or markets such properties. In accordance with Company's policy and Oregon law, this Agreement does not apply to, and Executive has no obligation to assign to Company, any Invention for which no Company trade secrets, and no equipment, supplies, or facilities of Company were used, and which was developed entirely on Executive's own time, unless: (i) the Invention relates directly to Company's business; (ii) the Invention relates to Company's existing or demonstrably anticipated research or development work; or (iii) the Invention results from Executive's work for Company. b. Disclosure Duty. To determine whether Executive has an obligation to assign particular Intellectual Properties to Company, Executive shall promptly make full written disclosure to Company of all Intellectual Properties that he developed, or on which he is working during the term of his employment with Company and during the one-year period thereafter. Executive agrees to assist Company as it may request during and after the term of his employment to provide further evidence, perfect, and/or enforce Company's rights in, and ownership of, the covered Intellectual Properties. Executive's obligation in this respect includes, without limitation, execution of additional instruments of conveyance and assistance to Company with applications for patents, copyright, or other registrations. c. Infringement Warranty. Executive warrants that to the best of his knowledge, any and all items, technology, and Intellectual Properties of any nature developed or provided by Executive under this Agreement, or which in any way benefit Company, will be original to Executive, and will not infringe in any respect on the rights or property of others. Executive will not, without prior written approval of Company, use any equipment, supplies, facilities, or proprietary information of any other party. Executive warrants that he is entirely free to contract for employment with Company, and to perform his duties under this Agreement, without any conflict with other commitments, agreements, understandings or duties, whether to prior employers, or others. Executive will indemnify Company for all losses, claims, attorney fees, and other expenses which may arise from any breach of this warranty. 6.2 Confidentiality. Executive acknowledges that Company's business and future success depends on the preservation of trade secrets and other confidential, proprietary information concerning Company, its affiliates, suppliers, and customers ("Secrets"). These Secrets and Confidential Information include, without limitation: product designs, computer software, product configuration knowledge, market surveys, customer lists and needs, product and marketing plans, procedural and technical manuals and practices, pricing methods, proposal terms, contract renewal dates, information about the qualifications of other employees, and other such business information. Executive agrees to protect and preserve these Secrets and Confidential Information as confidential both during and indefinitely after the term of his employment, whether the Secrets or Confidential Information are contained in a tangible medium, or merely remembered. Executive agrees that all tangible material containing or in any way disclosing any Confidential Information or Secrets are Company's exclusive property. Executive agrees to return all Company documents, equipment, or other tangible things that reflect Confidential Information or Secrets immediately upon Executive's termination of employment, or at any earlier request of Company. 6.3 Non-Competition. a. Executive hereby agrees that he will not, during the period of his employment with Company, and for three (3) years thereafter, either directly or indirectly, enter into the employment of, render services to, or acquire any interest whatsoever in any Conflicting Organization or other business which competes with Company, or which is planning to compete. Executive acknowledges that Company's business includes, without limitation, the manufacture and marketing of the Biojector Jet Injection System and the production of sterile, single-use medication ampules for use with the Biojector, as well as other types of business Company may choose to undertake during or shortly after the course of Executive's employment. Executive further acknowledges that Company's business is conducted throughout North America and Europe and in such other areas to which Company may expand during the course of Executive's employment or shortly thereafter. Accordingly, Executive agrees that he will not compete with Company in any of these areas nor assist others in doing so. Nothing in this paragraph shall prevent Executive from owning an interest in any company that is not a Conflicting Organization and otherwise does not compete with Company. b. Executive further agrees that during the period stated above, he will not directly or indirectly call on, or otherwise solicit, or accept business from any actual or identified potential customer, Conflicting Organization or Conflicting Product of Company that is not for the benefit of, or in the best interest of Company, nor will he assist others in doing so. Executive further agrees that he will not, during the period stated above, encourage or solicit any other employee of Company to leave such employment for any reason, nor will he assist others to do so. c. Executive agrees that he will during the term of his employment with Company, promptly and fully disclose to Company any business opportunity coming to Executive's attention, or conceived or developed in whole or in part by Executive, which relates to Company's business, or anticipated business. Executive will not at any time exploit such business opportunities for his own gain or that of any person or entity other than Company. d. Executive acknowledges that the covenants in Section 6.3 herein are reasonable in relation to his position and the nature of Company's business, and that compliance with such covenants after his employment ends will not prevent him from pursuing his livelihood. Nonetheless, should any court or arbitrator(s) find that any provision of these covenants is unreasonable in any respect, the parties agree that the covenants shall be interpreted, limited, and enforced to the maximum extent which the court or arbitrator(s) deems reasonable. SECTION 7 - INDEMNITY OF OFFICERS AND DIRECTORS 7.1 Indemnification. Company shall indemnify Executive against any liability and reasonable expenses incurred by Executive in connection with any proceeding to which Executive is a party because of his employment with Company as Vice President of Sales and Marketing in accordance with the provisions set forth in Company's articles of incorporation, bylaws or general or specific action of Company's board of directors. Executive's right to indemnification and advancement of expenses provided herein will survive Executive's termination of employment with Company as Vice President of Sales and Marketing and shall inure to the benefit of Executive's heirs, executors and administrators. The right to advancement of expenses provided in Section 7.2 below shall be in addition to any other rights to which Executive is entitled under Company's articles of incorporation, bylaws or general or specific action of Company's board of directors. 7.2 Advancement of Expenses. Company shall pay for or reimburse Executive for all reasonable expenses incurred by Executive in advance of the final disposition of a proceeding to which Executive was a party and incurred such expenses because of his employment as the Vice President of Sales and Marketing of Company provided that Company shall have first received from Executive: a. An affidavit from Executive that he has a good faith belief that he met the applicable standards of conduct which, when determined, will entitle Executive to indemnification; and b. An undertaking by or on behalf of Executive representing an unlimited general obligation of Executive to repay such advanced expenses if it is not ultimately determined that Executive is entitled to be indemnified by Company. 7.3 Insurance. If available on terms and conditions acceptable to Company, Company shall purchase and maintain during the term of Executive's employment as Vice President of Sales and Marketing of Company, directors and officers liability insurance for Executive against any liability asserted against and incurred by Executive in his capacity as Vice President of Sales and Marketing of Company. SECTION 8 - MISCELLANEOUS 8.1 Assignments Prohibited. Executive may not assign any of his rights nor delegate any of his duties hereunder. Company may assign this Agreement and delegate its duties hereunder as provided for in Section 4.6 of this Agreement or to any of its affiliates at any time owned by, or under common ownership with Company. 8.2 Exclusive Agreement. This Agreement comprises the entire agreement of Executive and Company. It may be changed only by further written agreement, signed by both parties. This Agreement supersedes and merges within it all prior agreements and understandings between these parties, whether written or oral, express or implied. Each party to this Agreement acknowledges that no inducements, promises, or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied in this Agreement. In interpreting and construing this Agreement, the fact that one or the other of Executive or Company may have drafted this Agreement or any provision hereof shall not be given any weight or relevance. 8.3 Waiver. No waiver of any provision of this Agreement shall be valid unless in writing and signed by both parties, nor shall any waiver or failure to enforce any right hereunder constitute a waiver of that right or of any other right under this Agreement. 8.4 Separate and Severable. The parties agree that the provisions in this Agreement are separable and that in the event any provision is deemed ineffective or unenforceable, they are severable from the remaining provisions of the Agreement, which provisions shall remain binding on the parties. 8.5 Certain Remedies. The harm to Company from any breach of Executive's obligations under Section 6 of this Agreement may be difficult to determine and may be wholly or partially irreparable. Thus, Executive agrees that if he fails to abide by any provision contained in Section 6 of this Agreement, Company is entitled to immediate issuance by the Circuit Court of Multnomah County or other court with jurisdiction over the parties of a temporary retraining order and preliminary and permanent injunctions. If any bond from Company is required in connection with obtaining such equitable relief herein, the parties agree that a reasonable value of such bond will be no more than $5,000. Executive further agrees that any gross revenues obtained in violation of Section 6 of this Agreement shall be held in constructive trust for Company and a complete accounting of such revenues delivered to Company pending completion of the dispute resolution process set forth in Section 8.6 below. Any money damages claimed by Executive's breach of his obligations under Section 6 herein must be asserted in and will be recoverable through the dispute resolution process set forth in Section 8.6 below. Nothing in this Section 8.5 limits the obligations of the parties to resolve all other disputes through the dispute resolution process set forth in Section 8.6 herein. The provisions of Section 8.6 of this Agreement will not apply to any judicial or court proceeding which seeks equitable relief to enforce the provisions of Section 6 of this Agreement. 8.6 Choice of Law; Resolution of Disputes. Company desires to provide its employees with a fair, cost-effective and expedient forum for the resolution of any and all disputes between Company and its employees. Accordingly, except as provided in Section 8.5 above, Company shall provide, and Company and Executive agree to comply with, the following two-step dispute resolution process. a. Mediation. Company and Executive agree to submit to mediation, at no administrative cost to Executive, any dispute of the parties arising out of or related to: (1) Executive's employment with Company; (2) the termination of Executive's employment with Company; or (3) any breach of this Agreement (excepting the injunctive relief provided in Section 8.5 above) (hereafter "Dispute"). Such Dispute includes, but is not limited to, any alleged violations of federal, state and/or local statutes including any claims of discrimination based on race, color, religion, sex, national origin, age, disability, marital status, veteran or other status protected under federal or state law, harassment claims, employee benefit claims, claims based on any purported breach of duty arising in contract or tort, including breach of contract, breach of the covenant of good faith and fair dealing, violation of public policy or any other alleged violation of statutory, contractual or common-law rights of either party arising out of or relating to the Dispute as defined above (excluding claims for workers' compensation or unemployment insurance). (i) Notice of Mediation. Prior to submitting such Dispute to mediation, the parties shall attempt in good faith to settle the Dispute themselves. In the event mediation is necessary, the aggrieved party must deliver to the other party written notice of its intent to submit the Dispute to mediation within ninety (90) calendar days of the date when the Dispute first arose, or the termination of Executive's employment, whichever is later. "The date when the Dispute first arose" is defined to mean when a party discovered, or should have discovered with reasonable diligence, the facts on which the Dispute is based. A party's failure to timely request mediation hereunder shall constitute an irrevocable waiver of that party's right to raise any claims in any forum, including arbitration as set forth in Section 8.6.b. below, arising out of the Dispute described herein. The limitations period set forth herein is mandatory, does not operate to lengthen any applicable state or federal statute of limitations and is not subject to any tolling, equitable or otherwise. (ii) Location; Mediator Selection; Costs. The mediation will be conducted in Multnomah County through the mediation services of Arbitration Service of Portland, Inc. ("ASP"), except as such rules are modified herein. The mediation will be conducted by one neutral mediator selected and agreed to by the parties or, if no agreement can be reached, by a mediator selected in accordance with the then effective mediation rules of ASP. The mediation will be conducted as promptly as possible and in no event later than sixty (60) calendar days from the date written notice is provided pursuant to Section 8.6.a.(i) herein. No discovery will be allowed against either party prior to mediation. Company will pay the mediator's fees and other administrative costs of the mediation process. The parties shall bear their own respective attorney fees and other costs. b. Arbitration. In the event the Dispute is not successfully resolved through mediation, the parties agree that such Dispute will be resolved exclusively through final and binding arbitration in Multnomah County, Oregon, through a mutually agreed upon arbitration service or, if no agreement can be reached, through the arbitration services of ASP in accordance with its then effective arbitration rules, except as such rules are modified herein. (i) Notice of Arbitration. To initiate the arbitration process, the aggrieved party must deliver to the other party written notice of its intent to submit the Dispute to arbitration no later than sixty (60) calendar days after the conclusion of the mediation described above or, if no mediation occurs, after the deadline provided for mediation in Section 8.6.a.(ii) herein. A party's failure to timely request arbitration hereunder shall constitute an irrevocable waiver of that party's right to raise any claims in any forum arising out of the Dispute described herein. The limitations period set forth herein is mandatory, does not operate to lengthen any applicable state or federal statute of limitations and is not subject to any tolling, equitable or otherwise. (ii) Selection of Arbitrator(s). The Dispute will be decided by one arbitrator unless a party requests in writing a panel of three arbitrators. Where a sole arbitrator is to preside, the arbitrator will be selected by mutual agreement of the parties, or absent agreement, in accordance with the then effective ASP arbitration rules. For a three- arbitrator panel, each party will select one arbitrator at which point those two arbitrators will mutually select a third arbitrator. If the third arbitrator cannot be mutually agreed upon, the third arbitrator will be selected in accordance with the then effective ASP rules. (iii) Permissible Discovery. The parties shall cooperate to the fullest extent practicable in the voluntary exchange of documents and information to expedite the arbitration. The parties agree to limit discovery in the arbitration to three (3) requests for production of documents in accordance with Rule 43 of the Oregon Rules of Civil Procedure ("ORCP") and the taking of up to three (3) depositions by each party in accordance with ORCP 39. All discovery must be completed within thirty (30) calendar days prior to the date set for the arbitration hearing. Upon the request of any party and within fourteen (14) calendar days of the request, the designated arbitrator(s) shall conduct a preliminary hearing to determine a defense raised by a party that the arbitration claims have not been commenced within the time limited by statute or this Agreement. The arbitrator(s) will render a written ruling on such defense within ten (10) calendar days after such preliminary hearing. (iv) Power of Arbitrator(s); Applicable Law. The arbitrator(s) shall have the same authority to award remedies and damages as provided to a judge and/or jury under applicable law. The arbitrator(s) shall not have the power to alter, amend, or modify any provision of this Agreement. The arbitrator(s) shall have the power to decide only the Dispute submitted to the arbitrator(s). Except as provided herein, Oregon State law (excluding choice of law provisions) and applicable federal law will govern and be applied by the arbitrator(s) in deciding all substantive aspects of the Dispute, and all procedural issues not covered by the ASP arbitration rules. (v) Opinion and Award. The arbitrator(s) shall issue a written opinion and award within thirty (30) calendar days of closing arguments or the receipt of post-hearing briefs, whichever is later. The opinion and award must be signed and dated and decide all Disputes and related issues submitted by the parties. The Dispute(s) to be decided shall be sufficiently identified by the claimant and respondent in their pleadings. Sufficient identification of the Dispute includes a detailed description of the Dispute, the date when the Dispute first arose, the names and telephone numbers of any coworkers or supervisors with knowledge of the dispute, and the relief requested by the claimant and respondent. Any Dispute not identified in those pleadings is outside the scope of the arbitrator(s)' jurisdiction and any award involving such Dispute is subject to a motion to vacate. The opinion and award shall set forth the legal principles supporting each part of the opinion. The arbitrator(s) shall only be permitted to award those remedies in law or equity which are requested by the parties in the pleadings and which the arbitrator(s) determines to be supported by credible, relevant evidence. Judgment on the award rendered pursuant to such arbitration may be entered in any court having jurisdiction thereof. (vi) Fees and Costs. The arbitrator's fees and other administrative costs of the arbitration process shall be shared equally between the parties. Each party will be responsible for one-half the cost to have a court reporter attend and transcribe the arbitration hearing. The parties shall bear their own respective attorney fees and costs of discovery, depositions and witness fees. 8.7 Notices. All notices or other communication required or permitted hereunder shall be given in writing and delivered in person, transmitted by facsimile, or sent by registered or certified mail, postage prepaid, or by reliable courier service to the parties at the respective addresses stated below, or to such other address as a party may subsequently specify in writing. Notices will be effective upon the earlier of receipt or the fifth business day after sending. To Executive: Mr. Michael Redmond 10 Canterbury Road Windham, New Hampshire 03087 To Company: Bioject, Inc. 7620 S. W. Bridgeport Road Portland, Oregon 97224 Attn: Chief Executive Officer (Agreement continues on next page with employee acknowledgement) 8.8 Employee Acknowledgment. Executive confirms that he has carefully read and reviewed this Agreement. Executive acknowledges that he has been advised to consult with an attorney, and has had the opportunity to do so, before signing this Agreement. Employee acknowledges that he fully understands all of the terms and conditions contained in this Agreement and that he signs this Agreement of his own free will and volition. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of day, month and year first above written. EXECUTIVE: COMPANY: Bioject Medical Technologies Inc. /s/ Michael Redmond By: /s/ James C. O'Shea ___________________________ ______________________________ Michael Redmond James C. O'Shea, Chairman and Chief Executive Officer Bioject Medical Systems Ltd. WITNESS: Bioject Medical Systems, Ltd. /s/ KURT O. LYNAM By: /s/ James C. O'Shea ___________________________ ______________________________ (Witness' Signature) James C. O'Shea, Chairman and Chief Executive Officer Bioject, Inc. By: /s/ James C. O'Shea ______________________________ James C. O'Shea, Chairman and Chief Executive Officer EX-23.2 3 ACCOUNTANTS CONSENT EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K into the Company's previously filed Registration Statement on Form S-3, File No. 33-80679 and Registration Statements on Form S-8, File Nos. 33-94400, 33-56454 and 33-42156. /S/ ARTHUR ANDERSEN LLP Portland, Oregon June 26, 1996 EX-27.1 4 FINANCIAL DATA SCHEDULE
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 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K. 1 YEAR MAR-31-1996 APR-01-1995 MAR-31-1996 3,098,251 993,056 424,859 55,000 1,255,945 5,817,825 2,442,324 1,048,638 7,518,616 1,491,323 0 0 0 36,001,158 0 7,518,616 3,059,018 4,209,018 5,195,914 5,195,914 4,444,176 0 0 (5,431,072) 0 (5,431,072) 0 0 0 (5,431,072) (0.39) (0.39)
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