-----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, LXVCYDaRqXUMWNn0NH4wITLyQSMtLtscW+iQ6/Kam/gYUdAxilUL6Jf9OSXZf6Pm Ls0TojWD+LMrKLfa2zmWCg== 0000912282-99-000206.txt : 19991117 0000912282-99-000206.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912282-99-000206 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOJECT MEDICAL TECHNOLOGIES INC CENTRAL INDEX KEY: 0000810084 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 931099680 STATE OF INCORPORATION: OR FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15360 FILM NUMBER: 99751589 BUSINESS ADDRESS: STREET 1: 7620 S W BRIDGEPORT RD CITY: PORTLAND STATE: OR ZIP: 97224 BUSINESS PHONE: 5036397221 MAIL ADDRESS: STREET 1: 7620 S W BRIDGEPORT ROAD CITY: PORTLAND STATE: OR ZIP: 97224 FORMER COMPANY: FORMER CONFORMED NAME: BIOJECT MEDICAL SYSTEMS LTD DATE OF NAME CHANGE: 19920703 10-Q 1 QUARTERLY REPORT AS OF SEPTEMBER 30, 1999 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 Commission File No. 0-15360 BIOJECT MEDICAL TECHNOLOGIES INC. (Exact name of registrant as specified in its charter) Oregon 93-1099680 - -------------------------------------- ----------------------------- (Jurisdiction of incorporation) (I.R.S. identification no.) 7620 SW Bridgeport Road Portland, Oregon 97224 - -------------------------------------- ----------------------------- (Address of principal executive offices) (Zip code) (503) 639-7221 ------------------------------------------------------- (Registrant's telephone number, including areas code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At October 31, 1999 there were 5,802,248 outstanding shares of common stock of the registrant. PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following unaudited consolidated financial statements of Bioject Medical Technologies Inc. ("BMTI"), an Oregon corporation, and its subsidiaries have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The Company's needle-free injector operations are conducted by Bioject Inc. ("Bioject"), an Oregon corporation formed in February 1985, which is a wholly owned subsidiary of BMTI and its blood glucose monitoring system operations are conducted by Marathon Medical Technologies Inc. ("Marathon"), an Oregon corporation formed in October 1997, which is wholly owned by BMTI. The following 10-Q report reflects the consolidated results of operations, cash flows and financial position for the second quarter of the year ending March 31, 2000. The results of operations for interim periods are not necessarily indicative of the results to be expected for the year. - Consolidated Statements of Operations for the quarters ended September 30, 1999 and September 30, 1998 - Consolidated Statements of Operations for the six months ended September 30, 1999 and September 30, 1998 - Consolidated Balance Sheets dated September 30, 1999 and March 31, 1999 - Consolidated Statements of Cash Flows for the six months ended September 30, 1999 and September 30, 1998 BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Quarter Ended September 30, 1999 1998 ----------- --------- REVENUES: Net sales of products $ 330,702 $ 311,401 Licensing/technology fees 250,000 887,558 ----------- --------- 580,702 1,198,959 ----------- --------- EXPENSES: Manufacturing 548,355 499,314 Research and development 314,457 236,324 Selling, general and administrative 689,257 757,074 ------------ ------------ Total operating expenses 1,552,069 1,492,712 ----------- ------------ Operating loss (971,367) (293,753) Other income 50,850 34,449 ------------ ------------ Loss from continuing operations before taxes (920,517) (259,304) Provision for income -- -- ------------ ----------- Loss from continuing operations before preferred stock dividend (920,517) (259,304) Preferred Stock dividend (264,505) (348,912) ------------ ------------ Loss from continuing operations allocable to common shareholders (1,185,022) (608,216) Loss from discontinued operations allocable to common shareholders -- (927,913) ----------- ------------ Net loss allocable to Common shareholders $(1,185,022) $(1,536,129) =========== ============ Basic and diluted net loss per common share $ (.20) $ (.27) =========== ============ Shares used in per share calculation post one-for-five reverse stock split effective October 13, 1999) 5,802,248 5,700,134 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Six-Months Ended September 30, 1999 1998 ------------ ----------- REVENUES: Net sales of products $ 443,384 $ 453,812 Licensing/technology fees 350,000 1,025,559 ----------- ---------- 793,384 1,479,371 ------------ ---------- EXPENSES: Manufacturing 909,800 770,328 Research and development 568,241 480,910 Selling, general and administrative 1,290,857 1,365,694 ----------- ------------ Total operating expenses 2,768,898 2,616,932 ----------- ------------ Operating loss (1,975,514) (1,137,561) Other income 67,817 57,161 ----------- ------------ Loss from continuing operations before taxes (1,907,697) (1,080,400) Provision for income taxes -- -- ----------- ------------ Loss from continuing operations before preferred stock dividend $ (1,907,697) $(1,080,400) Preferred Stock dividend (639,341) (695,262) ----------- ------------ Loss from continuing operations allocable to common shareholders $ (2,547,038) $( 1,775,662) Loss from discontinued operations allocable to common shareholders (449,786) (1,913,562) Gain on sale of discontinued operations 2,852,666 -- ----------- ------------ Net loss allocable to common shareholders $ (144,158) $ (3,689,224) Basic and diluted net loss per common share $ (.02) $ (.67) =========== ============ Shares used in per share calculation (post one-for-five reverse stock split effective October 13, 1999) 5,802,248 5,542,158 =========== ============ The accompanying notes are an integral part of these consolidated financial statements. BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, March 31, 1999 1999 ------------ ------------ ASSETS: CURRENT ASSETS: Cash and cash equivalents $ 3,815,778 $ 1,274,311 Accounts receivable, net 216,702 305,064 Stock subscription receivable -- 2,400,000 Inventories 988,289 1,251,186 Other current assets 55,589 53,599 Current assets of discontinued operations -- 597,000 ------------ ------------ Total current assets 5,076,358 5,881,160 PROPERTY AND EQUIPMENT, at cost: Machinery and equipment 2,293,239 2,235,733 Production molds 2,055,322 2,051,697 Furniture and fixtures 179,376 170,436 Leasehold improvements 94,115 94,115 ------------ ------------ 4,622,052 4,551,981 Less - Accumulated depreciation (2,962,479) (2,615,536) ------------ ------------ 1,659,573 1,936,445 OTHER ASSETS 544,398 535,092 NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS -- 238,583 ------------ ------------ $ 7,280,329 $ 8,591,280 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 245,937 $ 190,676 Accrued payroll 101,990 135,445 Other accrued liabilities 57,446 54,388 Deferred revenue 150,000 -- Current liabilities of discontinued operations 481,906 2,462,906 ------------ ------------ Total current liabilities 1,037,279 2,843,415 SHAREHOLDERS' EQUITY: Preferred stock, no par, 10,000,000 shares authorized; no shares issued and outstanding Series A Convertible- 692,694 shares, $15 stated value 11,780,357 9,163,025 Series B Convertible - 134,333 shares, $15 stated value -- 1,566,762 Series C Convertible - 391,830 2,400,000 2,400,000 Common stock, no par, 100,000,000 shares authorized; issued and outstanding 5,802,248 and 5,802,248 shares at September 30, 1999 and March 31, 1999, respectively 50,182,884 50,594,111 Accumulated deficit (58,120,191) (57,976,033) ------------ ------------ Total shareholders' equity 6,243,050 5,747,865 ------------ ------------ $ 7,280,329 $ 8,591,280 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six-Months Ended September 30, 1999 1998 ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss allocable to common shareholders $ (144,158) $ (3,689,224) Adjustments to reconcile net loss to net cash used in operating activities from continuing operations: Net loss from discontinued operations 449,786 1,913,562 Gain on sale of discontinued operations (2,852,666) -- Depreciation and amortization 366,425 365,474 Contributed capital for services -- 27,636 Preferred stock dividends 639,341 695,262 Net changes in assets and liabilities: Accounts receivable 88,362 (339,209) Inventories 262,897 (28,598) Other current assets (1,990) (14,605) Accounts payable 55,264 (186,081) Accrued payroll (33,455) (2,361) Other accrued liabilities 3,058 (72,871) Deferred revenue 150,000 240,000 ----------- ------------ Net cash used in operating activities of continuing operations (1,017,136) (1,091,015) Net cash provided by operating activities of discontinued operations 1,588,918 (479,066) ----------- ------------ Net cash provided by operating activities 571,782 (1,570,081) ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Marathon Stock (331,456) -- Capital expenditures of continuing operations (70,071) (50,767) Capital expenditures of discontinued operations -- (200,297) Other assets (28,788) (41,030) ----------- ------------ Net cash used in investing activities (430,315) (292,094) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Cash proceeds from the sale of Series C Preferred stock 2,400,000 -- Cash proceeds from common stock -- 2,934,049 ----------- ------------ Net cash provided by financing activities 2,400,000 2,934,049 ----------- ------------ CASH AND CASH EQUIVALENTS: Net increase (decrease) in cash and cash equivalents 2,541,467 1,071,874 Cash and cash equivalents at beginning of period 1,274,311 1,900,839 ----------- ------------ Cash and cash equivalents at end of period $3,815,778 $ 2,972,713 =========== ============ The accompanying notes are an integral part of these consolidated financial Statements. BIOJECT MEDICAL TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY: The consolidated financial statements of Bioject Medical Technologies Inc. (the "Company"), include the accounts of Bioject Medical Technologies Inc. ("BMTI"), an Oregon Corporation, and its wholly owned subsidiary, Bioject Inc., an Oregon Corporation ("Bioject"), and its wholly owned subsidiary, Marathon Medical Technologies, ("Marathon") (formerly Bioject JV Subsidiary Inc.), an Oregon corporation. All significant intercompany transactions have been eliminated. Although Bioject Inc. commenced operations in 1985, BMTI was formed in December 1992 for the purpose of acquiring all of the capital stock of Bioject Medical Systems Ltd., a Company organized under the laws of British Columbia, Canada, in a stock-for-stock exchange in order to establish a U.S. domestic corporation as the publicly traded parent company for Bioject Inc. and Bioject Medical Systems Ltd. Bioject Medical Systems Ltd. was terminated in fiscal 1997. Marathon Medical Technologies Inc. was formed in October 1997. At that time, Marathon acquired the license to certain continuous blood glucose monitoring technology from Elan Corporation, plc. ("Elan") and entered into a joint venture arrangement with Elan to develop and commercialize the blood glucose monitoring technology. On June 30, 1999, Marathon completed the sale of its license to the blood glucose monitoring technology. In connection with the sale of the license, BMTI acquired Elan's 19.9% ownership of the stock of Marathon. BMTI now owns 100% of Marathon's stock. Marathon's operations are reported as "Discontinued Operations" in the financial statements and other financial information included as a part of this report. All references to the Company include Bioject Medical Technologies Inc. and its subsidiaries, unless the context requires otherwise. The Company commenced operations in 1985 for the purpose of developing, manufacturing and distributing a new drug delivery system. Since its formation, the Company has been engaged principally in organizational, financing, research and development, and marketing activities. In the last quarter of fiscal 1993, the Company launched U.S. distribution of its Biojector 2000 system primarily to the hospital and large clinic market. The Company's products and manufacturing operations are subject to extensive government regulation, both in the U.S. and abroad. In the U.S., the development, manufacture, marketing and promotion of medical devices is regulated by the Food and Drug Administration ("FDA") under the Federal Food, Drug, and Cosmetic Act ("FFDCA"). In 1987, the Company received clearance from the FDA under Section 510(k) of the FFDCA to market a hand-held CO2-powered needle-free injection system. In June 1994, the Company received clearance from the FDA under Section 510(k) to market a version of its Biojector 2000 system in a configuration targeted at high volume injection applications. In October 1996, the Company received 510(k) clearance for a needle-free disposable vial access device. In March 1997, the Company received additional 510(k) clearance for certain enhancements to its Biojector 2000 system. In January 1999, the Company received ISO9001 and EN46001 certification and in November 1999, the Company received CE Mark certification for the Company's jet injection systems which allows the products to be sold in the European Union. On March 23,1998, the Company entered into a transaction with Vitajet Corporation ("Vitajet") whereby the Company acquired, along with certain other assets, the rights to the Vitajet(R), a spring-powered, needle-free self-injection device which currently has regulatory clearance for administering injections of insulin. On September 30, 1997, the Company entered into a joint venture agreement with Elan for the development and commercialization of certain blood glucose monitoring technology which the Company licensed from Elan. On June 30, 1999, Marathon completed a sale of the license to the blood glucose monitoring technology, along with certain fixed assets related to the development of that technology. Since its inception the Company has incurred operating losses and at September 30, 1999, has an accumulated deficit of approximately $58.1 million. The Company's revenues to date have been derived primarily from licensing and technology fees for the jet injection technology and from limited product sales of the Biojector 2000 system and Biojector syringes. The product sales were principally sales to dealers to stock their inventories. More recently, the Company has sold its products to end-users, primarily public health clinics for vaccinations and to nursing organizations for flu immunization. Future revenues will depend upon acceptance and use by healthcare providers and on the Company successfully entering into license and supply agreements with major pharmaceutical and biotechnology companies. Uncertainties over government regulation and competition in the healthcare industry may impact healthcare provider expenditures and third party payer reimbursements and, accordingly, the Company cannot predict what impact, if any, subsequent healthcare reforms and industry trends might have on its business. In the future the Company is likely to require substantial additional financing. Failure to obtain such financing on favorable terms could adversely affect the Company's business. BIOJECT MEDICAL TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. ACCOUNTING POLICIES: INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined in a manner which approximates the first-in, first out (FIFO) method. Costs utilized for inventory valuation purposes include labor, materials and manufacturing overhead. Net inventories consist of the following: September 30, March 31, 1999 1999 ----------- ---------- Raw Materials $ 289,191 $ 289,214 Work in Process 4,647 -- Finished Goods 694,451 961,972 ----------- ---------- $ 988,289 $1,251,186 =========== ========== 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. RECLASSIFICATIONS Certain reclassifications have been made to the prior year's expenses to conform to the current year's presentation. NET LOSS PER SHARE The following post one-for-five reverse split common stock equivalents are excluded from earnings per share calculations as their effect would have been antidilutive: Six Months Ended September 30, 1999 1998 --------- --------- Warrants and stock options 2,562,912 1,709,489 Convertible preferred stock 2,377,040 1,654,054 -------------- -------------- 4,939,952 3,363,543 ========== ========== 3. SUBSEQUENT EVENTS On October 19, 1999, Bioject announced a strategic alliance with AngioSense, Inc. to jointly develop innovative delivery systems to treat cardiovascular disease. Bioject's needle-free drug delivery systems will be modified for delivering bio-therapeutic solutions as a surgical instrument for minimally invasive surgical procedures with several proprietary catheters being developed by AngioSense for catheter-based cardiology interventions. BIOJECT MEDICAL TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. SUBSEQUENT EVENTS (Continued) The alliance grants AngioSense an exclusive license to Bioject's Biojector 2000(R) and Vitajet 3(R) jet injectors, as well as a customized version of Bioject's Iject(TM), a single-use disposable jet injector with a self-contained, pre-filled medication cartridge to treat or diagnose cardiac or cardiovascular diseases. According to the terms of the agreement, Bioject will receive an equity position of approximately 10 percent in AngioSense upon completion of certain product development milestones. Bioject has already accomplished milestones representing 50 percent of the scheduled equity and anticipates completing the remaining milestones early next year. In addition to a long-term manufacturing and supply agreement with AngioSense, Bioject will receive royalties on future product sales, and will receive significant funding to support the development of the disposable injector portion of the AngioSense delivery system. See "Forward Looking Statements." AngioSense, Inc., a private company founded in March 1999, is focused on developing innovative and cost effective surgical and cardiology based devices for gene therapy application. The company is currently developing catheter-based and minimally invasive surgical devices for precision- targeted delivery of gene therapy solutions. The company's unique system design platform reaches sites that are inaccessible to conventional syringe-based injection methods currently employed. The company's products can be used in any procedural setting and in conjunction with other technologies. 4. CHANGES IN SHAREHOLDERS' EQUITY In connection with the Company's purchase of Elan's interest in Marathon at June 30, 1999, the Company and Elan agreed to certain changes in the terms of Elan's Series A Convertible Preferred Stock ("Series A Stock"). The modified terms fixed the conversion price of the Series A Stock at $1.50, eliminating a prior provision that, in certain circumstances, allowed the Series A Stock to be converted at 80% of the then current fair market value of the Company's stock, if such value was less than $1.50. The terms were also modified to give the Company the right to redeem the Series A Stock for cash within ninety days of receiving notice of the intent to redeem all or part of the Series A Stock into common stock of the Company. The redemption price is the original issuance price of the Series A Stock being converted plus accumulated preferred stock dividends thereon from the date of issuance of the Series A Stock. Modifying the terms of the Series A Stock required shareholder approval of an amendment to the Company's Articles of Incorporation. Amended Articles of Incorporation, reflecting the modified terms, was referred to the Company's shareholders at the Company's annual meeting in September, 1999, and shareholders approved the amendment to the Company's Articles of Incorporation to modify the terms to fix the conversion price to $1.50. The one-for-five reverse stock split of the Company's common stock, which was effected on October 13, 1999, adjusted the fixed conversion price to $7.50. BIOJECT MEDICAL TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. CHANGES IN SHAREHOLDERS' EQUITY (Continued) On July 9, 1999, the last sale price of the Company's common stock as reported on the NASDAQ National Market System was ($0.50) per share. The Board of Directors believed that the recent per share price of the Common Stock affected the marketability of the existing shares, increased the amount and percentage of transaction costs paid by individual stockholders, and affected the potential ability of the Company to raise capital by issuing additional shares. As a means of improving marketability of the Common Stock, reducing stockholders' transaction costs, increasing the number of shares available for future issuances, and other considerations, on July 15, 1999, the Board of Directors approved, subject to the shareholder approval, a proposal to amend the Articles of Incorporation to effect a reverse stock split by exchanging five outstanding shares of the Company's common stock for one new share of the Company's common stock. At the Company's annual meeting in September, 1999, the shareholders approved the amendment to the Company's Articles of Incorporation to effect a one-for-five reverse stock split. The effective date of the reverse was October 13, 1999. At July 15,1999, 29,011,236 shares of Common Stock were outstanding, as well as options, warrants and convertible preferred stock to acquire an additional 24,378,928 shares of Common Stock. The Reverse Stock Split, decreased the number of outstanding shares of Common Stock to approximately 5.8 million shares and approximately 4.8 million shares are reserved for issuance upon exercise of outstanding options, warrants and the conversion of convertible preferred stock, Approximately 89.3 million shares are available for future issuances. Earnings per share reflect post split shares of common stock outstanding. On the effective date, the total number of shares of Common Stock held by each stockholder converted automatically into a right to receive a number of shares and fractions thereof of New Common Stock equal to the number of shares of Common Stock owned immediately prior to the Reverse Stock Split divided by five. No fractional shares or scrip were issued and, in lieu thereof, each stockholder who would otherwise have been entitled to a fraction of a share of New Common Stock would received a whole share of New Common Stock. Approval of the Reverse Stock Split did not affect any stockholder's percentage ownership interest in the Company or proportional voting power except for minor differences resulting from fractional shares. The Reverse Stock Split did not reduce the number of shareholders of the Company. The shares of New Common Stock issued upon approval of the Reverse Stock Split were fully paid and nonassessable. The voting rights and other privileges of the holders of Common Stock was not affected substantially by adoption of the Reverse Stock Split or the subsequent implementation thereof. 5. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS The accompanying, unaudited consolidated financial statements do not include all information and footnote disclosures normally included in audited financial statements. However, in the opinion of management, all adjustments (which include only normal, recurring adjustments) necessary to present fairly the financial position, cash flows, and results of operations have been made. It is suggested that these statements be read in conjunction with the financial statements included in the Company's Annual Report on Form 10-K for the year ended March 31, 1999. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company continues to target its direct sales efforts toward: i) sales to existing markets, specifically flu immunization providers, public health agencies and public school systems; ii) sales in states such as California, where the Company believes that needle-syringe safety legislation makes the Company's products more price competitive; and iii) sales to the U.S. military. Sales through distributors will target the home self-injection market. The Company is also focusing its sales and marketing efforts on entering into licensing and supply arrangements with leading pharmaceutical and biotechnology companies for whose products the Biojector technology provides either increased medical effectiveness or a higher degree of market acceptance. See "Forward-Looking Statements." The Company's revenues to date have not been sufficient to cover manufacturing and operating expenses. However, the Company believes that if its products attain significantly greater general market acceptance and if the Company is able to enter into large volume supply agreements with major pharmaceutical and biotechnology companies, the Company's product sales volume would increase. Significantly higher product sales volume should allow the Company to realize volume-related manufacturing cost efficiencies. This, in turn, should result in reduced costs of goods as a percentage of sales, which could eventually allow the Company to achieve positive gross profit. The Company believes that positive gross profit from product sales, together with licensing and technology revenues from agreements entered into with large pharmaceutical and biotechnology companies would eventually allow the Company to operate profitably. The level of revenues required to generate net income will be affected by a number of factors including the mix of revenues between product sales and licensing and technology fees, pricing of the Company's products, its ability to attain volume-related and automation-related manufacturing efficiencies, and the impact of inflation on the Company's manufacturing and other operating costs. There can be no assurance that the Company will achieve sufficient cost reductions or sell its products at prices or in volumes sufficient to achieve profitability or offset increases in its costs should they occur. Further, there can be no assurance that, in the future, the Company will be able to interest major pharmaceutical or biotechnology companies in entering licensing or supply agreements. See "Forward-Looking Statements." On June 30, 1999 the Company entered into a binding letter agreement with a major biotechnology company that provided for an evaluation of Bioject's jet injection technology for use with certain biopharmaceutical products. Terms of the agreement provided for up to $500,000 in licensing and technology fees based upon meeting certain milestones. To date the Company has received $500,000 with revenue of $100,000 recognized in the first quarter of fiscal 2000 and $250,000 in the current fiscal quarter. The balance to be recognized upon completion of the final milestone on or before December 31, 1999. Concurrent with meeting the final milestone, the Company is in negotiation for a long-term licensing and supply agreement. There can be no assurance that the Company will be successful in its negotiations for a long-term licensing and supply agreement. See "Forward Looking Statements." On October 19, 1999, Bioject announced a strategic alliance with AngioSense, Inc. to jointly develop innovative delivery systems to treat cardiovascular disease. Bioject's needle-free drug delivery systems will be modified for delivering bio-therapeutic solutions as a surgical instrument for minimally invasive surgical procedures with several proprietary catheters being developed by AngioSense for catheter-based cardiology interventions. The alliance grants AngioSense an exclusive license to Bioject's Biojector 2000(R) and Vitajet 3(R) jet injectors, as well as a customized version of Bioject's Iject(TM), a single-use disposable jet injector with a self-contained, pre-filled medication cartridge to treat or diagnose cardiac or cardiovascular diseases. According to the terms of the agreement, Bioject will receive an equity position of approximately 10 percent in AngioSense upon completion of certain product development milestones. Bioject has already accomplished milestones representing 50 percent of the scheduled equity and anticipates completing the remaining milestones early next year. In addition to a long-term manufacturing and supply agreement with AngioSense, Bioject will receive royalties on future product sales, and will receive significant funding to support the development of the disposable injector portion of the AngioSense delivery system. There can be no assurance that any developed product will receive regulatory approval or market acceptance such that Bioject can expect to receive royalties from future product sales. See "Forward Looking Statements." AngioSense, Inc., a private company founded in March 1999, is focused on developing innovative and cost effective surgical and cardiology-based devices for gene therapy application. The company is currently developing catheter-based and minimally invasive surgical devices for precision-targeted delivery of gene therapy solutions. The company's unique system design platform reaches sites that are inaccessible to conventional syringe-based injection methods currently employed. The company's products can be used in any procedural setting and in conjunction with other technologies. The Iject(TM) will require FDA approval and clinical trials. The Company will assist AngioSense to obtain such approval, although there can be no assurance that such approval process can be completed on a timely basis or at all. The Company's clinical research efforts are aimed primarily at clinical research collaborations in the area of DNA-based vaccines and medications. Currently, the B-2000 is being used in over 25 studies. Product development efforts are focused primarily in three areas: i) developing low cost disposable "Iject(TM)" jet-injector targeted for both clinical and home use markets; ii) developing pre-filled syringes for use with the B-2000 and with other needle-free injectors presently being developed; and iii) further developing the intradermal adapter for the B-2000. 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) implementing cost reduction measures; iv) uncertainties and changes in product sales due to third party payer policies and proposals relating to healthcare cost containment; v) timing and amount of payments under licensing and technology development agreements; and vii) timing of new product introductions by the Company and its competition. The Company does not expect to report net income from operations in fiscal 2000. See "Forward-Looking Statements." QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998. Product sales increased from $311,000 in the second quarter of fiscal 1999 to $331,000 in the second quarter of fiscal 2000, a result of increased sales of the vial adapter to a major pharmaceutical company. License and technology fees decreased from $888,000 in the second quarter of fiscal 1999 to $250,000 in the second quarter of fiscal 2000. Fiscal 1999 license and technology fees were primarily a result of $750,000 received from Merck. Fiscal 2000 fees are the result of fees from a major biotechnology company in connection with meeting certain milestones. Manufacturing expense increased from the second quarter of fiscal 1999 to the second quarter of fiscal 2000 by $49,000. As a result of adequacy of existing supply inventories of B-2000 devices and Biojector syringes the Company did not manufacture material quantities to absorb current manufacturing overhead. Research and development expenses increased from $236,000 in the second quarter of fiscal 1999 to $314,000 in the second quarter of fiscal 2000 primarily due to increased activity in the development of the disposable injector, pre-filled syringes, and the intradermal spacer. Selling, general and administrative expense decreased from $757,000 in the second quarter of fiscal 1999 compared to $689,000 in the second quarter of fiscal 2000 in part due to decreased reliance on outside consultants. SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30, 1998. Revenues for the six months ended September 30, 1999 consist of product sales of $443,000 and licensing and technology revenues of $350,000. This compares to $454,000 in product sales and $1.03 million in licensing and technology revenues for the six months ended September 30, 1998. Product sales remained relatively constant. The $1.03 million in licensing and technology revenues in fiscal 1999 was primarily due to receipt of a $750,000 payment under the agreement signed with Merck in July 1998. Licensing fees for fiscal 2000 are from fees received from a major biotechnology company. Manufacturing expense increased from $770,000 for the first six months of fiscal 1999 to $910,000 for the six months ended September 30, 1999. The increase was primarily due to lower production levels in the current fiscal year, resulting in a decrease of manufacturing overhead absorbed into inventory during the six months ended September 30, 1999. The Company anticipates drawing primarily on current inventories to fill most of its product orders through the end of fiscal 2000. Accordingly, the Company anticipates that production levels, and related absorption of manufacturing overhead, for the remainder of fiscal 2000 will remain relatively constant when compared to production levels in the corresponding period of fiscal 1999. See "Forward-Looking Statements." Research and development expense increased from $481,000 in the six months ended September 30, 1998 to $568,000 in the first six months of fiscal 1999. The increase was principally due to research and development cost relating to the development of the disposable injector, pre-filled syringes and the intradermal spacer. Selling, general and administrative expense decreased from $1.37 million in the six months ended September 30, 1998 to $1.29 million in the six months ended September 30, 1999. Selling expense for the first six months of fiscal 2000 decreased by $20,000 when compared with the same period a year ago. Savings of $54,000 in administrative expense was a result of decreased consulting fees. Other income consists of earnings on available cash balances and fluctuates based on available cash balances. LIQUIDITY AND CAPITAL RESOURCES Since its inception in 1985, the Company has financed its operations, working capital needs and capital expenditures primarily from private placements of securities, exercises of stock options and warrants, 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, revenues from sales of products and proceeds from the sale of the blood glucose monitoring technology. Net proceeds received from issuance of securities from inception through September 30, 1999 totaled approximately $50.2 million. Cash, cash equivalents and marketable securities totaled $3.8 million at September 30, 1999 compared to $1.3 million at March 31, 1999. The increase resulted primarily from cash proceeds received from issuance of the Company's Series C Preferred Stock of $2.4 million and a minority interest capital contribution to Marathon Medical of $597,000 and the sale of Marathon Medical with net proceeds of approximately $2.9 million, offset by operating cash requirements and capital asset purchases. The Company believes that its current cash position, combined with revenues, other cash receipts, and net proceeds from the sale of the glucose monitoring technology will be sufficient to fund the Company's operations through the second quarter of fiscal 2001. In addition, the Company is considering other potential financing alternatives. Even if the Company is successful in obtaining additional financing, unforeseen costs and expenses or lower than anticipated cash receipts from product sales or research and development activities could accelerate or increase the financing requirements. The Company has been successful in raising required financing in the past and believes that sufficient funds will be available to fund future operations. However, there can be no assurance that the Company's efforts will be successful and there can be no assurance that such financing will be available on terms which are not significantly dilutive to existing shareholders. 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. The Company has no banking line of credit or other established source of borrowing. See "Forward Looking Statements." YEAR 2000 ISSUES. The Company has completed the assessment of and has taken remedial action to correct any deficiency of internal systems with regard to potential Year 2000 ("Y2K") issues. The assessment included steps to review and obtain vendor certification of Y2K compliance for current systems, testing system compliance and implementing corrective action where necessary. A Y2K team composed of manager-level members from Manufacturing, Purchasing, Information Services and Finance continues to conduct the assessment. Assessment of the compliance of all critical systems, plans for remedial action, if any, and estimates of the cost of such remedial action have been completed. The cost to address the Company's Y2K issues have been estimated to be immaterial and funds expended are expected to be derived from normal maintenance and upgrade operating budgets. See "Forward-Looking Statements." PRODUCTS. The Company's products do not incorporate either application or embedded software and are therefore not subject to Y2K issues. INFORMATION SYSTEMS. The Company utilizes packaged application software for all critical information systems functions, which have been certified by the vendors as being Y2K compliant. This includes financial software, operating and networking systems, application and data servers, PC and communications hardware and core office automation software. The company has tested the reliability of the application software and replaced systems where necessary and reasonably believes it to be Y2K compliant. See "Forward-Looking Statements." MANUFACTURING SYSTEMS. The Company has received manufacturer certification of Y2K compliance for all critical automated components used in manufacturing the Company's products. SUPPLIER BASE. The Company implemented a Y2K audit program of suppliers critical to the Company's operations. These suppliers have certified Y2K compliance of systems critical to maintaining a continuing source of supply to the Company. RISK. The Company will be at risk from external infrastructure failures that could arise from Y2K failures, including failure of electrical power and telecommunications. Investigation and assessment of the risk of failure of such infrastructure is beyond the scope and resources of the Company. The Company intends to rely on vendor certification of Y2K compliance and does not plan to audit vendor systems to test their compliance. The Company will be at risk with respect to vendors who certify their systems as being Y2K compliant but who are unable to deliver potentially critical supplies and services to the Company on account of Y2K noncompliance. Business risks to the Company of not successfully identifying Y2K issues and undertaking effective remedial action include the inability to ship product, delay or loss of revenue and delay in manufacturing operations. The Company believes that it has successfully identified critical Y2K issues and has substantially completed required remedial action. Other than risks created by infrastructure failures or by the Company's dealings with third parties, where the actions of such third parties are beyond the Company's control, the Company believes that it will have no material business risk from Y2K issues. There can be no assurance that infrastructure failures will not occur or that third parties, over which the Company has no control will successfully address their own Y2K issues. See "Forward-Looking Statements." FORWARD LOOKING STATEMENTS This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements concern, among other things, anticipated revenues from product sales and licensing and technology fees, anticipated funding from third parties for development projects, the Company's ability to enter into long-term licensing and supply agreements, expected sufficiency of capital resources to meet the Company's future requirements, future sources of working capital, and Year 2000 issues. Paragraphs of this Report that include forward-looking statements are often identified with a cross-reference to this section. Forward-looking statements are based on expectations, assumptions, estimates and projections about the Company and the industry in which the Company operates that involve risks and uncertainties. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results or industry results to be materially different from the results, performance, or achievements discussed or implied in the forward-looking statements. These risks and uncertainties include the uncertainty of market acceptance of the Company's jet injection products, uncertain successful completion of research and development projects, the Company's need to enter into additional strategic corporate licensing arrangements, the Company's history of losses and its accumulated deficit and need for additional financing, the Company's limited manufacturing experience, the Company's dependence on the performance of existing and future corporate partners and other third parties, uncertainties related to regulation by the FDA and the need to obtain approval of new products and their application to additional drugs, the possibility of product liability claims, dependence on key employees and the risks related to competition. Forward-looking statements are based on the estimates and opinions of management on the date the statements are made. The Company assumes no obligation to update forward-looking statements if conditions or management's estimates or opinions should change, even if new information becomes available or other events occur in the future. For a more detailed description and discussion of such risks, uncertainties and other factors, readers of this report are referred to the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended March 31, 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable. PART II OTHER INFORMATION Item 1. Legal Proceedings None during the quarter ended September 30, 1999. Item 2. Changes in Securities In connection with the Company's purchase of Elan's interest in Marathon at June 30, 1999, the Company and Elan agreed to certain changes in the terms of Elan's Series A Convertible Preferred Stock ("Series A Stock"). The modified terms fixed the conversion price of the Series A Stock at $1.50, eliminating a prior provision that, in certain circumstances, allowed the Series A Stock to be converted at 80% of the then current fair market value of the Company's stock, if such value was less than $1.50. The terms were also modified to give the Company the right to redeem the Series A Stock for cash within ninety days of receiving notice of the intent to redeem all or part of the Series A Stock into common stock of the Company. The redemption price is the original issuance price of the Series A Stock being converted plus accumulated preferred stock dividends thereon from the date of issuance of the Series A Stock. Modifying the terms of the Series A Stock required shareholder approval of an amendment to the Company's Articles of Incorporation. Amended Articles of Incorporation, reflecting the modified terms, was referred to the Company's shareholders at the Company's annual meeting in September, 1999. The shareholders approved the amendment to the Company's Articles of Incorporation to modify the terms to fix the conversion price to $1.50. As a result of the Reverse Stock Split, the conversion rate was adjusted to $7.50 per share. On July 9, 1999, the last sale price of the Company's common stock as reported on the NASDAQ National Market System was ($0.50) per share. The Board of Directors believed that the recent per share price of the Common Stock affected the marketability of the existing shares, increased the amount and percentage of transaction costs paid by individual stockholders, and affected the potential ability of the Company to raise capital by issuing additional shares. As a means of improving marketability of the Common Stock, reducing stockholders' transaction costs, increasing the number of shares available for future issuances, and other considerations, on July 15, 1999, the Board of Directors approved, subject to the shareholder approval, a proposal to amend the Articles of Incorporation to effect a reverse stock split by exchanging five outstanding shares of the Company's common stock for one new share of the Company's common stock. At the Company's annual meeting in September, 1999, the shareholders approved the amendment to the Company's Articles of Incorporation to effect a one-for-five reverse stock split. The effective date of the reverse was October 13, 1999. At July 15,1999, 29,011,236 shares of Common Stock were outstanding, as well as options, warrants and convertible preferred stock to acquire an additional 24,378,928 shares of Common Stock. The Reverse Stock Split, decreased the number of outstanding shares of Common Stock to approximately 5.8 million shares and approximately 4.8 million shares are reserved for issuance upon exercise of outstanding options, warrants and the conversion of convertible preferred stock, Approximately 89.3 million shares are available for future issuances. Earnings per share reflect post split shares of common stock outstanding On the effective date, the total number of shares of Common Stock held by each stockholder converted automatically into a right to receive a number of shares and fractions thereof of New Common Stock equal to the number of shares of Common Stock owned immediately prior to the Reverse Stock Split divided by five. No fractional shares or scrip were issued and, in lieu thereof, each stockholder who would otherwise have been entitled to a fraction of a share of New Common Stock would received a whole share of New Common Stock. Approval of the Reverse Stock Split did not affect any stockholder's percentage ownership interest in the Company or proportional voting power except for minor differences resulting from fractional shares. The Reverse Stock Split did not reduce the number of shareholders of the Company. The shares of New Common Stock issued upon approval of the Reverse Stock Split were fully paid and nonassessable. The voting rights and other privileges of the holders of Common Stock was not affected substantially by adoption of the Reverse Stock Split or the subsequent implementation thereof. Item 3. Defaults Upon Senior Securities None during the quarter ended September 30, 1999. Item 4. Submission of Matters to a Vote of Security Holders At the annual general meeting of the shareholders of the Company held at 9:00 am on September 16, 1999 in Portland, Oregon, the following matters were submitted to a vote of the shareholders: Election of directors. The slate of directors was approved by the Company's shareholders with no director receiving less than 22,754,544 votes in favor and no more than 299,578 withheld. David de Weese received 22,755,544 votes in favor and 298,578 votes withheld; William A. Gouveia received 22,755,544 votes in favor and 298,578 votes withheld; Edward Flynn received 22,755,544 votes in favor and 298,578 votes withheld. Shares voted totaled 23,054,122. Amend Articles to amend the terms of the Series A Preferred Stock. The proposal passed receiving 11,859,655 votes in favor, 1,338,834 votes against and 333,225 votes abstaining, out of shares voted totaling 13,531,714. Amend Articles of Incorporation and grant the Board of Directors the authority to effect a reverse split. The proposal passed receiving 20,520,691 votes in favor, 1,936,771 votes against and 2,877,085 votes abstaining, out of shares voted totaling 25,334.547. There were 29,011,236 common shares outstanding as of the date of record of July 24, 1999. Item 5. Other Information None during the quarter ended September 30, 1999. Item 6. Exhibits and Reports on Form 8-K EXHIBITS Exhibit Number Description - ------- ----------- 3.1 Amended and Restated Articles of Incorporation of the Company 10.67* Agreement I between Bioject, Inc. and AngioSense, Inc. dated September 21, 1999 10.68* Agreement II between Bioject, Inc. and AngioSense, Inc. dated September 21, 1999 10.69+ Letter Agreement dated June 29, 1999 27.1 Financial Data Schedule - ----------------------- * To be filed by amendment. + Confidential treatment has been requested with respect to certain portions of this exhibit pursuant to an application for Confidential Treatment filed with the Commission under Rule 24b-2(b) under the Securities Exchange Act of 1934, as amended. REPORTS ON FORM 8K: On July 13, 1999, the Company filed a report on Form 8-K regarding the sale of Marathon's technology license. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BIOJECT MEDICAL TECHNOLOGIES INC. (Registrant) Date: November 12, 1999 /s/ James O'Shea --------------------------------- James O'Shea Chairman, Chief Executive Officer and President /s/ Christine M. Farrell --------------------------------- Christine M. Farrell Controller and Secretary EXHIBIT INDEX ------------- Exhibit Number Description - ------- ----------- 3.1 Amended and Restated Articles of Incorporation of the Company 10.67* Agreement I between Bioject, Inc. and AngioSense, Inc. dated September 21, 1999 10.68* Agreement II between Bioject, Inc. and AngioSense, Inc. dated September 21, 1999 10.69+ Letter Agreement dated June 29, 1999 27.1 Financial Data Schedule - ----------------------- * To be filed by amendment. + Confidential treatment has been requested with respect to certain portions of this exhibit pursuant to an application for Confidential Treatment filed with the Commission under Rule 24b-2(b) under the Securities Exchange Act of 1934, as amended. EX-3.1 2 AMENDED AND RESTATED ARTICLES OF INCORPORATION EXHIBIT 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF BIOJECT MEDICAL TECHNOLOGIES INC. ARTICLE I Name The name of the corporation (the "Corporation") shall be Bioject Medical Technologies Inc. ARTICLE II Duration The Corporation's duration shall be perpetual. ARTICLE III Purposes The purposes for which the Corporation is organized are: Section 1. In general, to carry on any lawful business whatsoever which is calculated, directly or indirectly, to promote the interests of the Corporation or to enhance the value of its properties. Section 2. To engage in and carry on any lawful business or trade and exercise all powers granted to a corporation formed under the Oregon Business Corporation Act, including any amendments thereto or successor statute that may hereinafter be enacted. ARTICLE IV Authorized Capital Stock Section 1. Classes. After giving effect to the reverse stock split set forth in Section 1.1, the Corporation shall be authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock"; the total number of shares which the Corporation shall have authority to issue is One Hundred Ten Million (110,000,000); the authorized number of shares of Common Stock shall be One Hundred Million (100,000,000), without par value; the authorized number of shares of Preferred Stock shall be Ten Million (10,000,000), without par value. 1 Section 1.1. Each five shares of issued and outstanding Common Stock of this Corporation are, on the effective date hereof, automatically reclassified into one share of Common Stock of this Corporation, thereby giving effect to a one-for-five reverse stock split (the "Reverse Stock Split"). All outstanding rights and obligations (including option plans, stock options and the exercise price thereof, stock purchase warrants and the exercise prices thereof and the conversion terms of the Corporation's shares of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock) relating to this Corporation's Common Stock shall be mathematically adjusted to reflect the Reverse Stock Split so that the proportionate ratio of such rights and obligations to the reclassified shares will be equal to the proportionate ratio of such rights and obligations to the shares outstanding immediately prior to such reclassification. In lieu of the issuance of any fractional shares that would otherwise result from the Reverse Stock Split, the Corporation shall issue to any shareholder that would otherwise receive fractional shares one whole share, the additional shares hereby issued being taken from authorized but theretofore unissued shares of Common Stock. Section 2. Preferred Stock. Shares of Preferred Stock may be issued from time to time in one or more series. Shares of Preferred Stock which may be redeemed, purchased or acquired by the Corporation may be reissued except as otherwise provided by law. The board of directors of the Corporation is hereby authorized to fix the designations and powers, preferences and relative participating, optional or other rights, if any, and qualifications, limitations or other restrictions thereof, including, without limitation, the dividend rate (and whether or not dividends are cumulative), conversion rights, if any, voting rights, rights and terms of redemption (including sinking fund provisions, if any), redemption price and liquidation preferences of any wholly unissued series of Preferred Stock and the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. Designation of Rights and Preferences of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock Section 2.1. Definitions. The following terms shall have the respective meanings ascribed to them below. "Board" shall mean the Board of Directors of the Corporation. "Business Day" shall mean any day other than Saturday, Sunday or a day on which federally-chartered banks located in New York, New York or Portland, Oregon are permitted by law to be closed. "Closing Date" shall mean October 15, 1997. "Closing Price" at any date shall mean the last reported sale price of the Common Stock on the NASDAQ Stock Market or other principal market of the Common Stock on such date. 2 "Common Stock" shall mean, collectively, the Corporation's Common Stock and any capital stock of any class of the Corporation (other than any Preferred Stock) hereafter authorized that is not limited to a fixed amount of percentage of par or stated value in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Corporation. "Conversion Stock" shall mean shares of the Corporation's Common Stock issuable upon the conversion of any shares of Preferred Stock. "Excluded Stock" shall mean (i) shares of Common Stock issued or reserved for issuance by the Corporation as a stock dividend payable in shares of Common Stock, or upon any subdivision or split-up of the outstanding shares of Common Stock, or upon conversion of shares of the Preferred Stock, (ii) up to 3,650,000 shares of Common Stock (or Rights (as defined below)) therefor issued to directors, officers or employees of the Corporation or its affiliates (or in the case of options, granted at an exercise price) at less than Fair Value under a duly-enacted stock option or compensation plan, or (iii) any shares of Common Stock issuable upon exercise of any warrants currently outstanding or warrants which the Corporation has committed, as of October 15, 1997, to issue in the future. "Fair Value" shall mean the fair market value of any securities or assets as reasonably and in good faith determined by the Board. "Junior Securities" shall mean any of the Corporation's equity securities (whether or not currently authorized) that are junior in liquidation preference to the Preferred Stock. "Liquidation Value" of any share of Series A Preferred Stock or Series B Preferred Stock as of any particular date shall be equal to $15.00 per share. Liquidation Value of Series C Preferred Stock is the Series C Issuance Price. "Market Price" of any security shall mean the average of the closing prices of such security's sales on all securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ Stock Market as of 4:00 p.m., New York time, or, if on any day such security is not quoted in the NASDAQ Stock Market, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of the 10 trading days preceding the determination date. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ Stock Market or the over-the-counter market, the "Market Price" shall be the Fair Value thereof. 3 "Person" shall mean an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Preferred Stock" shall mean the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock, or, as the context requires, all such series of preferred stock of the Corporation. "Preferred Issuance Price" shall mean the purchase price per share for the Series A Preferred Stock, which is $15.00, and the purchase price per share for the Series B Preferred Stock, which is $15.00. "Series C Issuance Price" means the original price per share at which Series C Preferred Stock is issued. "Subsidiary" shall mean any Person of which the shares of outstanding capital stock or other equity interests, as the case may be, possessing the voting power under ordinary circumstances in electing the board of directors are, at the time as of which any determination is being made, owned by the Corporation either directly or indirectly through subsidiaries. Section 2.2. Preferred Stock. (a) Series A Preferred Stock. 1,235,000 shares of the preferred stock, without par value, of the Corporation are hereby constituted as a series of preferred stock of the Corporation designated as Series A Convertible Preferred Stock (the "Series A Preferred Stock"). Such amount shall be adjusted by the Corporation in the event that any adjustments to the Series A Preferred Stock are required as set forth herein, including Section 2.7 hereof, and, in connection therewith, the Corporation shall promptly take all necessary or appropriate actions and make all necessary or appropriate filings in connection therewith. (b) Series B Preferred Stock. 200,000 shares of the preferred stock, without par value, of the Corporation are hereby constituted as a series of preferred stock of the Corporation designated as Series B Convertible Preferred Stock (the "Series B Preferred Stock"). Such amount shall be adjusted by the Corporation in the event that any adjustments to the Series B Preferred Stock are required as set forth herein, including Section 2.7 hereof, and, in connection therewith, the Corporation shall promptly take all necessary or appropriate action and make all necessary or appropriate filings in connection therewith. (c) Series C Preferred Stock. 500,000 shares of the preferred stock, without par value, of the Corporation are hereby constituted as a series of preferred stock of the Corporation designated as Series C Convertible Preferred Stock (the "Series C Preferred Stock"). Such amount shall be adjusted by the Corporation in the event that any adjustments to the Series C Preferred Stock are required as set forth herein, including Section 2.7 hereof, and, in connection therewith, the Corporation shall promptly take all necessary or appropriate action and make all necessary or appropriate filings in connection therewith. 4 Section 2.3. Dividends. (a) General. (1) Series A Preferred Stock. Each outstanding share of Series A Preferred Stock shall accrue a dividend equal to 9% per annum of the Preferred Issuance Price of Series A Preferred Stock, compounded semi-annually beginning six months from the date of first issuance of Series A Preferred Stock; such dividend shall be paid by issuance of additional shares of Series A Preferred Stock, based upon a value equal to the Preferred Issuance Price. (2) Series B Preferred Stock. The holder of each share of Series B Preferred Stock shall be entitled to receive, pro rata among such holders and on a pari passu basis with the holders of the Series C Preferred Stock and the holders of Common Stock, as if the Series B Preferred Stock had been converted into Common Stock immediately prior to the record date in respect thereof, when and as declared by the Board out of funds legally available for the declaration and payment of dividends, cash dividends at the same rate and in the same amount per share as any and all dividends declared and paid in respect of the Common Stock. Except as set forth above, such holders shall not be entitled to receive any dividends. (3) Series C Preferred Stock. The holder of each share of Series C Preferred Stock shall be entitled to receive, pro rata among such holders and on a pari passu basis with the holders of the Series B Preferred Stock and the holders of Common Stock, as if the Series C Preferred Stock had been converted into Common Stock immediately prior to the record date in respect thereof, when and as declared by the Board out of funds legally available for the declaration and payment of dividends, cash dividends at the same rate and in the same amount per share as any and all dividends declared and paid in respect of the Common Stock. Except as set forth above, such holders shall not be entitled to receive any dividends. (b) Payment of Dividends. (1) Series A Preferred Stock. Dividends accrued and unpaid on shares of Series A Preferred Stock as of the Mandatory Conversion Date (as defined in Section 2.6(a)(1) below) shall be payable in accordance with Section 2.6 below. (2) Series B Preferred Stock. Dividends payable in respect of the Series B Preferred Stock shall be paid as and when dividends are paid in respect of the Common Stock. (3) Series C Preferred Stock. Dividends payable in respect of the Series C Preferred Stock shall be paid as and when dividends are paid in respect of the Common Stock. (4) Change in Dividend Rate. If the Corporation shall fail to declare or pay a dividend on a date on which dividends are to be compounded pursuant to Section 2.3(a)(1) hereof, dividends on each share of Series A Preferred Stock shall thereupon begin to accrue at the rate of 9% of the sum of (a) the Preferred Issuance Price and (b) accrued and unpaid dividends on such date. If a dividend that was accrued and unpaid on a date dividends are to be compounded is subsequently paid, the rate at which dividends accrue shall thereupon be lowered to reflect such payment. 5 Section 2.4. Liquidation. Upon any liquidation, dissolution or winding up of the Corporation, each holder of Preferred Stock shall be entitled to receive from amounts remaining after satisfaction of creditors and holders of securities (if any) with liquidation preferences senior to the Preferred Stock, and pro rata based on the respective outstanding liquidation preferences with holders of securities with a liquidation preference pari passu to the Preferred Stock, an amount equal to the Liquidation Value, plus accrued and unpaid dividends thereon, per share multiplied by the number of shares of Preferred Stock, held by such holder, until paid in full, in preference and priority to any distribution to any holder of Junior Securities. The Corporation shall provide written notice of such liquidation, dissolution or winding up, not less than 30 days prior to the payment date stated therein, to each record holder of any shares of Preferred Stock. Section 2.5. Voting Rights. (a) No Voting. Except as provided in Section 2.5(b) below or as required by the Oregon Business Corporation Act, the outstanding shares of Preferred Stock shall not be entitled to vote on any matter as to which stockholders of the Corporation shall be entitled to vote. (b) Special Voting Rights. The Corporation shall not, without first obtaining the affirmative vote or written consent of a majority in interest of the Series A Preferred Stock, voting as a class: (1) amend or repeal any provision of, or add any provision to, the Corporation's Articles of Incorporation or By-laws if such action would adversely alter preferences, rights, privileges or powers of, or the restrictions provided herein for the benefit of, the Series A Preferred Stock; (2) create a series of Preferred Stock with a liquidation preference senior to the Series A Preferred Stock; (3) effect any merger, consolidation or similar transaction; or (4) increase or decrease the number of authorized shares of Series A Preferred Stock, except as required by Section 2.2 hereof. Section 2.6. Conversion. (a) Series A Preferred Stock. (1) Mandatory Conversion. All holders of Series A Preferred Stock shall be required to convert all of the outstanding shares of Series A Preferred Stock as of the seventh anniversary of the Closing Date (the "Mandatory Conversion Date"), in which case the aggregate Preferred Issuance Price of all shares of the Series A Preferred Stock plus accrued and unpaid dividends thereon held by each holder shall be converted into a number of shares of Common Stock determined by dividing such sum by a price per share of Common Stock equal to $1.50 per share (the "Fixed Mandatory Conversion Rate"). In the event that any holder shall provide notice to the Corporation of its intention to convert such holder's shares of Series A Preferred Stock, as provided above, the Corporation shall have the right, within 90 days of receipt of such notice and upon five business days' notice to the holders, to cause to be redeemed for cash the shares of Series A Preferred Stock subject to such notice, at a price equal to aggregate purchase price for such shares of Series A 6 Preferred Stock plus mandatory dividends thereon at a rate equal to 9% per annum, from the date of issuance until the date redeemed in full. In the event that such cash amount is not paid within such 90-day period, such redemption right shall lapse and be of no further force and effect, and the holders shall thereupon have the right once again to convert such shares of Series A Preferred Stock into shares of the Corporation's Common Stock. During such 90-day (or shorter, if redeemed, as set forth above) period, the holders of Series A Preferred Stock shall not convert such stock into the Corporation's Common Stock, whether or not the Corporation exercises its right of redemption. (2) Conversion Prior to Mandatory Conversion Date. Prior to the Mandatory Conversion Date, all holders of Series A Preferred Stock shall have the right to convert each share of Series A Preferred Stock into ten shares of Common Stock, without giving effect to accrued and unpaid dividends, but subject to Section 2.6(e) below (the "Anti-dilution Adjustments"). (b) Series B Preferred Stock. Series B Preferred Stock is convertible in the same manner and subject to the same terms and conditions as provided for in Section 2.6(a) above with respect to the holders of Series A Preferred Stock. (c) Series C Preferred Stock. (1) Mandatory Conversion. All holders of Series C Preferred Stock shall be required to convert all of the outstanding shares of Series C Preferred Stock as of the Mandatory Conversion Date, in which case the aggregate Preferred Issuance Price of all shares of the Series C Preferred Stock plus accrued and unpaid dividends thereon held by each holder shall be converted into a number of shares of Common Stock determined by dividing such sum by one-tenth of the Series C Issuance Price. (2) Conversion Prior to Mandatory Conversion Date. Prior to the Mandatory Conversion Date, all holders of Series C Preferred Stock shall have the right to convert each share of Series C Preferred Stock into ten shares of Common Stock, without giving effect to accrued and unpaid dividends, but subject to the Anti-dilution Adjustments. (c) Conversion Procedure. (1) Before any holder of shares of Preferred Stock shall be entitled to convert any of such shares into shares of Common Stock, such holder shall surrender the certificate or certificates, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the Corporation at its principal corporate office of the election to convert such shares and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. (2) Each conversion of any shares of Preferred Stock shall be deemed to have been effected on the close of business on the date on which the certificate or certificates representing such Preferred Stock to be converted have been surrendered at the principal corporate office of the Corporation or the office of any transfer agent for the Preferred Stock. At such time as such conversion has been effected, the rights of the holder of such Preferred Stock as a holder shall cease, the Person or Persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be issued upon such 7 conversion shall be deemed to have become the holder or holders of record of the shares of Conversion Stock represented thereby. (3) As soon as possible after a conversion has been effected (but in any event within five business days in the case of clause (6) below), the Corporation or its transfer agent shall deliver to the converting holder: (i) a certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified; and (ii) payment in an amount equal to the amount payable under clause (6) below with respect to such conversion. (4) The issuance of certificates for shares of Conversion Stock upon conversion of the Preferred Stock shall be made without charge to the holders of such Preferred Stock for any cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Conversion Stock. Upon conversion of each share of Preferred Stock, the Corporation shall take all such actions as are necessary in order to ensure that the Conversion Stock issuable with respect to such conversion shall be validly issued, fully paid and nonassessable. (5) The Corporation shall not close its books against the transfer of the Preferred Stock or of Conversion Stock issued or issuable upon conversion of the Preferred Stock in any manner which interferes with the timely conversion of the Preferred Stock. The Corporation shall assist and cooperate with any holder of the Preferred Stock or Conversion Stock required to make any governmental filings or obtain any governmental approval prior to or in connection with any conversion of shares hereunder (including, without limitations, making any filings required to be made by the Corporation). (6) If any fractional interest in a share of Conversion Stock would, except for the provisions of this clause (6), be deliverable upon any conversion of the Preferred Stock, the Corporation, in lieu of delivering the fractional share therefor, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest as of the date of conversion. (7) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Conversion Stock, solely for the purpose of issuance upon the conversion of the Preferred Stock, such number of shares of Conversion Stock issuable upon the conversion of all outstanding shares of Preferred Stock. All shares of Conversion Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to ensure that all such shares of Conversion Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange or market upon which shares of Conversion Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such 8 issuance and except for filings, notices of applicability and permissions solely within the control of, or laws and regulations solely applicable to, the holders of the Preferred Stock). (e) Anti-dilution Adjustments. (1) Changes in Common Stock. In case the Corporation shall at any time or from time to time after the date of filing these Articles of Amendment (i) pay a dividend or make any other distribution with respect to its Common Stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock or (iv) issue any shares of its capital stock or other assets in a reclassification or reorganization of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Corporation is the continuing entity), then the number and kind of shares of capital stock of the Corporation or other assets that may be received upon the conversion of the Preferred Stock shall be adjusted to the number of shares of Conversion Stock and amount of any such securities, cash or other property of the Corporation which the holders would have owned or have been entitled to receive after the happening of any of the events described above had the Preferred Stock been converted immediately prior to the record date (or, if there is no record date, the effective date) for such event. An adjustment made pursuant to this clause (1) shall become effective upon the effective date of such payment, sub-division, combination or issuance as described above. Any Conversion Stock or other assets to be acquired as a result of such adjustment shall not be issued prior to the effective date of such event. For the purposes of this clause (1), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Corporation. Notwithstanding any other provision of this Section 2.6(e)(1), an action described in Section 2.6(e)(1)(i), (ii) or (iii) hereof shall not affect the number of shares of Conversion Stock issued upon mandatory conversion of the Preferred Stock except by operation of Section 2.6(e)(5) hereof. (2) Issuance of Rights. In case the Corporation shall issue to all holders of its Common Stock rights, options or warrants to subscribe for or purchase, or other securities exchangeable for or convertible into, shares of Common Stock that are not distributed to holders of Preferred Stock (any such rights, options, warrants or other securities, collectively, "Rights") (excluding rights to purchase Common Stock pursuant to a Corporation plan for reinvestment of dividends or interest and excluding any Excluded Stock) at a subscription offering, exercise or conversion price per share (as defined below, the "offering price per share") which, before deduction of customary discounts and commissions, is lower than the current Market Price per share of Common Stock on the record date of such issuance or grant, whether or not, in the case of Rights, such Rights are immediately exercisable or convertible, then the number of shares of Conversion Stock issuable upon conversion of the Preferred Stock shall be adjusted by multiplying the number of shares of Conversion Stock issuable upon conversion of the Preferred Stock immediately prior to any adjustment in connection with such issuance or grant by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding (exclusive of any treasury shares) on the record date of issuance or grant of such Rights plus the number of shares which the aggregate offering price (as defined below) of the total number of shares of Common Stock so offered would 9 purchase at the current Market Price per share of Common Stock on the record date, and the numerator of which is the number of shares of Common Stock outstanding plus the aggregate number of shares of Common Stock issuable upon exercise of the rights. Such adjustment shall be made immediately after the record date for the issuance or granting of such Rights. For purposes of this clause, the "offering price per share" of Common Stock shall, in the case of Rights, be determined by dividing (x) the total amount received or receivable by the Corporation in consideration of the issuance of such Rights plus the total consideration payable to the Corporation upon exercise thereof (the "aggregate offering price"), by (y) the total number of shares of Common Stock covered by such Rights. (3) Dividends and Distributions. In case the Corporation shall distribute to all holders of Common Stock any dividend or other distribution of evidences of its indebtedness or other assets (in each case other than cash dividends and other than as provided in clause (1) above in which the holders of the Preferred Stock are otherwise entitled to share, as provided herein) or Rights, then, in each case, all holders of the Preferred Stock shall be entitled to receive all of the same dividends, distributions or Rights, as the case may be, as the holders of Common Stock, on an as-converted basis, as and when distributed to the holders of Common Stock, at such time, if any, that the holders of the Preferred Stock shall have elected to convert such stock to Common Stock, as provided herein. (4) Computations. For the purpose of any computation under clauses (1) and (2) above, the current Market Price per share of Common Stock at any date shall be as set forth in (i) the definition of Market Price for the 10 consecutive trading days commencing 20 trading days prior to the earlier to occur of (A) the date as of which the Market Price is to be computed or (B) the last full trading day before the commencement of "ex-dividend" trading in the Common Stock relating to the event giving rise to the adjustment required by clause (1) or (2) or (ii) any other arm's-length adjustment formula that the Board may use in good faith. In the event the Common Stock is not then publicly traded or if for any other reason the current market price per share cannot be determined pursuant to the foregoing provisions of this clause (4) the current market price per share shall be the Fair Value thereof. (5) Adjustment. Whenever the number of shares of Conversion Stock issuable upon voluntary conversion of the Series A Preferred Stock and Series B Preferred Stock is adjusted as provided under clause (1) or (2), the Fixed Mandatory Conversion Rate shall be adjusted by multiplying such prices immediately prior to such adjustment by a fraction, the numerator of which shall be the number of shares of Conversion Stock issuable upon voluntary conversion of any shares of Series A Preferred Stock or Series B Preferred Stock immediately prior to such adjustment, and the denominator of which shall be the number of shares of Conversion Stock issuable upon voluntary conversion of any shares of Series A Preferred Stock or Series B Preferred Stock immediately thereafter. Whenever the number of shares of Conversion Stock issuable upon voluntary conversion of the Series C Preferred Stock is adjusted as provided under clause (1) or (2), the Series C Issuance Price shall be adjusted by multiplying such prices immediately prior to such adjustment by a fraction, the numerator of which shall be the number of 10 shares of Conversion Stock issuable upon voluntary conversion of any shares of Series C Preferred Stock immediately prior to such adjustment, and the denominator of which shall be the number of shares of Conversion Stock issuable upon voluntary conversion of any shares of Series C Preferred Stock immediately thereafter. (6) Securities. For the purpose of this Section 2.6, the term "shares of Common Stock" shall mean (i) the class of stock designated as Common Stock, without par value, of the Corporation on the date of filing this Certificate or (ii) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. (7) Re-Adjustment. If, at any time after any adjustment to the number of Shares of Conversion Stock issuable upon conversion of the Preferred Stock and the Conversion Price shall have been made pursuant to clause (2) of this Section 2.6, any rights, options, warrants or other securities convertible into or exchangeable for shares of Common Stock shall have expired, or any thereof shall not have been exercised, the Conversion Price and the number of shares of Conversion Stock issuable upon conversion of the Preferred Stock shall, upon such expiration, be readjusted and shall thereafter be such as it would have been had it been originally adjusted (or had the original adjustment not been required, as the case may be) as if (A) the only shares of Common Stock offered were the shares of Common Stock, if any, actually issued or sold upon the exercise of such rights, options or warrants and (B) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Corporation for the issuance, sale or grant of all such rights, options or warrants whether or not exercised; provided, further that no such readjustment shall have the effect of increasing the Conversion Price or decreasing the number of shares of Conversion Stock issuable upon conversion of the Preferred Stock by an amount (calculated by adjusting such increase or decrease as appropriate to account for all other adjustments pursuant to this Section 2.6 following the date of the original adjustment referred to above) in excess of the amount of the adjustment initially made in respect of the issuance, sale or grant of such rights, options or warrants. (e) Reorganization, Reclassification Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Corporation's assets to another Person or other transaction which is effected in such a manner that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as an "Organic Change". Prior to the consummation of any Organic Change, the Corporation shall make appropriate provisions to ensure that each of the holders of each share of the Preferred Stock shall thereafter have the right to acquire and receive, in lieu of or in addition to (as the case may be) the shares of Conversion Stock immediately theretofore acquirable and receivable upon the conversion of such holder's Preferred Stock, such shares of stock, securities or assets as such holder would have received in connection with such Organic Change if such holder had converted its Preferred Stock immediately prior to such Organic Change. In each such case, the Corporation shall also make appropriate provisions to ensure that the provisions of this Section 2.6 hereof shall thereafter be applicable to the Preferred Stock. The Corporation shall not effect any such 11 consolidation, merger or sale, unless prior to the consummation thereof, the successor corporation (if other than the Corporation) resulting from consolidation or merger or the corporation purchasing such assets assumes by written instrument the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. (f) Notices. (1) Immediately upon any adjustment of the number of shares issuable upon conversion of the Preferred Stock, the Corporation shall give written notice thereof to all holders of the Preferred Stock, setting forth in reasonable detail and certifying the calculation of such adjustment. (2) The Corporation shall give written notice to all holders of the Preferred Stock at least 10 days prior to the date on which the Corporation closes its books or takes a record of determining rights to receive any dividends or distributions. The Corporation shall also give written notice to the holders of the Preferred Stock at least 30 days prior to the date on which Organic Change shall occur. Section 2.7. Redemption. (a) Series A Preferred Stock. (i) General. Subject to the provisions of Section 2.6 above, shares of Series A Preferred Stock may be redeemed by the Corporation, as follows, upon at least 45 days' and no more than 90 days' prior written notice, at a price equal to the sum of the aggregate Preferred Issuance Price of the Series A Preferred Stock plus accrued and unpaid dividends. From and after the third anniversary of the Closing Date, if the Closing Price shall be equal to or greater than $2.25 (subject to the anti-dilution adjustments described in Section 2.6(e)(1) above) for 20 out of any 30 consecutive trading days on or prior to any such applicable date (or, if thereafter, prior to any date for such a redemption if not effected prior thereto) (the "Redemption Price Condition"), the Corporation shall have the right to redeem one-third of the Series A Preferred Stock (as to the Preferred Issuance Price thereof), together with one-third of the then-accrued and unpaid dividends through such date. From and after the fourth anniversary of the Closing Date, if the Redemption Price Condition is met, the Corporation shall have the right to redeem an additional one-third of the Series A Preferred Stock (as to the Preferred Issuance Price thereof), together with one-half of the then-accrued and unpaid dividends at such date (or two-thirds of then-accrued and unpaid dividend at the second date if no Series A Preferred Stock was previously redeemed at or after the first such date). From and after the fifth anniversary of the Closing Date, if the Redemption Price Condition is met, the Corporation shall have the right to redeem the balance of the Series A Preferred Stock, together with the remaining accrued and unpaid dividends at such date. Prior to redemption, the Corporation must provide the applicable redemption notice within 60 days of the achievement of the Redemption Price Condition. (ii) Early Redemption. The Series A Preferred Stock (or any portion thereof) may be redeemed by the Corporation prior to such three, four or five-year period, as applicable, only in the event the Corporation shall have reasonably determined, in good faith, after consultation with the original holder of shares of Series A Preferred Stock to abandon the development of the Technology (as defined in the Securities Purchase Agreement dated as of the Closing Date among the Corporation and Elan International Services, Ltd., a Bermuda corporation) or products based on the Technology. 12 (iii) Notice of Redemption. Not less than 45 days but not more than 90 days prior to the date of any redemption (each, a "Redemption Date"), as permitted by this Section 2.7(a), the Corporation shall send a written notice of redemption (the "Notice") to each holder of Series A Preferred Stock to be redeemed in the manner provided herein. The notice shall identify: (1) the Redemption Date; (2) the redemption price to be paid to such holder, as provided above (the "Redemption Price"), and applicable to such Series A Preferred Stock; (3) the number of shares of Common Stock into which a share of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as the case may be, is convertible; (4) the name and address of the transfer agent, if any, in respect of the Series A Preferred Stock; (5) that Series A Preferred Stock called for redemption may be converted by the holder, as otherwise provided herein, at any time before the close of business on the Redemption Date; and (6) that Series A Preferred Stock called for redemption must be surrendered to the transfer agent at the office of the Corporation or its transfer agent to collect the Redemption Price. (iv) Effect of Notice of Redemption. Upon the Notice, Series A Preferred Stock called for redemption shall become due and payable on the Redemption Date, unless converted prior to such date, and at the Redemption Price stated in the Notice. Upon surrender to the Corporation or transfer agent shares shall be redeemed and the Redemption Price stated in the Notice shall be paid in cash in full. (b) Series B Preferred Stock. Shares of Series B Preferred Stock shall be redeemable by the Corporation in the same manner and subject to the same terms and conditions as set forth for redemption of shares of Series A Preferred Stock in Section 2.7(a) above. (c) Series C Preferred Stock. Shares of Series C Preferred Stock shall be redeemable by the Corporation in the same manner and subject to the same terms and conditions as set forth for redemption of shares of Series A Preferred Stock in Section 2.7(a) above, except that shares of Series C Preferred Stock shall be redeemed at a price equal to the sum of the aggregate Series C Issuance Price plus accrued and unpaid dividends. Section 2.8. Registration of Transfer. The Corporation shall keep a register for the registration of the record holders of the Preferred Stock. Upon the surrender of any certificate representing any shares of Preferred Stock, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense, 13 provided that the holder will be responsible for any transfer taxes if the certificate is register in a new name) a new certificate or certificates in exchange therefore representing in the aggregate the number of shares of the Preferred Stock, as applicable, represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of shares of the Preferred Stock, as applicable, as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such Preferred Stock represented by the surrendered certificate. Section 2.9. Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder and an undertaking of indemnity from a creditworthy indemnitor shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing shares of the Preferred Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation, or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of such series represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. Section 2.10. Amendment and Waiver. No amendment, modification or waiver shall be binding or effective with respect to any provision of Section 2.1 through Section 2.11 of these Articles of Incorporation without the prior written consent of a Majority in Interest of each of the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock outstanding at the time such action is taken. Section 2.11. Notices. Except as otherwise expressly provided hereunder, all notices referred to herein shall be in writing and shall be delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier or telecopy service, charges prepaid, and shall be deemed to have been given when so mailed or sent (a) to the Corporation, at its principal executive offices and (b) to any stockholder, at such holder's address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). ARTICLE V Preemptive Rights The owners of shares of stock of the Corporation shall not have preemptive rights to subscribe for or purchase any part of new or additional issues of stock, or securities convertible into stock, of any class whatsoever, whether now or hereafter authorized, and whether issued for cash, property, services, by way of dividends, or otherwise. 14 ARTICLE VI Cumulative Voting Each shareholder entitled to vote at any election for directors shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected and for those election he has a right to vote, and no shareholder shall be entitled to cumulate his votes. ARTICLE VII Limitation of Directors' Liability A director shall have no liability to the Corporation or its shareholders for monetary damages for conduct as a director, except for (a) any breach of the director's duty of loyalty to the Corporation or its shareholders; (b) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law by the director; (c) conduct violating ORS 60.367; or (d) any transaction from which the director derives an improper personal benefit. If the Oregon Business Corporation Act is hereafter amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director shall be eliminated or limited to the full extent permitted by the Oregon Business Corporation Act as so amended. Any repeal or modification of this Article shall not adversely affect any right or protection of a director that exists at the time of such repeal or modification and that extends to an act or omission of such director occurring prior to such repeal or modification. ARTICLE VIII Bylaws; Amendment of Articles Section 1. Bylaws. The board of directors shall have full power to adopt, alter, amend or repeal the Bylaws or adopt new Bylaws. Nothing herein shall deny the concurrent power of the shareholders to adopt, alter, amend or repeal the Bylaws. Section 2. Amendment of Articles. The Corporation reserves the right to amend, alter, change or repeal any provisions contained in its Articles of Incorporation in any manner now or hereafter prescribed or permitted by statute. All rights of shareholders of the Corporation are granted subject to this reservation. ARTICLE IX Registered Office and Agent The address of the registered office of the Corporation is 601 SW Second Avenue, Suite 2050, Portland, Oregon 97204, and the name of the registered agent at such address is CT Corporation System. The registered office and registered agent of the Corporation 15 may be changed from time to time by the Board of Directors but may not be located outside of the State of Oregon. ARTICLE X Directors Section 1. Number of Directors. The Board of Directors shall consist of not less than six nor more than eleven, the exact number to be set as provided herein. Until increased or decreased as provided herein, the Board of Directors shall consist of eight members. The Board of Directors is authorized to increase or decrease the size of the Board of Directors (within the range specified above) at any time by the affirmative vote of two-thirds of the directors then in office. Without the unanimous consent of the directors then in office, no more than two additional directors shall be added to the Board of Directors in any 12-month period. Without the unanimous approval of the directors then in office, no person who is affiliated as an owner, director, officer, employee or consultant of a company or business deemed by the Board of Directors to be competitive with that of the Corporation shall be eligible to serve of the Board of Directors of the Corporation. Section 2. Classified Board. The Board shall be divided into three classes: Class I Directors, Class II Directors and Class III Directors. Each such class of directors shall be nearly equal in number of directors as possible. Each director shall serve for a term ending at the third annual shareholders' meeting following the annual meeting at which such director was elected; provided, however, that the directors first elected as Class I Directors shall serve for a term ending at the annual meeting to be held in the year following the first election of directors by classes, the directors first elected as Class II Directors shall serve for a term ending at the annual meeting to be held in the second year following the first election of directors by classes and the directors first elected as Class III directors shall serve for a term ending at the annual meeting to be held in the third year following the first election of directors by classes. Notwithstanding the foregoing, each director shall serve until his or her successor shall have been elected and qualified or until his or her earlier death, resignation or removal. At each annual election, the directors chosen to succeed those whose terms then expire shall be identified as being of the same class as the directors they succeed, unless, by reason of any intervening changes in the authorized number of directors, the Board shall designate one or more directorships whose term then expire as directorships of another class in order more nearly to achieve equality in the number of directors among the classes. When the Board fills a vacancy resulting from the death, resignation or removal of a director, the director chosen to fill that vacancy shall be of the same class as the director he or she succeeds, unless, by reason of any previous changes in the authorized number of directors, the Board shall designate the vacant directorship as a directorship of another class in order more nearly to achieve equality in the number of 16 directors among the classes. The terms of any director elected by the Board to fill a vacancy will expire at the next shareholders meeting at which directors are elected, despite the class such director has been elected to fill. Notwithstanding the rule that the three classes shall be as nearly equal in number of directors as possible, upon any change in the authorized number of directors, each director then continuing to serve as such will nevertheless continue as a director of the class of which he or she is a member, until the expiration of his or her current term or his or her earlier death, resignation or removal. Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 3. Initial Directors as Classified. The directors of the Corporation first elected to classes are eight (8) in number and their names and class are: Name Class - ---- ----- James C. O'Shea III John Ruedy, MD III William A. Gouveia I Grace Keeney Fey II Eric T. Herfindal II Richard Plestina II David H. DeWeese I Michael T. Sember III Section 4. Removal of Directors. Directors may be removed only for cause. For purposes of this Amendment, "cause" shall mean that the director has: (i) committed an act of fraud or embezzlement against the Corporation; (ii) been convicted of, or plead nolo contendre to a crime involving moral turpitude; (iii) failed to perform the director's duties as a director and such failure constitutes a breach of the director's duty of loyalty to the Corporation or provides an improper personal benefit to the director. 17 ARTICLE XI Incorporator The name and address of the incorporator are: Name Address ---- ------- Benjamin F. Stephens c/o Bogle & Gates Two Union Square 601 Union Street Seattle, Washington 98101-2346 ARTICLE XII Shareholder Approval Of Certain Events Notwithstanding any provision of Articles of Incorporation, as amended, or Bylaws of the Corporation, and notwithstanding the fact that some lesser percentage may be allowed by law, any amendment, change or repeal of Articles X or XII, or any other amendment of the Articles of Incorporation, as amended, which would have the effect of modifying or permitting circumvention of the provisions of Articles X or XII, shall require the following shareholder votes: (i) the affirmative votes of 75 percent of all outstanding shares of the Corporation entitled to vote on the matter, voting together as a single class; and (ii) if any shares of the Corporation are entitled to vote on the matter as a separate group, the affirmative vote of 75 percent of such shares, voting separately. DATED: October 11, 1999. /s/ James C. O'Shea -------------------------------------- EX-10.69 3 LETTER AGREEMENT DATED JUNE 29, 1999 EXHIBIT 10.69 June 29, 1999 Via Federal Express Mr. Jim O'Shea Chairman, President and CEO Bioject Inc. 7620S.W. Bridgeport Road Portland, Oregon 97224 Re: Binding Letter Agreement Dear Mr. O'Shea: We are pleased to have reached an agreement in principle with Bioject for the development by Bioject of a disposable, prefilled needle-free injector for *** pursuant to the following terms of this Binding Letter Agreement: 1. Within fifteen (15) days of the execution of this Binding Letter Agreement, *** shall pay to Bioject a one-time sum of $250,000. In consideration thereof, Bioject shall: (a) not negotiate with, solicit offers from, or hold discussions with, any third party, in any territory, regarding the development of a disposable, needle-free injector for use in the treatment of *** and/or *** ("Exclusive Negotiation") for the period beginning as of the date of this Binding Letter Agreement and ending on the later of: (i) August 31, 1999, or (ii) five (5) business days following delivery of the deliverables set forth in paragraph 1(b) below, but in no case later than March 31, 2000; and (b) develop a disposable, prefilled needle-free injector and deliver to *** the first set of deliverables set forth on Schedule "A" hereto on or before August 31, 1999. * It is understood and agreed by the parties that the aforesaid payment by *** of $250,000 is apportioned as follows: (i) $100,000 for the Exclusive Negotiation period through August 31, 1999, and (ii) $150,000 for the development and deliverables. 2. On or before the later of (i) August 31, 1999, or (ii) five (5) business days following delivery of the deliverables set forth in paragraph 1(b) above, *** may elect to extend the Exclusive Negotiation period and the development by giving written notice to Bioject of its intention to do so, in which case *** shall, within fifteen (15) days of such notice, pay to Bioject an additional one-time sum of $250,000, and Bioject shall: (a) extend the Exclusive Negotiation period up to and including the later of: (i) December 31, 1999, or (ii) fifteen (15) days following delivery of 1 *** Confidential portions omitted pursuant to a confidential treatment request submitted pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Omitted portions have been filed separately with the Securities and Exchange Commission. the deliverables set forth in paragraph 2(b) below, but in no case later than March 31, 2000; and (b) continue development of a disposable, prefilled needle-free injector and deliver to *** the second set of deliverables set forth on Schedule "A" hereto on or before December 31, 1999. * It is understood and agreed by the parties that the aforesaid payment by *** of $250,000 is apportioned as follows: (i) $100,000 for the extension of Exclusive Negotiation period through December 31, 1999, and (ii) $150,000 for the development and deliverables. 3. During the Exclusive Negotiation period, at ***'s sole discretion and option, the parties shall negotiate in good faith toward execution of a definitive agreement for the potential future development, license and supply by Bioject to *** of disposable, prefilled needle-free injectors. 4. Any intellectual property and/or know-how arising out of the development work provided for in paragraphs 1(b) and 2(b) above shall be exclusively owned by Bioject; provided, however, that any industrial designs contributed by *** shall be exclusively owned by ***. 5. In the event that Bioject fails to deliver any or all of the aforesaid deliverables, Bioject shall refund to *** that portion of the applicable one-time fee apportioned to such deliverable(s). 6. The Confidential Disclosure Agreement dated October 1, 1997, as amended on March 22, 1999 (the "CDA"), between the parties is incorporated herein by reference. 7. Except as provided in the CDA, neither party shall use the name of the other party or make any press release or other disclosure of the existence or terms of this Binding Letter Agreement without the prior written consent of the other party. 8. This Binding Letter Agreement shall be governed by *** law. 9. No Amendment or modification of this Binding Letter Agreement shall be effective unless made in writing and signed by authorized representatives of each of the parties. 10. Except as set forth in paragraph 6 above, this Binding Letter Agreement constitutes the entire agreement between the parties and supercedes all prior and/or contemporaneous agreements and undertakings between the parties, both written and oral, relating to the subject matter hereof. 2 *** Confidential portions omitted pursuant to a confidential treatment request submitted pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Omitted portions have been filed separately with the Securities and Exchange Commission. Please acknowledge your acceptance of the terms of this Binding Letter Agreement by executing where indicated below. Please sign both originals and return one (1) original to my attention. Sincerely, /s/ *** Senior Vice President *** Accepted and Agreed To: Bioject Inc. /s/ Jim O'Shea - ------------------------------------ Jim O'Shea Chairman, President and CEO 3 *** Confidential portions omitted pursuant to a confidential treatment request submitted pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Omitted portions have been filed separately with the Securities and Exchange Commission. Schedule "A" Bioject Deliverables Due on or before August 31, 1999: 1. Initial development specifications for the device that meet *** product profiles, design requirements and criteria. The package is to include individual specifications for each of the major device components: o Primary product storage container including -- Glass Cartridge -- Rubber Plunger -- Rubber Stopper -- Rubber O-Ring o Nozzle o Injector Body and Components o Gas Cartridge 2. Updated plans and timelines for device development. 3. Materials specifications. 4. Initial CAD/Pro-Engineer based parts drawings. 5. Updated Cost Estimates 6. 5 Design breadboard models incorporating *** industrial design. These models are not required to be functional; however, they should be representative of actual product size, shape weight and appearance. All customer interface mechanisms should be indicative of the working function. Due on or before December 31, 1999: 1. 50 prototype injectors incorporating *** industrial design. These injectors will be constructed with part pieces created from a combination of prototype aluminum tooling and machining processes. The devices will be manually assembled using appropriate fixtures and equipment. 2. Product Testing Plan - Details on what testing is required and how it is to be implemented. Plan should account for Functional Testing, ISO Testing, and Failure Modes Testing. 3. Product Assembly Flow Plan - Detailing the entire filling and product assembly process. The plan should be divided into logical, modular steps and account for logistics and sub-contractor activities. 4. Assembly Equipment Procurement Plan - Detailing estimated costs and production lead-time for automated assembly equipment. 4 *** Confidential portions omitted pursuant to a confidential treatment request submitted pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Omitted portions have been filed separately with the Securities and Exchange Commission. EX-27 4 FDS --
5 6-MOS MAR-31-2000 SEP-30-1999 3,815,778 0 216,702 0 988,289 5,076,358 4,622,052 (2,292,479) 7,280,329 1,037,279 0 0 14,180,357 50,182,884 0 7,280,329 443,384 793,384 909,800 909,800 1,859,098 0 0 (1,907,697) 0 (2,547,038) 2,402,880 0 0 (144,158) (0.02) (0.02)
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