-----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, CrhxZDAiZWohnn5/LQrWMEnufqERL+Nl8D6TEPn6Caz/ALGRk6XDBDu16KtUa7Pf Rm+1QzC4a0q1XMeVlhsJTw== 0001061778-98-000029.txt : 19980807 0001061778-98-000029.hdr.sgml : 19980807 ACCESSION NUMBER: 0001061778-98-000029 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980806 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOJECT MEDICAL TECHNOLOGIES INC CENTRAL INDEX KEY: 0000810084 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 931099680 STATE OF INCORPORATION: OR FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-15360 FILM NUMBER: 98677983 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-K/A 1 AMENDMENT NO. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------- FORM 10-K/A (Amendment No. 1) (Mark one) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended March 31, 1998 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to ________ Commission File No. 0-15360 BIOJECT MEDICAL TECHNOLOGIES INC. (Exact name of registrant as specified in its charter) Oregon 93-1099680 (State of other jurisdiction of (I.R.S. identification no.) incorporation or organization) 7620 SW Bridgeport Road Portland, Oregon 97224 (Address of principal executive offices) (Zip code) (Registrant's telephone number, including areas code) (503) 639-7221 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Title of Class Common Stock, no par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of voting stock held by non-affiliates of the registrant, as of May 31, 1998: $40,833,088 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of May 29, 1998: Common Stock, no par value, 27,218,758 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive Proxy Statement for the 1998 Annual Shareholders' Meeting are incorporated by reference into Part III. Table of Contents PART I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters Item 6. Selected Consolidated Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8. Consolidated Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K PART I ITEM 1. BUSINESS FORWARD-LOOKING STATEMENTS Certain statements in this Report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and factors include, among others, those described under "Business -- Risk Factors." GENERAL Bioject Medical Technologies Inc. ("Bioject" or the "Company") develops, manufactures and markets a jet injection system for needle-free drug delivery. Using this technology to administer injections virtually eliminates the risk of contaminated needlestick injuries and resulting blood-borne pathogen transmission, a major concern throughout the healthcare industry. The Company manufactures and markets a professional jet injection system, the Biojector(R) 2000, which allows healthcare professionals to inject medications through the skin, both intramuscularly and subcutaneously, without a needle. The Biojector 2000 system consists of two components: a hand-held, reusable jet-injector (the "Biojector 2000"); and a sterile, single-use disposable syringe ("Biojector syringe"). The system is capable of delivering variable-dose needle-free injections up to 1 ml. Additionally, the Company has developed and is awaiting regulatory clearance to begin selling the B4000 jet-injection system for self-delivery of various medications up to 1 ml. for use by non-professionals. The Company is also developing systems for Hoffmann-La Roche to use with certain of their products pursuant to an agreement signed January 10, 1995. 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 self-injection device which currently has regulatory clearance for administering injections of insulin. See "Research and Product Development." In October 1997, the Company entered into a joint development agreement with Elan Corporation, plc ("Elan") for the license of certain blood glucose monitoring technology from Elan and the development and commercialization of that technology by a newly formed subsidiary of the Company. See "See Research and Product Development." Subsequent to year end, in July 1998, the Company entered into an agreement with Merck & Co. ("Merck") which provides Merck the rights to use the Biojector 2000 jet injection system with selected Merck vaccines. Also subsequent to year end, in July 1998, the Company and GeneMedicine, Inc. ("GeneMedicine") entered into a collaborative research agreement involving GeneMedicine's technology and the Company's needle-free injection technology. See "See Research and Product Development." The Company intends to operate as two distinct business segments: the jet-injection business and the blood glucose monitoring business. Needle-Free Injection Business. Currently, medications are administered using various methods, each of which has advantages and limitations. The leading drug delivery techniques include oral ingestion, intravenous infusion, subcutaneous and intramuscular injection, inhalation and transdermal diffusion "patch." Many drugs are effective only when administered by injection. Published data indicates more than 1.7 billion needle-syringes sold annually in the U.S. The Company believes that approximately 80% of these syringes are used for subcutaneous or intramuscular injections up to 1 ml. Injections using traditional needle-syringes suffer from many shortcomings including (i) the risk of needlestick injuries, (ii) the risk of penetrating a patient's vein and (iii) patients' aversion to needles and discomfort. The most important of these, the contaminated needlestick injury, occurs when a needle that has been exposed to a patient's blood accidentally penetrates a healthcare worker's skin. Contaminated needles can transmit deadly blood-borne pathogens including such viruses as HIV and hepatitis B. Published data estimates the total number of reported needlestick injuries in the U.S. at between 370,000 and 800,000 annually. In recent years, with the growing awareness of blood-borne pathogen transmission, safety has become a critical concern for hospitals and healthcare professionals as well as patients. As a result, pressures on the healthcare industry to eliminate the risk of contaminated needlestick injuries have increased. For example, the U.S. Occupational Safety and Health Administration ("OSHA") issued regulations, effective in 1992, which require healthcare institutions to treat all blood and other body fluids as infectious. These regulations require the implementation of "engineering and work practice controls" to "isolate or remove the blood-borne pathogens hazard from the workplace." Among the required controls are special handling and disposal of contaminated "sharps" in biohazardous "sharps" containers and follow-up testing for victims of needlestick injuries. These regulations have significantly increased the cost of using needle-syringes. The costs resulting from needlestick injuries vary widely. Uncontaminated needlesticks involve relatively little cost, while investigating and following up contaminated needlestick injuries are much more expensive. Investigation typically includes identifying the source of contamination, testing the source for blood-borne pathogens and repeatedly testing the needlestick victim over an extended period. Some healthcare providers are requiring additional measures, including presuming that all needlestick injuries involve contaminated needles unless proven otherwise and, under certain circumstances, administering prophylactic treatment such as zidovudine (AZT) or other drugs. The costs associated with treating needlestick injuries that result in infection by life-threatening pathogens, such as HIV or hepatitis B, are dramatically higher. In an effort to protect healthcare workers from needlestick injuries, many healthcare facilities have adopted more expensive, alternative technologies. One such technology is an intravenous ("IV") port that permits the injection of medication directly into the IV line without requiring the use of a sharp needle for each administration. Another is the "safety syringe," generally a disposable needle-syringe with a plastic sheath mechanism intended to cover the needle after use. Despite many efforts to reduce the risk of needlestick injuries, such injuries remain a major health concern. The Company's long-term goal is to establish its needle-free injection systems as the preferred drug delivery method for all medications administered by intramuscular or subcutaneous injection. The Company currently markets the Biojector 2000 system to public health and flu immunization clinics, has developed and is awaiting regulatory clearance of a gas-powered self-injection device for the delivery of various medications by non-professionals in the home and is developing application-specific devices to be marketed by Hoffman-LaRoche. In a transaction with Vitajet Corporation, the Company has acquired the Vitajet spring-powered self-injection system. In addition, subsequent to year end, the Company entered into two agreements: i) one with Merck & Co. which provides Merck the rights to use the Biojector 2000 jet injection system with selected Merck vaccines; and ii) another with GeneMedicine, Inc. which is a collaborative research agreement involving GeneMedicine's technology and the Company's needle-free injection technology. See "Research and Product Development." The Company is also seeking relationships with pharmaceutical and biotechnology companies to market its Biojector 2000 and self injector products for specific applications and to develop other application-specific devices and companion syringes. Blood Glucose Monitoring Business. Diabetes mellitus is a disorder of carbohydrate metabolism that affects an estimated 16.5 million Americans and 125 million people worldwide, half of whom remain undiagnosed. Insulin facilitates the uptake of circulating blood glucose into tissues, a fundamental process of metabolism. A lack of, or resistance to the hormone insulin characterizes the disease. Incidence of the disease, which can originate from many factors, is rising, particularly in developing countries as non-Caucasian populations begin to adopt western diet and culture. Type I diabetics are individuals dependent on external administration of insulin who must frequently measure their blood glucose level and, depending on the results, administer injections of insulin or consume a carbohydrate-rich snack. Fluctuation of a person's blood glucose level outside a normal range, which may occur in the time interval between measurements, frequently causes serious health complications and even death. Using currently available blood glucose monitoring systems to check their blood glucose level, diabetic patients must lance their finger with a disposable lancet, draw a drop of blood, and place the blood on a reagent strip which is then read by an electronic reader which displays the results. Many patients find this procedure painful and inconvenient, and as a result, many diabetics do not measure their blood glucose with sufficient frequency. The Company has licensed and intends to develop a convenient, easy to use, continuous blood glucose monitoring system which will permit diabetics to better monitor and thereby better regulate their blood glucose levels so as to diminish or eliminate the long-term complications of this disorder. THE COMPANY The Company's needle-free jet injection operations are conducted by Bioject Inc., an Oregon corporation, which is a wholly owned subsidiary of Bioject Medical Technologies Inc., an Oregon corporation. The Company's blood glucose monitoring system development operations are conducted by a subsidiary, Bioject JV Subsidiary Inc., an Oregon corporation. Although Bioject Inc. commenced operations in 1985, the Company was formed in December 1992 for the sole purpose of acquiring all the capital stock of Bioject Medical Systems Ltd., a company organized under the laws of British Columbia, Canada, in a stock-for-stock exchange in order to establish a U.S. domestic corporation as the publicly traded parent company for Bioject Inc. and Bioject Medical Systems Ltd. Bioject Medical Systems Ltd. was terminated in fiscal 1997. Bioject JV Subsidiary Inc. ("JV or JV Sub") was formed in October 1997 for the purpose of developing and commercializing the blood glucose monitoring technology. All references to the Company herein are to Bioject Medical Technologies Inc. and its subsidiaries, unless the context requires otherwise. The Company's executive offices and operations are located at 7620 SW Bridgeport Road, Portland, Oregon 97224, and its telephone number is (503) 639-7221. "Biojector," "Bioject," "Vitajet" and "Medivax" are registered trademarks of the Company. DESCRIPTION OF THE COMPANY'S PRODUCTS Needle-free Injection Business. The Company's current product, the Biojector 2000 system, is a refinement of jet injection technology that enables healthcare professionals to reliably deliver measured variable doses of medication through the skin, either intramuscularly or subcutaneously, without a needle. Giving an injection with a Biojector 2000 system is easy and straightforward. The healthcare worker checks the CO2 pressure on the easy-to-read gauge at the rear of the injector, draws medication up into a disposable plastic syringe, inserts the syringe into the power injector, presses the syringe tip against the appropriate disinfected surface on the patient's skin, and then presses an actuator thereby injecting the medication. Medication is expelled rapidly through a precision molded, small diameter orifice in a thin stream at a velocity sufficient to penetrate the skin and force the medication into the tissue at the desired level. The Biojector 2000 system consists of two components: a hand-held, reusable jet injector; and a sterile, single-use, disposable plastic syringe capable of delivering variable doses of medication up to 1 ml. The first component, the Biojector 2000, is a portable hand-held unit which is approximately the size of a flashlight and is designed both for easy use by healthcare professionals, as well as to be attractive and non-threatening to patients. As described in the June 7, 1993 issue of BUSINESSWEEK, the Biojector 2000 won the 1993 Gold Industrial Design Excellence Award given by the Industrial Designers Society of America for its aesthetically pleasing and ergonomic design. In July 1994, the Biojector 2000 also received the Alliance of Children's Hospitals Seal of Approval. The Biojector 2000 injector uses disposable CO2 cartridges as a power source. The CO2 cartridges, which are purchased by the Company from an outside supplier, give an average of ten injections before requiring replacement. The CO2 gas provides consistent, reliable pressure on the plunger of the disposable syringe, thereby propelling the medication into the tissue. The CO2 propellant does not come into contact with either the patient or the medication. The second component, the Biojector single-use disposable syringe, is provided in a sterile, peel-open package and consists of a plastic, needle- free, variable dose syringe containing a plunger, accompanied by a disposable plastic vial adapter which is used to fill the syringe. (If requested by a customer, the product can also be supplied with a needle which is used as an alternative to the vial adapter for filling the syringe.) The body of the syringe is transparent and has graduated markings to aid filling by healthcare workers. There are five different Biojector syringes, each of which is intended for a different injection depth or body type. The syringes are molded using the Company's patented manufacturing process. The healthcare worker selects the syringe appropriate for the intended type of injection. One syringe size is for subcutaneous injections, while the others are designed for intramuscular injections, depending on the patient's body characteristics. The Vitajet is also made-up of two components, a portable injector unit and a disposable syringe. It is smaller and lower in cost than other products in the Company's needle-free offering. The method of operation and drug delivery is similar to the Biojector, except that the Vitajet is powered by a spring rather than by CO2. It is designed for self-injection and was acquired to fill a gap in the Company's product line for a low-cost, home use, needle-free device. Vitajet's current regulatory labeling limits its use to the injection of insulin. The Company believes that the product has the potential to achieve regulatory labeling for additional subcutaneous injections. See "Forward Looking Statements" and "Risk Factors Government Regulation." The current suggested retail list price for the Biojector 2000 professional jet injector is $995, and the suggested retail list price for Biojector syringes is $1.00 a piece. CO2 cartridges are sold for a suggested retail price of $0.50 per cartridge and average ten injections per cartridge. Discounts are offered for volume purchases. The current suggested retail price for the Vitajet 3 needle-free injector is $399. A three month supply (13-count) of Vitajet syringes is sold for a suggested retail price of $60. The Company has other products in development which are intended to address other markets or to enhance the Biojector 2000 system. See "Research and Product Development." Blood Glucose Monitoring Business. The Company is currently in the development phase of its continuous blood glucose monitoring product and currently has no products on the market in the blood glucose monitoring business segment. See "Research and Product Development." MARKETING AND COMPETITION Needle-free Injection Business. Currently, the traditional needle-syringe is the primary method by which intramuscular and subcutaneous injections are administered. During the last 20 years, there have been many attempts to develop portable one-shot jet injection hypodermic devices. Some of the problems which have arisen in the attempts to develop such devices include: (a) inadequate injection power; (b) little or no control of pressure and depth of penetration; (c) complexity of design, with related difficulties in cost and performance; (d) difficulties in use, including filling and cleaning; and (e) the necessity for sterilization between uses. In recent years, several spring-driven needle-free injectors have been developed and marketed primarily for the injection of insulin. Each of these devices requires regular cleaning as well as filling from a separate medication bottle or vial. Current prices for such injectors range from approximately $400 to $600 per injector. The Company believes that market acceptance of these devices has been limited due to a combination of the cost of the devices coupled with the difficulties of their use. Also in recent years, various versions of a "safety syringe" have been designed and marketed. Most versions of the safety syringe generally involve, as their basic design, a standard or modified needle-syringe with a plastic guard or sheathing surrounding the needle. Such covering is usually retracted or removed in order to give an injection. Although the intent of the safety syringe is to reduce or eliminate needlestick injuries, the syringes require manipulation after injection and, therefore, still pose the risk of needlestick injury. They are also bulky and add to contaminated waste disposal problems. The Company is currently focusing it marketing efforts for the Biojector system in two primary directions. The first of these marketing efforts continues the Company's historical strategy of marketing directly to the end-user of the product by gaining acceptance of the Biojector system as a safe, reliable alternative to the needle-syringe and safety syringe. These efforts build on the Company's established presence in the U.S. public health clinic and flu immunization markets. The Company is also focusing its direct marketing on creating arrangements to market the Biojector 2000 system to the home healthcare market and the U.S. military. The second area of marketing emphasis focuses on creating licensing and supply arrangements with leading pharmaceutical and biotechnical companies for whose products the Biojector technology provides either better medical efficacy or a higher degree of market acceptance. Sales through this channel would be to the pharmaceutical or biotechnology company whose salesforce would then sell that company's own products along with the Biojector system to the end user. Development of an injection system for specific applications which is anticipated to be marketed by Hoffmann-La Roche is an example of such an arrangement. Other opportunities include the possibility of pre-filled Biojector syringes which, if developed, could be filled and marketed by the pharmaceutical or biotechnology company whose product is involved. Pursuing both of these marketing strategies, the Company plans eventually to expand into international markets. To lead its direct sales and marketing efforts, The Company currently employs a national sales manager who manages a staff of two full-time nurse trainers, 5 to 8 per diem part-time nurse trainers and a half-time U.S. military sales representative. Bioject's direct sales efforts have resulted in the signing of public health agreements for the state of North Carolina, the New York City Middle Schools, and the health departments in the states of New Mexico, Oklahoma and Illinois. The Company expects to sign additional agreements with other public health agencies. In addition, the Company works closely on a national basis with the Visiting Nurses Associations for use of the Biojector 2000 system for flu immunization. The Company intends to leverage its success in these immunization programs to attract pharmaceutical company strategic partners to assist it in gaining access to the physician office and other specialized markets where the benefits of jet injection drug delivery will enhance distribution of their injectable medications. In August 1994, Bioject signed an agreement with Homecare Management, Inc. ("HMI"), granting HMI exclusive rights to purchase Bioject's Needle-Free Injection Management System, the Biojector 2000, for use in the home healthcare market. Sales to HMI commenced in August 1994. In return for HMI's commitment to purchase a minimum of 8,000 Biojector units over the ensuing two years, the Company granted volume pricing discounts to HMI. Throughout the term of the contract the selling price of Biojectors to HMI exceeded their standard cost. During fiscal 1995 and 1996, the Company sold approximately 2,100 and 4,300 Biojectors to HMI for total sales revenue including syringes of $1.1 million and $2.2 million, respectively. HMI had not placed the great majority of these Biojectors with patients pending completion of negotiations with pharmaceutical companies for certain pricing concessions for medication to be administered with the Biojectors. In January 1996, HMI requested that further shipments under the contract be suspended. In February 1996, the Company learned from HMI's press releases that HMI expected to default under its loan, to take significant write-offs for accounts receivable and inventories, planned operational consolidations, and would restate certain prior period financial statements. In fiscal 1997, the Company agreed to repurchase certain of the Biojector inventories (including up to 6,000 devices) which HMI had on hand for a total of $660,000 including $322,000 of forgiveness of accounts receivable and payment of $338,000 in two installments, one-half of which was paid in July 1996 and with the balance remaining outstanding. The Company was under no obligation to repurchase these inventories, and the repurchase was at a substantial discount to the original selling price to HMI. The sale of new technologies to hospitals, large clinics and other large institutions is typically a lengthy process. Introduction of new technologies to a hospital or other large institution typically involves screening by several individuals and committees within the institution, including new product evaluation committees, infection control officers, medical staff and business office personnel. Therefore, in order to shorten the sales cycle, the Company has focused its primary direct sales strategy on the public health and flu immunization markets where there are fewer and more concentrated decision makers. The medical equipment market is highly competitive, and competition is likely to intensify. Many of the Company's existing and potential competitors have been in business longer than the Company and have substantially greater technical, financial, marketing, sales and customer support resources. The Company believes the primary competition for the Biojector 2000 system and other jet injectors it may develop is the traditional disposable needle- syringe and the safety syringe. Leading suppliers of needle-syringes include: Becton-Dickinson & Co., Sherwood Medical Co., a subsidiary of American Home Products Corp., and Terumo Corp. of Japan. Manufacturers of traditional needle-syringes compete primarily on price, which generally ranges from approximately $0.17 to $0.15 per unit. Manufacturers of safety syringes compete on features, quality and price. Safety syringes generally are priced in a range of $0.25 to $0.45 per unit. The Company expects to compete with traditional needle-syringes and safety syringes based on healthcare worker safety, ease of use, reduced cost of disposal, patient comfort, and reduced cost of compliance with OSHA regulations, but not on purchase price. However, the Company believes that when all indirect costs (including disposal of syringes and testing, treatment and workers' compensation expense related to needlestick injuries) are considered, the Biojector 2000 system will compete effectively. See "Forward Looking Statements" and "Risk Factors." The Company is aware of other portable needle-free injectors on the market today which are generally focused on subcutaneous self-injection applications of 0.5 ml. or less and compete with the Vitajet. However the Company is not aware of any competing products with features and benefits comparable to the Biojector 2000 system. The Biojector is suitable for both intramuscular and subcutaneous injections of up to 1 ml. in the professional and home injection markets. Manufacturers of needle-syringes, as well as other companies, may develop new products that compete directly or indirectly with the Company's products. There can be no assurance that the Company will be able to compete successfully in this market. See "Risk Factors - Competition,- "Dependence on Two Technologies." A variety of new technologies (for example, transdermal patches) are being developed as alternatives to injection for drug delivery. While the Company does not believe such technologies have significantly affected the use of injection for drug delivery to-date, there can be no assurance that they will not do so in the future. Blood Glucose Monitoring Business. The diabetic blood glucose monitoring market is currently dominated by four companies: LifeScan, a subsidiary of Johnson and Johnson, Boehringer Mannheim, Miles Laboratories, a subsidiary of Bayer, and MediSense, a subsidiary of Abbott Laboratories. All of these companies have in vitro blood glucose monitoring systems which use blood test strips and an electronic reader. Emerging technologies for less invasive monitoring of blood glucose have been in development for many years. There are three broad modalities of blood glucose analysis: Near infrared spectroscopy (near-IR), measurement of interstitial fluid ("ISF"), the liquid between cells of the skin, and transdermal technologies, where a patch applied to the skin causes diffusion of bodily fluids to the skin surface from which levels of blood glucose can be measured. There have been several recent attempts to introduce noninvasive in vivo blood glucose sensors, based on near-IR spectroscopy. These instruments are currently large and costly (around $10,000), as well as difficult to calibrate. Though some are billed as "portable," they are impractical for ambulatory use. Two companies, TCPI and Cygnus Therapeutics, are developing systems for measuring the blood glucose concentration with patch membrane technologies. Through application of an electrical current through the skin, interstitial fluid is brought to the skin's surface, where it is captured by a patch from which the glucose element can be measured. In the case of the TCPI device, the patch is then removed from the skin and placed into a reader for glucose measurement. The Cygnus device has a reader and membrane integrated in a wristwatch which takes periodic readings and averages them to determine blood glucose levels. The Company has not yet fully developed and commercialized its continuous blood glucose monitoring technology. However, based on the expected design and performance of its continuous blood glucose monitoring device, the Company expects to compete effectively based on the following anticipated key benefits: To patients: - - Real-time measurement of blood glucose concentration leading to better, more reliable monitoring of the blood sugar level with the resulting opportunity to reduce the near and long-term medical complications of diabetes. - - Superior Information: Continuous availability of blood glucose levels in a convenient and pain free format. - - Lightweight and discreet. - - Convenience: Anticipated once-per-day application to provide continuous results all day without further activation by the patient. To third party payors: - - Real-time measurement of blood glucose concentration leading to a better, steadier regulation of the blood sugar level, translating to a potential reduction of diabetic complications and their associated cost. - - Freedom from the pain and inconvenience of frequent blood tests leading to better patient compliance, which translates to better blood glucose control, fewer long term complications, and lower costs. To healthcare providers: - - Superior Information: Real-time measurement of blood glucose concentration leads to steadier regulation of the blood sugar levels, superior provider capabilities, and improved patient care. - - Continuous monitoring via once-a-day application greatly reducing the labor requirements associated with patient-nurse interactions required by the static tests currently employed to monitor patients' blood glucose levels. PATENTS AND PROPRIETARY RIGHTS Needle-free Injection Business. The Company believes that technology incorporated in its currently marketed injection device and single-dose disposable plastic syringes as well as the technology of products under development in both the jet injection and blood glucose monitoring business segments coupled with the technology and ease of use of the products acquired in the Vitajet acquisition give it significant advantages over the manufacturers of other jet injection systems and over prospective competitors seeking to develop similar systems. The Company attempts to protect its technology through a combination of trade secrets, confidentiality agreements and procedures and patent prosecution. The Company has three U.S. patents which were issued with respect to jet injection technology incorporated in earlier versions of its jet injection systems and which expire from July 2007 to November 2008. Seven additional U.S. patents have been issued which protect developments incorporated in the Biojector 2000 system. These patents incorporate a number of claims including claims regarding the jet injection system's design, method of operation, certain aspects of the syringe design and the method of manufacturing the syringe orifice. The Company has also been granted a patent relating a drug vial adapter. The Company has made additional patent filings regarding pre-filled syringe technologies and adapters for drug vial access. The Company also generally files patent applications in Canada, Europe and Japan at the times and under the circumstances it deems filing to be appropriate under the procedures in place in each jurisdiction. There can be no assurance that any patents applied for will be granted or that patents held by the Company will be valid or sufficiently broad to protect the Company's technology or provide a significant competitive advantage. See "Risk Factors." The Company also relies on trade secrets and proprietary know-how that it seeks to protect through confidentiality agreements with its employees, consultants, suppliers and others. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known to or be developed independently by competitors. In addition, the laws of foreign countries may not protect the Company's proprietary rights to its technology, including patent rights, to the same extent as the laws of the U.S. Although the Company believes that it has independently developed its technology and attempts to assure that its products do not infringe the proprietary rights of others, if infringement were alleged and proved, there can be no assurance that the Company could obtain necessary licenses on terms and conditions that would not have an adverse affect on the Company. The Company is not aware of any asserted claim that the Biojector 2000, Vitajet or any product under development violates the proprietary rights of any person. If a dispute arises concerning the Company's technology, litigation that could result in substantial cost to and diversion of effort by the Company might be necessary to enforce the Company's patents, to protect the Company's trade secrets or know-how or to determine the scope of the proprietary rights of others. Adverse findings in any proceeding could subject the Company to significant liabilities to third parties, require the Company to seek licenses from third parties or otherwise adversely affect the Company's ability to manufacture and sell its products. Blood Glucose Monitoring Business. The continuous blood glucose monitoring system concept and proprietary aspects of the design are covered by various patents. Corresponding patent applications have been filed with the PCT, designating all member countries, including the United States, E.U. and Japan, as well as in Taiwan and South Africa. Additional patent applications will be filed in the course of the blood glucose monitoring technology development program. These applications will cover new, innovative aspects and refinements of the product. GOVERNMENTAL REGULATION Needle-free Injection and Blood Glucose Monitoring Businesses. The Company's products and manufacturing operations are subject to extensive government regulations, both in the U.S. and abroad. In the U.S., the Food and Drug Administration ("FDA") administers the Federal Food, Drug and Cosmetic Act (the "FD&C") and has adopted regulations, including those governing the introduction of new medical devices, the observation of certain standards and practices with respect to the manufacturing and labeling of medical devices, the maintenance of certain records and the reporting of device-related deaths, serious injuries, and certain malfunctions to the FDA. Manufacturing facilities and certain Company records are also subject to FDA inspections. The FDA has broad discretion in enforcing the FD&C and the regulations thereunder, and noncompliance can result in a variety of regulatory steps ranging from warning letters, product detentions, device alerts or field corrections to mandatory recalls, seizures, injunctive actions and civil or criminal penalties. The FD&C provides that, unless exempted by regulation, medical devices may not be commercially distributed in the U.S. unless they have been cleared or approved by the FDA. The FD&C provides two basic review procedures for pre-market clearance or approval of medical devices. Certain products qualify for a submission authorized by Section 510(k) of the FD&C, wherein the manufacturer provides the FDA with a premarket notification ("510(k) notification") of the manufacturer's intention to commence marketing the product. The manufacturer must, among other things, establish in the 510(k) notification that the product to be marketed is substantially equivalent to another legally marketed product, (i.e., that it has the same intended use and that it as safe and effective as a legally marketed device and does not raise questions of safety and effectiveness that are different from those associated with the legally marketed device). Marketing may commence when the FDA issues a letter finding substantial equivalence to such a legally marketed device. The FDA may require, in connection with the 510(k) submission, that it be provided with animal and/or human test results. If a medical device does not qualify for the 510(k) procedure, the manufacturer must file a premarket approval ("PMA") application. A PMA must show that the device is safe and effective and is generally a much more complex submission than a 510(k) notification typically requiring more extensive prefiling testing and a longer FDA review process. A 510(k) notification is required when a device is being introduced into the market for the first time. A 510(k) notification is also required when the manufacturer makes a change or modification to an already marketed device that could significantly affect safety or effectiveness, or where there is a major change or modification in the intended use of the device. When any change or modification is made in a device or its intended use, the manufacturer is expected to make the initial determination as to whether the change or modification is of a kind that would necessitate the filing of a new 510(k) notification. The FDA's regulations provide only limited guidance in making this determination. In April 1987, the Company received 510(k) marketing clearance from the FDA allowing the Company to market a hand-held CO2-powered jet injection system. Although the Biojector 2000 system incorporates changes from the system with respect to which the Company's 1987 510(k) marketing clearance was received and expands its intended use, the Company made the determination that these were not major changes or modifications in intended use or changes in the device that could significantly affect the safety or effectiveness of the device and that, accordingly, the 1987 510(k) clearance permitted the Company to market the Biojector 2000 system in the U.S. In June 1994, the Company received clearance from the FDA under 510(k) to market a version of its Biojector 2000 system in a configuration targeted at high volume injection applications. In October 1996, the Company received 510(k) clearance for a non-needle disposable vial access device. In March 1997, the Company received additional 510(k) clearance for certain enhancements to its Biojector 2000 system. The Company currently has applications pending before the FDA for 510(k) clearance of the B2020 1.5ml jet injector and the B4000 self-injector. There can be no assurance that the FDA will concur with the Company's determination that the products can be qualified by means of a 510(k) submission. The continuous blood glucose monitoring system will be designed to meet international standards of product safety, reliability and biocompatibility. In the U.S., while the Company believes that the FDA, based on an earlier clearance of a "Biostator Monitor", sold by Miles Laboratories, will allow the continuous blood glucose monitoring system to be sold under a 510(k) pre-market notification, a final determination has not been made in this regard and there can be no assurance that the FDA will allow the use of a 510(k) pre-market notification. See "Risk Factors - Governmental Regulation." European regulatory clearance will be in accordance with the essential requirements set out in the new Medical Device Directives, which will come into law in June 1998. The Company continues to seek arrangements with pharmaceutical companies to develop pre-filled Biojector syringe applications to permit the pharmaceutical companies to market their products packaged in Biojector prefilled containers. See "Research and Product Development." Before pre-filled Biojector syringes may be distributed for use in the U.S., certain FDA-mandated stability tests may be required of those pharmaceutical companies. Pre-filled syringes involve drugs packaged as a component of a medical device. It is current FDA policy that such pre-filled syringes, which are considered to be combination products, are evaluated by the FDA as drugs rather than medical devices. Marketing of pre-filled syringes by pharmaceutical companies will require prior clearance via a new or amended Drug Application ("NDA") or an Abbreviated New Drug Application ("ANDA"). An NDA is a complex submission required to establish that a drug will be safe and effective for its intended uses. An ANDA is a less detailed process which does not require, among other things, that the applicant provide complete reports of preclinical and clinical studies of safety and efficacy as are required for NDAs. Assuming that the drugs used in the pre-filled syringes have previously been approved by the FDA for injection, the FDA will likely require that ANDAs, rather than NDAs, be submitted. The Company believes that if a drug to be used in the Company's pre-filled syringe were already the subject of an approved NDA or ANDA for intramuscular or subcutaneous injection, the main issue affecting clearance for use in the pre-filled syringe would be the adequacy of the syringe to store the drug, to assure its stability until used and to safely deliver the proper dose. See "Forward Looking Statements" and "Risk Factors Government Regulation." The FDA also regulates the Company's quality control and manufacturing procedures by requiring the Company and its contract manufacturers to demonstrate compliance with current Good Manufacturing Practice ("GMP") Regulations. These regulations require, among other things, that (i) the manufacturing process must be regulated and controlled by the use of written procedures and (ii) the ability to produce devices which meet the manufacturer's specifications must be validated by extensive and detailed testing of every aspect of the process. They also require investigation of any deficiencies in the manufacturing process or in the products produced and detailed record-keeping. Further, the FDA's interpretation and enforcement of these requirements has been increasingly strict in recent years and seems likely to be even more stringent in the future. Failure to adhere to GMP requirements would cause the products produced to be considered in violation of the Act and subject to enforcement action. The FDA monitors compliance with these requirements by requiring manufacturers to register with the FDA, and by subjecting them to periodic FDA inspections of manufacturing facilities. If the inspector observes conditions that might be violated, the manufacturer must correct those conditions or explain them satisfactorily, or face potential regulatory action that might include physical removal of the product from the marketplace. The FDA's Medical Device Reporting Regulation requires that the Company provide information to the FDA on the occurrence of any death or serious injuries alleged to have been associated with the use of the Company's products, as well as any product malfunction that would likely cause or contribute to a death or serious injury if the malfunction were to recur. In addition, FDA regulations prohibit a device from being marketed for unapproved or uncleared indications. If the FDA believes that the company is not in compliance with these regulations, it can institute proceedings to detain or seize products, issue a recall, seek injunctive relief or assess civil and criminal penalties against such company. The use and manufacture of the Company's products are subject to OSHA and other federal, state and local laws and regulations relating to such matters as safe working conditions for healthcare workers and Company employees, manufacturing practices, environmental protection and disposal of hazardous or potentially hazardous substances and the policies of hospitals and clinics relating to compliance therewith. There can be no assurance that the Company will not be required to incur significant costs to comply with such laws, regulations or policies in the future, or that such laws, regulations or policies will not increase the costs or restrictions related to the use of the Company's products or otherwise have a materially adverse effect upon the Company's ability to do business. See "Risk Factors." Laws and regulations regarding the manufacture, sale and use of medical devices are subject to change and depend heavily on administrative interpretations. There can be no assurance that future changes in regulations or interpretations made by the FDA, OSHA or other regulatory bodies, will not adversely affect the Company. Sales of medical devices outside of the United States are subject to foreign regulatory requirements. The requirements for obtaining premarket clearance by a foreign country may differ from those required for FDA clearance. Devices having an effective 510(k) clearance or PMA may be exported without further FDA authorization. FDA authorization is generally required in order to export other medical devices. RESEARCH AND PRODUCT DEVELOPMENT Needle-free Injection Business. Research and development efforts are focused on enhancing the Company's current product offerings and on developing both new jet injection technology and new products. The Company continues to use clinical, magnetic resonance imaging and tissue studies to determine the reliability and performance of new and existing products. As of March 31, 1998, the Company's research and product development staff, including clinical and regulatory staff members, consisted of 7 employees. During fiscal 1996, 1997 and 1998, the Company spent $1.9 million, $1.6 million, and $884,000, respectively, on research and development. In March 1994, the Company entered into an agreement with Schering AG, Germany ("Schering"), for the development of a self-injection device for delivery of Betaseron (R) to multiple sclerosis patients. During fiscal 1995 through 1997, the Company developed prototypes to Schering specifications which were accepted by Schering. During fiscal 1997, the Company entered into a supply agreement with Schering and commenced activities related to full production of the self injector. Schering loaned the Company a total of $1.6 million to purchase molds and tooling for production of the product. In January 1997, the Company received notice that its contract with Schering would be cancelled. Under provisions of the contract, Schering had the option of canceling the agreement if the FDA required extensive clinical studies beyond an originally planned safety study. Schering received a review letter from the FDA which would have required Schering to conduct additional material clinical studies in order to use non-traditional delivery mechanisms with its Betaseron (R) product. Under terms of the contract, Schering was required to convert its $1.6 million note due from Bioject into approximately 460,000 shares of Bioject common stock at a conversion price of $3.50 per share. In addition, $106,000 of accrued interest was converted into approximately 27,000 shares of Bioject common stock at a conversion price of $3.50 per share. The Company retained ownership of the molds and tooling. The B4000 self-injector, which was developed as a result of the Schering agreement, is currently awaiting regulatory clearance prior to marketing. See "Risk Factors - Governmental Regulation." In January 1995, the Company signed a joint development agreement with Hoffmann-La Roche ("Roche") to develop proprietary drug delivery systems for Roche products. The agreement provides for Bioject to develop, manufacture and sell Biojector jet injection drug delivery systems designed to Roche specifications. In return, Bioject has granted Roche exclusive worldwide rights to distribute these systems and their components for use with certain Roche products. Hoffmann-La Roche Inc. is the United States affiliate of the multinational group of companies headed by Roche Holding of Basel, Switzerland, one of the world's leading, research-intensive healthcare companies. As of 1995 fiscal year end, the Company had commenced design of a prototype device and had agreed with Roche on product specifications. During fiscal 1996, the Company developed and delivered to Roche preproduction prototypes for testing and developed the clinical preproduction prototypes which were delivered to Roche in April 1996. As of fiscal 1997 year end, the Company and Roche were finalizing their submission to obtain regulatory clearance to market the product. As of the end of fiscal 1998, the Company had submitted its component of the proprietary drug delivery system for regulatory clearance. In February 1995, Hoffmann-La Roche paid a one-time licensing fee totaling $500,000. The agreement provides that it will pay specified product development fees on an agreed upon schedule of which $400,000 was recognized in fiscal 1996, $500,000 was recognized in fiscal 1997 and $500,000 was recognized in fiscal 1998. In March, 1998 the Company acquired the assets of Vitajet Corporation in a stock-for-assets exchange. The Company paid 100,000 shares of its common stock for certain molds, tooling, patent rights and customer lists, the value of which totaled $134,400 at the date of acquisition. In addition to shares already paid, the Company is obligated to issue 60,000 shares of its common stock in each of the three years subsequent to the acquisition if certain development milestones are met. Up to an additional 90,000 shares is also payable subject to the Company realizing specified, aggregate levels of incremental revenue during the three years subsequent to the Vitajet acquisition as a result of sales of products acquired from or developed by Vitajet Subsequent to year end, in July 1998, the Company entered into an agreement with Merck, a worldwide leader in the development, manufacture and sale of a broad range of human and animal health products and services. The agreement provides Merck the rights to use the Biojector 2000 jet injection system with selected Merck vaccines. The Company believes that this agreement is the first step in establishing a long-term relationship between the two companies whereby Merck will use the Company's needle-free technology in connection with certain of its vaccines. There can be no assurance that such long-term relationship will be established. See "Forward Looking Statements." Also subsequent to year end, in July 1998, the Company entered into a collaborative research agreement with GeneMedicine, a developer of gene medicines and genetic vaccine technologies for treatment or prevention of a wide range of diseases. This collaboration involves the continued refinement of the Biojector 2000 jet injection system coupled with GeneMedicine's unique gene-based delivery platforms to create a combined product that will enhance the delivery and activity of plasmid-based genetic vaccines. The agreement contemplates that combined products developed as a result of the research collaboration will be marketed to third party corporate partners for commercialization and sale rather than being commercialized or sold by either Bioject or GeneMedicine. There can be no assurance that the collaborative alliance will result in marketable products. Further, should marketable products be developed as a result of the collaborative alliance, there can be no assurance that the companies will be successful either at locating appropriate third party corporate partners or at entering into the necessary agreements with those partners to commercialize and sell the products so developed. See "Forward Looking Statements." Additionally, should such products be developed, there can be no assurance that they will receive the required governmental clearance. See "Governmental Regulation." In addition to activities described above, the Company is seeking arrangements with pharmaceutical and biotechnology companies for the use of pre-filled syringes to eliminate the filling and measuring procedures associated with traditional injection of medications. Before pre-filled Biojector syringes may be distributed for use in the U.S., these companies must commit to the packaging and distribution of their products in this manner and to the time and financial resources necessary for FDA review and clearance. This process could be lengthy. See "Business - Governmental Regulation." There can be no assurance that such companies will commit efforts to develop pre-filled packaging and pursue regulatory clearance or that regulatory clearance of pre-filled Biojector syringes will be obtained. The Company intends to continue research and development efforts designed to further its understanding of the physics and physiology of jet injection. These efforts will include further clinical studies to demonstrate efficacy of jet injection and to evaluate new products and enhancements to the Company's existing products. To advance these studies, in April 1994 the Company formed a Department of Clinical Affairs research group, which initiates and coordinates these studies. Blood Glucose Monitoring Business. In October 1997, the Company signed a joint development agreement with Elan Corporation, plc ("Elan") to license from Elan certain continuous blood glucose monitoring technology (the "License") and then to commercialize that technology for manufacture and world-wide distribution. To date, the Company has continued testing and development of a clinical prototype. Subsequent to year end, in April 1998, a small, human clinical study with a prototype of the device was conducted. The prototype device was used to monitor the blood glucose levels of six diabetes patients for fifteen continuous hours. The system tracked the patients' actual blood glucose levels against whole blood reference samples with significant levels of accuracy. The Company is planning further preliminary clinical studies as development of the product continues. Based on the results of these studies, the Company will then plan and conduct comprehensive clinical trials of the monitoring system which are intended to support its applications to the FDA to market the product in the United States. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." MANUFACTURING Needle-free Injection Business. The Company assembles the Biojector 2000 and related syringes from components purchased from outside suppliers. Prior to introduction of the Biojector 2000 system in 1993, the Company had not engaged in manufacturing on a commercial scale. However, in connection with that introduction, the Company increased its manufacturing capabilities and built inventories to support anticipated product sales. Throughout fiscal 1994 and 1995, the Company's manufacturing processes were primarily manual. These processes did not permit the Company to produce its products at costs which would allow it to operate profitably. During fiscal 1996, the Company implemented a plan to increase manufacturing capacity and refine production methods to meet anticipated future demand and to reduce product costs. For the Biojector 2000, cost reduction efforts included converting from a two-piece to a one-piece housing, converting to continuous process manufacturing and implementing volume purchasing programs from suppliers. For the Biojector syringes, these efforts included increasing supplier mold capacity and automating final assembly and packaging. See "Risk Factors - Limited Manufacturing Experience, Need to Reduce Unit Cost." During fiscal 1998, the Company, having a sufficient inventory of jet injectors on-hand as a result of the repurchase of product from HMI, focused its manufacturing efforts on refining the manufacturing processes and efficiencies of the syringe manufacturing line. See "Marketing and Competition - Needle-Free Injection Business." In order to succeed at expanding manufacturing capacity and reducing unit production cost, the Company must attract and retain qualified assembly workers and must establish and maintain relationships with suppliers that can deliver large quantities of components that meet applicable quality standards in a timely and reliable manner at acceptable prices. Blood Glucose Monitoring Business. At present, the Company has no manufacturing operation related to the blood glucose monitoring system. When approved for sale, the Company intends to manufacture the device in its own facilities, the location of which has not yet been determined. EMPLOYEES As of March 31, 1998, the Company had 33 full-time employees with 4 employees engaged in research and product development, 2 in sales and marketing, 2 in technical product support, 13 in manufacturing and 12 in administration. The Company engages a limited number of part-time consultants who assist with research and development, sales and marketing and investor relations activities. The Company also employs temporary contract workers primarily for assembly operations, the number of which varies, depending upon production requirements. As of March 31, 1998, there were 4 consultants, 5 to 8 per diem nurses and 1 contract/temporary worker employed by the Company. None of the Company's employees is represented by a labor union. PRODUCT LIABILITY The Company believes that its products reliably inject medications both subcutaneously and intramuscularly when used in accordance with product guidelines. The Company's current insurance policies provide coverage at least equal to an aggregate limit of $11 million with respect to certain product liability claims. The Company has not experienced any product liability claims to date. There can be no assurance, however, that the Company will not become subject to such claims, that the Company's current insurance would cover such claims, or that insurance will continue to be available to the Company in the future. The Company's business may be adversely affected by product liability claims. RISK FACTORS Investment in the securities of the Company involves a high degree of risk. In addition to the other information in this annual report, the following factors should be considered carefully in evaluating the Company and its business. The Company cautions the reader that this list of factors may not be exhaustive. Uncertainty of Market Acceptance. The Company's success will depend upon market acceptance of its jet injection drug delivery system, the Biojector 2000 system, the blood glucose monitoring system and, to a lesser extent, other products under development. Currently, the dominant technology used for intramuscular and subcutaneous injections is the hollow-needle syringe. Needle-syringes, while low in cost, have limitations, particularly relating to contaminated needlestick injuries. Use of the Biojector 2000 system for intramuscular and subcutaneous injections virtually eliminates the associated risk of these injuries; however, the cost per injection is significantly higher. There can be no assurance that the Biojector 2000 system will compete successfully. A previous jet injection system manufactured by the Company did not achieve market acceptance and is no longer being marketed. The Biojector 2000 was introduced in January 1993. To date, the major portion of sales have been to HMI, which units were not placed in service and which the Company has repurchased at a substantial discount to the original selling price after the cancellation of its agreement with HMI. Failure of the Biojector 2000 system to gain market acceptance would have a material adverse effect on the Company's financial condition and results of operations. Uncertainty of New Product Development. The Company's joint venture with Elan, JV Sub, intends to develop certain technology licensed from Elan and to create an ambulatory monitoring system which permits the continuous monitoring of blood glucose levels in persons with diabetes. The system is in the early stages of development, and there can be no assurance that JV Sub will be successful in developing a product or that any such product can be manufactured or marketed in a commercially viable manner. It also is likely that significant additional levels of funding will be required to complete development of the technology, which will likely require the future issuance of debt or equity securities by either the Company or JV Sub. Further, there can be no assurance that, should a blood glucose monitoring system be developed, such system would receive the requisite governmental clearance. See "Governmental Regulation." The Company's collaborative research agreement with GeneMedicine involves the continued refinement of the Biojector 2000 jet injection system coupled with GeneMedicine's unique gene-based delivery platforms to create a combined product that will enhance the delivery and activity of plasmid-based genetic vaccines. The agreement contemplates that combined products developed as a result of the research collaboration will be marketed to third party corporate partners for commercialization and sale rather than being commercialized or sold by either Bioject or GeneMedicine. See "Research and Product Development - Needle-free Injection Business." There can be no assurance that the collaborative alliance will result in marketable products. Further, should such marketable products be developed, there can be no assurance that the companies will be successful either at locating appropriate third party corporate partners or at entering into the necessary agreements with those partners to commercialize or sell the products so developed. See "Forward Looking Statements." Additionally there can be no assurance, should such products be developed, that such products would receive the required governmental clearance. See "Governmental Regulation." History of Losses; Uncertain Profitability. Since its formation in 1985, the Company has incurred significant annual operating losses and negative cash flow. At March 31, 1998, the Company had an accumulated deficit of $50.9 million, $12 million of which related to the fiscal 1998 write-off, after minority interest, of in-process research and development acquired in connection with the acquisition of blood glucose monitoring technology from Elan. Historically, the Company's revenues have been derived primarily from licensing and technology fees and from limited product sales, which were principally sales to dealers for the stocking of inventories and to HMI. More recently, the Company has sold its products to end-users, primarily to public health clinics for vaccinations and to nursing organizations for flu immunizations. The Company has not attained profitability at these sales levels. There can be no assurance that the Company will be able to generate significant revenues or achieve profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Possible Termination of the License. Pursuant to the terms of the License, the License may be terminated under certain conditions. In the event that 15% of JV Sub's equity is acquired by any one of a number of specified companies identified by Elan as actual or potential competitors, or any other entity to which Elan does not consent, which consent shall not be unreasonably withheld in the case of such other unspecified companies, the License may be immediately terminated at Elan's option. Further, the License itself is contingent, on a country-by-country basis, on JV Sub's diligently seeking and obtaining regulatory marketing clearance for licensed products and on JV Sub's timely commercial launch of the licensed products in countries where such clearance has been obtained. Termination of the License may have a material adverse effect on the Company's financial condition and results of operations. Need for Additional Financing. The Company's revenues from operations have not been sufficient to satisfy its cash requirements and it has relied on the proceeds of sales of equity securities to fund its operations. The Elan transaction involves significant future financial commitments by the Company to fund the development and marketing activities of JV Sub, as well as significant payment obligations, totaling $15.5 million, by JV Sub to Elan as product development milestones are met. These payment obligations are in addition to the Company's cash requirements relating to current activities involving the Company's jet injection technology. The Company plans to fund its cash requirements through revenues, debt and sales of equity securities, and anticipates that JV Sub will fund its activities through debt and sales of equity securities to the Company and Elan or to third parties. There can be no assurance that financing sufficient to fund either the Company's jet injection business activities or blood glucose monitoring business activities will be obtained on favorable terms or at all. Failure to obtain adequate financing would have a material adverse impact on the Company's business and could result in defaults on the Company's or JV Sub's obligations relating to the Elan Transactions, loss of JV Sub's rights to the technology under the License, dilution of the Company's interest in JV Sub or the need to curtail operations of the Company or JV Sub due to inadequate cash resources or other adverse consequences. The sale of equity securities on unfavorable terms to meet the Company's obligations could result in material dilution to the existing shareholders. Effects of Convertible Preferred Stock. The Company's Common Stock is subject to the rights and preferences of the Series A and B Convertible Preferred Stock, which has a liquidation preference of $12.405 million plus accrued and unpaid dividends. Further, the Series A and B Convertible Preferred Stock is convertible to Common Stock at a conversion price of $1.50 per share at any time. At the end of seven years, unless earlier converted by the holders or redeemed by the Company, the shares Series A and B Convertible Preferred Stock and accrued but unpaid dividends convert automatically into Common Stock at the conversion price equal to the lesser of $1.50 per share or 80% of the then prevailing market price of Common Stock. Accordingly, conversion of Series A and B Convertible Preferred Stock to Common Stock could result in issuances of significant amounts of Common Stock at prices lower than prevailing market prices at the time of conversion. Should the Company issue Series C Convertible Preferred Stock or other similar series of Preferred Stock to Elan to enable the Company to fund capital contributions to JV Sub, the aggregate amount of Preferred Stock liquidation preferences and Common Stock issuable upon conversion of Preferred Stock would increase. Limited Manufacturing Experience; Need to Reduce Unit Cost. The Company has limited experience manufacturing its products in commercially viable quantities. The Company has increased its production capacity for the Biojector 2000 system through automation of, and changes in, production methods. The current cost per injection of the Biojector 2000 system is substantially higher than that of traditional needle-syringes, its principal competition. A key element of the Company's business strategy has been to reduce the overall manufacturing cost through automating production and packaging. There can be no assurance that the Company will be able to develop and implement effective high volume production or achieve necessary unit cost reductions. Failure to do either would adversely affect the Company's financial condition and results of operations. While the Company believes that its experience manufacturing the Biojector enhances the probability of its success in manufacturing the Vitajet, the Company has no experience manufacturing the Vitajet and as of March 31, 1998 has not installed a manufacturing line to produce the Vitajet. There can be no assurance that the Company will be able to successfully manufacture the Vitajet at a unit cost that will allow the product to be sold profitably. Failure to do so would adversely affect the Company's financial condition and results of operation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Manufacturing." Governmental Regulation. The Company's products and manufacturing operations are subject to extensive government regulation, both in the U.S. and abroad. In the U.S., the development, manufacture, marketing and promotion of medical devices are regulated by the Food and Drug Administration ("FDA") under the Federal Food, Drug, and Cosmetic Act ("FD&C"). In 1987, the Company received clearance from the FDA under Section 510(k) of the FD&C to market a hand-held CO2-powered jet injection system. The FD&C provides that new premarket notifications under Section 510(k) of the FD&C are required to be filed when, among other things, there is a major change or modification in the intended use of a device or a change or modification to a legally marketed device that could significantly affect its safety or effectiveness. A device manufacturer is expected to make the initial determination as to whether the change to its device or its intended use is of a kind that would necessitate the filing of a new 510(k) notification. Although the Biojector 2000 system incorporates changes from the system with respect to which the Company's 1987 510(k) marketing clearance was received and expands its intended use, the Company made the determination that these were not major changes or modifications in intended use or changes in the device that could significantly affect the safety or effectiveness of the device. Accordingly, the Company further concluded that the 1987 510(k) clearance permitted the Company to market the Biojector 2000 system in the U.S. In June 1994, the Company received clearance from the FDA under 510(k) to market a version of its Biojector 2000 system in a configuration targeted at high volume injection applications. 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. The Company currently has applications pending before the FDA for 510(k) clearance of the B2020 1.5ml jet injector and the B4000 self-injector. There can be no assurance that the FDA will concur with the Company's determination that the products can be qualified by means of a 510(k) submission. Future changes to manufacturing procedures could necessitate the filing of a new 510(k) notification. Also, future products, product enhancements or changes, or changes in product use may require clearance under Section 510(k), or they may require FDA premarket approval ("PMA") or other regulatory clearances. PMAs and regulatory clearances other than 510(k) clearance generally involve more extensive prefiling testing than a 510(k) clearance and a longer FDA review process. Under current FDA policy, applications involving prefilled syringes would be evaluated by the FDA as drugs rather than devices, requiring FDA new drug applications ("NDAS") or ANDAs. Depending on the circumstances, drug regulation can be much more extensive and time consuming than device regulation. See "Governmental Regulation." No clearances from the FDA have been obtained for the marketing of products that may be developed based on the blood glucose monitoring technology licensed from Elan. The Company is researching and has not finally determined which FDA clearances will be required with respect to any products developed based on this technology. The Company anticipates that extensive testing and FDA review will be required of any such product, and there can be no assurance that FDA clearance will be obtained in a timely manner or at all. FDA regulatory processes are time consuming and expensive. There can be no assurance that product applications submitted by the Company will be cleared or approved by the FDA. In addition, the Company's products must be manufactured in compliance with Good Manufacturing Practices ("GMP") as specified in regulations under the FDA Act. The FDA has broad discretion in enforcing the FDA Act, and noncompliance with the Act could result in a variety of regulatory actions ranging from product detentions, device alerts or field corrections, to mandatory recalls, seizures, injunctive actions, and civil or criminal penalties. Distribution of the Company's products in countries other than the U.S. may be subject to regulation in those countries. An application was made to the Japan Ministry of Health and Welfare to obtain necessary approvals to market the Biojector 2000 system in Japan which was not carried to completion by the Company's then current Japanese distributor. See "Governmental Regulations." Uncertainty in Healthcare Industry. The healthcare industry is subject to changing political, economic and regulatory influences that may affect the procurement practices and operations of healthcare facilities. During the past several years, the healthcare industry has been subject to increased government regulation of reimbursement rates and capital expenditures. Among other things, third party payors are increasingly attempting to contain or reduce healthcare costs by limiting both coverage and levels of reimbursement for healthcare products and procedures. Because the price of the Biojector 2000 system exceeds the price of needle injection systems, cost control policies of third party payors, including government agencies, may adversely affect use of the Biojector 2000 system. Dependence on Third-Party Relationships. The Company is dependent on third parties for distribution of the Biojector 2000 system to certain market segments, for the manufacture of component parts, and for assistance with the development and distribution of future application-specific systems. The Company's current manufacturing processes for the Biojector 2000 jet injector and disposable syringes as well as manufacturing processes anticipated to produce the Vitajet consist primarily of assembling component parts supplied by outside suppliers. Certain of these components are currently obtained from single sources, with some components requiring significant production lead times. In the past, the Company has experienced delays in the delivery of certain components, although to-date no such delays have had a material adverse effect on the Company's operations. There can be no assurance that the Company will not experience delays in the future, or that such delays would not have a material adverse effect on the Company's financial condition and result of operations. See "Manufacturing." The Company has entered into agreements with certain major pharmaceutical companies for development and distribution of jet injection systems, for use of the Company's jet injection systems, in conjunction with the pharmaceutical companies' products and for the development and commercialization of a continuous blood glucose monitoring system. These companies have the right to terminate these agreements at certain phases as defined in the agreements. There can be no assurance that these companies' interest and participation in the projects will continue. Failure to receive additional funding from these companies under certain of the agreements or termination of these agreements could adversely affect the development and production of the products involved and, correspondingly, the Company's financial condition and results of operations. Ability to Manage Growth. If the Company's products achieve market acceptance, the Company expects to achieve rapid growth. This growth strategy will require expanded customer services and support, increased personnel throughout the Company, expanded operational and financial systems, and the implementation of new and expanded control procedures. There can be no assurance that the Company will be able to attract qualified personnel or successfully manage expanded operations. As the Company expands, it may from time to time experience constraints that would adversely affect its ability to satisfy customer demand in a timely fashion. Failure to manage growth effectively could adversely affect the Company's financial condition and results of operations. Competition. The medical equipment market is highly competitive and competition is likely to intensify. The Company's products compete primarily with traditional needle-syringes, "safety syringes" and also with other alternative drug delivery systems. While the Company believes its products provide a superior drug delivery method, there can be no assurance that the Company will be able to compete successfully with existing drug delivery products. Many of the Company's competitors have longer operating histories as well as substantially greater financial, technical, marketing and customer support resources than the Company. There can be no assurance that one or more of these competitors will not develop an alternative drug delivery system that competes more directly with the Company's products, or that the Company's products would be able to compete successfully with such a product. Further, should JV Sub develop an ambulatory blood glucose monitoring system which obtains all necessary regulatory clearances, there can be no assurance that either the Company's or JV Sub's competitors will not develop other competing systems, or that JV Sub's system would be able to compete successfully with other systems or products. Dependence on Two Technologies. The Company's strategy has been to focus its development and marketing efforts on its jet injection technology. The strategy of its Joint Venture with Elan is to focus on development and commercialization of a continuous blood glucose monitoring system. Focus on these two technologies leaves the Company vulnerable to competing products and alternative drug delivery systems, as well as to alternative methods to monitor blood glucose levels in diabetics. The Company believes that healthcare providers' desire to minimize the use of the traditional needle-syringe has stimulated development of a variety of alternative drug delivery systems such as "safety syringes," jet injection systems and transdermal diffusion "patches." In addition, pharmaceutical companies frequently attempt to develop drugs for oral delivery instead of injection. The Company also believes that there will be high market demand for a minimally invasive blood glucose monitoring system such as that being developed by the Company and that the size of that market will likely attract significant competition to the Company's blood glucose monitoring product. While the Company believes that for the foreseeable future there will continue to be a significant need for injections, there can be no assurance that alternative drug delivery methods will not be developed which are preferable to injection. Further, there can be no assurance that alternative blood glucose monitoring systems will not be developed which are preferable to that to be developed by the Company. Patents and Proprietary Rights. The Company relies on a combination of trade secrets, confidentiality agreements and procedures, and patents to protect its proprietary technologies. The Company has been granted a number of patents in the United States and several patents in certain other countries covering certain technology embodied in its current jet injection system and certain manufacturing processes. Additional patent applications are pending in the U.S. and certain foreign countries. There can be no assurance that the claims contained in any patent application will be allowed, or that any patent will provide adequate protection for the Company's products and technology. In the absence of patent protection, the Company may be vulnerable to competitors who attempt to copy the Company's products or gain access to its trade secrets and know-how. In addition, the laws of foreign countries may not protect the Company's proprietary rights to this technology to the same extent as the laws of the U.S. The Company believes that it has independently developed its technology, attempts to ensure that its products do not infringe the proprietary rights of others and the Company knows of no such infringement claims. However, any such claims could have a material adverse affect on the Company's financial condition and results of operations. Product Liability. Producers of medical devices may face substantial liability for damages in the event of product failure or if it is alleged the product caused harm. The Company currently maintains product liability insurance and, to-date, has not experienced any product liability claims. There can be no assurance, however, that the Company will not be subject to such claims, that the Company's current insurance would cover such claims, or that adequate insurance will continue to be available on acceptable terms to the Company in the future. The Company's business could be adversely affected by product liability claims. Dependence upon Key Employees. The Company's success depends on the retention of its executive officers and other key employees. Competition exists for qualified personnel and the Company's success will depend, in part, on attracting and retaining such personnel. Failure in these efforts could have a material adverse effect on the Company's business, financial condition or results of operations. Shares Eligible For Future SaleIn December 1996, the Company completed a private placement of 3,434,493 units (each unit representing one share of common stock and a warrant to purchase one share of common stock). The Company also granted a warrant to its placement agent in the private placement to purchase 156,000 shares of common stock. The shares issued in the private placement and the underlying shares issuable upon exercise of the warrants were registered for resale on a Form S-3 registration statement. In June and July 1997, the Company completed a private placement of 2,906,977 units, each unit consisting of one share of Common Stock and one warrant to purchase one-half share of Common Stock. In May 1997, in return for services provided, the Company granted to Amy Factor a warrant to purchase 25,000 shares of Common Stock. The shares issued in the private placement and the underlying shares issuable upon exercise of the warrants were registered for resale on a Form S-3 registration statement. In connection with the Elan transactions in October 1997, Elan purchased 2,727,273 shares of Common Stock and was granted a five year warrant to purchase 1.75 million shares of common stock. In January, 1998, the shares issued to Elan as well as the 487,390 shares issued to Schering (see "Research and Product Development - Needle-free Injection Business") were registered for resale on a Form S-3 registration statement. In October, 1997, the Company granted warrants to purchase 350,000 shares of stock to Robert Gonnelli in connection with his guarantee of an equity investment in the Company. In February, 1998, the Company granted Raphael, L.L.C., a management consulting company which introduced Elan to the Company, a warrant to purchase 100,000 shares of Common Stock. See "Recent Developments." Subsequent to year-end, in June 1998, the Company granted warrants to purchase 130,243 shares of stock to Robert Gonnelli in return for services to the Company. Also subsequent to year-end, the warrants issued in the June and July 1997 private placement were exercised, in exchange for which the Company issued 147,850 new warrants. Sales of substantial numbers of common stock in the public market, or the availability of such shares for sale, could adversely affect the market price for the common stock and make it more difficult for the Company to raise funds through equity offerings in the future. Possible Adverse Effects on Trading Market. The Common Stock is quoted on the NASDAQ National Market. There are a number of continuing requirements that must be met in order for the Common Stock to remain eligible for quotation on the NASDAQ National Market or the NASDAQ SmallCap Market. In August 1997, NASDAQ approved changes to its quantitative and qualitative standards for issuers listing on NASDAQ. Among the changes are the elimination of the alternative test for issuers failing to meet the minimum bid price of $1.00 and an increase in the quantitative standards for both the NASDAQ National Market and the NASDAQ SmallCap Market. The failure to meet the maintenance criteria in the future could result in the delisting of the Company's Common Stock from NASDAQ. In such event, trading, if any, in the Common Stock may then continue to be conducted in the non- NASDAQ over-the-counter market. As a result, an investor may find it more difficult to dispose of or to obtain accurate quotations as to the market value of the Company's Common Stock. In addition, if the Common Stock were delisted from trading on NASDAQ and the trading price of the Common Stock were less than $5.00 per share, trading in the Common Stock would also be subject to the requirements of certain rules promulgated under the Exchange Act, which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock. The additional burdens imposed upon broker-dealers may discourage broker-dealers from effecting transactions in penny stocks, which could reduce the liquidity of the shares of Common Stock and thereby have a material adverse effect on the trading market for the securities. Possible Volatility of Stock Price. The market for the Company's Common Stock and for the securities of other early-stage, small market-capitalization companies has been highly volatile in recent years. The Company believes that factors such as quarter-to-quarter fluctuations in financial results, new product introductions by the Company or its competition, public announcements, changing regulatory environments, sales of Common Stock by certain existing shareholders and substantial product orders could contribute to the volatility of the price of the Company's Common Stock, causing it to fluctuate dramatically. General economic trends such as recessionary cycles and changing interest rates may also adversely affect the market price of the Company's Common Stock. Item 2. PROPERTIES The Company's principal offices are located in Portland, Oregon in approximately 23,000 square feet of leased office and manufacturing space under a lease which expires in September 2002. The monthly minimum lease obligation for this facility is approximately $15,000. These facilities include the Company's sales and administration offices and equipment, research and engineering facilities, a clean room assembly area, assembly line, testing facilities and a warehouse area. The Company leases additional warehouse space totaling approximately 5,000 square feet for finished goods storage and shipments to customers. This lease, which also expires in September 2002, has minimum monthly lease obligations totaling $2,000. The Company believes its current facilities will be sufficient to support its operations for the next 2-3 fiscal years. As the Company requires additional space to accommodate growth in its sales and manufacturing activities, it is the Company's intention to lease additional facilities adjacent to or near its present operations. The Company believes that, if necessary, it will be able to obtain facilities at rates and under terms comparable to those of the current leases. Item 3. LEGAL PROCEEDINGS None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A Special Meeting of Stockholders of Bioject Medical Technologies, Inc. was convened at 1:00 p.m., on February 20, 1998, at the Company's headquarters, 7620 S.W. Bridgeport Road, Portland, Oregon. There were 25,368,342 shares of Common Stock issued and outstanding on the record date, December 23, 1997. Of the total shares outstanding on the record date, there were 16,325,537 shares present at the meeting in person or by proxy, which is 64.35% of the Common Stock entitled to vote, thereby constituting a quorum. All of the proposals as set forth in the proxy statement for the Special Meeting were approved. The voting recorded is as follows: Proposal #1: The proposal to approve the exchange of a promissory note in the original principal amount of $12.015 million issued by the Company to Elan for approximately 832,000 shares of the Company's Series A and Series B Convertible Preferred Stock received the following votes: FOR AGAINST ABSTAIN ---------- ------- ------- 15,964,575 214,940 146,022 Proposal #2: The proposal to approve the issuance of the Company's Series C Convertible Preferred Stock or other similar convertible preferred stock to Elan in connection with future funding of blood glucose monitoring research and development received the following votes: FOR AGAINST ABSTAIN ---------- ------- ------- 15,961,959 216,291 147,287 Proposal #3: The proposal to approve the issuance to Raphael, LLC, of a warrant to purchase 100,000 shares of the Company's Common Stock received the following votes: FOR AGAINST ABSTAIN ---------- ------- ------- 15,696,136 452,669 176,732 As a result of the passage of Proposal #1, the exchange of debt for Series A and Series B convertible preferred stock was completed effective March 2, 1998. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the NASDAQ National Market under the Symbol "BJCT." The following table sets forth the high and low closing sale prices of the Company's Common Stock on the NASDAQ National Market. High Low ----- ----- Fiscal year Ended March 31, 1996: First Quarter 3.00 1.44 Second Quarter 2.97 1.19 Third Quarter 2.81 1.81 Fourth Quarter 1.94 1.25 Fiscal Year Ended March 31, 1997: First Quarter 1.41 1.28 Second Quarter 1.03 0.97 Third Quarter 0.78 0.75 Fourth Quarter 0.78 0.63 Fiscal Year Ended March 31, 1998: First Quarter .94 .47 Second Quarter 1.03 .59 Third Quarter 1.57 1.19 Fourth Quarter 1.50 1.09 The closing sale price on May 29, 1998, as reported on the NASDAQ National Market, was $1.688 per share. The Company has declared no dividends during its history and has no intention of declaring a dividend in the foreseeable future. As of May 29, 1998 the number of shareholders of record of the Company's Common Stock was 1,386. In October 1997, in connection with a joint development agreement entered into with Elan, the Company issued a promissory note to Elan with a principal amount of $12.015 million. Upon receiving shareholder approval to convert the note into the Company's preferred stock, on March 2, 1998, a total of 692,694 shares of Series A Convertible Preferred Stock and 134,333 shares of Series B Convertible Preferred Stock were issued to Elan (the "Elan Issuance"). On March 23, 1998, the Company acquired the assets of Vitajet Corporation in a stock-for assets exchange (the "Vitajet Issuance"). The Company issued 100,000 shares of its common stock in exchange for certain molds, tooling, patent rights and customer lists, the value of which totaled approximately $134,000 at the date of acquisition. The Company is obligated to issue an additional 60,000 shares in each of the next three years if certain development milestones are met. Up to an additional 90,000 shares are also payable subject to the Company realizing specified, aggregate levels of incremental revenue over the next three years. In April 1998, warrants issued in June 1997 were exercised in exchange for the Company's commitment to issue additional warrants to purchase 147,850 shares of the Company's Common Stock (the "Series N Warrants"). The Series N Warrants have an exercise price of $1.348 per share and expire on March 31, 2003. The Company relied upon Rule 506 of Regulation D of the Securities Act for the issuance of the Series N Warrants. The Company relied upon representations and warranties of the warrantholders in addition to its own information. The Elan Issuance and Vitajet Issuance were completed pursuant to an exemption from registration under Section 4(2) of the Securities Act. In relying upon such exemption (i) the Company did not engage in any "general solicitation," (ii) the purchasers represented and the Company reasonably believed that the purchasers had knowledge and experience in financial and business matters such that they were capable of evaluating the merits and risks of the prospective investment, (iii) the purchasers were provided access to all necessary and adequate information to enable the purchasers to evaluate the financial risk inherent in making an investment, (iv) the offers were part of an agreement to establish a joint venture in Elan's case and part of an acquisition agreement in Vitajet's case and as such was made only to Elan and Vitajet, respectively, and (v) the purchasers represented that they were acquiring the shares for themselves and not for distribution. Item 6. SELECTED CONSOLIDATED FINANCIAL DATA FINANCIAL DATA The statement of operations and balance sheet data set forth below for the five fiscal years in the period ended March 31, 1998 have been derived from the consolidated financial statements of the Company. The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the detailed consolidated financial statements and notes thereto included elsewhere in this Report. SUMMARY FINANCIAL INFORMATION (in thousands, except per share data) YEAR ENDED MARCH 31, 1998* 1997 1996 1995 1994 ------ ------ ------ ------ ------ Statement of Operations Data: Revenues $ 1,935 $ 2,235 $ 4,209 $ 2,924 $ 1,463 Operating expenses 21,157 6,637 9,851 9,008 6,110 Net loss (16,630)* (4,296) (5,431) (5,656) (4,395) Net loss per share (0.72) (0.26) (0.39) (0.43) (0.39) Shares used in per share calculation 23,151 16,705 14,074 13,167 11,230 AS OF MARCH 31, 1998 1997 1996 1995 1994 ------ ------ ------ ------ ------ Balance Sheet Data: Working capital $ 3,019 $ 2,858 $ 4,327 $ 6,404 $12,593 Total assets 6,978 7,088 7,519 9,498 13,836 Long-term debt -- -- -- -- -- Shareholders' equity 5,975 5,766 6,027 7,964 13,377 *In fiscal 1998, the Company acquired certain blood glucose monitoring technology from Elan for an up-front licensing fee of $15 million which was required to be expensed in the year paid. As a result, the 1998 net loss includes a $12 million, net of minority interest, one-time charge for acquired in-process research and development. The Company has declared no dividends during its history and has no intention of declaring a dividend in the foreseeable future. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Operating losses have resulted in an accumulated deficit of approximately $50.9 million as of March 31, 1998. In fiscal 1996, the Company incurred significantly increased costs associated with the production and sale of the Biojector 2000 system, including sales and marketing efforts, manufacturing ramp-up and inventory build-up. In September 1997, the Company acquired rights to certain continuous blood glucose monitoring technology from Elan Corporation for an initial payment of $15 million and future milestone payments totaling $15.5 million and royalties on future product sales. In fiscal 1998, the $15 million up front payment was expensed as acquired in-process research and development. In March 1998, the Company acquired the rights to the Vitajet self-injector, along with certain other assets, in a stock-for-assets transaction with Vitajet Corporation. The Company's ability to achieve and sustain profitability will depend in part upon customer acceptance of the Biojector 2000 system and the continuous blood glucose monitoring system, sustained product performance, implementing additional product cost reductions, successful commercial development of the blood glucose monitoring system, and attaining revenues sufficient to support profitable operations. In August 1994, Bioject signed an agreement with Health Management, Inc. (HMI), granting HMI exclusive rights to purchase Bioject's Needle-Free Injection Management System (R), the Biojector 2000, for use in the home healthcare market. In return for HMI's commitment to purchase a minimum of 8,000 Biojector units over the ensuing two years, the Company granted volume pricing discounts to HMI. During the term of the contract, the selling price of Biojectors to HMI exceeded their standard cost. During fiscal 1996, the Company sold approximately 4,300 Biojectors to HMI for total sales revenue including syringes of $2.2 million. HMI did not place the great majority of these Biojectors with patients, pending completion of negotiations with pharmaceutical companies for certain pricing concessions for medication to be administered with the Biojectors. In January 1996 HMI requested that Bioject suspend shipments to HMI. In February 1996, the Company learned from HMI's press releases that HMI expected to default on its debts, anticipated taking significant write-offs relating to accounts receivable and inventories, planned operational consolidations, and would restate certain prior period financial statements. In fiscal 1997, although not obligated to do so, the Company agreed to repurchase certain of the HMI inventories, including up to 6,000 Biojector units, for cash and forgiveness of accounts receivable totaling $660,000. The repurchase of these inventories was at a substantial discount to the original selling price to HMI. In March 1994, the Company entered into an agreement with Schering AG, Germany, for the development of a self-injection device (the "Self-Injector") for delivery of Betaseron (R) to multiple sclerosis patients. During fiscal 1996, the Company delivered the preproduction clinical prototypes to Schering and worked on finalizing the production prototype design. During fiscal 1997, the Company entered into a supply agreement with Schering AG and commenced activities related to full production of the self-injector. Schering loaned the Company a total of $1.6 million to purchase molds and tooling to produce the product. In January 1997, the Company received notice that its contract with Schering AG would be cancelled. Under provisions of the contract, Schering AG had the option of canceling the agreement if the FDA required extensive clinical studies beyond an originally planned safety study. Schering AG received a review letter from the FDA which would have required Schering to conduct additional, material clinical studies in order to use non-traditional delivery mechanisms with its Betaseron (R) product. Under terms of the contract, Schering was required to convert its $1.6 million note due from Bioject plus accrued interest into approximately 487,000 shares of Bioject common stock at a conversion price of $3.50 per share. In addition, Schering was obligated to pay Bioject for the cost of product ordered through the date of cancellation of the contract, which payment was made in June 1997. In January 1995, the Company signed a joint development agreement with Hoffmann-La Roche to develop proprietary drug delivery systems for Roche products. The agreement provides for Bioject to develop, manufacture and sell Biojector jet injection drug delivery systems designed to Roche specifications. In return, Bioject has granted Roche exclusive worldwide rights to distribute these systems and their components for use with certain Roche products. Hoffmann-La Roche Inc. is the United States affiliate of the multinational group of companies headed by Roche Holding of Basel, Switzerland, one of the world's leading research-intensive healthcare companies. As of the 1995 fiscal year end, the Company had commenced design of a prototype device and had agreed with Roche on product specifications. During fiscal 1996, the Company developed and delivered to Roche preproduction prototypes for testing and developed the clinical preproduction prototypes which were delivered to Roche in April 1996. As of March 31, 1998, the Company and Hoffmann-LaRoche were finalizing their submission to obtain regulatory clearance to market the product. Hoffmann- LaRoche is also gathering marketing information which the Company anticipates will lead to the signing of a supply agreement between the Company and Hoffman-LaRoche. In September 1997, the Company and Elan Corporation signed a licensing and joint development agreement for the development and commercialization by the Company of certain continuous blood glucose monitoring technology licensed from Elan. Under terms of the agreement, the Company borrowed $12.015 million from Elan (subsequently converted to Series A and B convertible preferred stock) and Elan invested $2.985 million in a new subsidiary of the Company created for the purpose of developing the technology. The Company's new subsidiary, owned 80.1% by the Company and 19.9% by Elan, paid Elan $15 million for rights to the technology and has committed to pay an additional $15.5 million to Elan as future milestones are achieved as well as royalties on future sales of the product. The new subsidiary will develop the blood glucose monitoring technology and will seek regulatory clearance for the sale of such product. Such regulatory clearance is expected in the next 3-4 years with estimated development costs for the monitoring technology, exclusive of milestone payments, estimated to total at least $10 million. As part of the agreement, in October 1997, Elan acquired 2.7 million shares of common stock and 1.75 million warrants to purchase the Company's common stock at $2.50 per share for $3 million. In addition, Elan agreed to partially fund development of the blood glucose monitoring technology up to a total of $4 million through the purchase of the Company's Series C convertible preferred stock and through direct purchase of additional stock in JV Sub to a maximum of $1 million. Elan also agreed to fund development of the Company's pre-filled jet injection technology through a grant of up to $500,000. In March 1998, in a transaction with Vitajet Corporation, the Company paid 100,000 shares of its common stock for certain molds, tooling, patent rights and customer lists, the value of which totaled $134,400 at the date of acquisition. In addition to shares already paid, the Company is obligated to issue 60,000 shares of its common stock each year in each of the three years subsequent to the acquisition if certain development milestones are met. Up to an additional 90,000 shares are also payable subject to the Company realizing specified, aggregate levels of incremental revenue during the three years subsequent to the Vitajet acquisition as a result of sales of products acquired from or developed by Vitajet. Subsequent to year end, in July 1998, the Company entered into an agreement with Merck, a worldwide leader in the development manufacture and sale of a broad range of human and animal health products and services. The agreement provides Merck the rights to use the Biojector 2000 jet injection system with selected Merck vaccines. See "Research and Development - Needle-free Injection Business" and "Risk Factors - Uncertainty of New Product Development." The Company believes that this agreement is the first step in establishing a long-term relationship between the two companies whereby Merck will use the Company's needle-free technology in connection with certain of its vaccines. See "Forward Looking Statements." Also subsequent to year end, in July 1998, the Company entered into a collaborative research agreement with GeneMedicine, a developer of gene medicines and genetic vaccine technologies for treatment or prevention of a wide range of diseases. The agreement involves the continued refinement of the Biojector 2000 jet injection system coupled with GeneMedicine's unique gene-based delivery platforms to create a combined product that will enhance the delivery and activity of plasmid-based genetic vaccines. The agreement contemplates that combined products developed as a result of the research collaboration will be marketed to third party corporate partners for commercialization and sale rather than being commercialized or sold by either Bioject or GeneMedicine See "Forward Looking Statements", "Research and Development - Needle-free Injection Business" and "Risk Factors - Uncertainty of New Product Development." During fiscal 1996, the Company implemented a plan to increase manufacturing capacity and refine production methods to meet anticipated future demand and to reduce product costs. For the Biojector 2000, cost reduction efforts included converting from a two piece to a one piece housing, converting to continuous process manufacturing and implementing volume purchasing programs from suppliers. For the Biojector syringes, these efforts included increasing supplier mold capacity and automating final assembly and packaging. During fiscal 1997, the Company's manufacturing activities focused on retesting the devices repurchased from HMI to ensure their continuing compliance with new product standards and elective upgrade of certain of these units to current version configuration. Also during fiscal 1997 manufacturing focused on finalizing product engineering and on planning for, designing and installing manufacturing lines for the new self injector device in advance of the launch of that product. During fiscal 1998, having a sufficient inventory of jet injectors on-hand as a result of the repurchase of product from HMI, the Company focused its manufacturing efforts on refining manufacturing processes and efficiencies of the disposable syringe manufacturing line. The Company's revenues to date have not been sufficient to cover operating expenses. However, the Company believes that if its products achieve market acceptance and the volume of sales increases, and its product costs are reduced, its costs of goods as a percentage of sales will decrease and eventually the Company will generate net income. See "Forward Looking Statements" and "Business - - Risk Factors." The level of sales required to generate net income will be affected by a number of factors including the pricing of the Company's products, its ability to attain efficiencies that can be attained through volume and automated manufacturing, and the impact of inflation on the Company's manufacturing and other operating costs. There can be no assurance that the Company will be able to successfully implement its manufacturing cost reduction program or sell its products at prices or in volumes sufficient to achieve profitability or offset increases in its costs should they occur. Revenues and results of operations have fluctuated and can be expected to continue to fluctuate significantly from quarter to quarter and from year to year. Various factors may affect quarterly and yearly operating results including (i) length of time to close product sales, (ii) customer budget cycles, (iii) implementation of cost reduction measures, (iv) uncertainties and changes in purchasing due to third party payor policies and proposals relating to national healthcare reform, (v) timing and amount of payments under technology development agreements, (vi) timing and cost of development of the continuous blood glucose monitoring technology, and (vii) timing of new product introductions by the Company and its competition. In the future, the Company may incur a non-cash charge to compensation expense in connection with the issuance of 100,000 shares of Common Stock to the Company's Chief Executive Officer and 15,000 shares of common stock to the Company's Chief Financial Officer. Under terms of their employment agreements, each will receive the shares of common stock when the Company first achieves two consecutive quarters of positive earnings per share. Upon issuance of such shares the Company will record a non-cash charge to compensation at the fair market value of the stock on the last day of the quarter in which the shares are earned. During the next fiscal year, the Company will continue to focus its efforts on expanding sales of existing products, commencing manufacture and sale of the Vitajet, commencing manufacture and sale of the B4000 Self-Injector if regulatory clearance is obtained, reducing the cost of its products, continuing development and cooperation in pursuing regulatory clearance of a 1.5 ml. injector for Hoffmann-La Roche, developing the blood glucose monitoring technology, pursuing product licensing and development opportunities under the Merck and GeneMedicine agreements, pursuing additional alliances with pharmaceutical companies and conserving its fiscal resources. The Company does not expect to report net income from operations in fiscal 1999. See "Forward Looking Statements" and "Risk Factors." RESULTS OF OPERATIONS Product sales decreased from to $3.1 million in fiscal 1996 to $1.3 in fiscal 1997 and increased to $1.4 million in fiscal 1998. Sales in fiscal 1996 consisted of $2.3 million of sales to HMI with the remainder primarily to public health and flu immunization clinics. Sales in fiscal 1997 and 1998, consisted primarily of sales to public health and flu immunization clinics. License and technology fees ranged from $1.2 million in fiscal 1996, to $966,000 in fiscal 1997 and $500,000 in fiscal 1998. The fiscal 1996 and 1997 fees consisted principally of product development revenues recognized for work performed under the Schering and Hoffmann-La Roche agreements. The fiscal 1998 fees consisted of revenues for work on the Hoffmann-La Roche project. Manufacturing expense consists of the costs of product sold and manufacturing overhead expense related to excess manufacturing capacity. The total of these costs varied from $4.8 million in fiscal 1996, to $1.9 million in fiscal 1997 and $1.7 million in fiscal 1998 due in part to changes in sales and, therefore, to changes in the total costs of product sold. The decrease in expense from fiscal 1996 to 1997 and from fiscal 1997 to fiscal 1998 reflects reductions in the cost of materials and labor for injectors and syringes as well as reductions in fixed and variable manufacturing overhead expense. Manufacturing overhead totaled $1.67 million, $1.17 million and $981,000 in fiscal 1996, 1997 and 1998, respectively. Research and development expense decreased from $1.9 million in fiscal 1996 to $1.6 million in fiscal 1997 and to $884,000 in fiscal 1998 (exclusive of acquired in-process research and development). Fiscal 1996 expenditures related entirely to work performed under the Schering and Hoffmann-La Roche agreements. Fiscal 1997 expenditures related to final design and transfer to manufacturing of the Schering device and additional development work on the Hoffmann-LaRoche system. Fiscal 1998 expenditures related to further development of the B4000 Self Injector and to pursuing regulatory clearance for the vial adapter product. See "Risk Factors - Governmental Regulation." Selling, general and administrative expense totaled, $3.2 million in fiscal 1996 and 1997, and $3.5 million in fiscal 1998. During fiscal 1996 through 1998, sales and marketing expense remained constant at $1.6 million per year. General and administrative expense totaled $1.6 million in fiscal 1996 and 1997 and increased to $1.9 million in fiscal 1998 primarily due to consulting fees and certain travel expenditures. As of September 30, 1997, the Company recorded an expense of $15 million related to acquired in-process research and development expenditures. Such expense relates to the blood glucose monitoring technology that has not yet established technological feasibility and at present has no alternate future uses. Accounting rules require that such costs be charged to expense as incurred. The Company believes that these research and development efforts will result in commercially viable products within the next three to four years at an additional cost to the Company of at least $10 million, exclusive of additional milestone payments totaling $15.5 million to Elan. Interest expense in fiscal 1998 relates to the $12.015 million debt due to Elan for the period from October 15, 1997 through March 2, 1998 when the note and accrued interest was converted to Series A and Series B convertible preferred stock. Other income consists of earnings on available cash balances. Other income varied as a result of changes in cash balances and interest rates from year to year. The reduction in net loss in fiscal 1998 resulting from minority interest allocations reflects the portion of the joint venture subsidiary loss allocable to Elan Corporation as a result of its 19.9% ownership in the subsidiary. LIQUIDITY AND CAPITAL RESOURCES Since its inception in 1985, the Company has financed its operations, working capital needs and capital expenditures primarily from private placements of securities, exercises of stock options, proceeds received from its initial public offering in 1986, proceeds received from a public offering of Common Stock in November 1993, licensing and technology revenues and more recently from sales of products. Net proceeds received upon issuance of securities from inception through March 31, 1998 totaled approximately $56.9 million. The Company has no long-term debt. Cash, cash equivalents and marketable securities totaled $2.1 million at March 31, 1997 and $1.9 million at March 31, 1998. The decrease resulted from operating losses and capital expenditures offset in part by net proceeds from a private placement of common stock and warrants in June and July 1997 and October 1997 and the issuance of Series A and B convertible preferred stock in March 1998. Inventories increased from $1.7 million at March 31, 1997 to $1.9 million at March 31, 1998 due to the build-up of syringe inventories to support anticipated future product sales. The Company has fixed commitments for facilities rent and equipment leases which total approximately $250,000 for fiscal 1999. The Company expended approximately $1.6 million for capital equipment in fiscal 1997. Substantially all of these expenditures related to preparation of manufacturing for the Schering product launch. These assets continue to be carried at their cost on the Company's balance sheet because the product is suitable for other home injection applications which the Company is pursuing. The Company expended approximately $380,000 on capital equipment additions in fiscal 1998 approximately $270,000 of which related to Biojector 2000 units transferred from inventories to property and equipment to support the Company's flu season device rental program. The Company has assessed the impact of the Year 2000 issue and has determined that costs to upgrade its information and operating systems are not expected to be material. The Company believes that its current cash position, together with cash totaling approximately $2.4 million, received from the exercise of warrants and stock options in April through July 1998, combined with revenues, other cash receipts, proceeds from issuance of the Company's Series C preferred stock and proceeds from the purchase by Elan of additional stock in JV Sub will be sufficient to fund the Company's operations through the end of fiscal 1999. In addition, the Company has identified a number of potential financing sources and is pursuing them aggressively. See "Forward Looking Statements." Even if the Company is successful in raising 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 additional financing in the past and believes that sufficient funds will be available to fund future operations. See "Forward Looking Statements." However, there can be no assurance that 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. Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS TO FINANCIAL STATEMENTS Report of Independent Public Accountants Consolidated Balance Sheets at March 31, 1998 and 1997 Consolidated Statements of Operations for the years ended March 31, 1998, 1997 and 1996 Consolidated Statements of Shareholders' Equity for the years ended March 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended March 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements Supplementary Data (none required) REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Bioject Medical Technologies Inc: We have audited the accompanying consolidated balance sheets of Bioject Medical Technologies Inc. (an Oregon corporation) and subsidiaries as of March 31, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bioject Medical Technologies Inc. and subsidiaries, as of March 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1998, in conformity with generally accepted accounting principles. /S/ ARTHUR ANDERSEN LLP Portland, Oregon April 30, 1998 (except with respect to the matter discussed in Note 8 for which the date is July 20, 1998) BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 1998 1997 ------------ ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents $1,900,839 $ 2,116,478 Accounts receivable, net of allowance for doubtful accounts of $83,000 and $27,500, respectively 153,721 311,856 Inventories 1,891,970 1,706,456 Other current assets 75,292 45,222 ------------ ----------- Total current assets 4,021,822 4,180,012 ------------ ----------- PROPERTY AND EQUIPMENT, at cost: Machinery and equipment 2,241,904 1,923,174 Production molds 1,945,267 1,878,858 Furniture and fixtures 158,477 176,897 Leasehold improvements 94,115 80,447 ------------ ----------- 4,439,763 4,059,376 Less - accumulated depreciation (1,947,006) (1,462,338) ------------ ----------- 2,492,757 2,597,038 OTHER ASSETS 463,031 310,981 ------------ ---------- $6,977,610 $ 7,088,031 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 497,180 $ 659,973 Accrued payroll 218,424 213,130 Other accrued liabilities 277,122 199,384 Deferred revenue 10,000 250,000 ------------ ----------- Total current liabilities 1,002,726 1,322,487 ------------ ----------- COMMITMENTS (Note 6) SHAREHOLDERS' EQUITY: Preferred stock, 10,000,000 shares authorized; issued and outstanding Series A Convertible-692,694 shares, $15 stated value 7,826,157 - Series B Convertible -134,333 shares, $15 stated value 1,491,289 - Common stock, no par, 100,000,000 shares authorized; issued and outstanding 25,503,038 and 19,540,413 shares at March 31, 1998 and 1997, respectively 47,557,297 40,035,736 Accumulated deficit (50,899,859) (34,270,192) ------------ ----------- Total shareholders' equity 5,974,884 5,765,544 ------------ ----------- $6,977,610 7,088,031 ============ =========== The accompanying notes are an integral part of these consolidated financial statements. BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended March 31, 1998 1997 1996 ----------- ---------- ---------- REVENUES: Net sales of products $1,435,107 $1,269,882 $3,059,018 Licensing/technology fees 500,000 965,500 1,150,000 ----------- ---------- ---------- 1,935,107 2,235,382 4,209,018 ----------- ---------- ---------- OPERATING EXPENSES: Manufacturing 1,749,064 1,862,922 4,797,218 Research and development 883,632 1,596,708 1,885,303 Selling, general and administrative 3,524,615 3,177,228 3,168,618 Acquired in-process research & development 15,000,000 - - ---------- ---------- ---------- Total operating expenses 21,157,311 6,636,858 9,851,139 ---------- ---------- ---------- Operating loss (19,222,204) (4,401,476) (5,642,121) Interest expense (390,411) - - Other income 109,983 105,149 211,049 ----------- ----------- ---------- LOSS BEFORE TAXES (19,502,632) (4,296,327) (5,431,072) PROVISION FOR INCOME TAXES - - - ----------- ----------- ----------- NET LOSS BEFORE MINORITY INTEREST (19,502,632) (4,296,327) (5,431,072) MINORITY INTEREST ALLOCATION 2,985,000 - - ------------ ----------- ---------- NET LOSS (16,517,632) (4,296,327) (5,431,072) PREFERRED STOCK DIVIDEND 112,035 - - ----------- ----------- ----------- NET LOSS ALLOCABLE TO COMMON SHAREHOLDERS $(16,629,667) $(4,296,327) $(5,431,072) =========== =========== ============ BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.72) $ (0.26) $ (0.39) ============ =========== =========== SHARES USED IN PER SHARE CALCULATION 23,151,135 16,705,274 14,074,349 ============ =========== =========== The accompanying notes are an integral part of these consolidated financial statements BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
PREFERRED STOCK COMMON STOCK ---------------- ------------------- Accumulated Series A Series B Shares Amount Deficit Total -------- ---------- ------- -------- --------- -------- Shares Amount Shares Amount ------ ------- ------ ------ ------- -------- -------- -------- BALANCES, MARCH 31, 1995 - $ - - $ - 13,259,074 $32,507,095 $(24,542,793) $7,964,302 Issuance of common stock in exchange for services - - - - 23,149 39,962 - 39,962 Issuance of common stock and warrants in a private placement in November and December 1995 - - - - 2,303,009 3,454,101 - 3,454,101 Net loss applicable to common shareholders - - - - - - (5,431,072) (5,431,072) ------- ------- ------ ------ ----------- ----------- ---------- ---------- BALANCES, MARCH 31, 1996 - - - - 15,585,232 36,001,158 (29,973,865) 6,027,293 Issuance of common stock in exchange for services - - - - 33,298 159,350 - 159,350 Issuance of common stock and warrants in a private placement in December 1996 - - - - 3,434,493 2,163,000 - 2,163,000 Issuance of stock to Schering AG in exchange for debt - - - - 487,390 1,712,228 - 1,712,228 Net loss applicable to common shareholders - - - - - - (4,296,327) (4,296,327) ------- ------- ------ ------- ----------- ---------- ----------- ----------- BALANCES, MARCH 31, 1997 - - - - 19,540,413 40,035,736 (34,270,192) 5,765,544 Issuance of common stock in exchange for services - - - - 49,646 94,936 - 94,936 Issuance of common stock and warrants in a private placement in June and July 1997 - - - - 2,906,977 1,225,000 - 1,225,000 Issuance of common stock and warrants in a private placement in October 1997 - - - - 2,727,273 2,800,000 - 2,800,000 Issuance of common stock pursuant to stock option exercises - - - - 136,098 154,869 - 154,869 Issuance of common stock under 401(k) matching plan - - - - 42,631 31,006 - 31,006 Issuance of warrants in exchange for services - - - - - 81,350 - 81,350 Issuance of common stock in acquisition of assets - - - - 100,000 134,400 - 134,400 Issuance of preferred stock in exchange for debt, net of expenses 692,694 10,220,411 134,333 1,985,000 - - - 12,205,411 Adjustment for inherent dividend - (2,500,000) - (500,000) - 3,000,000 - - Preferred stock dividend - 105,746 - 6,289 - - - 112,035 Net loss applicable to common shareholders - - - - - - (16,629,667)(16,629,667) --------- ---------- --------- ---------- ----------- --------- ------------ ----------- BALANCES, MARCH 31, 1998 692,694 $7,826,157 134,333 $1,491,289 25,503,038 $47,557,297 $(50,899,859) $5,974,884 ========= ========== ========= ========= ========== ========== ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended March 31, 1998 1997 1996 ------------ ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss applicable to common shareholders $(16,629,667) $(4,296,327) $(5,431,072) Adjustments to net loss: Depreciation and amortization 514,668 443,700 520,714 Contributed capital for services 207,292 159,350 39,962 Acquired in-process R&D, net of minority interest 12,015,000 - - Preferred stock dividends 112,035 - - Interest paid in preferred stock 390,411 - - Net changes in assets and liabilities: Accounts receivable 158,135 113,003 305,864 Inventories (455,514) (450,511) (147,237) Other current assets (30,070) 492 6,435 Accounts payable (162,793) 109,799 (257,704) Accrued payroll 5,294 54,905 (92,512) Other accrued liabilities 77,738 (17,540) (102,080) Deferred revenue (240,000) (316,000) 410,000 --------- ---------- ----------- Net Cash Used in Operating Activities (4,037,471) (4,199,129) (4,747,630) ----------- ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Securities purchased - - (1,977,856) Securities sold - 993,056 4,974,268 Property and equipment (110,387) (1,617,052) (597,100) Other assets (47,650) (33,876) (64,916) Acquisition of blood glucose monitoring technology (15,000,000) - - ------------ ----------- ----------- Net Cash Provided By (Used In) Investing Activities (15,158,037) (657,872) 2,334,396 ---------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash proceeds from common stock 4,179,869 2,163,000 3,454,101 Borrowing from long-term debt subsequently converted to common stock - 1,712,228 - Issuance of preferred stock 12,015,000 Minority interest capital contribution to subsidiary 2,985,000 Preferred stock issuance costs (200,000) - - ----------- ---------- ----------- Net Cash Provided by Financing Activities 18,979,869 3,875,228 3,454,101 --------- ---------- ----------- CASH AND CASH EQUIVALENTS: Net increase (decrease) in cash and cash equivalents (215,639) (981,773) 1,040,867 Cash and cash equivalents at beginning of year 2,116,478 3,098,251 2,057,384 --------- ---------- ----------- Cash and cash equivalents at end of year $1,900,839 $2,116,478 $3,098,251 ========== ========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ - $ - $ - Cash paid for income taxes - - - Purchase of goodwill for stock 134,400 - - ------- -------- ------- $134,400 $ - $ - ======== ========== =========== The accompanying notes are an integral part of these consolidated financial statements. BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY: The consolidated financial statements of Bioject Medical Technologies Inc. (the "Company" or "Bioject"), include the accounts of Bioject Medical Technologies Inc. ("BMT"), an Oregon Corporation, and its wholly owned subsidiary, Bioject Inc., an Oregon Corporation ("BI"), and its 80.1% owned subsidiary, Bioject JV Subsidiary Inc. ("JV"), an Oregon corporation. All significant intercompany transactions have been eliminated. Although Bioject Inc. commenced operations in 1985, the Company was formed in December 1992 for the purpose of acquiring all of the capital stock of Bioject Medical Systems Ltd., a Company organized under the laws of British Columbia, Canada, in a stock-for-stock exchange in order to establish a U.S. domestic corporation as the publicly traded parent company of Bioject Inc. and Bioject Medical Systems Ltd. Bioject Medical Systems Ltd. was terminated in fiscal 1997. Bioject JV Subsidiary Inc. was formed in October 1997 in connection with a joint venture arrangement with Elan Corporation, plc ("Elan"). All references to the Company include Bioject Medical Technologies Inc. and its subsidiaries, unless the context requires otherwise. The Company commenced operations in 1985 for the purpose of developing, manufacturing and distributing a new drug delivery system. Since its formation, the Company has been engaged principally in organizational, financing, research and development, and marketing activities. In the last quarter of fiscal 1993, the Company launched U.S. distribution of its Biojector 2000 system primarily to the hospital and large clinic market. The Company's products and manufacturing operations are subject to extensive government regulation, both in the U.S. and abroad. In the U.S., the development, manufacture, marketing and promotion of medical devices is regulated by the Food and Drug Administration ("FDA") under the Federal Food, Drug, and Cosmetic Act ("FFDCA"). In 1987, the Company received clearance from the FDA under Section 510(k) of the FFDCA to market a hand-held CO2-powered jet injection system. In June 1994, the Company received clearance from the FDA under 510(k) to market a version of its Biojector 2000 system in a configuration targeted at high volume injection applications. In October 1996, the Company received 510(k) clearance for a non-needle disposable vial access device. In March 1997, the Company received additional 510(k) clearance for certain enhancements to its Biojector 2000 system. On September 30, 1997, the Company entered into a joint venture agreement with Elan for the development and commercialization of certain blood glucose monitoring technology which the Company licensed from Elan (see Note 2 regarding "Accounting Policies-Research and Development and Licensing/Technology Revenues"). Such technology is also subject to government regulation in the U.S. by the FDA and abroad by various agencies. Since its inception the Company has incurred operating losses and at March 31, 1998 has an accumulated deficit of approximately $51 million. The Company's revenues to date have been derived primarily from licensing and technology fees for the jet injection technology and more recently from sales of the Biojector 2000 system and Biojector syringes to public health clinics, flu immunization clinics and physicians offices. Future revenues will depend upon acceptance and use by healthcare providers of the Company's jet injection technology and successful development, regulatory clearance and market acceptance of its blood glucose monitoring technology. Uncertainties over government regulation and competition in the healthcare industry may impact healthcare provider expenditures and third party payer reimbursements and, accordingly, the Company cannot predict what impact, if any, subsequent healthcare reforms and industry trends might have on its business. In the future the Company is likely to require substantial additional financing. Failure to obtain such financing on favorable terms could adversely affect the Company's business. The Company's revenues to date have not been sufficient to cover operating expenses. However, the Company believes that if its products achieve market acceptance and the volume of sales increase, and its product costs are reduced, its cost of goods as a percentage of sales will decrease and eventually the Company will generate net income. The level of sales required to generate net income will be affected by a number of factors including the pricing of the Company's products, its ability to attain efficiencies that can be attained through volume and automated manufacturing, and the impact of inflation on the Company's manufacturing and other operating costs. There can be no assurance that the Company will be able to successfully implement further manufacturing cost reductions or sell its products at prices or in volumes sufficient to achieve profitability or offset increase in its costs should they occur. The Company believes that its current cash position, combined with revenues, other cash receipts, proceeds from the exercise of stock warrants and options, proceeds from the issuance of the Company's Series C preferred stock and proceeds from the purchase by Elan of additional stock in JV, will be sufficient to fund the Company's operations through the end of fiscal 1999. In addition, the Company has identified a number of potential financing sources and is pursuing them aggressively. Even if the Company is successful in raising 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 additional 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. 2. ACCOUNTING POLICIES: CASH EQUIVALENTS The Company considers cash equivalents to consist of short-term, highly liquid investments with an original maturity of less than three months. SECURITIES AVAILABLE FOR SALE The Company accounts for its investments in marketable securities in accordance with Financial Accounting Standards Board Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115) as securities available for sale. There were no significant realized gains or losses in fiscal 1998, 1997, and 1996. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined in a manner which approximates the first-in, first out (FIFO) method. Costs utilized for inventory valuation purposes include labor, materials and manufacturing overhead. Net inventories consist of the following: March 31, 1998 1997 ---------- ---------- Raw Materials $ 754,715 $ 815,868 Work in Process 9,763 9,763 Finished Goods 1,127,492 880,825 ---------- ---------- $1,891,970 $1,706,456 ========== ========== PROPERTY AND EQUIPMENT For financial statement purposes, depreciation expense on property and equipment is computed on the straight-line method using the following lives: Furniture and Fixtures............................5 years Machinery and Equipment...........................7 years Computer Equipment................................3 years Production Molds..................................5 years Leasehold improvements are amortized on the straight-line method over the shorter of the remaining term of the related lease or the estimated useful lives of the assets. Included in machinery and equipment and production molds are molds, tooling and production fixtures constructed or acquired by the Company under a supply agreement with Schering AG for the manufacture and sale of a needle-free self-injection system. The construction of these assets commenced in May and June 1996 and continued until January 1997 when they were ready for their intended use. Schering loaned the Company $1.6 million to fund acquisition of the assets, and therefore, in accordance with SFAS 34, the Company has capitalized $106,000 of interest incurred on this debt. OTHER ASSETS Other assets include costs incurred for the application of patents, totaling $503,344 and $455,694 at March 31, 1998 and 1997, respectively. These costs are amortized on a straight-line basis over 17 years. Accumulated amortization totaled $174,713 and $144,713 at March 31, 1998 and 1997, respectively. Amortization expense for the years ended March 31, 1998, 1997 and 1996 totaled $30,000, $30,000, and $20,000 respectively. Also included in other assets is the cost of assets acquired from Vitajet Corporation in a stock for assets exchange. In March 1998 the Company paid 100,000 shares of its common stock for certain molds, tooling, patent rights and customer lists, the value of which totaled $134,400 at the date of acquisition and is being amortized over 15 years. In addition to shares already paid, the Company is obligated to issue 60,000 shares of its common stock each year in each of the three years, subsequent to the acquisition if certain development milestones are met. Up to an additional 90,000 shares is also payable subject to the Company realizing specified, aggregate levels of incremental revenue during the three years subsequent to the Vitajet acquisition as a result of sales of products acquired from or developed by Vitajet ACCOUNTING FOR LONG-LIVED ASSETS In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of"(SFAS 121), which requires the Company to review for impairment of its long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. In certain situations, an impairment loss would be recognized. SFAS 121 became effective for the Company's year ended March 31, 1997. The Company continues to study the implications of SFAS 121 and, based on its evaluation, does not believe that an adjustment to the carrying value of its long-lived assets is necessary. REVENUE RECOGNITION FOR PRODUCT SALES The Company records revenue from sales of its products upon shipment. In fiscal 1998, 1997 and 1996, sales to one customer (different for each period presented) accounted for 12%, 17% and 75%, respectively, of net sales of products. At March 31, 1998, 1997 and 1996 accounts receivable from one customer (different for each period presented) accounted for 19%, 62%, and 67%, respectively, of total accounts receivable. RESEARCH AND DEVELOPMENT AND LICENSING/TECHNOLOGY REVENUES Licensing fees are recognized as revenue when due and payable. All licensing fee arrangements have been on a non-refundable basis and impose no future performance requirements or other obligations on the Company. Product development revenue is deferred upon receipt and is recognized as revenue as qualifying expenditures are incurred. Expenditures for research and development are charged to expense as incurred. SCHERING AG. In March 1994, the Company entered into a joint development agreement with Schering AG, a major pharmaceutical manufacturer, for the development of an application-specific self injection system (the "Self-Injector"). Under terms of the agreement, the Company received a $500,000 licensing fee in April 1994 and received partial funding of product development expenses on an agreed schedule. In fiscal 1995, the Company received a total of $1.1 million from Schering, consisting of $500,000 in licensing fees, which were recognized as revenue during fiscal 1995, and $600,000 of Phase I product development revenues, $444,000 of which were recognized as revenue in fiscal 1995. In fiscal 1996, the Company received an additional $660,000 and a total of $751,000 was recognized as revenue. In fiscal 1997, the Company received final product development payments totaling $349,500 and recognized revenue of $414,500. During fiscal 1997, the Company entered into a supply agreement with Schering and commenced activities related to preparing for production of the Self Injector. Schering loaned the Company a total of $1.6 million to purchase molds and tooling to produce the product. In January 1997, the Company received notice that its contract with Schering would be cancelled. Under provisions of the contract, Schering had the option of canceling the agreement if the FDA required extensive clinical studies beyond an originally planned safety study. Schering received a review letter from the FDA which would have required Schering to conduct additional material clinical studies in order to use non-traditional delivery mechanisms with its Betaseron (R) product. Under terms of the contract, Schering was required to convert its $1.6 million note due from Bioject into approximately 460,000 shares of Bioject common stock at a conversion price of $3.50 per share. In addition, $106,000 of accrued interest was converted into approximately 27,000 shares of Bioject common stock at a conversion price of $3.50 per share. Additionally, Schering was obligated to pay Bioject for the cost of product ordered through the date of cancellation of the contract. HOFFMANN-LA ROCHE. In January 1995, the Company entered into a joint development agreement with Hoffmann-La Roche, a major pharmaceutical manufacturer, for the development of application-specific products. The Company received a licensing fee totaling $500,000 which was recognized as revenue in fiscal 1995. The Company is also receiving specified product development fees on an agreed schedule. In fiscal 1996, the Company received $900,000, of which $399,000 was recognized as revenue. In fiscal 1997, the Company received $250,000 in product development fees and recognized revenue of $501,000. In fiscal 1998, the Company received $250,000 in product development fees and recognized revenues of $500,000. ELAN CORPORATION. On September 30, 1997, the Company signed a binding letter agreement (the "Agreement") with Elan Corporation, plc ("Elan") the goals of which included the development and commercialization of Elan's blood glucose monitoring technology and a collaborative arrangement to further develop the Company's jet injection technology. Among various terms, all of which were determined in arms-length negotiation, the Agreement provides for: - - Investment by Elan of $3 million in Bioject in exchange for approximately 2.7 million shares of common stock and a five year warrant to purchase 1.75 million shares of common stock at $2.50 per share. - - Formation of JV which is owned 80.1% by Bioject and 19.9% by Elan to further develop and commercialize the blood glucose monitoring technology. - - Payment of a $15 million up front fee and future milestone payments totaling $15.5 million and royalties on net sales in exchange for North American rights to Elan's blood glucose monitoring technology. - - The loan of $12.015 million to Bioject on a long-term promissory note bearing interest at 9% per annum through December 31, 1997 and 12% thereafter for the purpose of Bioject's investment in the new subsidiary's common stock. - - The investment by Elan of $2.985 million in JV's common stock. - - The commitment by Elan to further develop the blood glucose monitoring technology until the earlier of human clinical trials, March 31, 1998 or $2.5 million is expended by Elan. - - The submission to Bioject's shareholders of a proposal to approve the exchange of the long-term promissory note for $10 million plus accrued interest for the Company's Series A Convertible Preferred Stock and $2.015 million for Series B Convertible Preferred Stock, with the Series A Convertible Preferred Stock accruing dividends at the rate of 9% per annum (compounded semi-annually) and the Series B Convertible Preferred Stock accruing no mandatory dividends. - - The submission to Bioject's shareholders of a proposal to approve the issuance of up to $4 million of Bioject's Series C Convertible Preferred Stock to Elan to provide Bioject with funds to contribute toward JV's additional development funding needs. - - The agreement by Elan to extend the license on a worldwide basis if the shareholders approve the exchange of the $12.015 million promissory note for convertible preferred stock. - - The agreement by Elan to provide a grant of $500,000 toward development of Bioject's jet injection technology in a pre-filled application. Final closing agreements were signed among the Company, Elan and the Company's new subsidiary on October 15, 1997. On that date the $3 million investment in the Company was made by Elan and approximately 2.7 million shares of common stock and a warrant to purchase 1.75 million shares at $2.50 per share were issued. Elan loaned Bioject $12.015 million which Bioject transferred to the new subsidiary in exchange for 801,000 shares of the subsidiary's common stock. Elan invested $2.985 million in the new subsidiary in exchange for 199,000 shares of the subsidiary's common stock. The new subsidiary paid $15 million to Elan as its initial payment on the licensing agreement. On February 20, 1998, the Company's shareholders approved the exchange of the long-term promissory note plus accrued interest for Series A and Series B Convertible Preferred Stock and the issuance to Elan of Series C Convertible Preferred Stock or other similar convertible preferred stock to fund JV development work. Accordingly, on March 2, 1998, a total of 692,694 shares of Series A Convertible Preferred Stock and 134,333 shares of Series B Convertible Preferred Stock were issued to Elan and the promissory note was cancelled. The Company believes that the license is likely to run for most of the useful life of the products that may be commercialized under it. The license itself is contingent, on a country-by-country basis, on JV's diligently seeking and obtaining regulatory marketing clearance for licensed products and on JV's timely commercial launch of the licensed products in countries where such clearance has been obtained. In addition, in the event that a significant percentage of JV's equity is acquired by any one of a number of specified companies identified by Elan as actual or potential competitors, or any other entity to which Elan does not consent (which consent shall not be unreasonably withheld in the case of such other, unspecified companies), the license may be immediately terminated at the option of Elan. As of September 30, 1997, the Company recorded an expense of $15 million related to acquired in-process research and development expenditures. Such expense relates to the blood glucose monitoring technology that has not yet established technological feasibility and at present has no alternate future uses. Accounting rules require that such costs be charged to expense as incurred. The Company believes that these research and development efforts will result in commercially viable products within the next three to four years at an additional cost to the Company of at least $10 million, exclusive of additional milestone payments totaling $15.5 million due to Elan. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting For Income Taxes (SFAS 109). Under the liability method specified by SFAS 109, deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates for the years in which the taxes are expected to be paid. At March 31, 1998, the Company had total deferred tax assets of approximately $20 million, consisting principally of available net operating loss carryforwards. No benefit for these operating losses has been reflected in the accompanying financial statements as they do not satisfy the recognition criteria set forth in SFAS 109. Total deferred tax liabilities were insignificant as of March 31, 1998. As of March 31, 1998, BMT has net operating loss carryforwards of approximately $668,000 available to reduce future federal taxable income, which expire in 2008 through 2013. BI has net operating loss carryforwards of approximately $38.9 million available to reduce future federal taxable income, which expire in 2001 through 2013. JV has net operating loss carryforwards of approximately $12.6 million available to reduce future federal taxable income, which expire in 2013. Approximately $3.0 million of BI's carryforwards were generated as a result of deductions related to exercises of stock options. When utilized, this portion of BI's carryforwards, as tax effected, will be accounted for as a direct increase to contributed capital rather than as a reduction of that year's provision for income taxes. The principal differences between net operating loss carryforwards for tax purposes and the accumulated deficit result from capitalization of certain start-up costs and deductions related to the exercise of stock options for income tax purposes. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS Certain reclassifications have been made to the prior years' expenses to conform to the current year's presentation. NET LOSS PER SHARE Beginning with Fiscal 1998, basic earnings per shares (EPS) and diluted EPS are computed using the methods required by Statement of Financial Accounting Standard No. 128, Earnings per Share (SFAS 128). Under SFAS 128, basic EPS is calculated using the weighted average number of common shares outstanding for the period. The computation of diluted earnings per share includes the effects of stock options, warrants and convertible preferred stock, if such effect is dilutive. Prior period amounts have been restated to conform with the presentation requirements of SFAS 128. For the periods presented, the Company has been in a loss position and, accordingly there is no difference between basic EPS and diluted EPS since the common stock equivalents and the effect of convertible preferred stock under the "if-converted" method would be antidilutive. All earnings per share amounts in the following table are presented to conform to the SFAS 128 requirement: Year ended March 31, 1998 1997 1996 ------------ ------------ ------------ Net loss ($16,629,667) ($ 4,296,327) ($ 5,431,072) Weighted average number of shares of common stock and common stock equivalents outstanding: Weighted average number of common shares outstanding for computing basic earnings per share 23,151,135 16,705,274 14,074,349 Dilutive effect of warrants and stock options after applications of the treasury stock method * * * ------------ ------------ ------------ Weighted average number of common shares outstanding for computing diluted earnings per share 23,151,135 16,705,274 14,074,349 ============ ============ ============ Net loss per share - basic and diluted ($ 0.72) ($ 0.26) ($ 0.39) ============ ============ ============ *The following common stock equivalents are excluded from earnings per share calculations as their effect would have been antidilutive: Year ended March 31, 1998 1997 1996 Warrants and stock options 11,578,490 7,962,146 4,139,034 Convertible preferred stock 8,270,270 ---------- ---------- --------- 19,848,760 7,962,146 4,139,034 ========== ========== ========= 3. SEGMENT INFORMATION The Company has adopted the segment reporting requirements of SFAS No.131, Disclosures about Segments of an Enterprise and Related Information. At present, the Company has two reportable segments which offer different products and are managed separately because each business requires different technology and marketing strategies. The following sets forth the unaudited results of operations of the Company for its two segments of operations - jet injection technology and blood glucose monitoring technology (in thousands): Jet Injection Blood glucose Monitoring Year Ended Year Ended March 31, March 31, ---------------- ---------------- 1998 1997 1998 1997 -------- -------- -------- ------- REVENUES $ 1,935 $ 2,235 $ -- $-- EXPENSES: Manufacturing 1,749 1,863 -- -- R&D 884 1,596 -- -- Selling, general & administrative 3,427 3,177 97 -- Acquired in-process R&D -- -- 15,000 -- -------- -------- -------- ----- 6,060 6,636 15,097 -- -------- -------- -------- ----- Operating loss (4,125) (4,401) (15,097) -- Interest expense (390) -- -- -- Other income 109 105 -- -- -------- -------- -------- ----- (4,406) (15,097) -- MINORITY INTEREST ALLOCATION -- -- 2,985 -- -------- -------- -------- ----- NET LOSS (4,406) (4,296) (12,112) -- LESS - PREFERRED STOCK DIVIDENDS (112) -- -- -- -------- -------- -------- ----- NET LOSS ALLOCABLE TO COMMON SHAREHOLDERS $ (4,518) $ (4,296) $(12,112) $-- ======== ======== ======== ====== At March 31, 1998, no significant assets exist related to the blood glucose monitoring technology other than the acquired in-process research and development which, as discussed in Note 2 above, was required to be written off at acquisition. Accordingly, the accompanying consolidated balance sheets effectively represent the assets of the jet injection business segment. In the future, certain proceeds from the sale of equity or issuance of debt by JV may be restricted to JV operations only. To the extent that they meet certain reporting requirements, the separate assets, liabilities and equity of the parent and its subsidiary will be appropriately disclosed. 4. 401(K) RETIREMENT BENEFIT PLAN: The Company has a 401(k) Retirement Benefit Plan for its employees. All Employees, subject to certain age and length of service requirements, are eligible to participate. The plan permits certain voluntary employee contributions to be excluded from the employees' current taxable income under provisions of the Internal Revenue Code Section 401(k) and regulations thereunder. Effective January 1, 1996, the Company amended the plan to provide for voluntary employer matches of employee contributions up to 6% of salary and for discretionary profit sharing contributions to all employees. Such employer matches and contributions may be either in cash or Company common stock. For calendar 1996, the Company agreed to match 25% of employee contributions up to 6% of salary with Company stock. For calendar 1997 and 1998, the Company agreed to match 37.5% of employee contributions up to 6% of salary with Company stock. In fiscal 1998, 1997 and 1996, the Company recorded an expense of $21,755, $25,000 and $4,800, respectively, related to voluntary employer matches under the 401(k) Plan. The Board of Directors has reserved up to 100,000 shares of common stock for these voluntary employer matches of which 42,631 shares have been issued and 30,470 shares have been committed through March 31, 1998. 5. SHAREHOLDERS' EQUITY: PREFERRED STOCK The Company has authorized 10 million shares of preferred stock to be issued from time to time with such designations and preferences and other special rights and qualifications, limitations and restrictions thereon, as permitted by law and as fixed from time to time by resolution of the Board of Directors. During fiscal 1998, as described in note 2 regarding the Elan transactions, the Company borrowed $12.015 million from Elan for the purpose of investing such funds in JV. On February 20, 1998, the Company's shareholders approved the exchange of this debt, plus accrued interest, for Series A and Series B convertible preferred stock and approved the future issuance of Series C Convertible Preferred Stock. At March 31, 1998, the Company had preferred stock authorized and outstanding as follows: Series A Convertible Preferred Stock. Series A preferred stock accumulates dividends at 9% per annum, compounded semi-annually, payable in additional Series A Convertible Preferred Stock. Each original share may be converted at the holder's election into 10 shares of common stock and may be redeemed at the Company's election on the third, fourth and fifth anniversaries of issuance if the Company's common stock is greater than or equal to $2.25 per share by the payment to the holder of an amount equal to the original issuance price plus accumulated dividends thereon. If not earlier converted or redeemed, the original issuance price of the Series A Convertible Stock plus accumulated dividends thereon must be converted into common stock of the Company on October 15, 2004 at the lesser of $1.50 or 80% of the average of the closing prices of common stock for the ten trading days ending on October 13, 2004. The Series A Convertible Preferred Stock has preference in liquidation to the common stock of the Company. A total of 692,694 shares with an original issuance value of $15.00 per share has been issued. Series B Convertible Preferred Stock. Series B preferred stock has all of the rights and preferences of the Series A Convertible Preferred Stock including optional conversion, optional redemption and mandatory conversion except that it bears no mandatory dividend but participates in dividends pro rata with the common shareholders. A total of 134,333 shares of Series B Convertible Preferred Stock with an original issuance value of $15.00 per share have been issued. Series C Convertible Stock. Series C preferred stock has all of the rights and preferences of the Series A Convertible Preferred Stock including optional conversion, optional redemption and mandatory conversion except that it bears no mandatory dividend but participates in dividends pro rata with the common shareholders. Its original issuance price will be equal to market value, if and when such shares are issued. Proceeds are restricted for use in the JV. There are no shares issued and outstanding at March 31, 1998. Inherent dividend. As described above, under certain conditions the Series A and Series B Convertible Preferred Stock is convertible into common stock of the Company at a price which represents a 20% discount to its par value of $15.00 per share. The value of this inherent dividend has been recorded as a discount to preferred stock and an increase to common stock totaling $3 million and is being accreted as additional preferred stock dividends on a straight-line basis from March 2, 1998 until mandatory conversion on October 15, 2004. COMMON STOCK Holders of common stock are entitled to one vote for each share of record held on all matters to be voted on by shareholders. No shares have been issued subject to assessment, and there are no preemptive or conversion rights and no provision for redemption, purchase or cancellation, surrender or sinking or purchase funds. Holders of common stock are not entitled to cumulate their shares in the election of directors. A total of 100,000 shares of common stock have been reserved by the Board of Directors for issuance to 401(k) plan participants (see note 4) of which 42,631 shares have been issued and 30,470 shares are committed to be issued through March 31, 1998. STOCK OPTIONS Options may be granted to directors, officers and employees of the Company by the Board of Directors under terms of the Bioject Medical Technologies Inc. 1992 Stock Incentive Plan (the "Plan"), which was approved by the Company's shareholders on November 20, 1992 and adopted by the Board effective December 17, 1992. Under the terms of the Plan, eligible employees may receive statutory and nonstatutory stock options, stock bonuses and stock appreciation rights for purchase of shares of the Company's common stock at prices and vesting as determined by a committee of the Board. Except for options whose terms were extended, options granted under a prior plan maintain their previous option price, vesting and expiration dates. As amended in fiscal 1995, a total of up to 3,000,000 shares of the Company's common stock, including options outstanding at the date of initial shareholder approval of the Plan, may be granted under the Plan. Options outstanding at March 31, 1998 expire through April 2006. In October 1995, the Financial Accounting Standards Board issued Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123), which establishes a fair value-based method of accounting for stock-based compensation plans and requires additional disclosures for those companies that elect not to adopt the new method of accounting. The Company has elected to continue to account for stock options under APB Opinion No. 25, Accounting for Stock Issued to Employees. However, as prescribed by SFAS 123 the Company has computed, for pro forma disclosure purposes, the value of all options granted during fiscal 1998, 1997 and 1996 using the Black-Scholes option pricing model and the following weighted average assumptions: Year ended March 31, 1998 1997 1996 -------- -------- -------- Risk-free interest rate 6% 6% 6% Expected dividend yield 0% 0% 0% Expected life 1.5 yrs. 1.5 yrs. 1.5 yrs. Expected volatility 78% 47% 47% The total value of options granted during fiscal 1998, 1997 and 1996 would be amortized on a pro forma basis over the vesting period of the options. Options generally vest equally over three years. If the Company had accounted for these plans in accordance with SFAS 123, the Company's net loss and net loss per share would have increased as reflected in the following pro forma amounts (in thousands of $): Year ended March 31, 1998 1997 1996 ----------- ---------- ---------- Net loss: As reported $ (16,630) $ (4,296) $ (5,431) Pro forma $ (16,969) $ (4,480) $ (5,541) Net loss per share: As reported $ (0.72) $ (0.26) $ (0.39) Pro forma $ (0.73) $ (0.27) $ (0.39) The above determination of proforma expense has been calculated consistent with SFAS 123 which does not take into consideration limitations on exercisability and transferability imposed by the Company's Stock Incentive Plan. Further, the valuation model is heavily weighted to stock price volatility, even with a declining stock price, which tends to increase calculated value. The actual value, if any, and, therefore, imputed proforma expense will vary based on the exercise date and the market price of the related common stock when sold. Stock option activity is summarized as follows: Exercise Shares Price Amount ---------- ------------ ----------- Balances - March 31, 1995 1,543,650 $2.60-5.00 $ 5,906,967 Options granted 1,316,439 1.25-4.50 3,129,177 Options exercised -- -- -- Options canceled or expired (1,161,150) 2.34-5.00 (4,302,332) ---------- ---------- ----------- Balances - March 31, 1996 1,698,939 1.25-4.50 4,733,812 Options granted 705,525 1.00-1.30 830,006 Options exercised -- Options canceled or expired (472,906) 1.00-4.00 (809,880) ---------- ---------- ----------- Balances March 31, 1997 1,931,558 1.00-4.50 4,753,938 Exercise Shares Price Amount ---------- ------------ ----------- Options granted 2,086,642 .625-1.25 1,506,818 Options exercised (136,098) .75-1.31 (154,869) Options canceled or expired (1,567,179) 1.00-4.88 (4,179,757) ---------- ---------- ----------- Balances - March 31, 1998 2,314,923 $.625-4.88 $ 1,926,130 ========== ========== =========== The following table sets forth as of March 31, 1998 the number of shares outstanding, exercise price, weighted average remaining contractual life, weighted average exercise price, number of exercisable shares and weighted average exercise price of exercisable options by groups of similar price and grant date: OPTIONS OUTSTANDING OPTIONS EXERCISABLE Exercise Outstanding Weighted Average Weighted Exercisable Weighted Price shares Remaining Average Options Average at 3/31/98 Contractual Exercise Exercise Life(Years) Price Price - ------------ ----------- ----------- -------- --------- -------- $0.625 - 0.99 1,946,140 5.21 $0.71 989,910 $0.73 1.00 - 1.25 289,583 2.48 1.12 251,748 1.12 1.26 - 3.75 44,200 3.71 1.49 24,565 1.45 3.76 - 4.09 35,000 2.00 4.09 35,000 4.09 WARRANTS Warrant activity is summarized as follows: Exercise Shares Price Amount --------- ------------ ---------- Balances - March 31, 1995 - $ - $ - Warrants issued in a private placement expiring Nov. 2000 1,864,343 1.97 - 2.00 3,724,401 Warrants issued in a private placement expiring Feb. 1998 575,752 2.00 1,151,505 Warrants exercised - - - Warrants canceled or expired - - - --------- ------------ ---------- Balances - March 31, 1996 2,440,095 1.97 - 2.00 4,875,906 Warrants issued in a private placement expiring Dec. 2001 3,590,493 .82 - 1.00 3,562,413 Warrants exercised - - - Warrants canceled or expired - - - --------- ------------ ---------- Balances - March 31, 1997 6,030,588 .82 - 2.00 8,438,319 Warrants issued in a private placement expiring June 2002 1,478,488 .50 - .71 1,044,476 Warrants issued in a private placement expiring Sep. 2002 450,000 .85 - 1.10 450,000 Warrants issued in a private placement expiring Oct. 2002 1,750,000 2.50 4,375,000 Warrants issued for services expiring September 2002 130,243 1.10 143,267 Warrants exercised - - - Warrants canceled or expired (575,752) 2.00 (1,151,505) --------- ------------ ---------- Balances - March 31, 1998 9,263,567 $ .50 - 2.50 $13,299,557 ========= ============ ========== Warrants issued for services are accounted for in accordance with SFAS 123, "Accounting for Stock-Based Compensation," and accordingly, an expense totaling $81,350 has been recorded in the financial statements for the year ended March 31, 1998. All other warrants have been issued in connection with equity transactions. Subsequent to year end, the warrants issued in a private placement which would have expired in June 2002 were exercised in exchange for the Company's commitment to issue 147,850 new warrants with an expiration date of March 2003 and as an exercise price of $1.348 per share. 6. COMMITMENTS: Leases. BI has operating leases for its manufacturing, sales and administrative facilities and warehouse facilities with options to renew for an additional five-year term upon expiration. BI also leases office equipment under operating leases for periods up to five years. At March 31, 1998, future minimum payments under noncancellable operating leases with terms in excess of one year are as follows: Year Ending March 31, Facilities Equipment ---------- --------- 1999 $202,308 $29,250 2000 203,058 9,132 2001 216,888 9,132 2002 204,048 9,132 95,424 5,347 Thereafter Lease expense for the years ended March 31, 1998, 1997 and 1996 totaled $255,000, $283,000 and $221,000 respectively. 7. RELATED PARTY TRANSACTION: On October 22, 1997, Robert Gonnelli was elected Chairman of Bioject's joint venture subsidiary Board of Directors. From October 1997 through April 1998 he received no fees for such services but will participate in any future subsidiary director compensation programs including any subsidiary stock incentive plans. Effective May 1, 1998, Mr. Gonnelli became interim president of JV and will receive compensation totaling $15,000 per month. In addition to his position on the JV Board, Mr. Gonnelli serves as a consultant to the Company for which he received monthly consulting fees of $8,500 per month, aggregating to $50,500, in fiscal 1998. He was also issued 350,000 five year warrants in connection with the private placement completed with Elan and 130,243 warrants for his services related to investor relations and sales consulting. In fiscal 1999, in addition to his monthly fees through April 30, 1998, the Company has committed to issue up 100,000 warrants for his investor relations and sales consulting services. 8. SUBSEQUENT EVENT During April through July 1998, the Company received cash proceeds of approximately $2.4 million from the exercise of common stock options and common stock warrants, the exercise of which resulted in the issuance of 2,938,688 shares of the Company's common stock. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The Company has omitted from Part III the information that will appear in the Company's definitive proxy statement for its annual meeting of shareholders to be held on September 10, 1998(the "Proxy Statement"), which will be filed within 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is incorporated by reference to the information under the caption "DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT" in the Proxy Statement. Item 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to the information under the caption "EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS" in the Proxy Statement. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to the information under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the Proxy Statement. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to the information under the caption "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in the Proxy Statement. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: (1) Consolidated Financial Statements and Report of Independent Public Accountants are included under Item 8, in Part II. (2) Consolidated Financial Statement Schedules and Report of Independent Public Accountants on those schedules: None required (3) Exhibits: The following exhibits are filed as part of this report. An asterisk (*) beside the exhibit number indicates the subset of the exhibits containing each management contract, compensatory plan, or arrangement required to be identified separately in this report. Exhibit Number Exhibit Description - ------- ----------------------------------------------------------------- 3.1 Articles of Incorporation of Bioject Medical Technologies Inc. incorporated by reference to the same exhibit number of the Company's Form 10-K for the year ended January 31, 1993. 3.1.1 Articles of Amendment to the Articles of Incorporation of the Incorporation of the Company incorporation by reference to the Same exhibit number of the Company's Form 8-K filed March 6, 1998. 3.2 Amended and Restated By-laws of Bioject Medical Technologies Inc. Incorporated by reference to the same exhibit number of the Company's Form 10-Q for the quarter ended September 30, 1994. 4.3* Bioject Medical Technologies Inc. 1992 Stock Incentive Plan, as amended through April 3, 1997. Incorporated by reference to the same exhibit number of the Company's From 10-Q for the year ended December 31, 1997. 10.4 Lease Agreement dated March 21, 1989 between Spieker-Hosford- Eddy-Souther #174, Limited Partnership and Bioject Inc. for the Portland, Oregon facility incorporated by reference to the same exhibit number of Company's Form 10-K for the year ended January 31, 1989. 10.4.1 Amended Lease Agreement dated June 18, 1992 between Bridgeport Woods Investors (successors in interest to Spieker-Hosford-Eddy- Souther #174 Limited Partnership) and Bioject Inc. for the Portland, Oregon facility incorporated by reference to the same exhibit number of the Company's Form 10-K for the year ended January 31, 1993. 10.4.2 Lease Agreement dated September 10, 1996 between Bridgeport Woods Business park and Bioject Inc. for the Portland, Oregon facility. Incorporated by reference to the same exhibit number of the Company's Form 10-Q for the period ended September 30, 1996. 10.5 Lease Extension Agreement dated October 4, 1994, between Earl J. Itel and Loris Itel Trust and Bioject, Inc., for the 6000 sq. ft. Tualatin, Oregon warehouse. Incorporated by reference to the same exhibit number of the Company's Form 10-Q/A for the period ended December 31, 1996. 10.7* Executive Employment Contract with Peggy J. Miller, dated January 18, 1993 incorporated by reference to the same exhibit number of the Company's Form 10-K for the year ended January 31, 1993. 10.8* Executive Employment Contract with J. Michael Redmond, dated February 8, 1996. Incorporated by reference to the same exhibit number of the Company's Form 10-K for the year ended March 31, 1996. 10.14 Common Stock Purchase Agreement between Eli Lilly and Company and Bioject Medical Systems Ltd. dated April 29, 1992 incorporated by reference to the same exhibit number of Company's Form 8, dated May 28, 1992, amending Company's Form 10-K for the year ended January 31, 1992. 10.17 Development and Licensing Agreement between Eli Lilly & Company and Bioject Inc., dated April 29, 1992 incorporated by reference to the same exhibit number of Company's Form 8, dated October 9, 1992, amending Company's Form 10-Q for the quarter ended April 30, 1992. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 10.17.1 Amendment to Development and Licensing Agreement between Eli Lilly and Company and Bioject Inc., effective May 5, 1993 incorporated by reference to the same exhibit number of Company's Form S-1, No. 33-68846, dated November 1, 1993. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 406 under the Securities Act of 1933, as amended. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 10.23 Development and Licensing Agreement between Schering, AG, Bioject Inc. and Bioject Medical Technologies Inc. dated March 28, 1994 incorporated by reference to the same exhibit number of the Company's Form 10-K for the year ended March 31, 1994. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 24b-2 under the Securities exchange Act of 1934, as amended. 10.26 Heads of Agreement between Hoffmann-La Roche Inc. and Bioject Inc. dated January 10, 1995. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 24b-2 under the Securities Exchange Act of 1934 as amended. 10.27* Employment Agreement with James C. O'Shea dated October 3, 1995 incorporated by reference to the same exhibit number of the Company's Form 10-Q for the quarter ended September 30, 1995. 10.28 Form of Amended and Restated Registration Rights Agreement between Bioject Medical Technologies Inc. and the participants in the 1995 private placement incorporated by reference to exhibit 4.2 of the Company's Registration Statement on Form S-3 (No. 33-80679). 10.29 Form of Amended and Restated Series "A" Common Stock Purchase Warrant incorporated by reference to exhibit 4.3 of the Company's Registration Statement on Form S-3 (No. 33-80679). 10.30 Form of Series "B" Common Stock Purchase Warrant incorporated by reference to exhibit 4.4. of the Company's Registration Statement on Form S-3 (No. 33-80679). 10.31 Form of Amended and Restated Series "C" Common Stock Purchase Warrant incorporated by reference to exhibit 4.5 of the Company's Registration Statement on Form S-3 (No. 33-80679). Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 10.32 Supply Agreement dated June 26, 1996 between Bioject Inc. and Schering Aktiengesellschaft. Incorporated by reference to the same exhibit number of the Company's Form 8-K/A dated June 26, 1996. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 24b-2 under the Securities exchange Act of 1934, as amended. 10.32.1 Security Agreement dated June 26, 1996 between Bioject Inc. and Schering Aktiengesellschaft. Incorporated by reference to the same exhibit number of the Company's Form 10-Q for the period ended June 30, 1996. 10.33 Form of Series "D" Common Stock Purchase Warrant. Incorporated by reference to exhibit 4.6 of the Company's form 8-K dated December 11, 1996. 10.34 Form of Series "E" Common Stock Purchase Warrant. Incorporated by reference to exhibit 4.7 of the Company's Form 8-K dated December 11, 1996. 10.35 Form of Registration Rights Agreement between Bioject Medical Technologies Inc. and the participants in the 1996 private placement. Incorporated by reference to exhibit 4.8 of the Company's Form 8-K dated December 11, 1996. 10.36 Form of Series "F" Common Stock Purchase Warrant. 10.37 Form of Series "G" Common Stock Purchase Warrant. 10.38 Form of Registration Rights Agreement between Bioject Medical Technologies Inc. and the participants in the 1997 private placement. Incorporated by reference to the same exhibit number of the Company's Form 10-K for the year ended March 31, 1997. 10.39 Agreement between Elan Corporation, plc, Elan International Services, Ltd. and Bioject Medical Technologies, Inc. dated September 30, 1997. Incorporated by reference to the same exhibit number of the Company's Form 8-K filed October 3, 1997. 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. 10.40 License Agreement between Elan Corporation, plc and Bioject JV Subsidiary Inc. dated October 15, 1997. Incorporated by reference to the same exhibit number of the Company's Form 8-K/A filed January 22, 1998. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an application for Confidential Treatment filed with the Commission under Rule 24b-2(b) under the Securities Exchange Act of 1934, as amended. 10.40.1 Amendment to License Agreement between Elan Corporation, plc and Bioject JV Subsidiary Inc. dated October 15, 1997 incorporated by reference to the same exhibit number of the Company's Form 8-K filed on November 3, 1997. 10.41 Securities Purchase Agreement between Elan International Services, Ltd. and Bioject Medical Technologies Inc. dated October 15, 1997. 10.41.1 Amendment to Securities Purchase Agreement between Elan International Services, Ltd. and Bioject Medical Technologies Inc. dated October 15, 1997 incorporated by reference to the same exhibit number of the Company's Form 8-K filed on November 3, 1997. 10.42 Bioject Medical Technologies Inc. Registration Rights Agreement between Elan International Services, Ltd. and Bioject Medical Technologies Inc. dated October 15, 1997. Incorporated by reference to the same exhibit number of the Company's Form 8-K filed October 31, 1997. 10.43 Series K Warrant to Purchase Shares of Common Stock dated October 15, 1997. Incorporated by reference to the same exhibit number of the Company's Form 8-K filed October 31, 1997. 10.44 Promissory Note dated October 15, 1997 in favor of Elan International Services, Ltd. Incorporated by reference to the same exhibit number of the Company's Form 8-K filed on November 3, 1997. 10.45 Newco Subscription and Stockholders Agreement between Elan International Services, Ltd., Bioject Medical Technologies Inc. and Bioject JV Subsidiary Inc. dated October 15, 1997. Incorporated by Reference to the same exhibit number of the Company's Form 8-K/A filed January 22, 1998. 10.45.1 Amendment to Newco Subscription and Stockholders Agreement between Elan International Services, Ltd., Bioject Medical Technologies Inc. and Bioject JV Subsidiary Inc. dated October 15, 1997 incorporated by reference to the same exhibit number of the Company's Form 8-K filed on November 3, 1997. 10.46 Bioject JV Subsidiary Inc. Registration Rights Agreement between Elan International Services, Ltd. and Bioject JV Subsidiary Inc. dated October 15, 1997. Incorporated by reference to the same exhibit number of the Company's Form 8-K filed November 3, 1997. 10.47 Form of Series "H" Common Stock Purchase Warrant. 10.48 Form of Series "I" Common Stock Purchase Warrant. 10.49 Form of Series "J" Common Stock Purchase Warrant. 10.50 Form of Series "L" Common Stock Purchase Warrant. 10.51 Form of Series "M" Common Stock Purchase Warrant. 10.52 Form of Series "N" Common Stock Purchase Warrant. 10.53 Asset Purchase Agreement among Bioject Medical Technologies, Inc. Vitajet Corporation and Sergio Landau and Mara C. Landau dated March 23, 1998. 10.54* Executive Employment Agreement dated April 17, 1998 between Bioject Medical Technologies Inc., Bioject Inc., and Michael A. Temple. 10.55* Form of Termination Agreement between Bioject Technologies, Inc. and Peggy Miller. 10.56 Form of Massachussetts Biotechnology Research Park, Three Biotech Park, Space Lease dated April 20, 1998. 10.57 Amendment to Massachusetts Biotechnology Research Park Space Lease. 10.58 Restated 1992 Stock Incentive Plan. 10.59 Supply and Option Agreement between Merck & Co., Inc. and Bioject Medical Technolgies, Inc., effective as of June 8, 1998. 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 under the Securities Exchange Act of 1934, as amended. 10.60 Collaborative Alliance Agreement between GeneMedicine, Inc. and Bioject, Inc., made as of June 26, 1998. 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 under the Securities Exchange Act of 1934, as amended. 21 List of Subsidiaries 23 Consent of Independent Public Accountants 27 Financial Data Schedule (b) Forms 8K filed since last report: Form 8-K/A (Amendment No. 1) filed on January 22, 1998 amending Form 8-K originally filed on January 14, 1997 regarding a private placement in December 1996. Form 8-K filed on January 22, 1998 regarding amendments to Exhibit 10.40, Exhibit 10.41 and Exhibit 10.45 and filing such amendments as Exhibit 10.40.1, Exhibit 10.41.1 and Exhibit 10.45.1. 8-K/A (Amendment No. 2) filed on January 22, 1998 which refiled Exhibit 10.40 and Exhibit 10.45. Confidential Treatment was granted with regard to portions of Exhibit 10.40. Form 8-K filed on March 6, 1998 regarding results of Special Meeting Of Shareholders held on February 20, 1998. Form 8-K filed on March 27, 1998 for the purpose of filing as an exhibit the press release announcing the resignation of the Chief Financial Officer. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Bioject Medical Technologies Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized: BIOJECT MEDICAL TECHNOLOGIES INC. (Registrant) By: /S/ JAMES C. O'SHEA James C. O'Shea Chairman of the Board, President and Chief Executive Officer INDEX TO EXHIBITS Exhibit Number Exhibit Description - ------- ----------------------------------------------------------------- 3.1 Articles of Incorporation of Bioject Medical Technologies Inc. incorporated by reference to the same exhibit number of the Company's Form 10-K for the year ended January 31, 1993. 3.1.1 Articles of Amendment to the Articles of Incorporation of the Incorporation of the Company incorporation by reference to the Same exhibit number of the Company's Form 8-K filed March 6, 1998. 3.2 mended and Restated By-laws of Bioject Medical Technologies Inc. Incorporated by reference to the same exhibit number of the Company's Form 10-Q for the quarter ended September 30, 1994. 4.3* Bioject Medical Technologies Inc. 1992 Stock Incentive Plan, as amended through April 3, 1997. Incorporated by reference to the same exhibit number of the Company's From 10-Q for the year ended December 31, 1997. 10.4 Lease Agreement dated March 21, 1989 between Spieker-Hosford- Eddy-Souther #174, Limited Partnership and Bioject Inc. for the Portland, Oregon facility incorporated by reference to the same exhibit number of Company's Form 10-K for the year ended January 31, 1989. 10.4.1 Amended Lease Agreement dated June 18, 1992 between Bridgeport Woods Investors (successors in interest to Spieker-Hosford-Eddy- Souther #174 Limited Partnership) and Bioject Inc. for the Portland, Oregon facility incorporated by reference to the same exhibit number of the Company's Form 10-K for the year ended January 31, 1993. 10.4.2 Lease Agreement dated September 10, 1996 between Bridgeport Woods Business park and Bioject Inc. for the Portland, Oregon facility. Incorporated by reference to the same exhibit number of the Company's Form 10-Q for the period ended September 30, 1996. 10.5 Lease Extension Agreement dated October 4, 1994, between Earl J. Itel and Loris Itel Trust and Bioject, Inc., for the 6000 sq. ft. Tualatin, Oregon warehouse. Incorporated by reference to the same exhibit number of the Company's Form 10-Q/A for the period ended December 31, 1996. 10.7* Executive Employment Contract with Peggy J. Miller, dated January 18, 1993 incorporated by reference to the same exhibit number of the Company's Form 10-K for the year ended January 31, 1993. 10.8* Executive Employment Contract with J. Michael Redmond, dated February 8, 1996. Incorporated by reference to the same exhibit number of the Company's Form 10-K for the year ended March 31, 1996. 10.14 Common Stock Purchase Agreement between Eli Lilly and Company and Bioject Medical Systems Ltd. dated April 29, 1992 incorporated by reference to the same exhibit number of Company's Form 8, dated May 28, 1992, amending Company's Form 10-K for the year ended January 31, 1992. 10.17 Development and Licensing Agreement between Eli Lilly & Company and Bioject Inc., dated April 29, 1992 incorporated by reference to the same exhibit number of Company's Form 8, dated October 9, 1992, amending Company's Form 10-Q for the quarter ended April 30, 1992. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 10.17.1 Amendment to Development and Licensing Agreement between Eli Lilly and Company and Bioject Inc., effective May 5, 1993 incorporated by reference to the same exhibit number of Company's Form S-1, No. 33-68846, dated November 1, 1993. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 406 under the Securities Act of 1933, as amended. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 10.23 Development and Licensing Agreement between Schering, AG, Bioject Inc. and Bioject Medical Technologies Inc. dated March 28, 1994 incorporated by reference to the same exhibit number of the Company's Form 10-K for the year ended March 31, 1994. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 24b-2 under the Securities exchange Act of 1934, as amended. 10.26 Heads of Agreement between Hoffmann-La Roche Inc. and Bioject Inc. dated January 10, 1995. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 24b-2 under the Securities Exchange Act of 1934 as amended. 10.27* Employment Agreement with James C. O'Shea dated October 3, 1995 incorporated by reference to the same exhibit number of the Company's Form 10-Q for the quarter ended September 30, 1995. 10.28 Form of Amended and Restated Registration Rights Agreement between Bioject Medical Technologies Inc. and the participants in the 1995 private placement incorporated by reference to exhibit 4.2 of the Company's Registration Statement on Form S-3 (No. 33-80679). 10.29 Form of Amended and Restated Series "A" Common Stock Purchase Warrant incorporated by reference to exhibit 4.3 of the Company's Registration Statement on Form S-3 (No. 33-80679). 10.30 Form of Series "B" Common Stock Purchase Warrant incorporated by reference to exhibit 4.4. of the Company's Registration Statement on Form S-3 (No. 33-80679). 10.31 Form of Amended and Restated Series "C" Common Stock Purchase Warrant incorporated by reference to exhibit 4.5 of the Company's Registration Statement on Form S-3 (No. 33-80679). Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 10.32 Supply Agreement dated June 26, 1996 between Bioject Inc. and Schering Aktiengesellschaft. Incorporated by reference to the same exhibit number of the Company's Form 8-K/A dated June 26, 1996. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an Application for Confidential Treatment filed with the Commission under Rule 24b-2 under the Securities exchange Act of 1934, as amended. 10.32.1 Security Agreement dated June 26, 1996 between Bioject Inc. and Schering Aktiengesellschaft. Incorporated by reference to the same exhibit number of the Company's Form 10-Q for the period ended June 30, 1996. 10.33 Form of Series "D" Common Stock Purchase Warrant. Incorporated by reference to exhibit 4.6 of the Company's form 8-K dated December 11, 1996. 10.34 Form of Series "E" Common Stock Purchase Warrant. Incorporated by reference to exhibit 4.7 of the Company's Form 8-K dated December 11, 1996. 10.35 Form of Registration Rights Agreement between Bioject Medical Technologies Inc. and the participants in the 1996 private placement. Incorporated by reference to exhibit 4.8 of the Company's Form 8-K dated December 11, 1996. 10.36 Form of Series "F" Common Stock Purchase Warrant. 10.37 Form of Series "G" Common Stock Purchase Warrant. 10.38 Form of Registration Rights Agreement between Bioject Medical Technologies Inc. and the participants in the 1997 private placement. Incorporated by reference to the same exhibit number of the Company's Form 10-K for the year ended March 31, 1997. 10.39 Agreement between Elan Corporation, plc, Elan International Services, Ltd. and Bioject Medical Technologies, Inc. dated September 30, 1997. Incorporated by reference to the same exhibit number of the Company's Form 8-K filed October 3, 1997. 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. 10.40 License Agreement between Elan Corporation, plc and Bioject JV Subsidiary Inc. dated October 15, 1997. Incorporated by reference to the same exhibit number of the Company's Form 8-K/A filed January 22, 1998. Confidential treatment has been granted with respect to certain portions of this exhibit pursuant to an application for Confidential Treatment filed with the Commission under Rule 24b-2(b) under the Securities Exchange Act of 1934, as amended. 10.40.1 Amendment to License Agreement between Elan Corporation, plc and Bioject JV Subsidiary Inc. dated October 15, 1997 incorporated by reference to the same exhibit number of the Company's Form 8-K filed on November 3, 1997. 10.41 Securities Purchase Agreement between Elan International Services, Ltd. and Bioject Medical Technologies Inc. dated October 15, 1997. 10.41.1 Amendment to Securities Purchase Agreement between Elan International Services, Ltd. and Bioject Medical Technologies Inc. dated October 15, 1997 incorporated by reference to the same exhibit number of the Company's Form 8-K filed on November 3, 1997. 10.42 Bioject Medical Technologies Inc. Registration Rights Agreement between Elan International Services, Ltd. and Bioject Medical Technologies Inc. dated October 15, 1997. Incorporated by reference to the same exhibit number of the Company's Form 8-K filed October 31, 1997. 10.43 Series K Warrant to Purchase Shares of Common Stock dated October 15, 1997. Incorporated by reference to the same exhibit number of the Company's Form 8-K filed October 31, 1997. 10.44 Promissory Note dated October 15, 1997 in favor of Elan International Services, Ltd. Incorporated by reference to the same exhibit number of the Company's Form 8-K filed on November 3, 1997. 10.45 Newco Subscription and Stockholders Agreement between Elan International Services, Ltd., Bioject Medical Technologies Inc. and Bioject JV Subsidiary Inc. dated October 15, 1997. Incorporated by Reference to the same exhibit number of the Company's Form 8-K/A filed January 22, 1998. 10.45.1 Amendment to Newco Subscription and Stockholders Agreement between Elan International Services, Ltd., Bioject Medical Technologies Inc. and Bioject JV Subsidiary Inc. dated October 15, 1997 incorporated by reference to the same exhibit number of the Company's Form 8-K filed on November 3, 1997. 10.46 Bioject JV Subsidiary Inc. Registration Rights Agreement between Elan International Services, Ltd. and Bioject JV Subsidiary Inc. dated October 15, 1997. Incorporated by reference to the same exhibit number of the Company's Form 8-K filed November 3, 1997. 10.47 Form of Series "H" Common Stock Purchase Warrant. 10.48 Form of Series "I" Common Stock Purchase Warrant. 10.49 Form of Series "J" Common Stock Purchase Warrant. 10.50 Form of Series "L" Common Stock Purchase Warrant. 10.51 Form of Series "M" Common Stock Purchase Warrant. 10.52 Form of Series "N" Common Stock Purchase Warrant. 10.53 Asset Purchase Agreement among Bioject Medical Technologies, Inc. Vitajet Corporation and Serio Landau and Mara C. Landau dated March 23, 1998. 10.54* Executive Employment Agreement dated April 17, 1998 between Bioject Medical Technologies Inc., Bioject Inc., and Michael A. Temple. 10.55* Form of Termination Agreement between Bioject Technologies, Inc. and Peggy Miller. 10.56 Form of Massachussetts Biotechnology Research Park, Three Biotech Park, Space Lease dated April 20, 1998. 10.57 Amendment to Massachusetts Biotechnology Research Park Space Lease. 10.58 Restated 1992 Stock Incentive Plan 10.59 Supply and Option Agreement between Merck & Co., Inc. and Bioject Medical Technolgies, Inc., effective as of June 8, 1998. 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 under the Securities Exchange Act of 1934, as amended. 10.60 Collaborative Alliance Agreement between GeneMedicine, Inc. and Bioject, Inc., made as of June 26, 1998. 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 under the Securities Exchange Act of 1934, as amended. 21 List of Subsidiaries 23 Consent of Independent Public Accountants 27 Financial Data Schedule EX-21 2 SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF BIOJECT MEDICAL TECHNOLOGIES, INC. 1. Bioject, Inc. 2. Bioject JV Subsidiary, Inc. (80.1% owned) EX-23 3 CONSENT OF ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated April 30, 1998 included in this Form 10-K/A for the year ended March 31, 1998, into the Company's previously filed Registration Statements on Form S-3, File Nos. 33-80679, 333-18933, 333-30955 and 333-39421, and Registration Statements on Form S-8, File Nos. 33-94400, 33-56454, 33-42156 and 333-37017. /S/ ARTHUR ANDERSEN LLP Portland, Oregon August 5, 1998 EX-27 4 3-31-98 FINANCIALS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FILED AS PART OF THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K. 1 YEAR MAR-31-1998 APR-01-1997 MAR-31-1998 1,900,839 0 236,726 83,005 1,891,970 4,021,822 4,439,763 1,947,006 6,977,610 1,002,726 0 0 9,317,446 47,557,297 0 6,977,610 1,435,107 1,935,107 1,749,064 1,749,064 19,408,247 0 390,411 (19,502,632) 0 (19,502,632) 0 0 0 (16,629,667) (.72) (.72)
EX-10.59 5 CONTRACT SUPPLY AND OPTION AGREEMENT Between Merck and Co., Inc. And Bioject Medical Technologies, Inc. Effective As Of: June 8, 1998 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 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUPPLY AND OPTION AGREEMENT TABLE OF CONTENTS Section Page No. 1 Defined Terms......................................................2 2 Covenants of Bioject...............................................6 3 Options............................................................8 4 License And Know-How Agreement and Supply Agreement................9 5 Payment............................................................9 6 Representations and Warranties of Bioject.........................10 7 Regulatory and Intellectual Property..............................11 8 Termination.......................................................12 9 Bankruptcy of Bioject.............................................13 10 Notices...........................................................14 11 Successors and Assigns............................................15 12 Governing Law.....................................................15 13 Headings..........................................................15 14 Severability......................................................15 15 Force Majeure.....................................................15 16 Entire Agreement..................................................16 17 Public Announcement...............................................16 18 Confidentiality...................................................16 Schedule 1 SUPPLY AND OPTION AGREEMENT THIS SUPPLY AND OPTION AGREEMENT (the "AGREEMENT") is made effective as of June 8, 1998 ("EFFECTIVE DATE"), by and between Merck & Co., Inc., a New Jersey corporation having its principal place of business at One Merck Drive, P.O. Box 100, Whitehouse Station, New Jersey 08889-0100 ("MERCK"), and Bioject Medical Technologies, Inc. ("BIOJECT"), an Oregon corporation having its principal place of business at 7620 S.W. Bridgeport Road, Portland, Oregon 97224. W I T N E S S E T H: WHEREAS, BIOJECT is the manufacturer of B2000 SYSTEMS (defined hereinafter), owns PATENT ASSETS (defined hereinafter), owns certain KNOW-HOW (defined hereinafter), and is able to provide SUPPORT SERVICES (defined hereinafter); WHEREAS, MERCK desires to obtain from BIOJECT, and BIOJECT is willing to provide to MERCK, sufficient numbers of B2000 SYSTEMS to enable MERCK to [* * *] and [* * *] (defined hereinafter); WHEREAS, MERCK desires to obtain from BIOJECT, and BIOJECT is willing to provide to MERCK, KNOW-HOW and SUPPORT SERVICES to be used by MERCK in connection with [* * *]; and WHEREAS, MERCK desires to obtain from BIOJECT, and BIOJECT is willing to grant to MERCK, an [* * *] for the [* * *] (defined hereinafter) to (i) [* * *] from [* * *] under the [* * *] and [* * *] in connection with the [* * *] (defined hereinafter) and (ii) [* * *] a [* * *] (defined hereinafter) in connection with [* * *]; NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein, the sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. Defined Terms. As used herein, the following terms have the following respective meanings. (a) "AFFILIATE" means (i) any corporation or business entity of which fifty percent (50%) or more of the securities or other ownership interest, including equity, voting stock, or general partnership interest, is owned, controlled, or held, directly or indirectly, by MERCK or BIOJECT; or (ii) any corporation or business entity which, directly or indirectly, owns, controls, or holds fifty percent (50%) or more of the securities or other ownership interest, including equity, voting stock or, if applicable, a general partnership interest, of MERCK or BIOJECT. (b) "BIOJECT" has the meaning set forth in the preamble hereof. (c) "B2000 SYSTEMS" means the needle-free injection system marketed by BIOJECT in the United States as of the EFFECTIVE DATE under FDA 510(k) Application Number 960373, as approved by the FDA on March 5, 1997, and marketed elsewhere in the world under counterparts of that 510(k) Application, and any modification, improvement, or variant of that system which is marketed by BIOJECT in reliance upon or under that 510(k) Application or its counterparts, together with all components and accessories associated with the intramuscular or subcutaneous use of that system, including but not limited to actuators, gas cartridges, syringes, and vial adapters. (d) "DERMAL ADAPTOR" means the adaptor used in connection with B2000 SYSTEMS for purposes of dermal injection which is the subject of BIOJECT's pending FDA 510(k) Application K974194, filed November 12, 1997, and supplemented on March 26, 1998. (e) "EFFECTIVE DATE" shall have the meaning set forth in the preamble hereto. (f) "FDA" means the United States Food and Drug Administration. (g) "FIELD" means prophylactic and/or therapeutic DNA vaccination against any and all of the INFECTIOUS DISEASES using (i) [* * *], (ii) [* * *], or (iii) combinations of [* * *] and [* * *]. (h) [* * *] means [* * *]. (i) "INFECTIOUS DISEASES" means [* * *], and [* * *]. (j) "KNOW-HOW" means any and all BIOJECT information, including but not limited to discoveries, inventions, improvements, processes, formulae, and data, whether or not patentable, which during the TERM is not generally known and which is related to the use of B2000 SYSTEMS or DERMAL ADAPTORS in the FIELD. (k) [* * *] means a [* * *] by and between [* * *] and [* * *] in which [* * *] or [* * *], on terms and conditions to be agreed to by the parties, rights: (i) to [* * *] under the [* * *] and [* * *], (ii) which may be [* * *] by [* * *] or its [* * *], (iii)to [* * *], or [* * *] on a [* * *] with respect to [* * *] for [* * *] within the [* * *], (iv) which shall be SEMI-EXCLUSIVE RIGHTS with respect to the use of [* * *] within the FIELD and which shall be exclusive with respect to the use of [* * *] or combinations of [* * *] and [* * *] within the FIELD. (l) "MERCK" shall have the meaning set forth in the preamble hereto. (m) "MERCK PRODUCTS" means any product marketed by MERCK or MERCK's designated AFFILIATE in connection with the FIELD. (n) "MERCK RESEARCH" means any and all preclinical or clinical research by MERCK or any AFFILIATE of MERCK in connection with the FIELD. (o) "OPTION PERIOD" means the period beginning on the EFFECTIVE DATE and ending on [* * *]; provided, however, that MERCK may extend the OPTION PERIOD with respect to the use of [* * *] within the FIELD for [* * *] (ending [* * *]) upon written notice to BIOJECT and by paying BIOJECT [* * *] for the first of such extension periods and [* * *] for the second of such extension periods. The first of any such extension payment shall be due by [* * *] and the second of any such extension payment shall be due by [* * *]. These payments shall be made by wire transfer to a bank to be designated by BIOJECT. (p) "PATENT ASSETS" means any and all patents or patent applications, including all continuations, continuations-in-part, divisions, patents of addition, reissues, renewals, extensions, or foreign equivalents thereof, which, as of the EFFECTIVE DATE and thereafter, are owned by BIOJECT or any AFFILIATE of BIOJECT or can be licensed by BIOJECT, and which (i) are filed, issued, or published as of the EFFECTIVE DATE or thereafter, including but not limited to the patents listed in Schedule 1, and (ii) claim or otherwise cover B2000 SYSTEMS, the DERMAL ADAPTOR, or the use of B2000 SYSTEMS or the DERMAL ADAPTOR in the FIELD. (q) "SEMI-EXCLUSIVE RIGHTS" shall mean rights which are held by MERCK and no more than one third party for the use of [* * *] within the FIELD. (r) [* * *] means an [* * *] entered into by and between [* * *] or [* * *] and [* * *] in accordance with [* * *] in which [* * *] to [* * *], on terms and conditions to be agreed to by the parties, [* * *] and [* * *] or [* * *]. (s) "SUPPORT SERVICES" means (i) training and assistance rendered by BIOJECT to MERCK or its designated agents or clinicians at locations to be specified by MERCK, with respect to the use of B2000 SYSTEMS or KNOW-HOW in MERCK RESEARCH; and (ii) information and assistance provided by BIOJECT, at MERCK`s request, to MERCK, its agents, clinicians, or any regulatory agency responsible for the approval of MERCK RESEARCH or MERCK PRODUCTS, relating to the use of B2000 SYSTEMS or KNOW-HOW in connection with the MERCK RESEARCH or MERCK PRODUCTS. (t) "TERM" means the period beginning on the EFFECTIVE DATE and ending on May 1, 2000. (u) [* * *] means [* * *] and [* * *] after the [* * *] reflecting their understanding of certain terms and conditions of the [* * *] and [* * *], including but not limited to, with respect to the [* * *]. 2. Covenants of BIOJECT. (a) (i) BIOJECT covenants that it shall, at its own expense, and upon thirty (30) days notice by MERCK , deliver to recipients to be designated by MERCK [* * *] B2000 SYSTEMS, including components and accessories for such B2000 SYSTEMS in amounts sufficient for the administration of [* * *] injections. MERCK and its designated recipients shall have an unrestricted license to use these B2000 SYSTEMS and components and accessories in MERCK RESEARCH notwithstanding the termination of this AGREEMENT for reasons other than a judicial finding that MERCK is in breach. (ii) BIOJECT covenants that it shall, during the TERM, at its own expense, and as requested by MERCK or MERCK's agents, clinicians or designated AFFILIATE, provide MERCK, its agents, clinicians, AFFILIATE, or any regulatory agency designated by MERCK, with KNOW-HOW and SUPPORT SERVICES in connection with MERCK RESEARCH relating to [* * *]. (b) BIOJECT covenants that it shall, to the extent it has not done so by the EFFECTIVE DATE, disclose and provide copies to MERCK by July 31, 1998, of (i) any and all patents or pending patent applications which BIOJECT owns or is licensed under (including those listed in Schedule 1), or any patents or patent applications otherwise owned by an AFFILIATE of BIOJECT, which relate to the B2000 SYSTEM or the DERMAL ADAPTOR, any feature of the B2000 SYSTEM or the DERMAL ADAPTOR, or any use or manufacture of the B2000 SYSTEM or the DERMAL ADAPTOR; and (ii) any other patents or patent applications of which BIOJECT is aware, whether or not owned or licensed by BIOJECT, which relate to B2000 SYSTEMS, the DERMAL ADAPTOR, or the use or manufacture of B2000 SYSTEMS or the DERMAL ADAPTOR. (c) [* * *] that it shall, in any [* * *] of [* * *], including any [* * *] relating to [* * *] that it [* * *] and during the [* * *], expressly provide that the [* * *] shall not be [* * *] in connection with the [* * *]. [* * *] that such [* * *] on the [* * *]. It is expressly understood and agreed to by the parties that the covenants of this paragraph [* * *]. (d) [* * *] that it [* * *], and [* * *] would [* * *] within the [* * *] for the use of [* * *] and [* * *] within the [* * *] for the use of [* * *], or combinations of [* * *] and [* * *] within the [* * *]. 3. Options. (a) During the [* * *], shall have a [* * *] to [* * *] the [* * *] and the [* * *]. In this regard, it is expressly understood and agreed to by the parties that, (i) for the use of [* * *] within the [* * *] under this [* * *] and the [* * *] shall be [* * *] but for any [* * *] which [* * *] or may, consistent with [* * *]; and (ii) [* * *] under this [* * *] and the [* * *] shall be [* * *] with respect to the use of [* * *] and combinations of [* * *] and [* * *] within the [* * *]. (b) During the [* * *], or [* * *], shall have [* * *] to [* * *] a [* * *] under the [* * *] and [* * *] to [* * *] in connection with the [* * *]. 4. [* * *]. It is expressly understood and agreed to by the parties that, upon execution of this AGREEMENT, they shall promptly [* * *] (a) to prepare the [* * *] by no later than [* * *] from the signing by all parties of this AGREEMENT, and (b) thereafter to [* * *] as to [* * *] of the [* * *] and [* * *]. 5. Payment. In consideration for BIOJECT's provision of B2000 SYSTEMS to MERCK, the covenants of BIOJECT, and the options granted by BIOJECT to MERCK, MERCK shall make payments to BIOJECT by wire transfer to a bank to be designated by BIOJECT as follows. (a) MERCK shall pay BIOJECT the sum of [* * *] within thirty (30) days of the signing by both parties of this AGREEMENT; and (b) MERCK shall pay BIOJECT [* * *] within thirty (30) days of the earlier of [* * *] that the parties have agreed to the [* * *]; or (ii) four (4) months from the signing by all parties of this AGREEMENT; provided, however, that no payment shall be owed under this paragraph if MERCK has terminated this AGREEMENT in accordance with Section 8 before MERCK's written confirmation that the parties have agreed to the TERM SHEET. 6. Representations and Warranties of BIOJECT. (a) BIOJECT represents and warrants to MERCK that, as of the EFFECTIVE DATE: (i) BIOJECT has the full right, power, and authority to enter into this AGREEMENT and the transactions contemplated herein, and that it has not entered into any agreement which would preclude BIOJECT from performing its obligations under this AGREEMENT, including but not limited to [* * *]; (ii) no opinion or judgment against BIOJECT has been issued or entered which would in any way preclude BIOJECT's conveyance as of the EFFECTIVE DATE or thereafter of any rights with respect to B2000 SYSTEMS, DERMAL ADAPTORS, KNOW-HOW, or PATENT ASSETS, and that it is not aware of any pending claim against BIOJECT seeking such judgment; (iii) it has not received any communication from the FDA or other regulatory agency regarding defects with respect to B2000 SYSTEMS or issues with respect to the safety and efficacy of B2000 SYSTEMS; (iv) Schedule 1 is accurate and complete as of the EFFECTIVE DATE; (v) it is not aware of any fact which would call into question the suitability of B2000 SYSTEMS or DERMAL ADAPTORS for use in MERCK RESEARCH; (vi) that it is not aware of any intellectual property right of any third party which could preclude MERCK RESEARCH or the manufacture, use, sale, offer for sale, or importation of MERCK PRODUCTS in connection with the FIELD; (vii) it has not and will not enter into any agreement inconsistent with MERCK's rights under this AGREEMENT; and (vii) it shall take all steps and perform all acts necessary for it to be able to grant licenses under the LICENSE AND KNOW-HOW AGREEMENT to any and all PATENT ASSETS owned by any BIOJECT AFFILIATE. (b) BIOJECT represents and warrants to MERCK that, at the time of delivery to MERCK, or its designated clinicians or agents, the B2000 SYSTEMS supplied pursuant to this AGREEMENT will meet published design specifications, be free from defects of materials and workmanship, and be suitable for use in connection with MERCK RESEARCH. BIOJECT will repair or replace at its own cost any nonconforming or defective B2000 SYSTEM within forty-eight (48) hours of receipt from MERCK of written notice specifying in detail the nonconformity or defect. MERCK shall thereafter return any such defective or nonconforming B2000 SYSTEM to BIOJECT and BIOJECT shall provide to MERCK a written report explaining the reason for the nonconformity or defect. (c) BIOJECT represents and warrants to MERCK that it shall indemnify and hold MERCK harmless from any and all claims by any third party against MERCK (i) arising out of or relating in any way to this AGREEMENT; (ii) not resulting from a breach by MERCK of this AGREEMENT; and (iii) not resulting from the negligence of MERCK or its employees, agents, clinicians, or contractors. 7. Regulatory and Intellectual Property. (a) MERCK shall be responsible for the conduct and supervision of MERCK RESEARCH and the preparation and filing of any application for approval to market MERCK PRODUCTS. BIOJECT shall, at its own expense, cooperate with MERCK as necessary to obtain any regulatory approval needed by MERCK to use B2000 SYSTEMS in connection with MERCK RESEARCH or MERCK PRODUCTS and will, at MERCK's request, address any issues or answer any questions raised by regulatory authorities in connection with such use. MERCK shall inform BIOJECT of any adverse reaction reports made in connection with MERCK RESEARCH that involve B2000 SYSTEMS, KNOW-HOW, or SUPPORT SERVICES. (b) It is expressly understood and agreed to by the parties that BIOJECT shall not have any rights with respect to any preclinical or clinical information or intellectual property generated, developed, or invented solely by MERCK's employees or its clinicians, contractors, or agents as a result of MERCK RESEARCH. MERCK and BIOJECT shall, as between each other (and subject to any ownership interest held by MERCK's clinicians, contractors, or agents), own jointly any invention made by both (i) MERCK's employees or its clinicians, contractors, or agents, and (ii) any BIOJECT employee. MERCK shall have the first right to negotiate and enter into an assignment or exclusive license of BIOJECT's interest in such invention. (c) It is expressly understood and agreed to by the parties that MERCK, or its designated AFFILIATE, clinicians, or agents shall, upon termination of this AGREEMENT for reasons other than a finding that MERCK is in breach and subject to any continuing obligations under Section 18, be entitled free of charge to retain and use any KNOW-HOW or other information conveyed by BIOJECT to MERCK under this AGREEMENT prior to such termination. 8. Termination. Subject to and in accordance with Sections 2. (a)(i), 7. (c), 9., and 18., this AGREEMENT shall terminate on May 1, 2000, and may be terminated earlier: (a) by notice by either party during the TERM: (i) if it is shown by credible evidence that the other party is in breach of its material obligations hereunder by causes and reasons within its control and has not cured such breach within sixty (60) days after written notice requesting cure of the breach; or (ii) upon the filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings, or upon an assignment of a substantial portion of the assets for the benefit of creditors by the other party; or (b) by MERCK, upon thirty (30) days written notice to BIOJECT. 9. Bankruptcy of BIOJECT. In the event this AGREEMENT is terminated based on the bankruptcy of BIOJECT or by an appointed bankruptcy trustee, all rights and licenses granted under or pursuant to this AGREEMENT by BIOJECT to MERCK are, and shall otherwise be deemed to be for purposes of Section 365(n) of the Bankruptcy Code, licenses of rights to "intellectual property" as defined under Section 101(52) of the Bankruptcy Code. The parties agree that MERCK as licensee of such rights under this AGREEMENT, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code. The parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against BIOJECT under the Bankruptcy Code, MERCK shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property upon written request therefore by MERCK. Such intellectual property and all embodiments thereof shall be promptly delivered to MERCK (i) upon any such commencement of a bankruptcy proceeding and upon written request therefore by MERCK, unless BIOJECT elects to continue to perform all of its obligations under this AGREEMENT or (ii) if not delivered under (i) above, upon the rejection of this AGREEMENT by or on behalf of BIOJECT in the event of written request therefore by MERCK. 10. Notices. Any notices under or pursuant to this AGREEMENT shall be in writing. Such notices shall be delivered either by hand delivery, by telecopy or similar electronic medium, nationally recognized overnight courier or by certified or registered mail, return receipt requested addressed as follows: If to BIOJECT, to: President Bioject Medical Technologies, Inc. 7620 S.W. Bridgeport Road Portland, Oregon 97224 If to MERCK, to: Office of the Secretary WS-3AB-05 Merck & Co., Inc. P.O. Box 100 One Merck Drive Whitehouse Station, New Jersey 08889-0100 with a required copy to: Vice President, Corporate Licensing Merck & Co., Inc. P.O. Box 100 One Merck Drive Whitehouse Station, New Jersey 08889-0100 -- or at such other address as the party affected shall have previously designated by written notice in the manner hereinabove set forth. Notices shall be deemed given when sent, if sent by telecopy or similar electronic medium with delivery confirmed (conditioned upon the prompt mailing of the original of such transmission by first class mail or nationally recognized overnight courier); when delivered and receipted for (or upon the date of attempted delivery when delivery is refused), if hand delivered or sent by nationally recognized overnight courier; or when receipted for (upon the date of attempted delivery when delivery is refused or a properly addressed and mailed notice is returned as undeliverable or unclaimed), if sent by certified or registered mail. 11. Successors and Assigns. This AGREEMENT and all rights and powers granted hereby, will bind and inure to the benefit of the parties hereto and their respective successors and assigns. 12. Governing Law. This AGREEMENT shall be governed by, and construed in accordance with, the laws of the State of Delaware, exclusive of its choice of law provisions. The parties hereby consent to the jurisdiction of the courts of the State of Delaware with respect to the resolution of any claim or cause of action arising out of, or related in any way to, this AGREEMENT. 13. Headings. The headings preceding the text of the sections and paragraphs hereof are inserted solely for convenience of reference, and shall not constitute a part of this AGREEMENT, nor shall they affect its meaning, construction or effect. 14. Severability. In the event that any portion of this AGREEMENT shall be held illegal, void, or unenforceable, the remaining portions hereof shall remain in full force and effect. 15. Force Majeure. Neither party shall be found to be in breach or default of this AGREEMENT as a result of their failure to perform any obligation hereunder where such failure to perform is the result of an act of God, regulations or laws of any government, civil commotion, or strikes. 16. Entire Agreement. This AGREEMENT sets forth all of the promises, covenants, agreements, conditions and undertakings among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements, or conditions, express or implied, oral or written. 17. Public Announcement. Neither BIOJECT nor MERCK shall make any public announcement regarding this AGREEMENT without the prior written approval of the other, which approval shall not be unreasonably withheld. 18. Confidentiality. The parties and their respective representatives shall keep confidential the terms of this AGREEMENT and other information disclosed under or in connection herewith and shall not divulge such terms of or other information to any third party, except: (a) with the prior written consent of the other party; (b) as may be required by law, rule or regulation; (c) to legal counsel representing any party hereto with a notification of confidentiality; (d) to the parties' auditors, with a notification of confidentiality; and (e) to any court and court personnel in a judicial proceeding to enforce this AGREEMENT. To the extent feasible, prior notification of any disclosure pursuant to Section 18 (b) above shall be provided by the disclosing party to the non-disclosing parties twenty (20) days before the required disclosure date in order to allow the non-disclosing parties sufficient time to respond and object. It is understood and agreed to by the parties that the obligations of this section (a) shall survive the termination of this AGREEMENT, and (b) shall not apply to: (i) information which is now or which becomes part of the public domain without the fault of any party, (ii) information disclosed to a party by a third party having no obligation of confidentiality to any party, and (iii) information developed by a party independent of any disclosure by any other party. IN WITNESS WHEREOF, the undersigned, intending this to be a sealed instrument, have duly executed this AGREEMENT. MERCK & CO., INC. By: /s/ Edward M. Scolnick (SEAL) Edward M. Scolnick M.D. Title: President, MRL Date:__________________________ BIOJECT MEDICAL TECHNOLOGIES, INC. By: /s/ James O'Shea (SEAL) James O'Shea Title: CEO Date:__________________________ SCHEDULE 1 BIOJECT PATENTS AND PATENT APPLICATIONS PATENT NUMBER COUNTRY ISSUE DATE ------------- ------- ---------- [* * *] EX-10 6 10.60 CONTRACT 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 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. COLLABORATIVE ALLIANCE AGREEMENT THIS COLLABORATIVE ALLIANCE AGREEMENT (the "Agreement") is made as of June 26, 1998 (the "Effective Date") by and between GENEMEDICINE, INC., a Delaware corporation ("GENEMEDICINE"), and BIOJECT, INC., an Oregon corporation ("BIOJECT"). RECITALS WHEREAS, GENEMEDICINE possesses substantial experience and expertise in gene delivery and gene expression; WHEREAS, BIOJECT possesses substantial experience and expertise in the discovery, design and development of needle-free injection devices for the administration of prophylactic and therapeutic products; WHEREAS, GENEMEDICINE and BIOJECT wish to engage in a [* * *] collaborative alliance to validate and co-promote BIOJECT's needle-free injection devices in combination with GENEMEDICINE's proprietary gene delivery systems, to seek patent protection for such combined devices and delivery systems, and to develop and commercialize prophylactic and therapeutic, non-viral genetic vaccine products using such combined devices and delivery systems; WHEREAS, GENEMEDICINE and BIOJECT wish to enter into this Agreement to establish such collaborative alliance on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements contained herein, the parties hereto, intending to be legally bound, do hereby agree as follows: AGREEMENT ARTICLE 1 DEFINITIONS 1.1 "Affiliate" means an individual, trust, business trust, joint venture, partnership, corporation, association or any other entity which owns, is owned by or is under common ownership with a party. For the purposes of this definition, the term "owns" (including, with correlative meanings, the terms "owned by" and "under common ownership with") as used with respect to any party, shall mean the possession (directly or indirectly) of more than 50% of the outstanding voting securities of a corporation or comparable equity interest in any other type of entity. 1.2 "BIOJECT Know-How" means all Know-How which is not covered by the BIOJECT Patent Rights but is necessary or appropriate to develop, manufacture and commercialize Products in the Field, and which is under the Control of BIOJECT as of the Effective Date or during the Term, including, without limitation, Know-How covering BIOJECT's Dermal Devices, Biojectors and other proprietary NFIDs. 1.3 "BIOJECT Patent Rights" means all Patent Rights necessary or appropriate to develop, manufacture and commercialize Products in the Field, which are under the Control of BIOJECT as of the Effective Date or during the Term, including, without limitation, Patent Rights covering BIOJECT's Dermal Devices, Biojectors and other proprietary NFIDs, but excluding the Joint Patent Rights. The BIOJECT Patent Rights as of the Effective Date are set forth on Exhibit A. 1.4 "BIOJECT Technology" means the BIOJECT Patent Rights and the BIOJECT Know-How. 1.5 "Biojector" means any BIOJECT NFID designed and used for the intra-muscular and/or subcutaneous administration of therapeutic products. 1.6 "Collaborative Alliance" means the activities of the parties carried out in performance of, and the relationship between the parties established by, this Agreement. 1.7 "Confidential Information" means any confidential information (including information related to the GENEMEDICINE Technology, the BIOJECT Technology or any information generated during the course of the Collaborative Alliance) of a party relating to any use, process, method, compound, research project, work in process, future development, scientific, engineering, manufacturing, marketing, business plan, financial or personnel matter relating to the disclosing party, its present or future products, sales, suppliers, customers, employees, investors or business, whether in oral, written, graphic or electronic form. Confidential Information shall not include any information which the receiving party can prove by competent and contemporaneous written evidence: (a) is now, or hereafter becomes, through no act or failure to act on the part of the receiving party, generally known or available; (b) is known by the receiving party at the time of receiving such information, as evidenced by its records; (c) is hereafter furnished to the receiving party by a Third Party, as a matter of right and without restriction on disclosure; (d) is independently developed by the receiving party without knowledge of, and without the aid, application or use of, the disclosing party's Confidential Information; or (e) is the subject of a written permission to disclose provided by the disclosing party. 1.8 "Contributed Technology" means the GENEMEDICINE Technology or the BIOJECT Technology, as applicable. 1.9 "Control" means possession of the ability to grant a license or sublicense as provided for herein without violating the terms of any agreement or other arrangement with any Third Party. 1.10 "Corporate Partner" means any company or entity that has therapeutic or prophylactic product revenues in excess of [* * *] per year. 1.11 "Dermal Device" means any NFID that primarily reproducibly delivers a drug or drug formulation to the dermis/epidermis. 1.12 "Direct Competitor" means any corporation or entity that is a direct competitor of GENEMEDICINE in the Field, as set forth on a list developed by the parties pursuant to Section 4.3 and approved by the Steering Committee from time to time during the Term. 1.13 "Field" means therapeutic and prophylactic, non-viral genetic vaccine applications. 1.14 "Gene Delivery System" means any gene delivery system composed of one or more of the following elements: polymers, cationic lipids, targeting ligands and endosomal release peptides that control the stability, distribution, access, recognition, uptake and intracellular trafficking of a plasmid by a target cell. 1.15 "GENEMEDICINE Know-How" means all Know-How which is not covered by the GENEMEDICINE Patent Rights but is necessary or appropriate to develop, manufacture and commercialize Products in the Field, and which is under the Control of GENEMEDICINE as of the Effective Date or during the Term, including, without limitation, Know-How covering GENEMEDICINE's proprietary Gene Delivery Systems. 1.16 "GENEMEDICINE Patent Rights" means all Patent Rights necessary or appropriate to develop, manufacture and commercialize Products in the Field, which are under the Control of GENEMEDICINE as of the Effective Date or during the Term, including, without limitation, Patent Rights covering GENEMEDICINE's proprietary Gene Delivery Systems, but excluding the Joint Patent Rights. The GENEMEDICINE Patent Rights as of the Effective Date are set forth on Exhibit B. 1.17 "GENEMEDICINE Technology" means the GENEMEDICINE Patent Rights and the GENEMEDICINE Know-How. 1.18 "Joint Patent Rights" means all Patent Rights covering all inventions conceived of and reduced to practice during the Term jointly by employees or agents of BIOJECT and employees or agents of GENEMEDICINE. 1.19 "Know-How" means all know-how, trade secrets, inventions, data, processes, techniques, procedures, compositions, devices, methods, formulas, protocols and information, whether or not patentable, which are not generally publicly known, including, without limitation, all chemical, biochemical, toxicological, and scientific research information. 1.20 "NFID" means any needle-free injection device that relates to an apparatus that is capable of injecting material through and/or to the skin of a mammal into the tissue by gas and/or mechanical pressure. 1.21 "Patent Rights" means all rights under patents and patent applications, and any and all patents issuing therefrom (including utility, model and design patents and certificates of invention), together with any and all substitutions, extensions (including supplemental protection certificates), registrations, confirmations, reissues, divisionals, continuations, continuations-in-part, re-examinations, renewals and foreign counterparts of the foregoing. 1.22 "Product" means any product comprised of a NFID and a Gene Delivery System, which is covered by, based on or incorporates both GENEMEDICINE Technology and BIOJECT Technology. 1.23 "Steering Committee" means the committee established pursuant to Section 3.1. 1.24 "Term" has the meaning set forth in Section 10.1. 1.25 "Third Party" means any entity other than GENEMEDICINE or BIOJECT or an Affiliate of GENEMEDICINE or BIOJECT. ARTICLE 2 SCOPE OF COLLABORATIVE ALLIANCE 2.1 Objectives. During the Term, GENEMEDICINE and BIOJECT will participate in a [* * *] collaborative alliance to validate and co-promote BIOJECT's needle-free injection devices in combination with GENEMEDICINE's proprietary gene delivery systems, to seek patent protection for such combined devices and delivery systems, and to develop and commercialize prophylactic and therapeutic, non-viral genetic vaccine products using such combined devices and delivery systems. Each party will utilize the Contributed Technology to develop Products in the Field. Products developed under the Collaborative Alliance are intended to be commercialized by Corporate Partners, in accordance with the terms and conditions set forth herein. 2.2 [* * *]. (a) During the Term and subject to Section 2.2(b), GENEMEDICINE hereby agrees that it will not [* * *] a [* * *] using any [* * *] with GENEMEDICINE's [* * *] in the [* * *]. Notwithstanding the foregoing, in the event a [* * *] decides to [* * *] (rather than a [* * *]) for a particular indication (e.g. [* * *]), (i) GENEMEDICINE shall have the right to [* * *] a [* * *] with such [* * *] to use such [* * *] with GENEMEDICINE's [* * *] for such indication, and (ii) if GENEMEDICINE [* * *] to any of its [* * *] to such [* * *] for such indication, BIOJECT shall have the right to [* * *] a [* * *] with a [* * *], including a [* * *], to use [* * *] with a [* * *] for such indication. (b) During the Term and subject to Section 2.2(a), BIOJECT hereby agrees that it will not [* * *] a [* * *] with any [* * *] in the [* * *]. Notwithstanding the foregoing, (i) BIOJECT may [* * *] a [* * *] with a [* * *] who has an [* * *] established prior to the Effective Date with a [* * *], or (ii) in the event a [* * *] decides to use either its own [* * *] or a [* * *] (rather than a [* * *]) for a particular indication, (A) BIOJECT shall have the right to [* * *] a [* * *] with such [* * *] to use such [* * *] or [* * *] with [* * *] for such indication, and (B) if BIOJECT [* * *] to its [* * *] to such [* * *] for such indication, GENEMEDICINE shall have the right to [* * *] a [* * *] with a [* * *] to use [* * *] with a [* * *] for such indication. (c) For the avoidance of doubt, it is understood by both parties that, before either party may [* * *] with a [* * *] (other than a [* * *]) that has or is contemplating [* * *] in the [* * *], such party must present information regarding such [* * *] and [* * *] to, and receive approval by, the Steering Committee. (d) Neither party shall be entitled to use the Contributed Technology of the other party in connection with the business relationships contemplated under this Section 2.2. Notwithstanding the foregoing, except as specifically provided herein, all activities of the parties outside of the Collaborative Alliance are outside of the scope of this Agreement, and nothing herein is intended to limit GENEMEDICINE or its Affiliates from using the GENEMEDICINE Technology and any Joint Patent Rights or BIOJECT or its Affiliates from using the BIOJECT Technology and any Joint Patent Rights for other purposes. ARTICLE 3 STEERING COMMITTEE 3.1 Formation. The activities of the parties under the Collaborative Alliance shall be managed by the Steering Committee, which shall be comprised of two representatives appointed by GENEMEDICINE and two representatives appointed by BIOJECT. Such representatives shall be senior members of management from each of the parties. Either party may appoint substitute or replacement members of the Steering Committee to serve as their representatives upon notice to the other party. The Steering Committee shall oversee the activities of the parties under the Collaborative Alliance and shall have the responsibility and authority to (a) coordinate and monitor the progress of the Collaborative Alliance, (b) encourage and facilitate communication, cooperation and technology integration between the parties in the performance of the Collaborative Alliance, (c) coordinate promotional efforts of the parties to identify, contact and negotiate with Corporate Partner candidates, (d) determine from time to time during the Term if any corporation or entity is a Direct Competitor, and (e) evaluate and approve additional animal and/or human studies that may be financed jointly by GENEMEDICINE and BIOJECT in the course of the Collaborative Alliance. 3.2 Meetings. The Steering Committee will initially meet at least three times per year at locations and times to be determined by the Steering Committee, with the intent of meeting at alternating locations in The Woodlands, Texas and Portland, Oregon, with each party to bear all travel and related costs for its representatives. Each meeting shall be chaired by a Steering Committee member from the host party. 3.3 Decision-Making Process. Each member of the Steering Committee shall have one vote, and decisions by the Steering Committee shall be made by a majority vote. Any disagreement among members of the Steering Committee will be resolved within the Steering Committee based on the efficient achievement of the objectives of this Agreement. Any disagreement which cannot be resolved by a majority vote of the Steering Committee shall be referred to the Chief Executive Officer or President of each of GENEMEDICINE and BIOJECT for resolution under Article 12. It is the intent of the parties to resolve issues through the Steering Committee whenever possible and to refer issues to the Chief Executive Officer or President of each of GENEMEDICINE and BIOJECT only when resolution through the Steering Committee cannot be achieved. In particular, in the event the Steering Committee fails to reach a decision as to whether a corporation or entity is a Direct Competitor, the Chief Executive Officer or President of each of GENEMEDICINE and BIOJECT shall render a definitive decision within 10 business days after being notified that the Steering Committee has failed to reach a decision. ARTICLE 4 ACTIVITIES UNDER THE COLLABORATIVE ALLIANCE 4.1 GENEMEDICINE Contributions. Unless otherwise agreed upon by the Steering Committee, GENEMEDICINE will conduct, at its own expense, animal studies involving BIOJECT's NFIDs (including Dermal Devices and Biojectors) in combination with GENEMEDICINE's proprietary Gene Delivery Systems. GENEMEDICINE will own all data generated from these studies, which shall be considered Confidential Information of GENEMEDICINE, but will disclose such data to BIOJECT solely for the purpose of entering into collaborative business relationships with Third Parties in accordance with this Agreement. 4.2 BIOJECT Contributions. BIOJECT will supply to GENEMEDICINE NFIDs (including Dermal Devices and Biojectors) and associated reagents and supplies, at no cost to GENEMEDICINE, to perform animal studies under the Collaborative Alliance. BIOJECT will use commercially reasonable and diligent efforts, at its expense, to assist GENEMEDICINE in the development and enhancement of BIOJECT NFIDs that are compatible with GENEMEDICINE's proprietary Gene Delivery Systems (e.g. no or minimal DNA shearing and reproducible performance). 4.3 Initial Meeting. Within 30 business days following the Effective Date, representatives from each party shall meet at GENEMEDICINE's offices in The Woodlands, Texas to (a) develop a patent strategy for the Contributed Technology and (b) develop a list of companies considered Direct Competitors. It is understood that the list of Direct Competitors may be revised from time to time to reflect the appropriate Direct Competitors and that the Steering Committee is responsible for approving any modification to the list of Direct Competitors. 4.4 [* * *]. GENEMEDICINE will conduct a [* * *] the [* * *] to a [* * *] known as the [* * *]. GENEMEDICINE and BIOJECT will share equally the costs and expenses of such [* * *], and will own jointly the [* * *] from the such [* * *]. The total cost of such [* * *] shall not exceed [* * *]. 4.5 Additional Studies. GENEMEDICINE will conduct any additional animal and/or human studies in the course of the Collaborative Alliance approved in writing by GENEMEDICINE and BIOJECT. GENEMEDICINE and BIOJECT will share equally the costs and expenses of any such additional studies, and will own jointly the data generated from any such studies. 4.6 Funding. Each party will bear all of its own costs and expenses with respect to the activities performed by such party pursuant to the Collaborative Alliance (e.g. promotional efforts, manufacture of plasmids and formulated plasmids, NFIDs and patent costs). 4.7 Mutual Responsibilities; Cooperation. Each party shall use commercially reasonable and diligent efforts to perform its responsibilities under the Collaborative Alliance. As used herein, the term "commercially reasonable and diligent efforts" will mean, unless the parties agree otherwise, those efforts consistent with the exercise of prudent scientific and business judgment, as applied to other products of similar scientific and commercial potential within the relevant product lines of the parties. Upon reasonable advance notice, each party agrees to make its employees and non-employee consultants reasonably available at their respective places of employment to consult with the other party on issues arising during the Collaborative Alliance and in connection with any request from any regulatory agency, including, without limitation, regulatory, scientific, technical and clinical testing issues. 4.8 Availability of Resources. Each party will maintain laboratories, offices and all other facilities reasonably necessary to carry out the activities to be performed by such party pursuant to the Collaborative Alliance. 4.9 Disclosure; Reports. Each party shall make available and disclose to the other party promptly after the Effective Date all GENEMEDICINE Know-How or BIOJECT Know-How, as applicable, known by such party as of the Effective Date. During the Term, (a) each party will share all research data and results with the other party promptly after such data and results become available, and (b) the parties will exchange, at a minimum, quarterly written reports (with copies to the Steering Committee) presenting a meaningful summary of the activities performed by such party pursuant to the Collaborative Alliance. In addition, on reasonable request by a party, the other party shall make presentations of its activities under this Agreement to inform such party of the details of the work performed under this Agreement during the Term. Know-How and other information disclosed by one party to the other party pursuant hereto may be used only in accordance with the rights granted under this Agreement. ARTICLE 5 GRANT OF LICENSES 5.1 Research License to BIOJECT. Subject to the terms and conditions of this Agreement and during the Term, GENEMEDICINE grants to BIOJECT a royalty-free, worldwide, non-exclusive, non-sublicensable, non-transferable license under the GENEMEDICINE Technology for the sole purpose of performing its duties and obligations under the Collaborative Alliance. 5.2 Research License to GENEMEDICINE. Subject to the terms and conditions of this Agreement and during the Term, BIOJECT grants to GENEMEDICINE a royalty-free, worldwide, non-exclusive, non-sublicensable, non-transferable license under the BIOJECT Technology for the sole purpose of performing its duties and obligations under the Collaborative Alliance. ARTICLE 6 CORPORATE PARTNERING 6.1 Co-Promotion. The parties agree to co-promote Products in the Field resulting from the Collaborative Alliance to Corporate Partners. To this end, the parties will use commercially reasonable and diligent efforts to identify, contact and negotiate with Corporate Partners. The Steering Committee shall direct and coordinate such efforts of the parties. The parties will use commercially reasonable and diligent efforts to ensure that joint presentations are provided to each Corporate Partner. In the event that a party is unable to attend a presentation to a Corporate Partner, such party's role in the Collaborative Alliance will be acknowledged during the presentation. BIOJECT and GENEMEDICINE will develop a mutually acceptable standard promotional package that either party may present to a Corporate Partner. 6.2 Business Proposals; Negotiations. Following the presentation described in Section 6.1 and upon request by a Corporate Partner for a business proposal relating to a Product in the Field, [* * *] shall (a) [* * *] a business proposal to present to such Corporate Partner, (b) submit such business proposal to such Corporate Partner, and (c) [* * *] with such Corporate Partner [* * *]; provided, however, that (i) [* * *] all negotiations with such Corporate Partner, and (ii) any agreement with a Corporate Partner that [* * *] shall be subject to [* * *]. Under all circumstances, the terms and conditions of any agreement to be entered into by the parties with a Corporate Partner will be subject to the approval of both parties. In any event, the parties agree to evaluate in good faith each negotiation and to devise a negotiating strategy that is mutually acceptable to the parties. 6.3 [* * *]. The parties anticipate that each party's [* * *] will be licensed to a Corporate Partner as [* * *]. However, subject to Section 2.2, in the event that a Corporate Partner [* * *] of [* * *], [* * *] may negotiate and enter into a business relationship with such Corporate Partner with respect to [* * *]. 6.4 BIOJECT Support Services. In the event any of BIOJECT's NFIDs (including Dermal Devices and Biojectors) are sold to, or purchased by, a Corporate Partner for use with GENEMEDICINE's proprietary Gene Delivery Systems, BIOJECT shall provide support services, at its expense, to GENEMEDICINE in accordance with BIOJECT's standard practices. ARTICLE 7 PATENT RIGHTS AND INFRINGEMENT 7.1 Ownership of Patent Rights. Ownership of inventions conceived of or reduced to practice in the course of the Collaborative Alliance shall be determined in accordance with the rules of inventorship under United States patent laws. BIOJECT shall own all BIOJECT Technology and all inventions conceived of and reduced to practice in the course of the Collaborative Alliance during the Term solely by its employees and agents, and all patent applications and patents claiming such inventions. GENEMEDICINE shall own all GENEMEDICINE Technology and all inventions conceived of and reduced to practice in the course of the Collaborative Alliance during the Term solely by its employees and agents, and all patent applications and patents claiming such inventions. All Joint Patent Rights shall be owned jointly by BIOJECT and GENEMEDICINE; provided, however, that, during the Term, BIOJECT shall not license to any Direct Competitor any Joint Patent Rights claiming methods of use of a NFID conceived of or reduced to practice in the course of the Collaborative Alliance. 7.2 Prosecution and Maintenance of Patent Rights. (a) GENEMEDICINE shall be responsible, at its own expense, for the filing, prosecution and maintenance of all patent applications and patents within the GENEMEDICINE Patent Rights and any inventions conceived of and reduced to practice in the course of the Collaborative Alliance during the Term solely by its employees and agents. BIOJECT shall be responsible, at its own expense, for the filing, prosecution and maintenance of all patent applications and patents within the BIOJECT Patent Rights and any inventions conceived of and reduced to practice in the course of the Collaborative Alliance during the Term solely by its employees and agents. Each party shall consider in good faith the requests and suggestions of the other party with respect to strategies for filing, prosecuting and maintaining such patent applications and patents. The inventing party shall keep the other party informed of progress with regard to the filing, prosecution, maintenance, enforcement and defense of patents applications and patents subject to this Section 7.2(a). In the event that either party desires to abandon any patent application or patent within the Patent Rights of such party, or if such party later declines responsibility for any such patent application or patent, such party shall provide reasonable prior written notice to the other party of such intention to abandon or decline responsibility, and the other party shall have the right, at its own expense, to file, prosecute, and maintain such patent application or patent. (b) The Steering Committee shall determine which party shall be responsible for the filing, prosecution and maintenance of patent applications and patents within the Joint Patent Rights on a case by case basis, with the understanding that it is the parties' intent that GENEMEDICINE will be responsible for the filing, prosecution and maintenance of patent applications and patents within the Joint Patent Rights related to gene delivery and gene expression and BIOJECT will be responsible for the filing, prosecution and maintenance of patent applications and patents within the Joint Patent Rights related to NFIDs. In the event that a party responsible for the filing, prosecution and maintenance of any patent application or patent within the Joint Patent Rights desires to abandon such patent application or patent, or if such party later declines responsibility for such patent application or patent, such party shall provide reasonable prior written notice to the other party of its intention to abandon or decline responsibility, and the other party shall have the right, but not the obligation, to prepare, file, prosecute, and maintain any such patent application or patent within the Joint Patent Rights. The parties shall share equally the costs of filing, prosecuting and maintaining patents or patent applications within the Joint Patent Rights. 7.3 Cooperation of the Parties. Each party agrees to cooperate fully in the preparation, filing, and prosecution of any Patent Rights under this Agreement. Such cooperation includes, but is not limited to: (a) executing all papers and instruments, or requiring its employees or agents, to execute such papers and instruments, so as to effectuate the ownership of Patent Rights set forth in Section 7.1 and to enable the other party to apply for and to prosecute patent applications in any country; and (b) promptly informing the other party of any matters coming to such party's attention that may affect the preparation, filing, or prosecution of any such patent applications. 7.4 Enforcement Rights. (a) Infringement of Third Party Rights. GENEMEDICINE and BIOJECT shall promptly notify the other in writing of any allegation by a Third Party that the activity of either of the parties in connection with the Collaborative Alliance infringes or may infringe the intellectual property rights of such Third Party. GENEMEDICINE shall have the right to control the defense of any claims with respect to the GENEMEDICINE Technology at its own expense and by counsel of its own choice. BIOJECT shall have the right to control the defense of any claims with respect to the BIOJECT Technology at its own expense and by counsel of its own choice. In the event that such matter includes claims with respect to the Joint Patent Rights, the party responsible for prosecution and maintenance of the applicable Joint Patent Rights under Section 7.2(b) shall have the right to control the defense of such claims by counsel of its own choice and the parties shall share equally the costs with respect thereto. If either party fails to proceed in a timely fashion with regard to the defense of any claims with respect to the Contributed Technology, the other party shall have the right to control any such defense of such claim at its own expense and by counsel of its own choice, and such party shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. Neither party shall have the right to settle any patent infringement litigation under this Section 7.4(a) in a manner that diminishes the rights or interests of the other party or obligates the other party to make any payment or take any action without the consent of such other party. (b) Infringement by Third Parties. GENEMEDICINE and BIOJECT shall promptly notify the other in writing of any alleged or threatened infringement of any patent included in the GENEMEDICINE Patent Rights, the BIOJECT Patent Rights or the Joint Patent Rights of which they become aware. GENEMEDICINE shall have the right to institute, prosecute and control any action or proceeding with respect to infringement of any patent included in the GENEMEDICINE Patent Rights at its own expense and by counsel of its own choice. BIOJECT shall have the right to institute, prosecute and control any action or proceeding with respect to infringement of any patent included in the BIOJECT Patent Rights at its own expense and by counsel of its own choice. In the event any patent included in the Joint Patent Rights is infringed by a Third Party, the party responsible for prosecution and maintenance of the applicable Joint Patent Rights under Section 7.2(b) shall have the right to institute, prosecute and control any action or proceeding with respect to such patent, and the parties shall share equally in the expenses thereof. With respect to infringement of any patent included in the Patent Rights of either party, if such party fails to bring an action or proceeding within (a) 60 days following the notice of alleged infringement or (b) 10 days before the time limit, if any, set forth in the appropriate laws and regulations for the filing of such actions, whichever comes first, the other party shall have the right to bring and control any such action at its own expense and by counsel of its own choice, and such party shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. In the event a party brings an infringement action, the other party shall cooperate fully, including if required to bring such action, the furnishing of a power of attorney. Neither party shall have the right to settle any patent infringement litigation under this Section 7.4(b) in a manner that diminishes the rights or interests of the other party without the consent of such other party. Except as otherwise agreed to by the parties as part of a cost sharing arrangement, any recovery realized as a result of such litigation, after reimbursement of any litigation expenses of GENEMEDICINE and BIOJECT, shall belong to the party who brought the action. ARTICLE 8 CONFIDENTIALITY; PUBLICATIONS 8.1 Nondisclosure. During the Term and for a period of three years thereafter, each party shall maintain all Confidential Information of the other party as confidential and shall not disclose any such Confidential Information to any Third Party or use any such Confidential Information for any purpose, except (a) as expressly authorized by this Agreement, (b) as required by law, rule, regulation or court order (provided that the disclosing party shall use commercially reasonable efforts to obtain confidential treatment of any such information required to be disclosed), or (c) to its Affiliates, employees, agents, consultants and other representatives to accomplish the purposes of this Agreement, so long as such persons are under an obligation of confidentiality no less stringent than as set forth herein. Each party may use such Confidential Information only to the extent required to accomplish the purposes of this Agreement. Each party shall use at least the same standard of care as it uses to protect its own Confidential Information to ensure that its Affiliates, employees, agents, consultants and other representatives do not disclose or make any unauthorized use of the other party's Confidential Information. Each party will promptly notify the other party upon discovery of any unauthorized use or disclosure of the other party's Confidential Information. 8.2 Publications. Each party recognizes that the publication of papers regarding results of the research and development activities performed pursuant to the Collaborative Alliance, including oral presentations and abstracts, may be beneficial to both parties provided such publications are subject to reasonable controls to protect Confidential Information. In particular, it is the intent of the parties to maintain the confidentiality of any Confidential Information included in any foreign patent application until such foreign patent application has been published. Accordingly, each party shall have the right to review and approve any paper proposed for publication by the other party, including oral presentations and abstracts, which utilizes data generated from the Collaborative Alliance and/or includes Confidential Information of the other party. Before any such paper is submitted for publication, the party proposing publication shall deliver a complete copy to the other party at least 45 days prior to submitting the paper to a publisher. The receiving party shall review any such paper and give its comments to the publishing party within 30 days of the delivery of such paper to the receiving party. With respect to oral presentation materials and abstracts, the parties shall make reasonable efforts to expedite review of such materials and abstracts, and shall return such items as soon as practicable to the publishing party with appropriate comments, if any, but in no event later than 30 days from the date of delivery to the receiving party. The publishing party shall comply with the other party's request to delete references to such other party's Confidential Information in any such paper and agrees to withhold publication of same for an additional 180 days to permit the parties to obtain patent protection, if either of the parties deem it necessary, in accordance with the terms of this Agreement. Notwithstanding the foregoing, GENEMEDICINE shall have the right to present and publish all studies using a NFID performed prior to the Effective Date, and BIOJECT shall have the right to present and publish all studies using BIOJECT's NFID with a Direct Competitor's Gene Delivery System performed prior to the Effective Date. ARTICLE 9 REPRESENTATIONS AND WARRANTIES 9.1 Corporate Power. Each party hereby represents and warrants that such party is duly organized and validly existing under the laws of the state of its incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof. 9.2 Due Authorization. Each party hereby represents and warrants that such party is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder. 9.3 Binding Obligation. Each party hereby represents and warrants that this Agreement is a legal and valid obligation binding upon it and is enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by such party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having authority over it. 9.4 Limitation on Warranties. Nothing herein shall be construed as a representation or warranty by either party to the other that any Contributed Technology under the Control of such party is valid, enforceable, or not infringed by any Third Party, or that the practice of such rights does not infringe any intellectual property right of any Third Party. Neither party makes any warranties, express or implied, concerning the success of the Collaborative Alliance or the commercial utility of any Products. 9.5 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 9.6 Limitation of Liability. NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THE COLLABORATIVE ALLIANCE. 9.7 Mutual Indemnification. Each party hereby agrees to save, defend, indemnify and hold harmless the other party and its officers, directors, employees, consultants and agents from and against any and all losses, damages, liabilities, expenses and costs, including reasonable legal expense and attorneys' fees ("Losses"), to which the indemnified parties may become subject as a result of any claim, demand, action or other proceeding by any Third Party to the extent such Losses arise out of, or are based upon, the use of an indemnifying party's Contributed Technology by the indemnified party or its Affiliates, except to the extent such Losses result from the gross negligence or willful misconduct of the party claiming a right of indemnification under this Section 9.7. In the event either party seeks indemnification under this Section 9.7, it shall inform the other party of a claim as soon as reasonably practicable after it receives notice of the claim, shall permit the other party to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration), and shall cooperate as requested (at the expense of the other party) in the defense of the claim. ARTICLE 10 TERM AND TERMINATION 10.1 Term. This Agreement shall begin on the Effective Date and shall continue for 18 months from the Effective Date, unless extended or terminated earlier by mutual written agreement of the parties (the "Term"). The parties agree to meet and evaluate whether to extend the Term under mutually acceptable terms at least 60 days prior to the end of the Term. 10.2 Termination for Cause. Either party may terminate this Agreement prior to the expiration of the Term upon the occurrence of any of the following: (a) Upon or after the bankruptcy, insolvency, dissolution or winding up of the other party (other than dissolution or winding up for the purposes of reconstruction or amalgamation); (b) Upon or after the breach of any material provision of this Agreement by the other party if the breaching party has not cured such breach within 30 days after written notice thereof by the non-breaching party; or (c) Upon or after the transfer or sale of all or substantially all of the business of the other party to which this Agreement relates, whether by merger, sale of stock, sale of assets or otherwise, except to an Affiliate, following 60 days' prior written notice to the other party. 10.3 Effect of Expiration or Termination. (a) Expiration or termination of this Agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination. Except as set forth below or elsewhere in this Agreement, the obligations and rights of the parties under Sections 7.1, 8.1, 9.4, 9.5, 9.6, 9.7 and 10.3 and Articles 1, 12 and 13 shall survive expiration or termination of this Agreement. (b) Upon termination of this Agreement by GENEMEDICINE pursuant to Section 10.2, Section 2.2(b) shall survive for a period of 18 months from the Effective Date. Upon termination of this Agreement by BIOJECT pursuant to Section 10.2, Section 2.2(a) shall survive for a period of 18 months from the Effective Date. (c) Upon expiration or termination of this Agreement, each party shall cease all activities under the Collaborative Alliance, except for activities required for each party to fulfill its obligations under any agreement with a Corporate Partner; provided, however, that BIOJECT will have a non-exclusive, worldwide, fully-paid, irrevocable license to use information generated from animal and/or human studies involving BIOJECT's NFIDs (including Dermal Devices and Biojectors) in combination with GENEMEDICINE's proprietary Gene Delivery Systems in the course of the Collaborative Alliance to enter into collaborative business relationships with Third Parties. (d) Upon expiration or termination of this Agreement and for a period of six months thereafter, each party will use commercially reasonable efforts to include the other party in any collaborative agreement with any Third Party in the Field. Notwithstanding the foregoing, a party may proceed with a collaborative agreement with a Third Party without obligation to the other party if such Third Party does not wish to enter into a collaborative agreement with the other party. (e) In the event of the bankruptcy, insolvency, dissolution or winding up of a party (other than dissolution or winding up for the purposes of reconstruction or amalgamation), all rights of such party in the Joint Patent Rights shall hereby be assigned to the other party to this Agreement, or, if such assignment is prohibited, such party shall hereby grant to such other party an exclusive, worldwide, fully-paid, irrevocable license to the Joint Patent Rights. ARTICLE 11 PUBLICITY 11.1 Publicity Review. BIOJECT and GENEMEDICINE will jointly discuss and agree, based on the principles of Section 11.2, on any statement to the public regarding the execution and the subject matter of this Agreement or any other aspect of this Agreement, except with respect to disclosures required by law or regulation. Within 30 days following the Effective Date, the parties shall issue a joint press release. Neither party shall use the name of the other party in any public statement, prospectus, annual report, or press release without the prior written approval of the other party, which may not be unreasonably withheld or delayed; provided, however, that either party may use the name of the other party in any public statement, prospectus, annual report, or press release without the prior written approval of the other party, if such party is advised by counsel that such disclosure is required to comply with applicable law. 11.2 Standards. In the discussion and agreement referred to in Section 11.1, the principles observed by BIOJECT and GENEMEDICINE will be accuracy, the requirements for confidentiality under Section 8.1, the advantage a competitor of BIOJECT or GENEMEDICINE may gain from any public or Third Party statements under Section 11.1, the requirements of disclosure under any securities laws or regulations of the United States, including those associated with public offerings, and the standards and customs in the pharmaceutical industry for such disclosures by companies comparable to BIOJECT and GENEMEDICINE. ARTICLE 12 DISPUTE RESOLUTION 12.1 Disputes. The parties recognize that disputes as to certain matters may from time to time arise which relate to either party's rights and/or obligations hereunder. It is the objective of the parties to establish procedures to facilitate the resolution of such disputes in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the parties agree to follow the procedures set forth in this Section 12.1 if and when such a dispute arises between the parties. 12.2 Procedures. If any dispute arises between the parties relating to the interpretation, breach or performance of this Agreement or the grounds for the termination thereof, and the parties cannot resolve the dispute within 30 days of a written request by either party to the other party, the parties agree to hold a meeting, attended by the Chief Executive Officer or President of each party, to attempt in good faith to negotiate a resolution of the dispute prior to pursuing other available remedies. If, within 60 days after such written request, the parties have not succeeded in negotiating a resolution of the dispute, such dispute shall be submitted to final and binding arbitration under the then current commercial rules and regulations of the American Arbitration Association ("AAA") relating to voluntary arbitrations. The arbitration proceedings shall be held in Wilmington, Delaware. The arbitration shall be conducted by one arbitrator, who is knowledgeable in the subject matter at issue in the dispute and who will be selected by mutual agreement of the parties or, failing such agreement, shall be selected in accordance with the AAA rules. Each party shall initially bear its own costs and legal fees associated with such arbitration. The prevailing party in any such arbitration shall be entitled to recover from the other party the reasonable attorneys' fees, costs and expenses incurred by such prevailing party in connection with such arbitration. The decision of the arbitrator shall be final and binding on the parties. The arbitrator shall prepare and deliver to the parties a written, reasoned opinion conferring its decision. Judgment on the award so rendered may be entered in any court having competent jurisdiction thereof. ARTICLE 13 MISCELLANEOUS 13.1 Assignment. Except as expressly provided hereunder, neither this Agreement nor any rights or obligations hereunder nor a party's interest in the Joint Patent Rights may be assigned or otherwise transferred by either party without the prior written consent of the other party, which consent shall not be unreasonably withheld; provided, however, that either party may assign this Agreement and its rights and obligations hereunder without the other party's consent (a) to an Affiliate, (b) in connection with the transfer or sale of all or substantially all of the assets relating to the subject matter of this Agreement to another party, or (c) in the event of a merger or reorganization of such party with or into another party, and, in the event of such assignment, the assigning party shall provide written notice to the other party within 30 days after such assignment. In the event of such transaction, however, intellectual property rights (including Know-How) of a party to such transaction other than one of the parties to this Agreement (the "Acquiring Party"), shall not be included in the Contributed Technology licensed hereunder. Notwithstanding the foregoing, any such assignment to an Affiliate shall not relieve the assigning party of its responsibilities for performance of its obligations under this Agreement. The rights and obligations of the parties under this Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the parties. Any assignment not in accordance with this Agreement shall be void. 13.2 Force Majeure. Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected party, including, but not limited to, fire, floods, embargoes, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or the other party. 13.3 Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, as such laws are applied to contracts entered into and to be performed entirely within the State of Delaware by Delaware residents, and the laws of the United States. 13.4 Waiver. Except as specifically provided for herein, the waiver from time to time by either of the parties of any of their rights or their failure to exercise any remedy shall not operate or be construed as a continuing waiver of same or of any other of such party's rights or remedies provided in this Agreement. 13.5 Notices. All notices and other communications provided for hereunder shall be in writing and shall be mailed by first-class, registered or certified mail, postage paid, or delivered personally, by overnight delivery service or by facsimile, computer mail or other electronic means, with confirmation of receipt, addressed as follows: If to GENEMEDICINE: GENEMEDICINE, INC. 8301 New Trails Drive The Woodlands TX 77381-4248 Attn: President Phone No. (281) 364-1150 Fax No. (281) 364-0858 If to BIOJECT: BIOJECT, INC. 7620 S.W. Bridgeport Road Portland, Oregon 97224 Attn: President Phone No. (503) 639-7221 Fax No. (503) 624-9002 Either party may by like notice specify or change an address to which notices and communications shall thereafter be sent. Notices sent by facsimile, computer mail or other electronic means shall be effective upon confirmation of receipt, notices sent by mail or overnight delivery service shall be effective upon receipt, and notices given personally shall be effective when delivered. 13.6 Severability. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 13.7 Independent Contractors. It is expressly agreed that GENEMEDICINE and BIOJECT shall be independent contractors and that the relationship between the two parties shall not constitute a partnership or agency of any kind. Neither GENEMEDICINE nor BIOJECT shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other party, without the prior written consent of the other party. 13.8 Entire Agreement; Amendment. This Agreement (including the Exhibits attached hereto) sets forth all of the covenants, promises, agreements, warranties, representations, conditions and understandings between the parties hereto with respect to the subject matter hereof and supersedes and terminates all prior agreements and understandings between the parties. There are no covenants, promises, agreements, warranties, representations conditions or understandings, either oral or written, between the parties other than as set forth herein. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the parties hereto unless reduced to writing and signed by the respective authorized officers of the parties. 13.9 Headings. The captions contained in this Agreement are not a part of this Agreement, but are merely guides or labels to assist in locating and reading the several Articles hereof. 13.10 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate by their duly authorized officers as of the date first above written. BIOJECT, INC. GENEMEDICINE, INC. By: /s/ James O'Shea By: /s/ Norman Hardman Name: James O'Shea Name: Norman Hardman Title: President and Chairman, Title: President and COO Chief Executive Officer EXHIBIT A BIOJECT PATENT RIGHTS PATENT NUMBER COUNTRY ISSUE DATE ------------- ------------- ----------------- [* * *] EXHIBIT B GENEMEDICINE PATENT RIGHTS -----END PRIVACY-ENHANCED MESSAGE-----