-----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, WlnA7idK1e1+19f5BTEHV2MoxXRK7YkS1gg/jaaleMOd75/2PMbjZJeW1+JmLtPo wRRo6L2TFj4UxuUuagz0kA== 0000950147-97-000545.txt : 19970815 0000950147-97-000545.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950147-97-000545 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORTHOLOGIC CORP CENTRAL INDEX KEY: 0000887151 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 860585310 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21214 FILM NUMBER: 97661373 BUSINESS ADDRESS: STREET 1: 2850 S 36TH ST #16 CITY: PHOENIX STATE: AZ ZIP: 85034 BUSINESS PHONE: 6024375520 MAIL ADDRESS: STREET 1: 2850 S 36TH ST STREET 2: SUITE 16 CITY: PHOENIX STATE: AZ ZIP: 85034 10-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 ----------------------------------------------- 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 Number: 0-21214 ORTHOLOGIC CORP. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 86-0585310 - -------------------------------------------------------------------------------- (State of other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2850 S. 36th Street, #16, Phoenix, Arizona 85034 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (602) 437-5520 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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. [X]Yes [ ]No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 25,102,846 shares of common stock outstanding as of July 31, 1997 ORTHOLOGIC CORP. INDEX Page No. Part I Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets June 30, 1997 and December 31, 1996 ...........................1 Consolidated Statements of Operation Three Months and Six Months ended June 30, 1997 and 1996 ......2 Consolidated Statements of Cash Flows Six Months ended June 30, 1997 and 1996 .......................3 Notes to Consolidated Financial Statements ........................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .......7 Part II Other Information Item 1. Legal Proceedings .......................................11 Item 3. Quantitative and Qualitative Disclosures About market Risk ..................................11 Item 4. Submission of Matters to a Vote of Security Holders .....11 Item 5. Other Information .......................................11 Item 6. Exhibits and Reports on Form 8-K ........................12 OrthoLogic Corp. Condensed Consolidated Balance Sheets (in thousands) June 30, December 31, 1997 1996 --------- --------- ASSETS (Unaudited) Cash and cash equivalents $ 9,046 $ 13,494 Short-term investments 12,933 35,307 Accounts receivable 31,247 26,856 Inventory 9,814 6,551 Prepaids and other current assets 1,858 1,195 Deferred income taxes 2,599 2,401 --------- --------- Total current assets 67,497 85,804 Furniture, rental fleet and equipment 15,488 11,364 Accumulated depreciation (3,782) (2,282) --------- --------- Furniture and equipment, net 11,706 9,082 Intangibles, net 35,605 17,847 Deposits and other assets 91 93 Note receivable - Officer -- 200 --------- --------- Total Assets $ 114,899 $ 113,026 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable $ 3,093 $ 2,042 Loan payable - current portion 455 -- Accrued liabilities 10,521 8,777 --------- --------- Total current liabilities 14,069 10,819 Deferred rent and capital lease obligation 189 280 Loan payable - long term portion 625 -- Obligations under co-promotion agreement 1,000 -- --------- --------- Total liabilities 15,883 11,099 --------- --------- Commitments -- -- Stockholders' Equity Common stock 13 13 Additional paid-in capital 118,980 118,832 Deficit (19,977) (16,918) --------- --------- Total stockholders' equity 99,016 101,927 --------- --------- Total Liabilities and Stockholders' Equity $ 114,899 $ 113,026 ========= ========= See notes to consolidated financial statements. Page 1 OrthoLogic Corp. Consolidated Statements of Operations Unaudited (in thousands, except per share data)
Three months ended June 30, Six months ended June 30, --------------------------- ------------------------- 1997 1996 1997 1996 -------------------- -------------------- REVENUES Net sales $ 9,377 $ 7,912 $ 18,949 $ 14,671 Net rentals 8,940 -- 16,670 -- -------------------- -------------------- Total Revenues 18,317 7,912 35,619 14,671 -------------------- -------------------- COST OF REVENUES Cost of goods sold 2,304 1,252 5,018 2,374 Cost of rentals 2,274 -- 4,306 -- -------------------- -------------------- Total Cost of Revenue 4,578 1,252 9,324 2,374 -------------------- -------------------- GROSS PROFIT 13,739 6,660 26,295 12,297 OPERATING EXPENSES Selling, general and administrative 16,311 5,527 29,200 9,951 Research and development 613 546 1,189 1,097 -------------------- -------------------- Total Operating Expenses 16,924 6,073 30,389 11,048 -------------------- -------------------- OPERATING INCOME (LOSS) (3,185) 587 (4,094) 1,249 OTHER INCOME Grant revenue 25 45 99 94 Interest income 389 863 951 1,102 -------------------- -------------------- Total Other Income 414 908 1,050 1,196 -------------------- -------------------- INCOME (LOSS) BEFORE INCOME TAXES (2,771) 1,495 (3,044) 2,445 Provision for income taxes -- 15 -- 30 -------------------- -------------------- NET INCOME (LOSS) $ (2,771) $ 1,480 $ (3,044) $ 2,415 ==================== ==================== NET INCOME (LOSS) PER COMMON SHARE $ (0.11) $ 0.06 $ (0.12) $ 0.11 ==================== ==================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 25,096 24,769 25,066 22,734 ==================== ====================
See notes to consolidated financial statements. Page 2 OrthoLogic Corp. Consolidated Statements of Cash Flows Unaudited (in thousands, except per share data)
Six Months Ended -------------------- June 30, June 30, 1997 1996 -------- -------- OPERATING ACTIVITIES Net Income (Loss) $ (3,044) $ 2,415 Noncash items: Depreciation and amortization 3,078 183 Other (15) -- Net change in Other Operating items: Accounts receivable 524 (5,109) Inventory (610) (1,035) Prepaids and other current assets (657) (668) Deposits and other assets 2 5 Accounts payable (496) 254 Accrued liabilities (423) 882 -------- -------- Cash Flows (used in) Operating Activities (1,641) (3,073) -------- -------- INVESTING ACTIVITIES Purchase of fixed assets, net (2,797) (318) Cash paid for acquisitions, net of other effects (20,907) -- Sales (Purchases) of short term investments 22,373 (13,628) Collection of note receivable 200 125 Payments under co-promotion agreement (1,011) -- Intangible from dealer transactions (486) (3,676) -------- -------- Cash Flows (used in) Investing Activities (2,628) (17,497) -------- -------- FINANCING ACTIVITIES Payments on Capital Leases (32) -- Payments on Loan Payable (295) -- Proceeds from issuance of common stock -- 74,867 Net proceeds from stock option exercises 148 -- -------- -------- Cash Flows (used in) provided by (179) 74,867 -------- -------- Financing Activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,448) 54,297 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 13,494 8,831 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,046 $ 63,128 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 52 $ 0 ======== ======== Income Taxes $ 238 $ 10 ======== ========
See notes to consolidated financial statements. Page 3 ORTHOLOGIC CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Financial Statement Presentation -------------------------------- The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include the accounts of the OrthoLogic Corporation and its subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated. The condensed consolidated balance sheet as of June 30, 1997, the consolidated statements of operations for the three months and six months ended June 30, 1997 and 1996 and the consolidated statement of cash flows for the six months ended June 30, 1997 and 1996 are unaudited; however, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows have been included. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the complete fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1996 Annual Report on Form 10-K. 2. New Accounting Pronouncements ----------------------------- In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", effective for both interim and annual periods ending after December 15, 1997. This statement specifies the computation, presentation and disclosure of earnings per share for entities with publicly held common stock or potential common stock. The Company will provide the required disclosures in its year-end report. The effect on the Company's earnings per share disclosure is not material for the periods presented. The Financial Accounting Standards Board recently issued SFAS No. 130 on "Reporting Comprehensive Income" and SFAS No. 131 on "Disclosures about Segments of an Enterprise and Related Information." The "Reporting Comprehensive Income" standard is effective for fiscal years beginning after December 15, 1997. The standard changes the reporting of certain items currently reported in the common stock equity section of the balance sheet. The Company is currently evaluating what impact this standard will have on the Company's financial statements. The "Disclosures about Segments of an Enterprise and Related Information" standard is effective for fiscal years beginning after December 15, 1997. This standard requires that public companies report certain information about operating segments in their financial statements. It also establishes related disclosures about products and services, geographic areas, and major customers. The Company is currently evaluating what impact this standard will have on its disclosures. 3. Preferred Stock Purchase Rights ------------------------------- On February 25, 1997 the Company declared a dividend distribution of one Preferred Stock Purchase Right (the "Rights") for each outstanding share of the Company's common stock, payable March 12, 1997 to holders of record on that date. The Rights will expire on March 11, 2007. Page 4 ORTHOLOGIC CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Each Right will entitle shareholders to buy 1/100 of a share of Series A Preferred Stock at an exercise price of $25.00. Initially, no separate Rights certificates will be distributed; the Rights will trade with the Company's common stock and will not be exercisable until the earlier of 10 business days following the acquisition of 15% or more of the Company's common stock by a person or group or 15 business days following the commencement of a tender offer for 20% or more of the Company's common stock. At the discretion of the Board of Directors of the Company, the Rights can be redeemed at any time prior to the 10th day following the date the Rights become exercisable. If the Rights are not redeemed by the Board, and the Company is acquired, holders of the Rights (other than an "acquiring person") will be entitled to purchase additional shares of common stock of either the Company or the acquiring corporation (whichever survives) at one-half the market price. 4. Acquisitions ------------ On March 3, 1997 and March 12, 1997, the Company acquired certain assets and assumed certain liabilities of Toronto Medical Corp. (Toronto) and Danninger Medical Technology, Inc. (DMTI). After paying certain of the assumed liabilities, the net cash outlay was approximately $7.5 million for Toronto and $10.7 million for DMTI. Both acquisitions were accounted for as a purchase which resulted in goodwill of $4 million for Toronto and $7.7 million for DMTI. The goodwill is being amortized over 20 years. Management is restructuring the operations related to these acquisitions and Sutter Corporation (acquired in August 1996). The restructuring activities, which will continue through the third quarter, include closing and/or relocating duplicate facilities and terminating or relocating certain employees. Once the estimated costs related to these activities are determined, they will be accrued and reflected as additional acquisition costs in the allocation of purchase price. Had the Toronto and DMTI acquisitions occurred on January 1, 1996, combined unaudited pro forma results for the six months ended June 30, 1997 and 1996, would have been: net revenues - $38.9 million and $23.3 million; net (loss) - $(3.0) million and $(224,000); net (loss) per common share - $(0.12) and $(0.01). The pro forma amounts disclosed above include revenue and net income derived from product sales to competing independent dealers of orthopaedic rehabilitation products. Subsequent to the acquisition, the Company discontinued selling products to these dealers. Excluding the dealer product sales, combined unaudited pro forma results for the six months ended June 30, 1997 and 1996, would have been: net revenues - $37.5 million and $19.7 million; net (loss) - $(3.4) million and $(665,000); net (loss) per common share - $(0.14) and $(0.03). 5. Co-promotion Agreement ---------------------- The Company entered into an exclusive co-promotion agreement (the "agreement") with Sanofi Pharmaceuticals, Inc. ("Sanofi") on June 23, 1997 for the purpose of marketing Hyalgan, a hyaluronic acid sodium salt, to orthopaedic surgeons in the United States for the treatment of pain in patients with Page 5 ORTHOLOGIC CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) osteoarthritis of the knee. The initial term of the agreement ends on December 31, 2002. Upon the expiration of the initial term, Sanofi may terminate the agreement, extend the agreement for an additional one year period, or enter into a revised agreement with the Company. Upon termination of the agreement, Sanofi shall pay the Company an amount equal to 50% of the gross compensation paid to the Company, pursuant to the agreement, for the immediately preceding year. Under the terms of the agreement, the Company is obligated to use its best efforts to market and promote Hyalgan; to pay Sanofi a royalty of 10% of the net selling price, as defined; and to pay the manufacturer of Hyalgan certain pre-determined amounts and a pro-rata portion of a 10% royalty on combined annual net sales of Hyalgan by Sanofi and the Company in excess of $30.0 million. In addition, the Company is obligated to pay a total of $4.0 million in payments during the first eighteen months of the agreement. During the second quarter, the Company incurred a $1.0 million payment of this amount. The Company has recorded the remaining $3 million in its financial statements. The Company's sales force will commence efforts to promote Hyalgan in the third quarter of 1997. The Company does not anticipate significant revenues from the product until after the current year. Page 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion of significant factors that affected the Company's interim financial condition and results of operations. This should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Results of Operations OrthoLogic has completed three recent acquisitions which affect the year-to-year comparability of its consolidated financial position and results of operations: the acquisition of Sutter Corporation (Sutter) on August 30, 1996 and the acquisition of certain assets and the assumption of certain liabilities of two other orthopaedic rehabilitation related companies in March 1997. Six Months Ended June 30, 1997 and June 30, 1996 Revenues OrthoLogic's revenues increased 143% from $14.7 million for the six months ended June 30, 1996 to $35.6 million for the six months ended June 30, 1997. The increase in revenue was due primarily to revenues from its orthopaedic rehabilitation products ($22.1 million). The Company believes that revenues for its orthopaedic rehabilitation products may be seasonal, with the strongest sales occurring in the fourth quarter. Excluding the effects of the Company's acquisitions, revenues from the OrthoLogic 1000 were down 9% to $12.8 million for the six months ended June 30, 1997 from $14.1 million for the comparable period in 1996. The Company does not believe that there is a single factor causing the decline in OrthoLogic 1000 sales. The Company attributes the decline to multiple factors, including the shift from a distribution network to a direct sales force, a lower number of total salespeople selling the OrthoLogic 1000 in 1997 compared to 1996, quality and effectiveness of sales management, and increased competitive pressures. Additionally, during the second quarter of 1997, the Company changed its estimate for allowance for bad debt expense, increasing its allowance by $2.0 million related to Medicare receivables for the OrthoLogic 1000 which are outside Medicare's coverage definition. Prior to the second quarter, Medicare reimbursed for the OrthoLogic 1000 even when physicians prescribed use of the device outside Medicare's own definition of a non-union fracture. Prescriptions of that kind covered by Medicare typically accounted for 7 percent to 9 percent of OrthoLogic 1000 revenue. The Company no longer recognizes Medicare revenue from prescriptions outside the coverage definition. Gross Profit Gross profit increased from $12.3 million for the six months ended June 30, 1996 to $26.3 million for the six months ended June 30, 1997. The increase in gross profit was due primarily to the gross profit of Sutter ($13.3 million) and the recently acquired operations ($1.8 million). Gross profit as a percentage of revenue was 73.8% for the six months ended June 30, 1997 compared to 83.8% for the comparable period during 1996. The overall gross profit percentage declined as a result of the recently acquired orthopaedic rehabilitation operations which have a lower gross profit percentage than the Company's fracture healing products. Page 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses for the six months ended June 30, 1997 were $29.2 million, up $19.2 million from the comparable 1996 period. The 1997 period included the SG&A from the acquisitions, which comprise a significant portion of the Company's SG&A. The increase from 1996 is also due, in part, to the variable costs (commissions, bad debts and royalties) associated with the increased revenue. Additionally, SG&A includes $2.0 million in bad debt expense related to Medicare receivables for the OrthoLogic 1000 which are outside Medicare's coverage definition. During late 1996, the fixed component of SG&A increased due to the addition of employees, including salespeople added to support the Company's transition to a direct sales force, and other infrastructure required to support the growing and projected revenue volume. OrthoLogic is currently consolidating duplicate facilities and eliminating expenses from redundant operations from within the three businesses that were recently acquired. Research and Development Research and Development (R&D) expenses were $1.2 million for the six months ended June 30, 1997 compared to $1.1 million for the comparable 1996 period. The increase in R&D expenses was due to the acquisitions, while R&D for the remainder of the Company remained stable. Other Income Other income of $1.1 million for the six months ended June 30, 1997 consisted of interest income of $951,000 and grant revenue of $99,000. Other income for the comparable 1996 period consisted of interest income of $1.1 million and grant revenue of $94,000. The decrease in interest income was due to cash used for acquisitions of $18.2 million at the end of the first quarter 1997. Three Months Ended June 30, 1997 and June 30, 1996 Revenues increased 132% to $18.3 million for the second quarter of fiscal 1997, as compared to $7.9 million for the same period in 1996. Gross profit rose 106% to $13.7 million for the second quarter of fiscal 1997 from $6.7 million for the second quarter of fiscal 1996. During the second quarter, SG&A expenses rose 195% to $16.3 million as compared to $5.5 million for the same period last year. Other income fell 54% to $414,000 for the second quarter of fiscal 1997 compared to $908,000 for the second quarter of fiscal 1996. The business factors resulting in these changes and relevant trends affecting the Company's business during the second quarters of 1997 and 1996 are comparable to those described in the preceding discussion for the six-month period. Page 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Liquidity and Capital Resources At June 30, 1997, the Company had cash and investments of $22.0 million compared to $48.8 million at December 31, 1996. Working capital decreased from $75.0 million at December 31, 1996 to $53.4 million at June 30, 1997. The decrease in cash and investments is primarily the result of cash used for acquisitions and related costs of $20.9 million. Other uses of cash included $1.6 million for operating activities and $2.8 million for the purchase of fixed assets, primarily rental assets for its orthopedic rehabilitation division. In January 1997, the Company paid $486,000 to a former independent dealer for the return of territory rights and convenants not to compete, as the Company completed its transition to a direct sales force. Under the terms of the co-promotion agreement with Sanofi, the Company is obligated to pay a total of $4 million in payments during the first eighteen months of the agreement. During the second quarter, the Company paid $1.0 million of the required payment under the co-promotion agreement for the right to market and promote Hyalgan. The Company currently believes that cash generated from product sales and rentals and its available cash resources will be sufficient to meet its current operating requirements and internal development and integration initiatives for the foreseeable future. There can be no assurance, however, that the Company will not require additional financing in the future. If the Company were required to obtain additional financing in the future, there can be no assurance that such sources of capital will be available on terms favorable to the Company, if at all. The Company plans to relocate its corporate offices in the fourth quarter of 1997 to a 100,000 square foot office/manufacturing facility in Tempe, Arizona. The proposed terms of the lease are for a ten year period commencing December 1, 1997. There are currently no other material definitive commitments for future use of the Company's available cash resources; however, management continually evaluates opportunities to expand its operations, which includes internal development of new products and may include additional acquisitions. Page 9 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain of the statements contained in this document that are not historical facts, including, without limitation, statements of future expectations of revenue from Hyalgan sales, availability of cash, and projections of results of operations and financial condition, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to differ materially from those contemplated in such forward- looking statements. In addition to the specific matters referred to herein, important factors which may cause actual results to differ from those contemplated in such forward-looking statements include: (i) the results of the Company's efforts to implement its business strategy; (ii) actions of the Company's competitors and the Company's ability to respond to such actions; (iii) changes in governmental regulation, tax rates and similar matters; (iv) other risks detailed in the Company's other filings with the Commission; and (v) the costs and results of pending litigation. Additional factors which might affect such forward-looking statements are discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Page 10 PART II - OTHER INFORMATION Item 1. Legal Proceedings See the information under the caption "Item 3 Legal Proceedings" of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. Item 3. Quantitative and Qualitative Disclosures About Market Risk Item not applicable. Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of stockholders of the Company was held on May 16, 1997 to vote on the election of Class III Directors (Proposal 1); an amendment to the Company's 1987 Stock Option Plan to increase the number of shares of common stock available for grant thereunder by 160,000 shares (Proposal 2); the ratification and approval of the Company's 1997 Stock Option Plan (Proposal 3); and the ratification of appointment of Deloitte & Touche, LLP as independent accountants for the fiscal year ending December 31, 1997 (Proposal 4). The results are as follows:
BROKER FOR AGAINST ABSTAINED NON-VOTES --- ------- --------- --------- Proposal 1 Allan M. Weinstein, Ph.D. 22,409,585 826,670 0 0 Elwood D. Howse, Jr. 22,457,710 778,545 0 0 Proposal 2 19,946,990 3,196,325 92,940 0 Proposal 3 19,934,307 3,208,932 93,016 0 Proposal 4 23,074,833 91,299 70,123 0
A more detailed discussion of each proposal is included in the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders. Item 5. Other Information On May 21, 1997, the Company's Vice President - Marketing and Sales for Fracture Healing Products, David E. Derminio, resigned. Page 11 PART II - OTHER INFORMATION (continued) Item 6. Exhibits and Reports on Form 8-K (a) See Exhibit Index following the Signatures page which is incorporated herein by reference. (b) Reports on Form 8-K 1) On March 18, 1997, the Company filed a Current Report on Form 8-K dated March 3, 1997, to report in Item 2, the consummation of its acquisition of all the assets and business and the assumption of substantially all of the liabilities of Toronto Medical Corp., an Ontario corporation, pursuant to a Purchase and Sale Agreement dated as of December 30, 1996. The Form 8-K was amended on May 19, 1997 to include in Item 7 the following financial statements: Unaudited Pro-Forma Consolidated Statements of Income/(Loss) for the three month period ended March 31, 1997 and for the year ended December 31, 1996. Audited Consolidated Balance Sheet at May 31, 1996 and 1995; Consolidated Statements of Income/(Loss) and Consolidated Statements of Cash Flows for the years ended May 31, 1996 and 1995; and independent auditor's report. 2) On March 27, 1997, the Company filed a Current Report on Form 8-K dated March 12, 1997 to report in Item 2, the consummation of its acquisition of certain assets and the assumption of certain liabilities of each of Danninger Medical Technology, Inc., a Delaware corporation ("DMTI"), and Danninger Healthcare, Inc., an Ohio corporation and a wholly-owned subsidiary of DMTI, pursuant to an Asset Purchase Sale Agreement dated March 12, 1997. The Form 8-K was amended on June 11, 1997 to include in Item 7 the following financial statements: Unaudited Pro-Forma Consolidated Statements of Income/(Loss) for the three month period ended March 31, 1997 and for the year ended December 31, 1996. Unaudited Consolidated Statement of Net Assets as of March 12, 1997. Unaudited Consolidated Statement of Revenues and Expenses of Net Assets for the period January 1, 1997 to March 12, 1997 and for the period January 1, 1996 to March 12, 1996. Audited Consolidated Statement of Net Assets at December 31, 1996 and Consolidated Statement of Revenues and Expenses of Net Assets for the year ended December 31, 1996 and independent auditor's report. Page 12 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ORTHOLOGIC CORP. - ---------------- (Registrant) Signature Title Date - --------- ----- ---- /s/ Allan M. Weinstein Chairman of the Board of August 14, 1997 - ------------------------- Directors, President and Chief Allan M. Weinstein Executive Officer (Principal Executive Officer) /s/ Allen R. Dunaway Vice-President and Chief Financial August 14, 1997 - -------------------------- Officer (Principal Financial and Allen R. Dunaway Accounting Officer) Page 13 ORTHOLOGIC CORP. EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
Exhibit Incorporated by Filed No. Description Reference to: Herewith - ---------------- --------------------------------------- ------------------------------------- ----------- 2.1 Stock Purchase Agreement dated August Exhibit 2.1 to the Company's Current 30, 1996 by and among the Company, Report on Form 8-K filed on September Sutter Corporation and Smith 13, 1996 Laboratories, Inc. 2.2 Purchase and Sale Agreement dated as of Exhibit 2.1 to the Company's Current December 30, 1996 by and among the Report on Form 8-K filed on March 18, Company and Toronto Medical Corp., an 1997 ("March 18, 1997 8-K") Ontario corporation 2.3 Amendment to Purchase and Sale Exhibit 2.2 to March 18, 1997 8-K Agreement dated as of January 13, 1997 by and among the Company and Toronto Medical Corp., an Ontario corporation 2.4 Second Amendment to Purchase and Sale Exhibit 2.3 to March 18, 1997 8-K Agreement dated as of March 1, 1997 by and among the Company and Toronto Medical Corp., an Ontario corporation 2.5 Assignment of Purchase and Sale Exhibit 2.4 to March 18, 1997 8-K Agreement dated as of March 1, 1997 by and among the Company, Toronto Medical Orthopaedics Ltd., a Canada corporation and Toronto Medical Corp., an Ontario corporation 2.6 Asset Purchase Agreement dated March Exhibit 2.1 to the Company's Current 12, 1997 by and among the Company, Report on Form 8-K filed on March 27, Danninger Medical Technology, Inc., a 1997 Delaware corporation, and Danninger Healthcare, Inc., an Ohio corporation 3.1 Composite Certificate of Incorporation Exhibit 3.1 to the Company's Current of the Company, as amended, including Report on Form 10-Q filed on May 15, Certificate of Designation in respect 1997 ("First Quarter 1997 10-Q") of Series A Preferred Stock 3.2 Bylaws of the Company Exhibit 3.4 to Company's Amendment No. 2 to Registration Statement on Form S-1 (No. 33-47569) filed with the SEC on January 25, 1993 ("January 1993 S-1")
ORTHOLOGIC CORP. EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 (continued)
Exhibit Incorporated by Filed No. Description Reference to: Herewith - ---------------- --------------------------------------- ------------------------------------- ----------- 4.1 Articles 5, 9 and 11 of Certificate of Exhibit 3.1 above Incorporation of the Company 4.2 Articles II and III.2(c)(ii) of Bylaws Exhibit 3.4 to January 1993 S-1 of the Company 4.3 Specimen Common Stock Certificate Exhibit 4.1 to January 1993 S-1 4.4 1987 Stock Option Plan of the Company, X as amended and approved by stockholders 4.5 1997 Stock Option Plan of the Company X 4.6 Stock Purchase Warrant, dated August Exhibit 4.6 to the Company's Form 10-K 18, 1993, issued to CyberLogic, Inc. for the fiscal year ended December 31, 1994 4.7 Stock Purchase Warrant, dated September Exhibit 4.6 to Company's Registration 20, 1995, issued to Registered Statement on Form S-1 (No. 33-97438) Consulting Group, Inc. filed with the SEC on September 27, 1995 4.8 Stock Purchase Warrant, dated October Exhibit 4.7 to the Company's Form 10-K 15, 1996, issued to Registered for the fiscal year ended December 31, Consulting Group, Inc. 1996 ("1996 10-K") 4.9 Rights Agreement dated as of March 4, Exhibit 4.1 to the Company's 1997 between the Company and Bank of Registration Statement on Form 8-A New York, and Exhibits A, B and C filed with the SEC on March 6, 1997 thereto 10.1 Co-promotion Agreement dated June 23, 1997 by and between the Company and X Sanofi Pharmaceuticals, Inc. 11 Statement of Computation of Net Income (Loss) per Weighted Average Number of X Common Shares Outstanding 27 Financial Data Schedule X
EX-4.4 2 STOCK OPTION PLAN AS AMENDED OrthoLogic Corp. 1987 Stock Option Plan As Amended 1. Purpose ------- The purpose of the OrthoLogic Corp Stock Option Plan (the "Plan") is to attract and retain the best available employees, consultants and directors for positions of substantial responsibility, to provide additional incentive to such employees, consultants and directors of OrthoLogic Corp, a Delaware corporation (the "Company") or any parent or subsidiary of the Company which now exists or hereafter is organized or acquired by or acquires the Company, and to promote the success of the business of the Company. 2. Incentive and Nonqualified Stock Options ---------------------------------------- Two types of options (referred to herein as "Options," without distinction between such two types) may be granted under the Plan: options intended to qualify as incentive stock options ("incentive stock options") under Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"); and other options not specifically authorized or qualified for favorable income tax treatment by the Code ("nonqualified stock options"). 3. Eligibility and Administration ------------------------------ (a) Any employee (including any officer or director who is an employee) of the Company or any of its subsidiaries shall be eligible to receive incentive stock options under the Plan. An employee may receive more than one type of option under the Plan. (b) Any director of the Company or consultant to the Company who is not an employee of the Company or any of its subsidiaries or a member of the Compensation Committee of the Board of Directors of the Company shall be eligible to receive nonqualified stock options under the Plan. Any director of the Company who is a member of the Compensation Committee of the Board of Directors and is not an employee of the Company (a "Compensation Committee Member") shall be eligible to receive options only as set forth in Section 9. (c) The Plan shall be administered by the Board of Directors of the Company or a committee appointed by the Board of Directors. No director or committee member shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it. 4. Shares Subject to Options ------------------------- The stock available for grant of options under the Plan shall be shares of the Company's authorized but unissued, or reacquired Common Stock. The aggregate number of shares which may be issued pursuant to exercise of incentive stock options and nonqualified stock options granted under the Plan shall be 4,160,000 shares. If any outstanding option under the Plan for any reason expires or is terminated, the shares of Common Stock allocable to the unexercised portion of the option shall again be available for options under the Plan as if no options had been granted with respect to such shares. 5. Terms and Conditions of Options ------------------------------- Options granted under the Plan shall be evidenced by agreements ("Letter of Grant") in such form and containing such provisions which are consistent with the Plan as the Board or committee shall from time to time approve. Each Letter of Grant shall specify whether the option granted thereby is an incentive stock option or a nonqualified stock option. Such Letters of Grant may incorporate all or any of the terms hereof by reference and shall comply with and be subject to the following terms and conditions: (a) Each Letter of Grant shall specify the number of incentive stock options and/or nonqualified stock option shares subject to the option. (b) The purchase price for the shares subject to (i) a nonqualified option may be any amount determined in good faith by the Board or committee and (ii) an incentive option shall not be less than 100% of the fair market value of the stock on the date the option is granted, provided, however, the option price on an incentive stock option shall not be less than 110% of the fair market value of such stock on the date the option is granted to an individual then owning (after the application of the family and other attribution rules of Section 425(d) of the Code), more than 10% of the total combined voting power of all classes of stock of the Company or any subsidiary or parent corporation. For purposes of the Plan, "fair market value" at any date shall be (i) the reported closing price of such stock on the New York Stock Exchange or other established stock exchange or the National Market System of NASDAQ on such date, or if no sale of such stock shall have been made on that date, on the preceding date on which there was such a sale, (ii) if such stock is not then listed on an exchange or the National Market System of NASDAQ, the average of the closing bid and asked prices per share for such stock in the over-the-counter market as quoted on NASDAQ on such date, or (iii) if such stock is not then listed or quoted as referenced above, an amount determined in good faith by the Board or the committee. (c) The purchase price for any share purchased pursuant to an option previously granted or to be granted under the Plan shall be paid in full upon exercise of the option by any of the following methods: (i) by cash, (ii) by check, or (iii) unless provided otherwise in the particular grant agreement, by transferring to the Company shares of stock of the Company at their fair market value as of the date of exercise of the option as determined in accordance with paragraph 5(b). The Company may arrange for or cooperate in permitting cashless exercise procedures and may extend and maintain, or arrange for the extension or maintenance of, credit to an optionee to finance the optionee's purchase of shares pursuant to the exercise of options, on such terms as may be approved by the Board or the committee, subject to applicable regulations of the Federal Reserve Board and any other applicable laws or regulations in effect at the time such credit is extended. (d) No option shall be exercisable after the expiration of the earliest of (i) in the case of an incentive stock option, ten years from the date the option is granted or, five years from the date the option is granted in the case of an incentive stock option granted to an individual owning (after the application of the family and other attribution rules of Section 425(d) of the Code) at the time such option was granted, more than 10% of the total combined voting power of all classes of stock of the Company or any subsidiary or parent corporation, (ii) in the case of a nonqualified option, eleven years from the date the option is granted, (iii) in the case of an incentive stock option, three months after the date the optionee's employment with the Company and its subsidiaries terminates, if such termination is for any reason other than permanent disability, death or cause, (iv) the date the optionee's employment with the Company and its subsidiaries terminates, if termination is for cause, as determined by the Board or committee in its sole discretion, or (v) one year after the date the optionee's employment or directorship with the Company and its subsidiaries terminates if such termination is the result of death or permanent disability; provided, however, that the option agreement for any option may provide for shorter periods in each of the foregoing instances. Options to directors or consultants who are not employees may be exercised within such time period as the Board or committee determines after the person ceases to be a director or consultant. The term "permanent disability" shall mean a disability of the type defined in Section 105(d)(4) of the Code. (e) No option shall be exercisable during the lifetime of an optionee by any person other than the optionee, his guardian or legal representative. The Board or committee shall have the power to set the time or times within which each option shall be exercisable and to accelerate the time or times of exercise which conditions shall be set forth specifically in each individual Letter of Grant. To the extent that an optionee has the right to exercise an option and purchase shares pursuant to the Letter of Grant, the option may be exercised from time to time by written notice to the Company stating the number of shares being purchased and accompanied by payment in full of the purchase price for such shares. (f) No option shall be transferable by an optionee otherwise than by will or the laws of descent and distribution. (g) The aggregate fair market value (determined as of the time the option is granted) of the stock with respect to which incentive stock options are exercisable for the first time by such optionee during any calendar year (under all such plans of the Company and any subsidiary corporation) shall not exceed $100,000. (h) Unless the shares of stock covered by the Plan have been registered with the Securities and Exchange Commission pursuant to Section 5 of the Securities Act of 1933, as amended, each optionee shall by accepting an option represent and agree, for himself and his transferees by will or the laws of descent and distribution, that all shares of stock purchased upon the exercise of the option will be acquired for investment and not for resale or distribution. If the shares of stock under the Plan have not been registered with the Securities and Exchange Commission as described above, the optionee, at the time of exercise shall represent that he is qualified to exercise an option as required by the securities laws. If an optionee is not qualified to purchase securities, the Company shall not be required to issue shares to such an optionee. Upon such exercise of any portion of an option, the person entitled to exercise the same shall upon request of the Company furnish evidence satisfactory to the Company (including a written and signed representation) to the effect that the shares of stock are being acquired in good faith for investment and not for resale or distribution. Furthermore, the Company may if it deems appropriate affix a legend to certificates representing shares of stock purchased upon exercise of options indicating that such shares have not been registered with the Securities and Exchange Commission and may so notify its transfer agent. (i) An optionee or transferee of an option shall have no rights as a shareholder of the Company with respect to any shares covered by any option until the date of the issuance of a share certificate for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether cash, securities or other property) or distributions or other rights for which the record date is prior to the date such share certificate is issued, except as provided for in paragraph 5(k). Nothing in the Plan or in any Letter of Grant shall confer upon any employee any right to continue in the employ of the Company or any of its subsidiaries, or interfere in any way with any right of the Company or any subsidiary to terminate the optionee's employment at any time. (j) The Company shall not be required to issue fractional shares upon the exercise of an option. (k) If the outstanding shares of stock of the class then subject to this Plan are increased or decreased, or are changed into or exchanged for a different number or kind of shares or securities, as a result of one or more reorganizations, recapitalizations, stock splits, reverse stock splits, stock dividends and the like, appropriate adjustments shall be made in the number and/or type of shares or securities for which options may thereafter be granted under this Plan and for which options then outstanding under this Plan may thereafter be exercised. Any such adjustments in outstanding options shall be made without changing the aggregate exercise price applicable to the unexercised portions of such options. (l) Subject to the terms and conditions and within the limitations of the Plan, the Board or committee may modify, extend or renew outstanding options granted under the Plan, accept the surrender of outstanding options (to the extent not theretofore exercised), and authorize the granting of new options in substitutions therefor (to the extent not theretofore exercised). Notwithstanding the foregoing, no modification of an option shall, without the consent of the optionee, alter or impair any rights of the optionee under the option. Notwithstanding anything herein to the contrary, the Board or committee may not reprice outstanding options nor may the Board or the committee accept the surrender of outstanding options in conjunction with a grant of new options in substitution therefor at an exercise price lower than the price of the options surrendered, and this sentence may not be amended without consent of the Board and ratification by the Company's stockholders. (m) Each option may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Board or committee, such as without limitation discretionary performance standards, mandatory purchase of shares on the open market on a pro rata basis or tax withholding provisions. 6. Termination or Amendment of the Plan ------------------------------------ The Board or committee may at any time terminate or amend the Plan; provided that, without approval of the shareholders of the Company there shall be, except by operation of the provisions of paragraph 5(k), no increase in the total number of shares covered by the Plan, and no change in the class of persons eligible to receive options under the Plan; and provided further that, without the consent of the optionee, no amendment or termination may adversely affect any outstanding option or any unexercised portion thereof. 7. Shareholder Approval and Term of the Plan ----------------------------------------- The Plan shall be effective as of October 1987, subject to ratification by the shareholders of the Company. Unless sooner terminated by the Board, in its sole discretion, the Plan will expire in October 1997. 8. Acceleration of Exercisability and Vesting Under Certain -------------------------------------------------------- Circumstances. ------------- Notwithstanding any provision in the Plan to the contrary, unless the particular letter of grant provides otherwise, 75% of the unvested options held by each optionee shall automatically become exercisable and vested upon the occurrence, before the expiration or termination of such option, of the acquisition by a third party of 100% of the Company's outstanding equity securities, a merger in which the Company is not the surviving corporation, a sale of all or substantially all of the Company's assets, or a similar reorganization of the Company (collectively, "Accelerating Events"). The balance of each optionee's unvested options will vest and become exercisable in 12 equal monthly installments following the occurrence of any Accelerating Event, or according to the optionee's individual vesting schedule as applicable without regard to this Section 8, whichever is earlier. If an optionee loses his position with the Company as a result of or subsequent to the occurrence of an Accelerating Event, 100% of the unexpired and unvested options granted pursuant to this Plan (other than options granted pursuant to Section 9 of this Plan) held by such optionee shall automatically become vested upon such loss of position. This Section 8 shall apply to options granted before and after the effective date of this Section 8. 9. Automatic Grants to Certain Directors. ------------------------------------- (a) Effective May 21, 1993, each Compensation Committee Member shall automatically be granted options to acquire 36,000 shares of the Company's Common Stock. (b) Effective upon the date of the Annual Meeting of the Company's stockholders held in 1996, (i) each Compensation Committee Member elected on that date for a three-year term as a member of the Company's Board of Directors shall automatically be granted options to acquire 36,000 shares of the Company's Common Stock; (ii) each Compensation Committee Member then serving as a member of the class of directors whose terms expire at the 1997 Annual Meeting of Stockholders shall automatically be granted options to acquire 12,000 shares of the Company's Common Stock; and (iii) each Compensation Committee Member then serving as a member of the class of directors whose terms expire at the 1998 Annual Meeting of Stockholders shall automatically be granted options to acquire 24,000 shares of the Company's Common Stock. (c) Thereafter, each Compensation Committee Member shall automatically be granted options for 36,000 shares of the Company's Common Stock on each date upon which such person is elected to a three-year term as a member of the Company's Board of Directors. (d) Any person who becomes a Compensation Committee Member on the date of such person's election to the Board of Directors shall, effective upon the initial date of such person's membership on the Board of Directors and the Compensation Committee thereof, automatically be granted options for a number of shares determined by multiplying 1,500 by the number of calendar quarters remaining prior to the scheduled expiration of the term of such person as a member of the Company's Board of Directors. (e) Options granted pursuant to this Section 9 shall have a ten-year term and shall vest at the rate of 3,000 shares at the end of each three-month period following the effective date of grant, provided that options can vest only while the optionee remains a member of the Company's Board of Directors. The exercise price of options granted pursuant to this Section 9 shall be the fair market value of the Company's Common Stock on the date of grant. (f) This Section 9 shall not be amended more than once every six months other than to comport with changes in the Internal Revenue Code of 1986, as amended, the Employee Retirement Income Security Act, or the rules thereunder. EX-4.5 3 1997 STOCK OPTION PLAN ORTHOLOGIC CORP. 1997 STOCK OPTION PLAN 1. Purpose The purposes of the 1997 Stock Option Plan ("Plan") of OrthoLogic Corp., a Delaware corporation, are to attract and retain the best available employees and directors of OrthoLogic Corp. or any parent or subsidiary or affiliate of OrthoLogic Corp. which now exists or hereafter is organized or acquired by or acquires OrthoLogic Corp. (collectively or individually as the context requires the "Company") as well as appropriate third parties who can provide valuable services to the Company, to provide additional incentive to such persons and to promote the success of the business of the Company. This Plan is intended to comply with Rule 16b-3 under Section 16 of the Securities Exchange Act of 1934, as amended or any successor rule ("Rule 16b-3"), and the Plan shall be construed, interpreted and administered to comply with Rule 16b-3. 2. Definitions a. "Affiliate" means any corporation, partnership, joint venture or other entity, domestic or foreign, in which the Company, either directly or through another affiliate or affiliates, has a 50% or more ownership interest. b. "Affiliated Group" means the group consisting of the Company and any entity that is an "affiliate," a "parent" or a "subsidiary" of the Company. c. "Board" means the Board of Directors of the Company. d. "Committee" means the Compensation or Stock Option Committee of the Board (as designated by the Board), if such a committee has been appointed. e. "Code" means the United States Internal Revenue Code of 1986, as amended. f. "Incentive Stock Options" means options intended to qualify as incentive stock options under Section 422 of the Code, or any successor provision. g. "ISO Group" means the group consisting of the Company and any corporation that is a "parent" or a "subsidiary" of the Company. h. "Nonemployee Director" means a director of the Company who is not an employee of the Company or any Affiliated Group Member. i. "Nonqualified Stock Options" means options that are not intended to qualify for favorable income tax treatment under Sections 421 through 424 of the Code. j. "Parent" means a corporation that is a "parent" of the Company within the meaning of Code Section 424(e). k. "Section 16" means Section 16 of the Securities Exchange Act of 1934, as amended. l. "Subsidiary" means a corporation that is a "subsidiary" of the Company within the meaning of Code Section 424(f). 3. Incentive and Nonqualified Stock Options Two types of options (referred to herein as "options," without distinction between such two types) may be granted under the Plan: Incentive Stock Options and Nonqualified Stock Options. 4. Eligibility and Administration a. Eligibility. The following individuals shall be eligible to receive grants pursuant to the Plan as follows: (1) Any employee (including any officer or director who is an employee) of the Company or any ISO Group member shall be eligible to receive either Incentive Stock Options or Nonqualified Stock Options under the Plan. An employee may receive more than one option under the Plan. (ii) Any director of the Company or consultant to the Company who is not an employee of the Company or any of its subsidiaries shall be eligible to receive Nonqualified Stock Options under the Plan. (iii) Any other individual whose participation the Board or the Committee determines is in the best interests of the Company shall be eligible to receive Nonqualified Stock Options. b. Administration. The Plan may be administered by the Board or by a Committee appointed by the Board which is constituted so to permit the Plan to comply under Rule 16b-3 and 162(m) of the Code. The Company shall indemnify and hold harmless each director and Committee member for any action or determination made in good faith with respect to the Plan or any option. Determinations by the Committee or the Board shall be final and conclusive upon all parties. 5. Shares Subject to Options The stock available for grant of options under the Plan shall be shares of the Company's authorized but unissued or reacquired voting common stock. The aggregate number of shares that may be issued pursuant to exercise of options granted under the Plan shall be 1,040,000 shares; provided, however, that, in any one calendar year, no individual may receive grants of options covering more than 200,000 shares. If any outstanding option grant under the Plan for any reason expires or is terminated, the shares of common stock allocable to the unexercised portion of the option grant shall again be available for options under the Plan as if no options had been granted with respect to such shares. 6. Terms and Condition of Options Option grants under the Plan shall be evidenced by agreements in such form and containing such provisions as are consistent with the Plan as the Board or the Committee shall from time to time approve. Each agreement shall specify whether the option(s) granted thereby are Incentive Stock Options or Nonqualified Stock Options. Such agreements may incorporate all or any of the terms hereof by reference and shall comply with and be subject to the following terms and conditions: a. Shares Granted. Each option grant agreement shall specify the number of Incentive Stock Options and/or Nonqualified Stock Options being granted; one option shall be deemed granted for each share of stock. In addition, each option grant agreement shall specify the exercisability and/or vesting schedule of such options, if any. b. Purchase Price. The purchase price for a share subject to (i) a Nonqualified Stock Option may be any amount determined in good faith by the Committee, and (ii) an Incentive Stock Option shall not be less than 100% of the fair market value of the share on the date the option is granted, provided, however, the option price of an Incentive Stock Option shall not be less than 110% of the fair market value of such share on the date the option is granted to an individual then owning (after the application of the family and other attribution rules of Section 424(d) or any successor rule of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any ISO Group member. For purposes of the Plan, "fair market value" at any date shall be (i) the reported closing price of such stock on the New York Stock Exchange or other established stock exchange or Nasdaq National Market on such date, or if no sale of such stock shall have been made on that date, on the preceding date on which there was such a sale, (ii) if such stock is not then listed on an exchange or the Nasdaq National Market, the last trade price per share for such stock in the over-the-counter market as quoted on Nasdaq or the pink sheets or successor publication of the National Quotation Bureau on such date, or (iii) if such stock is not then listed or quoted as referenced above, an amount determined in good faith by the Board or the Committee. c. Termination. Unless otherwise provided herein or in a specific option grant agreement which may provide for accelerated vesting and/or longer or shorter periods of exercisability, no option shall be exercisable after the expiration of the earliest of (i) in the case of an Incentive Stock Option: (1) 10 years from the date the option is granted, or five years from the date the option is granted to an individual owning (after the application of the family and other attribution rules of Section 424(d) of the Code) at the time such option was granted, more than 10% of the total combined voting power of all classes of stock of the Company or any ISO Group member, (2) three months after the date the optionee ceases to perform services for the Company or any ISO Group member, if such cessation is for any reason other than death, disability (within the meaning of Code Section 22(e)(3)), or cause, (3) one year after the date the optionee ceases to perform services for the Company or any ISO Group member, if such cessation is by reason of death or disability (within the meaning of Code Section 22(e)(3)), or (4) the date the optionee ceases to perform services for the Company or any ISO Group member, if such cessation is for cause, as determined by the Board or the Committee in its sole discretion; (ii) in the case of a Nonqualified Stock Option; (1) 10 years from the date the option is granted, (2) two years after the date the optionee ceases to perform services for the Company or any Affiliated Group member, if such cessation is for any reason other than death, permanent disability, retirement or cause, (3) three years after the date the optionee ceases to perform services for the Company or any Affiliated Group member, if such cessation is by reason of death, permanent disability or retirement, or (4) the date the optionee ceases to perform services for the Company or any Affiliated Group member, if such cessation is for cause, as determined by the Board or the Committee in its sole discretion; provided, that, unless otherwise provided in a specific option grant agreement, an option shall only be exercisable for the periods above following the date an optionee ceases to perform services to the extent the option was exercisable on the date of such cessation. d. Method of Payment. The purchase price for any share purchased pursuant to the exercise of an option granted under the Plan shall be paid in full upon exercise of the option by any of the following methods, (i) by cash, (ii) by check, or (iii) to the extent permitted under the particular grant agreement, by transferring to the Company shares of stock of the Company at their fair market value as of the date of exercise of the option as determined in accordance with paragraph 6(b), provided that the optionee held the shares of stock for at least six months. Notwithstanding the foregoing, the Company may arrange for or cooperate in permitting broker-assisted cashless exercise procedures. The Company may also extend and maintain, or arrange for the extension and maintenance of, credit to an optionee to finance the optionee's purchase of shares pursuant to the exercise of options, on such terms as may be approved by the Board or the Committee, subject to applicable regulations of the Federal Reserve Board and any other applicable laws or regulations in effect at the time such credit is extended. e. Exercise. Except for options which have been transferred pursuant to paragraph 6(f), no option shall be exercisable during the lifetime of an optionee by any person other than the optionee, his or her guardian or legal representative. The Board or the Committee shall have the power to set the time or times within which each option shall be exercisable and to accelerate the time or times of exercise; provided, however, no options may be exercised prior to the later of the expiration of six months from the date of grant thereof or stockholder approval, unless otherwise provided by the Board or Committee. To the extent that an optionee has the right to exercise one or more options and purchase shares pursuant thereto, the option(s) may be exercised from time to time by written notice to the Company stating the number of shares being purchased and accompanied by payment in full of the purchase price for such shares. Any certificate for shares of outstanding stock used to pay the purchase price shall be accompanied by a stock power duly endorsed in blank by the registered owner of the certificate (with the signature thereon guaranteed). If the certificate tendered by the optionee in such payment covers more shares than are required for such payment, the certificate shall also be accompanied by instructions from the optionee to the Company's transfer agent with respect to the disposition of the balance of the shares covered thereby. f. Nontransferability. No option shall be transferable by an optionee otherwise than by will or the laws of descent and distribution, provided that the Committee in its discretion may grant options that are transferable, without payment of consideration, to immediate family members of the optionee or to trusts or partnerships for such family members; the Committee may also amend outstanding options to provide for such transferability. g. ISO $100,000 Limit. If required by applicable tax rules regarding a particular grant, to the extent that the aggregate fair market value (determined as of the date an Incentive Stock Option is granted) of the shares with respect to which an Incentive Stock Option grant under this Plan (when aggregated, if appropriate, with shares subject to other Incentive Stock Option grants made before said grant under this Plan or another plan maintained by the Company or any ISO Group member) is exercisable for the first time by an optionee during any calendar year exceeds $100,000 (or such other limit as is prescribed by the Code), such option grant shall be treated as a grant of Nonqualified Stock Options pursuant to Code Section 422(d). h. Investment Representation. Unless the shares of stock covered by the Plan have been registered with the Securities and Exchange Commission pursuant to Section 5 of the Securities Act of 1933, as amended, each optionee by accepting an option grant represents and agrees, for himself or herself and his or her transferees by will or the laws of descent and distribution, that all shares of stock purchased upon the exercise of the option grant will be acquired for investment and not for resale or distribution. Upon such exercise of any portion of any option grant, the person entitled to exercise the same shall upon request of the Company furnish evidence satisfactory to the Company (including a written and signed representation) to the effect that the shares of stock are being acquired in good faith for investment and not for resale or distribution. Furthermore, the Company may if it deems appropriate affix a legend to certificates representing shares of stock purchased upon exercise of options indicating that such shares have not been registered with the Securities and Exchange Commission and may so notify its transfer agent. i. Rights of Optionee. An optionee or transferee holding an option grant shall have no rights as a stockholder of the Company with respect to any shares covered by any option grant until the date one or more of the options granted thereunder have been properly exercised and the purchase price for such shares has been paid in full. No adjustment shall be made for dividends (ordinary or extraordinary, whether cash, securities or other property) or distributions or other rights for which the record date is prior to the date such share certificate is issued, except as provided for in paragraph 6(k). Nothing in the Plan or in any option grant agreement shall confer upon any optionee any right to continue performing services for the Company or any Affiliated Group member, or interfere in any way with any right of the Company or any Affiliated Group member to terminate the optionee's services at any time. j. Fractional Shares. The Company shall not be required to issue fractional shares upon the exercise of an option. The value of any fractional share subject to an option grant shall be paid in cash in connection with an exercise that results in all full shares subject to the grant having been exercised. k. Reorganizations, Etc. Subject to paragraph 9 hereof, if the outstanding shares of stock of the class then subject to this Plan are increased or decreased, or are changed into or exchanged for a different number or kind of shares or securities, as a result of one or more reorganizations, stock splits, reverse stock splits, stock dividends, spin-offs, other distributions of assets to stockholders, appropriate adjustments shall be made in the number and/or type of shares or securities for which options may thereafter be granted under this Plan and for which options then outstanding under this Plan may thereafter be exercised. Any such adjustments in outstanding options shall be made without changing the aggregate exercise price applicable to the unexercised portions of such options. l. Option Modification. Subject to the terms and conditions and within the limitations of the Plan, the Board or the Committee may modify, extend or renew outstanding options granted under the Plan, or accept the surrender of outstanding options (to the extent not theretofore exercised). Notwithstanding the foregoing, no modification of an option (either directly or through modification of the Plan) shall, without the consent of the optionee, alter or impair any rights of the optionee under the option. Notwithstanding anything herein to the contrary, the Board or Committee may not reprice outstanding options nor may the Board or the Committee accept the surrender of outstanding options in conjunction with a grant of new options in substitution therefor at an exercise price lower than the price of the options surrendered, and this sentence may not be amended without consent of the Board and ratification by the Company's stockholders. m. Grants to Foreign Optionees. The Board or the Committee in order to fulfill the Plan purposes and without amending the Plan may modify grants to optionees who are foreign nationals or performing services for the Company or an Affiliated Group member outside the United States to recognize differences in local law, tax policy or custom. n. Other Terms. Each option grant agreement may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Board or the Committee, such as without limitation discretionary performance standards, tax withholding provisions, or other forfeiture provisions regarding competition and confidential information. 7. Termination or Amendment of the Plan The Board may at any time terminate or amend the Plan; provided, that stockholder approval shall be obtained of any action for which stockholder approval is required in order to comply with Rule 16b-3, the Code or other applicable laws or regulatory requirements within such time periods prescribed. 8. Stockholder Approval and Term of the Plan The Plan shall be effective as of March 26, 1997, the date as of which it was adopted by the Board, subject to ratification by the stockholders of the Company within (each of) the time period(s) prescribed under Rule 16b-3, the Code, and any other applicable laws or regulatory requirements, and shall continue thereafter until terminated by the Board. Unless sooner terminated by the Board, in its sole discretion, the Plan will expire on March 25, 2007, solely with respect to the granting of Incentive Stock Options or such later date as may be permitted by the Code for Incentive Stock Options, provided that options outstanding upon termination or expiration of the Plan shall remain in effect until they have been exercised or have expired or been forfeited. 9. Merger, Consolidation or Reorganization In the event of a merger, consolidation or reorganization with another corporation in which the Company is not the surviving corporation, the Board, the Committee (subject to the approval of the Board) or the board of directors of any corporation assuming the obligations of the Company hereunder shall take action regarding each outstanding and unexercised option pursuant to either clause (a) or (b) below: a. Appropriate provision may be made for the protection of such option by the substitution on an equitable basis of appropriate shares of the surviving corporation, provided that the excess of the aggregate fair market value (as defined in paragraph 6(b)) of the shares subject to such option immediately before such substitution over the exercise price thereof is not more than the excess of the aggregate fair market value of the substituted shares made subject to option immediately after such substitution over the exercise price thereof; or b. Appropriate provision may be made for the cancellation of such option. In such event, the Company, or the corporation assuming the obligations of the Company hereunder, shall pay the optionee an amount of cash (less normal withholding taxes) equal to the excess of the highest fair market value (as defined in paragraph 6(b)) per share of the Common Stock during the 60-day period immediately preceding the merger, consolidation or reorganization over the option exercise price, multiplied by the number of shares subject to such options (whether or not then exercisable). 10. Dissolution or Liquidation Anything contained herein to the contrary notwithstanding, on the effective date of any dissolution or liquidation of the Company, the holder of each then outstanding option (whether or not then exercisable) shall receive the cash amount described in paragraph 9(b) hereof and such option shall be cancelled. 11. Acceleration of Exercisability and Vesting Under Certain Circumstances Notwithstanding any provision in the Plan to the contrary, unless the particular letter of grant provides otherwise, 75% of the unvested options held by each optionee shall automatically become exercisable and vested upon the occurrence, before the expiration or termination of such option, of the acquisition by a third party of 100% of the Company's outstanding equity securities, a merger in which the Company is not the surviving corporation, a sale of all or substantially all of the Company's assets, or a similar reorganization of the Company (collectively, "Accelerating Events"). The balance of each optionee's unvested options will vest and become exercisable in 12 equal monthly installments following the occurrence of any Accelerating Event, or according to the optionee's individual vesting schedule as applicable without regard to this Section 11, whichever is earlier. If an optionee loses his position with the Company as a result of or subsequent to the occurrence of an Accelerating Event, 100% of the unexpired and unvested options granted pursuant to this Plan held by such optionee shall automatically become vested upon such loss of position. 12. Withholding Taxes a. General Rule. Pursuant to applicable federal and state laws, the Company is or may be required to collect withholding taxes upon the exercise of an option. The Company may require, as a condition to the exercise of an option or the issuance of a stock certificate, that the optionee concurrently pay to the Company (either in cash or, at the request of optionee but in the discretion of the Board or the Committee and subject to such rules and regulations as the Board or the Committee may adopt from time to time, in shares of Common Stock of the Company) the entire amount or a portion of any taxes which the Company is required to withhold by reason of such exercise, in such amount as the Committee or the Board in its discretion may determine. b. Withholding from Shares to be Issued. In lieu of part or all of any such payment, the optionee may elect, subject to such rules and regulations as the Board or the Committee may adopt from time to time, or the Company may require that the Company withhold from the shares to be issued that number of shares having a fair market value (as defined in paragraph 6(b)) equal to the amount which the Company is required to withhold. c. Special Rule for Insiders. Any such request or election (to satisfy a withholding obligation using shares) by an individual who is subject to the provisions of Section 16 shall be made in accordance with the rules and regulations of the Securities and Exchange Commission promulgated thereunder. EX-10.1 4 CO-PROMOTION AGREEMENT BETWEEN ORTHOLOGIC & SANOFI CO-PROMOTION AGREEMENT BETWEEN ORTHOLOGIC AND SANOFI PHARMACEUTICALS, INC. TABLE OF CONTENTS PAGE ---- ARTICLE 1 - Definitions and Interpretation ................................ 1 ARTICLE II - Committee .................................................... 8 ARTICLE III - Term and Termination ........................................ 9 ARTICLE IV - Disclaimer of Warranties Limitation of Liability ............. 11 ARTICLE V - Co-promotional Activities ..................................... 12 ARTICLE VI - Compensation / Obligations ................................... 16 ARTICLE VII - Reports and Records ......................................... 18 ARTICLE VIII - Trademark and Corporate Name ............................... 19 ARTICLE IX - Food and Drug Administration Compliance and Discontinuance of Product ................................................................ 20 ARTICLE X - Indemnification ............................................... 21 ARTICLE XI - Insurance .................................................... 23 ARTICLE XII - Confidential Information .................................... 23 ARTICLE XIII - Relationship of the Parties ................................ 25 ARTICLE XIV - Termination for Breach or Default ........................... 25 ARTICLE XV - Property of the Parties ...................................... 26 ARTICLE XVI - Injunctive Relief ........................................... 26 ARTICLE XVII - General Representations and Warranties ..................... 26 ARTICLE XVIII - Force Majeure ............................................. 28 ARTICLE XIX - Successors and Assignment ................................... 29 ARTICLE XX - Entire Agreement - Modifications ............................. 29 ARTICLE XXI - Compliance with Law ......................................... 29 ARTICLE XXII - Severability ............................................... 30 ARTICLE XXIII - Dispute Resolution and Governing Law ...................... 30 ARTICLE XXIV - Waiver ..................................................... 31 ARTICLE XXV - Survivability ............................................... 31 ARTICLE XXVI - Notices .................................................... 32 ARTICLE XXVII - Heading ................................................... 33 ARTICLE XXVIII- Language .................................................. 33 PAGE ---- ARTICLE XXIX - Exhibits and Schedules ..................................... 33 ARTICLE XXX - No Third Party Rights ....................................... 33 ARTICLE XXXI - Counterparts ............................................... 33 ARTICLE XXXII - Currency .................................................. 34 CO-PROMOTION AGREEMENT This exclusive co-promotion agreement (this "Agreement"), is made and entered into as of the 23rd day of June, 1997 (the "Effective Date") between SANOFI PHARMACEUTICALS, INC., a Delaware corporation, with its principal place of business located at 90 Park Avenue, New York, New York 10016-1389 ("Sanofi") and ORTHOLOGIC CORP., a Delaware corporation, with its principal place of business located at 2850 South 36th Street, Phoenix, Arizona 85034 ("OrthoLogic"). WITNESSETH: ----------- WHEREAS, Sanofi owns certain rights in and to the Product as per the License Agreement; WHEREAS, OrthoLogic has expertise in promoting device products; and WHEREAS, Sanofi and OrthoLogic desire to enter into this Agreement with respect to OrthoLogic's promotion of the Product to the Target Audience. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, Sanofi and OrthoLogic hereby agree as follows: ARTICLE I --------- DEFINITIONS AND INTERPRETATION 1.1 Definitions - The following terms, as used herein (unless a clear contrary interpretation appears), have the following meanings: "Affiliate" means (i) with respect to (a) Sanofi; (b) Sanofi, a societe anonyme organized under the laws of France, and ( c) any successor thereto ("Sanofi France") and any Person directly or indirectly controlled by Sanofi France and (ii) with respect to OrthoLogic or any other Person, any Person, directly or indirectly, controlled by, controlling or under common control with such Person. For the purposes of this definition, "control" (including, with correlative meaning, the terms "controlling" and "controlled") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Agreement" has the meaning specified in the preliminary statements. "Attributable Unit" means the Units, net of returns, that are purchased by a Third Party and shipped to OrthoLogic's Target Audience. "Claims" has the meaning specified in Article 1 0.1.1 "Committee" means the joint committee composed of representatives from OrthoLogic and Sanofi established pursuant to Article 2.1 hereof. "Competitive Product" means drugs or devices that include the same indications as the Product. "Complaint" has the meaning specified in Article 9.3.l. "Confidential Information" has the meaning specified in Article 12.1. "Contract Year" means each sequential twelve (12) month period during the Term with the first such period commencing on January 1, 1998. "Customers" means Persons involved in the distribution and utilization of the Product, including, but not limited to, wholesalers, physicians and managed care organizations. "Detail" or "Detailing" means a personal contact by a professional sales representative with a health care practitioner, health care institution, their employees or agents for the purpose of providing information on or stimulating interest in the use of purchase of pharmaceutical or health care products. "Effective Date" means the date the last Party executes this Agreement. 2 "FDA" means the United States Food and Drug Administration or any other government body or agency that succeeds it. "FDA Approval" means receipt of all approvals from the FDA required to market the Product in the Territory. "Fidia" means Fidia S.p.A., an Italian corporation in amministrazione straordinaria under the laws of Italy, with its principal place of business located at Via Ponte della Fabbrica 3/A, Abano Terme (PD), Italy. "GSI" has the meaning specified in Schedule B. "Indemnified Party" has the meaning specified in Article 10.3. "Indemnifying Party" has the meaning specified in Article 10.3. "License Agreement" has the meaning specified in Article 3.2(e). "Licensed Use" means the use of the Product in the Territory. "Marketing Plan" has the meaning specified in Article 2.1. "Minimum Promotional Amount" has the meaning specified in Article 5.3.4. "Minimum Unit Sales Amount" has the meaning specified in Article 5.3.5. "Net Sales" means the gross sales invoiced for the Product by Sanofi and its Affiliates to Third Parties less deductions:. (i) distribution, quantity and/or cash discounts, allowances and/or Rebates actually allowed or given, and transportation and insurance costs for shipments to customers; (ii) credits or refunds actually allowed for returned Units, and (iii) sales and other excise taxes directly related to that sale, to the extent that such items are included in the gross invoice price (but not including taxes assessed against the income derived from such sale). Sales between or among Sanofi and its Affiliates shall be excluded from the computation 3 of Net Sales except where such Affiliates are end users but Net Sales shall include the subsequent final sales to Third Parties by such Affiliate. In the event of a Recall, Net Sales will be adjusted mutually between the Parties. "Net Selling Price" or "NSP" for any calendar period means Net Sales for that period divided by the number of Units, net of returns, sold by Sanofi and its Affiliates during the same period. "Nonsalable Returns" means Returns that cannot be resold. "OCU" means OrthoLogic's compensation per Unit, net of returns, which is calculated as the Net Selling Price minus the Trade Transfer Price minus payments made to Sanofi pursuant to Articles 6.2.2 (i) and (ii) of this Agreement. "OrthoLogic" has the meaning specified in the preliminary statements. "OrthoLogic's Annual Unit Forecast" has the meaning specified in Article 5.3.2. ".Party" means Sanofi or OrthoLogic and, when used in the plural, shall mean OrthoLogic and Sanofi. "Payment Period" means the period commencing on the first day of the launch of the Product and ending on the last day of each of the succeeding calendar quarters during the Term. "Person" means any natural person, corporation, firm, business trust, joint venture, association, organization, company, partnership or other business entity, or any government or any agency or political subdivision thereof. "Product" means Hyalgane hyaluronic acid sodium salt as an intra-articular device or drug for human use for the treatment of arthropathies, the manufacturing specifications of which are described in the License Agreement. 4 "Providing Party" has the meaning specified in Article 12.l.. "Rebate" means the return of a payment or a charge back to the customer based on certain criteria set forth in the contract that the customer must meet for the contracted products and/or any Federal or state statutory requirements (i.e., market share, formulary acceptance, dollar volume or growth over some average). "Recall" shall mean any action (including replacement and repair) to correct misbranded, adulterated or unmarketable Product, which is either (i) specifically mandated by the FDA or other regulatory authorities; (ii) agreed upon by Sanofi and Fidia, or (iii) determined by either Sanofi or Fidia in good faith, after consultation with the other party, for reasons of safety, efficacy or other material Product defect materially affecting Product marketability. "Receiving Party" has the meaning specified in Article 12.l. "Renewal Term" has the meaning specified in Article 3.1. "Residual Period" has the meaning specified in Article 3.1 (a). "Returns" means the Product that is returned and attributable to the Target Audience. "Sample Product" means a Unit which is used to promote the use of "Hyalgan" at no cost to the Target Audience and which is provided by Fidia in reasonable quantities and identified with appropriate wording. "Sanofi" has the meaning specified in the preliminary statements. "Sanofi Group" has the meaning specified in Article 10.2.l. "Shared Accounts" means accounts which are involving orthopedic surgeons and other types of physicians who prescribe the Product, including, but not limited to, health maintenance organizations, group purchasing organizations, co-operative purchasing groups and multi- disciplined practices. 5 "Target Audience" means orthopedic surgeons, who graduated from an accredited program, as well as accounts which are deemed to be "Shared Accounts" in the Territory, which shall use the Product for the Licensed Use. "Term" has the meaning specified in Article 3. 1. "Territory" means the USA, which includes the 50 states, the District of Columbia and USA military bases around the world. "Third Party" means any Person who or which is neither a Party nor an Affiliate of a Party. "Trademark" means the mark "Hyalgan" United States Registration No. 1,420,772 (12/16/86) owned by Fidia, and any other marks owned or controlled by Fidia and used by Sanofi pursuant to the License Agreement. "Trade Transfer Price" means an amount of 30% of Net Selling Price as defined in the License Agreement, provided, however, that during the first four (4) years of the term of the License Agreement, the Trade Transfer Price shall not be less than Sixteen Dollars ($16.00) per Unit (the "Floor") nor more than Eighteen Dollars ($18.00) per Unit (the "Cap"). On or before September 30, 2001, the Floor and the Cap shall be negotiated in good faith by Sanofi and Fidia based upon the prevailing economic and competitive dynamics affecting the marketplace. If Sanofi and Fidia do not reach agreement prior to the commencement of the next calendar year, the Floor and the Cap agreed upon for the previous calendar year will be adjusted by an amount equal to the percentage increase or decrease in the all items index of the US Department of Labor (Bureau of Labor Statistics) Consumer Price Index ("CPI") for the USA from the base month of August 1999, provided, however, that at no time shall the annual increase or decrease exceed 4%. During the remainder of the term of the License Agreement, the new Floor and the new Cap will be annually adjusted by an amount equal to the percentage increase or decrease in the CPI from the base month of August 2001, provided, however, that at no time shall the annual increase or decrease exceed four percent (4%), nor 6 shall the Trade Transfer Price exceed 30% of Net Selling Price as defined in the License Agreement. "Unit" means one (1) 2ml-vial or pre-filled syringe containing 20mg of the Product, as requested by Sanofi in its purchase order of the Product plus package insert. "USA" means the United States of America. "Wholesaler Acquisition Cost" means the published price a wholesaler/distributor will pay Sanofi for the Product. 1.2 Interpretation - In this Agreement, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any person or entity includes such person's or entity's successors and assigns; (iii) reference to this Agreement means such agreement as amended, modified or supplemented from time to time in accordance with the terms hereof; (iv) reference to any law, rule, regulation, order, decree, requirement, policy, guideline, directive or interpretation means as amended, modified, codified, replaced or reenacted in whole or in part, and in effect on the determination date, including rules and regulations promulgated thereunder; (v) "hereundee", "hereof", "hereto" and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Article, Section or other provision hereof; (vi) "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; and (vii) relative to the determination of any period of time, "from" means "from and including to" and "to" means "to but excluding". 7 ARTICLE 11 ---------- COMMITTEE 2.1 The Parties with FIDIA shall establish the Committee consisting of a mutually agreed number of employees of Sanofi, OrthoLogic and FIDIA, which shall meet periodically, as the Parties and FIDIA agree, but not less than every quarter. For purposes of the Committee, FIDIA's role will be advisory and observational. The Parties and FIDIA will meet to direct the marketing and promotion of the Product to the Target Audience, including, but not limited to the following: (a) to review and coordinate marketing and sales plans; (b) set sales forecasts; (c ) coordinate development and allocation by market of promotional materials; (d) discuss Detailing efforts for OrthoLogic; (e) discuss research and development activities of the Product; (f) report on the status of clinical studies; (g) establish sampling and marketing unit strategies and procedures; (h) establish and update Target Audience account lists; (i) establish and periodically review procedures for handling inquires to the Product, including but not limited to, medical, product inquires, technical, product complaints, safety issues and adverse reactions, and adverse events ; and (j) to discuss any other issues or topics concerning promotion of the Product. In particular, the Committee shall determine the initial plan for OrthoLogic's marketing and promotion of the Product to the Target Audience (the "Marketing Plan"). In addition, with respect to Shared Accounts, the Committee, on a quarterly basis, will approve, for purposes of Compensation, a percentage, which will vary from time to time based on a joint written presentation of the Parties from an account by account analysis performed by Sanofi Division Managers and OrthoLogic's Area Vice Presidents, to be used when calculating Attributable Units allocated from the Shared Accounts to OrthoLogic. Each Party shall have an equal opportunity to express its views regarding decisions to be taken by the Committee. In the event of a difference of opinion within the Committee regarding a decision, either Party shall be afforded an opportunity to convey its views to the senior executives of the other Party, but Sanofi shall have the ultimate decisional authority. 8 ARTICLE III ----------- TERM AND TERMINATION 3.1 Term. This Agreement shall continue in force for an initial period commencing as of the Effective Date and, unless sooner terminated as provided in this Agreement, shall terminate on December 31, 2002 unless renewed pursuant to Article 3.1 (b) (the "Term"). Thereafter, Sanofi may, at its sole option, invoke one of the following: (a) at the expiration of the Term or any Renewal Term, Sanofi shall pay to OrthoLogic an amount equal to 50% of the gross compensation paid OrthoLogic pursuant to this Agreement for the last calendar year, which will be paid on a quarterly basis during the next calendar year (the "Residual Period"); or (b) Sanofi shall renew this Agreement under the same terms and conditions hereunder for an additional one (1) year period (the "Renewal Term")and the Minimum Sales Unit requirement for that year shall be at 50% of the last calendar year's Attributable Units; or (c) Sanofi shall enter into a "revised" co-promotion agreement with OrthoLogic on terms and conditions established by the Committee that are mutually beneficial to the Parties. Sanofi shall notify OrthoLogic one hundred twenty (120) days prior to the expiration of the Term as to which option in Article 3.1 above Sanofi shall exercise. 3.2 Termination. Notwithstanding the provisions of Article 3.1 above, this Agreement may be terminated in accordance with the following provisions: (a) Either Party hereto may terminate this Agreement at any time upon written notice to the other Party if the other Party: (i) files a petition of any type as to its bankruptcy (which petition is not dismissed within ninety (90) days); (ii) is declared bankrupt; (iii) becomes insolvent; (iv) makes an assignment for the benefit of creditors; (v) goes into liquidation or receivership; or (vi) otherwise loses legal control of its business; 9 (b) Either Party may terminate this Agreement upon written notice to the other Party if Minimum Unit Sales as described in Article 5.3.5 of this Agreement are not met. (c) Either Party may terminate this Agreement upon written notice to the other Party if an event of Force Majeure continues for more than six (6) months as provided in Article XVIII below; (d) Either Party may terminate this Agreement upon written notice to the other Party if the other Party is in material breach or default of this Agreement and not cured as provided in Article XIV of this Agreement; (e) Sanofi may terminate this Agreement immediately upon the termination of the Exclusive License and Distribution Agreement made and entered into on the same date as the Effective Date by and between Fidia and Sanofi (the "License Agreement"); (f) Sanofi may terminate this Agreement upon thirty (30) days written notice to OrthoLogic in the event that conditions are not met as described in Article 5.3.4 and 5.3.5 of this Agreement 3.3 Non-Compete. During the Term and for a period of one (1) year after the early termination or expiration of the Term, or any renewal thereafter, OrthoLogic shall not market, promote, distribute or sell in the Territory any Competitive Product. 3.4 Effect of Termination. Termination, expiration, cancellation or abandonment of this Agreement through any means and for any reason shall not relieve the Parties of any obligation accruing prior thereto and shall be without prejudice to the rights and remedies of either Party with respect to any antecedent breach of any of the provisions of this Agreement 3.5 Surviving Obligations. Notwithstanding any termination of this Agreement, the indemnification provisions of Article X of this Agreement and the confidentiality provisions of Article XII of this Agreement shall survive. 10 ARTICLE IV ---------- DISCLAIMER OF WARRANTIES LIMITATION OF LIABILITY 4.1 Warranty and Disclaimers and Limitations. 4.1.1 Sanofi warrants and represents that all quantities of the Product shall meet all specifications and quality standards described in the License Agreement, as may be amended from time to time by Sanofi and Fidia, and that Sanofi shall adhere to all applicable governmental laws and regulations relating to the distribution, sale and shipment of the Product in the Territory. Sanofi further warrants that all necessary approvals from government agencies relating to the sale of the Product hereunder have been obtained. 4.1.2 THE LIMITED WARRANTY PROVIDED IN ARTICLE 4.1.1 IS SANOFI'S SOLE WARRANTY WITH RESPECT TO THE PRODUCT AND IS MADE IN LIEU OF ANY AND ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF QUALITY, PERFORMANCE, MERCHANTABILITY AND FITNESS FOR A PARTICULAR USE OR PURPOSE. SANOFI MAKES NO OTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND WITH RESPECT TO THE PRODUCT. 4.2 Limitation of Liability. EXCEPT WITH RESPECT TO CLAIMS FOR INDEMNIFICATION UNDER ARTICLE X OF THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OR PROFITS, REVENUE, DATA OR USE, INCURRED BY THE OTHER PARTY, WHETHER IN CONTRACT OR TORT OR BASED ON A WARRANTY, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 11 ARTICLE V --------- CO-PROMOTIONAL ACTIVITIES 5.1 Appointment. Sanofi hereby appoints OrthoLogic as its exclusive co-promotion marketing agent for sales of the Product to the Target Audience as specified in Section 3.3. 1. OrthoLogic and Sanofi shall use commercially reasonable efforts to simultaneously (i) conduct the training for each Party's respective sales organization and (ii) commence Detailing. OrthoLogic will not appoint sub-agents without Sanofi's prior written approval, except that OrthoLogic is permitted to utilize independent contractors equal to 10% of their sales force at any one time during the Term. 5.2 Publicity. Neither Party shall issue any press release or public announcement or otherwise divulge the existence of this Agreement or its terms without the prior written consent of the other Party except as and to the extent that such Party shall be obligated by law, rules or regulations of any governmental or regulatory body. Notwithstanding the foregoing, the Parties hereto agree to prepare a mutually agreeable press release for dissemination subsequent to the execution hereof. 5.3 OrthoLogic's Obligations. 5.3.1 Marketing and Forecasts. OrthoLogic shall use best efforts to market and promote the Product to the Target Audience and shall conduct face to face Detailing with a minimum of 50% of the Target Audience at least six (6) times per calendar year during the Term and shall afford Sanofi a reasonable opportunity to verify the level of such promotional activity by providing, among other things, OrthoLogic's internal promotional sales activity reports. OrthoLogic shall maintain an adequate and competent marketing and sales organization for Detailing to the Target Audience and agrees to promote the Product by accepted promotional practices and in accordance with FDA requirements. 5.3.2 Annual Unit Production Forecast. OrthoLogic shall advise Sanofi in writing on or before the 15" day of September for each year of this Agreement as to its estimated Unit requirements, exclusive of Samples, for the next Contract Year ("OrthoLogic's Annual Unit Forecast"). OrthoLogic shall advise Sanofi as well for the Unit requirements for 12 the Product Samples for the following Contract Year. OrthoLogic's Annual Unit Forecast and the requirements for the Product Samples shall be provided by OrthoLogic on a monthly-based schedule. OrthoLogic further agrees that, to the extent its failure to achieve the Unit Sales equal to OrthoLogic's Annual Unit Forecast requires Sanofi to incur additional inventory carrying charges, that these additional charges shall be borne by OrthoLogic and deducted from payments to OrthoLogic. 5.3.3 Record Keeping. OrthoLogic shall maintain complete and accurate records regarding its performance hereunder for such periods as may be required by applicable law. 5.3.4 Promotional Materials. OrthoLogic shall be responsible, at its own sole expense and cost, for the advertising, promotion and medical education of the Target Audience, including, but not limited to, the distribution of promotional materials provided by Sanofi or Fidia pursuant to Section 5.4.6 below, samples, reminder pieces, promotional materials, seminars, symposia, luncheons and Continuing Medical Education programs. OrthoLogic agrees to spend at a minimum the amounts specified in Schedule A, which is attached hereto and made part of this Agreement, in connection with the foregoing during the Term (the "Minimum Promotional Amount"). Notwithstanding the foregoing, the Minimum Promotional Amount shall specifically exclude costs and expenses associated with OrthoLogic's sales force, managed care, sales support and marketing personnel expenses. OrthoLogic shall not use any promotional materials for the Product other than materials provided by Sanofi or Fidia, or except as developed by OrthoLogic and expressly authorized in advance of use in writing by Sanofi. The cost of any such authorized (i.e., non-Sanofi) materials shall be borne by OrthoLogic. OrthoLogic shall provide Sanofi with copies of all head office correspondence to its field sales force with regard to promotion of the Product. 5.3.5 Minimum Unit Sales. OrthoLogic agrees that Attributable Units will be equal to or greater than 50% of , 425,000 and 450,000 for Contract years 4 and 5 respectively (the "Minimum Unit Sales"). 5.3.6 Performance. Anything in this Agreement to the contrary notwithstanding, if any performance or activity of OrthoLogic, that is required or contemplated by this 13 Agreement, is prevented or impeded by any action of Fidia or Sanofi, by any Force Majeure under Article XVIII of this Agreement or by any other condition or event beyond the control of OrthoLogic, (i) any failure or shortfall in OrthoLogic's performance shall be excused for the duration of the condition or event; (ii) an identical amount of time shall be added to any time period contemplated by this Agreement which is affected by such delay; and (iii) an equitable adjustment shall be made with respect to any quantitative requirements to address such factors as reallocation of resources by OrthoLogic and loss of momentum in the marketplace. 5.4 Sanofi's Obligations. 5.4.1 Product Supply. Sanofi shall use commercially reasonable efforts to supply the Product for customer orders on a timely basis. If the Product becomes unavailable, including a recall, during the Term for any reason and the period of such unavailability extends beyond two (2) months, OrthoLogic's Detailing obligation as set forth in Article 5.3.1 herein above shall be suspended. If the period of unavailability extends beyond six (6) months, then, either Party may upon sixty (60) days prior written notice to the other Party terminate this Agreement without further obligation, except for obligations already accrued. 5.4.2 Sale Prices and Term. All sales of the Product shall be at prices and upon terms established by Sanofi in conjunction with Article 11 of this Agreement and Sanofi shall have the right, in its sole discretion, from time to time, to establish, change, alter or amend prices and other terms and conditions of sale, provided that it provides OrthoLogic with at least seven (7) days written notice in advance of any such change. The Parties agree that it may be necessary from time to time to offer customers discounts from the established list prices. Periodically, Committee will establish guidelines for the amount and duration of such discounts. OrthoLogic shall not process orders for the Product, or make price quotations or delivery promises without Sanofi's prior written approval, provided, however, that OrthoLogic is permitted to have its sales force complete Sanofi approved order forms and submit the order forms to Sanofi. 5.4.3 Processing Orders. Sanofi is responsible for the Product distribution in the Territory. All orders received by Sanofi are subject to its approval and acceptance and Sanofi reserves the right to accept, reject, in whole or in part, any or all orders received and/or 14 accepted for the Product at any time, for any reason. If OrthoLogic receives any orders it shall refer such to Sanofi. All the Product sales shall be invoiced by Sanofi and shall be made in accordance with Sanofi's terms and conditions of sale including, without limitation, prices, credit terms, cash discounts, returns and allowances. Sanofi shall be responsible for all credit risks and collections of all payments due from customers for the shipped Product. Sanofi shall not be liable to OrthoLogic for any rejection, cancellation or modification of any customer order referred to Sanofi by OrthoLogic, or any failure to deliver the Product ordered pursuant to such order. 5.4.4 Delivery of the Product. Sanofi shall ship and deliver the Product to customers placing orders pursuant to this Agreement. As between OrthoLogic and Sanofi, all risk of loss or damage to or destruction of the Product shall be borne by Sanofi. 5.4.5 Invoicing. Sanofi shall invoice the customer for the Units ordered and shipped pursuant to such order. 5.4.6 Promotional Materials. Sanofi shall supply at OrthoLogic's sole expense, reasonable quantities of relevant promotional materials at Sanofi's cost to OrthoLogic at a fixed location as OrthoLogic may specify. If OrthoLogic requests shipment to more than one location, it shall bear the incremental expense thereof. All such promotional material shall comply with FDA regulations. 5.4.7 Training. Sanofi shall be responsible for providing reasonable quantities of existing training materials to OrthoLogic's sales force and shall make available at times and places to be agreed reasonable numbers of Sanofi personnel for training purposes. Sanofi and OrthoLogic agree to, prior to the date of the Product launch, a co-launch meeting which shall be held at a time and place mutually agreed to by the Parties. Sanofi and OrthoLogic shall each be responsible for their respective travel and accommodation expenses associated with sending their employees and representatives to said co-launch meeting. Sanofi and OrthoLogic shall share all other costs and expenses associated with said co-launch meeting in proportion to the number of their respective attendees. 15 5.4.8 Access to Account Files. Sanofi shall provide OrthoLogic with access to account files purchased by Sanofi from the distributor showing Units purchased by account. If OrthoLogic wishes to access information not purchased by Sanofi, Sanofi will authorize such access, but at OrthoLogic's expense. 5.4.9 Sampling. Sanofi shall supply to OrthoLogic, in reasonable quantities, the Sample Product at a cost of 50% of the Trade Transfer Price for the first twelve (12) months of the Term and 75% of the Trade Transfer Price for the remainder of the Term consistent with OrthoLogic's forecast. ARTICLE VI ---------- COMPENSATION / OBLIGATIONS 6.1 Compensation. 6.1.1 Commission to OrthoLogic: As compensation hereunder, OrthoLogic shall be paid by Sanofi an amount equal to the Attributable Units times OCU, as illustrated in the example in Schedule B attached hereto and made part of this Agreement. OrthoLogic's commission payments shall be made monthly by Sanofi within ten (10) business days of receipt of wholesaler report and shall equal thirty five percent (35%) of Net Sales attributable to Target Audience for that month. Within thirty (30) days after the end of each calendar quarter, the commission paid to OrthoLogic shall be adjusted and payments made between the Parties within ten (10) business days, based on the actual Attributable Units times OCU in that quarter. 6.1.2 If at any time during the Term, the GSI is less than Seventy Dollars ($70.00), the Parties mutually agree to discuss a revised commission structure. 6.2 Obligations. 6.2.1 (i) Milestone Payments to Fidia. OrthoLogic agrees to pay Fidia the below listed milestone payments to be received by Sanofi, on behalf of Fidia, in connection with the 16 Product and which payments shall be directly passed through to Fidia. The total of these milestone payments will not be less than Four Million Dollars ($4,000,000) and shall be paid as follows: (a) One Million Dollars ($1,000,000) payable upon execution of this Agreement; (b) One Million Dollars ($1,000,000) payable six (6) months after the launch of the Product by OrthoLogic; (c) One Million Dollars payable twelve (12) months after the launch of the Product by OrthoLogic; and. (d) One Million Dollars payable eighteen (18) months after the launch of the Product, but not later than December 31, 1998. (ii) OrthoLogic agrees to pay Sanofi a royalty which will be passed through to Fidia on combined annual Net Sales of Sanofi and OrthoLogic in excess of $30 Million Dollars. The Parties shall share the 10% royalty payment due Fidia in accordance with the respective Party's pro rata share of combined sales for that year. Sanofi will invoice OrthoLogic any amount due on a quarterly basis and OrthoLogic will pay said amounts within 10 business days. The aggregate royalty payments by OrthoLogic and Sanofi to Fidia shall not exceed $20 Million Dollars for the term of the License Agreement. At any time during the Term, if the GSI is less than Seventy Dollars ($70.00), the Parties mutually agree to discuss a lower royalty rate. 6.2.2. Obligations to Sanofi: OrthoLogic agrees to compensate Sanofi the following: (i) A Royalty equal to 10% of the Net Selling Price per Unit times the Attributable Units. 17 (ii) Overhead in the amount equal to $6.75 per Unit times the Attributable Units. This amount shall be fixed for a period of 12 months from the Effective Date, thereafter the per Unit amount shall be adjusted annually by an amount equal to the percentage increase or decrease in the all items index of the US Department of Labor (Bureau of Labor Statistics) Consumer Price Index ("CPI") for the USA from the base month of August 1997, provided, however, that at no time shall the annual increase or decrease exceed four percent (4%). ARTICLE VII ----------- REPORTS AND RECORDS 7.1 Reports. Sanofi shall keep true and accurate accounts of Actual Unit Sales and the OCU and of sums payable to OrthoLogic hereunder. Commencing with the Product launch under this Agreement and at the end of every calendar quarter thereafter, Sanofi shall deliver to OrthoLogic written sale and payment reports containing the calculations by Units or other forms or reports used to compute payments due OrthoLogic hereunder for the Payment Period covered by the report. Each sale and payment report and other reports required hereunder shall be delivered within forty-five (45) business days after the end of the Payment Period which it covers. 7.2 Examination of Records. During the Term and for a period of two (2) years thereafter, OrthoLogic shall have the right, at its own expense, to have a public accounting firm, to which Sanofi has no reasonable objection, examine the relevant books and records of account of Sanofi during reasonable business hours not more often than once each calendar year, to determine whether accurate accounting and payment have been made by Sanofi hereunder. The public accounting firm shall treat as confidential, and shall not disclose to OrthoLogic, any information other than information which relates to the accuracy of Sanofi's accounting of amounts payable hereunder to OrthoLogic. 18 ARTICLE VIII ------------ TRADEMARK AND CORPORATE NAME 8.1 Use of Trademark. OrthoLogic shall use the Trademark only in the form, manner, and logotype, including identifying the Trademark by any necessary notices of Trademark registration, specifically approved by Sanofi unless the Parties agree together, in writing, on further uses of the Trademark. 8.2 Acknowledgment. Sanofi represents that it has certain rights to the Trademark and that all rights accruing from its use shall inure to the benefit of Sanofi. OrthoLogic agrees not to contest or deny the validity of the Trademark or Sanofi's rights to the Trademark. OrthoLogic agrees that it will not register the Trademark or any colorable imitation thereof or in any way assist a Third Party to do so. 8.3 Rights on Termination. OrthoLogic agrees that, following termination of this Agreement for any reason, it will claim no right, title or interest in, or any right to use the Trademark by reason of its previous activities under this Agreement. Immediately upon termination of this Agreement, OrthoLogic shall cease all use of the Trademark and shall turn over to Sanofi or destroy all stocks of advertising and promotional materials which use the Trademark. 8.4 Use of Corporate Names. It is the intent of the Parties to promote sales of the Product through the use of their respective corporate names. Except as otherwise authorized pursuant to this Article VIII or required by Federal or state laws and regulations, the Parties agree that each will obtain the consent of the other Party prior to using the other Party's corporate name, which consent shall not be unreasonably withheld. 19 ARTICLE IX ---------- FOOD AND DRUG ADMINISTRATION COMPLIANCE AND DISCONTINUANCE OF PRODUCT 9.1 Relations with the FDA. Sanofi and Fidia, as applicable, shall be responsible for all interactions with the FDA regarding the Product, including the filing of required reports, but shall keep OrthoLogic informed of such contacts insofar as they relate to the Target Audience. 9.2 Relationship with Customers. OrthoLogic shall have all inquires relating to the Product including, but not limited to, medical, product inquires, technical, product complaints, safety issues and adverse reactions, adverse events routed directly to Sanofi Medical staff. OrthoLogic will develop, in cooperation with Sanofi, a system to immediately forward requests from Customers associated with the Product to Sanofi. 9.3 Complaints and Records. 9.3.1 Complaints. The Parties agree to report to each other any and all complaints and medical device reports (as per FDA regulations), including, but not limited to, adverse reactions, product anomalies or stability problems relative to or having a bearing on the Product or its performance (collectively, the "Complaint") which they receive with respect to the Product within the time required by applicable law and regulations. In any event, the Party learning of the Complaint will notify the other Party as soon as possible the next working day . For purposes of this Agreement, Sanofi will assume responsibility for reporting the Complaint to the FDA as provided in the License Agreement. In any event, either Party shall promptly notify the other of any Complaint received by such Party in sufficient detail and in sufficient time to allow compliance with any and all regulatory requirements imposed in the Territory. 9.3.2 Records. Each of Sanofi and OrthoLogic shall maintain a record of all Complaints which they receive. Each Party shall have the right, upon reasonable notice and at reasonable intervals during normal business hours, to examine the complaint files, medical device reports, and other filings or records of the other Party, which are related to the Product. 9.4 Recall. In the event that Sanofi and/or Fidia determines that an event, incident or circumstance has occurred which may result in the need for removal of the Product from the 20 market, in whole or in part, it shall advise and consult OrthoLogic with respect thereto. If Sanofi and/or Fidia removes the Product from the marketplace, Sanofi and Fidia shall be responsible as provided in the License Agreement for the recall process including communications with the FDA and shall bear all costs and expenses of recall, including, without limitation, expenses or obligations to Third Parties, the cost of notifying customers and costs associated with shipment of the recalled Product from a customer to Sanofi or Fidia, provided, however, that if the Recall results from an action by OrthoLogic, OrthoLogic shall promptly pay all costs and expenses of Sanofi and Fidia in connection with the Recall. 9.5 Record Keeping. Sanofi shall maintain complete and accurate records, for such periods as may be required by applicable law, but in no event less than three (3) years, of all the Product sold by it. 9.6 Discontinuance. Sanofi or Fidia may at any time make changes in, or discontinue the manufacture, sale or use of the Product if safety, regulatory, or manufacturing reasons, in Sanofi's or FIDIA's opinion warrant such action. Sanofi shall promptly notify OrthoLogic of any discontinuance or significant change in the Product, giving OrthoLogic as much notice as reasonably possible under the circumstances, attempting, in any event, to provide OrthoLogic at least six (6) months' advance notice of any discontinuance. ARTICLE X --------- INDEMNIFICATION 10.1 Indemnification by Sanofi. 10.1.1 Indemnification by Sanofi. Except for any Claims (defined below) arising under Article 10.2, Sanofi shall indemnify, defend and hold OrthoLogic harmless from and against all claims, damages, losses, costs and expenses, including reasonable attorney's fees (collectively, "Claims"), which OrthoLogic may incur by reason of any Claims (a) alleging that the Product or the Trademark, or their use as provided hereunder, violate any patent, trademark, trade secret, know-how or other intellectual property rights of any sort; (b) resulting from an injury, illness or death of any Person, to the extent that such Claim arises out of or results from the tortious conduct or inaction of Sanofi or its officers, employees or agents in 21 connection with the Product; ( c) arising out of or resulting from the material breach of Sanofi's representations and warranties in Article 17.2 of this Agreement; or (d) resulting from injury, illness or death of any person arising out of or relating to the distribution or use of the Product. 10.1.2 If such Claim in Article 1 0.1.1 above arises in whole or in part from OrthoLogic's tortious conduct or inaction, then the amount of such Claim that Sanofi shall indemnify OrthoLogic for pursuant to Article 10.1.1 above shall be reduced by an amount in proportion to the percentage of OrthoLogic's responsibilities for such Claim as determined by a court of competent jurisdiction in a final and non-appealable decision or in a binding settlement between the Parties. 10.2 Indemnification by OrthoLogic. 10.2.1 Indemnification by OrthoLogic. Except for any Claims arising under Article 10.1 above, OrthoLogic shall indemnify, defend and hold Sanofi and its Affiliates and their respective officers, directors, employees and agents (the "Sanofi Group") harmless from and against all Claims, which the Sanofi Group may incur by reason of any Claims (a) arising out of the activities of OrthoLogic's marketing, promotion and sales efforts which are not authorized by Sanofi pursuant to this Agreement; (b) any breach by OrthoLogic of its representations or obligations under this Agreement; (c ) resulting from an injury, illness or death of any Person, to the extent that such Claim arises out of or results from the tortious conduct or inaction of OrthoLogic or its officers, employees or agents in connection with the Product; or (d) arising out of or resulting from any material breach of OrthoLogic's representations and warranties in Article 17.2 of this Agreement above. 10.2.2 If such Claim in Article 10.2 above arises in whole or in part from the Sanofi's tortious conduct or inaction, then the amount of such Claim that OrthoLogic shall indemnify the Sanofi Group for pursuant to Article 10.2.1 above shall be reduced by an amount in proportion to the percentage of Sanofi's responsibilities for such Claim as determined by a court of competent jurisdiction in a final and non-appealable decision or in a binding settlement between the Parties. 22 10.3 Indemnification Procedure. The party seeking indemnification under this Article X (the "Indemnified Party") shall (a) give the other party (the "Indemnifying Party") notice of the relevant Claim, (b) reasonably cooperate with the Indemnifying Party, at the Indemnifying Party's expense, in the defense of such Claim, and (c ) give the Indemnifying Party the sole right to control the defense and settlement of any such Claim, except that the Indemnifying Party shall not enter into any settlement that affects the Indemnified Party's rights or interest without the Indemnified Party's prior written consent, which consent shall not be unreasonably withheld. The Indemnified Party shall have no authority to settle any Claim on behalf of the Indemnifying Party. The Indemnified Party may, at its option and its own expense, participate in the defense of any such claim with legal counsel of its own choice. ARTICLE XI ---------- INSURANCE 11.1 Unless otherwise agreed to in writing, each Party shall, at its own expense, carry and maintain during the Term, with companies satisfactory to the other, product liability insurance against losses arising out of, including, but not limited to, its activities in respect to the distribution, the marketing, promotion and sale of the Product and all components thereof, naming the other Party as an additional named insured under such policy (or policies) of insurance, and in an amount of not less than Five Million Dollars ($5,000,000) per occurrence and in the annual aggregate. Such policy (or policies) of insurance shall contain a Broad Form Vendors Endorsement, and shall be written on an occurrence basis, or if on a claims made basis shall have a retroactive date at least equal to the Effective Date. Each Party agrees that it shall provide to the other Party within thirty (30) days of the Effective Date, and from time to time thereafter upon the Parties reasonable request, a certificate of insurance evidencing compliance with these provisions. ARTICLE XII ----------- CONFIDENTIAL INFORMATION 12.1 Sanofi and OrthoLogic agree that all materials, documents and information provided to them or their employees or agents by the providing Party hereto (the "Providing Party") and all information developed by the Party receiving said materials, documents and 23 information (the "Receiving Party") exclusively pursuant to this Agreement, is and shall be considered as confidential information to the Providing Party (collectively, the "Confidential Information") and the sole property of the Providing Party. The Receiving Party agrees to hold such Confidential Information in strict confidence for five (5) years after the expiration of the Term and shall disclose the Confidential Information to the Receiving Party's respective agents, employees, officers and directors, and representatives only on a need-to-know basis and only if the foregoing Parties are bound and obligated by the same provisions of confidentiality as used by the Receiving Party; provided that (a) the Receiving Party will have no obligations with respect to any Confidential Information that is now or later becomes publicly available through no fault of the Receiving Party, (b) the Receiving Party obtains such Confidential Information from a Third Party entitled to disclose it, (c ) the Receiving Party already has in its possession such Confidential Information as indicated in its written records, or (d) such Confidential Information is required by any law, rule, regulation, order, decision, decree or subpoena or other judicial, administrative or legal process to be disclosed, provided, however, that the Receiving Party gives the Providing Party sufficient advance written notice to permit it to seek a protective order or other similar order with respect to such Confidential Information and thereafter discloses only the minimum Confidential Information required to be disclosed in order to comply. The Receiving Party shall include in its contracts with their respective agents, subcontractors, employees, officers and directors, and representatives, confidentiality undertaking consistent with this Article XII. 12.2 Upon the expiration of the Term, the Receiving Party will promptly return to the Providing Party or destroy or delete, as appropriate, all of the Confidential Information, as well as all written material or electronic storage which incorporates any Confidential Information, except that one (1) copy of the Confidential Information may be retained for archival purposes. 12.3 The Receiving Party acknowledges that the disclosure of Confidential Information without the Providing Party's express written permission will cause the Providing Party irreparable harm and that the breach or threatened breach of the nondisclosure provisions of Article XII of this Agreement will entitle the Providing Party to injunctive relief, in addition to any other legal remedies that may be available to it. 24 12.4 All obligations of confidentiality and non-disclosure set forth in this Agreement will survive, without limitation, upon expiration of the Term. ARTICLE XIII ------------ RELATIONSHIP OF THE PARTIES 13.1 Nothing contained in this Agreement shall be deemed to create a partnership or joint venture between the Parties, and each of the Parties shall in all matters connected herewith be independent contractors. Except as required by this Agreement, which provides for OrthoLogic to represent Sanofi in the promotion of the Product, neither of the Parties shall hold itself out as the agent of the other, nor shall either of the Parties incur any indebtedness or obligation in the name of, or which shall be binding on the other, without the prior written consent of the other. The personnel of Sanofi are paid by Sanofi and the personnel of OrthoLogic are paid by OrthoLogic, and each Party assumes full responsibility for its own personnel under the laws and regulations of governmental authority in the Territory. In the event that either of the Parties violates the provisions of this Article XIII, said Party shall indemnify the other against any debt or obligation so incurred and shall hold the other Party harmless therefrom. ARTICLE XIV ----------- TERMINATION FOR BREACH OR DEFAULT 14.1 In addition to the provisions of Article III hereof, either Party may terminate this Agreement for material breach or default if such material breach or default is not cured within ninety (90) days after the giving of notice by the other Party specifying such breach or default. In addition, OrthoLogic may terminate upon the discontinuance of manufacture, sale or use of the Product by Sanofi. 14.2 In promoting sale of the Product, OrthoLogic agrees to act in accordance with accepted marketing standards and FDA requirements. If Sanofi believes that OrthoLogic has breached or is in default of this Agreement for failure to comply with such standards or requirements, Sanofi will give OrthoLogic prompt notice thereof, and the Parties will work together to cure any breach or default. If the breach or default is not cured within ninety (90) 25 days after the giving of the notice described in the preceding sentence, Sanofi may terminate this Agreement. 14.3 The failure of either Party to terminate pursuant to this Article XIV shall not preclude said Party from thereafter terminating for any subsequent violation whether similar or not. ARTICLE XV ---------- PROPERTY OF THE PARTIES 15.1 In the event of termination of this Agreement for whatever cause, in addition to either Party's obligations hereunder, a Party in possession of property of the other Party shall return such property to the other Party or its designee no later than thirty (30) days after the effective date of termination. ARTICLE XVI ----------- INJUNCTIVE RELIEF 16.1 The Parties acknowledge that the covenants in Article XII of this Agreement in respect of the Confidential Information it obtains hereunder are unique and integral to this Agreement and that monetary damages would be an inadequate remedy at law in the event of a breach. For that reason, the Parties consent that such covenants shall be enforceable in a court of equity by temporary or permanent injunction, restraining order or a decree of specific performance. The remedies provided above shall be cumulative and not exclusive, and in addition to any other remedies which the other Party may have under this Agreement or applicable law. ARTICLE XVII ------------ GENERAL REPRESENTATIONS AND WARRANTIES 17.1 Representation and Warranties of OrthoLogic. OrthoLogic hereby represents and warrants to Sanofi that: 26 17.1.1 it is a corporation duly organized, validly existing and in good standing under the laws of the state and country of its incorporation and has the corporate power to own its assets and properties and to carry on its business as now being and heretofore conducted; 17.1.2 OrthoLogic is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder; 17.1.3 the execution, delivery and performance of this Agreement have been duly authorized, do not violate its certificate of incorporation, by laws or similar governing instruments or applicable law and do not, and with the passage of time will not, materially conflict with or constitute a breach under any other agreement, judgment or instrument to which it is a party or by which it is bound; and 17.1.4 it shall promote, market, and sell the Product only in accordance with the term of this Agreement (including, but not limited to, Article 14.2 of this Agreement and the Marketing Plan), and shall not take customer orders or distribute the Product except as expressly provided hereunder. 17.2 Representation and Warranties of Sanofi. SANOFI hereby represents and warrants to OrthoLogic that: 17.2.1 it is a corporation duly organized, validly existing and in good standing under the laws of the state and country of its incorporation and has the corporate power to own its assets and properties and to carry on its business as now being and heretofore conducted; 17.2.2 Sanofi is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder; 17.2.3 the execution, delivery, and performance of this Agreement have been duly authorized, do not violate its certificate of incorporation, by-laws or similar governing instruments or applicable law and do not, and with the passage of time will not, materially 27 conflict with or constitute a breach under any other agreement, judgment or instrument to which it is a party or by which it is bound; 17.2.4 to the best of Sanofi's knowledge, the Product and the Trademark, and their use as permitted or contemplated hereunder, do not infringe upon any Third Party intellectual property rights, including, without limitation, any Patent, trademark, copyright or trade secret; and 17.2.5 that Sanofi has taken commercially reasonable efforts to secure a source of supply of the Product under the License Agreement for purposes of this Agreement. 17.3 Joint Representations of the Parties. Sanofi and OrthoLogic hereby represent and warrant the following: 17.3.1 that Fidia is a third party beneficiary with respect to payment of the milestone payments described in Article 6.2.1 of this Agreement. The Parties agree that upon written request by Fidia, Sanofi shall assign to Fidia, without recourse, all right, title and interest of Sanofi in said milestone payments, including any cause of action arising thereunder against OrthoLogic. ARTICLE XVIII ------------- FORCE MAJEURE 18.1 Neither Party shall be liable for any default or delay in such Party's performance if such default or delay is caused by any event beyond the reasonable control of such Party, including, but not limited to, acts of God, fire, explosion, weather, disease, war, insurrection, civil strife, riots, government action, power failure or other similar event; provided, however, that such performance shall be excused only to the extent of and during such disability. The Party so affected will give prompt notice of such event, and shall use its commercial reasonable effort to avoid, remove, or alleviate such causes of nonperformance and shall 28 continue performance hereunder with the utmost dispatch whenever such causes are removed. ARTICLE XIX ----------- SUCCESSORS AND ASSIGNMENT 19.1 This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns. Except as stated herein, neither Party shall assign any rights or obligations under this Agreement without the prior written consent of the other Party. Any purported assignment in violation of the preceding sentence shall be void. Either Party may assign any rights or obligations under this Agreement without the written consent of the other Party to, an Affiliate or to a purchaser of all or substantially all of the assets to which this Agreement relates, whether by merger or acquisition. Any permitted assignee shall assume all obligations of its assignor under this Agreement. ARTICLE XX ---------- ENTIRE AGREEMENT - MODIFICATIONS 20.1 This Agreement sets forth and constitutes the entire agreement and understanding between the Parties with respect to the subject matter hereof, and supersedes any and all prior agreements, understandings, promises and representations, whether written or oral, between the Parties with respect to the subject matter hereof. This Agreement may not be released, discharged, amended or modified in any manner except by an instrument in writing, making specific reference to this Agreement, and signed duly by authorized representatives of both Parties. ARTICLE XXI ----------- COMPLIANCE WITH LAW 21.1 Each Party shall comply with, and shall not be in violation of, any valid applicable, federal, state or local statutes, laws, ordinances, rules, regulations, or other governmental orders including, without limitation, those of the FDA which materially affect the 29 research, purchase, promotion, sale, manufacture, shipment, distribution or storage of the Product in the Territory. ARTICLE XXII ------------ SEVERABILITY 22.1 If and solely to the extent that any provision of this Agreement shall be invalid or unenforceable, or shall render this entire Agreement to be unenforceable or invalid, such offending provision shall be of no effect and shall not affect the validity of the remainder of this Agreement or any of its provisions; provided, however, that the Parties shall use their respective reasonable efforts to renegotiate the offending provisions to best accomplish the original intentions of the Parties. ARTICLE XXIII ------------- DISPUTE RESOLUTION AND GOVERNING LAW 23.1 Dispute Resolution. The Parties agree that any disputes between them concerning this Agreement shall be resolved by a meeting or meetings between the senior executives of Sanofi and OrthoLogic and other Parties familiar with this Agreement as determined by such senior executives. In the event that Sanofi and OrthoLogic are unable to satisfactorily resolve the dispute(s) as specified herein within 30 calendar days, then such disputes shall be finally settled in accordance with Articles 23.2, 23.3 and 23.4. 23.2 Governing Law. This Agreement is a New York contract. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to the choice of law doctrine of such state. 23.3 Consent to Jurisdiction. 23.3.1 Any claim, suit, action or proceeding arising out of or in any way relating to this Agreement shall be adjudicated by a court of competent jurisdiction in the State New York, City of New York, County of New York, 30 with respect to any claim, suit, action or proceeding arising out of or in any way relating to this Agreement, and undertake to bring any such claim, suit, action or proceeding against the other Party only in said courts in the State of New York, City of New York, County of New York. 23.3.2 Each Party hereto irrevocably waives, to the fullest extent permitted by applicable law, any defense or objection it may now or hereafter have to the laying of venue of any proceeding hereunder brought in the courts of the State of New York or of the United States sitting in the Borough of Manhattan and any claim that any proceeding hereunder brought in any such court has been brought in an inconvenient forum. 23.4 Jury Waiver. Sanofi and OrthoLogic hereby waive trial by jury in any judicial proceeding involving, directly or indirectly, any matter (whether in tort, contract or otherwise) in any way arising out of, related to, or connected with this Agreement or the relationship established hereunder. ARTICLE XXIV ------------ WAIVER 24.1 No waiver of any right under this Agreement shall be deemed effective unless contained in writing and signed by the Party charged with such waiver, and no waiver of any right shall be deemed to be a waiver of any future right or any other right arising under this Agreement. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be a limitation of any other remedy, right, undertaking, obligation, or agreement. ARTICLE XXV ----------- SURVIVABILITY 25.1 The provisions of this Agreement that are expressly or by their sense and context intended to survive the termination of this Agreement shall do so. 31 ARTICLE XXVI ------------ NOTICES 26.1 Any notice, consent or approval permitted or required under this Agreement shall be in writing and shall be sent by registered or certified mail, postage prepaid, or by recognized domestic overnight courier or by facsimile to the addresses set forth below or to such other address in the USA as the Party to whom notice is to be given has furnished in writing to the other Party. A notice of change in address shall not be deemed to have been given until received by the addressee. If to OrthoLogic: OrthoLogic Corp. 2850 South 36th Street Phoenix, Arizona 85034 Attn: Chairman/CEO Fax: (602) 470-7080 with copy to: Quarles & Brady One Camelback Road Suite 400 Phoenix, AZ 85012 Fax: (602) 230-5598 If to Sanofi: Sanofi Pharmaceuticals, Inc. 90 Park Avenue New York, New York 10016 Attn: President Fax: (212) 551-4900 with copy to: Sanofi, Inc. 90 Park Avenue New York, New York 10016 Attn: General Counsel Fax- (212) 551-4921 All notices shall be deemed to be effective on the date of receipt. 32 ARTICLE XXVII ------------- HEADINGS 27.1 The descriptive headings in this Agreement are inserted for convenience only, and do not constitute a part of this Agreement. ARTICLE XXVIII -------------- LANGUAGE 28.1 The governing language of this Agreement is English. In the event of any dispute concerning the construction or meaning of this Agreement, reference shall be made only to this Agreement as written in English and not to any translation into any other language. ARTICLE XXIX ------------ EXHIBITS AND SCHEDULES 29.1 Each of the exhibits and schedules to this Agreement forms an integral part hereof and is incorporated herein by reference. ARTICLE XXX ----------- NO THIRD PARTY RIGHTS 30.1 Except as otherwise provided herein, this Agreement is intended to be solely for the benefit of the Parties and is not intended to confer any benefits upon, or create any rights in favor of, any Person other than the Parties hereto. ARTICLE XXXI ------------ COUNTERPARTS 31.1 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute a single instrument. 33 ARTICLE XXXII ------------- CURRENCY 32.1 In this Agreement, unless expressly stated otherwise, all references to money payments mean lawful currency of the USA and payment in that currency. 34 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. ORTHOLOGIC CORP. SANOFI PHARMACEUTICALS, INC. By: /s/ Allan M. Weinstein By: /s/ George M. Doherty ------------------------------ -------------------------------- Name: Allan M. Weinstein Name: George M. Doherty ---------------------------- ------------------------------ Title: Chairman/CEO Title: President and CEO --------------------------- ----------------------------- 35 Scheduled A Minimum Promotional Amount ($000) 1997(1) 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- Promotional Spend $ 750 $1,500 $2,000 $2,750 $2,750 $2,750 (1) Launch Period (Effective Date to December 31, 1997). Schedule B(1) OrthoLogic Compensation Schedule for Illustrative Purposes Only (Example: $100.00 WAC, 1000 Units Sold, 4% Returns)
Price Units Sales OCU Sold - ------------------------------------------------------------------------------------------- Wholesaler Acquisition Cost (WAC): $ 100.00 Quantity Discounts 0% Free Goods 0% Gross Sales Invoice: ("GSI"): $ 100.00 1000 $100,000 Less: Distribution (% GSI) 7% $ 7,000 Rebates (% GSI) 5% $ 5,000 Returns (% GSI) 4% 40 $ 4,000 Discounts (% GSI) 3% $ 3,000 Net Selling Price Per Unit "NSP": $ 81.00 960 $ 81,000 $ 84.38 Less: Trade Transfer Price (% of NSP) $ 18.00 960 $ 17,280 $ 18.00 Nonsalable Returns 18.00 10 $ 180 $ 0.19 Overhead to Sanofi 6.75 960 $ 6,480 $ 6.75 Royalty to Sanofi (% of Net Sales) 10% 8,100 $ 8.44 Payment to OrthoLogic: $ 48,960 $ 51.00
(1) The referenced Net Sales deductions are consistent with and reflect the entirety of the deductions contained in the Net Sales definition. EX-11 5 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS ORTHOLOGIC CORP. STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (in thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 1997 1996 1997 1996 -------------------- -------------------- Net income (loss) $ (2,771) $ 1,480 $ (3,044) $ 2,415 ==================== ==================== Common shares outstanding at end of period 25,103 24,981 25,103 24,981 Adjustment to reflect weighted average for shares issued during the period (7) (1,588) (37) (3,472) Adjustment to reflect assumed exercise of outstanding stock options -- 1,376 -- 1,225 -------------------- -------------------- Weighted average number of common shares outstanding 25,096 24,769 25,066 22,734 ==================== ==================== Net income (loss) per weighted average number of common shares outstanding $ (0.11) $ 0.06 $ (0.12) $ 0.11 ==================== ====================
EX-27 6 FDS --
5 This schedule contains summary financial information extracted from financial statements in OrthoLogic Corp.'s Form 10-Q for the quarterly period ended June 30, 1997 and is qualified in its entirety by reference to such Form 10-Q. 1,000 U.S. Dollars 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1 9,046 12,933 41,425 10,178 9,814 67,497 15,488 3,782 114,899 14,069 0 0 0 13 99,003 114,899 18,949 35,619 5,018 9,324 26,355 4,034 52 (3,044) 0 (3,044) 0 0 0 (3,044) (0.12) (0.12)
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