-----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, K+RTy6+8kC8iVCHcmH+WPzQb2CklrbMBB0EemjT0/Xo7dbVpA7KeJqKa8L0Kx7NV CR6xhGsN13dFoKjSaygjQQ== 0000927016-97-003001.txt : 19971114 0000927016-97-003001.hdr.sgml : 19971114 ACCESSION NUMBER: 0000927016-97-003001 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19971110 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANIKA THERAPEUTICS INC CENTRAL INDEX KEY: 0000898437 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 043145961 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-38993 FILM NUMBER: 97712307 BUSINESS ADDRESS: STREET 1: 236 WEST CUMMINGS PARK CITY: WOBURN STATE: MA ZIP: 01801 BUSINESS PHONE: 6179326616 MAIL ADDRESS: STREET 1: 236 WEST CUMMINGS PARK CITY: WOBURN STATE: MA ZIP: 01801 FORMER COMPANY: FORMER CONFORMED NAME: ANIKA RESEARCH INC DATE OF NAME CHANGE: 19930309 SB-2/A 1 FORM SB-2/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1997 REGISTRATION STATEMENT NO. 333-38993 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- ANIKA THERAPEUTICS, INC. (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) MASSACHUSETTS 8731 04-3145961 (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) OF INCORPORATION OR ORGANIZATION) ---------------- 236 WEST CUMMINGS PARK WOBURN, MASSACHUSETTS 01801 (781) 932-6616 (ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES) ---------------- J. MELVILLE ENGLE PRESIDENT ANIKA THERAPEUTICS, INC. 236 WEST CUMMINGS PARK WOBURN, MASSACHUSETTS 01801 (781) 932-6616 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) ---------------- COPIES TO: H. DAVID HENKEN, ESQ. RICHARD R. PLUMRIDGE, ESQ. GOODWIN, PROCTER & HOAR LLP BROBECK, PHLEGER & HARRISON LLP EXCHANGE PLACE 1633 BROADWAY, 47TH FLOOR BOSTON, MASSACHUSETTS 02109 NEW YORK, NY 10019 (617) 570-1000 (212) 581-1600 ---------------- APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS SUBJECT TO COMPLETION, DATED NOVEMBER 10, 1997 3,000,000 SHARES [LOGO OF ANIKA THERAPEUTICS APPEARS HERE] COMMON STOCK Of the shares of Common Stock, par value $.01 per share (the "Common Stock"), offered hereby, 2,500,000 shares are being sold by Anika Therapeutics, Inc. ("Anika" or the "Company") and 500,000 shares are being sold by certain stockholders of the Company (the "Selling Stockholders"). See "Principal and Selling Stockholders." The Company will not receive any of the proceeds from the sale of shares by the Selling Stockholders. The Common Stock of the Company is traded on the Nasdaq Small-Cap Market under the symbol "ANIK." The Company has applied to have its Common Stock listed on the Nasdaq National Market under such symbol. On November 6, 1997, the last sale price of the Common Stock as reported on the Nasdaq Small-Cap Market was $8.5625 per share. See "Price Range of Common Stock and Dividend Policy." THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7. ----------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO PRICE TO DISCOUNTS AND PROCEEDS TO SELLING PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS - -------------------------------------------------------------------------------- Per Share..................... $ $ $ $ - -------------------------------------------------------------------------------- Total(3)...................... $ $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) The Company and the Selling Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company, estimated at $500,000. (3) The Company and certain stockholders of the Company have granted to the Underwriters a 30-day option to purchase up to an aggregate of 225,000 and 225,000 additional shares of Common Stock, respectively, on the same terms and conditions as set forth above solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to Selling Stockholders will be $ , $ , $ and $ , respectively. See "Underwriting." ----------------- The shares of Common Stock offered by this Prospectus are offered by the several Underwriters subject to prior sale, to withdrawal, cancellation or modification of the offer without notice, to delivery to and acceptance by the Underwriters and to certain further conditions. It is expected that delivery of certificates for the shares of Common Stock will be made at the offices of Furman Selz LLC, New York, New York, on or about , 1997. FURMAN SELZ VOLPE BROWN WHELAN & COMPANY LEERINK SWANN & COMPANY ----------------- THE DATE OF THIS PROSPECTUS IS , 1997 Inside Front Cover (1) Color photograph of Anika commercialized products (AMVISC, AMVISC PLUS, HYVISC and ORTHOVISC). Legend: Anika Therapeutics' family of ultra-pure, natural hyaluronic acid (HA) products is intended to promote protection and healing of bone, cartilage and soft tissue. Based on hyaluronic acid (HA), a naturally-occurring, biocompatible polymer found throughout the body, Anika's HA products are intended to restore the elasticity and viscosity of synovial fluid and provide lubrication and protection of tissues. Anika's currently marketed product line consists of ORTHVISC(R), an injectable, high molecular weight HA product used in the treatment of some forms of osteoarthritis and HYVISC(R), an HA product used in the treatment of equine osteoarthritis. Also, Anika manufactures AMVISC(R) and AMVISC Plus(R), HA products used as viscoelastic supplements in opthalmic surgery, for Chiron Vision, a subsidiary of Chiron Corporation. (ORTHOVISC(R), is approved for marketing in Canada and Europe; in the U.S.; it is currently limited to investigational use only.) (2) Color medical illustration depicting knee anatomy as treated with ORTHOVISC. Legend: This diagram illustrates the knee joint coated within the synovial membrane by synovial fluid, the body's natural biomaterial which cushions and lubricates the knee; the inset illustration depicts a close-up, cross-sectional view of a bone's articulating surface coated by the synovial fluid of which hyaluronic acid (HA) is a major component. ORTHOVISC(R), Anika's ultra-pure, high molecular weight HA product, is intended to be injected into the synovial fluid space of an osteoarthritic joint to provide viscosupplementation. It can help to restore the elasticity and viscosity of the synovial fluid which can provide relief and improve joint mobility for up to six months after treatment. HYVISC(R), ORTHOVISC(R), and INCERT(R) are registered trademarks of the Company. All other trademarks, servicemarks or tradenames referred to in this Prospectus, including AMVISC(R), AMVISC(R) Plus and OSSIGEL(TM), are the property of their respective owners. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE MARKET-MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING." PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements appearing elsewhere in this Prospectus. Investors should carefully consider the information set forth under the heading "Risk Factors" and elsewhere in this Prospectus, before purchasing the securities offered hereby. Except as otherwise noted, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option and gives effect to the automatic conversion of all outstanding shares of Series A Preferred Stock upon consummation of this offering. This Prospectus contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Prospective investors are cautioned that such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The Company's actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference include, among other factors noted herein, the factors set forth under the heading "Risk Factors." THE COMPANY Anika Therapeutics, Inc. develops, manufactures and commercializes therapeutic products and devices intended to promote the protection and healing of bone, cartilage and soft tissue. These products are based on hyaluronic acid ("HA"), a naturally-occurring, biocompatible polymer found throughout the body. Due to its unique biophysical and biochemical properties, HA plays an important role in a number of physiological functions such as the protection and lubrication of soft tissues and joints, the maintenance of the structural integrity of tissues, and the transport of molecules to and within cells. The Company has been developing HA and HA based products since 1983. The Company's currently marketed products consist of ORTHOVISC(R), which is an HA product used in the treatment of some forms of osteoarthritis ("OA") in humans and HYVISC(R), which is an HA product used in the treatment of equine osteoarthritis. ORTHOVISC is currently approved for marketing in Canada and Europe; in the U.S. ORTHOVISC is currently limited to investigational use only. The Company manufactures AMVISC(R) and AMVISC Plus(R), which are HA products used as viscoelastic supplements in ophthalmic surgery, for Chiron Vision, a subsidiary of Chiron Corporation. The Company is currently developing INCERT(R), which is an HA based product designed for use in the prevention of post-surgical adhesions. In addition, the Company is collaborating with Orquest, Inc. to develop OSSIGEL(R), an injectable formulation of basic fibroblast growth factor combined with HA designed to accelerate the healing of bone fractures. The Company is a leading manufacturer of ultra-pure, high molecular weight HA. The purity level and molecular weight of HA is important because if HA contains even trace levels of proteins, an immunogenic or inflammatory response may be elicited when the HA is introduced into the body and preclinical and clinical data suggest that high molecular weight HA correlates with increased efficacy of HA products. The Company believes its expertise and proprietary know-how in the development and manufacture of ultra-pure, high molecular weight HA products are difficult to replicate and provide it with a competitive advantage. The Company's goal is to leverage its position as a leading manufacturer of ultra-pure, high molecular weight HA for significant therapeutic applications. Key elements of the Company's strategy are to: (i) identify additional medical applications for HA; (ii) develop proprietary therapeutic products both on its own and in collaboration with strategic partners; (iii) capitalize on its existing proprietary high-quality and cost-effective HA manufacturing expertise; and (iv) establish strategic alliances for the marketing and distribution of its products. PRODUCTS The Company has been manufacturing AMVISC for use in ophthalmic surgery since 1983. Ophthalmic surgeons inject HA during cataract surgery to protect delicate tissues and to maintain the shape of the corneal chamber of the eye. The Company estimates that worldwide sales of HA ophthalmic products approximated $300 million in 1996. Industry sources indicate that there were over 2 million cataract surgeries and approximately 3 2.3 million viscoelastic units for ophthalmic surgery sold in the United States in 1996. The Company manufactures AMVISC and AMVISC Plus for Chiron Vision for distribution in the United States and internationally. In 1996, sales of AMVISC and AMVISC Plus represented approximately 20% of total sales of HA ophthalmic products in the United States. The Company has developed ORTHOVISC (currently limited to investigational use only in the U.S.) for the treatment of OA of the knee in humans. According to the Arthritis Foundation, osteoarthritis of some form afflicts approximately 16 million people in the U.S. ORTHOVISC is intended to be injected into the knee to restore the elasticity and viscosity of the synovial fluid. The Company's clinical studies have indicated that injection of HA into the knee joint can provide pain relief and improved joint mobility for up to six months after treatment. The Company's preclinical and clinical studies and experience with other HA products indicate that treatment with HA does not have the adverse side effects that often accompany alternative treatments for OA, such as non- steroidal anti-inflammatory drugs ("NSAIDs") or steroid injections. While ORTHOVISC is not currently approved for marketing in Japan, HA products for the treatment of OA have been sold in Japan since the mid-1980s and total sales in Japan have grown to approximately $300 million in 1996. HA products for the treatment of OA have been more recently introduced in Europe and Canada. ORTHOVISC is approved for marketing in Canada for treatment of OA of the knee and temporomandibular joint ("TMJ") and in Europe for the treatment of OA in synovial joints. In the United States, the Company has completed a pivotal clinical trial investigating the use of ORTHOVISC for treatment of OA of the knee which included 226 patients at ten centers. The Company is preparing a Pre-Market Approval Application ("PMA") for this use which it plans to file with the United States Food and Drug Administration ("FDA") before the end of 1997. On November 7, 1997, the Company entered into a distribution agreement with Zimmer, Inc., a subsidiary of Bristol-Myers Squibb Company ("Zimmer"), granting Zimmer the exclusive marketing and distribution rights to ORTHOVISC in the United States, Canada and certain selected countries in the Asia-Pacific region. The Company received an up-front non-refundable payment of $2.5 million upon signing and may receive up to an additional $20.5 million in payments contingent upon the achievement of certain regulatory and sales milestones. The Company has also entered into third-party arrangements for the distribution of ORTHOVISC in Spain, Portugal, Israel, Turkey and Egypt, and is currently selling ORTHOVISC in Canada and Turkey. The Company has also developed and sells an HA product, HYVISC, primarily for the treatment of OA in racehorses that is distributed in the U.S. by Boehringer Ingelheim Animal Health, Inc. The Company is also developing INCERT, a bioabsorbable, cross-linked HA membrane that is designed to be placed between tissues during surgery to prevent post-surgical adhesions, in particular in abdominal, obstetric, gynecological and back surgeries. Adhesions that form after surgery are a major medical complication that can lead to intestinal blockage, female infertility and recurrent back pain. Costly secondary surgeries are often performed in an attempt to correct problems caused by adhesions. According to Medical Device International ("M.D.I."), over 1.8 million abdominal surgeries are performed annually in the United States and over 400,000 secondary surgeries were performed in 1994 to remove adhesions. M.D.I. and other industry sources estimate that the total worldwide market potential for all anti-adhesion products is approximately $900 million. The Company has completed preclinical studies of INCERT and currently plans to commence testing in humans in Europe during 1998. The Company, in collaboration with scientists and other companies, is also participating in the development of other applications of HA, including its potential as a drug delivery vehicle for pharmaceutical and biologic compounds. OSSIGEL, which is in preclinical development by Orquest, uses HA as a drug delivery vehicle for basic fibroblast growth factor to accelerate the healing of bone fractures. In addition, in collaboration with Tufts University and Massachusetts General Hospital, the Company is studying the use of HA oligosaccharides (discrete pieces of the HA molecule) to inhibit cancer metastasis. The Company's collaborative research has indicated that the HA oligosaccharides bind and block HA receptors on the surface of cancer cells that play a role in cancer metastasis. Neither of these products has been approved for clinical investigation or commercial distribution in the U.S. or any other market. 4 THE OFFERING Common Stock offered by the 2,500,000 shares Company...................... Common Stock offered by 500,000 shares Selling Stockholders......... Total Common Stock offered.. 3,000,000 shares Common Stock to be outstanding after the offering........... 9,381,879 shares(1) Use of proceeds............... To expand the Company's manufacturing facility, fund the Company's product research and development efforts, including clinical trials, and for working capital and other general corporate purposes. See "Use of Proceeds." Nasdaq symbol................. ANIK
- ---------- (1) Assumes cashless exercise of all outstanding warrants to acquire shares of Series A Preferred Stock which are convertible into 453,638 shares of Common Stock. Excludes (i) 1,871,495 shares of Common Stock issuable upon the exercise of stock options outstanding as of October 31, 1997 with a weighted average exercise price of $3.68 per share and an additional 785,000 shares of Common Stock reserved for issuance under the Company's 1993 Stock Option Plan (the "Stock Option Plan") and an additional 17,500 shares of Common Stock reserved for issuance under the Company's 1993 Directors' Stock Option Plan (the "Directors' Plan") and (ii) 203,700 shares of Common Stock issuable upon the exercise of warrants outstanding as of October 31, 1997 with a weighted average exercise price of $3.28 per share. See "Management -- Executive Compensation," "Certain Transactions," "Description of Capital Stock" and "Shares Eligible for Future Sale." 5 SUMMARY FINANCIAL DATA
FOUR MONTHS NINE MONTHS ENDED ENDED YEAR ENDED AUGUST 31, DECEMBER 31, SEPTEMBER 30, ------------------------- ---------------- --------------- 1994 1995 1996 1995(1) 1996(1) 1996 1997 ------- ------- ------- ------- ------- ------- ------ (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales............... $ 4,663 $ 3,356 $ 4,613 $1,191 $ 1,212 $ 3,630 $5,962 Cost of sales........... 3,934 3,118 4,472 1,263 1,309 3,404 3,016 Gross profit (loss)..... 728 238 141 (72) (97) 226 2,946 Total operating expenses............... 2,230 2,222 3,104 840 2,619 2,589 2,749 Income (loss) before income taxes........... (1,440) (1,955) (2,849) (907) (2,658) (2,240) 302 Net income (loss)....... (1,440) (1,955) (2,849) (907) (2,658) (2,240) 286 Earnings (loss) per common share and common share equivalents(2)... (.45) (.63) (.76) (.30) (.56) (.54) .03 Common shares and common share equivalents outstanding............ 3,177 3,225 4,053 3,294 4,905 4,479 6,358
SEPTEMBER 30, 1997 ----------------------- ACTUAL AS ADJUSTED(3) ------- -------------- BALANCE SHEET DATA: Cash and cash equivalents............................... $ 3,055 $22,463 Working capital......................................... 5,186 24,594 Total assets............................................ 8,131 27,539 Accumulated deficit..................................... (9,088) (9,088) Stockholders' equity.................................... 3,159 25,272
- ---------- (1) The Company changed its fiscal year end from August 31 to December 31, effective December 31, 1996. Represents data for the four month transitional year ended December 31, 1996 and the comparable period in 1995. See Note 1 of Notes to Financial Statements. (2) See Note 2 of Notes to Financial Statements for a description of the method of computing earnings (loss) per common share and common share equivalents. (3) Adjusted to reflect (i) the sale by the Company of 2,500,000 shares of Common Stock at an assumed public offering price of $8.5625 per share (after deducting the estimated underwriting discounts and commissions and estimated expenses of the offering) and the application of the net proceeds therefrom as set forth under "Use of Proceeds" and (ii) the exercise of all outstanding warrants to acquire Series A Preferred Stock. 6 RISK FACTORS The following risk factors should be considered carefully in addition to the other information contained in this Prospectus before purchasing the Common Stock offered hereby. This Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Discussions containing such forward-looking statements may be found in the material set forth under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," as well as in this Prospectus generally. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The Company's actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference include, among other factors noted herein, the factors set forth below. HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY The Company has incurred annual operating losses since its inception in May 1993 and had an accumulated deficit of approximately $9.1 million as of September 30, 1997. The continued development of the Company's products will require the commitment of substantial resources to conduct research and preclinical and clinical development programs, and to establish sales and marketing capabilities. The Company incurred substantial and increasing operating losses through December 31, 1996 and, although the Company had net income of $286,000 for the nine months ended September 30, 1997, the ability of the Company to reach sustained profitability is highly uncertain. To achieve sustained profitability the Company must, among other things, successfully complete development of certain of its products, obtain regulatory approvals and establish sales and marketing capabilities for certain of its products. There can be no assurance that the Company will be able to achieve sustained profitability. See "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations." COMPETITION The Company competes with many companies, including large pharmaceutical companies and specialized medical products companies. Many of these companies have substantially greater financial and other resources, larger research and development staffs, more extensive marketing and manufacturing organizations and more experience in the regulatory process than the Company. The Company also competes with academic institutions, governmental agencies and other research organizations which may be involved in research, development and commercialization of products. Because a number of companies are developing HA products for similar applications, the successful commercialization of a particular product will depend in part upon the ability of the Company to complete clinical studies and obtain FDA marketing and foreign regulatory approvals prior to its competitors. There can be no assurance that the Company will be able to compete against current or future competitors or that competition will not have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Competition." FLUCTUATIONS IN QUARTERLY OPERATING RESULTS The Company's quarterly operating results may fluctuate as a result of a number of factors, including timing of approvals of new products of the Company, its competitors or its customers, slower-than-anticipated market penetration rates of current products, temporary delays in obtaining certain product components from suppliers and the ability of the Company to establish marketing and distribution arrangements with strategic partners. A significant portion of the Company's expenses is relatively fixed in nature and the Company may not be able to reduce spending in response to shortfalls or delays in revenues. Such shortfalls or delays may result in a material adverse effect on the Company's business, financial condition and results of operations. As a result, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indicators of future performance. Due to the foregoing factors, it is likely that in one or more future fiscal quarters the Company's operating results may be below the expectations of equity research analysts and investors. Such an occurrence could have a material adverse effect on the market price of the 7 Common Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Results of Operations." COMPREHENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF FDA APPROVAL The Company's product development activities, manufacturing processes, and current and future sales and marketing are subject to extensive and rigorous regulation by the FDA and comparable agencies in foreign countries. In the United States, the FDA regulates the marketing, advertising, promotion, and distribution of medical devices, drugs, and biologics, as well as testing, manufacturing, labeling, recordkeeping, and reporting activities for such products. Medical products regulated by the FDA are generally classified as devices and/or drugs and/or biologics. Product development and approval within the FDA framework takes a number of years and involves the expenditure of substantial resources. There can be no assurance that the FDA will grant approval for the Company's new products on a timely basis if at all, or that FDA review will not involve delays that will adversely affect the Company's ability to commercialize additional products or expand permitted uses of existing products, or that the regulatory framework will not change, or that additional regulation will not arise at any stage of the Company's product development process which may adversely affect approval of or delay an application or require additional expenditures by the Company. In the event the Company's future products are regulated as human drugs or biologics, the FDA's review process typically would be substantially longer and more expensive than the review process for devices. The Company's ORTHOVISC product is currently regulated as a Class III device by the FDA. Class III devices are those that generally must receive pre-market approval by the FDA to ensure their safety and effectiveness (e.g. life- sustaining, life-supporting and implantable or new devices which have not been found to be substantially equivalent to legally marketed devices) and require clinical testing to ensure safety and effectiveness and FDA approval prior to marketing and distribution. In order for the Company to commercially distribute ORTHOVISC in the U.S., it must obtain FDA approval of a PMA. The Company is currently preparing a PMA for ORTHOVISC and plans to submit it by the end of 1997. The PMA approval process can be expensive, uncertain and lengthy. A number of devices for which pre-market approval has been sought have never been approved for marketing. The review of an application often occurs over a protracted time period and may take two years or more from the filing date to complete. There can be no assurance that the FDA will approve a PMA application for ORTHOVISC on a timely basis, if at all, or that the FDA review will not involve delays that will affect the Company's ability to commercialize additional products or expand permitted uses of existing products. Furthermore, even if granted, the approval may include significant limitations on the indications for use for which the product may be marketed. The Company's developmental HA products, including INCERT and HA oligosaccharides, have not obtained regulatory approval in the U.S. for investigational use and/or commercial marketing and sale. The Company believes that INCERT will be regulated as a Class III medical device and HA oligosaccharides will be regulated as a drug, although there can be no assurance that such products will not be otherwise classified. Before undertaking clinical trials in the U.S. to support a PMA, the Company must apply for and obtain FDA and/or institutional review board ("IRB") approval of an investigation device exemption ("IDE"). There can be no assurance that the Company will be permitted to undertake clinical trials of these or other future products in the U.S. or that clinical trials will demonstrate that the products are safe and effective or otherwise satisfy the FDA's pre-market approval requirements. Orquest has not received regulatory approval in the U.S. for the investigational use and/or commercial marketing and sale of OSSIGEL. OSSIGEL may be regulated as a Class III medical device, a biologic, a drug or a combination thereof. There can be no assurance that Orquest will be permitted to undertake clinical trials of OSSIGEL or, if clinical trials are permitted, that such clinical trials will demonstrate that OSSIGEL is safe and effective or otherwise satisfy FDA requirements. Once obtained, marketing clearance can be withdrawn by the FDA due to failure to comply with regulatory standards or the occurrence of unforeseen problems following initial clearance. The Company may be required to make further filings with the FDA under certain circumstances. The FDA's regulations require agency 8 approval of a PMA supplement for certain changes if they affect the safety and effectiveness of an approved device, including, but not limited to, new indications for use, labeling changes, the use of a different facility to manufacture, process or package the device, changes in manufacturing methods or quality control systems and changes in performance or design specifications. Failure by the Company to receive approval of a PMA supplement regarding the use of a different manufacturing facility or any other change affecting the safety or effectiveness of an approved device on a timely basis, or at all, would have a material adverse effect on the Company's business, financial condition and results of operations. The FDA could also limit or prevent the manufacture or distribution of the Company's products and has the power to require the recall of such products. Significant delay or cost in obtaining, or failure to obtain FDA clearance to market products, any FDA limitations on the use of the Company's products, or any withdrawal or suspension of clearance by the FDA could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, all FDA-approved products manufactured by the Company must be manufactured in compliance with the standards established by the FDA's Good Manufacturing Practices ("GMP") regulations. Ongoing compliance with GMP and other applicable regulatory requirements is monitored through periodic inspection by state and federal agencies, including the FDA. The FDA may inspect the Company and its facilities from time to time to determine whether the Company is in compliance with regulations relating to medical device and manufacturing companies, including regulations concerning manufacturing, testing, quality control and product labeling practices. There can be no assurance that the Company will be able to comply with current or future FDA requirements applicable to the manufacture of products. FDA regulations depend heavily on administrative interpretation and there can be no assurance that the future interpretations made by the FDA or other regulatory bodies, with possible retroactive effect, will not adversely affect the Company. In addition, changes in the existing regulations or adoption of new governmental regulations or policies could prevent or delay regulatory approval of the Company's products. Failure to comply with applicable regulatory requirements could result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the FDA to grant pre-market clearance or pre-market approval for devices, withdrawal of approvals and criminal prosecution. In addition to regulations enforced by the FDA, the Company is subject to other existing and potential future federal, state, local and foreign regulations. International regulatory bodies often establish regulations governing product standards, packing requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. To enable the Company to market its products in Europe, the Company was required to receive a "CE" marking certification, an international symbol of quality and compliance with the applicable European medical device directive. In October 1996, the Company received an EC Design Examination and an EC Quality System Certificate from a European Notified Body, which entitles the Company to affix a CE marking on ORTHOVISC for the treatment of osteoarthritis in synovial joints. There can be no assurance that the Company will be able to achieve and/or maintain compliance required for CE marking or other foreign regulatory approvals for any or all of its products or that it will be able to produce its products in a timely and profitable manner while complying with applicable requirements. Federal, state, local and foreign regulations regarding the manufacture and sale of medical products are subject to change. The Company cannot predict what impact, if any, such changes might have on its business. The requirements relating to the conduct of clinical trials, product licensing, pricing and reimbursement also vary widely from country to country. The process of obtaining approvals from the FDA and other regulatory authorities can be costly, time consuming, and subject to unanticipated delays. There can be no assurance that approvals of the Company's products will be granted or that the Company will have the necessary funds to develop certain of such products. Any failure to obtain, or delay in obtaining, such approvals could adversely affect the ability of the Company to market its products. See "Business -- Government Regulation." 9 UNCERTAINTY REGARDING SUCCESS OF CLINICAL TRIALS Several of the Company's products, including INCERT and HA oligosaccharides, as well as the products of the Company's collaborative partners, including OSSIGEL, will require clinical trials to determine their safety and efficacy in humans for various conditions. There can be no assurance that the Company or its collaborative partners will not encounter problems that will cause it to delay or suspend clinical trials of any of these products. In addition, there can be no assurance that such clinical trials, if completed, will ultimately demonstrate these products to be safe and efficacious. See "Business -- Clinical Applications." DEPENDENCE UPON MARKETING PARTNERS The Company does not plan to directly market and sell its current products to customers. Therefore, the Company's success will be dependent upon the efforts of its marketing partners and the terms and conditions of the Company's relationships with such marketing partners. The Company currently manufactures AMVISC and AMVISC Plus for Chiron Vision under a non-exclusive fixed price, five-year supply agreement which contains stated minimum annual purchase obligations and terminates on December 31, 2001. Bausch & Lomb, Inc. recently announced that it has signed definitive agreements to acquire Chiron Vision, as well as Storz Instrument Company, a subsidiary of American Home Products and a competitor of Chiron Vision. Since January 1, 1997, Chiron Vision has purchased AMVISC and AMVISC Plus in amounts substantially in excess of the minimum purchase obligations set forth in the AMVISC supply contract. There can be no assurance that the acquisitions will be consummated or if consummated, that Bausch & Lomb, Inc. will continue to purchase AMVISC and AMVISC Plus at levels beyond the stated minimum annual purchase obligations. Any such decrease in orders under the AMVISC supply contract could have a material adverse effect on the Company's business, financial condition and results of operations. For the nine months ended September 30, 1997 and 1996, AMVISC and AMVISC Plus sales through Chiron Vision accounted for 84% and 90% of net sales, respectively. On November 7, 1997, the Company entered into a distribution agreement with Zimmer for the exclusive marketing and distribution of ORTHOVISC in the United States, Canada and selected countries in the Asia-Pacific region. While the agreement provides for future payments to the Company of up to $20.5 million (which includes the right upon attaining certain milestones, at Zimmer's election, to make an equity investment in the Company equal to the greater of $2.5 million or 9.9% of the then outstanding Common Stock (but not to exceed 19.9% of the then outstanding Common Stock) at a premium to the then current market price), such payments are contingent upon the achievement of certain enumerated regulatory approval and sales milestones. There can be no assurance that such milestones will be met on a timely basis or at all and, accordingly, that any such payments will be received by the Company. In addition, Zimmer has the right to terminate the agreement on August 1, 1998 if certain specified events occur prior to that date and upon payment to Anika of $1.0 million in cash. These circumstances include (i) the failure of Zimmer to sell a stated minimum number of units of ORTHOVISC during the second quarter of 1998 or the failure of a competitor of the Company to report enumerated sales minimums during the first two quarters of 1998, (ii) an FDA requirement of additional clinical trials for ORTHOVISC or the FDA's acceptance for filing by a party other than Anika or its primary competitors of a PMA for an injectable HA product for the treatment of OA in humans without requiring submission of an IDE clinical study to support the application, (iii) both Synvisc and Hyalgan are either voluntarily or involuntarily withdrawn from the U.S. market, or (iv) if Zimmer undergoes a company-wide restructuring prior to June 30, 1998 which results in Zimmer's determination that the knee implant product line is not a core product. There can be no assurance that any of these events will not occur or, if any such event does occur, that Zimmer will not elect to terminate the agreement. Any such termination would have a material adverse effect on the Company's ability to market ORTHOVISC, which may have a material adverse effect on the Company's future operating results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." The Company will need to obtain the assistance of additional marketing partners for new products which are brought to market and existing products brought to new markets. There can be no assurance that such additional partners will be available or that such partners will agree to market the Company's products on acceptable terms. The failure to establish strategic partnerships for the marketing and distribution of the 10 Company's products on acceptable terms would have a material adverse effect on the Company's business, financial condition and results of operations. UNCERTAINTY OF MARKET ACCEPTANCE OF NEW PRODUCTS The Company's success will depend in part upon the acceptance of the Company's new products by the medical community, hospitals and physicians and other health care providers, and third-party payors. Such acceptance may depend upon the extent to which the medical community perceives the Company's products as safer, more effective or cost-competitive than other similar products. Ultimately, for the Company's new products to gain general market acceptance, it will also be necessary for the Company to develop marketing partners for the distribution of its products. There can be no assurance that the Company's new products will achieve significant market acceptance on a timely basis, or at all. Failure of some or all of the Company's new products to achieve significant market acceptance could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Competition." DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY The Company's success will depend, in part, on its ability to obtain and enforce patents, protect trade secrets, obtain licenses to technology owned by third parties when necessary, and conduct its business without infringing the proprietary rights of others. The patent positions of pharmaceutical, medical products and biotechnology firms, including the Company, can be uncertain and involve complex legal and factual questions. There can be no assurance that any patent applications will result in the issuance of patents or, if any patents are issued, whether they will provide significant proprietary protection or commercial advantage, or will not be circumvented by others. In the event a third party has also filed one or more patent applications for any of its inventions, the Company may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office ("PTO") to determine priority of invention (see below), which could result in failure to obtain or the loss of patent protection for the inventions and the loss of any right to use the inventions. Even if the eventual outcome is favorable to the Company, such interference proceedings could result in substantial cost to the Company. Filing and prosecution of patent applications, litigation to establish the validity and scope of patents, assertion of patent infringement claims against others and the defense of patent infringement claims by others can be expensive and time consuming. There can be no assurance that in the event that any claims with respect to any of the Company's patents, if issued, are challenged by one or more third parties, that any court or patent authority ruling on such challenge will determine that such patent claims are valid and enforceable. An adverse outcome in such litigation could cause the Company to lose exclusivity covered by the disputed rights. If a third party is found to have rights covering products or processes used by the Company, the Company could be forced to cease using the technologies or marketing the products covered by such rights, could be subject to significant liabilities to such third party, and could be required to license technologies from such third party. Furthermore, even if the Company's patents are determined to be valid, enforceable, and broad in scope, there can be no assurance that competitors will not be able to design around such patents and compete with the Company using the resulting alternative technology. The Company has a policy of seeking patent protection for patentable aspects of its proprietary technology. The Company co-owns certain United States patents and a patent application which claim certain adhesion prevention uses and certain drug delivery uses of HA, and solely owns patents directed to certain manufacturing processes. The Company also holds an exclusive license from Tufts University to use technologies claimed in a United States patent application which relate to the anti-metastasis applications of HA oligosaccharides. The Company's issued patents expire between 2007 and 2015 and the license expires upon expiration of all related patents. The Company intends to seek patent protection with respect to products and processes developed in the course of its activities when it believes such protection is in its best interest and when the cost of seeking such protection is not inordinate. However, no assurance can be given that any patent application will be filed, that any filed applications will result in issued patents or that any issued patents will provide the Company with a competitive advantage or will not be successfully challenged by third parties. The protections afforded by patents will depend upon their scope and validity, and others may be able to design around the Company's patents. The 11 Company's issued patents and any patents which arise from the Company's licensed application would provide competitive protection, if at all, only in the United States. The Company has not, to date, pursued foreign patents equivalent to those issued or applied for in the United States. Other entities have filed patent applications for or have been issued patents concerning various aspects of HA-related products or processes. There can be no assurance that the products or processes developed by the Company will not infringe the patent rights of others in the future. Any such infringement may have a material adverse effect on the Company's business, financial condition and results of operations. In particular, the Company has received notice from the PTO that a third party is attempting to provoke a patent interference with respect to one of the Company's co-owned patents covering the use of INCERT for post-surgical adhesion prevention. Although the Company believes that an interference will be declared by the PTO, it is too early to determine the merits of the interference or the effect, if any, the interference will have on the Company's marketing of INCERT for this use. The existence of the interference proceeding may have a negative impact on the marketing of the INCERT product, and no assurance can be given that the Company would be successful in any such interference proceeding. If the third- party interference were to be decided adversely to the Company, involved claims of the Company's patent would be cancelled, the Company's marketing of the INCERT product may be materially and adversely affected and the third party may enforce patent rights against the Company which could prohibit the sale and use of the INCERT products, which could have a material adverse effect on the Company's future operating results. See "Business -- Patents and Proprietary Rights." The Company also relies upon trade secrets and proprietary know-how for certain unpatented aspects of its technology. To protect such information, the Company requires all employees, consultants and licensees to enter into confidentiality agreements limiting the disclosure and use of such information. There can be no assurance that these agreements provide meaningful protection or that they will not be breached, that the Company would have adequate remedies for any such breach, or that the Company's trade secrets, proprietary know-how, and technological advances will not otherwise become known to others. In addition, there can be no assurance that, despite precautions taken by the Company, others have not and will not obtain access to the Company's proprietary technology. Further, there can be no assurance that third parties will not independently develop substantially equivalent or better technology. Pursuant to the AMVISC supply contract the Company has agreed to grant Chiron Vision a royalty-free, worldwide, exclusive license to the Company's manufacturing and product inventions which relate to AMVISC products, effective on December 31, 2001, the termination date of the AMVISC supply contract which became effective on January 1, 1997. Upon expiration of the AMVISC supply contract, there can be no assurance that Chiron Vision will continue to use the Company to manufacture AMVISC and AMVISC Plus. If Chiron Vision discontinues the use of the Company as a manufacturer after such time, the Company's business, financial condition and results of operations could be materially and adversely affected. RISKS ASSOCIATED WITH MANUFACTURING The Company's results of operations are dependent upon the continued operation of its manufacturing facility in Woburn, Massachusetts. The operation of biomedical manufacturing plants involves many risks, including the breakdown, failure or substandard performance of equipment, natural and other disasters, and the need to comply with the requirements of directives of government agencies, including the FDA. In addition, the Company relies on a single supplier for syringes and a small number of suppliers for a number of other materials required for the manufacturing and delivery of its HA products. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations -- Nine months ended September 30, 1997 compared to nine months ended September 30, 1996." Furthermore, manufacturing processes and research and development efforts of the Company involve animals and products derived from animals. The utilization of animals in research and development and product commercialization is subject to increasing focus by animal rights activists. The activities of animal rights groups and other organizations that have protested animal based 12 research and development programs or boycotted the products resulting from such programs could cause an interruption in the Company's manufacturing processes and research and development efforts. The occurrence of material operational problems, including but not limited to the events described above, could have a material adverse effect on the Company's business, financial condition and results of operations during the period of such operational difficulties. See "Business -- Manufacturing of Hyaluronic Acid." NO ASSURANCE OF ABILITY TO MANAGE GROWTH The Company's future success depends on substantial growth in product sales. There can be no assurance that such growth can be achieved or, if achieved, can be sustained. There can be no assurance that if substantial growth in product sales and the demand for the Company's products is achieved, the Company will be able to (i) develop the necessary manufacturing capabilities, (ii) obtain the assistance of additional marketing partners, (iii) attract, retain and integrate the required key personnel, or (iv) implement the financial, accounting and management systems needed to manage growing demand for its products, should it occur. Failure of the Company to successfully manage future growth could have a material adverse effect on the Company's business, financial condition and results of operations. THIRD PARTY REIMBURSEMENT AND HEALTH CARE COST CONTAINMENT INITIATIVES In the U.S. and other markets, health care providers, such as hospitals and physicians, that purchase health care products, such as the Company's products, generally rely on third party payors, including Medicare, Medicaid and other health insurance and managed care plans, to reimburse all or part of the cost of the health care product. Reimbursement by a third party payor may depend on a number of factors, including the payor's determination that the use of the Company's products are clinically useful and cost-effective, medically necessary and not experimental or investigational. Since reimbursement approval is required from each payor individually, seeking such approvals can be a time consuming and costly process which, in the future, could require the Company or its marketing partners to provide supporting scientific, clinical and cost-effectiveness data for the use of the Company's products to each payor separately. Significant uncertainty exists as to the reimbursement status of newly approved health care products, and third party payors are increasingly attempting to contain the costs of health care products and services by limiting both coverage and the level of reimbursement for new therapeutic products and by refusing in some cases to provide coverage for uses of approved products for disease indications for which the FDA has not granted marketing approval. In addition, Congress and certain state legislatures have considered reforms that may affect current reimbursement practices, including controls on health care spending through limitations on the growth of Medicare and Medicaid spending. There can be no assurance that third party reimbursement coverage will be available or adequate for any products or services developed by the Company. Outside the U.S., the success of the Company's products is also dependent in part upon the availability of reimbursement and health care payment systems. Lack of adequate coverage and reimbursement provided by government and other third party payors for the Company's products and services could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Third Party Reimbursement." NEED FOR ADDITIONAL FUNDS; LIQUIDITY The Company anticipates that its cash and cash equivalents of approximately $3.1 million on September 30, 1997, together with the $2.5 million payment received upon signing of the distribution agreement with Zimmer, the net proceeds from the offering and cash flow from operations will be adequate to fund its operations for 24 months from the date of this Prospectus. The Company's future capital requirements and the adequacy of available funds will depend, however, on numerous factors, including market acceptance of its existing and future products, the successful commercialization of products in development, progress in its product development efforts, the magnitude and scope of such efforts, progress with preclinical studies, clinical trials and product clearances by the FDA and other agencies, the cost and timing of its efforts to expand its manufacturing capabilities, the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights, competing technological and market developments, and the development of strategic 13 alliances for the marketing of certain of its products. To the extent that funds generated from the Company's operations, together with the Company's existing capital resources and the net proceeds of this offering are insufficient to meet future requirements, the Company will be required to obtain additional funds through equity or debt financings, strategic alliances with corporate partners and others, or through other sources. The terms of any future equity financings may be dilutive to the Company's stockholders and the terms of any debt financings may contain restrictive covenants which limit the Company's ability to pursue certain courses of action. The ability of the Company to obtain financing is dependent on the status of the Company's future business prospects as well as conditions prevailing in the relevant capital markets. No assurance can be given that any additional financing will be made available to the Company or will be available on acceptable terms should such a need arise. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." EXPOSURE TO PRODUCT LIABILITY CLAIMS The testing, marketing and sale of human health care products entail an inherent risk of allegations of product liability, and there can be no assurance that substantial product liability claims will not be asserted against the Company. Although the Company has not received any material product liability claims to date and has a $1 million insurance policy to cover such claims should they arise, there can be no assurance that material claims will not arise in the future or that the Company's insurance will be adequate to cover all situations. Moreover, there can be no assurance that such insurance, or additional insurance, if required, will be available in the future or, if available, will be available on commercially reasonable terms. Any product liability claim, if successful, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Product Liability." DEPENDENCE UPON KEY PERSONNEL The Company is highly dependent on the members of its management and scientific staff, the loss of one or more of whom could have a material adverse effect on the Company. In addition, the Company believes that its future success will depend in large part upon its ability to attract and retain highly skilled, scientific, managerial and manufacturing personnel. The Company faces significant competition for such personnel from other companies, research and academic institutions, government entities and other organizations. There can be no assurance that the Company will be successful in hiring or retaining the personnel it requires. The failure to hire and retain such personnel could have a material adverse effect on the Company's business, financial condition and results of operations. UNCERTAINTY OF ESTIMATES To assist investors in evaluating the Company, this Prospectus contains certain estimates of market size and market share for the Company's and its competitors' HA products. These estimates have been derived by the Company on the basis of its analysis of industry reports, press releases and market research reports compiled by independent third-party sources which the Company believes to be reliable. However, all such estimates are inherently subject to uncertainties, and the Company is unable to determine with a degree of certainty the size of the market for certain HA based products and the market share held by its products. This Prospectus also reflects the Company's estimates regarding future regulatory submission dates. Regulatory submissions can be delayed, or plans to submit applications for product approvals can be canceled, for a number of reasons, including the receipt of unfavorable preclinical or clinical study results, changes in regulations, adoption of new or unanticipated enforcement of existing regulations, technological developments and competitive developments. Accordingly, no assurances can be given that the Company's anticipated submissions will be made on their target dates, or at all. Delays in such submissions could have a material adverse effect on the Company's business, financial condition and results of operations. 14 BROAD MANAGEMENT DISCRETION AS TO USE OF PROCEEDS The Company expects to use most of the net proceeds of this offering for expansion of its manufacturing facilities, to fund its research and development efforts, including clinical trials, and for working capital and general corporate purposes. A portion of the net proceeds of the offering may also be used to acquire or invest in products, technologies or other businesses. There are no current agreements or understandings with respect to any acquisitions, investments or other transactions. Accordingly, the Company's management will retain broad discretion as to the allocation of a substantial portion of the net proceeds from this offering. Pending such uses, the Company intends to invest the net proceeds in short-term, investment- grade, interest-bearing securities. See "Use of Proceeds." ENVIRONMENTAL REGULATION The Company is subject to a variety of local, state and federal government regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic, or other hazardous substances used in the manufacture of the Company's products. Any failure by the Company to control the use, disposal, removal or storage of hazardous chemicals or toxic substances could subject the Company to significant liabilities, which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Environmental Laws." RISKS RELATING TO INTERNATIONAL OPERATIONS Approximately 10% of the Company's product sales during 1996 were generated in international markets through marketing partners. The Company's representatives, agents and distributors which sell products in international markets are subject to the laws and regulations of the foreign jurisdictions in which they operate and in which the Company's products are sold. A number of risks are inherent in international sales and operations. For example, the volume of international sales may be limited by the imposition of government controls, export license requirements, political instability, trade restrictions, changes in tariffs, difficulties in managing international operations, import restrictions and fluctuations in foreign currency exchange rates. Such changes in the volume of sales may have an adverse effect on the Company's business, financial condition and results of operations. POTENTIAL VOLATILITY OF STOCK PRICE; NO CONTROL OVER MARKET MAKING The market price of shares of the Company's Common Stock may be highly volatile. Factors such as announcements of new commercial products or technological innovations by the Company or its competitors, disclosure of results of clinical testing or regulatory proceedings, governmental regulation and approvals, developments in patent or other proprietary rights, public concern as to the safety of products developed by the Company and general market conditions may have a significant effect on the market price of the Company's Common Stock. The trading price of the Company's Common Stock could be subject to wide fluctuations in response to quarter-to-quarter variations in the Company's operating results, material announcements by the Company or its competitors, governmental regulatory action, conditions in the health care industry generally or in the medical products industry specifically, or other events or factors, many of which are beyond the Company's control. In addition, the stock market has experienced extreme price and volume fluctuations which have particularly affected the market prices of many medical products companies and which often have been unrelated to the operating performance of such companies. The Company's operating results in future quarters may be below the expectations of equity research analysts and investors. In such event, the price of the Common Stock would likely decline, perhaps substantially. No person is under any obligation to make a market in the Common Stock or publish research reports on the Company, and any person making a market in the Common Stock or publishing research reports on the Company may discontinue market making or publishing such reports at any time without notice. There can be no assurance that an active public market in the Common Stock will develop or, if developed, will be sustained. 15 LACK OF PAYMENT OF DIVIDENDS ON COMMON STOCK The Company has never paid cash dividends on its Common Stock and does not anticipate paying such dividends in the foreseeable future. The Company currently intends to retain any future earnings for use in the Company's business. See "Price Range of Common Stock and Dividend Policy." CONTROL BY PRINCIPAL STOCKHOLDERS, DIRECTORS AND OFFICERS Upon completion of this offering, the present directors, executive officers and principal stockholders of the Company and their affiliates will beneficially own approximately 24.8% of the outstanding shares of Common Stock. As a result, these stockholders may be able to exercise significant influence over matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. Such concentration of ownership may have the effect of delaying or preventing a change in control of the Company. See "Principal and Selling Stockholders." RISKS INVOLVING SHARES ELIGIBLE FOR FUTURE SALE Sales of substantial amounts of Common Stock (including shares issued upon the exercise of outstanding options and warrants) in the public market after this offering, or the perception that such sales may occur, could adversely affect prevailing market prices for the Common Stock following this offering. Upon completion of this offering, the Company will have a total of 9,381,879 of Common Stock outstanding (assuming the exercise of all outstanding warrants to purchase Series A Preferred Stock). Of these shares, 8,123,051 shares of Common Stock, including the 3,000,000 offered hereby, will be freely tradable without restriction or registration under the Securities Act of 1933 ("Securities Act") by persons other than "affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144") promulgated under the Securities Act ("Affiliates"). The remaining 1,258,828 shares of Common Stock, and an additional 203,700 shares of Common Stock issuable from time to time upon the exercise of outstanding warrants, are "restricted" securities that may be sold only if registered under the Securities Act, or sold in accordance with an applicable exemption from registration, such as Rule 144. As of October 31, 1997, 3,000,000 shares of Common Stock were reserved for issuance under the Stock Option Plan of which 1,871,495 shares were issuable upon the exercise of outstanding stock options, and 40,000 shares of Common Stock were reserved for issuance under the Directors' Plan, of which 22,500 shares were issuable upon the exercise of outstanding stock options. In June 1993 and June 1996, the Company filed registration statements on Form S-8 under the Securities Act to register all shares of Common Stock reserved for issuance under the Stock Option Plan and the Directors' Plan. Shares of Common Stock issued upon the exercise of options under either plan generally are available for sale in the open market, subject to Rule 144 limitations with respect to affiliates, and subject to the lock-up arrangements described below. The Company's executive officers, directors and certain other stockholders who, in the aggregate, will hold upon completion of this offering 1,279,880 shares of the outstanding Common Stock have entered into lock-up agreements which provide that, for a period of 180 days from the effective date of the Registration Statement of which this Prospectus is a part, they will not, directly or indirectly, offer, sell, offer to sell, contract to sell, or otherwise dispose of (or enter into any transaction which is designed to, or could be expected to, result in the disposition by any such person of) any shares of Common Stock or any securities convertible into or exercisable for Common Stock, or any right to purchase or acquire Common Stock without the prior written consent of Furman Selz LLC. Furman Selz LLC will have complete discretion in determining whether to consent to early releases from the lock- up agreements delivered in connection with the offering, and there can be no assurance that it will not consent to the early release of all or a portion of the shares of Common Stock and options covered by such lock-up agreements. See "Shares Eligible for Future Sale." POSSIBLE ADVERSE EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS Certain provisions of the Company's Restated Articles of Organization and Amended and Restated By-laws could have the effect of discouraging a third party from pursuing a non-negotiated takeover of the Company and preventing certain changes in control. These provisions include a classified Board of Directors, advance notice 16 to the Board of Directors of stockholder proposals, limitations on the ability of stockholders to remove directors and to call stockholder meetings, the provision that vacancies on the Board of Directors be filled by a majority of the remaining directors, the ability of the Board of Directors to issue, without further stockholder approval, preferred stock with rights and privileges which could be senior to the Common Stock and the ability of the Board of Directors to adopt a shareholder rights plan without seeking stockholder approval. The Company also is subject to Chapter 110F of the Massachusetts General Laws which, subject to certain exceptions, prohibits a Massachusetts corporation from engaging in any of a broad range of business combinations with any "interested stockholder" for a period of three years following the date that such stockholder became an interested stockholder. These provisions could discourage a third party from pursuing a takeover of the Company at a price considered attractive by many stockholders, since such provisions could have the effect of preventing or delaying a potential acquiror from acquiring control of the Company and its Board of Directors. See "Description of Capital Stock." 17 THE COMPANY The Company was a division of MedChem Products, Inc. ("MedChem") until 1993. The Company was incorporated under the laws of Massachusetts and became an independent publicly-traded entity in May 1993 when MedChem distributed all of the then outstanding shares of Common Stock of the Company to MedChem stockholders as a dividend. The Company's principal executive offices are located at 236 West Cummings Park, Woburn, Massachusetts 01801, and its telephone number is (781) 932-6616. As used in this Prospectus, the terms "Anika" and the "Company" refer to Anika Therapeutics, Inc. and its predecessor unless the context otherwise requires. USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,500,000 shares of Common Stock offered by the Company hereby are estimated to be $19,408,000 ($21,200,000 if the Underwriters' overallotment option is exercised in full) at an assumed public offering price of $8.5625 per share after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company will not receive any of the proceeds from the sale of shares of Common Stock by the Selling Stockholders. See "Principal and Selling Stockholders." The Company intends to use the net proceeds of this offering for expansion of its manufacturing facilities, to fund the Company's product research and development efforts, including clinical trials, and for working capital and other general corporate purposes. The Company may also use a portion of the net proceeds of this offering to acquire or invest in new products or technologies or to acquire other businesses. The Company is not currently a party to any agreements or understandings with respect to any such acquisitions. Pending such uses, the Company will invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 18 PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY The Company's Common Stock is traded on the Nasdaq Small-Cap Market under the symbol "ANIK." The following table sets forth, for the periods indicated, the high and low sale prices of the Common Stock on the Nasdaq Small-Cap Market. These prices represent prices between dealers and do not include retail mark-ups, markdowns or commissions and may not represent actual transactions.
PRICE RANGE ------------- HIGH LOW ------ ------ 1995 First Quarter................................................... $2 7/8 $1 3/4 Second Quarter.................................................. 2 1/4 1 1/2 Third Quarter................................................... 2 7/8 1 7/8 Fourth Quarter.................................................. 3 2 1/4 1996 First Quarter................................................... $3 1/8 $2 5/8 Second Quarter.................................................. 4 5/8 2 7/8 Third Quarter................................................... 7 7/8 3 1/2 Fourth Quarter.................................................. 6 5/8 4 3/8 Transitional Year(1)............................................ 6 1/4 3 3/8 1997 First Quarter................................................... $6 1/4 $3 1/2 Second Quarter.................................................. 7 5 Third Quarter................................................... 9 1/4 6 3/8 Fourth Quarter (through November 6, 1997)....................... 9 1/4 7 1/2
- ---------- (1) Represents the four-month transitional year ended December 31, 1996. On November 6, 1997, the last reported sale price per share of the Common Stock on the Nasdaq Small-Cap Market was $8.5625. At September 30, 1997, there were 294 holders of record of the Common Stock. The Company has applied to have the Common Stock listed for quotation on the Nasdaq National Market effective upon completion of this offering under its current symbol "ANIK." The Company has never declared or paid any cash dividends on its Common Stock. The Company currently intends to retain earnings, if any, for use in its business and does not anticipate paying cash dividends on its Common Stock in the foreseeable future. Payment of future dividends, if any, on the Common Stock will be at the discretion of the Company's Board of Directors after taking into account various factors, including the Company's financial condition, operating results, anticipated cash needs and plans for expansion. See "Description of Capital Stock -- Authorized and Outstanding Capital Stock." 19 CAPITALIZATION The following table sets forth the capitalization of the Company as of September 30, 1997 on an actual basis and as adjusted to give effect to (i) the sale by the Company of 2,500,000 shares of Common Stock offered hereby at an assumed public offering price of $8.5625 per share and receipt and application of the net proceeds therefrom as described in "Use of Proceeds" and (ii) the cashless exercise of all outstanding warrants to acquire Series A Preferred Stock and conversion of all outstanding shares of Series A Preferred Stock upon completion of the offering on a 10-for-1 basis. This table should be read in conjunction with the Company's Financial Statements and the Notes thereto included elsewhere in this Prospectus.
SEPTEMBER 30, 1997 --------------------- ACTUAL(1) AS ADJUSTED --------- ----------- (IN THOUSANDS) Redeemable convertible preferred stock, $.01 par value: 750,000 shares authorized; 130,211 shares issued and outstanding, actual; none issued and outstanding, as adjusted .............................................. $ 2,706 -- Stockholders' equity: Undesignated preferred stock, $.01 par value: 1,250,000 shares authorized; no shares issued and outstanding actual and as adjusted................... -- -- Common stock, $.01 par value: 15,000,000 shares authorized; 5,123,051 shares issued and outstanding, actual; 9,381,879 shares issued and outstanding, as adjusted(1).......................................... 51 $ 94 Additional paid-in capital............................ 12,196 34,266 Accumulated deficit................................... (9,088) (9,088) ------- ------- Total stockholders' equity.......................... $ 3,159 $25,272 ======= =======
- ---------- (1) Excludes (i) 1,871,495 shares of Common Stock issuable upon exercise of options outstanding as of October 31, 1997 with a weighted average exercise price of $3.68 per share and an additional 785,000 shares of Common Stock reserved for future grants under the Stock Option Plan and an additional 17,500 shares reserved for future grants under the Director's Plan and (ii) 203,700 shares of Common Stock issuable upon the exercise of warrants outstanding as of October 31, 1997 with a weighted average exercise price of $3.28 per share. See "Management -- Executive Compensation," "Certain Transactions," "Description of Capital Stock," and "Shares Eligible for Future Sale." 20 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The selected financial data presented below under the captions "Statement of Operations Data" and "Balance Sheet Data" as of and for the nine-month period ended September 30, 1997, as of and for the four-month transitional year ended December 31, 1996, and as of and for each of the years in the three-year period ended August 31, 1996, have been derived from the financial statements of Anika Therapeutics, Inc. which have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The financial statements, including the independent auditors' report thereon, as of and for the nine-month period ended September 30, 1997, as of and for the four-month transitional year ended December 31, 1996 and for the year ended August 31, 1996, are included elsewhere in this Prospectus. The selected financial data presented below as of and for the nine-month period ended September 30, 1996 and as of and for the four-month period ended December 31, 1995 are derived from the unaudited financial statements of the Company.
FOUR MONTHS NINE MONTHS ENDED ENDED YEAR ENDED AUGUST 31, DECEMBER 31, SEPTEMBER 30, ------------------------- ---------------- --------------- 1994 1995 1996 1995(1) 1996(1) 1996 1997 ------- ------- ------- ------- ------- ------- ------ STATEMENT OF OPERATIONS DATA: Net sales............... $ 4,662 $ 3,356 $ 4,613 $1,191 $ 1,212 $ 3,630 $5,962 Cost of sales........... 3,934 3,118 4,472 1,263 1,309 3,404 3,016 ------- ------- ------- ------ ------- ------- ------ Gross profit (loss)..... 728 238 141 (72) (97) 226 2,946 ------- ------- ------- ------ ------- ------- ------ Operating expenses: Research and development............ 1,496 1,318 1,635 456 1,310 1,348 1,477 Selling, general and administrative......... 734 904 1,469 384 1,309 1,241 1,272 ------- ------- ------- ------ ------- ------- ------ Total operating expenses............... 2,230 2,222 3,104 840 2,619 2,589 2,749 ------- ------- ------- ------ ------- ------- ------ Interest income, net.... (62) (29) (114) (5) (58) (123) (105) ------- ------- ------- ------ ------- ------- ------ Income (loss) before income taxes........... (1,440) (1,955) (2,849) (907) (2,658) (2,240) 302 Income taxes............ -- -- -- -- -- -- 16 ------- ------- ------- ------ ------- ------- ------ Net income (loss)....... $(1,440) $(1,955) $(2,849) $ (907) $(2,658) $(2,240) $ 286 ======= ======= ======= ====== ======= ======= ====== Earnings (loss) per common share and common share equivalents(2)... $ (.45) $ (.63) $ (.76) $ (.30) $ (.56) $ (.54) $ .03 Common shares and common share equivalents outstanding............ 3,177 3,225 4,053 3,294 4,905 4,479 6,358
AUGUST 31, DECEMBER 31, SEPTEMBER 30, ------------------------- ---------------- ---------------- 1994 1995 1996 1995 1996 1996 1997 ------- ------- ------- ------- ------- ------- ------- BALANCE SHEET DATA: Cash and cash equivalents............ $ 2,584 $ 2,825 $ 3,651 $ 1,743 $ 2,705 $ 3,399 $ 3,055 Working capital......... 5,520 4,972 5,858 3,943 4,226 5,701 5,186 Total assets............ 7,698 8,046 8,580 7,280 6,920 8,400 8,131 Redeemable convertible preferred stock........ -- 2,326 2,523 2,394 2,603 2,543 2,706 Accumulated deficit..... (1,913) (3,867) (6,716) (4,774) (9,374) (7,014) (9,088) Stockholders' equity.... 5,378 3,544 4,415 2,591 2,369 4,216 3,159
- ---------- (1) The Company changed its fiscal year end to December 31, effective December 31, 1996. The financial data presented are for the four-month transitional year ended December 31, 1996 and the comparable period in 1995. See Note 1 of Notes to Financial Statements. (2) See Note 2 of Notes to Financial Statements for a description of the method of computing earnings (loss) per common share and common share equivalents. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the financial condition and results of operations of Anika should be read in conjunction with the accompanying financial statements and footnotes. This Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Discussions containing such forward-looking statements may be found in the material set forth below as well as in the Prospectus generally. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The Company's actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference include, among other factors noted herein, the factors set forth under the heading "Risk Factors." OVERVIEW The Company develops, manufactures and commercializes therapeutic products and devices intended to promote the protection and healing of bone, cartilage and soft tissue. These products are based on hyaluronic acid, a naturally- occurring, biocompatible polymer found throughout the body. Due to its unique biophysical and biochemical properties, HA plays an important role in a number of physiological functions such as the protection and lubrication of soft tissues and joints, the maintenance of the structural integrity of tissues, and the transport of molecules to and within cells. The Company has been developing HA and HA based products since 1983. The Company's currently marketed products consist of ORTHOVISC(R), which is an HA product used in the treatment of some forms of osteoarthritis in humans, and HYVISC(R), which is an HA product used in the treatment of equine osteoarthritis. ORTHOVISC is currently approved for marketing in Canada and Europe; in the U.S. ORTHOVISC is currently limited to investigational use only. The Company manufactures AMVISC(R) and AMVISC Plus(R), which are HA products used as viscoelastic supplements in ophthalmic surgery, for Chiron Vision. The Company is currently developing INCERT(R), which is an HA based product designed for use in the prevention of post-surgical adhesions. In addition, the Company is collaborating with Orquest, Inc. to develop OSSIGEL(R), an injectable formulation of basic fibroblast growth factor combined with HA designed to accelerate the healing of bone fractures. The Company receives a substantial portion of its revenue from the sale of AMVISC and AMVISC Plus to Chiron Vision. For the nine months ended September 30, 1997 and 1996, AMVISC sales accounted for 84% and 90% of total revenue, respectively. In addition, sales of ORTHOVISC to the Company's marketing partner in Turkey accounted for 10% of net sales for the nine months ended September 30, 1997. The Company also sells ORTHOVISC in Canada directly, and sells HYVISC in the United States through Boehringer Ingelheim Animal Health, Inc. The Company supplies AMVISC to Chiron Vision under a five-year supply contract (the "AMVISC Supply Contract") that expires in December 2001. Chiron Vision assumed the AMVISC Supply Contract when it purchased IOLAB from Johnson & Johnson in March 1995. Bausch & Lomb, Inc. recently announced that it has signed definitive agreements to acquire Chiron Vision, as well as Storz Instrument Company, a subsidiary of American Home Products and a competitor of Chiron Vision. There can be no assurance, however, that such acquisitions will be consummated or, if consummated, will not adversely affect the Company's business. The current AMVISC Supply Contract has stated minimums with substantially higher unit selling prices than a previous six-year supply contract with Chiron Vision which expired on December 31, 1996. Under the previous supply contract, the Company was obligated to supply AMVISC at unit selling prices that approximated the Company's unit manufacturing cost. This previous supply contract was a component of MedChem's sale of the AMVISC product line to IOLAB in connection with the settlement in January 1991 of patent litigation between Pharmacia, IOLAB and MedChem. The Company has no additional obligations to Chiron Vision as a result of the settlement of such litigation. 22 In November 1997, the Company entered into a long-term distribution agreement with Zimmer, Inc., a subsidiary of Bristol-Myers Squibb Company (the "Zimmer Distribution Contract"). The Zimmer Distribution Contract provides Zimmer with exclusive marketing and distribution rights to ORTHOVISC in the United States, Canada, Australia, Hong Kong, Indonesia, Malaysia, New Zealand, the Philippines, Singapore, Taiwan and Thailand. Zimmer also has the option under the agreement to seek regulatory approval for and market ORTHOVISC in Japan and has a right of first offer with respect to China. Upon signing of the agreement, the Company received an up-front non-refundable payment of $2.5 million. Zimmer has also agreed to make payments aggregating up to $20.5 million upon the achievement of certain regulatory approval and enumerated sales milestones. As an alternative to a $2.5 million milestone payment, Zimmer has the right to elect to acquire shares of the Company's Common Stock equal to the greater of $2.5 million or 9.9% of the then outstanding Common Stock (but not to exceed 19.9% of the then outstanding Common Stock) at a premium to the then current market price. There can be no assurance that any of such milestones will be met on a timely basis or at all. In addition, Zimmer has the right to terminate the agreement on August 1, 1998 if certain specified events occur prior to that date and upon payment to Anika of $1.0 million in cash. These circumstances include (i) the failure of Zimmer to sell a stated minimum number of units of ORTHOVISC during the second quarter of 1998 or the failure of a competitor of the Company to report enumerated sales minimums during the first two quarters of 1998, (ii) an FDA requirement of additional clinical trials for ORTHOVISC or the FDA acceptance for filing by a party other than Anika or its primary competitors of a PMA for an injectable HA product for the treatment of OA in humans without requiring submission of an IDE clinical study to support the application, (iii) both Synvisc and Hyalgan are either voluntarily or involuntarily withdrawn from the U.S. market, or (iv) if Zimmer undergoes a company-wide restructuring prior to June 30, 1998 which results in Zimmer's determination that the knee implant product line is not a core product. There can be no assurance that any of these events will not occur or, if any such event does occur, that Zimmer will not elect to terminate the agreement. Any such termination would have a material adverse effect on the Company's ability to market ORTHOVISC, which may have a material adverse effect on the Company's future operating results. On October 28, 1997, the Company amended the Stock Option Plan to reserve an additional 1,000,000 shares of Common Stock for issuance under the Stock Option Plan, and granted to certain executive officers and employees options to acquire 235,000 shares of Common Stock at an exercise price of $7.625 per share, vesting over a four-year period. Such grants are subject to the completion of this offering and stockholder approval of the amendment to the Stock Option Plan. The amendment to the Plan will be submitted for stockholders' approval at the Company's next annual meeting of stockholders. If the amendment is approved by stockholders, the Company will be required to record compensation expense with respect to the 235,000 options granted October 28, 1997 over the four-year vesting period equal to the difference, if any, between the exercise price and the market value of the Common Stock at the time of such approval. 23 RESULTS OF OPERATIONS The following table presents, for the periods indicated, the percentage relationship that certain statement of operations items bear to net sales:
FOUR MONTHS NINE MONTHS ENDED ENDED YEAR ENDED AUGUST 31, DECEMBER 31, SEPTEMBER 30, ------------------------- ------------- -------------- 1994 1995 1996 1995 1996 1996 1997 ------- ------- ------- ----- ------ ------ ------ Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Gross profit (loss)..... 15.6 7.1 3.1 (6.0) (8.0) 6.2 49.4 Research and development expense................ 32.1 39.3 35.4 38.2 108.1 37.1 24.8 Selling, general and administrative expense................ 15.7 26.9 31.9 32.2 108.0 34.2 21.3 Total operating expenses............... 47.8 66.2 67.3 70.4 216.1 71.3 46.1 Interest income, net.... (1.3) (0.9) (2.5) (0.4) (4.8) (3.4) (1.8) Net income (loss)....... (30.9) (58.3) (61.8) (76.2) (219.3) (61.7) 4.8
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996 Net sales. Net sales of HA products for the nine months ended September 30, 1997 totaled $6.0 million, an increase of $2.4 million, or 67%, over the $3.6 million recorded for the prior year. The increase in sales was primarily attributable to an increase in sales of AMVISC and ORTHOVISC. Sales of AMVISC as measured in units declined by 9% from the prior period, which was more than offset by a 67% increase in the average unit selling price of AMVISC under the AMVISC Supply Contract. Future increases in selling prices under the AMVISC Supply Contract will be limited to annual adjustments based on changes in the producer price index during the term of the contract, which expires December 31, 2001. Sales of ORTHOVISC as measured in units increased 475% over the prior period. ORTHOVISC sales began in late 1996. Customer orders received for units of AMVISC and ORTHOVISC scheduled for delivery during the nine months ended September 30, 1997 exceeded the prior year by 11%. At September 30, 1997, the Company had $1.0 million of AMVISC and ORTHOVISC customer back orders that were not shipped in September due to a quality problem in syringes supplied by a third party used to deliver the Company's HA products which resulted in a shortage of these syringes. The Company and the supplier have rectified the quality problem, the supplier replaced the faulty syringes and the Company anticipates that all of the $1.0 million in customer back orders will be shipped during the fourth quarter of 1997. Gross profit. The Company's gross profit as a percentage of sales increased to 49% for the nine months ended September 30, 1997 versus 6% in the prior year. The increase in the gross profit was primarily due to a 67% increase in the average unit selling price of AMVISC under the new AMVISC Supply Contract and increased sales volume of ORTHOVISC, which has a higher gross margin per unit than AMVISC. Research and development. Research and development expenses for the nine months ended September 30, 1997 increased by $129,000, or 9.6%, to $1.5 million from $1.3 million recorded in the prior year. The increase was primarily due to expenses associated with the ORTHOVISC clinical trial. Selling, general and administrative. Selling general and administrative expenses for the nine months ended September 30, 1997 increased by $30,000, or 2.4%, to $1.3 million from $1.2 million in the prior year. The staffing level was substantially the same and the increase was due primarily to salary increases. FOUR MONTHS ENDED DECEMBER 31, 1996 COMPARED TO FOUR MONTHS ENDED DECEMBER 31, 1995 Net sales. Net sales of HA products for the four month transitional period ended December 31, 1996 totaled $1.2 million, which was substantially unchanged from the net sales recorded for the comparable four month period of the prior year. Gross loss. The Company's gross loss as a percentage of net sales was 8.0% for the four month transitional year ended December 31, 1996, an increase of two percentage points from the 6.0% gross loss recorded for the same period in 1995. The increase was primarily attributable to increased sales of HA products with lower margins. 24 Research and development. Research and development expenses for the four- month transitional year ended December 31, 1996 increased by $854,000, or 187.3%, to $1.3 million from $456,000 for the same period last year. The increase was primarily attributable to $600,000 in expenses related to the clinical trial for ORTHOVISC and the amortization of $375,000 of unearned stock option compensation related to the amendment of the employment agreement of the Company's chief scientist. Selling, general and administrative. Selling, general and administrative expenses for the four-month transitional year ended December 31, 1996 increased by $925,000, or 240.9%, to $1.3 million from $384,000 for the same period last year. The increase was primarily attributable to the hiring of additional marketing and administrative staff, a $544,000 write-off of leasehold improvements and lease expenses resulting from closing one of the Company's facilities, and $200,000 in severance costs associated with the departure of the Company's former president. YEAR ENDED AUGUST 31, 1996 COMPARED TO YEAR ENDED AUGUST 31, 1995 Net sales. Net sales of HA products totaled $4.6 million in the fiscal year ended August 31, 1996 representing an increase of $1.3 million, or 38.2%, from the $3.4 million for fiscal 1995. The increase was primarily attributable to an increase in the volume of AMVISC sales. Gross profit. The Company's gross profit as a percentage of net sales declined to 3% in the fiscal year ended August 31, 1996, from 7% in fiscal 1995. During the year ended August 31, 1996 the balance in the AMVISC manufacturing reserve of $521,000 was written off to cost of goods sold since the previous AMVISC supply contract was marginally profitable and it expired on December 31, 1996. The Company determined that the reserve was no longer required as the previous AMVISC supply contract was expected to remain marginally profitable through the end of the contract period. The decrease in gross profit as a percentage of net sales is attributable to higher manufacturing costs per unit in the fiscal year ended August 31, 1996 versus fiscal 1995 and an unfavorable mix of product sales in the fiscal year ended August 31, 1996 versus fiscal 1995. Research and development. Research and development expenses increased by $317,000, or 24.0%, to $1.6 million in the fiscal year ended August 31, 1996 from $1.3 million in fiscal 1995. The increase was attributable primarily to the commencement of the pivotal ORTHOVISC clinical trial in the United States. Selling, general and administrative. Selling, general and administrative expenses for the fiscal year ended August 31, 1996 increased by $565,000, or 62.5%, to $1.5 million from $904,000 in fiscal 1995. The increase was attributable primarily to additions to administration staffing for the fiscal year ended August 31, 1996, increased selling and marketing costs associated with the international commercialization of ORTHOVISC and severance payments to the Company's former president. Net interest income. The Company's net interest income increased to $114,000, or 293.0%, in the fiscal year ended August 31, 1996 from $29,000 in fiscal 1995. The increase is attributable to the Company having more cash to invest on average in the fiscal year ended August 31, 1996 as compared to fiscal 1995. Income tax benefit. The Company has not recorded income tax benefits for the fiscal years ended August 31, 1996 and 1995. The Company will not be able to record income tax benefits from the operating losses incurred after May 1, 1993 until the Company has operating profits, since the realization of these benefits cannot be reasonably assured. 25 QUARTERLY RESULTS OF OPERATIONS The following tables set forth certain unaudited quarterly results of operations for each of the three quarters ended September 30, 1997, the four- month transitional year ended December 31, 1996 and each of the three quarters ended August 31, 1996, together with such data as percentages of net sales. In the opinion of management, this quarterly information has been prepared on a basis consistent with the fiscal year Financial Statements presented elsewhere in this Prospectus and includes all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the information for the periods presented when read in conjunction with the Financial Statements and the Notes thereto. The operating results for any period set forth below are not necessarily indicative of results for the full fiscal year or any future quarter.
PERIOD ENDED --------------------------------------------------------------------- FEB. 29, MAY 31, AUG. 31, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, 1996 1996 1996 1996(1) 1997 1997 1997 -------- ------- -------- -------- --------- -------- --------- (IN THOUSANDS) Net sales............... $1,020 $1,461 $1,270 $ 1,212 $1,927 $2,450 $1,584 Cost of sales........... 1,187 1,293 1,167 1,309 1,019 1,188 809 ------ ------ ------ ------- ------ ------ ------ Gross profit (loss)... (167) 168 103 (97) 908 1,262 775 ------ ------ ------ ------- ------ ------ ------ Operating expenses: Research and development........... 391 465 477 1,310 323 509 645 Selling, general and administrative........ 309 307 591 1,309 394 436 441 ------ ------ ------ ------- ------ ------ ------ Total operating expenses............. 700 772 1,068 2,619 717 945 1,086 ------ ------ ------ ------- ------ ------ ------ Interest income (expense), net......... 1 (53) (51) (58) (29) (30) (46) ------ ------ ------ ------- ------ ------ ------ Income (loss) before income taxes........... (868) (551) (914) (2,658) 220 347 (265) Income taxes............ -- -- -- -- 4 10 2 ------ ------ ------ ------- ------ ------ ------ Net income (loss)..... $ (868) $ (551) $ (914) $(2,658) $ 216 $ 337 $ (267) ====== ====== ====== ======= ====== ====== ====== AS PERCENTAGE OF NET SALES --------------------------------------------------------------------- PERIOD ENDED --------------------------------------------------------------------- FEB. 29, MAY 31, AUG. 31, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, 1996 1996 1996 1996(1) 1997 1997 1997 -------- ------- -------- -------- --------- -------- --------- Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales........... 116.4 88.5 91.9 108.0 52.9 48.5 51.1 ------ ------ ------ ------- ------ ------ ------ Gross profit (loss)... (16.4) 11.5 8.1 (8.0) 47.1 51.5 48.9 Operating expenses: Research and development........... 38.3 31.8 37.6 108.1 16.8 20.8 40.7 Selling, general and administrative........ 30.3 21.0 46.5 108.0 20.4 17.8 27.8 ------ ------ ------ ------- ------ ------ ------ Total operating expenses............. 68.6 52.8 84.1 216.1 37.2 38.6 68.5 Interest income (expense), net......... 0.1 (3.6) (4.0) (4.8) (1.5) (1.2) (2.9) Income (loss) before income taxes........... (85.1) (37.7) (72.0) (219.3) 11.4 14.2 (16.7) Income taxes............ -- -- -- -- 0.2 0.4 0.2 ------ ------ ------ ------- ------ ------ ------ Net income (loss)..... (85.1)% (37.7)% (72.0)% (219.3)% 11.2% 13.8% (16.9)% ====== ====== ====== ======= ====== ====== ======
- ---------- (1) Represents four-month transitional year following change of fiscal year from August 31 year end to December 31 year end. The Company's quarterly operating results may fluctuate as a result of a number of factors, including timing of approvals of new products by the Company, its competitors or its customers, slower-than-anticipated market penetration rates of current products, temporary delays in obtaining certain product components from suppliers or the ability to establish marketing and distribution relationships with strategic partners. A significant portion of the Company's expenses is relatively fixed in nature and the Company may not be able to reduce spending in 26 response to shortfalls or delays in revenues. Such shortfalls or delays may result in a material adverse effect on the Company's business, financial condition and results of operations. As a result, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indicators of future performance. Due to the foregoing factors, it is likely that in one or more future fiscal quarters the Company's operating results may be below the expectations of equity research analysts and investors. Such an occurrence could have a material adverse effect on the market price of the Common Stock. LIQUIDITY AND CAPITAL RESOURCES The Company has incurred annual operating losses since its inception on May 1, 1993 that have resulted in an accumulated deficit of $9.1 million as of September 30, 1997. The Company has funded these operating losses from the sale of $5.8 million in equity securities and the receipt of $5.9 million in equity capital from MedChem on May 1, 1993 when the Company was spun-off to the shareholders of MedChem. In March 1996, the Company completed a financing involving the private placement of 1,455,000 shares of newly issued Common Stock to institutional and private accredited investors. Total gross proceeds were approximately $4.0 million and net proceeds to the Company after fees and expenses were approximately $3.5 million. In connection with the private placement, the Company issued to the private placement agent warrants to purchase 57,036 shares of Common Stock at $4.00 per share and warrants to purchase 146,664 shares of Common Stock at $3.00 per share. The proceeds from the private placement were used to repay $1.0 million of indebtedness and for working capital. On May 17, 1995, the Company raised through a private placement $2,235,642, net of offering costs, from the issuance of 120,970 shares of Series A Preferred Stock at a selling price of $20.00 per share. Each share of the Series A Preferred Stock is entitled to receive an annual dividend on May 1 of each year at a rate of $1.80 per share, payable in additional shares of Series A Preferred Stock, with the number of dividend shares determined by the price of the Company's Common Stock. The Company may elect to pay the dividend in cash if certain financial covenants are met. During each consecutive 90 day period in which the average quarterly price of the Company's Common Stock remains above $6.00 per share, no dividend will accrue. Each outstanding share of Series A Preferred Stock will automatically convert into 10 shares of Common Stock effective upon completion of this offering. At September 30, 1997, there were an aggregate of 130,211 shares of Series A Preferred Stock outstanding which were convertible at such date into 1,302,110 shares of Common Stock. At September 30, 1997, the Company had cash and cash equivalents of $3.1 million and working capital of $5.2 million. The Company believes that the $2.5 million payment received upon signing of the Zimmer Distribution Contract, the net proceeds from this offering, cash from operations and current cash balances will be sufficient to meet its operating requirements for at least 24 months from the date of this Prospectus. Thereafter, the Company may require additional financing to fund its operations and for the construction of a new manufacturing facility. The Company's future capital requirements and the adequacy of available funds will depend, however, on numerous factors, including market acceptance of its existing and future products, the successful commercialization of products in development, progress in its product development efforts, the magnitude and scope of such efforts, progress with preclinical studies, clinical trials and product clearances by the FDA and other agencies, the cost and timing of its efforts to expand its manufacturing capabilities, the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights, competing technological and market developments, and the development of strategic alliances for the marketing of certain of its products. To the extent that funds generated from the Company's operations, together with the Company's existing capital resources and the net proceeds of this offering are insufficient to meet future requirements, the Company will be required to obtain additional funds through equity or debt financings, strategic alliances with corporate partners and others, or through other sources. The terms of any future equity financings may be dilutive to the Company's stockholders and the terms of any debt financings may contain restrictive covenants which limit the Company's ability to pursue certain courses of action. The ability of the Company to obtain financing 27 is dependent on the status of the Company's future business prospects as well as conditions prevailing in the relevant capital markets. No assurance can be given that any additional financing will be made available to the Company or will be available on acceptable terms should such a need arise. The Company's estimate of the time period for which cash and cash equivalents, net proceeds from this offering and cash from operations will be adequate to fund operations is a forward looking statement within the meaning of the Private Securities Litigation Reform Act of 1995 and is subject to risks and uncertainties. Actual results may differ materially from those contemplated in such forward looking statements. In addition to those described above, factors which may cause such a difference are set forth under the caption "Risk Factors" as well as in this Prospectus generally. RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which requires presentation of basic earnings per share ("Basic EPS") and diluted earnings per share ("Diluted EPS") by all entities that have publicly traded common stock or potential common stock (options, warrants, convertible securities or contingent stock arrangements). SFAS 128 also requires a presentation of earnings per share by an entity that has made a filing or is in the process of filing with a regulatory agency in preparation for the sale of those securities in a public market. Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period. The computation of Diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an antidilutive effect on earnings. SFAS 128 is effective for both interim and annual periods ending after December 15, 1997. The Company does not believe that the effect on the Company's earnings per share resulting from the adoption of SFAS 128 will be material. 28 BUSINESS OVERVIEW The Company develops, manufactures and commercializes therapeutic products and devices intended to promote the protection and healing of bone, cartilage and soft tissue. These products are based on HA, a naturally-occurring, biocompatible polymer found throughout the body. Due to its unique biophysical and biochemical properties, HA plays an important role in a number of physiological functions such as the protection and lubrication of soft tissues and joints, the maintenance of the structural integrity of tissues, and the transport of molecules to and within cells. The Company has been developing HA and HA based products since 1983. The Company's currently marketed products consist of ORTHOVISC(R), which is an HA product used in the treatment of some forms of osteoarthritis in humans and HYVISC(R), which is an HA product used in the treatment of equine osteoarthritis. ORTHOVISC is currently approved for marketing in Canada and Europe; in the U.S. ORTHOVISC is currently limited to investigational use only. The Company manufactures AMVISC(R) and AMVISC Plus(R), which are HA products used as viscoelastic supplements in ophthalmic surgery, for Chiron Vision, a subsidiary of Chiron Corporation. The Company is currently developing INCERT(R), which is an HA based product designed for use in the prevention of post-surgical adhesions. In addition, the Company is collaborating with Orquest, Inc. to develop OSSIGEL(R), an injectable formulation of basic fibroblast growth factor combined with HA designed to accelerate the healing of bone fractures. The Company is a leading manufacturer of ultra-pure, high molecular weight HA. The purity level and molecular weight of HA is important because if HA contains even trace levels of proteins, an immunogenic or inflammatory response may be elicited when the HA is introduced into the body and preclinical and clinical data suggest that high molecular weight HA correlates with increased efficacy of HA products. The Company believes its expertise and proprietary know-how in the development and manufacture of ultra-pure, high molecular weight HA products are difficult to replicate and provide it with a competitive advantage. CLINICAL APPLICATIONS OPHTHALMIC SURGERY HA products are used in surgical procedures such as cataract extraction and intraocular lens implantation to help maintain the shape of the eye and protect and lubricate the delicate eye tissues. Over two million cataract surgeries were performed in the U.S. and approximately 2.3 million viscoelastic units for ophthalmic surgery were sold in the U.S. in 1996. The Company estimates that annual sales of HA products for ophthalmology are approximately $100 million in the U.S. and approximately $300 million worldwide. The Company has developed and currently manufactures AMVISC and AMVISC Plus, high molecular weight, ultra-pure HA gels that are used during ophthalmic surgery. AMVISC and AMVISC Plus are distinguished from other HA viscoelastics by their purity, high molecular weight and viscosity. Because of their high viscosity, AMVISC and AMVISC Plus excel in inflating and maintaining the shape of the anterior chamber of the eye, an essential product characteristic for the implantation of an intraocular lens. AMVISC and AMVISC Plus also provide the ophthalmic surgeon with improved optical clarity, an important property because bubbles or particulates can obscure the view of the surgical field. The Company has manufactured AMVISC and AMVISC Plus since 1983, first for Johnson & Johnson's IOLAB division and since 1994 for Chiron Vision, following Chiron Vision's acquisition of IOLAB. The Company currently manufactures AMVISC and AMVISC Plus for Chiron Vision under a fixed-price, five-year supply agreement with stated minimum annual purchase obligations. This supply agreement became effective January 1, 1997 and contains substantially higher prices than the Company's previous agreement with Chiron Vision. The Company estimates that AMVISC and AMVISC Plus represented approximately 20% of sales of HA products for ophthalmic surgery in the U.S. in 1996. Major competing products include Healon (manufactured by Pharmacia) and Viscoat (manufactured by Alcon). The Company estimates that these two products combined held approximately 56% of the U.S. market in 1996. See "-- Competition." 29 OSTEOARTHRITIS Description of Osteoarthritis. Where two bones meet in a normal joint the ends are coated with cartilage, a smooth, slippery cushion that protects the bone and reduces friction during movement. A tough capsule called the synovial membrane seals the joint and produces a lubricating synovial fluid composed primarily of HA. Osteoarthritis is a painful degenerative joint disease characterized by gradual breakdown of the cartilage in a joint due to the effects of mechanical stress and a variety of factors, including the normal aging process. In an osteoarthritic joint, particular regions of articulating surfaces are exposed to irregular forces which result in the remodeling of tissue surfaces that disrupt the normal equilibrium or mechanical function. As osteoarthritis advances the joint gradually loses its ability to regenerate cartilage tissue and the cartilage layer attached to the bone deteriorates. This breakdown of the cartilage is often associated with pain and inflammation and may eventually create bone on bone contact in the joint and loss of movement. (GRAPHICS) [Description: a graphic representation of the anatomy of a healthy knee, indicating the joint capsule, synovial membrane, synovial fluid, bursa, bone, cartilage, tendon and muscle and a graphic representation showing the anatomy of an osteoarthritic knee, indicating cartilage destruction, loose cartilage particles and bone spurs.) According to the Arthritis Foundation, approximately 16 million people in the U.S. are afflicted with some form of OA. OA is a very debilitating, degenerative disease that most commonly afflicts the middle to older age group and can range in severity from mild to very severe. Patients with OA have persistent, significant problems performing physical tasks and may have significant restrictions on their mobility. The most common joints afflicted with OA are the weight bearing joints of the knees, hip and back. Although age is the leading cause of OA, other factors such as sports injuries, obesity and repetitive movement of the joint are also associated with OA. The primary reason patients with OA seek treatment is pain. The mode of therapy for OA depends upon its severity and each current therapy has significant drawbacks. In mild cases, patients may be encouraged to lose weight and physical therapy is employed to strengthen the muscles supporting the joint. As the severity increases doctors may initially prescribe analgesics and subsequently NSAIDs. While NSAIDs are widely prescribed, their repeated use can cause gastrointestinal ulcers and bleeding and renal failure. As the severity of OA increases and the mobility of the joint decreases, physicians may inject steroids into the joint to decrease the inflammation and relieve pain. While intra-articular steroids are effective in reducing pain and inflammation, they are effective generally for only a short period of time. In addition, the repeated use of intra-articular steroids may be associated with the destruction of the cartilage in the joint and may have a profound adverse metabolic effect on the body. Therefore, physicians may be hesitant to use steroids on a repetitive basis to treat osteoarthritic patients. 30 When OA progresses to the point at which the cartilage is almost completely destroyed, there is bone on bone contact which severely limits mobility and causes a high level of pain. At this stage, an orthopedic surgeon may pursue arthroscopic surgery and ultimately may elect to replace the osteoarthritic joint with an artificial implant. Treatment of Osteoarthritis with HA. Because of the problems associated with the available treatments of OA, patients and physicians are currently seeking safer and more effective treatment alternatives for OA. Although much of the research in OA focuses on cartilage and bone, it has been recognized for some time that the synovial fluid for osteoarthritic joints has a much lower viscosity and elasticity than healthy joints. These observations have led to the practice of viscosupplementation therapy for the treatment of OA. Physicians inject HA into the joint to restore the elasticity and viscosity of the synovial fluid. Injections of HA into an osteoarthritic joint can reduce pain and improve joint mobility without the adverse side effects that often accompany the use of NSAIDs or steroids. The following chart depicts the treatment alternatives as OA progresses, and shows the point at which treatment with HA would be appropriate: (GRAPHICS) [Graphic representation of treatment alternatives for OA indicating the use of topical analgesics, asprin/acetaminophen, NSAIDS, HA therapy, intra-articular steroids, arthroscopic surgery and joint replacement with the severity of the disease increasing along a horizonal axis and the agressiveness of therapy increasing along a vertical axis]. HA products for the treatment of osteoarthritis have been widely used in Japan since the mid 1980s. The Company estimates, based on reported sales of competing products, that sales of HA products for the treatment of OA in Japan have grown to approximately $300 million in 1996, with Artz (manufactured by Seikagaku Corporation ("Seikagaku"), representing a majority of such sales. HA products for the treatment of OA have been more recently introduced in Europe and Canada. In the United States, Hyalgan (manufactured by Fidia S.P.A. ("Fidia")) and Synvisc (manufactured by Biomatrix, Inc. ("Biomatrix")) received FDA marketing approval (regulated as Class III medical devices) during 1997 and are currently in the initial distribution stage. ORTHOVISC. ORTHOVISC is an ultra-pure, high molecular weight, injectable HA product for the treatment of OA in humans. ORTHOVISC received Communautee European ("CE mark") approval in October 1996. The CE mark, a certification required under European Community ("EC") medical device regulation, allows ORTHOVISC to be marketed without further approvals in most of the EC nations as well as countries that recognize EC device regulation. ORTHOVISC has also been approved for sale in Canada, Turkey and Israel. Registrations for marketing approval have been filed in Australia, New Zealand and Egypt. In the U.S., ORTHOVISC is limited to investigational use only. The Company received FDA approval of an IDE to conduct a clinical trial in the U.S. in 1996. The Company completed its pivotal clinical trial in August of 1997. The trial was a randomized, double-blind, placebo-controlled study of 226 patients at 10 centers in the United States. Patients in the study received three injections of ORTHOVISC over a two week period and the patients were then evaluated for a twenty-six week period. The Company believes the results of the clinical study are sufficient to support a PMA application for submission to the FDA for ORTHOVISC. The Company is preparing such an application and plans to file it by the end of 1997. The Company will supplement the data from this clinical study with clinical data collected in Europe, supporting data from studies relating to the 31 treatment of temperomandibular joint dysfunction with ORTHOVISC and years of safety data from the use of the Company's other HA products. In November 1997, the Company entered into a long-term distribution agreement with Zimmer, Inc., a subsidiary of Bristol-Myers Squibb Company. The Zimmer Distribution Contract provides Zimmer with exclusive marketing and distribution rights to ORTHOVISC in the United States, Canada, Australia, Hong Kong, Indonesia, Malaysia, New Zealand, the Philippines, Singapore, Taiwan and Thailand. Zimmer also has the option under the agreement to seek regulatory approval for and market ORTHOVISC in Japan and has a right of first offer in China. Upon signing of the agreement, the Company received an up-front non-refundable payment of $2.5 million. Zimmer has also agreed to make payments aggregating up to $20.5 million upon the achievement of certain regulatory approval and enumerated sales milestones. As an alternative to a $2.5 million milestone payment, Zimmer has the right to elect to acquire shares of the Company's Common Stock equal to the greater of $2.5 million or 9.9% of the then outstanding Common Stock (but not to exceed 19.9% of the then outstanding Common Stock) at a premium to the then current market price. There can be no assurance that any of such milestones will be met on a timely basis or at all. In addition, Zimmer has the right to terminate the agreement on August 1, 1998 if certain specified events occur prior to that date and upon payment to Anika of $1.0 million in cash. There can be no assurance that any of these events will not occur or, if any such event does occur, that Zimmer will not elect to terminate the agreement. Any such termination would have a material adverse effect on the Company's ability to market ORTHOVISC, which may have a material adverse effect on the Company's future operating results. The Company has also entered into third-party arrangements for the distribution of ORTHOVISC in Spain, Portugal, Israel, Turkey and Egypt. The Company believes, based on preclinical, clinical and other data, that the viscosity and purity of the HA used in products are important in determining the efficacy and safety of the product. The two primary factors which determine viscosity are HA concentration and molecular weight of the HA molecule. High HA concentration combined with high molecular weight HA results in higher viscosity. The Company believes that more viscous HA products may provide an extended duration of effect from fewer injections potentially resulting in improved patient compliance and lower cost of treatment. The purity of an HA preparation is measured primarily by protein concentration. Protein concentration is important because even low levels of protein have the potential for causing an immunogenic or inflammatory response when the HA is injected into the joint. Based on tests conducted on a limited number of competing product samples by Company personnel in its facilities, the Company believes ORTHOVISC is the purest HA product currently used for the treatment of OA, although there can be no assurance that other HA products will not ultimately be shown to be purer than ORTHOVISC. The following table sets forth certain selected product characteristics for the HA products of the Company and its principal competitors used in the treatment of OA:
MEASURES OF VISCOSITY ---------------------------------------------- VISCOSITY MOLECULAR HA INJECTIONS NATURAL/ (IN CENTISTOKES) WEIGHT OF HA CONCENTRATION PER COURSE CROSS- PRODUCT MANUFACTURER (1) (MM DALTONS)(1) (MG/ML) OF TREATMENT(2) LINKED(2) ------- ------------ ---------------- --------------- ------------- --------------- ------------ ORTHOVISC(3)............ Anika 35,000 1.55 14.7(2) 3 Natural Artz(3)................. Seikagaku 1,947 0.86 11.0(1) 5 Natural Hyalgan................. Fidia 185 0.60 10.8(2) 5 Natural Synvisc................. Biomatrix 45,000 * 8.0(2) 3 Cross-linked
- ---------- (1) Data obtained from tests conducted on limited product samples by Company personnel in its facilities. Results may vary from sample to sample. (2) Data derived from product labeling. (3) Not currently approved for sale in the U.S. * The molecular weight of HA used in SYNVISC cannot be determined because it is a cross-linked product. The above table indicates that ORTHOVISC has the highest molecular weight and high viscosity when compared with the HA products currently being used for the treatment of OA. The Company's HA products have a favorable safety profile and the Company has manufactured more than three million units of AMVISC, AMVISC Plus and HYVISC without receiving any reports of adverse reactions. To date, there have been no 32 reported adverse reactions from the use of ORTHOVISC. The Company believes that ORTHOVISC will have a commercial advantage over Artz and Hyalgan because only three injections of ORTHOVISC are required per course of treatment as compared to five injections for Artz and Hyalgan. Unlike ORTHOVISC, Synvisc is cross-linked through a chemical modification process using formaldehyde and vinyl sulphone to achieve a high viscosity. VETERINARY APPLICATIONS Veterinarians use HA for the ongoing prevention and treatment of joint dysfunction in horses due to non-infectious synovitis associated with equine osteoarthritis. HYVISC, a high end product which is used primarily to treat racehorses, is a high molecular weight injectable HA product which lubricates and protects the tissues in horse joints. HYVISC is distributed for the Company in the United States by Boehringer Ingelheim Animal Health, Inc. ("Boehringer Ingelheim") under an exclusive agreement terminating in 2002. The Company and Boehringer Ingelheim have entered into an agreement to distribute HYVISC internationally and the Company expects to begin clinical testing in horses in Europe in 1998. POST-SURGICAL ADHESION PREVENTION Post-surgical adhesions occur when fibrous bands of tissue form between adjacent tissue layers during the wound healing process after surgery, in particular in abdominal, obstetric, gynecological and back surgeries. Although surgeons attempt to minimize the formation of adhesions, nevertheless adhesions often form after surgery and cause major medical problems such as intestinal blockage, female infertility and recurrent back pain. Costly secondary surgeries are often performed in an attempt to correct problems caused by adhesions. According to Medical Device International, over 1.8 million abdominal surgeries are performed annually in the United States, 70 to 90 percent of which resulted in postsurgical adhesion formation. Over 400,000 abdominal operations were performed in 1994 in the United States in which adhesions were removed. M.D.I. estimates that the total worldwide market potential for all anti-adhesion products is approximately $900 million. First generation products for prevention of post-surgical adhesions such as oxidized cellulose (Interceed(R), manufactured by Johnson & Johnson) and PTFE (Goretex(R), manufactured by W.L. Gore & Associates, Inc.), serve as a mechanical means of separating tissues and have been available for some time. However, these products have not been shown to significantly reduce post- surgical adhesion formation and, in some cases, require post-surgical removal. More recently, second generation products have been developed or are in development stage which are biocompatible and which have superior therapeutic effect. Seprafilm, an HA product manufactured by Genzyme Corporation ("Genzyme"), received FDA approval in 1997. In addition, anti-adhesion products in human clinical testing include Adcon (a carbohydrate polymer manufactured by Gliatech, Inc.), Lubricoat Gel (an HA product manufactured by LifeCore Biomedical, Inc. ("LifeCore")) and Repel-CV (manufactured by Life Medical Sciences, Inc.). INCERT, the Company's product in development for the prevention of post- surgical adhesions, is a bioabsorbable, implantable membrane made from cross- linked HA. INCERT is placed over the surgical site and surrounding organs and tissues before an incision is closed and functions as a physical barrier to prevent post-surgical adhesions. The Company believes INCERT will be particularly useful for surgeons because it remains in place during and after surgery and has superior handling characteristics. The Company has performed toxicology testing of INCERT and has tested INCERT in animal studies at Duke University. Both of these studies have indicated the biocompatibility and efficacy of INCERT. Based on the results of these studies, the Company plans to commence the testing of INCERT in humans in Europe during 1998. The Company is seeking a strategic partner for the further development, marketing and distribution of INCERT. The Company co-owns an issued United States patent covering the use of INCERT for adhesion prevention. The Company has received notification from the PTO that a third party is attempting to provoke an interference with respect to the Company's patent covering INCERT. See "-- Patents and Proprietary Rights." 33 DRUG DELIVERY The Company is also investigating HA's potential as a drug delivery vehicle for pharmaceutical and biologic compounds. The Company believes HA based products have potential application to the delivery of drugs. Particular properties of HA, including (i) its site specific mode of delivery, (ii) its persistence at the site and (iii) its biocompatible properties, may have application to certain drugs and modes of therapy where such properties are important or beneficial. In June of 1997, the Company executed a multi-year collaboration agreement with Orquest to develop and manufacture OSSIGEL, a formulation of basic fibroblast growth factor and HA designed to accelerate the healing of bone fractures. Orquest is a privately held orthobiologics company headquartered in Mountain View, California, and was founded in 1994 to develop products for bone and cartilage regeneration. OSSIGEL has been shown in animal models to accelerate the healing of bone fractures. Orquest plans to complete preclinical testing of OSSIGEL in animals by the end of 1997. If favorable preclinical results are achieved and FDA approval of an IDE application is received, Orquest plans to commence clinical testing of OSSIGEL in humans in the U.S. during 1998. Orquest has filed an application with the U.S. Patent and Trademark Office for a patent covering the use of OSSIGEL in accelerating fracture healing. OTHER APPLICATIONS FOR HA HA may have additional medical applications which do not utilize HA's biophysical properties but rather influence cell function. One of the critical events in the metastasis of cancer is the interaction between tumor cells and the host tissue stroma. This interaction is mediated by certain cell surface receptors. Preclinical studies have indicated that the interaction between one of these cell surface receptors, the hyaluronan receptor CD44, and HA contained in the host tissue stroma enhances the growth of certain tumors. Preclinical studies conducted by the Company, working in collaboration with Tufts University and Massachusetts General Hospital, have indicated that HA oligosaccharides, by binding to the CD44 receptor and blocking the interaction with HA in the host tissue stroma, have inhibited the metastasis of human melanoma cancer cells inserted in mice. In addition, studies in an in vitro model have indicated that HA oligosaccharides have inhibited the metastasis of human ovarian cancer cells. The Company has obtained an exclusive worldwide license to this technology from Tufts University, which has filed an application for a patent to protect this technology. During 1998 the Company plans to continue the preclinical testing of HA oligosaccharides and will seek a strategic partner to assist in the further development of this technology. BUSINESS STRATEGY The Company's goal is to leverage its position as a leading manufacturer of ultra-pure, high molecular weight HA for significant therapeutic applications. Key elements of the Company's strategy are to: Identify additional medical applications for HA. The Company will seek to identify additional medical applications of HA alone and in combination with other biologic materials and drugs. The Company is currently pursuing a broad range of HA product applications in osteoarthritis, ophthalmology, veterinary uses, post-surgical adhesion prevention, drug delivery and inhibition of cancer metastasis. For example, the Company will seek approval for ORTHOVISC to treat OA in joints in addition to the knee such as the hip, shoulder and TMJ. As the Company expands its product offering, it will seek to broaden its intellectual property rights and will apply for patents whenever possible to protect its intellectual property and technology. Develop proprietary therapeutic products both on its own and in collaboration with strategic partners. The Company will seek to develop its own proprietary therapeutic products. In addition, the Company plans to form collaborations with scientists and other companies for the co-development of new products that will utilize the Company's development, manufacturing and regulatory capabilities. For example, the Company is currently involved in collaborations with Orquest for the development of OSSIGEL and with researchers at Tufts University and Massachusetts General Hospital in the area of cancer treatment. 34 Capitalize on its existing proprietary, high-quality and cost-effective HA manufacturing expertise. The Company will seek to leverage its expertise in the manufacture of ultra-pure, high molecular weight HA by focusing on new applications in which these characteristics provide safety, efficacy and other advantages over the products of its competitors. The Company already has in place manufacturing processes that would require significant capital and proprietary know-how to replicate. The Company will also seek to apply its existing proprietary HA manufacturing expertise across other areas. Establish strategic alliances for the marketing and distribution of its products. The Company will seek to establish strategic alliances with partners that have strong marketing, selling and distribution capabilities. The Company has established relationships with Chiron Vision for the distribution of AMVISC and AMVISC Plus, and Boehringer Ingelheim Animal Health for the distribution of HYVISC. The Company has entered into distribution arrangements for ORTHOVISC with Zimmer in the United States, Canada and certain selected countries in the Asia-Pacific region and with Grupo Ferrer in Spain and Portugal. The Company also has arrangements with other distribution partners in Turkey, Israel and Egypt. MANUFACTURING OF HYALURONIC ACID The Company has been manufacturing HA since 1983 in its manufacturing facility located in Woburn, Massachusetts. In 1996, the Company received an International Standards Organization ("ISO") 9001 certification of its manufacturing facility and HA manufacturing process. An ISO 9001 designation is an internationally recognized certification for quality standards governed by the International Organization for Standards based in Geneva, Switzerland. The certifications for ISO 9001 were awarded to the Company after a rigorous assessment and audit of the Company's quality system by a private, third-party European accredited Notified Body. ISO 9001 is the highest level of achievement possible in the ISO certification system. The Company has developed a proprietary HA manufacturing process for the extraction and purification of HA from rooster combs that yields an ultra-pure HA which consistently has a high molecular weight. The Company believes its proprietary extraction and purification process for manufacturing high molecular weight ultra-pure HA will be difficult to replicate because most HA purification methods result in the degradation of the HA molecule leading to a final HA product that is pure but with a lower molecular weight than the Company's products. A substantial supply of rooster combs is available and the Company believes that all the other materials required for the manufacture of its HA products are also readily available from a number of sources. In addition, the Company currently obtains rooster combs from two suppliers. The Company obtains syringes used to deliver its HA products from a single supplier, however, it generally keeps sufficient syringes in its inventory to meet anticipated demand for at least six months. The Company also employs strict quality control procedures to ensure the quality of its products, inventory and raw materials. The Company believes that its facility in Woburn, Massachusetts, has the present manufacturing capacity to accommodate anticipated demand through 1999. The Company believes that with expansion and improvements to the facility, capacity can be increased to accommodate anticipated demand through 2001. The Company anticipates a new, larger manufacturing facility will be required to meet increased demand beyond 2001. The Company expects that construction and regulatory approval of a new facility would take between two and three years. PATENT AND PROPRIETARY RIGHTS The Company's success will depend, in part, on its ability to obtain and enforce patents, protect trade secrets, obtain licenses to technology owned by third parties when necessary, and conduct its business without infringing the proprietary rights of others. The patent positions of pharmaceutical, medical products and biotechnology firms, including the Company, can be uncertain and involve complex legal and factual questions. There can be no assurance that any patent applications will result in the issuance of patents or, if any patents are issued, whether they will provide significant proprietary protection or commercial advantage, or will not be circumvented by others. In the event a third party has also filed one or more patent applications for any of its 35 inventions, the Company may have to participate in interference proceedings declared by the PTO to determine priority of invention (see below), which could result in the loss of any opportunity to secure patent protection for the inventions and the loss of any right to use the inventions. Even if the eventual outcome is favorable to the Company, such interference proceedings could result in substantial cost to the Company. Filing and prosecution of patent applications, litigation to establish the validity and scope of patents, assertion of patent infringement claims against others and the defense of patent infringement claims by others can be expensive and time consuming. There can be no assurance that in the event that any claims with respect to any of the Company's patents, if issued, are challenged by one or more third parties, that any court or patent authority ruling on such challenge will determine that such patent claims are valid and enforceable. An adverse outcome in such litigation could cause the Company to lose exclusivity covered by the disputed rights. If a third party is found to have rights covering products or processes used by the Company, the Company could be forced to cease using the technologies or marketing the products covered by such rights, could be subject to significant liabilities to such third party, and could be required to license technologies from such third party. Furthermore, even if the Company's patents are determined to be valid, enforceable, and broad in scope, there can be no assurance that competitors will not be able to design around such patents and compete with the Company using the resulting alternative technology. The Company has a policy of seeking patent protection for patentable aspects of its proprietary technology. The Company co-owns certain United States patents and a patent application which claim certain adhesion prevention uses and certain drug delivery uses of HA, and the Company solely owns patents covering certain manufacturing processes. The Company also holds an exclusive license from Tufts University to use technologies claimed in a United States patent application which relate to the anti-metastasis applications of HA oligosaccharides. The Company's issued patents expire between 2007 and 2015 and the license expires upon expiration of all related patents. The Company intends to seek patent protection with respect to products and processes developed in the course of its activities when it believes such protection is in its best interest and when the cost of seeking such protection is not inordinate. However, no assurance can be given that any patent application will be filed, that any filed applications will result in issued patents or that any issued patents will provide the Company with a competitive advantage or will not be successfully challenged by third parties. The protections afforded by patents will depend upon their scope and validity, and others may be able to design around the Company's patents. The Company's issued patents and any patents which arise from the Company's licensed application would provide competitive protection, if at all, only in the United States. The Company has not, to date, pursued foreign patents equivalent to those issued or applied for in the United States. Other entities have filed patent applications for or have been issued patents concerning various aspects of HA-related products or processes. There can be no assurance that the products or processes developed by the Company will not infringe the patent rights of others in the future. Any such infringement may have a material adverse effect on the Company's business, financial condition and results of operations. In particular, the Company has received notice from the PTO that a third party is attempting to provoke a patent interference with respect to one of the Company's co-owned patents covering the use of INCERT for post-surgical adhesion prevention. Although the Company believes that an interference will be declared by the PTO, it is too early to determine the merits of the interference or the effect, if any, the interference will have on the Company's marketing of INCERT for this use. The existence of the interference proceeding may have a negative impact on the marketing of the INCERT product, and no assurance can be given that the Company would be successful in any such interference proceeding. If the third party interference were to be decided adversely to the Company, involved claims of the Company's patent would be cancelled, the Company's marketing of the INCERT product may be materially and adversely affected and the third party may enforce patent rights against the Company which could prohibit the sale and use of the INCERT products, which could have a material adverse effect on the Company's future operating results. The Company also relies upon trade secrets and proprietary know-how for certain unpatented aspects of its technology. To protect such information, the Company requires all employees, consultants and licensees to enter into confidentiality agreements limiting the disclosure and use of such information. There can be no assurance 36 that these agreements provide meaningful protection or that they will not be breached, that the Company would have adequate remedies for any such breach, or that the Company's trade secrets, proprietary know-how, and technological advances will not otherwise become known to others. In addition, there can be no assurance that, despite precautions taken by the Company, others have not and will not obtain access to the Company's proprietary technology. Further, there can be no assurance that third parties will not independently develop substantially equivalent or better technology. The Company has agreed to grant Chiron Vision a royalty-free, worldwide, exclusive license to the Company's manufacturing and product inventions which relate to AMVISC products, effective on December 31, 2001, the termination date of the AMVISC supply contract which became effective on January 1, 1997. Upon expiration of the AMVISC supply contract, there can be no assurance that Chiron Vision will continue to use the Company to manufacture AMVISC and AMVISC Plus. If Chiron Vision discontinues the use of the Company as a manufacturer after such time, the Company's business, financial condition and results of operations could be materially and adversely affected. RESEARCH AND DEVELOPMENT The Company intends to continue development of its existing product candidates, ORTHOVISC, INCERT and HA oligosaccharides, to expand the therapeutic applications of its existing products and to develop new therapeutic applications for HA-based products. The Company will seek to expand the use of ORTHOVISC as a therapy for OA to other joints such as the hip and shoulder and to develop ORTHOVISC as a treatment for TMJ dysfunction. The Company's research and development efforts consist primarily of research relating to new medical applications for its HA-based products and the management of clinical trials for product candidates and the preparation and processing of applications for regulatory approvals at all relevant stages of development. The Company's development of new products is accomplished primarily through in-house research and development personnel and resources as well as with collaborations with other companies and scientific researchers. For the fiscal years ended August 31, 1995 and 1996, the four-month transitional year ended December 31, 1996 and for the nine months ended September 30, 1997, research and development expenses were $1.3 million, $1.6 million, $1.3 million and $1.5 million, respectively. The Company anticipates that it will continue to commit substantial resources to research and development in the future. As of September 30, 1997, the Company had seven employees engaged primarily in research and development. THIRD PARTY REIMBURSEMENT In the U.S. and other markets, health care providers, such as hospitals and physicians, that purchase health care products, such as the Company's products, generally rely on third party payors, including Medicare, Medicaid and other health insurance and managed care plans, to reimburse all or part of the cost of the health care product. Reimbursement by a third party payor may depend on a number of factors, including the payor's determination that the use of the Company's products are clinically useful and cost-effective, medically necessary and not experimental or investigational. Since reimbursement approval is required from each payor individually, seeking such approvals can be a time consuming and costly process which, in the future, could require the Company or its marketing partners to provide supporting scientific, clinical and cost-effectiveness data for the use of the Company's products to each payor separately. Significant uncertainty exists as to the reimbursement status of newly approved health care products, and third party payors are increasingly attempting to contain the costs of health care products and services by limiting both coverage and the level of reimbursement for new therapeutic products and by refusing in some cases to provide coverage for uses of approved products for disease indications for which the FDA has not granted marketing approval. In addition, Congress and certain state legislatures have considered reforms that may affect current reimbursement practices, including controls on health care spending through limitations on the growth of Medicare and Medicaid spending. There can be no 37 assurance that third party reimbursement coverage will be available or adequate for any products or services developed by the Company. Outside the U.S., the success of the Company's products is also dependent in part upon the availability of reimbursement and health care payment systems. Lack of adequate coverage and reimbursement provided by government and other third party payors for the Company's products and services could have a material adverse effect on the Company's business, financial condition and results of operations. GOVERNMENT REGULATION The Company's current and future products and product research, development, manufacturing, sales and activities are subject to extensive and rigorous regulation by the FDA and comparable agencies in foreign countries. In the United States, the FDA regulates the marketing, advertising, promotion, and distribution of medical devices, drugs, biologics, and animal drugs, as well as testing, manufacturing, labeling, and recordkeeping and reporting procedures for these products. Product development and approval within the FDA regulatory framework takes a number of years and involves the expenditure of substantial resources. There can be no assurance that this regulatory framework will not change or that additional regulation will not arise at any stage of the Company's product development process which may affect approval of or delay an application or require additional expenditures by the Company. Any products manufactured or distributed by the Company are subject to pervasive and continuing regulation by the FDA including record keeping requirements, reporting of adverse experience with the use of the product, post-market surveillance, post-market registry and other actions deemed necessary by the FDA. In addition, all products manufactured by the Company must be manufactured in compliance with the standards established by the FDA's GMP regulations. Ongoing compliance with GMP and other applicable regulatory requirements is monitored through periodic inspection by state and federal agencies, including the FDA. FDA regulations depend heavily on administrative interpretation, and there can be no assurance that future interpretations made by the FDA or other regulatory bodies, with possible retroactive effect, will not adversely affect the Company. In addition, changes in the existing regulations or adoption of new governmental regulations or policies could prevent or delay regulatory approval of the Company's products. Failure to comply with applicable regulatory requirements could result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the government to grant pre-market clearance or pre-market approval for devices, withdrawal of approvals and criminal prosecution. Medical products regulated by the FDA are generally classified as drugs and/or medical devices and/or biologics. AMVISC is approved as a Class III device in the United States for ophthalmic surgical procedures in intraocular use in humans. HYVISC is approved as an animal drug for intra-articular injection in horse joints to treat degenerative joint disease associated with synovitis. In the past, most HA products have been regulated by the FDA as medical devices. ORTHOVISC for osteoarthritis of the knee is currently considered a Class III device. The Company believes INCERT will be regulated by the FDA as a Class III device. There can be no assurance, however, that such products will not be classified as drugs or as both devices and drugs. The Company believes HA oligosaccharides for use in the treatment of certain proliferative diseases will be regulated as drugs. Devices. The FDA regulates the research, testing, manufacture, safety, labeling, storage, record keeping, advertising, distribution and production of medical devices in the United States. Medical devices are classified into one of three classes, Class I, II, or III on the basis of the controls deemed by the FDA to be necessary to reasonably ensure their safety and effectiveness. Class I devices are subject to general controls (e.g., labeling, pre-market notification and adherence to GMP standards). Class II devices are subject to general controls and special controls (e.g., performance standards, post- market surveillance, patient registries and FDA guidelines). The FDA also has the authority to require clinical testing of Class I and Class II devices. Generally, Class III devices are those that must receive pre-market approval by the FDA to ensure their safety and effectiveness (e.g., 38 life-sustaining, life-supporting and implantable or new devices which have not been found to be substantially equivalent to legally marketed devices), and require clinical testing to ensure safety and effectiveness and FDA approval prior to marketing and distribution. Generally, before a new device can be introduced into the market in the United States, the manufacturer or distributor must obtain FDA clearance of a pre-market notification ("510(k) notification") submission or approval of a PMA application. If a medical device manufacturer or distributor can establish that a device is "substantially equivalent" to a legally marketed Class I or Class II device, or to a Class III device for which the FDA has not called for PMA applications, the manufacturer or distributor may seek clearance from the FDA to market the device by filing a 510(k) notification. The 510(k) notification may need to be supported by appropriate data establishing the claim of substantial equivalence to the FDA. The FDA recently has been requiring a more rigorous demonstration of substantial equivalence. Following submission of the 510(k) notification, the manufacturer or distributor may not place the device into commercial distribution until an order is issued by the FDA. At this time, the FDA typically responds to the submission of a 510(k) notification within 90 to 200 days. An FDA order may declare that the device is substantially equivalent to a legally marketed device and allow the proposed device to be marketed in the United States. The FDA, however, may determine that the proposed device is not substantially equivalent or requires further information, including clinical data, to make a determination regarding substantial equivalence. Such determination or request for additional information could delay market introduction of the product that is the subject of the 510(k) notification. If human clinical trials of a device are required and if the device presents a "significant risk," the manufacturer or distributor of the device is required to file an investigational device exemption ("IDE") application with the FDA prior to commencing human clinical trials. The IDE application must be supported by data, typically the result of animal, and, possibly, mechanical testing. If the IDE application is approved by the FDA, human clinical trials may begin at a specific number of investigational sites with a maximum number of patients, as approved by the FDA. If a manufacturer or distributor of medical devices cannot establish that a proposed device is substantially equivalent to a legally market device, the manufacturer or distributor must seek premarket approval of the proposed device through submission of a PMA application. A PMA application must be supported by extensive data, including data from preclinical studies and human clinical trials, extensive literature, non-clinical data, a full description of the device and its components, a full description of the methods, facilities, and controls used for manufacturing, and proposed labeling to prove the safety and effectiveness of the device. Following receipt of a PMA application, if the FDA determines that the application is sufficiently complete to permit a substantive review, the agency will "file" the application. The FDA has 180 days to review a filed PMA application, although the review of an application more often occurs over a protracted time period, and generally takes approximately two years or more from the filing date to complete. The PMA approval process can be expensive, uncertain and lengthy. A number of devices for which pre- market approval has been sought have never been approved for marketing. The review time is often significantly extended by the FDA, which may require more information or clarification of information already provided in the submission. During the review period, an advisory committee likely will be convened by the FDA to review and evaluate the application and provide recommendations to the agency as to whether the device should be approved. In addition, the FDA will inspect the manufacturing facility to ensure compliance with the GMP regulations for medical devices prior to approval of the PMA application. If granted, the approval may include significant limitations on the indicated uses for which a product may be marketed. Even if regulatory clearance to market a device is obtained from the FDA, this clearance may entail limitations on the indicated uses of the device. Marketing clearance can also be withdrawn by the FDA due to failure to comply with regulatory standards or the occurrence of unforeseen problems following initial clearance. The Company may be required to make further filings with the FDA under certain circumstances. The FDA's 39 regulations require agency approval of a PMA or 510(k) supplement for certain changes if they affect the safety and effectiveness of the device, including, but not limited to, new indications for use, labeling changes, the use of a different facility to manufacture, process or package the device, changes in manufacturing methods or quality control systems and changes in performance or design specifications. Failure by the Company to receive approval of a PMA or 510(k) supplement regarding the use of a different manufacturing facility or any other change affecting the safety or effectiveness of an approved or cleared device on a timely basis, or at all, would have a material adverse effect on the Company's business, financial condition and results of operations. The FDA could also limit or prevent the manufacture or distribution of the Company's products and has the power to require the recall of such products. Significant delay or cost in obtaining, or failure to obtain FDA clearance to market products, any FDA limitations on the use of the Company's products, or any withdrawal of clearance by the FDA could have a material adverse effect on the business, financial condition and results of operations of the Company. In the U.S. the Company has completed a clinical study of the use of ORTHOVISC for treatment of OA of the knee in humans. The Company is currently preparing a PMA for ORTHOVISC for this use which it plans to submit to the FDA by the end of 1997. The Company cannot predict the timing for approval, if ever, of its PMA for ORTHOVISC. Internationally, the Company has received the CE mark for the marketing in Europe of ORTHOVISC for use in synovial joints and approval in Canada for use of the product in the knee and TMJ. Drugs. Medical products may meet both the definition of a medical device and a drug. In these instances, the FDA may regulate these products as drugs or as both medical devices and drugs. The steps required before a drug may be marketed in the United States include (i) preclinical laboratory and animal tests, (ii) submission to the FDA of an Investigational New Drug Application which must become effective before human clinical trials to establish the safety and efficacy of the drug may commence, (iii) submission of a New Drug Application ("NDA") to the FDA and (iv) FDA approval of the NDA prior to any commercial sales or shipment of the drug. A clinical study program designed to demonstrate the safety and effectiveness of a drug usually proceeds in three phases: (i) phase I involves testing the drug for safety and tolerance in a small group of health volunteers; (ii) phase II involves testing for efficacy and identifying possible side effects in a target patient group; and (iii) phase III involves additional testing for efficacy, optimal dosage and safety with an expanded patient group, preferably using a comparative control agent. The results of the clinical testing, together with manufacturing information, are then submitted to the FDA in the form of an NDA. In the event the Company's products are classified as drugs, it may take five to ten years to complete this process, which typically would be substantially longer than the review process for devices. The extended review process is also substantially more expensive. Furthermore, the Company or the FDA may suspend clinical trials at any time upon a determination that the subjects or patients are being exposed to an unacceptable adverse health risk ascribable to the Company's products. If clinical studies are suspended, the Company may be unable to continue the development of the investigational products affected. In addition to regulations enforced by the FDA, the Company is subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other existing and potential future federal, state and local regulations of foreign governments. Federal, state and foreign regulations regarding the manufacture and sale of medical products are subject to change. The Company cannot predict what impact, if any, such changes might have on its business. For marketing outside the United States, the Company will be subject to FDA regulations regarding the export of products within its jurisdiction and to foreign regulatory requirements governing human clinical trials and marketing approval for drugs and devices. The requirements relating to the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country. The process of obtaining approvals from the FDA and other regulatory authorities can be costly, time consuming, and subject to unanticipated 40 delays. There can be no assurance that approvals of the Company's products, processes or facilities will be granted or that the Company will obtain the financing needed to develop certain of such products. Any failure to obtain, or delay in obtaining, such approvals could adversely affect the ability of the Company to market its products. In addition to regulations enforced by the FDA, the Company is subject to other existing and potential future federal, state and local regulations of foreign governments. International regulatory bodies often establish regulations governing product standards, packing requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. To enable the Company to market its products in Europe, the Company was required to receive a "CE" marking certification, an international symbol of quality and compliance with the applicable European medical device directive. In October 1996, the Company received an EC Design Examination and an EC Quality System Certificate from a European Notified Body, which entitles the Company to affix a CE marking on its ORTHOVISC product for osteoarthritis and the treatment of TMJ. There can be no assurance that the Company will be able to achieve and/or maintain compliance required for CE marking or other foreign regulatory approvals for any or all of its products or that it will be able to produce its products in a timely and profitable manner while complying with applicable requirements. Federal, state and foreign regulations regarding the manufacture and sale of medical products are subject to change. The Company cannot predict what impact, if any, such changes might have on its business. The requirements relating to the conduct of clinical trials, product licensing, pricing and reimbursement also vary widely from country to country. COMPETITION The Company competes with many companies, including large pharmaceutical companies and specialized medical products companies. Many of these companies have substantially greater financial and other resources, larger research and development staffs, more extensive marketing and manufacturing organizations and more experience in the regulatory process than the Company. The Company also competes with academic institutions, governmental agencies and other research organizations which may be involved in research, development and commercialization of products. Because a number of companies are developing HA products for similar applications, the successful commercialization of a particular product will depend in part upon the ability of the Company to complete clinical studies and obtain FDA marketing and foreign regulatory approvals prior to its competitors. There can be no assurance that the Company will be able to compete against current or future competitors or that competition will not have a material adverse effect on the Company's business, financial condition and results of operations. The Company is aware of several companies, including Genzyme, Biomatrix, Inc., Hyal Pharmaceutical Corp., Fidia S.P.A. and LifeCore, that are developing and/or marketing products utilizing HA for a variety of human applications. In some cases, competitors have obtained product approvals, submitted for approval or have commenced human clinical studies, either in the United States or in certain foreign countries. Major competing products for the use of HA in ophthalmic surgery include Healon (manufactured by Pharmacia) and Viscoat (manufactured by Alcon). The FDA has recently approved for marketing two HA products for the treatment of osteoarthritis in the knee, Hyalgan and Synvisc. Hyalgan is manufactured by Fidia S.P.A. and is distributed in the United States by Sanofi Pharmaceuticals and OrthoLogic Corp. Fidia S.P.A. is selling Hyalgan throughout Europe. Synvisc is manufactured by Biomatrix Inc. and is distributed in the United States by Wyeth-Ayerst Laboratories, a division of American Home Products Corp. Biomatrix, Inc. is marketing this product in Canada, Italy and Sweden. Artz is manufactured by Seikagaku Corporation and is distributed in Japan, Spain and Sweden. Genzyme has received marketing approvals in Europe and the U.S. for a chemically modified HA for the prevention of post-surgical adhesions. LifeCore is conducting a Phase III human clinical trial testing HA to prevent surgical adhesions. ENVIRONMENTAL LAWS The Company believes that it is in compliance with all federal, state and local environmental regulations with respect to its manufacturing facilities and that the cost of ongoing compliance with such regulations does 41 not have a material effect on the Company's operations. The Company's manufacturing facility is located within the Wells G&H Superfund site in Woburn, MA. The Company has not been named and is not a party to any such legal proceedings regarding the Wells G&H Superfund site. PRODUCT LIABILITY The testing, marketing and sale of human health care products entail an inherent risk of allegations of product liability, and there can be no assurance that substantial product liability claims will not be asserted against the Company. Although the Company has not received any material product liability claims to date and has coverage under its insurance policy of $1,000,000, as of September 30, 1997, there can be no assurance if material claims arise in the future, that the Company's insurance will be adequate to cover all situations. Moreover, there can be no assurance that such insurance, or additional insurance, if required, will be available in the future or, if available, will be available on commercially reasonable terms. Any product liability claim, if successful, could have a material adverse effect on the Company's business, financial condition and results of operations. LEGAL PROCEEDINGS The Company is not currently a party to any material legal proceedings. FACILITIES AND EMPLOYEES The Company leases its corporate headquarters located at 236 West Cummings Park, Woburn, Massachusetts. The Company leases approximately 22,000 square feet of space at this location for the manufacture of HA products and for its corporate headquarters. This facility has received all FDA and state regulatory approvals to operate as a sterile device and drug manufacturer. The lease for this facility terminates in February 2001. The Company also leases approximately 15,000 square feet of administrative and research and development space in Woburn, Massachusetts. The lease for this facility terminates in October 2001. For the year ended August 31, 1996, the Company had aggregate lease costs of approximately $370,000. As of September 30, 1997, the Company had approximately 43 full-time employees. The Company considers its relations with its employees to be good. No employees are represented by labor unions. 42 MANAGEMENT EXECUTIVE OFFICERS, SIGNIFICANT EMPLOYEES AND DIRECTORS The executive officers, significant employees and directors of the Company and their ages are as follows:
NAME AGE POSITION - ---- --- -------- J. Melville Engle................. 47 President, Chief Executive Officer and Director Sean F. Moran..................... 39 Vice President of Finance and Administration, Chief Financial Officer, Clerk and Treasurer Jing-wen Kuo, Ph.D. .............. 51 Vice President of Technical and Clinical Affairs Shawn D. Kinney................... 38 Vice President of Operations Edward Ross, Jr................... 41 Vice President, Sales and Marketing Mary Ellen Freddo................. 41 Vice President, Quality Systems and Regulatory Affairs David A. Swann, Ph.D. ............ 61 Chairman and Chief Scientific Officer Joseph L. Bower(1)(2)............. 59 Director Eugene A. Davidson, Ph.D.(1)...... 67 Director Jonathan D. Donaldson(2).......... 48 Director Samuel F. McKay(1)................ 58 Director Harvey S. Sadow, Ph.D............. 75 Director Steven E. Wheeler(1)(2)........... 50 Director
- ---------- (1) Member of the Compensation Committee. (2) Member of the Audit Committee. EXECUTIVE OFFICERS Mr. Engle was appointed President and Chief Executive Officer of the Company in September 1996. Previously, he served as President and Chief Executive Officer for U.S. Medical Products, Inc., a manufacturer and distributor for orthopedic implants, from 1995 to 1996, and was Senior Vice President, U.S. Sales and Canadian Operations from 1994 to 1995, Senior Vice President, Latin America and Canada from 1990 to 1994, Vice President, Managing Director, Allergan Canada from 1986 to 1990 and Vice President of Finance/Chief Financial Officer from 1982 to 1986 for Allergan, Inc. Mr. Engle received a B.S. from the University of Colorado and an M.B.A. from the University of Southern California. Mr. Moran was appointed Treasurer of the Company in February 1992 and Vice President of Finance and Administration and Chief Financial Officer in February 1993. From July 1996 to September 1996, Mr. Moran served as one of two members of the Office of the President. He served as Treasurer of MedChem from May 1991 to May 1993. Mr. Moran also served as Controller of MedChem from September 1990 to May 1991. Previously, Mr. Moran served as Corporate Manufacturing Controller at Instron Corporation, a manufacturer of materials testing instrumentation, from January 1988 to August 1990. Mr. Moran received a B.S. in Business Administration and an M.B.A. from Babson College. Dr. Kuo was appointed Vice President of Technical and Clinical Affairs of the Company in August 1996. He served as Vice President of Research and Development from February 1993 to January 1996 and as Vice President of Technical Affairs from January 1996 to August 1996. He also served as Vice President of Research and Development of MedChem from July 1992 to May 1993, Director of Basic Research from September 1989 to July 1992, Senior Chemist from 1986 to 1989 and Research Chemist from 1984 to 1986. Dr. Kuo received an M.S. and a Ph.D. from the State University of New York at Stony Brook. Mr. Kinney was appointed Vice President of Operations of the Company in January 1996. From July 1996 to September 1996 he served as one of two members of the Office of the President. He served as Director of Technology from January 1995 to January 1996 and Manager, Analytical Laboratory from 1994 to 1995. He 43 also served as a consultant to the Company and MedChem from 1991 to 1994. Mr. Kinney received a B.S. from Southeastern Massachusetts University, an M.S. from Northeastern University and is currently pursuing a Ph.D. from the University of Massachusetts. Mr. Ross joined the Company in December 1996 as Vice President Sales and Marketing from Gliatech, Inc., where he also served as Vice President of Marketing and Sales and was responsible for worldwide commercialization of anti-adhesion and related therapeutic technologies. Before joining Gliatech in 1995, Mr. Ross was Business Director of biological reconstruction with Genetics Institute from 1992 to 1995. From 1985 to 1992, he held several marketing and sales positions with the Zimmer division of Bristol-Myers Squibb Company. Mr. Ross has a B.A. in Political Science from Dickinson College and an M.B.A. from the University of Rochester. Ms. Freddo joined the Company in May 1997 as Vice President, Quality Systems and Regulatory Affairs. Prior to joining the Company, Ms. Freddo was with U.S. Medical Products, Inc., where she was Director, Quality Systems, Regulatory Affairs, Operations and ISO Management Representative. From 1991 to 1996, she was employed by or served as a consultant to Johnson & Johnson Medical, Inc. overseeing ISO 9001 compliance and other quality assurance programs. Ms. Freddo has a B.A. in Biology from the State University of New York at Geneseo and Master's Degrees in Microbiology and Business Administration from the University of South Florida. DIRECTORS Dr. Swann is a founder of the Company and was appointed Chairman of the Board in February 1993. In February 1996, he was appointed Chief Scientific Officer of the Company. Previously, Dr. Swann served as President of the Company and Chief Executive Officer. He has served on the Board of Directors of the Company since February 1992. He served in various capacities with MedChem from 1970 through 1993 including Chairman, Chief Executive Officer and Chief Scientific Officer. From 1970 to 1987, Dr. Swann was a Biochemist at Shriners Burn Institute (Boston Unit), serving from 1984 to 1987 as Director of Research. In addition, Dr. Swann has held numerous research and teaching positions at Massachusetts General Hospital, Harvard College and Harvard Medical School. Dr. Swann received a B.S. with honors from Reading University in England, an M.S. from Cornell University, and a Ph.D. from Leeds University. Dr. Bower joined the Board of Directors of the Company in February 1993. He has held various positions at the Harvard University Graduate School of Business Administration since 1963. He was named Donald Kirk David Professor of Business Administration at the Harvard Business School in 1972, served as Chairman of the Doctoral Programs and Director of Research from 1989 to 1995, and as Senior Associate Dean for External Relations from 1985 to 1989. Dr. Bower received an A.B. from Harvard University and an M.B.A. and a D.B.A. from the Harvard Business School. He is a director of the Brown Group, Inc., ML Lee Funds I and II, New America High Income Fund, and Sonesta International Hotels Corporation. Dr. Davidson joined the Board of Directors of the Company in February 1993. He has been the Chairman of the Department of Biochemistry at Georgetown University Medical School since April 1988. Prior to this position, he was the Chairman of the Department of Biological Chemistry at The Milton S. Hershey Medical Center of the Pennsylvania State University from October 1967 to April 1988. Dr. Davidson also served as Associate Dean for Education at the Milton S. Hershey Medical Center from November 1975 to January 1987. Dr. Davidson received a B.S. in Chemistry from the University of California, Los Angeles, and a Ph.D. in Biochemistry from Columbia University. Mr. Donaldson joined the Board of Directors in February 1993. He is currently President of Biomorphics Group. He served as Chairman of the Board of the Kevlin Corporation from August 1995 to March 1996 and served as a director from 1993 to 1996. Mr. Donaldson was Vice President of the Company from February 1992 44 until February 1993 and has served on the Board of Directors of the Company since February 1992. He served in various capacities for MedChem from November 1986 to June 1994, including Chief Executive Officer, President and Chief Operating Officer. Mr. Donaldson received a B.A. from Harvard University and an M.B.A. from the Amos Tuck School of Business Administration at Dartmouth College. Mr. McKay joined the Board of Directors in May 1995. He is currently a general partner of Axiom Venture Partners Limited Partnership, a venture capital firm. He is also a general partner of Connecticut Seed Ventures Limited Partnership, a venture capital firm. Prior to Axiom, Mr. McKay was Director of Venture Capital Investments at Connecticut General Insurance Company and a scientist at the Avco-Everett Research Laboratory. Mr. McKay is also a director of Open Solutions, Inc., CoStar Corporation and Sabre Communications, Inc. Mr. McKay received a B.S. in Physics from the University of New Hampshire and an M.B.A. from the Whittemore School of Business at the University of New Hampshire. Dr. Sadow joined the Board of Directors in December 1995. He is currently Chairman of the Board of Cortex Pharmaceuticals, Inc. and Cholestech Corp. Dr. Sadow is also a director of Penederm, Inc., Trega Biosciences, Inc. From 1971 through 1992, Dr. Sadow served as President and Chief Executive Officer, Director and later, Chairman of the Board of Boehringer Ingelheim Corporation. He was also a member of the Board of Directors of the Pharmaceutical Manufacturers Association and Chairman of the Pharmaceutical Manufacturers Association Foundation. Dr. Sadow received a B.S. from the Virginia Military Institute, an M.S. from the University of Kansas and a Ph.D. from the University of Connecticut. Mr. Wheeler joined the Board of Directors of the Company in February 1993. He is currently the President of Wheeler & Co., a private investment firm. Between 1993 and February 1996 he was Managing Director and a director of Copley Real Estate Advisors and President, Chief Executive Officer and a director of Copley Properties, Inc., a publicly traded real estate investment trust. He was the Chairman and Chief Executive Officer of Hancock Realty Investors, which manages an equity real estate portfolio, from 1991 to February 1993. Prior to this position, he was an Executive Vice President of Bank of New England Corporation from 1990 to 1991. Mr. Wheeler received a B.S. in Engineering from the University of Virginia, an M.S. in Nuclear Engineering from the University of Michigan and an M.B.A. from the Harvard Business School. BOARD OF DIRECTORS AND COMMITTEES The Company's Board of Directors is divided into three classes: Class I, consisting of Messrs. Bower and Davidson, with a term expiring in 2000; Class II, consisting of Messrs. Donaldson, McKay and Sadow, with a term expiring in 1998; and Class III, consisting of Messrs. Engle, Swann and Wheeler, with a term expiring in 1999. Each class of directors serves for a three-year term with one class of directors being elected by the Company's stockholders at each annual meeting. The Company has a standing Audit Committee of the Board of Directors, which provides the opportunity for direct contact between the Company's independent auditors and the Board. The Audit Committee makes recommendations to the Board relative to the selection of the Company's independent accountants, confers with the Company's independent accountants regarding the scope, method and result of the audit of the Company's books and records, reports the same to the Board and establishes and monitors policy relative to non-audit services provided by the independent accountants in order to ensure their independence. The current Audit Committee members are Mr. Donaldson, Dr. Bower and Mr. Wheeler. The Company has a standing Compensation Committee of the Board of Directors, which makes recommendations to the Board regarding compensation issues with respect to the officers of the Company. Non-employee director members of the Compensation Committee recommend grants of stock options under the Company's stock option plans. The current members of the Compensation Committee are Dr. Davidson, Dr. Bower, Mr. Wheeler and Mr. McKay. 45 BOARD COMPENSATION During the fiscal year ending August 31, 1996, each director who was not an employee of the Company was entitled to receive a director's fee of $10,000 per year. Pursuant to elections by each non-employee director, in lieu of the $10,000 director's fee, the Company issued 10,000 stock options to purchase Common Stock with an exercise price of $3.125. All non-employee directors are reimbursed for expenses incurred in attending meetings of the Board of Directors and any committees thereof. Non-employee directors are also entitled to participate in the Company's 1993 Director Stock Option Plan (the "Directors' Plan"). Under the terms of the Directors' Plan, each non-employee director, upon his or her initial election to the Board of Directors, is entitled to receive the grant of an option to purchase 4,500 shares of Common Stock. Each option granted under the Directors' Plan has, or will have, an exercise price equal to the fair market value of the Common Stock on the date of grant. Options granted under the Directors' Plan will become exercisable in equal annual installments over a three-year period, but will automatically accelerate upon a "Change in Control of the Company" (as defined in the Directors' Plan) which, subject to certain exceptions, shall be deemed to occur in the event that (i) a person becomes the beneficial owner of 20% or more of the combined voting power of the Company's then outstanding securities, (ii) individuals who constituted the Board of Directors on April 26, 1993, and subsequent directors approved by such persons, cease to constitute at least a majority of the Board of Directors, (iii) the Company engages in certain mergers, consolidations or recapitalizations or (iv) the stockholders approve a plan of complete liquidation or an agreement for the sale of all or substantially all of the Company's assets. The term of each option granted under the Directors' Plan is ten years, provided that, in general, an option may be exercised only while the director continues to serve as a director of the Company or within 90 days thereafter. 46 EXECUTIVE COMPENSATION The following table sets forth the compensation for the last three completed fiscal years and the transition fiscal year, for the Company's Chief Executive Officer during fiscal 1996, the Company's two most highly compensated current executive officers (other than the Chief Executive Officer) and two former executive officers, whose cash compensation exceeded $100,000 in fiscal 1996 (the Chief Executive Officer and such other executive officers are hereinafter referred to as the "Senior Executives"): SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM COMPENSATION(1) COMPENSATION AWARDS --------------- --------------------------- SECURITIES UNDERLYING ALL OTHER YEAR SALARY OPTIONS COMPENSATION(2) ------- --------------- ----------- --------------- David A. Swann, Ph.D....... 1996(3) $ 38,365 168,750(4) $ 3,118 Chairman, Former President 1996(5) 103,010 168,750(4) 5,150 and Former Chief 1995 162,115 106,000(6) 18,239 Executive Officer 1994 210,750 355,500(7) 4,497 Sean F. Moran.............. 1996(3) 128,654 30,000(8) 13,863 Vice President of Finance, 1996(5) 120,000 -- 6,000 Chief Financial Officer, 1995 111,139 20,000 11,557 Clerk and Treasurer 1994 107,200 91,500(9) 5,360 Jing-wen Kuo, Ph.D. ....... 1996(3) 108,462 10,000(10) 11,173 Vice President of 1996(5) 105,000 -- 5,250 Technical 1995 97,090 30,000 10,105 and Clinical Affairs 1994 93,588 48,250(11) 4,385 Robert S. DuFresne......... Former President and 1996(3) 102,409 -- 4,577 Former Chief Operating 1996(5) 161,255 -- 6,865 Officer 1995 19,615 180,000 -- Bernard P. Sullivan........ 1996(3) 133,846 -- 6,692 Former Senior Vice 1996(5) 129,231 -- 6,462 President of Operations 1995 118,126 20,000 11,906 1994 117,294 46,000(12) 5,865
- ---------- (1) The Company did not pay any bonuses for its 1994, 1995 and 1996 fiscal years and for the period from January 1, 1996 to December 31, 1996. (2) For the period January 1, 1996 to December 31, 1996 and the 1995 fiscal year, constitutes matching contributions to the Company's 401(k) Plan together with the Company's discretionary contribution to the 401(k) Plan and for all other periods constitutes the Company's matching contributions to the 401(k) Plan. (3) Represents compensation for the period January 1, 1996 to December 31, 1996, the Company's new fiscal year end. (4) As part of the amended employment agreement dated February 1, 1996, options to purchase a total of 168,750 shares of Common Stock were granted that vest over a 27 month period. These options expire on February 1, 2006. (5) Represents compensation for the period September 1, 1995 to August 31, 1996, the Company's former fiscal year end. (6) Includes options to purchase 86,000 shares of Common Stock in lieu of three months compensation. (7) Includes 60,000 stock options granted under the Stock Option Plan during the Company's 1994 fiscal year and options to purchase 295,500 shares of Common Stock granted during previous fiscal years, all of which were repriced effective as of August 12, 1994. 47 (8) Includes options to purchase 30,000 shares of Common Stock granted under the stock option plan during the period January 1, 1996 to December 31, 1996. (9) Includes options to purchase 30,000 shares of Common Stock granted under the Stock Option Plan during the Company's 1994 fiscal year and options to purchase 61,500 shares of Common Stock during previous fiscal years, all of which were repriced effective as of August 12, 1994. (10) Includes options to purchase 10,000 shares of Common Stock granted under the stock option plan during the period January 1, 1996 to December 31, 1996. (11) Includes options to purchase 10,000 shares of Common Stock granted under the Stock Option Plan during the Company's 1994 fiscal year and options to purchase 38,250 shares of Common Stock during the previous years all of which were repriced effective as of August 12, 1994. (12) Includes options to purchase 15,000 shares of Common Stock under the Stock Option Plan during the Company's 1994 fiscal year and options to purchase 31,000 shares of Common Stock granted during previous fiscal years, all of which were repriced effective as of August 12, 1994. OPTION GRANTS The following table sets forth certain information concerning grants of stock options made to each of the Senior Executives during the sixteen-month period ended December 31, 1996, consisting of the fiscal year ended August 31, 1996 and the four-month transitional year ended December 31, 1996: OPTION GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)
PERCENT OF NUMBER OF TOTAL OPTIONS MARKET SECURITIES GRANTED TO EXERCISE PRICE UNDERLYING EMPLOYEES IN PRICE PER ON DATE EXPIRATION NAME OPTIONS GRANTED FISCAL YEAR SHARE OF GRANT DATE - ---- --------------- ------------- --------- -------- ---------- David A. Swann, Ph.D. .. 168,750(1) 22.8% $ .50 $4.25 2/01/06 Sean F. Moran........... 30,000(2) 4.0 4.75 4.75 9/04/06 Jing-wen Kuo, Ph.D. .... 10,000(2) 1.3 4.75 4.75 9/04/06
- ---------- (1) Dr. Swann received options to purchase 168,750 shares of Common Stock which vest over 27 months. These options expire on February 1, 2006. (2) The exercisability of each option automatically accelerates upon a "Change in Control of the Company" (as defined in the Stock Option Plan). These options vest in three equal annual installments commencing on the first anniversary of grant and continuing on the next two succeeding anniversaries of such date. 48 OPTION EXERCISES AND HOLDINGS The following table sets forth certain information concerning exercises of stock options during the sixteen-month period ended December 31, 1996, consisting of the fiscal year ended August 31, 1996 and the four-month transitional year ended December 31, 1996 by each of the Senior Executives and the number and value of options held by each of the Senior Executives as of December 31, 1996: AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF VALUE OF SECURITIES UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT NUMBER OF FY-END FY-END(1) SHARES ---------------------- ----------------- ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE ----------- -------- ---------------------- ----------------- David A. Swann, Ph.D. .. -- -- 579,750/100,000 $936,976/$325,000 Robert S. DuFresne...... 10,000 $32,343 50,000/0 56,250/0 Bernard P. Sullivan..... 24,038 52,295 48,167/13,333 56,687/20,000 Sean F. Moran........... 9,000 35,355 91,867/43,333 103,487/20,000 Jing-wen Kuo, Ph.D. .... 16,799 59,758 41,750/30,000 49,969/30,000
- ---------- (1) Based on the fair market value of the Common Stock on December 31, 1996 of $3.75 per share, less the option exercise price. EMPLOYMENT AGREEMENTS Dr. Swann is a party to an employment agreement with the Company which was entered into on April 29, 1993. The employment agreement with Dr. Swann was amended on February 1, 1996. The amended agreement is for a term ending May 3, 1998 and entitles Dr. Swann to a salary of $2,000 per month, stock options for 168,750 shares of Common Stock, accelerated vesting with respect to existing options to acquire 151,875 shares of Common Stock, benefits and bonuses at the discretion of the Board. Mr. Engle is a party to an employment agreement with the Company which commenced September 26, 1996. Under the agreement, Mr. Engle is entitled to an annual base salary of $200,000, a grant of stock options for 250,000 shares of Common Stock vesting in equal installments over four years, benefits and performance bonuses upon attainment of objectives determined by the Board. If Mr. Engle's employment is terminated without cause, the agreement entitles him to severance in the amount of six months base salary and six months medical benefits. In the event of a constructive termination due to a "hostile" change of control, Mr. Engle will receive severance of 12 months salary (and medical benefits) if he is not retained in a substantially equivalent position. Mr. DuFresne, the Company's former President and Chief Operating Officer, entered into an employment agreement with the Company in July 1995 which provided a base salary of $170,000, a grant of 180,000 stock options vesting over a period of three years and benefits and bonuses at the discretion of the Board. The agreement was terminated effective August 1, 1996 pursuant to a letter agreement the terms of which entitled Mr. DuFresne to continue receiving his base salary of $170,000 until January 31, 1997, and to receive paid medical benefits. Mr. Sullivan, the Company's former Senior Vice President of Operations entered into an employment agreement with the Company in April 1993 for a five-year term. The agreement entitled Mr. Sullivan to receive an initial base salary of $117,294 plus bonuses and benefits at the discretion of the Board. Mr. Sullivan's employment agreement was terminated effective February 5, 1996. Mr. Sullivan entered into a consulting agreement with the Company effective February 6, 1996 to February 5, 1997. The agreement entitled Mr. Sullivan to a salary of $120,000 during the term of the agreement and to certain benefits and expenses. 49 1993 STOCK OPTION PLAN The Company's Stock Option Plan was initially adopted by the Board of Directors on March 3, 1993 and was subsequently approved by the Company's stockholders. The Stock Option Plan permits the grant of incentive stock options ("Incentive Stock Options") meeting the requirements of Section 422 of the Internal Revenue Code of 1986 (the "Code") and options not meeting such requirements ("Non-qualified Stock Options"), as well as outright grants of Common Stock. Grants may be made to employees, officers or directors of, or consultants or advisors to, the Company. Prior to October 28, 1997, the Stock Option Plan provided for the grant of options to acquire up to 2,000,000 shares of Common Stock. On October 28, 1997, the Company amended the Stock Option Plan to reserve an additional 1,000,000 shares of Common Stock for issuance under the Stock Option Plan, and granted to certain executive officers and employees options to acquire 235,000 shares of Common Stock at an exercise price of $7.625 per share, vesting over a four-year period. Such grants are subject to the completion of this offering and stockholder approval of the amendment to the Stock Option Plan. The amendment to the Plan will be submitted for stockholders' approval at the Company's next annual meeting of stockholders. As of October 31, 1997, options to purchase 1,871,495 shares were outstanding at a weighted average exercise price of $3.68 per share. The Stock Option Plan is administered by the Board of Directors which may delegate its authority to the Compensation Committee. Subject to the provisions of the Stock Option Plan, the Board or Compensation Committee has full power to determine the eligible individuals to whom grants will be made and the specific terms of each grant, including the exercise price and the vesting schedule. Members of the Board may be granted options or outright grants of Common Stock under the Stock Option Plan. The purchase price per share of stock deliverable upon the exercise of an option will be determined by the Board of Directors at the time of grant; provided, however, that in the case of an Incentive Stock Option, the exercise price shall not be less than 100% of the fair market value of such stock at the time of grant of such option, or less than 110% of such fair market value in the case of Incentive Stock Options awarded to a 10% stockholder. Each option and all rights thereunder will expire on such date as is set forth in the applicable option agreement, except that, in the case of an Incentive Stock Option, such date will not be later than ten years after the date on which the option is granted and, in all cases, options shall be subject to earlier termination as provided in the Stock Option Plan. Each option granted under the Stock Option Plan will be exercisable either in full or in installments at such time or times and during such period as shall be set forth in the agreement evidencing such option, subject to the provisions of the Stock Option Plan. Unless sooner terminated, the Stock Option Plan shall terminate, with respect to Incentive Stock Options, upon the earlier of (i) the close of business on the day next preceding the tenth anniversary of the date of its adoption by the Board of Directors, or (ii) the date on which all shares available for issuance under the Stock Option Plan shall have been issued pursuant to the exercise of options granted under the Stock Option Plan or cancelled. Unless sooner terminated, the Stock Option Plan will terminate with respect to options which are not Incentive Stock Options on the date specified in (ii) above. If the date of termination is determined under (i) above, then options outstanding on such date will continue to have force and effect in accordance with the provisions of the instruments evidencing such options. Options granted under the Stock Option Plan will automatically accelerate and become exercisable upon a "Change in Control of the Company" (as defined in the Stock Option Plan). 50 CERTAIN TRANSACTIONS On March 1, 1996 the Company sold 1,455,000 shares of Common Stock in a private placement, at a price per share of $2.75 resulting in net proceeds to the Company of approximately $3.5 million. In connection with the sale of Common Stock, the Company issued warrants to Leerink, Swann, Garrity, Sollami, Yaffe and Wynn, Inc. ("Leerink Swann & Company"), the placement agent, for 146,664 shares of Common Stock exercisable at $3.00 per share and 57,036 shares of Common Stock exercisable at $4.00 per share. The Company paid Leerink Swann & Company $320,000 as placement agent fees in connection with the private placement. In August 1997, the Company granted demand registration rights to Leerink Swann & Company with respect to shares of Common Stock which may be acquired upon exercise of such warrants. L. Eric Swann, an officer, director and shareholder of Leerink Swann & Company, is the son of David A. Swann, Chairman of the Board of Directors of the Company. On May 17, 1995, the Company sold 120,970 shares of Series A Preferred Stock in a private placement at a price of $20.00 per share, resulting in net proceeds to the Company of approximately $2.2 million. In connection with the sale of the Series A Preferred Stock, the Company also issued warrants to the holders of Series A Preferred Stock to purchase 60,485 additional shares of Series A Preferred Stock at an exercise price of $20.00 per share. Axiom Venture Partners Limited Partnership acquired 100,000 shares of such Series A Preferred Stock and 50,000 of such warrants. In connection with its investment in the Company and pursuant to the terms of the Shareholders' Agreement, Axiom nominated and the Board of Directors elected Samuel McKay, a general partner of the general partner of Axiom, as a member of the Company's Board of Directors. Axiom subsequently nominated and the Board of Directors elected Harvey Sadow as an additional member of the Company's Board of Directors. Substantially all of the remaining outstanding shares of Series A Preferred Stock and warrants were issued to directors and executive officers of the Company, including 5,000 shares of Series A Preferred Stock and 2,500 warrants to each of Jonathan Donaldson and Steven Wheeler, Directors of the Company, 3,800 shares of Series A Preferred Stock and 1,900 warrants to David Swann, the Chairman and Chief Scientific Officer of the Company, 2,000 shares of Series A Preferred Stock and 1,000 warrants to Joseph Bower, a Director of the Company, 1,200 shares of Series A Preferred Stock and 600 warrants to Eugene Davidson, a Director of the Company, 750 shares of Series A Preferred Stock and 375 warrants to Alan Ezekowitz, a former Director of the Company and a member of the Company's Scientific Advisory Board, 700 shares of Series A Preferred Stock and 350 warrants to Sean Moran, the Company's Vice President of Finance and Administration, Chief Financial Officer, Treasurer and Clerk, and 20 shares of Series A Preferred Stock and ten warrants to Jing-wen Kuo, the Company's Vice President of Technical and Clinical Affairs. On March 17, 1997, the Company made a loan of $75,000 to J. Melville Engle, President and Chief Executive Officer of the Company which is payable upon the earlier of March 11, 2002 or 120 days after the termination of Mr. Engle's employment with the Company for any reason. The loan accrues current interest at a rate of 6%, payable on a monthly basis. 51 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth the beneficial ownership of the Company's voting stock as of October 27, 1997 and as adjusted to reflect the sale of the shares of Common Stock offered hereby of (i) each director, (ii) each Senior Executive, (iii) each person which is known by the Company to beneficially own 5% or more of its voting stock and (iv) all current directors and executive officers as a group. Except as otherwise indicated, the Company believes that the beneficial owners of the Common Stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares.
BENEFICIAL OWNERSHIP AFTER OFFERING UPON SHARES TO BE EXERCISE IN FULL BENEFICIAL OWNERSHIP SOLD UPON OF UNDERWRITERS' BENEFICIAL OWNERSHIP AFTER EXERCISE OF OVERALLOTMENT BEFORE OFFERING OFFERING(2)(3)(4) UNDERWRITERS' OPTION(5) ------------------------ SHARES ----------------------- OVERALLOTMENT ----------------- SHARES(2) PERCENT(3) OFFERED(4) SHARES PERCENT OPTION(5) SHARES PERCENT --------- ---------- ---------- ------------ ---------- ------------- --------- ------- Directors(1) David A. Swann, Ph.D.... 809,795(6) 10.8% -- 809,795 8.1% 80,000 729,795 7.3% Joseph L. Bower......... 75,520(7) 1.1 -- 75,520 * -- 75,520 * Eugene A. Davidson, Ph.D. ................. 62,440(8) * -- 62,440 * -- 62,440 * Jonathan D. Donaldson... 170,670(9) 2.5 -- 170,670 1.8 17,000 153,670 1.6 J. Melville Engle....... 64,980(10) * -- 64,980 * 6,400 58,580 * Samuel F. McKay......... 1,452,390(11) 21.1 500,000 952,390 10.2 90,860 861,530 9.2 Harvey S. Sadow, Ph.D. ................. 14,000(12) * -- 14,000 * -- 14,000 * Steven E. Wheeler....... 120,570(13) 1.7 -- 120,570 1.3 12,000 108,570 1.2 Other Senior Executives Sean F. Moran........... 114,801(14) 1.7 -- 114,801 1.2 11,040 103,761 1.1 Jing-wen Kuo, Ph.D...... 43,907(15) * -- 43,907 * 4,300 39,607 * Robert S. DuFresne...... -- (16) -- -- -- -- -- -- -- Bernard P. Sullivan..... -- (17) -- -- -- -- -- -- -- Shawn Kinney............ 34,266(18) * -- 34,266 * 3,400 30,866 * 5% Stockholders Axiom Venture Partners Limited Partnership.... 1,452,390(19) 21.1 500,000 952,390 10.2 90,860 861,530 9.2 All current directors and executive officers as a group (15 persons)............... 2,989,400(20) 37.4 500,000 2,489,400 23.7 225,000 2,264,400 21.6
- ---------- * Less than 1%. (1) The address of Samuel F. McKay is c/o Axiom Venture Partners, City Place II, 17th Floor, 185 Asylum Street, Hartford, Connecticut 06103. The address of all other Directors and Senior Executives is c/o Anika Therapeutics, Inc., 236 West Cummings Park, Woburn, MA 01801. (2) The number of shares deemed beneficially owned includes shares of Common Stock (a) beneficially owned as of October 27, 1997, (b) subject to receipt upon conversion of shares of Series A Preferred Stock outstanding as of October 27, 1997 and (c) subject to receipt upon exercise of Series A Preferred Stock Subscription Warrants ("Warrants") outstanding as of October 27, 1997 (assuming cashless exercise) and conversion of the resulting shares of Series A Preferred Stock. The inclusion of any shares of stock deemed beneficially owned does not constitute an admission of beneficial ownership of those shares. Any reference below to shares subject to outstanding stock options held by the person in question refers to stock options that are currently exercisable within 60 days after October 27, 1997. Each outstanding Warrant is exercisable for one share of Series A Preferred Stock, and all 10,485 outstanding Warrants are currently exercisable in full. 52 (3) All percentages have been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. (4) Assumes no exercise of the Underwriters' overallotment option. (5) Assumes exercise in full of the underwriters' overallotment option. Certain members of senior management of the Company will sell shares of Common Stock solely in connection with the exercise of the underwriters' overallotment option. (6) This amount includes 30,055 shares owned by the wife of Dr. Swann, 50,625 shares owned jointly by Dr. Swann and his wife, 13,217 shares held by three trusts established by Dr. Swann for the benefit of his children, 12,509 shares allocated to Dr. Swann's account under the Anika Therapeutics, Inc. Employee Savings, Retirement Plan (the "401(k) Plan") and 5,515 shares of Series A Preferred Stock. This amount also includes 648,083 shares subject to outstanding stock options. (7) This amount includes 39,500 shares subject to outstanding stock options and 2,902 shares of Series A Preferred Stock. (8) This amount includes 39,500 shares subject to outstanding stock options and 1,741 shares of Series A Preferred Stock. (9) This amount includes 94,100 shares subject to outstanding stock options and 7,257 shares of Series A Preferred Stock. (10) This amount includes 2,480 shares allocated to Mr. Engle's account under the 401(k) Plan and 62,500 shares subject to outstanding stock options. (11) Represents 145,139 shares of Series A Preferred Stock (see Note 17 hereto). Mr. McKay, Alan Mendleson and Martin Chanzit are the general partners (the "Axiom General Partners") of Axiom Venture Associates Limited Partnership, the general partner of Axiom, and share voting and investment power with respect to such shares. The Axiom General Partners disclaim beneficial ownership of such shares except to the extent of each partner's proportionate pecuniary interest therein. (12) This amount includes 13,000 shares subject to outstanding stock options. (13) This amount includes 39,500 shares subject to outstanding stock options and 7,257 shares of Series A Preferred Stock. (14) This amount includes 12,103 shares allocated to Mr. Moran's account under the 401(k) Plan and 92,533 shares subject to outstanding stock options and 1,016 shares of Series A Preferred Stock. (15) This amount includes 10,279 shares allocated to Dr. Kuo's account under the 401(k) Plan, 33,333 shares subject to outstanding stock options and 30 shares of Series A Preferred Stock. (16) Mr. DuFresne was employed as President of the Company until August 1, 1996. (17) Mr. Sullivan was employed as Senior Vice President of Operations until February 5, 1996. (18) This amount includes 4,766 shares allocated to Mr. Kinney's account under the 401(k) Plan and 29,500 shares subject to outstanding stock options. (19) This amount includes 145,139 shares of Series A Preferred Stock. Axiom owns approximately 83% of the issued and outstanding Series A Preferred Stock. (20) This amount includes 43,198 shares in the aggregate allocated to the accounts of the executive officers under the 401(k) Plan, 1,116,549 shares subject to outstanding stock options and 170,857 shares of Series A Preferred Stock (see Notes 10 and 17 above). 53 DESCRIPTION OF CAPITAL STOCK AUTHORIZED AND OUTSTANDING CAPITAL STOCK The Company's Restated Articles of Organization (the "Articles of Organization") authorize the issuance of up to 15,000,000 shares of Common Stock, $.01 par value per share, and 2,000,000 shares of undesignated preferred stock (the "Preferred Stock") issuable in series by the Board of Directors of which 750,000 have been designated as Series A Preferred Stock. The following summary description of the capital stock of the Company is qualified in its entirety by reference to the Articles of Organization and the Company's Amended and Restated By-laws (the "By-laws"), copies of which are filed as exhibits to the Registration Statement of which this Prospectus is a part. The Articles of Organization and By-laws have been adopted by the stockholders and the Board of Directors of the Company. Common Stock. Holders of Common Stock are entitled to one vote per share on all matters to be voted on by stockholders. Holders of Common Stock are not entitled to cumulative voting rights. Therefore, the holders of a plurality of the shares voted in the election of directors can elect all of the directors then standing for election, subject to the rights of the holders of Preferred Stock. The holders of Common Stock have no preemptive rights. The holders of Common Stock are entitled to receive such dividends, if any, as may be declared from time to time by the Board of Directors from funds legally available therefor, subject to any preferential dividend rights of any outstanding Preferred Stock. Upon the dissolution or liquidation of the Company, holders of Common Stock will be entitled to receive all assets of the Company available for distribution to its stockholders, subject to any preferential rights of the then outstanding Preferred Stock. There are no redemption or sinking fund provisions with respect to the Common Stock. All outstanding shares of Common Stock, including the shares offered hereby, are, or will be upon completion of this offering, fully paid and non-assessable and subject to any preferential dividend rights of any outstanding Preferred Stock. The Company's By-laws provide that the number of directors shall be fixed by vote of the stockholders or the Board of Directors. The directors, other than those who may be elected by the holders of any Preferred Stock, are divided into three classes, as nearly equal in number as possible, with each class serving for a three-year term, except with respect to the initial term of each class of directors. Subject to the rights of the holders of any Preferred Stock to elect directors or remove any director whom the holders of such stock had the right to elect, any director of the Company may be removed from office for cause by the affirmative vote of at least three-fourths of the then issued and outstanding capital stock which would be eligible to be cast by stockholders in the election of such director. Warrants. As of September 30, 1997 a total of 146,664 shares of Common Stock were issuable upon exercise of outstanding warrants at an exercise price of $3.00 and 57,036 shares of Common Stock were issuable upon exercise of outstanding warrants at an exercise price of $4.00 per share. For a description of these warrants, see "Certain Transactions." Undesignated Preferred Stock. The Board of Directors of the Company is authorized as set forth in the Articles of Organization, without further action of the stockholders of the Company, to issue up to 1,250,000 shares of undesignated Preferred Stock in one or more series and to fix the designations, powers, preferences and the relative participating, optional or other special rights of the shares of each series and any qualifications, limitations and restrictions thereon. Any such Preferred Stock issued by the Company may rank prior to the Common Stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of Common Stock. The issuance of Preferred Stock could have the effect of making it more difficult for a third-party to acquire, or of discouraging a third-party from acquiring or seeking to acquire, a significant portion of the outstanding stock of the Company. 54 CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF ORGANIZATION AND BY-LAWS General. A number of provisions of the Articles of Organization and the By- laws concern matters of corporate governance and the rights of stockholders. Certain of these provisions, as well as the ability of the Board of Directors to issue shares of Preferred Stock and to set the voting rights, preferences and other terms thereof, may be deemed to have an anti-takeover effect and may discourage takeover attempts not first approved by the Board of Directors (including takeovers which certain stockholders may deem to be in their best interests). To the extent takeover attempts are discouraged, temporary fluctuations in the market price of the Common Stock, which may result from actual or rumored takeover attempts, may be inhibited. The Articles of Organization provide for the Board of Directors to be divided into three classes, as nearly equal in size as possible, of directors serving staggered three-year terms. As a result, approximately one-third of the Board of Directors will be elected each year. In addition, the Articles of Organization provide that shareholders may remove a director for cause by the vote of the holders of three-fourths of the issued and outstanding capital stock then entitled to vote at an election of directors. This provision, when coupled with the provision of the Articles of Organization and the By-laws authorizing only the Board of Directors to fill vacant directorships, will preclude shareholders from removing incumbent directors without cause and simultaneously gaining control of the Board of Directors by filling the vacancies created by such removal with their own nominees, and will make more difficult, and therefore may discourage, a proxy contest to change control of the Company. These provisions, together with the ability of the Board to issue Preferred Stock without further stockholder action, also could delay or frustrate the removal of incumbent directors or the assumption of control by stockholders, even if such removal or assumption would be beneficial to stockholders of the Company. In addition, these provisions could discourage or make more difficult a merger, tender offer or proxy contest, even if they could be favorable to the interests of stockholders, and could potentially depress the market price of the Common Stock. Meetings of Stockholders. The Company's By-laws provide that a special meeting of stockholders may be called only by the President or the Chairman of the Board of Directors. The Company's By-laws provide that only those matters set forth in the notice of the special meeting may be considered or acted upon at that special meeting. In addition, the Company's By-laws set forth certain advance notice, informational requirements and time limitations on any director nomination or any new business which a stockholder wishes to propose for consideration at an annual meeting of stockholders. No Stockholder Action by Written Consent. The Articles of Organization provide that any action required or permitted to be taken by the stockholders of the Company at an annual or special meeting of stockholders must be effected at a duly called meeting and may not be taken or effected by a written consent of stockholders in lieu thereof. Indemnification and Limitation of Liability. The Articles of Organization of the Company provide that directors and officers of the Company shall be indemnified by the Company against all expenses and liabilities reasonably incurred in connection with service for or on behalf of the Company. The Articles of Organization of the Company also provide that the right of directors and officers to indemnification shall not be exclusive of any other right now possessed or hereafter acquired under any by-law, agreement, vote of stockholders or otherwise. Amendment of By-laws. The Articles of Organization provide that the By-laws may be amended or repealed by the Board of Directors or by the stockholders. Except with respect to any provision which requires action by the stockholders, an amendment or repeal of the By-laws by the Board of Directors requires the affirmative vote of a majority of the directors then in office. Such action by the stockholders requires the affirmative vote of the holders of at least a majority of shares of each class of capital stock at the time outstanding and entitled to vote with respect to such amendment or repeal at an annual meeting of stockholders or a special meeting called for such purpose. 55 Ability to Adopt Shareholder Rights Plan. The Board of Directors may in the future resolve to issue shares of Preferred Stock or rights to acquire such shares to implement a shareholder rights plan. A shareholder rights plan typically creates voting or other impediments to discourage persons seeking to gain control of the Company by means of a merger, tender offer, proxy contest or otherwise if such change in control is not determined to be in the best interests of the Company and its stockholders. The Board of Directors is not aware of any attempt to obtain control of the Company. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is Continental Stock Transfer and Trust Company. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have 9,381,879 shares of Common Stock outstanding (assuming exercise of all outstanding warrants to acquire Series A Preferred Stock), excluding shares issuable upon exercise of stock options outstanding at September 30, 1997 granted pursuant to the Stock Option Plan and to the Directors' Plan. Of the total shares outstanding, 8,123,051 shares (including the 3,000,000 shares sold in this offering) will be freely tradeable without restriction or further registration under the Securities Act, except for any shares purchased by affiliates of the Company, which will be subject to the limitations of Rule 144 under the Securities Act. All of the remaining 1,258,828 shares outstanding (the "Restricted Shares") may be sold only pursuant to an effective registration statement filed by the Company or an applicable exemption, including an exemption under Rule 144 under the Securities Act. Certain holders of such shares have registration rights, as described below. In general, Rule 144 as currently in effect provides that any person (or persons whose shares are aggregated), including a person who may be deemed an "affiliate" of the Company (as defined under the Securities Act), whose Restricted Shares have been fully paid for and held for at least one year from the later of the date of issuance by the Company or acquisition from an affiliate of the Company, is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of (i) the average weekly trading volume in the over-the-counter market during the four calendar weeks preceding the date on which notice of such sale is filed with the Securities and Exchange Commission (the "Commission") or (ii) 1% of the shares of Common Stock then outstanding (approximately 93,819 shares immediately after this offering). Sales under Rule 144 are also subject to certain other restrictions regarding the manner of sale, required notice and availability of public information concerning the Company. In addition, a person who is not deemed to have been an affiliate of the Company during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years (including the holding period of any prior owner except an affiliate), would be entitled to sell such shares under Rule 144(k) without regard to the requirements described above. Rule 144 also provides that affiliates who are selling shares that are not Restricted Shares must nonetheless comply with the same restrictions applicable to Restricted Shares with the exception of the holding period requirement. As of October 31, 1997, 3,000,000 shares of Common Stock were reserved for issuance under the Stock Option Plan (assuming approval by stockholders at the next annual meeting thereof of an amendment to the Stock Option Plan to reserve an additional 1,000,000 shares of Common Stock for issuance thereunder) of which 1,871,495 shares were issuable upon the exercise of outstanding stock options (of which 235,000 are subject to stockholder approval of the amendment to the Stock Option Plan), and 40,000 shares of Common Stock were reserved for issuance under the Directors' Plan, of which 22,500 shares were issuable upon the exercise of outstanding stock options. "See Management -- 1993 Stock Option Plan" and "-- Board Compensation". On June 4, 1993, the Company filed a registration statement on Form S-8 under the Securities Act to register all shares of Common Stock reserved for issuance under the Stock Option Plan and the Directors' Plan. On June 19, 1996, the Company filed a Registration Statement on Form S-8 under the Securities Act to register additional shares of Common Stock reserved for issuance under the Stock Option Plan. Shares of Common Stock issued upon the exercise of options under either plan generally are available for sale in the open market, subject to Rule 144 limitations with respect to affiliates, and subject to the lock-up arrangements described below. 56 LOCK-UP AGREEMENTS The Company and its directors, officers and certain of its principal stockholders holding in the aggregate, upon completion of the offering, 1,279,880 shares of Common Stock have agreed that they will not, without the prior written consent of Furman Selz LLC, agree to sell, contract to sell or otherwise dispose of any shares of Common Stock of the Company for a period of 180 days after the date of this Prospectus, provided, however, that the Company may grant stock options under the Stock Option Plan, or issue shares upon the exercise of options granted under the Stock Option Plan or pursuant to the Directors' Plan. REGISTRATION RIGHTS Pursuant to the Series A Preferred Stock Purchase Agreement dated May 17, 1995, upon conversion of Series A Preferred Stock to Common Stock, holders of at least 50 percent of such converted shares (the "Registrable Securities") may request that the Company effect a registration with respect to all or part of the converted shares. In addition, if the Company shall determine to register any of its securities for its own account, the Company shall include in such registration, all the Registrable Securities specified in a request by any holder of such securities. Pursuant to a letter agreement dated August 27, 1997, Leerink Swann & Company may for a period of one year following the date of the letter agreement, request that the Company effect a registration with respect to Common Stock issuable upon the exercise of warrants issued to Leerink Swann & Company as placement agent in March 1996. See "Certain Transactions." 57 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Underwriters named below (the "Underwriters"), through their representatives Furman Selz LLC, Volpe Brown Whelan & Company, LLC and Leerink Swann & Company (the "Representatives") have severally agreed to purchase from the Company and the Selling Stockholders the following respective numbers of shares of Common Stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus:
NUMBER UNDERWRITER OF SHARES ----------- --------- Furman Selz LLC.................................................. Volpe Brown Whelan & Company, LLC................................ Leerink Swann & Company.......................................... --------- Total........................................................ 3,000,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will purchase all shares of the Common Stock offered hereby if any of such shares are purchased. The Company has been advised by the Representatives of the Underwriters that the Underwriters propose to offer the shares of Common Stock to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the public offering, the public offering price and other selling terms may be changed by the Representatives of the Underwriters. The Company and certain stockholders of the Company have granted the several Underwriters an option, exercisable not later than 30 days after the date of this Prospectus, to purchase up to 225,000 and 225,000, respectively, additional shares of Common Stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof that the number of shares of Common Stock to be purchased by it shown in the above table bears to 450,000, and the Company and such Selling Stockholders will be obligated, pursuant to the option, to sell such shares to the Underwriters. The Underwriters may exercise such option only to cover over-allotments, if any, made in connection with the sale of the Common Stock offered hereby. If purchased, the Underwriters will offer such additional shares on the same terms as those on which the 3,000,000 shares of Common Stock are being offered. In connection with this offering, certain Underwriters may engage in passive market making transactions in the Common Stock on Nasdaq immediately prior to the commencement of sales in this offering in accordance with Rule 103 of Regulation M. Passive market making consists of displaying bids on Nasdaq limited by the bid prices of independent market makers and making purchases limited by such prices and effected in response to order flow. Net purchases by a passive market maker on each day are limited to a specified percentage of the passive market maker's average daily trading volume in the Common Stock during a specified period and must be discontinued when such limit is reached. Passive market making may stabilize the market price of the Common Stock at a level above that which might otherwise prevail and, if commenced, may be discontinued at any time. Subject to applicable limitations, the Underwriters, in connection with this offering, may place bids for or make purchases of the Common Stock in the open market or otherwise, for long or short account, or cover short positions incurred, to stabilize, maintain or otherwise affect the price of the Common Stock, which may be higher than the price that might otherwise prevail in the open market. There can be no assurance that the price of the Common Stock will be stabilized, or that stabilizing, if commenced, will not be discontinued at any time. Subject 58 to applicable limitations, the Underwriters may also place bids or make purchases on behalf of the underwriting syndicate to reduce a short position created in connection with this offering. The Underwriters are not required to engage in these activities and may end these activities at any time. The Underwriting Agreement contains covenants of indemnity among the Underwriters, the Company and the Selling Stockholders against certain civil liabilities, including liabilities under the Securities Act. The Company and each of its directors and executive officers, the Selling Stockholders and certain of its security holders, who in the aggregate will hold, following this offering, 1,279,880 shares of Common Stock and options and warrants to purchase 1,373,316 shares of Common Stock, have agreed that they will not directly or indirectly, without the prior written consent of Furman Selz LLC, offer, sell, offer to sell, contract to sell, or otherwise dispose of any shares of Common Stock or securities exchangeable for or convertible into Common Stock for a period of 180 days after the date of this Prospectus, except that the Company may issue, and grant options to purchase, shares of Common Stock under its current stock option plan and other currently outstanding options. The Representatives have informed the Company that the Underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. Leerink Swann & Company, co-manager of the offering, commenced operations in 1995 and has not previously managed or co-managed any public offerings of securities. Leerink Swann & Company has been a member of a public offering underwriting syndicate on seven occasions. Leerink Swann & Company holds warrants for 146,664 shares of Common Stock exercisable at $3.00 per share and 57,036 shares of Common Stock exercisable at $4.00 per share. L. Eric Swann, an officer, director and shareholder of Leerink Swann & Company, is the son of David A. Swann, Chairman of the Board of Directors of the Company. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts. Certain legal matters related to this offering will be passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP. As of the date of this Prospectus, a total of 2,691 shares of Series A Preferred Stock and 1,250 Warrants were beneficially owned by a partner of Goodwin, Procter & Hoar LLP. EXPERTS The financial statements of Anika Therapeutics, Inc. as of and for the nine- month period ended September 30, 1997, as of and for the four-month transitional year ended December 31, 1996, and for the year ended August 31, 1996, have been included herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein and upon the authority of said firm as experts in accounting and auditing. The statements in this Prospectus under the captions "Risk Factors -- Dependence on Patents and Proprietary Technology" and "Business -- Patents and Proprietary Rights" have been reviewed and approved by Hamilton, Brook, Smith & Reynolds, P.C., patent counsel to the Company, as experts on such matters, and are included herein in reliance upon that review and approval. ADDITIONAL INFORMATION The Company is subject to the informational requirements of the Exchange Act and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by the Company can be inspected and copied at prescribed rates at the public reference facilities maintained by the Commission at Room 59 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission also maintains a web site (http:///www.sec.gov) containing reports, proxy and information statements and other information regarding registrants that file such material electronically through the Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. The Company has filed with the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration Statement (which shall include all amendments, exhibits and schedules thereto) on Form SB-2 under the Act with respect to the shares of Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission, to which Registration Statement reference is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement and the exhibits thereto may be inspected and copies at prescribed rates at the public reference facilities at the addresses set forth above, and are also publicly available through the Commission's web site. 60 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Financial Statements of Anika Therapeutics, Inc. Report of Independent Accountants as of and for the nine-month period ended September 30, 1997, as of and for the four-month transitional year ended December 31, 1996, and for the fiscal year ended August 31, 1996................................................................... F-2 Balance Sheets at September 30, 1997 and December 31, 1996.............. F-3 Statements of Operations for the nine-month period ended September 30, 1997, the four-month transitional year ended December 31, 1996 and the fiscal year ended August 31, 1996...................................... F-4 Statements of Stockholders' Equity for the nine-month period ended September 30, 1997, the four- month transitional year ended December 31, 1996 and the fiscal year ended August 31, 1996..................... F-5 Statements of Cash Flows for the nine-month period ended September 30, 1997, the four-month transitional year ended December 31, 1996 and the fiscal year ended August 31, 1996...................................... F-6 Notes to Financial Statements........................................... F-7
F-1 ANIKA THERAPEUTICS, INC. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Anika Therapeutics, Inc.: We have audited the accompanying balance sheets of Anika Therapeutics, Inc. (the Company) as of September 30, 1997 and December 31, 1996, and the related statements of operations, stockholders' equity and cash flows for the nine- month period ended September 30, 1997, the four-month transitional year ended December 31, 1996 and the year ended August 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Anika Therapeutics, Inc. as of September 30, 1997 and December 31, 1996, and the results of its operations and its cash flows for the nine-month period ended September 30, 1997, the four-month transitional year ended December 31, 1996 and the year ended August 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Boston, Massachusetts October 22, 1997 F-2 ANIKA THERAPEUTICS, INC. BALANCE SHEETS
AS OF, ------------------------ SEPTEMBER DECEMBER 30, 1997 31, 1996 ----------- ----------- ASSETS Current assets: Cash and cash equivalents......................... $ 3,055,045 $ 2,704,665 Accounts receivable............................... 1,020,825 539,004 Inventories....................................... 2,733,363 2,481,646 Prepaid expenses.................................. 525,666 306,537 ----------- ----------- Total current assets............................ 7,334,899 6,031,852 ----------- ----------- Property and equipment.............................. 3,879,615 3,865,330 Less accumulated depreciation....................... 3,246,606 3,046,286 ----------- ----------- Net property and equipment...................... 633,009 819,044 ----------- ----------- Loan receivable from officer........................ 75,000 -- Long term deposits.................................. 87,765 68,765 ----------- ----------- Total Assets.................................... $ 8,130,673 $ 6,919,661 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................. $ 781,617 $ 550,314 Accrued expenses.................................. 1,167,512 1,055,234 Deferred revenue.................................. 200,000 200,000 ----------- ----------- Total current liabilities....................... 2,149,129 1,805,548 ----------- ----------- Advance rent payment................................ 117,015 142,775 Redeemable convertible preferred stock; $.01 par value: authorized 750,000 shares; issued and outstanding 130,211 shares and 126,259 shares, respectively; at cost of $20.00 per share plus accrued dividends.................................. 2,705,563 2,602,527 Stockholders' equity: Undesignated preferred stock; $.01 par value: authorized 1,250,000 shares; no shares issued and outstanding...................................... -- -- Common stock; $.01 par value: authorized 15,000,000 shares; issued and outstanding 5,123,051 shares and 4,930,719 shares, respectively..................................... 51,231 49,307 Additional paid-in capital........................ 12,195,385 11,693,070 Accumulated deficit............................... (9,087,650) (9,373,566) ----------- ----------- Total stockholders' equity...................... 3,158,966 2,368,811 ----------- ----------- Total Liabilities and Stockholders' Equity...... $ 8,130,673 $ 6,919,661 =========== ===========
See accompanying notes to financial statements. F-3 ANIKA THERAPEUTICS, INC. STATEMENTS OF OPERATIONS
NINE MONTHS FOUR MONTHS YEAR ENDED ENDED ENDED SEPTEMBER 30, DECEMBER AUGUST 31, 1997 31, 1996 1996 ------------- ----------- ----------- Net sales............................. $5,961,723 $ 1,212,041 $ 4,612,918 Cost of sales......................... 3,015,952 1,308,625 4,472,214 ---------- ----------- ----------- Gross profit (loss)............... 2,945,771 (96,584) 140,704 Operating expenses: Research and development............ 1,477,093 1,310,330 1,634,640 Selling, general and administrative..................... 1,271,733 1,308,583 1,469,257 ---------- ----------- ----------- Total operating expenses.......... 2,748,826 2,618,913 3,103,897 ---------- ----------- ----------- Income (loss) from operations ...... 196,945 (2,715,497) (2,963,193) Interest income, net................ (105,230) (57,898) (114,314) ---------- ----------- ----------- Income (loss) before income taxes..... 302,175 (2,657,599) (2,848,879) Income taxes.......................... 16,259 -- -- ---------- ----------- ----------- Net income (loss)................. $ 285,916 $(2,657,599) $(2,848,879) ========== =========== =========== Earnings (loss) per common share and common share equivalents............. $ 0.03 $ (0.56) $ (0.76) ========== =========== =========== Common share and common share equivalents outstanding.............. 6,357,978 4,905,382 4,052,596
See accompanying notes to financial statements. F-4 ANIKA THERAPEUTICS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK $.01 PAR VALUE ADDITIONAL UNEARNED TOTAL ----------------- PAID-IN STOCK OPTION ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY --------- ------- ----------- ------------ ----------- ------------- Balance, August 31, 1995................... 3,291,475 $32,915 $ 7,378,514 $ -- $(3,867,088) $ 3,544,341 Exercise of common stock options................ 74,804 748 158,752 -- -- 159,500 Issuance of common stock to 401(k) plan......... 19,447 194 79,176 -- -- 79,370 Dividend on redeemable preferred stock........ -- -- (224,605) -- -- (224,605) Issuance of common stock (net of expenses)...... 1,455,000 14,550 3,527,035 -- -- 3,541,585 Unearned stock option compensation........... -- -- 632,813 (468,750) -- 164,063 Net loss................ -- -- -- -- (2,848,879) (2,848,879) --------- ------- ----------- -------- ----------- ----------- Balance, August 31, 1996................... 4,840,726 48,407 11,551,685 (468,750) (6,715,967) 4,415,375 --------- ------- ----------- -------- ----------- ----------- Exercise of common stock options................ 83,733 837 193,049 -- -- 193,886 Issuance of common stock to 401(k) plan......... 6,260 63 27,381 -- -- 27,444 Dividend on redeemable preferred stock........ -- (79,045) -- -- (79,045) Unearned stock option compensation........... -- -- -- 468,750 -- 468,750 Net loss................ -- -- -- -- (2,657,599) (2,657,599) --------- ------- ----------- -------- ----------- ----------- Balance, December 31, 1996................... 4,930,719 49,307 11,693,070 -- (9,373,566) 2,368,811 --------- ------- ----------- -------- ----------- ----------- Exercise of common stock options................ 161,567 1,616 454,661 -- -- 456,277 Issuance of common stock.................. 30,765 308 150,690 -- -- 150,998 Dividend on redeemable preferred stock........ -- -- (103,036) -- -- (103,036) Net income.............. -- -- -- -- 285,916 285,916 --------- ------- ----------- -------- ----------- ----------- Balance, September 30, 1997................... 5,123,051 $51,231 $12,195,385 $ -- $(9,087,650) $ 3,158,966 ========= ======= =========== ======== =========== ===========
See accompanying notes to financial statements. F-5 ANIKA THERAPEUTICS, INC. STATEMENTS OF CASH FLOWS
NINE MONTHS FOUR MONTHS FISCAL YEAR ENDED, ENDED, ENDED, SEPT. 30, DEC. 31, AUG. 31, 1997 1996 1996 ---------- ----------- ----------- Cash flows from operating activities: Net income (loss)....................... $ 285,916 $(2,657,599) $(2,848,879) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization.......... 200,320 129,827 352,209 Impairment of leasehold improvements... -- 375,924 200,000 Amortization of unearned stock compensation.......................... -- 468,750 164,063 Common stock issued to 401(k) plan and Board of Directors.................... 150,998 27,444 79,370 Other long-term liabilities............ (25,760) (57,225) (520,757) Changes in operating assets and liabilities: Accounts receivable................... (481,821) 92,912 (440,940) Inventories........................... (251,717) 32,634 778,136 Prepaid expenses...................... (219,129) 195,672 (183,247) Loan receivable from officer.......... (75,000) -- -- Accounts payable and accrued expenses............................. 343,582 364,230 786,365 ---------- ----------- ----------- Net cash used for operating activities.......................... (72,611) (1,027,431) (1,633,680) ---------- ----------- ----------- Cash flows used for investing activities: Long term deposits...................... (19,000) (68,765) -- Additions to property and equipment..... (14,286) (44,048) (413,752) ---------- ----------- ----------- Net cash used for investing activities.......................... (33,286) (112,813) (413,752) ---------- ----------- ----------- Cash flows provided by financing activities: Proceeds from issuance of common stock (net).................................. -- -- 3,541,585 Expenses from issuance of preferred stock.................................. -- -- (27,293) Proceeds from exercise of stock options................................ 456,277 193,886 159,500 Payments on long-term debt.............. -- -- (800,000) ---------- ----------- ----------- Net cash provided by financing activities.......................... 456,277 193,886 2,873,792 ---------- ----------- ----------- Increase (decrease) in cash and cash equivalents......................... 350,380 (946,358) 826,360 Cash and cash equivalents at beginning of period.................................. 2,704,665 3,651,023 2,824,663 ---------- ----------- ----------- Cash and cash equivalents at end of period.................................. $3,055,045 $ 2,704,665 $ 3,651,023 ========== =========== =========== Supplemental disclosure of cash flow information: Cash paid for interest.................. $ 2,771 -- $ 42,222 ========== =========== =========== Supplemental disclosure of non cash items: Repayment of debt through future deferred sublease payments............. $ -- $ -- $ 200,000 Dividend on redeemable preferred stock.. $ 103,036 $ 79,045 $ 224,605 ========== =========== ===========
See accompanying notes to financial statements. F-6 ANIKA THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS 1. NATURE OF BUSINESS Anika Therapeutics, Inc. (the Company) develops, manufactures and commercializes therapeutic products and devices intended to promote the protection and healing of bone, cartilage and soft tissue. These products are based on hyaluronic acid (HA), a naturally-occurring, biocompatible polymer found throughout the body. Due to its unique biophysical and biochemical properties, HA plays an important role in a number of physiological functions such as the protection and lubrication of soft tissues and joints, the maintenance of the structural integrity of tissues, and the transport of molecules to and within cells. The Company has been developing HA and HA based products since 1983. The Company's currently marketed products consist of ORTHOVISC(R), which is an HA product used in the treatment of some forms of osteoarthritis in humans and HYVISC(R), which is an HA product used in the treatment of equine osteoarthritis. ORTHOVISC is currently approved for marketing in Canada and Europe; in the U.S. ORTHOVISC is currently limited to investigational use only. The Company manufactures AMVISC(R) and AMVISC Plus(R), which are HA products used as viscoelastic supplements in ophthalmic surgery, for Chiron Vision, a subsidiary of Chiron Corporation. The Company is currently developing INCERT(R), which is an HA based product designed for use in the prevention of post-surgical adhesions. In addition, the Company is collaborating with Orquest, Inc. to develop OSSIGEL(R), an injectable formulation of basic fibroblast growth factor combined with HA designed to accelerate the healing of bone fractures. Commencing on December 31, 1996, the Company changed its fiscal year end from August 31 to December 31. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Anika became an independent company in May 1993 when MedChem Products, Inc. ("MedChem"), distributed 3,154,812 shares of outstanding Anika common stock to MedChem stockholders as a dividend. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents consists of cash and investments with original maturities of three months or less. Financial Instruments The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and redeemable convertible preferred stock approximates fair value because of the short term maturity of these items. Inventories Inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out (FIFO) method. F-7 ANIKA THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Revenue Recognition The Company recognizes revenue on product sales when the products are shipped and the customer takes ownership. The Company records advance payments for products as deferred revenue and records the revenue when the product is shipped. Property and Equipment Property and equipment is stated at cost and depreciated using the straight- line method over the estimated useful lives of the respective assets, as follows: Machinery and equipment......................................... 5-10 years Furniture and fixtures.......................................... 5 years Leasehold Improvements.......................................... 4-10 years
Amortization on leasehold improvements is calculated using the straight-line method over the shorter of the lease term or estimated life of the asset. Impairment of Long-Lived Assets and Assets to Be Disposed Of The Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121), on September 1, 1996. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. During the four-month transitional year ended December 31, 1996 and the fiscal year ended August 31, 1996 the Company recorded losses on impairment for certain leasehold improvements of approximately $376,000 and $200,000, respectively. The losses resulted from relocating the corporate offices and the Company's unsuccessful attempts to obtain sublease income sufficient enough to recover the amortization of the improvements. Research and Development Research and Development costs are expensed as incurred. Earnings Per Common Share and Common Share Equivalents Earnings per common share and common share equivalents is computed based on the weighted average number of common and dilutive common equivalent shares outstanding. Fully diluted earnings per share, when not determined to be antidilutive, is computed using the most dilutive assumptions and by adjusting the primary earnings per share data for the potential effect of the conversion of the Series A Redeemable Convertible Preferred Stock. The previously reported calculation of loss per common share and common share equivalents for the fiscal year ended August 31, 1996 did not include the dividend on Series A Redeemable Convertible Preferred Stock in the calculation of net loss. Accordingly, the previously reported loss per common share and common share equivalents of $0.70 has been adjusted to reflect the preferred stock dividend resulting in a loss per common share and common share equivalents of $0.76 for the fiscal year ended August 31, 1996. Income Taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective F-8 ANIKA THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) tax bases. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which those temporary differences are expected to be recovered or settled. Stock Based Compensation Prior to August 31, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25. "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On September 1, 1996, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" (SFAS 123), which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net earnings (loss) disclosures for employee stock option grants made in fiscal 1996 and future years as if the fair-value-based method defined in SFAS 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure of SFAS 123 (see note 8). Significant Customers Chiron Vision and its contract with the Company to purchase AMVISC and AMVISC Plus, accounted for 84%, 94% and 89% of total net sales for the nine- month period ended September 30, 1997, the four-month transitional year ended December 31, 1996 and the fiscal year ended August 31, 1996, respectively. In addition, another customer and its contract with the Company to purchase ORTHOVISC(R) accounted for 10% of total net sales for the nine-month period ended September 30, 1997. Concentration of Credit Risks The Company invests its excess cash in deposits with major U.S. financial institutions and money market funds. The Company has established guidelines relative to diversification and maturities that maintain safety and liquidity. To date, the Company has not experienced any losses on its cash equivalents and money market funds. 3. INVENTORIES Inventories consist of the following:
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ Raw materials................................... $ 588,407 $ 691,826 Work in process................................. 2,144,956 1,780,964 Finished goods.................................. -- 8,856 ---------- ---------- Total......................................... $2,733,363 $2,481,646 ========== ==========
4. PROPERTY & EQUIPMENT Property and equipment consists of the following:
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ Machinery and equipment........................ $2,190,415 $2,188,463 Leasehold improvements......................... 1,408,325 1,397,907 Furniture and fixtures......................... 280,875 278,960 ---------- ---------- Total........................................ $3,879,615 $3,865,330 ========== ==========
F-9 ANIKA THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 5. LOAN RECEIVABLE FROM OFFICER Loan receivable consists of a loan to an officer of the Company made on March 17, 1997. The entire balance is due at the earlier of the end of five years or at the termination of the officer's employment. Interest accrues at an annual rate of 6% and is payable monthly over the term of the loan. 6. ACCRUED EXPENSES Accrued expenses consists of the following:
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ Accrued compensation............................ $ 250,569 $ 308,496 Other accrued expenses.......................... 916,943 746,738 ---------- ---------- Total......................................... $1,167,512 $1,055,234 ========== ==========
7. LEASE OBLIGATIONS The Company leases two facilities with one lease expiring in February 2001and the other in October 2001. One facility was vacated and is currently being partially sublet. These subleases are accounted for as operating leases. Net rental payments in connection with the leases, totaled $264,691 for the nine month period ended September 30, 1997, $115,074 for the four-month transitional year ended December 31, 1996 and $369,928 for the fiscal year ended August 31, 1996. Future minimum lease payments under the operating leases and sublease income for the years ending September 30 are as follows:
LEASE SUBLEASE NET PAYMENTS INCOME PAYMENTS ---------- -------- ---------- 1998........................................ $ 417,175 $ 52,412 $ 364,763 1999........................................ 433,556 53,311 380,245 2000........................................ 450,756 54,883 395,873 2001........................................ 244,918 55,548 189,370 2002........................................ 7,464 4,629 2,835 ---------- -------- ---------- Total..................................... $1,553,869 $220,783 $1,333,086 ========== ======== ==========
F-10 ANIKA THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 8. STOCK OPTION PLAN In 1993, the Company adopted the Anika Therapeutics, Inc. Stock Option Plan (the "Plan") and reserved 1,000,000 shares of Anika common stock for the grant of stock options for employees, officers, directors, consultants and advisors of the Company. In addition, the Company also established the Directors Stock Option Plan (the "Directors Plan") and reserved 40,000 shares for the Board of Directors. On March 21, 1995 the Company's Board of Directors approved an increase in the number of shares reserved for grant under the Plan by 1,000,000 to 2,000,000 shares and the Company's stockholders approved such an increase at the Annual Meeting of Stockholders held on January 10, 1996. Combined option activity for both plans is summarized as follows:
WEIGHTED AVG EXERCISE PRICE PER SHARES SHARE --------- ------------ Balance at September 1, 1995....................... 1,346,072 $2.55 Granted.......................................... 302,750 1.69 Canceled......................................... (146,391) 2.83 Exercised........................................ (74,804) 2.13 --------- ----- Balance at August 31, 1996......................... 1,427,627 2.36 Granted.......................................... 435,500 4.91 Canceled......................................... -- -- Exercised........................................ (83,732) 2.35 --------- ----- Balance at December 31, 1996....................... 1,779,395 2.99 Granted.......................................... 33,000 5.48 Canceled......................................... (14,333) 2.42 Exercised........................................ (161,567) 2.82 --------- ----- Balance at September 30, 1997...................... 1,636,495 $3.06 ========= =====
Generally, options vest in varying installments up to four years after the date of grant and have an expiration date no later than ten years after the date of grant. The price range of options exercisable as of September 30, 1997, December 31, 1996 and August 31, 1996 was from $2.25 to $4.75, $1.067 to $2.625 and $1.383 to $4.781, respectively. Options for 1,636,495 shares were exercisable at September 30, 1997. During 1996, options for 302,750 shares of its $.01 par value common stock were granted by the Company. The Company recorded deferred compensation of $632,813 on options for 168,750 shares to account for the difference between the market value of the stock at the time of grant and exercise price of the options. The Company applies APB Opinion No. 25 and related interpretations in accounting for the plan. Accordingly, no compensation cost has been recognized in the accompanying financial statements for its fixed stock option plan. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant dates for grants under this plan consistent with the methodology of SFAS 123, the Company's net income (loss) for the nine month period ended September 30, 1997, the four-month transitional year ended December 31, 1996, and the fiscal year ended August 31, 1996 would have changed to the pro forma amounts as follows:
NINE MONTHS FOUR MONTHS FISCAL YEAR ENDED ENDED ENDED SEPTEMBER 30, DECEMBER AUGUST 31, 1997 31, 1996 1996 ------------- ----------- ----------- Net income (loss) reported........ $285,916 $(2,657,599) $(2,848,879) Pro forma net loss................ $(43,876) $(2,765,290) $(3,162,717) ======== =========== ===========
F-11 ANIKA THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The per share weighted-average fair value of stock options granted during the nine month period ended September 30, 1997, the four-month transitional year ended December 31, 1996, and the fiscal year ended August 31, 1996 was $5.48, $4.91, and $1.69, respectively, estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for grants: no dividend yield for all three years; expected volatility of 56.15%, 57.8% and 57.9%, respectively; risk-free interest rates of 6.0% for all periods; and expected lives of six years. Pro forma net loss reflects only options granted in the nine month period ended September 30, 1997, the four month transitional year ended December 31, 1996, and the fiscal year ending August 31, 1996. Therefore, the full impact of compensation cost for stock options under SFAS 123 is not reflected in the pro forma net loss amounts presented above because compensation cost is reflected over the options' vesting period of up to four years, and compensation cost for options granted prior to September 1, 1995 is not considered. 9. REDEEMABLE CONVERTIBLE PREFERRED STOCK On May 17, 1995, the Company issued 120,970 shares of Series A Preferred Stock ("Series A stock") at a selling price of $20.00 per share for a total consideration of $2,235,642, net of offering costs. Each share of the Series A stock is convertible into 10 shares of common stock at any time at the option of the holder. The Series A stock may be converted into common stock, at the Company's option, upon closing of a public offering if the proceeds to the Company are at least $20,000,000 and the sale price per common share is at least $6.00. The stock contains provisions to adjust the conversion ratio in the event of certain dilutive and other transactions. In addition, each share of the Series A stock is entitled to receive an annual dividend on May 1 of each year, at a rate of $1.80 per share, payable in additional shares of Series A stock, with the number of dividend shares determined by the price of Anika's underlying common stock. The Company may elect to pay the dividend in cash if certain financial covenants are met. During each consecutive ninety day period in which the average quarterly price of Anika's common stock remains above $6.00 per share, no dividend will accrue. As of June 5, 1997, the Company ceased accruing dividends. For the period May 1, 1996 to April 30, 1997 the Company issued 3,952 additional shares of Series A stock to preferred Shareholders as a dividend payment. For the period May 17, 1995 through April 30, 1996, Anika issued 5,289 additional shares of Series A stock to the preferred shareholders as a dividend payment. The total recorded values of the dividend payment were $227,266 and $208,227, respectively. For the nine months ended September 30, 1997, the four month transitional year ended December 31, 1996 and the fiscal year ended August 31, 1996, accrued dividends payable were $24,628, $158,737 and $79,693, respectively. The outstanding balance of Series A stock will be redeemed at $20.00 per share plus accrued dividends at the option of the holder in three equal installments beginning on May 17, 2000. The Company has the option to redeem the Series A stock on or after May 17, 2000 if the common stock price is in excess of $10.00 and a certain trading volume requirement is met. The holders of the Series A stock are entitled to liquidation preference over the common shareholders at $20.00 per share plus accrued dividends. Each share of the Series A stock has voting rights equal to the number of common shares into which each share of preferred is convertible at the time as such vote. In addition, the holders of the Series A stock are entitled to certain representation on the Company's Board of Directors based upon the number of shares outstanding. 10. COMMON STOCK In March, 1996 the Company completed a financing involving the private placement of 1,455,000 shares of newly issued common stock to institutional and private accredited investors. Total gross proceeds were F-12 ANIKA THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) $3,986,700 and net proceeds to the Company after fees and expenses were $3,541,585. In addition, the Company granted certain registration rights and filed a registration statement with the Securities and Exchange Commission that was declared effective by the Securities and Exchange Commission on May 23, 1996. The proceeds from the private placement were used to repay a $1,000,000 debt obligation and for general working capital purposes. 11. WARRANTS In connection with the sale of Series A Redeemable Convertible Preferred Stock ("Series A stock"), the Company issued warrants to the holders of Series A stock to purchase 60,485 shares of Series A stock, exercisable at $20.00 per share. The warrants expire on May 17, 2000. If the price of the Company's common stock is in excess of $6.00 per share for a consecutive ninety day period, the Company can require the exercise of the warrants. At October 22, 1997, the notice for the mandatory exercise of the warrants by the Company was sent in accordance with this provision. In connection with the private placement of newly issued common stock in March, 1996, the Company issued warrants to Leerink, Swann, Garrity, Sollami, Yaffe and Wynn, Inc., ("Leerink Swann & Company"), for 146,664 shares of common stock exercisable at $3.00 per share and warrants for 57,036 shares of common stock exercisable at $4.00 per share. L. Eric Swann, a partner of Leerink, Swann & Company, is the son of David A. Swann, Chairman of the Board of Directors of the Company. 12. EMPLOYEE BENEFIT PLAN Full-time employees are eligible to participate in the Company 401(k) savings plan. Employees may elect to contribute a percentage of their compensation to the plan, and the Company will make matching contributions up to a limit of 5% of an employee s compensation. In addition, the Company can make annual discretionary contributions. For the nine month period ended September 30, 1997, the four-month transitional year ended December 31, 1996, and the fiscal year ended August 31, 1996, the Company's matching contributions and any discretionary contributions to the plan were in the form of Anika common stock. The Company's total 401(k) savings plan expense for each respective period listed above was $107,248, $27,444 and $79,370, respectively. 13. INCOME TAXES Deferred tax assets, net of any valuation allowance, and liabilities arising from temporary differences, income tax credit carryforwards and loss carryforwards are measured by using tax rates expected to be in effect when they reverse or are realized. The components of the net deferred tax asset are as follows:
NINE MONTHS FOUR MONTHS FISCAL YEAR ENDED ENDED ENDED SEPTEMBER 30, DECEMBER AUGUST 31, 1997 31, 1996 1996 ------------- ----------- ----------- Gross deferred tax assets: Depreciation......................... $ 737,061 $ 636,386 $ 461,151 Accrued expenses & other............. 234,234 186,201 149,368 Inventory loss reserve............... 89,301 35,430 158,969 Non-qualified stock option amortization........................ 188,767 103,822 66,069 Uniform capitalization............... 82,996 62,861 50,754 Net operating loss carryforward...... 2,883,667 3,295,569 2,267,960 Credit carryforward.................. 203,347 154,347 18,388 ----------- ----------- ----------- Gross deferred tax assets.............. 4,419,373 4,474,616 3,172,659 Less: valuation allowance............ (4,419,373) (4,474,616) (3,172,659) ----------- ----------- ----------- Net deferred tax asset................. $ -- $ -- $ -- =========== =========== ===========
F-13 ANIKA THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Income tax expense was $16,259 for the nine month period ended September 30, 1997 and zero for the four month transitional year ended December 31, 1996 and the fiscal year ended August 31, 1996, respectively, and differs from the amounts computed by applying the U.S. Federal income tax rate of thirty-four percent to pretax income as a result of the following:
NINE MONTHS FOUR MONTHS FISCAL ENDED ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, AUGUST 31, 1997 1996 1996 ------------- ------------ ---------- Computed expected tax (benefit) expense............................... $102,739 $ (903,584) $ (968,619) State tax (benefit) expense (net of federal benefit)...................... 18,946 (166,631) (178,323) Nondeductible expenses................. 2,428 517 1,638 Increase in credit carryforward........ (49,000) (219,361) (9,200) Other.................................. (61,617) 5,335 149 Change in valuation allowance related to income tax benefit................. 2,763 1,283,724 1,154,355 -------- ---------- ---------- Tax expense............................ $ 16,259 $ -- $ -- ======== ========== ==========
The valuation allowance for deferred tax assets was $4,419,373 at September 30, 1997, a decrease of $55,243 over the balance of $4,474,616 at December 31, 1996. The valuation allowance for deferred tax assets was $4,474,616 at December 31, 1996 an increase of $1,301,957 over the balance of $3,172,659 at August 31, 1996. Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets will be allocated as follows:
NINE MONTHS ENDED SEPTEMBER 30, 1997 ------------- Income tax benefit........................................ $4,399,238 Additional paid in capital................................ 20,135 ---------- $4,419,373 ==========
The Company has total Federal and state net operating losses of $7,098,910 and $6,886,255 for the nine months ended September 30, 1997, respectively. The Federal net operating losses will begin to expire beginning 2008. The state net operating losses will begin to expire in 1997. However, if changes in the Company's stock ownership exceed 50% of the value of the Company Stock during any three-year period, the utilization of the federal net operating loss and credit-carryforwards may be subject to limitations. F-14 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. --------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 7 The Company.............................................................. 18 Use of Proceeds.......................................................... 18 Price Range of Common Stock and Dividend Policy.......................... 19 Capitalization........................................................... 20 Selected Financial Data.................................................. 21 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 22 Business................................................................. 29 Management............................................................... 43 Certain Transactions..................................................... 51 Principal and Selling Stockholders....................................... 52 Description of Capital Stock............................................. 54 Shares Eligible for Future Sale.......................................... 56 Underwriting............................................................. 58 Legal Matters............................................................ 59 Experts.................................................................. 59 Additional Information................................................... 59 Index to Financial Statements............................................ F-1
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 3,000,000 SHARES LOGO COMMON STOCK --------------- PROSPECTUS --------------- FURMAN SELZ VOLPE BROWN WHELAN & COMPANY LEERINK SWANN & COMPANY , 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company is a Massachusetts corporation. Reference is made to Chapter 156B, Section 13 of the Massachusetts Business Corporation Law (the "MBCL"), which enables a corporation in its original articles of organization or an amendment thereto to eliminate or limit the personal liability of a director for monetary damages for violations of the director's fiduciary duty, except (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Sections 61 and 62 of the MBCL (providing for liability of directors for authorizing illegal distributions and for making loans to directors, officers and certain shareholders) or (iv) for any transaction from which a director derived an improper personal benefit. Reference also is made to Chapter 156B, Section 67 of the MBCL, which provides that a corporation may indemnify directors, officers, employees and other agents and persons who serve at its request as directors, officers, employees or other agents of another organization or who serve at its request in any capacity with respect to any employee benefit plan, to the extent specified or authorized by the articles of organization, a by-law adopted by the stockholders or a vote adopted by the holders of a majority of the shares of stock entitled to vote on the election of directors. Such indemnification may include payment by the corporation of expenses incurred in defending a civil or criminal action or proceeding in advance of the final disposition of such action or proceeding, upon receipt of an undertaking by the person indemnified to repay such payment if he shall be adjudicated to be not entitled to indemnification under Section 67 which undertaking may be accepted without reference to the financial ability of such person to make repayment. Any such indemnification may be provided although the person to be indemnified is no longer an officer, director, employee or agent of the corporation or of such other organization or no longer serves with respect to any such employee benefit plan. No indemnification shall be provided, however, for any person with respect to any matter as to which he shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his action was in the best interest of the corporation or to the extent that such matter relates to service with respect to any employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan. The Articles of Organization of the Company (see Exhibit 3.1) provide for indemnification of the officers and directors of the Company to the full extent permitted by applicable law. The Company and its directors and officers currently carry liability insurance. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1) The following table sets forth the estimated expenses payable by the Company in connection with this offering (excluding underwriting discounts and commissions):
NATURE OF EXPENSE AMOUNT ----------------- -------- SEC Registration Fee............................................ $ 8,233 NASD Filing Fee................................................. 3,217 Nasdaq National Market Listing Fee.............................. 40,955 Accounting Fees and Expenses.................................... 50,000 Legal Fees and Expenses......................................... 275,000 Printing Expenses............................................... 100,000 Blue Sky Qualification Fees and Expenses (including attorney's fees).......................................................... 5,000 Miscellaneous................................................... 17,595 -------- Total......................................................... $500,000 ========
- ---------- (1) The amounts set forth above, except for the SEC, NASD and Nasdaq National Market fees, are in each case estimated. II-1 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES During the past three years, the Company has issued unregistered securities to a limited number of persons, as described below. No underwriters or underwriting discounts or commissions were involved. There was no public offering in any such transaction, and the Company believes that each transaction was exempt from the registration requirements of the Securities Act, by reason of Section 4(2) thereof, based on the private nature of the transactions and the financial sophistication of the purchasers, all of whom had access to complete information concerning the Company and acquired the securities for investment and not with a view to the distribution thereof. (1) In February 1996, the Company sold 1,455,000 shares of Common Stock in a private placement, at a price per share of $2.75 per share, and in connection therewith also issued warrants to Leerink, Swann, Garrity, Sollami, Yaffe and Wynn, Inc., the placement agent, for 146,664 shares of Common Stock at $3.00 per share and 57,036 shares of Common Stock at $4.00 per share, in reliance upon the exemption from registration under Section 4(2) of the Securities Act and Regulation D promulgated thereunder. (2) In May, 1995, the Company sold 120,970 shares of Preferred Stock in a private placement for a purchase price of $20 per share, and in connection therewith also issued warrants to the holders of Preferred Stock to purchase 60,485 additional shares of Preferred Stock at an exercise price of $20 per share, in reliance upon the exemption from registration under Section 4(2) of the Securities Act and Regulation D promulgated thereunder. ITEM 27. EXHIBITS (a) Exhibits. The following is a complete list of Exhibits filed as part of this Registration Statement. 1.1 Form of Underwriting Agreement. **2.1 Form of Stock Certificate. +3.1 Amended and Restated Articles of Organization of Anika Therapeutics, Inc. ("Anika") as amended. +++3.2 Certificate of Vote of Directors Establishing A Series of Convertible Preferred Stock. +++++++3.3 Amendment to Amended and Restated Articles of Organization of Anika, as amended. +++++++3.4 By-Laws of Anika, as amended. **5.1 Legal Opinion of Goodwin, Procter & Hoar LLP. +*10.1 Settlement Agreement dated January 11, 1991 among MedChem Products, Inc., ("MedChem"), Kabi Pharmacia AB, Pharmacia Inc., Dr. Endre Balazs and IOLAB corporation. +*10.2 Third Amendment to Distribution Agreement dated as of January 11, 1991 between Anika and IOLAB Corporation, as amended. ++10.3 Fourth Amendment to Distribution Agreement dated as of August 1, 1994 between Anika and IOLAB Corporation, as amended. ++*10.4 Supply Agreement dated as of August 1, 1994 between Anika and IOLAB Corporation. +*10.5 Sponsored Research Agreement dated as of June 18, 1992 between Tufts University and Anika, as amended. +10.6 Form of TMJ Agreement dated as of April 29, 1993 between Anika and MedChem. +10.7 Form of Sublease Agreement dated as of April 29, 1993 between Anika and MedChem. +10.8 Form of Tax Matters Agreement dated as of April 29, 1993 between Anika and MedChem. +10.9 Form of Plan and Agreement of Distribution dated as of April 29, 1993 between MedChem and Anika. ++++++10.10 1993 Stock Option Plan, as amended. ++++++++10.11 1993 Directors Stock Option Plan. +*10.12 License Agreement dated as of July 22, 1992 between Tufts University and Anika, as amended.
II-2 +++10.13 Series A Preferred Stock Purchase Agreement by and among the Purchasers Listed on Schedule 1 thereto and Anika, dated as of May 17, 1995. +++10.14 Shareholders' Agreement by and among Anika and the Stockholders listed on Schedule 1 thereto, dated as of May 17, 1995. +++10.15 Form of Stock Subscriptions Warrant to Purchase Series A Preferred Stock of Anika. ++++10.16 Lease dated March 10, 1995 between Cummings Properties and Anika. +++++10.17 Amended and Restated Employment Agreement with David A. Swann, dated as of February 1, 1996. +++++10.18 Non-Disclosure and Non-Competition Agreement with David A. Swann, dated as of February 1, 1996. +++++10.19 Non-Statutory Stock Option Agreement with David A. Swann, dated as of February 1, 1996. ++++++10.20 Resignation and Consulting Agreement dated February 16, 1996 between Anika and Mr. Sullivan. +++++10.21 Portion of Form of Stock Purchase Agreement dated as of March 1, 1996 containing undertaking by the Company to register shares of Common Stock. +++++10.22 (i) Warrant Agreement dated as of April 1, 1996 relating to 146,664 shares of Common Stock. (ii) Warrant Agreement dated as of April 1, 1996 relating to 57,036 shares of Common Stock. ***10.23 Letter Agreement dated as of August 27, 1997 between the Company and Leerink Swann & Company relating to Registration Rights. ++++++10.24 Employment Agreement dated September 24, 1996 between Anika and Mr. Engle. ***10.25 Promissory note for $75,000 dated as of March 17, 1997 from J. Melville Engle to the Company. ****10.26 Exclusive Distribution Agreement dated as of November 7, 1997 between Anika and Zimmer, Inc. ***11.1 Statement of Computation of Per Share Earnings. 23.1 Consent of Independent Accountants. **23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1) ***23.3 Consent of Hamilton, Brook, Smith & Reynolds, P.C. ***27.1 Financial Data Schedule.
- ---------- *Confidential treatment granted as to certain portions of this Exhibit. **To be filed by amendment. ***Previously filed. ****Portions of the exhibit have been omitted pursuant to a request for confidential treatment. + Incorporated by reference to Exhibits to the Registration Statement of Form 10 (File No. 0-21326) filed by Anika on March 5, 1993. ++ Incorporated by reference to Exhibits to Anika's Form 10-K for the fiscal year ended August 31, 1994 as filed on November 23, 1994. +++ Incorporated by reference to Exhibits to Anika's Form 10-Q/A for the quarterly period ended May 31, 1995 as filed by Anika on July 29, 1995. ++++ Incorporated by reference to Exhibits to Anika's Form 10-K for the fiscal year ended August 31, 1995 as filed on November 28, 1995 +++++ Incorporated by reference to Exhibits to Anika's Form 10-Q for the quarterly period ended February 29, 1996 as filed on April 15, 1996. ++++++ Incorporated by reference to Exhibits to Anika's Form 10-KSB for the year ended August 31, 1996 as filed on November 27, 1996. +++++++ Incorporated by reference to Exhibits to Anika's Form 10-QSB for the quarterly period ended November 30, 1996 as filed on January 14, 1997. ++++++++ Incorporated by reference to Exhibits to Anika's Form 10/A (File No. 0-21326) as filed on April 28, 1993. II-3 ITEM 28. UNDERTAKINGS The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and this offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended (the "Securities Act"), Anika Therapeutics, Inc. certifies that it has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Boston, Massachusetts, on the 10th day of November, 1997. Anika Therapeutics, Inc. /s/ J. Melville Engle By: _________________________________ J. MELVILLE ENGLE PRESIDENT (PRINCIPAL EXECUTIVE OFFICER) AND DIRECTOR Pursuant to the requirements of the Securities Act, Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE CAPACITY DATE Chairman of the Board _________________________________ November DAVID A. SWANN 1997 * Director November , _________________________________ 1997 JOSEPH L. BOWER * Director November , _________________________________ 1997 EUGENE A. DAVIDSON Director _________________________________ November JONATHAN D. DONALDSON 1997 * Director November , _________________________________ 1997 SAMUEL MCKAY * Director November , _________________________________ 1997 HARVEY SADOW * Director November , _________________________________ 1997 STEVEN E. WHEELER /s/ J. Melville Engle President (Principal _________________________________ Executive Officer) and November 10, J. MELVILLE ENGLE Director 1997 /s/ Sean F. Moran Vice President of Finance _________________________________ and Treasurer (Principal November 10, SEAN F. MORAN Financial and Accounting 1997 Officer) /s/ Sean F. Moran *By: _______________________ SEAN F. MORAN, ATTORNEY-IN-FACT II-5 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE ------- ----------- ---- 1.1 Form of Underwriting Agreement. **2.1 Form of Stock Certificate. +3.1 Amended and Restated Articles of Organization of Anika Therapeutics, Inc. ("Anika") as amended. +++3.2 Certificate of Vote of Directors Establishing A Series of Convertible Preferred Stock. +++++++3.3 Amendment to Amended and Restated Articles of Organization of Anika, as amended. +++++++3.4 By-Laws of Anika, as amended. **5.1 Legal Opinion of Goodwin, Procter & Hoar LLP. +*10.1 Settlement Agreement dated January 11, 1991 among MedChem Products, Inc., ("MedChem"), Kabi Pharmacia AB, Pharmacia Inc., Dr. Endre Balazs and IOLAB corporation. +*10.2 Third Amendment to Distribution Agreement dated as of January 11, 1991 between Anika and IOLAB Corporation, as amended. ++10.3 Fourth Amendment to Distribution Agreement dated as of August 1, 1994 between Anika and IOLAB Corporation, as amended. ++*10.4 Supply Agreement dated as of August 1, 1994 between Anika and IOLAB Corporation. +*10.5 Sponsored Research Agreement dated as of June 18, 1992 between Tufts University and Anika, as amended. +10.6 Form of TMJ Agreement dated as of April 29, 1993 between Anika and MedChem. +10.7 Form of Sublease Agreement dated as of April 29, 1993 between Anika and MedChem. +10.8 Form of Tax Matters Agreement dated as of April 29, 1993 between Anika and MedChem. +10.9 Form of Plan and Agreement of Distribution dated as of April 29, 1993 between MedChem and Anika. ++++++10.10 1993 Stock Option Plan, as amended. ++++++++10.11 1993 Directors Stock Option Plan. +*10.12 License Agreement dated as of July 22, 1992 between Tufts University and Anika, as amended. +++10.13 Series A Preferred Stock Purchase Agreement by and among the Purchasers Listed on Schedule 1 thereto and Anika, dated as of May 17, 1995. +++10.14 Shareholders' Agreement by and among Anika and the Stockholders listed on Schedule 1 thereto, dated as of May 17, 1995. +++10.15 Form of Stock Subscriptions Warrant to Purchase Series A Preferred Stock of Anika. ++++10.16 Lease dated March 10, 1995 between Cummings Properties and Anika. +++++10.17 Amended and Restated Employment Agreement with David A. Swann, dated as of February 1, 1996. +++++10.18 Non-Disclosure and Non-Competition Agreement with David A. Swann, dated as of February 1, 1996.
EXHIBIT NO. DESCRIPTION PAGE ------- ----------- ---- +++++10.19 Non-Statutory Stock Option Agreement with David A. Swann, dated as of February 1, 1996. ++++++10.20 Resignation and Consulting Agreement dated February 16, 1996 between Anika and Mr. Sullivan. +++++10.21 Portion of Form of Stock Purchase Agreement dated as of March 1, 1996 containing undertaking by the Company to register shares of Common Stock. +++++10.22 (i) Warrant Agreement dated as of April 1, 1996 relating to 146,664 shares of Common Stock. (ii) Warrant Agreement dated as of April 1, 1996 relating to 57,036 shares of Common Stock. ***10.23 Letter Agreement dated as of August 27, 1997 between the Company and Leerink Swann & Company relating to Registration Rights. ++++++10.24 Employment Agreement dated September 24, 1996 between Anika and Mr. Engle. ***10.25 Promissory note for $75,000 dated as of March 17, 1997 from J. Melville Engle to the Company. ****10.26 Exclusive Distribution Agreement dated as of November 7, 1997 between Anika and Zimmer, Inc. ***11.1 Statement of Computation of Per Share Earnings. 23.1 Consent of Independent Accountants. **23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1) ***23.3 Consent of Hamilton, Brook, Smith & Reynolds, P.C. ***27.1 Financial Data Schedule.
- ---------- *Confidential treatment granted as to certain portions of this Exhibit. **To be filed by amendment. ***Previously filed. ****Portions of the exhibit have been omitted pursuant to a request for confidential treatment. + Incorporated by reference to Exhibits to the Registration Statement of Form 10 (File No. 0-21326) filed by Anika on March 5, 1993. ++ Incorporated by reference to Exhibits to Anika's Form 10-K for the fiscal year ended August 31, 1994 as filed on November 23, 1994. +++ Incorporated by reference to Exhibits to Anika's Form 10-Q/A for the quarterly period ended May 31, 1995 as filed by Anika on July 29, 1995. ++++ Incorporated by reference to Exhibits to Anika's Form 10-K for the fiscal year ended August 31, 1995 as filed on November 28, 1995 +++++ Incorporated by reference to Exhibits to Anika's Form 10-Q for the quarterly period ended February 29, 1996 as filed on April 15, 1996. ++++++ Incorporated by reference to Exhibits to Anika's Form 10-KSB for the year ended August 31, 1996 as filed on November 27, 1996. +++++++ Incorporated by reference to Exhibits to Anika's Form 10-QSB for the quarterly period ended November 30, 1996 as filed on January 14, 1997. ++++++++ Incorporated by reference to Exhibits to Anika's Form 10/A (File No. 0-21326) as filed on April 28, 1993. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT EXHIBIT 1.1 3,000,000 Shares ANIKA THERAPEUTICS, INC. Common Stock Par Value $0.01 Per Share FORM OF UNDERWRITING AGREEMENT ------------------------------ [Insert date] FURMAN SELZ LLC VOLPE, BROWN, WHELAN & COMPANY LLC LEERINK, SWANN, GARRITY, SALLAMI, YAFFEE & WYNN, INC. As Representatives of the several Underwriters c/o Furman Selz Incorporated 230 Park Avenue New York, New York 10169 Dear Sirs: 1. Introduction. Anika Therapeutics, Inc., a Massachusetts corporation (the "Company"), proposes to issue and sell to the several Underwriters named in Schedule I hereto (the "Underwriters"), for which Furman Selz LLC, Volpe, Brown, - ---------- Whelan & Company LLC and Leerink, Swann, Garrity, Sallami, Yaffee & Wynn, Inc. are acting as representatives (the "Representatives"), an aggregate of 2,500,000 shares of the Company's common stock, par value $0.01 per share (the "Common Stock"). The stockholders listed in Schedule II hereto (the "Selling ----------- Stockholders") propose severally to sell to the several Underwriters an aggregate of 500,000 outstanding shares of Common Stock. The 2,500,000 shares of Common Stock to be sold by the Company and the 500,000 shares of Common Stock to be sold by the Selling Stockholders are referred to herein as the "Firm Shares." The Company and the Selling Stockholders also propose to issue and sell to the several Underwriters an aggregate of not more than _________ and _________ additional shares of Common Stock, respectively, if requested by the Underwriters in accordance with Section 9 hereof. The [__________] additional shares of Common Stock to be sold by the Company and the [____________] additional shares of Common Stock to be sold by the Selling Stockholders are collectively referred to herein as the "Additional Shares"). The Firm Shares and the Additional Shares are collectively referred to herein as the "Shares." The words "you" and "your" refer to the Representatives of the Underwriters. The Company and each of the Selling Stockholders hereby severally agree with the several Underwriters as follows: 2. Representations and Warranties. (a) The Company and the Selling Stockholders represent, warrant and agree with each of the Underwriters that: (i) A registration statement on Form SB-2 (File No. 333-_____) under the Securities Act of 1933 as amended (the "Act"), with respect to the Shares, including a form of prospectus subject to completion, has been prepared by the Company in conformity with the requirements of the Act and the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder (the "Rules and Regulations"). Such registration statement has been filed with the Commission under the Act, and one or more amendments to such registration statement may also have been so filed. After the execution of this Agreement, the Company shall file with the Commission either (A) if such registration statement, as it may have been amended, has been declared by the Commission to be effective under the Act, a prospectus in the form most recently included in an amendment to such registration statement filed with the Commission (or, if no such amendment shall have been filed, in such registration statement), with such insertions and changes as are required by Rule 430A under the Act or permitted by Rule 424(b) under the Act as shall have been provided to and approved by the Representatives prior to the filing thereof, or (B) if such registration statement, as it may have been amended, has not been declared by the Commission to be effective under the Act, an amendment to such registration statement, including a form of prospectus, a copy of which amendment has been furnished to and approved by the Representatives prior to the filing thereof. As used in this Agreement, the term "Registration Statement" means such registration statement, as amended at the time when it was or is declared effective, including all financial schedules and exhibits thereto and all documents incorporated by reference therein; the Registration Statement shall be deemed to include any information omitted therefrom pursuant to Rule 430A under the Act and included in the Prospectus (as hereinafter defined) and shall also mean any registration statement filed pursuant to Rule 462(b) under the Act; the term "Preliminary Prospectus" means each prospectus subject to completion contained in such registration statement or any amendment thereto (including the prospectus subject to completion, if any, included in the Registration Statement or any amendment thereto or filed pursuant to Rule 424(a) under the Act at the time it was or is declared effective); and the term "Prospectus" means the prospectus first filed with the Commission pursuant to Rule 424(b) under the Act or, if no prospectus is required to be filed pursuant to said Rule 424(b), such term means the prospectus included in the Registration Statement at the time such Registration Statement becomes effective. (ii) The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus and has not instituted or threatened to institute any proceedings with respect to such an order. When any Preliminary Prospectus was filed with the Commission it (A) contained all statements required to be stated therein in 2 accordance with, and complied in all material respects with the requirements of, the Act and the Rules and Regulations and (B) did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. When the Registration Statement or any amendment thereto was or is declared effective, it (A) contained or will contain all statements required to be stated therein in accordance with, and complied or will comply in all material respects with the requirements of, the Act and the Rules and Regulations and (B) did not or will not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading. When the Prospectus and when any amendment or supplement thereto is filed with the Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment or supplement is not required to be so filed, when the Registration Statement and when any amendment thereto containing such amendment or supplement to the Prospectus was or is declared effective) and at all times subsequent thereto up to and including the Closing Date (as defined in Section 3 hereof) and the Option Closing Date (as defined in Section 9 hereof), the Prospectus, as amended or supplemented at any such time, (A) contained or will contain all statements required to be stated therein in accordance with, and complied or will comply in all material respects with the requirements of, the Act and the Rules and Regulations and (B) did not or will not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The foregoing provisions of this paragraph (ii) shall not apply to statements or omissions made in any Preliminary Prospectus, the Registration Statement or any amendment thereto or the Prospectus or any amendment or supplement thereto in reliance upon, and in conformity with, information furnished in writing to the Company by or on behalf of the Underwriters through the Representatives expressly for use therein. (iii) The Company (A) is a duly incorporated and validly existing corporation in good standing under the laws of its jurisdiction of incorporation, with full power and authority (corporate and other) to own or lease its properties and to conduct its business as described in the Registration Statement and the Prospectus; and (B) is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction (x) in which the conduct of its business requires such qualification (except for those jurisdictions in which the failure so to qualify has not had and will not have a material adverse effect on the business, properties, financial condition or results of operations of the Company (a "Material Adverse Effect") and (y) in which it owns or leases property. The Company has no subsidiaries. (iv) The Company has full legal right, power and authority to enter into this Agreement and to consummate the transactions provided for herein. This Agreement has been duly authorized, executed and delivered by the Company and, assuming it is a binding agreement of yours, constitutes a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting the enforcement 3 of creditors' rights and the application of equitable principles relating to the availability of remedies and except as rights to indemnity or contribution may be limited by federal or state securities laws and the public policy underlying such laws), and none of the Company's execution or delivery of this Agreement, its performance hereunder, its consummation of the transactions contemplated herein, its application of the net proceeds of the offering in the manner set forth under the caption "Use of Proceeds" or the conduct of its business as described in the Registration Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), conflicts or will conflict with or results or will result in any breach or violation of any of the terms or provisions of, or constitutes or will constitute a default under, causes or will cause (or permits or will permit) the maturation or acceleration of any liability or obligation or the termination of any right under, or result in the creation or imposition of any lien, charge, or encumbrance upon, any property or assets of the Company pursuant to the terms of (A) the certificate of incorporation or by-laws of the Company, (B) any indenture, mortgage, deed of trust, voting trust agreement, stockholders' agreement, note agreement or other agreement or instrument to which the Company is a party or by which it is or may be bound or to which any of its property is or may be subject or (C) any statute, judgment, decree, order, rule or regulation applicable to the Company of any government, arbitrator, court, regulatory body or administrative agency or other governmental agency or body, domestic or foreign, having jurisdiction over the Company or any of its activities or properties. (v) No consent, approval, authorization or order of or filing with any court, regulatory body, administrative agency or any other governmental agency or body, domestic or foreign, is required for the performance of this Agreement or the consummation of the transactions contemplated hereby, except such as have been or may be obtained under the Act or may be required under state securities or Blue Sky laws in connection with the Underwriters' purchase and distribution of the Shares. (vi) All executed agreements or copies of executed agreements filed or incorporated by reference as exhibits to the Registration Statement to which the Company is a party or by which it is or may be bound or to which any of its assets, properties or businesses is or may be subject have been duly and validly authorized, executed and delivered by the Company and constitute the legal, valid and binding agreements of the Company enforceable against it in accordance with their respective terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to enforcement of creditors' rights generally, and general equitable principles relating to the availability of remedies, and except as rights to indemnity or contribution may be limited by federal or state securities laws and the public policy underlying such laws). The descriptions in the Registration Statement of contracts and other documents are accurate and fairly present the information required to be shown with respect thereto by the Act and the Rules and Regulations, and there are no contracts or other documents which are required by the Act or the Rules and Regulations to be described in the Registration Statement or filed as exhibits to the Registration Statement which are not described or filed as required or incorporated 4 therein by reference, and the exhibits which have been filed are complete and correct copies of the documents of which they purport to be copies. (vii) Subsequent to the most recent respective dates as of which information is given in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), and except as expressly contemplated therein, the Company has not incurred, other than in the ordinary course of its business, any material liabilities or obligations, direct or contingent, purchased any of its outstanding capital stock, paid or declared any dividends or other distributions on its capital stock or entered into any material transactions not in the ordinary course of business, and there has been no material change in capital stock or debt or any material adverse change in the business, properties, assets, net worth, condition (financial or other), or results of operations or prospects of the Company. The Company (and the manner in which it conducts its business) is not in breach or violation of, or in default under, any term or provision of (A) its certificate of incorporation or bylaws, (B) any indenture, mortgage, deed of trust, voting trust agreement, stockholders' agreement, note agreement or other agreement or instrument to which it is a party or by which it is or may be bound or to which any of its property is or may be subject, or any indebtedness, the effect of which breach or default singly or in the aggregate may have a Material Adverse Effect, or (C) any statute, judgment, decree, order, rule or regulation applicable to the Company or of any arbitrator, court, regulatory body, administrative agency or any other governmental agency or body, domestic or foreign, having jurisdiction over the Company or any of its activities or properties and the effect of which breach or default singly or in the aggregate may have a Material Adverse Effect. (viii) Except as disclosed in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), there is no pending action, suit, proceeding or investigation or threatened action, suit, proceeding or investigation before or by any court, regulatory body or administrative agency or any other governmental agency or body, domestic or foreign, which (A) questions the validity of the capital stock of the Company or this Agreement or of any action taken or to be taken by the Company pursuant to or in connection with this Agreement, (B) is required to be disclosed in the Registration Statement which is not so disclosed (and such proceedings, if any, as are summarized in the Registration Statement are accurately summarized in all respects), or (C) may have a Material Adverse Effect. (ix) The Company holds and at the Closing Date and any later Option Closing Date, as the case may be, will hold, all franchises, licenses, permits, approvals, certificates and other authorizations from federal, state and foreign and other governmental or regulatory authorities, including, but not limited to, the FDA and any foreign regulatory authorities performing functions similar to those performed by the FDA, necessary to the ownership, leasing and operation of its properties or required for the present conduct of its business, and such franchises, licenses, permits, approvals, certificates and other governmental authorizations are in full force and effect and the Company is in compliance therewith in all material respects except where the failure so to obtain, maintain or comply with would not have a Material Adverse Effect. All of the 5 descriptions in the Registration Statement and Prospectus of the legal and governmental proceedings by or before the FDA or any foreign, state or local government body exercising comparable authority are true, complete and accurate in all material respects. (x) The Company is not (i) in violation of its certificate of incorporation or bylaws, or (ii) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any bond, debenture, note or other evidence of indebtedness, which default would have a Material adverse Effect, or (iii) in default in the performance or observance of any contract, indenture, mortgage, loan agreement, joint venture or other agreement or instrument to which it is a party or by which their or any of their properties are bound, which default would have a Material Adverse Effect, or (iv) in violation of any law, order, rule, regulation, writ, injunction, judgment or decree of any court or government agency or body to which the Company is subject, including, but not limited to, the United States Food and Drug Administration (the "FDA"). (xi) The Company has the duly authorized and validly outstanding capitalization set forth under the caption "Capitalization" in the Registration Statement and Prospectus and will have the adjusted capitalization set forth therein on the Closing Date and the Option Closing Date, as the case may be, based on the assumptions set forth therein. The authorized and outstanding capital stock of the Company conforms to the description thereof contained in the Registration Statement and Prospectus (and such description correctly states the substance of the provisions of the instruments defining the capital stock of the Company). The outstanding shares of capital stock outstanding have been duly authorized and validly issued by the Company and are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, were not issued in violation of any preemptive right, resale right, right of first refusal or similar right. Except as created hereby or referred to in the Prospectus, there are no outstanding options, warrants, rights or other arrangements requiring the Company at any time to issue any capital stock. Except as set forth in the Prospectus, no holders of outstanding shares of capital stock of the Company are entitled as such to any preemptive right, co-sale right, right of first refusal or other rights to subscribe for any of the Shares and neither the filing of the registration statement nor the offering or sale of the Shares as contemplated by this Agreement gives rise to any rights, other than those which have been waived or satisfied, for or relating to, the registration of any securities of the Company. The Shares have been duly authorized; and on the Closing Date or the Option Closing Date (as the case may be), after payment therefor in accordance with the terms of this Agreement, (A) the Firm Shares and the Additional Shares to be sold by the Company hereunder will be validly issued, fully paid and nonassessable, and (B) good and marketable title to the Shares will pass to the Underwriters on the Closing Date or the Option Closing Date (as the case may be) free and clear of any lien, encumbrance, security interest, claim or other restriction whatsoever. The Common Stock is registered pursuant to Section 12(g) of the Exchange Act. The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act, nor has the Company received any notification that the Commission is contemplating terminating 6 such registration or listing. The Company has received, subject to notice of issuance, approval to have the Shares quoted on the National Market System of the National Association of Securities Dealers' Automated Quotation System and the Company knows of no reason or set of facts which is likely to adversely affect such approval. (xii) The financial statements and the related notes and schedules thereto included in the Registration Statement and the Prospectus fairly present the financial condition, results of operations, stockholders' equity and cash flows of the Company at the dates and for the periods specified therein. Such financial statements and the related notes and schedules thereto have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved (except as otherwise noted therein) and such financial statements as are audited have been examined by KPMG Peat Marwick LLP, who are independent public accountants within the meaning of the Act and the Rules and Regulations, as indicated in their reports filed therewith. The selected financial information and statistical data included in the Registration Statement and the Prospectus present fairly the information shown and have been prepared on a basis consistent with the financial statements presented therein. (xiii) Except as set forth in the Prospectus under the captions "Risk Factors - Dependence on Patents and Proprietary Rights" and "Business - Patents and Proprietary Rights," (i) the Company owns or possesses valid and enforceable licenses for all inventions, patents, patent applications, trademarks (registered or unregistered), trademark applications, tradenames, copyrights, manufacturing processes, formulae, trade secrets, know-how, and other intangible property and assets (collectively, "Intellectual Property") necessary to the conduct of its business now conducted as described in the Prospectus and the Company is not aware of any facts which would form a reasonable basis for a claim that the Company does not own or possess valid and enforceable licenses for all Intellectual Property necessary to the conduct of the Company's business proposed to be conducted as described in the prospectus; (ii) the Company has no knowledge that it lacks or will be unable to obtain any rights or licenses to use any of the Intellectual Property necessary to conduct the businesses now conducted or proposed to be conducted by it as described in the Prospectus; (iii) the Company believes that there are no third parties who have or will be able to establish rights to any of the Intellectual Property, except for the ownership rights of the owners of the Intellectual Property which is licensed to the Company and except for the rights of secured parties under security interests disclosed in the Prospectus; (iv) the Company's rights in patents which it co-owns with Research Foundation of State University of New York (the "Foundation"), namely Nos. 5,356 and 5,502,081 (the "Co-Owned Patents") arose out of the certain Research Agreement dated February 3, 1987, between Medchem Products, Inc. and the Foundation, out of which the Company now holds an undivided one-half ownership interest in the Co-Owned Patents, as well as a worldwide, exclusive license to make, use, sell and sublicense the technologies covered by the Co-Owned Patents; (v) to the Company's knowledge, there is no infringement by third parties of any of the Intellectual Property; (vi) there is no pending or, to the Company's knowledge, threatened action, suit, proceeding or claim by others challenging the Company's rights of title or other interest in or to any Intellectual Property, and the Company is unaware of any facts 7 which would form a reasonable basis for any such claim; (vii) there is no pending, or, to the Company's knowledge, threatened action, suit, proceeding or claim by others challenging the validity and scope of any Intellectual Property, and the Company is unaware of any facts which would form a reasonable basis for any such claim; (viii) there is no pending or, to the Company's knowledge, threatened action, suit, proceeding or claim by others that the Company or its products or processes infringe or otherwise violate any patent, trademark, copyright, trade secret or other proprietary right of others, and the Company is unaware of any facts which would form a reasonable basis for any such claim; (ix) to the Company's knowledge, there are no grounds for an interference proceeding before the USPTO in relation to any of the patents or patent applications currently owned by the Company; (x) to the Company's knowledge, there are no facts which would bar the grant of a patent from each of the patent applications within the Intellectual Property; (xi) there is no pending or, to the Company's knowledge, threatened action, suit, proceeding or claim by any current or former employee, consultant or agent of the Company seeking either ownership rights to any invention or compensation from the Company for any invention made by such employee, consultant or agent in the course of his/her employment with the Company, nor, to the Company's knowledge, can any such action, suit, proceeding or claim, if instituted, be sustained; and (xii) there is no act or omission of which the Company is aware that may render any patent or patent application within the Intellectual Property unpatentable, unenforceable or invalid. The Prospectus fairly and accurately describes the Company's rights with respect to the Intellectual Property. (xiv) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities under the Registration Statement (other than those that have been disclosed in the Prospectus or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), that have not been waived with respect to the Registration Statement. (xv) Since its inception, the Company has not incurred any material liability arising under or as a result of the application of the provisions of the Act. (xvi) Neither the Company nor any of its officers, directors or affiliates (within the meaning of the Rules and Regulations) has taken, directly or indirectly, any action designed to stabilize or manipulate the price of any security of the Company, or which has constituted or which might in the future reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company, to facilitate the sale or resale of the Shares or otherwise. (xvii) The Company has good and marketable title to, or valid and enforceable leasehold interests in, all properties and assets owned or leased by it, free and clear of all liens, encumbrances, security interests, claims, restrictions, equities, claims and defects, except (A) such as are described in the Registration Statement and Prospectus, or such as do not materially adversely affect the value of any of such properties or assets 8 taken as a whole and do not materially interfere with the use made and proposed to be made of any of such properties or assets, and (B) liens for taxes not yet due and payable as to which appropriate reserves have been established and reflected in the financial statements included in the Registration Statement. The Company owns or leases all such properties as are necessary to its operations as now conducted, and as proposed to be conducted as set forth in the Registration Statement and the Prospectus; and the properties and business of the Company conform in all material respects to the descriptions thereof contained in the Registration Statement and the Prospectus. All the material leases and subleases of the Company, and under which the Company holds properties or assets as lessee or sublessee, constitute valid leasehold interests of the Company free and clear of any lien, encumbrance, security interest, restriction, equity, claim or defect, are in full force and effect, and the Company is not in default in respect of any of the material terms or provisions of any such material leases or subleases, and the Company does not have notice of any claim which has been asserted by anyone adverse to the Company's rights as lessee or sublessee under either the material lease or sublease, or affecting or questioning the Company's right to the continued possession of the leased or subleased premises under any such material lease or sublease, which may have a Material Adverse Effect. (xviii) The Company is (i) in compliance with any and all applicable United States, foreign, state and local environmental laws, rules, regulations, treaties, statutes and codes promulgated by any and all governmental authorities relating to the protection of human health and safety, the environment or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) has received all permits, licenses or other approvals required of it under applicable Environmental Laws to conduct its business as currently conducted, and (iii) is in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permit licenses or other approvals would not, individually or in the aggregate, have a Material Adverse Effect. No action, proceeding, revocation proceeding, writ, injunction or claim is pending or threatened relating to the Environmental Laws or to the Company's activities involving Hazardous Materials. "Hazardous Materials" means any material or substance (i) that is prohibited or regulated by any environmental law, rule, regulation, order, treaty, statute or code promulgated by any governmental authority, or any amendment or modification thereto, or (ii) that has been designated or regulated by any governmental authority as radioactive, toxic, hazardous or otherwise a danger to health, reproduction or the environment. The Company has not engaged in the generation, use, manufacture, transportation or storage of any Hazardous Materials on any of the Company's properties or former properties, except where such use, manufacture, transportation or storage is in compliance with Environmental Laws. No Hazardous Materials have been treated or disposed of on any of the Company's properties or on properties formerly owned or leased by the Company or Subsidiaries during the time of such ownership or lease, except in compliance with Environmental Laws. No spills, discharges, releases, deposits, emplacements, leaks or disposal of any Hazardous Materials have occurred on or under or have emanated from any of the Company's properties or former properties during the time of the Company's ownership or lease thereof and except as disclosed in the Prospectus, the Company is not 9 aware of any spills, discharges, releases, deposits, emplacements, leaks or disposal of any Hazardous Materials that have occurred on or under or have emanated from any of the Company's or Subsidiaries' properties or former properties prior to the Company's or Subsidiaries' ownership or lease thereof. (xix) The Company has obtained agreements from each person who is a director or officer of the Company or who owns more than 5% of the outstanding shares of Common Stock and each Selling Stockholder providing that such person will not, for a period of 180 days after the date of the Prospectus (the "Lock-up Period"), without the prior written consent of Furman Selz LLC, directly or indirectly, offer, sell, solicit an offer to buy, make any short sale, pledge, contract to sell, grant any option to purchase, or otherwise dispose of or transfer, any shares of Common Stock beneficially owned as of the date such lockup agreement is executed (including, without limitation, shares of Common Stock which may be deemed to be beneficially owned in accordance with the Rules and Regulations and shares of Common Stock which may be issued upon exercise of a stock option or warrant) or any securities convertible into or exercisable or exchangeable for, or any rights to purchase or acquire, shares of Common Stock now owned or hereafter acquired directly by such beneficial owner or with respect to which such beneficial owner has or acquired the power of disposition, otherwise than by (a) as a distribution to partners or stockholders of such beneficial owner, provided that the distributees thereof agree in writing to be bound by the terms of this restriction or (b) pursuant to a bona fide gift to any person or other entity which agrees in writing to be bound by this restriction. Furthermore, such person or entity has also agreed and consented to the entry of stop transfer instructions with the Company's transfer agent against the transfer of shares of Common Stock held by such person or entity, except in compliance with the foregoing restriction. The Company has provided to counsel for the Underwriters a complete and accurate list of all stockholders of the Company and the number and type of securities held by each securityholder. The Company has provided to counsel for the Underwriters true, accurate and complete copies of all of the agreements pursuant to which its officers, directors and stockholders have agreed to such or similar restrictions (individually, a "Lock-up Agreement," and together, the "Lock-up Agreements") presently in effect or effected hereby. The Company hereby represents and warrants that it will not release any of its officers, directors or other stockholders from any Lock-up Agreements currently existing or hereafter effected without the prior written consent of Furman Selz LLC. (xx) The Company has timely and properly filed with the Commission all reports and other documents required to have been filed by it with the Commission pursuant to the Act and the Rules and Regulations. True and complete copies of all such reports and other documents have been delivered to you. 10 (xxi) There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees of indebtedness by the Company or the Subsidiaries to or for the benefit of any of the officers or directors of the Company or any of the members of the families of any of them that are required to be disclosed in the Registration Statement, the Offering Memorandum and the Prospectus that are not so disclosed. Except as disclosed in Prospectus, there are no business relationships or related party transactions required to be disclosed therein by Item 404 of Regulation S-K of the Commission. (xxii) The Company maintains insurance of the types and in amounts which it reasonably believes to be adequate for its business in such amounts and with such deductibles as is customary for companies in the same or similar business, all of which insurance is in full force and effect. (xxiii) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (xxiv) No labor disturbance by the employees of the Company exists or is imminent which may have a Material Adverse Effect. (xxv) The Company is in compliance with all provisions of Florida Statutes (S)517.075 and the regulations thereunder, relating to issuers doing business with Cuba. (xxvi) The Company has not at any time during the last five years (i) made any unlawful contribution to any candidate for foreign office, or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any foreign, United States or state governmental officer or official, or other person charged with similar public of quasi-public duties, other than payments required or permitted by the laws of the United States. (xxvii) The Company has filed all necessary federal, state and local income, franchise and other material tax returns and has paid all taxes shown as due thereunder, and the Company has no knowledge of any tax deficiency which might be assessed against the Company which, if so assessed, may have a Materially Adverse Effect. (b) Each Selling Stockholder severally represents and warrants to, and agrees with, the several Underwriters that: 11 (i) Such Selling Stockholder has full legal right, power and authority to enter into this Agreement, the Power of Attorney in the form heretofore furnished to you (the "Power of Attorney") and the Custody Agreement in the form heretofore furnished to you (the "Custody Agreement"). Each of this Agreement, the Power of Attorney and the Custody Agreement has been duly executed and delivered by such Selling Stockholder, and (assuming this Agreement is a binding agreement of yours) constitutes the valid and binding agreement of such Selling Stockholder, enforceable against such Selling Stockholder in accordance with their respective terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting the enforcement of creditor's rights and the application of equitable principles relating to the availability of remedies, and except as rights to indemnity or contribution may be limited by federal or state securities law and the public policy underlying such laws). (ii) None of the execution, delivery or performance of this Agreement, the Power of Attorney and the Custody Agreement and the consummation of the transactions herein and therein contemplated, will conflict with or result in a breach of, or default under, any indenture, mortgage, deed of trust, voting trust agreement, stockholders' agreement, note agreement, or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is or may be bound or to which any of his or its property is or may be subject, or any statute, judgment, decree, order, rule or regulation applicable to such Selling Stockholder of any government, arbitrator, court, regulatory body or administrative agency or other governmental agency or body, domestic or foreign, having jurisdiction over such Selling Stockholder or any of his activities or properties. (iii) At the date hereof such Selling Stockholder has, and at the time of delivery of the Shares to be sold by such Selling Stockholder to the several Underwriters, such Selling Stockholder will have, full right, power and authority to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder. At the date hereof such Selling Stockholder is, and at the time of delivery of the Shares to be sold by such Selling Stockholder, such Selling Stockholder will be, the lawful owner of and has and will have, good and marketable title to such Shares free and clear of any liens, encumbrances, security interests, claims, community property rights, restrictions on transfer or other defects in title. Upon delivery of and payment for the Shares to be sold by such Selling Stockholder hereunder, good and marketable title to such Shares will pass to the Underwriters, free and clear of any liens, encumbrances, security interests, claims, community property rights, restrictions on transfer or other defects in title. Except as described in the Registration Statement and the Prospectus (or, if there is no Prospectus, the most recent Preliminary Prospectus) or created hereby, there are no outstanding options, warrants, rights, or other agreements or arrangements requiring such Selling Stockholder at any time to transfer any Common Stock to be sold hereunder by such Selling Stockholder. (iv) Such Selling Stockholder will not, without the prior written consent of Furman Selz LLC, during the Lock-up Period, directly or indirectly, offer, sell, solicit 12 an offer to buy, make any short sale, pledge, grant any option to purchase, contract to sell or otherwise dispose of, or transfer (collectively, a "Disposition") any Common Stock now owned or hereafter acquired by such Selling Stockholder or with respect to which such Selling Stockholder has or hereafter acquires the power of disposition, otherwise than (i) as a bona fide gift or gifts, provided the donee or donees thereof agree in writing to be bound by this restrictions or (ii) as a distribution to partners or stockholders of the undersigned, provided that the distributees thereof agree in writing to be bound by the terms of this restriction. The foregoing restriction is expressly agreed to preclude the holder of the Common Stock from engaging in any hedging, equity swap or other transaction which is designed to or reasonably expected to lead to or result in a Disposition during the Lock-up Period, even if such Common Stock would be disposed of by someone other than the Selling Stockholder. Such prohibited hedging, equity swap, or other transactions would including, without limitation, any short sale (whether or not against the box), or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any Common Stock or with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from the Common Stock. Such Selling Stockholder also agrees and consents to the entry of stop transfer instructions with the Company's transfer agent against the transfer of the securities held by such Selling Stockholder except in compliance with this restriction. (v) Certificates in negotiable form for all Shares to be sold by such Selling Stockholder under this Agreement, together with a stock power or powers duly endorsed in blank by such Selling Stockholder, signature guaranteed by an eligible guarantor institution (bank, stockbroker, savings and loan association or credit union with membership in an approved Medallion Program) pursuant to rule 17Ad-15 promulgated under the Act, have been placed in custody with the custodian for the purpose of effecting delivery hereunder . (vi) Such Selling Stockholder has not distributed and will not distribute offering material in connection with the offering and sale of the Shares. (vii) Such Selling Stockholder will review the Prospectus and will comply with all agreements and satisfy all conditions on its part to be complied with or satisfied pursuant to this Agreement on or prior to the Closing Date, or any later date on which Option Shares are to be purchased, as the case may be, and will advise one of its Attorneys and Furman Selz LLC prior to the Closing Date or such later date on which Option Shares are to be purchased, as the case may be, if any statement to be made on behalf of such Selling Stockholder in the certificate contemplated by Section 7(j) hereof would be inaccurate if made as of the Closing Date or such later date on which Option Shares are to be purchased, as the case may be. (viii) Such Selling Stockholder does not have, or has waived prior to the date hereof, any preemptive right, co-sale right or right of first refusal or other similar right to purchase any of the Shares that are to be sold by the Company or any of the other Selling Stockholders to the Underwriters pursuant to this Agreement; such Selling 13 Stockholder does not have, or has waived prior to the date hereof, any registration right or other similar right to participate in the offering made by the Prospectus, other than such rights of participation as have been satisfied by the participation of such Selling Stockholder in the transactions to which this Agreement relates in accordance with the terms of this Agreement; and such Selling Stockholder does not own any warrants, options or similar rights to acquire, and does not have any right or arrangement to acquire, any capital stock, rights, warrants, options or other securities from the Company, other than those described in the Registration Statement and the Prospectus. (ix) At the time when the Registration Statement becomes or became effective, and at all times subsequent thereto up to and including the Closing Date and the Option Closing Date, the Registration Statement and any amendments thereto will not contain any untrue statement of a material fact regarding such Selling Stockholder or omit to state a material fact regarding such Selling Stockholder required to be stated therein or necessary in order to make the statements therein regarding such Selling Stockholder not misleading, and the Prospectus (and any supplements thereto) (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) will not contain any untrue statement of a material fact regarding such Selling Stockholder or omit to state a material fact regarding such Selling Stockholder required to be stated therein or necessary in order to make the statements therein regarding such Selling Stockholder, in light of the circumstances under which they were made, not misleading, and such Selling Stockholder is unaware of any material misstatement in or omission from the Registration Statement or the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) or of any material adverse information regarding the business or operations of the Company which is not set forth in the Registration Statement and the Prospectus (or, if the Prospectus is not then in existence, in the most recent Preliminary Prospectus). (x) Such Selling Stockholder has not taken, directly or indirectly, any action designed to stabilize or manipulate the price of any security of the Company, or which has constituted or which might in the future reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company, to facilitate the sale or resale of the Shares or otherwise. (xi) Nothing has come to the attention of such Selling Stockholder to cause each Selling Stockholder to believe that the Company's representations and warranties contained in this Agreement are not accurate. (xii) Each Selling Stockholder consents to the use of the Prospectus and any amendment or supplement thereto by the Underwriters and all dealers to whom the Shares may be sold, both in connection with the offering or sale of the Shares and for such period of time thereafter as the Prospectus is required by law to be delivered in connection therewith. (xiii) There is not pending or threatened against such Selling Stockholder any action, suit or proceeding which (A) questions the validity of this Agreement or of 14 any action taken or to be taken by such Selling Stockholder pursuant to or in connection with this Agreement or (B) is required to be disclosed in the Registration Statement which is not so disclosed, and such actions, suits or proceedings as are summarized in the Registration Statement, if any, are accurately summarized. 3. Purchase, Sale and Delivery of the Shares. On the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, (A) the Company agrees to sell to each Underwriter and each Underwriter, severally and not jointly, agrees to purchase from the Company at a purchase price of $___________ per Share, the number of Firm Shares set forth opposite the name of such Underwriter in Column (1) of Schedule I hereto and (B) each Selling Stockholder, severally and not ---------- jointly, agrees to sell to each Underwriter, and each Underwriter, severally and not jointly, agrees to purchase from such Selling Stockholder at a purchase price of $______ per Share, the number of Firm Shares equal to the number of Firm Shares set forth opposite the name of such Underwriter in Column (2) of Schedule I, multiplied by the number of Firm Shares set forth opposite the name - ---------- of such Selling Stockholder in Column (1) of Schedule II and divided by the ----------- total number of Firm Shares to be sold by all Selling Stockholders, in each case subject to such adjustments to eliminate any fractional shares as the Representatives in their sole discretion shall make. Certificates in negotiable form (endorsed in blank or accompanied by stock powers in blank, with signatures appropriately guaranteed, and any funds necessary for the purchase of stock transfer stamps) representing all of the Shares to be sold by the Selling Stockholders have been placed in custody under a Custody Agreement and each Selling Stockholder has duly executed and delivered a Power of Attorney appointing [_______________] and [____________________] and each of them as such Selling Stockholder's attorney-in-fact (the "Attorney-in- Fact") with authority to execute this Agreement and to deliver this Agreement on behalf of such Selling Stockholder, to authorize the delivery of the Shares to be sold by such Selling Stockholder hereunder and otherwise to act on behalf of such Selling Stockholder in connection with the transactions contemplated by this Agreement and the Custody Agreement. Each Selling Stockholder agrees that the shares represented by the certificates held in custody for such Selling Stockholder under the Custody Agreement are subject to the interests of the Underwriters hereunder and the arrangements made by such Selling Stockholder for such custody, as well as the appointment by such Selling Stockholder of the Attorney-in-Fact, are, to that extent, irrevocable. Each Selling Stockholder specifically agrees that the obligations of such Selling Stockholder hereunder shall not be terminated, except as otherwise provided herein, by any act of such Selling Stockholder, operation of law or otherwise, whether by the death or incapacity of such Selling Stockholder, if an individual, or by the occurrence of any other event. If any Selling Stockholder, if an individual, should die or become incapacitated, or if any other such event should occur, before the delivery of the Shares hereunder, certificates representing the shares held in custody for such Selling Stockholder shall be delivered pursuant to the terms and conditions of this Agreement and the Custody Agreement, and the actions taken by the Attorney-in-Fact pursuant to the Power of Attorney shall be as valid as if such death, incapacity or other event had not occurred, whether or not the Custodian or the Attorneys-in-Fact shall have received notice of such death, incapacity or other event. 15 Delivery of certificates, and payment of the purchase price, for the Firm Shares shall be made at the offices of Furman Selz LLC at 230 Park Avenue, New York, New York 10169, or such other location as shall be agreed upon by the Company and the Representatives. Such delivery and payment shall be made at 10:00 a.m., New York City time, on __________, 1997 or at such other time and date not more than ten business days thereafter as shall be agreed upon by the Representatives and the Company. The time and date of such delivery and payment are herein called the "Closing Date." Delivery of the certificates for the Firm Shares shall be made to the Representatives for the respective accounts of the several Underwriters against payment by the several Underwriters through the Representatives of the purchase price for the Firm Shares by certified or official bank checks in New York Clearing House (next day) funds drawn to the order of the Company in the case of Firm Shares sold by it and the Custodian in the case of Firm Shares sold by the Selling Stockholders. The certificates for the Firm Shares to be so delivered will be in definitive, fully registered form, will bear no restrictive legends and will be in denominations and registered in such names as the Representatives shall request, not less than two full business days prior to the Closing Date. The certificates for the Firm Shares will be made available to the Representatives at such office or such other place as the Representatives may designate for inspection, checking and packaging not later than 9:30 a.m., New York time on the business day prior to the Closing Date. 4. Public Offering of the Shares. It is understood that the Underwriters propose to make a public offering of the Shares at the price and upon the other terms set forth in the Prospectus. 5. Covenants of the Company and the Selling Stockholders. The Company and the Selling Stockholders covenant and agree with each of the Underwriters that: (a) The Company will use its best efforts to cause the Registration Statement, if not effective at the time of execution of this Agreement, and any amendments thereto to become effective as promptly as practicable. If required, the Company will file the Prospectus and any amendment or supplement thereto with the Commission in the manner and within the time period required by Rule 424(b) under the Act. During any time when a prospectus relating to the Shares is required to be delivered under the Act, the Company (A) will comply with all requirements imposed upon it by the Act and the Rules and Regulations to the extent necessary to permit the continuance of sales of or dealings in the Shares in accordance with the provisions hereof and of the Prospectus, as then amended or supplemented, and (B) will not file with the Commission the prospectus or the amendment referred to in the third sentence of Section 2(a)(i) hereof, any amendment or supplement to such prospectus or any amendment to the Registration Statement of which the Representatives shall not previously have been advised and furnished with a copy a reasonable period of time prior to the proposed filing and as to which filing the Representatives shall not have given their consent. 16 (b) As soon as the Company is advised or obtains knowledge thereof, the Company will advise the Representatives (A) when the Registration Statement, as amended, has become effective; if the provisions of Rule 430A promulgated under the Act will be relied upon, when the Prospectus has been filed in accordance with said Rule 430A and when any post-effective amendment to the Registration Statement becomes effective; (B) of any request made by the Commission for amending the Registration Statement, for supplementing any Preliminary Prospectus or the Prospectus or for additional information, or (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto or any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto or the institution or threat of any investigation or proceeding for that purpose, and will use its best efforts to prevent the issuance of any such order and, if issued, to obtain the lifting thereof as soon as possible. (c) The Company will (A) use its best efforts to arrange for the qualification of the Shares for offer and sale under the state securities or blue sky laws of such jurisdictions as the Representatives may designate, (B) continue such qualifications in effect for as long as may be necessary to complete the distribution of the Shares, and (C) make such applications, file such documents and furnish such information as may be required for the purposes set forth in clauses (A) and (B); provided, -------- however, that the Company shall not be required to qualify as a foreign ------- corporation or file a general or unlimited consent to service of process in any such jurisdiction. (d) The Company consents to the use of the Prospectus (and any amendment or supplement thereto) by the Underwriters and all dealers to whom the Shares may be sold, in connection with the offering or sale of the Shares and for such period of time thereafter as the Prospectus is required by law to be delivered in connection therewith. If, at any time when a prospectus relating to the Shares is required to be delivered under the Act, any event occurs as a result of which the Prospectus, as then amended or supplemented, would include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading, or if it becomes necessary at any time to amend or supplement the Prospectus to comply with the Act or the Rules and Regulations, the Company promptly will so notify the Representatives and, subject to Section 5(a)(i) hereof, will prepare and file with the Commission an amendment to the Registration Statement or an amendment or supplement to the Prospectus which will correct such statement or omission or effect such compliance, each such amendment or supplement to be reasonably satisfactory to counsel to the Underwriters. (e) As soon as practicable, but in any event not later than 45 days after the end of the 12-month period beginning on the day after the end of the fiscal quarter of the Company during which the effective date of the Registration Statement occurs (90 days in the event that the end of such fiscal quarter is the end of the Company's fiscal year), the Company will make generally available to its security holders, in the manner 17 specified in Rule 158(b) of the Rules and Regulations, and to the Representatives, an earnings statement which will be in the detail required by, and will otherwise comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations, which statement need not be audited unless required by the Act or the Rules and Regulations, covering a period of at least 12 consecutive months after the effective date of the Registration Statement. (f) During a period of five years after the date hereof, the Company will furnish to its stockholders, as soon as practicable, annual reports (including financial statements audited by independent public accountants) and unaudited quarterly reports of earnings, and will deliver to the Representatives: (i) concurrently with furnishing such quarterly reports to its stockholders, statements of income of the Company for each quarter in the form furnished to the Company's stockholders and certified by the Company's principal financial or accounting officer; (ii) concurrently with furnishing such annual reports to its stockholders, a balance sheet of the Company as at the end of the preceding fiscal year, together with statements of operations, stockholders' equity, and cash flows of the Company for such fiscal year, accompanied by a copy of the report thereon of independent public accountants; (iii) as soon as they are available, copies of all information (financial or other) mailed to stockholders; (iv) as soon as they are available, copies of all reports and financial statements furnished to or filed with the Commission, the National Association of Securities Dealers, Inc. ("NASD") or any securities exchange; (v) every press release and every material news item or article of interest to the financial community in respect of the Company or its affairs which was released or prepared by the Company; and (vi) any additional information of a public nature concerning the Company or its business which the Representatives may reasonably request. During such five-year period, if the Company has active subsidiaries, the foregoing financial statements will be on a consolidated basis to the extent that the accounts of the Company and its subsidiaries are consolidated, and will be accompanied by similar financial statements for any significant subsidiary which is not so consolidated. (g) The Company will maintain a Transfer Agent and, if necessary under the jurisdiction of incorporation of the Company, a Registrar (which may be the same entity as the Transfer Agent) for its Common Stock. 18 (h) The Company will furnish, without charge, to the Representatives or on the Representatives' order, at such place as the Representatives may designate, copies of the each Preliminary Prospectus, the Registration Statement and any pre-effective or post-effective amendments thereto (three of which copies will be signed and will include all financial statements and exhibits) and the Prospectus, and all amendments and supplements thereto, in each case as soon as available and in such quantities as the Representatives may reasonably request. (i) The Company shall not, during the 180 days following the effective date of the Registration Statement, except with your prior written consent as Representatives, file a registration statement covering any of its shares of capital stock. (j) The Company shall not, during the Lock-up Period, except with your prior written consent as Representatives, issue, sell, offer or agree to sell, grant, distribute or otherwise dispose of, directly or indirectly, any shares of Common Stock, or any options, rights or warrants with respect to shares of Common Stock, or any securities convertible into or exchangeable for Common Stock, other than (i) the sale of Shares hereunder, (ii) the grant of options or the issuance of shares of Common Stock under the Company's stock option plans or stock purchase plan, as the case may be, existing on the date hereof, and (iii) the issuance of shares of Common Stock upon exercise of the currently outstanding options or warrants described in the Registration Statement. (k) The Company will use its best efforts to maintain listing of its shares of Common Stock on the Nasdaq National Market. (l) Neither the Company nor any of its officers or directors, nor affiliates of any of them (within the meaning of the Rules and Regulations) will take, directly or indirectly, any action designed to, or which might in the future reasonably be expected to cause or result in, stabilization or manipulation of the price of any securities of the Company. (m) The Company will apply the net proceeds of the offering received by it in the manner set forth under the caption "Use of Proceeds" in the Prospectus. (n) The Company will timely file all such reports, forms or other documents as may be required from time to time, under the Act, the Rules and Regulations, the Exchange Act, and the rules and regulations thereunder, and all such reports, forms and documents filed will comply as to form and substance with the applicable requirements under the Act, the Rules and Regulations, the Exchange Act and the rules and regulations thereunder. 6. Expenses. (a) Regardless of whether the transactions contemplated in this Agreement are consummated, and regardless of whether for any reason this Agreement is terminated, the 19 Company and the Selling Stockholders will pay, and hereby agree to indemnify each Underwriter against, all fees and expenses incident to the performance of the obligations of the Company and the Selling Stockholders under this Agreement, including, but not limited to, (i) fees and expenses of accountants and counsels for the Company and the Selling Stockholders, (ii) all costs and expenses incurred in connection with the preparation, duplication, printing, filing, delivery and shipping of copies of the Registration Statement and any pre-effective or post-effective amendments thereto, any Preliminary Prospectus and the Prospectus and any amendments or supplements thereto (including postage costs related to the delivery by the Underwriters of any Preliminary Prospectus or Prospectus, or any amendment or supplement thereto), this Agreement, the Agreement Among Underwriters, any Selected Dealer Agreement, Underwriters' Questionnaire, Underwriters' Power of Attorney, Custody Agreement and Selling Stockholders' Power of Attorney and all other documents in connection with the transactions contemplated herein, including the cost of all copies thereof, (iii) fees and expenses relating to qualification of the Shares under state securities or blue sky laws, including the cost of preparing and mailing the preliminary and final blue sky memoranda and filing fees and disbursements and fees of counsel and other related expenses, if any, in connection therewith, (iv) filing fees of the Commission and the NASD relating to the Shares, (v) any fees and expenses in connection with the quotation of the Shares on the National Association of Securities Dealers Automated Quotations National Market System, (vi) costs and expenses incident to the preparation, issuance and delivery to the Underwriters of any certificates evidencing the Shares, including transfer agent's and registrar's fees and any applicable transfer taxes incurred in connection with the delivery to the Underwriters of the Shares to be sold by the Company and the Selling Stockholders pursuant to this Agreement and (vii) costs and expenses incident to any meetings with prospective investors in the Shares (other than as shall have been specifically approved by the Representatives to be paid for by the Underwriters). (b) If the purchase of the Shares as herein contemplated is not consummated for any reason other than the Underwriters' default under this Agreement or other than by reason of Section 11(a), the Company and the Selling Stockholders shall reimburse the several Underwriters for their out-of-pocket expenses (including reasonable counsel fees and disbursements) in connection with any investigation made by them, and any preparation made by them in respect of marketing of the Shares or in contemplation of the performance by them of their obligations hereunder. 7. Conditions of the Underwriters' Obligations. The obligation of each Underwriter to purchase and pay for the Shares set forth opposite the name of such Underwriter in Schedule I is subject to the continuing accuracy of the ---------- representations and warranties of the Company and the Selling Stockholders herein as of the date hereof and as of the Closing Date as if they had been made on and as of the Closing Date; the accuracy on and as of the Closing Date of the statements of officers of the Company and the Selling Stockholders made pursuant to the provisions hereof; the performance by the Company and the Selling Stockholders on and as of the Closing Date of their respective covenants and agreements hereunder; and the following additional conditions: (a) If the Company has elected to rely on Rule 430A under the Act, the Registration Statement shall have been declared effective, and the Prospectus (containing the 20 information omitted pursuant to Rule 430A) shall have been filed with the Commission not later than the Commission's close of business on the second business day following the date hereof or such later time and date to which the Representatives shall have consented; if the Company does not elect to rely on Rule 430A, the Registration Statement shall have been declared effective not later than 11:00 A.M., New York time, on the date hereof or such later time and date to which the Representatives shall have consented; if required, in the case of any changes in or amendments or supplements to the Prospectus in addition to those contemplated above, the Company shall have filed such Prospectus as amended or supplemented with the Commission in the manner and within the time period required by Rule 424(b) under the Act; no stop order suspending the effectiveness of the Registration Statement or any amendment thereto shall have been issued, and no proceedings for that purpose shall have been instituted or threatened or, to the knowledge of the Company or the Representatives, shall be contemplated by the Commission; and the Company shall have complied with any request of the Commission for additional information (to be included in the Registration Statement or the Prospectus or otherwise). (b) The Representatives shall not have advised the Company that the Registration Statement, or any amendment thereto, contains an untrue statement of fact which, in the Representatives' opinion, is material, or omits to state a fact which, in the Representatives' opinion, is material and is required to be stated therein or is necessary to make the statements therein not misleading, or that the Prospectus, or any supplement thereto, contains an untrue statement of fact which, in the Representatives' opinion, is material, or omits to state a fact which, in the Representatives' opinion, is material and is required to be stated therein or is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) On or prior to the Closing Date, the Representatives shall have received from counsel to the Underwriters, such opinion or opinions with respect to the issuance and sale of the Firm Shares, the Registration Statement and the Prospectus and such other related matters as the Representatives reasonably may request and such counsel shall have received such documents and other information as they request to enable them to pass upon such matters. (d) On the Closing Date the Underwriters shall have received at no cost to them the opinions, dated the Closing Date, of (i) Goodwin, Procter & Hoar LLP, counsel to the Company ("Company Counsel"), (ii) King & Spalding, special FDA counsel to the Company, (iii) Hamilton, Brook, Smith & Reynolds, P.C., special patent counsel to the Company and (iv) _________, counsel to the Selling Stockholders, in the forms attached hereto at Appendix A, addressed to the Underwriters and with reproduced copies of signed counterparts thereof for each of the Underwriters: (e) On or prior to the Closing Date, counsel to the Underwriters shall have been furnished such documents, certificates and opinions as they may reasonably require in order to evidence the accuracy, completeness or satisfaction of any of the representations or warranties of the Company or the Selling Stockholders, or conditions herein contained. 21 (f) On the Closing Date, the Underwriters shall have received, a letter from the Accountants addressed to the Company and the Underwriters, dated the Closing Date, confirming that it is an independent certified public accountant with respect to the Company within the meaning of the Act and the Rules and Regulations thereunder and based upon the procedures described in its letter delivered to you concurrently with the execution of this Agreement (herein called the "Original Letter"), but carried out to a date not more than three days prior to the Closing Date, (i) confirming that the statements and conclusions set forth in the Original Letter are accurate as of the Closing Date; and (ii) setting forth any revisions and additions to the statements and conclusions set forth in the Original Letter that are necessary to reflect any changes in the facts described in the Original Letter since the date of such letter, or to reflect the availability of more recent financial statements, data or information. The letter shall not disclose any change, or any development involving a prospective change, in or affecting the business or properties of the Company which, in your reasonable judgment, makes it impracticable or inadvisable to proceed with the public offering of the Shares as contemplated by the Prospectus. In addition, you shall have received from the Accountants a letter addressed to the Company and made available to you for the use of the Underwriters stating that its review of the Company's system of internal accounting controls, to the extent it deemed necessary in establishing the scope of its latest examination of the Company's financial statements, did not disclose any weaknesses in internal controls that it considered to be material weaknesses. All such letters shall be in a form reasonably satisfactory to the Representatives and their counsel. (g) On the Closing Date, the Underwriters shall have received a certificate, dated the Closing Date, of the principal executive officer and the principal financial or accounting officer of the Company to the effect that each of such persons has carefully examined the Registration Statement and the Prospectus and any amendments or supplements thereto and this Agreement, and that: (i) The representations and warranties of the Company in this Agreement are true and correct, as if made on and as of the Closing Date, and the Company has complied with all agreements and covenants and satisfied all conditions contained in this Agreement on its part to be performed or satisfied at or prior to the Closing Date; (ii) No stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been instituted or are pending or, to the best knowledge of each of such persons are contemplated or threatened under the Act and any and all filings required by Rule 424 and Rule 430A have been timely made; (iii) The Registration Statement and Prospectus and, if any, each amendment and each supplement thereto, contain all statements and information required to be included therein, and neither the Registration Statement nor any amendment thereto includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading and neither the Prospectus (or any supplement thereto) or any Preliminary Prospectus includes or included any untrue statement of a material fact or omits or omitted to state 22 any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (iv) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus up to and including the Closing Date, the Company has not incurred, other than in the ordinary course of its business, any material liabilities or obligations, direct or contingent; the Company has not purchased any of its outstanding capital stock or paid or declared any dividends or other distributions on its capital stock; the Company has not entered into any transactions not in the ordinary course of business; and there has not been any change in the capital stock or long-term debt or any increase in the short-term borrowings (other than any increase in short-term borrowings in the ordinary course of business) of the Company or any material adverse change to the business properties, assets, net worth, condition (financial or other), results of operations or prospects of the Company; the Company has not sustained any material loss or damage to its property or assets, whether or not insured; there is no litigation which is pending or threatened against the Company which is required under the Act or the Rules and Regulations to be set forth in an amended or supplemented Prospectus which has not been set forth; and there has not occurred any event required to be set forth in an amended or supplemented Prospectus which has not been set forth. References to the Registration Statement and the Prospectus in this paragraph (g) are to such documents as amended and supplemented at the date of the certificate. (h) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus up to and including the Closing Date there has not been (i) any change or decrease specified in the letter or letters referred to in paragraph (f) of this Section 7 or (ii) any change, or any development involving a prospective change, in the business or properties of the Company which change or decrease in the case of clause (i) or change or development in the case of clause (ii) makes it impractical or inadvisable in the Representatives' judgment to proceed with the public offering or the delivery of the Shares as contemplated by the Prospectus. (i) No order suspending the sale of the Shares in any jurisdiction designated by you pursuant to Section 5(a)(iii)(A) hereof has been issued on or prior to the Closing Date and no proceedings for that purpose have been instituted or, to your knowledge or that of the Company, have been or are contemplated. (j) On the Closing Date, the Underwriters shall have received a certificate, dated the Closing Date, from each Selling Stockholder (which may be signed by the Attorney-in-Fact) to the effect that each of such Selling Stockholders has carefully examined the Registration Statement and the Prospectus and this Agreement, and that: (A) The representations and warranties of such Selling Stockholder in this Agreement are true and correct, as if made at and as of the Closing Date, 23 and such Selling Stockholder has complied with all the agreements and satisfied all the conditions to be performed or satisfied by such Selling Stockholder at or prior to the Closing Date; and (B) The Registration Statement and Prospectus and, if any, each amendment and each supplement thereto, contain all statements required to be included therein regarding such Selling Stockholder, and none of the Registration Statement nor any amendment thereto includes any untrue statement of a material fact regarding such Selling Stockholder or omits to state any material fact regarding such Selling Stockholder required to be stated therein or necessary to make the statements therein regarding such Selling Stockholder not misleading, and neither the Prospectus (and any supplements thereto) or any Preliminary Prospectus includes or included any untrue statement of a material fact regarding such Selling Stockholder or omits or omitted to state a material fact regarding such Selling Stockholder required to be stated therein or necessary in order to make the statements therein regarding such Selling Stockholder, in light of the circumstances under which they were made, not misleading. (k) The Representatives shall have received a Lock-up Agreement from each person who is a director or officer of the Company or who owns more than 5% of the outstanding shares of Common Stock and each Selling Stockholder. (l) The Company and the Selling Stockholders shall have furnished the Underwriters with such further opinions, letters, certificates or documents as you or counsel for the Underwriters may reasonably request. All opinions, certificates, letters and documents to be furnished by the Company and the Selling Stockholders will comply with the provisions hereof only if they are reasonably satisfactory in all material respects to the Underwriters and to counsel for the Underwriters. The Company and the Selling Stockholders shall furnish the Underwriters with conformed copies of such opinions, certificates, letters and documents in such quantities as you reasonably request. The certificates delivered under this Section 7 shall constitute representations, warranties and agreements of the Company and the Selling Stockholders, as the case may be, as to all matters set forth therein as fully and effectively as if such matters had been set forth in Section 2 of this Agreement. (m) The Shares have been duly authorized for quotation on the National Association of Securities Dealers Automated Quotation National Market System. 8. Indemnification. (a) Subject to the provisions of Section 8(e), the Company and the Selling Stockholders, jointly and severally, agree to indemnify and hold harmless each Underwriter and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any and all losses, claims, damages or liabilities, joint or several (and actions in respect thereof), to which such Underwriter or such controlling person may become subject, under the Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or the Prospectus or any Preliminary Prospectus, or any amendment or supplement thereto, or any blue sky application or other document executed by 24 the Company specifically for the purpose of qualifying, or based upon written information furnished by the Company or the Selling Stockholders filed in any state or other jurisdiction in order to qualify, any or all of the Shares under the securities or blue sky laws thereof (any such application, document or information being hereinafter called a "Blue Sky Application"), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements not misleading and will reimburse, as incurred, such Underwriter or such controlling persons for any legal or other expenses incurred by such Underwriter or such controlling persons in connection with investigating, defending or appearing as a third party witness in connection with any such loss, claim, damage, liability or action; provided, however, that the Company and such Selling Stockholder will -------- ------- not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any of such documents in reliance upon and in conformity with information furnished in writing to the Company on behalf of such Underwriter through the Representatives expressly for use therein, and provided, further, that such indemnity with -------- ------- respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter) from whom the person asserting any such loss, claim, damage, liability or action purchased Shares which are the subject thereof to the extent that any such loss, claim, damage, liability or action (i) results from the fact that such Underwriter failed to send or give a copy of the Prospectus (as amended or supplemented) to such person at or prior to the confirmation of the sale of such Shares to such person in any case where such delivery is required by the Act and (ii) arises out of or is based upon an untrue statement or omission of a material fact contained in such Preliminary Prospectus that was corrected in the Prospectus (as amended and supplemented), unless such failure resulted from non- compliance by the Company with Section 5(a)(viii) hereof. The Company and the Selling Stockholders may agree, as among themselves and without limiting the rights of the Underwriters under this Agreement, as to the respective amounts of such liability for which they each shall be responsible, and the provisions of this Section 8(a) shall not affect any such agreement. The indemnity agreement in this paragraph (a) shall be in addition to any liability which the Company and the Selling Stockholders may otherwise have. (b) Each of the Underwriters agrees severally, but not jointly, to indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and each Selling Stockholder against any and all losses, claims, damages or liabilities (and actions in respect thereof) to which the Company or any such Selling Stockholder, director, officer, or controlling person may become subject, under the Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or the Prospectus or any Preliminary Prospectus, or any amendment or supplement thereto or in any Blue Sky Application, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements not misleading, in each case to the extent, but only to the 25 extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with information furnished in writing by that Underwriter through the Representatives to the Company expressly for use therein; and will reimburse, as incurred, all legal or other expenses reasonably incurred by the Company or any such Selling Stockholder, director, officer, controlling person in connection with investigating or defending any such loss, claim, damage, liability or action. The Company and the Selling Stockholders acknowledge that the statements with respect to the public offering of the Shares set forth under the heading "Underwriting," except for the ____ paragraph thereof, in the Prospectus have been furnished by the Underwriters to the Company expressly for use therein and constitute the only information furnished in writing by or on behalf of the Underwriters for inclusion in the Prospectus. The indemnity agreement contained in this subsection (b) shall be in addition to any liability which the Underwriters may otherwise have. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against one or more indemnifying parties under this Section 8, notify such indemnifying party or parties of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) of this Section 8 or to the extent that the indemnifying party was not adversely affected by such omission. In case any such action is brought against an indemnified party and it notifies an indemnifying party or parties of the commencement thereof, the indemnifying party or parties against which a claim is to be made will be entitled to participate therein and, to the extent that it or they may wish, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided however, that if the defendants in any such action include both the - -------- ------- indemnified party and the indemnifying party and the indemnified party has reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and otherwise to participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses (other than the reasonable costs of investigation) subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party has employed such counsel in connection with the assumption of such different or additional legal defenses in accordance with the proviso to the immediately preceding sentence, (ii) the indemnifying party has not employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action, or (iii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party. (d) If the indemnification provided for in this Section 8 is unavailable or insufficient to hold harmless an indemnified party under paragraph (a) or (b) above in respect of any losses, claims, damages, expenses or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such 26 indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) (i) in such proportion as is appropriate to reflect the relative benefits received by each of the contributing parties, on the one hand, and the party to be indemnified, on the other hand, from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of each of the contributing parties, on the one hand, and the party to be indemnified, on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. In any case where the Company and/or any Selling Stockholder are contributing parties and the Underwriters are the indemnified party, the relative benefits received by the Company and/or the Selling Stockholders on the one hand, and the Underwriters, on the other, shall be deemed to be in the same proportion as the total net proceeds from the offering of the Shares (before deducting expenses) bear to the total underwriting discounts received by the Underwriters hereunder, in each case as set forth in the table on the cover page of the Prospectus. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders or by the Underwriters, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this paragraph (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this paragraph (d), the Underwriters shall not be required to contribute any amount in excess of the underwriting discount applicable to the Shares purchased by the Underwriters hereunder. The Underwriters' obligations to contribute pursuant to this paragraph (d) are several in proportion to their respective underwriting obligations, and not joint. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), (i) each person, if any, who controls an Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Underwriter and (ii) each director of the Company, each officer of the Company who has signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and each of the Selling Stockholders shall have the same rights to contribution as the Company, subject in each case to this paragraph (d). Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect to which a claim for contribution may be made against another party or parties under this paragraph (d), notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any other obligation (x) it or they may have hereunder or otherwise than under this paragraph (d) or (y) to the extent that such party or parties were not adversely affected by such omission. The contribution agreement set forth above shall be in addition to any liabilities which any indemnifying party may otherwise have. 27 (e) Notwithstanding any other provision of this Agreement, the liability of each Selling Stockholder under this Section 8, solely in its capacity as a Selling Stockholder herein and not with respect to any other relationships any of the Selling Stockholders or any of its affiliates may have with the Company, shall not exceed the lesser of (i) the amount equal to the public offering price of the Shares sold by the Selling Securityholder to the Underwriters minus the amount of the underwriting discount paid thereon to the Underwriters by the Selling Stockholder, and (ii) such Selling Stockholder's proportionate share of such liability, determined by dividing the number of shares sold by such Selling Stockholder under this Agreement by the total number of shares of Common Stock sold under this Agreement by the Company and the Selling Stockholders. 9. Right to Increase Offering. At anytime during a period of 30 days from the date of the Prospectus, the Underwriters, by no less than two business days' prior notice to the Company and the Selling Stockholders may designate a closing (which may be concurrent with, and part of, the closing on the Closing Date with respect to the Firm Shares or may be a second closing held on a date subsequent to the Closing Date, in either case such date shall be referred to herein as the "Option Closing Date") at which the Underwriters may purchase all or less than all of the Additional Shares in accordance with the provisions of this Section 9 at the purchase price per share to be paid for the Firm Shares. In no event shall the Option Closing Date be later than 10 business days after written notice of election to purchase Additional Shares is given. The Company and the Selling Stockholders agree, severally and not jointly, to sell to the several Underwriters the respective numbers of Additional Shares obtained by multiplying the number of Shares specified in such notice by a fraction, of which the numerator is in the case of the Company, the maximum number of Additional Shares offered by it, and, in the case of each of the Selling Stockholders, the number of shares set forth opposite the name of each Selling Stockholder set forth in Column (2) of Schedule II hereto, and the ----------- denominator is the total number of Additional Shares (subject to adjustment by you to eliminate fractions). Such Additional Shares shall be purchased from the Company and each Selling Stockholder for the account of each Underwriter in the same proportion as the number of Firm Shares set forth opposite the name of such Underwriter in Column (3) of Schedule I bears to the total number of Firm Shares ---------- (subject to adjustment by you to eliminate fractions) and may be purchased by the Underwriters only for the purpose of covering over-allotments made in connection with the sale of the Firm Shares. No Additional Shares shall be sold or delivered unless the Firm Shares previously have been, or simultaneously are, sold and delivered. The right to purchase the Additional Shares or any portion thereof may be surrendered and terminated at any time upon notice by you to the Company. Except to the extent modified by this Section 9, all provisions of this Agreement relating to the transactions contemplated to occur on the Closing Date for the sale of the Firm Shares shall apply, mutatis mutandis, to the Option Closing Date for the sale of the Additional Shares. 28 10. Representations, etc. to Survive Delivery. The respective representations, warranties, agreements, covenants, indemnities and statements of, and on behalf of, the Company and its officers, the Selling Stockholders and the Underwriters, respectively, set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Underwriters, and will survive delivery of and payment for the Shares. Any successors to the Underwriters shall be entitled to the indemnity, contribution and reimbursement agreements contained in this Agreement. 11. Effective Date and Termination. (a) This Agreement shall become effective at 11:00 A.M., New York time on the first business day following the date hereof, or at such earlier time after the Registration Statement becomes effective as the Representatives, in their sole discretion, shall release the Shares for the sale to the public unless prior to such time the Representatives shall have received written notice from the Company that it elects that this Agreement shall not become effective, or the Representatives shall have given written notice to the Company that the Representatives on behalf of the Underwriters elect that this Agreement shall not become effective; provided, however, that the provisions of this Section and -------- ------- of Section 6 and Section 8 hereof shall at all times be effective. For purposes of this Section 11(a), the Shares to be purchased hereunder shall be deemed to have been so released upon the earlier of notification by the Representatives to securities dealers releasing such Shares for offering or the release by the Representatives for publication of the first newspaper advertisement which is subsequently published relating to the Shares. (b) This Agreement (except for the provisions of Sections 6 and 8 hereof) may be terminated by the Representatives by notice to the Company and the Attorney-in-Fact in the event that the Company or any of the Selling Stockholders have failed to comply in any respect with any of the provisions of this Agreement required on their respective parts to be performed at or prior to the Closing Date or the Option Closing Date, or if any of the representations or warranties of the Company or the Selling Stockholders are not accurate in any respect or if the covenants, agreements or conditions of, or applicable to the Company or the Selling Stockholders herein contained have not been complied with in any respect or satisfied within the time specified on the Closing Date or the Option Closing Date, respectively, or if prior to the Closing Date or the Option Closing Date: (i) the Company shall have sustained a loss by strike, fire, flood, accident or other calamity of such a character as to interfere materially with the conduct of the business and operations of the Company takes as a whole regardless of whether or not such loss was insured; (ii) trading in the Common Stock shall have been suspended by the Commission or the National Association of Securities Dealers Automated Quotations National Market System or trading in securities generally on the New York Stock Exchange or the National Association of Securities Dealers Automated Quotations National Market System shall have been suspended or a material limitation on such trading shall have been imposed or minimum or maximum prices shall have been established on any such exchange or market system; 29 (iii) a banking moratorium shall have been declared by New York or United States authorities; (iv) there shall have been an outbreak or escalation of hostilities between the United States and any foreign power or an outbreak or escalation of any other insurrection or armed conflict involving the United States; or (v) there shall have been a material adverse change in (A) general economic, political or financial conditions or (B) the present or prospective business or condition (financial or other) of the Company that, in each case, in the Representatives' judgment makes it impracticable or inadvisable to make or consummate the public offering, sale or delivery of the Company's Shares on the terms and in the manner contemplated in the Prospectus and the Registration Statement. (c) Termination of this Agreement under this Section 11 or Section 12 after the Firm Shares have been purchased by the Underwriters hereunder shall be applicable only to the Additional Shares. Termination of this Agreement shall be without liability of any party to any other party other than as provided in Sections 6 and 8 hereof. 12. Substitution of Underwriters. If one or more of the Underwriters shall fail or refuse (otherwise than for a reason sufficient to justify the termination of this Agreement under the provisions of Section 7 or 11 hereof) to purchase and pay for (a) in the case of the Closing Date, the number of Firm Shares agreed to be purchased by such Underwriter or Underwriters upon tender to you of such Firm Shares in accordance with the terms hereof or (b) in the case of the Option Closing Date, the number of Additional Shares agreed to be purchased by such Underwriter or Underwriters upon tender to you of such Additional Shares in accordance with the terms hereof, and the number of such Shares shall not exceed 10% of the Firm Shares or Additional Shares required to be purchased on the Closing Date or the Option Closing Date, as the case may be, then, each of the non-defaulting Underwriters shall purchase and pay for (in addition to the number of such Shares which it has severally agreed to purchase hereunder) that proportion of the number of Shares which the defaulting Underwriter or Underwriters shall have so failed or refused to purchase on such Closing Date or Option Closing Date, as the case may be, which the number of Shares agreed to be purchased by such non-defaulting Underwriter bears to the aggregate number of Shares so agreed to be purchased by all such non-defaulting Underwriters on such Closing Date or Option Closing Date, as the case may be. In such case, you shall have the right to postpone the Closing Date or the Option Closing Date, as the case may be, to a date not exceeding seven full business days after the date originally fixed as such Closing Date or the Option Closing Date, as the case may be, pursuant to the terms hereof in order that any necessary changes in the Registration Statement, the Prospectus or any other documents or arrangements may be made. If one or more of the Underwriters shall fail or refuse (otherwise than for a reason sufficient to justify the termination of this Agreement under the provisions of Section 7 or 11 hereof) to purchase and pay for (a) in the case of the Closing Date, the number of Firm Shares agreed to be purchased by such Underwriter or Underwriters upon tender to you of such Firm Shares in accordance with the terms hereof or (b) in the case of the Option Closing Date, the 30 number of Additional Shares agreed to be purchased by such Underwriter or Underwriters upon tender to you of such Additional Shares in accordance with the terms hereof, and the number of such Shares shall exceed 10% of the Firm Shares or Additional Shares required to be purchased by all the Underwriters on the Closing Date or the Option Closing Date, as the case may be, then (unless within 48 hours after such default arrangements to your satisfaction shall have been made for the purchase of the defaulted Shares by an Underwriter or Underwriters) and subject to the provisions of Section 11(b) hereof, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or on the part of the Company or the Selling Stockholders except as otherwise provided in Sections 6 and 8 hereof. As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this paragraph. Nothing in this Section 12, and no action taken hereunder, shall relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 13. Notices. All communications hereunder shall be in writing and if sent to the Representatives shall be mailed or delivered or telegraphed and confirmed by letter or telecopied and confirmed by letter to c/o Furman Selz LLC at 230 Park Avenue, New York, New York 10169, Attention: Syndicate Department or, if sent to the Company, shall be mailed or delivered or telegraphed and confirmed to the Company at 236 West Cummings Park, Woburn, MA 01801, or if sent to the Selling Stockholders, shall be mailed or delivered or telegraphed and confirmed by letter or telecopied and confirmed by letter to [name[s] of Attorney[s]-in- Fact and address]. 14. Successors. This Agreement shall inure to the benefit of and be binding upon the Company, the Selling Stockholders, and each Underwriter and the Company's, the Selling Stockholders' and each Underwriter's respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person, except that the representations, warranties, indemnities and contribution agreements of the Company and the Selling Stockholders contained in this Agreement shall also be for the benefit of any person or persons, if any, who control any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and except that the Underwriters' indemnity and contribution agreements shall also be for the benefit of the directors of the Company, the officers of the Company who have signed the Registration Statement, any person or persons, if any, who control the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and the Selling Stockholders. No purchaser of Shares from the Underwriters will be deemed a successor because of such purchase. 15. Applicable Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the choice of law or conflict of law principles thereof. Each party hereto consents to the jurisdiction of each court in which any action is commenced seeking indemnity or contribution pursuant to Section 8 above and agrees to accept, either directly or through an agent, service of process of each such court. 31 16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument. 32 If the foregoing correctly sets forth our understanding, please indicate the Underwriters' acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us. Very truly yours, ANIKA THERAPEUTICS, INC. By: ----------------------------------------- Name: Title: SELLING STOCKHOLDERS By: ----------------------------------------- As Attorney-in-Fact for the Selling Stockholders named in Schedule II hereto ----------- 33 Accepted as of the date first above written: FURMAN SELZ LLC By: Furman Selz LLC Acting on its own behalf and as one of the Representatives of the several Underwriters referred to in the foregoing Agreement By: ------------------------------------ Title: --------------------------------- VOLPE, BROWN, WHELAN & COMPANY LLC By: Volpe, Brown, Whelan & Company LLC Acting on its own behalf and as one of the Representatives of the several Underwriters referred to in the foregoing Agreement By: ------------------------------------ Title: --------------------------------- LEERINK, SWANN, GARRITY, SALLAMI, YAFFEE & WYNN, INC. By: Leerink Swann & Company Acting on its own behalf and as one of the Representatives of the several Underwriters referred to in the foregoing Agreement By: ------------------------------------ Title: --------------------------------- 34 SCHEDULE I ---------- UNDERWRITERS Underwriting Agreement dated ______________, 1997
(2) (3) (1) Number of Firm Aggregate Number of Firm Shares to be Number of Shares to be Purchased from Firm Shares Purchased from the Selling to be the Company Stockholders Purchased -------------- -------------- ----------- Name and Address - ---------------- Furman Selz LLC................ -------------- -------------- ----------- Volpe, Brown, Whelan & Company LLC........................... -------------- -------------- ----------- Leerink, Swann, Garrity, Sallami, Yaffee & Wynn, Inc... -------------- -------------- ----------- -------------- -------------- ----------- Total.......................... ============== ==============
35 SCHEDULE II ----------- SELLING STOCKHOLDERS
(1) (2) Maximum Number of Name and Address of Firm Shares Additional Shares Selling Stockholder to be Sold to be Sold ------------------- ----------- ----------------- Axiom Venture Partners Limited Partnership 500,000 c/o Axiom Venture Partners City Place II, 17th Floor 185 Asylum Street Hartford, CT 06103 ------- ----------------- Total....................................... 500,000 ======= =================
36 APPENDIX A 1. Opinion of Counsel to the Company --------------------------------- (i) The Company (A) is a duly incorporated and validly existing corporation in good standing under the laws of its jurisdiction of incorporation with full power and authority (corporate and other) to own or lease its properties and to conduct its business as described in the Prospectus, and (B) is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction (x) in which the conduct of its business requires such qualification (except for those jurisdictions in which the failure so to qualify can be cured without having a Material Adverse Effect) and (y) in which it owns or leases property; (ii) The authorized capital stock of the Company consists of ______ shares of Preferred Stock, of which there are no outstanding shares, and ______ shares of Common Stock, $.1 par value, of which there are outstanding ___ shares (including the Shares plus the number of Option Shares issued on the date hereof) [and such additional number of shares, if any, as may have been issued after ___ and prior to the Closing Date, pursuant to ________]; The Company does not own or control, directly or indirectly, any corporation, association or other entity; the securities of the Company conform in all material respects to the description thereof contained in the Prospectus; the issued and outstanding shares of Common Stock have been duly authorized and validly issued by the Company, are fully paid and nonassessable and have been issued in compliance with all federal and state securities laws and have not been issued in violation of any preemptive right, co-sale right, registration right, right of first refusal or other similar right known to such counsel, and are free of any such rights; (iii) The Company has duly authorized the issuance and sale of the Shares to be sold by it hereunder; such Shares, when issued by the Company and paid for in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and will conform in all material respects to the description thereof contained in the Prospectus and will be sold free and clear of any pledge, lien, security interests, encumbrance, claim, or equitable interest, and, to the best knowledge of such counsel, not in violation of or subject to any preemptive right, co-sale right, registration right, right of first refusal or other similar right, which rights have not previously been waived, in connection with the purchase or sale of any of the Shares and the Shares have been duly authorized for quotation on the National Association of Securities Dealers Automated Quotation National Market System; (iv) The Registration Statement is effective under the Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b) and any required filing of an abbreviated registration statement pursuant to Rule 462(b) of the Rules and Regulations has been made in the manner and within the time period required by such rule 462(b); and no stop order 37 suspending the effectiveness of the Registration Statement or any amendment thereto has been issued, and no proceedings for that purpose have been instituted or are pending or, to the best knowledge of such counsel, are threatened or contemplated under the Act; (v) The Registration Statement originally filed with respect to the Shares and each amendment thereto and the Prospectus and, if any, each amendment and supplement thereto (except for the financial statements, schedules and other financial data included therein, as to which such counsel need not express any opinion), complied as to form in all material respects with the requirements of the Act and the Rules and Regulations; the descriptions contained and summarized in the Registration Statement and the Prospectus of contracts and other documents, are accurate and fairly represent in all material respects the information required to be shown by the Act and the Rules and Regulations; (vi) To the best knowledge of such counsel, there are no contracts or documents which are required by the Act to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement which are not described or filed as required by the Act and the Rules and Regulations; to the best knowledge of such counsel, there is not pending or threatened against the Company any action, suit, proceeding or investigation before or by any court, regulatory body, or administrative agency or any other governmental agency or body, domestic or foreign, of a character required to be disclosed in the Registration Statement or the Prospectus which is not so disclosed therein; and the statements set forth under the headings "Risk Factors -Dependence on Marketing Partners," "Risk Factors - Possible Adverse Effect of Certain Anti-Takeover Provisions," "Business - Environmental Laws," ["Business - [Partner Agreements],"] the third paragraph of "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Management - Employment Agreements," "Management - 1993 Stock Option Plan" and "Description of Capital Stock," "Shares Eligible for Future Sale" and "Certain Transactions" and Items 14 and 15 of the Registration Statement in the Prospectus, insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, provide an accurate summary of such legal matters, documents and proceedings; (vii) The Company has full legal right, power, and authority to enter into this Agreement and to consummate the transactions provided for herein; this Agreement has been duly authorized, executed and delivered by the Company; and this Agreement, assuming due authorization, execution and delivery by each other party hereto, is a valid and binding agreement of the Company, enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws now or hereafter in effect relating to or affecting creditors' rights generally or by general principles of equity relating to the availability of remedies and except as rights to indemnity and contribution may be limited by federal or state securities laws or the public policy underlying such laws. (viii) None of the Company's execution or delivery of this Agreement, its performance hereof, its consummation of the transactions contemplated herein or its application of the net proceeds of the offering in the manner set forth under the caption "Use of Proceeds", 38 conflicts or will conflict with or results or will result in any breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon, any property or assets of the Company pursuant to the terms of the certificate of incorporation or by-laws of the Company; the terms of any indenture, mortgage, deed of trust, voting trust agreement, stockholder's agreement, note agreement or other agreement or instrument known to such counsel after reasonable investigation to which the Company is a party or by which it is or may be bound or to which any of its properties may be subject; any statute, rule or regulation of any regulatory body or administrative agency or other governmental agency or body, domestic or foreign, having jurisdiction over the Company or any of its activities or properties; or any judgment, decree or order, known to such counsel after reasonable investigation, of any government, arbitrator, court, regulatory body or administrative agency or other governmental agency or body, domestic or foreign, having such jurisdiction; and no consent, approval, authorization or order of any court, regulatory body or administrative agency or other governmental agency or body, domestic or foreign, has been or is required for the Company's performance of this Agreement or the consummation of the transactions contemplated hereby, except such as have been obtained under the Act or may be required under state securities or blue sky laws in connection with the purchase and distribution by the Underwriters of the Shares; (ix) To the best of such counsel's knowledge, the conduct of the businesses of the Company is not in violation of any federal, state or local statute, administrative regulation or other law, which violation is likely to have a Material Adverse Effect; and the Company has obtained all franchises, licenses, permits, approvals, certificates and other authorizations from federal, state and foreign and other governmental or regulatory authorities, including, but not limited to, the FDA and any foreign regulatory authorities performing functions similar to those performed by the FDA, as are necessary or required for the ownership, leasing and operation of its properties and the conduct of its business as presently conducted and as contemplated in the Prospectus; (x) The statements in the Registration Statement and the Prospectus summarizing statutes, rules and regulations, including the Massachusetts general corporation law, and the description of the certificate of incorporation and bylaws are accurate and fairly and correctly present the information required to be presented by the Act or the Rules and Regulations in all material respects; and such counsel does not know of any statutes, rules or regulations required to be described in the Registration Statement or the Prospectus that are not described or referred to therein as required; (xi) The Company is not in violation of its certificate of incorporation or bylaws, and to the best of such counsel's knowledge, the Company is not in breach of or default with respect to any provision of any agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument by which it or any of its properties may be bound or affected, except where such default would not materially adversely affect the Company and, to the best of such counsel's knowledge, the Company is in compliance with all laws, rules, regulations, judgments, decrees, orders and statutes of any court or 39 jurisdiction to which it is subject, except where noncompliance would not materially adversely affect the Company; (xii) To the best of such counsel's knowledge, except as set forth in the Registration Statement and Prospectus, no holders of shares of Common Stock or other securities of the Company have registration rights with respect to securities of the Company and, except as set forth in the Registration Statement and Prospectus, all holders of securities of the Company have registration rights with respect to shares of Common Stock or other securities have, with respect to the offering contemplated hereby, waived such rights or such rights have otherwise been waived or such rights have expired by reason of lapse of time following notification of the Company's intent to file the Registration Statement. (xiii) No transfer taxes are required to be paid in connection with the sale or delivery to the Underwriters of the Firm Shares or the Option Shares; (xiv) The Company will not, upon consummation of the transactions contemplated by this Agreement, be an "investment company," or a "promotor" or "principal underwriter" for, a "registered investment company," as such terms are defined in the Investment Company Act of 1940, as amended; In addition, such counsel shall state that in the course of the preparation of the Registration Statement and the Prospectus, such counsel has participated in conferences with officers and representatives of the Company and with the Company's independent public accountants, at which conferences such counsel made inquiries of such officers, representatives and accountants and discussed the contents of the Registration Statement and the Prospectus and (without taking any further action to verify independently the statements made in the Registration Statement and the Prospectus and, except as stated in the foregoing opinion, without assuming responsibility for the accuracy, completeness or fairness of such statements) nothing has come to such counsel's attention that causes such counsel to believe that either the Registration Statement as of the date it is declared effective and as of the Closing Date or the Prospectus as of the date thereof and as of the Closing Date contained or contains any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading (it being understood that such counsel need not express any opinion with respect to the financial statements, schedules and other financial data included in the Registration Statement or the Prospectus). In rendering any such opinion, such counsel may rely, as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and public officials and, as to matters involving the application of laws of any jurisdiction other than the Commonwealth of Massachusetts, State of Delaware or the United States. References to the Registration Statement and the Prospectus in this paragraph (d) shall include any amendment or supplement thereto at the date of such opinion. 40 2. Opinion of FDA Counsel ---------------------- King & Spalding shall indicate that they served as special counsel to the Company with respect to FDA matters and shall opine that: I. The statements in the Prospectus under the captions "Risk Factors - -- Comprehensive Government Regulation; No Assurance of FDA Approval" and "Business -- Government Regulation," insofar as such statements purport to summarize applicable provisions of the Food, Drugs and Cosmetics Act and the regulations promulgated thereunder, are accurate summaries in all material respects of the provisions purported to be summarized under such captions in the Prospectus; and II. No facts have come to such counsel's attention which causes such counsel to believe that the statements in the Prospectus under the captions "Risk Factors -- Comprehensive Government Regulation; No Assurance of FDA Approval" and "Business -- Government Regulation," insofar as such statements relate to FDA regulatory matters, at the time the Registration Statement became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or as of the date hereof contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such counsel may advise you that, in rendering their opinion, they have relied on certain factual representations of the Company and that they have not independently verified the accuracy and completeness of such representations. References to the Registration Statement and the Prospectus in this paragraph (d) shall include any amendment or supplement thereto at the date of such opinion. 41 3. Opinion of Patent Counsel ------------------------- For the purposes of rendering the opinions set forth below, such counsel shall have reviewed the following (collectively the "Documents"): 1. the Underwriting Agreement; 2. that certain Form SB-2 as filed by the Company with the Securities and Exchange Commission on [insert date], together with any and all exhibits; 3. the Company's Prospectus dated [insert date]; 4. the patents and patent applications listed on Schedule 1 attached hereto, which include all of the patents and patent applications held by the Company (the "Patents and Patent Applications") and which are divided into category A, which are the patents and patent applications owned by the Company (collectively, the "Owned Patent Rights") collectively, and category B, which are the patents and patent applications licensed by the Company (collectively, the "Licensed Patent Rights"); 5. copies of the license agreements listed on Schedule 2 attached hereto (collectively, the "License Agreements"); 6. copies of assignments relevant to ownership of the Patents and Patent Applications; 7. the results of searches in the United States Patent and Trademark Office ("USPTO"), completed on ____________ [date must be just prior to the date of the opinion] in relation to the USPTO's record of title to the United States patents and patent applications within the Patents and Patent Applications; 8. the results of a search of the Uniform Commercial Code ("UCC") records of the following jurisdictions [insert details of the state(s) and county/counties] completed on ________ [date must be just prior to the date of the opinion] against the current and former names of the Company and the licensors specified in the License Agreements (collectively, the "Licensors") [other potential UCC searches to be discussed]; 9. a litigation search of the ________ database completed on ___________ [date must be just prior to the date of the opinion]; 42 10. any and all references cited to, or by, the USPTO during the prosecution of the United States patents and patent applications included within the Patents and Patent Applications; 11. the documents referred to in those certain opinions of this firm copies of which are attached as Exhibits hereto; 12. the internal files of this firm pertaining to the Company. [insert details of other documents upon which counsel has relied in preparing this opinion] Whenever such counsel's opinions are qualified by the phrase "to our best knowledge," except as may be further qualified below, such language means that based upon the Documents, the actual knowledge of attorneys within such firm (i.e., not including matters as to which such attorneys could be deemed to have constructive knowledge) and inquiries of officers, directors and employees of the Company, such counsel believes that such opinions are factually correct. (a) To such counsel's best knowledge, the Company is the sole owner of the Owned Patent Rights and has obtained valid, currently effective licenses to the Licensed Patent Rights pursuant to the License Agreements. (b) The Company is listed in the records of the USPTO as the sole owner of the United States patents and patent applications within the Owned Patent Rights. (c) The Licensors are listed in the records of the USPTO as the sole owners of the United States patents and patent applications within the Licensed Patent Rights. (d) To such counsel's best knowledge, the Company has good and marketable title to the Owned Patent Rights, free of any liens, pledges, claims, security interests or other encumbrances. (e) To such counsel's best knowledge, the Licensors have good and marketable title to the Licensed Patent Rights, free of any liens, pledges, claims, security interests or other encumbrances, except for the licenses granted to the Company and the Subsidiaries pursuant to the License Agreements. (f) To such counsel's best knowledge, there are no facts which would preclude the grant of a patent from each of the patent applications within the Patents and Patent Applications. 43 (g) To such counsel's best knowledge, the Company has complied with USPTO's duty of candor and disclosure for each of the United States patents and patent applications included in the Patents and Patent Applications. (h) To such counsel's best knowledge, except as disclosed in the Prospectus, there are no facts which form a basis for a finding of unenforceability or invalidity of any of the claims of the Patents and Patent Applications. Specifically, in relation to U.S. patent no. 4,937,270 entitled "Water Insoluble Derivatives of Hyaluronic Acid" issued on June 26, 1990 (the "Hamilton Patent"), based on the analysis set forth in this firm's letter to the Company dated January 18, 1994, a copy of which is attached hereto as Exhibit A, except as disclosed in the --------- Prospectus, the Hamilton Patent and the disclosures made therein do not invalidate any of the Patents and Patent Applications. Additionally, in relation to U.S. patent no. 5,017,229 entitled "Water Insoluble Derivatives of Hyaluronic Acid" issued on May 21, 1991 (the "Burns Patent"), based on the analysis set forth in this firm's letter to the Company dated January 18, 1994, a copy of which is attached hereto as Exhibit B, except as --------- disclosed in the Prospectus, the Burns patent and the disclosures made therein do not invalidate any of the Patents and Patent Applications. (i) To our best knowledge, at all times prior to the effective date of the Registration Statement, the Company has qualified as a "small entity" as defined in 37 CFR (S) 1.9. To our best knowledge, there were no or omissions made in statements to or filings with the USPTO as to the Company's status as a "small entity" or as to any change of status or transfer of any of the United States patents and patent applications included within the Patents and Patent Applications. (j) To such counsel's best knowledge, no one other than the Company and the Licensors have or will be able to establish any rights of title or other interest to any of the Patents and Patent Applications, trademarks (either registered and unregistered), trade names, copyrights or trade secrets described in the Prospectus as being owned or licensed by the Company or its Sublicensees (collectively, the "Intellectual Property"). (k) To such counsel's best knowledge, there are no facts known to us that indicate that the Company lacks or will be unable to obtain any rights or licenses which are necessary for its business as described in the Prospectus. (l) There is no pending or, to such counsel's best knowledge, threatened action, suit, proceeding or claim by others challenging the Company's or its Subsidiaries' ownership or license rights in or to any of the Intellectual Property. (m) Except as disclosed in the Prospectus, there is no pending or, to our best knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope of any of the Intellectual Property. 44 (n) There is no pending or, to such counsel's best knowledge, threatened action, suit, proceeding or claim by the Company that a third party has or will infringe or otherwise violate any of the Intellectual Property. (o) There is no pending or, to such counsel's best knowledge, threatened action, suit, proceeding or claim by any third party that the Company or its products and processes infringe or otherwise violate any patent, trademark, copyright, trade secret, or other right of such third party. Specifically: (i) Based on the analysis set forth in this firm's letter to the Company dated January 14, 1994, a copy of which is attached hereto as Exhibit A, the Company and its products and processes do not --------- infringe the Hamilton Patent. Based on the analysis set forth in this firm's letter to the Company dated January 18, 1994, a copy of which is attached hereto as Exhibit A, the Company and its products and --------- processes do not infringe the Burns Patent. (ii) Based on the analysis set forth in this firm's letter to the Company dated January 18, 1994, a copy of which is attached hereto as Exhibit B, the Company and its products and processes do not --------- infringe the Burns Patent. (p) The statements in the Registration Statement and Prospectus under the captions "Risk Factors - Uncertainty Relating to Dependence on Licenses, Patents and Proprietary Rights" and "Business - Patents, and Proprietary Rights" and other references in the Prospectus to the Intellectual Property and other patent, trade secret, trademark and licensing matters (collectively the "Intellectual Property References"), insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, are accurate in all material respects and fairly present the information purported to be disclosed therein. (q) To such counsel's best knowledge, there are no contracts or other documents relating to the Intellectual Property that are of a character required to be filed as an exhibit to the Registration Statement or required to be described in the Registration Statement or Prospectus that are not filed or described as required. Such counsel has participated in conferences with officials and other representatives of the Company, Company's counsel and others, at which conferences the contents of the Intellectual Property References and related matters were discussed, and although such counsel has not verified the accuracy or completeness of the statements contained in the Registration Statement or the Prospectus, nothing has come to such counsel's attention which leads them to believe that, at the time the Registration Statement became effective and at all times subsequent thereto up to and including the date hereof, the Intellectual Property References in the Registration Statement and any amendment or supplement thereto contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Intellectual Property References in the Prospectus, as of the date of the Prospectus and all times subsequent thereto up to and including the date hereof, contained any untrue statement of a material fact or omitted 45 to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 46 Schedule 1 ---------- A. Patents and Patent Applications owned by the Company ---------------------------------------------------- [list all U.S. and foreign patents and patent applications within this category, with the following details: . patent number for patents and serial number for patent applications . date of issuance for patents and filing date for patent applications B. Patents and Patent Applications licensed by the Company ------------------------------------------------------- [list all U.S. and foreign patents and patent applications within this category, with the following details: . patent number for patents and serial number for patent applications . date of issuance for patents and filing date for patent applications . name and address of licensor 47 Schedule 2 ---------- The License Agreements ---------------------- Exhibit A --------- Copy of opinion to Company regarding Hamilton Patent 48 4. Opinion of Selling Securityholders ---------------------------------- (a) Each Selling Stockholder has full legal right, power and authority to enter into this Agreement and to sell, assign, transfer and deliver in the manner provided herein the Shares sold by such Selling Stockholder; this Agreement has been duly executed and delivered by such Selling Stockholder; and this Agreement, assuming due authorization, execution and delivery by each other party hereto and further assuming it is a valid and binding agreement of each of the Underwriters, is a valid and binding agreement of such Selling Stockholder, enforceable against such Selling Stockholder in accordance with their respective terms (except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws now or hereafter in effect relating to or affecting creditors' rights generally and by general principles of equity relating to the availability of remedies and except as rights to indemnity and contribution may be limited by federal or state securities laws and the public policy underlying such laws); (b) None of the execution, delivery or performance of this Agreement, the Power of Attorney and the Custody Agreement by such Selling Stockholder and the consummation by such Selling Stockholder of the transactions herein and therein contemplated, conflict with or result in a breach of, or default under, any indenture, mortgage, deed of trust, voting trust agreement, stockholders agreement, note agreement or other agreement or other instrument known to such counsel to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property of any of the Selling Stockholders is subject, or the charter or by-laws of any of the Selling Stockholders that are corporations, and nothing has come to such counsel's attention which causes such counsel to believe that such actions will result in any violation of any law, rule, administrative regulation or court decree applicable to such Selling Stockholder (other than state securities or blue sky laws or regulations, as to which such counsel need not express any opinion); (c) Each Selling Stockholder has full legal right, power and authority to enter into a Power of Attorney and the Custody Agreement, and the Power of Attorney and Custody Agreement have been duly executed and delivered by each Selling Stockholder and, assuming the due authorization, execution and delivery of the Custody Agreement by the other parties thereto, each constitutes the valid and binding agreement of each Selling Stockholder enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors' rights generally or by general principles of equity relating to the availability of remedies and except as rights to indemnity or contribution may be limited by federal or state securities laws and the public policy underlying such laws; and (d) Upon the delivery of the Shares to be sold hereunder by the Selling Stockholders and payment therefor in accordance with the terms of this Agreement and assuming that each of the Underwriters which has severally purchased such Shares acquires such Shares without notice of any adverse claim (within the meaning of the Uniform Commercial Code), such Underwriter will have acquired all of the rights of such Selling Stockholder to the Shares 49 sold by such Selling Stockholder hereunder, and in addition will have acquired title to such Shares free and clear of any adverse claim. References to the Registration Statement and the Prospectus shall include any amendment or supplement thereto at the date of such opinion. In addition, such counsel shall state that in the course of the preparation of the Registration Statement and the Prospectus, such counsel has participated in conferences with officers and representatives of the Company and with the Company's independent public accountants, at which conferences such counsel made inquiries of such officers, representatives and accountants and discussed the contents of the Registration Statement and the Prospectus and (without taking any further action to verify independently the statements made in the Registration Statement and the Prospectus and, except as stated in the foregoing opinion, without assuming responsibility for the accuracy, completeness or fairness of such statements) nothing has come to such counsel's attention that causes such counsel to believe that either the Registration Statement as of the date it is declared effective and as of the Closing Date or the Prospectus as of the date thereof and as of the Closing Date contained or contains any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading (it being understood that such counsel need not express any opinion with respect to the financial statements, schedules and other financial data included in the Registration Statement or the Prospectus). 50 EX-10.26 3 NOV. 7TH DIST. AGRMNT. BETWEEN ANIKA & ZIMMER EXHIBIT 10.26 EXCLUSIVE DISTRIBUTION AGREEMENT BETWEEN ANIKA THERAPEUTICS, INC. AND ZIMMER, INC. DATED AS OF NOVEMBER 7, 1997 TABLE OF CONTENTS ----------------- 1. APPOINTMENT AS EXCLUSIVE DISTRIBUTOR....................................1 2. UP-FRONT AND MILESTONE PAYMENTS.........................................2 3. TERRITORY...............................................................7 4. PURCHASE REQUIREMENTS...................................................8 5. ADDITIONAL APPLICATIONS AND INDICATIONS................................10 6. GENERAL TERMS OF SUPPLY................................................11 7. PRICE AND PAYMENT TERMS................................................15 8. PRODUCT SPECIFICATIONS; QUALITY CONTROL, REGULATORY MATTERS AND COMPLIANCE WITH LAW........................................19 9. COMPANY'S GENERAL OBLIGATIONS..........................................25 10. COMPANY'S REPRESENTATIONS AND WARRANTIES...............................28 11. DISTRIBUTOR'S GENERAL OBLIGATIONS......................................30 12. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES...........................32 13. STEERING COMMITTEE.....................................................32 14. TRANSFER OF DATA; CONFIDENTIALITY......................................33 15. PATENTS................................................................35 16. TRADEMARKS, TRADE DRESS, AND BRANDING..................................37 17. TERM AND TERMINATION...................................................40 18. INDEMNIFICATION........................................................46
19. ASSIGNMENT AND SUB-DISTRIBUTION RIGHTS.................................50 20. GOVERNING LAW AND DISPUTE RESOLUTION...................................51 21. NOTICES................................................................52 22. WAIVER AND DELAY.......................................................53 23. FORCE MAJEURE..........................................................53 24. ENTIRE AGREEMENT.......................................................54 25. SEVERABILITY...........................................................54 26. DEFINITIONS............................................................54 27. PUBLIC ANNOUNCEMENTS...................................................59 28. MISCELLANEOUS..........................................................60 ANNEX A...........................................................62 ANNEX B...........................................................63 ANNEX C-1.........................................................64 ANNEX C-2.........................................................65 ANNEX D...........................................................66 ANNEX E...........................................................67 ANNEX F...........................................................68 ANNEX G...........................................................69 ANNEX H .........................................................71 EXHIBIT A.........................................................72 EXHIBIT B.........................................................73
* Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Securities and Exchange Commission (the "Commission"). EXCLUSIVE DISTRIBUTION AGREEMENT Exclusive Distribution Agreement, effective as of November 7, 1997 (the "Effective Date"), by and between ZIMMER, INC., a Delaware corporation having its principal place of business at 345 East Main Street, P.O. Box 708, Warsaw, Indiana 46581-0708 ("Distributor"), and ANIKA THERAPEUTICS, INC., a Massachusetts corporation having its principal place of business at 236 West Cummings Park, Woburn, Massachusetts 01801 ("Company"; and together with Distributor sometimes referred to herein as the "Parties"). RECITALS -------- A. Company has developed a hyaluronic acid ("HA") product for injection into human joints for the treatment of osteoarthritis as defined in Annex A ------- hereto (the "Product"). B. Distributor wishes to obtain the exclusive right to distribute and sell the Product for use in the Field of Use throughout the Territory as specified in Section 3 hereof, and Company wishes to grant such right to Distributor, on the terms and conditions set forth in this Agreement. C. Distributor also wishes to purchase from Company, and Company wishes to supply to Distributor, Distributor's entire requirement of the Product in finished form, on the terms and conditions set forth in this Agreement. D. Unless defined elsewhere in this Agreement, capitalized terms used in this Agreement shall have the meanings set forth in Section 26. NOW, THEREFORE, in consideration of the mutual covenants and agreements of the Parties continued in this Agreement, the Parties agree as follows: 1. APPOINTMENT AS EXCLUSIVE DISTRIBUTOR ------------------------------------ Subject to the terms and conditions of this Agreement, Company hereby appoints Distributor as its sole and exclusive distributor to market, distribute and sell the Product in the Field of Use in the Territory during the Term of this Agreement, and Distributor hereby accepts such appointment. 2. UP-FRONT AND MILESTONE PAYMENTS ------------------------------- (a) Up-Front Fee. As partial consideration to Company for the rights ------------ granted to Distributor under this Agreement, Distributor shall pay to Company the sum of $2,500,000 upon the execution and delivery of this Agreement by both Parties (the "Execution Payment"). (b) *. Within forty-five (45) days after * Distributor shall pay to Company the sum of $2,500,000. At Distributor's sole option, this payment may be made in exchange for common stock, par value $.01 per share, of Company ("Company Stock"). If Distributor elects to receive Company Stock, the Company Stock shall be issued to Distributor or an Affiliate of Distributor, as determined by Distributor in its sole discretion, pursuant to a Stock Purchase Agreement to be executed by Company and Distributor or its Affiliate and in substantially the form of Exhibit A. The number of shares of Company Stock to be --------- received by Distributor or its Affiliate pursuant to the Distributor's election under this Section 2(b) shall be equal to (i) $2,500,000, divided by (ii) * percent (*%) of the average daily closing price of the Company Stock on each day the U.S. securities markets are opened for trading during the sixty (60) calendar day period immediately prior to the date Distributor makes the * payment to Company pursuant to this Section 2(b). If the shares of Company Stock to be received by Distributor or its Affiliate pursuant to the immediately preceding sentence represent less than nine and nine-tenths percent (9.9%) of the total outstanding shares of Company Stock at such time, Distributor or its Affiliate shall have the right, but not the obligation, to purchase additional shares of Company Stock from Company to increase its ownership of Company Stock to an aggregate of not more than nine and nine-tenths percent (9.9%) of the total number of shares of Company Stock outstanding immediately prior to the date of such purchase, at the price specified in clause (ii) of the immediately preceding sentence and on the other terms and conditions of the Stock Purchase Agreement, with such purchase of additional shares to take place simultaneously with the purchase described in the immediately preceding sentence. Notwithstanding the foregoing, in the event the $2,500,000 payment specified in this Section 2(b) entitles the Distributor to purchase more than nineteen and nine-tenths precent (19.9%) of the total outstanding shares of Company Stock at such time, Distributor agrees to purchase only nineteen and nine-tenths percent of the total number of shares of Company Stock, and pay the balance of the $2,500,000 in cash to Company. Notwithstanding anything herein to the contrary, the $2,500,000 payment specified in this Section 2(b) may, at Distributor's sole discretion, be made in whole (but not in part) by Distributor at any time prior to *. 2 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. (c) Asian Regulatory Approvals. -------------------------- (i) Japan. On or prior to the * anniversary of the Effective Date, ----- Distributor shall notify Company in writing whether it intends to seek approval for the marketing, sale and distribution of the Product in the Field of Use in Japan. If Distributor, in its sole discretion, elects to seek such regulatory approval, then Distributor shall promptly initiate the regulatory filings necessary for such approval for the marketing, sale, and distribution of the Product in Japan. If additional clinical data is required in connection with such approval, Distributor shall use all commercially reasonable efforts to commence all necessary pre-clinical and clinical trials promptly after the necessary governmental approvals for such trials have been obtained. Company shall bear * associated with all such regulatory filings, except that the * associated with additional clinical data requirements necessary to support such filings (*) will be borne * by Distributor and * by Company as provided in a supplement to the Marketing Plan, which supplement Distributor will provide to Company in draft form within * months following Distributor's election to pursue distribution of the Product in Japan. Company shall have thirty (30) days to review the supplement to the Marketing Plan and Company and Distributor shall negotiate in good faith concerning any necessary changes. If the Parties cannot agree on the terms of the supplement of the Marketing Plan, the matter shall be submitted to the Steering Committee for resolution. Within fortyfive (45) days after receipt by Distributor of the first approval for the marketing, sale and distribution of the Product in the Field of Use in Japan, Distributor shall pay to Company the sum of *. If prior to the * anniversary of the Effective Date, Distributor notifies Company that it does not intend to seek such regulatory approval or fails to notify Company prior to the * anniversary of the Effective Date whether or not it seeks to obtain such regulatory approval, Company may thereafter itself or through another Person seek such approval and market and sell the Product without restriction in Japan (including without limitation use in the Field of Use). In such event, Distributor shall have no obligation to make the * payment referred to in this Section 2(c)(i) or create the supplement to the Marketing Plan, and shall have no right with respect to the sale of the Product in Japan, and all such rights shall remain in the Company. (ii) China. Company grants to Distributor a right of first offer to ----- seek approval for the marketing, sale and distribution of the Product in the Field of Use in China. On or prior to the * anniversary of the Effective Date, Distributor shall notify Company in writing whether it intends to exercise its right of first offer. If Distributor, in its sole discretion, elects to seek such regulatory approval, then Distributor shall promptly initiate the regulatory filings necessary for such approval for the marketing, sale, and distribution of the Product in China. If additional clinical data are required in connection with such approval, Distributor shall use all commercially reasonable efforts to commence all necessary pre-clinical and clinical trials promptly after the necessary governmental approvals for such trials have been obtained. Company shall bear * associated with all such regulatory filings, except 3 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. that the * associated with additional clinical data requirements necessary to support such filings * will be borne * by Distributor and * by Company as provided in a supplement to the Marketing Plan, which supplement will contain a reasonable incremental increase to the Territory-wide Purchase Requirement * as provided in Section 4 herein, and which Distributor will provide to Company in draft form by the * anniversary of the Effective Date. Company shall have thirty (30) days to review the supplement to the Marketing Plan and Company and Distributor shall negotiate in good faith concerning any necessary changes. If the Parties cannot agree on the terms of the supplement of the Marketing Plan, the matter shall be submitted to the Steering Committee for resolution. * (other than as provided in Section 2(e)) solely as a result of electing to pursue distribution of the Product in China. If prior to the * anniversary of the Effective Date, Distributor notifies Company that it does not intend to exercise its right of first offer, or fails to notify Company prior to the * anniversary of the Effective Date, whether or not it intends to exercise its right of first offer, Company may thereafter itself or through another Person seek such approval and market and sell the Product without restriction in China (including without limitation use in the Field of Use). In such event, Distributor shall have no obligation to create the supplement to the Marketing Plan, and shall have no right with respect to the sale of the Product in China, and all such rights shall remain in the Company. (iii) Australia, Korea, Taiwan. Company shall seek and use its ------------------------ commercially reasonable efforts to obtain all regulatory approvals for Distributor to market, sell and distribute the Product in the Field of Use in Australia, Korea, and Taiwan. Distributor shall assist and cooperate with Company in obtaining such filings as Company may reasonably request. Within forty five (45) days after the first approval for the marketing, sale, and distribution of the Product in the Field of Use in one of these countries, Distributor shall pay to Company the sum of *. (d) Reimbursement Approvals. Distributor shall seek and use its ----------------------- commercially reasonable efforts to obtain Reimbursement Approvals for the Product in the Field of Use in all the Territory countries. If additional clinical data are required in connection with such Reimbursement Approvals, Company shall use all commercially reasonable efforts to obtain such data commensurate with requirements of the authority from whom reimbursement is sought. All costs associated with all such efforts to obtain Reimbursement Approvals will be borne * by the Parties. Upon receipt of the first Reimbursement Approval for use of the Product in the Field of Use by the appropriate governmental body and/or private insurers representing in aggregate more than * of the population in any one of the following three major Asian markets (Australia, Korea, or Taiwan), Distributor shall pay Company the sum of *. Upon receipt of a Reimbursement Approval for use of the Product in the Field of Use by the appropriate governmental body (and/or private insurers 4 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. representing in aggregate more than * of the population in any other Asian market, if applicable), Distributor will pay Company the one-time nonrefundable sum of *. In addition, upon receipt of Reimbursement Approval for the use of the Product for treatment of osteoarthritis by injection into the human knee joint in the United States by at least * of the Qualified Primary National Medical Insurance Organizations listed in the attached Annex H, Distributor shall pay ------- Company the sum of *. The aggregate amount of payments made by Distributor to Company pursuant to this section 2(d) shall not exceed * in any event. "Reimbursement Approval" shall mean the written agreement of the insurer or appropriate government authority to pay for the Product as a treatment in the Field of Use, to the extent of at least * * of the Average Selling Price. The payments specified in this Section 2(d) shall be made within forty-five (45) business days after receipt of the applicable Reimbursement Approval. (e) Sales Target Payments. Upon annual Net Sales first reaching or --------------------- exceeding the target amounts set forth in the following table in any calendar year, Distributor shall make the corresponding payment to Company within forty- five (45) days after the end of such calendar year:
Target Payment ------ ------- * in annual Net Sales * * in annual Net Sales additional * ---------- * in annual Net Sales additional * ---------- * in annual Net Sales additional * ---------- * in annual Net Sales additional * ----------
"Net Sales" shall mean the gross amount invoiced by Distributor or its Affiliates for the sale of the Product to third parties in the Territory, less (i) the cost of freight and freight insurance; (ii) returns, allowances, discounts (including, without limitation, payment discounts of up to *); (iii) credits, administrative fees and rebates related or attributable to the sale of the Product (including, without limitation, allowances, discounts, credits, rebates and administrative fees paid to purchasers and group purchasing organizations or other Persons pursuant to contracts and arising from the sale of the Product); and (iv) sales, use, value-added, excise, or other similar taxes, including without limitation documented entry/exit duties and other duties to the extent such taxes are included in the gross amount invoiced for Product; provided, however, that no adjustment to Net Sales shall be permitted -------- ------- for any sales discount, administration fee, rebate, credit or allowance attributable solely to purchasing contracts for 5 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. other non-Product items sold by Distributor. Where Product is sold as part of any purchasing contract generated by Distributor, any administrative fees, credits and allowances will be charged on a pro-rata basis against the Net Sales of the Product based on the Product's proportional share of the total sales of the purchasing contract. A "sale" shall not include any sale or disposition of Samples or Demonstration Units, or any transfer or disposition of the Product for pre-clinical, clinical, regulatory or governmental purposes prior to receiving marketing approval. For purposes of calculating "Net Sales," Product shall be considered "sold" upon the invoicing of such Product by Distributor to a third party (other than to any of its Affiliates), or upon invoicing of such Product by any of Distributor's Affiliates to a third party. With respect to Products sold outside of the United States and denominated in a foreign currency, the Net Sales attributable thereto shall be converted from such foreign currency into United States Dollars by utilizing the "Foreign Currency Translation Rate Method." The Foreign Currency Translation Rate Method is the conversion methodology used by Distributor from time to time in calculating sales of its other products in its ordinary course of business. At the time this Agreement is executed, the Foreign Currency Translation Rate Method is calculated monthly on a prospective basis by reference to the average of the "Noon Fed Fixing Rate" announced daily by the Federal Reserve. For example, for sales made during the month of August, 1997, the straight average of the Noon Fed Fixing Rate from June 20 through July 17 would be used. Distributor shall have the right to modify the Foreign Currency Translation Rate Method from time to time; provided, that the following conditions are met: (i) Distributor implements the modified method for substantially all of its foreign currency conversion transactions for substantially all of its products; (ii) the modified method accords with generally accepted accounting principles (GAAP) as established by the FASB; and (iii) Distributor provides prior written notice of the modified method to Company. (f) Potential Refund of Portion of Certain Payments; Adjustments to --------------------------------------------------------------- Purchase Requirements. (A) The Purchase Requirement and payments made to - --------------------- Company under Sections 2(b), 2(c) and 2(d) following achievement of certain regulatory approvals or reimbursement approvals, as the case may be, are subject to partial refund only to the extent and in the manner provided in this Section 2(f); (B) In the event Section 6(d), 8(i)(3)(iii), 15(b), 15(c)(i) or 16(e) is applicable, Distributor shall notify Company in writing if it determines that it is entitled to an adjustment in the Purchase Requirement and/or a refund, the amount of such adjustment and/or refund, the reasons for the forgoing as well as the calculation thereof. Within ten (10) days after Distributor so notifies Company, the Steering Committee shall meet and determine the amount, if any, by which such payment(s) shall be refunded to Distributor and adjustments to be made, if any. In determining the refunds, if any to be made, and the adjustments if any to be made, the Steering Committee shall comply with the following: (i) the Steering Committee will consider the adverse effects on Distributors's ability to distribute Product in a particular country; (ii) the portion of the payments made to Company under Sections 2(b), (c) and (d) and Purchase Requirements applicable to such affected country; (iii) if the Steering Committee determines a refund and/or adjustment is appropriate, the Steering Committee will limit such refund and/or adjustment solely to that portion of the relevant payment or Purchase 6 Agreement related to the adversely affected country; and (iv) the duration of any reduction in the Purchase Requirement, it being understood by the Parties that any such reduction shall only be prospective in nature; and (v) notwithstanding anything contained in this Agreement to the contrary, in the case of any potential refund of payments made under Sections 2(b), (c) or (d), as the case may be, the maximum amount, if any, refunded shall be limited to : (I) * of the amount of the payment as determined by the Steering Committee as provided above for the first year following Company's receipt of such payment; (II) * of such payment for the second year following Company's receipt of such payment; and (III) * of such payment for the third year following Company's receipt of such payment. If the Steering committee fails to agree on a refund amount within twenty (20) days after meeting, either Party may submit the matter to arbitration as provided in Section 20. At Distributor's sole discretion, and upon prior written notice to Company, any amounts determined by the Steering Committee or in arbitration, as the case may be, to be payable to Distributor under this Section 2(f) may be invoiced directly to Company, or in the alternative, offset against existing and/or future invoices for Product or other fees due from Distributor to Company. Such refund amount shall be paid by Company to Distributor within thirty (30) days after the Steering Committee agrees on such an amount, or within thirty (30) days after it is determined by arbitration that such amount is to be paid by Company to Distributor. 3. TERRITORY --------- (a) Distributor shall have the sole and exclusive right to market, distribute and sell the Product solely for use in the treatment of osteoarthritis by injection into human bone joints where the Product is the sole and exclusive injectable product in such treatment, but excluding TMJ (the "Field of Use") in the countries listed in Annex C1. The countries listed in Annex C-1 within which Distributor has such exclusive distribution rights is hereinafter referred to as the "Territory." (b) The countries listed in Annex C2 comprise "Optional Territory" which the Parties agree shall be considered "available" under the terms of this Paragraph 3(b), * as of the date this Agreement is executed; provided, that to exercise its option under this Section 3(b) with regard to any of the countries in the Optional Territory, Distributor must produce a supplement to the Marketing Plan listing the countries to be added to the Territory and a reasonable incremental increase to the Territory-wide Purchase Requirement * as provided in Section 4 herein, which supplement Distributor must provide to Company in draft form within * months after the date this Agreement is executed, and which supplement Company shall then have an additional * months to accept. Distributor shall be deemed to have waived its option under this Section 3(b) with regard to any country in the Optional Territory that is not included in such supplement to the Marketing Plan or in the event Distributor fails to provide such supplement 7 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. to the Marketing Plan within such * month period. If by the end of the * period referred to above a supplement to the Marketing Plan has not been accepted by both Parties, Distributor's option under this Paragraph with regard to the countries listed in the supplemental Marketing Plan shall then lapse, and all rights related to distribution of the Product in the Optional Territory shall remain with Company. 4. PURCHASE REQUIREMENTS --------------------- (a) Beginning with calendar year 1998, Distributor shall be required to make at least such annual purchases of Units (excluding for purposes of this Section 4 any purchased Samples and Demonstration Units) as are sufficient to reach the following Territory-wide totals, at the purchase prices set forth in Section 7(a) during the Term of this Agreement (the term "Purchase Requirement", when used with respect to a calendar year shall mean (i) the minimum number of units to be purchased for such calendar year as set forth in the table below, as may be adjusted from time to time in accordance with the terms of this Agreement (the "Territory-wide Units Requirement") or (ii) the Minimum Purchase Fee requirement calculated with respect to such year, as applicable:
Calendar Year Territory-wide Units Requirement - ------------- -------------------------------- (Exclusive of Samples and Demonstration Units) 1998 (Year 1) * Units 1999 (Year 2) * Units 2000 (Year 3) * Units 2001 (Year 4) * Units 2002 (Year 5) and thereafter (annually) * Units
(b) Notwithstanding the provisions of Section 4(a), Distributor shall not be obligated to purchase more than * per year until the year in which the U.S. FDA approves the Product for marketing and sale for use in the treatment of osteoarthritis by injection in the human knee joint in the Field of Use in the United States. Upon receipt of such FDA approval, Distributor shall be obligated to purchase in that calendar year the prorated Year 2 annual Territory-wide Units Requirement which shall be determined by multiplying the Year 2 annual Territory-wide Units Requirement * by a fraction, the numerator of which is the number of days remaining in the calendar year after the date on which FDA approval is received and the denominator of which is 365. The Year 3 and Year 4 annual Territory-wide Units Requirements shall apply to the first and second calendar years, respectively, immediately succeeding the calendar year during which the FDA approval is received, and the Year 5 annual Territory-wide Units Requirement shall apply to each calendar year thereafter during the Term. All purchases of Product shall have a documented delivery 8 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. date assigned to them. For purposes of determining whether or not Distributor has met the annual Territory-wide Units Requirement for any given year, the documented delivery date shall be determinative, not the date of actual delivery, if different. (c) In the event Distributor fails to purchase the applicable annual Territory-wide Units Requirement set forth in Sections 4(a) and 4(b) above during any calendar year, Distributor, on or before March 31 of the immediately succeeding calendar year, shall at its sole election, either (i) purchase additional Units equal to the Unit difference between the applicable Territory- wide Units Requirement and actual purchases at the applicable transfer price set forth in Section 7 or (ii) pay Company an amount equal to * multiplied by the difference between the applicable Territory-wide Units Requirement and actual Units purchased (such product, the "Minimum Purchase Fee Requirement"). Company agrees to accept such purchase or such payment, as the case may be, as Company's sole and exclusive remedy for Distributor's failure to meet any annual Territory-wide Units Requirement. Distributor shall not be obligated to pay any Minimum Purchase Fee Requirement to the extent of any failure by Company to meet quantity requirements in accordance with this Agreement in such year. (d) Notwithstanding the provisions of Sections 4(a), 4(b) and 4(c), if at any time and from time to time (i) Company for any reason cannot supply any quantity of the Product ordered by Distributor in accordance with the terms of this Agreement (or required to be ordered due to purchase obligations), including but not limited to any failure to supply as a result of any Force Majeure event described in Section 23 or (ii) the Steering Committee determines that the Purchase Requirement shall be reduced for any period due to unforseen circumstances or business conditions, Distributor shall be relieved of its purchase obligation to the extent of that amount of Product not so supplied. (e) Notwithstanding the provisions of Sections 4(a), 4(b) and 4(c), if any of the Patents is found by a court of competent jurisdiction to be invalid or the Product otherwise becomes (or Company reasonably believes the Product is likely to become) infringing on the proprietary rights of third parties, the applicable annual Purchase Requirement shall be suspended to the extent and for the duration determined in accordance with Section 15(c). In addition, if a third party is infringing any of the Patents and as a result of such infringement the Product is taken off the market in a particular country, and such infringement is brought to Company's attention, the Purchase Requirement with respect to such country shall be suspended until such infringement ceases or until the Parties otherwise agree. 5. ADDITIONAL APPLICATIONS AND INDICATIONS --------------------------------------- (a) Company hereby grants to Distributor and its Affiliates a right of first offer, as described in this Section 5, to review and consider any new HA- based products derived from 9 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. Company's R&D Pipeline and developed for human use, the rights of which are solely owned by Company (collectively referred to as the "Potential HA Products"),but excluding products labeled and indicated exclusively for use in --------- then TMJ, and all Excluded Products as that term is defined in Annex D. Any ------- change in the existing Product, including any refinements, improvements or performance enhancements, that are capable of being implemented under Section 8(a) by amending Annex A (whether or not such change in the Product would require the filing of a PMA supplement if implemented in the United States) shall be deemed not to alter the identity of the Product for purposes of this Section 5, and the changed Product shall be deemed not to be a Potential HA Product. (b) If at any time during the development of Potential HA Products, Company determines in its sole discretion to seek an unaffiliated distribution or development partner, Company shall promptly notify Distributor and shall supply to Distributor all available relevant information and data related thereto as is reasonably necessary for Distributor to make an informed decision of its interest in distributing the Potential HA Product and to develop a proposal for the commercial terms for such distribution rights. The date of such notification is hereinafter referred to as the "Disclosure Date." Distributor shall have sixty (60) days from the Disclosure Date to review the Potential HA Product on an exclusive basis and to determine if it or any of its Affiliates wishes to negotiate distribution or licensing arrangements with respect to such Potential HA Product. During such period, Distributor may request that Company provide Distributor or its Affiliates with additional information and data which Distributor reasonably considers relevant to Distributor's consideration of the Potential HA Product, and Company shall provide such additional information at Distributor's expense, but only to the extent such information is in existence and easily accessed. If Distributor and its Affiliates do not wish to pursue negotiations for the distribution or license of such Potential HA Product and Distributor so notifies Company, or if such sixty (60) day period expires without Distributor notifying Company as to its interest, then Company shall be free to enter into an agreement with another Person as to that Potential HA Product, as Company shall determine at its sole discretion, without any further restriction or obligation to Distributor. (c) If prior to the expiration of the sixty (60) day period referred to in Section 5(b) Distributor or any of its Affiliates expresses in writing its interest in obtaining the right to distribute or license the Potential HA Product, the parties shall enter into good faith negotiations regarding the right to distribute or license such Potential HA Product within the ninety (90) day period immediately following the Disclosure Date. If at the end of such ninety (90) day period the parties are unable to reach a preliminary heads of agreement, and Company does not wish to continue the negotiations, as Company shall determine at its sole discretion, Company shall be free to enter into an agreement with any other Person without any further restriction or obligation to Distributor. 6. GENERAL TERMS OF SUPPLY ----------------------- 10 (a) During the Term of this Agreement, Distributor shall purchase from Company, and Company shall supply to Distributor, all of Distributor's requirements for the Product. (b) The Parties agree that it is their mutual objective to plan for, communicate, fill, and ship orders for the Product as efficiently as possible while minimizing inventory costs. To further this goal, Distributor and Company agree to work together to establish and incorporate an on-line system whereby Distributor will supply Company on-going and frequently-updated information regarding: (i) the orders received by Distributor for Product; (ii) Distributor's current Product inventory levels and (iii) the updated Annual Forecast as set forth in Section 6(g). Distributor agrees to train the appropriate Company employees in the proper use of this on-line system. (This training period shall be referred to as the "Purchasing System Training Period" and shall last until both Parties agree that Company can operate the system on its own.) Distributor shall provide to Company the forecasts described in Paragraphs 6(f) and (g) herein, so that Company has access to Distributor's most current forecasting information as soon as practicable. In addition, at least sixty (60) days prior to the beginning of each calendar year during the Term (subject to Company's compliance with the other provisions of this Agreement), Distributor shall place a binding Blanket Purchase Order with Company for the quantity of Units comprising Distributor's annual Purchase Requirement for the coming calendar year, as such quantity is specified in Section 4 herein. For example, subject to the terms and conditions of this Agreement, Distributor shall place with Company by 1 November 1998 a Blanket Purchase Order for its calendar 1999 Purchase Requirement. Orders for Units placed by Distributor shall be made solely by either of the two following methods: (i) During the Purchasing System Training Period, Distributor shall issue to Company individual Order Releases against the Blanket Purchase Order, such that the individual Order Releases shall be based on the updated Annual Forecast, shall be delivered to Company by facsimile, and shall specify delivery date(s) and quantities of Units to be shipped; provided, however, that in no case shall any Order Release be for less than *. Distributor will issue such individual Order Releases to Company with delivery dates at least sixty-five (65) days after the date of such individual Order Releases to allow Company adequate time to adjust its production schedules. Distributor agrees that each such Order Release shall be a binding non-cancelable order for Product. (ii) After the successful completion of the Purchasing System Training Period, in addition to placing the Blanket Purchase Order at the beginning of each calendar year, Distributor shall establish minimum and maximum Stocking Level requirements based on the updates to the Annual Forecast, to which updates and Stocking Level requirements Company will have direct on-line access, such that Company shall plan, manufacture, and ship monthly (or at such more or less frequent scheduled intervals as the Parties may by written agreement determine) to maintain 11 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. such Stocking Levels, and Company shall be responsible for shipping the quantities of Units necessary to maintain Distributor's Stocking Level requirements, on Company's own issuance of Order Releases and without receiving individual Order Releases from Distributor; provided, however, that in no case will any quantity specified in the Order Release be less than *. In addition, such individual Order Releases shall have delivery dates at least sixty-five (65) days after the date of such individual Order Releases to allow Company adequate time to adjust its production schedules. Subject to Distributor's compliance with the other provisions of this Section 6, and while individual Order Releases are issued in accordance with method (i) described above, Company shall ship Units to Distributor within two (2) working days of the individual Order Release delivery date ("Ordering Window") in the quantity indicated on the individual Order Release; provided, however, that in no case shall any given Order Release be for less than *. During the time method (i) above is in effect, the Company will use commercially reasonable efforts, but is not obligated, to fill individual Order Releases placed by Distributor with delivery dates less than sixty-five (65) days from the date of the Order Release. During the time method (ii) above is in effect, and subject to Distributor's compliance with the other provisions of this Section 6, Company shall be responsible for timely shipment of all quantities necessary to maintain the established Stocking Level requirements; provided, however, that in no case will any given shipment of Product be less than *, and the Ordering Window shall be reduced to one (1) working day. During the time either method (i) or (ii) above is in effect, Company shall invoice Distributor for the actual quantity of Units shipped on the date shipped. Notwithstanding anything contained herein to the contrary, in any calendar quarter, the Company will use its commercially reasonable efforts, but it is not obligated, to ship Unit quantities exceeding * of the Product ordered in an Order Release (excluding the first Order Release under this Agreement), or shipped by Company, as the case may be in method (i) or (ii), respectively, during the prior quarter. Both Parties agree that upon successful completion of the Purchasing System Training Period (i.e., during the period method (ii) as provided in this Section 6(b) is in use), the decision regarding Distributor's obligation to either purchase additional Units or pay a Purchase Penalty Fee, as provided in Section 4(c) herein, shall be at Distributor's sole discretion. (c) Company shall deliver the Units ordered on the delivery date(s) specified in Sections 6(b). If Company becomes aware of an event of Force ----- Majeure under Section 23 or any other event that it expects would prevent it - ------- from supplying Units ordered or forecasted to be ordered by Distributor on the specified delivery date(s), Company shall promptly notify Distributor. In such event, Company shall take all reasonable steps necessary to minimize production delays (including, without limitation, securing a third party manufacturer that is reasonably acceptable to Distributor as an additional source for the manufacture of the Product, 12 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. in accordance with the terms of this Paragraph). In the event that any inability to supply Units results in delays or shortages as described in this Paragraph, Distributor shall be entitled to the forms of relief as provided in this Section 6(c). The Parties agree that, subject to the terms and conditions of Section 6(b) herein, Distributor's obligation to purchase the Purchase Requirements as provided in Section 4 herein shall be determined according to the delivery dates -------------- indicated in the Order Releases (as provided in method (i) of Section 6(b) herein) or Stocking Levels (as provided in method (ii) of Section 6(b) herein), and Distributor shall not have failed to meet its Purchase Requirement for a --- given calendar year if deliveries of shipments are made after such delivery dates for such calendar year. Order Releases with a scheduled delivery date in one calendar year and that are shipped in a subsequent calendar year shall only ---- count toward the Purchase Requirement in the calendar year in which the delivery date was scheduled. In addition, Company shall pay Distributor a late shipment penalty fee of * per Unit (the "Late Shipment Penalty Fee"), on a per shipment basis if: (A) such shipment is delivered late (i.e., after 65 days from delivery date as specified in Section 6(b)); (B) such shipment does not violate the rule (as provided in Section 6(b) herein) that the total quantity of Product ordered in each quarter should not exceed * of the quantity of Product ordered or shipped in the immediately preceding quarter (and Company is under no obligation to fill such order to the extent it exceeds the prior quarter's total); and (C) as a result of such late shipment, Distributor is forced to process Distributor's customer orders of Product as "back orders" because Distributor has insufficient inventory to fill such orders on a timely basis, which such inventory shall include for these purposes inventory of Product held by Distributor or Distributor's subdistributors, or Product held on consignment in Distributor's Customers' possession. (d) In the event Distributor terminates this Agreement as provided in Section 17(c) herein, and such termination is caused by Company's failure to fill orders for Product as provided in Section 6 herein the provisions of Section 2(f) shall apply. (e) Notwithstanding anything contained herein to the contrary, (A) shipments that are less than *, or greater than *, of the amount ordered and/or which are delivered outside the Ordering Window may be deemed, at the sole discretion of Distributor, (i) goods shipped as an accommodation, (ii) non- conforming goods which may be rejected or (iii) a partial order which may be accepted by Distributor without waiving its rights to complete performance, (B) all shipments with a quantity of Units that are within (+ or -) * (*) of the quantity specified in the Order Release, shall be deemed to satisfy the quantity specified in such Order Release, and (C) Distributor shall be responsible for payment for only those Units actually shipped. 13 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. (f) During the Term of this Agreement, Distributor shall provide Company with a twelve (12) month order, delivery and inventory forecast by month (the "Annual Forecast") in dollars and Units (including all Samples and Demonstration Units) no later than November 1 of each calendar year for the immediately succeeding calendar year, except that for the first calendar year of this Agreement, the Annual Forecast shall be delivered to Company within forty-five (45) days of the Effective Date. Within thirty (30) days of Company's receipt of the Annual Forecast, Company shall provide Distributor with a twelve (12) month production capacity plan (the "Annual Production Plan") which shall include information concerning Company's ability to meet the Annual Forecast, including without limitation information about Company's intended improvements in its production capacity to meet the production requirements as provided in the Annual Forecast. The Annual Forecast and the monthly updates are for planning purposes only and shall not be binding on Distributor or Company. (g) During the Term of this Agreement, on the tenth (10th) day of each month covered in an Annual Forecast (or in the event of a technical information systems malfunction, as soon as reasonably possible), commencing with February, Distributor shall provide Company with an updated rolling twelve month forecast of Units sold, inventory levels, sales and scheduled Order Releases (including Samples and Demonstration Units), so as to allow Company a continuous, twelve- month planning horizon. As the Parties develop the capability to do so (upon the successful completion of the Purchasing System Training Period as provided in Section 6(b) herein), Company shall access the updated forecast directly on- line as needed, and shall conduct its planning activities without receiving written updates. Company agrees that promptly following its receipt of such updates, Company shall inform Distributor whether or not Company reasonably expects to be able to meet Distributor's updated forecast requirements for Product, and if applicable, the remedial measures Company intends to take in order to meet such updated forecasted Product requirements. The monthly updates are for planning purposes only and shall not be binding on Distributor or Company. Beginning in calendar year 1998, Distributor shall provide Company with quarterly reports of Units sold and Units on hand in the Distributor's inventory no later than thirty (30) days after the end of each calendar quarter. As the Parties develop the capability to do so, Company shall access such reports, together with Distributor's Stocking Level requirements, directly on- line as needed, and shall conduct its planning activities without receiving such reports in writing. (h) Company shall maintain a work-in-process bulk HA inventory of Product in an amount not less than that sufficient to supply Distributor's individual Order Releases or Stocking Level requirements, as the case may be, based on the updates to the Annual Forecast provided by Distributor pursuant to Section 6(g). 14 (i) In the event of a conflict between the terms of a Blanket Purchase Order or individual Order Release issued by Distributor and this Agreement, the terms of this Agreement shall control. 7. PRICE AND PAYMENT TERMS ----------------------- (a) During the first three (3) years following the earlier of (i) the First Commercial Sale of the Product by Distributor in any country in the Territory or (ii) January 1, 1998, the purchase price payable by Distributor to Company for each Unit shall equal the greater of (a) * or (B) * of the Average Selling Price per Unit. Thereafter, the purchase price payable by Distributor to Company for each Unit shall be the greater of (X) * or (Y) * of the Average Selling Price per Unit. For purposes of this Agreement, "Average Selling Price per Unit" shall be calculated annually during the Term of this Agreement promptly after the end of each calendar year and shall equal (i) Net Sales for that calendar year divided by (ii) "Net Units Sold" in such calendar year. "Net Units Sold" shall mean the total number of Units sold by Distributor or its Affiliates to third parties (excluding Samples and Demonstration Units), less all returns of Units in the calendar year in question. If at any time the annual Average Selling Price falls below * (the minimum price necessary for Distributor to maintain a * gross margin at the * minimum price), Distributor may request that the * minimum purchase price be reduced. The Steering Committee shall convene within thirty (30) days after Distributor's request to evaluate the basis for the request, and to determine the duration of the reduction, if any. If the Steering Committee determines that market or other competitive conditions so require, it shall establish a reduced minimum purchase price, calculated as follows: once the annual Average Selling Price falls below *per Unit, Company shall, subject to the provisions of this Section 7(a), reduce its * per Unit floor price by * of the difference between (A) Distributor's gross profit (assuming *) and (B) Distributor's gross profit (pre-adjustment), but in no event shall the price paid to Company be less than *. For example, if the annual Average Selling Price falls to * per Unit, the calculation as follows: 15 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. Average Selling Price (pre-adjusted) = * Original per Unit Purchase Price = * Distributor's gross profit (pre-adjustment) * Distributor's gross profit (assuming *) = * Difference between Distributor's gross profit (assuming * close-up) and Distributor's gross profit (pre-adjustment) * - * = * Amount by which Company's * Average Selling Price is reduced * Company's New Average Selling Price * Distributor's New Gross Profit * Total * Notwithstanding anything contained in this Agreement to the contrary, (i) the provisions of this paragraph shall not apply unless and until the annual Average Selling Price per Unit falls below *; (ii) this paragraph shall only operate prospectively; (iii) any reduction in the purchase price payable per Unit determined as provided in this paragraph shall only remain in effect for as long as the Average Selling Price per Unit is below * and (iv) no event shall the purchase price per Unit payable by Distributor to the Company be less than *. If the Average Selling Price per Unit falls below * (as calculated for the entire Territory), Distributor reserves the right to reduce the spending commitments described in the Marketing Plan to a more realistic level in order for Distributor to maintain or recapture its *. At the time of such reduction in spending, Distributor will submit to the Steering Committee a proposal detailing on a country-by-country basis Distributor's recommendation whether to continue or cease marketing the Product in each country, and the Steering Committee shall meet within sixty (60) days to determine the appropriate action to be taken by the Parties. If the Steering Committee cannot come to a resolution on a price adjustment, the matter will be submitted to arbitration as provided in Section 20. In arbitrating the issue of price reduction as provided in this Section 7(a), the arbitrator shall be bound by the formula for such reduction as ----- provided in this Section 7(a). (b) For purposes of determining the purchase price of the Product payable by Distributor to Company prior to the final determination of the Average Selling Price per Unit 16 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. for any calendar year (or portion thereof), the Parties agree that they shall use an estimate of the Average Selling Price per Unit (the "Estimated Average Selling Price") as provided in this Section 7(b). From the Effective Date to the date the next Estimated Average Selling Price is determined pursuant to this Section 7(b), the Estimated Average Selling Price shall be * per Unit. On or before March 31, 1999 and March 31 of each year thereafter during the Term of this Agreement, Distributor shall provide Company with a statement (the "Statement") calculating the (i) Net Sales; (ii) Net Units Sold; and (iii) the actual Average Selling Price per Unit for the most recently completed calendar year in accordance with Section 7(a). The actual Average Selling Price per Unit as determined by Distributor shall be used by the Parties as the Estimated Average Selling Price for the immediately succeeding calendar year. If in any completed calendar year the actual Average Selling Price per Unit for such calendar year exceeds the Estimated Average Selling Price used for such calendar year, Distributor shall pay to Company within thirty (30) days of the date the calculation of the actual Average Selling Price per Unit is deemed final by the Parties as provided in Section 7(c) of this Agreement, an amount equal *. If for any calendar year the Estimated Average Selling Price exceeds the actual Average Selling Price per Unit, Company shall pay to Distributor within thirty (30) days of the date the calculation of the actual Average Selling Price per Unit is deemed final by the Parties as provided in Section 7(c) of this Agreement an amount equal to *. (c) The calculation of the actual Average Selling Price per Unit set forth in the Statement shall be deemed final and binding on the Parties unless Company notifies Distributor in writing of its objection thereto (an "Objection") within sixty (60) days after the completion of the Audit as provided in Section 7(d) or sixty (60) days from Statement being delivered to Company following the end of the calendar year, whichever is later. Any Objection shall be accompanied by a detailed explanation of Company's basis for such Objection. Within thirty (30) days after the delivery of the Objection to Distributor, the Parties shall in good faith attempt to agree on the calculation of the Average Selling Price per Unit. If the Parties fail to reach agreement within such thirty (30) day period, the matter shall be submitted to arbitration in accordance with Section 20. (d) Company shall have the right to appoint an independent public accountant, mutually acceptable to the Parties (the "Accountant") to verify Distributor's calculation of Net Sales, Net Units Sold and Average Selling Price per Unit (the "Audit"). In the absence of any intentional misstatement of material fact by Distributor, * shall bear the cost of such Audit unless Distributor's calculation of the Net Sales, Net Units Sold or Average Selling Price per Unit is more than * lower than the amounts determined by the Audit, in which case Distributor shall bear the cost. If Distributor disagrees with the 17 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. calculation of the Audit, and Distributor and Company cannot resolve their disagreement, the matter shall be submitted to arbitration in accordance with Section 20. (e) Company shall supply Distributor with samples of the Product ("Sample") at * per Unit. Unless the Parties otherwise agree, the total number of Sample Units that Company is required to supply shall not exceed * of Distributor's applicable annual purchase requirement set forth in Section 4. All Samples shall be labeled "Samples -Not For Resale." Company shall also supply Distributor with Demonstration Units at * per Unit to be used solely for demonstration purposes. Unless the Parties otherwise agree, the total number of Demonstration Units that Company is required to supply shall not exceed * of Distributor's applicable annual purchase requirement set forth in Section 4. All "Demonstration Units" shall be labeled "For Demonstration Use Only -Not for Human Use or Injection" and shall be defined as Units which need not meet Product Specifications, but which should be representative examples of the Product in finished, packaged form. Distributor agrees not to sell Samples or Demonstration Units including without limitation, to any Affiliates or third party sub-distributors. (f) The purchase price for the Product is based on sales term * ready for pick-up by such common carrier as Distributor may designate for shipment to distribution locations in the Territory designated by Distributor. In addition, Company shall document the common carrier billing mechanism as requested by Distributor. Risk of loss to the Product shall pass to * upon delivery of the Product to a carrier at *. Company shall cooperate with Distributor in processing all claims for loss or damage to the Product. In addition to the shipping and shipping-related expenses (including without limitation insurance costs) incurred subsequent to the delivery by Company of Product to the common carrier as designated by Distributor, * shall be responsible for and shall pay for any and all demurrage, storage and other charges accruing after the arrival of any shipment at the Distributor designated destination. Notwithstanding any other terms of this Paragraph, risk of loss for all shipments shall shift to * in the event Company's packaging does not maintain an average breakage rate (calculated over a three-month period) of less that *, and shall remain with * until the three-month average breakage rate again drops below *. Company agrees to supply Distributor with specific instructions and packaging specifications for re-packaging the Product, which such instructions will be incorporated into Annex A - ------- hereto. Distributor agrees that any breakage that results as a result of Distributor's failure to properly use such instructions and specifications shall be excluded in the calculation of the average breakage rate. (g) Back Orders of Products shall be shipped * to Distributor's facility in Warsaw, Indiana (or such other U.S. location as the Distributor may designate), via overnight air carrier reasonably designated by Company. * shall be responsible for all costs associated with priority and/or emergency shipment of Back Orders of Products to the location designated in the immediately preceding sentence. "Back Order" shall 18 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. be defined as an order shipped late to one of Distributor's customers because Company failed to supply Distributor with Product in accordance with the terms of this Agreement, such that Distributor did not have sufficient inventory in the United States and Canada to meet such customer's order. (h) Company shall invoice Distributor for each shipment separately and shall reference the applicable Distributor purchase order number, mode of transportation, date of shipment and payment terms on all invoices and bills of lading. Any and all transfer, sales, use, registration and other taxes imposed upon or with respect to or measured by the sale or delivery by Company to Distributor of the Product in accordance with this Agreement shall be the responsibility of and charged to the account of Distributor. Such amounts shall be included on Company's invoices to Distributor for such Product. Anything to the contrary notwithstanding, Distributor shall not have any obligation to pay any of Company's income taxes which may result in connection with the transactions contemplated by this Agreement. (i) Payment terms for purchases of Product by Distributor shall be * days from the date such Product is shipped by Company via common courier. In the event payment has not been sent within * days after the shipment is so shipped, Company shall have the right to suspend any and all shipments due or past due, without incurring the Late Shipment Penalty Fee described in Section 6(c) herein, until Distributor's payment for the delivered shipment is received. 8. PRODUCT SPECIFICATIONS; QUALITY CONTROL, REGULATORY MATTERS AND COMPLIANCE -------------------------------------------------------------------------- WITH LAW -------- (a) Company shall manufacture, package and label the Product in strict accordance with the specifications and quality standards described in the Registration Dossier(s) with respect to the Product in effect from time to time in the applicable Territory, and other additional specifications agreed to by the Parties, after submission to the Steering Committee, from time to time, which additional specifications are written as amendments to Annex A as provided ------- in Section 8(b) below (the "Specifications"). Either Party shall have the right to request a change to the Specifications at any time during the Term of this Agreement. In such event, the Party wishing to request a change (the "Requesting Party") shall notify the other Party (the "Receiving Party") of its request in writing. If the Receiving Party agrees to such request, the Parties shall cooperate with each other to have such change to the Specifications approved in each applicable country in the Territory, and Company shall maintain sufficient inventory of the original Product to supply Distributor until the change in Specifications is so approved and the new Product can be marketed and sold. Changes requested by Company shall be made at *. Company shall not be obligated to make any changes to the Specifications requested by Distributor, other than those required by a regulatory agency having jurisdiction in the country affected by such requested change. If any 19 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. regulatory agency having jurisdiction in any country in the Territory requires a change to the Specifications, Company shall use all commercially reasonable efforts to make such changes with respect to the Products sold in the affected jurisdiction, and the actual, documented * for making such change as required by such regulatory agency shall be * among Company and Distributor. * for any and all expenses incurred by Company in connection with any and all changes to Specifications requested by Distributor for any reason other than a regulatory requirement. Notwithstanding any other terms of this Paragraph, in the event of a change or improvement to the Product for which the Parties agree to implement and modify Annex A, Distributor's purchase price for the improved or changed Product shall be adjusted as follows: (i) Company shall not change any element of such price relative to components, materials, and processes that remain unchanged; (ii) Company shall provide detailed documentation of any changes in such price attributed to changes in costs associated with changes in components, materials, or processes; (iii) for any increase in price attributed to an increase in such costs, Distributor shall have the right to appoint an independent certified accountant mutually acceptable to both parties to audit and verify the cost increase directly with Company's suppliers, or in the alternative, to review Company's financial records pertaining directly to any increased cost for components, materials, or processes. In addition, if the change or improvement to the Product adopted in Annex A creates Obsolescence in existing inventory, the actual, documented, * of such Obsolescence, together with any actual, documented, *, *. Company shall have the right to appoint an independent certified accountant mutually acceptable to both parties to audit and review Distributor's financial records pertaining directly to such * costs for obsolescence. Any disputes arising from a request for cost-sharing or reimbursement of expenses incurred in connection with a change in Specifications (or other provisions of Annex A) under this Paragraph and not resolved informally within thirty (30) days shall be referred to the Steering Committee for resolution. If the Steering Committee does not resolve the matter within sixty (60) days, either Party may submit the matter to arbitration as provided in Section 20. (b) All changes to Specifications in Annex A allowed by the provisions in ------- Section 8(a) made subsequent to the Effective Date of this Agreement, must be made in the form of a written amendment to Annex A signed by both Parties. ------- (c) Company shall conduct quality control testing, including stability testing, of the Product prior to shipment in accordance with the Specifications and regulatory requirements with respect to the Product as are in effect from time to time in the Territory, and such other quality control testing procedures agreed to by the Parties from time to time (the "Testing Methods"). Company shall retain records pertaining to such testing. Testing Methods will be reviewed and approved by both Parties prior to use of the Product. (d) Company shall provide Distributor with a certificate of analysis of each shipment of Product made to Distributor. Such data (and such other relevant test data as the 20 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. Parties may agree) shall be provided at least monthly, on diskette and/or as hard copy, or in such other format as the Parties may agree, in advance of each shipment. Distributor may test or cause to be tested any Product in accordance with its customary procedures within thirty (30) days of its receipt of the Product. Distributor agrees to notify Company of any actual or potential defect of which Distributor becomes aware. Distributor shall have the right to reject any shipment of Product which does not meet the Specifications when tested in accordance with the Testing Methods no later than (i) forty-five (45) days after receipt of such shipment of Product, or (ii) forty-five (45) days after Distributor is notified of a potential defect or other nonconformance by its customer, the Company, or other source, as the case may be; provided, that in either case described in clause (i) and clause (ii) of this sentence, the standard payment terms specified in Section 7(i) of this Agreement shall apply, and shall not be delayed pending resolution of any rejection claim. All such claims shall be accompanied by a copy of the records pertaining to such testing and a report of the Distributor's analysis (including a sample of the Product from the batch analyzed) of the allegedly non-conforming Product, which records and report shall have been made at the direction of the quality control group of Distributor using the Testing Methods. If, after its own analysis of such sample, Company confirms such non-conformity, Company shall replace such shipment at its expense, together with payment to Distributor of a standard handling fee equal to * of the purchase price of the non-conforming unit, which handling fee shall be deemed to include all applicable charges incurred by Distributor for shipping and/or storage, and/or disposal. If, after its own analysis, Company does not confirm such non-conformity, the Parties shall agree to retest the shipment or otherwise attempt in good faith to agree upon a settlement of the issue. In the event that the Parties cannot resolve the issue, the Parties shall submit the disputed Product to an independent testing laboratory, to be mutually agreed upon by the Parties, for testing using the Testing Methods. The findings of such laboratory shall be binding on the Parties, absent manifest error. Expenses of such laboratory testing shall be borne by the Party adversely affected by such findings. In the event that any such shipment or batch thereof is ultimately agreed or found not to meet the Specifications, Company shall replace such shipment at its expense, including charges incurred by Distributor for shipping and/or storage, if applicable. If instructed by Company, Distributor shall return any such rejected shipment to Company at Company's expense. In the event that any such shipment or batch thereof is ultimately agreed or found to meet the Specifications, Distributor shall retain such shipment or batch, and all the terms and conditions of this Agreement shall continue to apply to such Product. (e) In addition to the obligations specified in this Agreement, each of the Parties shall have the responsibilities assigned to it in the Coordinated Sales, Marketing and Clinical Plan attached hereto as Annex B and incorporated ------- herein by reference (the "Marketing Plan"), including, without limitation, responsibilities with respect to product registrations, clinical trials and other regulatory matters; provided however, that in case of a conflict between -------- ------- the Marketing Plan and this Agreement, this Agreement shall control. 21 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. (f) Company shall notify all applicable regulatory authorities of reportable events involving the Product for which Company receives appropriate notification, as required by applicable Laws, including, without limitation, MDR reports under the MedWatch program of the FDA and Device Vigilance Reports required by the countries of the European Union. Distributor shall likewise notify Company in writing of any such reportable events. The reporting party shall notify the other within twenty-four (24) hours after such party becomes aware of such reportable event, in a manner consistent with the requirements of the Law in the applicable jurisdictions. (g) Distributor shall communicate to Company via facsimile and follow-up via express courier regarding any complaints received from users of the Product, within twenty-four (24) hours after Distributor becomes aware of each complaint. Each notification of a complaint shall contain, to the extent available to Distributor within the 24 hour time frame, information as to the lot number, dosage size, expiration date, indication for actual use and description of circumstances involved in the alleged failure of the Product. Each complaint notification will contain all the information available to Distributor at that time, including the information required in the "Company Complaint Form" (Annex E), and a summary of any proposed action to be taken by the Distributor ------- and/or Company. Distributor will provide additional information as it becomes available, or will turn the complaint over to Company for follow-up investigation and any further action. No action, though, will be taken by Distributor before consultation with and agreement from Company. Each month during the term of the Agreement, Company will provide Distributor with a summary of all complaint information (together with trend analysis) received from all sources during the preceding month. (h) Each Party agrees to notify the other Party as soon as practicable of any information of which it becomes aware which relates to the safety or efficacy of the Product. Upon receipt of any such information, the Parties shall consult with each other in an effort to arrive at a mutually agreeable course of action that is consistent with the obligations of the parties under this Agreement. (i) (1) If a Party is notified by a governmental agency that a Product recall or other general corrective action with respect to the Product is necessary ("Government Recall"), it shall immediately advise the other Party in writing of such notification by such governmental agency, and proceed with the recall or corrective action as instructed by such governmental agency. (2) In the event either Company or Distributor believes in good faith (without notification by a governmental agency) that a Product recall or other general corrective action with respect to the Product is necessary or appropriate ("Proposed Recall"), the party advocating the Proposed Recall shall notify the other party in writing regarding its belief in this 22 regard, and provide the other party with a complete written explanation of the reason(s) for its belief regarding such Proposed Recall. Within two (2) business days following delivery of the written explanation, the Parties will jointly submit all notifications from either Party regarding such Proposed Recall to a subcommittee of the Steering Committee (consisting of one (1) member from Distributor qualified to make a determination regarding such Proposed Recall and the President of Company) to determine what actions are appropriate regarding such Proposed Recall. The subcommittee convened for the purpose of making the determination in the immediately preceding sentence shall take only those actions which the subcommittee has voted unanimously to take. If the subcommittee is unable to make a unanimous decision about the appropriate action regarding a Proposed Recall within five (5) business days after such matter is submitted to such subcommittee, the matter will be submitted to the full Steering Committee, which will be given five (5) additional business days to vote by simple majority to take appropriate action regarding a Proposed Recall. If the full Steering Committee is unable to make a decision about the appropriate action to take regarding a Proposed Recall, the matter will be submitted to arbitration as provided in Section 20, except that a final decision shall be rendered within fifteen (15) days after a party initiates arbitration. Distributor will keep detailed distribution records for each lot number detailing the quantity shipped and the location where the lot was shipped, so that in the event of a recall Distributor will be able to contact all physicians and/or end users. (3) (i) In the event any recall or general corrective action is taken with respect to the Product, whether ordered by a governmental agency or otherwise, Distributor and Company will jointly determine the cause(s) of the recall no later than thirty (30) days after the date of such recall, in order to establish preventive measures for the future and to assess responsibility for costs and expenses arising from the recall. At the end of this thirty (30) day period if the matter has not been resolved by Distributor and Company, the matter of costs and expenses will be submitted to the Steering Committee for resolution. If the matter is not resolved by the Steering Committee within sixty (60) days either party may initiate arbitration pursuant to Section 20. (ii) The responsibilities for costs and expenses associated with the recall or corrective action shall be determined according to the provisions of Section 18 (Indemnification) herein. If it is determined by either the Steering Committee or as a result of 23 arbitration, as the case may be, that the recall or corrective action is Company's responsibility according to Section 18, Company shall refund the purchase price for such Product and shall reimburse Distributor for Distributor's documented actual out-of-pocket costs and expenses in connection with such recall or general corrective action, including, without limitation, Distributor's actual costs of conducting the recall or corrective action. If it is determined by either the Steering Committee or as a result of arbitration, as the case may be, that the recall or corrective action is Distributor's responsibility according to Section 18, Distributor shall reimburse Company for Company's documented actual out-of-pocket costs and expenses in connection with such recall or corrective action, including without limitation Company's actual costs of conducting the recall or corrective action. In the event of a recall for which it is determined by either the Steering Committee or as a result of arbitration, as the case may be, that both Parties bear a measure of responsibility according to Section 18, it is the intent of both Parties that the costs and expenses of conducting the recall or corrective action shall be apportioned according to Section 18. The Parties further agree that any unallocated share shall be * the Parties (e.g., the Party determined to be * responsible under Section 18 pays * of the costs and expenses incurred in conducting the recall or corrective action; the Party determined to be * responsible pays * of such costs and expenses; and each Party pays * of the remaining *). (iii) Within ten (10) days after any recall or general corrective action is initiated, the Steering Committee shall meet and determine (a) the time frame for Company to provide replacement product and the transfer price to Distributor, if any; (B) the amount, if any, by which Distributor's minimum purchase requirement shall be reduced for the remainder of the term (to the extent of the forecasted sales in the affected country) determined as provided in Section 2(f); and (C) the amount, if any, by which any payment made to Company under Section 2(b), (c) or (d), to the extent applicable to the affected country, shall be refunded determined as provided in Section 2(f) herein. If the Steering Committee fails to resolve one or more of the above issues within twenty (20) days after the meeting, either Party may initiate arbitration as provided in Section 20. 24 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. (j) Each Party covenants that all of its activities (and the activities of its suppliers in the case of Company, and in the case of Distributor, the activities of Distributor's Affiliates and third party sub-distributors), under or pursuant to this Agreement shall comply with all applicable laws, ordinances, statutes, rules and regulations (collectively "Laws"), including, without limitation, Laws arising under the federal Food, Drug and Cosmetic Act, the Safe Medical Device Act and their respective amendments. (k) Distributor and Company shall have the right to visit each other's facilities where the Product is manufactured, stored or delivered from time to time during the Term of this Agreement and, subject to Section 14, solely for the purposes of performing a quality audit of the other Party's records concerning the manufacturing procedures, and storage and distribution (including shipping and handling) of the Products. Distributor agrees to obtain the rights described in this Section 8(k) with respect to its Affiliates and sub- distributors as applicable. Provided however, that such visits will be restricted to only those persons directly involved in determining compliance with the terms of this Agreement, and each Party shall be required to furnish to the other party only that information necessary to make a determination of the other Party's compliance with the terms of this Agreement. Such visits shall be conducted upon reasonable written notice and during normal business hours. 9. COMPANY'S GENERAL OBLIGATIONS ----------------------------- (a) During the Term of this Agreement, Company shall, in accordance with the Marketing Plan: (i) Train Distributor's management and sales force regarding the Product and its labeled indications, and provide such assistance as Distributor may, from time to time, reasonably require; (ii) Provide to Distributor reasonable technical, scientific, sales and marketing support with respect to the Product, to the extent Distributor makes available opportunities to provide such support as provided in Section 11(l) herein and in the Marketing Plan. (iii) Maintain ISO 9001 certification to support the right to continue to use the CE Mark in commerce on the Product, and audit its suppliers annually, or as otherwise sufficient, to ensure that such certification and requisite quality standards are maintained; (iv) Refrain from supplying HA to any other Person for use as the primary active ingredient (A) in any final product that has any applications or indications associated with human osteoarthritis in the Field of Use, or (B) in competition 25 with the Product or other applications or indications of the Product that Distributor or its Affiliates have an option to distribute, unless Distributor has been first offered the right to distribute such product in accordance with the right of first offer set forth in Section 5; (v) Use commercially reasonable efforts to ensure that products manufactured by the Company (other than the Product) are not marketed or used in the Field of Use in the Territory (the "Gray Market Product"). If Distributor reasonably believes that Gray Market Product is being marketed or used in any country in the Territory, and has caused financial loss to Distributor of at least * Distributor shall promptly notify Company of such belief, and provide Company with a written description of the basis for Distributor's belief. Within five (5) business days of Company's receipt of such notice, the matter shall be submitted to the Steering Committee for resolution of the following issues: (A) whether or not the goods believed by Distributor to be Gray Market Product are actually goods manufactured by Company; (B) whether or not the goods believed by Distributor to be Gray Market Product are actually being marketed or used in the Field of Use in the Territory; (C) upon determination that the goods are in fact Gray Market Product, whether or not the financial loss to distributor is at least *, and if so, the approximate amount; and (D) upon determination that Gray Market Product has caused financial loss to Distributor of at least *, what commercially reasonable course of action Company shall be required to take, including without limitation any or all of the following: reimburse Distributor for all of its past and ongoing direct financial losses attributable to the Gray Market Product; take such action, including legal and/or equitable action as required to prevent the Gray Market Product from entering the Territory and to prevent it from being marketed or used therein; and adjusting Distributor's annual purchase requirements. In the event the Steering Committee does not reach a resolution concerning the Gray Market Product within thirty (30) days after such issues are presented to it, either Party may submit the matter to arbitration as provided in Section 20 herein, for resolution of the same issues as outlined in clauses (A) through (D) in the immediately preceding sentence. For purposes of this Paragraph, Distributor's financial loss shall be based on the amount determined by multiplying (i) the number of additional Units that Distributor reasonably demonstrates it would have sold if such Gray Market Product had not been so marketed or used, by (ii) Distributor's average gross profit margin applicable to the sale of Units, as demonstrated by Distributor. (vi) Maintain at its own facilities and by contracting with qualified suppliers if necessary, sufficient manufacturing capacity to satisfy the quantities of Product 26 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. reasonably expected to be required by Distributor as indicated on the Annual Forecast and updates to the Annual Forecast as provided herein; (vii) Maintain ownership of all Product regulatory approvals and be responsible for making all regulatory filings for the Product within the Territory; (viii) Convey title to all Products shipped to Distributor free and clear of any liens or other security interest. In the event such a lien or other security interest is found to exist, Distributor, in addition to any other remedy then available, shall have the right to immediately satisfy such lien or other security interest and offset such amount from amounts due and owing to Company or which later become due and owing to Company; and (ix) After consultation with and approval by the Steering Committee (as defined in Section 13(a)), Company may hire or employ at its own cost, technical specialists to support Distributor's sales and marketing efforts in the field. These technical specialists shall cooperate and work with Distributor's employees and agents by invitation of Distributor and as may otherwise be specified in the Marketing Plan. (b) Make no modifications to the Product, including without limitation, materials, design, manufacturing methods, manufacturing location, sterilization methods or any other change which may require one or both Parties to obtain additional regulatory approvals before such modified Product could be introduced into commerce in any jurisdiction where approval has been obtained or is pending for the current Product, without first notifying Distributor and obtaining its prior written approval to make such change or changes, such approval not to be unreasonably withheld. Distributor agrees that in the event a governmental agency requires Company to make such change, Company shall notify Distributor of such required change, but Company shall not have to submit such required changes for Distributor's approval. 10. COMPANY'S REPRESENTATIONS AND WARRANTIES ---------------------------------------- Company hereby represents and warrants to Distributor as follows: (a) Company is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has all requisite corporate power and lawful authority to own, lease and operate its assets and to carry on its business as heretofore conducted. Company has the full legal right, corporate power and authority to execute and deliver this Agreement and the other agreements contemplated hereby and to 27 consummate the transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by Company and constitutes the valid and binding obligation of Company, enforceable against Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally or by general equitable principles. (b) Company owns all rights, title and interest in the Product necessary to grant the distribution rights contained in this Agreement to Distributor for the Product in the Territory. The Product does not infringe upon any United States patent or other proprietary right of any Person in the Territory. Company does not have actual knowledge of any infringement by the Product on any other issued patent; however, Company makes no other representations or warranties regarding patents in foreign jurisdictions. Nothing contained in this Agreement is in conflict with any other agreement to which Company is a party or is otherwise bound. (c) Company has not granted the right to market, sell or distribute the Product in the Field of Use in the Territory to any other Person. (d) At the time of delivery to a common carrier at the Company's plant, and for the labeled shelf life, all Products delivered to such common carrier, (i) shall conform to the Specifications of the Product in Annex A, including any ------- amendments to Annex A (as provided in Section 8(b) herein) which are in effect ------- at the time such delivery to a common carrier is made; (ii) shall have been manufactured, sterilized, packaged, labeled, and otherwise handled in accordance with the Registration Dossier with respect to the Product in effect in the applicable country within the Territory at the time of delivery to such common carrier; and (iii) shall have been manufactured, sterilized, packaged, labeled, and otherwise handled in conformance with Good Manufacturing Practices (as such term is generally understood in the medical device industry); (iv) shall not be misbranded or adulterated as those terms are defined in laws and regulations administered by the U.S. FDA (subject to Distributor's compliance with the terms of Sections 11 and 12 herein); and (v) shall be otherwise free from defects in material, fabrication and workmanship. The determination whether the Products conform to the warranty requirements of this Section 10(d) for the labeled shelf life shall be based on analysis of Reference Samples according to the procedures set out in Sections 8(c) and 8(d) above. As used herein, the term "Reference Samples" means units of finished, packaged, and sterilized Product documented to be part of the same numbered manufacturing lot(s) as the delivered unit(s) in question. At the time of delivery to a common carrier, Company shall segregate the quantity of Reference Samples it deems reasonably sufficient to complete the above analysis, and shall maintain the Reference Samples for at least 12 months beyond their labeled shelf life. (e) (i) Company shall continue to manufacture, sterilize, package, label, and otherwise handle all Product, and conduct all of its business operations respecting the Product and Distributor, in accordance with all applicable 28 international, national and local laws, including without limitation, applicable drug and medical device laws. (ii) Company shall promptly replace without charge (or at its option refund the purchase price for) any Product which fails to meet Specifications, or which otherwise fails to meet the warranty requirements of this Section 10, in each case as determined by analysis of the applicable Reference Samples, whether the Product is owned at the time of such event by Distributor or a third party. This warranty shall not apply to any Product to the extent such Product has been misused, misbranded, adulterated or modified by Distributor or any third party. (f) Company has not knowingly furnished Distributor with any written information or data relating to the safety or efficacy of the Product that is in any material respect not supportable by valid, existing scientific or medical studies or which, to the knowledge of Company, is otherwise misleading, nor has Company, to its knowledge, omitted to disclose to Distributor any material written information or data that is in the possession of Company or any of its affiliates relating to the Product, the omission of which would render the written information or data relating to the safety or efficacy of the Product heretofore furnished to Distributor misleading in any material respect. (g) COMPANY'S WARRANTIES SET FORTH IN THIS AGREEMENT ARE IN LIEU OF ANY OTHER WARRANTY, WHETHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, AND COMPANY HEREBY EXPRESSLY LIMITS ALL IMPLIED WARRANTIES, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, TO A PERIOD OF ONE YEAR FROM THE DATE OF MANUFACTURE. (h) EXCEPT AS OTHERWISE EXPRESSLY PROVIDED FOR IN THIS AGREEMENT, NEITHER PARTY SHALL IN ANY EVENT BE LIABLE TO THE OTHER FOR INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS. 11. DISTRIBUTOR'S GENERAL OBLIGATIONS --------------------------------- During the Term of this Agreement, Distributor shall: (a) Store, distribute, market and sell Product in accordance with directions for storage and use as indicated on Annex A, including any amendments ------- to Annex A (as provided in Section 8(b) herein) which are in effect at the time ------- such storage, distribution, marketing, or sales occur; 29 (b) Use its commercially reasonable efforts to actively sell, promote and market Product in the Territories; (c) Make the expenditures in the amounts and within the time frames set forth in Table 3 ("Proposed Marketing Activities Budget Summary") of the Marketing Plan, and otherwise substantially perform the activities described in the Marketing Plan in accordance with the guidelines and time frames set forth in the Marketing Plan; provided, that Distributor may, as it deems appropriate in its sole discretion, reallocate or direct its funds and efforts toward the activities it judges most likely to increase sales of the Product; (d) Be responsible for the entire cost of selling, marketing, advertising, promoting and distributing Product, except as otherwise provided herein or in the Marketing Plan; (e) Supply Company with any information as required by the FDA or other governmental agencies for U.S. and international regulatory filings related to the sale of the Product in the Territory; (f) Timely advise Company in writing of any suit, claim or complaint known to Distributor resulting from the distribution or use of any Product; (g) Advise and support Company regarding information required for international regulatory filings within the Territory; (h) Provide assistance as reasonably requested by Company to collect and file clinical and other data required in connection with seeking Reimbursement Approvals in the Territory, with the cost and expenses associated with such efforts to be borne by the Parties as provided in the Marketing Plan; (i) Refrain from soliciting orders from or selling Products to any Person located outside the Territory or to any Person inside the Territory for sales which Distributor knows are intended to be distributed to users outside the Territory, except as may be required by applicable Law; (j) Neither acquire directly or indirectly through its Affiliates from any third party, any products containing HA as the sole primary active ingredient for use in the Field of Use (a "Competing Product"), nor distribute such Competing Product, except in the event of a "Permitted Acquisition." "Permitted Acquisition" shall mean (i) acquisitions by Distributor or its Affiliates where the Competing Product represents less than twenty percent (20%) of the sales of the acquired 30 Person or acquired product portfolio in the latest full fiscal year of the acquired Person and Distributor takes no steps or actions to increase such sales; or (ii) if the Competing Product represents more than twenty percent (20%) of the sales of the acquired Person or acquired product portfolio, and the Distributor or its Affiliates agree to divest of the Competing Product within twelve (12) months of the consummation of the acquisition (or eighteen (18) months if at the end of the 12-month period, Distributor or its Affiliates are in the process of negotiating such divestiture); (k) Furnish to Company all advertising, marketing and promotional materials related to the Product, for review and approval as to conformance with regulatory requirements, at least fifteen (15) days prior to utilizing such materials. Company shall not unreasonably withhold approval in this regard and shall have a maximum of ten (10) working days to issue its approval or propose changes. In the event Company does not respond within ten (10) working days, the Distributor will be free to utilize the specified materials. Distributor shall not be required to accept changes proposed by Company; provided, that if Company proposes changes Distributor does not accept, Distributor shall promptly refer the matter to the Steering Committee, which shall convene to resolve the issue within ten (10) business days after such referral; (l) Provide, upon at least ten (10) days prior written invitation to Company, access to such of its employees, customers, distributors, market specialists, sales representatives and other parties associated with the marketing and sales of the Product as Distributor deems in its sole discretion appropriate, so that Company may provide supplemental technical, educational, scientific and other support to maximize the sales of the Product as provided in Section 9. (m) Distributor, its Affiliates and subdistributors will, to the extent required by applicable law, keep detailed distribution records for each lot number detailing the quantity shipped and the first location where the lot was shipped by Distributor, and will provide Company with reasonable access to records for purposes of conducting quality control audits as provided in Section 8(k). Company will generate and promptly transfer to Distributor the same detailed distribution records for any and all Units drop-shipped directly from Company to a customer of Distributor. 12. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES -------------------------------------------- Distributor hereby represents and warrants to Company as follows: (a) Distributor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and lawful authority to own, lease and operate its assets and to carry on its business as heretofore conducted. Distributor has the full legal right, corporate power and authority to execute and deliver this Agreement and the other agreements contemplated hereby and to consummate the transactions contemplated hereby and thereby. This Agreement has been duly executed and 31 delivered by Distributor and constitutes the valid and binding obligation of Distributor, enforceable against Distributor in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally or by general equitable principles. (b) Nothing contained in this Agreement is in conflict with any other agreement to which Distributor or its Affiliates or sub-distributors is or may become a party or is otherwise bound; (c) Distributor and its Affiliates and sub-distributors shall store, distribute, market and sell Product in accordance with directions for storage and use as indicated on Annex A and any amendments to Annex A. ------- -------- (d) Distributor and its Affiliates and sub-distributors shall distribute, market and sell Product in accordance with all applicable international, national and local laws of each country within the Territory, including without limitation, applicable drug and medical device laws. 13. STEERING COMMITTEE ------------------ (a) Distributor and Company shall establish a Steering Committee (the "Steering Committee") consisting of four (4) members. Each of Distributor and Company shall appoint two (2) individuals to serve on the Steering Committee. The Steering Committee shall review the sales and marketing strategy, regulatory and clinical issues and the development of additional indications or changes to labeling claims regarding the Product and such other matters as are identified in the Marketing Plan. Notwithstanding any other provisions contained in this Agreement, no decisions made by the Steering Committee or Steering Committee actions will be deemed approved unless an equal number of Steering Committee members from both Parties is present at the meeting where such decision is made or action is taken as provided in Section 13(d). (b) Within thirty (30) days after the execution and delivery of this Agreement by both Parties, Company and Distributor shall each appoint its initial representatives to serve on the Steering Committee. Each Party may change its representatives upon notice to the other Party. (c) The Steering Committee shall be chaired by one representative of either Company or Distributor for each successive twelve (12) month period during the Term of this Agreement, and the chair shall alternate between the Parties. During the first twelve (12) month period, the Steering Committee shall be chaired by a representative of Distributor. 32 (d) The Steering Committee shall meet at least two (2) times each year during the Term of this Agreement, at such dates and times as agreed to by the Parties. Meetings in person shall alternate between the offices of the Parties or such other place as may be mutually agreed upon by the Parties. The Steering Committee may also convene or be polled or consulted from time to time by means of telecommunications or correspondence, and members will be deemed "present" at "meetings" for purposes of this Section 13 if participating by such means. All decisions made or actions taken by the Steering Committee shall require the affirmative vote of a majority of its members. A quorum for a meeting shall require at least one Company member and at least one Distributor member. (e) If there are issues which are not specifically addressed in this Agreement and on which the Steering Committee cannot reach agreement because of a deadlock, such matters shall be submitted to the President of Distributor and the President of Company for prompt resolution. If the matter cannot be resolved by the Presidents of Distributor and Company within sixty (60) days after it is submitted to them, either Party may initiate dispute resolution pursuant to Section 20. 14. TRANSFER OF DATA; CONFIDENTIALITY --------------------------------- (a) The Parties acknowledge that Company is in the process of conducting studies on the Product necessary to register the Product for marketing and sales in the Territory. No earlier than fifteen (15) days after the execution and delivery of this Agreement, upon Distributor's request, Company shall deliver to Distributor copies of all data, studies and materials in Company's possession relating to the patents and Know-How available as of such date which Company and Distributor reasonably determine is relevant to the safety, efficacy, regulatory status, sale, marketing or distribution of the Product. (b) During the Term of this Agreement: (i) Company shall provide to Distributor any subsequently acquired Know-How from time to time as such Know- How is developed or acquired which Company and Distributor reasonably determine is relevant to the safety, efficacy, regulatory status, sale, marketing or distribution of the Product; and (ii) each of the Parties shall deliver to the other Party all relevant data and Registration Dossier(s) relating to use of the Product in the Field of Use, and results from any studies being conducted by or on behalf of either Party in connection therewith promptly after such data and/or Registration Dossier(s) become available. (c) The Parties acknowledge that discussions between Company and Distributor will necessarily require the exchange of information (including detailed financial and product information) that is considered confidential and proprietary by the disclosing Party. The Parties agree that any information relating to the business of the disclosing Party which such Party discloses to the other Party pursuant to this Agreement shall be considered "Confidential 33 Information" and shall include, without limitation, (i) the Know-How; (ii) earnings, costs, and other financial information; (iii) drawings, formulations, samples, technical data, photographs, specifications, manufacturing methods, testing procedures; and (iv) marketing, sales and customer information relating to the disclosing Party's business; and (v) all clinical studies and data developed by either party in connection with this Agreement. (d) The Parties agree that both during the Term of this Agreement and for a period of ten (10) years thereafter, each Party shall keep, and shall cause the directors, officers, employees and agents of such Party or its Affiliates or third party sub-distributors to keep, completely confidential any and all Confidential Information acquired from the other Party, and shall not use or disclose any Confidential Information received from the other Party to any other Person, except to the extent the receiving Party's employees and/or agents (including consultants) need to know such Confidential Information in order to discharge such Party's obligations and exercise its rights hereunder. (e) Confidential Information shall not include information which (i) is or hereafter becomes available to the general public other than by reason of any default with respect to a Party's confidentiality obligation hereunder, (ii) is demonstrated by documentary evidence to have been known at the time of receipt thereof by the receiving Party as evidenced by tangible records, (iii) subsequently may be rightfully obtained from a third party without the third party's breach of a duty to the disclosing Party, (iv) can be shown by contemporary records to have been developed or acquired independently without breach of any obligations contained herein, or (v) is required to be disclosed as a result of a judicial order or decree or applicable Law or regulation, provided however, that the Party whose Confidential Information is the subject of such judicial order or decree is given the opportunity (to the extent not violative of applicable law) to contest the judicial order or decree prior to any disclosure. (f) Each Party shall ensure that all third parties to whom Confidential Information of the other Party is communicated, including without limitation investors and potential investors of Company, Affiliates and Suppliers of Company, Affiliates and sub-distributors of Distributor, sign non-disclosure and confidentiality agreements. 15. PATENTS ------- (a) Patent Prosecution. ------------------ (i) Company hereby represents and warrants to Distributor that, as of the Effective Date, it has applied for and/or received no Patents with respect to the Product in the countries specified in Annex C-1 and C-2. Company and Distributor shall jointly determine the countries, if any, within the Territory in which Patents should be filed, prosecuted and/or maintained. The Parties acknowledge and agree that Company will file, prosecute and 34 maintain, at its sole expense, Patents in all commercial markets within the Territory where the Steering Committee determines such action is warranted, provided that viable patent protection is available (such countries shall be referred to as "Patent Countries"). All such Patents shall be owned solely by Company. If the laws affecting patent protection or maintenance costs change materially in any Patent Country, the Parties shall reassess the need to continue to file, prosecute and maintain Patents in such country. (ii) Company hereby grants to Distributor an exclusive royalty-free license to use the Patents and Know-How (subject to the Confidentiality provisions of Section 14 herein) in the Territory in connection with the marketing, distribution and sale of the Product. Distributor shall acknowledge Company's Patents (pending or granted) in Distributor's labeling and promotional materials relating to the Product. Distributor shall not be liable for any royalties to Company for the right to sell the Product. (iii) All costs and expenses incurred with respect to the filing, prosecution and/or maintenance of Patents shall be paid by Company, including all reasonable costs for the prosecution issuance and maintenance of patent applications and patents issuing thereon, and any divisional, continuation-in- part, reissue applications or patents, patents of addition, patents of revalidation or the registrations of any patent or the like. (iv) Any dispute relating to patent filing, prosecution or maintenance which cannot be resolved by the Parties shall be referred to the President of Distributor and the President of Company for prompt resolution, If the matter cannot be resolved by the Presidents of Distributor and Company within sixty (60) days, either Party may initiate arbitration pursuant to Section 20. (b) Patent Enforcement. If any of the Patents under which Distributor ------------------ is granted distribution rights hereunder is infringed by a third party, the Steering Committee shall determine, within ninety (90) days after notice of such infringement, whether Company shall bring an action for infringement against such third party. If the Steering Committee determines that such action is warranted, Company shall bring the infringement action at its sole expense within ninety (90) days after the Steering Committee's determination. Company shall promptly notify Distributor of any such infringement and shall keep Distributor informed as to the prosecution of any action for such infringement. No settlement, consent, decree or other voluntary final disposition of the suit which adversely affects any Patent in a Patent Country or the marketing, distribution or sale of the Product in the Territory may be entered into without the prior written consent of Distributor, which consent shall not be unreasonably withheld. In the event the Steering Committee determines that the circumstances do not warrant prosecution of an infringement action, or if the Steering Committee fails to reach agreement on whether an infringement action is warranted, then the provisions of Section 2(f) shall apply. 35 (c) Infringement Action by Third Parties. ------------------------------------ (i) In the event that Products become, or if Company reasonably believes Products are likely to become, infringing upon the proprietary rights of a third party, Company may at its option either, (I) modify the Product to make it non- infringing; (II) obtain for Distributor the paid up right to continue to market, distribute, sell and use the Product; (III) obtain for Distributor substitute non-infringing products substantially equivalent in size, quality and cleared or approved indications as the infringing Product which are reasonably acceptable to Distributor; or (IV) if options I, II, and III above are not reasonably available, Company may require Distributor to cease distribution in the affected country and return the infringing Products to Company, whereupon Company will refund Distributor the purchase price paid for any returned Products. In the event Company exercises option (IV) in the immediately preceding sentence, within ten (10) days of Distributor's receipt of Company's request to cease distribution in the affected country, the provisions of Section 2(f) shall apply. (ii) In the event of the institution of any suit by a third party against Distributor for patent infringement or infringement of other proprietary rights involving the marketing, distribution or sale of the Product in the Territory, Distributor shall promptly notify Company in writing of such suit. Company shall defend or settle each such action on behalf of Distributor with attorneys selected by Company and reasonably acceptable to Distributor, and Distributor shall assist and cooperate with Company to the extent reasonably necessary in the defense of such suit. Company shall bear the full costs and expenses of such defense (including fees of attorneys and other professionals) and shall assume full responsibility for the payment of any award for damages, or any amount due pursuant to any settlement entered into by Company with such third party. No settlement, consent decree or other voluntary final disposition of the suit which adversely affects any Patent or the marketing, distribution or sale of the Product may be entered into without the prior written consent of Distributor, which consent shall not be unreasonably withheld, Distributor shall be entitled to retain its own counsel in such proceedings, at Distributor's sole expense. (iii) If Company does not commence a defense or settlement of any infringement action (for which Company has an obligation herein to defend) within thirty (30) days after receiving written notice thereof, Distributor shall have the right, but not the obligation, to defend such suit with attorneys selected by it which are reasonably acceptable to Company, and Company shall assist and cooperate with Distributor in the defense of such suit. Company shall bear the full costs and expenses of such defense (including attorneys' fees) and shall assume full responsibility for the payment of any award for damages, or any amount due pursuant to any settlement entered into by Distributor. Distributor shall not enter into any settlement, consent decree or other voluntary final disposition of the suit without the prior written consent of Company, which consent shall not be unreasonably withheld, and Company is not responsible in any way whatsoever for any such settlement or compromise entered into without such prior written consent. 36 (iv) If as a result of any judgment, award, decree or settlement resulting from an action instituted by a third party, Distributor is required to pay a royalty to such third party, Distributor shall continue to pay the purchase price for such Product in the country which is the subject of such action, but shall be entitled to deduct against such purchase price an amount equal to the royalty paid to such third party. In addition, if Distributor is required to pay damages to such third party, and such damages are not otherwise reimbursed by Company, Distributor shall be entitled to deduct against such purchase price an amount equal to such damages, to the extent effectively paid by Distributor to such third party. 16. TRADEMARKS, TRADE DRESS, AND BRANDING ------------------------------------- (a) (i) Company hereby grants to Distributor for the Term of this Agreement the exclusive, royalty-free right to use the registered trademark "Orthovisc(R)" (the "Trademark") only in connection with the marketing, distribution and sale of the Product in the Territory and only in the Field of Use. Distributor expressly agrees that it will label all packaging containing the Product with the following designation, "Orthovisc(R) is a registered trademark of Anika Therapeutics, Inc.," and will sell all Product only under the trademark "Orthovisc(R)." (ii) In the event the name "Orthovisc" is not available for Company to register in a country in the Territory, Company will promptly make reasonable efforts at its sole cost and expense to obtain the use of the name. If unable to secure use of the Orthovisc(R) name within 120 days, the Steering Committee will select a new name from candidates proposed by Company and verified by Company to be available in the country. The absence of a mutually agreed upon useable Product name shall be deemed to be an event of force majeure excusing ----- ------- Distributor's performance of its obligations in the country, and Distributor's total annual purchase requirement for the Calendar Year shall be reduced proportionately by subtracting the yearly forecast for the country from the overall Territory forecast. (iii) Company and Distributor shall jointly determine the countries in which applications for the registration of the Trademark should be filed and/or maintained. All costs and expenses incurred with respect to the preparation of Trademark applications, and with respect to the filing and/or maintenance of Trademark registrations and other documentation required by government agencies shall be paid by Company. Distributor shall assist and cooperate with Company in connection with the filing and/or maintenance of any such Trademark registrations and other documentation required by government agencies in the Territory as may be reasonably requested by Company from time to time. Distributor and Company hereby agree not to use or register the Trademark (or any mark confusingly similar to the Trademark) in any country in the Territory, except by their joint determination as provided in this Paragraph. 37 (b) Distributor may not sublicense the Trademark to any third party without Company's prior written consent. (c) Company has the right to immediately terminate the license granted in this Section 16 if Distributor uses the Trademark in any manner other than the use stipulated in Section 16(a), or in any way inconsistent with the trade dress guidelines as provided in Annex A attached hereto. ------- (d) Company reserves all other rights in and to the Trademark, including, without limitation, the right to license the Trademark in all countries outside the Territory and, with the advance written permission of Distributor, all countries within the Territory in which Distributor or its Affiliates or third party sub-distributors are not distributing the Product according to the terms of the Marketing Plan as provided for in this Agreement (such countries shall include but are not limited to Japan and China, should Distributor choose not to seek regulatory approval for either such country as provided for in Section 2(c)). (e) Each of the Parties shall promptly notify the other Party of any infringement of the Trademark by a third party in the Territory. If the Trademark is infringed by a third party, Company shall either (i) bring an action for infringement, at its sole expense, against such third party, in which case Company shall be entitled to any and all proceeds resulting from such action, and shall keep Distributor informed as to the prosecution of the action; or (ii) notify Distributor in writing that it will not pursue an infringement action against the third party. In the event Company exercises option (ii) in the immediately preceding sentence, Distributor shall either (i) bring an action for infringement, at its sole expense, against such third party, in which case Distributor shall be entitled to any and all proceeds resulting from such action, and shall keep Company informed as to the prosecution of the action; or (ii) notify Company in writing that it will not pursue an infringement action against the third party. In the event Distributor exercises option (ii) in the immediately preceding sentence, the Steering Committee shall meet within ten (10) days of Distributor's receipt of Company's notification to determine whether the third party infringement prevents Distributor from competing effectively in the affected market(s). If the Steering Committee determines that the extent of the infringement so warrants, the provisions of Section 2(f) shall apply. (f) If Company does not commence a defense or settlement of any infringement action (for which Company has an obligation under Section 16(e) to defend) within thirty (30) days after receiving written notice thereof, Distributor shall have the right, but not the obligation, to defend such suit with attorneys selected by it which are reasonably acceptable to Company, and Company shall assist and cooperate with Distributor in the defense of such suit. * shall bear the full costs and expenses of such defense (including reasonable attorneys' fees) and shall assume full responsibility for the payment of any award for damages, or any amount due pursuant to any settlement entered into by Distributor. Distributor shall not enter into any settlement, consent decree or other voluntary final disposition of the suit without the prior 38 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. written consent of Company, which consent shall not be unreasonably withheld, and * is not responsible in any way whatsoever for any such settlement or compromise entered into without such prior written consent. (g) Except as provided in Section 17(g), upon termination of this Agreement for any reason, the license granted in this Section 16 shall immediately terminate, and Distributor shall immediately cease all use of the Trademark. (h) Branding Materials. Distributor shall bear the costs associated with its ------------------ efforts to establish and promote the Orthovisc brand in the Territory, as set out in the Marketing Plan. The Parties agree that the materials and information developed by Distributor for this purpose (the "Branding Materials"), are the sole property of Distributor. As used herein, the term "Branding Materials" includes without limitation promotional, training, and public relations materials whether in print, video or other format, but expressly excludes the Trademark, any logo, and "trade dress" of the Product's package, which Trademark, logo and trade dress shall be the sole property of Company. Company may, in its sole discretion, elect to purchase from Distributor a paid-up perpetual license to sell, sublicense, reproduce and distribute any or all of the Branding Materials for use outside the Territory. If Company so elects, Distributor shall provide one copy of the digital file containing the Branding Materials Company has selected, and Company shall pay to Distributor within 45 days after receipt of the digital file a one-time fee equal to * of Distributor's documented hard costs for conceptualization, preproduction, and production of the selected Branding Materials (excluding printing costs). (i) Logo and Trade Dress. Within two (2) months after execution of this -------------------- Agreement, the Steering Committee will determine whether to develop a new logo for the Product and/or modify the Product's trade dress. At the Steering Committee's direction, Distributor will submit a proposed design or designs to the Steering Committee for review and approval. Within 45 days following Steering Committee approval of a new design, Company shall reimburse Distributor for 100% of Distributor's documented hard costs for development of a new logo and modified trade dress up to a maximum aggregate amount of *. In consideration for such reimbursement, Distributor shall assign to Company all of its rights (including without limitation copyright) in and to the logo and trade dress design approved by the Steering Committee. 17. TERM AND TERMINATION -------------------- (a) With respect to Canada, this Agreement shall commence on the Effective Date and shall continue for a period of ten (10) years from the Effective Date. With respect to all other countries in the Territory, the term applicable to each country shall commence on the date regulatory approval for the marketing and sale of the Product for the first indication in the 39 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. Field of Use is obtained in such country and shall continue for ten (10) years from such date. For purposes of this Agreement, the term "Term" shall mean the period commencing on the Effective Date and terminating on the latest to expire of the effective periods of this Agreement with respect to any country in the Territory, as may be extended pursuant to Section 17(b) of this Agreement. (b) Upon the tenth anniversary of the Effective Date, Distributor may, at Distributor's sole option, choose to extend this Agreement for an additional period of ten (10) years, which such ten (10) years shall be added to the Term for each country in the following regions: 1. "Americas" Region = Canada and U.S. 2. "Central and South America" Region = Mexico, Puerto Rico, Argentina, Brazil, Chile, Columbia, Peru, Venezuela 3. Japan 4. China 5. "Asia" Region = Australia, Hong Kong, Indonesia, South Korea, Malaysia, New Zealand, Phillippines, Singapore, Taiwan, Thailand Distributor agrees that its decision to extend this Agreement must be made on a regional basis, and that Distributor may not choose to extend this Agreement on a country-by-country basis. For example, if Distributor chooses to extend this Agreement for the Asia region, the Term applicable to each country in the region will be extended by the addition ten (10) years. For further clarification, the following is a chart of the extension that would result if Distributor chose to extend the Agreement for the Asia region, based on the hypothetical information provided: - ------------
- ------------------------------------------------------------------ Start Date for Original Term (Regulatory ---------- End Date for Revised End Date Approval) Original Term Applicable to Country -------- -------------- Specific Country ------- (hypothetical) (hypothetical) ---------------- - ------------------------------------------------------------------ - ------------------------------------------------------------------ Australia 1-1-99 12-31-08 12-31-18 - ------------------------------------------------------------------ Hong Kong 6-1-99 5-31-09 5-31-19 - ------------------------------------------------------------------ Indonesia 6-1-98 5-31-08 5-31-18 - ------------------------------------------------------------------
40
Start Date for Original Term (Regulatory ---------- End Date for Revised End Date Approval) Original Term Applicable to Country -------- -------------- Specific Country ------- (hypothetical) (hypothetical) ---------------- - ------------------------------------------------------------------ South Korea 10-1-98 9-30-08 9-30-18 - ------------------------------------------------------------------ Malaysia 4-15-99 4-14-09 4-14-19 - ------------------------------------------------------------------ New Zealand 1-1-99 12-31-08 12-31-18 - ------------------------------------------------------------------ Phillippines 9-15-98 9-14-08 9-14-18 - ------------------------------------------------------------------ Singapore 3-1-00 2-28-10 2-28-20 - ------------------------------------------------------------------ Taiwan 6-1-00 5-31-10 5-31-20 - ------------------------------------------------------------------ Thailand 7-15-99 7-14-09 7-14-19 - ------------------------------------------------------------------
NOTE: Distributor will have one opportunity, on the tenth anniversary of the --- Effective Date, to choose to extend the Agreement for each region. (c) Notwithstanding any of the foregoing, this Agreement may be terminated by either Party upon written notice to the other party, upon the occurrence of any of the following: (i) a material breach of any term or condition of this Agreement by the other Party which is amenable to cure, and the breaching party shall have failed to cure such breach within sixty (60) days from the receipt by it of written notice thereof from the other Party; (ii) either Party commits a material breach which is not amenable to cure; (iii) the other Party shall commence any case, proceeding or other action (A) under any applicable Law relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, wind-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets; (iv) there shall be commenced against the other Party any such case, proceeding or other action referred to in clause (iii) of this Section 17(c) which results in the entry of an order for relief; (v) the other Party shall take any action authorizing, or in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth above in clauses (iii) or (iv) of this Section 17(c); or (vi) the other Party shall admit in writing its inability to pay its debts as they become due; or (vii) either Party violates any provision in Section 14 (regarding confidential information) that is not amenable to cure. (d) (i) On or prior to August 1, 1998, Distributor may terminate this Agreement if any of the Special Termination Reasons shall have occurred and be continuing; provided, that if Distributor terminates this Agreement pursuant to this Section 17(d), it shall pay to Company upon the termination date the sum of * within 45 days after the termination date as liquidated damages, in full and final settlement and release of all claims Company may then or 41 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. thereafter have or assert against Distributor (except as provided within Paragraph (ii) of this Section 17(d) below), all other provisions (including all other termination provisions) of this Agreement notwithstanding. In the event of a termination under this Section 17(d), the Company shall retain all payments made by Distributor under Section 2 of this Agreement and all payments made by Distributor to purchase Product prior to the termination date, and the Distributor shall also make any such payments to which Company is then entitled under this Agreement but payment of which have not previously been made by Distributor; provided that such payments shall be subject to and net of any amounts then owed to Distributor by Company. The Parties expressly intend this Section 17(d) to supersede any inconsistent terms or provisions of this Agreement, and Company expressly agrees and acknowledges that the payment contemplated by this Section 17(d) constitutes Company's sole and exclusive remedy in the event Distributor terminates the Agreement pursuant to this Section 17(d). For purposes of this Agreement, "Special Termination Reasons" shall mean any one of the following: (A) Distributor's aggregate sales of Product from April 1, 1998 through June 30, 1998, excluding Samples and Demonstration Units, comprise fewer than *. (B) Company is notified in writing by July 31, 1998, that either (1) the Orthopaedic Device Advisory Panel (if convened by the FDA to review the IDE for the Product) has determined that new and/or additional clinical trial data will be required before the Advisory Panel will convene to review, consider, and/or recommend the Product for PMA approval; or (2) the FDA elects to proceed toward approval without an Advisory Panel and the FDA requires that new and/or additional clinical data be generated before approval will be granted (for purposes of this clause, the term "new and/or additional clinical data" expressly excludes follow-up requirements for cases included in the original IDE study). Notwithstanding the foregoing, if Company is able to negotiate a resolution to the inquiries from the FDA or the Advisory Panel as provided in numbers 1 and 2 in the immediately preceding sentence prior to or by July 31, 1998, the terms of numbers 1 and 2 in the immediately preceding sentence shall not constitute a Special Termination Reason, and shall not trigger Distributor's right to terminate under this Section 17(d). (C) * reports to the Securities and Exchange Commission on its Form 10-Q net sales of HA (excluding license fees, royalties, and income from other non-product sales) of less than * million for the calendar quarter ending March 30, 1998, and less than * million for the calendar quarter ending June 30, 1998. (D) Before July 31, 1998, the FDA accepts for filing an application (from a party other than Biomatrix, Fidia, or Company) for permission to market an 42 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. injectable HA product for treatment of human osteoarthritis, without requiring submission of an IDE clinical study to support the application. (E) Both Synvisc and Hyalgan are withdrawn from the market in the United States, either voluntarily or by order of the FDA, on or before July 31, 1998. (F) On or before June 30, 1998, Distributor's organization is restructured to such an extent as to significantly impair Distributor's ability to perform its obligations under this Agreement, as evidenced by a company-wide announcement of restructuring, together with a shift in Distributor's strategic focus, such that the knee implant product line is determined by Distributor's senior management not to be a core product. (ii) Distributor's indemnification obligations under Section 18(b) herein shall survive for a period of five (5) years from the date termination under Section 17(d) becomes effective. Distributor may in its sole discretion elect to discharge its obligations under this Paragraph 17(d)(ii) for any obligation in excess of * (it being understood by the parties hereto, that with respect to the first * in obligations, the Company may proceed directly against the Distributor), at any time during the five-year period referenced in the preceding sentence, by procuring and maintaining at its sole expense and for the balance of such five-year period, a separate policy of insurance for the benefit of Company, reasonably acceptable to the Company, having a per occurrence limit of * and an aggregate limit commensurate with the claims history of the Product up to *. In the event that Distributor elects to obtain such separate policy of insurance, all of Distributor's remaining obligations in excess of * under Section 18(b), and all of its obligations under this Section 17(d) in excess of *, shall be fully satisfied and completely discharged, and Company shall, following recourse of up to * directly against the Distributor and thereafter to the policy of insurance described herein, be solely responsible for all claims of every kind relating to the Product. The provisions of this Section 17(d) shall survive termination of this Agreement under this Section. (e) In addition to its right to terminate this Agreement under Section 17(c), Distributor or Company may terminate this Agreement upon the occurrence of any of the following events, so long as within sixty (60) days after the occurrence of the event the Party wishing to terminate the Agreement gives the other Party sixty (60) days prior written notice of such termination: (i) Net Sales of the Product in the Territory fail to meet the minimum levels specified in Section 4 for * consecutive years beginning with calendar year 1998; (ii) There shall be a material recall of the Product by the FDA or similar regulatory agency outside the United States which has or is, in Distributor's and 43 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. Company's reasonable joint opinion, expected to have a significant commercial impact on the sales of the Product in the Territory taken as a whole. If the matter cannot be resolved by the parties within sixty (60) days, either party may initiate dispute resolution pursuant to Section 20; or (iii) The FDA shall not have approved the Product for market in the United States for the Field of Use on or before January 1, 2001. (iv) Any of the Patents shall be determined by a court of competent jurisdiction be invalid or otherwise infringing or the Product becomes infringing upon the proprietary rights of third parties, and Company does not resolve the matter as provided under Section 15 herein. (f) The termination of this Agreement for any reason shall be without prejudice to Company's right to receive all payments accrued and unpaid at the effective date of termination or to the remedy, in accordance with the terms herein, of either Party hereto in respect of any previous breach of any covenant contained herein. The termination of this Agreement by Distributor shall not release Company from its obligation to deliver all Products theretofore ordered by Distributor unless such orders are canceled by Distributor, provided that Distributor pays for such Products in accordance with the terms hereof, except that such payments for Products delivered after termination will be due upon delivery to a common carrier as provided in Section 7(f). (g) Except as otherwise provided in this Section 17(g), upon the termination of this Agreement, each Party shall promptly: (i) upon request return to the requesting Party all of the requesting Party's records, materials and Confidential Information relating to the Product in the possession or control of the other Party, or its Affiliates, Suppliers or third party sub-distributors, and (ii) discontinue all distribution of the Product and the use of the Know-How in connection therewith. Notwithstanding the foregoing, or anything herein to the contrary, if this Agreement is terminated by Distributor pursuant to Section 17(c) as a result of Company's failure to cure a material breach by Company of this Agreement, Distributor shall have the right to continue to market, sell and distribute the Product, and to use the Trademark for that purpose, during the time period which would have been the remaining Term of this Agreement if this Agreement had not been so terminated. In such event, Distributor shall (i) continue to have the right to use the Patents and Know-How as provided in Section 15 on a royalty-free basis as if this Agreement had not been terminated and (ii) have the right to manufacture the Product itself or by a third party. Company shall fully cooperate with Distributor to facilitate Distributor's continued sale and distribution of the Product, including, without limitation, disclosing to Distributor the Know-How necessary to enable Distributor or a third party manufacturer to manufacture the Product. Distributor shall not be obligated to make any payment to Company for any of the foregoing rights. 44 (h) Notwithstanding anything herein to the contrary, upon termination of this Agreement for any reason, Distributor shall have the right for one (1) year to dispose of all Product then in Distributor's, Distributor's Affiliate's, or third party sub-distributor's possession, and the purchase price shall be paid to Company with respect to such Product as though this Agreement had not terminated. (i) Termination of this Agreement shall not terminate Distributor's obligation to pay the purchase price for Product which has been shipped to Distributor under this Agreement. Except as provided in Section 17(d), all of the Parties' rights and obligations under Sections 10, 12, 14, 17, 18, 20 and 21 shall survive termination. (j) Subject to Section 17(h) Company shall have the right upon termination of this Agreement to purchase all of Distributor's unsold inventory in merchantable condition or having a remaining shelf life acceptable to Company, at the price Distributor paid less a maximum restocking charge of *. 18. INDEMNIFICATION --------------- (a) Company shall indemnify, defend and hold harmless Distributor, its subdistributors, and any Affiliates of Distributor, together with their respective officers and directors, from and against any and all losses (except consequential losses, such as, for example, loss of business profits) including compensatory losses for personal injury, damages, liabilities, costs and expenses, including without limitation reasonable attorney's fees, arising out of or in connection with: (i) the breach of any of Company's representations and warranties made in Sections 8, 10 and 15; (ii) the breach by Company of any of its obligations, covenants or undertakings hereunder; (iii) any product liability claim seeking damages under any legal theory for personal injury to the extent attributable to any deficiency or alleged deficiency (including without limitation Company's or its suppliers' failure to warn of any adverse reaction, adverse effect or contraindication) in the design, manufacture, packaging, testing, or labeling of the Product provided by Company (subject to the provisions of Subsections 18(b) and (c) below); (iv) any act or omission of Company in connection with the design, development, manufacture, packaging, testing, warehousing or handling of the Product; 45 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. (v) any infringement or alleged infringement or a third party's proprietary rights, in accordance with and to the extent provided in the provisions and procedures of Section 15 (Patents). (b) Distributor shall indemnify, defend and hold harmless Company and any Affiliates of Company, together with their respective officers and directors, from and against any and all losses (except consequential losses, such as, for example, loss of business or of profits) including compensatory losses for personal injury, damages, liabilities, costs and expenses, including without limitation reasonable attorney's fees, arising out of or in connection with: (i) the breach of any of Distributor's representations and warranties made hereunder; (ii) the breach by Distributor of any of its obligations, covenants or undertakings hereunder; (iii) any claim made by Distributor, its subdistributors or Affiliates, as to the safety or effectiveness of the Product or the use to be made of the Product by any purchaser of the Product, contained in any advertising or other promotional material created and disseminated by Distributor, its subdistributors or Affiliates, to the extent that such claim (A) is not supported by the Product label and package insert as approved by the FDA (or, in countries in the Territory other than the United States, the appropriate governmental body having authority to approve the Product, label, and package insert fort marketing in that country) and (B) was not reviewed or approved in advance by Company; (iv) any other act or omission of the Distributor, its subdistributors or Affiliates, in connection with the marketing, promotion, and sale of the Product, including the storage, handling and distribution by Distributor, its subdistributors or Affiliates of the Product, other than as contemplated by this Agreement to the extent the act or omission is undertaken without the approval of Company. (c) The Parties agree that in the event of a loss for which it is determined under this Section 18 that both Parties bear a measure of responsibility, it is the intent of both Parties that the liability for the loss (including without limitation all damages, hard costs and expenses, together with reasonable attorney's fees) be apportioned among the Parties according to their respective measures of responsibility, as that responsibility is determined according to this Section 18. The Parties further agree that any portion of the loss not attributable to either party under this Section 18 (and not otherwise recoverable from a third party or its insurer) shall be borne * among the Parties. For example, the Party determined to be * responsible under Section 18 pays * of the loss, the Party determined to be * responsible pays * of the loss, and each Party pays one-half of the remaining *. Within ten (10) 46 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. business days after either Party so requests, the Steering Committee shall convene to develop an equitable apportionment of liability for the loss according to this Section 18. If the Steering Committee fails to agree on an apportionment within twenty (20) days after meeting, either Party may submit the matter to arbitration under Section 20. (d) Notwithstanding anything contained in this Agreement to the contrary, the Parties expressly agree that Company shall have no liability to Distributor under this Section 18 for claims, losses, or liability of any kind based upon or related to: (i) Distributor's, its Affiliates' or subdistributors' use, sale or disposition of Products where such Products incorporate changes made by Distributor, its Affiliates or subdistributors, to the specifications and directions for use for the Product in Annex A (and any amendments to Annex ------- ----- A as provided in Section 8(b) herein) which Company has not approved, or - changes made by Distributor, its Affiliates or subdistributors, to the Registration Dossier with respect to the Product which Company has not approved; (ii) sale or disposition of Products by Distributor, its Affiliates or subdistributors for any use other than the uses specified by the accompanying package inserts; (iii) use, sale of disposition of Products by Distributor, its Affiliates or subdistributors in combination with devices or products not purchased hereunder, where such combined sale or disposition is the sole cause of an infringement claim and whereas such Products would not themselves be infringing; (iv) sale or disposition of Products by Distributor, its Affiliates or subdistributors in or for an application or environment for which such Products were not approved by the FDA or other applicable government agency; or (v) modifications of Products by Distributor, its Affiliates or subdistributors; to the extent such uses, sales, dispositions or modifications give rise to the claim, loss or liability and have not been reviewed or approved by Company. (e) Notwithstanding anything contained in this Agreement to the contrary, the Parties expressly agree that Distributor shall have no liability to Company under this Section for claims, losses or liability of any kind based upon or related to: (i) the design, development, manufacturing, packaging, sterilization, testing, warehousing and handling of the Product by Company or a contractor engaged by Company through delivery to the common carrier for shipment to the first designated destination by Distributor; 47 (ii) Company's use, sale or disposition of Products where such Products incorporate changes made by Company to the description of the Product in Annex A (and any amendments to Annex A as provided in Section ------- ------- 8(b) herein) which Distributor has not approved, or changes made by company to the Registration Dossier with respect to the Product which Distributor has not approved and as to which Distributor has the right to approve under this Agreement; (iii) sale or disposition of Products by Company for any use other than the uses specified by the accompanying package inserts; (iv) use, sale or disposition of Products by Company or any Affiliates or third parties engaged by Company (exclusive in any case of Distributor, Affiliates of Distributor and subdistributors), whether or not in combination with other devices or products, where such promotion, use, sale or disposition is a cause of an infringement claim (subject to clause (iii) of Section 18(d) above, and subject to the limitations on Company's obligations as provided in Section 15 hereto); (v) sale or disposition of Products by Company in or for an application or environment for which such Products were not approved by the FDA or other applicable government agency; or (vi) modification of Products by Company which Distributor has not approved and as to which Distributor has the right to approve under this Agreement; to the extent such activities, uses, sales, dispositions or modifications give rise to the claim, loss or liability and have not been reviewed or approved by Company. (f) If Distributor or Company intends to claim indemnification under this Section, such Party (the "Claiming Party") shall (i) promptly notify the other Party in writing of any claim or loss for which it intends to claim such indemnification, (ii) cooperate fully with the other Party and its legal representatives in the investigation of any claim or loss covered by this Section, and (iii) allow the other Party to control the defense and/or disposition of such suit or claim; provided that the Claiming Party shall have the right to participate at its own expense through counsel of its own choosing. Neither Party shall have any indemnification obligations hereunder to the extent that such Party's ability to defend such suit or redress such loss is prejudiced by the Claiming Party's failure to perform the obligations set forth in the preceding sentence. No claim shall be settled for which any Indemnifying Party shall be liable without the advance written consent of both the indemnifying Party and the Claiming Party, which consent shall not be unreasonably withheld. (g) To provide sufficient protection to both Distributor and Company, Company undertakes to obtain and maintain in effect during the entire Term of this Agreement, at least 48 * per occurrence product liability insurance covering the manufacture, sale and distribution of the Product, with an aggregate annual policy limit not less than *. In the event Company fails to pay any premiums as and when due under such policy, the policy shall provide for notice to Distributor, which shall have the right to effect payment of any such premiums directly to the insurer, and shall then be entitled to invoice the defaulting Party or credit against amounts owed for reimbursement of any such payment. Distributor shall maintain in effect the * insurance described in Annex G. ------- 19. ASSIGNMENT AND SUB-DISTRIBUTION RIGHTS -------------------------------------- (a) Except as set forth in Sections 19(b) and 19(c), neither Party shall assign its rights and obligations under this Agreement to any Person without the prior written consent of the other Party, except in connection with the sale of all or substantially all of such Party's assets to a Person that is not a --- Distributor Competitor (in the case of such sale by Company), or to a Person that is not a Company Competitor (in the case of such sale by Distributor). --- Subject to the preceding sentence, this Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties hereto. For the purposes of this Section 18, a Change in Control shall be considered an assignment. (b) Notwithstanding anything herein to the contrary, this Agreement shall continue in full force and effect in the event of a Change in Control (as defined below) involving either Party, unless as a result of or in connection ------ with such Change in Control, (i) a Distributor Competitor (as defined below) becomes the beneficial owner of more than 50% of the voting capital stock of Company or (ii) Company Competitor (as defined below) becomes the beneficial owner of more than 50% of the voting capital stock of Distributor. In the case of such circumstances as described in the immediately preceding sentence, the non-transferring Party shall have the right, in its sole discretion, to immediately terminate this Agreement; and in the case of termination by Distributor in these circumstances, to have refunded to it all payments made to Company under Sections 2(a), (b), (c) and (d) to the extent such payments exceed Distributor's Net Profits as of the date of such termination in the markets described in Sections 2(a) - (d). For purposes of this Agreement, (i) a "Change in Control" means a transaction or a series of transactions as a result of which a Person or group (as defined in Section 13(d) of the Securities Act of 1933, as amended) acquires control (as defined in the definition of Affiliate) of a Party, (ii) "Distributor Competitor" means any Person which derives more than 30% of its revenues from the sales of orthopedic medical devices, and (iii) "Company Competitor" means any Person which markets or intends to market HA products for use in the Field of Use. (c) Distributor shall have the right to grant to its Affiliates and other third parties distributing its other products sub-distribution rights of any distribution rights granted to Distributor herein, provided that Distributor shall be responsible for the making of all 49 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. payments due and the making of reports under this Agreement by reason of sales of any Product by its Affiliates or third parties, and the compliance by all Affiliates and third parties with all applicable terms of this Agreement. 20. GOVERNING LAW AND DISPUTE RESOLUTION ------------------------------------ (a) This Agreement shall be governed by and construed in all respects in accordance with the laws of the State of New York, without giving effect to its choice of law principles. (b) Except for claims arising out of Section 19, any dispute, controversy or claim arising out of or relating to this Agreement or to a breach hereof, including its interpretation, performance or termination, shall be finally resolved by dispute resolution. Except as otherwise provided in this Agreement, in connection with any such disputed claim, the Parties hereto, shall simultaneously (i) use their good faith efforts to resolve such dispute within thirty (30) days after the delivery of notice of the dispute from one Party to the other and (ii) refer the matter to J.A.M.S./Endispute, to be settled by arbitration in New York, New York in accordance (except to the extent otherwise noted below) with the commercial arbitration rules of J.A.M.S./Endispute. The arbitrator shall be instructed that the arbitration hearing shall be commenced no later than the ninetieth (90th) day following the date that the demand for arbitration is served; provided, however, that such ninety (90)-day period may be extended for a period not more than sixty (60) days for "Cause" (as defined below) as determined by the arbitrator. Concurrent with serving the demand for arbitration, each of the Parties shall produce to the other full and complete disclosure of all facts, documents and relevant information (both favorable and unfavorable) in any form, written or otherwise, known to such disclosing Party or its agents which relates to the subject matter of the arbitration. The obligation to disclose shall be continuing and each Party shall be required to promptly supplement any disclosures as additional information is discovered. The failure of either Party to either initially produce the required information or to promptly supplement the produced information shall be cause for a continuance as set forth above ("Cause"). The arbitrator shall be further instructed to conduct the arbitration hearing without any unnecessary delays and to render a final decision promptly following the conclusion of the hearing. In any event, the Party prevailing in any such arbitration shall be entitled to recover (i) all fees and expenses of the arbitrator and (ii) all costs and expenses relating to the arbitration (including without limitation, legal, accounting and consulting fees). The arbitrator shall award such fees, costs and expenses consistent with the foregoing. The determination of the arbitrator as to the amount, if any, of the disputed claim which is properly allowable shall be nonappealable, conclusive, binding and final upon the Parties hereto and judgement may be entered thereon in any court having jurisdiction thereof, including, without limitation, any court in the State of New York. Upon receipt of written instructions from the arbitrator, the non-prevailing Party shall use its best efforts to make 50 payment of such claims, as and to the extent allowed, to the prevailing Party within three (3) business days following said determination or as soon thereafter as possible. 21. NOTICES ------- All notices given under this Agreement shall be in writing and shall be delivered by first class mail or overnight courier or by facsimile transmission (receipt verified) and addressed to the parties at their respective addresses set forth below: ANIKA THERAPEUTICS, INC. 236 West Cummings Park Woburn, MA 01801 Telecopy Number: 617-932-3360 Attention: J. Melville Engle President and Chief Executive Officer With a copy to: -------------- Goodwin, Procter & Hoar LLP 53 Exchange Place Boston, MA 02109-2881 Telecopy Number: 617-570-8150 Attention: H. David Henken, Esq. ZIMMER, INC. P. O. Box 708 Warsaw, IN 46581-0708 Telecopy Number: 219/372-4988 Attention: Perry Karsen With copies to: -------------- Bristol-Myers Squibb Company 345 Park Avenue New York, NY 10154 Attention: George P. Kooluris Senior Vice President, Corporate Development Telecopy Number: 212-546-4390 51 Timothy M. Wendt Vice President and Senior Division Counsel Zimmer, Inc. P. O. Box 708 Warsaw, IN 46581-0708 Telecopy Number: 219/372-4133 Either Party may change its address or its telecopy number for purposes of this Agreement by giving the other Party written notice of its new address or telecopy number. Any such notice if given by first class mail or overnight courier shall be deemed to have been received on the date actually received and if given by telecopy transmission shall be deemed to have been received at the time of dispatch or the next regular business day if received after 5:00 pm local time of the recipient. 22. WAIVER AND DELAY ---------------- No waiver by either Party of any breach or series of breaches by the other Party, and no failure, refusal or neglect of either Party to exercise any rights granted to it hereunder or to insist upon strict compliance with or performance of either Party's obligations under this Agreement shall constitute a waiver of the provisions of this Agreement with respect to any subsequent breach thereof or a waiver by either Party of its rights hereunder or otherwise at any time thereafter. 23. FORCE MAJEURE ------------- A Party shall be excused from performance of its obligations under this Agreement if such failure to perform is caused by a Force Majeure and without ----- ------- the fault or negligence of such Party. For purposes of this Agreement, "Force ----- Majeure" is defined as causes beyond the control of the Party, including, - ------- without limitation, acts of God, fire, flood, earthquake, explosion, storm, strikes, civil commotion, riots, wars or acts of government. Upon the occurrence of a Force Majeure, the Party claiming Force Majeure shall ----- ------- ----- ------- immediately notify the other Party of such Force Majeure and its effect on such ----- ------- Party's ability to perform its obligations hereunder and the period during which such inability is expected to continue. The duties and obligations of the Parties shall be suspended for the duration of the event; provided, however, -------- ------- that if such suspension shall continue in excess of ninety (90) days, the Parties shall attempt to arrive at a mutually acceptable compromise within the spirit and intent of this Agreement. 52 24. ENTIRE AGREEMENT ---------------- This Agreement (with Annexes and Exhibits, including without limitation the Marketing Plan) contains all of the terms and conditions agreed upon by the Parties hereto with respect to the subject matter hereof. No other agreement, oral or otherwise, shall be deemed to exist or to bind either of the Parties hereto, and all prior agreements and understandings with respect to the subject matter hereof are superseded hereby. This Agreement cannot be modified or changed except by written instrument signed by both of the Parties hereto. 25. SEVERABILITY ------------ If any provision of this Agreement is declared invalid or unenforceable by a court having competent jurisdiction, it is mutually agreed that this Agreement shall survive except for the part declared invalid or unenforceable by order of such court. The Parties shall consult and use all commercially reasonable efforts to agree upon a valid and enforceable provision which shall be a reasonable substitute for such invalid or unenforceable provision in light of the intent of this Agreement. 26. DEFINITIONS ----------- As used in this Agreement, the following terms shall have the meanings set forth in this Section unless the context dictates otherwise. "Accountant" shall have the meaning set forth in Section 7(d) of this ---------- Agreement. "Affiliate", with respect to any Party, shall mean any Person controlling, --------- controlled by, or under common control with, such Party. For these purposes, "control" shall refer to (i) the possession, directly or indirectly, of the power to direct the management or policies of a Person or to veto any material decision relating to the management or policies of a Person, in each case, whether through the ownership of voting securities, by contract or otherwise, or (ii) the ownership, directly or indirectly, of at least 50% of the voting securities of a Person. "Annual Forecast" shall have the meaning set forth in Section 6(f) of this --------------- Agreement. "Audit" shall have the meaning set forth in Section 7(d) of this Agreement. ----- "Average Selling Price per Unit" shall have the meaning set forth in ------------------------------ Section 7(a) of this Agreement. "Back Order" shall have the meaning set forth in Section 7(g) of this ---------- Agreement. 53 "Blanket Purchase Order" shall mean a document sent once annually from ---------------------- Distributor to Company that orders Company to produce, and commits Distributor to purchase, the quantity of Units specified on the face of the document over the course of the twelve-month period for which the document is in effect. "Cause" shall have the meaning set forth in Section 20(b) of this ----- Agreement. "Change in Control" shall have the meaning set forth in Section 19(b) of ----------------- this Agreement. "Claiming Party" shall have the meaning set forth in Section 18(f) of this --------------- Agreement. "Company" shall have the meaning set forth in the first paragraph of this ------- Agreement. "Company Competitor" shall have the meaning set forth in Section 19(b) of ------------------ this Agreement. "Company Complaint Form" shall have the meaning in Section 8(g) and ---------------------- Annex E. ------- "Company Stock" shall have the meaning set forth in Section 2(b) of this ------------- Agreement. "Competing Product" shall have the meaning set forth in Section 11(j) of ----------------- this Agreement. "Confidential Information" shall have the meaning set forth in Section ------------------------ 14(c) of this Agreement. "Demonstration Unit" shall have the meaning set forth in Section 7(e) of ------------------ this Agreement. "Disclosure Date" shall have the meaning set forth in Section 5(b) of this --------------- Agreement. "Distributor" shall have the meaning set forth in the first paragraph of ----------- this Agreement. "Distributor Competitor" shall have the meaning set forth in Section 19(b) ---------------------- of this Agreement. "Dollars" or "$" refers to United States dollars. -------------- "Effective Date" shall have the meaning set forth in the first paragraph of -------------- this Agreement. 54 "Estimated Average Selling Price" shall have the meaning set forth in ------------------------------- Section 7(b) of this Agreement. "Excluded Products" shall have the meaning set forth in Annex D of this ----------------- ------- Agreement. "Execution Payment" shall have the meaning set forth in Section 2(a). ----------------- "FDA" shall have the meaning set forth in * of this Agreement. --- "Field of Use" shall have the meaning set forth in Section 3(a) of this ------------ Agreement. "First Commercial Sale" shall mean the first sale to a third party in --------------------- connection with the introduction of the Product by Distributor in any country of the Territory following marketing and/or pricing approval by the appropriate governmental agency for that country. "Force Majeure" shall have the meaning set forth in Section 23 of this ----- ------- Agreement. "Government Recall" shall have the meaning set forth in Section 8(i) of ----------------- this Agreement. "Gray Market Product" shall have the meaning set forth in Section 9(a)(v) ------------------- of this Agreement. "HA" shall have the meaning set forth in Paragraph A of the recitals in -- this Agreement. "Know-How" shall mean any and all technical data, information, materials -------- and other know-how owned, developed or acquired by Company, either as of the Effective Date or at any time during the Term of this Agreement, which relates to the use of Product in the Field of Use. "Late Shipment Penalty Fee" shall have the meaning set forth in Section ------------------------- 6(c) of this Agreement. "Laws" shall have the meaning set forth in Section 8(j) of this Agreement. ---- "Marketing Plan" shall have the meaning set forth in Section 8(e) and -------------- Annex B of this Agreement. - ------- "Minimum Purchase Fee Requirement" shall have the meaning set forth in -------------------------------- Section 4(c) of this Agreement. "Net Sales" shall have the meaning set forth in Section 2(e) of this --------- Agreement. 55 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. "Net Units Sold" shall have the meaning set forth in Section 7(a) of this -------------- Agreement. "Objection" shall have the meaning set forth in Section 7(c) of this --------- Agreement. "Obsolescence" shall mean the Distributor's purchase price, together with ------------ invoiced or otherwise documented expenses for inbound transportation, and any duties and fees associated with the procurement, distribution, and return of obsolete product. "Optional Territory" shall have the meaning set forth in Section 3(b) of ------------------ this Agreement. "Order Release" shall mean a binding, non-cancelable, order to purchase the ------------- quantity of Units specified therein on the delivery date specified therein, such quantity of Units being a portion of the quantity specified in the then-current Blanket Purchase Order. "Ordering Window" shall have the meaning set forth in Section 6(b) of this --------------- Agreement. "Parties" shall have the meaning set forth in the first paragraph of this ------- Agreement. "Patent Countries" shall have the meaning set forth in Section 15(a) of ---------------- this Agreement. "Patents" shall mean: (i) the patents and patent applications listed on ------- Annex F, together with any and all patents that may issue or have issued - ------- therefrom in the Territory, and (ii) any and all patents and patent applications covering any Improvements; including any and all extensions, renewals, continuations, continuations-in-part, divisions, patents of addition, reissues, reexaminations and/or supplementary protection certificates to any of the foregoing. "Permitted Acquisitions" shall have the meaning set forth in Section 11(j) ---------------------- of this Agreement. "Person" shall mean any natural person, corporation, firm, limited ------ liability corporation, limited liability partnership, business trust, joint venture, association, organization, company, partnership or other business entity, or any government or any agency or political subdivision thereof. "Potential HA Products" shall have the meaning set forth in Section 5(a) of --------------------- this Agreement. "Product" shall have the meaning set forth in Paragraph (A) of the Recitals ------- in this Agreement. "Proposed Recall" shall have the meaning set forth in Section 8(i) of this --------------- Agreement. 56 "Purchase Requirement" shall have the meaning set forth in Section 4(a) of -------------------- this Agreement. "Purchasing System Training Period" shall have the meaning set forth in --------------------------------- Section 6(a) of this Agreement. "R&D Pipeline" shall mean the research and development projects developed ------------ in-house by Company and not as part of an acquisition of or by Company. "Receiving Party" shall have the meaning set forth in Section 8(a) of this --------------- Agreement. "Registration Dossier" shall mean a written regulatory submission or -------------------- document describing Product Specifications and manufacturing methods as submitted by Company and approved by the applicable regulatory agency. "Reimbursement Approval" shall have the meaning set forth in Section 2(d) ---------------------- of this Agreement. "Requesting Party" shall have the meaning set forth in Section 8(a) of this ---------------- Agreement. "Sample" shall have the meaning set forth in Section 7(e) of this ------ Agreement. "Special Termination Reasons" shall have the meaning set forth in Section --------------------------- 17(d). "Specifications" shall have the meaning set forth in Section 8(a) of this -------------- Agreement. "Statement" shall have the meaning set forth in Section 7(b) of this --------- Agreement. "Steering Committee" shall have the meaning set forth in Section 13(a) of ------------------ this Agreement. "Stocking Level Requirements" shall mean the appropriate desired minimum --------------------------- and maximum inventory levels of Product (including for these purposes, inventory of Product held by Distributor or Distributor's subdistributors, or held on consignment in Distributor's Customers' possession) based on updates to the Annual Forecast; provided, however, in no event shall the minimum Stocking Level Requirements be less than one-twelfth of the aggregate number of Units specified for the twelve months reflected in the most recent monthly update to the Annual Forecast. "Term" shall have the meaning set forth in Section 17(a) of this Agreement. ---- "Territory" shall have the meaning set forth in Section 3(a) of this --------- Agreement. 57 "Territory-wide Units Requirement" shall have the meaning set forth in -------------------------------- Section 4(a) of the Agreement. "Testing Methods" shall have the meaning set forth in Section 8(c) of this --------------- Agreement. "TMJ" shall mean the human temporomandibular joint. --- "Trademark" shall have the meaning set forth in Section 16(a) of this --------- Agreement. "Unit" shall mean each syringe containing 2.0 ml of the Product. ---- 27. PUBLIC ANNOUNCEMENTS -------------------- Except as required by applicable Law or any securities exchange or the NASD, neither Party shall issue any press release or make any other public announcement concerning this Agreement or the subject matter hereof without the prior written consent of the other Party, which consent shall not be unreasonably withheld. In the event of a required press release or other public announcement, the Party making such announcement shall provide the other Party with a copy of the proposed text prior to such announcement. Notwithstanding the foregoing, (i) upon execution of this Agreement, the Company may issue a press release in the form of Exhibit B, and (ii) Distributor acknowledges that --------- Company will be required to file this Agreement with the Securities and Exchange Commission, and the Company acknowledges in connection therewith that it will seek confidential treatment of certain of the financial and business terms as may be permitted in accordance with the rules for confidentiality promulgated by the Securities and Exchange Commission. The Parties agree that if either Party is required to file this Agreement with any governmental agency, such Party shall redact the financial terms of this Agreement to the extent possible in order to keep the terms of this Agreement confidential. 28. MISCELLANEOUS ------------- (a) The Parties agree that each Party is an independent contractor. Employees and agents of one Party are not employees or agents of the other, shall not hold themselves out as such, and shall not have any authority or power to bind the other Party to any contract or other obligation. Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, employer-employee or joint venture relationship between the Parties. 58 (b) Except as otherwise expressly provided in this Agreement, each Party shall bear all of its cost and expenses associated with the performance of such Party's obligation under this Agreement. (c) Captions used in this Agreement are for convenience only and shall not be deemed to affect the meaning or construction of this Agreement. (d) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 59 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives. ANIKA THERAPEUTICS, INC. By: ----------------------------------- Name: Title: ZIMMER, INC. By: ----------------------------------- Name: Title: ACKNOWLEDGED AND AGREED TO: BRISTOL-MYERS SQUIBB COMPANY By: ---------------------------- Name: -------------------------- Title: ------------------------- 60 ANNEX A ------- DESCRIPTION OF PRODUCT AND DIRECTIONS FOR USE --------------------------------------------- * 61 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. * 62 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. C. Bar Coding: Current packaging does not contain bar coding. Should Distributor require bar coding to be included in packaging specifications, Distributor will include bar coding in updated packaging design and provide all specifications to Company. Company shall develop validated processes to ensure that bar coding on packaging (including Product number and lot control numbers) will remain compatible with requirements defined by Distributor as Distributor may notify Company from time to time. * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. 63 * 64 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. * 65 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. STORAGE - ------- Storage and warehouse under refrigeration (2-8(degrees) Centigrade). Protect from freezing. Avoid excessive heat. * 66 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. * 67 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. PACKAGE INSERT FOR CANADA ------------------------- The accompanying package insert reflect approvals for ORTHOVISC with indications for use in osteoarthritis and TMJ disorders. The insert would be modified to be limited to 2.0ml size product and to use in osteoarthritis of the knee (and not TMJ disorders). 68 CANADA ORTHOVISC(R) Sodium Hyaluronate FOR INTRA-ARTICULAR INJECTION 15 mg/ml Non-surgical use STERILE INJECTION DESCRIPTION: ORTHOVISC(R) is a sterile, non-pyrogenic solution of sodium - ----------- hyalauronate. ORTHOVISC(R) contains 15 mg/mL of sodium hyaluronate (NaHA) dissolved in physiological saline. The kinematic viscosity of the solution is adjusted to greater than 10,000 centistokes, and its osmolality is approximately 340 milliosmoles. CHARACTERISTICS: Sodium hyaluronate is a high molecular weight polysaccharide - --------------- composed of sodium glucuronate and N-acetylglucosamine. Sodium hyaluronate is ubiquitously distributed throughout the issues of the body and is present in high concentrations in such tissues as vitreous humor, synovial fluid, umbilical cord and dermis. Sodium hyaluronate functions as a tissue lubricant/1,2/ and is thought to play an important role in modulating the interactions between adjacent tissues. It can also act as a viscoelastic support maintaining a separation between tissues. Different sodium hyaluronate preparations may have different molecular weights, but are thought to have the same chemical structure. The sodium hyaluronate in ORTHOVISC(R)/3/ has an average molecular weight greater than one million. ORTHOVISC(R) is non-inflammatory, is non- pyrogenic, and is well tolerated./4/ Sodium hyaluronate has been shown to be non-antigenic./5,6/ ORTHOVISC(R) does not interfere with normal wound healing processes. INDICATIONS: ORTHOVISC(R) is indicated for the symptomatic treatment of - ----------- temporomandibular joint dysfunction/7/ and osteoarthritis of the knee./8/ DIRECTIONS FOR USE: Intra-articular injection into joints. The required amount - ------------------ of ORTHOVISC(R) is slowly infused through a sterile hypodermic needle of suitable gauge into the selected joint space. A plastic-hubbed needle is recommended. The volume will vary depending upon the size of the joint space, not to exceed 1 mL for the temporomandibular joint, or 2 mL for the knee. DO NOT OVERFILL JOINT SPACE CONTRAINDICATIONS: At the present time there are no known contraindications to - ----------------- the use of ORTHOVISC(R) when used in the symptomatic treatment of joint disease. CANADA ORTHOVISC(R) Sodium Hyaluronate FOR INTRA-ARTICULAR INJECTION 15 mg/ml Non-surgical use STERILE INJECTION DESCRIPTION: ORTHOVISC(R) est une solution sterile et non pyrogene de - ----------- hyaluronate de sodium. ORTHOVISC(R) contient 15 mg/mL de hyaluronate de sodium (NaHA) dissous dans du serum physiologique. La viscosite cinematique de la solution est ajustee a plus de 10.000 centistokes, et son osmolarite est approximativement de 340 milliosmoles. CARACTERISTIQUES: Le hyaluronate de sodium est un polysaccharide de haute masse - ---------------- moleculaire compose de glucuronate de sodium et de N-acetyle-glucosamine. Le hyaluronate de sodium est distribue avec ubiquite dans tous les tissus du corps et est trouve en fortes concentrations dans les tissus tels que: l'humeur vitreuse, le liquide synovial, le cordon ombilical, et le derme. Le hyaluronate de sodium fonctionne comme un lubrifiant tissulaire/1,2/ et est pense jouer un rule important en tant que modulateur lors des interactions entre deux tissus adjacents. Il peut aussi agir comme support visco-elastique dans le maintien de la separation entre les tissus. Differentes preparations de solutions de hyaluronate de sodium peuvent avoir des masses moleculaires differentes, mais devraient posseder la meme structure chimique. Le hyaluronate de sodium contenu dans ORTHOVISC(R)/3/ a une masse moleculaire moyenne superieure a un million. ORTHOVISC(R) est non-inflammatoire, non-pyrogene et bien tolere./4/ Il a ete demontre que le hyaluronate de sodium est non-antigenique./5,6/ ORTHOVISC(R) n'interfere pas avec les processus de reparation normaux d'une blessure. INDICATIONS: ORTHOVISC(R) est indique comme traitement symptomatique dans le - ----------- dysfonctionnement de l'articulation temporo-mandibulaire/7/ et dans l'osteo- arthrite du genou./8/ MODE D'EMPLOI: Injection intra-articulaire. La quantite requise d'ORTHOVISC(R) - ------------- est injectee lentement par l'intermediaire d'une aiguille hypodermique sterile de calibre adequat dans l'articulation appropriee. Il est recommande d'utiliser une aiguille a embout de plastique. Le volume injecte variera selon la taille de lespace articulaire, sans toutefois exceder 1 mL pour l'articulation temporo-mandibulaire et 2 mL pour le genou. NE PAS REMPLIR L'ESPACE ARTICULAIRE A L'EXCES 69 Individuals prone to chicken-or chicken-derived product allergies could, conceivably, experience an adverse reaction to sodium hyaluronate preparations. However, such reactions have not been reported previously, despite wide usage of sodium hyaluronate in the form of preparations identical to ORTHOVISC(R) during other surgical procedures. There are minimal risks associated with the procedure of injecting substances into joints in general; primarily infection and bleeding. Pre-existing infections of skin in the region of the intended injection or known systemic bleeding disorders may constitute relative or absolute contraindications. PRECAUTIONS: Those precautions normally considered during injection of - ----------- substances into joints are recommended. Only individuals familiar with accepted injection techniques for delivering agents to joint spaces should inject sodium hyaluronate for this application. An excess quantity of sodium hyaluronate is not to be used and the patient should be monitored closely. If pain increases during the injection procedure, the injection should be stopped and the needle withdrawn. The space should not be overfilled. ADVERSE REACTIONS: Sodium hyaluronate is a natural component of the tissues of - ----------------- the body. ORTHOVISC(R) is thoroughly tested to determine that each batch is non- inflammatory. Since sodium hyaluronate molecules are non-inflammatory, any phlogistic response is considered to be caused by the surgical procedures. Mild to severe episodes of swelling and discomfort have been observed following intra-articular injection of other sodium hyaluronate preparations into the temporomandibular joint. The relationship of this occurrence to the use of ORTHOVISC(R) has not been established. HOW SUPPLIED: ORTHOVISC(R) is a sterile viscoelastic preparation supplied in a - ------------ disposable glass syringe delivering 1.0 mL, appropriate for the temporomandibular joint, of 2.0 mL, appropriate for the knee, of sodium hyaluronate dissolved in physiological saline. Each mL of ORTHOVISC(R)contains 15mg of sodium hyaluronate adjusted to greater than 10,000 centistokes, 9 mg of sodium chloride/mL and q.s. Sterile Water for Injection USP. ORTHOVISC(R) exhibits an osmolality of approximately 340 millios-moles. ORTHOVISC(R) is aseptically filled and terminally sterilized. Contents of unopened and undamaged packages are sterile. Refrigerated ORTHOVISC(R) should be allowed to reach room temperature, approximately 20 to 45 minutes, prior to use. FOR INTRA-ARTICULAR USE. STORE AT 2-8(degrees)C. PROTECTED FROM FREEZING. CAUTION: This device is restricted to sale by or on the order of a physician. REFERENCES CONTRE-INDICATIONS: Il n'existe pas actuellement de contre-indications conues a - ------------------ l'usage d'ORTHOVISC(R) lorsquil est utilise en tant que traitement sympotomatique des atteintes articulaires. Les individus allergiques au poulet ou a ses derives, peuvent presenter une reaction allergique aux preparations de hyaluronate de sodium. Neanmoins, il n'a pas ete reporte jusqu'a present de reactions de ce genre, en depit de la grande utilisation du hyaluronate de sodium sous la forme de preparations indentiques a ORTHOVISC(R) dans les procedures chirugicales. Il este des risques minimums lies de facon generale a l'injection de substances dans les articulations; en particulier les risques d'infection et de saignements. Les infections cutanees pre-existantes dans la region du site d'injection ou les troubles de la coagulation connus peuvent constituer une contre-indication relative ou absolue. PRECAUTIONS: Les precautions sont les memes que celles habituellement prises - ----------- dans le cadre d'une injection intra-articulaire. Seul le personnel connaissant les techniques en vigueur concernant l'injection de substances dan les espaces intra-articulaires, doivent etre autorises a effectuer une injection de hyaluronate de soidum lorsque celle-ci est indiquee. Il faut absolument eviter d'utiliser une quantite excessive de hyaluronate de sodium, et surveiller le patient de tres pres. L'injection doit etre arretee et l'aiguille retiree en cas de douleur croissante pendant l'injection. L'espace articulaire ne pas etre rempli a l'exces. REACTIONS SECONDAIRES: Le hyaluronate de sodium est un composant naturel des - --------------------- tissus. ORTHOVISC(R) est teste de facon approfondie pour assurer que chaque lot est non-inflammatoire. Etant donne que les molecules de hyaluronate de sodium sont non-inflammatoires, toute reponse phlogistique sera consideree avoir ete causee par la procedure chirungicale. Des enflures et des reactions d'inconfort allant de moderees a seve ont ete decrites a la suite d'injections de hyaluronate de sodium dans l'artculation temporo-mandibulaire. La relation entre ces reactions et l'emploi d'ORTHOVISC(R) n'a pas ete etablie. PRESENTATION: ORTHOVISC(R) est une preparation visco-elastique presentee dans - ------------ une seringue de verre a usage unique et pouvant delivrer 1 mL d'une solution de hyaluronate de sodium dissous dans du serum physiologique dans le cas de l'articulation temporo-mandibulaire, et 2 mL dans le cas de l'articulation du genou. Chaque millitre d'ORTHOVISC(R) contient 15 mg de hyaluronate de sodium adjuste a plus de 10.000 centistokes, 9 mg de chlorure de sodium et un excipient d'eau sterile pour injection. ORTHOVISC(R) a une osmolarite d'environ 340 milliosmoles. ORTHOVISC(R) est prepare avec des methodes aseptiques et sterilise en fin de preparation. Le contenu des emballages fermes et intacts est sterile. A sa sortie du refrigeratueur, ORTHOVISC(R) 70 1. Swann,D.A., Rqadin, E.L., Nazimier,M., Weisser,P.A., Curran, N and Lewinnek, G. (1974) Role of Hyaluronic Acid in Joint Lubricatin. Ann. Rheum. Dis. 33, 318. 2. Radin, E.L., Paul, IL, Swain, D.A. and Schottsteadt, E.S. (1971) Lubrication of Synovial Membrane. Ann. Rheum. Dis. 30, 322. 3. Swann, D.A. (1968) Studies on Hyaluronic Acid. I. The Preparation and Properties of Rooster Comb Hyaluronic Acid. Biochim, Biophys. Acta 156, 17. 4. Pruett, R.C., Schepens, C.L. and Swain, D.A. (1979) Hyaluronic Acid Viteous Substitute. A Six Year Clinical Evaluation. Arch. Ophthalmol. 97,2325. 5. Richter, W. (1974) Non-immunogenicity of Purified Hyaluronic Acid Preparations Tested by Passive Cutaneous Anaphylaxix. Int. Arc. Allergy 47,211. 6. Richter, W., Ryde, E.M. and Zetterstrom, E.O. (1979) Non-immunogenicity of a Purified Sodium Hyaluronate Preparation in Man. Int. Arch. Appl. Immunol. 59,45. 7. Bertolami, C.N., Gray, T., Clark, G.T., Rendell, J., Shetty, V., Liu, C., Swann, D.A., (1993). Use of sodium hyaluronate in treating temporomandibular joint disorders: a randomized, double-blind, placebo- controlled clinical trial. J Oral Maxillofacial Surg., 51(3): 232-42. 8. Peyron, J., (1993) Intraarticular Hyaluronan Injections in the Treatment of Osteoarthritis: State-of-the-Art Review. Journal of Rheumatology, Vol. 20, Sup 39, 10-15. ORTHOVISC(R) is a registered trademark of Anika Research, Inc. Manufactured by: Size: Anika Research, Inc. 1.0 mL 236 West Cummings Park 2.0 mL Woburn MA 01801 U.S.A. P/N 530-202 Copyright (C) 1996 Rev. 3/96 Anika Research, Inc. doit etre laisse a la temperature ambiante, pendant environ 20 a 45 minutes, avant d'etre utilise. POUR USAG INTRA-ARTICULAIRE. STOCKER ENTRE 2(degrees) ET 8(degrees) C. A PROTEGER DU GEL. ATTENTION: Ce produit ne peut etre vendu qu'a un medecin ou sur ordonnance. REFERENCES: 1. Swann, D.A., Radin, E.L., Nazimiec, M., Weisser, P.A., Curran, N and Lewinnek, G. (1974) Role of Hyaluronic Acid in Joint Lubrication. Ann. Rheum. Dis.33, 318. 2. Radin, E.L., Paul, I.L., Swann, D.A. and Schottsteadt, E.S. (1971) Lubrication of Synovial Membrane. Ann. Rheum. Dis. 30, 322. 3. Swann, D.A., (1968) Studies on Hyaluronic Acid. I. The Preparation and Properties of Rooster Comb Hyaluronic Acid. Biochim, Biophys. Acta 156, 17. 4. Pruett, R.C., Schepens, C.L. and Swann, D.A. (1979) Hyaluronic Acid Vitreous Substitute A six Year Clinical Evaluation. Arch. Ophthalmol. 97,2325. 5. Richter, W. (1974) Non-immunogenicity of Purified Hyaluronic Acid Preparations Tested by Passive cutaneous Anaphylaxis. Int. Are. Allergy 47,211. 6. Richter, W., Ryde, E.M. and Zetterstrom, E.O. (1979) Non-immunogenicity of a Purified Sodium Hyaluronate Preparation in Man. Int. Arch. Appl. Immunol. 59, 45. 7. Bertolami, C.N., Gay, T., Clark, G.T., Rendell, J., Shetty, V., Liu, c., Swann, D.A., (1993). Use of sodium hyaluronate in treating temporomandibular joint disorders: a randomized, double-blind, placebo- controlled crinical trail. J Oral Maxillofacial Surg., 51 (3): 232-42. 8. Peyron, J., (1993) Intraarticular Hyaluronan Injections in the Treatment of Osteoarthritis: State-of-the-Art Review. Journal of Rheumatology, Vol 20, Sup 39, 10-15. ORTHOVISC(R) est une marque deposee de Anika Research, Inc. Fabrique par: Taille 71 1 mL Anika Research, Inc. 2 mL 236 West Cummings Park Woburn MA 01801 U.S.A. P/N 530-202 Tous droits reserve (C) 1996 Rev. 3/96 Anika Research, Inc. 72 ANNEX B ------- COORDINATED SALES, MARKETING AND CLINICAL PLAN ---------------------------------------------- *(Annex pages 1-56) See attached. 73 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. ANNEX C-1 --------- COUNTRIES INCLUDED IN TERRITORY ------------------------------- ASIA AMERICAS ---- -------- Australia Canada China* United States of America Hong Kong Indonesia Japan** Korea, South Malaysia New Zealand Phillippines Singapore Taiwan Thailand * Subject to the terms and conditions in Section 2(c)(ii) ** Subject to the terms and conditions in Section 2(c)(i) 74 ANNEX C-2 --------- COUNTRIES INCLUDED IN OPTIONAL TERRITORY ---------------------------------------- Central and South America ------------------------- Mexico Puerto Rico Argentina Brazil Chile Columbia Peru Venezuela 75 ANNEX D ------- EXCLUDED PRODUCTS ----------------- "Excluded Products" shall mean: all final products that contain as an ingredient the HA manufactured by Company, including products obtained by Company as a result of an acquisition, and products that contain the HA manufactured by Company as a drug delivery vehicle or in combination with another active ingredient; provided that such products are not labeled, indicated, promoted or used for the treatment of human osteoarthritis. 76 ANNEX E ------- COMPANY COMPLAINT FORM ---------------------- 77 [ANIKA LOGO] COMPLAINT FORM
- ----------------------------------------------------------------------------------------- Complaint File Number: Complaint: Name - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Date Complaint Received: Address - ----------------------------------------------------------------------------------------- Date Response Due: Address - ----------------------------------------------------------------------------------------- Method of Communication of Complaint: Phone number - ----------------------------------------------------------------------------------------- Date Complaint Receipt Letter sent to Complainant: ========================================================================================= Product Name: Product Lot Number: - ----------------------------------------------------------------------------------------- Complaint: - ----------------------------------------------------------------------------------------- ADE or MDR Reportable Event? YES:_____ NO:_____ - ----------------------------------------------------------------------------------------- If YES: Was there an actual device failure?______________________________________________________ Was the device/drug used to diagnose or treat patient?___________________________________ Was there a death, injury or serious illness?____________________________________________ Any relationship of the device/drug to the reported incident?____________________________ Description of specific medical intervention action taken or withheld:___________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ Physician name:__________________________________________________________________________ Description of patient condition:________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ If NO: State Rationale:_________________________________________________________________________ _________________________________________________________________________________________ - ----------------------------------------------------------------------------------------- Date Failure Investigation Initiated: If investigation was not initiated, state reason: Date Failure Investigation Closed: - ----------------------------------------------------------------------------------------- Corrective Action: If corrective action is not required, state rationale: - ----------------------------------------------------------------------------------------- Required Documentation Obtained and Complaint Closed: QS/RA Signature: Date Closed: - -----------------------------------------------------------------------------------------
78 - -------------------------------------------------------------------------------- Date close-out letter to complainant sent: - -------------------------------------------------------------------------------- 79 [ANIKA LOGO] FAILURE INVESTIGATION REPORT Complaint File #:_______________________________________________________________ Product:________________________________________________________________________ Product Lot #:__________________________________________________________________ Date Received:__________________________________________________________________ Date Response Due:______________________________________________________________ - -------------------------------------------------------------------------------- COMPLAINT: (Restate complaint here) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RECOMMENDED COURSE OF ACTION: (To be completed by QS/RA) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RESPONSE - INVESTIGATION PERFORMED: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PREVENTATIVE ACTION: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Investigator: Date: --------------------------------- ------------------- QS/RA: Date: --------------------------------- ------------------- 80 ANNEX F ------- PATENTS AND PATENT APPLICATIONS ------------------------------- None. 81 ANNEX G ------- DISTRIBUTOR'S * LETTER ---------------------- * 82 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. * 83 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. ANNEX H ------- QUALIFIED PRIMARY MEDICAL INSURANCE ORGANIZATIONS AND HMO PROVIDERS FOR ----------------------------------------------------------------------- OBTAINING REIMBURSEMENT APPROVAL -------------------------------- * 84 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Commission. EXHIBIT A --------- ANIKA THERAPEUTICS, INC. ------------------------- STOCK PURCHASE AGREEMENT ------------------------- _________ SHARES OF COMMON STOCK, OF ANIKA THERAPEUTICS, INC. Dated as of ___________, 199_ 85 TABLE OF CONTENTS
Page ---- 1. Agreement to Sell and Purchase the Common Stock 1 2. Closing of Sale of Shares 1 3. Representations and Warranties of the Company. 1 3.1. Organization and Qualification; Authority 1 3.2. Corporate and Governmental Authorization; No Contravention 2 3.3. Validity and Binding Effect 2 3.4. Public Reports; No Material Adverse Change 2 3.5. Broker's or Finder's Commissions 2 4. Representations, Warranties and Covenants of the Purchaser 3 5. Restrictions on Transfer, Registration of Shares. 4 5.1. Restrictive Legends 4 5.2. Notice of the Proposed Transfer; Opinions of Counsel 4 5.3. Registration of Shares 5 5.4. Market Stand-Off 6 5.5. Information Required 6 5.6. Holding Period. 7 6. Definitions 7 7. Miscellaneous. 7 7.1. Expenses. 7 7.2. Survival of Representations and Warranties; Severability 7 7.3. Amendment and Waiver 7 7.4. Notices, Etc. 7 7.5. Successors and Assigns 8 7.6. Descriptive Headings 8 7.8. Governing Law 8 7.9. Counterparts 8 7.10. Entire Agreement 8
(i) EXHIBITS -------- SCHEDULES --------- Schedule 3.4 -- Material Changes (ii) STOCK PURCHASE AGREEMENT dated as of __________, 199_ between Anika Therapeutics, Inc., a Massachusetts corporation (the "Company"), and _________________ [ZIMMER OR AN AFFILIATE] (the "Purchaser"). WHEREAS, the Company and Zimmer, Inc. have entered into an Exclusive Distribution Agreement dated as of ________ __, l997 (the "Distribution Agreement"), which provides, among other things, that Zimmer, Inc. or an Affiliate (as defined in the Distribution Agreement) shall have the right to purchase certain shares of the Company's common stock under certain circumstances (the "Stock Purchase Right"); and WHEREAS, in full satisfaction of the Stock Purchase Right, the Purchaser and the Company desire to enter into this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the Company and the Purchaser respectively agrees with such other party, as so designated, as follows: 1. Agreement to Sell and Purchase the Common Stock. At the Closing ----------------------------------------------- provided for in Section 2, subject to the terms and conditions of this Agreement, the Company will issue and sell to the Purchaser and the Purchaser will purchase from the Company, _______ [SEE (S)2(b) OF THE DISTRIBUTION AGREEMENT FOR DETERMINATION OF NUMBER OF SHARES] shares of the Company's common stock, $.01 par value per share ("Common Stock"), at a purchase price of $_____ per share [SEE (S)2(b) OF THE DISTRIBUTION AGREEMENT FOR DETERMINATION OF PRICE PER SHARE], for an aggregate purchase price of $_______. The term "Shares" refers to the shares of Common Stock to be purchased by the Purchaser under this Agreement. 2. Closing of Sale of Shares. The purchase and delivery of the Shares to ------------------------- be purchased by the Purchaser shall take place at the offices of Goodwin, Procter & Hoar LLP Exchange Place, Boston, Massachusetts, at a closing (the "Closing") as of the date hereof or at such other place or on such other date as the Purchaser and the Company may agree upon (such date on which the Closing shall have actually occurred, the "Closing Date"). At the Closing, the Company will deliver or cause to be delivered to the Purchaser the Shares to be purchased by it against payment of the purchase price therefor registered in the name of the Purchaser. Payment of the purchase price by Purchaser shall be by wire transfer to an account designated in writing by the Company to the Purchaser. 3. Representations and Warranties of the Company. The Company represents --------------------------------------------- and warrants that: 3.1. Organization and Qualification; Authority. The Company is a ----------------------------------------- corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has full corporate power and authority to own and lease its properties and carry on its business as presently conducted, is duly qualified, registered or licensed as a foreign corporation to do business and is in good standing in each jurisdiction in which the ownership or leasing of its respective properties or the character of its present operations makes such qualification, registration or licensing necessary, except where the failure so to qualify or be in good standing would not have a material adverse effect on the condition (financial or otherwise), assets, business or results of operations of (a "Material Adverse Effect" on) the Company. 3.2. Corporate and Governmental Authorization; No Contravention. ---------------------------------------------------------- The execution, delivery and performance by the Company of this Agreement, and the issuance and sale to the Purchaser of the Shares pursuant to this Agreement are within the Company's corporate powers, (a) have been duly authorized by all necessary corporate action on the part of the Company; (b) do not require any authorization or approval from any governmental authority (except such as have been obtained); and (c) do not contravene or constitute a default under or violation of (i) any provision of applicable law or regulation of any governmental authority, (ii) the charter documents of the Company, or (iii) any judgment, injunction, order or decree binding upon the Company or any of its properties, except where such contravention, default or violation would not have a Material Adverse Effect on the Company. The Shares have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued, fully paid and non-assessable, free and clear of all liens, encumbrances or claims. 3.3. Validity and Binding Effect. This Agreement has been duly --------------------------- executed and delivered by the Company and is a valid and binding agreement of the Company, enforceable against the Company, in accordance with its terms, subject to (a) the effect upon this Agreement of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting the rights of creditors generally and (b) general principles of equity including (without limitation) concepts of reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law). 3.4. Public Reports; No Material Adverse Change. As of the date ------------------------------------------ of this Agreement, each report the Company has filed with the Commission with respect to events occurring, or periods ending, on or after __________, 199_ (the "SEC Filings") complies in all material respects with the requirements of the 1934 Act and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made. 3.5. Broker's or Finder's Commissions. No person is entitled to -------------------------------- payment of any broker's commission or finder's fee relating to the purchase and sale of the Shares as the result of any actions taken by the Company. 2 4. Representations, Warranties and Covenants of the Purchaser. The ---------------------------------------------------------- Purchaser represents and warrants to the Company that (a) Purchaser is an accredited investor as defined in Regulation D under the Securities Act, or by reason of its business and financial experience, and the business and financial experience of those persons, if any, retained by it to advise it with respect to its investment in the Shares, Purchaser together with such advisers have such knowledge, sophistication and experience in business and financial matters as to be capable of evaluating the merits and risk of the prospective investment, and that it is purchasing the Shares for its own account or for one or more separate accounts maintained by it or for the account of one or more institutional investors on whose behalf the Purchaser has authority to make this representation for investment and not with a view to the distribution thereof or with any present intention of distributing or selling any of the Shares except in compliance with the Securities Act and except to one or more such institutional investors, provided that the disposition of the Purchaser's or such investor's property shall at all times be within its control. Purchaser understands and agrees that the Shares have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions thereunder or if an exemption from registration is available. (b) Purchaser represents that it has full power and authority and has taken all action necessary to authorize it to enter into and perform its obligations under this Agreement and all other documents or instruments contemplated hereby. This Agreement is the legal, valid and binding obligation of the Purchaser, and is enforceable in accordance with its terms. (c) Purchaser represents that it and/or its advisor(s) have had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of the Company concerning the Company and the Shares and all such questions have been answered to the full satisfaction of the Purchaser. (d) Purchaser represents that it is not purchasing Shares as a result of any general solicitation or general advertising including, but not limited to, advertisements, articles, notices or other communications, published in any newspaper, magazine or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. (e) No person is entitled to the payment of any broker's commission or finder's fee relating to the purchase and sale of the Shares as the result of any actions taken by the Purchaser. (f) Purchaser represents that it is not an ERISA benefit plan, a trust, a so-called 501(c)(3) entity under the Internal Revenue Code, a bank, broker/dealer, insurance company or SBIC licensed by the SBA. The Purchaser represents it was not formed for the purpose of purchasing the Shares. 3 (g) Purchaser represents that it has read the Company's SEC filings and that it is relying solely upon the written information contained therein and herein and not upon any oral statements regarding the Company or the Shares. Purchaser agrees to comply with its obligations under U.S. and applicable state securities law with regard to material, non-public information concerning the Company. Purchaser further agrees to cooperate with all reasonable requests of the Company, with respect to the Company's obligations under U.S. and state securities laws in connection with or related to the purchase and sale of the Shares hereunder. 5. Restrictions on Transfer, Registration of Shares. ------------------------------------------------ 5.1. Restrictive Legends. Each certificate representing the ------------------- Shares shall be stamped or otherwise imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT IN ACCORDANCE WITH APPLICABLE "BLUE SKY" LAWS AND PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT, IF REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE. Whenever the legend requirement imposed by this section 5.1 shall terminate, as provided in Section 5.2, the holder of Shares for which such legend requirements have terminated shall be entitled to receive from the Company, at the Company's expense, certificates without such legend. 5.2. Notice of the Proposed Transfer; Opinions of Counsel. The ---------------------------------------------------- holder of each certificate representing the Shares bearing the restrictive legend set forth in Section 5.1 above ("Restricted Security"), agrees that prior to any proposed transfer of such Restricted Security, to give to the Company (a) written notice describing the transferee and the circumstances, if any, necessary to establish the availability of an exemption from the 4 registration requirements of Securities Act and (b) upon reasonable request by the Company to such transferring holder, an opinion of counsel (at the expense of such holder), in form and substance reasonably satisfactory to the Company, to the effect that the proposed transfer of such Restricted Security may be effected without registration of such Restricted Security under the Securities Act. If the holder of the Restricted Security delivers to the Company an opinion of counsel in form and substance reasonably satisfactory to the Company that subsequent transfers of such Restricted Security will not require registration under the Securities Act, the Company will after such contemplated transfer deliver new certificates for such Restricted Security which do not bear the Securities Act legend set forth in Section 5.1 above. The restrictions imposed by this Section 5 upon the transferability of any particular Restricted Security shall cease and terminate when such Restricted Security has been sold pursuant to an effective registration statement under the Securities Act or transferred pursuant to Rule 144 promulgated under the Securities Act. As used in this Section 5.2, the term "transfer" encompasses any sale, transfer or other disposition of any securities referred to herein. 5.3. Registration of Shares. ---------------------- (a) So long as the Purchaser holds not less than fifty percent (50%) of the Shares purchased under this Agreement, following the expiration of the Holding Period (as defined below) upon written notice on one (1) occasion from the Purchaser requesting that the Company effect the registration on Form S-3 under the Securities Act of the resale of all (but not part) of the Shares purchased and sold pursuant to this Agreement and then held by the Purchaser, the Company will use (subject to the other provisions of this Agreement) all reasonable efforts to file a Form S-3 registration statement to effect the registration, under the Securities Act, of such Shares (the "Demand Registration"). The Company may postpone for a reasonable period or periods, not to exceed an aggregate of up to 90 days, the filing of the registration statement if the Company shall furnish to the Purchaser a certificate signed by the President of the Company stating that, in the good faith judgment of the President or the Board of Directors of the Company, the Demand Registration would require the disclosure of a material transaction or other matter which such disclosure is likely to have a material adverse effect on the Company and its stockholders or otherwise would not be in the best interests of the Company if so disclosed. The request for a Demand Registration pursuant to this Section 5.3 shall specify the number of Shares requested to be registered and the intended method or methods of disposition. Subject to any limitations imposed by any underwriter in the case of an underwritten offering, the Company shall include in such Demand Registration all Shares. In addition, the Company shall give notice to all holders of the Company's securities who are entitled by contract with the Company to have securities included in such registration ("Other Stockholders") and shall provide a reasonable opportunity for such Other Stockholders to participate in such registration, in accordance with the contractual rights of such Other Stockholders, with the participation of the Purchaser and such Other Stockholders to be on a basis consistent with the contractual rights of such Other Stockholders. The Company will use its reasonable efforts to keep the Demand Registration effective for up to 5 the earlier of (i) thirty (30) days or (ii) the date all such Shares have been disposed of thereunder. (b) If at any time or times after the date hereof, the Company shall determine to register any shares of its Common Stock (whether in connection with a public offering of securities by the Company (a "primary offering"), a public offering of securities by stockholders (a "secondary offering"), or both, but not in connection with a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 or any other similar rule of the Commission under the Securities Act is applicable), the Company will promptly give written notice thereof to the Purchaser. In connection with any such registration, if within 10 days after their receipt of such notice the Purchaser requests the inclusion in such registration of some or all of the Shares then owned by the Purchaser (the "Registrable Securities"), the Company will use its reasonable efforts to effect the registration under the Securities Act of all Registrable Securities which the Purchaser so requests; provided, however, that -------- ------- in the case of the registration of shares of the Common Stock by the Company in connection with an underwritten public offering as a condition to inclusion of any Shares therein, the Purchaser shall enter into an underwriting agreement on the same terms as the Company or other selling security holders, as the case may be, and, if the underwriter determines that a limitation on the number of shares to be underwritten is required, the underwriter may (subject to the allocation priority set forth below) exclude from such registration and underwriting some or all of the Registrable Securities which would otherwise be underwritten pursuant to the notice described herein. The Company shall advise the Purchaser promptly after such determination by the underwriter and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among the Purchaser and Other Stockholders in proportion, as nearly as practicable, to their respective holdings of Registrable Securities or securities convertible into Common Stock, and, in all cases, on a basis consistent with the contractual rights of such Other Stockholders. (c) The registration rights granted pursuant to this Agreement shall expire upon the earlier to occur of (i) two (2) years from the date hereof, or (ii) the date any of the Shares then held by the Purchaser are eligible for resale pursuant to Rule 144 under the Securities Act or a similar exemption under the Securities Act. 5.4 Market Stand-Off. Purchaser hereby agrees, notwithstanding ---------------- anything contained herein to the contrary, that, during the 180 days following the effective date of a registration statement of the Company filed under the Securities Act, it shall not to the extent requested by the Company or an underwriter of an underwritten offering of securities of the Company, directly or indirectly sell or otherwise transfer or dispose of any securities of the Company held by it at any time during such period, and Purchaser will execute such "Lock-up" agreement as is reasonably requested by the Company or our underwriter consistent with the foregoing. 6 5.5 Information Required. It shall be a condition precedent -------------------- to the obligations of the Company to undertake any Registration of Shares pursuant to this Agreement that Purchaser shall (i) furnish to the Company such information regarding itself, the Shares held by it, and the intended method of disposition of such securities as shall be required to effect the Registration of Purchaser's Shares and (ii) agree to indemnify the Company with regard to any loss or damage resulting from such information. 5.6 Holding Period. Notwithstanding anything in this Agreement -------------- to the contrary, the Purchaser agrees that it will not sell, transfer or otherwise convey the Shares prior to the first anniversary of the date hereof. 6. Definitions. As used herein the following terms have the following ----------- respective meanings: "1934 Act," means the Securities Exchange Act of 1934, and the rules -------- and regulations of the Commission promulgated thereunder, as from time to time amended. "Rule 144" means Rule 144 as promulgated by the Commission under the -------- Securities Act, and any successor rule or regulation thereto, as from time to time amended. "Securities Act" means the Securities Act of 1933, and the rules and -------------- regulations of the Commission promulgated thereunder, as from time to time amended. 7. Miscellaneous. ------------- 7.1. Expenses. Each party will be responsible for payment of its -------- own expenses in connection with the purchase and sale of the Shares pursuant to this Agreement. 7.2. Survival of Representations and Warranties; Severability. -------------------------------------------------------- All representations and warranties contained in this Agreement of the Company shall terminate at the Closing. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. 7.3. Amendment and Waiver. This Agreement may be amended, -------------------- modified or supplemented, and waivers or consents to departures from the provisions hereof may be given, provided that the same are in writing and signed by the Company and the Purchaser. 7.4. Notices, Etc. Except as otherwise provided in this ------------ Agreement, notices and other communications under this Agreement shall be in writing and shall be delivered, or mailed by registered or certified mail, return receipt requested, or by a nationally recognized overnight courier, postage prepaid, addressed, (a) if to the Purchaser, at the address set forth on the signature page hereto or such other address as the Purchaser shall have furnished to the 7 Company in writing, or (b) if to any other permitted holder of any Shares, at such address as such other holder shall have furnished to the Company in writing, or, until any such other holder so furnishes to the Company an address, then to and at the address of the last holder of such Shares who has furnished an address to the Company, or (c) if to the Company, at 160 New Boston Street, Woburn, MA 01801, to the attention of President, or at such other address, or to the attention of such other officer, as the Company shall have furnished to the Purchaser and each such other holder in writing. 7.5. Successors and Assigns. Whenever in this Agreement any of ---------------------- the parties hereto are referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the respective parties which are contained in this Agreement shall bind and inure to the benefit of the successors and assigns of all other parties. This Agreement may not be assigned or transferred by either party hereto without the prior written consent of the non-assigning party hereto. Except as otherwise provided herein, the terms and provisions of this Agreement shall inure to the benefit of and shall be binding upon any permitted assignee or transferee of the Purchaser. 7.6. Descriptive Headings. The headings in this Agreement are -------------------- for purposes of reference only and shall not limit or otherwise affect the meaning hereof. 7.8. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ------------- ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. 7.9. Counterparts. This Agreement may be executed simultaneously ------------ in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 7.10 Entire Agreement. This Agreement embodies the complete and ---------------- final agreement and understanding of the parties hereto with respect to the subject matter hereof and related matters and supersedes and preempts any prior understandings, agreements or representations by or between the parties, written or oral, which may have related to the subject matter hereof in any way. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first written above. ANIKA THERAPEUTICS, INC. By: -------------------------------- Name: Title: PURCHASER By: -------------------------------- Name: Title: Address: Telephone: Telecopy: Tax I.D. Number:____________________ [TO BE USED IF PURCHASER IS AN AFFILIATE OF ZIMMER, INC.] The undersigned acknowledges that this Agreement is in full satisfaction of the Stock Purchase Right, and that it has assigned all of its rights in the Stock Purchase Right to the above named Purchaser. ZIMMER, INC. By: -------------------------------- Name: Title: 9 EXHIBIT B --------- FORM OF PRESS RELEASE --------------------- 10 ANIKA NEWS RELEASE - -------------------------------------------------------------------------------- FOR IMMEDIATE RELEASE: Contact: ANIKA THERAPEUTICS, INC. Or ZIMMER SEAN MORAN PONDEL PARSONS & WILKINSON Brad Bishop Chief Financial Officer Susan Klein (508) 358-4315 (212) 372-4291 (617) 932-6616, x102 Robert Whetstone (310) 207-9300 ANIKA THERAPEUTICS AND ZIMMER SIGN ORTHOVISC/R/ MARKETING AGREEMENT WORTH UP TO $23 MILLION ZIMMER TO REPRESENT INNOVATIVE OSTEOARTHRITIS TREATMENT IN NORTH AMERICA WOBURN, MASSACHUSETTS, November 10, 1997 ..... ANIKA THERAPEUTICS, INC. (NASDAQ SMALL CAP: ANIK) today announced that it has signed an exclusive multi-year marketing and distribution agreement with Zimmer, Inc., a billion-dollar subsidiary of Bristol-Myers Squibb (NYSE:BMY). Zimmer will represent Anika's innovative ORTHOVISC/R/ product (sodium hyaluronate for injection) for the treatment of osteoarthritis of the knee in the United States, Canada and select Asia-Pacific markets. The deal is potentially worth up to $23 million. Zimmer paid Anika $2.5 million at signing and is obligated to pay up to an additional $20.5 million contingent upon the attainment of certain regulatory and sales milestones. According to the terms of the agreement, the two companies will share in the revenues generated by Zimmer's sales and marketing efforts and Anika will exclusively manufacture ORTHOVISC for Zimmer. ORTHOVISC is used to treat osteoarthritis using a therapy called viscosupplementation. The natural knee is surrounded by synovial fluid, which contains hyaluronic acid (HA), which helps coat and lubricate the joint. ORTHOVISC is designed to emulate the viscoelastic and cushioning properties of natural HA. "With the largest dedicated sales force addressing orthopaedic surgeons and related specialties, we believe Zimmer will provide powerful commercialization and distribution efforts to make ORTHOVISC the valued therapeutic option and preferred brand in the treatment of osteoarthritis," said J. Melville Engle, president and chief executive officer of Anika. "Zimmer is the established world leader in knee replacement products and has a strong reputation with orthopaedic surgeons and musculoskeletal specialists around the globe." ORTHOVISC has been cleared for marketing in Canada, where Zimmer will have distribution rights. Registrations for marketing approval have also been filed in Australia and New Zealand. Anika recently completed a pivotal clinical study and plans to file by the end of this year with the U.S. Food and Drug Administration for clearance to market the product in the United States. "Zimmer is excited about offering musculoskeletal specialists another treatment option to address knee pain associated with osteoarthritis," said J. Raymond Elliott, Zimmer president. "ORTHOVISC gives physicians an alternative to pharmaceutical therapies as they manage the course of the patient's disease. Zimmer is uniquely equipped to represent ORTHOVISC among musculoskeletal specialists. We are pleased to be associated with a company of Anika's high caliber." Zimmer is the world leader in the design, manufacture and distribution of orthopaedic implants and related equipment and supplies. The company provides a broad range of joint replacement, fracture management and patient care products. Founded in 1927, Zimmer became a member of the Bristol-Meyers Squibb family of companies in 1972. Anika Therapeutics, Inc. develops, manufactures and commercializes therapeutic products and devices intended to promote the protection and healing of bone, cartilage and soft tissue. These products are based on hyaluronic acid (HA), a naturally-occurring, biocompatible polymer found throughout the body. ### Visit Zimmer on the Internet at http://www.zimmer.com Visit Bristol-Meyers Squibb on the Internet at http://www.bms.com This press release includes forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934 including statements relating to amounts which may be received under the Company's agreement with Zimmer. The Company's actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference include (i) the ability of the Company to obtain FDA approval for marketing of ORTHOVISC in the U.S., (ii) the ability of the Company and Zimmer to achieve the regulatory and sales milestones set forth in the agreement, (iii) the overall market acceptance of HA products for the treatment of osteoarthritis, as well as those factors set forth as Risk Factors in the Company's Form 10-QSB filed with the Securities and Exchange Commission on August 13, 1997. EX-23.1 4 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 The Board of Directors Anika Therapeutics, Inc.: We consent to the use of our reports included herein and to the references to our firm under the headings "Selected Financial Data" and "Experts" in the prospectus. KPMG Peat Marwick llp Boston, Massachusetts November 10, 1997 -----END PRIVACY-ENHANCED MESSAGE-----