SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
(AS PERMITTED BY RULE 14A-6(E)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[X] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-
12
Medi-Ject Corporation
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Medi-Ject Common Stock
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(2) Aggregate number of securities to which transaction applies:
2,900,000
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11(Set forth the amount on which the filing fee is
calculated and state how it was determined):
$4.2188 per share based on the average of the high and low prices for July 11,
2000
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(4) Proposed maximum aggregate value of transaction:
$12,234,520
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(5) Total fee paid:
$2,447.00
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
MEDI-JECT CORPORATION
161 Cheshire Lane, Suite 100
Plymouth, Minnesota 55441
763-475-7700
, 2000
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Medi-Ject Corporation to be held at 10:00 a.m. on Monday, August 28, 2000 at
the Medi-Ject offices located at 161 Cheshire Lane, Suite 100, Plymouth,
Minnesota 55441.
The following Notice of Annual Meeting and the Proxy Statement describe the
matters on which action will be taken. We will ask you to approve the terms of
a stock purchase agreement and the actions contemplated by such agreement, to
approve a proposed amendment to the articles of incorporation to increase the
authorized number of common and preferred shares, to approve the conversion of
Series C Convertible Preferred Stock into common stock, to approve the optional
conversion of the Series B Convertible Preferred Stock, to elect two members to
the Board of Directors, and to ratify the appointment of the independent
accountants. During the meeting, we will also review the activities of the past
year and items of general interest about Medi-Ject. The Board of Directors
unanimously recommends that you vote in favor of the six proposals.
Only shareholders of record at the close of business on July 20, 2000 are
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof.
We hope you will join us on August 28, 2000 for our Annual Meeting. Whether
or not you plan to attend, please return your signed proxy as soon as possible.
Whether you own a few shares or many, your vote is important.
Thank you for your continued support of Medi-Ject.
Sincerely,
-------------------------------------
Franklin Pass, M.D.
Chairman, President and Chief
Executive Officer
i
MEDI-JECT CORPORATION
161 Cheshire Lane, Suite 100
Plymouth, Minnesota 55441
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Medi-Ject
Corporation will be held on Monday, August 28, 2000 at 10:00 a.m. at the Medi-
Ject offices located at 161 Cheshire Lane, Plymouth, Minnesota 55441, to
consider and vote upon the following proposals:
(1) To approve the terms of a Stock Purchase Agreement dated as of July
14, 2000 (the "Purchase Agreement") by and among Medi-Ject, Permatec
Holding AG, ("Permatec"), Permatec Pharma AG ("Pharma"), Permatec
Technologie AG ("Technologie"), and Permatec NV ("NV") (Pharma, Technologie
and NV each a "Subsidiary" and collectively, the "Subsidiaries"), whereby
we purchase all of the outstanding capital stock of the Subsidiaries and as
consideration, we issue 2,900,000 shares of Medi-Ject common stock to
Permatec. Upon the closing of the transaction, (a) Permatec will own
approximately 67% of the outstanding Medi-Ject common stock; (b) Karl
Groth, Geoffrey Guy, M.D., Fred L. Shapiro, M.D. and Stanley Goldberg will
each resign from the position of director and the remaining directors will
fill the vacancies by appointing Dr. Jacques Gonella, Dr. Thomas M.
Rinderknecht, Professor Ubaldo Conte and Dr. Philippe Dro; (c) promissory
notes issued to Permatec will convert into shares of Medi-Ject Series C
Preferred Stock; and (d) we will amend our Second Amended and Restated
Articles of Incorporation, as amended to date, to change our name to
"Antares Pharma, Inc." (the above collectively referred to as the "Share
Transaction").
(2) To amend the Second Amended and Restated Articles of Incorporation,
as amended to date, to increase the number of authorized shares of Medi-
Ject common stock from 3,400,000 to 15,000,000 shares and the number of
authorized shares of Medi-Ject preferred stock from 1,000,000 to 3,000,000.
(3) To approve the future conversion of Medi-Ject Series C Preferred
Stock into Medi-Ject common stock.
(4) To approve the conversion of the Series B Convertible Preferred
Stock into shares of Medi-Ject common stock.
(5) To elect two members to the Board of Directors.
(6) To ratify the appointment of KPMG LLP as our independent auditors
for the year ending December 31, 2000.
(7) To transact such other business as may properly come before the
meeting or any adjournment thereof.
All shareholders of record on our transfer books as of the close of business
on July 20, 2000, will be entitled to vote at the meeting.
Your attention is directed to the enclosed proxy. Whether or not you intend
to be present at the meeting, please complete, sign and return the proxy in the
enclosed envelope.
By order of the Board of Directors,
-------------------------------------
Lawrence M. Christian
Secretary
Dated: July , 2000
ii
SUMMARY TERM SHEET FOR THE SHARE TRANSACTION
This summary term sheet for the Share Transaction highlights selected
information from the Proxy Statement regarding the Share Transaction
contemplated by the Purchase Agreement and may not contain all of the
information that is important to you as a Medi-Ject shareholder. Accordingly,
we encourage you to carefully read this entire document and the documents to
which we have referred you.
The Proposed Share Transaction (Page You are being asked to consider and
3)................................... vote upon a proposal to approve a
Purchase Agreement that provides for
the purchase of all of the stock of
three subsidiaries of Permatec. In
exchange, we will issue 2,900,000
shares of Medi-Ject common stock to
Permatec, resulting in a change in
control of Medi-Ject. The Purchase
Agreement and the actions relating to
such stock purchase and issuance are
collectively referred to as the "Share
Transaction."
The Parties to the Share Transaction We develop, manufacture and market
(Page 3)............................. medical devices, called jet injectors,
that allow people to self-inject drugs
without using a needle. We make a small
spring-action device and the attached
disposable plastic syringes that hold
the drug. These devices operate without
a needle at very high energy forces.
Recently, we developed a variation of
the jet injector by adding a very small
hidden needle.
Permatec, through its subsidiaries,
develops or improves technology for the
delivery of drug compounds. As a niche
drug delivery technology company,
Permatec develops highly specialized
formulations to address the need to
deliver drugs through skin and mucosa
using patches, gels, fast-dissolving
tablets and transbuccal tablets.
Permatec's strategy is to license its
technology to development and marketing
partners through a combination of
license and development agreements and
research and development
collaborations.
Our Board of Directors'
Recommendation
to You (Page 23).................... A committee of the disinterested
directors of the Board of Directors has
determined, by unanimous written
consent, that the Share Transaction is
fair to and in the best interests of
Medi-Ject and its shareholders and has
approved and adopted the Share
Transaction. Based on the determination
of that committee and the Board's
consideration, the Board of Directors
recommends shareholder approval of the
Share Transaction.
The Annual Meeting (Page 1).......... The Annual Meeting will be held on
Monday, August 28, 2000 at 10:00 a.m.
at our office located at 161 Cheshire
Lane, Suite 100, Plymouth, Minnesota.
Approval of the Share Transaction
requires the affirmative vote of the
holders of a majority of the
iii
outstanding Medi-Ject common stock
present, in person or by proxy, and
entitled to vote on that item of
business at a meeting at which a quorum
is present.
You are entitled to vote at the Annual
Meeting if you owned shares of Medi-
Ject common stock on July 20, 2000, the
record date for the Annual Meeting. As
of the record date, 1,424,869 shares of
Medi-Ject common stock were outstanding
and the holders of such stock are
entitled to vote at the Annual Meeting.
Procedure for Voting (Page 1)........ You may vote by either: completing and
returning the enclosed proxy card or by
attending the Annual Meeting. If you
complete and return the enclosed proxy
card but later wish to revoke it, you
must take one of the following actions:
(1) file with the Secretary of Medi-
Ject a written, later-dated notice of
revocation; (2) send a later-dated
proxy card relating to the same shares
to the Secretary of Medi-Ject at or
before the Annual Meeting; or (3)
attend the Annual Meeting and file a
signed written termination of the proxy
with an officer of Medi-Ject.
Attendance at the Annual Meeting will
not in and of itself constitute the
revocation of a proxy.
Rules of the Nasdaq Stock Market Under the Nasdaq Stock Market rules, we
(Page 28)............................ must obtain shareholder approval for
this Share Transaction because the
issuance of the 2,900,000 shares of
Medi-Ject common stock results in a
change of control of the company.
Dissenters' Rights (Page 29)......... Holders of Medi-Ject common stock will
not have dissenters' rights under
Minnesota law in the Share Transaction.
Stock Purchase (Page 23)............. We will purchase all of the outstanding
stock of the three Permatec
subsidiaries: Permatec Pharma AG,
Permatec Technologie AG and Permatec NV
(the "Subsidiaries").
Issuance of Stock (Page 23).......... As payment for the outstanding stock of
the Subsidiaries, we will issue
2,900,000 shares of Medi-Ject common
stock to Permatec. The 2,900,000 shares
will represent approximately 67% of the
issued and outstanding Medi-Ject common
stock.
Board of Directors (Page 24)......... Immediately prior to or at the closing,
Karl Groth, Geoffrey Guy, M.D., Fred L.
Shapiro, M.D. and Stanley Goldberg will
resign from our Board of Directors and
the remaining directors will appoint
Dr. Jacques Gonella, Dr. Thomas M.
Rinderknecht, Professor Ubaldo Conte
and Dr. Philippe Dro to fill the
vacancies.
iv
Other Agreements (Page 27)........... In connection with the Share
Transaction, a number of other
documents will be required to be in
effect. The agreements include:
. Registration Rights Agreement
. Employment Agreement with Franklin
Pass, M.D.
. Escrow Agreement
. Lock-Up Agreements with certain
employees
Representation and Warranties (Page We made to Permatec and the
24).................................. Subsidiaries and Permatec and the
Subsidiaries made to us,
representations and warranties,
standard in this type of transaction
including:
. corporate organization,
capitalization
. financial statements
. title to assets
. contracts
. legal compliance
. tax matters
. employee benefits
. environmental matters
Covenants (Page 24).................. We made covenants and agreements and
Permatec and the Subsidiaries made
covenants and agreements to:
. allow us access to their records and
properties
. operate the Subsidiaries in a manner
consistent with the normal and
ordinary course of business and not
to take a variety of actions
relating to: options, benefit plans,
dividends, compensation, customers,
capital expenditures, and others
. engage in regular conversations with
the other party and to advise each
other of certain changes, events or
circumstances
. use each party's best efforts to
consummate the transactions
contemplated by the Purchase
Agreement
. make, give or obtain all necessary
filings, notices or consents
. file the Proxy Statement (Medi-Ject)
. use commercially reasonable efforts
to raise at least $7,000,000 in a
private placement (Permatec with the
assistance of Medi-Ject)
v
. prepare a written business plan for
the combined business of Medi-Ject
and the Subsidiaries (Permatec with
assistance of Medi-Ject)
. search for a new chief executive
officer of Medi-Ject (Permatec with
the assistance of Medi-Ject)
Closing Conditions (Page 26)......... A number of conditions must be
satisfied prior to the stock purchase
and stock issuance. The conditions to
each party's obligations to perform the
Purchase Agreement include:
. receipt of all necessary consents or
approvals
. the closing of the private placement
financing upon the completion of the
transaction
The conditions to our obligations to
perform the Purchase Agreement include:
. the representations and warranties
of Permatec and the Subsidiaries
remaining true and correct as of the
closing
. performance by Permatec and the
Subsidiaries of their obligations
under the Purchase Agreement
. absence of events or changes that
would have a material adverse effect
on Permatec or the Subsidiaries
. the delivery by Permatec of
promissory notes issued by us to
Permatec
. the Subsidiaries having aggregate
cash reserves or cash equivalents of
at least one million Swiss Francs on
the closing date
. the execution by us of an Employment
Agreement with Franklin Pass, M.D.
. the outstanding capital stock of
each Subsidiary shall not have
changed
. the execution of the Escrow
Agreement
. the receipt of opinions of legal
counsel to Permatec and the
Subsidiaries
. the receipt of an officer's
certificate from Permatec and each
of the Subsidiaries certifying as to
fulfillment of certain conditions
The conditions to Permatec's and the
Subsidiaries' obligations to perform
the Purchase Agreement include:
. our representations and warranties
remaining true and correct as of the
closing
. our performance of our obligations
under the Purchase Agreement
vi
. receipt of an opinion of our legal
counsel
. absence of events or changes that
would have a material adverse effect
on us
. our delivery of the Medi-Ject Series
C Stock to Permatec upon the
conversion of the promissory notes
. the execution by us of an Employment
Agreement with Franklin Pass, M.D.
. our outstanding capital stock shall
not have changed
. Karl Groth, Geoffrey Guy, M.D., Fred
L. Shapiro, M.D. and Stanley
Goldberg shall each have resigned
from our Board of Directors and
Dr. Jacques Gonella, Dr. Thomas M.
Rinderknecht, Professor Ubaldo Conte
and Dr. Philippe Dro shall have been
appointed as directors
. the receipt of an officer's
certificate from us certifying as to
fulfillment of certain conditions
. our receipt of a consent from each
of: Elan Corporation, plc, Bio-
Technology General Corp, Becton
Dickinson and Grayson & Associates
. the execution of an amendment to or
replacement of the License and
Development Agreement with Elan
Corporation, plc.
. our execution of Lock-Up Agreements
with certain of our employees
Termination (Page 27)................ The Purchase Agreement may be
terminated at any time prior to closing
by:
. the mutual written consent of us and
Permatec; or
. either party if the mutual
conditions have not been satisfied
by October 31, 2000, except if such
conditions were not met solely as a
result of the action or inaction of
the party seeking to terminate; or
. us if Permatec and the Subsidiaries
did not satisfy their conditions by
October 31, 2000, except if such
conditions were not met solely
because of our action or inaction;
or
. Permatec if we did not satisfy our
conditions by October 31, 2000,
except if such conditions were not
met solely because of Permatec's
action or inaction
vii
Effect of Termination (Page 27)...... If terminated, the Purchase Agreement
will be void and of no further force or
effect, except that:
. the Confidentiality Agreement dated
April 21, 1999 between the parties
will continue to be effect in
accordance with its terms
. if the closing does not occur due to
Permatec's failure to satisfy its
conditions, the period in which we
must repay the promissory notes to
Permatec will be extended for an
additional three month period
. no party will be relieved from
liability for any breach of the
Purchase Agreement
. the agreements contained in the
provision regarding the effect of
termination shall survive
Indemnification and Escrow (Page In the Purchase Agreement, we,
27).................................. Permatec, and the Subsidiaries make and
agree to a number of representations,
warranties, covenants and obligations.
If a party suffers any damages
resulting from another party's breach
of its representations, warranties,
covenants or obligations, the party
may, for a six month period from the
closing date, seek indemnification from
the breaching party. The claims must
exceed a $50,000 deductible for a party
to be liable.
Each party's liability is limited to
the value of 580,000 shares. Such
limitation, however, will not apply to
damages resulting from any Subsidiary's
fraud or willful or intentional
misrepresentation or intentional or
willful breach.
In accordance with an escrow agreement,
Permatec will place 580,000 shares of
Medi-Ject common stock into an escrow
account.
As an exception to the above limits,
Permatec is obligated to indemnify us
without limit as to time or amount with
respect to liabilities of the Permatec
subsidiaries which are not being
acquired by us in the Share Transaction
and with respect to the share ownership
of Permatec NV
Name Change (Page 28)................ Upon the closing of the Share
Transaction, we will change our name to
Antares Pharma, Inc.
viii
TABLE OF CONTENTS
Proxy Statement............................................................. 1
Available Information....................................................... 2
Incorporation of Certain Documents by Reference............................. 2
Forward Looking Statements.................................................. 2
The Share Transaction Proposal.............................................. 3
Summary of the Share Transaction.......................................... 3
The Purchase Agreement.................................................... 3
Purchase of Subsidiaries' Stock and Issuance of Medi-Ject Common Stock;
Change of Control........................................................ 3
The Parties to the Share Transaction...................................... 3
Medi-Ject............................................................... 3
Permatec Holding AG and the Subsidiaries................................ 3
Background and Medi-Ject's Reasons for the Share Transaction.............. 21
Terms of the Purchase Agreement........................................... 23
Purchase of Subsidiaries' Stock and Issuance of Medi-Ject Common Stock.. 23
Board of Directors...................................................... 24
The Closing............................................................. 24
Representations and Warranties.......................................... 24
Covenants and Agreements................................................ 24
Conditions.............................................................. 26
Conversion of Permatec Notes............................................ 27
Registration Rights Agreement........................................... 27
Lock-Up Agreements...................................................... 27
Indemnification and Escrow Agreement.................................... 27
Termination............................................................. 27
Fees and Expenses....................................................... 27
Change of Name............................................................ 28
Interests of Certain Persons in Matters to be Acted Upon.................. 28
Vote Required; Quorum..................................................... 28
No Dissenters' Rights..................................................... 29
Existing Shareholders; Impact on Market Value of Medi-Ject Common Stock... 29
Accounting Treatment of the Share Transaction............................. 29
Federal Income Tax Consequences of the Share Transaction.................. 29
Regulatory Approval....................................................... 29
No Fairness Opinion....................................................... 29
Past Contacts, Transactions or Negotiations............................... 30
Financial Information..................................................... 31
Summary of Historical and Pro Forma Financial Information............... 31
Selected Historical and Pro Forma Data as of December 31, 1999 and March
31, 2000............................................................... 31
Permatec Holding AG Selected Historical Condensed Financial Data...... 31
Management's Discussion and Analysis of Financial Conditions and
Results of Operations of Permatec.................................... 32
Medi-Ject Corporation Selected Historical Condensed Financial Data.... 35
Selected Unaudited Pro Forma Condensed Combined Financial Data.......... 36
Unaudited Pro Forma Condensed Combined Financial Statements............. 37
Notes to the Unaudited Pro Forma Condensed Combined Financial
Statements............................................................. 41
ix
The Amendment to the Articles of Incorporation Proposal................... 42
Summary of the Proposed Amendment....................................... 42
Our Current Capital Structure........................................... 42
Background and Reasons for the Proposed Amendment....................... 42
The Impact of Approval or Disapproval of the Proposal................... 43
The Text of the Proposed Amendment...................................... 43
The Series C Stock Conversion Proposal.................................... 44
General................................................................. 44
Background and Reasons to Approve....................................... 44
The Series B Stock Conversion Proposal.................................... 46
General................................................................. 46
Background and Reasons to Approve....................................... 46
The Election of Directors Proposal........................................ 47
The Ratification of the Appointment of Auditors Proposal.................. 57
Other Matters............................................................. 57
Solicitation............................................................ 57
Compliance with Section 16(a) of the Securities Exchange Act of 1934.... 57
Other Matters at Annual Meeting......................................... 57
Annual Report and Incorporation by Reference............................ 57
Proposals of Shareholders................................................. 58
Financial Statements of Permatec.......................................... F-1
Permatec Holding AG Consolidated Financial Statements (Audited)......... F-2
Permatec Holding AG Consolidated Financial Statements (Unaudited)....... F-13
Annex A--Stock Purchase Agreement dated as of July 14, 2000 by and among
Medi-Ject Corporation, Permatec Holding AG, Permatec Pharma AG, Permatec
Technologie AG and Permatec NV........................................... A-i
x
PROXY STATEMENT OF
MEDI-JECT CORPORATION
161 Cheshire Lane, Suite 100
Plymouth, Minnesota 55441
----------------
Annual Meeting of Shareholders
to be held August 28, 2000
This Proxy Statement is furnished in connection with the solicitation of
proxies by our Board of Directors to be used at our Annual Meeting of
Shareholders to be held on August 28, 2000. The approximate date on which this
Proxy Statement and accompanying proxy were first sent or given to shareholders
was , 2000. If you sign and return a proxy in the form enclosed with this
Proxy Statement, you may later revoke it by (1) giving written notice to the
Secretary of Medi-Ject, (2) by sending in or appearing at the Annual Meeting
with a later-dated proxy or (3) by attending the Annual Meeting and filing a
signed notice of termination of the proxy with an officer (attendance alone is
not enough to revoke the proxy). Unless the proxy is revoked, the shares
represented by the proxy will be voted at the meeting and at any adjournment or
adjournments in the manner specified. If no direction is made, the proxy will
be voted for Proposals 1-6 described in this Proxy Statement. Only shareholders
of record at the close of business on July 20, 2000 will be entitled to vote at
the meeting or any adjournment or adjournments thereof.
Each item of business properly presented at a meeting of shareholders
generally must be approved by the affirmative vote of the holders of a majority
of the voting power of the shares present, in person or by proxy, and entitled
to vote on that item of business. If a broker indicates on the proxy that it
does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter. Votes cast by proxy or in person at the
Annual Meeting of Shareholders will be tabulated by the election inspectors
appointed for the meeting and such inspectors will determine whether or not a
quorum is present. The election inspectors will treat abstentions as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum and in tabulating votes cast on proposals presented to shareholders
for a vote but as unvoted for purposes of determining the approval of the
matter from which the shareholder abstains. Consequently, an abstention will
have the same effect as a negative vote.
As of the close of business on the record date, July 20, 2000, 1,424,869
shares of Medi-Ject common stock, were outstanding. Each share of Medi-Ject
common stock is entitled to one vote. Cumulative voting is not permitted.
No person has been authorized to give any information or make any
representation not contained in this Proxy Statement or the documents
incorporated herein by reference in connection with the solicitations made
hereby and, if given or made, such information or representation should not be
relied upon as having been authorized by us or by Permatec. This Proxy
Statement does not constitute the solicitation of a proxy in any jurisdiction
to or from any person to whom or from whom it is unlawful to make any such
solicitation in such jurisdiction. The delivery of this Proxy Statement shall
not, under any circumstances, create any implication that there has not been
any change in the information set forth herein or in the affairs of us or
Permatec since the date of this Proxy Statement.
As used in this Proxy Statement, unless the context otherwise requires, the
terms "the Company," "Medi-Ject," "us," and "we" refer to Medi-Ject
Corporation.
1
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and file reports, proxy
statements and other information with the SEC. You may inspect and copy the
reports, proxy statements and other information at the SEC's Public Reference
Room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the following regional SEC offices: 7 World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. You may also obtain copies of the material
at prescribed rates from the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. The SEC also maintains a World Wide Web site at
http://www.sec.gov which contains reports, proxy and information statements,
and other information regarding registrants that file electronically with the
SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated by reference into this Proxy
Statement and are being delivered to shareholders along with this Proxy
Statement:
1. Our Annual Report on Form 10-KA for the year ended December 31, 1999, filed
on May 1, 2000; and
2. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000,
filed on May 16, 2000.
We are also incorporating by reference additional documents, if any, we file
with the SEC from the date of this Proxy Statement to the date of the Annual
Meeting. Any statement in this document or in a document incorporated or deemed
to be incorporated by reference in this document will be deemed to be modified
or superceded for purposes of this document to the extent that a statement
contained in this document or in any other subsequently filed document which
also is incorporated or deemed to be incorporated by reference herein, modifies
or supercedes the earlier statement. Any statement so modified or superceded
shall not be deemed, except as so modified or superceded, to constitute a part
of this Proxy Statement.
FORWARD LOOKING STATEMENTS
Certain statements included in this Proxy Statement and in the documents
incorporated by reference are "forward looking statements" as defined in the
Private Securities Litigation Reform Act of 1995 and are subject to risks and
uncertainties. Each of Medi-Ject and Permatec have based these statements on
each of their expectations about future events and the anticipated effect of
the Share Transaction described in this Proxy Statement. The words or phrases
"will likely result," "look for," "may result," "will continue," "is
anticipated," "expect," "project," or similar expressions are intended to
identify forward looking statements, and are subject to numerous known and
unknown risks and uncertainties. Although we believe the expectations reflected
in our forward-looking statements are reasonable, we cannot assure you that
these expectations will be achieved. Our actual results may differ materially
from what we currently expect. Factors that may affect future results and
performance with respect to Medi-Ject are set forth in "The Share Transaction
Proposal--Background and Reasons for the Share Transaction" herein and in
Exhibit 99, "Cautionary Statements", which was filed with the SEC as an exhibit
to Form 10-K, December 31, 1996. Factors that may affect future results and
performance of the Subsidiaries are set forth on page 16 of this Proxy
Statement. Upon the closing of the Share Transaction, if approved, the factors
relating to the Subsidiaries may affect future results and performance of Medi-
Ject.
2
THE SHARE TRANSACTION PROPOSAL
(PROPOSAL 1 ON PROXY CARD)
SUMMARY OF THE SHARE TRANSACTION
The following discussion is only a summary of the material terms of the
Stock Purchase Agreement appended as Annex A to this Proxy Statement (the
"Purchase Agreement") and the related actions (the Purchase Agreement and the
related actions are referred to collectively as the "Share Transaction") and is
qualified in its entirety by reference to the Purchase Agreement. To understand
the Share Transaction, you should read this entire document carefully,
including the annex and other documents to which we have referred you. See
"Available Information" and "Incorporation of Certain Documents by Reference"
for more details.
THE PURCHASE AGREEMENT
We entered into the Purchase Agreement as of July 14, 2000 with Permatec
Holding AG, Permatec Pharma AG, Permatec Technologie AG (each of the foregoing,
a company organized under the laws of Switzerland), and Permatec NV (a company
organized under the laws of the Netherlands, Antilles) (Permatec Pharma AG,
Permatec Technologie AG and Permatec NV, each a "Subsidiary" and collectively,
the "Subsidiaries"). See "Parties to the Share Transaction" below for a
description of Permatec and the Subsidiaries.
PURCHASE OF SUBSIDIARIES' STOCK AND ISSUANCE OFMEDI-JECT COMMON STOCK; CHANGE
OF CONTROL
Pursuant to the Purchase Agreement, we will purchase all of the outstanding
shares of each Subsidiary (the "Subsidiaries' Stock"). In exchange, we will
issue 2,900,000 shares of Medi-Ject common stock to Permatec. Upon the
issuance, Permatec will own approximately 67% of the outstanding shares of the
Medi-Ject common stock.
THE PARTIES TO THE SHARE TRANSACTION
. Medi-Ject Corporation
161 Cheshire Lane, Suite 100
Plymouth, Minnesota 55441
Telephone Number: 612-475-7700
We develop, manufacture and market novel medical devices, called jet
injectors, that allow people to self-inject drugs without using a needle. We
make a small spring-action device and the attached disposable plastic syringes
to hold the drug. Recently, we developed a variation of the jet injector by
adding a very small hidden needle. We are able to greatly reduce the energy
needed for injection and successfully build small disposable injectors. Many
people find our injectors to be less threatening than ordinary needles and
syringes, yet the market for such devices remains small. We believe that the
key to widespread market acceptance of our injectors depends upon continued
improvements in technology and improved awareness among pharmaceutical
companies, healthcare professionals and consumers. As part of our effort to
encourage the broader use of needle-free injector systems for injectable drugs
other than insulin, we began entering into technology and product license
agreements to sell injector systems. Primarily, we have used the licensing and
development income from these agreements to fund increased product development
efforts.
. Permatec Holding AG and the Subsidiaries
Gewerbestrasse 18
4123 Allschwil, Switzerland
Telephone Number: 011 41-61-486-4141
General
Permatec and its operating Subsidiaries' business consists of developing
new, or improving existing, technology for the delivery of drug compounds. As a
niche drug delivery technology company, Permatec
3
develops highly specialized formulations to address the need to deliver drugs
through skin and mucosa using patches, gels, fast-dissolving tablets and
transbuccal tablets. Permatec's strategy is to license its technology to
development and marketing partners through a combination of license and
development agreements, as well as research and development collaborations.
The versatile technologies developed by Permatec can be applied to various
active compounds and indications. These developments are conducted either on
behalf of third parties (pharmaceutical companies) or as proprietary
developments funded by Permatec.
Permatec has developed technologies and patent portfolios encompassing four
main areas: patches, gels, fast dissolving tablets and transbuccal tablets.
These technologies may have application in several important therapeutic
markets: hormone replacement therapy, the treatment of osteoporosis, the
treatment of central nervous system conditions, and cardiovascular therapy.
Permatec's technology mix spans innovative new formulations, some with long
development time and clinical uncertainties such as gels and transbuccal
systems, as well as improved traditional formulations like patches or fast-
dissolving tablets, with shorter time to market and a well-established
regulatory process.
Permatec Holding AG is a private Swiss holding company whose principal
wholly owned subsidiaries consist of Permatec Pharma AG (Switzerland),
Permatec Technologie AG (Switzerland) and Permatec NV (Netherlands Antilles).
Permatec's principal corporate offices are located at Gewerbestrasse 18, 4123
Allschwil, Switzerland, telephone (011 41-61-486-4141), which is in the Basel
area of Switzerland, an important pharmaceutical center in Europe. A former
subsidiary of Permatec Holding, Permatec Argentina, was initially founded in
December 1993 and became operational at the end of November 1995 as part of
the JAGO group. JAGO was a Swiss drug delivery company that was sold in 1996
by its founder, Dr. Jacques Gonella, the principal shareholder of Permatec
Holding, to SkyePharma, a United Kingdom company traded on the London Stock
Exchange and NASDAQ Stock Market. As part of the JAGO group transaction,
SkyePharma had an option to acquire Permatec Argentina, but did not exercise
this option. Permatec Argentina subsequently became a wholly owned subsidiary
of Permatec Holding, which was formed in 1997, along with Permatec Pharma,
Permatec Technologie and Permatec NV, each of which was acquired by the
shareholders of Permatec Holding in 1996. Permatec has taken steps to commence
the liquidation of Permatec Argentina and has transferred Permatec Argentina's
assets to Permatec Pharma. Permatec Holding and its subsidiaries Permatec
Pharma, Permatec Technologie and Permatec NV are collectively referred to in
this portion of the Proxy Statement as "Permatec."
Industry and Market
Permatec operates in the drug delivery segment of the pharmaceutical
industry. Companies in this segment generally bring technology and know-how to
their partners in the area of drug formulation through licensing and
development agreements. Well-established companies in the industry are ALZA in
the United States and Elan, SkyePharma and Eurand in Europe. Today, many of
the established companies in the industry are evolving from being pure drug
delivery companies to becoming fully integrated pharmaceutical operations.
Increasingly, the trend has been for delivery companies to mature from
research companies to product development and product marketing companies, as
innovative drug delivery systems are commercialized and companies integrate
manufacturing and marketing functions to increase sales revenues.
According to a Decision Resources study of November 1998 focusing on the
drug delivery industry, the drug delivery market in 1997 totaled $26.9 billion
and was forecast to grow to $57 billion by 2002. A separate study of April
1999 by Theta Reports covering Infusion Products and Drug Delivery Markets
reports the total worldwide market in 1998 at $36.6 billion and projects the
market to grow to $70.2 billion by 2002.
Drug delivery companies generally fall into one of three groups:
Generalist, Pharmaceutical or Specialist.
Generalist. Generalist companies are usually large drug delivery company
groups with diversified technologies and applications in different delivery
routes. They also often have their own manufacturing
4
capabilities and sales forces. Examples of these companies are ALZA (United
States), ELAN (Ireland), and Theratech (United States, acquired in 1999 by
Watson Labs). These companies usually favor one leading original technology
as the flagship of the company.
Pharmaceutical. These companies are traditional pharmaceutical
discoverers and distributors that invest in drug delivery company
technology within their research and development departments. Leiras
(Finland, acquired in 1996 by Schering AG of Germany), Hexal (Germany) and
Fournier, SA (France) are examples. They maintain this activity either as
part of research and development, as separate business units, or spin-off
the technology into a separate entity.
Specialists. These companies are focused on a particular technology or
delivery route. Examples are PowderJect, a UK based company with operations
in the United States, and Medi-Ject, a U.S. company. Both of these
companies specialize in the development of needle-free injection devices.
Permatec is a specialist company. Permatec specializes in addressing the
transdermal (through the skin) and transmucosal (through the mucus membranes,
generally in the mouth) delivery routes. Permatec has developed several
technology platforms in four main areas: patches and gels for transdermal
delivery, and fast dissolving tablets and transbuccal tablets for transmucosal
delivery.
Presently, Permatec's products address mainly the hormone replacement
therapy market. Permatec is also exploring developing products that have
potential applications in other therapeutic markets, including osteoporosis
therapy, cardiovascular therapy, addiction therapy and central nervous system
therapy.
Hormone Replacement Therapy Market. According to Spectrum Publications, in
1999 the worldwide hormone replacement therapy market was approximately $3
billion and is expected to grow to $6 billion by the year 2004. Presently,
approximately 80% of the prescriptions in this market call for oral delivery
and approximately 20% of the prescriptions call for some method of transdermal
delivery. However, Permatec believes that the market appears to be shifting
from oral delivery to some form of transdermal administration of hormones. This
trend is particularly clear in Europe, more specifically in France, which is
the leading country in the usage of transdermal systems for hormone replacement
therapy. According to an industry report, in 1999 64.8% of the estradiol
hormone replacement therapy for menopausal women in France was administered
either by patch (44.7%) or gel (20.1%).
This segment of the pharmaceutical market is likely to expand in the future
due to three factors. First, new treatments are being developed for women using
a combination of estradiol and testosterone. These new treatments, in
combination with new delivery systems such as gels, are likely to increase
patient compliance. Second, the baby boomer female population is reaching the
menopausal age. Third, there is increasing awareness of the need for male
hormone replacement with testosterone during the andropause (age during which
the endogenous, i.e. natural, testosterone levels in men decrease) and in the
treatment of hypogonadism (deficiency or absence of endogeneous testosterone in
men--testosterone levels lower than 3 ng/ml).
Cardiovascular Therapy Market. Permatec does not presently have products
that address the cardiovascular therapy segment of the market; however,
Permatec's technology platforms have potential applications in the
cardiovascular field. In most developed countries, cardiovascular diseases are
the leading cause of death, despite tremendous progress made in the treatment
of the disease. According to industry data, in the United States alone,
approximately 70 million people have symptoms or findings (without symptoms)
pertaining to coronary artery disease. Additionally, hypertension affects 60
million people in the United States. Cardiovascular therapies make extensive
use of drug delivery systems, and companies continue to seek improved delivery
methods. Transdermal systems have been used to deliver nitroglycerine (a
vasodilator for angina pectoris) and constitute half of the nitroglycerine
preparations. Sublingual (oral) preparations are also used to deliver
nitroglycerine. According to the IMS Health/World Drug Monitor, in the twelve-
month period ending March 2000, the total cardiovascular drug market was
estimated to be $41 billion in the 12 major pharmaceutical markets.
5
Osteoporosis Therapy Market. From a regulatory standpoint osteoporosis is
treated differently from hormone replacement therapy. Nevertheless, this
application is very close to hormone replacement therapy. The osteoporosis
indication requires additional clinical trials by pharmaceutical companies to
generate data to demonstrate the efficacy of the treatment and its impact on
bone preservation (bone density). Many of the established drug delivery
companies already have oral and transdermal products in the osteoporosis
therapy segment. However, new applications are being continually developed.
Permatec has several transdermal products under development that could be
suitable for this therapeutic segment.
According to industry data, the sales of products for osteoporosis
indications in the United States in 1999 totaled $2.13 billion. Sales for the
same indication in 1998 were $1.85 billion. In 11 key markets in Europe
osteoporosis treatment sales reached $823 million in 1999 and $815 million in
1998.
Addiction Therapy. In this segment, transdermal applications to treat
nicotine addiction from smoking are predominant. An approach to smoking
cessation is the nicotine transdermal patch, a skin patch that delivers a
relatively constant amount of nicotine to the person wearing it. The nicotine
patch is used to help people quit smoking by reducing withdrawal symptoms and
preventing relapse while undergoing behavioral treatment. Permatec is not
currently present in this important but extremely competitive segment.
Permatec's transdermal technology platforms have potential applications in this
therapeutic area, but Permatec is not currently funding any projects or
products for addiction therapy.
Central Nervous System Therapy Market. The treatment of motion or travel
sickness is currently the largest transdermal application in this segment.
Generally patches are the delivery method. This segment is still at an early
stage with some possible transdermal applications for the treatment of anxiety
disorders, Parkinson's disease and attention deficiency disorders. Permatec
currently is conducting clinical trials with an alprazolam patch for the
treatment of anxiety disorders. According to the IMS Health Drug Monitor, for
the 12-month period to March 2000, the market for central nervous system
products in the twelve leading pharmaceutical markets totaled $32 billion
dollars.
Trends Affecting The Drug Delivery Industry
Several significant trends in the healthcare industry have important
implications for drug delivery companies. After a drug loses patent protection,
the branded version of the drug often faces competition from generic
alternatives. According to an industry report, over the next four years,
branded drugs with 1999 U.S. sales of over $20 billion will lose patent
protection. Permatec expects producers of these branded drugs to seek
differentiating characteristics for their products to defend against generic
competition. Permatec believes that pharmaceutical companies will adopt
innovative drug delivery technologies, such as fast-dissolve and taste-masking,
as an increasingly significant means to differentiate their branded products.
The increasing trend of pharmaceutical companies marketing directly to
consumers and recent focus on patient rights may also encourage the use of
innovative drug delivery technologies. In addition, there is also a growing
trend in the United States to provide patients with greater choice and more
patient-friendly forms of treatment. Permatec believes the trend toward patient
empowerment and patient rights may give consumers greater influence on the type
and dosage form of medication a physician will prescribe. Permatec also
believes that patient-friendly attributes, such as fast-dissolve and taste-
masking tablets, and easily applied gels and patches, will become a more
significant influence in pharmaceutical marketing.
The growth of managed care organizations has focused providers and payors on
using healthcare resources efficiently, including increasing the cost-
effectiveness of medical treatments. Permatec believes that patient non-
compliance with medicinal dosing regimens is widespread, and that such non-
compliance results in unnecessary costs to the healthcare system. Many managed
care plans and other insurers actively manage the costs of prescription drugs
for their clients by monitoring efficacy, quality, cost and compliance of
medications. Payors often encourage using therapies that improve patient
compliance, including those that use innovative drug delivery technologies.
Permatec believes these therapies will become more widespread.
6
Strategy and Development Plan
Permatec's goal is to become a leading drug delivery company with a
recognized technology base and an attractive client and project portfolio.
Through its research and development, Permatec's goal is to develop innovative
drug delivery technology. Permatec seeks to derive revenue on its technology
through licensing and development agreements and other arrangements with its
partners.
Permatec believes that in the highly competitive alternative drug delivery
niche of the pharmaceutical market, the main way to justify a good price, and
to protect a competitive position, is through additional therapeutic or
pharmacological benefits. As a consequence of its value-added approach,
Permatec is making significant investments to develop a broad, differentiated
and defendable patent portfolio. Trademark development is being used to give
the different technologies an identity.
Innovation and Development. Patent protection is the main tool to bring
value to partner companies. Permatec's research and development team works
closely with business development members, who bring ideas from the market, as
well as from partners and customers. Permatec's researchers are investigating
new ways of administrating drugs through the various natural barriers. Most of
Permatec's research staff has experience in the development and/or in the
production of pharmaceutical products. The development staff is therefore
extremely sensitive to the practical feasibility of an idea. This is very
important, as the ultimate objective is to apply the technology to bring a
product to the market.
Permatec is developing products and applying its various technologies to
known active substances as well as to new chemical entities. The formulation
and analytical development work is mainly carried out in the Basel research
center. The clinical studies and production are outsourced under the control of
the regulatory team. Depending on the compounds and workload, some projects are
internally funded and developed up to the filing of an application for approval
from a regulatory authority. Alternatively, projects are licensed at an earlier
stage to one or more partners who are responsible for the clinical and
regulatory aspects.
Licensing. Permatec's strategy is to license its technology and products, at
various stages of development, to development and marketing partners. The
license structure usually includes up-front or milestone payments, as well as
royalties on future sales following regulatory approval. The license agreement
usually requires Permatec to develop and finance the innovation up to a certain
level: patent application, first preliminary clinical studies or stability
data.
Partner companies are utilizing drug delivery companies for two main
reasons. The first reason is to gain access to a technology that is currently
not available in-house. The second reason is to have access to additional
external resources. It is therefore important to realize that these companies
are taking a risk when putting effective sales or crucial NCEs ("New Chemical
Entities") in the hands of small independent companies. The quality of the
relationship between the two teams, as well as the efficiency and swiftness of
the development program, are essential success factors.
Development agreements. Another source of revenue is the development of
projects financed by a partner. This is based on Permatec's know-how and
addresses some ideas, questions or problems that the partner encounters in
delivering a NCE or an existing drug. In that case, Permatec may use an
existing patent or apply for new patents.
Depending on the work to be performed, the terms may range from a single
lump sum for a preliminary investigation, to an extensive development program
with an option to enter into a subsequent license agreement, with additional
milestone payments upon success.
Research and Development Collaboration. To gain access to innovation and new
ideas, Permatec has established research and development collaborations with
scientific partners. Through these agreements Permatec has access to
complimentary technologies (for example, taste masking) and can increase the
generation of innovative ideas.
7
Regulatory Affairs. The registration and approval process is a long and
uncertain process. The regulatory process has become more burdensome in the
past decade, due in part to the cost containment measures of the various health
systems worldwide. Permatec's specialized and flexible regulatory team with
expertise in European regulatory affairs, or alternatively a partner's
regulatory department, is continuously supporting the internal development
program. This is done in order to get the project as quickly and as efficiently
as possible through the hurdles of the regulatory process, thus reducing the
time to market. Permatec's team has more than 10 years experience in this area.
In addition, Permatec's technology is based on so-called GRAS ("Generally
Recognized as Safe") substances. This means that the toxicology profile of the
substance is known and that the product is already widely used. The major
benefit of this approach is that regulatory authorities usually will not
require additional toxicity studies because the substance is well known. This
can save money and time in development.
Products and Technology
Permatec's proprietary technologies enable its pharmaceutical company
partners to differentiate their products from competing products. In addition
to providing a competitive advantage in the marketplace, Permatec's proprietary
technologies also may enable its pharmaceutical company partners to extend the
product life cycles of their patented drug compounds beyond existing patent
expiration dates. Improving compliance also can provide benefits to the
healthcare system by enhancing therapeutic outcomes and potentially reducing
overall costs.
Permatec has developed several technology platforms in four main markets:
patches, gels, fast dissolving tablets and transbuccal tablets. Permatec's
current applications address therapies mainly in the hormone replacement and
central nervous system markets.
Patches. Patches are small adhesive structures applied on the skin. The
patch allows the diffusion of one or more active compounds through the skin
during an extended period of time. The most widely developed system is a
passive patch, but some devices also use electrical power to get substances
through the skin.
The skin is a barrier protecting the internal part of the body against any
external aggression (chemical, mechanical or microbial). The technical
challenge is to bring the active compound to the blood flow through the skin
barrier. Due to the structure of this barrier, only certain molecules are able
to pass through the barrier. The rest of the range of molecules are either
impossible to bring through the skin or require some help, i.e. penetration
enhancement, to reach the blood.
With the exception of active patches, which use external sources of power as
the driving force for skin permeation, patches are developed using one of two
different technologies: reservoir or matrix. Permatec's patches are based only
on the matrix system.
In a matrix patch, the active substance is solubilized, or dispersed, in an
adhesive polymer solution. The solution is used to coat a PET layer (the
backing layer). After drying, this polymer and layer can be applied on the skin
and release the active substance over a defined period of time with a pre-
defined release rate. Permatec's patches are currently being developed for use
with hormone replacement therapy treatments and central nervous system disorder
treatments. Reservoir patches generally represent the first generation of patch
systems. Reservoir patches place the active compound in a clear solution
separated by a membrane in contact with the skin.
Gels. Gels are generally well-known, but are often confused with creams,
which are normally used for topical treatment and not for transdermal purposes.
Gel formulations differentiate themselves from cream formulations in terms of
their cosmetic and pharmaceutical properties. Developing a gel to target the
permeation of a drug in significant enough amounts through the skin is a
challenge. This is especially true because the gel should often have certain
cosmetic properties (consistency, color, smell, etc.).
8
Gel formulations have to fulfill certain technical and pharmaceutical
constraints in addition to the legal requirements of every pharmaceutical
formulation. The formulation must be able to deliver one or two active
substances. Furthermore, the formulation must do this in an efficient way. For
this reason, the formulation can require the use of specific penetration
enhancers to reduce the applied amount of gel and reach therapeutically active
plasma levels. Without a proper formulation, the targeted plasma level is
either not achieved or can only be achieved with a very large quantity of gel.
The stability of a complex liquid-based formulation is often seen as a
potential source of regulatory problems.
Some gels are designed to deliver drugs to the bloodstream. An example is
Permatec's Combi Gel(TM) technology platform. This gel is designed to deliver
one or two active substances simultaneously. The formulation uses penetration
enhancers to increase the efficiency of the formulation. Permatec's gels are
currently being developed for use with hormone replacement therapy treatments.
Fast-Dissolving Tablets. Several factors limit the administration of drugs
via the mouth: comfort, difficulty in swallowing, pediatric and veterinary
applications. To address these problems Permatec developed EasyTec(TM), a fast
buccal disintegrating tablet, produced by means of direct compression.
EasyTec's matrix is composed of an acrylic polymer as the main agent of the
fast disintegration.
Permatec's EasyTec fast-dissolving tablet is an innovative development to
address the specific issue of water-free intake of a dry formulation. The
tablet is designed to offer a quick dissolution profile in the mouth; even
without taking water. Depending on the active substance and formulation, the
disintegration time can range from 5 seconds to 25 seconds with highly loaded
tablets. Permatec also has know-how in taste masking and sweetening compounds.
This is important, as the product will come in direct contact with the buccal
mucosa.
Permatec believes that the attributes of its EasyTec fast-dissolve
technology may enable patients in certain age groups or with limited ability to
swallow conventional tablets to receive medication in an oral dosage form that
is more convenient than traditional tablet-based oral dosages. EasyTec
incorporates taste-masked active drug ingredients into tablets that have the
following potential benefits:
. ease of administration;
. improved dosing compliance; and
. increased dosage accuracy compared to liquid formulations.
The EasyTec fast-dissolving tablets are currently being developed for use
with gastro-intestinal disorder treatments.
Trans Buccal Tablets. The buccal mucosa is an extremely permeable and
vascularized tissue located in the mouth. Trans buccal tablets are designed to
target both the local administration of drugs, as well as the direct delivery
of the compound to the blood stream, while avoiding the first pass effect, i.e.
the elimination or metabolization of a drug by the liver.
Permatec is developing a dual formulation able to simultaneously release two
active compounds. One is to be administered through the buccal mucosa. The
second would be released in the mouth for local action or absorption at the
stomach level like a classical oral tablet. This technology platform has
applications in various therapeutical areas. However, Permatec is not currently
funding any development projects utilizing this technology.
The following chart lists the delivery methods that Permatec is currently
developing, the indication those methods treat, the development stage of the
particular product and an estimated timeline for approval and licensing or
distribution.
9
- - --------------------------------------------------------------------------------
Product Indication Development Stage Timeline
- - --------------------------------------------------------------------------------
Estradiol Patch Hormone Manufacturing Filed in the first
Replacement agreement in place European country
Therapy (for the with a European in the second
treatment of manufacturer for quarter of 1999.
menopause) the supply of Approval is
patch to partners. expected in the
The patch has second quarter of
extensive 2001.
pharmaco-kinetic,
clinical and
technical data as
well as stability
data over more
than two years.
- - --------------------------------------------------------------------------------
Combi Patch Hormone Feasibility and Anticipate
Estradiol+NETA Replacement preliminary human entering the
(Norethindrone Therapy (for the pharmacokinetic clinical phase
Acetate) treatment of study have been upon signing an
menopause) completed agreement with a
development
partner.
- - --------------------------------------------------------------------------------
Combi Patch
Estradiol+Levonorgestrel
Hormone Feasibility and Anticipate
Replacement preliminary human production of both
Therapy (for the pharmacokinetic clinical batches
treatment of study have been and registration
menopause) completed batches upon
signing an
agreement with a
development
partner.
- - --------------------------------------------------------------------------------
Alprazolam patch Depression/Anxiety Feasibility and Anticipate
and CombiGel preliminary human entering clinical
pharmacokinetic phase upon signing
study have been an agreement with
completed a development
partner.
- - --------------------------------------------------------------------------------
Estradiol CombiGel Hormone Preliminary human Investigational
Replacement pharmacokinetic new drug
Therapy study completed application filing
for the treatment
of hypogonadism in
men anticipated by
end of 2000
- - --------------------------------------------------------------------------------
NETA Single gel Hormone Feasibility stage Anticipate
Replacement is completed entering the
Therapy clinical phase
upon signing an
agreement with a
development
partner.
- - --------------------------------------------------------------------------------
Testosterone Hypogonadism (men),Feasibility and Investigational
CombiGel Hormone preliminary human new application
Replacement pharmacokinetic filing for the
Therapy (women) study completed treatment of
hypogonadism in
men anticipated by
end of 2000
- - --------------------------------------------------------------------------------
Estradiol NETA Hormone Phase I to be Clinical trials
CombiGel Replacement completed by end scheduled for
Therapy of 2000 first quarter of
2001 and filing in
first half of 2003
- - --------------------------------------------------------------------------------
Estradiol Hormone Feasibility and Anticipate
Levonorgestrel Replacement preliminary human entering the
CombiGel Therapy pharmacokinetic clinical phase
study completed upon signing an
agreement with a
development
partner.
- - --------------------------------------------------------------------------------
Estradiol Testo Hormone Feasibility Anticipate
CombiGel Replacement completed, as well entering the
Therapy as preliminary clinical phase
human upon signing an
pharmacokinetic agreement with a
study. development
partner.
- - --------------------------------------------------------------------------------
Progesterone Hormone Feasibility Anticipate
CombiGel Replacement studies being entering the
Therapy concluded clinical phase
upon signing an
agreement with a
development
partner
- - --------------------------------------------------------------------------------
Easy Tec(TM) Diarrhea Production-scale Submission of the
Loperamide Tablet batches technical
anticipated by documentation to
September 2000 and the health
pivotal authorities to
pharmacokinetic obtain marketing
study to verify if approval scheduled
the same plasma for second quarter
levels are of 2001.
obtained as the
reference product
is scheduled for
first quarter of
2001
- - --------------------------------------------------------------------------------
Ibuprofen 200 mg Pain Relief Feasibility Submission of the
Tablet complete. technical
Completion of documentation to
Scale Up or the health
increase of authorities to
manufacturing lot obtain marketing
sizes until approval is
reaching the planned by first
manufacturing lot quarter of 2001
sizes required by
the health
authorities is
expected by fourth
quarter of 2000
- - --------------------------------------------------------------------------------
10
Research and Development
Permatec's expenditures on research and development in the years ended
December 31, 1999, 1998 and 1997 were $ 1.647 million, $ 1.750 million and $
0.796 million, respectively. Its research and development department currently
has a staff of 8 employees consisting of 2 pharmacists, 1 engineer, 3
technicians, 2 scientists and external clinical and regulatory personnel, many
of whom have significant experience in the drug-delivery or pharmaceutical
industries.
Licensing and Development Agreements.
Currently, Permatec obtains revenue by licensing its technology to its
partners, who then develop and market the commercial applications for the
technology. Alternatively, Permatec enters into development agreements with
other partners to develop specific delivery vehicles for the partner's
pharmaceutical treatments. In addition, Permatec has entered into collaborative
arrangements with other parties.
Permatec's business development efforts focus on entering into development,
licensing and manufacturing supply agreements with pharmaceutical companies.
Permatec's agreements generally provide that the collaborating pharmaceutical
company is responsible for marketing and distributing the developed products
either worldwide, or in specified markets or territories. Permatec's
collaborative agreements typically begin with a product development phase. If
successful, this phase may be followed by a development and license option
agreement for the development of product prototypes. Permatec will subsequently
enter into license and manufacturing supply agreements to address
commercialization of products. Alternatively, Permatec may develop product
prototypes internally and enter directly into a development, manufacturing or
license agreement for commercialization of those products.
Existing Licensing Agreements. The table below sets forth the partner,
product brand name, market segment and technology for each of Permatec's major
licensing agreements.
- - --------------------------------------------------------------------------------
PHARMACEUTICAL COMPOUND MARKET SEGMENT TECHNOLOGY
COMPANY PARTNER
- - --------------------------------------------------------------------------------
Solvay (The NETA/Estradiol Hormone Combi-gel
Netherlands) Replacement
Therapy
- - --------------------------------------------------------------------------------
Segix (Italy) Estradiol Hormone Patch
Replacement
Therapy
- - --------------------------------------------------------------------------------
Sigmapharma/ Estradiol Hormone Patch
Novaquimica Replacement
(Brazil) Therapy
- - --------------------------------------------------------------------------------
Recalcine (Chile) Estradiol Hormone Patch
Replacement
Therapy
- - --------------------------------------------------------------------------------
Lab Chile Estradiol Hormone Patch
Replacement
Therapy
- - --------------------------------------------------------------------------------
BioSante (US) Progestogen/Estradiol/
Testosterone
Hormone Combi-gel and
Replacement Patch
Therapy
- - --------------------------------------------------------------------------------
11
. BIOSANTE (US). On June 13, 2000, Permatec entered into an exclusive license
for the United States, Canada, and several other countries, for gel
combinations and patches including Progestogen/Estradiol and testosterone.
Under the agreement, BioSante would make milestone payments based upon
achievement of milestones. In addition, upon commencement of distribution,
Permatec will receive a royalty on sales of products by BioSante (depending
upon regulatory approval). Finally, Permatec also received an initial
payment of $1 million upon executing the agreement, a portion of which will
be credited against future royalty payments. Permatec has also entered into
a supply agreement with BioSante. Under the supply agreement, Permatec
agrees to manufacture, or have manufactured, BioSante's total requirements
for the products covered under the license agreement.
. SOLVAY (The Netherlands). On June 6, 1999, Permatec entered into an
exclusive license agreement for Europe for the NETA/Estradiol Combi-gel.
Milestone payments are split over four years and represent an aggregate of
$5 million (depending on achievement of milestones). In addition, upon
commencement of product distribution, Permatec will receive a 5% royalty on
sales (depending upon regulatory approval).
. SEGIX (Italy). On March 18, 1999, Permatec entered into an exclusive license
agreement for Permatec's 7-day Estradiol patch for Italy. Under the terms of
the agreement, Segix will make $500,000 in milestone payments (depending on
achievement of milestones), and upon commencement of product distribution, a
5% royalty on sales (depending upon regulatory approval).
. SIGMA PHARMA/NOVAQUIMICA (Brazil). On March 30, 1998, Permatec signed a non-
exclusive license agreement with Novaquimica for the Estradiol 7-day patch.
The agreement incorporated two milestone payments of $40,000 (depending on
achievement of milestones) and a supply agreement of transdermal patches at
a price of $0.70 per patch, the equivalent of a 6% royalty (depending upon
regulatory approval).
. RECALCINE (Chile). On December 29, 1998, Permatec entered into a non-
exclusive license agreement for the 7-day Estradiol patch for Chile, and an
exclusive license for the Estradiol patch for Bolivia and Ecuador. The terms
of the agreement include $40,000 in milestone payments (depending on
achievement of milestones) and the equivalent of a 5% royalty on any product
sales (depending upon regulatory approval).
. LAB CHILE (Chile). On February 16, 1998, Permatec entered into a non-
exclusive license agreement for the 7-day patch for Chile. The terms include
milestone payments of $30,000 (depending on achievement of milestones) and
the equivalent of a 5% royalty on any product sales (depending upon
regulatory approval).
Development Agreements. Permatec entered into a development agreement with
Farmasierra, a Spanish pharmaceutical company, for the pharmaceutical
development (formulation and scale-up) and production of Easy Tec(TM) tablets.
Through the agreement, Farmasierra has an option to acquire the exclusive right
and license to manufacture, market, distribute and sell Easy Tec(TM) Loperamide
tablets in Spain. The agreement includes two milestone payments totaling
$71,675 and, upon commencement of product distribution, a royalty of 5% on net
sales.
Competition
The drug delivery field is characterized by rapid and significant
technological change and significant competition. Several of Permatec's
competitors, including ALZA and Elan, among others, have substantially greater
capital resources, research and development teams and facilities than Permatec
does, and these competitors also have a broader and more diversified line of
products and technologies. As more traditional pharmaceutical companies seek to
differentiate their products through innovative drug delivery techniques,
Permatec anticipates that competition in the field will increase, including
competition from the traditional pharmaceutical companies, all of which have
substantially greater capital resources, research and development teams and
facilities than Permatec does.
12
Intellectual Property
As appropriate during the research and development cycle, Permatec actively
seeks protection for its products and proprietary information by means of
worldwide patents and trademarks. Permatec currently holds 29 patents worldwide
and has 44 patent applications being considered.
Permatec's current patch technology is protected by two patents. The first
core patent relates to the transdermal administration of Estradiol and has been
granted in most of Permatec's target countries, including the United States,
the European Union, Australia, New Zealand, South Africa and Taiwan. Patents
are still pending in Canada and Korea. The second patent has been granted in
Italy, New Zealand and South Africa and is pending in all of the remaining
countries where the first patent has been filed and in Israel, and relates to
an innovative formulation for controlled transdermal administration.
Permatec's current gel technology is protected by patents granted in the
United States, Italy, New Zealand and South Africa. Patents are pending in the
European Union, Canada, Australia, Japan, Korea and Taiwan.
Permatec's Easy Tec(TM) quick-dissolving tablet technology is protected by
one patent that is pending in France, Europe, Canada, Australia, the United
States, New Zealand, Israel, South Korea, Argentina, South Africa, Taiwan and
Japan.
Permatec's Bucco Adhesive tablet (a trans buccal tablet) is protected by one
patent that is pending in France, Europe, Canada, Australia, the United States,
New Zealand, Israel, South Korea, Argentina, South Africa, Taiwan and Japan.
Permatec also protects the rights of its proprietary know-how and technology
through confidentiality agreements with employees, consultants and its
partners. The agreements with employees and consultants also required
disclosure and assignment of discoveries and inventions to Permatec. In
addition, Permatec's partners with whom it has entered into development or
other agreements have the right to certain technology Permatec develops in
connection with such agreements.
Permatec has also registered, or filed registration applications for, a
variety of trademarks to protect the names of its technology platforms.
- - --------------------------------------------------------------------------------
Registered Owner : Registered Owner :
Permatec Technologie AG Permatec Technologie
AG
Trademark Country Status Trademark Country Status
- - --------- ------- ------ --------- ------- ------
Combi Gel Argentina Pending Permagel Argentina Pending
- - --------------------------------------------------------------------------------
Combi Gel France Registered Permagel Argentina Pending
- - --------------------------------------------------------------------------------
Combi Gel U.S.A. Pending Permagel France Registered
- - --------------------------------------------------------------------------------
Combi Patch Argentina Pending Permagel Switzerland Registered
- - --------------------------------------------------------------------------------
Combi Patch France Registered Permagel U.S.A. Pending
- - --------------------------------------------------------------------------------
Combi Patch U.S.A. Pending Permatec Argentina Pending
- - --------------------------------------------------------------------------------
Easy Take France Registered Permatec Argentina Pending
- - --------------------------------------------------------------------------------
Easy Tec France Registered Permatec France Registered
- - --------------------------------------------------------------------------------
Easy Tec Switzerland Registered Permatec U.S.A. Pending
- - --------------------------------------------------------------------------------
13
Government Regulation
The design, development, testing, manufacturing, marketing, and in some
cases pricing, of pharmaceutical products are intensely regulated by
governmental regulatory agencies, including the U.S. Food and Drug
Administration in the United States, and comparable regulatory authorities in
other countries. Under the United States Food, Drug and Cosmetic Act, "new
drugs" must obtain clearance from the FDA before they lawfully can be marketed
in the United States. Applications for marketing clearance must be based on
extensive clinical and other testing, the cost of which is very substantial.
Approvals (sometimes including pricing approvals) are required from health
regulatory authorities in foreign countries before marketing of pharmaceutical
products may commence in those countries. Requirements for approval may differ
from country to country, and can involve additional testing. There can be
substantial delays in obtaining required clearances from both the FDA and
foreign regulatory authorities after applications are filed. Even after
clearances are obtained, further delays may be encountered before the products
become commercially available in countries requiring pricing approvals. Non-
compliance with applicable requirements can result in fines and other
judicially imposed sanctions, including the initiation of product seizures,
import restrictions, injunctive actions and criminal prosecutions based on
products or manufacturing practices that violate statutory requirements. In
addition, informal administrative remedies can involve requests to recall
violative products, as well as the refusal of the government to enter into
supply contracts or to approve new drug applications ("NDAs") or other pre-
market approval applications until manufacturing procedures or other alleged
deficiencies are brought into compliance. The FDA also has the authority to
withdraw approval of drugs in accordance with statutory due process procedures.
Product development generally involves all of the following steps which are
required by the regulatory process:
. preclinical development, during which initial laboratory development and
in vitro and in vivo testing takes place;
. submission to the FDA of an investigational new drug application, which
must become effective before human clinical studies may begin;
. adequate and well-controlled human clinical trials (Phase I, II and III
studies) to establish the safety and efficacy of the product;
. submission of an NDA to the FDA (and comparable filings to regulatory
agencies outside the United States) requesting clearance to market the
product; and
. clearance from the FDA (and foreign regulatory agencies) must be
obtained before the product can be marketed.
All of these steps can take several years and cost a significant amount of
money.
The products sold by Permatec's client companies in the United States,
and/or exported to other countries, are subject to extensive regulation by the
FDA and comparable agencies in other countries where the products are
distributed. Regulations govern a range of activities including manufacturing,
quality assurance, advertising and recordkeeping. The continuing trend of
stringent FDA oversight in product clearance and enforcement has caused more
uncertainty, greater risks and higher costs of obtaining clearance to market a
product, and sometimes longer clearance cycles. Failure to obtain, or delays in
obtaining, regulatory clearance to market new products, as well as other
regulatory actions and recalls, could adversely affect Permatec's financial
results.
Permatec is subject to regulation under various laws, rules, regulations and
policies regarding, among other things, occupational safety, environmental
protection, the use, generation, manufacture, storage, air emission, effluent
discharge and handling and disposal of certain regulated materials and wastes.
Permatec believes that it has complied with these laws and regulations in all
material respects, and Permatec has not been required to take any action to
correct any material noncompliance. Permatec does not currently anticipate that
any material capital expenditures will be required in order to comply with
these laws or that compliance with
14
these laws will have a material effect on its business or financial condition.
Permatec is unable to predict, however, the impact on its business of any
changes that may be made in these laws or of any new laws or regulations that
may be imposed in the future. Permatec cannot be sure that it will not be
required to incur significant compliance costs or be held liable for damages
resulting from any violation of these laws and regulations.
Employees
As of June 1, 2000, Permatec employed 13 full-time employees and 2 external
non-employee project managers, Of the internal employees, 8 work in research
and development, 2 work in business development and 4 work in general
administrative. Ten research and development employees have doctorate or
equivalent degrees. Permatec believes that it has good relations with its
employees.
Property
Located close to Basel in an innovation and biotechnology center, Permatec
has approximately 1000 square meters of leased facilities with 300 square
meters of laboratories (formulation and analytical) and an additional 300
square meters in expansion reserve. This additional space is equipped with the
necessary infrastructure for installing a controlled air room to manufacture
clinical batches. Permatec has leased its facilities for a ten year period
starting November 1, 1998 and ending September 30, 2008. Permatec believes its
facilities will be sufficient to meet its requirements through the lease
period.
Management
Information with respect to the directors and executive officers of Permatec
is set forth below:
Name Age Position
---- --- --------
Dr. Jacques Gonella............ 59 Executive Chairman of the Board
Dr. Philippe Dro............... 37 President and COO, Member of the Board
Dr. Dario Carrara.............. 37 Head of Research and Development
Dr. Thomas Rinderknecht........ 44 Deputy Chairman of the Board
Prof. Ubaldo Conte............. 59 Member, Scientific Advisor
Permatec's Board of Directors consists of Dr. Jacques Gonella, Chairman, Dr.
Thomas Rinderknecht, and Dr. Philippe Dro. Permatec's Scientific Advisor is
Professor Ubaldo Conte.
Dr. Jacques Gonella. Dr. Gonella is the founder of Permatec and has served
as the Chairman of the Board of Directors of Permatec since its founding in
June 1997. Prior to founding Permatec, Dr. Gonella founded JAGO Pharma AG in
1983 and served as the President and Chief Executive Officer from its founding
until its acquisition in May 1996 by SkyePharma, a United Kingdom company
listed on the London Stock Exchange. Dr. Gonella is currently a non-executive
member of the Board of Directors of SkyePharma. Prior to founding JAGO, Doctor
Gonella occupied various positions with Roche and Pfizer between 1968 and 1979.
Dr. Gonella currently also sits on the board of directors of several private
pharmaceutical companies. Dr. Gonella holds a doctorate in analytical chemistry
from the Polytechnic Institute of Lausanne, Switzerland.
Dr. Thomas Rinderknecht. Dr. Rinderknecht has been a director of Permatec
since its founding in June 1997. Dr. Rinderknecht has been a partner in the
firm of Rinderknecht Klein & Stadelhofer in Zurich, Switzerland since 1985, and
has been practicing commercial law in Europe and the United States since 1974.
Dr. Rinderknecht holds law degrees from the University of Zurich, Switzerland
and the University of Munich, Germany.
Dr. Philippe Dro. Dr. Dro has been the President and Chief Operating Officer
of Permatec since January 2000. From June 1997 to January 2000, Dr. Dro was the
Executive Director of Permatec. From March 1995 to June 1997, Dr. Dro served as
Executive Director of JAGO Pharma. From 1992 to 1995, Dr. Dro held various
finance and controller positions at Sandoz corporation in Basel, Switzerland.
From 1989 to 1991, Dr. Dro held
15
various positions in the production and development area at Ethypharm
corporation in France and India. Dr. Dro received a doctorate in Pharmacy from
the School of Pharmacy of the University of Grenoble, France and holds an MBA
from the Cranfield School of Management in the United Kingdom.
Dr. Dario Carrara. Dr. Carrara has worked for Permatec Pharma AG as General
Manager of the Argentinean affiliate and Head of Research and Development since
1995. Prior to joining Permatec, Dr. Carrara worked as Pharmaceutical
Technology Manager for Laboratorios Beta, a pharmaceutical laboratory in
Argentina that ranks among the top ten pharmaceutical companies in Argentina,
between 1986 and 1995. Dr. Carrara has extensive experience in developing
transdermal drug delivery devices. He earned a double degree in Pharmacy and
Biochemistry, as well as a Ph.D. with a concentration in Pharmaceutical
Technology from the University of Buenos Aires.
Professor Ubaldo Conte. Professor Conte has been Permatec's Scientific
Advisor since July 1997. Professor Conte is currently the head of the post-
graduate school in Industrial Pharmacy at the University of Pavia in Italy,
where he has held various professorships since 1965. From 1991 to 1997,
Professor Conte was the Dean of Faculty at the University of Pavia. Professor
Conte is the author of 48 patents and has authored approximately 170
publications in scientific journals. Professor Conte is a member of a number of
pharmacy and chemical societies.
Certain Relationships and Related Transactions
Drs. Jacques Gonella, Thomas Rinderknecht and Philippe Dro will be directors
of Medi-Ject upon consummation of the Share Transaction and also are
shareholders, directors or officers of Permatec. Permatec has loaned us
$1,950,000 pursuant to the Permatec Notes. The Permatec Notes will
automatically convert into a number of shares of Series C Convertible Preferred
Stock equal to the outstanding principal balance of the Permatec Notes divided
by 200 on the later of (1) the date we have amended our Articles of
Incorporation increasing our authorized common stock to at least 10,000,000
(see Proposal 2) and obtain necessary approvals under the listing requirements
for the Nasdaq Stock Market or (2) the closing of the Share Transaction. The
Medi-Ject Series C Convertible Preferred Stock will convert at the option of
the holder into shares of Medi-Ject common stock at any time after the closing
of the Share Transaction or after October 31, 2000 if the Share Transaction is
not completed by such date. In addition, we anticipate that Dr. Philippe Dro
will become an employee of Medi-Ject or one of the Subsidiaries upon completion
of the Share Transaction.
Forward-Looking Statements and Risk Factors Regarding the Subsidiaries
Certain statements regarding the Subsidiaries included in this Proxy
Statement are "forward looking statements" as defined in the Private Securities
Litigation Reform Act of 1995 and are subject to risks and uncertainties.
Permatec has based these statements on their expectations about future events
and the anticipated effect of the Share Transaction described in this Proxy
Statement. The words or phrases "will likely result," "look for," "may result,"
"will continue," "is anticipated," "expect," "project," or similar expressions
are intended to identify forward-looking statements, and are subject to
numerous known and unknown risks and uncertainties. Although Permatec believes
the expectations reflected in its forward-looking statements are reasonable, it
cannot assure you that these expectations will be achieved. Actual results may
differ materially from what is currently expected. Factors that may affect
future results and performance are set forth below and elsewhere in this Proxy
Statement.
The Subsidiaries have a limited operating history and currently are not
profitable. In 1998, the Subsidiaries recorded the first revenue from
developing their technologies. In addition, there have been limited commercial
sales of products utilizing their technology and most of their technology is
still under development. Accordingly, the Subsidiaries only have limited
operating histories. Since 1998, the Subsidiaries have generated revenues from
product development fees and licensing arrangements, and from royalties. Their
business and prospects, therefore, must be evaluated in light of the risks and
uncertainties of companies with limited operating histories in the
pharmaceutical industry. In addition to the risks that are particularly
relevant to the Subsidiaries discussed in the subheadings below, the
Subsidiaries also are subject to general business risks and uncertainties.
16
Permatec is currently not profitable. Permatec and the Subsidiaries have
accumulated aggregate net losses from inception through March 31, 2000 of
approximately $11.2 million. The costs for research and product development of
drug delivery technologies and general and administrative expenses have been
the principal causes of these losses. The Subsidiaries' ability to achieve
sustained profitable operations depends on a number of factors, many of which
are beyond their direct control. These factors include:
. the demand for their technologies;
. their ability to manufacture products efficiently and with the required
quality;
. their ability to increase manufacturing capacity;
. the level of product and price competition;
. their ability to develop additional commercial applications for their
products;
. their ability to control costs; and
. general economic conditions.
The Subsidiaries will require additional financing, which may not be
available on favorable terms or at all and which may result in dilution of your
equity interest. The Subsidiaries' existing cash resources and estimated cash
to be received from license and development agreements will not be sufficient
to fund their capital requirements during the remainder of 2000. Accordingly,
the Subsidiaries will require equity and/or debt financing during the remainder
of 2000. There can be no assurance that sufficient additional equity or debt
financing will be available. If the Subsidiaries cannot obtain financing when
needed, or obtain it on favorable terms, they may be required to curtail
development of new drug delivery technologies or their expansion of
manufacturing capacity.
If the Subsidiaries cannot develop additional products, their ability to
increase their revenues would be limited. The Subsidiaries intend to continue
to enhance their current technologies and pursue additional proprietary drug
delivery technologies. However, they may be unable to achieve their objectives
of revenue growth and sustained profitability. Even if enhanced or additional
technologies appear promising during various stages of development, the
Subsidiaries may not be able to develop commercial applications for them
because:
. the potential technologies may fail clinical studies;
. they may not find a pharmaceutical company to adopt the technologies;
. it may be difficult to apply the technologies on a commercial scale; or
. the technologies may be uneconomical to market.
The loss of one of a major customer of the Subsidiaries could reduce
revenues significantly. The Subsidiaries' revenue currently depends on a
limited number of customers. The loss of any one of these customers could cause
revenues to decrease significantly, resulting in, or increasing, its losses
from operations. If the Subsidiaries cannot broaden their customer base, they
will continue to depend on a few customers for the majority of their revenues.
The Subsidiaries may be unable to negotiate favorable business terms with
customers that represent a significant portion of their revenues. If that
occurs, the Subsidiaries' revenues and gross profits may be insufficient to
allow them to achieve sustained profitability.
If the Subsidiaries do not enter into additional collaborative agreements
with pharmaceutical companies, they may not be able to achieve sustained
profitability. The Subsidiaries depend upon collaborative agreements with
pharmaceutical companies to develop, test, obtain governmental approval for,
and commercialize oral dosage forms of, active pharmaceutical ingredients using
their drug delivery technologies. The number of products that they successfully
develop under these collaborative agreements will affect their revenues. If
they do not enter into additional agreements in the future, or if their current
or future agreements do not result in successful marketing of their products,
their revenues and gross profits may be insufficient to allow them to achieve
sustained profitability. Permatec or the Subsidiaries currently have
collaborative agreements with Solvay, Segix, Sigmapharma/Novaquimica,
Recalcine, Lab Chile and BioSante.
17
Additional risks that the Subsidiaries face related to their collaborative
agreements include:
. inability to enter into collaborative agreements to develop additional
products using drug delivery technologies;
. any existing or future collaborative agreements may not result in
additional commercial products;
. additional commercial products that a Subsidiary may develop may not be
successful;
. the Subsidiaries may not be able to meet the milestones established in
their current or future collaborative agreements; and
. the Subsidiaries may not be able to develop successful new drug delivery
technologies that will be attractive to potential pharmaceutical company
partners.
The Subsidiaries rely on third parties to develop, obtain regulatory
approvals, market, distribute and sell the products incorporating their drug
delivery technologies and those third parties may not perform. Pharmaceutical
company partners help the Subsidiaries to develop, to obtain regulatory
approvals for, to manufacture and to sell their products. If one or more of
these pharmaceutical company partners fail to pursue the development or
marketing of the products as planned, the Subsidiaries' revenues and gross
profits may not reach expectations or may decline. A Subsidiary may not be able
to control the timing and other aspects of the development of products because
pharmaceutical company partners may have priorities that differ from those of
the Subsidiaries. Therefore, commercialization of products under development
may be delayed unexpectedly. Further, the Subsidiaries incorporate their drug
delivery technologies into the oral dosage forms of products marketed and sold
by pharmaceutical company partners. The Subsidiaries do not have a direct
marketing channel to consumers for drug delivery technologies. Therefore, the
success of the marketing organizations of the pharmaceutical company partners,
as well as the level of priority assigned to the marketing of the products by
these entities, which may differ from the priorities of the Subsidiaries, will
determine the success of the products incorporating their technologies.
If patients and physicians do not accept the Subsidiaries' drug delivery
technologies, the Subsidiaries may be unable to generate significant
revenues. The Subsidiaries' revenues depend on ultimate patient and physician
acceptance of the drug delivery technologies as an alternative to conventional
drug delivery systems. If the drug delivery technologies are not accepted in
the marketplace, the pharmaceutical company partners may be unable to
successfully market and sell the Subsidiaries' products, which would limit the
Subsidiaries' ability to generate revenues and to achieve sustained
profitability. The degree of acceptance of any drug delivery system depends on
a number of factors. These factors include:
. demonstrated clinical efficacy and safety;
. cost-effectiveness;
. convenience and ease of administration;
. advantages over alternative drug delivery systems; and
. marketing and distribution support.
In addition, the Subsidiaries expect that the pharmaceutical company
partners will price products incorporating their drug delivery technologies
slightly higher than conventional methods, which may impair their acceptance.
Because only a limited number of products incorporating the Subsidiaries' drug
delivery technologies are commercially available, the Subsidiaries cannot yet
assess the level of market acceptance of their drug delivery technologies.
If the Subsidiaries cannot adequately protect their technology and
proprietary information, they may be unable to sustain a competitive
advantage. The Subsidiaries' success depends, in part, on their ability to
obtain and enforce patents for their products, processes and technologies and
to preserve their trade secrets and
18
other proprietary information. If the Subsidiaries cannot do so, their
competitors may exploit their innovations and deprive the Subsidiaries of the
ability to realize revenues and profits from their developments.
Any patent applications the Subsidiaries may have made or may make relating
to their potential products, processes and technologies may not result in
patents being issued. Their current patents may not be valid or enforceable.
They may not protect the Subsidiaries against competitors that challenge their
patents, that obtain patents that may have an adverse effect on the
Subsidiaries' ability to conduct business or are able to circumvent a
Subsidiary's patents. Further, the Subsidiaries may not have the necessary
financial resources to enforce their patents.
To protect the Subsidiaries' trade secrets and proprietary technologies and
processes, the Subsidiaries rely, in part, on confidentiality agreements with
employees, consultants and advisors. These agreements may not provide adequate
protection for the Subsidiaries' trade secrets and other proprietary
information in the event of any unauthorized use or disclosure, or if others
lawfully develop the information.
Third parties may claim that the Subsidiaries' technologies, or the products
in which those technologies are used, infringe on the third parties'
proprietary rights and the Subsidiaries may incur significant costs resolving
these claims. Third parties may claim that the manufacture, use or sale of the
Subsidiaries' drug delivery technologies infringe the third parties' patent
rights. If such claims are asserted, the Subsidiaries may have to seek
licenses, defend infringement actions or challenge the validity of those
patents in court. If the Subsidiaries could not obtain required licenses, are
found liable for infringement or are not able to have these patents declared
invalid, the Subsidiaries may be liable for significant monetary damages,
encounter significant delays in bringing products to market or be precluded
from participating in the manufacture, use or sale of products or methods of
drug delivery covered by the patents of others. The Subsidiaries may not have
identified, or be able to identify in the future, United States or foreign
patents that pose a risk of potential infringement claims.
The Subsidiaries enter into collaborative agreements with pharmaceutical
companies to apply drug delivery technologies to drugs developed by others.
Ultimately, the Subsidiaries receive license revenues and product development
fees, as well as revenues from the sale of products incorporating their
technology and royalties. The drugs to which their drug delivery technologies
are applied are generally the property of the pharmaceutical companies. Those
drugs may be the subject of patents or patent applications and other forms of
protection owned by the pharmaceutical companies or third parties. If those
patents or other forms of protection expire, become ineffective or are subject
to the control of third parties, sales of the drugs by the collaborating
pharmaceutical company may be restricted or may cease. The Subsidiaries'
revenues, in that event, may decline.
The Subsidiaries may incur significant costs seeking approval for their
products and if the Subsidiaries are not successful, they may be unable to
achieve anticipated revenues and profits. The design, development, testing,
manufacturing and marketing of pharmaceutical compounds, medical nutrition and
diagnostic products and medical devices are subject to regulation by
governmental authorities, including the United States Food and Drug
Administration (the "FDA"), and comparable regulatory authorities in other
countries. The approval process is generally lengthy, expensive and subject to
unanticipated delays. Currently, the Subsidiaries or their partners are
actively pursuing marketing approval for a number of products from regulatory
authorities, including the FDA. The Subsidiaries' revenue and profit will
depend, in part, on the successful introduction and marketing of some or all of
such products by it or its partners. There can be no assurance as to when or
whether such approvals from regulatory authorities will be received.
Applicants for FDA approval often must submit extensive clinical data and
supporting information to the FDA. Varying interpretations of the data obtained
from pre-clinical and clinical testing could delay, limit or prevent regulatory
approval of a drug product. Changes in FDA approval policy during the
development period, or changes in regulatory review for each submitted new drug
application also may cause delays or rejection of an approval. Even if the FDA
approves a product, the approval may limit the uses or "indications" for which
a product may be marketed, or may require further studies. The FDA also can
withdraw product clearances and approvals for failure to comply with regulatory
requirements or if unforeseen problems follow initial marketing.
19
In other jurisdictions, the Subsidiaries, and the pharmaceutical companies
with whom they are developing technologies, must obtain required regulatory
approvals from regulatory agencies and comply with extensive regulations
regarding safety and quality. If approvals to market the products are delayed,
if the Subsidiaries fail to receive these approvals, or if the Subsidiaries
lose previously received approvals, their revenues would be reduced. The
Subsidiaries may not be able to obtain all necessary regulatory approvals. The
Subsidiaries may be required to incur significant costs in obtaining or
maintaining regulatory approvals.
The Subsidiaries may be subject to sanctions if they fail to comply with
regulatory requirements. If the Subsidiaries, or pharmaceutical companies with
whom they are developing technologies, fail to comply with applicable
regulatory requirements, the Subsidiaries, and the pharmaceutical companies,
may be subject to sanctions, including:
. warning letters;
. fines;
. product seizures or recalls;
. injunctions;
. refusals to permit products to be imported into or exported out of the
applicable regulatory jurisdiction;
. total or partial suspension of production;
. withdrawals of previously approved marketing applications; and
. criminal prosecutions.
If the marketing claims asserted about its products are not approved, the
Subsidiaries' revenues may be limited. Once a drug product is approved by the
FDA, the Division of Drug Marketing, Advertising and Communication, the FDA's
marketing surveillance department within the Center for Drugs, must approve
marketing claims asserted by the Subsidiaries' pharmaceutical company partners.
If a pharmaceutical company partner fails to obtain from the Division of Drug
Marketing acceptable marketing claims for a product incorporating the
Subsidiaries' drug technology, the Subsidiaries' revenues from that product may
be limited. Marketing claims are the basis for a product's labeling,
advertising and promotion. The claims the pharmaceutical company partners are
asserting about the Subsidiaries' drug delivery technology, or the drug product
itself, may not be approved by the Division of Drug Marketing.
The Subsidiaries may face product liability claims related to participation
in clinical trials or the use or misuse of their products. The testing,
manufacturing and marketing of products utilizing the Subsidiaries' drug
delivery technologies may expose the Subsidiaries to potential product
liability and other claims resulting from their use. If any such claims against
the Subsidiaries are successful, the Subsidiaries may be required to make
significant compensation payments. Any indemnification that the Subsidiaries
have obtained, or may obtain, from contract research organizations or
pharmaceutical companies conducting human clinical trials on their behalf may
not protect them from product liability claims or from the costs of related
litigation. Similarly, any indemnification the Subsidiaries have obtained, or
may obtain, from pharmaceutical companies with whom they are developing drug
delivery technologies may not protect them from product liability claims from
the consumers of those products or from the costs of related litigation. If the
Subsidiaries are subject to a product liability claim, their product liability
insurance may not reimburse them, or may not be sufficient to reimburse them,
for any expenses or losses that may have been suffered. A successful product
liability claim against the Subsidiaries, if not covered by, or if in excess
of, the product liability insurance, may require the Subsidiaries to make
significant compensation payments, which would be reflected as expenses on
their statement of operations.
If the Subsidiaries cannot keep pace with the rapid technological change and
meet the intense competition in the industry, they may lose business. The
Subsidiaries' success depends, in part, upon maintaining a
20
competitive position in the development of products and technologies in a
rapidly evolving field. If the Subsidiaries cannot maintain competitive
products and technologies, their current and potential pharmaceutical company
partners may choose to adopt the drug delivery technologies of their
competitors. Drug delivery companies that compete with their technologies
include ALZA and Elan, along with many other companies. The Subsidiaries also
compete generally with other drug delivery, biotechnology and pharmaceutical
companies, engaged in the development of alternative drug delivery technologies
or new drug research and testing. Many of these competitors have substantially
greater financial, technological, manufacturing, marketing, managerial and
research and development resources and experience than the Subsidiaries do,
and, therefore, represent significant competition for the Subsidiaries.
Competitors may succeed in developing competing technologies or obtaining
governmental approval for products before the Subsidiaries do. Competitors'
products may gain market acceptance more rapidly than the Subsidiaries'
products. Developments by competitors may render the Subsidiaries' products, or
potential products, noncompetitive or obsolete.
BACKGROUND AND MEDI-JECT'S REASONS FOR THE SHARE TRANSACTION
In early 1999, we realized that we needed to explore additional means to
raise capital in order to continue operations. We came to this determination as
a result of our recurring losses from operations and a net capital deficiency.
In addition, an $8.4 million product purchase order (which we expected would
result in our receipt of approximately $5 million cash) from Schering-Plough
Corporation was canceled in late 1998, when it became apparent that the project
was not meeting projected timelines. We then began exploring alternatives such
as:
. an equity financing;
. pharmaceutical partnership opportunities; and
. potential merger or other business combination opportunities.
During the first half of 1999, Franklin Pass, M.D., our Chairman and CEO,
initiated discussions regarding a business combination with three companies:
SkyePharma plc, Permatec and Fournier, SA. Each of these companies was involved
in drug delivery and expressed some level of interest in needle-free delivery.
Discussions with SkyePharma and Fournier were not productive.
Through the connection of a mutual consultant, Dr. Pass had met Dr. Jacques
Gonella, the principal shareholder of Permatec in Basel, Switzerland. Drs.
Gonella and Pass met on several occasions between February 1999 and August 1999
to discuss a business combination. These meetings involved an exchange of
technology information, introduction of key personnel and visits to both
facilities. In August 1999, Dr. Gonella made an offer to the Medi-Ject Board of
Directors. The offer included an initial cash infusion of $2-4 million and a
combination of the two businesses on an equal valuation basis. After
discussion, our Board of Directors decided to reject Dr. Gonella's offer based
upon the apparent insufficient cash to operate businesses that were then
located in Argentina, France and Switzerland.
During the same period in 1999, Dr. Pass held several discussions with the
Chief Executive Officer of Bioject, Inc. and its designated investment banker.
It was apparent that Bioject and Medi-Ject possessed complimentary technologies
but had disparate market capitalizations, Bioject's being over five times that
of Medi-Ject's. Furthermore, Bioject lacked sufficient cash to improve the
financial condition of a combined entity.
In August 1999, we spoke with Grayson & Associates, Inc. and TradeCo, a New
York broker-dealer, to discuss the structure and costs of a private equity
placement. We engaged the services of Grayson & Associates to act as our agent
with the goal of raising approximately $3-5 million of additional working
capital. Although Grayson & Associates had assisted us successfully in raising
capital in the past, this round was not successful and no capital was raised.
21
Throughout the second half of 1999, we explored pharmaceutical alliances as
a source of equity capital. Discussions were held with Pharmacia & Upjohn
Company, BioSante Pharmaceuticals, Elan Corporation, plc, Bio-Technology
General Corp. and Disetronic Medical Systems AG. The Pharmacia & Upjohn
discussions were not productive. BioSante, a startup, Chicago-based
pharmaceutical company entered into a joint technology venture with us in the
DNA vaccine field, but BioSante lacked sufficient cash or the strategic
imperative to assume an equity position in Medi-Ject. Elan had previously
licensed certain device drug delivery technology to us but they were not
prepared to invest. In December 1999, Bio-Technology General purchased 250
shares of our Series B Preferred Convertible Stock at a price of $1,000 per
share as a condition to entering into a new U.S. growth hormone distribution
agreement. Disetronic, a manufacturer of needle delivery devices, had no
interest in an equity investment in 1999, but discussions regarding joint
cooperation in designing and marketing devices continue.
Drs. Pass and Gonella met once again in late 1999. The feasibility of a
business combination seemed more attractive because Dr. Gonella had
successfully consolidated all Permatec business activity in Basel and
significantly reduced operating expenses. Permatec's cash flow was further
improved due to: (1) progress made in marketing Permatec's first product
through pharmaceutical partners in Latin America and (2) the license to a
European pharmaceutical company of European rights to certain technology. A
Non-Binding Letter of Intent to engage in a transaction with Permatec was
negotiated and was approved by the Board of Directors at its January 21, 2000
meeting.
Since execution of the Non-Binding Letter of Intent, and as contemplated in
such Letter of Intent, Permatec has been providing financing for our operations
in the form of convertible promissory notes. On January 25, 2000, we entered
into a Convertible Note Purchase Agreement with Permatec. Pursuant to such
agreement, we issued the following notes payable to Permatec: (1) $250,000
Convertible Promissory Note dated January 25, 2000; and (2) $250,000
Convertible Promissory Note dated February 29, 2000 (collectively, the "First
Notes"). On April 3, 2000, we entered into a second Convertible Note Purchase
Agreement with Permatec. Under such agreement, we issued the following notes
payable to Permatec (1) $500,000 Convertible Promissory Note dated April 3,
2000, (2) $250,000 Convertible Promissory Note dated May 2, 2000; (3) $350,000
Convertible Promissory Note dated May 26, 2000; and (4) $350,000 Convertible
Promissory Note dated June 26, 2000 (collectively, the "Second Notes") (the
First Notes, as amended, and Second Notes, as amended, may be referred to
collectively herein as the "Permatec Notes"). Under the two Convertible Note
Purchase Agreements, Permatec agreed to invest up to $4,500,000 in Medi-Ject;
currently, the Permatec Notes total $1,950,000. In the event that a transaction
with Permatec is not consummated prior to October 31, 2000, the payment of the
Permatec Notes will be affected. The First Notes will be due on the earlier of
December 31, 2000 or the date of a closing of a transfer or license agreement
with a third party with respect to our AJ1 Technology ("AJ1 Technology
Closing"). The Second Notes will be due on the earlier of (1) May 25, 2002; (2)
the date of an AJ1Technology Closing; (3) the date on which we receive at least
$7,000,000 in proceeds from any financing; (4) any date on which we have cash
or cash equivalents in the amount of at least $7,000,000; (5) the consummation
of a transaction, such as a merger, consolidations, acquisition of 20% or more
ownership, with a party other than Permatec and (6) the date of a shareholder
meeting at which the shareholders do not approve an amendment to increase the
authorized capital stock. Furthermore, if the Share Transaction is not
consummated prior to October 31, 2000, the outstanding principal balance of the
Permatec Notes will accrue interest at an annual rate of 10%. The Permatec
Notes will automatically convert into Medi-Ject Series C Convertible Preferred
Stock on the later of: (1) the date we have amended our Articles of
Incorporation increasing our authorized common stock to at least 10,000,000
(see Proposal 2) and obtain any necessary approvals under the listing
requirements for the Nasdaq Stock Market or (2) the closing of the Share
Transaction with Permatec.
KPMG LLP, in its Independent Auditors' Report dated February 18, 2000,
stated that substantial doubt has been raised about our ability to continue as
a going concern. In April, 2000, we were notified by Nasdaq/Amex that we no
longer meet certain requirements for continued listing on The Nasdaq SmallCap
Market. As a result, our eligibility for continued listing on The Nasdaq Stock
Market is being reviewed. In May, we provided to
22
Nasdaq a plan for achieving compliance during the second and third quarter of
this year. This plan included, among other things, the Share Transaction and
additional equity financing.
From January through June, we actively negotiated the terms of the Purchase
Agreement with Permatec while continuing our evaluation and due diligence
review of Permatec and the Subsidiaries. On numerous occasions, Franklin Pass,
M.D. visited the Permatec facilities and met with Dr. Jacques Gonella and
Dr. Philippe Dro. Dr. Peter Sadowski, our Executive Vice President and Chief
Technology Officer, also visited the facilities in order to conduct an
extensive review of the Subsidiaries' intellectual property. At meetings with
our Board of Directors, Lawrence Christian, our Chief Financial Officer,
presented various pro forma financial statements, while Drs. Pass and Sadowski
also provided reports as to the possible synergies that could result from a
transaction with Permatec and updates on the status of negotiations. During
this time, the Board of Directors had numerous discussions regarding the Share
Transaction and any possible alternatives. The Board of Directors determined,
on a number of occasions, that Dr. Pass should continue negotiations with
Permatec.
The Board considered that the Share Transaction provides an opportunity to
create a new drug delivery company with several diverse delivery platforms and
new pharmaceutical alliances with the potential to enhance our operations and
revenues. The Board, however, considered that there can be no assurance that
such improvements will be realized due to several factors, including:
. the integration of the operations and management of Medi-Ject and the
Subsidiaries will be a complex process and there can be no assurance
that the integration will be completed quickly or will result in the
realization of all the anticipated benefits we expect;
. the integration of the companies will require significant management
attention that may temporarily distract management from its regular
focus on the daily operations of the business; and
. the expected costs and expenses as a result of the Share Transaction
The Board agreed that at this time, the only realistic alternative to the
Share Transaction is for Medi-Ject to discontinue operations. The Board further
agreed that shareholder value has a greater potential of increasing under the
Share Transaction than under a liquidation. After careful consideration, the
Board unanimously determined that the terms of the Share Transaction are fair
to and in the best interests of Medi-Ject and its shareholders and unanimously
approved the Share Transaction.
On June 5, 2000 the Board of Directors met and, after additional discussion,
authorized the execution of a stock purchase agreement with Permatec. On June
23, 2000 we executed a stock purchase agreement with Permatec. Subsequent to
the execution of that stock purchase agreement, we and Permatec determined that
it was in the best interests of both parties to rescind and waive that stock
purchase agreement and for the Board of Directors to form a committee of
disinterested directors to review the terms of all transactions with Permatec.
On July 13, 2000, the Board of Directors formed a committee consisting of
Kenneth Evenstad, Karl Groth, Geoffrey Guy, M.D., Fred L. Shapiro, M.D. and
Stanley Goldberg, being all of the disinterested directors (the "Committee").
Members of the Committee further considered the Share Transaction. The
Committee determined that the terms of the Share Transaction are fair to and in
the best interests of Medi-Ject and its shareholders and approved the Share
Transaction by unanimous written consent dated July 14, 2000.
Based on the determination of the Committee and the Board's considerations,
the Board of Directors recommends that the shareholders approve the Share
Transaction.
TERMS OF THE PURCHASE AGREEMENT
Purchase of Subsidiaries' Stock and issuance of Medi-Ject common
stock. Pursuant to the Purchase Agreement, Permatec has agreed to transfer the
Subsidiaries' Stock to us. In exchange, we will issue 2,900,000 shares of Medi-
Ject common stock (representing approximately 67% of the Medi-Ject common stock
outstanding at that time) to Permatec.
23
Board of Directors. Pursuant to the Purchase Agreement, upon the closing,
Karl Groth, Geoffrey Guy, M.D., Fred L. Shapiro, M.D. and Stanley Goldberg will
submit resignations to our Board of Directors and the remaining two directors
will appoint the following designees of Permatec: Dr. Jacques Gonella, Dr.
Thomas M. Rinderknecht, Professor Ubaldo Conte and Dr. Philippe Dro to fill the
vacancies. Franklin Pass, M.D. and Kenneth Evenstad will remain on the Board of
Directors.
The Closing. The Purchase Agreement contemplates a closing to occur on the
later of August 31, 2000 or the fifth business day after the conditions set
forth in the Purchase Agreement are either satisfied or waived.
Representations and Warranties. We made to Permatec and the Subsidiaries and
Permatec and the Subsidiaries made to us a number of representations and
warranties. The representations and warranties relate to:
. due incorporation; good standing; necessary corporate power and
authority
. existence or non-existence of subsidiaries
. delivery of organizational documents and records
. capitalization, including options and warrants
. delivery of certain financial statements
. absence of changes not in the ordinary course of business
. title to assets; adequacy of equipment used; interests in real property
. rights in proprietary assets including, but not limited to, patents,
trademarks, and technology
. delivery of contracts; no defaults under such contracts
. compliance with legal requirements
. possession of necessary governmental authorizations
. tax matters
. employee benefit plans
. insurance policies in effect
. related party transactions
. legal proceedings, judgments, orders
. authority to enter into Purchase Agreement; binding nature thereof
. non-contravention with regard to organizational documents, governmental
authorization, contracts; necessary consents
. broker, finder or investment banker fees
. employees and officers
. environmental matters
. agreements, arrangements, contracts with "change in control" provisions
. required vote (given by us only)
. filing of all required SEC reports (given by us only)
. assets and net sales for antitrust purposes (given by us only)
Covenants and Agreements. In the Purchase Agreement, each party made
covenants and agreements regarding actions during the time period prior to the
closing. For instance, each party has agreed to grant access to certain
representatives, such as officers, legal counsel, and independent certified
public accountants, of the other party to review its properties, books and
records. The Purchase Agreement requires that until the closing,
24
we are to carry on our business and each Subsidiary is to carry on its
respective business in a certain manner. Accordingly, each party is to:
. operate its business in the normal and ordinary course
. use its best efforts to preserve business organization
. maintain availability of each employee
. maintain satisfactory relationships with customers and business contacts
. not take any action or be notified of any circumstance that would result
in any of the representations and warranties of that party becoming
untrue
. not issue any stock, rights, options, warrants (other than shares of
capital stock issuable upon exercise or conversion of outstanding rights
and options in accordance with their present terms) (except as provided
with respect to the Permatec Notes for us)
. not amend its articles of incorporation or bylaws
. not accelerate, amend or change the period of exercisability of employee
options or authorize cash payments in exchange for options
. not accelerate, amend or change the period of exercisability of any
warrants or authorize cash payments in exchange for warrants
. other than in the ordinary course: not transfer enter into a material
transaction, incur liabilities
. not suffer any material loss, make any material change or suffer any
change that would have a material adverse effect
. not amend its employee benefit plans or any employment related
arrangement
. not increase compensation to its officers or to its employees (unless in
accordance with past practice); not grant any severance or termination
pay to any employee; not enter into any collective bargaining agreement
. not incur, assume or otherwise become liable for borrowed money or for
the obligations of another; not make loans or advances to another
(except in connection with the Permatec Notes for us)
. not materially change any practice with respect to taxes; not revoke any
material tax election; not settle any material dispute involving a tax
liability
. not declare or pay any dividend, distribution or payment with respect to
shares of its capital stock; not redeem or acquire shares of its capital
stock; not split, combine or reclassify its capital stock
. not make or agree to make any capital expenditure in excess of $125,000
in the aggregate
. not change any accounting practices or principles
. not pay, discharge, settle or satisfy any claims, liabilities or
obligations other than in the ordinary course of business consistent
with past practices
. not revalue, in any material respect, any of its material assets
. not agree to take any of the foregoing actions
. applies to us only: file required reports with the SEC and provide
copies to Permatec
A party seeking to take any actions inconsistent with any of the above must
obtain the written agreement/ consent of the non-acting party. In addition, the
parties shall confer on a regular basis and shall inform each other of any
potential material adverse effect on its respective business or on the
transactions contemplated. The parties will use their best efforts to
consummate the transactions of the Purchase Agreement, including obtaining any
necessary consents or giving any required notices. We also agreed to file this
Proxy Statement
25
and Permatec agreed to use commercially reasonable efforts to raise at least
$7,000,000 for us and the Subsidiaries. Permatec also agreed to prepare a
business plan for 2000 and 2001; our Board of Directors will review and if
acceptable, approve the business plan. Permatec will also search for a new
chief executive officer to replace Franklin Pass, M.D. We will assist Permatec
in this search and our Board of Directors has the right to approve the
candidate.
Conditions. Our obligations to perform the Purchase Agreement are subject to
conditions (some of which can be waived) including:
. continued accuracy of Permatec's and Subsidiaries' representations and
warranties
. Permatec's and Subsidiaries' performance of their obligations
. absence of changes that would have a material adverse effect on Permatec
or any Subsidiary
. no changes in outstanding capital stock of any Subsidiary
. Permatec's delivery of the Permatec Notes for conversion and
cancellation
. the Subsidiaries having an aggregate cash reserve or cash equivalents of
at least 1,000,000 Swiss francs
. a private equity placement in an aggregate of at least $7,000,000
resulting from Permatec's efforts is in a position to close upon the
completion of the Share Transaction
. receipt of opinions of legal counsel to Permatec and the Subsidiaries
. our receipt of an Officer's Certificate from each Subsidiary and
Permatec certifying that certain conditions were fulfilled
The obligations of Permatec and the Subsidiaries to perform the Purchase
Agreement are subject to conditions including:
. continued accuracy of our representations and warranties
. our performance of our obligations
. receipt of an opinion of our legal counsel
. absence of changes that would have a material adverse effect on us,
including any formal notification from the Nasdaq Stock Market that our
common stock has been delisted
. no changes in our outstanding capital stock
. resignations of directors Karl Groth, Geoffrey Guy, M.D., Fred L.
Shapiro, M.D. and Stanley Goldberg shall have been accepted and Dr.
Jacques Gonella, Dr. Thomas M. Rinderknecht, Professor Ubaldo Conte and
Dr. Philippe Dro shall have been appointed to our Board of Directors
. our delivery to Permatec of shares of Medi-Ject Series C Preferred Stock
upon conversion of the Permatec Notes
. our receipt of consents from each of: Elan Corporation, plc., Bio-
Technology General Corp., Becton Dickinson, Grayson & Associates, Inc.
. the execution of an amendment, in form satisfactory to Permatec, of the
License and Development Agreement with Elan Corporation, plc.
. we shall have entered into lock-up agreements with the following people:
Lawrence Christian, Michael Kasprick, Kenneth Evenstad, Julius Sund and
Peter Sadowski.
Obligations of all parties are contingent on the:
. execution and delivery of the Registration Rights Agreement
. execution and delivery of an Employment Agreement between us and
Franklin Pass, M.D.
26
. execution and delivery of an Escrow Agreement by and among us, Permatec
and an escrow agent
. receipt of governmental consents and corporate approvals (including the
approval of our shareholders for this Proposal 1 and for Proposal 2 ).
Conversion of Permatec Notes. As a condition to closing, Permatec will
deliver the Permatec Notes to us for cancellation and we will convert the
Permatec Notes into shares of Series C Convertible Preferred Stock. See
Proposal 3--The Series C Stock Conversion Proposal for additional information.
Registration Rights Agreement. As a condition to closing, we will enter into
a Registration Rights Agreement with Permatec. Pursuant to such agreement, we
grant Permatec certain piggy-back registration rights relating to the Medi-Ject
common stock it is acquiring in the Share Transaction and agree to pay all
registration expenses. The Registration Rights Agreement also provides for
indemnification by each party in certain circumstances.
Lock-Up Agreements. As a condition to closing, a lock-up agreement will be
entered into with each of the following individuals: Lawrence Christian,
Michael Kasprick, Kenneth Evenstad, Julius Sund and Peter Sadowski. These
agreements will restrict those individuals from selling Medi-Ject common stock
held by them for varying periods of up to twelve months from the closing of the
Share Transaction.
Indemnification and Escrow Agreement. In the Purchase Agreement, we,
Permatec, and the Subsidiaries make and agree to a number of representations,
warranties, covenants and obligations. In the event that any claims, costs,
loss, liability, expense or other damage (including third party claims) result
from a breach of the representations, warranties, covenants or obligation, a
non-breaching party may seek indemnification from the breaching party. Notices
of all claims for indemnification must be given on or prior to the sixth month
anniversary of the closing date. Neither we nor Permatec shall be liable to the
other until the aggregate of claims exceed $50,000 and then, only to the extent
such claims exceed $50,000.
In accordance with an escrow agreement, Permatec will be required to place
580,000 shares of Medi-Ject common stock into an escrow account. Permatec will
not be liable to the extent that aggregate claims exceed the value of the
shares held in escrow. Such limitation, however, will not apply to damages
resulting from any Subsidiary's fraud or willful or intentional
misrepresentation or intentional or willful breach. We will not be liable to
the extent that aggregate claims exceed the value of the shares held in escrow.
Notwithstanding the foregoing and without limitation as to time or amount,
Permatec must indemnify Medi-Ject and the Subsidiaries from certain claims
arising from subsidiaries of Permatec not being acquired pursuant to the
Purchase Agreement, and any claims in respect of the share ownership of
Permatec NV.
Termination. The Purchase Agreement provides that it may be terminated: by
the mutual consent of the parties or by any party if the conditions to closing
have not been met by October 31, 2000 (unless the conditions were not met
solely as a result of the party seeking to terminate). In the event of
termination, the Purchase Agreement would be of no further force or effect. A
party would, however, remain liable beyond the termination of the Purchase
Agreement for its pre-termination breach of representations, warranties,
covenants or agreements it made in the Purchase Agreement. Furthermore, in the
event that a closing does not occur due to Permatec's failure to satisfy its
conditions, the period in which we have to repayment of the Permatec Notes
shall be extended for an additional three (3) months. In addition, the
Confidentiality Agreement entered into by and among the parties on April 21,
1999 shall continue to be in effect in accordance with its terms.
Fees and Expenses. All fees, costs and expenses in connection with the
Purchase Agreement, will be paid by the party incurring such expenses. In the
event, however, that a legal action is instituted to enforce or interpret the
Purchase Agreement, the prevailing party in such action shall be, in addition
to any other relief awarded, entitled to the reimbursement of attorneys' fees.
27
CHANGE OF NAME
By approving the Share Transaction, you approve that, upon the closing, we
will amend our Second and Amended Restated Articles of Incorporation, as
amended, to change Article 1 to read, in its entirety:
"ARTICLE 1. NAME
The name of the Corporation is Antares Pharma, Inc."
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
When our Board of Directors considered the Share Transaction, the directors
were aware that certain of our officers and directors have interests and
arrangements that may be different from, or in addition to, your interest as a
shareholder. Pursuant to their respective employment agreements, each dated as
of May 1, 2000, with us, Lawrence M. Christian and Peter L. Sadowski will each
receive, upon the closing of the Share Transaction a bonus and a stock option
grant. We will give Mr. Christian a bonus of $12,000 (payable in four
installments that will begin on the business day following the closing date of
the Share Transaction and will be subsequently payable on the last business day
of each of the next three calendar quarters) and we will grant, on the closing
date of the Share Transaction, a stock option to Mr. Christian to purchase
5,000 shares of Medi-Ject common stock. We will give Dr. Sadowski a bonus of
$17,000 (payable in four installments that will begin on the business day
following the closing date of the Share Transaction will be subsequently
payable on the last business day of each of the next three calendar quarters)
and we will grant, on the closing date of the Share Transaction, a stock option
to Dr. Sadowski to purchase 5,000 shares of Medi-Ject common stock. Under an
Employment Agreement, the vesting of the options granted to Franklin Pass, M.D.
will accelerate upon a change in control. At or prior to the closing date of
the Share Transaction, Dr. Pass will enter into a new Employment Agreement
pursuant to which we will pay him the following bonuses: $25,000 payable at the
closing of the Share Transaction and an additional $25,000 payable at the
closing of the Share Transaction if Dr. Pass is successful (as determined by
Dr. Jacques Gonella) in negotiating revisions to a licensing agreement to which
we are a party. All outstanding options will be 100% exercisable upon the
closing of the Share Transaction.
VOTE REQUIRED; QUORUM
Under the Nasdaq Stock Market Rule 4310(c)(25)(G)(i), shareholder approval
is required for our issuance of securities that results in a change of control
of our company (the "Control Rule"). There is no concrete test to determine the
amount of securities that we may issue to a party without triggering the
Control Rule. Additionally, to the extent that such rule could be implicated
due to the Share Transaction under the Nasdaq Stock Market Rule
4310(c)(25)(G)(i) applicable to Nasdaq SmallCap issuers, shareholder approval
is required for an issuance of common stock (or securities convertible into or
exercisable for common stock) equal to 20% or more of the common stock or 20%
or more of the voting power outstanding before the issuance (the "20% Rule").
We are seeking approval to allow for the issuance of the 2,900,000 shares of
Medi-Ject common stock in order to ensure compliance with Nasdaq's Control Rule
and the 20% Rule.
For each share of Medi-Ject common stock held on the record date, a
shareholder is entitled to one vote on each matter submitted to a vote at the
Annual Meeting. A majority of shares of Medi-Ject common stock outstanding on
the record date constitutes a quorum at the Annual Meeting. With a quorum
present, a majority of the total votes cast on the proposal in person or by
proxy constitutes shareholder approval for purposes of the Nasdaq Stock Market.
With a quorum present, the Minnesota Business Corporation Act requires the
affirmative vote of the holders of a majority of the outstanding shares of
Medi-Ject common stock present, in person or by proxy, and entitled to vote on
that item of business.
28
NO DISSENTERS' RIGHTS
Under Minnesota law, Medi-Ject shareholders do not have dissenters' rights
in the Share Transaction.
EXISTING SHAREHOLDERS; IMPACT ON MARKET VALUE OF MEDI-JECT COMMON STOCK
There will be no material differences in the rights of our shareholders
following the consummation of the Share Transaction. If the Share Transaction
is approved, we will amend our Second and Amended Restated Articles of
Incorporation, amended to date, to change our name to "Antares Pharma, Inc."
Following such amendment, any new stock certificates issued by us will bear the
new name. Shareholders holding stock certificates bearing the name "Medi-Ject
Corporation" will continue to be shareholders and will not be required to
exchange their stock certificates with our transfer agent for certificates
bearing the new name.
The issuance of the Medi-Ject common stock to Permatec in connection with
the Share Transaction will dilute the current shareholders' voting power. In
addition, the proposed Share Transaction will result in a significant increased
concentration of ownership by a single shareholder and may cause a decline in
Medi-Ject common stock's market value.
ACCOUNTING TREATMENT OF THE SHARE TRANSACTION
The Share Transaction will be accounted for under the purchase method as a
reverse acquisition as Permatec will hold approximately 67% of the outstanding
common stock of Medi-Ject after the business combination.
FEDERAL INCOME TAX CONSEQUENCES OF THE SHARE TRANSACTION
The parties intend that the Share Transaction will constitute a tax-free
reorganization within the meaning of Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended (the "Code") and the tax laws of Switzerland
and intend that there will not be a recognition of income tax resulting from
the application of Code Section 367 to the exchanges that are part of the Share
Transaction.
REGULATORY APPROVAL
We are not aware of any approval required by a state or federal regulatory
agency in order to consummate the Share Transaction.
NO FAIRNESS OPINION
The Board of Directors chose not to obtain a "fairness" opinion from an
investment banking firm concerning the Share Transaction described in this
Proxy Statement. The Purchase Agreement and the related documents were
negotiated at arm's length between Permatec and us. Because of our limited
financial resources, the Board of Directors did not believe that it was in the
best interests of the company or the shareholders to incur the cost of a
fairness opinion.
29
PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
While negotiating the Purchase Agreement, Permatec agreed to invest up to
$4,500,000 in Medi-Ject. On each of January 25, 2000 and April 3, 2000, we
entered into a Convertible Note Purchase Agreement with Permatec. Pursuant to
the two Convertible Note Purchase Agreements, we issued the following
convertible notes (the "Permatec Notes") in the aggregate amount of $1,950,000:
Amount
Date of Note of Note
------------ ----------
January 25, 2000 $ 250,000
February 29, 2000 250,000
April 3, 2000 500,000
May 2, 2000 250,000
May 26, 2000 350,000
June 26, 2000 350,000
----------
Total $1,950,000
==========
The Permatec Notes will convert into Series C Convertible Preferred Stock
upon the closing of the Share Transaction or earlier if we and Permatec agree.
See Proposal 3--The Series C Stock Conversion Proposal.
30
FINANCIAL INFORMATION
SUMMARY OF HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following tables show the financial results actually achieved by
Permatec and Medi-Ject (the "historical figures") as well as the results as if
the companies had been combined for the following periods (the "pro forma
combined" figures):
SELECTED HISTORICAL AND PRO FORMA DATA AS OF DECEMBER 31, 1999 AND MARCH 31,
2000
PERMATEC SELECTED HISTORICAL CONDENSED FINANCIAL DATA
The following selected historical condensed financial data should be read in
conjunction with Permatec's audited consolidated financial statements and
related notes which are included in this Proxy Statement and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Permatec" included herein. The statement of operations information for each of
the years in the three-year period ended December 31, 1999, and the balance
sheet data as of December 31, 1999, 1998 and 1997, have been derived from
Permatec's consolidated financial statements, which have been audited by KPMG
Fides Peat and are included elsewhere in this Proxy Statement. The selected
historical condensed financial data for the quarters ended March 31, 2000 and
1999, were derived from the unaudited financial statements of Permatec included
in this Proxy Statement, which in the opinion of management reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of interim data. Information for any interim period is not
necessarily indicative of results that may be anticipated for a full year.
Similarly, historical results are not necessarily indicative of the results to
be expected in the future.
As of December 31, As of
------------------------------------- March 31,
1997 1998 1999 2000
----------- ----------- ----------- ------------
BALANCE SHEET DATA:
Working capital
(deficit)............... $ 113,551 $ (109,380) $ (569,352) $ (585,139)
Total assets............. 1,033,492 2,225,726 2,017,410 1,781,189
Long-term obligations.... 3,328,058 7,918,414 10,099,163 11,058,801
Stockholders' deficit.... (2,827,006) (6,962,526) (9,614,269) (10,602,330)
Year Ended December 31, Quarter Ended March 31,
------------------------------------- ------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ---------- ------------
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $ 144,828 $ 246,838 $ 1,331,607 $ 60,210 $ --
----------- ----------- ----------- ---------- ------------
Operating Expenses:
Research and
development.......... 796,410 1,749,666 1,647,059 267,418 227,574
Marketing and sales... 69,794 178,741 213,110 -- --
General and
administrative....... 868,026 2,253,675 3,042,551 593,614 913,201
----------- ----------- ----------- ---------- ------------
1,724,230 4,182,082 4,902,720 861,032 1,140,775
----------- ----------- ----------- ---------- ------------
Operating loss.......... (1,589,402) (3,935,244) (3,571,113) (800,822) (1,140,775)
Other expense........... (54,550) (124,372) (159,120) (86,908) (152,551)
----------- ----------- ----------- ---------- ------------
Loss before income
taxes.................. (1,643,952) (4,059,616) (3,730,233) (887,730) (1,293,326)
Income tax (expense)
benefit................ (53,862) (32,427) (79,170) (21,519) 12,454
----------- ----------- ----------- ---------- ------------
Net loss attributed to
common stockholders $(1,697,814) $(4,092,043) $(3,809,403) $ (909,249) $ (1,280,872)
=========== =========== =========== ========== ============
Basic and diluted net
loss per share......... $ (254.70) $ (409.20) $ (380.94) $ (90.92) $ (128.09)
=========== =========== =========== ========== ============
Basic and diluted
weighted average number
of shares outstanding.. 6,666 10,000 10,000 10,000 10,000
=========== =========== =========== ========== ============
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
GENERAL
Permatec and its operating subsidiaries' business consists of developing
new, or improving existing, technology for the delivery of drug compounds. As a
niche drug delivery technology company, Permatec develops highly specialized
formulations to address the need to deliver drugs through connective tissues
like skin and mucosa. Permatec has developed a technology and patent portfolio
encompassing four main areas: patches, gels, fast dissolving tablets and
transbuccal tablets. Permatec's strategy is to license its technology to
development and marketing partners through a combination of license and
development agreements, as well as research and development collaborations.
Permatec is a private Swiss holding company, founded in 1997, whose
principal wholly owned subsidiaries consist of Permatec Pharma AG
(Switzerland), Permatec Technologie AG (Switzerland) and Permatec NV
(Netherlands Antilles). As discussed below, the other two subsidiaries are in
the process of being liquidated. A former subsidiary of Permatec, Permatec
Laboratorios SA, was initially founded in Argentina in 1996 as part of the JAGO
group. JAGO was a Swiss oral Drug delivery company that was sold in 1996 by its
founder Dr. Jacques Gonella, the principal shareholder of Permatec, to
SkyePharma, a United Kingdom company traded on the London Stock Exchange and
NASDAQ Stock Market. Permatec Laboratorios was not acquired by SkyePharma as
part of the JAGO group transaction and subsequently became a wholly owned
subsidiary of Permatec, along with Permatec Pharma, Permatec Technologie and
Permatec NV, each of which was acquired by the shareholders of Permatec in
1996. Permatec and its subsidiaries Permatec Pharma, Permatec Technologie and
Permatec NV are collectively referred to as "Permatec."
In 1999, Permatec restructured its operations into one location in Basel,
Switzerland and commenced the liquidation of Permatec France. Permatec's
facilities in both Lyon, France and Buenos Aires, Argentina were closed. As a
result of this restructuring, Permatec incurred a restructuring charge of
$454,428 during the fiscal year ended December 31, 1999, and $266,790 for the
three-month period ended March 31, 2000.
Permatec has entered into various product development, licensing, marketing,
manufacturing and supply agreements with collaborative partners. Product
development and licensing agreements generally provide for Permatec to receive
payments in various forms. These payments can include licensing fees and other
payments upon the execution of an agreement, milestone payments upon
achievement of certain technical and regulatory goals, or periodic payments in
the form of cost reimbursements for product development.
Permatec's results of operations may vary significantly from quarter to
quarter. These results depend upon, among other factors, the signing of new
product development agreements, the timing of fees and milestone payments made
by collaborative partners, the progress of clinical trials, product sales
levels and costs associated with the manufacturing processes. The timing of
Permatec's research and development revenues may not match the timing of the
associated expenses. The amount of revenues in any given period is not
necessarily indicative of future revenues.
RESULTS OF OPERATIONS
Three months ended March 31, 2000 compared to the three months ended March 31,
1999.
REVENUES. Permatec had no revenues for the three month period ending March
31, 2000, compared to revenue of $60,210 during the same period in 1999. The
1999 revenue was due to receipt of a licensing fee.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased by 14.9% from $267,418 in 1999 to $227,574 in 2000. The decrease was
attributable to the closing in 1999 of Permatec's operations in Argentina and
France.
32
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 53.8% from $593,614 in 1999 to $913,201 in 2000 mainly due to a
$266,790 restructuring charge. Other increases were in rent, office expenses
and personnel costs for new hires.
OTHER INCOME (EXPENSE). Net interest expense increased 75.5% from $86,908 in
1999 to $152,551 in 2000 due to higher average borrowings during the period.
Year ended December 31, 1999 compared to year ended December 31, 1998.
REVENUES. Total revenues increased from $246,838 in 1998 to $1,331,607 in
1999. The increase in revenues was primarily a result of the commencement of
licensing activities and the receipt of milestone payments from development
agreements.
License revenues increased 361% from $67,528 in 1998 to $311,740 in 1999.
License revenues were primarily attributable to signing on fees for new
development contracts. Product development fees were $1,016,533 in 1999
compared to none in 1998. Permatec received other revenue of $179,310 in 1998
due to undertaking sub-contract work for a related company. The corresponding
amount in 1999 was $3,333 a reduction of 98%.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased by 5.9% from $1,749,666 in 1998 to $1,647,059 in 1999. The decrease
was attributable to the partial closing of Permatec's operations in France in
late 1999 as the first action in restructuring Permatec. The future level of
research and development expenditures will depend on, among other things, the
status of products under development and the outcome of clinical trials,
strategic decisions by management, and the consummation of new license
agreements.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 35.0% from $2,253,675 in 1998 to $3,042,551 in 1999 due to a $454,428
restructuring charge and to increases in rent, office expenses and personnel
costs for new employees.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 19.2%
from $178,741 in 1998 to $213,110 in 1999 mainly due to payments to a
consultant on the signing of new project.
OTHER INCOME (EXPENSE). Net interest expense increased 28% from $124,372 in
1998 to $159,120 in 1999 due to higher average borrowings during the period.
Year ended December 31, 1998 compared to year ended December 31, 1997.
REVENUES. Total revenues increased 70.4% from $144,828 in 1997 to $246,838
in 1998. Permatec received revenue of $144,828 in 1997 due to undertaking sub-
contract work for a related company. The corresponding amount in 1997 was
$179,310. Permatec also received $67,528 in 1998 pursuant to Permatec's first
licensing agreement.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expenses
increased 120% from $796,410 in 1997 to $1,749,666 in 1998. The increase was
attributable to the continued expansion of Permatec's facilities and the
commencement of client development projects. New product development included
work related to transdermal delivery systems for hormone deficiency.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 160% from $868,026 in 1997 to $2,253,675 in 1998, due to the set up
costs and first full year of expenses in the new Basel headquarters and an
increase in staffing and office expenses at the location in France.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 156%
from $69,794 in 1997 to $178,741 in 1998. The increase was mainly because 1998
represented Permatec's first full year of operations.
33
OTHER INCOME (EXPENSE). Interest expense increased 128% from $54,550 in 1997
to $124,372 in 1998 due to higher average borrowings during the period.
LIQUIDITY AND CAPITAL RESOURCES
Permatec historically has financed its operations by obtaining loans from
its controlling shareholders, which loans amounted to $10,911,001 at March 31,
2000. If the proposed transaction with Medi-Ject is consummated, the full
principal amount of these loans, along with the restructuring provisions and
liabilities to related parties of $382,273 and $329,438 at March 31, 2000,
respectively, will convert to equity at the closing of the transaction.
As of March 31, 2000, Permatec had $492,076 in cash and cash equivalents as
compared to $674,569 at December 31, 1999. Cash used in 1999 funded the net
operating loss, purchase of fixed assets and was offset in part by reductions
in accounts receivable and inventories and by increases in accounts payable and
compensation and other accrued liabilities.
Permatec expects to report a net loss for the year ending December 31, 2000
as it continues to incur marketing and development costs related to bringing
future generations of products to market. The long term capital requirements
will depend on numerous factors, including the status of collaborative
arrangements, the progress of research and development programs and the receipt
of revenues from sales of products. Permatec's existing cash resources and
estimated cash to be received from licensing and development agreements will
not be sufficient to fund Permatec's cash requirements during the remainder of
2000. Accordingly, Permatec is seeking a combination of equity and/or debt
financing during the remainder of 2000. There can be no assurance that
sufficient additional equity or debt financing will be available or, if
available, will be on terms favorable to Permatec or its shareholders. Any new
equity financing may result in substantial dilution to existing equity
investors.
Since January 2000, Permatec has loaned approximately $1,950,000 to Medi-
Ject to fund Medi-Ject's operating expenses. Permatec received convertible
promissory notes from Medi-Ject for such loans, which notes will be convertible
into approximately 9,750 shares of Medi-Ject Series C Convertible Preferred
Stock at the closing of the transaction.
To the extent that Permatec's financial resources are insufficient to fund
current and future activities Permatec will need to raise additional capital.
There can be no assurance that such additional capital will be available. The
inability to obtain additional financing on reasonable terms when needed would
have a material adverse effect on the Permatec's business, financial condition,
prospects and results of operations.
34
MEDI-JECT CORPORATION SELECTED HISTORICAL CONDENSED FINANCIAL DATA
The following selected historical condensed financial data should be read in
conjunction with Medi-Ject's audited financial statements and related notes and
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations of Medi-Ject" which are incorporated by reference in this Proxy
Statement. The statement of operations information for each of the years in the
three-year period ended December 31, 1999, and the balance sheet data as of
December 31, 1997, 1998 and 1999, have been derived from Medi-Ject's financial
statements, which have been audited by KPMG LLP and are incorporated by
reference herein. The selected historical condensed financial data for the
quarters ended March 31, 1999 and 2000, were derived from the unaudited
financial statements of Medi-Ject incorporated herein by reference, which in
the opinion of management reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of interim data.
Information for any interim period is not necessarily indicative of results
that may be anticipated for a full year. Similarly, historical results are not
necessarily indicative of the results to be expected in the future.
As of December 31, As of
--------------------------------- March 31,
1997 1998 1999 2000
----------- ---------- ---------- ----------
BALANCE SHEET DATA:
Working capital (deficit)....... $ 7,804,232 $3,067,746 $ (198,015) $ (977,674)
Total assets.................... 10,047,468 5,334,431 2,010,136 1,956,081
Long-term obligations........... 1,721 -- 54,094 51,474
Stockholders' equity............ 9,337,130 4,630,007 1,052,855 182,035
Quarter Ended March
Year Ended December 31, 31,
------------------------------------- ----------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ---------- ----------
STATEMENT OF OPERATIONS
DATA:
Revenues:
Product sales......... $ 1,686,588 $ 2,171,881 $ 2,100,735 $ 551,991 $ 461,259
Licensing & product
development.......... 2,030,435 527,364 1,381,127 1,024,317 22,788
----------- ----------- ----------- ---------- ----------
3,717,023 2,699,245 3,481,862 1,576,308 484,047
Operating Expenses:
Cost of sales......... 1,221,051 1,853,715 1,785,464 470,469 321,571
Research and
development.......... 2,413,366 3,516,856 2,417,779 660,522 273,868
Marketing and sales... 1,539,504 947,866 1,058,364 250,803 171,955
General and
administrative....... 1,983,024 2,426,639 1,831,229 485,683 557,599
----------- ----------- ----------- ---------- ----------
7,156,945 8,745,076 7,092,836 1,867,477 1,324,993
----------- ----------- ----------- ---------- ----------
Net operating loss...... (3,439,922) (6,045,831) (3,610,974) (291,169) (840,946)
Other income (expense).. 468,155 276,367 (92,465) 26,048 (1,526)
----------- ----------- ----------- ---------- ----------
Net loss................ (2,971,767) (5,769,464) (3,703,439) (265,121) (842,472)
Preferred stock
dividends.............. -- (14,246) (148,452) (25,000) (35,714)
----------- ----------- ----------- ---------- ----------
Net loss applicable to
common shares.......... $(2,971,767) $(5,783,710) $(3,851,891) $ (290,121) $ (878,186)
=========== =========== =========== ========== ==========
Basic and diluted net
loss per common share.. $ (2.12) $ (4.07) $ (2.70) $ (0.20) $ (0.62)
=========== =========== =========== ========== ==========
Basic and diluted
weighted average common
shares outstanding..... 1,402,140 1,421,066 1,424,731 1,424,736 1,424,729
=========== =========== =========== ========== ==========
35
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The selected unaudited pro forma consolidated condensed combined financial
data, which has been derived from the selected historical financial statements,
appearing elsewhere herein or incorporated herein by reference, gives effect to
the business combination of Permatec and Medi-Ject. This pro forma combined
financial information should be read in conjunction with the pro forma
financial statements and their notes. For the purpose of the unaudited pro
forma condensed combined balance sheet data, Permatec's balance sheet as of
March 31, 2000, has been combined with Medi-Ject's balance sheet of same date.
For the purpose of the unaudited pro forma condensed combined statements of
operations data, Permatec's consolidated results of operations for the year
ended December 31, 1999 and the three (3) months ended March 31, 2000, have
been combined with Medi-Ject's results of operations for the year ended
December 31, 1999 and the three (3) months ended March 31, 2000. The pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the future operating results or financial position of the
combined enterprise.
As of
March 31, 2000
--------------
Pro Forma Condensed Combined Balance Sheet Data:
Cash and cash equivalents...................................... $ 541,660
Total assets................................................... 7,117,058
Long-term obligations.......................................... 199,274
Stockholders' equity........................................... 5,082,205
Book value per share........................................... 1.18
Year Ended Quarter Ended
December 31, 1999 March 31, 2000
----------------- --------------
Pro Forma Condensed Combined Statement of
Operations Data:
Net revenue................................ $ 4,813,469 $ 484,047
Net loss................................... (7,738,161) (2,179,674)
Net loss attributable to common
stockholders.............................. (7,886,613) (2,215,388)
Net loss per share (basic and diluted)..... (1.82) (0.51)
COMPARATIVE PER SHARE DATA
The following table summarizes certain per share information for Permatec
and Medi-Ject on a historical basis. The following information should be read
in conjunction with the audited and unaudited financial statements of Permatec
and Medi-Ject. The historical book value per share is computed by dividing
total stockholders' equity (deficit) by the number of common shares outstanding
at the end of the period. The net loss per share from continuing operations is
computed by dividing the net loss from continuing operations by the weighted
average number of shares outstanding.
Year Ended Quarter Ended
PERMATEC December 31, 1999 March 31, 2000
- - -------- ----------------- --------------
Historical Per Common Share Data:
Net loss--(basic and diluted)................ $(380.94) $ (128.09)
Book value (deficit)......................... $(961.43) $(1,060.23)
Year Ended Quarter Ended
MEDI-JECT December 31, 1999 March 31, 2000
- - --------- ----------------- --------------
Historical Per Common Share Data:
Net loss--(basic and diluted) ............... $ (2.70) $ (0.62)
Book value................................... $ 0.74 $ 0.13
36
SECURITIES
Permatec is privately held with 5 holders of record of common stock and
10,000 shares outstanding as of March 31, 2000.
Medi-Ject is publicly traded on the Nasdaq SmallCap Market. As of June 30,
2000, there were approximately 127 holders of record of common stock and
another estimated 2,099 shareholders whose stock is held by nominees or broker
dealers with approximately 1,424,869 shares of common stock outstanding. As of
June 30, 2000, there was one holder of record of 1,100 shares of Series A
Preferred Stock and one holder of record of 250 shares of Series B Preferred
Stock outstanding, which are convertible into a total of approximately 387,248
common shares.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Medi-Ject will issue 2,900,000 shares of its common stock in exchange for
three of Permatec's subsidiaries: Permatec Pharma AG, Permatec Technologie AG
and Permatec NV. The transaction is being accounted for as a reverse
acquisition because Permatec shareholders will hold approximately 67% of the
outstanding common stock of Medi-Ject after the business combination.
Accordingly, for accounting purposes, Permatec is deemed to have acquired Medi-
Ject. The transaction is valued at approximately $3.6 million, which represents
the fair market value of Medi-Ject. For accounting purposes, the fair value of
Medi-Ject is based on the 1,424,729 shares of Medi-Ject common stock
outstanding on January 26, 2000 at an average price three days before and after
such date of approximately $2.50 per share. On this date, Medi-Ject publicly
announced its intentions to enter into the Permatec transaction and the
transaction's consideration had been established pursuant to a letter of
intent.
The following pro forma unaudited condensed financial statements give effect
to the business combination of Permatec with Medi-Ject. The business
combination transaction has been accounted for under the purchase method of
accounting. The unaudited pro forma balance sheet as of March 31, 2000, gives
effect to the business combination as if this transaction had occurred on March
31, 2000. The pro forma statement of operations is based on historical results
of operations of both Permatec and Medi-Ject for the year ended December 31,
1999 and three (3) months ended March 31, 2000, and gives effect to the
business combination as if it had occurred on January 1, 1999.
The unaudited pro forma combined financial statements should be read in
conjunction with the historical financial statements and notes thereto included
herein and incorporated by reference for Permatec and Medi-Ject, respectively.
The pro forma financial information is presented for illustrative purposes only
and is not necessarily indicative of the future financial position or future
results of operations of the consolidated company after the business
combination of Permatec and Medi-Ject, or of the financial position or results
of operations of the consolidated company that would have actually occurred had
the business combination of Permatec with Medi-Ject been effected as of the
dates described above.
37
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET (A)
MARCH 31, 2000
Permatec Medi-Ject Pro Forma Pro Forma
Holding AG Corporation Adjustments Consolidated
------------ ------------ ------------ ------------
ASSETS
Current Assets:
Cash and cash
equivalents.......... $ 492,076 $ 49,584 $ $ 541,660
Accounts receivable,
net.................. 167,071 98,359 265,430
Inventories........... -- 559,321 559,321
Prepaid expenses and
other current
assets............... 80,432 37,634 118,066
------------ ------------ ------------ ------------
739,579 744,898 1,484,477
------------ ------------ ------------
Equipment, furniture and
fixtures, net.......... 796,833 925,080 1,721,913
Patent rights, net...... 243,043 286,103 529,146
Cost in excess of fair
value of assets
acquired, net.......... -- -- 3,379,788 (A)(B) 3,379,788
Other assets............ 1,734 -- 1,734
------------ ------------ ------------ ------------
1,781,189 1,956,081 3,379,788 7,117,058
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade accounts
payable.............. 172,292 591,033 763,325
Accounts payable,
other................ 172,537 -- 172,537
Accrued expenses and
other liabilities.... 268,178 616,947 885,125
Convertible note
payable.............. -- 500,000 (500,000)(D) --
Restructuring
provisions........... 382,273 -- (382,273)(C) --
Long-term obligations,
current.............. -- 14,592 14,592
Liabilities to related
parties.............. 329,438 -- (329,438)(C) --
------------ ------------ ------------ ------------
1,324,718 1,722,572 (1,211,711) 1,835,579
------------ ------------ ------------ ------------
Long-Term Liabilities:
Loans from
shareholders......... 10,911,001 -- (10,911,001)(C) --
Long-term obligations,
less current......... -- 51,474 51,474
Other................. 147,800 -- 147,800
------------ ------------ ------------ ------------
11,058,801 51,474 (10,911,001) 199,274
------------ ------------ ------------ ------------
Shareholders' Equity
(Deficit):
Preferred stock--
Series A, B & C...... -- 13 25 (D) 38
Common stock.......... 606,061 14,247 (606,061)(A)
29,000 (A) 43,247
Cumulative other
comprehensive Loss... (58,774) -- (58,774)
Additional paid-in
capital.............. -- 25,193,796 606,061 (A)
(25,193,796)(A)
3,532,823 (A)
(14,260)(A)
11,622,712 (C)
499,975 (D) 16,247,311
Accumulated (deficit)... (11,149,617) (25,026,021) 25,026,021 (A) (11,149,617)
------------ ------------ ------------ ------------
(10,602,330) 182,035 15,502,500 5,082,205
------------ ------------ ------------ ------------
$ 1,781,189 $ 1,956,081 $ 3,379,788 $ 7,117,058
============ ============ ============ ============
38
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS (A)
YEAR ENDED DECEMBER 31, 1999
Permatec Medi-Ject Pro Forma Pro Forma
Holding AG Corporation Adjustments Consolidated
----------- ----------- ----------- ------------
Revenues:
Product sales......... $ -- $ 2,100,735 $ $ 2,100,735
Product development... 1,016,533 -- 1,016,533
License revenue....... 311,740 1,381,127 1,692,867
Contract research..... 3,334 -- 3,334
----------- ----------- -----------
1,331,607 3,481,862 4,813,469
----------- ----------- -----------
Operating expenses:
Cost of product
sales................ -- 1,785,464 1,785,464
Research and
development.......... 1,647,059 2,417,779 4,064,838
Marketing and sales... 213,110 1,058,364 1,271,474
General and
administrative....... 3,042,551 1,831,229 4,873,780
Amortization of
goodwill............. -- -- 225,319 (B) 225,319
----------- ----------- --------- -----------
4,902,720 7,092,836 225,319 12,220,875
----------- ----------- --------- -----------
Net operating loss...... (3,571,113) (3,610,974) (225,319) (7,407,406)
Other expense........... (159,120) (92,465) -- (251,585)
----------- ----------- --------- -----------
Net loss before taxes... (3,730,233) (3,703,439) (225,319) (7,658,991)
Income tax expense...... 79,170 -- -- 79,170
----------- ----------- --------- -----------
Net loss................ (3,809,403) (3,703,439) (225,319) (7,738,161)
Preferred stock
dividends.............. -- (148,452) -- (148,452)
----------- ----------- --------- -----------
Net loss applicable to
common shares.......... $(3,809,403) $(3,851,891) $(225,319) $(7,886,613)
=========== =========== ========= ===========
Basic and diluted net
loss per common share.. $ (380.94) $ (2.70) $ (1.82)
=========== =========== ===========
Basic and diluted
weighted average number
of shares outstanding
....................... 10,000 1,424,731 2,890,000 (E) 4,324,731
=========== =========== ========= ===========
39
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS (A)
THREE MONTHS ENDED MARCH 31, 2000
Permatec Medi-Ject Pro Forma Pro Forma
Holding AG Corporation Adjustments Consolidated
----------- ----------- ----------- ------------
Revenues:
Product sales......... $ -- $ 461,259 $ $ 461,259
Product development... -- 22,788 22,788
License revenue....... -- -- --
Contract research..... -- -- --
----------- ---------- -----------
-- 484,047 484,047
----------- ---------- -----------
Operating expenses:
Cost of product
sales................ -- 321,571 321,571
Research and
development.......... 227,574 273,868 501,442
Marketing and sales... -- 171,955 171,955
General and
administrative....... 913,201 557,599 1,470,800
Amortization of
goodwill............. -- -- 56,330 (B) 56,330
----------- ---------- --------- -----------
1,140,775 1,324,993 56,330 2,522,098
----------- ---------- --------- -----------
Net operating loss...... (1,140,775) (840,946) (56,330) (2,038,051)
Other expense........... (152,551) (1,526) -- (154,077)
----------- ---------- --------- -----------
Net loss before taxes... (1,293,326) (842,472) (56,330) (2,192,128)
Income tax benefit...... 12,454 -- -- 12,454
----------- ---------- --------- -----------
Net loss................ (1,280,872) (842,472) (56,330) (2,179,674)
Preferred stock
dividends.............. -- (35,714) -- (35,714)
----------- ---------- --------- -----------
Net loss applicable to
common shares.......... $(1,280,872) $ (878,186) $ (56,330) $(2,215,388)
=========== ========== ========= ===========
Basic and diluted net
loss per common share.. $ (128.09) $ (0.62) $ (0.51)
=========== ========== ========= ===========
Basic and diluted
weighted average number
of shares outstanding.. 10,000 1,424,729 2,890,000 (E) 4,324,731
=========== ========== ========= ===========
40
NOTES TO THE UNAUDITED AND PRO FORMA CONDENSED FINANCIAL DATA
Pro Forma Assumptions and Adjustments:
(1) Assumptions
(A) The transaction is being accounted for as a reverse acquisition because
Permatec shareholders will hold approximately 67% of the outstanding
common stock of Medi-Ject after the business combination. Accordingly,
for accounting purposes, Permatec is deemed to have acquired Medi-Ject.
The transaction is valued at approximately $3.6 million, which
represents the fair market value of Medi-Ject. For accounting purposes,
the fair value of Medi-Ject is based on the 1,424,729 shares of Medi-
Ject common stock outstanding on January 26, 2000 at an average price
three days before and after such date of approximately $2.50 per share.
On this date, Medi-Ject publicly announced its intentions to enter into
the Permatec transaction and the transaction's consideration had been
established pursuant to a letter of intent.
The amount of the purchase price in excess of the historical net book
value of the acquired assets and assumed liabilities of Medi-Ject in
the business combination has been allocated to goodwill in the
accompanying pro forma presentation, and is for illustrative purposes
only. The actual purchase price allocation will be based on the fair
values of the acquired assets and assumed liabilities as of the actual
acquisition date.
(2) Adjustments
(B) Represents amortization of goodwill and other intangible assets of
$225,319 for the year ended December 31, 1999, and $56,330 for the
three (3) months ended March 31, 2000 that would have been recorded
during the period covered by the pro forma statement of operations
related to the business combination between Permatec and Medi-Ject. The
pro forma adjustment is based on the assumption that the entire amount
identified as goodwill and other intangible assets will be amortized on
a straight-line basis over a fifteen-year period. Medi-Ject has engaged
a third-party to value the actual intangible assets to be acquired.
When completed, certain amounts identified as intangible assets may be
amortized over periods other than the fifteen-year period presented in
the pro forma statement of operations. Additionally, a portion of the
purchase price may be identified as in-process research and
development. This amount, if any, will be charged to operating results
in Medi-Ject's fiscal year 2000 financial statements, when the
acquisition accounting and valuation amounts are finalized. The pro
forma statement of operations does not give effect to any potential in-
process research and development charge related to the transactions.
(C) The historical financial statements of Permatec include the operations
of Permatec's subsidiaries in France and Argentina, which are not being
purchased by Medi-Ject. In connection with the liquidation of these
subsidiaries, there was a restructuring provision of $382,273.
Liabilities to related parties of $329,438 have been recorded as an
increase to additional paid-in capital. In connection with the Share
Transaction, Permatec loans of $10,911,001 from shareholders will be
converted to additional paid-in capital.
(D) Reflects the conversion of $500,000 of convertible notes held by
Permatec into 2,500 shares of $.01 par value, $200 stated value Medi-
Ject Series C Convertible Preferred Stock.
(E) Because the pro forma statement of operations results in a loss, the
pro forma basic and diluted loss per common share are computed by
dividing the loss available to shares by the weighted average number of
common shares outstanding. The calculation of the pro forma weighted
average number of common shares outstanding assumes that the 2,900,000
shares of Medi-Ject's common stock issued in the Share Transaction with
Permatec were outstanding as of January 1, 1999.
THE BOARD OF DIRECTORS HAS APPROVED THE TERMS OF THE STOCK PURCHASE AGREEMENT
AND THE SHARE TRANSACTION. THE BOARD BELIEVES THAT THE PROPOSAL IS IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE FOR
THE APPROVAL OF THE PROPOSAL.
41
THE AMENDMENT TO THE ARTICLES OF INCORPORATION PROPOSAL
(PROPOSAL 2 ON PROXY CARD)
SUMMARY OF THE PROPOSED AMENDMENT
Our Second Amended and Restated Articles of Incorporation, as amended to
date, (the "Articles") currently authorize 4,400,000 shares of capital stock,
3,400,000 of which are common stock, par value $.01 per share, and 1,000,000 of
which are preferred stock, par value $.01 per share. We are requesting your
approval to increase the authorized number of shares of common stock from
3,400,000 shares to 15,000,000 and to increase the authorized number of shares
of preferred stock from 1,000,000 to 3,000,000.
OUR CURRENT CAPITAL STRUCTURE
As of July 7, 2000, 1,424,869 shares of Medi-Ject common stock were issued
and outstanding and an additional 931,033 shares of Medi-Ject common stock were
reserved for issuance under the our stock incentive plans and existing options
and warrants. We also have 1,100 shares of Series A Convertible Preferred Stock
issued and outstanding as of July 7, 2000. The Series A Convertible Preferred
Stock is convertible into Medi-Ject common stock on November 10, 2008. Each
share of outstanding Series A Convertible Preferred Stock is convertible into
that number of shares obtained by dividing $1,000 (plus any accrued but unpaid
dividends) by the lesser of $7.50 per share or 95% of the market price of the
Medi-Ject common stock on the conversion date. Based on the market closing
price as of July 7, 2000 of $4.031, an aggregate of 287,248 shares of Medi-Ject
common stock would be issuable on conversion of all outstanding shares of
Series A Convertible Preferred Stock. We also have 250 shares of Series B
Convertible Preferred Stock issued and outstanding as of July 7, 2000. The
Series B Convertible Preferred Stock is convertible into that number of shares
obtained by dividing $1,000 (plus any declared and unpaid dividends) by the
lesser of (i) $2.50 per share or (ii) the average of the closing prices per
share of the Medi-Ject common stock for the immediately preceding 20 trading
days. Based on the market closing price as of July 7, 2000 of $4.031 an
aggregate of 100,000 shares of Medi-Ject common stock would be issuable upon
conversion of the outstanding shares of Series B Convertible Preferred Stock.
In addition, we are obligated to issue common stock upon conversion of the
Series C Convertible Preferred Stock. Currently, an aggregate of $1,950,000
principal amount of Permatec Notes are outstanding. The Permatec Notes will
convert into shares of Series C Convertible Preferred Stock. Assuming
shareholder approval of Proposal 3, each share of Series C Convertible
Preferred Stock is convertible in certain circumstances into 100 shares of
Medi-Ject common stock (which would have equalled an aggregate of 975,000
shares if such shares had been outstanding and converted as of July 7, 2000).
Accordingly, total shares of Medi-Ject common stock outstanding of 1,424,869
shares on July 7, 2000, when aggregated with 931,033 shares issuable upon
exercise of outstanding options and warrants, up to 287,248 shares issuable
upon conversion of the Series A Convertible Preferred Stock, 100,000 shares
issuable upon conversion of the Series B Convertible Preferred Stock and up to
975,000 shares issuable upon conversion of the Series C Preferred Stock (if it
had been outstanding as of such date), exceeds the 3,400,000 shares of Medi-
Ject common stock currently authorized.
BACKGROUND AND REASONS FOR THE PROPOSED AMENDMENT
As discussed in Proposal 1, we need to amend the articles to increase the
authorized common and preferred stock in order to proceed with and close the
Share Transaction. See Proposal 1 for reasons for the Share Transaction. Even
if we do not go forward with the Share Transaction (because shareholder
approval was not received or other conditions were not met), we need to
increase the authorized capital stock to reserve the appropriate number of
shares for the conversion of the Series A Convertible Preferred Stock, the
Series B Convertible Preferred Stock and the Series C Convertible Preferred
Stock and to explore and implement any other financing alternatives, if any are
available. As of December 31, 1999, we held cash and cash equivalents of $0.1
million. In addition, we reported a net loss of approximately $3.9 million for
the year ended December 31, 1999. We currently anticipate that cash on hand,
plus expected revenue from product sales and various development and licensing
agreements, will be insufficient to fund expected losses and meet other cash
usage needs each month. We will be required to raise additional capital through
debt or equity offerings, and we anticipate such offerings will involve the
sale of common or preferred stock, warrants to purchase common or preferred
stock or securities convertible into common stock. We may not be able to obtain
any such
42
financing if there are not sufficient shares of common or preferred stock
available to issue to prospective investors or to issue upon exercise of
warrants or convertible securities sold to prospective investors. While we are
in the process of contacting prospective investors in connection with the
financing described in Proposal 1, we do not have any firm commitments from
investors to purchase securities. No assurance can be given that we will be
able to raise additional financing on acceptable terms or that we will have
adequate funds to continue operations. KPMG LLP, in its Independent Auditors'
Report dated February 18, 2000, stated that substantial doubt has been raised
about our ability to continue as a going concern.
THE IMPACT OF APPROVAL OR DISAPPROVAL OF THE PROPOSAL
If this proposal and Proposal 1--The Share Transaction are approved, we will
be able to proceed with the Share Transaction. If this proposal and Proposal
3--The Series C Stock Conversion Proposal are approved, the Series C Stock will
be able to be converted. Furthermore, if this proposal and Proposal 4--The
Series B Stock Conversion Proposal are approved, the Series B Stock will be
able to be converted at the holder's option. The additional shares of Medi-Ject
common stock, if and when issued, would be part of the existing class of
Medi-Ject common stock and would have the same rights and privileges as the
shares of Medi-Ject common stock currently outstanding. If the proposed
amendment is approved, the additional shares of Medi-Ject common stock would be
available for issuance without further action by the shareholders, unless such
action is required by applicable law, the rules of the National Association of
Securities Dealers, Inc., or any stock exchange on which Medi-Ject securities
may be listed. The additional shares of preferred stock, if and when issued,
would have the rights and preferences designated by the Board of Directors and
would be available for issuance without further action by the shareholders,
unless such action is required by applicable law, the rules of the National
Association of Securities Dealers, Inc., or any stock exchange on which Medi-
Ject securities may be listed.
If this proposal is not approved, we will not be able to proceed with the
Share Transaction (see Proposal 1), the Series C Stock will not be able to be
converted (see Proposal 3) and the Series B Stock (see Proposal 4) will not be
converted at the holder's option and we may be required to redeem the Series B
Stock at a higher price than its liquidation value (see Proposal 4--Background
of and Reasons to Approve). Furthermore, if this proposal is not approved, we
may not be able to obtain other financing and we may not have sufficient
resources to continue operations.
On the date of this Proxy Statement, the Board of Directors has not
authorized the issuance of any additional shares of Medi-Ject common stock,
except in connection with currently outstanding options, warrants, the Series A
Stock, the Series B Stock and the Permatec Notes into Series C Stock and,
except as described in Proposal 1--The Share Transaction, we do not have any
agreements or commitments with respect to the sale or issuance of any shares of
Medi-Ject common stock.
THE TEXT OF THE PROPOSED AMENDMENT
The Board of Directors recommends that we amend Article III of the Articles
to increase the number of authorized shares of common stock from 3,400,000 to
15,000,000 and to increase the number of authorized shares of preferred stock
from 1,000,000 to 3,000,000 shares. If the shareholders approve the amendment,
the first sentence of Article III will read as follows:
The first sentence of Article III is hereby amended to read as follows:
"The total number of shares of capital stock which the corporation is
authorized to issue shall be 18,000,000 shares, consisting of 15,000,000
shares of common stock, par value $.01 per share ("Common Stock"), and
3,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock")."
THE BOARD OF DIRECTORS HAS APPROVED THE PROPOSED AMENDMENT TO OUR ARTICLES TO
INCREASE THE AUTHORIZED COMMON STOCK FROM 3,400,000 TO 15,000,000 SHARES AND TO
INCREASE THE AUTHORIZED PREFERRED STOCK FROM 1,000,000 TO 3,000,000. THE BOARD
BELIEVES THAT THE PROPOSAL IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE PROPOSAL.
43
THE SERIES C STOCK CONVERSION PROPOSAL
(PROPOSAL 3 ON PROXY CARD)
GENERAL
At the meeting, a vote will be taken to approve the future conversion of
Medi-Ject Series C Convertible Preferred Stock, $.01 par value per share (the
"Series C Stock") to Medi-Ject common stock. As of July 7, 2000, there are no
shares of Series C Stock issued and outstanding. Permatec, however, holds the
Permatec Notes, all of which will convert into Series C Stock upon the closing
of the Share Transaction or earlier, if we and Permatec agree. The Permatec
Notes will convert into a number of shares of Series C Stock equal to the
outstanding principal balance of the Permatec Notes divided by $200. Without
shareholder approval, conversion of Series C Stock into Medi-Ject common stock
is allowed only to the extent permitted under the Nasdaq Stock Market rules; we
are seeking your approval for conversion in full.
Series C Stock is convertible at the option of the holder into shares of
Medi-Ject common stock at any time after the closing of the Share Transaction
or after October 31, 2000 if the Share Transaction is not completed by such
date. The number of shares of Medi-Ject common stock to be issued upon a
conversion of the Series C Convertible Preferred Stock shall be equal to the
quotient obtained by dividing (i) the sum of (A) the outstanding face amount of
the Series C Convertible Preferred Stock, plus (B) all accrued but unpaid
interest on such face amount; by the lesser of (i) the average of the closing
prices per share of the Medi-Ject common stock for the twenty (20) consecutive
trading days immediately preceding the conversion date, or (ii) $2.00. Nasdaq
Stock Market Rule 4310(c)(25)(G)(i) requires shareholder approval of the
issuance of shares in excess of 20% of the outstanding voting power of the
Company. If the Series C Stock was outstanding as of July 7, 2000, based upon
outstanding Permatec Notes of $1,950,000 as of such date, such Series C Stock
would be convertible into 975,000 shares of Medi-Ject common stock, or 68% of
the currently outstanding Medi-Ject common stock.
BACKGROUND AND REASONS TO APPROVE
While negotiating the Purchase Agreement and in order to finance our
continuing operations, Permatec agreed to invest up to $4,500,000 in Medi-Ject.
On each of January 25, 2000 and April 3, 2000, we entered into a Convertible
Note Purchase Agreement with Permatec. As of July 12, 2000, we have issued,
pursuant to the two Convertible Note Purchase Agreements, Permatec Notes in the
aggregate amount of $1,950,000:
Amount of
Date of Note Note
------------ ----------
January 25, 2000 $ 250,000
February 29, 2000 250,000
April 3, 2000 500,000
May 2, 2000 250,000
May 26, 2000 350,000
June 26, 2000 350,000
----------
Total $1,950,000
==========
In order to continue operations, we may issue additional convertible notes.
The Permatec Notes convert into Series C Stock which are convertible into
Medi-Ject common stock, as described above. The other terms of the Series C
Stock are as follows:
. The Series C Stock is non-voting.
. The Series C Stock will not accrue a dividend, however, if the Share
Transaction has not been closed by October 31, 2000, the Series C Stock
will begin accruing a dividend of 10% annually, such dividend payable in
Medi-Ject common stock.
. The Series C Stock will have a liquidation preference equal to the
purchase price of such stock.
44
. The Series C Stock will be redeemable by us, at our option, upon the
closing of an equity investment in Medi-Ject of $7,000,000 or more. In
addition, if the Share Transaction has not closed by October 31, 2000,
the Series C Stock will be redeemable by us at any time upon prior
notice to the holder of such stock.
. We agreed to use our best efforts to obtain the necessary shareholder
approvals of the conversion terms.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO APPROVE THE ABOVE PROPOSAL
TO APPROVE THE CONVERSION OF THE SERIES C PREFERRED STOCK.
45
THE SERIES B STOCK CONVERSION PROPOSAL
(PROPOSAL 4 ON PROXY CARD)
GENERAL
At the meeting, a vote will be taken to approve the conversion, at the
holder's option, of Medi-Ject Series B Convertible Preferred Stock, $.01 par
value per share (the "Series B Stock") to Medi-Ject common stock. Pursuant to
our Certificate of Designations, Preferences and Rights of Series B Convertible
Preferred Stock, after we have filed an amendment to our articles increasing
the authorized Medi-Ject common stock from 3,400,000 to at least 10,000,000
shares (see Proposal 2) and have obtained any necessary approvals of the
conversion (the amendment and the approvals are referred to as "Permissible
Conversion Events"), a holder of Series B Stock may choose to convert the
Series B Stock into Medi-Ject common stock. In the event that a holder does not
convert, an Automatic Conversion will occur on the later of: (1) the occurrence
of the Permissible Conversion Events or (2) June 20, 2001. Based on the market
closing price as of July 7, 2000 of $4.031, an aggregate of 100,000 shares of
Medi-Ject common stock would be issuable on conversion of all outstanding
shares of Series B Stock. Without shareholder approval, conversion of Series B
Stock into Medi-Ject common stock is allowed only to the extent permitted under
the Nasdaq rules; we are seeking your approval for conversion in full.
Nasdaq Stock Market Rule 4310(c)(25)(G)(i) requires shareholder approval of
the issuance of shares in excess of 20% of our outstanding voting power. Based
on the conversion price as of July 7, 2000, the Series B Stock is convertible
into approximately 7% of the outstanding voting shares, which would not require
shareholder approval. However, the conversion price, as described below, floats
based on the trading price of the common stock, and accordingly it is possible
that when the Series B Stock converts in the future, based on a future stock
price, the holders of Series B Preferred Stock could receive more than 20% of
our voting securities. Nasdaq's interpretation of its shareholder approval rule
requires prior shareholder approval of such conversion in that instance. Each
share of Series B Stock is convertible in accordance with the following
formula:
1. the original purchase price ($1,000 per share) plus any declared and
unpaid dividends
2. divided by the conversion price applicable of each share of Medi-Ject
common stock which equals the lesser of:
(i) the average of the closing prices per share of the Medi-Ject
common stock for the 20 consecutive trading days immediately
preceding the Optional Conversion Date (or Automatic Conversion
Date, as applicable); or
(ii) $2.50 per share
BACKGROUND AND REASONS TO APPROVE
To raise working capital, we entered into a Preferred Stock Purchase
Agreement dated as of December 22, 1999 (the "Preferred Stock Agreement")
pursuant to which we issued 250 shares of the Series B Stock at a price of
$1,000 per share. In the Preferred Stock Agreement, we agree to use our best
efforts to amend our articles to increase the authorized Medi-Ject common stock
as set forth in Proposal 2 and to obtain the necessary approvals of the
conversion before December 22, 2000. If we do not complete the amendment and
the approval by such date, we must immediately redeem all 250 shares of the
Series B Stock at a price per share equal to 105% of the liquidation preference
as defined in the Certificate of Designation. As we are not in the financial
position to redeem the Series B Stock at such a price, it is important that we
fulfill our obligations to amend the articles and approve the conversion.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO APPROVE THE ABOVE PROPOSAL
TO APPROVE THE CONVERSION, AT THE HOLDER'S OPTION, OF THE SERIES B PREFERRED
STOCK.
46
THE ELECTION OF DIRECTORS PROPOSAL
(PROPOSAL 5 ON PROXY CARD)
Our Second Amended and Restated Articles of Incorporation provide that the
Board of Directors be divided into three classes of directors of as nearly
equal size as possible. The members of each class are elected to serve a three-
year term, and the terms are staggered. The terms of Kenneth Evenstad and Karl
Groth will expire at the 2000 Annual Meeting of Shareholders; the terms of
Geoffrey Guy and Fred Shapiro will expire at the 2001 Annual Meeting of
Shareholders; and the terms of Franklin Pass and Stanley Goldberg will expire
at the 2002 Annual Meeting of Shareholders. Vacancies on the Board of Directors
and newly created directorships can be filled by the vote of a majority of the
directors then in office.
The Board of Directors has nominated and recommended that Kenneth Evenstad
and Karl Groth be elected as Directors at the 2000 Annual Meeting of
Shareholders, each to hold office until the Annual Meeting of Shareholders in
the year 2003 or until his respective successor is duly elected and qualified.
Each of the nominees is currently a member of our Board of Directors and has
indicated a willingness to serve as a director if elected. In case any nominee
is not a candidate for any reason, the proxies named in the enclosed form of
proxy may vote for a substitute nominee in their discretion, unless an
instruction to the contrary is indicated on the proxy. We have no reason to
believe that any nominee will, if elected, be unable to serve as a director.
However, if the Share Transaction is approved, as requested by the terms of the
Share Transaction, as described in Proposal 1, Karl Groth, Geoffrey Guy, Fred
Shapiro and Stanley Goldberg will resign from the Board.
The accompanying proxy will be voted in favor of the election of the
nominees of directors, unless the shareholder giving the proxy indicates to the
contrary on the proxy.
The Board of Directors recommends a vote FOR the election of Kenneth Evenstad
and Karl E. Groth.
Certain information concerning the nominees and other directors follows:
Nominations for Election at the 2000 Annual Meeting of Shareholders
Name Age
---- ---
Kenneth Evenstad 56 Mr. Evenstad joined the Board of Directors in May 1993
and is a member of the Audit Committee of the Board of
Directors. Since 1969, Mr. Evenstad has been the
Chairman and Chief Executive Officer of Upsher-Smith
Laboratories, Inc., a private pharmaceutical company
specializing in branded generic cardiovascular drugs.
Mr. Evenstad is a pharmacist.
Karl E. Groth 52 Mr. Groth joined the Board of Directors in February
1998 and is a member of the Compensation Committee of
the Board of Directors. Mr. Groth is the
President/Chief Executive Officer of First Circle
Medical Inc., a medical device company that produces
equipment related to the treatment of AIDS and
hepatitis using hyperthermia. From 1996 to 1997, he was
the President and Chief Executive Officer of Browne
Medical Systems, Inc., a medical device company that
produces equipment for the urodynamic market. From 1992
to 1996, Mr. Groth was the Director of Clinical and
Regulatory Affairs & Vice President Sales and Marketing
of InStent Inc., a medical products company. He also
has held positions with Medtronic, Inc., the University
of Minnesota and Upjohn Pharmaceutical Company.
47
Directors Whose Terms Continue Until the 2001 Annual Meeting of Shareholders
Geoffrey Guy, M.D. 45 Dr. Guy joined the Board of Directors in November
1993 and is a member of the Compensation Committee
of the Board of Directors. In 1985, Dr. Guy
founded Ethical Holdings plc, a company that
develops new transdermal and oral drug delivery
systems and was its Chairman and Chief Executive
Officer until December 1997. Dr. Guy is a director
of GW Pharmaceuticals Ltd, a pharmaceutical
company located in the U.K and he holds a Diploma
of Pharmaceutical Medicine from the British Royal
College of Physicians.
Fred L. Shapiro, M.D. 65 Dr. Shapiro joined the Board of Directors in
September 1992. He is Chairman of the Compensation
Committee of the Board of Directors. Dr. Shapiro
was president of Hennepin Faculty Associates, an
organization of the medical staff of the Hennepin
County Medical Center in Minneapolis, Minnesota,
from 1983 until his retirement in 1995. Dr.
Shapiro is a nephrologist who has authored or co-
authored more than 100 published medical and
scientific articles. Dr. Shapiro was also a co-
founder of Minntech, a company that designs and
manufactures medical equipment. He has been a
director of Minntech since its incorporation in
1974.
Directors Whose Terms Continue Until the 2002 Annual Meeting of Shareholders
Franklin Pass, M.D. 63 Dr. Pass joined our company as a director and
consultant in January 1992 and has served as our
President, Chief Executive Officer and Chairman of
the Board of Directors since February 1993. From
1990 to 1992, Dr. Pass served as President of
International Agricultural Investments, Ltd., an
agricultural technology consulting and investment
company. Dr. Pass, a physician and scientist, was
Director of the Division of Dermatology at Albert
Einstein College of Medicine from 1967 to 1973,
the Secretary and Treasurer of the American
Academy of Dermatology from 1978 to 1981 and the
co-founder and Chief Executive Officer of
Molecular Genetics, Inc., now named MGI Pharma,
Inc., from 1979 to 1986. He is the author of more
than 40 published medical and scientific articles.
Dr. Pass also serves on the Board of Directors of
Verdant Brands, Inc. (formerly Ringer
Corporation), a leading manufacturer of garden
pesticides.
Stanley Goldberg 53 Mr. Goldberg joined the Board of Directors in
February 1998 and is a member of the Audit
Committee of the Board of Directors. Mr. Goldberg
is currently the Managing Partner of Goldmark
Advisors, a business development firm focused on
emerging and high growth potential companies.
Previously, he served as Chairman of the Board of
Verdant Brands, Inc. (formerly Ringer Corporation)
since 1996, Chief Executive Officer since 1993 and
its President since 1991. From 1990 to 1992, Mr.
Goldberg was Vice President and General Manager of
Thomson, S.A., World Wide Audio Division, and,
from 1988 to 1990, General Manager of Thomson
S.A., Audio Americas Operations. Thomson, S.A. is
a defense and electronics company. From 1986 to
1988, Mr. Goldberg was Manager of Product
Development for General Electric Company, a
consumer and industrial products and defense
company. Mr. Goldberg also held various positions
in marketing and management at General Electric.
Mr. Goldberg also is a director of Destron-
Fearing.
None of the above directors are related to one another or to any executive
officer of our company.
48
Information Concerning the Board of Directors
The Board of Directors met eleven times during 1999. The Board of Directors
acted by written action one time during 1999. The Board of Directors has an
Audit and a Compensation Committee.
The Audit Committee, consisting of Mr. Evenstad, Mr. Goldberg and Dr.
Shapiro met one time during 1999. The Audit Committee reviews the results and
scope of the audit and other services provided by our independent auditors, as
well as our accounting principles and systems of internal controls, and reports
the results of its review to the full Board of Directors and to management.
The Compensation Committee, consisting of Dr. Shapiro, Dr. Guy and Mr.
Groth, met two times during 1999. The Compensation Committee makes
recommendations concerning executive salaries and incentive compensation for
employees and administers our 1993 Stock Option Plan (the "1993 Plan"). The
Board of Directors, as a whole, administers our 1996 Incentive and Stock Option
Plan (the "1996 Plan") and the 1998 Stock Option Plan for Non-Employee
Directors (the "Directors Plan").
During 1999, each of the directors attended at least 75% of the aggregate
number of meetings of the Board of Directors and of the Committees on which he
serves with the exception of Karl Groth who attended 64% of the Board of
Directors meetings held during the year.
Compensation of Directors
Historically, we have not paid directors' fees. All directors may be
reimbursed for expenses actually incurred in attending meetings of the Board of
Directors and its committees. In the past, the Board of Directors has made
annual discretionary grants of options to purchase shares of Common Stock under
our 1993 Plan and 1996 Plan to certain members of the Board of Directors. The
size of these grants has varied from year to year. In accordance with the
Directors' Plan, eligible non-employee directors will receive an automatic
grant of an option to purchase 1,000 shares of Medi-Ject common stock as of the
first business day of each calendar year. The Directors' Plan also provides for
an initial option grant of 2,000 shares of Medi-Ject common stock on the day
that the director is first elected to the Board of Directors.
49
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Overview
The Compensation Committee is responsible for establishing compensation
policies for all executive officers of our company, including the three most
highly compensated executive officers named in the accompanying tables (the
"Named Executives Officers"). The members of the Compensation Committee are Dr.
Shapiro, Dr. Guy and Mr. Groth. The Compensation Committee establishes the
total compensation for the executive officers in light of these policies. The
Compensation Committee is composed entirely of outside (non-employee)
directors.
The objectives of our executive compensation program are:
1. to attract and retain superior talent and reward individual
performance;
2. to support the achievement of our financial and strategic goals; and
3. through stock based compensation, align the executive officers'
interests with those of our shareholders.
The following report addresses our executive compensation policies and
discusses factors considered by the Compensation Committee in determining the
compensation of our President and Chief Executive Officer and other executive
officers for the year ended December 31, 1999.
Compensation Policies for Executive Officers
The Compensation Committee's executive compensation policies are designed to
provide competitive levels of compensation that integrate pay with our
company's annual and long term performance goals, reward above average
corporate performance, recognize individual initiative and achievements, and
assist our company in attracting and retaining qualified executives. To that
end, the Compensation Committee has established certain parameters of corporate
performance that must be met before the discretionary features of its executive
compensation plans apply. These discretionary features include stock option
grants and performance bonuses based upon an executive officer's base salary.
Absent the discretionary features, the executive officers are paid base
salaries that are subject to annual cost-of-living increases, along with
periodic adjustments to make such salaries competitive with other similar sized
companies in the drug delivery industry. Our executive officers are also given
the opportunity to participate in certain other broad-based employee benefit
plans. As a result of our company's emphasis on tying executive compensation to
corporate performance, in any particular year the executives may be paid more
or less than the executives of other companies in the drug delivery industry.
Our company's use of stock option grants as a key component of our executive
compensation plans reflects the Compensation Committee's position that stock
ownership by management and stock based compensation arrangements are
beneficial in aligning management's and shareholders' interests to enhance
shareholder value.
Pursuant to the terms of their respective employment agreements, the annual
salaries in 2000 increased by 5.5% for the Chief Executive Officer, 29.6% for
the Chief Financial Officer and 14.3% for the Chief Technology Officer.
Bonuses
Cash bonuses are used to reward executive officers for achievement of
financial and technical milestones, as well as for individual performance. No
bonuses were awarded to executive officers for the 1999 business year.
Stock Options
Stock options awarded under our 1993 and 1996 Plans are intended as
incentive compensation and have historically been granted annually to officers,
other key employees and consultants based on our financial
50
performance and achievement of technical and regulatory milestones. During
1999, stock options to purchase a total of 24,115 shares held by the five
outside directors were canceled and reissued at an exercise price of $3.50 per
share. Also, on January 3, 2000, options to purchase a total of 31,829 shares
held by the five outside directors, options to purchase a total of 160,924
shares held by three executive officers and options to purchase a total of
86,200 shares held by 37 employees were canceled and reissued at an exercise
price of $1.5625 per share (see report on repricing of options below). In
addition, stock options totaling 2,000, 24,000 and 9,100 were granted to one
consultant, two executive officers and four employees respectively, during
1999. The 1999 annual stock option grant totaling 50,000 and 26,200 shares,
with a grant date of January 3, 2000, were granted to three executive officers
and 37 employees, respectively. These grants were made to provide ongoing
incentives to our consultants, outside directors and employees. All outstanding
options will be 100% exercisable upon the closing of the Share Transaction.
Chief Executive Officer's Compensation
As reflected in the Summary Compensation Table contained herein, Dr.
Franklin Pass's 1999 compensation consisted of base compensation and certain
employee benefits. Dr. Pass's base compensation for 1999 was not increased from
his base salary in 1998.
At this time, the Committee has no formal long-range written plan for CEO
compensation separate and apart from the employment agreement (see below).
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS:
Fred Shapiro Karl Groth Geoffrey Guy
51
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Employment Agreements with Executive Officers
We have written employment agreements with Franklin Pass, M.D., Lawrence
Christian and Peter Sadowski, Ph.D.
Employment Agreement with Dr. Pass. Our employment agreement with Dr. Pass
became effective as of December 22, 1999 (the "1999 Agreement").
The 1999 Agreement provides for a base salary of $210,000 with 1997 as the
base year and, as to subsequent years, for a base salary to be mutually agreed
upon prior to the beginning of each year but, in no event, shall his salary for
subsequent years be less than his 1997 salary as adjusted for inflation.
Pursuant to the terms of a prior agreement, we granted to Dr. Pass an option to
purchase 80,000 shares of Medi-Ject common stock at an exercise price equal to
$26.90 per share. The option was later canceled and reissued at a price of
$7.20 per share. The option vests in equal monthly installments over a period
of four years. The option shall become 100% vested upon Dr. Pass's death or
disability or upon a change in control (as such terms are defined in the 1999
Agreement). The 1999 Agreement also contains provisions regarding participation
in benefits plans, repayment of expenses, participation as a director or
consultant to other companies (which is permitted provided that such
participation does not materially detract from his obligations to our company
or violate the terms of the 1999 Agreement), protection of confidential
information, noncompetition and ownership of intellectual property. In
addition, the 1999 Agreement contains covenants that Dr. Pass will devote
substantially all of his time to our company during the term of his employment.
The 1999 Agreement has a term through December 31, 2002. The 1999 Agreement may
be terminated prior to the end of the term or any extension thereof upon, among
other things, (i) at least 90 days' prior written notice of our intent to
terminate the 1999 Agreement or (ii) our material breach of the 1999 Agreement.
At or prior to the closing date of the Share Transaction, Dr. Pass will enter
into a new Employment Agreement pursuant to which we will pay him the following
bonuses: (i) $25,000 payable at the closing of the Share Transaction and (ii)
$25,000 payable at the closing of the Share Transaction if Dr. Pass is
successful (as determined by Dr. Jacques Gonella) in negotiating revisions to a
certain licensing agreement that we are a party to.
Employment Agreements with Lawrence Christian and Peter Sadowski. Mr.
Christian and Dr. Sadowski entered into employment agreements with us as of
December 22, 1999 with updated agreements as of May 1, 2000, (each, an
"Employment Agreement"). The Employment Agreements provided for 2000 base
salaries of $102,000 for Mr. Christian until May 1, 2000 and $124,000
thereafter and $135,820 for Dr. Sadowski. In accordance with the Employment
Agreements, upon the closing of the Share Transaction, we will give
Mr. Christian a bonus of $12,000 (payable in four installments) and Dr.
Sadowski a bonus of $17,000 (payable in four installments). Upon the closing of
the Share Transaction, we will grant an option to purchase 5,000 shares of
Medi-Ject common stock to each of Mr. Christian and Dr. Sadowski. The
Employment Agreements also contain provisions regarding participation in
benefits plans, repayment of expenses, participation as a director or
consultant to other companies (which is permitted provided that such
participation does not materially detract from their respective obligations to
our company or otherwise violate the terms of their Employment Agreements),
protection of confidential information and ownership of intellectual property.
In addition, the Employment Agreements contain covenants not to compete and
covenants with respect to non-solicitation and non-interference with our
customers, suppliers or employees. Mr. Christian's employment agreement is for
365 days continuing each day on a rolling 365-day basis. Dr. Sadowski's
employment agreement has a term through December 31, 2002.
52
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERSHIP AND MANAGEMENT
The following table sets forth certain information concerning beneficial
ownership of the Medi-Ject common stock as of June 23, 2000, with respect to
(i) all persons we know to be the beneficial owners of more than 5% of the
outstanding Medi-Ject common stock, (ii) each of our directors, (iii) each
Named Executive Officer, and (iv) all directors and executive officers as a
group.
Shares Percentage of
Beneficially Outstanding
Name of Beneficial Owner Owned(1) Shares
- - ------------------------ ------------ -------------
Becton Dickinson and Company (2)................... 609,292 32.4%
Franklin Pass, M. D. (3)(4)........................ 112,042 7.4%
Kenneth Evenstad (3)(5)............................ 6,279 *
Stanley Goldberg (3)(6)............................ 4,000 *
Karl Groth (3)(7).................................. 4,000 *
Geoffrey Guy, M.D. (3)(8).......................... 8,984 *
Fred L. Shapiro, M. D. (3)(9)...................... 14,887 1.0%
Lawrence Christian (3)(10)......................... 17,000 1.2%
Peter Sadowski (3)(11)............................. 12,047 *
All directors and executive officers as a group (8
persons) (12)..................................... 179,238 11.4%
Dr. Jacques Gonella(13)(14)........................ 0 --
Dr. Thomas Rinderknecht(13)(14).................... 0 --
Dr. Philippe Dro(13)(14)........................... 0 --
Prof. Ubaldo Conte(13)(14)......................... 0 --
- - --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and includes generally voting power
and/or investment power with respect to securities. Shares of Medi-Ject
common stock subject to options or warrants currently exercisable or
exercisable within 60 days of June 23, 2000, are deemed outstanding for
computing the percentage of the person holding such options but are not
deemed outstanding for computing the percentage of any other person. Except
as indicated by footnote, we believe that the persons named in this table,
based on information provided by such persons, have sole voting and
investment power with respect to the shares of Medi-Ject common stock
indicated.
(2) Includes 456,969 shares of Medi-Ject common stock issuable to Becton
Dickinson upon the exercise of outstanding options and warrants. The
address of Becton Dickinson is 1 Becton Drive, Franklin Lakes, NJ 07417.
(3) The director's or officer's address is 161 Cheshire Lane, Suite 100,
Plymouth, MN 55441.
(4) Includes 91,917 shares of Medi-Ject common stock issuable to Dr. Pass upon
the exercise of outstanding options.
(5) Includes 4,223 shares of Medi-Ject common stock issuable to Mr. Evenstad
upon the exercise of outstanding options.
(6) Includes 4,000 shares of Medi-Ject common stock issuable to Mr. Goldberg
upon the exercise of outstanding options.
(7) Includes 4,000 shares of Medi-Ject common stock issuable to Mr. Groth upon
the exercise of outstanding options.
(8) Includes 8,223 shares of Medi-Ject common stock issuable to Dr. Guy upon
the exercise of outstanding options.
(9) Includes 4,223 shares of Medi-Ject common stock issuable to Dr. Shapiro
upon the exercise of outstanding options.
(10) Includes 14,000 shares of Medi-Ject common stock issuable to Mr. Christian
upon the exercise of outstanding options.
(11) Includes 12,047 shares of Medi-Ject common stock issuable to Dr. Sadowski
upon the exercise of outstanding options.
(12) Includes 142,632 shares of Medi-Ject common stock issuable to all
directors and executive officers as a group upon the exercise of
outstanding options.
(13) Director's address is c/o Permatec, Gewerbestrasse 18, 4123 Allschwil,
Switzerland.
(14) If the Share Transaction is approved, will be appointed a director of
Medi-Ject upon the closing.
53
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning
compensation that we paid to or accrued on behalf of the Chief Executive
Officer and the three other most highly compensated executive officers (the
"Named Executive Officers") as of the year ended December 31, 1999, for
services in all capacities as well as compensation earned by such person for
the previous two fiscal years (if the person was an executive officer during
any part of such fiscal year):
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
----------------------------- ------------
Other Annual Stock
Fiscal Salary Bonus Compensation Options
Name and Principal Position Year ($) ($) ($)(1) (#)
- - --------------------------- ------ ------ ----- ------------ ------------
Franklin Pass, M.D.,........ 1999 216,300 -- 16,545 --
Chairman, President and
Chief Executive 1998 216,300 -- 21,958 80,000(2)
Officer 1997 210,000 -- 15,698 80,000
Lawrence Christian,......... 1999 68,538(3) -- -- 21,000
Vice President, Finance &
Administration and Chief
Financial Officer
Peter Sadowski, Executive
Vice....................... 1999 118,300 -- -- 3,000
President and Chief
Technology Officer 1998 115,360 -- -- 19,215(2)
1997 112,000 -- -- 3,000
- - --------
(1) Represents premiums paid for disability and life insurance policies with
coverage limits in excess of those provided under our standard employee
insurance policies.
(2) All options granted to named executives in 1998 represent options issued at
an exercise price of $7.20 following the cancellation of an equal number of
options issued in previous years. See "Report on Repricing of Options".
(3) Represents salary paid from employment date of March 23, 1999.
STOCK OPTIONS
Option Grants During 1999
The table below sets forth individual grants of stock options made to the
Named Executive Officers during the year ended December 31, 1999. Each of the
options granted were issued following the cancellation of a similar option with
a higher exercise price.
Potential
Realizable Value at
Percent of Assumed Annual
Number of Total Options Rates of Stock
Securities Granted to Exercise Price Appreciation
Underlying Employees Price or for Option Term(1)
Options During the Base Expiration -------------------
Name Granted(#) Year(%) Price/sh.($) Date 5%($) 10%($)
- - ---- ---------- ------------- ------------ ---------- ----- ---------
Lawrence Christian(2)... 21,000 63.4 1.75 03/23/09 23,100 58,380
Peter Sadowski(3)....... 3,000 9.1 3.50 05/20/09 6,600 16,740
- - --------
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of future prices of Medi-Ject common
stock.
54
(2) Incentive stock option granted on March 23, 1999 pursuant to our 1996
Incentive and Stock Option Plan. This option vests in three equal
installments on March 23 of each of 1999, 2000, 2001.
(3) Incentive stock option granted on May 20, 1999 pursuant to our 1996
Incentive and Stock Option Plan. This option vests in five equal
installments on May 20 of each of 2000, 2001, 2002, 2003 and 2004.
Aggregated Option Exercises in 1999 and Year End Option Values
The following table provides information concerning stock option exercises
and the value of unexercised options at December 31, 1999 for the Named
Executive Officers:
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Shares Options at Year End(#) at Year End($)
Acquired on Value ------------------------- -------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- - ---- ----------- ----------- ----------- ------------- ----------- -------------
Franklin Pass........... 0 0 81,056 49,600 0 0
Lawrence Christian...... 0 0 7,000 14,000 0 0
Peter Sadowski.......... 0 0 15,255 6,960 0 0
Report on Repricing of Options
In May 1999, after a significant decrease in the price of Medi-Ject common
stock, the Compensation Committee of the Board of Directors determined that
options to purchase an aggregate of 24,115 shares of Medi-Ject common stock
previously granted to five of our outside directors no longer provided a
meaningful incentive as originally intended. These option agreements had been
granted on four separate occasions between January 3, 1995, and February 11,
1998, had original exercise prices ranging from $9.05 to $25.00 per share, and
were granted pursuant to our 1996 Incentive and Stock Option Plan, our 1993
Stock Option Plan or our 1998 Directors Plan. In order to provide meaningful
incentives to our Board of Directors in the future, the Board of Directors
canceled these option agreements and then reissued the options at an exercise
price of $3.50 per share, the market price on the day of the reissue. All of
the other terms and conditions of the original option agreements, including the
vesting periods, were unchanged following reissue.
Years
Market Remaining
Number of Price of Exercise in Original
Underlying Stock at Price at New Option Term
Shares Time of Time of Exercise on Date of
Name Date Repriced Repricing Repricing Price Repricing
- - ---- -------- ---------- --------- --------- -------- -----------
Ken Evenstad...... 01/03/95 762 $3.50 $16.45 $3.50 0.6
Ken Evenstad...... 03/14/96 1,143 3.50 19.70 3.50 6.6
Ken Evenstad...... 10/22/96 1,800 3.50 25.00 3.50 7.4
Ken Evenstad...... 02/11/98 1,000 3.50 9.05 3.50 8.7
Stanley Goldberg.. 02/11/98 1,000 3.50 9.05 3.50 8.7
Stanley Goldberg.. 02/11/98 2,000 3.50 9.05 3.50 8.7
Karl Groth........ 02/11/98 3,000 3.50 9.05 3.50 8.7
Geoffrey Guy...... 01/03/95 762 3.50 16.45 3.50 0.6
Geoffrey Guy...... 03/14/96 1,143 3.50 19.70 3.50 6.6
Geoffrey Guy...... 10/22/96 1,800 3.50 25.00 3.50 7.4
Geoffrey Guy...... 02/11/98 4,000 3.50 9.05 3.50 8.7
Geoffrey Guy...... 02/11/98 1,000 3.50 9.05 3.50 8.7
Fred Shapiro...... 01/03/95 762 3.50 16.45 3.50 0.6
Fred Shapiro...... 03/14/96 1,143 3.50 19.70 3.50 6.6
Fred Shapiro...... 10/22/96 1,800 3.50 25.00 3.50 7.4
Fred Shapiro...... 02/11/98 1,000 3.50 9.05 3.50 8.7
55
Performance Graph
The graph below provides an indication of our cumulative total shareholder
returns ("Total Return") as compared with the Nasdaq Composite Index and
Biotechnology Stocks weighted by market value at each measurement point.
This graph covers the period beginning October 3, 1996, when Medi-Ject
common stock was first traded on the Nasdaq National Market, through December
31, 1999. The graph assumes $100 was invested in each of Medi-Ject common
stock, the Nasdaq Composite Index and the Biotechnology Stocks on October 3,
1996 (based upon the closing price of each). Total Return assumes reinvestment
of dividends.
[PERFORMANCE GRAPH APPEARS HERE]
3-Oct 1996 31-Dec 1996 31-Dec 1997 31-Dec 1998 31-Dec 1999
---------- ----------- ----------- ----------- -----------
Medi-Ject............... $100.00 $ 69.05 $38.10 $ 7.14 $ 1.50
Nasdaq Composite Index.. 100 104.47 128.2 180.09 334.25
Biotechnology Stocks.... 100 94.86 99.19 143.19 311.7
56
THE RATIFICATION OF THE APPOINTMENT OF AUDITORS PROPOSAL
(PROPOSAL 6 ON PROXY CARD)
At the meeting, a vote will be taken on a proposal to ratify the appointment
of KPMG LLP ("KPMG") as our independent auditors for the year ending December
31, 2000. KPMG has audited our financial statements since 1995.
A representative of KPMG is expected to be present at the Annual Meeting to
make a statement if he or she so desires and to respond to appropriate
questions.
The affirmative vote of a majority of the outstanding shares of Medi-Ject
common stock, represented in person or by proxy at the Annual Meeting, is
necessary for approval of the selection of KPMG LLP as our independent
auditors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO APPROVE THE ABOVE PROPOSAL
TO RATIFY THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT AUDITORS.
OTHER MATTERS
Solicitation
We will bear the cost of preparing, assembling and mailing the proxy, Proxy
Statement, annual report and other material which may be sent to the
shareholders in connection with this solicitation. We may request brokerage
houses and other custodians, nominees and fiduciaries to forward soliciting
material to the beneficial owners of stock, in which case we will reimburse
them for their expenses. While proxies are being solicited primarily by mail,
officers of our company may solicit proxies personally by telephone or special
letter, but will not receive extra compensation for doing so.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our directors,
certain officers and persons who own more than 10% of a registered class of
Medi-Ject equity securities, to file reports of ownership on Form 3 and changes
in ownership on Forms 4 or 5 with the SEC. These officers, directors and 10%
shareholders are also required by the SEC's rules to provide to us copies of
all Section 16(a) reports they file.
Specific due dates for such reports have been established by the SEC and we
are required to disclose in this Proxy Statement any failure to file reports by
such dates. Based solely on our review of the copies of such reports received
by us or by written representations from certain reporting persons, we believe
that during the year ended December 31, 1999, all Section 16(a) filing
requirements applicable to its officers, directors and ten percent shareholders
were complied with, except for the filing of a report describing the issuance
of a stock option to the Chief Executive Officer in February 1997. A report
detailing this transaction was filed in February 1999.
Other Matters at Annual Meeting
The Board of Directors does not intend to present to the Annual Meeting any
matter not referred to above and does not presently know of any matters that
may be presented to the meeting by others. However, if other matters come
before the Annual Meeting, it is the intention of the persons named in the
enclosed form of proxy to vote the proxy in accordance with their best
judgment.
Annual Report and Incorporation by Reference
This Proxy Statement incorporates by reference certain sections of our
Annual Report to shareholders which accompanies this Proxy Statement. It
consists of our Form 10-KA for the fiscal year ended
57
December 31, 1999, which includes an audited balance sheet as of that date and
the related statements of earnings, cash flows and stockholders' equity, as
well as other financial information relating to us, including Management's
Discussion and Analysis of Financial Condition and Results of Operations. Items
1, 2, 6, 7, 7A and 8 of the Annual Report on Form 10-KA are incorporated by
reference into this Proxy Statement. Otherwise our Annual Report does not form
part of the materials for solicitation of proxies. In addition, Items 1 and 2
of Part 1 of our report on Form 10-Q for the quarter ended March 31, 2000 are
incorporated by reference into this Proxy Statement. The Form 10KA and Form 10-
Q are being delivered to shareholders along with this Proxy Statement.
PROPOSALS OF SHAREHOLDERS
The proxy rules of the Securities and Exchange Commission permit
shareholders, after timely notice to issuers, to present proposals for
shareholder action in issuer proxy statements where such proposals are
consistent with applicable law, pertain to matters appropriate for shareholder
action, and are not properly omitted by company action in accordance with proxy
rules. Shareholder proposals for the 2001 Annual Meeting must be prepared in
accordance with the proxy rules and received by us on or before December 15,
2000 in order to be eligible for inclusion in our proxy materials.
58
Index to the Permatec Holding AG
Consolidated Financial Statements
Independent auditors' report.............................................. F-2
Consolidated balance sheets as of December 31, 1997, 1998 and 1999........ F-3
Consolidated statements of operations for the years ended December 31,
1997, 1998 and 1999...................................................... F-4
Consolidated statements of cash flows for the years ended December 31,
1997, 1998 and 1999...................................................... F-5
Consolidated statements of shareholders' equity (deficit) and
comprehensive loss for the years ended December 31, 1997, 1998 and 1999.. F-6
Notes to the consolidated financial statements............................ F-7
Consolidated balance sheets as of December 31, 1999 and March 31, 2000.... F-13
Consolidated statements of operations for the periods ended March 31, 1999
and 2000................................................................. F-14
Consolidated statements of cash flows for the periods ended March 31, 1999
and 2000 F-15
Notes to the consolidated financial statements............................ F-16
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Permatec Holding AG:
We have audited the accompanying consolidated balance sheets of Permatec
Holding AG (the Group) as of December 31, 1997, 1998 and 1999, and the related
consolidated statements of operations, shareholders' equity (deficit) and
comprehensive income (loss) and cash flows for each of the years in the three-
year period ended December 31, 1999. These financial statements are the
responsibility of the Group'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 in the United States of America. 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 consolidated financial position of Permatec
Holding AG as of December 31, 1997, 1998 and 1999, and the consolidated results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1999, in conformity with generally accepted
accounting principles in the United States of America.
KPMG Fides Peat
Zurich, Switzerland
May 8, 2000
F-2
PERMATEC HOLDING AG
Consolidated Balance Sheets
as of December 31
1997 1998 1999
US$ US$ US$
---------- ---------- -----------
Assets
Current assets:
Cash and cash equivalents............... 331,718 492,376 674,569
VAT, capital taxes and other
receivables............................ 294,996 632,240 284,023
Prepaid expenses and other current
assets................................. 19,277 35,843 4,572
---------- ---------- -----------
645,991 1,160,459 963,164
---------- ---------- -----------
Equipment, furniture, and fixtures, net... 218,779 889,199 800,044
Patent rights, net........................ 126,550 164,078 247,074
Deposits.................................. 30,000 11,264 7,128
Other non-current assets.................. 12,172 726 --
---------- ---------- -----------
387,501 1,065,267 1,054,246
---------- ---------- -----------
Total assets.............................. 1,033,492 2,225,726 2,017,410
========== ========== ===========
Liabilities and shareholders' equity
(deficit)
Current liabilities:
Trade accounts payable.................. 78,029 285,747 305,710
Accounts payable other.................. 258,413 245,036 237,125
Restructuring provisions................ -- -- 280,816
Capital lease obligations--current...... 67,034 123,729 91,808
Accrued expenses........................ 117,929 111,835 269,200
Liabilities to related parties.......... -- 491,173 339,733
Other current liabilities............... 11,035 12,319 8,124
---------- ---------- -----------
532,440 1,269,839 1,532,516
---------- ---------- -----------
Loans from shareholders (subordinated).... 3,268,368 7,729,909 10,005,146
Capital lease obligations--less current
maturities............................... 59,690 187,599 92,141
Other long-term liabilities............... -- 906 1,876
---------- ---------- -----------
3,328,058 7,918,414 10,099,163
---------- ---------- -----------
Total liabilities......................... 3,860,498 9,188,253 11,631,679
---------- ---------- -----------
Shareholders' equity (deficit)
Share capital US$ 100 par; shares:
6,000, 10,000 and 10,000 shares issued
and outstanding at December 31, 1997,
1998 and 1999, respectively............ 413,793 724,636 625,000
Cumulative other comprehensive
income/(loss)............................ 79,424 (274,897) 982,400
Accumulated deficit....................... (3,320,223) (7,412,266) (11,221,670)
---------- ---------- -----------
Total shareholders' deficit............... (2,827,006) (6,962,526) (9,614,269)
---------- ---------- -----------
Total liabilities and shareholders' equity
(deficit)................................ 1,033,492 2,225,726 2,017,410
========== ========== ===========
See the accompanying notes to the consolidated financial statements.
F-3
PERMATEC HOLDING AG
Consolidated Statements of Operations
for the years ended December 31
1997 1998 1999
US$ US$ US$
---------- ---------- ----------
Revenues:
Product development..................... -- -- 1,016,533
License revenue......................... -- 67,528 311,740
Contract research with related parties.. 144,828 179,310 3,334
---------- ---------- ----------
144,828 246,838 1,331,607
---------- ---------- ----------
Operating expenses:
Research and development................ 796,410 1,749,666 1,647,059
General and administrative.............. 868,026 2,253,675 3,042,551
Sales and marketing..................... 69,794 178,741 213,110
---------- ---------- ----------
1,734,230 4,182,082 4,902,720
---------- ---------- ----------
Operating loss............................ (1,589,402) (3,935,244) (3,571,113)
---------- ---------- ----------
Other income (expense):
Interest and other expense.............. (95,000) (173,146) (297,451)
Interest and other income............... 40,450 48,774 138,331
---------- ---------- ----------
(54,550) (124,372) (159,121)
---------- ---------- ----------
Loss before income taxes.................. (1,643,952) (4,059,616) (3,730,233)
Income tax expense........................ 53,862 32,427 79,170
---------- ---------- ----------
Net loss.................................. (1,697,814) (4,092,043) (3,809,403)
========== ========== ==========
Net loss per share (US$ per share)........ (254.70) (409.20) (380.94)
========== ========== ==========
Basic and diluted weighted average shares
outstanding.............................. 6,666 10,000 10,000
========== ========== ==========
See the accompanying notes to the consolidated financial statements.
F-4
PERMATEC HOLDING AG
Consolidated Statements of Cash Flows
for the years ended December 31
1997 1998 1999
US$ US$ US$
---------- ---------- ----------
Cash flows from operating activities:
Net loss................................. (1,697,814) (4,092,043) (3,809,403)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization.......... 107,574 249,918 382,665
Gain on sales of equipment, furniture
and fixtures.......................... -- -- (50,423)
Changes in operating assets and
liabilities:
VAT, capital taxes and other
receivables........................... (263,547) (306,722) 322,008
Prepaid expenses and other assets...... 22,310 (14,837) 28,100
Trade accounts payable................. 207,890 142,910 59,517
Other liabilities and accrued
expenses.............................. 161,595 489,913 126,614
Restructuring provisions............... -- -- 299,537
Other.................................. (27,786) 47,543 (33,095)
---------- ---------- ----------
Net cash used in operating activities...... (1,489,779) (3,483,318) (2,674,480)
---------- ---------- ----------
Cash flows from investing activities:
Purchases of equipment, furniture and
fixtures................................ (185,685) (607,648) (424,053)
Payments for patent rights............... (140,612) (48,810) (145,449)
Proceeds from sale of equipment,
furniture and fixtures.................. -- -- 89,469
---------- ---------- ----------
Net cash used in investing activities...... (326,297) (656,458) (480,033)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from loans from shareholders.... 1,811,314 4,364,234 3,560,640
Principal payments on capital lease
obligations............................. (37,897) (87,569) (135,681)
---------- ---------- ----------
Net cash provided by financing activities.. 1,773,418 4,276,665 3,424,959
---------- ---------- ----------
Effect of exchange rate changes on cash and
cash equivalents.......................... (49,537) 23,769 (88,253)
---------- ---------- ----------
Increase (decrease) in cash and cash
equivalents............................... (92,195) 160,658 182,193
Cash and cash equivalents:
Beginning of year........................ 423,913 331,718 492,376
---------- ---------- ----------
End of year ............................. 331,718 492,376 674,569
========== ========== ==========
See the accompanying notes to the consolidated financial statements.
F-5
PERMATEC HOLDING AG
Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive
Loss for the Years ended December 31, 1997, 1998 and 1999
Accumulated
Additional Other Total
Share Paid In Accumulated Comprehensive Shareholders'
Capital Capital Deficit Income Equity
US$ US$ US$ US$ US$
------- ---------- ----------- ------------- -------------
Balance, December 31,
1996................... -- 447,761 (1,622,409) -- (1,174,648)
------- -------- ----------- --------- ----------
Issuance of Permatec
Group share capital on
November 1, 1997....... 413,793 (413,793) -- -- --
Net loss................ -- -- (1,697,814) -- (1,697,814)
Translation adjustment.. -- (33,968) -- 79,424 45,456
----------
Comprehensive loss...... -- -- -- -- (1,652,358)
------- -------- ----------- --------- ----------
Balance at December 31,
1997................... 413,793 -- (3,320,223) 79,424 (2,827,006)
------- -------- ----------- --------- ----------
Conversion of
subordinated loan into
share capital.......... 275,862 -- -- -- 275,862
Net loss................ -- -- (4,092,043) -- (4,092,043)
Translation adjustment.. 34,981 -- -- (354,320) (319,339)
----------
Comprehensive loss...... -- -- -- -- (4,411,382)
------- -------- ----------- --------- ----------
Balance, December 31,
1998................... 724,636 -- (7,412,266) (274,896) (6,962,526)
------- -------- ----------- --------- ----------
Net loss................ -- -- (3,809,403) -- (3,809,403)
Translation adjustment.. (99,636) -- -- 1,257,296 1,157,660
----------
Comprehensive loss...... -- -- -- -- (2,651,743)
------- -------- ----------- --------- ----------
Balance, December 31,
1999................... 625,000 -- (11,221,669) 982,400 (9,614,269)
------- -------- ----------- --------- ----------
See the accompanying notes to the consolidated financial statements.
F-6
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements
December 31, 1997, 1998 and 1999
1. Description of Business and Summary of Significant Accounting Policies
Business description and basis of presentation
Permatec (the "Group") is primarily engaged in activities related to the
development of transdermal and transmucosal pharmaceutical products. The Group
develops transdermal patches, gel formulations and fast dissolving tablets for
several drugs and drug combinations. The Company's principal development
facilities and executive offices are located in Switzerland.
The Group is 60% owned by Venture Capital Partners ("VECAP"), 36.92% owned
by Dr. Jacques Gonella and 3.08% owned by three other minority shareholders.
Dr. Gonella is the majority owner of VECAP. On November 1, 1997 Dr. Gonella and
VECAP transferred their ownership shares of the Group's subsidiaries into
Permatec. Prior to this date, VECAP and Dr. Gonella maintained 60% and 40%
ownership, respectively. In January and June 1996 VECAP purchased 26.66% and
Dr. Gonella 40% of Permatec NV, Permatec Laboratorios SA and Giapharma AG
(today Permatec Technologie Ltd.) from two former shareholders. These
transactions are deemed to be mergers of entities under common control and had
no effect on consolidated net income or shareholders' equity. Accordingly, for
reporting purposes the Permatec Group has been presented as if it existed as of
January 1, 1997 to reflect the Group's shareholders' equity on a historical
basis. In the Permatec's consolidated statements of shareholders' equity, share
capital of the Group is displayed for all dates following November 1, 1997.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America. All
intercompany transactions and balances between the Group's subsidiaries have
been eliminated for all periods presented.
Cash and Cash Equivalents
The Group considers highly liquid debt instruments with original maturities
of 90 days or less to be cash equivalents.
Equipment, Furniture, and Fixtures
Equipment, furniture, and fixtures are stated at cost and are depreciated
using the straight-line method over their estimated useful lives ranging from
four to ten years.
Patent Rights
The Group capitalizes the costs of obtaining patent rights. These
capitalized costs are amortized on a straight-line basis over ten years
beginning in the year the patent is issued. Recoverability of such patent
assets is evaluated on a periodic basis.
Licensing and Product Development Revenue Recognition
Licensing and product development revenue is recognized when underlying
performance criteria for payment have been met and the Group has an
unconditional right to such payment. Depending on a license or product
development agreement's terms, recognition criteria may be satisfied upon
achievement of milestones or passage of time.
Research and Development
Group sponsored research and development expenses related to product and
patent development are expensed as incurred.
F-7
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements--(Continued)
December 31, 1997, 1998 and 1999
Start-up and Organization Costs
The Group expenses all costs associated with start-up activities and
organization costs as such costs are incurred.
Income Taxes
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be realized or settled.
Net Loss Per Share
Basic earnings per share is computed by dividing the net loss by the
weighted-average number of shares outstanding for the period. For the years
ended December 31, 1997, 1998 and 1999, basic and diluted earnings per share
are identical, as there were no potentially dilutive securities.
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 these estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Fair Value of Financial Instruments
All financial instruments are carried at amounts that approximate estimated
fair value.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The
statement requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. SFAS No. 133 is effective for the Group in 2001. The
Group is currently evaluating SFAS No. 133, but does not expect that it will
have a material effect on its financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 which provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition
issues. We will be required to adopt the new standard beginning with the fourth
quarter of fiscal 2000. The impact of adoption on our financial statements is
not yet quantifiable.
F-8
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements--(Continued)
December 31, 1997, 1998 and 1999
2. Liquidity
As reflected in the accompanying Group consolidated financial statements,
the Group incurred a net loss of US$ 3,809,403 for the year ended December 31,
1999. In addition, the Group has incurred net losses and has had negative cash
flows from operating activities since inception. Management believes current
working capital, projected product development and license revenues, and
continued projected debt financing from shareholders will provide the Group
with sufficient liquidity through March 2001. The ultimate shareholder has
declared his continuing financial support for the Group's activities through
March 2001.
3. Composition of Certain Financial Statement Captions
1997 1998 1999
US$ US$ US$
------- --------- ---------
Equipment furniture and fixtures:
Equipment, furniture and fixtures.............. 336,287 1,255,084 1,443,566
Less accumulated depreciation.................. 117,508 365,885 643,522
------- --------- ---------
218,779 889,199 800,044
======= ========= =========
Patent rights:
Patent rights.................................. 140,611 199,030 308,023
Less accumulated amortization.................. 14,061 34,952 60,949
------- --------- ---------
126,550 164,078 247,074
======= ========= =========
4. Leases
The Group has several noncancelable operating leases for its office and
developmental facilities that expire on various dates through September 2008.
Rent expense incurred for the years ended December 31, 1997, 1998 and 1999 was
US$ 38,223, US$ 94,730 and US$ 270,537, respectively.
The Group is also obligated under various non-cancelable leases classified
as capital leases. Equipment, furniture, and fixtures include US$ 219,545, US$
484,972 and US$ 572,392 of cost and US$ 128,003, US$ 218,764 and US$ 309,256 of
accumulated amortization as of December 31, 1997, 1998 and 1999 respectively,
related to current and prior leases.
The following is a schedule by year of the future minimum lease payments at
December 31, 1999:
Operating Capital
Year ending leases leases
December 31 US$ US$
----------- --------- -------
2000....................................................... 189,896 83,683
2001....................................................... 158,000 78,372
2002....................................................... 139,500 13,770
2003....................................................... 149,500 --
2004....................................................... 162,000 --
2005 and beyond............................................ 607,500 --
--------- -------
Total.................................................... 1,406,396 175,825
========= =======
F-9
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements--(Continued)
December 31, 1997, 1998 and 1999
5. Restructuring Charge
The Group recorded US$ 454,428 of restructuring charges during 1999. Such
charges are in connection with the closure of the Group's developmental
facility in Argentina and termination of employees associated with the Group's
administrative function in France. The restructuring charge is primarily
comprised of severance and other related benefits and costs of exiting
facilities, including lease termination costs and write-down of existing assets
to their expected net realizable value. In connection with the closure of these
facilities, the Group has involuntarily terminated approximately 25 employees.
The Group is undertaking these actions as part of its efforts to reduce costs
and to centralize its developmental and administrative functions in
Switzerland. These restructuring programs are expected to be substantially
complete in 2000.
6. Taxes
Due to taxable losses, the Group did not record a provision for current
income taxes in the each of the years ended December 31, 1997, 1998 and 1999.
The provision for taxes in all years presented in the Group's consolidated
financial statements consists of minimum capital taxes and value added taxes.
Deferred tax assets and liabilities as of December 31, 1997, 1998 and 1999
consist of the following:
1997 1998 1999
US$ US$ US$
-------- ---------- ----------
Net operating loss carryforward............ 37,241 260,870 581,250
Research and development................... 126,207 749,275 918,750
-------- ---------- ----------
Total deferred tax assets.................. 163,448 1,010,145 1,500,000
Less valuation allowance................... (163,448) (1,010,145) (1,500,000)
-------- ---------- ----------
Net deferred tax assets.................... -- -- --
======== ========== ==========
At December 31, 1999, the Group had net operating loss carryforwards ("NOL")
of approximately US$ 2,906,250 for income tax purposes, which if unused will
begin to expire in 2004. The Group's deferred tax assets related to research
and development are associated with certain research and development costs,
which are eligible for capitalization for tax purposes in certain of the
Group's taxable jurisdictions. At December 31, 1999, the Group has established
a valuation allowance against its net deferred tax assets due to the Group's
history of pre-tax losses and a lack of significant offsetting objective
evidence that such deferred tax assets are realizable.
7. Shareholders' Equity
On November 1, 1997, Dr. Jacques Gonella and VECAP founded the Group as a
legal entity domiciled in Zug, Switzerland. All authorized shares of the
Group's share capital are issued and outstanding. Each share of share capital
is entitled to one vote per share. No proceeds were received by the Group in
connection with establishment of the legal entity.
In June of 1998, a subordinated loan of US$ 275,862 provided by Dr. Jacques
Gonella, the Group's minority shareholder, was converted into 4,000 shares of
the Group's share capital.
8. Pensions or related plans
The Group contributes premiums to a fund for its employees, which is
administered by a third-party insurer. The Group has no obligation to provide
specific benefits to its employees and has determined that its
F-10
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements--(Continued)
December 31, 1997, 1998 and 1999
benefit plan is a defined contribution plan. Contributions under this plan
amounted to US$ 0, US$ 6,706 and US$ 9,103 for the years ended December 31,
1997, 1998 and 1999, respectively.
9. Related Party Transactions
At December 31, 1997, 1998, and 1999 the Group had subordinated loans
payable to the Group's minority shareholder, Dr. Jacques Gonella of US$
690,517, US$ 4,917,684, and US$ 7,506,773 and to the Group's majority
shareholder, VECAP, of US$ 2,535,740, US$ 2,812,225 and US$ 2,498,373,
respectively. These parties have provided the loans, which bear annual interest
rates of 3%, in several installments throughout the Group's operating history.
These loans are subordinated, and can only be repaid by the Group once the
Group achieves positive shareholders' equity as defined by Swiss statutory
regulations.
At December 31, 1997, 1998, and 1999 the Group had US$ 0, US$ 491,173, and
US$ 339,733, respectively, payable to other companies ultimately owned by the
Group's minority shareholder, Dr. Gonella. These amounts are non-interest
bearing and are considered to be current liabilities.
Based on a memorandum of understanding and corresponding invoices the Group
paid approximately US$ 701,379 and US$ 637,500 related to certain costs
incurred by other companies owned by the Group's minority shareholder, Dr.
Gonella, in 1998 and 1999, respectively. These costs primarily relate to
management and administrative services provided by the related companies on
behalf of the Group. The Group paid no amounts to companies owned by Dr.
Gonella in 1997. This agreement has been terminated effective January 1, 2000.
The Group received approximately US$ 144,828 and US$ 179,310 and US$ 3,333
for patent registration and other administration and research and development
services provided by the Group for other companies owned by the Group's
minority shareholder, Dr. Gonella, in 1997, 1998 and 1999, respectively.
10. Supplemental Disclosures of Cash Flow Information
The Group did not make any cash payments for interest during the years ended
December 31, 1997, 1998 and 1999. All interest expense incurred by the Group
related to the Group's subordinated loans to Dr. Jacques Gonella and VECAP has
been included in the outstanding loan balance at December 31, 1997, 1998 and
1999.
Cash paid for taxes during the years ended December 31, 1997, 1998 and 1999
was US$ 53,862, US$ 32,427 and US$ 79,170 respectively.
The Group incurred additional capital lease obligations of US$ 94,724, US$
263,267, and US$ 130,629, in the year ended December 31, 1997, 1998 and 1999,
respectively.
As further described in Note 7 to the Group's consolidated financial
statements, a subordinated loan of US$ 275,862 provided by the Group's majority
shareholder was converted into 4,000 shares of the Group's share capital. This
transaction had no impact on the Group's consolidated cash flows for the year
ended December 31, 1997.
11. Industry Segment and Operations by Geographic Areas
The Group is primarily engaged in one line of business--development of
transdermal and transmucosal pharmaceutical products--which accounted for 100%
of consolidated sales. For reporting purposes, these operations are considered
to be one segment. The geographic distributions of the Group's identifiable
assets, net (loss) before taxes and revenues are summarized in the following
table:
F-11
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements--(Continued)
December 31, 1997, 1998 and 1999
Revenues from product development and license revenue by country of origin
are summarized as follows:
1997 1998 1999
US$ US$ US$
------- ------- ---------
Switzerland........................................ -- 67,528 1,328,274
France............................................. 144,828 179,310 3,333
------- ------- ---------
144,828 246,838 1,331,607
======= ======= =========
Net loss before taxes by country is summarized as follows:
1997 1998 1999
US$ US$ US$
---------- ---------- ----------
Switzerland.............................. (202,072) (1,796,619) (798,285)
Argentina................................ (764,000) (1,245,000) (1,455,000)
France................................... (584,310) (907,241) (1,407,537)
All other................................ (93,570) (110,756) (69,412)
---------- ---------- ----------
(1,643,952) (4,059,616) (3,730,233)
========== ========== ==========
Assets by country are summarized as follows:
1997 1998 1999
US$ US$ US$
--------- --------- ---------
Switzerland.................................... 240,299 1,213,841 1,064,613
Argentina...................................... 375,978 446,000 383,000
France......................................... 344,310 508,514 512,031
All other...................................... 72,905 57,370 57,764
--------- --------- ---------
1,033,492 2,225,725 2,017,408
========= ========= =========
12. Additional Sales Information
The following summarizes significant customers comprising 10% or more of
the Group's revenue for the year ended December 31:
1997 1998 1999
US$ US$ US$
------- ------- ---------
Solvay............................................. -- 41,614 1,016,534
Segix.............................................. -- 25,914 228,720
Laboratoires Jago (related party).................. 144,828 179,310 3,333
------- ------- ---------
144,828 246,838 1,248,587
======= ======= =========
13. Subsequent event
On January 26, 2000 the Group entered into a non-binding letter of intent
to merge with Medi-Ject (a US company based in Minneapolis, Minnesota).
Subject to satisfactory due diligence the Group and Medi-Ject plan to
negotiate a definitive agreement in 2000. The parties intend to account for
proposed transaction as a reverse acquisition. This proposed transaction
structure would feature Medi-Ject continuing as the surviving legal entity and
to continue to be a publicly traded company in the United States on the
NASDAQ, while the Group would be the acquirer for financial reporting
purposes.
F-12
PERMATEC HOLDING AG
Consolidated Balance Sheets
as of December 31, 1999 and March 31, 2000
Unaudited
1999 2000
US$ US$
----------- -----------
Assets
Current assets:
Cash and cash equivalents.......................... 674,569 492,076
VAT, capital taxes and other receivables........... 284,023 167,071
Prepaid expenses and other current assets.......... 4,572 80,432
----------- -----------
963,164 739,579
----------- -----------
Equipment, furniture, and fixtures, net.............. 800,044 796,833
Patent rights, net................................... 247,074 243,043
Deposits............................................. 7,128 1,734
----------- -----------
1,054,246 1,041,610
----------- -----------
Total assets......................................... 2,017,410 1,781,189
=========== ===========
Liabilities and shareholders' equity (deficit)
Current liabilities:
Trade accounts payable............................. 305,710 172,292
Accounts payable other............................. 237,125 172,537
Restructuring provisions........................... 280,816 382,273
Capital lease obligations--current................. 91,808 --
Accrued expenses................................... 269,200 225,723
Liabilities to related parties..................... 339,733 329,438
Other current liabilities.......................... 8,124 42,455
----------- -----------
1,532,516 1,324,718
----------- -----------
Loans from shareholders (subordinated)............... 10,005,146 10,911,001
Capital lease obligations--less current maturities... 92,141 --
Other long-term liabilities.......................... 1,876 147,800
----------- -----------
10,099,163 11,058,801
----------- -----------
Total liabilities.................................... 11,631,679 12,383,519
----------- -----------
Shareholders' equity (deficit)
Share capital US$ 100 par; shares: 10,000 and
10,000 shares issued and outstanding at December
31, 1999 and March 31, 2000 respectively.......... 625,000 606,061
Cumulative other comprehensive income/(loss)....... 982,400 (58,774)
Accumulated deficit................................ (11,221,670) (11,149,617)
----------- -----------
Total Shareholders' deficit.......................... (9,614,269) (10,602,330)
----------- -----------
Total liabilities and shareholders' equity
(deficit)........................................... 2,017,410 1,781,189
=========== ===========
See the accompanying notes to the consolidated financial statements.
F-13
PERMATEC HOLDING AG
Consolidated Statements of Operations
for the three month periods ended March 31, 1999 and 2000
1999 2000
US$ US$
unaudited unaudited
--------- ----------
Revenues
License revenue....................................... 60,210 --
-------- ----------
60,210 --
-------- ----------
Operating expenses:
Research and development.............................. 267,418 227,574
General and administrative............................ 593,614 913,201
-------- ----------
861,032 1,140,775
-------- ----------
Operating loss:......................................... (800,822) (1,140,775)
-------- ----------
Other income (expense):
Interest and other expense............................ (87,806) (153,677)
Interest and other income............................. 898 1,126
-------- ----------
(86,908) (152,551)
-------- ----------
Loss before taxes....................................... (887,730) (1,293,326)
Income tax (expense) benefit............................ (21,519) 12,454
-------- ----------
Net Loss................................................ (909,249) (1,280,872)
======== ==========
Net loss per share (US$ per share)...................... (90.92) (128.09)
======== ==========
Basic and diluted weighted average shares outstanding... 10,000 10,000
======== ==========
See the accompanying notes to the consolidated financial statements.
F-14
PERMATEC HOLDING AG
Consolidated Statements of Cash Flows
for the three month periods ended March 31, 1999 and 2000
1999 2000
US$ US$
unaudited unaudited
--------- ----------
Cash flows from operating activities:
Net loss.............................................. (909,249) (1,280,872)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization....................... 83,878 59,441
Changes in operating assets and liabilities:
VAT, capital taxes and other receivables............ 242,093 109,674
Prepaid expenses and other assets................... (12,424) (76,932)
Trade accounts payable.............................. (132,022) (125,678)
Other liabilities and accrued expenses.............. (81,706) (64,380)
Restructuring provisions............................ -- 111,316
Other............................................... 2,195 3,554
--------- ----------
Net cash used in operating activities................... (807,234) (1,263,877)
--------- ----------
Cash flows from investing activities:
Purchases of equipment, furniture and fixtures........ (71,525) (72,889)
Payments for patent rights............................ (32,497) (11,341)
--------- ----------
Net cash used in investing activities................... (104,022) (84,230)
--------- ----------
Cash flows from financing activities:
Proceeds from loans from shareholders................. 1,304,572 1,233,876
Additions to capital lease obligations................ 53,197 --
Principal payments on capital lease obligations....... (33,811) (25,582)
--------- ----------
Net cash provided by financing activities............... 1,323,958 1,198,294
--------- ----------
Effect of exchange rate changes on cash and cash
equivalents............................................ (61,876) (32,680)
--------- ----------
Increase (decrease) in cash and cash equivalents........ 350,826 (182,493)
Cash and cash equivalents:
Beginning of period................................... 492,376 674,569
--------- ----------
End of period......................................... 843,202 492,076
========= ==========
See the accompanying notes to the consolidated financial statements.
F-15
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements
for the three month periods ended March 31, 1999 and 2000
1. Description of Business and Summary of Significant Accounting Policies
Business description and basis of presentation
Permatec (the "Group") is primarily engaged in activities related to the
development of transdermal and transmucosal pharmaceutical products. The Group
develops transdermal patches, gel formulations and fast dissolving tablets for
several drugs and drug combinations. The Company's principal development
facilities and executive offices are located in Switzerland.
The Group is 60% owned by Venture Capital Partners ("VECAP"), 36.92% owned
by Dr. Jacques Gonella and 3.08% owned by three other minority shareholders.
Dr. Gonella is the majority owner of VECAP. On November 1, 1997 Dr. Gonella and
VECAP transferred their ownership shares of the Group's subsidiaries into
Permatec. Prior to this date, VECAP and Dr. Gonella maintained 60% and 40%
ownership, respectively. In January and June 1996 VECAP purchased 26.66% and
Dr. Gonella 40% of Permatec NV, Permatec Laboratorios SA and Giapharma AG
(today Permatec Technologie Ltd.) from two former shareholders. These
transactions are deemed to be mergers of entities under common control and had
no effect on consolidated net income or shareholders' equity. Accordingly, for
reporting purposes the Permatec Group has been presented as if it existed as of
January 1, 1997 to reflect the Group's shareholders' equity on a historical
basis. In the Permatec's consolidated statements of shareholders' equity, share
capital of the Group is displayed for all dates following November 1, 1997.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The accompanying financial statements and notes should be read
in conjunction with our 1999 audited financial statements and notes thereto.
Cash and Cash Equivalents
The Group considers highly liquid debt instruments with original maturities
of 90 days or less to be cash equivalents.
Equipment, Furniture, and Fixtures
Equipment, furniture, and fixtures are stated at cost and are depreciated
using the straight-line method over their estimated useful lives ranging from
four to ten years.
Patent Rights
The Group capitalizes the costs of obtaining patent rights. These
capitalized costs are amortized on a straight-line basis over ten years
beginning in the year the patent is issued. Recoverability of such patent
assets is evaluated on a periodic basis.
Licensing and Product Development Revenue Recognition
Licensing and product development revenue is recognized when underlying
performance criteria for payment have been met and the Group has an
unconditional right to such payment. Depending on a license or product
development agreement's terms, recognition criteria may be satisfied upon
achievement of milestones or passage of time.
F-16
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements--(Continued)
for the three month periods ended March 31, 1999 and 2000
Research and Development
Group sponsored research and development expenses related to product and
patent development are expensed as incurred.
Start-up and Organization Costs
The Group expenses all costs associated with start-up activities and
organization costs as such costs are incurred.
Income Taxes
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be realized or settled.
Net Loss Per Share
Basic earnings per share is computed by dividing the net loss by the
weighted-average number of shares outstanding for the period. For the three
months ended March 31, 1999 and 2000, basic and diluted earnings per share are
identical, as there were no potentially dilutive securities.
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 these estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Fair Value of Financial Instruments
All financial instruments are carried at amounts that approximate estimated
fair value.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The
statement requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and
F-17
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements--(Continued)
for the three month periods ended March 31, 1999 and 2000
measure those instruments at fair value. SFAS No. 133 is effective for the
Group in 2001. The Group is currently evaluating SFAS No. 133, but does not
expect that it will have a material effect on its financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 which provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition
issues. We will be required to adopt the new standard beginning with the fourth
quarter of fiscal 2000. The impact of adoption on our financial statements is
not yet quantifiable.
2. Liquidity
As reflected in the accompanying Group consolidated financial statements,
the Group incurred a net loss of US$ 1,280,872 for the three month period ended
March 31, 2000. In addition, the Group has incurred net losses and has had
negative cash flows from operating activities since inception. Management
believes current working capital, projected product development and license
revenues, and continued projected debt financing from shareholders will provide
the Group with sufficient liquidity through March 2001. The ultimate
shareholder has declared his continuing financial support for the Group's
activities through March 2001.
3. Composition of Certain Financial Statement Captions
1999 2000
US$ US$
--------- ---------
Equipment furniture and fixtures:
Equipment, furniture and fixtures...................... 1,443,566 1,491,952
Less accumulated depreciation.......................... 643,522 695,120
--------- ---------
800,044 796,832
========= =========
Patent rights:
Patent rights.......................................... 308,023 309,892
Less accumulated amortization.......................... 60,949 66,850
--------- ---------
247,074 243,042
========= =========
4. Restructuring Charge
The Group recorded US$ 0 and US$ 266,790 of restructuring charges during the
three-month periods ended March 31, 1999 and 2000 respectively. Such charges
are in connection with the closure of the Group's developmental facility in
Argentina and termination of employees associated with the Group's
administrative function in France. The restructuring charge is primarily
comprised of severance and other related benefits and costs of exiting
facilities, including lease termination costs and write-down of existing assets
to their expected net realizable value. In connection with the closure of these
facilities, the Group has involuntarily terminated approximately 25 employees.
The Group is undertaking these actions as part of its efforts to reduce costs
and to centralize its developmental and administrative functions in
Switzerland. These restructuring programs are expected to be substantially
complete in 2000.
5. Shareholders' Equity
On November 1, 1997, Dr. Jacques Gonella and VECAP founded the Group as a
legal entity domiciled in Zug, Switzerland. All authorized shares of the
Group's share capital are issued and outstanding. Each share of
F-18
PERMATEC HOLDING AG
Notes to the Consolidated Financial Statements--(Continued)
for the three month periods ended March 31, 1999 and 2000
share capital is entitled to one vote per share. No proceeds were received by
the Group in connection with establishment of the legal entity.
6. Related Party Transactions
At December 31, 1999 and March 31, 2000 the Group had subordinated loans
payable to the Group's minority shareholder, Dr. Jacques Gonella of US$
7,506,773 and US$ 8,470,226 to the Group's majority shareholder, VECAP, of US$
2,498,373 and US$ 2,440,775 respectively. These parties have provided the
loans, which bear annual interest rates of 3%, in several installments
throughout the Group's operating history. These loans are subordinated, and can
only be repaid by the Group once the Group achieves positive shareholders'
equity as defined by Swiss statutory regulations.
At December 31, 1999 and March 31, 2000 the Group had US$ 339,733 and US$
329,438 respectively, payable to other companies ultimately owned by the
Group's minority shareholder, Dr. Gonella. These amounts are non-interest
bearing and are considered to be current liabilities.
7. Supplemental Disclosures of Cash Flow Information
The Group did not make any cash payments for interest during the three month
periods ended March 31, 1999 and 2000. All interest expense incurred by the
Group related to the Group's subordinated loans to Dr. Jacques Gonella and
VECAP has been included in the outstanding loan balance at March 31, 1999 and
2000.
8. Transaction with Medi-Ject
On January 26, 2000 the Group entered into a non-binding letter of intent to
engage in a transaction with Medi-Ject (a US company based in Minneapolis,
Minnesota). Subject to satisfactory due diligence the Group and Medi-Ject plan
to negotiate a definitive agreement in 2000. The parties intend to account for
the proposed transaction as a reverse acquisition. The share purchase agreement
was signed on July 14, 2000.
F-19
ANNEX A
STOCK PURCHASE AGREEMENT
among
MEDI-JECT CORPORATION,
a Minnesota corporation;
PERMATEC HOLDING AG,
a Company organized under the laws of Switzerland;
PERMATEC PHARMA AG,
a Company organized under the laws of Switzerland;
PERMATEC TECHNOLOGIE AG,
a Company organized under the laws of Switzerland;
and
PERMATEC NV,
a Company organized under the laws of the Netherlands Antilles
---------------------
Dated as of July 14, 2000
---------------------
TABLE OF CONTENTS
Page
---------
RECITALS ....................................................................A-1
TERMS .......................................................................A-1
SECTION 1. DESCRIPTION OF TRANSACTION ...................................... A-1
1.1. The Transaction. .................................................. A-1
(a)Sale of Stock ..................................................... A-1
(b)Board of Directors ................................................ A-1
(c)Tax Treatment ..................................................... A-1
1.2. Closing ........................................................... A-2
1.3. Deliveries and Proceedings at Closing ............................. A-2
(a)Other Agreements .................................................. A-2
(b)Deliveries by Permatec ............................................ A-2
(c)Deliveries by Medi-Ject ........................................... A-2
(d)Escrow Shares ..................................................... A-2
(e)Other Deliveries .................................................. A-2
SECTION 2. REPRESENTATIONS AND WARRANTIES OF PERMATEC AND SUBSIDIARIES ..... A-2
2.1. Due Organization; Subsidiaries; Etc. .............................. A-2
2.2. Organizational Documents; Records ................................. A-3
2.3. Capitalization, Etc. .............................................. A-3
2.4. Financial Statements .............................................. A-3
2.5. Absence of Changes ................................................ A-4
2.6. Title to Assets; Equipment; Real Property ......................... A-4
2.7. Proprietary Assets ................................................ A-4
2.8. Contracts ......................................................... A-5
2.9. Compliance with Legal Requirements ................................ A-5
2.10. Governmental Authorizations ....................................... A-6
2.11. Tax Matters ....................................................... A-6
2.12. Employee Benefit Plans ............................................ A-6
2.13. Insurance ......................................................... A-7
2.14. Related Party Transactions ........................................ A-7
2.15. Legal Proceedings; Orders ......................................... A-7
2.16. Authority; Binding Nature of Agreement .............................A-7
2.17. Non-Contravention; Consents ........................................A-7
2.18. Financial Advisor ..................................................A-8
2.19. Employees ..........................................................A-8
2.20. Environmental Matters ..............................................A-8
2.21. Entire Business ....................................................A-8
2.22. Change in Control ..................................................A-8
2.23. Other ..............................................................A-8
SECTION 3. REPRESENTATIONS AND WARRANTIES OF MEDI-JECT ......................A-9
3.1. Due Organization; Subsidiaries; Etc. ...............................A-9
3.2. Organizational Documents; Records ..................................A-9
3.3. Authority; Binding Nature of Agreement .............................A-9
3.4. Financial Statements ...............................................A-9
3.5. Absence of Changes ................................................A-10
3.6. Tax Returns .......................................................A-10
3.7. Capitalization, Etc. ..............................................A-10
3.8. Non-Contravention; Consents .......................................A-11
3.9. Title to Assets; Equipment; Real Property .........................A-11
3.10. Proprietary Assets ................................................A-11
i
3.11. Contracts .........................................................A-12
3.12. Compliance with Legal Requirements ................................A-12
3.13. Governmental Authorizations .......................................A-13
3.14. Employee Benefit Plans ............................................A-13
3.15. Insurance .........................................................A-13
3.16. Legal Proceedings; Orders .........................................A-13
3.17. Financial Advisor .................................................A-13
3.18. Environmental Matters .............................................A-13
3.19. Change in Control .................................................A-13
3.20. Required Medi-Ject Vote ...........................................A-14
3.21. SEC Reports .......................................................A-14
3.22. Antitrust .........................................................A-14
3.23. Other .............................................................A-14
SECTION 4. CERTAIN COVENANTS AND AGREEMENTS ................................A-14
4.1. Access to Records and Properties ..................................A-14
4.2. Operation of Subsidiaries .........................................A-15
4.3. Operation of Medi-Ject ............................................A-16
4.4. Advice of Changes .................................................A-18
4.5. Efforts to Consummate .............................................A-18
4.6. Additional Agreements .............................................A-18
4.7. Proxy Statement ...................................................A-18
4.8. Financing .........................................................A-19
4.9. Business Plan .....................................................A-19
4.10. Search for Chief Executive Officer ................................A-19
4.11. Noncompetition ....................................................A-19
SECTION 5. CERTAIN CONDITIONS ..............................................A-19
5.1. Conditions to Each Party's Obligations ............................A-19
(a)Approvals .........................................................A-19
(b)Financing .........................................................A-20
5.2. Conditions to Obligations of Medi-Ject ............................A-20
(a)Representations and Warranties ....................................A-20
(b)Performance of Obligations of Permatec and Subsidiaries ...........A-20
(c)Absence of Certain Changes ........................................A-20
(d)Delivery of Convertible Notes .....................................A-20
(e)Cash ..............................................................A-20
(f)Employment Agreement ..............................................A-20
(g)Capital Stock of Subsidiaries .....................................A-20
(h)Escrow Agreement ..................................................A-20
(i)Opinions of Counsel ...............................................A-20
(j)Officer's Certificate. ............................................A-20
5.3. Conditions to Obligations of Permatec and Subsidiaries ............A-20
(a)Representations and Warranties ....................................A-20
(b)Performance of Obligations of Medi-Ject ...........................A-21
(c)Opinion of Counsel to Medi-Ject ...................................A-21
(d)Absence of Certain Changes ........................................A-21
(e)Delivery of Medi-Ject Series C Stock upon Conversion of Convertible
Notes ......................................................................A-21
(f)Employment Agreement ..............................................A-21
(g)Capital Stock of Medi-Ject ........................................A-21
(h)Board of Directors ................................................A-21
(i)Officer's Certificate .............................................A-21
(j)Approvals and Consents ............................................A-21
ii
(k)Amendment of the Elan License Agreement ...........................A-21
(l)Lock-Up Agreements ................................................A-21
SECTION 6. TERMINATION .....................................................A-22
6.1. Termination .......................................................A-22
6.2. Effect of Termination .............................................A-22
6.3. Procedure Upon Termination ........................................A-22
SECTION 7. INDEMNIFICATION AND ESCROW ......................................A-22
7.1. Indemnification by Permatec .......................................A-22
7.2. Indemnification by Medi-Ject ......................................A-22
7.3. Procedure for Third Party Claims ..................................A-23
7.4. Procedures Related to Other Claims ................................A-23
7.5. Indemnity Period ..................................................A-23
7.6. Basket; Cap .......................................................A-23
7.7. Exclusion of Remedies by Law ......................................A-24
7.8. Exceptions to Limitations on Indemnification ......................A-24
SECTION 8. CERTAIN DEFINITIONS .............................................A-24
8.1. Definitions .......................................................A-24
SECTION 9. MISCELLANEOUS PROVISIONS ........................................A-26
9.1. Amendment .........................................................A-26
9.2. Waiver ............................................................A-26
9.3. Entire Agreement; Counterparts; Applicable Law and Arbitration ....A-27
9.4. Assignability .....................................................A-27
9.5. Notices ...........................................................A-27
9.6. Cooperation .......................................................A-28
9.7. Fees and Expenses. ................................................A-28
9.8. Non-Survival of Representations, Warranties Past the Indemnification
Period; Survival of Covenants ..............................................A-28
9.9. Titles ............................................................A-28
iii
AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into as of
July 14, 2000, by and among Medi-Ject Corporation, a Minnesota corporation,
("Medi-Ject"); Permatec Holding AG, a company organized under the laws of
Switzerland ("Permatec"); Permatec Pharma AG, a company organized under the
laws of Switzerland ("Pharma"); Permatec Technologie AG, a company organized
under the laws of Switzerland ("Technologie"); and Permatec NV, a company
organized under the laws of the Netherlands Antilles ("NV") (Pharma,
Technologie and NV sometimes being referred to herein collectively as the
"Subsidiaries" and individually as "Subsidiary"). Certain capitalized terms
used in this Agreement are defined in Section 8 hereof.
RECITALS
A. Permatec owns all of the issued and outstanding capital stock of each
Subsidiary.
B. Permatec has previously agreed to invest up to $4,500,000 in Medi-Ject
(the "Commitment"). As of the date hereof Permatec has funded the Commitment in
exchange for two short-term promissory notes dated January 25, 2000 and
February 29, 2000, respectively (the "Initial Convertible Notes") and four
promissory notes dated April 3, 2000, May 2, 2000, May 26, 2000 and June 26,
2000 of Medi-Ject (such notes and any other note of Medi-Ject issued pursuant
to the Convertible Note Purchase Agreement dated April 3, 2000 (the "Note
Purchase Agreement") are referred to herein as the "Interim Notes"). The
Initial Convertible Notes and the Interim Notes are collectively referred to
herein as the "Convertible Notes." The Convertible Notes are convertible into
Series C Convertible Preferred Stock, par value $.01 per share, of Medi-Ject
(the "Medi-Ject Series C Stock").
C. Medi-Ject desires to acquire from Permatec, and Permatec desires to
transfer to Medi-Ject, all of the issued and outstanding capital stock of each
Subsidiary in exchange for an aggregate of 2,900,000 shares of Medi-Ject common
stock, par value $.01 per share (the "Medi-Ject Common Stock").
TERMS
NOW THEREFORE, in consideration of the mutual covenants, promises,
representations and agreements contained herein, the parties to this Agreement,
intending to be legally bound, agree as follows:
SECTION 1
DESCRIPTION OF TRANSACTION
1.1. The Transaction.
(a) Sale of Stock. Subject to the terms and conditions hereof, at the
Closing referred to in Section 1.2 below, (a) Permatec shall transfer and
deliver to Medi-Ject, all of the issued and outstanding shares of capital stock
of each Subsidiary (collectively, the "Subsidiaries Stock"), and (b) Medi-Ject
shall issue and sell to Permatec 2,900,000 shares of Medi-Ject Common Stock.
All rights to, benefits in and risks to the Subsidiaries Stock shall pass to
Medi-Ject upon Closing and all rights to, benefits in and risks to the
2,900,000 shares of Medi-Ject Common Stock shall pass to Permatec upon Closing.
(b) Board of Directors. At the Closing the Company shall cause Karl Groth,
Geoffrey Guy, M.D., Fred L. Shapiro, M.D. and Stanley Goldberg to tender their
resignations from the board of directors of Medi-Ject and that the directors
then remaining shall, pursuant to the Bylaws of Medi-Ject, fill such vacancies
by appointing Dr. Jacques Gonella, Dr. Thomas M. Rinderknecht, Prof. Ubaldo
Conte and Dr. Philippe Dro.
(c) Tax Treatment. The parties intend that the transaction contemplated
herein constitute a tax-free reorganization within the meaning of Section
368(a)(1)(B) of the Code, and the tax laws of Switzerland, and that there be no
recognition of income tax resulting from the application of Code Section 367 to
the exchanges described herein.
A-1
1.2. Closing. The closing under this Agreement (the "Closing") will take
place at 10:00 A.M., local time, on the later of (i) August 31, 2000 or (ii)
the fifth business day after all conditions set forth in Section 5 shall have
been satisfied or waived, at the offices of Leonard, Street and Deinard, 150
South Fifth Street, Suite 2300, Minneapolis, Minnesota 55402 or at such other
time, date or place as the parties shall mutually agree. The date on which
Closing occurs is sometimes referred to herein as the "Closing Date."
1.3. Deliveries and Proceedings at Closing. At the Closing:
(a) Other Agreements. Permatec, Subsidiaries, Medi-Ject, and the other
parties thereto shall execute and deliver (i) the Registration Rights Agreement
in the form attached hereto as Exhibit A (the "Registration Rights Agreement"),
(ii) the Employment Agreement in the form attached hereto as Exhibit B (the
"Employment Agreement"), (iii) the Escrow Agreement in the form attached hereto
as Exhibit C (the "Escrow Agreement"); and (iv) the Lock-Up Agreements in the
forms attached hereto as Exhibits D through H (the "Lock-Up Agreements").
(b) Deliveries by Permatec. Permatec shall deliver to Medi-Ject (i) good
title to all of the issued and outstanding capital stock of each Subsidiary,
free and clear of all Encumbrances, and (ii) the Convertible Notes to Medi-Ject
for cancellation.
(c) Deliveries by Medi-Ject. On the Closing Date, Medi-Ject will deliver (i)
to Permatec a certificate registered in the name of Permatec for 2,320,000
shares of Medi-Ject Common Stock; and (ii) a certificate registered in the name
of Permatec for the number of shares of Medi-Ject Series C Stock issuable upon
conversion of the Convertible Notes.
(d) Escrow Shares. On the Closing Date, Medi-Ject on behalf of Permatec,
shall deposit into escrow, pursuant to the terms of the Escrow Agreement to be
entered into pursuant to Section 5.2(h), 580,000 shares of Medi-Ject Common
Stock (the "Indemnity Escrow Amount"). The Indemnity Escrow Amount shall be
deposited on behalf of Permatec from the shares of Medi-Ject Common Stock to be
issued and delivered to Permatec pursuant to this Agreement. The shares of
Medi-Ject Common Stock deposited pursuant to the Escrow Agreement, together
with any other property on deposit with the escrow agent, is referred to herein
as the "Escrow Property."
(e) Other Deliveries. The closing certificates, opinions of counsel and
other documents and agreements required to be delivered pursuant to this
Agreement shall be exchanged.
SECTION 2
REPRESENTATIONS AND WARRANTIES
OF PERMATEC AND SUBSIDIARIES
For purposes of this Section 2 and Section 4 below, "Subsidiary" shall be
deemed to include each Subsidiary, where the context so provides. Permatec and
each Subsidiary jointly and severally represent and warrant to Medi-Ject that,
except as set forth in the disclosure schedule delivered by Permatec and each
Subsidiary to Medi-Ject on the date of this Agreement (the "Permatec Disclosure
Schedule"):
2.1. Due Organization; Subsidiaries; Etc.
(a) Permatec and each Subsidiary is a corporation duly organized and validly
existing and in good corporate and tax standing under the laws of the
jurisdiction of its incorporation and has the necessary corporate power and
authority: (i) to conduct its business in the manner in which its business is
currently being conducted; (ii) to own and use its assets in the manner in
which its assets are currently owned and used; and (iii) to perform its
obligations under all Contracts by which it is bound.
(b) Except as set forth in Section 2.1(b) of the Permatec Disclosure
Schedule, Permatec and each Subsidiary have no subsidiaries and do not own any
shares of capital stock of, or equity interest of any nature in, any Entity
(other than shares of non-affiliates held as non-material financial
investments). No Subsidiary has agreed or is obligated to make any future
investment in or capital contribution to any Entity.
A-2
2.2. Organizational Documents; Records. Permatec has delivered or made
available to Medi-Ject accurate and complete copies of the certificate of
incorporation, articles of association (statutes), bylaws, management bylaws or
similar organizational documents of Permatec and each Subsidiary, including all
amendments thereto. Permatec has made available to Medi-Ject accurate and
complete copies of the minutes and other records of the meetings and other
proceedings (including any actions taken by written consent or otherwise
without a meeting) of the shareholders of Permatec and each Subsidiary and the
board of directors and all committees of the board of directors of Permatec and
each Subsidiary.
2.3. Capitalization, Etc.
(a) The authorized, issued and outstanding shares of capital stock of
Permatec and each Subsidiary are set forth in Section 2.3(a) of the Permatec
Disclosure Schedule. All of the foregoing shares of capital stock have been
duly authorized and validly issued, and are fully paid and nonassessable.
(b) Except as set forth in Section 2.3(b) of the Permatec Disclosure
Schedule, as of the date of this Agreement, there is no: (i) profit sharing
certificate, outstanding subscription, option, call, warrant or right to
acquire any shares of the capital stock or other securities of any Subsidiary;
(ii) outstanding security, instrument or obligation that is or will become
convertible into or exchangeable for any shares of the capital stock or other
securities of any Subsidiary; or (iii) contract under which any Subsidiary is
or will become obligated to sell or otherwise issue any shares of its capital
stock or any other securities.
(c) Permatec owns all of the issued and outstanding capital stock of each
Subsidiary. All such shares are owned free and clear of any Encumbrances. No
agreement, law, order, obligation, decree or other document restricts
Permatec's right, power and ability to transfer the Subsidiaries Stock.
(d) Except for the rights of Medi-Ject under the Escrow Agreement, upon
issuance, Permatec shall own the 2,900,000 shares of Medi-Ject Common Stock
issuable pursuant to Section 1.1 hereof, free and clear of any Encumbrances. No
agreement, law, order, obligation, decree or other document shall restrict
Permatec's right, power and ability to transfer such shares.
2.4. Financial Statements.
(a) Permatec has delivered to Medi-Ject the following financial statements
and notes (collectively, the "Permatec Financial Statements"):
(i) the audited consolidated balance sheet of Permatec as of December
31, 1999, 1998 and 1997, and the related audited statements of operations,
stockholders' equity and cash flows of Permatec for each of the years ended
December 31, 1999, 1998 and 1997, together with the notes thereto and the
unqualified report of KPMG Fides Peat relating thereto;
(ii) the unaudited consolidated balance sheet of Permatec as of March
31, 2000, and the related unaudited statement of operations and a statement
of cash flows of Permatec for the three (3) months then ended, together
with the notes thereto;
(iii) the unaudited balance sheet of each Subsidiary as of December 31,
1999, 1998 and 1997, and the related unaudited statements of operations,
stockholders' equity and cash flows of each Subsidiary for each of the
years ended December 31, 1999, 1998 and 1997, together with the notes
thereto;
(iv) the unaudited balance sheet of each Subsidiary as of March 31,
2000, and the related unaudited statements of operations and cash flows of
each Subsidiary for the three (3) months then ended, together with the
notes, if any, thereto.
(b) The Permatec Financial Statements present fairly, in all material
respects, the financial position of Permatec and each Subsidiary as of the
respective dates thereof and the results of operations and cash flows of
Permatec and each Subsidiary for the periods covered thereby. The Permatec
Financial Statements described in Section 2.4(a)(iii) have been audited and
closed pursuant to Swiss law and translated for presentation in accordance with
United States generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods covered. The Permatec Financial
Statements described in Section 2.4(a)(ii) have
A-3
been prepared without audit and in accordance with GAAP for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. All adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included in such financial statements. The Pematec
Financial Statements described in Section 2.4(a)(iv) are subject to normal and
recurring year-end audit adjustments.
(c) To the knowledge of Permatec and each Subsidiary, except for liabilities
or obligations which are accrued or reserved in the Permatec Financial
Statements (or reflected in the notes thereto) or which were incurred after
December 31, 1999 in the ordinary course of business, neither Permatec nor any
Subsidiary has any liabilities or obligations (accrued or contingent) of a
nature required by GAAP to be reflected in a balance sheet or that would be
required to be disclosed in footnotes that would be required pursuant to GAAP.
2.5. Absence of Changes. Except as set forth in Section 2.5 of the Permatec
Disclosure Schedule, since December 31, 1999, none of the Subsidiaries have:
(a) sold or transferred any of their assets or any portion of the
interests in such assets other than sales of their respective products in
the ordinary course of business;
(b) suffered any material loss, or material interruption in use, of any
asset or property (whether or not covered by insurance), on account of
fire, flood, riot, strike or other hazard or Act of God;
(c) made any material change in the nature of their business or
operations;
(d) entered into any material transaction other than sales or licenses
of their products and services in the ordinary course of business;
(e) incurred any liabilities other than in the ordinary course of
business; or
(f) suffered any adverse change with respect to their business or
financial condition which has had or is expected to have a Material Adverse
Effect on any of the Subsidiaries.
2.6. Title to Assets; Equipment; Real Property. Each Subsidiary owns and has
good title to the assets purported to be owned by it and which are material to
such Subsidiary or to the conduct of its business. Except as set forth in
Section 2.6 of the Permatec Disclosure Schedule, such assets are owned by each
Subsidiary free and clear of any Encumbrances. The material items of equipment
and other tangible assets owned by or leased to each Subsidiary are adequate
for the uses to which they are being put and are in good condition and repair
(ordinary wear and tear excepted). No Subsidiary owns or leases any real
property or any material interest in real property, except as described in
Section 2.6 of the Permatec Disclosure Schedule.
2.7. Proprietary Assets.
(a) Each Subsidiary owns the intellectual property in the Permatec
Proprietary Assets, and to its knowledge, has the exclusive right to use and
exploit all of the intellectual property in the Permatec Proprietary Assets.
None of the Subsidiaries jointly own with any other Person any Permatec
Proprietary Asset. Except as set forth in Section 2.7(a) of the Permatec
Disclosure Schedule, there is no Permatec Contract pursuant to which any
Subsidiary has granted any Person any right (whether or not currently
exercisable) to license, commercially distribute or otherwise market any
Permatec Proprietary Asset. The Permatec Proprietary Assets are held and owned
by the Subsidiaries, and Permatec has no rights with respect to such assets
(other than by Permatec as the sole shareholder of Subsidiaries).
(b) To Permatec's and each Subsidiary's knowledge, the Subsidiaries have
taken commercially reasonable measures and precautions to protect and maintain
the confidentiality, secrecy and value of the Permatec Proprietary Assets
(except Permatec Proprietary Assets whose value would be unimpaired by public
disclosure). No current or former officer, director, shareholder, employee,
consultant or independent contractor of Permatec or any Subsidiary has any
ownership right with respect to any Permatec Proprietary Asset.
(c) No Subsidiary has been charged, nor, to its knowledge, is threatened to
be charged, with infringement of any unexpired patent, trademark, trade name,
service mark, copyright or other proprietary right of any Person, nor has any
claim been asserted by any Person, nor, to Permatec's or any Subsidiary's
knowledge, is a
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claim threatened to be asserted by any Person, or to any Subsidiary's knowledge
are there grounds for any such claim to be asserted, challenging or questioning
the validity, enforceability or effectiveness of the Proprietary Assets of any
Subsidiary or any license or sublicense agreements to which any Subsidiary is a
party. No Subsidiary is aware of any other Person that is infringing on any
Permatec Proprietary Asset.
(d) Permatec Proprietary Assets, together with agreements for the license
to any Subsidiary of software generally available to the public, constitute all
the material Proprietary Assets necessary to enable each Subsidiary to conduct
its business in the manner in which such business is currently being conducted.
Except as set forth in Section 2.7(d) of the Permatec Disclosure Schedule,
neither Permatec nor any of the Subsidiaries have (i) licensed any of the
Permatec Proprietary Assets to any Person on an exclusive basis, or (ii)
entered into any covenant not to compete or Contract limiting its ability (A)
to exploit fully any material Permatec Proprietary Assets or (B) to transact
business in any market or geographical area or with any Person.
(e) Section 2.7(e) of the Permatec Disclosure Schedule sets forth all
patents that have been issued to Permatec, Subsidiaries, or any former
subsidiary of Permatec, patent applications that have been filed by Permatec,
Subsidiaries, or any former subsidiary of Permatec, and trademarks that have
been registered by Permatec, Subsidiaries, or any former subsidiary of
Permatec, and the jurisdictions in which such patents have been issued, patent
applications have been filed and trademarks have been registered.
(f) Permatec and each Subsidiary have delivered to Medi-Ject true, correct
and complete copies of each agreement, registration, application, assignment
and transfer document relating to the Permatec Proprietary Assets.
2.8. Contracts.
(a) Section 2.8 of the Permatec Disclosure Schedule identifies each
Permatec Contract to which any Subsidiary is a party or by which any Subsidiary
or any asset of any Subsidiary is bound (the "Subsidiary Contracts"). Permatec
and each Subsidiary have delivered or made available to Medi-Ject accurate,
current and complete copies of the Subsidiary Contracts. Each Subsidiary
Contract is valid and in full force and effect.
(b) Neither Permatec nor any Subsidiary has received notice from any Person
that such Subsidiary has violated or breached, or committed any default under,
any Permatec Contract, nor to Permatec's or any Subsidiary's knowledge are
there grounds for any Person to make such a claim; and Permatec and each
Subsidiary has no knowledge that any other Person has violated or breached, or
committed any default under, any Permatec Contract, except where such
violations, breaches or defaults have not had and will not have a Material
Adverse Effect on any Subsidiary.
(c) Neither Permatec nor any Subsidiary has executed any agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree
which could reasonably be expected to have the effect of prohibiting or
impairing any business practice of any Subsidiary, any acquisition of property
(tangible or intangible) by any Subsidiary or the conduct of business by any
Subsidiary. Without limiting the foregoing, neither Permatec nor any Subsidiary
has entered into any agreement under which any Subsidiary is restricted from
selling, licensing or otherwise distributing any of the Subsidiaries' products
to any class of customers, or providing consulting services, in any geographic
area, during any period of time, nor has Permatec or any Subsidiary granted to
any other person any exclusive rights with respect to any products of Permatec
or any Subsidiary.
(d) The execution of this Agreement does not violate, conflict with, or
constitute a default under any Permatec Contract.
(e) Permatec has no rights with respect to any Subsidiary Contract; all
such rights are held by Subsidiaries.
2.9. Compliance with Legal Requirements. To its knowledge, each Subsidiary
is in compliance with applicable Legal Requirements, except where the failure
to comply with such Legal Requirements will not have a Material Adverse Effect
on any Subsidiary. Neither Permatec nor any Subsidiary has received (i) at any
time since January 1, 1997, any notice or written communication from any
Governmental Body regarding any actual
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or possible violation of, or failure to comply with, any Legal Requirement or
(ii) prior to January 1, 1997 any such notice or communication that remains
pending. No investigation or review of Permatec or any Subsidiary by any
Governmental Body is pending or, to any Subsidiary's knowledge, threatened.
2.10. Governmental Authorizations. To Permatec's and each Subsidiary's
knowledge, each Subsidiary holds the Governmental Authorizations necessary to
enable it to conduct its businesses in the manner in which such businesses are
currently being conducted and in compliance with applicable Legal Requirements,
except where the failure to hold such Governmental Authorizations will not have
a Material Adverse Effect on any Subsidiary. Such Governmental Authorizations
are valid and in full force and effect. To Permatec's and each Subsidiary's
knowledge, each Subsidiary is in compliance with the terms and requirements of
such Governmental Authorizations except where failure to be in compliance will
not have a Material Adverse Effect on any Subsidiary. Neither Permatec nor any
Subsidiary has received (i) at any time since January 1, 1997 any written
notice or other written communication from any Governmental Body regarding (a)
any actual or possible violation of or failure to comply with any term or
requirement of any material Governmental Authorization or (b) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or
modification of any material Governmental Authorization or (ii) prior to
January 1, 1997 any such notice or communication that remains pending.
2.11. Tax Matters.
(a) Permatec and each Subsidiary have timely filed or caused to be filed
all Tax Returns required to be filed, or, requests for extensions to file such
Tax Returns have been filed, granted and have not expired. All such Tax Returns
are complete and accurate in all material respects. Permatec and each
Subsidiary have paid all Taxes shown as due on such Tax Returns, and Permatec
Financial Statements fully accrue Permatec's and each Subsidiary's liabilities
for Taxes with respect to all periods in accordance with GAAP. No deficiencies
for any Tax have been proposed in writing, asserted or assessed, in each case
by any Governmental Authority, against Permatec or any Subsidiary for which
there is not an adequate reserve, except for deficiencies that would not have a
Material Adverse Effect on Permatec or any Subsidiary. To the knowledge of
Permatec and each Subsidiary, there are no current examinations or audits of
any Permatec or any Subsidiary Tax Return.
(b) Neither Permatec nor any Subsidiary is or has been a "controlled
foreign corporation" within the meaning of Section 957 of the Code.
(c) As of the date the transaction is consummated, no Subsidiary shall have
made any election under Treas. Reg. 301.7701-3 relating to entity
classification for United States federal tax purposes, or otherwise taken any
steps to be treated as other than a corporation for United States federal tax
purposes.
2.12. Employee Benefit Plans.
(a) Section 2.12(a) of the Permatec Disclosure Schedule sets forth a true
and complete list of each Benefit Plan; and each material employment,
termination or severance plan, agreement or arrangement, in each case that is
sponsored, maintained or contributed to or required to be contributed to by
Permatec or any Subsidiary, or to which Permatec or any Subsidiary is a party,
whether written or oral, for the benefit of any employee or former employee of
Permatec or any Subsidiary.
(b) To Permatec's and each Subsidiary's knowledge, each Permatec Benefit
Plan has been administered and operated in compliance with its terms and all
applicable Legal Requirements.
(c) To Permatec's and each Subsidiary's knowledge, there are no liabilities
of Permatec or any Subsidiary with respect to any Permatec Benefit Plan, other
than liabilities disclosed or provided for in the Permatec Financial
Statements.
(d) Section 2.12(d) of the Permatec Disclosure Schedule includes a complete
and accurate list of all officers, employees and independent contractors of
Permatec and each Subsidiary, as of the date hereof, and the salaries and fees
paid to such individuals, in calendar year 1999.
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2.13. Insurance. Section 2.13 of the Permatec Disclosure Schedule contains a
complete and accurate list and description of all insurance policies held by
Permatec and each Subsidiary. To Permatec's and each Subsidiary's knowledge,
the policies set forth on Section 2.13 of the Permatec Disclosure Schedule are
of the type and in amounts customarily carried by organizations conducting
businesses or owning assets similar to those of Permatec and the Subsidiaries.
Since January 1, 1997, neither Permatec nor any Subsidiary has received any
written notice or other written communication regarding any actual or possible
(a) cancellation or invalidation of any insurance policy (b) refusal of any
coverage or rejection of any material claim under any insurance policy, or (c)
material adjustment in the amount of the premiums payable with respect to any
insurance policy. To each Subsidiary's knowledge, there is no pending material
claim (including any workers' compensation claim) under or based upon any
insurance policy of Permatec or any Subsidiary. Each insurance policy of
Permatec and Subsidiaries is in full force and effect.
2.14. Related Party Transactions. No Related Party has any direct or
indirect interest in any material asset used in or otherwise relating to the
business of Permatec or any Subsidiary. No Related Party has any direct or
indirect financial interest in any Permatec Contract, transaction or business
dealing involving Permatec or any Subsidiary. No Related Party has any claim or
right against Permatec for which a Subsidiary may be liable or against any
Subsidiary (other than rights to receive compensation for services performed as
an employee of Permatec or any Subsidiary). For purposes of this Section 2.14,
each of the following shall be deemed to be a "Related Party": (i) each
individual who is an officer or director of Permatec or any Subsidiary or any
of the former subsidiaries of Permatec; (ii) each member of the immediate
family of each of the individuals referred to in clause "(i)" above; and (iii)
any trust or other Entity in which any one of the individuals referred to in
clauses "(i)" and "(ii)" above holds (or in which more than one of such
individuals collectively hold), beneficially or otherwise, a material voting,
proprietary or equity interest.
2.15. Legal Proceedings; Orders.
(a) Except as set forth in Section 2.15 of the Permatec Disclosure
Schedule, there is no pending Legal Proceeding, and no Person has overtly
threatened to commence any Legal Proceeding: (i) that involves Permatec or any
Subsidiary or any assets owned or used by Permatec or any Subsidiary; or (ii)
that challenges any of the transactions contemplated by this Agreement.
(b) There is no order, writ, injunction, judgment or decree to which
Permatec or any Subsidiary, or any assets owned or used by Permatec or any
Subsidiary, is subject.
2.16. Authority; Binding Nature of Agreement. Permatec and each Subsidiary
has all necessary corporate right, power and authority to enter into and to
perform their respective obligations under this Agreement. This Agreement has
been duly executed and delivered by Permatec and each Subsidiary and
constitutes the legal, valid and binding obligation of Permatec and each
Subsidiary, enforceable against each of them in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
2.17. Non-Contravention; Consents. Except as set forth in Section 2.17(d) of
the Permatec Disclosure Schedule, neither (1) the execution, delivery or
performance of this Agreement, nor (2) the consummation of the transactions
contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with or result in a violation of any of the
provisions of the certificate of incorporation, bylaws or similar
organizational documents of Permatec or any Subsidiary;
(b) contravene, conflict with or result in a violation of, any Legal
Requirement or any order, writ, injunction, judgment or decree to which
Permatec or any Subsidiary, or any material assets owned or used by
Permatec or any Subsidiary, is subject;
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(c) contravene, conflict with or result in a violation of any of the
terms or requirements of any material Governmental Authorization that is
held by Permatec or any Subsidiary or that otherwise relates to the
business of Permatec or any Subsidiary or to any material assets owned or
used by Permatec or any Subsidiary; or
(d) contravene, conflict with or result in a violation or breach of, or
result in a default under or require the giving of notice under, or result
in the creation of any lien with respect to the assets of Permatec or any
Subsidiary pursuant to, any provision of any Permatec Contract, except for
any such violations, liens, breaches or defaults, or failures to give
notice that will not have a Material Adverse Effect on Permatec or any
Subsidiary.
Permatec and each Subsidiary are not and will not be required to make any
filing with or give any notice to, or to obtain any Consent from, any Person in
connection with (x) the execution, delivery or performance of this Agreement or
(y) the consummation of the transactions contemplated by this Agreement, except
where the failure to take such actions will not have a Material Adverse Effect
on any Subsidiary.
2.18. Financial Advisor. Except as set forth in Section 2.18 of the Permatec
Disclosure Schedule, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission to be paid by Permatec or any
Subsidiary in connection with the transactions contemplated by this Agreement.
2.19. Employees. Section 2.19 of the Permatec Disclosure Schedule contains
an accurate list of: (i) all written agreements providing for a term of
employment of six (6) months or more between Permatec or any Subsidiary and any
current or retired employee; (ii) all collective bargaining agreements to which
Permatec or any Subsidiary is a party (other than any labor contracts mandated
by applicable law); and (iii) all officers and employees of Permatec and each
Subsidiary as of the date hereof, and the salaries paid in calendar year 1999.
No strike or labor dispute involving Permatec or any Subsidiary and a group of
their respective employees has occurred during the last three (3) years or, to
the knowledge of Permatec, is threatened. To Permatec's and each Subsidiary's
knowledge, Permatec and each Subsidiary have complied in all respects with
applicable wage and hour, equal employment, safety and other legal requirements
relating to its employees, except where the failure to comply will not have a
Material Adverse Effect on Permatec or any Subsidiary.
2.20. Environmental Matters. To Permatec's and each Subsidiary's knowledge,
Permatec and each Subsidiary have complied in all respects with all applicable
Legal Requirements relating to the environment or occupational health and
safety, except where the failure to comply will not have a Material Adverse
Effect on Permatec or any Subsidiary. There is no pending, or, to the knowledge
of Permatec and each Subsidiary, threatened, civil or criminal litigation,
written notice of violation, formal administrative proceedings, or
investigation, inquiry or information request by any Governmental Body,
relating to any such Legal Requirements. To the knowledge of Permatec and each
Subsidiary, there have been no releases by Permatec or any Subsidiary or by
others of any chemicals, pollutants, contaminants, or hazardous substances into
the environment at any parcel of real property or facility formerly or
currently owned, leased, operated or controlled by Permatec or any Subsidiary
in violation of environmental or occupational health Legal Requirements, except
where such violation will not have a Material Adverse Effect on Permatec or any
Subsidiary.
2.21. Entire Business. Neither Permatec nor its affiliates, nor the former
subsidiaries of Permatec, own any assets necessary for the conduct of the
business conducted or proposed to be conducted by the Subsidiaries.
2.22. Change in Control. Neither Permatec nor any Subsidiary is a party to
any contract, agreement or understanding which contains a "change in control,"
"potential change in control" or similar provision that would affect the
transactions contemplated by this Agreement. The consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional acts or events) result in any payment (whether of severance
pay or otherwise) becoming due from Permatec or any Subsidiary to any person.
2.23. Other. Neither this Agreement nor any of the exhibits hereto, nor any
of the documents delivered by or on behalf of Permatec or any Subsidiary
pursuant to Section 5 hereof, nor the Permatec Disclosure
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Schedule, taken as a whole, contain any untrue statement of material fact
regarding Permatec or any Subsidiary or its business or omit to state a
material fact necessary to make this Agreement, the exhibits hereto, or any
document executed in connection therewith, not misleading.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF MEDI-JECT
Medi-Ject represents and warrants to Permatec and the Subsidiaries that,
except as set forth in the disclosure schedule delivered by Medi-Ject to
Permatec on the date of this Agreement (the "Medi-Ject Disclosure Schedule"):
3.1. Due Organization; Subsidiaries; Etc.
(a) Medi-Ject is a corporation duly organized, validly existing and in good
standing under the laws of the State of Minnesota. Medi-Ject has the necessary
corporate power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to own and use its assets
in the manner in which its assets are currently owned and used; and (iii) to
perform its obligations under all Contracts by which it is bound.
(b) Except as set forth in Section 3.1(b) of the Medi-Ject Disclosure
Schedule, Medi-Ject has no subsidiaries and does not own any shares of capital
stock of, or equity interest of any nature in, any Entity (other than shares of
non-affiliates held as non-material financial investments). Medi-Ject has not
agreed nor is Medi-Ject obligated to make any future investment in or capital
contribution to any Entity.
(c) Medi-Ject is qualified to do business as a foreign corporation, and is
in good standing, under the laws of the jurisdictions where the nature of its
business requires such qualification and where the failure to so qualify will
have a Material Adverse Effect on Medi-Ject. Each such jurisdiction is listed
in Section 3.1(c) of the Medi-Ject Disclosure Schedule.
3.2. Organizational Documents; Records. Medi-Ject has delivered or made
available to Permatec accurate and complete copies of the certificate of
incorporation and bylaws of Medi-Ject, including all amendments thereto. Medi-
Ject has made available to Permatec accurate and complete copies of the minutes
and other records of the meetings and other proceedings (including any actions
taken by written consent or otherwise without a meeting) of the shareholders of
Medi-Ject and the board of directors and all committees of the board of
directors of Medi-Ject.
3.3. Authority; Binding Nature of Agreement. Medi-Ject has all necessary
corporate right, power and authority to enter into and perform (subject to the
approval of Medi-Ject's Shareholders) its obligations under this Agreement.
This Agreement has been duly executed and delivered by Medi-Ject and
constitutes the legal, valid and binding obligation of Medi-Ject, enforceable
against Medi-Ject in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
3.4. Financial Statements.
(a) Medi-Ject has delivered to Permatec the following financial statements
and notes (collectively, the "Medi-Ject Financial Statements"):
(i) the audited balance sheets of Medi-Ject as of December 31, 1999,
1998 and 1997 and the related audited statements of operations,
stockholders' equity and cash flows of Medi-Ject for each of the years
ended December 31, 1999, 1998, and 1997 together with the notes thereto and
the unqualified opinion of KPMG LLP thereon, which contains an emphasis
paragraph regarding Medi-Ject's ability to continue as a going concern; and
(ii) the unaudited balance sheet of Medi-Ject as of March 31, 2000,
and the related unaudited statements of operations and cash flows of Medi-
Ject for the three (3) months ended March 31, 2000.
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(b) The Medi-Ject Financial Statements present fairly, in all material
respects, the financial position of Medi-Ject as of the respective dates
thereof and the results of operations and cash flows of Medi-Ject for the
periods covered thereby. The Medi-Ject Financial Statements have been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
covered. The unaudited interim financial statements have been prepared without
audit and in accordance with GAAP for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. All adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included in such financial statements.
(c) To its knowledge, except for liabilities or obligations which are
accrued or reserved in the statements (or reflected in the notes thereto) or
which were incurred after March 31, 2000 in the ordinary course of business,
Medi-Ject has no liabilities or obligations (accrued or contingent) of a nature
required by GAAP to be reflected in a balance sheet or that would be required
to be disclosed in footnotes that are required pursuant to GAAP.
3.5. Absence of Changes. Since December 31, 1999, Medi-Ject has not:
(a) sold or transferred any portion of its assets or any portion of the
interests in such assets other than sales of Medi-Ject's products in the
ordinary course of business;
(b) suffered any material loss, or material interruption in use, of any
asset or property (whether or not covered by insurance), on account of
fire, flood, riot, strike or other hazard or Act of God;
(c) made any material change in the nature of its business or
operations;
(d) entered into any material transaction other than sales of Medi-
Ject's products in the ordinary course of business;
(e) incurred any liabilities other than the Convertible Notes or
liabilities incurred in the ordinary course of business; or
(f) suffered any adverse change with respect to its business or
financial condition which has had or is expected to have a Material Adverse
Effect on Medi-Ject.
3.6. Tax Returns. Medi-Ject has timely filed or caused to be filed all Tax
Returns required to be filed, or, requests for extensions to file such Tax
Returns have been filed, granted and have not expired. All such Tax Returns are
complete and accurate in all material respects. Medi-Ject has paid all Taxes
shown as due on such Tax Returns, and the Medi-Ject Financial Statements fully
accrue Medi-Ject's liabilities for Taxes with respect to all periods in
accordance with GAAP. No deficiencies for any Tax have been proposed in
writing, asserted or assessed, in each case by any Governmental Authority,
against Medi-Ject for which there are not adequate reserves, except for
deficiencies that would not have a Material Adverse Effect on Medi-Ject. There
are no examinations or audits of any Medi-Ject Tax Return currently underway.
3.7. Capitalization, Etc.
(a) As of the date of this Agreement, the authorized capital stock of Medi-
Ject is 4,400,000 shares divided into three classes consisting of: (i)
3,400,000 shares of common stock, par value $.01 per share, of which 1,424,869
shares have been issued and are outstanding as of the date of this Agreement;
(ii) 10,000 shares of Series A Preferred Stock, par value $.01 per share, of
which 1,100 shares have been issued and are outstanding as of the date of this
Agreement and are convertible into approximately 287,248 shares of Medi-Ject
Common Stock (based on the market closing price on July 7, 2000 of $4.031), and
(iii) 250 shares of Series B Preferred Stock, par value $.01 per Share, of
which 250 shares have been issued and are outstanding and are convertible into
approximately 100,000 shares of Medi-Ject Common Stock (based on the market
closing price on July 7, 2000 of $4.031); and as of the Closing Date the
authorized capital stock of Medi-Ject shall be 18,000,000 shares consisting of
(i) 15,000,000 shares of common stock, par value $.01 per share, (ii) 3,000,000
shares of preferred stock of which (10,000 shares have been designated Series A
Preferred Stock,
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par value $.01 per share, (2) 250 shares have been designated Series B
Preferred Stock, par value $.01 per share, (3) a yet to be determined number of
Series C Preferred Stock, par value $.01 per share and (4) a yet to be
determined number of Series D Preferred Stock, of unknown par. All of the
outstanding shares of capital stock of Medi-Ject have been duly authorized and
validly issued, and are fully paid and nonassessable. The proposals to seek the
Medi-Ject Shareholders' approval of this Agreement and the transactions
contemplated herein shall include a provision seeking approval of an increase
in the authorized capital stock of Medi-Ject.
(b) Medi-Ject has reserved 415,226 shares of Medi-Ject Common Stock for
future issuance pursuant to stock options granted and outstanding; and 515,807
shares of Medi-Ject Common Stock are reserved for future issuance pursuant to
warrants granted and outstanding. Assuming a market closing price on July 7,
2000 of $4.031, Medi-Ject has issued securities convertible into approximately
1,362,248 shares of Medi-Ject Common Stock (including 975,000 shares of Medi-
Ject Common Stock underlying the Series C Preferred Stock into which the
Convertible Notes are convertible) for which there are insufficient authorized
shares to effect such conversion.
(c) Except as set forth in Section 3.7(c) of the Medi-Ject Disclosure
Schedule, as of the date of this Agreement there is no: (i) outstanding
subscription, option, call, warrant or right to acquire any shares of the
capital stock or other securities of Medi-Ject; (ii) outstanding security,
instrument or obligation that is or will become convertible into or
exchangeable for any shares of the capital stock or other securities of Medi-
Ject; or (iii) contract under which Medi-Ject is or will become obligated to
sell or otherwise issue any shares of its capital stock or any other
securities.
3.8. Non-Contravention; Consents. Neither (1) the execution, delivery or
performance of this Agreement, nor (2) the consummation of the transactions
contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with or result in a violation of any of the
provisions of the articles of incorporation or bylaws of Medi-Ject;
(b) contravene, conflict with or result in a violation of, any Legal
Requirement or any order, writ, injunction, judgment or decree to which or
any material assets owned or used by Medi-Ject is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of any material Governmental Authorization that is
held by Medi-Ject or that otherwise relates to the business of Medi-Ject or
to any material assets owned or used by Medi-Ject; or
(d) contravene, conflict with or result in a violation or breach of, or
result in a default under, or result in the creation of any lien with
respect to Medi-Ject's assets pursuant to, or require the giving of notice
under, any provision of any Medi-Ject Contract, except for any such
violations, liens, breaches or defaults, or failures to give notice that
will not have a Material Adverse Effect on Medi-Ject.
Medi-Ject is not required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or (y) the consummation of the
transactions contemplated by this Agreement, except where the failure to take
such actions will not have a Material Adverse Effect on Medi-Ject.
3.9. Title to Assets; Equipment; Real Property. Medi-Ject owns and has good
title to the assets purported to be owned by it and which are material to Medi-
Ject or to the conduct of its business. Except as set forth in Section 3.9 of
the Medi-Ject Disclosure Schedule or in the Medi-Ject SEC Reports (as defined
herein), such assets are owned by Medi-Ject free and clear of any Encumbrances.
The material items of equipment and other tangible assets owned by or leased to
Medi-Ject are adequate for the uses to which they are being put and are in good
condition and repair (ordinary wear and tear excepted). Medi-Ject does not own
or lease any real property or any material interest in real property, except as
described in the Medi-Ject SEC Reports.
3.10. Proprietary Assets.
(a) Medi-Ject owns the intellectual property in the Medi-Ject Proprietary
Assets, and to its knowledge, has the exclusive right to use and exploit all of
the intellectual property in its Proprietary Assets. Medi-Ject
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does not jointly own with any other Person any Medi-Ject Proprietary Asset.
Except as set forth in Section 3.10(a) of the Medi-Ject Disclosure Schedule,
there is no Contract pursuant to which Medi-Ject has granted any Person any
right (whether or not currently exercisable) to license, commercially
distribute or otherwise market any Medi-Ject Proprietary Asset.
(b) To its knowledge, Medi-Ject has taken commercially reasonable measures
and precautions to protect and maintain the confidentiality, secrecy and value
of its Proprietary Assets (except Medi-Ject Proprietary Assets whose value
would be unimpaired by public disclosure). No current or former officer,
director, shareholder, employee, consultant or independent contractor has any
ownership right with respect to any Medi-Ject Proprietary Asset.
(c) Medi-Ject has not been charged, nor to its knowledge is Medi-Ject
threatened to be charged with infringement of any unexpired patent, trademark,
trade name, service mark, copyright or other proprietary right of any Person.
No claim has been asserted by a Person, nor to Medi-Ject's knowledge is a claim
threatened to be asserted by a Person, or to Medi-Ject's knowledge are there
grounds for any such claim to be asserted, challenging or questioning the
validity, enforceability or effectiveness of the Proprietary Assets of Medi-
Ject or any license or sublicense agreements to which Medi-Ject is a party.
Medi-Ject is not aware of any other Person that is infringing on any Medi-Ject
Proprietary Asset.
(d) Medi-Ject Proprietary Assets constitute all the material Proprietary
Assets necessary to enable Medi-Ject to conduct its business in the manner in
which such business is currently being conducted. Except as set forth in
Section 3.10(d) of the Medi-Ject Disclosure Schedule, Medi-Ject has not (i)
licensed any of the Medi-Ject Proprietary Assets to any Person on an exclusive
basis, or (ii) entered into any covenant not to compete or contract limiting
its ability (A) to exploit fully any material Medi-Ject Proprietary Assets or
(B) to transact business in any market or geographical area or with any Person.
(e) Medi-Ject has delivered to Permatec true, correct and complete copies
of each agreement, registration, application, assignment and transfer document
relating to the Medi-Ject Proprietary Assets.
(f) Section 3.10(f) of the Medi-Ject Disclosure Schedule sets forth all
patents that have been issued to Medi-Ject, patent applications that have been
filed by Medi-Ject and trademarks that have been registered by Medi-Ject and
the jurisdictions in which such patents have been issued, patent applications
have been filed and trademarks have been registered.
(g) To the best knowledge of Medi-Ject, the devices currently manufactured,
marketed, distributed, and/or licensed by Medi-Ject, including those with the
designation "MJ-6" and "MJ-7," do not require any licenses, rights, or consent
from any third parties and do not rely on proprietary rights owned by third
parties; Medi-Ject will be able to continue to manufacture, market, distribute
and/or license such devices without obtaining any rights or consent from third
parties. The small needle injection system technology licensed from Elan
Corporation, plc does not require licenses, rights, or consent from any third
parties.
3.11. Contracts.
(a) Section 3.11(a) of the Medi-Ject Disclosure Schedule identifies each
Medi-Ject Contract. Medi-Ject has delivered or made available to Permatec
accurate and complete copies of each of Medi-Ject's Contracts. Each Medi-Ject
Contract is valid and in full force and effect.
(b) Medi-Ject has not received notice from any Person that Medi-Ject has
violated or breached, or committed any default under, any Medi-Ject Contract,
nor to Medi-Ject's knowledge are there grounds for any Person to make such a
claim; and Medi-Ject has no knowledge that any other Person has violated or
breached, or committed any default under, any Medi-Ject Contract, except where
such violations, breaches or defaults have not had and will not have a Material
Adverse Effect on Medi-Ject.
3.12. Compliance with Legal Requirements. To its knowledge, Medi-Ject is in
compliance with applicable Legal Requirements, except where the failure to
comply with such Legal Requirements will not have
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a Material Adverse Effect on Medi-Ject. Medi-Ject has not received (i) at any
time since January 1, 1997, any notice or written communication from any
Governmental Body regarding any actual or possible violation of, or failure to
comply with, any Legal Requirement or (ii) prior to January 1, 1997 any such
notice or communication that remains pending. No investigation or review of
Medi-Ject by any Governmental Body is pending or, to Medi-Ject's knowledge,
threatened.
3.13. Governmental Authorizations. To its knowledge, Medi-Ject holds the
Governmental Authorizations necessary to enable it to conduct its business in
the manner in which such businesses are currently being conducted and in
compliance with applicable Legal Requirements, except where the failure to hold
such Governmental Authorizations will not have a Material Adverse Effect on
Medi-Ject. Such Governmental Authorizations are valid and in full force and
effect. To its knowledge, Medi-Ject is in compliance with the terms and
requirements of such Governmental Authorizations except where failure to be in
compliance will not have a Material Adverse Effect on Medi-Ject. Medi-Ject has
not received (i) at any time since January 1, 1997 any written notice or other
written communication from any Governmental Body regarding (a) any actual or
possible violation of or failure to comply with any term or requirement of any
material Governmental Authorization or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
material Governmental Authorization or (ii) prior to January 1, 1997 any such
notice or communication that remains pending.
3.14. Employee Benefit Plans.
Section 3.14 of the Medi-Ject Disclosure Schedule sets forth a true and
complete list of each Medi-Ject Benefit Plan; and each material employment,
termination or severance plan, agreement or arrangement, in each case that is
sponsored, maintained or contributed to or required to be contributed to by
Medi-Ject, or to which Medi-Ject is a party, whether written or oral, for the
benefit of any employee or former employee of Medi-Ject.
3.15. Insurance. Section 3.15 of the Medi-Ject Disclosure Schedule contains
a complete and accurate list and description of all insurance policies held by
Medi-Ject. Since January 1, 1997, Medi-Ject has not received any written notice
or other written communication regarding any actual or possible (a)
cancellation or invalidation of any insurance policy (b) refusal of any
coverage or rejection of any material claim under any insurance policy, or (c)
material adjustment in the amount of the premiums payable with respect to any
insurance policy. To Medi-Ject's knowledge, there is no pending material claim
(including any workers' compensation claim) under or based upon any insurance
policy of Medi-Ject.
3.16. Legal Proceedings; Orders.
(a) Except as set forth in Section 3.16 of the Medi-Ject Disclosure
Schedule or in the Medi-Ject SEC Reports, there is no pending Legal Proceeding,
and no Person has overtly threatened to commence any Legal Proceeding: (i) that
involves Medi-Ject or any assets owned or used by Medi-Ject; or (ii) that
challenges any of the transactions contemplated by this Agreement.
(b) There is no order, writ, injunction, judgment or decree to which Medi-
Ject, or any assets owned or used by Medi-Ject, is subject.
3.17. Financial Advisor. Except as set forth in Section 3.17 of the Medi-
Ject Disclosure Schedule, no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission to be paid by Medi-Ject in
connection with the transactions contemplated by this Agreement.
3.18. Environmental Matters. There is no pending, or, to Medi-Ject's
knowledge, threatened, civil or criminal litigation, written notice of
violation, formal administrative proceedings, or investigation, inquiry or
information request by any Governmental Body, relating to any Legal
Requirements relating to the environment or occupational health and safety,
except where the failure to comply will not have a Material Adverse Effect on
Medi-Ject.
3.19. Change in Control. Except as set forth in Section 3.19 of the Medi-
Ject Disclosure Schedule, Medi-Ject is not a party to any contract, agreement
or understanding which contains a "change in control,"
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"potential change in control" or similar provision that would affect the
transactions contemplated by this Agreement. The consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional acts or events) result in any payment (whether of severance
pay or otherwise) becoming due from Medi-Ject to any person.
3.20. Required Medi-Ject Vote. The affirmative vote of a majority of all
shares of Medi-Ject Common Stock entitled to vote, the affirmative vote of a
majority of all shares of Medi-Ject's Series A Convertible Preferred Stock,
voting together as a single class, and the affirmative vote of a majority of
all shares of Medi-Ject's Series B Convertible Preferred Stock, voting together
as a single class are the only votes of the holders of any class or series of
Medi-Ject's securities necessary to approve the transactions contemplated by
this Agreement.
3.21. SEC Reports. Medi-Ject has filed all required forms, reports and
documents with the SEC since January 1, 1997 (the "Medi-Ject SEC Reports"),
each of which has complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act, each as in effect on
the dates such forms, reports and documents were filed. None of the Medi-Ject
SEC Reports contained, when filed, any untrue statement of material fact or
omitted to state a material fact required to be stated or incorporated by
reference therein, in light of the circumstances under which they were made,
not misleading.
3.22. Antitrust. Medi-Ject, together with all entities which it controls,
(i) does not have total assets of $10 million or more as stated in Medi-Ject's
most recent regularly prepared balance sheet and (ii) does not have total
annual net sales of $10 million or higher, as stated in the last regularly
prepared annual statement of income and expense for Medi-Ject.
3.23. Other. Neither this Agreement nor any of the exhibits hereto, nor any
of the documents delivered by or on behalf of Medi-Ject pursuant to Section 5
hereof, nor the Medi-Ject Disclosure Schedule, taken as a whole, contain any
untrue statement of material fact regarding Medi-Ject or Medi-Ject's business
or omit to state a material fact necessary to make this Agreement, the exhibits
hereto, or any document executed in connection therewith, not misleading.
SECTION 4
CERTAIN COVENANTS AND AGREEMENTS
4.1. Access to Records and Properties.
(a) From and after the date hereof until the Closing or the earlier
termination of this Agreement pursuant to Section 6.1 hereof (the "Executory
Period"), Permatec and each Subsidiary shall afford (subject to any applicable
laws relating to the maintenance of confidentiality or the preservation of
privacy of data and information): (i) to the officers, independent certified
public accountants, legal counsel and other Representatives of Medi-Ject, free
and full access at all reasonable times and upon reasonable prior notice to all
of its properties, books and records (including tax returns filed and those in
preparation), in order that Medi-Ject and such other persons may have full
opportunity to make such investigations as they shall reasonably desire to make
of the business and affairs of Permatec; and (ii) to the independent certified
public accountants of Medi-Ject, free and full access at all reasonable times
and upon reasonable prior notice to the work papers of the independent
certified public accountants for Permatec and each Subsidiary. Additionally,
Permatec and each Subsidiary will permit Medi-Ject, its officers, directors,
auditors, legal counsel and other Representatives to make such reasonable
inspections of it and its operations during normal business hours as Medi-Ject
may reasonably require and Permatec and each Subsidiary will cause the officers
of Permatec and each Subsidiary to furnish to Medi-Ject and such other persons,
such additional financial and operating data and other information as to its
business and properties as Medi-Ject or such other persons shall from time to
time reasonably request. No investigation pursuant to this Section 4.1(a), or
made prior to the date hereof, shall affect or otherwise diminish or obviate in
any respect any of the representations and warranties of Permatec and each
Subsidiary.
(b) During the Executory Period, Medi-Ject shall afford (subject to any
applicable laws relating to the maintenance of confidentiality or the
preservation of privacy of data and information): (i) to the officers,
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independent certified public accountants, legal counsel and other
Representatives of Permatec, free and full access at all reasonable times and
upon reasonable prior notice to all of its properties, books and records
(including tax returns filed and those in preparation), in order that Permatec
and such other persons may have full opportunity to make such investigations
as they shall reasonably desire to make of the business and affairs of Medi-
Ject; and (ii) to the independent certified public accountants of Permatec,
free and full access at all reasonable times and upon reasonable prior notice
to the work papers of the independent certified public accountants for Medi-
Ject. Additionally, Medi-Ject will permit Permatec, its officers, directors,
auditors, legal counsel and other Representatives to make such reasonable
inspections of it and its operations during normal business hours as Permatec
may reasonably require and Medi-Ject will cause its officers to furnish to
Permatec and such other persons, such additional financial and operating data
and other information as to its business and properties as Permatec or such
other persons shall from time to time reasonably request. No investigation
pursuant to this Section 4.1(b), or made prior to the date hereof, shall
affect or otherwise diminish or obviate in any respect any of the
representations and warranties of Medi-Ject.
4.2. Operation of Subsidiaries. During the Executory Period, except as
contemplated in this Agreement or the Permatec Disclosure Schedule, Permatec
and each Subsidiary, unless Medi-Ject has agreed otherwise in writing,
(a) shall operate their respective businesses as now operated and only
in the normal and ordinary course and, consistent with such operation;
(b) shall use their best efforts to preserve intact their business
organization;
(c) shall keep available the services of each employee;
(d) shall maintain satisfactory relationships with Permatec's and each
Subsidiary's customers and other persons having business dealings with
Permatec and each Subsidiary;
(e) shall not take any action, or be notified of any circumstance, that
would result in any of the representations and warranties of Permatec and
each Subsidiary herein becoming untrue;
(f) shall not issue or agree to issue any shares of Permatec or any
Subsidiary's capital stock or securities, rights, options or warrants
convertible into or exercisable or exchangeable for shares of Permatec or
any Subsidiary's capital stock (other than shares of capital stock issuable
upon exercise or conversion of outstanding rights and options in accordance
with the present terms thereof);
(g) shall not amend its articles of incorporation or bylaws or
comparable governing instruments;
(h) shall not accelerate, amend or change the period of exercisability
of options granted under any employee stock plan or authorize cash payments
in exchange for any options granted under any of such plans;
(i) shall not accelerate, amend or change the period of exercisability
of any warrants to purchase capital stock or authorize cash payments in
exchange for any warrants granted by it;
(j) shall not take or cause to occur any of the actions or transactions
described in Section 2.5 hereof;
(k) shall not amend the terms of the Permatec Benefit Plans, including,
without limitation, any employment, severance or similar agreements or
arrangements in existence on the date hereof, or adopt any new employee
benefit plans, programs or arrangements or any employment, severance or
similar agreements or arrangements;
(l) shall not (i) increase or agree to increase the compensation
payable or to become payable to their officers or, other than increases in
accordance with past practice which are not material, to its employees,
(ii) grant any severance or termination pay to any employee or (iii) enter
into any collective bargaining agreement;
A-15
(m) shall not (i) incur, create, assume or otherwise become liable for
borrowed money or assume, guarantee, endorse or otherwise become
responsible or liable for the obligations of any other individual,
corporation or other entity or (ii) make any loans or advances to any other
person;
(n) shall not (i) materially change any practice with respect to Taxes,
(ii) make, change or revoke any material Tax election, or (iii) settle or
compromise any material dispute involving a Tax liability;
(o) shall not (i) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital
stock or other equity securities or (ii) directly or indirectly redeem,
purchase or otherwise acquire any shares of its capital stock or other
equity securities, or make any commitment for any such action or (iii)
split, combine or reclassify any of its capital stock or other equity
securities or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock
or other equity securities;
(p) shall not make or agree to make any capital expenditure in excess
of $25,000 in the aggregate;
(q) shall not change any accounting principles or practices;
(r) shall not pay, discharge, settle or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in the most
recent consolidated financial statements (or the notes thereto) of Permatec
or any Subsidiary or incurred thereafter in the ordinary course of business
consistent with past practice, or waive any material benefits of, or agree
to modify in any material respect any confidentiality, standstill, non-
solicitation or similar agreement to which Permatec or any Subsidiary is a
party;
(s) shall not revalue in any material respect any of its material
assets, including, without limitation, writing down the value of any
inventory or writing off of any notes or accounts receivable other than as
required by GAAP.
(t) shall not take, or agree (in writing or otherwise) or resolve to
take, any of the foregoing actions.
4.3. Operation of Medi-Ject.
During the Executory Period, except as contemplated in this Agreement or the
Medi-Ject Disclosure Schedule, Medi-Ject, unless Permatec has agreed otherwise
in writing,
(a) shall operate its business as now operated and only in the normal
and ordinary course and, consistent with such operation;
(b) shall use its best efforts to preserve intact its business
organization;
(c) shall keep available the services of its officers and employees;
(d) shall maintain satisfactory relationships with its respective
customers and other persons having business dealings with it;
(e) shall promptly file such reports as are required of it by the
Securities Act or the Exchange Act (and shall deliver such reports promptly
to Permatec);
(f) shall not take any action that would result in any of the
representations and warranties of Medi-Ject herein becoming untrue;
(g) shall not issue or agree to issue any shares of its capital stock
or securities, rights, options or warrants convertible into or exercisable
or exchangeable for shares of its capital stock (other than shares of
capital stock issuable upon exercise or conversion of outstanding rights
and options in accordance with the present terms thereof), except as
provided in the Convertible Notes, and any other notes issued pursuant to
the Note Purchase Agreement;
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(h) shall not amend its articles of incorporation or bylaws;
(i) shall not accelerate, amend or change the period of exercisability
of options granted under any employee stock plan or authorize cash payments
in exchange for any options granted under any of such plans, except that
all stock options issued and outstanding on the Closing Date shall
accelerate upon Closing;
(j) shall not accelerate, amend or change the period of exercisability
of any warrants to purchase capital stock or authorize cash payments in
exchange for any warrants granted by Medi-Ject, except as otherwise
provided in the respective warrants;
(k) shall not take or cause to occur any of the actions or transactions
described in Section 3.5 hereof;
(l) shall not amend the terms of any Medi-Ject Benefit Plan, including,
without limitation, any employment, severance or similar agreements or
arrangements in existence on the date hereof, or adopt any new employee
benefit plans, programs or arrangements or any employment, severance or
similar agreements or arrangements;
(m) shall not (i) increase or agree to increase the compensation
payable or to become payable to its officers or, other than increases in
accordance with past practice which are not material, to its employees,
(ii) grant any severance or termination pay to any employee or (iii) enter
into any collective bargaining agreement;
(n) shall not (i) incur, create, assume or otherwise become liable for
borrowed money or assume, guarantee, endorse or otherwise become
responsible or liable for the obligations of any other individual,
corporation or other entity or (ii) make any loans or advances to any other
person, except as provided in the Convertible Notes or the Note Purchase
Agreement;
(o) shall not (i) materially change any practice with respect to Taxes,
(ii) make, change or revoke any material Tax election, or (iii) settle or
compromise any material dispute involving a Tax liability;
(p) shall not (i) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital
stock or other equity securities or (ii) directly or indirectly redeem,
purchase or otherwise acquire any shares of its capital stock or other
equity securities, or make any commitment for any such action or (iii)
split, combine or reclassify any of its capital stock or other equity
securities or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock
or other equity securities;
(q) shall not make or agree to make any capital expenditure in excess
of $125,000 in the aggregate;
(r) shall not change any accounting principles or practices;
(s) shall not pay, discharge, settle or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in the most
recent consolidated financial statements (or the notes thereto) of Medi-
Ject or incurred thereafter in the ordinary course of business consistent
with past practice, or waive any material benefits of, or agree to modify
in any material respect any confidentiality, standstill, non-solicitation
or similar agreement to which Medi-Ject is a party;
(t) shall not revalue in any material respect any of its material
assets, including, without limitation, writing down the value of any
inventory or writing off of any notes or accounts receivable other than as
required by GAAP; and
(u) shall not take, or agree (in writing or otherwise) or resolve to
take, any of the foregoing actions.
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4.4. Advice of Changes. The parties shall confer on a regular and frequent
basis with each other, report on operational matters and promptly advise each
other orally and in writing of any change, event or circumstance having, or
which, insofar as can reasonably be foreseen, could have, a Material Adverse
Effect on such party; or which would, or could reasonably be foreseen to,
affect the transactions contemplated herein.
4.5. Efforts to Consummate. Subject to the terms and conditions herein
provided, the parties shall use their best efforts to do or cause to be done
all such acts and things as may be necessary, proper or advisable, consistent
with all applicable laws and regulations, to consummate and make effective the
transactions contemplated hereby and to satisfy or cause to be satisfied all
conditions precedent that are set forth in Section 5 hereof as soon as
reasonably practicable.
4.6. Additional Agreements. Each party to this Agreement (i) shall make all
filings (if any) and give all notices (if any) required to be made and given by
such party in connection with the transactions contemplated by this Agreement,
and (ii) shall use commercially reasonable efforts to obtain each Consent (if
any) required to be obtained (pursuant to any applicable Legal Requirement or
Contract, or otherwise) by such party in connection with the transactions
contemplated by this Agreement. Each party shall promptly deliver to the other
party a copy of each such filing made, each such notice given and each such
Consent obtained.
4.7. Proxy Statement.
(a) As soon as practicable after the date of this Agreement, Medi-Ject
shall prepare for filing with the SEC and thereafter for circulation to Medi-
Ject's shareholders a proxy statement (the "Proxy Statement") relating to the
transactions contemplated by this Agreement, and in particular to obtain the
approval by such shareholders of the issuance of the Medi-Ject Common Stock to
Permatec, as required by the Nasdaq Stock Market as a condition for continued
listing thereon. Medi-Ject shall cause such proxy statement to comply (except
as to information supplied by Permatec and Subsidiaries, to which information
this covenant does not apply) with the applicable requirements of (i) the
Exchange Act, including without limitation, Sections 14(a) and 14(d) thereof
and the respective regulations promulgated thereunder and (ii) The Nasdaq Stock
Market.
(b) The information supplied by Permatec and Subsidiaries for inclusion in
any filing with the SEC will not, at the time the filing is made, contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not misleading. Permatec and
Subsidiaries shall ensure that each such filing meets and complies in all
material respects with all applicable Laws, including all applicable rules
under the Securities Act or the Exchange Act, as such filing relates to
Permatec and Subsidiaries.
(c) Medi-Ject shall call and hold a shareholders' meeting as promptly as
practicable for the purpose of voting upon the issuance of the Medi-Ject Common
Stock hereunder and an increase in the authorized capital stock of Medi-Ject,
and, subject to the fiduciary duties of its Board of Directors, Medi-Ject shall
use its best efforts (through its agents or otherwise) to solicit from its
shareholders proxies in favor of the approval of such issuance and increase,
and shall take all other action necessary or advisable to secure the
affirmative vote of its shareholders required by applicable law to secure such
approvals. Subject to the fiduciary duties of the Medi-Ject board of directors,
the Proxy Statement shall include the unanimous and unconditional
recommendation of the board of directors of Medi-Ject to the shareholders of
Medi-Ject that they approve the issuance of the Medi-Ject Common Stock
contemplated by this Agreement and approve an increase in the authorized
capital stock of Medi-Ject.
(d) Permatec and Subsidiaries will cooperate, and will cause their
respective financial, accounting and legal advisors to cooperate, with Medi-
Ject in the preparation and filing of the Proxy Statement and all documents and
materials (each a "Filing") required or elected to be disclosed or reported by
Medi-Ject pursuant to applicable securities laws in connection with the
transactions contemplated by this Agreement and the other transaction documents
or to the extent otherwise relating to or concerning Permatec and any
Subsidiary. To that end, Permatec and Subsidiaries shall furnish to Medi-Ject,
as promptly as is practicable after Medi-Ject's request therefor, such data and
information relating to Permatec and Subsidiaries, and such financial
statements of Permatec and Subsidiaries and opinions, comfort letters and
consents of independent certified public accountants relating thereto as, in
the opinion of counsel for Medi-Ject, shall be required by law
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to be disclosed or reported by Medi-Ject or as are otherwise determined by
Medi-Ject to be reasonably necessary or appropriate in connection therewith.
Medi-Ject shall provide a draft of each Filing to Permatec promptly following
the preparation thereof for approval by Permatec, which approval shall be at
Permatec's sole discretion but which approval shall be made promptly, and such
approval shall not be unreasonably withheld. If, at any time prior to the
Closing, any event should occur relating to Permatec or any Subsidiary which
should be set forth in an amendment of, or a supplement to, any Filing,
Permatec and Subsidiaries will promptly inform Medi-Ject.
4.8. Financing. During the Executory Period, Permatec, with the full
cooperation and assistance of Medi-Ject, will use commercially reasonable
efforts to raise at least Seven Million United States Dollars ($7,000,000) for
the operation of the combined business of Medi-Ject and the Subsidiaries
subsequent to the consummation of the transactions contemplated hereby. To aid
Permatec in such financing, Medi-Ject shall provide (i) such information and
(ii) such time of its officers and employees as are reasonably needed by
Permatec to conduct such financing. The board of directors of Medi-Ject shall
consider the terms of the financing, and, if acceptable, approve such
financing, which approval may be conditioned on the consummation of the
transactions contemplated hereby.
4.9. Business Plan. During the Executory Period, Permatec, with the full
cooperation and assistance of Medi-Ject, will prepare a written business plan
for 2000 and 2001 and the pro forma projections related thereto reflecting the
combined business of Medi-Ject and the Subsidiaries subsequent to the
consummation of the transactions contemplated hereby. To aid Permatec in
preparing such business plan and projections, Medi-Ject shall provide (i) such
information and (ii) such time of its officers and employees as are reasonably
needed by Permatec to prepare such business plan and projections. The board of
directors of Medi-Ject shall consider the business plan, and, if acceptable,
approve such business plan, such approval being contingent upon the
consummation of the transactions contemplated hereby.
4.10. Search for Chief Executive Officer. During the Executory Period,
Permatec, with the full cooperation and assistance of Medi-Ject, will undertake
a comprehensive search for a new chief executive officer of Medi-Ject. To aid
Permatec in such search, Medi-Ject shall provide (i) such information and (ii)
such time of its officers and employees as are needed by Permatec to conduct
such search. The board of directors of Medi-Ject shall have the right to
approve the candidate before his or her hiring.
4.11. Noncompetition. For a period commencing on the Closing Date and ending
on the date that is twelve months from the Closing Date, Permatec shall not
provide, develop, perform or offer any technology, product or service
substantially similar to the technology, products, or services owned, produced
or under development by any of the Subsidiaries as of the Closing Date. The
foregoing restriction shall not apply to (i) the ownership by Permatec of
shares of the capital stock of Medi-Ject or (ii) the ownership by Permatec of
49.9% or less of the voting power of any other entity, it being understood that
Permatec may own in excess of 49.9% of the voting power of any other entity
that does not provide, develop, perform or offer any technology, product or
service substantially similar to the technology, products, or services owned,
produced or under development by the Subsidiaries as of the Closing Date.
SECTION 5
CERTAIN CONDITIONS
5.1. Conditions to Each Party's Obligations. The obligations of the parties
to effect the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
(a) Approvals. All Governmental Authorizations and corporate approvals
and Consents of third parties required in connection with the transactions
contemplated hereby shall have been obtained and shall be in full force and
effect, including, but not limited to, the approval by the Medi-Ject
shareholders of this Agreement and the related increase of the authorized
capital stock of Medi-Ject. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
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transactions contemplated hereby shall have been issued by any court of
competent jurisdiction and remain in effect, and there shall not be any
applicable law that makes consummation of this Agreement illegal.
(b) Financing. Permatec shall have raised for Medi-Ject an aggregate of
at least Seven Million United States Dollars ($7,000,000); such financing
to be closed upon completion of the transactions contemplated by this
Agreement.
5.2. Conditions to Obligations of Medi-Ject. The obligations of Medi-Ject to
perform this Agreement are subject to the satisfaction of the following
conditions unless waived (to the extent such conditions can be waived) by Medi-
Ject:
(a) Representations and Warranties. The representations and warranties
of Permatec and each Subsidiary set forth in Section 2 hereof shall in each
case be true and correct in all material respects (except for any
representation or warranty that by its terms is qualified by materiality,
in which case it shall be true and correct in all respects) as of the date
of this Agreement and as of the Closing Date as though made at and as of
such dates, respectively.
(b) Performance of Obligations of Permatec and Subsidiaries. Permatec
and each Subsidiary shall have performed in all material respects the
obligations required to be performed by each of them under this Agreement
prior to or as of the Closing Date.
(c) Absence of Certain Changes. There shall have been no events, changes
or effects with respect to Permatec or any Subsidiary which would have a
Material Adverse Effect on Permatec or any Subsidiary. Without limiting the
generality of the foregoing, Permatec and each Subsidiary shall not have
incurred any indebtedness during the period between December 31, 1999 and
the Closing Date that has had or will have a Material Adverse Effect on
Permatec or any Subsidiary.
(d) Delivery of Convertible Notes. Permatec shall have delivered the
Convertible Notes to Medi-Ject for cancellation.
(e) Cash. Subsidiaries shall have aggregate cash reserves or Cash
Equivalents of not less than One Million Swiss Francs (CHF 1,000,000) on
the Closing Date.
(f) Employment Agreement. The Employment Agreement between Medi-Ject and
Franklin Pass, M.D. in the form attached hereto as Exhibit B, such
agreement to be executed concurrently with this Agreement, shall have been
executed by Medi-Ject.
(g) Capital Stock of Subsidiaries. s of the Closing Date there shall
have been no changes in the outstanding capital stock of any Subsidiary,
including the right to acquire stock in any Subsidiary. Permatec shall have
delivered certificates representing all of the issued and outstanding
capital stock of each Subsidiary.
(h) Escrow Agreement. The Escrow Agreement shall have been executed and
delivered by Permatec and the Escrow Agent, and shall be in full force and
effect.
(i) Opinions of Counsel. Medi-Ject shall have received the satisfactory
opinions dated the Closing Date of legal counsel to Permatec and
Subsidiaries in form and substance reasonably satisfactory to it.
(j) Officer's Certificate. Medi-Ject shall have received from Permatec
and each Subsidiary an officer's certificate certifying to the fulfillment
of the conditions specified in Sections 5.1(a) and Section 5.2(a), 5.2(b),
5.2(c), 5.2(d), 5.2(e), 5.2(g) and 5.2(i).
5.3. Conditions to Obligations of Permatec and Subsidiaries. The obligation
of Permatec and Subsidiaries to perform this Agreement are subject to the
satisfaction of the following conditions unless waived (to the extent such
conditions can be waived) by Permatec:
(a) Representations and Warranties. The representations and warranties
of Medi-Ject set forth in Section 3 hereof shall be true and correct in all
material respects (except for any representation or
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warranty that by its terms is qualified by materiality, in which case it
shall be true and correct in all respects) as of the date of this
Agreement, and as the Closing Date as though made at and as of such dates,
respectively.
(b) Performance of Obligations of Medi-Ject. Medi-Ject shall have
performed in all material respects the obligations required to be performed
by it under this Agreement prior to or as of the Closing Date and Permatec
shall have received a certificate signed by an executive officer of Medi-
Ject to that effect.
(c) Opinion of Counsel to Medi-Ject. Permatec shall have received a
satisfactory opinion dated the Closing Date of Leonard, Street and Deinard;
in form and substance reasonably satisfactory to it.
(d) Absence of Certain Changes. There shall have been no events, changes
or effects with respect to Medi-Ject which would have a Material Adverse
Effect on Medi-Ject. Without limiting the generality of the foregoing,
Medi-Ject (i) shall not have incurred any indebtedness (except for the
Convertible Notes and Note Purchase Agreement during the period between
December 31, 1999 and the Closing Date which would have to be listed as
such on its financial statements, and (ii) shall not have received any
formal notification from the NASDAQ Stock Market that the Medi-Ject common
stock listed on the NASDAQ Small Cap Market is or has been delisted or
received a formal and final notification that it will be delisted.
(e) Delivery of Medi-Ject Series C Stock upon Conversion of Convertible
Notes. Medi-Ject shall have delivered the number of shares of Medi-Ject
Series C Stock of Medi-Ject that are due to Permatec upon conversion of the
Convertible Notes in accordance with the terms of the Convertible Notes.
(f) Employment Agreement. The Employment Agreement between Medi-Ject and
Franklin Pass, M.D. in the form attached hereto as Exhibit B, such
agreement to be executed concurrently with this Agreement, shall have been
executed by Medi-Ject.
(g) Capital Stock of Medi-Ject. As of the Closing Date there shall have
been no changes in the outstanding capital stock of Medi-Ject, including
the right to acquire stock in Medi-Ject.
(h) Board of Directors. Karl Groth, Geoffrey Guy, M.D., Fred L. Shapiro,
M.D. and Stanley Goldberg shall each have resigned from the Board of
Directors of Medi-Ject and Dr. Jacques Gonella, Dr. Thomas M. Rinderknecht,
Prof. Ubaldo Conte and Dr. Philippe Dro shall have been appointed to the
Board of Directors of Medi-Ject.
(i) Officer's Certificate. Permatec shall have received from Medi-Ject
an officer's certificate certifying to the fulfillment of the conditions
specified in Sections 5.1(b) and Section 5.3(a), 5.3(b), 5.3(d), and
5.3(g).
(j) Approvals and Consents. Medi-Ject shall have obtained the consent of
each of the following to the consummation of the transactions contemplated
hereby: Elan Corporation, plc; Bio-Technology General Corp.; Becton
Dickinson; Grayson & Associates, Inc.
(k) Amendment of the Elan License Agreement. The License and Development
agreement by and between Elan Corporation plc and Medi-Ject Corporation
shall have been amended in form and substance reasonably satisfactory to
Permatec.
(l) Lock-Up Agreements. Medi-Ject shall have entered into Lock-Up
Agreements with each of Kenneth Evenstad, Lawrence Christian, Julius Sund,
Mike Kasprick and Peter Sadowski in the forms attached hereto as Exhibits
D, E, F, G and H, respectively, such agreements to be executed concurrently
with this Agreement.
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SECTION 6
TERMINATION
6.1. Termination. This Agreement may be terminated notwithstanding the
approval of this Agreement by Medi-Ject, Permatec and the Subsidiaries at any
time prior to the Closing, by:
(a) the mutual written consent of Medi-Ject and Permatec; or
(b) Medi-Ject or Permatec, if the conditions set forth in Section 5.1
hereof shall not have been met by October 31, 2000, except if such
conditions have not been met solely as a result of the action or inaction
of the party seeking to terminate; or
(c) Medi-Ject if the conditions set forth in Section 5.2 hereof shall
not have been met, and Permatec if the conditions set forth in Section 5.3
hereof shall not have been met, in either case, by October 31, 2000, except
if such conditions have not been met solely as a result of the action or
inaction of the party seeking to terminate.
Any termination pursuant to this Section 6.1 (other than a termination pursuant
to Section 6.1(a) hereof) shall be effected by written notice from the party so
terminating to the other parties hereto.
6.2. Effect of Termination. In the event of the termination of this
Agreement as provided in Section 6.1, this Agreement shall be void and of no
further force or effect, except that (i) the agreements contained in this
Section 6.2 shall survive the termination hereof, (ii) nothing herein shall
relieve any party from liability for any breach of this Agreement, (iii) Medi-
Ject shall be required to repurchase the Convertible Notes from Permatec in
accordance with the terms thereof, except that if the Closing does not occur
because Permatec fails to satisfy the conditions to Closing described in
Section 5.1(b) hereof, the repayment by Medi-Ject of such Convertible Notes
shall be extended for an additional three (3) month period; and (iv) the
Confidentiality Agreement entered into by and between the parties on April 21,
1999 shall continue to be in effect in accordance with its terms.
6.3. Procedure Upon Termination. In the event of termination of this
Agreement pursuant to Section 6.1, each party shall redeliver all documents,
work papers and other material of any other party and any and all copies
thereof relating to the transactions contemplated hereby, whether obtained
before or after the execution hereof, to the party furnishing the same.
SECTION 7
INDEMNIFICATION AND ESCROW
7.1. Indemnification by Permatec. From and after the Closing, Permatec shall
indemnify Medi-Ject and any employee, director, officer or agent (the "Medi-
Ject Indemnified Parties") of each of them against, hold each of them harmless
from, and reimburse each of them for any claim, costs, loss, liability or
expense (including reasonable attorneys' fees and expenses) or other damage
(including, without limitation, expectation, actual, punitive and consequential
damages) (collectively, "Damages") arising, directly or indirectly, from or in
connection with: (a) any inaccuracy in any of the warranties or representations
of Permatec and Subsidiaries in this Agreement, (b) any failure by Permatec and
Subsidiaries to perform or comply with any covenant or obligation in this
Agreement, or (c) any Third Party Claim (as defined below) relating to an
inaccuracy or failure referred to in clause (a) or (b) above, including any
claim to ownership of shares of Subsidiaries Stock or proceeds thereof by any
spouse or former spouse of Dr. Jacques Gonella.
7.2. Indemnification by Medi-Ject. From and after the Closing, Medi-Ject
shall indemnify Permatec ("Permatec Indemnified Parties") against, and hold it
harmless from, and reimburse it for any Damages arising, directly or
indirectly, from or in connection with: (a) any inaccuracy in any of the
warranties or representations of Medi-Ject in this Agreement, (b) any failure
by Medi-Ject to perform or comply with any covenant or obligation in this
Agreement, or (c) any Third Party Claim relating to an inaccuracy or failure
referred to in clause (a) or (b) above. Any Medi-Ject Indemnified Party or
Permatec Indemnified Party entitled to
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indemnification under this Section 7 is referred to herein as an "Indemnified
Party," and any party against whom such indemnification is sought is referred
to as an "Indemnifying Party."
7.3. Procedure for Third Party Claims. Promptly after receipt by an
Indemnified Party of notice of the commencement of any action or demand or
claim by a third party (a "Third Party Claim") which may give rise to Damages,
such Indemnified Party shall, if a claim in respect thereof is to be made
against Permatec, give notice to Permatec, and if such claim is to be made
against Medi-Ject, give notice to Medi-Ject, of its assertion of such claim for
indemnification and provide reasonable detail with respect thereto. Failure to
so notify the Indemnifying Party shall not relieve any Indemnifying Party of
any liability that it may have to any Indemnified Party except to the extent
that the defense of such action or Third Party Claim is materially prejudiced
thereby. If any such action shall be brought or a Third Party Claim shall be
asserted against an Indemnified Party and the Indemnified Party shall give
notice to the Indemnifying Party of the commencement or assertion thereof, the
Indemnifying Party shall be entitled, at its own expense (and with respect to
Permatec, without recourse to the Escrowed Property), to participate therein
and, to the extent that it shall wish, to assume the defense thereof with
counsel reasonably satisfactory to such Indemnified Party. If an Indemnifying
Party receives notice of any action or Third Party Claim, it shall promptly
notify the Indemnified Party as to whether, at it expense (and with respect to
Permatec, without recourse to the Escrowed Property), it intends to control the
defense thereof. If the Indemnifying Party defends an action, it shall have
full control over the litigation, including settlement and compromise thereof,
subject only to the following: no compromise or settlement thereof may be
effected without the Indemnified Party's consent (which shall not be
unreasonably withheld) unless (i) there is no finding or admission of any
violation of law and no effect on any other claims that may be made against the
Indemnified Party and (ii) the sole relief provided is monetary damages that
are paid in full by the Indemnifying Party. If notice is given to the
Indemnifying Party of the commencement of any action and it does not, within
twenty (20) days after the Indemnified Party's notice is given, give notice to
the Indemnified Party of its election to assume the defense thereof, the
Indemnified Party shall have full control over the litigation, including
settlement and compromise thereof.
7.4. Procedures Related to Other Claims. In the event an Indemnified Party
shall have a claim against an Indemnifying Party that does not involve a Third
Party Claim being asserted against or sought to be collected from such
Indemnified Party, the Indemnified Party shall deliver notice of such claim
with reasonable promptness to the Indemnifying Party. The failure by any
Indemnified Party to so notify an Indemnifying Party shall not relieve the
Indemnifying Party from any liability which it may have to the Indemnified
Party, except to the extent that the Indemnifying Party has been actually
prejudiced by such failure.
7.5. Indemnity Period. No claim for indemnification under this Section 7 may
be made unless notice is given by the Indemnified Party to the Indemnifying
Party on or prior to the sixth month anniversary of the Closing Date.
7.6. Basket; Cap.
(a) Permatec shall not be liable to the Medi-Ject Indemnified Parties,
unless and until the aggregate claims by the Medi-Ject Indemnified Parties
exceed $50,000, and then only to the extent such claims exceed $50,000. Medi-
Ject shall not be liable to the Permatec Indemnified Parties, unless and until
the aggregate claims by the Permatec Indemnified Parties exceed $50,000, and
then only to the extent such claims exceed $50,000.
(b) Permatec shall not be liable to the Medi-Ject Indemnified Parties to
the extent aggregate claims indemnified hereunder by Permatec exceed the Value
of the Escrow Shares (as defined in Section 2(c) of the Escrow Agreement). The
limit set forth in this paragraph shall not apply to Damages resulting from any
Subsidiary's fraud or willful or intentional misrepresentation or intentional
or willful breach.
(c) Medi-Ject shall not be liable to the Permatec Indemnified Parties to
the extent aggregate claims indemnified hereunder by Medi-Ject exceed the Value
of the Escrowed Shares. The limit set forth in this paragraph shall not apply
to Damages resulting from Medi-Ject's fraud or willful or intentional
misrepresentation or intentional or willful breach.
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7.7. Exclusion of Remedies by Law. The Parties mutually agree and
acknowledge that exclusively the terms and provisions set forth in this
Agreement shall be applicable in respect of any representations or warranties
given herein and any claims, actions or remedies either party may have against
the other in respect of any representations or warranties. Such contractual
rights and obligations shall be in lieu of any rights or obligations set forth
in the applicable laws.
7.8. Exceptions to Limitations on Indemnification. Notwithstanding the
foregoing and without limitation as to time or amount, the parties agree that
Permatec shall indemnify, defend and hold Medi-Ject and the Subsidiaries
harmless from and against (a) any and all Damages based upon, arising out of,
or otherwise in respect of Permatec Laboratorios S.A., Buenos Aires, Argentina
("Permatec Argentina"), and/or Permatec (France) S.A., Lyon, France ("Permatec
France"), which both are subsidiaries of Permatec, are both not being acquired
by Medi-Ject pursuant to this Agreement and both are in the process of
liquidation (provided, however, that in no event shall Permatec indemnify,
defend or hold Medi-Ject or a Subsidiary harmless under this Agreement with
respect to any Damages caused by (i) any assets or technology of Permatec
Argentina or Permatec France that has been transferred to a Subsidiary and (ii)
any Contract or agreement of Permatec Argentina or Permatec France that has
been transferred to a Subsidiary); and (b) any and all Damages based upon,
arising out of, or otherwise in respect of the potential inability of Permatec
to deliver at the Closing the original share certificates of NV and/or any
third party making any claims in respect of the share certificates of NV.
Notwithstanding any other provision in this Section 7.8, Medi-Ject and the
Subsidiaries shall be entitled to obtain equitable relief in any appropriate
indemnification claim under this Section 7.8.
SECTION 8
CERTAIN DEFINITIONS
8.1. Definitions. For purposes of this Agreement, the following defined
terms have the meanings set forth below:
"Benefit Plan" shall mean each defined compensation, incentive compensation,
stock purchase, stock option and other equity compensation plan, program,
agreement or arrangement; each material severance or termination pay, medical,
surgical, hospitalization, life insurance and other welfare benefit plan, fund
or similar program; each material profit-sharing, stock bonus or other pension
plan, fund or similar program; each material employment, termination or
severance agreement; and each other material employee benefit plan, fund,
program, agreement or arrangement, in each case that is sponsored, maintained
or contributed to or required to be contributed to by any Person, or to which
any Person is a party, whether written or oral, for the benefit of any employee
or former employee of any Person.
"Cash Equivalents" shall mean short term investments in securities of the
United States government, certificates of deposit, or money market instruments,
all with original maturity of three months or less.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Consent" shall mean any approval, consent, ratification, permission, waiver
or authorization (including any Governmental Authorization).
"Contract" shall mean any written, oral or other agreement, contract,
subcontract, lease, understanding, instrument, note, option, warranty, purchase
order, license, sublicense, insurance policy, benefit plan or legally binding
commitment or undertaking of any nature.
"Encumbrance" shall mean any lien, pledge, hypothecation, charge, mortgage,
security interest or encumbrance.
"Entity" shall mean any corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
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"Escrow Shares" shall mean 580,000 shares of the Medi-Ject Common Stock
being transferred to Permatec pursuant to this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934.
"Governmental Authorization" shall mean any: permit, license, certificate,
franchise, permission, clearance, registration, qualification or authorization
issued, granted, given or otherwise made available by or under the authority of
any Governmental Body or pursuant to any Legal Requirement.
"Governmental Body" shall mean any: (a) nation, state, commonwealth, canton,
province, territory, county, municipality, district or other jurisdiction of
any nature; (b) federal, state, local, municipal, foreign or other government;
or (c) governmental or quasi-governmental authority of any nature (including
any governmental division, department, agency, commission, instrumentality,
official, organization, unit, body or Entity and any court or other tribunal).
"Legal Proceeding" shall mean any action, suit, litigation, arbitration,
proceeding or hearing conducted or heard by or before, or otherwise involving,
any court or other Governmental Body or any arbitrator or arbitration panel.
"Legal Requirement" shall mean any federal, state, local, municipal, foreign
or other law, statute, constitution, ordinance, code, rule or regulation,
issued, enacted, adopted, promulgated, implemented or otherwise put into effect
by or under the authority of any Governmental Body.
"Material Adverse Effect" on Permatec or the Subsidiaries shall mean any
event, violation, inaccuracy, circumstance or other matter if such event,
violation, inaccuracy, circumstance or other matter, either alone or taken
together with any other events, violations, inaccuracies, circumstances or
other matters, would have a material adverse effect on the business, condition,
assets, liabilities, operations or financial performance of Permatec or any
Subsidiary. An event, violation, inaccuracy, circumstance or other matter will
be deemed to have a "Material Adverse Effect" on Medi-Ject if such event,
violation, inaccuracy, circumstance or other matter, either alone or taken
together with any other events, violations, inaccuracies, circumstances or
other matters, would have a material adverse effect on the business, condition,
assets, liabilities, operations or financial performance of Medi-Ject taken as
a whole.
"Medi-Ject Contract" shall mean any Contract that is material to Medi-Ject,
to the business or operations of Medi-Ject or to any of the transactions
contemplated by this Agreement: (a) to which Medi-Ject is a party; or (b) by
which Medi-Ject or any of its assets are bound or under which Medi-Ject has any
obligation, except for agreements for the license to Medi-Ject of software
generally available to the public.
"Medi-Ject Proprietary Asset" shall mean any material Proprietary Asset
owned by or exclusively licensed to Medi-Ject, except for software generally
available to the public. As used herein, "exclusively licensed" means
exclusively licensed for commercial use subject to certain retentions,
exceptions and license-backs.
"Permatec Contract" shall mean any Contract (other than insurance policies
identified in Section 2.13 of the Permatec Disclosure Schedule) that is
material to Permatec or any Subsidiary, to the business or operations of
Permatec or any Subsidiary or to any of the transactions contemplated by this
Agreement: (a) to which Permatec or any Subsidiary is a party, including,
without limitation, existing agreements with Medi-Ject; or
(b) by which Permatec or any Subsidiary or any asset of Permatec or any
Subsidiary is bound or under which Permatec or any Subsidiary has any
obligation.
"Permatec Plan" shall mean each defined compensation, incentive
compensation, stock purchase, stock option and other equity compensation plan,
program, agreement or arrangement; each material severance or termination pay,
medical, surgical, hospitalization, life insurance and other welfare benefit
plan, fund or similar program; each material profit-sharing, stock bonus or
other pension plan, fund or similar program; each material employment,
termination or severance agreement; and each other material employee benefit
plan, fund, program, agreement or arrangement, in each case that is sponsored,
maintained or contributed to or required to
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be contributed to by Permatec or any Subsidiary, or to which Permatec or any
Subsidiary is a party, whether written or oral, for the benefit of any employee
or former employee of Permatec or any Subsidiary.
"Permatec Proprietary Asset" shall mean any material Proprietary Asset owned
by or exclusively licensed to Permatec or any Subsidiary, except for software
generally available to the public. As used herein, "exclusively licensed" means
exclusively licensed for commercial use subject to certain retentions,
exceptions and license-backs.
"Person" shall mean any individual, Entity or Governmental Body.
"Proprietary Asset" shall mean any: (a) patent, patent application,
trademark (whether registered or unregistered), trademark application, URL,
trade name, fictitious business name, service mark (whether registered or
unregistered), service mark application, copyright (whether registered or
unregistered), copyright application, maskwork, maskwork application, trade
secret, know-how, business method, computer software, computer program, source
code, algorithm, invention, proprietary product, technology, proprietary right
or other intellectual property right or intangible asset; or (b) right to use
or exploit any of the foregoing, including without limitation rights granted
pursuant to license or sub-license agreements with respect to a Proprietary
Asset.
"Representatives" shall mean officers, directors, employees, agents,
attorneys, accountants, advisors and Representatives.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933.
"Subsidiary" shall mean any Entity in which any Person owns more than fifty
percent (50%) of the outstanding voting securities, or the value of the
outstanding equity securities or interests of which are owned directly or
indirectly by any Person.
"Tax" shall mean any tax (including any income tax, franchise tax, capital
gains tax, gross receipts tax, value-added tax, import tax, export tax, surtax,
excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, withholding tax or payroll tax), levy, assessment,
duty or other similar charge together with any interest fines or penalties
thereon, imposed, assessed or collected by or under the authority of any
Governmental Body.
"Tax Return" shall mean any return, declaration, report or similar statement
(including any information return) filed with or submitted to, or required to
be filed with or submitted to, any Governmental Body in connection with the
determination, assessment, collection or payment of any Tax or in connection
with the administration, implementation or enforcement of or compliance with
any Legal Requirement relating to any Tax.
SECTION 9
MISCELLANEOUS PROVISIONS
9.1. Amendment. This Agreement may not be amended except by an instrument in
writing signed by each of the parties hereto.
9.2. Waiver.
(a) No failure on the part of any party to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any party
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege
or remedy.
(b) No party shall be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or
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remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such party; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
9.3. Entire Agreement; Counterparts; Applicable Law; and Arbitration. This
Agreement and the other agreements referred to herein constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, among or between any of the parties with respect to the subject
matter hereof and thereof. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument, and shall be governed in all respects
by the laws of the State of New York without regard to the conflicts of law
principles thereof. Any dispute, controversy or claim arising out of or
connected with this Agreement, its interpretation, the breach thereof or any
other agreement entered into in connection with the transactions contemplated
herein, including the arbitrability of such dispute, controversy or claim,
shall be settled by final and binding arbitration venued in New York, New York
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award entered by the arbitrator may be
entered in any court having jurisdiction thereof; provided, however, that
nothing herein shall be construed to prohibit any party from seeking in any
court of competent jurisdiction any injunctive relief to which it is entitled
hereunder. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of (a) the Supreme Court of the State of New York, New York
County, and (b) the United States District Court for the Southern District of
New York, for the purposes of any such action or other proceeding arising out
of this Agreement or any transaction contemplated hereby. Each party further
agrees that service of process, summons, notice or document by U.S. registered
mail to such party's respective address set forth below shall be effective
service of process for any action, suit or proceeding in New York with respect
to any matters to which it has submitted to jurisdiction in this Section 9.3.
9.4. Assignability. This Agreement shall be binding upon, and shall be
enforceable by and inure solely to the benefit of, the parties hereto and their
respective permitted successors and assigns; provided, however, that neither
this Agreement nor any of any party's rights or obligations hereunder may be
assigned by any party without the prior written consent of the other parties
hereto, and any attempted assignment of this Agreement or any of such rights or
obligations without such consent shall be void and of no effect. Nothing in
this Agreement is intended to or shall confer upon any Person any third-party
rights under or by reason of this Agreement.
9.5. Notices. All notices and other communications pursuant to this
Agreement shall be in writing and shall be deemed given if delivered
personally, telecopied, sent by nationally-recognized, overnight courier or
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
To Medi-Ject:
Medi-Ject Corporation 161 Cheshire Lane, Suite 100 Minneapolis, MN
55441 USA Attention: Franklin Pass, M.D. Telephone: (612) 475-7700 Fax:
(612) 476-1009
with a copy to:
Leonard, Street and Deinard 150 South Fifth Street, Suite 2300
Minneapolis, MN 55402 USA Attention: Morris M. Sherman Telephone: (612)
335-1561 Fax: (612) 335-1657
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To Permatec and Subsidiaries:
Permatec Holding AG Gewerbestrasse 18 CH-4123 Allschwil, Switzerland
Attention: Dr. Philippe Dro Telephone: 41-61-486-41-41 Fax: 41-61-486-
41-42
with a copy to:
Faegre & Benson 2300 Norwest Center 90 South 7th Street Minneapolis, MN
55402 Attention: Mark A. Sides Telephone: (612) 336-3000 Fax: (612)
336-3026
Rinderknecht Klein & Stadelhofer Beethovenstrasse 7 8002 Zurich,
Switzerland Attention: Dr. Thomas M. Rinderknecht Telephone: 41-1-287-
2424 Fax: 41-1-287-2400
All such notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery, (b) in the
case of a telecopy, when the party receiving such telecopy shall have confirmed
receipt of the communication, (c) in the case of delivery by nationally-
recognized, overnight courier, on the business day following dispatch and (d)
in the case of mailing, on the fifth business day following such mailing.
9.6. Cooperation. Each party agrees to cooperate fully with the other party
and to execute and deliver such further documents, certificates, agreements and
instruments and to take such other actions as may be reasonably requested by
the other party to evidence or reflect the transactions contemplated by this
Agreement and to carry out the intent and purposes of this Agreement.
9.7. Fees and Expenses. All fees, costs and expenses in connection with this
Agreement shall be paid by the party incurring such expenses, provided,
however, that if any legal action is instituted to enforce or interpret the
terms of this Agreement, the prevailing party in such action shall be entitled
to any other relief to which the party is entitled, and to the reimbursement of
attorneys' fees.
9.8. Non-Survival of Representations, Warranties Past the Indemnification
Period; Survival of Covenants. The representations and warranties in this
Agreement shall terminate upon the expiration of any indemnification periods
provided for in Section 7 hereof. It being further agreed that the covenants
contained in Section 4.11 hereof shall survive the Closing for the periods set
forth in such Section.
9.9. Titles. The titles and captions of the Sections of this Agreement are
included for convenience of reference only and shall have no effect on the
construction or meaning of this Agreement.
[Signatures on Next Page]
A-28
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
of the date first above written.
MEDI-JECT CORPORATION
/s/ Franklin Pass
By: _________________________________
Franklin Pass
Name: ___________________________
President
Title: __________________________
PERMATEC HOLDING AG
/s/ Dr. Jacques Gonella
By: _________________________________
Dr. Jacques Gonella
Name: ___________________________
Chairman of the Group
Title: __________________________
PERMATEC PHARMA AG
/s/ Dr. Jacques Gonella
By: _________________________________
Dr. Jacques Gonella
Name: ___________________________
Chairman of the Group
Title: __________________________
PERMATEC TECHNOLOGIE AG
/s/ Dr. Jacques Gonella
By: _________________________________
Dr. Jacques Gonella
Name: ___________________________
Chairman of the Group
Title: __________________________
PERMATEC NV
/s/ Dr. Jacques Gonella
By: _________________________________
Dr. Jacques Gonella
Name: ___________________________
Chairman of the Group
Title: __________________________
A-29
MEDI-JECT CORPORATION
---------------------
ANNUAL MEETING OF SHAREHOLDERS
Monday, August 28, 2000
10:00 a.m. CDT
Medi-Ject Corporation
161 Cheshire Lane, Suite 100
Plymouth, Minnesota 55441
Medi-Ject Corporation
161 Cheshire Lane, Suite 100, Plymouth, Minnesota 55441 proxy
- - --------------------------------------------------------------------------------
PROXY--ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON AUGUST 28, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. PLEASE
MARK, SIGN, DATE AND RETURN IN THE ENCLOSED ENVELOPE.
By signing this proxy, you revoke all prior proxies and appoint Franklin Pass
and Lawrence M. Christian, or either one of them, as Proxies, each with the
power to appoint his substitute and to act without the other, and authorize each
of them to represent and to vote, as designated herein, all shares of common
stock of Medi-Ject held of record by the undersigned on July 20, 2000, at the
Annual Meeting of Shareholders of the Company to be held on August 28, 2000 or
any adjournment thereof.
----------------------
There are three ways to vote your proxy COMPANY #
CONTROL #
----------------------
Your telephone or Internet vote authorizes the Named Proxies to vote your shares
in the same manner as if you marked, signed and returned your proxy card.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK *** EASY *** IMMEDIATE
* Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week.
* You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which is located above.
* Follow the simple instructions provided.
* Please DO NOT hang up until you have been prompted and have replied
regarding your attendance at the Annual Meeting.
VOTE BY INTERNET -- http://www.eproxy.com/medj/ -- QUICK *** EASY *** IMMEDIATE
* Use the Internet to vote your proxy 24 hours a day, 7 days a week.
* You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which is located above, to obtain your records and create an
electronic ballot.
VOTE BY MAIL
* Mark, sign and date your proxy card and return it in the postage-paid
envelope we have provided, or return it to Medi-Ject Corporation, c/o
Shareowner Services, P.O. Box 64873, St. Paul, MN 55164-0873.
NOTE: The deadline for electronic voting by telephone or Internet is
11:59 p.m. (CDT), Friday, August 25, 2000.
The Board of Directors Recommends a Vote FOR Items 1, 2, 3, 4, 5, 6 and 7.
1. To approve the terms of a certain Stock Purchase Agreement dated as of July
14, 2000 by and among Medi-Ject, Permatec, Permatec Pharma AG, Permatec
Technologie AG, and Permatec NV, whereby we purchase all of the outstanding
capital stock of Permatec Pharma AG, Permatec Technologie AG, and Permatec NV
and as consideration, we issue 2,900,000 shares of Medi-Ject common stock to
Permatec. Upon the closing of the transaction, (a) Permatec will own
approximately 67% of the outstanding Medi-Ject common stock; (b) Karl Groth,
Geoffrey Guy, M.D., Fred L. Shapiro, M.D. and Stanley Goldberg will each resign
from the position of director and Dr. Jacques Gonella, Dr. Thomas M.
Rinderknecht, Professor Ubaldo Conte and Dr. Philippe Dro will be appointed to
fill such vacancies; (c) the promissory notes issued to Permatec will convert
into shares of Medi-Ject Series C Preferred Stock; and (d) we will amend our
Second Amended and Restated Articles of Incorporation, as amended to date, to
change our name to "Antares Pharma, Inc."
/ / FOR / / AGAINST / / ABSTAIN
\|/ Please fold here \|/
- - --------------------------------------------------------------------------------
2. To amend the Second and Restated Articles of Incorporation, as amended to
date, to increase the number of authorized shares of Medi-Ject common stock from
3,400,000 to 15,000,000 and to increase the number of authorized shares of
preferred stock from 1,000,000 to 3,000,000.
/ / FOR / / AGAINST / / ABSTAIN
3. To approve the future conversion of Medi-Ject Series C Preferred Stock into
Medi-Ject common stock.
/ / FOR / / AGAINST / / ABSTAIN
4. To approve the conversion, at the holder's option, of the Series B
Convertible Preferred Stock into shares of Medi-Ject common stock.
/ / FOR / / AGAINST / / ABSTAIN
5. To elect two members of the Board of Directors:
01 Kenneth Evenstad 02 Karl E. Groth
/ / VOTE FOR ALL NOMINEES / / VOTE WITHHELD FROM ALL NOMINEES
(except as marked)
(Instructions: To withhold authority to vote for any indicated nominee, write
the number(s) of the nominees(s) in the box provided to the right.)
_________________________________
_________________________________
6. To ratify the appointment of KPMG LLP as our independent auditors for the
year ending December 31, 2000.
/ / FOR / / AGAINST / / ABSTAIN
7. To transact such other business as may properly come before the meeting or
any adjournment thereof.
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPSAL.
Address Change? Mark Box / / Indicate changes below:
Date ____________________________
_________________________________
_________________________________
Signature(s) in Box
Please sign exactly as your name(s)
appear on Proxy. If held in joint
tenancy, all persons must sign.
Trustees, administrators, etc.,
should include title and authority.
Corporations should provide full
name of corporation and title of
authorized officer signing the
proxy.