EXHIBIT 99


                              ORPHAN MEDICAL, INC.

    CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
                PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995


The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information without fear of litigation so long as statements are identified as
forward-looking and are accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those projected. The Company desires to take advantage of these
"safe harbor" provisions and is filing this Exhibit 99 in order to do so.
Accordingly, when used in this Annual Report on Form 10-K and in future filings
by the Company with the Securities and Exchange Commission, quarterly reports,
press releases and in oral statements made with the approval of an authorized
executive officer, 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" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from historical earnings and those presently anticipated or
projected. The Company hereby cautions readers that the following important
factors, among others, could affect the Company's financial performance and
could cause the Company's actual results for future periods to differ materially
from any forward-looking statements made by or on behalf of the Company.


LACK OF REVENUES AND PROFITABLE OPERATIONS; UNCERTAINTY OF FUTURE FINANCIAL
RESULTS.
The Company has been unprofitable since its inception in January 1993 and had an
accumulated deficit of $30,265,691 as of June 30, 1998. From inception through
June 30, 1998, the Company reported Elliotts B Solution, Cystadane, Antizol-Vet,
and Antizol sales of $3,160,120 and gross profit on such sales of $2,460,811,
which is not sufficient to sustain future product development or business
growth. The Company expects operating losses to continue into 1999 because gross
profit from its five approved products, including Sucraid, is not expected to
offset additional spending required to complete the development plans for
Busulfex and Xyrem, and for additional sales and marketing spending for the new
product introductions. The amount of these losses may vary significantly from
year-to-year and quarter-to-quarter and will depend on, among other factors, the
timing of product development and regulatory approval. There can be no assurance
that the Company will ever generate material product revenues or achieve
profitability.

DEVELOPMENT STAGE COMPANY.
The Company is in the development stage and its operations and the development
of its proposed products are subject to all of the risks inherent in the
establishment of a new business enterprise, including reliance on key personnel,
the lack of fully-developed products, insufficient capital, a competitive
environment characterized by numerous well-established and well-capitalized
competitors, expected operating losses into 1999, a market subject to extensive
regulatory oversight, and reliance on outside contractors for the manufacture
and distribution of its proposed products. The likelihood of the success of the
Company must be considered in light of the problems, expenses and delays
frequently encountered in connection with the development of new pharmaceutical
products or medical products and the competitive and regulatory environment in
which the Company operates.

FUTURE CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE AVAILABLE.
The Company's cash, cash equivalents, and short-term investments as of June 30,
1998 plus the $7.1 million in net cash proceeds from the July 23, 1998 sale of a
private placement are expected to be sufficient to fund the Company's operations
through 1999. However, should the Company realize any material reduction in
product revenues and/or a delay in the FDA approval and market launch of
Busulfex, the Company may require additional funding to fully implement its
development plan for Xyrem. Adequate funds for the Company's operations, whether
from financial markets or from other sources, may not be available when needed
on terms attractive to the Company, or at all. Lack of funding could cause the
Company to delay, scale back or eliminate some or all of its products currently
under development, including acquisition and licensing programs, or prevent the
commercial introduction of some or all of its products altogether.

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DEPENDENCE ON LICENSE AND ACQUISITION STRATEGY.
The Company has adopted a license and acquisition strategy to build its product
portfolio. The Company's strategy for growth is dependent upon its continued
ability to identify and acquire new pharmaceutical products targeted at niche
markets within selected strategic therapeutic market segments ("STMS"). Because
the Company does not engage in proprietary research and development of new
pharmaceutical products, it must rely upon the willingness of others to sell or
license pharmaceutical product opportunities to the Company. Other companies,
including those with substantially greater resources, are competing with the
Company to acquire such products. There can be no assurance that the Company
will be able to acquire rights to additional products on acceptable terms, if at
all. The failure of the Company to acquire or license new pharmaceutical
products within a selected STMS or to promote and market commercially successful
products within an existing STMS could have a material adverse effect on the
Company's business and its prospects.

The Company has contractual production rights to certain compounds through
various license agreements. These agreements are generally terminable by the
licensor for cause upon short notice or in the event the Company is insolvent or
bankrupt, does not apply minimum resources and efforts to develop the compound
under license or does not achieve certain minimum royalty payments. There can be
no assurance that the agreements will not be so terminated and, if terminated,
that the Company will be able to enter into similar agreements on terms as
favorable to the Company as those contained in its existing license agreements.

FOREIGN MARKETING ALLIANCES; NO ASSURANCE OF FOREIGN LICENSEES.
The Company's strategy for the exploitation of foreign markets for its products
is to enter into marketing alliances with multinational and foreign
pharmaceutical companies. From inception through June 30, 1998, the Company has
entered into distribution agreements to sell Cystadane in Australia and New
Zealand, and Antizol in Europe. Sales of Cystadane for Australia and New Zealand
have not been nor are they expected to be material. Distribution of Antizol in
Europe will initially be done on a "named patient" or "emergency use" basis
until full regulatory approval is obtained, and the Company does not expect such
"emergency use" distribution to result in material sales. Distribution of
Antizol in Europe through normal or the usual distribution channels will not
commence until the product has received marketing approval in each European
country into which the distributor expects to sell the product. The Company
typically receives upfront fees for entering into such arrangements and expects
to realize future benefits because the Company will be the exclusive supplier of
the product sold to the distributor in these foreign markets. However, there can
be no assurance that the Company will be able to negotiate additional alliances
for its other products on acceptable terms, if at all, or that such alliances
will be successful. The Company will be substantially dependent upon the
companies it has contracted with to date for the successful distribution of
Cystadane and Antizol outside the U.S. and, if these companies are unsuccessful
in their distribution efforts, it would be difficult for the Company to contract
with other distributors for these products within the licensed territories.

GOVERNMENT REGULATION; NEED FOR FDA AND OTHER REGULATORY APPROVALS.
Government regulation in the United States and abroad will be a significant
factor in the production, testing and marketing of the Company's current and
future products. Prior to marketing, each of the Company's products must undergo
an extensive regulatory approval process conducted by the United States Food and
Drug Administration (the "FDA") and by comparable agencies in other countries.
The approval process can take many years and require the expenditure of
substantial resources, and there can be no assurance that any product that the
Company may develop will be approved by the FDA or any foreign regulatory
authority in a timely manner, or at all. Generally, only a very small percentage
of newly discovered pharmaceutical compounds that enter pre-clinical development
are approved for sale. The Company will not be permitted to market any medicine
it may develop as a prescription product in any jurisdiction in which the
product does not receive regulatory approval. Once approved, the Division of
Drug Marketing, Advertising and Communication ("DDMAC"), the FDA's marketing
surveillance department within the Center for Drugs, must approve marketing
claims, which are the basis for a product's labeling, advertising and promotion.
There can be no assurance that the claims the Company is seeking will be
approved by DDMAC. The failure to obtain acceptable marketing claims on a
product from DDMAC could have a material adverse effect on the Company and its
prospects.

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The Company depends on external laboratories and medical institutions to conduct
its pre-clinical and clinical testing in compliance with clinical and laboratory
practices established by the FDA. The data obtained from pre-clinical and
clinical testing are subject to varying interpretations that could delay, limit
or prevent regulatory approval. In addition, delays or rejection may be
encountered based upon changes in FDA policy for drug approval during the period
of development and by the requirements for regulatory review of each submitted
New Drug Application ("NDA"). Moreover, even if the FDA approves a product, such
approval may entail commercially unacceptable limitations on the uses, or
"indications," for which a product may be marketed, and further studies may be
required to provide additional data on safety or effectiveness. The FDA also
requires post-marketing adverse event surveillance programs to monitor the
product's side effects.

An approved FDA product and the product's manufacturer are subject to continual
regulatory review and the later discovery of previously unknown problems with a
product or manufacturer may result in restrictions or sanctions on such products
or manufacturer, including the withdrawal of such product from the market. Most
changes in the manufacturing procedures for any of the Company's approved
products and any change in manufacturers will require the approval of the FDA
prior to their implementation. Obtaining the FDA's approval for a change in
manufacturing procedures or change in manufacturers could cause production
delays and loss of sales, which would have a material adverse effect the
Company's business and its prospects.

In certain countries, the sales price of a product must also be approved after
marketing approval is granted. No assurance can be given that satisfactory
prices can be obtained in foreign markets even if marketing approval is granted
by foreign regulatory authorities.

ORPHAN DRUG STATUS.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs
intended to treat a "rare disease or condition," which generally is a disease or
condition that affects populations of fewer than 200,000 people in the United
States. Orphan drug designation must be requested before submitting an NDA, and
after the FDA grants orphan drug designation, the generic identity of the
therapeutic agent and its potential orphan use are publicized by the FDA. Under
current law, orphan drug status is conferred upon the first company to receive
FDA approval to market the designated drug for the designated indication, which
also grants United States marketing exclusivity for a period of seven years
following approval by the NDA, subject to certain limitations. Orphan drug
designation does not convey any advantage in, or shorten the duration of, the
regulatory approval process. Moreover, although obtaining FDA approval to market
a product with orphan drug status can be advantageous, there can be no assurance
that the scope of protection or the level of marketing exclusivity that is
currently afforded by orphan drug status and marketing approval will remain in
effect in the future. Busulfex and Xyrem have orphan drug designation; while
Antizol, Elliotts B Solution, Cystadane, and Sucraid have orphan drug status.
There can be no assurance, however, that any product candidates will receive an
orphan drug designation or that any of the Company's products with such a
designation will be the first to be approved by the FDA for the designated
indication, thereby obtaining orphan drug status (i.e., marketing exclusivity).
Orphan drug designation does not prevent other manufacturers from attempting to
develop the same drug for the designated indication or from obtaining the
approval of an NDA for their drug prior to the approval of the Company's NDA. If
another sponsor's NDA for the same drug and the same indication is approved
first, that sponsor is entitled to exclusive marketing rights if that sponsor
has received orphan drug designation for its drug. In that case, the FDA would
refrain from approving an application by the Company to market its competing
product for seven years, subject to certain limitations. There can be no
assurance that competing products will not receive orphan drug designations and
FDA marketing approval before the Company's products.

NDA approval of a drug with an orphan drug designation does not prevent the FDA
from approving the same drug for a different indication, or a molecular
variation of the same drug for the same indication. Because doctors are not
restricted by the FDA from prescribing an approved drug for uses not approved by
the FDA, it is also possible that another company's drug could be prescribed for
indications for which the Company's product has received orphan drug designation
and NDA approval. Such prescribing of approved drugs for unapproved uses
(commonly referred to as "off label" use) could adversely affect the marketing
potential of products that have received orphan drug designation and NDA
approval. In addition, NDA approval of a drug with an orphan drug designation
does not provide any marketing exclusivity in foreign markets. The possible
amendment of the Orphan Drug Act by the

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United States Congress has been the subject of frequent discussion. Although no
significant changes to the Orphan Drug Act have been made for a number of years,
members of Congress have from time to time proposed legislation that would limit
the application of the Orphan Drug Act. There can be no assurance as to the
precise scope of protection that may be afforded by orphan drug designation and
marketing approval in the future or that the current level of exclusivity will
remain in effect.

RELIANCE ON PATENTS AND OTHER PROPRIETARY RIGHTS.
The pharmaceutical industry places considerable importance on obtaining patent
and trade secret protection for new technologies, products and processes. The
Company's success will depend, in part, on its ability to enjoy, obtain and
enforce protection for its products under United States and foreign patent laws
and other intellectual property laws, preserve the confidentiality of its trade
secrets and operate without infringing the proprietary rights of third parties.
The patent position of pharmaceutical firms is often highly uncertain and
generally involves complex legal and factual questions. At June 30, 1998,
Busulfex is the only product that the Company has under development for which
the use of or treatment methods licensed by the Company are covered by United
States patents. The Company evaluates the desirability of seeking patent or
other forms of protection for its products in foreign markets based on the
expected costs and relative benefits of attaining such protection. There can be
no assurance that any patents will be issued from any applications or that any
issued patents will afford adequate protection to the Company. Further, there
can be no assurance that any issued patents will not be challenged, invalidated,
infringed or circumvented or that any rights granted thereunder will provide
competitive advantages to the Company. Parties not affiliated with the Company
have obtained or may obtain United States or foreign patents or possess or may
possess proprietary rights relating to the Company's products. There can be no
assurance that patents now in existence or hereafter issued to others will not
adversely affect the development or commercialization of the Company's products
or that the Company's planned activities will not infringe patents owned by
others.

The Company could incur substantial costs in defending itself in infringement
suits brought against it or any of its licensors or in asserting any
infringement claims that the Company may have against others. The Company could
also incur substantial costs in connection with any suits relating to matters
for which the Company has agreed to indemnify its licensors or distributors. An
adverse outcome in any such litigation could have a material adverse effect on
the Company's business and prospects. In addition, the Company could be required
to obtain licenses under patents or other proprietary rights of third parties.
No assurance can be given that any such licenses would be made available on
terms acceptable to the Company, or at all. If the Company is required to, and
does not obtain any such required licenses, it could be prevented from, or
encounter delays in, developing, manufacturing or marketing one or more of its
products.

Busulfex and Xyrem are in the development stage. Even if the development of such
products is successful and marketing clearance from the FDA is obtained, there
can be no assurance that applicable patent coverage, if any, will not have
expired or will not expire shortly after such approval. Any such expiration
could have a material adverse effect on the sales and profitability of such
product. Further, some of the compounds the Company has developed or intends to
develop (Cystadane, Elliotts B Solution, Antizol, Antizol-Vet, Xyrem and
Sucraid) are believed to be in the public domain or not presently subject to
patent protection in the United States.

The Company also seeks to protect its proprietary information and technology in
part by confidentiality agreements and inventors' rights agreements with its
employees. There can be no assurance that these agreements will not be breached,
that the Company will have adequate remedies for any breach or that the
Company's trade secrets will not otherwise be disclosed to or discovered by its
competitors.

COMPETITION; RAPID TECHNOLOGICAL CHANGE.
Competition in the pharmaceutical industry is intense. Potential competitors in
the United States are numerous and include pharmaceutical, chemical and
biotechnology companies, most of which have substantially greater capital
resources, marketing experience, research and development staffs and facilities
than the Company. Although the Company seeks to limit potential sources of
competition by developing products that are eligible for orphan drug designation
and NDA approval or other forms of protection, there can be no assurance that
the Company's competitors will not succeed in developing similar technologies
and products more rapidly than the Company or

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that these competing technologies and products will not be more effective than
any of those that are being or will be developed by the Company.

The Company is aware of products being developed by potential competitors that
have received orphan drug designations for the same respective indications as
Busulfex and Xyrem. If these drugs are approved for marketing before the
Company's products, the Company would be required to obtain a license from these
entities before its own competing products could be marketed. There can be no
assurance that any required license would be available on commercially
acceptable terms, or at all.

The pharmaceutical industry has experienced rapid and significant technological
change. The Company expects that pharmaceutical technology will continue to
develop rapidly, and the Company's future success will depend, in large part, on
its ability to develop and maintain a competitive position. Technological
development by others may result in the Company's products becoming obsolete
before they are marketed or before the Company recovers a significant portion of
the development and commercialization expenses incurred with respect to such
products. In addition, alternative therapies or new medical treatments could
alter existing treatment regimes, and thereby reduce the need for one or more of
the Company's products, which would adversely affect the Company's business and
its prospects.

RISKS OF NEW PRODUCT DEVELOPMENT; MARKET UNCERTAINTY.
Only five of the Company's products have been approved for marketing by
regulatory authorities in the United States or elsewhere. Even if the balance of
the Company's products are approved for sale, there can be no assurance that
they will be commercially successful or that they will obtain the results
expected. The Company may encounter unanticipated problems relating to the
development, manufacturing, distribution and marketing of its products, some of
which may be beyond the Company's financial and technical capacity to solve. The
failure to adequately address any such problems could have a material adverse
effect on the Company's business and its prospects.

No drug development portfolio can be completely insulated from potential
failures, and it is likely that some products selected for development by the
Company will not produce the results expected during clinical studies, not
receive FDA approval or fail to generate product sales of an acceptable level.
The Company has terminated the development of eleven products from its portfolio
since inception: L-Cycloserine in 1994, Glucaric Acid in 1996, and nine products
in 1997. With respect to the nine products terminated in 1997, the Company took
this action in order to focus its development efforts on those products that fit
within three selected STMS: Antidote, Oncology Support, and Sleep Disorders. The
Company recorded a one-time charge of $780,000 in the third quarter of 1997 for
the estimated cost of winding down the development plans for nine development
products. In addition, the Company believes that several of the products
terminated in 1997 may have value to another pharmaceutical company and it will
seek to license or sell its rights relating to these products. The termination
of the development of any one or more of the Company's current products could
have a material adverse effect on the Company and its prospects.

Most orphan drugs have a potential United States market of less than $10 million
annually and many address annual markets of less than $1 million. There can be
no assurance that the Company's sales of its products will be profitable even if
accepted and used by patients and medical specialists.

DEPENDENCE UPON OTHERS FOR CLINICAL TESTING AND MANUFACTURING.
The Company does not have and does not intend to establish any internal product
testing, manufacturing or distribution capabilities. Accordingly, the Company
will be required to enter into arrangements with other companies for the
clinical testing, manufacture and distribution of its products. The inability of
the Company to retain third-parties for these purposes on acceptable terms could
adversely affect the Company's ability to develop and market its products. Any
failures by third-parties to adequately perform their responsibilities may delay
the submission of products for regulatory approval, impair the Company's ability
to deliver its products on a timely basis or otherwise impair the Company's
competitive position. In addition, the Company's dependence on third-parties for
the development, manufacture and distribution of its products may adversely
affect its potential profit margins and its ability to develop and deliver its
products on a timely basis. The manufacture of drugs can be an expensive, time
consuming and complex process and may require the use of materials with limited
availability or a

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dependence on sole suppliers. In addition, several of the Company's products
have not yet been manufactured in commercial quantities, and there can be no
assurance that such products can be so manufactured in a cost-effective manner.
Manufacturers of the Company's products will be subject to applicable good
manufacturing practices ("GMP") prescribed by the FDA or other rules and
regulations prescribed by foreign regulatory authorities. There can be no
assurance that the Company will be able to enter into or maintain relationships
either domestically or abroad with manufacturers whose facilities and procedures
comply or will continue to comply with GMP or applicable foreign requirements.
Should manufacturing agreements be entered into, the Company will be dependent
on such manufacturers for continued compliance with GMP and applicable foreign
standards. Failure by a manufacturer of the Company's products to comply with
GMP or applicable foreign requirements could result in significant time delays
or the inability of the Company to commercialize or continue to market a product
and could have a material adverse effect on the Company and its prospects. In
the United States, failure to comply with GMP or other applicable legal
requirements can lead to federal seizure of violative products, injunctive
actions brought by the federal government, and potential criminal and civil
liability on the part of a company and its officers and employees.

DEPENDENCE UPON OTHERS FOR DISTRIBUTION.
The Company has an exclusive agreement with Cardinal Health, Inc. ("Cardinal"),
whereby Cardinal, through its Specialty Companies, will provide a variety of
services to support the effective distribution of Orphan Medical's products.
Cardinal will provide integrated distribution and operations services to process
and support transactions between Orphan Medical and wholesalers, specialty
distributors, and direct customers; reimbursement management; patient assistance
and information hotline services; and specialty distribution and marketing
services to physician practices. Elliotts B Solution, Antizol, and Sucraid are
currently distributed by Cardinal, which also will distribute the Company's
proposed products should those products receive marketing clearance from the FDA
in the future. The Company will, therefore, be substantially dependent upon
Cardinal's ability to successfully distribute Elliotts B Solution, Antizol,
Sucraid and all of the Company's proposed products that receive marketing
clearance from the FDA.

Cystadane is currently distributed in the U.S. by Chronimed Inc. ("Chronimed"),
which distributes this product directly to patients through its mail order
pharmacy. The Company is substantially dependent upon Chronimed's ability to
successfully distribute Cystadane directly to patients in the U.S.

Antizol-Vet is currently distributed exclusively through W.A. Butler Company
("Butler"), the largest distributor of veterinary pharmaceuticals in the United
States. The Company is substantially dependent upon Butler's ability to
successfully distribute Antizol-Vet. The management of this product and reliance
on the sales efforts of a contract distributor has proven to be more difficult
than the Company originally expected and the Company is presently reviewing its
options with respect to the Antizol-Vet product, which could include the sale or
licensing of its rights to this product.

There can be no assurance that other distribution companies would be available
or continue to be available on commercially acceptable terms, if at all. The
loss of a distributor or failure to renew agreements with an existing
distributor could have a material adverse effect on the Company and its
prospects.

UNCERTAIN EXTENT OF PRICE FLEXIBILITY AND THIRD-PARTY REIMBURSEMENT.
The Company's ability to commercialize its products successfully will depend in
part on the price it may be able to charge for its products and on the extent to
which reimbursement for the cost of such products and related treatment will be
available from government health administration authorities, private health
insurers and other third-party payors. Government officials and private health
insurers are increasingly challenging the price of medical products and
services. Significant uncertainty exists as to the pricing flexibility suppliers
will have with respect to, and the reimbursement status of, newly approved
health care products.

In the United States, the Company expects that there will continue to be a
number of federal and state proposals to implement government control of pricing
and profitability of prescription pharmaceuticals. Cost controls, if mandated by
a government agency, could decrease the price the Company receives for its
products or products it may develop in the future and, by preventing the
recovery of development costs, which could be substantial, and an

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appropriate profit margin, could have a material adverse effect on the Company.
Furthermore, federal and state regulations govern or influence the reimbursement
to health care providers in connection with medical treatment of certain
patients. If any actions are taken by federal and/or state governments, such
actions could adversely affect the prospects for sales of the Company's
products. There can be no assurance that actions taken by federal and/or state
governments, if any, with regard to health care reform will not have a material
adverse effect on the Company and its prospects.

Certain third-party payors may attempt to further control costs by selecting
exclusive providers of their pharmaceutical products. If such arrangements were
made with competitors of the Company, such payors would not reimburse patients
for purchases of the Company's competing products. This lack of reimbursement
would diminish the market for the Company's products and could have a material
adverse effect on the Company and its prospects.

RISK OF PRODUCT RECALL
Product recalls may be issued at the discretion of the Company, the FDA, the
U.S. Federal Trade Commission, or other government agencies having regulatory
authority for product sales, and may occur due to disputed labeling claims,
manufacturing issues, quality defects, or other reasons. No assurance can be
given that product recalls will not occur. The Company does not carry any
insurance to cover the risk of a potential product recall. Any product recall
could have a material adverse effect on the Company and its prospects.

PRODUCT LIABILITY AND INSURANCE RISKS.
The testing and sale of human health care products by the Company entails an
inherent risk that product liability claims may be asserted against the Company.
As the Company expands the scope of its clinical testing, the Company will be
exposed to increasing potential liabilities. The pharmaceutical industry has
experienced increasing difficulty in maintaining product liability insurance
coverage at reasonable levels, and substantial increases in insurance premium
costs in many cases have rendered coverage economically impractical. The Company
currently carries product liability coverage in the aggregate amount of $10
million for all claims made in any policy year. Although to date the Company has
not been the subject of any product liability or other claims, there can be no
assurance that the Company will be able to maintain product liability insurance
on acceptable terms or that its insurance will provide adequate coverage against
potential claims. The successful assertion of any uninsured product liability or
other claim against the Company could have a material adverse effect on the
Company's business and prospects.

DEPENDENCE ON CERTAIN OFFICERS AND KEY MANAGEMENT PERSONNEL.
The Company's success will be largely dependent upon the efforts of its
executive officers and key management personnel. The loss of the services of an
executive officer or one or more key employees, or the inability of the Company
to attract and retain skilled management and marketing personnel in the future,
could have a material adverse effect on the Company and its prospects.

YEAR 2000 READINESS ISSUE.
The Company has assessed and continues to assess the impact of the so called
"Year 2000 Readiness Issue" on its reporting systems and operations. The Year
2000 Readiness Issue relates to the ability of computer hardware, software, and
firmware products to accurately process date/time data (including calculating,
comparing, and sequencing) from, into, and between the twentieth and
twenty-first centuries, and the years 1999 and 2000 and leap year calculations.
In addition, it relates to the ability to properly exchange time/date data
between such products. When the year 2000 occurs, systems that are not year 2000
compliant might recognize the year 2000 as the year 1900, or not at all. This
inability to recognize or properly treat the year 2000 may cause the Company's
systems, or the systems used by the Company's suppliers, distributors, customers
or regulatory agencies (i.e., FDA) to process critical financial and operational
information incorrectly, or not at all.

The Company's strategy is and has been to replace its older, inefficient systems
with current technology, which is both year 2000 compliant and more efficient.
In addition, the Company has purchased and implemented financial and operational
software upgrades that are year 2000 compliant. Because the Company has been
active in upgrading computer systems, including related operating and
application software, to provide for greater employee

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efficiency and customer responsiveness, direct expenses related to specific Year
2000 Readiness Issues should not be material to the Company's financial
statements. In addition, the Company has confirmed with its principal vendors
and distributors that they have implemented Year 2000 Readiness programs.
However, there can be no assurance that the systems of third parties on which
the Company currently relies or may rely on in the future will be year 2000
compliant, or that the failure of a third party's system due to the Year 2000
Readiness Issue would not have a material adverse effect on the Company and its
prospects.

RESTRICTIONS, COVENANTS AND RIGHTS RELATED TO SENIOR CONVERTIBLE PREFERRED STOCK
On July 23, 1998 (the "First Issuance Date"), the Company completed the sale to
UBS Capital II LLC ("UBS Capital") of a private placement of $7.5 million of
Senior Convertible Preferred Stock (the "Preferred Shares"). The private
placement agreement also gives UBS Capital the right to invest up to an
additional $4.5 million within 90 days of the First Issuance Date. In
conjunction with the issuance of the Preferred Shares, the Company agreed to
several restrictions and covenants, and granted certain voting and other rights
to the holders of the Preferred Shares, including but not limited to the
following:

      1.    The Company is restricted from issuing additional equity securities,
            including convertible debt instruments, warrants, and stock options,
            except for a "Permitted Issuances", which are limited to: (A) shares
            of Common Stock issued after the First Issuance Date to Chronimed,
            Inc. pursuant to the terms of the Termination Agreement between the
            Company and Chronimed, Inc., (B) shares of Common Stock issued upon
            exercise of stock options that are outstanding on the First Issuance
            Date, (C) stock options granted and shares of Common Stock issuable
            upon exercise of such options pursuant to the terms of stock option
            plans approved by the Company's Board of Directors; provided that
            the aggregate number of shares of Common Stock issued, or issuable,
            under (A), (B) and (C) shall not exceed two million shares, (D)
            Common Stock issued upon the exercise of currently outstanding
            warrants that, as of June 30, 1998, entitled holders to purchase an
            aggregate of 213,255 shares of Common Stock, (E) Common Stock issued
            upon the conversion of the Preferred Shares, and (F) securities
            issued pursuant to any public offering of the Company's securities
            registered under the Securities Act. In addition, the sale of any
            private placement of equity securities must be approved by a
            majority vote of the holders of the Preferred Shares and, if
            approved by the holders, UBS Capital has the right of first refusal
            with respect to the purchase or sale of any such securities.

      2.    As of the First Issuance Date, the Preferred Shares are convertible,
            at the option of the holders, into shares of the Company's Common
            Stock at a per share price equal to the lesser of $11.78 or 110% of
            the average last sale price of the 20 trading days prior to October
            21, 1998, but not less than $8.50 per share. If and whenever, on or
            after the First Issuance Date, the Company issues or sells, or is
            deemed to have issued or sold, any shares of its Common Stock for
            consideration per share less than the conversion price in effect for
            the Preferred Shares immediately prior to the time of such issue or
            sale, then, unless such issuance or sale was a Permitted Issuance
            (as described above), immediately upon such issue or sale or deemed
            issue or sale the conversion price shall be reduced to the
            conversion price determined by dividing (i) the sum of (1) the
            product derived by multiplying the conversion price in effect
            immediately prior to such issue or sale by the number of shares of
            Common Stock deemed outstanding immediately prior to such issue or
            sale, plus (2) the consideration, if any, received by the Company
            upon such issue or sale, by (ii) the number of shares of Common
            Stock deemed outstanding immediately after such issue or sale.

      3.    The dividend rate on the Preferred Shares is 7.5 percent per annum,
            which is payable at the option of the Company in either cash or by
            issuing additional Preferred Shares (on the first four dividend
            payment dates) or by issuing Common Stock (after the fourth dividend
            payment date). However, unless waived by a majority of the holders
            of Preferred Shares, the dividend rate will increase to 20 percent
            per annum, payable solely in cash, if either (i) at any time during
            any 730-day period individuals who constituted the Board of
            Directors at the beginning of such period, or the First Issuance
            Date (whichever is later), cease for any reason to constitute a
            majority of the Board of Directors then in office or (ii) the Board

<PAGE>


            of Directors fails to declare and pay in full, on any semi annual
            Dividend Payment Date (as defined in Section 4 (c) of Exhibit
            3.1.1).

      4.    The Company is restricted from incurring any indebtedness unless
            after giving effect to the additional indebtedness the aggregate
            indebtedness of the Corporation and its subsidiaries outstanding as
            of the date of such incurrence, excluding financing that is secured
            by accounts receivable but not by the Corporation's intellectual
            property licenses or other intellectual property rights, does not
            exceed two and one-half times EBITDA of the Company for the twelve
            month period immediately prior to the date of such incurrence for
            which there are quarterly financial statements available. For
            purposes of this restriction, EBITDA shall mean the sum of (i) net
            income, (ii) interest expense (iii) depreciation and amortization,
            and other non-cash items properly deducted in determining net income
            and (iv) federal, state and local income taxes, computed and
            calculated in accordance with generally accepted accounting
            principles.

      5.    The Company is restricted from paying with respect to its issued and
            outstanding Common Stock any cash dividends, cash distributions not
            classified as dividends, or cash payments on the redemption of such
            Common Stock. This restriction shall apply as long as at least 20
            percent of the issued Preferred Shares remain outstanding.

      6.    For as long as 20% of the Initial Shares (as defined under Section
            7(b) of Exhibit 3.1.1) remain outstanding, the holders of a majority
            of the Preferred Shares, voting separately as a single class in the
            election of directors of the Company, to the exclusion of all other
            classes of the Company's Common Stock and with each share of the
            Preferred Shares entitled to one vote, shall be entitled to elect
            one (1) director to serve on the Company's Board of Directors until
            his successor is duly elected by holders of a majority of the
            Preferred Shares or he is removed from office by holders of a
            majority of the Preferred Shares.

      7.    The holders of the Preferred Shares shall vote separately as a
            single class, and approval of holders of a majority of the
            outstanding shares of Preferred Shares shall be required, whenever a
            shareholder vote is required pursuant to Section 302A.671 of the
            Minnesota Business Corporation Act, or any successor provision
            thereto, for the purpose of according voting rights with respect to
            shares acquired or to be acquired in a control share acquisition (as
            defined in Section 302A.011 Subdivision 38 of the Minnesota Business
            Corporation Act). In addition, holders of Preferred Shares are
            entitled to vote on all other matters requiring shareholder approval
            on an "as if" converted basis.

      8.    Ten years from the First Issuance Date, the Company must elect to
            either (1) require the holder to convert all remaining unconverted
            Preferred Shares into Common Stock upon the payment by the Company
            of a Conversion Fee to the holder, payable in cash or Common Stock,
            or (2) redeem for cash the holder's unconverted Preferred Shares for
            $1,000 per share plus accrued dividends. The conversion fee cannot
            exceed $3.0 million and will be reduced prorata to the extent the
            number of unconverted Preferred Shares at the end of the ten year
            term is less than the number of Preferred Shares issued to the
            holders during the ten year term.

RELATIONSHIP WITH CHRONIMED.
Although the Company believes the agreements that it had with Chronimed since
its July 1, 1994 spin-off were commercially reasonable, such agreements were not
the product of arms-length negotiations. In June 1997, the Company terminated
these agreements (the "Termination Agreement"), except for the Cystadane
Agreement. The Termination Agreement provides that the Company pay Chronimed
compensation equal to $2,500,000, consisting of cash and shares of the Company's
Common Stock. The October 1996 Cystadane Agreement between the Company and
Chronimed applies solely to the domestic distribution of Cystadane. Several of
the Company's directors and executive officers are current or former employees,
shareholders and/or directors of Chronimed. The Termination Agreement and the
October 1996 Cystadane Agreement were approved by all of the independent outside
members of the Company's Board of Directors.

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POSSIBLE VOLATILITY OF STOCK PRICE AND DILUTION OF STOCK - TERMINATION AGREEMENT
WITH CHRONIMED.
The Company paid $250,000 on signing the Termination Agreement in June 1997, and
had a remaining obligation to compensate Chronimed with cash and Common Stock
having a total value of $2,250,000. Cash payments against this remaining
obligation are to be based on a 3 percent temporary royalty on the Company's
product sales, which the Company began paying quarterly on September 30, 1997.
Unregistered shares of Common Stock equal to 1 percent of the Company's
outstanding shares at each quarter end, which the Company began issuing on March
31, 1998, are to be issued quarterly to Chronimed. The Company is obligated to
continue paying the royalties and issuing Common Stock until the sum of all
royalty payments and the market value (as defined below) of all issued Common
Stock equals $2,250,000. The Company is obligated file a registration statement
with the Securities and Exchange Commission to register such shares. The market
value of shares issued to Chronimed as payment against the remaining obligation
of $2,250,000 will be determined as follows: (i) the market value of any such
shares sold within 90 days after the effective date of a registration statement
covering such shares will be equal to the net proceeds realized by Chronimed
from the sale of such shares, or (ii) the market value of any such shares not
sold within 90 days after the effective date of a registration statement
covering such shares will be equal to the average last bid price for shares of
the CompanyAEs Common Stock as reported on Nasdaq for the last five days within
the 90 day period. The Company anticipates Chronimed will sell in the open
market the shares it receives from the Company within the 90 day period. The
Company has the option, regardless of the market price of its Common Stock, to
buy-out for cash the remaining obligation to Chronimed. Through June 30, 1998,
the Company has paid Chronimed approximately $81,000 in royalties and issued
123,056 shares of Common Stock, of which 61,178 shares have been sold by
Chronimed in market transactions for net cash proceeds of $576,183. At June 30,
1998, the Company's unpaid obligation to Chronimed has an estimated value of
approximately $1,146,666, which is classified as a "Current Liability".

There is risk that the Company's current shareholders' ownership could be
substantially diluted and/or the market value of their shares adversely affected
in the event any one or a combination of the following events occur: (1) sales
by Chronimed of the Company's Common Stock cause the price of the Company's
Common Stock to decrease; (2) in the event of a decline in the value of the
Company's Common Stock, the Company would be required to issue more shares in
subsequent periods to satisfy its remaining obligation to Chronimed; or (3) the
Company's sales of future products are significantly less than forecast, which
would decrease the temporary royalty payments that would be applied against the
remaining obligation and, thereby, increase the number of shares required to be
issued to Chronimed. The realization of any one or combination of these risks,
or the decision by the Company to exercise its option to effect a cash buy-out
of the remaining obligation, could have a material adverse effect on the
Company's business, its prospects and its shareholders.

POSSIBLE VOLATILITY OF STOCK PRICE AND REDUCED LIQUIDITY OF THE MARKET FOR THE
STOCK - LOSS OF NASDAQ NATIONAL MARKET LISTING.
There is risk that the market value and the liquidity of the public float for
the Company's Common Stock could be adversely affected in the event the Company
no longer meets the Nasdaq's requirements for continued listing on the National
Market tier. For continued listing on the Nasdaq National Market, a company must
satisfy a number of requirements, which in the Company's case includes either:
(1) net tangible assets in excess of $4.0 million as reported on Form 10-Q or
Form 10-K or (2) a market capitalization of at least $50.0 million. At June 30,
1998, the Company's net tangible assets equaled $669,579 and its market
capitalization was approximately $66.0 million (based on the last sale price of
$10.563 and 6,249,718 shares outstanding as of June 30, 1998). Net tangible
assets are defined as total assets less total liabilities. Market capitalization
is defined as total outstanding shares multiplied by the last sales price quoted
by Nasdaq. After giving effect to the July 23, 1998 private placement of
Preferred Shares, which netted the Company approximately $7.1 million in
additional net tangible assets (i.e., cash), the Company estimates that it will
have net tangible assets in excess of the $4.0 million (thereby satisfying
Nasdaq's net tangible asset listing requirement) through at least the end the
third quarter of 1998. In the event UBS Capital exercises its right, which
expires on October 21, 1998, to invest up to an additional $4.5 million, the
Company's estimated net tangible assets are expected to exceed $4.0 million
through the end of 1998. Should the Company fail to satisfy at least one of the
two aforementioned Nasdaq listing requirements at any time after the third
quarter of

<PAGE>


1998 (or after 1998 in the event of an additional investment by UBS Capital of
at least $2.0 million), the Company's Common Stock would no longer qualify for
listing on the Nasdaq National Market, but would qualify for quotation on the
Nasdaq Small Cap Market provided it had net tangible assets in excess of $2.0
million. The Company's ability to raise additional capital and the market value
of the Company's Common Stock could be adversely affected by failing to meet
Nasdaq's requirements for listing on either the National Market or the Small Cap
Market. The realization of any one or combination of these risks could have a
material adverse effect on the Company's business, its prospects and its
shareholders.

POSSIBLE VOLATILITY OF STOCK PRICE - GENERAL.
There is generally significant volatility in the market prices of securities of
early stage pharmaceutical companies. Contributing to this volatility are
various factors and events, such as the announcements by the Company or its
competitors of new product developments, clinical testing results, governmental
approvals, regulations or actions, developments or disputes relating to patents
or proprietary rights, public concern over the safety of therapies and
fluctuations in financial performance from period to period. These and other
factors and events may have a significant impact on the Company's business and
on the market price of the Common Stock.