<PAGE> 1
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM
_____________________________ TO ____________________________________
COMMISSION FILE NO. 0-29608
GENETRONICS BIOMEDICAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
BRITISH COLUMBIA, CANADA 33-002-4450
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No. for
Genetronics, Inc.)
11199 SORRENTO VALLEY ROAD 92121-1334
SAN DIEGO, CALIFORNIA (Zip Code)
(Address of principal executive offices)
</TABLE>
Company's telephone number, including area code: (858) 597-6006
Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Company's Common Stock, no par
value, was 22,233,474 as of November 11, 1999.
<PAGE> 2
GENETRONICS BIOMEDICAL LTD.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
<S> <C>
a) Consolidated Balance Sheets
as of September 30, 1999 (Unaudited) and March 31, 1999......... 1
b) Consolidated Statements of Loss and Deficit
for the Three Months and Six Months Ended September 30, 1999
and 1998 (Unaudited)............................................ 2
c) Consolidated Statements of Cash Flows for the Six Months Ended
September 30, 1999 and 1998 (Unaudited)......................... 3
d) Notes to Consolidated Financial Statements...................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk ........... 17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................... 18
Item 6. Exhibits and Reports on Form 8-K...................................... 19
SIGNATURES........................................................................... 20
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENETRONICS BIOMEDICAL LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In U.S. dollars)
September 30 March 31
1999 1999
$ $
(Unaudited) (Note)
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents 3,847,666 6,189,284
Short-term investments 8,811,867 --
Accounts receivable, net of allowance for
uncollectible accounts of $ 61,493
[March 31, 1999 - $19,685] 784,481 776,648
Inventories [note 2] 837,647 655,906
Prepaid expenses and other 125,432 6,095
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 14,407,093 7,627,933
- --------------------------------------------------------------------------------
Fixed assets, net 1,000,666 1,177,393
Other assets, net 1,190,966 1,002,318
- --------------------------------------------------------------------------------
16,598,725 9,807,644
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued expenses 1,656,319 1,377,443
Current portion of obligations under
capital leases 49,358 45,892
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,705,677 1,423,335
- --------------------------------------------------------------------------------
Obligations under capital leases 92,806 118,384
Deferred rent 2,391 9,564
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 1,800,874 1,551,283
- --------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 28,956,472 28,357,863
Special Warrants [note 4] 11,130,664 --
Deficit (25,186,648) (19,998,501)
Cumulative translation adjustment (102,637) (103,001)
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 14,797,851 8,256,361
- --------------------------------------------------------------------------------
16,598,725 9,807,644
================================================================================
</TABLE>
Note: The Financial statements at March 31, 1999 are derived from Audited
financial statements but do not include all of the footnote and other
disclosures required by generally accepted accounting principles.
See accompanying notes.
1
<PAGE> 4
GENETRONICS BIOMEDICAL LTD.
CONSOLIDATED STATEMENTS OF
LOSS AND DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
(In U.S. dollars)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
$ $ $ $
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Net sales 1,081,300 956,715 1,780,378 1,771,120
License fee and milestone payments 333,334 -- 333,334 --
Grant funding 43,520 72,069 241,905 134,952
Revenues under collaborative research
and development arrangements 15,000 -- 15,000 6,000
Interest income 176,410 37,576 244,693 107,425
- --------------------------------------------------------------------------------------------------------------
1,649,564 1,066,360 2,615,310 2,019,497
- --------------------------------------------------------------------------------------------------------------
EXPENSES
Cost of sales 438,856 431,971 765,593 812,605
Research and development 1,672,757 2,368,353 3,642,620 3,851,588
Selling, general and administrative 1,407,742 1,352,414 3,014,406 2,351,163
Interest expense 6,549 4,668 13,259 8,894
Restructuring charges [note 5] 367,579 -- 367,579 --
- --------------------------------------------------------------------------------------------------------------
3,893,483 4,157,406 7,803,457 7,024,250
- --------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (2,243,919) (3,091,046) (5,188,147) (5,004,753)
Deficit, beginning of period (22,942,729) (15,308,371) (19,998,501) (13,394,664)
- --------------------------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD (25,186,648) (18,399,417) (25,186,648) (18,399,417)
==============================================================================================================
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED [NOTE 3] (0.10) (0.16) (0.24) (0.26)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES USED IN COMPUTING
NET LOSS PER SHARE 22,017,670 19,177,250 21,846,316 19,167,928
==============================================================================================================
</TABLE>
See accompanying notes
2
<PAGE> 5
GENETRONICS BIOMEDICAL LTD.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In U.S. dollars)
SIX SIX
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998
$ $
- ----------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss for the period (5,188,147) (5,004,753)
Items not involving cash:
Depreciation and amortization 248,643 178,755
Changes in working capital items:
Accounts receivable (7,833) (224,167)
Inventories (181,741) (27,022)
Prepaid expenses and other (119,337) 2,950
Accounts payable and accrued expenses 278,876 481,450
Deferred rent (7,173) (7,172)
- ----------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (4,976,712) (4,599,959)
- ----------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of short-term investments (8,811,867) --
Purchase of capital assets (26,712) (321,496)
Increase in other assets (233,852) (185,602)
- ----------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (9,072,431) (507,098)
- ----------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payments on obligations under capital leases (22,112) 3,517
Proceeds from issuance of Special Warrants - net 11,222,554 --
Proceeds from issuance of common shares - net 506,719 225,044
- ----------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 11,707,161 228,561
- ----------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 364 (29,028)
- ----------------------------------------------------------------------------------------
364 (29,028)
- ----------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (2,341,618) (4,907,524)
Cash and cash equivalents, beginning of period 6,189,284 6,521,990
- ----------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 3,847,666 1,614,466
</TABLE>
See accompanying notes
3
<PAGE> 6
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In U.S. dollars)
1. BASIS OF PRESENTATION
The Consolidated Statements of Loss and Deficit for the three-month and
six-month periods ended September 30, 1999 and 1998, the Consolidated Balance
Sheets as of September 30, 1999, and the Consolidated Statements of Cash Flows
for the six-month periods ended September 30, 1999 and 1998 have been prepared
by the Company. In the opinion of management, all adjustments (which include
reclassifications and normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at September 30,
1999 and for all periods presented, have been made.
Certain information and note disclosures normally included in the
financial statements prepared in accordance with accounting principles generally
accepted in Canada have been omitted. It is suggested that the present
consolidated financial statements and notes thereto should be read in
conjunction with the audited consolidated financial statements for the year
ended March 31, 1999 included in the Genetronics Biomedical Ltd. Annual Report
on Form 10-K filed with the Securities and Exchange Commission. The results of
operations for the three-month and six-month periods ended September 30, 1999
are not necessarily indicative of the results for the full year.
In these financial statements, the Company has adopted the new cash flow
statement recommendations of the Canadian Institute of Chartered Accountants.
Accordingly, the comparative periods presented have been restated to exclude
non-cash investing and financing transactions.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(In U.S. dollars)
September 30, 1999 March 31, 1999
------------------ --------------
<S> <C> <C>
Raw Materials 445,421 401,634
Work in process 69,011 81,863
Finished Goods 323,215 172,409
------- -------
837,647 655,906
------- -------
</TABLE>
3. PER SHARE DATA
Basic loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share reflect the
4
<PAGE> 7
potential dilution that would occur if securities or other contracts to issue
common stock were exercised or converted to common stock. Since the effect of
the assumed exercise of common stock options and other convertible securities
was anti-dilutive, basic and diluted share as presented on the consolidated
statements of loss and deficit are the same.
4. SHARE CAPITAL
Authorized Share Capital
On July 26, 1999 the shareholders approved deletion of the special rights
and restrictions attached to the 100,000,000 Class A preferred shares and
replacement with new Class A preferred shares which allow the Directors to
create special rights and restrictions.
Stock Option Plan
On July 26, 1999 the shareholders approved an amendment to the Company's
1997 Stock Option Plan to increase the number of authorized shares of Common
Stock available for issuance under the Plan from 4,700,000 shares to 6,400,000
shares.
Private Placement
On June 17, 1999 the Company closed a private placement of 4,187,500
special warrants at a price of US$ 3.00 per special warrant for gross proceeds
of US$ 12,562,500 less expenses of US$ 1,431,836. The special warrants are
convertible into common shares for no further consideration upon the earlier of
1) five days after receipt for the final prospectus is issued by the last of the
securities regulatory authorities in British Columbia and Ontario, or 2) request
for conversion made by special warrant holder after June 17, 1999, or 3) the
date of June 16, 2000.
5. RESTRUCTURING CHARGES
During the three months ended September 30, 1999 the Company undertook a
review of its operating structure to identify opportunities to improve operating
effectiveness. As a result of this review certain staffing changes occurred and
program review is underway. The Company also announced that its employment of
two senior executives ended this quarter. The Company offered Separation
Agreements to the two executives, based in part on employment agreements each
had with the Company. In accordance with the staffing changes and the terms of
the Employment Agreements the Company has accrued and recorded restructuring
charges of $367,579 for the three months ended September 30, 1999. Subsequent to
the end of the quarter the Company received notice from the senior executives of
their decision to arbitrate the interpretation of a certain term of their
employment agreements. Management believes that its interpretation of the terms
of the employment agreements is accurate. The outcome of the arbitration cannot
be determined at this time, however, should further amounts become payable as a
result of the conclusion of the arbitration, the amounts will be accounted for
in the period they are determined.
5
<PAGE> 8
6. SEGMENT INFORMATION
The Company's reportable business segments include the BTX division and
the Drug and DNA delivery division. The Company evaluates performance based on
many factors including net results from operations before certain unallocated
costs. The Company does not allocate interest income and expenses and general
and administrative costs to its reportable segments. In addition, total assets
are not allocated to each segment.
Substantially all of the Company's assets and operations are located in
the United States and predominantly all revenues are generated in the United
States.
<TABLE>
<CAPTION>
BTX DRUG AND DNA DELIVERY
DIVISION DIVISION TOTAL
$ $ $
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 1999
Reportable segment revenue 1,077,430 395,724 1,473,154
- ------------------------------------------------------------------------------------------
Add reconciling items
Interest income 176,410
- ------------------------------------------------------------------------------------------
Total revenue 1,649,564
- ------------------------------------------------------------------------------------------
Net results of reportable segment 172,165 (1,492,488) (1,320,323)
- ------------------------------------------------------------------------------------------
Add (deduct) reconciling items
Interest income 176,410
General and administrative (1,093,457)
Interest expense (6,549)
- ------------------------------------------------------------------------------------------
Net loss (2,243,919)
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
BTX DRUG AND DNA DELIVERY
DIVISION DIVISION TOTAL
$ $ $
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 1998
Reportable segment revenue 956,715 72,069 1,028,784
- --------------------------------------------------------------------------------------------
Add reconciling items
Interest income 37,576
- --------------------------------------------------------------------------------------------
Total revenue 1,066,360
- --------------------------------------------------------------------------------------------
Net results of reportable segment 208,224 (2,223,356) (2,015,132)
- --------------------------------------------------------------------------------------------
Add (deduct) reconciling items
Interest income 37,576
General and administrative (1,108,822)
Interest expense (4,668)
- --------------------------------------------------------------------------------------------
Net loss (3,091,046)
============================================================================================
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
BTX DRUG AND DNA DELIVERY
DIVISION DIVISION TOTAL
$ $ $
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX MONTHS ENDED SEPTEMBER 30, 1999
Reportable segment revenue 1,776,509 594,108 2,370,617
- ----------------------------------------------------------------------------------------------------
Add reconciling items
Interest income 244,693
- ----------------------------------------------------------------------------------------------------
Total revenue 2,615,310
- ----------------------------------------------------------------------------------------------------
Net results of reportable segment 37,631 (3,144,383) (3,106,752)
- ----------------------------------------------------------------------------------------------------
Add (deduct) reconciling items
Interest income 244,693
General and administrative (2,312,829)
Interest expense (13,259)
- ----------------------------------------------------------------------------------------------------
Net loss (5,188,147)
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
BTX DRUG AND DNA DELIVERY
DIVISION DIVISION TOTAL
$ $ $
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX MONTHS ENDED SEPTEMBER 30, 1998
Reportable segment revenue 1,771,120 140,952 1,912,072
- ----------------------------------------------------------------------------------------------------
Add reconciling items
Interest income 107,425
- ----------------------------------------------------------------------------------------------------
Total revenue 2,019,497
- ----------------------------------------------------------------------------------------------------
Net results of reportable segment 306,947 (3,573,882) (3,266,935)
- ----------------------------------------------------------------------------------------------------
Add (deduct) reconciling items
Interest income 107,425
General and administrative (1,836,349)
Interest expense (8,894)
- ----------------------------------------------------------------------------------------------------
Net loss (5,004,753)
====================================================================================================
</TABLE>
7. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada (Canadian GAAP), which,
in the case of the Company, conform in all material respects with those in the
United States (U.S. GAAP) and with the requirements of the Securities and
Exchange Commission (SEC), except as described below.
7
<PAGE> 10
The impact of significant variations to U.S. GAAP on the consolidated
statements of loss and deficit are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
$ $ $ $
<S> <C> <C> <C> <C>
Loss for the period, Canadian GAAP (2,243,919) (3,091,046) (5,188,147) (5,004,753)
Adjustment for stock based
compensation - non-employees (222,132) (218,962) (324,675) (285,759)
Loss for the period, U.S. GAAP (2,466,051) (3,310,008) (5,512,822) (5,290,512)
=================================================================================================================
Unrealized losses from short
term investments (5,778) -- (5,778) --
Unrealized gains (losses)
on foreign currency translation 3,184 265 364 (29,028)
Comprehensive loss for the
period, U.S. GAAP (2,468,645) (3,309,743) (5,518,236) (5,619,540)
=================================================================================================================
Loss per share, U.S. GAAP (0.11) (0.17) (0.25) (0.28)
=================================================================================================================
Weighted average number
of shares, U.S. GAAP 22,017,670 19,177,250 21,846,316 19,167,928
=================================================================================================================
</TABLE>
The impact of significant variations to U.S. GAAP on the Consolidated Balance
Sheet items is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 MARCH 31, 1999
$ $
- -------------------------------------------------------
<S> <C> <C>
Share capital 30,714,391 29,791,107
Deficit (26,944,567) (21,431,745)
=======================================================
</TABLE>
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto. This Quarterly Report on
Form 10-Q may be deemed to include forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that involve risk and uncertainty, including financial,
clinical, business environment and trend projections. Although the Company
believes that its expectations are based on reasonable assumptions, it can give
no assurance that its goals will be achieved. The important factors that could
cause actual results to differ materially from those in the forward-looking
statements herein include, without limitation, the current stage of development
of both Genetronics and its products, the timing and uncertainty of results of
both research and regulatory processes, the extensive government regulation
applicable to its business, the unproven safety and efficacy of its device
products, its significant additional financing requirements, the volatility of
its stock price, the uncertainty of future capital funding, its potential
exposure to product liability or recall, uncertainties relating to patents and
other intellectual property, including whether the Company will obtain
sufficient protection or competitive advantage therefrom, uncertainties relating
to the Company's ability to successfully complete its Year 2000 initiatives and
its dependence upon a limited number of key personnel and consultants and its
significant reliance upon its collaborative partners for achieving its goals,
and other factors detailed in its Annual Report on Form 10-K for the year ended
March 31, 1999.
GENERAL
Through its Drug and DNA delivery Division, Genetronics is engaged in
developing drug and DNA delivery systems based on electroporation to be used in
the site-specific treatment of disease. Through its BTX Division, the Company
develops, manufactures, and sells electroporation equipment to the research
laboratory market.
In the past the Company's revenues primarily reflected, through the BTX
Division, product sales to the research market and research grants. In October
1998 the Company entered into a comprehensive License and Development Agreement
and a Supply Agreement with Ethicon, Inc., a Johnson & Johnson company,
involving Genetronics' proprietary drug and DNA delivery system for the
electroporation therapy treatment of cancer. As part of the License and
Development Agreement, the Company received an up-front licensing fee. The
Company has received milestone payments and will be receiving future milestone
payments if and when milestones are met. The Company recently announced that
Ethicon Inc. transferred its responsibilities and obligations under the License
and Development and Supply Agreements to Ethicon Endo-Surgery, Inc., which is
also a Johnson & Johnson company.
Until the commercialization of clinical products pursuant to the License
and Development and Supply Agreements, the Company expects revenues to continue
to be attributable to product sales to the research market, milestone payments,
grants, collaborative research arrangements, and interest income.
9
<PAGE> 12
Due to the expenses incurred in the development of the drug and DNA
delivery systems, the Company has been unprofitable in the last five years. As
of September 30, 1999 the Company has incurred a cumulative deficit of $
25,186,648. The Company expects to continue to incur substantial operating
losses in the future due to continued spending on research and development
programs, the funding of preclinical studies, clinical trials and regulatory
activities and the costs of manufacturing and administrative activities.
RESULTS OF OPERATIONS
Revenues
The Company produced net sales of $1,081,300 for the three months ended
September 30, 1999, compared with net sales of $956,715 for the three months
ended September 30, 1998, which meant an increase of $ 124,585, or 13%. The
increase in the second quarter of 1999 over the same quarter of the previous
year was partially a result of the introduction of a new product, the ECM630, an
Exponential Decay Wave Electroporation system which utilizes a Precision Pulse
Technology, the new BTX Platform technology, and all-new digital user interface.
The ECM630 is expected to assist the Company`s efforts to further increase sales
to Europe.
For the six months ended September 30, 1999 the net sales in the amount
of $ 1,780,378 were at the same level as the $ 1,771,120 net sales for the same
six-month period of the previous year.
Revenues from grant funding decreased from $72,069 for the three months
ended September 30, 1998 to $43,520 for the three months ended September 30,
1999. For the six months ended September 30, 1999 the Company recorded revenues
from grant funding in the amount of $ 241,905, compared to $ 134,952 for the six
months ended September 30, 1998. The lower grant revenues in the second quarter
of 1999 compared to the second quarter of 1998 were primarily a result of
decreased activities within the Oncology field for which a two-year Phase II
SBIR grant was awarded to the Company by the NIH in September 1997. Revenues
from grant funding may fluctuate from period to period based on the level of
grant funding awarded.
In September 1999 the Drug and DNA delivery Division recorded milestone
payments in the amount of $333,334. The milestones were part of the Licensing
Agreement with Ethicon Endo-Surgery, Inc. involving the use of the Medpulser
system for Electroporation Therapy in the treatment of solid tumor cancer.
Milestone payments may fluctuate from period to period due to the timing of
milestone achievements and the amount of milestone payments.
Interest income for the three months and six months ended September 30,
1999 in the amount of $176,410 and $ 244,693, respectively, increased
significantly compared to the three months and six months ended September 1998
in the amount of $37,576 and $107,425, respectively, as a result of the proceeds
from the private placement in June 1999 which were invested in interest bearing
instruments.
Cost Of Sales
Cost of sales increased slightly from $431,971 for the three months ended
September 30, 1998 to $438,856 for the three months ended September 30, 1999 as
a result of higher net product sales. The cost of sales in the amount of
$765,593 for the six months ended September
10
<PAGE> 13
30, 1999 decreased by $47,012 or 5.8% compared with cost of sales in the amount
of $ 812,605 for the same period of the previous year as a result of cost
reductions in the manufacturing department and changes in product mix.
Gross Profit and Gross Margin
Primarily due to higher sales, the gross profit for the three months ended
September 30, 1999, in the amount of $642,444, increased by $117,700, or 22%,
compared with $524,744 for the three months ended September 30, 1998. The gross
profit margin of 59% for the three months ended September 30, 1999 was 4% higher
than the gross profit margin of 55% for the three months ended September 30,
1998, a result of the higher contribution margin for the three months ended
September 30, 1999 and changes in product mix.
Gross profit for the six months ended September 30, 1999 in the amount of
$ 1,014,785 increased by $ 56,270, or 6%, compared with the gross profit in the
amount of $958,515 for the six months ended September 30, 1998. The gross profit
margin increased from 54% for the six months ended September 30, 1998 to 57% for
the six months ended September 30, 1999.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, which include advertising,
promotion and selling expenses, increased slightly by $55,328, or 4%, from
$1,352,414 for the three months ended September 30, 1998 to $1,407,742 for the
three months ended September 30, 1999. Included in the $1,407,742 for the three
months ended September 30, 1999 are sales and marketing expenses for research
products in the amount of $314,285 and expenses in the amount of $278,073
incurred by activities in the investor relations department. As part of a
restructuring staffing changes have been initiated in the second quarter of 1999
which should result in future reductions of selling, general and administrative
expenses.
For the six months ended September 30, 1999 selling, general and
administrative expenses in the amount of $3,014,406 increased by $663,243, or
28%, compared to the selling, general and administrative expenses in the amount
of $2,351,163 for the six months ended September 30, 1998. The increase was
partially a result of higher personnel expenses due to an increase in salaries
and an increase in headcount since fall of 1998 and higher amortization and
depreciation expenses attributable to patent costs and fixed asset additions of
previous periods. Sales and marketing expenses in the BTX Division increased as
a result of marketing efforts in order to promote the newly introduced ECM630.
Research and Development/Clinical Trials
Research and development costs decreased by $695,596, or 29%, from
$2,368,353 for the three months ended September 30, 1998 to $1,672,757 for the
three months ended September 30, 1999, partially as a result of lower clinical
trial costs due to the completion of Phase II Head & Neck clinical trials in the
United States and Canada. Currently, in collaboration with Ethicon Endo-Surgery,
Inc., the Company's corporate partner in oncology, protocols are being finalized
for a Phase III clinical trial for treatment of advanced head and neck cancer.
11
<PAGE> 14
Reduced expenses in the transdermal and vascular therapy areas, as the
result of a shift in the Company's primary focus to oncology and gene therapy,
also contributed to the lower research and development expenses.
For the six months ended September 30, 1999 the research and development
costs in the amount of $3,642,620 decreased by $208,968, or 5%, compared to the
research and development expense in the amount of $3,851,588 for the six months
ended September 30, 1998 as a result of lower expenses in the transdermal and
vascular therapy areas.
Restructuring Charges
During the three months ended September 30, 1999 the Company undertook a
review of its operating structure to identify opportunities to improve operating
effectiveness. As a result of this review certain staffing changes occurred and
program review is underway. The Company also announced that its employment of
two senior executives ended this quarter. The Company offered Separation
Agreements to the two executives, based in part on employment agreements each
had with the Company. In accordance with the staffing changes and the terms of
the Employment Agreements the Company has accrued and recorded restructuring
charges of $367,579 for the three months ended September 30,1999. Subsequent to
the end of the quarter the Company received notice from the senior executives of
their decision to arbitrate the interpretation of a certain term of their
employment agreements. Management believes that its interpretation of the terms
of the employment agreements is accurate. The outcome of the arbitration cannot
be determined at this time, however, should further amounts become payable as a
result of the conclusion of the arbitration, the amounts will be accounted for
in the period they are determined.
Net results of reportable segments (Net results of reportable segments do
not include unallocated costs such as interest income and expense and general
and administrative costs)
The BTX Division reported net results in the amount of $172,165 for the
three months ended September 30, 1999 compared to net results in the amount of
$208,224 for the three months ended September 30, 1998, which meant a decrease
in the amount of $36,059, or 17%. The decrease was the result of increased sales
and marketing expenses and increased engineering expenses to upgrade BTX
instruments for CE mark compliance, which more than offset the increase in net
sales.
For the six months ended September 30, 1999 the BTX Division reported net
results in the amount of $ 37,631 which meant a decrease in the amount of $
269,316, or 88%, primarily a result of increased engineering and sales and
marketing expenses.
The Drug and DNA delivery Division reported net expenditures in the amount
of $1,492,488 for the three months ended September 30, 1999 compared to $
2,223,356 for the three months ended September 30, 1998, a decrease of $730,868,
or 33%. The lower net expenditures were primarily a result of lower clinical
trial costs due to the completion of Phase II clinical trials and lower expenses
in the transdermal and vascular therapy areas.
For the six months ended September 30, 1999 the Drug and DNA delivery
Division reported net expenditures in the amount of 3,144,383, a decrease in the
amount of $429,499, or 12%, compared to net expenditures in the amount of
$3,573,882 for the six months ended September 30, 1998.
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<PAGE> 15
Net Loss
For the three months ended September 30, 1999, the Company recorded a net
loss of $2,243,919, compared with a net loss of $3,091,046 for the three months
ended September 30, 1998, a decrease of $847,127, or 27%. The lower net loss is
primarily a result of increased revenues and slightly decreased operating
expenses. The net loss in the amount of $5,188,147 for the six months ended
September 30, 1999 was $183,394, or 4%, higher than the net loss in the amount
of $ 5,004,753 for the same period of the previous year, a result of higher
operating expenses in the first three months of the respective six-month periods
which more than offset increased revenues.
The Company does not believe that inflation has had a material impact on
its result of operations.
LIQUIDITY AND CAPITAL RESOURCES
During the last five fiscal years, the Company's primary uses of cash have
been to finance research and development activities, including preclinical and
clinical trials in the Drug and DNA delivery Division. The Company has satisfied
its cash requirements principally from proceeds from the sale of equities. In
June 1999 the Company closed a private placement of 4,187,500 special warrants
at a price of $3.00 per special warrant for net proceeds to the Company of
$11,130,664. Each warrant entitles the holder to acquire one common share in the
capital of the Company at no additional cost upon exercise.
As of September 30, 1999, the Company had working capital of $12,701,416,
compared to $6,204,598, as of March 31, 1999. The increase was primarily a
result of above-mentioned private placement. On September 30, 1999, the
Company's cash, cash equivalents and short term investments amounted to
$12,659,533. Cash flows used in operating activities were $4,976,712 for the six
months ended September 30, 1999 compared to $4,599,959 for the six months ended
September 30, 1998, which meant an increase of $ 376,753, or 8.2%. The increase
in cash used in operating activities compared to the six months ended September
30, 1998 was primarily attributable to the higher net loss for the six months
ended September 30, 1999 and an inventory build-up of products in the Drug and
DNA delivery Division as part of the Supply Agreement with Ethicon Endo-Surgery,
Inc. in anticipation of the expected launch in Europe.
In August 1999 the Company entered into a revolving credit agreement with
a bank which provides the Company with the ability to borrow up to $2,000,000.
Borrowings under this facility bear interest at the Bank's floating reference
rate less a discount, or the London Inter Bank Offer Rate (LIBOR) plus a
premium. Under the agreement outstanding balances are collaterized by assignment
of cash accounts and short term investment accounts. The credit facility will
expire on June 30, 2000. At September 30, 1999, there was no outstanding balance
on the revolving line of credit.
Receivables in the amount of $784,481 at September 30, 1999 were at the
same level as the receivables in the amount of $776,648 at March 31, 1999.
13
<PAGE> 16
Inventories increased from $655,906 at March 31, 1999 to $837,647 at
September 30, 1999, primarily due to a further build-up of inventory of Drug and
DNA delivery products as part of the Supply Agreement with Ethicon Endo-Surgery,
Inc. in anticipation of the expected launch in Europe
Current liabilities increased from $1,423,335 at March 31, 1999 to
$1,705,677, at September 30, 1999, primarily due to the accrual of restructuring
charges.
Cash flows used in investing activities was $9,072,431 for the six months
ended September 30, 1999 compared to $507,098 for the six months ended September
30, 1998. The reason for the significant increase was that a large portion of
the proceeds from the private placement in June 1999 was invested in short term
instruments.
The Company believes that its existing cash, cash equivalents, and short
term investments will be sufficient to fund its operations at least through the
next twelve months.
The Company's long term capital requirements will depend on numerous
factors including
- - The progress and magnitude of the research and development programs,
including preclinical and clinical trials;
- - The time involved in obtaining regulatory approvals;
- - The cost involved in filing and maintaining patent claims;
- - Competitor and market conditions;
- - The Company's ability to establish and maintain collaborative
arrangements;
- - The Company's ability to obtain grants to finance research and development
projects; and
- - The cost of manufacturing scale-up and the cost of commercialization
activities and arrangements
The Company's ability to generate substantial funding to continue research
and development activities, preclinical and clinical studies and clinical trials
and manufacturing, scale-up, and administrative activities is subject to a
number of risks and uncertainties and will depend on numerous factors including:
- - The Company's ability to raise funds in the future through public or
private financings, collaborative arrangements, grant awards or from other
sources;
- - The potential for equity investments, collaborative arrangements, license
agreements or development or other funding programs with the Company in
exchange for manufacturing, marketing, distribution or other rights to
products developed by the Company; and
- - The Company's ability to maintain its existing collaborative arrangements
14
<PAGE> 17
The Company cannot guarantee that additional funding will be available
when needed. If it is not, the Company will be required to scale back its
research and development programs, preclinical studies and clinical trials and
administrative activities and its business and financial results and condition
would be materially adversely affected.
YEAR 2000 ISSUES
The Year 2000 Problem stems from the fact that many computer systems,
software programs and equipment and instruments with embedded microprocessors
were designed to only recognize the last two digits of a calendar year. With the
arrival of the Year 2000, these systems and microprocessors may encounter
operating problems due to their inability to distinguish years after 1999 from
years preceding 1999. The Company is aware of the issues associated with the
Year 2000 Problem in many existing hardware and software applications. In 1998
the Company established a Year 2000 compliance plan which was approved by the
Company's senior management and Board of Directors. To execute the plan, the
Company formed a Year 2000 committee that is composed of both management and
non-management personnel. In addition, the Company has contracted with an
outside Year 2000 service provider to assist with the implementation of the Year
2000 compliance plan. The plan is a multi-phased approach to the Year 2000
Problem, and includes assessment, inventory, testing and remediation phases.
The Company has completed the assessment and inventory phases of the Year
2000 compliance plan, and the preliminary testing of the Company's internal
management information and other systems to verify their Year 2000 compliance
status. The Company is conducting ongoing tests of mission-critical systems to
ensure that they remain operational through the Year 2000. Based on the results
of the work performed to date, the Company believes that the mission critical
computer systems and applications used by the Company either are currently Year
2000 compliant, or will be brought into compliance as third-party Year
2000-related software upgrades or patches become available and are installed.
These mission critical systems include:Accounting and Distribution Software,
Telephone System, Security System, Customer Relations Management Software, and
Clinical Report Database.
The Company, in collaboration with its outside Year 2000 consultants, has
examined the products manufactured in the BTX Division and has determined that
the BTX products will not experience any Year 2000-related failures. In
addition, the Company, in collaboration with its outside Year 2000 consultants,
has examined the products produced by the Drug and DNA delivery Division, and
has determined that these products will not experience any Year 2000-related
failures.
In addition to examining the Company's internal Year 2000 compliance
issues, the Company has contacted the critical companies in the Company's supply
and distribution chain in order to ensure that they are Year 2000 compliant, and
that there will be no interruption of the Company's business operations due to
Year 2000 failures. The Company has evaluated the responses received from these
companies and is taking steps to ensure that there will not be Year 2000-related
issues with these companies. The Company is also evaluating the Year 2000
compliance status of other critical business dependencies, including business
partners, collaborators, and clinical test sites. As part of this effort, the
Company is implementing a process to monitor the Year 2000 Compliance status of
its key outside business dependencies up to and through the Year 2000. However,
the Company cannot guarantee the compliance status of third
15
<PAGE> 18
parties, and the failure of key suppliers, distributors, business partners, or
customers to become Year 2000 compliant on a timely basis, or at all, could have
a material adverse effect on the Company.
The Company has developed and is in the process of implementing and
documenting a contingency plan which will be used by the Company in the event
that Year 2000 failures occur which affect critical operations. Towards this
end, the Company has formed a contingency planning team, which includes
management and information technology staff, to address Year 2000 issues as they
arise, notwithstanding the efforts described above to identify and eliminate
such problems. The most serious Year 2000 risks for the Company are related to
its ability to continue production of products, as well as distribute those
products to its customers. To reduce the risk of Year 2000-related disruption,
the Company has increased the inventory levels for its key product components to
ensure that a sufficient amount will be available to meet the expected demand in
the first and second quarters of the Year 2000. In addition, the Company has
identified and contacted secondary sources of supply, distribution, and
manufacture of its key products, which will enhance the Company's ability to
provide continued product flow in the event that a primary source is unable to
provide service due to Year 2000 disruptions. For several of the products where
assembly has been outsourced to third parties, in addition to utilizing
secondary sources, the Company has the capability to perform the assembly
in-house if necessary. Also, the Company is working with its primary bank to
ensure that fund transfers from the Company's overseas distributors will not be
disrupted by Year 2000 problems. Where there is doubt about the ability of an
overseas distributor to make timely payment, the Company is evaluating
alternative payment arrangements such as full or partial prepayment. Finally,
the Company has developed a contingency plan to maintain critical business
operations functions in the event there is a sustained lack of availability of
key infrastrucrture services such as telecommunications and electric power. The
plan includes obtaining access to off-site resources in various locations in the
event that the infrastructure failures are localized. While the Company's
contingency plans will mitigate the impact of Year 2000 problems on the
Company's operations, it is unlikely that any contingency plan can fully
mitigate the impact of significant business disruptions among key suppliers or
customers. In any event, even where the Company has developed contingency plans,
there can be no assurance that such plans will address all the problems that may
arise, or that such plans, even if implemented, will be successful.
The Company has established a Year 2000 budget to address Year 2000
issues. The total cost of these year 2000 compliance activities to date have not
been material to the Company's financial condition or its operating results. In
addition to utilizing outside resources for the Company's Year 2000 program, the
Company is devoting necessary internal resources to the Year 2000 compliance
program. The Company is including the internal costs incurred as part of the
Company's Year 2000 expenditures in this disclosure. The Company will continue
to review and update data for costs incurred related to the Year 2000 and will
revise forecasted costs each quarter. To date, the costs incurred for Year 2000
compliance activities have been approximately $15,000 internally and $ 25,000
for external resources. Based on the Company's Year 2000 review to date, the
Company does not believe that the incremental costs of addressing Year 2000
issues will have a material adverse effect on the Company's consolidated results
of operations, liquidity and capital resources. Given the fact that the
Company's Year 2000 Plan is essentially completed, the Company does not expect
to make significant Year 2000-related expenditures in the future.
16
<PAGE> 19
However, there can be no assurance that the Company will timely identify
and remediate all year 2000 problems, that remedial efforts will not involve
significant time and expense, or that such problems will not have a material
adverse effect on the Company's business, operating results and financial
condition.
The statements set forth herein concerning the Year 2000 Problem which are
not historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. There can be no guarantee that any estimates or
other forward-looking statements will be achieved and actual results could
differ significantly from those planned or contemplated. The Company plans to
update the status of its Year 2000 program as necessary in its periodic filings
and in accordance with applicable securities laws.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest
rates. The risks related to foreign currency exchange rates are immaterial and
the Company does not use derivative financial instruments.
The Company has invested its excess cash, cash equivalents, and short-term
investments in U.S. government, municipal, and corporate debt securities with
high quality credit ratings and an average maturity of no more than six months.
These investments are not held for trading or other speculative purposes. Given
the short-term nature of these investments, and that the Company has no
borrowings outstanding, the Company is not subject to significant interest rate
risk.
17
<PAGE> 20
PART II. OTHER INFORMATION
ITEMS 1, 2, 3, AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on July 26, 1999, the following
proposals were adopted by the margins indicated:
1. Ernst & Young LLP, Chartered Accountants, were appointed auditors of the
Company by the Shareholders until the next annual general meeting of the
shareholders of the Company, and the Directors were authorized to fix the
remuneration of the auditors. The total number of votes cast for, against, and
withheld or abstained was 7,240,532 and 47,557 and 214, respectively.
2. The following eight Directors were elected to serve until the next annual
general meeting of the shareholders or until his or her successor is duly
elected or appointed, unless his or her office is earlier vacated in accordance
with the Articles of the Company or he or she becomes disqualified to act as a
Director.
<TABLE>
<CAPTION>
Votes Withheld or
Name Votes For Votes Against Votes Abstained
---- --------- ------------- ---------------
<S> <C> <C> <C>
Gunter A. Hofmann 7,239,483 0 48,820
Lois J. Crandell 7,239,483 0 48,820
Martin Nash 7,239,483 0 48,820
Suzanne L. Wood 7,178,393 0 109,910
Stan Yakatan 7,175,893 0 112,410
James L. Heppell 7,238,683 0 49,620
Gordon J. Politeski 7,174,393 0 113,910
Wayne Schnarr 7,187,293 0 101,010
</TABLE>
3. The Shareholders approved deletion of the special rights and restrictions
attached to the 100,000,000 Class A preferred shares ("Old Class A Shares"), and
replacement with new class A preferred shares ("New Class A Shares"). The New
Class A Shares allow the Directors to, before the issuance of shares of any
particular series within the Class, alter the memorandum and the Articles of the
Company to fix the number of shares in the series and to determine the special
rights and restrictions attaching to shares of that series, and to alter the
Memorandum and the Articles of the Company to create, define, and attach the
preferences, special rights and restrictions, privileges, conditions and
limitations attaching to the shares of that series. The total number of votes
cast for, against, and withheld or abstained was 3,207,018, 116,827, and 4,571,
respectively. The number of shares not voted was 3,959,887.
4. The Shareholders approved two separate resolutions that served to amend the
Company's 1997 Stock Option Plan to increase the number of authorized shares of
Common Stock available for issuance under the Plan from 4,700,000 shares to
6,400,000 shares. The total number of votes cast for, against, and withheld or
abstained with respect to the first resolution was 1,324,420, 108,528, and
1,895,468, respectively. The number of shares not voted was 3,959,887. The total
number of votes cast for, against, and withheld or abstained with respect to the
second resolution was 1,301,414, 128,834, and 1,898,168, respectively. The
number of shares not voted was 3,959,887.
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<PAGE> 21
5. A resolution was passed by the Shareholders approving the Company's action,
should it carry out one or more private placements, to issue its securities
within any six month period during the twelve months following the Annual
General Meeting, in an amount of shares that exceeds 25% of the Company's issued
and outstanding shares (on a non-diluted basis), subject to regulatory approval.
The total number of votes cast for, against, and withheld or abstained was
3,114,476, 202,969, and 10,971, respectively. The number of shares not voted was
3,959,887.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Lease Agreement by and between the Registrant and Nexus Sorrento
Glen LLC dated August 26, 1999(1)
10.2 Trade Credit Agreement by and between the Registrant and Union Bank
of California dated August 6, 1999
10.3 Promissory Note - Trade Finance - Base Rate by the Registrant to
Union Bank of California dated August 6, 1999
10.4 Promissory Note - Base Rate by the Registrant to Union Bank of
California dated August 6, 1999
27 Financial Data Schedule (filed only electronically with the SEC)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended September
30, 1999
- --------
(1) Filed as an exhibit to Registrant's Form S-1 on October 4, 1999 and
incorporated herein by reference
19
<PAGE> 22
GENETRONICS BIOMEDICAL LTD.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Genetronics Biomedical Ltd.
Date: 11/12/99 By: /s/ Martin Nash
------------------ ---------------------------------------------
Martin Nash, Chief Executive Officer
and Chief Financial Officer
20
<PAGE> 1
EXHIBIT 10.2
[UNION BANK OF CALIFORNIA LOGO] TRADE CREDIT AGREEMENT
This Trade Credit Agreement ("Agreement") entered into as of the date set forth
below between the undersigned ("Borrower") and Union Bank of California, N.A.
("Bank"), with respect to each and every extension of credit (collectively
referred to as the "Trade Facility") from Bank to Borrower. In consideration of
the Trade Facility, Bank and Borrower agree to the following terms and
conditions:
THE TRADE FACILITY
1.1 THE NOTE. The Trade Facility is evidenced by one or more
promissory notes, reimbursement agreements, or other evidence of
indebtedness, including each amendment, extension, renewal or
replacement thereof, which are incorporated herein by this reference.
1.2 The Trade Finance Credit Facilities. The Trade Finance Credit
Facilities available to Borrower shall expire on June 30, 2000, and
shall total $2,000,000 and be evidenced by a note and other evidence
of indebtedness and subject to the following sublimits:
THE COMMERCIAL L/C LINE IN AN AMOUNT NOT TO EXCEED $1,000,000;
THE TRADE FINANCE LINE IN AN AMOUNT NOT TO EXCEED $2,000,000;
THE CLEAN ADVANCE LINE IN AN AMOUNT NOT TO EXCEED $2,000,000;
THE STANDBY L/C LINE IN AN AMOUNT NOT TO EXCEED $1,000,000;
and other terms and conditions described below. Also, the combined
amount outstanding under the Commercial L/C Line, Trade Finance Line,
Clean Advance Line, and Standby L/C Line shall not exceed $2,000,000,
at any time.
1.3 THE COMMERCIAL L/C LINE shall be for commercial letters of
credit ("Commercial L/C's") calling for
[X] SIGHT DRAFTS; [X] USANCE DRAFTS UP TO 90 DAYS
for the importation or purchase of drug delivery equipment and
accessories, each having an expiration date not more than ninety days
from its date of issuance, but in any event not later than 9-28-2000.
1.4 THE TRADE FINANCE LINE (the "Line") shall be for the purpose of
[X] FINANCING BORROWER'S PAYMENT OF DRAFTS UNDER THE
COMMERCIAL L/Cs;
[X] CREATING BANKERS' ACCEPTANCES UNDER USANCE COMMERCIAL L/Cs;
[ ] FINANCING OPEN ACCOUNT SHIPMENTS;
[ ] FINANCING DOCUMENTARY COLLECTIONS.
Each drawing under the Line shall be due and payable not later than
ninety (90) days following, as the case may be, (a) the release of
documents by Bank (including any usance period), or (b) the date of
shipment on open account, under the applicable transaction. All
advances under the Line must be made on or before 9-30-2000. In the
event of a renewal or extension of the Line, the original maturities
of each advance shall continue unless otherwise agreed in writing
between borrower and Bank.
1.5 THE CLEAN ADVANCE LINE shall be for Borrower's working capital
purposes. Advances must be made on or before June 30, 2000. The Clean
Advance Line shall be evidenced by, and subject to the terms of a
note on the standard form used by Bank for commercial loans.
1.6 THE STANDBY LETTER OF CREDIT LINE shall be for irrevocable
standby letters of credit, each having an expiration date not more
than twelve (12) months from its date of issuance, but in any event
not later than 9-28-2000.
1.7 LIMITATIONS ON THE TRADE FINANCE CREDIT FACILITIES. The
aggregate amount available to be drawn under each sublimit listed
above shall be reduced, dollar for dollar, by the aggregate amount of
unpaid principal obligations under the respective sublimit. The
aggregate of all unpaid advances and reimbursement obligations shall
reduce, dollar for dollar, the maximum amount available under the
Trade Finance Credit Facilities. Borrower may reborrow or obtain new
extensions of credit under each such sublimit until the expiration
date of such facilities, to the extent that Borrower has paid or
otherwise satisfied prior borrowings or extensions of credit, subject
to all terms and conditions in the Loan Documents (defined below).
1.8 TRADE FINANCE FEES. All fees in connection with the Trade
Finance Credit Facilities will be in accordance with Bank's standard
schedule of fees as published from time to time or as otherwise
agreed to in writing by Borrower and Bank.
1.9 COLLATERAL. The payment and performance of all obligations of
Borrower under the Loan Documents are and shall be during the term of
the Trade Facility secured by a perfected security interest in such
real or personal property collateral as is required by Bank and each
security interest shall rank in first priority unless otherwise
specified in writing by Bank.
1
<PAGE> 2
2. CONDITIONS TO AVAILABILITY OF THE TRADE FACILITY
Before Bank is obligated to extend any credit under this Agreement, Bank must
have received (a) every document required by Bank in connection with the Trade
Facility, each of which must be in form and substance satisfactory to Bank
(together with this Agreement, referred to as the "Loan Documents"), (b)
confirmation of the perfection of its security interest in any collateral
required by Bank and (c) payment of any fees required in connection with the
Trade Facility.
3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants (and each request for an extension of credit
hereunder shall be deemed a representation and warranty made on the date of
such request) that:
3.3 Borrower is an individual or Borrower is duly organized and
existing under the laws of the state of its organization and is duly
qualified to conduct business in each jurisdiction in which its business
is conducted.
3.2 The execution, delivery and performance of the Loan Documents
executed by Borrower are within Borrower's power, have been duly
authorized, are legal, valid and binding obligations of Borrower, and are
not in conflict with the terms of the charter, bylaw, or other
organization papers of Borrower or with any law, indenture, agreement or
undertaking to which Borrower is a party or by which Borrower is bound or
affected.
3.3 All financial statements and other financial information submitted
by Borrower to Bank are true and correct in all material respects, and
there has been no material adverse change in Borrower's financial
condition since the date of the latest of such financial statements.
3.4 Borrower is properly licensed and in good standing in each state in
which Borrower is doing business, and Borrower has complied with all laws
and regulations affecting Borrower, including within limitation, each
applicable fictitious business name statute.
3.5 There is no event which is, or with notice or lapse of time or both
would be, an Event of Default (as defined in Article 5).
3.6 Borrower is not engaged in the business of extending credit for the
purpose of, and no part of the Trade Facility will be used, directly or
indirectly, for purchasing or carrying margin stock within the meaning of
Federal Reserve Board Reg. U.
3.7 Borrower is not aware of any fact, occurrence or circumstance which
Borrower has not disclosed to Bank in writing which has nor could
reasonably be expected to have, a material adverse effect on Borrower's
ability to pay or perform Borrower's obligations to Bank.
4. COVENANTS. Borrower agrees, so long as the Trade Facility or any
commitment to make any advance thereunder is outstanding and until full and
final payment of all sums outstanding under any Loan Document, that Borrower
will:
4.1 Maintain:
(a) A ratio of cash collateral (held in Highmark Account
#20051960-01 at UBOC TIG Dept) to outstanding loan coverage of not
less than 1.20 to 1.00.
All accounting terms used in this Agreement shall have the definitions
given them by generally accounting principles, unless otherwise defined
herein.
4.2 Give written notice to Bank within 15 days after the following:
(a) Any litigation or arbitration proceeding affecting Borrower where
the amount is $100,000 or more;
(b) Any material dispute which may exist between Borrower and any
government regulatory body or law enforcement body;
(c) Any Event of Default or any event which, upon notice, or lapse of
time, or both, would become an Event of Default;
(d) Any other matter which has resulted or is likely to result in a
material adverse change in Borrower's financial condition or operation;
and
(e) Any change in Borrower's name of the location of Borrower's
principal place of business, or the location of any collateral for the
Trade Facility, or the establishment of any new place of business or the
discontinuance of any existing place of business.
4.3 Furnish to Bank an income statement, balance sheet, and statement of
retained earnings with supportive schedules ("Financial Statements"), and any
other financial information requested by Bank, prepared in accordance with
generally accounting principles and in a form satisfactory to Bank as follows:
2
<PAGE> 3
(a) Within 90 days after close of each fiscal year, a copy of
Borrower's annual Financial Statement prepared by a independent
Certified Public Accountant on an unqualified basis. Any independent
certified public accountant who prepares Borrower's Financial
Statement shall be selected by Borrower and reasonably satisfactory
to Bank;
(b) Promptly upon request, any other financial information requested
by Bank.
4.4 Pay or reimburse Bank for all costs, expenses and fees incurred by
Bank in preparing and documenting this Agreement and the Trade Facility
and all amendments and modifications thereof, including but not limited to
all filing and recording fees, costs of appraisals, insurance and
attorneys' fees, including the reasonable estimate of the allocated costs
and expenses of in-house legal counsel and staff.
4.5 Maintain and preserve Borrower's existence, present form of business
and all rights, privileges and franchises necessary or desirable in the
normal course of its business and keep all of Borrower's properties in
good working order and condition.
4.6 Maintain and keep in force insurance with companies acceptable to
Bank and in such amounts and types, including without limitation fire and
public liability insurance, as is usual in the business carried on by
Borrower, or as Bank may reasonably request. Such insurance policies must
be in form and substance satisfactory to Bank.
4.7 Maintain adequate books, accounts and records and prepare all
financial statements required hereunder in accordance with generally
accepted accounting principles and in compliance with the regulations of
any governmental regulatory body having jurisdiction over Borrower or
Borrower's business and permit employees or agents of Bank at any
reasonable time to inspect Borrower's assets and properties, and to
examine or audit Borrower's books, accounts and records and make copies
and memoranda thereof.
4.8 At all times comply with or cause to be complied with, all laws,
statutes, rules, regulations, orders and directions of any governmental
authority having jurisdiction over Borrower or Borrower's business, and
all material agreements to which Borrower is a party.
4.9 Except as provided in this Agreement or in the ordinary course of
its business as currently conducted, not make any loans or advances,
become a guarantor or surety, pledge its credit or properties in any
manner, or extend credit.
4.10 Not purchase the debt or equity of another person or entity except
for savings accounts and certificates of deposit of Bank, direct U.S.
Government obligations and commercial paper issued by corporations with
top ratings of Moody's or Standard & Poor's, provided that all such
permitted investments shall mature within one year of purchase.
4.11 Not create, assume of suffer to exist any mortgage, encumbrance,
security interest, pledge or lien ("Lien") on Borrower's real or personal
property, whether now owned or hereafter acquired, or upon the income or
profits thereof except the following: (a) Liens in favor Bank, (b) Liens
for taxes or other items not delinquent or contested in good faith and (c)
other Liens which do not exceed in the aggregate $N/A at any one time.
4.12 Not sell or discount any account receivable or evidence of
indebtedness, except to Bank; not borrow any money or become contingently
liable for money borrowed, except pursuant to agreements made with Bank.
4.13 Neither liquidate, dissolve, enter into any consolidation, merger,
partnership or other combination; nor convey, sell or lease all or the
greater part of its assets or business; nor purchase or lease all or the
greater part of the assets or business of another.
4.14 Not engage in any business activities or operations substantially
different from or unrelated to Borrower's present business activities and
operations.
4.15 Not, in any single fiscal year of Borrower, expend or incur
obligations of more than $N/A for the acquisition of fixed or capital
assets.
4.16 Not, in any single fiscal year of Borrower, enter into any lease of
real or personal property which would cause Borrower's aggregate annual
obligations under all such real and personal property leases to exceed
$N/A.
4.17 Borrower will promptly, upon demand by Bank, take such further
action and execute all such additional documents and instruments in
connection with this Agreement as Bank in its reasonable discretion deems
necessary and promptly supply Bank with such other information concerning
its affairs as Bank may request from time to time.
5. EVENTS OF DEFAULT
The occurrence of any of the following events ("Events of Default") shall
terminate any obligation on the part of Bank to make or continue the Trade
Facility and automatically, unless otherwise provided under the Loan Documents,
shall make all sums of interest and principal and any other amounts owing under
the Trade Facility immediately due and payable, without notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor,
or any other notices or demands:
5.1 Borrower shall default in the due and punctual payment of the
principal of or the interest under any of the Loan Documents; or
5.2 Any default shall occur under any of the Loan Documents; or
5.3 Borrower shall default in the due performance or observance of any
covenant or condition of the Loan Documents; or
3
<PAGE> 4
5.4 Any guaranty or subordination agreement required hereunder shall be
breached or become ineffective, or any guarantor or subordinating creditor
shall die or disavow or attempt to revoke or terminate such guaranty or
subordination agreement; or
5.5 There shall be a change in ownership or control of ten percent (10%)
or more of the issued and outstanding stock of Borrower or any guarantor,
or (if Borrower is a partnership) there shall be a change in ownership or
control of any general partner's interest.
6. MISCELLANEOUS PROVISIONS
6.1 The rights, powers and remedies given to Bank hereunder shall be
cumulative and not alternative and shall be in addition to all rights,
powers and remedies given to Bank by law against Borrower or any other
person, including but not limited to Bank's rights of setoff and banker's
lien.
6.2 Any forbearance or failure or delay by Bank in exercising any right,
power or remedy hereunder shall not be deemed a waiver thereof and any
single or partial exercise of any right, power or remedy shall not preclude
the further exercise thereof. No waiver shall be effective unless it is in
writing and signed by an officer of Bank.
6.3 The benefits of this Agreement shall inure to the successors and
assigns of Bank and the permitted successors and assigns of Borrower, and
any assignment by Borrower without Bank's consent shall be null and void.
6.4 This Agreement and all other agreements and instruments required by
Bank in connection herewith shall be governed by and construed according to
the laws of the State of California.
6.5 Should any one or more provisions of this Agreement be determined to
be illegal or unenforceable, all other provisions nevertheless shall be
effective. In the event of any conflict between the provisions of this
Agreement and the provisions of any note or reimbursement agreement
evidencing any indebtedness hereunder, the provisions of such note or
reimbursement agreement shall prevail.
6.6 Except for documents and instruments specifically referenced herein,
this Agreement constitutes the entire agreement between Bank and Borrower
regarding the Trade Facility and all prior communications verbal or written
between Borrower and Bank shall be of no further effect or evidentiary
value.
6.7 The section and subsection headings herein are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
6.8 This Agreement may be amended only in writing signed by all parties
hereto.
6.9 Borrower and Bank may execute one or more counterparts to this
Agreement, each of which shall be deemed an original, but taken together
shall be one and the same instrument.
6.10 Any notices or other communications provided for or allowed hereunder
shall be effective only when given by one of the following methods and
addressed to the respective party at its address given with the signature
at the end of this Agreement and shall be considered to have been validly
given: (a) upon delivery, if delivered personally; (b) upon receipt, if
mailed, first class postage prepaid, with the United States Postal
Service; (c) on the next business day, if sent by overnight courier
service of recognized standing; and (d) upon telephoned confirmation of
receipt, if telecopied.
4
<PAGE> 5
7. ADDITIONAL PROVISIONS
The following additional provisions, if any, are hereby made a part of this
Agreement:
THIS AGREEMENT is executed on behalf of the parties as of August 6, 1999.
UNION BANK OF CALIFORNIA, N.A. GENETRONICS, INC.
("Bank") ("Borrower")
By: /s/ KEN SLUDER By: /s/ LOIS J. CRANDELL
------------------------------- -------------------------------
Title: Vice President Title: President
Printed Name: Ken Sluder Printed Name: Lois J. Crandell
Address where notices to Bank are Address where notices to Borrower
to be sent: are to be sent:
UNION BANK OF CALIFORNIA, N.A. GENETRONICS, INC.
410 "H" Street 11199 Sorrento Valley Road
Chula Vista, CA 91910 San Diego, CA 92121
Attn: Ken Sluder Attn: Lois Crandell
Fax: (619) 476-0549 Fax:
Phone: (619) 426-9940 Phone:
5
<PAGE> 1
EXHIBIT 10.3
UNION
BANK OF PROMISSORY NOTE
CALIFORNIA TRADE FINANCE - BASE RATE
D. CHRISTENSEN/N/18992
- --------------------------------------------------------------------------------
Borrower Name GENETRONICS, INC.
- --------------------------------------------------------------------------------
Borrower Address Office Loan Number
02297 3116638944
11199 SORRENTO VALLEY ROAD Maturity Date Amount
SAN DIEGO, CA 92121 JUNE 30, 2000 $2,000,000.00
- --------------------------------------------------------------------------------
Date AUGUST 6, 1999 $2,000,000.00
FOR VALUE RECEIVED, on JUNE 30, 2000 the undersigned ("Debtor") promises to pay
to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated below,
the principal sum of TWO MILLION AND NO/100 Dollars ($2,000,000.00), or so much
thereof as is disbursed, together with interest on the balance of such
principal from time to time outstanding, at a per annum rate or rates and at
the times set forth below.
1. PAYMENTS. PRINCIPAL PAYMENTS. Debtor shall pay principal as to each advance
under this note, the full amount of the advance on the earlier of: 90 days after
the advance is made; 90 days after release of documents relating to the advance
or SEPTEMBER 28, 2000 INTEREST PAYMENTS. Debtor shall pay interest MONTHLY.
Should interest not be paid when due, it shall become a part of the principal
and thereafter bear interest as herein provided. All computations of interest
under this note shall be made on the basis of a year of 360 days, for actual
days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding hereunder in
minimum amounts of at least $100,000.00 shall bear interest at a rate, based
on an index selected by Debtor, which is 1.750% per annum in excess of
Bank's LIBOR Rate for the Interest Period selected by Debtor, acceptable to
Bank.
No Base Interest Rate may be changed, altered or otherwise modified until
the expiration of the Interest Period selected by Debtor. The exercise of
interest rate options by Debtor shall be as recorded in Bank's records,
which records shall be prima facie evidence of the amount borrowed under
either interest option and the interest rate; provided, however, the failure
of Bank to make any such notation in its records shall not discharge Debtor
from its obligations to repay in full with interest all amounts borrowed. In
no event shall any Interest Period extend beyond the maturity date of this
note except as set forth in the TRADE CREDIT AGREEMENT as may be amended
from time to time.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing, and on
the expiration of any Interest Period with respect to principal outstanding
on which a Base Interest Rate has been accruing, select an index offered by
Bank for a Base Interest Rate Loan and an Interest Period by telephoning an
authorized lending officer of Bank located at the banking office identified
below prior to 10:00 a.m., Pacific time, on any Business Day and advising
that officer of the selected index, the Interest Period and the Origination
Date selected (which Origination Date, for a Base Interest Rate Loan based
on the LIBOR Rate, shall follow the date of such selection by no more than
two (2) Business Days).
Bank will mail a written confirmation of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at the rate
selected. If, on the date of the selection, the index selected is
unavailable for any reason, the selection shall be void. Bank reserves the
right to fund the principal from any source of funds notwithstanding any
Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is not
bearing interest at a Base interest Rate shall bear interest at a rate per
annum of 1.000% less than the Reference Rate, which rate shall vary as and
when the Reference Rate changes.
If any interest rate defined in this note ceases to be available from Bank
for any reason, then said interest rate shall be replaced by the rate then
offered by Bank, which, in the sole discretion of Bank, most closely
approximates the unavailable rate.
At any time prior to the maturity of this note, subject to the provisions of
paragraph 4, below, of this note, Debtor may borrow, repay and reborrow
hereon so long as the total outstanding at any one time does not exceed the
principal amount of this note. Debtor shall pay all amounts due under this
note in lawful money of the United States at Bank's SOUTH COUNTY SAN DIEGO
BBC Office, or such other office as may be designated by Bank, from time to
time.
2. LATE PAYMENTS. If any payment required by the terms of this note shall
remain unpaid ten days after same is due, at the option of Bank, Debtor shall
pay a fee of $100 to Bank.
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of
Bank, and, to the extent permitted by law, interest shall be payable on the
outstanding principal under this note at a per annum rate equal to FIVE AND
NO/1000 percent (5.000%) in excess of the interest rate specified in paragraph
1.b, above, calculated from the date of default until all amounts payable under
this note are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based on the
Reference Rate may be prepaid in whole or in part at any time, without penalty
or premium. Debtor may prepay amounts outstanding under this note bearing
interest at a Base Interest Rate in whole or in part provided Debtor has given
Bank not less than five (5) Business Days prior written notice of Debtor's
intention to make such prepayment and pays to Bank the liquidated damages due
as a result. Liquidated Damages shall also be paid, if Bank, for any other
reason, including acceleration or foreclosure, receives all or any portion of
principal bearing interest at a Base Interest Rate prior to its scheduled
payment date. Liquidation Damages shall be an amount equal to the present
value of the product of: (i) the difference (but not less than zero) between
(a) the Base Interest Rate applicable to the principal amount which is being
prepaid, and (b) the return to which Bank could obtain if it used the amount of
such prepayment of principal to purchase at bid price regularly quoted
securities issued by the United States having a maturity date most closely
coinciding with the relevant Base Rate Maturity Date and such securities were
held by Bank until the relevant Base Rate Maturity Date ("Yield Rate"); (ii) a
fraction, the numerator of which is the number of days in the period between
the date of prepayment and the relevant Base Rate Maturity Date and the
denominator of which is 360; and (iii) the amount of the principal so prepaid
(except in the event that principal payments are required and have been made as
scheduled under the terms of the Base Interest Rate Loan being prepaid, then an
amount equal to the lesser of (A) the amount prepaid or (B) 50% of the sum of
(1) the amount prepaid and (2) the amount of principal scheduled under the
terms of the Base Interest Rate Loan being prepaid to be outstanding at the
relevant Base Rate Maturity Date). Present value under this note is determined
by discounting the above product to present value using the Yield Rate is the
annual discount factor.
b. In no event shall Bank be obligated to make any payment or refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim against Bank,
should the return which Bank could obtain under this prepayment formula exceed
the interest that Bank would have received if no prepayment had occurred. All
prepayments shall include payment of accrued interest on the principal amount
so prepaid and shall be applied to payment of interest before application to
principal. A determination by Bank as to the prepayment fee amount, if any,
shall be conclusive.
c. Bank shall provide Debtor a statement of the amount payable on account of
prepayment. Debtor acknowledges that (i) Bank establishes a Base Interest Rate
upon the understanding that it apply to the Base Interest Rate Loan for the
entire Interest Period, and (ii) any prepayment may result in Bank incurring
additional costs, expenses or liabilities; and Debtor agrees to pay these
liquidated damages as a reasonable estimate of the costs, expenses and
liabilities of Bank associated with such prepayment.
DEBTOR INITIAL HERE: VMN V_____
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but not
be limited to, any of the following: (a) the failure of Debtor to make any
payment required under this note when due; (b) any breach, misrepresentation or
other default by Debtor, any guarantor, co-maker, endorser, or any person or
entity other than Debtor providing security for this note (hereinafter
individually and collectively referred to as the "Obligor") under any security
agreement, guaranty or other agreement [illegible] (c) the insolvency of any
Obligor or the failure of any Obligor generally to pay such Obligor's debts as
such [illegible] as to any Obligor of any voluntary or involuntary [illegible]
or debtor
<PAGE> 2
relief; (e) the assignment by any Obligor for the benefit of such Obligor's
creditors; (f) the appointment, or commencement of any proceeding for the
appointment of a receiver, trustee, custodian or similar official for all or
substantially all of any Obligor's property; (g) the commencement of any
proceeding for the dissolution or liquidation of any Obligor; (h) the
termination of existence or death of any Obligor; (i) the revocation of any
guaranty or subordination agreement given in connection with this note; (j) the
failure of any Obligor to comply with any order, judgement, injunction, decree,
writ or demand of any court or other public authority; (k) the filing or
recording against any Obligor, or the property of any Obligor, of any notice of
levy; notice to withhold, or other legal process for taxes other than property
taxes; (l) the default by any Obligor personally liable for amounts owed
hereunder on any obligation concerning the borrowing of money; (m) the issuance
against any Obligor, or the property of any Obligor, of any writ of attachment,
execution, or other judicial lien; or (n) the deterioration of the financial
condition of any Obligor which results in Bank deeming itself, in good faith,
insecure. Upon the occurrence of any such default, Bank, in its discretion, may
cease to advance funds hereunder and may declare all obligations under this
note immediately due and payable; however, upon the occurrence of an event of
default under d, e, f, or g, all principal and interest shall automatically
become immediately due and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note are
not paid when due, Debtor promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the collection or enforcement
of this note. Debtor and any endorsers of this note, for the maximum period of
time and the full extent permitted by law, (a) waive diligence, presentment,
demand, notice of nonpayment, protest, notice of protest, and notice of every
kind; (b) waive the right to assert the defense of any statute of limitations
to any debt or obligation hereunder; and (c) consent to renewals and extensions
of time for the payment of any amounts due under this note. If this note is
signed by more than one party, the term "Debtor" includes each of the
undersigned and any successors in interest thereof; all of whose liability
shall be joint and several. Any married person who signs this note agrees that
recourse may be had against the separate property of that person for any
obligations hereunder. The receipt of any check or other item of payment by
Bank, at its option, shall not be considered a payment on account until such
check or their item of payment is honored when presented for payment at the
drawee bank. Bank may delay the credit of such payment based upon Bank's
schedule of funds availability, and interest under this note shall accrue until
the funds are deemed collected. In any action brought under or arising out of
this note, Debtor and any Obligor, including their successors and assigns,
hereby consent to the jurisdiction of any competent court within the State of
California, as provided in any alternative dispute resolution agreement
executed between Debtor and Bank, and consent to service of process by any
means authorized by said state's law. The term "Bank" includes, without
limitation, any holder of this note. This note shall be construed in accordance
with and governed by the laws of the State of California. This note hereby
incorporates any alternative dispute resolution agreement previously,
concurrently or hereafter executed between Debtor and Bank.
7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "BASE INTEREST RATE" means a rate of interest
based on the LIBOR Rate. "BASE INTEREST RATE LOAN" means amounts outstanding
under this note that bear interest at a Base Interest Rate. "BASE RATE MATURITY
DATE" means the last day of the Interest Period with respect to principal
outstanding under a Base Interest Rate Loan. "BUSINESS DAY" means a day on
which Bank is open for business for the funding of corporate loans, and, with
respect to the rate of interest based on the LIBOR Rate, on which dealings in
U.S. dollar deposits outside of the United States may be carried on by Bank.
"INTEREST PERIOD" means with respect to funds bearing interest at a rate based
on the LIBOR Rate, any calendar period of one, three, six, nine or twelve
months. In determining an Interest Period, a month means a period that starts
on one Business Day in a monthly and ends on and includes the day preceding the
numerically corresponding day in the next month. For any month in which there
is no such numerically corresponding day, then as to that month, such day shall
be deemed to be the last calendar day of such month. Any Interest Period which
would otherwise end on a non-Business Day shall end on the next succeeding
Business Day unless that is the first day of a month, in which event such
Interest Period shall end on the next preceding Business Day. "LIBOR RATE"
means a per annum rate of interest (rounded upward, if necessary, to the
nearest 1/100 of 1%) at which dollar deposits, in immediately available funds
and in lawful money of the United States would be offered to Bank, outside of
the United States, for a term coinciding with the Interest Period selected by
Debtor and for an amount equal to the amount of principal covered by Debtor's
interest rate selection, plus Bank's costs, including the cost, if any, of
reserve requirements. "ORIGINATION DATE" means the first day of the Interest
Period. "REFERENCE RATE" means the rate announced by Bank from time to time at
its corporate headquarters as its Reference Rate. The Reference Rate is an
index rate determined by Bank from time to time as a means of pricing certain
extensions of credit and is neither directly tied to any external rate of
interest or index not necessarily the lowest rate of interest charged by Bank
at any given time.
GENETRONICS, INC.
BY: /s/ MARTIN NASH CFO
- ------------------------------------ -------------------------------------
TITLE
- ------------------------------------ -------------------------------------
- ------------------------------------ -------------------------------------
- ------------------------------------ -------------------------------------
- ------------------------------------ -------------------------------------
- ------------------------------------ -------------------------------------
<PAGE> 1
EXHIBIT 10.4
UNION BANK OF PROMISSORY NOTE
CALIFORNIA BASE RATE
D. CHRISTENSEN/N/18992
- --------------------------------------------------------------------------------
Borrower Name GENETRONICS, INC.
- --------------------------------------------------------------------------------
BORROWER ADDRESS Office Loan Number
02297 3116638944
11199 SORRENTO VALLEY ROAD ---------------------------------------------
SAN DIEGO, CA 92121 Maturity Date Amount
JUNE 30, 2000 $2,000,000.00
- --------------------------------------------------------------------------------
Date AUGUST 6, 1999 $2,000,000.00
FOR VALUE RECEIVED, on JUNE 30, 2000 the undersigned ("Debtor") promises to pay
to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated below,
the principal sum of TWO MILLION AND NO/100 Dollars ($2,000,000.00), or so much
thereof as is disbursed, together with interest on the balance of such
principal from time to time outstanding, at a per annum rate or rates and at
the times set forth below.
1. INTEREST PAYMENTS. Debtor shall pay interest MONTHLY. Should interest not
be paid when due, it shall become a part of the principal and thereafter bear
interest as herein provided. All computations of interest under this note
shall be made on the basis of a year of 360 days, for actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding hereunder
in minimum amounts of at least $100,000.00 shall bear interest at a rate,
based on an index selected by Debtor, which is 1.750% per annum in excess
of Bank's LIBOR Rate for the Interest Period selected by Debtor,
acceptable to Bank.
No Base Interest Rate may be changed, altered or otherwise modified until
the expiration of the Interest Period selected by Debtor. The exercise of
interest rate options by Debtor shall be as recorded in Bank's records,
which records shall be prima facie evidence of the amount borrowed under
either interest option and the interest rate; provided, however, that
failure of Bank to make any such notation in its records shall not
discharge Debtor from its obligations to repay in full with interest all
amounts borrowed. In no event shall any Interest Period extend beyond the
maturity date of this note.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing, and on
the expiration of any Interest Period with respect to principal outstanding
on which a Base Interest Rate has been accruing, select an index offered by
Bank for a Base Interest Rate Loan and an Interest Period by telephoning an
authorized lending officer of Bank located at the banking office identified
prior to 10:00 a.m., Pacific time, on any Business Day and advising that
officer of the selected index, the Interest Period and the Origination Date
selected (which Origination Date, for a Base Interest Rate Loan based on
the LIBOR Rate, shall follow the date of such selection by not more than
two (2) Business Days).
Bank will mail a written confirmation of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at the rate
selected. If, on the date of the selection, the index selected is
unavailable for any reason, the selection shall be void. Bank reserves the
right to fund the principal from any source of funds notwithstanding any
Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is
not bearing interest at a Base Interest Rate shall bear interest at a rate
per annum of 1.000% less than the Reference Rate, which rate shall vary as
and when the Reference Rate changes.
If any interest rate defined in this note ceases to be available from Bank
for any reason, then said interest rate shall be replaced by the rate then
offered by Bank, which, in the sole discretion of Bank, most closely
approximates the unavailable rate.
At any time prior to the maturity of this note, subject to the provisions
of paragraph 4, below, of this note, Debtor may borrow, repay and reborrow
hereon so long as the total outstanding at any one time does not exceed the
principal amount of this note. Debtor shall pay all amounts due under this
note in lawful money of the United States at Bank's SOUTH COUNTY SAN DIEGO
BBC Office, or such other office as may be designated by Bank, from time to
time.
2. LATE PAYMENTS. If any payment required by the terms of this note shall
remain unpaid ten days after same is due, at the option of Bank, Debtor shall
pay a fee of $100 to Bank.
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of
Bank, and, to the extent permitted by law, interest shall be payable on the
outstanding principal under this note at a per annum rate equal to FIVE AND
NO/100 percent (5.000%) in excess of the interest rate specified in paragraph
1.b, above, calculated from the date of default until all amounts payable under
this note are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based on the
Reference Rate may be prepaid in whole or in part at any time, without penalty
or premium. Debtor may prepay amounts outstanding under this note bearing
interest at a Base Interest Rate in whole or in part provided Debtor has given
Bank not less than five (5) Business Days prior written notice of Debtor's
intention to make such prepayment and pays to Bank the liquidated damages due as
a result. Liquidated Damages shall also be paid, if Bank, for any other reason,
including acceleration or foreclosure, receives all or any portion of principal
bearing interest at a Base Interest Rate prior to its scheduled payment date.
Liquidated Damages shall be an amount equal to the present value of the product
of: (i) the difference (but not less than zero) between (a) the Base Interest
Rate applicable to the principal amount which is being prepaid, and (b) the
return which Bank could obtain if it used the amount of such prepayment of
principal to purchase at bid price regularly quoted securities issued by the
United States having a maturity date most closely coinciding with the relevant
Base Rate Maturity Date and such securities were held by Bank until the relevant
Base Rate Maturity Date ("Yield Rate"); (ii) a fraction, the numerator of which
is the number of days in the period between the date of prepayment and the
relevant Base Rate Maturity Date and the denominator of which is 360; and (iii)
the amount of the principal so prepaid (except in the event that principal
payments are required and have been made as scheduled under the terms of the
Base Interest Rate Loan being prepaid, then an amount equal to the lesser of (A)
the amount prepaid or (B) 50% of the sum of (1) the amount prepaid and (2) the
amount of principal scheduled under the terms of the Base Interest Rate Loan
being prepaid to be outstanding at the relevant Base Rate Maturity Date).
Present value under this note is determined by discounting the above product to
present value using the Yield Rate as the annual discount factor.
b. In no event shall Bank be obligated to make any payment or refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim against Bank,
should the return which Bank could obtain under this prepayment formula exceed
the interest that Bank would have received if no prepayment had occurred. All
prepayments shall include payment of accrued interest on the principal amount so
prepaid and shall be applied to payment of interest before application to
principal. A determination by Bank as to the prepayment fee amount, if any,
shall be conclusive.
c. Bank shall provide Debtor a statement of the amount payable on account of
prepayment. Debtor acknowledges that (i) Bank establishes a Base Interest Rate
upon the understanding that it apply to the Base Interest Rate Loan for the
entire Interest Period, and (ii) any prepayment may result in Bank incurring
additional costs, expenses or liabilities; and Debtor agrees to pay these
liquidated damages as a reasonable estimate of the costs, expenses and
liabilities of Bank associated with such prepayment.
Debtor initial here: [Initial]
--------- ---------
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but
not be limited to, any of the following: (a) the failure of Debtor to make any
payment required under this note when due; (b) any breach, misrepresentation or
other default by Debtor, any guarantor, co-maker, endorser, or any person or
entity other than Debtor providing security for this note (hereinafter
individually and collectively referred to as the "Obligor") under any security
agreement, guaranty or other agreement [ILLEGIBLE]; (c) the insolvency of any
Obligor or the failure of any Obligor [ILLEGIBLE] Obligor of any voluntary or
involuntary [ILLEGIBLE]
<PAGE> 2
relief; (e) the assignment by any Obligor for the benefit of such Obligor's
creditors; (f) the appointment, or commencement of any proceeding for the
appointment of a receiver, trustee, custodian or similar official for all or
substantially all of any Obligor's property; (g) the commencement of any
proceeding for the dissolution or liquidation of any Obligor; (h) the
termination of existence or death of any Obligor; (i) the revocation of any
guaranty or subordination agreement given in connection with this note; (j) the
failure of any Obligor to comply with any order, judgement, injunction, decree,
writ or demand of any court or other public authority; (k) the filing or
recording against any Obligor, or the property of any Obligor, of any notice of
levy; notice to withhold, or other legal process for taxes other than property
taxes; (l) the default by any Obligor personally liable for amounts owed
hereunder on any obligation concerning the borrowing of money; (m) the issuance
against any Obligor, or the property of any Obligor, of any writ of attachment,
execution, or other judicial lien; or (n) the deterioration of the financial
condition of any Obligor which results in Bank deeming itself, in good faith,
insecure. Upon the occurrence of any such default, Bank, in its discretion, may
cease to advance funds hereunder and may declare all obligations under this
note immediately due and payable; however, upon the occurrence of an event of
default under d, e, f, or g, all principal and interest shall automatically
become immediately due and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note are
not paid when due, Debtor promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the collection or enforcement
of this note. Debtor and any endorsers of this note, for the maximum period of
time and the full extent permitted by law, (a) waive diligence, presentment,
demand, notice of nonpayment, protest, notice of protest, and notice of every
kind; (b) waive the right to assert the defense of any statute of limitations
to any debt or obligation hereunder; and (c) consent to renewals and extensions
of time for the payment of any amounts due under this note. If this note is
signed by more than one party, the term "Debtor" includes each of the
undersigned and any successors in interest thereof; all of whose liability
shall be joint and several. Any married person who signs this note agrees that
recourse may be had against the separate property of that person for any
obligations hereunder. The receipt of any check or other item of payment by
Bank, at its option, shall not be considered a payment on account until such
check or their item of payment is honored when presented for payment at the
drawee bank. Bank may delay the credit of such payment based upon Bank's
schedule of funds availability, and interest under this note shall accrue until
the funds are deemed collected. In any action brought under or arising out of
this note, Debtor and any Obligor, including their successors and assigns,
hereby consent to the jurisdiction of any competent court within the State of
California, as provided in any alternative dispute resolution agreement
executed between Debtor and Bank, and consent to service of process by any
means authorized by said state's law. The term "Bank" includes, without
limitation, any holder of this note. This note shall be construed in accordance
with and governed by the laws of the State of California. This note hereby
incorporates any alternative dispute resolution agreement previously,
concurrently or hereafter executed between Debtor and Bank.
7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "BASE INTEREST RATE" means a rate of interest
based on the LIBOR Rate. "BASE INTEREST RATE LOAN" means amounts outstanding
under this note that bear interest at a Base Interest Rate. "BASE RATE MATURITY
DATE" means the last day of the Interest Period with respect to principal
outstanding under a Base Interest Rate Loan. "BUSINESS DAY" means a day on
which Bank is open for business for the funding of corporate loans, and, with
respect to the rate of interest based on the LIBOR Rate, on which dealings in
U.S. dollar deposits outside of the United States may be carried on by Bank.
"INTEREST PERIOD" means with respect to funds bearing interest at a rate based
on the LIBOR Rate, any calendar period of one, three, six, nine or twelve
months. In determining an Interest Period, a month means a period that starts
on one Business Day in a monthly and ends on and includes the day preceding the
numerically corresponding day in the next month. For any month in which there
is no such numerically corresponding day, then as to that month, such day shall
be deemed to be the last calendar day of such month. Any Interest Period which
would otherwise end on a non-Business Day shall end on the next succeeding
Business Day unless that is the first day of a month, in which event such
Interest Period shall end on the next preceding Business Day. "LIBOR RATE"
means a per annum rate of interest (rounded upward, if necessary, to the
nearest 1/100 of 1%) at which dollar deposits, in immediately available funds
and in lawful money of the United States would be offered to Bank, outside of
the United States, for a term coinciding with the Interest Period selected by
Debtor and for an amount equal to the amount of principal covered by Debtor's
interest rate selection, plus Bank's costs, including the cost, if any, of
reserve requirements. "ORIGINATION DATE" means the first day of the Interest
Period. "REFERENCE RATE" means the rate announced by Bank from time to time at
its corporate headquarters as its Reference Rate. The Reference Rate is an
index rate determined by Bank from time to time as a means of pricing certain
extensions of credit and is neither directly tied to any external rate of
interest or index not necessarily the lowest rate of interest charged by Bank
at any given time.
GENETRONICS, INC.
BY: /s/ MARTIN NASH CFO
- ------------------------------------ -------------------------------------
TITLE
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- ------------------------------------ -------------------------------------
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<ARTICLE> 5
<S> <C>
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<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
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