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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
[ ] Transaction Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number 0-12648
MOLECULAR BIOSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3078632
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10030 Barnes Canyon Road, San Diego, California 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 452-0681
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
Common Stock, $.01 par value registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates of the
registrant was $160,279,119 as of June 25, 1996 (computed by reference to the
last sale price of a share of the registrant's Common Stock on that date as
reported on the New York Stock Exchange).
There were 17,564,835 shares outstanding of the registrant's Common Stock as
of June 25, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's annual report to stockholders for the year
ended March 31, 1996 are incorporated by reference into Parts I and II.
Portions of the registrant's definitive proxy statement for the annual
stockholders meeting to be held August 20, 1996 are incorporated by reference
into Part III.
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PART I
ITEM 1. BUSINESS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION
FOLLOWING CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS ITEM AND
IN ITEM 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
GENERAL
Molecular Biosystems, Inc. ("MBI" or the "Company") is a leader in the
development, manufacture and sale of ultrasound contrast imaging agents.
These contrast agents are used to improve the real-time images of organs and
body structures, especially the heart, obtained through ultrasound
examinations. MBI's products are designed to increase the diagnostic
usefulness of ultrasound examinations through enhanced visualization of
structures and vasculature, and to reduce the need for diagnostic procedures
that may be more expensive, time-consuming, or invasive. MBI's first product,
ALBUNEX-Registered Trademark-, is the first and only ultrasound contrast
agent approved for marketing by the United States Food and Drug
Administration ("FDA"). ALBUNEX-Registered Trademark- is used to detect heart
disease by assessing blood flow within the heart chambers and identifying the
location of the chamber borders and the movement of the chamber walls
("cardiac function"). MBI's second-generation product, FS069, is currently in
Phase 3 clinical trials for the cardiac function indication and in Phase 2
clinical trials to evaluate its efficacy in determining whether the heart
muscle is receiving an adequate blood supply ("myocardial perfusion"). The
Company believes that this information will enable cardiologists to diagnose
heart attacks and coronary artery disease more accurately and safely than is
currently feasible. The Company is also conducting preclinical studies using
FS069 to detect abnormalities in other organs, such as the liver and kidney.
Ultrasound imaging is a widely-used and cost-effective technique to
examine soft tissues, internal body organs and blood flow. Ultrasound systems
use low-power, high-frequency sound waves that are reflected by tissues and
fluids to produce real-time images. Over 49 million ultrasound imaging
procedures were performed in the United States in 1994, of which
approximately 12.5 million procedures were used to examine the heart
("echocardiograms"). Unlike other imaging modalities, such as magnetic
resonance imaging, computed tomography and nuclear imaging, ultrasound
imaging procedures could not be performed with contrast agents to enhance
images until the approval of ALBUNEX-Registered Trademark-. Non-contrast
ultrasound, while very good in delineating anatomy, often results in poor
image quality and is unable to demonstrate actual blood flow within organ
tissue.
MBI's contrast agents are designed to enhance existing ultrasound
procedures by improving their ability to image blood flow and by providing
clearer images of body structures and organs. ALBUNEX-Registered Trademark-
and FS069 consist of human albumin microspheres made using MBI's patented
process. The microspheres are injected intravenously into the bloodstream and
transported to the heart and other organs. Because the microspheres are
highly reflective to the ultrasound beam, organs and structures containing
blood will appear brighter and clearer than they would in the absence of the
contrast agent. Albumin is a protein naturally found in human blood and has
been used for many years as a blood expander. ALBUNEX-Registered Trademark-,
which has been marketed since October 1993, has been given to over 10,000
patients with no clinically significant side effects, and FS069 has exhibited
a safety profile in clinical studies equivalent to that of ALBUNEX-Registered
Trademark- .
ALBUNEX-Registered Trademark- permits cardiologists to see blood flow in
the chambers of the heart and the motion of the heart muscle using
ultrasound. Cardiologists are particularly interested in the chamber of the
heart called the "left ventricle," which pumps oxygenated blood arriving from
the lungs to all other parts of the body. In approximately 10-15% of patients
undergoing an echocardiogram, the wall of the left ventricle (the
"endocardial border") cannot be detected or its location appears ambiguous on
the ultrasound image. When ALBUNEX-Registered Trademark- enters the left
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ventricle, however, the endocardial border can be visualized because of the
reflectivity of the ALBUNEX-Registered Trademark- microspheres in the blood.
When the endocardial border is visible, cardiologists can observe its motion
and may be able to infer cardiac function, which is critical in diagnosing
cardiac disease, including damage from a heart attack. While
ALBUNEX-Registered Trademark- is able to enter the heart chamber, it has a
relatively short circulation time in the body and thus is not able to enter
the heart muscle in quantities sufficient to be detected by ultrasound.
Without an agent that will enter the heart muscle, cardiologists are not able
to use ultrasound imaging directly to determine myocardial perfusion.
FS069 is designed to permit cardiologists to evaluate myocardial
perfusion. Unlike ALBUNEX-Registered Trademark-, which is air-filled, FS069
microspheres contain an insoluble gas, perfluoropropane. Because of their
composition, FS069 microspheres remain in the bloodstream for more than five
minutes, as opposed to 35-40 seconds in the case of ALBUNEX-Registered
Trademark-. As a result, FS069 is able to perfuse into tissues, including the
heart muscle, highlighting areas of normal and abnormal blood flow. The
Company believes that if its clinical trials for myocardial perfusion are
successful, FS069 will provide important diagnostic benefits, including
detecting areas of the heart muscle compromised due to coronary artery
stenosis as well as detecting the lack of blood flow in the heart muscle
resulting from a complete occlusion of a coronary artery (heart attack). The
Company believes that FS069 may have much greater market potential than
ALBUNEX-Registered Trademark- because of the greater diagnostic importance of
the indications for which it may be suitable (such as myocardial perfusion).
MBI completed enrollment in its Phase 3 clinical trials for FS069 for
cardiac function in March 1996, and expects to file for approval for this
indication by the end of 1996. For myocardial perfusion, Phase 1 safety and
preliminary efficacy studies were completed in July 1995. In March 1996, the
Company announced that preliminary analysis of Phase 2 results indicated a
92% concordance between diagnoses of patients with known or suspected heart
disease made using dipyridamole-stress nuclear imaging, the current perfusion
"gold standard" and dipyridamole-stress harmonic ultrasound imaging using
FS069. The Company believes that the use of FS069 in routine diagnostic as
well as emergency room procedures may significantly reduce the overall cost
of patient care by substituting ultrasound for more expensive diagnostic
methods such as nuclear imaging and by enabling more accurate screening of
patients to determine whether follow-up diagnostic or surgical procedures are
required.
MBI is also developing an oral ultrasound agent, ORALEX-Registered
Trademark-, which may be used to image the abdominal area for stomach lesions
and pancreatic tumors. ORALEX-Registered Trademark- is currently in Phase 2
clinical trials.
MBI is collaborating with Mallinckrodt Medical, Inc. ("Mallinckrodt") in
the development and commercialization of ALBUNEX-Registered Trademark- and
FS069. Mallinckrodt is one of the world leaders in the marketing of contrast
imaging agents, with 1995 contrast imaging agent sales of approximately $675
million. The Company has granted Mallinckrodt exclusive marketing rights to
ALBUNEX-Registered Trademark- and FS069 in the United States and certain
other territories. The relationship began in 1988 with the execution of
distribution and investment agreements pursuant to which Mallinckrodt paid
the Company approximately $30.0 million.
The Company and Mallinckrodt expanded their original agreement in
September 1995 to increase the geographic scope and to extend the exclusivity
of Mallinckrodt's marketing rights. Mallinckrodt at that time also made a
$13.0 million equity investment in MBI and committed $20.0 million to the
clinical development of FS069 and related projects. MBI may receive up to an
additional $14.5 million upon meeting certain territorial and product
development milestones.
Under the distribution agreement, the Company is responsible for
manufacturing the licensed products for Mallinckrodt and is generally
entitled to payments of 40% of net product sales. The Company is responsible
for conducting clinical trials and securing regulatory approvals of the
licensed products in the United States for cardiac indications. Mallinckrodt
is responsible for conducting clinical trials and securing approvals of the
licensed products in the United States for non-cardiac indications and is
responsible for conducting all clinical trials and securing approvals in the
other countries in Mallinckrodt's territory.
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BUSINESS STRATEGY
The Company's objective is to remain a leader in the development and
commercialization of contrast imaging agents. MBI intends to achieve this
objective by implementing the following strategy.
DEVELOP FS069 FOR MULTIPLE INDICATIONS. MBI's primary clinical
developmental objective is to gain regulatory approval in the United States
and abroad for FS069 for the diagnosis of multiple cardiac indications, such
as cardiac function and myocardial perfusion. Thereafter the Company intends
to expand the application of FS069 by seeking approval for non-cardiac
(radiology) indications. The Company believes that the extensive knowledge
that it and Mallinckrodt have gained through the marketing of
ALBUNEX-Registered Trademark- regarding the requirements of the medical and
third-party payor communities may allow for the more rapid and effective
commercialization of FS069 and future products.
MAXIMIZE THE COMMERCIAL VALUE OF ALBUNEX-Registered Trademark-. MBI and
Mallinckrodt will continue to collaborate to maximize the acceptance of
ALBUNEX-Registered Trademark- in the medical community and among third-party
payors. The Company is working with Mallinckrodt to identify and exploit the
markets and uses for which ALBUNEX-Registered Trademark- is best suited,
including stress echo, fallopian tube patency and other applications. See
"Products and Markets -- ALBUNEX-Registered Trademark-."
DEMONSTRATE COST-EFFECTIVENESS. The Company and Mallinckrodt will
continue to design studies to demonstrate the overall cost-effectiveness of
using the Company's ultrasound contrast agents. The Company believes that
such studies may establish that use of ALBUNEX-Registered Trademark-, FS069
and ORALEX-Registered Trademark- can significantly reduce the overall cost of
patient care by substituting ultrasound for more expensive modalities, and by
enabling more accurate screening of patients to determine whether follow-up
diagnostic or therapeutic procedures are required.
NEW PRODUCT DEVELOPMENT. The Company has established significant
clinical, regulatory and manufacturing expertise in the development of
ALBUNEX-Registered Trademark- and FS069. The Company intends to utilize this
expertise in the development of new, proprietary imaging products.
INDUSTRY BACKGROUND
NON-ULTRASOUND IMAGING TECHNIQUES
Since the discovery of x-rays, medical imaging has been used extensively
to diagnose and guide the treatment of diseases and injuries to internal
organs. Medical imaging can be used to identify high-risk patients, to make
initial diagnoses, to confirm diagnoses based on other information, to
formulate treatment plans, and to evaluate the effectiveness of treatment and
detect the recurrence of a medical problem. Generally, imaging improves
patient care and lowers health care costs by enabling the detection of
disease or abnormal structures not apparent by routine physical examination.
There are a variety of medical imaging methods, or "modalities,"
available to the physician. The choice of modality by the physician depends
on a number of factors, including the part of the body to be imaged, the
suspected condition to be investigated, the cost of the procedure, the
diagnostic usefulness of the image and the condition of the patient. Other
important factors in determining the selection of a modality are the
availability of equipment and trained operators and the ability to schedule
time on the equipment. The major non-ultrasound modalities are:
COMPUTED TOMOGRAPHY ("CT"). CT employs x-rays aimed into the body from
several different angles to create a computerized static "snapshot" image of
soft tissue and bones. CT is used extensively to image the head and neck for
injury and disease, and is also used to detect liver cancer and other
hepatobiliary diseases. CT may employ injectable contrast agents which absorb
x-rays and thereby enhance structural imaging. In 1994, approximately 21.1
million CT examinations were performed in the United States, approximately
44% of which employed a contrast agent. While CT is effective in revealing
anatomic detail, it is expensive, does not generally
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provide real-time images or permit the assessment of blood flow, and exposes
patients to radiation. CT is rarely used to image the heart.
CONVENTIONAL X-RAY. Familiar procedures such as chest x-rays and
mammograms use x-rays aimed from only a single angle and do not require
computer reconstruction to create an image. In 1994, approximately 5.2
million abdominal x-rays performed in the United States employed barium as a
contrast agent to examine the gastrointestinal system. Conventional x-ray is
not used to assess heart function.
MAGNETIC RESONANCE IMAGING ("MRI"). MRI creates an image by exposing the
body to a radio frequency pulse to which the body's hydrogen atoms respond in
a way detectable by the MRI equipment. This information is analyzed by
computer and a cross-sectional image is produced. MRI is used primarily to
image soft tissues in order to detect tumors, lesions, and injuries. An
accurate image is produced, but as with CT, the images are not real-time. In
addition, MRI does not generally provide information on blood flow or
perfusion of blood into organs and tissues, and is not used to image the
heart. In 1994, approximately 7.4 million MRI procedures were performed in
the United States, approximately 29% of which used a contrast imaging agent.
In 1994, MRI equipment cost up to $2 million.
NUCLEAR IMAGING. Nuclear imaging requires the injection of radioactive
substances into the body. It is typically preceded by a stress echo exam. The
radiation is detected by a special camera and analyzed by computer, resulting
in a static image that does not depict blood flow. Great care is required in
the handling and disposal of radioactive contrast agents. It is used
primarily to detect cardiovascular disease, malignancies and soft-tissue
tumors. It is also the current "gold standard" used to detect myocardial
perfusion. Approximately 9.1 million nuclear imaging procedures were
performed in the United States in 1994, approximately 2.5 million of which
were cardiac perfusion studies. In 1994, the median Health Care Finance
Administration ("HCFA") reimbursement rate for a nuclear cardiac exam was
$850, excluding the cost of any preceding echocardiogram.
X-RAY ANGIOGRAPHY. Angiography is used to visualize real-time blood flow
in the body's vasculature in order to determine the presence of blockages or
occlusions in the vessels leading to the heart prior to performing bypass
surgery or balloon angioplasty. A catheter is inserted into a vessel or
directly into the heart chamber and a contrast agent that is visible using
special x-ray detection equipment is injected. This procedure requires a
specially-equipped laboratory. It is effective in locating blockages and
occlusions, but it is expensive, invasive, and exposes the patient to x-ray
radiation. In 1994, approximately 4.5 million angiographic examinations were
performed in the United States, with a median HCFA reimbursement rate for a
heart angiogram and catheterization procedure of approximately $2,000,
excluding the cost of any preceding echocardiogram.
ULTRASOUND IMAGING
Ultrasound employs low-power, high-frequency sound waves which are
directed at the organ to be imaged by placing a generating instrument called
a "transducer" on the body near the organ. The sound waves are reflected off
of the organ or tissue back to the ultrasound machine. The ultrasound machine
reads the reflected sound waves and produces a cross-sectional real-time
"moving picture" image of the targeted organ. Ultrasound is used to image the
heart, liver, kidneys, gall bladder, pancreas, other abdominal structures,
blood vessels, and the reproductive system, and is also being investigated
for use with brain and breast examinations. Cardiac ultrasound examinations
are called "echocardiograms." Non-cardiac diagnostic ultrasound examinations
are referred to as "radiology" indications or applications. The strengths of
ultrasound include:
- PRICE. Ultrasound is a relatively inexpensive procedure. In 1994, the
HCFA reimbursement rate for a typical echocardiogram was approximately
$570, while that for a cardiac exam using nuclear imaging was
approximately $850. A heart angiogram and catheterization cost
approximately $2,000. The average cost of an ultrasound machine was
$120,000, while the average cost of nuclear imaging equipment was
approximately $450,000.
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- LARGE INSTALLED BASE. There is a large installed base of ultrasound
machines throughout the world. In 1994, there were approximately
55,000 machines installed in the United States. Several large
manufacturers such as Hewlett-Packard, ATL, Acuson and Toshiba compete
in the ultrasound hardware market.
- REAL-TIME IMAGES. Unlike the other imaging modalities (with the
exception of x-ray angiography), ultrasound creates a "moving picture"
of the targeted organ. The organ under study may be safely examined
over any period of time selected by the physician. This feature is
especially important in heart examinations, where the dynamics of the
beating heart are of diagnostic importance to the cardiologist.
- SAFETY. The sound waves employed by ultrasound have no noticeable
medical effect on the body. The same organs or sections of the body
may be imaged repeatedly for long periods of time with no adverse
effects. Ultrasound is routinely used in fetal examinations.
- EASE OF USE. Ultrasound exams are relatively simple to perform and
require little patient preparation. Unlike machines used for MRI, CT,
nuclear imaging and x-ray angiography, ultrasound machines are
compact and mobile and do not require specially-equipped facilities
or housing.
Although ultrasound is a widely-used imaging modality, the visual
clarity of non-contrast-enhanced ultrasound images is generally inferior to
that obtainable using certain of the other modalities. With each of the other
modalities, contrast agents are frequently used, and in nuclear imaging and
x-ray angiography, an imaging agent is required to create the images. Until
the introduction of ALBUNEX-Registered Trademark-, no imaging agents were
available in the United States for use with ultrasound.
"Conventional" ultrasound imaging sends and receives sound waves at a
single frequency; this is called the "fundamental" frequency. The Company's
products are being tested with new ultrasound techniques which may find
acceptance in diagnostic imaging over the next several years. The most
significant of these new techniques is "harmonic imaging." Researchers have
discovered that if the ultrasound machine's transducer is modified to read
the sound waves returning from the imaged area at a multiple ("harmonic") of
the outgoing fundamental frequency, and if a contrast agent is used, the
resulting image can provide more complete information on blood flow and
structures in the scanned area than is available with a standard ultrasound
exam. This is because the microspheres generate a harmonic signal
significantly stronger than that generated by the tissue, resulting in a
significantly enhanced signal-to-noise ratio. No ultrasound machines
employing harmonic imaging are currently commercially available.
PRODUCTS AND MARKETS
ALBUNEX-REGISTERED TRADEMARK- AND FS069 MICROSPHERE TECHNOLOGY
Both ALBUNEX-Registered Trademark- and FS069 are ultrasound contrast
imaging agents consisting of gas-filled human albumin microspheres
manufactured using MBI's proprietary process. They are injected into an arm
vein and pass through the bloodstream to the right atrium and ventricle of
the heart, where they are pumped through the lungs and into the left atrium
and ventricle of the heart. The left ventricle is the chamber of the heart
that pumps oxygenated blood arriving from the lungs out to the rest of the
body and is the portion of the heart that is of the greatest clinical
interest in the diagnosis of heart disease.
ALBUNEX-Registered Trademark- microspheres are air-filled, while FS069
microspheres are filled with an insoluble gas, perfluoropropane. The use of
ALBUNEX-Registered Trademark- and FS069 as ultrasound imaging contrast agents
relies on the greater acoustic reflectivity of the microspheres relative to
blood, which does not reflect sound waves well and is effectively invisible
to ultrasound imaging, and relative to the tissues to which the blood carries
the microspheres. Areas where ALBUNEX-Registered Trademark- or FS069 are
present will appear brighter and clearer than areas where no agent is
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present. The contrast effect between the blood containing the microspheres
and the surrounding tissues enhances the ability to detect blood flow using
ultrasound imaging and permits the resolution of subtle differences in the
density of the target tissue structures.
ALBUNEX-Registered Trademark- consists of a 5% albumin solution (in
saline) in which the air-filled microspheres are suspended. Human albumin is
a protein extracted from human blood which has been used as a blood expander
for many years. ALBUNEX-Registered Trademark- is compatible with the human
body and is rapidly metabolized by the liver, and has been given to over
10,000 patients worldwide with no clinically significant side effects. FS069,
which uses a 1% albumin solution, has exhibited a safety profile in clinical
studies equivalent to that of ALBUNEX-Registered Trademark-.
ALBUNEX-Registered Trademark-
ALBUNEX-Registered Trademark- is the first and only ultrasound contrast
imaging agent approved by the FDA. It was approved for marketing in the
United States in August 1994 for intravenous use to assess cardiac function
in suboptimal (diagnostically inconclusive) echocardiograms.
ALBUNEX-Registered Trademark- was approved for marketing in Japan in October
1993 and launched shortly thereafter by Shionogi & Co., Ltd. ("Shionogi"). In
February 1996 the Committee for Proprietary Medicinal Products of the
European Agency for the Evaluation of Medicinal Products recommended the
approval of ALBUNEX-Registered Trademark- (as developed by MBI's former
marketing partner Nycomed Imaging AS) for marketing authorization in the
European Union. See "Marketing and License Agreements" and "Government
Regulation."
In 10-15% of the echocardiograms performed annually in the United
States, the location of the wall of the left ventricle, or "endocardial
border," cannot be satisfactorily visualized or its location appears
ambiguous. When sufficient numbers of ALBUNEX-Registered Trademark-
microspheres reach the left ventricle, the acoustical reflectivity of
ALBUNEX-Registered Trademark- in the chamber permits the endocardial border
to be seen by defining the walls of the chamber, or "endocardial border
delineation." This delineation in turn permits visualization of the movement
of the walls of the chamber as the heart beats, or "regional wall motion."
Information regarding endocardial border delineation and regional wall motion
are important for diagnostic purposes. If the chamber walls appear thicker
than normal or are not moving normally, it is a potential indicator that the
surrounding heart muscle is not receiving sufficient blood or is abnormal in
some other way, which, in turn, may indicate an infarction (heart attack),
stenosis (partial blockage of an artery) or other abnormal condition.
STRESS ECHO. ALBUNEX-Registered Trademark- is effective in assessing
endocardial border definition and regional wall motion in only approximately
60% of patients with cardiovascular disease and other cardiac conditions when
administered under resting conditions. The Company believes that
ALBUNEX-Registered Trademark- improves the assessment of cardiac function in
a significantly greater percentage of patients in "stress echo" exams. A
"stress echo" exam is an echocardiogram in which the patient is subjected to
a treadmill or other stimulus that increases his or her heart rate. The
Company believes that the enhanced efficacy of ALBUNEX-Registered Trademark-
using stress echo is explained by the faster passage of ALBUNEX-Registered
Trademark- through the lungs to the left ventricle in the course of a stress
echo exam which allows more ALBUNEX-Registered Trademark- microspheres to
reach the heart chamber.
Approximately 900,000 stress echo exams were performed in the United
States in 1994, of which approximately 15-20% resulted in suboptimal images.
The Company believes that Mallinckrodt will begin a post-approval study in
1996 with 300-500 patients to assess the cost-effectiveness of using
ALBUNEX-Registered Trademark- in all stress echo exams. This pharmacoeconomic
study would be designed to determine whether the increased cost of using
ALBUNEX-Registered Trademark- routinely in stress echo exams will be exceeded
by the savings realized through eliminating additional, more expensive
diagnostic procedures when they otherwise appear to be warranted by
false-positive or inconclusive readings of the stress echo exams.
FALLOPIAN TUBE PATENCY. MBI and Mallinckrodt have identified fallopian
tube patency ("FTP") as a promising radiology application for
ALBUNEX-Registered Trademark-. Physicians attempting to diagnose female
infertility must determine whether the fallopian tubes are patent (open) or
occluded (blocked). The two primary procedures used to assess
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FTP are hysterosalpingography ("HSG") and chromolaparoscopy. HSG involves the
injection of an x-ray contrast agent or dye into the uterus to allow
observation and evaluation by x-ray of the flow through the fallopian tubes.
This procedure exposes the patient to radiation, which may cause an
adverse reaction, and also frequently requires sedation or anesthesia. If HSG
is inconclusive, a chromolaparoscopy may be ordered. This procedure exposes
the patient to the risk of bleeding, infection, injury to internal
structures, and reaction to the anesthetic.
ALBUNEX-Registered Trademark- may permit the use of ultrasound imaging
to assess FTP, potentially avoiding both surgery and the introduction of
radiation into the patient's reproductive system. Mallinckrodt is currently
evaluating the results of its Phase 3 clinical trials of ALBUNEX-Registered
Trademark- in the United States for FTP, and the Company believes that
Mallinckrodt will file for FDA approval during the second half of 1996.
FS069
FS069 consists of perfluoropropane-filled albumin microspheres of
approximately the same size and concentration as ALBUNEX-Registered
Trademark-. Because perfluoropropane is insoluble in blood, FS069's
microspheres have greater durability and remain intact in the bloodstream for
over 5 minutes, versus 35 to 40 seconds for ALBUNEX-Registered Trademark-.
This greater durability permits more of the microspheres to pass from the
right side of the heart, through the microvasculature of the lungs, and into
the left side of the heart. As a result, FS069 is superior to
ALBUNEX-Registered Trademark- in its ability to measure endocardial border
delineation and regional wall motion using ultrasound. More importantly, the
durability of the FS069 microspheres allow them to circulate into the heart
muscle, thus permitting the assessment of myocardial perfusion using
ultrasound.
CARDIAC FUNCTION. The Company believes that FS069 will be more
effective than ALBUNEX-Registered Trademark- in visualizing blood flow in the
chambers of the heart, including the delineation of endocardial borders and
the assessment of regional wall motion. The Company expects that its clinical
studies will demonstrate a high success rate for this indication in cases of
suboptimal chamber wall imaging in both stressed and non-stressed patients.
The Company believes that this level of efficacy will be achieved at a much
lower dose than is required for ALBUNEX-Registered Trademark-, with an
equivalent safety profile. The Company has completed enrollment for its Phase
3 clinical studies using FS069 for cardiac function.
MYOCARDIAL PERFUSION. Clinical studies indicate that the longer
circulation time of FS069's perfluoropropane-filled microspheres allows a
physician to assess myocardial perfusion using ultrasound. The Company
conducted a Phase 1 safety study which demonstrated a safe dosing range of
many times the expected efficacious dose and also showed myocardial perfusion
in healthy patients using a dose as low as 0.5 cc, versus 10-20 cc for an
efficacious dose of ALBUNEX-Registered Trademark- to assess cardiac function.
Preliminary analysis of Phase 2 results indicated a 92% concordance between
diagnoses of patients with known or suspected heart disease made using
dipyridamole-stress nuclear imaging, the current perfusion "gold standard,"
and dipyridamole-stress harmonic ultrasound imaging using FS069. The
Company's remaining Phase 2 and future Phase 3 studies will be designed to
evaluate, among other things, myocardial perfusion in cardiac patients using
ultrasound at both fundamental and harmonic frequencies.
Myocardial perfusion is important because it provides oxygenated blood
to the heart muscle. If FS069 is not detected in a portion of the heart
muscle, or not detected with the expected level of intensity, it means that a
portion of the muscle is not receiving enough blood ("ischemia"). This
finding may be diagnostic of several conditions, including coronary arterial
stenosis and myocardial infarction.
The ability rapidly to assess the condition of the heart using FS069 may
also prove efficacious and cost-effective in the emergency room and in the
subsequent treatment of heart attacks. For example, a patient arriving at the
emergency room complaining of chest pain may be quickly assessed using
ultrasound with FS069. If no perfusion defect is seen in the heart, a
myocardial infarction may be ruled out. Where a perfusion defect is detected
using FS069, the Company believes that information regarding its severity,
size and location may assist the physician in determining the patient's
condition. A patient with an extensive infarction may be sent
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immediately for an angiogram and even emergency angioplasty. A patient with a
less severe infarction may be given a thrombolytic (clot-dissolving) agent.
This patient may then undergo an additional FS069 echocardiogram to see
whether the affected area of the heart muscle has reperfused; that is,
whether the thrombolytic agent was successful in treating the condition. If
the FS069 echocardiogram shows that the muscle has reperfused, the physician
would not have to order any additional emergency procedures and conventional
treatment might begin. Subsequent FS069 echocardiograms may be used to assess
the effectiveness of the post-emergency-room treatment; for example, how the
heart muscle has responded to different medications, changes in diet,
exercise program, weight loss and other therapies.
The Company believes that the assessment of myocardial perfusion may
also be important in screening high-risk patients prior to general surgery or
other potentially stressful treatment regimens. For example, a surgeon may
wish to assess whether an elderly or weakened patient is capable of surviving
the particular surgery or treatment without a cardiac incident. An FS069
echocardiogram may be safely administered to assist the physician in making
this determination.
RADIOLOGY INDICATIONS. The stability of the FS069 microspheres renders
the product potentially suitable for a much greater range of indications than
ALBUNEX-Registered Trademark-. In preclinical studies, FS069 has been shown
to perfuse the liver, permitting the detection of tumors and lesions using
ultrasound. Preliminary animal studies have shown FS069 is able to perfuse
the kidneys, ovaries, prostate, testes and peripheral intracranial vessels.
Clinical studies are planned to evaluate the use of FS069 in the detection of
liver pathology relative to the current imaging "gold standard" for analyzing
liver pathology.
FS069 enjoys several other potential advantages. In clinical studies,
FS069 has achieved greater efficacy at a fraction of the dose of
ALBUNEX-Registered Trademark- required for the assessment of cardiac
function. The Company expects that this low dosage will make FS069 attractive
to the patient as well as the doctor. In addition, FS069 uses a 1% albumin
solution, compared to a 5% albumin solution required for ALBUNEX-Registered
Trademark-. The lower dose required and the lesser amount of albumin used may
lower MBI's per-unit manufacturing cost and may allow for the production of
more doses of FS069 than ALBUNEX-Registered Trademark- using equivalent
manufacturing capacity. The stability of the FS069 microsphere also makes the
product easier to manufacture than ALBUNEX-Registered Trademark-.
ORALEX-Registered Trademark-
The Company is developing ORALEX-Registered Trademark-, an oral
ultrasound contrast agent intended to enhance images of the abdomen,
including the small bowel, stomach lining and structures adjoining the
stomach, in particular the pancreas.
Gas in the stomach interferes with ultrasound images of the abdominal
area by reflecting nearly all of the sound waves. If the ultrasound "noise"
caused by this gas can be removed, the stomach wall can be more effectively
visualized and the stomach itself can become an "acoustic window" to organs
next to it which are difficult to visualize, such as the pancreas.
ORALEX-Registered Trademark- is a polydextrose solution which is administered
orally and which may displace gas in the stomach for up to 30 minutes. This
period of displacement could be sufficient to permit effective ultrasound
imaging. The Company is evaluating the use of ORALEX-Registered Trademark- to
make ultrasound imaging as useful for diagnostic purposes as costlier and
more complex procedures such as CT and more invasive procedures such as
endoscopy.
The ability to view the pancreas is of particular interest to physicians
because pancreatic cancer is very difficult to detect at an early stage, and
current imaging modalities are not effective for this purpose. By the time
pancreatic cancer tumors are sufficiently large to be detected using CT, for
example, the cancer has progressed to the point where the patient's condition
is terminal. In 1993, there were approximately 25,000 deaths in the United
States from pancreatic cancer.
ORALEX-Registered Trademark- is presently in a Phase 2 safety and
efficacy study. This study, which is expected to be completed by the end of
1996, is designed to evaluate the use of ORALEX-Registered Trademark- for the
visualization of the stomach lining and
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the early detection of pancreatic disease. An earlier Phase 1 study did
not reveal any clinically significant side effects.
The Company is seeking a new marketing and development partner for
ORALEX-Registered Trademark-. See "Item 3 -- Legal Proceedings." Because of
the Company's primary commitment to ALBUNEX-Registered Trademark- and FS069,
it has determined that it will begin Phase 3 clinical trials for
ORALEX-Registered Trademark- only when it has found a collaborative partner
to fund a significant portion of the necessary clinical and regulatory
activities. The Company is in active discussions with one company that has
expressed a serious interest in licensing ORALEX-Registered Trademark-.
OTHER RESEARCH AND DEVELOPMENT
The Company's research and development activities seek improvements to
existing products and development of new contrast agents. The Company also
continues to develop process improvements to secure the efficient supply of
its products for developmental and commercial use.
The Company has identified a non-ultrasound imaging agent employing
iodinated triglycerides ("ITG") to target hepatocytes (liver cells) to
provide a site-specific contrast agent for CT, which is not effective in
identifying the very early stages of liver cancer even with the use of
traditional iodinated x-ray contrast agents. The Company believes that ITG
may have the potential to be a contrast agent that would make consistent
early identification by CT possible. The Company holds an exclusive license
from the University of Michigan for patents relating to the ITG technology
which requires the Company to exercise diligence in the development and
commercialization of ITG. In view of this contractual requirement, if the
Company does not enter into a collaborative development relationship with a
partner and determines that it will no longer invest its own resources in the
development of ITG, the Company's license from the University of Michigan
will terminate. At present, the Company continues to develop the product.
MARKETING AND LICENSE AGREEMENTS
MALLINCKRODT MEDICAL, INC. MBI's distribution agreement with
Mallinckrodt forms the basis of its product development and marketing program
for ALBUNEX-Registered Trademark- and FS069.
In December 1988, the Company entered into a distribution agreement with
Mallinckrodt granting it the exclusive marketing and distribution rights for
ALBUNEX-Registered Trademark- and gas-filled albumin microspheres in North
and South America. Mallinckrodt paid the Company $6.0 million and agreed to
pay the Company a further $21.0 million based on the successful completion of
certain product development and regulatory milestones. Mallinckrodt also paid
the Company $3.0 million for 181,818 unregistered shares of the Company's
Common Stock. Under the distribution agreement, the Company is responsible
for conducting clinical trials and securing regulatory approvals of the
licensed products in the United States for cardiac indications, and
Mallinckrodt is responsible for conducting clinical trials and securing
regulatory approvals in the United States for non-cardiac indications and is
responsible for conducting all clinical trials and securing approvals in the
other countries in Mallinckrodt's territory. The Company manufactures all
licensed products for sale to Mallinckrodt at a price generally equal to 40%
of Mallinckrodt's quarterly average selling price to end users. If the
Company declines to manufacture ALBUNEX-Registered Trademark- or FS069 for
Mallinckrodt because the quarterly average selling price falls below a level
specified in the Company's distribution agreement with Mallinckrodt or the
proposed initial price in a new market or for a new indication is below the
specified level, or if the Company is unable to manufacture
ALBUNEX-Registered Trademark- or FS069 in sufficient quantities to satisfy
Mallinckrodt's orders on a timely basis, Mallinckrodt may exercise certain
contingent manufacturing rights. MBI will receive a royalty of 5-10% on
Mallinckrodt's sales of ALBUNEX-Registered Trademark- or FS069 which
Mallinckrodt has manufactured. The distribution agreement lasts for the life
of the licensed patents and, prior to amendment in September 1995, granted
Mallinckrodt exclusive rights for five years following the first commercial
sale of ALBUNEX-Registered Trademark- in the United States, after which MBI
was granted the assignable right to co-market the licensed products. In
accordance with the distribution agreement, the Company undertook to acquire
license rights from a third party to a United States patent for certain
related technology. The Company acquired these rights in February 1991, and
in connection with this acquisition the Company and
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Mallinckrodt agreed to pay royalties to the licensor of 0.8% and 1.2%,
respectively, on the net sales of ALBUNEX-Registered Trademark- in the United
States.
The Company's relationship with Mallinckrodt was strengthened and
expanded in September 1995 when the parties entered into an amended
distribution agreement. The amended agreement expands the geographic scope of
Mallinckrodt's exclusive right to market the licensed products to include all
of the countries of the world other than those covered by the Company's
license agreements with Shionogi and Nycomed and extends the duration of
Mallinckrodt's exclusive rights to the later of July 1, 2003 or three years
after the date that the Company obtains approval from the FDA to market FS069
for an intravenous myocardial perfusion indication. Mallinckrodt agreed to
pay the Company $20.0 million over four years beginning in October 1995 to
support clinical trials of FS069, related regulatory submissions and
associated product development and to pay up to an additional $14.5 million
upon the satisfaction of certain territorial and product development
milestones. Under a related investment agreement, Mallinckrodt purchased
1,118,761 shares of the Company's Common Stock for $13.0 million at a premium
of 40% above the then-prevailing market price. The amended distribution
agreement requires the Company to spend at least $10.0 million for clinical
trials to support regulatory filings with the FDA for cardiac indications of
FS069. The Company's expenditures will be made in accordance with the
directions of a joint steering committee which the Company and Mallinckrodt
have established in order to coordinate the development and regulatory
approval of FS069.
In addition, the amended distribution agreement grants the Company the
option to repurchase all of the shares of the Company's Common Stock that
Mallinckrodt purchased under the related investment agreement for $45.0
million, subject to various price adjustments. This option is exercisable
from the later of July 1, 2000, or the date that the FDA approves FS069 for a
myocardial perfusion indication, through the later of the third anniversary
of such approval or June 30, 2003. If the Company exercises this option, the
Company or its assignee may co-market licensed products in all of the
countries covered by the amended distribution agreement.
SHIONOGI & CO., LTD. In March 1989, the Company entered into a license
and cooperative development agreement with Shionogi, of Osaka, Japan. Under
this agreement, the Company granted Shionogi exclusive marketing and
distribution rights for ALBUNEX-Registered Trademark- and other gas-filled
albumin microsphere products in Japan, Taiwan and South Korea. Shionogi paid
the Company $10.0 million and agreed to pay a further $21.0 million (of which
$13.0 million had been received as of March 31, 1996) over the next several
years based on Shionogi's successful completion of certain product
development and regulatory milestones. Under the agreement as amended, the
Company manufactures the ALBUNEX-Registered Trademark- to be marketed and
distributed by Shionogi for which Shionogi pays MBI 30% of the product price
to end users. The agreement extends until the later of expiration of the last
to expire of the licensed patents or 15 years after the date that
ALBUNEX-Registered Trademark- was first offered for sale in Japan. Shionogi's
rights are exclusive through October 1999, after which the Company has the
assignable right to co-market the licensed products in Shionogi's territory,
subject to Shionogi's right of first refusal to match the terms of any
proposed transaction with an assignee of those rights.
The Company is currently engaged in a dispute with Shionogi. In April
1996, the Company and Shionogi filed cross-demands for arbitration of their
respective claims against each other. The Company is seeking in excess of $45
million in compensatory and consequential damages plus punitive damages for
Shionogi's breach of the MBI-Shionogi license and cooperative development
agreement. Shionogi is seeking in excess of $37 million plus punitive damages
on its claim that MBI has breached the agreement. The Company's dispute with
Shionogi may have the effect of interrupting or suspending sales of
ALBUNEX-Registered Trademark- in Japan (approximately $264,000 in revenue to
the Company for the fiscal year ended March 31, 1996), of further delaying
the marketing of ALBUNEX-Registered Trademark- in South Korea and Taiwan, and
of further delaying the development of FS069 throughout Shionogi's territory,
and carries with it the risk of monetary damages being awarded against the
Company. See "Item 3 -- Legal Proceedings."
NYCOMED IMAGING AS. In December 1987, the Company entered into a
license agreement with Nycomed's predecessor, Nycomed AS, of Oslo, Norway.
Under this agreement, the Company granted Nycomed exclusive developmental,
manufacturing, and marketing rights for ALBUNEX-Registered Trademark- and
other gas-filled albumin microsphere
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ultrasound imaging agents in the territory comprising Europe, the former
Soviet Union, Africa and the Middle East. India was later added to this
territory. While Nycomed performed substantial manufacturing and clinical
development work on ALBUNEX-Registered Trademark- (called "Infoson" by
Nycomed), the Company and Nycomed concluded that their respective strategic
interests were best served by the Company's reacquisition of Nycomed's
product rights, and in October 1995 the parties entered into an amendment of
their agreement that effectively returned these rights to the Company. The
Company agreed to pay Nycomed $2.7 million plus 45% of any amounts in excess
of $2.7 million that the Company receives in payment for the transfer of
marketing rights in the former Nycomed territory to a third party. The
Company also agreed to pay Nycomed a royalty of 2 1/2% on the first $30.0
million of annual sales of licensed products and 3 1/2% on any annual sales in
excess of $30.0 million.
The Company is in negotiations with a large pharmaceutical company for
the transfer of exclusive marketing rights in Nycomed's former territory.
FEINSTEIN LICENSE. In November 1986, the Company entered into a license
agreement under which it acquired the exclusive right to develop, use and
sell any products derived from patents and applications owned by Stephen B.
Feinstein, M.D. covering sonicated gas-filled albumin microspheres used for
imaging and any future related patents and applications. In June 1989, this
agreement was restructured. The Company paid the licensor $4.5 million as an
additional license fee and $2.0 million as a prepayment of royalties to be
earned on the first $66.7 million of sales of the licensed products in the
United States, and the royalty rate on sales of licensed products was reduced
from 6% to 3% on worldwide net sales by the Company (and United States sales
by a sublicensee) and from 2 1/2% to 1 1/2% on net sales by sublicensees
outside of the United States. Under the restructured agreement, the Company
is required to pay minimum royalties each year, increasing from $100,000 in
1994 to $600,000 in 1999 and subsequent years.
ITG AGENT. In November 1991, the Company entered into an exclusive
license agreement with the University of Michigan for certain patents
relating to the Company's ITG CT agent under development. The Company paid a
license fee of $20,000 and pays an annual license maintenance fee of $15,000.
The Company agreed to pay a royalty of from 2 1/2% to 6% on net sales of
licensed products, depending upon the jurisdiction and status of the
particular product, and also agreed to make annual minimum royalty payments
increasing from $25,000 to $150,000.
ULTRASOUND PATENTS AND TRADEMARKS
MBI considers the protection of its proprietary technologies to be
material to its business prospects. The Company pursues a comprehensive
patent and trademark prosecution program for its products in the United
States and in other countries where it believes that significant market
opportunities exist.
MBI has licensed the seminal gas-filled sonicated albumin microsphere
patents, including numerous foreign equivalents, from Stephen B. Feinstein,
M.D. See "Business -- Marketing and License Agreements." MBI owns additional
patents covering ALBUNEX-Registered Trademark- that broaden the original
Feinstein product coverage and certain of such patents cover MBI's continuous
flow sonication manufacturing process. The European equivalent of these
patents was challenged in an opposition proceeding brought by Andaris Ltd. In
January 1996, the opposition was decided in MBI's favor. Andaris has appealed
the decision. Andaris has also filed an opposition against MBI's
ALBUNEX-Registered Trademark- patent composition in Europe and Andaris,
Bracco Research SA and Eiichiro Awai have filed a similar opposition in
Japan. No hearing date has been set in these latter two oppositions.
MBI has also filed several United States and foreign patent applications
relating specifically to FS069 and associated products. The Company has
received notices of allowance of certain of the United States applications.
MBI is not aware of any adverse proceedings relating to these FS069
applications anywhere in the world.
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In addition, MBI has received a notice of allowance of a patent covering
its method of manufacturing gas-filled albumin microspheres using a milling
process currently in development. The Company believes this process may be
more reliable and efficient than the sonication process that it presently
uses.
The last-to-expire of MBI's key United States patents covering
ALBUNEX-Registered Trademark- and FS069 expires in 2008, subject to the
payment of any required maintenance fees. Subject to the outcome of the
oppositions described above, the last-to-expire of MBI's key European patents
covering ALBUNEX-Registered Trademark- and FS069 expires in 2009. If patents
issue on currently-pending applications in the United States and Europe,
MBI's patent protection for FS069 may be extended beyond 2008 and 2009,
respectively.
MBI also owns a United States patent which covers ORALEX-Registered
Trademark-. Its foreign equivalents are pending.
MBI has filed patent applications on several discovery and early-stage
developmental products. MBI is uncertain whether these applications will
result in issued patents or whether the products covered thereby will be
commercialized or commercially successful.
An issued patent grants to the owner the right to exclude others from
practicing the inventions claimed therein. In the United States, a patent
filed before July 8, 1995, is enforceable for 17 years from the date of
issuance or 20 years from the deemed date of filing, whichever is longer.
Patents based on applications filed from July 8, 1995 expire 20 years from
the deemed date. The General Agreement on Tariffs and Trade provides that
patents whose applications were filed on or after June 8, 1996 are effective
for 20 years from filing. This new rule is generally regarded as unfavorable
to pharmaceutical companies, where the time period between patent filing and
commercialization of the patented product may be delayed many years because
of the lengthy development cycle and regulatory process. Some jurisdictions,
including the United States, permit pharmaceutical patent holders to seek
extensions of their patents for products subject to the regulatory process.
However, there are significant limitations to this benefit. MBI has sought to
take advantage of patent term extension procedures for its core patents and
has been awarded extensions in some jurisdictions. There can be no
assurances, however, that regulatory delay, or the failure of patent term
extensions to issue, will not diminish the effectiveness of the protection
that MBI receives from its patents.
The patent position of medical and pharmaceutical companies is highly
uncertain and involves complex legal and factual questions. There can be no
assurance that any claims which are included in pending or future patent
applications will be issued, that any issued patents will provide the Company
with competitive advantages or will not be challenged by third parties, or
that the existing or future patents of third parties will not have an adverse
effect on the ability of the Company to commercialize its products.
Furthermore, there can be no assurance that other companies will not
independently develop similar products, duplicate one or more of MBI's
products, or design around patents that may be issued to MBI. Litigation may
be necessary to enforce any patents issued to the Company or to determine the
scope and validity of others' proprietary rights in court or administrative
proceeding. Any litigation or administrative proceeding could result in
substantial cost to the Company and distraction of the Company's management.
An adverse ruling in any litigation or administrative proceeding could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The commercial success of the Company also will depend in part on the
Company's not infringing patents issued to competitors. There can be no
assurance that patents belonging to competitors will not require the Company
to alter its products or processes, pay licensing fees or cease development
of its current or future products. The Company is aware of three U.S. patents
with respect to which no assurance can be given that any ultrasound product
of the Company does not infringe under the doctrine of equivalents.
Litigation may be necessary to defend against infringement claims or to
determine the scope and validity of others' proprietary rights in court or in
an administrative proceeding. Any litigation or administrative proceeding
could result in substantial cost to the Company and distraction of the
Company's management. An adverse ruling in any litigation or administrative
proceeding could have a material adverse effect on the Company's business,
financial condition and results of operations. Further, there can be no
assurance that the Company would be able to license the other
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technology rights that it may require at a reasonable cost or at all. Failure
by the Company to obtain a license to any technology that it may require to
commercialize its products would have a material adverse effect on the
Company's business, financial condition, and results of operations. In
addition, to determine the priority of inventions or patent applications the
Company may have to participate in interference proceedings declared by the
United States Patent and Trademark Office or in proceedings before foreign
agencies, any of which could result in substantial costs to the Company and
distraction of the Company's management.
The Company has obtained registered trademarks for ALBUNEX-Registered
Trademark- and ORALEX-Registered Trademark- in the United States and in
selected countries outside of the United States. There can be no assurance
that the registered or unregistered trademarks or trade names of the Company
will not infringe upon the rights of third parties. The requirement to change
the trademarks or trade names of the Company could entail significant
expenses and could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company also relies on unpatented trade secrets, proprietary
know-how and continuing technological innovation which it seeks to protect,
in part, by confidentiality agreements with its corporate partners,
collaborators, employees, vendors, investigators and consultants. There can
be no assurance that these agreements will not be breached, that the Company
would have adequate remedies for any breach or that the Company's trade
secrets or knowhow will not otherwise become known or independently
discovered by third parties.
MANUFACTURING
The Company manufactures ALBUNEX-Registered Trademark- for commercial
sale in the United States and Japan in its aseptic plant at its principal
San Diego facility. The plant employs the Company's patented continuous-flow
sonication process in which air is introduced to the sterile albumin solution
and the mixture is subjected to high-energy sound waves. This treatment
denatures the albumin protein and facilitates a process known as "cavitation"
in which the stable air-filled microspheres are created. The Company believes
that its current facilities will provide sufficient production capacity for
ALBUNEX-Registered Trademark- for the foreseeable future. The Company has
also recently completed construction of additional capacity at its aseptic
plant for the production of FS069.
The Company has been able to meet all orders for ALBUNEX-Registered
Trademark- received to date from Mallinckrodt and Shionogi. Although
occasional production difficulties have been experienced, the Company
believes these difficulties to be typical of the startup commercial-scale
manufacture of any new product, especially one that relies on aseptic
processes. The Company believes that its manufacturing reliability will
continue to improve and that it will not experience any significant
difficulty in manufacturing ALBUNEX-Registered Trademark- in compliance with
the FDA's Good Manufacturing Practices.
Pursuant to the Company's license agreement with Nycomed, Nycomed
developed independent manufacturing capacity for Infoson . The Company is
currently considering whether to enter into an agreement with Nycomed to
supply Infoson to the Company or any new European marketing partner for
commercialization in Europe. See "Business -- Marketing and License
Agreements."
The Company is also developing a method of manufacturing gas-filled
albumin microspheres using a milling process. The Company believes that this
process may be more reliable and efficient than the sonication process that
it presently uses. The milling process is in an early stage of development,
and there can be no assurance that the process will be successfully
developed, that it can be successfully integrated with the Company's
operations, or that the FDA will approve the process.
The Company currently manufactures ORALEX-Registered Trademark- in a
pilot-scale plant at one of the Company's San Diego facilities. The Company
believes that this plant will be capable of supplying sufficient quantities
of the product for all future clinical trials.
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COMPETITION
In general, competition in the field of contrast agents is based on such
factors as product performance and safety, product acceptance by physicians,
patent protection, manner of delivery, ease of use, price, distribution and
marketing. The Company's products compete or may compete with new or improved
contrast agents.
The Company anticipates that it will face increased competition in the
future as new products enter the market and advanced technologies become
available. The Company expects to compete against a number of companies, many
of which have substantially greater financial, technical and human resources
than the Company and may be better able to develop, manufacture and market
products. In addition, many of the Company's existing or potential
competitors have extensive experience in research, preclinical testing and
human clinical trials, obtaining FDA and other regulatory approvals, and
manufacturing and marketing their products, or are allied with major
pharmaceutical companies that can afford them these advantages. As a result,
competitors may develop and introduce competitive or superior products more
rapidly than the Company. While the Company was the first to obtain FDA
approval of an ultrasound contrast agent, ALBUNEX-Registered Trademark-, the
Company expects that one or more of these competitors will develop products
that will be approved for an indication or indications covered by
ALBUNEX-Registered Trademark- or FS069, including the assessment of cardiac
function and myocardial perfusion. One or more of these products may prove
superior to the Company's products or may be approved for sale prior to the
approval for sale of FS069. There can be no assurance that existing products
or new products developed by the Company's competitors will not be more
effective than any products that may be developed by the Company. Competitive
products may render the Company's technology and products obsolete or
noncompetitive.
Any product developed by the Company that gains regulatory approval will
have to compete for market acceptance and market share. An important factor
in such competition may be the timing of market introduction of competitive
products. Accordingly, the relative speed with which the Company can develop
products, complete clinical testing and the regulatory approval process, gain
reimbursement acceptance and supply commercial quantities of the product for
distribution to the market are expected to be important competitive factors.
In addition, the Company believes that the primary competitive factors in the
market for ultrasound imaging agents are safety, efficacy, ease of delivery,
reliability, innovation and price. The Company also believes that physician
relationships and customer support are important competitive factors.
GOVERNMENT REGULATION
The Company's diagnostic products are subject to substantial regulation
by the FDA and comparable agencies in foreign countries. Pursuant to the
federal Food, Drug and Cosmetic Act, as amended, and the regulations
promulgated thereunder, the FDA regulates the research, development, clinical
testing, manufacture, labeling, distribution and promotion of medical
products. Noncompliance with applicable requirements can result in, among
other things, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, refusal by the FDA to
review premarket approval applications ("PMA"), withdrawal of marketing
approvals, a recommendation by the FDA that the Company not be permitted to
enter into government contracts, and criminal prosecution.
In the United States, medical devices are classified into one of three
classes (Class I, II, or III) based on the controls deemed necessary by the
FDA reasonably to assure their safety and efficacy. ALBUNEX-Registered
Trademark- and FS069 have been classified as Class III devices, which means
that they must receive extensive premarketing review in which their safety
and efficacy will be evaluated, followed by formal approval by the FDA. There
is no assurance that the FDA will continue to classify ALBUNEX-Registered
Trademark- and FS069 as devices rather than as drugs, but the Company
believes that it is likely that the device classification will continue for
the foreseeable future.
The process of obtaining FDA approval of new products like
ALBUNEX-Registered Trademark-, FS069, and ORALEX-Registered Trademark-,
involves many steps. Results of laboratory and animal tests to determine
efficacy and safety, including potential toxicity, are submitted to the FDA
as part of an application for an investigational device exemption ("IDE")
before clinical
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trials on humans can begin. After completion of clinical trials, a PMA, in
the case of medical devices, must be submitted to the FDA for review and
approval before commercial marketing and sale may begin. In addition, a
supplement to a PMA, including supporting clinical data, is required before a
company may commercialize an approved medical device for a new indication.
As Class III devices, ALBUNEX-Registered Trademark- and FS069 are
required to undergo the PMA process. A PMA must be supported by valid
scientific evidence which typically includes extensive data, including
preclinical and human clinical trial data to demonstrate the safety and
efficacy of the device. If human clinical trials of a device are required,
the sponsor of the trial is required to file an IDE with the FDA prior to
beginning human clinical trials. The IDE application must be supported by
data, typically including the results of animal and laboratory testing. If
the IDE application is approved by the FDA and the appropriate institutional
review boards, human clinical trials may begin at a specific sites with a
specific number of patients, as specified in the approved protocol. An IDE
supplement must be submitted to and approved by the FDA before a sponsor or
an investigator may make any change to the investigational plan that may
affect its scientific soundness or the rights, safety or welfare of human
subjects.
In addition to the results of clinical trials, the PMA must also contain
the results of all relevant bench tests, laboratory and animal studies, a
complete description of the device and its components, and a detailed
description of the methods, facilities and controls used to manufacture the
device. In addition, the submission must include the proposed labeling,
advertising literature and any relevant training methods. Upon receipt of a
PMA application, the FDA makes a threshold determination whether the
application is sufficiently complete to permit a substantive review. If the
FDA determines that the PMA application is sufficiently complete to permit a
substantive review, the FDA will accept the application for filing. Once the
submission is accepted for filing, the FDA begins an in-depth review of the
PMA. An FDA review of a PMA application generally takes one to two years from
the date that the PMA application is accepted for filing, but may take
significantly longer. The review time is often significantly extended as a
result of the FDA asking for more information or for clarification of
information already provided in the submission. During the review period, an
advisory committee, typically a panel of clinicians, will likely be convened
to review and evaluate the application and provide recommendations to the FDA
as to whether the device should be approved. The FDA is not bound by the
recommendations of the advisory panel. Toward the end of the review process,
the FDA generally will conduct an inspection of the manufacturer's facility
to ensure that the facilities are in compliance with the applicable Good
Manufacturing Practices ("GMP") requirements.
If the FDA's evaluations of both the PMA application and the
manufacturing facilities are favorable, the FDA will either issue an approval
letter, or, in some cases, an "approvable letter" containing a number of
conditions which must be met in order to obtain final approval of the PMA.
When and if those conditions have been fulfilled to the satisfaction of the
FDA, the agency will issue a PMA approval letter authorizing commercial
marketing of the device for the specified indications. If the FDA's
evaluation of the PMA applications or manufacturing facilities is not
favorable, the FDA will deny approval of the PMA application or issue a "not
approvable" letter. The FDA may also determine that additional clinical
trials are necessary, in which case PMA approval could be delayed for several
years while additional clinical trials are conducted and submitted in an
amendment to the PMA. The PMA process can be expensive, uncertain and
lengthy, and a number of devices for which approval has been sought by other
companies have never been approved for marketing.
Any devices manufactured or distributed by the Company pursuant to FDA
or approvals are subject to pervasive and continuing regulations by the FDA
and certain state agencies. The FDA often requires device manufacturers,
including the Company in the case of ALBUNEX-Registered Trademark-, to
conduct postmarketing surveillance studies following PMA approval to further
evaluate the safety and effectiveness of the device. Foreign and domestic
regulatory approvals, if granted, may include significant limitations on the
indicated use for which the product may be marketed. In addition, the FDA and
certain foreign regulatory authorities impose numerous other requirements
with which medical device manufactures must comply. Product approvals could
be withdrawn for failure to comply with regulatory standards or as a result
of the occurrence of unforeseen safety or effectiveness
16
<PAGE>
problems following initial marketing. The Company will also be required to
adhere to applicable FDA regulations setting forth current GMP requirements,
which include testing, control and documentation requirements. The Company is
also required to register with the FDA and with state agencies such as the
California Department of Health Services as a medical device manufacturer and
to list its products with the FDA. Ongoing compliance with GMP and other
applicable regulatory requirements is monitored through periodic inspections
by state and federal agencies, including the FDA, and by comparable agencies
in other countries. Changes in existing regulations or adoption of new
regulations could prevent the Company from obtaining, or affecting the timing
of, future approvals or clearances.
The FDA and equivalent foreign agencies have significant discretion in
their conduct of each stage of the regulatory process. Adverse decisions are
effectively unappealable, and agency delays are an unfortunate fact of life
for companies they regulate.
The Company also intends to sell ALBUNEX-Registered Trademark- and FS069
in foreign countries. The time required to obtain approval for sale in
foreign countries may be longer or shorter than that required for FDA
approval, and the requirements may differ. In addition, there may be foreign
regulatory barriers other than premarket approval and the FDA must approve
the export of devices that require a PMA but are not yet approved
domestically. ALBUNEX-Registered Trademark- is currently approved for export
to Japan.
ALBUNEX-Registered Trademark- was approved for commercial marketing and
sale by the FDA in August 1994. It was approved for sale in Japan in October
1993, in Sweden in February 1994 and in the United Kingdom in August 1994. In
February 1996 the Committee for Proprietary Medicinal Products ("CPMP") of
the European Agency for the Evaluation of Medicinal Products recommended the
approval of ALBUNEX-Registered Trademark- (in its Nycomed-developed Infoson
version) for marketing authorization in the European Union, consisting of
Germany, France, Belgium, Denmark, Spain, Greece, Ireland, Italy, Luxembourg
and the Netherlands. Member countries generally follow the recommendation of
the CPMP to allow marketing for the approved product, pending approval of
labeling and, if applicable, pricing.
Labeling, advertising and other and promotional activities are subject
to scrutiny by the FDA and in certain instances by the Federal Trade
Commission. The FDA actively enforces regulations prohibiting marketing of
products for unapproved uses, sometimes called "off-label" uses. The Company
and its products are also subject to a variety of state laws and regulations
in those states or localities where its products are or will be marketed. Any
applicable state or local regulations may hinder the Company's ability to
market its products in those states or localities.
The Company is also subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations now or in the future or that such laws or regulations will not
have a material adverse effect upon the Company's ability to do business.
Changes in existing requirements or the adoption of new requirements or
policies could adversely affect the ability of the Company to comply with
regulatory requirements. Failure to comply with regulatory requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the Company will
not be required to incur significant costs to comply with laws and
regulations in the future or that laws or regulations will not have a
material adverse effect on the Company's business, financial condition, or
results of operations.
THIRD PARTY REIMBURSEMENT
In the United States, the Company's products will be purchased primarily
by medical institutions which will then bill various third-party payors such
as Medicare, Medicaid and other government programs and private
17
<PAGE>
insurance plans. In considering reimbursement for a new medical product,
these payors must decide both whether to cover the product and how much to
pay for it.
In general, to be covered by Medicare, a health care product or service
must be "reasonable and necessary" for the diagnosis or treatment of an
illness or injury. This requirement has been interpreted to mean that the
product or service must be safe and effective, not experimental or
investigational (except under certain limited circumstances involving devices
furnished pursuant to an FDA-approved clinical trial), and appropriate.
Medicaid, Blue Cross and Blue Shield plans, commercial insurers and other
third-party payors generally have limitations on coverage that are similar to
those of Medicare.
Even if a device has received approval or clearance for marketing by the
FDA, there is no assurance that Medicare or other payor will cover the device
or related services. Also, Medicare may place certain restrictions on the
circumstances in which coverage will be available. In making such coverage
determinations, the Health Care Financing Administration ("HCFA"), which
administers the Medicare program, and HCFA's contractors consider, among
other things, peer-reviewed articles concerning the safety and effectiveness
of the device, the opinions of medical specialty societies, and input from
the FDA, the National Institutes of Health, and other government agencies.
There is no assurance that the Company's products will be covered by Medicare
and other third-party payors.
Failure by hospitals and physicians to receive what they consider to be
adequate reimbursement for procedures in which the Company's products are
used would have a material adverse effect on the Company's business,
financial condition and results of operations.
EMPLOYEES
As of March 31, 1996, the Company had 136 full-time employees, including
6 officers. Approximately 34 of the Company's employees were involved
directly in scientific research and development activities. Of these
employees, 14 held Ph.D. or M.D. degrees. The Company considers its relations
with its employees to be good, and none of its employees is a party to a
collective bargaining agreement.
ITEM 2. PROPERTIES
The Company's corporate offices and laboratory, manufacturing and
warehouse facilities occupy a total of 62,800 square feet in San Diego,
California. The Company owns a 44,000 square-foot building purchased in 1989
and leases an additional 18,800 square-foot facility under an agreement
expiring in October 1997. The Company has entered into a new lease commencing
in October 1997 for the space it currently occupies plus an additional 35,912
square feet (54,712 square feet total) expiring in September 2002. The
Company anticipates that these facilities will be sufficient to meet its
needs into the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently engaged in a dispute with Shionogi, the
Company's marketing partner for ALBUNEX-Registered Trademark- and FS069 in
Japan, Taiwan and South Korea. Negotiations between the parties to resolve
their dispute by terminating the license and cooperative development
agreement on mutually acceptable terms were unsuccessful. In February and
March 1996, Shionogi and the Company respectively served each other with
notices of breach of the agreement, and in early April 1996, Shionogi
purported to terminate the agreement. On April 11, 1996, Shionogi filed a
demand with the American Arbitration Association ("AAA") for arbitration of
Shionogi's claim for damages in excess of $37 million, representing
Shionogi's license fees paid under the MBI-Shionogi license and cooperative
development agreement and associated development expenses for
ALBUNEX-Registered Trademark-, plus punitive damages. Shionogi claims that
the Company failed to provide Shionogi with ALBUNEX-Registered Trademark-
meeting the required quality and performance standards and that the Company
wrongfully attempted to withhold rights to
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<PAGE>
FS069 from Shionogi. The Company believes that Shionogi's claims are without
merit and that there is no factual or legal basis for any liability of the
Company to refund any of the license fees paid by Shionogi or to reimburse
any of Shionogi's ALBUNEX-Registered Trademark- development expenses. The
Company's dispute with Shionogi may have the effect of interrupting or
suspending sales of ALBUNEX-Registered Trademark- in Japan (approximately
$264,000 in revenue to the Company for the fiscal year ended March 31, 1996),
of further delaying the marketing of ALBUNEX-Registered Trademark- in South
Korea and Taiwan and of further delaying the development of FS069 throughout
Shionogi's territory, and carries with it the risk of monetary damages being
awarded against the Company. On April 16, 1996, the Company filed a demand
with the AAA for arbitration of the Company's claim for compensatory and
consequential damages in excess of $45 million plus punitive damages for
Shionogi's breach of the MBI-Shionogi license and cooperative development
agreement. The Company claims that Shionogi breached its obligations under
that agreement by failing diligently to develop the market for
ALBUNEX-Registered Trademark- and FS069 in its territory, failing to make a
required minimum payment of $3.0 million (less earned royalties paid) and
delaying the commercialization of ALBUNEX-Registered Trademark- in its
territory. The results of the arbitration proceedings cannot be predicted. It
is possible that Shionogi could be awarded some portion or all of the damages
that it is seeking. Moreover, there can be no assurance that the Company will
be awarded all or any portion of the damages that it is seeking. A ruling
adverse to MBI in the arbitration proceeding filed by Shionogi could have a
material adverse effect on the Company's business, financial condition and
results of operations. If Shionogi were awarded all of the damages that it is
seeking, the Company would have difficulty meeting its anticipated capital
requirements and might be required to reduce the scope of or eliminate its
manufacturing activities, or attempt to obtain funds by entering into
arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain technologies or products that the
Company would not otherwise relinquish. The Company's inability to fund its
capital requirements would have a material adverse effect on the Company's
business, financial condition and results of operations.
In May 1993, the Company entered into an exclusive license agreement
with Bracco S.p.A. ("Bracco") of Milan, Italy for distribution rights to the
Company's developmental oral contrast agent in Europe and the former Soviet
Union. Bracco paid the Company a license fee of $2.0 million and agreed to
perform certain developmental obligations in the territory in preparation to
market the product. The licensed patents under the agreement did not
anticipate the development of the product that eventually became
ORALEX-Registered Trademark-. When ORALEX-Registered Trademark- was developed
and appeared to the Company to be the agent of choice, Bracco declined the
product and demanded rescission of the agreement and the return of its
license fee. The Company denied Bracco's claims, and in January 1995 Bracco
filed a demand for arbitration. The Company filed its own demand, claiming
that Bracco had breached the agreement because it had acquired rights to a
competing agent. In November 1995, an arbitrator awarded Bracco $1.7 million
plus approximately $274,000 in interest through March 29, 1996. The Company's
initial appeal of the decision was unsuccessful but a further appeal is
pending. The amount awarded has been paid to Bracco pending the outcome of
this further appeal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following information concerning the names, ages and titles of the
Company's executive officers as of March 31, 1996 and, with the exception of
Steven Lawson, as of the date of this report, is included in accordance with
General Instruction G(3) of Form 10-K:
NAME AGE POSITION
Kenneth J. Widder, M.D. . . . . 43 Chairman of the Board, Chief
Executive Officer
Bobba Venkatadri. . . . . . . . 52 President and Chief Operating Officer
Gerard A. Wills . . . . . . . . 39 Vice President, Finance; Chief Financial
Officer
Steven Lawson . . . . . . . . . 44 Vice President, Legal Affairs; General
Counsel
James L. Barnhart,Ph.D. . . . . 53 Vice President, Research and Development
Allan H. Mizoguchi, Ph.D. . . . 51 Vice President, Clinical and Regulatory
Affairs
KENNETH J. WIDDER, M.D., a founder of the Company, has served as the
Company's Chairman of the Board and Chief Executive Officer since July 1981.
He currently serves as a director of Titan Pharmaceuticals, Wilshire
Technologies, and Digivision, Inc.
BOBBA VENKATADRI has served as the Company's President and Chief
Operating Officer since October 1995. He served as Executive Vice President
of the Pharmaceutical Division of Centocor, Inc., from September 1992 until
he joined the Company, and as Vice President - Operations of Centocor's
Pharmaceutical Division from March 1992 to September 1992. He was employed
by Warner-Lambert Company from 1967 until February 1992, most recently
serving as Senior Director, Pharmaceutical Operations, at its manufacturing
facility in Vegabaja, Puerto Rico.
GERARD A. WILLS has served as the Company's Vice President - Finance and
Chief Financial Officer since January 1995. He served as the Company's Chief
Financial Officer from August 1994 to September 1995 and as its Controller
from February 1993 to August 1994. From 1990 until joining the Company in
February 1993, Mr. Wills served as the Corporate Manager of Finance for
Maxwell Laboratories, Inc. From 1986 through 1990 Mr. Wills was employed by
Intermark, Inc. where he last served as the Corporate Controller.
STEVEN LAWSON served as the Company's Vice President - Legal Affairs and
General Counsel from January 1992 to May 1996. From 1981 until joining the
Company, Mr. Lawson was a partner with the law firm of Johnson and Colmar in
Chicago, Illinois. He resigned from the Company effective May 31, 1996.
JAMES L. BARNHART, Ph.D., has served as the Company's Vice President -
Research and Development since October 1992. He served as the Company's
Director of Research and Development from February 1988 to October 1992.
From 1979 until joining the Company in February 1988, Dr. Barnhart was an
Associate Adjunct Professor at the Department of Radiology at the University
of California, San Diego School of Medicine in La Jolla, California.
ALLAN H. MIZOGUCHI, Ph.D., has served as the Company's Vice President -
Clinical and Regulatory Affairs since July 1994. He joined the Company in
June 1989 as Director of Clinical Trials and served as its Director of
Clinical Research from April 1992 until February 1994 when he was appointed
Executive Director, Clinical Affairs and Quality Assurance.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information on page 42 of the annual stockholders report for the
year ended March 31, 1996 is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data on page 21 of the annual stockholders report for
the year ended March 31, 1996 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations on pages 22 through 26 of the annual stockholders report for
the year ended March 31, 1996 are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial statements
included on pages 27 through 41 of the annual stockholders report for the
year ended March 31, 1996 are incorporated herein by reference.
Quarterly Results of Operations on page 41 of the annual stockholders
report for the year ended March 31, 1996 is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors is incorporated in this report by
reference to pages 2 through 4 of the Company's definitive proxy
statement for the 1996 Annual Meeting of Stockholders to be held on August
20, 1996 ("1996 Proxy Statement Information"). Information concerning
executive officers is included in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by
reference to pages 7 through 12 of the Company's 1996 Proxy Statement.
21
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership is incorporated in this report
by reference to pages 5 through 6 of the Company's 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
incorporated by reference to page 14 of the Company's 1996 Proxy Statement.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following Consolidated Financial Statements of MOLECULAR
BIOSYSTEMS, INC. are filed as part of this Form 10-K and are included
in the Annual Report to stockholders attached hereto as Exhibit 13.1
and incorporated herein by reference:
Report of Independent Public Accountants
Consolidated Balance Sheets at March 31, 1996 and 1995
Consolidated Statements of Operations for the years ended March 31,
1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the years ended
March 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended March 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) All schedules have been omitted because they are not applicable or
required, or the information required to be set forth therein is
included in the Consolidated Financial Statements or notes thereto
included in the Annual Report to stockholders attached hereto as
Exhibit 13.1.
(3) Exhibits - Exhibits marked with an asterisk are filed with this
Report; all other Exhibits are incorporated by reference. Exhibits
marked with a dagger are management contracts or compensatory plans
or arrangements.
3.1 Certificate of Incorporation of the Company, as amended to date
(by amendments filed March 4, 1981, March 30, 1982, March 14,
1983, April 18, 1983, and November 20, 1987).
(Incorporated by reference from Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1988.)
3.2 Certificate of Incorporation of Syngene, Inc. as amended
September 20, and December 31, 1989. (Incorporated by
reference from Exhibit 3.2 to the Company's Annual Report of
Form 10-K for the fiscal year ended March 31, 1990.)
3.3 By-Laws of the Company, as amended and restated September 18,
1990. (Incorporated by reference from Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1991).
23
<PAGE>
EXHIBITS (continued)
3.4 First Amendment, dated August 20, 1992 to the By-Laws of the
Company, as amended and restated September 18, 1990.
(Incorporated by reference from Exhibit 3.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1994.)
3.5 By-Laws of Syngene, Inc. (Incorporated by reference from
Exhibit 3.4 to the Company's Annual Report on form
10-K for the fiscal year ended March 31, 1990.)
10.1 Restated License Agreement dated June 1, 1989 between the
Company and Steven B. Feinstein, M.D., and related Research
and Supply Agreement dated June 1, 1989. (Incorporated by
reference from Exhibits 10.1 and 10.2 to the Company's Current
Report on Form 8-K filed on June 9, 1989.)
10.2 Amendment to Research Support and Supply Agreement dated
December 15, 1992 between the Company and Steven B. Feinstein,
M.D. (Incorporated by reference from Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1993.)
10.3 License and Cooperative Development Agreement dated
December 31, 1987 between the Company and Nycomed AS
("Nycomed"), and related Investment Agreement dated
December 31, 1987, Registration Agreement dated December 31,
1987 and Common Stock Purchase Warrant dated January 19,
1988. (Incorporated by reference from Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1988.)
10.4 Amendment to License and Cooperative Development Agreement
dated June 15, 1989 between the Company and Nycomed.
(Incorporated by reference from Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1989.)
10.5 Amendment No. 3 to License and Cooperative Development
Agreement dated October 24, 1995 between the Company and
Nycomed Imaging AS. (Incorporated by reference from Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q/A for
the quarterly period ended December 31, 1995.)
10.6 Distribution Agreement dated December 7, 1988 between the
Company and Mallinckrodt, Inc. and related Investment
Agreement dated December 7, 1988. (Incorporated by reference
from Exhibit 10.9 to the Company's Annual Report on form 10-K
for the fiscal year ended March 31, 1989.)
10.7 Amendment Agreement dated November 7, 1989 to Distribution
Agreement dated December 7, 1988 between the Company and
Mallinckrodt, Inc. (Incorporated by reference from Exhibit 10.7
to the Company's Annual Report on form 10-K for the fiscal
year ended March 31, 1990).
10.8 Letter Agreement dated February 1, 1991 between the Company
and Mallinckrodt Medical, Inc. (Incorporated by reference
from Exhibit 10.8 to the Company's Annual Report of Form 10-K
for the fiscal year ended March 31, 1991.)
24
<PAGE>
EXHIBIT (continued)
10.9 Amended and Restated Distribution Agreement dated September 7,
1995 between the Company and Mallinckrodt Medical, Inc.
(Incorporated by reference from Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1995.)
10.10 Investment Agreement dated September 7, 1995 between the
Company and Mallinckrodt Medical, Inc. (Incorporated by
reference from Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q/A for the quarterly period ended December 31,
1995.)
10.11 Letter Agreement dated February 18, 1991 between the Company
and Schering Aktiengesellschaft. (Incorporated by reference
from Exhibit 10.9 to the Company's Annual Report of Form 10-K
for the fiscal year ended March 31, 1991.)
10.12 License and Cooperative Development Agreement dated March 2,
1989 between the Company and Shionogi & Co., Ltd.
(Incorporated by reference from Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1989.)
10.13 Exclusive License Agreement dated April 1, 1992 between the
Company and The Regents of the University of California.
(Incorporated by reference from Exhibit 10.30 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1992.)
10.14 License Agreement dated August 23, 1991 between the Johns
Hopkins University, Towson State University and the Company.
(Incorporated by reference from Exhibit 10.31 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1992.)
10.15 License Agreement dated November 11, 1991 between the Company
and the Regents of the University of Michigan. (Incorporated by
reference from Exhibit 10.32 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1992.)
10.16 Exclusive License Agreement dated July 31, 1990 between the
Company and the Regents of the University of California, and
Amendment Agreement dated April 1, 1992. (Incorporated by
reference from Exhibit 10.33 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1992.)
10.17 Non-Exclusive Patent License Agreement dated September 14, 1992
between the Company and Isis Pharmaceuticals, Inc.
(Incorporated by reference from Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992.)
10.18 Settlement Agreement and Mutual General Release dated
August 28, 1992 between the Company and Gen-Probe Incorporated.
(Incorporated by reference from Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992.)
25
<PAGE>
EXHIBITS (continued)
10.19 License and Settlement Agreement dated May 19, 1994 between
the Company, Kenneth J. Widder and James L. Barnhart and IMARx
Pharmaceutical Corp. and Evan C. Unger. (Incorporated by
reference from Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1994.)
10.20 Stipulation of Settlement dated February 14, 1994 between
Robert Sherman, on behalf of himself and all others similarly
situated and Kenneth J. Widder, et. al. (Incorporated by
reference from Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1994.)
10.21 License Option Agreement dated January 29, 1993 between the
Company and Abbott Laboratories. (Incorporated by reference
from Exhibit 10.1 to the Company's Current Report on Form 8-K
dated January 29, 1993.)
10.22 License and Collaborative Research Agreement dated December 10,
1992 among the Company, Dendritech Inc. and Michigan Molecular
Institute. (Incorporated by reference from Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1993.)
10.23 Research Agreement dated May 1, 1993 between the Company and
Michigan Molecular Institute. (Incorporated by reference from
Exhibit 10.18 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1993.)
10.24* License Termination Agreement dated September 18, 1995 between
Dendritech, Inc., Michigan Molecular Institute and the Company.
10.25 License and Distribution Agreement dated May 19, 1993 between
the Company and Bracco S.P.A., Milan, Italy. (Incorporated by
reference from Exhibit 10.19 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1993.)
10.26+ Molecular Biosystems, Inc. Pre-1984 Nonstatutory Stock Option
Plan. (Incorporated by reference from Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1989.)
10.27+ Molecular Biosystems,Inc.1984 Incentive Stock Option Plan and
1984 Nonstatutory Stock Option Plan, as amended by First and
Second Amendments. (Incorporated by reference from Exhibit
10.15 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1988.)
10.28+ Third and Fourth Amendments to Molecular Biosystems, Inc. 1984
Incentive Stock Option Plan and 1984 Nonstatutory Stock Option
Plan. (Incorporated by reference from Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1989.)
26
<PAGE>
EXHIBITS (continued)
10.29+ Fifth Amendment to Molecular Biosystems, Inc. 1984 Incentive
Stock Option Plan and 1984 Nonstatutory Stock Option Plan.
(Incorporated by reference from Exhibit 10.15 to the Company's
Annual Report on Form 10-K for the fiscal year ended
March 31, 1990.)
10.30+ Sixth and Seventh Amendments to Molecular Biosystems, Inc.
1984 Incentive Stock Option Plan and 1984 Nonstatutory Stock
Option Plan. (Incorporated by reference from Exhibit 10.15 to
the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1991.)
10.31+ Eighth and Ninth Amendments to Molecular Biosystems, Inc. 1984
Incentive Stock Option Plan and 1984 Nonstatutory Stock Option
Plan. (Incorporated by reference from Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1993.)
10.32+ Form of Stock Option Agreement used with the Company's 1984
Incentive Stock Option Plan and 1984 Nonstatutory Stock Option
Plan. (Incorporated by reference from Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1988.)
10.33+ Employment Agreement dated April 25, 1995 between the Company
and Kenneth J. Widder, M. D. (Incorporated by reference from
Exhibit 10.30 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995.)
10.34+ Molecular Biosystems, Inc. 1993 Stock Option Plan.
(Incorporated by reference from Exhibit 4.2 to the Company's
Registration Statement No. 33-78572 on Form S-8, dated
May 3, 1994, filed on May 5, 1994.)
10.35+ Form of Stock Option Agreement used with the Company's 1993
Stock Option Plan. (Incorporated by reference from Exhibit
10.33 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1994.)
10.36+ Molecular Biosystems, Inc. 1993 Outside Directors Stock Option
Plan. (Incorporated by reference from Exhibit 4.2 to the
Company's Registration Statement No. 33-78564 on Form S-8,
dated May 3, 1994, filed on May 5, 1994.)
10.37+ Form of Stock Option Agreement used with the Company's 1993
Outside Directors Stock Option Plan. (Incorporated by
reference from Exhibit 10.35 to
27
<PAGE>
EXHIBITS (continued)
the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1994.)
10.38+ Employment Agreement dated October 1, 1992 between the Company
and James L. Barnhart, Ph.D. (Incorporated by reference from
Exhibit 10.34 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1993.)
10.39+ Employment Agreement dated April 1, 1994 between the Company
and Gerard A. Wills. (Incorporated by reference from Exhibit
10.39 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995.)
10.40+ Employment Agreement dated August 1, 1994 between the Company
and Allan H. Mizoguchi. (Incorporated by reference from
Exhibit 10.41 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995.)
10.41*+ Employment Agreement dated November 1, 1995 between the
Company and Bobba Venkatadri.
10.42*+ Separation Agreement effective September 8, 1995 between
the Company and Kenneth R. Derry.
10.43*+ Separation Agreement effective November 17, 1995 between
Company and Richard M. Stern.
10.44*+ Consultant Agreement effective December 4, 1995 between
the Company and Richard M. Stern.
10.45*+ Separation Agreement effective May 10, 1996 as amended on
June 6, 1996 between the Company and Steven Lawson.
10.46 Sublease dated February 6, 1992 between the Company and
Sunward Technologies, California. (Incorporated by reference
from Exhibit 10.27 to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1992.)
28
<PAGE>
EXHIBITS (continued)
10.47 Triple Net Lease dated June 19, 1995 between the Company and
Radnor/Collins/Sorrento Partnership. (Incorporated by
reference from Exhibit 10.43 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1995.)
10.48 First Amendment to Lease dated July 15, 1994 between the
Company and Principal Mutual life Insurance Company.
(Incorporated by reference from Exhibit 10.44 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1995.)
10.49 Office Lease dated September 9, 1991 between the Company and
The Principal Financial Group. (Incorporated by reference from
Exhibit 10.28 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1992.)
10.50 Sublease dated March 1, 1993 between the Company and Dow
Chemical Company. (Incorporated by reference from Exhibit 10.39
to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1993.)
10.51 Promissory note dated December 31, 1993 between the Company and
James L. Barnhart. (Incorporated by reference from Exhibit
10.48 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1994.)
10.52* Second Amendment to Promissory note dated June 24, 1996
between the Company and James L. Barnhart.
10.53 Promissory note dated December 31, 1993 between the Company
and John W. Young. (Incorporated by reference from Exhibit
10.49 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1994.)
10.54 Promissory note dated December 31, 1993 between the Company
and Richard M. Stern. (Incorporated by reference from
Exhibit 10.50 to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1994.)
10.55 Amendment to Promissory noted dated December 31, 1994 between
the Company and Richard M. Stern. (Incorporated by reference
from Exhibit 10.52 to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1995.)
13.1* The Company's Annual Report to Stockholders for the fiscal year
ended March 31, 1996.
19 Documents not previously filed are marked with an asterisk (*).
29
<PAGE>
EXHIBITS (continued)
24* Consent of Arthur Andersen LLP.
(b) REPORTS ON FORM 8-K DURING THE FOURTH QUARTER ENDED
MARCH 31, 1996
A Current Report on Form 8-K dated March 21, 1996, was filed
on March 26, 1996, reporting that the Company and Shionogi &
Co., Ltd. had exchanged notices of breach of their License
and Cooperative Development Agreement dated March 1988.
30
<PAGE>
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, on June 28, 1996.
MOLECULAR BIOSYSTEMS, INC.
By: /s/ Kenneth J. Widder, M.D.
------------------------------------
Kenneth J. Widder, M.D.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Kenneth J. Widder, M.D. Chairman of the Board, Chief June 28, 1996
- ----------------------------- Executive Officer and Director
Kenneth J. Widder, M.D. (Principal Executive Officer)
/s/ Bobba Venkatadri President, Chief Operating June 28, 1996
- ----------------------------- Officer
Bobba Venkatadri
/s/ Gerard A. Wills Vice President - Finance June 28, 1996
- ----------------------------- and Chief Financial Officer
Gerard A. Wills (Principal Financial and
Accounting Officer)
/s/ Robert W. Brightfelt Director June 28, 1996
- -----------------------------
Robert W. Brightfelt
/s/ Charles C. Edwards, M.D. Director June 28, 1996
- -----------------------------
Charles C. Edwards, M.D.
/s/ Gordon C. Luce Director June 28, 1996
- -----------------------------
Gordon C. Luce
/s/ David Rubinfien Director June 28, 1996
- -----------------------------
David Rubinfien
/s/ David W. Barry, M.D. Director June 28, 1996
- -----------------------------
David W. Barry, M. D.
31
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Description Page
<S> <C> <C>
Exhibits-Exhibits marked with an asterisk are filed with this Report;
all other Exhibits are incorporated by reference. Exhibits marked with a
dagger are management contracts or compensatory plans or arrangements.
3.1 Certificate of Incorporation of the Company, as amended to date (by
amendments filed March 4, 1981, March 30, 1982, March 14, 1983, April 18,
1983, and November 20, 1987). (Incorporated by reference from Exhibit 3.1
to the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1988.)
3.2 Certificate of Incorporation of Syngene, Inc. as amended September 20, and
December 31, 1989. (Incorporated by reference from Exhibit 3.2 to the
Company's Annual Report of Form 10-K for the fiscal year ended March 31,
1990.)
3.3 By-Laws of the Company, as amended and restated September 18, 1990.
(Incorporated by reference from Exhibit 3.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1991).
3.4 First Amendment, dated August 20, 1992 to the By-Laws of the Company, as amended
and restated September 18, 1990. (Incorporated by reference from Exhibit 3.4
to the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1994.)
3.5 By-Laws of Syngene, Inc. (Incorporated by reference from Exhibit 3.4 to the
Company's Annual Report on form 10-K for the fiscal year ended March 31, 1990.)
10.1 Restated License Agreement dated June 1, 1989 between the Company and Steven B.
Feinstein, M.D., and related Research and Supply Agreement dated June 1,
1989. (Incorporated by reference from Exhibits 10.1 and 10.2 to the Company's
Current Report on Form 8-K filed on June 9, 1989.)
10.2 Amendment to Research Support and Supply Agreement dated December 15, 1992
between the Company and Steven B. Feinstein, M.D. (Incorporated by reference
from Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1993.)
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Description Page
<S> <C> <C>
10.3 License and Cooperative Development Agreement dated December 31, 1987
between the Company and Nycomed AS ("Nycomed"), and related Investment
Agreement dated December 31, 1987, Registration Agreement dated December 31,
1987 and Common Stock Purchase Warrant dated January 19, 1988. (Incorporated
by reference from Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1988.)
10.4 Amendment to License and Cooperative Development Agreement dated June 15,
1989 between the Company and Nycomed. (Incorporated by reference from Exhibit 10.8
to the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1989.)
10.5 Amendment No. 3 to License and Cooperative Development Agreement dated October 24,
1995 between the Company and Nycomed Imaging AS. (Incorporated by reference from
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q/A for the quarterly
period ended December 31, 1995.)
10.6 Distribution Agreement dated December 7, 1988 between the Company and Mallinckrodt,
Inc. and related Investment Agreement dated December 7, 1988. (Incorporated by
reference from Exhibit 10.9 to the Company's Annual Report on form 10-K for the
fiscal year ended March 31, 1989.)
10.7 Amendment Agreement dated November 7, 1989 to Distribution Agreement dated December 7,
1988 between the Company and Mallinckrodt, Inc. (Incorporated by reference from
Exhibit 10.7 to the Company's Annual Report on form 10-K for the fiscal year ended
March 31, 1990).
10.8 Letter Agreement dated February 1, 1991 between the Company and Mallinckrodt Medical,
Inc. (Incorporated by reference from Exhibit 10.8 to the Company's Annual Report of
Form 10-K for the fiscal year ended March 31, 1991.)
10.9 Amended and Restated Distribution Agreement dated September 7, 1995 between the Company
and Mallinckrodt Medical, Inc. (Incorporated by reference from Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1995.)
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Description Page
<S> <C> <C>
10.10 Investment Agreement dated September 7, 1995 between the Company and Mallinckrodt
Medical, Inc. (Incorporated by reference from Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q/A for the quarterly period ended December 31, 1995.)
10.11 Letter Agreement dated February 18, 1991 between the Company and Schering
Aktiengesellschaft. (Incorporated by reference from Exhibit 10.9 to the Company's
Annual Report of Form 10-K for the fiscal year ended March 31, 1991.)
10.12 License and Cooperative Development Agreement dated March 2, 1989 between the
Company and Shionogi & Co., Ltd. (Incorporated by reference from Exhibit 10.10
to the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1989.)
10.13 Exclusive License Agreement dated April 1, 1992 between the Company and The
Regents of the University of California. (Incorporated by reference from Exhibit 10.30
to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1992.)
10.14 License Agreement dated August 23, 1991 between the Johns Hopkins University, Towson
State University and the Company. (Incorporated by reference from Exhibit 10.31 to
the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1992.)
10.15 License Agreement dated November 11, 1991 between the Company and the Regents of the
University of Michigan. (Incorporated by reference from Exhibit 10.32 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1992.)
10.16 Exclusive License Agreement dated July 31, 1990 between the Company and the Regents of
the University of California, and Amendment Agreement dated April 1, 1992.
(Incorporated by reference from Exhibit 10.33 to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1992.)
10.17 Non-Exclusive Patent License Agreement dated September 14, 1992 between the Company and
Isis Pharmaceuticals, Inc. (Incorporated by reference from Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1992.)
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Description Page
<S> <C> <C>
10.18 Settlement Agreement and Mutual General Release dated August 28, 1992 between
the Company and Gen-Probe Incorporated. (Incorporated by reference from
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1992.)
10.19 License and Settlement Agreement dated May 19, 1994 between the Company, Kenneth J.
Widder and James L. Barnhart and IMARx Pharmaceutical Corp. and Evan C. Unger.
(Incorporated by reference from Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1994.)
10.20 Stipulation of Settlement dated February 14, 1994 between Robert Sherman, on behalf
of himself and all others similarly situated and Kenneth J. Widder, et. al.
(Incorporated by reference from Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1994.)
10.21 License Option Agreement dated January 29, 1993 between the Company and Abbott
Laboratories. (Incorporated by reference from Exhibit 10.1 to the Company's
Current Report on Form 8-K dated January 29, 1993.)
10.22 License and Collaborative Research Agreement dated December 10, 1992 among the
Company, Dendritech Inc. and Michigan Molecular Institute. (Incorporated by
reference from Exhibit 10.17 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1993.)
10.23 Research Agreement dated May 1, 1993 between the Company and Michigan Molecular
Institute. (Incorporated by reference from Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1993.)
10.24* License Termination Agreement dated September 18, 1995 between Dendritech, Inc.,
Michigan Molecular Institute and the Company.
10.25 License and Distribution Agreement dated May 19, 1993 between the Company and
Bracco S.P.A., Milan, Italy. (Incorporated by reference from Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993.)
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Description Page
<S> <C> <C>
10.26+ Molecular Biosystems, Inc. Pre-1984 Nonstatutory Stock Option Plan.
(Incorporated by reference from Exhibit 10.11 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1989.)
10.27+ Molecular Biosystems,Inc.1984 Incentive Stock Option Plan and 1984 Nonstatutory
Stock Option Plan, as amended by First and Second Amendments. (Incorporated by
reference from Exhibit 10.15 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1988.)
10.28+ Third and Fourth Amendments to Molecular Biosystems, Inc. 1984 Incentive Stock
Option Plan and 1984 Nonstatutory Stock Option Plan. (Incorporated by reference
from Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1989.)
10.29+ Fifth Amendment to Molecular Biosystems, Inc. 1984 Incentive Stock Option Plan
and 1984 Nonstatutory Stock Option Plan. (Incorporated by reference from
Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1990.)
10.30+ Sixth and Seventh Amendments to Molecular Biosystems, Inc. 1984 Incentive Stock
Option Plan and 1984 Nonstatutory Stock Option Plan. (Incorporated by reference
from Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1991.)
10.31+ Eighth and Ninth Amendments to Molecular Biosystems, Inc. 1984 Incentive Stock
Option Plan and 1984 Nonstatutory Stock Option Plan. (Incorporated by reference
from Exhibit 10.25 to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1993.)
10.32+ Form of Stock Option Agreement used with the Company's 1984 Incentive Stock Option
Plan and 1984 Nonstatutory Stock Option Plan. (Incorporated by reference from
Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1988.)
10.33+ Employment Agreement dated April 25, 1995 between the Company and Kenneth J. Widder,
M. D. (Incorporated by reference from Exhibit 10.30 to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1995.)
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Description Page
<S> <C> <C>
10.34+ Molecular Biosystems, Inc. 1993 Stock Option Plan. (Incorporated by reference
from Exhibit 4.2 to the Company's Registration Statement No. 33-78572 on
Form S-8, dated May 3, 1994, filed on May 5, 1994.)
10.35+ Form of Stock Option Agreement used with the Company's 1993 Stock Option Plan.
(Incorporated by reference from Exhibit 10.33 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1994.)
10.36+ Molecular Biosystems, Inc. 1993 Outside Directors Stock Option Plan. (Incorporated
by reference from Exhibit 4.2 to the Company's Registration Statement No. 33-78564
on Form S-8, dated May 3, 1994, filed on May 5, 1994.)
10.37+ Form of Stock Option Agreement used with the Company's 1993 Outside Directors
Stock Option Plan. (Incorporated by reference from Exhibit 10.35 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1994.)
10.38+ Employment Agreement dated October 1, 1992 between the Company and James L. Barnhart,
Ph.D. (Incorporated by reference from Exhibit 10.34 to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1993.)
10.39+ Employment Agreement dated April 1, 1994 between the Company and Gerard A. Wills.
(Incorporated by reference from Exhibit 10.39 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1995.)
10.40+ Employment Agreement dated August 1, 1994 between the Company and Allan H. Mizoguchi.
(Incorporated by reference from Exhibit 10.41 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1995.)
10.41*+ Employment Agreement dated November 1, 1995 between the Company and Bobba Venkatadri.
10.42*+ Separation Agreement effective September 8, 1995 between the Company and Kenneth R. Derry.
10.43*+ Separation Agreement effective November 17, 1995 between Company and Richard M. Stern.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Description Page
<S> <C> <C>
10.44*+ Consultant Agreement effective December 4, 1995 between the Company and
Richard M. Stern.
10.45*+ Separation Agreement effective May 10, 1996 as amended on June 6, 1996
between the Company and Steven Lawson.
10.46 Sublease dated February 6, 1992 between the Company and Sunward Technologies,
California. (Incorporated by reference from Exhibit 10.27 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1992.)
10.47 Triple Net Lease dated June 19, 1995 between the Company and Radnor/Collins/Sorrento
Partnership. (Incorporated by reference from Exhibit 10.43 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1995.)
10.48 First Amendment to Lease dated July 15, 1994 between the Company and Principal
Mutual life Insurance Company. (Incorporated by reference from Exhibit 10.44
to the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1995.)
10.49 Office Lease dated September 9, 1991 between the Company and The Principal
Financial Group. (Incorporated by reference from Exhibit 10.28 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1992.)
10.50 Sublease dated March 1, 1993 between the Company and Dow Chemical Company.
(Incorporated by reference from Exhibit 10.39 to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1993.)
10.51 Promissory note dated December 31, 1993 between the Company and James L.
Barnhart. (Incorporated by reference from Exhibit 10.48 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1994.)
10.52* Second Amendment to Promissory note dated June 24, 1996 between the Company
and James L. Barnhart.
10.53 Promissory note dated December 31, 1993 between the Company and John W.
Young. (Incorporated by reference from Exhibit 10.49 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1994.)
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Description Page
<S> <C> <C>
10.54 Promissory note dated December 31, 1993 between the Company and Richard M.
Stern. (Incorporated by reference from Exhibit 10.50 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1994.)
10.55 Amendment to Promissory noted dated December 31, 1994 between the Company and
Richard M. Stern. (Incorporated by reference from Exhibit 10.52 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1995.)
13.1* The Company's Annual Report to Stockholders for the fiscal year ended March 31,
1996.
19 Documents not previously filed are marked with an asterisk (*).
24* Consent of Arthur Andersen LLP.
(b) Reports on Form 8-K During the Fourth Quarter Ended March 31, 1996
A Current Report on Form 8-K dated March 21, 1996, was filed on March 26,
1996, reporting that the Company and Shionogi & Co., Ltd. had exchanged
notices of breach of their License and Cooperative Development Agreement
dated March 1988.
</TABLE>
39
<PAGE>
LICENSE TERMINATION AGREEMENT
THIS LICENSE TERMINATION AGREEMENT ("this Agreement") made and entered
into as of the date last set forth below between and among Dehdritech, Inc.
("Dendritech"), a Michigan corporation with its principal place of business
at 3110 Schuette Avenue, Midland, Michigan, Michigan Molecular Institute
("MMI"), a Michigan not-for-profit corporation with its principal place of
business at 1910 West St. Andrews Road, Midland, Michigan, and Molecular
Biosystems, Inc. ("MBI"), a Delaware corporation with its principal place of
business at 10030 Barnes Canyon Road, San Diego, California.
WHEREAS, the undersigned parties to this Agreement, in consideration of
the various terms and covenants contained herein and for other valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
desire to terminate all contractual relationships between them and to
compromise all disputes or differences which have arisen or could arise
between or among any of them growing out of said relationship or otherwise;
and
WHEREAS, on May 5, 1995, the parties hereto entered into a Tolling
Agreement which extended the period for responding to all written notices of
breach dated on or before March 13, 1995 and as further defined in said
Tolling Agreement; and
NOW, THEREFORE, the parties hereto covenant and agreed as follows:
1. For purposes of this Agreement:
1
<PAGE>
a. "Field of Use" shall mean all uses relating to medical imaging,
including magnetic resonance imaging, computerized x-ray tomography, and
ultrasound. The parties acknowledge that therapeutic applications are
excluded from the Field of Use.
b. "Know-How" shall mean all information in tangible or intangible
form concerning Dendrimers, their composition, structure, characteristics,
safety, manufacturer, efficacy, analytical data reports, patent and
invention disclosures, patent applications and prosecution histories of
patent applications, market research reports, and customer contact reports.
c. "Fees" shall mean all cash receipts from Licenses, whenever
received, but specifically excluding (i) those based on revenue generated
by sales of a licensed product or the number of product units sold or
produced, (ii) research revenue, and (iii) revenue from sales of product
sold by Dendritech or MMI.
d. "Licenses" mean any agreement entered into by Dendritech or MMI
after the date of this Agreement which licenses or purports to license or
otherwise transfer Dendrimer technology, patent rights, trademark rights or
Know-How, excluding an agreement entered into as a result of the exercise
of the Option (as the same may be extended from time to time).
2
<PAGE>
e. "License Agreement" shall mean that certain agreement
entitled "License and Collaborative Research Agreement" dated December 10,
1992 between and among Dendritech, MMI and MBI.
f. "Research Agreement" shall mean that certain agreement entitled
"Research Agreement" dated May 1, 1993 between MBI and MMI.
g. "Dendrimer(s)" shall have the same meaning as set forth in
Paragraph 1.03 of the License Agreement.
h. "Option" shall have the meaning set forth in Paragraph 15 of this
Agreement.
i. "Affiliate" of any given entity means any entity which, directly
or indirectly through one or more intermediaries, controls, is controlled
by or under common control with such given entity. For purposes of this
definition, "control" means, in the case of a corporation, the ownership of
50% or more of the securities of such corporation which are, ordinarily, in
the absence of contingencies, entitled to elect a majority of the corporate
directors, or in the case of entities other than corporations, the power to
direct the management and policies of such entity, by contract or
otherwise.
3
<PAGE>
j. Where reference is made herein to MBI, MMI or Dendritech, it
shall be understood to include the successors and assigns of such
corporation.
2. Upon execution and delivery of this Agreement:
a. The License Agreement and the Research Agreement shall terminate
and shall be deemed void and of no further force of effect.
b. Without limiting the scope and effect of Paragraph 2(a) of this
Agreement,
(i) the licenses granted under Article 2 and Paragraph 4.6 of
the License Agreement shall terminate;
(ii) all financial or other obligations of MBI specified in the
License Agreement shall terminate and be extinguished, including the
$1,000,0900 remaining balance on license fees provided for in
Paragraph 3.1 of the License Agreement;
(iii) all financial and other obligations of MBI specified in the
Research Agreement shall terminate and be extinguished, including without
limitations, the $75,000 balance remaining pursuant to Paragraph 2.4 of
the Research Agreement and as reflected in MMI's correspondence to MBI
dated April 11, 1995; and;
(iv) MBI shall not be entitled to the return of any payments
made to MMI or Dendritech under the Research
4
<PAGE>
Agreement or the License Agreement prior to the date of this Agreement.
c. The letter dated March 10, 1995 from Robert E. Hefner to James L.
Barnhart, and the letter dated March 13, 1995 from Robert M. Nowak, to
James L. Barnhart, are withdrawn and shall have no further force and
effect.
3. Notwithstanding paragraphs 2 and 10 of this Agreement, each party
acknowledges and agrees that Article 16 of the License Agreement and Article
5 of the Research Agreement, and all rights and obligations of the parties
thereunder, are not extinguished by and shall survive this Agreement except
that Dendritech and MMI shall have the right to be unrestricted use and to
further disclose any of the Know-How obtained from MBI without MBI's consent.
4. MBI hereby releases all of its former employees and agents from any
duty of confidentiality they may owe MBI solely to the extent necessary to allow
them to disclose Know-How to Dendritech and MMI, and Dendritech and MMI shall be
entitled to the unrestricted use of the Know-How to disclosed.
5. MBI shall transmit to Dendritech within thirty (3) days of the
execution and delivery of this Agreement all Know-How is tangible form in its
possession or under its control, and Dendritech shall be entitled to the
unrestricted use of such Know-How.
6. Concurrently with the execution and delivery of this Agreement, MBI
shall assign to Dendritech all of its rights, if any, in (i) the Know-How,
(ii)
5
<PAGE>
any inventions developed by MBI or any employee of MBI during the period
of his employment with MBI or acquired by MBI which relate to Dendrimers or
their use in the Field of Use, (iii) any patent and invention disclosures
relating to Dendrimers or their use in the Field of Use, and (iv) any patents
and patent applications owned, controlled, developed or acquired by MBI which
relate to Dendrimers or their use in the Field of Use, any patents that may
issue on such applications, and any divisional, continuation or
continuation-in-part applications based thereon.
7. Each of Dendritech and MMI severally agrees to pay to MBI the
following with respect to any License entered into by it after the date hereof:
a. 25% of all Fees received by its arising from any such License in
the Field of Use;
b. 15% of all Fees received by it arising from any such License
outside of the Field of Use; provided, however, that this subparagraph (b)
shall not apply to a given License unless the total Fees to become due
under such License exceeds $500,000. For the purpose of determining the
$500,000 limitation, all Licenses with the same licensee or with Affiliates
of such licensee shall be aggregated (excluding any agreements in the Field
of Use); and
c. With respect to any such License which does not specify a field
of use or which includes all fields of use, 25% of the Fees received by it
under such License which may reasonably be attributed to the value of
6
<PAGE>
rights relating to the Field of Use, and 15% of all other Fees received by
it under such License.
The obligation of MMI and Dendritech pursuant to this Paragraph shall
terminate at such time as the aggregate payments received by MBI pursuant to
this Paragraph equal $2,000,000. It is understood that the obligations of
each of Dendritech and MMI are contingent upon its receipt of Fees as
provided in this Paragraph 7.
Neither MMI nor Dendritech is guarantying the payment by the other of the
amounts owed to MBI pursuant to this Section. Notwithstand the foregoing:
(i) in the event Dendritech of MMI grants a License to (A) any entity
which is directly or indirectly a wholly-owned subsidiary of Dendritech or MMI,
or (B) the same persons or entities which are directly or indirectly the owners
of 100% of the shares of Dendritech or MMI (each a "Parent"), or (C) to any
entity which is wholly-owned, directly or indirectly, by a Parent (each, a
"Wholly-Owned Entity"), any payments received by Dendritech or MMI from such
"Wholly-Owned Entity"), as a result of such License shall not be deemed to be a
Fee for purpose of this Agreement, and Dendritech and MMI shall have no
obligations to remit any portion of such payment to MBI; PROVIDED, HOWEVER, that
such Wholly-Owned Entity shall be subject to the same obligations as Dendritech
and MMI under Paragraphs 7, 8 and 9; and
7
<PAGE>
(ii) in the event Dendritech or MMI grants a License to any entity which
is not a Wholly-Owned Entity but which is an Affiliate (as hereinafter defined)
of Dendritech, MMI, a Parent or any Wholly-Owned Entity (each, a "Controlled
Entity"), any payments received by Dendritech or MMI from such Controlled Entity
as a result of such License shall be treated as a Fee for purposes of this
Agreement, and such Controlled Entity shall thereafter be obligated to pay to
MBI the applicable percentage of any Fees thereafter received by such Controlled
Entity in the same manner and with the same force and effect as if such
Controlled Entity were Dendritech or MMI, and such Controlled Entity shall be
subject to the same obligations as Dendritech and MMI under Paragraphs 8 and 9.
The obligations of any Wholly-Owned Entity and any Controlled Entity pursuant to
the foregoing provisions shall terminate at such time as the aggregate payments
received by MBI pursuant to this Paragraph equal $2,000,000.
In no event shall any entity with whom Dendritech enters into a License
have any obligation to MBI pursuant to this Agreement unless such entity is
a Wholly-Owned Entity or a Controlled Entity. In no event shall Dendritech or
MMI enter into a license with any Wholly-Owned Entity or Controlled Entity
unless such Wholly-Owned Entity or Controlled Entity has agreed in writing to
be bound by Paragraphs 7, 8 and 9 and such agreement has been delivered to MBI.
8
<PAGE>
8. Any payment called for under Paragraph 7 of this Agreement shall be
paid to MBI at the address provided in Paragraph 15 below, or pursuant to wire
transfer instructions, within thirty (30) days after receipt of the applicable
Fees by Dendritech or MMI.
9. MBI has the right to an accounting of all payments called for under
Paragraph 7. Upon MBI's written request (which requests may be made no more
frequently than quarterly), Dendritech and MMI shall provide MBI with a
report of closed transactions involving Licenses. Such transactions shall be
reported whether or not Dendritech or MMI has made payments to MBI under
Paragraph 7. In connection with such accounting, upon reasonable notice and
at its sole expense, MBI may examine all Licenses entered into by Dendritech
or MMI, and shall have access to all documents pertaining to the receipt of
any Fees or other revenue arising from any such License. MBI shall treat all
information received under this Paragraph as confidential information and
shall not disclose it to third parties, provided that MBI may use it to
enforce its rights under this Agreement. The rights granted to MBI under this
paragraph shall terminate when MBI has received Two Million ($2,000,000)
Dollars in aggregated payments under Paragraph 7 hereof.
10. In consideration of the foregoing and except as otherwise set forth
herein, MBI on the one hand, and MMI and Dendritech on the other, hereby
mutually agree to release and forever discharge each other, and their
respective corporate parents, subsidiaries, predecessors, successors,
divisions, affiliates,
9
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officers, directors, attorneys, representatives, agents, employees, assigns,
shareholders, trustees or receivers in liquidation or bankruptcy, from any
and all past, present or future claims, complaints, demands, obligations,
causes of action, rights, damages, costs, expenses, fees, royalties, losses,
compensation and judgments of any kind or nature whatsoever, whether known or
unknown, direct or indirect, by reason of any matter or things arising from
or relating to any cause prior to the date hereof, including, without
limitation, (a) the License Agreement or the Research Agreement, or (b) any
promise, representation, warranty, or statement by MBI, MMI or Dendritech;
provided, however, that nothing set forth herein shall be deemed to release
any right or obligation created by this Agreement.
11. The parties acknowledge and agree that the release and discharge set
forth in detail in Paragraph 10 of this Agreement above is a mutual general
release. The parties expressly waive and assume the risk of any and all claims
for damages which exist as of this date, but which the parties do not know or
suspect to exist, whether through ignorance, oversight, error, negligence or
otherwise, and which, if known, would materially affect the party's decision to
enter into this Agreement.
12. The parties hereto expressly acknowledge that the payments and
consideration described above, including, but not limited to, the mutual
general release provided in Paragraph 10 of this Agreement, are given to
compromise
10
<PAGE>
disputed claims and do not constitute an admission of liability on the part
of the any party.
13. Each party warrants and represents as follows:
(i) that it has had an opportunity to retain counsel or has been
represented by counsel in connection with the review, approval and execution
of this Agreement;
(ii) that no other person or entity or has had any interest in the
claims, demands, right and obligations contained in the License Agreement or
Research Agreement;
(iv) that it has not sold, assigned, transferred, conveyed or otherwise
disposed of any of its rights, claims, demands and obligations arising from
or in connection with the License Agreement, the Research Agreement or any
matter sought to be released herein;
(v) that it has full power and authority to enter into and perform its
obligations under this Agreement without the further consent of any person,
entity or corporation; and
(vi) that the person who executes this Agreement for it is fully
authorized to execute this Agreement on behalf of that party and to bind
that party to the terms and obligations of this Agreement.
14. MBI warrants and represents to Dendritech:
11
<PAGE>
(i) that it has not entered into a sublicense of any of the technology
rights licensed to it under the License Agreement nor has it granted an
option for such a sublease; and
(ii) that it has not obtained or applied for any patents nor made or
received any invention disclosures utilizing Dendrimers.
15. Dendritech represents and warrants to MBI:
(i) that prior to the date of this Agreement, it has not entered into
any agreement licensing or transferring Dendrimer technology, patent
rights, trademark rights or Know-How in the Field of Use, other than the
License Agreement; and
(ii) that prior to the date of this Agreement, it has not entered into
an agreement licensing or transferring Dendrimer technology, patent rights,
trademark rights or Know-How outside the Field of Use, other than (A) a
license for colorants for plastics and specialty rubber compounding, (B) a
license for IN VITRO diagnostics, and (C) an option to obtain a license for
delivery of a specific cancer drug, namely ARA-C (the "Option").
MMI represents and warrants to MBI that prior to the date of this
Agreement, it has not entered into any agreement licensing or transferring
Dendrimer technology, patent rights, trademark rights or Know-How other than the
transfer to Dendritech of all of MMI's right and interest in Dendrimer
technology, patent rights, trademark rights and Know-How.
12
<PAGE>
16. This Agreement shall become effective immediately following execution
by all the parties and delivery.
17. This Agreement represents the entire agreement of the parties with
respect to its subject matter and supersedes any and all prior agreements,
understandings, promises and representations by any party to any other
respecting its subject matter.
18. This Agreement may only be modified or amended by a writing signed
by all parties hereto and expressly designated as an amendment to this
Agreement.
19. Any notices permitted or required to be given thereunder shall be
effective if they are delivered personally, by certified mail (return receipt
requested), by overnight air courier (with return receipt), or by facsimile
machine (with proof of transmission) and delivered:
(a) in the case of Dendritech, to:
Mr. Robert E. Hefner
Chairman of Chief Executive Officer
DENDRITECH, INC.
3110 Schuette Drive
Midland, Michigan 48640
Fax: (517) 496-2051
with a required copy to:
Marc P. Seidler, Esq.
RUDNICK & WOLFE
203 North LaSalle Street
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Chicago, Illinois 60601
Fax: (312) 236-7516
(b) in the case of MBI, to:
_____________________
President and General Counsel
MOLECULAR BIOSYSTEMS, INC.
10030 Barnes Canyon Road
San Diego, California 92121
Fax: (619) 452-6187
with a required copy to:
Donald Flayton, Esq.
WILDMAN, HARROLD, ALLEN & DIXON
225 West Wacker Drive
Chicago, Illinois 60606-1229
Fax: (312) 201-2555
(c) in the case of MMI, to:
Robert Nowak, Ph.D.
Chief Executive Officer
MICHIGAN MOLECULAR INSTITUTE
1910 West St. Andrews Road
Midland, Michigan 48640
with a required copy to:
Marc P. Seidler, Esq.
RUDNICK & WOLFE
203 North LaSalle Street
Chicago, Illinois 60601
Fax: (312) 236-7516
14
<PAGE>
20. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors and assigns.
21. This Agreement shall be construed and interpreted according to the
laws of the State of Illinois.
22. In the event of any dispute arising under this Agreement, any party
may seek enforcement of its terms, including declamatory or other relief, in
any court of competent jurisdiction located in Cook County, Illinois, and
each party to this Agreement agrees to waive and will not assert any defense
of improper or inconvenient venue or lack of personal jurisdiction, except as to
the proper service of process. Nothing contained herein shall be deemed to
limit any party's legal rights or remedies.
23. This Agreement may be executed in several original, identical
counterparts. If so executed, the various counterparts shall be considered one
instrument. For convenience, the various signatures may be collected and
annexed to one or more documents to form complete counterparts.
DENDRITECH, INC.
By: /s/ R.E. Hefner
--------------------
Robert E. Hefner
Chairman and Chief Executive Officer
Date 9/14/95
--------------------
MICHIGAN MOLECULAR INSTITUTE
By: /s/ R. Nowak
------------------
Robert Nowak
President and Chief Executive Officer
Date
15
<PAGE>
MOLECULAR BIOSYSTEMS, INC.
By: /s/ Steven Lawson
----------------------
-----------------------------
Vice President, Legal Affairs
Date: 9/18/95
----------------
16
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated on or before November 1, 1995, ("Effective Date")
is between MOLECULAR BIOSYSTEMS, INC., a Delaware corporation (the
"Corporation") and BOBBA VENKATADRI ("Employee").
RECITALS
A. The, Corporation desires to employ the Employee as its
President and Chief Operating Officer ("COO"),
B. The Employee desires to accept such employment upon the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties agree as follows:
1. EMPLOYMENT. The Corporation hereby employs the Employee, and
the Employee hereby accepts the employment by the Corporation as President
and COO of the Corporation upon the terms and conditions set forth herein.
Employee will report to the Chief Executive Officer of the Corporation.
2. EFFECTIVE DATE. Employee's employment shall deemed to begin on
the Effective Date hereof (a Sunday; Employee shall begin his substantive
duties on the following Monday), and shall continue until terminated pursuant
to Paragraph 6.
3. DUTIES.
a. GENERAL DUTIES. The Employee shall perform such
duties and services consistent with his position as may be assigned
to him from time to time by the Chairman of the Board and Chief
Executive Officer. Subject to the foregoing sentence, the Employee
shall have responsibility for the day-to-day conduct of all of the
operations of the Corporation. As of the date of this Agreement, the
Corporation has two inactive wholly-owned subsidiaries (Syngene,
Inc., and Scan Pharmaceuticals, Inc.). The Employee shall also be
elected, and shall serve as, President and Chief Operating Officer of
such subsidiaries for no additional consideration.
b. ELECTION AS DIRECTOR. The Employee shall be
recommended for election to Corporation's Board of Directors at the
first meeting of the Board of Directors following the Effective Date.
Nomination for election to the Board of Directors for future years
shall be at the discretion of the Board of Directors.
<PAGE>
c. CONSIDERATION FOR PROMOTION. Between the first and
second anniversaries of the Effective Date, the Board of Directors
(or a committee thereof) shall formally consider the election of
Employee as Chief Executive Officer ("CEO") of the Corporation,
provided Employee's performance is satisfactory in his role as
President/COO. If the Board of Directors, in its sole judgement, is
satisfied with Employee's performance of his duties as President/COO,
Employee shall be elected to the CEO position at that time.
d. CORPORATION POLICIES. Employee shall be subject to
(1) the rules and policies set forth in the Corporation's employee
handbook and human resources guidelines and as they may be changed
and amended from time to time, and (2) other Corporation rules and
policies intended to apply to employees generally; provided that
where there is a variation or inconsistency between those rules and
policies and this Agreement, this Agreement shall control.
4. TIME TO BE DEVOTED TO EMPLOYMENT.
a. FULL-TIME WORK; VACATIONS. Except for vacations,
holidays and absences due to temporary illness, the Employee shall
devote his full time and energy to the business of the Corporation.
Employee shall be entitled to three (3) weeks (i.e., 15 business
days) annual vacation plus one additional day of vacation for every
year of continuous employment, up to a maximum of 20 business days
per year. Vacation time shall be earned and usable pursuant to the
Corporation's policy for employees. Employee shall be entitled to
all Corporation holidays, including, when applicable, a holiday
shutdown period usually scheduled for late December.
b. OTHER BUSINESS ACTIVITIES. Employee shall not
engage in any other business activity without the express written
consent of the Corporation except (1) Employee may serve on the Board
of Directors of no more than two (2) other corporations (other than
family businesses in India to which Employee does not devote
substantial time) with the prior written approval of the Board of
Directors, and (2) Employee may exercise passive ownership of up to
five percent (5%) of the securities in any company (and may own any
percentage of a family business in India). Employee hereby
represents that he is not a party to any agreement which would be an
impediment to entering into this Agreement and that he is otherwise
under no legal disability with respect to entry into this Agreement
and performance of his obligations hereunder.
5. COMPENSATION.
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<PAGE>
a. BASE SALARY; REVIEW. The Corporation shall pay to
Employee an annual base salary ("Base Salary") of $285,000, payable
pursuant to the Corporation's customary procedures. The Base Salary
shall be reviewed annually and be subject to increase in the sole
discretion of the Board of Directors of the Corporation, provided
that Employee's first Base Salary review shall take place in January
or February 1996, with any salary increase to become effective as of
the beginning of the Corporation's fiscal year beginning April 1,
1996. Subsequent Base Salary reviews shall take place in January or
February of each succeeding year, or at such other time as the Board
of Directors may conduct salary reviews for Corporation executives
generally. Employee's Base Salary and other terms and conditions of
his compensation, except as otherwise provided in this Agreement,
shall at all times be within the sole discretion of the Board of
Directors.
b. BONUS. Employee may be entitled to a bonus as
determined by the Board of Directors of the Corporation at its sole
discretion based on Employee's performance, the Corporation's
performance, and other factors. For 1996, Employee shall receive a
guaranteed minimum bonus of $36,000, to be paid during the first
quarter of FY 1997, (i.e., the quarter beginning April 1, 1997).
c. OTHER BENEFITS. Employee shall be eligible for
family medical and dental coverage, short and long term disability
coverage, life insurance, eligibility for participation in the
Corporation's 401(k) plan, and such other benefits as are made
available from time to time to the executives of the Corporation, all
on such terms and conditions (including, where applicable,
cost-sharing with the Employee) as are applicable to participants
generally.
d. REIMBURSEMENT OF BUSINESS EXPENSES. The Corporation
shall reimburse Employee, in accordance with its practice
from time to time for other senior-level employees of the
Corporation. for all reasonable and necessary travel expenses,
disbursements and other reasonable and necessary incidental expenses
incurred by him for or on behalf of the Corporation in the
performance of his duties hereunder upon presentation by the Employee
to the Corporation of appropriate documentation pursuant to
Corporation policy.
e. RELOCATION EXPENSE. The Corporation shall reimburse Employee
for reasonable relocation expenses as follows:
(i) Reasonable travel, meals, rental car and lodging
expenses for Employee and spouse for up to three (3)
economy class trips from Pennsylvania to California to
locate suitable housing accommodations within reasonable
commuting distance of the Corporation's office.
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<PAGE>
(ii) If required, expenses for a rental car until
Employee's own car becomes available, and the rental of
suitable housing within reasonable commuting distance of
the Corporation's offices until permanent housing
accommodations are acquired or (in each case) for up to
twelve (12) months, whichever period is shorter. Payment
for the housing shall not exceed two thousand five hundred
dollars ($2,500) per month.
(iii) Reasonable expenses for storage, movement and
insurance of household goods, including automobiles, and
other incidental and related costs incurred in connection
with Employee's relocation. Employee and the Corporation
shall cooperate to have all obligations (leases, moving
contracts, etc.) under this Subparagraph (e) contracted
for and/or paid directly by the Corporation.
(iv) Two weeks pay to pay for miscellaneous
relocation incidentals.
(v) Reimbursement of non-recurring costs in the
purchase of a new home up to 2% of home value.
If the Employee is deemed to receive taxable income for any payment
or reimbursement under this subparagraph, such payments will be
grossed up to account for all applicable income taxes.
f. REAL ESTATE.
(i) The Corporation shall engage a professional
property management and sales company to maintain,
market, and sell Employee's home in Pennsylvania, If a
real estate sales contract for the home is not entered
into within 90 days of the Effective Date at a purchase
price agreeable to the Employee, then the Corporation
shall purchase the home at an agreed price. For the
purposes of the foregoing sentence, the Employee may not
refuse to agree to a price (either from a third-party
purchaser or from the Corporation) that is equal to or
greater than the appraised value of the home. The
appraised value of the home shall be the average of
independent appraisals of two certified appraisers. The
Corporation and Employee shall each select one appraiser,
or they may agree on the two appraisers. Costs of the
appraisals shall be borne by the Corporation.
(ii) The Corporation shall contribute $300,000 toward
the Employee's purchase of a home in the San Diego
metropolitan area as his principal residence. The
Corporation and the Employee shall own
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<PAGE>
such home and associated property ("the Property") as
tenants in common with respective percentage undivided
interests determined as follows: The Corporation's
interest shall be calculated by dividing $300,000 by the
purchase price of the Property, the result to be
expressed as a percentage; Employee's interest shall be
100 percent minus the Corporation's interest. These
respective percentage interests shall remain constant
unless otherwise agreed by the Corporation and Employee
or unless recalculated as provided below.
Notwithstanding the foregoing, (1) Employee shall
maintain the Property and pay all expenses associated
with the Property, including but not limited to mortgage
payments; upkeep; taxes; insurance; homeowner association
fees, if any; repairs and improvements (improvements
shall be at Employee's option), and utilities; and (2)
Employee shall not alienate his interest in the Property
without the Corporation's consent. If the Employee fails
or refuses for any reason to perform the obligations and
make the payments called for in clause (1) of the
foregoing sentence, the Corporation may cause the
obligations to be performed and/or make the payments and,
at its option, (x) deduct any expenditures from payment
of any compensation to Employee called for by this
Agreement on any reasonable basis, or (y) add the full
amount of any expenditures directly to its $300,000
initial equity and, using the sum as the new numerator,
recalculate the respective percentage undivided interests
of the parties using as a denominator the same purchase
price of the Property. Employee shall execute and
cooperate in the recording of all documents necessary to
evidence the parties' agreement contained in this
Subparagraph (e)(ii).
(iii) Within 30 days of the Employee's termination
for any reason, the parties shall agree on a valuation of
the Property. If they cannot agree within that time,
each party shall select a certified appraiser to perform
an appraisal of the property at each selecting party's
expense, and the appraisal shall be the average of the
two appraisals. The valuation reached by either method
shall be called the Agreed Valuation. Within (a) three
years from the date of termination in the event of an
Involuntary Termination, (b) two years from the date of
termination in the event of a Termination for Cause, a
Termination without Cause, or a Constructive Termination,
or (c) one year from the date of termination in the event
of a Voluntary Termination, Employee (or his estate)
shall take such actions as are necessary to purchase the
Corporation's interest in the Property for a purchase
price equal to the Corporation's percentage interest in
the property at the date of appraisal times the agreed
valuation. The Corporation shall cooperate with Employee
to sell the Property under such circumstances if the
Employee is unwilling or unable to purchase
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<PAGE>
the Corporation's interest, and Employee shall be deemed to
have complied with his purchase obligation under this
Subparagraph if a purchasing third party pays the
Corporation the purchase price.
If the Employee is deemed to receive taxable income for any payment or
reimbursement under this subparagraph, such payments will be grossed
up to account for all applicable income taxes.
g. STOCK OPTIONS. Employee shall be granted an option as
of the first business day following the Effective Date to
purchase 300,000 shares of common stock under the
Corporation's 1993 Stock Option Plan ("the Plan") at an
exercise price equal to the lowest closing price of such
shares on the New York Stock Exchange in the month of
October, 1995. Of the 300,000 shares subject to the
option, 75,000 shall be deemed vested (i.e., exercisable)
as of the date of grant (i.e., the first business day
following the Effective Date). The remainder shall vest
at the rate of 25 percent (56,250 shares) per year over
four years (on October 2, 1996, 1997, 1998 and 1999,
respectively). The option shall be evidenced by an
option agreement in the Corporation's customary form
containing the Corporation's usual restrictions and
limitations. Employee shall be subject to restrictions on
trading in its securities imposed by the CEO and/or the
Board of Directors (e.g., a ban on selling or purchasing
shares during periods when Corporation insiders are in
possession of material information not yet disclosed to
the public). Employee shall be eligible for additional
stock option grants at the sole discretion of the Board
of Directors. In the event of any termination other than
a Voluntary Termination, Employee shall have two years
from the date of termination to exercise options vested
as of that date, or any lesser period mandated by law
(for example, certain incentive stock options).
6. TERMINATION AND SEVERANCE.
a. DEFINITIONS. The following definitions shall apply to this
Agreement:
INVOLUNTARY TERMINATION. An Involuntary Termination shall be
deemed to have taken place if the Employee dies, or, at
the Corporation's option, if the Employee cannot perform
his normal duties on a full-time basis by reason of any
physical or mental impairment for a period of 6
consecutive months, or 8 months out of any 12-month
period.
TERMINATION FOR CAUSE. A Termination for Cause is a termination
by the Corporation because of (1) Employee's willful
misconduct, including but not limited to violations of
the Corporation's policies governing
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<PAGE>
employees generally; or (2) Employee's violation of law,
including but not limited to acts of embezzlement or fraud.
CONSTRUCTIVE TERMINATION. A Constructive Termination is a
termination by Employee within 3 months following (1) any
reduction in his level of Base Salary in dollars unadjusted
for inflation (i.e., a failure to raise Employee's salary
shall not be deemed a decrease because of inflation); or (2)
a relocation of his place of employment more than 35 miles
from San Diego, that does not include a Corporation paid
relocation for Employee.
VOLUNTARY TERMINATION. A Voluntary Termination is any
termination by Employee other than a Constructive Termination.
TERMINATION WITHOUT CAUSE. A Termination Without Cause is
any termination by the Corporation other than a Termination
for Cause or an Involuntary Termination.
CHANGE OF CONTROL. The Corporation shall be deemed to have
experienced a Change in Control if (1) any person or group
(as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended, and the rules and regulations
promulgated thereunder in effect on the Effective Date ("the
Exchange Act")) who, together with all affiliates and
associates (as defined in Rule 12b-2 under the Exchange Act)
(an "Acquiring Person") becomes the beneficial owner of the
Corporation's shares having 50 percent or more of the total
number of votes that may be cast for the election of
directors of the Corporation, or (2) Continuing Directors
cease to comprise a majority of the members of the Board of
Directors. A "Continuing Director" is any member of the Board
(while a member) who is not an Acquiring Person or an
affiliate or associate of an Acquiring Person or a
representative thereof and who (i) was a member of the Board
prior to the Effective date, or (ii) subsequently becomes a
member of the Board and whose election to the Board is
recommended by resolution of a majority of the Continuing
Directors or who is included as a nominee in a proxy
statement of the Corporation when a majority of the Board
consists of Continuing Directors.
b. TERMINATION BY CORPORATION; SEVERANCE. The Corporation may
terminate this Agreement at any time for any reason, with or without
cause, with or without notice. If and only if the termination is a
Termination Without Cause, Employee (or his estate) shall receive 12
months' severance at his then-current Base Salary (defined in
Paragraph 5(a)). If, in such event, Employee has not accepted new
employment (other than self-employment as
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<PAGE>
a consultant or similar employment) within 12 months after the date
the Corporation advises Employee of his termination, the
Corporation shall pay Employee at the same rate for an additional
12 months, if Employee's termination occurred prior to the third
anniversary of the Effective Date, or for an additional 6 months,
if Employee's termination occurred after the third anniversary of
the Effective Date or until Employee has accepted new Employment,
whichever comes first. Employee shall promptly advise the
Corporation when he accepts new Employment. If and only if a
Termination Without Cause takes place within one year following a
Change in Control then, in lieu of the foregoing, Employee shall
receive two years' severance regardless of his subsequent
employment status. Severance payments shall be made in
installments in accordance with the Corporation's normal payroll
practices.
c. TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement at any time for any reason, with or without cause from
the date of Employee's termination without notice or the date of his
notice to the Corporation, as the case may be. If Employee fails to
remain so employed, the Corporation shall have no obligation to pay
any severance benefits otherwise payable under this Subparagraph (c).
If Employee advises the Corporation of the termination of this
Agreement for any reason within twelve months following Effective
Date, Employee shall promptly repay the Corporation all amounts paid
to or on behalf of Employee pursuant to Paragraphs 5(e) and (f). In
the event of a Constructive Termination, Employee shall receive the
severance benefits described in Subparagraph (b) with respect to a
Termination Without Cause, provided that if the Constructive
Termination takes places within one year following a Change in
Control, Employee shall receive the severance benefits described in
Subparagraph (b) with respect to a Termination Without Cause
following a Change in Control. No severance benefits shall be
payable in respect of a Voluntary Termination. A Voluntary
Termination shall not become any other type of termination in the
event that the Corporation relieves Employee of his duties during any
notice period stated in Employee's termination notice. Termination
under this Subparagraph may be without or with notice not to exceed
60 days, provided that if the termination is without notice or with a
notice period of less than 60 days, the Corporation may, at its
option, require Employee to extend the notice period (that is, to
remain employed and perform his duties) for a maximum of 60 days.
d. GENERAL TERMINATION PROVISIONS. With respect to any
termination, Employee shall receive (1) the unpaid portion of his
then-current Base Salary computed on a pro rata basis to the date of
termination; (2) reimbursement for business expenses not previously
reimbursed pursuant to Paragraph 5(d); and (3) payment for accrued
and unused vacation time through the date of
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<PAGE>
termination. For purposes of determining the timing of COBRA
benefits, the date of termination shall be deemed the day following
the expiration of the notice period, if any, or if the termination
is without notice, on the date of termination.
e. MANNER OF TERMINATION. Either party may advise the other of
the termination of this Agreement in any reasonable manner, provided
that it must be in writing. Termination of employment shall also
terminate this Agreement, except as otherwise provided in this
Agreement.
f. EFFECT OF TERMINATION OF EMPLOYMENT. Upon the
termination of Employee's employment hereunder, neither the Employee
nor his beneficiary or estate shall have any further rights or claims
against the Corporation under this Agreement except as provided in
this Paragraph 6.
7. General Provisions.
a. AMENDMENT; NECESSITY FOR WRITING. This Agreement
may not be changed, waived, discharged, or terminated orally, but
only by way of an instrument in writing signed by the parties
referring to this Agreement.
b. SURVIVAL. The obligations of Sections 6, 8, 9, and 10 shall
survive termination of the Agreement.
c. PROHIBITION AGAINST ASSIGNMENT. The employment
secured by this Agreement is personal in nature. Employee may not
assign this Agreement or any portion thereof under any circumstances.
d. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement between the parties with respect to its subject
matter. It supersedes any and all other prior or contemporaneous
agreements, either oral or in writing with respect thereto.
e. CHOICE OF LAW; CHOICE OF FORUM; ARBITRATION. The
interpretation and enforcement of this Agreement, as well as all
other matters relating to Employee's employment, shall be governed by
California law. Any dispute or controversy with respect to, or
concerning the enforcement or interpretation of, this Agreement shall
be submitted to final and binding arbitration under the current Model
Employment Arbitration Procedures of the American Arbitration
Association ("AAA") in the State of California. Such arbitration, and
subsequent judicial enforcement of the arbitrator's award, if
necessary, shall be final and binding and shall be the sole and
exclusive forum for resolving any and all existing and future
disputes or controversies regarding this Agreement. Arbitration must
be initiated within one year of
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the occurrence of the event giving rise to a dispute by the
complaining party giving written notice to the other. Failure to
initiate arbitration within this one-year period shall constitute a
waiver of any and all claims arising from the dispute and they
shall be forever barred. The arbitration shall be held in San
Diego County, California. The parties shall be entitled to conduct
discovery in advance of and during any arbitration to the extent
authorized under the California Code of Civil Procedure for civil
judicial proceedings. The expenses of the arbitration shall be
born equally by both parties, except that each party may be
represented by counsel at such party's own expense. Remedies
awarded shall be limited to actual damages proximately caused by
the event giving rise to liability, and shall, where applicable be
limited by the terms of this Agreement. No punitive damages,
damages for noneconomic injury, or damages in the nature of a
penalty shall be awarded.
f. NO WAIVER. Either party's neglect or failure to enforce
this Agreement in the event of the other's breach shall not be
deemed a waiver or condonation of such breach or any subsequent
breaches.
g. CORPORATION BENEFIT AND BURDEN. This Agreement shall inure
to the benefit of, and shall be binding on, the Corporation and all
of its successors and assigns.
h. GENERIC DRUG ENFORCEMENT ACT CERTIFICATION. Employee
certifies that he has never been charged with or convicted of a
federal felony for conduct relating to the development, approval, or
regulation of any drug product or device regulated by the U.S. Food
and Drug Administration, and (2) has never been debarred or subject
to a debarment proceeding under the Generic Drug Enforcement Act of
1992.
8. CORPORATION RIGHTS TO INTELLECTUAL PROPERTY. Employee shall
promptly disclose, grant and assign ownership to the Corporation for its sole
use and benefit any and all inventions, improvements, information, copyrights
and suggestions (whether patentable or not), which he may develop, acquire,
conceive or reduce to practice while employed by the Corporation (whether or
not during usual working hours), together with all patent applications,
letters patent, copyrights and reissues thereof that may at any time be
granted for or upon any such invention, improvement or information. Employee
shall without charge, but at the expense of the Corporation, promptly at all
times hereafter execute and deliver such applications, assignments,
descriptions and other instruments as may be reasonably necessary or proper
in the opinion of the Corporation to vest title to any such inventions,
improvements, technical information, patent applications, patents, copyrights
or reissues thereof in the Corporation and enable it to obtain and maintain
the entire right and title thereto throughout the world. Employee shall
render to the Corporation at its expense (including, reimbursement to the
Employee
-10-
<PAGE>
of reasonable out-of-pocket expenses incurred by the Employee and a
reasonable payment for the Employee's time involved in case he is not then in
its employ. All such assistance as it may reasonably require in the
prosecution of applications for said patents, copyrights or reissues thereof,
in the prosecution or defense of interferences which may be declared
involving any said applications, patents or copyright, and in any litigation
in which the Corporation may be involved relating to any such patents,
inventions, improvements or technical information. Notwithstanding the
foregoing:
NOTIFICATION
THIS PARAGRAPH DOES NOT APPLY TO AN INVENTION FOR WHICH
NO EQUIPMENT, SUPPLIES, FACILITY, OR TRADE SECRET INFORMATION OF THE
COMPANY WAS USED AND WHICH WAS DEVELOPED ENTIRELY ON EMPLOYEE'S OWN
TIME, AND (A) WHICH DOES NOT RELATE (1) TO THE BUSINESS OF THE
COMPANY OR (2) TO THE COMPANY'S ACTUAL OR DEMONSTRABLY ANTICIPATED
RESEARCH OR DEVELOPMENT, OR (B) WHICH DOES NOT RESULT FROM ANY WORK
PERFORMED BY EMPLOYEE FOR THE COMPANY, AS PROVIDED BY SECTION 2870 OF
THE CALIFORNIA LABOR CODE.
9. PROTECTION OF INFORMATION. Throughout the term of his
employment by the Corporation, Employee will serve the Corporation's best
interests loyally and diligently. During his employment and thereafter,
Employee shall not disclose or provide to any person, firm, corporation or
other entity (except when authorized by the Corporation) any confidential
information, including but not limited to trade secrets, business methods,
products processes, procedures, development or experimental projects,
suppliers, contracts, business or strategic plans, regulatory and patent
(collectively "Confidential Information"). Employee will not use such
Confidential Information for his own purpose or for the purpose of any
person, firm, corporation or entity, other than the Corporation. The
provisions of this paragraph shall not apply to Confidential Information
which at the time of disclosure is already in the public domain; which the
Employee can demonstrate was in his possession or known to him prior to the
effective date of this Agreement; which subsequently becomes part of the
public domain through no fault of the Employee; which becomes known to the
Employee through a third party who is under no obligation of confidentiality
to the Corporation; or which is required to be disclosed by law or by
judicial or administrative proceedings.
10. LIMITATIONS OR COMPETITION AND SOLICITATION. For a period
of 12 months following his Voluntary Termination or Termination for Cause, or
during any period for which he has received or is receiving severance
benefits following a Termination Without Cause or Constructive Termination
(other than a Termination Without Cause or Constructive Termination following
a Change in Control) Employee shall not directly or indirectly be engaged in
or assist others in engaging
-11-
<PAGE>
in any business relating to diagnostic contrast imaging agents. Employee
expressly agrees that the consideration to be paid him under this Agreement
shall constitute good and sufficient consideration for his agreement not to
compete. In the event Employee's employment is terminated by either party
for any reason, Employee shall not, for a period of 12 months from the date
of termination, either directly or indirectly solicit the services of any
employee of the Corporation, or otherwise induce or attempt to induce current
employees of the Company to terminate their employment with the Corporation.
11. NOTICES. Notices and other communications hereunder shall
be in writing and shall be delivered personally or sent by air courier,
telefax, or first class certified or registered mail, return receipt
requested and postage prepaid, addressed to the last address of which the
sending party has actual knowledge. Notices to the Corporation shall be
directed to the Chief Executive Officer and the Chief Financial Officer. All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have given to the date of
delivery if personally delivered, or telefaxed; on the business day after the
date when sent by air courier; and on the third business day after the date
when sent if sent by mail.
[THIS SPACE INTENTIONALLY LEFT BLANK SO THAT ALL
SIGNATURE LINES MAY APPEAR ON THE SAME PAGE]
-12-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement to
be effective on or before November 1, 1995.
MOLECULAR BIOSYSTEMS, INC.
By: /s/ Kenneth J. Widder, M.D
--------------------------------
Kenneth J. Widder, M.D.
Chief Executive Officer
By: /s/ Bobba Venkatadri
--------------------------------
Bobba Venkatadri
-13-
<PAGE>
[LETTERHEAD]
September 8, 1995
Mr. Kenneth R. Derry
Vice President, Operations
Molecular Biosystems, Inc.
10030 Barnes Canyon Road
San Diego, California 92121
Re: Terms of Separation from MBI
----------------------------
Dear Ken:
In accordance with our recent discussions, this letter will set forth the
terms of our agreement regarding your voluntary departure from MBI.
1. Description. Both parties shall regard your departure as a
voluntary resignation to pursue personal goals and other opportunities.
2. Timing. You shall resign as an employee and officer of MBI
effective September 8, 1995. Your resignation shall be substantially in the
form attached hereto.
3. Severance. You shall receive nine months' severance. We will pay
it in biweekly installments. Taxes and other appropriate deductions will be
withheld.
4. Welfare Benefits. Regular medical, dental, vision and life
insurance will continue through September 30, 1995. Accidental Death and
Dismemberment coverage will end on September 8, 1995. MBI will pay your
COBRA premium payments to extend your medical, dental and vision coverages
through your severance period, unless you obtain other insurance during that
period. You may elect to continue paying COBRA for an additional nine months
(COBRA benefits are available for a maximum of 18 months). You must notify
MBI one month prior to the end of the severance period if you wish to extend
the COBRA coverage beyond the severance period.
You will be provided the information needed to request the option of
converting the group Life Insurance coverage you currently hold into an
individual policy through NorthWestern National Life (NWNL). You will work
directly with NWNL should you decide this is a desired option. You will need
to exercise this option within 31 days of September 8, 1995.
<PAGE>
You will also be provided an application from UNUM Insurance to apply
for conversion of your group Long Term Disability Coverage to an individual
policy. This application would need to be submitted within 31 days of
September 8, 1995.
5. Stock Options. You have been granted stock options as described in
the attached schedule. As of September 8, MBI will accelerate the vesting of
all unvested options that would have vested if you had remained employed
through September 8, 1996. You will have until September 8, 1996, to
exercise all vested options, after which time they will lapse.
We remind you that you are under the same constraints imposed by MBI and
securities laws on vice presidents regarding the exercise of options and the
purchase and sale of MBI shares. You shall notify us of your intentions in
this regard and shall execute such forms, if any, as the U.S. securities laws
require. If you wish, you may use the services of Ruth Coolong (or her
successor or designee) to assist you in exercising your options and selling
your shares (if that is how you choose to proceed). You acknowledge that
taxes and commissions will be withheld from any profit you make on the sale
of the stock following exercise and sale.
6. Placement. MBI will provide you with six months' outplacement
counselling and services through Lee Hecht Harrison.
7. Cooperation; Non-Disparagement. You shall cooperate with MBI in
any and all governmental and/or third-party proceedings, including but not
limited to lawsuits and other disputes. Following your resignation such
cooperation shall be at MBI's expense (except that MBI cannot pay for the
content of sworn testimony). You shall keep MBI advised of contacts by
governmental agencies and third parties, and shall reasonably cooperate with
MBI in handling any response. At your request, MBI shall provide counsel to
you, if the parties deem counsel necessary or desirable, in any such
proceeding. You shall not disparage MBI, MBI shall not disparage you, to any
third parties. You shall not:
(a) contact MBI employees for any purpose, including but not limited
to recruiting them for your business or any business by which you are
employed or with which you are affiliated, or otherwise encouraging them
to leave MBI, or
(b) regardless of who initiates contact, hire an MBI employee for
such business for a period of two years after your resignation date,
PROVIDED THAT you may maintain social contacts with your friends and
acquaintances at MBI (so long as such contacts do not include the recruiting
and activities specifically identified in Subparagraphs (a) and (b)), and you
may contact MBI executive staff respecting the exercise of stock options and
other
<PAGE>
administrative matters.
8. Reference; Contacts by Potential Employers. MBI will provide you
with a letter of reference. Potential employers contacting MBI will be told:
that your resignation was voluntary; your title; your dates of employment;
and your final salary.
9. Confidentiality.
(a) You acknowledge that in the course of your employment with MBI
you have had and will have access to and familiarity with information of
substantial value to MBI which is not old or generally known and which
gives MBI an advantage over its competitors who do not know or use it,
including but not limited to strategies, business plans, research,
formulas and formulations, techniques, designs, drawings, processes,
inventions, developments, equipment, prototypes, sales and customer
information, and financial information, relating to the business, products,
and practices of MBI (hereinafter referred to as "Confidential
Information"). You agree at all times following your resignation to
regard and preserve as confidential such Confidential Information, and to
refrain from publishing or disclosing any part of such Confidential
Information and from using it except on behalf of MBI. You further agree
at all times to refrain from any other acts or omissions that would reduce
the value of such Confidential Information to MBI and to take all
reasonably necessary and desirable precautions to prevent such
Confidential Information from being disseminated to any third parties.
(b) In view of the high degree of sensitivity of such Confidential
Information and the specialized and unique nature of the services
rendered by you for MBI as an employee, you represent that you are not
presently retained or employed by any entity that manufactures or sells
products competitive to those of MBI, and you agree that you will not
accept such retention or employment during the term of the severance
period.
(c) You acknowledge that a breach of the terms of this paragraph
would threaten MBI with immediate and irreparable harm not readily
compensable in money damages, and that MBI would be entitled to injunctive
and declaratory relief to stop or prevent any such breach.
10. Release. You hereby release and covenant not to sue MBI, its
officers, directors, and employees, and relinquish all rights, claims, and
actions which you have or hereafter may have against MBI, its officers,
directors, and employees, based on, arising out of, or connected with your
employment with or resignation from MBI.
<PAGE>
WAIVER OF ADDITIONAL CLAIMS. Section 1542 of the Civil Code of the
State of California provides as follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
You waive and relinquish any right or benefit which you may have under this
section or any other provision of the statutory or nonstatutory law or any
other jurisdiction to the full extent that you may lawfully waive all such
rights and benefits. In connection with such waiver and relinquishment, you
acknowledge that you are aware that you, your attorneys or agents may
hereafter discover claims or facts in addition to or different from those
which they now know or believe to exist, but that it is your intention
thereby fully, finally, and forever to release all claims, disputes, and
differences, known or unknown, suspected or unsuspected, which now exist, may
exist, or have existed between the parties, their employees, agents, assigns,
and other privies. Unless this provision shall have been procured by fraud,
the releases given herein shall be effective regardless of the discovery or
existence of any such claim or fact.
11. Consequences of Breach. If you breach this agreement, MBI may
terminate it and recover all payments and benefits provided for herein, in
addition to any other remedies it may have.
12. Other Matters. You will also receive materials prepared by Human
Resources describing various rights and duties, including optional benefits,
which will come into effect following your resignation. You will also
receive instruments as are customarily submitted to resigning employees. You
will execute or complete such instruments at the time of your resignation.
* * * *
If you are in agreement with these items, please execute the duplicate
original of this letter and return it to me.
[This space intentionally left blank so that
remaining text and signature lines may
appear on a single page.]
<PAGE>
Let me take this opportunity to thank you for your services to MBI over
the past several years. We all wish you every success in your future
endeavors.
Sincerely,
/s/ Steven Lawson
Steven Lawson
Vice President, Legal Affairs
and General Counsel
AGREED TO BY:
/s/ Kenneth R. Derry
_________________________
Kenneth R. Derry
<PAGE>
September 8, 1995
Kenneth J. Widder, M.D.
Chairman and Chief Executive Officer
Molecular Biosystems, Inc.
10030 Barnes Canyon Road
San Diego, California 92121
Re: Resignation
Dear Ken:
I resign as an employee and as Vice President, Operations, of Molecular
Biosystems, Inc., effective at the close of business today.
Sincerely,
/s/ Kenneth W. Derry
Kenneth W. Derry
Vice President, Operations
<PAGE>
[LETTERHEAD]
November 17, 1995
Mr. Richard M. Stern
Vice President, Marketing
Molecular Biosystems, Inc.
10030 Barnes Canyon Road
San Diego, California 92121
Re: Terms of Separation from MBI
----------------------------
Dear Rich:
In accordance with our recent discussions, this letter ("Letter
Agreement") will set forth the terms of our agreement regarding your
voluntary departure from MBI.
1. DESCRIPTION. Both parties shall regard your departure as a
voluntary resignation to pursue personal goals and other opportunities.
2. TIMING. You shall resign as an employee and officer of MBI
effective as of December 2, 1995 ("Resignation Date"). Your resignation
shall be in the form attached hereto.
EFFECTIVE DATE. This Letter Agreement and the Consultant Agreement (see
Paragraph 3) shall become effective on the eighth day following your
execution of both agreements, unless you have revoked acceptance during the
seven days prior thereto. (SEE ALSO Paragraph 15(b).) Regardless of when
this takes place, the Agreements shall be deemed to have been in effect
retroactive to December 2, 1995. Neither agreement shall become effective
unless both are executed by you and MBI.
3. CONSULTING. Because you are a long-time employee of MBI, we would
like to be able to avail ourselves of your expertise after your departure.
Effective as of December 2, 1995, we shall enter into a one-year Consultant
Agreement substantially in the form attached hereto. Its terms are
incorporated herein by reference, and vice versa.
4. WELFARE BENEFITS. Regular medical, dental, vision and life
insurance will continue through December 31, 1995, accidental death and
dismemberment insurance, and long-term disability coverage will continue
through the Resignation Date and end thereafter. In addition:
<PAGE>
Mr. Richard M. Stern
November 17, 1995
Page 2
(a) Medical, dental, and vision insurance under MBI's policies for
you and currently insured dependents will be extended through COBRA from
January 1, 1996 through December 31, 1996 (or until the Consultant
Agreement is earlier terminated) at MBI's expense. Thereafter, you may
elect to continue COBRA coverage at your expense for an additional six
months. (Maximum COBRA coverage is 18 months.)
(b) You will be provided the information needed to request the option
of converting the group life insurance coverage to an individual policy
through NorthWestern National Life ("NWNL"). You will work directly with
NWNL should you elect this option. You would need to exercise this option
within 31 days of the benefits termination date, December 31, 1995.
(c) You will be provided the information needed to request the option
of converting the LTD insurance coverage to an individual policy through
UNUM. You should work directly with UNUM should you elect this option.
You would need to exercise this option within 31 days of your resignation
date, December 2, 1995.
(d) Depending on the size of your 401(k) plan account, you may either
elect to remain in the plan with no further deposits (balance greater than
$3500), or elect a distribution of your funds (balance less than $3500).
You will notify MBI within 30 days of the Resignation Date as to how and to
whom your funds should be distributed. Representatives of Human Resources
will provide additional details and information regarding tax consequences
of your various options.
(e) If you are a participant in the health care reimbursement plan,
you will have until the end of 1995 to request reimbursement for charges
incurred through the Resignation Date. Any such request should be made
directly to UNUM.
(f) You will be paid for all earned and unused vacation hours. You
will not accrue any additional vacation during the period of your
Consultant Agreement.
Representatives of Human Resources will be available to explain details of
these items.
<PAGE>
Mr. Richard M. Stern
November 17, 1995
Page 3
5. STOCK OPTIONS.
(a) CURRENT OPTIONS. You have been granted stock options as
described in the attached schedule. As of December 2, MBI will accelerate
the vesting of all unvested options. MBI will also extend the period of
exercisability of those options to the maximum period available under our
plans. (That is, the lapse dates in the charts, which are already at the
maximum, will not be reduced on account of your ceasing to be an employee.)
(b) NEW OPTIONS. MBI will grant you 10,000 additional options which
will vest in full at an exercise price equal to the closing price of MBI
common stock on December 1, 1995. The options will be exercisable until
December 1, 2005.
Until May 31, 1996 ("Reporting Period"), you will be under the same
constraints imposed by MBI and securities laws on MBI vice presidents
regarding the exercise of options and the purchase and sale of MBI shares.
During the Reporting Period, you shall notify us of your intentions in this
regard (including option exercises) and shall execute such forms, if any, as
MBI and the U.S. securities laws require. If you wish, you may use the
services of Ruth Coolong (or her successor or designee) to assist you in
exercising your options and selling your shares (if that is how you choose to
proceed) during the Reporting Period. You acknowledge that taxes and
commissions will be withheld from any profit you make on the sale of the
stock following exercise and sale during the Reporting Period. During the
Reporting Period, you will be notified monthly, along with other MBI Section
16(b) reporting persons, as to the current trading status of MBI stock (i.e.,
"green light," "yellow light," or "red light"). At no time -- presently, or
at any future time, during or after the Reporting Period -- may you trade on
inside MBI information.
MBI shall also pay you the $16,800 you borrowed to pay taxes upon
exercise of your loan, grossed up for taxes, upon presentation of your loan
documentation.
6. PLACEMENT. MBI will provide you with six months' outplacement
counseling and services through Lee Hecht Harrison.
7. COOPERATION; NO RAIDING; NON-DISPARAGEMENT. You shall cooperate
with MBI in any and all governmental and/or third-party proceedings,
<PAGE>
Mr. Richard M. Stern
November 17, 1995
Page 4
including but not limited to lawsuits and other disputes. Following your
resignation such cooperation shall be at MBI's expense (except that MBI
cannot pay for the content of sworn testimony). You shall keep MBI advised
of contacts by governmental agencies and third parties, and shall reasonably
cooperate with MBI in handling any response. At your request, MBI shall
provide counsel to you, if the parties deem counsel necessary or desirable,
in any such proceeding. You shall not voluntarily cooperate with, testify
for, or otherwise assist parties adverse to MBI in a dispute, although you
may respond to compulsory process (i.e., a valid subpoena).
For a period of one year following the Termination Date, you shall not
contact persons employed by MBI at the time to recruit them for your business
or any business by which you are employed or with which you are affiliated,
or otherwise encourage them to leave MBI.
You shall not materially disparage MBI, and MBI shall not materially
disparage you, to any third parties.
8. CONTACTS BY POTENTIAL EMPLOYERS. Potential employers contacting
MBI will be told only that your resignation was voluntary; your title; your
dates of employment; and your final salary. MBI will provide you with a
positive letter of reference. The letter will be agreed upon between you and
me.
9. CONFIDENTIALITY. You will not remove any MBI information,
documents, or other property from its premises, and you will return any MBI
information currently in your possession or control off MBI's premises. In
addition:
(a) You acknowledge that in the course of your employment with MBI
you have had and will have access to and familiarity with information of
substantial value to MBI which is not old or generally known to the public
and which gives MBI an advantage over its competitors who do not know or
use it, including but not limited to strategies, business plans, research,
formulas and formulations, techniques, designs, drawings, processes,
inventions, developments, equipment, prototypes, sales and customer
information, and financial information, relating to the business, products,
and practices of MBI (hereinafter referred to as "Confidential
Information"). You agree at all times following your resignation to regard
and preserve as confidential such Confidential Information, and to refrain
from publishing or disclosing any part of such Confidential Infor-
<PAGE>
Mr. Richard M. Stern
November 17, 1995
Page 5
mation and from using it except on behalf of MBI. You further agree at all
times to refrain from any other acts or omissions that would reduce the
value of such Confidential Information to MBI and to take all reasonably
necessary and desirable precautions to prevent such Confidential
Information from being disseminated to any third parties.
(b) You acknowledge that a breach of the terms of this paragraph
would threaten MBI with immediate and irreparable harm not readily
compensable in money damages, and that MBI would be entitled to injunctive
and declaratory relief to stop or prevent any such breach.
Nothing in this paragraph shall be construed to prevent you from using or
disclosing your general knowledge of the imaging industry (as opposed to
MBI-specific information) acquired at any time prior to or during the course
of your employment.
10. EMPLOYMENT BY COMPETITORS. This Letter Agreement does not limit
your ability to work for competitors of MBI, PROVIDED THAT for a period of
one year from the Resignation Date, reasonably in advance of accepting any
employment with any company, individual, or other entity engaged or planning
to engage in the development, manufacture, or marketing of ultrasound
contrast agents ("Competitor"), you shall notify the President or Chief
Executive Officer of MBI. Prior to accepting any such employment, or
promptly following your engagement in any consulting relationship with a
Competitor, you shall give MBI the opportunity to discuss your plans with you
in order to explore any possible problems or conflicts. While MBI shall not
disparage you or attempt to dissuade any Competitor from employing or
engaging you, you acknowledge that MBI may contact such Competitor informing
it truthfully of your confidentiality obligations to MBI. MBI shall have no
liability to you in the event of a decision by a Competitor not to employ or
engage you following such contact by MBI. Failure to provide this notice to
MBI during this period shall be deemed a material breach of this Agreement.
You remain bound by your confidentiality obligations even if you work
for a Competitor.
11. LOAN. You executed a Note in favor of MBI dated December 31, 1993,
in the principal amount of $218,766.03. As amended by an Amendment dated
December 31, 1994, it is due and payable on January 31, 1996. The loan is
secured by 15,000 shares of MBI stock (certificate number MB 1698; "the
<PAGE>
Mr. Richard M. Stern
November 17, 1995
Page 6
Subject Shares") purchased with the loan proceeds as a result of the exercise
of a stock option. With interest, the indebtedness evidenced by the Note has
risen to approximately $243,000. The indebtedness evidenced by the Note, as
amended, shall be retired as follows: MBI shall purchase the Subject Shares
from you effective December 2, 1995, at the higher of (1) the closing price
of MBI common stock on the New York Stock Exchange as of December 1, 1995, or
(2) the average closing price of MBI common stock on the New York Stock
Exchange on the twenty trading days prior to December 1, 1995. The purchase
proceeds shall be used to reduce the Note. (Cash will not change hands; this
will be handled by bookkeeping entries.) MBI shall forgive the remaining
indebtedness and the Note shall be canceled.
EXAMPLE (if 11-8-95 were the effective date):
Indebtedness: $243,000
Purchase price: $7.70 per share
Times 15,000 shares ($115,500)
Remaining debt $127,500
MBI will forgive the remaining indebtedness of $127,500.
MBI believes, BUT DOES NOT WARRANT, REPRESENT, OR PROMISE, (1) that the
debt forgiveness will not result in current taxable income to you, but will
instead serve to reduce your basis in the shares for purposes of your tax
accounting, and (2) under the circumstances of your option exercise and the
forgiveness, this transaction will leave you with a tax loss which you may
use to offset certain other income in the future. MBI will not include the
forgiveness on your W-2. MBI STRONGLY RECOMMENDS THAT YOU SECURE COMPETENT
TAX ADVICE WITH RESPECT TO THE ACCOUNTING AND TAX TREATMENT OF THE DESCRIBED
TRANSACTION PRIOR TO EXECUTING THIS LETTER AGREEMENT. Additional information
with respect to your loan:
Option price: $12.50
Market price on exercise date $17.375
Taxes advanced and added to loan $20,627 (approx.)
Accrued interest to 11-8-95 $34,697 (approx.)
<PAGE>
Mr. Richard M. Stern
November 17, 1995
Page 7
Average per share price from $7.70 (purposes of example
10-10-95 to 11-7-95 only; actual value may
be lower or higher,
depending on prices
on and prior to
December 1, 1995.
Jerry Wills will explain the basis for MBI's belief to you and/or your
professional advisors, if you wish.
12. RELEASE. In consideration for the payments, options, loan
forgiveness, and other consideration described in this Letter Agreement and
the Consultant Agreement, you hereby unconditionally, irrevocably, and
absolutely release and discharge MBI, its employees, officers, directors,
agents, stockholders, independent contractors, attorneys, consultants,
predecessors, successors and assigns from any and all claims related in any
way to any acts, transactions, or occurrences between you and MBI to date,
including but not limited to all losses, liabilities, claims, charges,
demands and causes of action, known or unknown, suspected or unsuspected,
arising directly or indirectly out of, or in any way connected with, your
employment with or resignation from MBI. This includes, but is not limited
to, any claim of employment discrimination arising under federal, state or
local law, including the Age Discrimination in Employment Act of 1967, as
amended, the Americans with Disabilities Act, the California Fair Employment
and Housing Act, any other statutory cause of action, and any tort or
contract claims.
WAIVER OF ADDITIONAL CLAIMS. Section 1542 of the Civil Code of the
State of California provides as follows:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his settlement
with the debtor.
You waive and relinquish any right or benefit which you may have under this
section or any other provision of the statutory or nonstatutory law or any
other jurisdiction to the full extent that you may lawfully waive all such
rights and benefits. In connection with such waiver and relinquishment, you
acknowledge that you are aware that you, your attorneys or agents may
hereafter discover
<PAGE>
Mr. Richard M. Stern
November 17, 1995
Page 8
claims or facts in addition to or different from those which they now know or
believe to exist, but that it is your intention thereby fully, finally, and
forever to release all claims, disputes, and differences, known or unknown,
suspected or unsuspected, which now exist, may exist, or have existed between
the parties, their employees, agents, assigns, and other privies. Unless
this provision shall have been procured by fraud, the releases given herein
shall be effective regardless of the discovery or existence of any such claim
or fact.
13. CONSEQUENCES OF BREACH. If you breach this Letter Agreement, MBI
may terminate it, cease providing payments and benefits hereunder, cancel
your stock options, and recover all payments and benefits already paid, in
addition to any other remedies it may have.
14. OTHER MATTERS. You will also receive materials prepared by Human
Resources describing various rights and duties, including optional benefits,
which will come into effect following your resignation. You will also
receive instruments as are customarily submitted to resigning employees. You
will cooperate fully in these separation meetings and execute or complete
such instruments at the time of your resignation.
15. ACKNOWLEDGEMENTS.
(a) NO PRE-EXISTING OBLIGATION. You acknowledge that but for the
entry by you and MBI into this Letter Agreement and the Consultant
Agreement, you are not entitled to the payments, stock options, loan
forgiveness, and other consideration provided for in these agreements
(with the exception of federal rights such as COBRA).
(b) Time for Review; Effective Date. You acknowledge that you have
been given 21 days to consider the terms of this Letter Agreement and the
Consultant Agreement. In addition, both parties acknowledge that you may
revoke your acceptance of this Letter Agreement within seven days following
your signature (which may occur during the 21-day period).
(c) Advice of Counsel and Other Professional Advisors. You
acknowledge that you have been advised in writing to consult with an
attorney and an accountant or tax advisor before entering into these
agreements. You acknowledge either that you have done so and received
counseling to your satisfaction, or that you have declined to do
<PAGE>
Mr. Richard M. Stern
November 17, 1995
Page 9
so and voluntarily executed this Letter Agreement and the Consultant
Agreement without fraud or undue influence.
16. PROHIBITION AGAINST ASSIGNMENT. You shall not assign this Letter
Agreement or any of the rights, interests and benefits hereunder. However,
you may provide for the assignment, gift, bequest, or transfer of such
benefits under this Letter Agreement to your survivor(s), or to a trust for
their benefit, on your death, or in the event that you suffer a major
disability.
17. ENTIRE AGREEMENT. This Letter Agreement, along with the Consultant
Agreement between the parties dated December 2, 1995, constitutes the entire
Agreement between the parties hereto and contains all of the agreements
between the parties with respect to its subject matter. This Letter
Agreement and the Consultant Agreement supersede any and all other
agreements, either oral or in writing, between the parties hereto with
respect to their subject matter, PROVIDED THAT Paragraphs 3 (Confidentiality)
and 4-9 (relating to inventions made within a year of termination) of your
Employment Agreement dated April 25, 1988, shall remain in effect.
18. BINDING EFFECT. This Letter Agreement shall be binding upon and
inure to the benefit of both parties and their respective heirs, legal
representatives, executors, administrators, and successors.
19. GOVERNING LAW. This Letter Agreement shall be subject to and
governed by the laws of the State of California irrespective of the fact that
you may become a resident of a different state.
20. AMENDMENT OF LETTER AGREEMENT. No change or modification of this
Letter Agreement shall be valid unless the same be in writing and signed by
both parties. No waiver of any provision of this Letter Agreement shall be
valid unless in writing and signed by the person or party to be charged.
21. SEVERABILITY. If any portion or portions of this Letter Agreement
shall be, for any reason, deemed to be invalid or unenforceable, the
remaining portion or portions shall nevertheless be valid, enforceable and
carried into effect, unless to do so would clearly violate the present legal
and valid intention of the parties hereto.
22. HEADINGS. The headings of this Letter Agreement are inserted for
convenience only and are not to be considered in construction of the
provisions
<PAGE>
Mr. Richard M. Stern
November 17, 1995
Page 10
hereof.
23. WAIVER OF BREACH. The waiver by either of the parties hereto of
any breach of any provision hereof shall not be construed to be a waiver of
any succeeding breach of that provision or a waiver of any other provision of
this Letter Agreement.
24. INDEMNIFICATION. With respect to any claim against you arising out
of your work for MBI as an officer or employee, or as a consultant under your
Consultant Agreement, you shall have rights of indemnification against MBI
under MBI's certificate of incorporation and bylaws equivalent to those of an
MBI officer.
* * * *
If you are in agreement with these items, please execute the duplicate
originals of this Letter Agreement and Consultant Agreement and return them
to Pam Alexandra, Jerry Wills, or Steve Lawson.
Let me take this opportunity to thank you for your services to MBI over
the past several years. We all wish you every success in your future
endeavors.
Sincerely,
/s/ B. Venkatadri
Bobba Venkatadri
President and Chief Operating Officer
AGREED TO BY:
/s/ Richard M. Stern
- -------------------------------------------
Richard M. Stern
Date: Dec 6, 1995
--------------------------------------
<PAGE>
December 2, 1995
Mr. Bobba Venkatadri
President and Chief Operating Officer
Molecular Biosystems, Inc.
10030 Barnes Canyon Road
San Diego, California 92121
Re: Resignation
Dear Bobba:
I resign as an employee and as Vice President, Marketing, of Molecular
Biosystems, Inc., effective immediately.
Sincerely,
/s/ Richard M. Stern
Richard M. Stern
Vice President, Marketing
<PAGE>
EXHIBIT 10.44
CONSULTANT AGREEMENT
This Consultant Agreement made and entered as of December 4, 1995, by
and between MOLECULAR BIOSYSTEMS, INC., a Delaware corporation ("the
COMPANY") and RICHARD M. STERN, an individual ("CONSULTANT").
WHEREAS, COMPANY desires to retain CONSULTANT to perform certain
services, and CONSULTANT is agreeable to doing so;
NOW, THEREFORE, in consideration of the mutual promises set forth below,
the parties agree as follows:
1. SERVICES. The COMPANY hereby engages CONSULTANT as an independent
contractor to do work for COMPANY relative to (1) product marketing, (2)
marketing partnership relations, (3) business development, (4) industry
conditions, and (5) such other projects and subjects as may be reasonably
requested by the COMPANY. CONSULTANT shall report to the COMPANY'S
President. It is anticipated that this engagement will not occupy the
greater part of CONSULTANT's customary work week.
2. TERM. The initial term of this Consultant Agreement shall commence
on December 4, 1995, and continue up to and including December 4, 1996. The
term of this Agreement may be extended beyond the initial term for periods
not exceeding six (6) months upon the written agreement of both parties.
CONSULTANT's services shall be rendered as requested by COMPANY. This
Consultant Agreement, or any extended term thereof, may be terminated by
either party with or without cause with thirty (30) days' written notice,
provided that COMPANY cannot terminate this Consultant Agreement without
making severance payment to CONSULTANT in the full amount of the remaining
payments upon termination unless CONSULTANT is in material breach of this
Consultant Agreement or the Letter Agreement.
3. COMPENSATION.
(a) The COMPANY shall pay CONSULTANT $114,000 for services rendered
under this Agreement. Payment shall be made every two weeks in accordance
with the COMPANY's established business procedures. Unless otherwise agreed
between the parties, the COMPANY shall withhold customary payroll taxes.
(b) In the event that the COMPANY is purchased or experiences a
substantial change in control and CONSULTANT is terminated as a result, the
COMPANY shall make a severance payment to CONSULTANT in the full amount of
the remaining payments upon termination.
<PAGE>
4. EXPENSES. Expenses incurred by CONSULTANT in performance under
this Consultant Agreement, including those for travel, if any, shall be paid
by COMPANY, subject to COMPANY having approved the proposed expenses in
accordance with current COMPANY policies. Payment of expenses or
reimbursement of CONSULTANT shall be made in accordance with COMPANY's
established business procedures.
5. INDEPENDENT CONTRACTOR. CONSULTANT's relationship with COMPANY is
and shall be that of an independent contractor and not of an employee of
COMPANY and neither party is authorized to nor shall act as the agent of the
other without the prior approval of both parties.
6. NOTICES. Any notice permitted or required under this Consultant
Agreement shall be in writing and mailed or delivered to the receiving party
at their respective last known addresses or any other changed address of
which the sending party has been notified or of which it has actual
knowledge.
7. PROHIBITION AGAINST ASSIGNMENT. This Consultant Agreement and the
rights, interests and benefits hereunder shall not be assigned by the
CONSULTANT. However, you may provide for the assignment, gift, bequest, or
transfer of such benefits under this Consultant Agreement to your
survivor(s), or to a trust for their benefit, on your death, or in the event
that you suffer a major disability.
8. ENTIRE AGREEMENT. This Consultant Agreement, along with the Letter
Agreement between the parties captioned "Terms of Separation from MBI,"
constitutes the entire agreement between the parties hereto and contains all
of the agreements between the parties hereto with respect to the subject
matter hereof.
9. BINDING EFFECT. This Consultant Agreement shall be binding upon
and inure to the benefit of the COMPANY and the CONSULTANT and their
respective heirs, legal representatives, executors, administrators, and
successors.
10. GOVERNING LAW. This Consultant Agreement shall be subject to and
governed by the laws of the State of California irrespective of the fact that
the CONSULTANT is or may become a resident of a different state.
11. AMENDMENT OF CONSULTANT AGREEMENT. No change or modification of
this Consultant Agreement shall be valid unless the same be in writing and
signed by the CONSULTANT and the COMPANY. No waiver of any provision of this
Consultant Agreement shall be valid unless in writing and signed by the
person or party to be charged.
12. SEVERABILITY. If any portion or portions of this Consultant
Agreement shall be, for any reason, deemed to be invalid or unenforceable, the
<PAGE>
remaining portion or portions shall nevertheless be valid, enforceable and
carried into effect.
13. HEADINGS. The headings of this Consultant Agreement are inserted
for conve-nience only and are not to be considered in construction of the
provisions hereof.
14. WAIVER OF BREACH. The waiver by either of the parties hereto of
any breach of any provision hereof shall not be construed to be a waiver of
any succeeding breach of that provision or a waiver of any other provision of
this Consultant Agreement.
IN WITNESS WHEREOF, the COMPANY has caused this Consultant Agreement to
be signed by its duly authorized officer and the CONSULTANT has signed this
Consultant Agreement on the day and year appearing in the preamble.
MOLECULAR BIOSYSTEMS, INC.
/s/ Bobba Venkatadri
By: ---------------------------------------
Bobba Venkatadri
President and Chief Operating Officer
CONSULTANT:
/s/ Richard M. Stern
- -------------------------------------------
Richard M. Stern
Date: December 2, 1995
<PAGE>
EXHIBIT 10.45
[LETTERHEAD]
FIRST AMENDMENT
TO SEPARATION AGREEMENT
This Amendment to Separation Agreement ("this Amendment") dated as of
June 6, 1996, is between MOLECULAR BIOSYSTEMS, INC., a Delaware Corporation
("MBI") and STEVEN LAWSON ("LAWSON").
Recitals
A. MBI and LAWSON are parties to a Separation Agreement dated as of
May 10, 1996 ("the Agreement").
B. Paragraph 20 of the Agreement provides in part: "No change or
modification of this Agreement shall be valid unless the same be in writing
and signed by both parties."
C. MBI and LAWSON wish to amend the Agreement with respect to LAWSON'S
separation payments from MBI.
THEREFORE, in consideration of the mutual promises contained herein and
in the Agreement, MBI and LAWSON agree as follows:
1. Paragraph 4 shall be stricken in its entirety and replaced by the
following:
4. SEPARATION PAYMENTS. In consideration of LAWSON'S agreement to
extend his employment as described in paragraph 3 and his other
undertakings in this Agreement, and in view of his fiduciary relationship
to MBI as in-house lawyer and long-time senior officer, MBI shall make
separation payments to LAWSON equivalent to nine (9) months of his current
salary, characterized as follows:
(a) Payments equivalent to three-months' salary as a bonus for
agreeing to remain employed at MBI past his noticed termination
date; and
(b) Payments equivalent to six-months' salary as a severance payment.
This amount shall be paid to LAWSON over an eighteen (18) month period
beginning June 1, 1996, through November 30, 1997. The payments shall be
made to LAWSON on a bi-weekly basis on the same dates that MBI pays its
current employees according to its normal business practices. Each payment
shall be equal to half of LAWSONS' regular bi-weekly salary payments prior
to his resignation. MBI shall withhold customary payroll taxes.
1
<PAGE>
AGREED:
MOLECULAR BIOSYSTEMS, INC.
/s/ B. Venkatadri
________________________________________
Bobba Venkatadri
President and COO
/s/ Steven Lawson
________________________________________
STEVEN LAWSON
<PAGE>
SEPARATION AGREEMENT
SEPARATION AGREEMENT, dated as of May 10, 1996, between STEVEN LAWSON,
residing at 15757 Hidden Valley Drive, Poway, California, 92064 ("LAWSON"),
and MOLECULAR BIOSYSTEMS, INC., a Delaware corporation with its principal
office at 10030 Barnes Canyon Road, San Diego, California 92121 ("MBI").
RECITALS
A. LAWSON is employed by MBI as its Vice President - Legal Affairs and
General Counsel. He has been employed in that capacity since January 1, 1992.
B. On April 15, 1996, LAWSON delivered to MBI his voluntary
resignation, effective as of April 30, 1996, or as of such other date as
LAWSON and MBI might agree, pursuant to the 15-day notice provision of his
written employment agreement (attached).
C. MBI desires to extend LAWSON's employment past his effective
termination date and to secure his agreement to certain other terms and
conditions. LAWSON desires to agree to such extended employment and other
terms and conditions.
THEREFORE, in consideration of the mutual promises contained herein, the
parties agree as follows:
TERMS AND CONDITIONS
1. DESCRIPTION. Lawson's resignation from MBI shall be regarded as
voluntary.
2. EFFECTIVE DATE. This Agreement shall become effective on the
eighth day following its execution, unless LAWSON has revoked acceptance
during the seven days prior thereto. Regardless of when this takes place,
the Agreement shall be deemed to have been in effect retroactive to April 30,
1996. This Agreement shall not become effective until executed by LAWSON and
MBI. LAWSON acknowledges that he has been give 21 days to consider the terms
of this Agreement.
3. EXTENSION OF EMPLOYMENT. LAWSON shall remain employed full-time at
MBI through May 31, 1996, at his current salary and other current terms and
conditions of employment. LAWSON has advised MBI that he has accepted a
position as Adjunct Professor of Law at California Western School of Law and
that he will be required to spend some time away from the office through May 31,
<PAGE>
1996. However, he shall spend substantially all of his regular working hours
at MBI and shall attend to all of his regular duties in the normal course of
business, provided that he shall not attend (i) the regular May meeting of
the MBI Board of Directors (ii) scheduled meetings of the senior management
group or general management group, or (iii) all-employee meetings.
4. SEPARATION PAYMENTS. In consideration of LAWSON's agreement to
extend his employment as described in Paragraph 3 and his other undertakings
in this Agreement, and in view of his fiduciary relationship to MBI as
in-house lawyer and long-time senior officer, MBI shall make separation
payments to LAWSON equivalent to nine months of his current salary,
characterized as follows:
(a) Payments equivalent to three-months' salary as a bonus for agreeing
to remain employed at MBI past his noticed termination date; and
(b) Payments equivalent to six-months' salary as a severance payment.
This amount shall be paid to LAWSON in bi-weekly installments on the same
dates and in the same manner as if LAWSON were employed by MBI for the
nine-month period beginning June 1, 1996, through February 28, 1997. The
COMPANY shall withhold customary payroll taxes.
5. WELFARE BENEFITS.
(a) GENERAL. Regular medical, dental, vision and life insurance will
continue through May 31, 1996. Accidental death and dismemberment and
Long-term disability insurance will also end May 31, 1996. MBI will
pay LAWSON's COBRA premium payments to extend his medical, dental, and
vision coverages until February 28, 1997, unless he obtains other
insurance during that period, in which case LAWSON shall notify MBI.
LAWSON may elect to continue paying COBRA for an additional nine
months (COBRA benefits are available for a maximum of 18 months) at
LAWSON's own cost. LAWSON must notify MBI one month prior to the end
of the severance period if he wishes to extend the COBRA coverage
beyond the severance period.
(b) CONVERSION OF LIFE AND LONG-TERM DISABILITY INSURANCE POLICIES.
LAWSON will be provided the information needed to request the option
of converting both the group life insurance and long-term disability
coverage he currently holds into individual policies. LAWSON will
work directly with the insurance carrier should he decide this is
<PAGE>
a desired option. He will need to exercise this option within 31 days
following May 31, 1996.
(c) VACATION. LAWSON will be paid for all vacation hours earned
and unused though May 31, 1996.
(d) 401 (k). LAWSON must make a decision regarding his 401 (k) plan
account within 30 days of May 31, 1996. If LAWSON's account value is
$3500 or more, he may elect to have his 401 (k) plan assets remain in
MBI's plan, with no additional deposits or loan options, or elect to
request that his assets be rolled over to another qualified tax-deferred
plan or elect a cash distribution. If LAWSON's account value is less that
$3500, he must elect either a cash distribution or rollover of assets.
Representatives of Human Resources will be available to explain details of
these items.
6. STOCK OPTIONS AND TRANSACTIONS IN MBI SECURITIES.
(a) VESTING AND EXERCISE PERIOD. LAWSON has been granted stock
options as described in the attached schedule. As of May 31, 1996, MBI
will accelerate the vesting of all unvested options to June 1, 1996. MBI
will also extend the period of exercisability of all options to the
maximum period available under MBI's various stock option plans. (That is,
the lapse dates in the charts, which are already at the maximum, will not
be reduced on account of LAWSON's ceasing to be an employee.
(b) RESTRICTIONS ON TRANSACTIONS. Until November 30, 1996
("Reporting Period"), LAWSON will be under the same constraints imposed by
MBI and securities laws on MBI vice presidents regarding the exercise of
options and the purchase and sale of MBI securities. During the Reporting
Period, LAWSON shall notify MBI of his intentions in this regard
(including option exercises) and shall execute such forms, if any, as MBI
and the U. S. securities laws require. LAWSON may use the services of
MBI's Finance Department to assist him in exercising his options and
selling his shares until the options lapse. LAWSON acknowledges that taxes
and commissions will be withheld from any profit LAWSON makes on the sale
of the stock following exercise and sale. During the Reporting Period,
LAWSON will be notified monthly, along with other MBI Section 16(b)
reporting persons, as to the current trading status of MBI stock (i.e.,
"green light, "yellow light," or "red light"). At no time -- presently,
or at any future time, during or after the Reporting Period -- may LAWSON
trade on inside MBI information.
<PAGE>
(c) BLACKOUT PERIOD. Notwithstanding the foregoing, LAWSON shall not
exercise any stock options prior to June 1, 1997, without MBI's permission,
provided that LAWSON may exercise any stock options which would otherwise
have lapsed prior to June 1, 1997, after the Reporting Period, without
restriction (other than the general prohibition against trading on inside
information).
7. COOPERATION; NON-DISPARAGEMENT. LAWSON shall cooperate with MBI in
any and all governmental and/or third-party proceedings, including but not
limited to lawsuits and other disputes. Following LAWSON's resignation such
cooperation shall be at MBI's expense at a reasonable hourly rate for
attorneys of LAWSON's experience (except that MBI cannot pay for the content
of sworn testimony), provided that (i) LAWSON shall not charge MBI for brief
telephone inquiries, and (ii) LAWSON may decline to represent MBI as
independent counsel. LAWSON shall keep MBI advised of contacts by
governmental agencies and third parties, and shall reasonably cooperate with
MBI in handling any response.
EXAMPLE: After May 31, 1996, MBI receives a demand letter from an
attorney for a former employee claiming wrongful termination. The
attorney contacts LAWSON to discuss LAWSON's knowledge of the matter.
LAWSON shall not discuss the matter with the attorney, and shall
advise MBI that he has been contacted. LAWSON shall discuss the matter
briefly on the phone with MBI representatives at no charge to MBI.
LAWSON shall submit to interviews, review documents, and otherwise
assist in MBI's defense of the claim at a reasonable hourly rate.
LAWSON shall not be required to handle the defense of the claim as
independent counsel.
At LAWSON's request, and subject to Paragraph 11 when applicable, MBI shall
provide counsel to LAWSON, if the parties deem counsel necessary or
desirable, in any such proceeding at MBI's expense. LAWSON shall not
voluntarily cooperate with, testify for, or otherwise assist parties adverse
to MBI in a dispute, although LAWSON may respond to compulsory process.
LAWSON shall not materially disparage MBI, and MBI shall not materially
disparage LAWSON, to any third parties.
8. CONTACTS FOR REFERENCES. Third parties contacting MBI regarding
LAWSON's employment will be told that LAWSON's resignation was voluntary;
LAWSON's title; LAWSON's dates of employment; and LAWSON's final salary. At
LAWSON's request, MBI will provide LAWSON with a positive letter of
reference. The content of the letter will be agreed upon between LAWSON and
MBI. LAWSON shall not require that the letter contain any false information.
9. PRIVILEGE. LAWSON acknowledges that he is and will
<PAGE>
continue to be bound by the attorney-client privilege in all cases in which
it applies unless it is waived by MBI, and that he will assert MBI's
privilege in response to any inquiries by persons other than authorized
representatives of MBI requiring the disclosure of confidential MBI
information, unless otherwise instructed in writing by MBI.
10. CONFIDENTIALITY.
(a) OBLIGATION. LAWSON acknowledge that in the course of LAWSON's
employment with MBI LAWSON has had and will have access to and
familiarity with information of substantial value to MBI which is not old
or generally known to the public and which gives MBI an advantage over its
competitors who do not know or use it, including but not limited to
strategies, business plans, research, formulas and formulations,
techniques, designs, drawings, processes, inventions, developments,
equipment, prototype, sales and customer information, and financial
information, relating to the business, products, and practices of MBI
(hereinafter referred to as "Confidential Information"). LAWSON agrees
at all times following his resignation to regard and preserve as
confidential such Confidential Information, and to refrain from publishing
or disclosing any part of such Confidential Information and from using it
except on behalf of MBI. LAWSON further agrees at all times to refrain
from any other acts or omissions that would reduce the value of such
Confidential Information to MBI and to take all reasonably necessary and
desirable precautions to prevent such Confidential Information from being
disseminated to any third parties.
(b) ENFORCEMENT. LAWSON acknowledge that a breach of the terms of
this paragraph would threaten MBI with immediate and irreparable harm not
readily compensable in money damages, and that MBI would be entitled to
injunctive and declaratory relief to stop or prevent any such breach.
Nothing in this paragraph shall be construed to prevent LAWSON from using or
disclosing LAWSON's general knowledge of the imaging industry (as opposed to
MBI-specific information) acquired at any time prior to or during the course
of LAWSON's employment.
11. INDEMNIFICATION AND REPRESENTATION. If LAWSON is named as a
defendant in any legal proceeding where liability is sought to be imposed on
him as a result of actions he took, or actions he is alleged to have taken,
in the course and scope of his employment by MBI, the MBI Board of Directors
shall authorize the advancement of legal expenses, and shall provide for
indemnifi-
<PAGE>
cation of any losses to the maximum extent authorized by, and subject to any
restrictions or undertakings required by, MBI's certificate of incorporation,
bylaws, or applicable law. LAWSON shall consult wit MBI regarding his legal
representation, and, in appropriate cases, MBI shall consent to separate
counsel for him, provided that, unless a non-waivable actual conflict exists,
LAWSON shall consent to joint representation in appropriate cases.
12. EMPLOYMENT BY COMPETITORS. This Letter Agreement does not limit
LAWSON's ability to work for competitors of MBI, PROVIDED THAT through May 31,
1997, reasonably in advance of accepting any employment or engagement as
counsel by any company, individual, or other entity engaged or planning to
engage in the development, manufacture, or marketing of ultrasound contrast
agents ("Competitor"), LAWSON shall notify the President or Chief Executive
Officer of MBI. Prior to accepting any such employment, or promptly
following LAWSON's engagement as a lawyer by a Competitor, LAWSON shall give
MBI the opportunity to discuss LAWSON's plans with LAWSON in order to explore
any possible problems or conflicts. While MBI shall not disparage LAWSON or
attempt to dissuade any Competitor from employing or engaging LAWSON, LAWSON
acknowledges that MBI may contact such Competitor informing it truthfully of
LAWSON's confidentiality and privilege obligations to MBI. MBI shall have no
liability to LAWSON in the event of a decision by a Competitor not to employ
or engage LAWSON following such contact by MBI. Failure to provide this
notice to MBI during this period shall be deemed a material breach of this
Agreement.
13. RELEASE. LAWSON hereby unconditionally, irrevocably, and absolutely
releases and discharges MBI, its employees, officers, directors, agents,
stockholders, independent contractors, attorneys, consultants, predecessors,
successors and assigns (collectively, for purposes of this Paragraph, "MBI"),
and MBI hereby unconditionally, irrevocably, and absolutely releases and
discharges LAWSON, from any and all claims related in any way to any acts,
transactions, or occurrences between LAWSON and MBI to date, including but
not limited to all losses, liabilities, claims, charges, demands and causes
of action, known or unknown, suspected or unsuspected, arising in the course
of, or within the scope of, LAWSON's employment with or resignation from MBI.
This includes, but is not limited to, any claim of employment discrimination
arising under federal, state or local law, including the Age Discrimination
in Employment Act of 1967, as amended, the Americans with Disabilities Act,
the California Fair Employment and Housing Act, legal malpractice, any other
statutory cause of action, and any tort or contract claims.
WAIVER OF ADDITIONAL CLAIMS. Section 1542 of the Civil Code
<PAGE>
of the state of California provides as follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
LAWSON and MBI each waive and relinquish any right or benefit which they may
respectively have under this section of any other provision of the statutory
or nonstatutory law or any other jurisdiction to the full extent that each
may lawfully waive all such rights and benefits. In connection with such
waiver and relinquishment, LAWSON and MBI acknowledge that their respective
attorneys or agents may hereafter discover claims or facts in addition to or
different from those which they now know or believe to exist, but that it is
their respective intention thereby fully, finally, and forever to release all
claims, disputes, and differences, known or unknown, suspected or
unsuspected, which now exist, may exist, or have existed between the parties,
their employees, agents, assigns, and other privies. Unless this provision
shall have been procured by fraud, the releases given herein shall be
effective regardless of the discovery or existence of any such claim or fact.
14. OTHER MATTERS. LAWSON will also receive materials prepared by
Human Resources describing various rights and duties, including optional
benefits, which will come into effect following LAWSON's resignation. LAWSON
will also receive instruments as are customarily submitted to resigning
employees. LAWSON will cooperate fully in these separation meetings and
execute or complete such instruments prior to the conclusion of his
employment.
15. ACKNOWLEDGMENTS.
(a) NO PRE-EXISTING OBLIGATION. LAWSON acknowledges that but for
the entry by him and MBI into this Agreement, he is not entitled to the
payments, stock option acceleration and extension, loan forgiveness, and
other consideration provided for in these agreements (with the exception
of federal rights such as COBRA).
(b) ADVICE OF COUNSEL AND OTHER PROFESSIONAL ADVISORS. LAWSON
acknowledges that he has been advised in writing to consult with an
attorney before entering into this Agreement. LAWSON acknowledges either
that he has done so and received counseling to his satisfaction, or that
he has declined to do so and voluntarily executed this Agreement without
fraud or undue influence.
<PAGE>
16. PROHIBITION AGAINST ASSIGNMENT. LAWSON shall not assign this
Letter Agreement or any of the rights, interests and benefits hereunder.
However, LAWSON may provide for the assignment, gift, bequest, or transfer of
such benefits under this Letter Agreement to LAWSON's survivor(s), or to a
trust for their benefit, on LAWSON's death, or in the event that LAWSON
suffers a major disability.
17. ENTIRE AGREEMENT. This Agreement between the parties constitutes
the entire agreement between the parties hereto and contains all of the
agreements between the parties with respect to its subject matter. This
Agreement supersedes any and all other agreements, either oral or in writing,
between the parties hereto with respect to their subject matter, PROVIDED
THAT Paragraphs 3 (Confidentiality) and 4-9 (relating to inventions made
within a year of termination) of LAWSON's Employment Agreement dated January 6,
1992, shall remain in effect.
18. BINDING EFFECT. This Letter Agreement shall be binding upon and
inure to the benefit of both parties and their respective heirs, legal
representatives, executors, administrators, and successors.
19. GOVERNING LAW. This Letter Agreement shall be subject to and
governed by the laws of the State of California irrespective of the fact that
LAWSON may become a resident of a different state.
20. AMENDMENT. No change or modification of this Agreement shall be
valid unless the same be in writing and signed by both parties. No waiver of
any provision of this Letter Agreement shall be valid unless in writing and
signed by the person or party to be charged.
21. SEVERABILITY. If any portion or portions of this Letter Agreement
shall be, for any reason, deemed to be invalid or unenforceable, the
remaining portion or portions shall nevertheless be valid, enforceable and
carried into effect, unless to do so would clearly violate the present legal
and valid intention of the parties hereto.
22. HEADINGS. The headings of this Letter Agreement are inserted for
convenience only and are not to be considered in construction of the
provisions hereof.
23. NON-WAIVER OF BREACH. The waiver or condonation by either of the
parties hereto of any breach of any provision of this Agreement shall not be
construed to be a waiver of any succeeding breach of that provision or as a
waiver of a breach of any other provision of this Agreement.
<PAGE>
24. INTEGRATION. This Agreement expresses the entire agreement of the
parties regarding its subject matter.
AGREED this 10th day of May, 1996.
MOLECULAR BIOSYSTEMS, INC.
/s/ Bobba Venkatadri
---------------------------------------
Bobba Venkatadri
President and Chief Operating Officer
STEVEN LAWSON
/s/ Steven Lawson
---------------------------------------
<PAGE>
EXHIBIT 10.52
SECOND AMENDMENT TO
PROMISSORY NOTE
RECITAL
James L. Barnhart ("Maker") executed a promissory note dated December
31, 1993, in favor of Molecular Biosystems, Inc. ("MBI"), in the principal
amount of $213,481.85, due and payable on January 31, 1995 ("Note"). Maker
and MBI previously extended the Note until January 31, 1996. Maker and MBI
desire to extend the Note an additional two years.
NOW, THEREFORE, in consideration of the payment of $1.00 by Maker to
MBI, the receipt and sufficiency of which is acknowledged by MBI, the parties
agree as follows:
1. The final sentence of Paragraph 1 of the Note shall be replaced in
its entirety with the following sentence:
"The entire indebtedness represented by this Note and all interest accrued
hereunder shall be due and payable on January 31, 1998."
2. All other terms and conditions of the Note are reaffirmed.
AGREED:
/s/ James L. Barnhart
________________________________________
James L. Barnhart
MOLECULAR BIOSYSTEMS, INC.
/s/ G.A. Wills
________________________________________
By: Gerard A. Wills
Vice President, Finance and
Chief Financial Officer
DATED: June 24, 1996
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
FISCAL YEARS ENDED MARCH 31, 1992 1993 1994 1995 1996
- ---------------------------- --------------------------------------------------------------------
(In thousands, except per share data) <C> <C> <C> <C> <C>
<S>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Revenues under
collaborative agreements $ 9,193 $ 3,439 $ 5,713 $ 15,132 $ 2,412
Product revenues - - 1,056 1,769 647
License fees - 250 2,015 40 25
--------------------------------------------------------------------
Total revenues 9,193 3,689 8,784 16,941 3,084
Operating expenses:
Research and development costs 9,330 14,640 18,110 18,743 13,588
Costs of products sold - - 580 1,608 1,553
Selling, general and
administrative expenses 2,408 4,863 5,743 5,864 5,862
Other expense - - 4,726 3,403 3,110
--------------------------------------------------------------------
Total expenses 11,738 19,503 29,159 29,618 24,113
Loss from operations (2,545) (15,814) (20,375) (12,677) (21,029)
Interest expense (460) (340) (327) (694) (786)
Interest income 3,620 3,144 1,902 1,189 1,102
(Provision) credit for income taxes (248) 1,197 - - -
--------------------------------------------------------------------
Income (loss) from continuing operations 367 (11,813) (18,800) (12,182) (20,713)
Loss from discontinued operations (924) (2,255) - - -
--------------------------------------------------------------------
Net loss $ (557) $ (14,068) $(18,800) $ (12,182) $(20,713)
--------------------------------------------------------------------
--------------------------------------------------------------------
Earnings (loss) per common share:
Continuing operations $ .03 $ (1.01) $ (1.58) $ (1.02) $ (1.62)
Discontinued operations (.08) (.19) - - -
--------------------------------------------------------------------
Net loss $ (.05) $ (1.20) $ (1.58) $ (1.02) $ (1.62)
--------------------------------------------------------------------
--------------------------------------------------------------------
Weighted average common
shares outstanding 11,235 11,690 11,905 11,999 12,758
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1992 1993 1994 1995 1996
- --------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and
marketable securities $ 67,541 $ 51,218 $ 29,500 $ 19,718 $ 20,570
Working capital 65,094 51,761 28,117 20,927 18,601
Total assets 87,034 71,758 56,051 50,639 43,829
Long-term debt 4,001 3,965 3,917 8,408 8,610
Total stockholders' equity 77,153 64,891 48,076 36,424 28,962
</TABLE>
<PAGE>
MBI FINANCIAL REVIEW
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(REFERENCES TO YEARS ARE TO THE COMPANY'S FISCAL YEARS ENDED MARCH 31.) EXCEPT
FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HERE.
OVERVIEW
The Company is a world leader in the development, manufacture and sale of
ultrasound contrast imaging agents. ALBUNEX-Registered Trademark-, the Company's
first-generation ultrasound contrast agent, was first approved for sale in Japan
in October 1993 and in the United States in August 1994 for the assessment of
cardiac function. The Company believes that sales of ALBUNEX have been below the
Company's original expectations due primarily to the short length of time that
ALBUNEX microspheres remain intact in the bloodstream and the lack of clinical
data to support the Company's belief that the use of ALBUNEX can reduce
healthcare costs through the avoidance of more expensive diagnostic procedures.
Mallinckrodt, the Company's principal marketing partner, has begun a post-
approval clinical study in 1996 designed to demonstrate the cost-effectiveness
of ALBUNEX for stress echocardiograms and has completed Phase 3 clinical trials
for a second indication for ALBUNEX, the assessment of fallopian tube patency,
in order to broaden the potential uses of the product.
While ALBUNEX represents a major breakthrough in ultrasound imaging because it
improves visualization of the left side of the heart, the potential markets for
ALBUNEX are limited because of the short duration of ALBUNEX in the bloodstream.
This short duration prevents the use of ALBUNEX for the assessment of myocardial
perfusion (blood flow in the heart muscle). The Company believes that myocardial
perfusion has a significantly greater market potential than cardiac function,
and accordingly, the Company is focusing its product development activities on
FS069, the Company's second-generation ultrasound contrast agent which remains
intact in the bloodstream for a much longer period of time. Clinical studies to
date suggest that FS069 may be effective for the assessment of both cardiac
function and myocardial perfusion.
The Company does not foresee ALBUNEX sales alone as resulting in profitable
operations for the Company. Operating losses may occur for at least the next
several years due to continued requirements for research and development
including preclinical testing and clinical trials, regulatory activities and the
costs of commercializing new products. The magnitude of the losses and the time
required by the Company to achieve profitability are highly dependent on the
market acceptance of ALBUNEX and the regulatory approval and market acceptance
of FS069 and are therefore uncertain. There can be no assurance that the Company
will be able to achieve profitability on a sustained basis or at all. Results of
operations may vary significantly from quarter to quarter depending on, among
other things, the progress, if any, of the Company's research and development
efforts, the timing of milestone payments, the timing of certain expenses and
the establishment of collaborative research agreements.
REVENUE RECOGNITION
Historically the Company has earned revenues from three sources: revenues under
collaborative agreements, product revenues and license fee revenues. See Note 1
of Notes to the Consolidated Financial Statements.
REVENUES UNDER COLLABORATIVE AGREEMENTS Revenues under collaborative agreements
have been the primary source of revenues for the Company in the past. They
consist of three types of revenues: (i) milestone payments which are earned on
the achievement of certain product development and territorial milestones; (ii)
payments received from Mallinckrodt under the Company's amended agreement to
support clinical trials, regulatory submissions and product development; and
(iii) a bonus paid by Mallinckrodt equivalent to Mallinckrodt's first year
product sales of ALBUNEX at its sales price to end users of the product.
PRODUCT REVENUES Product revenues are based upon MBI's sales to Mallinckrodt
and Shionogi and are recognized upon shipment of the product. The transfer
prices for MBI's sales of ALBUNEX-Registered Trademark- to Mallinckrodt and
Shionogi are determined under the respective agreements and are equal to 40% of
Mallinckrodt's net sales price to its end users of the product and 30% of
Shionogi's net sales price to its end users.
<PAGE>
LICENSE FEES License fees are recognized at the time of receipt and are
generally received in connection with the grant of product development,
marketing and/or distribution rights to one of the Company's technologies.
RESULTS OF OPERATIONS
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995 Revenues under collaborative
agreements were $2.4 million for the fiscal year ended March 31, 1996,
compared to $15.1 million for the fiscal year ended March 31, 1995. This
decrease was due primarily to non-recurring milestones earned in fiscal year
1995 associated with receiving approval to market ALBUNEX in the United
States and the release of ALBUNEX to Mallinckrodt's sales force. For fiscal
year 1996, $2.0 million of the revenues under collaborative agreements was
attributable to the receipt of the first two quarterly payments from
Mallinckrodt to support clinical trials, related regulatory submissions and
associated product development (discussed above under "Revenues Under
Collaborative Agreements" and below under "Liquidity and Capital Resources").
The remaining $412,000 for fiscal year 1996 was the first year's sales bonus
which Mallinckrodt agreed to pay to MBI (discussed above under "Revenues
Under Collaborative Agreements").
Product revenues were $647,000 for fiscal year 1996, compared to $1.8 million
for the prior year. The majority of this decrease was due to greater product
shipments in the prior year as a result of receiving the initial approval to
market ALBUNEX in the United States and the initial release of the product to
Mallinckrodt's sales force.
License fees were $25,000 in fiscal year 1996, compared to $40,000 in fiscal
year 1995. These fees were the result of a non-exclusive license entered into in
fiscal year 1993 granting rights for certain of the Company's patents which it
is no longer exploiting. The Company received an initial license fee of $250,000
in fiscal year 1993 and continues to receive an annual license maintenance fee.
Cost of products sold totaled $1.6 million for fiscal year 1996, resulting in a
negative gross profit margin. This was due to the fact that the current low
levels of production were insufficient to cover the Company's fixed
manufacturing overhead expenses. For fiscal year 1995, cost of products sold
totaled $1.6 million, resulting in a gross profit margin of 9.1%. Prior
to the approval of ALBUNEX by the FDA, certain expenses associated with the
manufacturing of the product had been recorded as research and development
costs. The Company anticipates an increase in its gross profit margins at such
time as ALBUNEX sales volume increases and thus the fixed costs included in
manufacturing overhead will be allocated over a larger number of vials produced.
The amount of any increase and the time required by the Company to achieve
higher margins are highly dependent on the market acceptance of ALBUNEX and are
therefore uncertain.
The Company's research and development costs totaled $13.6 million for the year
ended March 31, 1996, as compared to $18.7 million for the year ended March 31,
1995. This decrease of 27% in the current year is due in large part to the
decision the Company made in February 1995 to focus its research and development
efforts primarily on its ultrasound contrast agents and to reduce its staffing
by 25% or 47 employees. This decision was made to reduce the Company's cash burn
rate and additionally focus the Company on those markets where it felt it would
earn the greatest return on its invested capital. As a result, the Company
discontinued research on non-ultrasound products and terminated those employees
who worked on these projects along with corresponding reductions in
administrative staffing.
Selling, general and administrative expenses totaled $5.9 million in fiscal year
1996 and were substantially unchanged from the prior fiscal year.
During fiscal year 1996, the Company's other expenses totaled $3.1 million as
compared to $3.4 million for the prior year. In the current year, the Company
recorded the following charges: $1.4 million related to legal settlements and
related costs; $1.0 million related to the write-off of license fees related to
technologies no longer being developed; and $667,000 due to the write-down of
real estate which was sold in March 1996. The legal settlement and related costs
were the result of the Bracco arbitration. See Note 6 of Notes to the
Consolidated Financial Statements. In November 1995, the Company entered into a
contract for the sale of the two buildings and underlying land that the Company
purchased in December 1993. In anticipation of the sale, the Company wrote-down
the carrying value of the buildings by $667,000 to the net amount that
it then expected to receive from the sale. The sale of the buildings was
completed in March 1996 for $6.5 million after deducting costs related to the
sale. During fiscal year 1995, the Company received a bonus from Mallinckrodt of
approximately
<PAGE>
MBI FINANCIAL REVIEW
$3.0 million related to the approval of ALBUNEX-Registered Trademark- for
marketing in the United States. Under the terms of the distribution agreement
with Mallinckrodt, this bonus was awarded to MBI's employees. As a result, the
Company recorded a charge of approximately $3.0 million, included under other
expenses. Of this amount, approximately $1.7 million was paid in cash, and the
balance represented forgiveness of indebtedness.
Interest expense for fiscal years 1996 and 1995 amounted to $786,000 and
$694,000, respectively, and consisted primarily of mortgage interest on the
Company's manufacturing building. Interest expense increased $92,000 during the
current year due to a loan that the Company obtained in May 1994 to finance the
purchase of two unimproved buildings and underlying land in December 1993. In
March 1996, the loan was restructured into a new note payable in the amount of
$6.0 million which bears interest at prime plus 1% and is payable in monthly
installments of principal plus interest over five years. The interest rate on
the note was 9.25% in March 1996.
Interest income for fiscal years 1996 and 1995 was $1.1 million and $1.2
million, respectively. The decrease in interest income in the current year is
due to lower average cash and marketable securities balances.
No tax benefit has been recognized for fiscal years 1996 or 1995 as the Company
had fully utilized its operating loss carryback ability in fiscal year 1993. As
of March 31, 1996, the Company had federal and state operating loss
carryforwards of approximately $71.1 million and $34.6 million, respectively,
and realization of future tax benefits from utilization of net
operating loss carryforwards is uncertain.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994 Revenues under collaborative
agreements were $15.1 million during the fiscal year ended March 31, 1995 as
compared to $5.7 million for the fiscal year ended March 31, 1994. Revenues in
both years were the result of milestone payments primarily due to the marketing
approval of ALBUNEX in the United States in fiscal year 1995 and in Japan in
fiscal year 1994. Of the fiscal 1995 total, $11.8 million were milestone
payments which resulted from the marketing approval of ALBUNEX in the United
States in July 1994 and approximately $3.0 million resulted from the first
commercial shipment of ALBUNEX in the United States in October 1994. The
remaining $345,000 was the first year's sales bonus which Mallinckrodt agreed to
pay to MBI (discussed above under "Revenues Under Collaborative Agreements"). Of
the milestones received for the marketing approval of ALBUNEX, approximately
$3.0 million was awarded to company employees as provided in the Company's
distribution agreement with Mallinckrodt. Included in fiscal year 1995 are both
the income and the offsetting expense associated with the receipt from
Mallinckrodt and the subsequent award to employees of these bonuses. The expense
related to this distribution is included under other expenses. For fiscal year
1994, the revenues under collaborative agreements were all earned under the
Shionogi agreement and consisted primarily of milestone payments ($5.0 million)
associated with receiving approval to market ALBUNEX in Japan in October 1993.
Product revenues were $1.8 million for fiscal year 1995, compared to $1.1
million in the prior year. Product revenues in fiscal year 1995 include $1.1
million earned from Mallinckrodt since the first commercial shipment of ALBUNEX
in the United States in October 1994. The remainder of product revenues in
fiscal years 1994 and 1995 consist of sales to Shionogi.
License fees were $40,000 for fiscal year 1995, compared to approximately
$2.0 million in fiscal year 1994. License fee revenues in fiscal year 1994
include $2.0 million earned in connection with a license agreement granting
exclusive marketing and distribution rights for the Company's oral ultrasound
agent in Europe. See Note 6 of Notes to the Consolidated Financial
Statements. The fees in fiscal year 1995 were royalties related to a
non-exclusive license entered into in fiscal year 1993 granting rights for
certain of the Company's patents which it is no longer exploiting.
In fiscal years 1995 and 1994 cost of products sold totaled $1.6 million and
$580,000, resulting in gross profit margins of 10% and 45%, respectively. The
decrease in gross profit margin percentage is due to the higher proportion of
United States sales in 1995 which are currently at a negative margin due to the
high amount of fixed overhead and low amount of production volume. Additionally,
the gross profit margin for ALBUNEX sales in Japan is higher due to the higher
Japanese sales price per unit volume.
2
-
4
<PAGE>
Research and development costs in fiscal year 1995 remained substantially
unchanged from fiscal year 1994. Increases in preclinical trials expenses and
the amortization of license fees paid by the Company were offset by a decrease
in compensation. Increased preclinical trials costs resulted primarily from
studies done for FS069. License fee amortization, which is calculated by using
the ratio of current contract revenues earned to total expected contract
revenues related to the licensed products, increased as a result of increased
ALBUNEX-Registered Trademark- development milestones during the year.
Selling, general and administrative expenses in fiscal year 1995 amounted to
$5.9 million and was substantially unchanged from the fiscal year 1994 total of
$5.7 million.
During fiscal year 1995, the Company received a bonus from Mallinckrodt of
approximately $3.0 million related to the approval of ALBUNEX for marketing in
the United States. Under the terms of the distribution agreement with
Mallinckrodt, this bonus was awarded to MBI's employees. As a result, the
Company recorded a charge of approximately $3.0 million, included under other
expenses. Of this amount, approximately $1.7 million was paid in cash, and the
balance represented forgiveness of indebtedness. Additionally, in fiscal year
1994, the Company agreed without admitting liability to the settlement of a
class action complaint against the Company. The Company agreed to pay $3.0
million in cash (of which the Company's directors and officers liability insurer
contributed $800,000), and shares of the Company's Common Stock worth $1.5
million (172,414 shares valued at the time of distribution, March 31, 1995) into
a settlement fund. The expense related to this settlement and its related costs
is included under other expenses in fiscal year 1994.
Interest expense for fiscal years 1995 and 1994 amounted to $694,000 and
$327,000, respectively. Interest expense increased in fiscal year 1995 owing to
a note payable which the Company entered into in May 1994 to finance the
purchase of two unimproved buildings and underlying land in December 1993. The
remainder of the interest in both years consists
of mortgage interest on the Company's manufacturing building.
The decrease in interest income, from $1.9 million in fiscal year 1994 to $1.2
million in fiscal year 1995 was due to lower average cash and marketable
securities balances as well as lower interest rates.
No tax benefit has been recognized in fiscal years 1995 or 1994 as the Company
had fully utilized its operating loss carryback ability in fiscal year 1993. As
of March 31, 1995, the Company had federal and state operating loss
carryforwards of approximately $53.3 million and $25.4 million, respectively,
and realization of future tax benefits from utilization of net
operating loss carryforwards is uncertain.
LIQUIDITY AND CAPITAL RESOURCES
Subsequent to the Company's fiscal year end, on May 30, 1996, the Company
completed a follow-on public offering of 4.1 million shares of Common Stock at
$9.00 per share. Net proceeds from this offering (after deducting underwriting
discounts and commissions, but before estimated offering expenses) amounted to
approximately $34.6 million. The Company's net working capital at March 31,
1996, adjusted to reflect the receipt of these proceeds, would have been $53.2
million including cash, cash equivalents and marketable securities of $55.2
million.
On September 7, 1995, the Company entered into an amended and restated
distribution agreement and a related investment agreement with Mallinckrodt
which will provide the Company with between $33.0 million and $47.5 million.
Under the terms of the agreement, Mallinckrodt is obligated to make payments
to the Company totaling $20.0 million over four years to support clinical
trials, related regulatory submissions and associated product development of
the licensed products, which include, but are not limited to, ALBUNEX and
FS069. These payments will be made in 16 quarterly installments of $1.0
million for the first four quarters, $1.25 million for the following eight
quarters and $1.5 million for the final four quarters. The payments may be
accelerated in the event that the Company's cumulative outlays for clinical
trials are in excess of the amounts received at any point in time. However,
the quarterly payments may not be postponed. The first three quarterly
payments have been received by the Company.
The amended distribution agreement also provides for potential payments to the
Company of up to $14.5 million upon the satisfaction of certain territorial and
product development milestones. There can be no assurance, however, that all or
any of these milestones will be met.
2
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5
<PAGE>
MBI FINANCIAL REVIEW
In connection with the amended distribution agreement, the Company also entered
into an investment agreement on September 7, 1995, whereby Mallinckrodt made an
equity investment in the Company by purchasing 1,118,761 unregistered shares of
Common Stock for $13.0 million. The price paid by Mallinckrodt, $11.62 per share
before related costs, represented a 40% premium over the then-prevailing market
price.
Capital expenditures for facilities, laboratory equipment, furniture and
fixtures were $2.4 million, $2.5 million and $8.2 million for fiscal years 1996,
1995 and 1994, respectively. The fiscal year 1994 expenditures consisted
primarily of the purchase of two unimproved buildings and the underlying land
for $7.1 million. The fiscal years 1996 and 1995 expenditures consisted
primarily of building improvements and equipment for aseptic manufacturing
facilities being constructed for the manufacture of ALBUNEX-Registered
Trademark- and other products. The Company sold the two unimproved buildings
purchased in December 1993. The sale of the buildings was completed in March
1996 for approximately $6.5 million after deducting costs related to the sale.
Approximately $4.6 million of the proceeds from the sale was used to pay a note
payable, which was subsequently replaced with a $6.0 million note discussed
below, and the remainder was added into the Company's working capital.
In March 1996, the Company entered into a note payable with a bank for $6.0
million. The loan bears interest at a variable rate based upon the bank's prime
rate plus one percent and is payable in monthly installments of $100,000 plus
accrued interest through March 2001. The loan contains covenants relating to
cash flow coverage, minimum cash balances and requires a compensating balance of
$3.0 million. The loan is secured by the tangible assets of the Company.
The Company is currently engaged in a dispute with Shionogi. In April 1996,
the Company and Shionogi filed cross-demands for arbitration of their
respective claims against each other. The Company is seeking in excess of $45
million in compensatory and consequential damages plus punitive damages for
Shionogi's breach of the MBI-Shionogi license and cooperative development
agreement. Shionogi is seeking in excess of $37 million plus punitive damages
on its claim that MBI has breached the agreement. The Company's dispute with
Shionogi may have the effect of interrupting or suspending sales of ALBUNEX
in Japan (approximately $264,000 in revenue to the Company for fiscal year
1996), of further delaying the marketing of ALBUNEX in South Korea and
Taiwan, and of further delaying the development of FS069 throughout
Shionogi's territory, and carries with it the risk of monetary damages being
awarded against the Company. See Note 6 of Notes to the Consolidated
Financial Statements.
The Company currently leases one of its operating facilities in San Diego. The
lease requires aggregate payments of approximately $3.9 million through fiscal
year 2003.
At March 31, 1996, the Company had net working capital of $18.6 million compared
to $20.9 million at March 31, 1995. Cash, cash equivalents and marketable
securities were $20.6 million at March 31, 1996 compared to $19.7 million at
March 31, 1995. For the next several years, the Company expects to incur
substantial additional expenditures associated with product development. The
Company anticipates that its existing resources, including the proceeds of the
offering noted above and interest thereon, plus payments under its existing
collaborative agreements, will enable the Company to fund its operations for at
least the next 24 months. The Company continually reviews its product
development activities in an effort to allocate its resources to those products
that the Company believes have the greatest commercial potential. Factors
considered by the Company in determining the products to pursue may include but
are not limited to the projected markets, potential for regulatory approval,
technical feasibility and estimated costs to bring the product to the market.
Based upon these factors, the Company may from time to time reallocate its
resources among its product development activities. The Company may pursue a
number of options to raise additional funds, including borrowings; lease
arrangements; collaborative research and development arrangements with
pharmaceutical companies; the licensing of product rights to third parties; or
additional public and private financing, as capital requirements change as a
result of strategic, competitive, technological and regulatory factors. There
can be no assurance that funds from these sources will be available on favorable
terms, if at all.
The Company believes that inflation and changing prices have not had a material
effect on operations for fiscal years 1996, 1995 and 1994 and that the impact of
government regulation on the Company is not materially different from the impact
on other similar enterprises.
2
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<PAGE>
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 1996
- -------- -------- --------
(Dollars in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,882 $ 12,542
Marketable securities, available-for-sale (Note 2) 15,836 8,028
Accounts and notes receivable 5,180 260
License rights (Note 3) - 3,000
Inventories 1,394 622
Prepaid expenses and other assets 442 406
-------- --------
Total current assets 26,734 24,858
-------- --------
PROPERTY AND EQUIPMENT, AT COST:
Building and improvements 18,125 14,158
Equipment, furniture and fixtures 5,216 3,943
Construction in progress 2,253 941
-------- --------
25,594 19,042
Less: Accumulated depreciation and amortization 5,947 5,322
-------- --------
Total property and equipment 19,647 13,720
-------- --------
OTHER ASSETS:
Patents and license rights, net of amortization
$1,224 and $917, respectively (Notes 6 and 8) 1,724 297
Certificate of deposit, pledged (Note 5) - 3,000
Other assets, net 2,534 1,954
-------- --------
Total other assets 4,258 5,251
-------- --------
$ 50,639 $ 43,829
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 307 $ 1,262
Accounts payable and accrued liabilities
(Notes 1 and 6) 5,089 3,964
Compensation accruals 411 1,031
-------- --------
Total current liabilities 5,807 6,257
-------- --------
Long-term debt, net of current portion (Note 5) 8,408 8,610
-------- --------
Commitments and contingencies (Note 6)
STOCKHOLDERS' EQUITY (Note 7):
Common Stock, $.01 par value,
20,000,000 shares authorized, 11,999,561 and
13,296,186 shares issued and outstanding,
respectively 120 133
Additional paid-in capital 78,422 91,468
Accumulated deficit (41,472) (62,185)
Unrealized loss on available-for-sale securities (118) (6)
Less notes receivable from sale of Common Stock (469) (281)
Less 3,970 and 18,970 shares of treasury stock,
at cost, respectively (59) (167)
-------- --------
Total stockholders' equity 36,424 28,962
-------- --------
$ 50,639 $ 43,829
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated balance
sheets.
2
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<PAGE>
MBI FINANCIAL REVIEW
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED MARCH 31, 1994 1995 1996
- ---------------------------- -------- -------- --------
(Dollars in thousands, except per share amounts)
REVENUES (Note 3):
Revenues under collaborative agreements $ 5,713 $ 15,132 $ 2,412
Product revenues 1,056 1,769 647
License fees 2,015 40 25
-------- -------- --------
8,784 16,941 3,084
-------- -------- --------
OPERATING EXPENSES:
Research and development costs (Note 3) 18,110 18,743 13,588
Costs of products sold 580 1,608 1,553
Selling, general and administrative expenses 5,743 5,864 5,862
Other expenses (Note 8) 4,726 3,403 3,110
-------- -------- --------
29,159 29,618 24,113
-------- -------- --------
Loss from operations (20,375) (12,677) (21,029)
Interest expense (327) (694) (786)
Interest income 1,902 1,189 1,102
-------- -------- --------
Net loss $(18,800) $(12,182) $(20,713)
-------- -------- --------
-------- -------- --------
Loss per common share $ (1.58) $ (1.02) $ (1.62)
-------- -------- --------
-------- -------- --------
Weighted average common shares outstanding 11,905 11,999 12,758
-------- -------- --------
-------- -------- --------
The accompanying notes are an integral part of these consolidated statements.
2
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<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized Notes
Gain (Loss) Receivable
Common Stock Additional on Available from Sale
------------------ Paid-in Retained for-sale of Common Treasury
YEARS ENDED MARCH 31, Shares Amount Capital Deficit Securities Stock Stock Total
- --------------------- ---------- ----- ---------- -------- ----------- ---------- -------- --------
(Dollars in thousands) <C> <C> <C> <C> <C> <C> <C> <C>
<S>
BALANCE AT MARCH 31, 1993 11,850,986 $ 119 $ 76,015 $(10,490) $ - $ (694) $ (59) $ 64,891
Exercise of stock options 138,375 1 2,244 - - (260) - 1,985
Net loss - - - (18,800) - - - (18,800)
---------- ----- ---------- -------- ----------- ---------- -------- --------
BALANCE AT MARCH 31, 1994 11,989,361 120 78,259 (29,290) - (954) (59) 48,076
Exercise of stock options 10,200 - 163 - - 20 - 183
Unrealized loss on
available-for-sale securities - - - - (118) - - (118)
Forgiveness of notes
receivable (Note 7) - - - - - 465 - 465
Net loss - - - (12,182) - - - (12,182)
---------- ----- ---------- -------- ----------- ---------- -------- --------
BALANCE AT MARCH 31, 1995 11,999,561 120 78,422 (41,472) (118) (469) (59) 36,424
Unrealized gain on
available-for-sale securities - - - - 112 - - 112
Purchase of treasury stock (Note 7) - - (79) - - 188 (108) 1
Issuance of shares in
settlement of stockholder
suit (Note 6) 172,414 2 1,498 - - - - 1,500
Proceeds from sale of
Common Stock (Note 3) 1,118,761 11 11,591 - - - - 11,602
Exercise of stock options 5,450 - 36 - - - - 36
Net loss - - - (20,713) - - - (20,713)
---------- ----- ---------- -------- ----------- ---------- -------- --------
BALANCE AT MARCH 31, 1996 13,296,186 $ 133 $ 91,468 $(62,185) $ (6) $ (281) $ (167) $ 28,962
---------- ----- ---------- -------- ----------- ---------- -------- --------
---------- ----- ---------- -------- ----------- ---------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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<PAGE>
MBI FINANCIAL REVIEW
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED MARCH 31, 1994 1995 1996
- ---------------------------- -------- -------- --------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(18,800) $(12,182) $(20,713)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 2,195 3,022 2,217
Loss on disposals of property and equipment 18 35 680
Write-off of license fees related to
discontinued products - - 1,025
Forgiveness of note receivable from sale of
Common Stock - 1,319 56
Changes in operating assets and liabilities:
Receivables 543 (4,889) 4,863
Inventories (445) (225) 773
Prepaid expenses and other assets 272 (81) 36
Accounts payable and accrued liabilities 1,797 1,670 (1,626)
Compensation accruals 469 (175) 620
Deferred contract revenue (713) - -
-------- -------- --------
Cash used in operating activities (14,664) (11,506) (12,069)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (8,208) (2,528) (2,397)
Proceeds from sale of property and equipment - - 6,484
Additions to patents and license rights (786) (634) (1,045)
(Increase) decrease in other assets - 75 (28)
Decrease in marketable securities 20,511 11,989 4,920
-------- -------- --------
Cash provided by investing activities 11,517 8,902 7,934
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Common Stock 1,985 183 11,638
Long-term debt proceeds - 5,000 1,438
Principal payments on long-term debt (45) (254) (281)
-------- -------- --------
Cash provided by financing activities 1,940 4,929 12,795
-------- -------- --------
Increase (decrease) in cash and cash equivalents (1,207) 2,325 8,660
Cash and cash equivalents, beginning of year 2,764 1,557 3,882
-------- -------- --------
Cash and cash equivalents, end of year $ 1,557 $ 3,882 $ 12,542
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income tax refund received $ 473 $ - $ -
-------- -------- --------
-------- -------- --------
Interest income received $ 2,623 $ 1,433 $ 1,141
-------- -------- --------
-------- -------- --------
Interest paid $ 321 $ 688 $ 780
-------- -------- --------
-------- -------- --------
The accompanying notes are an integral part of these consolidated statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS Molecular Biosystems, Inc. ("MBI" or the "Company")
discovers, develops and manufactures proprietary diagnostic ultrasound imaging
agents. The Company's continuing operations have been unprofitable since 1992.
The Company does not foresee product revenues from sales of ALBUNEX , the
Company's first product and the first ultrasound imaging agent available in the
United States, as resulting in profitable operations for the Company. Operating
losses may occur for at least the next several years due to continued
requirements for research and development, including preclinical testing and
clinical trials, regulatory activities and the high costs of commercialization
activities. The magnitude of the losses and the time required by the Company to
achieve profitability are highly dependent on the market acceptance of ALBUNEX
and the regulatory approval and market acceptance of FS069, the Company's second
generation agent and are therefore uncertain. There is no assurance that the
Company will be able to achieve profitability on a sustained basis or at all.
PRINCIPLES OF CONSOLIDATION The Consolidated Financial Statements include the
accounts of Molecular Biosystems, Inc. and its wholly owned subsidiaries,
Syngene, Inc. and Scan Pharmaceuticals, Inc. Syngene Inc. and Scan
Pharmaceuticals, Inc. are currently inactive corporations. All significant
intercompany accounts and transactions have been eliminated.
Certain amounts in the prior years' financial statements and notes have been
reclassified to conform with the current year presentation.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
RESEARCH AND DEVELOPMENT COSTS All research and development costs and related
special purpose equipment costs are charged to expense as incurred.
REVENUES UNDER COLLABORATIVE AGREEMENTS Revenues under collaborative
agreements, which have been the primary source of revenues for the Company,
consist of three types of revenues. The first type, milestone payments, is
earned in connection with research activities performed under the terms of
research and development license agreements. Revenue is recognized on the
achievement of certain milestones, some of which relate to obtaining regulatory
approvals. Accordingly, the estimated dates of the milestone achievements are
subject to revision based on periodic evaluations by the Company and its
partners of the attainment of specified milestones, including the status of the
regulatory approval process. Advance payments received in excess of amounts
earned are classified as deferred contract revenues and the resulting revenues
are recognized based on work performed at a predetermined rate or level of
expense reimbursement.
Additionally, under the original Mallinckrodt agreement (see note 3),
Mallinckrodt agreed to pay a bonus to MBI equivalent to Mallinckrodt's first
year product sales of ALBUNEX at its sales price to end users of the product.
This is the second type of revenues included under the caption "Revenues Under
Collaborative Agreements." MBI recorded this bonus each quarter based upon
Mallinckrodt's sales to its customers. Finally, under the terms of the amended
distribution agreement entered into in September 1995, Mallinckrodt will pay the
Company $20.0 million over four years to further the development of FS069 (the
Company's second-generation product) and related products. These payments will
be made in 16 quarterly installments starting at $1.0 million for the first four
quarters, $1.25 million for the following eight quarters and $1.5 million for
the final four quarters. Pursuant to the agreement, half of each payment is
designated for clinical development expenses and will be recorded as deferred
revenue until such expenses are incurred, and the remaining half of each payment
will be recognized as research revenue when received.
REVENUE RECOGNITION FOR PRODUCT SOLD The Company recognizes revenue when goods
are shipped to the customers.
REVENUE RECOGNITION FOR LICENSE FEES The Company recognizes revenue when
license fees are received, provided the Company has no future obligations.
3
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<PAGE>
MBI FINANCIAL REVIEW
INCOME TAXES The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes." SFAS No. 109 is an asset and liability approach that requires the
recognition of deferred assets and liabilities for the expected future tax
consequences of events that have been recognized differently in the Company's
financial statements or tax returns.
CASH EQUIVALENTS Cash equivalents include marketable securities with original
maturities of three months or less when acquired. The Company has not realized
any losses on its cash equivalents.
MARKETABLE SECURITIES In April 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company's management has classified
its investment securities as available-for-sale and records holding gains or
losses as a separate component of stockholders' equity. The cumulative effect of
the change was not material to the Company's financial statements.
CONCENTRATION OF CREDIT RISK The Company invests its excess cash in debt
instruments of financial institutions and corporations with strong credit
ratings. The Company has established guidelines relative to diversification and
maturities that maintain safety and liquidity. These guidelines are periodically
reviewed and modified to take advantage of trends in yields and interest rates.
At March 31, 1995 substantially all of the Company's receivables were from
Mallinckrodt Medical, Inc., the Company's exclusive ALBUNEX-Registered
trademark- distributor in the United States.
INVENTORIES Inventories are stated at lower of cost (first-in, first-out) or
market, and consist of the following major classes (in thousands):
MARCH 31 1995 1996
- -------- ---------- ---------
Raw materials and supplies $ 1,215 $ 558
Work in process 133 3
Finished goods 46 61
---------- ---------
$ 1,394 $ 622
---------- ---------
---------- ---------
Work in process and finished goods include the cost of materials, direct labor
and manufacturing overhead.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation
and amortization are provided using the straight-line method over estimated
useful lives of five years for equipment, 31 years for buildings and
improvements and the term of the lease for leasehold improvements.
PATENTS AND LICENSE RIGHTS AND OTHER ASSETS Patents and license rights are
amortized on the straight-line method over their estimated useful lives of five
to ten years.
In June 1989, the Company prepaid $2.0 million in royalties on the first $66.6
million of sales of ALBUNEX and FS069 in the United States. Included in other
assets at March 31, 1995 and 1996 is approximately $1.9 million which is the
portion of this prepayment which has not yet been expensed. Additionally, other
assets at March 31, 1995 and 1996 include $4.5 million (less amortization of
$3.9 million and $4.5 million at March 31, 1995 and 1996, respectively) paid in
connection with the Company's license for the right to make, have made, use and
sell ALBUNEX and other products using the licensed patents. Amortization was
calculated generally by using the ratio of current contract revenues earned to
total expected contract revenues related to the licensed products. These license
rights were fully amortized as of March 31, 1996.
The Company periodically reevaluates the original assumptions and rationale
utilized in the establishment of the carrying value and estimated lives of these
assets. The determinants used for this evaluation include management's estimate
of the asset's ability to generate positive income and cash flow as well as the
strategic significance of the respective assets.
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<PAGE>
Accounts Payable and Accrued Liabilities Accounts payable and accrued
liabilities consist of the following major classes (in thousands):
MARCH 31 1995 1996
- -------- ---------- ---------
Reserve for class action settlement stock (Note 6) $ 1,500 $ -
Reserve for litigation (Note 6) 1,000 500
License rights payable and related fees (Note 3) 2,300
Accounts payable - trade 1,390 1,028
Other miscellaneous accruals 1,199 136
---------- ---------
$ 5,089 $ 3,964
---------- ---------
---------- ---------
LOSS PER SHARE Loss per common share has been computed by dividing the loss by
the weighted average number of common shares outstanding during the years.
Warrants and options do not impact the per share loss since they would
be antidilutive.
RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board
("FASB") has issued SFAS 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." This statement establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used for long-lived assets and certain identifiable intangibles to be disposed
of. The FASB has also issued SFAS 123 "Accounting for Stock-Based Compensation."
This Statement provides companies the option to account for employee stock
compensation awards based on their estimated fair value at the date of grant,
resulting in a charge to income in the period the awards are granted, or to
present pro forma footnote disclosure describing the effect to the Company's net
income and net income per share data as if the Company had adopted SFAS 123.
SFAS 121 and SFAS 123 are effective for companies with fiscal years beginning
after December 15, 1995. The Company intends to adopt SFAS 121 and SFAS 123 in
fiscal 1997. The Company has not yet determined what impact, if any, the
adoption of SFAS 121 or SFAS 123 will have on the Company's financial statements
or related disclosures thereto.
NOTE 2. MARKETABLE SECURITIES
Investments are recorded at estimated fair market value, and consist primarily
of treasury securities, government agency securities and corporate obligations.
The Company has classified all of its investments as available-for-sale
securities. The following table summarizes available-for-sale securities at
March 31, 1995 (in thousands):
Cost Net of
Premiums/ Gross Gross Estimated
Discounts Unrealized Unrealized Fair
Amortized Gains Losses Value
----------- ---------- ---------- ---------
U.S. treasury securities and
obligations of U.S. government
agencies $ 6,856 $ - $ (85) $ 6,771
Corporate obligations 9,098 1 (34) 9,065
----------- ---------- ---------- ---------
Marketable securities
available-for-sale $ 15,954 $ 1 $ 119 $ 15,836
----------- ---------- ---------- ---------
----------- ---------- ---------- ---------
The gross realized gains and losses on sales of available-for-sale securities
totaled $24,000 and $205,000, respectively, for the year ended March 31, 1995.
The proceeds on these sales totaled $3.1 million.
The following table summarizes available-for-sale securities at March 31, 1996
(in thousands):
Cost Net of
Premiums/ Gross Gross Estimated
Discounts Unrealized Unrealized Fair
Amortized Gains Losses Value
----------- ---------- ---------- ---------
U.S. treasury securities and
obligations of U.S. government
agencies $ 3,289 $ - $ (8) $ 3,281
Corporate obligations 4,745 2 - 4,747
----------- ---------- ---------- ---------
Marketable securities
available-for-sale $ 8,034 $ 2 $ (8) $ 8,028
----------- ---------- ---------- ---------
----------- ---------- ---------- ---------
The gross realized losses on sales of available-for-sale securities totaled
$36,000 for the year ended March 31, 1996. The proceeds on these sales totaled
$5.2 million.
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<PAGE>
MBI FINANCIAL REVIEW
The amortized cost and estimated fair value of debt and marketable securities at
March 31, 1996, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because the issuers of the securities may
have the right to prepay obligations without prepayment penalties.
Cost Less
Premiums/ Estimated
Discounts Fair
Amortized Value
---------- ----------
Due in one year or less $ 7,732 $ 7,734
Due after one year through three years - -
Due after three years 302 294
---------- ----------
$ 8,034 $ 8,028
---------- ----------
---------- ----------
As of March 31, 1996 a $3 million certificate of deposit was held as a
compensating balance under the Company's debt agreement (see note 5).
Note 3. Significant Research Contracts
The Company conducts all of its research and development activities on its own
behalf. Under the terms of its collaborative research agreements, the Company
retains all ownership rights to its proprietary technologies, subject to
licensing arrangements made with its licensees.
In December 1987, December 1988 and March 1989, the Company entered into
respective agreements (the Original Agreements) with Nycomed A.S. (Nycomed), a
Norwegian corporation, Mallinckrodt Medical, Inc. (Mallinckrodt), of St. Louis,
Missouri and Shionogi & Co., Ltd. (Shionogi), a Japanese corporation, under
which the Company granted exclusive licenses, restricted to certain geographic
areas, to test, evaluate, develop and sell products covered by specified patents
of the Company relating directly to the design, manufacture or use of
microspheres for ultrasound imaging in vascular applications. The Company also
granted rights to sublicense, use, make and sell the licensed products under
specified royalty arrangements.
Under the terms of the Original Agreements, as amended, the Company earned and
received license fees of $6.5 million. The Original Agreements also provided for
total payments to the Company aggregating up to $66.5 million, to continue
product development, clinical trials, preproduction and premarketing activities
relating to the Company's ultrasound imaging contrast agents for vascular
applications. These amounts were received in installments based on the
achievement of certain milestones by the Company. As of March 31, 1995, the
Company had earned revenues under the above agreements in the amount of $58.5
million of which $3.5 million had not been paid as of March 31, 1995 and is
included in accounts receivable as of that date. These amounts were received in
the first quarter of fiscal 1996. The Company does not anticipate earning the
remaining $8 million in milestones, all of which relate to the Shionogi
agreement (see note 6). Under the Mallinckrodt agreement, the Company was
entitled to receive additional payments in an amount equivalent to first year
product sales, up to a maximum of $30.0 million. The Company earned $345,000
through March 31, 1995 and earned an additional $412,000 through October 1995.
This bonus was paid in December 1995 and no future income will be earned under
this provision.
In September 1995, the Company entered into an amended and restated distribution
agreement, as well as a related investment agreement, with Mallinckrodt. Under
the amended distribution agreement, the geographical scope of Mallinckrodt's
exclusive right was expanded to include all of the countries of the world other
than those covered by the Company's license agreements with Shionogi and
Nycomed. Additionally, the duration of Mallinckrodt's exclusive right was also
extended from October 1999 until the later of July 1, 2003 or three years after
the date that the Company obtains approval from the United States Food and Drug
Administration ("FDA") to market FS069 for an intravenous myocardial perfusion
indication.
The agreement will provide the Company with between $33.0 million and $47.5
million in new financing (including the $13.0 million Common Stock investment
discussed below). Under the terms of the agreement, Mallinckrodt will make
guaranteed payments to the Company totaling $20.0 million over four years to
support clinical trials, related regulatory submissions and associated product
development of the licensed products, which include but are not limited to
ALBUNEX-Registered Trademark- and FS069. These payments will be made in 16
quarterly installments of $1.0 million for the first four quarters, $1.25
million for the following eight quarters and $1.5 million for the final four
quarters. The payments may be accelerated in the event that the Company's
3
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<PAGE>
cumulative outlays for clinical trials are in excess of the amounts received at
any point in time. However, the quarterly payments may not be postponed. As of
March 31, 1996 the first two quarterly payments had been received by the
Company.
The amended distribution agreement requires the Company to spend at least $10.0
million of the $20.0 million it receives over four years on clinical trials to
support regulatory filings with the FDA for cardiac indications of the licensed
products. The Company's expenditure of this $10.0 million will be made in
accordance with the directions of a joint steering committee which the Company
and Mallinckrodt established in order to expedite the development and regulatory
approval of FS069 by enabling the parties to share their expertise relating to
clinical trials and the regulatory approval process. The Company and
Mallinckrodt have each appointed two of the four members of the joint steering
committee.
The amended distribution agreement also provides for potential payments to the
Company of up to $14.5 million upon
satisfaction of certain territorial and product development milestones. There
can be no assurance, however, that all or any of these milestones will be met.
In connection with the amended distribution agreement, the Company also entered
into an investment agreement whereby the Company sold 1,118,761 unregistered
shares of its Common Stock to Mallinckrodt for $13.0 million, or a price of
$11.62 per share before related costs. Combined with the 181,818 shares of the
Company's Common Stock that Mallinckrodt acquired in December 1988. At March 31,
1996, Mallinckrodt owned approximately 9.8% of the Company's issued and
outstanding shares.
In addition, the amended distribution agreement grants the Company the option
(at its own discretion) to repurchase all of the shares of the Company's
Common Stock that Mallinckrodt purchased under the investment agreement for
$45.0 million, subject to various price adjustments. This option is
exercisable beginning the later of July 1, 2000 or the date that the Company
obtains approval from the FDA to market FS069 for an intravenous myocardial
perfusion indication and ending on the later of June 30, 2003 or three years
after the date that the Company obtains approval from the FDA to market FS069
for an intravenous myocardial perfusion. If the Company exercises this
option, the Company may co-market ALBUNEX-Registered Trademark- , FS069 and
related products in all of the countries covered by the amended distribution
agreement.
Mallinckrodt is the Company's principal strategic marketing partner for its
ALBUNEX and FS069 ultrasound contrast agents. Under the arrangements with
Mallinckrodt, Mallinckrodt has substantial control over all aspects of marketing
the Company's product in its territories.
In October 1995, the Company entered into an agreement whereby it reacquired all
rights to INFOSON (the European designation for ALBUNEX), FS069 and related
products from Nycomed, the Company's European licensee. The Company agreed to
pay Nycomed $2.7 million and 45% of any amounts in excess of $2.7 million that
the Company receives in payment for the transfer of marketing rights in the
former Nycomed territory to a third party. The Company also agreed to pay
Nycomed a royalty based on future sales, as defined in the agreement. These
license rights are recorded as a current asset at March 31, 1996 and include
costs associated with the reacquisition of these rights, of which $700,000 which
had been paid as of March 31, 1996 and $2.0 million which was paid in April 1996
under this agreement. The Company intends to resell the rights and is currently
in discussions with a potential licensee for this territory. Also included under
license rights are deferred fees of $300,000 which will be due and payable upon
the signing of an agreement with a third party for rights to this territory.
During the years ended March 31, 1994, 1995 and 1996, the Company received
contract research payments and earned revenue under the above agreements as
follows (in thousands):
FISCAL YEARS ENDED MARCH 31, 1994 1995 1996
- ---------------------------- -------- -------- --------
Contract payments received:
Nycomed $ - $ 733 $ -
Mallinckrodt - 10,554 6,257
Shionogi 5,000 - -
-------- -------- --------
-------- -------- --------
Contract payments earned:
Nycomed $ - $ 733 $ -
Mallinckrodt - 14,399 2,412
Shionogi 5,713 - -
-------- -------- --------
$ 5,713 $ 15,132 $ 2,412
-------- -------- --------
-------- -------- --------
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MBI FINANCIAL REVIEW
In May 1993 the Company entered into an exclusive license agreement for its
orally-administered abdominal ultrasound agent with Bracco S.p.A. of Milan,
Italy. The agreement granted Bracco exclusive marketing and distribution rights
to the product in Europe and the former Soviet Union. Under the terms of the
agreement, the Company received $2.0 million in license fees. In March 1994,
Bracco notified the Company that it desired to rescind the agreement and
demanded that the Company return the license fee (see note 6).
NOTE 4. INCOME TAXES
As described in Note 1, the Company uses the asset and liability method of
computing deferred income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
The effective income tax rate on the loss before income taxes differs from the
statutory U.S. federal income tax rate as
follows (in thousands):
FISCAL YEARS ENDED MARCH 31, 1994 1995 1996
- ---------------------------- -------- -------- --------
Computed statutory tax $(6,392) $(3,992) $(7,036)
State income taxes (1,160) (729) (1,270)
Tax exempt interest (33) (5) (74)
Losses without income tax benefit 7,584 4,715 8,376
Other 1 11 4
-------- -------- --------
Provision for income taxes $ - $ - $ -
-------- -------- --------
-------- -------- --------
At March 31, 1996, the Company has deferred tax assets of approximately $30.0
million relating to the following tax loss carryforwards for income tax purposes
(in thousands):
Amount Expiration
Dates
--------- ----------
Federal ($71,100) and state ($34,600) net
operating losses $ 105,700 1997-2010
Research and development credit - federal $ 1,700 1997-2010
Research and development credit - state $ 700 Indefinite
Alternative minimum tax credit $ 300 Indefinite
For financial reporting purposes, a valuation allowance has been recognized to
offset the deferred tax assets related to the carryforwards. If realized,
approximately $2.0 million of the tax benefit for those items will be applied
directly to paid-in capital, related to deductible expenses reported as a
reduction of the proceeds from issuing Common Stock in connection with the
exercise of stock options.
Note 5. Long-Term Debt
Long-term debt consists of the following (in thousands):
MARCH 31 1995 1996
- -------- --------- ---------
Note payable - due 2004 $ 3,923 $ 3,872
Note payable - due 2001 - 6,000
Note payable - due 2000 4,792 -
--------- ---------
8,715 9,872
307 1,262
--------- ---------
$ 8,408 $ 8,610
--------- ---------
--------- ---------
The note payable due in 2004 bears interest at a variable rate based upon the
weighted average Eleventh District cost of funds plus 2.35 percent. The interest
rate on this note is adjusted semi-annually and was eight percent at March 31,
1995 and 1996. The note is secured by the Company's manufacturing facility and
certain of the equipment contained therein and is payable in monthly
installments of principal and interest. As of March 31, 1996, maturities of this
note in each of the next five fiscal years are: $62,000, $67,000, $73,000,
$80,000 and $87,000.
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The note payable due in 2001 bears interest at the prime rate plus one percent
(9.25 percent at March 31, 1996) and is payable in monthly installments of
$100,000 plus accrued interest through April, 2001. The loan contains covenants
relating to cashflow coverage, minimum cash balances and requires a compensating
balance of $3.0 million. The loan is secured by the tangible assets of the
Company. This note replaces a previously outstanding note (note payable - due
2000) which was retired in March 1996 in conjunction with the sale of certain of
the Company's buildings and underlying land. Proceeds from the sale of the
buildings were approximately $6.5 million after deducting costs related to the
sale. Approximately $4.6 million of the proceeds from the sale was used to
retire the existing note payable.
The note payable due in 2000 had an interest rate at the prime rate plus one
percent (10 percent at March 31, 1995) and was payable in monthly installments
of $20,800 plus accrued interest through April, 2000. In connection with this
financing, at March 31, 1995 the Company had a second line of credit with
available borrowings of up to $5.0 million. Both of these loans contained
covenants and were secured by the tangible assets of the Company. These notes
were refinanced in March 1996 in conjunction with the sale of certain of the
Company's buildings and underlying land. (See above note payable - due 2001).
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company conducts certain of its operations in leased premises. Terms of the
leases, including renewal options, vary by lease. Future minimum rental
commitments for all noncancellable operating leases that have initial or
remaining lease terms in excess of one year are as follows (in thousands):
FISCAL YEAR ENDED MARCH 31, Amount
- --------------------------- ----------
1997 $ 194
1998 426
1999 688
2000 715
2001 744
Thereafter 1,171
----------
Total minimum lease payments $ 3,938
----------
----------
The leases expire in fiscal 1997 and fiscal 2003 and contain renewal provisions
of up to ten years at the end of the lease terms. The Company is obligated to
pay real estate taxes, insurance and utilities on its portion of the leased
properties. Rental expense for the years ended March 31, 1994, 1995 and 1996 was
$485,000, $508,000 and $350,000, respectively.
In December 1992, the Company entered into a license and collaborative research
agreement with Dendritech, Inc. and its affiliate Michigan Molecular Institute.
The license agreement granted the Company the exclusive worldwide rights to use
Dendritech's patented dendrimer technology to develop and commercialize contrast
agents for use with magnetic resonance imaging, computerized tomography and
ultrasound. Under this agreement, the Company was committed to pay a license fee
of $500,000 per year for five years beginning December 1992. As of March 31,
1995, a total of $1.5 million in license fees had been paid. In September 1995
the Company and Dendritech signed a license termination agreement arising out of
the Company's decision to concentrate on its current ultrasound products. The
agreement terminated all financial and other obligations of MBI. The unamortized
license fees which the Company had previously capitalized of approximately $1.0
million were written-off in the year ended March 31, 1996 (see note 8).
The Company has entered into license agreements requiring future royalty
payments ranging from 11/4% to 3% of specified product sales relating to the
licensed technologies. Additionally, there is a minimum royalty payment due to
one licensor in each calendar year for the following amounts, $400,000 for 1997,
$500,000 for 1998 and $600,000 for each succeeding year.
In June 1994, the United State District Court for the Southern District of
California granted final approval to an agreement settling a class action
complaint against the Company, certain of its officers and all of the members of
its Board of Directors (Sherman v. Widder, et al., No. TS 92-1827-IEG (M)
alleging violations of the Securities Exchange Act of 1934 and California
securities laws. The Company agreed without admitting liability to pay $3.0
million in cash, and shares of MBI's Common Stock worth $1.5 million (172,414
shares valued as of March 31, 1995), into a settlement fund which was to be
distributed to qualifying class members. The Company's directors and officers
liability insurer contributed $800,000 of the cash payment. The expenses
associated with this settlement have been included in other expense during the
fiscal year ended
3
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7
<PAGE>
MBI FINANCIAL REVIEW
March 31, 1994. Pursuant to the settlement order, the distribution of cash and
stock was administered by counsel for the plaintiff class. Included in accrued
liabilities at March 31, 1995 is a liability of $1.5 million for the issuance of
this Common Stock. The shares were distributed to qualifying class members in
May, 1995.
In May 1993 the Company entered into an exclusive license agreement with Bracco
S.p.A. of Milan, Italy, for the distribution rights in Europe and the former
Soviet Union to the Company's proprietary oral ultrasound agent for imaging the
gastrointestinal tract. At that time Bracco paid the Company a license fee of
$2.0 million and undertook certain developmental obligations in the territory.
In March 1994, Bracco notified the Company that it desired to rescind the
agreement and demanded that the Company return the license fee. The Company
denied that Bracco was entitled to rescind the agreement or to the return of any
portion of the license fee, and notified Bracco that it had regarded Bracco's
notice of rescission as a breach of contract. In January 1995, Bracco filed a
demand for arbitration claiming return of the $2.0 million license fee, in
addition to other monetary relief. The Company filed a response denying the
material allegations of Bracco's demand, and also filed a counterdemand asking
for damages in the amount of at least $5.5 million and other monetary relief,
claiming that Bracco's purported rescission was in bad faith and resulted from
its acquisition of the exclusive licensee of a competing agent. On November 22,
1995, the arbitrator awarded Bracco $1.7 million plus statutory interest on a
legal theory not advanced by Bracco. MBI appealed the award to the Superior
Court of Los Angeles County. The court affirmed the award in a decision rendered
on March 4, 1996. The Company has appealed the award to the California Appellate
Court, and paid the judgment in March 1996 pending a final decision of the
appeal. The Company has recognized charges to operations aggregating
approximately $2.4 million to reflect the amount of the award, interest accrued
thereon and related attorneys' fees. Approximately $1.4 million of these charges
were recorded during the year ended March 31, 1996, and approximately $1.0
million was charged to operations in prior years (see note 8).
The Company is currently engaged in a dispute with its licensee for Japan,
Shionogi. Shionogi has been disappointed with ALBUNEX -Registered Trademark-
sales in Japan and has blamed "quality" problems. MBI denies the existence of
any quality problems with ALBUNEX and has charged Shionogi with failing to
market the product properly, failing to develop FS069, and failure to exploit
the licensed products throughout the territory. Negotiations aimed at an agreed
termination of the agreement with Shionogi broke off over Shionogi's monetary
demands. As of March 31, 1996, the parties had served each other with notices of
breach of the agreement.
On April 11, 1996 Shionogi filed a demand for arbitration with the American
Arbitration Association seeking damages in excess of $37 million, representing
Shionogi's license fees paid under its license and cooperative development
agreement with the Company and additional development expenses for ALBUNEX
incurred by Shionogi, plus punitive damages. The Company believes that
Shionogi's claims are without merit, and that there is no factual or legal basis
for any liability of the Company. On April 16, 1996, the Company also filed a
demand for arbitration seeking in excess of $45 million plus punitive damages
for Shionogi's breach of its obligations under the license and cooperative
development agreement.
The results of the arbitration proceedings cannot be predicted. There can be no
assurance that the Company will be awarded all or any portion of the damages
that it is seeking. Moreover, it is possible that Shionogi could be awarded some
portion or all of the damages it is seeking. A ruling adverse to MBI in the
arbitration with respect to Shionogi's claim could have a material adverse
effect on the Company's business, financial condition and results of operations.
If Shionogi were awarded all the damages that it is seeking, the Company would
have difficulty meeting its anticipated cash requirements and may
be required to reduce the scope of or eliminate one or more of its research and
development programs, to reduce the scope of or eliminate its manufacturing
activities, or attempt to obtain funds by entering into arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain technologies or products that the Company would not otherwise
relinquish. The Company's inability to fund its capital requirements would have
a material adverse effect on the Company's business, financial condition and
results of operations. The dispute may also have the effect of interrupting
ALBUNEX sales in Japan, although to the best of MBI's knowledge Shionogi is
continuing to sell ALBUNEX. Net sales in Japan were $264,000 for the year ended
March 31, 1996 and $688,000 for the fiscal year ended March 31, 1995. The
dispute may also delay the development of FS069 in Shionogi's territory.
While the Company believes its positions are proper and Shionogi's claims are
without merit, the ultimate resolution of this matter is uncertain at this time.
Management does not believe the resolution of this matter will have a material
adverse impact on the Company's financial position or results of operations.
Accordingly, no liability for potential loss, if any, has been provided for in
the accompanying Consolidated Financial Statements.
3
---
8
<PAGE>
The Company is periodically a defendant in other legal actions incidental to its
business activities which may include challenges to its patent rights. While any
litigation has an element of uncertainty, the Company believes that the outcome
of any of these actions or all of them combined will not have a materially
adverse effect on its financial condition or results
of operations.
NOTE 7. STOCKHOLDERS' EQUITY
In June 1989, 1990 and 1991 the Company issued warrants to Nycomed for 14,381,
9,508 and 14,524 shares, respectively, exercisable through June 1994, 1995 and
1996 at $15.26, $17.56 and $14.61 per share, respectively, pursuant to an
agreement granting to Nycomed a right of first refusal to purchase additional
unregistered shares in connection with the private sale of shares by the
Company. As of June 1995, warrants for 23,889 shares had expired.
Mallinckrodt has certain registration rights with respect to the Common Stock
issued and issuable to them.
State Farm Mutual Insurance Company ("State Farm") has registration rights
under an agreement which the Company entered into in August 1990 to
facilitate State Farm's purchase of Common Stock from E.I. du Pont de Nemours
and Company, the Company's collaborative partner in its now discontinued
diagnostic DNA probe business. State Farm has certain registration rights
with respect to this Common Stock.
COMMON SHARES RESERVED Common shares were reserved for the following purposes
(in thousands):
MARCH 31, 1995 1996
-------- --------
Warrants 24 15
Options granted 2,112 2,228
Future grants of options 1,701 1,063
-------- --------
3,837 3,306
-------- --------
-------- --------
STOCK OPTIONS
1993 PLANS In 1993 both the Board of Directors and the stockholders of the
Company approved the 1993 Stock Option Plan and the 1993 Outside Directors Stock
Option Plan (together, the 1993 Plans). The 1993 Plans were intended to replace
the Company's 1984 Incentive Stock Option Plan and the 1984 Nonstatutory Stock
Option Plan (together, the 1984 Plan), under which substantially all of the
options authorized to be granted have been granted. The 1993 Plans provide for
the grant of both qualified incentive stock options and nonstatutory stock
options to purchase Common Stock to employees (1993 Stock Option Plan) or non-
employee directors of the Company (1993 Outside Directors Stock Option Plan) at
no less than the fair value of the stock on the date of grant. Options granted
under these plans are exercisable per the terms specified in each individual
option, but not before one year (unless the option exercisability is accelerated
by the Company's Board of Directors), or later than ten years from the date of
grant.
1984 PLAN The Company had an Incentive Stock Option Plan and Nonstatutory Stock
Option Plan (together, the 1984 Plan) which provided for the grant of options to
purchase Common Stock to employees or non-employee directors of the Company at
no less than the fair value of the stock on the date of grant. Options granted
under the 1984 Plan were exercisable per the terms specified in each individual
option, but not before one year (unless the option exercisability is accelerated
by the Company's Board of Directors) or later than five years from the date of
grant. The 1984 Plan expired in July 1994 and there are no shares reserved for
future grants.
On May 11, 1995, the Board of Directors voted to offer the Company's non-
executive employees the opportunity to reprice certain stock options which were
originally granted under the 1984 Plan to the closing price on May 31, 1995. The
Board approved this repricing because it believes retaining key employees is in
the best interests of the stockholders and the Company. During the fourth
quarter of fiscal 1995, following a decline in the stock price and a
restructuring which included a twenty-five percent staff reduction, key
employees were being contacted by other companies and agencies about
employment opportunities elsewhere. The Board believes the repricing of the
options was the most effective employment retention tool available.
3
---
9
<PAGE>
MBI FINANCIAL REVIEW
OTHER OPTION GRANTS The Company has granted to employees, consultants and
scientific advisors options to purchase shares of Common Stock. These options
are exercisable per the terms specified in each individual option and lapse five
years after grant date. The options were granted at amounts per share which were
not less than the fair market value at the date of grant.
Additional information with respect to the Company's option plans is as follows:
<TABLE>
<CAPTION>
1993 Stock Option Plan 1993 Directors' Option Plan
----------------------------------- ----------------------------
Option Price Option Price
Shares Per Share Shares Per Share
---------- ----------------- -------- -----------------
<S> <C> <C> <C> <C>
Options outstanding at March 31, 1993 - -
Granted 582,500 $ 16.63 $ 22.25 20,000 $ 17.00
Expired or Lapsed (3,100) 19.13 - 20.08 -
---------- ----------------- -------- -----------------
Options outstanding at March 31, 1994 579,400 16.63 22.25 20,000 17.00
Granted 407,231 7.00 12.25 20,000 8.13
Expired or lapsed (127,342) 8.75 - 22.25 -
---------- ----------------- -------- -----------------
Options outstanding at March 31, 1995 859,289 7.00 22.25 40,000 8.13 - 17.00
Granted 723,602 6.00 8.63 20,000 8.63
Exercised (1,300) 7.00 - 7.38 -
Expired or lapsed (104,386) 7.00 - 22.25 -
---------- ----------------- -------- -----------------
Options outstanding at March 31, 1996 1,477,205 6.00 - 22.25 60,000 8.13 - 17.00
---------- ----------------- -------- -----------------
Options exercisable at March 31, 1996 454,528 40,000
---------- --------
Reserved for future grants at March 31, 1996 1,022,795 40,000
---------- --------
</TABLE>
<TABLE>
<CAPTION>
1984 & Other Stock Option Plans
----------------------------------
Option Price
Shares Per Share
-------------- -----------------
<S> <C> <C>
Options outstanding at March 31, 1993 1,799,385 $ 11.50 $ 31.13
Granted 279,190 16.63 24.63
Exercised (145,875) 11.50 22.50
Expired or lapsed (214,360) 12.88 - 31.13
-------------- -----------------
Options outstanding at March 31, 1994 1,718,340 13.38 31.13
Granted 44,175 10.88 15.63
Exercised (10,200) 13.75 16.50
Expired or lapsed (539,125) 10.88 - 28.75
-------------- -----------------
Options outstanding at March 31, 1995 1,213,190 10.88 - 31.13
Exercised (4,150) 6.38
Expired or lapsed (518,290) 6.38 - 28.75
-------------- -----------------
Options outstanding at March 31, 1996 690,750 6.38 - 31.13
-------------- -----------------
Options exercisable at March 31, 1996 584,950
--------------
</TABLE>
NOTES RECEIVABLE FROM SALE OF COMMON STOCK At March 31, 1995, the Company had
notes receivable from related parties of approximately $586,000 relating to the
exercise of options to purchase Common Stock of the Company by officers and
other employees. Of this amount, approximately $117,000 is included in accounts
and notes receivable and represents taxes payable by the individuals at the time
of these option exercises plus accrued interest thereon, as well as accrued
interest on purchase price notes. The amounts relating to the purchase price of
the Common Stock are recorded as a reduction to stockholders' equity. The loans
are secured by the Common Stock purchased, accrue interest at a rate of 6% and
are due by January 31, 1997. At March 31, 1996, the notes receivable from
related parties were approximately $370,000.
In December 1995, the Company repurchased 15,000 shares of Common Stock from an
officer who was leaving the Company. In connection with this transaction, a
portion of his outstanding loan which was secured by the Common Stock was
forgiven. The total amount forgiven, $56,000, had previously been included in
notes receivable from sale of Common Stock.
In January 1995, the Company received an approval bonus payment of approximately
$3.0 million from Mallinckrodt. Per the Distribution Agreement dated December 7,
1988, between Mallinckrodt and the Company, this payment was to be distributed
to key employees. In February 1995, the Company's Board of Directors approved
the payment of bonuses of approximately
4
---
0
<PAGE>
$1.7 million to all of the Company's employees. In connection with these
bonuses, the Board of Directors also approved the forgiveness of two loans
(including accrued interest) which the Company had previously extended to its
chief executive and chief operating officers to permit them to exercise certain
stock options. The total amount forgiven on the notes was $1.3 million of which
$465,000 had previously been included in notes receivable from sale of Common
Stock and the remainder, which represented taxes payable at the time of the
option exercises plus accrued interest, was included in accounts and notes
receivable. The approval bonus of approximately $3.0 million is included in
revenues under collaborative agreements and the expense related to the payment
of the approximately $1.7 million of bonuses, as well as the forgiveness of
debt, is included in other expenses (see notes 3 and 8).
NOTE 8. OTHER EXPENSES
Other expenses include the following for the years presented:
FISCAL YEARS ENDED MARCH 31, 1994 1995 1996
--------- --------- ---------
Legal settlements and related costs
(Note 6) $ 4,726 $ 350 $ 1,418
Write-off of license fees related to
discontinued products (Note 6) - - 1,025
Loss on sale of real estate - - 667
Approval bonus paid by U.S. marketing
partner (Note 7) - 3,053 -
--------- --------- ---------
$ 4,726 $ 3,403 $ 3,110
--------- --------- ---------
--------- --------- ---------
In November 1995, the Company entered into a contract for the sale of the two
buildings and underlying land that the Company purchased in December 1993. The
sale of the buildings was completed in March 1996 (see note 5). As a result,
during the third quarter of fiscal 1996 the Company wrote-down the carrying
value of the buildings by $667,000, the net amount it estimated to be received
from the sale.
NOTE 9. SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of the unaudited quarterly results of operations for
the years ended March 31, 1996 and 1995 (in thousands, except per share
amounts):
QUARTER ENDED: JUNE 30 SEP 30 DEC 31 MAR 31
- -------------- -------- -------- -------- --------
Fiscal 1996
Revenues $ 350 $ 348 $ 1,245 $ 1,141
Research and development costs 3,196 3,386 3,276 3,730
Total operating costs and expenses(a) 4,890 5,528 8,039 5,656
Net loss (4,518) (5,135) (6,645) (4,415)
Loss per common share (.37) (.42) (.50) (.33)
Weighted average common shares
outstanding 12,113 12,196 13,291 13,293
QUARTER ENDED: JUNE 30 SEP 30 DEC 31 MAR 31
- -------------- -------- -------- -------- --------
Fiscal 1995
Revenues(b) $ 534 $ 8,786 $ 6,908 $ 713
Research and development costs 4,714 5,145 4,252 4,632
Total operating costs and expenses(b) 6,661 6,833 9,233 6,891
Net income (loss) (5,913) 2,083 (2,235) (6,117)
Income (loss) per common share (.49) .17 (.19) (.51)
Weighted average common shares
outstanding 11,996 12,000 12,000 12,000
(a) Includes $3.1 million other expenses during the quarter ended December 31,
1995 (see Note 8).
(b) Includes $8.7 million and $6.1 million research milestone payments during
the quarters ended September 30, 1994 and December 31, 1994, respectively.
The $6.1 million in December 31, 1994 includes a milestone of $3.1 million which
was paid to key employees and offset by a like charge to operating costs and
expenses. Total operating costs and expenses include a $500,000 charge for
severance costs during the quarter ended March 31. 1995.
NOTE 10. SUBSEQUENT EVENT
On May 30, 1996, the Company completed a public offering of 4.1 million shares
of Common Stock at $9.00 per share, with the Company receiving gross proceeds of
approximately $36.9 million.
4
---
1
<PAGE>
MBI FINANCIAL REVIEW
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF MOLECULAR BIOSYSTEMS, INC.:
We have audited the accompanying consolidated balance sheets of Molecular
Biosystems, Inc. (a Delaware corporation) and subsidiaries as of March 31,
1995 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Molecular Biosystems, Inc.
and subsidiaries as of March 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Diego, California
May 6, 1996
Except with respect to the matter discussed in Note 10 as to which the date is
May 30, 1996.
MARKET INFORMATION
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol "MB." As of June 25, 1996, there were approximately 2,077 holders of
record of the Company's Common Stock, representing approximately 9,248
beneficial owners. The Company has not paid dividends on its Common Stock. The
following table sets forth the quarterly high and low last sale price for a
share of the Company's Common Stock for the three fiscal years ended March 31
1996, 1995 and 1994, respectively, as reported by the NYSE.
FISCAL 1996 HIGH LOW
-------- --------
First Quarter (4/1 to 6/30) 8 6-1/4
Second Quarter (7/1 to 9/30) 10 6-1/4
Third Quarter (10/1 to 12/31) 9-1/2 6
Fourth Quarter (1/1 to 3/31) 10 6-3/8
FISCAL 1996 HIGH LOW
-------- --------
First Quarter (4/1 to 6/30) 18 10-7/8
Second Quarter (7/1 to 9/30) 13-7/8 9-5/8
Third Quarter (10/1 to 12/31) 14-1/8 9-1/8
Fourth Quarter (1/1 to 3/31) 11-3/8 7
FISCAL 1996 HIGH LOW
-------- --------
First Quarter (4/1 to 6/30) 23 16-5/8
Second Quarter (7/1 to 9/30) 26-1/2 19-1/2
Third Quarter (10/1 to 12/31) 26-3/4 18
Fourth Quarter (1/1 to 3/31) 20-1/2 17
<PAGE>
Kenneth J. Widder, M.D. 10030 Barnes Canyon Road
Chairman of the Board San Diego, California 92121
and Chief Executive Officer (619) 452-0681
Bobba Venkatadri
President and Chief Operating Officer
Gerard A. Wills Arthur Andersen LLP
Vice President, Finance 701 "B" Street, Suite 1600
and Chief Operating Officer San Diego, California 92101
Allan H. Mizoguchi, Ph.D.
Vice President, Clinical
and Regulatory Affairs
James L. Barnhart, Ph.D. Johnson and Colmar
Vice President, Research 300 S. Wacker Drive
and Development Suite 1000
Chicago, Illinois 60606
Kenneth J. Widder, M.D. Continental Stock Transfer and Trust Co.
Chairman of the Board 2 Broadway
and Chief Executive Officer New York, New York 10004
Molecular Biosystems, Inc.
Bobba Venkatadri
President and Chief Operating Officer A copy of the Company's annual report
Molecular Biosystems, Inc. to the Securities and Exchange Commission
on Form 10-K is available without charge
David W. Barry, M.D. to stockholders upon request.
Chairman and Chief Executive Officer
Triangle Pharmaceuticals, Inc.
Robert W. Brightfelt
Business Director
Diagnostic Division,
Medical Products Group
E.I. Du Pont de Nemours & Co. (Inc.)
Wilmington, Delaware
Charles C. Edwards,M.D.
President, Chief Executive Officer (retired)
Scripps Clinic and Research Foundations
La Jolla, California
Gordon C. Luce
Chairman of the Board
Scripps Health
La Jolla, California
David Rubinfien
Chairman of the Board (retired)
Systemix, Inc.
Palo Alto, California
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements, File Numbers 33-723, 33-24508,
33-37872, 33-78564 and 33-78572.
ARTHUR ANDERSEN LLP
San Diego, California
June 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF MOLECULAR BIOSYSTEMS, INC. DATED MARCH 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 12,542
<SECURITIES> 8,028
<RECEIVABLES> 260
<ALLOWANCES> 9
<INVENTORY> 622
<CURRENT-ASSETS> 24,858
<PP&E> 19,042
<DEPRECIATION> 3,322
<TOTAL-ASSETS> 43,829
<CURRENT-LIABILITIES> 6,257
<BONDS> 0
0
0
<COMMON> 133
<OTHER-SE> 28,829
<TOTAL-LIABILITY-AND-EQUITY> 43,829
<SALES> 647
<TOTAL-REVENUES> 3,084
<CGS> 1,553
<TOTAL-COSTS> 24,113
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 786
<INCOME-PRETAX> (20,713)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,713)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,713)
<EPS-PRIMARY> (1.62)
<EPS-DILUTED> 0
</TABLE>
