<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 7, 1996
REGISTRATION STATEMENT NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ALLIANCE PHARMACEUTICAL CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 14-1644018
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
3040 SCIENCE PARK ROAD
SAN DIEGO, CA 92121
(619) 558-4300
(Address, including zip code, and telephone number,
including area code of registrant's principal executive offices)
DUANE J. ROTH
PRESIDENT
Alliance Pharmaceutical Corp.
3040 Science Park Road
San Diego, CA 92121
(619) 558-4300
(Name, address, including zip code, and telephone number,
of agent for service of process)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Melvin Epstein, Esq. Mark Kessel, Esq.
Stroock & Stroock & Lavan Shearman & Sterling
Seven Hanover Square 599 Lexington Avenue
New York, NY 10004-2696 New York, NY 10022
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / __________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE AGGREGATE PRICE AGGREGATE OFFERING AMOUNT OF
TITLE OF SHARES TO BE REGISTERED REGISTERED PER UNIT (1) PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value................ 2,875,000 $17.25 $49,593,750 $17,101.29
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) on the basis of the price of the Common Stock on
the Nasdaq National Market on March 1, 1996.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH , 1996
PROSPECTUS
2,500,000 SHARES
[LOGO]
COMMON STOCK
------------------
All of the shares of Common Stock offered hereby are being sold by Alliance
Pharmaceutical Corp. ("Alliance" or the "Company"). The Company's Common Stock
is traded on the Nasdaq National Market under the symbol "ALLP." The closing
price of the Common Stock on March 4, 1996 was $18 1/8 per share. See "Price
Range of Common Stock."
------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts Proceeds to
Public and Commissions(1) Company(2)
<S> <C> <C> <C>
Per Share...................... $ $ $
Total(3)....................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $400,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
375,000 additional shares of Common Stock on the same terms and conditions
as set forth herein solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery and acceptance by the Underwriters and
to certain further conditions. It is expected that delivery of certificates for
the shares of Common Stock will be made at the offices of Lehman Brothers Inc.,
New York, New York, on or about , 1996.
------------------------
LEHMAN BROTHERS
COWEN & COMPANY
OPPENHEIMER & CO., INC.
, 1996
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1995, which was filed with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1995, which was filed with the Commission pursuant
to the Exchange Act on November 13, 1995, the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 31, 1995, which was filed with the
Commission pursuant to the Exchange Act on February 6, 1996, and the information
under the caption "Description of the Company's Securities" contained in the
Company's Registration Statement on Form 8-A, dated October 25, 1984, with
respect to the Company's Common Stock, are incorporated herein by reference and
made a part of this Prospectus as of the date hereof. All reports subsequently
filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to
the termination of the offering of the Common Stock offered hereby shall be
deemed to be incorporated by reference into this Prospectus. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
document which is or is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the documents which have been incorporated by reference in this
Prospectus, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the documents so incorporated.
Requests for such copies should be directed to Lloyd Rowland, Alliance
Pharmaceutical Corp., 3040 Science Park Road, San Diego, California 92121,
telephone (619) 558-4300.
AVAILABLE INFORMATION
This Prospectus is part of a Registration Statement on Form S-3 (together
with all amendments and exhibits thereto, the "Registration Statement") which
the Company has filed with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"). This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information pertaining to the Company and the Common Stock, reference is
made to the Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to herein are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's New York Regional Office, Seven World Trade
Center, 13th Floor, New York, New York 10048, and at its Chicago Regional
Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies of such materials can be obtained by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company's Common Stock is
listed on the Nasdaq National Market. Reports and other information concerning
the Company may be inspected at the offices of the National Association of
Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
OXYGENT-TM-, LIQUIVENT-Registered Trademark-, IMAGENT-Registered Trademark-,
and SAT PAD-REGISTERED TRADEMARK- are all trademarks of the Company.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS CONTAINED IN THIS PROSPECTUS OR PREVIOUSLY FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. UNLESS OTHERWISE NOTED, ALL FINANCIAL INFORMATION,
SHARE AND PER SHARE DATA IN THIS PROSPECTUS ASSUME NO ISSUANCE OF SHARES OF
COMMON STOCK ISSUABLE UPON THE EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION, OUTSTANDING WARRANTS, OPTIONS OR CONVERTIBLE SECURITIES. AS USED IN THIS
PROSPECTUS, THE TERMS "COMPANY" AND "ALLIANCE" REFER TO ALLIANCE PHARMACEUTICAL
CORP. AND ITS CONSOLIDATED SUBSIDIARIES.
THE COMPANY
Alliance is a pharmaceutical research and development company that focuses
on developing scientific discoveries into potential drug products and licensing
these products to multinational pharmaceutical companies in exchange for fixed
payments and royalties. To date, the Company has entered into agreements with
researchers for the rights to two innovative products, developed these products
through initial clinical (human) trials, and entered into collaborative
relationships with multinational pharmaceutical companies for the final stages
of development and worldwide marketing. These products are OXYGENT, an
intravascular oxygen carrier designed to reduce the need for donor blood
transfusions during surgery, which is currently in Phase IIb clinical trials and
is licensed to affiliates of Johnson & Johnson, and LIQUIVENT, an intrapulmonary
agent for use in treatment of acute respiratory failure, which is currently in a
pivotal Phase II/III clinical trial and is licensed to Hoechst Marion Roussel,
Inc., an affiliate of Hoechst AG. Alliance intends to enter into a collaborative
agreement for IMAGENT US, an ultrasound contrast agent for which the Company
expects to begin clinical trials in the near future.
The Company's strategy is to identify potential new pharmaceutical products
through scientific collaborations with researchers and clinicians in
universities and medical centers where many of the basic causes of disease and
potential targets for new therapies are discovered. Using its experience in
defining pharmaceutical formulations, designing manufacturing processes,
conducting preclinical pharmacology and toxicology studies, and conducting
early-phase human testing, Alliance endeavors to advance such discoveries into
clinical development. The Company seeks collaborative relationships for the
final stages of drug development, including completing late-phase human testing,
obtaining worldwide regulatory approvals, building large-scale manufacturing
capacities, and marketing.
Alliance's products currently in clinical development -- OXYGENT, LIQUIVENT,
and IMAGENT US -- are based upon perfluorochemical ("PFC") and emulsion
technologies. PFCs are biochemically inert compounds and may be employed in a
variety of therapeutic and diagnostic applications. The Company's primary drug
substance is perflubron, a brominated PFC that has a high solubility for
respiratory gases and can be used to transport these gases safely throughout the
body.
OXYGENT, an emulsion containing perflubron, is an intravascular oxygen
carrier to be used as a temporary "blood substitute" to provide oxygen to
tissues during elective surgeries where substantial blood loss is anticipated.
OXYGENT has several potential advantages compared to allogeneic (donor) blood:
there is no risk of infectious disease transmission, it is compatible with all
blood types, it has a shelf-life in excess of one year, and it can be
sterilized. OXYGENT can be used with autologous blood collection techniques,
including predonation, hemodilution, and salvage, to enhance safety by reducing
the need for allogeneic blood. OXYGENT is currently in Phase IIb clinical trials
with surgical patients at multiple sites in the United States and Europe.
In August 1994, the Company entered into a license agreement (the "Ortho
License Agreement") with Ortho Biotech, Inc. and The R.W. Johnson Pharmaceutical
Research Institute, a division of Ortho Pharmaceutical Corporation, affiliates
of Johnson & Johnson (collectively referred to as "Ortho"), which provides Ortho
with worldwide marketing rights to the Company's injectable PFC emulsions
capable of transporting oxygen for therapeutic use, including OXYGENT. The
product is being developed jointly by Alliance and Ortho, with Ortho responsible
for substantially all of the remaining costs of development and marketing. In
3
<PAGE>
conjunction with the Ortho License Agreement, Johnson & Johnson Development
Corp. ("J&JDC") purchased equity securities of the Company for $15.0 million. In
addition, Ortho paid Alliance an initial license fee and will pay milestone
payments and royalties on product sales.
LIQUIVENT, sterile perflubron, is an intrapulmonary agent to treat acute
respiratory failure, a disorder that can result from many causes, including
serious infection, traumatic shock, severe burns, and inhalation of toxic
substances, and is characterized by impairment of normal lung function. The
Company is conducting a multi-center pivotal Phase II/III clinical trial with
LIQUIVENT in pediatric patients with acute respiratory failure, and separate
multi-center Phase II clinical trials in adults and premature infants are
underway. The U.S. Food and Drug Administration ("FDA") has granted Subpart E
status (expedited review) for the development of LIQUIVENT.
In February 1996, the Company entered into a license agreement (the "HMRI
License Agreement" and, together with the Ortho License Agreement, the "License
Agreements") with Hoechst Marion Roussel, Inc. ("HMRI"), which provides HMRI
with worldwide marketing rights to the intratracheal administration of liquids,
including LIQUIVENT, which perform bronchoalveolar lavage or liquid ventilation.
The product will be developed jointly by Alliance and HMRI, with HMRI
responsible for substantially all of the costs of development and marketing
after March 31, 1996. In conjunction with the HMRI License Agreement, HMRI
agreed to purchase equity securities of the Company for $22.0 million. In
addition, HMRI will pay Alliance license fees, milestone payments, and royalties
on product sales. Closing of the transactions with HMRI is subject to expiration
or early termination of the waiting period under the Hart-Scott-Rodino Anti-
Trust Improvements Act of 1976, as amended (the "HSR Act"), and other customary
conditions, all of which are expected to be satisfied within the next thirty
days. However, there can be no assurance that the transactions with HMRI will be
consummated.
IMAGENT US is a PFC-based intravenous ultrasound contrast agent being
developed to aid in the assessment of cardiac function and myocardial perfusion,
as well as the detection of solid organ lesions and blood flow abnormalities
caused by vascular diseases. In preclinical studies, this agent has been found
to enhance the signal from perfused tissues and blood vessels using traditional
gray-scale and color Doppler technologies, as well as the emerging harmonic
ultrasound imaging technique. In February 1996, the Company filed an
investigational new drug application ("IND") with the FDA and clinical trials
are expected to begin in the near future.
Alliance is assessing an apoptotic factor for regulation of cancerous cell
death and has ongoing research activities to exploit its expertise in PFC,
emulsion, and surfactant technologies. In addition, the Company is evaluating
its antigenized antibody technology for use in developing a prototype vaccine
for an infectious disease and a prototype tolerogen for an autoimmune disease.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered................... 2,500,000 shares
Common Stock to be outstanding after
this offering......................... 27,416,691 shares
Use of proceeds........................ To fund research, preclinical testing, and clinical
trials for the Company's products, to repurchase an
oustanding warrant for approximately $2.5 million,
and for general corporate purposes.
Nasdaq National Market symbol.......... ALLP
</TABLE>
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1994 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................ $ 1,582 $ 1,805 $ 2,370 $ 409 $ 11,816 $ 7,209 $ 4,186
Loss from operations.......................... (18,494) (24,304) (28,802) (38,508) (30,332) (15,724) (14,761)
Dividends on preferred stock.................. -- -- -- -- (594) (219) (375)
Net loss applicable to Common Stock........... (17,702) (21,766) (26,380) (36,946) (29,717) (15,368) (14,706)
Net loss per share of Common Stock............ $ (1.24) $ (1.25) $ (1.39) $ (1.83) $ (1.35) $ (0.72) $ (0.59)
Weighted average number of common shares out-
standing..................................... 14,258 17,344 18,946 20,226 21,959 21,385 24,851
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------
AS
ACTUAL ADJUSTED (1)
--------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...................................... $ 12,722 $ 73,416
Working capital........................................................................ 11,144 71,838
Total assets........................................................................... 44,892 105,586
Long-term debt......................................................................... 1,314 1,314
Accumulated deficit.................................................................... (203,766) (203,766)
Stockholders' equity................................................................... 37,003 97,697
</TABLE>
- ------------------------
(1) Adjusted to give effect to the sale of the 2,500,000 shares of Common Stock
offered hereby, after deducting the underwriting discounts and estimated
offering expenses, the net proceeds from the sale of $22.0 million of
preferred stock to HMRI, and the application of the proceeds of this
offering as described herein. See "Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. The following factors and cautionary statements should be carefully
considered in evaluating the Company and its business:
LIMITED PRODUCT REVENUES; HISTORY OF OPERATING LOSSES. Substantially all of
the Company's revenues to date have consisted of licensing fees, milestone
payments, and payments to fund research and development activities under joint
development and license agreements. The Company has had net operating losses
since its inception and expects such losses to continue unless and until such
time as revenues are sufficient to fund its continuing operations. As of
December 31, 1995, the Company had an accumulated deficit of $203.8 million, of
which approximately $35.5 million reflects non-cash charges from the Company's
acquisition by merger of Fluoromed Pharmaceutical, Inc. on February 24, 1989.
There can be no assurance that the Company will be able to achieve profitability
at all or on a sustained basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RELIANCE ON COLLABORATIVE PARTNERS; FUTURE COLLABORATIONS. The Company has
entered into the License Agreements to support the development and
commercialization of OXYGENT and LIQUIVENT and to raise capital. Pursuant to the
License Agreements, the Company has granted significant licensing rights. The
Company's strategy is to seek additional collaborations. However, there can be
no assurance that the Company will be able to negotiate acceptable collaborative
arrangements in the future, or that any current or future arrangements will
ultimately be successful. Under the License Agreements, the Company will depend
on Ortho and HMRI for development, regulatory approval, and marketing of
products. The termination of either of the License Agreements, which can occur
on at least one month's advance notice, or any other future collaborative
arrangement could adversely affect the Company's research, development or,
ultimately, product distribution plans. The Company's revenues from milestone
payments or sales of any product will depend in large part upon the efforts and
abilities of the collaborative partner to perform clinical testing, to obtain
regulatory approvals, and to manufacture and market the product. The amount and
timing of resources devoted to these activities will not be completely within
the Company's control. The collaborative partner will have certain discretion in
deciding whether to commercialize the product. There can be no assurance that
the corporate interests and motivations of the Company's collaborative partners
will remain consistent with those of the Company. See "Business -- Collaborative
Relationships."
GOVERNMENT REGULATION; UNCERTAINTIES RELATED TO CLINICAL TRIAL RESULTS. The
production and marketing of the Company's products and its research and
development activities are subject to regulation for safety and efficacy by
numerous government authorities in the United States and other countries.
Clinical trials and the manufacturing and marketing of the Company's products
are subject to the testing and approval process of the FDA and foreign
regulatory authorities. The FDA and other regulatory authorities require that
the safety and efficacy of a drug be supported by results from adequate and
well-controlled clinical trials before approval for commercial sale. If the
results of the clinical trials of the Company's products do not demonstrate the
safety and efficacy of the products, the Company will not be able to submit a
New Drug Application ("NDA") to the FDA. Even if the Company believes the
clinical trials demonstrate the safety and efficacy of a product, the FDA and
other regulatory authorities may not accept the Company's assessment of the
results. In either case, the Company may have to conduct additional clinical
trials in an effort to demonstrate the safety and efficacy of the product. The
process of obtaining regulatory clearances or approvals is costly and
time-consuming. The Company cannot predict how long preclinical and clinical
trials will take or whether they will be successful, nor can the Company predict
how long the necessary regulatory approvals or clearances will take. Therefore,
there can be no assurance that the necessary clearances or approvals will be
obtained, or obtained on a timely basis. Without acceptable results and
regulatory approval, the Company would not be able to commercialize its
products, which would have a material adverse effect on the Company. There can
be no assurance that the results of any of the Company's clinical trials will be
favorable or that the Company's products will obtain regulatory approval for
commercialization. The effect of governmental regulations which might arise from
future legislative or administrative action cannot be predicted. See "Business
- -- Government Regulation."
6
<PAGE>
UNCERTAINTY OF DEVELOPMENT AND COMMERCIALIZATION EFFORTS. The Company's
products require substantial development efforts. The Company or its
collaborative partners may encounter unforeseen technological or scientific
problems, including side effects, which may force abandonment or substantial
change in the development of a specific product or process, or technological
change or product developments by others, any of which may have a material
adverse effect on the Company. Further, even after successful technical
development and receipt of governmental approval, a product may not achieve
commercial success. To date, the Company has received regulatory approval for
the commercial sale of only one of its drug products, the sales of which were
discontinued due to limited revenue potential.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. The Company
believes that its existing capital resources, including expected revenues from
the License Agreements and investments, as well as the net proceeds from this
offering and income earned thereon, will be adequate to satisfy its capital
requirements for at least the next 24 months. The Company will need additional
financing to support its long-term product development programs. The Company's
future capital requirements will depend on many factors, including continued
scientific progress in its research and development programs, progress with
preclinical testing and clinical trials, the time and cost involved in obtaining
regulatory approvals, patent costs, competing technological and market
developments, changes in existing collaborative relationships, the Company's
ability to establish development, sales, and marketing arrangements, and the
cost of manufacturing scale-up, if necessary. No assurance can be given that
adequate financing will be available to the Company in the future or on terms
acceptable to the Company.
UNPREDICTABILITY OF PATENT PROTECTION; PROPRIETARY TECHNOLOGY. The Company
believes that its success will depend largely on its ability to obtain and
maintain patent protection for its own inventions and licenses for the use of
patents owned by third parties. The Company has obtained patents covering
certain intermediate and high concentration PFC emulsions, as well as patents
related to liquid ventilation. The Company has filed, and when appropriate will
file, other patent applications with respect to its products and processes in
the United States and in foreign countries. There can be no assurance, however,
that the Company will develop any additional products and processes which may be
patentable or that any additional patents will be issued. It is possible that
patents issued to the Company or any patents licensed to the Company may be
challenged successfully, that the Company may infringe patents of third parties
unintentionally, and that the Company may have to alter its products or
manufacturing processes to take into account the patents of third parties,
causing delays in product development. Litigation, which could result in a
substantial cost to the Company, may be necessary to enforce any patents issued
to the Company and/or to determine the scope and validity of others' proprietary
rights. The Company also attempts to protect its proprietary products and
processes by relying on trade secret laws and non-disclosure and confidentiality
agreements with its employees and certain other persons who have access to its
products or processes. No assurance can be given that others will not develop
such products or processes independently or obtain access to such products or
processes. To the extent that others develop or obtain similar products or
processes, the Company's competitive position may be affected adversely. See
"Business -- Patents."
LIMITED MANUFACTURING CAPABILITY AND EXPERIENCE. While the Company believes
that it can produce materials for clinical trials and the initial market launch
for its emulsion products at its existing San Diego facility and for LIQUIVENT
at its Otisville facility, it may need to expand its commercial manufacturing
capabilities for its products in the future. This expansion may occur in stages,
each of which would require regulatory approval, and product demand could at
times exceed supply capacity. The Company has not selected a site or obtained
any regulatory approvals for construction of a commercial production facility
for its products, nor can there be any assurance that it will be able to do so.
The projected location and completion date of any production facility will
depend upon regulatory and development activities and other factors. The Company
cannot predict the amount that it will expend for the construction of such a
production facility, and there can be no assurance as to when or whether the FDA
will determine that such facility complies with Good Manufacturing Practices.
Construction of a facility will depend on regulatory approvals, product
development, and capital resources, among other things. The Ortho License
Agreement provides an option to Ortho to elect to manufacture the emulsion
products referred to therein, or to require the Company to manufacture such
products at a negotiated price. The HMRI License Agreement requires the
7
<PAGE>
Company to manufacture LIQUIVENT at its Otisville facility for a period of time
after market launch and to sell the product to HMRI at a negotiated price. HMRI
will be responsible for establishing production capacity beyond the maximum
capacity of the Otisville facility. See "Business -- Manufacturing."
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT. The Company's ability to
commercialize its products successfully will depend in part on the extent to
which appropriate reimbursement levels for the cost of the products and related
treatment are obtained from government authorities, private health insurers and
other organizations, such as health maintenance organizations ("HMOs").
Third-party payors are increasingly challenging the prices charged for medical
products and services. Also, the trend toward managed healthcare in the United
States, the growth of organizations such as HMOs, and legislative proposals to
reform healthcare and government insurance programs could significantly
influence the purchase of healthcare services and products, resulting in lower
prices and reducing demand for the Company's products. The cost containment
measures that healthcare providers are instituting and any healthcare reform
could affect the Company's ability to sell its products and may have a material
adverse effect on the Company. There can be no assurance that reimbursement in
the United States or foreign countries will be available for any of the
Company's products, that any reimbursement granted will be maintained, or that
limits on reimbursement available from third-party payors will not reduce the
demand for, or negatively affect the price of, the Company's products. The
unavailability or inadequacy of third-party reimbursement for the Company's
products would have a material adverse effect on the Company. The Company is
unable to forecast what additional legislation or regulation relating to the
healthcare industry or third-party coverage and reimbursement may be enacted in
the future, or what effect the legislation or regulation would have on the
Company's business.
DEPENDENCE UPON KEY PERSONNEL. The Company's success in developing
marketable products and achieving a competitive position will depend, in part,
on its ability to attract and retain qualified scientific and management
personnel. Competition for such personnel is intense, and no assurance can be
given that the Company will be able to attract and retain such personnel.
Scientific advisors to the Company are employed by or have consulting
arrangements with third parties which may conflict with their obligations to the
Company. The Company's anticipated growth and expansion will require additional
expertise and are expected to place additional demands on the Company's
management and financial resources.
COMPETITION; RAPID TECHNOLOGICAL CHANGE. Biotechnology and pharmaceutical
companies are highly competitive. There are many pharmaceutical companies,
biotechnology companies, public and private universities, and research
organizations actively engaged in research and development of products that may
be similar to, or seek to attack the same targets as, Alliance's products. Many
of the Company's existing or potential competitors have substantially greater
financial, technical, and human resources than the Company and may be better
equipped to develop, manufacture, and market products. These companies may
develop and introduce products and processes competitive with or superior to
those of the Company. In addition, other technologies or products may be
developed that have an entirely different approach or means of accomplishing the
intended purposes of the Company's products which might render the Company's
technology and products uncompetitive or obsolete. There can be no assurance
that the Company will be able to compete successfully. See "Business --
Competition."
PRODUCT LIABILITY CLAIMS AND UNINSURED RISKS. Products or processes that
may be developed, licensed, or sold by the Company may expose the Company to
potential liability from claims by end-users of such products or of products
manufactured by such processes, or by manufacturers or others selling such
products, either directly or as a component of other products. The Company
currently maintains limited product liability insurance coverage. There can be
no assurance that the Company will be able to maintain such coverage or obtain
additional coverage on acceptable terms, or that such insurance will provide
adequate coverage against all potential claims.
VOLATILITY OF STOCK PRICE; LIQUIDATION PREFERENCE; AND LACK OF
DIVIDENDS. The market prices for securities of biopharmaceutical companies have
historically been highly volatile. Announcements concerning the Company or its
competitors, including the results of testing and clinical trials, technological
innovations, or
8
<PAGE>
commercial products, government regulations, developments concerning proprietary
rights, including patents and litigation matters, a change in status of a
collaborative partner, public concern relating to the commercial value or safety
of the Company's products, and stock market conditions in general may have a
significant impact on the price of the Common Stock. See "Price Range of Common
Stock."
The Company has 1,500,000 shares of Series A Preferred Stock outstanding.
Such preferred stock is entitled to an annual $0.50 per share preferential
dividend, and has a liquidation preference of $10.00 per share, plus all
accumulated but unpaid dividends. Upon consummation of the transactions with
HMRI, the Company will have outstanding (i) 750,000 shares of Series B Preferred
Stock entitled to an annual $1.00 per share preferred dividend, and a
liquidation preference of $20.00 per share, plus all accumulated but unpaid
dividends and (ii) 200,000 shares of Series C Preferred Stock entitled to a
liquidation preference of $.01 per share.
The Company has not paid dividends on its Common Stock since its inception
and does not intend to pay any such dividends in the foreseeable future.
Further, the Company in general is required to pay cumulative dividends on its
outstanding preferred stock prior to paying any dividends on its Common Stock.
As of December 31, 1995, the Company had recorded as a liability dividends
payable totalling $969,000 on the Series A Preferred Stock. The Company has
incurred losses and, thus, has had a deficiency in preferred stock dividend
coverage. For the years ended June 30, 1991, 1992, 1993, 1994 and 1995 and the
six months ended December 31, 1994 and 1995, the Company has incurred net losses
of $17,702,000, $21,766,000, $26,380,000, $36,946,000, $29,717,000, $15,368,000
and $14,706,000, respectively.
SHARES ELIGIBLE FOR FUTURE SALE. As of December 31, 1995, 3,580,505 shares
of Common Stock (or 13% of the total number of shares outstanding on a fully
diluted basis) were issuable upon the exercise of outstanding options and
warrants (excluding a warrant with respect to 500,000 shares to be repurchased
by the Company). See "Use of Proceeds." Additional shares may be issued upon the
conversion of preferred stock, and the Company expects to issue additional
shares of preferred stock and warrants in connection with the contemplated
transactions with HMRI described elsewhere herein. See "Capitalization." The
existence of such warrants, options and convertible securities, as well as
certain registration rights, may adversely affect the terms on which the Company
may obtain additional equity financing. The holders of the outstanding warrants
and options are likely to exercise their securities at a time when the Company
would otherwise be able to obtain capital on terms more favorable than those
provided by the exercise or conversion prices thereof.
IMMEDIATE AND SUBSTANTIAL DILUTION. Investors in this offering will
experience immediate and substantial dilution in book value per share. See
"Dilution."
THE CAUTIONARY STATEMENTS SET FORTH ABOVE AND ELSEWHERE IN THIS PROSPECTUS
SHOULD BE READ AS ACCOMPANYING FORWARD-LOOKING STATEMENTS INCLUDED UNDER "USE OF
PROCEEDS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND ELSEWHERE HEREIN. THE RISKS DESCRIBED IN SUCH
STATEMENTS COULD CAUSE THE COMPANY'S RESULTS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN OR INDICATED BY SUCH FORWARD- LOOKING STATEMENTS.
9
<PAGE>
USE OF PROCEEDS
The net proceeds from this offering are estimated to be $42.2 million,
assuming a public offering price of $18 1/8 per share. The Company also expects
to receive more than $22.0 million in license fees and for the purchase of
equity securities at the closing of the contemplated transactions with HMRI
described elsewhere herein. Approximately $2.5 million of the proceeds of this
offering will be used to repurchase an outstanding warrant to acquire 500,000
shares of Common Stock (the "Warrant Repurchase"). The purchase price of the
warrant is based upon the offering price of the Common Stock offered hereby. The
Company's agreement with the warrantholder provides that the warrantholder's
obligation to sell the warrant is subject to its receiving at least $1.5 million
in the aggregate. If this condition is not satisfied and the warrantholder does
not sell the warrant to the Company, the Company will use the proceeds it would
have otherwise used to purchase the warrant for the purposes set forth herein.
The remaining proceeds will be used to fund research, preclinical testing,
and clinical trials for the Company's products, and for general corporate
purposes. In particular, the Company expects to devote an increasingly large
amount of its resources to the clinical development of IMAGENT US, its only
clinical-stage product not presently subject to a collaborative agreement.
Pending such application, the Company intends to deposit such proceeds in
interest-bearing bank accounts or to invest them in short-term, high-grade,
interest-bearing securities. The Company believes it will need additional
financing to support its long-term product development programs. No assurance
can be given that adequate financing will be available to the Company. See "Risk
Factors -- Uncertainty of Development and Commercialization Efforts" and "--
Future Capital Needs; Uncertainty of Additional Financing" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
DILUTION
As of December 31, 1995, the net tangible book value of the Company,
adjusted to include the purchase of equity securities by HMRI in connection with
the HMRI License Agreement, was approximately $42.5 million, or $1.58 per share.
"Net tangible book value per share" represents the amount of total tangible
assets of the Company reduced by the total liabilities and divided by the number
of shares of Common Stock outstanding (after giving effect to the conversion of
the outstanding shares of preferred stock and of the shares of preferred stock
expected to be issued to HMRI into Common Stock at an assumed conversion price
of $18 1/8 per share). After giving effect to the sale of the 2,500,000 shares
of Common Stock offered in this offering at an assumed public offering price of
$18 1/8 per share, the pro forma net tangible book value of the Common Stock as
of December 31, 1995 (after deducting the underwriting discounts and estimated
expenses of this offering and after giving effect to the Warrant Repurchase)
would have been approximately $82.2 million, or $2.80 per share. This represents
an immediate increase in net tangible book value of $1.22 per share to existing
shareholders and an immediate dilution of $15.33 per share to new investors
purchasing shares of Common Stock in this offering. "Dilution per share"
represents the difference between the price per share of Common Stock paid by
the new investors in this offering and the net tangible book value per share at
December 31, 1995 as adjusted to give effect to this offering.
The following table illustrates the dilution per share taking into account
estimated expenses of this offering:
<TABLE>
<S> <C> <C>
Public offering price per share.............................. $ 18.13
Net tangible book value per share as of December 31, 1995.... $ 1.58
Increase to present shareholders attributable to this
offering.................................................... 1.22
---------
Pro forma net tangible book value per share after this
offering.................................................... 2.80
---------
Dilution to investors in this offering....................... $ 15.33
---------
---------
</TABLE>
The foregoing calculations take into account the underwriting discounts and
other estimated expenses of this offering and assume no exercise of the
Underwriters' over-allotment option. If the over-allotment
10
<PAGE>
option to purchase up to an additional 375,000 shares of Common Stock is
exercised in full, the pro forma net tangible book value would be approximately
$2.98 per share, resulting in a dilution to investors in this offering of $15.15
per share.
The dilution described above could be substantially greater, depending on
the conversion rates of the series of the Company's preferred stock issued to
Ortho and HMRI. See Notes 4 and 8 of Notes to Consolidated Financial Statements
elsewhere herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
31, 1995 and as adjusted to give effect to (i) the sale of the Common Stock
offered in this offering, (ii) the net proceeds from the sale of $22.0 million
of preferred stock to HMRI described elsewhere herein, (iii) the Warrant
Repurchase, and (iv) in each case, the application of the net proceeds
therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt...................................................... $ 1,314 $ 1,314
Stockholders' equity:
Preferred stock $.01 par value -- 5,000,000 shares authorized;
1,500,000 shares issued and outstanding as of December 31, 1995;
2,450,000 shares as adjusted..................................... 15 25
Common Stock $.01 par value -- 50,000,000 shares authorized;
24,916,691 issued and outstanding as of December 31, 1995;
27,416,691 shares as adjusted.................................... 249 274
Additional paid-in capital.......................................... 240,505 301,164
Accumulated deficit................................................. (203,766) (203,766)
----------- -----------
Total stockholders' equity...................................... 37,003 97,697
----------- -----------
Total capitalization........................................ $ 38,317 $ 99,011
----------- -----------
----------- -----------
</TABLE>
As of December 31, 1995, there were 3,580,505 shares of Common Stock
reserved for issuance upon the exercise of outstanding options and warrants
(excluding the 500,000 shares underlying the Warrant Repurchase). The Company
has reserved an additional 1,050,000 shares of Common Stock for issuance upon
the conversion or possible mandatory redemption of the preferred stock and
exercise of the warrants to be issued to HMRI and 750,000 shares of Common Stock
for issuance upon the conversion of the Series A Preferred Stock issued to
J&JDC. For a description of the conversion and mandatory redemption features of
the preferred stock, see Note 4 of Notes to Consolidated Financial Statements
contained herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
11
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"ALLP." The following table sets forth, for the periods indicated, the high and
low sale prices of the Common Stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1996
First Quarter ended September 30, 1995................................. $ 12.63 $ 7.88
Second Quarter ended December 31, 1995................................. 14.25 10.50
Third Quarter ending March 31, 1996 (through March 4, 1996)............ 18.75 12.63
FISCAL 1995
First Quarter ended September 30, 1994................................. 12.00 8.00
Second Quarter ended December 31, 1994................................. 8.75 5.63
Third Quarter ended March 31, 1995..................................... 7.63 4.25
Fourth Quarter ended June 30, 1995..................................... 8.63 4.75
FISCAL 1994
First Quarter ended September 30, 1993................................. 14.00 8.50
Second Quarter ended December 31, 1993................................. 10.75 7.75
Third Quarter ended March 31, 1994..................................... 10.50 8.00
Fourth Quarter ended June 30, 1994..................................... 12.25 8.25
</TABLE>
On March 4, 1996, the closing price of the Common Stock as reported by the
Nasdaq National Market was $18 1/8 per share. As of March 4, 1996, there were
approximately 1,848 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid dividends on its Common Stock and
does not anticipate paying any cash dividends in the foreseeable future.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data set forth below for the fiscal
years ended June 30, 1993, 1994, and 1995 and the consolidated balance sheet
data at June 30, 1994 and 1995 are derived from, and are qualified by reference
to, the audited consolidated financial statements included elsewhere herein. The
consolidated statement of operations data for the fiscal years ended June 30,
1991 and 1992, and the consolidated balance sheet data at June 30, 1991, 1992,
and 1993 are derived from audited consolidated financial statements previously
filed with the Commission. The consolidated statement of operations data for the
six months ended December 31, 1994 and 1995 and the consolidated balance sheet
data at December 31, 1994 and 1995 are derived from unaudited consolidated
financial statements previously filed with the Commission, which, in the opinion
of management, have been prepared on the same basis as the audited consolidated
financial statements and reflect all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the financial position and
results of operations for such periods. Operating results for the six months
ended December 31, 1995 are not necessarily indicative of the results that may
be expected for the entire year ending June 30, 1996. This information is not
necessarily indicative of the Company's future performance.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1994 1995
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................................. $ 1,582 $ 1,805 $ 2,370 $ 409 $ 11,816 $ 7,209 $ 4,186
Operating expenses:
Research and development...................... 15,092 20,922 24,767 31,605 35,063 19,129 15,562
General and administrative.................... 4,984 5,187 6,405 7,312 7,085 3,804 3,385
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses.................... 20,076 26,109 31,172 38,917 42,148 22,933 18,947
Loss from operations............................ (18,494) (24,304) (28,802) (38,508) (30,332) (15,724) (14,761)
Investment and other income -- net.............. 792 2,538 2,422 1,562 1,209 575 430
Dividends on preferred stock.................... -- -- -- -- (594) (219) (375)
Net loss applicable to Common Stock............. $ (17,702) $ (21,766) $ (26,380) $ (36,946) $ (29,717) $ (15,368) $ (14,706)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share of Common Stock.............. $ (1.24) $ (1.25) $ (1.39) $ (1.83) $ (1.35) $ (0.72) $ (0.59)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average number of common shares
outstanding.................................... 14,258 17,344 18,946 20,226 21,959 21,385 24,851
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1994 1995
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.................................... $ 16,812 $ 66,420 $ 39,542 $ 21,056 $ 23,483 $ 20,100 $ 12,722
Working capital................................. 15,643 65,578 39,745 19,446 22,346 20,877 11,144
Total assets.................................... 44,848 97,976 72,537 53,132 56,030 52,864 44,892
Total long-term debt............................ 8,336 223 -- -- -- -- 1,314
Accumulated deficit............................. (74,251) (96,017) (122,397) (159,343) (189,060) (174,492) (203,766)
Stockholders' equity............................ 33,855 94,553 69,144 49,825 50,077 48,615 37,003
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(REFERENCES TO YEARS ARE TO THE COMPANY'S FISCAL YEARS ENDED JUNE 30.)
Alliance has devoted substantial resources to research and development
related to its pharmaceutical products based upon PFC and emulsion technologies.
The Company has been unprofitable since inception and expects to incur operating
losses for at least the next several years due to continued requirements for
research and development, preclinical testing and clinical trials, regulatory
activities, and commercial manufacturing start-up. The amount of net losses and
the time required by the Company to achieve profitability are highly uncertain
due to differences in the timing of revenues earned and expenses incurred. The
Company has entered into collaborative research and development agreements with
pharmaceutical companies that generate revenue to augment the level of its
research and development activities and to offset portions of its research and
development costs. See "Business -- Collaborative Agreements." The timing and
amounts of such revenue, if any, cannot be predicted with certainty and will
likely fluctuate sharply. To date, the Company's revenue from the sale of
products has been immaterial. The majority of the Company's products are in the
development stage and there can be no assurance as to whether or when it will be
able to increase its revenues significantly. There can be no assurance that the
Company will be able to achieve profitability at all or on a sustained basis.
RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1995 AS COMPARED WITH SIX MONTHS ENDED DECEMBER
31, 1994
The Company's license and research revenue was $4.1 million for the six
months ended December 31, 1995, compared to $7.1 million for the six months
ended December 31, 1994. The period ended December 31, 1994 included a one-time
license fee of $4.0 million.
Research and development expenses decreased by 19% to $15.6 million for the
six months ended December 31, 1995, compared to $19.1 million for the six months
ended December 31, 1994. The decrease in expenses was primarily the result of a
$3.6 million reduction in purchases of raw materials, a $929,000 net reduction
in acquired research and development expense, and reduced staffing costs. These
reductions were partially offset by $639,000 paid to a supplier under a previous
raw material commitment. The Company also increased payments to universities and
outside consultants. The expenses for the six months ended December 31, 1994
included a one-time $1.7 million charge to research and development expense
which arose when the Company licensed product rights to Ortho. The expenses for
the six months ended December 31, 1995 included a $757,000 charge arising from
the acquisition of certain PFC patents, patent rights, and related documents in
exchange for 50,000 shares of Common Stock and a five-year warrant to purchase
up to an additional 100,000 shares of Common Stock at $10.00 per share.
General and administrative expenses decreased by 11% to $3.4 million for the
six months ended December 31, 1995, compared to $3.8 million for the six months
ended December 31, 1994. The decrease in general and administrative expenses was
primarily due to decreased professional fees.
Investment income and other was $430,000 for the six months ended December
31, 1995, compared to $575,000 for the six months ended December 31, 1994. The
decline was primarily a result of lower average cash balances.
1995 AS COMPARED WITH 1994
The Company's license and research revenue increased to $11.6 million in
1995 compared to $163,000 in 1994. The increase was primarily due to $4.0
million of license revenue and $7.1 million of research revenue derived from the
Ortho License Agreement.
The Company incurred total operating expenses of $42.1 million for 1995.
Operating expenses include $5.0 million for purchases of raw material for
certain products currently being developed, $1.8 million for OXYGENT costs
incurred prior to execution of the Ortho License Agreement, $545,000 for
products no longer promoted or developed by Alliance, and a $1.7 million
non-cash charge related to the license of previously capitalized product rights.
The $5.0 million charge for the purchase of raw materials arises from a December
14
<PAGE>
1993 agreement the Company entered into with a supplier. In 1996, charges under
the agreement will be substantially less than in 1995. In January 1994, the
Company regained from Boehringer Ingelheim International GmbH ("BII") all
marketing and manufacturing rights to certain IMAGENT products, diagnostic
imaging agents, and OXYGENT products outside of North America. In conjunction
with the acquisition of the marketing and manufacturing rights from BII, the
Company recorded product rights of $1.8 million, based on the value of warrants
issued to acquire the rights. The unamortized portion ($1.7 million) of these
product rights was charged to research and development expense when the Company
licensed these product rights to Ortho.
Research and development expenses increased by 11% to $35.1 million for 1995
compared to $31.6 million for 1994. The growth in expenses is primarily a result
of increased raw material costs and the product rights charge discussed above
and increased salary costs. These expenses were partially offset by a reduction
in payments to universities and outside consultants.
General and administrative expenses decreased by 3% to $7.1 million for 1995
compared to $7.3 million for 1994. During the fourth quarter of 1995, the
Company was successful in recovering $1.6 million from its insurance carrier to
offset professional fees incurred in connection with the defense of its lawsuit.
Investment and other income was $1.2 million for 1995 compared to $1.6
million for 1994. The decline in investment revenue was primarily a result of
lower average cash balances.
1994 AS COMPARED WITH 1993
The Company had net product revenue of $246,000 for 1994 compared to $50,000
for 1993. In August 1993, the Company received FDA approval to market IMAGENT
GI, a magnetic resonance ("MR") imaging contrast agent. The increase in net
product revenue from 1993 to 1994 was primarily attributable to sales of IMAGENT
GI and SAT PAD, an MR imaging accessory. Sales of IMAGENT GI and SAT PAD were
not expected to provide significant revenue to the Company. In September 1994,
the Company discontinued promotional activities for IMAGENT GI due to limited
revenue potential.
License and research revenue decreased to $163,000 for 1994 compared to $2.3
million for 1993. The Company's 1993 license and research revenue was primarily
derived from the BII agreements. In July 1993, the BII agreements were modified,
which resulted in BII discontinuing all contract payments.
Research and development expenses increased by 28% to $31.6 million for 1994
compared to $24.8 million for 1993. The growth in expenses reflects increases in
staffing, costs of preclinical testing and clinical trials, and additional
laboratory supplies and equipment associated with the growth of the Company's
research and development efforts. Due to the discontinuance of IMAGENT GI
promotional activities, the Company reduced its perflubron inventories to the
estimated net realizable value from sales of IMAGENT GI, resulting in a charge
of $2.1 million.
General and administrative expenses increased by 14% to $7.3 million for
1994 compared to $6.4 million for 1993. The increases were principally due to
increases in staffing to support the growth of product research and development
efforts, and professional fees incurred in connection with the defense of the
lawsuit.
Investment and other income was $1.6 million for 1994 compared to $2.4
million for 1993. The decline in investment revenue was primarily a result of
lower average cash and short-term investment balances.
LIQUIDITY AND CAPITAL RESOURCES
Through December 1995, the Company financed its activities primarily from
public and private sales of equity and funding from collaborations with
corporate partners. In February 1996, the Company entered into the HMRI License
Agreement, which provides HMRI with worldwide marketing rights to the
intratracheal administration of liquids, including LIQUIVENT, which perform
bronchoalveolar lavage or liquid ventilation. The product will be developed
jointly by Alliance and HMRI, with HMRI responsible for substantially all of the
costs of development and marketing after March 31, 1996. In conjunction with the
HMRI License Agreement, HMRI agreed to purchase shares of Series B and Series C
Preferred Stock for $22.0 million. In addition, HMRI will pay Alliance license
fees, milestone payments, and royalties on
15
<PAGE>
product sales. HMRI will also receive a five-year warrant to acquire 300,000
shares of Common Stock at $20.00 per share. Closing of the transactions with
HMRI is subject to expiration or early termination of the waiting period under
the HSR Act and other customary conditions, all of which are expected to be
satisfied within the next thirty days. However, there can be no assurance that
the transactions with HMRI will be consummated.
In August 1995, the Company entered into a loan and security agreement under
which the Company received $2.2 million. Amounts borrowed under the agreement
are secured by fixed assets, and will be repaid over three years commencing in
September 1995. If certain financial covenants are not satisfied, the debt may
become due and payable. The Company has financed substantially all of its office
and research facilities and related leasehold improvements under operating lease
arrangements.
In April 1995, the Company completed offerings of 3.2 million shares of
newly issued Common Stock, resulting in net proceeds to the Company of
approximately $14.3 million.
In August 1994, the Company entered into the Ortho License Agreement for
injectable PFC emulsions capable of transporting oxygen for therapeutic use,
including OXYGENT. Under the Ortho License Agreement, Ortho paid to Alliance an
initial fee of $4.0 million and will make other payments upon the achievement of
certain milestones. Ortho is responsible for substantially all the remaining
costs of developing and marketing the products and will pay Alliance a royalty
based upon sales of products after commercialization. From August 1994 through
December 31, 1995, the Company had received research revenue payments of $9.1
million from Ortho, and as of December 31, 1995, had recorded a receivable of
$2.0 million, which was received subsequently. In conjunction with the Ortho
License Agreement, J&JDC purchased 1.5 million shares of Series A Preferred
Stock for $15.0 million and obtained a three-year warrant to purchase 300,000
shares of Common Stock at $15.00 per share.
The Company had net working capital of $11.1 million at December 31, 1995
compared to $22.3 million at June 30, 1995. The Company's cash, cash
equivalents, and short-term investments decreased to $12.7 million at December
31, 1995 from $23.5 million at June 30, 1995. The decrease resulted primarily
from net cash used in operations of $12.1 million, and property, plant, and
equipment additions of $1.4 million related to the expansion of facilities used
for research, development, and pilot manufacturing. These decreases were
partially offset by $2.2 million received under the August 1995 loan and
security agreement, and $675,000 from the issuance of Common Stock upon exercise
of options. Capital expenditures for 1996 are expected to increase compared to
1995. The Company's operations to date have consumed substantial amounts of
cash, and are expected to continue to do so for the foreseeable future.
In December 1993, in order to obtain a commitment for a long-term supply of
raw material for both clinical trials and anticipated future production
requirements, the Company entered into an agreement with a supplier under which
the Company was obligated to make payments to the supplier through May 1997
based, in part, upon the achievement of certain milestones. Based upon the
supplier's intent to negotiate directly with the Company's existing and future
collaborative partners, that agreement was modified in July 1995 to terminate
certain commitments by both parties. Some or all of the Company's payment
obligations that remain may be reimbursed to the Company by existing and future
collaborative partners.
The Company continually reviews its product development activities in an
effort to allocate its resources to those product candidates that the Company
believes have the greatest commercial potential. Factors considered by the
Company in determining the products to pursue include projected markets and
need, potential for regulatory approval and reimbursement under the existing
healthcare system, status of its proprietary rights, technical feasibility,
expected and known product attributes, and estimated costs to bring the product
to market. Based on these and other factors, the Company may from time to time
reallocate its resources among its product development activities. Additions to
products under development or changes in products being pursued can
substantially and rapidly change the Company's funding requirements.
The Company expects to incur substantial additional expenditures associated
with product development. The Company will seek additional collaborative
research and development relationships with suitable corporate partners for its
non-licensed products. There can be no assurance that such relationships, if
any,
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will successfully reduce the Company's funding requirements. Additional equity
or debt financing may be required, and there can be no assurance that funds from
these sources will be available on reasonable terms, if at all. If adequate
funds are not available, the Company may be required to delay, scale back, or
eliminate one or more of its product development programs, or obtain funds
through arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies, product candidates,
or products that the Company would not otherwise relinquish.
Alliance anticipates that its existing capital resources, including expected
revenues from the License Agreements and investments, as well as the net
proceeds from this offering and income earned thereon, will be adequate to
satisfy its capital requirements for at least the next 24 months. The Company's
future capital requirements will depend on many factors, including continued
scientific progress in its research and development programs, progress with
preclinical testing and clinical trials, the time and cost involved in obtaining
regulatory approvals, patent costs, competing technological and market
developments, changes in existing collaborative relationships, the ability of
the Company to establish additional collaborative relationships, and the cost of
manufacturing scale-up.
During September 1992, the Company and certain of its officers and directors
were named as defendants in several lawsuits filed in the U.S. District Court
for the Southern District of California by certain shareholders. The actions
were consolidated into one class action lawsuit titled "In re Alliance
Pharmaceutical Securities Litigation." The complaint claimed, among other
things, that the defendants failed to disclose certain problems with two of the
Company's products under development, which conduct is alleged to have portrayed
falsely the Company's financial condition. On May 25, 1995, summary judgment was
granted in favor of the Company and its officers and directors. Attorneys for
the plaintiffs have appealed the decision. A hearing on the appeal has not yet
been scheduled. The Company believes the eventual outcome of the litigation will
not have a material adverse effect on the Company's financial condition.
The Company's business is subject to significant risks that could cause the
Company's results to differ materially from those expressed in any
forward-looking statements made in this Prospectus. These risks include the
matters set forth above under this caption, under "Risk Factors," and elsewhere
herein.
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BUSINESS
OVERVIEW
Alliance is a pharmaceutical research and development company that focuses
on developing scientific discoveries into potential drug products and licensing
these products to multinational pharmaceutical companies in exchange for fixed
payments and royalties. To date, the Company has entered into agreements with
researchers for the rights to two innovative products, developed these products
through initial clinical (human) trials, and entered into collaborative
relationships with multinational pharmaceutical companies for the final stages
of development and worldwide marketing. These products are OXYGENT, an
intravascular oxygen carrier designed to reduce the need for donor blood
transfusions during surgery, which is currently in Phase IIb clinical trials and
is licensed to affiliates of Johnson & Johnson, and LIQUIVENT, an intrapulmonary
agent for use in treatment of acute respiratory failure, which is currently in a
pivotal Phase II/III clinical trial and is licensed to Hoechst Marion Roussel,
Inc., an affiliate of Hoechst AG. Alliance intends to enter into a collaborative
agreement for IMAGENT US, an ultrasound contrast agent for which the Company
expects to begin clinical trials in the near future.
The Company's strategy is to identify potential new pharmaceutical products
through scientific collaborations with researchers and clinicians in
universities and medical centers where many of the basic causes of disease and
potential targets for new therapies are discovered. Using its experience in
defining pharmaceutical formulations, designing manufacturing processes,
conducting preclinical pharmacology and toxicology studies, and conducting
early-phase human testing, Alliance endeavors to advance such discoveries into
clinical development. The Company seeks collaborative relationships for the
final stages of drug development, including completing late-phase human testing,
obtaining worldwide regulatory approvals, building large-scale manufacturing
capacities, and marketing.
The Company's headquarters are located at 3040 Science Park Road, San Diego,
California 92121, and its telephone number is (619) 558-4300.
PRODUCTS IN CLINICAL DEVELOPMENT
Alliance's products currently in clinical development -- OXYGENT, LIQUIVENT,
and IMAGENT US -- are based upon PFC and emulsion technologies. PFCs are
biochemically inert compounds and may be employed in a variety of therapeutic
and diagnostic applications. The Company's primary drug substance is perflubron,
a brominated PFC that has a high solubility for respiratory gases and can be
used to transport these gases safely throughout the body.
OXYGENT. OXYGENT, an emulsion containing perflubron, is an intravascular
oxygen carrier to be used as a temporary "blood substitute" to provide oxygen to
tissues during elective surgeries where substantial blood loss is anticipated.
It is estimated that in excess of three million patients annually in the United
States may receive one or more units of blood during elective surgeries,
including, for example, cardiovascular, orthopedic, and general surgical
procedures. An oxygen carrier could be used instead of blood for a portion of
these patients. The OXYGENT dose for surgical applications is expected to
provide the equivalent oxygen delivery of at least two units of red blood cells.
OXYGENT has several potential advantages over the use of allogeneic (donor)
blood: there is no risk of infectious disease transmission; it is compatible
with all blood types; it has a shelf-life in excess of one year; and it can be
sterilized. According to the 1994 estimates of The National Institutes of
Health, the risks per unit of blood transfused in the United States are 1:2,500
for bacterial infections, 1:3,000 for hepatitis, 1:100,000 for fatal hemolytic
reactions, primarily due to clerical error, and 1:225,000 for HIV infection
(AIDS). To minimize the use of allogeneic blood and to avoid these risks,
certain techniques can be employed that allow use of the patient's own
(autologous) blood during surgery. These techniques include (i) predonation, in
which patients donate several units of their blood in the six weeks preceding
surgery, (ii) perioperative hemodilution, in which several units of the
patient's blood are removed just prior to surgery and are replaced with a plasma
expander, and (iii) salvage, wherein a device (cell saver) is used to collect
blood lost during the surgical procedure. OXYGENT can be used with any of these
autologous blood collection techniques to enhance safety, by reducing the need
for allogeneic blood. When a blood transfusion
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is indicated during surgery, one or more doses of OXYGENT would be used in place
of allogeneic blood to maintain an adequate level of oxygen delivery despite a
lower red blood cell concentration. This use of OXYGENT delays or reduces the
need for the transfusion of donor blood, thereby avoiding its associated risks.
In October 1995, the Company and Ortho commenced a Phase IIb randomized,
controlled, efficacy trial involving surgical patients at multiple sites in the
United States. A similar Phase IIb clinical study was commenced in Europe in
January 1996. In February 1996, the Company and Ortho commenced a Phase II study
in the United States in cardiopulmonary bypass patients.
In August 1994, the Company entered into the Ortho License Agreement, which
provides Ortho with worldwide marketing rights to the Company's injectable PFC
emulsions capable of transporting oxygen for therapeutic use, including OXYGENT.
The product is being developed jointly by Alliance and Ortho, with Ortho being
responsible for substantially all of the remaining costs of development and
marketing.
LIQUIVENT. LIQUIVENT, sterile perflubron, is an intrapulmonary agent for
treatment of acute respiratory failure, a disorder that can result from many
causes, including serious infections, traumatic shock, severe burns, or
inhalation of toxic substances. Acute respiratory failure is generally
characterized by an excessive inflammatory response, which leads to blockage of
the small airways and collapse of alveoli, resulting in inadequate gas exchange
and impairment of normal lung function. Each year, approximately 235,000
patients in the United States are placed on mechanical gas ventilators for at
least four days for treatment of lung dysfunction due to acute injuries. The
most urgent need for these patients is to improve their blood oxygenation.
However, the prolonged use of high ventilatory pressures or high continuous
concentrations of inspired oxygen can damage the patient's lungs. Some of these
patients may benefit from treatment with LIQUIVENT.
LIQUIVENT is intended to be used in a technique called partial liquid
ventilation ("PLV"). In this procedure, the drug is administered through an
endotracheal tube into the lungs of a patient being supported by a mechanical
ventilator. The initial goal of LIQUIVENT/PLV therapy is to open collapsed
alveoli to improve gas exchange. Once this has been accomplished, ventilator
pressure and oxygen concentration may be lowered to minimize ventilator-induced
lung trauma. In clinical studies, LIQUIVENT has also been observed to promote
the migration of mucus and alveolar debris to the central airways, where
suctioning is easier. The ability to remove such debris may significantly reduce
the excessive inflammatory response associated with acute respiratory failure
and enhance the effectiveness of other therapeutic interventions, all serving
potentially to reduce patient recovery time. Published results from initial
clinical trials have indicated that LIQUIVENT improved lung oxygenation, without
clinically significant side effects. In addition, preclinical studies indicate
LIQUIVENT may mitigate inflammation, ventilator-induced trauma, and oxygen
toxicity.
In January 1996, the Company began a multi-center pivotal Phase II/III
clinical trial with LIQUIVENT in pediatric patients with acute respiratory
failure, and separate multi-center Phase II clinical trials in adults and
premature infants are underway. The FDA has granted Subpart E status (expedited
review) for the product.
In February 1996, the Company entered into the HMRI License Agreement, which
provides HMRI with worldwide marketing and manufacturing rights to the
intratracheal administration of liquids, including LIQUIVENT, which perform
bronchoalveolar lavage or liquid ventilation. The product will be developed
jointly by Alliance and HMRI, with HMRI responsible for substantially all of the
costs of development and marketing after March 31, 1996. Closing of the
transactions with HMRI is subject to expiration or early termination of the
waiting period under the HSR Act and other customary conditions, all of which
are expected to be satisfied within the next thirty days. However, there can be
no assurance that the transactions with HMRI will be consummated.
IMAGENT US. IMAGENT US is an ultrasound contrast agent being developed to
aid in the assessment of cardiac function and myocardial perfusion, as well as
the detection of solid organ lesions and blood flow abnormalities. More than 30
million scans of the heart, vasculature, and abdominal organs are performed
annually in the United States, some of which may potentially benefit from a
cost-effective contrast agent. To be successful in the marketplace, ultrasound
contrast agents should provide enhanced diagnostic images during several minutes
of scanning, be easy to use, be stable during transportation, and have a long
shelf-life. IMAGENT US is being developed to meet these requirements.
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IMAGENT US is a powder comprising hollow microspheres containing a PFC-based
gaseous mixture and water-soluble components that are known to be acceptable for
parenteral use. Prior to use, IMAGENT US is reconstituted with sterile water to
form microbubbles that are then injected into the patient. The gas bubbles are
highly echogenic and, when delivered intravenously, reflect signals that enhance
ultrasonic images. In preclinical studies, IMAGENT US has been found to enhance
the ultrasound signal from perfused tissues and blood vessels using traditional
gray-scale and color Doppler technologies, as well as the emerging harmonic
ultrasound imaging technique. In February 1996, the Company filed an IND with
the FDA and clinical trials are expected to begin in the near future.
OTHER PRODUCTS
Alliance is supporting internal research efforts to expand the applicability
of its core technologies. The Company has patented fluorinated surfactants that
are potentially useful in the preparation of therapeutic or diagnostic emulsions
and other formulations. Certain of these surfactants have been licensed to Glaxo
Group Limited ("Glaxo") to be used as a component of its metered dose inhaler
delivery system for respiratory drugs.
Alliance is investigating the use of PFC-containing reverse emulsions,
microemulsions, gels, foams, and other compositions as drug delivery agents.
These compositions are either aqueous or oil-based, and may be administered via
oral, intravenous, intrapulmonary, or topical routes to distribute antibiotics,
chemotherapy agents, gene therapies, or other medicaments systemically or to
selected areas of the body. Alliance is also conducting preclinical studies of a
PFC emulsion that could be beneficial for warm temperature preservation of
kidneys or other organs which may extend the time the organ is viable for
transplantation.
The Company has initiated a pilot clinical study in Europe to assess
OXYFLOW, an apparatus designed to be a combined cardiovascular and oxygenation
monitor that acquires data by minimally invasive means. This device is intended
to provide on-line information pertaining to oxygen status and other
physiological parameters, which could assist physicians in their decisions
regarding transfusions and other interventions.
The Company has certain agreements with research institutions to develop
discoveries that the Company believes may be the basis of new products.
Antigenized antibodies that could potentially stimulate or down-regulate
antibody production are being developed in conjunction with Mt. Sinai Medical
Center in New York City. A prototype vaccine for infectious disease and a
prototype tolerogen for an autoimmune disease are also under development with
Mt. Sinai. In addition, Alliance is working with researchers at Temple
University to develop an apoptotic factor for regulating the death of certain
cancer cells.
The Company has developed and is marketing SAT PAD, a re-usable MR imaging
accessory that improves the quality of images obtained by certain MR imaging
techniques. SAT PAD is distributed by dealers specializing in radiology
products. Sales of SAT PAD were approximately $176,000 for fiscal 1995. The
Company expects that the sales volume of SAT PAD will be limited and does not
anticipate significant revenue from the product.
The Company intends to consider other technologies that may be available for
licensing and research agreements with other institutions or inventors. Alliance
intends, where appropriate, to seek outside sources of funding. If new license
and research agreements are added and the Company is not able to obtain outside
sources of funding, the Company's research and development expenses are expected
to increase significantly.
There can be no assurance that any of these products will be successfully
commercialized.
COLLABORATIVE RELATIONSHIPS
HOECHST MARION ROUSSEL, INC. In February 1996, the Company entered into the
HMRI License Agreement, which provides HMRI with worldwide marketing rights to
the intratracheal administration of liquids, including LIQUIVENT, which perform
bronchoalveolar lavage or liquid ventilation. The product will be developed
jointly by Alliance and HMRI, with HMRI responsible for substantially all of the
cost of development and marketing after March 31, 1996. In conjunction with the
HMRI License Agreement, HMRI agreed to purchase 750,000 shares of the Company's
Series B Preferred Stock and 200,000 shares of its Series C Preferred Stock for
an aggregate of $22.0 million. In addition, HMRI will pay Alliance license fees,
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milestones payments, and royalties on product sales. HMRI will also receive a
five-year warrant to acquire 300,000 shares of Common Stock at $20.00 per share.
The Series B Preferred Stock is convertible into shares of Common Stock upon the
earliest of: (i) the Common Stock closing at a price per share of at least
$20.00 for twenty consecutive days; (ii) termination of the HMRI License
Agreement; or (iii) February 28, 2001. Each share of Series B Preferred Stock
will be converted into a number of shares of Common Stock based upon the lower
of the average closing price of the Common Stock over the twenty trading days
preceding the time of conversion or $20.00 per share. The Series C Preferred
Stock converts automatically on June 30, 1997 into a number of shares of Common
Stock obtained by dividing the average closing price of the Common Stock over
the twenty trading days preceding January 14, 1997 into $5.0 million. Prior to
June 29, 1997, HMRI may, if the HMRI License Agreement is terminated, redeem the
Series C Preferred Stock for $15.0 million, payable in cash or Common Stock at
Alliance's election, any time on or before the expiration of five years
following the redemption date. Prior to conversion, each share of Series B
Preferred Stock is entitled to one vote on matters on which shareholders are
entitled to vote. The Series B Preferred Stock carries a cumulative annual
dividend of $1.00 per share. The Series C Preferred Stock does not have dividend
or voting rights. Closing of the transactions with HMRI is subject to expiration
or early termination of the waiting period under the HSR Act and other customary
conditions, all of which are expected to be satisfied within the next thirty
days. However, there can be no assurance that the transactions with HMRI will be
consummated.
ORTHO BIOTECH, INC. In August 1994, the Company entered into the Ortho
License Agreement for injectable PFC emulsions capable of transporting oxygen
for therapeutic use, including OXYGENT. Under the Ortho License Agreement, Ortho
paid to Alliance an initial fee of $4.0 million and will make other payments
upon the achievement of certain milestones. Ortho is responsible for
substantially all the remaining costs of developing and marketing the products
and will pay Alliance a royalty based upon sales of products after
commercialization. In conjunction with the Ortho License Agreement, J&JDC
purchased 1.5 million shares of Series A Preferred Stock for $15.0 million. On
or before June 30, 1998, each share of the Series A Preferred Stock will be
converted into shares of Common Stock based upon the lower of the average price
of Common Stock at the time of conversion or $20.00 per share. Prior to
conversion, each share of Series A Preferred Stock is entitled to one-half vote
on matters on which shareholders are entitled to vote. The Series A Preferred
Stock carries a cumulative annual cash dividend of $0.50 per share. Ortho also
obtained a three-year warrant to purchase 300,000 shares of Common Stock at
$15.00 per share.
The Company intends to enter into a collaborative relationship for IMAGENT
US, an ultrasound contrast agent for which the Company expects to begin clinical
trials in the near future.
The Company entered into a license agreement with Glaxo for the use of
certain of the Company's fluorinated surfactants in metered dose inhalers that
deliver Glaxo's respiratory drug formulations. Glaxo is responsible for the
development and marketing of metered dose inhaler products incorporating the
Company's surfactants. The agreement provides for an initial license fee and
milestone payments to Alliance, which are not expected to exceed $2.5 million in
the aggregate, with royalties, if any, to Alliance following commercialization.
There can be no assurances that the Company will be able to enter into
future collaborative relationships on acceptable terms. The termination of any
collaborative relationship or failure to enter into such relationships may limit
the ability of the Company to develop its technology and may have a material
adverse effect on the Company's business.
MARKETING
Under the terms of the Ortho License Agreement, Ortho has exclusive
worldwide marketing rights to OXYGENT and any other injectable PFC emulsion
products capable of transporting oxygen for therapeutic use. Upon consummation
of the HMRI transactions, HMRI will have exclusive worldwide marketing rights to
the intratracheal administration of liquids, including LIQUIVENT, which perform
bronchoalveolar lavage or liquid ventilation. The Company has not yet selected
its marketing partner for IMAGENT US. The Company's only commercialized product,
SAT PAD, is currently distributed through certain distributors of MR imaging
equipment and imaging products.
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MANUFACTURING
The Company manufactures all of its products for preclinical testing and
clinical trials. OXYGENT is produced in Alliance's San Diego facility, which
includes both a pilot plant and a production-scale manufacturing facility. The
Company believes that this production facility will provide sufficient capacity
for future clinical trials and market launch of OXYGENT, if and when approved by
the FDA. However, a larger commercial-scale facility will be required in the
future. Under the terms of the Ortho License Agreement, Ortho has the right to
elect to manufacture OXYGENT itself or have the Company continue to do so, which
election must be made at or prior to the filing of an NDA. If Alliance
manufactures OXYGENT for Ortho, the transfer price, which will not be less than
Alliance's fully burdened cost, will be determined by Ortho's net sales price
for the product. The Company has not selected a commercial-scale site or
obtained any regulatory approvals. Construction of such a facility will depend
upon Ortho's decision regarding manufacturing, product development, capital
resources, and regulatory approvals, among other things.
LIQUIVENT is manufactured for clinical trials at the Company's Otisville,
New York facility. LIQUIVENT is the same drug substance as IMAGENT GI, for which
Alliance obtained FDA approval in August 1993 as an oral contrast agent for MR
imaging. As a result, certain chemistry, manufacturing, and control requirements
have been accepted by the FDA, which may benefit the Company in the regulatory
review process. The HMRI License Agreement requires the Company to manufacture
LIQUIVENT at its Otisville facility for a period of time after market launch at
a negotiated price. HMRI will be responsible for establishing production
capacity beyond the maximum capacity of the Otisville facility.
IMAGENT US is manufactured for clinical studies at the San Diego facility,
using a proprietary process to form dry, PFC vapor-containing spheres which are
reconstituted with sterile water to form microbubbles just prior to use. The
facility is expected to provide sufficient capacity for clinical trials and
market launch.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company has obtained perflubron, the principal raw material utilized in
OXYGENT and LIQUIVENT, from several large chemical suppliers, and believes that
it has sufficient inventory of the drug substance for clinical trials. HMRI and
Ortho have indicated an intent to secure a long-term supply of perflubron from
manufacturers. The Company believes it has a sufficient supply of raw materials
for IMAGENT US for clinical trials. The Company's business could be materially
and adversely affected if it or its collaborative partners were unable to obtain
necessary raw materials on a timely basis and at a cost-effective price.
PATENTS
The Company seeks proprietary protection for its products, processes,
technologies, and ongoing improvements. The Company is pursuing patent
protection in the United States and in foreign countries that it regards as
important for future endeavors. Numerous patent applications have been filed in
the European Patent Office, Australia, Canada, Ireland, Israel, Japan, Norway,
and South Africa, and patents have been granted in some of these countries.
The Company has seven issued U.S. patents related to or covering PFC
emulsions. Such emulsions are the basis of the Company's OXYGENT products. The
issued patents and other pending patent applications cover specific details of
emulsified PFCs, and include product-by-process claims, method claims describing
their manufacture and use, and some composition claims. These broadly cover high
concentration PFC emulsions, typically 40-125% weight per volume (although some
are limited to 75-125% weight per volume), and manufacturing methods.
In September 1994, Alliance received a U.S. patent for its preferred method
of using blood substitutes to facilitate oxygen delivery. A related U.S. patent
was issued in September 1995. Corresponding patents are pending in Europe,
Japan, and other countries. The issued claims cover methods for facilitating
autologous blood use in conjunction with administering oxygen-enriched gas and
oxygen carriers that contain fluorochemicals, as well as those derived from
human, animal, plant, or recombinant hemoglobin, in order to reduce or eliminate
the need for allogeneic blood transfusions during surgery.
The Company has filed U.S. and foreign patent applications on its method of
using oxygen-carrying PFCs to enhance respiratory gas exchange utilizing
conventional gas ventilators. In August 1995, a U.S. patent licensed to the
Company issued. The patent covers a method of administering liquids, including
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LIQUIVENT, to patients. Another U.S. patent, covering other methods of
administration of liquids, including LIQUIVENT, to patients, was issued in
February 1996. The Company has patent applications pending which seek to cover
the use of PFCs to deliver drugs to the lungs and to wash debris from, and open,
collapsed lungs. In November 1995, the Company received a U.S. patent covering
the use of fluorochemicals to treat localized and systemic inflammation. The
Company also has patent applications pending that cover apparati for liquid
ventilation using PFCs.
The Company has filed eight U.S. patent applications related to IMAGENT US
concerning the composition, manufacture, and use of novel stabilized microbubble
compositions, which include applications based on its discovery that PFC gases,
in combination with appropriate surfactants, can stabilize microbubbles for use
in ultrasonic imaging. International applications directed to the same subject
matter have also been filed.
The Company has patents that have issued in the United States and abroad,
and additional pending patents, covering its novel fluorinated surfactants.
These compounds may be useful in oxygen-carrying or drug-transport compositions,
and in liposomal formulations that have therapeutic and diagnostic applications.
Additional fluorinated compounds disclosed in pending applications may be
employed in cosmetics, protective creams, and lubricating agents. Compositions
that can be structured as emulsions, microemulsions, and gels may be useful as
contrast enhancement agents for radiography and scintigraphy. The Company also
has pending applications relating to microstructures (tubules, helixes, fibers)
that may have uses in the fields of medicine, biomolecular engineering,
microelectronics, and electro-optics.
Aside from the issued patents and allowed applications referred to above,
however, no assurance can be given that any of these applications will result in
issued U.S. or foreign patents. Although patents are issued with a presumption
of validity and require a challenge with a high degree of proof to establish
invalidity, no assurance can be given that any issued patents would survive such
a challenge and would be valid and enforceable.
The Company also attempts to protect its proprietary products, processes,
and other information by relying on trade secret laws and non-disclosure and
confidentiality agreements with its employees, consultants, and certain other
persons who have access to such products, processes, and information. The
agreements affirm that all inventions conceived by employees are the exclusive
property of the Company, with the exception of inventions unrelated to the
Company's business and developed entirely on the employee's own time.
Nevertheless, there can be no assurance that these agreements will afford
significant protection against or adequate compensation for misappropriation or
unauthorized disclosure of the Company's trade secrets.
COMPETITION
Biotechnology and pharmaceutical companies are highly competitive. There are
many pharmaceutical companies, biotechnology companies, public and private
universities, and research organizations actively engaged in research and
development of products that may be similar to Alliance's products. Many of the
Company's existing or potential competitors have substantially greater
financial, technical, and human resources than the Company and may be better
equipped to develop, manufacture, and market products. These companies may
develop and introduce products and processes competitive with or superior to
those of the Company. In addition, other technologies or products may be
developed that have an entirely different approach or means of accomplishing the
intended purposes of the Company's products, which might render the Company's
technology and products uncompetitive or obsolete. There can be no assurance
that the Company will be able to compete successfully.
Well-publicized side effects associated with the transfusion of human donor
blood have spurred efforts to develop a blood substitute. Two primary approaches
have shown promise as temporary oxygen carriers: PFC emulsions and hemoglobin
solutions. Hemoglobin development efforts include chemically modified,
stroma-free hemoglobin from human or bovine red blood cells, and the use of
genetic engineering to produce recombinant hemoglobin. There are several
companies working on hemoglobin solutions as a blood substitute, three of which
have entered Phase II clinical trials. One major U.S. pharmaceutical company is
collaborating with a company developing a recombinant hemoglobin-based blood
substitute. Alliance is aware of two other companies developing PFC-based
temporary oxygen carriers, one of which has entered Phase I clinical trials. The
Company believes that the relatively low cost and ease of production of OXYGENT
provide advantages over hemoglobin-based products.
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Although liquid ventilation therapy has been in the research phase for the
last two decades, the Company is unaware of any potential competitor that has
reached the clinical trial stage. However, other companies may be evaluating
compounds with the possibility of entering this field. If major manufacturers of
PFCs entered the field, the Company could face competition from companies with
substantially greater resources. The Company believes that its patent position
and stage of research and development give it an advantage over these potential
competitors. Alliance is aware of other companies that are attempting to develop
alternative types of therapies for treatment of acute respiratory failure.
Competition in the development of ultrasound imaging contrast agents is
intense and is expected to increase. There is currently only one commercially
available ultrasound imaging contrast agent for certain cardiology applications.
The Company believes that other companies are in advanced clinical trials with
ultrasound contrast agents. The Company expects that competition in the
ultrasound contrast imaging agent field will be based primarily on the product's
safety profile, efficacy, stability, ease of administration, breadth of approved
indications, and physician, healthcare payor, and patient acceptance. Although
the Company believes that if and when IMAGENT US is approved for commercial sale
it will be well positioned to compete successfully, there can be no assurance
that the Company will be able to do so.
PRODUCT LIABILITY CLAIMS AND UNINSURED RISKS
The sale or use of the Company's present products and any other products or
processes that may be developed or sold by the Company may expose the Company to
potential liability from claims by end-users of such products or by
manufacturers or others selling such products, either directly or as a component
of other products. While the Company has product liability insurance, there can
be no assurance that the Company will continue to maintain such insurance or
that it will provide adequate coverage. If the Company is held responsible for
damages in a product liability suit, the Company's financial condition could be
materially and adversely affected.
GOVERNMENT REGULATION
The Company's products require governmental approval before production and
marketing can commence. The regulatory approval process is administered by the
FDA in the United States and by similar agencies in foreign countries. The
process of obtaining regulatory clearances or approvals is costly and time
consuming. The Company cannot predict how long the necessary clearances or
approvals will take or whether it will be successful in obtaining them.
Generally, all potential pharmaceutical products must successfully complete
two major stages of development (preclinical and clinical testing) prior to
receiving marketing approval by the governing regulatory agency. In preclinical
testing, potential compounds are tested both IN VITRO and in animals to gain
safety information prior to administration in humans. Knowledge is obtained
regarding the effects of the compound on bodily functions as well as its
absorption, distribution, metabolism, and elimination.
Clinical trials are typically conducted in three sequential phases, although
the phases may overlap. In Phase I, which frequently begins with the initial
introduction of the drug into healthy human subjects prior to introduction into
patients, the compound will be tested for safety and dosage tolerance. Phase II
typically involves studies in a somewhat larger patient population to identify
possible adverse effects and safety risks, to begin gathering preliminary
efficacy data, and to investigate potential dose sizes and schedules. Phase III
trials are undertaken to further evaluate clinical efficacy and to further test
for safety within an expanded patient population. Each trial is conducted in
accordance with certain standards under protocols that detail the objectives of
the study, the parameters to be used to monitor safety, and the efficacy
criteria to be evaluated. Each protocol must be submitted to the FDA as part of
the IND. Further, each clinical study must be evaluated by an independent review
board at the institution at which the study will be conducted. The review board
will consider, among other things, ethical factors, the safety of human
subjects, and the possible liability of the institution.
Following completion of these studies, a new drug application must be
submitted to and approved by the FDA in order to market the product in the
United States. Similar applications are required in foreign
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countries. There can be no assurance that, upon completion of the foregoing
trials, the results will be considered adequate for government approval. If and
when approval is obtained to market a product, the FDA's (or applicable foreign
agency's) regulations will govern manufacturing and marketing activities.
The FDA has established a designation to speed the availability of new
therapies for life-threatening or severely debilitating diseases. This
designation, defined in Subpart E of the FDA's investigational new drug
regulations, may expedite clinical evaluation and regulatory review of some new
drugs, such as LIQUIVENT, which has been so designated.
Perflubron is an eight-carbon halogenated fluorocarbon liquid. Certain
halogenated fluorocarbons (primarily the gaseous chlorofluorocarbons) have been
implicated in stratospheric ozone depletion. The FDA issued a Finding of No
Significant Impact under the National Environmental Protection Act in connection
with the approval for marketing IMAGENT GI. See "Business -- Manufacturing."
However, all materials contained in the Company's products remain subject to
regulation by governmental agencies.
In addition to FDA regulation, the Company is subject to regulation by
various governmental agencies including, without limitation, the Drug
Enforcement Administration, the U.S. Department of Agriculture, the
Environmental Protection Agency, the Occupational Safety and Health
Administration, and the California State Department of Health Services, Food and
Drug Branch. Such regulation, by governmental authorities in the United States
and other countries, may impede or limit the Company's ability to develop and
market its products.
LEGAL PROCEEDINGS
During September 1992, the Company and certain of its officers and directors
were named as defendants in several lawsuits filed in the U.S. District Court
for the Southern District of California by certain shareholders. The actions
were consolidated into one class action lawsuit titled "In re Alliance
Pharmaceutical Securities Litigation." The complaint claimed, among other
things, that the defendants failed to disclose certain problems with two of the
Company's products under development, which conduct is alleged to have portrayed
falsely the Company's financial condition. On May 25, 1995, summary judgment was
granted in favor of the Company and its officers and directors. Attorneys for
the plaintiffs have appealed the decision. A hearing on the appeal has not yet
been scheduled. The Company believes the eventual outcome of the litigation will
not have a material adverse effect on the Company's financial condition.
25
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME POSITION
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Duane J. Roth Chairman of the Board of Directors, President, Chief
Executive Officer
Harold W. DeLong Executive Vice President -- Business Development
Theodore D. Roth Executive Vice President, Chief Financial Officer,
Secretary
B. Jack DeFranco Vice President -- Market Planning
N. Simon Faithfull, M.D., Ph.D. Vice President -- Medical Research
Henry A. Graham, Ph.D. Vice President -- Operations
Ronald M. Hopkins, Ph.D. Vice President -- Research and Development
Gordon L. Schooley, Ph.D. Vice President -- Clinical Research and Regulatory
Affairs
Elias Lazarides, Ph.D. President and Chief Operating Officer of Astral, Inc.
Carroll O. Johnson Director
Stephen M. McGrath Director
Donald E. O'Neill Director
Helen M. Ranney, M.D. Director
Jean G. Riess, Ph.D. Director
Thomas F. Zuck, M.D. Director
</TABLE>
DUANE J. ROTH. Mr. Roth, who is 46, has been President and Chief Executive
Officer since 1985 and Chairman since October 1989. Prior to joining Alliance,
Mr. Roth served as President of Analytab Products, Inc., an American Home
Products company involved in manufacturing and marketing medical diagnostics,
pharmaceuticals and devices. For the previous ten years, he was employed in
various sales, marketing, and general management capacities by Ortho Diagnostic
Systems, Inc., a Johnson & Johnson company, which is a manufacturer of
diagnostic and pharmaceutical products. Mr. Roth's brother, Theodore D. Roth, is
an Executive Vice President of the Company.
HAROLD W. DELONG. Mr. DeLong, who is 47, has been Executive Vice President
- -- Business Development for the Company since February 1989. Mr. DeLong has been
employed for more than 20 years in the medical diagnostics and pharmaceutical
industry in various sales, marketing, and management positions. Prior to joining
Alliance, Mr. DeLong was Vice President, Sales and Marketing for Murex
Corporation, a company participating in the infectious disease diagnostics
market. He previously served as Director, Sales and Marketing for Becton
Dickinson's Immunocytometry Systems division. Mr. DeLong was also previously
employed by Ortho Diagnostic Systems, Inc., for over ten years, where his last
position was Director of the Hemostasis and Chemistry Products business units.
THEODORE D. ROTH. Mr. Roth, who is 44, has been Executive Vice President
and Chief Financial Officer of the Company since November 1987 and Secretary
since 1990. For more than ten years prior to joining the Company, he was General
Counsel of SAI Corporation, a company in the business of operating manufacturing
concerns, and General Manager of Holland Industries, Inc., a manufacturing
company. Mr. Roth received his J.D. from Washburn University and an LL.M. in
Corporate and Commercial Law from the University of Missouri in Kansas City. He
is the brother of Duane J. Roth, the Chairman of the Company.
26
<PAGE>
B. JACK DEFRANCO. Mr. DeFranco, who is 50, has been Vice President --
Market Planning for Alliance since January 1991. He has more than 20 years
experience in sales and marketing in the medical products industry. He was
President of Orthoconcept Inc., a private firm marketing orthopedic and
urological devices from 1986 through 1990. Prior to 1986, he was Director of
Marketing and New Business Development for Smith and Nephew Inc., which markets
orthopedic and general wound-care products and he served in various sales and
marketing positions with Ortho Diagnostic Systems, Inc. Mr. DeFranco received an
M.B.A. from Fairleigh Dickinson University.
N. SIMON FAITHFULL, M.D., PH.D. Dr. Faithfull, who is 55, has been Vice
President -- Medical Research for the Company since September 1990. Dr.
Faithfull joined Alliance after serving as Director of Medical Research for
Delta Biotechnology Ltd. from 1989 to 1990. He has also served as Senior
Lecturer in Anesthesia at the University of Manchester (UK), and has held
various academic appointments and clinical anesthesia positions at Erasmus
University (Netherlands), Tulane University and the University of Alabama
(Birmingham) for more than 15 years. He has served as Secretary of the
International Society on Oxygen Transport to Tissue. He received his Ph.D. from
Erasmus University, Rotterdam and his M.D. from London University.
HENRY A. GRAHAM, PH.D. Dr. Graham, who is 52, has been Vice President --
Operations since January 1990. In his more than 20 years in industrial research,
he has directed groups involved in the development of biological and
immunodiagnostic products. Prior to joining Alliance, he worked for Johnson &
Johnson for 17 years on a broad range of projects including injectable human
biologicals, immunohematology reagents, immunoassay reagents and instrument
systems. Dr. Graham was Director of Product Development for Ortho Diagnostic
Systems, Inc. for at least five years prior to 1990. During his tenure at
Johnson & Johnson, he was the recipient of several awards, including the
Corporate Medal for Outstanding Research. Dr. Graham received a Ph.D. in
immunology from Rutgers University.
RONALD M. HOPKINS, PH.D. Dr. Hopkins, who is 54, has been Vice President --
Research and Development since May 1990. Prior to joining Alliance, Dr. Hopkins
spent 20 years with Mallinckrodt Medical, Inc. As Vice President at Mallinckrodt
his responsibilities primarily involved identification and development of
various diagnostic x-ray, magnetic resonance, ultrasound and radiopharmaceutical
imaging agents as well as angiographic catheters. In addition to product and
business development experience, Dr. Hopkins has an extensive background in
cardiovascular pharmacology and toxicology research, as well as sterile
pharmaceutical formulation and production. Dr. Hopkins received a Ph.D. in
pharmacology from the University of Maryland.
GORDON L. SCHOOLEY, PH.D. Dr. Schooley, who is 49, has been Vice President
- -- Clinical Research and Regulatory Affairs since January 1989. Dr. Schooley has
been employed for over 20 years in research and development in the
pharmaceutical industry. Prior to joining Alliance in 1989, Dr. Schooley was
Vice President of Clinical Research and Regulatory Affairs for Newport
Pharmaceuticals, a company developing antiviral drugs. For the previous eight
years, he was Director of Clinical Research and Biostatistics for Allergan
Pharmaceuticals, a division of SmithKline Beecham, developing ophthalmologic and
dermatologic drugs and devices. He was also employed by McGaw Laboratories as
Manager of Biostatistics for parenteral products and by The Upjohn Company as a
senior biostatistician for analgesic and CNS drugs. Dr. Schooley received a
Ph.D. from the University of Michigan School of Public Health.
ELIAS LAZARIDES, PH.D. President & COO, Astral, Inc. ("Astral"). Dr.
Lazarides, who is 46, joined Astral in November 1994. Prior to joining Astral,
Dr. Lazarides was Executive Director of Pharmacology at Merck Research
Laboratories, where he managed a very broad range of drug discovery programs in
cardiovascular and ocular pharmacology. Dr. Lazarides joined the Division of
Biology at the California Institute of Technology in 1977, where he was promoted
to Professor in 1985. He has been the recipient of numerous awards and academic
honors, including an NIH Career Development Award, a Camille and Henry Dreyfus
Foundation Teacher-Scholar Award, the Achievement Award of the Tokyo Society of
Medical Sciences. Dr. Lazarides received his B.S. from Wesleyan University in
Connecticut and a Ph.D. from Harvard University.
27
<PAGE>
CARROLL O. JOHNSON. Mr. Johnson is 62 and has served as a director of the
Company since 1989. He has been President of Research Management, Inc. since
1985, an independent contract research organization which provides services to
the pharmaceutical industry in the implementation of clinical trials.
Previously, he served for 25 years in various research, sales and marketing
positions with several pharmaceutical companies, including Pharmacia
Laboratories, Inc., where he created a national sales force which introduced
three major products.
STEPHEN M. MCGRATH. Mr. McGrath is 60 and has served as a director of the
Company since 1989. He is an Executive Vice President of Oppenheimer & Co., Inc.
and serves as the Director of its Corporate Finance Department. For the eleven
years prior to his employment by Oppenheimer & Co., Inc. in 1983, he held
various executive positions with Warner-Lambert Company. Before joining
Warner-Lambert Company, Mr. McGrath was Controller and Assistant Treasurer of
Sterling Drug, Inc. and a certified public accountant for Price Waterhouse & Co.
He is a director of PetroCorp, Inc.
DONALD E. O'NEILL. Mr. O'Neill is 70 and has served as a director of the
Company since 1991. He retired from Warner-Lambert Company in 1991 after 20
years of service. During his tenure, he held various managerial positions,
including President of the Parke-Davis Group, President of the Health
Technologies Group and President -- International Operations. At the time of his
retirement from Warner-Lambert Company, he held the offices of Executive Vice
President of the corporation and President and Chairman of its International
Operations. He is a director of New Jersey Resources Corporation, Targeted
Genetics Corp., Scios-Nova, Inc., MDL Information Systems, Inc., Immunogen,
Inc., Fuisz Technologies Ltd. and Cytogen Corp.
HELEN M. RANNEY, M.D. Dr. Ranney is 75 and has served as a director of the
Company since 1991. She is Professor EMERITA, Department of Medicine, University
of California at San Diego, having served as Chairman of the Department from
1973 through 1986. From 1986 through 1991, she was Distinguished Physician of
the U.S. Department of Veterans Affairs. She formerly was Professor of Medicine
at Albert Einstein College of Medicine (New York) and at the State University of
New York, Buffalo. Dr. Ranney is a member of many professional societies,
including the National Academy of Sciences, the Institute of Medicine, the
Association of American Physicians (past President) and the American Society of
Hematology (past President). She has more than 150 publications, primarily
relating to blood and blood disorders. Dr. Ranney served on the Board of
Directors of Squibb Corp. prior to its merger with Bristol-Myers. She received
her M.D. from the College of Physicians and Surgeons, Columbia University.
JEAN G. RIESS, PH.D. Professor Riess is 59 and has served as a director of
the Company since 1989. He has been the Director of Laboratoire de Chimie
Moleculaire at the University of Nice for over 20 years. He has been an active
researcher since receiving a Ph.D. from the University of Strasbourg, with
numerous patents and over 300 publications. For more than 20 years Dr. Riess has
focused on chemistry related to perfluorochemical emulsions for medical
application. In this field, his research group has been active in synthesis of
tailored perfluorochemicals, in emulsion technology, in synthesis of fluorinated
surfactants, in the physical chemistry of emulsion stabilization and in
surfactant self-aggregation. Dr. Riess is responsible for the Corporation's
research efforts at its affiliated company, Applications et Transferts de
Technologies Avancees in Nice, France.
THOMAS F. ZUCK, M.D. Dr. Zuck is 62 and has served as a director of the
Company since 1990. He is Professor of Transfusion Medicine and Director of
Hoxworth Blood Center at the University of Cincinnati Medical Center and is
President of Ohio Enterprises International, Inc., a consulting company. Dr.
Zuck was formerly director of the Division of Blood and Blood Products at the
Office of Biologics Research & Review within the U.S. Food and Drug
Administration. He has served in numerous scientific professional societies,
including as President of the American Association of Blood Banks and the
Council of Community Blood Centers. He was Editor-in-Chief of the journal
TRANSFUSION and has more than 100 publications to his credit. Dr. Zuck is a
retired U.S. Army Colonel, where he was a Commander of the Letterman Army
Institute of Research and, for many years, involved with the Army's blood
substitute development program. Dr. Zuck received his LL.B. from Yale Law School
and his M.D. from Hahnemann Medical College.
28
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement between
the Company and Lehman Brothers Inc., Cowen & Company and Oppenheimer & Co.,
Inc., as the Representatives, the Underwriters named below have severally agreed
to purchase from the Company, and the Company has agreed to sell to the
Underwriters, the respective numbers of shares of Common Stock set forth
opposite their names:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------------------------------------------------------------ ------------
<S> <C>
Lehman Brothers Inc.......................................................................
Cowen & Company...........................................................................
Oppenheimer & Co., Inc....................................................................
------------
Total................................................................................. 2,500,000
------------
------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase and pay for all of the
above shares of Common Stock if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus, and at such price less a concession not in excess of $[ ] per
share of Common Stock to certain dealers who are members of the National
Association of Securities Dealers, Inc. The Underwriters may allow, and such
dealers may re-allow, discounts not in excess of $[ ] per share of Common
Stock to certain other dealers. After this offering to the public, the offering
price and selling terms may be changed by the Representatives.
The Underwriters have been granted a 30-day over-allotment option to
purchase up to an aggregate of 375,000 additional shares of Common Stock,
exercisable at the public offering price less the underwriting discount. If the
Underwriters exercise such over-allotment option, then each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage thereof as the number of shares of Common
Stock to be purchased by it as shown in the above table bears to the 2,500,000
shares of Common Stock offered hereby. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of the shares of
Common Stock offered hereby.
Certain of the Underwriters and selling group members (if any) that
currently act as market makers for the Common Stock may engage in "passive
market making" in the Common Stock on Nasdaq in accordance with Rule 10b-6A
under the Exchange Act. Rule 10b-6A permits, upon the satisfaction of certain
conditions, underwriters and selling group members participating in a
distribution that are also Nasdaq market makers in the security being
distributed to engage in limited market making transactions during the period
when Rule 10b-6 under the Exchange Act would otherwise prohibit such activity.
Rule 10b-6A prohibits underwriters and selling group members engaged in passive
market making generally from entering a bid or effecting a purchase at a price
that exceeds the highest bid for those securities reported on Nasdaq by a market
maker that is not participating in the distribution. Under Rule 10b-6A, each
underwriter or selling group member engaged in passive market making is subject
to a daily net purchase limitation equal to 30% of such entity's average daily
trading volume during the two full consecutive calendar months immediately
preceding the date of the filing of the registration statement under the
Securities Act pertaining to the security to be distributed.
29
<PAGE>
The foregoing shall not prohibit any participants in the distribution from
making any purchases of securities otherwise permitted by Rule 10b-6 under the
Exchange Act. Such exemptive relief also requires that such firms not engage in
transactions for the purpose of creating actual or apparent active trading.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act, and to
contribute in respect thereof.
Stephen M. McGrath, a Director of the Company, is an Executive Vice
President of Oppenheimer & Co., Inc. and serves as Director of its Corporate
Finance Department. Oppenheimer & Co., Inc. is currently assisting the Company
in its search for a strategic partner to develop and market IMAGENT US on a
worldwide basis. Oppenheimer & Co., Inc. and certain related parties currently
hold warrants to acquire approximately 174,000 shares of Common Stock. See
"Business -- Marketing."
Lehman Brothers Inc. assisted the Company in obtaining the License
Agreements and has earned fees payable by the Company in connection with such
transactions.
The Company and certain of its officers and directors of the Company have
agreed that they will not, directly or indirectly, offer, sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for, or any rights to purchase or acquire, Common
Stock for a period of 90 days after the date of this Prospectus, without the
prior written consent of Lehman Brothers Inc.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Stroock & Stroock & Lavan and for the
Underwriters by Shearman & Sterling. The information under "Risk Factors" and
"Business -- Patents" with respect to patents and patent laws has been passed
upon by Knobbe, Martens, Olson & Bear.
EXPERTS
The consolidated financial statements of Alliance Pharmaceutical Corp. at
June 30, 1994 and 1995, and for each of the two years in the period then ended,
appearing and incorporated by reference in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein and incorporated herein
by reference, and are included and incorporated herein by reference in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The consolidated financial statements of Alliance Pharmaceutical Corp. for
the year ended June 30, 1993, appearing and incorporated by reference in this
Prospectus and Registration Statement from the Company's Annual Report on Form
10-K for the year ended June 30, 1995, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report, which is also included and
incorporated herein by reference. Such financial statements have been so
included and incorporated by reference in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
30
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................................................... F-2
Report of Deloitte & Touche LLP, Independent Auditors...................................................... F-3
Consolidated Balance Sheets at June 30, 1994 and 1995 and December 31, 1995 (unaudited).................... F-4
Consolidated Statements of Operations for each of the three years in the period ended June 30, 1995 and for
the six months ended December 31, 1994 and 1995 (unaudited)............................................... F-5
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended June 30,
1995 and the six months ended December 31, 1995 (unaudited)............................................... F-6
Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 1995 and the
six months ended December 31, 1994 and 1995 (unaudited)................................................... F-7
Notes to Consolidated Financial Statements................................................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Alliance Pharmaceutical Corp.
We have audited the accompanying consolidated balance sheets of Alliance
Pharmaceutical Corp. and subsidiaries as of June 30, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two years in the period ended June 30, 1995. 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. The consolidated financial statements of Alliance Pharmaceutical
Corp. and subsidiaries for the year ended June 30, 1993, were audited by other
auditors whose report, dated July 27, 1993, expressed an unqualified opinion on
those statements.
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 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 1995 and 1994 financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Alliance Pharmaceutical Corp. and subsidiaries at June 30, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended June 30, 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
July 26, 1995
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Alliance Pharmaceutical Corp.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Alliance Pharmaceutical Corp. and
Subsidiaries (the "Company") for the year ended June 30, 1993. 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 audit.
We conducted our audit 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
misstatements. 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of the Company's operations and its cash
flows for the year ended June 30, 1993, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
July 27, 1993
F-3
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------
1994 1995
--------------- --------------- DECEMBER 31,
1995
---------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 1,902,000 $ 12,519,000 $ 4,763,000
Short-term investments (Note 3)............................ 19,154,000 10,964,000 7,959,000
Research revenue receivable (Note 5)....................... -- 2,060,000 2,020,000
Inventories and other current assets (Note 2).............. 1,349,000 1,913,000 1,778,000
--------------- --------------- ---------------
Total current assets..................................... 22,405,000 27,456,000 16,520,000
Property, plant and equipment -- net (Note 2)................ 10,165,000 9,946,000 10,542,000
Purchased technology -- net (Note 1)......................... 19,385,000 17,371,000 16,725,000
Other assets -- net.......................................... 1,177,000 1,257,000 1,105,000
--------------- --------------- ---------------
$ 53,132,000 $ 56,030,000 $ 44,892,000
--------------- --------------- ---------------
--------------- --------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 1,074,000 $ 2,509,000 $ 1,821,000
Accrued expenses (Note 2).................................. 1,885,000 2,601,000 2,873,000
Current portion of long-term debt.......................... -- -- 682,000
--------------- --------------- ---------------
Total current liabilities................................ 2,959,000 5,110,000 5,376,000
Long-term debt (Note 7)...................................... -- -- 1,314,000
Other........................................................ 348,000 843,000 1,199,000
Commitments and contingencies (Note 7)
Stockholders' equity (Notes 4 and 5):
Preferred stock -- $.01 par value; 5,000,000 shares
authorized; 1,500,000 issued and outstanding at June 30,
1995 and December 31, 1995, respectively.................. -- 15,000 15,000
Common stock -- $.01 par value; 50,000,000 shares
authorized; 21,372,054, 24,759,150 and 24,916,691 shares
issued and outstanding at June 30, 1994 and 1995 and
December 31, 1995, respectively........................... 214,000 248,000 249,000
Additional paid-in capital................................. 208,954,000 238,874,000 240,505,000
Accumulated deficit........................................ (159,343,000) (189,060,000) (203,766,000)
--------------- --------------- ---------------
Total stockholders' equity............................... 49,825,000 50,077,000 37,003,000
--------------- --------------- ---------------
$ 53,132,000 $ 56,030,000 $ 44,892,000
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
---------------------------------------------- ------------------------------
1993 1994 1995 1994 1995
-------------- -------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License and research revenue (Note
5)................................ $ 2,320,000 $ 163,000 $ 11,640,000 $ 7,100,000 $ 4,110,000
Product revenue -- net............. 50,000 246,000 176,000 109,000 76,000
-------------- -------------- -------------- -------------- --------------
2,370,000 409,000 11,816,000 7,209,000 4,186,000
Operating expenses:
Research and development........... 24,767,000 31,605,000 35,063,000 19,129,000 15,562,000
General and administrative......... 6,405,000 7,312,000 7,085,000 3,804,000 3,385,000
-------------- -------------- -------------- -------------- --------------
31,172,000 38,917,000 42,148,000 22,933,000 18,947,000
-------------- -------------- -------------- -------------- --------------
Loss from operations................. (28,802,000) (38,508,000) (30,332,000) (15,724,000) (14,761,000)
Investment and other income -- net... 2,422,000 1,562,000 1,209,000 575,000 430,000
-------------- -------------- -------------- -------------- --------------
Net loss............................. (26,380,000) (36,946,000) (29,123,000) (15,149,000) (14,331,000)
Dividends on preferred stock......... -- -- (594,000) (219,000) (375,000)
-------------- -------------- -------------- -------------- --------------
Net loss applicable to common
shares.............................. $ (26,380,000) $ (36,946,000) $ (29,717,000) $ (15,368,000) $ (14,706,000)
-------------- -------------- -------------- -------------- --------------
Net loss per common share............ $ (1.39) $ (1.83) $ (1.35) $ (0.72) $ (0.59)
-------------- -------------- -------------- -------------- --------------
Weighted average number of common
shares outstanding.................. 18,946,000 20,226,000 21,959,000 21,385,000 24,851,000
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL
CONVERTIBLE ARISING FROM
PREFERRED STOCK COMMON STOCK ADDITIONAL ACQUISITION
---------------------- -------------------- PAID-IN OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL SUBSIDIARY DEFICIT
--------- ----------- --------- --------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1992................ 18,817,000 $ 188,000 $188,838,000 $ 1,544,000 $(96,017,000)
Exercise of stock options and warrants... 109,000 1,000 449,000
Installment payment related to
acquisition of BioPulmonics, Inc........ 69,000 1,000 876,000 (744,000)
Issuance of stock in satisfaction of
employer matching contribution to 401(k)
savings plan............................ 5,000 61,000
Amortization of deferred compensation.... 327,000
Net loss................................. (26,380,000)
--------- ----------- --------- --------- ----------- ------------- ------------
Balances at June 30, 1993................ 19,000,000 190,000 190,551,000 800,000 (122,397,000)
Sale of common stock..................... 2,180,000 22,000 15,228,000
Exercise of stock options and warrants... 75,000 1,000 199,000
Installment payment related to
acquisition of BioPulmonics, Inc........ 105,000 1,000 921,000 (800,000)
Issuance of warrants in connection with
acquisition of product rights........... 1,840,000
Issuance of stock in satisfaction of
employer matching contribution to 401(k)
savings plan............................ 12,000 95,000
Amortization of deferred compensation.... 120,000
Net loss................................. (36,946,000)
--------- ----------- --------- --------- ----------- ------------- ------------
Balances at June 30, 1994................ 21,372,000 214,000 208,954,000 (159,343,000)
Sale of convertible preferred stock...... 1,500,000 $ 15,000 14,618,000
Sale of common stock..................... 3,175,000 32,000 14,262,000
Exercise of stock options and warrants... 56,000 1,000 36,000
Installment payment related to
acquisition of BioPulmonics, Inc........ 131,000 1,000 999,000
Issuance of stock in satisfaction of
employer matching contribution to 401(k)
savings plan............................ 25,000 150,000
Net unrealized loss on available-for-sale
securities.............................. (145,000)
Dividends on preferred stock............. (594,000)
Net loss................................. (29,123,000)
--------- ----------- --------- --------- ----------- ------------- ------------
Balances at June 30, 1995................ 1,500,000 15,000 24,759,000 248,000 238,874,000 (189,060,000)
Exercise of stock options and warrants
(unaudited)............................. 108,000 1,000 843,000
Issuance of stock in connection with
purchased technology (unaudited)........ 50,000 750,000
Net unrealized gain on available-for-sale
securities (unaudited).................. 38,000
Dividends on preferred stock
(unaudited)............................. (375,000)
Net loss (unaudited)..................... (14,331,000)
--------- ----------- --------- --------- ----------- ------------- ------------
Balances at December 31, 1995
(unaudited)............................. 1,500,000 $ 15,000 24,917,000 $ 249,000 $240,505,000 $(203,766,000)
--------- ----------- --------- --------- ----------- ------------- ------------
--------- ----------- --------- --------- ----------- ------------- ------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------------- ------------------------
1993 1994 1995 1994 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss.................................... $(26,380,000) $(36,946,000) $(29,123,000) $(15,149,000) $(14,331,000)
----------- ----------- ----------- ----------- -----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 2,633,000 3,073,000 2,859,000 1,458,000 1,520,000
Non-cash compensation -- net.............. 388,000 215,000 150,000 163,000
Acquired research and development......... 1,686,000 1,686,000 757,000
Changes in operating assets and
liabilities:
Research revenue receivable............. (3,100,000) 40,000
Inventories and other................... (1,628,000) 1,331,000 (2,728,000) (281,000) 172,000
Accounts payable and accrued expenses
and other.............................. 330,000 285,000 1,459,000 722,000 (434,000)
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities......... (24,657,000) (32,042,000) (25,697,000) (14,664,000) (12,113,000)
----------- ----------- ----------- ----------- -----------
Financing activities:
Issuance of common and preferred stock and
warrants................................... 450,000 15,450,000 29,557,000 14,859,000 675,000
Proceeds from long-term debt................ 2,208,000
Payments on long-term debt.................. (149,000) (3,000) (212,000)
Restricted cash............................. 17,000
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities..... 318,000 15,447,000 29,557,000 14,859,000 2,671,000
----------- ----------- ----------- ----------- -----------
Investing activities:
Short-term investments...................... 16,727,000 15,072,000 8,045,000 4,300,000 3,042,000
Property, plant and equipment (2,539,000) (1,891,000) (1,288,000) (451,000) (1,356,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by investing activities..... 14,188,000 13,181,000 6,757,000 3,849,000 1,686,000
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents.................................. (10,151,000) (3,414,000) 10,617,000 4,044,000 (7,756,000)
Cash and cash equivalents at beginning of
period....................................... 15,467,000 5,316,000 1,902,000 1,902,000 12,519,000
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period.... $ 5,316,000 $ 1,902,000 $12,519,000 $ 5,946,000 $ 4,763,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental disclosure of non-cash investing
and financing activities:
Preferred stock dividend.................... $ 594,000 $ 219,000 $ 375,000
Common stock issued for BioPulmonics, Inc.
installment payment........................ $ 877,000 $ 922,000 $ 1,000,000
Issuance of warrants in connection with
acquisition of product rights.............. $ 1,840,000
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JUNE 30, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Alliance Pharmaceutical Corp. ("Alliance") and its subsidiaries
(collectively, the "Company") are engaged in identifying, designing, and
developing novel medical and pharmaceutical products.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Alliance, its
wholly owned subsidiaries, BioPulmonics, Inc. ("BioPulmonics") and Rosanin
Corporation, and its majority-owned subsidiaries, Astral, Inc., Talco
Pharmaceutical, Inc., and Applications et Transferts de Technologies Avancees.
All significant intercompany accounts and transactions have been eliminated.
Certain amounts in 1993, 1994, and 1995 have been reclassified to conform to the
current period's presentation.
CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
Effective July 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 ("FAS No. 115"), ACCOUNTING FOR CERTAIN INVESTMENTS
IN DEBT AND EQUITY SECURITIES. Cash, cash equivalents, and short-term
investments consist of highly liquid debt instruments. The Company considers
instruments purchased with an original maturity of three months or less to be
cash equivalents. Management has classified the Company's cash equivalents and
short-term investments as available-for-sale securities in the accompanying
financial statements. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported as a component of
stockholders' equity.
INVENTORIES
Inventories, which consist primarily of raw materials, are stated at the
lower of cost (first-in, first-out basis) or market.
CONCENTRATION OF CREDIT RISK
Cash, cash equivalents, and short-term investments are financial instruments
which potentially subject the Company to concentration of credit risk. The
Company invests its excess cash primarily in U.S. government securities and
marketable debt securities of financial institutions and corporations with
strong credit ratings. The Company has established guidelines relative to
diversification and maturities to maintain safety and liquidity. These
guidelines are reviewed periodically and modified to take advantage of trends in
yields and interest rates. The Company has not experienced any material losses
on its investments.
PROPERTY, PLANT, EQUIPMENT, AND OTHER ASSETS
Buildings, furniture, and equipment are stated at cost and depreciation is
computed using the straight-line method over the estimated useful lives of 4 to
25 years. Leasehold improvements are amortized using the straight-line method
over the shorter of the estimated useful lives of the assets or the lease term.
Technology and patent rights are amortized using the straight-line method over 5
to 20 years.
PURCHASED TECHNOLOGY
The purchased technology was primarily acquired by virtue of the merger of
Fluoromed Pharmaceutical, Inc. into a subsidiary of the Company in fiscal 1989.
The technology acquired is the Company's core perfluorochemical ("PFC")
technology and it was valued based on an analysis of the present value of future
earnings anticipated from this technology at that time. The Company identified
alternative future uses for the PFC technology, including the OXYGENT-TM-
(temporary blood substitute) and LIQUIVENT-REGISTERED TRADEMARK- (intrapulmonary
oxygen carrier) products. Purchased technology also includes $2.0 million for
technology capitalized as a result of the acquisition of BioPulmonics in
December 1991. Since the acquisition, an alternative future use
F-8
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of the acquired technology has been pursued by the Company. An intrapulmonary
drug delivery system using the PFC-based liquid as a carrier (or dispersing
agent) is being developed by Alliance from the liquid ventilation technology.
The PFC technology is the basis for the Company's main drug development
programs and is being amortized over a 20-year life. Amortization of purchased
technology is included in research and development expense. Accumulated
amortization was $6,193,000, $7,355,000, and $7,936,000 at June 30, 1994 and
1995 and December 31, 1995, respectively. The technology acquired from
BioPulmonics is being amortized over five to seven years, and accumulated
amortization was $357,000, $500,000, and $671,000 at June 30, 1994 and 1995 and
December 31, 1995, respectively.
The carrying value of purchased technology is reviewed periodically based on
the projected cash flows to be received from license fees, milestone payments,
royalties and other product revenues. If such cash flows are less than the
carrying value of the purchased technology, the difference will be charged to
expense.
OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenditures are charged to expense as incurred.
NET LOSS PER COMMON SHARE
Net loss per common share is based on the weighted average number of common
shares outstanding during the respective periods and does not include common
stock equivalents since their effect on the net loss per common share would be
anti-dilutive.
2. FINANCIAL STATEMENT DETAILS
PROPERTY, PLANT, AND EQUIPMENT -- NET
Property, plant, and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------- DECEMBER 31,
1994 1995 1995
------------- ------------- -------------
<S> <C> <C> <C>
Land...................................................... $ 225,000 $ 225,000 $ 225,000
Buildings................................................. 300,000 300,000 300,000
Building improvements..................................... 1,561,000 1,574,000 1,574,000
Furniture, fixtures, and equipment........................ 9,467,000 10,419,000 10,741,000
Leasehold improvements 3,356,000 3,678,000 4,713,000
------------- ------------- -------------
14,909,000 16,196,000 17,553,000
Less accumulated depreciation and amortization............ (4,744,000) (6,250,000) (7,011,000)
------------- ------------- -------------
$ 10,165,000 $ 9,946,000 $ 10,542,000
------------- ------------- -------------
</TABLE>
F-9
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
2. FINANCIAL STATEMENT DETAILS (CONTINUED)
INVENTORIES AND OTHER CURRENT ASSETS
Inventories and other current assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------- DECEMBER 31,
1994 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Inventories.................................................. $ 384,000 $ 1,323,000 $1,289,000
Loan receivable.............................................. 197,000 127,000 247,000
Interest receivable.......................................... 362,000 231,000 187,000
Deferred financing costs..................................... 126,000 -- --
Other........................................................ 280,000 232,000 55,000
------------ ------------ ------------
$ 1,349,000 $ 1,913,000 $1,778,000
------------ ------------ ------------
</TABLE>
Inventories include amounts related to certain raw materials reimbursable
under a license agreement.
ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------- DECEMBER 31,
1994 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Payroll and related expenses................................. $ 1,398,000 $ 1,736,000 $2,135,000
Rent and related operating expenses.......................... 323,000 206,000 206,000
Other........................................................ 164,000 659,000 532,000
------------ ------------ ------------
$ 1,885,000 $ 2,601,000 $2,873,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
3. INVESTMENTS
The following is a summary of available-for-sale securities at June 30,
1995:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
U.S. Government Securities...................... $ 5,049,000 $ 1,000 $ (108,000) $ 4,942,000
Corporate Securities............................ 8,029,000 6,000 (44,000) 7,991,000
------------- ----------- ----------- -------------
$ 13,078,000 $ 7,000 $ (152,000) $ 12,933,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
The gross realized losses on sales of available-for-sale securities totaled
$104,000 in 1995. The net unrealized losses of $145,000 in 1995 are recorded as
a component of additional paid-in capital. The unrealized losses had no cash
effect and therefore are not reflected in the consolidated statement of cash
flows.
F-10
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of available-for-sale debt
securities at June 30, 1995, 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.
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
------------- -------------
<S> <C> <C>
Due in one year or less.................................................. $ 7,565,000 $ 7,539,000
Due in one year through three years...................................... 5,513,000 5,394,000
------------- -------------
$ 13,078,000 $ 12,933,000
------------- -------------
------------- -------------
</TABLE>
As of June 30, 1995, $1,969,000 of the available-for-sale securities were
classified as cash equivalents.
The following is a summary of available-for-sale securities at December 31,
1995:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
U.S. Government Securities...................... $ 5,592,000 $ 2,000 $ (77,000) $ 5,517,000
Corporate Securities............................ 5,386,000 (32,000) 5,354,000
------------- ----------- ----------- -------------
$ 10,978,000 $ 2,000 $ (109,000) $ 10,871,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
There were no realized losses on sales of available-for-sale securities for
the six months ended December 31, 1995. The net unrealized losses of $107,000 at
December 31, 1995 are recorded as a component of additional paid-in capital. The
unrealized losses had no cash effect and therefore are not reflected in the
consolidated statement of cash flows.
The amortized cost and estimated fair value of available-for-sale debt
securities at December 31, 1995, 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.
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
------------- -------------
<S> <C> <C>
Due in one year or less.................................................. $ 6,099,000 $ 6,088,000
Due in one year through three years...................................... 4,879,000 4,783,000
------------- -------------
$ 10,978,000 $ 10,871,000
------------- -------------
------------- -------------
</TABLE>
As of December 31, 1995, $2,912,000 of the available-for-sale securities
were classified as cash equivalents.
4. STOCKHOLDERS' EQUITY
In April 1995, the Company completed offerings of 3.2 million shares of
newly issued common stock. Net proceeds to the Company from such offerings were
approximately $14.3 million.
STOCK OPTION PLANS
The Company has a 1983 Incentive Stock Option Plan (the "1983 Plan"), a 1983
Non-Qualified Stock Option Program (the "1983 Program"), and a 1991 Stock Option
Plan which provides for both incentive and non-qualified stock options (the
"1991 Plan"). These plans provide for the granting of options to purchase shares
of the Company's common stock (up to an aggregate of 500,000, 2,500,000, and
3,200,000 shares
F-11
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
4. STOCKHOLDERS' EQUITY (CONTINUED)
under the 1983 Plan, 1983 Program, and 1991 Plan, as amended and approved in
November 1995, respectively) to directors, officers, employees, and consultants.
The optionees, date of grant, option price (which cannot be less than 100% and
80% of the fair market value of the common stock on the date of grant for
incentive stock options and non-qualified stock options, respectively), vesting
schedule, and term of options, which cannot exceed ten years (five years under
the 1983 Plan), are determined by the Stock Option Committee of the Board of
Directors. The 1983 Plan has expired and no additional options may be granted
under such plan.
The following table summarizes stock option activity through December 31,
1995:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE PRICE
---------- -------------
<S> <C> <C>
Balance at June 30, 1992..................................................... 1,548,974 $ 9.87
Granted.................................................................... 408,210 $ 12.04
Exercised.................................................................. (102,941) $ 5.50
Terminated/Expired......................................................... (44,340) $ 22.77
----------
Balance at June 30, 1993..................................................... 1,809,903 $ 10.43
Granted.................................................................... 564,550 $ 9.42
Exercised.................................................................. (74,666) $ 2.81
Terminated/Expired......................................................... (51,215) $ 11.57
----------
Balance at June 30, 1994..................................................... 2,248,572 $ 10.42
Granted.................................................................... 967,050 $ 5.50
Exercised.................................................................. (56,103) $ 3.98
Terminated/Expired......................................................... (115,531) $ 11.14
----------
Balance at June 30, 1995..................................................... 3,043,988 $ 9.02
Granted.................................................................... 161,900 $ 10.94
Exercised.................................................................. (132,220) $ 6.38
Terminated/Expired......................................................... (75,452) $ 13.99
----------
Balance at December 31, 1995................................................. 2,998,216 $ 9.12
----------
Available for future grant under the 1983 Program............................ 26,260
----------
Available for future grant under the 1991 Plan............................... 1,156,125
----------
</TABLE>
As of December 31, 1995, the Company had recorded as a liability dividends
payable totalling $969,000 on the Series A Preferred Stock.
At June 30, 1995, 1,773,902 options were vested and exercisable.
At December 31, 1995, 1,781,460 options were vested and exercisable.
WARRANTS
In December 1993, the Company issued a warrant to purchase 500,000 shares of
the Company's common stock through December 2000 at $12 per share. The warrant
was issued to a former corporate partner in exchange for certain marketing and
manufacturing rights which were re-acquired by the Company. In August 1994, the
Company issued a warrant to purchase 300,000 shares of common stock through
August 1997 at an exercise price of $15 per share. The warrant was issued in
conjunction with the license agreement discussed in Note 5. In July 1995, the
Company issued a warrant to purchase 100,000 shares of
F-12
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
4. STOCKHOLDERS' EQUITY (CONTINUED)
common stock through June 2000 at an exercise price of $10.00 per share. The
warrant was issued in exchange for certain patents, patent rights, and related
documents. At December 31, 1995, the Company had warrants outstanding to
purchase 1,082,289 shares of common stock at prices ranging from $6.95 to $15.96
per share. The warrants expire on various dates from August 1997 through
December 2000.
PREFERRED STOCK
In fiscal 1995, in conjunction with a license agreement (see Note 5),
Johnson & Johnson Development Corp. purchased 1.5 million shares of Alliance
convertible preferred stock for $15.0 million. On or before June 30, 1998, each
share of the preferred stock will be converted into a number of common shares
based upon the lower of the average price of Alliance common stock at the time
of conversion or $20 per share. Prior to conversion, each share of preferred
stock is entitled to one-half vote on matters on which shareholders are entitled
to vote. The preferred stock carries a cumulative annual cash dividend of $0.50
per share. As of December 31, 1995, the Company had recorded as a liability
dividends payable totalling $969,000 on the Series A Preferred Stock.
ACQUISITION OF BIOPULMONICS, INC.
In December 1991, the Company purchased all the outstanding stock of
BioPulmonics in a transaction recorded using the purchase method of accounting.
The total purchase price was $3,055,000, payable in four installments.
In June 1995, the Company made the final $1,000,000 payment to the former
BioPulmonics' stockholders to complete the acquisition, substantially all of
which was made in the Company's common stock. Since the acquisition of
BioPulmonics, an alternative future use of the acquired technology has been
pursued by the Company. An intrapulmonary drug delivery system using the
PFC-based liquid as a carrier (or dispersing agent) is being developed by
Alliance from the liquid ventilation technology. Accordingly, the Company has
capitalized purchased technology of $1,000,000.
5. LICENSE AGREEMENT
In August 1994, the Company executed a license agreement with Ortho Biotech,
Inc. and The R.W. Johnson Pharmaceutical Research Institute, a division of Ortho
Pharmaceutical Corporation (collectively referred to as "Ortho"), which provides
Ortho with worldwide marketing and, at its election, manufacturing rights to the
Company's injectable perfluorochemical emulsions capable of transporting oxygen
for therapeutic use. Ortho will pay to Alliance a royalty based upon its sales
of the products after commercialization. In addition, Ortho paid to Alliance an
initial license fee of $4.0 million and will make other payments based on the
achievement of certain milestones. Ortho will also be responsible for
substantially all the remaining costs of developing the products. Through
December 31, 1995, the Company earned research revenue of $11.1 million from
Ortho, of which $2.0 million was included in accounts receivable. In conjunction
with the license agreement, Johnson & Johnson Development Corp. purchased 1.5
million shares of Alliance convertible preferred stock for $15.0 million and
obtained a three-year warrant to purchase 300,000 shares of Alliance common
stock at $15 per share.
F-13
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
6. INCOME TAXES
Significant components of the Company's deferred tax assets as of June 30,
1994, and 1995 are shown below. A valuation allowance of $70,601,000 has been
recognized to offset the deferred tax assets as of June 30, 1995 as realization
of such assets is uncertain.
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
1994 1995
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................................... $ 48,686,000 $ 56,752,000
Research and development credits...................................... 6,236,000 8,133,000
Capitalized research expense.......................................... 3,372,000 5,470,000
Other -- net.......................................................... (121,000) 246,000
-------------- --------------
Total deferred tax assets............................................. 58,173,000 70,601,000
Valuation allowance for deferred tax assets........................... (58,173,000) (70,601,000)
-------------- --------------
Net deferred tax assets............................................... $ 0 $ 0
-------------- --------------
</TABLE>
Approximately $1,740,000 of the valuation allowance for deferred tax assets
relates to stock option deductions for 1995 which, when recognized, will be
allocated to contributed capital.
At June 30, 1995, the Company had federal and various state net operating
loss carryforwards of approximately $156,000,000 and $33,517,000, respectively.
The difference between the federal and state tax loss carryforwards is primarily
attributable to the capitalization of research and development expenses for
California tax purposes and the fifty percent limitation on California loss
carryforwards. The federal and various state tax loss carryforwards will begin
expiring in fiscal 1998 and 1996, respectively, unless previously utilized. The
Company also has federal and state research and development tax credit
carryforwards of $6,996,000 and $1,748,000, respectively, for 1995, which will
begin expiring in fiscal 1998 unless previously utilized.
Federal and California tax laws limit the utilization of income tax net
operating loss and credit carryforwards that arise prior to a change of control
of the Company. However, the Company believes that such limitations will not
have an impact on the utilization of the carryforwards.
7. COMMITMENTS AND CONTINGENCIES
The Company leases certain office and research facilities in San Diego and
certain equipment under operating leases. Provisions of the facilities lease
provide for abatement of rent during certain periods and escalating rent
payments during the lease terms based on changes in the Consumer Price Index.
Rent expense is recognized on a straight-line basis over the term of the leases.
Minimum annual commitments related to operating lease payments at June 30,
1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30,
- ---------------------------------------------------------------------
<S> <C>
1996................................................................. $ 1,837,000
1997................................................................. 1,863,000
1998................................................................. 1,908,000
1999................................................................. 1,962,000
2000................................................................. 948,000
Thereafter........................................................... 1,523,000
-------------
Total.............................................................. $ 10,041,000
-------------
-------------
</TABLE>
F-14
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense for fiscal 1995, 1994, 1993, and the six months ended December
31, 1994 and 1995 was $2,043,000, $2,286,000, $1,886,000, $978,000, and
$1,044,000, respectively.
The Company entered into a loan and security agreement in August 1995 under
which the Company received $2.2 million. Amounts borrowed under the agreement
are secured by fixed assets and will be repaid over three years commencing in
September 1995. If certain financial covenants are not satisfied, the note may
become due and payable.
In December 1993, in order to obtain a commitment for a long-term supply of
raw material for both clinical trials and anticipated future commercial
production requirements, the Company entered into an agreement with a supplier
under which the Company was obligated to make payments to the vendor through May
1997 based, in part, upon the achievement of certain milestones. The Company's
total minimum future commitment at June 30, 1995 and December 31, 1995 was
approximately $3.2 and $2.2 million, respectively, some or all of which may be
reimbursed to the Company by existing and future collaborative partners.
During September 1992, the Company and certain of its officers and directors
were named as defendants in several lawsuits filed by certain shareholders. The
actions were consolidated into one class action lawsuit. The complaint claims,
among other things, that the defendants failed to disclose certain problems with
two of the Company's products under development, which conduct is alleged to
have falsely portrayed the Company's financial condition. In May 1995, the U.S.
District Court for the Southern District of California granted summary judgment
in favor of the Company, dismissing the lawsuit in its entirety. The plaintiffs
have filed a notice of intent to appeal the dismissal. The Company believes the
eventual outcome of the litigation will not have a material adverse effect on
the Company's financial condition.
8. SUBSEQUENT EVENT (UNAUDITED)
In February 1996, the Company entered into a license agreement (the "HMRI
License Agreement") with Hoechst Marion Roussel, Inc. ("HMRI"), which provides
HMRI with worldwide marketing rights to LIQUIVENT. The product will be jointly
developed by Alliance and HMRI with HMRI responsible for substantially all of
the remaining costs of development after March 31, 1996. HMRI will pay Alliance
royalties based on sales of the product after commercialization. In conjunction
with the HMRI License Agreement, HMRI agreed to purchase 750,000 shares of the
Company's Series B Preferred Stock and 200,000 shares of its Series C Preferred
Stock for an aggregate of $22.0 million. HMRI will also receive a five-year
warrant to acquire 300,000 shares of the Company's common stock at $20.00 per
share. The Series B Preferred Stock is convertible into shares of the Company's
common stock upon the earliest of: (i) the Company's common stock closing at a
price per share of at least $20.00 for twenty consecutive days; (ii) termination
of the HMRI License Agreement; or (iii) February 28, 2001. Each share of Series
B Preferred Stock will be converted into a number of shares of the Company's
common stock based upon the lower of the average closing price of the Company's
common stock over the twenty trading days preceding the time of conversion or
$20.00 per share. The Series C Preferred Stock converts automatically on June
30, 1997 into a number of shares of the Company's common stock obtained by
dividing the average closing price of the Company's common stock over the twenty
trading days preceding January 14, 1997 into $5.0 million. Prior to June 29,
1997, HMRI may, if the HMRI License Agreement is terminated, redeem the Series C
Preferred Stock for $15.0 million, payable in cash or the Company's common stock
at Alliance's election, any time on or before the expiration of five years
following the redemption date. In addition, HMRI will pay Alliance an initial
license fee and will make other payments upon the achievement of certain
milestones. The closing of the transactions with HMRI is subject to obtaining
governmental approval under the Hart-Scott-
F-15
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
8. SUBSEQUENT EVENT (UNAUDITED) (CONTINUED)
Rodino Anti-Trust Improvements Act of 1976, as amended, and other conditions,
all of which are expected to be obtained within the next thirty days. However,
there can be no assurance that the transactions will be consummated.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE SECURITIES TO WHICH IT RELATES, OR AN OFFER IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AT ANY TIME AFTER THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Incorporation of Certain Documents by Reference......................... 2
Available Information................................................... 2
Prospectus Summary...................................................... 3
Risk Factors............................................................ 6
Use of Proceeds......................................................... 10
Dilution................................................................ 10
Capitalization.......................................................... 11
Price Range of Common Stock............................................. 12
Dividend Policy......................................................... 12
Selected Consolidated Financial Data.................................... 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 14
Business................................................................ 18
Management.............................................................. 26
Underwriting............................................................ 29
Legal Matters........................................................... 30
Experts................................................................. 30
Index to Consolidated Financial Statements.............................. F-1
</TABLE>
2,500,000 SHARES
[LOGO]
COMMON STOCK
----------------
PROSPECTUS
, 1996
---------------------
LEHMAN BROTHERS
COWEN & COMPANY
OPPENHEIMER & CO., INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities being registered, all of which will be borne by the Registrant,
are as follows:
<TABLE>
<S> <C>
SEC registration fee............................................ $17,101.29
Printing and engraving expenses................................. *
NASD fees....................................................... 8,316
Nasdaq National Market notification fees........................ 17,500
Legal fees and expenses......................................... *
Blue Sky fees and expenses...................................... *
Accounting fees and expenses.................................... *
Miscellaneous................................................... *
---------
Total.........................................................
---------
---------
</TABLE>
- ------------------------
*To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Article VI of the By-Laws of the Company (filed as
Exhibit 3(b) to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1989) and to Sections 721-727 of the New York Business
Corporation Law, which, among other things and subject to certain conditions,
authorize the Company to indemnify each of its officers and directors against
certain liabilities and expenses incurred by such persons in connection with
claims made by reason of their being such officers or directors. Reference is
further made to the Company's 1984 underwriting agreement (filed as Exhibit 1(a)
to the Registration Statement on Form S-1 (No. 2-88597) as filed on February 17,
1984), to the Company's 1987 underwriting agreement filed as Exhibit 1(a) to the
Registration Statement on Form S-1 (No. 33-12679) as filed on March 17, 1987),
to the Company's 1989 underwriting agreement (filed as Exhibit 1 to the
Registration Statement on Form S-2 (No. 33-28259) as filed on April 19, 1989
(the "1989 S-2")), to the Company's 1991 underwriting agreement (filed as
Exhibit 1 to the Registration Statement on Form S-3 (No. 33-42551)) and to the
Indemnification Agreement (filed as Exhibit 10(www) to the 1989 S-2), each of
which contains provisions for the indemnification of directors, officers and
controlling persons of the Company under certain circumstances.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.* Underwriting Agreement.
4.* Warrant Repurchase Agreement between the Company and
Boehringer Ingelheim International GmbH.
5.* Opinion of Stroock & Stroock & Lavan, counsel for the
Company.
10(a)** License Agreement between the Company and Hoechst Marion
Roussel, Inc. dated February 28, 1996.
10(b) Stock and Warrant Purchase Agreement between the Company and
Hoechst Marion Roussel, Inc. dated February 28, 1996.
10(c)** Supply and Technology Transfer Agreement between the Company
and Hoechst Marion Roussel, Inc. dated February 28, 1996.
23(a)* Consent of Stroock & Stroock & Lavan (included in Exhibit 5
hereof).
(b) Consent of Knobbe, Martens, Olson & Bear.
(c) Consent of Deloitte & Touche LLP.
(d) Consent of Ernst & Young LLP.
24. Power of Attorney.
</TABLE>
- ------------------------
*To be filed by amendment.
**Confidential treatment being requested.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act of 1933 shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on March 4, 1996.
ALLIANCE PHARMACEUTICAL CORP.
(Registrant)
By /s/ DUANE J. ROTH
Date: March 4, 1996
--------------------------------------
Duane J. Roth
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ DUANE J. ROTH President, Chief Executive
- ------------------------------------------- Officer and a Director (Chief March 4, 1996
Duane J. Roth Executive Officer)
/s/ THEODORE D. ROTH Executive Vice President and
- ------------------------------------------- Chief Financial Officer March 4, 1996
Theodore D. Roth (Chief Financial Officer)
/s/ TIM T. HART
- ------------------------------------------- Controller (Chief Accounting March 4, 1996
Tim T. Hart Officer)
*
- ------------------------------------------- Director March 4, 1996
Carroll O. Johnson
*
- ------------------------------------------- Director March 4, 1996
Stephen M. McGrath
*
- ------------------------------------------- Director March 4, 1996
Donald E. O'Neill
*
- ------------------------------------------- Director March 4, 1996
Dr. Helen M. Ranney
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S> <C>
*
- ------------------------------------------- Director March 4, 1996
Dr. Jean G. Riess
*
- ------------------------------------------- Director March 4, 1996
Dr. Thomas F. Zuck
</TABLE>
*By: /s/ THEODORE D. ROTH
-----------------------------------------------
Theodore D. Roth
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DOCUMENT NO.
- -------- ---------------------------------------------------------------------- ----
<C> <S> <C>
1.* Underwriting Agreement
4.* Warrant Repurchase Agreement between the Company and Boehringer
Ingelheim International GmbH.
5.* Opinion of Stroock & Stroock & Lavan, counsel for the Company.
10(a)** License Agreement between the Company and Hoechst Marion Roussel, Inc.
dated February 28, 1996..............................................
10(b) Stock and Warrant Purchase Agreement between the Company and Hoechst
Marion Roussel, Inc. dated February 28, 1996.........................
10(c)** Supply and Technology Transfer Agreement between the Company and
Hoechst Marion Roussel, Inc. dated February 28, 1996.................
23(a)* Consent of Stroock & Stroock & Lavan (included in Exhibit 5 hereof).
23(b) Consent of Knobbe, Martens, Olson & Bear..............................
23(c) Consent of Deloitte & Touche LLP......................................
23(d) Consent of Ernst & Young LLP..........................................
24. Power of Attorney.....................................................
</TABLE>
- ------------------------
*To be filed by amendment.
**Confidential treatment being requested.
<PAGE>
LICENSE AGREEMENT
Executed this 28TH day of February, 1996, by and between ALLIANCE
PHARMACEUTICAL CORP., a New York corporation (hereinafter referred to as
"ALLIANCE") having its principal office at 3040 Science Park Road, San Diego,
California 92121 and Hoechst Marion Roussel, Inc., a Delaware corporation
having its principal office at 10236 Marion Park Drive, Kansas City, Missouri
64137-1405 (hereinafter referred to as "HMRI"). The effective date of this
Agreement shall be the date of the Closing as such term is defined in the Stock
Purchase Agreement of even date herewith between HMRI and ALLIANCE (hereinafter
referred to as the "Effective Date").
WITNESSETH THAT:
WHEREAS, ALLIANCE is developing through its research and development
activities certain technology for use in respiratory medicine, and has the
right to grant rights and licenses and/or sublicenses under the Patents
(hereinafter defined) and Know-How (hereinafter defined);
WHEREAS, HMRI has had the opportunity to evaluate said Patents and Know-
How under a confidentiality agreement dated March 14, 1995 between ALLIANCE and
HMRI;
WHEREAS, HMRI has, based on its evaluation, expressed to ALLIANCE its
interest in obtaining from ALLIANCE certain rights and licenses to the Patents
and Know-How; and
WHEREAS, ALLIANCE is willing to grant such rights and licenses to HMRI
under the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreement hereinafter set forth, both parties to this Agreement (hereinafter
defined) mutually agree as follows:
ARTICLE 1 - DEFINITIONS
The following terms as used in this Agreement shall, unless the context
clearly indicates to the contrary, have the meanings set forth in this Article:
1.1 "AFFILIATE" shall mean any entity which directly or indirectly controls,
or is controlled by, or is under common control with another entity. For
purposes of this Agreement, an entity is deemed to be in control of another
entity if the former owns directly or indirectly more than fifty percent (50%)
of the outstanding voting equity or owns directly or indirectly an interest in
more than fifty percent (50%) of the assets of the latter.
1.2 "AGREEMENT" shall mean this License Agreement.
1.3 "BRONCHOALVEOLAR LAVAGE" shall mean the installation and active removal of
Products in the lungs for diagnostic or therapeutic purposes.
** INDICATES CONFIDENTIAL INFORMATION WHICH HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
1.4 "CLINICAL WORK" shall mean any work related to human trials to assess the
dosing, safety and efficacy of a Product and to assess a dose and treatment
plan employing such Product(s).
1.5 "DIRECTLY COMPETITIVE PRODUCT" shall mean **
1.6 "FDA" shall mean the United States Food & Drug Administration and, when
appropriate, shall also mean any corresponding regulatory agency in any country
in the Territory.
1.7 "FIELD OF USE" shall mean the intratracheal administration of liquids
including in nebulized or aerosol form, either used with other drugs or
administered alone, which (a) perform Bronchoalveolar Lavage or Liquid
Ventilation, or (b) provide Therapeutic Effects. The Field of Use shall not
include proprietary formulations of ALLIANCE such as reverse emulsions, micro-
suspensions, molecular solutions and the like.
1.8 "FTE" shall mean the equivalent of one (1) full-time employee for one (1)
year.
1.9 "GLOBAL SALES DATE" shall mean **
1.10 "IND" shall mean an Investigational New Drug Application filed pursuant to
the requirements of the FDA as more fully defined in 21 C.F.R. Section 312 as
well as equivalent submissions to the appropriate health authorities in other
countries in the Territory.
1.11 "KNOW-HOW" shall mean any and all information, processes, techniques,
data, methods, materials, compositions, and trade secrets with respect to or
relating to the Patents in the Field of Use and/or the manufacture or use of
Products, including but not limited to the toxicological, pharmacological,
clinical and chemical data, specifications, regulatory submissions, medical
uses, adverse reactions, formulations and quality control methods which are in
the possession of ALLIANCE or HMRI and its Affiliates or are acquired or
developed by ALLIANCE or HMRI and its Affiliates during the term of this
Agreement.
1.12 "LIQUID VENTILATION" shall mean the administration in the pulmonary
airways of liquids (e.g., perfluorochemicals) which exchange physiological
gases (O2 and CO2) in therapeutically effective amounts (i) in conjunction with
a mechanical gas ventilator, wherein gas exchange takes place in the lungs,
(ii) in conjunction with a Liquid Ventilator, or (iii) without a mechanical gas
ventilator or Liquid Ventilator.
1.13 "LIQUID VENTILATOR" shall mean a device which pumps liquid into and
removes liquid from the lungs and performs and controls exchange of
physiological gases in a liquid medium EX-VIVO.
2
<PAGE>
1.14 "MAJOR EUROPEAN COUNTRY" shall mean each of France, Germany, Italy and the
United Kingdom.
1.15 "NDA" shall mean a New Drug Application and all supplements filed pursuant
to the requirements of the FDA, including all documents, data and other
information concerning a Product which are necessary for or included in, FDA
approval to market a Product, as more fully defined in 21 C.F.R.
Section Section 314.3 et seq. as well as equivalent submissions to the
appropriate authorities in other countries in the Territory.
1.16 "NET SALES" shall mean the gross invoice price of Product sold by HMRI and
its Affiliates or where applicable, their sublicensees and distributors, to
Third Party customers (other than sublicensees or distributors) in arms length
transactions, less the following reasonable and customary deductions to the
extent applicable to such invoiced amounts: (i) quantity or cash discounts;
(ii) customs duties and taxes (excluding income taxes) if any related to the
sale; (iii) amounts repaid or credited by reason of rejections; (iv) returned
goods; (v) retroactive price reductions specifically related to Product; (vi)
Third Party rebates and chargebacks; (vii) governmental mandated rebate
programs; (viii) packaging, handling fees, and prepaid freight; and (ix) any
other specifically identifiable amounts included in Products gross sales that
will ultimately be credited and are substantially similar to those listed
above. Net Sales will be accounted for in accordance with generally accepted
accounting principles consistently applied.
1.17 "PATENTS" shall mean:
a) any patent listed in Appendix A or added thereto by written agreement
of the parties hereto during the term of this Agreement;
b) any patent application listed in Appendix A or added thereto by
written agreement of the parties during the term of this Agreement, and any
division, continuation, or continuation-in-part of any such application; and
any patent which shall issue based on such application, division, continuation
or continuation-in-part;
c) any patent which is a reissue or extension of any patent described in
(a) or (b) above;
d) any foreign counterpart patent application or patent corresponding to
any patent application or patent identified in (a), (b), or (c), above which is
filed or issued in any country in the Territory; and
e) any patent or patent application related to or based on any Know-How
related to Products or the manufacture thereof developed or acquired by
ALLIANCE prior to or during the term of this Agreement and which is necessary
for the use, development, manufacture, market, sale or distribution of any
marketed Products and any division, continuation or continuation-in-part of any
such patent or patent application; and any patent which shall issue based on
such application, division, continuation or continuation-in-part; and any
patent which is a reissue or extension of any such patent.
3
<PAGE>
It shall be understood that the term "Patents" shall also include any
Supplementary Certificate of Protection of a Member State of the European
Community and other similar protective rights in any other country of the
Territory.
1.18 "PLAN COSTS" shall mean all out-of-pocket, direct and allocated expenses
ordinary and necessary to the execution of a PMT-approved R&D Work Plan,
Preclinical Work Plan, Clinical Work Plan, Production Work Plan or Regulatory
Work Plan as more fully set forth in Section 4.4.
1.19 "PLANS" shall mean R&D Work Plan, Preclinical Work Plan, Clinical Work
Plan, Production Work Plan and Regulatory Work Plan.
1.20 "PMT" shall mean the Project Management Team.
1.21 "PRECLINICAL WORK" shall mean any nonclinical IN VIVO and IN VITRO
biological work to assess the safety and efficacy of a Product.
1.22 "PRODUCTION WORK" shall mean any work to investigate methods to
manufacture on a commercial scale a Product, to validate reproducibility,
safety, cost effectiveness, and potential for scale-up of a method to
manufacture on a commercial scale a Product, or to transfer Know-How related to
manufacturing to HMRI.
1.23 "PRODUCTS" shall mean drug compounds, drug compositions and medical
devices and systems which, in the absence of this Agreement, the use,
development, manufacture, marketing, sale or distribution of which would result
in the infringement of one or more claims in a Patent, or which utilize the
Know-How of ALLIANCE.
1.24 "R&D WORK" shall mean any work to identify and develop liquids (e.g.,
perfluorochemicals) or medical devices or systems for administration or control
of Liquid Ventilation or Bronchoalveolar Lavage or recovery or re-use of
liquids, to characterize and qualify the properties or parameters of a
Product, to investigate methods to use a Product, or to modify or improve an
existing Product.
1.25 "REGULATORY WORK" shall mean any work related to obtaining regulatory
approval, including post regulatory approval work, in any country of the
Territory for the sale of a Product.
1.26 "STEERING COMMITTEE" shall mean the committee described hereinafter in
Article 3.
1.27 "SUPPLY AGREEMENT" shall mean the Supply and Technology Transfer Agreement
of even date herewith between ALLIANCE and HMRI.
1.28 "TERRITORY" shall mean all countries of the world.
1.29 "THERAPEUTIC EFFECTS" shall mean a biological response resulting from the
administration of a liquid in the lungs either used with other drugs or alone.
1.30 "THIRD PARTY" shall mean any person, corporation or unincorporated body
other than HMRI and ALLIANCE and their Affiliates.
4
<PAGE>
ARTICLE 2 - LICENSE GRANT
2.1 ALLIANCE grants to HMRI on a worldwide exclusive basis the rights and
licenses under the Patents and ALLIANCE's Know-How solely to use, develop,
manufacture, have manufactured, market, sell, and distribute Products in the
Territory for the Field of Use.
2.2 The rights and licenses granted hereunder may be sublicensed by HMRI to a
Third Party in any country in the Territory. HMRI may sell Products through
its Affiliates in any country in the Territory or grant sublicenses to its
Affiliates in any country of the Territory. At the request of HMRI, ALLIANCE
will extend the rights and licenses granted herein to an Affiliate of HMRI on a
direct basis in any country of the Territory. Notwithstanding the granting of
a sublicense to a Third Party or an Affiliate or a direct license to an
Affiliate, HMRI shall remain responsible to ALLIANCE for all obligations of
HMRI, its Affiliates and any sublicensee Third Party. Nothing herein shall
preclude HMRI and/or its Affiliates from utilizing a distributor to promote and
distribute the Products in any country of the Territory.
2.3 For ** receipt of which is hereby acknowledged, ALLIANCE hereby
grants to HMRI for the term of this Agreement, an option to obtain an
assignment of ALLIANCE's right, title, and interest in and to the NDA for
IMAGENT-Registered Trademark- GI, an oral contrast agent for use in magnetic
resonance imaging. Such option may be exercised upon the payment of **
to ALLIANCE. Such assignment will be valid for the term of this Agreement.
2.4 Neither ALLIANCE, HMRI nor any of their Affiliates shall use, develop,
manufacture, have manufactured, market, sell, or distribute any Directly
Competitive Product in the United States, Japan or a Major European Country. If
HMRI or any of its Affiliates makes, uses or sells a Directly Competitive
Product and, after written notice of breach from ALLIANCE, HMRI or any of its
Affiliates fails to cease such making, using or selling, HMRI's rights under
this Agreement for such country shall, at ALLIANCE's election, become non-
exclusive. If ALLIANCE or any of its Affiliates makes, uses, or sells a
Directly Competitive Product, and after written notice of breach from HMRI,
ALLIANCE or its Affiliates fails to cease such making, using, or selling, HMRI
shall not be obligated to pay royalties on the sale of such Product in such
country. At such time as the royalty obligations of Article 5 expire on a
country-by-country basis, this Section 2.4 shall have no further effect in such
country.
2.5 HMRI agrees to use its reasonable best efforts to develop and
commercialize the Products in each of the United States, Japan and each Major
European Country and will abide by and be subject to the terms of the
agreements listed on Schedule 2.5 attached hereto between ALLIANCE or its
Affiliates and Third Parties pertaining to the Patents and the Know-How;
provided that ALLIANCE shall remain responsible for complying with any monetary
obligations to such Third Parties.
ARTICLE 3 - PROJECT MANAGEMENT
3.1 ALLIANCE and HMRI shall create, within sixty (60) days after the Effective
Date of this Agreement, a four member Steering Committee. The activities of
the parties under this
5
<PAGE>
Agreement shall be supervised by the Steering Committee only to the extent set
forth herein. The Steering Committee shall perform the following functions:
a) coordinate and direct the R&D Work, Preclinical Work, Clinical Work,
Production Work and Regulatory Work as well as related activities of the
parties to develop Products hereunder;
b) establish a subordinate governance structure to carry out the
provisions of this Agreement including establishing and organizing the PMT and
appointing a chairperson therefor or other subordinate committees or structures
to implement this Agreement, with the proviso that if the PMT is not
constituted or continued, any reference to such committee in this Agreement
shall be deemed to be a reference to the Steering Committee or to such other
committees or structures to which the Steering Committee may delegate
responsibility;
c) settle disputes or disagreements that are unresolved by the PMT or
other committees established by the Steering Committee unless otherwise
indicated in this Agreement;
d) review and approve the Plans submitted to it by the PMT and approve
funding of the Plans by HMRI or ALLIANCE; and
e) perform such other functions as appropriate to further the purposes
of this Agreement as agreed to by the parties.
3.2 The Steering Committee:
a) shall hold general meetings at such times as shall be determined by
the unanimous consent of the Steering Committee but in no event shall such
meetings be held less frequently than once every six (6) months (unless
otherwise agreed); notice of any such meeting shall be provided to each member
of the Steering Committee no later than thirty (30) days prior to the scheduled
date of such meeting (unless such notice is waived), which notice shall contain
the date, time and place of such meeting and describe the proposed agenda of
items to be discussed at such meeting. Responsibility for arranging meetings
will alternate between the parties on a semi-annual basis, with ALLIANCE having
responsibility for the six (6) month period commencing in January of each year
and HMRI having responsibility for meetings during the six (6) month period
beginning in July of each year;
b) shall hold special meetings on ten (10) days prior notice by either
party (unless such notice is waived), which notice shall contain the date,
time, and place of such meeting and describe the proposed agenda, to resolve
issues that have not been resolved by the PMT within a reasonable time period;
c) may conduct meetings in person or by telephone conference, provided
that any material decision made during a meeting is evidenced by a conformed
writing signed by at least one of the members of such committee from each of
the parties;
d) shall keep minutes reflecting actions taken at meetings;
6
<PAGE>
e) may act without a meeting if prior to such action a written consent
thereto is signed by all members of the Steering Committee; and
f) may amend or expand upon the foregoing procedures for its internal
operation by unanimous written consent.
Either party may include such other representatives as they reasonably
deem appropriate at any meetings.
3.3 Two members of the Steering Committee shall be selected by ALLIANCE from
ALLIANCE and two members of the Steering Committee shall be selected by HMRI
from HMRI or its Affiliates. Members of the Steering Committee shall be senior
officers and/or directors of their respective companies or Affiliates. Members
of the Steering Committee shall serve in such capacity, on such terms and
conditions, and for such duration as shall be determined by the party selecting
such person for membership on the Steering Committee. An alternate member
designated by a party may serve temporarily in the absence of a permanent
member designated by such party.
3.4 Actions to be taken by the Steering Committee pursuant to the terms of
this Agreement shall be taken following the unanimous vote of the members of
the Steering Committee (HMRI and ALLIANCE each having one (1) vote). If the
Steering Committee fails to reach unanimous agreement, then HMRI shall have the
final decision subject to its obligations described in Section 2.5; provided
that prior to implementation of such decision the Chief Executive Officer of
ALLIANCE shall be entitled to meet and consult with the head of the Hoechst
Marion Roussel Pharmaceutical Group of Hoechst AG in a timely manner.
3.5 ALLIANCE and HMRI shall provide the Steering Committee, its members and
its authorized representatives with reasonable access during regular business
hours to all records and documents relating to this Agreement which it may
reasonably require in order to perform its obligations hereunder; provided that
if such documents are under a bona fide obligation of confidentiality to a
Third Party, ALLIANCE or HMRI, as the case may be, may withhold access thereto
to the extent necessary to satisfy such obligation (such as ALLIANCE's
confidentiality obligations with Ortho Biotech, Inc. arising out of the license
agreement dated August 16, 1994).
3.6 For each committee subordinate to the Steering Committee constituted in
this Agreement, including the PMT, each of ALLIANCE and HMRI shall appoint and
replace its own representatives on the committee. Each committee, including
the PMT, shall be comprised of representatives of each party, with the size of
each committee to be agreed upon from time to time. Any party may designate an
alternate member for each committee to participate in the event one of the
party's regular committee members is unable to be present at a meeting.
Meetings of any committee may be called by either party with not less than ten
(10) working days notice to the other unless such notice is waived, and
meetings shall be held at the office of the party not calling the meeting,
unless otherwise agreed. Any meeting may be conducted in person or by telephone
conference, provided that any material decision made during a meeting shall be
evidenced by a conformed writing signed by at least one of the members of such
committee from each of the parties. Each party will disclose to the other
proposed agenda items reasonably in advance of
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each meeting of the applicable committee. Each committee shall also be free to
consider any matters related to this Agreement which are within the scope of
its responsibilities. Either party may include such other representatives as
they reasonably deem appropriate at any meetings.
3.7 Each party shall designate a single project coordinator whose primary
duties (until such time as the Steering Committee decides otherwise) will be to
oversee matters arising under the provisions of this Agreement. Such project
coordinator will be responsible for the day-to-day worldwide coordination of
R&D Work, Preclinical Work, Clinical Work, Production Work and Regulatory Work
conducted under this Agreement and will serve to facilitate communication
between the parties relating to such work.
3.8 HMRI shall have the right to use an independent certified public
accountant reasonably acceptable to and approved by ALLIANCE, or HMRI's own
internal accountants, who shall have access to ALLIANCE's records during
reasonable business hours for the purpose of auditing R&D Work, Preclinical
Work, Clinical Work, Production Work and Regulatory Work expenditures under
this Agreement. The audit under this Section may extend up to the three (3)
preceding years but this right may not be exercised more than once in any
calendar year and once a calendar year is audited it may not be reaudited. The
results of the audit shall be disclosed to both parties, provided that the
independent accountant shall disclose to HMRI only information relating solely
to the accuracy and nature of expenditures made according to this Agreement.
For any overpayments greater than two (2) percent by HMRI found under this
Section, ALLIANCE shall pay HMRI the amount of overpayment, interest from the
time the amount was due at the then current prime rate as quoted in the Eastern
edition of THE WALL STREET JOURNAL, and HMRI's out-of-pocket expenses. For
any overpayments less than two (2) percent by HMRI found under this Section,
ALLIANCE shall pay HMRI the amount of overpayment. The parties agree that no
costs or interest shall be awarded for any correction resulting from excess
estimated payments made from time to time by HMRI to ALLIANCE.
3.9 Subject to Section 4.4 herein, ALLIANCE shall remain responsible to Third
Parties for all financial payments payable for R&D Work, Preclinical Work,
Clinical Work, Production Work and Regulatory Work before April 1, 1996. Any
such work contracted before the Effective Date but unpaid as of April 1, 1996
falls within the scope of this Agreement so long as such work was previously
disclosed in writing to HMRI per the notice provisions of this Agreement and
labeled as such.
ARTICLE 4 - PRODUCT DEVELOPMENT
4.1 The PMT shall be responsible for managing R&D Work, Preclinical Work,
Clinical Work, Production Work and Regulatory Work as well as related
activities performed under the provisions of this Agreement. The chairperson
of the PMT shall be chosen by HMRI. Beginning within sixty (60) days after the
Effective Date of this Agreement and continuing through the term of this
Agreement, the PMT will, unless otherwise agreed by the parties:
a) assume responsibility for the Plans as established in Section 4.3;
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b) establish, update yearly and seek approval from the Steering
Committee for the Plans so long as appropriate which will specify a reasonable
level of detail by which ALLIANCE and HMRI will conduct R&D Work, Preclinical
Work, Clinical Work, Production Work and Regulatory Work;
c) meet and review progress of R&D Work, Preclinical Work, Clinical
Work, Production Work and Regulatory Work at least quarterly unless ALLIANCE
and HMRI otherwise agree, and direct changes or modifications to the Plans as
well as budgets therefor;
d) establish a budget for each of the Plans and determine projected
additional costs or savings associated with any changes or modifications
thereto;
e) present a report with a reasonable level of detail at least every six
(6) months to the Steering Committee on all activities of the PMT, including a
budget update, progress by the parties under the current Plans and progress by
the PMT on developing Plans for the next year and associated budgets;
f) approve any material agreements with any Third Party to be made by
either or both parties hereto related to the performance of their obligations
under this Agreement, except where the selection of such a Third Party is the
unilateral right of either party hereunder; and
g) determine when the regulatory submissions for the United States and
Canada are to be transferred to HMRI from ALLIANCE.
4.2 Actions taken by the PMT pursuant to this Agreement as specified in
Section 4.1 shall be taken only following unanimous agreement of the parties
(HMRI and ALLIANCE each having one (1) vote) or at the direction of the
Steering Committee.
4.3 Subject to the provisions of this Agreement and approval by the Steering
Committee, ALLIANCE agrees to use its reasonable best efforts to execute and
complete the Plans as assigned, described and budgeted as set forth in Appendix
B and any future Plans authorized pursuant to this Agreement. Subject to the
provisions of this Agreement, HMRI agrees to use its reasonable best efforts to
execute and complete the Plans as assigned, described and budgeted as set forth
in Appendix C and any future Plans authorized pursuant to this Agreement. The
PMT and the Steering Committee will exercise the same oversight and control of
the Plans of Appendix B and Appendix C as if these Plans had been approved by
the Steering Committee hereunder, and said oversight and control will
specifically include directing changes and modifications to the Plans. Subject
to Section 13.1, HMRI agrees to provide funding to ALLIANCE through June 30,
1997 of at least the amount set forth on Appendix B to develop the Products in
the United States and Canada and to make the estimated quarterly payments to
ALLIANCE set forth therein, which amounts will be solely applied to Plan Costs
and are not refundable. ALLIANCE agrees to utilize the funds for the
development of Products in the United States and Canada, and, in the event
notice of termination of this Agreement is not given prior to June 30, 1997,
any amount of such quarterly payments not previously applied to Plan Costs
shall be applied to ALLIANCE's worldwide Plan Costs incurred after June 30,
1997. The parties agree that the Plans may change from time to time but the
HMRI financial commitment reflected in Appendix B shall not decrease.
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If there are any proposed changes of whatever nature to Appendix B (other than
the level of financial commitment), and the PMT, or the Steering Committee fail
to reach unanimous agreement on said changes in accordance with the procedures
set forth herein, then HMRI will have the final decision with respect to said
changes.
Either party may deliver to the PMT a list of proposed R&D Work,
Preclinical Work, Clinical Work, Production Work and Regulatory Work Plans for
the following calendar years, a description of each project and an estimated
budget for each project. The proposed project description shall include a
detailed plan, an itemized estimate of costs and time required, the name of the
project leader, where the project will be carried out and the expected benefit.
The PMT will review the list of proposed Plans, revise the proposed projects as
it sees fit, and devise a R&D Work Plan, Preclinical Work Plan, Clinical Work
Plan, Production Work Plan and Regulatory Work Plan from the proposed projects
or from projects proposed by the PMT itself. The PMT will establish a budget
for each of the Plans. Such Plans and budgets therefor shall be submitted by
the PMT to the Steering Committee for approval.
4.4 HMRI shall pay all Plan Costs, and shall reimburse ALLIANCE for all of its
Plan Costs incurred after March 31, 1996. Plan Costs include all out-of-
pocket, direct, and indirect expenses ordinary and necessary to the execution
of an approved Plan. Out-of-pocket costs, which include payments to third
parties for supplies, materials, clinical travel, contracted outside services,
etc., shall be documented by records reasonably acceptable to HMRI. Direct and
indirect expenses of research and/or development personnel (including, without
limitation, scientists, lab technicians, regulatory personnel, clinical support
personnel, and the like) shall be expressed in terms of the full-time
equivalent ("FTE") rate then in effect for ALLIANCE during the relevant time
period. The FTE rate shall be calculated by determining the payroll cost for
ALLIANCE's scientific and technical personnel who allocate time among various
projects in ALLIANCE's ordinary course of business (including costs for fringe
benefits and payroll taxes) and an overhead rate, which includes all costs
other than out-of-pocket expenses for ALLIANCE's projects, including
LIQUIVENT-Registered Trademark-. During the term of this Agreement, ALLIANCE
shall use its standard project costing and accounting system then in effect
in computing and tracking its direct and indirect costs. The objective of
reimbursing costs in the manner set forth herein is to reimburse Alliance
for its actual expenses in carrying out the Plan.
a) **
b) By October 1 of each year, the PMT will establish an overall project
budget for the upcoming calendar year broken down by major work areas/teams and
establish FTE labor and
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overhead rates to be used as benchmarks to measure performance and
accountability. At 6-month intervals, the PMT will add an additional 6-month
budget, thus maintaining a rolling 12-month budget.
4.5 Any sums due to ALLIANCE by HMRI pursuant to Articles 4, 8 or 9 shall be
billed by ALLIANCE each calendar quarter, substantiated by ALLIANCE with
suitable invoices and other reasonable documentation, including documentation
based on the actual FTE spending rates for labor and overhead, and paid by HMRI
within forty-five (45) days of receipt of such invoices.
4.6 The parties agree to promptly provide each other with copies of records,
reports, and regulatory filings showing a reasonable level of detail related to
their respective work in the United States, Japan, and each Major European
Country conducted under the terms of this Agreement, subject to the
confidentiality obligations described in Section 3.5.
4.7 **
ARTICLE 5 - PAYMENTS AND ROYALTIES
5.1 In consideration of the rights and licenses granted to HMRI under Article
2 of this Agreement, HMRI shall pay to ALLIANCE the following payments:
a) the sum of **________________________payable upon the Effective Date;
b) the sum of **_______________________________ payable on June 30,
1997, **______________________________________________________________;
c) the sum of **_______________________________upon filing of a United
States NDA, **_____________________________________________________________;
d) the sum of **_______________________________payable within thirty (30)
days following the approval of an NDA permitting marketing of a Product in the
United States **______________________________________________________________;
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_____________________________________________________________________
__________________________________;
e) the sum of **______________________________________________payable
within thirty (30) days following the first commercial sale of a Product in
a Major European Country;
f) the sum of **______________________________________________payable
within thirty (30) days following the first commercial sale of a Product in
a second Major European Country; and
g) the sum of **_______________________________payable within thirty
(30) days following the first commercial sale of a Product in Japan.
h) the sum of **_____________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________.
5.2 The payments specified under Section 5.1 (a) through (g) shall be
allocated among the Patents as the parties reasonably agree as soon as
reasonably possible, and such payments shall not be creditable against
royalties or refundable.
5.3 In further consideration of the rights and licenses granted to HMRI under
Article 2 of this Agreement, HMRI shall pay to ALLIANCE the following royalties
based on the Net Sales of Products in the Territory:
a)**
b)**
c)**
**
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Upon the expiration of the royalty obligations of this Section 5.3 other
than as a result of termination of the Agreement **
on a country-by-country basis, HMRI shall have a fully paid,
worldwide nonexclusive license solely to use, develop, manufacture, have
manufactured, market, sell, and distribute Products for the Field of Use and a
fully paid worldwide exclusive license to the trademark "LIQUIVENT".
5.4 Subject to the rights of ALLIANCE pursuant to this Agreement, including
but not limited to Sections 2.5 and 5.5, HMRI shall have the final decision
with respect to all aspects of commercialization or non-commercialization of
Products in any country in the Territory including but not limited to sales,
pre-marketing, marketing and distribution.
5.5 HMRI agrees that, during the term of this Agreement, it shall use its
reasonable best efforts to market Products throughout the Territory.
Reasonable best efforts shall mean that on a country-by-country basis HMRI
shall expend at least a similar level of corporate resources, including
employee time and money, as it would on an internally developed HMRI product,
taking into account the market potential of such products, the competitiveness
of the marketplace, the proprietary position of the Product and other relevant
factors.
5.6 In the event that a combination product is sold in a form containing a
Product and another product (which is not a Product) of HMRI, its Affiliates,
sublicensees or distributors, the Net Sales shall be calculated by multiplying
the sales price of the combination product by the fraction A/(A+B), where A is
the invoice price or, if none, then the fair market value of the Product, and B
is the invoice price or, if none, then the fair market value of the other
product. For example, if the sales price of the combination product is $100
and the invoice prices (or fair market values, if applicable) of the Product
and the other product are $90 and $30, respectively, the Net Sales shall be $75
($100 x [$90/$120]). Fair market value means the cash consideration which HMRI
or its Affiliates, sublicensees or distributors would realize from an
unaffiliated, unrelated buyer in an arm's length sale of an identical item sold
in the same quantity and at the same time and place of the transaction. The
parties further agree to negotiate in good faith for an equitable determination
of Net Sales of Products in the event that HMRI sells Products in such a manner
that the Net Sales of same are not readily identifiable.
ARTICLE 6 - REPORTS AND RECORDS
6.1 HMRI shall keep and shall cause its Affiliates, sublicensees and
distributors to keep true and accurate records of sales of Products and Net
Sales and the royalties payable to ALLIANCE under Article 5 hereof and shall
deliver to ALLIANCE a written statement thereof on or before the sixtieth (60)
day following the end of each HMRI accounting quarter (or any part thereof in
the first or last calendar quarter of this Agreement) for such HMRI accounting
quarter. Said
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<PAGE>
written statements shall set forth Net Sales and the calculation thereof on a
country by country basis for each Product and the royalties due thereon.
6.2 All royalty payments by HMRI to ALLIANCE with respect to Net Sales in any
currency other than U.S. Dollars shall be converted into U.S. Dollars at the
rate of exchange of such currency for U.S. Dollars for the calendar quarter for
which royalty payments are being remitted according to HMRI's normal procedures
for calculating same and, at or no later than the time the written statement
with respect to such royalty payment or is required to be given to ALLIANCE
pursuant to Section 6.1, shall be made by wire transfer to the ALLIANCE account
designated below, or such other account as ALLIANCE may designate from time to
time. If the transfer or the conversion into U.S. Dollars in any such instance
is not lawful or possible, the payment of such part of the royalties due as is
necessary, shall be made by the deposit thereof, in such currency, to the
credit and account of ALLIANCE in any commercial bank or trust company of
ALLIANCE's choice located in that country. Prompt notice of said deposit shall
be given by HMRI to ALLIANCE.
6.3 Any income or other taxes which HMRI or any of its Affiliates is required
to pay or withhold on behalf of ALLIANCE with respect to royalties and any
other monies payable to ALLIANCE under this Agreement shall be deducted from
the amount of such royalties and monies due. HMRI or its Affiliate shall
furnish ALLIANCE with proof of such payments. Any such tax required to be paid
or withheld shall be an expense of and borne solely by ALLIANCE.
6.4 ALLIANCE shall have the right to use an independent certified public
accountant reasonably acceptable to and approved by HMRI or its own internal
accountants who shall have access to HMRI and its Affiliates' and sublicensees
and distributors records during reasonable business hours for the purpose of
verifying the royalties payable as provided in this Agreement for the three (3)
preceding years, but this right may not be exercised more than once in any
calendar year, and once a calendar year is audited it may not be reaudited, and
said accountant shall disclose to ALLIANCE and HMRI only information relating
solely to the accuracy and nature of the royalty report and the royalty
payments made according to this Agreement. For any underpayments greater than
two (2) percent by HMRI found under this Section, HMRI shall pay ALLIANCE the
amount of underpayment, interest from the time the amount was due at the then
current prime rate as quoted in the Eastern edition of THE WALL STREET
JOURNAL, and ALLIANCE's out-of-pocket expenses. For any underpayments less
than two (2) percent by HMRI found under this Section, HMRI shall pay ALLIANCE
the amount of underpayment. Any overpayments by HMRI will be refunded to HMRI
or credited to future royalties, at HMRI's election.
6.5 All payments due hereunder shall be made to the designated bank account of
ALLIANCE as follows:
**
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ARTICLE 7 - CONFIDENTIALITY
7.1 All confidential information transmitted by either party to the other
including all confidential information developed pursuant to this Agreement,
shall be identified as confidential and the receiving party shall, while this
Agreement is in effect and for five (5) years after termination thereof, make
no use of this information other than in furtherance of this Agreement and
shall use the same efforts to keep secret and prevent the disclosure of such
information to parties other than its Affiliates, sublicensees, agents,
officers, employees and representatives authorized to receive such information
as it would for its own confidential information except for such confidential
information that,
a) was known to the receiving party or its Affiliates or sublicensees at
the time of its disclosure and not previously subject to any obligation of
confidentiality at the time of its disclosure;
b) was generally available to the public or was otherwise part of the
public domain at the time of its disclosure;
c) became generally available to the public or became otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving party or its Affiliates or sublicensees in breach of
this Agreement, or
d) became known to the receiving party or its Affiliates or sublicensees
after its disclosure (a) from a source other than the disclosing party
(including from independent development by the receiving party), (b) other than
from a Third Party who had an obligation to the disclosing party not to
disclose such information to others, and (c) other than under an obligation of
confidentiality, or
e) is disclosed by the receiving party pursuant to oral questions,
interrogatories, requests for information or documents, subpoena, or civil
investigative demand issued by a court or governmental agency; provided that
the receiving party notifies the other party immediately on receipt thereof and
that the disclosing party furnishes only that portion of the confidential
information that counsel advises is legally required.
7.2 Each receiving party or its Affiliates or sublicensees may disclose any of
the Know-How and confidential information to the extent such disclosure is
necessary to comply with applicable laws or regulations, or to make and use a
Product in accordance with the terms of this Agreement.
7.3 Each party recognizes the mutual interest in obtaining valid patent
protection. Consequently, either party and its employees or consultants or any
other Third Party wishing to make a publication (including any oral disclosure
made without obligation of confidentiality) relating to work performed by such
party as part of the work performed under this Agreement (the "Publishing
Party") shall transmit to the other party (the "Reviewing Party") a copy of the
proposed written publication at least forty-five (45) days prior to submission
for publication, or an abstract of such oral disclosure at least fifteen (15)
days prior to submission of the abstract of the
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<PAGE>
oral disclosure, whichever is earlier. The Reviewing Party shall have the
right (a) to propose modifications to the publication for patent reasons, (b)
to request a delay in publication of presentation in order to protect
patentable information, or (c) to request that the information be maintained as
a trade secret and, in such case, the Publishing Party shall not make such
publication. Each party shall designate an individual to whom proposed
publications shall be directed and such individual shall be responsible for
obtaining the necessary internal approvals of the Reviewing Party.
7.4 If the Reviewing Party requests a delay as described in subsection 7.3(b)
the Publishing Party shall delay submission or presentation of the publication
for a period of up to ninety (90) days to enable patent applications protecting
each party's rights in such information to be filed.
7.5 Upon the receipt of written approval of the Reviewing Party or the
expiration of the applicable waiting period without comment, the Publishing
Party may proceed with the written publication or the oral presentation.
7.6 The parties hereto understand and agree that remedies at law may be
inadequate to protect against any breach of any of the provisions of this
Article 7 by either party or their employees, agents, officers or directors or
any other person acting in concert with it or on its behalf. Accordingly, each
party shall be entitle to the granting of injunctive relief by a court of
competent jurisdiction against any action that constitutes any such breach of
this Article 7. It is understood that such injunctive relief is intended
solely as provisional relief pending the dispute resolution procedures
described in Article 18 hereof.
7.7 Notwithstanding the foregoing, the right of any party to withhold or delay
consent to publish or delay publication shall be subject to any contractual
publication rights of Third Parties involved in research or clinical trials for
the Products. The parties will use reasonable efforts to obtain the voluntary
consent of any Third Party with publication rights agreed to prior to the
Effective Date, to comply with the notice and timing requests in this Article 7
and will promptly review any publications delivered for review.
ARTICLE 8 - INVENTIONS AND PATENT PROSECUTION
8.1 All right, title and interest in all writings, inventions, discoveries,
improvements and other technology, whether or not patentable or copyrightable,
and any patent applications, patents or copyrights based thereon (collectively,
the "Inventions") that are discovered, made or conceived during and as a
result of the work performed under this Agreement solely by employees of
ALLIANCE or others acting on behalf of ALLIANCE ("Alliance Inventions") shall
be owned by ALLIANCE. All rights, title and interest in all Inventions that are
discovered, made or conceived during and as a result of the work performed
under this Agreement solely by employees of HMRI or others acting on behalf of
HMRI ("HMRI Inventions") shall be owned by HMRI. All right, tittle and
interest in all Inventions that are discovered, made or conceived during and as
a result of the work performed under this Agreement jointly by employees of
ALLIANCE and HMRI or others acting on their behalf (the "Joint Inventions")
shall be jointly owned by HMRI and ALLIANCE. Each party shall promptly
disclose to the other party the making, conception or reduction to practice of
Inventions by employees or others acting on behalf of such party.
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The parties acknowledge that the ownership rights set forth above are subject
to the license grants set forth in Article 2 and that any patent applications
or patents related to ALLIANCE Inventions or Joint Inventions shall become
Patents.
8.2 Each party represents and agrees that its employees and consultants shall
be obligated under a binding written agreement to assign to such party, or as
such party shall direct, all Inventions made or conceived during and as a
result of work performed under this Agreement by such employee or consultant.
In the case of non-employees working for other companies or institutions on
behalf of ALLIANCE or HMRI, ALLIANCE and HMRI, as applicable, shall use
reasonable efforts to obtain the right to license all Inventions made by such
non-employees on behalf of ALLIANCE or HMRI, as applicable, in accordance with
the policies of the company or institution employing such non-employee.
ALLIANCE and HMRI agree to undertake to enforce such agreements with employees
or others or such rights pertaining to non-employees (including, where
appropriate, by legal action) considering, among other things, the commercial
value of such Inventions.
8.3 ALLIANCE shall be responsible for the filing, prosecution (including
oppositions) and maintenance of the Patents. For so long as any of the license
grants set forth in Article 2 remain in effect, ALLIANCE agrees to file and
prosecute and maintain the Patents in the countries in the Territory as listed
in Schedule 8.3; provided that the foregoing is subject to ALLIANCE's
reasonable business judgment. ALLIANCE shall consult with HMRI and keep HMRI
fully informed of important issues relating to the preparation, filing,
prosecution and maintenance of such patent applications and patents, including
patent strategy with respect to both existing and future patent applications,
patents and patent extensions, and shall furnish to HMRI copies of documents
relevant to such preparation, filing, prosecution and maintenance sufficiently
prior to filing such document or making any payment due thereunder to allow for
review and comment by HMRI, and ALLIANCE shall seriously consider all such
comments. ALLIANCE and HMRI shall mutually determine procedures for carrying
out the filing, prosecution (including oppositions) and maintenance, as
applicable, of patent applications and patents for all Joint Inventions and
shall each bear half of the cost thereof, and both parties shall be kept fully
informed of and consult and cooperate with respect to all actions taken with
respect thereto; provided that, if either party elects to not bear half the
cost of such activity with respect to a particular Joint Invention in a
particular country, then the other party may, at its sole expense and
discretion, undertake the filing, prosecution (including oppositions) and
maintenance of such patent or patent application in such country, and the party
not participating in such expenses shall assign its interest in such patent or
patent application in such country to the other party, including the rights to
receive and collect from third parties any royalties and damages for future or
past infringement, but reserving a perpetual royalty-free non-exclusive license
in such country (without the right to sublicense and subject to any limitations
imposed by this Agreement) to use such Joint Invention to make, have made, use,
distribute for sale and sell any products covered by such patent covering such
Joint Invention. The non-participating party will cooperate with the other
party, at the other party's expense, as necessary to enable the other party to
establish and protect its rights under this Section 8.3.
If ALLIANCE elects not to continue to seek or maintain patent protection
on any Patent in any country in the Territory, HMRI shall have the right, at
its option, but in the name of
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ALLIANCE and at HMRI's expense, to file, prosecute (including oppositions) and
maintain such patent applications and patents as ALLIANCE shall have previously
filed in at least one country, provided, however, that the rights of the
parties with respect to any such Patent shall in all other respects be as
described in this Agreement. ALLIANCE will advise HMRI of all decisions taken
with respect to any such election in a timely manner in order to allow HMRI to
protect its rights under this Section 8.3.
8.4 Each party shall make available to the other party (or to the other
party's authorized attorneys, agents or representatives), its employees,
agents, subcontractors or consultants to the extent reasonably necessary or
appropriate to enable the appropriate party to file, prosecute and maintain
patent applications and resulting patents with respect to Inventions owned by a
party and for periods of time reasonably sufficient for such party to obtain
the assistance it needs from such personnel. Where appropriate, each party
shall sign or cause to have signed all documents relating to said patent
applications or patents at no charge to the other party.
8.5 ALLIANCE shall notify HMRI of (i) the issuance of each Patent giving the
date of issue and patent number for each such patent, and (ii) each notice
pertaining to any Patent which it receives as patent owner pursuant to the Drug
Price Competition and Patent Term Restoration Act of 1984 (hereinafter called
the "Act"), or other similar laws now or hereafter in effect, or pursuant to
comparable laws or regulations in other countries in the Territory. The
parties shall cooperate with each other in applying for patent term extensions
(including Supplementary Protection Certificate in European Community
Countries) where applicable in any country of the Territory. ALLIANCE shall
also notify HMRI of each application filed for patent term extension, any
allegations of failure to show due diligence and all awards of patent term
extensions with respect to the Patents. Such notices shall be given promptly,
but in any event within twenty (20) business day after receipt of each such
notice pursuant to the Act (or comparable laws or regulations in other
countries in the Territory). ALLIANCE shall notify HMRI of each filing for
patent term restoration under the Act (or comparable laws or regulations in
other countries in the Territory), any allegations of failure to show due
diligence and all awards of patent term restoration (extensions) with respect
to the Patents.
8.6 Except as otherwise expressly provided in this Agreement, under no
circumstances shall a party hereto, as a result of this Agreement obtain any
ownership interest in or other right to any technology, know-how, patents,
pending patent applications, products, or biological material of the other
party, including items owned, controlled or developed by the other party, or
transferred by the other party to said party, at any time pursuant to this
Agreement. It is understood and agreed that this Agreement does not grant HMRI
any license or other right in the Patents licensed for use, other than the use,
development, manufacture, marketing, sale and distribution of Products in the
Field of Use covered by the Patents.
ARTICLE 9 - INFRINGEMENT
9.1 ALLIANCE and HMRI shall each promptly, but in any event no later than ten
(10) business days after receipt of notice of such action, notify the other in
writing of any patent nullity actions, any declaratory judgment actions or any
alleged or threatened infringement of patents or patent applications or
misappropriation of intellectual property comprising the Patents or if either
18
<PAGE>
party, or any of their respective Affiliates, shall be individually named as a
defendant in a legal proceeding by a Third Party alleging infringement of a
patent or other intellectual property right as a result of the manufacture,
production, use, development, manufacturing, marketing, selling or distribution
of Products, or of any other information or notification regarding the Patents.
9.2 HMRI shall have the first right to respond to, defend or prosecute any
actions, challenges, infringements, misappropriations or proceeding by a Third
Party alleging infringement described in Section 9.1. In the event HMRI elects
to do so, ALLIANCE will cooperate with HMRI and its legal counsel, join in such
suits as may be brought by HMRI, and be available at HMRI's reasonable request
to be an expert witness or otherwise to assist in such proceedings. HMRI will
cooperate with ALLIANCE and its legal counsel and keep ALLIANCE and its counsel
reasonable informed at all times as to the status of HMRI's response or
defense.
9.3 HMRI will not settle any suit or claim involving the Patents in a manner
that would compromise any rights of ALLIANCE without obtaining the prior
written consent of ALLIANCE.
9.4 In the event that HMRI elects to respond to, defend or prosecute any
actions, challenges, infringements, misappropriations or proceeding by a Third
Party alleging infringement described in Section 9.1, then: (i) legal fees and
other costs and expenses of HMRI associated with such response or defense shall
be paid by HMRI; (ii) legal fees and other costs and expenses associated with
such response or defense incurred by ALLIANCE at HMRI's request, shall be paid
by ALLIANCE; (iii) costs of acquiring Third Party patents or licenses and any
settlement, court award, judgment or other damages will be **__________________;
and (iv) amounts recovered from Third Parties in connection with such
response or defense shall first be applied, **__________________________________
________________________________________________________________________________
_______________________________________________________________________________.
HMRI shall advance all costs required to be paid by ALLIANCE pursuant to
clauses (ii) and (iii) of this subsection 9.4 and shall recover such advanced
costs through credits against up to ** of the royalties otherwise payable by
HMRI to ALLIANCE hereunder, until the amount so advanced by HMRI is fully
recovered. ALLIANCE shall have no obligation to repay HMRI any amounts
previously paid by HMRI to ALLIANCE hereunder to cover such costs. **______
____________________________________________________________________________
____________________________________________________________________________
9.5 In the event that HMRI elects not to respond to, defend or prosecute any
actions, challenges, infringements, misappropriations or proceeding by a Third
Party alleging infringement described in Section 9.1 within sixty (60) days of
becoming aware of or being notified of such actions, challenges, infringements,
misappropriations or proceedings or abandons such response, then, in such
event, ALLIANCE shall have the option to do so at ALLIANCE's sole cost,
provided that HMRI shall cooperate with and provide assistance to ALLIANCE at
HMRI's expense. All amounts so recovered from any Third Party shall be
retained by ALLIANCE,
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<PAGE>
subject to reimbursement of both parties for expenses and ALLIANCE shall have
no further obligations to HMRI with respect to the response or defense thereof;
provided further that the royalty rate payable by HMRI shall not be adjusted
downward due to an adverse judgment.
9.6 In the event that ALLIANCE and HMRI determine that it is necessary or
desirable for HMRI to acquire any Third Party patent or license in connection
with the development or manufacture of Products covered by the Patents in the
Territory, **_______________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
ARTICLE 10 - TRADEMARKS
10.1 All trademarks to be utilized by HMRI and/or its Affiliates on Products
under this Agreement shall be chosen by HMRI and/or its Affiliates and, except
for trademarks owned by ALLIANCE, shall be owned by HMRI and/or its Affiliates.
ALLIANCE hereby grants to HMRI a worldwide exclusive royalty-free license to
the "LIQUIVENT" trademark in connection with the sale of Products in the
Territory for the term of this Agreement, and thereafter unless this Agreement
is terminated in its entirety pursuant to Article 13. Schedule 10.1 sets forth
the countries in which trademark applications were filed and the status of such
applications as of the Effective Date.
ARTICLE 11 - MANUFACTURE AND SUPPLY
The parties agree that ALLIANCE will manufacture and supply bulk labeled
Product in finished packaged form to HMR for all Clinical Work and initial
Product marketing on a worldwide basis to the extent available from ALLIANCE's
existing facility in Otisville, New York as provided in the Supply Agreement.
ARTICLE 12 - DURATION
12.1 This Agreement shall become effective from the Effective Date and shall,
unless sooner terminated pursuant to any other provision of this Agreement
continue in full force for as long as HMRI or its Affiliates is obligated to
pay royalties hereunder.
12.2 Notwithstanding the expiration of this Agreement pursuant to Section 12.1
or the early termination of this Agreement pursuant to Article 13, the
financial obligations incurred prior to such expiration or termination and the
obligations of 7.1, 8.2, 10.1, 13.4, 13.6, 14.1, 14.2, and 18.1 shall remain in
full force and effect.
ARTICLE 13 - TERMINATION
13.1 Notwithstanding any other provision herein, HMRI can, prior to NDA
approval, terminate this Agreement on a country by country basis in its
entirety upon one (1) month written notice to ALLIANCE. After NDA approval of
a Product and prior to first marketing of said Product, HMRI can terminate this
Agreement on a country by country basis upon two (2) months written
20
<PAGE>
notice to ALLIANCE. After the sale of a Product, HMRI can terminate this
Agreement on a country by country basis upon three (3) months written notice to
ALLIANCE.
13.2 Failure by HMRI or ALLIANCE to comply with any of the respective material
obligations and conditions contained in this Agreement shall entitle the other
party to give the party in default notice requiring it to cure such default.
If such default is not cured within ninety (90) days (thirty (30) days in case
of a monetary payment default) after receipt of such notice, the notifying
party shall be entitled (without prejudice to any of its other rights conferred
on it by this Agreement) to terminate this Agreement or in the event of an
uncured material breach by ALLIANCE, effect the rights of HMRI set forth in
Section 13.5 by giving a notice to take effect immediately. Notwithstanding
the foregoing, in the event of a non-monetary default, if the default is not
reasonably capable of being cured within the ninety (90) day cure period by the
defaulting party and such defaulting party is making a good faith effort to
cure such default, the notifying party may not terminate this Agreement,
provided however, that the notifying party may terminate this Agreement if such
default is not cured within one hundred eighty (180) days of such original
notice of default. The right of either party to terminate this Agreement as
hereinabove provided shall not be affected in any way by its waiver of, or
failure to take action with respect to any previous default.
13.3 In the event that one of the parties hereto shall go into liquidation, a
receiver or a trustee be appointed for the property or estate of that party and
said receiver or trustee is not removed within sixty (60) days, or the party
makes an assignment for the benefit of creditors (collectively, a "Bankruptcy
Event"), and whether any of the aforesaid Bankruptcy Events be the outcome of
the voluntary act of that party, or otherwise, the other party shall be
entitled to terminate this Agreement (or in the event ALLIANCE suffers such a
Bankruptcy Event, HMRI may effect its rights described in Section 13.5
forthwith by giving a written notice to the first party.
13.4 In the event that this Agreement is terminated in its entirety HMRI will:
a) deliver to ALLIANCE the Know-How and assign to ALLIANCE its rights in
said Know-How or Patents, if any, and any rights to ALLIANCE's trademarks,
excluding any Know-How or patents related to the manufacture of raw materials,
including, but not limited to, perfluorochemicals;
b) not use the Know-How as long as it has to be kept confidential
pursuant to Article 7 hereof, excluding any Know-How related to the manufacture
of raw materials, including, but not limited to, perfluorochemicals;
c) not infringe any of the Patents, excluding patents related to the
manufacture of raw materials, including, but not limited to,
perfluorochemicals;
d) grant to ALLIANCE a non-exclusive worldwide royalty free license to
any patents or Know-How owned or controlled by HMRI or its Affiliates which is
necessary to make, use, develop, manufacture, have manufactured, sell or
distribute Products intended for the Field of Use, excluding any Know-How or
patents related to the manufacture of raw materials, including, but not limited
to, perfluorochemicals;
21
<PAGE>
e) make all payments accrued under this Agreement prior to the effective
termination date;
f) transfer all regulatory filings and approvals related to Products to
ALLIANCE upon ALLIANCE's written request for same; and
g) transfer to ALLIANCE responsibility for and control of ongoing work
of HMRI, Affiliates and Third Parties in an expeditious and orderly manner with
the costs for such work assumed by ALLIANCE as of the date of notice.
13.5 In the event of a Bankruptcy Event or a material default described in
Section 13.2 by ALLIANCE (which default is not cured as provided therein), HMRI
may elect in lieu of terminating this Agreement to declare the license granted
pursuant to this Agreement to be irrevocable. From the date of receipt of
notice of such election, ALLIANCE shall have no further rights or obligations
under this Agreement, except that ALLIANCE may enforce any financial
obligations of HMRI, including those arising under Articles 4 and 5 herein
before or after such election; provided that if such election occurs prior to
commercial sales of Products, any additional reasonable costs incurred by HMRI
to commercialize the Products as a result of such election, shall be credited
against amounts payable by HMRI to ALLIANCE.
13.6 Upon termination of this Agreement in its entirety, ALLIANCE shall have
ninety (90) days to exercise an option to purchase all or any portion of the
inventory of Products owned by HMRI or its Affiliates upon such termination at
a price equal to HMRI's or its Affiliates' costs for such inventory. Such
option shall be exercised by ALLIANCE in writing. Within thirty (30) days of
such exercise, HMRI shall ship at ALLIANCE's cost and direction such inventory
to ALLIANCE. ALLIANCE shall have forty-five (45) days to determine whether the
inventory complies with the Specifications (as defined in the Supply
Agreement). If the inventory complies with the Specifications, ALLIANCE shall
pay for such inventory within forty-five (45) days of approval. If such
inventory does not comply with the Specifications, it shall be returned to HMRI
at its expense. Procedures for handling and determining whether Product
complies with the Specifications shall be as set forth in the Supply Agreement.
13.7 In the event that this Agreement is terminated by HMRI in one or more
countries (but not terminated in its entirety), HMRI will with respect to such
country:
a) deliver to ALLIANCE the Know-How and assign to ALLIANCE its rights in
said Know-How or Patents if any, excluding any Know-How or patents related to
the manufacture of raw materials, including, but not limited to,
perfluorochemicals;
b) not use the Know-How as long as it has to be kept confidential
pursuant to Article 7 hereof in such country, excluding any Know-How related to
the manufacture of raw materials, including, but not limited to,
perfluorochemicals;
c) not infringe any of the Patents in such country, excluding patents
related to the manufacture of raw materials, including but not limited to,
perfluorochemicals;
22
<PAGE>
d) grant to ALLIANCE a non-exclusive, royalty free license to any
patents or Know-How owned or controlled by HMRI or its Affiliates which is
necessary to make, use, develop, manufacture, have manufactured, sell or
distribute Products intended for the Field of Use, excluding any Know-How or
patents related to the manufacture of raw materials, including, but not limited
to, perfluorochemicals;
e) make all payments accrued under this Agreement with respect to such
country prior to the effective termination date;
f) transfer all regulatory filings and approvals related to Products in
such country to ALLIANCE upon ALLIANCE's written request for same;
g) transfer to ALLIANCE responsibility for and control of ongoing work
of HMRI, Affiliates and Third Parties in an expeditious and orderly manner with
the cost of such work assumed by ALLIANCE as of the date of notice; and
h) sell to ALLIANCE, at any time within ninety (90) days of such
termination, at ALLIANCE's election, all or any portion of the inventory of
Products owned by HMRI or its Affiliates which are intended for sale in such
country at a price equal to HMRI's or its Affiliate's cost for such inventory.
Such election shall be made by ALLIANCE in writing and within thirty (30) days
of such election, HMRI shall ship at ALLIANCE's cost and direction such
inventory to ALLIANCE. ALLIANCE shall have forty-five (45) days to determine
whether the inventory complies with the Specifications. If the inventory
complies with the Specifications, ALLIANCE shall pay for such inventory within
forty-five (45) days of approval. If such inventory does not comply with the
Specifications, it shall be returned to HMRI at its expense.
ARTICLE 14 INDEMNITY
14.1 HMRI agrees to defend, indemnify and hold harmless ALLIANCE and its
officers, directors, agents and employees (collectively, the "Indemnified
Parties"), from and against any and all liability, loss, damage, action, claim
or expense suffered or incurred by the Indemnified Parties (including
reasonable attorney's fees, whether incurred by reason of actions or claims
between the parties or by Third Parties) which results from or arises out of
the development, use, manufacture, promotion, sale or other disposition of
Products and all technology licensed under this Agreement, including without
limitation, any product liability claim.
14.2 HMRI's indemnification under Section 14.1 shall not apply to any
liability, loss, damage, action, claim or expense to the extent that it is
directly attributable to the negligent activities, reckless misconduct or
intentional misconduct of ALLIANCE.
ARTICLE 15 - INTERPRETATION
15.1 The construction, validity and performance of this Agreement shall be
governed in all respects by the laws of the State of New York, without giving
effect to principles of conflict of laws.
23
<PAGE>
ARTICLE 16 - EXPORTS
16.1 The parties acknowledge that the export of technical data, materials, or
products is subject to the exporting party receiving any necessary export
licenses and that the parties cannot be responsible for any delays attributable
to export controls which are beyond the reasonable control of the exporting
party. ALLIANCE and HMRI agree not to export or re-export, directly or
indirectly, any information, technical data, the direct product of such data,
samples, or equipment received or generated under this Agreement in violation
of any statutes or governmental regulations which may be applicable, including,
but not limited to, the Export Administration Act of 1979, as amended, its
rules and regulations, including, but not limited to, Part 779 of the United
States Export Control Regulations, published by the United States Department of
Commerce, and other applicable export laws. ALLIANCE and HMRI agree to use
reasonable efforts to obtain similar covenants from their licensees,
sublicensees, and contractors with respect to the subject matter of this
article.
ARTICLE 17 - FORCE MAJEURE
17.1 No failure or omission by the parties hereto in the performance of any
obligation of this Agreement shall be deemed a breach of this Agreement or
create any liability if the same shall arise from any cause or causes beyond
the reasonable control of the parties, including but not limited to the
following which, for the purposes of this Agreement, shall be regarded as
beyond the control of the party in question: acts of God, acts or omissions of
any government or any rules, regulations or orders of any governmental
authority or any officer, department, agency or instrument thereof; fire,
storm, flood, earthquake, accident, acts of the public enemy, war, rebellion,
insurrection, riot, invasion, strikes, or lockouts.
ARTICLE 18 - ARBITRATION
18.1 In case any dispute arises out of this Agreement, the parties will
endeavor to settle such dispute amicably between themselves. In the event that
the parties fail to agree, any such dispute shall be finally settled by
arbitration administered by and according to the Rules of Commercial
Arbitration of the American Arbitration Association. The arbitration shall
take place in New York, New York. The arbitration panel shall consist of one
(1) arbitrator chosen by mutual consent of the parties and the decision shall
be final and binding on the parties and their legal successors. Should the
parties fail to agree on the selection on an arbitrator, each party shall
appoint one (1) arbitrator and the two arbitrators shall agree upon a neutral
third arbitrator to serve as the sole arbitrator. The arbitrator may, at his
discretion, provide for discovery by the parties during a period not to exceed
four (4) months from the date of filing of the notice of arbitration and the
arbitrator shall render his decision within thirty (30) days of the completion
of the hearing and may, at his discretion award costs and expenses. The
arbitrated award shall be final and binding on the parties. Judgment on the
award may be entered in any court of competent jurisdiction.
It is not intended by the parties that disputes arising out of issues
before the Steering Committee or PMT shall be subject to arbitration. The time
period for cure recited in Section 13.2 shall be suspended upon institution of
arbitration until completion of such arbitration.
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<PAGE>
ARTICLE 19 - NOTICES
19.1 Any notice required or permitted to be given under this Agreement shall be
mailed by registered or certified air mail, return receipt requested, postage
prepaid, addressed to the party to be notified at its address stated below, or
at such other address as may hereafter be furnished in writing to the notifying
party or by telefax (with the telefax followed by sending the same by
registered or certified mail) to the numbers set forth below or to such changed
telefax numbers as may thereafter be furnished.
If to ALLIANCE:
President
Alliance Pharmaceutical Corp.
3040 Science Park Road
San Diego, CA 92121
Telefax No.: (6l9) 558-5161
with a copy to:
Stroock & Stroock & Lavan
Seven Hanover Square
New York, NY 10004
Attention: Melvin Epstein, Esq.
Telefax No.: (212) 806-6006
If to HMRI:
Hoechst Marion Roussel, Inc.
10236 Marion Park Drive
Kansas City, MO 64137-1406
Attn: General Counsel
Telefax No: (816) 966-3805
with a copy to:
Hoechst Marion Roussel, Inc.
2110 East Galbraith Road
Cincinnati, OH 45215
Attn: General Patent Counsel
Telefax No: (513) 948-7961
Any such notice shall be deemed to have been received when it has been
delivered or received by telefax (with the telefax followed by sending the same
by registered or certified mail).
25
<PAGE>
ARTICLE 20 - WAIVER
20.1 The failure on the part of ALLIANCE or HMRI to exercise or enforce any
rights conferred upon it hereunder shall not be deemed to be a waiver of any
such rights nor operate to bar the exercise or enforcement thereof at any time
or times thereafter.
ARTICLE 21 - LEGALITY
21.1 In the event that any term of this Agreement shall contravene the laws
and/or regulations in any country of the Territory, the parties shall
immediately meet in order to agree on any necessary amendments, provided that
any clauses thereby rendered unenforceable shall in no way affect the validity
of this Agreement.
ARTICLE 22 - ASSIGNMENT
22.1 This Agreement, and all rights and obligations hereunder, are personal as
between the parties and shall not be assigned in whole or in part by any of the
parties to any other person or company without the prior written consent of the
other party, except with respect to either party, in the event of a merger,
acquisition or transfer of substantially all of its assets.
ARTICLE 23 - TITLES
23.1 It is agreed that the headings appearing at the beginning of the numbered
Articles hereof have been inserted for convenience only and do not constitute
any part of this Agreement.
ARTICLE 24 - PUBLICITY
24.1 Neither party shall originate any publicity, news release or public
announcements, written or oral, whether to the public or press, stockholders or
otherwise, relating to this Agreement, including its existence, the subject
matter to which it relates, performance under it or any of its terms, to any
amendment hereto or performances hereunder without the prior written consent of
the other party, provided however, that this Section 24.1 shall not be
applicable where either party hereto is legally required to make public a
summary or details of this Agreement, in any country. If a party believes that
it has a legal requirement to make public the existence of or any details of or
any events related in any way to this Agreement, it shall provide a copy of any
such announcement to the other party for review and approval at least three (3)
business days prior to making said announcement.
ARTICLE 25 - UNENFORCEABLE PROVISIONS
25.1 Any provision hereof which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
26
<PAGE>
ARTICLE 26 - OTHERS
26.1 As used in this Agreement, singular includes the plural and plural
includes the singular, wherever so required by fact or context.
ARTICLE 27 - EXECUTION
27.1 This Agreement may be executed in counterparts each of which shall for all
purposes be deemed an original.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers or representatives as of
the day and year first above written.
ALLIANCE PHARMACEUTICAL CORP.
WITNESS_________________________ By:___________________________
Duane J. Roth
Title: President
Date: FEBRUARY 28, 1996
_________________________
HOECHST MARION ROUSSEL, INC.
WITNESS_________________________ By:___________________________
Title:________________________
Date:_________________________
27
<PAGE>
APPENDIX A
TO
LICENSE AGREEMENT
**
<PAGE>
Appendix B
to
License Agreement
**
<PAGE>
Appendix C
to
License Agreement
**
<PAGE>
SCHEDULE 2.5
TO
LICENSE AGREEMENT
**
<PAGE>
SCHEDULE 8.3
TO
LICENSE AGREEMENT
**
<PAGE>
SCHEDULE 10.1
TO
LICENSE AGREEMENT
**
<PAGE>
STOCK AND WARRANT PURCHASE AGREEMENT
This PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (the "Purchase
Agreement" or the "Agreement") is made as of this 28th day of February, 1996 by
and between Alliance Pharmaceutical Corp., a New York corporation (the
"Company"), and Hoechst Marion Roussel, Inc. ("HMRI"), a Delaware corporation.
THE PARTIES AGREE AS FOLLOWS:
1. AUTHORIZATION OF PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS.
1.1 AUTHORIZATION OF PREFERRED STOCK AND WARRANTS. The Company has
authorized the issuance and sale of up to 750,000 shares of its Series B
Preferred Stock, $.01 par value (such Series B Preferred Stock being
hereinafter referred to as the "B Stock"), up to 200,000 shares of its Series C
Preferred Stock, $.01 par value (such Series C Preferred Stock being hereafter
referred to as the "C Stock" and, collectively with the B Stock referred to as
the "Preferred Stock"), and warrants to purchase up to 300,000 shares of the
Company's Common Stock, $.01 par value (each, individually, a "Warrant" and
collectively, the Warrants") to be issued under the Purchase Agreement. The
rights, privileges, and preferences of the Preferred Stock are as set forth in
the Company's Certificate of Amendment of Certificate of Incorporation (the
"Certificate of Amendment") in the form attached to this Purchase Agreement as
Exhibit A. The Warrants shall be substantially in the form of the certificate
attached hereto as Exhibit B (the "Warrant Certificate").
1.2 PURCHASE AND SALE OF THE PREFERRED STOCK AND WARRANTS. Subject to
the terms and conditions of this Purchase Agreement and on the basis of the
representations and warranties set forth herein, the Company agrees to sell to
HMRI, and HMRI agrees to purchase from the Company, 750,000 shares of B Stock
(the "B Shares") at a purchase price of $9.3333 per share, and 200,000 shares
of the C Stock (the "C Shares" and, collectively with the B Shares referred to
as the "Shares") at a purchase price of $75.00 per share. In addition, the
Company agrees to grant HMRI warrants to purchase 300,000 shares of Common
Stock at an exercise price and upon the terms set forth in the Warrant
Certificate.
1.3 THE CLOSING. The purchase and sale of the Shares and the Warrants
will take place at the offices of HMRI, at 10:00 a.m. Eastern time on March 30,
1996 or at such other time and place as the parties shall mutually agree (the
"Closing"). At the Closing, the Company will deliver to HMRI certificates,
registered in HMRI's name, representing the Shares to be purchased by HMRI and
a certificate or certificates, registered in HMRI's name, representing the
number of Warrants to be granted to HMRI against payment of the purchase price
thereof in lawful money of the United States of America by wire transfer or
check payable to the Company.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to HMRI that:
<PAGE>
2.1 ORGANIZATION AND CORPORATE POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and is qualified to do business as a foreign corporation in each
jurisdiction where failure to qualify would have a materially adverse effect on
the business or properties of the Company. The Company has full power and
authority to own its property, to carry on its business as presently conducted
and to carry out the transactions contemplated hereby. The copies of the
Certificate of Incorporation, Certificate of Amendment and Bylaws of the
Company, as amended to date, which have been furnished to HMRI by the Company,
are correct and complete.
2.2 AUTHORIZATION. The Company has full power to execute, deliver and
perform this Purchase Agreement, the License Agreement between the Company and
HMRI attached hereto as Exhibit C (the "License Agreement") and each other
agreement entered into by the Company in connection with this Purchase
Agreement, and each such agreement has been duly executed and delivered by the
Company and is the legal, valid and, assuming due execution by the other
parties hereto and thereto, binding obligation of the Company, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting creditors' rights
generally, and to general equitable principles. The execution, delivery and
performance of this Purchase Agreement, including the sale, issuance and
delivery of the Preferred Stock and the Warrants, and the License Agreement,
and each other agreement entered into by the Company in connection with this
Purchase Agreement, has been duly authorized by all necessary corporate action
of the Company.
2.3 CAPITALIZATION. The entire authorized capital stock of the
Company consists of 50,000,000 shares of common stock, $0.01 par value per
share (the "Common Stock"), of which 24,916,691 shares are issued and
outstanding on December 31, 1995, and 5,000,000 shares of preferred stock,
$.01 par value, of which (i) 1,500,000 have been designated Series A
Preferred Stock and are issued and outstanding, (ii) 750,000 have been
designated Series B Preferred Stock, all of which are to be issued at the
Closing, and (iii) 200,000 have been designated Series C Preferred Stock, all
of which are to be issued at the Closing. None of the remaining 2,550,000
shares of such preferred stock are issued or outstanding. The shares of
Common Stock outstanding are duly authorized, validly issued, fully paid and
nonassessable. No shares of Common Stock or preferred stock are held in the
Company's treasury. The Company has authorized and reserved 750,000 shares of
B Stock for issuance hereunder and 200,000 shares of C Stock for issuance
hereunder.. When issued in accordance with the terms of this Purchase
Agreement, the Shares will be duly authorized, validly issued and
outstanding, fully paid and nonassessable, and the certificates representing
the same will be duly and validly authorized, executed and delivered by the
Company. The Company has authorized and reserved for issuance upon conversion
of the B Stock and C Stock and upon exercise of the Warrants 750,000 shares
300,000 shares and 300,000 shares, respectively, of its Common Stock (such
shares, until sold to the public generally pursuant to a registration
statement or Rule 144(k) promulgated under the Securities Act of 1933, as
amended (the "1933 Act"), are referred to herein as "Conversion Shares"). The
Conversion Shares and any shares of Common Stock issued upon the exercise of
an Option (as hereinafter defined) (such shares being referred to herein as
the "Option Shares") will, upon such issuance in accordance with the terms of
the Company's Certificate of Incorporation, as amended, or the Warrant
Certificate as the case may be, be duly authorized, validly issued and
2
<PAGE>
outstanding, fully paid and nonassessable, and the certificates representing
the same will be duly and validly authorized, executed and delivered by the
Company. There are no outstanding warrants, rights of first refusal, options
or other rights to purchase or acquire, or exchangeable for or convertible
into, any shares of Common Stock or Preferred Stock, except as disclosed on
Schedule 2.3 or as otherwise disclosed in writing. The Company has reserved
4,080,505 shares of Common Stock for issuance upon exercise of certain
outstanding options and warrants. Except as provided herein, there are no
preemptive rights with respect to the issuance or sale by the Company of any
of its securities. Except as provided in this Purchase Agreement or as
imposed by applicable securities laws, there are no restrictions on the
transfer or voting of any shares of the Common Stock or Preferred Stock.
There are no existing rights with respect to registration under the 1933 Act
of any of the Company's securities except as set forth herein or as disclosed
on Schedule 2.3. Upon consummation of the transactions contemplated hereby,
good and valid title to the Shares and Warrants will pass to HMRI, free and
clear of any encumbrances, liens, claims, charges or assessments of any
nature whatsoever. Upon their issuance in accordance with the Company's
Certificate of Incorporation, as amended, or the Warrant Certificate, as the
case may be, and, with respect to the Option Shares, this Agreement, good and
valid title to the Conversion Shares and the Option Shares will pass to HMRI,
free and clear of any encumbrances, liens, claims, charges or assessments of
any nature whatsoever.
2.4 FINANCIAL STATEMENTS. The Company has delivered to HMRI a copy of the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995
(the "1995 10-K"), containing audited consolidated balance sheets for the
fiscal years ended June 30, 1994 and June 30, 1995 and statements of operations
and cash flow for the Company for the fiscal years ending June 30, 1993, June
30, 1994, and June 30, 1995 and a copy of the Company's Quarterly Report on
Form 10-Q for the quarter[s] ending September 30, 1995 and December 31, 1995
(the "Forms 10-Q" and the financial statements included therein and in the 1995
10-K, collectively, the "Financial Statements"). The Financial Statements are
in accordance with the books and records of the Company, have been prepared in
accordance with generally accepted accounting principles, consistently applied,
and fairly present, in all material respects, the financial position, results
of operations and cash flows of the Company as of each such date and for each
of the periods covered thereby, except that such summary statements are subject
to normal year-end adjustments.
2.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
reflected or stated in the Financial Statements, the Company has no debts,
liabilities or obligations of any nature, whether accrued, absolute, assigned
or otherwise, whether due or to become due, other than incurred in the ordinary
course of business.
2.6 ABSENCE OF CERTAIN DEVELOPMENTS. Since June 30, 1995, except as
disclosed in the Financial Statements and except for continuing operating
losses not materially greater than in prior periods, there has been no (i)
material adverse change in the condition, financial or otherwise, of the
Company or its assets, liabilities, properties, business, operations, condition
or prospects generally (a "Material Adverse Change"), (ii) declaration, setting
aside or payment of any dividend or other distribution with respect to the
capital stock of the Company, or (iii) loss,
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destruction or damage to any property of the Company, whether or not insured,
which has or may have a material adverse effect on the Company.
2.7 TITLE TO PROPERTIES. Except as stated in the 1995 10-K, to the best
of the Company's knowledge, the Company has good and marketable title to all
material properties and assets necessary to its business as presently conducted
and as proposed to be conducted, and to all of its properties and assets, free
and clear of all mortgages, security interests, liens, restrictions or
encumbrances other than (i) those disclosed on Schedule 2.7, (ii) the lien of
current taxes not yet due and payable and (iii) possible minor liens and
encumbrances which do not in any case, individually or in the aggregate,
materially detract from the value of the property subject thereto or materially
impair the operations of the Company, and would not result in the occurrence of
a Material Adverse Change, and which have not arisen otherwise than in the
ordinary course of business.
2.8 TAX MATTERS. All taxes, including, without limitation, income,
excise, property, sales, transfer, use, franchise, payroll, employees' income
withholding and social security taxes imposed or assessed by the United States
or by any foreign country or by any state, municipality, subdivision or
instrumentality of the United States or of any foreign country, or by any other
taxing authority, which are due or payable by the Company, and all interest,
penalties and additions thereon, whether disputed or not, have been paid in
full, and all tax returns or other documents required to be filed in connection
therewith have been accurately prepared and duly and timely filed. The Company
has not been delinquent in the payment of any foreign or domestic tax,
assessment or governmental charge or deposit and has no tax deficiency or claim
outstanding, assessed or, to the best of its knowledge, proposed against it.
The provisions for taxes in the Financial Statements are sufficient for the
payment of all accrued and unpaid federal, state, county and local taxes of the
Company.
2.9 NO DEFAULTS. The Company is not in violation of any term or provision
of (a) its Certificate of Incorporation or Bylaws or any material note,
indenture, mortgage, lease, agreement, contract, purchase order or other
material instrument, document or agreement to which the Company is a party or
by which it or any of its properties or assets is bound or affected or (b) any
order, writ, injunction or decree of any court or any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
2.10 INTELLECTUAL PROPERTY.
(a) To the best of the Company's knowledge,(i) the Company has good
title to and ownership of or licensed rights to, free and clear of all liens,
claims and encumbrances of any nature, all patents, patent rights, patent
applications, know-how, information, proprietary rights and processes
(collectively, the "Intellectual Property") licensed by the Company to HMRI
under the License Agreement, and (ii) the conduct by the Company of its
business in connection with the Intellectual Property neither conflicts with or
constitutes, or is expected to conflict with or constitute, an infringement of
the rights of others.
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(b) To the best of the Company's knowledge, the Company has
sufficient title to and ownership of, or license rights to, or has applied for,
all patents, trademarks, service marks, trade names, copyrights and
information, proprietary rights and processes necessary to the proper conduct
of its business as described in the Financial Statements.
(c) The Company has not received any communications alleging that,
and has no knowledge that the Company has violated or, by conducting its
business, would violate any of the patents, trademarks, service marks, trade
names, copyrights, proprietary rights or processes of any other person or
entity.
2.11 EFFECT OF TRANSACTIONS. Assuming compliance with the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), the execution, delivery and performance of this Purchase Agreement
and the transactions contemplated hereby, and compliance with the provisions
hereof by the Company, (a) do not and will not, with or without the passage of
time or the giving of notice or both, (i) violate any current ruling, writ,
injunction, order, judgment or decree of any court, administrative agency or
other governmental body or (ii) conflict with or result in any breach of any of
the terms, conditions or provisions of, or constitute a default (or give rise
to any right of termination, cancellation or acceleration) under, or result in
the creation of any lien, security interest, charge or encumbrance upon any of
the properties or assets of the Company under the Certificate of Incorporation
or Bylaws of the Company or any material note, indenture, mortgage, lease,
agreement, contract, purchase order or other instrument, document or agreement
to which the Company is a party or by which it or any of its properties or
assets is bound or affected and (b) do not and will not, with or without the
passage of time or the giving of notice, violate any provision of any current
law, statute, rule or regulation.
2.12 NO GOVERNMENTAL CONSENT OR APPROVAL REQUIRED. Based in part on the
representations made by HMRI in Section 3 of this Purchase Agreement, and
except as contemplated herein and except for applicable requirements of the HSR
Act, no authorization, consent, approval or other order of, declaration to, or
registration, qualification, designation or (other than the Certificate of
Amendment) filing with any federal, state or local governmental agency or body
is required for or in connection with the valid and lawful authorization,
execution and delivery by the Company of this Purchase Agreement or any other
agreement entered into by the Company in connection with this Purchase
Agreement, and consummation of the transactions contemplated hereby or thereby,
or for or in connection with the valid and lawful authorization, issuance, sale
and delivery of the Shares or the Warrants or for or in connection with the
valid and lawful authorization, reservation, issuance, sale and delivery of the
Conversion Shares other than the qualification (or taking of such action as may
be necessary to secure an exemption from qualification if available) of the
offer and sale of the Shares under the California Corporate Securities Law of
1968, as amended, and other applicable state securities laws, which filings and
qualifications, if required, will be accomplished in a timely manner so as to
comply with such qualification or exemption from qualification requirements.
2.13 LITIGATION. Except as disclosed in the 1995 10-K, there is no claim,
arbitration, action, suit, proceeding or investigation pending, or to the best
knowledge of the Company,
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threatened against the Company, which questions the validity of this Purchase
Agreement or any other agreement entered into by the Company in connection with
this Purchase Agreement or the right of the Company to enter into any such
agreements or to consummate the transactions contemplated hereby or thereby, or
which might result, either individually or in the aggregate, in any material
adverse effect on the condition of the Company or its assets, liabilities,
properties, business, operations or prospects generally (a "Material Adverse
Effect"), or any change in the current equity ownership of the Company. The
Company is not a party to, or subject to the provisions of, any order, writ,
injunction, judgment or decree of any court or governmental agency or
instrumentality which would have a Material Adverse Effect.
2.14 SECURITIES LAWS. Assuming that HMRI's representations and warranties
contained in Section 3 of this Purchase Agreement are and continue to be true
and correct, the offer, issuance and sale to HMRI of the Shares, the Warrants,
the Conversion Shares and the Option Shares are and will be exempt from the
registration and prospectus delivery requirements of the 1933 Act, and have
been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of
all applicable state securities laws.
2.15 BROKERAGE. Other than claims of Lehman Brothers, there are no claims
for brokerage commissions or finder's fees or similar compensation in
connection with the transactions contemplated by this Purchase Agreement based
on any arrangement made by or on behalf of the Company. The Company agrees to
indemnify and hold HMRI harmless against any damages incurred as a result of
any such claim, including any claims of Lehman Brothers.
2.16 INSURANCE. The Company maintains in full force such types and amounts
of insurance issued by issuers of recognized responsibility insuring the
Company, with respect to its liability, workers' compensation, business and
properties, in such amounts and against such losses and risks as are sufficient
for compliance with all requirements of law and are deemed appropriate by the
Company under its present circumstances.
2.17 COMPLIANCE WITH LAWS. To the best of its knowledge, the Company is in
compliance in all material respects with every statute, law or regulation
applicable to the Company's business or operations, including (without
limitation) statutes, laws and regulations relating to the environment or
occupational health and safety and, to the best of the Company's knowledge, no
material expenditures are required or currently anticipated in order to comply
with any such existing statute, law or regulation.
2.18 RETIREMENT OBLIGATIONS, ETC. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974,
other than as disclosed in the 1995 10-K. The Company does not have any
employees that are represented by a union. The Company is not a party to any
collective bargaining agreement and, to the best of the Company's knowledge, no
organizational efforts are presently being made with respect to any of its
employees. HMRI will not incur through consummation of any of the transactions
contemplated by the Purchase Agreement any liability in respect of employees of
the Company or any of its employee benefit plans.
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2.19 INVESTMENT COMPANY. The Company is not an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, and will not, as
a result of the transactions contemplated hereby, become an "investment
company."
2.20 DISCLOSURE. The Company has fully provided HMRI with all the
information that HMRI has requested for deciding whether to purchase the Shares
and the Warrants. The 1995 10-K, the Forms 10-Q, this Purchase Agreement, and
the other exhibits or schedules delivered in connection herewith or therewith,
taken together, do not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein or therein in
view of the circumstances under which they were made not misleading.
3. REPRESENTATIONS AND WARRANTIES AND OTHER AGREEMENTS OF HMRI.
3.1 REPRESENTATIONS AND WARRANTIES. HMRI hereby represents and warrants
that:
a. AUTHORIZATION. HMRI has full power and authority to execute,
deliver and perform this Purchase Agreement and to purchase the Shares and the
Warrants. Assuming due execution by the Company hereof and thereof, this
Purchase Agreement and each other agreement entered into by HMRI in connection
with this Purchase Agreement constitute the valid and legally binding
obligation of HMRI, enforceable against HMRI in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting creditors' rights generally, and to
general equitable principles.
b. PURCHASE ENTIRELY FOR OWN ACCOUNT. It is HMRI's intention to
acquire the Shares, the Warrants, the Conversion Shares and the Option Shares
(collectively, the "Securities") for investment for HMRI's own account, not as
a nominee or agent and not with a view to the sale or other disposition of any
part thereof in violation of the 1933 Act. HMRI has no present intention of
selling, granting any participation in, or otherwise disposing of the same in
violation of the 1933 Act. HMRI does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer, or grant
participation to such person or to any third person, with respect to any of the
Securities.
c. RESTRICTIONS ON DISPOSITION. HMRI covenants that in no event
will it dispose of any of the Securities (other than pursuant to Rule 144
promulgated under the 1933 Act ("Rule 144") or pursuant to a registration
statement filed with the Securities and Exchange Commission (the "SEC")
pursuant to the 1933 Act) unless and until (i) HMRI shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition; and (ii)
HMRI shall have furnished the Company with an opinion of HMRI's counsel
reasonably satisfactory in form and substance to the Company and the Company's
counsel to the effect that (a) such disposition will not require registration
under the 1933 Act or compliance with any applicable state, local or foreign
law, or (b) appropriate action necessary for compliance with the 1933 Act and
any applicable state, local or foreign law has been taken. The restrictions on
transfer imposed by this Section 3.1(c) shall cease and terminate as to the
Securities when: (i) such securities shall have been effectively registered
under the 1933 Act and sold by the owner thereof in accordance with such
registration;
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or (ii) an opinion of the kind described in the preceding sentence states that
all future transfers of such securities by the holder thereof would be exempt
from registration under the 1933 Act and compliance with any applicable state,
local or foreign law. Each certificate evidencing the Securities shall bear an
appropriate restrictive legend as set forth in Section 3.3 below, except that
such certificate shall not be required to bear such legend after a transfer
thereof if the transfer was made in compliance with Rule 144 or pursuant to a
registration statement or, if the opinion of counsel referred to above is
issued and provides that such legend is not required in order to establish
compliance with any provisions of the 1933 Act.
d. RECEIPT OF INFORMATION. HMRI has been furnished access to the
business records of the Company and all such additional information and
documents as such HMRI has requested and has been afforded an opportunity to
ask questions of and receive answers from representatives of the Company
concerning the terms and conditions of this Purchase Agreement and the purchase
of the Shares.
e. BROKERAGE. There are no claims for brokerage commissions or
finder's fees or similar compensation in connection with the transactions
contemplated by this Purchase Agreement based on any arrangement or agreement
made by or on behalf of HMRI, and HMRI agrees to indemnify and hold the Company
harmless against any damages incurred as a result of any such claims.
3.2 FURTHER PROVISIONS REGARDING DISPOSITION.
a. TRANSFER TO AFFILIATES. Notwithstanding the provisions of
Section 3.1(c) above, no registration statement or opinion of counsel shall be
necessary for a transfer by HMRI to a subsidiary or affiliate (as defined
pursuant to the 1933 Act) of HMRI which is an accredited investor, if the
transferee makes the warranties set forth in Sections 3.1 (b) and (c) and
agrees in writing to be subject to the terms hereof, to the same extent as if
such transferee were HMRI hereunder.
b. NEW CERTIFICATES. Whenever the restrictions imposed by Section
3.1(c) above shall terminate as herein provided, the holder of the securities
as to which such restrictions have terminated shall be entitled to receive from
the Company, without expense, one or more new certificates not bearing
restrictive legends and not containing any reference to the restrictions
imposed by this Purchase Agreement.
3.3 LEGENDS. It is understood that, subject to Sections 3.1(c) and
3.2(b), the certificates evidencing the Shares, the Warrants, the Option Shares
and the Conversion Shares may bear substantially the following legends:
a. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH
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REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
b. Any legend required by the laws of any other applicable
jurisdiction.
3.4 NOTICE OF CERTAIN EVENTS. HMRI hereby covenants and agrees that
during the term of the License Agreement (including any extension thereof),
unless notice has been provided in accordance with Section 3.1 (c), it will
provide written notice to the Company of any purchase, sale or other
acquisition or disposition, on the open market or in private transactions, by
HMRI or any of its affiliates (including subsidiaries or other entities
controlled by HMRI) of any shares of the Common Stock or other equity
securities of the Company (or if HMRI or such affiliates shall direct any third
party to take any such actions on behalf of HMRI or such affiliates). Such
notice shall be transmitted to the Company by facsimile (with telephonic
notice) within ten (10) days after any such transaction, and shall specify the
person or entity effecting the transaction, the date of such transaction, and
the number of securities with respect to such transaction.
3.5 LIMITATION ON NOTICE OF CERTAIN EVENTS. HMRI shall not be required
to comply with the provisions of Section 3.4 if, in connection with any
transaction referred to in Section 3.4, HMRI or its affiliate files with the
SEC and sends to the Company a statement on Schedule 13D or Schedule 13G in
connection with such transaction and in compliance with Rule 13d-1 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
4. CONDITIONS TO HMRI'S OBLIGATIONS AT CLOSING. The obligations of HMRI
under Section 1.2 of this Purchase Agreement are subject to the fulfillment on
or before the Closing of each of the following conditions:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in Section 2 shall be true in all material respects on
and as of the date of such Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing.
4.2 PERFORMANCE. The Company shall have performed and complied with all
agreements, obligations, and conditions contained in this Purchase Agreement
that are required to be performed or complied with by it on or before the
Closing.
4.3 COMPLIANCE CERTIFICATE. The Chief Executive Officer of the Company
shall deliver to HMRI at the Closing a certificate certifying that the
conditions specified in Sections 4.1, 4.2, 4.4, 4.5 and 4.7 have been fulfilled
and stating that there has been no Material Adverse Change since June 30, 1995.
4.4 CERTIFICATE OF AMENDMENT. The Company shall have filed with the
Secretary of State of New York the Certificate of Amendment in substantially
the form attached hereto as Exhibit A.
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4.5 QUALIFICATIONS. All authorizations, approvals, or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Shares to HMRI pursuant to this Purchase Agreement shall have been duly
obtained and shall be effective on and as of the Closing.
4.6 HSR ACT WAITING PERIODS. All waiting periods applicable to this
Agreement and the transactions contemplated hereby under the HSR Act (including
any extension thereof by reason of a request for additional information) shall
have expired or been terminated and no action shall have been instituted, or
shall be threatened or pending, by the United States Justice Department or the
Federal Trade Commission (the "FTC") challenging or seeking to enjoin the
consummation of the transactions contemplated hereby, which action shall not
have been withdrawn or terminated.
4.7 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to HMRI
and HMRI's counsel, and they shall have received all such counterpart original
and certified or other copies of such documents as they may reasonably request.
4.8 LICENSE AGREEMENT. The License Agreement, in substantially the form
attached hereto as Exhibit C, shall have been executed and delivered by the
Company.
4.9 WARRANT CERTIFICATE. The Warrant Certificate, in substantially the
form attached hereto as Exhibit B, shall have been executed and delivered by
the Company.
4.10 OPINION OF COMPANY COUNSEL. HMRI shall have received from counsel for
the Company an opinion, dated as of the Closing and addressed to HMRI, covering
the matters set forth in Sections 2.1, 2.2, 2.3 (as to the due authorization,
valid issuance, full payment and non-assessability of the Shares, Conversion
Shares and Option Shares), 2.11, 2.12 and 2.14.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company under Section 1.2 of this Purchase Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
HMRI contained in Section 3 shall be true in all material respects on and as of
the date of such Closing with the same effect as though such representations
and warranties had been made on and as of the date of such Closing.
5.2 PERFORMANCE. HMRI shall have performed and complied with all
agreements, obligations and conditions contained in this Purchase Agreement
that are required to be performed or complied with by it on or before such
Closing.
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5.3 QUALIFICATIONS. All authorizations, approvals, or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Shares to HMRI pursuant to this Purchase Agreement shall have been duly
obtained and shall be effective on and as of the Closing.
5.4 HSR ACT WAITING PERIODS. All waiting periods applicable to this
Agreement and the transactions contemplated hereby under the HSR Act (including
any extension thereof by reason of a request for additional information) shall
have expired or been terminated and no action shall have been instituted, or
shall be threatened or pending, by the United States Justice Department or the
FTC challenging or seeking to enjoin the consummation of the transactions
contemplated hereby, which action shall not have been withdrawn or terminated.
5.5 LICENSE AGREEMENT. The License Agreement, in substantially the form
attached hereto as Exhibit C, shall have been executed and delivered by HMRI.
6. AFFIRMATIVE COVENANTS OF THE COMPANY.
6.1 BOARD RIGHTS. So long as HMRI owns at least 500,000 shares of the B
Stock or 500,000 shares of the Common Stock into which the B Stock shall have
been converted, the Company shall allow HMRI the rights set forth in either (a)
or (b) below, at HMRI's election:
(a) The Company shall give HMRI or its designated representative
notice of each meeting of its Board of Directors at the same time and in the
same manner as notice is given to the members of the Board of Directors, and
the Company shall permit such representative to attend and observe all meetings
of the Company's Board of Directors and to listen to all such meetings held
telephonically. The Company shall provide HMRI's representative with copies of
written materials and other information given to directors in connection with
such meetings at the same time and in the same manner such materials and
information are given to the directors. If the Company takes any action by
written consent in lieu of a meeting of its Board of Directors, the Company
shall give notice thereof to HMRI's representative at the same time and in the
same manner in which such consent is requested of directors. HMRI's
representative must be reasonably acceptable to the Company and shall be
knowledgeable and experienced in the operations of the pharmaceutical industry.
HMRI's representative shall not be entitled to written materials or other
information and shall agree to excuse himself or herself from meetings or
portions thereof at the request of the Company or the Chairman of the Board of
Directors where such information or his or her attendance or continued
presence, at the discretion of the Company, might jeopardize the
confidentiality of proprietary information of the Company or of any competitor
of HMRI or otherwise create a conflict of interest. HMRI's representative will
execute a confidentiality agreement in form and substance similar to the
Company's standard form of confidentiality agreement with consultants and other
third parties.
(b) HMRI shall be entitled to designate a person of its choice to
become a member of the Company's Board of Directors.
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6.2 REPORTS UNDER THE EXCHANGE ACT. With a view to making available to
HMRI the benefits of Rule 144 promulgated under the 1933 Act and any other rule
or regulation of the SEC that may at any time permit a permitted holder of
Securities to sell securities of the Company to the public without
registration, and with a view to making it possible for any such holder to
register the Securities pursuant to a registration on Form S-3, the Company
agrees to (subject to Section 8 in the case of Section 6.2(b)):
(a) make available adequate current public information as
contemplated by Rule 144 (c)(1) or (2);
(b) take such action as is necessary to enable a holder to utilize
Form S-3 for the sale of Securities;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the Exchange Act; and
(d) furnish to a holder owning any Securities upon request (i) a
written statement by the Company that it has complied with the reporting
requirements of Rule 144, the 1933 Act and the Exchange Act, or that it
qualifies as a registrant whose Securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be reasonably required
in availing any holder of Securities of any rule or regulation of the SEC which
permits the selling of any such Securities without registration or pursuant to
such form.
7. ANTI-DILUTION PROVISIONS.
7.1. OPTION. If, on or before the conversion of all of the Shares, the
Company shall issue additional shares of its Common Stock in any private
placement or public offering (excluding issuance or sale as a result of
exercise or conversion of (i) outstanding options, warrants or other
convertible or exchangeable securities on the date hereof, or (ii) stock
options granted to employees, directors or consultants whenever granted under
the Company's stock option programs or incentive stock option plan) (an
"Issuance"), the Company hereby grants to HMRI the right (an "Option")
following any such Issuance, to purchase a number of shares of Common Stock as
set forth below. The consideration for shares issued pursuant to an Issuance
(the "Consideration") shall be deemed to be the per share amount of cash and
any other form of consideration received by the Company, meaning, in the case
of a public offering, the public offering price. The amount of any non-cash
Consideration shall be deemed to be the fair value of such non-cash
Consideration determined in good faith by the Company's Board of Directors.
Pursuant to the Option, HMRI shall have the right to purchase the number
of additional shares of Common Stock (the "Option Number") determined by the
following formula:
NO = N ( 0.0288 )
1
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where N(O) is the Option Number and N(I) is the number of shares issued in the
Issuance. If the Option Number would include a fractional share, it shall be
rounded to the nearest whole share.
7.2. NOTICE OF ISSUANCE. Within ten (10) days after any Issuance, the
Company shall give written notice thereof to HMRI of the terms thereof,
including the Issuance Number, the Consideration and the Option Number of
shares related to such Issuance.
7.3. PURCHASE PRICE. The price for each share purchased pursuant to the
Option shall be an amount (payable in cash) equal to the Consideration for a
share purchased under the Issuance.
7.4. EXERCISE OF OPTION. The Option shall be exercised by written notice
to the Company, given within ten (10) days following receipt of written notice
of an Issuance pursuant to Section 7.2 above stating that it is HMRI's intent
to exercise the Option. The notice shall specify the number of shares for which
the Option is being exercised (up to the Option Number) and shall be
accompanied by payment in full of the exercise price for such shares.
7.5. DELIVERY OF CERTIFICATES: REGISTRATION. Promptly after each exercise
of the Option, the Company shall cause to be delivered to HMRI a certificate or
certificates evidencing the shares purchased pursuant to the exercise of the
Option; provided, however, that HMRI shall be deemed to be the holder of record
of such shares as of the date of exercise of the Option with respect to such
shares. The Company may postpone the issuance and delivery of such shares upon
any exercise of the Option until (a) the admission of such shares to listing on
any stock exchange on which shares of the same class are then listed and (b)
the completion of such registration or other qualification of such shares under
any state or federal law, rule or regulation as the Company, in the reasonable
opinion of its counsel, shall determine to be necessary or advisable. Nothing
in this Section 7.5 shall be deemed to require that the Company file or amend a
registration statement under the 1933 Act.
7.6. DIVIDENDS AND RECLASSIFICATION. If, following an Issuance but prior
to the exercise of, or expiration of the right to exercise, the Option relating
to such Issuance, there shall be declared payable to holders of record of the
Common Stock on a date prior to such exercise or expiration, or paid, a stock
dividend upon the Common Stock of the Company or if such stock shall be split-
up, combined, converted, exchanged (including by way of merger), reclassified,
or in any way substituted for (collectively, a "Dividend or Reclassification"),
the Option shall entitle HMRI upon the future exercise of the Option relating
to such Issuance to such number and kind of securities or other property,
subject to the terms of the Option, to which HMRI would have been entitled had
HMRI actually owned the Common Stock as to which the Option is then exercised
at the time of such Dividend or Reclassification; and the aggregate purchase
price upon the exercise of the Option relating to such Issuance shall be the
same as if the shares of Common Stock originally optioned were being purchased
as provided herein; provided that no fractions of shares shall be issued, the
aggregate purchase price shall be appropriately reduced on account of any
fractions not so issued and the purchase price shall in no event be less than
the par value of the Common Stock.
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7.7. RESERVATION OF COMMON STOCK. the Company hereby represents and
covenants with HMRI that it shall at all times reserve for issuance to HMRI
such number of shares of its Common Stock as will be sufficient to satisfy the
requirements of any Option.
7.8. SUCCESSORS TO OPTION. The Option and all rights hereunder shall be
non-assignable and nontransferable, are intended solely for the benefit of
HMRI, and shall in no way inure to the benefit of its assignees or transferees.
Notwithstanding the foregoing, HMRI may assign or transfer the Option to any
corporation with which HMRI is merged or combined or to any corporation which
is a successor to or an affiliate of HMRI. The Company shall have the right to
require, as a condition precedent to such assignment or transfer, that the
assignee or transferee furnish such information as may in the opinion of
counsel for the Company be appropriate to permit such assignment or transfer in
light of the then applicable federal or state securities laws. As used in this
Agreement, the term "affiliate" shall have the meaning set forth in Rule 12b-2
under the Exchange Act, and the term "person" or "entity" shall mean any
individual, company, partnership, joint venture, association, corporation,
trust, government or agency thereof, or any other entity.
7.9. INFORMATION FROM HMRI. The Company shall have the right to require,
as a condition precedent to the exercise of the Option, that HMRI furnish such
information (and representations comparable to those in Section 3.1) as may in
the reasonable opinion of counsel for the Company be appropriate to permit the
Company, in light of the then existence or non-existence of an effective
registration statement under the 1933 Act with respect to such shares, to issue
the shares in compliance with the provisions of that or any comparable act.
8. REGISTRATION OF COMMON STOCK.
8.1 REGISTRATION. Upon conversion of the Preferred Stock, the Company
will use its best efforts to effect the registration under the 1933 Act on Form
S-3 or such other registration form as counsel to the Company deems appropriate
all of the Conversion Shares (to the extent issued prior to the effective date
of such registration and not previously registered, with respect to Conversion
Shares issued upon exercise of the Warrants) and Option Shares, or any shares
issued pursuant to stock dividends, stock splits or similar distributions upon
such Common Stock, Conversion Shares and Option Shares ("Registrable Stock").
For purposes of this Purchase Agreement, a "Holder" of any security means the
record or beneficial owner of such security or any permitted successor or
assignee thereof.
8.2 REGISTRATION EXPENSES. The Company shall pay all expenses incurred in
effecting the registration of Registrable Stock pursuant to Section 8.1
including, without limitation, all federal and state registration,
qualification and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and the expense of any
special audits incident to or required by any such registration, but not
including underwriting discounts, commissions and expenses and fees of counsel
to the participating Holders.
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8.3 REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of Section 8.1 to effect the registration of the Registrable
Stock under the 1933 Act, the Company will, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement which
includes the Registrable Stock and use its best efforts to cause such
registration statement to become and remain effective until the distribution
described in the registration statement has been completed or until the
participating Holders can sell all such Registrable Stock pursuant to Rule 144;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the 1933 Act with respect to the sale or other
disposition of Registrable Stock covered by such registration statement
whenever a Holder shall desire to sell or otherwise dispose of the same, but
only to the extent provided in this Section 8;
(c) furnish to each participating Holder (and to each underwriter,
if any, of Registrable Stock) such number of copies of a prospectus, including
a preliminary prospectus, in conformity with the requirements of the 1933 Act,
and such other documents, as such Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Stock;
(d) use its best efforts to register or qualify the Registrable
Stock covered by such registration statement under such state securities or
blue sky laws of such jurisdiction as each participating Holder shall
reasonably request and do any and all other acts and things which may be
necessary under such securities or blue sky laws to enable such Holder to
consummate the public sale or other disposition in such jurisdictions of the
Registrable Stock, except that the Company shall not for any purpose be
required to consent generally to service of process or qualify to do business
as a foreign corporation in any jurisdiction wherein it is not so qualified;
(e) before filing the registration statement prospectus or
amendments or supplements thereto, furnish to counsel selected by the
participating Holders copies of such documents proposed to be filed which shall
be subject to the reasonable approval of such counsel;
(f) enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offer;
(g) notify the participating Holders at any time when a prospectus
relating to any Registrable Stock covered by such registration statement is
required to be delivered under the 1933 Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing and promptly
file such amendments and supplements as may be necessary so that, as thereafter
delivered to such Holders, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
15
<PAGE>
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing and use its best efforts to cause each
such amendment and supplement to become effective;
(h) furnish at the request of the participating Holders on the date
that such Registrable Stock is delivered to the underwriters for sale in
connection with a registration pursuant to this Section 8 an opinion, dated
such date, of the counsel representing the Company, for purposes of such
registration, in form and substance as is customarily given by company counsel
to the underwriters in an underwritten public offer addressed to the
underwriters, if any, and to such Holders, and (ii) a letter dated such date,
from the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offer, addressed to the underwriters
and to such Holders; and
(i) use its best efforts to cause all such Registrable Stock to be
listed on the securities exchange or the Nasdaq National Market, if any, on
which the Company's Common Stock is then listed.
Upon receipt of any notice from the Company of the happening of any event
of the kind described in paragraph (g), the Holder will forthwith discontinue
disposition of such Registrable Stock covered by such registration statement or
prospectus until receipt of the copies of the supplemented or amended
prospectus, or until it is advised in writing by the Company that the use of
the applicable prospectus may be resumed, and has received copies of an
additional or supplemental filings which are incorporated by reference in such
prospectus, and, if so directed by the Company, the Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in the Holder's possession, of the prospectus covering such Registrable
Stock current at the time of receipt of such notice.
8.4 INDEMNIFICATION. In the event Registrable Stock is registered
pursuant to this Section 8:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder of Registrable Stock which is included in a
registration statement filed pursuant to the provisions of this Agreement and
any underwriter (within the meaning of the 1933 Act) with respect to the
Registrable Stock, and each officer, director, employee and agent thereof and
each person, if any, who otherwise controls such Holder or underwriter (within
the meaning of the 1933 Act), against any losses or claims, damages, expenses
or liabilities, joint or several, to which they may become subject under the
1933 Act, the Exchange Act or other federal or state law, or otherwise, insofar
as such losses, claims, damages, expenses or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue or allegedly untrue
statement of any material fact contained in the registration statement for the
Registrable Stock, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, or any document
incident to the registration or qualification of any Registrable Stock, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or allegedly necessary to
make the statements therein not misleading
16
<PAGE>
or arise out of any violation or alleged violation by the Company of the 1933
Act, the Exchange Act, any state securities law or any rule or regulation
promulgated under the 1933 Act, the Exchange Act or any state securities law;
and will reimburse such Holder, any underwriter, officer, director, employee,
agent or controlling person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this Section 8.4(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, expense, liability or action if such
settlement is effected without the written consent of the Company, which shall
not be unreasonably withheld, nor shall the Company be liable under this
Section 8.4(a) to such Holder, such underwriter, officer, director, employee,
agent or controlling person for any such loss, claim, damage, expense,
liability or action to the extent that it arises out of, or is based upon, an
untrue statement or allegedly untrue statement or omission or alleged omission
made in connection with such registration statement, preliminary prospectus,
final prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with information furnished in writing expressly for use in
connection with such registration by such Holder, such underwriter, officer,
director, employee, agent or such controlling person.
(b) To the extent permitted by law, each Holder of Registrable Stock
which is included in a registration statement filed pursuant to the provisions
of this Agreement will indemnify and hold harmless the Company, each of its
employees, agents, directors and officers, each person, if any, who controls
the Company within the meaning of the 1933 Act, and any underwriter (within the
meaning of the 1933 Act) against any losses, claims, damages, expenses or
liabilities to which the Company or any such person or underwriter may become
subject, under the 1933 Act, the Exchange Act or other federal or state law or
otherwise, insofar as such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) arise out of, or are based upon any untrue or
allegedly untrue statement of any material fact contained in a registration
statement for the Registrable Stock, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements thereto, or
any document incident to the registration or qualification of any Registrable
Stock, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or allegedly
necessary to make the statements therein not misleading; in each case to the
extent that such untrue statement or allegedly untrue statement or omission or
alleged omission was made in such registration statement, preliminary
prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with information furnished in writing by such Holder expressly for
use in connection with such registration; provided, however, that the indemnity
agreement contained in this Section 8.4(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, expense, liability or action if
such settlement is effected without the written consent of such Holder, which
shall not be unreasonably withheld; and such Holder will reimburse the Company
or any such person or underwriter for any legal or other expenses reasonably
incurred by the Company or any such person or underwriter in connection with
investigating or defending such loss, claim, damage, liability, expense or
action.
(c) Promptly after receipt by an indemnified party under this
Section 8.4 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8.4, notify the
17
<PAGE>
indemnifying party in writing of the commencement thereof and generally
summarize such action. The indemnifying party shall have the right to
participate in and to assume the defense thereof with counsel mutually
satisfactory to the parties. An indemnifying party shall not have the right to
direct the defense of such an action on behalf of an indemnified party if such
indemnified party has reasonably concluded that there may be defenses available
to it that are different from or additional to those available to the
indemnifying party; provided, however, that in such event, the indemnifying
party shall bear the fees and expenses of only one (1) separate counsel for all
indemnified parties, such separate counsel to be reasonably satisfactory to the
indemnifying party. The failure to notify an indemnifying party promptly of the
commencement of any such action if prejudicial to the ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 8.4, but the omission so to notify the
indemnifying party will not relieve such party of any liability that such party
may have to any indemnified party otherwise than under this Section.
(d) To the extent permitted by law, the indemnification provided for
under this Section 8.4 will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling person (within the meaning of the 1933 Act) of such
indemnified party and will survive the transfer of securities.
(e) If for any reason the foregoing indemnity is unavailable to, or
is insufficient to hold harmless an indemnified party, then the indemnifying
party shall contribute to the amount paid or payable by the indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
the indemnifying party on the one hand and the indemnified party on the other
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, or provides a lesser sum to the indemnified party than the
amount hereinafter calculated, in such proportion as is appropriate to reflect
not only the relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other but also the relative fault of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. Notwithstanding the foregoing, no underwriter, if
any, shall be required to contribute any amount in excess of the amount by
which the total price at which the securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligation of any underwriters
to contribute pursuant to this Section 8.4(e) shall be several in proportion to
their respective underwriting commitments and not joint.
8.5 INFORMATION FROM HMRI. HMRI shall furnish to the Company in writing
any information regarding HMRI which the Company may reasonably request in
writing in connection with registration pursuant to this Section 8.
18
<PAGE>
9. MISCELLANEOUS.
9.1 INCORPORATION BY REFERENCE. All exhibits and schedules appended to
this Purchase Agreement are herein incorporated by reference and made a part
hereof.
9.2 PARTIES IN INTEREST. All terms, covenants, agreements,
representations, warranties and undertakings in this Purchase Agreement made by
and on behalf of any of the parties hereto shall bind and inure to the benefit
of the respective successors and assigns of the parties hereto whether so
expressed or not.
9.3 AMENDMENTS AND WAIVERS. Changes in or additions to this Purchase
Agreement may be made or compliance with any term, covenant, agreement,
condition or provision set forth herein may be omitted or waived, only upon the
written consent of the Company and HMRI.
9.4 GOVERNING LAW. This Purchase Agreement shall be deemed a contract
made under the laws of the State of New York and, together with the rights or
obligations of the parties hereunder, shall be construed under and governed by
the laws of such State.
9.5 NOTICES. All notices, requests, consents and demands shall be in
writing and shall be deemed given when (i) personally delivered, (ii) mailed in
a registered or certified envelope, postage prepaid (iii) sent by Federal
Express or another nationally recognized overnight delivery service (paid by
sender), or (iv) sent by telex, facsimile, or telecopier upon receipt of the
correct answerback.
To the Company at:
Alliance Pharmaceutical Corp.
3040 Science Park Road
San Diego, CA 92121
Attention: Theodore D. Roth
Executive Vice President
FAX #: (619) 558-5161
with a copy to:
Stroock & Stroock & Lavan
7 Hanover Square
New York, NY 10004
Attention: Melvin Epstein, Esq.
FAX #: (212) 806-6006
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<PAGE>
or to HMRI at:
Hoechst Marion Roussel, Inc.
10236 Marion Park Drive
Post Office Box 9627
Kansas City, MO 64134-0627
Attention: Terry J. Shelton
Vice President, New Technology Licensing
FAX #: 816-966-2759
with a copy to:
General Counsel
Hoechst Marion Roussel, Inc.
10236 Marion Park Drive
Post Office Box 9627
Kansas City, MO 64134-0627
FAX #: 816-966-3805
or such other address as may be furnished in writing to the other parties
hereto.
9.6 COUNTERPARTS. This Purchase Agreement may be executed in
counterparts, all of which together shall constitute one and the same
instrument.
9.7 EFFECT OF HEADINGS. The section and paragraph headings herein are for
convenience only and shall not affect the construction hereof.
9.8 ENTIRE PURCHASE AGREEMENT. This Purchase Agreement, the License
Agreement and the Exhibits and Schedules hereto and thereto constitute the
entire agreement among the Company and the HMRI with respect to the subject
matter hereof. There are no representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein. This Purchase Agreement supersedes all prior
agreements between the parties with respect to the shares purchased hereunder
and the subject matter hereof.
9.9 PUBLICITY. Neither party shall originate any publicity, news release,
or other announcement, written or oral, relating to this Purchase Agreement, or
to performance hereunder or the existence of an arrangement between the parties
without the prior written approval of the other.
9.10 SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.
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<PAGE>
IN WITNESS WHEREOF, this Purchase Agreement has been executed as of the
date first above written, by the parties hereto.
ALLIANCE PHARMACEUTICAL CORP.
By: /s/ Duane J. Roth
----------------------------------
Name: Duane J. Roth
Title: President
HOECHST MARION ROUSSEL, INC.
By: /s/ Thomas W. Hofstaetter, Ph.D.
----------------------------------
Name: /s/ Thomas W. Hofstaetter, Ph.D.
--------------------------------
Title: Senior Vice President
-------------------------------
<PAGE>
SCHEDULE 2.3
TO
STOCK AND WARRANT PURCHASE AGREEMENT
Outstanding Options (as of December 31, 1995) 2,998,216
Outstanding Warrants 1,082,289
Johnson & Johnson Development Corp. ("J&JDC") has an option (the "Option") to
purchase an amount of common stock equal to 3.5% of any issuance of common
stock made by the Company at the same price per share of such issuance. J&JDC
has the right and/or obligation to purchase a number of shares of common stock
upon the occurrence of certain events (the "Deferred Purchase"), such number to
be determined by a formula. J&JDC owns 1,500,000 shares of Series A Preferred
Stock which are convertible on certain events into common stock based on a
formula.
Registration Rights
500,000 Warrants Demand registration rights
482,289 Demand and piggyback registration rights
The Company has obligations to register the common stock obtained by J&JDC
pursuant to (i) exercise of the Option, (ii) conversion of Series A Preferred
Stock, and (iii) exercise of the Deferred Purchase.
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ALLIANCE PHARMACEUTICAL CORP.
Under Section 805 of the Business Corporation Law
We, the undersigned, Duane Roth and Theodore Roth, being respectively the
President and the Secretary of Alliance Pharmaceutical Corp., hereby certify:
1. The name of the corporation is Alliance Pharmaceutical Corp.
(hereinafter called the "Corporation"). The name under which the Corporation
was formed is Otisville Biologics, Inc.
2. The Certificate of Incorporation was filed in the office of the
Secretary of State on the 23rd day of February, 1983.
3. The Certificate of Incorporation of the Corporation was first
restated and the Restated Certificate was filed on November 10, 1993.
4. The Certificate of Incorporation of the Company, as amended
heretofore, is further amended by the addition of the following provisions
stating the number, designation, relative rights, preferences, and limitations
of the shares of two series of Preferred Stock of the Company designated as
"Series B Preferred Stock" and "Series C Preferred Stock."
5. A new Section (d) is added to Article 4 thereof, which Section (d)
reads in its entirety as follows:
(d) Seven Hundred Fifty Thousand (750,000) shares of the Corporation's
preferred stock, par value $.01 per share, are designated "Series B Preferred
Stock" (hereinafter referred to as the "Series B Preferred Stock") and two
hundred thousand (200,000) shares of the Corporation's preferred stock, par
value $.01 per share, are designated "Series C Preferred Stock" (hereinafter
referred to as the "Series C Preferred Stock"), and such Series B preferred
Stock and such Series C Preferred Stock shall have the respective voting
powers, designations, preferences and relative, participating, optional or
other rights, and the qualifications, limitations or restrictions as follows:
1. SECTION REFERENCES AND DEFINITIONS. References to section numbers
contained in this Article 4(d) shall refer only to sections within this Article
4(d) unless otherwise specified. Capitalized terms in this Article 4(d) shall
have the following meanings:
<PAGE>
2
1.1. "Common Stock" shall mean the shares of the Common Stock of the
Corporation, par value $.01 per share, and any stock into which such Common
Stock may hereafter be changed.
1.2. "B Conversion Date" shall mean the date on which the Series B
Preferred Stock converts to Common Stock pursuant to Section 5.1.1.
1.3. "B Conversion Rate" shall mean the rate at which shares of
Common Stock are to be received upon conversion of one share of the Series B
Preferred Stock which is determined by dividing the B Current Market Price per
share of Common Stock into $20.00; provided that (i) in the event of a
conversion pursuant to Section 5.1.1(b), the B Current Market Price per share
shall never be deemed to be less than $10.00, and (ii) in the event of a
conversion pursuant to Section 5.1.1(c) the B Current Market Price shall be
deemed to be $20.00. The B Conversion Rate, and the amounts specified in
clauses (i) and (ii) in the previous sentence shall be subject to adjustment
pursuant to Section 5.
1.4. "Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Common Stock, either immediately or upon the arrival of a specified date or the
happening of a specified event.
1.5. "B Current Market Price" per share of Common Stock at any date
herein specified shall mean the average of the daily market prices for the
twenty (20) consecutive Trading Days ending one (1) day prior to such date. The
market price for each such Trading Day shall be the last reported sales price
on the principal exchange on which the Common Stock is listed, or, if it is not
so listed, the Nasdaq National Market or, if it is not so listed, on the over-
the-counter market.
1.6. "B Division Amounts" shall mean the $10.00 amount referred to in
clause (i) of the proviso in Section 1.3 and the $20.00 amount referred to in
clause (ii) of such proviso.
1.7. "B Junior Stock" shall mean the Common Stock and any other class
or series of capital stock of the Corporation which at the time of issuance is
not declared to be senior to or on a parity with the Series B Preferred Stock
as to rights upon liquidation or dividends.
1.8. "B License Agreement" shall mean that certain License Agreement
dated as of _______________, 1996 by and among the Corporation and Hoechst
Marion Roussel, Inc..
1.9. "C Conversion Rate" shall mean the rate at which shares of
Common Stock are to be received upon conversion of one share of the Series C
Preferred Stock which is determined by dividing the C Current Market Price per
share of Common Stock into $25.00.
1.10. "C Current Market Price" per share of Common Stock shall
mean the average of the daily market prices for the twenty (20) consecutive
Trading Days ending January 14, 1997. The market price for each such Trading
Day shall be the last reported sales price on the principal exchange on which
the Common Stock is listed, or, if it is not so listed, the Nasdaq National
Market or, if it is not so listed, on the over-the-counter market.
<PAGE>
3
1.11. "Person" shall mean any individual, corporation,
association, company, business trust, partnership, joint venture, joint-stock
company, trust, unincorporated organization or association or government or any
agency or political subdivision thereof.
1.12. "Series A Preferred Stock" shall mean the outstanding
Series A Preferred Stock of the Corporation.
1.13. "Trading Day" shall mean any day on which trading takes
place (a) if the Common Stock is then listed or admitted to trading on a
national securities exchange, on the principal national securities exchange on
which the Common Stock is then listed or admitted to trading; or (b) if not, in
the over-the-counter-market and prices reflecting such trading are published by
the National Association of Securities Dealers Automated Quotation System.
2. DIVIDENDS.
2.1 SERIES B PREFERRED STOCK. Before any dividends (other than
dividends payable in B Junior Stock) on any B Junior Stock shall be declared or
paid or set apart for payment, the holders of shares of Series B Preferred
Stock shall be entitled to receive cash dividends, when and as declared by the
Board of Directors, at the annual rate of one dollar ($1.00) per share, and no
more, payable annually on the first day of June in each year, to holders of
record on such date, not exceeding thirty (30) days preceding such dividend
payment date, as may be determined by the Board of Directors in advance of the
payment of each particular dividend. The Series B Preferred Stock shall rank
on a parity with the Series A Preferred Stock as to dividends. Such dividends
will be cumulative.
Whenever, at any time, the full dividend as aforesaid for the current
dividend period shall have been paid or declared and set apart for payment on
the then outstanding Series B Preferred Stock, the Board of Directors may
declare dividends on any B Junior Stock, subject to the respective terms and
provisions (if any) applying thereto, and the Series B Preferred Stock shall
not be entitled to share therein.
2.2 SERIES C PREFERRED STOCK. Series C Preferred Stock shall not be
entitled to receive any dividends (other than dividends payable in B Junior
Stock or distributions pursuant to Section 5.6).
3. LIQUIDATION OR DISSOLUTION.
3.1. RANK. The Series B Preferred Stock and Series C Preferred
Stock of the Corporation shall rank on a parity with the Series A Preferred
Stock as to distributions upon a liquidation, dissolution or winding up of the
Corporation.
3.2. PREFERENCE. Subject to the prior rights of the Corporation's
creditors and holders of securities senior to the Series B Preferred Stock and
Series C Preferred Stock in respect of distributions upon liquidation,
dissolution or winding-up of the Corporation, in the event of the voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, (i) the
holders of Series B Preferred Stock shall be entitled to receive twenty dollars
($20.00) per share, plus an amount equal to any accumulated dividends through
the date of such liquidation,
<PAGE>
4
dissolution or winding-up and (ii) the holders of Series C Preferred Stock
shall be entitled to receive one cent ($.01) per share. The amount of
dividends "accumulated" on any share of Series B Preferred Stock as at any
annual dividend date shall be deemed to be the amount of any unpaid dividends
accumulated thereon to and including such annual dividend date, whether or not
earned or declared, and the amount of dividends "accumulated" on any share of
Series B Preferred Stock as at any date other than an annual dividend date
shall be calculated as the amount of any unpaid dividends accumulated thereon,
whether or not earned or declared, at the rate of $.25 per share for each full
three-month period preceding such date and ending on September 1, December 1,
March 1 or June 1. If, upon any such liquidation, dissolution or winding-up of
the Corporation, the assets distributable among the holders of Series B
Preferred Stock and Series C Preferred Stock (and any series of preferred stock
ranking in parity with the Series B Preferred Stock and Series C Preferred
Stock in respect of distributions upon liquidation, dissolution or winding-up
of the Corporation) shall be insufficient to permit the payment in full to such
holders of the preferential amount payable to such holders determined as
aforesaid, then the holders of Series B Preferred Stock and Series C Preferred
Stock (and any such series) will share ratably in any distribution of the
Corporation's assets in proportion to the respective preferential amounts that
would have been payable if such assets were sufficient to permit payment in
full of all such amounts. After payment of the full amount of the liquidating
distribution to which the holders of Series B Preferred Stock and Series C
Preferred Stock are entitled, holders of B Junior Stock (other than Common
Stock) shall be paid any preferential amounts payable to such holders.
Thereafter, the holders of Series C Preferred Stock will not be entitled to any
further distributions and the holders of Series B Preferred Stock will share
PRO RATA with the holders of Common Stock (and the holders of Series A
Preferred Stock and any other preferred stock or B Junior Stock entitled to
share PRO RATA with Common Stock in liquidating distributions), based on the
number of shares of Common Stock into which the Series B Preferred Stock is
then convertible, in any further distribution of assets by the Corporation.
Under this Section 3, a distribution of assets in any dissolution, winding-up
or liquidation shall not include (a) any consolidation or merger of the
Corporation with or into any other corporation, (b) any dissolution,
liquidation or winding-up of the Corporation immediately followed by
reincorporation of a successor corporation or (c) a sale or other disposition
of all or substantially all of the Corporation's assets in consideration for
the issuance of equity securities of another corporation, provided that the
consolidation, merger, dissolution, liquidation, winding-up, sale or other
disposition (i) does not amend, alter, or change the preferences or rights of
the Series B Preferred Stock or Series C Preferred Stock or the qualifications,
limitations or restrictions thereof in a manner that adversely affects the
Series B Preferred Stock or Series C Preferred Stock and (ii) is done in
accordance with Sections 5.5, 5.6 or 5.7 hereof.
4. VOTING RIGHTS.
4.1 Series B Preferred Stock. The holders of Series B Preferred
Stock shall have the right to vote, together with the holders of all the
outstanding shares of Common Stock (and the holders of every other class or
series entitled to vote together with such holders) and not by class, except as
otherwise required by New York law, on all matters on which holders of Common
Stock shall have the right to vote. Each holder of Series B Preferred Stock
shall have the right to cast one (1.0) vote for each share of Series B
Preferred Stock held by such holder.
<PAGE>
5
4.2 Series C Preferred Stock. The holders of Series C Preferred
Stock shall not be entitled to any voting rights except as otherwise required
by law.
5. CONVERSION RIGHTS.
5.1. CONVERSION OF SERIES B PREFERRED STOCK. The Series B Preferred
Stock shall convert into fully paid and non-assessable shares of Common Stock
on the B Conversion Date at the B Conversion Rate as follows:
5.1.1. The Series B Preferred Stock shall convert into Common
Stock on the earlier of the following:
(a) February 28, 2001;
(b) Termination of the B License Agreement (unless
termination of the B License Agreement is as a result of the liquidation of the
Corporation, the appointment of a receiver or trustee for substantially all of
the property or assets of the Corporation, or the Corporation makes an
assignment for the benefit of creditors, in each case, in accordance with the B
License Agreement); or
(c) At such time as the B Current Market Price per share
of Common Stock is equal to or greater than $20.00, subject to adjustment
pursuant to Section 5.5.
5.1.2. Upon conversion pursuant to Section 5.1.1(a) or (c),
the holders of Series B Preferred Stock shall receive accumulated dividends
paid in cash or, at the election of the Corporation, in Common Stock at the B
Current Market Price used to determine the B Conversion Rate upon conversion.
In the event of a conversion pursuant to Section 5.1.1(b), no accumulated
dividends shall be paid to the holders of Series B Preferred Stock.
5.2. CONVERSION OF SERIES C PREFERRED STOCK. The Series C Preferred
Stock shall convert into fully paid and non-assessable shares of Common Stock
at the C Conversion Rate on June 30, 1997, if notice of redemption pursuant to
Section 7.1 has not previously been given to the Corporation.
5.3. CONVERSION NOTICE AND PROCEDURE. Upon conversion of the Series
B Preferred Stock or Series C Preferred Stock, the Corporation shall send
written notice to the holders of Series B Preferred Stock or Series C Preferred
Stock, as the case may be. Any notice of conversion to a holder of Series B
Preferred Stock shall contain the B Conversion Date, the B Conversion Rate and
the number of shares into which the holder's Series B Preferred Stock is
converted. Any notice of conversion to a holder of the Series C Preferred
Stock shall contain the C Conversion Rate and the number of shares into which
the holder's Series C Preferred Stock is converted. Upon conversion of Series
B Preferred Stock or Series C Preferred Stock, the shares so converted shall
have the status of authorized and unissued preferred stock, and the number of
shares of preferred stock which the Corporation shall have authority to issue
shall include the number of shares of Series B Preferred Stock or Series C
Preferred Stock so converted, as the case may be. Upon any conversion,
certificates representing the Series B Preferred Stock or Series C Preferred
Stock shall thereafter be deemed to represent the appropriate number of shares
<PAGE>
6
of Common Stock into which such stock is converted. After conversion the
holder of any shares of Series B Preferred Stock or Series C Preferred Stock so
converted shall deliver to the Corporation during regular business hours, at
such place as may be designated by the Corporation, the certificate or
certificates for the shares to be converted, duly endorsed or assigned in
blank, or to the Corporation (if required by it), accompanied by written notice
stating the name or names (with address) in which the certificate or
certificates for the shares of Common Stock are to be issued.
5.4. FRACTIONAL SHARES. No fractional shares of Common Stock or
scrip shall be issued upon conversion of shares of Series B Preferred Stock or
Series C Preferred Stock. If more than one share of Series B Preferred Stock
or Series C Preferred Stock shall be surrendered for conversion at any one time
by the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
shares so surrendered. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon any such conversion, the Corporation shall pay
a cash adjustment in respect of such fractional interest in an amount
determined on the basis of the then current fair market value of a share of
Common Stock as determined by the Board of Directors of the Corporation, in
good faith. Fractional interests shall not be entitled to dividends, and the
holders thereof shall not be entitled to any rights as stockholders of the
Corporation in respect of such fractional interests.
5.5. ADJUSTMENTS FOR SUBDIVISIONS, STOCK DIVIDENDS, COMBINATIONS, OR
CONSOLIDATIONS OF COMMON STOCK.
5.5.1. In the event the outstanding shares of Common Stock
shall be increased by way of stock issued as a dividend for no consideration or
subdivided (by stock split, or otherwise) into a greater number of shares of
Common Stock, the B Division Amounts then in effect shall, concurrently with
the effectiveness of such increase or subdivision, be proportionately
decreased. In the event the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, the B Division Amounts then in effect shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
5.5.2. In the event the outstanding shares of Common Stock
shall be increased by way of stock issued as a dividend for no consideration or
subdivided (by stock split, or otherwise) into a greater number of shares of
Common Stock after January 14, 1997 and prior to the conversion of the Series C
Preferred Stock, the C Current Market Price then in effect shall, concurrently
with the effectiveness of such increase or subdivision, be proportionately
decreased. In the event the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock after January 14, 1997 and prior to the
conversion of the Series C Preferred Stock, the C Current Market Price then in
effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
5.6. OTHER DISTRIBUTIONS.
<PAGE>
7
5.6.1. If for any reason, including without limitation a
merger or sale of assets transaction, the Corporation shall declare a
distribution payable in securities of the Corporation other than shares of B
Junior Stock, or in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, or assets (excluding cash
dividends) then, in each such case for the purpose of this Section 5.6.1, the
holders of the Series B Preferred Stock shall be entitled to a proportionate
share of such distribution as though they were the holders of the number of
shares of Common Stock of the Corporation into which their shares of Series B
Preferred Stock would be convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
5.6.2. If for any reason, including without limitation a
merger or sale of assets transaction, the Corporation shall after January 14,
1997 and prior to conversion of the Series C Preferred Stock declare a
distribution payable in securities of the Corporation other than shares of B
Junior Stock, or in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, or assets (excluding cash
dividends) then, in each such case for the purpose of this Section 5.6.2, the
holders of the Series C Preferred Stock shall be entitled upon conversion, if
any, to a proportionate share of such distribution (or, at the election of the
Board of Directors, to a cash payment equal to the fair market value on the
date of such distribution, as determined by the Board of Directors in their
reasonable discretion, of a proportionate share of such distribution) as though
they were the holders of the number of shares of Common Stock of the
Corporation into which their shares of Series C Preferred Stock would be
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
5.7. REORGANIZATIONS AND RECAPITALIZATIONS. If at any time or from
time to time there shall be a reorganization or recapitalization of the Common
Stock (other than a subdivision, combination or merger or sale of assets
transaction provided for in Section 5.5 or Section 5.6 above), then, as a
condition of such reorganization or recapitalization, provision shall be made
so that the holders of the Series B Preferred Stock or Series C Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series B
Preferred Stock or Series C Preferred Stock, as the case may be, the number of
shares of stock or other securities or property of the Corporation or otherwise
to which a holder of Common Stock deliverable upon conversion would have been
entitled on such reorganization or recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the holders of the Series B
Preferred Stock or Series C Preferred Stock after the reorganization or
recapitalization to the end that the provisions of this Section 5 (including
adjustment of the B Conversion Rate or C Conversion Rate and the B Division
Amounts then in effect and the number of shares receivable upon conversion of
the Series B Preferred Stock or Series C Preferred Stock) shall be applicable
after that event in as nearly an equivalent manner as may be practicable.
5.8. RESERVATION OF SHARES. The Corporation agrees that, so
long as any share of Series B Preferred Stock or Series C Preferred Stock shall
remain outstanding, the Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized capital stock,
for the purpose of issue upon conversion of the Series B Preferred Stock or
Series C Preferred Stock, as the case may be, the full number of shares of
Common Stock then
<PAGE>
8
issuable upon conversion of all outstanding shares of Series B Preferred Stock
or Series C Preferred Stock, as the case may be. If the Common Stock shall be
listed on any national securities exchange, the Corporation at its expense
shall include in a listing application all of the shares of Common Stock
reserved for issuance upon conversion of the Series B Preferred Stock or Series
C Preferred Stock, as the case may be, (subject to issuance or notice of
issuance to the exchange) and will similarly apply for and use its best efforts
to procure the listing of any further Common Stock reserved for issuance upon
conversion of the Series B Preferred Stock or Series C Preferred Stock, as the
case may be, at any subsequent time as a result of adjustments in the B
Conversion Rate or the C Conversion Rate or otherwise.
5.96. VALIDITY OF SHARES. The Corporation agrees that it will
from time to time take all such actions as may be requisite to assure that all
shares of Common Stock which may be issued upon conversion of any share of the
Series B Preferred Stock or Series C Preferred Stock will, upon issuance, be
legally and validly issued, fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issue thereof.
5.10. TAXES. The Corporation will pay all taxes and other
governmental charges that may be imposed in respect of the issue or delivery
(but not transfer) of shares of Common Stock upon conversion of the Series B
Preferred Stock or Series C Preferred Stock.
5.11. ABANDONMENT OF ACTION. If the Corporation shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution requiring an adjustment pursuant to Section
5 and shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend or distribution, then
thereafter no adjustment to the holders of Series B Preferred Stock or Series C
Preferred Stock shall be required by reason of the taking of such record and
any such adjustment previously made in respect thereof shall be rescinded and
annulled.
5.12. NOTICE PROVISIONS.
5.12.1. Whenever an adjustment is required pursuant to Section
5 hereof, the Corporation shall forthwith deliver to the holders of Series B
Preferred Stock or Series C Preferred Stock, as the case may be, a certificate
signed by an officer of the Corporation, setting forth, in reasonable detail,
the event requiring the adjustment, the method by which such adjustment was
calculated and the adjustments made.
5.12.2. In case the Corporation shall propose (a) to pay any
dividend payable in stock of any class to the holders of B Junior Stock or to
make any other distribution to the holders of its Common Stock, (b) to offer to
the holders of its Common Stock rights to subscribe for or to purchase any
Convertible Securities, Common Stock or shares of stock of any class or any
other securities, rights or options, (c) to effect any reclassification of its
Common Stock (other than a reclassification involving only the subdivision or
combination of outstanding shares of Common Stock), (d) to effect any capital
reorganization, (e) to effect any consolidation, merger or sale, transfer or
other distribution of all or substantially all its property, assets or
business, or (f) to effect the liquidation, dissolution or winding-up of the
Corporation, then, in each such case, the Corporation shall give to each holder
of Series B Preferred Stock or Series C
<PAGE>
9
Preferred Stock a notice of such proposed action, which shall specify the date
on which a record is to be taken for the purposes of such stock dividend,
distribution or rights, or the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, disposition,
liquidation, dissolution or winding-up is to take place and the date of
participation therein by the holders of Common Stock, if any such date is to be
fixed, and shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action on the Common Stock
and the B Conversion Rate, C Conversion Rate, and the B Division Amounts after
giving effect to any adjustment which will be required as a result of such
action. Such notice shall be so given in the case of any action covered by (a)
or (b) above at least ten (10) days prior to the record date for determining
holders of the Common Stock for purposes of such action and, in the case of any
other such action, at least ten (10) days prior to the date of the taking of
such proposed action or the date of participation therein by the holders of
Common Stock, whichever shall be the earlier.
6. NO PRE-EMPTIVE RIGHTS. No holder of Series B Preferred Stock or
Series C Preferred Stock shall have any pre-emptive or preferential right of
subscription to any shares of stock of the Corporation, or to options, warrants
or other interests therein or therefor, or to any obligations convertible into
stock of the Corporation, issued or sold, or any right of subscription to any
thereof other than such, if any, as the Board of Directors, in its discretion,
from time to time may determine and at such price or prices as the Board of
Directors from time to time may fix pursuant to the authority conferred by the
Corporation's Certificate of Incorporation.
7. Redemption of Series C Preferred Stock.
7.1 Redemption at the Option of the Holders of Series C Preferred
Stock. Beginning October 1, 1996 and ending on June 29, 1997, upon the request
of the holders of one hundred percent (100%) of the Series C Preferred Stock,
the Corporation shall redeem all, but not less than all, of the outstanding
Series C Preferred Stock; provided that such election may only be given within
the five (5) day period following the effective date of termination of the B
License Agreement. Notice of such election signed by the holders of one
hundred percent (100%) of the Series C Preferred Stock shall be delivered to
the Corporation one (1) day in advance of the day designated for such
redemption (herein called the "redemption date"). The amount payable to
holders of Series C Preferred Stock as of the redemption date shall be $75.00
per share.
7.2. Within forty-five (45) days of the redemption date, the
Corporation shall pay to the holders of Series C Preferred Stock at their
respective addresses as the same shall appear on the books of the Corporation,
the amount due to such holders on such redemption. Such amount shall be
payable, in the Corporation's discretion, in cash or by an unsecured promissory
note. The promissory note shall accrue interest at a fluctuating rate equal to
the prime rate from time to time in effect, as quoted in the Eastern edition of
THE WALL STREET JOURNAL, and all principal and interest shall be due and
payable on June 30, 2002. The Corporation may at any time pay all outstanding
amounts owed under the promissory note in cash or Common Stock. If Common
Stock is issued in payment of principal of or interest on such promissory note
it shall be valued at a price equal to the average closing price of Common
Stock on the Nasdaq National Market (or such other principal exchange on which
the Common Stock may trade or, if not so listed on an exchange, in the over-the-
counter market) over twenty (20) trading days beginning
<PAGE>
10
twenty-two (22) trading days prior to the date of notice of payment by the
Corporation. Payment of the promissory note shall be made within forty-five
(45) days following notice of payment by the Corporation by check or, if
payment is in Common Stock, by delivery of certificates representing the Common
Stock, to the holders of such promissory notes at their respective addresses as
the same appear on the books of the Corporation.
7.3 Share Status on Redemption. Shares of Series C Preferred Stock
which have been redeemed or acquired by the Corporation shall, upon compliance
with any applicable provisions of the Business Corporation Law of New York,
have the status of authorized and unissued shares of preferred stock, but shall
be reissued only as part of a new series of preferred stock to be created by
resolution or resolutions of the Board of Directors or as part of any other
series of preferred stock.
8. COVENANTS.
8.1 SERIES B PREFERRED STOCK. In addition to any other rights
provided by law, so long as any shares of Series B Preferred Stock are
outstanding, this Corporation shall not, without first obtaining the
affirmative vote or written consent of the holders of not less than sixty-six
and two-thirds percent (66-2/3%) of the Series B Preferred Stock:
(a) Amend or repeal any provisions of the Corporation's Certificate
of Incorporation which action would adversely affect the rights, preferences,
or privileges of the Series B Preferred Stock;
(b) Alter or change the designations, powers, rights, preferences or
privileges, or the qualification, limitations or restrictions of the Series B
Preferred Stock; or
(c) Increase the authorized number of shares of Series B Preferred
Stock or other preferred stock of the Corporation; or
(d) Authorize, create, or issue any Series A Preferred Stock, or any
new class or series of stock or any other securities convertible into equity
securities of the Corporation having a preference over, or being on a parity
with, the Series B Preferred Stock with respect to dividends, redemptions or
upon liquidation or dissolution of the Corporation; or
(e) Reclassify the shares of Common Stock or any other B Junior
Stock into shares of any class or series of capital stock (i) ranking either as
to payment of dividends, distribution of assets or redemptions, prior to or on
parity with the Series B Preferred Stock, or (ii) which in any manner adversely
affects the holders of Series B Preferred Stock.
8.2 Series C Preferred Stock. In addition to any other rights
provided by law, so long as any shares of Series C Preferred Stock are
outstanding, this Corporation shall not, without first obtaining the
affirmative vote or written consent of the holders of not less than sixty-six
and two-thirds percent (66-2/3%) of the Series C Preferred Stock:
<PAGE>
11
(a) Amend or repeal any provisions of the Corporation's Certificate
of Incorporation which action would adversely affect the rights, preferences,
or privileges of the Series C Preferred Stock;
(b) Alter or change the designations, powers, rights, preferences or
privileges, or the qualification, limitations or restrictions of the Series C
Preferred Stock; or
(c) Increase the authorized number of shares of Series C Preferred
Stock or other preferred stock of the Corporation; or
(d) Authorize, create, or issue any Series A Preferred Stock or any
new class or series of stock or any other securities convertible into equity
securities of the Corporation having a preference over, or being on a parity
with, the Series C Preferred Stock with respect to redemptions or upon
liquidation or dissolution of the Corporation; or
(e) Reclassify the shares of Common Stock or any other B Junior
Stock into shares of any class or series of capital stock (i) ranking either as
to payment of dividends, distribution of assets or redemptions, prior to or on
parity with the Series C Preferred Stock, or (ii) which in any manner adversely
affects the holders of Series C Preferred Stock.
6. The manner in which the foregoing Amendment of the Certificate of
Incorporation was authorized is as follows: The Board of Directors of the
Corporation authorized the Amendment under the authority vested in said Board
under the provisions of the Certificate of Incorporation and of Section 502 of
the Business Corporation Law.
IN WITNESS WHEREOF, we have subscribed this document on the date set
opposite each of our names below and do hereby affirm, under the penalties of
perjury, that the statements contained therein have been examined by us and are
true and correct.
Date: February __, 1996
______________________________________
Name: Duane J. Roth
Title: President
_______________________________________
Name: Theodore D. Roth
Title: Secretary
<PAGE>
EXHIBIT B
WARRANT CERTIFICATE
<PAGE>
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY
INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF
EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, APPLICABLE
STATE SECURITIES LAWS AND THE TERMS AND CONDITIONS HEREOF. THE HOLDER OF THIS
WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE
RESTRICTIONS HEREIN SET FORTH.
VOID AFTER 5:00 P.M. NEW YORK TIME, ON FEBRUARY 28, 2001 OR UPON EARLIER
EXPIRATION PURSUANT TO ARTICLE VIII HEREIN.
WARRANT TO PURCHASE
**300,000 SHARES**
WARRANT TO PURCHASE
COMMON STOCK
OF ALLIANCE PHARMACEUTICAL CORP.
This certifies that, for good and valuable consideration received,
Hoechst Marion Roussel, Inc. and its registered, permitted assigns
(collectively, the "Warrantholder"), are entitled to purchase from Alliance
Pharmaceutical Corp., a corporation incorporated under the laws of New York
(the "Company"), subject to the terms and conditions hereof, at any time on or
after February __, 1996 and before 5:00 P.M., New York time, on February 28,
2001, or such earlier date of expiration as may occur pursuant to Article VIII
herein, (or, if such day is not a Business Day, as defined herein, at or before
5:00 P.M., New York time, on the next following Business Day), the number of
fully paid and nonassessable shares of Common Stock (par value $.01) of the
Company (the "Common Stock") stated above at the Exercise Price (as defined
herein). The Exercise Price and the number of shares purchasable hereunder are
subject to adjustment as provided in Article III hereof.
ARTICLE I
SECTION 1.01: DEFINITION OF TERMS. As used in this Warrant, the following
capitalized terms shall have the following respective meanings:
(a) BUSINESS DAY: A day other than a Saturday, Sunday or other day on
which banks in the State of New York are authorized by law to remain closed.
(b) COMMON STOCK: Common Stock, $.01 par value per share, of the
Company .
(c) COMMON STOCK EQUIVALENTS: Securities that are convertible into or
exercisable for shares of Common Stock.
<PAGE>
(d) DEMAND REGISTRATION: See Section 7.02.
(e) EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
(f) EXERCISE PRICE: $20.00 per Warrant Share, as such price may be
adjusted from time to time pursuant to Article III hereof.
(g) EXPIRATION DATE: 5:00 P.M., New York time, on February 28, 2001,
or such earlier date of expiration as may occur pursuant to Article VIII
herein.
(h) HOLDER: A holder of Registrable Securities.
(i) LICENSE AGREEMENT: That certain License Agreement dated as of
February __, 1996 between the Company and Hoechst Marion Roussel, Inc..
(j) NASD: National Association of Securities Dealers, Inc.
(k) PERSON: An individual, partnership, joint venture, corporation,
trust, unincorporated organization or government or any department or agency
thereof.
(l) PIGGYBACK REGISTRATION: See Section 7.01.
(m) PROSPECTUS: Any prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and all other amendments and
supplements to the Prospectus, including post-effective amendments and all
material incorporated by reference in such Prospectus.
(n) PUBLIC OFFERING: A public offering of any of the Company's equity
or debt securities pursuant to a registration statement under the Securities
Act.
(o) REGISTRATION EXPENSES: Any and all expenses incident to
performance of or compliance with Article VII hereunder, including, without
limitation, (i) all SEC and stock exchange or NASD registration and filing
fees; (ii) all fees and expenses of complying with state securities or blue sky
laws (including reasonable fees and disbursements of counsel for the
underwriters, if any, in connection with the blue sky qualifications of the
Registrable Securities); (iii) all printing, mailing, messenger and delivery
expenses; (iv) the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits
and/or "cold comfort" letters required by or incident to such performance and
compliance; and (v) any fees and disbursements of underwriters customarily paid
by issuers or sellers of securities, and the reasonable fees and expenses of
any special experts retained in connection with the requested registration, but
excluding underwriting discounts, commissions and transfer taxes, if any.
(p) REGISTRABLE SECURITIES: Warrant Shares and/or other securities
that may be or are issued by the Company upon exercise of such Warrants,
including those which may thereafter be issued by the Company in respect of any
such securities by means of any stock splits, stock dividends,
recapitalizations or the like, and as adjusted pursuant to Article III hereof;
PROVIDED,
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<PAGE>
HOWEVER, that as to any particular Registrable Securities, such securities
shall cease to be Registrable Securities when (i) a Registration Statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such Registration Statement; or (ii) they shall have been distributed to
the public pursuant to Rule 144 (or any successor provision) under the
Securities Act.
(q) REGISTRATION STATEMENT: Any registration statement of the Company
filed or to be filed with the SEC, which covers any of the Registrable
Securities pursuant to the provisions of this Agreement, including the
Prospectus, amendments and supplements to such Registration Statement,
including post-effective amendments, all exhibits and all material incorporated
by reference by such registration statement, if any.
(r) SEC: The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act or the Exchange Act.
(s) SECURITIES ACT: The Securities Act of 1933, as amended.
(t) WARRANTS: This Warrant and all other warrants that may be issued
in its place (together evidencing the right to purchase an aggregate of three
hundred thousand (300,000) shares of Common Stock, subject to adjustment from
time to time in accordance with Article III).
(u) WARRANTHOLDER: The person(s) or entity(ies) to whom this Warrant
is originally issued, or any successor in interest thereto, or any assignee or
transferee thereof, in whose name this Warrant is registered upon the books to
be maintained by the Company for that purpose.
(v) WARRANT SHARES: Common Stock purchasable upon exercise of the
Warrants.
ARTICLE II
DURATION AND EXERCISE OF WARRANT
SECTION 2.01: DURATION OF WARRANT. Subject to the terms contained herein,
this Warrant may be exercised at any time after February 28, 1996, and before
5:00 P.M. New York time, on the Expiration Date (or, if such day is not a
Business Day, at or before 5:00 P.M. New York time, on the next following
Business Day). If this Warrant is not exercised at or before 5:00 P.M., New
York time, on the Expiration Date, it shall become void, and all rights
hereunder shall thereupon cease. Notwithstanding anything to the contrary
herein, this Warrant shall become void, and all rights hereunder shall
thereupon cease upon termination of the License Agreement.
SECTION 2.02: EXERCISE OF WARRANT. (a) The Warrantholder may exercise this
Warrant, in whole or in part, upon surrender of this Warrant with the Sub-
scription Form hereon duly executed, to the Company at its corporate office in
San Diego, California, together with the full Exercise Price for each share of
Common Stock to be purchased in lawful money of the United States, or by
certified check, bank draft or postal or express money order payable in United
States Dollars to the order of the Company and upon compliance with and subject
to the conditions set forth herein.
- 3 -
<PAGE>
(b) Upon receipt of this Warrant with the Subscription Form duly
executed and accompanied by payment of the aggregate Exercise Price for the
shares of Common Stock for which this Warrant is then being exercised, the
Company will cause to be issued certificates for the total number of whole
shares of Common Stock for which this Warrant is being exercised in such
denominations as are required for delivery to the Warrantholder, and the
Company shall thereupon deliver such certificates to the Warrantholder. If at
the time this Warrant is exercised, a registration statement is not in effect
to register under the Securities Act the Warrant Shares issuable upon exercise
of this Warrant, the Company may require the Warrantholder to make such
investment intent representations, and may place such legends on certificates
representing the Warrant Shares, as may be reasonably required in the opinion
of counsel to the Company to permit the Warrant Shares to be issued without
such registration.
(c) In case the Warrantholder shall exercise this Warrant with
respect to less than all of the shares of Common Stock that may be purchased
under this Warrant, the Company will execute a new warrant certificate in the
form of this Warrant for the balance of the shares of Common Stock that may be
purchased upon exercise of this Warrant and deliver such new warrant
certificate to the Warrantholder.
(d) The Company covenants and agrees that it will pay when due and
payable any and all taxes which may be payable in respect of the issue of this
Warrant or in respect of the issue of any Warrant Shares. The Company shall
not, however, be required to pay any tax imposed on income or gross receipts or
any tax which may be payable in respect of any transfer involved in the
issuance or delivery of this Warrant or of Warrant Shares in a name other than
that of the Warrantholder at the time of surrender and, until the payment of
such tax, shall not be required to issue such Warrant Shares.
ARTICLE III
Adjustment of Shares of Common Stock
PURCHASABLE AND OF EXERCISE PRICE
The Exercise Price and the number and kind of Warrant Shares shall be subject
to adjustment from time to time upon the happening of certain events as
provided in this Article III.
SECTION 3.01: MECHANICAL ADJUSTMENTS. (a) If at any time prior to the full
exercise of this Warrant, the Company shall (i) pay a dividend or make a dis-
tribution on its shares of Common Stock in shares of Common Stock (other than
cash dividends or distributions out of earnings); (ii) subdivide, reclassify or
recapitalize its outstanding Common Stock into a greater number of shares; or
(iii) combine, reclassify or recapitalize its outstanding Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of the
record date of such subdivision, combination, reclassification or
recapitalization shall be proportionately adjusted so that the Warrantholder
shall be entitled to receive the aggregate number and kind of shares which, if
this Warrant had been exercised in full immediately prior to such time, he
would have owned upon such exercise and been entitled to receive upon such
dividend, subdivision, combination, reclassification or recapitalization. Such
adjustment shall be made successively whenever any event listed in this
paragraph 3.01(a) shall occur.
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(b) In case the Company shall hereafter fix a record date for making
a distribution to the holders of Common Stock of assets or evidences of its
indebtedness (excluding cash dividends or distributions out of earnings and
dividends or distributions referred to in paragraph (a) of this Section 3.01)
or Common Stock subscription rights, options or warrants for Common Stock or
Common Stock Equivalents, then in each such case the Exercise Price in effect
after such record date shall be adjusted to the price determined by multiplying
the Exercise Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the total number of shares of Common Stock
outstanding at such time multiplied by the current market price per share of
Common Stock (as defined in paragraph (d) of this Section 3.01), less the fair
market value (as determined by the Company's Board of Directors) of said assets
or evidences of indebtedness so distributed or of such Common Stock
subscription rights, option and warrants or of such Common Stock Equivalents,
and the denominator of which shall be the total number of shares of Common
Stock outstanding at such time multiplied by such current market price per
share of Common Stock. Such adjustment shall be made successively whenever the
record date for such a distribution is fixed and shall become effective
immediately after such record date.
(c) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to paragraphs (a) or (b) of this Section 3.01, the Warrant
Shares shall simultaneously be adjusted by multiplying the number of Warrant
Shares then issuable upon exercise of each Warrant by the Exercise Price in
effect on the date thereof and dividing the product so obtained by the Exercise
Price as adjusted.
(d) For the purpose of any computation under this Section 3.01, the
current market price per share of Common Stock at any date shall be deemed to
be the average of the daily closing price for 30 consecutive Business Days
commencing 45 Business Days before such date. The closing price for each day
shall be the last sale price regular way or, in case no such reported sales
takes place on such day, the average of the last reported bid and asked prices
regular way, in either case on the principal national securities exchange on
which the Common Stock is admitted to trading or listed, or if not listed or
admitted to trading on such exchange, the representative closing bid price as
reported by NASDAQ, or other similar organization if NASDAQ is no longer
reporting such information, or if not so available, the fair market price as
determined in good faith by the Board of Directors.
(e) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least twenty-five cents
($.25) in such price; provided, however, that any adjustments which by reason
of this paragraph (e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 3.01 shall be made to the nearest cent or to the nearest one-hundredth
of a share, as the case may be. Notwithstanding anything in this Section 3.01
to the contrary, the Exercise Price shall not be reduced to less than the then
existing par value of the Common Stock as a result of any adjustment made
hereunder.
(f) In the event that at any time, as a result of any adjustment made
pursuant to paragraph (a) of this Section 3.01, the Warrantholder thereafter
shall become entitled to receive any shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise
of any Warrant shall be subject to adjustment from time to time
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in a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Common Stock contained in paragraphs (a) to (e), inclusive,
of this Section 3.01.
SECTION 3.02: NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares
or the Exercise Price is adjusted as herein provided, the Company shall prepare
and deliver to the Warrantholder a certificate signed by its President, any
Vice President, Treasurer or Secretary, setting forth the adjusted number of
shares purchasable upon the exercise of this Warrant and the Exercise Price of
such shares after such adjustment, setting forth a brief statement of the facts
requiring such adjustment and setting forth the computation by which adjustment
was made.
SECTION 3.03: NO ADJUSTMENT FOR DIVIDENDS. No adjustment in respect of any
cash dividends shall be made during the term of this Warrant or upon the
exercise of this Warrant.
SECTION 3.04: PRESERVATION OF PURCHASE RIGHTS IN CERTAIN TRANSACTIONS. In
case of any consolidation of the Company with or merger of the Company into
another corporation or in case of any sale or conveyance to another corporation
of the property of the Company as an entirety or substantially as an entirety,
the Company agrees that a condition of such transaction will be that the
Company or such successor or purchasing corporation, as the case may be, shall
execute with the Warrantholder an agreement granting the Warrantholder the
right thereafter, upon payment of the Exercise Price in effect immediately
prior to such action, to receive upon exercise of this Warrant the kind and
amount of shares and other securities and property which he would have owned or
have been entitled to receive after the happening of such consolidation,
merger, sale or conveyance had this Warrant been exercised immediately prior to
such action. Such agreement shall provide for adjustments, which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Article III. The provisions of this Section 3.04 shall similarly apply to
successive consolidations, mergers, sales, or conveyances.
SECTION 3.05: FORM OF WARRANT AFTER ADJUSTMENTS. The form of this Warrant
need not be changed because of any adjustments in the Exercise Price or the
number or kind of the Warrant Shares, and Warrants theretofore or thereafter
issued may continue to express the same price and number and kind of shares as
are stated in this Warrant as initially issued.
ARTICLE IV
Other Provisions Relating
TO RIGHTS OF WARRANTHOLDER
SECTION 4.01: NO RIGHTS AS SHAREHOLDERS; NOTICE TO WARRANTHOLDERS. Nothing
contained in this Warrant shall be construed as conferring upon the
Warrantholder or his transferees the right to vote or to receive dividends or
to consent or to receive notice as shareholders in respect of any meeting of
shareholders for the election of directors of the Company or any other matter,
or any rights whatsoever as shareholders of the Company. If, however, at any
time prior to the expiration or exercise in full of the Warrants, any of the
following events shall occur:
(a) the Company shall declare any dividend payable in any securities
upon its shares of Common Stock or make any distribution (other than a cash
dividend) to the holders of its shares of Common Stock; or
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(b) the Company shall offer to the holders of its shares of Common
Stock any additional shares of Common Stock or Common Stock Equivalents or any
right to subscribe thereto; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger, or sale of all or
substantially all of its property, assets, and business as an entirety) shall
be proposed;
then, in any one or more of said events, the Company shall give
notice of such event to the Warrantholder. Such giving of notice shall be
initiated (i) at least 25 days prior to the date fixed as a record date or the
date of closing the Company's Stock transfer books for the determination of the
shareholders entitled to such dividend, distribution, or subscription rights,
or for the determination of the shareholders entitled to vote on such proposed
dissolution, liquidation or winding up. Such notice shall specify such record
date or the date of closing the stock transfer books, as the case may be.
Failure to provide such notice shall not affect the validity of any action
taken in connection with such dividend, distribution or subscription rights, or
proposed dissolution, liquidation or winding up.
SECTION 4.02: LOST, STOLEN, MUTILATED OR DESTROYED WARRANTS. If this
warrant certificate is lost, stolen, mutilated or destroyed, the Company may,
on such terms as to indemnity or otherwise as it may in its discretion impose
(which shall, in the case of a mutilated Warrant, include the surrender
thereof), issue a new warrant certificate of like denomination and tenor as,
and in substitution for this Warrant.
SECTION 4.03: RESERVATION OF SHARES. (a) The Company covenants and agrees
that at all times it shall reserve and keep available for the exercise of this
Warrant such number of authorized shares of Common Stock as are sufficient to
permit the exercise in full of this Warrant.
(b) The Company covenants that all shares of Common Stock issued on
exercise of this Warrant will be validly issued, fully paid, nonassessable and
free of pre-emptive rights.
SECTION 4.04: NO FRACTIONAL SHARES. Anything contained herein to the
contrary notwithstanding, the Company shall not be required to issue any
fraction of a share in connection with the exercise of this Warrant, and in any
case where the Warrantholder would, except for the provisions of this Section
4.04, be entitled under the terms of this Warrant to receive a fraction of a
share upon the exercise of this Warrant, the Company shall, upon the exercise
of this Warrant and receipt of the Exercise Price, issue the number of whole
shares purchasable upon exercise of this Warrant. The Company shall be required
to make any cash or other adjustment in respect of such fraction of a share to
which the Warrantholder would otherwise be entitled.
ARTICLE V
TREATMENT OF WARRANTHOLDER
SECTION 5.01. Prior to due presentment for registration of transfer of
this Warrant, the Company may deem and treat the Warrantholder as the absolute
owner of this Warrant (notwithstanding any notation of ownership or other
writing hereon) for the purpose of any
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exercise hereof and for all other purposes and the Company shall not be
affected by any notice to the contrary.
ARTICLE VI
TRANSFER RESTRICTIONS
SECTION 6.01: RESTRICTIONS ON TRANSFER. This Warrant may be transferred,
in whole or in part, subject to the following restrictions. Neither this
Warrant nor the Registrable Securities received upon exercise of this Warrant
shall be transferable unless registered under the Securities Act or unless an
exemption from registration is available. Unless and until this Warrant or the
Registrable Securities are so registered, such securities and any certificate
thereof shall contain a legend on the face thereof, in form and substance
satisfactory to counsel for the Company, stating that the Warrant or
Registrable Securities, as the case may be, may not be sold, transferred or
otherwise disposed of unless, in the opinion of counsel satisfactory to the
Company, which may be counsel to the Company, the Warrant, or Registrable
Securities may be transferred without such registration. This Warrant and the
Registrable Securities may also be subject to restrictions on transferability
under applicable state securities or blue sky laws. Unless and until this
Warrant or Registrable Securities, as the case may be, are registered under the
Securities Act, the holder of such securities shall, if requested by the
Company, provide to the Company an opinion of counsel reasonably satisfactory
to the Company, to the effect that (i) the Warrant or Registrable Securities,
as the case may be, may be transferred without such registration and (ii) the
transfer will not violate any applicable state securities or blue sky laws. Any
transfer of this Warrant permitted hereunder shall be made by surrender of this
Warrant to the Company with the form of assignment annexed hereto properly
completed and duly executed and accompanied by (x) any necessary documentation
required hereunder and (y) funds sufficient to pay any transfer taxes
applicable. Upon satisfaction of all transfer conditions, the Company, without
charge, shall execute and deliver a new Warrant in the name of the transferee
named in such transfer form, and this Warrant promptly shall be canceled.
SECTION 6.02: SPLIT-UP, COMBINATION, EXCHANGE AND TRANSFER OF WARRANTS.
Subject to and limited by the provisions of Section 6.01 hereof, this Warrant
may be split up, combined or exchanged for another Warrant or Warrants
containing the same terms to purchase a like aggregate number of shares of
Common Stock. If the Warrantholder desires to split up, combine or exchange
this Warrant, he shall make such request in writing delivered to the Company
and shall surrender to the Company this Warrant and any other Warrants to be so
split up, combined or exchanged. Upon any such surrender for a split-up,
combination, or exchange, the Company shall execute and deliver to the Person
entitled thereto a Warrant or Warrants, as the case may be, as so requested.
The Company shall not be required to effect any split-up, combination or
exchange which will result in the issuance of a Warrant entitling the
Warrantholder to purchase upon exercise a fraction of a share of Common Stock
or a fractional Warrant. The Company may require such Warrantholder to pay a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any split-up, combination or exchange of Warrants.
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ARTICLE VII
REGISTRATION UNDER THE SECURITIES ACT OF 1933
SECTION 7.01: PIGGYBACK REGISTRATION. (a) RIGHT TO INCLUDE REGISTRABLE
SECURITIES. If at any time after June 30, 1996, the Company proposes to
register any class of debt or equity security or any Common Stock Equivalent
under the Securities Act on any form for the general registration of securities
under such Securities Act, whether or not for its own account (other than a
registration form relating to (i) a registration of a stock option, stock
purchase or compensation or incentive plan or stock issued or issuable pursuant
to any such plan, or a dividend investment plan; (ii) a registration of stock
proposed to be issued in exchange for securities or assets of, or in connection
with a merger or consolidation with, another corporation; or (iii) a
registration of stock proposed to be issued in exchange for other securities of
the Company) in a manner which would permit registration of Registrable
Securities for sale to the public under the Securities Act (a "Piggyback
Registration"), it will at such time give prompt written notice to all Holders
of Registrable Securities of its intention to do so and of such Holders' rights
under this Section 7.01. Upon the written request of any such Holder made
within 15 days after the receipt of any such notice (which request shall
specify the Registrable Securities intended to be disposed of by such Holder
and the intended method of disposition thereof), the Company will include in
the Registration Statement the Registrable Securities which the Company has
been so requested to register by the Holders thereof.
(b) WITHDRAWAL OF PIGGYBACK REGISTRATION BY COMPANY. If, at any time
after giving written notice of its intention to register any securities but
prior to the effective date of the Registration Statement filed in connection
with such registration, the Company shall determine for any reason not to
register such securities, the Company may, at its election, give written notice
of such determination to each Holder and, thereupon shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration. All best efforts obligations of the Company pursuant to Section
7.04 shall cease if the Company determines to terminate any registration where
Registrable Securities are being registered pursuant to this Section 7.01.
(c) PIGGYBACK REGISTRATION OF UNDERWRITTEN PUBLIC OFFERINGS. If a
Piggyback Registration requested pursuant to this Section 7.01 involves an un-
derwritten offering, then, (i) all Holders requesting to be included in the
Company's registration must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as apply
to other selling shareholders or the Company, if there are no selling
shareholders; and (ii) any Holder requesting to be included in such
registration may elect in writing, not later than five (5) Business Days prior
to the effectiveness of the Registration Statement filed in connection with
such registration, not to register such securities in connection with such
registration.
(d) PAYMENT OF REGISTRATION EXPENSES FOR REGISTRATION. The Company
will pay all Registration Expenses in connection with each registration of
Registrable Securities requested pursuant to this Section 7.01, except for the
fees and disbursements of any counsel retained by the Holders of the
Registrable Securities being registered and such Holders' pro rata share of any
filing fees or other expenses directly and solely resulting from the inclusion
of the Registrable Securities in the Registration Statement, including
underwriting discounts and commissions.
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(e) PRIORITY IN PIGGYBACK REGISTRATION. If a registration pursuant to
this Section 7.01 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number or
kind of Registrable Securities requested to be included in such registration
would have a material adverse effect on such offering, including an adverse
decrease in the price at which such securities can be sold, then the amount or
kind of Registrable Securities to be offered for the accounts of Holders shall
be eliminated entirely or reduced pro rata as to all requesting Holders on the
basis of the relative number of Registrable Securities each such Holder has
requested to be included in such registration, to the extent necessary to
reduce the total amount or kind of securities to be included in such offering
to the amount recommended by such managing underwriter; provided, however, that
no securities may be offered in such registration for the account of persons
other than the Company by virtue of their also having "piggyback" registration
rights, or otherwise, unless the Registrable Securities requested to be
included in such registration are so included on a pro rata basis.
(f) EXPIRATION OF PIGGYBACK REGISTRATION IN RIGHTS. The Piggyback
Registration rights granted to the Holders of Registrable Securities by this
Section 7.01 shall survive the exercise of the Warrant or the transactions or
events pursuant to which such Registrable Securities were issued, but all such
rights will terminate in all events three (3) years after exercise of this
Warrant.
SECTION 7.02: DEMAND REGISTRATION. (a) REQUEST FOR REGISTRATION. Anytime
after June 30, 1996, subject to the limitations set forth below in this Section
7.02, any Warrantholder or Holders who hold in the aggregate 50% or more of the
Registrable Securities (assuming, for such calculation, that all Warrantholders
have previously exercised their Warrants) may make a written request for the
registration under the Securities Act on Form S-3 or such other form of
registration statement permitting incorporation by reference of reports filed
under the Exchange Act, of all of their Registrable Securities (the "Demand
Registration"), and the Company shall use its best efforts to effect such
Demand Registration. The Warrantholders and Holders, as a group, shall be
limited to one Demand Registration. All rights to the Demand Registration
shall terminate three (3) years after the exercise of this Warrant.
(b) LIMITATIONS ON DEMAND REGISTRATION. The Company shall not be
required to effect the Demand Registration for a 12 month period following the
effective date of a Registration Statement pertaining to an underwritten Public
Offering for the account of the Company. Upon receipt of a request for the
Demand Registration, the Company may postpone the filing of a Registration
Statement for the Demand Registration for a period not to exceed 6 months, if
the Company furnishes to the Warrantholders and Holders requesting registration
a certificate signed by the Company's President stating that in the good faith
judgment of the Board of Directors it would be seriously detrimental to the
Company for a Public Offering to be commenced in the near future. If the
Company so determines to postpone the Demand Registration, it shall promptly
notify the requesting Warrantholders and Holders of such determination
including the reason therefor, whereupon the requesting Warrantholders and
Holders shall be entitled to withdraw such request and, if following the
withdrawal of such requests, Warrantholders and Holders of fewer than 50% of
the Registrable Securities are still requesting the Demand Registration, such
Demand Registration shall not count as the Demand Registration, whether or not
the Company proceeds with such registration, but the Company shall be under no
obligation to proceed with such registration as the Demand Registration.
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(c) PAYMENT OF REGISTRATION EXPENSES FOR DEMAND REGISTRATION. The
Company will pay all Registration Expenses in connection with the Demand
Registration, except for the fees and disbursements of any counsel retained by
the Warrantholders and Holders of the Registrable Securities being registered
and any filing fees or other expenses directly and solely resulting from the
inclusion of the Registrable Securities in the Registration Statement including
underwriting discounts and commissions.
(d) PROCEDURE FOR REQUESTING DEMAND REGISTRATION. A request for the
Demand Registration shall specify the aggregate number of the Registrable
Securities proposed to be sold and shall also specify the intended method of
disposition thereof. Within ten (10) days after receipt of such a request the
Company will give written notice of such registration request to all
Warrantholders and Holders, and the Company will include in such registration
all Registrable Securities with respect to which the Company has received
written requests for inclusion therein within 20 Business Days after the date
on which such notice is given. Each such request shall also specify the
aggregate number of Registrable Securities to be registered and the intended
method of disposition thereof.
(e) SELECTION OF UNDERWRITERS. If the Demand Registration is
requested to be in the form of an underwritten offering, the managing
underwriter shall be selected by the Company and the co-manager (if any) and
the independent price required under the rules of the NASD (if any) shall be
selected and obtained by the Warrantholders and Holders of a majority in
aggregate amount of the Registrable Securities to be registered subject to the
Company's consent, which consent shall not be unreasonably withheld.
SECTION 7.03: BUY-OUTS OF REGISTRATION DEMAND. In lieu of carrying out its
obligations to effect the Piggyback Registration or the Demand Registration of
Registrable Securities pursuant to this Article VII, the Company may discharge
such obligation by offering to purchase and, if accepted, by purchasing such
Registrable Securities requested to be registered at 95% of the closing bid or
sale price of the Common Stock on the day the request or demand for
Registration is made. If the offer to purchase is accepted by the Holder,
payment will be made by wire transfer or certified check in U.S. dollars within
ten (10) business days of receipt by the Company of written acceptance by such
Holder, accompanied by the stock certificate representing such shares duly
endorsed to the Company.
SECTION 7.04: REGISTRATION PROCEDURES. If and whenever the Company is
required pursuant to this Article VII to use its best efforts to effect the
registration of the Registrable Securities under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement which
includes the Registrable Securities and use its best efforts to cause such
Registration Statement to become and remain effective until the distribution
described in the registration statement has been completed or until the
participating Holders can sell all such Registrable Securities pursuant to Rule
144;
(b) prepare and file with the SEC such amendments and supplements to
such Registration Statement and the Prospectus used in connection therewith as
may be necessary to keep such Registration Statement effective and to comply
with the provisions of the Securities Act with respect to the sale or other
disposition of Registrable Securities covered by such
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Registration Statement whenever a Holder shall desire to sell or otherwise
dispose of the same, but only to the extent provided in this Article VII;
(c) furnish to each participating Holder (and to each underwriter,
if any, of Registrable Securities) such number of copies of a Prospectus,
including a preliminary Prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as such Holder may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Securities;
(d) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such state securities
or blue sky laws of such jurisdiction as each participating Holder shall
reasonably request and do any and all other acts and things which may be
necessary under such securities or blue sky laws to enable such Holder to
consummate the public sale or other disposition in such jurisdictions of the
Registrable Securities, except that the Company shall not for any purpose be
required to consent generally to service of process or qualify to do business
as a foreign corporation in any jurisdiction wherein it is not so qualified;
(e) before filing the Registration Statement or Prospectus or
amendments or supplements thereto, furnish to counsel selected by the
participating Holders copies of such documents proposed to be filed which shall
be subject to the reasonable approval of such counsel;
(f) enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offer;
(g) notify the participating Holders at any time when a Prospectus
relating to any Registrable Securities covered by such Registration Statement
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the Prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing and promptly file such amendments and supplements as may be necessary
so that, as thereafter delivered to such Holders, such Prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing and use its best efforts
to cause each such amendment and supplement to become effective;
(h) furnish at the request of the participating Holders on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Article VII an opinion, dated
such date, of the counsel representing the Company, for purposes of such
registration, in form and substance as is customarily given by company counsel
to the underwriters in an underwritten public offer addressed to the
underwriters, if any, and to such Holders, and (ii) a letter dated such date,
from the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offer, addressed to the underwriters
and to such Holders; and
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(i) use its best efforts to cause all such Registrable Securities to
be listed on the securities exchange or the Nasdaq National Market, if any, on
which the Company's Common Stock is then listed.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities and such other
information as may otherwise be required to be included in such Registration
Statement, as the Company may from time to time reasonably request in writing.
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in paragraph (g) hereof, such
Holder will forthwith discontinue disposition of such Registrable Securities
covered by such Registration Statement or Prospectus until such Holder's
receipt of the copies of the supplemented or amended Prospectus, or until it is
advised in writing by the Company that the use of the applicable Prospectus may
be resumed, and has received copies of any additional or supplemental filings
which are incorporated by reference in such Prospectus, and, if so directed by
the Company, such Holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Registrable Securities current at the time of
receipt of such notice.
SECTION 7.05: INDEMNIFICATION. In the event Registrable Securities are
registered pursuant to this Article VII:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder of Registrable Securities which are included in a
Registration Statement filed pursuant to the provisions of this Agreement and
any underwriter (within the meaning of the Securities Act) with respect to the
Registrable Securities, and each officer, director, employee and agent thereof
and each person, if any, who otherwise controls such Holder or underwriter
(within the meaning of the Securities Act), against any losses or claims,
damages, expenses or liabilities, joint or several, to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, or otherwise, insofar as such losses, claims, damages, expenses or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue or allegedly untrue statement of any material fact contained in the
Registration Statement for the Registrable Securities, including any
preliminary Prospectus or final Prospectus contained therein or any amendments
or supplements thereto, or any document incident to the registration or
qualification of any Registrable Securities, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or allegedly necessary to make the statements therein not
misleading or arise out of any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law; and will reimburse such Holder, any underwriter, officer,
director, employee, agent or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 7.05(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, expense, liability
or action if such settlement is
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effected without the written consent of the Company, which shall not be
unreasonably withheld, nor shall the Company be liable under this Section
7.05(a) to such Holder, such underwriter, officer, director, employee, agent or
controlling person for any such loss, claim, damage, expense, liability or
action to the extent that it arises out of, or is based upon, an untrue
statement or allegedly untrue statement or omission or alleged omission made in
connection with such Registration Statement, preliminary Prospectus, final
Prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with information furnished in writing expressly for use in
connection with such registration by such Holder, such underwriter, officer,
director, employee, agent or such controlling person.
(b) To the extent permitted by law, each Holder of Registrable
Securities which are included in a Registration Statement filed pursuant to the
provisions of this Agreement will indemnify and hold harmless the Company, each
of its employees, agents, directors and officers, each person, if any, who
controls the Company within the meaning of the Securities Act, and any
underwriter (within the meaning of the Securities Act) against any losses,
claims, damages, expenses or liabilities to which the Company or any such
person or underwriter may become subject, under the Securities Act, the
Exchange Act or other federal or state law or otherwise, insofar as such
losses, claims, damages, expenses or liabilities (or actions in respect
thereof) arise out of, or are based upon any untrue or allegedly untrue
statement of any material fact contained in a Registration Statement for the
Registrable Securities, including any preliminary Prospectus or final
Prospectus contained therein or any amendments or supplements thereto, or any
document incident to the registration or qualification of any Registrable
Securities, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or allegedly
necessary to make the statements therein not misleading; in each case to the
extent that such untrue statement or allegedly untrue statement or omission or
alleged omission was made in such Registration Statement, preliminary
Prospectus, final Prospectus or amendments or supplements thereto, in reliance
upon and in conformity with information furnished in writing by such Holder
expressly for use in connection with such registration; provided, however, that
the indemnity agreement contained in this Section 7.05(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, expense, liability
or action if such settlement is effected without the written consent of such
Holder, which shall not be unreasonably withheld; and such Holder will
reimburse the Company or any such person or underwriter for any legal or other
expenses reasonably incurred by the Company or any such person or underwriter
in connection with investigating or defending such loss, claim, damage,
liability, expense or action.
(c) Promptly after receipt by an indemnified party under this
Section 7.05 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 7.05, notify the indemnifying party in
writing of the commencement thereof and generally summarize such action. The
indemnifying party shall have the right to participate in and to assume the
defense thereof with counsel mutually satisfactory to the parties. An
indemnifying party shall not have the right to direct the defense of such an
action on behalf of an indemnified party if such indemnified party has
reasonably concluded that there may be defenses available to it that are
different from or additional to those available to the indemnifying party;
provided, however, that in such event, the indemnifying party shall bear the
fees and expenses of only one (1) separate counsel for all indemnified parties,
such separate counsel to be reasonably satisfactory to the indemnifying party.
The failure to notify an indemnifying party promptly of the commencement of any
such action if
- 14 -
<PAGE>
prejudicial to the ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
7.05, but the omission so to notify the indemnifying party will not relieve
such party of any liability that such party may have to any indemnified party
otherwise than under this Section.
(d) To the extent permitted by law, the indemnification provided for
under this Section 7.05 will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling person (within the meaning of the Securities Act) of
such indemnified party and will survive the transfer of securities.
(e) If for any reason the foregoing indemnity is unavailable to, or
is insufficient to hold harmless an indemnified party, then the indemnifying
party shall contribute to the amount paid or payable by the indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
the indemnifying party on the one hand and the indemnified party on the other
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, or provides a lesser sum to the indemnified party than the
amount hereinafter calculated, in such proportion as is appropriate to reflect
not only the relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other but also the relative fault of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. Notwithstanding the foregoing, no underwriter, if
any, shall be required to contribute any amount in excess of the amount by
which the total price at which the securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The obligation of any
underwriters to contribute pursuant to this Section 7.05(e) shall be several in
proportion to their respective underwriting commitments and not joint.
SECTION 7.06: RESTRICTIONS ON PUBLIC SALE. Each holder of Registrable
Securities whose Registrable Securities are covered by a Registration Statement
filed pursuant to Article VII hereof agrees, if requested by the managing
underwriters in an underwritten offering, not to effect any public sale or
distribution of any securities of the Company of the same class as the
securities included in such Registration Statement, including a sale pursuant
to Rule 144 under the Securities Act (except as part of such underwritten
registration), during the 10-day period prior to, and during the 90-day period
beginning on, the closing date of the underwritten offering made pursuant to
such Registration Statement, to the extent timely notified in writing by the
managing underwriters.
The foregoing provision shall not apply to any Holder if such Holder
is prevented by applicable statute or regulation from entering into any such
agreement. However, any such Holder shall undertake, in its request to
participate in any such underwritten offering, not to effect any public sale or
distribution of the applicable Registrable Securities commencing on the date of
sale of such applicable class of Registrable Securities unless it has provided
45 days' prior written notice of such sale or distribution to the underwriter
or underwriters.
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<PAGE>
SECTION 7.07: REPORTS UNDER THE EXCHANGE ACT. With a view to making
available to the Holder the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder of Registrable Securities to sell such securities of the
Company to the public without registration, and with a view to making it
possible for any such holder to register the Registrable Securities pursuant to
a registration on Form S-3, the Company agrees, subject to this Article VII in
the case of Section 7.07(b), to:
(a) make available adequate current public information as
contemplated by Rule 144 (c)(1) or (2);
(b) take such action as is necessary to enable a Holder to utilize
Form S-3 for the sale of Registrable Securities;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(d) furnish to a Holder owning any Registrable Securities upon
request (i) a written statement by the Company that it has complied with the
reporting requirements of Rule 144, the Securities Act and the Exchange Act, or
that it qualifies as a registrant whose Registrable Securities may be resold
pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the
most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably required in availing any Holder of Registrable Securities of any
rule or regulation of the SEC which permits the selling of any such Registrable
Securities without registration or pursuant to such form.
ARTICLE VIII
OTHER MATTERS
SECTION 8.01: EXPENSES OF TRANSFER. The Company will from time to time
promptly pay, subject to the provisions of Section 6.01, 6.02 and paragraph (d)
of Section 2.02, all taxes and charges that may be imposed upon the Company in
respect to the issuance or delivery of Warrant Shares upon the exercise of this
Warrant by the Warrantholder.
SECTION 8.02: SUCCESSORS AND ASSIGNS. All the covenants and provisions of
this Warrant by or for the benefit of any party hereto shall bind and inure to
the benefit of its permitted successors and assigns hereunder.
SECTION 8.03: AMENDMENTS AND WAIVERS. The provisions of this Warrant,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waiver or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least a majority of the outstanding Warrants or Registrable Securities
(assuming, for purposes of calculating such consent, that all Warrantholders
have exercised the Warrants at the time such consent is sought). Warrantholders
and Holders shall be bound by any consent authorized by this Section whether or
not certificates representing such Warrants or Registrable Securities have been
marked to indicate such consent.
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<PAGE>
SECTION 8.04: GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 8.05: SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provisions in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
SECTION 8.06: INTEGRATION/ENTIRE AGREEMENT. This Warrant is intended to be
a complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties, or undertakings, other than those set forth
or referred to herein with respect to the registration rights granted by the
Company with respect to this Warrant. This Warrant supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
SECTION 8.07: NOTICES. Notices or demand pursuant to this Warrant to be
given or made by the Warrantholder to or on the Company shall be sufficiently
given or made if sent (i) by recognized international courier such as Federal
Express or DHL or (ii) by first class mail, postage prepaid, addressed, until
another address is designated in writing by the Company, as follows:
Alliance Pharmaceutical Corp.
3040 Science Park Road
San Diego, CA 92121
Attn: President
With a Copy to:
Stroock & Stroock & Lavan
7 Hanover Square
New York, N. Y. 10004
Attn: Melvin Epstein, Esq.
Any action or demand authorized by this Warrant to be given or made by the
Company to or on the Warrantholder or a Holder of Registrable Securities shall
be sufficiently given or made if sent (i) by recognized international courier
such as Federal Express or DHL or (ii) by first class mail, postage prepaid, to
the Warrantholder or the Holder of Registrable Securities, at his last known
address as it shall appear on the books of the Company.
SECTION 8.08: HEADINGS. The Article headings herein are for convenience
only and are not part of this Warrant and shall not affect the interpretation
thereof.
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<PAGE>
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company as
of the ___ day of February, 1996.
ALLIANCE PHARMACEUTICAL CORP.
By:_________________________
Theodore D. Roth
Executive Vice President
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<PAGE>
FORM OF ASSIGNMENT
(To be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _________________________________________________________________ the
right to purchase _____________ shares of common stock evidenced by the within
Warrant, and appoints
____________________________________________________________ to transfer same
on the books of Alliance Pharmaceutical Corp. with full power of substitution
in the premises.
Dated: _____________________, 19___
___________________________________________
(Signature must conform in all respects to
the name of Warrantholder as specified on
the face of the Warrant, without alteration,
enlargement or any change whatsoever, and
the signature must be guaranteed in the
usual manner)
Signature Guaranteed:
_______________________________
-19-
<PAGE>
SUBSCRIPTION FORM
To Be Executed By The Warrantholder If He Desires
To Exercise The Warrant In Whole Or In Part:
To:
The undersigned,__________________________________________________,
(Name of Warrantholder)
(_________________________________________)
(Please insert Social Security or other identifying
number of subscriber)
hereby irrevocably elects or exercise the right of purchase represented by the
within Warrant for, and to purchase thereunder, ____________ shares of Common
Stock provided for therein and tenders payment herewith to the order of
Alliance Pharmaceutical Corp. in the amount $__________. The undersigned
requests that certificates for such shares of Common Stock be issued as
follows:
Name:___________________________________________________________________________
Address:________________________________________________________________________
Deliver to:_____________________________________________________________________
Address:________________________________________________________________________
and, if said number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance
remaining of the shares of Common Stock purchasable under the within Warrant be
registered in the name of, and delivered to, the undersigned at the address
states below:
Address:________________________________________________________________________
Date:___________________________
Signature:___________________________________
Note: The signature of this Subscription must
correspond with the name as written upon the
face of this Warrant in every particular,
without alternation or enlargement or any
change whatsoever.
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<PAGE>
SUPPLY AND TECHNOLOGY TRANSFER AGREEMENT
BETWEEN
HOECHST MARION ROUSSEL, INC.
AND
ALLIANCE PHARMACEUTICAL CORP.
dated as of
February 28, 1996
** INDICATES CONFIDENTIAL INFORMATION WHICH HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
MATERIAL MANUFACTURE; SUPPLY; TERMS. . . . . . . . . . . . . . . . . . . . . 3
2.1 Supply of Material . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Forecasts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Rejected Goods/Shortages . . . . . . . . . . . . . . . . . . . . . 6
2.6 Back-Up Inventory. . . . . . . . . . . . . . . . . . . . . . . . . 6
2.7 Failure to Supply; Capacity Allocation . . . . . . . . . . . . . . 7
2.8 Capacity Expansion . . . . . . . . . . . . . . . . . . . . . . . . 7
2.9 Manufacturing Changes. . . . . . . . . . . . . . . . . . . . . . . 8
2.10 Price, Price Adjustments and Payment . . . . . . . . . . . . . . . 8
2.11 Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.12 Temporary Idling . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.13 Packaging Information. . . . . . . . . . . . . . . . . . . . . . . 10
2.14 Supply of Material to Affiliates . . . . . . . . . . . . . . . . . 10
2.15 Exports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.16 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE III
TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Early Termination. . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Consequences of Termination & Survival . . . . . . . . . . . . . . 12
ARTICLE IV
CERTIFICATES AND ACCESS. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Certificates of Analysis . . . . . . . . . . . . . . . . . . . . . 12
4.2 Certificate of Manufacturing Compliance. . . . . . . . . . . . . . 12
4.3 Supplier Certification . . . . . . . . . . . . . . . . . . . . . . 12
4.4 Access to Facilities . . . . . . . . . . . . . . . . . . . . . . . 12
i
<PAGE>
ARTICLE V
COMPLAINTS AND MATERIAL RECALLS. . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Complaints . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Material Recalls . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VI
WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.1 Conformity with the Specifications . . . . . . . . . . . . . . . . 13
6.2 Conformity with CGMP . . . . . . . . . . . . . . . . . . . . . . . 13
6.3 Compliance with the Federal Food, Drug and Cosmetic Act. . . . . . 14
ARTICLE VII
CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.1 Nondisclosure Obligations. . . . . . . . . . . . . . . . . . . . . 14
7.2 Disclosure of Confidential Information . . . . . . . . . . . . . . 15
7.3 Review of Publications . . . . . . . . . . . . . . . . . . . . . . 15
7.4 Delay of Publications. . . . . . . . . . . . . . . . . . . . . . . 15
7.5 Approval of Publications . . . . . . . . . . . . . . . . . . . . . 15
7.6 Injunctive Relief. . . . . . . . . . . . . . . . . . . . . . . . . 15
7.7 Contractual Publication Rights of Third Parties. . . . . . . . . . 16
ARTICLE VIII
INDEMNIFICATION AND INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . 16
8.1 By Alliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.2 By HMRI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.3 Conditions of Indemnification. . . . . . . . . . . . . . . . . . . 16
8.4 Product Liability Insurance. . . . . . . . . . . . . . . . . . . . 17
8.5 Manufacturer's Insurance.. . . . . . . . . . . . . . . . . . . . . 17
8.6 Product Liability Claims.. . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IX
MANUFACTURE OF MATERIAL BY HMRI. . . . . . . . . . . . . . . . . . . . . . . 18
9.1 Transfer of Technology . . . . . . . . . . . . . . . . . . . . . . 18
9.2 Transfer of Supply Relationships . . . . . . . . . . . . . . . . . 18
9.3 Right of First Refusal to Purchase . . . . . . . . . . . . . . . . 18
9.4 Agreement to Purchase Raw Materials. . . . . . . . . . . . . . . . 19
ARTICLE X
ALTERNATIVE DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . 19
ii
<PAGE>
ARTICLE XI
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.2 Entire Agreement; Amendment. . . . . . . . . . . . . . . . . . . . 20
11.3 Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.4 Consequential Damages. . . . . . . . . . . . . . . . . . . . . . . 20
11.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.8 Headings, Interpretation . . . . . . . . . . . . . . . . . . . . . 21
11.9 Attachments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.10 . . . . . . . . . . . . . . . . . .Independent Parties. . . . . . 21
11.11 . . . . . . . . . . . . . . . . . . . . . . .Execution. . . . . . 21
11.12 . . . . . . . . . . . . . . . . . . . . .Governing Law. . . . . . 21
EXHIBIT 1
SHORT TERM (12 MONTH) FORECAST . . . . . . . . . . . . . . . . . . . . . . . 23
SCHEDULE 9.1
TRANSFER OF TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
iii
<PAGE>
SUPPLY AND TECHNOLOGY TRANSFER AGREEMENT
SUPPLY AND TECHNOLOGY TRANSFER AGREEMENT dated as of February 28,
1996, by and between HOECHST MARION ROUSSEL, INC., a Delaware corporation
("HMRI"), and ALLIANCE PHARMACEUTICAL CORP., a New York corporation
("Alliance"). The effective date of this Agreement shall be the date of the
Closing as such term is defined in the Stock Purchase Agreement of even date
herewith between HMRI and ALLIANCE (hereinafter referred to as the "Effective
Date").
WHEREAS, Alliance and HMRI have entered into a License Agreement (the
"License Agreement") of even date herewith, pursuant to which Alliance has
granted rights and licenses to HMRI under certain Patents and Know-How (both as
defined in the License Agreement) necessary or useful to use, develop,
manufacture, market, sell and distribute Material (as defined herein);
WHEREAS, Alliance desires to sell to HMRI and HMRI desires to purchase
from Alliance, Material for clinical and regulatory work and commercial sale by
HMRI in the Territory (as defined in the License Agreement) under the terms and
conditions herein;
WHEREAS, HMRI intends to manufacture Material, but currently does not
have the capability or requisite regulatory approvals to manufacture Material;
and
WHEREAS, the parties desire further to provide for the transfer by
Alliance to HMRI of batch records, specifications, analytical methods and other
manufacturing information and Know-How necessary or useful for the manufacture
of Material and for other assistance by Alliance in setting up manufacturing
operations by HMRI to manufacture Material.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 "Affiliate" shall mean any entity which, directly or indirectly,
controls, is controlled by, or is under common control with another entity. An
entity shall be deemed to be in control of another entity if the former owns
directly or indirectly more than 50% of the outstanding voting equity or owns
directly or indirectly an interest in more than 50% of the assets of the latter.
1
<PAGE>
1.2 "Agreement" means this Supply and Technology Transfer Agreement,
including all attachments to this Agreement.
1.3 "Contract Year" means, for the first Contract Year, the period
commencing on the date of the first long term forecast for quantities of
Material under Section 2.2(a) hereof and ending on the last day of that calendar
year, and for subsequent Contract Years, the successive calendar years
thereafter.
1.4 "Cost Accounting System" means an accounting system which tracks
and records the Manufacturing Costs and calculates the cost per Unit of
Material.
1.5 "CGMP" means Current Good Manufacturing Practices as promulgated
under the United States Federal Food Drug and Cosmetic Act at 21 CFR (chapters
210 and 211) and, when appropriate, any corresponding regulations in any other
country in the Territory as the same may be amended or re-enacted from time to
time. CGMP documentation for use in the manufacture and marketing of Material
will be developed by the parties in accordance with the License Agreement.
1.6 "FDA" means the United States Food and Drug Administration, and,
when appropriate, any corresponding regulatory agency in any other country in
the Territory.
1.7 "IND" shall mean an Investigational New Drug Application filed
pursuant to the requirements of the FDA as more fully defined in 21 C.F.R.
Section 312 as well as equivalent submissions to the appropriate health
authorities in other countries in the Territory.
1.8 "Manufacturing Costs" means **
1.9 "Manufacturing Variances" means the result obtained when actual
Manufacturing Costs are compared to the budgeted and/or Standard Manufacturing
Costs resulting in differences that reconcile the Standard Manufacturing Costs
to actual Manufacturing Costs.
1.10 "Material" shall mean liquids, including in nebulized or aerosol
form, which perform Bronchoalveolar Lavage or Liquid Ventilation or provide
Therapeutic Effects (all
2
<PAGE>
as defined in the License Agreement), together with the infusion set necessary
for the intratracheal administration of such liquids.
1.11 "NDA" shall mean a New Drug Application and all supplements filed
pursuant to the requirements of the FDA, including all documents, data and other
information concerning Material which are necessary for or included in, FDA
approval to market Material, as more fully defined in 21 C.F.R.
Section Section 314.35 et seq., as well as any other submissions required by the
FDA to market Material and equivalent submissions to the appropriate health
authorities in other countries in the Territory.
1.12 "Specifications" means the written specifications for Material
which shall be agreed upon by the parties hereto, provided that such
specifications for Material intended for Clinical Work (as defined in the
License Agreement) shall at all times conform with the approval received with
the IND and for Material intended for commercial sale shall at all times conform
with the approval received with the NDA and shall in all other respects comply
with the relevant regulations of the FDA or other regulatory agency in the
country in which the Clinical Work is being performed or Material is being sold,
as the case may be. Such specifications may be amended from time to time by the
written agreement of the parties. Copies of such specifications shall be
maintained by both parties, and shall become a part of this Agreement as if
incorporated herein.
1.13 "Standard Manufacturing Costs" means the accumulation of budgeted
Manufacturing Costs to derive an average expected cost per Unit manufactured.
1.14 "Third Party" shall mean any person, corporation or
unincorporated body other than HMRI and Alliance and their Affiliates.
1.15 "Unit" means an individual package of Material intended for use
with an individual person.
All other capitalized terms used and not defined herein shall have the
meaning given them in the License Agreement.
ARTICLE II
MATERIAL MANUFACTURE; SUPPLY; TERMS
2.1 SUPPLY OF MATERIAL.
(a) CLINICAL SUPPLY. Subject to the terms and conditions of
this Agreement, and at HMRI's request in accordance with the terms hereof,
Alliance shall manufacture, as a sole or joint source, and supply Material in
finished packaged form to HMRI
3
<PAGE>
for all Clinical Work in the Territory. Alliance shall use commercially
reasonable efforts to meet HMRI's demand for Material ordered in accordance with
the terms hereof. Alliance shall provide Material in packaged form as
reasonably requested by HMRI and as agreed upon by Alliance.
(b) COMMERCIAL SALES. Subject to the terms and conditions of
this Agreement, and at HMRI's request in accordance with the terms hereof,
Alliance shall manufacture, as a sole or joint source, and supply to HMRI
Material in finished packaged form for commercial sale up to the capacity of
Alliance's existing manufacturing facility in Otisville, New York (the
"Otisville Facility"). Alliance shall use commercially reasonable efforts to
meet HMRI's demand for Material ordered in accordance with the terms hereof.
Alliance shall provide Material in packaged form as reasonably requested by HMRI
and as agreed upon by Alliance. Except as provided in Section 2.2, Alliance's
commitment to supply Material to HMRI under the terms of this Agreement shall
not imply any long-term commitment by HMRI to purchase Material from Alliance.
(c) SUBLICENSE TO MANUFACTURE. Pursuant to its right under the
License Agreement to grant sublicenses to the Patents and Know-How, HMRI hereby
grants Alliance the non-exclusive right to use the Patents and Know-How in the
Field of Use (as defined in the License Agreement) for the purposes of this
Agreement and the License Agreement. Alliance hereby undertakes not to use or
exploit the Patents or the Know-How (or any part thereof) in the Field of Use
for any purpose other than as set forth in this Agreement and the License
Agreement. The rights and licenses granted herein may not be sublicensed by
Alliance except upon the prior written consent of HMRI. Except as herein
provided, no license or other right is granted by HMRI to Alliance or any other
party by implication or otherwise with respect to any proprietary right of HMRI
by virtue of this Agreement.
2.2 FORECASTS.
(a) LONG-RANGE FORECASTS. Within 90 days from the execution of
this Agreement, and at least 90 days prior to the beginning of each calendar
year thereafter commencing with the second Contract Year, HMRI shall furnish
Alliance with a rolling forecast of the quantities of Material for Clinical Work
and commercial sale that HMRI intends to order during the following three year
period commencing with that calendar year. Such forecasts shall represent most
current estimates for planning purposes, not purchase commitments.
(b) SHORT TERM FORECASTS. At the time that HMRI first
reasonably expects that it will require Material for Clinical Work or commercial
sale within the ensuing 12 month period, and thereafter, at least 30 days prior
to the first day of each succeeding calendar quarter, HMRI shall furnish
Alliance with a rolling forecast of the quantities of Material that HMRI intends
to order by month, for the first six months, and by quarter, for the last six
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months, during the 12 month period commencing with that calendar quarter. Such
forecasts shall constitute binding commitments of HMRI to purchase the
percentages of Material set forth below. An example of form for the short-term
forecast is set out in Exhibit 1 (forecasts 1 and 2). The binding commitment of
HMRI to purchase the forecasted quantities for the first three months of the
forecast shall be further evidenced by purchase orders to be issued to Alliance
in accordance with Section 2.3. HMRI shall be required to purchase that
percentage of the quantity of Material specified in the forecast for successive
quarters as follows:
Percentage of Material
Period indicated in Forecast that
of the Forecast HMRI is Required to Purchase
----------------- ----------------------------
**
2.3 ORDERS. HMRI shall place each purchase order with Alliance for
Material to be delivered hereunder at least 90 days prior to the delivery date
specified in each respective order. Such orders shall be in full lots and shall
specify for each three month period an aggregate quantity of Material which is
at least as great as the amount of Material required to be purchased by HMRI
pursuant to Section 2.2. Alliance shall confirm in writing each such purchase
order within ten business days of receipt thereof. Alliance shall deliver
against each such order in accordance with Section 2.4. HMRI shall be obligated
to purchase all such Material ordered and delivered by the delivery date
specified in HMRI's purchase order, provided that such Material meet the
Specifications. Alliance shall use reasonable efforts to meet any order for a
quantity of Material in excess of the amounts forecasted under Section 2.2(b)
for such period. Any purchase orders, purchase order releases, confirmations,
acceptances, advices and similar documents submitted by either party in
conducting the activities contemplated under this Agreement are for
administration purposes only and shall not add to or modify the terms of the
Agreement. To the extent of any conflict or inconsistency between this
Agreement and any such document, the terms and conditions of this Agreement
shall control as to a particular order unless otherwise agreed to in writing by
the parties.
2.4 DELIVERY. Delivery terms shall be F.O.B. the Otisville Facility
or such other facility mutually agreed to by the parties. Alliance shall ship
Material on a carrier or carriers specified by HMRI in accordance with HMRI's
purchase order form or as otherwise directed by HMRI in writing. Title to any
Material purchased by HMRI shall pass to HMRI upon the earlier of (i) a common
carrier accepting possession or control of such Material or (ii) the passage of
such Material from the loading dock of Alliance's facility to HMRI or any
employee, agent or contractor thereof.
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2.5 REJECTED GOODS/SHORTAGES.
(a) HMRI shall notify Alliance in writing of any claim relating
to Material that fail to meet the Specifications, arising from defective
manufacture, storage or handling of such Material by Alliance prior to shipment
or any shortage in quantity of any shipment of Material within 45 days of
receipt of such Material. In the event of such rejection or shortage, Alliance
shall replace the rejected Material or make up the shortage within ten business
days if replacement stock is available, and in any case as soon as reasonably
possible after receiving such notice, at no additional cost to HMRI, and
Alliance shall make arrangements with HMRI for the return of any rejected
Material, such return shipping charges to be paid by Alliance for Material
determined after inspection and testing by Alliance to fail to meet the
Specifications. In the event that only a limited supply of Material is
available at the time of such rejection or shortage, then Alliance shall ship to
HMRI such quantities of Material as are available and HMRI will be promptly
reimbursed or credited against future orders, at HMRI's option, for amounts paid
for the remaining quantity of rejected Material.
(b) In the event of a disagreement regarding the Material which
fail to meet the Specifications which HMRI and Alliance are unable to resolve, a
sample of such Material shall be submitted by Alliance to an independent
laboratory reasonably acceptable to both parties for testing against the
Specifications and the test results obtained by such laboratory shall be final
and controlling. The fees and expenses of such laboratory testing shall be
borne entirely by the party against whom such laboratory's findings are made.
In the event the test results indicate that the Material in question do not
conform to the Specifications, Alliance shall replace such Material at no
additional cost to HMRI within seven business days after receipt of such results
if replacement stock is available, and in any case as soon as reasonably
possible after receipt of such results. In the event the test results indicate
that the Material in question does conform to the Specifications, HMRI shall pay
all additional shipping and transportation costs incurred as a result of the
disagreement.
2.6 BACK-UP INVENTORY. Subject to terms of this Agreement, Alliance
shall maintain an adequate back-up inventory of Material to meet HMRI's purchase
orders, to replace rejected Material and other similar situations. Such
inventory level shall be mutually agreed upon by the parties. Alliance will
notify HMRI promptly if such back-up inventory falls below such agreed upon
level and include the reason for the lower level. The parties will discuss and
agree upon a course of action to solve the problem, provided however, that such
agreement shall act in no way as a waiver of HMRI's rights or remedies herein if
Alliance fails to deliver Material under the provisions of this Agreement.
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2.7 FAILURE TO SUPPLY; CAPACITY ALLOCATION.
(a) In the event that Alliance, upon receiving a forecast under
Section 2.2 or a firm order under Section 2.3, is, or anticipates that it will
be, unable to meet such forecast or firm order, either in whole or in part, and
whether due to circumstances arising under Section 11.3 or otherwise, Alliance
shall give written notice of such inability to HMRI within ten days of receipt
of such forecast or firm order. If such inability is partial, Alliance shall
deliver against firm orders such quantities of Material as are available.
(b) Alliance and HMRI shall meet within 15 days of such written
notice to consider and, if appropriate, pursue alternative arrangements for
meeting HMRI's requirements for Material. Such arrangements may include
transferring equipment and/or technology necessary for the production of
Material to an alternative site or to a Third Party, manufacturing Material at
HMRI's own facilities, or, if HMRI is already manufacturing quantities of
Material, increasing HMRI's production of Material, PROVIDED that any such
alternative pursued shall be subject to all required regulatory approvals. Any
alternative arrangements entered into pursuant to this Section 2.7 shall act in
no way as a waiver of any other rights or remedies which HMRI may have under
this Agreement or otherwise.
(c) In the event that Alliance's inability to meet firm orders or
forecasts is due to a shortage of production capacity at Alliance's facilities,
in addition to the requirements on Section 2.7(a) and Section 2.7(b) above,
Alliance shall promptly notify HMRI of such shortage of production capacity,
and, if possible, the date such shortage of production capacity is expected to
end. In such event, Alliance shall allocate its available production capacity
to the production of Material in such proportion as the production capacity
actually utilized to meet orders for Material over the previous 12 month period
bears to Alliance's total production capacity over that same period.
(d) Alliance shall notify HMRI as soon as possible of the date
upon which such shortage of production capacity will cease. Within 30 days of
such notification, HMRI shall resume obtaining its requirements for Material in
such proportions as HMRI ordered from Alliance prior to the shortage of
production to the extent such resumption is consistent with the contractual
arrangements entered into as provided in Section 2.7(b).
2.8 Capacity Expansion.**
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2.9 MANUFACTURING CHANGES. Alliance shall not change the specified
raw materials, analytical methods, components, equipment, packaging materials,
suppliers or processes used in the manufacture of Material without the prior
written consent of HMRI, which consent shall not be unreasonably withheld. Such
changes shall be reflected in related documentation and must receive all
required regulatory approvals.
2.10 PRICE, PRICE ADJUSTMENTS AND PAYMENT.
(a)**
(b)**
(c)**
(i)**
(ii)**
(d)**
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2.11 AUDITS. HMRI shall have the right to nominate an independent
certified public accountant reasonably acceptable to and approved by Alliance or
HMRI's own internal accountant who shall have access, during regular business
hours and upon reasonable notice, to audit those records and supporting
documentation of Alliance, to the extent necessary to verify the Manufacturing
Costs, but this right may not be exercised more than once in any calendar year,
and once a calendar year is audited it may not be reaudited, and said accountant
shall disclose to HMRI only information relating solely to the accuracy and
nature of the Manufacturing Costs and the payments made according to this
Agreement. Alliance shall maintain such records and supporting documentation
for a period of three years from the date HMRI receives the invoice which is
based upon such records and supporting documentation. If, pursuant to such
review, such accountant determines the actual Manufacturing Costs for a
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particular year are less than the Standard Manufacturing Costs, then in addition
to paying the amounts as set forth in Section 2.10(d) above, Alliance shall pay
the costs of such investigation. For any refund owed by Alliance to HMRI under
this Section 2.11 greater than two percent, Alliance shall pay, in addition to
the amount due, interest on such amount from the time the amount was due at the
then current prime rate as quoted in the Eastern edition of THE WALL STREET
JOURNAL.
2.12 TEMPORARY IDLING. **
2.13 PACKAGING INFORMATION. All packaging and labelling information
and designs, including without limitation all art work and pharmacological
information, usage instructions and warnings to be applied to Material shall be
developed by the PMT (as defined in the License Agreement), subject to all
regulatory approvals, and provided to Alliance a sufficient period of time in
advance of any requirements that Material be delivered in packaged form to
enable Alliance to supply the necessary materials and meet such delivery
requirements.
2.14 SUPPLY OF MATERIAL TO AFFILIATES. HMRI shall have the right to
designate any of its Affiliates who are sublicensees under the License Agreement
in any country of the Territory as a direct purchaser (a "Direct Purchaser") of
Material under this Agreement. Alliance shall manufacture, sell and deliver,
and such Direct Purchaser shall purchase, Material for the same price and with
such other rights, obligations and conditions under this Agreement to which HMRI
is entitled, or by which HMRI is bound, as HMRI deems necessary or appropriate
to enable such Direct Purchaser to perform Clinical Work and to market, sell and
distribute Material, PROVIDED, that HMRI shall remain responsible to Alliance
for all obligations of HMRI and such Direct Purchasers.
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2.15 EXPORTS. The parties acknowledge that the export of technical
data, materials, or products is subject to the exporting party receiving any
necessary export licenses and that the parties cannot be responsible for any
delays attributable to export controls which are beyond the reasonable control
of the exporting party. Alliance and HMRI agree not to export or re-export,
directly or indirectly, any information, technical data, the direct product of
such data, samples, or equipment received or generated under this Agreement in
violation of any statutes or governmental regulations which may be applicable,
including, but not limited to, the Export Administration Act of 1979, as
amended, its rules and regulations, including, but not limited to, Part 779 of
the United States Export Control Regulations, published by the United States
Department of Commerce, and other applicable export laws. Alliance and HMRI
agree to use reasonable best efforts to obtain similar covenants from their
licensees, sublicensees, and contractors with respect to the subject matter of
this Section.
2.16 TAXES. Subject to the provisions of this Section 2.13, HMRI or
its Affiliates, as the case may be, shall reimburse Alliance for all tariffs,
duties and excise, sales or use, value added or other taxes or levies
(collectively, "Taxes") that may be paid by Alliance with respect to the
manufacture and sale to HMRI or its Affiliates, as the case may be, of Material.
Notwithstanding the foregoing, HMRI shall have no reimbursement obligations
under this Section 2.13 to the extent that (i) such Taxes are based on
Alliance's net income or (ii) such Taxes are recoverable or offset by Alliance,
in whole or in part, as a credit, rebate, deduction or otherwise.
ARTICLE III
TERM AND TERMINATION
3.1 TERM. **
3.2 EARLY TERMINATION.
(a) This Agreement shall terminate upon the early termination of
the License Agreement pursuant to Section 13.1 or 13.3 of the License Agreement
or Section 13.2 of the License Agreement upon the failure of HMRI to cure a
default thereunder.
(b) This Agreement may be terminated by either party upon 90
days written notice to the other party if any provision hereof is materially
breached, unless such breach is corrected or reasonable efforts are being made
to correct such breach within the 90-day notice period.
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3.3 CONSEQUENCES OF TERMINATION & SURVIVAL. Termination of this
Agreement shall not relieve either party of its obligations incurred prior to
termination. The obligations under Articles 5, Complaints and Product Recalls;
6, Warranties; 7, Nondisclosure and Confidentiality; and 8, Indemnification and
Insurance, shall survive expiration or termination of this Agreement or of any
extensions thereof.
ARTICLE IV
CERTIFICATES AND ACCESS
4.1 CERTIFICATES OF ANALYSIS. Alliance shall perform, or cause to be
performed, sample tests on each lot of Material purchased pursuant to this
Agreement before delivery to HMRI. Each test report shall set forth the items
tested, specifications and test results in a certificate of analysis, containing
the types of information which shall have been approved by mutual agreement of
the parties, for each lot delivered. Alliance shall send, or cause to be sent,
such certificates to HMRI prior to delivery of each lot.
4.2 CERTIFICATE OF MANUFACTURING COMPLIANCE. Alliance shall provide,
or cause to be provided, for Material purchased a certificate of manufacturing
compliance, containing the types of information which shall have been approved
by mutual agreement of the parties, which will certify that the lots of Material
are manufactured in accordance with the Specifications, CGMP and in compliance
with the regulatory requirements described in the IND or NDA, as applicable.
Alliance shall advise HMRI before release of a lot of Material of any deviation
in the manufacture of such Material. In case of failure to meet Specifications
in the manufacture of a lot of Material, Alliance shall inform HMRI of the
rejected lot, and shall provide a written summary of the investigation of the
causes by Alliance's quality organization. Alliance shall advise HMRI
immediately if an authorized agent of the FDA or other governmental regulatory
agency visits any of Alliance's manufacturing facilities concerning Material.
Alliance shall furnish to HMRI the report by such agency of such visit, to the
extent that such report relates to Material, and the application of such report
to Material delivered to HMRI, if any, within ten business days of Alliance's
receipt of such report. The parties agree to review and cooperate fully on any
written response to the FDA or other governmental regulatory agency regarding
these matters.
4.3 SUPPLIER CERTIFICATION. Alliance shall make all reasonable
efforts, with HMRI's assistance, and to the extent possible under regulatory
requirements, to become certified under HMRI's Certification Program.
4.4 ACCESS TO FACILITIES. HMRI shall have the right to inspect and
visit from time to time upon at least 24 hours prior notice and during normal
business hours those portions of the manufacturing facilities of Alliance where
Material is being manufactured, stored or tested, to ascertain compliance with
this Agreement and with CGMP and any time Alliance
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proposes to change the process for manufacturing Material or any other change
and HMRI agrees to such change. If the FDA or other applicable governmental
regulatory agency asserts any notice to the effect that Alliance has failed to
comply with any law or regulation in connection with the manufacture, storage or
handling of Material, or if Alliance delivers nonconforming Material, then HMRI
shall have the right to inspect such portions of the manufacturing facilities of
Alliance that relate to the manufacture of Material upon reasonable notice and
during normal business hours as often as is reasonably necessary to ascertain
that Alliance is correcting such failure in an expedient manner.
ARTICLE V
COMPLAINTS AND MATERIAL RECALLS
5.1 COMPLAINTS. In the event that either Alliance or HMRI shall
receive any communications from third parties alleging adverse reactions due to
use of Material or other complaints involving Material, the parties shall
cooperate in addressing such complaints and shall take all appropriate
corrective actions.
5.2 MATERIAL RECALLS. In the event (a) any government authority
issues a request, directive or order that any Material be recalled, or (b) a
court of competent jurisdiction orders such a recall, or (c) Alliance or HMRI
shall reasonably determine that Material should be recalled, the parties shall
take all appropriate corrective actions, and shall cooperate in the
investigations surrounding the recall. In the event that such recall results
from any cause or event arising from defective manufacture, storage or handling
of such Material by Alliance, Alliance shall be responsible for all expenses of
the recall, and shall promptly replace such Material at no additional cost to
HMRI consistent with directions received from the appropriate governmental
authority. For the purposes of this Agreement, the expenses of recall shall
include, without limitation, the expenses of notification and destruction or
return of the recalled Material and all other costs incurred in connection with
such recall, but shall not include lost profits of either party.
ARTICLE VI
WARRANTIES
6.1 CONFORMITY WITH THE SPECIFICATIONS. Alliance warrants that all
Material sold and delivered pursuant to this Agreement will conform to the
Specifications.
6.2 CONFORMITY WITH CGMP. Alliance warrants that it shall
manufacture, store and ship all Material in compliance with all applicable
Federal, state and local laws and governmental regulations, including without
limitation, CGMP.
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6.3 COMPLIANCE WITH THE FEDERAL FOOD, DRUG AND COSMETIC ACT.
Alliance warrants that all Material delivered to HMRI pursuant to this Agreement
will, at the time of such delivery, not be adulterated within the meaning of the
Federal Food, Drug and Cosmetic Act, as amended (the "Act"), or within the
meaning of any applicable state or municipal law as the Act and such laws are
constituted and effective at the time of delivery, and will not be an article
which may not, under the provisions of the Act, be introduced into interstate
commerce. Notwithstanding anything to the contrary in this Section 6.3,
Alliance's warranty hereunder does not extend to any packaging or labeling
provided by, or at the direction of, HMRI.
ARTICLE VII
CONFIDENTIALITY
7.1 NONDISCLOSURE OBLIGATIONS. All confidential information
transmitted by either party to the other, including all confidential information
developed pursuant to this Agreement or the License Agreement, shall be
identified as confidential and the receiving party shall, while this Agreement
is in effect and for five years after termination thereof, make no use of this
information other than in furtherance of this Agreement or the License Agreement
and shall use the same efforts to keep secret and prevent the disclosure of such
information to parties other than its Affiliates, sublicensees, agents,
officers, employees and representatives authorized to receive such information
as it would for its own confidential information except for such confidential
information that,
(a) was known to the receiving party or its Affiliates or
sublicensees at the time of its disclosure and not previously subject to any
obligation of confidentiality at the time of its disclosure;
(b) was generally available to the public or was otherwise part
of the public domain at the time of its disclosure;
(c) became generally available to the public or became otherwise
part of the public domain after its disclosure and other than through any act or
omission of the receiving party or its Affiliates or sublicensees in breach of
this Agreement or the License Agreement; or
(d) became known to the receiving party or its Affiliates or
sublicensees after its disclosure (i) from a source other than the disclosing
party (including from dependent development by the receiving party), (ii) other
than from a Third Party who had an obligation to the disclosing party not to
disclose such information to others, and (iii) other than under an obligation of
confidentiality; or
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(e) is disclosed by the receiving party pursuant to oral
questions, interrogatories, requests for information or documents, subpoena or
civil investigative demand issued by a court or governmental agency; PROVIDED,
that the receiving party notifies the other party immediately on receipt thereof
and the disclosing party furnishes only that portion of the confidential
information that counsel advises is legally required.
7.2 DISCLOSURE OF CONFIDENTIAL INFORMATION. Each receiving party or
its Affiliates or sublicensees may disclose any of the Know-How and confidential
information to the extent such disclosure is necessary to comply with applicable
laws or regulations, or to make and use Products (as defined in the License
Agreement) or Material in accordance with the terms of this Agreement and/or the
License Agreement.
7.3 REVIEW OF PUBLICATIONS. Each party recognizes the mutual
interest in obtaining valid patent protection. Consequently, either party and
its employees or consultants or any other Third Party wishing to make a
publication (including any oral disclosure made without obligation of
confidentiality) relating to work performed by such party as part of the work
performed under this Agreement or the License Agreement (the "Publishing Party")
shall transmit to the other party (the "Reviewing Party") a copy of the proposed
written publication at least 45 days prior to submission for publication, or an
abstract of such oral disclosure at least 15 days prior to submission of the
abstract of the oral disclosure, whichever is earlier. The Reviewing Party
shall have the right (a) to propose modifications to the publication for patent
reasons, (b) to request a delay in publication of presentation in order to
protect patentable information, or (c) to request that the information be
maintained as a trade secret and, in such case, the Publishing Party shall not
make such publication. Each party shall designate an individual to whom
proposed publications shall be directed and such individual shall be responsible
for obtaining the necessary internal approvals of the Reviewing Party.
7.4 DELAY OF PUBLICATIONS. If the Reviewing Party requests a delay
as prescribed in subsection 7.3(b) the Publishing Party shall delay submission
or presentation of the publication for a period of up to 90 days to enable
patent applications protecting each party's rights in such information to be
filed.
7.5 APPROVAL OF PUBLICATIONS. Upon the receipt of written approval
of the Reviewing Party or the expiration of the applicable waiting period
without comment, the Publishing Party may proceed with the written publication
or the oral presentation.
7.6 INJUNCTIVE RELIEF. The parties hereto understand and agree that
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 7 by either party or their employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf. Accordingly, each party shall be entitled to the granting of injunctive
relief by a court of competent jurisdiction against any action that constitutes
any such
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breach of this Article 7. It is understood that such injunctive relief is
intended solely as provisional relief pending the dispute resolution procedures
described in Article 10 herein.
7.7 CONTRACTUAL PUBLICATION RIGHTS OF THIRD PARTIES. Notwithstanding
the foregoing, the right of any party to withhold or delay consent to publish or
delay publication shall be subject to any contractual publication rights of
Third Parties involved in research or clinical trials for the Products or
Material, as the case may be. The parties will use reasonable efforts to obtain
the voluntary consent of any Third Party with publication rights agreed to prior
to the Effective Date, to comply with the notice and timing requests in this
Article 7 and will promptly review any publications delivered for review.
ARTICLE VIII
INDEMNIFICATION AND INSURANCE
8.1 BY ALLIANCE. Notwithstanding Alliance's right to indemnification
in the License Agreement, Alliance will indemnify and hold HMRI harmless against
any and all liability, damages, losses, costs or expenses ("Liability")
resulting from any Third Party claims made or suits brought against HMRI to the
extent such Liability arises from Alliance's failure to comply with the
Specifications, Alliance's gross negligence or willful misconduct in the
manufacture, storage, handling or shipping of Material or Alliance's breach of
any express warranty set forth in Article 6 hereof.
8.2 BY HMRI. Without limiting Alliance's right to indemnification in
the License Agreement, HMRI will indemnify and hold Alliance harmless against
any and all Liability resulting from (i) any packaging or labeling of any
Material to the extent that such packaging or labeling has been supplied by or
at the direction of HMRI and applied in accordance with instructions from HMRI
or (ii) any Third Party claims made or suits brought against Alliance to the
extent such Liability arises from HMRI's gross negligence or willful misconduct
in the storage, handling, shipping, use, marketing, distribution or sale of
Material.
8.3 CONDITIONS OF INDEMNIFICATION. A party or any of its Affiliates
or other respective employees or agents (the "Indemnitee") that intends to claim
indemnification under this Article 8 shall promptly notify the other party (the
"Indemnitor") of any Liability in respect of which the Indemnitee intends to
claim such indemnification reasonably promptly after the Indemnitee is aware
thereof, and the Indemnitor shall assume the defense of any related Third Party
action, suit or proceeding with counsel mutually satisfactory to the parties;
PROVIDED, HOWEVER, that an Indemnitee shall have the right to retain its own
counsel, with the fees and expenses to be paid by the Indemnitor, if
representation of such Indemnitee by the counsel retained by the Indemnitor
would be inappropriate due to actual or potential differing interests between
such Indemnitee and any other party represented by such counsel in such
proceedings. The indemnity agreement in this Article 8 shall not apply to
amounts paid in settlement of any
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claim, loss, damage or expense if such settlement is effected without the
consent of the Indemnitor, which consent shall not be withheld unreasonably.
The Indemnitee under this Article 8 and its employees and agents shall cooperate
fully with the Indemnitor and its legal representatives in the investigation of
any matter covered by this indemnification. The Indemnitor shall additionally
be liable to pay the reasonable legal costs and attorneys' fees incurred by the
Indemnitee in establishing a successful claim for indemnity hereunder.
8.4 PRODUCT LIABILITY INSURANCE. HMRI shall obtain and maintain in
effect for the term of this Agreement, if such policies are occurrence based, or
for ten years after the term of this Agreement, if such policies are claims
made, product liability insurance or indemnity policies which name Alliance as a
coinsured, with respect to the manufacture, sale and use of Material, which
policies may be worldwide, blanket policies. Such policies shall insure against
liability on the part of HMRI and any of its Affiliates, as their interests may
appear, due to injury, disability or death of any person or persons, or injury
to property, arising from the manufacture, sale or use of Material. HMRI shall
provide to Alliance a certificate of insurance indicating that the terms of
HMRI's insurance policy are in accordance with this Section 8.4. Such
certificate of insurance shall be provided within ten days of the commencement
date of the first Contract Year.
8.5 MANUFACTURER'S INSURANCE. Alliance shall obtain and maintain in
effect for the term of this Agreement, if such policies are occurrence based, or
for ten years after the term of this Agreement, if such policies are claims
made, such appropriate insurance policies which name HMRI as a coinsured, with
respect to the manufacture of Material according to the Specifications. Such
policies shall insure against liability on the part of Alliance and any of its
Affiliates, as their interests may appear, due to injury, disability or death of
any person or persons, or injury to property, arising from the failure to
manufacture Material according to the Specifications. Alliance shall provide to
HMRI a certificate of insurance indicating that the terms of Alliance's
insurance policy are in accordance with this Section 8.5. Such certificate of
insurance shall be provided within ten days of the commencement date of the
first Contract Year.
8.6 PRODUCT LIABILITY CLAIMS. Each party will give the other prompt
written notice of any injury alleged to have occurred as a result of the use or
application of a Material to the extent such party has knowledge thereof,
specifying the time, place and circumstances thereof and the names and addresses
of the persons involved. Each party will also furnish promptly to the other
copies of all papers received in respect of any claim, action or suit arising
out of such alleged injury.
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ARTICLE IX
MANUFACTURE OF MATERIAL BY HMRI
9.1 TRANSFER OF TECHNOLOGY. HMRI intends to make appropriate
submissions for regulatory approval in order that HMRI may manufacture Material
at its own facilities by **_________________________________________________.
To enable HMRI to obtain any relevant approvals and to begin manufacturing
Material, Alliance shall, as requested by HMRI, provide to HMRI all of its
regulatory submission files, batch records, analytical methods, cleaning
procedures and other manufacturing and test procedure information relating to
the manufacture of Material and shall provide all other reasonable assistance,
including but not limited to the information and assistance set forth on
Schedule 9.1 attached hereto. Alliance agrees upon request by HMRI to make its
employees available to HMRI to assist in the transfer of manufacturing. HMRI
agrees to pay all out-of-pocket travel expenses if these employees must visit
HMRI facilities.
9.2 TRANSFER OF SUPPLY RELATIONSHIPS. **
9.3 RIGHT OF FIRST REFUSAL TO PURCHASE.
(a) During the term of this Agreement and any extensions thereof,
Alliance shall offer HMRI the right of first refusal on the sale of the
Otisville Facility and/or any sale of any of the equipment ("Equipment") used by
Alliance in the manufacture of Material. Upon receiving a bona fide offer (an
"Offer") by a Third Party to purchase the Otisville Facility or any Equipment,
Alliance shall provide HMRI a notice specifying the proposed item or items to be
sold and the terms of the Offer. Upon receipt of such notice, HMRI shall have
90 days to exercise the right of first refusal upon the same terms as contained
in the Offer.
(b) If HMRI desires to exercise the right of first refusal on
terms that differ from those provided in the Offer, then Alliance and HMRI shall
negotiate in good faith to agree on the terms pursuant to which the right of
first refusal shall be exercised.
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9.4 AGREEMENT TO PURCHASE RAW MATERIALS.**
ARTICLE X
ALTERNATIVE DISPUTE RESOLUTION
In case any dispute arises out of this Agreement, the parties will
endeavor to settle such dispute amicably between themselves. If necessary, the
dispute shall be presented to the Chief Executive Officer of Alliance and the
head of the Hoechst Marion Roussel Pharmaceutical Group of Hoechst AG for their
timely consideration and resolution. If the Chief Executive Officer of Alliance
and the head of the Hoechst Marion Roussel Pharmaceutical Group of Hoechst AG or
their designees cannot reach a resolution of the dispute, then such dispute
shall be resolved by binding arbitration in the manner described below.
In the event that the parties fail to agree, any such dispute shall be
finally settled by arbitration administered by and according to the Rules of
Commercial Arbitration of the American Arbitration Association. The arbitration
shall take place in New York, New York. The arbitration panel shall consist of
one arbitrator chosen by mutual consent of the parties and the decision shall be
final and binding on the parties and their legal successors. Should the parties
fail to agree on the appointment of an arbitrator, each party shall appoint one
arbitrator and the two arbitrators shall agree upon a neutral third arbitrator
to serve as the sole arbitrator. The arbitrator may, at his discretion, provide
for discovery by the parties during a period not to exceed four months from the
date of filing of the notice of arbitration and the arbitrator shall render his
decision within 30 days of the completion of the hearing and may, at his
discretion, award costs and expenses. The arbitrated award shall be final and
binding on the parties. The time period for cure recited in Section 3.2(b)
shall be suspended upon initiation of arbitration until completion of such
arbitration. Judgment on the award may be entered in any court of competent
jurisdiction.
ARTICLE XI
GENERAL PROVISIONS
11.1 NOTICES. Any notice required or permitted to be given under
this Agreement shall be mailed by registered or certified air mail, return
receipt requested, postage
19
<PAGE>
prepaid, addressed to the party to be notified at its address stated below, or
at such other address as may hereafter be furnished in writing to the notifying
party or by telefax (with the telefax followed by sending the same by registered
or certified mail) to the numbers set forth below or to such changed telefax
numbers as may thereafter be furnished.
If to ALLIANCE: Alliance Pharmaceutical Corp.
3040 Science Park Road
San Diego, California 92121
Attention: President
Telefax: (619) 558-5161
If to HMRI: Hoechst Marion Roussel, Inc.
10236 Marion Park Drive
Kansas City, Missouri 64134-1406
Attention: General Counsel
Telefax: (816) 966-3805
Any such notice shall be deemed to have been received when it has been
delivered or received by telefax (with the telefax followed by sending the same
by registered or certified mail).
11.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement sets forth the
entire understanding of the parties with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, between the parties. No
modification of any of the terms of this Agreement shall be deemed to be valid
unless it is in writing and signed by the party against whom enforcement is
sought. No course of dealing between the parties, industry custom or usage of
trade shall be used to modify the terms and conditions herein.
11.3 FORCE MAJEURE. No failure or omission by the parties hereto in
the performance of any obligation of this Agreement shall be deemed a breach of
this Agreement or create any liability if the same shall arise from any cause or
causes beyond the reasonable control of the parties, including but not limited
to the following which, for the purposes of this Agreement, shall be regarded as
beyond the control of the party in question: acts of God, acts or omissions of
any government or any rules, regulations or orders of any governmental authority
or any office, department, agency or instrument thereof; fire, storm, flood,
earthquake, accident, acts of the public enemy, war, rebellion, insurrection,
riot, invasion, strikes, lockouts or shortages of raw materials beyond the
party's reasonable control.
11.4 CONSEQUENTIAL DAMAGES. Neither party shall be liable to the
other for consequential, incidental, indirect or punitive damages arising from
the performance or nonperformance of such party under this Agreement.
20
<PAGE>
11.5 WAIVER. No waiver by either party of any default, right or
remedy shall be effective unless in writing, nor shall any such waiver operate
as a waiver of any other or of the same default, right or remedy, respectively,
on a future occasion.
11.6 ASSIGNMENT. This Agreement may be assigned to a subsidiary of
HMRI in which HMRI owns, directly or indirectly, more than 50% of the voting
stock or other ownership interest of the subsidiary without the consent of
Alliance. This Agreement may not otherwise be assigned or transferred by either
party without the consent of the other party, such consent not to be withheld
unreasonably, except with respect to either party, in the event of a merger,
acquisition or transfer of substantially all of its assets. Any purported
assignment in violation of the preceding sentence shall be void. Any permitted
assignee shall assume all obligations of its assignor under this Agreement.
11.7 SEVERABILITY. In the event that any term or provision of this
Agreement shall violate any applicable statute, ordinance or rule of law in any
jurisdiction in which it is used, or is otherwise prohibited or unenforceable,
such provision shall be ineffective to the extent of such violation without
invalidating any other provision hereof.
11.8 HEADINGS, INTERPRETATION. The headings used in this Agreement
are for convenience only and are not a part of this Agreement.
11.9 ATTACHMENTS. All Attachments referenced herein are hereby made
a part of this Agreement.
11.10 INDEPENDENT PARTIES. This Agreement shall not be deemed to
create any partnership, joint venture, or agency relationship between the
parties. Each party shall act hereunder as an independent contractor.
11.11 EXECUTION. This Agreement may be executed in two counterparts
each of which shall for all purposes be deemed an original.
11.12 GOVERNING LAW. The construction, validity and performance of
this Agreement shall be governed in all respects by the laws of the State of New
York, excluding its conflict of laws principles.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement
to be duly executed as of the date first above written.
HOECHST MARION ROUSSEL, INC.
By: ____________________________
Name:
Title:
ALLIANCE PHARMACEUTICAL CORP.
By: ____________________________
Name:
Title:
22
<PAGE>
EXHIBIT 1
SHORT TERM (12 MONTH) FORECAST
**
23
<PAGE>
SCHEDULE 9.1
TRANSFER OF TECHNOLOGY
**
<PAGE>
March 5, 1996
Alliance Pharmaceutical Corp.
3040 Science Park Road
San Diego, CA 92121
Re: Alliance Pharmaceutical Corp. (the "Company")
Registration Statement on Form S-3
Gentlemen:
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the prospectus forming a part of the above-referenced
Registration Statement and any registration statement filed pursuant to Rule
462(b).
Very truly yours,
/s/
KNOBBE, MARTENS, OLSON & BEAR
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Alliance
Pharmaceutical Corp. on Form S-3 of our report dated July 27, 1993, appearing
and incorporated by reference in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the heading
'Experts' in such Prospectus.
DELOITTE & TOUCHE LLP
March 6, 1996
San Diego, California
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Alliance
Pharmaceutical Corp. for the registration of shares of its common stock and
to the use and incorporation by reference therein of our report dated July
26, 1995, with respect to the consolidated financial statements of Alliance
Pharmaceutical Corp. included in its Annual Report (Form 10-K) for the year
ended June 30, 1995, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
San Diego, California
March 6, 1996
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Duane J. Roth and Theodore D. Roth, or either of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign a registration statement on Form S-3 or such
other form as counsel to Alliance Pharmaceutical Corp. (the "Corporation") may
recommend in connection with the registration of common stock of the Corporation
to be issued and sold pursuant to a public offering authorized by the Board of
Directors at a meeting held February 22, 1996, and any and all amendments to
this registration statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact, agent, or their substitutes may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have each caused this power of attorney
to be executed as of the date set forth beside their name.
<TABLE>
<C> <S> <C>
/s/ CARROLL O. JOHNSON
- ------------------------------------------- Director March 4, 1996
Carroll O. Johnson
/s/ STEPHEN M. MCGRATH
- ------------------------------------------- Director March 4, 1996
Stephen M. McGrath
/s/ HELEN M. RANNEY, M.D.
- ------------------------------------------- Director March 4, 1996
Helen M. Ranney, M.D.
/s/ DONALD E. O'NEILL
- ------------------------------------------- Director March 4, 1996
Donald E. O'Neill
/s/ JEAN RIESS, PH.D.
- ------------------------------------------- Director March 4, 1996
Jean Riess, Ph.D.
/s/ THOMAS F. ZUCK, M.D.
- ------------------------------------------- Director March 4, 1996
Thomas F. Zuck, M.D.
</TABLE>
