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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
- ------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
- ------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-12950
ALLIANCE PHARMACEUTICAL CORP.
(Exact name of Registrant as specified in its charter)
New York 14-1644018
- --------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
3040 Science Park Road
San Diego, California 92121
- --------------------------- ---------------------------
(Address of principal Zip Code
executive offices)
Registrant's telephone number,
including area code: (858) 410-5200
---------------------------
Indicate by a check whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes X No
--------------- --------------
As of November 4, 1999, Registrant had 44,649,224 shares of its Common Stock,
$.01 par value, outstanding.
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
<TABLE>
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INDEX Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
2
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PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 1999
------------ ------------
ASSETS (UNAUDITED) (NOTE)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,171,000 $ 19,081,000
Research revenue receivable 2,239,000 4,875,000
Other current assets 467,000 413,000
------------ ------------
Total current assets 11,877,000 24,369,000
PROPERTY, PLANT AND EQUIPMENT - NET 23,336,000 24,621,000
PURCHASED TECHNOLOGY - NET 10,981,000 11,361,000
RESTRICTED CASH 5,000,000 5,000,000
OTHER ASSETS - NET 623,000 633,000
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$ 51,817,000 $ 65,984,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,171,000 $ 4,910,000
Accrued expenses 4,522,000 4,280,000
Current portion of long-term debt 4,336,000 4,170,000
------------ ------------
Total current liabilities 11,029,000 13,360,000
LONG-TERM DEBT 9,222,000 10,499,000
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value; 5,000,000 shares authorized;
500,000 shares of Series D issued and outstanding at
September 30, 1999 and June 30, 1999 5,000 5,000
Common stock - $.01 par value; 75,000,000 shares authorized;
43,511,286 and 43,510,049 shares issued and outstanding at
September 30, 1999 and June 30, 1999, respectively 435,000 435,000
Additional paid-in capital 368,570,000 368,409,000
Accumulated deficit (337,444,000) (326,724,000)
------------ ------------
Total stockholders' equity 31,566,000 42,125,000
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$ 51,817,000 $ 65,984,000
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Note: The balance sheet at June 30, 1999 has been derived from the
audited financial statements at that date but does not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial
statements.
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
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(Unaudited)
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REVENUES:
License and research revenue $ 1,568,000 $ 5,100,000
OPERATING EXPENSES:
Research and development 10,413,000 13,546,000
General and administrative 1,712,000 2,185,000
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12,125,000 15,731,000
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LOSS FROM OPERATIONS (10,557,000) (10,631,000)
INVESTMENT INCOME 210,000 635,000
INTEREST EXPENSE (373,000) (193,000)
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NET LOSS (10,720,000) (10,189,000)
IMPUTED DIVIDEND ON SERIES E-1 PREFERRED STOCK - (483,000)
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NET LOSS APPLICABLE TO COMMON SHARES $ (10,720,000) $(10,672,000)
------------- ------------
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NET LOSS PER COMMON SHARE:
Basic and diluted $ (0.25) $ (0.33)
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WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted 43,510,000 32,021,000
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</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
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(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (10,720,000) $ (10,189,000)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization 1,811,000 1,360,000
Expense associated with warrant issuance 144,000 -
Changes in operating assets and liabilities:
Research revenue receivable 2,636,000 808,000
Other assets (44,000) 21,000
Accounts payable and accrued expenses and other (2,497,000) (1,834,000)
------------- -------------
Net cash used in operating activities (8,670,000) (9,834,000)
------------- -------------
INVESTING ACTIVITIES:
Purchases of short-term investments - (13,955,000)
Sales and maturities of short-term investments - 28,069,000
Property, plant and equipment (83,000) (2,213,000)
------------- -------------
Net cash provided by (used in) investing activities (83,000) 11,901,000
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FINANCING ACTIVITIES:
Issuance of common stock 17,000 -
Issuance of convertible preferred stock - 5,621,000
Principal payments on long-term debt (1,174,000) (143,000)
------------- -------------
Net cash provided by (used in) financing activities (1,157,000) 5,478,000
------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,910,000) 7,545,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,081,000 11,809,000
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,171,000 $ 19,354,000
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Deferred interest expense on long-term debt $ 63,000 $ -
Imputed dividend on preferred stock - 483,000
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Alliance Pharmaceutical Corp. and its subsidiaries (collectively, the
"Company" or "Alliance") are engaged in identifying, designing, and
developing novel medical products.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Alliance
Pharmaceutical Corp., its wholly owned subsidiary Astral, Inc., its wholly
owned subsidiary MDV Technologies, Inc. ("MDV") from the acquisition date of
November 1996, its wholly owned subsidiary Alliance Pharmaceutical GmbH, from
its inception in December 1998, and its majority-owned subsidiary, Talco
Pharmaceutical, Inc. All significant intercompany accounts and transactions
have been eliminated. Certain amounts in 1999 have been reclassified to
conform to the current year's presentation.
INTERIM CONDENSED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of September 30, 1999, the
condensed consolidated statements of operations for the three months ended
September 30, 1999 and 1998, and the condensed consolidated statements of
cash flows for the three months ended September 30, 1999 and 1998 are
unaudited. In the opinion of management, such unaudited financial statements
include all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation of the results for the periods presented.
Interim results are not necessarily indicative of the results to be expected
for the full year. The financial statements should be read in conjunction
with the Company's consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
June 30, 1999.
PURCHASED TECHNOLOGY
The purchased technology was primarily acquired as a result of the
merger of Fluoromed Pharmaceutical, Inc. into a subsidiary of the Company in
1989. The technology acquired is the Company's core perfluorochemical
("PFC") technology and 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 million for technology capitalized as a result of the
acquisition of BioPulmonics, Inc. ("BioPulmonics") in December 1991. Since
the acquisition, 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.
The PFC technology is the basis for the Company's main drug development
programs and is being amortized over a 20-year life. The PFC technology has
a net book value of $10.9 million and $11.2 million, and is reported net of
accumulated amortization of $12.3 million and
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$12 million at September 30 and June 30, 1999, respectively. The technology
acquired from BioPulmonics has a net book value of approximately $43,000 and
$129,000, is being amortized over five to seven years, and is reported net of
accumulated amortization of $2 million and $1.9 million at September 30 and
June 30, 1999, 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.
COMPREHENSIVE INCOME AND LOSS
Effective July 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement No. 130, Comprehensive Income ("SFAS No. 130").
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of SFAS No.
130 had no impact on the Company's net loss or stockholders' equity. SFAS
No. 130 requires unrealized gains and losses on the Company's
available-for-sale securities to be included in comprehensive income. During
the three months ended September 30, 1999 and 1998, the total comprehensive
loss, which includes the unrealized loss on available-for-sale securities,
was $10,720,000 and $10,206,000, respectively.
NET INCOME (LOSS) PER SHARE
The Company computes net loss per common share in accordance with
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128").
SFAS No. 128 requires the presentation of basic and diluted earnings per
share amounts. Basic earnings per share is calculated based upon the
weighted average number of common shares outstanding during the period while
diluted earnings per share also gives effect to all potential dilutive common
shares outstanding during the period such as common shares underlying
options, warrants, and convertible securities, and contingently issuable
shares. All potential dilutive common shares have been excluded from the
calculation of diluted earnings per share as their inclusion would be
anti-dilutive.
2. SUBSEQUENT EVENT
In November 1999, the Company completed the sale of certain aspects of
its PulmoSpheres-Registered Trademark-technology to Inhale Therapeutic
Systems, Inc. ("Inhale") for $15 million in cash and $5 million in common
stock of Inhale, plus additional future milestone and royalty payments. In
consideration for retaining certain rights to use the technology, Alliance
issued $5 million in Alliance common stock to Inhale.
ITEM 2. 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 medical products. The Company has been unprofitable since
inception and expects to incur operating losses for at least the next several
years due to substantial spending on research and development, preclinical
testing, clinical trials, regulatory activities, and commercial manufacturing
start-up. The Company has collaborative research and development agreements
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for IMAGENT-Registered Trademark- and RODA-TM-. Under the arrangement for
IMAGENT, Schering AG, Germany ("Schering") has agreed to reimburse the
Company for some of its development expenses. Schering will also make
milestone payments to the Company upon the achievement of certain product
development events, followed by royalties on sales at commercialization.
With respect to RODA, the Company has agreed to reimburse VIA Medical
Corporation ("VIA") for substantially all of its development expenses and to
share revenues from the sale of products. Due to the termination of the
license agreement (the "HMRI License Agreement") with Hoechst Marion Roussel,
Inc. ("HMRI") in December 1997, the restructuring of the license agreement
(the "Ortho License Agreement") with Ortho Biotech, Inc. and The R.W. Johnson
Pharmaceutical Research Institute, a division of Ortho Pharmaceutical
Corporation, both affiliates of Johnson & Johnson (collectively referred to
as "Ortho") in May 1998, and the reduction in the on-going reimbursements
from Schering, Alliance has incurred a substantial increase in development
expenses related to LIQUIVENT and OXYGENT and a substantial decrease in
related research revenue relative to prior years. There can be no assurance
that the Company will be able to achieve profitability at all or on a
sustained basis.
LIQUIDITY AND CAPITAL RESOURCES
Through September 1999, the Company financed its activities primarily
from public and private sales of equity and funding from collaborations with
corporate partners. To date, the Company's revenue from the sale of products
has not been significant.
In January 1997, the Company entered into a loan and security agreement
with a bank under which the Company received $3.5 million. In June 1998, the
Company restructured the loan to provide for up to $15 million. Amounts
borrowed are secured by certain fixed assets and patents and are to be repaid
over four years. If certain financial covenants are not satisfied, the
outstanding balance may become due and payable. On September 30, 1999, the
balance outstanding on this loan was approximately $12.4 million.
In September 1997, the Company entered into a license agreement (the
"Schering License Agreement") with Schering, which provides Schering with
worldwide exclusive marketing and manufacturing rights to Alliance's drug
compounds, drug compositions, and medical devices and systems related to
perfluorocarbon ultrasound imaging products, including IMAGENT. The product
is being developed jointly by Alliance and Schering. Under the Schering
License Agreement, Schering paid to Alliance in 1998 an initial license fee
of $4 million, and agreed to pay further milestone payments and royalties on
product sales. Schering is also providing funding to Alliance for some of
its development expenses related to IMAGENT. In conjunction with the
Schering License Agreement, Schering Berlin Venture Corp., an affiliate of
Schering, purchased 500,000 shares of the Company's convertible Series D
Preferred Stock for $10 million.
From February 1996 through June 1997, HMRI was responsible for most of
the costs of development and marketing of LIQUIVENT. In June 1997, the
Company sold $2.5 million in clinical trial supplies to HMRI and recorded it
as deferred revenue. As of July 1997, Alliance assumed responsibility for the
costs of development of LIQUIVENT worldwide. In December 1997, the HMRI
License Agreement was terminated and HMRI has no continuing rights to the
development or marketing of LIQUIVENT. In September 1999, HMRI and Alliance
dismissed a related arbitration proceeding that was filed in September 1998.
HMRI agreed to sell and Alliance
8
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agreed to purchase the clinical trial supplies from HMRI for up to $3 million
over time and under certain circumstances. No other payments will be made by
either party.
From September 1994 until May 1998, under the Ortho License Agreement,
Ortho was responsible for substantially all the costs of developing and
marketing OXYGENT. In May 1998, Ortho and the Company restructured the Ortho
License Agreement and Alliance assumed responsibility for worldwide
development of OXYGENT at its expense. Under the restructured agreement,
Ortho retained certain rights to be the exclusive marketing agent for the
product, which rights have been re-acquired by the Company. As a result of
the restructuring, Alliance incurred a substantial increase in development
expenses related to OXYGENT and a substantial decrease in related research
revenue over prior years.
The Company had net working capital of $848,000 at September 30, 1999,
compared to $11 million at June 30, 1999. The Company's cash, cash
equivalents, and short-term investments decreased to $9.2 million at
September 30, 1999 from $19.1 million at June 30, 1999. The decrease resulted
primarily from cash used in operations of $8.7 million and principal payments
on long-term debt of $1.2 million. The Company's operations to date have
consumed substantial amounts of cash and are expected to continue to do so
for the foreseeable future.
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, particularly for LIQUIVENT and OXYGENT
as they continue through pivotal clinical trials. The Company is seeking
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, will successfully reduce the Company's
funding requirements. Additional equity or debt financing may be required,
and there can be no assurance that such financing 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 current capital resources, expected
revenue from the Schering License Agreement, proceeds from the recent Inhale
transaction, and investments will be adequate to satisfy its capital
requirements through March 2000. The Company's future capital requirements
will depend on many factors, including, but not limited to, continued
scientific progress in its research and development programs, progress with
preclinical testing and clinical
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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.
While the Company believes that it can produce materials for clinical
trials and the initial market launch for OXYGENT and IMAGENT at its existing
San Diego facilities and for LIQUIVENT at its Otisville, New York facility,
it may need to expand its commercial manufacturing capabilities for its
products in the future. Any expansion for any of its products 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
for such expanded facilities and cannot predict the amount it will expend for
the construction of such facilities. There can be no assurance as to when or
whether the U.S. Food and Drug Administration ("FDA") will determine that
such facilities comply with Good Manufacturing Practices. The projected
location and construction of such facilities will depend on regulatory
approvals, product development, and capital resources, among other factors.
The Company has not obtained any regulatory approvals for its production
facilities for these products, nor can there be any assurance that it will be
able to do so. The Schering License Agreement requires the Company to
manufacture products at its San Diego facility for a period of time after
market launch at a negotiated price. Schering will be responsible for
establishing production capacity beyond the maximum capacity of the San Diego
facility.
YEAR 2000
Many currently installed computer systems and software products are coded to
accept only two-digi t entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish the 21st century dates from 20th century dates. As a result,
computer systems and/or software used by many companies may need to be
upgraded to comply with such "Year 2000" requirements. Management has a
continuing Year 2000 program which it believes has identified most, if not
all, critical internal systems, software and embedded chips. The Company
currently believes that at least 90% of its identified critical and
non-critical internal systems, software and embedded chips are now compliant;
however, no assurances can be given that operating problems will not occur.
The Company continues to evaluate and remedy the remaining identified
critical and non-critical internal systems. The Company has compliance
confirmations from approximately 75% of its critical third-party suppliers,
contractors and vendors (collectively, "contractors") with respect to their
computers, s oftware and systems, and it believes that most of the remaining
contractors will be compliant by December 31, 1999. However, no assurances
can be given that the Company's contractors will be compliant. Many systems
have already been replaced over the past two years in the ordinary course of
Company plans for upgrading its equipment, software and systems. The Company
has removed and exchanged several non-compliant systems and expects to
continue such replacement or other remedial programs to assure that its
computers, software and other systems will continue to operate in the Year
2000. Additionally, the Company has contingency plans for some of its
external contractors, although there can be no assurance that such
contingency plans will work or that there are contingency plans for all
contractors whose equipment or systems may fail. The Company's cost to date
to resolve its Year 2000 problems is not material and is expected to total
less than $400,000; however, the actual total amount it will spend to
remediate such issues
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remains uncertain. The Company believes such costs will not have a material
effect on the Company's consolidated financial position or results of
operations. There can be no assurance, however, that the Company's computer
systems and applications of other companies on which the Company's operations
rely, will be timely converted, or that any such failure to convert by
another company will not have a material adverse effect on the Company
systems. Moreover, a failure of (i) the Company's scientific, manufacturing
and other equipment to operate at all or operate accurately, (ii) clinical
trial site medical equipment to perform properly, (iii) necessary materials
or supplies to be available to the Company when needed, or (iv) other
equipment, software or systems to perform properly, as a result of Year 2000
problems, could have a material adverse effect on the Company's business or
financial condition.
Except for historical information, the statements made herein and
elsewhere are forward-looking. The Company wishes to caution readers that
these statements are only predictions and that the Company's business is
subject to significant risks. The factors discussed herein and other
important factors, in some cases have affected, and in the future could
affect, the Company's actual results and could cause the Company's actual
consolidated results for 2000, and beyond, to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. These risks include, but are not limited to, the inability to
obtain adequate financing for the Company's development efforts; the
inability to enter into collaborative relationships to further develop and
commercialize the Company's products; changes in any such relationships, or
the inability of any collaborative partner to adequately commercialize any of
the Company's products; the uncertainties associated with the lengthy
regulatory approval process; the uncertainties associated with obtaining and
enforcing patents important to the Company's business; possible competition
from other products; and Year 2000 issues. Furthermore, even if the
Company's products appear promising at an early stage of development, they
may not reach the market for a number of important reasons. Such reasons
include, but are not limited to, the possibilities that the potential
products will be found ineffective during clinical trials; failure to receive
necessary regulatory approvals; difficulties in manufacturing on a large
scale; failure to obtain market acceptance; and the inability to
commercialize because of proprietary rights of third parties. The research,
development, and market introduction of new products will require the
application of considerable technical and financial resources, while revenues
generated from such products, assuming they are developed successfully, may
not be realized for several years. Other material and unpredictable factors
which could affect operating results include, without limitation, the
uncertainty of the timing of product approvals and introductions and of sales
growth; the ability to obtain necessary raw materials at cost-effective
prices or at all; the effect of possible technology and/or other business
acquisitions or transactions; and the increasing emphasis on controlling
healthcare costs and potential legislation or regulation of healthcare
pricing.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AS COMPARED WITH THREE MONTHS
ENDED SEPTEMBER 30, 1998
The Company's license and research revenue decreased by 69% to
$1.6 million for the three months ended September 30, 1999, compared to
$5.1 million for the three months ended September 30, 1998. The decrease was
primarily a result of the decreased research revenue from the Schering
License Agreement and decreased development expense reimbursement from the
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Ortho License Agreement. The Company expects revenue to increase in 2000
compared to 1999, due to the revenue from the Inhale transaction.
Research and development expenses decreased by 23% to $10.4 million for
the three months ended September 30, 1999, compared to $13.5 million for the
three months ended September 30, 1998. The decrease in expenses was
primarily due to a $1.6 million decrease in payments to outside researchers
for preclinical and clinical trials and other product development work, a
$1.2 million decrease in staffing costs for employees engaged in research and
development activities, as well as other decreases related to the Company's
research and development activities.
General and administrative expenses decreased by approximately 23% to
$1.7 million for the three months ended September 30, 1999, compared to
$2.2 million for the three months ended September 30, 1998. The decrease in
general and administrative expenses was primarily due to decreased salaries
and wages and professional fees.
Investment income was $210,000 for the three months ended September 30,
1999, compared to $635,000 for the three months ended September 30, 1998.
The decrease was primarily a result of lower average cash and short-term
investment balances.
Interest expense was $373,000 for the three months ended September 30,
1999, compared to $193,000 for the three months ended September 30, 1998.
The increase was primarily a result of higher average long-term debt
balances.
Alliance expects to continue to incur substantial expenses associated
with its research and development programs. Operating losses may fluctuate
from quarter to quarter as a result of differences in the timing of revenues
earned and expenses incurred and such fluctuations may be substantial. The
Company's historical results are not necessarily indicative of future results.
PART II OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS
In September 1999, HMRI dismissed arbitration proceedings filed against
the Company in September 1998 in connection with its termination of the HMRI
License Agreement, seeking up to $16.8 million, plus interest and punitive
damages. Additionally, at any time during the next two years HMRI has agreed
to sell to Alliance raw materials (perflubron) for up to $3 million that
Alliance can use for it is products. Alliance has committed to purchase such
materials for its use under certain circumstances. This constitutes the only
payments to be made by either party.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are being filed herewith:
10(a) Split Dollar Life Insurance Agreement between the Company and
Duane J. Roth dated November 12, 1998 (1)
10(b) Collateral Assignment of Life Insurance Policy between the
Company and Duane J. Roth dated November 25, 1998 (1)
10(c) Split Dollar Life Insurance Agreement between the Company and
Theodore D. Roth dated November 12, 1998 (1)
10(d) Collateral Assignment of Life Insurance Policy between the Company
and Theodore D. Roth dated November 12, 1998 (1)
10(e) Eleventh Amendment to Lease Agreement dated September 1, 1999
between the Company and HUB Properties Trust
(1) Management contract compensatory plan required to be filed.
(b) There was no report on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIANCE PHARMACEUTICAL CORP.
(Registrant)
\s\ Tim T Hart
---------------------
Tim T. Hart
Chief Financial Officer
and Treasurer
Date: November 10, 1999
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Exhibit 10(a)
SPLIT DOLLAR LIFE INSURANCE AGREEMENT
THIS AGREEMENT is entered into effective as the 12th day of November, 1998,
by and between ALLIANCE PHARMACEUTICAL CORPORATION (hereinafter "APC"), and
DUANE JOSEPH ROTH (hereinafter referred to as the "Insured").
WITNESSETH THAT:
WHEREAS, Insured is Chairman of the Board and Chief Executive Officer of
APC, and is a valued executive employee of APC who has provided significant and
substantial past services to APC, and APC wishes to retain Insured in its employ
to provide continuity in the management of APC, and to continue to develop the
management capabilities of APC; and
WHEREAS, APC, as an inducement to such continued employment, wishes to
assist Insured with his personal life insurance program, while at the same time
providing APC with key man life insurance coverage on Insured; and
WHEREAS, this Agreement is intended to qualify as a life insurance
employment benefit as described in the Internal Revenue Service Revenue Ruling
64-328, 1964-2 C.B. 11; and
WHEREAS, APC has previously purchased a policy of life insurance insuring
the life of Insured (hereinafter referred to as the "Policy"), which is
described in Exhibit "A" attached hereto and by this reference made a part
hereof, and which was issued by General American Life Insurance Company
(hereinafter referred to as the "Insurer"); and
WHEREAS, APC and the Insured are willing to continue to pay the premiums
due on the Policy, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
contained herein, the parties hereto agree as follows:
1. INSURANCE POLICY. Effective with the date of this Agreement, APC will
transfer the ownership of the Policy from APC to Insured. The parties hereto
agree to take all necessary action to cause the Insurer to transfer ownership of
the Policy to Insured, and agree to take any further action which may be
necessary to cause the Policy to conform to the provisions of this Agreement.
The parties hereto agree that the Policy shall be subject to the terms and
conditions of this Agreement.
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2. POLICY OWNERSHIP. Except as otherwise provided in this Agreement, the
Insured shall be the sole and exclusive owner of the Policy and may exercise
without the consent of APC all of the ownership rights granted to the owner
thereof by the terms of the Policy, including, but not limited to, the right to
designate beneficiaries and select settlement options. APC shall have only the
right to receive certain death benefit proceeds in the event of the death of the
Insured as provided in Section 5 of this Agreement; and to the return of the
cash surrender value of the Policy as of the date of this Agreement, together
with the unreimbursed premiums paid under this Agreement, less the "Economic
Benefit", in the event of the termination of this Agreement as provided in
Section 6 of this Agreement. As used in this Agreement, the term "Economic
Benefit" shall mean the cumulative value to APC of maintaining the $4,000,000 of
key man life insurance coverage on the life of the Insured, which shall be
calculated annually by using the PS-58 rates multiplied by the current death
benefit payable to APC under Section 5B(1)(a) of this Agreement. Insured shall
have the limited right to borrow against the cash surrender value of the Policy,
or otherwise receive a distribution from the Insurer, so long as said loan or
distribution does not reduce the cash surrender value of the Policy to an amount
less than the amounts which would be payable to APC under Section 6B of this
Agreement had the Agreement then terminated. Insured shall not have the right
to cancel or surrender the Policy as long as this Assignment has not been
terminated.
3. ASSIGNMENT. The Insured shall have the right to assign any part or
all of his interest in the Policy and this Agreement to any person, entity or
trust by execution of a written assignment delivered to the Insurer and APC.
Insured agrees to execute a collateral assignment in favor of APC for its
interests as set forth in this Agreement.
4. PREMIUM PAYMENTS. On or before the due date of each Policy premium,
APC shall pay the full amount of the premium due on the Policy to the Insurer
which the parties anticipate will be approximately One Hundred Seventy Thousand
Dollars ($170,000) for the balance of the policy year ending May 23, 1999, and
approximately One Hundred Five Thousand Dollars ($105,000) per year thereafter.
APC shall promptly furnish to the Insured evidence of timely payment of such
premium. Within sixty (60) days of receipt of evidence of timely premium
payment, the Insured will reimburse APC for his share of the annual premium,
which the parties anticipate will be approximately Five Thousand Dollars
($5,000) per year. APC's obligation to make premium payments shall cease as of
the date of the termination of this Agreement; provided, however, that APC shall
not be entitled to a refund for any portion of the prepaid annual premium for
the policy year in which this Agreement terminates, except as otherwise provided
in Sections 5 or 6 hereof.
5. DEATH OF INSURED.
A. Upon the death of the Insured, APC and the personal
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representative of the Insured shall promptly take any and all actions
necessary to obtain the death benefit proceeds provided under the Policy.
B. In the event of the death of the Insured before this
Agreement has otherwise terminated, the death benefit proceeds shall
be divided and paid in the following manner and order of priority:
(1) APC shall have the unqualified right to receive a
portion of such death benefit equal to the following:
(a) Four Million Dollars ($4,000,000); PLUS
(b) Ninety Nine Thousand Five Hundred Fifteen Dollars
and 06/100's ($99,515.06), reflecting the cash
surrender value of the Policy as of November 12,
1998; PLUS
(c) the total amount of the unreimbursed premiums paid
by APC during the term of this Agreement; LESS
(d) the Economic Benefit.
Notwithstanding the above, in no event shall the amount payable
to APC exceed the Policy proceeds payable at the death of the
Insured.
(2) After payment of the death benefit to APC as provided
under paragraph B(1) of this Section 5, the remaining death
benefit provided under the Policy shall be paid to such
beneficiary or beneficiaries as the Insured may designate, in the
manner and in the amount or amounts provided in the beneficiary
designation provision of the Policy.
6. TERMINATION.
A. This Agreement shall terminate on the earliest to occur of
the following:
(1) the death of the Insured, in which event the respective
rights of the parties shall be as provided in Section 5 of this
Agreement, or
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(2) the first to occur of:
(a) the date of termination of employment of Insured,
(b) December 1, 2014, or
(c) the thirtieth (30th) day following written notice by
APC to the Insured of its intent to terminate this
Agreement, and in each such event the respective rights
of the parties shall be as provided in paragraph B of
this Section 6, unless otherwise mutually agreed by the
parties in writing.
B. The rights of the parties upon termination of this Agreement as
provided under paragraph A(2) of this Section 6 shall be as follows:
(1) APC shall have no further obligation to make the premium
payments set forth in Section 4 of this Agreement. APC's interest in
the Policy shall be limited to the LESSER of:
(a) the cash surrender value of the Policy as of the date
of the termination of this Agreement;
OR
(b) (i) Ninety Nine Thousand Five Hundred Fifteen
Dollars and 06/100's ($99,515.06),
reflecting the cash surrender value of the
Policy as of November 12, 1998; PLUS
(ii) the total amount of the unreimbursed premium
paid by APC during the term of this
Agreement; LESS
(iii) the Economic Benefit.
(2) For ninety (90) days following termination of this
Agreement, the Insured shall have the option of purchasing APC's
interest in the Policy. To purchase such interest, the Insured
shall pay
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to APC the sum of Ninety Nine Thousand Five Hundred Fifteen Dollars
and 06/100's ($99,515.06), reflecting the cash surrender value of the
Policy as of November 12, 1998; PLUS the total amount of the
unreimbursed premium payments made by APC hereunder, LESS the Economic
Benefit. Upon receipt of such amount, APC shall transfer all of its
interest in the Policy to Insured and agrees to take such actions
required by the Insurer (including the execution of any and all
documents or instruments) to transfer all of the interest of APC in
the Policy to the Insured. Thereafter, neither APC nor any of its
respective successors and assigns shall have any further interest in
the Policy under the terms thereof or under this Agreement.
(3) If the Insured fails to exercise such option under
paragraph B(2) of this Section 6 within such ninety (90) day
period, then APC may enforce its rights to be paid the amount due
under paragraph B(1)(b) of this Section 6 from the cash surrender
value of the Policy. In the event the cash surrender value of
the Policy exceeds the amount due to APC under this Agreement,
the Policy and the right to such excess shall be retained by the
Insured. Upon receipt of such amount, APC shall transfer all of
its interest in the Policy to Insured and agrees to take such
actions required by the Insurer (including the execution of any
and all documents or instruments) to transfer all of the interest
of APC in the Policy to the Insured. Thereafter, neither APC nor
any of its respective successors and assigns shall have any
further interest in the Policy under the terms thereof or under
this Agreement.
7. AMENDMENT. This Agreement may not be amended, altered or modified,
except by a written instrument signed by both parties hereto, or their
respective successor or assigns, and may not be otherwise terminated except as
provided herein.
8. BINDING AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of APC, and its successors and assigns, and the Insured and his
successors, assigns, heirs, beneficiaries, executor, administrator, or other
personal representative.
9. NOTICE. Any notice, consent or demand required or permitted to be
given under the provisions of this Agreement shall be in writing, and shall be
signed by the party giving or making the same. If such notice, consent or
demand is mailed to a party hereto, it shall be sent by United States certified
mail, postage prepaid, addressed to such party's last known address. The date
of such mailing shall be deemed the date of notice, consent or demand.
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10. SPECIAL PROVISIONS. The following provisions are part of this
Agreement and are intended to meet the requirements of the Employee Retirement
Income Security Act of 1974 ("ERISA"):
A. The named fiduciary shall be the Treasurer of APC (unless
this position is held by Insured in which event APC shall designate a
new named fiduciary and the parties shall amend this Agreement
accordingly).
B. The funding under this Agreement is that all premiums on the
Policy be remitted by APC to the Insurer as billed and when due.
C. Direct payment by the Insurer is the basis of payment of
benefits under this Agreement, with those benefits in turn being based
on the payment of premiums and the Economic Benefit.
D. For claims procedure purposes, the "Claims Manager" shall be
the Treasurer of APC, (unless this position is held by Insured, in
which event APC shall designate a new Claims Manager and the parties
shall amend this Agreement accordingly).
(1) If for any reason a claim for benefits under this
Agreement is denied by APC, the Claims Manager shall deliver to
the claimant a written explanation setting forth the specific
reasons for the denial, pertinent references to the Agreement
section on which the denial is based, such other data as may be
pertinent, and information on the procedures to be followed by
the claimant in obtaining a review of his claim, written in a
manner calculated to be understood by the claimant. For this
purpose:
(a) The claimant's claim shall be deemed filed when
presented orally or in writing to the Claims
Manager.
(b) The Claims Manager's explanation shall be in
writing delivered to the claimant within ninety
(90) days of the date the claim is filed.
2. The claimant shall have sixty (60) days following his
receipt of the denial of the claim to file with the Claims
Manager a written request for review of the denial. For such
review, the claimant or his representative may submit pertinent
documents and written issues
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and comments.
3. The Claims Manager shall decide the issue on review and
furnish the claimant with a copy within sixty (60) days of
receipt of the claimant's request for review of his claim. The
decision on review shall be in writing and shall include specific
reasons for the decision written in a manner calculated to be
understood by the claimant, as well as specific references to the
pertinent Agreement provisions on which the decision is based.
If a copy of the decision is not so furnished to the claimant
within such sixty (60) days, the claim shall be deemed denied on
review.
11. GOVERNING LAW. This Agreement, and the rights of the parties
hereunder shall be governed by and construed in accordance with the laws of the
State of California, except to the extent preempted by ERISA.
12. INSURER NOT A PARTY TO THIS AGREEMENT. With respect to any Policy of
insurance issued pursuant to this Agreement, General American Life Insurance
Company shall have no liability except as set forth in the Policy. Such Insurer
shall not be bound to inquire into or take notice of any of the covenants herein
contained as to policies of life insurance, or as to the application of the
proceeds of such Policies.
13. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall constitute an original, but all of which constitute one and the same
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
ALLIANCE PHARMACEUTICAL
CORPORATION
By:
--------------------------------
Title:
-----------------------------
INSURED
-----------------------------------
Duane Joseph Roth
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EXHIBIT "A"
A summary of the Policy attached hereto is as follows:
Insurer: General American Life Insurance Company
Insured: Duane Joseph Roth
Policy Number: 016035054
Date of Issue: May 23, 1996
Cash Surrender Value
as of November 12, 1998: $99,515.06
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Exhibit 10(b)
COLLATERAL ASSIGNMENT OF LIFE INSURANCE POLICY
THIS ASSIGNMENT is made effective this 25th day of November, 1998, by and
between ALLIANCE PHARMACEUTICAL CORPORATION (hereinafter "APC"), and DUANE
JOSEPH ROTH (hereinafter referred to as the "Insured").
WITNESSETH THAT:
WHEREAS, APC and the Insured have entered into a Split Dollar Life
Insurance Agreement (hereinafter "Agreement") effective November 12, 1998; and
WHEREAS, pursuant to said Agreement, APC is entitled to receive certain
death benefit proceeds in the event of the death of the Insured and to certain
sums in the event of termination of said Agreement;
NOW, THEREFORE, in consideration of the covenants contained herein, and in
furtherance of the Agreement between the parties, it is further mutually agreed
that:
1. POLICY. General American Life Insurance Company has issued a Policy
of insurance on the life of Insured. See EXHIBIT "A" of the attached Agreement
for a description of the Policy. The ownership of said Policy has been
transferred to the Insured and beneficiaries thereof shall be as designated by
the Insured.
2. SPLIT-DOLLAR LIFE INSURANCE AGREEMENT. The Policy is subject to the
Agreement between APC and the Insured. Said Agreement, along with its Exhibit
"A" which is attached thereto, is hereby incorporated into and made a part of
this Assignment.
3. PREMIUMS. Premiums paid on the Policy shall be allocated as set forth
in the Agreement.
4. COLLATERAL ASSIGNMENT. The Insured hereby assigns, transfers, and
sets over to APC only the following specific limited rights in the Policy, and
subject to the following terms and provisions:
a. This Assignment is made, and the Policy is held simply as
collateral for the purpose of providing APC with security for the
payments to be made to APC under the terms of the Agreement.
b. APC shall have an interest in the Policy limited to that
necessary to secure the payments to be made to APC with respect to the
Policy under the terms of the Agreement.
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c. APC shall have the right to be repaid from and to the extent of
the proceeds or the cash surrender value of the Policy, as the case may be,
to the extent of its interest as set forth in the Agreement:
1) in the event of the death of the Insured;
2) in the event the Policy is lapsed, canceled or
surrendered by the Insured; or
3) in the event of the termination of the Agreement.
5. RIGHTS OF OWNERSHIP OF APC.
a. APC shall have no right to obtain from the Insurer any loans or
advances against its interest in the Policy, except as specifically
provided in the Agreement. Likewise, APC does not possess any "incidents
of ownership" in the Policy, unless specifically provided in the Agreement.
b. APC is specifically prohibited:
1) from surrendering the Policy for cancellation;
2) from designating a beneficiary or assigning its rights
to any person other than to the Insured or some other
person as the Insured may direct, or to a successor of
the business of APC; and
3) in general, from taking any action which would endanger
the interest of the Insured or endanger the payment of
the death proceeds in excess of APC's interest in the
Policy.
c. Notwithstanding any provisions of this Assignment to the
contrary, APC shall, when its interest has been satisfied, be obligated to
release this Assignment, or make a reassignment of its interest in the
Policy to the Insured or his successors or assigns.
6. RIGHTS OF OWNERSHIP OF INSURED. Except as specifically provided
herein, the Insured shall retain and possess all other incidents of ownership in
the Policy, including but not limited to:
1. the sole and exclusive right to cancel or surrender the
Policy for its cash surrender value, if any, but only after
the termination of the Agreement;
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b. the right to designate and change the beneficiary of the
death proceeds on the Policy;
3. the right to elect and exercise any optional mode of
settlement permitted by the Policy.
However, all rights retained by the Insured shall be subject to the terms and
conditions of the Agreement.
7. EXERCISE OF RIGHTS. The exercise of any right given herein to APC, or
retained by Insured, shall be solely at the option of each party respectively,
and shall not require notice or consent of one party to the other, except as
otherwise set forth in the Agreement.
8. RELEASE AND REASSIGNMENT. APC shall release and reassign all of its
specific rights in the Policy transferred by this Assignment upon payment of the
amounts required in the Agreement, without unreasonable delay.
9. INSURER NOT A PARTY TO THIS ASSIGNMENT. The Insurer is not a party to
this Collateral Assignment.
10. CONSTRUCTION. It is the expressed intention of the parties that this
Assignment be construed so that APC has absolutely no right of ownership in the
Policy, except as specifically provided in the Agreement.
[The balance of this page is intentionally left blank.]
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IN WITNESS WHEREOF, this assignment is hereby executed, and is effective as
of this 25th day of November, 1998.
ALLIANCE PHARMACEUTICAL
CORPORATION
By ______________________________________
Its _______________________________________
_________________________________________
Duane Joseph Roth
Attest:
___________________________
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Exhibit 10(c)
SPLIT DOLLAR LIFE INSURANCE AGREEMENT
THIS AGREEMENT is entered into effective as the 12th day of November, 1998,
by and between ALLIANCE PHARMACEUTICAL CORPORATION (hereinafter "APC"), and
THEODORE D. ROTH (hereinafter referred to as the "Insured").
WITNESSETH THAT:
WHEREAS, Insured is President of APC, and is a valued executive employee of
APC who has provided significant and substantial past services to APC, and APC
wishes to retain Insured in its employ to provide continuity in the management
of APC, and to continue to develop the management capabilities of APC; and
WHEREAS, APC, as an inducement to such continued employment, wishes to
assist Insured with his personal life insurance program, while at the same time
providing APC with key man life insurance coverage on Insured; and
WHEREAS, this Agreement is intended to qualify as a life insurance
employment benefit as described in the Internal Revenue Service Revenue Ruling
64-328, 1964-2 C.B. 11; and
WHEREAS, the parties have purchased a policy of life insurance insuring the
life of Insured (hereinafter referred to as the "Policy"), which is described in
Exhibit "A" attached hereto and by this reference made a part hereof, and which
was issued by Security Life of Denver (hereinafter referred to as the
"Insurer"); and
WHEREAS, APC and the Insured are willing to continue to pay the premiums
due on the Policy, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
contained herein, the parties hereto agree as follows:
1. INSURANCE POLICY. The parties hereto have taken all necessary action
to cause the Insurer to issue the Policy. The Insured agrees to execute a
collateral assignment of the Policy in favor of APC and the parties agree to
take any further action which may be necessary to cause the Policy to conform to
the provisions of this Agreement. The parties hereto agree that the Policy
shall be subject to the terms and conditions of this Agreement.
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2. POLICY OWNERSHIP. Except as otherwise provided in this Agreement, the
Insured shall be the sole and exclusive owner of the Policy and may exercise
without the consent of APC all of the ownership rights granted to the owner
thereof by the terms of the Policy, including, but not limited to, the right to
designate beneficiaries and select settlement options. APC shall have only the
right to receive certain death benefit proceeds in the event of the death of the
Insured as provided in Section 5 of this Agreement; and to the return of
unreimbursed premiums paid under this Agreement, less the "Economic Benefit," in
the event of the termination of this Agreement as provided in Section 6 of this
Agreement. As used in this Agreement, the term "Economic Benefit" shall mean
the cumulative value to APC of maintaining the $4,000,000 of key man life
insurance coverage on the life of the Insured, which shall be calculated
annually by using the PS-58 rates multiplied by the current death benefit
payable to APC under Section 5B(1)(a) of this Agreement. Insured shall have the
limited right to borrow against the cash surrender value of the Policy, or
otherwise receive a distribution from the Insurer, so long as said loan or
distribution does not reduce the cash surrender value of the Policy to an amount
less than the amounts which would be payable to APC under Section 6B of this
Agreement had the Agreement then terminated. Insured shall not have the right
to cancel or surrender the Policy as long as this Agreement has not been
terminated in accordance with its terms.
3. ASSIGNMENT. The Insured shall have the right to assign any part or
all of his interest in the Policy and this Agreement to any person, entity or
trust by execution of a written assignment delivered to the Insurer and APC.
Insured agrees to execute a collateral assignment in favor of APC for its
interests as set forth in this Agreement.
4. PREMIUM PAYMENTS. On or before the due date of each Policy premium,
APC shall pay the full amount of the premium due on the Policy to the Insurer,
which the parties anticipate will be approximately Sixty Two Thousand Dollars
($62,000) per year. APC shall promptly furnish to the Insured evidence of
timely payment of such premium. Within sixty (60) days of receipt of evidence
of timely premium payment, the Insured will reimburse APC for his share of the
annual premium, which the parties anticipate will be approximately Two Thousand
dollars ($2,000) per year. APC's obligation to make premium payments shall
cease as of the date of the termination of this Agreement; provided, however,
that APC shall not be entitled to a refund for any portion of the prepaid annual
premium for the policy year in which this Agreement terminates, except as
otherwise provided in Sections 5 or 6 hereof.
5. DEATH OF INSURED.
A. Upon the death of the Insured, APC and the personal
representative of the Insured shall promptly take any and all actions
necessary to obtain the death benefit proceeds provided under the
Policy.
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B. In the event of the death of the Insured before this
Agreement has otherwise terminated, the death benefit proceeds shall
be divided and paid in the following manner and order of priority:
(1) APC shall have the unqualified right to receive a
portion of such death benefit equal to the following:
(a) Four Million Dollars ($4,000,000); PLUS
(b) the total amount of the unreimbursed premiums paid
by APC during the term of this Agreement;
LESS
(c) the Economic Benefit.
Notwithstanding the above, in no event shall the amount payable
to APC exceed the Policy proceeds payable at the death of the
Insured.
(2) After payment of the death benefit to APC as provided
under paragraph B(1) of this Section 5, the remaining death
benefit provided under the Policy shall be paid to such
beneficiary or beneficiaries as the Insured may designate, in the
manner and in the amount or amounts provided in the beneficiary
designation provision of the Policy.
6. TERMINATION.
A. This Agreement shall terminate on the earliest to occur of
the following:
(1) the death of the Insured, in which event the respective
rights of the parties shall be as provided in Section 5 of this
Agreement, or
(2) the first to occur of:
(a) the date of termination of employment of Insured,
(b) April 1, 2016, or
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(c) the thirtieth (30th) day following written notice by
APC to the Insured of its intent to terminate this
Agreement, and in each such event, the respective
rights of the parties shall be as provided in paragraph
B of this Section 6, unless otherwise mutually agreed
by the parties in writing.
B. The rights of the parties upon termination of this Agreement as
provided under paragraph A(2) of this Section 6 shall be as follows:
(1) APC shall have no further obligation to make the premium
payments set forth in Section 4 of this Agreement. APC's interest in
the Policy shall be limited to the LESSER of:
(a) the cash surrender value of the Policy as of the date
of the termination of this Agreement;
OR
(b) the total amount of the unreimbursed premium paid by
APC during the term of this Agreement, LESS the
Economic Benefit.
(2) For ninety (90) days following termination of this
Agreement, the Insured shall have the option of purchasing APC's
interest in the Policy. To purchase such interest, the Insured shall
pay to APC the total amount of the unreimbursed premium payments made
by APC hereunder, LESS the Economic Benefit. Upon receipt of such
amount, APC shall transfer all of its interest in the Policy to
Insured and agrees to take such actions required by the Insurer
(including the execution of any and all documents or instruments) to
transfer all of the interest of APC in the Policy to the Insured.
Thereafter, neither APC nor any of its respective successors and
assigns shall have any further interest in the Policy under the terms
thereof or under this Agreement.
(3) If the Insured fails to exercise such option under
paragraph B(2) of this Section 6 within such ninety (90) day
period, then APC may enforce its rights to be paid the amounts
due under paragraph B(1)(b) of this Section 6 from the cash
surrender value of the Policy. In the event the cash surrender
value of the Policy exceeds the amount due to APC under this
Agreement, the Policy and the right to such excess shall be
retained by the Insured. Upon receipt of such
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amount, APC shall transfer all of its interest in the Policy to
Insured and agrees to take such actions required by the Insurer
(including the execution of any and all documents or instruments) to
transfer all of the interest of APC in the Policy to the Insured.
Thereafter, neither APC nor any of its respective successors and
assigns shall have any further interest in the Policy under the terms
thereof or under this Agreement.
7. AMENDMENT. This Agreement may not be amended, altered or modified,
except by a written instrument signed by both parties hereto, or their
respective successor or assigns, and may not be otherwise terminated except as
provided herein.
8. BINDING AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of APC, and its successors and assigns, and the Insured and his
successors, assigns, heirs, beneficiaries, executor, administrator, or other
personal representative.
9. NOTICE. Any notice, consent or demand required or permitted to be
given under the provisions of this Agreement shall be in writing, and shall be
signed by the party giving or making the same. If such notice, consent or
demand is mailed to a party hereto, it shall be sent by United States certified
mail, postage prepaid, addressed to such party's last known address. The date
of such mailing shall be deemed the date of notice, consent or demand.
10. SPECIAL PROVISIONS. The following provisions are part of this
Agreement and are intended to meet the requirements of the Employee Retirement
Income Security Act of 1974 ("ERISA"):
A. The named fiduciary shall be the Treasurer of APC (unless
this position is held by Insured in which event APC shall designate a
new named fiduciary and the parties shall amend this Agreement
accordingly).
B. The funding under this Agreement is that all premiums on the
Policy be remitted by APC to the Insurer as billed and when due.
C. Direct payment by the Insurer is the basis of payment of
benefits under this Agreement, with those benefits in turn being based
on the payment of premiums and the Economic Benefit.
D. For claims procedure purposes, the "Claims Manager" shall be
the Treasurer of APC (unless this position is held by Insured, in
which event APC shall designate a new Claims Manager and the parties
shall amend this Agreement accordingly).
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(1) If for any reason a claim for benefits under this
Agreement is denied by APC, the Claims Manager shall deliver to
the claimant a written explanation setting forth the specific
reasons for the denial, pertinent references to the Agreement
section on which the denial is based, such other data as may be
pertinent, and information on the procedures to be followed by
the claimant in obtaining a review of his claim, written in a
manner calculated to be understood by the claimant. For this
purpose:
(a) The claimant's claim shall be deemed filed when
presented orally or in writing to the Claims
Manager.
(b) The Claims Manager's explanation shall be in
writing delivered to the claimant within ninety
(90) days of the date the claim is filed.
2. The claimant shall have sixty (60) days following his
receipt of the denial of the claim to file with the Claims
Manager a written request for review of the denial. For such
review, the claimant or his representative may submit pertinent
documents and written issues and comments.
3. The Claims Manager shall decide the issue on review and
furnish the claimant with a copy within sixty (60) days of
receipt of the claimant's request for review of his claim. The
decision on review shall be in writing and shall include specific
reasons for the decision written in a manner calculated to be
understood by the claimant, as well as specific references to the
pertinent Agreement provisions on which the decision is based.
If a copy of the decision is not so furnished to the claimant
within such sixty (60) days, the claim shall be deemed denied on
review.
11. GOVERNING LAW. This Agreement, and the rights of the parties
hereunder shall be governed by and construed in accordance with the laws of the
State of California, except to the extent preempted by ERISA.
6
<PAGE>
12. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall constitute an original, but all of which constitute one and the same
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
ALLIANCE PHARMACEUTICAL
CORPORATION
By:___________________________________
Title:________________________________
INSURED
______________________________________
Theodore D. Roth
Attest:
__________________________
7
<PAGE>
EXHIBIT "A"
A summary of the Policy attached hereto is as follows:
Insurer: Security Life of Denver
Insured: Theodore D. Roth
Policy Number: 610009778
Date of Issue: September 21, 1998
8
<PAGE>
Exhibit 10(d)
COLLATERAL ASSIGNMENT OF LIFE INSURANCE POLICY
THIS ASSIGNMENT is made effective this 12th day of November, 1998, by and
between ALLIANCE PHARMACEUTICAL CORPORATION (hereinafter "APC"), and THEODORE D.
ROTH (hereinafter referred to as the "Insured").
WITNESSETH THAT:
WHEREAS, APC and the Insured have entered into a Split Dollar Life
Insurance Agreement (hereinafter "Agreement") effective November 12, 1998; and
WHEREAS, pursuant to said Agreement, APC is entitled to receive certain
death benefit proceeds in the event of the death of the Insured and to certain
sums in the event of termination of said Agreement;
NOW, THEREFORE, in consideration of the covenants contained herein, and in
furtherance of the Agreement between the parties, it is further mutually agreed
that:
1. POLICY. Security Life of Denver has issued a Policy of insurance on
the life of Insured. See EXHIBIT "A" of the attached Agreement for a
description of the Policy. The ownership of said Policy has been issued to the
Insured and beneficiaries thereof shall be as designated by the Insured.
2. SPLIT-DOLLAR LIFE INSURANCE AGREEMENT. The Policy is subject to the
Agreement between APC and the Insured. Said Agreement, along with its Exhibit
"A" which is attached thereto, is hereby incorporated into and made a part of
this Assignment.
3. PREMIUMS. Premiums paid on the Policy shall be allocated as set forth
in the Agreement.
4. COLLATERAL ASSIGNMENT. The Insured hereby assigns, transfers, and
sets over to APC only the following specific limited rights in the Policy, and
subject to the following terms and provisions:
a. This Assignment is made, and the Policy is held simply as
collateral for the purpose of providing APC with security for the
payments to be made to APC under the terms of the Agreement.
b. APC shall have an interest in the Policy limited to that
necessary to secure the payments to be made to APC with respect to the
Policy under the terms of the Agreement.
1
<PAGE>
c. APC shall have the right to be repaid from and to the extent of
the proceeds or the cash surrender value of the Policy, as the case may be,
to the extent of its interest as set forth in the Agreement:
1) in the event of the death of the Insured;
2) in the event the Policy is lapsed, canceled or
surrendered by the Insured; or
3) in the event of the termination of the Agreement.
5. RIGHTS OF OWNERSHIP OF APC.
a. APC shall have no right to obtain from the Insurer any loans or
advances against its interest in the Policy, except as specifically
provided in the Agreement. Likewise, APC does not possess any "incidents
of ownership" in the Policy, unless specifically provided in the Agreement.
b. APC is specifically prohibited:
1) from surrendering the Policy for cancellation;
2) from designating a beneficiary or assigning its rights
to any person other than to the Insured or some other
person as the Insured may direct, or to a successor of
the business of APC; and
3) in general, from taking any action which would endanger
the interest of the Insured or endanger the payment of
the death proceeds in excess of APC's interest in the
Policy.
c. Notwithstanding any provisions of this Assignment to the
contrary, APC shall, when its interest has been satisfied, be obligated to
release this Assignment, or make a reassignment of its interest in the
Policy to the Insured or his successors or assigns.
6. RIGHTS OF OWNERSHIP OF INSURED. Except as specifically provided
herein, the Insured shall retain and possess all other incidents of ownership in
the Policy, including but not limited to:
1. the sole and exclusive right to cancel or surrender the Policy
for its cash surrender value, if any, but only after the
termination of the Agreement;
2
<PAGE>
b. the right to designate and change the beneficiary of the death
proceeds on the Policy;
3. the right to elect and exercise any optional mode of settlement
permitted by the Policy.
However, all rights retained by the Insured shall be subject to the terms and
conditions of the Agreement.
7. BENEFICIARY. Insured hereby irrevocably designates APC as a
beneficiary to the Policy until such time as the collateral interest assigned
hereby is released or otherwise terminated.
8. EXERCISE OF RIGHTS. The exercise of any right given herein to APC, or
retained by Insured, shall be solely at the option of each party respectively,
and shall not require notice or consent of one party to the other, except as
otherwise set forth in the Agreement.
9. RELEASE AND REASSIGNMENT. APC shall release and reassign all of its
specific rights in the Policy transferred by this Assignment upon payment of the
amounts required in the Agreement, without unreasonable delay.
10. INSURER NOT A PARTY. The Insurer is not a party to the Agreement.
11. CONSTRUCTION. It is the expressed intention of the parties that this
Assignment be construed so that APC has absolutely no right of ownership in the
Policy, except as specifically provided in the Agreement.
[The balance of this page is intentionally left blank.]
3
<PAGE>
IN WITNESS WHEREOF, this assignment is hereby executed, and is effective as
of this 12th day of November, 1998.
ALLIANCE PHARMACEUTICAL
CORPORATION
By ______________________________________
Its _______________________________________
_________________________________________
Theodore D. Roth
Attest:
___________________________
4
<PAGE>
EXHIBIT 10(e)
ELEVENTH AMENDMENT
This Eleventh Amendment (this "ELEVENTH AMENDMENT") is entered into as
of the 1st day of September, 1999 with respect to that certain lease between
HUB PROPERTIES TRUST, a Maryland real estate investment trust ("LANDLORD"),
and ALLIANCE PHARMACEUTICAL CORP., a New York corporation ("TENANT").
WHEREAS, Hartford Accident and Indemnity Company (the "ORIGINAL
LANDLORD") and Tenant entered into a certain lease dated March 28, 1989 for a
portion of the premises located at 3040 Science Park Road, San Diego,
California (the "3040 BUILDING"); as amended by a certain Lease Amendment
dated March 23, 1990, which Amendment increased the size of the leased
premises to the entire rentable portion of the 3040 Building (the "3040
PREMISES"); and as amended by a certain Lease Amendment dated March 29, 1990;
and
WHEREAS, Original Landlord and Tenant entered into a Third Lease
Amendment dated December 12, 1990; Fourth Lease Amendment dated December 12,
1991, which Amendment increased the size of the leased premises to include a
portion of the premises located at 3030 Science Park Road, San Diego,
California (the "3030 PREMISES"); Fifth Lease Amendment dated March 5, 1992;
Sixth Lease Amendment dated April 15, 1992; Seventh Lease Amendment dated
January 25, 1993; and Eighth Amendment dated February 5, 1993; and Ninth
Lease Amendment dated April 23, 1993;
WHEREAS, Hartford Fire Insurance Company ("HARTFORD") succeeded to the
interest of the Original Landlord; and
WHEREAS, Hartford and Tenant entered into a Tenth Lease Amendment dated
June 5, 1995; and
WHEREAS, Landlord has succeeded to the interest of Hartford; and
WHEREAS, for purposes of this Eleventh Amendment, the above-referenced
lease dated March 28, 1989 as amended on March 23, 1990; March 29, 1990;
December 12, 1990; December 12, 1991; March 5, 1992; April 15, 1992; January
25, 1993; February 5, 1993; April 23, 1993; and June 5, 1995 shall be
hereinafter defined collectively as "the LEASE"; and
WHEREAS, Tenant desires to exercise its first option to extend the term
of the Lease only with respect to the 3040 Premises, and Landlord is willing
to agree to such extension upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing and for other
consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, Landlord and Tenant agree that the Lease is hereby amended as
follows:
1. The 3040 Premises shall be deemed to contain 38,670 rentable square
feet.
2. Landlord and Tenant acknowledge that, pursuant to Section II.F.1 of
the Lease, Tenant hereby exercises its first option to extend the Term with
respect to the 3040 Premises,
<PAGE>
and that Tenant has two such remaining options (one pursuant to Section
II.F.2 of the Lease and one pursuant to Section II.F.3 of the Lease) with
respect to the 3040 Premises. Landlord and Tenant further acknowledge that
Tenant has three unexercised options (one each pursuant to Sections II.F.1,
II.F.2 and II.F.3 of the Lease) with respect to the 3030 Premises.
3. The definition of "BASE RENT" set forth in Section II.G of the Lease
shall be amended by adding the following regarding the 3040 Premises:
BASE RENT
<TABLE>
<CAPTION>
"LEASE PERIOD PER ANNUM
<S> <C>
09/01/99 to 08/31/00: $1,197,223.20
09/01/00 to 08/31/01: $1,238,986.80
09/01/01 to 08/31/02: $1,280,750.40"
</TABLE>
4. The definition of "MONTHLY INSTALLMENTS OF BASE RENT" set forth in
Section II.H of the Lease shall be amended by adding the following regarding
the 3040 Premises:
BASE RENT
<TABLE>
<CAPTION>
"LEASE PERIOD PER MONTH
<S> <C>
09/01/99 to 08/31/00: $ 99,768.60
09/01/00 to 08/31/01: $103,248.90
09/01/01 to 08/31/02: $106,729.20"
</TABLE>
5. Section II.D of the Lease shall be amended by inserting the following
definition:
"3040 Premises First Extended Term Commencement and Termination Dates.
The commencement date of the first extended term with respect to the 3040
Premises (the "3040 Premises First Extended Term") shall be September 1, 1999
(the 3040 Premises First Extended Term Commencement Date") and the
termination date of the 3040 Premises First Extended Term shall be August 31,
2002 (the "3040 Premises First Extended Term Termination Date"). Tenant
shall, at its sole cost and expense, have plans ("Tenant's Plans") prepared
for improvements solely to the 3040 Premises (the "Tenant's 3040 Premises
Improvements"), and shall submit Tenant's Plans and the name of Tenant's
proposed contractor(s) to Landlord for its approval (which approvals shall
not be unreasonably withheld or delayed). Any disapproval shall be
accompanied by a specific statement of reasons therefor and Tenant shall
promptly revise and resubmit Tenant's Plans and, if necessary, submit
additional proposed contractors in order to obtain Landlord's approval t
On September 30, 1999, Landlord shall pay to Tenant the amount of
$487,500 (the "Landlord's Contribution"). Landlord's Contribution shall be
used in its entirety to pay for the cost of Tenant's 3040 Premises
Improvements, to be performed between September 30, 1999 and February 1, 2002
in accordance with the terms of the Lease. Tenant shall provide Landlord
with copies of paid invoices for the Tenant's 3040 Premises Improvements on
or before March 1, 2002. To the extent that the sum of the paid invoices for
Tenant's 3040 Premises Improvements
-2-
<PAGE>
provided to Landlord on or before March 1, 2002 shall be less than Landlord's
Contribution, then Tenant shall pay such difference, including interest
thereon from September 1, 1999 to the last day of the 3040 Premises First
Extended Term at the rate of ten percent (10%) per annum, to Landlord upon
the expiration of the 3040 Premises First Extended Term.
If Tenant provides documentation acceptable to Landlord that it has
exceeded Landlord's Contribution in the course of performing Tenant's 3040
Premises Improvements, Tenant may request that Landlord make a loan (the
"Loan") to Tenant in an amount equal to the lesser of such excess or
$130,000, which Loan Tenant shall repay to Landlord, as additional rent, over
the period commencing on the date such Loan is made available to Tenant and
continuing over the remainder of the 3040 Premises First Extended Term, in
level monthly installments, due on the first day of each such remaining
months, including interest on the unpaid amount at the rate of ten percent
(10%) per annum."
6. The Security Deposit, in the form of Letters of Credit in the
aggregate amount of $778,820 previously deposited with Landlord, shall remain
in place during the 3040 Premises First Extended Term.
7. Effective from and after the First Extended Term Commencement Date,
the provisions of Section (f) of Rider 1 of the Lease shall not apply with
respect to the 3040 Premises and the following shall be inserted in their
place:
Tenant's Proportionate Share of Real Estate Taxes and Operating Expenses
with respect to the 3040 Building shall be one hundred percent (100%);
provided, however, that from and after the 3040 Premises First Extended Term
Commencement Date, the costs of interior cleaning, window cleaning, parking
lot cleaning, exterior landscape maintenance, extermination, fire protection
monitoring and servicing, security system monitoring and servicing, elevator
maintenance and uniforms shall be included in Operating Expenses in an amount
equal to the lesser of the actual cost thereof and the costs therefor
incurred in 1998, increased by the Index.
"Index" shall mean the Consumer Price Index for Urban Wage Earners and
Clerical Workers, San Diego, California, All Items, 1982-1984=100, or the
Consumer Price Index for the smallest geographic area which includes San
Diego, California. The Index is presently published by the Bureau of Labor
Statistics of the United States of the United States Department of Labor. In
the event publication of the Index ceases, the computation of the Annual Cap
during each year shall be computed upon the basis of whatever index published
by the United States Department of Labor at that time is most nearly
comparable as a measure of general changes in price levels for the area in
which the 3040 Premises are located. In the event that the Index ceases to
use 1982-1984=100 as the basis of calculation, then the Index shall be
converted to the amount(s) that would have resulted had the manner of
calculating the Index not been altered.
Tenant's Proportionate Share of Real Estate Taxes and Operating Expenses
with respect to the 3030 Building shall continue to be calculated and
administered as provided in Section (f) of Rider 1 of the Lease.
8. In addition to all other limitations contained in the Lease, Landlord
hereby notifies Tenant that the Declaration of Trust of Hub Properties Trust
provides, and Tenant
-3-
<PAGE>
agrees, that no trustee, officer, director, general or limited partner,
member, shareholder, beneficiary, employee or agent (including any person or
entity from time to time engaged to supervise and/or manage the operation of
Landlord) of Landlord shall be held to any liability, jointly or severally,
for any debt, claim, demand, judgment, decree, liability or obligation of any
kind (in tort, contract or otherwise) of, against or with respect to Landlord
or arising out of any action taken or omitted for or on behalf of Landlord.
9. Except as herein specifically amended, this Lease is hereby ratified
and confirmed.
IN WITNESS WHEREOF, the parties have hereto executed this Eleventh
Amendment as of the date first above-written.
LANDLORD:
HUB PROPERTIES TRUST, a Maryland
real estate investment trust
By:
----------------------------
Name: David M. Lepore
Its: Sr. Vice President
TENANT:
ALLIANCE PHARMACEUTICAL CORP.,
a New York corporation
By:
----------------------------
Name:
Its:
:9/13/99
-4-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND THE CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 9,171,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,877,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 51,817,000
<CURRENT-LIABILITIES> 11,029,000
<BONDS> 0
0
5,000
<COMMON> 435,000
<OTHER-SE> 31,126,000
<TOTAL-LIABILITY-AND-EQUITY> 51,817,000
<SALES> 0
<TOTAL-REVENUES> 1,568,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,125,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 373,000
<INCOME-PRETAX> (10,720,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,720,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,720,000)
<EPS-BASIC> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
