<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 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 OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3040 Science Park Road, San Diego, CA 92121
- ---------------------------------------- ----------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, (858) 410-5200
INCLUDING AREA CODE ----------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
NONE
- ---------------------------- -----------------------------------------
- ---------------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
common stock, par value $0.01.
- -------------------------------------------------------------------------------
(TITLE OF CLASS)
- -------------------------------------------------------------------------------
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. / /
[COVER PAGE 1 OF 2 PAGES]
<PAGE>
The aggregate market value of the voting stock held by
non-affiliates of the Registrant, computed by reference to the closing price
of such stock on the Nasdaq National Market on September 10, 1999, was $126.2
million.
The number of shares of the Registrant's common stock, $.01 par
value, outstanding at September 10, 1999 was 43,510,049.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report on Form 10-K is
incorporated by reference to the definitive Proxy Statement with respect to
the 1999 Annual Meeting of Shareholders, which the Registrant intends to file
with the Securities and Exchange Commission no later than 120 days after the
end of the fiscal year covered by this report.
[COVER PAGE 2 OF 2 PAGES]
<PAGE>
PART I
EXCEPT FOR HISTORICAL INFORMATION, THE MATTERS SET FORTH IN THIS
REPORT ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
SET FORTH HEREIN. THE COMPANY REFERS YOU TO CAUTIONARY INFORMATION CONTAINED
ELSEWHERE HEREIN, IN OTHER DOCUMENTS THE COMPANY FILES WITH THE SECURITIES
AND EXCHANGE COMMISSION FROM TIME TO TIME, AND THOSE RISK FACTORS SET FORTH
IN THE COMPANY'S RECENT REGISTRATION STATEMENT ON FORM S-3 (REGISTRATION
NUMBER 333-76343).
ITEM 1. BUSINESS
Alliance Pharmaceutical Corp. (the "Company" or "Alliance") is a
pharmaceutical research and development company that focuses on developing
scientific discoveries into medical products and licensing these products to
multinational pharmaceutical companies in exchange for fixed payments and
royalties. To date, the Company has developed three innovative products
through initial clinical (human) trials and is in, or has completed, pivotal
clinical trials for these products. The products are OXYGENT-TM-, an
intravascular oxygen carrier to temporarily augment oxygen delivery in
surgical and other patients at risk of acute tissue hypoxia (oxygen
deficiency); LIQUIVENT-Registered Trademark-, an intrapulmonary agent for
use in reducing a patient's exposure to the harmful effects of conventional
mechanical ventilation; and IMAGENT-Registered Trademark-, an intravenous
contrast agent for enhancement of ultrasound images to assess cardiac
function and organ lesions and to detect blood flow abnormalities. IMAGENT is
licensed to Schering AG, Germany.
The Company's strategy is to identify potential new medical 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
human testing, Alliance endeavors to advance such discoveries into clinical
development. The Company seeks collaborative relationships for the final
stages of product development, including completing late-phase human testing,
obtaining worldwide regulatory approvals, building large-scale manufacturing
capacities, and marketing.
The Company was incorporated in New York in 1983. Its principal
executive offices are located at 3040 Science Park Road, San Diego,
California 92121, and its telephone number is (858) 410-5200.
PRODUCTS IN PHASE 3 CLINICAL DEVELOPMENT
Three of Alliance's products are currently in late-stage clinical
development. These are OXYGENT, LIQUIVENT, and IMAGENT, which 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. OXYGENT (perflubron emulsion) is an intravascular oxygen delivery
agent to temporarily augment oxygen delivery in surgical and other patients
at risk of acute tissue oxygen deficit. It will be used as a temporary oxygen
carrier to provide oxygen to tissues during elective surgeries where
substantial blood loss is anticipated. It is estimated that approximately
eight to ten million patients worldwide annually receive one or more units of
donor blood during elective surgeries, including, for example,
cardiovascular, orthopedic, and general surgical procedures. An oxygen
carrier could be used instead of donor blood for a portion of these patients.
A single unit of OXYGENT is expected to provide the equivalent oxygen
delivery of one to two units of red blood cells.
In addition to the well-publicized risks of infectious disease
transmission (e.g., HIV, hepatitis) and potential immune suppression effects
related to blood transfusions, there are emerging concerns regarding the
availability and quality of donor blood. The National Blood Data Resource
Center ("NBDRC") recently released data showing that blood donations have
decreased while blood usage has increased over the past several years. These
trends have led the NBDRC to predict that beginning next year (2000) the U.S.
will experience a deficit of approximately 250,000 units of red blood cells
available for transfusion. This expected blood shortage may be further
exacerbated by the August 17, 1999 recommendation of the U.S. Food and Drug
Administration ("FDA") to prohibit donations from individuals who spent a
1
<PAGE>
cumulative six months in the United Kingdom between the years 1980 and 1996,
and are therefore potentially at risk of having been exposed to infected beef
that may be linked to new variant Creutzfeld-Jakob Disease (CJD).
Additionally, there are concerns regarding the quality of donor blood because
of a "storage lesion" effect. The effect is a progressive deterioration of
red blood cell function that occurs while the blood is stored. This reduces
the immediate oxygen transport effectiveness of the donor red cells, which
are typically stored for up to six weeks prior to their use in transfusions.
These issues have heightened the search for alternatives that reduce
or eliminate the need for donor blood in elective surgeries and are not
subject to the storage lesion effect. OXYGENT is a sterile emulsion that is
compatible with all blood types and is expected to have a shelf-life of two
years. It is manufactured using a cost-effective, proprietary process at
Alliance's commercial-scale facility that has the potential to produce
approximately one million units annually. OXYGENT is used with other
autologous (a patient's own blood) blood collection techniques including
Alliance's proprietary Augmented Acute Normovolemic Hemodilution
(A-ANH-TM-) technique.
Two large multicenter Phase 2 clinical studies of OXYGENT have been
completed in general surgery patients in the U.S. and Europe. In addition,
three Phase 2 studies have been completed in which OXYGENT was administered
to cardiac surgery patients undergoing cardiopulmonary bypass procedures. In
November 1998, a Phase 3 clinical trial in general surgery patients was
initiated in Europe. In September 1999, the Company announced it had reached
agreement with the FDA on the key design features of a Phase 3 clinical trial
in the U.S., which it expects to begin soon.
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, both affiliates of Johnson & Johnson (collectively referred to
as "Ortho"), which provided Ortho with certain development and worldwide
marketing rights to the Company's injectable PFC emulsions capable of
transporting oxygen for therapeutic use, including OXYGENT. In May 1998,
Ortho and Alliance restructured their agreement. Under the restructured
agreement, Alliance assumed responsibility for worldwide development of
OXYGENT at its own cost, and Ortho had a limited right of first offer to
enter into a development, marketing or license agreement for OXYGENT. The
first offer right was reacquired by Alliance in 1999.
LIQUIVENT. LIQUIVENT (neat perflubron) is an intrapulmonary agent
for use in reducing a patient's exposure to the harmful effects of
conventional mechanical ventilation. Each year, more than 800,000 patients in
the U.S. are placed on mechanical gas ventilators for treatment of lung
dysfunction. Many of these patients suffer from 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. 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 further damage the patients'
lungs. Some of these patients may benefit from treatment with LIQUIVENT.
LIQUIVENT is intended to be used according to a proprietary
technique called Partial Liquid Ventilation-TM- ("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. Published results
from initial clinical trials have indicated that LIQUIVENT improved lung
oxygenation, without clinically significant side effects. In clinical
studies, LIQUIVENT has also been observed to promote the migration of mucus
and alveolar debris to the central airways, where suctioning and removal is
easier. The ability to remove such debris may 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. The FDA has granted Subpart E status
(expedited review) for the product.
In November 1998, the Company initiated a Phase 2/3 trial with
LIQUIVENT involving adult patients with acute lung injury and acute
respiratory distress syndrome at numerous medical centers in the U.S.,
Canada, and Europe. The Phase 2/3 trial protocol was validated in a small
Phase 2 study completed earlier in 1998.
In February 1996, the Company entered into a license agreement (the
"HMRI License Agreement") with Hoechst Marion Roussel, Inc. ("HMRI"), which
provided HMRI with worldwide marketing and manufacturing rights to the
2
<PAGE>
intratracheal administration of liquids, including LIQUIVENT, which perform
bronchoalveolar lavage or liquid ventilation. In December 1997, HMRI
terminated the HMRI License Agreement. In September 1999, the Company and
HMRI dismissed a related arbitration proceeding that had been filed in
September 1998. HMRI agreed to sell and Alliance agreed to purchase up to $3
million of clinical trial supplies upon the occurrence of certain events. No
other payments will be made by either party.
IMAGENT. IMAGENT is an intravenous contrast agent for enhancement of ultrasound
images to assess cardiac function. Additionally, IMAGENT has the potential to
detect solid organ lesions and blood flow abnormalities. More than 30 million
scans of the heart, vasculature, and abdominal organs are performed annually in
the U.S., 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 is
being developed to meet these requirements.
IMAGENT is a powder comprising hollow microspheres containing a
mixture of PFC vapor and gas and water-soluble components that are known to
be acceptable for parenteral use. Prior to use, IMAGENT is reconstituted with
water to form microbubbles that are then injected into the patient. The gas
microbubbles are highly echogenic and, when delivered intravenously, reflect
sound-wave signals that enhance ultrasound images. In clinical trials with
IMAGENT, gray-scale contrast enhancement of cardiac, abdominal, and vascular
structures has been observed with no serious adverse events.
In 1999, the Company completed two Phase 3 studies with IMAGENT that
successfully demonstrated a clinically and highly statistically significant
improvement in visualization of the walls of the heart (endocardial border
delineation) compared to standard (non-contrasted) ultrasound imaging. The
results from these studies are being compiled for a New Drug Application
("NDA"), which is expected to be filed soon with the FDA, and a Marketing
Authorization Application in Europe. Additional studies for evaluation of
space-occupying lesions of the liver and kidney, and vascular flow
abnormalities are planned.
In September 1997, the Company entered into a license agreement (the
"Schering License Agreement") with Schering AG, Germany ("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.
OTHER PRODUCTS
PULMOSPHERES-Registered Trademark-. PULMOSPHERES are hollow, porous spheres
(in powder form) suspended in perflubron or fluorochemical propellants for
the purpose of drug delivery, primarily to the lungs. Drugs can be stabilized
within the wall structure of these respirable particles, which are typically
1-3 microns in diameter. Laboratory and preclinical testing indicates that
PULMOSPHERE formulations may provide advantages over current formulation
technologies with regard to particle suspension stability and flow
aerodynamics, which could enhance the efficiency of pulmonary drug delivery.
Over the past year, different types of drugs have been successfully
formulated in PULMOSPHERES for feasibility testing purposes. Drugs such as
bronchodilators and steriodal anti-inflammatory agents could potentially be
formulated into PULMOSPHERES and delivered to the lung by way of standard
metered-dose inhaler (MDI) devices for the topical treatment of asthma.
Alternatively, proteins or peptides intended for systemic distribution and
treatment of other chronic diseases might be incorporated into PULMOSPHERES
and delivered by other commonly used devices such as nebulizers or dry powder
inhalers, which tend to propel small particles deeper into the lung for
improved systemic uptake. The Company is planning to start a small Phase 1
(safety) clinical trial before the end of the calendar year.
The current business strategy for PULMOSPHERES involves finding a
suitable partner for further development and commercialization of the
technology.
RODA-TM-. In July 1997, the Company entered into a development agreement
(the "VIA Development Agreement") with VIA Medical Corporation ("VIA") for
the joint development of RODA (Real-time Oxygen Dynamics Analyzer). RODA is
an EX VIVO device intended to provide on-line measurements of the
cardiovascular and oxygenation status of surgical patients by minimally
invasive means. The device could assist physicians in their decisions
regarding blood transfusions and other interventions. RODA will combine
oxygen dynamics software designed by the Company with VIA's EX VIVO blood gas
and
3
<PAGE>
chemistry monitor and other VIA technology. The Company has conducted pilot
clinical studies in the U.S. and Europe to assess its oxygen dynamics
software. VIA is currently developing an engineering prototype of the final
device to use for clinical testing and regulatory submissions. In August
1998, Alliance and VIA entered into a manufacturing, marketing and
distribution agreement (the "VIA Marketing Agreement") whereby VIA will be
responsible for manufacturing and marketing RODA, and the parties will share
revenues from the sale of products. The companies will seek a worldwide
marketing partner.
FLOGEL-Registered Trademark-. In November 1996, Alliance acquired all of
the stock of MDV Technologies, Inc. ("MDV") for initial payments of $15.5
million over a one-year period, with additional payments and royalties to the
former MDV shareholders upon the occurrence of certain clinical development,
licensing, or commercialization events. Based on the acquired technology, the
Company is developing a thermo-reversible gel, FLOGEL, intended for use as an
anti-adhesion treatment for patients undergoing abdominal or pelvic
surgeries. FLOGEL is applied in a cold liquid form and becomes a gel at body
temperature, forming a barrier between tissues. Alliance is currently
analyzing data from a recently completed pilot clinical trial to evaluate
FLOGEL as a device to reduce the DE NOVO (new) formation and reformation of
post-surgical adhesions following gynecologic surgery. In addition to the
anti-adhesion product, MDV also has patents covering the use of gels for drug
delivery and ophthalmic indications.
Alliance is also 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.
Alliance has developed and is selling SAT PAD-Registered Trademark-,
a re-usable magnetic resonance ("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 $130,000 for fiscal 1999. Alliance 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 losses from
research and development activities are expected to increase significantly.
The Company's products require substantial development efforts. The
Company may encounter unforeseen technical and other problems which may force
delay, abandonment, or substantial change in the development of a specific
product or process, or technological change, or product development by
others, any of which may have a material adverse effect on the Company. The
Company expends substantial amounts of money on research and development and
expects to do so for the foreseeable future. In fiscal 1999, 1998, and 1997,
the Company incurred research and development expenses of $60.4 million,
$50.1 million, and $43.3 million, respectively.
COLLABORATIVE RELATIONSHIPS
SCHERING AG. In September 1997, the Company entered into the Schering License
Agreement, 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. This product is being developed jointly by
Alliance and Schering. Under the Schering License Agreement, Schering paid to
Alliance an initial license fee of $4 million and agreed to pay further
milestone payments and royalties on product sales. Schering also agreed to
provide funding to Alliance for some of its development expenses. In
conjunction with the Schering License Agreement, Schering Berlin Venture
Corp. ("SBVC"), an affiliate of Schering, purchased 500,000 shares of the
Company's convertible Series D Preferred Stock for $10 million.
HOECHST MARION ROUSSEL, INC. In February 1996, the Company entered into the
HMRI License Agreement, which provided HMRI with worldwide exclusive
marketing and manufacturing rights to the intratracheal administration of
liquids, including LIQUIVENT, which perform bronchoalveolar lavage or liquid
ventilation. In December 1997, HMRI terminated the HMRI License Agreement. In
September 1999, the Company and HMRI dismissed a related arbitration
proceeding that had been filed in September 1998. HMRI agreed to sell and
Alliance agreed to purchase up to $3.0 million of clinical trial supplies
upon the occurrence of certain events. No other payments will be made by
either party.
4
<PAGE>
ORTHO BIOTECH, INC. In August 1994, the Company entered into the Ortho
License Agreement which provided Ortho with worldwide exclusive marketing and
manufacturing rights to injectable PFC emulsions capable of transporting
oxygen for therapeutic use, including OXYGENT. In May 1998, Ortho and
Alliance restructured their agreement. Under the restructured agreement,
Alliance assumed responsibility for worldwide development of OXYGENT at its
own cost, and Ortho had a limited right of first offer to enter into a
development, marketing or license agreement for OXYGENT. Alliance reacquired
the first-offer rights in 1999.
VIA MEDICAL CORPORATION. In July 1997, the Company entered into the VIA
Development Agreement for the joint development of RODA, an EX VIVO device
intended to measure the cardiovascular and oxygenation status of patients by
minimally invasive means. Pursuant to the VIA Development Agreement, VIA will
combine Alliance's oxygen dynamics software with VIA's EX VIVO blood gas and
chemistry monitor and other technology. Alliance will reimburse VIA for
substantially all of its development costs and will be responsible for
obtaining regulatory approval of the product. In August 1998, Alliance and
VIA entered the VIA Marketing Agreement whereby VIA will be responsible for
manufacturing and marketing RODA, and the parties will share revenues from
product sales. Recently, the companies have decided to seek a worldwide
marketing partner.
The Company intends to obtain new collaborative relationships for
OXYGENT and LIQUIVENT, and to also obtain collaborative relationships for its
other products. 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
The Company does not have internal marketing and sales capabilities.
The Company's strategy is for its collaborative partners to market and sell
any products which it successfully develops. The Company's only
commercialized product, SAT PAD, is currently sold through certain
distributors of MR imaging equipment and supplies. Currently, Schering will
be solely responsible for all activities related to marketing and sales of
IMAGENT. The Company intends to obtain appropriate marketing relationships
for its other products. To the extent that the Company enters into
co-promotion or other licensing arrangements, any revenues received by the
Company will be dependent on the efforts of third parties, and there can be
no assurance that any such efforts will be successful. Further, there can be
no assurance that the Company will be able to enter into future marketing
relationships on acceptable terms. The termination of any marketing
relationships may limit the ability of the Company to market its products and
may have a material adverse effect on the Company's business.
Should the Company have to market and sell its products directly,
the Company would need to develop a marketing and sales force with technical
expertise and distribution capability. The creation of infrastructure to
commercialize pharmaceutical products is an expensive and time-consuming
process. There can be no assurance that the Company would be able to
establish marketing and sales capabilities or be successful in gaining market
acceptance for its products.
MANUFACTURING
The Company manufactures all of its products for preclinical testing
and clinical trials. OXYGENT is produced at a commercial-scale manufacturing
facility in San Diego, California. The Company believes that this production
facility will provide sufficient capacity for future clinical trials and
market launch of OXYGENT, if and when it is approved by the FDA. However, a
larger facility may be required in the future.
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 Company believes the Otisville
facility has sufficient capacity for market launch of LIQUIVENT, if and when
it is approved by the FDA. However, a larger facility may be required in the
future.
5
<PAGE>
IMAGENT is manufactured in San Diego for clinical studies at its
commercial-scale facility. It is manufactured using a proprietary process to
form dry, PFC vapor-containing spheres which are reconstituted with an
aqueous solution to form microbubbles just prior to use. Alliance has
expanded its market launch production capacity in San Diego for Imagent. 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.
Expansion for any of the Company's 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 FDA will determine that such facilities comply with Good
Manufacturing Practices. The projected location and construction of a
facility 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.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company has obtained a sufficient inventory of perflubron, the
principal raw material utilized in OXYGENT and LIQUIVENT, for clinical
trials. The Company intends to negotiate with a potential supplier to secure
a long-term supply of perflubron. The Company also believes it has a
sufficient supply of the principal raw material for IMAGENT for clinical
trials and has negotiated a long-term supply agreement for that material.
Although some raw materials for its products are currently available from
only one source, the Company attempts to acquire a substantial inventory of
such materials and to negotiate long-term supply arrangements. The Company
believes it will not have any raw material supply issues; however, no
assurances can be given that a long-term supply will be obtained for such
materials or that a long-term supply agreement for such materials can be
obtained on terms acceptable to the Company. The Company's business could be
materially and adversely affected if it or its collaborative partners are
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 U.S. 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, Israel, Japan, Norway, and
South Africa, and patents have been granted in many of these countries.
Alliance has numerous issued U.S. patents related to or covering PFC
emulsions with corresponding patents and applications in Europe and Japan.
Such emulsions are the basis of the Company's OXYGENT products. The issued
patents and pending patent applications cover specific details of emulsified
PFCs through product-by-process claims, composition claims, and method claims
describing their manufacture and use. In addition to the specific OXYGENT
formulation, issued patents broadly cover concentrated PFC emulsions, as well
as methods for their manufacture and use.
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 issued or
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 covering methods of administering liquids,
including LIQUIVENT, to patients. Other U.S. patents covering additional
methods of enhancing patients' respiratory gas exchange by administering
liquids, including LIQUIVENT, have issued subsequently. The Company also has
issued patents and pending patent applications regarding 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
6
<PAGE>
U.S. patent covering the use of fluorochemicals to treat localized and
systemic inflammation. Additionally, the Company has issued patents and
pending applications that cover apparatus for liquid ventilation using PFCs.
Alliance has several issued U.S. patents and patent applications
related to IMAGENT. The issued patents and pending applications contain
claims directed to the manufacture and use of novel stabilized microbubble
compositions based on the discovery that PFC gases, in combination with
appropriate surfactants or other non-PFC gases, can stabilize microbubbles
for use in ultrasonic imaging. The patents further contain claims directed to
formulations and compositions that cover IMAGENT. International applications
directed to the same subject matter have also been filed. In March 1998, the
Company received its second U.S. patent covering the use of various contrast
agents, including IMAGENT, in harmonic imaging.
The Company also has issued patents and pending patent applications
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. Additionally, the
fluorinated compounds may be employed in cosmetics, protective creams, and
lubricating agents, as well as being incorporated in emulsions,
microemulsions, and gels that may be useful as drug delivery vehicles or
contrast agents. The Company also has pending applications relating to its
PULMOSPHERES technology and various types of emulsions and microstructures
(tubules, helixes, fibers) that may have uses in the fields of medicine,
biomolecular engineering, microelectronics, and electro-optics.
The Company, through its wholly owned subsidiary, MDV, has numerous
issued U.S. patents and pending applications related to the use, manufacture
and composition of FLOGEL. Corresponding patents have issued, or applications
have been filed, in Europe, Japan and certain other foreign countries. MDV
also has issued claims in the U.S. and Europe covering the use of poloxamer
gels for the prevention of adhesion formation, delivery of drugs and
ophthalmic applications.
Aside from the issued patents and allowed applications referred to
above, 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. Although
certain patents of the Company are subject to such ongoing challenges and
Alliance has challenged the patents of other companies, Alliance believes
that the outcome of these challenges will not have a material adverse effect
on the Company's proprietary technology position.
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 temporary blood
substitute. There are two primary approaches for oxygen delivery: 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 temporary
oxygen carrier "blood substitute," three of which are in Phase 3 clinical
7
<PAGE>
trials. The Company believes that the relatively low cost and ease of
production of OXYGENT provide advantages over hemoglobin-based products.
Alliance is aware of two other early stage companies developing PFC-based
temporary oxygen carriers, neither of which has progressed to clinical trials.
Although liquid ventilation therapy has been in the research phase
for many years, the Company is unaware of any potential liquid ventilation
competitor that has reached the clinical trial stage; however, other
companies are 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 potential competitors. Several other
companies are attempting to develop alternative types of therapies for
treatment of acute respiratory failure. One company plans to start a Phase 3
clinical trial for acute respiratory failure with a surfactant in the near
future, and several others have started Phase 2 clinical trials with various
compounds for acute respiratory failure.
Competition in the development of ultrasound imaging contrast agents
is intense and is expected to increase. There is currently only one available
ultrasound contrast agent for certain cardiology applications in the U.S.
There are currently five that have been approved in Europe, two of which are
currently being sold. In addition, there are currently three companies that
have filed NDAs with the FDA seeking approval to market their products.
Certain companies are in advanced clinical trials for the use of ultrasound
contrast agents for assessing certain organs and vascular structures. The
Company expects that competition in the ultrasound contrast imaging agent
field will be based primarily on each product's safety profile, efficacy,
stability, ease of administration, breadth of approved indications, and
physician, healthcare payor and patient acceptance. The Company believes if
and when IMAGENT is approved for commercial sale, it will be well positioned
to compete successfully, although there can be no assurance that the product
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 U.S. 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 1, 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 2 typically involves studies in a 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 3 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 investigational new drug
application. Further, each clinical study must be evaluated by an independent
review board at the institution at which the study will be conducted.
8
<PAGE>
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 NDA must be submitted to
and approved by the FDA in order to market the product in the U.S. Similar
applications are required in foreign 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 of IMAGENT GI, a
perflubron-based drug previously developed by the Company; 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 U.S. and
other countries, may impede or limit the Company's ability to develop and
market its products.
EMPLOYEES
As of September 10, 1999, the Company had 221 full-time employees,
of whom 192 were engaged in research and development, production and
associated support, three in business development and market research, and 26
in general administration. There can be no assurance that the Company will be
able to continue attracting and retaining sufficient qualified personnel in
order to meet its needs. None of the Company's employees is represented by a
labor union. The Company believes that its employee relations are
satisfactory.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the executive officers of the Company:
DUANE J. ROTH. Mr. Roth, who is 49, has been 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 President and Chief Operating Officer of the Company.
THEODORE D. ROTH. Mr. Roth, who is 48, was Executive Vice President and Chief
Financial Officer of the Company from November 1987 to May 1998, when he was
appointed President and Chief Operating Officer. 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 and Chief Executive Officer of the
Company.
9
<PAGE>
HAROLD W. DELONG. Mr. DeLong, who is 51, has been Executive Vice President,
Business Development for the Company since February 1989. Mr. DeLong has been
employed for more than 25 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
employed previously by Ortho Diagnostic Systems, Inc. for over ten years,
where his last position was Director of the Hemostasis and Chemistry Products
business units.
ARTEMIOS B. VASSOS, M.D., F.A.C.P. Dr. Vassos, who is 52, joined Alliance in
1999 as Executive Vice President and Chief Scientific Officer. For ten years
prior to joining the Company, he served in several positions in Clinical
Research and Clinical Pharmacology at Parke-Davis where his last position was
Senior Director of Clinical Pharmacology and Experimental Medicine. He
received his MD degree at the University of Illinois, and his post-graduate
training in Internal Medicine and Hematology and Medical Oncology at the
University of California.
KEITH W. CHAPMAN. Mr. Chapman, who is 49, was appointed Vice President,
Operations in July 1997, having joined the Company in 1992 as Director,
Transfer Operations. For 14 years prior to joining Alliance, he was
responsible for scale-up development and production of modified hemoglobins
for the Army's Blood Substitute Program. He received training as a research
associate in dermatology, tropical medicine, and blood cell preservation at
the Letterman Army Institute of Research, Presidio of San Francisco,
California.
B. JACK DEFRANCO. Mr. DeFranco, who is 54, has been Vice President, Market
Development for Alliance since January 1991. He has more than 25 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 his M.B.A. from Fairleigh Dickinson University.
N. SIMON FAITHFULL, M.D., PH.D. Dr. Faithfull, who is 59, has been Vice
President, Medical Affairs Development 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.
KATHRYN E. FLAIM, PH.D. Dr. Flaim, who is 49, was appointed Vice President,
Clinical Research in August 1998, having joined Alliance in 1990 as Director
of Clinical Research. Dr. Flaim has over 15 years of experience in clinical
trial design and regulatory submissions. For nine years before joining
Alliance, she was Associate Director of the Division of Clinical Research and
Development at SmithKline Beecham. Previously, she was an Assistant Professor
at the Milton S. Hershey Medical Center at Pennsylvania State University. Dr.
Flaim received her Ph.D. at the University of California at Davis.
TIM T. HART, CPA. Mr. Hart, who is 42, was appointed Vice President in May
1999 and Chief Financial Officer in August 1998. He joined the Company in
1991 as Controller and has also served as Treasurer since 1994. Prior to
joining Alliance in 1991, he was employed in various financial management
positions at Cubic Corporation for over eight years. He was also employed by
Ernst & Whinney in San Diego, California as a C.P.A.
H. JOERG LIMMER, DVM. Dr. Limmer, who is 58, was appointed Vice President,
Pharmaceutical Research & Development and Clinical Operations in September
1996. Prior to joining Alliance, Dr. Limmer worked six years for Boehringer
Ingelheim Pharma as Regional Director and Vice President where he was
responsible for medical and marketing affairs for Eastern European countries.
For the previous 20 years he was Director of Clinical Research at Dr. Karl
Thomae GmbH, a subsidiary of Boehringer Ingelheim GmbH in Germany. His
primary focus was in the area of diabetes mellitus, fat metabolism,
atherosclerosis, and intensive care products. Dr. Limmer received his DVM
from the Freie Universitaet of Berlin, Germany.
10
<PAGE>
GWEN ROSENBERG. Ms. Rosenberg, who is 45, was appointed Vice President,
Corporate Communications in May 1998. Ms. Rosenberg joined the Company in
1990 and has served in various capacities, most recently as Director of
Corporate Communications. For the previous eleven years, she was a research
scientist at the University of California, San Diego and at Scripps Clinic
and Research Foundation, and was concurrently a science reporter for the San
Diego Daily Transcript. Ms. Rosenberg has also taught high school chemistry
and biology in New York. She received her B.A. and M.A. degrees from Adelphi
University and The State University of New York at Stony Brook, respectively.
LLOYD A. ROWLAND, JR. Mr. Rowland, who is 43, was appointed Vice President in
May 1999 and Secretary of the Company in May 1998, having served as General
Counsel and Assistant Secretary since 1993. Prior to joining Alliance, Mr.
Rowland served as Vice President and Senior Counsel, Finance and Securities,
at Imperial Savings Association for four years. For the previous eight years,
he was engaged in the private practice of corporate law with the San Diego,
California law firm of Gray Cary Ames & Fry, and the Houston, Texas law firm
of Bracewell & Patterson. He received a J.D. from Emory University.
MARK SEEFELD, PH.D., D.A.B.T. Dr. Seefeld, who is 46, was appointed Vice
President, Drug Safety in August 1998, having joined Alliance in 1993 as
Director, Toxicology. For more than ten years prior to joining the Company,
he held positions in both general and reproductive toxicology at Parke-Davis,
Pharmaceutical Research Division of the Warner-Lambert Company, and 3M
Pharmaceuticals. Dr. Seefeld received his Ph.D. from the University of
Wisconsin-Madison and is board certified by the American Board of Toxicology.
ITEM 2. PROPERTIES
FACILITIES
The Company has principal facilities in two locations: San Diego,
California and Otisville, New York. In San Diego, California, where the
Company has approximately 159,000 square feet in four leased facilities, the
Company maintains its principal executive offices, performs research and
development on its PFC-based products, and has its IMAGENT and OXYGENT
manufacturing facilities. The Otisville site, where the Company has
established the LIQUIVENT and SAT PAD production facility, also includes
laboratories and administrative offices.
The Company purchased the Otisville site from the New York City
Public Development Corporation ("PDC") in June 1983. In connection with the
acquisition, the Company entered into a land use agreement (the "Land Use
Agreement") with New York City and the PDC. The Company estimates that the
cost of complying with the Land Use Agreement for fiscal 1999 was
approximately $140,000. The provisions of the Land Use Agreement may be
deemed to be "covenants running with the land," which may bind the Company
and subsequent owners of the Otisville site for a substantial period of time.
While the Company believes that it can produce materials for
clinical trials and 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 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.
ITEM 3. LEGAL PROCEEDINGS
None.
11
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders
during the last quarter of Alliance's fiscal year ended June 30, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock is traded in the over-the-counter market, and prices
therefor are quoted 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 on Nasdaq, without retail
mark-up, markdown or commission.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1999
Quarter ended September 30, 1998 $ 5.625 $ 2.781
Quarter ended December 31, 1998 $ 5.063 $ 2.188
Quarter ended March 31, 1999 $ 3.938 $ 2.438
Quarter ended June 30, 1999 $ 3.438 $ 2.250
HIGH LOW
---- ---
Fiscal 1998
Quarter ended September 30, 1997 $ 13.25 $ 8.125
Quarter ended December 31, 1997 $ 12.875 $ 6.625
Quarter ended March 31, 1998 $ 11.375 $ 6.75
Quarter ended June 30, 1998 $ 8.938 $ 3.625
</TABLE>
On September 10, 1999, the closing price of the Company's common stock
was $4.00.
The Company has not paid dividends on its common stock and the Board of
Directors does not anticipate paying cash dividends in the foreseeable future.
On September 10, 1999, the approximate number of record holders of the
Company's common stock was 1,282. The Company believes that, in addition, there
are in excess of 13,000 beneficial owners of its common stock whose shares are
held in street name and, consequently, the Company is unable to determine the
actual number of beneficial holders thereof.
As of March 30, 1999, the Company issued to Imperial Bank a warrant
exercisable at any time before January 1, 2002 for 180,000 shares of common
stock at $2.88 per share. The warrant was issued in connection with the bank's
agreement to restructure outstanding indebtedness of the Company. The warrant
was issued in a transaction exempt from registration with the Securities and
Exchange Commission ("SEC") under Section 4(2) ("Section 4(2)") of, and
Regulation D ("Regulation D") promulgated under, the Securities Act of 1933, as
amended.
12
<PAGE>
On May 20, 1999, the Company sold $1.8 million principal amount of
convertible subordinated notes to Harris & Harris Group, Inc., Jan Dekker and
Stephen McGrath. The securities convert at any time upon the request of the
holder into common stock of the Company at $2.00 per share. In connection with
the transaction, for an aggregate purchase price of $3,000, the Company issued
warrants exercisable at any time for 300,000 shares of common stock at $2.45 per
share. The transactions were exempt from registration with the SEC under Section
4(2) and Regulation D.
As of June 10, 1999, the Company issued to Cruttenden Roth Incorporated
a warrant exercisable at any time before June 10, 2004 for 760,000 shares of
common stock at $3.675 per share. The warrant was issued in connection with
placement agency services provided in connection with the June 1999 public
offering of 9.5 million shares. The transaction was exempt from registration
with the SEC under Section 4(2) and Regulation D.
On June 23, 1999, the Company issued to Burrill & Company a warrant
exercisable at any time before June 24, 2004 a warrant for 100,000 shares
exercisable at $2.6875 per share. The warrant was issued in connection with the
agreement of Burrill & Company to provide consulting services to the Company.
The transaction was exempt from registration with the SEC under Section 4(2) and
Regulation D.
As of July 2, 1999, the Company issued to Jan A. Dekker warrants for
55,422 shares of common stock, exercisable at any time before July 2, 2004 at
$2.95 per share. The warrants were issued in connection with financial advisory
services provided to the Company. The transaction was exempt from registration
with the SEC under Section 4(2) and Regulation D.
As of July 19, 1999, the Company issued to Nico Havinga warrants for
20,000 shares and 30,000 shares of common stock, exercisable at any time before
July 20, 2004 at $6.00 per share and $3.00 per share, respectively. The warrants
were issued in connection with financial advisory services provided to the
Company. The transaction was exempt from registration with the SEC under Section
4(2) and Regulation D.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below with respect
to the Company's statements of operations for each of the years in the three
year period ended June 30, 1999 and with respect to the balance sheets at June
30, 1998 and 1999, are derived from the audited consolidated financial
statements which are included elsewhere in this Annual Report on Form 10-K and
are qualified by reference to such financial statements. The statement of
operations data for the years ended June 30, 1995 and 1996 and the balance sheet
data at June 30, 1995, 1996 and 1997, are derived from audited financial
statements not included in this Annual Report on Form 10-K. The following
selected financial data should be read in conjunction with the Consolidated
Financial Statements for the Company and notes thereto and Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
<TABLE>
<CAPTION>
Years ended June 30,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues $ 8,251 $ 21,209 $ 44,580 $ 17,323 $ 11,816
Net loss applicable to
common shares $ (62,473) $ (33,003) $ (19,016) $ (23,172) $ (29,717)
Net loss per common share
Basic and diluted $ (1.89) $ (1.04) $ (.63) $ (.91) $ (1.35)
June 30,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Balance Sheet Data:
Working capital $ 11,009 $ 48,691 $ 62,995 $ 73,244 $ 22,346
Total assets $ 65,984 $ 93,677 $ 112,013 $ 108,343 $ 56,030
Long-term debt and other $ 10,499 $ 8,882 $ 2,871 $ 1,166 $ 843
Stockholders' equity $ 42,125 $ 76,090 $ 91,331 $ 101,467 $ 50,077
</TABLE>
ITEM 7. 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 with companies for IMAGENT and RODA. Under the
arrangement for IMAGENT, 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
14
<PAGE>
agreed to reimburse VIA for substantially all of its development expenses and
to share revenues from the sale of products. Due to the termination of the
HMRI License Agreement in December 1997, and the restructuring of the Ortho
License Agreement in May 1998, 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 June 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 June 1999 the Company completed a public offering of 9.5 million
shares of common stock which resulted in net proceeds of approximately $21.4
million to the Company.
In August 1998, the Company sold 100,000 shares of its convertible
Series E-1 Preferred Stock to certain investors for $6 million. The preferred
shares were convertible at the option of the holder into common stock at $6 per
share through January 3, 1999, and thereafter certain adjustments applied based
on the market price. These adjustments to the market price potentially resulted
in a conversion price below the then trading market price of the stock. As a
result of this beneficial conversion feature, the Company has recognized an
imputed dividend of $483,000 on these preferred shares. On January 4, 1999,
47,837 shares of preferred stock were converted into 1,091,338 shares of common
stock at an average price of $2.63 per share. On May 20, 1999 31,456 shares of
Series E-1 Preferred Stock converted into 767,219 shares of common stock at an
average price of $2.46 per share. Also, on May 20, 1999, the Company repurchased
the remaining 20,707 shares of Series E-1 Preferred Stock for $2.2 million. The
Company recorded an imputed preferred dividend of $1.2 million, which represents
the excess of the fair value of the consideration transferred to the preferred
stockholders over the carrying value of the preferred stock. In connection with
their investment in Series E-1 Preferred Stock, the investors obtained a right
to receive a royalty on future sales of one of the Company's products under
development, provided that the product is approved by the FDA by December 2003.
The royalty amount is approximately 0.3% and Company has certain rights to
repurchase the royalty right.
In May 1999, the Company privately placed $1.8 million principal amount
of 6% convertible subordinated notes due May 2002 and issued warrants to the
note holders to purchase up to 300,000 shares of common stock at $2.45 per
share. The conversion price of the notes is $2 per share, which was below the
trading market price of the stock on the day the notes were issued. As a result
of this conversion price, the Company has recognized an immediate charge of
$844,000 to interest expense for the beneficial conversion feature on these
convertible notes. The Company has recorded deferred interest expense on the
warrants of $521,000, based upon a Black-Scholes valuation, and is amortizing
the deferred interest over the life of the notes. The unamortized deferred
interest balance was $507,000 at June 30, 1999.
In January 1997, the Company entered into a loan and security agreement
with a bank under which the Company received $3.5 million and in December 1997,
the amount available under the loan was increased to $15.2 million. In June
1998, the Company restructured the loan to provide for up to $15 million. In
March 1999, the Company was in violation of a financial covenant under the loan.
In June 1999, the bank waived the violation, took additional collateral and
restructured the loan which resulted in increased principal payments. As part of
the restructuring, the Company issued to the bank a warrant to purchase up to
180,000 shares of common stock at an exercise price of $2.88 per share. The
Company has recorded deferred interest expense on the warrant, based upon a
Black-Scholes valuation, of $241,000, which will be amortized over the life of
the warrant. The unamortized deferred interest balance was $221,000 at June 30,
1999. 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 June 30, 1999, the
balance outstanding on this loan was approximately $13.6 million. As long as
sufficient funding from collaborative agreements and public or private financing
is obtained, the Company believes it will be able to achieve and maintain its
debt covenants through June 30, 2000.
The Company has a $1.5 million line of credit available with a bank
which is primarily available to cover letters of credit securing the leased
premises obligations.
15
<PAGE>
In November 1996, the Company acquired MDV by a merger (the "MDV
Merger") of a wholly owned subsidiary of the Company into MDV. MDV is engaged
in the development of a thermoreversible gel, FLOGEL, intended for use as an
anti-adhesion treatment for persons undergoing abdominal or pelvic surgeries.
The consideration in the MDV Merger consisted of $15.5 million, of which $8
million was paid through the delivery of 703,093 shares of common stock
during 1997, and $7.5 million was paid through the delivery of 706,100 shares
of common stock during 1998. Additionally, the Company will pay up to $20
million if advanced clinical development or licensing milestones are achieved
in connection with MDV's technology. The Company will also make certain
royalty payments on the sales of products, if any, developed from such
technology. The Company may buy out its royalty obligation for $10 million at
any time prior to the first anniversary of the approval by U.S. regulatory
authorities of any products based upon the MDV technology (the amount
increasing thereafter over time). All of such payments to the former MDV
shareholders may be made in cash or, at the Company's option, shares of the
Company's common stock, except for the royalty obligations which will be
payable only in cash. The Company has not determined whether subsequent
payments (other than royalties) will be made in cash or in common stock or,
if made in cash, the source of such payments. There can be no assurance that
any of the contingent payments will be made because they are dependent on
future developments that are inherently uncertain.
The Company has accounted for the MDV Merger as a purchase, and
recorded a one-time charge in fiscal 1997 of $16.5 million, including the
$15.5 million payments described above and related transaction costs.
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.
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. At June 30, 1999, the unused supplies were approximately
$2.3 million. As of July 1997, Alliance assumed responsibility for most of
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 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.
In September 1997, the Company entered into the Schering License
Agreement, 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. 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. 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. Because
of changes in the development of the field of ultrasound contrast agents and
in the parties' development plans, Alliance and Schering amended the Schering
License Agreement as of December 30, 1998. Under the original arrangement,
royalty rates were based upon the development of specific medical uses for
IMAGENT, which placed limitations on the development effort. The parties
elected to revise the royalty calculation which is now based on sales of
IMAGENT, a more traditional method of determining royalties. This
modification permits the parties to be flexible in developing IMAGENT.
Although the method of calculating royalties has been changed, the Company
believes that there will be no material difference in the amount of royalties
to be earned by the Company under the Schering License Agreement.
Additionally, the parties reduced ongoing development reimbursements and
added new milestone payments.
The Company had net working capital of $11 million at June 30, 1999,
compared to $48.7 million at June 30, 1998. The Company's cash, cash
equivalents, and short-term investments decreased to $19.1 million at June
30, 1999 from $49.9 million at June 30, 1998. The decrease resulted primarily
from cash used in operations of $54.8 million and property, plant, and
equipment additions of $6.2 million, partially offset by net proceeds from
the public
16
<PAGE>
offering of 9.5 million shares of common stock totalling $21.4 million, by
net proceeds from the sale of convertible Series E-1 Preferred Stock of $5.6
million, and by additional proceeds of $5.1 million from its loan and
security agreement 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 and investments will be adequate
to satisfy its capital requirements through December 1999. 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 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 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-digit 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,
in less than one year, 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 approximately 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
17
<PAGE>
Company has compliance confirmations from approximately 50% of its critical
third party, suppliers, contractors and vendors (collectively, "contractors")
with respect to their computers, software 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 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
1999 COMPARED TO 1998
The Company's license and research revenue was $8.3 million for
1999, compared to $21.2 million for 1998. The decrease in revenue is
primarily a result of the decreased research revenue from Ortho under the
Ortho License Agreement. The Company expects research revenue to decrease in
2000 compared to 1999, due to the reduction in revenue from the Schering
License Agreement.
Research and development expenses increased by 21% to $60.4 million for
1999, compared to $50.1 million for 1998. The increase in expenses was primarily
due to a $6.8 million increase in payments to outside researchers for
preclinical and clinical trials and other product development work, a $2.3
million increase in staffing costs for employees primarily engaged in research
and development activities, a $1.1 million increase in depreciation expense, and
a $769,000 increase in rent and lease expense, as well as other increases
related to the Company's research and development activities.
18
<PAGE>
The increase for 1999 is primarily attributable to increased expenses related
to the IMAGENT Phase 3 clinical trial and the preparation of the IMAGENT
manufacturing facilities for regulatory approval.
General and administrative expenses were $8.6 million for 1999,
compared to $7.9 million for 1998. The increase in general and administrative
expenses was primarily due to a $712,000 increase in professional fees.
Investment income and other was $813,000 for 1999, compared to $3.8
million for 1998. The decrease was primarily a result of lower average cash
and short-term investment balances.
In 1999, the Company recorded interest expense of $844,000 related
to the beneficial conversion feature on the $1.8 million convertible
subordinated notes.
1998 COMPARED TO 1997
The Company's license and research revenue was $21.2 million for
1998, compared to $44.6 million for 1997. Research revenue in 1997 included a
$15 million milestone payment from Ortho under the Ortho License Agreement.
The decrease in revenue is primarily due to decreased milestone payments and
the decreased development expense reimbursement from HMRI, due to the
restructuring and eventual termination of the HMRI License Agreement. The
Company expects research revenue to significantly decrease in 1999 compared
to 1998, due to the lack of revenue from the Ortho License Agreement.
Research and development expenses increased by 16% to $50.1 million
for 1998, compared to $43.3 million for 1997. The increase in expenses was
primarily due to a $4.1 million increase in staffing costs for employees
primarily engaged in research and development activities, a $791,000 increase
in rent and lease expense, an $833,000 increase in depreciation expense, a
$487,000 increase in payments to outside researchers for preclinical and
clinical trials and other product development work, as well as other
increases related to the Company's research and development activities.
General and administrative expenses were $7.9 million for 1998,
compared to $7.9 million for 1997.
The Company accounted for the acquisition of MDV as a purchase and
recorded a one-time charge in 1997 of $16.5 million, including payments to
former MDV shareholders of $15.5 million and related transaction costs.
Investment income and other was $3.8 million for 1998, compared to
$4.1 million for 1997. The decrease was primarily a result of lower average
cash and short-term investment balances.
ITEM 7A. MARKET RISK
The Company is or has been exposed to changes in interest rates
primarily from its long-term debt arrangements and, secondarily, its
investments in certain securities. Under its current policies, the Company
does not use interest rate derivative instruments to manage exposure to
interest rate changes. The Company believes that a hypothetical 100 basis
point adverse move in interest rates along the entire interest rate yield
curve would not materially affect the fair value of the Company's interest
sensitive financial instruments at June 30, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Table of Contents to Consolidated Financial Statements on page
F-1 below for a list of the Financial Statements being filed herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the executive officers of the Company is
contained in Part I of this Annual Report on Form 10-K under the caption
"Executive Officers of the Registrant." Information concerning the directors
of the Company is incorporated by reference to the section entitled "Election
of Directors" that the Company intends to include in its definitive proxy
statement for Alliance's December 1999 Annual Meeting of Shareholders (the
"Proxy Statement"). Copies of the Proxy Statement will be duly filed with the
SEC pursuant to Rule 14a-6(c) promulgated under the Securities Exchange Act
of 1934, as amended, not later than 120 days after the end of the fiscal year
covered by its Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The sections labeled "Executive Compensation" and "Election of
Directors" to appear in the Company's Proxy Statement are incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section labeled "Ownership of Voting Securities by Certain
Beneficial Owners and Management" to appear in the Company's Proxy Statement
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The sections labeled "Election of Directors" and "Executive
Compensation" to appear in the Company's Proxy Statement are incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of the Report.
1. See Table of Contents to Consolidated Financial Statements
on Page F-1 for a list of Financial Statements being filed
herein.
2. See Page F-2 for the Report of Ernst & Young LLP,
Independent Auditors, being filed herein.
3. See Exhibits below for a list of all Exhibits being filed
or incorporated by reference herein.
(b) Reports on Form 8-K. None.
(c) Exhibits.
(3) (a) Restated Certificate of Incorporation of the Company, as
amended through August 31, 1994. (Incorporated by reference to Exhibit 3(a) to
the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1994
(the "1994 10-K").)
(b) Certificate of Amendment to the Certificate of
Incorporation of the Company filed on March 25, 1996. (Incorporated by reference
to Exhibit 3 to Amendment No. 1 of the S-3 Registration Statement of the Company
filed on March 28, 1996 (the "1996 S-3").)
20
<PAGE>
(c) Certificate of Amendment to the Certificate of
Incorporation of the Company filed on September 22, 1997. (Incorporated by
reference to Exhibit 3(c) of the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997.)
(d) Certificate of Amendment to the Certificate of
Incorporation filed on August 14, 1998. (Incorporated by reference to Exhibit
3(d) of the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998 (the "1998 10-K").)
(e) Certificate of Amendment to the Certificate of
Incorporation of the Company filed on January 15, 1999. (Incorporated by
reference to Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1998 (the "December 1998 10-Q").)
(f) By-Laws of the Company, as amended. (Incorporated by
reference to Exhibit 3(b) to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1989 (the "1989 10-K").)
(10) (a) Lease Agreement, as amended, between the Company and
Hartford Accident and Indemnity Company relating to certain research and
manufacturing facilities in San Diego, California. (Incorporated by reference
to Exhibit 10(x) to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1993.)
(b) Loan Modification Agreement between the Company and
Theodore Roth, dated May 24, 1994. (Incorporated by reference to Exhibit 10(d)
to the 1994 10-K.) (1)
(c) Formula Award of Stock Options for Non-employee Members of
the Board of Directors as approved by shareholders of the Company. (Incorporated
by reference to Exhibit 10(e) to the 1994 10-K.) (1)
(d) Stock and Warrant Purchase Agreement dated August 16, 1994
between the Company and Johnson & Johnson Development Corporation. (Incorporated
by reference to Exhibit 10(g) to the 1994 10-K.)
(e) Stock and Warrant Purchase Agreement dated February 28,
1996 between the Company and Hoechst Marion Roussel, Inc. (Incorporated by
reference to Exhibit 10 (b) to the 1996 S-3.)
(f) Agreement and Plan of Merger by and among the Company, MDV
Acquisition Corp. and MDV Technologies, Inc. dated October 8, 1996.
(Incorporated by reference to Exhibit 1 to the Current Report on Form 8-K filed
on November 20, 1996.)
(g) License Agreement dated September 23, 1997, between
the Company and Schering AG, Germany. (Incorporated by reference to
Exhibit 2(a) to the Current Report on Form 8-K/A filed on February 27, 1998
(the "1997 8-K/A").) (2)
(h) Preferred Stock Purchase Agreement dated September 23,
1997, between the Company and Schering Berlin Venture Corp. (Incorporated by
reference to Exhibit 2(b) to the 1997 8-K/A.)
(i) Agreement dated May 14, 1998, between the Company and
Ortho Biotech, Inc. and The R.W. Johnson Pharmaceutical Research Institute with
respect to the restructuring of the relationship between the Company and such
companies. (Incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K filed on May 14, 1998.)
(j) Convertible Preferred Stock Purchase Agreement dated as
of August 13, 1998 between the Company and certain investors ("E-1
Investors") pertaining to the sale of Series E-1 Preferred Stock.
(Incorporated by reference to Exhibit 10(j) to the 1998 10-K.)
(k) Royalty Rights Agreement dated as of August 13, 1998
between the Company and the E-1 Investors. (Incorporated by reference to
Exhibit 10(k) to the 1998 10-K.)
(l) Registration Rights Agreement dated as of August 13, 1998
between the Company and the E-1 Investors. (Incorporated by reference to Exhibit
10(l) to the 1998 10-K.)
21
<PAGE>
(m) Credit Agreement dated as of June 17, 1998 between the
Company and Imperial Bank. (Incorporated by reference to Exhibit 10(m) to the
1998 10-K.)
(n) Security Agreement dated June 17, 1998 executed by the
Company in favor of Imperial Bank. (Incorporated by reference to Exhibit
10(o) to the 1998 10-K.)
(o) Lease Agreement dated November 7, 1998 between the Company
and WHAMC Real Estate Limited Partnership, a Delaware limited partnership,
relating to certain manufacturing and development facilities in San Diego,
California. (Incorporated by reference to Exhibit 10(p) to the 1998 10-K.)
(p) First Amendment to License Agreement, dated as of
December 30, 1998, between the Company and Schering Aktiengesellschaft.
(Incorporated by reference to Exhibit 10 of the December 1998 10-Q.) (2)
(q) Employment Letter Agreement dated February 26, 1999 and
executed by Dr. Artemios B. Vassos. (Incorporated by reference to Exhibit
10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period
ending March 31, 1999 (the "March 31, 1999 10-Q").) (1)
(r) Promissory Note in the amount of $180,000, dated March
3, 1999 and executed by Dr. Artemios B. Vassos in favor of the Company.
(Incorporated by reference to Exhibit 10(b) of the March 1999 10-Q.) (1)
(s) Promissory Note in the amount of $125,000, dated March
3, 1999 and executed by Dr. Artemios B. Vassos in favor of the Company.
(Incorporated by reference to Exhibit 10(c) of the March 1999 10-Q.) (1)
(t) Promissory Note in the amount of $125,000, dated March
3, 1999 and executed by Dr. Artemios B. Vassos in favor of the Company.
(Incorporated by reference to Exhibit 10(d) of the March 1999 10-Q.) (1)
(u) Security Purchase Agreement dated May 20, 1999 between
the Company and Harris & Harris Group, Inc, Jan A. Dekker and Stephen McGrath
with forms of the 6% Convertible Subordinated Note Due May 20, 2002 and
Warrant.
(v) Form of Amended 1991 Stock Option Plan.
(w) Agreement to Waive Covenant Violation and Modify Loan
dated May 17, 1999 between the Company and Imperial Bank.
(x) Intellectual Property Security Agreement dated May 17,
1999 between the Company and Imperial Bank. (3)
(y) First Amendment to Credit Agreement dated June 17, 1999
among the Company, MDV Technologies, Inc., a wholly-owned subsidiary of the
Company ("MDV"), and Imperial Bank. (3)
(z) Intellectual Property Security Agreement dated August
2, 1999 between MDV and Imperial Bank.
(aa) Commercial Security Agreement dated August 3, 1999
among the Company, MDV and Imperial Bank.
(bb) Promissory Note dated August 2, 1999 in the amount of
$5,000,000 executed by the Company and MDV in favor of Imperial Bank.
(cc) Promissory Note dated August 2, 1999 in the amount of
$8,422,619.04 executed by the Company and MDV in favor of Imperial Bank.
(dd) Warrant for 180,000 shares to Purchase Common Stock
dated March 30, 1999 issued to Imperial Bancorp.
(21) Subsidiary List
22
<PAGE>
(23.1) Consent of Ernst & Young LLP, Independent Auditors
(1) Management contract or compensatory plan or arrangement
required to be filed
(2) Certain confidential portions of this exhibit have been deleted
pursuant to an order granted by the Securities and Exchange Commission under
the Securities Exchange Act of 1934.
(3) A request for confidential treatment of certain portions of this
exhibit has been filed with the Securities and Exchange Commission.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
ALLIANCE PHARMACEUTICAL CORP.
(Registrant)
Date: September 23, 1999 By: \S\ THEODORE D. ROTH
---------------------
Theodore D. Roth
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
\S\ DUANE J. ROTH Chairman and September 23, 1999
- -------------------------- Chief Executive Officer
Duane J. Roth
\S\ THEODORE D. ROTH Director, President, and September 23, 1999
- -------------------------- Chief Operating Officer
Theodore D. Roth
\S\ TIM T. HART Chief Financial Officer, September 23, 1999
- -------------------------- Treasurer, and Chief
Tim T. Hart Accounting Officer
\S\ PEDRO CUATRECASAS, M.D. Director September 23, 1999
- --------------------------
Pedro Cuatrecasas, M.D.
\S\ CARROLL O. JOHNSON Director September 23, 1999
- --------------------------
Carroll O. Johnson
\S\ STEPHEN M. MCGRATH Director September 23, 1999
- --------------------------
Stephen M. McGrath
\S\ HELEN M. RANNEY, M.D. Director September 23, 1999
- --------------------------
Helen M. Ranney, M.D.
\S\ DONALD E. O'NEILL Director September 23, 1999
- --------------------------
Donald E. O'Neill
\S\ JEAN RIESS, PH.D. Director September 23, 1999
- --------------------------
Jean Riess, Ph.D.
\S\ THOMAS F. ZUCK, M.D. Director September 23, 1999
- --------------------------
Thomas F. Zuck, M.D.
24
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors F-2
Consolidated Balance Sheets at June 30, 1999 and 1998 F-3
Consolidated Statements of Operations for the Years
Ended June 30, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7 - F-15
</TABLE>
No consolidated financial statement schedules are filed herewith because they
are not required or are not applicable, or because the required information
is included in the consolidated financial statements or notes thereto.
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, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Alliance
Pharmaceutical Corp. and subsidiaries at June 30, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1999, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, Alliance Pharmaceutical
Corp. and subsidiaries have reported accumulated losses of $326,724,000 and
without additional financing, lacks sufficient working capital to fund
operations beyond December 1999, which raises substantial doubt about its
ability to continue as a going concern. Management's plans as to these
matters are described in Note 1. The 1999 financial statements do not include
any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classification of liabilities
that may result from the outcome of this uncertainty.
ERNST & YOUNG LLP
San Diego, California
July 23, 1999
except for paragraph 2 of Note 5, as
to which the date is September 14, 1999
F-2
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
1999 1998
------------ ------------
ASSETS
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 19,081,000 $ 11,809,000
Short-term investments - 38,046,000
Research revenue receivable 4,875,000 6,847,000
Other current assets 413,000 694,000
------------ ------------
Total current assets 24,369,000 57,396,000
PROPERTY, PLANT AND EQUIPMENT - NET 24,621,000 23,087,000
PURCHASED TECHNOLOGY - NET 11,361,000 12,880,000
RESTRICTED CASH 5,000,000 -
OTHER ASSETS - NET 633,000 314,000
------------ ------------
$ 65,984,000 $ 93,677,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 4,910,000 $ 2,191,000
Accrued expenses 4,280,000 5,446,000
Current portion of long-term debt 4,170,000 1,068,000
------------ ------------
Total current liabilities 13,360,000 8,705,000
LONG-TERM DEBT 10,499,000 8,882,000
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value; 5,000,000 shares authorized;
500,000 shares of Series D issued and outstanding at
June 30, 1999 and 1998; liquidation preference of $10,000,000
at June 30, 1999 and 1998 5,000 5,000
Common stock - $.01 par value; 75,000,000 shares authorized;
43,510,049 and 31,994,338 shares issued and outstanding at
June 30, 1999 and 1998, respectively 435,000 320,000
Additional paid-in capital 368,409,000 340,016,000
Accumulated deficit (326,724,000) (264,251,000)
------------ ------------
Total stockholders' equity 42,125,000 76,090,000
------------ ------------
$ 65,984,000 $ 93,677,000
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------------------------------
1999 1998 1997
------------- ------------- --------------
<S> <C> <C> <C>
REVENUES:
License and research revenue $ 8,251,000 $ 21,209,000 $ 44,580,000
OPERATING EXPENSES:
Research and development 60,427,000 50,084,000 43,278,000
General and administrative 8,566,000 7,886,000 7,932,000
Acquired in-process technology - - 16,450,000
------------- ------------- --------------
68,993,000 57,970,000 67,660,000
------------- ------------- --------------
LOSS FROM OPERATIONS (60,742,000) (36,761,000) (23,080,000)
IMPUTED INTEREST EXPENSE ON CONVERTIBLE NOTES (844,000) - -
INVESTMENT INCOME AND OTHER - NET 813,000 3,758,000 4,064,000
------------- ------------- --------------
NET LOSS (60,773,000) (33,003,000) (19,016,000)
IMPUTED DIVIDENDS ON PREFERRED STOCK (1,700,000) - -
------------- ------------- --------------
NET LOSS APPLICABLE TO COMMON SHARES $ (62,473,000) $ (33,003,000) $ (19,016,000)
------------- ------------- --------------
------------- ------------- --------------
NET LOSS PER COMMON SHARE:
Basic and diluted $ (1.89) $ (1.04) $ (0.63)
------------- ------------- --------------
------------- ------------- --------------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted 33,045,000 31,749,000 30,302,000
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
--------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
BALANCES AT JUNE 30, 1996 200,000 $ 2,000 30,002,000 $ 300,000
Exercise of stock options and warrants 105,000 1,000
Conversion of convertible Series C Preferred
Stock to common shares (200,000) (2,000) 345,000 3,000
Payment related to acquired in-process technology 703,000 7,000
Issuance of stock in satisfaction of employer
matching contribution to 401(k) savings plan 10,000
Net unrealized gain on available-for-sale securities
Net loss
-------- -------- ---------- ---------
BALANCES AT JUNE 30, 1997 - - 31,165,000 311,000
Exercise of stock options and warrants 104,000 1,000
Sale of convertible Series D Preferred Stock 500,000 5,000
Payment related to acquired in-process technology 706,000 8,000
Issuance of stock in satisfaction of employer
matching contribution to 401(k) savings plan 19,000
Net unrealized loss on available-for-sale securities
Net loss
-------- -------- ---------- ---------
BALANCES AT JUNE 30, 1998 500,000 5,000 31,994,000 320,000
Exercise of stock options and warrants 96,000 1,000
Issuance of warrants
Sale of common stock 9,500,000 95,000
Sale of convertible Series E-1 Preferred Stock 100,000 1,000
Conversion and redemption of convertible Series E-1
Preferred Stock to common shares (100,000) (1,000) 1,859,000 18,000
Imputed interest expense on convertible notes
Imputed dividends on Series E-1 Preferred Stock
Issuance of stock in satisfaction of employer
matching contribution to 401(k) savings plan 61,000 1,000
Net unrealized loss on available-for-sale securities
Net loss
-------- -------- ---------- ---------
BALANCES AT JUNE 30, 1999 500,000 $ 5,000 43,510,000 $ 435,000
-------- -------- ---------- ---------
-------- -------- ---------- ---------
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN ACCUMULATED COMPREHENSIVE
CAPITAL DEFICIT LOSS
------------- -------------- -------------
<S> <C> <C> <C>
BALANCES AT JUNE 30, 1996 $ 313,397,000 $ (212,232,000)
Exercise of stock options and warrants 654,000
Conversion of convertible Series C Preferred
Stock to common shares (1,000)
Payment related to acquired in-process technology 7,840,000
Issuance of stock in satisfaction of employer
matching contribution to 401(k) savings plan 133,000
Net unrealized gain on available-for-sale securities 245,000 $ 245,000
Net loss (19,016,000) (19,016,000)
------------- ------------- -------------
BALANCES AT JUNE 30, 1997 322,268,000 (231,248,000) $ (18,771,000)
Exercise of stock options and warrants 741,000 -------------
Sale of convertible Series D Preferred Stock 9,595,000 -------------
Payment related to acquired in-process technology 7,492,000
Issuance of stock in satisfaction of employer
matching contribution to 401(k) savings plan 141,000
Net unrealized loss on available-for-sale securities (221,000) $ (221,000)
Net loss (33,003,000) (33,003,000)
------------- ------------- -------------
BALANCES AT JUNE 30, 1998 340,016,000 (264,251,000) $ (33,224,000)
Exercise of stock options and warrants -------------
Issuance of warrants 922,000 -------------
Sale of common stock 21,415,000
Sale of convertible Series E-1 Preferred Stock 5,582,000
Conversion and redemption of convertible Series E-1
Preferred Stock to common shares (2,248,000)
Imputed interest expense on convertible notes 844,000
Imputed dividends on Series E-1 Preferred Stock 1,700,000 (1,700,000)
Issuance of stock in satisfaction of employer
matching contribution to 401(k) savings plan 200,000
Net unrealized loss on available-for-sale securities (22,000) $ (22,000)
Net loss (60,773,000) (60,773,000)
------------- ------------- --------------
BALANCES AT JUNE 30, 1999 $ 368,409,000 (326,724,000) $ (60,795,000)
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------------------------
1999 1998 1997
------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (60,773,000) $ (33,003,000) $ (19,016,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operations:
Depreciation and amortization 6,265,000 5,064,000 3,997,000
Imputed interest expense on convertible notes 844,000 - -
Expense associated with warrant issurance 160,000 - -
Charge for acquired in-process technology - - 16,450,000
Non-cash compensation - net 201,000 320,000 133,000
Changes in operating assets and liabilities:
Research revenue receivable 1,972,000 403,000 (1,500,000)
Restricted cash and other assets (5,038,000) 372,000 888,000
Accounts payable and accrued
expenses and other 1,553,000 (1,238,000) 3,662,000
------------- -------------- --------------
Net cash provided by (used in) operating activities (54,816,000) (28,082,000) 4,614,000
------------- -------------- --------------
INVESTING ACTIVITIES:
Purchases of short-term investments (23,711,000) (113,099,000) (132,754,000)
Sales and maturities of short-term investments 61,735,000 131,874,000 137,937,000
Property, plant and equipment (6,246,000) (10,057,000) (6,823,000)
Payment for acquired in-process technology - (57,000) (1,046,000)
------------- -------------- --------------
Net cash provided by (used in) investing activities 31,778,000 8,661,000 (2,686,000)
------------- -------------- --------------
FINANCING ACTIVITIES:
Issuance of common stock and warrants 21,511,000 562,000 597,000
Issuance of convertible preferred stock - net 5,582,000 9,600,000 -
Redemption of preferred stock (2,230,000) - -
Proceeds from long-term debt 6,850,000 6,800,000 3,493,000
Principal payments on long-term debt (1,403,000) (1,100,000) (908,000)
------------- -------------- --------------
Net cash provided by financing activities 30,310,000 15,862,000 3,182,000
------------- -------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,272,000 (3,559,000) 5,110,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 11,809,000 15,368,000 10,258,000
------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 19,081,000 $ 11,809,000 $ 15,368,000
------------- -------------- --------------
------------- -------------- --------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Deferred interest expense on long-term debt $ 728,000 - -
Imputed dividends on preferred stock 1,700,000 - -
Payable for acquired in-process technology - - $ 7,557,000
Issuance of common stock in connection with aquired
in-process technology - $ 7,500,000 7,847,000
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO 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., the accounts of its wholly owned subsidiary
Astral, Inc., its wholly owned subsidiary MDV Technologies, Inc. ("MDV") from
the acquisition in November 1996, its wholly owned subsidiary Alliance
Pharmaceutical GmbH, from its inception in December 1998, and its
majority-owned subsidiaries, Talco Pharmaceutical, Inc. and Applications et
Transferts de Technologies Avancees ("ATTA"). ATTA was dissolved in 1997. All
significant intercompany accounts and transactions have been eliminated.
Certain amounts in 1998 and 1997 have been reclassified to conform to the
current year's presentation.
LIQUIDITY AND BASIS OF PRESENTATION
The Company believes its available cash and cash equivalents would
be sufficient to meet its anticipated capital requirements through December
1999, which raises substantial doubt about its ability to continue as a going
concern. Substantial additional capital resources will be required to fund
continuing operations related to the Company's research, development,
manufacturing and business development activities. The Company believes there
may be a number of alternatives available to meet the continuing capital
requirements of its operations, such as collaborative agreements and public
or private financings. The Company is currently in preliminary discussions
with a number of potential collaborative partners and, based on the results
of various product evaluations, revenues in the form of license fees,
milestone payments or research and development reimbursements could be
generated. There can be no assurance that any of these fundings will be
consummated in the necessary time frames needed for continuing operations or
on terms favorable to the Company. The Company is continuing to take actions
to reduce its ongoing expenses. If adequate funds are not available, the
Company will be required to significantly curtail its operating plans and may
have to sell or license out significant portions of the Company's technology
or potential products. The 1999 financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities
that may result from the outcome of this uncertainty.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the consolidated financial
statements. Actual results could differ from those estimates.
CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
Short-term investments consist of highly liquid debt instruments.
Management has classified the Company's 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 separate component of additional
paid-in capital. The Company considers instruments purchased with an original
maturity of three months or less to be cash equivalents.
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 debt instruments of financial institutions and corporations
with strong credit ratings. The Company has established guidelines
F-7
<PAGE>
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 short-term 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 3 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 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(R) (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 $11.2 million and $12.4 million, and is
reported net of accumulated amortization of $12 million and $10.8 million at
June 30, 1999 and 1998, respectively. The technology acquired from
BioPulmonics has a net book value of approximately $129,000 and $480,000 and
is being amortized over five to seven years and is reported net of
accumulated amortization of $1.9 million and $1.5 million at June 30, 1999
and 1998, 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.
ACQUIRED IN-PROCESS TECHNOLOGY
In November 1996, the Company acquired MDV by a merger (the "MDV
Merger") of a wholly owned subsidiary of the Company into MDV. MDV is engaged
in the development of a thermoreversible gel, FLOGEL(R), intended for use as
an anti-adhesion treatment for persons undergoing abdominal or pelvic
surgeries. The consideration payable in the MDV Merger consisted of $15.5
million, payable in common stock or cash, of which $8 million was paid
through the delivery of 703,093 shares of common stock during fiscal 1997,
and $7.5 million was paid through the delivery of 706,100 shares of common
stock during fiscal 1998. Additionally, the Company will pay up to $20
million if advanced clinical development or licensing milestones are achieved
in connection with MDV's technology. The Company will also make certain
royalty payments on the sales of products, if any, developed from such
technology. The Company may buy out its royalty obligation for $10 million at
any time prior to the first anniversary of the approval by U.S. regulatory
authorities of any products based upon the MDV technology (the amount
increasing thereafter over time). All of such payments to the former MDV
shareholders may be made in cash or, at the Company's option, shares of the
Company's common stock, except for the royalty obligations which will be
payable only in cash. The Company has not determined whether subsequent
payments (other than royalties) will be made in cash or in common stock or,
if made in cash, the source of such payments. There can be no assurance that
any of the contingent payments will be made because they are dependent on
future developments which are inherently uncertain.
The Company has accounted for the MDV Merger as a purchase, and
recorded a one-time charge in fiscal 1997 of $16.5 million, including the
$15.5 million payments described above and related transaction costs.
F-8
<PAGE>
LONG-TERM DEBT
In January 1997, the Company entered into a loan and security
agreement with a bank under which the Company received $3.5 million and in
December 1997, the amount available under the loan was increased to $15.2
million. In June 1998, the Company restructured the loan to provide for up to
$15 million at the bank's prime rate plus .5%. In March 1999, the Company was
in violation of a financial covenant under the loan. In June 1999, the bank
waived the violation, took additional collateral and restructured the loan
which resulted in increased principal payments. The loan bears interest at
rates ranging from 6.5% to 8.25% at June 30, 1999. As part of the
restructuring, the Company issued to the bank a warrant to purchase up to
180,000 shares of common stock at an exercise price of $2.88 per share. The
Company has recorded deferred interest expense on the warrant, based upon a
Black-Scholes valuation, of $241,000, which will be amortized over the life
of the warrant. The unamortized deferred interest balance was $221,000 at
June 30, 1999. Amounts borrowed are secured by certain fixed assets and
patents and are to be repaid over 4 years. If certain financial covenants are
not satisfied, the outstanding balance may become due and payable. On June
30, 1999, the balance outstanding on this loan was $13.6 million. In
connection with the restructuring in June 1999, the Company pledged $5
million in cash as collateral and has separately disclosed this amount as
restricted cash on the Consolidated Balance Sheet at June 30, 1999. As long
as sufficient funding from collaborative agreements and public or private
financing is obtained, the Company believes it will be able to achieve and
maintain its debt covenants through June 30, 2000.
In May 1999, the Company privately placed $1.8 million of 6%
convertible subordinated notes due May 2002 and issued warrants to the note
holders to purchase up to 300,000 shares of common stock at $2.45 per share.
The conversion price of the notes is $2 per share, which was below the
trading market price of the stock on the day the notes were issued. As a
result of this conversion price, the Company has recognized an immediate
charge to interest expense of $844,000 on these convertible notes related to
the beneficial conversion feature. The Company has recorded deferred interest
expense on the warrants of $521,000, based upon a Black-Scholes valuation,
and is amortizing the deferred interest over the life of the notes. The
unamortized deferred interest balance was $507,000 at June 30, 1999.
The Company's principal payments for the long-term debt for the
years ending June 30, 2000, 2001, 2002, 2003 and 2004 are $4.4 million, $4.7
million, $2.8 million, $1.7 million and $-0-, respectively. Due to the option
of the Company to satisfy the $1.8 million convertible subordinated notes
with the issuance of common stock, the Company has excluded any principal
payments on the convertible notes from the 5 year schedule of principal
payments.
REVENUE RECOGNITION
Revenue under collaborative research agreements is recognized as
services are provided and milestone payments are recognized upon the
completion of the milestone event or requirement under such agreements.
Revenue from product sales is recognized as products are shipped.
Non-refundable contract fees that reimburse the Company for
previously incurred research and development are recorded as revenue upon
contract "execution."
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenditures are charged to expense as
incurred.
ACCOUNTING FOR STOCK-BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company has
elected to retain its current intrinsic value-based method and will disclose
the pro forma effect of using the fair value-based method to account for its
stock-based compensation in its financial statements.
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
F-9
<PAGE>
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 options, warrants, 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.
NEW ACCOUNTING STANDARDS
Effective July 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement No. 130, "Comprehensive Income" ("SFAS No. 130"),
and Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131"). 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. The Company has reported the total comprehensive loss in the
Consolidated Statements of Stockholders' Equity. SFAS No. 131 amends the
requirements for public enterprises to report financial and descriptive
information about its reportable operating segments. Operating segments, as
defined in SFAS No. 131, are components of an enterprise for which separate
financial information is available regularly by the Company in deciding how
to allocate resources in assessing performance. The financial information is
required to be reported on the basis that is used internally for evaluating
the segment performance. The Company believes it operates in one business and
operating segment. The adoption of SFAS No. 131 did not affect results of
operations or financial position of the Company.
2. FINANCIAL STATEMENT DETAILS
PROPERTY, PLANT AND EQUIPMENT - NET
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
----------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Land $ 225,000 $ 225,000
Buildings 300,000 300,000
Building improvements 2,323,000 2,193,000
Furniture, fixtures, and equipment 20,614,000 18,825,000
Leasehold improvements 19,870,000 15,542,000
------------- -------------
43,332,000 37,085,000
Less accumulated depreciation and amortization (18,711,000) (13,998,000)
------------- -------------
$ 24,621,000 $ 23,087,000
------------- -------------
</TABLE>
ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
June 30,
----------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Clinical trial supplies expense $ 2,286,000 $ 2,286,000
Payroll and related expenses 1,704,000 2,786,000
Rent and related operating expenses 201,000 205,000
Other 89,000 169,000
------------- -------------
$ 4,280,000 $ 5,446,000
------------- -------------
</TABLE>
F-10
<PAGE>
3. INVESTMENTS
The Company classifies its investment securities as
available-for-sale and records holding gains or losses in stockholders'
equity.
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
--------------------------------------------- --------------------------------------------
Gross Unrealized Estimated Gross Unrealized Estimated
Cost Gains (Losses) Fair Value Cost Gains (Losses) Fair Value
------------ ----------------- ------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Securities $ - $ - $ - $ 12,784,000 $ 11,000 $ 12,795,000
Corporate Securities - - - 25,240,000 11,000 25,251,000
------------ ----------------- ------------ ------------ ---------------- ------------
$ - $ - $ - $ 38,024,000 $ 22,000 $ 38,046,000
------------ ----------------- ------------ ------------ ---------------- ------------
------------ ----------------- ------------ ------------ ---------------- ------------
</TABLE>
The gross realized gains on sales of available-for-sale securities
totaled $75,000 and $357,000, in 1999 and 1998, respectively. The gross
unrealized gains of $-0- and $22,000, in 1999 and 1998, respectively, are
recorded as components of additional paid-in capital. The unrealized gains
had no cash effect and therefore are not reflected in the consolidated
statements of cash flows.
The amortized cost and estimated fair value of available-for-sale
debt securities at June 30, 1999 and 1998, 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>
June 30, 1999 June 30, 1998
------------------------------ ------------------------------
Estimated Fair Estimated Fair
Cost Value Cost Value
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ 23,884,000 $ 23,885,000
Due after one year through three years - - 12,221,000 12,227,000
Due after three years - - 1,919,000 1,934,000
------------ -------------- ------------ --------------
$ - $ - $ 38,024,000 $ 38,046,000
------------ -------------- ------------ --------------
------------ -------------- ------------ --------------
</TABLE>
4. STOCKHOLDERS' EQUITY
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 6,200,000 shares under the 1983 Plan, 1983
Program, and 1991 Plan, 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 Compensation
Committee of the Board of Directors. The 1983 Plan and the 1983 Program have
expired and no additional options may be granted under such plans.
In August 1998, the Board of Directors approved a plan whereby each
employee option holder, excluding certain officers and directors of the
Company, could exchange all of their current vested and unvested options for
new options priced at $5.00, which was in excess of the market value on the
date of the exchange. Existing options were exchangeable two shares for one.
A total of 1,179,066 existing option shares, ranging in price from $5.00 to
$28.00, were exchanged for 589,533 replacement options shares with an
exercise price of $5.00. These replacement options vest on the same basis as
the replaced options but require that the employee continue their employment
with the Company for a minimum of one year
F-11
<PAGE>
from the date of grant in order for any of the shares to vest. The
replacement options are included as both grants and cancellations in the
stock option activity table shown below.
The following table summarizes stock option activity through
June 30, 1999:
<TABLE>
<CAPTION>
Weighted
Shares Average Price
---------- -------------
<S> <C> <C>
Balance at June 30, 1996 2,740,573 $ 9.53
Granted 1,403,100 $ 13.07
Exercised (108,830) $ 6.67
Terminated/Expired (236,239) $ 13.65
----------
Balance at June 30, 1997 3,798,604 $ 10.66
Granted 1,814,750 $ 8.89
Exercised (135,660) $ 5.44
Terminated/Expired (391,771) $ 11.47
----------
Balance at June 30, 1998 5,085,923 $ 10.11
Granted 2,617,008 $ 4.90
Exercised (129,918) $ 0.01
Terminated/Expired (2,373,791) $ 10.08
----------
Balance at June 30, 1999 5,199,222 $ 7.75
----------
----------
Available for future grant under the 1983 Plan and the 1983 Program -0-
----------
----------
Available for future grant under the 1991 Plan 1,144,193
----------
----------
</TABLE>
The following table summarizes information concerning outstanding
and exercisable stock options at June 30, 1999:
<TABLE>
<CAPTION>
Weighted
Weighted Average Weighted
Range of Number Average Remaining Number Average
Exercise Prices Outstanding Exercise Price Contractual Life Exercisable Exercise Price
---------------- ----------- -------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$2.38 - $4.81 445,500 $ 3.34 8.60 years 69,400 $ 3.42
$4.88 1,324,500 $ 4.88 9.37 years 161,250 $ 4.88
$5.00 405,392 $ 5.00 9.11 years 2,560 $ 5.00
$5.03 - $6.00 633,350 $ 5.29 5.76 years 567,250 $ 5.30
$6.13 - $9.25 596,455 $ 7.98 4.70 years 495,560 $ 8.00
$9.38 786,900 $ 9.38 8.37 years 208,400 $ 9.38
$9.44 - $13.38 679,650 $12.33 6.73 years 409,700 $12.09
$13.63 - $28.00 327,475 $19.68 3.85 years 293,758 $20.26
----------- -----------
5,199,222 $7.75 7.46 years 2,207,878 $ 9.45
----------- -----------
----------- -----------
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No.
123. In accordance with its provisions, the Company applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its stock option plans, and accordingly, no compensation cost has been
recognized for stock options in 1999, 1998 or 1997. If the Company had
elected to recognize compensation cost based on the fair value of the options
granted at grant date amortized to expense over their vesting period as
prescribed by SFAS No. 123, the Company's net loss applicable to common
shares and net loss per share would have been increased to the pro forma
amounts indicated below for the years ended June 30:
F-12
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net loss
As reported $ (62,473,000) $ (33,003,000) $ (19,016,000)
Pro forma (67,386,000) (36,422,000) (21,453,000)
Net loss per share
As reported $ (1.89) $ (1.04) $ (.63)
Pro forma (2.04) (1.15) (.71)
</TABLE>
The impact of outstanding non-vested stock options granted prior to
1996 has been excluded from the pro forma calculations; accordingly, the
1999, 1998 and 1997 pro forma adjustments are not indicative of future period
pro forma adjustments if the calculation reflected all applicable stock
options. The fair value of options at date of grant was estimated using the
Black-Scholes option-pricing model with the following assumptions for 1999,
1998 and 1997, respectively: risk-free interest rate range of 5.63% to 6.63%,
5.63% to 6.63% and 5.25% to 6.5%; dividend yield of 0% (for all years);
volatility factor of 78%, 66% and 63%; and a weighted-average expected term
of 7 years, 6 years and 4 years. The estimated weighted average fair value at
grant date for the options granted during 1999, 1998 and 1997 was $3.23,
$5.85 and $6.90 per option, respectively.
The following table summarizes common shares reserved for issuance
at June 30, 1999 on exercise or conversion of:
<TABLE>
<CAPTION>
Shares
----------
<S> <C>
Series D convertible preferred stock 1,000,000
Convertible subordinated notes 900,000
Common stock options 6,343,415
Common stock warrants 1,905,523
----------
Total common shares reserved for issuance 10,148,938
----------
----------
</TABLE>
WARRANTS
At June 30, 1999, the Company had warrants outstanding to purchase
1,905,523 shares of common stock at prices ranging from $2.45 to $20 per
share. The warrants expire on various dates from July 1999 through June 2004.
PREFERRED STOCK
In fiscal 1996, in conjunction with a license agreement (the "HMRI
License Agreement"), Hoechst Marion Roussel, Inc. ("HMRI") purchased 750,000
shares of the Company's convertible Series B Preferred Stock and 200,000
shares of its convertible Series C Preferred Stock for an aggregate of $22
million. In June 1996, all outstanding shares of convertible Series A
Preferred Stock (issued to Johnson & Johnson Development Corp. ("J&JDC") in
1995) and Series B Preferred Stock and accrued dividends thereon were
converted into 815,625 and 759,375 shares of Alliance common stock,
respectively. In June 1997, all outstanding shares of Series C Preferred
Stock were converted into 345,327 shares of Alliance common stock (see Note
5). The Series A and B Preferred Stock carried a cumulative annual dividend
of $0.50 and $1.00 per share, respectively. The dividends were payable in
cash or common stock. In June 1996, these dividends were paid by issuing
75,000 shares of Alliance common stock. In September 1997, in conjunction
with a license agreement (the "Schering License Agreement"), Schering Berlin
Venture Corp. ("SBVC"), an affiliate of Schering AG, Germany ("Schering"),
purchased 500,000 shares of the Company's convertible Series D Preferred
Stock for $10 million. The Series D Preferred Stock is convertible into
Alliance common stock upon certain events at a rate based upon a 20 day
average of the closing market prices of the common stock at the time of
conversion. The Series D Preferred Stock is entitled to one vote per share
and has no annual dividend.
In August 1998, the Company sold 100,000 shares of its convertible
Series E-1 Preferred Stock to certain investors for $6 million. The Company
recognized an imputed dividend of $483,000 to reflect a beneficial conversion
feature on these preferred shares. In January 1999, 47,837 shares of the
Series E-1 Preferred Stock were converted into 1,091,338 shares of Alliance
common stock at an average price of $2.63 per share. In May 1999, 31,456
shares of Series E-1
F-13
<PAGE>
Preferred Stock converted into 767,219 shares of Alliance common stock. The
Company also repurchased the remaining 20,707 shares of Series E-1 Preferred
Stock for $2.2 million of cash. The Company recorded a preferred stock
dividend of $1.2 million, which represents the excess of the fair value of
the consideration transferred to the preferred stockholders over the carrying
value of the preferred stock. The investors obtained a right to receive a
royalty on future sales of one of the Company's products under development,
provided that the product is approved by the U.S. Food and Drug
Administration ("FDA") by December 2003. The total royalty obligation is 0.3%
of net sales of the product for a period of three years. The Company has
certain rights to repurchase the royalty right.
5. LICENSE AGREEMENTS
In August 1994, the Company executed 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 (collectively referred to as "Ortho"), which provided Ortho with
worldwide marketing and, at its election, manufacturing rights to the
Company's injectable perfluorochemical emulsions capable of transporting
oxygen for therapeutic use, including OXYGENT. Ortho agreed to pay to
Alliance a royalty based upon sales of products after commercialization. In
addition, Ortho paid to Alliance an initial license fee of $4 million and
agreed to make other payments upon the achievement of certain milestones.
Under the agreement, Ortho was responsible for substantially all of the costs
of developing and marketing the products. In December 1996, Ortho paid the
Company a $15 million milestone payment. In conjunction with the Ortho
License Agreement, J&JDC purchased 1.5 million shares of Alliance Series A
Preferred Stock for $15 million and obtained a three-year warrant to purchase
300,000 shares of Alliance common stock at $15 per share. In June 1996, the
preferred stock and warrant were converted into common stock (see Note 4). In
May 1998, Ortho and the Company restructured the 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.
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. At June 30, 1999, the unused supplies were approximately
$2.3 million. In December 1997, the HMRI License Agreement was terminated.
Therefore, since July 1, 1997 Alliance has been responsible for all LIQUIVENT
development expenses worldwide. HMRI has no continuing rights to the
development or marketing of LIQUIVENT. In September 1999, HMRI dismissed an
arbitration proceeding filed against Alliance in September 1998 and Alliance
agreed to repurchase the clinical trial supplies from HMRI for up to $3
million over time and under certain circumstances.
In September 1997, the Company entered into the Schering License
Agreement, 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. 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. 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. Because
of changes in the development of the field of ultrasound contrast agents and
in the parties' development plans, Alliance and Schering amended the Schering
License Agreement as of December 30, 1998. Under the original arrangement,
royalty rates were based upon the development of specific medical uses for
IMAGENT, which placed limitations on the development effort. The parties
elected to revise the royalty calculation which is now based on sales of
IMAGENT, a more traditional method of determining royalties. This
modification permits the parties to be flexible in developing IMAGENT.
Although the method of calculating royalties has been changed, the Company
believes that there will be no material difference in the amount of royalties
to be earned by the Company under the Schering License Agreement.
Additionally, the parties reduced ongoing development reimbursements and
added new milestone payments.
6. INCOME TAXES
Significant components of the Company's deferred tax assets as of
June 30, 1999 are shown below. A valuation allowance of $121,401,000, of
which $25,199,000 is related to 1999, has been recognized to offset the
deferred tax assets as realization of such assets is uncertain.
F-14
<PAGE>
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
June 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net operating loss carryforwards $ 93,497,000 $ 74,481,000
Research and development credits 12,423,000 8,571,000
Capitalized research expense 12,047,000 10,744,000
Other - net 3,434,000 2,406,000
------------ ------------
Total deferred tax assets 121,401,000 96,202,000
Valuation allowance for deferred tax assets (121,401,000) (96,202,000)
------------ ------------
Net deferred tax assets $ - $ -
------------ ------------
------------ ------------
</TABLE>
Approximately $3,580,000 of the valuation allowance for deferred tax
assets relates to stock option deductions which, when recognized, will be
allocated to contributed capital.
At June 30, 1999, the Company had federal and various state net
operating loss carryforwards of approximately $260,336,000 and $41,375,000,
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. Approximately $2,718,000 of
California tax loss carryforwards expired in fiscal 1999 and will continue to
expire (approximately $1,457,000 in fiscal 2000) unless previously utilized.
Approximately $1,724,000 of federal tax loss carryforwards expired in fiscal
1999 and will continue to expire (approximately $1,273,000 in fiscal 2000)
unless previously utilized. The Company also has federal and state research
and development tax credit carryforwards of $10,251,000 and $3,342,000,
respectively, which will begin expiring in fiscal 2000 unless previously
utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code,
annual use of the Company's net operating loss and credit carryforwards may
be limited because of cumulative changes in ownership of more than 50% which
have occurred; however, the Company does not believe such limitation will
have a material impact upon the utilization of these carryforwards.
7. COMMITMENTS
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, 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30,
---------------------
<S> <C>
2000 $ 2,406,000
2001 2,262,000
2002 2,331,000
2003 1,617,000
2004 1,216,000
Thereafter 3,089,000
------------
Total $ 12,921,000
------------
------------
</TABLE>
Rent expense for fiscal 1999, 1998 and 1997 was $4.1 million, $3.4
million and $2.6 million, respectively.
F-15
<PAGE>
EXHIBIT INDEX
Certain exhibits to this Report on Form 10-K have been incorporated by
reference. For a list of exhibits, see Item 14 hereof.
The following exhibits are being filed herewith:
Number Document
- -------- -----------------------------------------------------------------
10(u) Security Purchase Agreement dated May 20, 1999 between the Company
and Harris & Harris Group, Inc, Jan A. Dekker and Stephen McGrath
with forms of the 6% Convertible Subordinated Note Due May 20,
2002 and Warrant
10(v) Form of Amended 1991 Stock Option Plan
10(w) Agreement to Waive Covenant Violation and Modify Loan dated May
17, 1999 between the Company and Imperial Bank
10(x) Intellectual Property Security Agreement dated May 17, 1999
between the Company and Imperial Bank (3)
10(y) First Amendment to Credit Agreement dated June 17, 1999 among the
Company, MDV Technologies, Inc., a wholly-owned subsidiary of the
Company ("MDV"), and Imperial Bank (3)
10(z) Intellectual Property Security Agreement dated August 2, 1999
between MDV and Imperial Bank
10(aa) Commercial Security Agreement dated August 3, 1999 among the
Company, MDV and Imperial Bank
10(bb) Promissory Note dated August 2, 1999 in the amount of $5,000,000
executed by the Company and MDV in favor of Imperial Bank
10(cc) Promissory Note dated August 2, 1999 in the amount of
$8,422,619.04 executed by the Company and MDV in favor of Imperial
Bank
10(dd) Warrant for 180,000 shares to Purchase Common Stock dated March
30, 1999 issued to Imperial Bancorp
21 Subsidiary List
23.1 Consent of Ernst & Young LLP, Independent Auditors
(3) A request for confidential treatment of certain portions of
this exhibit has been filed with the Securities and Exchange
Commission.
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
among
ALLIANCE PHARMACEUTICAL CORP.,
HARRIS & HARRIS GROUP, INC.
JAN A. DEKKER
and
STEPHEN M. McGRATH
Dated as of May 20, 1999
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I PURCHASE AND SALE OF THE SECURITIES. . . . . . . . . . . . . . . . . 1
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . 2
2.1 Representations, Warranties and Agreements of the Company . . . . . . 2
2.2 Representations and Warranties of the Purchasers. . . . . . . . . . . 6
ARTICLE III CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 Conditions Precedent to Sale of the Securities. . . . . . . . . . . . 8
ARTICLE IV OTHER AGREEMENTS OF THE PARTIES . . . . . . . . . . . . . . . . . .10
4.1 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . .10
ARTICLE V REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . .10
5.1 Restrictive Legend. . . . . . . . . . . . . . . . . . . . . . . . . .10
5.2 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . .10
5.3 Requested Registration. . . . . . . . . . . . . . . . . . . . . . . .11
5.4 Piggyback Registrations . . . . . . . . . . . . . . . . . . . . . . .12
5.5 Holdback Agreements . . . . . . . . . . . . . . . . . . . . . . . . .13
5.6 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . .14
5.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . .16
5.8 Information by Holders. . . . . . . . . . . . . . . . . . . . . . . .17
5.9 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . .17
ARTICLE VI SUBORDINATION; SENIORITY. . . . . . . . . . . . . . . . . . . . . .18
6.1 Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . .18
6.2 Securities Subordinated to Senior Indebtedness. . . . . . . . . . . .18
6.3 Company Not to Make Payments with Respect to Notes in Certain
Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . .18
6.4 Subrogation of Notes. . . . . . . . . . . . . . . . . . . . . . . . .20
6.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
6.6 No Impairment of Subordination. . . . . . . . . . . . . . . . . . . .21
6.7 Article VI Not To Prevent Events of Default . . . . . . . . . . . . .21
ARTICLE VII CONVERSION OF THE CONVERTIBLE NOTES. . . . . . . . . . . . . . . .21
7.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . .21
7.2 Right of Conversion; Conversion Price . . . . . . . . . . . . . . . .21
7.3 Issuance of Shares on Conversion. . . . . . . . . . . . . . . . . . .22
7.4 Adjustment of Conversion Price. . . . . . . . . . . . . . . . . . . .22
7.5 Notice of Adjustment. . . . . . . . . . . . . . . . . . . . . . . . .24
7.6 Notice of Adjustment for Dividends. . . . . . . . . . . . . . . . . .24
7.7 Preservation of Conversion Rights in Certain Transactions . . . . . .24
7.8 Form of Notes After Adjustment. . . . . . . . . . . . . . . . . . . .24
ARTICLE VIII REDEMPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . .24
8.1 Current Market Price. . . . . . . . . . . . . . . . . . . . . . . . .24
8.2 Redemption of Notes . . . . . . . . . . . . . . . . . . . . . . . . .25
8.3 Notice of Redemption of Notes . . . . . . . . . . . . . . . . . . . .25
i
<PAGE>
8.4 Effect of Redemption. . . . . . . . . . . . . . . . . . . . . . . . .25
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . .26
9.1 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .26
9.2 Entire Agreement; Amendments. . . . . . . . . . . . . . . . . . . . .26
9.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
9.4 Amendments; Waivers . . . . . . . . . . . . . . . . . . . . . . . . .26
9.5 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
9.6 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . .27
9.7 No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . .27
9.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
9.9 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
9.10 Execution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
9.11 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
9.13 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
9.14 Independent Nature of Purchasers' Obligations and Rights . . . . . .28
SCHEDULES AND EXHIBITS
Schedule 1 - Purchasers of Securities
Schedule 2.1(c) - Capitalization; Rights to Acquire Capital Stock
Schedule 2.1(e) - Consents and Approvals
Schedule 2.1(f) - Litigation; Proceedings
Schedule 2.1(g) - Default or Violation
Schedule 2.1(o) - Registration Rights, Rights of Participation
Schedule 2.1(p) - Title
Exhibit A - Form of Note
Exhibit B - Form of Warrant
Exhibit C - Form of Legal Opinion
</TABLE>
ii
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of May 20, 1999,
between Alliance Pharmaceutical Corp., a New York corporation (the "COMPANY"),
Harris & Harris Group, Inc. a New York corporation ("HARRIS"), Jan A Dekker
("Dekker") and Stephen M. McGrath ("McGrath"). Harris, Dekker and McGrath are
each referred to herein as a "PURCHASER" and are collectively referred to herein
as the "PURCHASERS."
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchasers, and the Purchasers
desire to acquire from the Company, $1,800,000 aggregate principal amount of 6%
Convertible Subordinated Notes, due 2002 of the Company (the "NOTES") and
warrants (the "WARRANTS") to purchase up to 300,000 shares of common stock,
$.001 par value per share (the "COMMON STOCK").
IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and each Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SECURITIES
1.1 PURCHASE AND SALE.
(a) Subject to the terms and conditions hereof and in reliance on the
representations and warranties contained herein, the Company shall issue and
sell to the Purchasers, and the Purchasers, severally and not jointly, shall
purchase from the Company the Notes and the Warrants.
(b) The Notes shall be substantially in the form annexed hereto as
EXHIBIT A and the Warrants shall be substantially in the form annexed hereto as
EXHIBIT B.
1.2 THE CLOSING.
(a) THE CLOSING.
(i) The closing of the purchase and sale of the Notes and
Warrants (the "CLOSING") shall take place at the offices of Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038-4982,
immediately following the execution hereof or such later date or different
location as the parties shall agree in writing, but not prior to the date
that the conditions set forth in Section 3.1 have been satisfied or waived
by the appropriate party. The date of the Closing is hereinafter referred
to as the "CLOSING DATE." At the Closing, the Company shall sell and issue
to the Purchasers, and the Purchasers shall, severally and not jointly,
purchase from the Company, the Notes for an aggregate purchase price of
$1,800,000 and the Warrants for an aggregate purchase price of $3,000 (such
aggregate amount of $1,803,000 being hereinafter called the "PURCHASE
PRICE").
<PAGE>
(ii) At the Closing (a) the Company shall deliver to each
Purchaser (1) Notes (in definitive form) in the respective denominations
specified on SCHEDULE 1 attached hereto, each registered in the name of
such Purchaser, (2) a warrant certificate representing the Warrants
purchased by such Purchaser as set forth next to such Purchaser's name on
SCHEDULE 1 attached hereto, registered in the name of such Purchaser, (3)
and all other documents, instruments and writings required to have been
delivered at or prior to the Closing by the Company pursuant to this
Agreement, and (b) each Purchaser shall deliver to the Company the portion
of the Purchase Price set forth next to its name on SCHEDULE 1, in United
States dollars in immediately available funds by wire transfer to an
account designated in writing by the Company for such purpose on or prior
to the Closing Date, and all documents, instruments and writings required
to have been delivered at or prior to the Closing by such Purchaser
pursuant to this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby represents and warrants as of the date hereof to the Purchasers
as follows:
(a) ORGANIZATION AND STANDING. The Company and each of its
subsidiaries is duly incorporated and validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted. The Company and each of its
subsidiaries is duly qualified to do business as a foreign corporation and in
good standing in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would not,
individually or in the aggregate, (x) adversely affect the legality, validity or
enforceability of this Agreement, the Notes and the Warrants (collectively, the
"TRANSACTION DOCUMENTS"), (y) have or result in a material adverse effect on the
results of operations, assets, prospects, or financial condition of the Company
and its subsidiaries, taken as a whole or (z) adversely impair in any material
respect the Company's ability to perform fully on a timely basis its obligations
under any Transaction Document (any of (x), (y) or (z), being a "MATERIAL
ADVERSE EFFECT").
(b) CORPORATE POWER; AUTHORIZATION. The Company has full legal
right, power and authority to enter into the Transaction Documents and to
perform the transactions to be performed by it, or contemplated hereby or
thereby. Each of the Transaction Documents has been duly authorized, executed
and delivered by the Company (assuming due authorization, execution and delivery
by each of the other parties hereto) and they are valid and binding agreements
on the part of the Company, enforceable in accordance with their terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles. The making, execution and
performance of the Transaction Documents by the Company and the consummation of
the transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, (i) any
2
<PAGE>
bond, debenture, note or other evidence of indebtedness, or under any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture
or other agreement or instrument to which the Company is a party or by which
its properties may be bound, (ii) the Certificate of Incorporation or bylaws
of the Company or (iii) any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, administrative agency, regulatory body,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or its properties, except in the case of (i)
and (iii) for any conflict, breach, violation or default which is not
reasonably likely to have a Material Adverse Effect.
(c) CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Company as of March 31, 1999, is set forth in SCHEDULE 2.1(c).
Except as disclosed in SCHEDULE 2.1(c), no shares of the capital stock of the
Company are entitled to preemptive or similar rights. Except as disclosed in
SCHEDULE 2.1(c), there are no outstanding options, warrants, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or, except as
a result of the purchase and sale of the Securities (as defined below),
securities, rights or obligations convertible into or exchangeable for, or
giving any person any right to subscribe for or acquire any shares of Common
Stock, or contracts, commitments, understandings, or arrangements by which the
Company or any subsidiary is or may become bound to issue additional shares of
Common Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. Except as specifically disclosed in the SEC Documents (as defined
below) or SCHEDULE 2.1(c), and, as publicly disclosed, to the best knowledge of
the Company, no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT")) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial ownership of
in excess of 5% of the Common Stock. A "PERSON" means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) ISSUANCE OF SECURITIES. The Notes and the Warrants have been
duly authorized, and when duly executed and delivered by the Company in
accordance with the terms hereof, shall constitute legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application. The Company
has and, at Closing Date will have and at all times while the Notes and the
Warrants are outstanding will maintain an adequate reserve of duly authorized
shares of Common Stock as may be necessary to effect conversion of the Notes and
exercise of the Warrants. The shares of Common Stock issuable upon conversion
of the Notes or exercise of the Warrants are referred to herein as the
"UNDERLYING SHARES." When issued in accordance with this Agreement, or the
Warrants, as the case may be, the Underlying Shares will be duly authorized,
validly issued, fully paid and nonassessable, free and clear of all liens. The
Notes, the Warrants and the Underlying Shares are collectively referred to
herein as the "SECURITIES."
(e) CONSENTS AND APPROVALS. Except as specifically set forth in
SCHEDULE 2.1(e), neither the Company nor any of its subsidiaries is required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or
3
<PAGE>
other federal, state, local or other governmental authority or other person
in connection with the execution, delivery and performance by the Company of
this Agreement or the consummation of the transactions contemplated hereby,
except for any filings, notices or registrations under applicable federal and
state securities laws (together with the consents, waivers, authorizations,
orders, notices and filings referred to in SCHEDULE 2.1(e), the "REQUIRED
APPROVALS").
(f) LITIGATION; PROCEEDINGS. Except as specifically set forth in
SCHEDULE 2.1(f), there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its subsidiaries or any of their respective
properties before or by any court, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) which (i)
adversely affects or challenges the legality, validity or enforceability of this
Agreement or any of the transactions contemplated hereby or (ii) could
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect.
(g) NO DEFAULT OR VIOLATION. Except as set forth in SCHEDULE 2.1(g),
neither the Company nor any of its subsidiaries (i) is in default under or in
violation of any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound which could reasonably be expected to, individually or in the aggregate,
have a Material Adverse Effect, (ii) is in violation of any order of any court,
arbitrator or governmental body applicable to it, or (iii) is in violation of
any statute, rule or regulation of any governmental authority to which it is
subject, which violation could reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect.
(h) SCHEDULES. The Schedules to this Agreement (and the information
referred to thereon) furnished by or on behalf of the Company do not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
(i) PRIVATE OFFERING. The Company and all Persons acting on its
behalf have not made, and will not make, offers or sales of the Notes, the
Warrants and any securities that might be integrated with offers and sales of
the Notes and the Warrants, except to Accredited Investors (as defined in
Regulation D ("REGULATION D") under the Securities Act of 1933, as amended (the
"SECURITIES ACT")) without any general solicitation or advertising and otherwise
in compliance with the conditions of Regulation D. The offer and sale by the
Company to the Purchasers of the Notes and the Warrants is exempt from the
registration requirements of the Securities Act.
(j) SEC DOCUMENTS; FINANCIAL STATEMENTS; NO ADVERSE CHANGE. The
Company has filed all reports required to be filed by it under the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the three years
preceding the date hereof (the foregoing materials being collectively referred
to herein as the "SEC DOCUMENTS") on a timely-basis or has received a valid
extension of such time of filing and has filed any such SEC Documents prior to
the expiration of any such extension. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, contained any untrue
statement of a material fact or omitted to state a
4
<PAGE>
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. All material agreements to which the Company is a party or to
which the property or assets of the Company are subject have been filed as
exhibits to the SEC Documents as required; neither the Company nor any of its
subsidiaries is in breach of any agreement where such breach could reasonably
be expected to, individually or in the aggregate, have a Material Adverse
Effect. The financial statements of the Company included in the SEC Documents
comply in all material respects with applicable accounting requirements and
the rules and regulations of the Commission with respect thereto as in effect
at the time of filing. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved, except as may be otherwise
specified in such financial statements or the notes thereto, and fairly
present in all material respects the financial position of the Company as of
and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to
normal year-end audit adjustments. Since the date of the financial statements
included in the Company's last filed Quarterly Report on Form 10-Q for the
period ended March 31, 1999, there has been no event, occurrence or
development that has had a Material Adverse Effect which has not been
specifically disclosed to the Purchasers by the Company. The Company last
filed audited financial statements with the Commission in its amended Annual
Report on Form 10-K/A for its fiscal year ended June 30, 1998, and has not
received any comments from the Commission in respect thereof.
(k) INVESTMENT COMPANY. The Company is not, and is not controlled by
or under common control with an affiliate (an "AFFILIATE") of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(l) FORM S-3 ELIGIBILITY. The Company is, and the Closing Date will
be, eligible to register securities (including the Underlying Shares and Warrant
Shares) for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(m) LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. The Company has
not in the three years preceding the date hereof received notice (written or
oral) from any stock exchange, market or trading facility on which the Common
Stock is or has been listed (or on which it has been quoted) to the effect that
the Company is not in compliance with the listing or maintenance requirements of
such exchange or market. After giving effect to the transactions contemplated in
this Agreement, the Company believes that it is in compliance with all such
maintenance requirements.
(n) PATENTS AND TRADEMARKS. To the best knowledge of the Company,
the Company has, or has rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and rights (collectively, the "INTELLECTUAL PROPERTY RIGHTS") which are
necessary for use in connection with its business, as currently conducted and as
described in the SEC Documents, and which the failure to so have would have a
Material Adverse Effect.
(o) REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as
described on SCHEDULE 2.1(o) hereto, (A) the Company has not granted or agreed
to grant to any Person any rights (including "piggy-back" registration rights)
to have any securities of the Company
5
<PAGE>
registered with the Commission or any other governmental authority which has
not been satisfied and (B) except as set forth on SCHEDULE 2.1(c) hereto, no
Person, including, but not limited to, current or former shareholders of the
Company, underwriters, brokers or agents, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate
in the transactions contemplated by this Agreement.
(p) TITLE. Except as disclosed on SCHEDULE 2.1(p), the Company and
its subsidiaries have good and marketable title in fee simple to all real
property and personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all liens,
except for liens, claims or encumbrances as do not materially affect the value
of such property and do not interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries. Any real property and
facilities held under lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries.
(q) REGULATORY PERMITS. The Company and its subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Documents except where the failure to possess
such permits would not, individually or in the aggregate, have a Material
Adverse Effect ("MATERIAL PERMITS"), and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(r) SERIES E-1 PREFERRED STOCK. As of the Closing Date, none of the
Company's Series E-1 Convertible Preferred stock, par value $.01 per share
is outstanding.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
(a) Each of the Purchasers, severally and not jointly, hereby represents
and warrants to the Company as follows:
(i) INVESTMENT INTENT. Such Purchaser is acquiring the Notes
and Warrants and will acquire the Underlying Shares for its own account for
investment purposes only and not with a view to or for distributing or
reselling such Securities or any part thereof or interest therein, without
prejudice, however, to such Purchaser's right, at all times to sell or
otherwise dispose of all or any part of such Securities pursuant to an
effective registration statement under the Securities Act and in compliance
with applicable State securities laws or under an exemption from such
registration subject to the provisions of this Agreement.
(ii) PURCHASER STATUS. At the time such Purchaser was offered
the Notes and Warrants, and the Closing Date, (i) it was and will be, an
"accredited investor" (as defined in Regulation D), and (ii) such Purchaser
either alone or together with its representatives, had and will have such
knowledge, sophistication and experience in business and financial matters
so as to be capable of evaluating the merits and risks of the
6
<PAGE>
prospective investment in the Securities, and had and will have so
evaluated the merits and risks of such investment. Such Purchaser has the
authority and is duly and legally qualified to purchase and own the
Securities.
(iii) ABILITY OF PURCHASER TO BEAR RISK OF INVESTMENT. Such
Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(iv) RELIANCE. Each Purchaser understands and acknowledges
that (i) the Securities are being offered and sold to the Purchaser without
registration under the Securities Act in a private placement that is exempt
from the registration provisions of the Securities Act under Section 4(2)
of the Securities Act or Regulation D promulgated thereunder and (ii) the
availability of such exemption, depends in part on, and the Company will
rely upon the accuracy and truthfulness of, the foregoing representations
and such Purchaser hereby consents to such reliance.
(v) ACCESS TO INFORMATION. Each Purchaser acknowledges and
hereby represents that it has been furnished by the Company during the
course of this transaction with all information regarding the Company that
it requested; that all documents that could be reasonably provided have
been made available for its inspection and review; that it has been
afforded the opportunity to ask questions of and receive answers from duly
authorized officers or other representatives of the Company concerning the
terms and conditions of the offering, and any additional information it has
requested.
(vi) OTHER INFORMATION. Each Purchaser represents that,
except as set forth in this Agreement, no representations or warranties
have been made to the Purchasers by the Company or any agent, employee or
affiliate of the Company and in entering into this transaction, the
Purchasers are not relying on any information, other than that contained in
the this Agreement and the results of independent investigation by the
Purchasers.
(vii) AUTHORIZATION; ENFORCEMENT. Each Purchaser represents
that it was not specifically formed for the purpose of acquiring the
Securities. Each Purchaser represents that the execution of this Agreement
has been duly authorized by all necessary action on the part of such
Purchaser. This Agreement has been duly executed by such Purchaser and
when delivered in accordance with the terms hereof will constitute the
legal, valid and binding obligation of such Purchaser, enforceable against
such Purchaser in accordance with its terms.
(b) Additionally, Dekker, hereby represents and warrants to the Company as
follows:
(i) NON-U.S. PERSON. He is not a U.S. Person, as defined in
Rule 902 of the Securities Exchange Act, or acting on behalf of a U.S.
Person.
(ii) FOREIGN OFFERING. He is currently outside of the United
States.
7
<PAGE>
The Company acknowledges and agrees that the Purchasers make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
CONDITIONS
3.1 CONDITIONS PRECEDENT TO SALE OF THE SECURITIES.
(a) CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO SELL THE
SECURITIES. The obligation of the Company to sell the Notes and Warrants
hereunder is subject to the satisfaction or waiver by the Company, at or before
the Closing, of each of the following conditions:
(i) ACCURACY OF THE PURCHASERS' REPRESENTATIONS AND
WARRANTIES. The representations and warranties of each Purchaser shall be
true and correct in all material respects as of the date when made and as
of the Closing Date, as though made on and as of such date;
(ii) PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Purchaser at or prior to the
Closing; and
(iii) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(b) CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS TO
PURCHASE THE NOTES AND WARRANTS. The obligation of each Purchaser hereunder to
acquire and pay for the Notes and Warrants is subject to the satisfaction or
waiver by such Purchaser, at or before the Closing, of each of the following
conditions:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company set forth in this
Agreement shall be true and correct in all material respects as of the date
when made and as of the Closing Date as though made on and as of such date;
(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied with in all material respects all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing;
(iii) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by
8
<PAGE>
any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement, the Notes or the Warrants;
(iv) LEGAL OPINION. The Company shall have delivered to the
Purchasers the opinion of Stroock & Stroock & Lavan LLP outside counsel to
the Company, in substantially the form annexed hereto as EXHIBIT C;
(v) REQUIRED APPROVALS. All Required Approvals shall have
been obtained;
(vi) SHARES OF COMMON STOCK. On or prior to the Closing Date,
the Company shall have duly reserved the number of Underlying Shares
required by the Transaction Documents to be reserved for issuance upon
conversion of the Notes and upon exercise of the Warrants;
(vii) DELIVERY OF NOTES AND WARRANT CERTIFICATES. The Company
shall have delivered to each Purchaser or such Purchaser's designee, (i)
the Notes, registered in the name of such Purchaser, and (ii) warrant
certificate(s) representing the Warrants, registered in the name of such
Purchaser;
(viii) CHANGE OF CONTROL. No Change of Control shall have
occurred between the date hereof and the Closing Date. "CHANGE OF CONTROL"
means the occurrence of any of (i) an acquisition after the date hereof by
an individual or legal entity or "group" (as described in Rule 13d5(b)(1)
promulgated under the Exchange Act) of in excess of 50% of the voting
securities of the Company, (ii) a replacement of more than one-half of the
members of the Board of Directors which is not approved by those
individuals who are members of the Board of Directors on the date hereof in
one or a series of related transactions, (iii) the merger of the Company
with or into another entity, consolidation or sale of all or substantially
all of the assets of the Company in one or a series of related transactions
or (iv) the execution by the Company of an agreement to which the Company
is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii); and
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 USE OF PROCEEDS. The Company shall use all the proceeds received from
the sale of the Note and Warrants pursuant to this Agreement for (i) general
corporate purposes, including capital expenditures and working capital and (ii)
the payment of legal fees and disbursements incurred in connection with the
transactions contemplated by this Agreement.
9
<PAGE>
ARTICLE V
REGISTRATION RIGHTS
5.1 RESTRICTIVE LEGEND. Any certificates representing the Notes, the
Warrants and the Underlying Shares and any other securities issued in respect of
such securities upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event, shall be stamped or otherwise imprinted with a
legend in the following form (in addition to any legend required under other
applicable securities laws):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE 'ACT'), OR ANY STATE SECURITIES
LAWS AND MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
5.2 CERTAIN DEFINITIONS. As used in this Article V, the following terms
shall have the following respective meanings:
"HOLDERS" shall mean the holders of Registrable Securities and the
holders of the Notes or Warrants, with the Underlying Shares (and other
securities issued in respect thereof and included in the definition of
Registrable Securities) issuable upon conversion or exercise thereof being
deemed outstanding in lieu thereof for purposes of this Article V.
"REGISTRABLE SECURITIES" shall mean (i) the Underlying Shares and
(ii) any other securities issued in respect of the Underlying Shares upon any
stock split, stock dividend, recapitalization, merger, consolidation or
similar event, provided, however, that shares of Common Stock which are
Registrable Underlying Shares shall cease to be Registrable Underlying Shares
upon any sale pursuant to a Registration Statement, Section 4(1) of the
Securities Act or Rule 144 under the Securities Act, or any sale in any
manner to a person or entity which, by virtue of Section 9.6 of this
Agreement is not entitled to the rights provided by Article V or at such time
as the Holder of such shares may sell under Rule 144 under the Securities Act
in a three-month period all Registrable Securities then held by such Holder.
The terms "register," "registered" and "registration" shall refer
to a registration effected by preparing and filing a registration statement
(other than a registration statement on Form S-4 or Form S-8, or their
successors, or any registration statement covering only securities proposed
to be issued in exchange for securities or assets of another corporation) in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in compliance with Sections 5.3 and 5.4 hereof, including, without
limitation, all registration and filing fees (including with respect to
filings required to be made with the National Association of Securities
10
<PAGE>
Dealers, Inc. and the NASD Regulation, Inc.), printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses
(including fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications), fees and disbursements of all
independent certified public accountants (including the expenses of any
special audits and "comfort" letters required by or incident to such
performance), reasonable fees and disbursements for one counsel for all the
selling Holders, fees and expenses incurred in connection with the listing of
the securities on a securities exchange or quotation system, rating agency
fees and the fees and expenses of any special experts, except for Selling
Expenses.
"RESTRICTED SECURITIES" shall mean the securities of the Company
required to bear or bearing a legend which is the same as or similar to the
legend set forth in Section 5.1 hereof.
"SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities.
"UNDERWRITTEN OFFERING" shall mean the offering and sale of
Registrable Securities in a registration pursuant to a firm commitment
underwriting to an underwriter at a fixed price for reoffering or pursuant to
agency or best efforts arrangements with a placement agent or underwriter.
5.3 REQUESTED REGISTRATION.
(a) DEMAND REGISTRATION. Holders of a majority of the Registrable
Securities may request registration of all or part of their Registrable
Securities under the Securities Act. Within ten (10) days after receipt of
any such request, the Company will give written notice of such requested
registration to all other Holders of Registrable Securities. The Company
will include in such registration all Registrable Securities with respect to
which it has received written requests for inclusion therein within twenty
(20) days after receipt of the Company's notice. Any registration effected
by the Company under this Section 5.3 is referred to herein as the "Demand
Registration." The Holders of Registrable Securities will be entitled to one
(1) Demand Registration.
(b) UNDERWRITTEN OFFERING. If the Holders initiating the
registration intend to distribute the Registrable Securities by means of an
underwriting, they shall so advise the Company in their request. In the
event such registration is underwritten, the right of other Holders to
participate shall be conditioned on such Holders' participation in such
underwriting.
(c) COOPERATION BY THE COMPANY. The Company shall and shall cause
its management to cooperate fully and to use its best efforts to effect the
registration of Registrable Securities and the sale of Registrable Securities
pursuant to a request for a Demand Registration as promptly as is
practicable; provided, however, in the event that the Company reasonably
determines, that it is not then eligible to use a registration statement on
Form S-3 or other short form registration statement under the Securities Act,
and the Company furnishes to the Holders a certificate of an executive
officer of the Company stating that the Company has determined that such
registration would have a Material Adverse Effect, then the Company's
obligation to effect such registration shall be deferred for a period not to
exceed ninety (90) days. Cooperation by the Company and its management shall
include, but not be limited to, management's attendance and reasonable
presentations in respect of the Company at a reasonable number of road shows
with respect to the offering of Registrable Securities.
11
<PAGE>
(d) EXPENSES. The Company will pay all Registration Expenses for
any Demand Registration. A registration will not count as a Demand
Registration until it has become effective. A registration will count as a
Demand Registration after it has become effective unless such registration
statement has been withdrawn prior to the sale of all Registrable Securities
covered thereby at the request of the Holders (other than as a result of (i)
an action or omission to act by the Company which adversely affects the
market for, or the price of, Registrable Securities or (ii) a material
adverse change in the business, financial condition or prospects of the
Company occurring after the effective date of the registration statement);
provided, however, that in any event the Company will pay all Registration
Expenses in connection with any registration so initiated; provided, further,
however, that the holders of Registrable Securities may withdraw a
registration without having it count as a Demand Registration only once in
any twelve month period.
(e) PRIORITY ON DEMAND REGISTRATIONS. If a Demand Registration is
an Underwritten Offering, and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities requested
to be included exceeds the number which can be sold in such offering, the
Company will include in such registration such number of shares, which in the
opinion of such underwriters, may be sold, allocated among the Holders
electing to participate pro rata in accordance with the amounts of securities
requested to be so included by the respective Holders.
5.4 PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to register
any of its securities (other than pursuant to a Demand Registration) and the
registration form to be used may be used for the registration and
contemplated disposition of Registrable Securities (a "Piggyback
Registration"), the Company will give prompt written notice to all Holders of
Registrable Securities of its intention to effect such a registration so that
such notice is received by each Holder at least fifteen (15) days before the
anticipated filing date. The Company will include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within fifteen (15) calendar days after the
receipt of the Company's notice; provided that the Company shall have the
right to postpone or withdraw any registration effected pursuant to this
Section 5.4 without obligation to any Holder.
(b) PIGGYBACK EXPENSES. The Registration Expenses of the Holders
of Registrable Securities in connection with a Piggyback Registration will be
paid by the Company.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration is an underwritten primary registration on behalf of the
Company, and the managing underwriters advise the Company in writing that in
their opinion the distribution of the Registrable Securities to be included
in the Piggyback Registration concurrently with the securities being
registered on behalf of the Company would materially adversely affect the
distribution of such securities by the Company, the Company will include in
such registration (i) first, the securities the Company proposes to sell,
(ii) second, the holders of Registrable Securities who have requested
registration and other holders of shares of Common Stock entitled, pursuant
to agreements in effect on the date of this Agreement, to include shares of
Common Stock in such registration shall participate in the underwriting pro
rata
12
<PAGE>
based upon their total ownership of shares of Common Stock of the Company on
an as if-converted basis; and (iii) third, any other securities requested to
be included in such registration.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration is an underwritten secondary registration initiated by holders
of the Company's securities other than the holders of the Registrable
Securities, and the managing underwriters advise the Company in writing that
in their opinion the distribution of the Registrable Securities in a
Piggyback Registration concurrently with the securities being registered on
behalf of holders of the Company's securities would materially adversely
affect the distribution of such securities, the Company will include in such
registration (i) first, the securities requested to be included therein by
the holders requesting such registration, (ii) second, the holders of
Registrable Securities who have requested registration and other holders of
shares of Common Stock entitled, pursuant to agreements in effect on the date
of this Agreement, to include shares of Common Stock in such registration
shall participate in the underwriting pro rata based upon their total
ownership of shares of Common Stock of the Company on an as if-converted
basis, and (iii) third, any other securities requested to be included in such
registration.
(e) OTHER RESTRICTIONS. In connection with any registration under
this Section 5.4 involving an underwriting, the Company shall not be required
to include any Registrable Securities in such underwriting unless the holders
thereof accept the terms of the underwriting as agreed upon between the
Company, the parties initiating the registration (if other than the Company)
and the underwriters.
5.5 HOLDBACK AGREEMENTS.
(a) Each Holder of Registrable Securities which is a party to this
Agreement agrees not to effect any public sale or distribution of equity
securities of the Company, or any securities convertible into or exchangeable
or exercisable for such securities, during the period commencing seven (7)
days prior to and ending ninety (90) days after the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten registration or with the consent of the
managing underwriter). The commencement of such period shall be determined
in good faith by the managing underwriter and advised to the Holders,
provided that the executive officers and directors of the Company and each of
the holders (with which any officer of director of the Company is affiliated)
of five percent (5%) or more of the then outstanding shares of Common Stock
on a fully diluted basis (including for this purpose all securities described
on SCHEDULE 2.1(c), which are convertible into or exercisable for shares of
Common Stock) shall have entered into similar agreements.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the period commencing
seven (7) days prior to and ending thirty (30) days after the effective date
of any underwritten Demand Registration or any underwritten Piggyback
Registration in which a Holder participates (except (A) as part of such
underwritten registration, (B) with the consent of the managing underwriter
of such underwritten registration or (C) pursuant to registrations on Form
S-8 or any other similar form for employee benefit plans), and (ii) to use
its reasonable best efforts to cause each officer or director of the Company
or holder of greater than 5% of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities with
which any officer or director of
13
<PAGE>
the Company is affiliated, to agree not to effect any public sale or
distribution of any such securities during such period to the extent timely
requested by the underwriters (except as part of such underwritten
registration, if otherwise permitted, or with the consent of the managing
underwriter). The commencement of such period shall be determined in good
faith by the managing underwriter.
5.6. REGISTRATION PROCEDURES. Whenever the Holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Article V, the Company will promptly use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will as
expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities, and use its best efforts to cause
such registration statement to become effective;
(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
for the period set forth in Section 5.6(k) hereof and comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the Holders
thereof set forth in such registration statement;
(c) furnish to each Holder of Registrable Securities covered by
such registration such number of copies of such registration statement, each
amendment and supplement thereto, the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as such Holder may reasonably request in order to facilitate the
disposition of such Registrable Securities;
(d) use its best efforts to register or qualify Registrable
Securities covered by such registration under such other securities or blue
sky laws of such jurisdictions as any Holder reasonably requests and do any
and all other acts and things which may be reasonably necessary or advisable
to enable the Holders thereof to consummate the disposition in such
jurisdictions of the Registrable Securities as requested by such Holders
(provided that the Company will not be required to (i) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this subsection, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any such
jurisdiction);
(e) notify each Holder of Registrable Securities covered by such
registration, at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, of the happening of any event of which
the Company has, or should have, knowledge as a result of which the
prospectus included in such registration statement (or any document
incorporated therein by reference) contains an untrue statement of a material
fact or omits to state any fact necessary to make the statements therein not
misleading, and the Company will prepare a supplement or amendment to such
prospectus (or any document incorporated therein by reference) as soon as
practicable thereafter so that such prospectus (or any document incorporated
therein by reference) will not contain an untrue statement of a material fact
or omit to state any fact necessary to make the statements therein not
misleading;
14
<PAGE>
(f) cause all such Registrable Securities covered by such
registration to be listed on each securities exchange or automated quotation
system on which similar securities issued by the Company are then listed or
quoted;
(g) provide a transfer agent and registrar for all Registrable
Securities covered by such registration not later than the effective date of
such registration statement or such other document;
(h) enter into such customary agreements (including an
underwriting agreement) and take all such other actions as the Holders of a
majority of the Registrable Securities being sold or the underwriters, if
any, reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities;
(i) make available for inspection by any Holder of Registrable
Securities covered by such registration, any underwriter participating in any
disposition pursuant to such registration, and any attorney, accountant or
other agent retained by any such Holder or underwriter, all financial and
other records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Holder, underwriter, attorney,
accountant or agent in connection with such registration statement or such
other document;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally available to its security
holders, earnings statements satisfying the provisions of Section 11(a) of
the Securities Act, no later than forty five (45) days after the end of any
twelve (12) month period (i) commencing at the end of any fiscal quarter in
which an applicable registration statement covering Registrable Securities
becomes effective and (ii) beginning with the first month of the Company's
first fiscal quarter commencing after the effective date of the registration
statement, which statements shall cover said twelve (12) month periods; and
(k) keep each registration statement effective for one year from
the date of its effectiveness or for such period in excess of one year as to
which the Holders shall agree to pay all Registration Expenses in connection
with keeping such registration statement effective.
If the Company has delivered preliminary or final prospectuses to
the selling Holders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall
immediately notify the selling Holders and, if requested, the selling Holders
shall immediately cease making offers of Registrable Securities and return
all prospectuses to the Company. The Company shall promptly provide the
selling Holders with revised prospectuses and, following receipt of the
revised prospectuses, the selling Holders shall be free to resume making
offers of the Registrable Securities. The Company shall be obligated to keep
the Registration Statement effective for a period of additional days equal to
the number of days during which the Holders were required to cease making
offers pursuant to this paragraph.
5.7. INDEMNIFICATION.
(a) In the event of any registration of the Registrable
Securities, the Company will indemnify each seller of Registrable Securities
(a "Seller"), each Seller's officers, directors and partners,
15
<PAGE>
and each person controlling such Seller (within the meaning of the Securities
Act and the rules and regulations thereunder), against all claims, losses,
damages, liabilities (or actions in respect thereof) and expenses arising out
of or based on any untrue or alleged untrue statement of a material fact
contained in any registration statement under which such Registrable
Securities were registered or, prospectus or preliminary prospectus contained
in such registration statement or any amendment or supplement to such
registration statement or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of the
Securities Act, any rule or regulation thereunder and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Seller, such
Seller's officers, directors and partners, and each person controlling such
Seller for any legal and any other expenses incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
provided, that the Company will not be liable in any such case to the extent
that any such claim, loss, damage, liability or action or expense arises out
of or is based on any untrue or alleged untrue statement or omission or
alleged omission of material fact based upon written information furnished to
the Company by or on behalf of such Seller and stated to be specifically for
use therein.
(b) Each Seller will, severally and not jointly, if Registrable
Securities held by it are included in the securities as to which such
registration is being effected, indemnify the Company, each of the Company's
directors and officers and each person who controls the Company (within the
meaning of the Securities Act and the rules and regulations thereunder), each
other Seller whose securities are included in such registration and each of
such other Seller's officers, directors and partners and each person
controlling such other Seller, against all claims, losses, damages and
liabilities (or actions in respect thereof) and expenses arising out of or
based on any untrue or alleged statement of a material fact contained in any
such registration statement, prospectus or preliminary prospectus or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company, its officers and directors, each person
controlling the Company, each other Seller, and such other Seller's officers,
directors, partners and control persons for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue or alleged statement or omission or
alleged omission is made in such registration statement, prospectus or
preliminary prospectus in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Seller and
stated to be specifically for use therein.
(c) Each party entitled to indemnification under this Section 5.7
(an "Indemnified Party") shall give notice to the party required to provide
indemnification (an "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be reasonably satisfactory to the
Indemnified Party, and the Indemnified Party may participate in such defense
at its own expense, and provided, further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Article X, except to the
extent that the Indemnifying Party's ability to conduct such defense shall
have been materially prejudiced by such failure. To the extent that, in the
opinion of counsel to the Indemnified Party, a conflict of interest exists
between an Indemnified Party and the Indemnifying Party such that
representation of such
16
<PAGE>
Indemnified Party by counsel for the Indemnifying Party would be
inappropriate, then such Indemnified Party shall be entitled to separate
counsel at the expense of the Indemnifying Party; provided that in no event
shall the Indemnifying Party be required to pay the expense of more than one
such separate counsel per jurisdiction. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required
in connection with the defense of such claim and any litigation resulting
therefrom. No Indemnifying Party shall, without the prior written consent of
the Indemnified Party, effect any settlement of any pending proceeding in
respect of which any Indemnified Party is a party, unless such settlement
includes an unconditional release of uch Indemnified Party from all liability
on claims that are the subject matter of such proceeding.
5.8 INFORMATION BY HOLDERS. Each Seller of Registrable Securities
included in any registration shall furnish to the Company such information
regarding such Seller and the distribution proposed by such Seller as the
Company may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Article X.
5.9. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC which may permit the sale of the
Restricted Securities to the public without registration, the Company agrees, so
long as it is required to file reports with the SEC pursuant to the Exchange
Act, to:
(a) make and keep public information available as those terms are
understood and defined and interpreted in and under Rule 144 under the
Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the United States Securities Exchange Act of 1934, as
amended (the "Exchange Act"); and
(c) so long as the Purchasers own any Restricted Securities,
furnish to such Holders forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 and
the Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as such Holder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing such Holder to sell any such securities without registration.
ARTICLE VI
SUBORDINATION; SENIORITY
6.1 SENIOR INDEBTEDNESS. As used in this Article V, "Senior Indebtedness"
shall mean the principal, premium, if any, and unpaid interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not a claim for post-filing
interest is allowed in such proceeding), fees, charges, expenses, reimbursement
and indemnification obligations, and all other amounts payable under or in
respect of indebtedness of the Company for money borrowed from financial
institutions or investors, whether any such indebtedness exists as of the date
of this Agreement or shall hereafter be created, incurred, assumed or
guaranteed,
17
<PAGE>
unless it is expressly stated in the instrument evidencing such bank
indebtedness or in the agreement pursuant to which it is outstanding that
such indebtedness is not Senior Indebtedness.
6.2 SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS.
(a) The Company agrees, and each holder of Notes by his acceptance
thereof likewise agrees, that the payment of the principal of, premium, if
any, and interest on the Notes (all of the foregoing, a "Payment or
Distribution") is subordinated and junior in right of payment, to the extent
and in the manner provided in this Article XI to the prior payment in full of
all Senior Indebtedness whether outstanding on the date hereof or hereafter
created, incurred, assumed or guaranteed. A Payment or Distribution shall
include any asset of any kind or character, and may consist of cash,
securities or other property, by set-off or otherwise, and shall include,
without limitation, any purchase, redemption or other acquisition of the
Notes or other making of any deposit of funds or securities pursuant to this
Agreement.
(b) The Senior Indebtedness shall continue to be Senior
Indebtedness and entitled to the benefit of these subordination provisions
irrespective of any amendment, modification or waiver or any term of any
instrument relating to refinancing of the Senior Indebtedness.
(c) All the provisions of this Agreement and the Notes shall be
subject to the provisions of this Article XI so far as they may be applicable
thereto.
(d) In the event that the Notes are declared due and payable
before their expressed maturity because of the occurrence of an Event of
Default (as defined in the Notes) the Company will give prompt notice in
writing of such happening to the holders of Senior Indebtedness.
6.3 COMPANY NOT TO MAKE PAYMENTS WITH RESPECT TO NOTES IN CERTAIN
CIRCUMSTANCES.
(a) No Payment or Distribution shall be made by the Company on
account of the Notes, whether upon stated maturity, upon prepayment or
acceleration, or otherwise, or on account of the purchase, redemption or
other acquisition of Notes, whether upon stated maturity, prepayment,
acceleration, or otherwise, if there shall have occurred and be continuing a
default with respect to any Senior Indebtedness permitting the acceleration
thereof or with respect to the payment of any Senior Indebtedness and (i)
such default is the subject of a judicial proceeding or (ii) notice of such
default in writing or by telegram has been given to the Company by any holder
or holders of any Senior Indebtedness, unless and until the Company shall
have received written notice from such holder or holders that such default or
event of default shall have been cured or waived or shall have ceased to
exist.
(b) Upon any payment by the Company or distribution of assets of
the Company of any kind or character, whether in cash, property or
securities, to creditors upon any dissolution or winding up or liquidation or
reorganization of the Company, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due or
to become due upon all Senior Indebtedness shall first be paid in full in
cash, or payment thereof in cash provided for to the satisfaction of the
holders thereof, before any Payment or Distribution is made on account of
the Notes; and (subject to the power of a court of competent jurisdiction to
make other equitable provision, which shall have been determined by such
court to give effect to the rights conferred in this
18
<PAGE>
Article upon the Senior Indebtedness and the holders thereof with respect to
the Notes or the holders thereof, by a lawful plan or reorganization or
readjustment under applicable law) upon any such dissolution or winding up or
liquidation or reorganization, any Payment or Distribution by the Company or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to which the holders of the Notes would be
entitled except for the provisions of this Article, shall be paid by the
Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent
or other person making such Payment or Distribution directly to the holders
of Senior Indebtedness of the Company or their representative or
representatives, or to the trustee or trustees under any indenture pursuant
to which any instruments evidencing any Senior Indebtedness may have been
issued, as their respective interests may appear, to the extent necessary to
pay all Senior Indebtedness in full, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness, before
any Payment or Distribution is made to the Holders of the Notes.
(c) In the event that, notwithstanding the foregoing, any Payment
or Distribution by the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
holders of the Notes before all Senior Indebtedness is paid in full, or
provision is made for such payment to the satisfaction of the holders
thereof, and if such fact shall then have been or thereafter be made known to
such holders, then and in such event such Payment or Distribution shall be
paid over or delivered to the holders of Senior Indebtedness or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior
Indebtedness may have been issued, as their respective interests may appear,
for application to the payment of all Senior Indebtedness remaining unpaid to
the extent necessary to pay all Senior Indebtedness in full, after giving
effect to any concurrent Payment or Distribution to or for the holders of
such Senior Indebtedness, and, until so delivered, the same shall be held in
trust by any holder of a Note as the property of the holders of Senior
Indebtedness.
(d) The holders of Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the holders of the Notes,
without incurring responsibility to the holders of the Notes and without
impairing or releasing the obligations of the holders of the Notes hereunder
to the holders of Senior Indebtedness: (i) change the manner, place or terms
of payment or change or extend the time of payment of, or renew or alter,
Senior Indebtedness, or otherwise amend in any manner Senior Indebtedness or
any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any person liable in any manner for the
collection of Senior Indebtedness; and/or (iv) exercise or refrain from
exercising any rights against the Company and any other person.
6.4 SUBROGATION OF NOTES.
(a) Subject to the payment in full of all amounts then due
(whether by acceleration of the maturity thereof or otherwise) on account of
all Senior Indebtedness at the time outstanding, the holders of the Notes
shall be subrogated to the rights of the holders of Senior Indebtedness to
receive Payments or Distributions of cash, property or securities of the
Company applicable to the Senior Indebtedness until the principal of (and
premium, if any) and interest on the Senior Indebtedness shall be paid in
full; and, for the purposes of such subrogation, no Payments or Distributions
to the holders of Senior Indebtedness to which the holders of the Notes would
be entitled except for the provisions of this Article, and no payments over
pursuant to the provisions of this Article to the holders of Senior
19
<PAGE>
Indebtedness by holders of the Notes, shall, as between the Company, the
Company's creditors other than holders of Senior Indebtedness, and the
holders of the Notes, be deemed to be a payment by the Company to or on
account of the Senior Indebtedness. It is understood that the provisions of
this Article are and are intended solely for the purpose of defining the
relative rights of the holders of the Notes, on the one hand, and the holders
of Senior Indebtedness, on the other hand.
(b) Nothing contained in this Article or elsewhere in this
Agreement or in the Notes is intended to or shall impair, as among the
Company, its creditors other than the holders of Senior Indebtedness, and the
holders of the Notes, the obligation of the Company, which is absolute and
unconditional, to make the Payment or Distribution on account of the Notes
as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the holders
of the Notes and creditors of the Company other than the holders of Senior
Indebtedness, nor shall anything herein or therein prevent the holder of any
Note from exercising all remedies otherwise permitted by applicable law upon
default under this Agreement, subject to the rights, if any, under this
Article of the holders of Senior Indebtedness in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
(c) Upon any payment or distribution of assets of the Company
referred to in this Article, the holders of the Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which any dissolution, winding up, liquidation or reorganization proceedings
are pending, or certificate of the receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or
distribution, delivered to the holders of the Notes, for the purpose of
ascertaining the persons entitled to participate in such distribution, the
holders of Senior Indebtedness and other indebtedness of the Company, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article.
6.5 NOTICES. The Company shall give prompt written notice to the holders
of the Notes of any facts known to it which would prohibit the making of any
payment of moneys to holders in respect of the Notes pursuant to the provisions
of this Article.
6.6 NO IMPAIRMENT OF SUBORDINATION. No right of any present or future
holder of any Senior Indebtedness to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Company or the holder of any of the Notes or by any act,
or failure to act, in good faith, by any such holder of Senior Indebtedness, or
by any noncompliance by the Company or the holder of any of the Notes with the
terms, provisions and covenants of this Agreement or the Notes, regardless of
any knowledge thereof which any such holder may have or otherwise be charged
with.
6.7 ARTICLE VI NOT TO PREVENT EVENTS OF DEFAULT. The failure to make a
payment on account of principal of (premium, if any) or interest on the Notes by
reason of any provision in this Article VI shall not be construed as preventing
the occurrence of an Event of Default.
20
<PAGE>
ARTICLE VII
CONVERSION OF THE CONVERTIBLE NOTES
7.1 CERTAIN DEFINITIONS. For purposes of this Article VII, the following
terms shall have the meanings set forth in this Section 7.1.
AFFILIATE means any Person controlling, controlled by or under common
control with any other Person. For purposes of this definition, "CONTROL"
(including "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or otherwise.
BUSINESS DAY means 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.
CONVERSION SHARES means the Underlying Shares issuable upon conversion
of the Notes.
PUBLIC OFFERING PRICE shall mean the per share offering price of
approximately 10,000,000 shares of Common Stock offered pursuant to the
registration statement on Form S-3 (File No. 333-76343) filed with the
Commission on April 15, 1999.
7.2 RIGHT OF CONVERSION; CONVERSION PRICE. Any holder of Notes shall have
the right, at its option, at any time to convert, subject to the terms and
provisions of this Article VII, such Notes into shares of Common Stock upon
surrender of the Notes to be so converted, accompanied by written notice of
conversion duly executed, to the Company at any time prior to 5:00 p.m. on the
Business Day next prior to the stated maturity of the Notes or, in the case of
Notes called for redemption, next prior to the date fixed for redemption
thereof;, and, if so required by the Company, duly endorsed to the Company or in
blank or accompanied by proper instruments of transfer to the Company or in
blank. The Notes shall be convertible at a conversion price that shall be equal
to the lesser of (i) $2.00 per share of Common Stock, or (ii) the Public
Offering Price, or in case an adjustment of such price has taken place pursuant
to the provisions of this Article VII, the price as last adjusted, (such price
or adjusted price being referred to herein as the "Conversion Price"). The
number of shares of Common Stock issuable upon such conversion shall be equal to
(a) the aggregate principal amount of the Note to be converted, divided by (b)
the Conversion Price. Whenever the Conversion Price in effect shall be adjusted
pursuant to this Article VII, the Company shall promptly provide to each holder
of Notes a notice stating that the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price, which notice shall be signed on
behalf of the Company by the President and the Chief Financial Officer of the
Company and shall set forth in reasonable detail a calculation to the nearest
cent of the Conversion Price, the method of calculation and the facts requiring
such adjustment.
7.3 ISSUANCE OF SHARES ON CONVERSION. The Company will as soon as
practicable after the surrender, as herein provided, deliver to the holder or to
its nominee or nominees, certificates for the number of full shares of Common
Stock to which it shall be entitled as aforesaid, together with a cash
adjustment of any fraction of a share as hereinafter provided, if not evenly
convertible, and, if less than the entire principal amount of the Note is
converted, a new Note for the principal
21
<PAGE>
amount not so converted, dated as of the last preceding date to which
interest shall have been paid. Subject to the following provisions of this
paragraph, such conversion shall be deemed to have been made as of the date
of such surrender of the Note and at the Conversion Price in effect at the
date of such surrender; and the person or persons entitled to receive the
Common Stock deliverable upon conversion of the Note shall be treated for all
purposes as the record holder or holders of such Common Stock on such date.
The Company shall not be required to convert the Note or any portion thereof
while the stock transfer books of the Company are closed for any purpose; but
the surrender of the Note for conversion during any period while such books
are so closed shall become effective for conversion immediately upon
reopening of such books, as if the conversion had been made on the date the
Note were surrendered, and at the Conversion Price in effect at the date of
such surrender. If at the time of the conversion of any Notes, a
registration statement is not in effect to register under the Securities Act
the Conversion Shares, the Company may require the holder of such Notes to
make investment intent representations, and may place such legends on
certificates representing the Conversion Shares, as may be reasonably
required in the opinion of counsel to the Company to permit the Conversion
Shares to be issued without such registration.
7.4 ADJUSTMENT OF CONVERSION PRICE.
(a) If at any time prior to the expiration, redemption or full
conversion of the Notes, the Company shall (i) pay a dividend or make a
distribution 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 Conversion Price in effect at the time of the
record date of such subdivision, combination, reclassification or
recapitalization shall be proportionately adjusted so that the holder of such
Notes shall be entitled to receive the aggregate number and kind of shares
which, if such Notes had been converted in full immediately prior to such time,
he would have owned upon such conversion 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 Section
7.4(a) shall occur.
(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 7.4) or
Common Stock subscription rights, options or warrants for Common Stock or
securities convertible or exercisable for shares of Common Stock ("COMMON STOCK
EQUIVALENTS"), then in each such case the Conversion Price in effect after such
record date shall be adjusted to the price determined by multiplying the
Conversion 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 7.4), 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.
22
<PAGE>
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) For the purpose of any computation under this Section 7.4, 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.
(d) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least five cents
($.05) in such price; provided, however, that any adjustments which by reason of
this paragraph (d) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 7.4 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 7.4 to the
contrary, the Conversion 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.
(e) In the event that at any time, as a result of any adjustment made
pursuant to paragraph (a) of this Section 7.4, the holder of the Notes
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
conversion of the Notes shall be subject to adjustment from time to time 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 (d), inclusive, of
this Section 7.4.
7.5 NOTICE OF ADJUSTMENT . Whenever the number of Conversion Shares or
the Conversion Price is adjusted as herein provided, the Company shall prepare
and deliver to the holder of Notes a certificate signed by its President, any
Vice President, Treasurer or Secretary, setting forth the adjusted number of
shares issuable upon the conversion of the Notes held by such holder and the
Conversion Price after such adjustment, setting forth a brief statement of the
facts requiring such adjustment and setting forth the computation by which
adjustment was made.
7.6 NOTICE OF ADJUSTMENT FOR DIVIDENDS. No payment or adjustment to the
Conversion Price in respect of interest or dividends on the shares of Common
Stock shall be made upon the conversion of any of the Notes.
7.7 PRESERVATION OF CONVERSION 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 holder of any Notes an agreement granting such holder the right thereafter
to receive upon conversion of Notes the kind and amount of shares and other
securities and property which he
23
<PAGE>
would have owned or have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had such Notes been converted
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 VII. The provisions of this Section
7.7 shall similarly apply to successive consolidations, mergers, sales, or
conveyances.
7.8 FORM OF NOTES AFTER ADJUSTMENT The form of Note need not be changed
because of any adjustments in the Conversion Price or the number or kind of the
Conversion Shares, and Notes theretofore or thereafter issued may continue to
express the same price and number and kind of shares as are stated in the Notes
as initially issued.
ARTICLE VIII
REDEMPTION
8.1 CURRENT MARKET PRICE. As used in this Article VIII, "CURRENT MARKET
PRICE" shall mean: The average of the daily closing price per share of Common
Stock 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.
8.2 REDEMPTION OF NOTES. In the event that (i) during the first year
following the issuance of the Notes the Current Market Price is at least $5.00
per share for more than twenty consecutive Business Days, subject to adjustment
for stock splits, stock dividends, combinations and other similar
recapitalizations, (ii) during the second year following the issuance of the
Notes the Current Market Price is at least $8.00 per share for more than twenty
consecutive Business Days, subject to adjustment for stock splits, stock
dividends, combinations and other similar recapitalizations, or (iii) during the
third year following the issuance of the Notes the Current Market Price is at
least $10.00 per share for more than twenty consecutive Business Days, subject
to adjustment for stock splits, stock dividends, combinations and other similar
recapitalizations, then the Company may, at its option, prior to maturity,
redeem the Notes, in whole or in part without premium or penalty, at a price
equal to the principal amount thereof plus accrued interest thereon to the date
fixed for redemption. Any redemption payments made pursuant to this Section 8.1
shall be applied first to the payment of accrued but unpaid interest on the
principal amount of the Notes to be redeemed and thereafter to the principal
amount to be redeemed. Any redemption payments of Notes shall be made to the
holders thereof in proportion to the respective principal amounts of Notes
outstanding held by them.
8.3 NOTICE OF REDEMPTION OF NOTES. The Company shall give notice of
redemption, signed on behalf of the Company by its President and by its
Treasurer or an Assistant Treasurer to the holders of the Notes not less than 30
nor more than 60 days prior to the date upon which the redemption is to be made
pursuant to Section 8.1 (the "REDEMPTION NOTICE"), specifying (i) the accrued
and unpaid interest on each Note (to and including the date upon which the
redemption is
24
<PAGE>
to be made), (ii) the aggregate principal amount of each Note to be redeemed
and (iii) the date of such redemption. The Redemption Notice having been so
given, the aggregate principal amount of the Notes so specified in such
Redemption Notice, and all accrued and unpaid interest hereon, shall be come
due and payable on the specified redemption date.
8.4 EFFECT OF REDEMPTION. On or prior to the redemption date, each holder
of Notes to be redeemed shall surrender such Notes to the Company, in the manner
and at the place designated in the Redemption Notice, as the case may be, and
thereupon the outstanding principal and accrued interest on such Notes shall be
payable to the order of the person whose name appears on such Notes as the owner
thereof and each surrendered Note shall be canceled. In the event less than all
the principal on any Note is redeemed, a new Note shall be issued reflecting the
unpaid principal thereon. From and after the redemption date, unless there
shall have been a default in the payment of the redemption price, all rights of
the holders of the Notes designated for redemption as holders of Notes of the
Company (except the right to receive the redemption price without interest)
shall cease with respect to such Notes, and such Notes shall not thereafter be
transferred on the books of the Company or be deemed to be outstanding for any
purpose whatsoever.
ARTICLE IX
MISCELLANEOUS
9.1 FEES AND EXPENSES. Each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by the Company incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all stamp and
other taxes and duties levied in connection with the issuance of the Securities
pursuant to the Transaction Documents.
9.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with the
Exhibits and Schedules hereto and the Notes and Warrants, contains the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral or written, with
respect to such matters.
9.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., New York City time, on
a Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., New York City time, on any
date and earlier than 11:59 p.m., New York City time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
as set forth below each parties' name on SCHEDULE 1. Copies of notices to the
Company shall be sent to Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New
York, New York 10038, Attn: Mel Epstein, Esq., fax: (212) 806-6006, or such
other address as may be designated in writing hereafter, in the same manner, by
such person
25
<PAGE>
9.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the Company and the Purchasers; or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter. Notwithstanding the foregoing, no
such amendment shall be effective to the extent that it applies to less than all
of the holders of the Securities outstanding. The Company shall not offer or
pay any consideration to a Purchaser for consenting to such an amendment or
waiver unless the same consideration is offered to each Purchaser and the same
consideration is paid to each Purchaser which consents to such amendment or
waiver.
9.5 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
9.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Purchasers. The Purchasers may
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Company, except that any assignee must make the
representations and warranties set forth in Section 2.2 and otherwise comply
with the terms of this Agreement otherwise applicable to its assignor.
9.7 NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the nonexclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein.
9.9 SURVIVAL. The agreements, covenants, representations, warranties and
provisions contained in this Agreement shall survive the delivery of the
Securities pursuant to this Agreement and the Closing hereunder and any
conversion of the Notes or exercise of the Warrants.
9.10 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that all
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
26
<PAGE>
9.11 PUBLICITY. The Company and each Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other Party with prior notice of such public statement. The Company
shall not publicly or otherwise disclose the names of any of the Purchasers
without each such Purchaser's prior written consent unless otherwise required by
law, in which case the Company shall inform such Purchaser of such disclosure in
writing prior to making such disclosure.
9.12 SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
9.13 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
this Agreement, the Notes and the Warrants. Each of the Company and the
Purchasers (severally and not jointly) agree that monetary damages would not be
adequate compensation for any loss incurred by reason of any breach of its
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
9.14 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any Closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, the Notes or the
Warrants, and it shall not be necessary for any other Purchaser to be joined as
an additional party in any proceeding for such purpose.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.
ALLIANCE PHARMACEUTICAL CORP.
By:
--------------------------------------
Name: Theodore D. Roth
Title: President and Chief Operating
Officer
HARRIS & HARRIS GROUP, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
------------------------------------------
STEPHEN M. McGRATH
------------------------------------------
JAN A. DEKKER
28
<PAGE>
SCHEDULE I
COMPANY:
ALLIANCE PHARMACEUTICAL CORP.
3040 Science Park Road
San Diego, CA 92121
Attn: Theodore D. Roth
Fax: (619) 558-5306
PURCHASERS:
<TABLE>
<CAPTION>
NUMBER AND
NAME AND ADDRESS PRINCIPAL AMOUNT OF NOTES PURCHASE PRICE OF TOTAL
OF PURCHASER PURCHASED WARRANTS PURCHASED PURCHASE PRICE
---------------- ------------------------- ------------------ --------------
<S> <C> <C> <C>
Harris & Harris Group, Inc. $1,200,000 200,000 $1,202,000.00
One Rockefeller Center
Suit 1430
New York, NY 10020
Jan A. Dekker $ 400,000 66,667 $ 400,666.67
KPMG Meijburg & Co.
Burgemeester
Rijnderslaan 10
1185 MC Amstelveen
PO Box 74600
1070 DE Amsterdam
Netherlands
Stephen M. McGrath $ 200,000 33,333 $ 200,333.33
39 Talbot Court
Short Hills, NJ 07078
</TABLE>
S-1
<PAGE>
EXHIBIT A
FORM OF
6% CONVERTIBLE SUBORDINATED NOTE DUE MAY __, 2002
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR
OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO
THIS NOTE UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
__________ May ___, 1999
FOR VALUE RECEIVED, ALLIANCE PHARMACEUTICAL CORP., a New York corporation
(the "Company"), hereby promises to pay to the order of [_______________], or
registered assigns (the "holder"), at such place as the holder may designate in
writing, in lawful money of the United States of America, the principal sum of
_______________________ ________ dollars ($_________) on May ___, 2002, and to
pay interest (computed on the basis of a 360-day year of twelve 30-day months)
on the unpaid principal amount hereof at the rate of 6% per annum in the manner
provided below.
Payments of principal and interest shall be made to the registered holder
hereof in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts, at
the office of the Company at 3040 Science Park Road, San Diego, California,
92121, subject to the right of the registered holder hereof under the Purchase
Agreement referred to below to receive direct payment in immediately available
funds.
The principal amount of this Note shall be due and payable on May ___,
2002. Accrued interest shall be paid by the Company semiannually on June 1 and
December 1 of each year, commencing on December 1, 1999 until paid in full.
If any amounts under this Note become due and payable on a day that banks
in the State of New York are not open for business, such amounts shall be paid
on the next succeeding day that such banks shall be open for business.
This Note has been issued pursuant to, and is one of a series of
convertible subordinated notes (the "Notes") in the aggregate principal amount
of $1,800,000 that were issued pursuant to, and are subject to all of the
provisions of, the Securities Purchase Agreement dated as of May __, 1999
between the Company and the Purchasers named therein (the "Purchase Agreement").
Capitalized terms herein are used as defined in the Purchase Agreement unless
otherwise defined herein.
The holder of this Note shall have the right, at its option, at any time
and from time to time, to convert, any or all of the then outstanding principal
amount of this Note into fully paid and non-assessable shares of the Company's
common stock, $.001 par value per share, in accordance with the terms and
provisions of Article VII of the Purchase Agreement.
A-1
<PAGE>
The occurrence of any one or more of the following events shall constitute
an Event of Default under this Note: (i) the failure to pay principal of or
interest on this Note within 15 days of the due date; (ii) the breach by the
Company in any material respect of any warranty or representation made by it in
the Purchase Agreement or any certificate delivered pursuant thereto; (iii) the
breach by the Company of any covenant on its part to be performed under this
Note (other than as set forth in clause (i) of this paragraph) or the Purchase
Agreement and the continuance of such breach for a period of thirty days after
notice thereof from the holders of at least a majority of outstanding principal
amount of the Notes, (iv) a proceeding being filed or commenced against the
Company for dissolution or liquidation, or the Company voluntarily or
involuntarily terminating or dissolving or being terminated or dissolved; or
(v) insolvency of, the appointment of a custodian, trustee, liquidator or
receiver for any of the property of, or an assignment for the benefit of
creditors by or the filing of a petition under bankruptcy, insolvency or
debtor's relief law, or for any readjustment of indebtedness, composition or
extension by or against the Company.
Upon the occurrence and during the continuance of an Event of Default, the
holder of Notes representing at least a majority of the aggregate principal
amount of the Notes then outstanding may at its option by notice in writing to
Company declare this Note to be, and this Note shall become, due and payable;
provided, however, that upon the occurrence of an Event of Default specified in
clauses (iii) or (iv) above, this Note shall automatically become due and
payable, without notice or demand. If an Event of Default occurs, the Company
agrees to pay to the holder all expenses incurred by the holder, including
reasonable attorneys' fees, in enforcing and collecting this Note.
Failure of or delay by the holder hereof to assert any right contained
herein will not be deemed to be a waiver thereof. The holder of this Note may
not waive any of his rights, except by an instrument in writing signed by the
holder.
This Note is a general unsecured obligation of the Company and is
subordinated to all Senior Indebtedness in accordance with Article VI of the
Purchase Agreement.
This Note may be amended and the provisions hereof may be waived only in
accordance with Article VII of the Purchase Agreement. This Note shall be
governed by and construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, Alliance Pharmaceutical Corp. has executed and
delivered this Note as of the date first stated above.
ALLIANCE PHARMACEUTICAL CORP.
------------------------------------------
By:
Title:
A-2
<PAGE>
EXHIBIT B
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 ________________________ OR UPON EARLIER
EXPIRATION PURSUANT TO ARTICLE VIII HEREIN.
FORM OF WARRANT TO PURCHASE
**_________ SHARES**
WARRANT TO PURCHASE
COMMON STOCK
OF ALLIANCE PHARMACEUTICAL CORP.
This certifies that, for good and valuable consideration received,
__________________ 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 ______________ and
before 5:00 P.M., New York time, on May ___, 2004, (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-1
<PAGE>
(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.
(d) CURRENT MARKET PRICE: The average of the daily closing price per
share of Common Stock 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) EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
(f) EXERCISE PRICE: The lesser of (i) $2.50 per Warrant Share, as
such price may be adjusted from time to time pursuant to the provisions of
Article III hereof or (ii) the Public Offering Price.
(g) EXPIRATION DATE: 5:00 P.M., New York time, on _________________,
or such earlier date of expiration as may occur pursuant to Article VII herein.
(h) NASD: National Association of Securities Dealers, Inc.
(i) PERSON: An individual, partnership, joint venture, corporation,
trust, unincorporated organization or government or any department or agency
thereof.
(j) REDEMPTION DATE: The date specified for redemption of the
Warrants pursuant to Section 7.02 herein.
(k) REDEMPTION PRICE: $0.01 per Warrant Share.
(l) SEC: The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act or the Exchange Act.
(m) SECURITIES ACT: The Securities Act of 1933, as amended.
(n) WARRANTS: This Warrant and all other warrants that may be issued
in its place (together evidencing the right to purchase an aggregate of
___________________ (________) shares of Common Stock, subject to adjustment
from time to time in accordance with Article III).
(o) 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
B-2
<PAGE>
whose name this Warrant is registered upon the books to be maintained by the
Company for that purpose.
(p) 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 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.
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
Subscription 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.
(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
B-3
<PAGE>
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
distribution 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.
(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, 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. 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.
B-4
<PAGE>
(d) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents ($.05)
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.
(e) 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 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.
B-5
<PAGE>
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
(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.
B-6
<PAGE>
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 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: SPLIT-UP, COMBINATION, EXCHANGE AND TRANSFER OF WARRANTS.
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.
B-7
<PAGE>
ARTICLE VII
OTHER MATTERS
SECTION 7.01: EXPENSES OF TRANSFER. The Company will from time to time
promptly pay, subject to the provisions of Section 6.01 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 7.02: 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 7.03: 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 (assuming, for purposes of
calculating such consent, that all Warrantholders have exercised the Warrants at
the time such consent is sought). Warrantholders shall be bound by any consent
authorized by this Section whether or not certificates representing such
Warrants have been marked to indicate such consent.
SECTION 7.04: GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7.05: 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 7.06: 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 7.07: 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
B-8
<PAGE>
With a Copy to:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, NY 10038-4982
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 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, at his last known
address as it shall appear on the books of the Company.
SECTION 7.08: HEADINGS. The Article headings herein are for convenience
only and are not part of this Warrant and shall not affect the interpretation
thereof.
B-9
<PAGE>
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company as
of the ____ day of ___________.
ALLIANCE PHARMACEUTICAL CORP.
By:
---------------------------------------
Theodore D. Roth
President and Chief Operating Officer
B-10
<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:
- --------------------------------
B-11
<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.
B-12
<PAGE>
SCHEDULE 2.1(C)
CAPITALIZATION; RIGHTS TO ACQUIRE CAPITAL STOCK
A. Authorized Capital Stock
<TABLE>
<S> <C>
Authorized Common Stock, $.01 par value 75,000,000
Authorized Preferred Stock, $.01 par value 5,000,000
1.5 million shares of Series A Preferred Stock
500,000 shares of Series D Preferred Stock
100,000 shares of Series E-1 Preferred Stock
Outstanding Securities as of May 10, 1999
Common Stock 33,242,830
Series D Preferred Stock 500,000
Series E-1 Preferred Stock 52,163
Outstanding Options 5,305,910
Outstanding Warrants 565,523
</TABLE>
B. RIGHTS TO ACQUIRE CAPITAL STOCK
1. Pursuant to Section 7.1 of a preferred stock purchase agreement, the holder
of all 500,000 shares of Series D Preferred Stock, Schering Berlin Venture
Corp. ("SBVC"), has the right to acquire additional shares of Common Stock
if the Company issues (an "Issuance") additional shares of Common Stock in
a public or private offering (including upon the conversion of warrants of
other convertible securities). The purchase price is to be equal to the
price per share of Common Stock paid in such Issuance. The number of
shares SBVC may purchase is equal to 1.59% of the Common Stock issued in
the Issuance.
2. In November 1996, the Company acquired MDV Technologies, Inc. ("MDV") by a
merger (the "MDV Merger") of a wholly owned subsidiary of the Company into
MDV. The Company may pay up to $20 million to former shareholders of MDV
if advanced clinical development or licensing milestones are achieved in
connection with MDV's technology. The Company will also make certain
royalty payments on the sales of products, if any, developed from such
technology. The Company may buy out its royalty obligation for $10 million
at any time prior to the first anniversary of the approval by U.S.
regulatory authorities of any products based upon the MDV technology (the
amount increasing thereafter over time). All of such payments to the
former MDV shareholders may be made in cash or, at the Company's option,
shares of the Company's common stock, except for the royalty obligations
which will be payable only in cash. The Company has not determined whether
subsequent payments (other than royalties) will be made in cash or in
common stock.
<PAGE>
3. The Company is in the process of selling up to 12 million shares and will
grant the placement agent a warrant to purchase up to 10% of the shares
sold in the offering.
4. The Company has recently issued a warrant for 180,000 shares to an
affiliate of the bank which has an outstanding loan to the Company.
<PAGE>
SCHEDULE 2.1(E)
CONSENTS AND APPROVALS
The Company is required to obtain the approval of its bank before taking on
additional indebtedness, which approval has been obtained.
<PAGE>
SCHEDULE 2.1(F)
LITIGATION; PROCEEDINGS
The Company is engaged in an arbitration with its former partner, Hoechst Marion
Roussel, which is described in the SEC Documents filed by the Company.
<PAGE>
SCHEDULE 2.1(G)
NO DEFAULT OR VIOLATION
The Company is in default of its loan with the bank, however, the bank has
agreed to waive the default if the Company raises $18 million in capital by
June 15, 1999, restructures the loan payments and gives the bank a lien in the
Company's intellectual property.
<PAGE>
SCHEDULE 2.1(O)
REGISTRATION RIGHTS, RIGHTS OF PARTICIPATION
1. The holders of outstanding warrants for 337,220 shares of Common Stock
issuable at prices ranging from $6.67 to $20 per share have demand and/or
piggyback registration rights. The Company is required to give notice to
the holders of such outstanding warrants of registration with the
Securities and Exchange Commission of the shares of common stock sold
hereby (and to offer the opportunity to register common stock upon exercise
of the warrants with respect to warrants with piggyback registration
rights).
2. Hoechst Marion Roussel, Inc. ("HMRI") received 345,327 shares of common
stock upon conversion in June 1997 of preferred stock of Alliance. HMRI
has demand registration rights for such shares.
3. SBVC owns 500,000 shares of Series D Preferred Stock which converts into a
number of shares of Common Stock, such number to be determined by a
formula. The Company has an obligation to register the Common Stock to be
received upon conversion and other shares of Common Stock received by SBVC
pursuant to a right to participate in Issuances (see Schedule 4.6(B)(1)) or
Common Stock issued pursuant to stock dividends, stock splits or similar
distributions.
4. In connection with the acquisition of a subsidiary, MDV Technologies, Inc.,
the Company registered the estimated number of shares to potentially be
received by the former MDV shareholders. Under certain circumstances the
Company could be required to issue and register additional shares of Common
Stock which would be required to be registered.
5. The Company is in the process of registering 12 million shares
6. The Company has demand and piggyback registration obligations on the bank's
conversion shares and the placement agent's conversion shares discussed in
Schedule 2.1(c), Section B(3) and (4).
<PAGE>
SCHEDULE 2.1(P)
TITLE
All California facilities are leased.
In connection with the purchase of the Otisville, New York facility in 1983, the
Company entered into a land use agreement with the New York City Development
Corporation, the provisions of which require the Company to care for retired
police horses. The provisions are "covenants running with the land" binding
upon the Company and subsequent owners.
The Company has a line of credit for up to $1.5 million with Wells Fargo Bank.
The loan is secured by certain cash and securities accounts.
In June 1998, Imperial Bank entered into a credit agreement providing for a loan
of up to $15 million to the Company. As security for the loan the Company
granted a security interest in all then existing or thereafter acquired personal
property of the Company, excluding certain specific equipment and all intangible
assets (including intellectual property, patents and patent applications). On
May 17, 1999, the Company granted the bank a security interest on its
trademarks, patents, trade secrets and license agreements and proceeds thereof.
A subsidiary has agreed to give a similar security interest in its assets.
<PAGE>
EXHIBIT 10(v)
1991 STOCK OPTION PLAN
OF
ALLIANCE PHARMACEUTICAL CORP.
(as amended through August 11, 1999)
1. PURPOSE. The purpose of this Stock Option Plan (the "Plan") is to
provide an additional incentive to, and attract and hold in service,
directors, officers and other employees of, and consultants to, the
Corporation, and any future subsidiaries of the Corporation, who are
providing, or who are expected to provide, services which are deemed
important to the Corporation. Accordingly, these persons may be encouraged to
acquire stock ownership in, and increase their commitment to, the
Corporation, thereby promoting the interests of the Corporation and its
shareholders. Options granted under the Plan may be incentive stock options
satisfying the requirements of Section 422 of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"), and non-qualified stock
options which are not intended to satisfy said Section 422.
2. DEFINITIONS. When used in this Plan, unless the context otherwise
requires:
(a) "Board of Directors" or "Board" shall mean the Board of Directors
of the Corporation, as constituted at any time.
(b) "Chairman of the Board" shall mean the person who at the time
shall be Chairman of the Board of Directors.
(c) "Committee" shall mean the Committee hereinafter described in
Section 3.
(d) "Corporation" shall mean Alliance Pharmaceutical Corp., a New
York corporation.
(e) "Eligible Persons" shall mean those persons described in Section
4 who are potential recipients of Options.
(f) "Fair Market Value" on a specified date shall mean the closing
price at which a Share is traded on the stock exchange, if any, on which
Shares are primarily traded or, if the Shares are not then traded on a
stock exchange, the average of the closing bid and asked prices at which a
Share is traded on the over-the-counter market, as reported on the National
Association of Security Dealers Automated Quotation System, but if no
Shares were traded on such date, then on the last previous date on which a
Share was so traded, or, if none of the above are applicable, the value of
a Share as established by the Committee for such date using any reasonable
method of valuation.
(g) "Options" shall mean the Stock Options granted pursuant to this
Plan.
1
<PAGE>
(h) "Plan" shall mean this 1991 Stock Option Plan of Alliance
Pharmaceutical Corp., as adopted by the Board of Directors on May 20, 1994,
as such Plan from time to time may be amended.
(i) "President" shall mean the person who at the time shall be the
President of the Corporation.
(j) "Share" shall mean a share of common stock, par value $.01 per
share, of the Corporation.
(k) "Subsidiary" shall mean any corporation 50% or more of whose
stock having general voting power is owned by the Corporation, or by
another Subsidiary as herein defined, of the Corporation.
3. COMMITTEE. The Plan shall be administered by the Board of Directors
unless the Board of Directors otherwise appoints a committee to administer the
Plan.
4. PARTICIPANTS. The class of persons who are potential recipients of
Options granted under this Plan consist of directors and key employees of the
Corporation or a Subsidiary, and consultants to the Corporation or a
Subsidiary (hereinafter referred to as "Consultants"), as determined by the
Committee. The persons to whom Options are granted under this Plan, and the
number of Shares subject to each such Option, shall be determined by the
Committee in its sole discretion, subject, however, to the terms and
conditions of this Plan.
5. SHARES. Subject to the provisions of Section 14 hereof, the
Committee may grant Options with respect to an aggregate of up to 8,300,000
Shares, all of which Shares may be either Shares held in treasury or
authorized but unissued Shares. The maximum number of Shares which may be
the subject of Options granted to any individual in any calendar year shall
not exceed 200,000 Shares. If the Shares that would be issued or transferred
pursuant to any Option are not issued or transferred and cease to be issuable
or transferable for any reason, the number of Shares subject to such Option
will no longer be charged against the limitation provided for herein and may
again be made subject to Options; provided, that the counting of Shares
subject to Options granted under the Plan against the number of Shares
available for further Options shall in all cases conform to the requirements
of Rule 16b-3 under the Exchange Act; and provided, further, that with
respect to any Option granted to any Eligible Person who is a "covered
employee" as defined in Section 162(m) of the Internal Revenue Code and the
regulations promulgated thereunder that is canceled, the number of Shares
subject to such Option shall continue to count against the maximum number of
Shares which may be the subject of Options granted to such Eligible Person.
6. GRANT OF OPTIONS. The number of any Options to be granted to any
Eligible Person shall be determined by the Committee in its sole discretion.
At the time an Option is granted, the Committee may, in its sole discretion,
designate whether such Option (a) is to be considered as an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code, or (b)
is not to be treated as an incentive stock option for purposes of this Plan
and the Internal Revenue Code. No option which is intended to qualify as an
incentive stock option shall
2
<PAGE>
be granted to any individual who, at the time of the grant, is not an
employee of the Corporation or a Subsidiary.
Notwithstanding any other provision of this Plan to the contrary, to the
extent that the aggregate Fair Market Value (determined as of the date an
Option is granted) of the Shares with respect to which Options which are
designated as (or deemed to be) incentive stock options granted to an
employee (and any incentive stock options granted to such employee under any
other incentive stock option plan maintained by the Corporation or any
Subsidiary that meets the requirements of Section 422 of the Internal Revenue
Code) first become exercisable in any calendar year exceeds $100,000, such
Options shall be treated as Options which are not incentive stock options.
Options with respect to which no designation is made by the Committee shall
be deemed to be incentive stock options to the extent that the $100,000
limitation described in the preceding sentence is met. This paragraph shall
be applied by taking options into account in the order in which they are
granted.
Nothing herein contained shall be construed to prohibit the issuance of
Options at different times to the same person.
An Option shall be evidenced by a written Option agreement in a form
approved by the Committee. An Option agreement signed by the Chairman of the
Board or the President or a Vice President of the Corporation, and dated the
day of grant, or such later date as the Committee in its sole discretion,
shall determine, shall be tendered to each person to whom an Option is
granted, except that such Option agreement shall be deemed rescinded and have
no effect if the Option holder, within a specified period, does not sign an
unqualified acceptance, in such form as the Committee has prescribed, of such
Option agreement. The Option agreement for an Option shall indicate whether
or not the Option is an incentive stock option.
7. PURCHASE PRICE. The purchase price per Share of the Shares to be
purchased pursuant to the exercise of an Option shall be fixed by the
Committee at the time of grant; provided however, that the purchase price per
Share under an incentive stock option shall not in any event be less than
100% of the Fair Market Value of a Share on the date of grant of the Option
and the purchase price per Share under a non-qualified stock option shall not
be less than the greater of either the par value of said Shares or 80% of the
Fair Market Value of said Shares on the date of grant of the Option.
8. DURATION OF OPTIONS. The duration of any Option granted under this
Plan shall be for a period of ten years from the date upon which the Option
is granted or such lesser period as the Committee may determine at the time
of grant.
9. TEN PERCENT SHAREHOLDERS. Notwithstanding any other provision of
this Plan to the contrary, no Option which is intended to qualify as an
incentive stock option may be granted under this Plan to any employee who, at
the time the Option is granted, owns Shares possessing more than 10% of the
total combined voting power of all classes of stock of the Corporation or any
Subsidiary, unless the exercise price under such Option is at least 110% of
the Fair Market Value of a Share on the date such Option is granted and the
duration of such Option is no more than five years.
3
<PAGE>
10. EXERCISE OF OPTIONS. Except as otherwise provided herein, Options,
after the grant thereof, shall be exercisable by the holder at such rate and
times as may be fixed by the Committee; provided, however, that no Options
may be exercised for less than 100 Shares at a time, unless the grant is for
a number of Shares not evenly divisible by 100, in which case the final
exercise may be for the remaining Shares; and provided, further, that no
Option may be exercised prior to the approval of the Plan by a majority vote
of the shareholders.
Notwithstanding the foregoing, all or any part of any remaining
unexercised Options granted to any person may, after approval of the Plan by
a majority vote of the shareholders of the Corporation, be exercised in the
following circumstances: (a) subject to the provisions of Section 13 hereof,
immediately upon (but prior to the expiration of the term of the Option) the
holder's cessation of employment or service due to retirement from the
Corporation and all Subsidiaries on or after his 65th birthday, (b) subject
to the provisions of Section 13 hereof, upon the disability (to the extent
and in a manner as shall be determined by the Committee in its sole
discretion) or death of the holder, or (c) upon the occurrence of such
special circumstance or event as in the opinion of the Committee merits
special consideration; provided, however, that the estate of the deceased
holder of an Option may exercise it prior to the expiration of the six-month
period described above.
An Option shall be exercised by the delivery of a written notice duly
signed by the holder thereof to such effect ("Exercise Notice"), together
with the full purchase price of the Shares purchased pursuant to the exercise
of the Option, to the Chairman of the Board or an officer of the Corporation
appointed by the Chairman of the Board for the purpose of receiving the same.
Payment of the full purchase price shall be made as follows: (i) in cash or
by check payable to the order of the Corporation which amount payable
includes all applicable withholding taxes; (ii) by including in the Exercise
Notice an order to a designated broker to sell part or all of the Shares and
to deliver sufficient proceeds to the Corporation to pay the full purchase
price of the Shares and all applicable withholding taxes; (iii) if
specifically authorized by the Committee and the purchaser is an employee or
Consultant at the time of purchase, by payment in cash of at least $.01 per
Share and all applicable withholding taxes, with the remainder of the Option
price being borrowed from the Corporation as described below; or (iv) by such
other methods as the Committee may permit from time to time. In the case
described in clause (iii) above, the Corporation, unless otherwise determined
by the Committee, will lend to such purchaser an amount up to the excess of
the full Option price of the Shares purchased over the cash payment, but not
more than the excess of such price over the par value of such Shares, such
loan to be evidenced by the purchaser's delivery to the Corporation of his or
her unconditional promissory note to pay the amount of the loan within five
years in such manner as is determined by the Committee. Any such note: (i)
shall be dated the date of the Exercise Notice of the Option, (ii) shall
provide for the payment of equal installments of principal, (iii) shall
provide for quarterly payment of interest on such indebtedness at such rate
as the Committee may determine, which cannot be less than the prime rate and
(iv) shall be in such form and contain such other provisions as the Committee
may determine from time to time. In connection with any such loan the
purchaser shall deposit with the pledge to the Corporation the certificate or
certificates evidencing all of the Shares so purchased, to be held by the
Corporation as collateral security for such loan. If the employment or
consulting arrangement of the purchaser is terminated by reason of death, any
unpaid balance of such indebtedness shall become due and payable one year
after the date of
4
<PAGE>
the death, but not later than five years after the date of purchase, unless
otherwise determined by the Committee. If the employment or consulting
arrangement of the purchaser is terminated for any reason other than death,
any unpaid balance of such indebtedness shall become immediately due and
payable on such date of termination, unless otherwise determined by the
Committee. Cash dividends paid on Shares held by the Corporation as security
shall be paid to the purchaser. Voting rights and other shareholder's rights
with respect to all Shares shall vest in the purchaser although the Shares
are held by the Corporation as security. Upon default in the payment of
principal or interest on a loan provided for in this paragraph, the
Corporation, to the extent then permitted by law and without demand or notice
to the debtor, may sell any pledged Shares for the benefit of the debtor and
apply the net proceeds of such sale to the then unpaid principal and interest
on such loan, and any remainder of such proceeds shall be paid to the debtor.
Within a reasonable time after the exercise of an Option, the
Corporation shall cause to be delivered to the person entitled thereto, a
certificate for the Shares purchased pursuant to the exercise of the Option,
subject to the deposit of such certificate as collateral security for a loan
as described in the preceding paragraph. If the Option shall have been
exercised with respect to less than all of the Shares subject to the Option,
the Corporation shall maintain records indicating the number of Shares with
respect to which the Option remains available for exercise and, absent
manifest error, the Corporation's records shall be determinative.
In lieu of the foregoing option exercise payment methods, the Option
holder may deliver with the Exercise Notice (A) shares of the Corporation's
Common Stock owned by the holder having a Fair Market Value calculated as of
the date of the Option exercise equal to the sum of (i) the aggregate Option
exercise price of the Shares with respect to which such Option or portion is
being exercised and (ii) applicable withholding taxes, duly endorsed for
transfer to the Corporation, or (B) written instructions to withhold shares
of the Corporation's Common Stock issuable to the holder upon exercise of the
Option being exercised, having a Fair Market Value calculated as of the date
of the Option exercise equal to the sum of (i) the aggregate Option exercise
price of the Shares with respect to which such Option or portion is being
exercised (including the Shares to be withheld) and (ii) applicable
withholding taxes. Notwithstanding the foregoing, Option holders may not
utilize these alternative methods of payment in connection with incentive
stock options outstanding on November 15, 1995.
Notwithstanding any other provision of the Plan or of any Option, no
Option granted pursuant to the Plan may be exercised at any time when the
Option or the granting or exercise thereof violates any law or governmental
order or regulation.
11. CONSIDERATION FOR OPTIONS. The Corporation shall obtain such
consideration for the grant of an Option as the Committee in its discretion
may determine.
12. NON-TRANSFERABILITY OF OPTIONS. Options and all other rights
thereunder shall be non-transferable or non-assignable by the holder thereof
except to the extent that the estate of a deceased holder of an Option may be
permitted to exercise them. Options may be exercised or surrendered during
the holder's lifetime only by the holder thereof.
5
<PAGE>
13. TERMINATION OF EMPLOYMENT. All or any part of any Option, to the
extent unexercised, shall terminate immediately: (i) in the case of an
employee, upon the cessation or termination for any reason of the holder's
employment by the Corporation or any Subsidiary, or (ii) in the case of a
director or Consultant who is not an employee, upon the holder's ceasing to
serve as a director or Consultant of the Corporation or any Subsidiary,
except that the holder shall have until the end of the tenth business day
following the cessation of his employment with the Corporation or its
Subsidiaries or his service as a director or Consultant of the Corporation or
its Subsidiaries, and no longer, to exercise any unexercised Option that he
could have exercised on the day on which such employment or service
terminated; provided, that such exercise must be accomplished prior to the
expiration of the term of such Option. Notwithstanding the foregoing, if the
cessation of employment or service is due to retirement on or after attaining
the age of sixty-five (65) years, or to disability (to an extent and in a
manner as shall be determined in each case by the Committee in its sole
discretion) or to death, the holder or the representative of the estate of a
deceased holder shall have the privilege of exercising the Options which are
unexercised at the time of such retirement, or of such disability or death;
provided, however, that such exercise must be accomplished prior to the
expiration of the term of such Option and (a) within three months of the
holder's retirement or disability, or (b) within six months of the holder's
death, as the case may be. If the employment or service of any Option holder
with the Corporation or its Subsidiaries shall be terminated because of the
Option holder's violation of the duties of such employment or service with
the Corporation or its Subsidiaries as he may from time to time have, the
existence of which violation shall be determined by the Board in its sole
discretion (which determination by the Board shall be conclusive), all
unexercised Options of such Option holder shall terminate immediately upon
such termination of the holder's employment or service with the Corporation
or its Subsidiaries, and an Option holder whose employment or service with
the Corporation or its Subsidiaries is so terminated, shall have no right
after such termination to exercise any unexercised Option he might have
exercised prior to the termination of his employment or service with the
Corporation or its Subsidiaries.
14. ADJUSTMENT PROVISION. If prior to the complete exercise of any
Option there shall be declared and paid a stock dividend upon the Shares or
if the Shares shall be split up, converted, exchanged, reclassified, or in
any way substituted for, then the Option, to the extent that it has not been
exercised, shall entitle the holder thereof upon the future exercise of the
Option to such number and kind of securities or cash or other property
subject to the terms of the Option to which he would have been entitled had
he actually owned the Shares subject to the unexercised portion of the Option
at the time of the occurrence of such stock dividend, split-up, conversion,
exchange, reclassification or substitution, and the aggregate purchase price
upon the future exercise of the Option shall be the same as if the originally
optioned Shares were being purchased thereunder.
Any fractional shares or securities issuable upon the exercise of the
Option as a result of such adjustment shall be payable in cash based upon the
Fair Market Value of such shares or securities at the time of such exercise.
If any such event should occur, the number of Shares with respect to which
Options remain to be issued, or with respect to which Options may be
reissued, shall be adjusted in a similar manner.
6
<PAGE>
Notwithstanding any other provision of this Plan, in the event of a
recapitalization, merger, consolidation, rights offering, reorganization,
liquidation, or other change in the Corporation's corporate structure or
outstanding Shares, the Committee may make such equitable adjustments to the
number of Shares and class of shares available hereunder as it shall deem
appropriate to prevent dilution or enlargement of rights.
15. ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES ACT. The
Corporation may postpone the issuance and delivery of Shares pursuant to the
grant or exercise of any Option until (a) the admission of such Shares to
listing on any stock exchange on which Shares of the Corporation 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 Corporation shall determine to be necessary or advisable.
Any holder of an Option shall make such representations and furnish such
information as may, in the opinion of counsel for the Corporation, be
appropriate to permit the Corporation, in the light of the then existence or
non-existence with respect to such Shares of an effective time to time
amended (the "Securities Act"), to issue the Shares in compliance with the
provisions of the Securities Act or any comparable act. The Corporation
shall have the right, in its sole discretion, to legend any Shares which may
be issued pursuant to the grant or exercise of any Option, or may issue stop
transfer orders in respect thereof.
16. INCOME TAX WITHHOLDING. If the Corporation or a Subsidiary shall
be required to withhold any amounts by reason of any Federal, State or local
tax rules or regulations in respect of the issuance of Shares pursuant to the
exercise of any Option, the Corporation or the Subsidiary shall be entitled
to deduct and withhold such amounts from any cash payments to be made to the
holder of such Option. In any event, the holder shall make available to the
Corporation or Subsidiary, promptly when requested by the Corporation or such
Subsidiary, sufficient funds to meet the requirements of such withholding;
and the Corporation or Subsidiary shall be entitled to take and authorize
such steps as it may deem advisable in order to have such funds made
available to the Corporation or Subsidiary out of any funds or property due
or to become due to the holder of such Option.
17. ADMINISTRATION AND AMENDMENT OF THE PLAN. Except as hereinafter
provided, the Board of Directors or the Committee may at any time withdraw or
from time to time amend the Plan as it relates to, and the terms and
conditions of, any Option not theretofore granted, and the Board of Directors
or the Committee, with the consent of the affected holder of an Option, may
at any time withdraw or from time to time amend the Plan as it relates to,
and the terms and conditions of, any outstanding Option. Notwithstanding the
foregoing, any amendment by the Board of Directors or the Committee which
would (i) increase the number of Shares issuable under the Plan or to any
individual, (ii) materially increase the benefits accruing to Eligible
Persons under the Plan, or (iii) change the class of Eligible Persons, shall
be subject to the approval of the shareholders of the Corporation within one
year of such amendment. Effective August 11, 1999, without the prior approval
of the Corporation's shareholders, options issued hereunder will not be
re-priced by lowering the option exercise price of a previously granted
award, or by cancellation of outstanding options with subsequent replacement,
or re-grant of options with lower exercise prices.
7
<PAGE>
Determinations of the Committee as to any question which may arise with
respect to the interpretation of the provisions of the Plan and Options shall
be final. The Committee may authorize and establish such rules, regulations
and revisions thereof not inconsistent with the provisions of the Plan, as it
may deem advisable to make the Plan and Options effective or provide for
their administration, and may take such other action with regard to the Plan
and Options as it shall deem desirable to effectuate their purpose.
The Plan is intended to comply with Rule l6b-3 under the Exchange Act.
Any provision inconsistent with such Rule shall be inoperative and shall not
affect the validity of the Plan.
18. NO RIGHT OF EMPLOYMENT OR SERVICE. Nothing contained herein or in
an Option shall be construed to confer on any Eligible Person any right to be
continued in the employ or service of the Corporation or any Subsidiary or
derogate from any right of the Corporation and any Subsidiary to retire,
request the resignation of or discharge such Eligible Person (without or with
pay), at any time, with or without cause.
19. FINAL ISSUANCE DATE. No Option shall be granted under the Plan
after November 7, 2001.
8
<PAGE>
AGREEMENT TO
WAIVE COVENANT VIOLATION AND MODIFY LOAN
This Agreement to Waive Covenant Violation and Modify Loan
("Agreement") is executed by Alliance Pharmaceutical Corp. ("Borrower") and
Imperial Bank ("Bank") as of May 17, 1999.
WHEREAS, Borrower and Bank entered into a credit agreement ("Credit
Agreement"), security agreement ("Security Agreement") and a promissory note
("Note") in the amount of $15 million (such Credit Agreement, Security Agreement
and Note collectively, the "Loan Documents") providing for a loan in the amount
of $15 million;
WHEREAS, the Loan Documents required Borrower to maintain Liquid
Assets of not less than $25 million at all times;
WHEREAS, in March 1999 Borrower's Liquid Assets were less than
$25 million;
WHEREAS, Borrower expects to close an offering of its common stock
(the "Closing") on or before June 15, 1999;
WHEREAS, Borrower and Bank wish to provide for a waiver of the loan
covenant violation and to restructure the loan pursuant to the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, the parties do hereby agree as follows:
1. Borrower is in violation of Section 2.04 of the Agreement as of
March 1999, requiring Borrower to maintain Liquid Assets of not less than
$25,000,000. As of March 26, 1999, Borrower's Liquid Assets were $21,652,840.
2. The Bank hereby consents to the repurchase by Borrower of all of its
outstanding E-1 Preferred Stock and to the issuance of up to $3 million in
convertible debentures for such purpose.
3. Bank hereby waives the covenant violation discussed in Section 1 above
as of the date of this Agreement and the Closing, subject to the conditions set
forth in Sections 3(a), (b), (c) and (d) below. The waiver contained herein is
specific as to contents and shall not be construed as waiving any other past,
presently existing or future non-compliance with any covenant of the Credit
Agreement and in no way affects any rights and remedies that Bank may have with
respect to any other non-compliance with any other covenant of the Agreement.
On or before June 15, 1999, Borrower will
a. Pledge $5,000,000 in cash, to be held in a Bank Time Certificate
of Deposit ("CD");
1
<PAGE>
b. Provide Bank with a first priority perfected security interest in
its unlicensed patented technology pursuant to an Intellectual Property Security
Agreement (to be completed as soon as reasonably possible);
c. Issue a warrant to purchase 180,000 shares of Borrower's common
stock to Imperial Bancorp on terms agreed to by the parties (to be completed as
soon as reasonably possible);
d. Have raised a minimum of $18,000,000 in new equity.
4. Contemporaneously with the delivery of $5 million to Bank in
Section 3(a) above and the Closing:
a. The current outstanding promissory note shall be divided into two
promissory notes as follow:
(i) $5,000,000, secured by CD as required in Section 2(a)
above. Repayment to be interest only for 12 months followed by 36 months of
equal principal payments plus interest. The interest rate, at Borrower's
option, shall be 30, 60 or 90 day LIBOR plus one and one quarter of one percent
(1.25%) or at Bank's Prime Rate. The Borrower will have the option to request
quarterly reductions in the cash collateral, however, in no event shall the cash
collateral fall below the outstanding principal.
(ii) $8,945,558 (or the then outstanding balance on Borrower's
debt to Bank less $5,000,000, whichever is less), secured by all of Borrower's
assets and unlicensed technology. Amortization to be principal payments of
$500,000 per month plus interest through and including January 15, 2000 followed
by fully amortizing principal payments of $250,000 per month (expected maturity
will be October 15, 2001).
b. The Loan Documents are amended as of the Closing to require the
following:
(i) Borrower to maintain minimum cash (exclusive of cash
collateral) of the lesser of $5,000,000 or 50% of the outstanding balance of
Section 4(a)(ii) above.
(ii) Borrower to apply 10% of any additional equity raised
(excluding equity raised at the Closing and from the sale of debentures
referenced in Section 2) to the outstanding balance of the note specified in
Section 4(a)(ii) above, however, not to exceed 25% of the outstanding balance
said note.
5. A new Section 1.10 is hereby added to the Credit Agreement to
read in its entirety as follows:
"YEAR 2000 COMPLIANCE. Borrower and its subsidiaries, as applicable,
have reviewed the areas within their operations and business which
could be adversely affected by, and have developed or are developing a
program to address on a
2
<PAGE>
timely basis, the Year 2000 Problem and are making related appropriate
inquiry of material suppliers and vendors, and based on such review and
program the Borrower believes the Year 2000 Problem will not have a
material adverse effect upon their financial condition, operations or
business as now conducted. "Year 2000 Problem" means the possibility
that any computer applications or equipment used by Borrower may be
unable to recognize and properly perform date sensitive functions
involving certain dates prior to and any dates on or after December 31,
1999."
6. A new Section 2.10 is hereby added to the Credit Agreement to read in
its entirety as follows:
"YEAR 2000 COMPLIANCE. Take all commercially reasonable actions to
ensure that (a) Borrower and any business in which Borrower holds a
substantial interest, and (b) all customers, suppliers and vendors
whose compliance is likely to be material to Borrower's business,
become Year 2000 Compliant in a timely manner. Such acts shall
include, without limitation, performing a comprehensive review and
assessment of all Borrower's material systems and adopting a detailed
plan, for the remediation, monitoring and testing of such systems. As
used in this section, "Year 2000 Compliant" shall mean, in regard to
any entity, that all software, hardware, firmware, equipment, goods or
systems utilized by or material to the business operations or
financial condition of such entity, will properly perform date
sensitive functions before, during and after the year 2000. Borrower
shall, immediately upon request, provide to Bank such certifications
or other evidence of Borrower's compliance with the terms of this
section as Bank may from time to time require."
7. Except as provided above, the Loan Documents will remain unchanged.
8. This Agreement is effective as of May 18, 1999, upon receipt from
Borrower of an extension fee of Two Hundred and Fifty Dollars ($250), and the
parties hereby confirm that the Note, Addendum and Agreement, as amended, are in
full force and effect.
ALLIANCE PHARMACEUTICAL CORP. IMPERIAL BANK
By: ________________________________ By: ____________________________________
Printed Name: ______________________ Printed Name: __________________________
Title: _____________________________ Title: _________________________________
By: ________________________________
Printed Name: ______________________
Title: _____________________________
3
<PAGE>
INTELLECTUAL PROPERTY SECURITY AGREEMENT
(Borrower as Grantor)
THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (this "Agreement") is
made as of May 17, 1999, by ALLIANCE PHARMACEUTICAL CORP., a California
Corporation ("Borrower") in favor of IMPERIAL BANK, a California chartered
bank ("Secured Party").
RECITALS
A. Secured Party has agreed to lend to Borrower certain amounts (the
"Loan"), as more fully described in a Promissory Note, dated as of June 17,
1998 (as amended from time to time, the "Loan Agreement").
B. One of the preconditions to Secured Party's obligation to make any
Loan advance is Borrower's grant to Secured Party of a security interest in
the "Intellectual Property Collateral," as defined in SECTION 2, to secure
Borrower's obligations to Secured Party.
C. To induce Secured Party to advance the Loan pursuant to the terms
of the Loan Agreement, Borrower has agreed to enter into this Agreement.
AGREEMENTS
1. DEFINITIONS. The following terms not otherwise defined herein will
have the meanings indicated:
a. "COPYRIGHTS" means copyrights, registrations and applications
therefor, and any and all (i) renewals and extensions thereof, (ii) income,
royalties, damages and payments now and hereafter due or payable with respect
thereto, including damages and payments for past or future infringements
thereof, (iii) rights to sue for past, present and future infringements
thereof, and (iv) all other rights corresponding thereto throughout the world.
b. "LICENSES" means license agreements in which a party grants or
receives a grant of any interest in Copyrights, Trademarks, Patents and Trade
Secrets and other intellectual property and any and all (i) renewals,
extensions, supplements, amendments and continuations thereof, (ii) income,
royalties, damages and payments now and hereafter due or payable to the party
with respect thereto, including damages and payments for past or future
violations or infringements or misappropriations thereof, and (iii) rights to
sue for past, present and future violations or infringements thereof.
* Indicates confidential information which has been omitted and filed
separately with the Securities and Exchange Commission.
1
<PAGE>
c. "PATENTS" means patents and patent applications along with any
and all (i) inventions and improvements described and claimed therein, (ii)
reissues, reexaminations, divisions, continuations, renewals, extensions and
continuations-in-part thereof, (iii) income, royalties, damages and payments
now and hereafter due and/or payable to the holder with respect thereto,
including damages and payments for past or future infringements thereof, (iv)
rights to sue for past, present and future infringements thereof, and (v) all
other rights corresponding thereto throughout the world.
d. "TRADEMARKS" means trademarks (including service marks and
trade names, whether registered or at common law), registrations and
applications therefor, and the entire product lines and goodwill of the
owner's business connected therewith and symbolized thereby, together with
any and all (i) renewals thereof, (ii) income, royalties, damages and
payments now and hereafter due or payable with respect thereto, including
damages and payments for past or future infringements thereof, (iii) rights
to sue for past, present and future infringements or misappropriations
thereof, and (iv) all other rights corresponding thereto throughout the world.
e. "TRADE SECRETS" means trade secrets, along with any and all
(i) income, royalties, damages and payments now and hereafter due and/or
payable to the owner with respect thereto, including damages and payments for
past or future infringements or misappropriations thereof, (ii) rights to sue
for past, present and future infringements or misappropriations thereof, and
(iii) all other rights corresponding thereto throughout the world.
2. GRANT OF SECURITY INTEREST. Borrower hereby grants to Secured
Party a security interest in the following described intellectual property
(collectively, the "Intellectual Property Collateral"):
All Copyrights of Borrower, now owned or hereafter acquired,
including those Copyrights listed on Exhibit A hereto.
All Licenses of Borrower, now owned or hereafter acquired,
including those Licenses listed on Exhibit A hereto, excluding those licenses
on patents covering or directly relating to aspects of Borrower's present
product called IMAGENT, now owned or hereafter acquired.
All Patents of Borrower, now owned or hereafter acquired, including
those Patents listed on Exhibit A hereto, excluding those patents covering or
directly relating to aspects of Borrower's present product called IMAGENT,
now owned or hereafter acquired.
All Trademarks of Borrower, now owned or hereafter acquired,
including those Trademarks listed on Exhibit A hereto, excluding those
trademarks covering or directly relating to aspects of Borrower's present
product called IMAGENT, now owned or hereafter acquired.
All Trade Secrets of Borrower, now owned or hereafter acquired,
excluding those trade secrets covering or directly relating to aspects of
Borrower's present product called IMAGENT, now owned or hereafter acquired.
2
<PAGE>
All files and records of Borrower or in which Borrower has any
interest and supporting evidence and documents relating to the Intellectual
Property Collateral, including computer programs, disks, tapes and related
electronic data processing media, all rights of Borrower to retrieval from
third parties of electronically processed and recorded information, and all
payment records, correspondence, license agreements and the like, together
with all Borrower's books of account, ledgers, cabinets and equipment in
which the same are reflected or maintained, now owned or hereafter acquired.
All proceeds of the foregoing.
3. SECURED INDEBTEDNESS. The Intellectual Property Collateral secures
and will secure all Indebtedness of Borrower to Secured Party. For purposes
of this Agreement, "Indebtedness" will mean all loans and advances made by
Secured Party to Borrower, including related interest, loan fees, charges,
attorneys' fees and other expenses for which Borrower is obligated, all
guaranties by Borrower in favor of Secured Party and all other obligations
and liabilities of Borrower to Secured Party, whether now existing or
hereafter incurred or created, whether voluntary or involuntary, whether due
or not due, whether absolute or contingent, or whether incurred directly or
acquired by Secured Party by assignment or otherwise. Without limiting the
generality of the foregoing, "Indebtedness" includes all obligations of
Borrower to Secured Party under any promissory note or other instrument
evidencing debt, including all renewals and modifications thereof, and under
any guaranty.
4. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents
and warrants that:
a. This Agreement has been duly executed and delivered by
Borrower and is a legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms, except as enforceability may
be affected by bankruptcy and other laws affecting creditors' rights
generally and equitable principles, and performance of this Agreement by
Borrower does not conflict with or result in a breach of Borrower's
organizational documents or any agreement, law, regulation or order by which
Borrower or its property may be bound.
b. The issued Intellectual Property Collateral is existing and is
valid and enforceable, except to the extent that any Intellectual Property
Collateral determined to be invalid or unenforceable will not have a material
adverse effect on the Borrower or its business or financial condition.
c. Borrower is and will be and remain the sole and exclusive
owner of the Intellectual Property Collateral, except for (i) certain patents
which are half-owned or licensed as indicated on Exhibit A attached hereto or
(ii) subsequently acquired or invented Intellectual Property Collateral which
are partly owned or licensed, all of which is and will be free and clear of
any liens, charges, encumbrances and exclusive licenses, except those in
favor of Secured Party or to which Secured Party has consented in writing,
subject to paragraph 6(a) hereinbelow.
d. The Intellectual Property Collateral is and will be sufficient
for the purpose of producing all goods, performing the services and otherwise
carrying on the business of Borrower to which it relates.
3
<PAGE>
e. The Intellectual Property Collateral does not infringe any
rights owned or possessed by any third party.
f. There are no material claims, judgments or settlements to be
paid by Borrower or pending claims or litigation relating to the Intellectual
Property Collateral, except as disclosed in the Borrower's quarterly report
on Form 10Q for the quarter ending December 31, 1998.
g. No effective security agreement, financing statement,
equivalent security or lien instrument or continuation statement covering all
or any part of the Intellectual Property Collateral is on file or of record
in any public office, except such as may have been filed by Borrower in favor
of Secured Party.
h. When all appropriate filings have been made with the United
States Patent and Trademark Office, the United States Copyright Office, and
the Secretary of State of the State of California, Secured Party will have a
valid and continuing first priority lien on and first priority security
interest in the Intellectual Property Collateral in which a security interest
may be perfected under the laws of the United States or any state thereof and
all action necessary to protect and create such security interest in each
such item of the Intellectual Property Collateral will have been duly taken.
5. COVENANTS OF BORROWER. Borrower agrees that:
a. Borrower will preserve and maintain all rights in the
Intellectual Property Collateral, will diligently pursue any patent,
trademark and copyright applications, and will timely and fully perform all
Borrower's obligations in connection with the Intellectual Property
Collateral.
b. Borrower will execute, procure, deliver, register and/or
record all such documents and showings and take all further action as is
necessary, including paying maintenance fees on Intellectual Property
Collateral, or reasonably requested by Secured Party from time to time to
evidence, register, record and/or perfect Secured Party rights hereunder,
including as respects additional Intellectual Property Collateral
contemplated in paragraph 5.j. herein below, or otherwise carry out the
intent and purposes of this Agreement. Secured Party may, at its option, make
any such recordation or filing in which case Borrower will reimburse Secured
party's related costs promptly following receipt of an invoice therefor.
c. Borrower will take commercially reasonable action to halt the
infringement of any of the Intellectual Property Collateral if such
infringement could have a material adverse effect on the value of the
Intellectual Property Collateral or Borrower's ability to use the
Intellectual Property Collateral, and Borrower will promptly notify Secured
Party of such infringement or any other event which would have a material
adverse effect on the value of the Intellectual Property Collateral.
d. Borrower will not amend, modify, terminate or waive any
provisions of any other contract to which Borrower is a party in any manner
which might materially adversely affect the Intellectual Property Collateral.
4
<PAGE>
e. Borrower will not transfer or further encumber any interest in
the Intellectual Property Collateral, except for non-exclusive licenses
granted by Borrower in the ordinary course of business and as permitted in
Paragraph 6(a). The Borrower may not enter into an exclusive license
arrangement on any of its Intellectual Property Collateral without prior
written approval of the Secured Party, which approval with not be
unreasonably withheld.
f. Borrower will pay promptly when due all taxes, assessments and
governmental charges or levies imposed upon the Intellectual Property
Collateral or in respect of its income or profits therefrom and all claims of
any kind, except that no such charge need be paid if (i) such non-payment
would not involve any danger of forfeiture or loss of any of the Intellectual
Property Collateral or any interest therein and (ii) such charge is
adequately reserved in accordance with and to the extent required by GAAP.
g. Borrower will promptly notify Secured Party of any changes in
Borrower's principal office address, state of incorporation, name or
corporate structure.
h. Upon reasonable notice (unless a default has occurred and is
continuing, in which case no notice is necessary), Borrower will at all times
afford Secured Party full and free access during normal business hours to all
the books and records and correspondence of Borrower, and Secured Party or
its representatives may examine the same, take extracts therefrom and make
photocopies thereof. Borrower agrees to provide Secured Party, at Borrower's
cost and expense, such clerical and other assistance as may be reasonably
requested with regard thereto.
i. Borrower will keep and maintain adequate and complete records
of the Intellectual Property Collateral, including a record of all payments
received and all credits granted with respect to the Intellectual Property
Collateral and all other dealings with respect to the Intellectual Property
Collateral. Borrower will mark its books and records pertaining to the
Intellectual Property Collateral to evidence this Agreement and the security
interest granted hereby.
j. If prior to the time the Indebtedness has been paid in full
Borrower obtains any material rights to or interests in any new inventions,
whether or not patentable, or additional Intellectual Property Collateral,
Borrower will promptly notify Secured Party thereof.
k. Borrower will not enter into any agreement which precludes
Borrower's grant of a security interest to Secured Party in any Intellectual
Property Collateral without Secured Party's prior written consent.
l. Borrower will supply to Secured Party any source code in its
possession related to any Intellectual Property Collateral, as may be amended
or updated from time to time, it being understood that Secured Party will not
utilize or disseminate such source code except following a default and as
contemplated in SECTION 8.
6. FURTHER UNDERSTANDINGS. Borrower's rights as to the Intellectual
Property Collateral are subject to the following further understandings:
5
<PAGE>
a. Prior to the occurrence of a default hereunder Borrower may
continue to exploit, license, franchise, use, enjoy and protect (whether in
the United States of America or any foreign jurisdiction) the Intellectual
Property Collateral in the ordinary course of business and in a manner
consistent with the preservation of Secured Party's rights hereunder, and
Secured Party will execute and deliver, at Borrower's sole cost and expense,
any and all instruments, certificates or other documents reasonably requested
by Borrower to enable Borrower to do so.
b. This Agreement, and the security interest created hereunder,
will terminate when (i) all Indebtedness has been fully paid and satisfied
and (ii) there are no outstanding commitments for additional Indebtedness.
Secured Party (without recourse upon, or any warranty whatsoever by, Secured
Party) will then execute and deliver to Borrower such documents and
instruments evidencing the termination of the security interest hereunder as
Borrower may reasonably request.
c. Borrower hereby irrevocably appoints Secured Party as
Borrower's attorney-in-fact, with full authority in the place and stead of
Borrower and in the name of Borrower, from time to time in Secured party's
discretion, to take any action and to execute any instrument which Secured
party may deem necessary or advisable to accomplish the purposes of this
Agreement, including (i) to modify, in its sole discretion, this Agreement
without first obtaining Borrower's approval of or signature to such
modification by amending any Exhibit hereto to include reference to any
Intellectual Property Collateral acquired by Borrower after the execution
hereof or to delete any reference to any Intellectual Property Collateral in
which Secured Party no longer has or claims any interest and (ii) to file, in
its sole discretion, one or more financing or continuation statements and
amendments thereto relative to any of the Intellectual Property Collateral
without the signature of Borrower, where permitted by law.
7. DEFAULT. The occurrence of one or more of the following will be a
default hereunder:
a. Borrower fails to pay any Indebtedness to Secured Party when
due in accordance with the Credit Agreement dated June 17, 1998 ("Credit
Agreement").
b. Borrower breaches any term, provision, warranty or
representation under this Agreement, the Loan Agreement, Credit Agreement or
any other loan agreement or other agreement under which Borrower has
obligations relating to the Indebtedness, or Borrower breaches any other
obligation to Secured Party, subject to any cure provisions in such documents.
c. Any custodian, receiver or trustee is appointed to take
possession, custody or control of all or a substantial portion of the assets
of Borrower or of any guarantor of any Indebtedness.
d. Borrower or any guarantor of any Indebtedness becomes
insolvent, generally not paying its debts as they become due, fails in
business, makes a general assignment for the benefit of creditors, dies or
voluntarily files under any bankruptcy or other law for the relief of or
relating to debtors.
6
<PAGE>
e. Any involuntary petition is filed against Borrower or any
guarantor of any Indebtedness under any bankruptcy or other law for the
relief of or relating to debtors and such petition is not dismissed within 60
days of filing.
f. Any involuntary lien of any kind or character attaches to, or
any levies of attachment, execution, tax assessment or similar legal process
are issued against, any material assets or property of Borrower or any
guarantor of any Indebtedness.
g. Any financial statements, profit and loss statements,
certificates, schedules, or other information furnished by Borrower or as
guarantor of any Indebtedness to Secured Party relating to Borrower's or the
guarantor's financial condition or the Intellectual Property Collateral
proves false or incorrect in any material respect when made.
h. Any other event of default under the Loan Agreement or a
related document occurs.
i. Any guarantor of the Indebtedness revokes or repudiates any
provision of its guaranty therefor.
8. SECURED PARTY'S REMEDIES AFTER DEFAULT. Upon the occurrence of any
event or the existence of any condition which constitutes a default under
SECTION 7, Secured Party may take any one or more of the following actions,
all without notice, demand, legal process, protest or presentment of any kind:
a. Declare any or all Indebtedness immediately due and payable,
without notice or demand.
b. Exercise any and all rights and powers of the Borrower
respecting the Intellectual Property Collateral.
c. Sell or assign or grant a license or franchise to use, or
cause to be sold or assigned or granted a license or franchise to use, any or
all of the Intellectual Property Collateral, in each case, free of all rights
and claims of Borrower therein and thereto (but subject, in each case, to the
rights of others heretofore granted or created by Borrower as contemplated
herein).
d. Exercise the rights and remedies of a secured party under the
California Commercial Code or any other applicable law, including selling the
Intellectual Property Collateral at public or private sale, for cash or on
credit, in whole or in part and on such terms as Secured Party may determine.
e. Require Borrower to assemble any tangible Intellectual
Property Collateral and make such Intellectual Property Collateral available
to Secured Party at a place designated by Secured Party or to deliver a copy
to Secured Party of any such Intellectual Property Collateral consisting of
books, records, computer disks, tapes and the like.
f. Enter the premises of Borrower or third parties in order to
take possession of any tangible Intellectual Property Collateral.
7
<PAGE>
g. Require Borrower to segregate all collections and proceeds of
the Intellectual Property Collateral so that they are capable of
identification and deliver daily such collections and proceeds to Secured
Party in kind.
h. Notify any obligated persons of Secured Party's interest in
the Intellectual Property Collateral and the proceeds thereof and require
any such persons to forward all remittances, payments and proceeds respecting
the Intellectual Property Collateral to Secured Party or a post office box
under Secured Party's exclusive control.
i. Demand and collect any proceeds of the Intellectual Property
Collateral.
j. Bring suit in its own or Borrower's name to protect or enforce
Borrower's rights respecting any Intellectual Property Collateral, in which
case Borrower will do any and all lawful acts and execute any and all proper
documents requested by Secured Party in connection with such action.
k. Grant extensions of time for payment of amounts due respecting
any Intellectual Property Collateral and compromise or settle claims or
disputes of any customer of Borrower or any third party relating to any
Intellectual Property Collateral, including compromises and settlements that
are for less than the full amount due or involve discounts, credits or
allowances other than in the ordinary course of business, all as Secured
Party in good faith deems advisable or appropriate and without prior notice
to or consent of Borrower.
l. Use any Intellectual Property Collateral in connection with
any assembly, use or disposition of other collateral in which Borrower has
granted a security interest to Secured Party.
m. Take such measures as Secured Party may deem reasonably
necessary or advisable to preserve, maintain, protect or develop the
Intellectual Property Collateral or any portion thereof or to perform such
obligations hereunder as Borrower may have failed to perform without curing
Borrower's default arising from such failure.
n. Apply to any court of competent jurisdiction for appointment
of a receiver to enforce any of Secured Party's remedies with respect to the
Intellectual Property Collateral to which appointment Borrower hereby
consents.
o. Apply all recoveries received by Secured Party pursuant to the
exercise of Secured party's rights hereunder, net of all Secured Party's
related costs and expenses, to the Indebtedness with Borrower remaining
liable for any deficiency.
p. Demand Borrower's payment of all Secured Party's costs and
expenses incurred in connection with the exercise by Secured Party of its
rights hereunder not offset against recoveries as provided in paragraph 8.
hereinabove.
q. Institute proceedings to enforce Secured Party's rights to any
amounts owed by Borrower hereunder.
8
<PAGE>
r. Exercise such further remedies as Secured Party may have at
law or in equity.
9. MISCELLANEOUS.
a. Except for the gross negligence or willful misconduct of
Secured Party, Secured Party will have no liability for any handling or
mishandling of any check, note, acceptance or other instrument which the
maker thereof tenders to Borrower or Secured Party in connection with the
Intellectual Property Collateral.
b. All representations, warranties, covenants, agreements, terms
and conditions made herein will survive the execution, delivery and closing
of this Agreement and all transactions contemplated hereby.
c. No failure or delay on the part of Secured Party in the
exercise of any power, right or privilege hereunder or to insist on strict
compliance or performance of the representations, warranties, covenants,
agreements, terms and conditions of this Agreement will operate as a waiver
thereof.
d. Time and exactitude of each of the terms, obligations,
covenants and conditions are hereby declared to be of the essence hereof.
e. This Agreement will be governed by and construed according to
the laws of the State of California.
f. All rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies otherwise provided by law. Such rights
and remedies may be exercised singularly or collectively from time to time,
and thus any single or partial exercise of any right or remedy will not
preclude the further exercise thereof or the exercise of any other right or
remedy.
g. The defined terms in this Agreement will apply equally to both
the singular and the plural forms of the terms defined. Whenever the context
may require, any pronoun will include the corresponding masculine, feminine
and neuter forms. The words "include," "includes" and "including" when used
in this Agreement will be deemed to be followed by the phrase "without
limitation."
h. In the event of any action or proceeding that involves the
protection, preservation or enforcement of Secured Party's rights or
Borrower's obligations relating to this Agreement or the Indebtedness,
Secured Party will be entitled to reimbursement from Borrower of all costs
and expenses associated with said action or proceeding, including reasonable
attorney's fees and litigation expenses. Borrower will reimburse Secured
Party for all reasonable attorneys' fees and expenses incurred in the
representation of Secured Party in any aspect of any bankruptcy or insolvency
proceeding initiated by or on behalf of Borrower that concerns any of
Borrower's obligations to Secured Party under this Agreement, the
Indebtedness or otherwise. In the event of a judgment against one party
concerning any aspect of this Agreement or the Indebtedness, the right to
recover post-judgment attorneys' fees incurred in enforcing the judgment will
not be merged into and extinguished by any money judgment. The provisions of
9
<PAGE>
this paragraph constitute a distinct and severable agreement from the other
contractual rights created by this Agreement or the Indebtedness.
i. Borrower hereby waives diligence, presentment, protest and
demand and notice of every kind and, to the extent permitted by law, the
right to plead any statute of limitations as a defense to any demand
hereunder. Borrower further waives any right to require Secured Party to
proceed against any person for payment of the Indebtedness or against any
other security Secured Party may have for the Indebtedness as a condition to
realizing upon any Intellectual Property Collateral hereunder.
j. If any provisions of this Security Agreement are held to be
invalid, illegal, unenforceable or against public policy in any respect, the
validity, legality and enforceability of the remaining provisions will not in
any way be affected or impaired thereby.
k. Borrower will indemnify, defend and hold Secured Party
harmless from and against any claims, losses, damages, suits, costs and
expenses incurred by or asserted against Secured Party arising out of this
Agreement, including Secured Party's enforcement of its rights hereunder,
except where the covered matter results from Secured Party's gross negligence
or willful misconduct.
l. This Agreement will inure to the benefit of Secured Party and
its successors and assigns. Borrower will not assign any of Borrower's
rights, duties or obligations hereunder. Any such assignment by Borrower
will be void and of no effect as to Secured Party and its successors or
assigns.
Executed as of May 18, 1999 at San Diego, California.
ALLIANCE PHARMACEUTICAL CORP.
By: ______________________________________
Theodore D. Roth
President and Chief Operating Officer
By: ______________________________________
Lloyd A. Rowland
Vice President and General Counsel
Address: 3040 Science Park Road
San Diego, California 92121
10
<PAGE>
Sworn and subscribed before me this 18th day of May, 1999.
Notary Public:____________________________
My Commission expires on:_________________
11
<PAGE>
EXHIBIT A TO INTELLECTUAL PROPERTY SECURITY AGREEMENT
Copyrights: NONE
12
<PAGE>
ALLIANCE PHARMACEUTICAL CORP.
TRADEMARK PORTFOLIO
<TABLE>
<CAPTION>
TRADEMARK COUNTRY APPLICATION NO. / REGISTERED
REGISTRATION NO.
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
IMAGENT Benelux 471,235 X
IMAGENT France 1,605,523 X
IMAGENT Israel 74,447 X
IMAGENT Italy 00573536 X
IMAGENT Japan 2436379 X
IMAGENT United States 1,582,204 X
IMAGENT United States 2,010,189 X
OXYGENT France 1,563,969 X
OXYGENT Germany 1,189,789 X
OXYGENT Israel 74448 X
OXYGENT Japan 2436378 X
OXYGENT United States
LIQUIVENT Benelux 514565 X
LIQUIVENT France 92414143 X
LIQUIVENT Germany 2073981 X
LIQUIVENT Israel 82938 X
LIQUIVENT Japan 3016766 X
LIQUIVENT Spain 1695078 X
LIQUIVENT United States 1,944,390 X
LIQUIVENT United Kingdom 1497272 X
SAT PAD Japan 3,286,612 X
SAT PAD United States 1,866,306 X
BIOTIS United States 1373195 X
RODA United States 75/235,237
AUGMENTED ANH United States 75/291,067
AUGMENTED ANH United States 75/507920
AUGMENTED ANH European Ctm 1028026
AANH United States 75/304,266
PARTIAL LIQUID United States
VENTILATION
PLV United States
PULMOSPHERE United States 75/372,296
PULMOSPHERE European Ctm 783498
PULMOSPHERE Canada 873922
PULMOSPHERE Australia 758622
</TABLE>
<PAGE>
ALLIANCE PATENTS AND PATENT APPLICATIONS:
LIQUIVENT-Registered Trademark- SUMMARY
<TABLE>
<CAPTION>
COUNTRY PATENT NO. / LICENSED /
APPLICATION NO. OWNED
(Patents in Bold)
- ----------------------------------------------------------------------------
<S> <C> <C>
US 5,770,181 O
* * *
U.S. 5,490,498 O
U.S. 5,655,521 O
U.S. 5,853,003 O
* * *
EUROPE 0 583 358 O
* * *
* * *
* * *
JAPAN 2607021 O
U.S. 5,540,225 O
EUROPE 0 612 256 B1 O
* * *
AUSTRALIA 667847 O
* * *
* * *
US 5,531,219 O
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
US 5,829,428 O
* * *
* * *
* * *
* * *
<PAGE>
<CAPTION>
COUNTRY PATENT NO. / LICENSED /
APPLICATION NO. OWNED
(Patents in Bold)
- ----------------------------------------------------------------------------
<S> <C> <C>
* * *
SOUTH AFRICA 97/06692 O
* * *
* * *
* * *
U.S. 5,562,608 O (1/2 Interest)
US 5,788,665 O (1/2 Interest)
U.S. 5,158,536 O (1/2 Interest)
* * *
* * *
US 5,707,352 O (1/2 Interest)
* * *
* * *
* * *
AUSTRALIA 650845 O (1/2 Interest)
AUSTRALIA 683919 O (1/2 Interest)
* * *
* * *
U.S. 5,470,885 O (1/2 Interest)
U.S. 5,733,939 O (1/2 Interest)
AUSTRALIA 691837 O (1/2 Interest)
* * *
* * *
* * *
* * *
* * *
US 5,437,272 L
* * *
* * *
JAPAN 2606994 L
* * *
* * *
* * *
U.S. 5,859,068 L
* * *
* * *
* * *
<PAGE>
<CAPTION>
COUNTRY PATENT NO. / LICENSED /
APPLICATION NO. OWNED
(Patents in Bold)
- ----------------------------------------------------------------------------
<S> <C> <C>
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
US 5,335,650 L
* * *
AUSTRALIA 675096 L
* * *
* * *
U.S. 5,590,651 L
* * *
AUSTRALIA 691077 L
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
</TABLE>
<PAGE>
ALLIANCE PATENTS AND PATENT APPLICATIONS:
OXYGENT-TM- SUMMARY
<TABLE>
<CAPTION>
COUNTRY PATENT NO. / LICENSED /
APPLICATION NO. OWNED
(Patents in Bold)
- ---------------------------------------------------------------------------
<S> <C> <C>
U.S. 4,865,836 O
AUSTRALIA 599068 O
CANADA 1,279,011 O
SOUTH AFRICA 87/0252 O
NORWAY 173214 O
JAPAN 1943385 O
EUROPE 0231070 O
* * *
* * *
U.S. 5,080,885 O
U.S. 5,393,513 O
U.S. 4,987,154 O
AUSTRALIA 608880 O
CANADA 1,316,820 O
EUROPE 0307087 O
JAPAN 1842180 O
SOUTH AFRICA 88/5796 O
IRELAND 64245 O
NORWAY 179162 O
U.S. 5,284,645 O
AUSTRALIA 648757 O
* * *
* * *
* * *
U.S. 5,847,009 O
* * *
U.S. 4,927,623 O
U.S. 5,077,036 O
AUSTRALIA 647372 O
CANADA 1333877 O
CANADA 1335714 O
CANADA 1338854 O
EUROPE 480 925 O
* * *
U.S. 4,951,673 O
<PAGE>
<CAPTION>
COUNTRY PATENT NO. / LICENSED /
APPLICATION NO. OWNED
(Patents in Bold)
- ---------------------------------------------------------------------------
<S> <C> <C>
U.S. 4,993,415 O
AUSTRALIA 635899 O
EUROPE 0429539 O
CANADA 1338617 O
U.S. 4,985,550 O
AUSTRALIA 608761 O
EUROPE 0255443 O
NEW ZEALAND 221.232 O
PORTUGAL 85 425 O
CANADA 1,315,778 O
IRELAND 61102 O
JAPAN 2,110,228 O
NORWAY 169542 O
* * *
U.S. 5,344,930 O
AUSTRALIA 639008 O
EUROPE 0478686 O
* * *
JAPAN 2849471 O
JAPAN 1797479 O
JAPAN 1695620 O
JAPAN 1777893 O
JAPAN 1760438 O
FRANCE 2 665 705 O
U.S. 5,527,962 O
EUROPE 0548096 O
AUSTRALIA 647176 O
* * *
* * *
U.S. 5,703,126 O
U.S. U5,847,206 O
* * *
FRANCE 2,679,150 O
* * *
AUSTRALIA 669117 O
EUROPE 0594707* O
* * *
* * *
<PAGE>
<CAPTION>
COUNTRY PATENT NO. / LICENSED /
APPLICATION NO. OWNED
(Patents in Bold)
- ---------------------------------------------------------------------------
<S> <C> <C>
U.S. 5,628,930 O
* * *
* * *
AUSTRALIA 678418 O
* * *
EUROPE 0666736 O
* * *
* * *
U.S. 5,344,393 O
AUSTRALIA 660257 O
* * *
EUROPE 0627913* O
* * *
* * *
U.S. U5,451,205 O
FRANCE 2,677,360 O
U.S. 5,846,516 O
U.S. 5,679,459 O
U.S. 5,635,538 O
AUSTRALIA 679052 O
* * *
* * *
* * *
* * *
U.S. 5,865,784 O
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
SOUTH AFRICA 96/4656 O
* * *
* * *
* * *
* * *
<PAGE>
<CAPTION>
COUNTRY PATENT NO. / LICENSED /
APPLICATION NO. OWNED
(Patents in Bold)
- ---------------------------------------------------------------------------
<S> <C> <C>
U.S. 5,726,209 O
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
U.S. 4,742,050 O
U.S. 4,889,525 O
U.S. 4,769,241 O
U.S. 4,919,895 O
CANADA 1,288,045 O
EUROPE 0,265,082 O
U.S. 4,815,446 O (1/2 Interest)
CANADA 1,281,656 O (1/2 Interest)
EUROPE 0,201,275 O (1/2 Interest)
JAPAN 2681147 O (1/2 Interest)
U.S. 5,061,484 O
U.S. 5,374,243 O
U.S. 5,073,383 O
U.S. 4,289,499 O
U.S. 4,402,984 O
U.S. 4,461,717 O
U.S. 4,975,468 O
* * *
PCT 98/22491 O
</TABLE>
<PAGE>
ALLIANCE PATENTS AND PATENT APPLICATIONS:
RODA-TM- SUMMARY
(EXCLUSIVELY LICENSED TO VIA MEDICAL CORPORATION)
<TABLE>
<CAPTION>
COUNTRY PATENT NO. / LICENSED /
APPLICATION NO. OWNED
(Patents in bold)
- ---------------------------------------------------------------------------
<S> <C> <C>
U.S. 5,634,461 O
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
</TABLE>
<PAGE>
ALLIANCE -MISCELLANEOUS
PATENTS AND PATENT APPLICATIONS
<TABLE>
<CAPTION>
COUNTRY PATENT NO. / LICENSED /
APPLICATION NO. OWNED
(Patents in Bold)
- ---------------------------------------------------------------------------
<S> <C> <C>
U.S. 5,496,535 O
FRANCE 2,677,360 O
U.S. 5,281,582 O
U.S. 5,399,694 O
U.S. 5.648.362 O
FRANCE 2682110 O
AUSTRALIA 658930 O
* * *
* * *
CANADA 2,120,360 O
U.S. 5,460,800 O
FRANCE 2,700,696 O
U.S. 5,582,813 O
FRANCE 2 694 559 O
U.S. 5,446,023 O
U.S. 5,637,564 O
U.S. 5,650,393 O
* * *
AUSTRALIA 674157 O
* * *
* * *
* * *
FRANCE 2,710,840 O
U.S. 5,573,757 O
AUSTRALIA 688800 O
* * *
EUROPE 0 722 313 O
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
<PAGE>
COUNTRY PATENT NO. / LICENSED /
APPLICATION NO. OWNED
(Patents in Bold)
- ---------------------------------------------------------------------------
<S> <C> <C>
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
FRANCE 2,720,943 O
* * *
* * *
US 5,667,809 O
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
U.S. 5,874,481 O
U.S. 5,733,526 O
FRANCE 2,737,135 O
* * *
* * *
* * *
* * *
U.S. 5,861,175 O
* * *
U.S. 4,143,079 O
U.S. 4,366,169 O
U.S. 4,520,109 O
<PAGE>
COUNTRY PATENT NO. / LICENSED /
APPLICATION NO. OWNED
(Patents in Bold)
- ---------------------------------------------------------------------------
<S> <C> <C>
U.S. 4,640,833 O
GERMANY 3 406 834 O
U.S. 4,879,062 O
FRANCE 2 752 161 O
* * *
U.S. 5,114,703 L
AUSTRALIA 639466 L
CANADA 2055594 L
EUROPE 0 474 785 L
JAPAN 2,865,172 L
U.S. 5,496,536 L
</TABLE>
<PAGE>
FIRST AMENDMENT TO
CREDIT AGREEMENT
This First Amendment ("Amendment") amends that certain Credit Agreement executed
by and between Alliance Pharmaceutical Corp., a New York corporation
("Borrower") and Imperial Bank ("Bank") as of June 17, 1998 (the "Agreement"),
as modified by that certain Agreement to Waive Covenant Violation and Modify
Loan ("Waiver") dated May 18, 1999, as follows:
1. Upon the effective date of this Amendment, MDV TECHNOLOGIES, INC. is hereby
added as an additional Borrower to the Agreement and the following language is
hereby inserted in the Agreement as new Section 5.12:
SURETYSHIP WAIVERS AND CONSENTS. Each Borrower agrees that it is
jointly and severally, directly, and primarily liable to Bank for
payment in full of all obligations under the Loan Documents
("Obligations") and that such liability is independent of the duties,
obligations and liabilities of the other Borrower. The Loan Documents
are a primary and original obligation of each Borrower, are not the
creation of a surety relationship, and are an absolute, unconditional,
and continuing promise of payment and performance which shall remain
in full force and effect without respect to future changes in
conditions, including any change of law or any invalidity or
irregularity with respect to the Loan Documents. Each Borrower
acknowledges that the obligations of such Borrower undertaken herein
might be construed to consist, at least in part, of the guaranty of
obligations of persons or entities other than such Borrower (including
any other Borrower party hereto) and, in full recognition of that
fact, each Borrower consents and agrees that the Bank may, at any time
and from time to time, without notice or demand, whether before or
after any actual or purported termination, repudiation, or revocation
of this Agreement by any one or more Borrowers, and without affecting
the enforceability or continuing effectiveness hereof as to each
Borrower: (a) decrease or waive, the Obligations or any part thereof,
(b) accept partial payments on the Obligations; (c) receive and hold
additional security or guaranties for the Obligations or any part
thereof; (d) release, reconvey, terminate, waive, abandon, fail to
perfect, subordinate, exchange, substitute, transfer, or enforce any
security or guaranties, and apply any security and direct the order or
manner of sale thereof as the Bank in its sole and absolute discretion
may determine; (e) release any Person from any personal liability with
respect to the Obligations or any part thereof; (f) settle, release on
terms satisfactory to the Bank or by operation of applicable laws, or
otherwise liquidate or enforce any Obligations and any security
therefor or guaranty thereof in any manner, consent to the transfer of
any security and bid and purchase at any sale; or (g) consent to the
merger, change, or any other restructuring or termination of the
corporate or partnership existence of any Borrower or any other
Person, and correspondingly restructure the Obligations, and any such
merger, change, restructuring, or termination shall not affect the
liability of any Borrower or the
<PAGE>
First Amendment to the Promissory Note, Addendum to Promissory Note
and Credit Agreement
Alliance Pharmaceutical Corp.
Page 2
continuing effectiveness hereof, or the enforceability hereof with respect
to all or any part of the Obligations.
Upon the occurrence and during the continuance of any Event of
Default, the Bank may enforce this Agreement independently as to each
Borrower and independently of any other remedy or security the Bank at
any time may have or hold in connection with the Obligations, and it
shall not be necessary for the Bank to marshal assets in favor of any
Borrower or any other Person or to proceed upon or against or exhaust
any security or remedy before proceeding to enforce this Agreement.
Each Borrower expressly waives any right to require the Bank to
marshal assets in favor of any Borrower or any other Person or to
proceed against any other Borrower or any Collateral provided by any
Person, and agrees that the Bank may proceed against Borrowers or any
Collateral in such order as it shall determine in its sole and
absolute discretion.
The Bank may file a separate action or actions against any
Borrower, whether action is brought or prosecuted with respect to any
security or against any other person, or whether any other person is
joined in any such action or actions. Each Borrower agrees that the
Bank and any Borrower and any affiliate of any Borrower may deal with
each other in connection with the Obligations or otherwise, or alter
any contracts or agreements now or hereafter existing between any of
them, in any manner whatsoever, all without in any way altering or
affecting the continuing efficacy of this Agreement.
The Bank's loan hereunder shall be reinstated and revived, and
the enforceability of this Agreement shall continue, with respect to
any amount at any time paid on account of the Obligations which
thereafter shall be required to be restored or returned by the Bank,
all as though such amount had not been paid. The rights of the Bank
created or granted herein and the enforceability of this Agreement at
all times shall remain effective to cover the full amount of all the
Obligations even though the Obligations, including any part thereof or
any other security or guaranty therefor, may be or hereafter may
become invalid or otherwise unenforceable as against any Borrower and
whether or not any other Borrower shall have any personal liability
with respect thereto.
To the maximum extent permitted by applicable law and to the
extent that a Borrower is deemed a guarantor, each Borrower expressly
waives any and all defenses now or hereafter arising or asserted by
reason of (a) any disability or other defense of any other Borrower
with respect to the Obligations, (b) the unenforceability or
invalidity of any security or guaranty for the Obligations or lack of
perfection or continuing perfection or failure of priority of any
security for the Obligations, (c) the cessation for any cause
whatsoever of the liability of any other Borrower (other than by
reason of the full payment and performance of all Obligations), (d)
any failure of the to marshal assets in favor Bank of any Borrower or
any other person, (e) any failure of the Bank to
<PAGE>
First Amendment to the Promissory Note, Addendum to Promissory Note
and Credit Agreement
Alliance Pharmaceutical Corp.
Page 3
give notice of sale or other disposition of collateral to any Borrower or
any other Person or any defect in any notice that may be given in
connection with any sale or disposition of collateral, (f) any failure of
the Bank to comply with applicable law in connection with the sale or other
disposition of any collateral or other security for any Obligation,
including any failure of the Bank to conduct a commercially reasonable
sale or other disposition of any collateral or other security for any
Obligation, (g) any act or omission of the Bank or others that directly or
indirectly results in or aids the discharge or release of any Borrower or
the Obligations or any security or guaranty therefor by operation of law or
otherwise, (h) any law which provides that the obligation of a surety or
guarantor must neither be larger in amount nor in other respects more
burdensome than that of the principal or which reduces a surety's or
guarantor's obligation in proportion to the principal obligation, (i) any
failure of the Bank to file or enforce a claim in any bankruptcy or other
proceeding with respect to any Person, (j) the election by the Bank of the
application or non-application of Section 1111(b)(2) of the United States
Bankruptcy code, (k) any extension of credit or the grant of any lien under
Section 364 of the United States Bankruptcy code, (1) any use of cash
collateral under Section 363 of the United States Bankruptcy Code, (m) any
agreement or stipulation with respect to the provision of adequate
protection in any bankruptcy proceeding of any Person, (n) the avoidance of
any lien in favor of the Bank for any reason, or (o) any action taken by
the Bank that is authorized by this section or any other provision of any
Loan Document. Until such time as all of the Obligations have been fully,
finally, and indefeasibly paid in full in cash: (i) each Borrower hereby
waives and postpones any right of subrogation it has or may have as against
any other Borrower respect to the Obligations; and (ii) in addition, each
borrower also hereby waives and postpones any right to proceed or to seek
recourse against or with respect to any property or asset of any other
Borrower. Each borrower expressly waives all setoffs and counterclaims and
all presentments, demands for payment or performance, notices of nonpayment
or nonperformance, protests, notices of protest, notices of dishonor and
all other notices or demands of any kind or nature whatsoever with respect
to the Obligations, and all notices of acceptance of this Agreement or of
the existence, creation or incurring of new or additional Obligations.
In the event that all or any part of the Obligations at any
time are secured by any one or more deeds of trust or mortgages or
other instruments creating or granting liens on any interests in real
property, each Borrower authorizes the Bank, upon the occurrence of
and during the continuance of any Event of Default, at its sole
option, without notice or demand and without affecting the obligations
of any Borrower, the enforceability of this Agreement, or the validity
or enforceability of any Liens of the Bank , to foreclose any or all
of such deeds of trust or mortgages or other instruments by judicial
or nonjudicial sale.
To the fullest extent permitted by applicable law, to the extent
that a Borrower is deemed a guarantor, each Borrower expressly waives
any
<PAGE>
First Amendment to the Promissory Note, Addendum to Promissory Note
and Credit Agreement
Alliance Pharmaceutical Corp.
Page 4
defenses to the enforcement of this Agreement or any rights of the Bank
created or granted hereby or to the recovery by the Bank against any
Borrower or any other Person liable therefor of any deficiency after a
judicial or nonjudicial foreclosure or sale, even though such a foreclosure
or sale may impair the subrogation rights of Borrowers and may preclude
Borrowers from obtaining reimbursement or contribution from other
Borrowers. To the fullest extent permitted by applicable law, each
Borrower expressly waives any suretyship defenses or benefits that it
otherwise might or would have under applicable law. WITHOUT LIMITING THE
GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN THIS
SECTION, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER
WAIVES ALL RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY
THE BANK, EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL
FORECLOSURE WITH RESPECT TO SECURITY FOR THE OBLIGATIONS, HAS DESTROYED
SUCH BORROWER'S RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST THE OTHER
BORROWERS BY THE OPERATION LAW, INCLUDING BUT NOT LIMITED TO SECTION 580D
OF THE CODE OF CIVIL PROCEDURE, OR OTHERWISE.
Borrower and each of them warrant and agree that each of the
waivers and consents set forth herein are made after consultation with
legal counsel and with full knowledge of their significance and
consequences, with the understanding that events giving rise to any
defense or right waived may diminish, destroy or otherwise adversely
affect rights which Borrower otherwise may have against any other
Borrower, the Bank or others, or against Collateral. If any of the
waivers or consents herein are determined to be contrary to any
applicable law or public policy, such waivers and consents shall be
effective to the maximum extent permitted by law.
2. Except as provided above, the Agreement remains unchanged.
3. This Amendment is effective as of August 2, 1999, and the parties hereby
confirm that Agreement is in full force and effect.
(SIGNATURE LINES ON NEXT PAGE)
<PAGE>
First Amendment to the Promissory Note, Addendum to Promissory Note
and Credit Agreement
Alliance Pharmaceutical Corp.
Page 5
ALLIANCE PHARMACEUTICAL CORP.
"BORROWER"
By: /s/ Theodore D. Roth
---------------------------------------------
Printed Name: Theodore D. Roth
-----------------------------------
Title: President
------------------------------------------
By: /s/ Tim T. Hart
---------------------------------------------
Printed Name: Tim T. Hart
-----------------------------------
Title: VP & CFO
------------------------------------------
MDV TECHNOLOGIES, INC.
"BORROWER"
By: /s/ Lloyd A. Rowland
---------------------------------------------
Printed Name: Lloyd A. Rowland
-----------------------------------
Title: Assistant Secretary
------------------------------------------
By: /s/ Theodore D. Roth
---------------------------------------------
Printed Name: Theodore D. Roth
-----------------------------------
Title: VP/Treasurer/Secretary
------------------------------------------
IMPERIAL BANK
"BANK"
By: /s/ Tim Bubnack
---------------------------------------------
Tim Bubnack, Senior Vice President
<PAGE>
INTELLECTUAL PROPERTY SECURITY AGREEMENT
(Borrower as Grantor)
This Intellectual Property Security Agreement (this "Agreement") is made as
of August 2, 1999, by MDV Technologies, Inc., a Delaware Corporation
("Borrower") in favor of IMPERIAL BANK, a California chartered bank ("Secured
Party").
RECITALS
A. Secured Party has agreed to lend to Borrower certain amounts (the
"Loan"), as more fully described in a Credit Agreement, dated as of June 17,
1998 (as amended from time to time, the "Loan Agreement").
B. One of the preconditions to Secured Party's obligation to make any
Loan advance is Borrower's grant to Secured Party of a security interest in the
"Intellectual Property Collateral," as defined in SECTION 2, to secure
Borrower's obligations to Secured Party.
C. To induce Secured Party to advance the Loan pursuant to the terms of
the Loan Agreement, Borrower has agreed to enter into this Agreement.
AGREEMENTS
1. DEFINITIONS. The following terms not otherwise defined herein will
have the meanings indicated:
a. "COPYRIGHTS" means copyrights, registrations and applications
therefor, and any and all (i) renewals and extensions thereof, (ii) income,
royalties, damages and payments now and hereafter due or payable with respect
thereto, including damages and payments for past or future infringements
thereof, (iii) rights to sue for past, present and future infringements thereof,
and (iv) all other rights corresponding thereto throughout the world.
b. "LICENSES" means license agreements in which a party grants or
receives a grant of any interest in Copyrights, Trademarks, Patents and Trade
Secrets and other intellectual property and any and all (i) renewals,
extensions, supplements, amendments and continuations thereof, (ii) income,
royalties, damages and payments now and hereafter due or payable to the party
with respect thereto, including damages and payments for past or future
violations or infringements or misappropriations thereof, and (iii) rights to
sue for past, present and future violations or infringements thereof.
* Indicates confidential information which has been omitted and filed
separately with the Securities and Exchange Commission.
1
<PAGE>
c. "PATENTS" means patents and patent applications along with any and all
(i) inventions and improvements described and claimed therein, (ii) reissues,
reexaminations, divisions, continuations, renewals, extensions and
continuations-in-part thereof, (iii) income, royalties, damages and payments now
and hereafter due and/or payable to the holder with respect thereto, including
damages and payments for past or future infringements thereof, (iv) rights to
sue for past, present and future infringements thereof, and (v) all other rights
corresponding thereto throughout the world.
d. "TRADEMARKS" means trademarks (including service marks and trade names,
whether registered or at common law), registrations and applications therefor,
and the entire product lines and goodwill of the owner's business connected
therewith and symbolized thereby, together with any and all (i) renewals
thereof, (ii) income, royalties, damages and payments now and hereafter due or
payable with respect thereto, including damages and payments for past or future
infringements thereof, (iii) rights to sue for past, present and future
infringements or misappropriations thereof, and (iv) all other rights
corresponding thereto throughout the world.
e. "TRADE SECRETS" means trade secrets, along with any and all (i)
income, royalties, damages and payments now and hereafter due and/or payable to
the owner with respect thereto, including damages and payments for past or
future infringements or misappropriations thereof, (ii) rights to sue for past,
present and future infringements or misappropriations thereof, and (iii) all
other rights corresponding thereto throughout the world.
2. GRANT OF SECURITY INTEREST. Borrower hereby grants to Secured Party a
security interest in the following described intellectual property
(collectively, the "Intellectual Property Collateral"):
All Copyrights of Borrower, now owned or hereafter acquired, including
those Copyrights listed on Exhibit A hereto.
All Licenses of Borrower, now owned or hereafter acquired, including
those Licenses listed on Exhibit A hereto,
All Patents of Borrower, now owned or hereafter acquired, including
those Patents listed on Exhibit A hereto
All Trademarks of Borrower, now owned or hereafter acquired, including
those Trademarks listed on Exhibit A hereto
All Trade Secrets of Borrower, now owned or hereafter acquired
All files and records of Borrower or in which Borrower has any
interest and supporting evidence and documents relating to the Intellectual
Property Collateral, including computer programs, disks, tapes and related
electronic data processing media, all rights of Borrower to retrieval from third
parties of electronically processed and recorded information, and all payment
records, correspondence, license agreements and the like, together with all
Borrower's books of account, ledgers, cabinets and equipment in which the same
are reflected or maintained, now owned or hereafter acquired.
All proceeds of the foregoing.
2
<PAGE>
3. SECURED INDEBTEDNESS. The Intellectual Property Collateral secures
and will secure all Indebtedness of Borrower to Secured Party. For purposes of
this Agreement, "Indebtedness" will mean all loans and advances made by Secured
Party to Borrower, including related interest, loan fees, charges, attorneys'
fees and other expenses for which Borrower is obligated, all guaranties by
Borrower in favor of Secured Party and all other obligations and liabilities of
Borrower to Secured Party, whether now existing or hereafter incurred or
created, whether voluntary or involuntary, whether due or not due, whether
absolute or contingent, or whether incurred directly or acquired by Secured
Party by assignment or otherwise. Without limiting the generality of the
foregoing, "Indebtedness" includes all obligations of Borrower to Secured Party
under any promissory note or other instrument evidencing debt, including all
renewals and modifications thereof, and under any guaranty.
4. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents and
warrants that:
a. This Agreement has been duly executed and delivered by Borrower and is
a legal, valid and binding obligation of Borrower enforceable against Borrower
in accordance with its terms, except as enforceability may be affected by
bankruptcy and other laws affecting creditors' rights generally and equitable
principles, and performance of this Agreement by Borrower does not conflict with
or result in a breach of Borrower's organizational documents or any agreement,
law, regulation or order by which Borrower or its property may be bound.
b. The issued Intellectual Property Collateral is existing and is valid
and enforceable, except to the extent that any Intellectual Property Collateral
determined to be invalid or unenforceable will not have a material adverse
effect on the Borrower or its business or financial condition.
c. Borrower is and will be and remain the sole and exclusive owner of the
Intellectual Property Collateral, , all of which is and will be free and clear
of any liens, charges, encumbrances and exclusive licenses, except (i) those in
favor of Secured Party; (ii) the rights of certain former shareholder of
Borrower pursuant to the Agreement and Plan of Merger dated October 8, 1996; and
(iii) or to which Secured Party has consented in writing, subject to paragraph
6(a) hereinbelow.
d. The Intellectual Property Collateral is and will be sufficient for the
purpose of producing all goods, performing the services and otherwise carrying
on the business of Borrower to which it relates.
e. The Intellectual Property Collateral does not infringe any rights
owned or possessed by any third party.
f. There are no material claims, judgments or settlements to be paid by
Borrower or pending claims or litigation relating to the Intellectual Property
Collateral
g. No effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Intellectual Property Collateral is on file or of record in any public
office, except such as may have been filed by Borrower in favor of Secured
Party.
3
<PAGE>
h. When all appropriate filings have been made with the United States
Patent and Trademark Office, the United States Copyright Office, and the
Secretary of State of the State of California, Secured Party will have a valid
and continuing first priority lien on and first priority security interest in
the Intellectual Property Collateral in which a security interest may be
perfected under the laws of the United States or any state thereof and all
action necessary to protect and create such security interest in each such item
of the Intellectual Property Collateral will have been duly taken.
5. COVENANTS OF BORROWER. Borrower agrees that:
a. Borrower will preserve and maintain all rights in the Intellectual
Property Collateral, will diligently pursue any patent, trademark and copyright
applications, and will timely and fully perform all Borrower's obligations in
connection with the Intellectual Property Collateral.
b. Borrower will execute, procure, deliver, register and/or record all
such documents and showings and take all further action as is necessary,
including paying maintenance fees on Intellectual Property Collateral, or
reasonably requested by Secured Party from time to time to evidence, register,
record and/or perfect Secured Party rights hereunder, including as respects
additional Intellectual Property Collateral contemplated in paragraph 5.j.
hereinbelow, or otherwise carry out the intent and purposes of this Agreement.
Secured Party may, at its option, make any such recordation or filing in which
case Borrower will reimburse Secured party's related costs promptly following
receipt of an invoice therefor.
c. Borrower will take commercially reasonable action to halt the
infringement of any of the Intellectual Property Collateral if such infringement
could have a material adverse effect on the value of the Intellectual Property
Collateral or Borrower's ability to use the Intellectual Property Collateral,
and Borrower will promptly notify Secured Party of such infringement or any
other event which would have a material adverse effect on the value of the
Intellectual Property Collateral.
d. Borrower will not amend, modify, terminate or waive any provisions of
any other contract to which Borrower is a party in any manner which might
materially adversely affect the Intellectual Property Collateral.
e. Borrower will not transfer or further encumber any interest in the
Intellectual Property Collateral, except for non-exclusive licenses granted by
Borrower in the ordinary course of business. The Borrower may not enter into an
exclusive license arrangement on any of its Intellectual Property Collateral
without prior written approval of the Secured Party, which approval with not be
unreasonably withheld.
f. Borrower will pay promptly when due all taxes, assessments and
governmental charges or levies imposed upon the Intellectual Property Collateral
or in respect of its income or profits therefrom and all claims of any kind,
except that no such charge need be paid if (i) such non-payment would not
involve any danger of forfeiture or loss of any of the Intellectual Property
Collateral or any interest therein and (ii) such charge is adequately reserved
in accordance with and to the extent required by GAAP.
4
<PAGE>
g. Borrower will promptly notify Secured Party of any changes in
Borrower's principal office address, state of incorporation, name or corporate
structure.
h. Upon reasonable notice (unless a default has occurred and is
continuing, in which case no notice is necessary), Borrower will at all times
afford Secured Party full and free access during normal business hours to all
the books and records and correspondence of Borrower, and Secured Party or its
representatives may examine the same, take extracts therefrom and make
photocopies thereof. Borrower agrees to provide Secured Party, at Borrower's
cost and expense, such clerical and other assistance as may be reasonably
requested with regard thereto.
i. Borrower will keep and maintain adequate and complete records of the
Intellectual Property Collateral, including a record of all payments received
and all credits granted with respect to the Intellectual Property Collateral and
all other dealings with respect to the Intellectual Property Collateral.
Borrower will mark its books and records pertaining to the Intellectual Property
Collateral to evidence this Agreement and the security interest granted hereby.
j. If prior to the time the Indebtedness has been paid in full Borrower
obtains any material rights to or interests in any new inventions, whether or
not patentable, or additional Intellectual Property Collateral, Borrower will
promptly notify Secured Party thereof.
k. Borrower will not enter into any agreement which precludes Borrower's
grant of a security interest to Secured Party in any Intellectual Property
Collateral without Secured Party's prior written consent.
l. Borrower will supply to Secured Party any source code related to any
Intellectual Property Collateral, as may be amended or updated from time to
time, it being understood that Secured Party will not utilize or disseminate
such source code except following a default and as contemplated in SECTION 8.
6. FURTHER UNDERSTANDINGS. Borrower's rights as to the Intellectual
Property Collateral are subject to the following further understandings:
a. Prior to the occurrence of a default hereunder Borrower may continue
to exploit, license, franchise, use, enjoy and protect (whether in the United
States of America or any foreign jurisdiction) the Intellectual Property
Collateral in the ordinary course of business and in a manner consistent with
the preservation of Secured Party's rights hereunder, and Secured Party will
execute and deliver, at Borrower's sole cost and expense, any and all
instruments, certificates or other documents reasonably requested by Borrower to
enable Borrower to do so.
b. This Agreement, and the security interest created hereunder, will
terminate when (i) all Indebtedness has been fully paid and satisfied and (ii)
there are no outstanding commitments for additional Indebtedness. Secured Party
(without recourse upon, or any warranty whatsoever by, Secured Party) will then
execute and deliver to Borrower such documents and instruments evidencing the
termination of the security interest hereunder as Borrower may reasonably
request.
5
<PAGE>
c. Borrower hereby irrevocably appoints Secured Party as Borrower's
attorney-in-fact, with full authority in the place and stead of Borrower and in
the name of Borrower, from time to time in Secured party's discretion, to take
any action and to execute any instrument which Secured party may deem necessary
or advisable to accomplish the purposes of this Agreement, including (i) to
modify, in its sole discretion, this Agreement without first obtaining
Borrower's approval of or signature to such modification by amending any Exhibit
hereto to include reference to any Intellectual Property Collateral acquired by
Borrower after the execution hereof or to delete any reference to any
Intellectual Property Collateral in which Secured Party no longer has or claims
any interest and (ii) to file, in its sole discretion, one or more financing or
continuation statements and amendments thereto relative to any of the
Intellectual Property Collateral without the signature of Borrower, where
permitted by law.
7. DEFAULT. The occurrence of one or more of the following will be a
default hereunder:
a. Borrower fails to pay any Indebtedness to Secured Party when due, in
accordance with the Loan Agreement.
b. Borrower breaches any term, provision, warranty or representation
under this Agreement, the Loan Agreement or any other loan agreement or other
agreement under which Borrower has obligations relating to the Indebtedness, or
Borrower breaches any other obligation to Secured Party, subject to cure
provisions in such documents.
c. Any custodian, receiver or trustee is appointed to take possession,
custody or control of all or a substantial portion of the assets of Borrower or
of any guarantor of any Indebtedness.
d. Borrower or any guarantor of any Indebtedness becomes insolvent,
generally not paying its debts as they become due, fails in business, makes a
general assignment for the benefit of creditors, dies or voluntarily files under
any bankruptcy or other law for the relief of or relating to debtors.
e. Any involuntary petition is filed against Borrower or any guarantor of
any Indebtedness under any bankruptcy or other law for the relief of or relating
to debtors and such petition is not dismissed within sixty (60) days of filing.
f. Any involuntary lien of any kind or character attaches to, or any
levies of attachment, execution, tax assessment or similar legal process are
issued against, any material assets or property of Borrower or any guarantor of
any Indebtedness.
g. Any financial statements, profit and loss statements, certificates,
schedules, or other information furnished by Borrower or as guarantor of any
Indebtedness to Secured Party relating to Borrower's or the guarantor's
financial condition or the Intellectual Property Collateral proves false or
incorrect in any material respect when made.
h. Any other event of default under the Loan Agreement or a related
document occurs.
6
<PAGE>
i. Any guarantor of the Indebtedness revokes or repudiates any provision
of its guaranty therefor.
8. SECURED PARTY'S REMEDIES AFTER DEFAULT. Upon the occurrence of any
event or the existence of any condition which constitutes a default under
SECTION 7, Secured Party may take any one or more of the following actions, all
without notice, demand, legal process, protest or presentment of any kind:
a. Declare any or all Indebtedness immediately due and payable, without
notice or demand.
b. Exercise any and all rights and powers of the Borrower respecting the
Intellectual Property Collateral.
c. Sell or assign or grant a license or franchise to use, or cause to be
sold or assigned or granted a license or franchise to use, any or all of the
Intellectual Property Collateral, in each case, free of all rights and claims of
Borrower therein and thereto (but subject, in each case, to the rights of others
heretofore granted or created by Borrower as contemplated herein).
d. Exercise the rights and remedies of a secured party under the
California Commercial Code or any other applicable law, including selling the
Intellectual Property Collateral at public or private sale, for cash or on
credit, in whole or in part and on such terms as Secured Party may determine.
e. Require Borrower to assemble any tangible Intellectual Property
Collateral and make such Intellectual Property Collateral available to Secured
Party at a place designated by Secured Party or to deliver a copy to Secured
Party of any such Intellectual Property Collateral consisting of books, records,
computer disks, tapes and the like.
f. Enter the premises of Borrower or third parties in order to take
possession of any tangible Intellectual Property Collateral.
g. Require Borrower to segregate all collections and proceeds of the
Intellectual Property Collateral so that they are capable of identification and
deliver daily such collections and proceeds to Secured Party in kind.
h. Notify any obligated persons of Secured Party's interest in the
Intellectual Property Collateral and the proceeds thereof and require any such
persons to forward all remittances, payments and proceeds respecting the
Intellectual Property Collateral to Secured Party or a post office box under
Secured Party's exclusive control.
i. Demand and collect any proceeds of the Intellectual Property
Collateral.
j. Bring suit in its own or Borrower's name to protect or enforce
Borrower's rights respecting any Intellectual Property Collateral, in which case
Borrower will do any and all lawful acts and execute any and all proper
documents requested by Secured Party in connection with such action.
7
<PAGE>
k. Grant extensions of time for payment of amounts due respecting any
Intellectual Property Collateral and compromise or settle claims or disputes of
any customer of Borrower or any third party relating to any Intellectual
Property Collateral, including compromises and settlements that are for less
than the full amount due or involve discounts, credits or allowances other than
in the ordinary course of business, all as Secured Party in good faith deems
advisable or appropriate and without prior notice to or consent of Borrower.
l. Use any Intellectual Property Collateral in connection with any
assembly, use or disposition of other collateral in which Borrower has granted a
security interest to Secured Party.
m. Take such measures as Secured Party may deem reasonably necessary or
advisable to preserve, maintain, protect or develop the Intellectual Property
Collateral or any portion thereof or to perform such obligations hereunder as
Borrower may have failed to perform without curing Borrower's default arising
from such failure.
n. Apply to any court of competent jurisdiction for appointment of a
receiver to enforce any of Secured Party's remedies with respect to the
Intellectual Property Collateral to which appointment Borrower hereby consents.
o. Apply all recoveries received by Secured Party pursuant to the
exercise of Secured party's rights hereunder, net of all Secured Party's related
costs and expenses, to the Indebtedness with Borrower remaining liable for any
deficiency.
p. Demand Borrower's payment of all Secured Party's costs and expenses
incurred in connection with the exercise by Secured Party of its rights
hereunder not offset against recoveries as provided in paragraph 8. hereinabove.
q. Institute proceedings to enforce Secured Party's rights to any amounts
owed by Borrower hereunder.
r. Exercise such further remedies as Secured Party may have at law or in
equity.
9. MISCELLANEOUS.
a. Except for the gross negligence or willful misconduct of Secured
Party, Secured Party will have no liability for any handling or mishandling of
any check, note, acceptance or other instrument which the maker thereof tenders
to Borrower or Secured Party in connection with the Intellectual Property
Collateral.
b. All representations, warranties, covenants, agreements, terms and
conditions made herein will survive the execution, delivery and closing of this
Agreement and all transactions contemplated hereby.
c. No failure or delay on the part of Secured Party in the exercise of
any power, right or privilege hereunder or to insist on strict compliance or
performance of the representations, warranties, covenants, agreements, terms and
conditions of this Agreement will operate as a waiver thereof.
8
<PAGE>
d. Time and exactitude of each of the terms, obligations, covenants and
conditions are hereby declared to be of the essence hereof.
e. This Agreement will be governed by and construed according to the laws
of the State of California.
f. All rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies otherwise provided by law. Such rights and
remedies may be exercised singularly or collectively from time to time, and thus
any single or partial exercise of any right or remedy will not preclude the
further exercise thereof or the exercise of any other right or remedy.
g. The defined terms in this Agreement will apply equally to both the
singular and the plural forms of the terms defined. Whenever the context may
require, any pronoun will include the corresponding masculine, feminine and
neuter forms. The words "include," "includes" and "including" when used in this
Agreement will be deemed to be followed by the phrase "without limitation."
h. In the event of any action or proceeding that involves the protection,
preservation or enforcement of Secured Party's rights or Borrower's obligations
relating to this Agreement or the Indebtedness, Secured Party will be entitled
to reimbursement from Borrower of all costs and expenses associated with said
action or proceeding, including reasonable attorney's fees and litigation
expenses. Borrower will reimburse Secured Party for all reasonable attorneys'
fees and expenses incurred in the representation of Secured Party in any aspect
of any bankruptcy or insolvency proceeding initiated by or on behalf of Borrower
that concerns any of Borrower's obligations to Secured Party under this
Agreement, the Indebtedness or otherwise. In the event of a judgment against
one party concerning any aspect of this Agreement or the Indebtedness, the right
to recover post-judgment attorneys' fees incurred in enforcing the judgment will
not be merged into and extinguished by any money judgment. The provisions of
this paragraph constitute a distinct and severable agreement from the other
contractual rights created by this Agreement or the Indebtedness.
i. Borrower hereby waives diligence, presentment, protest and demand and
notice of every kind and, to the extent permitted by law, the right to plead any
statute of limitations as a defense to any demand hereunder. Borrower further
waives any right to require Secured Party to proceed against any person for
payment of the Indebtedness or against any other security Secured Party may have
for the Indebtedness as a condition to realizing upon any Intellectual Property
Collateral hereunder.
j. If any provisions of this Security Agreement are held to be invalid,
illegal, unenforceable or against public policy in any respect, the validity,
legality and enforceability of the remaining provisions will not in any way be
affected or impaired thereby.
k. Borrower will indemnify, defend and hold Secured Party harmless from
and against any claims, losses, damages, suits, costs and expenses incurred by
or asserted against Secured Party arising out of this Agreement, including
Secured Party's enforcement of its rights hereunder, except where the covered
matter results from Secured Party's gross negligence or willful misconduct.
9
<PAGE>
1. This Agreement will inure to the benefit of Secured Party and its
successors and assigns. Borrower will not assign any of Borrower's rights,
duties or obligations hereunder. Any such assignment by Borrower will be void
and of no effect as to Secured Party and its successors or assigns.
Executed as of _________, ___ at _____________, California.
MDV TECHNOLOGIES, INC.
By:
------------------------------------------
Lloyd A. Rowland
Title: Assistant Secretary
By:
------------------------------------------
Theodore D. Roth
Title: Vice-President, Treasurer, Secretary
Address: 3040 Science Park Road
San Diego, California 92121
THIS DOCUMENT MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS, EACH OF WHICH SO
EXECUTED SHALL, IRRESPECTIVE OF THE DATE OF ITS EXECUTION AND DELIVERY, BE
DEEMED AN ORIGINAL, AND ALL OF WHICH SAID COUNTERPARTS TAKEN TOGETHER SHALL
CONSTITUTE ONE AND THE SAME INSTRUMENT, AND ANY OF THE PARTIES HERETO MAY
EXECUTE THIS AGREEMENT BY SIGNING ANY SUCH COUNTERPART.
Sworn and subscribed before me this ____ day of ___________ 1999.
Notary Public:_________________________________
My Commission expires on:__________________
10
<PAGE>
ALLIANCE PATENTS AND PATENT APPLICATIONS:
FLOGEL-Registered Trademark- SUMMARY
(OWNED BY MDV TECHNOLOGIES, INC.)
<TABLE>
<CAPTION>
COUNTRY PATENT NO. / LICENSED /
APPLICATION NO. OWNED
(Patents in bold)
- --------------------------------------------------------------------------
<S> <C> <C>
U.S. 5,077,033 O
U.S. 5,277,911 O
U.S. 5,376,693 O
U.S. 5,847,023 O
* * *
EUROPE 470 703 B1 O
* * *
* * *
U.S. 5,318,780 O
U.S. 5,587,175 O
* * *
U.S. 5,298,260 O
U.S. 5,306,501 O
U.S. 5,300,295 O
U.S. 5,593,683 O
CANADA 2,040,460 O
EUROPE 0455 396 B1 O
JAPAN 2753152 O
U.S. 5,143,731 O
U.S. 5,346,703 O
* * *
U.S. 5,292,516 O
U.S. 4,911,926 O
U.S. 5,135,751 O
U.S. 5,126,141 O
U.S. 5,366,735 O
U.S. 5,681,576 O
* * *
PHILIPPINES 26319 O
AUSTRALIA 616065 O
* * *
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
COUNTRY PATENT NO. / LICENSED /
APPLICATION NO. OWNED
(Patents in bold)
- --------------------------------------------------------------------------
<S> <C> <C>
EUROPE 369764 O
JAPAN 2127399 O
U.S. 5,071,644 O
U.S. 5,124,151 O
* * *
PCT 97/00135 O
U.S. 5,843,470 O
* * *
* * *
U.S. 5,800,711 O
* * *
* * *
</TABLE>
12
<PAGE>
IMPERIAL BANK
INNOVATIVE BUSINESS BANKING
Member FDIC
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$8,422,619.04 08-02-1999 10-15-2001 177
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE
APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN OR ITEM.
BORROWER: ALLIANCE PHARMACEUTICAL CORP., LENDER: IMPERIAL BANK
A NEW YORK CORPORATION; ET. AL. EMERGING GROWTH INDUSTRIES
3040 SCIENCE PARK ROAD GROUP - SOUTHERN CALIFORNIA
SAN DIEGO, CA 92121-1102 REGIONAL OFFICE
701 B STREET, SUITE 600
SAN DIEGO, CA 92101-8120
GRANTOR: ALLIANCE PHARMACEUTICAL CORP., A NEW YORK CORPORATION AND MDV
TECHNOLOGIES, INC., A DELAWARE CORPORATION
- --------------------------------------------------------------------------------
THIS COMMERCIAL SECURITY AGREEMENT is entered into among ALLLIANCE
PHARMACEUTICAL CORP., A NEW YORK CORPORATION and MDV TECHNOLGOIES, INC., A
DELAWARE CORPORATION (referred to below individually and collectively as
"Borrower"); ALLIANCE PHARMACEUTICAL CORP., A NEW YORK CORPORATION and MDV
TECHNOLOGIES, INC., A DELAWARE CORPORATION (referred to below individually and
collective as "Grantor"); and Imperial Bank (referred to below as "Lender").
For valuable consideration, Grantor grants to Lender a security interest in the
Collateral to secure the indebtedness and agrees that Lender shall have the
rights stated in this Agreement with respect to the Collateral, in addition to
all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
BORROWER. The word "Borrower" means each and every person or entity
signing the Note, including without limitation ALLIANCE PHARMACEUTICAL
CORP., A NEW YORK CORPORATION and MDV TECHNOLOGIES, INC., A DELAWARE
CORPORATION.
COLLATERAL. The word "Collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located.
SEE EXHIBIT "A", ATTACHED HERETO AND MADE A PART HEREOF BY THIS
REFERENCE.
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and
substitutions for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or
other disposition of any of the property described in this
Collateral section.
(d) All proceeds (including insurance proceeds from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing,
photograph, microfilm, microfiche, or electronic media, together
with all of Grantor's right, title, and interest in and to all
computer software required to utilize, create, maintain, and
process any such records or data on electronic media.
EVENT OF DEFAULT. The words "Event of Default: mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means ALLIANCE PHARMACEUTICAL CORP., A NEW
YORK CORPORATION and MDV TECHNOLOGIES, INC., A DELAWARE CORPORATION. Any
Grantor who signs this Agreement, but does not sign the Note, is signing
this Agreement only to grant a security interest in Grantor's interest in
the Collateral to Lender and is not personally liable under the Note except
as otherwise provided by contract or law (e.g., personal liability under a
guaranty or as a surety).
GUARANTOR. The word "Guarantor: means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the indebtedness.
INDEBTEDNESS. The word "indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor or Borrower is
responsible under this Agreement or under any of the Related Documents. In
addition, the word "indebtedness" includes all other obligations, debts and
liabilities, plus interest thereon, of Borrower, or any one or more of
them, to Lender, as well as all claims by Lender against Borrower, or any
one or more of them, whether existing now or later; whether they are
voluntary or involuntary, due or not due, direct or indirect, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as
guarantor, surety, accommodation party or otherwise; whether recovery upon
such indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such indebtedness may be or hereafter may be come
otherwise unenforceable. (INITIAL HERE__________.)
LENDER. The word "Lender" means Imperial Bank, its successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated August 2,
1999, in the principal amount of $8,422,619.04 from Borrower to Lender,
together with all renewals of, extensions of, modifications of, refinancing
of, consolidations of and substitutions for the note or credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the indebtedness.
<PAGE>
08-02-99 COMMERCIAL SECURITY AGREEMENT PAGE 2
(CONTINUED)
BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under
this agreement or by applicable law, (a) Borrower agrees that Lender need not
tell Borrower about any action or inaction Lender takes in connection with this
Agreement; (b) Borrower assumes the responsibility for being and keeping
informed about the Collateral; and (c) Borrower waives any defenses that may
arise because of any action or inaction of Lender, including without limitation
any failure of Lender to realize upon the Collateral or any delay by Lender in
realizing upon the Collateral; and Borrower agrees to remain liable under the
Note no matter what action Lender takes or fails to take under this Agreement.
GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (a) this
Agreement is executed at Borrower's request and not at the request of Lender;
(b) Grantor has the full right, power and authority to enter into this Agreement
and to pledge the Collateral to Lender; (c) Grantor has established adequate
means of obtaining from Borrower on a continuing basis information about
Borrower's financial condition; and (d) Lender has made no representation to
Grantor about Borrower or Borrower's creditworthiness.
GRANTOR'S WAIVERS. Grantor waives all requirements of presentment, protest,
demand, and notice of dishonor or non-payment to Grantor, Borrower, or any other
party to the indebtedness or the Collateral. Lender may do any of the following
with respect to any obligation of any Borrower, without first obtaining the
consent of Grantor; (a) grant any extension of time for any payment, (b) grant
any renewal, (c) permit any modification of payment terms or other terms, or (d)
exchange or release any Collateral or other security. No such act or failure to
act shall affect Lender's rights against Grantor or the Collateral.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Grantor hereby forever waives and relinquishes in favor of
Lender and Borrower, and their respective successors, any claim or right to
payment Grantor may now or hereafter have or acquire against Borrower, by
subrogation or otherwise so that at no time shall Grantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547 (b), or any
successor provision of the Federal bankruptcy laws.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security interest
in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other accounts), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law. Grantor authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all
indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of New York and
Delaware.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
by Grantor have been duly authorized by all necessary action by Grantor and
do not conflict with, result in a violation of, or constitute a default
under (a) any provision of any articles or agreements relating to entity
incorporation, organization or existence, any agreement or other instrument
binding upon Grantor or (b) any law, governmental regulation, court decree,
or order applicable to Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue the security interest granted in this
Agreement. Lender may at any time, and without further authorization from
Grantor, file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN
EFFECT EVEN THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND
EVEN THOUGH FOR A PERIOD OF TIME BORROWER MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its articles or agreements relating to entity incorporation,
organization or existence do not prohibit any term or condition of the
Agreement.
ENFORCEABILITY OF COLLATERAL. To the extend the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following; (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extend
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extend that the Collateral consists of vehicles,
or other tilted property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of Delaware, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale
in the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall
not pledge, mortgage, encumber or otherwise permit the Collateral to be
subject to any lien, security interest, encumbrance, or charge, other than
the security interest provided for in this Agreement, without the prior
written consent of Lender. This includes security interests even if junior
in right to the security interests granted under this Agreement. Unless
waived by Lender, all proceeds from any disposition of the Collateral (for
whatever reason) shall be held in trust for Lender and shall not be
commingled with any other funds; provided however, this requirement shall
not constitute consent by Lender to any sale or other disposition. Upon
receipt, Grantor shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
right in the Collateral against the claims and demands of all other
persons.
COLLATERAL SCHEDULES AND LOCATIONS. Insofar as the Collateral consists of
inventory, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and each of
its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of
all cases involving the
<PAGE>
08-02-99 COMMERCIAL SECURITY AGREEMENT PAGE 3
(CONTINUED)
return, rejection, repossession, loss or damage of or to any Collateral; of
any request for credit or adjustment or of any other dispute arising with
respect to the Collateral; and generally of all happenings and events
affecting the Collateral or the value or the amount of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) DAYS, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of the Agreement. This
obligation to indemnify shall survive the payment of the indebtedness and
the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
canceled or diminished without at least thirty (30) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
In no event shall the insurance be in an amount less than the amount agreed
upon in the Agreement to Provide Insurance. If Grantor at any time fails
to obtain or maintain any insurance as required under this Agreement,
Lender may (but shall not be obligated to) obtain such insurance as Lender
deems appropriate, including if it so chooses "single interest insurance,"
which will cover only Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
indebtedness, and shall pay the balance to Grantor. Any proceeds which
have not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the property insured; (e) the then current value on the basis
of which insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition, Grantor
shall upon request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of
the tangible personal property and beneficial use of all the Collateral and may
use it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the indebtedness.
EXPENDITURE BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be discharge
or paid by Grantor under this Agreement, including without limitation all taxes,
liens, security interests, encumbrances, and other claims, at any time levied or
placed on the Collateral. Lender also may (but shall not be obligated to) pay
all costs for insuring, maintaining and preserving the Collateral. All such
expenditure incurred or paid by Lender for such purposes will then bear interest
at the rate charged under the Note from the date incurred or paid by Lender to
the date of repayment by Grantor. All such expenses shall become a part of the
indebtedness and, at Lender's option, will (a) be payable on demand, (b) be
added to the balance of the Note and be apportioned amount and be payable with
any installment payments to become due during either (i) the term of any
applicable insurance policy or (ii) the remaining term of the Note, or (c) be
treated as a balloon payment which will be due and payable at the Note's
maturity. This Agreement also will secure payment of these amounts. Such right
shall be in addition to all other rights and remedies to which Lender may be
entitled upon the occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the indebtedness in accordance with the Related Documents.
OTHER DEFAULTS. Failure of Grantor or Borrower to comply with or to
perform any other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or failure of Borrower to
comply with or to perform any term, obligation, covenant or condition
contained in any other agreement between Lender and Borrower in accordance
with the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor or Borrower under this
Agreement, the Note or the Related Documents is false or misleading in any
material respect, either now or at the time made or furnished.
<PAGE>
08-02-99 COMMERCIAL SECURITY AGREEMENT PAGE 4
(CONTINUED)
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
collateral documents to create a valid and perfected security interest or
lien) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor or Borrower's
existence as a going business, the insolvency of Grantor or Borrower, the
appointment of a receiver for any part of Grantor or Borrower's property,
any assignment for the benefit of creditors, any type of creditor workout,
or the commencement of any proceeding under any bankruptcy or insolvency
laws by or against Grantor or Borrower which is not withdrawn within 60
days.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or Borrower or
by any governmental agency against the Collateral or any other collateral
securing the indebtedness. This includes a garnishment of any of Grantor
or Borrower's deposit accounts with Lender. However, this Event of Default
shall not apply if there is a good faith dispute by Grantor or Borrower as
to the validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Grantor or Borrower gives Lender
written notice of the creditor or forfeiture proceeding and deposits with
Lender monies or a surety bond for the creditor or forfeiture proceeding,
in an amount determined by Lender, in its sole discretion, as being an
adequate reserve or bond for the dispute.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or such Guarantor dies
or becomes incompetent. Lender, at its option, may, but shall not be
required to, permit the Guarantor's estate to assume unconditionally the
obligations arising under the guaranty in a manner satisfactory to Lender,
and, in doing so, cure the Event of Default.
RIGHT TO CURE. If any default, other than a Default on indebtedness, is
curable and if Grantor or Borrower has not been given a prior notice of a
breach of the same provision of this Agreement, it may be cured (and no
Event of Default will have occurred) if Grantor or Borrower, after Lender
sends written notice demanding cure of such default, (a) cures the default
within ten (10) days; or (b), if the cure required more than ten (10) days,
immediately initiates steps which Lender deems in Lender's sole discretion
to be sufficient to cure the default and thereafter continues and completes
all reasonable and necessary steps sufficient to produce compliance as soon
as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Delaware Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire indebtedness,
including any prepayment penalty which Borrower would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If
the Collateral contains other goods not covered by this Agreement at the
time of repossession, Grantor agrees Lender may take such other goods,
provided that Lender makes reasonable efforts to return them to Grantor
after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in its
own name or that of Grantor. Lender may sell the Collateral at public
auction or private sale. Unless the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Lender will give Grantor reasonable notice of the time after which any
private sale or any other intended disposition of the Collateral is to be
made. The requirements of reasonable notice shall be met if such notice is
given at least ten (10) days before the time of the sale or disposition.
All expenses relating to the disposition of the Collateral, including
without limitation the expenses of retaking, holding, insuring, preparing
for sale and selling the Collateral, shall become a part of the
indebtedness secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUE, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the indebtedness or apply it to payment of the indebtedness in
such order of preference as Lender may Determine. Insofar as the
Collateral consists of accounts, general intangibles, insurance policies,
instruments, chattel paper, choses in action, or similar property, Lender
may demand, collect, receipt for, settle, compromise, adjust, sue for,
foreclose, or realize on the Collateral as Lender may determine, whether or
not indebtedness or Collateral is then due. For these purposes, Lender
may, on behalf of and in the name of Grantor, receive, open and dispose of
mail addressed to Grantor; change any address to which mail and payments
are to be sent; and endorse notes, checks, drafts, money orders, documents
of title, instruments and items pertaining to payment, shipment, or storage
of any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Borrower for any deficiency remaining
on the indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Borrower shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial Code,
as may be amended from time to time. In addition, Lender shall have and
may exercise any or all other rights and remedies it may have available at
law, in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor or Borrower under this
Agreement, after Grantor or Borrower's failure to perform, shall not affect
Lender's right to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISION. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of California. If there is a lawsuit, Grantor and
Borrower agree upon Lender's request to submit to the jurisdiction of the
courts of Los Angeles County, the State of California. Lender, Grantor and
Borrower hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either Lender, Grantor or Borrower
against the other. (INITIAL HERE ________ ) This Agreement shall be
governed by and construed in accordance with the laws of the State of
California.
ATTORNEYS' FEES; EXPENSES. Grantor and Borrower agree to pay upon demand
all of Lender's costs and expenses, including attorneys' fees and Lender's
legal expenses, incurred in connection with the enforcement of this
Agreement. Lender may pay someone else to help enforce this Agreement, and
Grantor and Borrower shall pay the costs and expenses of such enforcement.
Costs and expenses include Lender's attorneys' fees and legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (and including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Grantor and Borrower also shall pay all
court costs and such additional fees as may be directed by the court.
<PAGE>
08-02-99 COMMERCIAL SECURITY AGREEMENT PAGE 5
(CONTINUED)
CAPTION HEADINGS. Caption headings in this Agreement are for Convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor and
Borrower under this Agreement shall be joint and several, and all
references to Borrower shall mean each and every Borrower, and all
references to Grantor shall mean each and every Grantor. This means that
each of the persons signing below is responsible for ALL obligations in
this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party pay change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extend permitted by applicable law,
if there is more than one Grantor or Borrower, notice to any Grantor or
Borrower will constitute notice to all Grantor and Borrowers. For notice
purposes, Grantor and Borrower will keep Lender informed at all times of
Grantor and Borrower's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and Grantor, shall constitute a waiver
of any of Lender's rights or of any of Grantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
BORROWER AND GRANTOR ACKNOWLEDE HAVING READ ALL THE PROVISIONS OF THIS
COMMERCIAL SECURITY AGREEMENT, AND BORROWER AND GRANTOR AGREE TO ITS TERMS.
THIS AGREEMENT IS DATED AUGUST 2, 1999.
BORROWER:
ALLIANCE PHARMACEUTICAL CORP., A NEW YORK CORPORATION
By: (SEAL)
--------------------------------
Authorized Signer
By: (SEAL)
--------------------------------
Authorized Signer
MDV TECHNOLOGIES, INC., A DELAWARE CORPORATION, Co-Borrower
By: (SEAL)
--------------------------------
THEODORE D. ROTH, VP/TREASURER/SECRETARY
By: (SEAL)
--------------------------------
LLOYD A. ROWLAND, ASSISTANT SECRETARY
GRANTOR:
By: (SEAL)
--------------------------------
Authorized Signer
By: (SEAL)
--------------------------------
Authorized Signer
MDV TECHNOLOGIES, INC., A DELAWARE CORPORATION
By: (SEAL)
--------------------------------
THEODORE D. ROTH, VP/TREASURER/SECRETARY
By: (SEAL)
--------------------------------
LLOYD A. ROWLAND, ASSISTANT SECRETARY
<PAGE>
EXHIBIT "A" TO COMMERCIAL SECURITY AGREEMENT
COLLATERAL DESCRIPTION
All personal property of Obligor (herein referred to as "Obligor" or "Debtor")
whether presently existing or hereafter created, written, produced or acquired,
including, but not limited to: (i) all accounts receivable, accounts, chattel
paper, contract rights (including, without limitation, royalty agreements,
license agreements and distribution agreements), documents, instruments, money,
deposit accounts and general intangibles including, without limitation, returns,
repossessions, books and records relating thereto, and equipment containing said
books and records, all investment property including securities and securities
entitlement, (ii) all software, computer source codes and other computer
programs (collectively, the "Software Products"), and all common law and
statutory copyrights and copyright registrations, applications for registration,
now existing or hereafter arising, United States of America and foreign,
obtained or to be obtained on or in connection with the Software Products, or
any parts thereof or any underlying or component elements of the Software
Products together with the right to copyright and all rights to renew or extend
such copyrights and the right (but not obligation) of Bank (herein referred to
as "Bank" or "Secured Party") to sue in its own name and/or in the name of the
Debtor for past, present, and future infringements of copyright, (iii) all goods
including, without limitation, equipment and inventory (including , without
limitation, all export inventory), (iv) all guarantees and other security
therefor, (v) all trademarks, service marks, trade names and service names and
the goodwill associated therewith, (vi) (a) all patents and patent applications
filed in the United States Patent and Trademark Office or any similar office of
any foreign jurisdiction, and interests under patent license agreements,
including, without limitation, the inventions and improvements described and
claimed therein, (b) licenses pertaining to any patent whether Debtor is
licensor or licensee, (c) all icome, royalties, damages, payments, accounts and
accounts receivable now or hereafter due and/or payable under and with respect
thereto, including, without limitation, damages and payments for past, present
or future thereof, (d) the right (but not obligation) to sue for past, present
and future infringements thereof, (e) all rights corresponding thereto
throughout the world in all jurisdictions in which such patents have been issued
or applied for, and (f) the reissues, divisions, continuations, renewals,
extensions and continuations-in-part with any of the foregoing (all the
foregoing patents and applications and interests under patent license
agreements, together with the items described in clauses (a) through (f) in this
paragraph are sometime herein individually and collectively referred to as the
"Patents"), and (vii) all products and proceeds including, without limitation,
insurance proceeds, of any of the foregoing.
To the extent that Obligor acquires any trademarks, service marks, trade
names and service names and/or the good will associated therewith, copyrights,
patents and/or patent applications (collectively "Intellectual Property"),
Obligor shall give prompt notice thereof to bank and shall take any and all
actions reasonably requested from time to time by Bank to perfect Obligor's
interest in such Intellectual Property and to perfect Bank's first priority
security interest therein. Without limiting the generality of the foregoing,
the Obligor further agrees as follows: Upon Obligor creating, writing,
producing or acquiring any material software, computer source codes or other
computer programs (collectively, the "Software"), Obligor shall promptly
register such Software with the U.S. Copyright Office before selling or
licensing the Software, and to the extent Obligor's rights therein are acquired
from any third party, Obligor shall promptly upon such acquisition file with the
U.S. Copyright Office any and all documents necessary to perfect Obligor's
fights therein. Upon Obligor creating, writing, producing or otherwise
acquiring any material Software, Obligor shall give prompt notice thereof to
Bank. Obligor shall execute and deliver to Bank any and all copyright
mortgages, UCC financing statements and other documents and instruments which
Bank may request in connection with the Bank perfecting its first priority
security interest in such Software. Notwithstanding the foregoing, the
collateral shall not include now owned or hereafter acquired copyrights,
licenses, patents, trademarks, trade secrets or files and records covering or
relating to aspects of Alliance Pharmaceutical Corp.'s product
IMAGENT-Registered Trademark-
ALLIANCE PHARMACEUTICAL CORP., A NEW YORK CORPORATION
By:
----------------------------------------------------
Authorized Officer
By:
----------------------------------------------------
Authorized Officer
MDV TECHNOLOGIES, INC. A DELAWARE CORPORATION
By:
----------------------------------------------------
Theodore D. Roth, VP/Treasurer/Secretary
By:
----------------------------------------------------
Lloyd A. Rowland, Assistant Secretary
<PAGE>
IMPERIAL BANK
INNOVATIVE BUSINESS BANKING
Member FDIC
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ---------------- ----------- ------------- --------------- ------ ------------ -------------- ----------------- -------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$5,000,000.00 08-02-1999 10-15-2001 177
- ---------------- ----------- ------------- --------------- ------ ------------ -------------- ----------------- -------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR
LOAN OR ITEM.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
BORROWER: ALLIANCE PHARMACEUTICAL CORP., A NEW LENDER: IMPERIAL BANK
YORK CORPORATION; ET. AL. EMERGING GROWTH INDUSTRIES GROUP -
3040 SCIENCE PARK ROAD SOUTHERN CALIFORNIA REGIONAL OFFICE
SAN DIEGO, CA 92121-1102 701 B STREET, SUITE 600
SAN DIEGO, CA 92101-8120
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $5,000,000.00 DATE OF NOTE: AUGUST 2, 1999
</TABLE>
PROMISE TO PAY. ALLIANCE PHARMACEUTICAL CORP., A NEW YORK CORPORATION AND MDV
TECHNOLOGIES, INC., A DELAWARE CORPORATION (REFERRED TO IN THIS NOTE
INDIVIDUALLY AND COLLECTIVELY AS "BORROWER") JOINTLY AND SEVERALLY PROMISE TO
PAY TO IMPERIAL BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES
OF AMERICA, THE PRINCIPAL AMOUNT OF FIVE MILLION & 00/100 DOLLARS
($5,000,000.00), TOGETHER WITH INTEREST ON THE UNPAID PRINCIPAL BALANCE FROM
AUGUST 2, 1999, UNTIL PAID IN FULL.
PAYMENT. SUBJECT TO ANY PAYMENT CHANGES RESULTING FROM CHANGES IN THE INDEX,
BORROWER WILL PAY THIS LOAN IN ACCORDANCE WITH THE FOLLOWING PAYMENT SCHEDULE:
12 CONSECUTIVE MONTHLY INTEREST PAYMENTS, BEGINNING AUGUST 15,
1999, WITH INTEREST CALCULATED ON THE UNPAID PRINCIPAL BALANCES AT AN
INTEREST RATE OF 0.000 PERCENTAGE POINTS OVER THE INDEX DESCRIBED BELOW;
13 CONSECUTIVE MONTHLY PRINCIPAL PAYMENTS OF $138,888.89 EACH, BEGINNING
SEPTEMBER 15, 2000, WITH INTEREST CALCULATED ON THE UNPAID PRINCIPAL
BALANCES AT AN INTEREST RATE OF 0.000 PERCENTAGE POINTS OVER THE INDEX
DESCRIBED BELOW; 13 CONSECUTIVE MONTHLY INTEREST PAYMENTS, BEGINNING
SEPTEMBER 15, 2000, WITH INTEREST CALCULATED ON THE UNPAID PRINCIPAL
BALANCES AT AN INTEREST RATE OF 0.000 PERCENTAGE POINTS OVER THE INDEX
DESCRIBED BELOW; AND 1 PRINCIPAL AND INTEREST PAYMENT IN THE INITIAL
AMOUNT OF $3,217,071.74 ON OCTOBER 15, 2001, WITH INTEREST CALCULATED ON
THE UNPAID PRINCIPAL BALANCES AT AN INTEREST RATE OF 0.000 PERCENTAGE
POINTS OVER THE INDEX DESCRIBED BELOW. THIS ESTIMATED FINAL PAYMENT IS
BASED ON THE ASSUMPTION THAT ALL PAYMENTS WILL BE MADE EXACTLY AS
SCHEDULED AND THAT THE INDEX DOES NOT CHANGE; THE ACTUAL FINAL PAYMENT
WILL BE FOR ALL PRINCIPAL AND ACCRUED INTEREST NOT YET PAID, TOGETHER
WITH ANY OTHER UNPAID AMOUNTS UNDER THIS NOTE.
The annual interest rate for this Note is computed on a 365/360 basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to any unpaid collection costs and any late charges, then to any
unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. Subject to designation of a different interest rate
index by Borrower as provided below, the interest rate on this Note is subject
to change from time to time based on changes in an index which is the Imperial
Bank Prime Rate (the "Index"). The Prime Rate is the rate announced by Lender as
its Prime Rate of interest from time to time. Lender will tell Borrower the
current index rate upon Borrower's request. Borrower understands that Lender may
make loans based on other rates as well. The interest rate change will not occur
more often than each day. THE INDEX CURRENTLY IS 8.000%. THE INTEREST RATE OR
RATES TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE THE
RATE OR RATES SET FORTH ABOVE IN THE "PAYMENT" SECTION. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law. Whenever increases occur in the interest rate,
Lender, at is option, may do one or more of the following: (a) increase
Borrower's payments to ensure Borrower's loan will pay off by its original final
maturity date, (b) increase Borrower's payments to cover accruing interest, (c)
increase the number of Borrower's payments, and (d) continue Borrower's payments
at the same amount and increase Borrower's final payment.
INTEREST RATE OPTIONS. The following interest rate options are available under
this Note:
(a) DEFAULT OPTION. The interest rate margin and index described in the
"VARIABLE INTEREST RATE" paragraph above (the 'Default Option").
(b) LIBOR. A margin of 1.250 percentage points over LIBOR. For purposes of
this Note, LIBOR shall mean London Inter-Bank Offered Rate as provided in
the LIBOR ADDENDUM TO NOTE attached hereto and made a part hereof.
When the interest rate is based on a fixed rate, the rate shall be in effect for
a period of the number of days or months as indicated in the rate option
description (the "Interest Period"), in any case extended to the next succeeding
business day when necessary, beginning on a borrowing date, conversion date or
expiration date of the then current Interest Period. Adjustments in the interest
rate due to changes in the maximum nonusurious interest rate allowed (the
"Highest Lawful Rate") shall be made on the effective day of any change in the
Highest Lawful Rate.
Provided Borrower is not in default under this Note, Borrower may designate in
advance which of the above interest rate indexes shall be applicable to any loan
advance under this Note and shall designate any optional Interest Period
applicable to any fixed rate loan or advance. In the absence of any such
designation the interest rate option shall be the Default Option. Thereafter
unpaid principal balances under this Note may be converted (at the end of an
Interest Period if the index used to determine the interest rate therefore is a
fixed rate) to another of the above interest rate options, or continued for an
additional interest period, when applicable, as designated by Borrower in
advance; and in the absence of sufficient advance designation as to conversion
to or continuation of a fixed rate index, the index shall be converted to the
Default Option. Notwithstanding the foregoing, a fixed rate index may not be
elected for a loan or advance under this Note, nor any conversion to or
continuation of a fixed rate index be elected, if the Interest Period thereof
would extend beyond the maturity of this Note.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Note, Borrower understands that Lender is entitled to a
MINIMUM INTEREST CHARGE OF $250.00. Other than Borrower's obligation to pay any
minimum interest charge, Borrower may pay without penalty all or a portion of
the amount owed earlier than it is due. Early payments will not, unless agreed
to by Lender in writing, relieve Borrower of Borrower's obligation to continue
to make payments under the payment schedule. Rather, they will reduce the
principal balance due and may result in Borrower making fewer payments.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE UNPAID PORTION OF THE REGULARLY SCHEDULED PAYMENT.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the
<PAGE>
08-02-1999 PROMISSORY NOTE PAGE 2
(CONTINUED)
- -------------------------------------------------------------------------------
benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws and is not withdrawn
within 60 days. (e) Any creditor tries to take any of Borrowers property on or
in which Lender has a lien or security interest. This includes a garnishment of
any of Borrower's accounts with Lender. (f) Any guarantor dies or any of the
other events described in this default section occurs with respect to any
guarantor of this Note.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within ten (10) days; or (b) if the
cure requires more than ten (10) days, immediately initiates steps which Lender
deems in Lender's sole discretion to be sufficient to cure the default and
thereafter continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the variable interest rate on
this Note by 5.000 percentage points, and (b) add any unpaid accrued interest to
principal and such sum will bear interest therefrom until paid at the rate
provided in this Note (including any increased rate). Lender may hire or pay
someone else to help collect this Note if Borrower does not pay. Borrower also
will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal expenses whether or
not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection services.
Borrower also will pay any court costs, in addition to all other sums provided
by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE
STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S
REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF LOS ANGELES COUNTY, THE
STATE OF CALIFORNIA. LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY
TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR
BORROWER AGAINST THE OTHER. (INITIAL HERE__________) THIS NOTE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts.
CREDIT AGREEMENT. This Note is subject to the provisions of the Credit Agreement
dated June 17, 1998 and all amendments thereto and replacements therefor.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Each Borrower understands and
agrees that, with or without notice to Borrower, Lender may with respect to any
other Borrower (a) make one or more additional secured or unsecured loans or
otherwise extend additional credit; (b) alter, compromise, renew, extend,
accelerate, or otherwise change one or, more times the time for payment or other
terms any indebtedness, including increases and decreases of the rate of
interest on the indebtedness; (c) exchange, enforce, waive, subordinate, fail or
decide not to perfect, and release any security, with or without the
substitution of new collateral; (d) apply such security and direct the order or
manner of sale thereof, including without limitation, any nonjudicial sale
permitted by the terms of the controlling security agreements, as Lender in its
discretion may determine; (e) release, substitute, agree not to sue, or deal
with any one or more of Borrower's sureties, endorsers, or other guarantors on
any terms or in any manner Lender may choose; and (f) determine how, when and
what application of payments and credits shall be made on any other indebtedness
owing by such other borrower. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this loan without the consent of or notice to anyone other
than the party with whom the modification is made. The obligations under this
Note are joint and several.
PRIOR TO SIGNING THIS NOTE, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. EACH BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF
THE NOTE.
BORROWER:
ALLIANCE PHARMACEUTICAL CORP., A NEW YORK CORPORATION
BY:
-------------------------------------
AUTHORIZED OFFICER
BY:
-------------------------------------
AUTHORIZED OFFICER
MDV TECHNOLOGIES, INC., A DELAWARE CORPORATION, CO-BORROWER
BY:
-------------------------------------
THEODORE D. ROTH, VP/TREASURER/SECRETARY
BY:
-------------------------------------
LLOYD A. ROWLAND, ASSISTANT SECRETARY
<PAGE>
INTEREST RATE ADDENDUM TO NOTE
This Interest Rate Addendum to Note ("Addendum") supplements the Note dated
as of August 2, 1999, executed by ALLIANCE PHARMACEUTICAL CORP., A NEW YORK
CORPORATION AND MDV TECHNOLOGIES, INC., A DELAWARE CORPORATION ("Borrower") to
Imperial Bank ("Bank") (the "Note") and forms a part of and is incorporated into
the Note
1. Definitions.
"Business Day" means a day of the year (a) that is not a Saturday, Sunday
or other day on which banks in the State of California or the City of London are
authorized or required to close and (b) on which dealings are carried on in the
interbank market in which Bank customarily participates.
"Interest Period" means for each LIBOR Rate Loan, a period of approximately
30, 60 or 90 days as the Borrower may elect, provided that the last day of an
Interest Period for a LIBOR Rate Loan shall be determined in accordance with the
practices of the LIBOR interbank market as from time to time in effect,
provided, further, in all cases such period shall expire not later than the
Commitment Termination Date.
"Interest Rate" shall mean as to: (a) Prime Rate Loans, equal to one-half
of a percent (0.500%) in excess of the Prime Rate; and (b) LIBOR Rate Loans, a
rate of 1.250% per annum in excess of the LIBOR Rate (based on the LIBOR Rate
applicable for the Interest Period selected by the Borrower).
"LIBOR Base Rate" means, for any Interest Period for a LIBOR Rate Loan,
the rate of interest per annum determined by Bank (to be the per annum rate of
interest as which deposits in United States Dollars are offered to Bank in the
London interbank market in which Bank customarily participates) at 11:00AM
(local time in such interbank market) two (2) Business Days before the first day
of such Interest Period for a period approximately equal to such Interest Period
and in an amount approximately equal to the amount of such Loan.
"LIBOR Rate" shall mean, for any Interest Period for a LIBOR Rate Loan, a
rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1% equal
to (i) the LIBOR Base Rate for such Interest Period divided by (ii) 1 minus the
Reserve Requirement for such Interest Period.
"LIBOR Rate Loans" means any Loans made or a portion thereof on which
interest is payable based on the LIBOR Rate in accordance with the terms hereof.
"Prime Rate" means the variable rate of interest per annum, most recently
announced by Bank as its "prime rate," whether or not such announced rate is the
lowest rate available from Bank. The interest rate applicable to the Prime Rate
Loans shall change on each date there is a change in the Prime Rate.
1
<PAGE>
"Prime Rate Loans" means any Loans made or a portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms hereof.
"Regulatory Change" means, with respect to Bank, any change on or after the
date of this Loan Agreement in United States federal, state or foreign laws or
regulations, including Regulation D, or the adoption or making on or after such
date of any interpretations, directives or requests applying to a class of
lenders, including Bank, of or under any United States federal or state, or any
foreign, laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"Reserve Requirement" means, for any Interest Period, the average maximum
rate at which reserves (including any marginal, supplemental or emergency
reserves) are required to be maintained during such Interest Period under
Regulation D against "Eurocurrency liabilities" (as such term is used in
Regulation D) by member banks of the Federal Reserve System. Without limiting
the effect of the foregoing, the Reserve Requirement shall reflect any other
reserves required to be maintained by Bank by reason of any Regulatory Change
against (i) any category of liabilities which includes deposits by reference to
which the LIBOR Rate is to be determined as provided in the definition of
"LIBOR Base Rate" or (ii) any category of extensions of credit or other assets
which include Loans.
Requests for Loans, Confirmation of Initial Loans. Each LIBOR Rate Loan shall
be made upon the irrevocable written request of Borrower received by Bank not
later than 11:00AM (California time) on the Business Day three (3) Business Days
prior to the date such Loan is to be made. Each such notice shall specify the
date such Loan is to be made, which day shall be a Business Day, the amount of
such Loan, the Interest Period for such Loan, and comply with such other
requirements as Bank determines are reasonable or desirable in connection
herewith.
Each written request for a LIBOR Rate Loan shall be in the form of a LIBOR
Rate Loan Borrowing Certificate as set forth on Exhibit A, which shall be duly
executed by the Borrower.
Each Prime Rate Loan shall be made upon the irrevocable written request of
Borrower received by Bank not later than 11:00AM (California time) on the
Business Day one (1) Business Day prior to the date such Loan is to be made.
Each such notice shall specify the date such Loan is to be made, which day shall
be a Business Day and the amount of such Loan, and comply with such other
requirements as Bank determines are reasonable or desirable in connection
therewith.
3. Conversion/Continuation of Loans.
a. Borrower may from time to time submit in writing a request that
Prime Rate Loans be converted to LIBOR Rate Loans or that any existing LIBOR
Rate Loans Continue for an additional Interest Period. Such request shall
specify the amount of the
2
<PAGE>
Prime Rate Loans which will constitute LIBOR Rate Loans (subject to the limits
set forth below) and the Interest Period to be applicable to such LIBOR Rate
Loans. Each written request for a conversion to a LIBOR Rate Loan or a
continuation of a LIBOR Rate Loan shall be substantially in the form of a LIBOR
Rate Conversion/Continuation Certificate as set forth on Exhibit B, which shall
be duly executed by the Borrower. Subject to the terms and conditions contained
herein, three (3) Business Days after Bank's receipt of such a request from
Borrower, such Prime Rate Loans shall be converted to LIBOR Rate Loans or such
LIBOR Rate Loans shall continue, as the case may be provided that:
i. no Default or event which with notice or passage of time or both
would constitute a Default exists;
ii. no party hereto shall have sent any notice of termination of this
Supplement or of the Loan Agreement.
iii. Borrower shall have complied with such customary procedures as
Bank has established from time to time for Borrowers requests for LIBOR Rate
Loans;
iv. the amount of a LIBOR Rate Loan shall be $500,000 or such greater
amount which is an integral multiple of $50,000; and
v. Bank shall have determined that the Interest Period or LIBOR Rate
is available to Bank which can be readily determined as of the date of the
request for such LIBOR Rate Loan.
vi. There shall not be due on the Note any principal payments during
the Interest Period that would reduce the principal balance of the Note below
the amount of all LIBOR Rate Loans then outstanding.
Any request by Borrower to convert Prime Rate Loans to LIBOR Rate Loans or
continue any existing LIBOR Rate Loans shall be irrevocable. Notwithstanding
anything to the contrary contained herein, Bank shall not be required to
purchase United States Dollar deposits in the London interbank market or other
applicable LIBOR Rate market to fund any LIBOR Rate Loans, but the provisions
hereof shall be deemed to apply as if Bank had purchased such deposits to fund
the LIBOR Rate Loans.
b. Any LIBOR Rate Loans shall automatically convert to Prime Rate Loans
upon the last day of the applicable Interest Period, unless Bank has received
and approved a complete and proper request to continue such LIBOR Rate Loan at
least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any LIBOR Rate Loans shall, at Bank's option, convert to Prime
Rate Loans in the event that (i) a Default, or event which with the notice or
passage of time or both would constitute a Default, shall exist, (ii) this
Supplement or the Loan Agreement shall terminate, or (iii) the aggregate
principal amount of LIBOR Rate Loans at any time exceeds the Maximum
Availability. Borrower agrees to pay to Bank, upon demand by Bank (or Bank may,
at its option, charge Borrowers loan account) any amounts
3
<PAGE>
required to compensate Bank for any loss (including loss of anticipated
profits), cost or expense incurred by such person, as a result of the conversion
of LIBOR Rate Loans to Prime Rate Loans pursuant to any of the foregoing.
c. On all Loans, Interest shall be payable by Borrower to Bank monthly
in arrears not later than the tenth (10th) day of each calendar month at the
applicable Interest Rate.
4. Additional Requirements/Provisions Regarding LIBOR Rate Loans; etc.
a. If for any reason (including voluntary or mandatory prepayment or
acceleration), Bank receives all or part of the principal amount of a LIBOR Rate
Loan prior to the last day of the Interest Period for such Loan, Borrower shall
immediately notify Borrower's account officer at Bank and, on demand by Bank,
pay Bank the amount (if any) by which (i) the additional interest which would
have been payable on the amount so received had it not been received until the
last day of such Interest Period exceeds (ii) the interest which would have been
recoverable by Bank by placing the amount so received on deposit in the
certificate of deposit markets or the offshore currency interbank markets or
United States Treasury investment products, as the case may be, for a period
starting on the date on which it was so received and ending on the last day of
such Interest Period at the interest rate determined by Bank in its reasonable
discretion. Bank's determination as to such amount shall be conclusive absent
manifest error.
b. Borrower shall pay to Bank, upon demand by Bank, from time to time
such amounts as Bank may determine to be necessary to compensate it for any
costs incurred by Bank that Bank determines are attributable to its making or
maintaining of any amount receivable by Bank hereunder in respect of any Loans
relating thereto (such increases in costs and reductions in amounts receivable
being herein called "Additional Costs"), in each case resulting from any
Regulatory Change which:
i. changes the basis of taxation of any amounts payable to Bank
under this Supplement in respect of any Loans (other than changes which affect
taxes measured by or imposed on the overall net income of Bank by the
jurisdiction in which such Bank has its principal office); or
ii. imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of Bank (including any Loans or any deposits
referred to in the definition of "LIBOR Base Rate"); or
iii. imposes any other condition affecting this Supplement (or any of
such extensions of credit or liabilities).
Bank will notify Borrower of any event occurring after the date of the Loan
Agreement which will entitle Bank to compensation pursuant to this section as
promptly as practicable after it obtains knowledge thereof and determines to
request such compensation. Bank will furnish Borrower with a statement setting
forth the basis and
4
<PAGE>
amount of each request by Bank for compensation under this Section 4.
Determinations and allocations by Bank for purposes of this Section 4 of the
effect of any Regulatory Change on its costs of maintaining its obligations to
make Loans or of making or maintaining Loans or on amounts receivable by it in
respect of Loans, and of the additional amounts required to compensate Bank in
respect of any Additional Costs, shall be conclusive absent manifest error.
c. Borrower shall pay to Bank, upon the request of Bank, such amount or
amounts as shall be sufficient (in the sole good faith opinion of such Bank) to
compensate it for any loss, costs or expense incurred by it as a result of any
failure by Borrower to borrow a Loan on the date for such borrowing specified in
the relevant notice of borrowing hereunder.
d. If Bank shall determine that the adoption or implementation of any
applicable law, rule, regulation or treaty regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof or compliance by Bank (or its
applicable lending office) with any respect or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on capital of Bank or any person on entity controlling Bank (a "Parent")
as a consequence of its obligations hereunder to a level below that which Bank
(or its Parent) could have achieved but for such adoption, change or compliance
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by Bank to be material, then from time to time, within 125 days
after demand by Bank, Borrower shall pay to Bank such additional amount or
amounts as will compensate Bank for such reduction. A statement of Bank claiming
compensation under this Section and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive absent manifest error.
e. If at any time Bank, in its sole and absolute discretion, determines
that: (i) the amount of the LIBOR Rate Loans for periods equal to the
corresponding Interest Periods are not available to Bank in the offshore
currency interbank markets, or (ii) the LIBOR Rate does not accurately reflect
the cost to Bank of lending the LIBOR Rate Loan, then Bank shall promptly give
notice thereof to Borrower, and upon the giving of such notice Bank's obligation
to make the LIBOR Rate Loans shall terminate, unless Bank and the Borrower agree
in writing to a different interest rate applicable to LIBOR Rate Loans. If it
shall become unlawful for Bank to continue to fund or maintain any Loans, or to
perform its obligations hereunder, upon demand by Bank, Borrower shall prepay
the Loans in full with accrued interest thereon and all other amounts payable by
Borrower hereunder (including, without limitation, any amount payable in
connection with such prepayment pursuant to Section 4(a)).
5.
<PAGE>
Exhibit A
LIBOR RATE LOAN BORROWING CERTIFICATE
The undersigned hereby certifies as follows:
I, _______________ am duly elected and acting _______________
("Borrower").
This certificate is delivered pursuant to Section 2 of that certain
Interest Rate Addendum by Borrower to Imperial Bank ("Bank") (the "Note"). The
terms used in this Borrowing Certificate which are defined in the Note have the
same meaning herein as ascribed to them therein.
Borrower hereby requests on _______________, 19__, a LIBOR Rate Loan (the
"Loan") as follows:
a. The date on which the Loan is to be made is _______________, 19__.
b. The amount of the Loan is to be _________________ ($_______), for an
Interest Period of _____ month(s).
All representations and warranties of Borrower stated in the Loan Agreement
are true, correct and complete in all material respect as of the date of this
request for a loan; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respect as of such date.
IN WITNESS WHEREOF, this Borrowing Base Certificate is executed by the
undersigned as of _______________,19__.
------------------------------
By:
---------------------------
Title:
------------------------
FOR INTERNAL BANK USE ONLY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
LIBOR Pricing Date LIBOR Rate LIBOR Rate Maturity Date
Variance
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
_____%
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit B
LIBOR RATE CONVERSION/CONTINUATION CERTIFICATE
The undersigned hereby certifies as follows:
I, _______________ am the duly elected and acting _______ ("Borrower).
This certificate is delivered pursuant to Section 2 of that certain
Interest Rate Addendum to Note by Borrower to Imperial Bank ("Bank") (the
"Note"). The terms used in this LIBOR Rate Conversion/Continuation Certificate
which are defined in the Note have the same meaning herein as ascribed to them
therein.
Borrower hereby requests on __________, 19___, a LIBOR Rate Loan (the
"Loan") as follows:
a. ______i. A rate conversion of an existing Prime Rate Loan from a
Prime Rate Loan to a LIBOR Rate Loan; or
______ii. A continuation of an existing LIBOR Rate Loan as a LIBOR
Rate Loan;
[Check (i) or (ii) above]
b. The date on which the Loan is to be made is ____________, 19_____.
c. The amount of the Loan is to be ________________ ($_______), for an
Interest Period of _____ month(s).
All representations and warranties of Borrower stated in the Loan Agreement
are true, correct and complete in all material respect as of the date of this
request for a loan; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respect as of such date.
IN WITNESS WHEREOF, this Borrowing Base Certificate is executed by the
undersigned as of ________________, 19___.
------------------------------
By:
---------------------------
Title:
------------------------
FOR INTERNAL BANK USE ONLY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
LIBOR Pricing Date LIBOR Rate LIBOR Rate Maturity Date
Variance
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
_____%
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
IMPERIAL BANK
INNOVATIVE BUSINESS BANKING
Member FDIC
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ---------------- ----------- ------------ -------------- ------ ------------ -------------- ------------------ --------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$8,422,619.04 08-02-1999 10-15-2001 177
- ---------------- ----------- ------------ -------------- ------ ------------ -------------- ------------------ --------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN
OR ITEM.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
BORROWER: ALLIANCE PHARMACEUTICAL CORP., A NEW LENDER: IMPERIAL BANK
YORK CORPORATION; ET. AL. EMERGING GROWTH INDUSTRIES GROUP -
3040 SCIENCE PARK ROAD SOUTHERN CALIFORNIA REGIONAL OFFICE
SAN DIEGO, CA 92121-1102 701 B STREET, SUITE 600
SAN DIEGO, CA 92101-8120
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $8,422,619.04 DATE OF NOTE: AUGUST 2, 1999
</TABLE>
PROMISE TO PAY. ALLIANCE PHARMACEUTICAL CORP., A NEW YORK CORPORATION AND MDV
TECHNOLOGIES, INC., A DELAWARE CORPORATION (REFERRED TO IN THIS NOTE
INDIVIDUALLY AND COLLECTIVELY AS "BORROWER") JOINTLY AND SEVERALLY PROMISE TO
PAY TO IMPERIAL BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES
OF AMERICA, THE PRINCIPAL AMOUNT OF EIGHT MILLION FOUR HUNDRED TWENTY TWO
THOUSAND SIX HUNDRED NINETEEN & 04/100 DOLLARS ($8,422,619.04) TOGETHER WITH
INTEREST ON THE UNPAID PRINCIPAL BALANCE FROM AUGUST 2, 1999, UNTIL PAID IN
FULL.
PAYMENT. SUBJECT TO ANY PAYMENT CHANGES RESULTING FROM CHANGES IN THE INDEX,
BORROWER WILL PAY THIS LOAN IN ACCORDANCE WITH THE FOLLOWING PAYMENT SCHEDULE:
6 CONSECUTIVE MONTHLY PRINCIPAL PAYMENTS OF $500,000.00 EACH
BEGINNING AUGUST 15, 1999, WITH INTEREST CALCULATED ON THE UNPAID
PRINCIPAL BALANCES AT AN INTEREST RATE OF 0.500 PERCENTAGE POINTS OVER
THE INDEX DESCRIBED BELOW; 6 CONSECUTIVE MONTHLY INTEREST PAYMENTS
BEGINNING AUGUST 15, 1999, WITH INTEREST CALCULATED ON THE UNPAID
PRINCIPAL BALANCES AT AN INTEREST RATE OF 0.500 PERCENTAGE POINTS OVER
THE INDEX DESCRIBED BELOW; 20 CONSECUTIVE MONTHLY PRINCIPAL PAYMENTS OF
$250,000.00 EACH, BEGINNING FEBRUARY 15, 2000, WITH INTEREST CALCULATED
ON THE UNPAID PRINCIPAL BALANCES AT AN INTEREST RATE OF 0.500 PERCENTAGE
POINTS OVER THE INDEX DESCRIBED BELOW; 20 CONSECUTIVE MONTHLY INTEREST
PAYMENTS, BEGINNING FEBRUARY 15, 2000, WITH INTEREST CALCULATED ON THE
UNPAID PRINCIPAL BALANCES AT AN INTEREST RATE OF 0.500 PERCENTAGE POINTS
OVER THE INDEX DESCRIBED BELOW; AND 1 PRINCIPAL AND INTEREST PAYMENT IN
THE INITIAL AMOUNT OF $425,612,59 ON OCTOBER 15, 2001, WITH INTEREST
CALCULATED ON THE UNPAID PRINCIPAL BALANCES AT AN INTEREST RATE OF 0.500
PERCENTAGE POINTS OVER THE INDEX DESCRIBED BELOW. THIS ESTIMATED FINAL
PAYMENT IS BASED ON THE ASSUMPTION THAT ALL PAYMENTS WILL BE MADE EXACTLY
AS SCHEDULED AND THAT THE INDEX DOES NOT CHANGE; THE ACTUAL FINAL PAYMENT
WILL BE FOR ALL PRINCIPAL AND ACCRUED INTEREST NOT YET PAID, TOGETHER
WITH ANY OTHER UNPAID AMOUNTS UNDER THIS NOTE.
The annual interest rate for this Note is computed on a 365/360 basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to any unpaid collection costs and any late charges, then to any
unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the Imperial Bank Prime Rate
(the "Index"). The Prime Rate is the rate announced by Lender as its Prime Rate
of interest from time to time. Lender will tell Borrower the current index rate
upon Borrower's request. Borrower understands that Lender may make loans based
on other rates as well. The interest rate change will not occur more often than
each day. THE INDEX CURRENTLY IS 8.000%. THE INTEREST RATE OR RATES TO BE
APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE THE RATE OR RATES
SET FORTH ABOVE IN THE "PAYMENT" SECTION. NOTICE: Under no circumstances will
the interest rate on this Note be more than the maximum rate allowed by
applicable law. Whenever increases occur in the interest rate, Lender, at its
option, may do one or more of the following: (a) increase Borrower's payments to
ensure Borrower's loan will pay off by its original final maturity date, (b)
increase Borrower's payments to cover accruing interest, (c) increase the number
of Borrower's payments, and (d) continue Borrower's payments at the same amount
and increase Borrower's final payment.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Note, Borrower understands that Lender is entitled to a
MINIMUM INTEREST CHARGE OF $250.00. Other than Borrower's obligation to pay any
minimum interest charge, Borrower may pay without penalty all or a portion of
the amount owed earlier than it is due. Early payments will not, unless agreed
to by Lender in writing, relieve Borrower of Borrower's obligation to continue
to make payments under the payment schedule. Rather, they will reduce the
principal balance due and may result in Borrower making fewer payments.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE UNPAID PORTION OF THE REGULARLY SCHEDULED PAYMENT.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws
and is not withdrawn within 60 days. (e) Any creditor tries to take any of
Borrower's property on or in which Lender has a lien or security interest This
includes a garnishment of any of Borrower's accounts with Lender. (f) Any
guarantor dies or any of the other events described in this default section
occurs with respect to any guarantor of this Note.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within ten (10) days; or (b) if the
cure requires more than ten (10) days, immediately initiates steps which Lender
deems in Lender's sole discretion to be sufficient to cure the default and
thereafter continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
<PAGE>
08-02-1999 PROMISSORY NOTE PAGE 2
(CONTINUED)
- -------------------------------------------------------------------------------
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at is option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the variable interest rate on
this Note by 5.000 percentage points, and (b) add any unpaid accrued interest to
principal and such sum will bear interest therefrom until paid at the rate
provided in this Note (including any increased rate). Lender may hire or pay
someone else to help collect this Note if Borrower does not pay. Borrower also
will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal expenses whether or
not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection services.
Borrower also will pay any court costs, in addition to all other sums provided
by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE
STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S
REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF LOS ANGELES COUNTY, THE
STATE OF CALIFORNIA. LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY
TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR
BORROWER AGAINST THE OTHER. (INITIAL HERE__________) THIS NOTE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
In the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts.
CREDIT AGREEMENT. This Note is subject to the provisions of the Credit Agreement
dated June 17, 1998 and all amendments thereto and replacements therefor.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them, Each Borrower understands and
agrees that, with or without notice to Borrower, Lender may with respect to any
other Borrower (a) make one or more additional secured or unsecured loans or
otherwise extend additional credit; (b) alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms any indebtedness, including increases and decreases of the rate of
interest on the indebtedness; (c) exchange, enforce, waive, subordinate, fail or
decide not to perfect, and release any security, with or without the
substitution of new collateral; (d) apply such security and direct the order or
manner of sale thereof, including without limitation, any nonjudicial sale
permitted by the terms of the controlling security agreements, as Lender in its
discretion may determine; (e) release, substitute, agree not to sue, or deal
with any one or more of Borrower's sureties, endorsers, or other guarantors on
any terms or in any manner Lender may choose; and (f) determine how, when and
what application of payments and credits shall be made on any other indebtedness
owing by such other borrower. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this loan without the consent of or notice to anyone other
than the party with whom the modification is made. The obligations under this
Note are joint and several.
PRIOR TO SIGNING THIS NOTE, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. EACH BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF
THE NOTE.
BORROWER:
ALLIANCE PHARMACEUTICAL CORP., A NEW YORK CORPORATION
BY:
------------------------------------
AUTHORIZED OFFICER
BY:
------------------------------------
AUTHORIZED OFFICER
MDV TECHNOLOGIES, INC., A DELAWARE CORPORATION, CO-BORROWER
BY:
------------------------------------
THEODORE D. ROTH, VP/TREASURER/SECRETARY
BY:
------------------------------------
LLOYD A. ROWLAND, ASSISTANT SECRETARY
<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 DECEMBER 31, 2001 OR UPON EARLIER
EXPIRATION PURSUANT TO ARTICLE VIII HEREIN.
WARRANT TO PURCHASE
**180,000 SHARES**
WARRANT TO PURCHASE
COMMON STOCK
OF ALLIANCE PHARMACEUTICAL CORP.
This certifies that, for good and valuable consideration received,
Imperial Bancorp 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 July 1, 1999 and before
5:00 P.M., New York time, on December 31, 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 non-assessable 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.
1
<PAGE>
(d) DEMAND REGISTRATION: See Section 7.02.
(e) EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
(f) EXERCISE PRICE: $2.88 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 December 31, 2001,
or such earlier date of expiration as may occur pursuant to Article VIII herein.
(h) HOLDER: A holder of Registrable Securities.
(i) NASD: National Association of Securities Dealers, Inc.
(j) PERSON: An individual, partnership, joint venture, corporation,
trust, unincorporated organization or government or any department or agency
thereof.
(k) PIGGYBACK REGISTRATION: See Section 7.01.
(l) 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.
(m) PUBLIC OFFERING: A public offering of any of the Company's equity
or debt securities pursuant to a registration statement under the Securities
Act.
(n) 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.
(o) 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, 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
2
<PAGE>
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.
(p) 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.
(q) SEC: The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act or the Exchange Act.
(r) SECURITIES ACT: The Securities Act of 1933, as amended.
(s) WARRANTS: This Warrant and all other warrants that may be issued
in its place (together evidencing the right to purchase an aggregate of
one hundred eighty thousand (180,000) shares of Common Stock, subject to
adjustment from time to time in accordance with Article III).
(t) 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.
(u) 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 July 1, 1999, 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.
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 Subscription 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
3
<PAGE>
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.
(b) In lieu of exercising this Warrant as specified in
Section 2.02(a), Warrantholder may from time to time convert this Warrant, in
whole or in part, into a number of Warrant Shares determined by dividing (a) the
aggregate fair market value of the Warrant Shares or other securities otherwise
issuable upon exercise of this Warrant minus the aggregate Exercise Price of
such Shares by (b) the fair market value of one Warrant Share. If the Warrant
Shares are traded regularly in a public market, the fair market value shall be
the closing price of the Warrant Shares (or the closing price of the Company's
stock into which the Warrant Shares are convertible) reported for the business
day immediately before Warrantholder delivers its Subscription Form to the
Company. If the Warrant Shares are not regularly traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Warrantholder
advises the Board of Directors in writing that Warrantholder disagrees with such
determination, then the Company and Warrantholder shall promptly agree upon a
reputable investment banking firm to undertake such valuation. If the valuation
of such investment banking firm is greater than that determined by the Board of
Directors, then all fees and expenses of such investment banking firm shall be
paid by the Company. In all other circumstances, such fees and expenses shall
be paid by Warrantholder.
(c) Upon receipt of this Warrant with the Subscription Form duly
executed and, if applicable, 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.
(d) 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.
(e) 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.
(f) 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
4
<PAGE>
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 distribution 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.
(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
5
<PAGE>
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 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
6
<PAGE>
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
(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.
7
<PAGE>
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, non-assessable 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 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
8
<PAGE>
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.
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
9
<PAGE>
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
underwritten 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.
(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.
10
<PAGE>
(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 75% 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.
(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
11
<PAGE>
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 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;
12
<PAGE>
(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
(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.
13
<PAGE>
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, liabiity 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 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.
14
<PAGE>
(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 ay 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 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.
15
<PAGE>
(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.
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);
16
<PAGE>
(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.
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
17
<PAGE>
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
180 Maiden Lane
New York, NY 10038-4982
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.
18
<PAGE>
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company as
of the 30th day of March 1999.
ALLIANCE PHARMACEUTICAL CORP.
By:
------------------------------------
Theodore D. Roth
President and Chief Operating Officer
19
<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:
_______________________________
20
<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 to 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
$__________, or
/ / __________ shares of Common Stock pursuant to the cashless exercise method.
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.
21
<PAGE>
Exhibit 21
SUBSIDIARY LIST
Astral, Inc., A DELAWARE CORPORATION
Alliance Pharmaceutical GmbH, A GERMAN CORPORATION
MDV Technologies, Inc., A DELAWARE CORPORATION
Talco Pharmaceutical, Inc., A DELAWARE CORPORATION
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 and S-8) of Alliance Pharmaceutical Corp. of our report dated July
23, 1999 (except for paragraph 2 of Note 5, as to which the date is September
14, 1999), with respect to the consolidated financial statements of Alliance
Pharmaceutical Corp. included in the Annual Report (Form 10-K) for the year
ended June 30, 1999.
ERNST & YOUNG LLP
San Diego, California
September 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 19,081,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,369,000
<PP&E> 43,332,000
<DEPRECIATION> 18,711,000
<TOTAL-ASSETS> 65,984,000
<CURRENT-LIABILITIES> 13,360,000
<BONDS> 0
0
5,000
<COMMON> 435,000
<OTHER-SE> 41,685,000
<TOTAL-LIABILITY-AND-EQUITY> 65,984,000
<SALES> 0
<TOTAL-REVENUES> 8,251,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 68,993,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (62,473,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (62,473,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62,473,000)
<EPS-BASIC> (1.89)
<EPS-DILUTED> (1.89)
</TABLE>
