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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
- -------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
- -------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to__________
Commission File Number 0-12950
ALLIANCE PHARMACEUTICAL CORP.
(Exact name of Registrant as specified in its charter)
New York 14-1644018
- --------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
3040 Science Park Road
San Diego, California 92121
- --------------------------------- -----------------------------------
(Address of principal Zip Code
executive offices)
Registrant's telephone number,
including area code: 858/410-5200
-----------------------------------
Indicate by a check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes X No
------------- -------------
As of February 10, 2000, Registrant had 46,980,029 shares of its Common Stock,
$.01 par value, outstanding.
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
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INDEX Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
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PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, JUNE 30,
1999 1999
---------------------- ----------------------
ASSETS (UNAUDITED) (NOTE)
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CURRENT
ASSETS:
Cash and cash equivalents $ 10,442,000 $ 19,081,000
Short-term investments 7,789,000 --
Research revenue receivable 1,050,000 4,875,000
Other current assets 217,000 413,000
---------------------- ----------------------
Total current assets 19,498,000 24,369,000
PROPERTY, PLANT AND EQUIPMENT - NET 22,197,000 24,621,000
PURCHASED TECHNOLOGY - NET 10,601,000 11,361,000
RESTRICTED CASH 5,138,000 5,000,000
OTHER ASSETS - NET 675,000 633,000
---------------------- ----------------------
$ 58,109,000 $ 65,984,000
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,599,000 $ 4,910,000
Accrued expenses 4,564,000 4,280,000
Current portion of long-term debt 4,003,000 4,170,000
---------------------- ----------------------
Total current liabilities 13,166,000 13,360,000
LONG-TERM DEBT 8,119,000 10,499,000
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value; 5,000,000 shares authorized; 500,000
shares of Series D issued and outstanding at
December 31, 1999 and June 30, 1999 5,000 5,000
Common stock - $.01 par value; 75,000,000 shares authorized; 44,738,274
and 43,510,049 shares issued and outstanding
at December 31, 1999 and June 30, 1999, respectively 447,000 435,000
Additional paid-in capital 376,905,000 368,409,000
Accumulated deficit (340,533,000) (326,724,000)
---------------------- ----------------------
Total stockholders' equity 36,824,000 42,125,000
---------------------- ----------------------
$ 58,109,000 $ 65,984,000
====================== ======================
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Note: The balance sheet at June 30, 1999 has been derived from the
audited financial statements at that date but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------------------ ------------------ ------------------ ------------------
(UNAUDITED) (UNAUDITED)
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REVENUES:
License and research revenue $ 14,204,000 $ 1,048,000 $ 15,772,000 $ 6,148,000
OPERATING EXPENSES:
Research and development 14,651,000 16,418,000 25,064,000 29,964,000
General and administrative 2,634,000 1,990,000 4,346,000 4,175,000
------------------ ------------------ ------------------ ------------------
17,285,000 18,408,000 29,410,000 34,139,000
------------------ ------------------ ------------------ ------------------
LOSS FROM OPERATIONS (3,081,000) (17,360,000) (13,638,000) (27,991,000)
INVESTMENT INCOME 312,000 532,000 522,000 1,167,000
INTEREST EXPENSE (320,000) (245,000) (693,000) (438,000)
-------------------- ---------------- --------------- ------------------
NET LOSS (3,089,000) (17,073,000) (13,809,000) (27,262,000)
IMPUTED DIVIDEND ON
SERIES E-1 PREFERRED STOCK -- -- -- (483,000)
------------------ ------------------ ------------------ ------------------
NET LOSS APPLICABLE TO COMMON SHARES $ (3,089,000) $ (17,073,000) $ (13,809,000) $ (27,745,000)
================== ================== ================== ==================
NET LOSS PER COMMON SHARE:
BASIC AND DILUTED $ (0.07) $ (0.53) $ (0.31) $ (0.87)
================== ================== ================== ==================
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC AND DILUTED 44,225,000 32,042,000 43,868,000 32,032,000
================== ================== ================== ==================
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
DECEMBER 31,
1999 1998
------------------- -------------------
(UNAUDITED)
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OPERATING ACTIVITIES:
Net loss $ (13,809,000) $ (27,262,000)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization 3,434,000 2,795,000
Expense associated with warrant issuance 441,000 --
Receipt of equity securities in exchange for technology (4,800,000) --
Issuance of common stock in exchange for technology 5,000,000 --
Changes in operating assets and liabilities:
Research revenue receivable 3,825,000 3,972,000
Restricted cash and other assets 16,000 (79,000)
Accounts payable and accrued expenses and other (27,000) 516,000
------------------- -------------------
Net cash used in operating activities (5,920,000) (20,058,000)
------------------- -------------------
INVESTING ACTIVITIES:
Purchases of short-term investments -- (23,711,000)
Sales and maturities of short-term investments -- 38,663,000
Property, plant and equipment (123,000) (3,207,000)
------------------- -------------------
Net cash provided by (used in) investing activities (123,000) 11,745,000
------------------- -------------------
FINANCING ACTIVITIES:
Issuance of common stock 78,000 --
Issuance of convertible preferred stock -- 5,583,000
Proceeds from long-term debt -- 5,050,000
Principal payments on long-term debt (2,674,000) (357,000)
------------------- -------------------
Net cash provided by (used in) financing activities (2,596,000) 10,276,000
------------------- -------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,639,000) 1,963,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,081,000 11,809,000
------------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,442,000 $ 13,772,000
=================== ===================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Deferred interest expense on long-term debt $ 127,000 $ --
Imputed dividend on preferred stock -- 483,000
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
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ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Alliance Pharmaceutical Corp. and its subsidiaries (collectively, the
"Company" or "Alliance") are engaged in identifying, designing, and developing
novel medical products.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Alliance
Pharmaceutical Corp., its wholly owned subsidiary Astral, Inc., its wholly owned
subsidiary MDV Technologies, Inc. ("MDV") from the acquisition date of November
1996, its wholly owned subsidiary Alliance Pharmaceutical GmbH from its
inception in December 1998, and its majority-owned subsidiary Talco
Pharmaceutical, Inc. All significant intercompany accounts and transactions have
been eliminated. Certain amounts in fiscal 1999 have been reclassified to
conform to the current year's presentation.
INTERIM CONDENSED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of December 31, 1999, the
condensed consolidated statements of operations for the three and six months
ended December 31, 1999 and 1998, and the condensed consolidated statements of
cash flows for the six months ended December 31, 1999 and 1998 are unaudited. In
the opinion of management, such unaudited financial statements include all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the results for the periods presented. Interim results are not
necessarily indicative of the results to be expected for the full year. The
financial statements should be read in conjunction with the Company's
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended June 30, 1999.
PURCHASED TECHNOLOGY
The purchased technology was primarily acquired as a result of the
merger of Fluoromed Pharmaceutical, Inc. into a subsidiary of the Company in
fiscal 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.
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
book value of $10.6 million and $11.2 million, net of accumulated amortization
of $12.6 million and $12 million at December 31 and June 30, 1999, respectively.
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The carrying value of purchased technology is reviewed periodically
based on the projected cash flows to be received from license fees, milestone
payments, royalties and other product revenues. If such cash flows are less than
the carrying value of the purchased technology, the difference will be charged
to expense.
COMPREHENSIVE INCOME AND LOSS
Effective July 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement No. 130, Comprehensive Income ("SFAS No. 130"). SFAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of SFAS No. 130 had no impact
on the Company's net loss or stockholders' equity. SFAS No. 130 requires
unrealized gains and losses on the Company's available-for-sale securities to be
included in comprehensive income. During the three months ended December 31,
1999 and 1998, the total comprehensive loss, which includes the unrealized gain
or loss on available-for-sale securities, was $100,000 and $17,079,000,
respectively. During the six months ended December 31, 1999 and 1998, the total
comprehensive loss, which includes the unrealized gain or loss on
available-for-sale securities, was $10,820,000 and $27,285,000, respectively.
NET INCOME (LOSS) PER SHARE
The Company computes net loss per common share in accordance with
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
SFAS No. 128 requires the presentation of basic and diluted earnings per share
amounts. Basic earnings per share is calculated based upon the weighted average
number of common shares outstanding during the period while diluted earnings per
share also gives effect to all potential dilutive common shares outstanding
during the period such as common shares underlying options, warrants, and
convertible securities, and contingently issuable shares. All potential dilutive
common shares have been excluded from the calculation of diluted earnings per
share as their inclusion would be anti-dilutive.
2. SALE OF TECHNOLOGY
In November 1999, the Company completed the sale of certain aspects of
its PULMOSPHERES(R) technology to Inhale Therapeutic Systems, Inc. ("Inhale")
for $15 million in cash and $5 million in common stock of Inhale, plus
additional future milestone and royalty payments. In consideration for retaining
certain rights to use the technology, Alliance issued $5 million in Alliance
common stock to Inhale.
3. SUBSEQUENT EVENT
On February 11, 2000, the Company signed an agreement with certain
investors to purchase $15 million in principal amount of four-year 5%
subordinated convertible debentures. When issued, the debentures will be
convertible at any time at each investor's option into shares of Alliance
common stock at $9.65 per share, subject to certain antidilution provisions.
The Company will have certain rights to cause the debentures to convert into
common stock. The investors will have the option at any time to purchase, and
the Company will have certain rights to require
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the investors to purchase, an additional $15 million of four-year 5%
subordinated convertible debentures, convertible into Alliance common stock
at $12.06 per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (References to years are to the Company's fiscal years ended June
30.)
Alliance has devoted substantial resources to research and development
related to its medical products. The Company has been unprofitable since
inception and expects to incur operating losses for at least the next several
years due to substantial spending on research and development, preclinical
testing, clinical trials, regulatory activities, and commercial manufacturing
start-up. The Company has collaborative research and development agreements for
IMAGENT(R) and RODA(TM). Under the arrangement for IMAGENT, Schering AG, Germany
("Schering") has agreed to reimburse the Company for some of its development
expenses. Schering will also make milestone payments to the Company upon the
achievement of certain product development events, followed by royalties on
sales at commercialization. With respect to RODA, the Company has agreed to
reimburse VIA Medical Corporation ("VIA") for substantially all of its
development expenses and to share revenues from the sale of products. 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 December 1999, the Company financed its activities primarily
from public and private sales of equity and funding from collaborations with
corporate partners. To date, the Company's revenue from the sale of products has
not been significant.
In January 1997, the Company entered into a loan and security agreement
with a bank under which the Company received $3.5 million. In June 1998, the
Company restructured the loan to provide for up to $15 million. Amounts borrowed
are secured by a $5 million restricted certificate of deposit, 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 December 31, 1999, the balance outstanding on this loan was approximately
$10.9 million. In May 1999, the Company issued $1.8 million in principal
amount of subordinated convertible notes. On February 8, 2000, the Company
caused the notes to be converted into 900,000 shares of common stock of the
Company.
In November 1999, the Company completed the sale of certain aspects of
its PULMOSPHERES technology to Inhale for $15 million in cash and $5 million in
common stock (180,099 shares) of Inhale, plus the right to receive additional
future milestone and royalty payments. In consideration for retaining certain
rights to use the technology, Alliance issued $5 million in Alliance common
stock to Inhale. As of December 31, 1999, the value of the common stock received
from Inhale was recorded as $7 million after an adjustment to reflect the market
value, however; the shares have not yet been registered for resale with the
Securities and Exchange Commission.
In September 1997, the Company entered into a license agreement (the
"Schering License Agreement") with Schering, which provides Schering with
worldwide exclusive marketing and manufacturing rights to Alliance's drug
compounds, drug compositions, and medical devices and systems related to
perfluorocarbon ultrasound imaging products, including IMAGENT. The product
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is being developed jointly by Alliance and Schering. Under the Schering License
Agreement, Schering paid to Alliance in 1998 an initial license fee of $4
million, and agreed to pay further milestone payments and royalties on product
sales. Schering is also providing funding to Alliance for some of its
development expenses related to IMAGENT. In conjunction with the Schering
License Agreement, Schering Berlin Venture Corp., an affiliate of Schering,
purchased 500,000 shares of the Company's convertible Series D Preferred Stock
for $10 million, which was converted on February 2, 2000 into 1,000,000
shares of common stock of the Company.
In June 1997, the Company sold $2.5 million in clinical trial supplies
to Hoescht Marion Roussel, Inc. ("HMRI") and recorded it as deferred revenue. In
September 1999, HMRI agreed to sell and Alliance agreed to purchase the clinical
trial supplies for up to $3 million over time and under certain circumstances.
The Company had net working capital of $6.3 million at December 31,
1999, compared to $11 million at June 30, 1999. The Company's cash, cash
equivalents, and short-term investments decreased to $18.2 million at
December 31, 1999 from $19.1 million at June 30, 1999. The decrease resulted
primarily from net cash used in operations of $5.9 million and principal
payments on long-term debt of $2.7 million, partially offset by the equity
securities received from the sale of technology to Inhale. 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 and
estimated net proceeds of $14.5 million from the convertible debenture
offering will be adequate to satisfy its capital requirements through at
least fiscal 2000. The Company's future capital requirements will depend on
many factors, including, but not
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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 U.S. Food
and Drug Administration ("FDA") will determine that such facilities comply with
Good Manufacturing Practices. The projected location and construction of such
facilities will depend on regulatory approvals, product development, and capital
resources, among other factors. The Company has not obtained any regulatory
approvals for its production facilities for these products, nor can there be any
assurance that it will be able to do so. The Schering License Agreement requires
the Company to manufacture products at its San Diego facility for a period of
time after market launch at a negotiated price. Schering will be responsible for
establishing production capacity beyond the maximum capacity of the San Diego
facility.
YEAR 2000
Many computer systems and software products created prior to January 1,
2000 were coded to accept only two-digit entries in the date code field.
Beginning in the year 2000, these date code fields need to accept four-digit
entries to distinguish the 21st century dates from 20th century dates. As a
result, computer systems and/or software used by many companies needed to be
upgraded to comply with such "Year 2000" requirements. Management has a
continuing Year 2000 program. Although the Company had no material problems in
the rollover from December 31, 1999 to January 1, 2000, the program will
continue to monitor internal systems for future dates in 2000 which could cause
system failures. As of December 31, 1999, the Company determined that all
critical and most non-critical internal systems, software and embedded chips
were compliant or replaced those that were not compliant. The Company received
compliance confirmations from over 75% of its critical third-party suppliers,
contractors and vendors (collectively, "contractors") with respect to their
computers, software and systems, and it believes that none of its contractors
had material problems in the rollover from December 31, 1999 to January 1, 2000.
However, no assurances can be given that the Company's internal systems or
contractors' systems will not have operational problems in the future or be
compliant. The Company's costs for its Year 2000 program to date have not been
material and are expected to total less than $400,000. 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 not fail in the future and 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
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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
SIX MONTHS ENDED DECEMBER 31, 1999 AS COMPARED WITH SIX MONTHS ENDED
DECEMBER 31, 1998
The Company's license and research revenue increased by $9.6 million to
approximately $15.8 million for the six months ended December 31, 1999, compared
to $6.1 million for the six months ended December 31, 1998. The increase is
primarily a result of the proceeds from the sale of technology to Inhale. The
Company expects research revenue for fiscal 2000 to increase when compared to
fiscal 1999, due to the revenue from the Inhale transaction.
Research and development expenses decreased by 16% to $25.1 million for
the six months ended December 31, 1999, compared to $30 million for the six
months ended December 31, 1998. The decrease in expenses was primarily due to a
$2.8 million decrease in payments to
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outside researchers for preclinical and clinical trials and other product
development work, a $1.6 million decrease in staffing costs for employees
engaged in research and development activities, as well as other decreases
related to the Company's research and development activities.
General and administrative expenses increased by approximately 4% to
$4.3 million for the six months ended December 31, 1999, compared to $4.2
million for the six months ended December 31, 1998. The increase in general and
administrative expenses was primarily due to increased professional fees
resulting from partnering activities.
Investment income was $522,000 for the six months ended December 31,
1999, compared to $1.2 million for the six months ended December 31, 1998. The
decrease was primarily a result of lower average cash and short-term investment
balances.
Interest expense was $693,000 for the six months ended December 31,
1999, compared to $438,000 for the six months ended December 31, 1998. The
increase was primarily a result of higher average long-term debt balances.
THREE MONTHS ENDED DECEMBER 31, 1999 AS COMPARED WITH THREE MONTHS
ENDED DECEMBER 31, 1998
The Company's license and research revenue increased by $13.2 million
to $14.2 million for the three months ended December 31, 1999, compared to $1
million for the three months ended December 31, 1998. The increase is primarily
a result of the proceeds from the sale of technology to Inhale. The Company
expects research revenue for fiscal 2000 to increase when compared to fiscal
1999, due to the revenue from the Inhale transaction.
Research and development expenses decreased by approximately 11% to
$14.7 million for the three months ended December 31, 1999, compared to $16.4
million for the three months ended December 31, 1998. The decrease in expenses
was primarily due to a $1.2 million decrease in payments to outside researchers
for preclinical and clinical trials and other product development work, a
$380,000 decrease in supplies and chemical costs, as well as other decreases
related to the Company's research and development activities.
General and administrative expenses were $2.6 million for the three
months ended December 31, 1999, compared to $2 million for the three months
ended December 31, 1998. The increase in general and administrative expenses was
primarily due to increased salaries and wages and increased professional fees
resulting from partnering activities.
Investment income was $312,000 for the three months ended December 31,
1999, compared to $532,000 for the three months ended December 31, 1998. The
decrease was primarily a result of lower average cash and short-term investment
balances.
Interest expense was $320,000 for the three months ended December 31,
1999, compared to $245,000 for the three months ended December 31, 1998. The
increase was primarily a result of higher average long-term debt balances.
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Alliance expects to continue to incur substantial expenses associated
with its research and development programs. Operating losses may fluctuate from
quarter to quarter as a result of differences in the timing of revenues earned
and expenses incurred and such fluctuations may be substantial. The Company's
historical results are not necessarily indicative of future results.
PART II OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS
In the quarterly report on Form 10-Q for the period ended September 30,
1999, the Company announced that HMRI dismissed arbitration proceedings filed
against the Company in September 1998 in connection with its termination of the
license agreement with HMRI and agreed to sell certain raw materials to
Alliance.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 4, 1999, the Company issued 1,134,738 shares of common
stock to Inhale in exchange for the right, valued at $5 million, to use
certain technology sold by the Company to Inhale. The stock was issued in a
transaction exempt from registration with the Securities and Exchange
Commission ("SEC") and under Section 4(2) of the Securities Act of 1933, as
amended (the "Act").
On November 15, 1999, the Company issued to Burrill & Company a warrant
for 250,000 shares exercisable at $4.375 per share at any time before November
15, 2004. 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) of the Act.
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of shareholders was held on December 10, 1999. The
following directors were re-elected for the following year and until the
election and qualification of their respective successors:
<TABLE>
<CAPTION>
Broker
Director For Against Withheld Non-votes
-------- --- ------- -------- ---------
<S> <C> <C> <C> <C>
Pedro Cuatrecasas, M.D. 32,687,988 0 5,414,703 0
Carroll O. Johnson 32,684,135 0 5,418,556 0
Stephen M. McGrath 32,687,688 0 5,415,003 0
Donald E. O'Neill 32,681,568 0 5,421,123 0
Helen M. Ranney, M.D. 32,681,288 0 5,421,403 0
Jean G. Riess, Ph.D. 32,684,383 0 5,418,308 0
Duane J. Roth 32,686,405 0 5,416,286 0
Theodore D. Roth 32,680,405 0 5,422,286 0
Thomas F. Zuck, M.D. 32,686,642 0 5,416,049 0
</TABLE>
The shareholders of the Company voted to amend the 1991 Stock Option
Plan of the Company to increase the number of shares available for issuance
thereunder in accordance with the following vote:
<TABLE>
<S> <C> <C> <C>
25,615,052 For 10,578,028 Against 697,801 Withheld 1,211,810 Broker Non-Votes
---------------- --------------- -------------- --------------
</TABLE>
The shareholders of the Company voted to ratify the appointment of
Ernst & Young LLP as independent auditors of the Company for its fiscal year
ending June 30, 2000 in accordance with the following vote:
<TABLE>
<S> <C> <C> <C>
37,869,030 For 155,783 Against 77,878 Withheld 0 Broker Non-Votes
---------------- --------------- -------------- --------------
</TABLE>
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10. Supply Agreement dated as of July 9, 1999 between the Company and
Fluoromed L.P.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated November 4, 1999
stating that it had completed the transfer to Inhale Therapeutic
Systems, Inc. of Alliance's PulmoSpheres particle and
particle-processing technology and other related assets for use in
respiratory drug delivery.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIANCE PHARMACEUTICAL CORP.
(Registrant)
\s\ TIM T. HART
-----------------------------
Tim T. Hart
Chief Financial Officer
and Treasurer
Date: February 11, 2000
16
<PAGE>
Alliance Pharmaceutical Corp.
Form 10-Q
EXHIBIT INDEX
The following exhibits are being filed herewith:
<TABLE>
<CAPTION>
Number Document
------ -----------------------------------------------------------------
<S> <C>
10. Supply Agreement dated as of July 9, 1999 between the Company and
Fluoromed L.P. *
</TABLE>
* A request for confidential treatment of certain portions of
this exhibit has been filed with the Securities and Exchange
Commission.
17
<PAGE>
Exhibit 10
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT ("this Agreement"), effective as of the
date of the latest signature below, is entered into by ALLIANCE PHARMACEUTICAL
CORP. ("APC"), located at 3040 Science Park Road, San Diego, California 92121
and FLUOROMED L.P. ("FMLP"), located at 2350 Double Creek Drive, Round Rock,
Texas 78664.
RECITALS
A. APC is developing a proprietary ultrasound contrast agent for use in
echocardiological and radiological diagnostic applications ("the
Product"), a key component of which is neat medical-grade
perfluorohexane ("MG-PFH"), as more particularly described in Exhibit
A.
B. FMLP possesses the expertise to manufacture neat medical-grade
perfluorohexane and has developed the processes necessary to
manufacture MG-PFH in commercial quantities from chemical raw
materials.
C. APC and FMLP desire to enter into this Agreement to provide for FMLP's
supply of MG-PFH to meet APC's clinical research, regulatory and
commercial manufacturing requirements.
THEREFORE, in consideration of the mutual promises contained
in the following provisions, the parties agree as follows:
Article 1.
DEFINITIONS
The following terms have these definitions and are incorporated
in this Agreement by this reference:
1.1 CONTRACT YEAR. "Contract Year" means (a) the four-Quarter year
beginning with the first Quarter following the FDA Approval Quarter or (b) any
subsequent four-Quarter year beginning on the anniversary of the first day of
the first Contract Year.
1.2 FDA APPROVAL. "FDA Approval" means the FDA's approval of APC's
NDA (New Drug Application) for the Product.
1.3 FDA APPROVAL QUARTER. "FDA Approval Quarter" means the Quarter
in which FDA Approval occurs.
1.4 APC means collectively APC and APC Affiliates.
1.5 APC AFFILIATE. "APC Affiliate", means (a) any wholly-owned
direct or indirect subsidiary of APC, (b) any other corporation in which APC
directly or indirectly owns more than 50% of the voting stock or (c) any
partnership or joint venture in which APC directly or indirectly owns more than
a 50% interest.
* INDICATES CONFIDENTIAL INFORMATION WHICH HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
1.6 PRODUCT LAUNCH. "Product Launch" means the first commercial
sale of the Product following FDA Approval and test marketing, if any.
1.7 PFH MICROBUBBLE. "PFH Microbubble" means any discrete entity
containing gaseous or vaporous PFH dispersed in a liquid continuous phase.
1.8 QUARTER. "Quarter" means (a) the three-month period ending with
the month in which FDA Approval occurs or (b) any prior or subsequent
three-month period.
1.9 FDA. The United States Food and Drug Administration.
2.0 OTHER. The following terms have the meanings given in the
designated paragraphs:
<TABLE>
<CAPTION>
Term Paragraph No.
---- -------------
<S> <C>
FMLP Claims and Losses 8.6
CDA 6.1
Field 2.8
First Renewal Term 7.1
Foreign DMF 5.3
Initial Term 7.1
Pre-Launch Period 2.2
Price Schedule 3.3
Release 3.5
Renewal Term 6.1
Second Renewal Term 6.1
Specification 3.1
Supply Cylinder 3.8
Unspecified Constituents 8.1
</TABLE>
Article 2.
SUPPLY OF MG-PFH
2.1 DEVELOPMENT QUANTITIES. Until the start of the Pre-Launch
Period, FMLP shall supply MG-PFH to APC as follows:
(a) GENERAL. FMLP shall use its best efforts to supply MG-PFH
in such reasonable quantities as APC reasonably orders to enable it to perform
preclinical and clinical trials of the Product.
(b) SHIPMENT. FMLP shall use its best efforts to supply MG-PFH
to APC under this Paragraph 2.1 in accordance with APC firm written purchase
orders, and shall ship each order on or before the date specified in APC's
purchase order, provided such date is agreeable to both parties, but no later
than 90 days after the date of receipt of APC's purchase order. In no event,
however, shall FMLP be required to ship an order earlier than 30 days after the
date of receipt of APC's purchase order.
2
<PAGE>
2.2 PRODUCT LAUNCH QUANTITIES. APC wants to be in a position to
initiate Product Launch as soon as practicable following FDA Approval. To this
end, during the period (the "Pre-Launch Period") from completion of a successful
pre-approval inspection ("PAI") by the FDA, if any, of FMLP's facility to ensure
that it is in compliance with good manufacturing practices with respect to the
MG-PFH production, through the end of FDA Approval Quarter, and subject to the
final paragraph of this Paragraph 2.2, FMLP shall supply MG-PFH to APC as
follows:
(a) GENERAL. FMLP shall use all reasonable efforts to supply
MG-PFH in such quantities as APC orders to enable APC to have an inventory of
Product on hand that it determines to be adequate to meet anticipated demand
following the Product Launch.
(b) SHIPMENT. FMLP shall use all reasonable efforts to supply
MG-PFH to APC under this Paragraph 2.2 in accordance with APC's written purchase
orders issued at any time during the Pre-Launch Period (or prior to such
Pre-Launch Period as the parties may mutually agree), and shall use all
reasonable efforts to ship each order on or before the date specified in APC's
purchase order, as agreed to between the parties, but no later than 90 days
after the date of receipt of APC's purchase order. In no event, however, shall
FMLP be required to ship an order earlier than 45 days after the date of receipt
of APC's purchase order.
(c) MAXIMUM REQUIRED SUPPLY. At the time of APC's New Drug
Application APC will forecast its requirements for MG-PFH supply during the
Pre-Launch Period and FMLP shall not be required to supply * of such APC
forecast during the Pre-Launch Period.
The parties acknowledge that the period during which PAI
approval, FDA Product Approval, and Product Launch takes place is one of
uncertainty and rapidly changing strategies, forecasts, and production plans.
The parties acknowledge that it is extremely difficult to predict APC's MG-PFH
requirements and FMLP's MG-PFH capacity and processing time during this period
of high uncertainty and evolving plans. Accordingly, they agree that this
Paragraph 2.2 shall strictly be treated as a general guideline to be observed
under reasonable circumstances. Otherwise, the parties shall reasonably consult
and cooperate with respect to APC's needs and FMLP's capacity in advance of
Product Launch to ensure that APC's requirements may be met in a timely fashion.
2.3 COMMERCIAL QUANTITIES. Each Quarter beginning with the first
Quarter following the FDA Approval Quarter, FMLP shall supply MG-PFH to APC as
follows:
(a) GENERAL. Subject to Paragraph 2.7, FMLP shall supply, and
if FMLP is not in Default (as defined in Section 7.2(c) or otherwise failed to
deliver the quantity of MG-PFH ordered (notwithstanding the * limitation)
APC shall purchase from FMLP, * * of MG-PFH for the Product. FMLP
shall not be required to supply a greater amount of MG-PFH during the Quarter
than * of APC's first estimate of its requirements for the Quarter
provided to FMLP pursuant to Paragraph 2.6.
3
<PAGE>
(b) SHIPMENT. FMLP shall supply MG-PFH to APC under this
Paragraph 2.3 in accordance with this Agreement and APC's written purchase
orders issued at any time following FDA Approval, and shall ship each order on
or before the date 120 days from the date of order placement or earlier as
agreed to between the parties and subsequently specified on the purchase order.
In no event, however, shall FMLP be required to ship an order earlier than 45
days after the date of receipt of APC's purchase order, if such order quantities
are not in inventory on the date of order.
(c) MINIMUM ORDER. Each APC purchase order shall be for a
minimum of * of MG-PFH.
2.4 FMLP INVENTORY. Each Quarter beginning with the first Quarter
following FDA Approval Quarter, unless APC is in default, FMLP shall maintain a
finished inventory of MG-PFH equal at all times to *
during the preceding four
Quarters (whether or not in fact supplied by FMLP in a timely manner). The risk
of inventory becoming unusable as a result of changes in Specifications, cGMP,
or APC demand for said inventory shall be born entirely by APC. Inventory shall
be rotated on a "First in First Out" basis by FMLP to reduce such aforementioned
risks of said inventory becoming unusable. APC agrees that with respect to any
finished inventory required to be maintained by FMLP hereunder and which has
been maintained by FMLP for in excess of * , APC shall purchase such
inventory within thirty (30) days of a written request by FMLP.
2.5 FMLP SUPPLY CAPACITY. FMLP represents and warrants that its
existing facility has and will maintain the capacity to produce * of
MG-PFH per month, and, unless APC is in default under this Agreement, within
ninety (90) days of a written request by APC, said request based upon APC's
estimated needs for additional manufacturing capacity, such capacity will be
increased and maintained at up to * of MG-PPH per month. Each Quarter
beginning with the first Quarter following the FDA Approval Quarter, FMLP shall
maintain the capacity to supply, during the current Quarter and each of the next
three Quarters, * of APC's first estimate of its requirements for each
of those Quarters provided to FMLP pursuant to Paragraph 2.6.
2.6 APC FORECASTS. No later than 30 days after submission of the
NDA for the Product, APC shall Provide FMLP with an estimate of APC's expected
requirements of MG-PFH during the first Quarter following the FDA Approval
Quarter and each of the next three Quarters. At least 30 days prior to the start
of the next Quarter (the second Quarter following the FDA Approval Quarter) and
each subsequent Quarter, APC shall provide FMLP with an estimate of APC's
expected requirements of MG-PFH during that Quarter and each of the next three
Quarters. Each four-Quarter estimate after the first one may revise the
estimates that APC previously made in respect of the first three Quarters.
During APC's early Quarters of commercial manufacturing of the Product, APC, as
reasonable, shall consult more frequently with FMLP concerning its expected
requirements and changes to APC's prior forecasts. Such forecasts shall be made
in good faith but shall not be regarded as firm purchase orders pursuant to
Paragraph 3.5.
4
<PAGE>
2.7 APC PURCHASE REQUIREMENTS. APC shall purchase MG-PFH from FMLP
as follows:
(a) PURCHASE OBLIGATION. Unless FMLP is in Default under this
Agreement APC shall purchase * of MG-PFH for the Product from FMLP in accordance
with this Agreement.
(b) RIGHTS TO MANUFACTURE. Provided there has been no Default
by FMLP under this Agreement APC agrees, during the term hereof that it will *
for MG-PFH from
FMLP on the same terms contained in this Agreement.
(c) COMPLIANCE. APC's compliance at any time with this
Purchase obligation shall be determined by reference to the aggregate quantity
of MG-PFH that APC has ordered from FMLP and all other sources during the
current Quarter to date and the preceding three Quarters.
(d) MODIFICATION. APC's purchase obligation under Subparagraph
(a) may be terminated by APC by written notice;
(1) If and when, for any reason, FMLP is in Default or
unable to supply all of APC's requirements of MG-PFH in the amounts and by the
delivery dates specified in APC's purchase orders (subject to the limitations in
Paragraphs 2.1, 2.2 and 2.3 on the earliest date that FMLP may be required to
ship any order); provided that the purchase obligation may be terminated only
after a Default has occurred more than once (1) per year: provided further that
if orders exceed the maximum amounts FMLP is required to deliver (i.e. *
of previous estimate), FMLP shall be given a reasonable time to produce or
increase capacity as may be necessary to provide the requested orders. However,
FMLP shall be given a reasonable time as may be necessary to make changes to
comply with any changes in the MG-PFH manufacturing techniques, specifications
or analytical procedures requested or mandated by APC or any federal agency.
(2) At such time as FMLP may give formal notice of
termination under Paragraph 7.2(d). Upon the giving of such notice, the
aforementioned purchase obligation is reduced * in the first two (2)
years after notice and to * in the third year.
(e) RESEARCH AMOUNTS. Notwithstanding anything herein to the
contrary, APC may purchase MG-PFH from other parties for internal research
purposes.
2.8 APC MINIMUM PURCHASES. Pursuant to APC purchase forecasts
pursuant to Paragraph 2.6, APC shall purchase from FMLP a minimum amount *
(pro rata for partial years) until FDA Approval and * thereafter.
Additionally, FMLP shall not sell or otherwise provide MG-PFH
to any person or entity for any intravenous formulation comprising PFH
Microbubbles or formulations capable of forming PFH Microbubbles upon
intravenous administration as long as all minimum purchase
5
<PAGE>
amounts in above are purchased by APC and/or APC licensees from FMLP. Should the
above minimum purchases not be maintained for reasons other than a Default by
FMLP, FMLP shall not be restricted in any manner in its sales and supply of
MG-PFH to others.
APC's obligation to purchase these minimum purchase amounts is
subject to the following conditions and limitations:
(a) COMPLIANCE. The determination whether APC has purchased the
minimum amount of MG-PFH each year until FDA Approval and each Contract Year
thereafter shall be determined by each year's cumulative shipments of MG-PFH
that are shipped in compliance with APC's purchase order shipment dates and
volumes (pounds of MG-PFH) from FMLP. FMLP shipments that are shipped later than
APC requested shipment dates and would result in APC not complying with the
annual minimum purchase amounts will, for the purposes of calculating minimum
purchase, be deemed to have been shipped on the requested delivery date. Said
purchase order shipment dates shall comply with paragraphs 2.2(b), and 2.3(b)
and (c).
(b) PURCHASE OF REQUIRED BALANCE. If APC fails to issue
purchase orders for the required minimum amount of MG-PFH during any year, APC
shall issue a purchase order for the balance of the MG-PFH that it was required
to purchase no later than 30 days after the end of the year. This purchase order
shall not be considered to relate to the then current year and shall not be
taken into account in determining whether APC has issued purchase orders for the
required minimum amount of MG-PFH during such current year (except to the extent
that it orders a quantity of MG-PFH in excess of the balance of MG-PFH that APC
is required to purchase). The price at which MG-PFH shall be sol- d to APC
pursuant to this purchase order for required minimum amount of MG-PFH purchase
order shall be the price in effect as of the last day of the year to which the
purchase order relates (except, again, to the extent that it orders a quantity
of MG-PFH in excess of the balance that APC is required to purchase, for which
the price shall be the price in effect at the time that the purchase order is
issued). Said purchase order shall have a delivery date of the earliest date
that FMLP can ship the MG-PFH.
(c) EQUITABLE REDUCTION. If during any year APC's purchase
obligation under Paragraph 2.7(a) is suspended for any reason for any period,
the minimum amount of MG-PFH that APC is required to purchase during the year
shall be reduced as appropriate to reflect such suspension.
(d) NO APPROVAL. If, by * , the Product has not received FDA
Approval, APC's minimum purchase obligations shall terminate and FMLP shall be
free without the limitations set forth earlier in this Paragraph 2.8 to sell
MG-PFH to others, even if sale of MG-PFH to "others" includes "others" usage of
MG-PFH for any intravenous formulation comprising PFH Microbubbles or
formulations capable of forming PFH Microbubbles upon intravenous
administration. Nothing herein shall be deemed to be a grant of any license or
other right to any party, including FMLP, to any patents, patent applications,
know-how or other technology of APC.
6
<PAGE>
2.9 APC LICENSEES. If any current or future licensee of APC desires
under the terms of its license the right to manufacture the Product utilizing
MG-PFH as a key ingredient (either for sale to APC or for sale to sublicensees,
distributors or directly to end users), APC shall:
(a) *
,
(b) Notify FMLP of any such licensee(s)' intent to exercise the
right to manufacture the Product utilizing MG-PFH,
(c) Obtain a meeting for FMLP with such licensee(s) and/or
sublicensee(s) to discuss MG-PFH supply, and
(d) Recommend the merits of FMLP MG-PFH to its licensee(s)
and/or sublicensee(s) if consistent with APC's actual experience of FMLP's
performance of this Agreement.
Article 3.
TERMS OF SUPPLY
3.1 SPECIFICATION. All MG-PFH which FMLP supplies shall meet or
exceed the specification set forth in Exhibit A (the "Specification").
3.2 MANUFACTURING. All MG-PFH that FMLP supplies shall be
manufactured as follows:
(a) EARLY DEVELOPMENT QUANTITIES. All MG-PFH which FMLP
supplies pursuant to orders under Paragraph 2.1 prior to establishment of a DMF
as described in Article 5 shall be manufactured in compliance with or pursuant
to such process methodologies, standards, and controls and the like as APC and
FMLP shall jointly determine to be required or appropriate, and in compliance
with or pursuant to all required regulatory validations, permits, registrations,
licenses and approvals.
(b) DEVELOPMENT, PRODUCT LAUNCH AND COMMERCIAL QUANTITIES. All
MG-PFH which FMLP supplies pursuant to orders under Paragraphs 2.1, (subsequent
to the filing of a DMF) 2.2 or 2.3 shall be manufactured in compliance with or
pursuant to (i) FMLP's DMF for MG-PFH, (ii) all applicable current good
manufacturing practices, (iii) all other applicable FDA regulations or
requirements, (iv) all other applicable federal, state and local laws and
regulations and (v) all required FDA and other regulatory validations, permits,
registrations, licenses and approvals.
(c) SUBCONTRACTOR. If, after the Product Launch, FMLP desires
to subcontract the manufacturing of commercial quantities of MG-PFH to a
qualified subcontractor with special expertise in current good manufacturing
practice procedures and specialty chemical manufacturing, then FMLP shall
request that APC authorize the proposed subcontracting arrangement sufficiently
in advance of the proposed effective date of the subcontracting arrangement so
that there will be no interruption in the supply of MG-PFH. APC will not
7
<PAGE>
unreasonably withhold or delay its authorization so long as APC is not required
to amend its NDA or IND due to the proposed subcontracting (or if APC elects to
amend such filings, the FDA approves such amendments) and APC is furnished
reasonably in advance of the proposed effective date of the subcontract with the
following: (1) evidence of a technology transfer to the proposed subcontractor;
(2) evidence of the proposed subcontractor's experience and qualifications; (3)
adequate assurances that APC can continue, without interruption, to reference an
accepted DMF in accordance with Paragraph 5.2, notwithstanding the
subcontracting arrangement; (4) an agreement by the subcontractor to abide by
all of the terms and conditions of this Agreement; and (5) any other agreement
from the subcontractor required by APC to ensure compliance with this Agreement
and APC's right to inspect the subcontractor's facilities and perform vendor
audits. If any Subcontracting arrangement is authorized, FMLP shall remain
primarily responsible for the performance of this Agreement and shall be
responsible for supervising the subcontractor. This Section 3.2 does not
authorize FMLP to disclose any confidential information of APC to any party
without the prior written consent of APC.
3.3 PRICE. The price of each order of MG-PFH shall be as follows:
(a) DEVELOPMENT QUANTITIES, For orders of MG-PFH under
Paragraph 2.1 the price shall be * .
(b) PRODUCT LAUNCH QUANTITIES. For orders of MG-PFH under
Paragraph 2.2, the price shall be determined in accordance with the Price
Schedule attached as Exhibit B ("Price Schedule"). * .
(c) COMMERCIAL QUANTITIES. For orders of MG-PFH under Paragraph
2.3, the price during the first Contract Year shall be determined in accordance
with the Price Schedule that was in effect for Product Launch quantities on the
last day of the Pre-Launch Period. The Price Schedule is subject to increase
after the first Contract Year as provided in Paragraph 3.4.
3.4 PRICE CHANGES.
(a) After * , whichever is earlier, FMLP may
increase the price for commercial quantities of MG-PFH *
since the effective date of the last price change.
Price increases are meant to * and shall be
deemed a reasonable manner of price change. FMLP shall determine *
. FMLP shall give APC written notice of any price change, which
shall be effective as of the date specified in FMLP's notice or 30 days after
APC's receipt of the notice, whichever is later, and shall provide with its
notice an explanation in reasonable detail of the manner in which the price
increase was determined. Should any FMLP price increase pursuant to this
Paragraph 3.4 *
8
<PAGE>
*
. Upon APC's submission,*
and this agreement
shall continue until its defined expiration in Article 7. *
. Upon APC's purchase of commercial quantities exceeding *
from another company, *
(b) In the event that FMLP should sell * .
3.5 APC PURCHASE ORDERS. A specific commitment to purchase MG-PFH
shall be established by APC's issuance of a Purchase Order against this
Agreement ("Release"). A Release will, by reference, incorporate the pricing,
delivery, Specification and other terms and conditions contained herein. The
parties hereto agree that the supply of MG-PFH by FMLP hereunder shall be
subject to and governed by the terms and conditions herein. None of the prices,
specifications, terms or conditions set forth on any purchase or order form,
invoice or like document shall change, modify, delete or add to the provisions
of this Agreement, unless mutually agreed to by the parties in writing. Each APC
Release shall be considered firm, and shall not be subject to change or
cancellation without FMLP's written consent. For purposes of determining when a
Release has been issued, it shall be considered to have been issued on the date
that it bears if it is received by FMLP no later than the fourth business day
following that date; if it is received later than the fourth business day, it
shall be considered to have been issued when received by FMLP. The orders will
be binding upon acceptance by FMLP; such acceptance not to be unreasonably
withheld or delayed. FMLP shall give APC prompt notice in writing of its
rejection of any Release. FMLP's failure to give such notice within 30 days
after issuance of the Release or its commencement of any work on the Release
shall constitute its acceptance of the order.
3.6 PAYMENT. APC's payment for all orders of MG-PFH and other
charges agreed to in this Agreement shall be paid within 30 days after receipt
of FMLP's invoice, payable to FMLP's office in Round Rock, Texas. FMLP shall not
invoice APC for MG-PFH until the MG-PFH has been shipped from FMLP to the
address specified in APC's purchase order. In the event overdue invoices are
outstanding, FMLP will not be required to make additional shipments. Payment
shall be made in U.S. dollars. In the event APC fails at any time to pay any
amount owing under this Agreement when due, in addition to any rights FMLP may
have at law or in equity, after ten days written notice, FMLP shall have the
right to require full or partial payment in advance on all future orders and/or
revoke any credit previously extended and require immediate payment of any
9
<PAGE>
outstanding invoices from FMLP. In addition, overdue amounts shall accrue
interest at a rate of 2% per month or the maximum legal rate, if lower.
3.7 SHIPMENT. FMLP shall ship, FOB FMLP shipping point, each order
of MG-PFH to the destination specified in APC's Release, or if no destination is
specified, to APC at 6175 Lusk Boulevard, San Diego, California 92121. APC may
specify in its Release the common carrier to be used, subject to FMLP's approval
in its reasonable discretion. If APC fails to specify a common carrier, or if
FMLP, in its reasonable discretion, does not approve of the common carrier
specified, FMLP shall select the common carrier. All freight and insurance
charges on each order of MG-PFH shall be paid by APC as "Collect" or "Third
Party Billing" freight charges.
3.8 Supply CYLINDERS. FMLP shall ship all orders of MG-PFH in
FMLP's own reusable stainless steel cylinders holding * (the "Supply
Cylinder"). FMLP shall dedicate these Supply Cylinders to the purpose of
supplying MG-PFH to APC and shall clean and prepare each cylinder before use to
prevent contamination or loss of contents. APC shall promptly return each
cylinder, with valves securely closed to FMLP when empty, in substantially the
same condition in which it was received, reasonable wear and tear excepted, and
shall prepay the related freight and insurance charges. All Supply Cylinders
shall be returned to FMLP within six months to avoid cylinder rental charges,
per Exhibit B. Lost or severely damaged Supply Cylinders shall be subject to
replacement at APC's expense, per rates shown in Exhibit B. APC shall take
reasonable precautions to prevent material of any type from being introduced
into the cylinder while it is in APC's possession. Lost Supply Cylinders are
cylinders that have not been returned to FMLP within one year of APC's receipt
thereof. If foreign matter is introduced to the Supply Cylinders, APC will pay *
for cleaning the contaminated Supply Cylinders, and if the contaminated Supply
Cylinders cannot be cleaned for continued MG-PFH service for APC, the Supply
Cylinders will be charged to APC per rates shown in Exhibit B.
3.9 TAXES AND DUTIES. APC shall pay any and all applicable sales or
use taxes in connection with any order of MG-PFH. Any other tax (other than
income taxes), howsoever denominated and howsoever measured, imposed upon the
sale, transportation, delivery, use or consumption of MG-PFH shall be paid
directly by APC, or if paid by FMLP shall be invoiced to APC as a separate item
and paid by APC to FMLP within 30 days of FMLP's invoice. APC shall also pay all
applicable export, import or excise taxes, clearance, handling and brokerage
fees, customs duties and other cost of delivery incurred in connection with any
order delivered to APC outside of the United States. FMLP may add the amount of
these taxes, duties and handling fees to its invoice to APC for the order.
3.10 TITLE AND RISK OF LOSS. Title to and risk of loss for each
shipment of MG-PFH shall pass to APC when the shipment is duly tendered to the
air, motor freight, or delivery service at the FMLP shipping dock for shipment.
3.11 CERTIFICATE OF ANALYSIS. FMLP shall test (using its own
approved validated methods) and inspect each Supply Cylinder of MG-PFH prior to
shipment for conformity to the Specification and, upon shipment, shall provide
APC with a certificate of analysis reporting the results of the analytical test
or tests performed for each specification. FMLP shall continuously
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consult with APC regarding any change in the selection, design and method of
conducting these analytical tests so that APC is reasonably assured of their
accuracy, reliability, and can replicate the tests for its own use. FMLP shall
not ship any Supply Cylinder of MG-PFH that does not conform to the
Specification and that has not been analyzed in accordance with the required
methods of analysis applicable to MG-PFH. Changes in analytical tests, whether
imposed by APC or others, may result in higher costs for FMLP which will be
passed on to APC at cost and not trigger the price change arrangement as stated
in Paragraph 3.
3.12 ACCEPTANCE OF MG-PFH BY APC. APC shall inspect each shipment of
MG-PFH as follows:
(a) INCOMING INSPECTION. APC shall weigh each cylinder promptly
upon receipt to confirm the amount of MG-PFH delivered. APC shall inspect and
analyze each delivered Supply Cylinder at any time after delivery as APC
determines; provided, however, APC, at a minimum, shall analyze each Supply
Cylinder in accordance with the methods of analysis attached to the
Specifications.
(b) NOTICE OF REJECTION. APC may reject any Supply Cylinder,
because it does not conform to the Specification or because it was not
manufactured in compliance with the requirements of Paragraph 3.2, by written
notice of rejection to FMLP given at any time during the 45 day period following
delivery of the Supply Cylinder and describing in reasonable detail the basis of
APC's rejection. If APC does not give written notice of rejection during this 45
day period following delivery of the supply cylinder, or if it gives written
notice of rejection after the expiration of this period, APC shall be considered
to have accepted the Supply Cylinder.
(c) INFORMATION AND ASSISTANCE. FMLP shall make available to
APC all appropriate validated analytical methods and associated records and
data, including technical assistance, for the express purpose of allowing APC to
consistently inspect deliveries of MG-PFH for conformance to the Specification.
All such analytical techniques, data, assistance, etc. shall be regarded as
Confidential Information and fall under the duty of confidentiality of Article
6. In the event of non-conformance to the Specification, APC and FMLP shall
consult with each other in order to explain and resolve the discrepancy between
each other's determinations. If such consultation does not resolve the
discrepancy, the parties agree to nominate and procure an independent, reputable
laboratory, acceptable to both parties, which shall carry out determinations
based on samples taken from such shipment, using the methods of analysis
attached to the Specifications, and the resulting determinations shall be
binding on APC and FMLP for the purposes hereof. APC and FMLP shall share
equally the expenses of such independent analysis. In the event it is determined
pursuant to the provisions of this subsection (c) that the rejected Supply
Cylinder met the Specification, APC shall reimburse FMLP for any return freight
incurred under this subsection (c).
(d) Replacement. FMLP shall refund the purchase price and all
other costs of shipment paid by APC, or at APC's option, replace any rejected
order of MG-PFH, at no additional cost to APC, with a like amount of MG-PFH
conforming to the Specification and manufactured in compliance with all of the
requirements of Paragraph 3.2. FMLP shall deliver this
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replacement MG-PFH no later than 45 days after APC's notice of rejection
regarding the rejected order.
(e) RETURN. At FMLP's written request for any rejected order of
MG-PFH to be returned, APC shall ship the rejected order back to FMLP, freight
collect. If FMLP does not make such a request within 30 days after APC's notice
of rejection, APC, in its discretion, may either dispose of the MG-PFH (but not
the Supply Cylinder) at FMLP's expense or ship the rejected order back to FMLP,
freight collect.
3.13 CONFLICTING TERMS. The terms of this Agreement shall control in
the event of any contrary, additional or inconsistent terms in any purchase
order, acceptance, order acknowledgment, confirmation or like document issued by
either APC or FMLP in connection with any order of MG-PFH, unless mutually
agreed in writing.
3.14 CHANGES IN FMLP'S MANUFACTURING. FMLP shall consult with and
must obtain written consent from APC reasonably in advance of making any changes
in the facility, materials, equipment, methods, or procedures used in the
manufacturing, storage, containing, transporting, or other aspect of the
production, storage, and transport of MG-PFH which would or might:
(a) Cause a potential change in the MG-PFH purity profile;
(b) Require FMLP to revalidate its own process or methods;
(c) Require APC to re-audit FMLP;
(d) Require APC or FMLP to submit or resubmit any
documentation to the FDA.
3.15 APPLICATIONS FOR FDA APPROVALS. APC shall be responsible for
the preparation and submission of any and all applications to the FDA as may be
required by law and for all marketing clearances, approvals, and/or licenses
from the appropriate regulatory agencies necessary in connection with the sale
and shipment of Product hereunder, including, without limitation, any
investigational new drug application required in order for FMLP to make
shipments hereunder, except for the filing of the Drug Master File.
Article 4.
INSPECTIONS
4.1 APC PURCHASES. APC shall maintain accurate records relating to
its purchases of MG-PFH from FMLP and other sources for purposes of showing
APC's compliance with its purchase obligation under Paragraph 2.7. FMLP shall
have the right to have these records inspected once each calendar year, during
normal business hours and on ten days' prior notice, by an independent certified
public accountant retained by FMLP and approved by APC (which shall not
unreasonably withhold its approval) for the purpose of verifying APC's
compliance with its purchase obligation. APC may take reasonable steps to
provide FMLP's accountant only with such information as may be necessary to this
verification, and FMLP's accountant shall report to FMLP only that APC has
complied with the terms of this Agreement. As a condition of the
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inspection, APC may require FMLP's accountant to sign a confidentiality
agreement to this effect. The report to FMLP by its accountant shall be
considered confidential Information.
4.2 FMLP AGREEMENT COMPLIANCE. FMLP shall maintain accurate records
relating to APC's purchases of MG-PFH, FMLP's pricing and invoice costs, and
FMLP's compliance with respect to limitations on the sale of MG-PFH to other
parties pursuant to Section 2.8. APC shall have the right to have these records
inspected once each calendar year, during normal business hours and on 10 days'
prior notice, by an independent certified public accountant retained by APC and
approved by FMLP (which shall not unreasonably withhold its approval) for the
purpose of verifying FMLP's compliance with the terms of this Agreement. FMLP
may take reasonable steps to provide APC's accountant only with such information
as may be necessary to this verification, and APC's accountant shall report to
APC only that FMLP has complied with the terms of this Agreement or the extent
to which it has failed to do so. As a condition of the inspection, FMLP may
require APC's accountant to sign a confidentiality agreement to this effect. The
report to APC by its accountant shall be considered confidential Information.
Any amounts owed to APC as a result of the audit shall accrue interest from the
date such amount was paid by APC to FMLP at a rate equal to the current prime
rate quoted in the Eastern edition of the Wall Street Journal. Any amount owed
to APC as a result of such inspection shall be paid within thirty (30) days of
such inspection.
4.3 MANUFACTURING COMPLIANCE. APC shall have the right to
reasonably inspect each FMLP MG-PFH manufacturing facility, during normal
business hours and on 10 days' prior notice, for the purpose of conducting a
quality assurance audit (described generally in Exhibit C) to verify FMLP's
compliance with the manufacturing requirements under Paragraphs 3.1 and 3.2.
These audits may be conducted by APC or by a consultant retained by APC and
approved by FMLP (which shall not unreasonably withhold its approval) or both.
FMLP may take reasonable steps to provide APC or its consultant only with such
information as may be necessary to verify FMLP's compliance and shall not be
required to provide any proprietary information which is not necessary for this
verification. The information obtained by APC in the course of the audit shall
be considered Confidential Information. As a condition of the audit by any
consultant retained by APC, FMLP may require the consultant to sign an
appropriate confidentiality agreement.
4.4 FDA INSPECTION. FMLP shall give APC reasonable notice under the
circumstances of any impending inspection of an FMLP MG-PFH manufacturing
facility by the FDA or any such governmental agency of which it has advance
notice. FMLP shall advise APC promptly of any other FDA inspections of FMLP
relating to or that affect MG-PFH and their results, including copies (purged of
confidential or proprietary information, if any) of any FDA form 483s and other
FDA communications. The parties agree that any proprietary information presented
to the FDA as part of an FDA inspection may be withheld from APC or its
representative. The information obtained by APC in the course of any such audit
shall be considered Confidential Information.
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Article 5.
DRUG MASTER FILE (DMF)
5.1 DRUG MASTER FILE REPRESENTATION. FMLP represents and warrants
that it has a complete DMF in compliance with all applicable FDA laws,
regulations, requirements, and guidelines.
5.2 SUPPORT BY FMLP. FMLP shall maintain and support the DMF in
compliance with all applicable FDA regulations, requirements and guidelines.
FMLP shall give the FDA any required notice and file any required report to
permit APC to reference the DMF as provided in Paragraph 5.3.
5.3 REFERENCE BY APC. APC shall have the right to reference the DMF
in APC's own submissions to the FDA in connection with the development, testing,
manufacture and approval for sale of the Product. FMLP shall notify APC of
changes to the DMF in such a manner as not to compromise confidentiality desired
by FMLP.
5.4 FOREIGN REGISTRATION. APC may seek to have the Product approved
for sale by the appropriate regulatory authorities in one or more other
countries. If APC seeks to have the Product approved for sale in another country
and this approval requires submission of data and information substantially the
same as all or part of the data and information constituting the DMF (a "Foreign
DMF"), FMLP shall retain a qualified third-party consultant acceptable to APC at
APC's expense to work with FMLP in assembling the appropriate data and
information for submission of the Foreign DMF in FMLP's name to the appropriate
regulatory authority. The consultant shall be responsible for obtaining any
necessary translation into the local language. FMLP shall engage the consultant
on a confidential basis, and the consultant shall not reveal any of the contents
of the submission or proposed submission to APC. APC shall have the right to
reference the Foreign DMF in APC's own submissions to the foreign regulatory
authority in connection with obtaining the Product's approval for sale. In a
similar manner (i.e., protection of FMLP proprietary information), FMLP shall
cooperate with APC, as necessary, to facilitate the foreign use of the Product.
APC shall pay all submission fees required for the aforementioned, * this
Agreement.
Article 6.
CONFIDENTIALITY
6.1 CONFIDENTIAL INFORMATION. Each party is in possession of
certain proprietary information (such party, a "Discloser"). Discloser is
willing to disclose certain information it possesses to the other party (such
party, a "Recipient") under the terms and conditions as set forth below.
(a) The term "Confidential Information" shall mean any and all
information, business plans or projections, customer lists, agreements, testing
protocols, test results, data or know-how, whether in written or in oral form
and whether technical or non-technical, as well as any sample, which relates to
the Products, provided, however, that the oral disclosure to
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RECIPIENT of any information, data or know-how must be followed within thirty
(30) days by a writing substantially disclosing the same if such information,
data or know-how is to be considered as being Confidential Information. All
matters to be considered confidential shall be clearly marked with the legend
"Confidential and Proprietary Information," or a legend equivalent thereto.
(b) Discloser warrants that it has the full and unconditional
right to disclose to Recipient the Confidential Information covered by this
Agreement.
(c) For a period of five (5) years from the receipt of such
Confidential Information, Recipient agrees:
(i) to treat the Confidential Information which it receives
as it would its own proprietary information;
(ii) to prevent the disclosure of the Confidential
Information which it receives to any third party absent the prior written
consent of Discloser;
(iii) not to use the Confidential Information for any
reason other than the purposes of accomplishing this Agreement or as may be
agreed in writing by Discloser.
(d) Recipient shall be relieved of any and all obligations
under Paragraph (c) of this Agreement regarding Confidential Information which:
(i) was known to Recipient prior to receipt hereunder or is
generated for Recipient by persons who have not had access to or knowledge of
the Confidential Information disclosed hereunder, as documented, in either case,
by written records;
(ii) at the time of disclosure to Recipient was generally
available to the public, or which after disclosure hereunder becomes generally
available to the public through no fault attributable to Recipient or
(iii) is hereafter made available to Recipient for use or
disclosure by Recipient from any third party having a right to do so.
(e) Recipient may disclose information required by applicable
law, rule or judicial order to be disclosed, provided that prompt notice of a
request for such disclosure is given to Discloser prior to such disclosure. Such
disclosed information shall remain Confidential Information. APC may disclose
information to applicable regulatory authorities in connection with obtaining
regulatory approval for the Product or to licensees of the Product.
Article 7.
TERM AND TERMINATION
7.1 TERM. This Agreement shall remain in effect through the last
day of * * (the "Initial Term"). The term of this Agreement shall be
automatically extended for a renewal term of * (the "First Renewal Term")
unless, at least *
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* prior to the expiration of the Initial Term, either APC or
FMLP gives the other notice that it does not want the First Renewal Term to go
into effect (in which case this Agreement shall expire at the end of the Initial
Term), provided that if FMLP is the party desiring not to renew the Agreement at
that time, its notice shall be deemed a notice pursuant to 7.2(d), and the
"exit" provisions shall apply. If the term of this Agreement is extended for the
First Renewal Term, the term of this Agreement shall be automatically extended
for a second renewal term of * (the "Second Renewal Term") unless,
at least * prior to the expiration of the First Renewal Term, either
APC or FMLP gives the other notice that it does not want the Second Renewal Term
to go into effect (in which case this Agreement shall expire at the end of the
First Renewal Term), provided that if FMLP is the party desiring not to renew
the Agreement at that time, its notice shall be deemed a notice pursuant to
7.2(d), and the "exit" provisions shall apply. This Agreement is subject to
early termination, as provided in Paragraph 7.2.
7.2 TERMINATION. This Agreement may be terminated earlier than
Paragraph 7.1 provides under the following circumstances:
(a) AGREEMENT. This Agreement may be terminated at any time
by the written agreement of APC and FMLP.
(b) INSOLVENCY. This Agreement may be terminated by either
party by notice to the other in the event such other party shall dissolve, cease
active business operations or liquidate, or in the event such other party shall
have been determined to be insolvent by a court of competent jurisdiction, or
insolvency or reorganization proceedings shall have been commenced by such other
party, or such proceedings shall have been brought against such other party and
remained undismissed for a period of 60 days, or such other party shall have
made a general assignment for the benefit of creditors, or a receiver of all or
substantially all of such other party's assets shall have been appointed and not
discharged within 60 days.
(c) PARTY'S DEFAULT. This Agreement may be terminated by
either party if the other materially breaches any provision of this Agreement
("Default"), PROVIDED THAT a party shall not be deemed in default unless (i) the
claiming party has given the breaching party written notice specifying the
respects in which the claiming party claims the Agreement has been breached, and
(ii) the breaching party fails to remedy such breach, or fails to provide
information to the claiming party sufficient to show that it has not breached
this Agreement within the 60 day period following written notice or with respect
to breaches of Section 3.6, ten business days following written notice (the
"Cure Period"). Within one hundred twenty (120) days following the expiration of
Cure Period, the claiming party may serve final written notice of termination.
(d) FMLP'S EXIT FROM MEDICAL FLUOROCHEMICALS BUSINESS. This
Agreement * , without the sale of assets and/or
intellectual property to a qualified third party or the spin-off or sale of a
division or subsidiary engaged in this business to a qualified third party, in
which case the following conditions and procedures shall apply:
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(1) FMLP shall continue to supply MG-PFH to APC
pursuant to the terms of this Agreement * . Notwithstanding any prior
history of orders or terms of this Agreement limiting the amount of MG-PFH APC
has or might order, APC may order and FMLP shall reasonably supply sufficient
quantities of MG-PFH to permit APC to maintain a substantial inventory of MG-PFH
in the event it is not able to qualify an alternate supplier * .
(2) FMLP shall provide any reasonable assistance at
APC's expense that APC reasonably requests to establish an alternate supplier
for MG-PFH.
(3) FMLP shall support the DMF as required in Paragraph
5.1 during * , and until APC receives all MG-PFH pursuant to
Section 7.3(b) but shall have no obligation to support it thereafter.
(e) NO FDA APPROVAL. If, by * , APC has not received FDA
Approval for the Product, either party may terminate this Agreement on ninety
(90) days notice.
7.3 CONSEQUENCES OF EXPIRATION OR TERMINATION.
(a) ALTERNATE SUPPLIER. If APC terminates this Agreement under
Paragraph 7.2(c) by reason of FMLP's Default, or FMLP otherwise terminates this
Agreement in breach of the terms herein, FMLP shall provide reasonable
assistance at APC's expense that APC reasonably requests to establish an
alternate supplier of MG-PFH. This assistance shall include describing and
explaining FMLP's process for manufacturing MG-PFH in such detail (including the
disclosure of FMLP proprietary technology, if necessary) as the alternate
supplier may require to manufacture MG-PFH in conformity to the Specification.
(b) APC PURCHASES. Upon the expiration of this Agreement, APC
shall be required to purchase FMLP's finished inventory of MG-PFH on hand at the
time of expiration and its inventory of MG-PFH and MG-PFH work-in-progress as
and when completed, such work-in-progress authorized by issued purchase orders
or maintained pursuant to the requirements of this Agreement; provided FMLP is
not in default hereunder.
Article 8.
INSURANCE AND WARRANTY
8.1 WARRANTY. The MG-PFH supplied under this Agreement by FMLP
shall conform to the Specification and shall be manufactured in compliance with
Paragraph 3.2. In accordance with Paragraph 3.12, FMLP shall analyze shipments
of MG-PFH to APC for conformance with these requirements. However, APC shall
have the responsibility to conduct its own analysis on each shipment of MG-PFH
received from FMLP to check for conformance with the Specification. FMLP shall
replace any MG-PFH that does not conform to the Specification or is not
manufactured in compliance with Paragraph 3.2, or refund the purchase price at
APC's option; such replacement or refund shall constitute APC's sole and
exclusive remedy with respect to such non-conformance. FMLP makes no
representation regarding any ingredient, chemical or constituent of a shipment
of MG-PFH that is not specified in the Specification as being an
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impermissible ingredient, chemical or constituent of MG-PFH or impermissible
concentration of any of the foregoing ("Unspecified Constituents"). APC agrees
to assume all responsibility for Unspecified Constituents and the biological
consequences thereof in the medical applications of MG-PFH by APC, except that
APC assumes no responsibility for any Unspecified Constituents of the MG-PFH
that are present as a result of FMLP's failure to manufacture the MG-PFH in
compliance with Paragraph 3.2. As between FMLP and APC, APC shall be responsible
for providing reasonable evidence to FMLP that an Unspecified Constituent was
present due to FMLP's failure to manufacture the MG-PFH in compliance with this
Agreement. As between APC and FMLP, any liability shall be allocated based upon
applicable principles of comparative negligence, except FMLP's liability to APC
shall be limited to the value of the MG-PFH that was not manufactured in
compliance with Paragraphs 3.1 and 3.2. With regard to the Specification's
applicability to the medical application of APC, APC agrees and acknowledges
that FMLP does not have expertise in that field and that APC does have expertise
in that field, and APC shall be solely responsible for the suitability of MG-PFH
and the Specification for the medical application(s) that APC contemplates under
this Agreement. FMLP further warrants that it shall convey good title to all
MG-PFH supplied hereunder free and clear of any security interest, lien, or
other encumbrance. THE FOREGOING ARE FMLP's SOLE WARRANTIES HEREUNDER AND APC's
SOLE REMEDY FOR BREACH OF SUCH WARRANTIES, AND IS IN LIEU OF ANY AND ALL IMPLIED
OR STATUTORY WARRANTIES, INCLUDING WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
8.2 RISK OF LOSS. APC is solely responsible for testing MG-PFH to
determine its physical or health hazards and for evaluating the methods by which
it may safely store, handle, transport, process, sell, dispose of or in any way
use, misuse or otherwise treat the MG-PFH supplied hereunder either singly or in
combination with other materials and FMLP shall have no liability to APC or any
third party for any claims by APC or any third party for losses or injury
incurred by APC or any third party relating to such testing, evaluation and
subsequent uses as a result of such testing and evaluation or
non-comprehensiveness of such testing and evaluation.
8.3 INDEMNIFICATION. Except as set forth below or in Paragraph 8.6,
APC agrees to indemnity, defend and hold FMLP harmless from and against any
claim, demand, suit, loss, damage or injury of any kind whatsoever, including
attorneys' fees and expenses, regardless of where located, and regardless of
whether based upon negligence, strict liability, defective design, failure to
warn or otherwise(collectively "Claims"), resulting or arising directly or
indirectly from:
(a) APC's or APC's customer(s)' receipt or use of MG-PFH
(including storage, handling, transportation, processing, sale, disposal, use,
misuse or other treatment of MG-PFH); or
(b) the use of MG-PFH for the medical application(s) for which
APC utilizes MG-PFH, including, without limitation, claims based upon defects in
the Specification or claims based upon any Unspecified Constituent other than
Unspecified Constituents of the MG-PFH that are present as a result of FMLP's
failure to manufacture the MG-PFH in compliance with Paragraph 3.2.
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The foregoing does not apply for Claims arising out of the
gross negligence or willful misconduct of FMLP or an intentional breach by FMLP
of the terms of this Agreement. FMLP agrees to defend, indemnify and hold
harmless APC from and against any and all Claims resulting from or arising out
of the gross negligence or willful misconduct of FMLP or its agents or employees
or any intentional breach by FMLP of the representations, warranties, or terms
set forth in this Agreement; provided that in the event FMLP fails to conform to
the Specifications and APC reasonably should have discovered such failure, FMLP
shall not indemnify APC.
8.4 INSURANCE.
(a) APC agrees to obtain from responsible carriers and to
maintain in force during the term of this Agreement and for a period of five
years thereafter, commercial general liability insurance and excess liability
insurance policies (or the equivalent), including products liability coverage,
with contractual liability coverage, and limits of not less than * * combined
single limit per occurrence for bodily injury and property damage. APC agrees to
provide to FMLP certificates evidencing this coverage, and further, agrees to
name FluoroMed, L.P., FMLP, and its subsidiaries, directors, and employees, as
additional insured on the policy(ies) of insurance evidenced by certificates and
endorsements to the policy(ies) in a form to be approved by FMLP. With respect
to the insurance coverage afforded FMLP as contemplated by this Paragraph 8.4
and in recognition of assumption of risk as provided for in Paragraph 8.2, APC
will require its insurers to provide a waiver of subrogation in favor of FMLP.
(b) FMLP represents to APC that it maintains and agrees it
shall continue to maintain in force, during the term of this Agreement and for a
period of two years thereafter, commercial general liability insurance and
excess liability policies (or the equivalent), with contractual liability
coverage, and limits in excess of * combined single limit per occurrence for
bodily injury and property damage, FMLP agrees to provide to APC certificates
evidencing this coverage.
(c) The parties agree that to the extent liability for an
insured claim is allocated to APC under this Agreement, then APC's insurance
shall be primary to the insurance of FMLP, and, to the extent liability for an
insured claim is allocated to FMLP under this Agreement, then FMLP's insurance
shall be primary to the insurance of APC, and the other party's insurance shall
be considered as excess of and not contributing to the primary insurance or
deductible or of the party with primary liability.
8.5 CLAIMS. NO CLAIM FOR BREACH OF THE WARRANTIES IN PARAGRAPH 8.1
OR FOR NON-DELIVERY OF AN ORDER OF MG-PFH SHALL BE GREATER IN AMOUNT THAN THE
PURCHASE VALUE OF MG-PFH TO WHICH SUCH CLAIM RELATES EXCEPT THIS LIMITATION
SHALL NOT APPLY IN THE CASE OF FMLP's GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR
INTENTIONAL BREACH OF A MATERIAL PROVISION OF THIS AGREEMENT. Any claims by APC
must be received by FMLP in writing within 60 days of the date of APC's actual
discovery of the claim.
8.6 FMLP'S LIABILITY. FMLP shall be liable for all losses occurring
to its own employees, property, and business as result of its performance of
this Agreement, including but
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not limited, to personal injury, property damage, regulatory (including but not
limited to OSHA and EPA) and other legal compliance, and other business injury
or liability, regardless of whether based upon negligence, strict liability or
otherwise ("FMLP Claims and Losses").
Except to the extent that APC has agreed to indemnify FMLP under this
Agreement, FMLP shall indemnify, defend and hold APC harmless from and against
any claim demand, suit, loss, damage or injury of any kind whatsoever, including
attorneys' fees and expenses, regardless of where located, and regardless of
whether based upon negligence, strict liability or otherwise, resulting or
arising directly or indirectly from FMLP Claims and Losses.
8.7 Limitation. FMLP shall not be liable to APC in contract or
tort, including negligence and strict liability, for any indirect, special,
incidental or consequential damages arising out of FMLP's performance or
non-performance hereunder.
Article 9.
GENERAL PROVISIONS
9.1 YEAR 2000 COMPLIANCE. FMLP has (i) initiated a review and
assessment of all areas within its business and operations (including those
affected by suppliers, vendors and customers) that could be adversely affected
by the "Year 2000 Problem" ( that is, the risk that computer applications used
by FMLP (or suppliers, vendors and customers) may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to and
any date after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan in accordance with the timetable. FMLP represents that its
computer applications (including those of its suppliers, vendors and customers)
that are material to its business and operations will be able to perform
properly date-sensitive functions for all dates before and after January 1,
2000, except to the extent that a failure to do so could not reasonably be
expected to materially and adversely affect the condition (financial or
otherwise) or operations of FMLP.
9.2 ASSIGNMENT. This Agreement may not be assigned by either party
without the prior written consent of the other. Notwithstanding the foregoing,
either party may assign this Agreement without such consent to a wholly-owned
subsidiary or, in the case of APC, to a transferee of substantially all of the
assets of its business unit dedicated to the Product. Notwithstanding the
foregoing, APC may assign this Agreement without the consent of FMLP to a
licensee or sublicensee of its rights to make, use, manufacture or sell the
Product.
9.3 NOTICE. ANY notices permitted or required to be given hereunder
shall be effective upon receipt of the receiving party if they are delivered
personally, by certified mail (return receipt requested), by overnight air
courier (with return receipt), or by facsimile machine (with proof of
transmission):
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(a) in the case of APC, to:
Duane J. Roth
President and CEO
ALLIANCE PHARMACEUTICAL CORP.
3040 Science Park Road
San Diego, CA 92121
FAX: 619/558-5306
with required copies to:
General Counsel
ALLIANCE PHARMACEUTICAL CORP.
3040 Science Park Road
San Diego, CA 92121
FAX: 619/678-4133
(b) in the case of FMLP, to:
William S. Brown
Vice President
FLUOROMED L.P.
2350 Double Creek Drive
Round Rock, TX 78664
FAX: 512/255-8298
Notices may be sent to any changed address or changed
title holder of the above of which the sender has actual knowledge.
9.4 INTEGRATION. This Agreement and the CDA represents the entire
agreement of the parties with respect to its subject matter, and supersedes any
and all prior agreements, understandings, promises and representations by any
party to any other respecting its subject matter.
9.5 NO BROKERS. No party to this Agreement employed any broker or
agent in connection with this transaction or its subject matter.
9.6 CAPTIONS; EXHIBITS. All captions contained in this Agreement
are inserted for convenience of reference only and shall not be deemed a part of
this Agreement. The Exhibits are incorporated into and deemed a part of this
Agreement.
9.7 SEVERABILITY. If any provision of this Agreement is held
unenforceable, the provision shall be regarded as severable from this Agreement
and the remaining provisions shall remain in full force and effect.
21
<PAGE>
9.8 STATUS OF THE PARTIES. APC and FMLP shall not be deemed to be
partners, joint venturers or one another's agents, and neither shall have the
right to act on behalf the other except as expressly provided herein or
otherwise expressly agreed in writing.
9.9 WAIVER. The failure or neglect of APC or FMLP to enforce the
terms and conditions of this Agreement shall not be deemed a waiver thereof nor
shall it be deemed a condonation of any breach. Such failure or neglect shall
not be deemed a waiver or condonation of any later breach. All remedies under
this Agreement are cumulative and are not exclusive of other remedies.
9.10 AMENDMENT. This Agreement may only be amended by a writing
signed by the parties hereto and expressly designated as an amendment to this
Agreement.
9.11 BINDING; EFFECT: Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the parties hereto, their
subsidiaries, divisions, business units, successors and permitted assigns,
including without limitation, the APC Affiliates.
9.12 FORCE MAJEURE. A party shall not be liable to the other for
inability to perform any of its obligations under this Agreement when its
inability is the result of an act of God, earthquake, epidemic, order of civil
or military authorities, flood, tornado, wind storm, fire, war, civil
disturbance, strike or other labor dispute, inability to obtain raw materials,
vandalism, or other natural, civil or commercial disturbance, or any other
occurrence, over which the party has no reasonable control, whether similar or
dissimilar to the causes listed above. Lack of finances shall not be deemed a
circumstance not within a party's control.
9.13 CHOICE OF LAW. This Agreement shall be construed in accordance
with the laws of Texas without giving effect to its choice of law provisions.
9.14 COUNTERPARTS. This agreement may be executed in counterparts,
to be evidenced by the simultaneous (within physical limits) exchange of
signature pages (telefaxed, if necessary) and confirmatory cover letters, and
the counterparts together shall be regarded as a single instrument binding on
the parties.
22
<PAGE>
WHEREFORE, the parties have executed this Agreement as of the
date of the latest signature below.
ALLIANCE PHARMACEUTICAL CORP.
By:
-------------------------------------
Harold W. DeLong
Executive Vice President, Business Development
Date: June 25, 1999
-------------------------------------
FLUOROMED L.P.
By:
-------------------------------------
Name: William S. Brown
-------------------------------------
Title: President
-------------------------------------
Date: July 9, 1999
-------------------------------------
23
<PAGE>
EXHIBIT A
ALLIANCE PHARMACEUTICAL CORP.
CONFIDENTIAL
COMPONENT PURCHASE SPECIFICATIONS
PURIFIED PERFLUOROHEXANE
*
<PAGE>
EXHIBIT "B"
PRICE SCHEDULE
Medical Grade Perfluorohexane, as described in Exhibit A
<TABLE>
- --------------------------------------------- -------------------------------------------
<S> <C>
* *
- --------------------------------------------- -------------------------------------------
* *
- --------------------------------------------- -------------------------------------------
* *
- --------------------------------------------- -------------------------------------------
* *
- --------------------------------------------- -------------------------------------------
* *
- --------------------------------------------- -------------------------------------------
</TABLE>
Supply Cylinder Charges (Refer to Paragraph 3.8)
Supply Cylinder rental charges:
*
.
Supply Cylinder Replacement charges:
*
.
<PAGE>
EXHIBIT C
VENDOR QUALITY EVALUATION PROGRAM
*
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND THE CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 10,442,000
<SECURITIES> 7,789,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,498,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 58,109,000
<CURRENT-LIABILITIES> 13,166,000
<BONDS> 0
0
5,000
<COMMON> 447,000
<OTHER-SE> 36,372,000
<TOTAL-LIABILITY-AND-EQUITY> 58,109,000
<SALES> 0
<TOTAL-REVENUES> 15,772,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 29,410,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 693,000
<INCOME-PRETAX> (13,809,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,809,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,809,000)
<EPS-BASIC> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
