19
S E C U R I T I E S A N D E X C H A N G E
C O M M I S S I O N
Washington, D. C. 20549
F O R M 1 0 K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 29, l996
Commission file number 0-14887
T H E L I P O S O M E C O M P A N Y, I N C.
(Exact name of registrant as specified in its charter)
Delaware 22-2370691
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Research Way, Princeton Forrestal Center, Princeton,
New Jersey, 08540
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code:(609) 452-7060
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0l Par Value;
Depositary Shares each representing 1/10 of a share of registrant's Series A -
Nasdaq
Cumulative Convertible Exchangeable Preferred Stock;
Series A Cumulative Convertible Exchangeable Preferred - Nasdaq
Stock, $.01 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 1997, was approximately $724,380,155 based upon
the last reported sales price of the registrant's Common Stock on the Nasdaq
National Market.
At February 28, 1997 there were 36,171,290 shares of the registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Form l0-K Part
Proxy Statement for l997 Annual Meeting Part III
THE LIPOSOME COMPANY, INC.
1996 ANNUAL REPORT - FORM 10-K
TABLE OF CONTENTS
ITEM NO. PAGE
Part I 4
1. Business 4
Overview/Business Strategy 4
Product Development 6
Manufacturing 12
Marketing Strategy 12
Credit and Working Capital Practices 13
Human Resources 13
Patents and Proprietary Technology 13
Governmental Regulation 15
Competition 16
Executive Officers 17
2. Properties 20
3. Legal Proceedings 20
4. Submission of Matters to a Vote of Security Holders 20
Part II 21
5. Market for Registrant's Common Equity and Related
Stockholder Matters 21
6. Selected Financial Data 22
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 23
8. Financial Statements and Supplementary Data 30
9. Disagreements on Accounting and Financial Disclosures 30
Part III 31
10. Directors and Executive Officers of the Registrant 31
11. Executive Compensation 31
12. Security Ownership of Certain Beneficial Owners
and Management 31
13. Certain Relationships and Related Transactions 31
Part IV 32
14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 32
PART I
Item l. Business
This report contains forward-looking statements that involve risks and
uncertainties relating to the future financial performance of The Liposome
Company, Inc., and actual events or results may differ materially. These
statements concern, among other things, future sales growth and market potential
of ABELCET(R), future marketing approvals of ABELCET(R), completion of the
VENTUSTM Phase III trial, the market potential of this product, completion of
the development and commercialization of TLC D-99, the development of ELL-12,
the potential of the Company's other early-stage research programs, and the
future progress and profitability of the Company. While these statements
reflect the Company's best current judgment, they are subject to risks and
uncertainties that could cause actual results to vary. In evaluating such
statements, stockholders and investors should specifically consider a number of
factors, including those discussed in the text, financial statements and their
accompanying footnotes, the risk factors identified in the Registration
Statement on Form S-3 that the Company filed with the Securities & Exchange
Commission on February 23, 1996, and other risk factors detailed from time to
time in the Company's filings with the SEC.
OVERVIEW/BUSINESS STRATEGY
The Liposome Company, Inc. ("Company") is a leading biopharmaceutical company
engaged in the discovery, development, manufacturing and marketing of
proprietary lipid- and liposome-based pharmaceuticals for the treatment of
inadequately treated, life-threatening illnesses. ABELCET (Amphotericin B Lipid
Complex Injection), the Company's first commercialized product, has been
approved for marketing for certain indications in the United States, Italy,
France, United Kingdom, Ireland, Spain, Portugal, Austria, Greece, Denmark,
Finland, Sweden, Luxembourg, Iceland and Cyprus and is the subject of marketing
application filings in several other countries. In October 1996, the U.S. FDA
cleared for marketing an expanded indication for ABELCET for the treatment of
invasive fungal infections in patients who are refractory to or intolerant of
conventional amphotericin B therapy. For 1996, all product sales were derived
from ABELCET.
The Company's products in late stage development are VENTUSTM and TLC D-99.
VENTUSTM, liposomal prostaglandin E1 (the trademark for TLC C-53), is being
developed primarily for the treatment of acute respiratory distress syndrome
("ARDS"). Patients are being accrued into a pivotal U.S. Phase III clinical
study for the treatment of ARDS. TLC D-99, liposomal doxorubicin, is being
developed in conjunction with Pfizer Inc. ("Pfizer") primarily as a first line
treatment for metastatic breast cancer. TLC D-99 is currently being studied in
two Phase III clinical trials in the U.S. and a third Phase III study in Europe.
The Company recently initiated the preclinical development of TLC ELL-12
(liposomal ether lipid), a new cancer therapeutic that may have applications for
the treatment of many different cancers. The Company also has a continuing
discovery research program concentrating primarily on the treatment of cancer
and inflammatory conditions.
The Company's marketed product and products in development are based on its
knowledge and understanding of lipids, the substances that comprise the membrane
of all living cells. The products developed by the Company with this technology
include drug delivery vehicles and novel pharmaceuticals utilizing modulated
cell signaling and bio-active lipids.
The Company's mission is to discover, develop, manufacture and market
pharmaceutical products emanating from its technical core that have application
as treatments for life threatening conditions such as cancer, infectious disease
and diseases of inflammatory origin. To supplement and expand its internal
discovery capabilities, the Company may in-license pharmaceutical compounds for
further development, manufacturing and marketing.
PRODUCT DEVELOPMENT
The following table summarizes the principal product development activities of
the Company:
PRODUCT/PROGRAM USE STATUS(1) MARKETING RIGHTS
ANTI-INFECTIVE AND CANCER
ABELCET
United States
Systemic fungal infections in Marketing and sales The Company
patients refractory to, or intolerant
of, amphotericin B.
International
Systemic fungal infections (first and
second-line indications)
Approved/marketed in: France, The Company (Spain,
Italy, United Kingdom, Spain and Portugal - market and
other countries. Other marketing distribute with
approvals pending.
Laboratorios Esteve, SA)
TLC D-99 Metastatic breast cancer Phase III ongoing Pfizer (2)
Preclinical The Company
TLC ELL-12 Prostate and non-small cell toxicology studies
lung cancer
Research Program Various cancer Research The Company
INFLAMMATION AND
CARDIOPULMONARY
VENTUSTM
ARDS (acute respiratory distress Phase III ongoing The Company
syndrome)
Acute myocardial infarction (heart Phase II ongoing The Company
attack)
Research Programs Diseases of inflammatory Research The Company
origin
(1) Phase I-III clinical trials denote safety and efficacy tests in human
patients in accordance with FDA guidelines as follows:
Phase I: Dosage and tolerance studies.
Phase II: Detailed evaluations of safety and efficacy.
Phase III: Larger scale evaluation of safety and efficacy
potentially requiring larger patient numbers, depending on the
clinical indication for which marketing approval is sought.
See "Governmental Regulation."
(2) The Company has marketing rights in Japan.
TECHNOLOGY
The Company's products are based on its proprietary technology that employs
liposomes or lipid complexes as either a vehicle to deliver an active
therapeutic ingredient or as a component of a drug. A lipid complex is an
organized assembly of phospholipids whereby an active pharmaceutical is
interspersed and tightly bound to adjoining lipid molecules. Liposomes are
microscopic man-made spheres composed of lipids that can be engineered to entrap
drugs or other biologically active molecules. In many cases, lipid complexed
and liposomal pharmaceuticals can provide better efficacy and less toxicity than
might otherwise result from alternative therapies. Lipid technology is
extremely broad and offers numbers of opportunities for the development of new
therapeutics. Recent advances in the understanding of the biological roles of
lipids suggest that, in addition to forming a protective barrier enabling cells
to live, they also serve other purposes, such as communicating information that
originates in the external environment to the internal chemistry of the cell.
Based on these discoveries, scientists at The Liposome Company believe that
lipids or lipid derivatives are likely to play a pivotal role in modulating
cellular chemistry and hence cell function. The research now underway at the
Company is based on these new understandings of lipids and their role in
modulating the chemistry of cells. This role has profound pharmacological
implications, i.e., that lipids themselves can be biologically active and
therapeutically useful. The Company's products currently marketed or in
development will be administered through intravenous injection.
PRODUCTS FOR INFECTIOUS DISEASES AND CANCER
ABELCET (Amphotericin B Lipid Complex Injection)
ABELCET (Amphotericin B Lipid Complex Injection) has been developed for the
treatment of systemic fungal infections such as aspergillosis, candidiasis and
cryptococcal meningitis occurring primarily in immunocompromised patients such
as cancer chemotherapy patients, organ and bone marrow transplant recipients and
people with AIDS.
ABELCET has been approved for marketing for certain therapeutic applications
and is being sold in the United States, France, Italy, the United Kingdom and
Spain and certain other countries. Marketing applications are in various stages
of review in several additional countries.
Systemic fungal infections are a major threat to those patients whose immune
systems are compromised, such as cancer chemotherapy patients, organ and bone
marrow transplant recipients and patients with AIDS. The three major types of
these infections are candidiasis, aspergillosis and cryptococcosis. The Company
is marketing ABELCET in the United States for the treatment of these and other
infections in patients who have failed on or who are intolerant of conventional
amphotericin B. In France and certain other countries ABELCET is marketed as a
second line treatment for severe systemic fungal infections. In Italy, Spain,
the United Kingdom and other countries, ABELCET has also been approved as a
primary (first-line) therapy for certain fungal infections.
Amphotericin B is a broad spectrum polyene antifungal agent, which has been
marketed for many years as a treatment for many systemic fungal infections,
including candidiasis, aspergillosis, cryptococcosis and other yeast or mold
infections. However, the utility of amphotericin B has been limited by its
propensity to cause serious side effects, particularly to the kidneys. ABELCET,
which consists of amphotericin B in a lipid complex, is designed to reduce the
risk of toxicities associated with amphotericin B while maintaining at least
equivalent efficacy.
In May 1995, the Company filed an NDA for ABELCET with the FDA. Following a
priority review, the product was cleared for marketing in November 1995 for the
treatment of aspergillosis in patients who have failed on, or who are intolerant
of, amphotericin B. The Company commenced shipments of ABELCET in the U.S. in
December 1995. In October 1996, following a second priority review, the FDA
cleared for marketing an expanded label for ABELCET to include the treatment of
all fungal infections in patients who have failed on, or who are intolerant of,
amphotericin B.
In February 1995, the Company received its first approval to market ABELCET
from the Medicines Control Agency of the United Kingdom. Luxembourg, Spain and
Iceland also approved ABELCET during 1995. During 1996 and the beginning of
1997, the Company received approval to market ABELCET in France, Portugal,
Greece, Cyprus, Sweden, Denmark, Finland, Ireland, Italy and Austria. The
Company believes it may receive marketing approvals in additional countries
during 1997 and in later years.
The Company owns worldwide rights to manufacture and market ABELCET. In
December 1995 the Company entered into a marketing and distribution agreement
with Laboratorios Esteve SA ("Esteve") for the marketing of ABELCET in Spain and
Portugal. Esteve is a leading marketer of pharmaceutical products in Spain and
is headquartered in Barcelona, Spain. Under the agreement, Esteve shall promote
and sell ABELCET and the Company is responsible for overall strategy and product
management.
TLC D-99 (LIPOSOMAL DOXORUBICIN)
The Company and Pfizer are jointly developing TLC D-99, liposomal doxorubicin,
pursuant to an agreement entered into in 1990. The primary emphasis of the
program has been to develop the drug as a first line treatment for metastatic
breast cancer. TLC D-99 is currently being tested in two Phase III clinical
studies in the United States and a third such study in Europe.
Doxorubicin, one of the most widely-used chemotherapeutic drugs, is used in
the treatment of many solid tumors, leukemias and lymphomas. However,
doxorubicin, in addition to the acute toxicities typical of chemotherapeutic
drugs, can cause irreversible cardiac damage which is often the cumulative
dose-limiting factor for such anthracycline (anti-cancer) chemotherapeutic
agents. The individual maximum dosage given to a patient is limited by these
and other toxic side effects.
Preclinical studies have indicated that, as compared to free doxorubicin, TLC
D-99 has greatly reduced toxicity, including cardiotoxicity and mucositis. In a
preclinical model, TLC D-99 was shown to deliver, at comparable doses, two to
three times as much drug to the site of the tumor as compared to free
doxorubicin. In addition, preclinical studies in standard tumor models
comparing the use of TLC D-99 and free doxorubicin to treat leukemia and several
solid tumors show a better tumor response and an increase in the survival period
of the test animals receiving TLC D-99 as compared to free doxorubicin.
At the American Society of Clinical Oncology conference in May 1995,
researchers from the M.D. Anderson Cancer Center presented results of a third
Phase II study of 41 metastatic breast cancer patients in which TLC D-99 was
given in combination with cyclophosphamide, an anti-neoplastic agent, and
5-fluorouracil. The researchers reported that there was an overall response
rate of 73% (30 patients). Of these, 28 patients demonstrated a partial
response (defined to include a reduction in tumor size of 50% or more), and two
patients demonstrated a complete response. The researchers concluded that the
encapsulation of doxorubicin appears to permit higher cumulative doses than
would be expected with conventional doxorubicin because of the diminished
cardiotoxicity.
In December 1994, two Phase III trials were commenced by Pfizer to test TLC
D-99 as a first line treatment for patients with metastatic breast cancer. One
trial compares TLC D-99 as a single agent to conventional doxorubicin alone,
while the other compares a combination of TLC D-99 and cyclophosphamide to
doxorubicin and cyclophosphamide. The objective of each study is to show that
TLC D-99, alone or in combination with cyclophosphamide, is as effective as
conventional doxorubicin alone or in combination with cyclophosphamide, but that
TLC D-99 is significantly safer, particularly with regard to cardiotoxicity.
Each trial is expected to be conducted at 40 to 50 sites and to involve
approximately 288 patients.
In November 1990, the Company entered into a development and license agreement
for TLC D-99 with Pfizer. Pfizer is funding the development and clinical trials
of the product. The Company received a payment upon signing the agreement with
Pfizer and is entitled to be reimbursed quarterly in advance of expenditures,
based on an agreed-upon annual budget, for virtually all of its costs to be
incurred in connection with product development and clinical testing, to receive
payments upon reaching certain milestones, and to receive royalty payments with
respect to product sales. Pfizer has worldwide (except Japan) marketing rights
for TLC D-99. At Pfizer's option, the Company may manufacture commercial
supplies of TLC D-99. The agreement has no fixed term and is terminable at any
time upon notice by Pfizer, in which event Pfizer would be responsible for
reimbursement of the Company's expenses for up to a six-month period following
termination and all rights to the product would return to the Company. The
Company has all rights to market TLC D-99 in Japan.
TLC ELL-12 (LIPOSOMAL ETHER LIPID)
The Company is developing TLC ELL-12, a new cancer therapeutic that may have
applications for the treatment of many different cancers including prostate
cancer and non small-cell lung carcinoma.
In preclinical studies conducted by the Company's scientists, ELL-12, a
liposomal ether lipid, has been shown to be active in tumor models of melanoma,
lung cancer, leukemia and multiple drug resistant cell lines. Additionally, it
has been shown to be active in a model of human prostate cancer. TLC ELL-12 is
believed to employ a different mechanism of action than conventional anti-cancer
agents; it does not interact directly with DNA and is not myelosuppressive.
Thus, it may complement many standard chemotherapeutic agents.
Ether lipids are called such because their chemical construction includes an
ether bond. They have been shown to be active against human tumors but have
toxic side effects at therapeutic doses that severely limit their use as a human
therapeutic agent. TLC ELL-12 is a liposomal form of ether lipid. In animal
models it has been shown to be significantly more potent than non-liposome
encapsulated ether lipid and, at putative therapeutic doses, has not
demonstrated any toxicities. Its mechanism of action is believed to involve the
modulation of signal transduction processes without direct interaction with DNA.
It may be for this reason that in animal studies TLC ELL-12 has been shown not
to possess many of the toxicities, particularly myelosuppression, that are seen
with many other cancer drugs.
TLC ELL-12 is currently undergoing preclinical toxicology studies in
preparation for human clinical studies.
PRODUCTS FOR INFLAMMATION AND CARDIOPULMONARY CONDITIONS
VENTUSTM, LIPOSOMAL PROSTAGLANDIN E-1 (TRADEMARK FOR TLC C-53)
The Company is developing VENTUSTM, liposomal prostaglandin E-1, for the
treatment of a variety of severe acute inflammatory conditions and
vaso-occlusive diseases.
Anti-inflammatory Applications. Many disease conditions are believed to be
the result of a complex cascade of events that follow the uncontrolled
activation of certain cells in the body including neutrophils, platelets and
endothelial cells. These cells, once activated, adhere to endothelial cells,
thus in some instances leading to a pathological enhancement of the inflammatory
response.
When the body receives an insult, such as infection, massive trauma or heart
attack, cells can release into the blood a variety of chemical agents or
mediators, including interleukin-1 ("IL-1"), tumor necrosis factor ("TNF"), and
others. When any of these mediators encounters certain types of cells in the
body such as neutrophils (cells that circulate in the bloodstream) or
endothelial cells (cells that form the lining of the blood vessels), these cells
may become activated. When neutrophils and endothelial cells are activated they
can then adhere to each other as part of the normal inflammatory response. In
some patients, the normal process of activation continues unchecked and an
inflammatory condition known as SIRS (systemic inflammatory response syndrome),
including ARDS and sepsis, may result.
ARDS stems from a variety of severe insults including trauma, burns, sepsis,
aspiration and hyperoxia. In ARDS, white opacities are seen in the lung fields
on radiological examination, reflecting the congestion of the lung air spaces
with fluid that has leaked through capillaries that had been damaged by
mediators of inflammation released by the activated neutrophils. Approximately
forty percent of the patients in the United States annually afflicted with ARDS
die because the lungs become so full of fluid that oxygen can no longer be
transported with efficiency into the blood. There is currently no satisfactory
specific therapy for ARDS and no drugs have been approved for its treatment.
VENTUSTM appears to function as a novel "universal off-switch" that not only
decreases neutrophil activation by IL-1, TNF, and other factors, but also may
deactivate these cells even after they have been activated. By down-regulating
neutrophils in this way, VENTUSTM is believed to reduce abnormal cellular
adhesion which in turn prevents the release of the mediators of inflammation,
such as oxygen free radicals (a chemically highly active form of oxygen) and
lysosomal enzymes (enzymes normally contained within small cavities called
"lysosomes" inside certain types of cells).
In 1990, the Company commenced preclinical development of VENTUSTM, including
efficacy tests with VENTUSTM in preclinical models of ARDS and Acute Myocardial
Infarction ("AMI"), or heart attack. In two animal models of ARDS tested at The
Webb-Waring Lung Institute, one of the leading ARDS research centers in the
United States, it was shown that VENTUSTM could significantly prevent the
leakage of fluid into the lung. In 1992, the Company filed an Investigational
New Drug ("IND") application with the FDA and started Phase I safety trials in
healthy volunteers in the United States and in Europe.
During 1994, the Company conducted a Phase II trial of VENTUSTM as a treatment
for ARDS. Results of the 25 patient randomized, placebo controlled trial were
presented at the Society of Critical Care Medicine's 24th Educational and
Scientific Symposium in February, 1995 and were published in the January 1996
issue of Critical Care Medicine. The investigators concluded that in patients
with ARDS, VENTUSTM was associated with statistically significant improvement in
oxygenation (the ability of the lungs to transmit oxygen into the bloodstream)
increased lung compliance (an indirect measure of lung function), and decreased
dependency of patients on mechanical ventilation. The investigators also
concluded that VENTUSTM was well tolerated.
Following discussions with the FDA, in October, 1995, the Company commenced a
pivotal Phase III study of VENTUSTM as a treatment for ARDS. This is a
randomized, double-blind, placebo-controlled study similar to the Phase II
study. Lung function for patients entering the study must have deteriorated to
the point that mechanical ventilation is required. The primary endpoint of the
study will be a comparison of the time elapsed from the first administration of
drug or placebo until patients are removed from mechanical ventilation. The
Phase III study is expected to be conducted at 40 to 45 centers in the U.S. and
will enroll approximately 350 patients. The Company expects the study to be
completed in the first half of 1997, and results to be available in the third
quarter of 1997.
The Company has also commenced an additional study in Europe for VENTUSTM in
ARDS. This multi-center study is being conducted to evaluate an alternative
dosing regimen and to expand the safety profile of VENTUSTM.
Cardiovascular Applications. The factors discussed above that activate
neutrophils and endothelial cells also activate platelets, a type of blood cell
that, among other functions, plays a key role in blood clotting. Platelets are
also activated when they contact the cells that line the arteries, which can
often occur during coronary angioplasty. Once activated, platelets adhere to
each other (called aggregation) as well as to endothelial cells and the
extracellular matrix. In some patients, further myocardial damage may occur
after the coronary arteries have been opened by the infusion of Tissue
Plasminogen Activator ("t-PA"), a clot dissolving agent. This so-called
"reperfusion injury" is believed to be initiated by activation of neutrophils.
VENTUSTM, in addition to inhibiting neutrophils, is believed to inhibit
platelet aggregation. Thus the drug may allow more patients with AMI to achieve
complete patency (reopening of the coronary arteries) and a faster clot to lysis
time following treatment with t-PA. VENTUSTM also holds the potential for
reducing reperfusion injury and subsequent cardiac damage due to its proposed
action on neutrophils.
In November 1994, the Journal of the American College of Cardiology published
results from preclinical studies of VENTUSTM conducted by Dr. Richard Smalling,
Professor and Co-Director of the University of Texas Medical School's Division
of Cardiology. In a canine model of heart attack, Dr. Smalling showed that
treatment with VENTUSTM just prior to administration of the clot-dissolving
agents streptokinase and heparin, resulted in faster reopening of the blocked
blood vessels that caused the attack. Additionally, the arteries opened more
fully, blood flow to heart tissue was improved, and there was less damage to the
heart when VENTUSTM was given, compared with placebo.
At year-end 1994, the Company started a Phase II randomized, placebo-
controlled trial to evaluate VENTUSTM as an adjunct to t-PA in the treatment of
heart attacks. In the trial, patients will receive either VENTUSTM or a placebo
in addition to t-PA, heparin and aspirin. This study is ongoing.
RESEARCH PROGRAMS
The Company is conducting research in the areas of cancer and inflammation and
has an in vitro and in vivo screening facility, including cell lines and a mouse
xenograft capability to support its cancer research. Its inflammation research
is directed towards the discovery and development of new and improved anti-
inflammatory agents.
RESEARCH COSTS
During 1996, 1995 and 1994, the Company's research and development costs were
approximately $29.4 million, $30.1 million and $31.7 million, respectively.
There can be no assurance that any of the products described above or
resulting from the Company's research programs will be successfully developed,
prove to be safe and efficacious at each stage of clinical trials, meet
applicable regulatory standards, be capable of being produced in commercial
quantities at reasonable costs or be successfully marketed.
MANUFACTURING
The Company has constructed and validated a multiproduct manufacturing
facility at its Princeton site. This facility has been designed to manufacture
ABELCET, TLC D-99 and VENTUSTM and to accommodate manufacturing for future
products using similar processes. The Company currently uses this facility to
manufacture commercial supplies of ABELCET. This facility has been approved by
the FDA for the manufacture of ABELCET for sale in the United States and by the
Medicines Control Agency of the United Kingdom for the manufacture of ABELCET
for sale in that country. This latter approval is also acceptable to regulatory
authorities in other European Union ("EU") countries.
In July 1992, the Company purchased a manufacturing facility in Indianapolis,
Indiana, for the commercial production of the Company's products and has
retrofitted a portion of this facility to manufacture ABELCET. The Company has
filed an application with the FDA to approve the Indianapolis facility for the
commercial sale of ABELCET. Approval by the FDA in the United States, or
regulators in other countries in which sales are to be made, of the manufacture
of products in the Indianapolis facility will be required prior to commercial
sales of such products in jurisdictions subject to such regulatory authorities.
The Company believes that its current facilities and staff are adequate for
the manufacture of preclinical and clinical supplies of its products, and for
the production of commercial quantities of ABELCET. However, if demand for
ABELCET continues to increase and approval of the Indianapolis facility is
delayed, the commercial demand for ABELCET could exceed the capacity of the
Princeton manufacturing facility. There is no assurance that VENTUSTM, TLC D-99,
or other developmental products can be successfully manufactured on a commercial
scale at the Company's current facilities.
MARKETING STRATEGY
The Company's strategy is to market its own products in the United States and
internationally in those countries where such direct marketing is believed to be
appropriate and cost effective. In the United States, the Company has hired and
trained a sales force of forty experienced representatives to market ABELCET.
Sales representatives are based in key cities throughout the U.S. and are solely
dedicated to the sale of ABELCET to hospitals. The Company has and expects to
enter into marketing and distribution arrangements in certain countries where
the Company's efforts can be leveraged through strong local partners.
The Company has established a European headquarters in London, England, with a
sales force to market and sell ABELCET in the United Kingdom. The Company is in
the process of building a sales force in France following the recent approval of
ABELCET in that country. The Company has entered into a marketing and
distribution agreement with Esteve for the sale of ABELCET in Spain and
Portugal. Esteve is a leading marketer of pharmaceutical products headquartered
in Barcelona, Spain.
CREDIT AND WORKING CAPITAL PRACTICES
The Company's credit practices and related working capital needs are believed
to be comparable to those of other market participants. Collection periods tend
to be longer for sales outside the United States.
Customers may return defective or out of date merchandise for credit or
replacement. Such returns have been insignificant.
HUMAN RESOURCES
At December 29, 1996, the Company had 407 full-time employees, 41 of whom hold
Ph.D. degrees and six of whom hold M.D. degrees or the foreign equivalent. Of
these employees, 301 are engaged in research, development, clinical development
and manufacturing activities, 43 in sales and marketing and 63 in
administration.
The Company considers its relations with its employees to be excellent. None
of its employees is covered by a collective bargaining agreement. The Company
attempts to offer competitive compensation and fringe benefits programs.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company considers the protection of its proprietary technology rights to
be important to its business. In addition to seeking United States patent
protection for many of its inventions, the Company files patent applications in
Canada, Japan, Western European countries and additional foreign countries on a
selective basis in order to protect the inventions deemed to be important to the
development of its foreign business. As of December 29, 1996, the Company had
59 United States patents as well as 434 foreign counterpart patents, and 61
United States patent applications and 734 foreign counterpart patent
applications (including those filed in designated countries under patent
treaties) pending. Patents issued and applied for cover inventions including new
types of liposomes and their preparation, processes for the therapeutic
application of liposomes, lipid purification, lipid based delivery systems and
product compositions. The Company has acquired and licensed proprietary
technology from universities, research organizations and other companies in
return for payments and continuing royalty obligations. The Company has obtained
patents in the United States for inventions which may be employed with respect
to ABELCET, TLC D-99 and VENTUSTM and has patent applications pending in Europe
and Japan for such inventions. The Company has been awarded patents and has
patent applications pending for inventions which may be employed with respect to
these and other products in various selected countries, as well.
On April 1, 1996, a patent infringement action was filed against the
Company by the University of Texas and the M.D. Anderson Cancer Center in the
Federal District Court for the Southern District of Texas. The complaint
alleges that the manufacture, use and sale of the Company's product ABELCET(R)
infringes a patent assigned to the University of Texas. The complaint seeks
damages in an unspecified amount and injunctive relief. The Company has filed a
cross-complaint for inequitable conduct in procuring the patent in dispute.
On July 2, 1996, the U.S. Patent and Trademark Office issued a certificate
of re-examination on the Company's patent covering its liposome drying
technology. The original patent, issued in 1989 covering "Dehydrated
Liposomes," had been voluntarily submitted by the Company for re-examination.
The patent is currently the subject of litigation between the Company and
NeXstar Pharmaceuticals, Inc. in the Federal District Court for the District of
Delaware. NeXstar's suit for declaratory judgment that the dehydrated liposomes
patent is invalid and is not infringed by NeXstar's liposomal amphotericin B
product was stayed during the pendency of the re-examination. After issuance of
the re-examination certificate, the stay was lifted; NeXstar filed an amended
complaint; and the Company filed a counterclaim against NeXstar and its U.S.
marketing partner, Fujisawa Pharmaceuticals, for damages and an injunction based
on infringement of the re-examined patent. NeXstar has recently filed a further
amended complaint adding claims for antitrust violations and tortious
interference with business relations. These claims have been stayed pending
resolution of the patent issues.
The Company has also initiated litigation against NeXstar and its
affiliates and certain distributors in the United Kingdom, Germany and the
Netherlands for infringement of the European counterparts of the Dehydrated
Liposomes patent. Opposition proceedings regarding this patent as well as other
patents issued to the Company are pending in the European Patent Office. Loss
of some of these legal proceedings or oppositions could result in decreased
patent protection for the Company's products.
Other public and private institutions, including universities, may have filed
applications for, or have been issued, patents with respect to technology
potentially useful or necessary to the Company. The scope and validity of such
patents, the extent to which the Company may wish or need to acquire licenses
under such patents, and the cost or availability of such licenses, are currently
unknown.
The Company also intends to rely on unpatented trade secrets and proprietary
know-how and continuing technological innovation to maintain and develop its
commercial position. The Company has entered into confidentiality agreements
with its employees, consultants and advisors, and corporate sponsors.
GOVERNMENTAL REGULATION
Regulation by governmental authorities in the United States and other
countries is a significant factor in the production and marketing of the
Company's products and in its ongoing research and development activities. In
order to test clinically, to produce and to market products for human
therapeutic use, mandatory procedures and safety standards established by the
FDA and comparable agencies in foreign countries must be followed.
The standard process required by the FDA before a pharmaceutical agent may be
marketed in the United States includes (i) preclinical tests, (ii) submission to
the FDA of an application for an IND which must become effective before human
clinical trials may commence, (iii) adequate and well-controlled human clinical
trials to establish the safety and efficacy of the drug in its intended
application, (iv) submission to and acceptance by, the FDA of an NDA with
respect to drugs or a Product License Application ("PLA") with respect to
biologics, and (v) FDA approval of the NDA or PLA prior to any commercial sale
or shipment of the drug or biologic. In addition to obtaining FDA approval for
each product, each domestic drug manufacturing establishment must be registered
or licensed by the FDA. Domestic manufacturing establishments are subject to
inspections by the FDA and by other Federal, state and local agencies and must
comply with Good Manufacturing Practice as appropriate for production.
Clinical trials are typically conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug to humans,
the drug is tested for dosage and tolerance. Phase II involves detailed
evaluation of safety and efficacy. Phase III trials consist of larger scale
evaluation of safety and efficacy and may require larger patient numbers,
depending on the clinical indication for which marketing approval is sought.
The process of completing clinical testing and obtaining FDA approval for a
new product is likely to take a number of years and require the expenditure of
substantial resources. The FDA may grant an unconditional approval of a drug for
a particular indication or may grant approval conditioned on further
postmarketing testing. Even after initial FDA approval has been obtained,
further studies may be required to provide additional data on safety or to gain
approval for the use of a product as a treatment for clinical indications other
than those for which the product was initially approved. Also, the FDA may
require postmarketing testing and surveillance programs to monitor the drug's
efficacy and side effects. Results of these postmarketing programs may prevent
or limit the further marketing of the products.
Sales of pharmaceutical products outside of the United States are subject to
regulatory requirements that vary widely from country to country. In the
European Union ("EU"), the general trend has been toward coordination of common
standards for clinical testing of new drugs. Generally, the level of regulation
in the EU and other foreign jurisdictions is somewhat less comprehensive and
burdensome than regulation in the United States, but there are differences and,
in a few instances, foreign regulations may be more burdensome than FDA
requirements. The time required to obtain regulatory approval from the
comparable regulatory agencies in each foreign country may be longer or shorter
than that required for FDA approval.
In addition, the Company is and may be subject to regulation under state and
federal law regarding occupational safety, laboratory practices, the use and
handling of radioisotopes, environmental protection and hazardous substance
control and to other present and possible future local, state, federal and
foreign regulation.
COMPETITION
Competition in the pharmaceutical field generally, and in the liposome and
lipid-based pharmaceutical industries in particular, is intense and is based on
such factors as product performance, safety, patient compliance, ease of use,
price, physician acceptance, marketing, distribution and adaptability to various
modes of administration. Technological competition may be based on the
development of alternative products and approaches aimed at the treatment,
diagnoses or prevention of the same diseases as the Company's products.
Competition from other companies will be based on scientific and technological
factors, the availability of patent protection, the ability to commercialize
technological developments, the ability to obtain government approval for
testing, manufacturing and marketing and the economic factors resulting from the
use of those products, including their price. There are many companies, both
public and private, including well-known pharmaceutical and chemical companies,
many of which have greater capital resources than the Company, that are seeking
to develop lipid and liposome based products as well as products based on other
drug-delivery technologies for therapeutic applications.
The Company is aware that other companies are developing and marketing
lipid-based or liposomal amphotericin B products. One such company has been
selling a liposomal amphotericin B in certain European countries, including the
United Kingdom, since 1989. A licensee of this Company has filed an NDA in the
U.S. for several indications, including certain first-line indications, in
October 1996. Another received its first approval during 1994 to market its
product, and its licensees are currently marketing such product in the United
Kingdom and certain other countries. In November 1995 this competitor filed an
NDA with the FDA for its version of a lipid based amphotericin B product and the
FDA approved its application as a second line treatment for aspergillosis in
November 1996 and the product is now marketed in the U.S. for that indication.
Such competitor has filed for an expanded indication in the U.S.; an advisory
committee of the FDA is expected to consider this application in 1997.
The two competitors referred to in the proceeding paragraph are also
developing liposomal anthracycline products for the treatment of Kaposi's
Sarcoma and certain types of cancer. The FDA has granted accelerated approval
to one competitor for its product for the treatment of Kaposi's Sarcoma where
other agents have failed and has cleared for marketing the product of another
competitor for the treatment of Kaposi's Sarcoma. No approvals have been
granted by the FDA for these products as treatment for solid tumors.
Other groups active in the field include colleges, universities, and public
and private research institutions which are becoming more active in seeking
patent protection. These institutions have also become increasingly competitive
in recruiting personnel from a limited number of scientists and technicians.
EXECUTIVE OFFICERS
Information with respect to the executive officers of the Company furnished by
them as of February 15, 1997 is set forth below:
NAME AGE POSITION
Charles A. Baker 64 Chairman of the Board, President,
Chief Executive Officer and Director
James A. Boyle, M.D., Ph.D. 60 Senior Vice President, Medical
and Regulatory Affairs
Brooks Boveroux 53 Vice President, Investor Relations
Ralph del Campo 45 Vice President, Manufacturing
Operations
Brian J. Geiger 53 Vice President, Chief Financial Officer
Carol J. Gillespie 51 Vice President, General Counsel and
Secretary
Andrew S. Janoff, Ph.D. 48 Vice President, Research
George G. Renton 45 Vice President, Human Resources
Spiro G. Rombotis 38 Vice President, International
Operations
Donald D. Yarson 43 Vice President, Sales and Marketing
CHARLES A. BAKER was named Chairman of the Board, President and Chief
Executive Officer of the Company in December 1989. Just prior to joining the
Company he was a business development and licensing advisor to several small
biotechnology companies. Mr. Baker previously served in several capacities in
senior management at Squibb Corporation (now Bristol-Myers Squibb Company),
including the positions of Group Vice President, Squibb Corporation and
President, Squibb International. He also held various senior executive positions
at Abbott Laboratories and Pfizer Inc Mr. Baker received an undergraduate degree
from Swarthmore College and a J.D. degree from Columbia University. Mr. Baker
also serves as a director of Regeneron Pharmaceuticals, Inc., a biotechnology
Company. He is also a member of the Science Advisory Council of Rutgers
University and a member of the Council of Visitors of the Marine Biology
Laboratory, Woods Hole, Massachusetts, a not-for-profit research organization.
JAMES A. BOYLE, M.D., Ph.D., joined the Company as Senior Vice President,
Medical and Regulatory Affairs in August 1994. Prior to joining the Company, Dr.
Boyle was employed by G.D. Searle and Co. from 1986 to 1994 where he held
several positions including Vice President, Medical Relations and Vice
President, Corporate Medical and Scientific Affairs. Previously, he held senior
clinical research positions at Serono Laboratories, Warner Lambert and Pfizer.
Dr. Boyle received his M.D. degree (U.K. equivalent) from Glasgow University in
1960 and his Ph.D. degree (U.K. equivalent) in Medicine in 1967. He is Board
Certified (U.K. equivalent) in Internal Medicine and Endocrinology.
BROOKS BOVEROUX joined the Company as Vice President, Finance, Chief Financial
Officer and Treasurer in September, 1993 and became Vice President, Investor
Relations in March 1996. Prior to joining the Company, Mr. Boveroux was Chief
Financial Officer at Imclone Systems, Inc. (1992-1993) and Bio-Technology
General Corp. (1990-1992). From 1986 to 1990, he was the Chief Financial Officer
of Biogen, Inc. In addition, he has held a variety of management positions at
Allied-Signal Inc., PepsiCo, Inc. and Citibank, N.A. Mr. Boveroux holds an A.B.
degree from Hamilton College (1965) and an M.B.A. from the Wharton Graduate
Division of the University of Pennsylvania (1967).
RALPH DEL CAMPO joined the Company in March 1994 as Vice President,
Manufacturing Operations. Between 1993 and 1994, he was Senior Vice President,
Operations of Melville Biologics, a subsidiary of The New York Blood Center. His
prior experience includes positions at Schering Plough Corporation and, from
1977 to 1993, Bristol-Myers Squibb where he had several positions of increasing
responsibility including Senior Director, Pharmaceutical Operations and Vice
President, Facilities Administration. Mr. del Campo received a B.S. degree in
Chemical Engineering from Newark College and an MBA in Pharmaceutical Marketing
from Fairleigh Dickinson University.
BRIAN J. GEIGER joined the Company as Vice President and Chief Financial
Officer in March 1996. Prior to joining the Company, he held several positions
at Johnson & Johnson, most recently Vice President, Finance, Chief Financial
Officer at Johnson & Johnson - Merck Consumer Pharmaceutical Company. From 1988
until 1993 he was Vice President, Finance Chief Financial Officer at Ortho
Pharmaceutical Corporation and a member of the Board of Directors. He was Group
Controller of McNeil Consumer Products Co. from 1987 to 1988. Mr. Geiger
received an MBA, Finance at Seton Hall University and a B.A. in Economics from
Rutgers University.
CAROL J. GILLESPIE joined the Company as Vice President, General Counsel and
Secretary in February 1995. From 1983 until joining the Company, she held
several positions at Syntex Corporation, most recently as its Vice President,
Secretary and Associate General Counsel. Prior to joining Syntex, she was
associated with MSI Data Corporation, a data processing company, ITT Corporation
and Gibson, Dunn & Crutcher, a Los Angeles law firm. Ms. Gillespie received an
A.B. degree in Political Science from the University of California, Berkeley
(1967), a Master of International Affairs from Columbia University School of
International Affairs (1969) and a J.D. degree from the University of California
School of Law, Berkeley (1972).
ANDREW S. JANOFF, Ph.D., joined the Company in 1981 and has been Vice
President, Research since January 1993. He holds an adjunct Professorship,
Anatomy and Cell Biology at Thomas Jefferson University and is a visiting
Research Scholar in the Department of Physics at Princeton University. Dr.
Janoff serves on the editorial board of The Journal of Liposome Research and on
The Committee on Science and the Arts at the Franklin Institute, Philadelphia,
Pennsylvania. Dr. Janoff is author of over one hundred (100) scientific
articles, reviews and awarded US Patents. Prior to joining the Company, Dr.
Janoff held joint appointments as Research Fellow in Pharmacology at Harvard
Medical School and Research Fellow in Anesthesia at the Massachusetts General
Hospital. Dr. Janoff holds a B.S. degree in biology from The American
University, Washington, D.C. (1971) and M.S. and Ph.D. degrees in biophysics
from Michigan State University (1977 and 1980, respectively).
GEORGE G. RENTON joined the Company in August 1994 as Vice President, Human
Resources. From 1985 until joining the Company, he was employed by the American
Cyanamid Company in several positions, including Director, Personnel, Research
and Development of the Lederle Laboratories Division. Earlier, he held several
positions of increasing responsibility at New York University Medical Center,
including Assistant Director Employee Relations. Mr. Renton was awarded a B.S.
degree in Education from the State University of New York at Cortland (1975) and
an M.S. degree in Industrial/Labor Relations from Cornell University and Baruch
College (1985).
SPIRO G. ROMBOTIS joined the Company as Vice President, International
Operations in May 1993 and was appointed Vice President, International
Operations & Business Development in September 1996. Since 1988, Mr. Rombotis
held a variety of business and marketing positions at Bristol-Myers Squibb
Company, most recently as Vice President of Operations, Pharmaceuticals, Central
& Eastern Europe. From 1985 to 1988, he served as Marketing Manager, Europe at
Centocor, Inc. Mr. Rombotis received a B.A. from Williams College in 1981 and an
M.B.A. from Northwestern University in 1985.
DONALD D. YARSON joined the Company as Vice President, Marketing and Sales in
February 1995. From 1993 until 1995, he was President of TriGenix, Inc., a
contract sales, marketing and reimbursement organization. He was Director of
Marketing for Genzyme Corporation from 1991 to 1993, and before that he was with
Genentech Inc. for over four years, serving most recently as Senior Product
Manager for Protropin (human growth hormone). He has also held sales and
marketing positions with Ciba Geigy. Mr. Yarson received a B.S. degree from
Sacred Heart University in 1975.
Item 2. Properties
The Company leases space in all of one and a portion of two other facilities
in Princeton, New Jersey and owns a manufacturing facility in Indianapolis,
Indiana.
The Company currently leases a building of approximately 50,000 square feet
that houses scientific laboratories, manufacturing facilities and certain
offices in the Princeton Forrestal Center located near Princeton, New Jersey.
The lease, with an initial term of twelve years, commenced January 1, 1995, and
embodies options to renew for up to an additional ten years. Lease payments for
the year ended December 29, 1996 totaled approximately $568,000. Future lease
payments are subject to certain contractual escalations. The Company also
leases approximately 28,500 square feet of office space located in the Princeton
Forrestal Center. The lease commenced March 1, 1993, with an initial lease term
of ten years. Payments under this lease for the year ended December 29, 1996
totaled approximately $761,000. In January 1995, the Company entered into a
three year lease for approximately 13,200 square feet of office/warehouse space
near its corporate offices. The Company also leases office space in London,
England and Paris, France.
In July 1992, the Company purchased a pharmaceutical manufacturing facility of
approximately 55,000 square feet located on 26 acres of land located in
Indianapolis, Indiana. The Company has retrofit and equipped certain portions
of the facility to manufacture ABELCET and has filed an application with the FDA
to approve the facility for commercial manufacturing of ABELCET. See
"Manufacturing" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations ---- Liquidity and Capital Resources."
Item 3. Legal Proceedings
The Company is involved in lawsuits, claims, investigations and
proceedings, including patent, commercial, and environmental matters, which
arise in the ordinary course of business. There are no such matters pending
that the Company expects to be material in relation to its business, financial
condition, cash flows, or results of operations. See the section "Business -
Patents and Proprietary Technology" for information regarding intellectual
property litigation in which the Company is currently involved.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Information
The Company's Common Stock is traded on the Nasdaq National Market System
under the symbol LIPO. The following table sets forth for the periods indicated
the high and low sale price for the Common Stock:
HIGH LOW
1996
4th Quarter $22.750 $14.875
3rd Quarter 19.875 11.875
2nd Quarter 26.125 16.000
1st Quarter 25.125 16.250
HIGH LOW
1995
4th Quarter $21.750 $13.000
3rd Quarter 17.750 10.125
2nd Quarter 11.500 8.375
1st Quarter 13.375 7.875
(b) Holders
At December 29, 1996, there were approximately 1,401 stockholders of record of
the Company's Common Stock.
(c) Dividends
The Company has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future. The declaration and payment of Common Stock
dividends, if any, is within the discretion of the Board of Directors and will
depend, among other things, upon future earnings, the operating and financial
condition of the Company, its capital requirements, and general business
conditions.
Item 6. Selected Financial Data
The following table sets forth consolidated financial data with respect to the
Company for each of the
five years in the period ending December 29, 1996. The information set forth
below should be read in conjunction with Management's Discussion and Analysis
of Financial Condition and Results of Operations and the Consolidated Financial
Statements and related notes included elsewhere herein.
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA: Year Ended
12/29/96 12/31/95 12/31/94 12/31/93 12/31/92
(In thousands, except per share data)
Product sales $52,840 $ 6,164 $ -- $ -- $ --
Collaborative research and
development and other revenues3,228 6,589 5,881 5,418 6,079
Interest, investment and
other income 3,864 2,964 4,559 7,624 4,810
Total revenues 59,932 15,717 10,440 13,042 10,889
Cost of goods sold 16,559 2,304 -- -- --
Research and
development expense 29,371 30,149 31,713 25,072 15,000
Selling, general and
administrative expense 31,541 18,631 12,072 10,193 5,488
Interest expense 339 294 308 254 76
Total expenses 77,810 51,378 44,093 35,519 20,564
Net loss (17,878) (35,661) (33,653) (22,477) (9,675)
Preferred Stock dividends (1,235) (5,348) (5,348) (5,348) --
Net loss applicable to
Common Stock $(19,113) $(41,009) $(39,001)$(27,825)$ (9,675)
Net loss per share applicable
to Common Stock $ (0.57) $ (1.50) $ (1.64)$ (1.18)$ (.43)
Weighted average number of
common shares outstanding 33,292 27,293 23,850 23,536 22,384
CONSOLIDATED BALANCE
SHEETS DATA: Year Ended
12/29/96 12/31/95 12/31/94 12/31/93 12/31/92
(In Thousands)
Cash and marketable securities(1) $47,180 $72,333 $ 72,157 $119,743 $76,399
Working capital 36,641 53,119 51,746 102,139 71,910
Total assets 94,555 105,926 93,196 139,632 92,756
Total long-term liabilities 7,555 4,104 5,917 7,696 2,986
Accumulated deficit (162,398) (144,520) (108,859) (75,206) (52,729)
Total stockholders' equity(2) $74,861 $89,832 $ 78,353 $122,347 $83,200
(1)Includes restricted cash of $6,930, $6,642 and $4,880 in 1996, 1995 and 1994,
respectively. See Note 1 of Notes to Consolidated Financial Statements.
(2)In 1993, the Company adopted the provisions of Financial Accounting Standard
115 "Accounting
for Certain Investments in Debt and Equity Securities." The effect of this
adoption was to reduce total stockholders' equity by $481 in 1996; $543 in 1995
and $5,033 in 1994.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, and The Liposome Company, Inc. (the
"Company") intends that such forward-looking statements be subject to the safe
harbors created thereby. Examples of these forward-looking statements include,
but are not limited to, (i) the progress of clinical trials, (ii) future
marketing approvals, (iii) the expansion of sales efforts, (iv) possible new
licensing agreements, (v) the completion date and total cost of the Indianapolis
manufacturing facility, (vi) the anticipated outcome or financial impact of
litigation, (vii) future product revenues, and (viii) the future uses of capital
and financial needs of the Company. While these statements are made by the
Company based on management's current beliefs and judgment, they are subject to
risks and uncertainties that could cause actual results to vary. In evaluating
such statements, stockholders and investors should specifically consider a
number of factors and assumptions, including those discussed in the text and the
financial statements and their accompanying footnotes in this Report and the
risk factors detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
Among these factors and assumptions that could affect the forward-looking
statements in this Report are the following: (a) the Company is experiencing a
rapid period of growth, and it is uncertain as to whether the rate of growth can
be maintained; (b) the Company has recently commenced commercialization of
ABELCET, and the ultimate rate of sales of ABELCET is uncertain; (c) the
Company's other products have not yet received regulatory approvals for sale,
and it is difficult to predict when approvals will be received and, if approved,
whether the products can be successfully commercialized; (d) competitors of the
Company have developed and are developing products that compete with the
Company's products, and the Company will be dependent on the success of its
products in competing with these other products; (e) the rate of sales of the
Company's products could be affected by regulatory actions, decisions by
government health administration authorities or private health coverage insurers
as to the level of reimbursement for the Company's products, and risks
associated with international sales, such as currency exchange rates, currency
controls, tariffs, duties, taxes, export license requirements and foreign
regulations; (f) the levels of protection afforded by the Company's patents and
other proprietary rights is uncertain and may be challenged; (g) the outcome of
litigation cannot be predicted with certainty; (h) the progress of
commercialization of certain of the Company's products may be affected by the
decisions of the Company's corporate sponsor as to the timing and funding of
commercialization; and (i) the Company must substantially increase its
manufacturing, marketing, distribution and sales capabilities, and it is not
certain that the Company will be able to do so in a timely manner or that it
will have the funds necessary to do so.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Overview
The Company is a leading biopharmaceutical company engaged in the discovery,
development, manufacturing and marketing of proprietary lipid- and liposome-
based pharmaceuticals for the treatment of inadequately treated, life-
threatening illnesses. ABELCET (Amphotericin B Lipid Complex Injection), the
Company's first commercialized product, has been approved for marketing for
certain indications in the United States, Italy, United Kingdom, France,
Ireland, Spain, Portugal, Austria, Greece, Denmark, Finland, Sweden, Luxembourg,
Iceland and Cyprus and is the subject of marketing application filings in
several other countries. Recently, the U.S. Food and Drug Administration
("FDA") cleared for marketing an expanded indication for ABELCET for the
treatment of invasive fungal infections in patients who are refractory to or
intolerant of conventional amphotericin B therapy. The Company's products in
late-stage development are VENTUSTM and TLC D-99. VENTUSTM, liposomal
prostaglandin E1, is being developed primarily for the treatment of acute
respiratory distress syndrome ("ARDS"). Patients are being accrued into a
pivotal Phase III clinical study for the treatment of ARDS. TLC D-99, liposomal
doxorubicin, is being developed in conjunction with a corporate sponsor
primarily as a first-line treatment for metastatic breast cancer. TLC D-99 is
currently being studied in two Phase III clinical trials in the U.S. and a third
Phase III study in Europe. The Company recently initiated the preclinical
development of TLC ELL-12 (liposomal ether lipid), a new cancer therapeutic that
may have applications for the treatment of many different cancers. The Company
also has a continuing discovery research program which concentrates primarily on
the treatment of cancer and inflammatory conditions.
Results of Operations
Revenues
Total revenues for the year ended December 29, 1996 were $59,932,000, an
increase of $44,215,000 or 281% as compared to the year ended December 31, 1995.
The primary components of revenues for the Company are product sales, which
commenced in 1995, collaborative research and development revenue, and interest,
investment and other income. Most of the 1996 growth in revenue is
attributable to the product sales of ABELCET both in the U.S. and
internationally, primarily in Europe. Partially offsetting the sales increase
is a reduction of collaborative research and development revenues, due to the
shift of TLC D-99 spending from the Company to its collaborative development
partner, Pfizer Inc ("Pfizer") and the absence of payments from a former
collaborative partner in 1996. Revenues in 1995 were $15,717,000, an increase of
$5,277,000 or 50.5% compared to the 1994 level. The primary reason for the
increase between 1994 and 1995 is due to the 1995 launch of ABELCET in the
United States and the United Kingdom.
Net product sales in 1996 of ABELCET were $52,840,000, approximately
$44,784,000 of which occurred in the U.S. with the remainder from international
activity. In 1995, domestic net product sales were $3,154,000 and
international sales were $3,010,000. There were no product sales in 1994.
Product sales in 1995 and 1996 were solely attributable to ABELCET.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
In November 1995, the Company received clearance from the FDA to market ABELCET
in the U.S. for the treatment of aspergillosis in patients who have failed on or
who are intolerant of conventional amphotericin B. In October 1996, the Company
received FDA clearance for expanded labeling of ABELCET as second-line therapy
for all systemic fungal infections, including candidiasis (the most common
invasive fungal infection), cryptococcal meningitis, zygomycosis, fusariosis and
others.
Internationally, the Company has been approved to market ABELCET in 14
countries. In addition, sales are realized on a named patient basis in certain
countries where marketing approval has not yet been received. In the U.S. as
well as the U.K., the Company markets ABELCET with its own sales force. In
Spain and Portugal, the Company has a marketing/distribution relationship with a
local pharmaceutical company. The Company will determine whether to market
ABELCET directly or with a partner on a country-by-country basis as it receives
future market approvals.
Collaborative research and development revenues of $3,228,000 for the year
ended December 29, 1996, decreased $3,361,000 or 51.0% compared to the prior
year. The Company earned substantially all of its collaborative research and
development revenues from Pfizer during 1996. The revenue decline during 1996
was due to the progression of TLC D-99 into Phase III clinical studies that are
being conducted and directly funded by Pfizer. Most clinical trial activity and
management is now being carried out and paid for by Pfizer and is not reflected
in the Company's financial statements. During 1995, the Company also earned
revenues from Schering AG (a former collaborative partner) of $753,000 pursuant
to a development agreement for a diagnostic imaging agent. This agreement is no
longer in force, and all rights to the agent have been returned to the Company.
Collaborative research and development revenues were $6,589,000 for 1995, an
increase of 12.0% over 1994. The Company earned collaborative research and
development revenues from two corporate sponsors, Pfizer and Schering AG, in
1995 and 1994.
Interest, investment and other income for the year ended December 29, 1996 was
$3,864,000 compared to $2,964,000 for 1995. This increase of 30.4% is due
primarily to a favorable foreign exchange rate gain recognized in 1996 combined
with realized losses on the sale of certain investments in the first quarter of
1995. Interest, investment and other income in 1995 decreased by 35.0% from
1994, primarily due to the loss on sale of certain investments and the lower
average level of cash balances the Company had for investment.
The Company anticipates continued growth in product sales as greater market
penetration is achieved and as additional international approvals are received
and commercial sales activities commence. Revenues are also impacted by the
level of cost reimbursement under research collaboration agreements, the level
of cash balances available for investment and the rate of interest earned.
Expenses
The components of total expenses were cost of goods sold, research and
development costs, selling, general and administrative expenses and interest
expense. Cost of goods sold expenses were not incurred until the commencement
of product sales during 1995.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Cost of goods sold in 1996 was $16,559,000 versus $2,304,000 from 1995 due to
the manufacturing and distribution costs associated with the full year impact of
ABELCET sales in the U.S., as well as increased international sales. Gross
margins on sales of ABELCET improved from 62.6% for 1995 to 68.7% for 1996
reflecting efficiencies realized from the greater production volume of the
product.
Research and development expenses were $29,371,000 for the year ended December
29, 1996, compared to $30,149,000 for 1995 and $31,713,000 for 1994. The major
components of this category are research, development, clinical and regulatory
activities. The reduction from 1995 to 1996 is primarily due to the fact that
Pfizer is now conducting clinical studies for TLC D-99. As in prior years,
costs associated with the development of TLC D-99 were reimbursed by Pfizer.
Partially offsetting the overall reduction were increases in clinical
development activities relating to VENTUSTM, as this product progresses through
Phase III clinical studies, and pre-production costs associated with the
Indianapolis manufacturing facility. The 4.9% decrease in research and
development expenses from 1994 to 1995 was attributable to the shift in certain
manufacturing costs from research and development to cost of sales and product
inventory. This decline was partially offset by increased spending for VENTUSTM
as this product progressed into Phase III clinical trials during 1995.
Selling, general and administrative expenses for 1996 were $31,541,000, an
increase of $12,910,000 or 69.3% over the prior year. The primary reason for
the increase was the establishment and full year impact of the U.S. sales and
marketing organization and other associated marketing costs incurred to launch
and market ABELCET. In late 1996, the Company doubled the size of the U.S. sales
force to 40 representatives to further penetrate the market. International
sales and marketing costs also contributed to the overall growth in this
category. The Company has approvals in 14 countries internationally, and
filings pending in several others. Also contributing to the increase in 1996
over 1995 were legal expenses associated with patent litigation. Selling,
general and administrative expenses in 1995 were $18,631,000, an increase of
$6,559,000 or 54.3% over 1994, primarily due to marketing expenses incurred in
anticipation of the November 1995 approval of ABELCET and costs attributable to
expanding the Company's international sales and marketing programs.
Interest expense was $339,000, $294,000 and $308,000 for 1996, 1995 and 1994,
respectively. The largest components of cost were associated with the capital
lease for the Princeton manufacturing equipment and facility and mortgage
interest related to the Indianapolis manufacturing facility. The increase from
1995 to 1996 was due to costs related to financing agreements completed in late
1996 and early 1997. The Company entered into an agreement and received cash
funding of $6,101,000 from a capital lease signed in December 1996, primarily
for the Indianapolis, Indiana, manufacturing assets.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
As a result of the factors discussed above, total expenses for the year ended
December 29, 1996 were $77,810,000, an increase of $26,432,000 or 51.4% over
1995. Total expenses for 1995 were $51,378,000, an increase of $7,285,000 or
16.5% over 1994.
The Company expects that expenses in all areas will increase, particularly in
selling, general and administrative expenses, as the Company receives additional
marketing approvals in Europe and continues to expand its sales and marketing
efforts in the United States for ABELCET, including the full year impact of
doubling the U.S. sales force to approximately 40 representatives.
Preferred Stock Dividends
In January 1993, the Company completed an offering of 2,760,000 Depositary
Shares, each of which represented one-tenth of a share of Series A Cumulative
Convertible Exchangeable Preferred Stock ("Preferred Stock") carrying a 7.75%
dividend rate. Dividends of $5,348,000 were paid on the Preferred Stock in 1995
and 1994. The Company's dividend requirement in 1996 was reduced to $1,235,000
due to calls for redemption of the Preferred Stock.
On March 25, 1996, the Company completed the call for redemption of 50% of the
Preferred Stock, with the remainder being called on October 14, 1996. Virtually
all of the outstanding Preferred Stock was converted into Common Stock. As a
result of these conversions, the Company's annual Preferred Stock dividend
requirements have now been eliminated.
Net Loss, Net Loss Applicable to Common Stock and Net Loss Per Share of Common
Stock
The net loss of $17,878,000 for 1996 improved by $17,783,000 or 49.9% from
1995. The reduction in net loss was due to revenue growth of $44,215,000,
partially offset by an increase in total expenses of $26,432,000. The net loss
applicable to Common Stock was $19,113,000 in 1996 and $41,009,000 in 1995. The
improvement was the result of the factors previously discussed, combined with
the completion of the Preferred Stock redemption. The impact in 1996 versus
1995 of the elimination of Preferred Stock dividends was to reduce the net loss
applicable to Common Stock by $4,113,000. The net loss per share in 1996 was
$.57 versus $1.50 in 1995. The improvement is the result of the lower net loss
applicable to Common Stock, partially offset by a greater number of common
shares outstanding.
The net loss of $35,661,000 for 1995 increased $2,008,000 or 6.0% compared to
1994. This increase in net loss was due to an increase in expenses of
$7,285,000, partially offset by higher total revenues of $5,277,000. The net
loss per common share improved $.14 per share in 1995 as compared to 1994 due to
an increase in weighted shares of Common Stock outstanding pursuant to sales of
Common Stock during 1995.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Liquidity and Capital Resources
The Company had $47,180,000 in cash and marketable securities as of December
29, 1996. Included in these reserves were cash and cash equivalents of
$1,841,000, short-term investments of $28,269,000, long term investments in
marketable securities of $10,140,000 and restricted cash of $6,930,000. The
Company invests its cash reserves in a diversified portfolio of high-grade
marketable and United States Government-backed securities. The market value of
certain securities in the Company's investment portfolio at December 29, 1996
was below their acquisition cost. The cumulative effect of unrealized
investment losses pursuant to Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", was $481,000. This unrealized loss was recorded as a reduction of
shareholders' equity.
Cash and marketable securities decreased $25,153,000 from December 31, 1995 to
December 29, 1996, due to the use of funds for capital expenditures (primarily
the retrofit of the Company's Indianapolis manufacturing facility to make larger
and less costly quantities of ABELCET), operations (including increases in
inventory to facilitate the transfer of manufacturing operations from Princeton
to Indianapolis), other working capital requirements and Preferred Stock
dividend payments. The Company has spent approximately $13,600,000 to retrofit
the Indianapolis manufacturing facility, which was completed at the end of 1996.
The Company's use of cash during 1996 was partially offset by the receipt of
$6,101,000 from an equipment lease financing and $4,252,000 from the exercise of
stock options.
Cash used by operations of $20,613,000 was $16,407,000 less in 1996 than in
1995. This reduced use of cash was primarily due to the improvement in net loss
versus 1995. A major component of cash used by operations during 1996 was
related to the increase in inventory in connection with the transition of
ABELCET manufacturing operations from Princeton to the Indianapolis facility.
At December 29, 1996, the Company had approximately $147,000,000 of operating
loss carryforwards and $3,500,000 of research and development credit
carryforwards for U.S. Federal income tax purposes. These carryforwards expire
in the years 1997 through 2011. The timing and manner in which these losses are
used may be limited pursuant to Internal Revenue Service regulations under
Section 382, as a result of certain ownership changes that occurred.
The Company has an outstanding mortgage on its Indianapolis facility. In
addition, the Company entered into an agreement and received cash funding of
$6,101,000 from a capital lease signed in December 1996, primarily for the
Indianapolis manufacturing assets. In connection with these financing
arrangements, the Company is required to maintain minimum cash balances, of
which the largest requirement is $25,000,000. In addition, the Company completed
a working capital revolving credit line agreement in early 1997. There have
been no advances against this line as of February 1997.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The Company expects to finance its operations and capital spending
requirements from, among other things, the proceeds received from product sales,
payments under research and development agreements, interest earned on
investments and the proceeds from maturity or sale of certain investments. Cash
may also be provided to the Company by leasing arrangements for capital
expenditures, financing of receivables and inventory under the new line of
credit, the licensing of its products and technology and the sale of equity or
debt securities. The Company believes that its product revenues and revenues
from other sources, coupled with its available cash and marketable securities
reserves, will be sufficient to meet its expected operating and capital cash
flow requirements for the intermediate term.
In January 1993, the Company completed an offering of 2,760,000 Depositary
Shares, each of which represented one-tenth of a share of Series A Cumulative
Convertible Exchangeable Preferred Stock ("Preferred Stock") carrying a 7.75%
dividend rate. On March 25, 1996, the Company completed the call for redemption
of 50% of the Preferred Stock, with the remainder being called on October 14,
1996. Virtually all of the outstanding Preferred Stock was converted into
Common Stock. Combined net issuance costs including financial advisory,
professional, registration and filing fees of $544,000 were incurred in
connection with both calls and were charged to equity. As a result of these
conversions, the Company's annual Preferred Stock dividend requirements have now
been eliminated.
Item 8. Financial Statements and Supplementary Data
Reference is made to the Consolidated Balance Sheets, Consolidated Statements
of Operations, Consolidated Statements of Stockholders' Equity, Consolidated
Statements of Cash Flow, Notes to Consolidated Financial Statements, Financial
Statement Schedule and Independent Accountants Reports appearing in Item l4(a)
of this Form l0-K.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
PART III
Item l0. Directors and Executive Officers of the Registrant
Information required under this Item relating to executive officers of the
Company is included in a separate item captioned "Executive Officers" contained
in Part I of this report. Information required under this Item relating to the
directors of the Company will be contained in the Company's Proxy Statement for
the l997 Annual Meeting, the relevant portions of which are incorporated herein
by reference.
Item ll. Executive Compensation
Information required under this Item will be contained in the Company's Proxy
Statement for the l997 Annual Meeting, the relevant portions of which are
incorporated herein by reference.
Item l2. Security Ownership of Certain Beneficial Owners and Management
Information required under this Item will be contained in the Company's Proxy
Statement for the l997 Annual Meeting, the relevant portions of which are
incorporated herein by reference.
Item l3. Certain Relationships and Related Transactions
Information required under this Item will be contained in the Company's Proxy
Statement for the l997 Annual Meeting, the relevant portions of which are
incorporated herein by reference.
PART IV
Item l4. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) l. Financial Statements
Consolidated financial statements and financial statement schedule listed in
the accompanying index are filed herewith.
2. Exhibits
See Exhibit Index included elsewhere in this Report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the period
covered by this report.
Index to Financial Statements
(Item l4(a)1 and 14(a)2)
Page
Consolidated Financial Statements
Report of independent accountants 34
Consolidated balance sheets at December 29, l996 and
December 31, l995 35
Consolidated statements of operations for each of the
three years in the period ended December 29, 1996 36
Consolidated statements of stockholders' equity for each
of the three years in the period ended December 29, l996 37
Consolidated statements of cash flows for each of the
three years in the period ended December 29, l996 38
Notes to consolidated financial statements 39-51
Report of independent accountants on financial statement schedule 52
Financial statement schedule 53
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of The Liposome Company, Inc.:
We have audited the consolidated balance sheets of The Liposome Company,
Inc. and Subsidiaries as of December 29, 1996 and December 31, 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 29, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Liposome
Company, Inc. and Subsidiaries as of December 29, 1996 and December 31, 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 29, 1996, in conformity with
generally accepted accounting principles.
Princeton, New Jersey
February 3, 1997
Coopers & Lybrand L.L.P.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
Current assets: 12/29/9612/31/95
Cash and cash equivalents $ 1,841$ 3,937
Short-term investments 28,269 50,451
Accounts receivable, net of allowance for doubtful
accounts ($1,079 for 1996, $200 for 1995) 7,884 6,799
Inventories 9,904 3,543
Prepaid expenses 835 333
Other current assets 47 46
Total current assets 48,780 65,109
Long-term investments 10,140 11,303
Property, plant and equipment, net 28,292 22,400
Restricted cash 6,930 6,642
Intangibles, net 413 472
Total assets $ 94,555$105,926
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,806$ 1,839
Accrued expenses and other current liabilities 7,682 7,002
Current obligations under capital leases 2,348 1,509
Current obligations under note payable 303 303
Preferred Stock dividends payable -- 1,337
Total current liabilities 12,139 11,990
Long-term obligations under capital leases 6,369 2,616
Long-term obligations under note payable 1,186 1,488
Total liabilities 19,694 16,094
Commitments and contingencies
Stockholders' equity:
Capital stock:
Preferred Stock, par value $.01; 2,400 authorized;
0 shares of Series A Cumulative Convertible Exchangeable
Preferred Stock outstanding on December 29, 1996,
and 276 shares outstanding on December 31, 1995
(liquidation preference of $68,925 at December 31, 1995) -- 3
Common Stock, par value $.01;
60,000 shares authorized;
36,061 and 29,950 shares issued and outstanding 361 299
Additional paid-in capital 237,809 234,545
Net unrealized investment loss (481) (543)
Foreign currency translation adjustment (430) 48
Accumulated deficit (162,398)(144,520)
Total stockholders' equity 74,861 89,832
Total liabilities and stockholders' equity $ 94,555$105,926
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data )
Year Ended
12/29/96 12/31/95 12/31/94
Product sales $ 52,840 $ 6,164 $ --
Collaborative research and development
and other revenues 3,228 6,589 5,881
Interest, investment and other income 3,864 2,964 4,559
Total revenues 59,932 15,717 10,440
Cost of goods sold 16,559 2,304 --
Research and development expense 29,371 30,149 31,713
Selling, general and administrative
expense 31,541 18,631 12,072
Interest expense 339 294 308
Total expenses 77,810 51,378 44,093
Net loss (17,878) (35,661) (33,653)
Preferred Stock dividends (1,235) (5,348) (5,348)
Net loss applicable to
Common Stock $(19,113) $(41,009) $(39,001)
Net loss per share
applicable to Common Stock $ (.57) $ (1.50) $ (1.64)
Weighted average number
of common shares outstanding 33,292 27,293 23,850
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Shares of Additional Total
Common Par Paid-in Accumulated
Stockholders'
Stock Value Capital Other Deficit Equity
Balance, December 31, 1993 23,706 $ 240$196,655 $ 658$ (75,206)$122,347
Issuance of stock:
To 401K plan 31 -- 196 -- -- 196
Exercise of stock options 246 3 500 -- -- 503
Dividends on Preferred Stock -- -- (5,348) -- -- (5,348)
Net unrealized investment loss -- -- -- (5,683) -- (5,683)
Foreign currency
translation adjustment -- -- -- (9) -- (9)
Net loss for 1994 -- -- -- -- (33,653) (33,653)
Balance, December 31, 1994 23,983 243 192,003 (5,034)(108,859) 78,353
Issuance of stock:
For cash 4,950 49 43,143 -- -- 43,192
To 401K plan 23 -- 199 -- -- 199
Exercise of stock options 988 10 4,548 -- -- 4,558
Conversion of Preferred Stock 6 -- -- -- -- --
Dividends on Preferred Stock -- -- (5,348) -- -- (5,348)
Net unrealized investment gain -- -- -- 4,490 -- 4,490
Foreign currency
translation adjustment -- -- -- 49 -- 49
Net loss for 1995 -- -- -- -- (35,661) (35,661)
Balance, December 31, 1995 29,950 302 234,545 (495) (144,520) 89,832
Issuance of stock:
To 401K plan 43 1 798 -- -- 799
Exercise of stock options 704 7 4,245 -- -- 4,252
Conversion of Preferred Stock 5,364 51 (544) -- -- (493)
Dividends on Preferred Stock -- -- (1,235) -- -- (1,235)
Net unrealized investment gain -- -- -- 62 -- 62
Foreign currency
translation adjustment -- -- -- (478) -- (478)
Net loss for 1996 -- -- -- -- (17,878) (17,878)
Balance, December 29, 1996 36,061 $ 361$237,809 $ (911)$(162,398)$ 74,861
See accompanying notes
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended
12/29/96 12/31/95 12/31/94
Cash flows from operating activities:
Net loss $(17,878) $(35,661)$(33,653)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 3,769 3,409 3,145
Provision for bad debt 879 200 --
Other 798 199 196
Changes in assets and liabilities:
Accounts receivable (1,964) (5,381) (983)
Inventory (6,361) (2,795) (534)
Prepaid expenses (502) 86 238
Other current assets (1) (15) (11)
Accounts payable (33) 634 (2,195)
Accrued expenses and
other current liabilities 680 2,304 1,390
Net cash used by operating activities (20,613) (37,020) (32,407)
Cash flows from investing activities:
Purchases of short and long-term investments (38,771) (51,990) (38,284)
Sales of short and long-term investments 62,178 59,634 78,019
Restricted cash (288) (1,762) (132)
Purchases of property, plant and equipment (9,602) (7,965) (2,896)
Net cash (used)/provided by investing
activities 13,517 (2,083) 36,707
Cash flows from financing activities:
Net proceeds from issuance of stock -- 43,192 --
Conversion of Preferred Stock 52 -- --
Net payments from conversion of Preferred Stock (544) -- --
Exercises of stock options 4,252 4,558 503
Principal payments under note payable (302) (303) (303)
Receipt of proceeds from capital lease obligations 6,101 -- --
Principal payments under capital lease obligations (1,509) (1,477) (1,444)
Preferred Stock dividend payments (2,572) (5,348) (5,348)
Net cash provided/(used) by financing
activities 5,478 40,622 (6,592)
Effects of exchange rate changes on cash (478) 49 (9)
Net (decrease)/increase in cash and cash equivalents (2,096) 1,568 (2,301)
Cash and cash equivalents at beginning of year 3,937 2,369 4,670
Cash and cash equivalents at end of year $ 1,841 $ 3,937 $ 2,369
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS:
The Company is a leading biopharmaceutical company engaged in the discovery,
development, manufacturing and marketing of proprietary lipid- and liposome-
based pharmaceuticals for the treatment of inadequately treated, life-
threatening illnesses. ABELCET (Amphotericin B Lipid Complex Injection), the
Company's first commercialized product, has been approved for marketing for
certain indications in the United States, Italy, United Kingdom, France,
Ireland, Spain, Portugal, Austria, Greece, Denmark, Finland, Sweden, Luxembourg,
Iceland and Cyprus and is the subject of marketing application filings in
several other countries. Recently, the FDA cleared for marketing an expanded
indication for ABELCET for the treatment of invasive fungal infections in
patients who are refractory to or intolerant of conventional amphotericin B
therapy. Currently all product sales are derived from ABELCET. The Company's
products in late stage development are VENTUSTM (TLC C-53) and TLC D-99.
VENTUSTM, liposomal prostaglandin E1, is being developed primarily for the
treatment of acute respiratory distress syndrome ("ARDS"). Patients are being
accrued into a pivotal Phase III clinical study for the treatment of ARDS. TLC
D-99, liposomal doxorubicin, is being developed in conjunction with a corporate
sponsor primarily as a first line treatment for metastatic breast cancer. TLC
D-99 is currently being studied in two Phase III clinical trials in the U.S.
and a third Phase III study in Europe. The Company recently initiated the
preclinical
development of TLC ELL-12 (liposomal ether lipid), a new cancer therapeutic that
may have applications for the treatment of many different cancers. The Company
also has a continuing discovery research program concentrating primarily on the
treatment of cancer and inflammatory conditions.
The Company operates in a high technology, emerging market environment that
involves significant risks and uncertainties which may cause results to vary
significantly from reporting period to reporting period. These risks include,
but are not limited to, among others, competition, the uncertainty of new
product development initiatives, difficulties in transferring new technology to
the manufacturing stage, market resistance to new products, domestic and
international regulatory constraints and pending and potential disputes
concerning ownership of intellectual property.
FINANCIAL STATEMENT PRESENTATION:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported periods.
Actual results could differ from those estimates. The Company regularly
assesses the estimates and, while actual results could differ, management
believes that the estimates are reasonable.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation.
REVENUE RECOGNITION:
Revenue from product sales is recognized upon transfer of title to unrelated
third parties with provision for certain government-mandated price protection
programs. Payments for collaborative research and development are generally
received in advance and are recognized as revenue, ratably, as the research and
development is performed. Licensing fees, royalty and hurdle payments are
recognized in the period earned.
ADVERTISING:
Advertising costs are expensed in the period incurred. Total advertising costs
were approximately $1,400,000 in 1996, with no significant expenses in prior
years.
DEPRECIATION AND AMORTIZATION:
Machinery and equipment, building and building improvements and furniture and
fixtures, are depreciated by the straight-line method over their estimated
useful lives ranging from three to twenty years. Leasehold improvements are
amortized by the straight-line method over the lesser of their estimated useful
lives or the terms of the related leases. Purchased patents are amortized by the
straight-line method over their lives as determined by the country of issuance.
The Company periodically reviews the realizability of its patents.
CASH EQUIVALENTS:
The Company considers all highly liquid investments with maturities of three
months or less as cash equivalents.
INVESTMENTS:
Short-term investments represent marketable securities available for current
operations, all of which have been classified as available for sale, while long-
term investments represent marketable securities available for expected capital
acquisitions. These investments are stated at fair value, determined at December
29, 1996. Fair values may not be representative of actual values of financial
investments that could be realized in the future.
For the years ended December 29, 1996 and December 31, 1995, investment income
includes gross realized gains of $3,600 and $0, and realized losses of $28,700
and $489,000, respectively. At December 29, 1996 and December 31, 1995,
investments included gross unrealized gains of $0 and $6,500 and gross
unrealized losses of $481,000 and $549,000, respectively. Gains and losses are
calculated on the specific identification method. The fair values of debt
securities maturing within one year was $15,423,000 and after one year, but less
than five years, amounted to $29,916,000. Investment amounts recorded
approximate amortized cost.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
RESTRICTED CASH:
The Company has entered into certain financing arrangements that require the
issuance of letters of credit that are partially collateralized by certain
securities. The aggregate amount of these securities are segregated and
identified as restricted cash. The Company is also required to maintain minimum
cash balances in connection with certain of these financings.
INVENTORIES:
Inventories are carried at the lower of actual cost or market and cost is
accounted for on the first-in first-out (FIFO) basis.
CONCENTRATION OF CREDIT RISK:
The Company's significant concentrations of credit risk are with its cash and
investments and its accounts receivable. The investment portfolio consists of
U.S. government or agency debt securities and investment grade debt securities
or better as defined by the appropriate rating institution. Company policy
limits exposure to any one institution other than the U.S. government. Product-
related accounts receivable in the U.S. are generally with major distributors
and internationally with the Company's marketing partner or hospitals, which are
generally funded by their respective governments. The Company provides credit
to its customers on an uncollateralized basis after evaluating their credit
status.
NET LOSS PER SHARE APPLICABLE TO COMMON STOCK:
Net loss per share applicable to Common Stock is computed based on the
weighted average of shares outstanding using the treasury method. Common Stock
equivalents are not included in the computation of weighted average shares
outstanding since the effect would be anti-dilutive.
RECLASSIFICATION:
Certain reclassifications have been made to the prior year financial statement
amounts to conform with the presentation in the current year financial
statements.
FOREIGN CURRENCY TRANSACTIONS:
Generally, Consolidated Balance Sheet amounts have been translated using
exchange rates in effect at the balance sheet dates and the translation
adjustments have been included in the foreign currency translation adjustment as
a separate component of Consolidated Stockholders' Equity. Amounts related to
transactions in the Consolidated Statements of Operations have been translated
using the average exchange rates in effect each year and transaction gains and
losses have been included therein as other income. During 1996, the Company
realized $374,000 in foreign currency transaction gains and $49,000 in losses in
1995. There was no gain or loss realized in 1994.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
RESEARCH AND DEVELOPMENT EXPENSES:
The research and development expenses of the Company, which are expensed as
incurred, include those efforts related to collaborative research and
development agreements, development of the Company's proprietary products and
general research. The expenses include, but are not limited to, medical,
biostatistical, regulatory, manufacturing of clinical grade product and
scientific support costs.
2. STOCKHOLDERS' EQUITY:
PREFERRED STOCK AND PREFERRED STOCK DIVIDENDS:
In January 1993, the Company completed an offering of 2,760,000 Depositary
Shares, each of which represented one-tenth of a share of Series A Cumulative
Convertible Exchangeable Preferred Stock ("Preferred Stock") carrying a 7.75%
dividend rate.
On March 25, 1996, the Company completed the call for redemption of 50% of the
Preferred Stock, with the remainder being called on October 14, 1996. Virtually
all of the outstanding Preferred Stock was converted into Common Stock. Combined
net issuance costs including financial advisory, professional, registration and
filing fees of $544,000 were incurred in connection with both calls and were
charged to equity. As a result of these conversions, the Company's annual
Preferred Stock dividend requirements have now been eliminated.
COMMON STOCK:
In April 1995, the Company sold 3,450,000 shares of its Common Stock pursuant
to an underwritten offering. Proceeds received pursuant to the offering were
$28,762,000, net of underwriters' fees, professional, registration, filing and
printing fees.
In August 1995, the Company sold 1,500,000 shares of Common Stock to an
institutional investor. Gross proceeds received were $15,000,000. Stock
issuance costs, including financial advisory, professional, registration and
filing fees of approximately $570,000 were incurred in connection with the sale.
Pursuant to calls for redemption of the Company's Preferred Stock on March 25,
1996 and October 14, 1996, the Company issued an aggregate of 5,364,000 shares
of Common Stock to holders of Preferred Stock who converted before the
expiration of the redemption periods.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
3. STOCK BASED COMPENSATION PLANS:
The Company has four stock-based compensation plans that are currently in
effect. The 1986 Employee Stock Option Plan and the 1986 Non-Qualified Stock
Option Plan will expire on March 3, 2005, but no additional options can be
granted under either of these plans after March 7, 1996. The two other plans
are the 1996 Equity Incentive Plan ("1996 Plan") and the 1991 Directors' Non-
Qualified Stock Option Plan ("Directors' Plan"). A total of 4,500,000 shares
of Common Stock are reserved for issuance under the 1996 Plan, which will expire
on March 7, 2006. The total number of shares of Common Stock authorized for
issuance under the Directors' Plan is 550,000, and that plan will expire on May
21, 2002.
The Board of Directors may grant restricted stock, stock appreciation
rights, and other forms of incentives under the 1996 Plan as well as stock
options. Options granted under all plans must have an exercise price equal to
or greater than the fair market value of the Company's Common Stock on the date
of grant and must have a term no longer than ten years. Options granted under
the 1986 Employee Stock Option Plan, the 1986 Non-Qualified Stock Option Plan
and the 1996 Plan generally become exercisable in five equal annual
installments, although the Board of Directors has discretion to grant options
with different vesting schedules under the 1996 Plan. Options under the
Directors' Plan are automatically granted to all non-employee directors upon
appointment to the Board of Directors and annually on July 1 of each year. The
initial grants vest over a five year period, and subsequent annual grants vest
in one year.
The table below summarizes the stock option activity under all of the
Company's plans for the years 1994, 1995 and 1996:
Weighted
Weighted Average
Number Average Exercise Fair
Options of Shares Exercise Price Value at
ExercisableOutstandingPrice per Sharegrant date
Outstanding 12/31/931,964,9663,868,255$5.99
Granted 1,049,370 6.94 $5.00-10.19
Exercised (246,161) 2.03 1.03-8.00
Forfeited (446,641) 10.86 0.85-21.25
Outstanding 12/31/942,141,9904,224,8235.99 1.03-20.63
Granted 1,124,775 13.27 8.25-20.88 $9.73
Exercised (987,674) 4.87 1.06-14.00
Forfeited (222,003) 8.87 1.06-17.00
Outstanding 12/31/951,790,4394,139,9218.10 1.03-20.88
Granted 1,096,379 17.86 12.44-25.13 13.07
Exercised (708,064) 5.66 1.03-15.88
Forfeited (175,713) 11.82 2.63-25.13
Outstanding 12/29/961,727,0944,352,52310.74 1.03-25.13
The weighted average remaining contractual lives of outstanding options at
December 29, 1996 was approximately 7.4 years.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
The Company applies the provisions of Accounting Principles Board Opinion
No. 25 ("APB") and related interpretations in accounting for its stock-based
compensation plans. Accordingly, compensation expense has been recognized to
the extent applicable in the financial statements in respect to the above plans
in accordance with APB 25. Had compensation costs for the above plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of Statement of Financial Accounting Standards
No. 123 "Accounting for Stock Based Compensation", the Company's net loss and
net loss per share applicable to Common Stock would have been increased to the
pro forma amounts below:
1996 1995
Pro Forma net loss applicable
to Common Stock $(25,427,000) $(42,643,000)
Pro Forma net loss per share
applicable to Common Stock$ (0.76) $ (1.56)
As options and stock awards vest over several years and awards are generally
made each year, the pro forma impacts shown here are likely to increase given
the same level of activity in the future.
The pro forma compensation expense of $6,314,000 and $1,634,000 for 1996 and
1995, respectively, was calculated based on the fair value of each option grant
using the Black-Scholes Model with the following weighted-average assumptions
used for grants:
1996 1995
Dividend Yield 0.0% 0.0%
Expected Volatility 89.0% 91.0%
Risk Free Interest Rate 6.0% 5.3%
Expected Option Lives (years) 7.5 7.5
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
1996 1995
Building and building improvements $2,778,000$ 2,778,000
Land and land improvements 423,000 423,000
Furniture and fixtures 1,823,000 1,581,000
Machinery and equipment 12,947,000 11,462,000
Leasehold improvements and other 5,835,000 4,999,000
Construction in process 8,477,000 7,539,000
Machinery and equipment and leasehold
improvements under capital lease 13,597,000 7,496,000
Total property, plant and equipment 45,880,000 36,278,000
Less: Accumulated depreciation and
amortization (17,588,000)(13,878,000)
Net property, plant and equipment $28,292,000$22,400,000
In 1995, the Financial Accounting Standards Board ("SFAS") issued SFAS No. 121
"Accounting for the Impairment of Assets to be Disposed of." There was no
impact on the Company as a result of the adoption of this standard.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
5. INVENTORIES:
The components of inventory are as follows:
1996 1995
Finished goods $3,063,000 $2,273,000
Work in process 5,011,000 139,000
Raw Materials 1,447,000 1,002,000
Supplies 383,000 129,000
Total $9,904,000 $3,543,000
6. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES:
The Company's lease for its manufacturing and research facility in Princeton,
New Jersey expires in December 2006 with two five year renewal options. Rent
expense was approximately $568,000, $568,000 and $575,000 for the years 1996,
1995 and 1994, respectively.
The Company leases a warehousing facility in Cranbury, New Jersey. This
lease expires in December 1997 with an option to renew for a three year period.
Rent expense for this facility totaled approximately $91,000, $72,000 and $0 for
the years 1996, 1995 and 1994, respectively.
The Company's administrative, marketing and executive offices are located in
leased space in Princeton, New Jersey. The lease for the premises expires in
February 2003. Rent expense was approximately $761,000 for 1996, $597,000 for
1995 and $505,000 for 1994.
Total rental expense under all operating leases (including those above) was
approximately $1,884,000, $1,449,000 and $1,618,000 for 1996, 1995 and 1994,
respectively.
The Company's future minimum lease payments under noncancelable operating
leases at December 29, 1996 are as follows:
1997 $ 1,534,000
1998 1,519,000
1999 1,446,000
2000 1,359,000
2001 1,253,000
2002 and thereafter 4,258,000
Total $11,369,000
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
CAPITAL LEASES:
On July 1, 1993, the Company completed an agreement that provided for
equipment lease financing of $7,496,000. The lease is collaterized by
$4,310,000 in standby letters of credit collaterized by AAA rated securities
owned by the Company.
In December 1996, the Company signed a lease financing agreement of
$6,101,000, covering primarily manufacturing equipment at Indianapolis.
Pursuant to the lease agreements, the Company is required to maintain a minimum
balance of $25,000,000 in cash and marketable securities, including those
securities collateralizing the letters of credit.
The following is a schedule by year of future minimum payments under capital
leases together with the present value of the minimum lease payments and the
capital lease portion of certain classes of property as of December 29, 1996:
1997 $2,918,000
1998 2,417,000
1999 1,334,000
2000 1,334,000
2001 1,333,000
2002 and thereafter 1,220,000
Total minimum lease payments 10,556,000
Less: Amount representing interest (1,839,000)
Present value of minimum lease payments $8,717,000
CLASSES OF PROPERTY:
Machinery and equipment $10,306,000
Leasehold improvements 3,291,000
Total machinery and equipment and
leasehold improvements 13,597,000
Less: Accumulated amortization (5,187,000)
Net machinery and equipment and leasehold
improvements $8,410,000
LEGAL PROCEEDINGS:
The Company is involved in lawsuits, claims and proceedings, including
patent, commercial, and environmental matters, which arise in the ordinary
course of business. There are no such matters pending that the Company expects
to be material in relation to its business, financial condition, cash flows, or
results of operations.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
7. LONG-TERM DEBT:
On July 24, 1992, The Liposome Manufacturing Company, Inc., a wholly-owned
subsidiary of The Liposome Company, Inc., entered into a mortgage-backed note to
partially fund the purchase of a pharmaceutical manufacturing facility in
Indianapolis, Indiana. Principal payments of $25,225 plus accrued interest are
payable monthly through November, 2001. The interest rate, based on the prime
rate plus 1/2%, has a floor and ceiling of 6% and 10%, and was 8.75% at December
29, 1996. The note is guaranteed by The Liposome Company, Inc. and is
collateralized by a $1,000,000 AAA rated security owned by the Company. The
Company is required to maintain a minimum balance of $10,000,000 in cash and
marketable securities, including those securities collaterizing the letter of
credit, in connection with the financing. The fair value of the Company's long
term debt approximates book value.
The Liposome Manufacturing Company's principal repayment obligations as of
December 29, 1996 are as follows:
1997 $ 303,000
1998 303,000
1999 303,000
2000 303,000
2001 and thereafter 277,000
Subtotal 1,489,000
Less: Current portion (303,000)
Total $1,186,000
8. SUPPLEMENTAL INFORMATION:
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
The components of accrued expenses and other current liabilities are as follows:
1996 1995
Accrued expenses for preclinical
and clinical programs $2,288,000$2,871,000
Accrued legal fees 1,044,000 284,000
Accrued wages and vacation 1,537,000 909,000
Accrued royalty payments 680,000 179,000
Other 2,133,000 2,759,000
Total $7,682,000 $7,002,000
STATEMENTS OF CASH FLOWS: 1996 1995 1994
Supplemental disclosure of cash
flow information:
Cash paid during the year for interest $339,000$291,000 $310,000
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
9. INCOME TAXES:
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The Company provides a valuation allowance against the net deferred tax debits
due to the uncertainty of realization. The increase in the valuation allowance
for the year ended December 29, 1996 and December 31, 1995 was $7,532,000 and
$12,010,000 respectively.
Temporary differences and carryforwards that gave rise to the deferred tax
assets and liabilities at December 29, 1996 are as follows:
Deferred Tax Deferred Tax
Assets Liabilities
Depreciation $ 507,000 $ --
Net unrealized investment loss 164,000 --
State taxes (net of Federal benefit) 7,899,000 --
Amortization 2,321,000 --
Net operating losses - Federal 50,024,000 --
Other 1,339,000 --
Tax credits 3,498,000 --
Subtotal 65,752,000 --
Valuation allowance - Federal (57,853,000) --
Valuation allowance - State (7,899,000) --
Total deferred taxes $ -- $ --
Temporary differences and carryforwards that gave rise to the deferred tax
assets and liabilities at December 31, 1995 are as follows:
Deferred Tax Deferred Tax
Assets Liabilities
Depreciation $ 655,000 $ --
Net unrealized investment loss 185,000 --
State taxes (net of Federal benefit) 6,861,000 --
Amortization 1,084,000 --
Net operating losses - Federal 45,640,000 --
Other 593,000 --
Tax credits 3,202,000 --
Subtotal 58,220,000 --
Valuation allowance - Federal (51,358,000) --
Valuation allowance - State (6,862,000) --
Total deferred taxes $ -- $ --
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
At December 29, 1996, the Company had approximately $147,000,000 net
operating loss carryforwards and $3,500,000 of research and development credit
carryforwards for U.S. Federal income tax purposes. These carryforwards expire
in the periods 1997 through 2011. The timing and manner in which these losses
are used may be limited as a result of certain ownership changes that occurred
as provided by IRS Regulations under Section 382.
10. GEOGRAPHIC SEGMENT DATA
The Company's biopharmaceutical operations are classified into two geographic
areas: Domestic (United States) and International (primarily Western Europe).
Financial Data (in thousands of dollars) for the years 1996, 1995, and 1994 is
as follows:
Year Ended December 29, 1996
Domestic International Total
Sales to unaffiliated customers $ 44,784 $ 8,056 $ 52,840
Collaborative research and development
revenues 3,228 -- 3,228
Interest, investment and other income 3,449 415 3,864
Total revenue $ 51,461 $ 8,471 $ 59,932
Net loss $(16,765) $ (1,113) $(17,878)
Identifiable assets at December 29, 1996$ 91,085 $ 3,470$ 94,555
Year Ended December 31, 1995
Sales to unaffiliated customers $ 3,154 $ 3,010 $ 6,164
Collaborative research and development
revenues 6,589 -- 6,589
Interest and investment income, net 2,959 5 2,964
Total revenue $ 12,702 $ 3,015 $ 15,717
Net loss $(34,407) $(1,254) $(35,661)
Identifiable assets at December 31, 1995$104,817 $ 1,109 $105,926
Year Ended December 31, 1994
Sales to unaffiliated customers $ -- $ -- $ --
Collaborative research and development
revenues 5,881 -- 5,881
Interest and investment income, net 4,559 -- 4,559
Total revenue $ 10,440 $ -- $ 10,440
Net loss $(33,653) $ -- $(33,653)
Identifiable assets at December 31, 1994$ 92,909$ 287 $ 93,196
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
11. SAVINGS AND INVESTMENT RETIREMENT PLAN:
The Company has adopted a 401(k) Profit Sharing Plan and Trust ("401(k)
Plan") for eligible employees and their beneficiaries. The 401(k) Plan provides
for employee contributions through a salary reduction election. Employer
discretionary matching contributions are determined annually by the Company and
vest over a maximum of a five year period of service. For the plan years ended
December 29, 1996 and December 31, 1995 and 1994, the Company's discretionary
matching was based on a percentage of salary reduction elections in the form of
the Company's Common Stock.
12. MAJOR CUSTOMER AND RESEARCH AND DEVELOPMENT REVENUE DATA
In the United States, the Company sells ABELCET to national and regional
wholesalers who in turn resell the product to hospitals and other service
providers. Internationally, sales are primarily made directly to hospitals. In
Spain and Portugal, ABELCET is sold through a local pharmaceutical company
pursuant to a marketing/distribution agreement with the Company.
For the years ended December 29, 1996 and December 31, 1995 and 1994 sales to
wholesalers or other customers in excess of 10% of the Company's product
revenues in any year were as follows:
1996 1995 1994
Customer A 24% 14% --
Customer B 24% 2% --
Customer C 20% 24% --
Customer D 10% 12% --
The Company has entered into various collaborative research and development
contracts. The Company earned substantially all of its research and development
revenues from one corporate sponsor in 1996 and two corporate sponsors in 1995
and 1994. Payments by corporate sponsors that comprised 10% or more of the
Company's total revenues, pursuant to collaborative agreements and licensing and
other fees as reported in the statements of operations, in any year were as
follows:
1996 1995 1994
Sponsor A $3,180,000 $5,743,000 $4,694,000
Sponsor B -- 753,000 1,116,000
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS----(CONTINUED)
13. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data (in thousands, except for per share data)
for the years ended December 29, 1996, and December 31, 1995 are as follows:
Quarter
1996 First Second Third Fourth
Total revenues $12,409 $14,402 $14,910 $18,211
Total expenses 16,500 19,532 20,262 21,516
Net loss (4,091) (5,130) (5,352) (3,305)
Preferred Stock dividends (662) (571) (2) 0
Net loss applicable to
Common Stock...............$(4,753)$(5,701) $(5,354) $(3,305)
Net loss per share applicable
to Common Stock $ (.16) $ (.17) $ (.16) $ (.09)
Weighted average shares
outstanding 30,191 33,493 33,671 35,812
Quarter
1995 First Second Third Fourth
Total revenues $ 1,853 $ 3,717 $ 3,496 $ 6,651
Total expenses 12,186 12,544 12,223 14,425
Net loss (10,333) (8,827) (8,727) (7,774)
Preferred Stock dividends (1,337) (1,337) (1,337) (1,337)
Net loss applicable to
Common Stock...............$(11,670)$(10,164)$(10,064) $(9,111)
Net loss per share applicable
to Common Stock $ (.49) $ (.38) $ (.35) $ (.31)
Weighted average shares
outstanding 24,050 26,407 28,959 29,676
Net loss per share of Common Stock amounts are calculated independently for
each of the quarters presented. The sum of the quarters may not equal the full
year amounts.
14. SUBSEQUENT EVENT:
In early 1997, the Company entered into a working capital revolving credit
line agreement of $14,000,000 with a major financial institution. The available
credit is based on eligibility of receivables and inventory, combined with
collateral of an investment account. As of February 1997, no funds have been
advanced under this agreement.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
of The Liposome Company, Inc.:
Our report on the consolidated financial statements of The Liposome Company,
Inc. and Subsidiaries is included in Item 14 of this Annual Report on Form 10-K.
In connection with our audits of such financial statements, we have also audited
the related financial schedule listed in the index in Item 14 of this Annual
Report on Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included herein.
Princeton, New Jersey
February 3, 1997
Coopers & Lybrand L.L.P.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts End
Description of Period Expenses Deductions of Period
Year Ended December 29, 1996
Valuation Allowance for Sales -- $1,635,000 -- $(1,026,000) $609,000
Rebates and Discounts
Allowance for Doubtful $ 200,000 $ 879,000 -- -- $ 1,079,000
Accounts
Valuation Allowance for $58,220,000 $7,532,000 -- -- $65,752,000
Income Taxes
Year Ended December 31, 1995
Allowance for Doubtful -- $ 200,000 -- -- $ 200,000
Accounts
Valuation Allowance for $46,210,000 $12,010,000 -- -- $58,220,000
Income Taxes
Year Ended December 31, 1994
Allowance for Doubtful -- -- -- -- --
Accounts
Valuation Allowance for $30,160,000 $16,050,000 -- -- $46,210,000
Income Taxes
Item l4(a)3. Exhibits to Form l0-K
(A) Exhibits
Exhibit
Number
3(i)-01 Restated Certificate of Incorporation of the Company, including
Designation of Preferences of Series A Cumulative Convertible
Exchangeable Preferred Stock. (Filed with the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 and incorporated
herein by reference thereto.)
3(ii) By-Laws of the Company. (Filed with Registration No. 33-23292, and
incorporated herein by reference thereto.)
3(iii) Shareholder Rights Agreement dated as of July 11, 1996. (Filed with
the Company's Registration Statement on Form 8-A, file number 000-
14887, and incorporated herein by reference thereto.)
l0-01 The Liposome Company, Inc. l986 Employee Stock Option Plan as amended
March 3, 1995. (Filed with the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, and incorporated herein by
reference thereto.)
l0-02 The Liposome Company, Inc. l986 Non-Qualified Stock Option Plan as
amended March 3, 1995. (Filed with the Company's Annual Report on Form
10-K for the year ended December 31, 1995, and incorporated herein by
reference thereto.)
10-03 The Liposome Company, Inc. 1991 Director's Non-Qualified Stock Option
Plan. (Filed with Registration No. 33-66924, and incorporated herein by
reference thereto.)
10-04 Agreement dated June 1, 1995 between the Company and Charles A. Baker.
(Filed with the Company's Report on Form 10-Q for the period ended June
30, 1995, and incorporated herein by reference thereto.)
10-5 Development and License Agreement dated November 19, 1990 among the
Company, Pfizer Inc and Pfizer Chemical Corporation. (Filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990, and incorporated herein by reference thereto.)
10-6 Joint Venture Agreement dated as of November 19, 1986 by and among the
Company, Nippon Oil & Fats Co., Ltd., and Techno-Venture Co., Ltd., and
associated agreements. (Filed with Registration No. 33-39041, and
incorporated herein by reference thereto.)
10-7 Territory Expansion Agreement dated as of December 12, 1988 by and
among the Company, Nippon Oil & Fats Co., Ltd., and Techno-Venture Co.,
Ltd., and Nichiyu Liposome Co., Ltd., and associated agreements. (Filed
with Registration No. 33-39041, and incorporated herein by reference
thereto.)
10-8 Amphotericin B Supply Agreement dated as of January 1, 1993, between
the Company and Bristol-Meyers Squibb Company. (Filed with the
Company's Annual Report on Form 10-K for the year ended December 31,
1994, and incorporated herein by reference thereto.)
Item l4(a)3. Exhibits to Form l0-K (Continued)
Exhibit
Number
10-9 License Agreement dated as of September 2, 1994, between the Company
and Bristol-Meyers Squibb Company. (Filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference thereto.)
10-10 Lease Agreement dated December 14, 1992, between the Company and
Peregrine Investment Partners I. (Filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1992, and
incorporated herein by reference thereto.)
10-11 First Amendment dated October 29, 1993 to Lease Agreement between the
Company and Peregrine Investment Partners I. (Filed with the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference thereto.)
10-12 Second Amendment dated December 31, 1994 to Lease Agreement between the
Company and Peregrine Investment Partners I. (Filed with the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, and
incorporated herein by reference thereto.)
10-13 Third Amendment dated July 27, 1995 to Lease Agreement between the
Company and Peregrine Investment Partners I. (Filed with the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, and
incorporated herein by reference thereto.)
10-14 Lease Agreement dated as of January 1, 1995 between the Company and One
Research Way Partners. (Filed with the Company's Annual Report on Form
10-K for the year ended December 31, 1995, and incorporated herein by
reference thereto.)
10-15 Credit Agreement dated as of December 31, 1996, among the Company, The
Liposome Manufacturing Company, Inc. and General Electric Capital
Corporation. (Confidential treatment has been requested for portions
of this exhibit.)
21 List of Company's subsidiaries.
23 Consent of Independent Accountants.
SIGNATURES
Pursuant to the requirements of Section 13 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 this 22nd day of March, 1996.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
By: /s/ Charles A. Baker
Charles A. Baker
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on the 22nd day of March,
1996 on behalf of the Registrant and in the capacities indicated.
/s/ Charles A. Baker Chairman of the Board, Chief Executive Officer
Charles A. Baker Officer and Director (Chief Executive Officer)
/S/ Brian J. Geiger Vice President Finance and Chief Financial Officer
Brian J. Geiger
/S/ Dennis A. Rodrigues Controller (Chief
Accounting Officer)
Dennis A. Rodrigues
/S/ James G. Andress Director
James G. Andress
/S/ Morton Collins Director
Morton Collins
/S/ Stuart Feiner Director
Stuart Feiner
/S/ Robert F. Hendrickson Director
Robert F. Hendrickson
/S/ Bengt Samuelsson, Dr. Director
Bengt Samuelsson, Dr.
/S/ Joseph T. Stewart, Jr. Director
Joseph T. Stewart, Jr.
/S/ Gerald Weissmann, M.D. Director
Gerald Weissmann, M.D.
/S/ Horst Witzel, Dr.-Ing. Director
Horst Witzel, Dr.-Ing.
EXHIBIT 21
Subsidiaries
Name Place of Incorporation
The Liposome Company Japan, Ltd. Tokyo, Japan
Liposome Holdings, Inc. Delaware
Nichiyu Liposome Company, Ltd. Tokyo, Japan
The Liposome Manufacturing Delaware
Company, Inc.
The Liposome Company Ltd. United Kingdom
Liposome SARL France
Liposome SL Spain
Liposome Pty Ltd. Australia
Liposome Canada Inc. Canada
Liposome SrL Italy
Liposome S.a.r.l. Switzerland
Liposome B.V. Netherlands
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
The Liposome Company, Inc. on Forms S-8 (File Nos. 33-66924, 333-20339 and 333-
20341) of our reports dated February 3, 1997 on our audits of the consolidated
financial statements and financial statement schedule of The Liposome Company,
Inc. as of December 29, 1996 and December 31, 1995, and for the years ended
December 29, 1996, December 31, 1995 and December 31, 1994, which reports are
included in this Annual Report on Form 10-K.
Princeton, New Jersey
March 25, 1997
Coopers & Lybrand L.L.P.
SIGNATURES
Pursuant to the requirements of Section 13 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 this day of , 1997.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
By:
Charles A. Baker
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on the day of ,
1997 on behalf of the Registrant and in the capacities indicated.
Chairman of the Board, Chief Executive Officer
Charles A. Baker Officer and Director (Chief Executive Officer)
Vice President and Chief Financial Officer
Brian J. Geiger
Controller (Chief Accounting Officer)
Dennis A. Rodrigues
Director
James G. Andress
Director
Morton Collins
Director
Stuart Feiner
Director
Robert F. Hendrickson
Director
Bengt Samuelsson, Dr.
Director
Joseph T. Stewart, Jr.
Director
Gerald Weissmann, M.D.
Director
Horst Witzel, Dr.-Ing.
STM-79443.8
THIS DOCUMENT CREATED AND/OR REVISED IN DOCUMENT PROCESSING SERVICES-STM.
CREDIT AGREEMENT
Dated as of December 31, 1996
among
THE LIPOSOME COMPANY, INC., and
THE LIPOSOME MANUFACTURING COMPANY, INC.,
as Borrowers,
THE OTHER CREDIT PARTIES SIGNATORY HERETO,
as Credit Parties,
THE LENDERS SIGNATORY HERETO
FROM TIME TO TIME,
as Lenders,
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and a Lender
TABLE OF CONTENTS
1. AMOUNT AND TERMS OF CREDIT 1
1.1 Credit Facility 1
1.2 Termination of Commitment; Prepayments 3
1.3 Use of Proceeds 3
1.4 Interest. 3
1.5 Eligible Accounts 5
1.6 Eligible Inventory 7
1.7 Cash Management Systems 8
1.8 Fees 8
1.9 Receipt of Payments 9
1.10 Application and Allocation of Payments 9
1.11 Loan Account and Accounting 10
1.12 Indemnity 10
1.13 Access 11
1.14 Taxes 11
1.15 Capital Adequacy; Increased Costs 12
1.16 Single Loan 13
2. CONDITIONS PRECEDENT 13
2.1 Conditions to Initial Revolving Credit Advances 13
2.2 Further Conditions to Each Loan 14
3. REPRESENTATIONS AND WARRANTIES 15
3.1 Corporate Existence; Compliance with Law 15
3.2 Executive Offices; FEIN 15
3.3Corporate Power, Authorization, Enforceable Obligations 15
3.4 Financial Statements and Projections 15
3.5 Material Adverse Effect 16
3.6 Ownership of Property; Liens 16
3.7 Labor Matters 17
3.8Ventures, Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness 17
3.9 Government Regulation 18
3.10 Margin Regulations 18
3.11 Taxes 18
3.12 ERISA 18
3.13 No Litigation 19
3.14 Brokers 19
3.15 Intellectual Property 19
3.16 Full Disclosure 20
3.17 Environmental Matters 20
3.18 Insurance 21
3.19 Deposit and Disbursement Accounts 21
3.20 Solvency 21
3.21 Customer and Trade Relations 21
3.22 Agreements and Other Documents 21
4. FINANCIAL STATEMENTS AND INFORMATION 21
4.1 Reports and Notices 22
4.2 Communication with Accountants 22
5. AFFIRMATIVE COVENANTS 22
5.1 Maintenance of Existence and Conduct of Business 22
5.2 Payment of Obligations 22
5.3 Books and Records 23
5.4 Insurance; Damage to or Destruction of Collateral 23
5.5 Compliance with Laws 24
5.6 Supplemental Disclosure 24
5.7 Intellectual Property 25
5.8 Environmental Matters 25
5.9Landlords' Agreements, Mortgagee Agreements and Bailee Letters
25
5.10 Further Assurances 25
6. NEGATIVE COVENANTS 26
6.1 Mergers, Subsidiaries, Etc 26
6.2 Investments; Loans and Advances 28
6.3 Indebtedness 29
6.4 Employee Loans and Affiliate Transactions 30
6.5 Capital Structure and Business 30
6.6 Guaranteed Indebtedness 31
6.7 Liens 31
6.8 Sale of Stock and Assets 31
6.9 ERISA 32
6.10 Financial Covenants 32
6.11 Hazardous Materials 32
6.12 Sale-Leasebacks 32
6.13 Cancellation of Indebtedness 32
6.14 Restricted Payments 32
6.15 No Speculative Transactions 32
6.16Change of Corporate Name or Location; Change of Fiscal Year
32
6.17 No Impairment of Intercompany Transfers 33
7. TERM 33
7.1 Termination 33
7.2Survival of Obligations Upon Termination of Financing
Arrangements 33
8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES 33
8.1 Events of Default 33
8.2 Remedies 36
8.3 Waivers by Credit Parties 36
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT 36
9.1 Assignment and Participations 36
9.2 Appointment of Agent and Collateral Agent 38
9.3 Agent's and Collateral Agent's Reliance, Etc. 39
9.4 GE Capital and Affiliates 39
9.5 Lender Credit Decision 39
9.6 Indemnification 40
9.7 Successor Agent and Collateral Agent 40
9.8 Setoff and Sharing of Payments 41
9.9Revolving Credit Advances; Payments; Non-Funding Lenders;
Information; Actions in Concert 41
10. SUCCESSORS AND ASSIGNS 44
10.1 Successors and Assigns 44
11. MISCELLANEOUS 44
11.1 Complete Agreement; Modification of Agreement 44
11.2 Amendments and Waivers 44
11.3 Fees and Expenses 46
11.4 No Waiver 47
11.5 Remedies 47
11.6 Severability 47
11.7 Conflict of Terms 47
11.8 Confidentiality 48
11.9 GOVERNING LAW 48
11.10 Notices 49
11.11 Section Titles 49
11.12 Counterparts 49
11.13 WAIVER OF JURY TRIAL 49
11.14 Press Releases 50
11.15 Reinstatement 50
11.16 Advice of Counsel 50
11.17 No Strict Construction 50
11.18 Dating 50
12. CROSS-GUARANTY 50
12.1 Cross-Guaranty 50
12.2 Waivers by Borrowers 51
12.3 Benefit of Guaranty 51
12.4 Subordination of Subrogation, Etc 51
12.5 Election of Remedies 52
12.6 Limitation 52
12.7 Contribution with Respect to Guaranty Obligations 53
12.8 Liability Cumulative 53
INDEX OF APPENDICES
Exhibit 1.1(a)(i) - Form of Notice of Revolving Credit Advance
Exhibit 1.1(a)(ii) - Form of Revolving Note
Exhibit 4.1(b) - Form of Borrowing Base Certificate
Exhibit 9.1(a) - Form of Assignment Agreement
Schedule 1.1 - Responsible Individual
Schedule 1.3 - Sources and Uses; Funds Flow Memorandum
Schedule 3.2 - Executive Offices
Schedule 3.4(A) - Financial Statements
Schedule 3.4(B) - Projections
Schedule 3.6 - Real Estate and Leases
Schedule 3.7 - Labor Matters
Schedule 3.8 - Ventures, Subsidiaries and Affiliates; Outstanding
Stock
Schedule 3.11 - Tax Matters
Schedule 3.12 - ERISA Plans
Schedule 3.13 - Litigation
Schedule 3.15 - Intellectual Property
Schedule 3.17 - Hazardous Materials
Schedule 3.18 - Insurance
Schedule 3.19 - Deposit and Disbursement Accounts
Schedule 3.22 - Material Agreements
Schedule 5.1 - Trade Names
Schedule 5.4 - Insurance
Schedule 6.2 - Certain Permitted Investments
Schedule 6.3 - Indebtedness
Schedule 6.4(a) - Transactions with Affiliates
Schedule 6.7 - Existing Liens
Annex A (Recitals) - Definitions
Annex B (Section 1.7) - Cash Management Systems
Annex C (Section 2.1(a)) - Schedule of Additional Closing Documents
Annex D (Section 4.1(a)) - Financial Statements and Projections -- Reporting
Annex E (Section 4.1(b)) - Collateral Reports
Annex F (Section 6.10) - Financial Covenants
Annex G (Section 9.9(a)) - Lenders' Wire Transfer Information
Annex H (Section 11.10) - Notice Addresses
CREDIT AGREEMENT, dated as of December 31, 1996 among THE LIPOSOME
COMPANY, INC., a Delaware corporation ("Liposome"), and THE LIPOSOME
MANUFACTURING COMPANY, INC., a Delaware corporation ("Liposome Manufacturing")
(Liposome and Liposome Manufacturing are sometimes collectively referred to
herein as the "Borrowers" and individually as a "Borrower"); the other Credit
Parties signatory hereto; the Lenders signatory hereto from time to time; and
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (in its individual
capacity, "GE Capital"), as Agent and Collateral Agent for such Lenders.
RECITALS
WHEREAS, Borrowers desire that Lenders extend a revolving credit
facility to Borrowers of up to Fourteen Million Dollars ($14,000,000) in the
aggregate for the purpose of providing (a) working capital financing for
Borrowers, and (b) funds for other general corporate purposes of Borrowers; and
for these purposes, Lenders are willing to make certain loans to Borrowers of up
to such amount upon the terms and conditions set forth herein; and
WHEREAS, Borrowers desire to secure all of their obligations under the
Loan Documents by granting to Collateral Agent, for the benefit of Collateral
Agent, Agent and Lenders, a security interest in and lien upon certain of their
existing and after-acquired personal property; and
WHEREAS, capitalized terms used in this Agreement shall have the
meanings ascribed to them in Annex A. All Annexes, Disclosure Schedules,
Exhibits and other attachments (collectively, "Appendices") hereto, or expressly
identified to this Agreement, are incorporated herein by reference, and taken
together, shall constitute but a single agreement. These Recitals shall be
construed as part of the Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, and for other good and valuable consideration,
the parties hereto agree as follows:
PARAGRAPH NUMBERING BEGINS HERE:
LEVEL 1 = A.
LEVEL 2 = 1.
LEVEL 3 = 1.1 (attached)
LEVEL 4 = (a)
LEVEL 5 = (A)
LEVEL 6 = (a)
LEVEL 7 = (i)
LEVEL 8 = a)1. AMOUNT AND TERMS OF CREDIT
1.1 Credit Facility.
(a) Revolving Credit Facility. (i) Subject to the terms and
conditions hereof, each Lender agrees to make available from time to time until
the Commitment Termination Date its Pro Rata Share of advances (each, a
"Revolving Credit Advance"). The Pro Rata Share of the Revolving Loan of any
Lender shall not at any time exceed its separate Commitment. The obligations of
each Lender hereunder shall be several and not joint. The aggregate amount of
Revolving Credit Advances outstanding shall not exceed at any time the lesser of
(A) the Maximum Amount and (B) the Aggregate Borrowing Base ("Borrowing
Availability"). Moreover, the Revolving Loan outstanding to any Borrower shall
not exceed at any time that Borrower's separate Borrowing Base. Until the
Commitment Termination Date, Borrowers may from time to time borrow, repay and
reborrow under this Section 1.1(a). Each Revolving Credit Advance shall be made
on notice by Borrower Representative on behalf of the applicable Borrower to the
representative of Agent identified on Disclosure Schedule (1.1) at the address
specified thereon. Those notices must be given no later than (1) 12:00 noon
(New York time) on the Business Day of the proposed Revolving Credit Advance.
Each such notice (a "Notice of Revolving Credit Advance") must be given in
writing (by telecopy or overnight courier) substantially in the form of Exhibit
1.1(a)(i), and shall include the information required in such Exhibit and such
other information as may be required by Agent.
(ii) Each Borrower shall execute and deliver to each Lender a
note to evidence the Commitment of that Lender. Each note shall be in the
principal amount of the Commitment of the applicable Lender, dated the Closing
Date and substantially in the form of Exhibit 1.1(a)(ii) (each a "Revolving
Note" and, collectively, the "Revolving Notes"). Each Revolving Note shall
represent the obligation of each Borrower to pay the amount of each Lender's
Commitment or, if less, the applicable Lender's Pro Rata Share of the aggregate
unpaid principal amount of all Revolving Credit Advances to such Borrower
together with interest thereon as prescribed in Section 1.4. The entire unpaid
balance of the aggregate Revolving Loan and all other non-contingent Obligations
shall be immediately due and payable in full in immediately available funds in
Dollars on the Commitment Termination Date.
(iii) At the request of Borrower Representative, in its
discretion Agent may (but shall have absolutely no obligation to), make
Revolving Credit Advances to Borrowers on behalf of Lenders in amounts which
cause the outstanding balance of the aggregate Revolving Loan to exceed the
Aggregate Borrowing Base or which cause the outstanding balance of the Revolving
Loan owing by any Borrower to exceed that Borrower's separate Borrowing Base
(any such excess Revolving Credit Advances are herein referred to collectively
as "Overadvances"), and no such event or occurrence shall cause or constitute a
waiver by Agent or Lenders of any Default or Event of Default that may result
therefrom or of Agent's or Lenders' right to refuse to make any further
Overadvances or Revolving Credit Advances, as the case may be, at any time that
an Overadvance exists or would result therefrom. In addition, Overadvances may
be made even if the conditions to lending set forth in Section 2 have not been
met. All Overadvances shall bear interest at the Default Rate and shall be
payable on demand. Except as otherwise provided in Section 1.10(b), the
authority of Agent to make Overadvances is limited to an aggregate amount not to
exceed $500,000 at any time and shall not cause the Revolving Loan to exceed the
Maximum Amount.
(b) Reliance on Notices; Appointment of Borrower Representative.
Agent shall be entitled to rely upon, and shall be fully protected in relying
upon, any Notice of Revolving Credit Advance or similar notice believed by Agent
to be genuine. Agent may assume that each Person executing and delivering such
a notice was duly authorized, unless the responsible individual acting thereon
for Agent has actual knowledge to the contrary. Each Borrower hereby designates
Liposome as its representative and agent on its behalf for the purposes of
issuing Notices of Revolving Credit Advances, giving instructions with respect
to the disbursement of the proceeds of the Loans, selecting, if applicable,
interest rate options, giving and receiving all other notices and consents
hereunder or under any of the other Loan Documents and taking all other actions
(including in respect of compliance with covenants) on behalf of any Borrower or
Borrowers under the Loan Documents. Borrower Representative hereby accepts such
appointment. Agent and each Lender may regard any notice or other communication
pursuant to any Loan Document from Borrower Representative as a notice or
communication from all Borrowers, and may give any notice or communication
required or permitted to be given to any Borrower or Borrowers hereunder to
Borrower Representative on behalf of such Borrower or Borrowers. Each Borrower
agrees that each notice, election, representation and warranty, covenant,
agreement and undertaking made on its behalf by Borrower Representative shall be
deemed for all purposes to have been made by such Borrower and shall be binding
upon and enforceable against such Borrower to the same extent as if the same had
been made directly by such Borrower.
1.2 Termination of Commitment; Prepayments.
(a) Voluntary Commitment Termination. Borrowers may at any time on
at least fifteen (15) days' prior written notice by Borrower Representative to
Agent terminate the Commitment; provided that upon such termination, all
Revolving Credit Advances and other Obligations shall be immediately due and
payable in full. Any such termination of the Commitment must be accompanied by
the payment of the fee required by Section 1.8(c), if any. Upon any such
termination of the Commitment, each Borrower's right to request Revolving Credit
Advances shall simultaneously be terminated.
(b) Mandatory Prepayments. If at any time the aggregate outstanding
balance of the Revolving Loan exceeds the lesser of (A) the Maximum Amount and
(B) the Aggregate Borrowing Base, Borrowers shall immediately repay the
aggregate outstanding Revolving Credit Advances to the extent required to
eliminate such excess. Furthermore, if the outstanding balance of the Revolving
Loan of any Borrower exceeds that Borrower's separate Borrowing Base at any
time, the applicable Borrower shall immediately repay its Revolving Credit
Advances in the amount of such excess. Notwithstanding the foregoing, any
Overadvance made pursuant to Section 1.1(a)(iii) shall be repaid on demand.
(c) Application of Prepayments from Insurance Proceeds. Prepayments
from insurance proceeds in accordance with Section 5.4(c) shall be applied to
the Revolving Credit Advances of the Borrower that incurred such casualties or
losses. The Commitment shall not be permanently reduced by the amount of any
such prepayments. If the insurance proceeds received as to a particular
Borrower exceed the outstanding principal balances of the Revolving Credit
Advances to that Borrower the allocation and application of those proceeds shall
be determined by Agent, subject to the approval of Requisite Lenders.
1.3 Use of Proceeds. Borrowers shall utilize the proceeds of the
Revolving Loan solely for the financing of Borrowers' ordinary working capital
and general corporate needs (but excluding in any event the making of any
Restricted Payment not specifically permitted by Section 6.14). In no event
shall proceeds of the Revolving Loan be used to make Permitted Investments.
Disclosure Schedule (1.3) contains a description of Borrowers' sources and uses
of funds as of the Closing Date, including Revolving Credit Advances to be made
or incurred on that date, and a funds flow memorandum detailing how funds from
each source are to be transferred to particular uses.
1.4 Interest. (a) Borrowers shall pay interest to Agent, for the
ratable benefit of Lenders in accordance with the various Revolving Credit
Advances being made by each Lender, in arrears on each applicable Interest
Payment Date, at a rate equal to the Index Rate plus the Applicable Margin per
annum. The Applicable Margin will be 2.75% per annum, as of the Closing Date.
At any time thereafter when Borrowers have delivered quarterly unaudited
Financial Statements of Borrowers and such statements show that consolidated net
income of Liposome determined in accordance with GAAP (but before giving effect
to any taxes and dividends) for the two immediately preceding Fiscal Quarters is
a positive number, the Applicable Margin (if not previously reduced or reduced
and subsequently increased) shall be reduced to 2.50% per annum effective as of
the first day of the following Fiscal Quarter; provided, that, if at any time
thereafter Borrowers' quarterly unaudited Financial Statements show that
Liposome's consolidated net income (as determined above) for the two immediately
preceding Fiscal Quarters is a negative number, the Applicable Margin to the
extent necessary shall be increased to 2.75% per annum effective as of the first
day of the following Fiscal Quarter. Concurrently with the delivery of those
Financial Statements, Borrower Representative shall deliver to Agent and Lenders
a certificate, signed by its chief financial officer, setting forth in
reasonable detail the basis for the continuance of, or any change in, the
Applicable Margin. In addition, failure to timely deliver such Financial
Statements shall, in addition to any other remedy provided for in this
Agreement, result in the Applicable Margin being increased, if necessary, to
2.75% per annum, until the first day of the first calendar month following the
delivery of those Financial Statements demonstrating that such an increase is
not required. If a Default or Event of Default shall have occurred or be
continuing at the time any reduction in the Applicable Margin is to be
implemented, that reduction shall be deferred until the first day of the first
calendar month following the date on which such Default or Event of Default is
waived or cured.
(b) If any payment on any Revolving Credit Advance becomes due and
payable on a day other than a Business Day, the maturity thereof will be
extended to the next succeeding Business Day and, with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during
such extension.
(c) All computations of Fees calculated on a per annum basis and
interest shall be made by Agent on the basis of a three hundred and sixty (360)
day year, in each case for the actual number of days occurring in the period for
which such interest is payable. Each determination by Agent of an interest rate
hereunder shall be conclusive, absent manifest error.
(d) So long as any Default or Event of Default shall have occurred
and be continuing, and at the election of Agent (or upon the written request of
Requisite Lenders) confirmed by written notice from Agent to Borrower
Representative, the interest rates applicable to the Revolving Loan shall be
increased by two percentage points (2%) per annum above the rates of interest
otherwise applicable hereunder ("Default Rate"), and all outstanding Obligations
shall bear interest at the Default Rate applicable to such Obligations. Interest
at the Default Rate shall accrue from the initial date of such Default or Event
of Default until that Default or Event of Default is cured or waived and shall
be payable upon demand.
(e) Notwithstanding anything to the contrary set forth in this
Section 1.4, if a court of competent jurisdiction determines in a final order
that the rate of interest payable hereunder exceeds the highest rate of interest
permissible under law (the "Maximum Lawful Rate"), then so long as the Maximum
Lawful Rate would be so exceeded, the rate of interest payable hereunder shall
be equal to the Maximum Lawful Rate; provided, however, that if at any time
thereafter the rate of interest payable hereunder is less than the Maximum
Lawful Rate, Borrowers shall continue to pay interest hereunder at the Maximum
Lawful Rate until such time as the total interest received by Agent, on behalf
of Lenders, is equal to the total interest which would have been received had
the interest rate payable hereunder been (but for the operation of this
paragraph) the interest rate payable since the Closing Date as otherwise
provided in this Agreement. Thereafter, interest hereunder shall be paid at the
rate(s) of interest and in the manner provided in Sections 1.4(a) through (d)
above, unless and until the rate of interest again exceeds the Maximum Lawful
Rate, and at that time this paragraph shall again apply. In no event shall the
total interest received by any Lender pursuant to the terms hereof exceed the
amount which such Lender could lawfully have received had the interest due
hereunder been calculated for the full term hereof at the Maximum Lawful Rate.
If the Maximum Lawful Rate is calculated pursuant to this paragraph, such
interest shall be calculated at a daily rate equal to the Maximum Lawful Rate
divided by the number of days in the year in which such calculation is made.
If, notwithstanding the provisions of this Section 1.4(e), a court of competent
jurisdiction shall finally determine that a Lender has received interest
hereunder in excess of the Maximum Lawful Rate, Agent shall, to the extent
permitted by applicable law, promptly apply such excess in the order specified
in Section 1.10 and thereafter shall refund any excess to Borrowers or as a
court of competent jurisdiction may otherwise order.
1.5 Eligible Accounts. Based on the most recent Borrowing Base
Certificate delivered by each Borrower to Agent and on other information
available to Agent, Agent shall in its reasonable credit judgment determine
which Accounts of each Borrower shall be "Eligible Accounts" for purposes of
this Agreement. In determining whether a particular Account of any Borrower
constitutes an Eligible Account, Agent shall not include any such Account to
which any of the exclusionary criteria set forth below applies. Agent reserves
the right, at any time and from time to time after the Closing Date, to adjust
any such criteria, and to establish new criteria, in its reasonable credit
judgment. Eligible Accounts shall not include any Account of any Borrower:
(a) which does not arise from the sale of goods or the performance of
services by such Borrower in the ordinary course of its business;
(b) upon which (i) such Borrower's right to receive payment is not
absolute or is contingent upon the fulfillment of any condition whatsoever or
(ii) such Borrower is not able to bring suit or otherwise enforce its remedies
against the Account Debtor through judicial process;
(c) to the extent any defense, counterclaim, setoff or dispute is
asserted as to such Account or if the Account represents a progress billing
consisting of an invoice for goods sold or used or services rendered pursuant to
a contract under which the Account Debtor's obligation to pay that invoice is
subject to such Borrower's completion of further performance under such
contract;
(d) that is not a true and correct statement of bona fide
indebtedness incurred in the amount of the Account for merchandise sold to or
services rendered and accepted by the applicable Account Debtor;
(e) with respect to which an invoice, acceptable to Agent in form and
substance, has not been sent to the applicable Account Debtor;
(f) that (i) is not owned by such Borrower or (ii) is subject to any
right, claim, security interest or other interest of any other Person, other
than Liens in favor of Collateral Agent, on behalf of itself, Agent and Lenders;
(g) that arises from a sale to any director, officer, other employee
or Affiliate of any Credit Party, or to any entity which has any common officer
or director with any Credit Party;
(h) that is the obligation of an Account Debtor that is the United
States government or a political subdivision thereof, or any state or
municipality or department, agency or instrumentality thereof unless Agent, in
its sole discretion, has agreed to the contrary in writing and such Borrower, if
necessary or desirable, has complied with the Federal Assignment of Claims Act
of 1940, and any amendments thereto, or any applicable state statute or
municipal ordinance of similar purpose and effect, with respect to such
obligation, provided that Accounts as to which any medical facility under the
Veterans Health Administration or the Veterans Benefits Administration is the
Account Debtor shall not be deemed to be ineligible pursuant to this Section
1.5(h) to the extent the aggregate amount of such Accounts does not exceed five
percent (5%) of all Eligible Accounts;
(i) that is the obligation of an Account Debtor located in a foreign
country other than Canada (excluding the provinces of Newfoundland, Nova Scotia
and Prince Edward Island) unless payment thereof is assured by a letter of
credit, satisfactory to Agent as to form, amount and issuer;
(j) to the extent such Borrower or any Subsidiary thereof is liable
for goods sold or services rendered by the applicable Account Debtor to such
Borrower or any Subsidiary thereof but only to the extent of the potential
offset;
(k) that arises with respect to goods which are delivered on a
bill-and-hold, cash-on-delivery basis or placed on consignment, guaranteed sale
or other terms by reason of which the payment by the Account Debtor is or may be
conditional;
(l) that is in default; provided, that, without limiting the
generality of the foregoing, an Account shall be deemed in default upon the
occurrence of any of the following:
(i) it is not paid within the earlier of: sixty (60) days following
its due date or one hundred and twenty (120) days following its original
invoice date;
(ii) if any Account Debtor obligated upon such Account suspends
business, makes a general assignment for the benefit of creditors or fails
to pay its debts generally as they come due; or
(iii) if any petition is filed by or against any Account Debtor
obligated upon such Account under any bankruptcy law or any other federal,
state or foreign (including any provincial) receivership, insolvency relief
or other law or laws for the relief of debtors;
(m) which is the obligation of an Account Debtor if fifty percent
(50%) or more of the dollar amount of all Accounts owing by that Account Debtor
are ineligible under the other criteria set forth in this Section 1.5;
(n) as to which Collateral Agent's interest, on behalf of itself,
Agent and Lenders, therein is not a first priority perfected security interest;
(o) as to which any of the representations or warranties pertaining
to Accounts set forth in this Agreement or the Borrowers Security Agreement is
untrue;
(p) to the extent such Account is evidenced by a judgment, Instrument
or Chattel Paper;
(q) to the extent such Account exceeds any credit limit established
by Agent, in its reasonable discretion;
(r) which is payable in any currency other than Dollars; or
(s) which is unacceptable to Agent in its reasonable credit judgment.
1.6 Eligible Inventory. Based on the most recent Borrowing Base
Certificate delivered by each Borrower to Agent and on other information
available to Agent, Agent shall in its reasonable credit judgment determine
which Inventory of each Borrower shall be "Eligible Inventory" for purposes of
this Agreement. In determining whether any particular Inventory of any Borrower
constitutes Eligible Inventory, Agent shall not include any such Inventory to
which any of the exclusionary criteria set forth below applies. Agent reserves
the right, at any time and from time to time after the Closing Date, to adjust
any such criteria, and to establish new criteria, in its reasonable credit
judgment. Eligible Inventory shall not include any Inventory of any Borrower:
(a) that is not owned by such Borrower free and clear of all Liens
and rights of any other Person (including the rights of a purchaser that has
made progress payments and the rights of a surety that has issued a bond to
assure such Borrower's performance with respect to that Inventory), except the
Liens in favor of Collateral Agent, on behalf of itself, Agent and Lenders;
(b) that is (i) not located on premises owned, leased or operated by
such Borrower or (ii) is stored with a bailee, warehouseman or similar Person,
unless Agent has given its prior consent thereto and unless (x) a satisfactory
bailee letter or landlord waiver has been delivered to Collateral Agent, or (y)
Reserves satisfactory to Agent have been established with respect thereto, or
(iii) located at any site if the aggregate book value of Inventory at any such
location is less than $100,000;
(c) that is placed on consignment, is in transit or is otherwise not
located on premises owned or leased by such Borrower, provided that, if a bailee
letter satisfactory to Agent has been provided by Liposome and Livingston
Healthcare Services Inc. with respect to Inventory of Liposome located at
Livingston Healthcare Services Inc.'s facility at 3 Boulden Circle, New Castle,
Delaware, such Inventory shall not be deemed to be ineligible pursuant to this
Section 1.6(c);
(d) that is covered by a negotiable document of title, unless such
document has been delivered to Collateral Agent;
(e) that in Agent's reasonable determination, is excess, obsolete,
unsalable, shopworn, seconds, damaged or unfit for sale;
(f) that consists of display items or packing or shipping materials,
manufacturing supplies, work-in-process Inventory or replacement parts;
(g) that consists of goods which have been returned by the buyer;
(h) that is not of a type held for sale in the ordinary course of
such Borrower's business;
(i) as to which Collateral Agent's Lien, on behalf of itself and
Lenders, therein is not a first priority perfected Lien;
(j) as to which any of the representations or warranties pertaining
to Inventory set forth in this Agreement or the Borrowers Security Agreement is
untrue;
(k) consists of any costs associated with "freight-in" charges;
(l) consists of Hazardous Materials or goods that can be transported
or sold only with licenses that are not readily available;
(m) is not covered by casualty insurance acceptable to Agent;
(n) that consists of goods which are not authorized (pursuant to
applicable law, regulation, expiration date, court order or injunction,
administrative order or otherwise) to be sold, used or distributed after a
period of one year from the date of the most recent Borrowing Base Certificate
delivered to Agent pursuant to the terms hereof; or
(o) is otherwise unacceptable to Agent in its reasonable credit
judgment.
1.7 Cash Management Systems. On or prior to the Closing Date,
Liposome will establish and will maintain until the Termination Date, the cash
management systems described on Annex B (the "Cash Management Systems").
1.8 Fees. (a) Borrowers shall pay to GE Capital, individually, the
Fees specified in that certain fee letter of even date herewith among Borrowers
and GE Capital (the "GE Capital Fee Letter"), at the times specified for payment
therein.
(b) As additional compensation for Lenders, Borrowers agree to pay to
Agent, for the ratable benefit of Lenders, in arrears, on the first Business Day
of each month prior to the Commitment Termination Date and on the Commitment
Termination Date, a fee for Borrowers' non-use of available funds (the "Non-Use
Fee") in an amount equal to * percent (*%) per annum (calculated on the basis of
a 360 day year for actual days elapsed) of the difference between (x) the
Maximum Amount (as it may be reduced from time to time) and (y) the average for
the period of the daily closing balances of the Revolving Loan outstanding
during the period for which the Non-Use Fee is due.
(c) If Borrowers prepay the Revolving Loan and terminate the
Commitment, whether voluntarily or involuntarily and whether before or after
acceleration of the Obligations, Borrowers shall pay to Agent, for the benefit
of Lenders as liquidated damages and compensation for the costs of being
prepared to make funds available hereunder an amount determined by multiplying
the Applicable Percentage (as defined below) by the amount of the Commitment.
As used herein, the term "Applicable Percentage" shall mean (x) * percent
________________________
* Confidential treatment requested.
(*%), in the case of a termination of the Commitment on or prior to the first
anniversary of the Closing Date, (y) * percent (*%), in the case of a
termination of the Commitment after the first anniversary of the Closing Date
but on or prior to the second anniversary, and (z) * percent (*%), in the case
of a termination of the Commitment after the second anniversary of the Closing
Date but on or prior to the third anniversary. Notwithstanding the foregoing,
no prepayment fee shall be payable by Borrowers if Required Lenders fail (to the
extent such consent is required) to consent to any proposed merger, acquisition,
sale of any Credit Party or its Stock or a material portion of such Credit
Party's assets (each, a "Significant Transaction") and, as a result of such
failure to consent, Borrowers terminate the Commitment and indefeasibly pay the
Obligations in full; provided, that the amount otherwise required to be paid
pursuant to this Section 1.8(c) shall be due and payable if (i) the Significant
Transaction is with (before giving effect to the Significant Transaction) an
Affiliate, Subsidiary, director or employee of either Borrower or any Person
controlled by such Person and (ii) Required Lenders did not unreasonably
withhold such consent. For purposes of the foregoing, "control" shall mean,
with respect to a Person, the possession, directly or indirectly, of the power
to direct or cause the direction of such Person's management or policies,
whether through the ownership of voting securities, by contract or otherwise.
1.9 Receipt of Payments. Borrowers shall make each payment under
this Agreement not later than 2:00 p.m. (New York time) on the day when due in
immediately available funds in Dollars to the Collection Account. For purposes
of computing interest and Fees and determining Borrowing Availability as of any
date, all payments shall be deemed received on the day of receipt of immediately
available funds therefor in the Collection Account prior to 2:00 p.m. New York
time. Payments received after 2:00 p.m. New York time on any Business Day shall
be deemed to have been received on the following Business Day.
1.10 Application and Allocation of Payments. (a) So long as no
Default or Event of Default shall have occurred and be continuing, (i) payments
consisting of proceeds of Accounts received in the ordinary course of business
shall be applied to the Revolving Loan; (ii) payments matching specific
scheduled payments then due, if any, shall be applied to those scheduled
payments; (iii) voluntary prepayments shall be applied as determined by Borrower
Representative, subject to the provisions of Section 1.2(a), and (iv) mandatory
prepayments shall be applied as set forth in Section 1.2. As to each other
payment, and as to all payments made when a Default or Event of Default shall
have occurred and be continuing or following the Commitment Termination Date,
each Borrower hereby irrevocably waives the right to direct the application of
any and all payments received from or on behalf of such Borrower, and each
Borrower hereby irrevocably agrees that Agent shall have the continuing
exclusive right to apply any and all such payments against the Obligations of
Borrowers as Agent may deem advisable notwithstanding any previous entry by
Agent in the Loan Account or any other books and records. In the absence of a
specific determination by Agent with respect thereto, payments shall be applied
to amounts then due and payable in the following order: (1) to Fees and Agent's
expenses reimbursable hereunder; (2) to interest on the Revolving Loan; (3) to
principal payments on the Revolving Loan; and (4) to all other Obligations
including expenses of Lenders to the extent reimbursable under Section 11.3.
(b) Agent is authorized to, and at its sole election may, charge to
the Revolving Loan balance on behalf of each Borrower and cause to be paid all
Fees, expenses, Charges, costs (including insurance premiums in accordance with
Section 5.4(a)) and interest and principal, other than principal of the
Revolving Loan, owing by Borrowers under this Agreement or any of the other Loan
Documents if and to the extent Borrowers fail to promptly pay any such amounts
as and when due, even if such charges would cause the aggregate balance of the
aggregate Revolving Loan to exceed Borrowing Availability or would cause the
balance of the Revolving Loan of any Borrower to exceed such Borrower's separate
Borrowing Base. At Agent's option and to the extent permitted by law, any
charges so made shall constitute part of the Revolving Loan hereunder.
1.11 Loan Account and Accounting. Agent shall maintain a loan account
(the "Loan Account") on its books to record: (a) all Revolving Credit Advances,
(b) all payments made by Borrowers, and (c) all other debits and credits as
provided in this Agreement with respect to the Revolving Credit Advances or any
other Obligations. All entries in the Loan Account shall be made in accordance
with Agent's customary accounting practices as in effect from time to time. The
balance in the Loan Account, as recorded on Agent's most recent printout or
other written statement, shall be presumptive evidence of the amounts due and
owing to Agent and Lenders by each Borrower; provided that any failure to so
record or any error in so recording shall not limit or otherwise affect any
Borrower's duty to pay the Obligations. Agent shall render to Borrower
Representative a monthly accounting of transactions with respect to the
Revolving Loan setting forth the balance of the Loan Account as to each
Borrower. Unless Borrower Representative notifies Agent in writing of any
objection to any such accounting (specifically describing the basis for such
objection), within thirty (30) days after the date thereof, each and every such
accounting shall (absent manifest error) be deemed final, binding and conclusive
upon Borrowers in all respects as to all matters reflected therein. Only those
items expressly objected to in such notice shall be deemed to be disputed by
Borrowers.
1.12 Indemnity. Borrowers and each other Credit Party that is a
signatory hereto shall jointly and severally indemnify and hold harmless each of
Agent, Lenders and their respective Affiliates, and each such Person's
respective officers, directors, employees, attorneys, agents and representatives
(each, an "Indemnified Person"), from and against any and all suits, actions,
proceedings, claims, damages, losses, liabilities and expenses (including
attorneys' fees and disbursements and other costs of investigation or defense,
including those incurred upon any appeal) which may be instituted or asserted
against or incurred by any such Indemnified Person as the result of credit
having been extended, suspended or terminated under this Agreement and the other
Loan Documents and the administration of such credit, and in connection with or
arising out of the transactions contemplated hereunder and thereunder and any
actions or failures to act in connection therewith, including any and all
Environmental Liabilities and legal costs and expenses arising out of or
incurred in connection with disputes between or among any parties to any of the
Loan Documents (collectively, "Indemnified Liabilities"); provided, that no such
Credit Party shall be liable for any indemnification to an Indemnified Person to
the extent that any such suit, action, proceeding, claim, damage, loss,
liability or expense results solely from that Indemnified Person's gross
negligence or willful misconduct, as finally determined by a court of competent
jurisdiction. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER
PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY
OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH
PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE
ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED
UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED
HEREUNDER OR THEREUNDER.
1.13 Access. Each Credit Party shall, during normal business hours,
from time to time upon one (1) Business Day's prior notice as frequently as
Agent determines to be appropriate: (a) provide Agent and any of its officers,
employees and agents access to its properties, facilities, advisors and
employees (including officers) of each Credit Party and to the Collateral, (b)
permit Agent, and any of its officers, employees and agents, to inspect, audit
and make extracts from any Credit Party's books and records, and (c) permit
Agent, and its officers, employees and agents, to inspect, review and evaluate
the Accounts, Inventory and other Collateral of any Credit Party. If a Default
or Event of Default shall have occurred and be continuing, each such Credit
Party shall provide such access to Agent and to each Lender at all times and
without advance notice. Furthermore, so long as any Event of Default shall have
occurred and be continuing, Borrowers shall provide Agent and each Lender with
access to their suppliers and customers. Each Credit Party shall make available
to Agent and its counsel, as quickly as is possible under the circumstances,
originals or copies of all books and records which Agent may request. Each
Credit Party shall deliver any document or instrument necessary for Agent, as it
may from time to time request, to obtain records from any service bureau or
other Person which maintains records for such Credit Party, and shall maintain
duplicate records or supporting documentation on media, including computer tapes
and discs owned by such Credit Party. Agent will give Lenders at least ten (10)
days' prior written notice of regularly scheduled audits. Representatives of
other Lenders may accompany Agent's representatives on regularly scheduled
audits at no charge to Borrowers.
1.14 Taxes. (a) Any and all payments by each Borrower hereunder
(including any payments made pursuant to Section 12) or under the Revolving
Notes shall be made, in accordance with this Section 1.14, free and clear of and
without deduction for any and all present or future Taxes. If any Borrower
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder (including any sum payable pursuant to Section 12) or under
the Revolving Notes, (i) the sum payable shall be increased as much as shall be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 1.14) Agent or Lenders,
as applicable, receive an amount equal to the sum they would have received had
no such deductions been made, (ii) such Borrower shall make such deductions, and
(iii) such Borrower shall pay the full amount deducted to the relevant taxing or
other authority in accordance with applicable law. Within thirty (30) days
after the date of any payment of Taxes, Borrower Representative shall furnish to
Agent the original or a certified copy of a receipt evidencing payment thereof.
(b) Borrowers and each other Credit Party executing this Agreement
shall jointly and severally indemnify and, within ten (10) days of demand
therefor, pay Agent and each Lender for the full amount of Taxes (including any
Taxes imposed by any jurisdiction on amounts payable under this Section 1.14)
paid by Agent or such Lender, as appropriate, and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes were correctly or legally asserted.
(c) Each Lender organized under the laws of a jurisdiction outside
the United States (a "Foreign Lender") as to which payments to be made under
this Agreement or under the Revolving Notes are exempt from United States
withholding tax under an applicable statute or tax treaty shall provide to
Borrower Representative and Agent a properly completed and executed IRS Form
4224 or Form 1001 or other applicable form, certificate or document prescribed
by the IRS or the United States certifying as to such Foreign Lender's
entitlement to such exemption (a "Certificate of Exemption"). Prior to becoming
a Lender under this Agreement and within fifteen (15) days after a reasonable
written request of Agent or Borrower Representative from time to time
thereafter, each Foreign Lender that is a Lender under this Agreement shall
provide a Certificate of Exemption to Borrower Representative and Agent to the
extent such Foreign Lender then qualifies to provide such Certificate. No
foreign Person may become a Lender hereunder if such Person is unable at such
time to deliver a Certificate of Exemption.
1.15 Capital Adequacy; Increased Costs. (a) If any Lender shall have
determined that the adoption after the date hereof of any law, treaty,
governmental (or quasi-governmental) rule, regulation, guideline or order
regarding capital adequacy, reserve requirements or similar requirements or
compliance by any Lender with any request or directive regarding capital
adequacy, reserve requirements or similar requirements (whether or not having
the force of law) from any central bank or other Governmental Authority
increases or would have the effect of increasing the amount of capital, reserves
or other funds required to be maintained by such Lender and thereby reducing the
rate of return on such Lender's capital as a consequence of its obligations
hereunder, then Borrowers shall from time to time upon demand by such Lender
(with a copy of such demand to Agent) pay to Agent, for the account of such
Lender, additional amounts sufficient to compensate such Lender for such
reduction. A certificate as to the amount of that reduction and showing the
basis of the computation thereof submitted by such Lender to Borrower
Representative and to Agent shall, absent manifest error, be final, conclusive
and binding for all purposes.
(b) If, due to either (i) the introduction of or any change in any
law or regulation (or any change in the interpretation thereof) or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), there shall be
any increase in the cost to any Lender of agreeing to make or making, funding or
maintaining any Loan, then Borrowers shall from time to time, upon demand by
such Lender (with a copy of such demand to Agent), pay to Agent for the account
of such Lender additional amounts sufficient to compensate such Lender for such
increased cost. A certificate as to the amount of such increased cost,
submitted to Borrower Representative and to Agent by such Lender, shall be
conclusive and binding on Borrowers for all purposes, absent manifest error.
Each Lender agrees that, as promptly as practicable after it becomes aware of
any circumstances referred to above which would result in any such increased
cost, the affected Lender shall, to the extent not inconsistent with such
Lender's internal policies of general application, use reasonable commercial
efforts to minimize costs and expenses incurred by it and payable to it by
Borrowers pursuant to this Section 1.15(b).
(c) Within fifteen (15) days after receipt by Borrower Representative
of written notice and demand from any Lender (an "Affected Lender") for payment
of additional amounts or increased costs as provided in Section 1.15(a) or
1.15(b), Borrower Representative may, at its option, notify Agent and such
Affected Lender of its intention to replace the Affected Lender. So long as no
Default or Event of Default shall have occurred and be continuing, Borrower
Representative, with the consent of Agent, may obtain, at Borrowers' expense, a
replacement Lender ("Replacement Lender") for the Affected Lender, which
Replacement Lender must be satisfactory to Agent. If Borrowers obtain a
Replacement Lender within ninety (90) days following notice of their intention
to do so, the Affected Lender must sell and assign its Revolving Credit Advances
and Commitments to such Replacement Lender for an amount equal to the principal
balance of all Revolving Credit Advances held by the Affected Lender and all
accrued interest and Fees with respect thereto through the date of such sale,
provided that Borrowers shall have reimbursed such Affected Lender for the
additional amounts or increased costs that it is entitled to receive under this
Agreement through the date of such sale and assignment.
Notwithstanding the foregoing, Borrowers shall not have the right to obtain a
Replacement Lender if the Affected Lender rescinds its demand for increased
costs or additional amounts within fifteen (15) days following its receipt of
Borrowers' notice of intention to replace such Affected Lender. Furthermore, if
Borrowers give a notice of intention to replace and do not so replace such
Affected Lender within ninety (90) days thereafter, Borrowers' rights under this
Section 1.15(c) shall terminate and Borrowers shall promptly pay all increased
costs or additional amounts demanded by such Affected Lender pursuant to
Sections 1.15(a) and 1.15(b).
1.16 Single Loan. All Revolving Credit Advances to each Borrower and
all of the other Obligations of each Borrower arising under this Agreement and
the other Loan Documents shall constitute one general obligation of that
Borrower secured, until the Termination Date, by all of its Collateral.
2. CONDITIONS PRECEDENT
2.1 Conditions to Initial Revolving Credit Advances.
No Lender shall be obligated to make any Revolving Credit Advance on
the Closing Date, or to take, fulfill, or perform any other action hereunder,
until the following conditions have been satisfied or provided for in a manner
satisfactory to Agent, or waived in writing by Agent and Lenders:
(a) Credit Agreement; Loan Documents. This Agreement or counterparts
hereof shall have been duly executed by, and delivered to, Borrowers, Agent and
Lenders; and Agent shall have received such documents, instruments, agreements
and legal opinions as Agent shall request in connection with the transactions
contemplated by this Agreement and the other Loan Documents, including all those
listed in the Closing Checklist attached hereto as Annex C, each in form and
substance satisfactory to Agent.
(b) Consummation of Related Transactions. Agent shall have received
fully executed copies of the Equipment Lease and each of the other Related
Transactions Documents, each of which shall be in form and substance
satisfactory to Agent and its counsel. The Related Transactions shall have been
consummated in accordance with the terms of the Equipment Lease and the other
applicable Related Transactions Documents.
(c) Governmental Approvals. Agent shall have received (i)
satisfactory evidence that the Credit Parties have obtained all required
consents and approvals of all Persons including all requisite Governmental
Authorities, to the execution, delivery and performance of this Agreement and
the other Loan Documents and the consummation of the Related Transactions or
(ii) an officer's certificate in form and substance satisfactory to Agent
affirming that no such consents or approvals are required.
(d) Payment of Fees. Borrowers shall have paid the Fees required to
be paid on the Closing Date in the respective amounts specified in Section 1.8
(including the Fees specified in the GE Capital Fee Letter), and shall have
reimbursed Agent for all fees, costs and expenses of closing presented as of the
Closing Date.
(e) Compliance with Laws. Each Credit Party shall be in compliance
in all material respects with all applicable foreign, federal, state and local
laws and regulations, including those specifically referenced in Section 5.5.
(f) Capital Structure: Other Indebtedness. The capital structure of
each Credit Party and the terms and conditions of all Indebtedness (including
the Mortgage Note) of each Credit Party shall be acceptable to Agent in its sole
discretion.
2.2 Further Conditions to Each Loan. Except as otherwise expressly
provided herein, no Lender shall be obligated to fund any Revolving Credit
Advance if, as of the date thereof:
(a) Any representation or warranty by any Credit Party contained
herein or in any of the other Loan Documents shall be untrue or incorrect as of
such date, except to the extent that such representation or warranty expressly
relates to an earlier date and except for changes therein expressly permitted or
expressly contemplated by this Agreement; or
(b) Any event or circumstance having a Material Adverse Effect shall
have occurred since the date hereof; or
(c) (i) Any Event of Default shall have occurred and be continuing or
would result after giving effect to any Revolving Credit Advance, or (ii) a
Default shall have occurred and be continuing or would result after giving
effect to any Revolving Credit Advance, and Agent or Requisite Lenders shall
have determined not to make any Revolving Credit Advance so long as that Default
is continuing; or
(d) After giving effect to any Revolving Credit Advance, (i) the
outstanding amount of the Revolving Loan would exceed the lesser of the
Aggregate Borrowing Base and the Maximum Amount or (ii) the outstanding balance
of the Revolving Loan of the applicable Borrower would exceed such Borrower's
separate Borrowing Base.
The request and acceptance by any Borrower of the proceeds of any Revolving
Credit Advance shall be deemed to constitute, as of the date of such request or
acceptance, (i) a representation and warranty by Borrowers that the conditions
in this Section 2.2 have been satisfied and (ii) a reaffirmation by Borrowers
of the cross-guaranty provisions set forth in Section 12 and of the granting and
continuance of Collateral Agent's Liens, on behalf of itself, Agent and Lenders,
pursuant to the Collateral Documents.
3. REPRESENTATIONS AND WARRANTIES
To induce Lenders to make the Loans, Borrower and each other Credit
Party executing this Agreement, jointly and severally, make the following
representations and warranties to Agent and each Lender, each and all of which
shall survive the execution and delivery of this Agreement.
3.1 Corporate Existence; Compliance with Law. Each Credit Party (a)
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation; (b) is duly qualified to conduct
business and is in good standing in each other jurisdiction where its ownership
or lease of property or the conduct of its business requires such qualification;
(c) has the requisite corporate power and authority and the legal right to own,
pledge, mortgage or otherwise encumber and operate its properties, to lease the
property it operates under lease and to conduct its business as now, heretofore
and proposed to be conducted; (d) has all licenses, permits, consents or
approvals from or by, and has made all filings with, and has given all notices
to, all Governmental Authorities having jurisdiction, to the extent required for
such ownership, operation and conduct; (e) is in compliance with its charter and
by-laws; and (f) subject to specific representations set forth herein regarding
ERISA, Environmental Laws, tax and other laws, is in compliance with all
applicable provisions of law, except where the failure to comply, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
3.2 Executive Offices; FEIN. As of the Closing Date, the current
location of the chief executive office and principal place of business of each
Credit Party which is executing this Agreement is set forth in Disclosure
Schedule (3.2) and none of such locations have changed within the past twelve
(12) months. In addition, Disclosure Schedule (3.2) lists the federal employer
identification number of each such Credit Party.
3.3 Corporate Power, Authorization, Enforceable Obligations. The
execution, delivery and performance by each Credit Party of the Loan Documents
to which it is a party and the creation of all Liens provided for therein: (a)
are within such Person's corporate power; (b) have been duly authorized by all
necessary or proper corporate and shareholder action; (c) do not contravene any
provision of such Person's charter or bylaws; (d) do not violate any law or
regulation, or any order or decree of any court or Governmental Authority; (e)
do not conflict with or result in the breach or termination of, constitute a
default under or accelerate or permit the acceleration of any performance
required by, any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which such Person is a party or by which such Person or any of its
property is bound; (f) do not result in the creation or imposition of any Lien
upon any of the property of such Person other than those in favor of Collateral
Agent, on behalf of itself, Agent and Lenders, pursuant to the Loan Documents;
and (g) do not require the consent or approval of any Governmental Authority or
any other Person, except those referred to in Section 2.1(c), all of which will
have been duly obtained, made or complied with prior to the Closing Date. On or
prior to the Closing Date, each of the Loan Documents shall have been duly
executed and delivered by each Credit Party thereto and each such Loan Document
shall then constitute a legal, valid and binding obligation of such Credit Party
enforceable against it in accordance with its terms.
3.4 Financial Statements and Projections. Except for the Projections,
all Financial Statements concerning Liposome and its Subsidiaries which are
referenced below have been prepared in accordance with GAAP consistently applied
throughout the periods covered (except as disclosed therein and except, with
respect to unaudited Financial Statements, for the absence of footnotes and
normal year-end audit adjustments) and present fairly in all material respects
the financial condition of the Persons covered thereby as at the dates thereof
and the results of their operations for the periods then ended.
(a) The following Financial Statements attached hereto as Disclosure
Schedule (3.4(A)) have been delivered on the date hereof:
(i) The audited consolidated balance sheets at December 31, 1995 and
the related statements of income and cash flows of Liposome and its
Subsidiaries for the Fiscal Year then ended, certified by Coopers & Lybrand
L.L.P.
(ii) The unaudited balance sheet(s) at September 30, 1996 and the
related statement(s) of income and cash flows of Liposome and its
Subsidiaries for the Fiscal Quarter then ended.
(iii) The Liposome Company, Inc. consolidating balance sheet at
September 29, 1996.
(b) Projections. The Projections delivered on the date hereof and
attached hereto as Disclosure Schedule (3.4(B)) have been prepared by Borrowers
in light of the past operations of their businesses, and reflect projections for
the four year period beginning on January 1, 1996 on a quarter by quarter basis
for the first two years and on a year by year basis thereafter. The Projections
are based upon estimates and assumptions stated therein, all of which Borrowers
believe to be reasonable and fair in light of current conditions and current
facts known to Borrowers and, as of the Closing Date, reflect Borrowers' good
faith and reasonable estimates of the future financial performance of Borrowers
and of the other information projected therein for the period set forth therein.
3.5 Material Adverse Effect. Between September 30, 1996 and the
Closing Date, (a) no Credit Party has incurred any obligations, contingent or
non-contingent liabilities, liabilities for Charges, long-term leases or unusual
forward or long-term commitments which are not reflected in the Projections and
which, alone or in the aggregate, could reasonably be expected to have a
Material Adverse Effect, (b) no contract, lease or other agreement or instrument
has been entered into by any Credit Party or has become binding upon any Credit
Party's assets and no law or regulation applicable to any Credit Party has been
adopted which has had or could reasonably be expected to have a Material Adverse
Effect, and (c) no Credit Party is in default and to the best of Borrowers'
knowledge no third party is in default under any material contract, lease or
other agreement or instrument, which alone or in the aggregate could reasonably
be expected to have a Material Adverse Effect. Between September 30, 1996 and
the Closing Date no event has occurred, which alone or together with other
events, could reasonably be expected to have a Material Adverse Effect. The
parties acknowledge that since September 30, 1996 Liposome and Liposome
Manufacturing have entered into Amendment No. 1 to the Equipment Lease.
3.6 Ownership of Property; Liens. As of the Closing Date, the real
estate ("Real Estate") listed on Disclosure Schedule (3.6) constitutes all of
the real property owned, leased, subleased, or used by any Credit Party. Each
Credit Party owns good and marketable fee simple title to all of its owned real
estate, and valid and marketable leasehold interests in all of its leased Real
Estate, all as described on Disclosure Schedule (3.6), and copies of all such
leases or summary of the terms thereof satisfactory to Agent have been delivered
to Agent. Disclosure Schedule (3.6) further describes any Real Estate with
respect to which any Credit Party is a lessor, sublessor or assignor as of the
Closing Date. Each Credit Party also has good and marketable title to, or valid
leasehold interests in, all of its personal properties and assets. As of the
Closing Date, none of the properties and assets of any Credit Party are subject
to any Liens other than Permitted Encumbrances, and there are no facts,
circumstances or conditions known to any Credit Party that may result in any
Liens (including Liens arising under Environmental Laws) other than Permitted
Encumbrances. Disclosure Schedule (3.6) also describes any purchase options,
rights of first refusal or other similar contractual rights pertaining to any
Real Estate. As of the Closing Date, no portion of any Real Estate of any
Credit Party which is executing this Agreement has suffered any material damage
by fire or other casualty loss which has not heretofore been completely repaired
and restored to its original condition or otherwise remedied. As of the Closing
Date, all permits required to have been issued or appropriate to enable the Real
Estate to be lawfully occupied and used for all of the purposes for which they
are currently occupied and used have been lawfully issued and are in full force
and effect.
3.7 Labor Matters. As of the Closing Date (a) no strikes or other
material labor disputes against any Credit Party which is executing this
Agreement are pending or, to any such Credit Party's knowledge, threatened; (b)
hours worked by and payment made to employees of each Credit Party which is
executing this Agreement comply with the Fair Labor Standards Act and each other
federal, state, local or foreign law applicable to such matter; (c) all payments
due from any such Credit Party for employee health and welfare insurance have
been paid or accrued as a liability on the books of such Credit Party; (d)
except as set forth in Disclosure Schedule (3.7), no Credit Party which is
executing this Agreement is a party to or bound by any collective bargaining
agreement, management agreement, consulting agreement or any employment
agreement (and true and complete copies of any agreements described on
Disclosure Schedule (3.7) have been delivered to Agent); (e) there is no
organizing activity involving any Credit Party which is executing this Agreement
pending or, to any such Credit Party's knowledge, threatened by any labor union
or group of employees; (f) there are no representation proceedings pending or,
to any such Credit Party's knowledge, threatened with the National Labor
Relations Board, and no labor organization or group of employees of any such
Credit Party has made a pending demand for recognition; and (g) except as set
forth in Disclosure Schedule (3.7), there are no complaints or charges against
any such Credit Party pending or threatened to be filed with any Governmental
Authority or arbitrator based on, arising out of, in connection with, or
otherwise relating to the employment or termination of employment by any such
Credit Party of any individual.
3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness. Except as set forth in Disclosure Schedule (3.8), no Credit Party
has any Subsidiaries, is engaged in any joint venture or partnership with any
other Person, or is an Affiliate of any other Person. All of the issued and
outstanding Stock of each Credit Party (other than Liposome) is owned by each of
the stockholders and in the amounts set forth on Disclosure Schedule (3.8).
Except as set forth in Disclosure Schedule (3.8), there are no outstanding
rights to purchase, options, warrants or similar rights or agreements pursuant
to which any Credit Party may be required to issue, sell, repurchase or redeem
any of its Stock or other equity securities or any Stock or other equity
securities of its Subsidiaries. All outstanding Indebtedness of each Credit
Party as of the Closing Date is described in Section 6.3 (including Disclosure
Schedule (6.3)).
3.9 Government Regulation. No Credit Party is an "investment
company" or an "affiliated person" of, or "promoter" or "principal underwriter"
for, an "investment company," as such terms are defined in the Investment
Company Act of 1940 as amended. No Credit Party is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, or any
other federal or state statute that restricts or limits its ability to incur
Indebtedness or to perform its obligations hereunder. The making of the
Revolving Loan by Lenders to Borrowers, the application of the proceeds thereof
and repayment thereof and the consummation of the Related Transactions will not
violate any provision of any such statute or any rule, regulation or order
issued by the Securities and Exchange Commission.
3.10 Margin Regulations. No Credit Party is engaged, nor will it
engage, principally or as one of its important activities, in the business of
extending credit for the purpose of "purchasing" or "carrying" any "margin
security" as such terms are defined in Regulation U or G of the Federal Reserve
Board as now and from time to time hereafter in effect (such securities being
referred to herein as "Margin Stock"). No Credit Party owns any Margin Stock,
and none of the proceeds of the Revolving Loan will be used, directly or
indirectly, for the purpose of purchasing or carrying any Margin Stock, for the
purpose of reducing or retiring any Indebtedness which was originally incurred
to purchase or carry any Margin Stock or for any other purpose which might cause
any of the Revolving Credit Advances to be considered a "purpose credit" within
the meaning of Regulation G, T, U or X of the Federal Reserve Board. No Credit
Party will take or permit to be taken any action which might cause any Loan
Document to violate any regulation of the Federal Reserve Board.
3.11 Taxes. All tax returns, reports and statements, including
information returns, required by any Governmental Authority to be filed by any
Credit Party have been filed with the appropriate Governmental Authority and all
Charges have been paid prior to the date on which any fine, penalty, interest or
late charge may be added thereto for nonpayment thereof (or any such fine,
penalty, interest, late charge or loss has been paid), excluding Charges or
other amounts being contested in accordance with Section 5.2(b). Proper and
accurate amounts have been withheld by each Credit Party from its respective
employees for all periods in full and complete compliance with all applicable
federal, state, local and foreign law and such withholdings have been timely
paid to the respective Governmental Authorities. Disclosure Schedule (3.11)
sets forth as of the Closing Date those taxable years for which any Credit
Party's tax returns are currently being audited by the IRS or any other
applicable Governmental Authority and any assessments or threatened assessments
in connection with such audit, or otherwise currently outstanding. Except as
described on Disclosure Schedule (3.11), no Credit Party has executed or filed
with the IRS or any other Governmental Authority any agreement or other document
extending, or having the effect of extending, the period for assessment or
collection of any Charges. None of the Credit Parties and their respective
predecessors are liable for any Charges: (a) under any agreement (including any
tax sharing agreements) or (b) to the best of each Credit Party's knowledge, as
a transferee. As of the Closing Date, no Credit Party has agreed or been
requested to make any adjustment under IRC Section 481(a), by reason of a change
in accounting method or otherwise, which would have a Material Adverse Effect.
3.12 ERISA. (a) Disclosure Schedule (3.12) lists and separately
identifies all Title IV Plans, Multiemployer Plans, ESOPs and Retiree Welfare
Plans. Copies of all such listed Plans, together with a copy of the latest form
5500 for each such Plan, have been delivered to Agent. Each Qualified Plan has
been determined by the IRS to qualify under Section 401 of the IRC, and the
trusts created thereunder have been determined to be exempt from tax under the
provisions of Section 501 of the IRC, and nothing has occurred which would cause
the loss of such qualification or tax-exempt status. Each Plan is in compliance
with the applicable provisions of ERISA and the IRC, including the filing of
reports required under the IRC or ERISA. No Credit Party or ERISA Affiliate has
failed to make any contribution or pay any amount due as required by either
Section 412 of the IRC or Section 302 of ERISA or the terms of any such Plan.
No Credit Party or ERISA Affiliate has engaged in a prohibited transaction, as
defined in Section 4975 of the IRC, in connection with any Plan, which would
subject any Credit Party to a material tax on prohibited transactions imposed by
Section 4975 of the IRC.
(b) Except as set forth in Disclosure Schedule (3.12): (i) no Title
IV Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event
described in Section 4062(e) of ERISA with respect to any Title IV Plan has
occurred or is reasonably expected to occur; (iii) there are no pending, or to
the knowledge of any Credit Party, threatened claims (other than claims for
benefits in the normal course), sanctions, actions or lawsuits, asserted or
instituted against any Plan or any Person as fiduciary or sponsor of any Plan;
(iv) no Credit Party or ERISA Affiliate has incurred or reasonably expects to
incur any liability as a result of a complete or partial withdrawal from a
Multiemployer Plan; (v) within the last five years no Title IV Plan with
Unfunded Pension Liabilities has been transferred outside of the "controlled
group" (within the meaning of Section 4001(a)(14) of ERISA) of any Credit Party
or ERISA Affiliate; and (vi) no liability under any Title IV Plan has been
satisfied with the purchase of a contract from an insurance company that is not
rated AAA by the Standard & Poor's Corporation or the equivalent by another
nationally recognized rating agency.
3.13 No Litigation. No action, claim, lawsuit, demand, investigation
or proceeding is now pending or, to the knowledge of any Credit Party,
threatened against any Credit Party, before any court, board, commission, agency
(including the Food and Drug Administration) or instrumentality of any federal,
state, local or foreign government or of any agency or subdivision thereof, or
before any arbitrator or panel of arbitrators (collectively, "Litigation"), (a)
which challenges any Credit Party's right or power to enter into or perform any
of its obligations under the Loan Documents to which it is a party, or the
validity or enforceability of any Loan Document or any action taken thereunder,
(b) which challenges the use or distribution by any Borrower or any other Person
of Amphotericin B or ABELCET (or any derivative thereof) in the U.S. market, or
(c) which has a reasonable risk of being determined adversely to any Credit
Party and which, if so determined, could have a Material Adverse Effect. Except
as set forth on Disclosure Schedule (3.13), as of the Closing Date there is no
Litigation pending or threatened which seeks damages in excess of $500,000 or
injunctive relief or alleges criminal misconduct of any Credit Party.
3.14 Brokers. No broker or finder acting on behalf of any Credit
Party brought about the obtaining, making or closing of the Revolving Loan or
the transactions contemplated by the Related Transactions Documents and no
Credit Party has any obligation to any Person in respect of any finder's or
brokerage fees in connection therewith.
3.15 Intellectual Property. As of the Closing Date, each Credit Party
owns or has rights to use all Intellectual Property necessary to continue to
conduct its business as now or heretofore conducted by it or proposed to be
conducted by it, and each Patent, Trademark, Copyright and License is listed,
together with application or registration numbers, as applicable, in Disclosure
Schedule (3.15) hereto. Each Credit Party conducts its business and affairs
without infringement of or interference with any Intellectual Property of any
other Person.
3.16 Full Disclosure. No information contained in this Agreement, any
of the other Loan Documents, any Projections, Financial Statements or Collateral
Reports or other reports from time to time delivered hereunder or any written
statement furnished by or on behalf of any Credit Party to Agent or any Lender
pursuant to the terms of this Agreement contains any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading in light of the
circumstances under which they were made. The Liens granted to Collateral
Agent, on behalf of itself, Agent and Lenders, pursuant to the Collateral
Documents will at all times be fully perfected first priority Liens in and to
the Collateral described therein, subject only to Permitted Encumbrances with
respect to the Collateral other than Accounts.
3.17 Environmental Matters. (a) Except as set forth in Disclosure
Schedule (3.17), as of the Closing Date: (i) to the best of Borrowers'
knowledge, the Real Estate is free of contamination from any Hazardous Material
except for such contamination that would not result in, or would not be
reasonably likely to result in, a Material Adverse Effect; (ii) no Credit Party
has caused or suffered to occur any Release of Hazardous Materials on, at, in,
under, above, to, from or about any of its Real Estate; (iii) the Credit Parties
are and have been in compliance with all Environmental Laws, except for such
noncompliance which would not result in, or would not be reasonably likely to
result in, a Material Adverse Effect; (iv) the Credit Parties have obtained, and
are in compliance with, all Environmental Permits required by Environmental Laws
for the operations of their respective businesses as presently conducted or as
proposed to be conducted, except where the failure to so obtain or comply with
such Environmental Permits would not cause Environmental Liabilities which would
result in, or would be reasonably likely to result in, a Material Adverse
Effect, and all such Environmental Permits are valid, uncontested and in good
standing; (v) no Credit Party is involved in operations or knows of any facts,
circumstances or conditions, including any Releases of Hazardous Materials, that
are likely to cause any Environmental Liabilities of such Credit Party which
result in, or would be reasonably likely to result in, a Material Adverse Effect
and no Credit Party has permitted any current or former tenant or occupant of
the Real Estate to engage in any such operations; (vi) there is no Litigation
arising under or related to any Environmental Laws, Environmental Permits or
Hazardous Material which seeks damages, penalties, fines, costs or expenses in
excess of $50,000 or injunctive relief, or which alleges criminal misconduct by
any Credit Party; (vii) no notice has been received by any Credit Party
identifying it as a "potentially responsible party" or requesting information
under CERCLA or analogous state statutes, and to the best knowledge of the
Credit Parties, after due inquiry, there are no facts, circumstances or
conditions that may result in any Credit Party being identified as a
"potentially responsible party" under CERCLA or analogous state statutes; and
(viii) the Credit Parties have provided to Agent copies of all existing
environmental reports, reviews and audits and all written information pertaining
to actual or potential Environmental Liabilities, in each case relating to any
Credit Party.
(b) Each Credit Party hereby acknowledges and agrees that neither
Collateral Agent nor Agent (i) is not now, and has not ever been, in control of
any of the Real Estate or any Credit Party's affairs, and (ii) does not have the
capacity through the provisions of the Loan Documents or otherwise to influence
any Credit Party's conduct with respect to the ownership, operation or
management of any of its Real Estate or compliance with Environmental Laws or
Environmental Permits.
3.18 Insurance. Disclosure Schedule (3.18) lists all insurance
policies of any nature maintained, as of the Closing Date, for current
occurrences by each Credit Party, as well as a summary of the terms of each such
policy.
3.19 Deposit and Disbursement Accounts. Disclosure Schedule (3.19)
lists all banks and other financial institutions at which any Credit Party
executing this Agreement maintains deposits and/or other accounts as of the
Closing Date, including any Disbursement Accounts, and such Schedule correctly
identifies the name, address and telephone number of each depository, the name
in which the account is held, a description of the purpose of the account, and
the complete account number.
3.20 Solvency. Both before and after giving effect to (a) the
Revolving Credit Advances to be made on the Closing Date or such other date as
Revolving Credit Advances requested hereunder are made or extended, (b) the
disbursement of the proceeds of such Revolving Credit Advances pursuant to the
instructions of Borrower Representative, (c) the consummation of the other
Related Transactions and (d) the payment and accrual of all transaction costs in
connection with the foregoing, each Credit Party is Solvent.
3.21 Customer and Trade Relations. As of the Closing Date, there
exists no actual or threatened termination or cancellation of, or any material
adverse modification or change in: (a) the business relationship of any Credit
Party with any customer or group of customers whose purchases during the
preceding twelve (12) months caused them to be ranked among the ten largest
customers of such Credit Party; or (b) the business relationship of any Credit
Party with any supplier material to its operations.
3.22 Agreements and Other Documents. As of the Closing Date, each
Credit Party has provided to Agent or its counsel, on behalf of Lenders,
accurate and complete copies (or summaries) of all of the following agreements
or documents to which any it is subject and each of which are listed on
Disclosure Schedule (3.22): (a) supply agreements and purchase agreements not
terminable by such Credit Party within sixty (60) days following written notice
issued by such Credit Party and involving transactions in excess of $1,000,000
per annum; (b) any lease of Equipment having a remaining term of one year or
longer and requiring aggregate rental and other payments in excess of $500,000
per annum; (c) licenses and permits held by the Credit Parties, the absence of
which could be reasonably likely to have a Material Adverse Effect; (d)
instruments or documents evidencing Indebtedness of such Credit Party (including
the Mortgage Note) and any security interest granted by such Credit Party with
respect thereto; and (e) licenses, franchises or other agreements relating to
trademarks, tradenames, copyrights, patents, technology know-how, processes, and
any employee trade secret and nondisclosure agreements to which such Credit
Party is a party which require annual payments to or from such Credit Party in
excess of $50,000, including that certain License Agreement dated as of
September 2, 1994 between Liposome and BMS.
4. FINANCIAL STATEMENTS AND INFORMATION
4.1 Reports and Notices. (a) Each Borrower hereby agrees that from
and after the Closing Date and until the Termination Date, it shall deliver to
Agent and/or Lenders, as required, the Financial Statements, notices,
Projections and other information at the times, to the Persons and in the manner
set forth in Annex D.
(b) Each Borrower hereby agrees that from and after the Closing Date
and until the Termination Date, it shall deliver to Agent and/or Lenders, as
required, the various Collateral Reports (including Borrowing Base Certificates
in the form of Exhibit 4.1(b)) at the times, to the Persons and in the manner
set forth in Annex E.
4.2 Communication with Accountants. Each Credit Party executing this
Agreement authorizes Agent and, so long as a Default or Event of Default shall
have occurred and be continuing, each Lender, to communicate directly with its
independent certified public accountants including Coopers & Lybrand L.L.P., and
authorizes and shall instruct those accountants and advisors to disclose and
make available to Agent and each Lender any and all Financial Statements and
other supporting financial documents and information relating to any Credit
Party (including copies of any issued management letters) with respect to the
business, financial condition and other affairs of any Credit Party;
provided, that Agent shall have given Borrower Representative prior notice of
any such communications and requests for disclosures, and Borrower
Representative shall have been invited to be present during any such
communication (but such presence shall not be a prerequisite to such
communications); and provided further, that unless and until an Event of Default
has occurred, such disclosures shall not include the internal files of those
accountants and advisors related to any Credit Party, which files include,
without limitation, workpapers and supporting schedules.
5. AFFIRMATIVE COVENANTS
Each Borrower and each other Credit Party executing this Agreement
jointly and severally agrees that from and after the date hereof and until the
Termination Date:
5.1 Maintenance of Existence and Conduct of Business. Except to the
extent permitted by Sections 6.1 and 6.8, each Credit Party shall: (a) do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and its rights and franchises; (b) continue to
conduct its business substantially as now conducted or as otherwise permitted
hereunder; (c) at all times maintain, preserve and protect all of its assets and
properties used or useful in the conduct of its business, and keep the same in
good repair, working order and condition in all material respects (taking into
consideration ordinary wear and tear) and from time to time make, or cause to be
made, all necessary or appropriate repairs, replacements and improvements
thereto consistent with industry practices; and (d) transact business only in
such corporate and trade names as are set forth in Disclosure Schedule (5.1).
5.2 Payment of Obligations. (a) Subject to Section 5.2(b), each
Credit Party shall pay and discharge or cause to be paid and discharged promptly
all Charges payable by it, including (A) Charges imposed upon it, its income and
profits, or any of its property (real, personal or mixed) and all Charges with
respect to tax, social security and unemployment withholding with respect to its
employees, and (B) lawful claims for labor, materials, supplies and services or
otherwise, before any thereof shall become past due.
(b) Each Credit Party may in good faith contest, by appropriate
proceedings, the validity or amount of any Charges or claims described in
Section 5.2(a); provided, that (i) at the time of commencement of any such
contest no Default or Event of Default shall have occurred and be continuing,
(ii) adequate reserves with respect to such contest are maintained on the books
of such Credit Party, in accordance with GAAP, (iii) such contest is maintained
and prosecuted continuously and with diligence, (iv) none of the Collateral
becomes subject to forfeiture or loss as a result of such contest, (v) no Lien
shall be imposed to secure payment of such Charges or claims other than inchoate
tax liens, (vi) such Credit Party shall promptly pay or discharge such contested
Charges or claims and all additional charges, interest, penalties and expenses,
if any, and shall deliver to Agent evidence acceptable to Agent of such
compliance, payment or discharge, if such contest is terminated or discontinued
adversely to such Credit Party or the conditions set forth in this Section
5.2(b) are no longer met, and (vii) Agent has not advised Borrowers in writing
that Agent reasonably believes that nonpayment or nondischarge thereof could
have or result in a Material Adverse Effect.
5.3 Books and Records. Each Credit Party shall keep adequate books
and records with respect to its business activities in which proper entries,
reflecting all financial transactions, are made in accordance with GAAP and on a
basis consistent with the Financial Statements attached as Disclosure Schedule
(3.4(A)).
5.4 Insurance; Damage to or Destruction of Collateral. (a) The
Credit Parties shall, at their sole cost and expense, maintain the policies of
insurance described on Disclosure Schedule (3.18) in form and with insurers
recognized as adequate by Agent. If any Credit Party at any time or times
hereafter shall fail to obtain or maintain any of the policies of insurance
required above or to pay all premiums relating thereto, Agent may at any time or
times thereafter obtain and maintain such policies of insurance and pay such
premiums and take any other action with respect thereto which Agent deems
advisable. Agent shall have no obligation to obtain insurance for any Credit
Party or pay any premiums therefor. By doing so, Agent shall not be deemed to
have waived any Default or Event of Default arising from any Credit Party's
failure to maintain such insurance or pay any premiums therefor. All sums so
disbursed, including attorneys' fees, court costs and other charges related
thereto, shall be payable on demand by Borrowers to Collateral Agent and shall
be additional Obligations hereunder secured by the Collateral.
(b) Agent reserves the right at any time upon any change in any
Credit Party's risk profile (including any change in the product mix maintained
by any Credit Party or any laws affecting the potential liability of such Credit
Party) to require additional forms and limits of insurance to, in Agent's
opinion, adequately protect Collateral Agent's, Agent's and Lenders' interests
in all or any portion of the Collateral and to ensure that each Credit Party is
protected by insurance in amounts and with coverage customary for its industry.
If requested by Agent, each Credit Party shall deliver to Agent from time to
time a report of a reputable insurance broker, satisfactory to Agent, with
respect to its insurance policies.
(c) Each Borrower shall deliver to Agent, in form and substance
satisfactory to Agent, endorsements to (i) all "All Risk" and business
interruption insurance naming Collateral Agent, on behalf of itself, Agent and
Lenders, as loss payee, and (ii) all general liability and other liability
policies naming Collateral Agent, on behalf of itself, Agent and Lenders, as
additional insured. Each Borrower irrevocably makes, constitutes and appoints
Agent (and all officers, employees or agents (including Collateral Agent)
designated by Agent), so long as any Event of Default shall have occurred and be
continuing, as such Borrower's true and lawful agent and attorney-in-fact for
the purpose of making, settling and adjusting claims under such "All Risk"
policies of insurance, endorsing the name of such Borrower on any check or other
item of payment for the proceeds of such "All Risk" policies of insurance and
for making all determinations and decisions with respect to such "All Risk"
policies of insurance. Agent shall have no duty to exercise any rights or
powers granted to it pursuant to the foregoing power-of-attorney. Borrower
Representative shall promptly notify Agent of any loss, damage, or destruction
to the Collateral in the amount of $250,000 or more, whether or not covered by
insurance. Agent is hereby authorized either itself or to cause Collateral
Agent to directly collect all insurance proceeds relating to the Collateral, so
long as any Default or Event of Default shall have occurred and be continuing or
the anticipated insurance proceeds exceed $5,000,000. After deducting from such
proceeds the expenses, if any, incurred by Agent or Collateral Agent in the
collection or handling thereof, Agent may, at its option, apply (or cause
Collateral Agent to apply) such proceeds to the reduction of the Obligations in
accordance with Section 1.2(c), or permit or require the applicable Borrower to
use such money, or any part thereof, to replace, repair, restore or rebuild the
Collateral in a diligent and expeditious manner with materials and workmanship
of substantially the same quality as existed before the loss, damage or
destruction. Notwithstanding the foregoing, if the casualty giving rise to such
insurance proceeds would not reasonably be expected to have a Material Adverse
Effect and such insurance proceeds do not exceed $5,000,000 in the aggregate,
Agent shall permit the applicable Borrower to replace, restore, repair or
rebuild the property; provided that if such Borrower shall not have completed or
entered into binding agreements to complete such replacement, restoration,
repair or rebuilding within 180 days of such casualty, Agent may apply (or cause
Collateral Agent to apply) such insurance proceeds to the Obligations in
accordance with Section 1.2(c). All insurance proceeds which are to be made
available to any Borrower to replace, repair, restore or rebuild the Collateral
shall be applied by Agent or Collateral Agent to reduce the outstanding
principal balance of the Revolving Loan of such Borrower (which application
shall not result in a permanent reduction of the Revolving Loan Commitment) and
upon such application, Agent shall establish a Reserve against the separate
Borrowing Base of the affected Borrower in an amount equal to the amount of such
proceeds so applied. Thereafter, such funds shall be made available to that
Borrower to provide funds to replace, repair, restore or rebuild the Collateral
as follows: (i) Borrower Representative shall request a Revolving Credit Advance
be made to such Borrower in the amount requested to be released; (ii) so long as
the conditions set forth in Section 2.2 have been met, Lenders shall make such
Revolving Credit Advance; and (iii) the Reserve established with respect to such
insurance proceeds shall be reduced by the amount of such Revolving Credit
Advance. To the extent not used to replace, repair, restore or rebuild the
Collateral, such insurance proceeds shall be applied in accordance with Section
1.2(c).
5.5 Compliance with Laws. Each Credit Party shall comply with all
federal, state and local laws and regulations applicable to it, including those
relating to the Food and Drug Administration, the Food, Drug and Cosmetic Act,
licensing, ERISA and labor matters and Environmental Laws and Environmental
Permits, except to the extent that the failure to comply, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
5.6 Supplemental Disclosure. From time to time as may be requested
by Agent (which request will not be made more frequently than once each year
absent the occurrence and continuance of a Default or an Event of Default), the
Credit Parties shall supplement each Disclosure Schedule hereto, or any
representation herein or in any other Loan Document, with respect to any matter
hereafter arising which, if existing or occurring at the date of this Agreement,
would have been required to be set forth or described in such Disclosure
Schedule or as an exception to such representation or which is necessary to
correct any information in such Disclosure Schedule or representation which has
been rendered inaccurate thereby (and, in the case of any supplements to any
Disclosure Schedule, such Disclosure Schedule shall be appropriately marked to
show the changes made therein); provided, that (a) no such supplement to any
such Disclosure Schedule or representation shall be or be deemed a waiver of any
Default or Event of Default resulting from the matters disclosed therein, except
as consented to by Agent and Requisite Lenders in writing, and (b) no such
supplement shall be required as to representations and warranties that relate
solely to the Closing Date. Without limiting the foregoing, Borrowers shall
deliver to Agent, at the time of delivery of each of the annual Financial
Statements delivered pursuant to Annex D, a list of any applications for the
registration of any Patent, Trademark or Copyright with the United States Patent
and Trademark Office, the United States Copyright Office or any similar office
or agency which any Credit Party has filed in the prior Fiscal Year, and at such
time Borrowers shall make any appropriate modifications to Disclosure Schedule
(3.15).
5.7 Intellectual Property. Each Credit Party will conduct its
business and affairs without infringement of or interference with any
Intellectual Property of any other Person.
5.8 Environmental Matters. Each Credit Party shall and shall cause
each Person within its control to: (a) conduct its operations and keep and
maintain its Real Estate in compliance with all Environmental Laws and
Environmental Permits other than noncompliance which could not reasonably be
expected to have a Material Adverse Effect; (b) implement any and all
investigation, remediation, removal and response actions which are appropriate
or necessary to maintain the value and marketability of the Real Estate or to
otherwise comply with Environmental Laws and Environmental Permits pertaining to
the presence, generation, treatment, storage, use, disposal, transportation or
Release of any Hazardous Material on, at, in, under, above, to, from or about
any of its Real Estate; (c) notify Agent promptly after such Credit Party
becomes aware of any violation of Environmental Laws or Environmental Permits or
any Release on, at, in, under, above, to, from or about any Real Estate which is
reasonably likely to result in Environmental Liabilities in excess of $250,000;
and (d) promptly forward to Agent a copy of any order, notice, request for
information or any communication or report received by such Credit Party in
connection with any such violation or Release or any other matter relating to
any Environmental Laws or Environmental Permits.
5.9 Landlords' Agreements, Mortgagee Agreements and Bailee Letters.
Each Credit Party shall use its best efforts to obtain a landlord's agreement,
mortgagee agreement or bailee letter, as applicable, from the lessor of each
leased property or mortgagee of owned property or with respect to any warehouse,
processor or converter facility or other location where Collateral is located,
which agreement or letter shall contain a waiver or subordination of all Liens
or claims that the landlord, mortgagee or bailee may assert against the
Inventory at that location and shall otherwise be satisfactory in form and
substance to Agent. With respect to such locations or warehouse space leased or
owned, if Agent has not received a landlord or mortgagee agreement or bailee
letter as provided in the previous sentence any of Borrower's Eligible Inventory
at that location shall, in Agent's discretion, be excluded from the Borrowing
Base or be subject to such Reserves as may be established by Agent in its
reasonable credit judgment. Each Credit Party shall timely and fully pay and
perform its obligations under all leases and other agreements with respect to
each leased location or public warehouse where any Collateral is or may be
located.
5.10 Further Assurances. Each Credit Party shall at its cost and
expense, upon request of Agent, duly execute and deliver, or cause to be duly
executed and delivered, to Agent such further instruments and do and cause to be
done such further acts as may be necessary or proper in the reasonable opinion
of Agent to carry out more effectually the provisions and purposes of this
Agreement or any other Loan Document.
6. NEGATIVE COVENANTS
Each Borrower and each other Credit Party executing this Agreement
each jointly and severally covenant and agree that, without the prior written
consent of Agent and the Requisite Lenders, from and after the date hereof until
the Termination Date:
6.1 Mergers, Subsidiaries, Etc.
(a) No Credit Party shall directly or indirectly, by operation of law
or otherwise, (i) form or acquire any Subsidiary, except, so long as the
conditions set forth in the immediately following paragraph (b) are satisfied,
Liposome may directly form (A) a wholly-owned domestic Subsidiary (the
"Intermediary Holding Company") which Intermediary Holding Company shall,
subject to such conditions, be permitted to directly form foreign Subsidiaries
which shall be wholly-owned by the Intermediary Holding Company (other than
directors' qualifying shares) and (B) other directly owned domestic
Subsidiaries, or (ii) without the prior written consent of Requisite Lenders
(such consent not to be unreasonably withheld or delayed), merge with,
consolidate with, acquire all or substantially all of the assets or capital
stock of, or otherwise combine with or acquire, any Person, except that (A) any
indirect or direct foreign Subsidiary of Liposome may merge with or consolidate
with another indirect or direct foreign Subsidiary of Liposome, (B) the
Intermediary Holding Company may acquire from Liposome any foreign Subsidiary
existing as of the Closing Date and (C) Liposome Manufacturing and/or Liposome
Holdings, Inc. may merge with and into Liposome, provided that Liposome shall be
the survivor of any such merger.
(b) Liposome may form the Intermediary Holding Company and other
directly owned domestic Subsidiaries, provided that, (i) the Intermediary
Holding Company and all such other newly formed domestic Subsidiaries shall be
100% directly owned by Liposome, (ii) the Intermediary Holding Company shall not
engage in any business or other activities or incur any Indebtedness or any
other liabilities (other than solely in connection with its formation and its
ownership interest in any of its foreign Subsidiaries permitted to be formed or
acquired, pursuant to the terms hereof and other than in connection with
receiving and making dividends to the extent permitted and required by Section
6.14), (ii) 100% of the capital stock of the Intermediary Holding Company and
any such other newly formed domestic Subsidiary shall be pledged to Collateral
Agent, for the benefit of itself, Agent and Lenders pursuant to the terms of the
Liposome Pledge Agreement, (iii) pursuant to a joinder agreement in each case in
form and substance satisfactory to Agent, the Intermediary Holding Company and
any such other newly formed domestic Subsidiary shall become a party to the
Subsidiary Security Agreement and the Subsidiary Guaranty, (iv) Agent shall have
received financing statements and other documents reasonably requested by Agent
to insure that Collateral Agent, for the benefit of itself, Agent and Lenders,
has a first priority perfected security interest in the assets of such newly
formed domestic Subsidiary subject to the Subsidiary Security Agreement, and (v)
in connection with the formation of the Intermediary Holding Company or any such
other newly formed domestic Subsidiary and any joinder agreement referred to in
the second preceding clause (iii) and the financing statements and other
documents referred to in the immediately preceding clause (iv) and the
transactions contemplated thereby, Agent shall have received an opinion in form
and substance satisfactory to Agent from counsel satisfactory to Agent.
(c) Notwithstanding the foregoing paragraphs (a) and (b), Liposome
may acquire all or substantially all of the assets or capital Stock of any
Person (the "Target") (in each case, a "Permitted Acquisition") subject to the
satisfaction of each of the following conditions:
(i) Agent shall receive at least thirty (30) Business Days' prior
written notice of such proposed Permitted Acquisition, which notice shall
include a reasonably detailed description of such proposed Permitted
Acquisition;
(ii) such Permitted Acquisition shall only involve assets located in
the United States and comprising a business, or those assets of a business, of
the type engaged in by Borrowers as of the Closing Date, and which business
would not subject Agent, Collateral Agent or any Lender to regulatory or third
party approvals in connection with the exercise of its rights and remedies under
this Agreement or any other Loan Documents other than approvals applicable to
the exercise of such rights and remedies with respect to Borrowers prior to such
Permitted Acquisition;
(iii) such Permitted Acquisition shall be consensual and shall
have been approved by the Target's board of directors;
(iv) no additional Indebtedness, contingent obligations or other
liabilities shall be incurred, assumed or otherwise be reflected on a
consolidated balance sheet of Borrowers and Target after giving effect to such
Permitted Acquisition, except ordinary course trade payables, accrued expenses
and unsecured Indebtedness of the Target to the extent no Default or Event of
Default shall have occurred and be continuing or would result after giving
effect to such Permitted Acquisition;
(v) the sum of all amounts payable in connection with all Permitted
Acquisitions (including all transaction costs and all Indebtedness, liabilities
and contingent obligations incurred or assumed in connection therewith or
otherwise reflected in a consolidated balance sheet of Borrowers and Target)
shall not exceed $* during any Fiscal Year and the portion thereof allocable to
goodwill and intangible assets for all such Permitted Acquisitions during any
Fiscal Year shall not exceed $*;
(vi) the Target shall not have incurred a negative EBIT for the
trailing twelve-month period preceding the date of the Permitted Acquisition, as
determined based upon the Target's Financial Statements for its most recently
completed fiscal year and its most recent interim financial period completed
within sixty (60) days prior to the date of consummation of such Permitted
Acquisition;
(vii) the business and assets acquired in such Permitted
Acquisition shall be free and clear of all Liens (other than Permitted
Encumbrances);
(viii) at or prior to the closing of any Permitted Acquisition,
Collateral Agent will be granted a first priority perfected Lien (subject to
Permitted Encumbrances) in all assets acquired pursuant thereto or in the assets
of the Target, and Borrowers or the Target shall have executed such documents
and taken such actions as may be required by Agent in connection therewith
(including, in the case of an acquisition of capital stock, that (A) the Target,
pursuant to a joinder agreement in form and substance satisfactory to Agent,
shall have
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* Confidential treatment requested.
become a party to the Subsidiary Security Agreement and the Subsidiary Guaranty
and (B)
Liposome shall have granted to Collateral Agent, for the benefit of itself,
Agent and Lenders, a first priority perfected security interest in 100% of the
capital stock of the Target pursuant to the terms of the Liposome Pledge
Agreement;
(ix) on or prior to the date of such Permitted Acquisition, Agent
shall have received, in form and substance satisfactory to Agent, all opinions,
certificates, lien search results and other documents reasonably requested by
Agent; and
(x) concurrently with the delivery of the notice referred to in
clause (i) above, Borrowers shall have delivered to Agent, in form and substance
satisfactory to Agent, a certificate of the Chief Financial officer of Liposome
to the effect that at the time of such Permitted Acquisition and after giving
effect thereto, no Default or Event of Default shall have occurred and be
continuing.
Notwithstanding the foregoing, the Accounts and Inventory of the
Target shall not be included in Eligible Accounts and Eligible Inventory without
the prior written consent of Agent and Requisite Lenders.
6.2 Investments; Loans and Advances. Except as otherwise expressly
permitted by this Section 6, no Credit Party shall make any investment in, or
make or accrue loans or advances of money to, any Person, through the direct or
indirect lending of money, holding of securities or otherwise, except that (a)
Liposome may hold investments in Permitted Investments; provided, that, if Agent
has delivered an Activation Notice, Liposome must, notwithstanding anything to
the contrary contained herein, upon maturity or earlier disposition of any such
investment, prepay to the extent applicable any then outstanding Revolving
Credit Advances in an amount equal to 100% of the value as determined by Agent
of such investment upon maturity or 100% of the amount paid Liposome or any
other Credit Party in connection with such disposition, less, in each case, an
appropriate reserve for income taxes in accordance with GAAP, provided that, if
the Revolving Credit Advances have been so reduced to zero, Liposome may invest
with the proceeds (after giving effect to any prepayment required hereunder) of
such matured or disposed investment in substantially similar investments as
determined by Agent in Agent's discretion or, in lieu thereof, hold such
proceeds in a segregated account acceptable to Agent; (b) Credit Parties may
hold investments comprised of notes payable, or stock or other securities issued
by Account Debtors to any Credit Party pursuant to negotiated agreements with
respect to settlement of such Account Debtor's Accounts in the ordinary course
of business; (c) Liposome may maintain its existing investments in its
Subsidiaries as of the Closing Date, may make additional capital contributions
in domestic Subsidiaries (including newly formed domestic Subsidiaries other
than the Intermediary Holding Company) and, to the extent permitted by Section
6.1, may form domestic Subsidiaries including the Intermediary Holding Company
and in connection with the formation of the Intermediary Holding Company make a
deminimus capital contribution thereto, provided Liposome may not make any
capital contribution to any of its domestic Subsidiaries of any Intellectual
Property or other assets related to the manufacture, use or distribution of
Amphotericin B or ABELCET (or any derivative thereof) or if such capital
contribution would in any way impair the ability of Liposome to manufacture, use
or distribute Amphotericin B or ABELCET (or any derivative thereof); (d) The
Liposome Company Ltd. may maintain its existing investments in Liposome's
Subsidiaries as of the Closing Date; (e) Liposome or The Liposome Company, Ltd.,
as applicable, may make to the Intermediary Holding Company capital
contributions consisting of the capital stock of foreign Subsidiaries existing
on the Closing Date and the Intermediary Holding Company may hold such foreign
Subsidiaries to the extent of such capital contributions; (f) in addition to the
capital contributions permitted by the foregoing clause (e), Liposome may make
capital contributions in the Intermediary Holding Company and Liposome's
directly owned foreign Subsidiaries in an aggregate amount after the Closing
Date, subject to the second to last sentence of this Section 6.2, not to exceed
$*, provided that in connection with any such capital contribution to the
Intermediary Holding Company, the Intermediary Holding Company shall immediately
make a capital contribution in an equal amount (either individually or in the
aggregate) to its foreign Subsidiaries; and (g) Liposome may make minority
equity investments, subject to the second to last sentence of this Section 6.2,
not to exceed $* after the Closing Date in joint ventures, provided that in
connection with any such investment (i) no domestic Credit Party shall become
liable in any manner (whether directly or as a guarantor or otherwise) for any
liabilities, Indebtedness or other obligations of any such joint venture, (ii)
no domestic Credit Party shall or shall be required to provide any collateral to
support any liabilities, Indebtedness or other obligations of any such joint
venture, (iii) no domestic Credit Party shall or shall be required to indemnify
in any manner any such joint venture or other Person in connection with any
obligation or liability of such joint venture and (iv) without limiting the
foregoing, such investment shall be non-recourse to Liposome and the other
domestic Credit Parties. Notwithstanding anything to the contrary contained
herein, in no event shall Liposome make Permitted Investments with the proceeds
of Collateral or Revolving Credit Advances. Liposome may make unlimited capital
contributions in its foreign Subsidiaries and unlimited minority equity
investments in joint ventures consisting of Intellectual Property; provided that
no such contribution or investment shall consist of any Intellectual Property
related to the manufacture, use or distribution of Amphotericin B or ABELCET (or
any derivative thereof) or in any way impair the ability of Liposome to
manufacture, use or distribute Amphotericin B or ABELCET (or any derivative
thereof). For purposes of determining compliance with clauses (f) and (g) of
this Section 6.2, the value of capital contributions (other than cash) shall
reasonably be determined by the Board of Directors of Liposome.
6.3 Indebtedness. No Credit Party shall create, incur, assume or
permit to exist any Indebtedness, except, without duplication, (i) Indebtedness
secured by Permitted Encumbrances, (ii) the Revolving Credit Advances and the
other Obligations, (iii) deferred taxes, (iv) unfunded pension fund and other
employee benefit plan obligations and liabilities to the extent they are
permitted to remain unfunded under applicable law, (v) existing Indebtedness
described in Disclosure Schedule (6.3) and refinancings thereof or amendments or
modifications thereto on terms and conditions no less favorable to any Credit
Party, Agent or any Lender, as determined by Agent, than the terms of the
Indebtedness being refinanced, amended or modified, provided that the principal
amount of any such Indebtedness is not increased above the principal amount
thereof on the date of such refinancing, amendment or modification, (vi)
Indebtedness specifically permitted under Section 6.1, (vii) Indebtedness under
the Equipment Lease, (viii) reimbursement and other obligations with respect to
letters of credit, bankers acceptances and surety bonds, whether or not matured
issued after the Closing Date as to which Liposome is the account party or the
obligor to support obligations incurred by Liposome in the ordinary course of
business in an aggregate amount not to exceed
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* Confidential treatment requested.
$*, (ix) reimbursement obligations with respect to letters of credit, whether or
not matured, issued after the Closing Date in favor of Lessor, Collateral Agent,
Agent and/or Lenders as to which any Credit Party is the account party, (x)
Indebtedness consisting of intercompany loans and advances made by Liposome to
any other Credit Party (other than the Intermediary Holding Company), provided
that (A) each such Credit Party shall have executed and delivered to Liposome,
on the Closing Date, an intercompany demand note (collectively the "Intercompany
Notes") to evidence any such intercompany Indebtedness owing at any time by such
Credit Party to Liposome which Intercompany Notes shall be in form and substance
satisfactory to Agent and shall be pledged and delivered to Collateral Agent
pursuant to the applicable Pledge Agreement or Security Agreement as additional
collateral security for the Obligations; (B) Liposome and each such Credit Party
shall record all intercompany transactions on its books and records in a manner
satisfactory to Agent; (C) at the time any such intercompany loan or advance is
made by Liposome to any other Credit Party and after giving effect thereto,
Liposome and each such Credit Party shall be Solvent; (D) the obligations of
Manufacturing under any such Intercompany Notes shall be subordinated to the
Obligations of Manufacturing hereunder in a manner satisfactory to Agent; (E)
the aggregate amount of such intercompany Indebtedness owing by foreign
Subsidiaries in the aggregate shall not exceed $* at any one time outstanding;
and (F) no Default or Event of Default shall have occurred and be continuing as
of the date that any such intercompany loan is proposed to be made, and (xi)
Indebtedness consisting of intercompany loans and advances made by any direct or
indirect foreign Subsidiary of Liposome to another such foreign Subsidiary,
provided that (A) each such foreign Subsidiary shall record all such
intercompany transactions on its books and records in a manner satisfactory to
Agent; and (B) no Default or Event of Default shall have occurred and be
continuing as of the date that such intercompany loan is proposed to be made.
6.4 Employee Loans and Affiliate Transactions.
(a) Except as permitted by Sections 6.3(x) and (xi) and 6.14, no
Credit Party shall enter into or be a party to any transaction with any other
Credit Party or any Affiliate thereof except in the ordinary course of and
pursuant to the reasonable requirements of such Credit Party's business and upon
fair and reasonable terms that are no less favorable to such Credit Party than
would be obtained in a comparable arm's length transaction with a Person not an
Affiliate of such Credit Party. All such transactions existing as of the date
hereof are described on Disclosure Schedule (6.4(a)).
(b) No Credit Party shall enter into any lending or borrowing
transaction with any employees of any Credit Party, except loans to their
respective employees on an arm's-length basis in the ordinary course of business
consistent with past practices for travel expenses, relocation costs (including
loans to assist in the purchase of homes) and similar purposes and stock option
financing up to a maximum of $500,000 to any employee and up to a maximum of
$2,000,000 in the aggregate for all Credit Parties combined at any one time
outstanding.
6.5 Capital Structure and Business. No Credit Party shall (a) make
any changes in any of its business objectives, purposes or operations which
could in any way adversely affect the repayment of the Revolving Loan or any of
the other Obligations or could have or result in a Material Adverse Effect, (b)
make any change in its capital structure as
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* Confidential treatment requested.
described on Disclosure Schedule (3.8), including the issuance of any shares of
Stock, warrants or other securities convertible into Stock or any revision of
the terms of its outstanding Stock, except (i) as otherwise permitted by Section
6.1 or in connection with capital contributions permitted by Section 6.2 and
(ii) that Liposome may issue its common Stock so long as no Change of Control
occurs after giving effect thereto, or (c) amend its charter or bylaws in a
manner which would adversely affect Agent or Lenders or such Credit Party's duty
or ability to repay the Obligations. No Credit Party shall engage in any
business other than the businesses currently engaged in by it or businesses
reasonably related thereto.
6.6 Guaranteed Indebtedness. No Credit Party shall incur any
Guaranteed Indebtedness except (a) by endorsement of instruments or items of
payment for deposit to the general account of any Credit Party, and (b) for
Guaranteed Indebtedness incurred for the benefit of any other Credit Party if
the primary obligation is expressly permitted by this Agreement; provided, that
in no event shall (i) any Credit Party guarantee the Indebtedness of any Target
permitted by Section 6.1 (c)(v) and (ii) any domestic Credit Party guarantee the
Indebtedness of any foreign Credit Party.
6.7 Liens. No Credit Party shall create, incur, assume or permit to
exist any Lien on or with respect to its Accounts or any of its other properties
or assets (whether now owned or hereafter acquired) except for Permitted
Encumbrances. In addition, no Credit Party shall become a party to any
agreement, note, indenture or instrument, or take any other action, which would
prohibit the creation of a Lien on any of its properties or other assets in
favor of Collateral Agent, on behalf of itself and Lenders, as additional
collateral for the Obligations, except operating leases, Capital Leases,
Licenses, the Mortgage Note, cash collateral agreements or that certain Pledge
Agreement as in effect on the date hereof dated as of July 24, 1992 made by
Liposome in favor of Midlantic National Bank in connection with the Mortgage
Note which in each case solely prohibit Liens upon the assets that are subject
thereto.
6.8 Sale of Stock and Assets. Except for mergers permitted by
Section 6.1(a)(ii)(c) and in connection with capital contributions permitted by
Section 6.2, no Credit Party executing this Agreement shall sell, transfer,
convey, assign or otherwise dispose of any of its properties or other assets,
including its capital Stock or the capital Stock of any of its Subsidiaries
(whether in a public or a private offering or otherwise but subject, in the case
of Liposome to the provisions of Section 6.5(b)) or any of their Accounts, other
than (a) the sale of Inventory in the ordinary course of business, (b) the sale,
transfer, conveyance or other disposition by such a Credit Party of Equipment,
Fixtures or Real Estate that are obsolete or no longer used or useful in such
Credit Party's business and (c) other Equipment and Fixtures having a value not
exceeding $* in any single transaction or $* in the aggregate in any Fiscal
Year, provided, that any Credit Party executing this Agreement (other than the
Intermediary Holding Company) shall be permitted to sell, transfer, convey,
assign or otherwise dispose of any of its properties or other assets (other than
cash) to any other Credit Party executing this Agreement (other than the
Intermediary Holding Company) except that Liposome (other than as otherwise
permitted by Section 6.2) shall not be permitted to dispose of the Capital Stock
of any of its Subsidiaries or any Intellectual Property or other assets related
to the manufacture, use or distribution of Amphotericin B or ABELCET (or any
derivative thereof) or make any disposition if such disposition would in any way
impair the ability of Liposome to manufacture, use or distribute Amphotericin B
or ABELCET (or any derivative thereof).
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* Confidential treatment requested.
With respect to any disposition of assets or other properties permitted pursuant
to clause (b) and clause (c) above, Agent agrees on reasonable prior written
notice to release or cause to be released by Collateral Agent, to the extent
applicable, its or Collateral Agent's, as applicable, Lien on such assets or
other properties in order to permit the applicable Credit Party to effect such
disposition and shall execute and deliver to Borrowers, at Borrowers' expense,
appropriate UCC-3 termination statements and other releases as reasonably
requested by Borrowers.
6.9 ERISA. No Credit Party shall, or shall cause or permit any ERISA
Affiliate to, cause or permit to occur an event which could result in the
imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of
ERISA.
6.10 Financial Covenants. Borrowers shall not breach or fail to
comply with any of the Financial Covenants (the "Financial Covenants") set forth
in Annex F.
6.11 Hazardous Materials. No Credit Party shall cause or permit a
Release of any Hazardous Material on, at, in, under, above, to, from or about
any of the Real Estate where such Release would (a) violate in any respect, or
form the basis for any Environmental Liabilities under, any Environmental Laws
or Environmental Permits or (b) otherwise adversely impact the value or
marketability of any of the Real Estate or any of the Collateral, other than
such violations or impacts which could not reasonably be expected to have a
Material Adverse Effect.
6.12 Sale-Leasebacks. No Credit Party shall engage in any
sale-leaseback, synthetic lease or similar transaction involving any of its
assets.
6.13 Cancellation of Indebtedness. No Credit Party shall cancel any
claim or debt owing to it, except for reasonable consideration negotiated on an
arm's-length basis and in the ordinary course of its business consistent with
past practices.
6.14 Restricted Payments. No Credit Party shall make any Restricted
Payment, except (a) intercompany loans and advances to the extent permitted by
Section 6.3 above, (b) employee loans permitted under Section 6.4(b) above, (c)
with respect to any Fiscal Year, at any time after Borrowers have delivered
audited Financial Statements to Lenders showing a positive consolidated net
income of Liposome determined in accordance with GAAP (but without giving effect
to any extraordinary gains) for such Fiscal Year, dividend payments by Liposome
to its shareholders in an amount equal to 50% of such consolidated net income,
(d) dividend payments by Subsidiaries of Liposome to Liposome, (e) dividend
payments by foreign Subsidiaries of the Intermediary Holding Company to the
Intermediary Holding Company provided that immediately thereafter the
Intermediary Holding Company shall make a dividend payment in an equal amount to
Liposome, and (f) Liposome may pay customary directors' fees to its directors.
6.15 No Speculative Transactions. No Credit Party shall engage in any
transaction involving commodity options or futures contracts, swaps or similar
transactions, except solely to hedge against fluctuations in the prices of
commodities owned or purchased by it and the values of foreign currencies
receivable or payable by it and interest swaps, caps or collars.
6.16 Change of Corporate Name or Location; Change of Fiscal Year. No
Credit Party executing this Agreement shall (a) change its corporate name, or
(b) change its chief executive office, principal place of business, corporate
offices or warehouses or locations at which Collateral is held or stored, or the
location of its records concerning the Collateral, in any case without at least
thirty (30) days prior written notice to Agent and after Agent's written
acknowledgment that any reasonable action requested by Agent in connection
therewith, including to continue the perfection of any Liens in favor of
Collateral Agent, on behalf of Lenders, in any Collateral, has been completed or
taken, and provided that any such new location shall be in the continental
United States. Without limiting the foregoing, no Credit Party shall change its
name, identity or corporate structure in any manner which might make any
financing or continuation statement filed in connection herewith seriously
misleading within the meaning of Section 9-402(7) of the Code or any other then
applicable provision of the Code except upon prior written notice to Agent and
Lenders and after Agent's written acknowledgment that any reasonable action
requested by Agent in connection therewith, including to continue the perfection
of any Liens in favor of Collateral Agent, on behalf of Lenders, in any
Collateral, has been completed or taken. No Credit Party shall change its
Fiscal Year.
6.17 No Impairment of Intercompany Transfers. No Credit Party shall
directly or indirectly enter into or become bound by any agreement, instrument,
indenture or other obligation (other than this Agreement and the other Loan
Documents) which could directly or indirectly restrict, prohibit or require the
consent of any Person with respect to the payment of dividends or distributions
or the making or repayment of intercompany loans by a Subsidiary of any Borrower
to any Borrower or between Borrowers.
7. TERM
7.1 Termination. The financing arrangements contemplated hereby
shall be in effect until the Commitment Termination Date, and the Revolving Loan
and all other Obligations shall be automatically due and payable in full on such
date.
7.2 Survival of Obligations Upon Termination of Financing
Arrangements. Except as otherwise expressly provided for in the Loan Documents,
no termination or cancellation (regardless of cause or procedure) of any
financing arrangement under this Agreement shall in any way affect or impair the
obligations, duties and liabilities of Borrowers or the rights of Collateral
Agent, Agent and Lenders relating to any unpaid portion of the Revolving Credit
Advances or any other Obligations, due or not due, liquidated, contingent or
unliquidated or any transaction or event occurring prior to such termination, or
any transaction or event, the performance of which is required after the
Commitment Termination Date. Except as otherwise expressly provided herein or
in any other Loan Document, all undertakings, agreements, covenants, warranties
and representations of or binding upon Borrowers, and all rights of Collateral
Agent, Agent and each Lender, all as contained in the Loan Documents, shall not
terminate or expire, but rather shall survive any such termination or
cancellation and shall continue in full force and effect until the Termination
Date; provided however, that in all events the provisions of Section 11 and the
indemnities contained in the Loan Documents shall survive the Termination Date.
8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES
8.1 Events of Default. The occurrence of any one or more of the
following events (regardless of the reason therefor) shall constitute an "Event
of Default" hereunder:
(a) Any Borrower (i) fails to make any payment of principal of, or
interest on, or Fees owing in respect of, the Revolving Loan or any of the other
Obligations when due and payable, or (ii) fails to pay or reimburse Collateral
Agent, Agent or Lenders for any expense reimbursable hereunder or under any
other Loan Document within ten (10) days following Agent's demand for such
reimbursement or payment of expenses.
(b) Any Credit Party shall fail or neglect to perform, keep or
observe any of the provisions of Sections 1.3, 1.7, 5.4 or 6, or any of the
provisions set forth in Annexes B or F, respectively.
(c) Any Borrower shall fail or neglect to perform, keep or observe
any of the provisions of Section 4 or any provisions set forth in Annexes D or
E, respectively, and the same shall remain unremedied for three (3) days or
more.
(d) Any Credit Party shall fail or neglect to perform, keep or
observe any other provision of this Agreement or of any of the other Loan
Documents (other than any provision embodied in or covered by any other clause
of this Section 8.1) and the same shall remain unremedied for twenty (20) days
or more.
(e) A default or breach shall occur under any other agreement,
document or instrument to which any Credit Party is a party which is not cured
within any applicable grace period, and such default or breach (i) involves the
failure to make any payment when due in respect of any Indebtedness (other than
the Obligations) of any Credit Party in excess of $250,000 in the aggregate, or
(ii) causes, or permits any holder of such Indebtedness or a trustee to cause,
Indebtedness or a portion thereof in excess of $2,000,000 in the aggregate to
become due prior to its stated maturity or prior to its regularly scheduled
dates of payment, regardless of whether such default is waived, or such right is
exercised, by such holder or trustee.
(f) Any information contained in any Borrowing Base Certificate is
untrue or incorrect in any respect, or any representation or warranty herein or
in any Loan Document or in any written statement, report, financial statement or
certificate (other than a Borrowing Base Certificate) made or delivered to any
Lender by any Credit Party is untrue or incorrect in any material respect as of
the date when made or deemed made.
(g) Assets of any Credit Party with a fair market value of $250,000
or more shall be attached, seized, levied upon or subjected to a writ or
distress warrant, or come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors of any Credit Party and such
condition continues for thirty (30) days or more.
(h) A case or proceeding shall have been commenced against any Credit
Party seeking a decree or order in respect of any Credit Party (i) under Title
11 of the United States Code, as now constituted or hereafter amended or any
other applicable federal, state or foreign bankruptcy or other similar law, (ii)
appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator
(or similar official) for any Credit Party or of any substantial part of any
such Person's assets, or (iii) ordering the winding-up or liquidation of the
affairs of any Credit Party, and such case or proceeding shall remain
undismissed or unstayed for sixty (60) days or more or such court shall enter a
decree or order granting the relief sought in such case or proceeding.
(i) Any Credit Party (i) shall file a petition seeking relief under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable federal, state or foreign bankruptcy or other similar law,
(ii) shall fail to contest in a timely and appropriate manner or shall consent
to the institution of proceedings thereunder or to the filing of any such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) of any
Credit Party or of any substantial part of any such Person's assets, (iii) shall
make an assignment for the benefit of creditors, (iv) shall take any corporate
action in furtherance of any of the foregoing or (v) generally not, or be unable
to, or shall admit in writing its inability to, pay its debts as they become
due.
(j) A final judgment or judgments for the payment of money in excess
of $250,000 in the aggregate at any time outstanding shall be rendered against
any Credit Party and the same shall not, within thirty (30) days after the entry
thereof, have been discharged or execution thereof stayed or bonded pending
appeal, or shall not have been discharged prior to the expiration of any such
stay.
(k) Any material provision of any Loan Document shall for any reason
cease to be valid, binding and enforceable in accordance with its terms (or any
Credit Party shall challenge the enforceability of any Loan Document or shall
assert in writing, or engage in any action or inaction based on any such
assertion, that any provision of any of the Loan Documents has ceased to be or
otherwise is not valid, binding and enforceable in accordance with its terms),
or any security interest created under any Loan Document shall cease to be a
valid and perfected first priority security interest or Lien (except as
otherwise permitted herein or therein) in any of the Collateral purported to be
covered thereby.
(l) Any "Change of Control" shall occur.
(m) Any event shall occur, whether or not insured or insurable, as a
result of which revenue-producing activities cease or are substantially
curtailed at any facility of Borrowers generating more than 30% of Borrowers'
consolidated revenues for the Fiscal Year preceding such event and such
cessation or curtailment continues for more than 30 days.
(n) The voluntary or involuntary partial or full withdrawal, recall
and/or significant limitation (for any reason whatsoever including court or
administrative order or injunction resulting from any patent infringement or
other lawsuit against any Credit Party) on the use or distribution of
Amphotericin B or ABELCET (or any derivative thereof) by Liposome or any other
Person from the U.S. market.
(o) Any default or breach by any Borrower shall occur and be
continuing under the License Agreement dated as of September 2, 1994 between
Liposome and BMS or such agreement shall be terminated for any reason.
(p) Without limiting Section 8.1(e) above, a default or breach shall
occur under the Equipment Lease which is not cured within any applicable grace
period, and such default or breach (i) involves the failure to make any payment
when due in respect of any obligation under the Equipment Lease of Liposome or
Liposome Manufacturing, or (ii) causes, or permits any holder of such obligation
or a trustee to cause, such obligation or a portion thereof to become due prior
to its stated maturity or prior to its regularly scheduled dates of payment,
regardless of whether such default is waived, or such right is exercised by such
holder or trustee.
8.2 Remedies. (a) If any Default or Event of Default shall have
occurred and be continuing, Agent may (and at the written request of the
Requisite Lenders shall), without notice, suspend this facility with respect to
further Revolving Credit Advances whereupon any further Revolving Credit
Advances shall be made or extended in Agent's sole discretion (or in the sole
discretion of the Requisite Lenders, if such suspension occurred at their
direction) so long as such Default or Event of Default is continuing. If any
Default or Event of Default shall have occurred and be continuing, Agent may
(and at the written request of Requisite Lenders shall), without notice except
as otherwise expressly provided herein, increase the rate of interest applicable
to the Revolving Loan to the Default Rate.
(b) If any Event of Default shall have occurred and be continuing,
Agent or, if applicable, Collateral Agent, may (and at the written request of
the Requisite Lenders shall), without notice, (i) terminate this facility with
respect to further Revolving Credit Advances; (ii) declare all or any portion of
the Obligations, including all or any portion of the Revolving Loan to be
forthwith due and payable all without presentment, demand, protest or further
notice of any kind, all of which are expressly waived by Borrowers and each
other Credit Party; and (iii) exercise any rights and remedies provided to Agent
or, if applicable, Collateral Agent under the Loan Documents and/or at law or
equity, including all remedies provided under the Code; provided, however, that
upon the occurrence of an Event of Default specified in Sections 8.1(g), (h) or
(i), all of the Obligations, including the aggregate Revolving Loan, shall
become immediately due and payable without declaration, notice or demand by any
Person.
8.3 Waivers by Credit Parties. Except as otherwise provided for in
this Agreement or by applicable law, each Credit Party waives (including for
purposes of Section 12): (a) presentment, demand and protest and notice of
presentment, dishonor, notice of intent to accelerate, notice of acceleration,
protest, default, nonpayment, maturity, release, compromise, settlement,
extension or renewal of any or all commercial paper, accounts, contract rights,
documents, instruments, chattel paper and guaranties at any time held by Agent
or Collateral Agent on which any Credit Party may in any way be liable, and
hereby ratifies and confirms whatever Agent or Collateral Agent may do in this
regard, (b) all rights to notice and a hearing prior to Agent's or Collateral
Agent's taking possession or control of, or to Agent's or Collateral Agent's
replevy, attachment or levy upon, the Collateral or any bond or security which
might be required by any court prior to allowing Agent or Collateral Agent to
exercise any of its remedies, and (c) the benefit of all valuation, appraisal,
marshalling and exemption laws.
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT
9.1 Assignment and Participations. (a) Borrowers hereby consent to
any Lender's assignment of, and/or sale of participations in, at any time or
times, any of the Loan Documents, any Commitment or of any portion thereof or
interest therein, including any Lender's rights, title, interests, remedies,
powers or duties thereunder, whether evidenced by a writing or not. Any
assignment by a Lender shall (i) require the consent of Agent (which shall not
be unreasonably withheld or delayed) and the execution of an assignment
agreement (an "Assignment Agreement") substantially in the from attached hereto
as Exhibit 9.1(a) and otherwise in form and substance satisfactory to, and
acknowledged by, Agent; (ii) be conditioned on such assignee Lender representing
to the assigning Lender and Agent that it is purchasing the applicable Revolving
Credit Advances to be assigned to it for its own account, for investment
purposes and not with a view to the distribution thereof; (iii) if a partial
assignment, be in an amount at least equal to $2,000,000 and, after giving
effect to any such partial assignment, the assigning Lender shall have retained
Commitments in an amount at least equal to $2,000,000; and (iv) include a
payment by the assigning Lender to Agent of an assignment fee of $3,500. In the
case of an assignment by a Lender under this Section 9.1, the assignee shall
have, to the extent of such assignment, the same rights, benefits and
obligations as it would if it were a Lender hereunder. The assigning Lender
shall be relieved of its obligations hereunder with respect to its Commitments
or assigned portion thereof from and after the date of such assignment. Each
Borrower hereby acknowledges and agrees that any assignment will give rise to a
direct obligation of Borrowers to the assignee and that the assignee shall be
considered to be a "Lender". In all instances, each Lender's liability to make
Revolving Credit Advances hereunder shall be several and not joint and shall be
limited to such Lender's Pro Rata Share of the applicable Commitment. In the
event Agent or any Lender assigns or otherwise transfers all or any part of a
Revolving Note, Agent or any such Lender shall so notify Borrowers and Borrowers
shall, upon the request of Agent or such Lender, execute new Revolving Notes in
exchange for the Revolving Notes being assigned. Notwithstanding the foregoing
provisions of this Section 9.1(a), any Lender may at any time pledge or assign
all or any portion of such Lender's rights under this Agreement and the other
Loan Documents to a Federal Reserve Bank; provided, however, that no such pledge
or assignment shall release such Lender from such Lender's obligations hereunder
or under any other Loan Document.
(b) Any participation by a Lender of all or any part of its
Commitments shall be in an amount at least equal to $2,000,000, and with the
understanding that all amounts payable by Borrowers hereunder shall be
determined as if that Lender had not sold such participation, and that the
holder of any such participation shall not be entitled to require such Lender to
take or omit to take any action hereunder except actions directly affecting (i)
any reduction in the principal amount of, or interest rate or Fees payable with
respect to, any Revolving Credit Advance in which such holder participates, (ii)
any extension of the scheduled amortization, if applicable, of the principal
amount of any Revolving Credit Advance in which such holder participates or the
final maturity date thereof, and (iii) any release of all or substantially all
of the Collateral (other than in accordance with the terms of this Agreement,
the Collateral Documents or the other Loan Documents). Solely for purposes of
Sections 1.12, 1.14, 1.15 and 9.8, each Borrower acknowledges and agrees that a
participation shall give rise to a direct obligation of Borrowers to the
participant and the participant shall be considered to be a "Lender". Except as
set forth in the preceding sentence no Borrower or Credit Party shall have any
obligation or duty to any participant. None of Agent, Collateral Agent or any
Lender (other than the Lender selling a participation) shall have any duty to
any participant and may continue to deal solely with the Lender selling a
participation as if no such sale had occurred.
(c) Except as expressly provided in this Section 9.1, no Lender
shall, as between Borrowers and that Lender, or Agent and that Lender, be
relieved of any of its obligations hereunder as a result of any sale,
assignment, transfer or negotiation of, or granting of participation in, all or
any part of the Revolving Loan, the Revolving Notes or other Obligations owed to
such Lender.
(d) Borrowers shall assist any Lender permitted to sell assignments
or participations under this Section 9.1 as reasonably required to enable the
assigning or selling Lender to effect any such assignment or participation,
including the execution and delivery of any and all agreements, notes and other
documents and instruments as shall be requested and, if requested by Agent, the
preparation of informational materials for, and the participation of management
in meetings with, potential assignees or participants. Borrowers shall certify
the correctness, completeness and accuracy of all descriptions of Borrowers and
their affairs contained in any selling materials provided by them and all other
information provided by them and included in such materials, except that any
Projections delivered by Borrowers shall only be certified by Borrowers as
having been prepared by Borrowers in compliance with the representations
contained in Section 3.4(b).
(e) A Lender may furnish any information concerning Borrowers in the
possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants). Each Lender shall obtain
from assignees or participants confidentiality covenants substantially
equivalent to those contained in Section 11.8.
9.2 Appointment of Agent and Collateral Agent. GE Capital is hereby
appointed to act on behalf of all Lenders as Agent and Collateral Agent under
this Agreement and the other Loan Documents. The provisions of this Section 9.2
are solely for the benefit of Agent, Collateral Agent and Lenders and no Credit
Party nor any other Person shall have any rights as a third party beneficiary of
any of the provisions hereof. In performing its functions and duties under this
Agreement and the other Loan Documents, each of Agent and Collateral Agent shall
act solely as an agent of Lenders and does not assume and shall not be deemed to
have assumed any obligation toward or relationship of agency or trust with or
for any Credit Party or any other Person. Neither Agent nor Collateral Agent
shall have any duties or responsibilities except for those expressly set forth
in this Agreement and the other Loan Documents. The duties of Agent and
Collateral Agent shall be mechanical and administrative in nature and neither
Agent nor Collateral Agent shall have, or be deemed to have, by reason of this
Agreement, any other Loan Document or otherwise a fiduciary relationship in
respect of any Lender. None of Agent, Collateral Agent nor any of their
respective Affiliates nor any of their respective officers, directors,
employees, agents or representatives shall be liable to any Lender for any
action taken or omitted to be taken by either Agent or Collateral Agent
hereunder or under any other Loan Document, or in connection herewith or
therewith, except for damages solely caused by its or their own gross negligence
or willful misconduct as finally determined by a court of competent
jurisdiction.
If Agent or Collateral Agent shall request instructions from Requisite
Lenders or all affected Lenders with respect to any act or action (including
failure to act) in connection with this Agreement or any other Loan Document,
then Agent or Collateral Agent shall be entitled to refrain from such act or
taking such action unless and until Agent or Collateral Agent shall have
received instructions from Requisite Lenders, or all affected Lenders, as the
case may be, and neither Agent nor Collateral Agent shall incur liability to any
Person by reason of so refraining. Agent and Collateral Agent shall be fully
justified in failing or refusing to take any action hereunder or under any other
Loan Document (a) if such action would, in the opinion of Agent or Collateral
Agent, be contrary to law or the terms of this Agreement or any other Loan
Document, (b) if such action would, in the opinion of Agent or Collateral Agent,
expose Agent or Collateral Agent to Environmental Liabilities or (c) if Agent or
Collateral Agent shall not first be indemnified to its satisfaction against any
and all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Without limiting the foregoing, no Lender
shall have any right of action whatsoever against Agent or Collateral Agent as a
result of Agent or Collateral Agent acting or refraining from acting hereunder
or under any other Loan Document in accordance with the instructions of
Requisite Lenders or all affected Lenders, as applicable.
9.3 Agent's and Collateral Agent's Reliance, Etc. None of Agent,
Collateral Agent nor any of their Affiliates nor any of their respective
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement or
the other Loan Documents, except for damages solely caused by its or their own
gross negligence or willful misconduct as finally determined by a court of
competent jurisdiction. Without limitation of the generality of the foregoing,
Agent and Collateral Agent: (a) may treat the payee of any Revolving Note as
the holder thereof until Agent receives written notice of the assignment or
transfer thereof signed by such payee and in form satisfactory to Agent; (b) may
consult with legal counsel, independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations made in or in connection with this Agreement or the other Loan
Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or the other Loan Documents on the part of Borrowers or to inspect the
Collateral (including the books and records) of Borrowers; (e) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or the other
Loan Documents or any other instrument or document furnished pursuant hereto or
thereto; and (f) shall incur no liability under or in respect of this Agreement
or the other Loan Documents by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telecopy, telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper party or parties.
9.4 GE Capital and Affiliates. With respect to its Commitments
hereunder, GE Capital shall have the same rights and powers under this Agreement
and the other Loan Documents as any other Lender and may exercise the same as
though it were not Agent; and the term "Lender" or "Lenders" shall, unless
otherwise expressly indicated, include GE Capital in its individual capacity.
GE Capital and its Affiliates may lend money to, invest in, and generally engage
in any kind of business with, any Credit Party, any of their Affiliates and any
Person who may do business with or own securities of any Credit Party or any
such Affiliate, all as if GE Capital were not Agent and Collateral Agent and
without any duty to account therefor to Lenders. GE Capital and its Affiliates
may accept fees and other consideration from any Credit Party for services in
connection with this Agreement or otherwise without having to account for the
same to Lenders.
9.5 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon Agent, Collateral Agent or any other
Lender and based on the Financial Statements referred to in Section 3.4(a) and
such other documents and information as it has deemed appropriate, made its own
credit and financial analysis of the Credit Parties and its own decision to
enter into this Agreement. Each Lender also acknowledges that it will,
independently and without reliance upon Agent, Collateral Agent or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement.
9.6 Indemnification. Lenders agree to indemnify Agent and Collateral
Agent (to the extent not reimbursed by Borrowers and without limiting the
obligations of Borrowers hereunder), ratably according to their respective Pro
Rata Shares, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against Agent or Collateral Agent in any way relating to or arising out
of this Agreement or any other Loan Document or any action taken or omitted by
Agent or Collateral Agent in connection therewith; provided, however, that no
Lender shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from Agent's or Collateral Agent's gross negligence or wilful
misconduct as finally determined by a court of competent jurisdiction. Without
limiting the foregoing, each Lender agrees to reimburse Agent and Collateral
Agent promptly upon demand for its ratable share of any out-of-pocket expenses
(including counsel fees) incurred by Agent or Collateral Agent in connection
with the preparation, execution, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities under,
this Agreement and each other Loan Document, to the extent that Agent or
Collateral Agent is not reimbursed for such expenses by Borrowers.
9.7 Successor Agent and Collateral Agent. Agent and Collateral Agent
may resign at any time by giving not less than thirty (30) days' prior written
notice thereof to Lenders and Borrower Representative. Upon any such
resignation, the Requisite Lenders shall have the right to appoint a successor
Agent or Collateral Agent, as applicable. If no successor Agent or Collateral
Agent, as applicable, shall have been so appointed by the Requisite Lenders and
shall have accepted such appointment within 30 days after the resigning Agent's
or Collateral Agent's, as the case may be, giving notice of resignation, then
the resigning Agent or Collateral Agent may, on behalf of Lenders, appoint a
successor Agent or Collateral Agent, as applicable, which shall be a Lender, if
a Lender is willing to accept such appointment, or otherwise shall be a
commercial bank or financial institution or a subsidiary of a commercial bank or
financial institution if such commercial bank or financial institution is
organized under the laws of the United States of America or of any State thereof
and has a combined capital and surplus of at least $300,000,000. If no
successor Agent or Collateral Agent, as applicable, has been appointed pursuant
to the foregoing, by the 30th day after the date such notice of resignation was
given by the resigning Agent or Collateral Agent, as applicable, such
resignation shall become effective and the Requisite Lenders shall thereafter
perform all the duties of Agent or Collateral Agent, as applicable, hereunder
until such time, if any, as the Requisite Lenders appoint a successor Agent or
Collateral Agent, as applicable, as provided above. Any successor Agent or
Collateral Agent appointed by Requisite Lenders hereunder shall be subject to
the approval of Borrower Representative, such approval not to be unreasonably
withheld or delayed; provided that such approval shall not be required if a
Default or an Event of Default shall have occurred and be continuing. Upon the
acceptance of any appointment as Agent or Collateral Agent hereunder by a
successor Agent or Collateral Agent, as the case may be, such successor Agent or
Collateral Agent shall succeed to and become vested with all the rights, powers,
privileges and duties of the resigning Agent or Collateral Agent, as applicable.
Upon the earlier of the acceptance of any appointment as Agent or Collateral
Agent hereunder by a successor Agent or Collateral Agent, as applicable, or the
effective date of the resigning Agent's or Collateral Agent's, as the case may
be, resignation, the resigning Agent or Collateral Agent shall be discharged
from its duties and obligations under this Agreement and the other Loan
Documents, except that any indemnity rights or other rights in favor of such
resigning Agent or Collateral Agent shall continue. After any resigning Agent's
or Collateral Agent's, as the case may be, resignation hereunder, the provisions
of this Section 9 shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Agent or Collateral Agent, as the case may be,
under this Agreement and the other Loan Documents.
9.8 Setoff and Sharing of Payments. In addition to any rights now or
hereafter granted under applicable law and not by way of limitation of any such
rights, upon the occurrence and during the continuance of any Event of Default,
each Lender and each holder of any Revolving Note is hereby authorized at any
time or from time to time, without notice to any Borrower or to any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all balances held by it at any of its offices
for the account of any Borrower (regardless of whether such balances are then
due to such Borrower) and any other properties or assets any time held or owing
by that Lender or that holder to or for the credit or for the account of
Borrowers against and on account of any of the Obligations which are not paid
when due. Any Lender or holder of any Revolving Note exercising a right to set
off shall purchase for cash (and the other Lenders or holders shall sell) such
participations in each such other Lender's or holder's Pro Rata Share of the
Obligations as would be necessary to cause such Lender to share the amount so
set off with each other Lender or holder in accordance with their respective Pro
Rata Shares. Each Borrower agrees, to the fullest extent permitted by law, that
(a) any Lender or holder may exercise its right to set off with respect to
amounts in excess of its Pro Rata Share of the Obligations and may sell
participations in such amount so set off to other Lenders and holders and (b)
any Lender or holders so purchasing a participation in the Revolving Loan made
or other Obligations held by other Lenders or holders may exercise all rights of
set-off, bankers' lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender or holder were a direct holder of the
Revolving Loan and the other Obligations in the amount of such participation.
Notwithstanding the foregoing, if all or any portion of the set-off amount is
thereafter recovered from the Lender that has exercised the right of set-off,
the purchase of participations by that Lender shall be rescinded and the
purchase price restored without interest.
9.9 Revolving Credit Advances; Payments; Non-Funding Lenders;
Information; Actions in Concert.
(a) Revolving Credit Advances; Payments. (i) Subject to Section
9.9(a)(iii), Agent shall notify Lenders, promptly after receipt of a Notice of
Revolving Credit Advance and in any event prior to 1:00 p.m. (New York time) on
the date such Notice of Revolving Advance is received, by telecopy, telephone or
other similar form of transmission. Each Lender shall make the amount of such
Lender's Pro Rata Share of each Revolving Credit Advance available to Agent in
same day funds by wire transfer to Agent's account as set forth in Annex G not
later than 3:00 p.m. (New York time) on the requested funding date. After
receipt of such wire transfers (or, in the Agent's sole discretion, before
receipt of such wire transfers), subject to the terms hereof, Agent shall make
the requested Revolving Credit Advance to the Borrower designated by Borrower
Representative in the Notice of Revolving Credit Advance. All payments by each
Revolving Lender shall be made without setoff, counterclaim or deduction of any
kind.
(ii) On the second (2nd) Business Day of each calendar week or
more frequently as aggregate cumulative payments in excess of $4,000,000 are
received with respect to the Revolving Loan or as more frequently as Agent may
select in its discretion (each, a "Settlement Date"), Agent shall deliver to
each of the Lenders prior to 1:00 p.m. (New York time) on such Settlement Date a
summary statement of the amount of outstanding Revolving Credit Advances for the
period from the prior Settlement Date (such period being hereafter referred to
as a "Settlement Period") and Agent will advise each Lender by telephone or
telecopy of the amount, as applicable, payable by such Lender to Agent or the
amount payable by Agent to such Lender as provided below under this
Section 9.9(a)(ii). If, as of the end of any Settlement Period, the amount of a
Lender's Pro Rata Share of the outstanding Revolving Credit Advances minus such
Lender's Pro Rata Share of the outstanding Revolving Credit Advances as of the
end of the previous Settlement Period (after giving effect to any settlement
hereunder with respect to such Settlement Period), is a positive number then
such Lender shall transfer to Agent such amount in same day funds by wire
transfer to Agent's account as set forth in Annex G not later than 3:00 p.m.
(New York time) on the requested funding date; and if, on the other hand, such
amount is a negative number, provided that such Lender has made all payments
required to be made by it and has purchased all participations required to be
purchased by it under this Agreement and the other Loan Documents as of such
Settlement Date, Agent will transfer to such Lender such amount by wire transfer
to such Lender's account (as specified by such Lender in Annex G or the
applicable Assignment Agreement) not later than 2:00 p.m. (New York time) on the
next Business Day following each Settlement Date. If Agent shall have made one
or more Revolving Credit Advances on behalf of Lenders as provided in Section
9.9(a)(iii), the amount of each Lender's Pro Rata Share of the outstanding
Revolving Credit Advances for purposes of this Section 9.9(a)(ii) shall be
computed on each Settlement Date rather than daily and shall be adjusted upward
or downward on the basis of the amount of the outstanding Revolving Credit
Advances as of 5:00 P.M. (New York time) on the Business Day immediately
preceding such Settlement Date.
(iii) Agent may, in its discretion, make available, on
behalf of Lenders, the full amount of the Revolving Credit Advances (including
Overadvances) on any day (after application of payments received on such day)
requested or deemed requested by Borrower Representative pursuant to this
Agreement, without notice to Lenders of the proposed Revolving Credit Advance
pursuant to Section 9.9(a)(i). To the extent that Agent has made any such
amounts available and the settlement described above shall not yet have
occurred, upon repayment of any Revolving Credit Advances by any Borrower, Agent
may apply such amounts repaid directly to any amounts made available by Agent
pursuant to this Section 9.9(a)(iii). Because Agent, on behalf of Lenders, may
be advancing or may be repaid Revolving Credit Advances prior to the time when
Lenders will actually advance or be repaid Revolving Credit Advances and
interest and Non-Use Fees with respect to the outstanding Revolving Credit
Advances shall be allocated by Agent to each Lender (including Agent), and the
amount of each Lender's (including Agent's) Pro Rata Share shall be computed
daily, in accordance with the amount of the outstanding Revolving Credit
Advances actually advanced by and repaid to each Lender (including Agent) on
each day during each Settlement Period and shall accrue from and including the
date such Revolving Credit Advances are advanced by Agent to but excluding the
date such Revolving Credit Advances are repaid by Borrowers in accordance with
this Agreement or actually settled by the applicable Lender as described in this
Section 9.9(a).
(b) Availability of Each Lender's Pro Rata Share. Agent may assume
that each Lender will make its Pro Rata Share of each Revolving Credit Advance
available to Agent on each funding date. If such Pro Rata Share is not, in
fact, paid to Agent by such Lender when due, Agent will be entitled to recover
such amount on demand from such Lender without set-off, counterclaim or
deduction of any kind. If any Lender fails to pay the amount of its Pro Rata
Share forthwith upon Agent's demand, Agent shall promptly notify Borrower
Representative and Borrowers shall immediately repay such amount to Agent.
Nothing in this Section 9.9(b) or elsewhere in this Agreement or the other Loan
Documents shall be deemed to require Agent to advance funds on behalf of any
Lender or to relieve any Lender from its obligation to fulfill its Commitments
hereunder or to prejudice any rights that Borrowers may have against any Lender
as a result of any default by such Lender hereunder. To the extent that Agent
advances funds to any Borrower on behalf of any Lender and is not reimbursed
therefor on the same Business Day as such Revolving Credit Advance is made,
Agent shall be entitled to retain for its account all interest accrued on such
Revolving Credit Advance until reimbursed by the applicable Lender.
(c) Return of Payments. (i) If Agent pays an amount to a Lender
under this Agreement in the belief or expectation that a related payment has
been or will be received by Agent from Borrowers and such related payment is not
received by Agent, then Agent will be entitled to recover such amount from such
Lender on demand without set-off, counterclaim or deduction of any kind.
(ii) If Agent determines at any time that any amount received by Agent
under this Agreement must be returned to any Borrower or paid to any other
Person pursuant to any insolvency law or otherwise, then, notwithstanding any
other term or condition of this Agreement or any other Loan Document, Agent will
not be required to distribute any portion thereof to any Lender. In addition,
each Lender will repay to Agent on demand any portion of such amount that Agent
has distributed to such Lender, together with interest at such rate, if any, as
Agent is required to pay to any Borrower or such other Person, without set-off,
counterclaim or deduction of any kind.
(d) Non-Funding Lenders. The failure of any Lender (such Lender, a
"Non-Funding Lender") to make any Revolving Credit Advance to be made by it on
the date specified therefor shall not relieve any other Lender (each such other
Lender, an "Other Lender") of its obligations to make such Revolving Credit
Advance or purchase such participation on such date, but neither any Other
Lender nor Agent shall be responsible for the failure of any Non-Funding Lender
to make a Revolving Credit Advance to be made, or to purchase a participation to
be purchased, by such Non-Funding Lender, and no Non-Funding Lender shall have
any obligation to Agent or any Other Lender for the failure by such Non-Funding
Lender. Notwithstanding anything set forth herein to the contrary, a Non-
Funding Lender shall not have any voting or consent rights under or with respect
to any Loan Document or constitute a "Lender" (or be included in the calculation
of "Requisite Lenders" hereunder) for any voting or consent rights under or with
respect to any Loan Document.
(e) Dissemination of Information. Agent will use reasonable efforts
to provide Lenders with any notice of Default or Event of Default received by
Agent from, or delivered by Agent to, any Credit Party, with notice of any Event
of Default of which Agent has actually become aware and with notice of any
action taken by Agent following any Event of Default; provided, however, that
Agent shall not be liable to any Lender for any failure to do so, except to the
extent that such failure is attributable solely to Agent's gross negligence or
willful misconduct as finally determined by a court of competent jurisdiction.
Lenders acknowledge that Borrowers are required to provide Financial Statements
and Collateral Reports to Lenders in accordance with Annexes D and E hereto and
agree that Agent shall have no duty to provide the same to Lenders.
(f) Actions in Concert. Anything in this Agreement to the contrary
notwithstanding, each Lender hereby agrees with each other Lender that no Lender
shall take any action to protect or enforce its rights arising out of this
Agreement or the Revolving Notes (including exercising any rights of set-off)
without first obtaining the prior written consent of Agent or Requisite Lenders,
it being the intent of Lenders that any such action to protect or enforce rights
under this Agreement and the Revolving Notes shall be taken in concert and at
the direction or with the consent of Agent.
10. SUCCESSORS AND ASSIGNS
10.1 Successors and Assigns. This Agreement and the other Loan
Documents shall be binding on and shall inure to the benefit of each Credit
Party, Collateral Agent, Agent, Lenders and their respective successors and
assigns (including, in the case of any Credit Party, a debtor-in-possession on
behalf of such Credit Party), except as otherwise provided herein or therein.
No Credit Party may assign, transfer, hypothecate or otherwise convey its
rights, benefits, obligations or duties hereunder or under any of the other Loan
Documents without the prior express written consent of Agent and Requisite
Lenders. Any such purported assignment, transfer, hypothecation or other
conveyance by any Credit Party without the prior express written consent of
Agent and Requisite Lenders shall be void. The terms and provisions of this
Agreement are for the purpose of defining the relative rights and obligations of
each Credit Party, Agent and Lenders with respect to the transactions
contemplated hereby and no Person (other than Collateral Agent) shall be a third
party beneficiary of any of the terms and provisions of this Agreement or any of
the other Loan Documents.
11. MISCELLANEOUS
11.1 Complete Agreement; Modification of Agreement. The Loan
Documents constitute the complete agreement between the parties with respect to
the subject matter thereof and may not be modified, altered or amended except as
set forth in Section 11.2 below. Any letter of interest, commitment letter, fee
letter (other than the GE Capital Fee Letter) or confidentiality agreement
between any Credit Party and Agent or any Lender or any of their respective
affiliates, predating this Agreement and relating to a financing of
substantially similar form, purpose or effect shall be superseded by this
Agreement.
11.2 Amendments and Waivers. (a) Except for actions expressly
permitted to be taken by Agent, no amendment, modification, termination or
waiver of any provision of this Agreement or any of the Revolving Notes, or any
consent to any departure by any Credit Party therefrom, shall in any event be
effective unless the same shall be in writing and signed by Agent and Borrowers,
and by Requisite Lenders or all affected Lenders, as applicable. Except as set
forth in clause (b) below, all such amendments, modifications, terminations or
waivers requiring the consent of any Lenders shall require the written consent
of Requisite Lenders.
(b) No amendment, modification, termination or waiver shall, unless
in writing and signed by Agent and each Lender directly affected thereby, do any
of the following: (i) increase the principal amount of such Lender's Commitment;
(ii) reduce the principal of, rate of interest on or Fees payable with respect
to any Revolving Credit Advance of any affected Lender; (iii) extend any
scheduled payment date, if any, or final maturity date of the principal amount
of any Revolving Credit Advance of any affected Lender; (iv) waive, forgive,
defer, extend or postpone any payment of interest or Fees as to any affected
Lender; (v) permit Credit Parties to sell or otherwise dispose of all or
substantially all of the Collateral (which action shall be deemed to directly
affect all Lenders); (vi) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Revolving Credit Advances which shall
be required for Lenders or any of them to take any action hereunder; and (vii)
amend or waive this Section 11.2 or the definition of the term "Requisite
Lenders" insofar as such definition affects the substance of this Section 11.2.
Furthermore, no amendment, modification, termination or waiver affecting the
rights or duties of Agent or Collateral Agent under this Agreement or any other
Loan Document shall be effective unless in writing and signed by Agent or
Collateral Agent, as applicable, in addition to Lenders required hereinabove to
take such action. Each amendment, modification, termination or waiver shall be
effective only in the specific instance and for the specific purpose for which
it was given. No amendment, modification, termination or waiver shall be
required for Agent or Collateral Agent to take additional Collateral pursuant to
any Loan Document. No amendment, modification, termination or waiver of any
provision of any Revolving Note shall be effective without the written
concurrence of the holder of that Revolving Note. No notice to or demand on any
Credit Party in any case shall entitle such Credit Party or any other Credit
Party to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this Section 11.2 shall be binding upon each holder
of the Revolving Notes at the time outstanding and each future holder of the
Revolving Notes.
(c) If, in connection with any proposed amendment, modification,
waiver or termination (a "Proposed Change"):
(i) requiring the consent of all affected Lenders, the
consent of Requisite Lenders is obtained, but the consent of other
Lenders whose consent is required is not obtained (any such Lender
whose consent is not obtained as described this clause (i) and in
clause (ii) below being referred to as a "Non-Consenting Lender"), or
(ii) requiring the consent of Requisite Lenders, the consent
of Lenders holding 51% or more of the aggregate Commitments is
obtained, but the consent of Requisite Lenders is not obtained
then, so long as Agent is not a Non-Consenting Lender, at Borrower
Representative's request, Agent or a Person acceptable to Agent shall have the
right with Agent's consent and in Agent's sole discretion (but shall have no
obligation) to purchase from such Non-Consenting Lenders, and such Non-
Consenting Lenders agree that they shall, upon Agent's request, sell and assign
to Agent or such Person, all of the Commitments of such Non-Consenting Lender
for an amount equal to the principal balance of all Revolving Credit Advances
held by the Non-Consenting Lender and all accrued interest and Fees with respect
thereto through the date of sale, such purchase and sale to be consummated
pursuant to an executed Assignment Agreement.
(d) Upon indefeasible payment in full in cash and performance of all
of the Obligations (other than indemnification Obligations under Section 1.12),
termination of the Commitments and a release of all claims against Collateral
Agent, Agent and Lenders, and so long as no suits, actions proceedings, or
claims are pending or threatened against any Indemnified Person asserting any
damages, losses or liabilities that are Indemnified Liabilities, Agent shall (or
shall cause Collateral Agent to) deliver to Borrowers termination statements,
mortgage releases, if applicable, and other documents necessary or appropriate
to evidence the termination of the Liens securing payment of the Obligations.
11.3 Fees and Expenses. Borrowers shall reimburse Agent and
Collateral Agent for all out-of-pocket expenses incurred in connection with the
preparation of the Loan Documents (including the reasonable fees and expenses of
all of its special loan counsel, advisors, consultants and auditors retained in
connection with the Loan Documents and the Related Transactions and advice in
connection therewith). Borrowers shall reimburse Agent and Collateral Agent
(and, with respect to clauses (c) and (d) below, all Lenders) for all fees,
costs and expenses, including the fees, costs and expenses of counsel or other
advisors (including environmental and management consultants and appraisers) for
advice, assistance, or other representation in connection with:
(a) the forwarding to Borrowers or any other Person on behalf of
Borrowers by Agent of the proceeds of the Revolving Loan;
(b) any amendment, modification or waiver of, or consent with
respect to, any of the Loan Documents or Related Transactions Documents or
advice in connection with the administration of the Revolving Loan made pursuant
hereto or its rights hereunder or thereunder;
(c) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Agent, any Lender, any Borrower or any other Person) in
any way relating to the Collateral, any of the Loan Documents or any other
agreement to be executed or delivered in connection therewith or herewith,
whether as party, witness, or otherwise, including any litigation, contest,
dispute, suit, case, proceeding or action, and any appeal or review thereof, in
connection with a case commenced by or against any or all of the Borrowers or
any other Person that may be obligated to Agent by virtue of the Loan Documents;
including any such litigation, contest, dispute, suit, proceeding or action
arising in connection with any work-out or restructuring of the Revolving Loan
during the pendency of one or more Events of Default; provided that in the case
of reimbursement of counsel for Lenders other than Agent, such reimbursement
shall be limited to one counsel for all such Lenders;
(d) any attempt to enforce any remedies of Agent or Collateral
Agent against any or all of the Credit Parties or any other Person that may be
obligated to Agent, Collateral Agent or any Lender by virtue of any of the Loan
Documents; including any such attempt to enforce any such remedies in the course
of any work-out or restructuring of the Revolving Loan during the pendency of
one or more Events of Default; provided that in the case of reimbursement of
counsel for Lenders other than Agent or Collateral Agent, such reimbursement
shall be limited to one counsel for all such Lenders;
(e) any work-out or restructuring of the Revolving Loan during
the pendency of one or more Events of Default;
(f) efforts to (i) monitor the Revolving Loan or any of the
other Obligations, (ii) evaluate, observe or assess any of the Credit Parties or
their respective affairs, and (iii) verify, protect, evaluate, assess, appraise,
collect, sell, liquidate or otherwise dispose of any of the Collateral;
including all attorneys' and other professional and service providers' fees
arising from such services, including those in connection with any appellate
proceedings; and all expenses, costs, charges and other fees incurred by such
counsel and others in any way or respect arising in connection with or relating
to any of the events or actions described in this Section 11.3 shall be payable,
on demand, by Borrowers to Agent. Without limiting the generality of the
foregoing, such expenses, costs, charges and fees may include: fees, costs and
expenses of accountants, environmental advisors, appraisers, investment bankers,
management and other consultants and paralegals; court costs and expenses;
photocopying and duplication expenses; court reporter fees, costs and expenses;
long distance telephone charges; air express charges; telegram or telecopy
charges; secretarial overtime charges; and expenses for travel, lodging and food
paid or incurred in connection with the performance of such legal or other
advisory services.
11.4 No Waiver. Agent's or any Lender's failure, at any time or
times, to require strict performance by the Credit Parties of any provision of
this Agreement and any of the other Loan Documents shall not waive, affect or
diminish any right of Agent or such Lender thereafter to demand strict
compliance and performance therewith. Any suspension or waiver of an Event of
Default shall not suspend, waive or affect any other Event of Default whether
the same is prior or subsequent thereto and whether the same or of a different
type. Subject to the provisions of Section 11.2, none of the undertakings,
agreements, warranties, covenants and representations of any Credit Party
contained in this Agreement or any of the other Loan Documents and no Default or
Event of Default by any Credit Party shall be deemed to have been suspended or
waived by Agent or any Lender, unless such waiver or suspension is by an
instrument in writing signed by an officer of or other authorized employee of
Agent and the applicable required Lenders, and directed to Borrowers specifying
such suspension or waiver.
11.5 Remedies. Agent's and Lenders' rights and remedies under this
Agreement shall be cumulative and nonexclusive of any other rights and remedies
which Agent or any Lender may have under any other agreement, including the
other Loan Documents, by operation of law or otherwise. Recourse to the
Collateral shall not be required.
11.6 Severability. Wherever possible, each provision of this
Agreement and the other Loan Documents shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
11.7 Conflict of Terms. Except as otherwise provided in this
Agreement or any of the other Loan Documents by specific reference to the
applicable provisions of this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision in any of the
other Loan Documents, the provision contained in this Agreement shall govern and
control.
11.8 Confidentiality. Agent and each Lender agree to use commercially
reasonable efforts (equivalent to the efforts Agent or such Lender applies to
maintaining the confidentiality of its own confidential information) to maintain
as confidential all confidential information provided to them by the Credit
Parties and designated as confidential for a period of two (2) years following
receipt thereof, except that Agent and any Lender may disclose such information
(a) to Persons employed or engaged by Agent or such Lender in evaluating,
approving, structuring or administering the Revolving Loan and the Commitments;
(b) to any bona fide assignee or participant that has agreed to comply with the
covenant contained in this Section 11.8 (and any such bona fide assignee or
participant may disclose such information to Persons employed or engaged by them
as described in clause (a) above); (c) as required or requested by any
Governmental Authority or reasonably believed by Agent or such Lender to be
compelled by any court decree, subpoena or legal or administrative order or
process; (d) as, in the opinion of Agent's or such Lender's counsel, required by
law; (e) in connection with the exercise of any right or remedy under the Loan
Documents or in connection with any Litigation to which Agent or such Lender is
a party; or (f) which ceases to be confidential through no fault of Agent or
such Lender.
11.9 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF
THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICT OF LAW
PROVISIONS) AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH
BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN
NEW YORK COUNTY, CITY OF NEW YORK, NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO
HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWERS, AGENT AND LENDERS
PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS,
PROVIDED, THAT AGENT, LENDERS AND BORROWERS ACKNOWLEDGE THAT ANY APPEALS FROM
THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY,
CITY OF NEW YORK, NEW YORK AND, PROVIDED, FURTHER NOTHING IN THIS AGREEMENT
SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER
LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER
SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF AGENT. EACH BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH
BORROWER HEREBY WAIVES ANY OBJECTION WHICH SUCH BORROWER MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH BORROWER AT THE ADDRESS SET FORTH
IN ANNEX H OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
UPON THE EARLIER OF SUCH BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS
AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
11.10 Notices. Except as otherwise provided herein, whenever it
is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other parties, or whenever any of the parties desires to
give or serve upon any other parties any communication with respect to this
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be deemed to have been validly
served, given or delivered (a) upon the earlier of actual receipt and three (3)
Business Days after deposit in the United States Mail, registered or certified
mail, return receipt requested, with proper postage prepaid, (b) upon
transmission, when sent by telecopy or other similar facsimile transmission
(with such telecopy or facsimile promptly confirmed by delivery of a copy by
personal delivery or United States Mail as otherwise provided in this Section
11.10), (c) one (1) Business Day after deposit with a reputable overnight
courier with all charges prepaid or (d) when delivered, if hand-delivered by
messenger, all of which shall be addressed to the party to be notified and sent
to the address or facsimile number indicated on Annex H or to such other address
(or facsimile number) as may be substituted by notice given as herein provided.
The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice. Failure or delay in delivering copies of
any notice, demand, request, consent, approval, declaration or other
communication to any Person (other than Borrower Representative or Agent)
designated on Annex H to receive copies shall in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval, declaration or
other communication.
11.11 Section Titles. The Section titles and Table of Contents
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto.
11.12 Counterparts. This Agreement may be executed in any number
of separate counterparts, each of which shall collectively and separately
constitute one agreement.
11.13 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG AGENT, LENDERS AND BORROWERS
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
11.14 Press Releases. Each Credit Party further agrees that
neither it nor its Affiliates will in the future issue any press releases or
other public disclosure using the name of GE Capital or its affiliates or
referring to this Agreement, the other Loan Documents or the Related
Transactions Documents without at least two (2) Business Days' prior notice to
GE Capital and without the prior written consent of GE Capital unless (and only
to the extent that) such Credit Party or Affiliate is required to do so under
law and then, in any event, such Credit Party or Affiliate will consult with GE
Capital before issuing such press release or other public disclosure. Each
Credit Party consents to the publication by Agent or any Lender of a tombstone
or similar advertising material relating to the financing transactions
contemplated by this Agreement.
11.15 Reinstatement. This Agreement shall remain in full force
and effect and continue to be effective should any petition be filed by or
against any Borrower for liquidation or reorganization, should any Borrower
become insolvent or make an assignment of the benefit of any creditor or
creditors or should a receiver or trustee be appointed for all or any
significant part of any Borrower's assets, and shall continue to be effective or
to be reinstated, as the case may be, if at any time payment and performance of
the Obligations, or any part thereof, is, pursuant to applicable law, rescinded
or reduced in amount, or must otherwise be restored or returned by any obligee
of the Obligations, whether as a "voidable preference," "fraudulent conveyance,"
or otherwise, all as though such payment or performance had not been made. In
the event that any payment, or any part thereof, is rescinded, reduced, restored
or returned, the Obligations shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.
11.16 Advice of Counsel. Each of the parties represents to each
other party hereto that it has discussed this Agreement and, specifically, the
provisions of Sections 11.9 and 11.13, with its counsel.
11.17 No Strict Construction. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement.
11.18 Dating. Although this Agreement is dated as of the date first
written above for convenience, this Agreement shall be effective on January 7,
1997.
12. CROSS-GUARANTY
12.1 Cross-Guaranty. Each Borrower hereby agrees that such Borrower
is jointly and severally liable for, and hereby absolutely and unconditionally
guarantees to Agent, Collateral Agent and Lenders and their respective
successors and assigns, the full and prompt payment (whether at stated maturity,
by acceleration or otherwise) and performance of, all Obligations owed or
hereafter owing to Agent, Collateral Agent and Lenders by each other Borrower.
Each Borrower agrees that its guaranty obligation hereunder is a continuing
guaranty of payment and performance and not of collection, and that its
obligations under this Section 12 shall be absolute and unconditional,
irrespective of, and unaffected by,
(a) the genuineness, validity, regularity, enforceability or any
future amendment of, or change in, this Agreement, any other Loan Document
or any other agreement, document or instrument to which any Borrower is or
may become a party;
(b) the absence of any action to enforce this Agreement
(including this Section 12) or any other Loan Document or the waiver or
consent by Agent, Collateral Agent and Lenders with respect to any of the
provisions thereof;
(c) the existence, value or condition of, or failure to perfect
its Lien against, any security for the Obligations or any action, or the
absence of any action, by Agent, Collateral Agent and Lenders in respect
thereof (including the release of any such security);
(d) the insolvency of any Credit Party; or
(e) any other action or circumstances which might otherwise
constitute a legal or equitable discharge or defense of a surety or
guarantor,
it being agreed by each Borrower that its obligations under this Section 12
shall not be discharged until the payment and performance, in full, of the
Obligations has occurred. Each Borrower shall be regarded, and shall be in the
same position, as principal debtor with respect to the Obligations guaranteed
hereunder.
12.2 Waivers by Borrowers. Each Borrower expressly waives all rights
it may have now or in the future under any statute, or at common law, or at law
or in equity, or otherwise, to compel Agent, Collateral Agent or Lenders to
marshall assets or to proceed in respect of the Obligations guaranteed hereunder
against any other Credit Party any other party or against any security for the
payment and performance of the Obligations before proceeding against, or as a
condition to proceeding against, such Borrower. It is agreed among each
Borrower, Agent and Lenders that the foregoing waivers are of the essence of the
transaction contemplated by this Agreement and the other Loan Documents and
that, but for the provisions of this Section 12 and such waivers, Agent and
Lenders would decline to enter into this Agreement.
12.3 Benefit of Guaranty. Each Borrower agrees that the provisions of
this Section 12 are for the benefit of Agent, Collateral Agent and Lenders and
their respective successors, transferees, endorsees and assigns, and nothing
herein contained shall impair, as between any other Borrower and Agent,
Collateral Agent or Lenders, the obligations of such other Borrower under the
Loan Documents.
12.4 Subordination of Subrogation, Etc. Notwithstanding anything to
the contrary in this Agreement or in any other Loan Document, and except as set
forth in Section 12.7, each Borrower hereby expressly and irrevocably
subordinates to payment of the Obligations any and all rights at law or in
equity to subrogation, reimbursement, exoneration, contribution,
indemnification or set off and any and all defenses available to a surety,
guarantor or accommodation co-obligor until the Obligations are indefeasibly
paid in full in cash. Each Borrower acknowledges and agrees that this waiver is
intended to benefit Agent, Collateral Agent and Lenders and shall not limit or
otherwise affect such Borrower's liability hereunder or the enforceability of
this Section 12, and that Agent, Collateral Agent Lenders and their respective
successors and assigns are intended third party beneficiaries of the waivers and
agreements set forth in this Section 12.4.
12.5 Election of Remedies. If Agent, Collateral Agent or any Lender
may, under applicable law, proceed to realize its benefits under any of the Loan
Documents giving Agent, Collateral or such Lender a Lien upon any Collateral,
whether owned by any Borrower or by any other Person, either by judicial
foreclosure or by non-judicial sale or enforcement, Agent or any Lender may, at
its sole option, determine which of its remedies or rights it may pursue without
affecting any of its rights and remedies under this Section 12. If, in the
exercise of any of its rights and remedies, Agent, Collateral Agent or any
Lender shall forfeit any of its rights or remedies, including its right to enter
a deficiency judgment against any Borrower or any other Person, whether because
of any applicable laws pertaining to "election of remedies" or the like, each
Borrower hereby consents to such action by Agent, Collateral Agent or such
Lender and waives any claim based upon such action, even if such action by Agent
or such Lender shall result in a full or partial loss of any rights of
subrogation which each Borrower might otherwise have had but for such action by
Agent, Collateral Agent or such Lender. Any election of remedies which results
in the denial or impairment of the right of Agent, Collateral Agent or any
Lender to seek a deficiency judgment against any Borrower shall not impair any
other Borrower's obligation to pay the full amount of the Obligations. In the
event Agent, Collateral Agent or any Lender shall bid at any foreclosure or
trustee's sale or at any private sale permitted by law or the Loan Documents,
Agent, Collateral Agent or such Lender may bid all or less than the amount of
the Obligations and the amount of such bid need not be paid by Agent, Collateral
Agent or such Lender but shall be credited against the Obligations. The amount
of the successful bid at any such sale, whether Agent, Collateral Agent, Lender
or any other party is the successful bidder, shall be conclusively deemed to be
the fair market value of the Collateral and the difference between such bid
amount and the remaining balance of the Obligations shall be conclusively deemed
to be the amount of the Obligations guaranteed under this Section 12,
notwithstanding that any present or future law or court decision or ruling may
have the effect of reducing the amount of any deficiency claim to which Agent,
Collateral Agent or any Lender might otherwise be entitled but for such bidding
at any such sale.
12.6 Limitation. Notwithstanding any provision herein contained to
the contrary, each Borrower's liability under this Section 12 (which liability
is in any event in addition to amounts for which such Borrower is primarily
liable under Section 1) shall be limited to an amount not to exceed as of any
date of determination the greater of:
(a) the net amount of all Revolving Credit Advances advanced to any
other Borrower under this Agreement and then re-loaned or otherwise transferred
to, or for the benefit of, such Borrower; and
(b) the amount which could be claimed by Agent, Collateral Agent and
Lenders from such Borrower under this Section 12 without rendering such claim
voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or
under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law after taking into account, among
other things, such Borrower's right of contribution and indemnification from
each other Borrower under Section 12.7.
12.7 Contribution with Respect to Guaranty Obligations.
(a) To the extent that any Borrower shall make a payment under this
Section 12 of all or any of the Obligations (other than Revolving Credit
Advances made to that Borrower for which it is primarily liable) (a "Guarantor
Payment") which, taking into account all other Guarantor Payments then
previously or concurrently made by any other Borrower, exceeds the amount which
such Borrower would otherwise have paid if each Borrower had paid the aggregate
Obligations satisfied by such Guarantor Payment in the same proportion that such
Borrower's "Allocable Amount" (as defined below) (as determined immediately
prior to such Guarantor Payment) bore to the aggregate Allocable Amounts of each
of the Borrowers as determined immediately prior to the making of such Guarantor
Payment, then, following indefeasible payment in full in cash of the Obligations
and termination of the Commitments, such Borrower shall be entitled to receive
contribution and indemnification payments from, and be reimbursed by, each other
Borrower for the amount of such excess, pro rata based upon their respective
Allocable Amounts in effect immediately prior to such Guarantor Payment.
(b) As of any date of determination, the "Allocable Amount" of any
Borrower shall be equal to the maximum amount of the claim which could then be
recovered from such Borrower under this Section 12 without rendering such claim
voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or
under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law.
(c) This Section 12.7 is intended only to define the relative rights
of Borrowers and nothing set forth in this Section 12.7 is intended to or shall
impair the obligations of Borrowers, jointly and severally, to pay any amounts
as and when the same shall become due and payable in accordance with the terms
of this Agreement, including Section 12.1. Nothing contained in this Section
12.7 shall limit the liability of any Borrower to pay the Revolving Credit
Advances made directly or indirectly to that Borrower and accrued interest, Fees
and expenses with respect thereto for which such Borrower shall be primarily
liable.
(d) The parties hereto acknowledge that the rights of contribution
and indemnification hereunder shall constitute assets of the Borrower to which
such contribution and indemnification is owing.
(e) The rights of the indemnifying Borrowers against other Credit
Parties under this Section 12.7 shall be exercisable upon the full and
indefeasible payment of the Obligations and the termination of the Commitments.
12.8 Liability Cumulative. The liability of Borrowers under this
Section 12 is in addition to and shall be cumulative with all liabilities of
each Borrower to Agent, Collateral Agent and Lenders under this Agreement and
the other Loan Documents to which such Borrower is a party or in respect of any
Obligations or obligation of the other Borrower, without any limitation as to
amount, unless the instrument or agreement evidencing or creating such other
liability specifically provides to the contrary.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above.
THE LIPOSOME COMPANY, INC.
By: /s/Brian J. Geiger
Title: Vice President
THE LIPOSOME MANUFACTURING
COMPANY, INC.
By: /s/Brian J. Geiger
Title: Treasurer
GENERAL ELECTRIC CAPITAL
CORPORATION,
Revolving Loan as Agent, Collateral Agent and a Lender
Commitment:
$14,000,000 By: Charles Chiodo
Title: Duly Authorized Signatory
The following Persons are signatories to this Agreement as to
covenants and representations, other than payment obligations herein contained.
LIPOSOME HOLDINGS, INC.
By: /s/Brian J. Geiger
Title: Treasurer
ANNEX A (RECITALS)
TO
CREDIT AGREEMENT
DEFINITIONS
Capitalized terms used in the Agreement and the other Loan Documents
shall have (unless otherwise provided elsewhere in the Agreement or the other
Loan Documents) the following respective meanings and all section references in
the following definitions shall refer to Sections of the Agreement:
"ABELCET" shall mean Amphotericin B Lipid Complex Injection.
"Account Debtor" shall mean any Person who may become obligated to any
Credit Party under, with respect to, or on account of, an Account.
"Accounts" shall mean all "accounts," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party and, in any event,
including (a) all accounts receivable, other receivables, book debts and other
forms of obligations (other than forms of obligations evidenced by Chattel
Paper, Documents or Instruments) now owned or hereafter received or acquired by
or belonging or owing to any Credit Party, whether arising out of goods sold or
services rendered by it or from any other transaction (including any such
obligations which may be characterized as an account or contract right under the
Code), (b) all of each Credit Party's rights in, to and under all purchase
orders or receipts now owned or hereafter acquired by it for goods or services,
(c) all of each Credit Party's rights to any goods represented by any of the
foregoing (including unpaid sellers' rights of rescission, replevin, reclamation
and stoppage in transit and rights to returned, reclaimed or repossessed goods),
(d) all monies due or to become due to any Credit Party, under all purchase
orders and contracts for the sale of goods or the performance of services or
both by such Credit Party or in connection with any other transaction (whether
or not yet earned by performance on the part of such Credit Party) now or
hereafter in existence, including the right to receive the proceeds of said
purchase orders and contracts, and (e) all collateral security and guarantees of
any kind, now or hereafter in existence, given by any Person with respect to any
of the foregoing.
"Activation Event" and "Activation Notice" shall have the meanings set
forth in Annex B.
"Affiliate" shall mean, with respect to any Person, (a) each Person
that, directly or indirectly, owns or controls, whether beneficially, or as a
trustee, guardian or other fiduciary, five percent (5%) or more of the Stock
having ordinary voting power in the election of directors of such Persons, (b)
each Person that controls, is controlled by or is under common control with such
Person, (c) each of such Person's officers, directors, joint venturers and
partners and (d) in the case of Borrowers, the immediate family members, spouses
and lineal descendants of individuals who are Affiliates of any Borrower. For
the purposes of this definition, "control" of a Person shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise; provided, however, that the term
"Affiliate" shall specifically exclude Agent, Collateral Agent and each Lender.
"Agent" shall mean GE Capital or its successor appointed pursuant to
Section 9.7.
"Aggregate Borrowing Base" shall mean, as of any date of
determination, an amount equal to the sum of the Liposome Borrowing Base and the
Liposome Manufacturing Borrowing Base; provided, that (1) in calculating such
amount in no event shall the sum of the amount determined pursuant to clause (b)
of the definition of Liposome Borrowing Base and clause (b) of the definition of
Liposome Manufacturing Borrowing Base (the "Inventory Borrowing Base") be deemed
to exceed $6,000,000 in the aggregate and (2) in no event shall the Aggregate
Borrowing Base exceed the sum of (i) the lesser of (A) the sum of clause (a) of
the definition of Liposome Borrowing Base and clause (a) of the definition of
Liposome Manufacturing Borrowing Base (the "Accounts Borrowing Base") and (B)
the product of (y) 2 and (z) the then current market value as determined by
Agent of the Bond Collateral less that portion of the Bond Collateral which
Liposome has elected pursuant to its Borrowing Base Certificate to support the
Inventory Borrowing Base, less, after calculating such product and without
duplication, any Reserves established by Agent at such time plus (ii) the lessor
of (A) subject to clause (1) of this proviso, the Inventory Borrowing Base and
(B) the then current market value as determined by Agent of the Bond Collateral
less that portion of the Bond Collateral which Liposome has elected pursuant to
its Borrowing Base Certificate to support the Accounts Borrowing Base, less,
without duplication, any Reserves established by Agent at such time. In
calculating the Aggregate Borrowing Base, in no event shall the sum of the
portion of the current market value of the Bond Collateral which Liposome has
elected to support the Inventory Borrowing Base and that portion which Liposome
has elected to support the Accounts Borrowing Base exceed the then current
market value of the Bond Collateral as determined by Agent.
"Agreement" shall mean the Credit Agreement by and among Borrowers, GE
Capital, as Agent and a Lender and the other Lenders signatory from time to time
to the Agreement.
"Appendices" shall have the meaning assigned to it in the recitals to
the Agreement.
"Applicable Margin" shall mean the per annum interest rate margin from
time to time in effect and payable in addition to the Index Rate applicable to
the Revolving Loan, as determined by reference to Section 1.4(a) of the
Agreement.
"Assignment Agreement" shall have the meaning assigned to it in
Section 9.1(a).
"BMS" shall mean Bristol-Myers Squibb Company.
"Bond Collateral" shall mean that certain securities account number
09508-01-J in the name of Liposome at CoreStates and all financial assets from
time to time carried therein acceptable to Agent and any free credit balance
contained therein.
"Borrower Accounts" shall have the meaning assigned to it in Annex B.
"Borrower Representative" shall mean Liposome in its capacity as
Borrower Representative pursuant to the provisions of Section 1.1(d).
"Borrowers" and "Borrower" shall have the respective meanings assigned
thereto in the recitals to the Agreement.
"Borrowers Security Agreement" shall mean the Security Agreement of
even date herewith entered into among Collateral Agent, on behalf of itself,
Agent and Lenders and Borrowers.
"Borrowing Availability" shall have the meaning assigned to it in
Section 1.1(a)(i).
"Borrowing Base" shall mean, as the context may require, the Liposome
Borrowing Base and the Liposome Manufacturing Borrowing Base or any such
Borrowing Base.
"Borrowing Base Certificate" shall mean a certificate to be executed
and delivered from time to time by each Borrower in the form attached to the
Agreement as Exhibit 4.1(b).
"Business Day" shall mean any day that is not a Saturday, a Sunday or
a day on which banks are required or permitted to be closed in the State of New
York.
"Capital Expenditures" shall mean, with respect to any Person, all
expenditures (by the expenditure of cash or the incurrence of Indebtedness but
excluding any expenditures to purchase assets pursuant to a Permitted
Acquisition) by such Person during any measuring period for any fixed assets or
improvements or for replacements, substitutions or additions thereto, that have
a useful life of more than one year and that are required to be capitalized
under GAAP.
"Capital Lease" shall mean, with respect to any Person, any lease of
any property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, would be required to be classified and accounted for as a
capital lease on a balance sheet of such Person.
"Capital Lease Obligation" shall mean, with respect to any Capital
Lease of any Person, the amount of the obligation of the lessee thereunder that,
in accordance with GAAP, would appear on a balance sheet of such lessee in
respect of such Capital Lease.
"Cash Management Systems" shall have the meaning assigned to it in
Section 1.7.
"Change of Control" means any of the following: (a) any person or
group of persons (within the meaning of the Exchange Act) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC
under the Exchange Act of 20% or more of the issued and outstanding shares of
capital Stock of Liposome having the right to vote for the election of directors
of Liposome under ordinary circumstances; (b) during any period of twelve
consecutive calendar months, individuals who at the beginning of such period
constituted the board of directors of Liposome (together with any new directors
whose election by the board of directors of Liposome or whose nomination for
election by the stockholders of Liposome was approved by a vote of at least two-
thirds of the directors then still in office who either were directors at the
beginning of such period or whose elections or nomination for election was
previously so approved) cease for any reason other than death or disability to
constitute a majority of the directors then in office; (c) Liposome shall cease
to directly own and control all of the economic and voting rights associated
with all of the outstanding capital stock of its domestic Subsidiaries
(including Liposome Manufacturing); or (d) Liposome or the Intermediary Holding
Company shall cease to directly own and control all of the economic and voting
rights associated with all of the outstanding capital Stock (other than
directors' qualifying shares of any of their respective foreign Subsidiaries).
For purposes of this definition, "control" shall mean, with respect to a Person,
the possession, directly or indirectly, of the power to direct or cause the
direction of such Person's management or policies, whether through the ownership
of voting securities, by contract or otherwise.
"Charges" shall mean all federal, state, county, city, municipal,
local, foreign or other governmental taxes (including taxes owed to the PBGC at
the time due and payable), levies, assessments, charges, liens, claims or
encumbrances upon or relating to (a) the Collateral, (b) the Obligations, (c)
the employees, payroll, income or gross receipts of any Credit Party, (d) any
Credit Party's ownership or use of any properties or other assets, or (e) any
other aspect of any Credit Party's business.
"Chattel Paper" shall mean any "chattel paper," as such term is
defined in the Code, now owned or hereafter acquired by any Credit Party,
wherever located.
"Closing Date" shall mean January 7, 1997.
"Closing Checklist" shall mean the schedule, including all appendices,
exhibits or schedules thereto, listing certain documents and information to be
delivered in connection with the Agreement, the other Loan Documents and the
transactions contemplated thereunder, substantially in the form attached hereto
as Annex C.
"Code" shall mean the Uniform Commercial Code as the same may, from
time to time, be enacted and in effect in the State of New York; provided,
however, in the event that, by reason of mandatory provisions of law, any or all
of the attachment, perfection or priority of Collateral Agent's, Agent's or any
Lender's security interest in any Collateral is governed by the Uniform
Commercial Code as enacted and in effect in a jurisdiction other than the State
of New York, the term "Code" shall mean the Uniform Commercial Code as enacted
and in effect in such other jurisdiction solely for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
"Collateral" shall mean the property covered by the Borrowers Security
Agreement, the Subsidiary Security Agreement, the Liposome Pledge Agreement, the
Control Agreement and the other Collateral Documents and any other property,
real or personal, tangible or intangible, now existing or hereafter acquired,
that may at any time be or become subject to a security interest or Lien in
favor of Collateral Agent, on behalf of itself, Agent and Lenders, to secure the
Obligations.
"Collateral Agent" shall mean GE Capital or its successor appointed
pursuant to Section 9.7.
"Collateral Documents" shall mean the Borrowers Security Agreement,
the Subsidiary Security Agreement, the Pledge Agreements, the Control Agreement
and the Guaranties and all similar agreements entered into guaranteeing payment
of, or granting a Lien upon property as security for payment of, the
Obligations.
"Collateral Reports" shall mean the reports with respect to the
Collateral referred to in Annex E.
"Collection Account" shall mean that certain account of Agent, account
number 502-328-54 in the name of Agent at Bankers Trust Company in New York,
New York.
"Commitment" shall mean (a) as to any Lender, the aggregate commitment
of such Lender to make Revolving Credit Advances as set forth in the signature
page to the Agreement or in the most recent Assignment Agreement executed by
such Lender and (b) as to all Lenders, the aggregate commitment of all Lenders
to make Revolving Credit Advances which aggregate commitment shall be Fourteen
Million Dollars ($14,000,000) on the Closing Date, as such amount may be
adjusted, if at all, from time to time in accordance with the Agreement.
"Commitment Termination Date" shall mean the earliest of (a) January
7, 2000, (b) the date of termination of Lenders' obligations to make Revolving
Credit Advances or permit existing Revolving Credit Advances to remain
outstanding pursuant to Section 8.2(b), and (c) the date of indefeasible
prepayment in full by Borrowers of the Revolving Loan and the permanent
reduction of the Commitment to zero dollars ($0), in accordance with the
provisions of Section 1.2(a).
"Compliance Certificate" shall have the meaning assigned to it in
Annex D.
"Concentration Accounts" shall have the meaning assigned to it in
Annex B.
"Contracts" shall mean all "contracts," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, in any event,
including all contracts, undertakings, or agreements (other than rights
evidenced by Chattel Paper, Documents or Instruments) in or under which any
Credit Party may now or hereafter have any right, title or interest, including
any agreement relating to the terms of payment or the terms of performance of
any Account.
"Control Agreement" shall mean that certain Control Agreement dated
January 7, 1997 among CoreStates, Liposome and the Collateral Agent, pursuant to
which the Collateral Agent, for the benefit of itself, Agent and Lenders, shall
have a first priority perfected security interest in the Bond Collateral subject
to no other Liens.
"Copyright License" shall mean any and all rights now owned or
hereafter acquired by any Credit Party under any written agreement granting any
right to use any Copyright or Copyright registration.
"Copyrights" shall mean all of the following now owned or hereafter
acquired by any Credit Party: (a) all copyrights and general intangibles of like
nature (whether registered or unregistered), now owned or existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, including all registrations, recordings
and applications in the United States Copyright Office or in any similar office
or agency of the United States, any state or territory thereof, or any other
country or any political subdivision thereof, and (b) all reissues, extensions
or renewals thereof.
"CoreStates" shall mean CoreStates Bank. N.A., a Pennsylvania
corporation.
"Credit Parties" shall mean each Borrower, and each of their
respective Subsidiaries.
"Current Assets" shall mean, with respect to any Person, all current
assets of such Person as of any date of determination calculated in accordance
with GAAP, but excluding debts due from Affiliates.
"Current Liabilities" shall mean, with respect to any Person, all
liabilities which should, in accordance with GAAP, be classified as current
liabilities, and in any event shall include all Indebtedness payable on demand
or within one year from any date of determination without any option on the part
of the obligor to extend or renew beyond such year, all accruals for federal or
other taxes based on or measured by income and payable within such year, and the
current portion of long-term debt required to be paid within one year, but
excluding, in the case of Borrowers, the aggregate outstanding principal
balances of the Revolving Loan.
"Current Ratio" shall mean, with respect to any Person as of any date
of determination, the ratio of (a) Current Assets, to (b) Current Liabilities.
"Default" shall mean any event which, with the passage of time or
notice or both, would, unless cured or waived, become an Event of Default.
"Default Rate" shall have the meaning assigned to it in Section
1.4(d).
"Disbursement Accounts" shall have the meaning assigned to it on Annex
B.
"Disclosure Schedules" shall mean the Schedules prepared by Borrowers
and denominated as Schedules 1.3 through 6.7 in the Index to the Agreement.
"Documents" shall mean any "documents," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, wherever located.
"Dollars" or "$" shall mean lawful currency of the United States of
America.
"EBIT" shall mean, with respect to any Person for any fiscal period,
an amount equal to (a) consolidated net income of such Person for such period,
minus (b) the sum of (i) income tax credits, (ii) interest income, (iii) gain
from extraordinary items for such period, (iv) any aggregate net gain (but not
any aggregate net loss) during such period arising from the sale, exchange or
other disposition of capital assets by such Person (including any fixed assets,
whether tangible or intangible, all inventory sold in conjunction with the
disposition of fixed assets and all securities), and (v) any other non-cash
gains which have been added in determining consolidated net income, in each case
to the extent included in the calculation of consolidated net income of such
Person for such period in accordance with GAAP, but without duplication, plus
(c) the sum of (i) any provision for income taxes, (ii) Interest Expense, (iii)
loss from extraordinary items for such period, and (iv) the amount of any
deduction to consolidated net income as the result of any grant to any members
of the management of such Person of any Stock, in each case to the extent
included in the calculation of consolidated net income of such Person for such
period in accordance with GAAP, but without duplication. For purposes of this
definition, the following items shall be excluded in determining consolidated
net income of a Person: (1) the income (or deficit) of any other Person accrued
prior to the date it became a Subsidiary of, or was merged or consolidated into,
such Person or any of such Person's Subsidiaries; (2) the income (or deficit) of
any other Person (other than a Subsidiary) in which such Person has an ownership
interest, except to the extent any such income has actually been received by
such Person in the form of cash dividends or distributions; (3) the
undistributed earnings of any Subsidiary of such Person to the extent that the
declaration or payment of dividends or similar distributions by such Subsidiary
is not at the time permitted by the terms of any contractual obligation or
requirement of law applicable to such Subsidiary; (4) any restoration to income
of any contingency reserve, except to the extent that provision for such reserve
was made out of income accrued during such period; (5) any write-up of any
asset; (6) any net gain from the collection of the proceeds of life insurance
policies; (7) any net gain arising from the acquisition of any securities, or
the extinguishment, under GAAP, of any Indebtedness, of such Person, (8) in the
case of a successor to such Person by consolidation or merger or as a transferee
of its assets, any earnings of such successor prior to such consolidation,
merger or transfer of assets, and (9) any deferred credit representing the
excess of equity in any Subsidiary of such Person at the date of acquisition of
such Subsidiary over the cost to such Person of the investment in such
Subsidiary.
"Eligible Accounts" shall have the meaning assigned to it in Section
1.5 of the Agreement.
"Eligible Inventory" shall have the meaning assigned to it in Section
1.6 of the Agreement.
"Environmental Laws" shall mean all applicable federal, state, local
and foreign laws, statutes, ordinances, codes, rules, standards and regulations,
now or hereafter in effect, and in each case as amended or supplemented from
time to time, and any applicable judicial or administrative interpretation
thereof, including any applicable judicial or administrative order, consent
decree, order or judgment, imposing liability or standards of conduct for or
relating to the regulation and protection of human health, safety, the
environment and natural resources (including ambient air, surface water,
groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic
species and vegetation). Environmental Laws include the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C.
SectionSection 9601 et seq.) ("CERCLA"); the Hazardous Materials Transportation
Authorization Act of 1994 (49 U.S.C. SectionSection 5101 et seq.); the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. SectionSection 136 et
seq.); the Solid Waste Disposal Act (42 U.S.C. SectionSection 6901 et seq.); the
Toxic Substance Control Act (15 U.S.C. SectionSection 2601 et seq.); the Clean
Air Act (42 U.S.C. SectionSection 7401 et seq.); the Federal Water Pollution
Control Act (33 U.S.C. SectionSection 1251 et seq.); the Occupational Safety and
Health Act (29 U.S.C. SectionSection 651 et seq.); and the Safe Drinking Water
Act (42 U.S.C. SectionSection 300(f) et seq.), each as from time to time
amended, and any and all regulations promulgated thereunder, and all analogous
state, local and foreign counterparts or equivalents and any transfer of
ownership notification or approval statutes.
"Environmental Liabilities" shall mean all liabilities, obligations,
responsibilities, response, remedial and removal costs, investigation and
feasibility study costs, capital costs, operation and maintenance costs, losses,
damages, punitive damages, property damages, natural resource damages,
consequential damages, treble damages, costs and expenses (including all fees,
disbursements and expenses of counsel, experts and consultants), fines,
penalties, sanctions and interest incurred as a result of or related to any
claim, suit, action, investigation, proceeding or demand by any Person, whether
based in contract, tort, implied or express warranty, strict liability, criminal
or civil statute or common law, including any arising under or related to any
Environmental Laws, Environmental Permits, or in connection with any Release or
threatened Release or presence of a Hazardous Material whether on, at, in,
under, from or about or in the vicinity of any real or personal property.
"Environmental Permits" shall mean all permits, licenses,
authorizations, certificates, approvals, registrations or other written
documents required by any Governmental Authority under any Environmental Laws.
"Equipment" shall mean all "equipment," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, wherever located and,
in any event, including all such Credit Party's machinery and equipment,
including processing equipment, conveyors, machine tools, data processing and
computer equipment with software and peripheral equipment (other than software
constituting part of the Accounts), and all engineering, processing and
manufacturing equipment, office machinery, furniture, materials handling
equipment, tools, attachments, accessories, automotive equipment, trailers,
trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock and other
equipment of every kind and nature, trade fixtures and fixtures not forming a
part of real property, all whether now owned or hereafter acquired, and wherever
situated, together with all additions and accessions thereto, replacements
therefor, all parts therefor, all substitutes for any of the foregoing, fuel
therefor, and all manuals, drawings, instructions, warranties and rights with
respect thereto, and all products and proceeds thereof and condemnation awards
and insurance proceeds with respect thereto.
"Equipment Lease" shall mean that certain Equipment Lease Agreement
dated as of July 1, 1993 between Lessor and Liposome (including all equipment
schedules related thereto), as amended by Amendment No. 1 thereto, which
amendment, among other things, added Liposome Manufacturing as co-lessee under
the lease for all purposes thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974
(or any successor legislation thereto), as amended from time to time, and any
regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to any Credit Party, any
trade or business (whether or not incorporated) which, together with such Credit
Party, are treated as a single employer within the meaning of Sections 414(b),
(c), (m) or (o) of the IRC.
"ERISA Event" shall mean, with respect to any Credit Party or any
ERISA Affiliate, (a) any event described in Section 4043(c) of ERISA with
respect to a Title IV Plan; (b) the withdrawal of any Credit Party or ERISA
Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan
year in which it was a substantial employer, as defined in Section 4001(a)(2) of
ERISA; (c) the complete or partial withdrawal of any Credit Party or any ERISA
Affiliate from any Multiemployer Plan; (d) the filing of a notice of intent to
terminate a Title IV Plan or the treatment of a plan amendment as a termination
under Section 4041 of ERISA; (e) the institution of proceedings to terminate a
Title IV Plan or Multiemployer Plan by the PBGC; (f) the failure by any Credit
Party or ERISA Affiliate to make when due required contributions to a
Multiemployer Plan or Title IV Plan unless such failure is cured within 30 days;
(g) any other event or condition which might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan
or for the imposition of liability under Section 4069 or 4212(c) of ERISA; (h)
the termination of a Multiemployer Plan under Section 4041A of ERISA or the
reorganization or insolvency of a Multiemployer Plan under Section 4241 of
ERISA; or (i) the loss of a Qualified Plan's qualification or tax exempt status.
"ESOP" shall mean a Plan which is intended to satisfy the requirements
of Section 4975(e)(7) of the IRC.
"Event of Default" shall have the meaning assigned to it in Section
8.1.
"Federal Funds Rate" shall mean, for any day, a floating rate equal to
the weighted average of the rates on overnight Federal funds transactions among
members of the Federal Reserve System, as determined by Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System, or any successor thereto.
"Fees" shall mean any and all fees payable to Agent or any Lender
pursuant to the Agreement or any of the other Loan Documents.
"Financial Statements" shall mean the consolidated income statements,
statements of cash flows and balance sheets of Borrowers and consolidating
balance sheets of Liposome and certain of its Subsidiaries delivered in
accordance with Section 3.4 of the Agreement and Annex D to the Agreement.
"Fiscal Month" shall mean any of the monthly accounting periods of
Borrowers.
"Fiscal Quarter" shall mean any of the quarterly accounting periods of
Borrowers, ending on March 31, June 30, September 30 and December 31 of each
year.
"Fiscal Year" shall mean any of the annual accounting periods of
Borrowers ending on December 31 of each year.
"Fixtures" shall mean any "fixtures" as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party.
"Funded Debt" shall mean, with respect to any Person, all Indebtedness
for borrowed money evidenced by notes, bonds, debentures, or similar evidences
of Indebtedness and which by its terms matures more than one year from, or is
directly or indirectly renewable or extendible at such Person's option under a
revolving credit or similar agreement obligating the lender or lenders to extend
credit over a period of more than one year from the date of creation thereof,
and specifically including Capital Lease Obligations, current maturities of
long-term debt, revolving credit and short-term debt extendible beyond one year
at the option of the debtor, and also including, in the case of Borrowers, the
Obligations.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect on the Closing Date, consistently applied
as such term is further defined in Annex F to the Agreement.
"GE Capital Fee Letter" shall have the meaning assigned to it in
Section 1.8 of the Agreement.
"General Intangibles" shall mean any "general intangibles," as such
term is defined in the Code, now owned or hereafter acquired by any Credit
Party, and, in any event, including all right, title and interest which such
Credit Party may now or hereafter have in or under any Contract, all customer
lists, Licenses, Copyrights, Trademarks, Patents, and all applications therefor
and reissues, extensions or renewals thereof, rights in Intellectual Property,
interests in partnerships, joint ventures and other business associations,
licenses, permits, copyrights, trade secrets, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, experience, processes, models, drawings, materials and
records, goodwill (including the goodwill associated with any Trademark or
Trademark License), all rights and claims in or under insurance policies
(including insurance for fire, damage, loss and casualty, whether covering
personal property, real property, tangible rights or intangible rights, all
liability, life, key man and business interruption insurance, and all unearned
premiums), uncertificated securities, choses in action, deposit, checking and
other bank accounts, rights to receive tax refunds and other payments and rights
of indemnification.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any obligation
of such Person guaranteeing any indebtedness, lease, dividend, or other
obligation ("primary obligations") of any other Person (the "primary obligor")
in any manner, including any obligation or arrangement of such Person (a) to
purchase or repurchase any such primary obligation, (b) to advance or supply
funds (i) for the purchase or payment of any such primary obligation or (ii) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency or any balance sheet condition of the
primary obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation, or (d) to
indemnify the owner of such primary obligation against loss in respect thereof.
The amount of any Guaranteed Indebtedness at any time shall be deemed to be an
amount equal to the lesser at such time of (x) the stated or determinable amount
of the primary obligation in respect of which such Guaranteed Indebtedness is
made and (y) the maximum amount for which such Person may be liable pursuant to
the terms of the instrument embodying such Guaranteed Indebtedness; or, if not
stated or determinable, the maximum reasonably anticipated liability (assuming
full performance) in respect thereof.
"Guaranties" shall mean, collectively, the Subsidiary Guaranty and any
other guaranty executed by any Guarantor in favor of Agent and Lenders in
respect of the Obligations.
"Guarantors" shall mean each domestic Subsidiary of Liposome and each
other Person, if any, which executes a guarantee or other similar agreement in
favor of Agent in connection with the transactions contemplated by the Agreement
and the other Loan Documents.
"Hazardous Material" shall mean any substance, material or waste which
is regulated by or forms the basis of liability now or hereafter under, any
Environmental Laws, including any material or substance which is (a) defined as
a "solid waste," "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste," "restricted hazardous waste," "pollutant,"
"contaminant," "hazardous constituent," "special waste," "toxic substance" or
other similar term or phrase under any Environmental Laws, (b) petroleum or any
fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's), or
any radioactive substance.
"Indebtedness" of any Person shall mean without duplication (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property payment for which is deferred six (6) months or more, but
excluding obligations to trade creditors incurred in the ordinary course of
business which obligations are not outstanding for more than six (6) months
unless being contested in good faith, (b) all reimbursement and other
obligations with respect to letters of credit, bankers' acceptances and surety
bonds, whether or not matured, (c) all obligations evidenced by notes, bonds,
debentures or similar instruments, (d) all indebtedness created or arising under
any conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all Capital Lease Obligations, (f) all
obligations of such Person under commodity purchase or option agreements or
other commodity price hedging arrangements, in each case whether contingent or
matured, (g) all obligations of such Person under any foreign exchange contract,
currency swap agreement, interest rate swap, cap or collar agreement or other
similar agreement or arrangement designed to alter the risks of that Person
arising from fluctuations in currency values or interest rates, in each case
whether contingent or matured, (h) all Indebtedness referred to above secured by
(or for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Lien upon or in property or other assets
(including accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness,
and (i) the Obligations.
"Indemnified Liabilities" shall have the meaning assigned to it in
Section 1.12.
"Index Rate" shall mean, for any day, a floating rate equal to the
higher of (a) the latest month-end rate for thirty-day dealer placed commercial
paper (which for purposes hereof shall mean high grade unsecured notes sold
through dealers by major corporations in multiples of $1,000) which normally is
published in the "Money Rates" section of The Wall Street Journal or, in the
event such rate is not so published, in such other nationally recognized
publication as Agent may specify and (b) the Federal Funds Rate plus 50 basis
points per annum. Each change in any interest rate provided for herein based
upon the rate referred to in clause (a) above shall take effect at the opening
of business on the first day of the calendar month immediately succeeding such
published change in such rate.
"Instruments" shall mean any "instrument," as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party, wherever located,
and, in any event, including all certificated securities, all certificates of
deposit, and all notes and other, without limitation, evidences of indebtedness,
other than instruments that constitute, or are a part of a group of writings
that constitute, Chattel Paper.
"Intellectual Property" shall mean any and all Licenses, Patents,
Copyrights, Trademarks, trade secrets and customer lists.
"Intercompany Notes" shall have the meaning assigned to it in Section
6.3.
"Interest Expense" shall mean, with respect to any Person for any
fiscal period, interest expense (whether cash or non-cash) of such Person
determined in accordance with GAAP for the relevant period ended on such date,
including, in any event, interest expense with respect to any Funded Debt of
such Person.
"Interest Payment Date" means as to the Revolving Loan, the first
Business Day of each month to occur while the Revolving Loan is outstanding;
provided, however, that, in addition to the foregoing, each of (x) the date upon
which all of the Commitments have been terminated and the aggregate Revolving
Loan has been paid in full and (y) the Commitment Termination Date shall be
deemed to be an "Interest Payment Date" with respect to any interest which is
then accrued under the Agreement.
"Intermediary Holding Company" shall have the meaning assigned to it
in Section 6.1.
"Inventory" shall mean any "inventory," as such term is defined in the
Code, now or hereafter owned or acquired by any Credit Party, wherever located,
and in any event including inventory, merchandise, goods and other personal
property which are held by or on behalf of any Credit Party for sale or lease or
are furnished or are to be furnished under a contract of service, or which
constitute raw materials, work in process or materials used or consumed or to be
used or consumed in such Credit Party's business or in the processing,
production, packaging, promotion, delivery or shipping of the same, including
other supplies.
"Investment Property" shall have the meaning ascribed thereto in
Section 9-115 of the Code in those jurisdictions in which such definition has
been adopted and shall include (i) all securities, whether certificated or
uncertificated, including stocks, bonds, interests in limited liability
companies, partnership interests, treasuries, certificates of deposit, and
mutual fund shares; (ii) all securities entitlements of any Borrower, including
the rights of any Borrower to any securities account and the financial assets
held by a securities intermediary in such securities account and any free credit
balance or other money owing by any securities intermediary with respect to that
account; (iii) all securities accounts held by any Borrower; (iv) all commodity
contracts held by any Borrower; and (v) all commodity accounts held by any
Borrower.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, and
any successor thereto.
"IRS" shall mean the Internal Revenue Service, or any successor
thereto.
"Lenders" shall mean GE Capital, the other Lenders named on the
signature page of the Agreement, and, if any such Lender shall decide to assign
all or any portion of the Obligations, such term shall include such assignee.
"Lessor" shall mean GE Capital in its capacity as Lessor under the
Equipment Lease.
"License" shall mean any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by any Credit Party.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security interest
under the Code or comparable law of any jurisdiction).
"Liposome" shall mean The Liposome Company, Inc. a Delaware
corporation.
"Liposome Borrowing Base" shall mean, as of any date of determination
by Agent, from time to time, an amount equal to the sum at such time of:
(a) up to eighty percent (80%) of Liposome's Eligible Accounts, less
any Reserves established by Agent at such time; and
(b) up to forty percent (40%) of the book value of Liposome's
Eligible Inventory valued on a first-in, first-out basis (at the lower of
cost or market), less any Reserves established by Agent at such time.
"Liposome Manufacturing" shall mean The Liposome Manufacturing
Company, Inc., a Delaware corporation.
"Liposome Manufacturing Borrowing Base" shall mean, as of any date of
determination by Agent, from time to time, an amount equal to the sum at such
time of:
(a) up to eighty percent (80%) of Liposome Manufacturing's Eligible
Accounts, less any Reserves established by Agent at such time; and
(b) up to forty percent (40%) of the book value of Liposome
Manufacturing's Eligible Inventory valued on a first-in, first-out basis
(at the lower of cost or market), less any Reserves established by Agent at
such time.
"Liposome Pledge Agreement" shall mean the Pledge Agreement of even
date herewith executed by Liposome in favor of Collateral Agent, on behalf of
itself, Agent and Lenders pledging 66.66% (or such lesser or greater percentage
which may be pledged without causing a deemed dividend under the IRC) of the
Stock of its foreign Subsidiaries and all of the Stock of its domestic
Subsidiaries.
"Litigation" shall have the meaning assigned to it in Section 3.13.
"Loan Account" shall have the meaning assigned to it in Section 1.11.
"Loan Documents" shall mean the Agreement, the Revolving Notes, the
Collateral Documents and all other agreements, instruments, documents and
certificates identified in the Closing Checklist executed and delivered to, or
in favor of, Collateral Agent, Agent and/or Lenders and including all other
pledges, powers of attorney, consents, assignments, contracts, notices, and all
other written matter whether heretofore, now or hereafter executed by or on
behalf of any Credit Party, or any employee of any Credit Party, and delivered
to Collateral Agent, Agent or any Lender in connection with the Agreement or the
transactions contemplated hereby; provided, that the term "Loan Documents" shall
be deemed not to include the Equipment Lease and the documents directly related
thereto (other than the Collateral Documents). Any reference in the Agreement
or any other Loan Document to a Loan Document shall include all appendices,
exhibits or schedules thereto, and all amendments, restatements, supplements or
other modifications thereto, and shall refer to such Agreement as the same may
be in effect at any and all times such reference becomes operative.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, assets, operations, prospects or financial or other condition of
any Borrower or the Credit Parties taken as a whole, (b) any Borrower's ability
to pay the Revolving Loan or any of the other Obligations in accordance with the
terms of the Agreement, (c) Collateral Agent's Liens, on behalf of itself, Agent
and Lenders, on the Collateral or the priority of such Liens, or (d) Agent's,
Collateral Agent's or any Lender's rights and remedies under the Agreement and
the other Loan Documents.
"Maximum Amount" shall mean, at any particular time, an amount equal
to the Commitment of all Lenders.
"Mortgage Note" shall mean that certain note dated July 24, 1992 in
the original principal amount of $2,800,000 made by Liposome Manufacturing in
favor of Midlantic National Bank and secured by Liposome Manufacturing's real
property located in Indianapolis, Indiana.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, and to which any Credit Party or ERISA Affiliate is
making, is obligated to make, has made or been obligated to make, contributions
on behalf of participants who are or were employed by any of them.
"Net Worth" shall mean, with respect to any Person as of any date of
determination, the book value of the assets of such Person, minus (a) reserves
applicable thereto, and minus (b) all of such Person's liabilities on a
consolidated basis (including accrued and deferred income taxes), all as
determined in accordance with GAAP.
"Non-Use Fee" shall have the meaning assigned to it in Section 1.8(b).
"Notice of Revolving Credit Advance" shall have the meaning assigned
to it in Section 1.1(a).
"Obligations" shall mean all loans, advances, debts, liabilities and
obligations, for the performance of covenants, tasks or duties or for payment of
monetary amounts (whether or not such performance is then required or
contingent, or such amounts are liquidated or determinable) owing by any Credit
Party to Collateral Agent, Agent or any Lender, and all covenants and duties
regarding such amounts, of any kind or nature, present or future, whether or not
evidenced by any note, agreement or other instrument, arising under the
Agreement or any of the other Loan Documents. This term includes all principal,
interest (including all interest which accrues after the commencement of any
case or proceeding in bankruptcy after the insolvency of, or for the
reorganization of any Credit Party, whether or not allowed in such proceeding),
Fees, Charges, expenses, attorneys' fees and any other sum chargeable to any
Credit Party under the Agreement or any of the other Loan Documents.
"Overadvance" shall have the meaning assigned to it in Section
1.1(a)(iii).
"Patent License" shall mean rights under any written agreement now
owned or hereafter acquired by any Credit Party granting any right with respect
to any invention on which a Patent is in existence.
"Patents" shall mean all of the following in which any Credit Party
now holds or hereafter acquires any interest: (a) all letters patent of the
United States or any other country, all registrations and recordings thereof,
and all applications for letters patent of the United States or any other
country, including registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State or Territory thereof, or any other country, and (b) all
reissues, continuations, continuations-in-part or extensions thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor thereto.
"Permitted Encumbrances" shall mean the following encumbrances: (a)
Liens for taxes or assessments or other governmental Charges not yet due and
payable; (b) pledges or deposits securing obligations under workmen's
compensation, unemployment insurance, social security or public liability laws
or similar legislation; (c) pledges or deposits securing bids, tenders,
contracts (other than contracts for the payment of money) or leases to which any
Credit Party is a party as lessee made in the ordinary course of business; (d)
deposits securing statutory obligations of any Credit Party; (e) inchoate and
unperfected workers', mechanics', suppliers' or similar liens arising in the
ordinary course of business; (f) carriers', warehousemen's or other similar
possessory liens arising in the ordinary course of business; (g) deposits
securing, or in lieu of, surety, appeal or customs bonds in proceedings to which
any Credit Party is a party; (h) any attachment or judgment lien not
constituting an Event of Default under Section 8.1(j); (i) zoning restrictions,
easements, licenses, or other restrictions on the use of any Real Estate or
other minor irregularities in title (including leasehold title) thereto, so long
as the same do not materially impair the use, value, or marketability of such
Real Estate; (j) Liens existing on the Closing Date and listed on Disclosure
Schedule (6.7) (including Liens securing the Equipment Lease and the Mortgage
Note); (k) presently existing or hereinafter created Liens in favor of
Collateral Agent, on behalf of Lenders; (l) Liens created after the date hereof
by conditional sale or other title retention agreements (including Capital
Leases) or in connection with purchase money Indebtedness with respect to
Equipment and Fixtures acquired by any Credit Party in the ordinary course of
business, involving the incurrence of an aggregate amount of purchase money
Indebtedness and Capital Lease Obligations of not more than $5,000,000
outstanding at any one time for all such Liens (provided that such Liens attach
only to the assets subject to such purchase money debt and such Indebtedness is
incurred within twenty (20) days following such purchase and does not exceed
100% of the purchase price of the subject assets); (m) Liens on Permitted
Investments to secure the Indebtedness permitted by Sections 6.3 (viii) and (ix)
(provided that the aggregate amount of Permitted Investments subject to such
Liens to secure the Indebtedness permitted by Section 6.3(viii) does not at any
time exceed 110% of the amount of any such Indebtedness outstanding at such
time); and (n) other Liens securing Indebtedness not exceeding $500,000 in the
aggregate at any time outstanding.
"Permitted Investments" shall mean investments set forth in Disclosure
Schedule (6.2) and other investments substantially similar thereto as determined
by Agent.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, other entity
or government (whether federal, state, county, city, municipal, local, foreign,
or otherwise, including any instrumentality, division, agency, body or
department thereof).
"Plan" shall mean, at any time, an employee benefit plan, as defined
in Section 3(3) of ERISA, which any Credit Party maintains, contributes to or
has an obligation to contribute to on behalf of participants who are or were
employed by any Credit Party.
"Pledge Agreements" shall mean, collectively, the Liposome Pledge
Agreement, and any pledge agreements entered into after the Closing Date by any
Credit Party (as required by the Agreement or any other Loan Document).
"Proceeds" shall mean "proceeds," as such term is defined in the Code
and, in any event, shall include (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to any Credit Party from time to time
with respect to any of the Collateral, (b) any and all payments (in any form
whatsoever) made or due and payable to any Credit Party from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any Governmental Authority
(or any Person acting under color of governmental authority), (c) any claim of
any Credit Party against third parties (i) for past, present or future
infringement of any Patent or Patent License, or (ii) for past, present or
future infringement or dilution of any Copyright, Copyright License, Trademark
or Trademark License, or for injury to the goodwill associated with any
Trademark or Trademark License, (d) any recoveries by any Credit Party against
third parties with respect to any litigation or dispute concerning any of the
Collateral, and (e) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral, upon disposition or
otherwise.
"Projections" means Borrowers' forecasted consolidated: (a) balance
sheets; (b) profit and loss statements; (c) cash flow statements; and (d)
capitalization statements, all prepared on a Subsidiary by Subsidiary or
division by division basis, if applicable, and otherwise consistent with the
historical Financial Statements of the Borrowers, together with appropriate
supporting details and a statement of underlying assumptions.
"Pro Rata Share" shall mean with respect to all matters relating to
any Lender with respect to the Revolving Loan, the percentage obtained by
dividing (i) the Commitment of that Lender by (ii) the aggregate Commitments, as
such percentage may be adjusted by assignments permitted pursuant to Section
9.1.
"Qualified Plan" shall mean a Plan which is intended to be
tax-qualified under Section 401(a) of the IRC.
"Real Estate" shall have the meaning assigned to it in Section 3.6.
"Related Transactions" means each borrowing under the Revolving Loan
on the Closing Date, the payment of all fees, costs and expenses associated with
all of the foregoing and the execution and delivery of all of the Related
Transactions Documents.
"Related Transactions Documents" shall mean the Loan Documents, the
Equipment Lease and any other documents executed in connection with the
Equipment Lease.
"Release" shall mean any release, threatened release, spill, emission,
leaking, pumping, pouring, emitting, emptying, escape, injection, deposit,
disposal, discharge, dispersal, dumping, leaching or migration of Hazardous
Material in the indoor or outdoor environment, including the movement of
Hazardous Material through or in the air, soil, surface water, ground water or
property.
"Requisite Lenders" shall mean (a) Lenders having more than sixty-six
and two-thirds percent (66 2/3%) of the Commitments of all Lenders, or (b) if
the Commitments have been terminated, more than sixty-six and two-thirds percent
(66 2/3%) of the aggregate outstanding amount of the aggregate Revolving Loan.
"Reserves" shall mean, with respect to the Borrowing Base of any
Borrower (a) reserves established by Agent from time to time against Eligible
Inventory pursuant to Section 5.9, (b) reserves established pursuant to Section
5.4(c), and (c) such other reserves against Eligible Accounts or Eligible
Inventory of any Borrower which Agent may, in its reasonable credit judgment,
establish from time to time. Without limiting the generality of the foregoing,
Reserves established to ensure the payment of accrued Interest Expenses or
Indebtedness shall be deemed to be a reasonable exercise of Agent's credit
judgment.
"Restricted Payment" shall mean (a) the declaration or payment of any
dividend or the incurrence of any liability to make any other payment or
distribution of cash or other property or assets in respect of a Person's Stock,
(b) any payment on account of the purchase, redemption, defeasance, sinking fund
or other retirement of a Person's Stock or any other payment or distribution
made in respect thereof, either directly or indirectly, (c) any payment or
prepayment of principal of, premium, if any, or interest, fees or other charges
on or with respect to, and any redemption, purchase, retirement, defeasance,
sinking fund or similar payment and any claim for rescission with respect to,
any Subordinated Debt, if any; (d) any payment made to redeem, purchase,
repurchase or retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire Stock of such Person now or hereafter
outstanding; (e) any payment of a claim for the rescission of the purchase or
sale of, or for material damages arising from the purchase or sale of, any
shares of such Person's Stock or of a claim for reimbursement, indemnification
or contribution arising out of or related to any such claim for damages or
rescission; (f) any payment, loan, contribution, or other transfer of funds or
other property to any Stockholder of such Person; and (g) any payment of
management fees (or other fees of a similar nature) by such Person to any
Stockholder of such Person or their Affiliates.
"Retiree Welfare Plan" shall mean, at any time, a Plan that is a
"welfare plan" as defined in Section 3(2) of ERISA, that provides for continuing
coverage or benefits for any participant or any beneficiary of a participant
after such participant's termination of employment, other than continuation
coverage provided pursuant to Section 4980B of the IRC and at the sole expense
of the participant or the beneficiary of the participant.
"Revolving Credit Advance" shall have the meaning assigned to it in
Section 1.1(a)(i).
"Revolving Loan" shall mean as the context may require, at any time,
the aggregate amount of Revolving Credit Advances outstanding to any Borrower or
to all Borrowers.
"Revolving Note" shall have the meaning assigned to it in
Section 1.1(a)(ii).
"Solvent" shall mean, with respect to any Person on a particular
date, that on such date (a) the fair value of the property of such Person is
greater than the total amount of liabilities, including contingent liabilities,
of such Person; (b) the present fair salable value of the assets of such Person
is not less than the amount that will be required to pay the probably liability
of such Person on its debts as they become absolute and matured; (c) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature; and (d) such Person is not engaged in a business or transaction, and is
not about to engage in a business or transaction, for which such Person's
property would constitute an unreasonably small capital. The amount of
contingent liabilities (such as litigation, guarantees and pension plan
liabilities) at any time shall be computed as the amount which, in light of all
the facts and circumstances existing at the time, represents the amount which
can be reasonably be expected to become an actual or matured liability.
"Stock" shall mean all shares, options, warrants, general or limited
partnership interests or other equivalents (regardless of how designated) of or
in a corporation, partnership or equivalent entity whether voting or nonvoting,
including common stock, preferred stock or any other "equity security" (as such
term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended).
"Subordinated Debt" shall mean any Indebtedness of any Credit Party
subordinated to the Obligations in a manner and form satisfactory to Agent and
Lenders in their sole discretion, as to right and time of payment and as to any
other rights and remedies thereunder.
"Subsidiary" shall mean, with respect to any Person, (a) any
corporation of which an aggregate of more than fifty percent (50%) of the
outstanding Stock having ordinary voting power to elect a majority of the board
of directors of such corporation (irrespective of whether, at the time, Stock of
any other class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time, directly or
indirectly, owned legally or beneficially by such Person and/or one or more
Subsidiaries of such Person, or with respect to which any such Person has the
right to vote or designate the vote of fifty percent (50%) or more of such Stock
whether by proxy, agreement, operation of law or otherwise, and (b) any
partnership or limited liability company in which such Person and/or one or more
Subsidiaries of such Person shall have an interest (whether in the form of
voting or participation in profits or capital contribution) of more than fifty
percent (50%) or of which any such Person is a general partner or may exercise
the powers of a general partner. Notwithstanding anything to the contrary
contained herein, for purposes hereof and the other Loan Documents in no event
shall Princeton Conference, Inc. be deemed to be a Subsidiary of Liposome or any
other Credit Party.
"Subsidiary Guaranty" shall mean the Subsidiary Guaranty of even date
herewith executed by each domestic Subsidiary of Liposome (other than Liposome
Manufacturing) in favor of Collateral Agent, on behalf of itself and Lenders.
"Subsidiary Security Agreement" shall mean the Subsidiary Security
Agreement of even date herewith entered into among Collateral Agent, on behalf
of itself, Agent and Lenders and each of Liposome's domestic subsidiaries.
"Tangible Net Worth" shall mean, with respect to any Person at any
date, the Net Worth of such Person at such date, excluding, however, from the
determination of the total assets at such date, (a) all goodwill, capitalized
organizational expenses, capitalized research and development expenses,
trademarks, trade names, copyrights, patents, patent applications, licenses and
rights in any thereof, and other intangible items, (b) all unamortized debt
discount and expense, (c) treasury Stock, and (d) any write-up in the book value
of any asset resulting from a revaluation thereof.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges or
withholdings, and all liabilities with respect thereto, excluding taxes imposed
on or measured by the net income of Agent or a Lender by the jurisdictions under
the laws of which Agent and Lenders are organized or any political subdivision
thereof.
"Termination Date" shall mean the date on which the Revolving Loan has
been indefeasibly repaid in full and all other Obligations under the Agreement
and the other Loan Documents have been completely discharged and none of
Borrowers shall have any further right to borrow any monies thereunder.
"Title IV Plan" shall mean an employee pension benefit plan, as
defined in Section 3 (2) of ERISA (other than a Multiemployer Plan), which is
covered by Title IV of ERISA, and which any Credit Party or ERISA Affiliate
maintains, contributes to or has an obligation to contribute to on behalf of
participants who are or were employed by any of them.
"Total Liabilities" shall mean, with respect to any Person, all
liabilities of such Person, determined on a consolidated basis in conformity
with GAAP, including Current Liabilities and Funded Debt of such Person.
"Trademark License" shall mean rights under any written agreement now
owned or hereafter acquired by any Credit Party granting any right to use any
Trademark.
"Trademarks" shall mean all of the following now owned or hereafter
acquired by any Credit Party: (a) all trademarks, trade names, corporate names,
business names, trade styles, service marks, logos, other source or business
identifiers, prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature (whether registered or
unregistered), now owned or existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, including registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any state or territory thereof, or any other country or any
political subdivision thereof; (b) all reissues, extensions or renewals thereof;
and (c) all goodwill associated with or symbolized by any of the foregoing.
"Unfunded Pension Liability" shall mean, at any time, the aggregate
amount, if any, of the sum of (a) the amount by which the present value of all
accrued benefits under each Title IV Plan exceeds the fair market value of all
assets of such Title IV Plan allocable to such benefits in accordance with Title
IV of ERISA, all determined as of the most recent valuation date for each such
Title IV Plan using the actuarial assumptions for funding purposes in effect
under such Title IV Plan, and (b) for a period of five (5) years following a
transaction which might reasonably be expected to be covered by Section 4069 of
ERISA, the liabilities (whether or not accrued) that could be avoided by any
Credit Party or any ERISA Affiliate as a result of such transaction.
"Unrestricted Permitted Investments" shall mean Permitted Investments
plus cash less, without duplication, the aggregate amount of (a) cash collateral
and letters of credit provided (or upon the happening of certain events required
to be provided) by either Borrower to support any liabilities or other
obligations owed or contingently owed to any Person (other than Lenders solely
in their capacities as such), (b) such liabilities or other obligations referred
to in clause (a) to the extent that under certain circumstances either Borrower
would be required to prepay, defease, repurchase or redeem such liabilities or
other obligations and (c) Permitted Investments which are subject to any Lien
(other than in favor of Lenders solely in their capacities as such).
All other undefined terms contained in any of the Loan Documents
shall, unless the context indicates otherwise, have the meanings provided for by
the Code as in effect in the State of New York to the extent the same are used
or defined therein. Unless otherwise specified, references in the Agreement or
any of the Appendices to a Section, subsection or clause refer to such Section,
subsection or clause as contained in the Agreement. The words "herein,"
"hereof" and "hereunder" and other words of similar import refer to the
Agreement as a whole, including all Annexes, Exhibits and Schedules, as the same
may from time to time be amended, restated, modified or supplemented, and not to
any particular section, subsection or clause contained in the Agreement or any
such Annex, Exhibit or Schedule.
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter genders. The words "including", "includes" and
"include" shall be deemed to be followed by the words "without limitation";
references to Persons include their respective successors and assigns (to the
extent and only to the extent permitted by the Loan Documents) or, in the case
of governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of the same and any successor statutes and regulations. Whenever
any provision in any Loan Document refers to the knowledge or best knowledge (or
an analogous phrase) of any Credit Party, such words are intended to signify
that such Credit Party has actual knowledge or awareness of a particular fact or
circumstance or that such Credit Party, if it had exercised reasonable
diligence, would have known or been aware of such fact or circumstance.
ANNEX B (SECTION 1.7)
TO
CREDIT AGREEMENT
CASH MANAGEMENT SYSTEMS
Liposome shall, and shall cause its Subsidiaries to, establish and maintain
the Cash Management Systems described below:
PARAGRAPH NUMBERING REDEFINED HERE (a) On or before the Closing Date and
until the Termination Date, Liposome shall (i) establish lock boxes ("Lock
Boxes") at one or more of the banks set forth on Disclosure Schedule (3.19), and
shall request in writing and otherwise take such reasonable steps to ensure that
all Account Debtors forward payment directly to such Lock Boxes, and (ii)
deposit and cause its domestic Subsidiaries to deposit or cause to be deposited
promptly, and in any event no later than the first Business Day after the date
of receipt thereof, all cash, checks, drafts or other similar items of payment
relating to or constituting payments made in respect of any and all Collateral
(whether or not otherwise delivered to a Lock Box) into bank accounts in
Liposome's name or any such Subsidiary's name (collectively, the "Borrower
Accounts") at banks set forth on Disclosure Schedule (3.19) (each, a
"Relationship Bank"). Unless otherwise agreed to by Agent, on or before the
Closing Date, each Borrower shall have established a concentration account in
its name (each a "Concentration Account" and collectively, the "Concentration
Accounts") at the bank or banks which shall be designated as the Concentration
Account bank for each such Borrower on Disclosure Schedule (3.19) (each a
"Concentration Account Bank" and collectively, the "Concentration Account
Banks"), which banks shall be satisfactory to Agent. Agent acknowledges that
neither Borrower has established a Concentration Account and, notwithstanding
anything to the contrary contained herein, neither Borrower shall be required to
establish such an account.
(b) On or before the Closing Date (or such later date as Agent shall
consent to in writing), each Concentration Account Bank, if any, and all other
Relationship Banks where Borrower Accounts are located, shall have entered into
tri-party blocked account agreements with Collateral Agent, for the benefit of
itself, Agent and Lenders, and Liposome and domestic Subsidiaries thereof, as
applicable, in form and substance acceptable to Agent, which shall become
operative on or prior to the Closing Date. Each such blocked account agreement
shall provide, among other things, that (i) all items of payment deposited in
such account and proceeds thereof deposited in the applicable Concentration
Account, if any, are held by such bank as agent or bailee-in-possession for
Collateral Agent, on behalf of Agent and Lenders, (ii) the bank executing such
agreement has no rights of setoff or recoupment or any other claim against such
account, as the case may be, other than for payment of its service fees and
other charges directly related to the administration of such account and for
returned checks or other items of payment, and (iii) from and after the Closing
Date (A) with respect to banks at which a Borrower Account is located, such bank
agrees, from and after the receipt of a notice (an "Activation Notice") from
Agent (which Activation Notice may be given by Agent at any time at which Agent
in its sole discretion decides to give such Activation Notice (the foregoing
being referred to herein as the "Activation Event")), to forward immediately all
amounts in each Borrower Account to such Borrower's Concentration Account Bank,
if applicable, or otherwise to the Collection Account bank and to commence the
process of daily sweeps from such Borrower Account into the applicable
Concentration Account or the Collection Account, as applicable, and (B) with
respect to each Concentration Account Bank, if any, such bank agrees from and
after the receipt of an Activation Notice from Agent upon the occurrence of the
Activation Event, to immediately forward all amounts received in the applicable
Concentration Account to the Collection Account through daily sweeps from such
Concentration Account into the Collection Account. From and after the date Agent
has delivered an Activation Notice to any bank with respect to any Borrower
Account(s), no Borrower shall, or shall cause or permit any domestic Subsidiary
thereof (other than segregated accounts solely containing identifiable cash
Proceeds of Permitted Investments to the extent such proceeds are not required
to repay the Revolving Loan pursuant to Section 6.2) to, accumulate or maintain
cash in disbursement or payroll accounts as of any date of determination in
excess of checks outstanding against such accounts as of that date and amounts
necessary to meet minimum balance requirements.
(c) So long as no Default or Event of Default has occurred and is
continuing, Borrowers may amend Disclosure Schedule (3.19) to add or replace a
Relationship Bank, Lock Box or Borrower Account or to replace any Concentration
Account or any Disbursement Account; provided, however, that (i) Agent shall
have consented in writing in advance to the opening of such account or Lock Box
with the relevant bank and (ii) prior to the time of the opening of such account
(other than a Disbursement Account) or Lock Box, the applicable Borrower and/or
the domestic Subsidiaries thereof, as applicable, and such bank shall have
executed and delivered to Collateral Agent a tri-party blocked account
agreement, in form and substance satisfactory to Agent. Borrowers shall close
any of their accounts (and establish replacement accounts in accordance with the
foregoing sentence) promptly and in any event within thirty (30) days of notice
from Agent that the creditworthiness of any bank holding an account is no longer
acceptable in Agent's reasonable judgment, or as promptly as practicable and in
any event within sixty (60) days of notice from Agent that the operating
performance, funds transfer and/or availability procedures or performance with
respect to accounts or lockboxes of the bank holding such accounts or Collateral
Agent's liability under any tri-party blocked account agreement with such bank
is no longer acceptable in Agent's reasonable judgment.
(d) The Lock Boxes, Borrower Accounts, and the Concentration
Accounts, if any, shall be cash collateral accounts, with all cash, checks and
other similar items of payment in such accounts securing payment of the
Revolving Loan and all other Obligations, and in which each Borrower and each
domestic Subsidiary thereof shall have granted a Lien to Collateral Agent, on
behalf of itself, Agent and Lenders, pursuant to the Borrowers Security
Agreement or Subsidiary Security Agreement, as applicable.
(e) All amounts deposited in the Collection Account shall be deemed
received by Agent in accordance with Section 1.9 of the Agreement and shall be
applied (and allocated) by Agent in accordance with Section 1.10 of the
Agreement. In no event shall any amount be so applied unless and until such
amount shall have been credited in immediately available funds to the Collection
Account.
(f) Each Borrower may maintain, in its name, an account (each a
"Disbursement Account" and collectively, the "Disbursement Accounts") at a bank
acceptable to Agent into which Agent shall, from time to time, deposit proceeds
of Revolving Credit Advances made to such Borrower pursuant to Section 1.1 for
use by such Borrower solely in accordance with the provisions of Section 1.3.
(g) Other than cash, checks and other items consisting of
identifiable cash Proceeds of Permitted Investments to the extent such Proceeds
are not required to repay the Revolving Loan pursuant to Section 6.2, each
Borrower shall and shall cause its Affiliates, officers, employees, agents,
directors or other Persons acting for or in concert with such Borrower (each a
"Related Person") to (i) hold in trust for Collateral Agent, for the benefit of
itself, Agent and Lenders, all checks, cash and other items of payment received
by such Borrower or any such Related Person, and (ii) within one (1) Business
Day after receipt by such Borrower or any such Related Person of any checks,
cash or other items or payment, deposit the same into a Borrower Account of
Liposome. Each Borrower and each Related Person thereof acknowledges and agrees
that all cash, checks or items of payment constituting proceeds of Collateral
are the property of Collateral Agent, Agent and Lenders. All proceeds of the
sale or other disposition of any Collateral, shall be deposited directly into
the applicable Borrower Accounts.
(h) Borrowers agree that the accounts set forth on Schedule 3.19
shall be used solely for the purposes described therein.
ANNEX C (SECTION 2.1(A))
TO
CREDIT AGREEMENT
SCHEDULE OF ADDITIONAL CLOSING DOCUMENTS
In addition to, and not in limitation of, the conditions described in Section
2.1 of the Agreement, pursuant to Section 2.1(a), the following items must be
received by Agent in form and substance satisfactory to Agent on or prior to the
Closing Date (each capitalized term used but not otherwise defined herein shall
have the meaning ascribed thereto in Annex A to the Agreement):
PARAGRAPH NUMBERING REDEFINED HERE A. Appendices. All Appendices to the
Agreement, in form and substance satisfactory to Agent.
B. Revolving Notes. Duly executed originals of the Revolving Notes for
each Lender, dated the Closing Date.
C. Security Agreements. Duly executed originals of the Borrower Security
Agreement and the Subsidiary Security Agreement, dated the Closing Date, and all
instruments, documents and agreements executed pursuant thereto, including the
powers of attorney in the form attached thereto, accompanied by the original
duly executed Intercompany Notes held by the Credit Parties being pledged
pursuant to either of such Security Agreements, as applicable, duly endorsed in
blank.
D. Insurance. Satisfactory evidence that the insurance policies required
by Section 5.4 are in full force and effect, together with appropriate evidence
showing loss payable and/or additional insured clauses or endorsements, as
requested by Agent, in favor of Collateral Agent, on behalf of Lenders.
E. Security Interests and Code Filings. (a) Evidence satisfactory to
Agent that Collateral Agent (for the benefit of itself, Agent and Lenders) has a
valid and perfected first priority security interest in the Collateral,
including (i) such documents duly executed by each Credit Party (including
financing statements under the Code and other applicable documents under the
laws of any jurisdiction with respect to the perfection of Liens) as Agent may
request in order to perfect Collateral Agent's security interests in the
Collateral and (ii) copies of Code search reports listing all effective
financing statements that name any Credit Party as debtor, together with copies
of such financing statements, none of which shall cover the Collateral, except
for those relating to the Equipment Lease.
(b) Evidence satisfactory to Agent, including copies, of all UCC-1
and other financing statements filed in favor of any Credit Party with respect
to each location, if any, at which Inventory may be consigned.
F. Subsidiary Guaranty. Guaranty executed by each domestic Subsidiary of
Liposome (other than Liposome Manufacturing) in favor of Collateral Agent, for
the benefit of Lenders.
G. Initial Borrowing Base Certificate. Duly executed originals of an
initial Borrowing Base Certificate from each Borrower, dated the Closing Date,
reflecting information concerning Eligible Accounts and Eligible Inventory of
such Borrower.
H. Cash Management System; Blocked Account Agreements. Evidence
satisfactory to Agent that, as of the Closing Date, Cash Management Systems
complying with Annex B to the Agreement have been established and are currently
being maintained in the manner set forth in such Annex B, together with copies
of duly executed tri-party blocked account and lock box agreements, satisfactory
to Agent, with the banks as required by Annex B.
I. Charter and Good Standing. For each Credit Party (other than foreign
Subsidiaries), such Person's (a) charter (or other organizational documents) and
all amendments thereto, (b) good standing certificates (including verification
of tax status) in its state of incorporation and (c) good standing certificates
(including verification of tax status) and certificates of qualification to
conduct business in each jurisdiction where its ownership or lease of property
or the conduct of its business requires such qualification, each dated a recent
date prior to the Closing Date and certified by the applicable Secretary of
State or other authorized Governmental Authority.
J. Bylaws and Resolutions. For each Credit Party (other than foreign
Subsidiaries), (a) such Person's bylaws (or other organizational documents),
together with all amendments thereto and (b) resolutions of such Person's Board
of Directors and stockholders, approving and authorizing the execution, delivery
and performance of the Loan Documents to which such Person is a party and the
transactions to be consummated in connection therewith, each certified as of the
Closing Date by such Person's corporate secretary or an assistant secretary as
being in full force and effect without any modification or amendment.
K. Incumbency Certificates. For each Credit Party (other than foreign
Subsidiaries), signature and incumbency certificates of the officers of each
such Person executing any of the Loan Documents, certified as of the Closing
Date by such Person's corporate secretary or an assistant secretary as being
true, accurate, correct and complete.
L. Opinions of Counsel. Duly executed originals of opinions of Smith,
Stratton, Wise, Heher & Brennan, counsel for the Credit Parties, and Carol J.
Gillespie, general counsel to Liposome, together with any local counsel opinions
requested by Agent, each in form and substance satisfactory to Agent and its
counsel, dated the Closing Date, and each accompanied by a letter addressed to
such counsel from the Credit Parties executing the Agreement, authorizing and
directing such counsel to address its opinion to Collateral Agent and Agent, on
behalf of Lenders, and to include in such opinion an express statement to the
effect that Collateral Agent, Agent and Lenders are authorized to rely on such
opinion.
M. Pledge Agreement. Duly executed copies of the Liposome Pledge
Agreement accompanied by share certificates representing all of the outstanding
Stock evidenced by share certificates being pledged pursuant to such Pledge
Agreement and stock powers for such share certificates executed in blank.
N. Accountants' Letter. A letter authorizing the independent
certified public accountants of the Credit Parties to communicate with Agent and
Lenders in accordance with Section 4.2.
O. Solvency Certificate. Each Borrower shall deliver to Agent for the
benefit of Lenders a solvency certificate satisfactory in form and substance and
issued by the Chief Financial Officer of Liposome.
P. Fee Letter. Duly executed originals of the GE Capital Fee Letter.
Q. Officers' Certificate. Agent shall have received duly executed
originals of a certificate of the Chief Executive Officer and Chief Financial
Officer of Liposome and President and Treasurer of Liposome Manufacturing,
respectively, dated the Closing Date, stating that, since June 30, 1996 (a) no
event or condition has occurred or is existing which could reasonably be
expected to have a Material Adverse Effect; (b) there has been no material
adverse change in the industry in which any Borrower operates; (c) no Litigation
has been commenced which, if successful, would have a Material Adverse Effect or
could challenge any of the transactions contemplated by the Agreement and the
other Loan Documents; (d) there have been no Restricted Payments made by any
Credit Party; and (e) there has been no material increase in liabilities,
liquidated or contingent, and no material decrease in assets of such Borrower or
the Credit Parties taken as a whole. In addition, such certificate shall state
that as of the Closing Date Liposome has at least $35,000,000 of Permitted
Investments and cash.
R. Waivers. Agent or Collateral Agent, on behalf of Lenders, shall have
received landlord waivers and consents, bailee letters and mortgagee agreements
in form and substance satisfactory to Agent, in each case as required pursuant
to Section 5.9 as follows: (i) landlord waivers with respect to Liposome's
leased properties located at One Research Way, Princeton, New Jersey, 600 Arbor,
600 College Road East, Princeton Forrestal Center, Plainsboro, New Jersey and
Cranbury Warehouse, 4 Corporate Drive, Cranbury, New Jersey and (ii) a bailee
letter with respect to that certain facility of Livingston Healthcare Services,
Inc. located at 3 Boulden Circle, New Castle, Delaware.
S. Environmental Reports. To the extent available, Agent shall have
received all environmental reports (including Phase I Environmental Site
Assessment Reports) with respect to any Credit Party's Real Estate.
T. Audited Financials; Financial Condition. Agent shall have received
Liposome's final Financial Statements for their Fiscal Year ended December 31,
1995, audited by Coopers & Lybrand L.L.P. Each Borrower shall have provided
Agent with its current operating statements, a consolidated balance sheet and
statement of cash flows, Projections, and a Borrowing Base Certificate with
respect to such Borrower certified by its Chief Financial Officer, in each case
in form and substance satisfactory to Agent, and Agent shall be satisfied, in
its sole discretion, with all of the foregoing. Agent shall have further
received a certificate of the Chief Executive Officer and/or the Chief Financial
Officer of each Borrower, based on such Projections, to the effect that the
Projections are based upon estimates and assumptions stated therein, all of
which such Borrower believes to be reasonable and fair in light of current
conditions and current facts known to such Borrower and, as of the Closing Date,
reflect such Borrower's good faith and reasonable estimates of its future
financial performance and of the other information projected therein for the
period set forth therein.
U. Control Agreement. Duly executed copy of the Control Agreement.
V. Equipment Lease and Mortgage Note. Duly executed copies of the
Equipment Lease, each other Related Transactions Document related thereto,
including any letters of credit supporting Liposome's and Liposome
Manufacturing's obligations under the Equipment Lease, and the Mortgage Note,
together with all certificates, opinions, instruments, mortgages and other
documents relating thereto, all of which shall be satisfactory in form and
substance to Agent and its counsel, certified by an authorized officer of
Liposome, as true, correct and complete copies thereof.
W. Other Documents. Such other certificates, documents and agreements
respecting any Credit Party as Agent may, in its sole discretion, request.
ANNEX D (SECTION 4.1(A))
TO
CREDIT AGREEMENT
FINANCIAL STATEMENTS AND PROJECTIONS -- REPORTING
Borrowers shall deliver or cause to be delivered to Agent or to Agent
and Lenders, as indicated, the following:
PARAGRAPH NUMBERING REDEFINED HERE (a) Monthly Financials. If a Default
has occurred and is continuing or if Liposome's cash and the market value (as
reasonably determined by Agent) of Permitted Investments are in the aggregate
less than $35,000,000, Agent and Lenders, within thirty (30) days after the end
of each Fiscal Month, financial information regarding Borrowers and their
Subsidiaries, certified by the Chief Financial Officer of Borrower
Representative, consisting of (i) consolidated unaudited balance sheets as of
the close of such Fiscal Month and the related statements of income and cash
flow for that portion of the Fiscal Year ending as of the close of such Fiscal
Month; (ii) consolidated unaudited statements of income and cash flows for such
Fiscal Month, all prepared in accordance with GAAP (subject to normal year-end
adjustments); and (iii) a schedule substantially in the form of Disclosure
Schedule (6.2) describing Liposome's Permitted Investments and indicating
whether or not such investments are Unrestricted Permitted Investments together
with such supporting detail as Agent may request. Such financial information
shall be accompanied by the certification of the Chief Financial Officer of
Borrower Representative that (i) such financial information presents fairly in
accordance with GAAP (subject to normal year-end adjustments) the financial
position and results of operations of Borrowers and their Subsidiaries, on a
consolidated basis, in each case as at the end of such month and for the period
then ended and (ii) any other information presented is true, correct and
complete in all material respects and that there was no Default or Event of
Default in existence as of such time or, if a Default or Event of Default shall
have occurred and be continuing, describing the nature thereof and all efforts
undertaken to cure such Default or Event of Default. Notwithstanding the
foregoing, each of Agent and Lenders recognize that Liposome's new integrated
financial system shall not be in place until January, 1998 and that until such
time it may be impracticable for Borrowers to provide the information otherwise
required by the first sentence of this subparagraph and to provide the Chief
Financial Officer certificate insofar as it relates to the requirements of
clause (i) of the immediately preceding sentence. Therefore, until the earlier
of (a) January 31, 1998 and (b) the date of implementation of such integrated
financial system, each of Agent and Lenders hereby agree that in lieu of
providing the financial information required by such clauses (i) and (ii) of
such first sentence and such certificate insofar as it relates to the
requirements of clause (i) of the immediately preceding sentence, Borrowers may
provide such other financial information as acceptable to Agent;
(b) Quarterly Financials. To Agent and Lenders, within forty-five
(45) days after the end of each Fiscal Quarter, consolidated financial
information regarding Borrowers and their Subsidiaries, certified by the Chief
Financial Officer of Borrower Representative, including (i) unaudited balance
sheets as of the close of such Fiscal Quarter and the related statements of
income and cash flow for that portion of the Fiscal Year ending as of the close
of such Fiscal Quarter, (ii) unaudited statements of income and cash flows for
such Fiscal Quarter, all prepared in accordance with GAAP (subject to normal
year-end adjustments), (iii) a summary of the outstanding balance of all
Intercompany Notes as of the last day of such Fiscal Quarter, and (iv) a
schedule substantially in the form of Disclosure Schedule (6.2) describing
Liposome's Permitted Investments and indicating whether or not such investments
are Unrestricted Permitted Investments together with such supporting detail as
Agent may request. Such financial information shall be accompanied by (A) a
statement in reasonable detail (each, a "Compliance Certificate"showing the
calculations used in determining compliance with each of the financial covenants
set forth on Annex F which is tested on a quarterly basis and (B) the
certification of the Chief Financial Officer of Borrower Representative that (i)
such financial information presents fairly in accordance with GAAP (subject to
normal year-end adjustments) the financial position, results of operations and
statements of cash flows of Borrowers and their Subsidiaries, on a consolidated
basis, as at the end of such Fiscal Quarter and for the period then ended and
(ii) any other information presented is true, correct and complete in all
material respects and that there was no Default or Event of Default in existence
as of such time or, if a Default or Event of Default shall have occurred and be
continuing, describing the nature thereof and all efforts undertaken to cure
such Default or Event of Default;
(c) Operating Plan. To Agent and Lenders, as soon as available,
but not later than thirty (30) days after the end of each Fiscal Year, an annual
operating plan for each Borrower, approved by the Board of Directors of such
Borrower, for the following year, which will include a statement of all of the
material assumptions on which such plan is based, will include quarterly balance
sheets and a quarterly budget for the following year and will integrate sales,
gross profits, operating expenses, operating profit, cash flow projections and
Borrowing Availability projections all prepared on the same basis and in similar
detail as that on which operating results are reported (and in the case of cash
flow projections, representing management's good faith estimates of future
financial performance based on historical performance), and including plans for
personnel, Capital Expenditures and facilities;
(d) Annual Audited Financials. To Agent and Lenders, within ninety
(90) days after the end of each Fiscal Year, audited Financial Statements for
Borrowers and their Subsidiaries on a consolidated basis, consisting of balance
sheets and statements of income and retained earnings and cash flows, which
Financial Statements shall be prepared in accordance with GAAP, certified
without qualification, by an independent certified public accounting firm of
national standing or otherwise acceptable to Agent. Such Financial Statements
shall be accompanied by (i) a statement prepared in reasonable detail showing
the calculations used in determining compliance with each of the financial
covenants set forth on Annex F, (ii) a report from such accounting firm to the
effect that, in connection with their audit examination, nothing has come to
their attention to cause them to believe that a Default or Event of Default has
occurred due to a failure of Borrowers to comply with Section 6.10 and Annex F
(or specifying those such Defaults and Events of Default that they became aware
of), it being understood that such audit examination extended only to accounting
matters and that no special investigation was made with respect to the existence
of such Defaults or Events of Default, and (iii) the certification of the Chief
Executive Officer or Chief Financial Officer of Borrowers that all such
Financial Statements present fairly in accordance with GAAP the financial
position, results of operations and statements of cash flows of Borrowers and
their Subsidiaries on a consolidated basis, as at the end of such year and for
the period then ended, and that there was no Default or Event of Default in
existence as of such time or, if a Default or Event of Default shall have
occurred and be continuing, describing the nature thereof and all efforts
undertaken to cure such Default or Event of Default;
(e) Management Letters. To Agent and Lenders, within five (5)
Business Days after receipt thereof by any Credit Party, copies of all
management letters, exception reports or similar letters or reports received by
such Credit Party from its independent certified public accountants;
(f) Default Notices. To Agent and Lenders, as soon as practicable,
and in any event within five (5) Business Days after an executive officer of any
Borrower has actual knowledge of the existence of any Default, Event of Default
or other event which has had a Material Adverse Effect, telephonic or telecopied
notice specifying the nature of such Default or Event of Default or other event,
including the anticipated effect thereof, which notice, if given telephonically,
shall be promptly confirmed in writing on the next Business Day;
(g) SEC Filings and Press Releases. To Agent and Lenders, promptly
upon their becoming available, copies of: (i) all Financial Statements,
reports, notices and proxy statements made publicly available by any Credit
Party to its security holders; (ii) all regular and periodic reports and all
registration statements and prospectuses, if any, filed by any Credit Party with
any securities exchange or with the Securities and Exchange Commission or any
governmental or private regulatory authority; and (iii) all press releases and
other statements made available by any Credit Party to the public concerning
material adverse changes or developments in the business of any such Person;
(h) Supplemental Schedules. To Agent, supplemental disclosures, if
any, required by Section 5.6 of the Agreement;
(i) Litigation. To Agent in writing, promptly upon learning thereof,
notice of any Litigation commenced or threatened against any Credit Party that
(i) seeks damages in excess of $250,000, (ii) seeks injunctive relief, (iii) is
asserted or instituted against any Plan, its fiduciaries or its assets or
against any Credit Party or ERISA Affiliate in connection with any Plan, (iv)
alleges criminal misconduct by any Credit Party, or (v) alleges the violation of
any law regarding, or seeks remedies in connection with, any Environmental
Liabilities;
(j) Insurance Notices. To Agent, disclosure of losses or casualties
required by Section 5.4 of the Agreement;
(k) Equipment Lease. To Agent, copies of all notices (including
default notices) delivered by Lessor to Liposome and/or Liposome Manufacturing
under the Equipment Lease and all information and materials (including financial
information) delivered by Liposome and/or Liposome Manufacturing to Lessor under
the Equipment Lease; and
(l) Other Documents. To Agent and Lenders, such other financial and
other information respecting any Credit Party's business or financial condition
as Agent or any Lender shall, from time to time, request.
ANNEX E (SECTION 4.1(B))
TO
CREDIT AGREEMENT
COLLATERAL REPORTS
Borrowers shall deliver or cause to be delivered the following:
PARAGRAPH NUMBERING REDEFINED HERE (a) To Agent and each Lender, upon
Agent's request, and in no event less frequently than ten (10) Business Days
after the end of each Fiscal Month (together with a copy of all or any part of
such delivery requested by any Lender in writing after the Closing Date), each
of the following:
(i) a Borrowing Base Certificate with respect to each Borrower, in
each case accompanied by such supporting detail and documentation as shall
be requested by Agent in its reasonable discretion (including a summary of
Inventory by type and location); and
(ii) with respect to each Borrower, a monthly trial balance
showing Accounts outstanding aged from invoice due date as follows: 1 to
30 days, 31 to 60 days, 61 to 90 days and 91 days or more, accompanied by
such supporting detail and documentation as shall be requested by Agent in
its reasonable discretion.
(b) To Agent and each Lender, at the time of delivery of each of the
quarterly Financial Statements delivered pursuant to Annex D, a reconciliation
of the Accounts trial balance and month-end Inventory reports of each Borrower
to such Borrower's general ledger and quarterly Financial Statements delivered
pursuant to such Annex D, in each case accompanied by such supporting detail and
documentation as shall be requested by Agent in its reasonable discretion;
(c) At Agent's request, each Borrower, at its own expense, shall
deliver to Agent and each Lender the results of each physical verification, if
any, which such Borrower or any of its Subsidiaries may in their discretion have
made, or caused any other Person to have made on their behalf, of all or any
portion of their Inventory (and, if a Default or an Event of Default shall have
occurred and be continuing, each Borrower shall, upon the request of Agent,
conduct, and deliver the results of, such physical verifications as Agent may
require);
(d) Such other reports, statements, information and reconciliations
with respect to the Borrowing Base or Collateral of any or all Credit Parties as
Agent shall from time to time request in its reasonable discretion including any
information Agent would need or may reasonably request to evaluate the current
market value of the Bond Collateral.
ANNEX F (SECTION 6.10)
TO
CREDIT AGREEMENT
FINANCIAL COVENANTS
Borrowers shall not breach or fail to comply with any of the following
financial covenants, each of which shall be calculated in accordance with GAAP
consistently applied:
PARAGRAPH NUMBERING REDEFINED HERE (a) Maximum Capital Expenditures. Borrowers
and their Subsidiaries on a consolidated basis shall not make Capital
Expenditures during the following Fiscal Years that exceed in the aggregate the
amounts set forth opposite each of such Fiscal Years:
Maximum Capital
Expenditures
Fiscal Year Ended per Fiscal Year
12/31/96 *
12/31/97 *
12/31/98 *
12/31/99 *
(b) Maximum Total Liabilities to Tangible Net Worth. Borrowers and their
Subsidiaries on a consolidated basis shall not permit at any time the ratio of
Total Liabilities to Tangible Net Worth to exceed *.
(c) Minimum EBIT. Borrowers and their Subsidiaries on a consolidated
basis shall have for the following periods, EBIT of not less than: (i) * for the
Fiscal Quarter ending December 31, 1996; (ii) * for the two Fiscal Quarters
ending March 31, 1997; and (iii) * for the three Fiscal Quarters ending June 30,
1997. In addition, Borrowers and their Subsidiaries on a consolidated basis
shall have for each four Fiscal Quarter period, commencing with the four Fiscal
Quarter period ending September 30, 1997, EBIT for such period of not less than
the amount for such period set forth below:
Four Fiscal Quarter Period Ending Minimum EBIT
9/30/97 *
12/31/97 *
3/31/98 *
6/30/98 *
9/30/98 *
(d) Minimum Tangible Net Worth. Borrowers and their Subsidiaries on a
consolidated basis shall maintain at all times Tangible Net Worth equal to or
greater than *.
(e) Minimum Unrestricted Permitted Investments. Borrowers shall maintain
at all times Unrestricted Permitted Investments having a market value as
reasonably determined by Agent of not less than *.
___________________________
* Confidential treatment requested.
(f) Minimum Current Ratio. Borrowers and their Subsidiaries on a
consolidated basis shall maintain at all times a Current Ratio of not less than
*.
Unless otherwise specifically provided herein, any accounting term
used in the Agreement shall have the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be computed
in accordance with GAAP consistently applied. That certain items or
computations are explicitly modified by the phrase "in accordance with GAAP"
shall in no way be construed to limit the foregoing. If any "Accounting
Changes" (as defined below) occur and such changes result in a change in the
calculation of the financial covenants, standards or terms used in the Agreement
or any other Loan Document, then Borrowers, Agent and Lenders agree to enter
into negotiations in order to amend such provisions of the Agreement so as to
equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating Borrowers' and their Subsidiaries' financial condition
shall be the same after such Accounting Changes as if such Accounting Changes
had not been made; provided, however, that the agreement of Requisite Lenders to
any required amendments of such provisions shall be sufficient to bind all
Lenders. "Accounting Changes" means (a) changes in accounting principles
required by the promulgation of any rule, regulation, pronouncement or opinion
by the Financial Accounting Standards Board of the American Institute of
Certified Public Accountants (or successor thereto or any agency with similar
functions), (b) changes in accounting principles concurred in by any Borrower's
certified public accountants; (c) purchase accounting adjustments under A.P.B.
16 and/or 17 and EITF 88-16, and the application of the accounting principles
set forth in FASB 109, including the establishment of reserves pursuant thereto
and any subsequent reversal (in whole or in part) of such reserves; and (d) the
reversal of any reserves established as a result of purchase accounting
adjustments. All such adjustments resulting from expenditures made subsequent
to the Closing Date (including capitalization of costs and expenses or payment
of pre-Closing Date liabilities) shall be treated as expenses in the period the
expenditures are made and deducted as part of the calculation of EBIT in such
period. If Agent, Borrowers and Requisite Lenders agree upon the required
amendments, then after appropriate amendments have been executed and the
underlying Accounting Change with respect thereto has been implemented, any
reference to GAAP contained in the Agreement or in any other Loan Document
shall, only to the extent of such Accounting Change, refer to GAAP, consistently
applied after giving effect to the implementation of such Accounting Change. If
Agent, Borrowers and Requisite Lenders cannot agree upon the required amendments
within thirty (30) days following the date of implementation of any Accounting
Change, then all Financial Statements delivered and all calculations of
financial covenants and other standards and terms in accordance with the
Agreement and the other Loan Documents shall be prepared, delivered and made
without regard to the underlying Accounting Change.
___________________________
* Confidential treatment requested.
ANNEX G (SECTION 9.9(A))
TO
CREDIT AGREEMENT
WIRE TRANSFER INFORMATION
GECC-CAF Depository
Account #50-232-854
ABA #021-001-033
Bankers Trust Company
1 Bankers Trust Plaza
New York, NY 10006
Reference: The Liposome Company
ANNEX H (SECTION 11.10)
TO
CREDIT AGREEMENT
NOTICE ADDRESSES
PARAGRAPH NUMBERING REDEFINED HERE(A) If to Agent, Collateral Agent or GE
Capital, at
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: James R. Costello, Account Manager
Telecopier No.: (203) 316-7893
Telephone No.: (203) 316-7570
with copies to:
Paul, Hastings, Janofsky & Walker LLP
1055 Washington Boulevard
Stamford, Connecticut 06901
Attention: Mario J. Ippolito, Esq.
Telecopier No.: (203) 359-3031
Telephone No.: (203) 961-7420
and
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Corporate Counsel
Telecopier No.: (203) 316-7889
Telephone No.: (203) 316-7552
(B) If to any Borrower, to Borrower Representative, at
The Liposome Company, Inc.
One Research Way
Princeton Forrestal Center
Princeton, New Jersey 08540-6619
Attention: Brian J. Geiger
Telecopier No.: (609) 452-1890
Telephone No.: (609) 452-7060
with copies to:
Smith, Stratton, Wise, Heher & Brennan
600 College Road East
Princeton, New Jersey 08540
Attention: Marsha Novick, Esq.
Telecopier No.: (609) 987-6651
Telephone No.: (609) 987-6677
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-29-1996
[PERIOD-END] DEC-29-1996
[CASH] 1,841
[SECURITIES] 28,269
[RECEIVABLES] 8,963
[ALLOWANCES] (1,079)
[INVENTORY] 9,904
[CURRENT-ASSETS] 48,780
[PP&E] 45,880
[DEPRECIATION] (17,588)
[TOTAL-ASSETS] 94,555
[CURRENT-LIABILITIES] 12,139
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 361
[OTHER-SE] 74,500
[TOTAL-LIABILITY-AND-EQUITY] 94,555
[SALES] 52,840
[TOTAL-REVENUES] 59,932
[CGS] 16,559
[TOTAL-COSTS] 77,810
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 339
[INCOME-PRETAX] (17,878)
[INCOME-TAX] 0
[INCOME-CONTINUING] (17,878)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (17,878)
[EPS-PRIMARY] (0.57)
[EPS-DILUTED] 0
</TABLE>
