8
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 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended January 2, 2000
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; Preferred Stock Purchase Rights;
Depositary Shares each representing 1/10 of a share of Registrant's
Series A
Cumulative Convertible Exchangeable Preferred Stock;
Series A Cumulative Convertible Exchangeable Preferred
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 29, 2000, was approximately $378,893,223 based
upon the last reported sales price of the registrant's Common Stock on the
NASDAQ National Market.
At February 29, 2000 there were 39,471,893 shares of the Registrant's
Common Stock outstanding.
The Exhibit Index appears on pages 60-61.
THE LIPOSOME COMPANY, INC.
1999 ANNUAL REPORT - FORM 10-K
TABLE OF CONTENTS
ITEM NO. PAGE
Part I 4
1. Business 4
Overview/Merger/Business Strategy 4
Product Development 6
Manufacturing 10
Marketing Strategy 10
Credit and Working Capital Practices 11
Human Resources 11
Patents and Proprietary Technology 11
Governmental Regulation 12
Competition 13
Additional Risk Factors 13
2. Properties 16
3. Legal Proceedings 16
4. Submission of Matters to a Vote of Security Holders 16
Part II 17
5. Market for Registrant's Common Equity and Related
Stockholder Matters 17
6. Selected Financial Data 18
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
7a. Quantitative and
Qualitative Disclosures About
Market Risk 27
8. Financial Statements and Supplementary Data 27
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 27
Part III 27
10. Directors and Executive Officers of the Registrant 27
11. Executive Compensation 31
12. Security Ownership of Certain Beneficial Owners
And Management 35
13. Certain Relationships and Related Transactions 36
Part IV 36
14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 36
This report on Form 10-K contains forward-looking statements
concerning the business, financial performance and financial condition of
the Company, which are subject to certain risks and uncertainties that
could cause actual results to differ materially from those anticipated in
any forward-looking statement. Factors that could cause such differences
include, but are not limited to, those discussed in this Form 10-K,
including without limitation, the discussion in Part I Item 1, Additional
Risk Factors. The following discussion should also be read in conjunction
with Part II Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations as well as the Consolidated Financial
Statements and Notes to the Consolidated Financial Statements included
herein.
In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "potential," "continue,"
"expects," "anticipates," "intends," "plans," "believes," "estimates" and
similar expressions. These statements are based on our current beliefs,
expectations and assumptions and are subject to a number of risks and
uncertainties. Actual results and events may vary significantly from
those discussed in the forward-looking statements. These forward-looking
statements are made as of the date of this annual report, and we assume no
obligation to update them or to explain the reasons why actual results may
differ. In light of these assumptions, risks and uncertainties, the
forward-looking events discussed in this annual report may not occur.
PART I
Item l. Business
OVERVIEW/MERGER WITH ELAN CORPORATION, plc/BUSINESS STRATEGY
The Liposome Company, Inc. (together with its subsidiaries, the
"Company") is a biopharmaceutical company engaged in the discovery,
development, manufacturing and marketing of proprietary lipid- and
liposome-based pharmaceuticals, primarily for the treatment of cancer and
other related life-threatening illnesses. Organized in 1981, 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. To supplement
and expand its internal discovery capabilities, the Company may in-license
pharmaceutical compounds for further development, manufacturing and
marketing.
On March 6, 2000 the Company announced that it entered into a definitive
merger agreement under which Elan Corporation, plc ("Elan") will acquire
the Company. Under the terms of the agreement, Elan will acquire all of
the Company's outstanding stock in a tax-free, stock-for-stock
transaction. The Company's shareholders will receive 0.3850 of an Elan
ADR for each share of Company Common Stock. Based on the closing price on
March 3, 2000 of $39.6875, the transaction has a value of $15.28 per
Company share and an aggregate value of approximately $575 million,
including options and warrants and adjusting for net cash on the Company's
balance sheet and before the contingent payment described below. Elan may
make a cash payment to Company shareholders of up to $98 million,
contingent partly on the approval of EVACET for the European Union, and
partly on EVACET reaching certain sales milestones outside the U.S. Elan
has also entered into an agreement with Ross Financial Corporation, the
Company's major shareholder, to vote in favor of the transaction. The
transaction is subject to regulatory and the Company's shareholder
approvals and is expected to close in the second quarter of 2000.
ABELCET (Amphotericin B Lipid Complex Injection), the Company's first
commercialized product, has been approved for marketing for certain
indications in the United States and 24 foreign markets and is the subject
of marketing application filings in several other countries. In the
United States, ABELCET has been cleared for marketing for the treatment of
invasive fungal infections in patients who are refractory to or intolerant
of conventional amphotericin B therapy. International approvals have been
received for primary and/or refractory treatment of these infections.
Currently all product revenues are derived from ABELCET.
During 1999, the Company marketed ABELCET in the U.S. and Canada with
its own sales force. For other countries, the Company's strategy is to
market ABELCET through marketing alliances. Specific marketing alliances
are determined on a country-by-country basis. In addition, sales are
realized on a "named patient" basis in certain countries where marketing
approvals have not yet been received.
The Company is developing EVACET (formerly TLC D-99), liposomal
doxorubicin, as a treatment for metastatic breast cancer and potentially
other cancers. The Company also plans to conduct additional studies of
EVACET in combination with other anticancer agents.
TLC ELL-12, a liposomal ether lipid, potentially provides advantages
over existing chemotherapeutic agents. Ether lipid has been shown in
previous human studies to be an effective anticancer agent, but was highly
toxic to red blood cells. TLC ELL-12 does not appear to have this
toxicity. More importantly, unlike most chemotherapeutic agents, it does
not interact with DNA. ELL-12 has not caused bone marrow suppression in
animal studies and is not likely to be carcinogenic or mutagenic in its
own right. If this holds true in humans, TLC ELL-12 would be a significant
advance in cancer chemotherapy. TLC ELL-12 entered Phase I clinical trials
at Duke University Medical Center in February 1999.
The Company has a continuing discovery research program concentrating on
oncology treatment and has a number of products in research. These
products include: bromotaxane (a hydrophobic derivative of paclitaxel),
which has shown anticancer activity in several experimental models;
ceramides and sphingosines (molecules widely implicated in cell
differentiation and apoptosis), certain of which the Company has
identified as displaying anticancer activity; and fusogenic liposomes
(liposomes specifically designed to fuse to cell membranes), which the
Company hopes to use for the efficient delivery of genes to their intended
targets.
On June 25, 1997 the Company announced results of a Phase III study of
VENTUS as the treatment for Acute Respiratory Distress Syndrome, an
inflammatory condition affecting the lungs. The Company's analysis of the
two arms of the study showed no significant difference between patients
receiving VENTUS or placebo either in reducing the time on mechanical
ventilation or in 28 day mortality. No safety concerns for the drug were
identified. The Company does not intend to perform any further
significant development of VENTUS for this indication.
Following the results of the VENTUS clinical trial, the Company
announced its intention to focus its resources on the development of an
oncology franchise. As part of implementing this strategy, the Company
restructured its operations to reflect ongoing operating realities and to
focus the organization on the development and marketing of oncology and
related pharmaceuticals. The restructuring eliminated 137 positions, which
resulted in unusual charges of $2,550,000 in the second quarter of 1997.
Additionally, in order to gain operational access to a second,
potentially significant oncology-related drug, the Company reacquired, on
July 14, 1997, all development, manufacturing and marketing rights to
EVACET from Pfizer Inc. ("Pfizer"), which had previously been co-
developing EVACET with the Company. The Company assumed control over and
the cost of all clinical studies, including the ongoing Phase III clinical
studies that were previously being conducted by Pfizer. Pfizer will
receive royalties on worldwide (except Japan) commercial sales of EVACET.
In July and August 1997, the Company entered into agreements to settle
patent litigation with the University of Texas and M.D. Anderson Cancer
Center ("UT") and with NeXstar Pharmaceuticals, Inc. ("NeXstar") (now
Gilead Sciences, Inc.) and Fujisawa U.S.A., Inc. Under the UT settlement,
the Company received an exclusive license under UT's patent and paid past
royalties in a combination of cash and stock, agreed to pay royalties on
future sales of ABELCET, and issued to UT a ten year warrant to purchase 1
million shares of the Company's Common Stock at $15.00 per share.
Pursuant to the NeXstar settlement, the Company received a payment of
$1,750,000 in 1997 and began receiving quarterly payments based on
worldwide sales of AmBisome beginning in 1998.
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 Marketing and The Company
infections in sales
patients
refractory to, or
intolerant of,
amphotericin B.
International
Systemic fungal Approved in: The Company;
infections (first France, Italy, Laboratorios
and/ or second- United Kingdom, Esteve, SA
line indications) Canada, Spain and (Spain,
other countries. Portugal)
Other marketing
approvals Wyeth-Lederle
pending. (France,
Italy, UK,
Nordic
countries,
Netherlands
and Greece)
EVACET Metastatic breast New Drug The Company
(Formerly cancer Application in
TLC D-99) U.S. withdrawn.
Further clinical
studies required
for U.S.
approval.
Applications
pending in Europe
and Canada.
TLC ELL-12 Various cancers Phase I clinical The Company
studies initiated
in February 1999.
Bromotaxane Various cancers Preclinical The Company
toxicology
studies
Ceramides Various cancers Research The Company
and
sphingosines
Gene Therapy Efficient delivery Research The Company
Delivery of genes to target
using fusogenic
liposomes
(1) Research denotes work up to and including bench scale production of a
formulation that meets the basic product performance characteristics
established for the product including demonstration of in vivo
efficacy in animal models.
Preclinical testing denotes work to refine product performance
characteristics and studies relating to product composition,
stability, scale-up, toxicity and efficacy to create a prototype
formulation in preparation for the filing of an IND application with
the FDA for authority to commence testing in humans (clinical
studies).
Phase I-III clinical studies 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" and "Additional Risk Factors."
Technology
The Company's products are based on its proprietary knowledge of lipid
technology to employ liposomes or lipid complexes as a vehicle to deliver
an active therapeutic ingredient, or in the case of bioactive lipids, to
develop novel therapeutics based on lipids that are biologically active.
Liposomes are microscopic man-made spheres composed of lipids that can be
engineered to entrap drugs or other biologically active molecules. A lipid
complex is an organized assembly of phospholipids whereby an active
pharmaceutical is interspersed and tightly bound to adjoining lipid
molecules. In many cases, lipid complexed and liposomal pharmaceuticals
can provide less toxicity and/or better efficacy than might otherwise
result from the underlying active ingredient.
Lipid technology is 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 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 the role of lipids. This
role has profound pharmacological implications, i.e., that lipids
themselves can be biologically active and therapeutically useful.
Products
ABELCET (Amphotericin B Lipid Complex Injection)
ABELCET (Amphotericin B Lipid Complex Injection) has been developed for
the treatment of systemic fungal infections such as candidiasis,
aspergillosis and cryptococcal meningitis occurring primarily in
immunocompromised patients such as cancer chemotherapy patients, organ and
bone marrow transplant recipients and people with AIDS.
Amphotericin B, the active ingredient in ABELCET, is a broad-spectrum
anti-fungal agent that is believed to act by penetrating the cell wall of
a fungus, thereby killing it. In its conventional form, amphotericin B is
particularly toxic to the kidneys, an adverse effect that often restricts
the amount that can be administered to a patient. While still a
nephrotoxic drug, ABELCET is able to deliver much greater amounts of
amphotericin B while significantly reducing the kidney toxicity associated
with the conventional drug.
At the end of 1999, ABELCET has received regulatory marketing approval
in the United States and twenty-four international markets including
France, Italy, the United Kingdom, Canada and Spain. 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. The Company is marketing ABELCET in the
United States for the treatment of these 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 certain 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.
In May 1995, the Company filed a New Drug Application ("NDA")for ABELCET
with the United States Food and Drug Administration ("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. ABELCET
was approved in Spain in late 1995 and in certain smaller countries during
1996. During the latter part of 1997 and the beginning of 1998, the
Company received approvals to market ABELCET in Italy, Austria, Spain,
France, Switzerland, Canada, Norway and Hong Kong. In September 1998, the
Company received approval to market ABELCET in Australia. During 1999, the
Company received approval to market ABELCET in the Netherlands, Hungary
and Turkey. The Company believes it may receive marketing approvals in
additional countries during 2000 and in later years.
EVACET (Liposomal Doxorubicin)
The Company is developing EVACET, liposomal doxorubicin (formerly TLC
D-99), as a treatment for metastatic breast cancer. Doxorubicin, one of
the most widely-used chemotherapeutic drugs, is used in the treatment of
many solid tumors, leukemias and lymphomas. A substantial portion of the
usage of doxorubicin is believed to be for the treatment of breast cancer,
and about 40% of the U.S. usage is believed to be for the treatment of
metastatic breast cancer. 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 (anticancer) chemotherapeutic agents. The individual
maximum dosage given to a patient is limited by these and other toxic side
effects.
EVACET, a liposomal formulation of the chemotherapeutic agent
doxorubicin, is designed to reduce significantly the cardiotoxic activity
of the parent drug (i.e. doxorubicin) while maintaining efficacy. Three
Phase III trials have been conducted by the Company: a single-agent trial
(n=224) in which EVACET was compared directly to doxorubicin, a
combination trial (n=297) in which EVACET was compared to doxorubicin when
each was administered in combination with cyclophosphamide, and a European
combination trial (n=160) in which EVACET was compared to epirubicin, an
anthracycline therapy widely used in Europe, when each was administered in
combination with cyclophosphamide.
In December 1998, the Company filed an NDA with the FDA for marketing
clearance for EVACET as a first line treatment for metastatic breast
cancer. In February 1999, the FDA notified the Company that it had
accepted its application for review. On September 16, 1999, the Oncologic
Drug Advisory Committee ("ODAC")to the U.S. Food and Drug Administration
found that there was not sufficient evidence to recommend for approval the
Company's NDA for EVACET for the first line treatment of metastatic breast
cancer in combination with cyclophosphamide. Accordingly, the ODAC panel
voted against recommending the Company's NDA for EVACET.
In response to the September 1999 ODAC meeting, the Company met with the
FDA in October 1999 and elected to resubmit the EVACET NDA pending
completion of additional analyses suggested by the agency. The Company
completed these analyses and met with the agency in February 2000 to
review the data as a potential step toward the resubmission of the EVACET
NDA. Based on discussions with the FDA, the Company now believes that
additional clinical data will be needed in order to obtain marketing
approval for EVACET in the United States. The EVACET dossier remains
under review by the European and Canadian regulatory agencies and the
Company expects a decision on these regulatory filings before the end of
2000. However, there can be no assurance that the Company will receive
marketing clearance from the FDA or foreign regulatory authorities to
market EVACET in the United States or abroad.
The Company reacquired all development, manufacturing and marketing
rights to EVACET from Pfizer in July 1997. Pfizer had previously been co-
developing EVACET with the Company. The Company assumed control over and
the cost of all clinical studies including the ongoing Phase III clinical
studies noted above that were previously being conducted and funded by
Pfizer. Pfizer was also reimbursing the Company for substantially all of
the development costs of EVACET that were being incurred by the Company.
Pfizer made available a credit line of up to $10 million to continue the
development of EVACET, and to the extent that any funding is actually used
by the Company, the outstanding principal and interest would be repayable
on the earlier of 180 days after FDA clearance to market EVACET or in
twenty quarterly installments commencing July 14, 2002. Pfizer is entitled
to receive royalties on worldwide (except Japan) commercial sales of
EVACET. There were no borrowings outstanding under this credit facility at
the end of 1999.
TLC ELL-12 (Liposomal Ether Lipid)
The Company is developing TLC ELL-12 (a liposomal ether lipid), a new
cancer therapeutic that may have applications for the treatment of many
different cancers including prostate cancer and non-small-cell lung
carcinoma.
TLC ELL-12 is believed to employ a different mechanism of action than
conventional anticancer agents; it does not interact directly with DNA and
is not myelosuppressive. Thus, it may complement many standard
chemotherapeutic agents. In preclinical studies conducted by the Company's
scientists, TLC ELL-12 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.
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 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.
The Company commenced Phase I clinical trials of TLC ELL-12 in February
1999 at Duke University Medical Center. This clinical trial is still
ongoing.
Research Programs
Bromotaxane
Bromotaxane (a hydrophobic derivative of paclitaxel) has shown
anticancer activity in several experimental models. In a model of a human
ovarian cancer tumor, mice treated with bromotaxane have remained tumor
free for extended periods of time. The Company entered a hydrophobic
taxane derivative, into a formal development program in 1999, leading to
the possible commencement of human clinical studies in 2001.
Ceramides and Sphingosines
Ceramides and sphingosines are molecules widely implicated in cell
differentiation and apoptosis. The Company has identified and developed a
family of such molecules displaying anticancer activity. In vitro, they
have been shown to be active against several human cancers including non-
small-cell lung, breast, renal cell, ovarian and colon cancer, as well as
against drug resistant cell lines. One compound thus far apparently has
activity against a multiple drug resistant tumor in vivo. The Company is
conducting research to identify molecules within this family that could be
attractive product candidates.
Gene Therapy
The Company is conducting research to discover a means for efficiently
delivering genes to their intended targets. Company researchers have
successfully put DNA into liposomes and have achieved fusion of these
liposomes to cells, thereby accomplishing the direct delivery of the
liposome contents into the cell interior. Company scientists have also
succeeded in protecting these liposomes from degradation and are able to
modulate their circulation time. The research team is now attempting to
develop systems to target these fusogenic liposomes to particular cell
types.
Research Costs
During 1999, 1998 and 1997, the Company's research and development costs
were approximately $25.5 million, $26.4 million and $28.9 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 owns a 55,000 square foot manufacturing facility in
Indianapolis, Indiana, designed for the production of large commercial
quantities of its products. In August 1997, following a retrofit of a
portion of the facility to manufacture ABELCET, the Company received FDA
approval for commercial production of ABELCET from that facility. The
facility has also been approved by several international regulatory
authorities. During 1997, the Company transferred the production of
ABELCET from its Princeton manufacturing facility to Indianapolis in order
to take advantage of the manufacturing economies available from producing
ABELCET on a larger scale.
The Company also has a multiproduct manufacturing facility at its
Princeton site. This facility was designed to manufacture clinical and
initial commercial quantities of the Company's products and to accommodate
manufacturing for future products using similar processes. This facility
has been approved by the FDA for the manufacture of ABELCET for sale in
the United States and by regulatory authorities in other countries.
The Company believes that its current facilities, staff and sources and
availability of raw materials are adequate for the manufacture of
preclinical and clinical supplies of its products and for the production
of commercial quantities of ABELCET. There is no assurance that EVACET or
other developmental products can be successfully manufactured on a
commercial scale at the Company's current facilities.
In April 1998, the Company entered into a three-year agreement with
AstraZeneca PLC ("Astra") (formerly Astra USA, Inc.), a subsidiary of
Astra AB of Sweden, to manufacture Astra's M.V.I.- 12 Unit Vial
(hereinafter referred to as, "MVI"). MVI is used by severely ill,
hospitalized patients in need of nutritional supplements. The Company will
manufacture MVI at its Indianapolis manufacturing facility. Under the
terms of the Agreement, AstraZeneca PLC ("Astra") (formerly Astra USA)
will supply bulk quantities of the vitamin product and will market the
finished product. The Company will sterilize, fill, package and perform
quality control on MVI for Astra.
MARKETING STRATEGY
In the United States and Canada, the Company markets ABELCET through its
own sales force of approximately forty experienced representatives. Sales
representatives are based in key cities throughout North America and are
solely dedicated to the marketing of ABELCET to hospitals.
Internationally, the Company determines whether to market ABELCET directly
or with a partner on a country-by-country basis. In addition, sales are
realized on a named patient basis in certain countries where marketing
approval has not yet been received.
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.
In the third quarter, 1997, the Company entered into agreements with
affiliates of Wyeth-Ayerst International, Inc. ("Wyeth-Ayerst"), a
division of American Home Products Corporation, to be its marketing
partners in France and Italy. Subsequently, the Company entered into
additional agreements with Wyeth-Ayerst to include the marketing of
ABELCET in the Nordic countries. Wyeth-Ayerst has a strong presence in
the European hospital market and is skilled in the infectious disease and
oncology sectors, which are primary areas of ABELCET usage.
During 1998, the Company entered into agreements with affiliates of
Wyeth-Ayerst to market ABELCET in Austria and Greece and Amgen Australia
Pty. Ltd., a division of Amgen (NASDAQ: AMGN), to market ABELCET in
Australia.
During 1999, the company entered into agreements with affiliates of
Wyeth-Ayerst to market ABELCET in Hungary, the Netherlands and the United
Kingdom. Prior to engaging Wyeth-Ayerst, the Company sold ABELCET in the
United Kingdom through its own sales force.
For financial information concerning the Company's domestic and
international operations, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Revenues" and Note 10 to
the Consolidated Financial Statements.
CREDIT AND WORKING CAPITAL PRACTICES
In the United States, the Company sells ABELCET primarily to drug
wholesalers who, in turn, sell the product to hospitals and certain other
third parties. In some cases, product is sold by the Company directly to
institutions.
International sales generally are made to the Company's marketing
partners, in countries where such agreements have been established, and
directly to hospitals in countries where the Company has retained
marketing rights. Hospitals overseas in general are funded directly by
the governments of the respective countries.
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.
The Company maintains credit insurance on large, selected accounts in the
United States subject to a deductible.
Customers may return defective or out of date merchandise for credit or
replacement. Such returns have been insignificant.
HUMAN RESOURCES
At the end of 1999, the Company had 306 full-time employees, 25 of who
hold Ph.D. degrees and 3 of whom hold M.D. degrees or the foreign
equivalent. Of these employees, 203 are engaged in research, development,
clinical development and manufacturing activities, 60 in sales and
marketing and 43 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 to its employees.
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. At the end of 1999, the Company had 99 United States patents as
well as 696 foreign counterpart patents, and 29 United States patent
applications and 196 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, EVACET, TLC ELL-12 and the family of ceramides as
well as aspects of the Company's technology in gene therapy delivery 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.
The Company owns worldwide rights to manufacture and market ABELCET
under its patent rights and other proprietary technology rights. In
connection with the reacquisition of product rights from Bristol-Myers
Squibb ("BMS") in January 1993, the Company agreed to pay royalties to BMS
on sales of ABELCET. The Company also pays royalties to the University of
Texas on ABELCET sales pursuant to a litigation settlement finalized in
July 1997. This settlement gave the Company exclusive rights under a
patent assigned to the University of Texas by inventors at the M.D.
Anderson Cancer Center relating to liposomal amphotericin B. A portion of
these royalties is offset against the royalty payments to BMS.
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 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 various
companies with which it does business.
The Company owns rights in the trademarks employed in its business.
"ABELCET" is a registered trademark in the United States and all of the
European countries in which Amphotericin B Lipid Complex Injection is
approved for marketing. EVACET is a trademark of the Company pending
registration in a number of countries. Other trademarks used by the
Company include the graphic ball logo, the name CLEAR, the slogan,
Expanding the Horizons of Biotechnology, and other trademarks and service
marks identifying the Company's products and services.
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 Investigational New Drug
("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 Practices 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. The FDA may also require postmarketing
testing and surveillance programs to monitor the drug's efficacy and
possible 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 amphotericin B products. The Company's two principal
competitors in the lipid-based amphotericin B market are Gilead Sciences,
Inc. (NASDAQ:GILD) and ALZA Corporation (NYSE:AZA). Each of these
companies' liposomal amphotericin B products has regulatory approval in
the United States and other countries.
The two principal competitors referred to in the preceding paragraph
also have liposomal anthracycline products. 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. These products are currently being marketed in the U.S. and
certain other countries for these indications. In June, 1999, the FDA
granted approval to one competitor for the treatment of refractory ovarian
cancer. This liposomal anthracycline is indicated for women with ovarian
cancer who have disease that is refractory to paclitaxel and platinum
based chemotherapy regimens.
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.
ADDITIONAL RISK FACTORS
The growth, financial performance and business condition of the Company
may be affected by a number of risk factors, including the matters
discussed below. You should carefully consider the following risks in
addition to the other information presented in this form 10-K in
evaluating the Company and its business.
Uncertainty of Government Regulatory Requirements; Lengthy Approval
Process
Human therapeutic products, vaccines and in vivo diagnostic products are
subject to rigorous preclinical and clinical testing and approval by the
FDA and comparable agencies in other countries and, to a lesser extent, by
state regulatory authorities prior to marketing. The process of obtaining
such approvals, especially for human therapeutic products, is likely to
take a number of years and will involve the expenditure of substantial
resources. If the FDA requests additional data, these time periods can be
materially increased. Even after such additional data is submitted, there
can be no assurance of obtaining FDA approval. In addition, product
approvals may be withdrawn or limited for noncompliance with regulatory
standards or the occurrence of unforeseen problems following initial
marketing. The Company may encounter significant delays or excessive
costs in their respective efforts to secure necessary approvals or
licenses. Future federal, state, local or foreign legislative or
administrative acts could also prevent or delay regulatory approval of the
Company's products. Failure to obtain or maintain requisite governmental
approvals, or failure to obtain approvals of the intended clinical uses
requested, could delay or preclude the Company from further developing
particular products or from marketing their products, or limit the
commercial use of the products and thereby have a material adverse effect
on the Company's liquidity and financial condition. The Company must
demonstrate through preclinical studies and clinical trials that the
product is safe and effective for use in each targeted indication. The
results from preclinical studies and early clinical trials may not be
predictive of results that will be obtained in large-scale testing, and
there can be no assurance that the Company's clinical trials will
demonstrate the safety and efficacy of any products or will result in
marketable products. Many pharmaceutical and drug delivery companies have
suffered significant setbacks in advanced clinical trials, even after
obtaining promising results in earlier trials.
Volatility of Stock Price
There has been a history of significant volatility in the market prices
for shares of companies in the biopharmaceutical industry. The market
price of the shares of the Company's Common Stock has been volatile.
Factors such as announcements of technological innovations or new
commercial products by the Company or its competitors, developments
relating to regulatory approvals, governmental regulation, developments
regarding product development activities, developments or disputes
relating to patent or proprietary rights, as well as period-to-period
fluctuations in revenues and financial results, may have a significant
impact on the market price of the Company's Common Stock.
Uncertainty of Pharmaceutical Pricing and Adequate Third-Party
Reimbursement
The Company's business may be materially adversely affected by the
continuing efforts of worldwide governmental and third party payers to
contain or reduce the costs of pharmaceutical products. An increasing
emphasis on managed care and consolidation of hospital purchasing in the
United States has and will continue to put pressure on pharmaceutical
pricing, which could reduce the price that the Company is able to charge
for any current or future products. In addition, price competition may
result from competing product sales, attempts to gain market share or
introductory pricing programs, all of which could have a material adverse
effect on the Company's results of operations and financial condition. The
Company's ability to generate significant revenues from its products may
also depend in part on the extent to which reimbursement for the costs of
such products and related treatments will be available from government
health administration authorities, private health coverage insurers and
other payers. If purchasers or users of the Company's products are not
entitled to adequate reimbursement for the cost of such products, they may
forego or reduce such use. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and there
can be no assurance that adequate third party coverage will be available.
Adequacy of Product Liability Insurance
The testing, manufacturing and marketing of the Company's products
entail an inherent risk of adverse events that could expose the Company to
product liability claims. The Company has obtained insurance against the
risk of product liability claims. However, there is no guarantee that this
insurance will be adequate, that the amount of this insurance can be
increased, or that the policies can be renewed. Moreover, the amount and
scope of any coverage obtained may be inadequate to protect the Company in
the event of a successful product liability claim.
Dependence on Key Personnel and Consultants
The Company's ability to successfully develop, manufacture and market
products and to maintain a competitive position will depend in large part
on its ability to attract and retain highly qualified scientific and
management personnel and to develop and maintain relationships with
leading research institutions and consultants. Competition for such
personnel and relationships is intense, and there can be no assurance that
the Company will be able to continue to attract and retain such personnel.
Dependence Upon Suppliers
The Company currently relies on a limited number of suppliers to provide
the materials used to manufacture its products, certain of which materials
are purchased only from one supplier. In the event the Company could not
obtain adequate quantities of necessary materials from its existing
suppliers, there can be no assurance that the Company would be able to
access alternative sources of supply within a reasonable period of time or
at commercially reasonable rates. In particular, the Company presently
acquires amphotericin B, a principal ingredient in ABELCET, from one
supplier on what the Company believes are favorable terms. Although the
Company has qualified an alternative supplier for amphotericin B, the loss
of the Company's current supplier could have a material adverse effect on
the Company. The unavailability of adequate commercial quantities, the
inability to develop alternative sources, a reduction or interruption in
supply or a significant increase in the price of materials could have a
material adverse effect on the Company's ability to manufacture and market
its product.
The Company's Dependence on and the Uncertainty of Protection of Patents
and Proprietary Rights
The protection provided to the Company by its patents and proprietary
rights is key. The Company has a number of United States and foreign
patents and patent applications relating to various aspects of lipid and
liposome technologies. The patent position of biopharmaceutical companies
generally is highly uncertain and involves complex legal and factual
questions. There can be no assurance that any patents will afford the
Company commercially significant protection for its proprietary technology
or have commercial application, and litigation may be necessary to
determine the validity and scope of the Company's proprietary rights.
Moreover, the patent laws of foreign countries and the enforcement of such
laws may afford less protection than comparable U.S. laws.
Competition
The Company is aware of various products under development or
manufactured by competitors that are used for the prevention, diagnosis or
treatment of certain diseases the Company has targeted for product
development, some of which use therapeutic approaches that compete
directly with certain of the Company's product candidates. Some of the
Company's competitors have substantially greater financial and technical
resources and production and marketing capabilities than the Company. In
addition, many of the Company's competitors have significantly greater
experience than the Company in preclinical testing and human clinical
trials of new or improved pharmaceutical products and in obtaining
approval from the U.S. Food and Drug Administration ("FDA") and other
regulatory approvals on products for use in health care. In particular,
the Company is aware that other companies are developing lipid-based or
liposomal amphotericin B products and have obtained regulatory approvals
for such products in certain markets. Two competitors received approvals
for lipid-based amphotericin B products in certain markets before ABELCET
was approved, which may confer a competitive advantage for their products.
In the United States, although ABELCET was the first lipid-based
amphotericin B product to be approved for marketing, one competitor's
product was approved in the fourth quarter of 1996, and another
competitor's product was approved in August 1997. Other companies are
developing anti-fungal products that may compete with the Company's
product. Although it cannot be predicted how the existence of competing
lipid-based and non lipid based products may affect the U.S. antifungal
market, it is possible that the Company's share of this market will
continue to decline and that price competition will reduce the overall
size of the market. In addition, other companies are also developing
liposomal anthracycline products similar to EVACET, two of which have been
cleared by the FDA for treatment of Kaposi's Sarcoma and one of which has
been cleared for the treatment of refractory ovarian cancer. The Company
is also competing with respect to manufacturing efficiency and marketing
capabilities, areas in which the Company has limited experience.
Dependence on ABELCET Revenues
The Company currently derives a substantial portion of its revenues from
the sale of ABELCET; its only approved product. The Company's annual
operating results depend upon a variety of factors including the price,
volume and timing of ABELCET sales. If demand for ABELCET were to decline
or revenues were to fall, whether by introduction of competitive products
or otherwise, the Company's financial results would be adversely affected.
There can be no assurance that the Company's revenues from the sale of
ABELCET will not decline due to the aforementioned factors.
Uncertainty of Future Financial Results; Fluctuations in Operating
Results
The Company's quarterly operating results depend upon a variety of
factors, including the price, volume and timing of ABELCET sales; timing
and amount of royalties, fees and contract revenues; the availability of
third-party reimbursement; and the regulatory approvals of new products,
or expanded labeling of existing products. The Company's quarterly
operating results may also fluctuate significantly depending on other
factors, including the timing of approvals and the success of product
launches in international markets, the expansion of clinical trials for
ABELCET and EVACET, changes in the Company's level of research
expenditures, and variations in gross margins that may be caused by
increased costs of raw materials, competitive pricing pressures, or the
mix between product sales in the United States and sales to the Company's
international marketing partners and distributors. The Company expects
quarter-to-quarter fluctuations to continue in the future, and there can
be no assurance that the Company's revenues will not decline or that the
Company will be profitable in future periods.
The Company's Marketing Staff Competes with Large Pharmaceutical
Companies
The pharmaceutical industry is highly competitive. The Company's
products compete, and products the Company may develop are likely to
compete, with products of other companies that currently have extensive
and well-funded marketing and sales operations. Because these companies
are capable of devoting significantly greater resources to their marketing
efforts, the Company's marketing or sales efforts may not compete
successfully against the efforts of these other companies.
Item 2. Properties
The Company leases space in all of one and a portion of two other
facilities in the vicinity of 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 includes options to renew for up to an additional ten
years. Lease payments for the year ended January 2, 2000 totaled
approximately $568,000. Future lease payments are subject to certain
escalation provisions as contained in the lease agreement. The Company
also leases approximately 28,500 square feet of office space located in
the Princeton Forrestal Center. The lease commenced March 1, 1993 and
expires in February 2003. Payments under this lease for the year ended
January 2, 2000 totaled approximately $712,000. In January 1995, the
Company entered into a lease for approximately 13,200 square feet of
office/warehouse space near its corporate offices. In December, 1997, the
lease was extended to March 2002. Rent expense for this facility totaled
approximately $72,000 for 1999.
The Company also leases office space in London, England. A ten year
agreement was signed in October 1996, expiring in September 2006. Rent
expense was approximately $268,000 for 1999.
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 received FDA and
certain international regulatory agency approvals to manufacture
commercial supplies of ABELCET from this facility. 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 a party in an adversarial proceeding filed in the United
States Bankruptcy Court in Delaware by a chapter 7 bankruptcy trustee for
the estate of the FoxMeyer Corporation, et al. The complaint seeks to
avoid and recover purported preferential transfers pursuant to 11 U.S.C.
Section 547 and Section 550 from the Company in the amount of $2.3
million.
The Company is currently a party to various other legal actions arising
out of the normal course of business, none of which are expected to have a
material effect on the Company's financial position or results of
operations.
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
1999
4th Quarter $14.00 $6.34
3rd Quarter 28.50 6.75
2nd Quarter 19.25 10.00
1st Quarter 16.06 10.75
High Low
1998
4th Quarter $16.88 $5.13
3rd Quarter 6.25 3.38
2nd Quarter 8.63 4.69
1st Quarter 6.44 4.69
(b) Holders
At February 29, 2000, there were approximately 907 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 January 2,
2000. 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______________________
1/2/00 1/3/99 12/28/97 12/29/96 12/31/95
(In thousands, except per share data)
Product sales $86,203 $73,495 $58,452 $52,840 $ 6,164
Collaborative research and
development revenues -- -- 2,331 3,228 6,589
Interest, investment and
other income 6,267 4,373 4,313 3,864 2,964
Total revenues 92,470 77,868 65,096 59,932 15,717
Cost of goods sold 20,284 20,805 22,029 16,559 2,304
Research and development expense 25,517 26,441 28,894 29,371 30,149
Selling, general and
administrative expense 32,277 34,535 39,914 31,541 18,631
Interest expense 551 773 705 339 294
Total expenses 78,629 82,554 91,542 77,810 51,378
Net income/(loss) before dividends
& taxes 13,841 (4,686) (26,446) (17,878)(35,661)
Preferred Stock dividends -- -- -- (1,235) (5,348)
Net income/(loss) before taxes $13,841 $(4,686) $(26,446) $(19,113) $(41,009)
Provision for income taxes.... 790 -- -- -- --
Net income/(loss) $13,051 $(4,686) $(26,446) $(19,113) $(41,009)
Net income/(loss)per share (basic) $0.34 $(0.12) $(0.71) $(0.57) $(1.50)
Net income/(loss)per share (diluted) $0.32 $(0.12) $(0.71) $(0.57) $(1.50)
Weighted average number of
shares outstanding (basic). 38,825 38,172 37,083 33,292 27,293
Weighted average number of
shares outstanding (diluted) 40,284 38,172 37,083 33,292 27,293
CONSOLIDATED BALANCE
SHEETS DATA: Year
Ended______________________
1/2/00 1/3/99 12/28/97 12/29/96 12/31/95
(In thousands)
Cash and marketable securities(1) $76,863 $54,343 $45,525 $47,180 $72,333
Working capital 67,329 41,401 41,566 46,781 64,422
Total assets 110,758 90,574 91,500 94,555 105,926
Total long-term liabilities 2,383 5,089 6,879 7,555 4,104
Accumulated deficit (180,479)(193,530)(188,844)(162,398)(144,520)
Total stockholders' equity $90,729 $71,741 $73,662 $74,861 $89,832
(1)Includes restricted cash of $5,522, $11,930, $11,930, $6,930, and
$6,642 in 1999, 1998, 1997, 1996 and 1995, respectively. See Note 1 of
Notes to Consolidated Financial Statements.
See accompanying notes.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This report on Form 10-K contains forward-looking statements
concerning the business, financial performance and financial condition of
the Company, which are subject to certain risks and uncertainties that
could cause actual results to differ materially from those anticipated in
any forward-looking statement. Factors that could cause such differences
include, but are not limited to, those discussed in Part I Item 1,
Additional Risk Factors. The following discussion and analysis should be
read in conjunction with the Financial Statements and related notes
thereto contained herein.
Merger with Elan Corporation, plc
On March 6, 2000 the Company announced that it has entered into a
definitive merger agreement under which Elan Corporation, plc ("Elan")
will acquire the Company. Under the terms of the agreement, Elan will
acquire all of the Company's outstanding stock in a tax-free, stock-for-
stock transaction. The Company's shareholders will receive 0.3850 of an
Elan ADS for each share of The Liposome Company stock. Based on the
closing price of Elan ADS's on March 3, 2000 of $39.6875, the transaction
has a value of $15.28 per Company share and an aggregate value of
approximately $575 million, including options and warrants and adjusting
for net cash on the Company's balance sheet and before the contingent
payment described below. Elan may make a cash payment to the Company
shareholders of up to $98 million, contingent partly on the approval of
EVACET for the European Union, and partly on EVACET reaching certain sales
milestones outside the U.S. Elan has also entered into an agreement with
Ross Financial Corporation, the Company's major shareholder, to vote in
favor of the transaction. The transaction is subject to regulatory and
the Company's shareholder approvals and is expected to close in the second
quarter of 2000.
Overview
The Liposome Company, Inc. (the "Company") is a biopharmaceutical company
engaged in the discovery, development, manufacturing and marketing of
proprietary lipid- and lipid-based pharmaceuticals, primarily for the
treatment of cancer and other related 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 and 24 foreign markets and is the subject
of marketing application filings in several other countries. In the
United States, ABELCET has been approved for the treatment of invasive
fungal infections in patients who are refractory to or intolerant of
conventional amphotericin B therapy. International approvals have been
received for primary and/or refractory treatment of these
infections. Currently all product sales are derived from ABELCET.
The Company markets ABELCET in the U.S. and Canada, with its own sales
force. For other countries, the Company's strategy is to market ABELCET
through marketing partners. Specific marketing partnerships are
determined on a country-by-country basis. In addition, sales are realized
on a "named patient" basis in certain countries where marketing approvals
have not yet been received. On August 31, 1999, the Company received
approval from the U.S. Food and Drug Administration ("FDA") for a new vial
size of ABELCET, which was launched in late September 1999. The ABELCET 50
milligram size is also available in the UK and Spain, with applications
pending in additional countries. Previously, ABELCET was only available
in the 100 milligram vial size. The 50 milligram size is expected to
provide economies in dosing for hospitals, particularly for pediatric
patients.
The Company is developing EVACET (formerly TLC D-99), liposomal
doxorubicin, as a treatment for metastatic breast cancer and potentially
other cancers. The Company filed a New Drug Application ("NDA") for EVACET
with the FDA in December 1998. The Company has also filed for marketing
clearance of EVACET in the European Union and Canada in June 1999 and July
1999, respectively, and anticipates a decision on the European and Canadian
regulatory filings before the end of 2000. On September 16, 1999, the
Oncologic Drugs Advisory Committee ("ODAC") to the FDA found that there was
not sufficient evidence to recommend for approval the Company's NDA for
EVACET for the first-line treatment of metastatic breast cancer in
combination with cyclophosphamide. After consulting with the FDA, the
Company, on October 14, 1999, announced that it was withdrawing its
original NDA for EVACET and would submit additional analyses to the FDA.
The Company completed further analyses of clinical data and provided them
to the FDA
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
in December 1999. The Company announced on February 3, 2000, that it had
met with the FDA to discuss the additional analyses and based on those
discussions, the Company believes that additional clinical data will be
needed in order to obtain marketing clearance for EVACET in the U.S. The
Company intends to work with the FDA to define a role for EVACET in the
management of metastatic breast cancer and other cancers. There can be no
assurance that the FDA, Canadian or European regulatory authorities will
grant the Company marketing clearance for EVACET.
During August 1999, the Company announced it had entered into clinical
trial collaborations with Aventis Pharmaceuticals, Inc. ("AP") (formerly
Rhone-Poulenc Rorer Pharmaceuticals, Inc.) and Bristol-Myers Squibb
("BMS"). The clinical trial with AP is designed to evaluate the safety of
EVACET in combination with Taxotere (docetaxel) for the treatment of
metastatic breast cancer. This clinical trial collaboration with BMS is
designed to evaluate the safety of EVACET in combination with Taxol
(paclitaxel) for the treatment of patients with metastatic breast cancer.
These studies commenced patient enrollment in the latter part of 1999. In
August 1999, the Company also announced that it had initiated a clinical
trial of EVACET in combination with the monoclonal antibody Herceptin
(Trastuzumab). This clinical trial is designed to evaluate the safety and
efficacy of EVACET in combination with Herceptin for the first-line
treatment of metastatic or locally advanced breast cancer.
On December 9, 1999 the Company announced its participation in the New
Jersey Technology Tax Transfer Program (the "Program"). The state of New
Jersey has authorized the Company to sell $10 million in New Jersey State
income tax benefits over the next several years. During the fourth
quarter of 1999, the Company received $3,018,000 from the sale of
$3,659,000 of its New Jersey State net operating loss carryforwards.
These funds have been included as cash reserves with an offsetting
deferred liability recorded. The Program requires that the Company
maintain certain employment levels in New Jersey and that the proceeds
from the sale of the tax benefits be spent in New Jersey during the year
2000. Accordingly, the recognition of the tax benefit has been deferred
until all conditions stipulated in the Program have been met.
On October 20, 1999, The Liposome Company's Board of Directors enlarged
the Board from 9 to 10 Directors and elected Kenneth E. Johns, Jr. to fill
the open position. Mr. Johns is engaged in the private practice of law in
Dallas, Texas and is a Special Assistant to the President of Ross
Financial Corporation. Ross Financial Corporation is the Company's
largest shareholder and owns approximately 22.66% of the Company's Common
Stock.
On October 27, 1998 the Company announced that the FDA had cleared its
Investigational New Drug application for TLC ELL-12 (liposomal ether
lipid). A Phase I clinical trial has been designed to enroll adult
patients with advanced solid tumors. Patient enrollment for this trial
commenced in February 1999. The Company intends to open a second clinical
site in the second quarter of 2000 in order to accrue additional patients
in this clinical study.
The Company has a continuing discovery research program concentrating on
oncology treatment and has a number of products in research. These
products include: bromotaxane (hydrophobic derivatives of paclitaxel),
some of which have shown anticancer activity in several experimental
models; ceramides and sphingosines (molecules widely implicated in cell
differentiation and apoptosis) certain of which the Company has identified
as displaying anticancer activity; and fusogenic liposomes (liposomes
specifically designed to fuse to cell membranes), which the Company hopes
to use for the efficient delivery of genes to their intended targets.
On June 25, 1997, the Company announced results of a Phase III study of
VENTUSTM as a treatment for Acute Respiratory Distress Syndrome (ARDS), an
inflammatory condition affecting the lungs. The Company's analysis of the
two arms of the study showed no significant difference between patients
receiving VENTUSTM or placebo either in reducing the time on mechanical
ventilation or in 28 day mortality. No safety concerns for the drug were
identified.
Following the results of the VENTUSTM study, the Company announced its
intention to focus its resources on the development of an oncology
franchise. As part of implementing this future strategy, the Company
restructured its operations to focus the organization on the development
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
and marketing of oncology and related pharmaceuticals. The restructuring
eliminated 137 positions, which resulted in unusual charges of $2,550,000
in 1997.
Additionally, in order to gain operational access to a second, potentially
significant oncology-related drug, the Company reacquired, on July 14,
1997, all development, manufacturing and marketing rights to EVACET from
Pfizer Inc. ("Pfizer"), which had previously been co-developing EVACET
with the Company. The Company assumed control and the cost of all clinical
studies, including the ongoing Phase III clinical studies that were
previously being conducted by Pfizer. Pfizer will receive royalties on
worldwide (except Japan) commercial sales of EVACET.
In 1997, the Company entered into agreements to settle patent litigation
with the University of Texas and M.D. Anderson Cancer Center ("UT") and
with NeXstar Pharmaceuticals, Inc. ("NeXstar"), (now Gilead Sciences,
Inc.) and Fujisawa U.S.A., Inc. Under the UT settlement the Company
received an exclusive license under UT's patent, paid past royalties on
sales of ABELCET agreed to pay royalties on future sales, and issued to UT
a ten-year warrant to purchase 1,000,000 shares of the Company's Common
Stock at $15.00 per share. Under the NeXstar settlement, the Company
received an initial payment of $1,750,000 in 1997 and began receiving
quarterly minimum payments in 1998. These payments are classified as
interest, investment and other income based on worldwide sales of
AmBisome. The cumulative amount of these receipts through year-end 1999
is approximately $6.0 million.
On April 22, 1998 the Company announced it had entered into a three-year
contract manufacturing agreement with AstraZeneca PLC ("Astra") (formerly
Astra USA, Inc.). The Company is processing and packaging Astra's M.V.I.r-
12 Unit Vial, an injectable multi-vitamin product used by severely ill,
hospitalized patients in need of nutritional supplements. The product is
processed and packaged at the Company's Indianapolis facility, taking
advantage of its modern, large-scale capabilities. Under the terms of the
agreement, Astra supplies bulk quantities of the vitamin product and the
Company sterilizes, fills, packages and performs quality control on
M.V.I.r-12 Unit Vial. In early 1999, the Company commenced manufacturing
and recording revenues related to Astra.
Results of Operations
Revenues
Total revenues for the year ended January 2, 2000 were $92,470,000, an
increase of $14,602,000 or 18.8% compared to $77,868,000 for the year
ended January 3, 1999. The primary components of revenues for the Company
are product sales of ABELCET and interest, investment and other income.
Collaborative research and development revenue was also included in the
1997 period, due to the co-development agreement with Pfizer. The revenue
growth in 1999 is attributable to increased product sales of ABELCET, both
in the U.S. and internationally, and higher interest and royalty income.
Revenues in 1998 were $77,868,000, an increase of $12,772,000 or 19.6%
over the 1997 revenues of $65,096,000. The primary reason for the growth
in 1998 was due to increased market penetration of ABELCET worldwide,
partially offset by the cessation of the collaborative research and
development revenue during the second half of 1997 as a result of the
reacquisition of EVACET from Pfizer.
Domestic and international net sales for the past three years were:
Fiscal Year Ended U.S. International
January 2, 2000 $69,126,000 $17,077,000
January 3, 1999 $58,936,000 $14,559,000
December 28, 1997 $49,273,000 $ 9,179,000
Domestic dollar sales in 1999 grew by 17.3% over 1998, while unit
shipments increased by 16.4% during the same period. The strong growth is
due to the continued market penetration resulting from the successful
impact of the tiered pricing program and expansion into the generic
amphotericin B marketplace as patients use more drug and are treated for
longer periods of
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
time. Based on the latest independent market data available, ABELCET
continues to hold the largest share of the lipid based amphotericin B
products sold in the U.S. During 1997, the Company instituted a tiered
pricing program by offering discounts to high volume purchasers. The
price reduction is affected by chargebacks paid to wholesalers based on
their sales at contract prices to targeted hospitals. The Company provides
a reserve for the impact on sales for these rebates and chargebacks and
periodically evaluates the estimates used in establishing the reserve. The
provision for the year ended January 2, 2000 was approximately
$38,089,000. During September 1999, the Company received FDA marketing
clearance and launched a new ABELCET vial size (50 milligram), which
contributed to the U.S. sales increase. The Company expects that this new
vial size will encourage more cost-effective utilization of ABELCET in
dosing for hospitals, particularly for pediatric patients.
The increase in U.S. sales in 1998 from 1997 of $9,663,000 or 19.6% was
attributable to the factors previously discussed regarding the
implementation of the tiered pricing program and increased market
penetration. The rebate and chargeback provision for the year ended
January 3, 1999 was approximately $28,684,000.
Internationally, the Company has been approved to market ABELCET in 25
markets. In addition, sales are realized on a "named patient" basis in
certain countries where marketing approval has not yet been received. In
1999, ABELCET was launched in Australia and Turkey and marketing
activities were shifted to a marketing partner in the U.K. During 1998,
the Company marketed ABELCET in the U.S., Canada and the U.K. with it's
own sales force. For other countries, the Company's general strategy is
to market ABELCET through marketing partners, with specific marketing
distribution alliances being determined on a country-by-country basis as
future market approvals are received.
International product sales were $17,077,000 for the year ended January 2,
2000, $2,518,000 higher than the comparable prior year. The majority of
the growth is due to the impact of the launch of ABELCET in early 1999 in
Australia and in late 1999 in Turkey, combined with sales growth in
Canada. While international sales revenues increased by 17.3%, unit
volume increased by 25.5%. The principal reason for this difference is
due to a lower international average selling price per vial during 1999,
resulting from the use of marketing partners in Europe.
International sales were $14,559,000 and $9,179,000 for 1998 and 1997,
respectively. The majority of the increase is due to the impact of the
launch of ABELCET in late 1997 in France, Italy and Canada, combined with
sales growth in Spain. While international sales revenues increased by
58.6%, unit volume increased by 91.7%. The principal reason for this
difference is the mix of sales to end users (i.e. direct distribution) in
certain countries versus sales to marketing partners in others.
Collaborative research and development revenues were $2,331,000 for the
year ended December 28, 1997. The absence of collaborative research and
development revenue in 1999 and 1998 is due to the cessation of
development funding by Pfizer pursuant to the July 14, 1997 agreement in
which the Company reacquired all development, manufacturing and marketing
rights to EVACET from Pfizer.
Interest, investment and other income for the year ended January 2, 2000
was $6,267,000 compared to $4,373,000 for the year ended January 3, 1999.
This increase of $1,894,000 or 43.3% is primarily a result of higher
interest and investment income due to greater average cash balances
available for investment in the Company's portfolio during 1999. Also
contributing to this increase is net revenue related to the commencement
of manufacturing for Astra during the first quarter of 1999, combined with
the receipt of royalty payments from NeXstar (now Gilead Sciences, Inc.)
as part of the settlement of patent litigation.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Interest, investment and other income for the year ended January 3, 1999
was $4,373,000 compared to $4,313,000 for the year ended December 28,
1997. The minimal increase of $60,000 is primarily due to the higher
interest and investment income due to greater average cash balances
available for investment in the Company's portfolio during 1998, partially
offset by lower interest rates.
Expenses
The components of total expenses are cost of goods sold, research and
development, selling, general and administrative and interest expenses.
Total expenses for the year ended January 2, 2000 were $78,629,000, a
decrease of $3,925,000 or 4.8% below the prior year. Total expenses for
the year ended January 3, 1999 were $82,554,000, a decrease of $8,988,000,
or 9.8% from 1997. Included in the 1997 expenses was $3,900,000 of
unusual charges incurred by the Company following the unfavorable results
of the VENTUST clinical study.
Cost of goods sold for the year ended January 2, 2000 was $20,284,000
compared to $20,805,000 in the 1998 period. The decrease of $521,000 is
attributable to lower production costs for ABELCET resulting from
manufacturing efficiencies at the Indianapolis facility, improved yields
due to the implementation of certain process enhancements and lower unit
overhead absorption related to the contract manufacturing business.
Partially offsetting the reduction in the cost of goods is the impact of
higher sales volume. Gross margin in the 1999 period was 76.5% compared to
71.7% in the 1998 period, an improvement of 4.8 percentage points. This
improvement is due to the manufacturing efficiencies discussed above.
Cost of goods sold for the year ended January 3, 1999, was $20,805,000
compared to $22,029,000 in the 1997 period. The $1,224,000 or 5.6%
decrease was due to lower manufacturing costs related to the high volume
efficiencies realized during 1998 at the Indianapolis facility, combined
with the impact of the Company's decision not to manufacture ABELCET
during the last half of 1997 in order to reduce inventories. As a result
of this decision, certain manufacturing overhead and fixed costs for
Indianapolis were reflected in cost of goods sold in the 1997 period even
though no product was manufactured. Partially offsetting the decrease is
the impact of the higher sales volume in the 1998 period. Gross margin in
the 1998 period was 71.7% compared to 62.3% in the 1997 period, an
improvement of 9.4 percentage points. This improvement is due to the
factors discussed above.
Research and development expenses, which also include clinical and
regulatory activities, were $25,517,000 for the year ended January 2,
2000, compared to $26,441,000 for 1998 and $28,894,000 for 1997. The
reduction of $924,000 is primarily due to the completion, in 1998, of the
Phase III clinical trials of EVACET for which the Company filed a NDA.
Partially offsetting this reduction is increased research and development
activity for other projects in the Company's developmental pipeline. The
decrease in spending of $2,453,000 from 1997 to 1998 is primarily due to
the completion of the pivotal Phase III studies of EVACET combined with
the absence of clinical study costs associated with VENTUST in 1998.
Partially offsetting the decrease, is increased research and development
activity for TLC ELL-12 and the reorientation of the Princeton
manufacturing facility to the production of clinical supplies.
Selling, general and administrative expenses for 1999 were $32,277,000, a
decrease of $2,258,000 versus 1998. The primary reasons for the decrease
is due to the shift in European selling and marketing activities to a
marketing partner and the resulting reduction of international selling and
marketing costs, combined with lower depreciation and employee benefits
costs during 1999. The decrease was partially offset by costs associated
with pre-launch marketing and planning expenses for EVACET.
Selling, general and administrative expenses for the years ended January
3, 1999 and December 28, 1997 were $34,535,000 and $39,914,000,
respectively. The principal reasons for the decrease were the absence in
1998 of the restructuring charge of $2,550,000 recorded in 1997,
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
the elimination of litigation costs relating to the University of Texas
and NeXstar patent lawsuits and reduced international sales and marketing
expenditures.
Interest expense was $551,000, $773,000 and $705,000 for 1999, 1998 and
1997, respectively. The decrease from 1998 to 1999 was related to the
payoff of the mortgage on the Indianapolis building in the third quarter
of 1999, as well as the overall reduction in the debt outstanding on
capital leases. The largest components of costs are associated with the
capital leases for the Princeton and Indianapolis manufacturing equipment
and mortgage interest related to the Indianapolis facility. In November
1997 and January 1998, the Company refinanced certain manufacturing
equipment under the original 1993 lease. This refinancing of the
Princeton and Indianapolis equipment leases for a three-year period,
caused an increase in interest expenses in the 1998 period.
Income Taxes
After 18 years of consecutive losses, the Company reported its first
profitable year in 1999. During 1999, the Company recorded a provision
for Federal, state and foreign taxes of $790,000. There was not a
requirement to provide tax in 1998 or 1997 since the Company incurred
losses in both of these years. The Company's effective tax rate for 1999
was 5.7% versus the U.S. and state blended statutory rate of approximately
40%. The relationship of the tax expense to income before taxes for 1999
differs from the U.S. statutory rate primarily because of the utilization
of previously fully reserved net operating loss carryforwards, the tax
treatment of foreign operations by foreign jurisdictions and Federal
alternative minimum tax ("AMT") considerations. As the ultimate
realization of the net deferred tax assets is uncertain, valuation
allowances have been retained. Contingent upon the achievement of
profitability for two consecutive years, management will recognize the tax
benefit in accordance with Statement of Financial Accounting Standards
("SFAS") No. 109.
Net Income/ (Loss) and Net Income/(Loss) per Share
As a result of the factors discussed above, the Company's net
income/(loss) was $13,051,000, ($4,686,000) and ($26,446,000) for the
1999, 1998 and 1997 fiscal years, respectively. The net income/ (loss)
per share for these years were $0.32, ($0.12) and ($0.71), respectively.
Weighted average shares used in the diluted per share calculations were
40,284,000, 38,172,000 and 37,083,000, respectively. The increase of
2,112,000 shares from 1998 to 1999 was attributable to the inclusion of
contingently issuable shares, exercise of stock options and the 401(k)
stock match. The increase in average shares outstanding in 1998 compared
to 1997 was due to the annualized effect of the private placement in 1997,
exercise of stock options, issuance of restricted stock and the 401(k)
stock match. During the 1998 and 1997, the number of shares of Common
Stock used in each twelve-month period to calculate basic and diluted loss
per share were identical as the Company was in a loss position for these
fiscal years and the inclusion of contingently issuable shares would have
been anti-dilutive.
Liquidity and Capital Resources
The Company had $76,863,000 in cash and marketable securities as of
January 2, 2000. Included in this amount were cash and cash equivalents
of $34,461,000, short-term investments of $36,880,000 and restricted cash
of $5,522,000. The Company invests its cash reserves in a diversified
portfolio of high-grade corporate marketable and United States Government-
backed securities. The market value of certain securities in the
Company's investment portfolio at January 2, 2000 was below their
acquisition cost. This unrealized loss of $433,000 is recorded as a
reduction of shareholders' equity.
Cash and marketable securities (both short-term and restricted cash)
increased $22,520,000 from January 3, 1999 to January 2, 2000. The
primary components of the favorable impact were cash flow from operations
(net income plus depreciation, amortization and other non-cash charges) of
$20,434,000, the deferred liability related to the sales of loss
carryforwards of $3,018,000 and exercise of stock options of $4,224,000.
The major uses of funds were the principal repayments on the capital lease
and note payable totaling $2,976,000, capital spending of $1,503,000 and
the purchase of treasury stock of $950,000.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Inventories at January 2, 2000 increased $552,000 from January 3, 1999,
primarily due to the building of raw materials levels to meet current
manufacturing demand and to ensure an adequate supply of key ingredients
during the Y2K period. At January 3, 1999 inventories were $5,566,000 or
$4,964,000 lower than 1997 levels. During 1997, the Company completed its
plan to shift manufacturing of ABELCET from Princeton to its new, more
cost efficient facility in Indianapolis, Indiana. In order to ensure a
smooth transition, the Company increased its inventory of ABELCET during
the first half of 1997. FDA approval of the Indianapolis facility was
received during the third quarter of 1997, and the Company has reoriented
the Princeton manufacturing facility to the production of clinical
supplies.
Accrued expenses and other current liabilities at January 2, 2000 were
$8,747,000 or $1,390,000 higher than January 3, 1999. The increase in
accrued expenses and other current liabilities is primarily due to the
increased income taxes payable relating to the 1999 profitability, royalty
payments and bonuses relating to higher ABELCET sales.
Deferred liability at January 2, 2000 was $3,018,000, which was recorded
in the fourth quarter of 1999. This balance reflects the receipt of
proceeds from the sale of New Jersey State net operating loss
carryforwards at the end of 1999. These funds have been included as cash
reserves in 1999, with an offsetting deferred liability recorded.
In July 1993, the Company entered into a capitalized lease financing
agreement for certain manufacturing equipment providing for an initial
lease term followed by options to extend the lease, or to return or
purchase the equipment. In December 1996, the agreement was amended to
include an additional $6,101,000 of manufacturing equipment. In November
1997 and January 1998, the Company exercised its options to purchase
certain manufacturing equipment under the original 1993 lease for
$1,583,000 and $495,000, respectively. These amounts have been re-
financed as a capital lease obligation under the lease agreement for a
three-year period. The lease is collateralized by $4,122,000 in standby
letters of credit which are in return collateralized by AAA rated
securities owned by the Company. Pursuant to the December 1996 lease
amendment, 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. In addition, the Company completed
a U.S. working capital revolving credit line agreement in early 1997, with
a maximum capacity of $14,000,000. This agreement expired in January 2000
and the Company has chosen not to renew it.
As part of the agreement to repurchase the development, manufacturing and
marketing rights to EVACET, the Company obtained from Pfizer a credit line
of up to $10,000,000 to continue the development of EVACET. To the extent
that any funding is actually used by the Company, the outstanding
principal and interest would be repayable on the earlier of 180 days after
FDA clearance to market EVACETTM or in twenty quarterly installments
commencing July 14, 2002. Pfizer at its option may elect to receive
payment in the form of shares of Common Stock. At the end of 1999, there
were no borrowings under this facility.
The Company had a mortgage-backed note to partially fund the purchase of
the Indianapolis manufacturing facility. During the third quarter of
1999, the Company paid off the remaining principal balance plus accrued
interest.
On April 23, 1997 the Company issued 1,000,000 shares of Common Stock at
$20.875 per share to a private investor for cash of $20,875,000. At
February 29, 2000, this investor has reported total holdings of
approximately 22.66% of the Company's outstanding shares of Common Stock.
The Company expects to finance its operations and capital spending
requirements from, among other things, the proceeds received from product
sales, 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, 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.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Year 2000 Compliance
The Year 2000 computer issue ("Y2K") refers to a condition in computer
software where a two-digit field rather than a four-digit field is used to
distinguish a calendar year. For example, 1998 would be stored as "98",
rather than "1998". The basic problem is that when the year changes from
1999 (99) to the year 2000 (00), some computer programs will be unable to
distinguish the correct date. Such a situation could significantly
interfere with the conduct of the Company's business, disrupt its
operations and materially impact its financial condition.
The Company began addressing the Y2K computer issue early in 1998 by
conducting a Year 2000 implementation and remediation investigation. The
goal of the investigation was to identify and determine the Y2K readiness
of all hardware systems, software systems and sub-components used in the
Company's business environment. The systems investigated were categorized
into three areas. The first involved the traditional Management
Information Systems that include computers, telecommunication devices,
application software, operating system software, and related peripherals.
The second involved manufacturing and facility systems including machines
and devices used to manufacture, store, and test our product. The third
involved research systems including computer-controlled devices,
calibration equipment, and similar instruments. The results of the
investigation were used to develop a comprehensive remediation plan to
perform the necessary hardware, software, and sub-component upgrades to
implement corrective action.
Compliance testing and remediation efforts were accomplished throughout
1999 and completed in December 1999. With respect to remediation, the
Company had prepared various types of contingency plans to address
potential problems with each of the major systems. Each software and
hardware system was assigned to on-call personnel responsible for bringing
the system back on line in the event of a failure. Personnel were also on-
site during the transition to Y2K to monitor and test major systems. No
Y2K problems have been encountered in either the Company's in-house
hardware or software systems or in systems maintained by our customers,
suppliers and vendors. As part of its program to safeguard business
processes from Y2K associated interruptions the Company will continue to
monitor both internal and external systems.
As of January 2, 2000, the Company had incurred aggregate costs of
approximately $150,000 to address the Year 2000 issue.
Certain Risk Factors
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 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 and
preclinical studies regarding EVACET, TLC ELL-12 and other products in the
Company's research pipeline, (ii) the ability of ABELCET to maintain its
position as the leading lipid-based formulation of amphotericin B in the
U.S., (iii) the likelihood of future domestic and international regulatory
approvals for EVACET or any other product in the research pipeline, (iv)
the expansion of sales efforts regarding ABELCET in additional countries
where the drug is not currently approved, (v) possible new licensing or
contract manufacturing agreements, (vi) future product revenues from
ABELCET, EVACET or any other product in the research pipeline, (vii) the
future uses of capital, and financial needs of the Company, (viii)
continued manufacturing efficiencies and other benefits to be realized
from use of the Indianapolis facility. 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.
Among these factors and assumptions that could affect the forward-looking
statements in this Report are the following: (a) the commercialization of
ABELCET, the Company's sole marketed product, is still ongoing and is
subject to intense competition; (b) the Company's other
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
products are in development and have not yet received regulatory approvals
for sale, and it is difficult to predict when such approvals will be
received and, if approved, whether the products can be successfully
commercialized; (c) competitors of the Company have developed and are
developing products that are competitive with the Company's products; (d)
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; (e) 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;
and (g) except for 1999, the Company has incurred losses in each year
since its inception in 1981 and there can be no assurance of profitability
in any future period.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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 14(a) of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item l0. Directors and Executive Officers of the Registrant
Directors
The directors (who will serve until their successors are elected) of the
Company are as follows:
Name Age Position
Charles A. Baker 67 Chairman of the Board, President,
Chief Executive Officer and
Director
James G. Andress (2) 61 Director
Morton Collins, PhD (1) 64 Director
Stuart F. Feiner, Esq. (1) 51 Director
Robert F. Hendrickson (2) 67 Director
Kenneth E. Johns, Jr., Esq. 55 Director
Professor Bengt Samuelsson, MD (1) 65 Director
Joseph T. Stewart, Jr. (2) 70 Director
Gerald Weissmann, MD (1) 69 Director
Horst Witzel, Dr-Ing (2) 72 Director
(1) Audit and Finance Committee member
(2) Nominating and Compensation Committee member
Item l0. Directors and Executive Officers of the Registrant (Continued)
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 has 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 has also held various
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. and Progenics Pharmaceuticals, Inc., both
biotechnology companies. He is a member of the Council of Visitors of the
Marine Biological Laboratory, Woods Hole, Massachusetts, a not-for-profit
research organization.
James G. Andress has been a director since his appointment in September
1990. Since November 1996, Mr. Andress has been the President and Chief
Executive Officer of Warner Chilcott, plc, a pharmaceutical company. From
1989 until 1995, he served as President, Co-Chief Executive Officer and
Director of Information Resources, Inc., a decision support software and
consumer packaged goods research company. Mr. Andress is the former
Chairman of the Pharmaceuticals Group, Beecham Group, plc and the former
President and Chief Operating Officer of Sterling Drug, Inc. Mr. Andress
is a director of XOMA Corp. and NeoRx, Inc., which are biotechnology
companies. He also serves as a director of Sepracor, Inc., a separations
technology company, of O.P.T.I.O.N. Care, Inc., a home health care
company, of Allstate Insurance Company, and of Information Resources, Inc.
Morton Collins, Ph.D., has been a director since November 1982. Dr.
Collins has been a General Partner of DSV Partners III, a venture capital
limited partnership, since 1981 and a General Partner of DSV Management,
Ltd., since 1982. Since 1985, DSV Management, Ltd. has been a General
Partner of DSV Partners IV, a venture capital limited partnership. Dr.
Collins served as interim Chairman of the Board and Chief Executive
Officer of the Company from June to December 1989. He is also a director
of ThermoTrex Corporation, a laser and electro-optics company, of Kopin
Corporation, a manufacturing company, and of Thermedics Detection, Inc., a
manufacturer of industrial and laboratory processes.
Stuart F. Feiner, Esq. has been a director since February 1984. Mr.
Feiner has been Executive Vice President, General Counsel and Secretary of
Inco Limited, an international mining and metals company, since August
1993 and served as Vice President, General Counsel and Secretary from
April 1992 to August 1994. Mr. Feiner was President of Inco Venture
Capital Management, the venture capital unit of Inco Limited, from January
1984 to April 1992. Mr. Feiner is also a director of ImmunoGen, Inc., a
biotechnology company.
Robert F. Hendrickson has been a director of the Company since 1992.
Mr. Hendrickson was Senior Vice President, Manufacturing and Technology
for Merck & Co., Inc., a pharmaceutical company, from 1985 to 1990. Since
1990, Mr. Hendrickson has been a manufacturing consultant with a number of
biotechnology and pharmaceutical companies among his clients. He is
currently a director of Envirogen Inc., an environmental biotechnology
company, a director of Cytogen, Inc. and Unigene Laboratories, Inc., both
of which are biotechnology companies, and a trustee of the Carrier
Foundation.
Kenneth E. Johns, Jr., Esq. joined the Company as a member of the Board
of Directors in November 1999. In 1974 Mr. Johns joined Vinson & Elkins
LLP, and was a partner at that firm from 1980 until June 1, 1999. Mr.
Johns served as a Captain in the United States Air Force Judge Advocate
General's Corps. from 1970 to 1974. He is an arbitrator for the National
Association of Securities Dealers, the New York Stock Exchange, and the
Commodities Futures Association. Since June 1, 1999, Mr. Johns has
engaged in the private practice of law and functions as the Special
Assistant to the President of Ross Financial Corporation on specific
referred matters.
Professor Bengt Samuelsson, MD, has been a director of the Company since
January 1994. Dr. Samuelsson is Professor of Physiological Chemistry of
the Karolinska Institutet in Stockholm, Sweden, a position that he has
held since 1972. He was one of three recipients who shared the 1982 Nobel
Prize in medicine for their work on prostaglandins, specifically the
discovery of
Item l0. Directors and Executive Officers of the Registrant (Continued)
prostanoids and leukotrienes. In addition to the Nobel Prize, he has
received a number of other prestigious awards. Dr. Samuelsson is Chairman
of the Nobel Foundation, a member of the Board of Directors of Pharmacia &
Upjohn, a pharmaceutical company, a member of the Board of Directors of
NicOx SA, Valbonne, France, a biotechnology company, and a member of the
Board of Directors of Handelsbanken, Stockholm, Sweden, a Swedish bank.
Joseph T. Stewart, Jr., has been a director of the Company since January
1995. Until 1989, he was associated for twenty-two years with Squibb
Corporation, where he held several positions of increasing responsibility,
including most recently Senior Vice President, Corporate Affairs and
previously Vice President, Finance and Planning. He also served as a
member of the Board of Directors of Squibb Corporation. Mr. Stewart is
currently a director of General American Investors Company, Inc., a
trustee of the Foundation of the University of Medicine and Dentistry of
New Jersey, and a member of the Council of Visitors of the Marine
Biological Laboratory, Woods Hole, Massachusetts, a not-for-profit
research organization.
Gerald Weissmann, M.D., has been a director of the Company since 1981.
Dr. Weissmann has been a Professor of Medicine at the Division of
Rheumatology of the Department of Medicine at New York University Medical
Center since 1973. Dr. Weissmann is Chairman of the Company's Cancer
Scientific Advisory Board. He is also on the Board of Trustees of the
Marine Biological Laboratory, Woods Hole, Massachusetts, a not-for-profit
research organization.
Dr. Horst Witzel has been a director of the Company since July 1990.
Dr. Witzel is the former Chairman of the Board of Executive Directors of
Schering AG, Berlin, Germany. After his retirement in 1989 he served as a
member of the Supervisory Board of Schering AG until May 1994. Mr. Witzel
is a director of Cephalon, Inc., a neuroscience company.
Executive Officers Who Are Not Directors
The executive officers of the Company (who are elected annually by the
Board of Directors) are as follows:
Name Age Position
James A. Boyle, M.D., Ph.D. 63 Senior Vice President, Medical and
Regulatory Affairs
Ralph del Campo 48 Vice President, Technical Operations
Lawrence R. Hoffman 45 Vice President, Finance and Chief Financial
Officer
Andrew S. Janoff, Ph.D. 51 Vice President, Research and Development
Michael McGrane 50 Vice President, General Counsel and
Secretary
George G. Renton 48 Vice President, Human Resources
Donald D. Yarson 46 Senior Vice President, Worldwide Sales,
Marketing and Business Development
James A. (Tony) 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.
Item l0. Directors and Executive Officers of the Registrant (Continued)
Ralph del Campo joined the Company in March 1994 as Vice President,
Manufacturing Operations, and was named Vice President, Technical
Operations in November 1999. 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 Farleigh Dickinson
University.
Lawrence R. Hoffman joined the Company as Vice President, Finance and
Chief Financial Officer in April 1998. His responsibilities include
management of the financial and investor relations departments. He has
previously been Vice President and Chief Financial Officer of IGI, Inc.,
where he had been serving in the additional capacity of acting Chief
Operating Officer. Prior to joining IGI, Inc., Mr. Hoffman was Treasurer,
Secretary and Acting Principal Financial Officer for Sybron Chemicals,
Inc. He received a B.S. in accounting from LaSalle University, a J.D.
from Temple University and an L.L.M. in Taxation from Villanova. He holds
degrees in taxation, accounting and law.
Andrew S. Janoff, Ph.D., joined the Company in 1981, was named Vice
President of Research in January 1993, and became Vice President of
Research and Development in September 1997. He holds an adjunct
Professorship in Pathology, Anatomy and Cell Biology at Thomas Jefferson
University and is a visiting scientist in the Department of Chemical
Engineering at Princeton University. Dr. Janoff is Editor-in-Chief of The
Journal of Liposome Research and has served on the Committee on Science
and the Arts at The Franklin Institute, Philadelphia, Pennsylvania. Dr.
Janoff is author of over one hundred scientific articles, reviews and
awarded U.S. and European 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).
Michael McGrane joined the Company as Vice President, General Counsel
and Secretary in December 1998. Prior to joining the Company Mr. McGrane
held the position of Vice President, General Counsel and Secretary at
Novartis Consumer Health, Inc. from 1997 to 1998. Mr. McGrane joined
Sandoz Pharmaceuticals Corporation in 1984, and held the position of
Associate General Counsel before the merger of Sandoz with Ciba Geigy to
form Novartis in 1997. Before joining Sandoz, he was Regulatory Counsel
to the U.S. Food and Drug Administration. Mr. McGrane received his law
degree from Georgetown University. He has a BA degree from Cornell
College.
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 a M.S. degree in
Industrial/Labor Relations from Cornell University and Baruch College
(1985).
Donald D. Yarson joined the Company as Vice President, Marketing and
Sales in February 1995, and became Senior Vice President, Worldwide Sales,
Marketing and Business Development in November 1999. 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, as
amended, directors and executive officers of the Company are required to
file reports with the SEC indicating their holdings of and transactions
in the Company's equity securities. To the Company's knowledge, based
solely on a review of the copies of such reports furnished to the Company
and written representations that no other reports were required, during
the fiscal year ended January 2,
Item l0. Directors and Executive Officers of the Registrant (Continued)
2000, all directors and executive officers filed all required reports on
a timely basis, except that, in connection with his services as Chairman
of the Company's Cancer Scientific Advisory Board, Dr. Weissmann received
a grant of options in September 1998 which remained unreported until the
filing of his Form 5 for fiscal year 1999.
Item ll. Executive Compensation
The following table shows, for the fiscal years ended January 2, 2000,
January 3, 1999, and December 28, 1997, the annual and long-term
compensation awarded to, earned by or paid to the Chief Executive Officer,
and the four other most highly compensated individuals who served as the
Company's "executive officers," as that term is defined in Rule 3b-7
adopted by the United States Securities and Exchange Commission ("SEC")
under the Securities Exchange Act of 1934, as of January 2, 2000 (these
individuals, together with the Chief Executive Officer, are sometimes
referred to as the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
AWARDS
RESTRICTED SECURITIES ALL
STOCK UNDERLYING OTHER
SALARY BONUS AWARD(S) STOCK COMPENSATION
NAME AND PRINCIPAL YEAR $ (1) (2) OPTIONS (4)
POSITION $ $ (NO. OF $
SHARES)
Charles A. Baker 1999 $497,962 $135,000 -- 140,000 $9,600
Chairman of the Board, 1998 394,000 200,000 $463,750 243,900(3) 10,000
President, and Chief 1997 375,000 40,000 -- 281,000 9,500
Executive Officer
James A. Boyle, MD, PhD 1999 $272,692 $45,000 -- 7,500 $9,600
Senior Vice President, 1998 262,692 75,000 196,002 49,320(3) 10,000
Medical
and Regulatory Affairs 1997 252,253 12,500 12,500 48,800 9,500
Ralph del Campo 1999 $216,769 $90,000 -- 25,000 $9,600
Vice President, Technical 1998 203,692 115,600 236,998 134,820(3) 10,000
Operations 1997 193,889 11,000 11,000 44,800 9,500
Andrew S. Janoff, PhD 1999 $215,500 $70,000 -- 10,000 $9,600
Vice President, Research 1998 197,846 80,000 170,998 71,418(3) 10,000
and Development 1997 186,923 11,000 11,000 43,600 9,500
Donald D. Yarson 1999 $224,423 $110,000 -- 30,000 $9,600
Senior Vice President, 1998 207,692 130,000 346,872 108,000(3) 10,000
Worldwide
Sales, Marketing and 1997 181,873 13,750 13,750 120,000 9,500
Business
Development
(1)Bonuses, all of which have been paid, are shown in the year earned.
(2)All restricted stock grants were made on January 25, 1996, January
23, 1997, January 22, 1998 and September 10, 1998 under The
Liposome Company 1996 Equity Incentive Plan. The aggregate number
of shares held by the Named Executive Officers at the end of 1999
(and their market value as of January 2, 2000) were: Mr. Baker,
93,278 ($1,137,991); Dr. Boyle, 39,661 ($483,864); Mr. del Campo,
48,518 ($591,919); Dr. Janoff, 34,125 ($416,325); and Mr. Yarson,
70,199 ($856,427). The January 25, 1996 and January 23, 1997
grants vested in equal increments over a three-year period. A
portion of the January 22, 1998 grant vested on February 11, 2000,
and the remaining portion vested in equal increments over a two-
year period from the date of grant. The September 10, 1998 grant
will vest 48 hours after earnings release for fiscal year 2000.
(3)The numbers shown for securities underlying options awarded in 1998
include only the number of shares underlying options that were
repriced in 1998 since there were no new options awarded to the
executive officers, including the Named Executive Officers, in
Item ll. Executive Compensation (Continued)
1998. In addition, in order to qualify for the repricing, each
optionee, including each Named Executive Officer, was required to
surrender 10% of the shares covered by the options to be repriced. This
surrender actually reduced the total number of shares covered by options
held by the Named Executive Officers.
(4)All other compensation represents amounts credited as Company
matching contributions under the Company's 401(k) stock match.
Option Grants
The following table presents stock options granted for the period from
January 4, 1999, through January 2, 2000, to the Named Executive Officers.
All grants were made under The Liposome Company 1996 Equity Incentive
Plan.
OPTION GRANTS IN 1999 FISCAL YEAR
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(2)
NUMBER OF PERCENT OF EXERCISE EXPIRATION
SECURITIES TOTAL PRICE DATE
UNDERLYING OPTIONS ($ PER
OPTIONS GRANTED TO SHARE)
GRANTED (1) EMPLOYEES
NAME (#) IN FISCAL 5% 10%
YEAR (%) ($) ($)
Charles A. Baker 23,280 1.97 $14.1875 01/21/09 $207,714 $526,389
76,720 6.49 14.1875 01/21/09 684,529 1,734,732
40,000 3.38 7.2500 10/20/09 182,379 462,185
James A. Boyle, MD, PhD7,500 0.63 7.2500 10/20/09 34,196 86,659
Ralph del Campo 25,000 2.11 7.2500 10/20/09 113,987 288,865
Andrew S. Janoff, PhD10,000 0.84 7.2500 10/20/09 45,594 115,546
Donald D. Yarson 16,174 1.36 7.2500 10/20/09 73,745 186,884
13,826 1.17 7.2500 10/20/09 63,039 159,754
(1) All options granted expire ten years from the date of grant and
become exercisable ratably over five years beginning approximately one
year from the date of grant.
(2) The percentage rates of increase shown are assumed rates established
by the U.S. Securities and Exchange Commission for purposes of uniform
compensation reporting. Accordingly, they do not constitute predictions
or estimates by the Company of the future price appreciation of its Common
Stock or of the potential realizable value of the options referred to in
the table. These "potential realizable values" are not discounted to
present value, and the present value of these assumed potential realizable
values would be less than the amounts indicated.
Item ll. Executive Compensation (Continued)
Option Exercises and Fiscal Year-End Values
The following table summarizes stock options exercised by the Named
Executive Officers in 1999, and the unexercised stock options and the
fiscal year-end values of all outstanding options held by the Named
Executive Officers as of January 2, 2000.
OPTION EXERCISES IN 1999 AND JANUARY 2, 2000 OPTION VALUES
1999 OPTION EXERCISES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
AT AT
JANUARY 2, 2000 JANUARY 2, 2000 (1)
Name SHARES VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
ACQUIRED REALIZED (#) (#) ($) ($)
($) (2)
Charles A. Baker 153,336 $1,974,201 280,063 216,338 $2,257,438 $773,949
James A. Boyle,
MD, PhD -- -- 217,192 14,628 $1,529,801 $93,792
Ralph del Campo -- -- 128,413 31,408 $1,020,883 $174,693
Andrew S. Janoff
PhD -- -- 66,234 15,184 $526,560 $90,712
Donald D. Yarson -- -- 67,249 70,751 $534,629 $472,470
(1) Value of unexercised in-the-money options is equal to the fair market
value of $12.20 per share of Common Stock, the closing price on the last
trading day prior to January 2, 2000, as quoted by the Nasdaq National
Market, less the exercise price.
(2) "Value realized" reflects the difference between the exercise price
and the closing price on the date of exercise of 153,336 shares exercised
by Mr. Baker which were transferred to the Baker Family Limited
Partnership.
Employment Agreement
The Company entered into an employment agreement with Mr. Baker, which
began in December 1989 and was renewed in 1995. The renewed agreement
terminated in accordance with its terms on May 31, 1998; however, it was
mutually agreed that Mr. Baker would continue to serve as Chief Executive
Officer, Chairman of the Board and President, on the same terms and
conditions, at the pleasure of the Board. Under the agreement, Mr. Baker
has agreed that he will not during his employment period and for a period
of two years after the termination of his employment, without the prior
approval of the Company's Board of Directors, engage in any business
involved in the research, development, manufacture or sale of lipids or
liposomes or products or services which use natural or artificial lipids
or liposomes to encapsulate, enhance or deliver any product. If Mr. Baker
should be dismissed except for cause or should choose to resign from his
position with the Company during the first six months following the
effective date of a change of control, Mr. Baker would be entitled to
receive his then current monthly base salary for a 12-month period from
such effective date and for up to an additional 12-month period if he does
not obtain another full-time position.
Item ll. Executive Compensation (Continued)
In July 1999, Mr. Baker's agreement was amended to change the definition
of change of control to conform to the definition in the Company's
severance agreements with the other executive officers. (The proposed
merger with Elan Corporation, plc, discussed above, would constitute a
change of control under both the prior and revised definitions.) In
addition, the agreement was amended to provide that any termination after
age 65 would constitute a retirement for purposes of Company benefits
plans, including option plans.
Directors' Compensation
Directors who are not employees of the Company receive an annual
retainer of $4,000 per quarter, which is paid in Company stock. In
addition, during 1999, such directors received $2,000 for each Board
meeting attended in person, and $500 for each telephonic Board meeting
attended. A director who participates in a regular Board meeting by
telephone receives $1,000. For a Board committee meeting held the day
before a Board meeting, committee members receive $500 if they attend in
person, and for meetings held at other times (except the day of a Board
meeting), the fee is $1,000 for attendance in person. For telephonic
meetings of Board committees, and for participation by telephone in a
regular meeting, members receive a fee of $500.
Dr. Weissmann is a consultant to the Company. In the fiscal year ended
January 2, 2000, the Company paid $20,000 in fees to Dr. Weissmann for his
services as Chairman of the Company's Cancer Scientific Advisory Board.
The Company believes that it is very important that it be able to
continue to attract the highest caliber of persons to serve as non-
employee directors. To do so, the Company must be able adequately to
compensate the directors for the responsibility and risk they assume.
Since the Company does not offer directors the levels of cash compensation
they would normally receive for a directorship of a larger pharmaceutical
or other industrial company, stock options offer an appropriate way to
partially compensate directors and allow them to share as stockholders in
the ultimate success of the Company. The 1991 Directors' Nonqualified
Stock Option Plan (the "Directors' Plan"), which was adopted by the
stockholders in 1992, constitutes a key element of the Company's long-term
program to attract and compensate non-employee directors.
The Directors' Plan provides that options to purchase 10,000 shares of
Common Stock are automatically granted on July 1 of each year from 1991
until 2001 to each non-employee director. These grants are fully vested
on the first anniversary of the date of grant. In addition, each new
director receives an initial grant of 10,000 shares, which vests in equal
installments over a five-year period.
As of February 29, 2000, there were nine non-employee directors
participating in the Directors' Plan. Mr. Johns received an initial grant
of 10,000 shares on October 20, 1999, the day he was appointed to the
Board of Directors. In addition, there were eight grants of options to
acquire an aggregate of 80,000 shares of the Company's Common Stock on
July 1, 1999 under the Directors' Plan at an exercise price of $19.50 per
share.
Item l2. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of February 29,
2000, by (i) each director and Named Executive Officer of the Company (as
defined under the section entitled "Executive Compensation"), (ii) each
stockholder known by the Company to own more than five percent of the
outstanding Common Stock, and (iii) all directors and executive officers,
including the Named Executive Officers, as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the
securities listed below, based on information furnished by such owners,
have sole investment and voting power with respect to the shares of Common
Stock shown as being beneficially owned by them.
Beneficial Owner Number of Shares Percent of Total
Ross Financial Corporation (1) 8,945,846 22.66
P.O. Box 31363-SMP
Cayman Islands, BWI
Charles A. Baker (2)(3)(4)(6) 791,848 2.01
James G. Andress (2)(8) 81,358 *
Morton Collins, PhD (2)(8) 140,358 *
Stuart F. Feiner, Esq. (2)(8) 52,358 *
Robert F. Hendrickson (2)(8) 71,358 *
Kenneth E. Johns, Jr., Esq.(7)(8) 1,327 *
Professor Bengt Samuelsson, MD (2)(8)71,358 *
Joseph T. Stewart, Jr. (2)(8) 46,358 *
Gerald Weissmann, MD (2)(5)(8) 86,359 *
Horst Witzel, Dr-Ing (2)(8) 106,358 *
James A. Boyle, MD, PhD (2)(4)(6) 264,828 *
Ralph del Campo (2)(4)(6) 181,795 *
Andrew S. Janoff, PhD (2)(4)(6) 106,243 *
Donald D. Yarson (2)(4)(6) 148,997 *
All Directors and Executive Officers2,329,342 5.9
as a group (17 persons) (2)(4)(6)
*Less than 1.0 percent
______________________________
(1) Based on information filed with the SEC on Schedule 13D/A by Ross
Financial Corporation dated August 12, 1999. Mr. Kenneth B. Dart is the
sole shareholder of STS Inc., which is the sole shareholder of Ross
Financial Corporation. Mr. Dart may, therefore, be deemed to be the
beneficial owner of the shares held by Ross Financial Corporation.
(2) Includes shares of Common Stock issuable upon the exercise of
outstanding options granted under the Company's stock option plans which
are exercisable within 60 days after February 29, 2000, as follows: Mr.
Baker, 300,063; Mr. Andress, 80,000; Dr. Collins, 55,000; Mr. Feiner,
50,000; Mr. Hendrickson, 50,000; Dr. Samuelsson, 70,000; Mr. Stewart,
41,000; Dr. Weissmann, 55,001; Dr. Witzel, 105,000; Dr. Boyle, 217,192;
Mr. Del Campo, 128,413; Dr. Janoff, 66,234; Mr. Yarson, 74,448; and all
executive officers and directors as a group (17 persons), 1,420,763.
(3) Includes 315,463 shares owned by the Baker Family Limited
Partnership, of which Mr. Baker is the General Partner.
(4) Includes shares held by Charles Schwab Trust Company as trustee of
the Company's 401(k) plan as of December 31, 1999, in the following
amounts: Mr. Baker, 6,066; Dr. Boyle, 924; Mr. del Campo, 4,864; Dr.
Janoff, 5,824; Mr. Yarson, 4,350; and all executive officers and directors
as a group (17 persons), 28,521.
(5) Does not include 5,790 shares held in trust for the estate of Dr.
Weissmann's father-in-law, for which Dr. Weissmann's wife serves as
trustee. Dr. Weissmann disclaims beneficial ownership of these shares.
Item l2. Security Ownership of Certain Beneficial Owners and Management
(Continued)
(6) Includes shares of restricted stock granted on January 25, 1996,
January 23, 1997, January 22, 1998, and September 10, 1998, under The
Liposome Company 1996 Equity Incentive Plan, in the following aggregate
amounts: Mr. Baker, 93,278; Dr. Boyle, 39,661; Mr. del Campo, 48,518; Dr.
Janoff, 34,125; Mr. Yarson, 70,199; all executive officers and directors
as a group (17 persons), 329,315.
(7) Does not include 1,000 shares held in an Individual Retirement
Account ("IRA") for the sole benefit of Mr. Johns' spouse.
(8) During 1999, the Company revised its Director Compensation Plan by
paying the quarterly retainer in shares of Common Stock on the last day of
each quarter in which the Director serves.
See also "Item 1. Business-Overview/Merger With Elan Corporation,
plc/Business Strategy".
Item l3. Certain Relationships and Related Transactions
On January 20, 2000, the Nominating and Compensation Committee approved,
and the Board of Directors ratified, a loan policy for the officers of the
Company up to the amount due in cash for any required income tax
withholding as a result of the vesting of certain restricted stock awards.
If the officer borrowing the funds repays the principal amount of the loan
on or before the due date (generally the date twelve months from the
making of the loan), no interest will accrue on the borrowed funds. The
Company will pay to the officer in cash any federal, state and local
income taxes resulting from the imputation of interest on the loan.
In March 2000, Messrs. Baker, Boyle, del Campo, and Renton borrowed
$187,321.88, $89,914.50, $89,914.50, and $74,928.75, respectively,
pursuant to the above terms. Each of the borrowers executed a promissory
note in favor of the Company with respect to his loan. Each note is
secured by the shares of the Company's fully-paid and non-assessable
common stock from the restricted stock awards described above, which are,
respectively, 50,000, 24,000, 24,000, and 20,000 shares.
PART IV
Item l4. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) l and 2. Financial Statements and Schedule
Consolidated financial statements and financial statement schedule
listed in the accompanying index are filed herewith.
3. Exhibits
See Exhibit Index included elsewhere in this Report.
(b) Reports on Form 8-K
A Form 8-K was filed by the Company on March 8, 2000 regarding the
merger with Elan Corporation, plc.
Index to Financial Statements
(Item l4(a)1 and 14(a)2)
Page
Consolidated Financial Statements
Report of Independent Accountants 38
Consolidated Balance Sheets at January 2, 2000 and
January 3, 1999 39
Consolidated Statements of Operations for each of the
three years in the period ended January 2, 2000 40
Consolidated Statements of Stockholders' Equity for each
of the three years in the period ended January 2, 2000 41
Consolidated Statements of Cash Flows for each of the
three years in the period ended January 2, 2000 42
Notes to Consolidated Financial Statements 43-57
Report of Independent Accountants on financial statement schedule 58
Financial statement schedule 59
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of The Liposome Company, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and
cash flows present fairly, in all material respects, the financial
position of The Liposome Company, Inc. and its Subsidiaries ("the
Company") at January 2, 2000 and January 3, 1999, and the results of their
operations and their cash flows for each of the three years in the period
ended January 2, 2000, in conformity with accounting principles generally
accepted in the United States. 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 of these statements in accordance with auditing
standards generally accepted in the United States which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 4, 2000, except
for Note 15, as to which
the date is March 14, 2000
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
1/2/00 1/3/99
Current assets:
Cash and cash equivalents $34,461 $8,074
Short-term investments 36,880 34,339
Accounts receivable, net of allowance for doubtful
accounts ($819 for 1999, $579 for 1998) 6,208 5,340
Inventories 6,118 5,566
Prepaid expenses 750 1,266
Other current assets 558 560
Total current assets 84,975 55,145
Property, plant and equipment, net 19,977 23,165
Restricted cash 5,522 11,930
Intangibles, net 284 334
Total assets $110,758 $ 90,574
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $3,755 $ 3,991
Accrued expenses and other current liabilities 8,747 7,357
Deferred liability 3,018 --
Current obligations under capital leases 2,126 2,093
Current obligations under note payable -- 303
Total current liabilities 17,646 13,744
Long-term obligations under capital leases 2,383 4,509
Long-term obligations under note payable -- 580
Total liabilities 20,029 18,833
Commitments and contingencies
Stockholders' equity:
Capital stock:
Common Stock, par value $.01; 120,000 shares authorized;
39,220 and 38,327 shares issued and outstanding 393 383
Additional paid-in capital 272,110 265,254
Treasury Stock - at cost (950) --
Accumulated other comprehensive loss (345) (366)
Accumulated deficit (180,479) (193,530)
Total stockholders' equity 90,729 71,741
Total liabilities and stockholders' equity $110,758 $ 90,574
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
Year Ended
1/2/00 1/3/99 12/28/97
Product sales $86,203 $73,495 $58,452
Collaborative research and development
revenues -- -- 2,331
Interest, investment and other income 6,267 4,373 4,313
Total revenues 92,470 77,868 65,096
Cost of goods sold 20,284 20,805 22,029
Research and development expense 25,517 26,441 28,894
Selling, general and administrative
expense 32,277 34,535 39,914
Interest expense 551 773 705
Total expenses 78,629 82,554 91,542
Net income/(loss) before taxes 13,841 (4,686) (26,446)
Provision for income taxes 790 -- --
Net income/(loss) $13,051 $(4,686) $(26,446)
Net income/(loss) per share (basic) $ 0.34 $ (0.12) $(0.71)
Net income/(loss) per share (diluted) $ 0.32 $ (0.12) $(0.71)
Weighted average number of common shares
outstanding (basic) 38,825 38,172 37,083
Weighted average number of common shares
outstanding (diluted) 40,284 38,172 37,083
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Shares Accumulated Total
of Additional Accumulated Other Stock-
Common Par Paid-in Earnings/ Comprehensive Holders'
Stock Value Capital Deficit Income/(Loss) Equity
Balance, December 29, 1996 36,061 $361 $237,809 $(162,398) $(911) $74,861
Net loss for 1997 -- -- -- (26,446) -- (26,446)
Other Comprehensive Income:
Net unrealized investment gain -- -- -- -- 373 373
Foreign currency translation
adjustment -- -- -- -- 30 30
Comprehensive Loss (26,043)
Issuance of stock:
To 401K plan 105 1 1,253 -- -- 1,254
Restricted Stock 27 -- 50 -- -- 50
Payments for past royalties 45 1 255 -- -- 256
Private placement of Common
Stock 1,000 10 20,865 -- -- 20,875
Exercise of stock options 425 4 2,398 -- -- 2,402
Issuance of warrant -- -- 165 -- -- 165
Expenses related to
Registration of Common Stock -- -- (158) -- -- (158)
Balance, December 28, 1997 37,663 377 262,637 (188,844) (508) 73,662
Net loss for 1998 -- -- -- (4,686) -- (4,686)
Other Comprehensive Income:
Net unrealized investment gain -- -- -- -- 96 96
Foreign currency translation
adjustment -- -- -- -- 46 46
Comprehensive Loss (4,544)
Issuance of stock:
To 401K plan 179 2 945 -- -- 947
Restricted Stock 389 3 -- -- -- 3
Issuance of shares 10 -- 50 -- -- 50
Amortization of Restricted Stock -- -- 1,035 -- -- 1,035
Exercise of stock options 86 1 532 -- -- 533
Warrant amortization -- -- 55 -- -- 55
Balance, January 3, 1999 38,327 383 265,254 (193,530) (366) 71,741
Net income for 1999 -- -- -- 13,051 -- 13,051
Other Comprehensive Income:
Net unrealized investment loss -- -- -- -- (421) (421)
Foreign currency translation
adjustment -- -- -- -- 442 442
Comprehensive Income 13,072
Issuance of stock to 401(k) Plan 67 -- 752 -- -- 752
Amortization of Restricted
Stock & options -- -- 1,609 -- -- 1,609
Exercise of stock options 892 10 4,214 -- -- 4,224
Warrant amortization -- -- 56 -- -- 56
Treasury stock at cost (66) -- (950) -- -- (950)
Tax effect - stock options
exercised -- -- 225 -- -- 225
Balance, January 2, 2000 39,220 $393 $271,160 $(180,479) $(345) $90,729
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
_________Year Ended
1/2/00 1/3/99 12/28/97
Cash flows from operating activities:
Net income/(loss) $13,051 $(4,686) $(26,446)
Adjustments to reconcile net income/(loss) to net
cash provided/(used) by operating activities:
Depreciation and amortization 4,200 5,672 5,135
Provision for bad debt 240 373 206
Issuance of Common Stock and warrants 56 105 421
Stock based compensation and other 3,127 2,144 1,304
Changes in assets and liabilities:
Accounts receivable (1,108) 1,437 528
Inventory (552) 4,964 (626)
Prepaid expenses 516 (232) (199)
Other current assets 2 (344) (169)
Accounts payable (236) 1,375 810
Accrued expenses and other current
liabilities.................................... 1,390 1,348 (1,673)
Deferred liability..................... 3,018 -- --
Net cash provided/(used) by operating
activities 23,704 12,156 (20,709)
Cash flows from investing activities:
Purchases of short- and long-term investments (49,245) (29,595) (30,375)
Sales of short- and long-term investments 46,283 13,711 50,798
Restricted cash 6,408 -- (5,000)
Purchases of property, plant and equipment (1,503) (1,790) (1,892)
Net cash provided/(used) by investing
activities 1,943 (17,674) 13,531
Cash flows from financing activities:
Proceeds from issuance of Common Stock......... -- -- 20,875
Purchase of Treasury Stock (950) -- --
Exercises of stock options 4,224 533 2,402
Expenses related to registration of Common Stock. -- -- (158)
Principal payments under note payable (883) (303) (303)
Principal payments under capital lease obligations. (2,093) (1,920 (2,273)
Net cash provided/(used) by financing
activities 298 (1,690) 20,543
Effects of exchange rate changes on cash 442 46 30
Net increase/(decrease) in cash and cash equivalents.26,387 (7,162) 13,395
Cash and cash equivalents at beginning of year 8,074 15,236 1,841
Cash and cash equivalents at end of year $34,461 $ 8,074 $15,236
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Business And Summary Of Significant Accounting Policies:
Business:
The Liposome Company, Inc. (the "Company") is a biopharmaceutical company
engaged in the discovery, development, manufacturing and marketing of
proprietary lipid- and lipid-based pharmaceuticals, primarily for the
treatment of cancer and other related 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 and 24 foreign markets and is the subject
of marketing application filings in several other countries. In the
United States, ABELCET has been approved for the treatment of invasive
fungal infections in patients who are refractory to or intolerant of
conventional amphotericin B therapy. International approvals have been
received for primary and/or refractory treatment of these
infections. Currently all product sales are derived from ABELCET.
The Company markets ABELCET in the U.S. and Canada, with its own sales
force. For other countries, the Company's strategy is to market ABELCET
through marketing partners. Specific marketing partnerships are
determined on a country-by-country basis. In addition, sales are realized
on a "named patient" basis in certain countries where marketing approvals
have not yet been received.
The Company is developing EVACET (formerly TLC D-99), liposomal
doxorubicin, as a treatment for metastatic breast cancer and potentially
other cancers.
The Company has a continuing discovery research program concentrating on
oncology treatment and has a number of products in research. These
products include: bromotaxane (hydrophobic derivatives of paclitaxel),
some of which have shown anticancer activity in several experimental
models; ceramides and sphingosines (molecules widely implicated in cell
differentiation and apoptosis) certain of which the Company has identified
as displaying anticancer activity; and fusogenic liposomes (liposomes
specifically designed to fuse to cell membranes), which the Company hopes
to use for the efficient delivery of genes to their intended targets.
On December 9, 1999 the Company announced its participation in the New
Jersey Technology Tax Transfer Program (the "Program"). The state of New
Jersey has authorized the Company to sell $10 million in New Jersey State
income tax benefits over the next several years. During the fourth
quarter of 1999, the Company received $3,018,000 from the sale of
$3,659,000 of its New Jersey State net operating loss carryforwards.
These funds have been included as cash reserves with an offsetting
deferred liability recorded. The Program requires that the Company
maintain certain employment levels in New Jersey and that the proceeds
from the sale of the tax benefits be spent in New Jersey during the year
2000. Accordingly, the recognition of the tax benefit has been deferred
until all conditions stipulated in the Program have been met.
In 1997, the Company entered into agreements to settle patent litigation
with the University of Texas and M.D. Anderson Cancer Center ("UT") and
with NeXstar Pharmaceuticals, Inc. ("NeXstar"), (now Gilead Sciences,
Inc.) and Fujisawa U.S.A., Inc. Under the UT settlement the Company
received an exclusive license under UT's patent, paid past royalties on
sales of ABELCET agreed to pay royalties on future sales, and issuedto UT
a ten-year warrant to purchase 1,000,000 shares of the Company's Common
Stock at $15.00 per share. Under the NeXstar settlement, the Company
received an initial payment of $1,750,000 in 1997 and began receiving
quarterly minimum payments in 1998. These payments are classified as
interest, investment and other income based on worldwide sales of
AmBisome. The cumulative amount of these receipts through year-end 1999
is approximately $6.0 million.
On April 22, 1998 the Company announced it had entered into a three-year
contract manufacturing agreement with AstraZeneca PLC ("Astra")
(formerly Astra USA, Inc.). The Company is processing and packaging
Astra's M.V.I.r-12 Unit Vial, an injectable multi-vitamin product used
by severely ill, hospitalized patients in need of nutritional
supplements. The product is processed and packaged at the Company's
Indianapolis facility, taking advantage
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-(Continued)
of its modern, large-scale capabilities. Under the terms of the
agreement, Astra supplies bulk quantities of the vitamin product and the
Company sterilizes, fills, packages and performs quality control on
M.V.I.r-12 Unit Vial. In early 1999, the Company commenced
manufacturing and recording revenues related to Astra.
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 management
believes that the estimates are reasonable.
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 provisions for price adjustments to large
volume purchasers in the U.S. and 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 $230,000 in 1999, $190,000 in 1998,
and $800,000 in 1997.
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
operations, all of which have been classified as available for sale.
These investments are stated at fair value, determined at January 2,
2000. Fair values may not be representative of actual values of
financial investments that could be realized in the future.
For the years ended January 2, 2000, January 3, 1999 and December 28,
1997, investment income included gross realized gains of $20,000, $0,
and $2,800 and realized losses of $0, $0, and $9,100, respectively. At
January 2, 2000, January 3, 1999 and December 28, 1997, investments
included gross unrealized losses of $433,000, $12,000, and $108,000,
respectively, and no gross unrealized gains for the periods. In
computing realized gains
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-(Continued)
and losses, the Company computes the cost of its investments on a
specific identification basis. The fair values of investment securities
maturing within one year was $29,618,000.
Restricted Cash:
The Company has entered into certain financing arrangements that
require the issuance of letters of credit that are partially
collateralized by specific securities. The aggregate amount of these
securities is 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) method.
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 a diversified portfolio of high-grade corporate
marketable and United States Government-backed securities. Product-
related accounts receivable in the U.S. are generally with major
distributors and internationally with the Company's marketing partners
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 and utilizes credit
insurance, subject to certain deductibles, to protect it from
catastrophic losses.
Basic and Diluted Income/(Loss) Per Share:
Basic earnings per share (EPS) excludes dilution and is computed by
dividing income available to Common Stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue Common Stock were exercised or converted into Common
Stock or resulted in the issuance of Common Stock that then shared in
the earnings of the entity. For 1998 and 1997, the Company had not
included potential common shares in the diluted per share computation as
the result is anti-dilutive.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-(Continued)
In Thousands
For the years ended
1/2/00 1/3/99 12/28/97
Weighted average number of sh
ares of 38,825 38,172 37,083
Common Stock outstanding
Dilutive stock options and 1,459 -- --
warrants
Shares used in calculating
diluted earnings per share 40,284 38,172 37,083
The numerator and denominator of the basic and diluted per share
computations were as follows:
In Thousands Except Per Share Amounts
Weighted
Net Income/ Average Per Share
(Loss) Shares Amount
Year Ended January 2, 2000
Basic income per share
available to Common Stockholders $ 13,051 38,825 $0.34
Diluted income per share
available to Common Stockholders $ 13,051 40,284 $0.32
Year Ended January 3, 1999
Basic and diluted loss per share
available to Common Stockholders $ (4,686) 38,172 $(0.12)
Year Ended December 28, 1997
Basic and diluted loss per share
available to Common Stockholders $(26,446) 37,083 $(0.71)
Basic and diluted net income/(loss) per share is calculated using the
weighted average number of common shares for all periods presented.
Options and warrants to purchase 6,106,753 shares of Common Stock at a
range of $1.19 - $27.63 per share were outstanding during 1999. The
options and warrants expire on various dates from April 1, 2000 to
December 27, 2009.
Reclassification:
Certain reclassifications have been made to the prior year financial
statement amounts to conform to 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 1999, the
Company realized $284,000 foreign currency transaction losses, $122,000
in losses in 1998, and $65,000 in losses in 1997.
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:
Common Stock:
On April 23, 1997 the Company issued 1,000,000 shares of Common Stock
at $20.875 per share to an investment company wholly owned by a private
investor for cash of $20,875,000. At February 29, 2000, this investor
has reported total holdings of 22.66% of the Company's outstanding
shares of Common Stock.
On July 1, 1997, the Company and the University of Texas and M.D.
Anderson Cancer Center came to an agreement to resolve pending patent
litigation. Under the agreement, the Company paid the University of
Texas for past royalties consisting of cash and shares of the Company's
Common Stock, which resulted in 44,835 Common Stock shares being issued
to the University of Texas on October 29, 1997. In addition, the Company
issued the University of Texas a ten-year warrant to purchase 1,000,000
shares of the Company's Common Stock at an exercise price of $15 per
share. The value of the warrant is being amortized as royalty expense
from 1995 to 2004.
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 as well as stock options under the
1996 Plan. 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.
In July 1997, the Board of Directors approved the repricing of
certain stock options. In connection therewith, employees were offered
an opportunity to have certain stock options repriced to the then
current market price. In exchange for obtaining a lower price, the
option holders were required to surrender 20% of the shares covered by
their options and to wait a full year before they could exercise any of
the repriced options. The repricing was effected either as an amendment
of the existing option or as the surrender of the existing option and
issuance of a new option, depending on the plan under which the option
was issued. The repricing did not affect the term of the options; all
repriced options expire ten years from their original date of grant, and
the normal
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-(Continued)
vesting schedule will resume after the one-year waiting period.
Substantially all of the options eligible for repricing were surrendered
and repriced.
In September 1998, the Board of Directors approved a repricing of
certain stock options under similar conditions as noted above. However,
in this instance the option holders were required to surrender 10% of
the shares covered by the options in exchange for the issuance of a new
option. The majority of the options eligible for repricing were
surrendered and repriced.
During 1999, the Company revised its Director Compensation Plan by
increasing the annual retainer to $16,000, payable quarterly in shares of
Common Stock on the last day of each quarter in which the Director
serves.
The table below summarizes the stock option activity under all of the
Company's plans for the years 1997, 1998, and 1999:
Weighted
Weighted Average
Number Average Exercise Fair
Options of Options Exercise Price Value at
Exercisable Outstanding price Per Share Grant Date
Outstanding 12/29/96 1,727,094 4,352,523 $ 10.74 $ 1.03-25.13
Granted 3,486,637 8.11 4.94-27.63 $ 5.56
Exercised (425,428) 5.47 1.03-23.25
Forfeited (2,432,982) 14.80 5.19-27.63
Outstanding 12/28/97 1,828,648 4,980,750 $ 7.39 $ 1.03-24.38
Granted 2,788,101 4.77 3.69-12.50 $ 3.07
Exercised (85,723) 6.19 1.19- 8.75
Forfeited (2,883,291) 7.92 4.06-21.00
Outstanding 1/3/99 2,108,988 4,799,837 $ 5.54 $ 1.03-24.38
Granted 1,336,300 9.42 7.13-27.63 $ 6.02
Exercised (892,353) 4.73 1.03-18.50
Forfeited (187,031) 7.10 4.22-15.00
Outstanding 1/2/00 2,856,180 5,056,753 $ 6.65 $ 1.19-27.63
The weighted average remaining contractual lives of outstanding options
at January 2,2000 as approximately 7.1 years.
The following table summarized information about stock options
outstanding at January 2, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
at 1/2/00 Life Price at 1/2/00 Price
$1.19-$4.25 2,148,410 6.2 $4.12 1,585,465 $4.08
$4.31-$7.25 1,891,818 8.1 $6.42 755,828 $5.59
$7.38-$27.63 1,016,525 7.2 $12.44 514,887 $11.35
$1.19-$27.63 5,056,753 7.1 $6.65 2,856,180 $5.79
The Company applies the provisions of Accounting Principles Board
("APB") Opinion No. 25 and related interpretations in accounting for its
stock-based compensation plans. Accordingly, compensation expense has
been recognized to the extent applicable in the financial statements in
respect to the above plans in accordance with APB No. 25. Had
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-(Continued)
compensation costs for the above plans been determined based on the fair
value at the grant dates for awards under those plans consistent with
the method of Statement of Financial Accounting Standards ("SFAS") No.
123 "Accounting for Stock Based Compensation", the Company's net
income/(loss) and net income/(loss) per share applicable to Common Stock
would have been adjusted to the pro forma amounts below:
1999 1998 1997
Pro Forma net income/(loss)......$ 6,696,000 $(12,571,000) $(35,197,000)
Pro Forma net income/(loss) per share
(basic)...................... $ 0.17 $ (0.33) $ (0.95)
Pro Forma net income/(loss) per share
(diluted).................... $ 0.17 $ (0.33) $ (0.95)
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 related to these plans of
$6,355,000, $7,885,000, and $8,751,000 for 1999, 1998 and 1997,
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:
1999 1998 1997
Dividend Yield 0.0% 0.0% 0.0%
Expected Volatility 82.0% 84.0% 84.0%
Risk Free Interest Rate 4.6% 4.6% 5.7%
Expected Option Lives (years) 6.8 7.6 7.5
4. Property, Plant and Equipment:
Property, plant and equipment consists of the following:
1999 1998
Building and building improvements $6,543,000 $6,504,000
Land and land improvements 685,000 614,000
Furniture and fixtures 1,858,000 1,971,000
Machinery and equipment 20,731,000 19,882,000
Leasehold improvements and other 6,137,000 6,023,000
Construction in process 10,000 811,000
Machinery and equipment and leasehold
improvements under capital lease 15,675,000 15,675,000
Total property, plant and equipment 51,639,000 51,480,000
Less: Accumulated depreciation and
amortization (31,662,000) (28,315,000)
Net property, plant and equipment.... $19,977,000 $23,165,000
5. Inventories:
The components of inventory are as follows:
1999 1998
Finished goods $ 2,858,000 $ 2,710,000
Work in process 479,000 1,271,000
Raw materials 2,594,000 1,374,000
Supplies 187,000 211,000
Total $ 6,118,000 $5,566,000
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-(Continued)
6. Commitments and Contingencies:
Operating Leases:
The initial term of the Company's lease for its research facility in
Princeton, New Jersey expires in December 2006 with two five-year
renewal options. The lease is collateralized by an investment letter of
credit of $1,100,000. Rent expense was approximately $568,000, $568,000
and $627,000 for the years 1999, 1998 and 1997, 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
$712,000 for 1999, $792,000 for 1998 and $818,000 for 1997.
The Company has administrative and marketing offices in London,
England. A ten year agreement was signed in October 1996, expiring in
September 2006. Rent expense was approximately $268,000, $342,000 and
$284,000 for 1999, 1998 and 1997, respectively.
The Company leases a warehousing facility in Cranbury, New Jersey.
This lease agreement was originally signed in January 1995 expired in
December 1997 and was extended to March 2002. Rent expense for this
facility totaled approximately $72,000, $88,000 and $77,000 for the
years 1999, 1998 and 1997, respectively.
In June 1999, the Company signed a five year agreement with Xerox
Corporation to lease copiers for the Princeton locations. Rent expense
related to this agreement was $43,000 for 1999.
Total rental expense under all operating leases (including those
above) was approximately $1,921,000, $2,184,000 and $2,180,000 for 1999,
1998 and 1997, respectively.
The Company's future minimum lease payments under noncancelable
operating leases at January 2, 2000 are as follows:
2000 $1,693,000
2001 1,690,000
2002 1,755,000
2003 1,736,000
2004 and thereafter 2,836,000
Total $9,710,000
Capital Leases:
In July 1993, the Company entered into a capitalized lease financing
agreement for certain manufacturing equipment providing for an initial
lease term followed by options to extend the lease, return or purchase
the equipment. In December 1996, the agreement was amended to include
an additional $6,101,000 of manufacturing equipment. In November 1997
and January 1998, the Company exercised its options to purchase certain
manufacturing equipment under the original 1993 lease for $1,583,000 and
$495,000, respectively. These amounts have been financed as a capital
lease obligation under the lease agreement over a three-year period.
The lease is collateralized by $4,122,000 in standby letters of credit
which are in turn collateralized by AAA rated securities owned by the
Company. Pursuant to the December 1996 lease amendment, 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 LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-(Continued)
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 January 2, 2000.
2000 $2,442,000
2001 1,333,000
2002 1,220,000
Total minimum lease payments 4,995,000
Less: Amount representing interest (486,000)
Present value of minimum lease payments $4,509,000
Classes of Property:
Machinery and equipment $11,470,000
Leasehold improvements 4,205,000
Total machinery and equipment and
Leasehold improvements 15,675,000
Less: Accumulated amortization (11,083,000)
Net machinery and equipment and leasehold
improvements $4,592,000
Lines of Credit:
The Company completed a U.S. working capital revolving credit line
agreement in early 1997, with a maximum capacity of $14,000,000. All
borrowing must be secured by approved accounts receivable and finished
goods inventories. There have been no advances made against this line
through the end of 1999. This agreement expired in January 2000 and the
Company has chosen not to renew it.
As part of the agreement to repurchase the development, manufacturing
and marketing rights to EVACET, the Company has obtained from Pfizer, a
credit line of up to $10,000,000 to continue the development of EVACET.
To the extent that any funding is actually used by the Company, the
outstanding principal and interest would be repayable on the earlier of
180 days after FDA clearance to market EVACET or in twenty quarterly
installments commencing July 14, 2002. There have been no advances made
against this line through the end of 1999.
Legal Proceedings:
The Company is a party in an adversarial proceeding filed in the
United States Bankruptcy Court in Delaware by a chapter 7 bankruptcy
trustee for the estate of the FoxMeyer Corporation, et al. The
complaint seeks to avoid and recover purported preferential transfers
pursuant to 11 U.S.C. Section 547 and Section 550 from the Company in
the amount of $2.3 million.
The Company is currently a party to various other legal actions
arising out of the normal course of business, none of which are expected
to have a material effect on the Company's financial position or results
of operations.
7. Long-term Debt:
During 1999, the Company repaid the remaining principal balance and
accrued interest on a mortgage-backed note which it used to partially
fund the purchase of its manufacturing facility in Indianapolis,
Indiana. Principal payments of $25,225 plus accrued interest were
payable monthly through November 2001. The interest rate was based on
the prime rate plus 1/2%, with a floor and ceiling of 6% and 10%,
respectively.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-(Continued)
8. Supplemental Information:
Accrued Expenses and Other Current Liabilities:
The components of accrued expenses and other current liabilities are as
follows:
1999 1998
Accrued expenses for preclinical
and clinical programs $1,309,000 $1,681,000
Accrued bonus 1,583,000 1,396,000
Accrued royalty/licensing payments 1,505,000 1,110,000
Accrued sales, marketing and
administrative 1,347,000 851,000
Accrued taxes 975,000 313,000
Accrued wages and vacation 899,000 774,000
Other 1,129,000 1,232,000
Total $8,747,000 $7,357,000
Statement of Cash Flows: 1999 1998 1997
Supplemental disclosure of cash
flow information:
Cash paid during the year for interest $586,000 $823,000 $786,000
Non-cash transaction: Refinancing
of capital lease $ -- $495,000 $1,583,000
9. Income Taxes:
The Company accounts for income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes." SFAS No. 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 LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-(Continued)
Significant components of the Company's deferred tax liabilities and
assets as of January 2, 2000 and January 3, 1999 are as follows:
Deferred tax assets 1999 1998
Temporary Items
Fixed and intangible $ $
assets............. 3,504,000 4,035,000
Reserves and allowances 3,718,000 2,285,000
Inventory........................ 1,374,000 784,000
Deferred income and miscellaneous 316,000 242,000
Total............................ 8,912,000 7,346,000
....
Net Operating Loss Carryforwards
Federal.......................... 62,882,000 66,875,000
.......
State (net of Federal 5,811,000 8,869,000
benefit)..........
Foreign 1,129,000 1,278,000
................................
69,822,000 77,022,000
Total............................
....
Credit Carryforwards
Federal.......................... 6,185,000 6,271,000
State (net of Federal 1,247,000 1,247,000
benefit)..........
Total............................ 7,432,000 7,518,000
..
Total deferred tax assets 86,166,000 91,886,000
Valuation allowance for deferred tax assets
.
.
.
.
.
.
.
.
.
.
.
Federal.......................... (76,712,00 (79,448,00
....... 0) 0)
State............................ (8,325,000) (11,160,000)
.......
Foreign.......................... (1,129,000) (1,278,000)
.......
Total (86,166,000) (91,886,000)
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Net deferred tax assets $-- $--
After 18 years of consecutive losses, the Company reported its first
profitable year in 1999. The future profitability of the Company in the
competitive biopharmaceutical industry depends on maintaining market
share for ABELCET, the Company's sole marketed product, developing new
products in view of the delay in getting EVACET approved in the United
States and pursuing strategic alternatives that might include merger,
acquisition or product in-licensing opportunities. As these factors
could significantly reduce future profitability or cause the Company to
incur operating losses, the Company believes that the deferred tax asset
should not presently be realized. Accordingly, the Company has provided
a valuation allowance against the net deferred tax debits due to this
uncertainty. The decrease in valuation allowance for the year ended
January 2, 2000 was $5,720,000 preceded by an increase for the year
ended January 3, 1999 of $15,168,000. Contingent upon the achievement
of profitability for two consecutive years coupled with the above
factors being successfully addressed, management will recognize the tax
benefit in accordance with SFAS No. 109.
At January 2, 2000, the Company had approximately $179,664,000 of net
operating loss carryforwards and $5,950,000 of general business credit
carryforwards for U.S. Federal income tax purposes. These carryforwards
expire in the periods 2000 through 2018. The utilization of the net
operating loss and general business credit carryforwards may be impacted
by the exercise of Common Stock options (see note 3). In addition, the
Company has $235,000 of AMT credit carryforward which do not expire.
The timing and manner in which these losses are used may be limited as a
result of certain ownership changes that may occur as defined by IRS
Regulations under Section 382.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-(Continued)
For financial reporting purposes, income before taxes includes the following
components.
1999 1998
Pretax income:
United States $15,940,00 $(3,346,000)
Foreign.................... (2,099,000) (1,340,000)
......
Total $13,841,000) (4,686,000)
....
significant components of the provisions for income tax attributable to
continuing operations are as follows:
1999 1998
Current:
Federal.................... $ 520,000 --
......
State...................... 170,000 --
......
Foreign.................... 100,000 --
......
Total $ 790,000 --
The reconciliation of income tax attributable to continuing operations
computed at the U.S. Federal statutory tax rates to income tax expense
for the year ending January 2, 2000 is:
Amount Percentage
Taxes at U.S. Statutory
Rate...... $4,844,000 35.0%
State income
taxes................ 170,000 1.2%
Permanent
Differences............. 140,000 1.0%
Change in valuation
allowance..... (5,719,000) (41.3)%
Alternative Minimum Tax (net
of state benefit) 520,000 3.8%
............
Foreign Operations 835,000 6.0%
Total income tax
expense.......... $ 790,000 5.7%
Earnings of the Company's foreign subsidiaries are considered to be
indefinitely reinvested and, accordingly, no provision for U.S. Federal
and state income taxes has been provided thereon. Upon distribution of
those earnings in the form of dividends or otherwise, the company would be
subject to both U.S. income taxes (subject to an adjustment for foreign
tax credits) and withholding taxes payable to the various countries. To date,
all such amounts are immaterial.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-(Continued)
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
1999, 1998 and 1997 is as follows:
Year Ended January 2, 2000
Domestic International Total
Sales to unaffiliated customers $ 69,126 $ 17,077 $ 86,203
Interest, investment and other income 6,483 (216) 6,267
Total revenue $ 75,609 $ 16,861 $ 92,470
Net income $ 12,816 $ 235 $ 13,051
Identifiable assets at January 2, 2000 $105,903 $ 4,855 $110,758
Year Ended January 3, 1999
Domestic International Total
Sales to unaffiliated customers $ 58,936 $ 14,559 $ 73,495
Interest, investment and other income 4,355 18 4,373
Total revenue $63,291 $14,577 $77,868
Net loss $(3,260) $(1,426) $(4,686)
Identifiable assets at January 3, 1999 $85,414 $ 5,160 $90,574
Year Ended December 28, 1997
Domestic International Total
Sales to unaffiliated customers $ 49,273 $ 9,179 $ 58,452
Collaborative research and development
revenues 2,331 -- 2,331
Interest, investment and other income 4,292 21 4,313
Total revenue $ 55,896 $ 9,200 $ 65,096
Net loss $(25,694) $ (752) $(26,446)
Identifiable assets at December 28, 1997 $ 86,402 $ 5,098 $91,500
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 January 2, 2000,
January 3, 1999 and December 28, 1997, 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 re-sell the product to hospitals and
other service providers. Internationally, sales are primarily made
directly to hospitals. Pursuant to marketing/distribution agreements
with the Company in France, Italy, Spain and certain other countries,
ABELCET is sold to local pharmaceutical companies who then re-sell the
product to hospitals.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-(Continued)
For the years ended January 2, 2000, January 3, 1999 and December 28,
1997 sales to wholesalers or other customers in excess of 10% of the
Company's product revenues in any year were as follows:
1999 1998 1997
Customer A 21% 21% 20%
Customer B 21% 23% 25%
Customer C 13% 13% 14%
Customer D 13% 14% 16%
The Company had entered into various collaborative research and
development contracts. The Company earned substantially all of its
research and development revenues from one corporate sponsor in 1997.
The absence of collaborative research and development revenue in 1999
and 1998 is due to the termination of the collaborative research and
development agreement with Pfizer in mid-1997. 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 were $2,331,000 from Pfizer in
1997.
13. Summary of Quarterly Financial Data (Unaudited):
Summarized quarterly financial data (in thousands, except for per
share data) for the years ended January 2, 2000 and January 3, 1999 are
as follows:
Quarter
1999 First Second Third Fourth
Total revenues $20,728 $23,704 $23,416 $24,622
Total expenses 18,319 20,931 20,025 19,354
Net income before taxes $ 2,409 $ 2,773 $ 3,391 $ 5,268
Provision for income taxes $ -- $ -- $ 300 $ 490
Net income.................... $ 2,409 $ 2,773 $ 3,091 $ 4,778
Net income per share (basic) $ 0.06 $ 0.07 $ 0.08 $ 0.12
Net income per share (diluted) $ 0.06 $ 0.07 $ 0.08 $ 0.12
Weighted average shares
outstanding (basic) 38,378 38,635 38,958 39,140
Weighted average shares
outstanding (diluted) 40,025 40,272 40,587 40,298
Quarter
1998 First Second Third Fourth
Total revenues $17,094 $20,225 $18,647 $21,902
Total expenses 22,171 21,072 18,955 20,356
Net income/(loss $(5,077) $ (847) $ (308) $ 1,546
Net income/(loss) per share
(basic) $ (0.13) $ (0.02) $ (0.01) $ 0.04
Net income/(loss) per share
(diluted) $ (0.13) $ (0.02) $ (0.01) $ 0.04
Weighted average shares
outstanding (basic) 37,846 37,992 38,050 38,254
Weighted average shares
outstanding (diluted) 37,846 37,992 38,050 39,856
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-(Continued)
Net income/(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. Unusual Charges and Credits:
The Company recorded approximately $3,900,000 of unusual charges for
1997 following unfavorable results of a pivotal Phase III study of
VENTUSTM. The primary component of this charge related to an
organizational restructuring expense of $2,550,000 (classified as
selling, general and administrative expense). A total of 137 positions
were eliminated as a result of the restructuring. The balance of the
charges were attributable to a provision for royalties on past sales of
ABELCET of $768,000 to settle certain litigation concerning that
product, including the pro-rata amortization of a ten-year warrant
issued as part of the settlement (classified as cost of goods sold), and
certain manufacturing overhead costs of $570,000 following the
unfavorable VENTUSTM clinical results, (classified as research and
development expense).
On August 11, 1997, the Company entered into a settlement agreement
with NeXstar and Fujisawa USA, Inc., relating to litigation regarding
the Company's liposome drying technology patents. Pursuant to this
settlement agreement, the Company received an initial payment of
$1,750,000 and began receiving quarterly minimum payments in 1998,
included in interest, investment and other income, as well as the right
to receive future royalty payments based on sales of AmBisome beginning
in 1998.
15. Subsequent Event:
Merger with Elan Corporation, plc
On March 6, 2000 the Company announced that they have entered into a
definitive merger agreement under which Elan Corporation, plc ("Elan")
will acquire the Company. Under the terms of the agreement, Elan will
acquire all of the Company's outstanding stock in a tax-free, stock-for-
stock transaction. The Company's shareholders will receive 0.3850 of an
Elan ADR for each share of The Liposome Company stock. Based on the
closing price on March 3, 2000 of $39.6875, the transaction has a value
of $15.28 per Company share and an aggregate value of approximately $575
million, including options and warrants and adjusting for net cash on
the Company's balance sheet and before the contingent payment described
below. Elan may make a cash payment to the Company shareholders of up
to $98 million, contingent partly on the approval of EVACET for the
European Union, and partly on EVACET reaching certain sales milestones
outside the U.S. Elan has also entered into an agreement with Ross
Financial Corporation, the Company's major shareholder, to vote in favor
of the transaction. The transaction is subject to regulatory and the
Company's shareholder approvals and is expected to close in the second
quarter of 2000.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
of The Liposome Company, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated February 4, 2000 (except for Note 15, as to which the date
is March 14, 2000) appearing in Item 14 of this Annual Report on Form 10-
K also included an audit of the financial statement schedule listed in
the Index in Item 14 of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 4, 2000
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Schedule II
Column A Column B Column C Column D Column E
Additions
Balance Charged Balance at
at to End
Beginning Costs and Deductions of Period
of Period Expenses
Year Ended January 2, 2000
Valuation Allowance for
Sales 3,052,000 $ $40,231,000 $(38,736,000) $4,547,000
Rebates and
Discounts.......
Allowance for Doubtful
Accounts............ $579,000 $299,000 $(59,000) $819,000
..
Valuation Allowance for
Income Taxes $91,886,000 $ -- $(5,720,000) $86,166,000
Year Ended January 3, 1999
Valuation Allowance for
Sales Rebates and
Discounts $3,789,000 $30,460,000 $(31,197,000) $3,052,000
Allowance for Doubtful
Accounts................. 1,285,000 373,000 (1,079,000) $579,000
..
Valuation Allowance for
Income Taxes $76,718,0 $15,168,000 $-- $91,886,00
Year Ended December 28, 1997
Valuation Allowance for
Sales Rebates and
Discounts $609,000 $13,711,000 $(10,531,000) $3,789,000
Allowance for Doubtful
Accounts................. 1,079,000 256,000 (50,000) 1,285,000
..
Valuation Allowance for
Income Taxes $65,752,000 $10,966,000 $ -- $76,718,000
Item l4(a)3. Exhibits to Form l0-K
(A) Exhibits
Each management contract or compensation plan required to be
filed pursuant to Item 601 of Regulation S-K is reflected in
Exhibit numbers 10-01, 10-02, 10-03 and 10-04.
Exhibit
Number
3(i)-01 Restated Certificate of Incorporation of the Company, including
Designation of Preferences of Series A Cumulative Convertible
Exchangeable Preferred Stock, as amended through July 12, 1999.
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 The Liposome Company, Inc. 1996 Equity Incentive Plan. (Filed
with the Company's 1996 Proxy Statement, File No. 000-14887,
incorporated herein by reference thereto.)
10-05 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.)
10-05-01 Agreement dated July 8, 1999 amending the Employment Agreement
dated June 1, 1995 between the Company and Charles A. Baker.
10-06 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.)
10-07 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.)
10-08 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.)
10-09 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.)
Item l4(a)3. Exhibits to Form l0-K (Continued)
Exhibit
Number
10-10 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.)
10-11 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.)
10-12 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.)
10-13 Credit Agreement dated as of December 31, 1996, among the
Company, The Liposome Manufacturing Company, Inc. and General
Electric Capital Corporation. (Filed with the Company's Annual
Report on Form 10-K for the year ended December 29, 1996, and
incorporated herein by reference thereto.)
10-14 Termination Agreement dated July 14, 1997, among The Liposome
Company, Inc., Pfizer Inc., and Pfizer Pharmaceuticals
Production Corporation. (Filed with the Company's Quarterly
Report on Form 10-Q for the quarter ended September 28, 1997,
and incorporated herein by reference thereto.)
10-15 Settlement Agreement dated August 11, 1997 among The Liposome
Company, Inc NeXstar Pharmaceuticals, Inc. ("NeXstar"), (now Gilead
Sciences, Inc.) and Fujisawa USA, Inc. (Filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended September 28, 1997,
and incorporated herein by reference thereto.)
10-16 Form of Executive Severance Agreement executed with each Vice
President dated as of January 22, 1998. (Filed with the
Company's Annual Report on Form 10-K for the year ending
January 3, 1999.)
10-17 Form of Indemnification Agreement executed with each officer
and director of the Company.
10-18 Agreement dated March 1, 1999 between the Company and Wyeth-
Ayerst International Inc.
21 List of Company's subsidiaries.
23 Consent of Independent Accountants.
27 Financial Data Schedule
99-01 Settlement Agreement dated July 1, 1997, among The Liposome
Company, Inc., the Board of Regents of the University of Texas
System, and the University of Texas M.D. Anderson Cancer
Center, including Patent License Agreement as Exhibit B. (Filed
with the Company's Registration Statement on Form S-3,
Registration No. 333-36931, and incorporated herein by
reference thereto.)
EXHIBIT INDEX
EXHIBIT NO. PAGE
21. Subsidiaries 63
23. Consent of Independent Accountants 64
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
Laboratoires Liposome 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 hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 333-20339 and 333-20341) of The
Liposome Company, Inc. of our report dated February 4, 2000 (except for
Note 15, as to which the date is March 14, 2000) relating to the
financial statements, which appears in this Annual Report on Form 10-K.
We also consent to the incorporation by reference of our report dated
February 4, 2000 relating to the financial statement schedule, which
appears in this Form 10-K.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
March 28, 2000
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
28th day of March, 2000.
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
28th day of March, 2000 on behalf of the Registrant and in the
capacities indicated.
/S/ Charles A. Baker Chairman of the Board, President Chief Executive
Charles A. Baker Officer and Director (Principal Executive Officer)
/S/ Lawrence R. Hoffman Vice President
and Chief Financial Officer
Lawrence R. Hoffman (Principal Accounting Officer)
/S/ James G. Andress Director
James G. Andress
/S/ Morton Collins, Ph.D. Director
Morton Collins, Ph.D.
/S/ Stuart F. Feiner Director
Stuart F. Feiner
/S/ Robert F. Hendrickson Director
Robert F. Hendrickson
/S/ Kenneth E. Johns, Esq. Director
Kenneth E. Johns, Esq.
/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.
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4
RESTATED
CERTIFICATE OF INCORPORATION
OF
THE LIPOSOME COMPANY, INC.
Pursuant to Section 245 of the
General Corporation Law of the State of Delaware
THE LIPOSOME COMPANY, INC., a corporation organized and
existing under the laws of the State of Delaware, hereby
certifies (1) that the former name of The Liposome Company, Inc.
was The Liposome Corporation; (2) that this Restated Certificate
of Incorporation of the Liposome Company, Inc. was duly adopted
by the Board of Directors of said Corporation in accordance with
Section 245 of the General Corporation Law of the State of
Delaware on September 14, 1995; (3) that this Restated
Certificate of Incorporation restates and integrates, but does
not further amend, the original Certificate of Incorporation
filed in the office of the Secretary of State of the State of
Delaware on August 6, 1981, as heretofore amended or
supplemented; and (4) that there is no discrepancy between those
provisions and the provisions of this Restated Certificate of
Incorporation.
FIRST. The name of the Corporation is The Liposome
Company, Inc.
SECOND. The address of the Corporation's registered office
in the State of Delaware is No. 1209 Orange St. in the City of
Wilmington, County of New Castle. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which the
Corporation shall have the authority to issue is 122,400,000
shares, which shares shall be classified as follows:
(i) 120,000,000 shares of Common Stock, par value $0.01 per
share (hereinafter called the "Common Stock"); and
(ii) 2,400,000 shares of Serial Preferred Stock, par value
$.01 per share (hereinafter called the "Serial Preferred Stock").
Authority is hereby expressly granted to the Board of Directors
of the Company to adopt from time to time resolutions providing
for the issue of the Serial Preferred Stock in one or more
series, which resolutions shall fix the number of shares in each
such series and the voting power, designations, preferences and
relative, participating, optional or other rights, and the
qualifications, limitations, and restrictions, of such series, to
the full extent now or hereafter permitted by the laws of the
State of Delaware. The Certificate of Designation for the 276,000
shares of Series A Cumulative Convertible Exchangeable Preferred
Stock issued on January 20, 1993 is attached hereto as Exhibit I.
FIFTH. The name and mailing address of the sole
incorporator is Roger W. Kapp, 30 Rockefeller Plaza, New York,
New York 10112.
SIXTH. No election of directors need be by written
ballot, unless the By-Laws of the Corporation shall so provide.
SEVENTH. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly
authorized to make, alter or repeal the By-Laws of the
Corporation.
EIGHTH. Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them
and/or between this Corporation and its stockholders or any class
of them, any court of equitable jurisdiction within the State of
Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this
Corporation under the provisions of section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for this Corporation under
the provisions of section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as
the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in
value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the
case may be, agree to any compromise or arrangement and to any
reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and
the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders
or class of stockholders, of this Corporation, as the case may
be, and also on this Corporation.
NINTH. A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174
of the General Corporation Law of the State of Delaware, or (iv)
for any transaction from which the director derived an improper
personal benefit.
If the General Corporation Law of the State of Delaware is
amended hereafter to authorize the further elimination or
limitation of the liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the
fullest extent authorized by the General Corporation Law of the
State of Delaware, as so amended.
Any repeal or modification of this Article shall not
adversely affect any right or protection of a director of the
Corporation existing hereunder with respect to any act or
omission occurring prior to or at the time of such repeal or
modification.
TENTH. The annual meeting of the stockholders of this
Corporation, for the election of directors and the transaction of
such other business as may properly come before said meeting,
shall be held annually at such place within or without the State
of Delaware and at such time as may from time to time be
designated by the Board of Directors and set forth in the notice
of the meeting. Special meetings of the stockholders of this
Corporation, for the transaction of such business as may properly
come before said meeting, may be called (i) by the Chairman of
the Board of Directors of the Corporation or (ii) by the holders
of 20 percent or more of the outstanding shares of the
Corporation entitled to vote if such holders shall deliver a
written notice signed by each such holder requesting a special
meeting and setting forth with reasonable specificity the purpose
and proposed agenda thereof to the Chairman of the Board of
Directors of the Corporation, by registered or certified mail,
return receipt requested. Upon a determination by the Chairman of
the Board to call a special meeting or receipt of notice from
holders of 20 percent or more of the outstanding shares of the
Corporation entitled to vote, the Board of Directors shall,
within a reasonable time, designate the time and place of the
special meeting and notify the stockholders of the Corporation in
such manner as is required by law or this Certificate of
Incorporation.
IN WITNESS WHEREOF, The Liposome Company, Inc. has caused
this Restated Certificate of Incorporation to be executed this
30th day of October, 1995, by Carol J. Gillespie, its Vice
President and Secretary, who acknowledges under penalties of
perjury that said instrument is the act and deed of The Liposome
Company, Inc. and that the facts stated therein are true.
THE LIPOSOME COMPANY, INC.
By: __________________________
Carol J. Gillespie
Vice President and Secretary
EXHIBIT I
CERTIFICATE OF DESIGNATION
OF
SERIES A
CUMULATIVE CONVERTIBLE EXCHEANGEABLE
PREFERRED STOCK
($.01 PAR VALUE)
OF
THE LIPOSOME COMPANY, INC.
Pursuant to Section 151(g) of the
General Corporation Law of
The State of Delaware
CERTIFICATE OF DESIGNATION
OF
SERIES A CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
($.01 PAR VALUE)
OF
THE LIPOSOME COMPANY, INC.
Pursuant to Section 151(g) of the General Corporation Law
of the state of Delaware
THE UNDERSIGNED, being, respectively, the President and the
Secretary of The Liposome Company, Inc., a Delaware corporation
(the "Company"), DO HEREBY CERTIFY that, pursuant to the
provisions of Section 151(g) of the General Corporation Law of
the State of Delaware the following resolutions were duly adopted
by the Board of Directors of the Company and pursuant to
authority conferred upon the Board of Directors by the provisions
of the Certificate of Incorporation (as amended) of the Company
(the "Certificate of Incorporation"), the Board of Directors of
the Company, at a meeting duly held on December 2, 1992, adopted
resolutions providing for the issuance of a series of its Serial
Preferred Stock and fixing the relative powers, preferences,
rights, qualifications, limitations and restrictions of such
stock. These resolutions are as follows:
RESOLVED, that pursuant to authority expressly granted to
and vested in the Board of Directors of the Company by the
provisions of the Certificate of Incorporation of the Company (as
amended) (the "Certificate of Incorporation"), the issuance of a
series of preferred stock, par value $.01 per share (the
"Preferred Stock"), which shall consist of up to 276,000 of the
2,400,000 shares of Preferred Stock which the Company now has
authority to issue, be, and the same hereby is, authorized, and
the Board hereby fixes the powers, designations, preferences and
relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions thereof, of the
shares of such series (in addition to the powers, designations,
preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or
restrictions thereof, set forth in the Certificate of
Incorporation which may be applicable to the Preferred Stock) as
follows:
1. Number of Shares and Designation. 276,000 shares of
the preferred stock, $.01 par value per share, of the Company are
hereby constituted as a series of the preferred stock designated
as Series A Cumulative Convertible Exchangeable Preferred Stock
(the "Series A Preferred Stock").
2. Definitions. For purposes of the Series A Preferred
Stock, the following terms shall have the meanings indicated:
"Board of Directors" shall mean the board of directors of
the Company or any committee authorized by such Board of
Directors to perform any of its responsibilities with respect to
the Series A Preferred Stock..
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the City of New
York are authorized or obligated by law or executive order to
close.
"Closing Price" of the Common Stock on any day shall mean on
such day the reported last sales price, regular way, for the
Common Stock or, in case no sale takes place on such day, the
average of the reported closing bid and asked prices, regular
way, for the Common Stock in either case as reported on the New
York Stock Exchange, on the principal national securities
exchange on which the Common Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national
securities exchange, on the National Market System of the
National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ National Market System") or, if the
Common Stock is not quoted on such National Market System, the
average of the closing bid and asked prices for the Common Stock
on such day in the over-the-counter market as reported by NASDAQ
National Market System or, if bid and asked prices for the Common
Stock on each such date shall not have been reported by NASDAQ
National Market System, the average of the bid and asked prices
of the Common Stock for such day as furnished by any New York
Stock Exchange member firm regularly making a market in the
Common Stock selected for such purpose by the Board of Directors
or, if no such quotations are available, the fair market value of
the Common Stock furnished by any New York Stock Exchange member
firm selected from time to time by the Board of Directors for
that purpose.
"Common Stock" shall mean the Common Stock of the Company,
par value $.01 per share.
"Conversion Price" shall mean the conversion price per share
of Common Stock into which the Series A Preferred Stock is
convertible, as such Conversion Price may be adjusted pursuant to
Section 7 hereof. The initial Conversion Price will be $12.85
(equivalent to the rate of 1.9455 shares of Common Stock for each
Depositary Share (which represents ownership of l/10 of a share
of Series A Preferred Stock)).
"Current Market Price" per share of Common Stock on any date
shall mean the average of the daily Closing Prices for the 30
consecutive Trading Dates commencing forty-five Trading Dates
before the date of determination.
"dividend payment date" shall have the meaning set forth in
paragraph (a) of Section 3 hereof.
"dividend payment record date" shall have the meaning set
forth in paragraph (a) of Section 3 hereof.
"Dividend Periods" shall mean quarterly dividend periods
commencing on the fifteenth day of January, April, July, and
October of each year and ending on and including the day
preceding the first day of the next succeeding Dividend Period
(other than the initial Dividend Period, which shall commence on
the Issue Date and end on and include April 15, 1993).
"Issue Date" shall mean the first date on which shares of
Series A Preferred Stock are issued.
"Person" shall mean any individual, firm, partnership,
corporation or other entity, and shall include any successor (by
merger or otherwise) of such entity.
"Securities" shall have the meaning set forth in paragraph
(d)(iii) of Section 7 hereof.
"Trading Date" with respect to Common Stock means (i) if the
Common Stock is listed or admitted for trading on the New York
Stock Exchange or another national securities exchange, a day on
which the New York Stock Exchange or such other national
securities exchange is open for business , (ii) if the Common
Stock is quoted on the NASDAQ National Market System, or a any
similar system of automated dissemination of quotations of
securities prices, a day on which trades may be made on such
system or (iii) if not quoted as described in clause (ii), days
on which quotations are reported by the National Quotation Bureau
Incorporated or (iv) otherwise, any Business Day.
"Transaction" shall have the meaning set forth in paragraph
(e) of Section 7 hereof.
"Transfer Agent" means Midlantic National Bank or such other
agent or agents of the Company as may be designated by the Board
of Directors of the Company as the transfer agent for the Series
A Preferred Stock.
3. Dividends. (a) The holders of shares of the Series A
Preferred Stock shall be entitled to receive, when and as
declared by the Board of Directors out of funds legally available
therefor, cumulative cash dividends at an annual rate of 7-3/4%
(an amount equivalent to $1.9375 per annum per share) of Series A
Preferred Stock. Such dividends shall be cumulative from the
Issue Date, whether or not in any Dividend Period or Periods
there shall be funds of the Company legally available for the
payment of such dividends and whether or not such dividends are
declared, and shall be payable quarterly, when and as declared by
the Board of Directors, on January 15, April 15, July 15 and
October 15 in each year (each a "dividend payment date"),
commencing on April 15, 1993. If April 15, 1993 or any other
dividend payment date shall be on a day other than a Business
Day, then the dividend payment date shall be on the next
succeeding Business Day. Each such dividend shall be payable in
arrears to the holders of record of shares of the Series A
Preferred Stock, as they appear on the stock records of the
Company at the close of business on those dates (each such date,
a "dividend payment record date"), not less than 10 days nor more
than 60 days preceding the dividend payment dates thereof, as
shall be fixed by the Board of Directors. Dividends on the
Series A Preferred Stock shall accrue (whether or not declared)
on a daily basis from the Issue Date and accrued dividends for
each Dividend Period shall accumulate to the extent not paid on
the dividend payment date first following the Dividend Period for
which they accrue. As used herein, the term "accrued" with
respect to dividends includes both accrued and accumulated
dividends. Accrued and unpaid dividends for any past Dividend
Periods may be declared and paid at any time, without reference
to any regular dividend payment date, to holders of record on
such date, not exceeding 45 days preceding the payment date
thereof, as may be fixed by the Board of Directors.
(b) The amount of dividends payable for each full
Dividend Period for the Series A Preferred Stock shall be
computed by dividing the annual dividend rate by four
(rounded down to the nearest cent). The amount of dividends
payable for the initial Dividend Period on the Series A
Preferred Stock, or any other period shorter or longer than
a full Dividend Period on the Series A Preferred Stock shall
be computed on the basis of a 360-day year consisting of
twelve 30-day months. Holders of shares of Series A
Preferred Stock called for redemption on a redemption date
falling between the close of business on a dividend payment
record date and the opening of business on the corresponding
dividend payment date shall, in lieu of receiving such
dividend on the dividend payment date fixed therefor,
receive such dividend payment together with all other
accrued and unpaid dividends on the date fixed for
redemption (unless such holder converts such shares in
accordance with Section 7 hereof). Holders of shares of
Series A Preferred Stock shall not be entitled to any
dividends, whether payable in cash, property or stock, in
excess of cumulative dividends, as herein provided, on the
Series A Preferred Stock. No interest, or sum of money in
lieu of interest, shall be payable in respect of any
dividend payment or payments on the Series A Preferred Stock
which may be in arrears.
(c) So long as any shares of the Series A Preferred
Stock are outstanding, no dividends, except as described in
the next succeeding sentence, shall be declared or paid or
set apart for payment on any class or series of stock of the
Company ranking, as to dividends, on a parity with the
Series A Preferred Stock, for any period unless full
cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Series A
Preferred Stock for all Dividend Periods terminating on or
prior to the date of payment, or setting apart for payment,
of such full cumulative dividends on such parity stock. When
dividends are not paid in full or a sum sufficient for such
payment is not set apart, as aforesaid, upon the shares of
the Series A Preferred Stock and any other class or series
of stock ranking on a parity as to dividends with the Series
A Preferred Stock, all dividends declared upon shares of the
Series A Preferred Stock and all dividends declared upon
such other stock shall be declared pro rata so that the
amounts of dividends per share declared on the Series A
Preferred Stock and such other stock shall in all cases bear
to each other the same ratio that accrued dividends per
share on the shares of the Series A Preferred Stock and on
such other stock bear to each other.
(d) So long as any shares of the Series A Preferred
Stock are outstanding, no other stock of the Company ranking
on a parity with the Series A Preferred Stock as to
dividends or upon liquidation, dissolution or winding up
shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available
for a sinking fund or otherwise for the purchase or
redemption of any shares of any such stock) by the Company
(except for repurchases from employees and consultants or by
conversion into or exchange for stock of the Company ranking
junior to the Series A Preferred Stock as to dividends and
upon liquidation, dissolution or winding up) unless (i) the
full cumulative dividends, if any, accrued on all
outstanding shares of the Series A Preferred Stock shall
have been paid or set apart for payment for all past
Dividend Periods and (ii) sufficient funds shall have been
set apart for the payment of the dividend for the current
Dividend Period with respect to the Series A Preferred
Stock.
(e) So long as any shares of the Series A Preferred
Stock are outstanding, no dividends (other than dividends or
distributions paid in shares of, or options, warrants or
rights to subscribe for or purchase shares of, Common Stock
or other stock ranking junior to the Series A Preferred
Stock, as to dividends and upon liquidation, dissolution or
winding up) shall be declared or paid or set apart for
payment and no other distribution shall be declared or made
or set apart for payment, in each case upon the Common Stock
or any other stock of the Company ranking junior to the
Series A Preferred Stock as to dividends or upon
liquidation, dissolution or winding up, nor shall any Common
Stock nor any other such stock of the Company ranking junior
to the Series A Preferred Stock as to dividends or upon
liquidation, dissolution or winding up be redeemed,
purchased or otherwise acquired for any consideration (or
any moneys be paid to or made available for a sinking fund
or otherwise for the purchase or redemption of any shares of
any such stock) by the Company (except for repurchases from
employees and consultants or by conversion into or exchange
for stock of the Company ranking junior to the Series A
Preferred Stock as to dividends and upon liquidation,
dissolution or winding up) unless, in each case (i) the full
cumulative dividends, if any, accrued on all outstanding
shares of the Series A Preferred Stock and any other stock
of the Company ranking on a parity with the Series A
Preferred Stock as to dividends shall have been paid or set
apart for payment for all past Dividend Periods and all past
dividend periods with respect to such other stock and (ii)
sufficient funds shall have been set apart for the payment
of the dividend for the current Dividend Period with respect
to the Series A Preferred Stock and for the current dividend
period with respect to any other stock of the Company
ranking on a parity with the Series A Preferred Stock as to
dividends.
4. Liquidation Preference. (a) In the event of any
liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, before any payment or
distribution of the assets of the Company (whether capital
or surplus) shall be made to or set apart for the holders of
Common Stock or any other series or class or classes of
stock of the Company ranking junior to the Series A
Preferred Stock upon liquidation, dissolution or winding up,
the holders of the shares of Series A Preferred Stock shall
be entitled to receive $250 per share plus an amount per
share equal to all dividends (whether or not earned or
declared) accrued and unpaid thereon to the date of final
distribution to such holders; but such holders shall not be
entitled to any further payment. No payment on account of
any liquidation, dissolution or winding up of the Company
shall be made to the holders of any class or series of stock
ranking on a parity with the Series A Preferred Stock in
respect of the distribution of assets upon dissolution,
liquidation or winding up unless there shall likewise be
paid at the same time to the holders of the Series A
Preferred Stock like proportionate amounts determined
ratably in proportion to the full amounts to which the
holders of all outstanding shares of Series A Preferred
Stock and the holders of all outstanding shares of such
parity stock are respectively entitled with respect to such
distribution. If, upon any liquidation, dissolution or
winding up of the Company, the assets of the Company, or
proceeds thereof, distributable among the holders of the
shares of Series A Preferred Stock shall be insufficient to
pay in full the preferential amount aforesaid and
liquidating payments on any other shares of stock ranking,
as to liquidation, dissolution or winding up, on a parity
with the Series A Preferred Stock, then such assets, or the
proceeds thereof, shall be distributed among the holders of
shares of Series A Preferred Stock and any such other stock
ratably in accordance with the respective amounts which
would be payable on such shares of Series A Preferred Stock
and any such other stock if all amounts payable thereon were
paid in full. For the purposes of this Section 4, (i) a
consolidation or merger of the Company with one or more
corporations or other entities, (ii) a sale, lease, exchange
or transfer of all or any part of the Company's assets or
(iii) a statutory share exchange shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or
involuntary.
(b) Subject to the rights of the holders of shares of
any series or class or classes of stock ranking on a parity
with or prior to the Series A Preferred Stock upon
liquidation, dissolution or winding up, upon any
liquidation, dissolution or winding up of the Company, after
payment shall have been made in full to the holders of
Series A Preferred Stock, as provided in this Section 4, any
other series or class or classes of stock ranking junior to
the Series A Preferred Stock upon liquidation, dissolution
or winding up shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive
any and all assets remaining to be paid or distributed, and
the holders of Series A Preferred Stock shall not be
entitled to share therein.
(c) Written notice of any liquidation, dissolution or
winding up of the Company, stating the payment date or dates
when and the place or places where the amounts distributable
in such circumstances shall be payable, shall be given by
first class mail, postage prepaid, not less than thirty (30)
days prior to any payment date stated therein, to the
holders of record of the Series A Preferred Stock at their
respective addresses as the same shall appear on the books
of the Transfer Agent.
5. Redemption at the Option of the Company. (a)
Series A Preferred Stock may not be redeemed by the Company
prior to January 15, 1996, on or after which the Company, at
its option, may redeem the shares of Series A Preferred
Stock, in whole or in part, out of funds legally available
therefor, at any time or from time to time, subject to the
notice provisions and provisions for partial redemption
described below, during the twelve-month periods beginning
on January 15 in each of the following years at the
following redemption prices per share plus an amount equal
to accrued and unpaid dividends, if any, to (and including)
the date fixed for redemption, whether or not earned or
declared.
YEAR PRICE
1996 $264
1997 $262
1998 $260
1999 $258
2000 $256
2001 $254
2002 $252
2003 and thereafter $250
(b) In the event the Company shall redeem shares of
Series A Preferred Stock, notice of such redemption shall be
given by first class mail, postage prepaid, mailed not less
than 30 nor more than 60 days prior to the redemption date,
to each holder of record of the shares to be redeemed, at
such holder's address as the same appears on the stock
records of the Company. Each such notice shall state: (i)
the redemption date; (ii) the number of shares of Series A
Preferred Stock to be redeemed and, if less than all the
shares held by such holder are to be redeemed, the number of
such shares to be redeemed from such holder; (iii) the
redemption price; (iv) the place or places where
certificates for such shares are to be surrendered for
payment of the redemption price; (v) the then current
conversion price; and (vi) that dividends on the shares to
be redeemed shall cease to accrue on such redemption date.
Notice having been mailed as aforesaid, from and after the
redemption date, unless the Company shall be in default in
providing money for the payment of the redemption price
(including any accrued and unpaid dividends to (and
including) the date fixed for redemption), (i) dividends on
the shares of the Series A Preferred Stock so called for
redemption shall cease to accrue, (ii) said shares shall be
deemed no longer outstanding, and (iii) all rights of the
holders thereof as stockholders of the Company (except the
right to receive from the Company the moneys payable upon
redemption without interest thereon) shall cease. The
Company's obligation to provide moneys in accordance with
the preceding sentence shall be deemed fulfilled if, on or
before the redemption date, the Company shall deposit with a
bank or trust company having an office in the Borough of
Manhattan, City of New York, and having a capital and
surplus of at least $50,000,000, funds necessary for such
redemption, in trust for the account of the holders of the
shares to be redeemed (and so as to be and continue to be
available therefor), with irrevocable instructions and
authority to such bank or trust company that such funds be
applied to the redemption of the shares of Series A
Preferred Stock so called for redemption. Any interest
accrued on such funds shall be paid to the Company from time
to time. Any funds so deposited and unclaimed at the end of
three years from such redemption date shall be released or
repaid to the Company, after which, subject to any
applicable laws relating to escheat or unclaimed property,
the holder or holders of such shares of Series A Preferred
Stock so called for redemption shall look only to the
Company for payment of the redemption price.
Upon surrender in accordance with said notice of the
certificates for any such shares so redeemed (properly
endorsed or assigned for transfer, if the Board of Directors
shall so require and the notice shall so state), such shares
shall be redeemed by the Company at the applicable
redemption price aforesaid. If fewer than all the
outstanding shares of Series A Preferred Stock are to be
redeemed, shares to be redeemed shall be selected by the
Company from outstanding shares of Series A Preferred Stock
not previously called for redemption by lot or pro rata (as
near as may be) or by any other method determined by the
Company in its sole discretion to be equitable. If fewer
than all the shares represented by any certificate are
redeemed, a new certificate shall be issued representing the
unredeemed shares without cost to the holder thereof.
Notwithstanding the foregoing, if notice of redemption
has been given pursuant to this Section 5 and any holder of
shares of Series A Preferred Stock shall, prior to the close
of business on (i) the redemption date, or (ii) if the
Company shall so elect and state in the notice of
redemption, the date (which date shall be the date fixed for
redemption or an earlier date not less than 30 days after
the date of mailing of the redemption notice) on which the
Company irrevocably deposits with a designated bank or trust
company as paying agent, money sufficient to pay, on the
redemption date, the redemption price, give written notice
to the Company pursuant to Section 7(b) hereof of the
conversion of any or all of the shares to be redeemed held
by such holder (accompanied by a certificate or certificates
for such shares, duly endorsed or assigned to the Company),
then the conversion of such shares to be redeemed shall
become effective as provided in Section 7.
6. Shares to be Retired. All shares of Series A
Preferred Stock purchased, redeemed, exchanged, or converted
by the Company shall be retired and canceled and shall be
restored to the status of authorized but unissued shares of
preferred stock, without designation as to series and may
thereafter be reissued.
7. Conversion. Holders of shares of Series A
Preferred Stock shall have the right to convert all or a
portion of such shares (including fractions of such shares)
into shares of Common Stock, as follows:
(a) Subject to and upon compliance with the provisions
of this Section 7, a holder of shares of Series A Preferred
Stock shall have the right, at his or her option, at any
time to convert any of such shares (or fractions thereof)
into the number of fully paid and nonassessable shares of
Common Stock (calculated as to each conversion to the
nearest l/lOOth of a share) obtained by dividing the
aggregate liquidation preference of the shares to be
converted by the Conversion Price and by surrender of such
shares, such surrender to be made in the manner provided in
paragraph (b) of this Section 7; provided, however, that the
right to convert shares called for redemption pursuant to
Section 5 shall terminate at the close of business on (i)
the date fixed for such redemption, or (ii) if the Company
shall so elect and state in the notice of redemption, the
date (which date shall be the date fixed for redemption or
an earlier date not less than 30 days after the date of
mailing of the redemption notice) on which the Company
irrevocably deposits with a designated bank or trust company
as paying agent, money sufficient to pay, on the redemption
date, the redemption price, unless the Company shall default
in making payment of the amount payable upon such
redemption. Subject to the following provisions of this
Section 7(a), any share of Series A Preferred Stock may be
converted, at the option of its holder, in part into Common
Stock under the procedures set forth above. If a part of a
share of Series A Preferred Stock is converted, then the
Company will convert such share into the appropriate number
of shares of Common Stock (subject to paragraph (c) of this
Section 7) and issue a fractional share of Series A
Preferred Stock evidencing the remaining interest of such
holder.
(b) In order to exercise the conversion right, the
holder of each share of Series A Preferred Stock (or
fraction thereof) to be converted shall surrender the
certificate representing such share, duly endorsed or
assigned to the Company or in blank, at the office of the
Transfer Agent in the Borough of Manhattan, City of New
York, accompanied by written notice to the Company that the
holder thereof elects to convert Series A Preferred Stock or
a specified portion thereof. Unless the shares issuable on
conversion are to be issued in the same name as the name in
which such share of Series A Preferred Stock is registered,
each share surrendered for conversion shall be accompanied
by instruments of transfer, in form satisfactory to the
Company, duly executed by the holder or such holder's duly
authorized attorney and an amount sufficient to pay any
transfer or similar tax (or evidence reasonably satisfactory
to the Company demonstrating that such taxes have been paid
or are not required to be paid).
Holders of shares of Series A Preferred Stock at the
close of business on a dividend payment record date shall be
entitled to receive the dividend payable on such shares on
the corresponding dividend payment date (except that holders
of shares called for redemption on a redemption date falling
between the close of business on such dividend payment
record date and the opening of business on the corresponding
dividend payment date shall, in lieu of receiving such
dividend on the dividend payment date fixed therefor,
receive such dividend payment together with all other
accrued and unpaid dividends on the date fixed for
redemption, unless such holder converts such shares called
for redemption pursuant to the provisions of this Section 7)
notwithstanding the conversion thereof following such
dividend payment record date and prior to such dividend
payment date. A holder of shares of Series A Preferred
Stock on a dividend payment record date who (or whose
transferee) tenders any such shares for conversion into
shares of Common Stock on the corresponding dividend payment
date will receive the dividend payable by the Company on
such shares of Series A Preferred Stock on such date. Except
as provided above, the Company shall make no payment or
allowance for unpaid dividends, whether or not in arrears,
on converted shares or for dividends on the shares of Common
Stock issued upon such conversion.
As promptly as practicable after the surrender of
certificates for shares of Series A Preferred Stock as
aforesaid, the Company shall issue and shall deliver at such
office to such holder, or on his or her written order, a
certificate or certificates for the number of shares of
Common Stock issuable upon the conversion of such shares in
accordance with the provisions of this Section 7, and any
fractional interest in respect of a share of Common Stock
arising upon such conversion shall be settled as provided in
paragraph (c) of this Section 7.
Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on
which the certificates for shares of Series A Preferred
Stock shall have been surrendered and such notice received
by the Company as aforesaid, and the person or persons in
whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby at such
time on such date and such conversion shall be at the
Conversion Price in effect at such time on such date, unless
the stock transfer books of the Company shall be closed on
that date, in which event such person or persons shall be
deemed to have become such holder or holders of record at
the close of business on the next succeeding day on which
such stock transfer books are open, but such conversion
shall be at the Conversion Price in effect on the date upon
which such shares shall have been surrendered and such
notice received by the Company. All shares of Common Stock
delivered upon conversion of the Series A Preferred Stock
will upon delivery be duly and validly issued and fully paid
and nonassessable.
(c) In connection with the conversion of any shares of
Series A Preferred Stock, fractions of such shares may be
converted; however, no fractional shares or scrip
representing fractions of shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock.
Instead of any fractional interest in a share of Common
Stock which would otherwise be deliverable upon the
conversion of a share of Series A Preferred Stock (or
fraction thereof), the Company shall pay to the holder of
such share an amount in cash (computed to the nearest cent)
equal to the Current Market Price of Common Stock on the
Trading Date immediately preceding the date of conversion
multiplied by the fraction of a share of Common Stock
represented by such fractional interest. If more than one
share (or fraction thereof) shall be surrendered for
conversion at one time by the same holder, the number of
full shares of Common Stock issuable upon conversion thereof
shall be computed on the basis of the aggregate number of
shares of Series A Preferred Stock so surrendered.
(d) The Conversion Price shall be adjusted from time to
time as follows:
(i) In case the Company shall after the Issue Date
(A) pay a dividend or make a distribution on its Common
Stock in shares of its Common Stock, (B) subdivide or
split its outstanding Common Stock into a greater
number of shares, (C) combine its outstanding Common
Stock into a smaller number of shares or (D) issue any
shares of capital stock by reclassification of its
Common Stock, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the
holder of any share of Series A Preferred Stock
thereafter surrendered for conversion shall be entitled
to receive the number of shares of Common Stock of the
Company which such holder would have owned or have been
entitled to receive after the occurrence of any of the
events described above had such share been surrendered
for conversion immediately prior to the occurrence of
such event or the record date therefor, whichever is
earlier. An adjustment made pursuant to this
subparagraph (i) shall become effective immediately
after the close of business on the record date for
determination of stockholders entitled to receive such
dividend or distribution in the case of a dividend or
distribution (except as provided in paragraph (h)
below) and shall become effective immediately after the
close of business on the effective date in the case of
a subdivision, split combination or reclassification.
Any shares of Common Stock issuable in payment of a
dividend shall be deemed to have been issued
immediately prior to the close of business on the
record date for such dividend for purposes of
calculating the number of outstanding shares of Common
Stock under clauses (ii) and (iii) below.
(ii) In case the Company shall issue after the
Issue Date rights or warrants to all holders of Common
Stock entitling them (for a period expiring within 45
days after the issuance date) to subscribe for or
purchase Common Stock at a price per share less than
the Current Market Price per share of Common Stock at
the record date for the determination of shareholders
entitled to receive such rights or warrants, then the
Conversion Price in effect immediately prior thereto
shall be adjusted to equal the price determined by
multiplying (I) the Conversion Price in effect
immediately prior to the date of issuance of such
rights or warrants by (II) a fraction, the numerator of
which shall be the sum of (A) the number of shares of
Common Stock outstanding on the date of issuance of
such rights or warrants (without giving effect to any
such issuance) and (B) the number of shares which the
aggregate proceeds from the exercise of such rights or
warrants for Common Stock would purchase at such
Current Market Price, and the denominator of which
shall be the sum of (A) the number of shares of Common
Stock outstanding on the date of issuance of such
rights or warrants (without giving effect to any such
issuance) and (B) the number of additional shares of
Common Stock offered for subscription or purchase. Such
adjustment shall be made successively whenever any such
rights or warrants are issued, and shall become
effective immediately after such record date. In
determining whether any rights or warrants entitle the
holders of Common Stock to subscribe for or purchase
shares of Common Stock at less than such Current Market
Price, there shall be taken into account any
consideration received by the Company upon issuance and
upon exercise of such rights or warrants, the value of
such consideration, if other than cash, to be
determined by the Board of Directors.
(iii) In case the Company shall pay a dividend or
make a distribution to all holders of its Common Stock
after the Issue Date of any shares of capital stock of
the Company or its subsidiaries (other than Common
Stock) or evidences of its indebtedness or assets
(excluding cash dividends or cash distributions paid
from profits or surplus of the Company) or rights or
warrants to subscribe for or purchase any of its
securities or those of its subsidiaries (excluding
those referred to in subparagraph (ii) above) (any of
the foregoing being hereinafter in this subparagraph
(iii) called the "Securities"), then in each such case,
the Conversion Price shall be adjusted so that it shall
equal the price determined by multiplying (I) the
Conversion Price in effect on the record date mentioned
below by (II) a fraction, the numerator of which shall
be the Current Market Price per share of the Common
Stock on the record date mentioned below less the then
fair market value (as determined by the Board of
Directors, whose determination shall, if made in good
faith, be conclusive) as of such record date of the
portion of the capital stock or assets or evidences of
indebtedness so distributed or of such rights or
warrants applicable to one share of Common Stock, and
the denominator of which shall be the Current Market
Price per share of the Common Stock on such record
date, provided, however, that in the event the then
fair market value (as so determined) of the portion of
Securities so distributed applicable to one share of
Common Stock is equal to or greater than the Current
Market Price per share of the Common Stock on the
record date mentioned above, in lieu of the foregoing
adjustment, adequate provision shall be made so that
each holder of shares of Series A Preferred Stock shall
have the right to receive the amount and kind of
Securities such holder would have received had he
converted each such share of Series A Preferred Stock
immediately prior to the record date for the
distribution of the Securities. Such adjustment shall
become effective immediately, except as provided in
paragraph (h) below, after the record date for the
determination of shareholders entitled to receive such
distribution.
(iv) Notwithstanding anything in subparagraphs
(ii) and (iii) above, if such rights or warrants shall
by their terms provide for an increase or increases
with the passage of time or otherwise in the price
payable to the Company upon the exercise thereof, the
Conversion Price upon any such increase becoming
effective shall forthwith be readjusted (but to no
greater extent than originally adjusted by reason of
such issuance or sale) to reflect the same. Upon the
expiration or termination of such rights or warrants,
if any such rights or warrants shall not have been
exercised, then the Conversion Price shall forthwith be
readjusted and thereafter be the rate which it would
have been had an adjustment been made on the basis that
(x) the only rights or warrants so issued or sold were
those so exercised and they were issued or sold for the
consideration actually received by the Company upon
such exercise plus the consideration, if any, actually
received by the Company for the granting of all such
options, rights or warrants whether or not exercised
and (y) the Company issued and sold a number of shares
of Common Stock equal to those actually issued upon
exercise of such rights, and such shares were issued
and sold for a consideration equal to the aggregate
exercise price in effect under the exercise rights
actually exercised at the respective dates of their
exercise. For purposes of subparagraphs (ii) and (iv),
the aggregate consideration received by the Company in
connection with the issuance of shares of Common Stock
or of rights or warrants shall be deemed to be equal to
the sum of the aggregate offering price (before
deduction of underwriting discounts or commissions and
expenses payable to third parties) of all such
securities plus the minimum aggregate amount, if any,
payable upon the exercise of such rights or warrants
into shares of common Stock.
(v) No adjustment in the Conversion Price shall be
required unless such adjustment would require an
increase or decrease of at least 1% in such price;
Provided, however, that any adjustments which by reason
of this subparagraph (v) are not required to be made
shall be carried forward and taken into account in any
subsequent adjustment; and provided, further, any
adjustment shall be required and shall be made in
accordance with the provisions of this Section 7 (other
than this subparagraph (v)) not later than such time as
may be required in order to preserve the tax-free
nature of a distribution to the holder of shares of
Common Stock. All calculations under this Section 7
shall be made to the nearest cent (with $.005 being
rounded upward) or to the nearest l/lOOth of a share
(with .005 of a share being rounded upward), as the
case may be. Anything in this paragraph (d) to the
contrary notwithstanding, the Company shall be
entitled, to the extent permitted by law, to make such
reductions in the Conversion Price, in addition to
those required by this paragraph (d), as it in its
discretion shall determine to be advisable in order
that any stock dividends, subdivision of shares,
distribution of rights or warrants to purchase stock or
securities, or a distribution of other assets or any
other transaction which could be treated as any of the
foregoing transactions pursuant to Section 306 of the
Internal Revenue Code of 1986, as amended, hereafter
made by the Company to its stockholders shall not be
taxable for such stockholders.
(e) In case the Company shall be a party to any
transaction (including without limitation a merger,
consolidation, sale of all or substantially all of the
Company's assets or recapitalization of the Common Stock and
excluding any transaction as to which paragraph (d)(i) of
this Section 7 applies) (each of the foregoing being
referred to as a "Transaction"), in each case as a result of
which shares of Common Stock shall be converted into the
right to receive stock, securities or other property
(including cash or any combination thereof), then the Series
A Preferred Stock will thereafter no longer be subject to
conversion into Common Stock pursuant to Section 7, but
instead shall be convertible into the kind and amount of
shares of stock and other securities and property receivable
(including cash) upon the consummation of such Transaction
by a holder of that number of shares or fraction thereof of
Common Stock into which one share of Series A Preferred
Stock was convertible immediately prior to such Transaction.
The Company shall not be a party to any Transaction unless
the terms of such Transaction are consistent with the
provisions of this paragraph (e) and it shall not consent or
agree to the occurrence of any Transaction until the Company
has entered into an agreement with the successor or
purchasing entity, as the case may be, for the benefit of
the holders of the Series A Preferred Stock which will
contain provisions enabling the holders of the Series A
Preferred Stock which remains outstanding after such
Transaction to convert into the consideration received by
holders of Common Stock at the Conversion Price immediately
after such Transaction. In the event that at any time, as a
result of an adjustment made pursuant to this Section 7, the
Series A Preferred Stock shall become subject to conversion
into any securities other than shares of Common Stock,
thereafter the number of such other securities so issuable
upon conversion of the shares of Series A Preferred Stock
shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the
provisions with respect to the shares of Series A Preferred
Stock contained in this Section 7. The Provisions of this
paragraph (e) shall similarly apply to successive
Transactions.
(f) If:
(i) the Company shall declare a dividend (or any
other distribution) on the Common Stock; or
(ii) the Company shall authorize the granting to
the holders of the Common Stock of rights or warrants
to subscribe for or purchase any shares of any class or
any other rights or warrants: or
(iii) there shall be any reclassification or
change of the Common Stock (other than an event to
which paragraph (d)(i) of this Section 7 applies) or
any consolidation, merger or statutory share exchange
to which the Company is a party and for which approval
of any stockholders of the Company is required, or the
sale or transfer of all or substantially all of the
assets of the Company or any Corporate Change or
Ownership Change (each as defined in Section 8 below);
or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, except as provided otherwise in Section 8, the Company
shall cause to be filed with the Transfer Agent and shall
cause to be mailed to the holders of shares of the Series A
Preferred Stock at their addresses as shown on the stock
records of the Company, as promptly as possible, but at
least 30 days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record
is to be taken for the purpose of such dividend,
distribution or granting of rights or warrants, or, if a
record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend,
distribution or rights or warrants are to be determined or
(B) the date on which such reclassification, change,
consolidation, merger, statutory share exchange, sale,
transfer, dissolution, liquidation or winding up is expected
to become effective or occur, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange these shares of Common Stock for
securities or other property deliverable upon such
reclassification, change, consolidation, merger, statutory
share exchange, sale, transfer, dissolution, liquidation or
winding up. Failure to give such notice or any defect
therein shall not affect the legality or validity of the
proceedings described in this Section
(g) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Transfer
Agent an officers' certificate signed by the President or a
Vice President and the Chief Financial Officer or the
Treasurer setting forth the Conversion Price after such
adjustment, the method of calculation thereof and setting
forth a brief statement of the facts requiring such
adjustment and upon which such adjustments are based.
Promptly after delivery of such certificate, the Company
shall prepare a notice of such adjustment of the Conversion
Price setting forth the adjusted Conversion Price, the facts
requiring such adjustment and upon which such adjustments
are based and the date on which such adjustment becomes
effective and shall mail such notice of such adjustment of
the Conversion Price to the holder of each share of Series A
Preferred Stock at his or her last address as shown on the
stock records of the Company.
(h) In any case in which paragraph (d) of this Section
7 provides that an adjustment shall become effective
immediately after a record date for an event and the date
fixed for conversion pursuant to Section 7 occurs after such
record date but before the occurrence of such event, the
Company may defer until the actual occurrence of such event
(A) issuing to the holder of any share of Series A Preferred
Stock surrendered for conversion the additional shares of
Common Stock issuable upon such conversion by reason of the
adjustment required by such event over and above the Common
Stock issuable upon such conversion before giving effect to
such adjustment and (B) paying to such holder any amount in
cash in lieu of any fraction pursuant to paragraph (c) of
this Section 7.
(i) For purposes of this Section 7, the number of
shares of Common Stock at any time outstanding shall not
include any shares of Common Stock then owned or held by or
for the account of the Company or any corporation controlled
by the Company.
(j) Notwithstanding any other provision herein to the
contrary, the issuance of any shares of Common Stock
pursuant to any plan providing for the reinvestment of
dividends or interest payable on securities of the Company
and the investment of additional optional amounts in shares
of Common Stock under any such plan shall not be deemed to
constitute an issuance of Common Stock. There shall be no
adjustment of the Conversion Price in case of the issuance
of any stock of the Company in a reorganization, acquisition
or other similar transaction except as specifically set
forth in this Section 7. If any action or transaction would
require adjustment of the Conversion Price pursuant to more
than one paragraph of this Section 7, only one adjustment
shall be made and such adjustment shall be the amount of
adjustment which has the highest absolute value.
(k) In case the Company shall take any action affecting
the Common Stock, other than action described in this
Section 7, which in the opinion of the Board of Directors
would materially adversely affect the conversion rights of
the holders of the shares of Series A Preferred Stock, the
Conversion Price for the Series A Preferred Stock may be
adjusted, to the extent permitted by law, in such manner, if
any, and at such time, as the Board of Directors may
determine to be equitable in the circumstances.
(1) The Company covenants that it will at all times
reserve and keep available, free from preemptive rights, out
of the aggregate of its authorized but unissued shares of
Common Stock or its issued shares of Common Stock held in
its treasury, or both, for the purpose of effecting
conversion of the Series A Preferred Stock, the full number
of shares of Common Stock deliverable upon the conversion of
all outstanding shares of Series A Preferred Stock not
theretofore converted. For purposes of this paragraph (1),
the number of shares of Common Stock which shall be
deliverable upon the conversion of all outstanding shares of
Series A Preferred Stock shall be computed as if at the time
of computation all such outstanding shares were held by a
single holder.
Before taking any action which would cause an
adjustment reducing the Conversion Price below the then par
value of the shares of Common Stock deliverable upon
conversion of the Series A Preferred Stock, the Company will
take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly
and legally issue fully-paid and nonassessable shares of
Common Stock at such adjusted Conversion Price.
The Company will endeavor to make the shares of Common
Stock required to be delivered upon conversion of the Series
A Preferred Stock eligible for trading upon the NASDAQ
National Market System or upon any national securities
exchange upon which the Common Stock shall then be traded,
prior to such delivery.
Prior to the delivery of any securities which the
Company shall be obligated to deliver upon conversion of the
Series A Preferred Stock, the Company will endeavor to
comply with all federal and state laws and regulations
thereunder requiring the registration of such securities
with, or any approval of or consent to the delivery thereof
by, any governmental authority.
(m) The Company will pay any and all documentary stamp
or similar issue or transfer taxes payable in respect of the
issue or delivery of the shares of Series A Preferred Stock
(or any other securities issued on account of the Series A
Preferred Stock pursuant hereto) or shares of Common Stock
on conversion of the Series A Preferred Stock pursuant
hereto; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of
any transfer involved in the issue or delivery of shares of
Series A Preferred Stock (or any other securities issued on
account of the Series A Preferred Stock pursuant hereto) or
shares of Common Stock in a name other than the name in
which the shares of Series A Preferred Stock with respect to
which such Common Stock shares are issued were registered
and the Company shall not be required to make any issue or
delivery unless and until the person requesting such issue
or delivery has paid to the Company the amount of any such
tax or has established, to the reasonable satisfaction of
the Company, that such tax has been paid or is not required
to be paid.
(n) The Company shall not take any action which results
in adjustment of the number of shares of Common Stock
issuable upon conversion of a share of Series A Preferred
Stock if the total number of shares of Common Stock issuable
after such action upon conversion of the Series A Preferred
Stock then outstanding, together with the total number of
shares of Common Stock then outstanding, would exceed the
total number of shares of Common Stock then authorized under
the Company's Certificate of Incorporation. Subject to the
foregoing, the Company shall take all such actions as it may
deem reasonable under the circumstances to provide for the
issuance of such number of shares of Common Stock as would
be necessary to allow for the conversion from time to time,
and taking into account adjustments as herein provided, of
outstanding shares of the Series A Preferred Stock in
accordance with the terms and provisions of the Company's
Certificate of Incorporation.
8. Special Conversion Rights Upon Corporate Change or
Ownership Change
(a) If a Corporate Change (as defined below) should
occur with respect to the Company, each holder of shares of
the Series A Preferred Stock shall have the right, at the
holder's option, for a period of 45 days after the mailing
of a notice by the Company that a Corporate Change has
occurred, to convert all, but not less than all, of such
holder's shares of the Series A Preferred Stock into
Marketable Stock as defined below) with an aggregate
Applicable Market Value (as defined below) equal to the
aggregate Stated Value as defined below) of the Series A
Preferred Stock so converted. The Company or successor
corporation, as the case may be, at its option, in lieu of
providing Marketable Stock upon any such conversion, may
provide the holders who have elected to convert under this
Section 8 with cash equal to the Stated Value of the Series
A Preferred Stock for which conversion was elected, but only
if the Company, in its notice to the holder that a Corporate
Change has occurred, has notified such holder of the
Company's election to provide such holder with cash equal to
such Stated Value in lieu of such Marketable Stock, provided
that any such election by the Company shall apply to all
shares of the Series A Preferred Stock for which the special
conversion was elected. Shares of the Series A Preferred
Stock that are not converted as provided above will remain
convertible into the kind and amount of securities, cash, or
other assets that the holders of the shares of the Series A
Preferred Stock would have owned immediately after the
Corporate Change if the holders had converted the shares of
the Series A Preferred Stock immediately before the
effective date of the Corporate Change. The Company will
notify the holders of the Series A Preferred Stock of any
pending Corporate Change as soon as practicable and in any
event within 30 days in advance of the effective date of
such Corporate Change. In the event of a pending Corporate
Change, the Company (or any successor corporation) shall,
unless it has determined to provide the holders who have
elected to convert under this Section 8 with cash as
provided above, take all action necessary to provide for
sufficient shares of Marketable Stock for the conversion of
the Series A Preferred Stock as provided herein.
(b) If an Ownership Change (as defined below) should
occur with respect to the Company, each holder of a share of
the Series A Preferred Stock shall have the right, at the
holder's option, for a period of 45 days after the mailing
of a notice by the Company that an Ownership Change has
occurred, to convert all, but not less than all, of such
holder's shares of the Series A Preferred Stock into Common
Stock of the Company with an aggregate Applicable Market
Value equal to the aggregate Stated Value of the Series A
Preferred Stock so converted. The Company may, at its
option, in lieu of providing Common Stock upon any such
conversion, provide the holders who have elected to convert
under this Section 8 with cash equal to the Stated Value of
the shares of Series A Preferred Stock for which the special
conversion was elected, but only if the Company, in its
notice to the holder that an Ownership Change has occurred,
has notified such holder of the Company's election to
provide such holder with cash equal to such Stated Value in
lieu of such Common Stock, provided that any such election
by the Company shall apply to all shares of the Series A
Preferred Stock for which the special conversion was
elected.
(c) The special conversion right provided in this
Section 8 arising upon an Ownership Change will only be
applicable with respect to the first Ownership Change that
occurs after the date hereof.
(d) If a Corporate Change or an Ownership Change shall
occur, then, as soon as practicable and in any event within
30 days after the occurrence of such Corporate Change-or
Ownership Change, the Company shall mail to each registered
holder of a share of Series A Preferred Stock a notice (the
"Special Conversion Notice") setting forth details regarding
the special conversion right of the holders to convert their
shares of Series A Preferred Stock as a result of such
Corporate Change or Ownership Change, as the case may be,
including, if applicable, notice of the Company's or the
successor corporation's election to provide such holder with
cash in lieu of Marketable Stock or Common Stock. The holder
of a share of Series A Preferred Stock must exercise such
conversion right within the 45-day period after the mailing
of the Special Conversion Notice by the Company or such
special right shall expire. The conversion date for shares
so converted shall be the 45th day after the mailing of the
Special Conversion Notice. Within five business days
thereafter, the Company shall deliver a certificate for the
Marketable Stock issuable upon such conversion with a check
for any fractional shares issuable or the cash equal to the
Stated Value of the Series A Preferred Stock, if the Company
has so elected. Exercise of such conversion right shall be
irrevocable and no dividend on the shares of Series A
Preferred Stock tendered for conversion shall accrue from
and after the conversion date.
(e) The Special Conversion Notice shall state:
(i) the event constituting the Corporate Change or
Ownership Change;
(ii) the last date upon which holders may submit
shares of Series A preferred Stock for conversion;
(iii) the Applicable Market Value;
(iv) the Conversion Price then in effect under
Section 7 and the continuing conversion rights, if any,
under Section 5:
(v) the name and address of any paying agent and
conversion agent;
(vi) that holders who want to convert shares of
Series A Preferred Stock must satisfy the requirements
of Section 7 and must exercise such conversion right
within the 45-day period after the mailing of such
notice by the Corporation;
(vii) that exercise of such conversion right shall
be irrevocable and no dividends on shares of Series A
Preferred Stock tendered for conversion shall accrue
from and after the conversion date;
(viii) that the Corporation may, at its option,
pay cash equal to the Stated Value of all shares of
Series A Preferred Stock for which the special
conversion was elected;
(ix) that the certificate for the Marketable Stock
or the cash, as the case may be, shall be delivered
within five business days after the last date upon
which holders may submit Series A Preferred Stock for
conversion .
(f) (i) As used herein, a "Corporate Change" with
respect to the Company shall be deemed to have occurred
at such time as the Company is a party to a business
combination, including a merger or consolidation or the
sale of all or substantially all of its assets and as a
result of such business combination, the Series A
Preferred Stock (or the Depositary Shares representing
the Series A Preferred Stock) or the Common Stock
thereafter is not traded on the New York Stock
Exchange, the American Stock Exchange, or admitted for
quotation on the NASDAQ National Market System. A
Corporate Change will not, however, be deemed to occur
with respect to any transaction in which the
consideration received by the holders of Common Stock
of the Corporation consists solely of Marketable Stock.
(ii) As used herein, an "Ownership Change" with
respect to the Company shall be deemed to have occurred
at such time as any "person" (as defined in Section
13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) becomes the beneficial
owner (as defined below), directly or indirectly, of
more than 50% of the outstanding Common Stock of the
Company pursuant to a transaction that does not
constitute a Corporate Change with respect to the
Company.
(iii) As used herein, a person shall be deemed to
have "beneficial ownership" with respect to, and shall
be deemed to "beneficially own," any securities of the
Company in accordance with Section 13 of the Exchange
Act of 1934 and the rules and regulations (including
rule 13d-3, Rule 13d-5, and any successor rules)
promulgated by the Securities and Exchange Commission
thereunder; provided, however, that a person shall be
deemed to have beneficial ownership of all securities
that any such person has a right to acquire whether
such right is exercisable immediately or only after the
passage of time and without regard to the 60 day
limitation referred to in Rule 13d-3.
(iv) As used herein, the term "Marketable Stock"
shall mean Common Stock or common stock of any
corporation that is the successor to all or
substantially all of the business or assets of the
Company as a result of a Corporate Change, that is (or
will, upon distribution thereof, be) listed on the New
York Stock Exchange, the American Stock Exchange, or
approved for quotation on the NASDAQ National Market
System.
(v) As used in this Section 8, the "Applicable
Market Value" of a share of the Common Stock or a share
of common stock of a corporation that is the successor
to all or substantially all of the business and assets
of the Company as the result of a Corporate Change,
shall be the average of the Closing Price of such
Common Stock for the five trading days ending on the
last trading day preceding the date of Corporate Change
or Ownership Change.
(vi) As used herein, the "Stated Value" of Series
A Preferred Stock converted during the 45-day period
following the occurrence of a Corporate Change or an
Ownership Change shall mean the liquidation preference
(as provided in Section 4 hereof) of the Series A
Preferred Stock so converted, together with any accrued
and unpaid dividends to the conversion date.
9. Ranking. Any class or classes of stock of the
Company shall be deemed to rank:
(i) prior to the Series A Preferred Stock, as to
dividends or as to distribution of assets upon
liquidation, dissolution or winding up, if the holders
of such class shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in
preference or priority to the holders of Series A
Preferred Stock.
(ii) on a parity with the Series A Preferred
Stock, as to dividends or as to distribution of assets
upon liquidation, dissolution or winding up, whether or
not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof be
different from those of the Series A Preferred Stock,
if the holders of such class of stock and the Series A
Preferred Stock shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in
proportion to their respective amounts of accrued and
unpaid dividends per share or liquidation prices,
without preference or priority of one over the other;
and
(iii) junior to the Series A Preferred Stock, as
to dividends or as to the distribution of assets upon
liquidation, dissolution or winding up, if such stock
shall be Common Stock or if the holder of Series A
Preferred Stock shall be entitled to receipt of
dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in
preference or priority to the holders of shares of such
stock.
10. Voting. (a) Except as herein provided or as
otherwise from time to time required by law, holders of
Series A Preferred Stock shall have no voting rights.
Whenever, at any time or times, dividends payable on the
shares of Series A Preferred Stock at the time outstanding
shall be cumulatively in arrears for such number of Dividend
Periods (whether or not consecutive) which shall in the
aggregate contain not less than 540 days, the holders of
Series A Preferred Stock shall have the exclusive right,
voting separately as a class with holders of shares of any
one or more other series of preferred stock ranking on a
parity with the Series A Preferred Stock as to dividends or
on the distribution of assets upon liquidation, dissolution
or winding up and upon which like voting rights have been
conferred and are exercisable (the Series A Preferred Stock
and any such other preferred stock, collectively for
purposes of this Section 10, the "Defaulted Preferred
Stock"), to elect two directors of the Company at the
Company's next annual meeting of stockholders and at each
subsequent annual meeting of stockholders; provided,
however, that if such voting rights shall become vested more
than ninety days or less than twenty days before the date
prescribed for the annual meeting of shareholders, thereupon
the holders of the shares of Defaulted Preferred Stock shall
be entitled to exercise their voting rights at a special
meeting of the holders of shares of Defaulted Preferred
Stock as set forth in paragraphs (b) and (c) of this Section
10. At elections for such directors, each holder of Series A
Preferred Stock shall be entitled to one vote for each share
held (the holders of shares of any other series of Defaulted
Preferred Stock ranking on such a parity being entitled to
such number of votes, if any, for each share of stock held
as may be granted to them). Upon the vesting of such right
of the holders of Defaulted Preferred Stock, the maximum
authorized number of members of the Board of Directors shall
automatically be increased by two and the two vacancies so
created shall be filled by vote of the holders of
outstanding Defaulted Preferred Stock as hereinafter set
forth. The right of holders of Defaulted Preferred Stock,
voting separately as a class, to elect members of the Board
of Directors as aforesaid shall continue until such time as
all dividends accumulated on Defaulted Preferred Stock shall
have been paid or declared and funds set aside for payment
in full, at which time such right shall terminate, except as
herein or by law expressly provided, subject to revesting in
the event of each and every subsequent default of the
character above mentioned.
(b) Whenever such voting right shall have vested, such
right may be exercised initially either at a special meeting
of the holders of shares of Defaulted Preferred Stock called
as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and
thereafter at such meetings or by the written consent of
such holders pursuant to Section 228 of the General
Corporation Law of the State of Delaware.
(c) At any time when such voting right shall have
vested in the holders of shares of Defaulted Preferred Stock
entitled to vote thereon, and if such right shall not
already have been initially exercised, an officer of the
Company shall, upon the written request of 10 of the holders
of record of shares of such Defaulted Preferred Stock then
outstanding, addressed to the Treasurer of the Company, call
a special meeting of holders of shares of such Defaulted
Preferred Stock. Such meeting shall be held at the earliest
practicable date upon the notice required for annual
meetings of stockholders at the place for holding annual
meetings of stockholders of the Company or, if none, at a
place designated by the Treasurer of the Company. If such
meeting shall not be called by the proper officers of the
Company within 30 days after the personal service of such
written request upon the Treasurer of the Company, or within
30 days after mailing the same within the United States, by
registered mail, addressed to the Treasurer of the Company
at its principal office (such mailing to be evidenced by the
registry receipt issued by the postal authorities), then the
holders of record of 10% of the shares of Defaulted
Preferred Stock then outstanding may designate in writing
any person to call such meeting at the expense of the
Company, and such meeting may be called by such person so
designated upon the notice required for annual meetings of
stockholders and shall be held at the same place as is
elsewhere provided in this paragraph. Any holder of shares
of Defaulted Preferred Stock then outstanding that would be
entitled to vote at such meeting shall have access to the
stock books of the Company for the purpose of causing a
meeting of stockholders to be called pursuant to the
provisions of this paragraph. Notwithstanding the provisions
of this paragraph, however, no such special meeting shall be
called or held during a period within 45 days immediately
preceding the date fixed for the next annual meeting of
stockholders.
(d) The directors elected pursuant to this Section
shall serve until the next annual meeting or until their
respective successors shall be elected and shall qualify;
any director elected by the holders of Defaulted Preferred
Stock may be removed by, and shall not be removed otherwise
than by, the vote of the holders of a majority of the
outstanding shares of the Defaulted Preferred Stock who were
entitled to participate in such election of directors,
voting as a separate class, at a meeting called for such
purpose or by written consent as permitted by law and the
Restated Certificate of Incorporation and By-laws of the
Company. If the office of any director elected by the
holders of Defaulted Preferred Stock, voting as a class,
becomes vacant by reason of death, resignation, retirement,
disqualification or removal from office or otherwise, the
remaining director elected by the holders of Defaulted
Preferred Stock, voting as a class, may choose a successor
who shall hold office for the unexpired term in respect of
which such vacancy occurred. Upon any termination of the
right of the holders of Defaulted Preferred Stock to vote
for directors as herein provided, the term of office of all
directors then in office elected by the holders of Defaulted
Preferred Stock, voting as a class, shall terminate
immediately. Whenever the terms of office of the directors
elected by the holders of Defaulted Preferred Stock, voting
as a class, shall so terminate and the special voting powers
vested in the holders of Defaulted Preferred Stock shall
have expired, the number of directors shall be such number
as may be provided for in the By-laws irrespective of any
increase made pursuant to the provisions of this Section 10.
(e) So long as any shares of the Series A Preferred
Stock remain outstanding, the consent of the holders of at
least two-thirds of the shares of Series A Preferred Stock
outstanding at the time given in person or by proxy either
in writing (as permitted by law and the Certificate of
Incorporation and By-laws of the Company) or at any special
or annual meeting, shall be necessary to permit, effect or
validate any one or more of the following:
(i) the authorization, creation or issuance, or
any increase in the authorized or issued amount, of any
class or series of stock ranking prior to the Series A
Preferred Stock as to dividends or the distribution of
assets upon liquidation, dissolution or winding up;
(ii) the amendment, alteration or repeal, whether
by merger, consolidation or otherwise, of any of the
provisions of the Certificate of Incorporation of the
Company (including this Certificate) which would
adversely affect any right, preference, privilege or
voting power of the Series A Preferred Stock or of the
holders thereof; Provided, however, that any increase
in the amount of authorized preferred stock or the
creation and issuance of other series of preferred
stock, or any increase in the amount of authorized
shares of such series or of any other series of
preferred stock, in each case ranking on a parity with
or junior to the Series A Preferred Stock with respect
to the payment of dividends and the distribution of
assets upon liquidation, dissolution or winding up,
shall not be deemed to adversely affect such rights,
preferences or voting powers; or
(iii) the authorization of any reclassification of
the Series A Preferred Stock.
The foregoing voting provisions shall not apply if, at
or prior to the time when the act with respect to which such
vote would otherwise be required shall be effected, all
outstanding shares of Series A Preferred Stock shall have
been redeemed or sufficient funds shall have been deposited
in trust to effect such redemption, scheduled to be
consummated within three months after such time.
11. Exchange. (a) The Series A Preferred Stock shall
be exchangeable in whole, but not in part, at the option of
the Company on any dividend payment date beginning January
15, 1996, for the Company's Series A Convertible
Subordinated Debentures Due January 15, 2003 (the
"Debentures") as described in the Company's Registration
Statement on Form S-3 (Registration No. 33-55376), as filed
with the Securities and Exchange Commission (and as
subsequently amended). Holders of outstanding shares of
Series A Preferred Stock will be entitled to receive $250.00
principal amount of Debentures in exchange for each share of
Series A Preferred Stock held by them at the time of
exchange; provided that the Debentures will be issuable in
denominations of $1,000 and integral multiples thereof. If
the exchange results in an amount of Debentures that is not
an integral multiple of $1,000, the amount in excess of the
closest integral multiple of $1,000 will be paid in cash by
the Company.
(b) The Company will mail to each record holder of the
Series A Preferred Stock written notice of its intention to
exchange the Series A Preferred Stock for the Debentures no
less than 30 nor more than 60 days prior to the date of the
exchange (the "Exchange Date"). The notice shall specify the
effective date of the exchange and the place where
certificates for shares of Series A Preferred Stock are to
be surrendered for Debentures and shall state that dividends
on Series A Preferred Stock will cease to accrue on the
Exchange Date.
Prior to giving notice of intention to exchange, the
Company shall execute and deliver to a bank or trust company
selected by the Company to act as Trustee with respect to
the Debentures (which may but need not be the bank named in
the Registration Statement referred to above) an Indenture
substantially in the form filed as an Exhibit to the
Registration Statement with such changes as may be required
by law, stock exchange rule, NASDAQ National Market System
rule or customary usage.
(c) If the Company has caused the Debentures to be
authenticated on or prior to the Exchange Date and has
complied with the other provisions of this Section 11, then,
notwithstanding that any certificates for shares of Series A
Preferred Stock have not been surrendered for exchange, on
the Exchange Date dividends shall cease to accrue on the
Series A Preferred Stock and at the close of business on the
Exchange Date the holders of the Series A Preferred Stock
shall cease to be stockholders with respect to the Series A
Preferred Stock and shall have no interest in or other
claims against the Company by virtue thereof and shall have
no voting or other rights with respect to the Series A
Preferred Stock, except the right to receive the Debentures
issuable upon such exchange and the right to accumulated and
unpaid dividends, without interest thereon, upon surrender
(and endorsement, if required by the Company) of their
certificates, and the shares evidenced thereby shall no
longer be deemed outstanding for any purpose.
The Company will cause the Debentures to be
authenticated on or before the Exchange Date.
(d) Notwithstanding the foregoing, if notice of
exchange has been given pursuant to this Section 11 and any
holder of shares of Series A Preferred Stock shall, prior to
the close of business on the Exchange Date, give written
notice to the Company pursuant to Section 7 above of the
conversion of any or all of the shares held by the holder
(accompanied by a certificate or certificates for such
shares, duly endorsed or assigned to the Company), then the
exchange shall not become effective as to the shares to be
converted and the conversion shall become effective as
provided in Section 11 above.
(e) The Debentures will be delivered to the persons
entitled thereto upon surrender to the Company or its agent
appointed for that purpose of the certificates for the
shares of Series A Preferred Stock being exchanged therefor.
(f) Notwithstanding the other provisions of this
Section 11, if on the Exchange Date the Company has not paid
full cumulative dividends on the Series A Preferred Stock
(or set aside a sum therefor) the Company may not exchange
the Series A Preferred Stock for the Debentures and any
notice previously given pursuant to this Section 11 shall be
of no effect.
(g) The Company will endeavor to list the Debentures,
prior to delivery, upon each national securities exchange or
the NASDAQ National Market System or any similar system of
automated dissemination of securities prices, if any, upon
which the Series A Preferred Stock is listed at the time of
delivery. In addition, prior to the effective date of the
exchange, the Company will arrange for the qualification of
the Debentures under the applicable securities and blue sky
laws.
12. Record Holders. The Company and the Transfer
Agent may deem and treat the record holder of any shares of
Series A Preferred Stock as the true and lawful owner
thereof for all purposes, and neither the Company nor the
Transfer Agent shall be affected by any notice to the
contrary.
13. Notice. Except as may otherwise be provided for
herein, all notices referred to herein shall be in writing,
and all notices hereunder shall be deemed to have been given
upon receipt, in the case of a notice of conversion given to
the Company as contemplated in Section 7(b) hereof, or, in
all other cases, upon the earlier of receipt of such notice
or three Business Days after the mailing of such notice if
sent by registered mail (unless first-class mail shall be
specifically permitted for such notice under the terms of
this Certificate) with postage prepaid, addressed: if to the
Company, to its offices at One Research Way, Princeton
Forrestal Center, Princeton, New Jersey 08540 (Attention:
Allen Bloom, Vice President and General Counsel) or other
agent of the Company designated as permitted by this
Certificate, or, if to any holder of the Series A Preferred
Stock, to such holder at the address of such holder of the
Series A Preferred Stock as listed in the stock record books
of the Company (which may include the records of any
transfer agent for the Series A Preferred Stock); or to such
other address as the Company or holder, as the case may be,
shall have designated by notice similarly given.
IN WITNESS WHEREOF, this Certificate has been signed by
Charles A. Baker and attested to by Allen Bloom, of the
Company, all as of the 8th day of January, 1993
THE LIPOSOME COMPANY, INC.
By: /s/ Charles A. Baker
Name: Charles A. Baker
Title: Chairman of the
Board
Attest:
/s/ Allen Bloom
Name: Allen Bloom
Title: VP, General Counsel and Secretary
5
July 8, 1999
Mr. Charles A. Baker
Chairman and Chief Executive Officer
The Liposome Employer, Inc.
One Research Way
Princeton, NJ 08540-6619
Dear Chuck:
This letter agreement (the "Letter Agreement") will serve to
amend and modify the agreement (the "Agreement"), dated as of
June 1, 1995, by and between you and The Liposome Employer, Inc.,
a Delaware corporation (the "Employer"), by the addition of the
following terms and conditions thereto:
1. The Agreement is hereby amended by the addition of a new
Section 20 to read as follows:
"20. Excise Tax Gross-Up.
"(a) Equalization Payment. In the event that
the Employee becomes subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code") (or any similar tax
that may hereafter be imposed), with regard to any
amounts received in connection with Employee's
termination of employment with the Employer or any other
payments and benefits provided by the Employer that
constitute "excess parachute payments" within the meaning
of Section 280G(b)(1) of the Code (including, but not
limited to, any and all excess parachute payments
associated with outstanding long-term incentive grants
(including, but not limited to, early vesting of stock
options or restricted stock)) (the "Total Payments"), the
Employer shall pay to the Employee in cash an additional
amount (the "Gross-Up Payment") such that the net amount
retained by the Employee after deduction of any Excise
Tax or compensation on the Total Payments and any
federal, state, and local income tax and Excise Tax upon
the Gross-Up Payment, shall be equal to the Total
Payments. Such payment shall be made by the Employer to
the Employee as soon as practicable following the event
triggering the Excise Tax, but in no event beyond 30 days
from such date.
"(b) Tax Computation. For purposes of
determining whether any of the Total Payments will be
subject to the Excise Tax and the amounts of such Excise
Tax:
"(i) Any other payments or benefits
received or to be received by the Employee in connection
with a Change in Control of the Employer or the
Employee's termination of employment (whether pursuant to
the terms of this Agreement or any other plan,
arrangement, or agreement with the Employer, or with any
Person whose actions result in a Change in Control of the
Employer or any Person affiliated with the Employer or
such Persons) shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of
Section 280G(b)(1) of the Code shall be treated as
subject to the excise tax, unless in the opinion of tax
counsel selected by the Employer's independent auditors
and acceptable to the Employee, such other payments or
benefits (in whole or in part) do not constitute
parachute payments, or unless such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of
the base amount within the meaning of Section 280G(b)(3)
of the Code, or are otherwise not subject to the Excise
Tax;
"(ii) The amount of the Total Payments
which shall be treated as subject to the Excise Tax shall
be equal to the lesser of: (1) the total amount of the
Total Payments; or (2) the amount of excess parachute
payments within the meaning of Section 280G(b)(1) (after
applying clause (i) above); and
"(iii) The value of any noncash benefits
or any deferred payment or benefit shall be determined by
the Employer's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the
Code.
"For purposes of determining the amount of the Gross-Up
Payment, the Employee shall be deemed to pay Federal
income taxes at the highest marginal rate of Federal
income taxation in the calendar year in which the Gross-
Up Payment is to be made, and state and local income
taxes at the highest marginal rate of taxation in the
state and locality of the Employee's residence on the
Effective Date of Termination, net of the maximum
reduction in Federal income taxes which could be obtained
from deduction of such state and local taxes.
"(c) Subsequent Recalculation. In the event the
Internal Revenue
Service adjusts the computation of the Employer under
Section 20(b) hereof, so that the Employee did not
receive the greatest net benefit, the Employer shall
reimburse the Employee for the full amount necessary to
make the Employee whole, plus an appropriate market rate
of interest, as determined by the Employer's independent
auditors."
2. Section 9(a) of the Agreement is hereby amended by the
addition of subsection (v) to read as follows:
"(v) Termination After Age 65. For purposes of any stock
options, restricted stock or other equity grants and for
purposes of any benefit plans in which the Employee
participates, any termination of the Employee's
employment (other than by death or, to the extent that
the Employee would receive greater benefits than upon a
retirement under a specific plan or grant, a disability
under such plan or grant) after the Employee has attained
age 65, whether by the Employer or the Employee and
notwithstanding the reason for such termination, shall
constitute a retirement, within the meaning of such
equity and benefit plans and grants."
3. The Agreement is hereby amended by the deletion of
subsection 9(a)(iv) and the substitution therefor of the language
annexed hereto as Exhibit A.
The Agreement, as amended herein, shall remain in full force
and effect.
Very truly yours,
THE LIPOSOME EMPLOYER, INC.
By: _________________________
Title: ________________________
Agreed:
_____________________
Charles A. Baker
L:\LEGALDPT\LEGAL\AGREEMEN\CAB Letter Agreement.doc
EXHIBIT A
(iv) "Change in Control" of the Employer shall be deemed to
have occurred as of the first day that any one or more of the
following conditions shall have been satisfied:
(i)When a "person," as defined in Sections 3(a)(9) and
13(d)(3) of the Exchange Act, becomes the beneficial
owner, directly or indirectly, of securities of the
Employer representing (I) more than thirty-five percent
(35%) of the combined voting power of the Employer's then
outstanding securities, unless such person is subject to
contractual restrictions that would preclude him or her
from voting such shares in a manner to influence or
control the management of the Employer's business,
provided that in the event such contractual restrictions
are removed, a Change of Control will be deemed to have
occurred on the effective date of such removal or on such
later date as the Executive receives actual notice of such
removal, or (II) one hundred percent (100%) of the
combined voting power of the Employer's then outstanding
securities regardless of any contractual restrictions.
For purposes of this provision, "person" shall not include
the Employer, any subsidiary of the Employer, any employee
benefit plan or employee stock plan of the Employer, or
any person holding the Employer's Common Stock by, for or
pursuant to the terms of such a plan; and "voting power"
shall mean the power under ordinary circumstances (and not
merely upon the happening of a contingency) to vote in the
election of directors. For the purpose of subsections
9(a)(iv)(A)(I) and 9(a)(iv)(A)(II) of this Agreement, the
right to vote shares in a transaction for which
stockholder approval is required under Sections 251
through 258 (mergers), 271 (sale of assets), or 275
(dissolution) of the Delaware General Corporation Law, as
the same may be amended from time to time, will not, in
themselves, be deemed, to constitute the right to vote
such shares "in a manner to influence or control the
management of the Employer's business". Whether other
voting rights may be granted to a beneficial owner without
enabling it to influence or control the management of the
Employer's business will depend on the totality of rights
granted in each case.
(B)When, as a result of a vote of stockholders for which
proxies are solicited by or on behalf of any person other
than the Employer in accordance with the SEC rules issued
under Section 14 of the Exchange Act, or which is exempt
from the SEC proxy rules by reason of Rule 14a-2 under the
Exchange Act, or as a result of an action by written
consent of stockholders without a meeting, the "incumbent
directors" cease to constitute at least a majority of the
authorized number of members of the Board. For purposes
of this provision, "incumbent directors" shall mean the
persons who were members of the Board on January 22, 1998,
and the persons who were elected or nominated as their
successors or pursuant to increases in the size of the
Board by a vote of at least an absolute majority (and not
just the majority of a quorum) of the Board members who
were then Board members (or successors or additional
members so elected or nominated).
(C)When the stockholders of the Employer approve a merger,
consolidation, or reorganization, whether or not the
Employer is the surviving entity in such transaction, (I)
other than a merger, consolidation, or reorganization that
would result in the voting securities of the Employer
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity)
at least sixty-five percent (65%) of the combined voting
power of the voting securities of the Employer (or such
surviving entity) outstanding immediately after the
merger, consolidation, or reorganization; and (II) other
than a merger, consolidation or reorganization that would
result in the voting securities of the Employer
outstanding immediately prior thereto continuing to
represent less than sixty-five percent (65%) but more than
one percent (1%) of the combined voting power of the
voting securities of the Employer (or such surviving
entity) outstanding immediately after the merger,
consolidation or reorganization if the holder or holders
of the shares in the surviving entity that do not
represent the securities of the Employer outstanding prior
to the merger, consolidation or reorganization is or are
subject to contractual restrictions that would preclude
such holder or holders from voting such shares in a manner
to influence or control the management of the Employer's
(or such surviving entity's) business, provided that in
the event such contractual restrictions are removed, a
Change of Control will be deemed to have occurred on the
effective date of such removal or on such later date as
the Executive receives actual notice of such removal.
(D)When the stockholders of the Employer approve (I) the sale
or other disposition of all or substantially all of the
assets the Employer or (II) a complete liquidation or
dissolution of the Employer.
(E)When the Board adopts a resolution to the effect that any
person has acquired effective control of the business and
affairs of the Employer.
However, in no event shall a Change in Control be deemed to
have occurred, with respect to the Executive, if the
Executive is part of a purchasing group which consummates the
Change-in-Control transaction. The Executive shall be deemed
"part of a purchasing group" for purposes of the preceding
sentence if the Executive is an equity participant in the
purchasing Employer or group (except for: (x) passive
ownership of less than three percent (3%) of the stock of the
purchasing Employer; or (y) ownership of equity participation
in the purchasing Employer or group which is otherwise not
significant, as determined prior to the Change in Control by
an absolute majority of the non-employee Directors who were
Directors prior to the transaction, and who continue as
Directors following the transaction).
INDEMNIFICATION AGREEMENT
This Agreement is made and entered into as of the ____ day
of _______, _____, ("Agreement") by and between The Liposome
Company, Inc., a Delaware corporation ("Corporation") and
_____________ ("Indemnitee").
WHEREAS, recently highly competent persons have become
more reluctant to serve publicly-held corporations as
directors, or in other capacities, unless they are provided
with better protection from the risk of claims and actions
against them arising out of their service to and activities
on behalf of such corporations; and
WHEREAS, the current impracticability of obtaining
adequate insurance and the uncertainties related to
indemnification have increased the difficulty of attracting
and retaining such persons; and
WHEREAS, the Board of Directors of the Corporation (the
"Board") has determined that the inability to attract and
retain such persons is detrimental to the best interests of
the Corporation's stockholders and that such persons should
be assured that they will have better protection in the
future; and
WHEREAS, it is reasonable, prudent and necessary for the
Corporation to obligate itself contractually to indemnify
such persons to the fullest extent permitted by applicable
law, so that such persons will serve or continue to serve the
Corporation free from undue concern that they will not be
adequately indemnified; and
WHEREAS, this Agreement is a supplement to and in
furtherance of Article VI, Section 4 of the by-laws of the
Corporation, any rights granted under the Certificate of
Incorporation of the Corporation and any resolutions adopted
pursuant thereto and shall not be deemed to be a substitute
therefor nor to diminish or abrogate any rights of the
Indemnitee thereunder; and
WHEREAS, Indemnitee is willing to serve, continue to serve
and to take on additional service for or on behalf of the
Corporation on the condition that Indemnitee be indemnified
according to the terms of this Agreement;
NOW, THEREFORE, in consideration of the premises and the
covenants contained herein, the Corporation and Indemnitee do
hereby covenant and agree as follows:
Section l. Definitions.
For purposes of this Agreement:
(a) "Change in Control" means a change in control of the
Corporation occurring after the Effective Date of a nature
that would be required to be reported in response to Item
6(a) of Schedule l4A of Regulation l4A (or in response to
any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of l934 (the
"Act"), whether or not the Corporation is then subject to
such reporting requirement; provided, however, that,
without limitation, such a Change in Control shall be
deemed to have occurred if after the Effective Date (i) any
"person" (as such term is used in Sections l3(d) and l4(d)
of the Act) is or becomes the "beneficial owner" (as
defined in Rule l3d-3 under the Act), directly or
indirectly, of securities of the Corporation representing
twenty percent (20%) or more of the combined voting power
of the Corporation's then outstanding securities without
the prior approval of at least two-thirds of the members of
the Board in office immediately prior to such person
attaining such percentage interest; (ii) the Corporation is
a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of
which members of the Board in office immediately prior to
such transaction or event constitute less than a majority
of the Board thereafter; or (iii) during any period of two
consecutive years, individuals who at the beginning of such
period constituted the Board (including for this purpose
any new director whose election or nomination for election
by the Corporation's stockholders was approved by a vote of
at least two-thirds of the directors then still in office
who were directors at the beginning of such period) cease
for any reason to constitute at least a majority of the
Board.
(b) "Corporate Status" means the status of a person who
is or was a director, officer, employee, agent or fiduciary
of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the
request of the Corporation.
(c) "Disinterested Director" means a director of the
Corporation who is not and was not a party to the
Proceeding in respect of which indemnification is sought by
Indemnitee.
(d) "Effective Date" means ____________.
(e) "Expenses" means all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing
and binding costs, telephone charges, postage, delivery
service fees and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating,
or being or preparing to be a witness in a Proceeding.
(f) "Independent Counsel" means a law firm, or a member
of a law firm, that is experienced in matters of
corporation law and neither presently is, nor in the past
five years has been, retained to represent: (i) the
Corporation or Indemnitee in any other matter material to
either such party, or (ii) any other party to the
Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in
representing either the Corporation or Indemnitee in an
action to determine Indemnitee's rights under this
Agreement.
(g) "Proceeding" means any action, suit, arbitration,
alternate dispute resolution mechanism, investigation,
administrative hearing or any other proceeding, whether
civil, criminal, administrative or investigative, except
one initiated by an Indemnitee pursuant to Section 11 of
this Agreement to enforce an Indemnitee's rights under this
Agreement.
Section 2. Services by Indemnitee.
Indemnitee agrees to serve as an officer and/or director
of the Corporation, and, at its request, as a director,
officer, employee, agent or fiduciary of certain other
corporations and entities. Indemnitee may at any time and
for any reason resign from any such position (subject to
any other contractual obligation or any obligation imposed
by operation of law).
Section 3. Indemnification -
General.
The Corporation shall indemnify, and advance Expenses
to, Indemnitee as provided in this Agreement to the fullest
extent permitted by applicable law in effect on the date
hereof and to such greater extent as applicable law may
thereafter from time to time permit. The rights of
Indemnitee provided under the preceding sentence shall
include, but shall not be limited to, the rights set forth
in the other Sections of this Agreement.
Section 4. Proceedings Other Than
Proceedings by or in the Right of the Corporation.
Indemnitee shall be entitled to the rights of
indemnification provided in this Section if, by reason of
Indemnitee's Corporate Status, Indemnitee is, or is
threatened to be made, a party to any threatened, pending
or completed Proceeding, other than a Proceeding by or in
the right of the Corporation. Pursuant to this Section,
Indemnitee shall be indemnified against Expenses,
judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by Indemnitee or on
Indemnitee's behalf in connection with any such Proceeding
or any claim, issue or matter therein, if Indemnitee acted
in good faith and in a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal
Proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful.
Section 5. Proceedings by or in
the Right of the Corporation.
Indemnitee shall be entitled to the rights of
indemnification provided in this Section if, by reason of
Indemnitee's Corporate Status, Indemnitee is, or is
threatened to be made, a party to any threatened, pending
or completed Proceeding brought by or in the right of the
Corporation to procure a judgment in its favor. Pursuant
to this Section, Indemnitee shall be indemnified against
Expenses, judgments, penalties, fines and amounts paid in
settlement, actually and reasonably incurred by Indemnitee
or on Indemnitee's behalf in connection with any such
Proceeding if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Corporation.
Notwithstanding the foregoing, no indemnification against
such Expenses shall be made in respect of any claim, issue
or matter in any such Proceeding as to which Indemnitee
shall have been adjudged to be liable to the Corporation if
applicable law prohibits such indemnification unless the
Court of Chancery of the State of Delaware, or the court in
which such Proceeding shall have been brought or is
pending, shall determine that indemnification against
Expenses may nevertheless be made by the Corporation.
Section 6. Indemnification for
Expenses of a Party Who is Wholly or Partly Successful.
Notwithstanding any other provision of this Agreement,
to the extent that Indemnitee is, by reason of Indemnitee's
Corporate Status, a party to and is successful, on the
merits or otherwise, in any Proceeding, Indemnitee shall be
indemnified against all Expenses actually and reasonably
incurred by Indemnitee or on Indemnitee's behalf in
connection therewith. If Indemnitee is not wholly
successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding, the
Corporation shall indemnify Indemnitee against all Expenses
actually and reasonably incurred by Indemnitee or on
Indemnitee's behalf in connection with each successfully
resolved claim, issue or matter. For the purposes of this
Section and without limiting the foregoing, the termination
of any claim, issue or matter in any such Proceeding by
dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
Section 7. Indemnification for
Expenses of a Witness.
Notwithstanding any other provision of this Agreement,
to the extent that Indemnitee is, by reason of Indemnitee's
Corporate Status, a witness in any Proceeding, Indemnitee
shall be indemnified against all Expenses actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf
in connection therewith.
Section 8. Advancement of
Expenses.
The Corporation shall advance all Expenses incurred by
or on behalf of Indemnitee in connection with any
Proceeding within twenty (20) days after the receipt by the
Corporation of a statement or statements from Indemnitee
requesting such advance or advances from time to time,
whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by Indemnitee and shall
include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced
if it shall ultimately be determined that Indemnitee is not
entitled to be indemnified against such Expenses.
Section 9. Procedure for
Determination of Entitlement to Indemnification.
(a) To obtain indemnification under this Agreement in
connection with any Proceeding, and for the duration
thereof, Indemnitee shall submit to the Corporation a
written request, including therein or therewith such
documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether
and to what extent Indemnitee is entitled to
indemnification. The Secretary of the Corporation shall,
promptly upon receipt of any such request for
indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for
indemnification pursuant to Section 9(a) hereof, a
determination, if required by applicable law, with respect
to Indemnitee's entitlement thereto shall be made in such
case: (i) if a Change in Control shall have occurred, by
Independent Counsel (unless Indemnitee shall request that
such determination be made by the Board or the
stockholders, in which case in the manner provided for in
clauses (ii) or (iii) or this Section 9(b)) in a written
opinion to the Board, a copy of which shall be delivered to
Indemnitee; (ii) if a Change of Control shall not have
occurred, (A) by the Board by a majority vote of a quorum
consisting of Disinterested Directors, or (B) if a quorum
of the Board consisting of Disinterested Directors is not
obtainable, or even if such quorum is obtainable, if such
quorum of Disinterested Directors so directs, either (x) by
Independent Counsel in a written opinion to the Board, a
copy of which shall be delivered to Indemnitee, or (y) by
the stockholders of the Corporation, as determined by such
quorum of Disinterested Directors, or a quorum of the
Board, as the case may be; or (iii) as provided in Section
l0(b) of this Agreement. If it is so determined that
Indemnitee is entitled to indemnification, payment to
Indemnitee shall be made within ten (l0) days after such
determination. Indemnitee shall cooperate with the person,
persons, or entity making such determination with respect
to Indemnitee's entitlement to indemnification, including
providing to such person, persons or entity upon reasonable
advance request any documentation or information which is
not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably
necessary to such determination. Any costs or expenses
(including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or
entity making such determination shall be borne by the
Corporation (irrespective of the determination as to
Indemnitee's entitlement to indemnification) and the
Corporation hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) If required, Independent Counsel shall be selected
as follows: (i) if a Change of Control shall not have
occurred, Independent Counsel shall be selected by the
Board by a majority vote of a quorum consisting of
Disinterested Directors, and the Corporation shall give
written notice to Indemnitee advising Indemnitee of the
identity of Independent Counsel so selected; or (ii) if a
Change of Control shall have occurred, Independent Counsel
shall be selected by Indemnitee (unless Indemnitee shall
request that such selection be made by the Board, in which
event (i) shall apply), and Indemnitee shall give written
notice to the Corporation advising it of the identity of
Independent Counsel so selected. In either event,
Indemnitee or the Corporation, as the case may be, may,
within seven (7) days after such written notice of
selection shall have been given, deliver to the Corporation
or to Indemnitee, as the case may be, a written objection
to such selection. Such objection may be asserted only on
the ground that Independent Counsel so selected does not
meet the requirements of "Independent Counsel" as defined
in Section l of this Agreement, and the objection shall set
forth with particularity the factual basis of such
assertion. If such written objection is made, Independent
Counsel so selected may not serve as Independent Counsel
unless and until a court has determined that such objection
is without merit. If, within twenty (20) days after
submission by Indemnitee of a written request for
indemnification pursuant to Section 9(a) hereof, no
Independent Counsel shall have been selected and not
objected to, either the Corporation or Indemnitee may
petition the Court of Chancery of the State of Delaware, or
other court of competent jurisdiction, for resolution of
any objection which shall have been made by the Corporation
or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel
of a person selected by such court or by such other person
as such court shall designate, and the person with respect
to whom an objection is so resolved or the person so
appointed shall act as Independent Counsel under Section
9(b) hereof. The Corporation shall pay any and all
reasonable fees and expenses of Independent Counsel
incurred by such Independent Counsel in connection with its
actions pursuant to this Agreement, and the Corporation
shall pay all reasonable fees and expenses incident to the
procedures of this Section 9(c) regardless of the manner in
which such Independent Counsel was selected or appointed.
Upon the due commencement date of any judicial proceeding
or arbitration pursuant to Section 11(a)(iii) of this
Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity
(subject to the applicable standards of professional
conduct then prevailing).
Section 10. Presumptions and
Effects of Certain Proceedings.
(a) If a Change of Control shall have occurred, in
making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity
making such determination shall presume that Indemnitee is
entitled to indemnification under this Agreement if
Indemnitee has submitted a request for indemnification in
accordance with Section 9(a) of this Agreement, and the
Corporation shall have the burden of proof to overcome that
presumption in connection with the making by any person,
persons or entity of any determination contrary to that
presumption.
(b) If the person, persons or entity empowered or
selected under Section 9 of this Agreement to determine
whether Indemnitee is entitled to indemnification shall not
have made a determination within sixty (60) days after
receipt by the Corporation of the request therefor, the
requisite determination of entitlement to indemnification
shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement
by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not
materially misleading, in connection with the request for
indemnification, or (ii) prohibition of such
indemnification under applicable law; provided, however,
that such sixty (60) day period may be extended for a
reasonable time, not to exceed an additional thirty (30)
days, if the person, persons or entity making the
determination with respect to entitlement to
indemnification in good faith require(s) such additional
time for the obtaining or evaluating of documentation
and/or information relating thereto; and provided, further,
that the foregoing provisions of this Section l0(b) shall
not apply (i) if the determination of entitlement to
indemnification is to be made by the stockholders pursuant
to Section 9(b) of this Agreement and if (A) within fifteen
(l5) days after receipt by the Corporation of the request
for such determination the Board has resolved to submit
such determination to the stockholders for their
consideration at an annual meeting thereof to be held
within seventy-five (75) days after such receipt and such
determination is made thereat, or (B) a special meeting of
stockholders is called within fifteen (l5) days after such
receipt for the purpose of making such determination, such
meeting is held for such purpose within sixty (60) days
after having been so called and such determination is made
thereat, or (ii) if the determination of entitlement to
indemnification is to be made by Independent Counsel
pursuant to Section 9(b) of this Agreement.
(c) The termination of any Proceeding or of any claim,
issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its
equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the
right of Indemnitee to indemnification or create a
presumption that Indemnitee did not act in good faith and
in a manner which Indemnitee reasonably believed to be in
or not opposed to the best interests of the Corporation or,
with respect to any criminal Proceeding, that Indemnitee
had reasonable cause to believe that Indemnitee's conduct
was unlawful.
Section 11. Remedies of Indemnitee.
(a) In the event that (i) a determination is made
pursuant to Section 9 of this Agreement that Indemnitee is
not entitled to indemnification under this Agreement, (ii)
advancement of Expenses is not timely made pursuant to
Section 8 of this Agreement, (iii) the determination of
entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 9(b) of this Agreement and such
determination shall not have been made and delivered in a
written opinion within ninety (90) days after receipt by
the Corporation of the request for indemnification, (iv)
payment of indemnification is not made pursuant to Section
7 of this Agreement within ten (l0) days after receipt by
the Corporation of a written request therefor, or (v)
payment of indemnification is not made within ten (l0) days
after a determination has been made that Indemnitee is
entitled to indemnification or such determination is deemed
to have been made pursuant to Section 9 or l0 of this
Agreement, Indemnitee shall be entitled to an adjudication
in an appropriate court of the State of Delaware, or in any
other court of competent jurisdiction, of Indemnitee's
entitlement to such indemnification or advancement of
Expenses. Alternatively, Indemnitee, at Indemnitee's
option, may seek an award in arbitration to be conducted by
a single arbitrator pursuant to the rules of the American
Arbitration Association. Indemnitee shall commence such
proceeding seeking an adjudication or an award or
arbitration within one hundred eighty (l80) days following
the date on which Indemnitee first has the right to
commence such proceeding pursuant to this Section 11(a).
The Corporation shall not oppose Indemnitee's right to seek
any such adjudication or award in arbitration.
(b) In the event that a determination shall have been
made pursuant to Section 9 of this Agreement that
Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration commenced pursuant to this
Section shall be conducted in all respects as a de novo
trial or arbitration on the merits and Indemnitee shall not
be prejudiced by reason of that adverse determination. If
a Change of Control shall have occurred, in any judicial
proceeding or arbitration commenced pursuant to this
Section the Corporation shall have the burden of proving
that Indemnitee is not entitled to indemnification or
advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to
have been made pursuant to Section 9 or l0 of this
Agreement that Indemnitee is entitled to indemnification,
the Corporation shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to
this Section, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of any material fact
necessary to make Indemnitee's statement not materially
misleading, in connection with the request for
indemnification, or (ii) prohibition of such
indemnification under applicable law.
(d) The Corporation shall be precluded from asserting in
any judicial proceeding or arbitration commenced pursuant
to this Section that the procedures and presumptions of
this Agreement are not valid, binding and enforceable and
shall stipulate in any such court or before any such
arbitrator that the Corporation is bound by all the
provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this
Section, seeks a judicial adjudication of, or an award in
arbitration to enforce, Indemnitee's rights under, or to
recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Corporation, and
shall be indemnified by the Corporation against, any and
all expenses (of the kinds described in the definition of
Expenses) actually and reasonably incurred by Indemnitee in
such judicial adjudication or arbitration, but only if
Indemnitee prevails therein. If it shall be determined in
such judicial adjudication or arbitration that Indemnitee
is entitled to receive part but not all of the
indemnification or advancement of expenses sought, the
expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately
prorated.
Section 12. Non-Exclusivity;
Survival of Rights; Insurance Subrogation.
(a) The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall
not be deemed exclusive of any other rights to which
Indemnitee may at any time be entitled under applicable
law, the certificate of incorporation or by-laws of the
Corporation, any agreement, a vote of stockholders or a
resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or any provision
hereof shall be effective as to any Indemnitee with respect
to any action taken or omitted by such Indemnitee in
Indemnitee's Corporate Status prior to such amendment,
alteration or repeal.
(b) To the extent that the Corporation maintains an
insurance policy or policies providing liability insurance
for directors, officers, employees, agents or fiduciaries
of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or
other enterprise which such person serves at the request of
the Corporation, Indemnitee shall be covered by such policy
or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such
director, officer, employee, agent or fiduciary under such
policy or policies.
(c) In the event of any payment under this Agreement,
the Corporation shall be subrogated to the extent of such
payment to all of the rights of recovery of Indemnitee, who
shall execute all papers required and take all action
necessary to secure such rights, including execution of
such documents as are necessary to enable the Corporation
to bring suit to enforce such rights.
(d) The Corporation shall not be liable under this
Agreement to make any payment of amounts otherwise
indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or
otherwise.
Section 13. Duration of Agreement.
This Agreement shall continue until and terminate upon
the later of: (a) ten (10) years after the date that
Indemnitee shall have ceased to serve as a director,
officer, employee, agent or fiduciary of the Corporation or
of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which
Indemnitee served at the request of the Corporation; or (b)
the final termination of all pending Proceedings in respect
of which Indemnitee is granted rights of indemnification or
advancement of Expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 11 of this
Agreement. This Agreement shall be binding upon the
Corporation and its successors and assigns and shall inure
to the benefit of Indemnitee and Indemnitee's heirs,
executors and administrators.
Section 14. Severability.
If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any
reason whatsoever: (a) the validity, legality and
enforceability of the remaining provisions of this
Agreement (including, without limitation, each portion of
any Section of this Agreement containing any such provision
held to be invalid, illegal or unenforceable, that is not
itself invalid, illegal or unenforceable) shall not in any
way be affected or impaired thereby; and (b) to the fullest
extent possible, the provisions of this Agreement
(including, without limitation, each portion of any Section
of this Agreement containing any such provision held to be
invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as
to give effect to the intent manifested by the provision
held invalid, illegal or unenforceable.
Section 15. Exception to Right of
Indemnification or Advancement of Expenses.
Except as provided in Section 11(e), Indemnitee shall
not be entitled to indemnification or advancement of
Expenses under this Agreement with respect to any
Proceeding, or any claim therein, brought or made by
Indemnitee against the Corporation. For the purposes of
this Section 15, a Proceeding in the right of the
Corporation shall not be deemed to constitute a Proceeding
brought or made by the Corporation.
Section 16. Identical Counterparts.
This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be
deemed to be an original but all of which together shall
constitute one and the same Agreement. Only one such
counterpart signed by the party against whom enforceability
is sought needs to be produced to evidence the existence of
this Agreement.
Section 17. Headings.
The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the
construction thereof.
Section 18. Modification and Waiver.
No supplement, modification or amendment to this
Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions hereof (whether
or not similar) nor shall such waiver constitute a
continuing waiver.
Section 19. Notice by Indemnitee.
Indemnitee agrees promptly to notify the Corporation in
writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other
document relating to any Proceeding or matter which may be
subject to indemnification or advancement of Expenses
covered hereunder.
INDEMNITEE THE LIPOSOME COMPANY,
INC.
By:
Charles A. Baker
Chairman of the Board of
Directors
and Chief Executive
Officer
I, Michael McGrane, Secretary, certify that the Board of
Directors has authorized the Corporation to enter into this
Agreement by a resolution unanimously passed at its
_____________meeting.
Michael McGrane
Secretary
8
AGREEMENT
THIS AGREEMENT is made as of March 1, 1999 (the "Effective
Date"), at Princeton, New Jersey, USA
BETWEEN
(1) THE LIPOSOME COMPANY, INC., a corporation duly organised and
validly existing under the laws of the State of Delaware,
USA, and having an address at One Research Way, Princeton
Forrestal Center, Princeton, NJ 08540, USA (hereinafter
called "TLC"); and
(2) WYETH-AYERST INTERNATIONAL INC., a corporation duly
organised and validly existing under the laws of the State
of New York, USA, with its principal place of business at
150 Radnor-Chester Road, St. Davids, PA 19087, USA
(hereinafter called "W-A").
WHEREBY IT IS AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement and in the Schedules to this Agreement the
following words and phrases shall have the following
meanings unless the context requires otherwise:
1.1.1 "Affiliate" shall mean any company,
partnership or other entity which directly or
indirectly Controls, is Controlled by or is under
common Control with any Party to this Agreement
including as a Subsidiary or Holding Company;
1.1.2 "Agreed Minimum Sales Targets" shall mean
the Net Sales targets set out in Schedule 1 as these
may be amended from time to time in accordance with
Section 16, and such sales targets as may be agreed
on for Renewal Terms in accordance with Section 19.1;
1.1.3 "Business Day" shall mean any day excluding
Saturdays, Sundays and public holidays in the
Territory or the United States, as the case may be;
1.1.4 "Competent Authority" shall mean any local
or national agency, authority, department,
inspectorate, minister, ministry official or public
or statutory person (whether autonomous or not) of,
or of any government of, any country having
jurisdiction over the Agreement or any of the Parties
including the European Commission and the European
Court of Justice;
1.1.5 "Confidential Information" shall mean all
trade secrets, know-how and other confidential
information relating to the Product; the data, know-
how and other information generated by any clinical
trials or other studies carried out under this
Agreement or arising in connection with the marketing
and promotion of the Product in the Territory or
relating to the business affairs or finances of a
Party or its Affiliates coming into the possession of
the other Party pursuant to this Agreement;
1.1.6 "Contract Year" shall mean each successive
twelve-month period beginning on the Effective Date
during the term of this Agreement;
1.1.7 "Control" shall mean the ownership of fifty
percent (50%) or more of the issued share capital or
the legal power to direct or cause the direction of
the general management and policies of the entity in
question;
1.1.8 "DCM" shall mean the director of clinical
marketing to be appointed by TLC pursuant to Section
7.3;
1.1.9 "Directive" shall mean any present or future
directive, requirement, instruction, direction or
rule of any Competent Authority (but only, if not
having the force of law, if compliance with the
directive is in accordance with the general practice
of persons to whom the directive is addressed) and
includes any modification, extension or replacement
thereof then in force;
1.1.10 "Force Majeure" in relation to any Party
means any event or circumstance which is beyond the
reasonable control of such Party which results in or
causes the failure of that Party to perform any or
all of its obligations under this Agreement including
an act of God, lightning, fire, storm, flood,
earthquake, accumulation of snow or ice, lack of
water arising from weather or environmental problems,
strike, lockout or other industrial disturbance, act
of the public enemy, war declared or undeclared,
threat of war, terrorist act, blockage, revolution,
riot, insurrection, civil commotion, public
demonstration, sabotage, act of vandalism, prevention
from or hindrance in obtaining in any way materials,
energy or other supplies, explosion, fault or failure
of plant or machinery (which could not have been
prevented by good industry practice), governmental
restraint, act of legislature, or directive or
requirement of a Competent Authority governing any
Party, provided that lack of funds shall not be
interpreted as a cause beyond the reasonable control
of that Party;
1.1.11 "List Price" shall mean the price at which
the Product is approved for sale and reimbursement to
hospitals in the Territory, which price is set forth
on Schedule 4 annexed hereto;
1.1.12 "MAA" shall mean a marketing authorisation approval;
1.1.13 "Net Sales" shall mean the net amount invoiced for
the Product to customers by TLC or its distributor;
1.1.14 "Parties" shall mean TLC and/or W-A;
1.1.15 "Product" shall mean ABELCETr (amphotericin
B lipid complex injection) in finished form packaged
and ready for use by users, including developments or
improvements of the same;
1.1.16 "Quarter Days" shall mean each January 1,
April 1, July 1, and October 1;
1.1.17 "Specifications" shall mean the
specifications of the Product set out in Schedule 2,
as the same may be modified by TLC from time to time;
1.1.18 "Territory" shall mean the United Kingdom,
Northern Ireland, and such other countries as shall
be added by the mutual agreement of the Parties;
1.1.19 "TLC Patents" shall mean the patents listed
on Schedule 6 hereto; and
1.1.20 "TLC Trade Marks" shall mean the registered
trade marks owned by TLC or its Affiliate which cover
the Product, such as ABELCETr or other applicable
trade mark.
1.2 In this Agreement:
1.2.1 Unless the context requires otherwise, all
references to a particular Section, Schedule or
paragraph shall be a reference to that Section,
Schedule or paragraph in or to this Agreement as the
same may be amended from time to time pursuant to
this Agreement;
1.2.2 Unless the contrary intention appears, words
importing the masculine gender shall include the
feminine and vice versa, and words in the singular
shall include the plural and vice versa;
1.2.3 Unless the contrary intention appears, words
denoting persons shall include any individual
partnership, company, corporation, joint venture,
trust, association, organisation or other entity, in
each case whether or not having separate legal
personality; and
1.2.4 Reference to the words "include" or
"including" is to be construed without limiting the
generality of the preceding words.
2. CLINICAL TRIALS
2.1 TLC, or its Affiliate, has obtained an MAA authorising the
sale of the Product in the Territory. TLC shall sponsor and
carry out, or shall procure that one of its Affiliates
sponsors and carries out, any additional clinical trials or
studies under TLC protocols that may be required to be
carried out in the Territory in order to maintain the MAA or
support a revised, supplemental or additional MAA or other
application for regulatory approval required to market and
sell the Product in the Territory and shall co-ordinate any
such clinical activity in the Territory within their world-
wide clinical development program for the Product. W-A
shall provide at its own cost logistical support consisting
of assisting TLC staff with scheduling appointments,
selecting and visiting investigators, and assisting with
follow-up matters in order to further the timely completion
of these studies. TLC shall be responsible for all other
costs.
2.2 In addition to the clinical studies provided for in Section
2.1, the Operating Committee provided for in Section 7 may
also propose additional local clinical trials and/or studies
to advance jointly agreed marketing goals and to aid in
positioning the Product in the Territory. If TLC approves
the plans and protocols for such studies, they shall be
jointly sponsored by W-A and TLC, and TLC will provide an
adequate supply of Product required for such clinical trials
and studies. The cost of such Product and other study costs
will be shared equally between the Parties.
2.3 W-A may from time to time propose to TLC any additional
trials or studies initiated by W-A or investigators that
might be carried out in the Territory, but whether or not
such trials or studies are carried out shall be in the sole
discretion of TLC which approval shall not be unreasonably
withheld. W-A will sponsor and be fully responsible
financially for all clinical studies other than those
mentioned in Sections 2.1 and 2.2. Such additional trials
or studies shall be at the cost and expense of W-A.
2.4 W-A undertakes to assist TLC at TLC's expense in obtaining
any necessary authorisations and approvals required to carry
out any such additional clinical trials or studies including
arranging meetings with the relevant Competent Authorities
which will be attended by representatives of TLC and W-A.
2.5 W-A undertakes in relation to any additional clinical trials
or studies conducted in the Territory to recommend, at TLC's
request, investigators to be appointed by TLC to carry out
the trials or studies and to monitor the activities of those
investigators in accordance with the instructions of TLC
from time to time. If requested by TLC, W-A shall collect
and maintain all relevant data including at least case
histories, treatments, outcomes, adverse events and protocol
deviations. W-A shall prepare, maintain and deliver to TLC
complete and accurate written records and reports (progress,
safety and final), including manuscripts intended to be
submitted for publication, of all clinical trials or studies
that it monitors.
2.6 W-A shall inform TLC of any request made to it by a local
physician for supplies of the Product to enable such
physician to carry out his own trial and shall provide TLC
with sufficient information to enable TLC to decide in its
absolute discretion whether or not to supply such physician.
W-A shall be responsible for paying any relevant charges due
to be paid to such local physician and for ensuring that
such local physicians comply with all necessary regulatory
requirements when conducting the trial.
3. RIGHTS IN THE CLINICAL TRIALS DATA
3.1 All data, know-how and other information generated as a
result of the additional clinical trials or studies carried
out in or in relation to the Territory pursuant to Section 2
shall be owned by TLC or its Affiliate; however, during the
term of this Agreement (and any renewal term thereof), W-A
shall have a semi-exclusive right, title and interest in or
to such data. W-A undertakes to notify TLC of any impending
publication referring to the Product and obtain TLC's
written approval prior to releasing such publication for
submission to scientific journals or conferences.
4. MARKETING AUTHORISATION
4.1 TLC, or its Affiliate, has obtained an MAA for the Product
and shall be solely responsible at its own cost and expense
for the maintenance of such MAA and for the preparation and
filing and maintenance of all amended or supplemental MAAs
for the Product in the Territory from the relevant Competent
Authority and any other approvals, clearances and requisite
registrations required to market the Product in the
Territory. All such approvals and registrations shall be in
the name of TLC or its Affiliate.
4.2 W-A undertakes to assist TLC in obtaining any additional
necessary authorisations and approvals required to market
the Product in the Territory, including arranging meetings
with the relevant Competent Authorities which will be
attended by representatives of TLC and W-A.
4.3 In order to enable W-A to fulfil its obligations under
this Agreement, TLC shall supply W-A, as soon as reasonably
possible, with one copy of all MAAs for the Product and any
other documents related to the MAA filed by TLC with the
Competent Authorities in the Territory during the term of
this Agreement.
5. PRICING AND REIMBURSEMENT
5.1 In the event that the List Price shall fall below the
British pound equivalent of seventy U.S. dollars ($70 U.S.)
per 100mg vial, or a proportionate price reduction occurs
for other marketed units, TLC may terminate this Agreement
in accordance with Section 20.1.6.
6. PRODUCT SUPPLY, TRAINING AND SUPPORT SERVICES
6.1 With effect from the Effective Date, TLC shall supply the
Product to its appointed distributor for resale in the
Territory following the promotional activities of W-A,
subject to the terms and conditions of this Agreement.
Subject to the provisions of Section 10.7 and 10.8, TLC will
not be obligated to supply its distributor if the List Price
is reduced at the discretion of a relevant Competent
Authority in the Territory to an amount that is lower than
the British pound equivalent of seventy U.S. dollars ($70
U.S.) per 100mg vial, or a proportionate price reduction
occurs for other marketed units. TLC will promptly notify W-
A in writing of its decision not to supply its distributor
pursuant to the foregoing; provided however, that TLC will
consult W-A prior to giving any notice under this Section.
6.2 TLC shall make available to W-A such technical, training and
support services as W-A may request in connection with its
obligations under this Agreement and as TLC shall consider
reasonable. Specifically, TLC shall keep W-A reasonably
informed of all relevant developments and experience gained
by TLC and its Affiliates in the exploitation of the Product
internationally, except if such disclosure would breach
TLC's undertaking of confidentiality to a third party. TLC
shall provide W-A with such technical, scientific, medical
and commercial information, documentation and data developed
or acquired by TLC and its Affiliates which may in TLC's
judgement be useful to W-A for the purposes of this
Agreement.
6.3 Each Party agrees that in performing its rights and
obligations under this Agreement it will comply with its
obligations as set out in the Medical Information Procedures
set forth in Schedule 7 attached hereto.
7. OPERATING COMMITTEE
7.1 Forthwith following the Effective Date the Parties shall
establish a joint Operating Committee whose responsibilities
shall include:
7.1.1 approving a two (2) year marketing plan for
the Territory submitted by W-A;
7.1.2 discussing and approving marketing plan
updates proposed by W-A on an annual basis;
7.1.3 reviewing implementation of the marketing
plan on a quarterly basis;
7.1.4 determining the manner in which both Parties or their
Affiliates are to be identified on the labelling of
the Product for sale in the Territory;
7.1.5 reviewing progress toward achievement of Agreed
Minimum Sales Targets;
7.1.6 meeting from time to time, but at least two
(2) times per year; and
7.1.7 any other responsibilities determined by the
Parties.
7.2 The Operating Committee shall comprise four (4) persons
("Members"), and TLC and W-A respectively shall be entitled
to appoint two (2) Members, to remove any Member appointed
by it and to appoint any person to fill a vacancy arising
from the removal or retirement of such Member. TLC and W-A
respectively shall each notify the other in writing of the
identities of their Members from time to time.
7.3 TLC shall be entitled to appoint one of its Members to
preside at any meeting of the Operating Committee as
Chairman. TLC may at its discretion and at its own cost and
expense appoint a technical director and/or DCM to act as
liaison between TLC and W-A's management and who shall be
based at the premises of W-A in the Territory. If so
appointed, the technical director and/or DCM will act as the
Secretary of the Operating Committee and keep appropriate
minutes. The technical director and/or DCM may or may not,
at TLC's discretion, be designated as TLC's Committee
members, but as an alternate member and not as an additional
TLC committee member.
7.4 The quorum for meetings of the Operating Committee shall be
all four (4) Members. Decisions of the Operating Committee
shall be made by unanimous agreement of the Members present.
Should it prove impossible to obtain such agreement or to
arrange a quorate meeting within fourteen (14) days of a
Party calling a meeting, then the Parties shall discuss the
position in good faith in an effort to resolve their
differences and if it still does not prove possible to
obtain agreement then the outstanding matters requiring
resolution shall be referred to the Senior Managers of TLC
and W-A or their nominees for resolution who together shall
use reasonable efforts to resolve such matters within
fourteen (14) days of the date such matters are referred to
them for resolution. If those Senior Managers fail to reach
agreement within that period, the decision of TLC shall
apply.
7.5 The venue for meetings of the Operating Committee shall be
the United Kingdom. Both Parties shall be responsible for
their own expenses including travel and accommodation costs
incurred in connection with Operating Committee meetings.
7.6 The Operating Committee may establish a discount range, not
to exceed ten percent (10%) per order of the List Price,
being the basis on which W-A promotes the product to its
customers. W-A will obtain the approval in writing of TLC
if, as a result of negotiations with a customer, W-A
proposes to promote the Product at a discount outside the
approved range. In the event that W-A promotes the Product
at a price different than the List Price, W-A shall indicate
such promotional price rates in its reports to TLC pursuant
to Section 11.2 of the Agreement.
7.7 W-A undertakes to assist TLC in obtaining any necessary
pricing authorisations, reimbursement approvals and other
approvals required to market or continue to market the
Product in the Territory, including arranging meetings with
the relevant Competent Authorities, which may be attended by
representatives of TLC and W-A. Any pricing authorisation
and reimbursement approval for the Product in the Territory
granted from the relevant Competent Authority shall be in
the name of TLC or its Affiliate.
7.8 If the condition stipulated in Section 6.1 of the Agreement
occurs, the Parties agree jointly to explore means to remedy
such condition in good faith, including but not limited to,
renegotiating an amended price level, if applicable, with
the relevant Competent Authorities in the Territory. In the
event that no such remedy becomes available, ether party may
terminate this Agreement by giving to the other not less
than three (3) months written notice served at any time
after the date of TLC's notice to W-A in Section 6.1. Within
such notice period W-A shall be entitled to earn its
promotional allowance on Product sold at the prevailing
price.
8. FORECAST FOR PRODUCT NEEDS TO THE MARKET
8.1 Beginning no later than 15 days from the signature of this
Agreement, TLC shall deliver in writing to W-A's UK
Affiliate at such address as may from time to time be
designated by it, the quarterly level of inventory for the
Product stored at the warehouse of TLC's distributor.
Beginning no later than 30 days from the signature of this
Agreement, W-A shall deliver in writing to TLC on or before
the first day of each month, at such address as may from
time to time be designated by TLC, an indicative forecast of
the quantity of the Product which W-A reasonably believes
will be required in the Territory as a consequence of the
promotion activity implemented by W-A, during each month of
the twelve month period commencing six (6) weeks after the
date such estimate is delivered to TLC. Following the
second anniversary of the Effective Date such forecast will
be due every three (3) months.
8.2 The forecast by W-A shall be a rolling system. Each such
forecast by W-A shall constitute for the first three months
the quantity of Product for which TLC shall use all
reasonable commercial endeavours to make available to the
market the quantities in accordance with such forecasts. In
particular, but without prejudice to the generality of the
foregoing, TLC shall not be obliged to make available to the
market quantities of the Product against any such forecast
where such forecast exceeds by more than twenty percent
(20%) the previous monthly forecast for that month.
9. PACKAGING AND LABELLING
9.1 W-A shall consult with TLC on the requirements of all
relevant Competent Authorities concerning the packaging and
labelling of Product for sale in the Territory, including
translation of the text of the packaging and any inserts as
well as W-A's identification on the packaging (if any), and
TLC shall approve all packaging and labelling. W-A shall be
liable at its own cost and expense for all and any changes
required to such packaging to meet such requirements from
time to time, which cost and expense shall be reimbursed to
TLC forthwith upon demand. TLC shall endeavour to keep
reasonable quantities of packaging materials in stock in
order to service W-A's forecast set in Section 8.1 herein.
10. PROMOTIONAL ALLOWANCE
10.1TLC shall procure that all orders for the Product placed
with its distributor are converted to sales and that its
distributor shall on a weekly basis issue a copy of its
sales report by account showing orders received and sales
completed, in such format as may be agreed between TLC and W-
A. During each Contract Year TLC shall pay to W-A a
promotional allowance equal to thirty-one and one-half
percent (31.5%) of Net Sales with respect to the first one
million three hundred thousand British pounds (1,300,000)
of in-the-market sales, and then forty-one and one-half
percent (41.5%) of Net Sales for the remaining sales. Such
promotional allowance shall be paid quarterly, no later than
thirty-five (35) days after each Quarter Day irrespective of
whether TLC has received payment from its distributor in
respects of sales made in the Territory to its customers.
10.2TLC shall keep accurate records and books of account for the
purpose of showing all amounts to be calculated under this
Agreement, including Net Sales in local currency. Such
records and books of account shall, as between W-A and TLC,
be kept for one (1) year following the end of the calendar
year to which they relate and shall, solely for the purposes
of any governmental audit, be kept for three (3) years
following the end of the calendar year to which they relate
and certified extracts of such records and books of account
shall be open to inspection by W-A or its representatives
once each calendar quarter with notice of at least five
business days during normal business hours for the purpose
of verifying any matter relevant to this Agreement.
10.3In addition, during each Contract Year, TLC will calculate
the average selling price per Pack (ten (10) vials sold
together) in the Territory. In the first Contract Year, TLC
will pay W-A an additional promotional allowance equivalent
to ten percent (10%) of the number of Packs sold times sixty-
five percent (65%) of the average selling price per Pack
during the first six (6) months after the Effective Date
(the "Initial Six Months Additional Allowance"). In each
Contract Year, TLC will pay W-A an additional promotional
allowance equivalent to five percent (5%) of the number of
Packs sold times sixty-five percent (65%) of the average
selling price per Pack on the first one million three
hundred thousand British pounds (1,300,000) (except that in
the first Contract Year this allowance will not be paid on
the Packs for which the Initial Six Months Additional
Allowance was paid). In addition, if the Net Sales exceed
one million three hundred thousand British pounds
(1,300,000) in one single Contract Year, TLC will pay W-A a
promotional allowance equivalent to five percent (5%) of the
number of Packs sold times fifty-five percent (55%) of the
average hospital selling price per Pack for Packs exceeding
that level (except that in the first Contract Year this
allowance will not be paid on the Packs for which the
Initial Six Months Additional Allowance was paid). All such
promotional allowances shall be paid quarterly, no later
than thirty-five (35) days after each Quarter Day.
10.4Within thirty (30) days of any inspection under Section 10.2
or of any promotional allowance payment, W-A may give notice
to TLC that it does not accept the same, following which the
records or statement shall be audited and certified by an
independent accountant appointed by agreement between the
Parties or, in default of agreement within fourteen (14)
days, by the office of TLC's regular independent accountants
in the United Kingdom. TLC shall make available all books
and records required for the purpose of such audit and
certification and the determination of such independent
accountants so certified shall be final and binding between
the Parties. The cost of such audit and certification shall
be the responsibility of TLC if the audit discloses an error
benefiting TLC by more than five percent (5%) in respect of
monies due to W-A, and the responsibility of W-A if the
report is shown to have been accurate within such financial
parameters. Forthwith upon any such certification, the
Parties shall make any adjustments necessary in respect of
the sums already paid to W-A in relation to the calendar
quarter in question. Adjustments in favour of either Party
shall be paid in cash.
10.5All sums due to W-A pursuant to this Agreement shall be paid
in British pounds and shall be made to the designated
account of W-A by telegraphic transfer. If European
Currency Units should be subsequently created, the amount
due W-A shall be converted in accordance with the British
pound rate of exchange published in The Wall Street Journal
on the last business day of the week preceding the date of
payment.
10.6If TLC fails to make any payment to W-A hereunder within
thirty (30) days of the due date for payment, without
prejudice to any other right or remedy available to W-A, W-A
shall be entitled to charge TLC late charge penalties (both
before and after judgement) on the amount unpaid at the rate
of LIBOR plus five percent (5%) until payment in full is
made without prejudice to W-A's right to receive payment on
the due date.
10.7 For the avoidance of doubt in the event that either
Party shall terminate this Agreement in circumstances defined in
Section 20.1.6 then TLC shall be obliged to pay to W-A its
promotional allowance entitlement on sales effected by TLC's
distributor during such termination notice period.
10.8 Payment of the promotional allowance shall be due and
payable notwithstanding the failure by TLC to perform its
obligations hereunder or its obligations to TLC's distributor
(including without prejudice to the generality of the foregoing,
failure to ensure the provision and delivery to TLC's distributor
of adequate levels of stock of the Product in accordance with the
relevant forecast) or the failure of TLC's distributor to effect
the sale of the Product or otherwise to perform its distribution
obligations to TLC under its distributorship agreement (including
without prejudice to the generality of the foregoing, the
processing and fulfilment of orders generated from the detailing
of the Product by W-A to potential customers of TLC and its
distributor) provided that W-A shall have complied with the
contract procedures set out in the Marketing Plan and its
obligations hereunder.
11. MARKETING AND PROMOTION BY W-A
11.1W-A shall use its reasonable efforts to promote and extend
sales of the Product in the Territory and shall provide all
sales detailing, and promotion activities for the Product in
the Territory. W-A shall co-ordinate its marketing and
sales activity with TLC's European-wide marketing campaign.
TLC will provide to W-A free of charge camera-ready artwork
for promotional materials in the English language. In the
event that W-A wishes to develop customised promotional
materials for use in the Territory, it may do so at its own
cost, provided that it first submits the proposed materials
to TLC and TLC gives its written approval, which it will use
reasonable efforts to provide within thirty (30) days of
receiving the materials.
11.2TLC shall promptly report to W-A sales, in such form and
content as may be agreed between the Parties, on a weekly
basis during the term of the Agreement. W-A will have the
right to access marketing and sales information at any time
within the term on request.
11.3W-A shall promptly report to TLC detailing and promotion
activities in the Territory on a monthly basis during the
first Contract Year and on a quarterly basis during the
subsequent years of the Agreement. TLC will have the right
to access marketing information at any time within the term
on request.
11.4W-A shall use all reasonable endeavours to visit all of the
haematology, transplantation and infectious disease centres
in the Territory and to promote the Product to such extent
as to enable TLC's distributor to satisfy the Agreed Minimum
Sales Targets.
11.5Subject to the provisions of Section 10.8, in the event that
TLC's distributor does not receive sufficient orders to
satisfy the Agreed Minimum Sales Targets during the term of
the Agreement, the provisions of Sections 16.1 through 16.8
shall apply.
11.6Unless otherwise agreed in writing with TLC, W-A shall
concentrate its detailing and promotion of the Product
within the Territory, shall not seek any customers for the
Product outside the Territory and shall not establish any
branch or maintain any facility in relation to the Product
outside the Territory.
11.7W-A undertakes during the term of this Agreement that W-A or
its Affiliate will not promote, market, distribute or sell
in the Territory products which compete with the Product in
the hospital or home intravenous therapy setting. Without
limiting the generality of the foregoing, a product used to
treat systemic fungal infections will be considered as a
competitive product for purposes of this Section. W-A shall
promptly notify TLC of all inquiries related to the sale or
distribution of the Product outside of the Territory, except
for territories which may be the subject of other agreements
between the Parties.
11.8W-A will not detail or promote the Product as part of a
basket of products with other products without TLC's prior
written approval.
11.9In relation to the promotion of the Product W-A undertakes
to comply with the requirements of the Contract Procedure
more particularly set out in the Marketing Plan and TLC
undertakes to procure the agreement of its distributor to
the same.
12. GENERAL OBLIGATIONS OF W-A
12.1W-A shall during the period of this Agreement:
12.1.1 comply at all times with all applicable
Directives, laws and regulations pertaining to the
marketing and promotion of the Product in the
Territory;
12.1.2 employ or otherwise engage at its own
expense sufficient trained and qualified personnel
and maintain adequate facilities for the efficient
promotion and sale of the Product throughout the
Territory;
12.1.3 in marketing the Product, not make any
statement, representations, warranties or guarantees
concerning the Product except as are expressly
authorised pursuant to the marketing authorisation
for the Product;
12.1.4 submit through the Operating Committee all
advertising and promotional schemes and material
(including copy and artwork) relating to the
promotion of the Product for the approval of TLC
prior to publication or distribution;
12.1.5 keep the Operating Committee regularly
informed of full details concerning the marketing of
the Product in the Territory, including but not
limited to prospects, competitive activity etc.,
which information shall be recorded in Operating
Committee meeting minutes. W-A will also promptly
inform the Operating Committee of any other
information which it now has or which it may receive
in the future which is likely to be of interest,
benefit or use to TLC in relation to its sale of the
Products in the Territory and elsewhere and in
particular, but without limitation, full details of
new and prospective customers and will supply TLC
with any other information requested by TLC, relevant
to the performance by W-A of its obligations under
this Agreement;
12.1.6 keep TLC fully informed of any change in
Control of W-A in accordance with Section 20.2;
12.1.7 in all correspondence and other dealings relating
directly or indirectly to the promotion of the
Product clearly indicate that it is acting on its own
account as principal and will not represent itself
impliedly or expressly to be the agent of TLC nor
incur any contractual or other liability on behalf of
TLC nor in any way purport to pledge TLC's credit;
and
12.1.8 In this clause, "Employee" means an employee
employed by TLC immediately prior to the Effective
Date:
12.1.8.1TLC shall indemnify W-A against all costs,
expenses, damages, compensation, fines and
other liabilities arising out of or in
connection with:
12.1.8.1.1 any
claim by an Employee arising from
his/her employment with TLC or the
termination of that employment; and
12.1.8.1.2 any
claim by an Employee arising from
the termination of his/her
employment with W-A (howsoever
arising) and which is calculated by
reference to the length of his/her
continuous employment (as defined
in and determined in accordance
with the Employment Rights Act 1996
(the "ERA")), provided that this
indemnity shall only apply in
relation to any termination which
takes effect within five (5) years
of the Effective Date and so that
TLC's liability shall be limited to
the amount of any such claim
calculated by reference to the
period of the Employee's continuous
employment with TLC or any
Associated Employer (as defined in
the ERA) of TLC.
12.1.8.2Subject to the provisions of Section
12.1.8.1, W-A hereby agrees to pay to TLC by
way of contribution towards the costs,
including costs to cancel auto leases, mobile
telphone contracts, and all other such
peripheral costs of termination, incurred by
TLC in terminating the contracts of
employment of the Director, Clinical
Marketing, Sales Co-ordinator, and five (5)
Clinical Marketing Managers, up to the sum of
one hundred forty-eight thousand British
pounds (148,000) within thirty (30) days of
receipt of invoices from TLC for any such
costs.
12.2W-A shall notify TLC, in writing, within twenty-four (24)
hours following receipt of any notice from any governmental
agency or public authority of any action to be taken by such
agency or authority which may affect the Product.
12.3W-A shall during the period of this Agreement carry out its
obligations hereunder in the following manner:
12.3.1 in a manner which shows the skill,
diligence, prudence and foresight which would
reasonably and ordinarily be expected from a skilled
and experienced person engaged in the same type of
undertaking under the same or similar circumstances;
12.3.2 in a manner which meets the highest
professional and ethical standards;
12.3.3 in a manner free from dishonesty and
corruption; and
12.3.4 in a manner which shall enhance the image
and reputation of TLC and its Affiliates, but for the
avoidance of doubt it is declared and agreed that
this Agreement confers no right on W-A to use the
name or logo of TLC, except as otherwise stipulated
in this Agreement.
12.4 W-A affirms that it is familiar with the Foreign Corrupt
Practices Act of 1977 of the United States of America, as
amended by the Foreign Corrupt Practices Act Amendments of
1988 and as may be further amended and supplemented from
time to time ("FCPA"). W-A further warrants, covenants,
represents and agrees with TLC that, in connection with the
performance of this Agreement or with the sale of any
Product, neither W-A nor any of its principals, employees or
agents will perform, to the best of its knowledge and
belief, any act which would constitute a violation of the
FCPA or which would cause TLC to be in violation of the
FCPA. W-A shall certify the accuracy and veracity of the
foregoing representation and warranty from time to time as
TLC shall request. W-A will enforce the foregoing
obligation in accordance with the extract from its Code of
Conduct, attached as Schedule 5 and made a part hereof.
13. ADVERSE REACTION REPORTING
13.1During the term of this Agreement each Party will report
adverse reactions reported to it in respect of the Product
to the other Party and to the appropriate regulatory
authorities in accordance with all relevant laws and
regulations.
13.2During the term of this Agreement, W-A will report all
serious adverse reactions from any source to TLC's Affiliate
in the United Kingdom for regulatory reporting to the
Medicines Control Agency (the "MCA") and W-A Global Safety
Group within 24 hours of receipt. TLC will duly copy W-A's
Affiliate in the United Kingdom on any reports made to the
MCA marked "reported." All other non-serious reactions will
be reported by W-A's Affiliate in the United Kingdom to TLC
and W-A Global Safety Group on a monthly basis. TLC will
provide W-A with the MCA drug analysis and product analysis
prints upon request and will provide copies of any
anonymised reports received from the MCA.
13.3The central safety department of each Party will report to
the central safety department of the other Party all adverse
reactions reported to it in respect of the Product as
follows:
13.3.1 fatal unexpected and life-threatening
unexpected adverse reactions by telephone or
facsimile within three (3) working days of receipt by
the central safety department;
13.3.2 all other serious adverse reactions in
writing within fifteen (15) working days of receipt
by the central safety department; and
13.3.3 a summary of all adverse reactions, serious
and non-serious, in writing on a six-month basis for
the first two years and thereafter on a yearly basis,
indicating those cases which have previously been
reported to the other Party.
Further information received on any serious adverse reaction
(or any information which changes an adverse reaction from
non-serious to serious) will also be reported to the other
Party within three (3) or fifteen (15) working days of
receipt by the central safety department, according to the
above criteria.
13.4An adverse reaction will be considered "serious" if it is
any one or more of the following; namely, fatal, life
threatening, disabling or incapacitating, results in
hospitalisation or prolongation of hospitalisation, a
congenital abnormality, a carcinoma, or an overdose. In
addition, any adverse reaction which suggests a significant
hazard, contraindication, side effect or precaution that may
be associated with the use of the Product will be considered
a serious adverse reaction.
14. GRANT OF RIGHTS
14.1TLC hereby grants W-A the exclusive right to promote the
Product in the Territory under the TLC Trade Marks, subject
to Section 15 herein.
15. INTELLECTUAL PROPERTY
15.1TLC represents, warrants and undertakes that to the best of
its knowledge and belief at the Effective Date:
15.1.1 TLC or a TLC Affiliate owns the TLC Trade
Marks within the Territory;
15.1.2 the TLC Trade Marks are duly registered and
subsisting in the Territory and all renewal fees have
been duly paid;
15.1.3 nothing has been done within the Territory
to diminish or otherwise adversely affect the
reputation of the TLC Trade Marks;
15.1.4 TLC is not aware of any infringement by any
third party in the Territory of the TLC Trade Marks;
15.1.5 TLC or a TLC Affiliate owns the TLC Patents within the
Territory;
15.1.6 the TLC Patents are duly issued and
subsisting in the Territory, and all annuities have
been duly paid and shall when due be duly paid;
15.1.7 there is no pending or threatened claim,
proceeding or litigation relating to the TLC Trade
Marks or the TLC Patents that could adversely affect
the ability of W-A to market and sell the Product in
the Territory; and
15.1.8 there is no pending or threatened claim,
proceeding or litigation alleging that the sale or
use of the Product in the Territory would infringe a
patent, trademark or other intellectual property
right of a third party.
15.2During the period of this Agreement TLC shall carry out at
its own expense and with sole discretion any and all
activities required in the Territory in relation to TLC
Trade Marks or any TLC Patents, including prosecution,
maintenance, enforcement and defence of any of the same.
15.3Except as otherwise stipulated in this Agreement W-A
acknowledges that it has no right, title or interest in or
to the Product nor in the TLC Patents, the TLC Trade Marks,
or in any trade secrets, copyrights, design rights, database
rights, moral rights or other intellectual property rights
applicable to the Product. To the extent and in the manner
requested by TLC, W-A shall place patent, trade mark and
copyright notices and similar proprietary legends on all
Product and packaging materials in order to preserve the
proprietary rights of TLC or its Affiliates.
15.4W-A shall give TLC notice of any infringement within the
Territory of the TLC Trade Marks or the TLC Patents coming
to its attention. TLC shall have the right to have sole
conduct of any proceedings necessary, including full
authority to settle such proceedings. Prior to any such
settlement TLC shall consult with W-A on the impact of any
such settlement on W-A's interests. In the case of any
proceedings within the Territory, TLC shall be entitled to
join W-A as a co-plaintiff who shall provide all reasonable
assistance in relation to such proceedings at its own cost
and expense. If in any such proceedings, whether at trial
or by way of settlement, TLC is successful, it shall be
entitled to retain any award of costs and damages made in
such proceedings or settlement, but TLC shall remit to W-A
only to the extent of such recovery by TLC the reasonable
out-of-pocket costs, legal fees and expenses expended by W-A
in providing such assistance to TLC. In the case that TLC
informs W-A in writing that TLC has elected not to pursue
such infringement proceedings, W-A may initiate and pursue
such proceedings either on its own or as a joint plaintiff
with TLC, if TLC so desires, provided that W-A has obtained
TLC's written consent, which shall not be unreasonably
withheld. In the event that W-A shall bring proceedings on
its own, W-A shall be entitled to retain 100% of any award
of costs and damages awarded in such proceedings or
settlement monies paid in connection therewith, but W-A
shall remit to TLC only to the extent of such recovery by W-
A the reasonable out-of-pocket costs, legal fees and
expenses expended by TLC in providing assistance to W-A.
15.5If during the period of this Agreement either Party shall
receive any notice, claim or proceedings from any third
party alleging infringement of such third party's
intellectual property rights by reason of W-A's marketing or
sale of the Product in the Territory, such Party shall
forthwith notify the other Party of any such notice, claims
or proceedings and:
15.5.1 TLC shall be responsible at its own cost and
expense for dealing with any such notice, claim or
proceedings, and W-A shall co-operate in TLC's
handling and defence thereof; and
15.5.2 TLC shall have conduct of and sole authority
to defend or settle such claims or proceedings. In
order to resolve any such claims or proceedings, TLC
may agree to take a license from the owner of the
patent, trademark or other intellectual property
right in question, but if such license cannot be
obtained on terms that are acceptable to TLC, it may,
following consultation with W-A, elect to discontinue
marketing of the Product in the Territory, in which
case this Agreement shall be terminated, unless W-A
agrees to pay all or a portion of the license fees or
royalties necessary to obtain a license therefor.
The foregoing is without prejudice to any rights or
claims that W-A may have by reason of any breach by
TLC of the representations, warranties and/or
undertakings contained in Sections 15.1.1 through
15.1.8 hereof, except that the termination of this
Agreement by TLC in accordance with the terms of this
Section only shall not in itself constitute any
breach of TLC's obligations hereunder.
15.5.3 TLC shall indemnify and hold W-A free and
harmless from any payment of royalties or damages to
third parties as a consequence of any judgement,
award or settlement arising from a claim of patent or
trademark infringement, or infringement of other
intellectual property rights, based on W-A's use or
sale of the Product in the Territory under the TLC
Trade Marks and TLC Patents in accordance with the
terms of this Agreement, except as provided in
Section 15.5.2, and except for any claim based on
marketing or promotional materials created by,
packaging or labelling produced by, Product
modifications made by, or other acts done by, W-A,
its agents, employees or customers.
16. SALES TARGETS
16.1In the event that in any one year of the term of this
Agreement the Agreed Minimum Sales Targets are not achieved,
notwithstanding the provision and delivery of adequate
levels of stock of the Product to the market by TLC and by
TLC's distributor, then, subject to the saving clause
provided hereunder, TLC shall have the following options:
16.1.1 to terminate this Agreement or
16.1.2 to co-operate in improving the marketing of the
Product.
16.2For the purposes of Section 16.1.1, W-A may, at its option,
aggregate the Agreed Minimum Sales Targets in any two (2)
years of the term of this Agreement and take the average
thereof in order to meet such targets. If TLC wishes to
exercise the option set out in Section 16.1.1, it shall
notify W-A to this effect in writing within thirty (30) days
of receiving notice that any particular Agreed Minimum Sales
Target has not been met and thereupon the relevant
provisions of Sections 19 and 20 shall apply. However, the
Parties will agree on revised targets if the Agreed Minimum
Sales Targets are not achieved due to unforeseeable events
beyond W-A's reasonable control, such as actions of
governmental or regulatory authorities or any failure on the
part of TLC or its distributor to effect the sale of the
Product in circumstances envisaged in Section 10.8 of this
Agreement. Any failure by TLC to give notice of termination
within the thirty-day period will not constitute a waiver of
its right to terminate under Section 16.1.1 if additional
time is needed to enable TLC to determine the cause of such
failure to meet targets, to allow the Parties to negotiate
revised targets, or to calculate two-year averaged targets.
16.3TLC's failure to terminate this Agreement pursuant to the
provisions of Section 16.1.1 in any one year shall not
prejudice TLC's right to exercise this option in any of the
following years.
16.4If in any one year TLC wishes to exercise the option set out
in Section 16.1.2, TLC will convene a meeting of the
Operating Committee to determine a new plan for the
marketing and sale of the Product in the Territory (the "New
Marketing Plan").
16.5Upon being so convened, the Operating Committee shall
prepare the first year of the New Marketing Plan, and such
New Marketing Plan will contain:
16.5.1 an estimate of marketing/promotional budget
and selling expenses required for the Product in the
Territory during such year;
16.5.2 the target audiences for the Product in the
Territory; and
16.5.3 the marketing/promotional budget and selling
expenses and the projected number of details to be
shared by TLC or its Affiliate and W-A in the
Territory to all target audiences during such Year.
Such determination of budget and the number of
details shall be made considering factors including
the number of physicians in each target audience,
their geographic distribution, the elapsed time since
product launch, and the frequency of detailing visits
to each target audience which is customary in
pharmaceutical sales practice in the Territory for
products of similar nature to the Product, provided
always that W-A shall be required to perform a
guaranteed number of the projected details, such
number to be defined by the Operating Committee. In
no event shall such number of projected details by W-
A or TLC be less than thirty percent (30%) of total
projected details.
16.6In the event of a New Marketing Plan, and not later than
three (3) months prior to the beginning of any year, a New
Marketing Plan for the following year shall be prepared by
the Operating Committee covering the same issues as set out
in Section 16.5.
16.7During any year of the New Marketing Plan TLC or its
Affiliate and W-A shall supply each other on a regular,
monthly basis with copies of sales call reports in order to
ascertain the actual number of details undertaken by both
Parties. Such call reports will be treated as Confidential
Information under Section 17 and will be provided only to
employees of the Parties who are members of the Operating
Committee or who are responsible for calculating payments
hereunder.
16.8In the event that TLC or its Affiliate co-operates in the
marketing of the Product, it shall be entitled to a credit
against amounts owed to W-A calculated as the sum of A and
B, where
(I) For the first one million three hundred
thousand British pounds (1,300,000) of in-the-market
sales during each Contract Year:
DTLC
A = NS x 40% x ____________
DTLC + DE
DE
B = ET x ____________
DTLC + DE
and
(II) For all subsequent in-the-market sales during any
Contract Year:
DTLC
A = NS x 50% x ____________
DTLC + DE
DE
B = ET x ____________
DTLC + DE
and
NS = Net Sales for the three (3) months ending on
the day before each Quarter Day;
DTLC = The number of sales calls undertaken by TLC
and its Affiliates for the Product in the three (3)
months ending on the day before each Quarter Day;
DE = The number of sales calls undertaken by W-A
and its Affiliates for the Product in the three (3)
months ending on the day before each Quarter Day; and
ET = The expenses incurred by TLC and its
Affiliates in support of the Product in the
Territory, other than personnel-related expenses, in
the three (3) months ending on the day before each
Quarter Day.
Such credits shall be taken against payments due to W-A in
accordance with Section 10.1 herein. For the purpose of
making the foregoing calculation, W-A undertakes to inform
TLC of the applicable number of sales calls within five (5)
days after each of the Quarter Days.
17. CONFIDENTIALITY
17.1The Parties each undertake and agree to:
17.1.1 keep the Confidential Information secret and
confidential and not directly or indirectly to
disclose or permit to be disclosed the same to any
third party, other than its Affiliates, consultants
or other advisors, for any reason without the prior
written consent of the other Party;
17.1.2 ensure that only those of its officers and
employees and those of its Affiliates who are
directly concerned with the carrying out of this
Agreement have access to the Confidential Information
on a strictly applied "need to know" basis and are
informed of the secret and confidential nature of it;
17.1.3 ensure that the Confidential Information is
not covered by any fixed or floating charge entered
into at any time by it and not otherwise to establish
a lien over or in any other way encumber, the same;
and
17.1.4 not copy, reproduce or otherwise replicate
for any purpose or in any manner whatsoever any
documents, discs, CD-ROM or any other media upon
which Confidential Information can be permanently
stored containing the Confidential Information.
17.2The obligations of confidence referred to in this Section 17
shall not extend to any Confidential Information which:
17.2.1 is or shall be generally available to the
public otherwise than by reason of breach by the
recipient or its Affiliate of the provisions of this
Section;
17.2.2 in the case of Confidential Information
disclosed or made available to a Party ("Recipient
Party") or its Affiliate directly or indirectly by
the other Party:
(a) is known to the
Recipient Party and is at its free disposal
(having been generated independently by the
Recipient Party or a third party in
circumstances where it has not been derived
directly or indirectly from the other Party's
Confidential Information) prior to its receipt
from the other provided that evidence of such
knowledge is furnished by the Recipient Party
within twenty-eight (28) days of receipt of that
Confidential Information; or
(b) is subsequently
disclosed to the Recipient Party without
obligations of confidence by a third party owing
no such obligations in respect of that
Confidential Information;
17.2.3 is required by law to be disclosed
(including as part of any regulatory submission or
approval process) and then only when prompt written
notice of this requirement has been given to the
other Party so that the other Party may, if so
advised, seek appropriate relief to prevent such
disclosure, provided always that in such
circumstances such disclosure shall be only to the
extent so required and shall be subject to prior
consultation with the other Party with a view to
agreeing on the timing and content of such
disclosure.
17.3Subject to the provisions of Section 17.2.3, all
Confidential Information disclosed by one Party to the other
shall remain the intellectual property or property of the
disclosing Party. In the event of a court, nominee or
supervisor for composition in satisfaction of debts,
liquidator, trustee, receiver, administrative receiver,
receiver and manager, interim receiver, custodian
sequestrator or similar officer ("Officer") assumes partial
or complete Control over the assets of a Party based on the
insolvency or bankruptcy of that Party, that Party shall:
17.3.1 promptly notify the court or Officer:
(a) that Confidential
Information received from the other Party under
this Agreement remains the property of the other
Party unless expressly assigned;
(b) of the
confidentiality and security obligations
under this Agreement; and
17.3.2 to the extent permitted by law, take all
steps necessary or desirable to maintain the
confidentiality and security of the other Party's
Confidential Information and to ensure that the court
or Officer maintains that Confidential Information in
confidence and that Confidential Material is kept
secure in accordance with this Agreement.
17.4The terms and conditions of this Agreement shall be treated
as Confidential Information by both Parties. If either
Party desires to issue a press release regarding this
Agreement, it shall submit the proposed text of such press
release to the other Party and shall thereafter issue it
only if the other Party does not object to the proposed text
within forty-eight hours after receiving it. The Party
proposing to issue the press release will make reasonable
efforts to incorporate the other Party's comments and will
not issue any press release regarding this Agreement over
the other Party's objection except as provided in Section
17.2.3.
17.5The obligations of the Parties under Sections 17.1 to 17.4
shall survive the expiration or termination of this
Agreement for whatever reason and continue for a period of
five (5) years.
17.6The Parties understand and agree that remedies at law may be
inadequate to protect against any breach of any of the
provisions of this Section 17 by either Party or their
employees, agents, officers or directors or any other person
acting in concert with it or on its behalf. Accordingly,
each Party shall be entitled to seek the granting of
injunctive relief by a court of competent jurisdiction
against any action that constitutes any breach of this
Section 17. It is understood that injunctive relief is
intended solely as provisional relief pending resolution of
the dispute.
18. LIABILITY/INDEMNITY
18.1Subject to the provisions of Section 18.3, TLC shall
indemnify, defend and hold harmless W-A, its officers,
agents, employees and Affiliates from any and all liability,
loss, damage, cost and expense (including court costs and
reasonable attorney's fees) incurred or sustained by W-A or
its Affiliates as a result of any claim or demand of any
party arising out of or connected with the negligence of TLC
in the preparation of a clinical trial protocol and/or with
any defect which may arise from failure to meet product
specifications as approved by the Competent Authorities of
the Territory, including for such purposes manufacturing
defects arising out of the Product not complying with the
Specifications; provided however that TLC and its Affiliates
shall have no liability for any loss, damage, cost or
expense which directly results from:
18.1.1 failure of W-A, its officers, agents,
employees or Affiliates to adhere to the term of a
clinical trial protocol, TLC's instructions relative
to the use of the relevant Product or any term or
provision of this Agreement;
18.1.2 failure of W-A, its officers, agents,
employees or Affiliates to comply with any applicable
governmental or regulatory requirements; or
18.1.3 negligence or wilful malfeasance by W-A, its
officers, agents, employees and/or Affiliates, but
only to the extent that such loss, damage, cost or
expense are due to the negligence or wilful
malfeasance of W-A, its officers, agents, employees
and/or Affiliates.
18.2W-A shall indemnify, defend and hold harmless TLC, its
Affiliates, and their respective officers, agents and
employees from any and all liability, loss, damage, cost and
expense (including court costs and reasonable attorney fees)
incurred or sustained by any of them as a result of any
claim or demand of any party arising out of or connected
with:
18.2.1 failure of W-A, its officers, agents,
employees or Affiliates to adhere to the term of a
clinical trial protocol, TLC's written instructions
relative to the use of the relevant products or any
term or provision of this Agreement;
18.2.2 failure of W-A, its officers, agents,
employees or Affiliates to comply with any applicable
governmental or regulatory requirements; or
18.2.3 negligence or wilful malfeasance by W-A, its
officers, agents, employees and/or Affiliates.
18.3Neither Party shall be liable in an action for breach of
contract or in tort brought by one against the other whether
under the indemnity set out in Section 18.1 or 18.2 or
otherwise for special, indirect or consequential damages
resulting from such action or claim arising out of this
Agreement including without limitation loss of turnover,
profits, goodwill or business interruption however the same
may be caused.
18.4Each Party's agreement to indemnify and hold the other
harmless pursuant to this Section 18 is conditional upon the
indemnified party:
18.4.1 providing written notice to the indemnifying
party of any claim or demand arising out of the
indemnified activities within thirty (30) days after
the indemnified party has knowledge of such claim or
demand;
18.4.2 permitting the indemnifying party to assume
full responsibility to investigate, prepare for and
defend against any such claim or demand including the
right to compromise or settle the same; and
18.4.3 not compromising or settling such claim or
demand without the indemnifying party's written
consent.
Each Party agrees that any settlement made by an
indemnifying party shall not impose an obligation or
restriction on any indemnified party without such
indemnified party's written consent.
19. TERM
19.1Subject to the provisions for early termination contained
herein, this Agreement shall take effect from the Effective
Date and shall continue until the fifth anniversary thereof
(the "Initial Term"). Provided that the Agreed Minimum
Sales Targets are achieved, as modified by Section 16.2,
during the Initial Term or during any subsequent period of
five (5) Contract Years (a "Renewal Term"), W-A shall have
the right to market the Product for an additional Renewal
Term, subject to good faith agreement between the Parties
regarding the Agreed Minimum Sales Targets for the Renewal
Term. In the event that the Parties are unable to agree,
then TLC agrees that it shall market the Product to the
exclusion of any other third party.
19.2In the event that the Parties are unable to agree on renewal
terms after the Initial Term or any Renewal Term, TLC will
make payments to W-A in the amount of fifteen percent (15%)
of the Net Sales of Product sold in the Territory by TLC or
its Affiliate in the first year following termination of
this Agreement, or, if the Product is marketed by an
independent distributor, fifteen percent (15%) of the
revenue received by TLC or its Affiliate from such
distributor on account of Product shipped to the distributor
during the first year following termination of this
Agreement; and seven and one-half percent (7.5%) of the Net
Sales of Product sold in the Territory by TLC or its
Affiliate in the second year following termination of this
Agreement, or, if the Product is marketed by an independent
distributor, seven and one-half percent (7.5%) of the
revenue received by TLC or its Affiliate from such
distributor on account of Product shipped to the distributor
during the second year following termination of this
Agreement. No such payments will be required if the reason
for nonrenewal is a failure to meet Agreed Minimum Sales
Targets during the Initial Term or any Renewal Term.
19.3In the event that the Agreement is terminated prior to the
expiration of the Initial Term due to TLC's material breach,
then TLC agrees to make payments to W-A representing
compensation to W-A equal to seven and one-half percent
(7.5%) of Net Sales for each year which W-A would otherwise
have had marketing rights but for the termination, based on
the Net Sales for the immediately preceding twelve (12)
months prior to the effective date of termination.
20. TERMINATION
20.1Each Party shall have the right to terminate this Agreement
upon giving ninety (90) days written notice thereof to the
other Party upon the occurrence of the following events at
any time during the term of this Agreement:
20.1.1 if the other Party commits a material breach
of this Agreement, which in the case of a breach
capable of remedy shall not have been remedied within
thirty (30) days of the receipt by it of a notice
identifying the breach and requiring its remedy;
20.1.2 any Party shall suspend payment of its debts
or cease or threaten to cease to carry on its
business or become bankrupt or insolvent;
20.1.3 a proposal is made or a nominee or
supervisor is appointed for a composition in
satisfaction of the debts of any Party or a scheme or
arrangement of its affairs in relation thereto or any
Party commences negotiations with one or more of its
bankers with a view to the general readjustment or
rescheduling of all or part of its indebtedness or
enters into any composition or arrangement for the
benefit of its creditors or proceedings are commenced
in relation to any Party under any law, regulation or
procedure relating to the re-construction or re-
adjustment of debts (including where a petition is
filed or proceedings commenced seeking any
reorganisation, arrangement, composition or
readjustment under any applicable bankruptcy,
insolvency, moratorium, reorganisation or other
similar law affecting creditor's rights or where a
Party consents to, or acquiesces in, the filing of
such a petition);
20.1.4 an application is made to the courts for an
administrative order under the bankruptcy laws or any
statutory modification or re-enactment thereof with
respect to any Party;
20.1.5 any Party takes, without the consent of the
other Party (such consent not to be unreasonably
withheld), any action, or any legal proceedings are
started or other steps taken by a third party, with a
view to:
(a) the winding up or dissolution of such Party
(other than for the re-construction of a solvent
company); or
(b) the appointment of a liquidator, trustee,
receiver, administrative receiver, receiver and
manager, interim receiver custodian, sequestrator
or similar officer of such Party against the
Party or a substantial part of the assets of the
Party; or
20.1.6 the pricing authorisation imposed by the
Competent Authority is below the minimum price
provided under Section 5.1.
20.2TLC shall have the right to terminate this Agreement upon
giving thirty (30) days written notice thereof to W-A in the
event that a third party unrelated to W-A's current
shareholders acquires Control of W-A and such party is
engaged directly or indirectly in the manufacture or sale of
lipid products.
20.3Upon termination of this Agreement for any reason W-A shall
forthwith:
20.3.1 discontinue making any representations
regarding its status as a provider of promotion
services for TLC;
20.3.2 cease conducting any activities with respect
to the marketing or sale of the Product in the
Territory;
20.3.3 return to TLC technical sales or promotional
and sales training material and any other material of
TLC then in its possession including without
limitation all Confidential Information and all
clinical data concerning the Product;
20.3.4 refrain from using the TLC Trade Marks; and
20.3.5 if so requested by TLC and at TLC's expense
take all actions reasonably requested by TLC to
transfer to TLC or its designee any registration,
approval or other regulatory licence or permission
granted to W-A by a Competent Authority in the
Territory for the Product.
20.4Except for sums otherwise owing upon termination of this
Agreement or thereafter becoming due and payable neither
Party should be required to pay the other Party any
termination damages or special, incidental or consequential
damages of any kind arising out of the termination
(including without limitation labour claims and loss of
profits, investments or goodwill), and W-A hereby waives and
disclaims any such claims whether arising under local law or
otherwise.
20.5Upon termination of this Agreement howsoever arising the
rights of each Party against the other which have accrued at
the date of termination shall not be affected.
21. ASSIGNMENT
21.1Except as provided in Section 21.2, the obligations and
rights provided in this Agreement shall not be assigned,
transferred or sub-contracted by any Party unless agreed
upon in writing by the other. Subject to the foregoing, the
rights and obligations of the Parties hereunder shall inure
to the benefit of and bind their respective successors and
assignees.
21.2Subject to the prior written consent of TLC, which consent
shall not be unreasonably withheld, W-A shall be entitled to
assign its rights and obligations under this Agreement to
any wholly or majority owned Affiliate of W-A. TLC may
assign in whole or in part its obligations and rights in
this Agreement to a TLC Affiliate at any time at its
discretion.
22. FORCE MAJEURE
22.1If a Party ("the Non-Performing Party") shall be unable to
carry out any of its obligations under this Agreement due to
Force Majeure, this Agreement shall remain in effect but
for:
22.1.1 the Non-Performing Party's relevant
obligations; and
22.1.2 the relevant obligations of the other Party
("the Innocent Party") owed to the Non-Performing
Party under this Agreement shall be suspended for a
period equal to the circumstance of Force Majeure or
three (3) months, whichever is the shorter, provided
that:
22.1.2.1 the suspension of
performance is of no greater scope than is
required by the Force Majeure;
22.1.2.2 the Non-Performing
Party gives the Innocent Party prompt
notice describing the circumstance of Force
Majeure, including the nature of the
occurrence and its expected duration, and
continues to furnish regular reports with
respect thereto during the period of Force
Majeure;
22.1.2.3 the Non-Performing Party uses
all reasonable efforts to remedy its
inability to perform and to mitigate the
effects of the circumstance of Force
Majeure; and
22.1.2.4 as soon as practicable after
the event which constitutes Force Majeure,
the Parties shall discuss how best to
continue their operations as far as
possible in accordance with this Agreement.
22.2If Force Majeure is continuing at the expiry of the said
period of three (3) months the Innocent Party shall have the
right to terminate this Agreement forthwith upon notice in
writing to the Non-Performing Party.
23. WAIVER
23.1No Party shall be deemed to have waived any of its rights or
remedies whatsoever unless such waiver is made in writing
and signed by a duly authorised representative of that
Party. In particular, no delay or failure of either Party
in exercising or enforcing any of its rights or remedies
whatsoever shall operate as a waiver thereof or so as to
preclude or impair the exercise or enforcement thereof nor
shall any partial exercise or enforcement of any such right
or remedy by a Party preclude or impair any other exercise
or enforcement thereof by such Party.
24. SEVERANCE OF TERMS
24.1If the whole or any part of this Agreement is or shall
become or be declared illegal, invalid or unenforceable in
any jurisdiction for any reason whatsoever (including both
by reason of the provisions of any legislation or by reason
of any decision of any court or Competent Authority either
having jurisdiction over this Agreement or having
jurisdiction over either of the Parties to this Agreement)
then:
24.1.1 in the case of the illegality, invalidity or
unenforceability of the whole of this Agreement, it
shall terminate in relation to the jurisdiction in
question; or
24.1.2 in the case of the illegality, invalidity or
unenforceability of part of this Agreement, such part
shall be severed from this Agreement in the
jurisdiction in question and such illegality,
invalidity or unenforceability shall not in any way
whatsoever prejudice or affect the remaining parts of
this Agreement which shall continue in full force and
effect provided always that if in the reasonable
opinion of any Party any such severance materially
affects the commercial basis of this Agreement, such
Party shall have the right to terminate this
Agreement with immediate effect upon giving ninety
(90) days written notice to the other Party
containing the reason(s) why the commercial basis of
this Agreement has been materially affected by such
severance.
25. ENTIRE AGREEMENT/VARIATIONS
25.1 This Agreement constitutes the entire agreement and
understanding between the Parties and supersedes all prior
oral or written understandings, arrangements,
representations or agreements between them relating to the
subject matter of this Agreement. No director, employee or
agent of either Party is authorised to make any
representation or warranty to the other Party not contained
in this Agreement, and each Party acknowledges that it has
not relied on any such oral or written representations or
warranties.
25.2No variation, amendments, modification or supplement to this
Agreement shall be valid unless made in writing in the
English language and signed by a duly authorised
representative of each Party.
26. NOTICES
26.1Save as otherwise expressly provided in this Agreement, any
notice or other communication to be given by any person to
any other person pursuant to this Agreement shall be in
writing and in the English language and shall be given by
letter delivered by hand or sent by courier or facsimile and
shall be addressed to the recipient and sent to the address
or facsimile number of the recipient set out in Schedule 3
hereto marked for the attention of the representative set
out in Schedule 3 or to such other address and/or facsimile
number or marked for such other attention as such recipient
may from time to time specify by notice given in accordance
with this Section 26.1 to the Party giving the relevant
notice or other communication to it and shall be deemed to
have been received:
26.1.1 in the case of delivery by hand or by
courier, when delivered; or
26.1.2 in the case of facsimile, on acknowledgement
by the recipient facsimile receiving equipment on a
Business Day provided that such acknowledgement
occurs before 1700 hours local time of the recipient
on the Business Day of acknowledgement and in any
other case on the Business Day next following the
Business Day of acknowledgement.
26.2In the case of notices other than orders for goods given by
fax written confirmation should be sent by recorded mail
within 48 hours.
27. COSTS
27.1Each Party shall bear its own legal fees and expenses and
any other expenses incurred in the preparation and execution
of this Agreement.
28. GOVERNING LAW
28.1The interpretation, validity, construction and performance
of this Agreement shall be governed by the laws of the State
of New York, as the same may be in effect at the time of any
legal proceeding pursuant to Section 29.
29. JURISDICTION
29.1Any dispute between the Parties regarding the
interpretation, construction or performance of this
Agreement that cannot be resolved through amicable
negotiations shall be finally resolved by submission to the
exclusive jurisdiction of the United States Federal Courts
for the Southern District of New York. Solely for the
purposes of this Agreement, each of the Parties hereto does
hereby irrevocably submit to the exclusive jurisdiction of
the United States Federal Courts sitting in the Southern
District of New York.
30. NO PARTNERSHIP OR AGENCY CREATED
30.1Nothing in this Agreement shall constitute or be deemed to
constitute a partnership between TLC or its Affiliates and W-
A or constitute or be deemed to constitute W-A as agent of
TLC or its Affiliates or to contract in the name of or to
create a liability against TLC or its affiliates in any way
or for any purpose.
AS WITNESS whereto the respective signatures have been given on
behalf of the Parties hereto on the day and year first above
written.
Wyeth-Ayerst International Inc. The Liposome
Company, Inc.
By: By:
Name: Beat H. Leber Name: Michael McGrane
Title: Vice President, Title: Vice President, General
Business Development Counsel & Secretary
Date: Date:
L:\LEGALDPT\LEGAL\DISTRIB\WYAY_UK6.DOC
SCHEDULE 1
AGREED MINIMUM SALES TARGETS
Year 1 817,410 British pounds (100mg vials)
156,293 British pounds (50mg vials) *
Year 2 1,022,420 British pounds
Year 3 1,073,540 British pounds
Year 4 1,073,540 British pounds
Year 5 1,073,540 British pounds
_______________
* Assuming April 1, 1999 launch of 50mg vials:
525 packs of 50mg vials (This number can be amended on a pro
rata basis if the launch date goes beyond April 1, 1999)
SCHEDULE 2
SPECIFICATIONS
ABELCET
(Amphotericin B Lipid Complex or ABLC)
Supplied as suspension in vials containing 20ml (100mg of
amphotericin B) or 10ml (50mg of amphotericin B).
Each ml contains:
Amphotericin B USP 5.0mg
L-a-Dimyristoylphosphatidylcholine (DMPC) 3.4mg
L-a-Dimyristoylphosphatidylglycerol (DMPG) 1.5mg
(as sodium and ammonium salts)
Sodium Chloride 9.0mg
Water for injection, q.s. ad 1.0ml
SCHEDULE 3
NOTICES
To TLC: The Liposome Company, Inc.
One Research Way
Princeton Forrestal Center
Princeton, NJ 08540
Facsimile: 609-734-0882
Attention: Chief Executive Officer
To W-A: Wyeth-Ayerst International Inc.
150 Radnor-Chester Road
St. Davids, PA 19087
Facsimile: 610-254-9528
Attention: Mr. Beat H. Leber
SCHEDULE 4
LIST PRICE
The List Price is as follows:
ABELCET (100mg X 10 vials) 860 British pounds
ABELCET (50mg X 10 vials) 500 British pounds
SCHEDULE 5
EXTRACT FROM WYETH-AYERST CODE OF CONDUCT
SCHEDULE 6
TLC PATENTS
(EP) 0282405
(EP) 0394265
(EP) 0270460
SCHEDULE 7
MEDICAL INFORMATION PROCEDURES
Schedule 7
Provision of Medical Information & Handling of Customer
Complaints.
1. Provision of Medical Information
1.1 Date of Handover of Inquiries
W-A shall have responsibility for the provision of Medical
Information from the Effective Date.
1.2 Stability Inquiries
W-A will handle stability inquiries as per the guidelines
below
TLC will provide guidelines (for consideration and agreement
by W-A) as to which stability inquiries W-A will handle and
where these would need to be answered in conjunction with
TLC.
1.3 Medical Information Enquiries
Answering of all Medical Information inquiries is the
responsibility of W-A.
TLC to provide copies of the following to enable W-A to
handle the above:
Abelcet Database
Copies of all Clinical Papers
Copies of all Standard Letter / Texts
Breakdown of changes to SmPC
TLC to provide back-up should W-A be unable to answer any
questions.
1.4 MIMS & BNF Entries
W-A's responsibility.
2.0 Customer Complaints
These remain the responsibility of TLC, and any complaints
will be directed care of Karen Jones @ TLC
