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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________.
Commission file number 0-18549
GENSIA SICOR INC.
(Formerly Gensia, Inc)
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(Exact name of registrant as specified in its charter)
Delaware 33-0176647
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19 Hughes
Irvine, California 92618
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(Address of principal executive offices and zip code)
(714) 455-4700
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01
Preferred Stock Purchase Rights, Par Value $.01
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(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
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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.
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At March 23, 1998, the aggregate market value of the voting stock held by
nonaffiliates totaled approximately $247.0 million, based on the last sale price
as reported on the Nasdaq National Market.
At March 23, 1998, there were 79,282,513 shares of common stock, $.01 par value,
of the registrant issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(To the extent indicated herein)
The registrant's definitive proxy statement filed in connection with
solicitation of proxies for its Annual Meeting of Stockholders to be held on
June 15, 1998 is incorporated by reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
Gensia Sicor Inc. (formerly Gensia, Inc.) ("Gensia Sicor" or the "Company")
is a vertically integrated pharmaceutical company with expertise in the
development, manufacture and marketing of injectable pharmaceuticals and the
production of specialty bulk drug substances utilizing synthesis or
fermentation. On February 28, 1997 Gensia Sicor completed its acquisition of
Rakepoll Holding B.V. ("Rakepoll Holding") from Rakepoll Finance N.V. ("Rakepoll
Finance"). Rakepoll Holding is the parent company of three specialty
pharmaceutical businesses: SICOR-Societa Italiana Corticosteroidi S.p.A.
("Sicor") of Milan, Italy, and two companies located in Mexico: Lemery, S.A. de
C.V. ("Lemery") and Sicor de Mexico, S.A. de C.V. ("Sicor de Mexico"). In
addition, in December 1997 Sicor purchased a 50% equity interest in Diaspa
S.p.A., an Italian company engaged in the manufacture of raw materials used in
Sicor's business. Gensia Sicor's company offices are located in Irvine,
California.
Gensia Sicor Pharmaceuticals, Inc. (formerly Gensia Laboratories, Ltd. and
herein referred to as "Gensia Sicor Pharmaceuticals") is a wholly owned
subsidiary of the Company located in Irvine, California. Prior to the
acquisition of Rakepoll Holding, Gensia Sicor Pharmaceuticals was the Company's
primary operating unit. Gensia Sicor Pharmaceuticals' business emphasis has
been on the development, manufacture and marketing of oncology, anesthesiology
and other key multisource injectable pharmaceuticals for the North American
market. Gensia Sicor Pharmaceuticals is currently engaged in discussions with
other pharmaceutical companies in an effort to expand its product offerings to
foreign markets. In addition, Gensia Sicor Pharmaceuticals provides contract
manufacturing services to a number of pharmaceutical and biotechnology
companies.
Sicor and Sicor de Mexico produce specialty bulk drug substances. Lemery
manufactures oral and injectable finished multisource drug products. The
specialty drug substances produced by Sicor and Sicor de Mexico are primarily
used in parenteral, topical and inhalation therapy products. Almost all of these
products belong to one of three categories: (1) anticancer agents, (2) steroids
or (3) non-depolarizing muscle relaxants used in anesthesia. The principal
markets for Sicor's and Sicor de Mexico's specialty bulk drug substances are the
U.S., Canada, the European Union and Japan. The finished multisource drug
products manufactured by Lemery are sold primarily to the national health
program in Mexico and to certain countries in Central and South America, North
Africa, the Middle East and Eastern Europe.
Rakepoll Holding created a wholly owned subsidiary called Gensia Sicor de
Mexico during the third quarter of 1997. Gensia Sicor de Mexico is a service
company with 17 employees located in Mexico that provides administration for
Lemery and Sicor de Mexico. This service company enables Lemery and Sicor de
Mexico to utilize common administrative services, thus avoiding any duplication
of resources.
Gensia Sicor also conducts basic pharmaceutical research at its San Diego
location through its Metabasis Therapeutics, Inc. subsidiary ("Metabasis").
Metabasis' basic research activities are funded primarily through collaborations
with other pharmaceutical companies. Metabasis receives contract research
revenues through its research collaborations with Pfizer Inc. ("Pfizer") in the
area of pain management and with Sankyo Co. Ltd. ("Sankyo") for basic research
funding to discover and develop drugs for the treatment of non-insulin dependent
(Type II) diabetes. In December 1997, Sankyo made a $7.25 million equity
investment in Metabasis for approximately an 8% interest in Metabasis. Gensia
Sicor is continuing to pursue plans to establish Metabasis as an independent
company. Accomplishing this goal is dependent on obtaining additional financing,
certain third party consents and tax considerations.
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In December 1997 the Company divested an 81% interest in Gensia
Automedics, Inc. ("Automedics") in order to reduce future operating losses and
cash flow requirements associated with this business. In anticipation of this
divestiture, Gensia Sicor transferred its licensed and proprietary medical
products, including the GenESA(R) System, Brevibloc(R), and the AutoHep(TM)
System (previously called the Feedback Controlled Heparin System) to
Automedics in exchange for future royalty and milestone payments, and
subordinated preferred shares of Automedics. Subsequently, Automedics sold an
equity interest representing approximately 81% of Automedics to private
investors for $6.0 million, which resulted in decreasing Gensia Sicor's
beneficial ownership of Automedics to 19%. Due to the contingent nature of the
potential royalty and milestone payments, Gensia Sicor recorded a charge of
approximately $11.5 million in the fourth quarter of 1997, including the write-
off of approximately $7.3 million of intangible assets related to the products
transferred to Automedics. Gensia Sicor has retained potential obligations
from agreements that were assigned to Automedics, which obligations could
exceed $20 million. In particular, Gensia Sicor assigned its Development and
Supply Agreement dated January 26, 1990, as amended, with Protocol Systems,
Inc. (the "Protocol Systems Agreement") to Automedics, which is discussed
further on Page 28. Gensia Sicor remains liable for these obligations if
Automedics does not fulfill these contractual commitments. In addition, while
Gensia Sicor has assigned agreements with Gensia Clinical Partners, L.P. to
Automedics, if Automedics fails to comply with the provisions of these
agreements, including using its best efforts to market the GenESA System and
paying royalties on sales of the GenESA System to Gensia Clinical Partners,
L.P., the Company remains liable for obligations under these agreements.
Further, if Automedics chooses to exercise an option to purchase the limited
partnership interests of Gensia Clinical Partners, L.P., Gensia Sicor has
agreed to loan to Automedics up to 50% of the aggregate amount of the payments
made to exercise such option. This loan could equal approximately $11 million
and may be funded in cash or stock. Automedics has agreed to repay Gensia
Sicor within three years of any such funding.
UNITED STATES PHARMACEUTICAL OPERATIONS
GENSIA SICOR PHARMACEUTICALS
Gensia Sicor Pharmaceuticals has broad capabilities in the formulation,
development, marketing and manufacturing of multisource injectable
pharmaceuticals. Since 1991 Gensia Sicor Pharmaceuticals has built a sales and
marketing infrastructure which covers the major hospital markets in the United
States, focusing its sales calls on hospital pharmacies and distributors
servicing alternate site providers such as oncology clinics and outpatient
surgery centers. As collective purchasing agreements have become increasingly
important to healthcare providers as a means to control costs, Gensia Sicor
Pharmaceuticals' corporate marketing group has grown and has established
relationships with hospital group purchasing organizations, managed care groups
and other large healthcare purchasing organizations.
One area of particular focus for the Company is the development of products
for the worldwide oncology market. As a result, Gensia Sicor Pharmaceuticals
has undertaken the construction of a manufacturing facility which will be
dedicated to the production of oncology drugs. Gensia Sicor Pharmaceuticals
began the first pilot manufacturing runs in this facility in the first quarter
of 1998. Gensia Sicor Pharmaceuticals has marketing rights in the United States
to three oncology products (doxorubicin, etoposide and cisplatin) manufactured
in polymer vials by Delta West Pty. Limited, a wholly-owned subsidiary of
Pharmacia & Upjohn, Inc. Two of these products, doxorubicin and etoposide, are
approved by the United States Food and Drug Administration ("FDA").
Gensia Sicor Pharmaceuticals is developing additional oncology products for
sale in the U.S. through its own sales and marketing group, and outside of the
U.S. through distributors and marketing partners. Gensia Sicor does not intend
to establish a sales force outside of North America. The Company intends to
have Sicor supply the bulk drug substances required for a number of the oncology
products under development. Gensia Sicor believes that through its vertical
integration of bulk drug substances and finished product manufacturing, it can
be one of the lowest cost producers in the multisource oncology market.
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In addition, product development is continuing for multisource injectable
drugs in anesthesiology and cardiology as well as other selected areas. Gensia
Sicor Pharmaceuticals currently has nine Abbreviated New Drug Applications
("ANDAs") filed with the FDA and has approximately 32 multisource products under
development. Gensia Sicor believes that this investment in product development
may position Gensia Sicor Pharmaceuticals for growth over the next five years
when a number of major injectable drugs will come off-patent. There is no
assurance that such growth will occur.
Gensia Sicor Pharmaceuticals' major injectable pharmaceutical products
include atracurium, bumetanide, desmopressin, diltiazem, dipyridamole,
doxorubicin, fluphenazine, leucovorin calcium, and tobramycin. Gensia Sicor
Pharmaceuticals currently offers approximately 30 multisource pharmaceuticals in
its product line.
Gensia Sicor Pharmaceuticals also has a contract manufacturing business
which manufactures sterile injectable products for biotechnology and
pharmaceutical companies. Gensia Sicor offers a range of manufacturing
services, including production of pilot and commercial quantities of bulk
materials, formulation development, and commercial scale manufacturing of
finished dosage forms. The contract manufacturing business has experienced
growth since 1995 and Gensia Sicor believes additional growth may be attained by
expanding its collaborations with biotechnology and pharmaceutical companies.
The oncology facility planned for completion in 1998 may also present contract
manufacturing opportunities. There is no assurance that such growth will be
sustained.
FOREIGN PHARMACEUTICAL OPERATIONS
In February 1997, the Company acquired three specialty pharmaceutical
companies comprised of a company located in Italy, Sicor, and two companies
located in Mexico, Sicor de Mexico and Lemery. Sicor and Sicor de Mexico
manufacture specialty bulk drug substances. Lemery produces oral and injectable
finished multisource drug products (also called finished dosage forms) utilizing
specialty bulk drug substances produced by Sicor and Sicor de Mexico or
purchased from third parties. In December 1997, Sicor purchased a 50% equity
interest in Diaspa, a private Italian pharmaceutical company specializing in
bulk fermentation products.
The specialty bulk drug substances manufactured by Sicor and Sicor de
Mexico are used in parenteral, oral, or topical administration, including
inhalation therapy, and almost all belong to one of three categories: (i)
oncolytic agents, (ii) steroids or (iii) non-depolarizing muscle relaxants. The
steroids are either progestins used in contraceptives or corticosteroids used in
a variety of anti-inflammatory preparations, including preparations used in the
treatment of asthma, allergies and certain dermatological conditions. Certain
progestins also have oncolytic applications. The muscle relaxants are used in
conjunction with anesthetics during surgery.
The principal markets for these specialty bulk drug substances are the
United States, Canada, the European Union ("EU") and Japan. The finished
multisource drug products manufactured by Lemery are sold primarily to the
national health program in Mexico and exported to certain countries in Central
and South America, North Africa, the Middle East and Eastern Europe.
Oncolytic Agents
Due to a worldwide increase in the incidence of cancer, related in part to
the general aging of the world's population, and to the introduction of new
regimens for the treatment of cancer, the demand for oncolytic agents continues
to increase. Sicor offers a wide range of oncolytic specialty bulk drug
substances and finished dosage forms. The oncolytic agents produced by Sicor are
etoposide, the anti-cancer antibiotics bleomycin, mitomycin, daunorubicin,
epirubicin and idarubicin, and the progestins medroxyprogesterone acetate and
megestrol acetate. Lemery manufactures various oncolytic agents in finished
dosage form, including carboplatin, epirubicin, etoposide, cisplatin,
doxorubicin, bleomycin, paclitaxel and vincristine.
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Sicor de Mexico produces two progestins, megestrol acetate and
medroxyprogesterone acetate, which may be used in high dosages to treat certain
hormone dependent malignancies, such as breast cancer, in addition to the
latter's more typical use in contraceptives. The principal market for these
compounds is currently the Far East. The Company has applied with the FDA to
market Sicor de Mexico's version of such compounds in the United States. Sicor
de Mexico also produces the progestins cyproterone acetate, which is generally
used in the treatment of prostate cancer, although it may also be used as a
component in contraceptives, and chlormadinone acetate, which is administered
orally for the treatment of prostate cancer and benign prostate hypertrophy.
Sicor de Mexico also produces deflazacort, a steroid with oral anti-inflammatory
activity. The principal markets for these drug substances are the EU, Brazil,
Canada, Argentina, the Middle East and Japan.
Sicor de Mexico also recently completed construction of a facility to
produce oncolytic agents. The first oncolytic agents scheduled to be produced
include cisplatin (used in the treatment of testicular, ovarian and bladder
cancers), carboplatin (used in the treatment of advanced ovarian cancer), and
mitoxantrone (used in combination therapy for the treatment of adult leukemias).
Steroids
The steroids manufactured by Sicor and Sicor de Mexico are either
progestins or corticosteroids, used in a variety of anti-inflammatory
preparations for the treatment of asthma, allergies and certain dermatological
conditions. Sicor and Sicor de Mexico together produce six such progestins:
medroxyprogesterone acetate, megestrol acetate, cyproterone acetate,
chlormadinone acetate, gestodene and desogestrel. Medroxyprogesterone acetate is
principally used as component of sustained release contraceptives which are
widely used in developing nations. The principal markets for this steroid are in
Indonesia, the Philippines and Thailand. In addition, megestrol acetate,
chlormadinone acetate, cyproterone acetate and medroxyprogesterone acetate have
certain oncolytic applications.
Gestodene and desogestrel are highly active third generation progestins of
which Sicor has only produced laboratory quantities to date. The compounds are
principally used in contraceptives in more advanced markets such as the United
States and the EU. Their activity allows the production of dosage forms with
very low concentrations of such compounds.
Sicor and Sicor de Mexico manufacture corticosteroid products with respect
to which they have either developed a proprietary production technology,
including seven different process patents, or enjoy some other market advantage.
Sicor and Sicor de Mexico manufacture over 50 corticosteroids.
Ongoing research to increase the selective activity and reduce the long-
term toxicity of various corticosteroid compounds has produced a number of
corticosteroid products which are now coming off patent. These new products
together with a growing market for such products in developing countries have
enabled Sicor and Sicor de Mexico to consistently expand their production of
these compounds for several years.
The highest growth rate of corticosteroid use is in the management of
obstructive airway diseases, and corticosteroids are one of the preferred
prophylactic treatments for asthma in the U.S. This, together with the
expiration of certain patents, has led to an increase in the demand for two
principal corticosteroids in this field: beclomethasone dipropionate and
budesonide, both of which are produced by Sicor and Sicor de Mexico.
Other Drugs
In addition to the oncolytic agents and steroid products discussed above,
Sicor also produces as bulk drug substances the muscle relaxants atracurium
besylate, pancuronium bromide and vecuronium bromide, the immunosuppressant drug
cyclosporine and the prodrug dexrazoxane.
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Cyclosporine is a selective immunosuppressant administered to virtually all
transplant patients. It reduces the risk of severe organ rejection and must be
taken by such patients for most of their lives. The worldwide market for
cyclosporine finished drug products is estimated at more than $1.3 billion
annually. Gensia Sicor has a supply agreement with SangStat Medical Corporation
("SangStat") for the commercial supply of cyclosporine bulk drug substance.
SangStat filed an application with the FDA in November 1996 for U.S. marketing
clearance of its proprietary cyclosporine formulation, which is currently under
review. Cyclosporine sales to SangStat are dependent on SangStat receiving
regulatory approval to market the drug in both the U.S. and Europe. In July
1997, Sicor received FDA approval for the bulk cyclosporine it produces for
SangStat. In December 1997, Gensia Sicor announced that Sicor had also received
European approval of its cyclosporine bulk drug substance for use in the
European Union. In connection with the supply agreement, SangStat made a $2.5
million equity investment in Gensia Sicor Common Stock. The funding is being
used to increase the Company's capacity for the production of cyclosporine bulk
drug substance.
Sicor manufactures the prodrug dexrazoxane. Prodrugs become effective only
after they are partially metabolized by the body. Dexrazoxane metabolites trap
the iron ions involved in the process which leads to myocardial damage caused by
anthracycline oncolytic agents such as doxorubicin. Administration of
dexrazoxane with such oncolytic agents protects tissues of the heart and allows
for higher dosages of the oncolytic agent. Sicor manufactures dexrazoxane
according to a proprietary process covered by process patents filed in many
countries. Sicor is developing dexrazoxane with Chiron BV, which is responsible
for product development, including clinical trials, dosage form manufacturing,
marketing and sales.
Future Developments
Sicor has obtained an exclusive license for a new oncolytic product ("UK
101") from Zetesis S.p.A. of Milan. UK 101 is a protein antigen obtained from
goat liver. Antigens trigger an immune response designed to destroy such
antigens. Antibodies attach themselves to the antigen marking it for elimination
by the immune system. The antibodies which attack UK 101 also attach themselves
to the membrane of certain cancer cells. It is hoped that cancer cells so marked
may then be disposed of by the immune system. The mechanics of this process
are now the subject of further study by university researchers in Italy. A
Phase I study with women who have advanced breast cancer is underway in Italy.
If UK101 is shown to be safe and well tolerated, Sicor will submit an
application to proceed with a Phase II study. A second series of studies has
been approved by the Mexican Ministry of Health and will be conducted in Mexico
by Lemery.
In addition, at its facility outside of Turin, Sicor is developing a
glycoprotein, urofollitropin. Urofollitropin is involved in the stimulation of
ovulation and is used in the treatment of certain types of infertility. Sicor is
developing a process for the isolation of urofollitropin from the urine of post-
menopausal women.
In December 1997, the Company signed an option agreement with Solidago A.G.
granting the Company an option to license various compounds developed by
Solidago for the generic market. Sicor is also currently working with a number
of pharmaceutical companies to develop new proprietary pharmaceutical products.
If these products are successfully developed, Sicor expects to have long term
supply rights for the bulk active ingredients used in these products.
RESEARCH ACTIVITIES - METABASIS THERAPEUTICS, INC.
Metabasis' basic research efforts are focused on discovering and developing
small molecule pharmaceuticals that target key regulatory points in metabolic
pathways and positively impact the course of a targeted disease.
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Metabasis believes its technology has broad applications and is initially
focused on the discovery and development of drugs for the treatment of pain,
inflammation, diabetes and cardiovascular disease. Metabasis has specific
expertise in computer assisted structure based drug and prodrug design,
enzymology, disease biology and small molecule medicinal chemistry. Metabasis
has established a significant proprietary position in the chemistry and biology
of purines, molecules that are involved in the regulation of many cellular
metabolic processes.
Metabasis' expertise in purine chemistry and biology has led to the
discovery of a class of compounds designed to regulate metabolic pathways
responsible for the production or degradation of the pharmacologically important
molecule, adenosine. Metabasis has two adenosine regulating drugs that have
completed Phase I clinical testing. One is targeted for the treatment of
cardiovascular disease and the other is for the treatment of epilepsy.
Metabasis is seeking to establish collaborations with pharmaceutical companies
to further develop these compounds.
In May 1996, Gensia Sicor announced an agreement with Pfizer to collaborate
on a research program using its adenosine regulating technology to discover and
develop broad spectrum analgesic drugs for the treatment of pain. Preclinical
studies reported in the scientific literature have demonstrated the analgesic
effects of adenosine in the spinal cord. The activation of receptors on neurons
in the spinal cord by adenosine appears to reduce the flow of pain signals
reaching the higher centers of the brain, producing analgesia. The drugs to be
developed during the collaboration with Pfizer act on a specific enzyme and
apparently result in an increase in the local concentration of adenosine
produced when pain signals are traveling through the spinal cord.
Metabasis' expertise with purine regulated enzymes is also being directed
to the development of a new treatment of diabetes. Metabasis has developed
potent inhibitors of a specific purine regulated enzyme that acts in the
metabolic pathway that produces glucose in the liver. Metabasis believes that
these compounds may represent a novel approach to the treatment of Type II
diabetes. In April 1997, the Company announced an agreement with Sankyo to
collaborate on a research program to discover and develop drugs for the
treatment of non-insulin dependent (Type II) diabetes. Under the terms of the
agreement, Sankyo paid a license fee (in April 1997) and also purchased
approximately an 8% interest in Metabasis for $7.25 million (in December 1997).
Metabasis will receive research funding for three years and milestone payments
that are contingent upon the successful attainment of clinical development and
regulatory milestones. Metabasis will also receive royalties on the sale of any
product resulting from the collaboration and will have co-promotion rights in
North America to any commercialized product.
The Company's research and development expenses for the years ended
December 31, 1997, 1996 and 1995 were $26.1 million, $31.1 million and $38.8
million, respectively. A large portion of those expenses were from the
Company's San Diego-based proprietary pharmaceutical research and development
business. The research and development expenses incurred by Metabasis during
the three years ended December 31, 1997, 1996 and 1995 were $11.2 million, $17.9
million and $25.0 million, respectively. The remaining research expenses
represent manufacturing development costs incurred by the Company's multisource
pharmaceutical operating units including Gensia Sicor Pharmaceuticals, Sicor,
Lemery and Sicor de Mexico, as discussed in United States and Foreign
Pharmaceutical Operations sections above.
Gensia Sicor is continuing to pursue plans to establish Metabasis as an
independent company. Accomplishing this goal is dependent on obtaining
additional financing, certain third party consents and tax considerations.
Metabasis' product development efforts with Pfizer and Sankyo may not be
successful, Pfizer and or Sankyo may terminate their respective collaborations
with Metabasis and Gensia Sicor may not be able to obtain the consents and
financing necessary to establish Metabasis as an independent company.
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PATENTS, TRADEMARKS AND TRADE SECRETS
Gensia Sicor's policy is to protect its technology by, among other things,
filing patent applications for technology which it considers important to the
development of its business. Gensia Sicor intends to file additional patent
applications, when appropriate, relating to improvements in its technology and
other specific products that it develops. Gensia Sicor also relies on trade
secrets and improvements, unpatented know-how and continuing technological
innovation to develop and maintain its competitive position.
Historically, pharmaceutical companies have relied heavily upon patents to
protect proprietary positions in synthetic chemicals discovered or developed in
their research. In the past decade, there have been a number of patent issues
that have confronted the owners of patents directed to biotechnology inventions,
including, among others, recombinant DNA and biologically derived or produced
proteins.
In 1997, Gensia Sicor received four newly issued patents related to its
basic research with ARA compounds in pain and inflammation (U.S patent number
5,506,347 in pain and inflammation, U.S. patent number 5,674,998 in pain and
inflammation, US. patent number 5,646,128 in inflammation) and in diabetes (U.S.
patent number 5,658,889). In addition, Gensia Sicor received Notices of
Allowance on eight additional patent applications relating to ARA technology in
1997 and received a Notice of Allowance on another patent application in
February 1998. In December 1997 Gensia Sicor transferred its proprietary ARA
technology, including all issued patents and patent applications, to Metabasis.
Competitors may have filed applications for, or may have been issued,
patents or may obtain additional patents and proprietary rights relating to,
products or processes competitive with those of Gensia Sicor. Accordingly, there
can be no assurance that Gensia Sicor's patent applications will result in
patents being issued or that, if issued, the patents will afford protection
against competitors with similar technology; nor can there be any assurance that
any patents issued to Gensia Sicor will not be infringed or circumvented by
others, or that others will not obtain patents that Gensia Sicor would need to
license or circumvent. There can be no assurance that licenses that might be
required for Gensia Sicor's processes or products would be available on
reasonable terms. If Gensia Sicor does not obtain such licenses, product
introductions could be delayed or foreclosed. In addition, there can be no
assurance that Gensia Sicor's patents, if issued, would be held valid by a
court. Litigation to defend against or assert claims of infringement or
otherwise related to proprietary rights could result in substantial costs to
Gensia Sicor.
Gensia Sicor also relies upon unpatented trade secrets, and no assurance
can be given that others will not independently develop substantially equivalent
proprietary information and techniques, or otherwise gain access to Gensia
Sicor's trade secrets or disclose such technology. There can be no assurance
that Gensia Sicor can meaningfully protect its rights to its unpatented trade
secrets.
COMPETITION
Significant competition exists in the multisource injectable drug business
from other multisource drug companies, health care companies and proprietary
pharmaceutical companies. The major competitors in the multisource injectable
drug industry include Abbott Laboratories (''Abbott''), Astra, Bedford
Laboratories (a division of Boerhinger Ingleheim Corp.), Elkins-Sinn (a division
of American Home Products Corp.), Fujisawa, Schein Pharmaceutical, Inc.,
Pharmacia & Upjohn, Inc., Bristol-Myers Squibb Co., and Immunex Corp. Many of
these companies have been in business for a longer period of time, have a
greater number of products on the market and have substantially greater
resources than Gensia Sicor.
The various competitive factors affecting the marketing of multisource
injectable pharmaceutical products are price, quality, timing (the ability to
produce generic versions of brand name drugs promptly after the patent
protection for the brand name drug expires), product cost, maintenance of
sufficient inventories for timely deliveries, breadth of product line,
reputation, distribution capabilities and customer service.
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Gensia Sicor believes that price and quality are the most significant
competitive factors in the multisource injectable drug industry as the number of
manufacturers of a particular multisource injectable product increases. As
competition from other manufacturers intensifies, selling prices typically
decline. Accordingly, Gensia Sicor Pharmaceuticals' profitability will depend in
part on its ability to develop and introduce appropriate new products to the
market in a timely manner, to obtain raw materials at competitive prices and to
continue to improve the efficiency of its production capabilities. Gensia Sicor
Pharmaceuticals will also compete with manufacturers of off-patent injectable
brand name products, which may reduce prices in order to keep their brand name
products competitive with equivalent multisource products.
GOVERNMENT REGULATION
Prior to the enactment of the Drug Price Competition and Patent Term
Restoration Act of 1984 (the ''Waxman/Hatch Act''), the FDA, by regulation,
permitted certain drugs to be approved under an abbreviated procedure which
waived submission of the extensive animal and human studies of safety and
effectiveness normally required to be in an NDA. Instead, the manufacturer only
needed to provide an ANDA containing labeling, information on manufacturing
procedures and data establishing that the original ''pioneer'' product and the
proposed ''generic'' product are equivalent when administered to humans.
Although antibiotic drugs are classified separately for purposes of FDA
approval, the approval procedures for such drugs conform substantially to the
NDA/ANDA procedures.
As compared to an NDA, an ANDA typically involves reduced research and
development costs and a faster review and approval time at the FDA. However,
there can be no assurance that any such applications will be approved.
Furthermore, the suppliers of raw materials also must be approved by the FDA.
Delays in the review process or failure to obtain approval of certain of these
ANDAs or suppliers could have a material adverse effect on the financial
condition of Gensia Sicor.
The President signed into law the Uruguay Round Agreements Act ("URAA") in
December 1994. URAA, which took effect on June 8, 1995, implemented the
General Agreements on Tariffs and Trade ("GATT"). One change in U.S. law
required by GATT is the amendment of patent law to permit owners to choose a
patent term of 20 years from the date of filing the application or 17 years from
the date of issuance. URAA extended the requirement by allowing the application
of this provision to all patents in force on June 8, 1995. Congress recognized
the potential harm in this requirement and provided that a potential competitor
who had already made a "substantial investment" in a competing product could
make, use and sell its product after the expiration of the original patent
period provided that they pay the patentee "equitable remuneration" through
the extended patent period. However, the FDA has taken the position that it
cannot approve an ANDA, which certifies the date of patent expiration, until
the expiration of the extended patent period. The extension of patent
protection may delay the launch of future products by the Company.
Prior to receiving FDA approval, the Company is increasingly facing more
lawsuits relating to intellectual property rights. While these suits, instituted
by branded pharmaceutical companies, rarely result in findings of infringement
or monetary settlements, they significantly delay the FDA approval process. The
Company expects the branded pharmaceutical companies to continue such tactics
since it is a very cost effective way to delay generic competition and the
subsequent cost savings for the consumer. It is impossible for the Company to
predict the extent to which its operations will be affected under the
regulations discussed above or any new regulations which may be adopted by
regulatory agencies.
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In connection with its activities outside the United States, Gensia Sicor
is also subject to regulatory requirements governing the testing, approval,
manufacture, labeling, marketing and sale of pharmaceutical, intravenous and
diagnostic products, which requirements vary from country to country. Whether or
not FDA approval has been obtained for a product, approval of the product by
comparable regulatory authorities of foreign countries must be obtained prior to
marketing the product in those countries. The approval process may be more or
less rigorous from country to country, and the time required for approval may be
longer or shorter than that required in the United States. No assurance can be
given that clinical studies conducted outside of any country will be accepted by
such country, and the approval of any pharmaceutical, intravenous or diagnostic
product in one country does not assure that such product will be approved in
another country.
HEALTH CARE REFORM
The federal and state governments in the United States, as well as many
foreign governments, including the United Kingdom, are exploring ways to reduce
medical care costs through health care reform. This effort has resulted in,
among other things, government policies that encourage the use of generic drugs
rather than brand name drugs to reduce drug reimbursement costs. Virtually every
state in the United States has a generic substitution law which permits the
dispensing pharmacist to substitute a generic drug for the prescribed brand name
product. The debate to reform the United States' health care system is expected
to be protracted and intense. Due to uncertainties regarding the ultimate
features of reform initiatives and their enactment and implementation, Gensia
Sicor cannot predict what impact any reform proposal ultimately adopted may have
on its businesses.
MANUFACTURING
The manufacturing facility at Gensia Sicor Pharmaceuticals provides Gensia
Sicor with the capability to formulate, fill, label and package final dosage
forms of injectable drug products. The Gensia Sicor Pharmaceuticals facility has
a broad filling capability, including the ability to terminally sterilize or
aseptically fill syringes and single and multiple dose vials. The facility also
has the capability to lyophilize (freeze dry) products.
Gensia Sicor Pharmaceuticals is completing an oncology manufacturing
facility and additional laboratories for the development of oncology products in
a building adjacent to Gensia Sicor Pharmaceuticals' existing manufacturing
facility in Irvine. The new oncology facility will include the capability to
produce oncology products in lyophilized or liquid forms and in glass or polymer
vials. The new facility is currently undergoing validation. The Company hopes
to begin producing oncology products at this facility in the first half of 1998.
The principal raw materials to be used in manufacturing Gensia Sicor
Pharmaceuticals' products are active drug ingredients (such as those produced by
Sicor) and inactive pharmaceutical chemicals. The FDA approval process requires
manufacturers of pharmaceutical products to identify their suppliers of active
ingredient raw materials. If raw materials from a specified supplier were to
become unavailable, FDA approval of a new supplier would be required, which
could result in manufacturing delays. Development, approval and continued
commercialization of Gensia Sicor Pharmaceuticals' products are, therefore,
dependent upon Gensia Sicor Pharmaceuticals' ability to procure active
ingredient raw materials from suppliers who are, and who remain, FDA approved.
Sicor has filed over 30 Drug Master Files with the FDA and is a qualified source
for several of Gensia Sicor Pharmaceuticals' current products as well as the
planned supplier for many products in development. Termination of qualified
supply arrangements could have a material adverse impact on the sale of Gensia
Sicor Pharmaceuticals' products. Gensia Sicor Pharmaceuticals currently utilizes
single sources for certain raw materials and packaging components.
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Sicor's production is carried out at its two manufacturing sites in Italy.
The principal manufacturing facility is located near Milan and is regularly
inspected and approved by the FDA. It is a major producer of oncolytic agents,
steroids and certain other products in bulk drug substance form. These products
are manufactured either through fermentation or chemical synthesis processes.
This facility supplies specialty bulk drug substances to Gensia Sicor
Pharmaceuticals and Lemery and to other drug manufacturers around the world.
Sicor's other manufacturing facility is located on the outskirts of Turin.
It produces principally various animal organ extracts for use in both
pharmaceuticals, including UK 101, and cosmetics. This facility manufactures
such products for the European market.
Sicor acquired a 50% interest in Diaspa S.p.A., a pharmaceutical company
located near Milan, Italy specializing in bulk fermentation products, in
December 1997. The acquisition of Diaspa is expected to significantly increase
the Company's capacity for the production of cyclosporine bulk drug substance to
meet the demand expected if SangStat's cyclosporine formulation is approved by
the FDA. In addition to cyclosporine, Diaspa will be used for the production of
bulk fermentation products for Gensia Sicor and other pharmaceutical companies
under existing and future supply contracts. The remaining 50% interest in Diaspa
was purchased by Archimica S.p.A., an Italian bulk pharmaceutical company in
which Carlo Salvi, who represents Gensia Sicor's largest shareholder and is a
Director and Executive Vice President of Gensia Sicor, has a 50% beneficial
ownership.
Lemery is located in Mexico City and produces drugs in finished dosage
form, of which injectable oncolytic agents are an important product line.
These products are sold in Mexico and exported to certain countries in Central
and South America, North America and Eastern Europe.
Sicor de Mexico is located near Toluca, on the outskirts of Mexico City,
and produces principally steroid products for export to various countries. Sicor
de Mexico also recently completed construction of a facility to produce
oncolytic agents which commenced production in 1997. Production from this new
facility is being used by Lemery to replace its existing third party suppliers.
Each of Gensia Sicor's manufacturing sites are modern facilities, which are
maintained in accordance with applicable regulatory agencies regulations. The
Company's manufacturing facilities are considered key strategic assets of the
Company. Management believes that the Company has adequate manufacturing
capacity to meet the current and planned sales demand for its injectible
products, once the substantially completed Irvine oncology facility becomes
operational. The Company's manufacturing capacity for specialty bulk drug
substances is also expected to be adequate to meet current and planned demand
with the exception of cyclosporine demand, where the Company has initiated the
necessary capital projects to meet this demand.
RISK FACTORS THAT MAY AFFECT RESULTS
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company anticipates that its current capital resources, including $7.25
million received from Sankyo in exchange for an approximate 8% ownership
position in Metabasis, $14.4 million received in a December 1997 private
placement, $2.5 million received in December 1997 from the sale of common stock
to SangStat, and $2.7 million received in December 1997 from the sale of a
parcel of land, commitments from third parties, and efforts to reduce overall
costs and expenses and working capital requirements will enable it to maintain
its current and planned operations through at least 1998. The Company will
continue to pursue equity, debt and lease financing for its capital needs. In
addition, the Company is seeking additional funding for Metabasis. Financings
may not be available on acceptable terms, or at all. If the Company is unable
to obtain additional financing, the Company would reduce its capital
expenditures, spending for the development of new products, and its
workforce.
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Such reductions would have a material adverse effect on the Company. In
addition, at December 31, 1997 approximately $118 million of the Company's $363
million in assets consisted of either intangibles or goodwill. The Company may
not be able to realize any value from these intangible assets. The Company
routinely assesses the recoverability of long-lived assets by determining
whether the carrying value of such assets can be recovered through undiscounted
future operating cash flows. If impairment is indicated, the Company will
measure the amount of such impairment by comparing the carrying value of the
asset to the present value of the expected future cash flows associated with the
use of the asset.
LOSS HISTORY; UNCERTAINTY OF FUTURE PROFITABILITY
Gensia Sicor was founded in 1986, has never made an annual profit, and has
never had positive annual cash flow from operations. As of December 31, 1997,
Gensia Sicor had an accumulated deficit of approximately $341.8 million. For the
years ended December 31, 1995, 1996 and 1997, Gensia Sicor had net losses
applicable to common shares of $11.9 million, $51.8 million and $82.7 million,
respectively. Gensia Sicor may incur additional losses in the future. Although
management has taken steps to decrease the loss, there is no assurance that
Gensia Sicor will be profitable in the future.
COMPETITION
Gensia Sicor is engaged in a rapidly evolving field. Competition from large
pharmaceutical companies, biotechnology companies, and other companies is
intense and expected to increase. Many of these companies have substantially
greater resources and experience in developing, manufacturing and marketing
pharmaceutical products than Gensia Sicor. There can be no assurance that
competitors will not succeed in developing technologies and products that are
more effective or that would render the technology and products of Gensia Sicor
obsolete or noncompetitive.
Gensia Sicor competes in the highly competitive multisource (generic)
injectable drug industry with numerous other pharmaceutical manufacturers, many
of which are established companies with greater financial and other resources
than Gensia Sicor. There can be no assurance that Gensia Sicor will be able to
continue to compete effectively in this market. Because selling prices of
multisource injectable drug products typically decline as competition
intensifies, the profitability of Gensia Sicor will depend in part on its
ability to develop and introduce selected new products to the market in a timely
manner, to obtain raw materials at competitive prices and to improve the
efficiency of their production capability. During 1995 through 1997, a number of
competitors (e.g. Pharmacia & Upjohn, Abbott, Astra, Bedford Laboratories,
Schein Pharmaceutical, Inc. and others) received FDA approval to market
injectable etoposide, which was one of Gensia Sicor Pharmaceutical's largest
products in 1994 and 1995. Competition resulting from these approvals caused the
average selling prices (per IMS Market data) of etoposide 20mg/ml 5ml vials to
go from approximately $100 a unit in early 1994, to an average selling price of
approximately $9 a unit in late 1997. As a result, Gensia Sicor Pharmaceuticals'
gross margins on etoposide in 1997 were less than 10% of what they were in 1995.
The development and commercialization process is time consuming and costly.
Delays in any part of the process or the inability of Gensia Sicor to obtain
regulatory approval for its products could materially and adversely affect the
Company.
DEPENDENCE ON KEY PERSONNEL
The success of Gensia Sicor depends in large part upon its ability to
attract and retain qualified scientific, manufacturing, marketing and management
personnel. Gensia Sicor faces competition for such personnel from
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other companies, academic institutions, government entities and other
organizations. In addition, the success of Gensia Sicor will be dependent upon
certain key personnel associated with Gensia Sicor, the loss of which may have a
material adverse effect on the Company's business.
UNCERTAINTY OF ABILITY TO OPERATE WITHOUT INFRINGING ON PATENTS AND PROPRIETARY
TECHNOLOGY OF OTHERS
The success of Gensia Sicor will depend, in part, on its ability to
maintain trade secret protection and operate without infringing on the
proprietary rights of third parties. There can be no assurance that the patents
of others will not have an adverse effect on the ability of Gensia Sicor to
develop its products. Litigation, which could result in substantial cost to the
Company, may be necessary to determine the scope and validity of the proprietary
rights of third parties. If any of the Company's products are found to infringe
upon the patents or other rights owned by third parties. Gensia Sicor may be
required to obtain licenses to patents or other proprietary rights of third
parties which may not be available on acceptable terms. If Gensia Sicor does
not obtain such licenses, product introductions could be delayed or foreclosed.
There can be no assurance that Gensia Sicor will have sufficient funds to obtain
licenses that may be required in order to develop and commercialize its
products, to contest patents obtained by third parties, or to defend against
suits brought by third parties.
DEPENDENCE UPON SUCCESSFUL INTEGRATION OF GENSIA SICOR, SICOR, LEMERY, SICOR DE
MEXICO AND DIASPA S.P.A.
The success of the acquisition of Sicor, Lemery, Sicor de Mexico and Diaspa
depends in part upon whether the integration of the companies' businesses is
accomplished in an efficient and effective manner, and there can be no assurance
that this will occur. The combination of Gensia Sicor, Sicor, Lemery, Sicor de
Mexico and Diaspa is requiring, among other matters, integration of each of the
combining companies' respective development, administrative, finance, sales,
product support, distribution and marketing organizations, as well as the
integration of each such companies' product offerings and development
activities. Further, there can be no assurance that the operations, management
or personnel of the combining companies will be compatible or that Gensia Sicor
will not experience the loss of key personnel. The difficulties of such
integration may be increased by the necessity of coordinating organizations
located in different countries. The integration of certain operations requires
the dedication of management resources which may distract from the day-to-day
business of the combined company. Additionally, the costs incurred and
difficulties encountered in the transition process may, at least in the short
term, have an adverse impact on the combined company's operations. The Company
took a special charge of $3.2 million in the third quarter 1997 to reserve for
corporate and employee relocation and serverance costs as a result of the
Company moving its headquarters to Irvine, California. Any inability of
management to integrate the operations of the companies sucessfully could have a
material effect on the business and results of operations of the combined
company.
POTENTIAL INABILITY TO OBTAIN RAW MATERIALS OR MANUFACTURE PRODUCTS
Gensia Sicor depends on third party manufacturers for bulk raw materials
for its products. These raw materials are generally available from a limited
number of sources, and certain raw materials are available only from foreign
sources. In addition, Gensia Sicor Pharmaceuticals utilizes sole sources of
supply for certain raw materials used in the manufacture of its products and
certain packaging components. Any disruption in one or more of these supply
sources could have a material adverse effect on Gensia Sicor.
UNCERTAINTY OF PHARMACEUTICAL PRICING, REIMBURSEMENT AND RELATED MATTERS
The levels of revenues and profitability of pharmaceutical companies will
be affected by the continuing efforts of governmental and third party payors to
contain or reduce the costs of health care through various means. For example,
in certain foreign markets pricing or profitability of prescription
pharmaceuticals is subject to
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government control. In the United States, there have been, and Gensia Sicor
expects that there will continue to be, a number of federal and state proposals
to implement government controls. While Gensia Sicor cannot predict whether any
such legislative or regulatory proposals or reforms will be adopted or the
effect such proposals or reforms may have on its businesses, the announcement of
such proposals or reforms could have a material adverse effect on Gensia Sicor's
ability to raise capital and the adoption of such proposals or reforms could
have a material adverse effect on Gensia Sicor's businesses, financial condition
and profitability. In addition, in both the United States and elsewhere, sales
of prescription pharmaceuticals are dependent in part on the availability of
reimbursement to the consumer from third party payors, such as government and
private insurance plans. Third party payors are increasingly challenging the
prices charged for medical products and services. There can be no assurance that
any of the products of Gensia Sicor will be considered cost effective and that
reimbursement to the consumer will be available or will be sufficient to allow
Gensia Sicor to sell its products on a competitive basis.
PRODUCT LIABILITY EXPOSURE; INADEQUACY OR UNAVAILABILITY OF PRODUCT LIABILITY
INSURANCE
Gensia Sicor, as a manufacturer of finished drug products, faces an
inherent exposure to product liability claims in the event that the use of any
of their respective technology or products is alleged to have resulted in
adverse effects. This exposure exists with respect to products that receive
regulatory approval for commercial sale, as well as those undergoing clinical
trials. While Gensia Sicor has taken and will continue to take what it believes
are appropriate precautions, there can be no assurance that they will avoid
significant product liability exposure. Adequate insurance coverage might not be
available at acceptable costs, if at all, and product liability claims could
adversely affect the business or financial condition of Gensia Sicor.
In addition, as a manufacturer of bulk drug substances, Gensia Sicor
supplies other pharmaceutical companies with active ingredients which are
contained in finished products. The ability of Gensia Sicor to avoid significant
product liability exposures depends upon its ability to negotiate appropriate
commercial terms and conditions with its customers and its customers'
manufacturing, quality control and quality assurance practices. Adequate
insurance coverage may not be available at acceptable costs, if at all, to
insure against such exposures and Gensia Sicor may not be able to negotiate
satisfactory terms and conditions with its customers. Commencing in 1995, Sicor
received claims from certain of its customers in connection with the shipment of
contaminated products. Sicor at December 31, 1997 had recorded a reserve of
approximately $2.8 million, which represented management's estimate of product
rework costs, attorneys' costs and other settlement costs. Actual costs
incurred with respect to the ultimate settlement of this matter may vary from
the amount estimated.
UNCERTAINTY REGARDING MEXICAN ECONOMIC FACTORS, GOVERNMENT POLICIES AND
INFLATION
The Mexican government has exercised and continues to exercise significant
influence over many aspects of the Mexican economy. Accordingly, Mexican
government actions could have a significant effect on Lemery and Sicor de
Mexico, and on market conditions and prices in Mexico. In addition, a large
portion of the finished multisource drug products manufactured by Lemery are
sold to the national health program in Mexico. Historically the Mexican
government has paid Lemery on a timely basis for their national health program
purchases; however, there can be no assurance that this business trend will
continue in the future, or that the national health program will continue
purchasing product from Lemery. Further, on a cumulative basis, the inflation
rate has exceeded 100% in Mexico over the three-year period ended December 31,
1997. Actions by the Mexican government, future developments in the Mexican
economy and political, social or economic events in Mexico may adversely affect
the operations of Lemery and Sicor de Mexico.
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RISKS RELATED TO INTERNATIONAL OPERATIONS
During 1996 and 1997, a significant percentage of the revenues of each of
Sicor, Lemery and Sicor de Mexico were derived from sales of pharmaceuticals
outside of Western Europe, Japan and the United States. Operations outside of
Western Europe, Japan and the United States are subject in varying degrees to
risks involved in doing business abroad such as war, civil disturbances, adverse
governmental actions (which may disrupt or impede operations and markets,
restrict the movement of funds, impose limitations on foreign exchange
transactions or result in the expropriation of assets) and economic and
governmental instability. Gensia Sicor may experience material adverse
developments with respect to its revenues from these markets.
ENVIRONMENTAL MATTERS
Gensia Sicor is subject to numerous environmental regulations in the
jurisdictions in which it operates, including regulations relating to the
handling, transport and disposal of hazardous materials and the protection of
the environment. In certain of these jurisdictions, protection of the
environment is becoming an area of increased governmental scrutiny and
surveillance. While Gensia Sicor has implemented practices to comply with
applicable regulations, the cost of doing so in the future may become
prohibitive and may have a significant adverse impact on their operations.
Gensia Sicor may not be able to comply with all applicable laws and regulations
and such laws and regulations may have a material adverse impact on the
Company's operations.
In addition, Sicor maintains liability insurance for certain environmental
risks which its management believes to be appropriate and in accordance with
industry practice. Sicor may incur liabilities beyond the limits or outside the
coverage of its insurance.
CURRENCY FLUCTUATIONS
Gensia Sicor has significant operations in several countries, including the
United States, Italy, and Mexico. In addition, purchases and sales are made in a
large number of other countries. As a result, its business is subject to the
risk and uncertainties of foreign currency fluctuations. While Gensia Sicor has
policies and strategies to minimize this risk, such policies and strategies may
not be effective in preventing significant negative financial adjustments in the
future.
CONTROL BY RAKEPOLL FINANCE
Rakepoll Finance owns 29,500,000 shares of Gensia Sicor Common Stock and
pursuant to the Shareholder's Agreement, dated as of November 12, 1996, as
amended (the "Shareholder's Agreement") has designated two of Gensia Sicor's
seven directors, who in turn designated (jointly with two executive officer
directors of Gensia Sicor) four additional directors. In addition, the consent
of the Rakepoll Finance designated directors is required for Gensia Sicor to
take certain actions, such as a merger or sale of all or substantially all of
the business or assets of Gensia Sicor and certain issuances of securities. As a
result of its ownership of Gensia Sicor Common Stock, Rakepoll Finance may be
able to control substantially all matters requiring approval by the stockholders
of Gensia Sicor, including the election of directors and the approval of mergers
or other business combination transactions. In addition, 50% of Diaspa is held
by Archimica, S.p.A., which is partly owned by Carlo Salvi, the controlling
shareholder of Rakepoll Finance and an officer and director of the Company.
POSSIBLE VOLATILITY OF STOCK PRICE; DIVIDEND POLICY
The market price of the shares of Gensia Sicor Common Stock, like that of
the common stock of many other pharmaceutical companies, has been and is likely
to continue to be highly volatile, and the market for securities of such
companies has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. The market price of Gensia Sicor Common Stock could be subject to
significant fluctuations in response to variations in Gensia Sicor's anticipated
or actual operating results, sales of substantial amounts of Gensia Sicor Common
Stock, other issuances of substantial amounts of
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Gensia Sicor Common Stock pursuant to pre-existing obligations, announcements
concerning Gensia Sicor or its competitors, including the results of testing,
technological innovations or new commercial products or services, developments
in patent or other proprietary rights of Gensia Sicor or its competitors,
including litigation, conditions in the life sciences or pharmaceuticals
industries, governmental regulation, health care legislation, public concern as
to the safety of Gensia Sicor's products, changes in estimates of Gensia Sicor's
performance by securities analysts, market conditions for life sciences stocks
in general, and other events or factors.
Gensia Sicor has never paid cash dividends on Gensia Sicor Common Stock.
Gensia Sicor presently intends to retain earnings, if any, for the development
of its businesses and does not anticipate paying any cash dividends on Gensia
Sicor Common Stock in the foreseeable future. Unless full cumulative dividends
are paid on Gensia Sicor's outstanding $3.75 Convertible Exchangeable Preferred
Stock, $.01 par value (''Convertible Preferred Stock''), cash dividends may not
be paid or declared and set aside for payment on Gensia Sicor Common Stock.
Through December 31, 1997, Gensia Sicor had approximately $7.5 million in
undeclared cumulative preferred dividends on such Convertible Preferred Stock.
Gensia Sicor paid quarterly cash dividends in the aggregate amount of $6.0
million on Convertible Preferred Stock in March, June, September and December of
1997. If Gensia Sicor chooses not to declare dividends for six cumulative
quarters, the holders of Convertible Preferred Stock, voting separately as a
class, will be entitled to elect two additional directors until the dividend in
arrears has been paid.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
Gensia Sicor's Certificate of Incorporation and Bylaws include provisions
that could discourage potential takeover attempts and make attempts by its
stockholders to change management more difficult. The approval of 66-2/3% of
Gensia Sicor's voting stock is required to approve certain transactions and to
take certain stockholder actions, including the calling of a special meeting of
stockholders and the amendment of any of the anti-takeover provisions contained
in Gensia Sicor's Certificate of Incorporation. Further, pursuant to the terms
of its stockholder rights plan, Gensia Sicor has distributed a dividend of one
right for each outstanding share of Gensia Sicor Common Stock. These rights will
cause a substantial dilution to a person or group that attempts to acquire
Gensia Sicor on terms not approved by the Gensia Sicor Board of Directors and
may have the effect of deterring hostile takeover attempts.
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MANAGEMENT
Executive Officers
- ------------------
The executive officers of Gensia Sicor as of March 16, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Donald E. Panoz 63 Chairman and Chief Executive Officer
Carlo Salvi 61 Executive Vice President and Director
Michael D. Cannon 52 Executive Vice President and Director
Wesley N. Fach 46 Vice President, Senior Legal Counsel and Secretary
Paul K. Laikind, Ph.D. 42 Vice President, Corporate Development
John W. Sayward 46 Vice President, Finance, Chief Financial Officer and Treasurer
Thomas M. Speace 48 Vice President, Marketing and Business Development, Gensia Sicor Pharmaceuticals
Gene F. Tutwiler, Ph.D. 52 Executive Vice President, Research and Development
</TABLE>
Mr. Panoz became Chairman of the Gensia Sicor Board of Directors in
February 1997 and was named Chief Executive Officer in November 1997. Mr. Panoz
was a founder and principal shareholder of Elan Corporation, plc and was
Chairman of the Board of Elan from 1970 to December 1996, and until January 1995
was the Chief Executive Officer of Elan. Mr. Panoz continues to serve on the
board of Elan. Mr. Panoz was also a founder of Mylan Laboratories and served as
its President from 1960 to 1969. He is executive chairman of Fountainhead
Holdings Ltd. (an investment holding company) and of Fountainhead Development
Corp., Inc., its principal U.S. operating subsidiary. He also serves as chairman
emeritus of Warner Chilcott, plc (formerly Nale Laboratories, plc).
Mr. Salvi has been a director of Gensia Sicor since February 1997 and was
appointed Executive Vice President of the Company in November 1997.
Additionally, since February 1997 Mr. Salvi has served as a Chairman of the
Board of Directors and President of Sicor. Sicor is a wholly-owned subsidiary
of Rakepoll Holding, which is owned by Gensia Sicor. From September 1995 to
February 1997, Mr. Salvi was a consultant to Alco Chemicals Ltd., Swiss Branch
("Alco") in Lugano, Switzerland, which acts as an agent and distributor of
certain Sicor products. From 1986 to September 1995, he was General Manager of
Alco.
Mr. Cannon joined Gensia Sicor Inc. as Executive Vice President in February
1997. Prior to joining Gensia Sicor, Mr. Cannon was a member of the Board of
Directors of Sicor (where he worked from the company's beginning in 1983) and
Director of Business Development of Alco Chemicals Ltd. in Lugano, Switzerland
since 1986. From 1970 to 1982, Mr. Cannon worked at SIRS S.p.A., a manufacturer
of bulk corticosteroids in Milan, Italy in a variety of technical positions.
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Mr. Fach joined Gensia Sicor as Assistant General Counsel in January 1992
and was named Secretary in January 1993. He was named Vice President and Senior
Legal Counsel in July 1997. Prior to joining Gensia Sicor Mr. Fach was legal
counsel to Marrow-Tech Incorporated (now named Advanced Tissue Sciences, Inc.)
from 1990 to 1992. From 1984 to 1990 he was General Counsel of IMED Corporation
and from 1986 to 1990 he was Assistant General Counsel of its parent company,
Fisher Scientific Group Inc. Mr. Fach received his juris doctor degree from
Columbia University.
Dr. Laikind, a co-founder of Gensia Sicor, was a Vice President and
Director since Gensia Sicor's incorporation from November 1986 until February
1997. He currently serves as Vice President, Corporate Development, and has
been a director of Metabasis since its inception. He was appointed Chairman of
the Metabasis Board of Directors in January 1998. He also has responsibility for
corporate development and finance for Metabasis. From 1985 to 1987, Dr. Laikind
was an Assistant Research Biochemist at UCSD. From 1984 to 1985, Dr. Laikind was
a Postdoctoral Fellow in the Department of Medicine at UCSD. He received his
doctoral degree in chemistry from UCSD.
Mr. Sayward joined Gensia Sicor in 1992 and was named Vice President,
Finance, Chief Financial Officer and Treasurer in February 1997. Prior to that
he was Division Vice President, Finance, Corporate Controller of Gensia Sicor
and Chief Financial Officer of Gensia Sicor Pharmaceuticals. From 1975 to 1992,
Mr. Sayward was employed in a wide variety of financial and accounting positions
at Baxter Healthcare Corporation, serving as Vice President of Finance and
Business Development, I.V. Systems Division from 1988 to 1992. From 1986 to
1988 he was Vice President and Controller, Dade Diagnostics Division of Baxter.
Mr. Sayward served in a number of financial management positions at Baxter and
American Hospital Supply from 1975 to 1986. He received his master of
management degree from the Northwestern Kellogg School of Management.
Mr. Speace has been Vice President, Marketing and Business Development,
Gensia Sicor Pharmaceuticals and an officer of Gensia Sicor since May 1996. He
joined Gensia Sicor in 1991 as Senior Director of Business Development of Gensia
Sicor Pharmaceuticals, becoming Executive Director in 1994 and Division Vice
President in 1995. Mr. Speace worked at Kendall McGaw Pharmaceuticals, from
1987 to 1991, when the company was acquired by Gensia Sicor and subsequently
renamed Gensia Sicor Pharmaceuticals. Mr. Speace previously worked at Elkins-
Sinn, a division of A.H. Robins and had responsibility for materials and project
management, strategic planning and business development. He received his master
of business administration from St. Joseph's University in Pennsylvania.
Dr. Tutwiler has been President and Chief Executive Officer of Metabasis
since its inception in April 1997. He joined Gensia Sicor as Executive Vice
President of Research and Development in June 1996. From 1995 to 1996 he was
Vice President, Research and Development, New Business Development at Alpha
Therapeutic Corporation, a subsidiary of The Green Cross Corporation. From 1991
to 1995 he served as Vice President, Research and Development, Clinical,
Regulatory and Quality Assurance at Iolab, a subsidiary of Johnson & Johnson.
From 1986 to 1991 he served in a number of senior positions in business
development and research management positions at McNeil Pharmaceuticals, a
subsidiary of Johnson & Johnson. Prior to 1986, Dr. Tutwiler worked at Ayerst
Laboratories and McNeil Pharmaceuticals in basic research and research
management. He received a doctoral degree in biological chemistry from the
University of Michigan.
In November 1997 the Gensia Sicor Board of Directors accepted the
resignation of David F. Hale, who held the positions of President and Chief
Executive Officer. Mr. Hale remains a member of the Gensia Sicor Board of
Directors. Mr. Hale received severance of approximately $1.1 million in January
1998, which was paid in the form of Gensia Sicor restricted common stock. Mr.
Hale has also been a member of the Board of Directors of Metabasis since its
inception in April 1997.
18
<PAGE>
Patrick D. Walsh resigned as President and Chief Operating Officer of
Gensia Sicor Pharmaceuticals, and as a member of the Gensia Sicor Board of
Directors, effective March 12, 1998.
HUMAN RESOURCES
As of December 31, 1997, Gensia Sicor employed a total of 324 individuals
on a full-time basis in Southern California. Approximately 80% are located in
Irvine and approximately 20% are in San Diego.
Sicor, Diaspa, Lemery, Sicor de Mexico and Gensia Sicor de Mexico employ
approximately 800 individuals, of whom approximately 34% work in Italy and 66%
in Mexico. As is customary in Italy and Mexico, most of these employees are
represented by unions. Sicor, Diaspa, Lemery, Sicor de Mexico and Gensia Sicor
de Mexico have not experienced any significant labor disputes in recent years.
Gensia Sicor considers its employee relations to be good.
ITEM 2. PROPERTIES
In March 1993, Gensia Sicor purchased two buildings and the underlying and
adjacent land for $10.8 million to be used as its corporate headquarters and
research and development facilities. The two buildings and underlying land (but
not the adjacent land) were sold in December 1993 as part of a sale/leaseback
transaction. The transaction included sale of the real property at cost plus
commitments to fund tenant improvements to the buildings, for a combined total
of $22 million. The term of the lease is 15 years starting from August 1, 1994,
with four ten-year renewal options. The lease is partially secured by a $4.75
million letter of credit, which will be released upon the Company's achieving
certain financial milestones. In December 1997, the Company sold the adjacent
land for net proceeds of approximately $2.6 million.
Gensia Sicor leases a total of approximately 150,000 square feet of space
in San Diego. Of this amount, 64,000 square feet is subleased to third-party
tenants. Gensia Sicor's laboratories are equipped for research activities in
biochemistry, analytical chemistry, synthetic chemistry, tissue culture and
enzymology. Metabasis also uses these facilities for preclinical research.
The Company acquires most equipment under operating and capital lease
agreements.
In December 1997 Gensia Sicor moved its principal administrative offices
from San Diego to Irvine, California where Gensia Sicor Pharmaceuticals is
located. The Company is considering several alternatives with regards to its
leased facilities in San Diego.
Gensia Sicor Pharmaceuticals leases approximately 65,000 square feet of
office, laboratory and manufacturing space as well as an additional 27,000
square feet of manufacturing space in an adjacent building in Irvine,
California. The lease on the office, laboratory and manufacturing space was
renewed in late 1997 for five years. The lease on the manufacturing space
expires in late 1998. These leases have options to renew for an additional five
and ten years, respectively. Gensia Sicor Pharmaceuticals additionally leases
2,700 and 2,300 square feet of office space and 49,000 and 24,000 square feet of
warehouse/office space in Irvine, California. The leases on the office space
were renewed in mid 1997 for two years. One of the leases on the
warehouse/office space in 1997 was renewed for five years with a five year
renewal option. The other lease on the warehouse/office space expires in 2006
and has two options to renew for five years each.
Sicor's production is carried out at its two manufacturing sites in Italy.
The principal site is located on the outskirts of Milan and is regularly
inspected and approved by the FDA. This production center covers approximately
1,200 square meters of a 14,438 square meter site. Sicor's other production
center is located on the outskirts of Turin, and covers approximately 1,700
square meters of an 18,469 square meter site.
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<PAGE>
All of Diaspa's operations are carried out at its site in Corana, which is
outside of Milan. The plant and administrative offices cover approximately
7,000 square meters of a 33,000 square meter site.
Lemery has a 10,403 square meter manufacturing/office site located in
Mexico City. Sicor de Mexico has a site located near Toluca, on the outskirts
of Mexico City. Sicor de Mexico completed construction of a facility to
produce oncolytic agents in late 1997 and commenced production in December 1997.
Gensia Sicor de Mexico leases approximately 300 square meters of office space in
Mexico City.
ITEM 3. LEGAL PROCEEDING
During 1995, Sicor received claims from certain of its customers in
connection with shipments of contaminated product. While to the best of Sicor's
knowledge no lawsuits have been filed against Sicor with respect to this matter,
Sicor has a reserve of $2.8 million at December 31, 1997, which represents
management's best estimate of attorneys' cost and other settlement costs. Actual
costs to be incurred in relation to the ultimate settlement may vary from the
amount estimated.
In connection with claims related to the contaminated product, entitled
Pharmacia & Upjohn Company v. Great Lakes Chemical Corporation in the State of
Michigan, Kalamazoo County Circuit Court, No. E96-188 NZ, the Court has issued
an order that Sicor may be joined as a party, but it is anticipated that the
purpose of such joinder would be to adjudicate claims by Sicor and its
customers.
The Company is also a defendant in various actions, claims, and legal
proceedings arising from its normal business operations. Management believes
they have meritorious defenses and intends to vigorously defend against all
allegations and claims. As the ultimate outcome of these matters is uncertain,
no contingent liabilities or provisions have been recorded in the accompanying
financial statements for such matters. However, in management's opinion, based
on discussions with legal counsel, liabilities arising from such matters, if
any, will not have a material adverse effect on consolidated financial position,
results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
20
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market on the
Nasdaq National Market under the symbol "GNSA". The following table sets forth,
for the periods indicated, the range of high and low reported bid prices for the
Company's Common Stock on the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
January 1 - March 31, 1996............... $6.13 $4.38
April 1 - June 30, 1996.................. 5.88 3.94
July 1 - September 30, 1996.............. 5.69 4.56
October 1 - December 31, 1996............ 5.50 3.88
High Low
------ ------
January 1 - March 31, 1997............... $4.94 $3.94
April 1 - June 30, 1997.................. 5.19 3.13
July 1 - September 30, 1997.............. 7.81 4.41
October 1 - December 31, 1997............ 7.00 4.50
</TABLE>
As of March 23, 1998 there were approximately 944 holders of record of the
Company's Common Stock.
The Company has not paid a cash dividend to date on its Common Stock. The
Company elected to discontinue payment of quarterly cash dividends on its
Preferred Stock in June, September and December 1995 and March and June 1996.
The Company resumed payment of the preferred stock dividend in September 1996.
Unless full cumulative dividends are paid on the Company's outstanding preferred
stock, cash dividends may not be paid or declared and set aside for payment on
the Company's Common Stock. Gensia does not anticipate paying cash dividends on
its Common Stock in the foreseeable future. At March 25, 1998, the Company had
undeclared cumulative dividends of approximately $7.5 million. The Company
intends to retain its earnings, if any, for the development of its business.
In December 1997, the Company sold 2,454,512 Units, each consisting of one
share of the Company's Common Stock and one Warrant for the purchase of one half
share of Common Stock (exercisable at $7.34 per share) for each share of Common
Stock purchased in the Unit Offering and held until June 30, 1998. The
aggregate proceeds to the Company from this Unit Offering were approximately
$14.4 million. The Units were sold to a limited number of institutional
accredited investors and to Donald Panoz, Carlo Salvi, John Sayward, and David
Dreyer, who are respectively, the Chairman of the Board of Directors and Chief
Executive Officer of the Company, the Executive Vice President and Director of
the Company, the Vice President, Finance, Chief Financial Officer and Treasurer
of the Company, and the Vice President, Corporate Controller of the Company.
The Unit Offering was consummated pursuant to the exemption provided in Section
4 (2) of the Securities Act of 1933, as amended, ("the 1933 Act") based upon the
non-public nature of the offering and representations from investors.
In December 1997, the Company sold $2.5 million of Common Stock to
SangStat. The Company relied on the exemption provided by Section 4 (2) of the
1933 Act, because of the investor's status.
21
<PAGE>
In December 1997, the Company sold an 8% interest in Metabasis to Sankyo
for $7.25 million. Sankyo purchased Convertible Preferred Stock of Metabasis.
The Convertible Preferred Stock can in certain instances be converted into
Common Stock of Gensia Sicor. The Company relied on the exemption for
registration provided by Section 4 (2) of the 1933 Act to consummate this sale,
given the nature of the investor.
22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
The data set forth below should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
document.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------
1997(2) 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales............................... $140,424 $ 54,636 $ 53,464 $ 51,830 $ 17,106
Contract research and license fees.......... 9,257 3,666 11,062 17,956 11,910
License restructuring fee.................. -- -- 50,000 -- --
Sale of investment.......................... -- -- 5,359 -- --
-------- -------- -------- -------- --------
Total revenues......................... 149,681 58,302 119,885 69,786 29,016
Cost and expenses:
Cost of sales............................... 99,850 40,654 33,183 30,937 20,759
Research and development.................... 26,118 31,081 38,762 61,201 54,341
Selling, general and
administrative........................... 46,993 32,839 31,137 29,006 20,602
Amortization expense........................ 4,367 -- -- -- --
Interest and other, net..................... 2,298 (473) (1,214) (1,240) (3,382)
Restructuring charge........................ 14,666 -- 1,092 -- --
Acquisition of in-process
research and development................ 29,200 -- 18,269 -- --
Litigation settlement....................... -- -- 4,000 -- --
-------- -------- -------- -------- --------
Total costs and expenses............... 223,492 104,101 125,229 119,904 92,320
-------- -------- -------- -------- --------
Loss before income taxes......................... (73,811) (45,799) (5,344) (50,118) (63,304)
Provision for income taxes....................... 2,884 -- 550 -- --
-------- -------- -------- -------- --------
Net loss......................................... (76,695) (45,799) (5,894) (50,118) (63,304)
Dividends on preferred stock,
including undeclared
cumulative dividends of
$7,500 as of December 31, 1997.............. 6,000 6,000 6,000 6,000 4,544
-------- -------- -------- -------- --------
Net loss applicable to common shares............. $(82,695) $(51,799) $(11,894) $(56,118) $(67,848)
======== ======== ======== ======== ========
Basic and diluted net loss
per common share (1)........................... $ (1.15) $ (1.41) $ (.36) $ (1.89) $ (2.40)
======== ======== ======== ======== ========
Shares used in computing per
share amounts (1).............................. 71,800 36,624 33,231 29,670 28,294
======== ======== ======== ======== ========
<CAPTION>
December 31,
----------------------------------------------------------------------
1997 (3) 1996 1995 1994 1993
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................. $ 39,113 $ 24,754 $ 67,687 $ 47,439 $ 78,609
Total assets.................................... 363,205 89,550 118,560 109,866 136,431
Long-term obligations,
less current maturities........................ 75,294 585 46 71 3,119
Accumulated deficit............................. (341,831) (265,136) (219,337) (213,443) (163,325)
Stockholders' equity............................ 187,543 67,999 102,303 83,778 112,859
</TABLE>
(1) Computed on the basis described for net loss per share in Note 2 of
Notes to Consolidated Financial Statements.
(2) Amounts in 1997 column include the results for Rakepoll Holding B.V.
from February 28, 1997, the date of acquisition (see Note 1 of the Notes
to Consolidated Financial Statements).
(3) Balance sheet data as of December 31, 1997 includes amounts relating to
the acquisition of Rakepoll Holding B.V. and Diaspa S.p.A. (see Note 1
of the Notes to Consolidated Financial Statements).
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Gensia Sicor has been unprofitable since its inception in 1986 and expects
to incur additional operating losses at least through the first quarter of 1998.
For the period from its inception to December 31, 1997, Gensia Sicor has
incurred a cumulative net loss of $341.8 million.
When used in this Annual Report on Form 10-K, the words "expects",
"anticipates", "estimates" and similar expressions are intended to identify
forward-looking statements. Such statements involve risks and uncertainties,
including the timely development, regulatory approvals, and successful marketing
of new products and acceptance of new products, the impact of competitive
products, product costs and pricing, changing market conditions and the other
risks detailed throughout this Form 10-K, including those listed under "RISK
FACTORS THAT MAY AFFECT RESULTS". Actual results may differ materially from
those projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which represent the Company's judgment as of the
date of the filing of this Form 10-K. The Company disclaims, however, any
intent or obligation to update these forward-looking statements.
RESULTS OF OPERATIONS
Years ended December 31, 1997, 1996 and 1995
- --------------------------------------------
In 1997, the Company reported a net loss applicable to common shares of
$82.7 million (after preferred stock dividends of $6.0 million for the year,
paid out at approximately $1.5 million each quarter) as compared to a net loss
applicable to common shares of $51.8 million in 1996 (after preferred stock
dividends of $3.0 million paid in September and December 1996 and $3.0 million
in undeclared and unpaid cumulative preferred stock dividends), and a net loss
of $11.9 million in 1995 (after preferred dividends of $1.5 million paid in
March 1995 and $4.5 million in undeclared and unpaid cumulative preferred stock
dividends). The 1997 loss included an in-process research and development
charge of $29.2 million recognized as a part of the purchase price for the
Rakepoll Holding acquisition, along with a restructuring charge of $11.5 million
related to the divestiture of an 81% interest in Automedics, and a one-time
restructuring charge of $3.2 million for costs from relocating Gensia Sicor's
headquarters from San Diego to Irvine, California. Total revenues for 1997
were $149.7 million as compared to $58.3 million in 1996, and $119.9 million
in 1995. The 1995 revenues include a one-time non-refundable $50 million
payment from The Upjohn Company as part of the restructuring of an agreement
to develop, manufacture and market multisource oncolytic drugs in the U.S.,
and a one-time sale of $5.4 million of Gensia Sicor's stock holdings in
Viagene, Inc. In addition, Gensia Sicor recorded a restructuring charge of
$1.1 million in 1995 related to the elimination of 35 positions, most of which
were part of its San Diego-based clinical research and data management groups.
Product sales increased to $140.4 million in 1997, from $54.6 million in
1996 and from $53.5 million in 1995. Cost of sales in 1997 of $99.9 million
yielded a product gross margin of 28.9%, compared to a cost of sales of $40.7
million in 1996 which yielded a gross margin of 25%, and a cost of sales of
$33.2 million in 1995 which yielded a gross margin of 38%. The increase in both
sales and gross margin during 1997 (compared to 1996) is due to the larger
product sales base that resulted from the acquisition of Rakepoll Holding in
February 1997 (Rakepoll Holding's product sales accounted for 58% of Gensia
Sicor's 1997 revenues and 68% of the gross margin), along with improved margins
for certain of Gensia Sicor Pharmaceuticals newer multisource injectable
products launched during the year. In 1997, Laryngeal Mask sales accounted for
$12.1 million of product revenues as compared to $9.3 million in 1996 and $6.9
million in 1995. Gross margins on sales of the Laryngeal Mask were 47% in 1997,
47% in 1996 and 47% in 1995. The Company's distribution agreement with the
Laryngeal Mask Company, Ltd. ended on December 31, 1997. The Company did not
enter into a new agreement to distribute the LMA products, and thus stopped
selling these products effective December 31, 1997. The Company's overall
higher gross margins in 1995 reflect sales of higher margin products at Gensia
Sicor Pharmaceuticals, namely etoposide, doxorubicin and
24
<PAGE>
dobutamine. During 1995, etoposide was Gensia Sicor Pharmaceuticals' largest
product. During 1995 and in early 1996 a number of competitors received FDA
approval to market injectable etoposide, which had a material adverse impact on
the Company's etoposide sales and margins in 1996 and 1997. Gensia Sicor
Pharmaceuticals' revenues from etoposide were $2.0 million in 1997, $9.3 million
in 1996, and $24.2 million in 1995. The Company expects product sales and gross
margins to increase in 1998 compared to 1997 primarily from new product sales,
including continued growth for Gensia Sicor Pharmaceuticals' products approved
for sale in the U.S. during 1997 (e.g. dilitiazem, leucovorin calcium,
dipyridamole and desmopressin), along with products which the Company expects to
be approved for sale by regulatory agencies during 1998 (e.g. cyclosporine and
hetastarch). Gensia Sicor may not be able to achieve this growth and new
product approvals may not be obtained. If Gensia Sicor does not experience this
planned growth it would have a significant adverse effect on the results of
operations and financial condition of the Company.
Contract research and license fees of $9.3 million in 1997 increased from
$3.7 million in 1996, and decreased from $11.1 million in 1995. The increase in
1997 (compared to 1996) was primarily caused by the agreement with Sankyo in the
area of diabetes research. The Company continued to receive contract research
revenues through its research collaboration with Pfizer in the areas of pain
and inflammation research. The decrease in 1997 and 1996 contract research from
1995 was primarily caused by the acquisition of Aramed, Inc. by Gensia Sicor in
November 1995, which reduced contract revenue recognized from Aramed. Metabasis
is engaged in discussions with other pharmaceutical companies concerning
collaborations under which these companies would fund a portion of Metabasis'
research and development efforts; however, these discussions are early-stage and
there is no assurance that any such agreement will be completed.
Research and development expenses decreased to $26.1 million from $31.1
million in 1996, and $38.8 million in 1995. The decrease in expenses in 1997
compared to 1996 and 1995 was mostly the result of lower research spending by
Metabasis. In addition, development spending at Automedics was lower in
1997 versus the previous year, offset by the inclusion of research and
development expenses from the Rakepoll Holding companies which were not included
in the earlier period results (the Rakepoll Holding companies accounted for 14%
of 1997 research and development expenses). As discussed in the Research
Activities section, the Company is considering several options, which if
accomplished would eliminate ongoing expenses from its Metabasis research
operation, causing future research and development expenses to trend downward
from current levels. See "Research Activities" for further discussion. In
addition, future research and development expenses will not include Automedics,
as the Company divested an 81% interest in this subsidiary at the end of 1997.
Selling, general and administrative expenses increased to $47.0 million in
1997 from $32.8 million in 1996, and from $31.1 million in 1995. The increases
resulted primarily from the inclusion of Rakepoll Holding's selling, general and
administrative expenses which were not included in earlier period results
(expenses attributable to Rakepoll Holding accounted for 29% of 1997 total
expenses), along with increased sales and marketing expenses for supporting
Automedics's initial marketing efforts for the GenESA System. Selling, general
and administrative expenses are expected to decrease slightly in 1998 as
compared to 1997 expenses, due to a reduction of expenses from the Company
having divested an 81% interest in Automedics at the end of 1997, offset by
growth in expenses as the Company builds its sales and marketing organization to
support the launch of newly approved multisource products. The amount of any
such expense growth will depend, in part, upon the Company's success in gaining
regulatory approval for additional multisource products. Expenses are also
expected to grow as Gensia Sicor continues to integrate the Rakepoll Holding
businesses.
The Company recorded amortization expense of $4.4 million during 1997
related to the identified intangibles and goodwill resulting from the
acquisition of Rakepoll Holding. The identified intangibles and goodwill from
the Rakepoll Holding transaction generally consists of developed technology and
goodwill, which carry average useful lives for amortization purposes of
approximately 17 and 30 years, respectively. These
25
<PAGE>
intangible assets should result in approximately $5.5 million of yearly
amortization expenses in 1998 and thereafter.
Gensia Sicor had interest and other expenses of $2.3 million in 1997
compared to interest and other income of $0.5 million and $1.2 million in 1996
and 1995, respectively. The increase in expenses is due to a combination of
higher interest expense from the inclusion of Rakepoll Holding, along with
foreign currency exchange and translation net losses recognized by Rakepoll
Holding's international operations during the year. The Company expects interest
expense to increase slightly during 1998 to give effect for having Rakepoll
Holding consolidated with Gensia Sicor for a full year, versus the ten month
period in 1997.
As a part of the Automedics divestiture, the Company recorded a charge of
$11.5 million in December 1997. This restructuring charge reflected a $7.3
million write-off of intangible assets associated with products transferred into
Automedics, specifically prepaid royalties for the GenESA System and Brevibloc
rights. The intangible assets (the GenESA System and Brevibloc prepaid
royalties) were written off because all future royalty payments required to be
paid to the Company by Automedic's new majority owners, are contingent upon
future Automedics product sales achieving certain milestones. The Company
believes there is considerable risk that the product milestones will not be
achieved. In addition, a $2.9 million loss was realized on the sale of
Automedics' assets and liabilities, and $1.3 million of severance related
expenses were recognized.
The Company also recorded a restructuring charge of $3.2 million during the
third quarter of 1997. The charge included expected costs related to the
consolidation of the Company's headquarters from San Diego, California to
Irvine, California where Gensia Sicor Pharmaceuticals occupies approximately
170,000 square feet of manufacturing, warehousing, laboratory and office space.
This consolidation was completed during the first quarter of 1998.
In the first quarter of 1995 the Company also recorded a restructuring
charge of $1.1 million for the costs of severance payments, outplacement costs
and other personnel costs associated with eliminating 35 positions, most of
which were part of its San Diego-based clinical research and data management
groups. Gensia Sicor also recorded a charge of $4.0 million in the first
quarter of 1995 related to the settlement of class action litigation. Following
notice to plaintiff classes and court hearing, on July 5, 1995 the Court
approved a Stipulation of Settlement entered into between Gensia Sicor, Aramed
and other defendants with the plaintiffs in all the actions and dismissed the
action. The settlement resolved all claims and dismissed Gensia Sicor, Aramed
and their officers and directors from the litigation without any admission or
presumption of wrongdoing by the defendants. The settlement provided for the
Company to contribute shares of its common stock having an aggregate value of
$4.0 million, and for the Company's insurance carriers to contribute $13.0
million in cash. The settlement was effective and the dismissal of litigation
final and no longer subject to appeal. The Company's stock in payment of
plaintiff's attorney's fees (30% of the $4.0 million) was issued and transferred
to the plaintiff's counsel in 1995, and the remainder was issued to class
members in the first quarter of 1996.
In 1997 and 1995 the Company recorded charges of $29.2 million and $18.3
million related to the value of in-process research and development acquired
through the Rakepoll and Aramed acquisitions. The value assigned to in-process
research and development was determined by outside parties and analysis
performed by management. At the time of the Rakepoll acquisition, the Company
established that continuing efforts to fully develop technology would require at
least several years to advance the technology through clinical development and
eventual approval by European and U.S. regulatory bodies. At the time of these
acquisitions, the technological feasibility of the acquired in-process research
and development had not yet been established and it was determined that the
technology had no future alternative uses. Accordingly, the values assigned to
in-process research and development were immediately charged to the statement of
operations.
26
<PAGE>
Dividends relate to the Company's convertible exchangeable preferred stock
issued in February 1993. Dividends on preferred stock of $6.0 million in 1997
consisted of payments of $1.5 million during each of the four quarters.
Dividends on preferred stock of $6.0 million in 1996 consisted of $3.0 million
in paid dividends and $3.0 million in undeclared and unpaid cumulative
dividends, compared to paid dividends of $1.5 million and undeclared and unpaid
cumulative dividends of $4.5 million in 1995. In order to reduce its cash
usage, Gensia Sicor's Board of Directors determined not to declare the preferred
stock quarterly dividend payments for June, September and December 1995 and
March and June 1996. The Company resumed payments of preferred stock dividends
in September 1996. Through March 1998, the Company has approximately $7.5
million in undeclared cumulative preferred dividends. If Gensia Sicor chooses
not to declare dividends for six cumulative quarters, the holders of Convertible
Preferred Stock, voting separately as a class, will be entitled to elect two
additional directors until the dividend in arrears has been paid.
Income tax expense for 1997 increased to $2.9 million from zero for 1996,
and $0.6 million in 1995. The increase in tax expense is attributable to the
inclusion of Rakepoll Holding's profitable operations in Italy and Mexico.
Although the Company reported a net loss for 1997, any taxable losses generated
by the U.S. entities cannot be utilized to reduce taxable income generated by
the foreign entities. As of December 31, 1997, the Company had federal tax net
operating loss carryforwards of approximately $273.8 million and credit
carryforwards of approximately $10.9 million. Pursuant to Internal Revenue Code
Sections 382 and 383, annual use of approximately $124.5 million and $5.3
million of the Company's net operating loss and credit carryforwards,
respectively, may be limited because of a cumulative change in ownership of more
than 50% which occurred within the three year period ending in 1993. However,
the Company does not believe this change will have a material impact on the
utilization of the net operating loss and credit carryforwards. The acquisition
of Rakepoll Holding by Gensia Sicor caused a cumulative change in ownership of
more than 50% within the three year period ending on February 28, 1997. This
ownership change will have a material impact on the utilization of approximately
$238.2 million and $10.3 million of net operating loss and credit carryforwards,
respectively. Gensia Sicor's Section 382 limitation is estimated to be
approximately $11.5 million per year. Unused annual limitations may be carried
over to later years, and the amount of the limitation may, under certain
circumstances, be increased by the built-in-gains (in excess of built-in-losses)
in assets held by Gensia Sicor at the time of the ownership change that are
recognized within the five-year period after the ownership change.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, Gensia Sicor had cash, cash equivalents and short-
term investments of $41.6 million. During 1997 Gensia Sicor completed two
private placements of Gensia Sicor units, which each consisted of common stock
and warrants. The first placement in March 1997 raised approximately $17.0
million. The second placement in December 1997 raised approximately $14.4
million.
In May 1997, the Company completed an agreement to privately place $20
million in convertible notes due in 2004. The notes bear a coupon of 2.675%.
The notes are convertible into Gensia Sicor Convertible Preferred Stock or
Common Stock at a conversion price of $3.78 per share and include Warrants to
purchase up to 2,645,503 shares of Gensia Sicor Common Stock at $4.35 per share.
Fifty percent of these Warrants are Conditional Warrants that may not be
exercised for three years and will be cancelled if the Gensia Sicor Common Stock
price exceeds certain levels during the first three years after closing. The
terms of the agreement contain, among other provisions, requirements for
maintaining defined levels of net worth and various financial ratios. A
Registration Statement with respect to the resale of the shares of Common Stock
into which the notes are convertible and for which the warrants are exercisable
has been filed by the Company.
As mentioned in the Research Activities section above, Gensia Sicor
transferred in December 1997 its proprietary pharmaceutical research and
development business into Metabasis. After this transfer, Sankyo made a $7.25
million equity investment in Metabasis for approximately 8% of the equity of
this subsidiary. Sankyo's
27
<PAGE>
investment in Metabasis was made under the terms of an agreement announced in
April 1997 between Sankyo and Gensia Sicor for a research collaboration to
discover and develop drugs for the treatment of non-insulin dependent (Type II)
diabetes. The terms of this agreement include payment to Metabasis of fees,
research funding and potential milestone payments.
The Company is continuing to pursue plans to establish Metabasis as an
independent company. The Company's current 1998 operating plan includes
continued funding of basic research activities at Metabasis primarily through
collaborations with Pfizer and Sankyo. The Company is receiving contract
research revenues though its collaborations with Pfizer for the research
and development of drugs for the treatment of acute and chronic pain, and with
Sankyo for research related to diabetes, as discussed above. To the extent the
Company is unable to establish Metabasis as an independent company and is unable
to fund its research activities through collaborations with Sankyo and Pfizer,
the Company plans to reduce its research expense to the level necessary to
fulfill its obligations under the Pfizer and Sankyo agreements. The Company's
product development efforts with Pfizer and Sankyo may not be successful, Pfizer
and Sankyo may terminate their respective collaborations before any milestones
are achieved, and Gensia Sicor may not be able to obtain the consents and
financing necessary to establish Metabasis as an independent entity.
SangStat invested $2.5 million in Gensia Sicor Common Stock in late
December 1997, in connection with an amended agreement for the commercial supply
of cyclosporine bulk drug substance. The investment by SangStat is being used
to increase the Company's capacity for the production of cyclosporine bulk
substance. Cyclosporine is a leading immunosuppressive drug used in
transplantation to prevent graft rejection. An amended agreement with SangStat
was entered into in March 1997, and its terms include the Company granting
SangStat a non-exclusive right and license to use its cyclosporine formulation,
and for Gensia Sicor to be the primary manufacturer to SangStat of commercial
cyclosporine bulk substance for use in the production of finished product
(subject to regulatory approval) for subsequent commercial sale and distribution
in North America and Europe by SangStat.
In December 1997, Sicor acquired a 50% interest in Diaspa, a private
Italian pharmaceutical company specializing in bulk fermentation products. Sicor
paid approximately $2.7 million in cash for its 50% interest in Diaspa. The
remaining 50% interest in Diaspa was purchased by Archimica S.p.A., an Italian
bulk pharmaceutical company in which Carlo Salvi, who represents Gensia Sicor's
largest shareholder and is a director and Executive Vice President of Gensia
Sicor, has a 50% beneficial ownership. The acquisition of Diaspa increases the
Company's capacity for the production of cyclosporine bulk drug substance to
meet expected demand from the long term cyclosporine supply agreement with
SangStat.
Gensia Sicor sold a parcel of land adjacent to its former corporate offices
in San Diego in December 1997 for net proceeds of approximately $2.6 million.
This transaction resulted in a gain on the sale of approximately $0.9 million.
The Company's divestiture of an 81% interest in Automedics in December 1997
is intended to have the effect of reducing future operating losses and cash flow
requirements associated with this business. Automedics incurred operating losses
of approximately $11.1 million during 1997, including a $3.3 million loss during
the fourth quarter of 1997. These Automedics losses were mostly attributed to
sales and marketing costs for introducing the GenESA System, which in the
United States, was approved for sale in September 1997. In addition, the Company
transferred its rights and obligations under a development agreement with
Protocol Systems, Inc. to Automedics. This assignment resulted in transferring
the Company's obligation to purchase a minimum number of GenESA Systems from
Protocol Systems, Inc. totaling approximately $3.4 million in 1998, $4.3 million
in 1999, $4.3 million in 2000, $4.3 million in 2001, and $4.3 million in 2002.
The Company remains liable for these obligations if Automedics does not fulfill
these contractual commitments. In addition, Gensia Sicor has assigned certain
agreements with Gensia Clinical Partners, L.P. to Automedics. If Automedics
fails to comply with the provisions of these
28
<PAGE>
agreements, including using its best efforts to market the GenESA System and
paying royalties on sales of the GenESA System to Gensia Clinical Partners,
L.P., the Company remains liable for obligations under these agreements.
Further, if Automedics chooses to exercise an option to purchase the limited
partnership interest of Gensia Clinical Partners, L.P., Gensia Sicor has agreed
to loan up to 50% of the aggregate amount of the payments made to exercise such
option. This loan could equal approximately $11 million and may be funded in
cash or stock. Automedics has agreed to repay Gensia Sicor within three years of
any such funding.
Gensia Sicor's distribution agreement with the Laryngeal Mask Company, Ltd.
ended on December 31, 1997. The Company did not enter into a new agreement to
distribute the LMA products, and thus stopped selling these products effective
December 31, 1997. As of December 31, 1997, the Company held $1.2 million of LMA
inventory, which it sold to the Laryngeal Mask Company, Ltd. in February 1998
for its original cost. In addition, at December 31, 1997 the Company held
approximately $2.0 million of accounts receivable associated with LMA sales.
Most of this balance was collected during the first quarter of 1998.
Gensia Sicor expects to incur additional costs, including the cost of sales
and marketing activities to support anticipated product launches and increased
emphasis on commercial activities. The planned spending on sales and marketing
activities during 1998 related to promoting products is approximately $14.4
million. Management also plans to invest in plant and equipment to increase and
improve the existing manufacturing capacity, including expansion of facilities
in Italy to produce cyclosporine and to complete an oncology product development
and manufacturing facility at Gensia Sicor Pharmaceuticals in Irvine,
California. Future commitments relating to these planned capital expenditures in
Italy and Irvine, California, along with other planned capital expenditures are
estimated to total $18 million during 1998. This capital commitment is
anticipated to be funded from future revenues generated by products manufactured
at these sites. Increased spending will also be required to integrate the Gensia
Sicor and Rakepoll Holding businesses. The amount of such additional costs, as
well as the increased spending necessary for working capital and capital
requirements, will depend on numerous factors including the successful
integration of the Gensia Sicor companies, improvements in the sales and
profitability of Sicor, Lemery and Gensia Sicor Pharmaceuticals, the approval
and successful marketing of new products at Gensia Sicor Pharmaceuticals in the
U.S., and the Company's ability to obtain approval and market injectable
products in the international market. The Company has commitments to finance the
expansion of the oncology facility largely through lease and debt financing
secured against certain assets of Gensia Sicor Pharmaceuticals. Such financing
may not continue to be available on attractive terms, or at all.
In June 1997, Sicor entered into a Mid-Term Financing Contract with
Interbanca S.p.A. in the amount of Lit. 15,000,000,000 (fifteen billion Italian
lira) or approximately $8.5 million. Under the terms of the agreement, the funds
are to be used for the construction and improvement of Sicor facilities and the
purchase of equipment. Sicor will make payments of interest only through March
15, 1999. Commencing on September 15, 1999, Sicor will make principal and
interest payments through March 15, 2005. Interest is computed and is adjusted
on a quarterly basis to equal a rate based upon the London Interbank Offered
Rate ("LIBOR"). The loan is secured by certain real estate and other assets of
Sicor and guaranteed by Rakepoll Holding. At December 31, 1997, there was
approximately $8.5 million in borrowings outstanding under the contract.
The Company anticipates that its efforts to reduce overall costs and
expenses and working capital requirements, combined with its current cash on
hand at December 31, 1997 of $41.6 million, and commitments from third parties,
will enable it to maintain its current and planned operations through at least
1998. In connection with its plans for expanding its business, to accomplish its
core strategy of being a leading fully-integrated provider of injectable
pharmaceutical products and services, the Company's management and Board of
Directors are evaluating plans to raise required additional capital. The Company
will continue to pursue
29
<PAGE>
equity, debt and lease financing, or a combination of these, for its capital
needs. In addition, as the Company has indicated, it may seek equity funds to
finance Metabasis. Such financings may not be available on acceptable terms, or
at all. If financing is not available, the Company may have to reduce planned
expenditures, discontinue certain operations, or otherwise restructure
operations to continue operations.
Significant changes in operating assets and liabilities during the year
ended 1997, included a $40.5 million increase in accounts receivable, a $27.0
million increase in inventories, a $27.0 million increase in accounts payable, a
$12.8 million increase in other accrued liabilities, and a $6.1 million increase
in prepaid expenses and other assets. These significant changes in operating
assets and liabilities were impacted by the inclusion of Rakepoll Holding assets
and liabilities at December 31, 1997 as follows: $33.9 million in accounts
receivable, $28.8 million in inventory, $26.4 million in accounts payable, $5.3
million in accrued liabilities, and $6.1 million in prepaid expenses and other
assets. Other significant cash flows during the year 1997 included $11.3 million
for the transaction costs associated with the acquisition of Rakepoll Holding as
of February 28, 1997, net of cash acquired of $2.2 million, $19.0 million
received from the issuance of $20 million in convertible notes and warrants,
$44.8 million received from the issuance of common stock and warrants, primarily
as a result of a private placement of 4.2 million shares of Gensia Sicor Common
Stock in March 1997 and a private placement of 2.5 million shares of Gensia
Sicor Common Stock in December 1997, and $24.3 million expended on property and
equipment.
The Company made quarterly cash dividend payments of approximately $1.5
million per quarter on its outstanding preferred stock from June 1, 1993 through
March 1, 1995. Subsequent to March 1995, as a measure to reduce cash outflows,
the Company's Board of Directors suspended quarterly cash dividend payments on
its outstanding preferred stock. The Company resumed quarterly payment of the
Preferred Stock dividend in September 1996. At December 31, 1997, the Company
had approximately $7.5 million in undeclared cumulative preferred dividends. If
the Company chooses to not declare dividends for six cumulative quarters, the
holders of this preferred stock, voting separately as a class, will be entitled
to elect two additional directors until the dividend in arrears has been paid.
IMPACT OF YEAR 2000
The Company is currently developing a plan to insure that its systems and
software infrastructure are Year 2000 compliant. Key financial, information and
operational systems will be assessed and plans will be developed to address
required systems modifications. Given the size of the Company's systems and the
relative age of the hardware, software and operating systems, management does
not anticipate any significant delays in becoming Year 2000 compliant. However,
the Company is unable to control whether its current and future partners'
systems are Year 2000 compliant. To the extent that partners would be unable to
order products or pay invoices or suppliers would be unable to manufacture and
ship product, the Company's operations could be affected. However, management
does not believe that Year 2000 changes will have a material impact on the
Company's business, financial condition or results of operations.
30
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors...................... F-1
Consolidated Balance Sheets at December 31, 1997 and 1996.............. F-2
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1997............................ F-3
Consolidated Statement of Stockholders' Equity for each of
the three years in the period ended December 31, 1997.................. F-4
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1997............................ F-5
Notes to Consolidated Financial Statements............................. F-6
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Gensia Sicor Inc.
We have audited the accompanying consolidated balance sheets of Gensia Sicor
Inc. as of December 31, 1997 and 1996, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Gensia Sicor Inc.
at December 31, 1997 and 1996, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
March 4, 1998
F-1
<PAGE>
GENSIA SICOR INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value data)
<TABLE>
<CAPTION>
ASSETS
December 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................... $ 41,624 $16,271
Short-term investments.............................................. -- 5,096
Accounts receivable................................................. 45,532 5,038
Inventories......................................................... 43,952 16,999
Other current assets................................................ 8,373 2,316
-------- -------
Total current assets........................................... 139,481 45,720
Property and equipment, net.............................................. 95,243 33,657
Other noncurrent assets.................................................. 10,759 8,148
Intangibles, net......................................................... 49,825 2,025
Goodwill, net............................................................ 67,897 --
-------- -------
$363,205 $89,550
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 38,152 $ 11,138
Accrued payroll and related expenses................................ 4,094 3,057
Other accrued liabilities........................................... 18,454 6,700
Short-term borrowings............................................... 35,581 --
Current portion of long-term debt................................... 3,487 --
Current portion of capital lease obligations........................ 600 71
--------- ---------
Total current liabilities...................................... 100,368 20,966
Other long-term liabilities.............................................. 6,547 500
Long-term debt, less current portion..................................... 42,668 --
Long-term capital lease obligations, less current
portion................................................................. 525 85
Deferred taxes........................................................... 22,228 --
Minority interest........................................................ 3,326 --
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $.01 par value, 5,000
shares authorized, 1,600 shares issued and
outstanding, liquidation preference of $80,000..................... 16 16
Common stock, $.01 par value, 125,000 shares
authorized, 78,649 and 39,658 shares issued
and outstanding at December 31, 1997 and 1996,
respectively....................................................... 786 396
Additional paid-in capital.......................................... 529,448 332,778
Accumulated deficit................................................. (341,831) (265,136)
Unearned compensation............................................... -- (55)
Foreign currency translation adjustment............................. (876) --
--------- ---------
Total stockholders' equity..................................... 187,543 67,999
--------- ---------
$ 363,205 $ 89,550
========= =========
</TABLE>
See accompanying notes.
F-2
<PAGE>
GENSIA SICOR INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
Revenues:
Product sales........................................... $140,424 $ 54,636 $ 53,464
Contract research and license fees
(including $6,550 from affiliates in 1995)............. 9,257 3,666 11,062
License restructuring fee............................... -- -- 50,000
Sale of investment...................................... -- -- 5,359
-------- -------- --------
Total revenues..................................... 149,681 58,302 119,885
Costs and expenses:
Cost of sales........................................... 99,850 40,654 33,183
Research and development................................ 26,118 31,081 38,762
Selling, general and administrative..................... 46,993 32,839 31,137
Amortization expense.................................... 4,367 -- --
Interest and other, net................................. 2,298 (473) (1,214)
Restructuring charge.................................... 14,666 -- 1,092
Acquisition of in-process research
and development........................................ 29,200 -- 18,269
Litigation settlement................................... -- -- 4,000
-------- -------- --------
Total costs and expenses........................... 223,492 104,101 125,229
-------- -------- --------
Loss before income taxes..................................... (73,811) (45,799) (5,344)
Provision for income taxes................................... 2,884 -- 550
-------- -------- --------
Net loss..................................................... (76,695) (45,799) (5,894)
Dividends on preferred stock................................. 6,000 6,000 6,000
-------- -------- --------
Net loss applicable to common shares......................... $(82,695) $(51,799) $(11,894)
======== ======== ========
Basic and diluted net loss per common share.................. $ (1.15) $ (1.41) $ (.36)
======== ======== ========
Shares used in computing basic and diluted
net loss per common share............................... 71,800 36,624 33,231
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
GENSIA SICOR INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the three years ended December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Convertible Contingent
Preferred Stock Common Stock Value Rights
---------------------- ---------------------- ----------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994........ 1,600 $ 16 32,283 $ 323 -- $ --
Issuance of common stock............... 260 2
Cash dividends on preferred stock......
Net proceeds from issuance of
warrants in connection with
Aramed --1996 portion................
Unrealized loss on available-for-
sale securities......................
Unearned compensation related to
issuance of common stock, net........
Amortization of unearned compensation..
Litigation settlement.................. 268 3
Issuance of common stock and CVRs in
Aramed acquisition................... 1,830 18 2,875 2,875
Warrant amortization related to
Aramed acquisition...................
Net loss...............................
------ ------ ------ ------ ------ ------
Balance at December 31, 1995........ 1,600 16 34,641 346 2,875 2,875
Issuance of common Stock............... 2,914 29
Cash dividends on preferred stock......
Unearned compensation related to
issuance of common stock, net........ (74) (1)
Amortization of unearned compensation..
Issuance of litigation shares.......... 532 5
Issuance of payment on CVRs in Aramed
acquisition.......................... 1,645 17 (2,875) (2,875)
Net loss...............................
------ ------ ------ ------ ------ ------
Balance at December 31, 1996........ 1,600 16 39,658 396 -- --
Issuance of common stock............... 38,991 390
Cash dividends on preferred stock......
Unrealized gain on available-for-sale
securities...........................
Issuance of warrants...................
Amortization of unearned compensation..
Investment by Sankyo in Metabasis
Therapeutics, Inc. ..................
Net loss...............................
Cumulative translation adjustments.....
------ ------ ------ ------ ------ ------
Balance at December 31, 1997........ 1,600 $ 16 78,649 $ 786 -- $ --
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Additional Cumulative Total
Paid-in Accumulated Unearned Translation Stockholders'
Capital Deficit Compensation Adjustment Equity
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994........ $ 299,018 $ (213,443) $ (2,136) $ -- $ 83,778
Issuance of common stock............... 459 461
Cash dividends on preferred stock...... (1,488) (1,488)
Net proceeds from issuance of
warrants in connection with
Aramed --1996 portion................ 2,409 2,409
Unrealized loss on available-for-
sale securities...................... (712) (712)
Unearned compensation related to
issuance of common stock, net........ 492 (492) --
Amortization of unearned compensation.. 1,528 1,528
Litigation settlement.................. 3,997 4,000
Issuance of common stock and CVRs in
Aramed acquisition................... 8,631 11,524
Warrant amortization related to
Aramed acquisition................... 6,697 6,697
Net loss............................... (5,894) (5,894)
---------- ----------- ---------- ---------- ----------
Balance at December 31, 1995........... 319,503 (219,337) (1,100) -- 102,303
Issuance of common stock............... 13,384 13,413
Cash dividends on preferred stock...... (3,008) (3,008)
Unearned compensation related to
issuance of common stock, net........ 46 10 55
Amortization of unearned compensation.. 1,035 1,035
Issuance of litigation shares.......... (5) --
Issuance of payment on CVRs in Aramed
acquisition.......................... 2,858 --
Net loss............................... (45,799) (45,799)
---------- ----------- ---------- ---------- ----------
Balance at December 31, 1996........ 332,778 (265,136) (55) -- 67,999
Issuance of common stock............... 191,069 191,459
Cash dividends on preferred stock...... (6,000) (6,000)
Unrealized gain on available-for-sale
securities........................... 4 4
Issuance of warrants................... 3,571 3,571
Amortization of unearned compensation.. 776 55 831
Investment by Sankyo in Metabasis
Therapeutics, Inc.................... 7,250 7,250
Net loss............................... (76,695) (76,695)
Cumulative translation adjustments..... (876) (876)
---------- ----------- ---------- ---------- ----------
Balance at December 31, 1997........ $ 529,448 $ (341,831) $ -- $ (876) $ 187,543
========== =========== ========== ========== ==========
</TABLE>
See accompanying notes.
<PAGE>
GENSIA SICOR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................................. $ (76,695) $ (45,799) $ (5,894)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization.................................... 14,320 5,115 7,941
(Gain) loss on disposal of property and equipment................ (850) 878 --
Deferred income tax.............................................. (1,652) -- --
Litigation settlement............................................ -- -- 4,000
Charge for acquired in-process research and
development................................................... 29,200 -- 18,269
Inventory purchase price allocation adjustments.................. 4,416 -- --
Restructuring charge............................................. 14,666 -- --
Changes in operating assets and liabilities, net of
effects from acquisitions and divestitures:
Accounts receivable.............................................. (10,782) 4,577 (3,653)
Inventories...................................................... 1,073 (5,437) (3,910)
Prepaid expenses and other assets................................ 5,142 (657) 4,542
Accounts payable and accrued expenses............................ (6,413) 5,493 (8,678)
---------- ---------- ----------
Net cash provided by (used in) operating activities........... (27,575) (35,830) 12,617
Cash flows from investing activities:
Acquisitions of businesses, net of $2,232 cash acquired.......... (10,975) -- (1,764)
Proceeds from short-term investments............................. 18,747 192,658 186,623
Purchases of short-term investments.............................. (13,651) (186,315) (166,178)
Acquisition of intangible asset.................................. (5,593) -- --
Proceeds from Sankyo's investment in Metabasis................... 7,250 -- --
Purchases of property and equipment.............................. (24,291) (12,701) (3,838)
Proceeds from sale of property................................... 2,911 136 --
Other............................................................ 187 641 (40)
---------- ---------- ----------
Net cash provided by (used in) investing activities........... (25,415) (5,581) 14,803
Cash flows from financing activities:
Payments of cash dividends on preferred stock.................... (6,000) (3,008) (1,488)
Issuance of common stock and warrants, net....................... 44,848 13,468 461
Change in short-term borrowings.................................. 10,442 -- --
Issuance of long-term debt....................................... 32,694 206 268
Issuance of capital lease obligations............................ 731 -- --
Principal payments on long-term debt............................. (2,115) (302) (2,544)
Principal payments on capital lease obligations.................. (969) (103) (67)
Payments for debt issuance costs................................. (931) -- --
---------- ---------- ----------
Net cash provided by (used in) financing activities........... 78,700 10,261 (3,370)
---------- ---------- ----------
Effect of exchange rate changes on cash............................... (357) -- --
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents...................... 25,353 (31,150) 24,050
Cash and cash equivalents at beginning of year........................ 16,271 47,421 23,371
---------- ---------- ----------
Cash and cash equivalents at end of year.............................. $ 41,624 $ 16,271 $ 47,421
---------- ---------- ----------
Supplemental disclosure of cash flow information:
Interest paid.................................................... $ 2,657 $ 82 $ 783
Income taxes paid................................................ 3,737 605 --
Supplemental schedule of non-cash investing and financing
activities:
Discount on long-term debt....................................... 3,571 -- --
Common Stock and CVRs issued to acquire net assets of
businesses:
Fair value of assets acquired, other than cash................ 206,933 -- 2,907
Liabilities assumed........................................... (81,270) -- (1,215)
</TABLE>
See accompanying notes.
F-5
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. BASIS OF PRESENTATION
ORGANIZATION
Gensia Sicor Inc., formerly known as Gensia, Inc. ("Gensia Sicor" or the
"Company"), a Delaware corporation, was incorporated November 17, 1986. On
February 28, 1997, Gensia Sicor completed the acquisition of Rakepoll Holding
B.V. ("Rakepoll Holding") from Rakepoll Finance N.V. ("Rakepoll Finance").
Rakepoll Holding is the parent company of three specialty pharmaceutical
businesses: SICOR-Societa Italiana Corticosteroidi S.p.A. ("Sicor") of Milan,
Italy, and two companies located in Mexico: Lemery, S.A. de C.V. ("Lemery") and
Sicor de Mexico, S.A de C.V. ("Sicor de Mexico"). In addition, in December
1997, Sicor purchased a 50% equity interest in Diaspa S.p.A. ("Diaspa"), an
Italian company engaged in the manufacture of certain raw materials used in
Sicor's business. Also in December 1997, as part of the Gensia Sicor
restructuring, the Company completed the transfer of its licensed and
proprietary medical products into Gensia Automedics, Inc. ("Automedics") in
exchange for certain milestone and other contingent payments. Subsequently,
Automedics sold an equity interest representing approximately 81% of
Automedics to private investors. Gensia Sicor is a specialty pharmaceutical
company focused on the development, manufacture and marketing of products for
worldwide oncology and injectable pharmaceutical markets. The newly combined
company is headquartered in Irvine, California.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiary companies, all of which are wholly owned except for 50% owned
Diaspa and 92% owned Metabasis Therapeutics, Inc ("Metabasis"). The five
wholly-owned subsidiaries are as follows: Rakepoll Holding B.V., Gensia Sicor
Pharmaceuticals, Inc. (formerly Gensia Laboratories, Ltd. and herein referred to
as "Gensia Sicor Pharmaceuticals"), Aramed, Inc., Gensia Development Corporation
and Genchem Pharma Ltd. All significant intercompany accounts and transactions
have been eliminated. The accompanying consolidated balance sheet at December
31, 1997 includes the assets, liabilities and stockholders' equity of the
combined companies. The consolidated statement of operations and statement of
cash flows for the year ended December 31, 1997 include the results for Rakepoll
Holding from February 28, 1997 (the date of acquisition), through December 31,
1997, only. Minority interest represents minority shareholders' proportionate
share of the equity in the Company's consolidated subsidiaries, Diaspa and
Metabasis. The accompanying financial statements do not include the operations
of Diaspa as the acquisition was completed in late December 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash, cash equivalents and short-term investments consist of highly liquid
debt instruments. The Company considers instruments purchased with an original
maturity of three months or less to be cash equivalents. Management has
classified the Company's short-term investments as available-for-sale securities
in the accompanying financial statements. Available-for-sale securities are
carried at fair value, with the unrealized gains and losses, net of tax,
reported as a separate component of stockholders' equity. The amortized cost of
debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in investment income.
Realized gains and losses and declines in value judged to be other-than-
temporary on available-for-sale securities are included in investment income.
The cost of securities sold is based on the
F-6
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
specific identification method. Interest and dividends on securities classified
as available-for-sale are included in investment income.
CONCENTRATION OF CREDIT RISKS
The Company invests its excess cash in U.S. Government securities and debt
instruments of financial institutions and corporations with strong credit
ratings. The Company has established guidelines relative to diversification of
its cash investments and their maturities that should maintain safety and
liquidity. These guidelines are periodically reviewed and modified to take
advantage of trends in yields and interest rates.
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The
Company maintains reserves for potential credit losses; to date, such losses
have not been significant and are within management's expectations.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method for inventories of Lemery, Sicor de
Mexico and Gensia Sicor Pharmaceuticals. Cost is determined by the last-in,
first-out (LIFO) method for the Company's Italian subsidiaries.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost less accumulated depreciation.
Expenditures for maintenance, repairs and renewals of relatively minor items are
generally charged to expense as incurred. Renewals of significant items are
capitalized. Depreciation is computed on the straight-line method over the
following estimated useful lives:
Building and building improvements 11 to 20 years
Machinery and equipment 3 to 15 years
Office furniture and equipment 3 to 12 years
INTANGIBLE ASSETS
The Company has recorded goodwill for the excess purchase price over the
estimated fair values of tangible and intangible assets acquired and liabilities
assumed resulting from acquisitions. In connection with the acquisitions, a
portion of the purchase price was allocated to various identifiable intangible
assets, including developed technology, trademarks and assembled workforce,
based on their fair values at the date of acquisition. The excess purchase
price over the estimated fair value of the net assets acquired has been assigned
to goodwill. Additionally, the Company has recorded intangible assets related
to purchase of proprietary technology rights. Amortization of intangible assets
is computed on the straight-line method over the following estimated life:
Technology rights 5 years
Assembled workforce 5 years
Developed technology 17 years
Trademarks 30 years
Goodwill 30 years
F-7
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
IMPAIRMENT OF LONG-LIVED ASSETS
The Company routinely assesses the recoverability of long-lived assets by
determining whether the carrying value of such assets can be recovered through
undiscounted future operating cash flows. If impairment is indicated, the
Company will measure the amount of such impairment by comparing the carrying
value of the asset to the present value of the expected future cash flows
associated with the use of the asset.
FINANCIAL INSTRUMENTS
Off-balance sheet financial instruments such as foreign currency forward
contracts are valued at market prices with the resulting gains and losses
recognized in the statement of operations as foreign currency exchange results.
The Company does not hold or issue financial instruments for trading purposes.
The Company values financial instruments as required by SFAS No. 107,
"Disclosure about Fair Value of Financial Instruments". The carrying amounts of
cash, accounts receivable, short-term debt and long-term, and variable-rate debt
approximate fair value. The Company estimates that the carrying value of long-
term fixed rate debt approximates fair value based on the Company's estimated
current borrowing rates for debt with similar maturities.
RESEARCH AND DEVELOPMENT EXPENSES
All costs of research and development, including those incurred in relation
to the Company's collaborative agreements, are expensed in the period incurred.
REVENUE RECOGNITION
For contracts under which the Company is reimbursed for research and
development efforts, revenue is recognized in accordance with the terms of the
contract as the related expenses are incurred. Amounts recorded as revenues are
not dependent upon the success of the research efforts. Nonrefundable license
fees in connection with research and development agreements are recognized on
the straight-line method over the term of the contract. Product sales revenues
are recorded as products are shipped.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity 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
reporting period. Actual results could differ from those estimates.
NET LOSS PER SHARE
Net loss per share is computed by dividing net loss, after deducting
preferred stock dividends, by the weighted average number of common shares
outstanding during the year.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" ("SFAS 128"). The new Standard is effective for
financial statements for periods ending after December 15, 1997, and must be
applied retroactively. SFAS 128 simplifies the standards for computing earnings
per share and
F-8
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
requires presentation of two new amounts, basic and diluted earnings per share.
The Company adopted SFAS 128 in the fourth quarter of 1997 and such adoption has
had no effect on the previously reported earnings per share. Diluted loss per
share including shares issuable upon exercise of outstanding stock options and
warrants has not been presented since the effects of such conversions and
exercises would be anti-dilutive.
STOCK-BASED COMPENSATION
During the year ended December 31, 1996, the Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). The Company has continued to measure compensation
expense for its stock-based employee compensation plans using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Accordingly, the
Company has provided pro forma disclosures of results of operations as if the
fair value-based method prescribed by SFAS 123 had been applied in measuring
compensation expense.
FOREIGN CURRENCY TRANSLATION
The financial statements of subsidiaries outside the United States, except
those subsidiaries located in highly inflationary economies, are generally
measured using the local currency as the functional currency. Assets and
liabilities of these subsidiaries are translated at the rates of exchange at the
balance sheet date. The resulting translation adjustments are included in the
cumulative translation adjustment, a separate component of stockholders' equity.
Income and expense items are translated at average monthly rates of exchange.
The functional currency of Lemery has been the Mexican peso. In accordance with
SFAS 52, the net assets of Lemery were remeasured to the U.S. dollar during the
second quarter of 1997 as a result of a hyper-inflationary economy in Mexico
and, accordingly, gains and losses from balance sheet translation adjustments
are included in net earnings. The functional currency of Sicor de Mexico is the
U.S. dollar.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("SFAS 130") and Statement No. 131,
"Disclosure About Segments of An Enterprise and Related Information" ("SFAS
131"). The Company intends to adopt SFAS 130 in 1998 and operating results of
prior periods will be reclassified. The Company's only component of other
comprehensive income has been unrealized gains and losses on available-for-sale
securities and the foreign currency translation adjustment which is currently
reported as part of stockholders' equity. SFAS 131 will require the Company to
use the "management approach" in disclosing segment information. Both statements
are effective for the Company during 1998. The Company does not believe that the
adoption of either SFAS 130 and SFAS 131 will have a material impact on the
Company's results of operations, cash flows, or financial position.
RECLASSIFICATIONS
Certain prior year amounts in the consolidated financial statements have
been reclassified to conform to the current year presentation.
F-9
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
3. ACQUISITIONS
RAKEPOLL HOLDING B.V.
On February 28, 1997, after shareholder approval, Gensia Sicor acquired all
of the outstanding shares of capital stock of Rakepoll Holding from Rakepoll
Finance in exchange for 29,500,000 shares of the Company's Common Stock and
$100,000. The transaction was accounted for using the purchase method. The
total purchase price was $157.1 million, which was comprised of the fair value
of Common Stock issued of $146.6 million, acquisition costs of $10.4 million,
and a cash payment of $100,000.
Based on the purchase price of $157.1 million, allocation of the total
acquisition cost is as follows (in thousands):
<TABLE>
<S> <C>
Net tangible assets................................ $ 30,132
Developed technology............................... 45,000
Other intangibles.................................. 6,870
In-process research and development................ 29,200
Deferred income tax................................ (22,776)
Goodwill........................................... 68,669
--------
Total......................................... $157,095
========
</TABLE>
The developed technology and other intangibles are being amortized over
their estimated lives. The excess of the purchase price over the fair value of
identified assets and liabilities of $45.9 million and the deferred income tax
liability of $22.8 million were recorded as goodwill, which is being amortized
over its estimated life of 30 years. The value assigned to in-process research
and development was determined by outside parties. At the time of acquisition,
the technological feasibility of the acquired in-process research and
development had not yet been established and it was determined that the
technology had no future alternative uses. Accordingly, the value assigned to
in-process research and development was immediately charged to the statement of
operations. This charge is not deductible for income tax purposes.
DIASPA, S.P.A.
In December 1997, Sicor purchased a 50% equity interest in Diaspa, an
Italian company engaged in the manufacture of certain raw materials used in
Sicor's business for $2.7 million. The remaining 50% interest in Diaspa was
purchased by Archimica S.p.A. ("Archimica"), an Italian bulk pharmaceutical
company in which an individual who represents Gensia Sicor's largest
shareholder and is a Director and Executive Vice President, has a 50%
beneficial ownership. For financial reporting purposes, the acquisition of 50%
of Diaspa's net assets was accounted for using the purchase method and
resulted in recording a deferred income tax liability of $3.4 million.
Archimica's 50% interest in Diaspa of approximately $3.3 million has been
reported as minority interest in the Company's consolidated balance sheet at
December 31, 1997.
The following unaudited pro forma data reflects the combined results of
operations of the Company, Rakepoll Holding and Diaspa as if the acquisition had
occurred on January 1, of the respective year (in thousands, except per share
data):
F-10
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
December 31,
1997 1996
--------------- --------------
<S> <C> <C>
Total revenues............................................ $176,922 $152,166
Net loss after preferred stock dividends.................. (85,872) (76,244)
Basic and diluted net loss per share...................... $ (1.16) $ (1.15)
</TABLE>
ARAMED, INC.
In late 1991, the Company formed Aramed, Inc. ("Aramed"), which became a
publicly owned company, to accelerate the discovery, research and development of
certain compounds (the "Aramed Products") utilizing the Company's ARA
technology. The Company licensed to Aramed certain technology to develop and
commercialize the Aramed Products in the United States, Canada and Europe.
Aramed engaged the Company to perform research and development with respect to
three program areas: second generation ARAs for the intravenous treatment of
acute cardiovascular disorders, ARAs for the oral and intravenous treatment of
certain seizure disorders and ARAs and adenosine agonists for the intravenous
treatment of acute cerebrovascular disorders.
In November 1995, the Company acquired Aramed, which became a wholly-owned
subsidiary of the Company. The consideration paid for each Aramed share was (a)
$8.00 in cash, (b) approximately 0.64 of a share of Company's Common Stock, and
(c) one contingent value right ("CVR") that represented the right to receive
additional shares of the Company or cash (at the Company's option) based upon
specified formulas. In April and December 1996, the Company issued 1,645,679
shares in the aggregate to satisfy the CVR rights.
The acquisition of Aramed was accounted for using the purchase method and,
accordingly, the consolidated financial statements include the operations of
Aramed from its date of acquisition. The total purchase price, including
acquisition costs of $1.4 million, was $42.6 million which was comprised
primarily of a cash payment of $23 million to Aramed stockholders, the fair
value of Common Stock issued ($8.6 million), the fair value of the contingent
value rights issued ($2.9 million) and approximately $6.7 million related to the
write-off of the unamortized receivable related to the original issue of the
Company warrants in the Aramed Unit Offering. Based on the purchase price of
$42.6 million, net of the fair market value of the assets acquired ($24.3
million, including cash of $22.6 million), the Company allocated $18.3 million
to acquired in-process research and development. The value assigned to in-
process research and development was determined by outside parties and analysis
performed by management. At the time of acquisition, the technological
feasibility of the acquired in-process research and development had not yet been
established and it was determined that the technology had no future alternative
uses. Accordingly, the value assigned to in-process research and development was
immediately charged to the statement of operations. This charge is not
deductible for income tax purposes.
4. RELATED PARTIES
The Company has agency agreements with Alco Chemicals ("Alco"). In
September 1996, the majority shareholder of Alco acquired a majority of the
outstanding shares of Rakepoll Finance N.V., which owns approximately 37% the
Company's outstanding Common Stock. The same majority shareholder of Alco is
also an Executive Vice President and director of the Company.
F-11
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Under the terms of its agreements with the Company, Alco is to receive
commissions equal to 4% of sales to third-party non-Italian customers. The
agreements are in place for five years, unless there is a change in control
of Alco. The agreement permits the Company to sell its products directly or
through other agents. If the Company pays commissions that are less than the
contractual commission percentage to such agents, the Company must pay the
differential between the commissions paid and the contractual percentage to
Alco. Commission expenses relating to Alco were approximately $1,980,000 for the
year ended December 31, 1997 and the net outstanding payable to Alco at December
31, 1997 was $1,070,000.
Lemery in Mexico purchases raw materials and supplies from two companies
called Megafarma, S.A. de C.V. ("Megafarma") and Interquim, S.A. de C.V.
("Interquim"). Lemery's Managing Director and Director of Operations have
beneficial ownership in both Megapharma and Interquim. The combined material and
supply purchases made by Lemery during 1997 from these two companies totaled
approximately $2.1 million.
Sicor purchased a 50% equity interest in Diaspa (see Note 3) in December
1997 for approximately $2.7 million. The remaining 50% interest of Diaspa was
purchased by Archimica, a company in which an individual who represents Gensia
Sicor's largest shareholder and is a Director and Executive Vice President,
has a 50% beneficial ownership. At December 31, 1997, the Company has a net
receivable balance from Archimica of $43,000.
5. COMPOSITION OF CERTAIN CONSOLIDATED FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
December 31,
1997 1996
---------------- ---------------
<S> <C> <C>
Receivables (in thousands):
Trade receivables............................................ $47,517 $ 6,111
Less allowance for doubtful accounts......................... (1,985) (1,073)
------- -------
$45,532 $ 5,038
======= =======
</TABLE>
Approximately $21,100,000 of trade receivables at December 31, 1997 was
pledged as security for short-term borrowings (see Note 8).
<TABLE>
<S> <C> <C>
Inventories (in thousands):
Raw materials............................................. $16,332 $ 7,202
Work-in-process........................................... 6,182 1,362
Finished goods............................................ 23,363 9,976
------- -------
45,877 18,540
Less reserve.............................................. (1,925) (1,541)
------- -------
$43,952 $16,999
======= =======
Other current assets (in thousands):
Prepaid expenses.......................................... $ 2,357 $ 982
VAT receivable............................................ 2,230 --
Other taxes receivable.................................... 1,492 --
Other receivables......................................... 2,294 1,334
------- -------
$ 8,373 $ 2,316
======= =======
</TABLE>
F-12
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
December 31,
1997 1996
---------------- ---------------
<S> <C> <C>
Property and equipment (in thousands):
Land and land improvements............................................... $ 1,530 $ 1,800
Buildings and building improvements...................................... 19,903 7,412
Machinery and equipment.................................................. 76,306 28,144
Office furniture and equipment........................................... 5,221 3,814
Construction in progress................................................. 15,273 8,964
-------- --------
118,233 50,134
Less accumulated depreciation and amortization........................... (22,990) (16,477)
-------- --------
$ 95,243 $ 33,657
======== ========
</TABLE>
At December 31, 1997 and 1996, equipment acquired under capital lease
obligations totaled $3,177,000 and $234,000, respectively. Such leased
equipment is included in property and equipment, net of accumulated amortization
of $289,000 and $51,000 at December 31, 1997 and 1996, respectively.
Depreciation expense, including amortization of capital leases, was
$8,951,000, $3,277,000 and $3,704,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
<TABLE>
<S> <C> <C>
Other noncurrent assets (in thousands):
Restricted short-term investment....................................... $ 4,925 $5,500
Deferred tax asset..................................................... 1,720 --
Investment in Gensia Automedics, Inc................................... 1,839 --
Other.................................................................. 2,275 2,648
------- ------
$10,759 $8,148
======= ======
</TABLE>
<TABLE>
<S> <C> <C>
Intangibles (in thousands):
Developed technology.................................................... $45,000 $ --
Trademarks.............................................................. 4,600 --
Assembled workforce..................................................... 2,270 --
Technology rights....................................................... 912 --
Licenses................................................................ -- 3,000
------- ------
52,782 3,000
Less accumulated amortization........................................... (2,957) (975)
------- ------
$49,825 $2,025
======= ======
</TABLE>
<TABLE>
<S> <C> <C>
Goodwill (in thousands):
Goodwill..................................................................... $69,552 $ --
Less accumulated amortization................................................ (1,655) --
------- -------------
$67,897 $ --
======= =============
</TABLE>
F-13
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
December 31,
1997 1996
------- ------
<S> <C> <C>
Other current accrued liabilities (in thousands):
Deferred tax liability.......................... $ 3,247 $ --
Restructuring accrual........................... 3,184 --
Deferred revenue................................ 1,229 1,771
VAT payable..................................... 1,218 --
Other taxes payable............................. 3,022 397
Other........................................... 6,554 4,532
------- ------
$18,454 $6,700
======= ======
</TABLE>
<TABLE>
<S> <C> <C>
Other long-term liabilities (in thousands):
Severance indemnities........................... $2,977 $ --
Contamination reserve........................... 2,834 --
Deferred revenue................................ 611 500
Other........................................... 125 --
------ ----
$6,547 $500
====== ====
</TABLE>
Severance indemnity is paid in Italy to employees upon termination of their
employment. Each year, the employer accrues, for each employee, an amount
partly based on the employee's remuneration and partly based on the revaluation
of amounts previously accrued.
6. RESTRUCTURING CHARGE
The Company recorded a restructuring charge of $1.1 million in 1995 related
to a reduction of its San Diego-based clinical research and data management
groups. The charge included expected costs of severance payments, outplacement
costs and other personnel costs associated with the restructuring.
In December 1997, the Company relocated its corporate staff
from San Diego, California to Irvine, California to improve operating
efficiencies and reduce operating costs. The Company's wholly-owned subsidiary,
Gensia Sicor Pharmaceuticals, occupies approximately 170,000 square feet of
manufacturing, warehousing, laboratory and office space in Irvine. In
connection with the relocation, the Company recorded a non-recurring charge of
$3.2 million in the third quarter of 1997.
In December 1997 the Company divested an 81% interest in Automedics in
order to reduce future operating losses and cash flow requirements associated
with this business. In anticipation of this divestiture, Gensia Sicor
transferred its licensed and proprietary medical products, including the
GenESA(R) System, Brevibloc(R), and the AutoHep(TM) System (previously called
the Feedback Controlled Heparin System) to Automedics in exchange for future
royalty and milestone payments, and subordinated preferred shares of Automedics.
Subsequently, Automedics sold an equity interest representing approximately 81%
of Automedics to private investors for $6.0 million, which resulted in
decreasing Gensia Sicor's beneficial ownership of Automedics to 19%. Due to the
contingent nature of the potential royalty and milestone payments, Gensia
Sicor recorded a charge of approximately $11.5 million in the fourth quarter of
1997, including the write-off of approximately $7.3 million of intangible assets
related to the products transferred to Automedics. Gensia Sicor assigned certain
agreements to Automedics, and remains contingently liable if Automedics does not
fulfill the contractual obligations. The contingent obligations could exceed $20
million. Additionally, if Automedics exercises a purchase option related to
certain product rights transferred by the Company, Gensia Sicor has agreed to
loan to
F-14
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Automedics up to 50% of the aggregate amount of the payments made to exercise
such option. This loan could equal approximately $11 million and may be funded
in cash or stock. Automedics has agreed to repay Gensia Sicor within three
years of any such funding. The following summarizes the significant components
of the Company's Automedics restructuring charge included in the consolidated
statement of operations (in thousands):
<TABLE>
<CAPTION>
Year ended
December
31,1997
---------------
<S> <C>
Write-off of intangible assets................................................... $ 7,318
Loss in net assets transferred................................................... 2,888
Severance and related benefits................................................... 1,276
-------
$11,482
=======
</TABLE>
7. INVESTMENTS
The following is a summary of available-for-sale securities (in
thousands):
<TABLE>
<CAPTION>
Available-for-Sale Securities
------------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------- -------------- ---------------
<S> <C> <C> <C> <C>
December 31, 1997:
- ------------------
U.S. government securities................. $ 791 -- $ -- $ 791
U.S. corporate securities.................. -- -- -- --
------- ------------- -------------- -------
$ 791 -- $ -- $ 791
======= ============= ============== =======
December 31, 1996:
- ------------------
U.S. government securities................. $ 6,696 $ 1 $ -- $ 6,697
U.S. corporate securities.................. 7,143 -- -- 7,143
------- ------------- -------------- -------
$13,839 $ 1 $ -- $13,840
======= ============= ============== =======
</TABLE>
At December 31, 1997 and 1996, the available-for-sale securities included
in cash and cash equivalents totaled $791,000 and $8,744,000, respectively.
The gross realized gains on sales of available-for-sale securities totaled
$0 and $1,000 in 1997 and 1996, respectively. The gross realized losses totaled
$1,000 and $5,000 in 1997 and 1996, respectively. The net unrealized gain of
$1,000 in 1996 is included in additional paid-in capital. The unrealized gains
or losses had no cash effect and are therefore not reflected in the consolidated
statement of cash flows.
At December 31, 1997, the contractual maturities of all of the Company's
available-for-sale investments are less than 90 days from the balance sheet
date.
F-15
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
8. SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
Short-term borrowings consist of the following (in thousands): December 31,
1997
---------------
<S> <C>
Short-term borrowings under credit line arrangements,
repayable in U.S. dollars and Italian lire......................... $29,166
Short-term borrowings, repayable in U.S. dollars....................... 2,472
Short-term borrowings, repayable in Italian lire....................... 3,573
Short-term borrowings, repayable in Mexican pesos...................... 370
-------
$35,581
=======
</TABLE>
The Company's Italian subsidiaries maintain credit line arrangements with
several banks whereby the trade receivables are pledged to the banks in return
for short-term borrowings in Italian lire under the line of credit. The Company
believes these transactions effectively eliminate the Company's foreign exchange
risk associated with these transactions. The Company's domestic operations also
entered into a factoring agreement of its receivables during 1997. The Company
retains all credit risk with respect to the receivables. Consequently, both the
receivables and related borrowings are included in the accompanying consolidated
financial statements. The weighted average interest rates on these borrowings
was approximately 6.9% at December 31, 1997.
The short-term borrowings from banks, repayable in U.S. dollars and Italian
lire, are unsecured. The terms of the borrowings range from three to six
months. The weighted average interest rate on these borrowings was
approximately 10.2% at December 31, 1997.
The short-term borrowings from banks, repayable in Mexican pesos, are
unsecured. The weighted average interest rate on these borrowings was
approximately 26% at December 31, 1997.
There were no short-term borrowings outstanding at December 31, 1996.
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following (in thousands): December 31,
1997
---------------
<S> <C>
2.675% subordinated convertible notes due 2004,
net of unamortized discount of $3,256, effective
interest rate of 5.9%......................................... $16,744
Mortgage notes payable.................................................. 16,559
Notes payable to bank................................................... 6,510
Notes payable to suppliers.............................................. 4,923
Notes payable to Italian Ministry of Industry........................... 1,193
Other................................................................... 226
-------
46,155
Less: current portion.............................................. (3,487)
-------
Long-term debt, net of current portion.............................. $42,668
=======
</TABLE>
F-16
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
In 1997, the Company issued $20 million of Subordinated Convertible Notes
due May 1, 2004 ("the Notes"). The Notes bear interest at the rate of 2.675%
annually, which is payable quarterly in arrears on the last business day of
March, June, September and December of each year, commencing June 30, 1997.
The Notes are convertible at the option of the holder at any time into
Gensia Sicor Convertible Preferred Stock or Common Stock at a conversion price
of $100 per share and $3.78 per share, respectively, subject to adjustment under
certain conditions. At the Company's option, the Notes are convertible into
Gensia Sicor Preferred Stock at a conversion price of $100 per share, subject to
meeting certain financial conditions or Gensia Sicor Common Stock price levels.
At the Company's option, the Notes are redeemable on or after 18 months of the
closing date, subject to meeting certain Gensia Sicor Common Stock price levels.
In connection with the Notes, Warrants to purchase up to 2,645,503 shares
of Gensia Sicor Common Stock at $4.35 per share were also issued. Fifty percent
of these Warrants are Conditional Warrants that may not be exercised for three
years and will be canceled if the Gensia Sicor Common Stock price exceeds
certain levels during the first three years after the closing. The estimated
fair market value of the Warrants of $3.6 million is recorded as a discount on
Notes payable and is being amortized to interest expense over the term of the
Notes. All Warrants were outstanding at December 31, 1997.
The mortgage notes payable are secured by certain production facilities
with a carrying value of approximately $18.8 million and are repayable in
quarterly and semi-annual installments of principal and interest through 2002.
The floating interest rate is based on several financial indicators. The
weighted average interest rate on these loans was 8.0% at December 31, 1997.
The notes payable to a bank are unsecured and are repayable in semi-annual
installments of principal and interest through 2003. The weighted average fixed
interest rate on these notes was 7.9% at December 31, 1997.
Notes payable to suppliers are secured by certain machinery and equipment
facilities with a carrying value of approximately $3.4 million and are repayable
in quarterly and semi-annual installments of principal and interest through
2001. The weighted average fixed interest rate on these notes was 7.3% at
December 31, 1997.
The notes payable to the Italian Ministry of Industry are secured by
certain production facilities and are repayable in annual installments of
principal and interest through 2009. The weighted average fixed interest rate on
these notes was 7.4% at December 31, 1997.
Interest expense for 1997, 1996, and 1995 was $2,446,000, $73,000, and
$790,000, respectively.
Maturities of long-term debt during the years subsequent to December 31,
1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998.......................... $ 3,487
1999.......................... 4,194
2000.......................... 8,952
2001.......................... 4,841
2002.......................... 3,152
Thereafter.................... 21,529
-------
$46,155
=======
</TABLE>
There was no long-term debt outstanding at December 31, 1996.
F-17
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
10. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company's 1.6 million shares of $3.75 Convertible Exchangeable
Preferred Stock (the "Preferred Stock") was issued in a private offering to
institutional investors. The Preferred Stock has a liquidation preference of
$50.00 per share. Cash dividends on the Preferred Stock are payable quarterly
at an annual dividend rate of $3.75 for each share. Dividends on the Preferred
Stock are cumulative. The Preferred Stock is convertible, at any time prior to
redemption, into approximately 2.9 million shares of the Company's Common Stock
at a conversion price of $27.60 per share, subject to certain anti-dilution
adjustments. The Preferred Stock is redeemable at the option of the Company,
initially at a price of $52.50 per share and thereafter at prices declining to
$50.00 per share in March 2002 plus all accrued and unpaid dividends. The
Preferred Stock will not be redeemable prior to March 6, 1998 unless the closing
price of the Common Stock equals or exceeds 150% of the then effective
conversion price per share for any 20 trading days during a specified period.
The Preferred Stock will be exchangeable at the option of the Company in whole,
but not in part, on any dividend payment date for its 7 1/2% Convertible
Subordinated Debentures due 2003 at the rate of $50.00 principal amount of
Debentures for each share of Preferred Stock.
The Company made quarterly cash dividend payments of approximately $1.5
million per quarter on its outstanding Preferred Stock from June 1, 1993 through
March 1, 1995. Subsequent to March 1995, as a measure to reduce cash outflows,
the Company's Board of Directors suspended quarterly cash dividend payments on
its outstanding Preferred Stock. The Company resumed payment of the Preferred
Stock dividend in September 1996. At December 31, 1997, the Company has
approximately $7.5 million in undeclared cumulative preferred dividends. If the
Company chooses to not declare dividends for six cumulative quarters, the
holders of this Preferred Stock, voting separately as a class, will be entitled
to elect two additional directors until the dividend in arrears has been paid.
WARRANTS
In July 1996, warrants to purchase 70,000 shares of Common Stock were
issued in connection with a lease financing commitment for Gensia Sicor
Pharmaceuticals. These warrants have an exercise price of $5.25 per share and
expire in July 2006.
In March 1997, the Company sold approximately 4 million Units in a private
placement, each Unit consisting of one share of Common Stock and a Warrant to
purchase one-half share of Common Stock at a per share exercise price of $4.1875
per share. At December 31, 1997, warrants to purchase an aggregate of
1,952,000 shares of Gensia Sicor Common Stock were outstanding.
In December 1997, the Company sold approximately 2.4 million Units in a
private placement, each Unit consisting of one share of Common Stock and a
Warrant to purchase one-half share of Common Stock at a per share exercise price
of $7.34 per share. If a purchaser sells the Common Stock purchased in the Unit
offering prior to June 30, 1998, then the purchaser will not be issued the
Warrant component of the Unit.
F-18
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
In connection with the sales of interests in Gensia Clinical Partners,
warrants to purchase 2,249,175 shares (the "Partnership Warrants") were issued
which became exercisable on August 1, 1993. These warrants were exercisable, in
whole or in part, through July 31, 1996 at a price of $17.47 per share and
thereafter until July 31, 1998 at a price of $19.47 per share. At December 31,
1997, warrants to purchase an aggregate of 1,962,477 shares of Gensia Sicor
Common Stock were outstanding.
Additional warrants were issued in connection with the issuance of the
2.675% Subordinated Convertible Notes (see Note 9).
STOCK OPTIONS
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock plans because, as discussed below, the
alternative fair value accounting provided for under SFAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
In February 1997, the stockholders consented to the 1997 Long-Term
Incentive Plan (the "1997 Stock Plan") which replaced the 1990 Stock Plan (the
"1990 Stock Plan"). The Stock Plan provides for both the direct award or sale of
Common Shares and the granting of qualified and nonqualified options to its
employees, directors and certain other individuals. Generally, options
outstanding vest over a four year period and are exercisable for up to ten years
from the grant date. Under the 1997 Stock Plan, 2,000,000 shares were reserved
for issuance. This amount will be increased by any shares not subject to
exercise under the 1990 Stock Plan or which are not exercised because of
forfeiture or termination of options granted under the 1990 Stock Plan. Under
the 1990 Stock Plan, 6,383,334 shares of Gensia Sicor Common Stock have been
reserved for issuance.
In June 1997, the Board of Directors approved, and in September 1997, the
Company's stockholders consented to the amendment of the 1997 Stock Plan to
increase the aggregate number of shares authorized for issuance thereunder by
1,000,000 shares to a total of 3,000,000. Accordingly, at December 31, 1997,
9,383,334 shares were reserved for issuance under both stock option plans.
In September 1997, the stockholders consented to the Chairman's Options
(the "Chairman's Options"). Under the Chairman's Options, 500,000 shares were
reserved for issuance and the full 500,000 shares were issued to the Company's
current Chairman of the Board and Chief Executive Officer, who at the time of
issuance was a non-executive Chairman of the Board. Of the 500,000 shares
subject to the Chairman's Options, 200,000 shares were fully vested, and the
remaining 300,000 shares will vest in increments of 100,000 shares subject to
meeting certain performance conditions.
F-19
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
A summary of the Company's stock option activity and related information is
as follows (in thousands except exercise price):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1997 1996 1995
------------------ ------------------ ------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Options price Options price Options price
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year.... 4,154 $5.03 4,416 $4.96 4,550 $5.50
Granted......................... 2,635 4.44 949 5.02 1,207 4.00
Exercised....................... (623) 3.90 (523) 4.50 (54) 3.35
Cancelled....................... (646) 4.84 (688) 4.93 (1,287) 6.02
----- ----- ----- ----- ------ -----
Outstanding - end of year.......... 5,520 $4.90 4,154 $5.03 4,416 $4.96
===== ===== ===== ===== ====== =====
Exercisable - end of year 3,566 $5.16 4,142 $5.21 2,557 $5.71
===== ===== ===== ===== ====== =====
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Weighted
average
Number remaining
Range of Outstanding contractual
exercise prices (in thousands) life
--------------- -------------- ----------
<S> <C> <C>
$2.00 to $3.38......................... 325 7.1
$3.44 to $5.00......................... 4,438 7.8
$5.06 to $6.00......................... 465 8.2
$6.13 to $10.00........................ 117 8.2
$10.33 to $28.48....................... 175 4.1
-----
5,520
=====
</TABLE>
Shares of Common Stock reserved at December 31, 1997 for the exercise
of available and outstanding stock options and warrants totaled 12,272,974.
RESTRICTED STOCK
In 1994 and 1995, the Company issued restricted Common Stock to certain
employees. In conjunction with the issuance of these restricted shares, options
to purchase 360,250 shares were cancelled. The market value of the restricted
shares at the time of issuance was recorded as unearned compensation in a
separate component of stockholders' equity and amortized to expense over the
period of restriction.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "ESPP") provides employees
of the Company the opportunity to purchase Common Stock through payroll
deductions. In June 1997, the Board of Directors approved and in September
1997, the Company's stockholders consented to the amendment of the 1992 ESPP to
increase the aggregate number of shares reserved for issuance thereunder by
100,000 shares to a total of 500,000 shares of Common Stock. Any full-time
employee of the Company is eligible to participate in the ESPP after he or
F-20
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
she has been continuously employed by the Company for three consecutive months.
Eligible employees may elect to contribute up to 12% of their total compensation
during each six-month offering period, subject to certain statutory limits. At
the end of each six-month offering period, the Company will apply the amount
contributed by the participant during the offering period to purchase whole
shares of Common Stock, but not more than 1,000 shares. The shares of Common
Stock vest immediately and are purchased for 85% of the lower of (i) the market
price of the Common Stock immediately before the beginning of the purchase
period or (ii) the market price of the Common Stock on the last business day of
the purchase period. All expenses incurred in connection with the
implementation and administration of the ESPP are paid by the Company. At
December 31, 1997, 417,171 shares had been issued under the ESPP.
PRO FORMA INFORMATION
Pro Forma information regarding net loss and net loss per share is required
by SFAS 123, and has been determined as if the Company had accounted for its
employee stock plans under the fair value method of that statement. The fair
value was estimated at the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions for 1997, 1996 and 1995,
respectively: risk-free interest rates of 6.1% to 6.2%, 6.0% to 6.2% and 6.1% to
6.3%; dividend yields of 0% for 1997, 1996 and 1995; volatility factors of the
expected market price of the Company's Common Stock of 36.2% for 1997 and 46.9%
for 1996 and 1995; and a weighted-average life of four to five year for 1997 and
three to five years for 1996 and 1995.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value is
amortized to expense over the vesting period of such stock or options. The
effects of applying Statement 123 for pro forma disclosure purposes are not
likely to be representative of the effects on pro forma information in future
years because they do not take into consideration pro forma compensation expense
related to grants made prior to 1995. The Company's pro forma information is as
follows (in thousands except per share, and fair value and exercise price data):
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- ---------------
Net loss:
<S> <C> <C> <C>
As reported................................................ $(82,695) $(51,799) $(11,894)
Pro forma.................................................. (82,811) (54,781) (12,544)
Basic and diluted net loss per share:
As reported................................................ $ (1.15) $ (1.41) $ (.36)
Pro forma.................................................. (1.15) (1.50) (.38)
</TABLE>
F-21
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Weighted average Weighted average
fair value exercise price
------------------------------------- -----------------------------------
1997 1996 1995 1997 1996 1995
----------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Exercise Price on Date of Grant:
- --------------------------------
Equal to market price of stock............. $4.54 $5.09 $4.01 $4.54 $5.09 $4.01
Less than market price of stock:
Options................................. $4.66 $5.09 $3.86 $4.18 $4.40 $3.54
Restricted stock........................ $5.52 $5.09 $4.00 $ .01 $ .01 $ .01
Employee stock purchase plan............ $5.11 $4.85 $4.63 $3.77 $4.12 $3.19
</TABLE>
STOCKHOLDER RIGHTS PLAN
The Company has adopted a Stockholder Rights Plan (the "Plan"). The Plan
provides for the distribution of a Preferred Stock purchase right (a "Right") as
a dividend for each share of the Company's Common Stock. Under certain
conditions involving an acquisition by any person or group of 15% or more of the
Common Stock, the Rights permit the holders (other than the 15% holder) to
purchase the Company's Common Stock at a 50% discount upon payment of an
exercise price of $200 per Right. In addition, in the event of certain business
combinations, the Rights permit the purchase of the Common Stock of an acquiror
at a 50% discount. Under certain conditions, the Rights may be redeemed by the
Board of Directors in whole, but not in part, at a price of $.01 per Right. The
Rights have no voting privileges and are attached to and automatically trade
with the Company's Common Stock. The Rights expire on March 16, 2002. The Plan
was amended in November 1996 to exempt the acquisition of Rakepoll Holding from
the provisions of the Plan.
11. COMMITMENTS
The Company leases its office, manufacturing and research facilities and
certain equipments under operating and capital lease agreements. The minimum
annual rents are subject to increases based on changes in the Consumer Price
Index, taxes, insurance and operating costs.
Included in deposits and other assets at December 31, 1997 and 1996 was
$316,000 and $439,000, respectively, deposited under these agreements. Rent
expense for 1997, 1996, and 1995 was $5,994,000, $4,738,000, and $4,943,000,
respectively. Rent expense for 1997, 1996 and 1995 were net of $1,010,000,
$412,000 and $732,000 of sublease income, respectively.
The lease related to the buildings where the Company's centralized research
and development facilities are located is secured by a $4.8 million letter of
credit, which is collateralized by a $4.9 million certificate of deposit, and
will be released provided the Company achieves certain financial milestones.
F-22
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Future minimum payments, by year and in the aggregate, under the
aforementioned leases and other non-cancelable operating leases with initial or
remaining terms in excess of one year as of December 31, 1997, are as follows
(in thousands):
<TABLE>
<CAPTION>
Capital Operating
leases leases
--------------- --------------
<S> <C> <C>
1998.......................................... $ 701 $ 7,277
1999.......................................... 419 6,900
2000.......................................... 181 5,864
2001.......................................... 54 4,101
2002.......................................... 5 3,726
Thereafter.................................... -- 21,309
------ -------
Total minimum lease payments.................. 1,360 $49,177
Less amount representing interest............. (235) =======
------
Present value of net minimum lease payments... 1,125
Less current portion.......................... (600)
------
$ 525
======
</TABLE>
Future minimum rentals to be received under non-cancelable subleases as
of December 31, 1997 totaled $758,000.
12. INCOME TAXES
The provision for income taxes comprises the following (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1997 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Current:
Federal................................ $ -- $ -- $ 400
State.................................. -- -- 150
Foreign................................ 1,145 -- --
------ ----- -----
1,145 -- 550
Deferred:
Federal................................ $ -- $ -- $ --
State.................................. -- -- --
Foreign................................ 1,739 -- --
------ ----- -----
1,739 -- --
------ ----- -----
$2,884 $ -- $ 550
====== ===== =====
</TABLE>
F-23
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
The provision for income taxes on earnings subject to income taxes differs
from the statutory federal rate due to the following (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1997 1996 1995
--------------- --------------- --------------
<S> <C> <C> <C>
Income taxes (benefit) at U.S. statutory rate.................. $(25,834) $(16,016) $(1,870)
Tax effect of non-deductible expenses, including
write-off of acquired in-process research and
development................................................ 13,299 582 7,423
Benefit of net operating loss carryforwards.................... -- -- (5,553)
Alternative minimum taxes...................................... -- -- 550
Increase in valuation allowance and other...................... 14,486 15,434 --
Foreign taxes in excess of U.S. statutory rate................. 933 -- --
-------- -------- -------
$ 2,884 $ -- $ 550
======== ======== =======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 1997 and 1996 are shown below. A valuation allowance of
$126,367,000, of which $14,282,000 is related to 1997, has been recognized as an
offset to the deferred tax assets as of December 31, 1997 as realization of such
assets is uncertain.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
(in thousands)
1997 1996
-------------------- -------------------
<S> <C> <C>
Deferred tax liabilities:
Basis differences in acquired assets............................. $ 22,557 $ --
Depreciation..................................................... 7,997 2,901
Inventory........................................................ 2,910 --
Other............................................................ 1,000 --
--------- ---------
Total deferred tax liabilities...................................... 34,464 2,901
Deferred tax assets:
Net operating loss carryforwards................................ 101,964 84,653
Research and development credits................................ 13,545 12,710
Capitalized research and development............................ 9,236 8,410
Depreciation.................................................... 3,077 --
Other........................................................... 9,540 9,213
--------- ---------
Total deferred tax assets........................................... 137,362 114,986
Valuation allowances for deferred tax assets........................ (126,367) (112,085)
--------- ---------
Net deferred tax assets............................................. 10,995 2,901
--------- ---------
Net deferred taxes.................................................. $ 23,469 $ --
========= =========
</TABLE>
At December 31, 1997, the Company had federal and California tax net
operating loss carryforwards of approximately $273.8 million and $42.0 million,
respectively. The difference between the net operating loss carryforwards for
federal and California income tax purposes is primarily attributable to the
capitalization of research and development costs for California purposes and the
fifty percent limitation on California loss carryforwards. The federal tax loss
carryforwards will begin expiring in 2005 unless previously utilized.
California tax loss carryforwards will begin expiring in 1998 unless previously
utilized. Approximately $8.8 million of California tax loss carryforwards
expired unused in 1997. The Company has Italian and Mexican tax
F-24
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
loss carryforwards of approximately $2.5 million and $2.5 million, respectively.
The Italian and Mexican tax loss carryforwards will begin expiring in 2000 and
2004, respectively, unless previously utilized. The Company also has federal and
California research and development tax credit carryforwards totaling $10.9
million and $4.0 million, respectively, which will begin to expire in 2001
unless previously utilized.
Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the
Company's net operating loss and credit carryforwards may be limited because of
cumulative ownership changes of more than 50% which occurred within the three
year periods ending in 1993 and 1997. The ownership change in 1997 will have a
material impact on the utilization of net operating loss and credit
carryforwards.
13. GEOGRAPHIC INFORMATION
The Company's primarily markets are the United States, Canada, Europe,
Japan and Mexico.
Selected geographic information is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Product sales to unaffiliated customers (by origin):
United States............................................. $ 61,794 $ 54,636 $53,464
Italy..................................................... 51,606 -- --
Mexico.................................................... 27,024 -- --
-------- -------- -------
$140,424 $ 54,636 $53,464
======== ======== =======
Intergeographic sales (by origin)
United States............................................. $ 3,714 $ -- $ --
Italy..................................................... 5,317 -- --
Mexico.................................................... 704 -- --
-------- -------- -------
$ 9,735 $ -- $ --
======== ======== =======
Income (loss) before income taxes:
United States............................................. $(82,028) $(46,096) $(5,133)
Italy..................................................... 4,912 -- --
Mexico.................................................... 4,150 -- --
Other..................................................... (505) 297 (211)
Eliminations and adjustments.............................. (340) -- --
-------- -------- -------
$(73,811) $(45,799) $(5,344)
======== ======== =======
</TABLE>
F-25
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Total assets:
United States............................................ $232,008 $109,151
Italy.................................................... 107,859 --
Mexico................................................... 34,991 --
Other.................................................... 60 939
Eliminations and adjustments............................. (11,713) (20,540)
-------- --------
$363,205 $ 89,550
======== ========
</TABLE>
14. COLLABORATION AGREEMENTS
ADENOSINE REGULATING AGENTS
In May 1996, the Company announced an agreement with Pfizer Inc. to
collaborate on a research program using the Company's adenosine regulating
agents ("ARA") technology to discover and develop broad spectrum analgesic drugs
for the treatment of pain. In connection with the agreement, Pfizer made a non-
refundable licensing payment of $3.0 million and provided up-front research
funding of $0.8 million. Additional funding is to be paid quarterly for a
period of at least two years. In conjunction with this research collaboration,
Pfizer also purchased 792,293 shares of the Company's Common Stock through a
$5.0 million equity investment. The Company may also receive certain payments
upon the achievement of specified milestones and royalties on any product sales
that result from the collaboration.
DIABETES
In April 1997, the Company announced an agreement with Sankyo Co., Ltd
("Sankyo") to collaborate on a research program to discover and develop drugs
for the treatment of non-insulin dependent (Type II) diabetes. Gensia Sicor's
diabetes research focuses on a class of novel compounds which targets and
inhibits a rate limiting enzyme that acts in the metabolic pathway responsible
for glucose production in the liver. Under the terms of the agreement, the
Company will receive license fees, equity investment, research funding for three
years and milestone payments from Sankyo, plus royalties on product sales.
Sankyo will have exclusive, worldwide commercialization rights to all products
discovered in the collaboration. Gensia Sicor, or its permitted assignee, would
also have co-promotion rights in North America to any commercialized product,
the final terms are subject to future negotiation. In connection with the
agreement, Sankyo made a payment of $7.25 million in exchange for approximately
8% of the equity of Metabasis Therapeutics, Inc.
15. CONTINGENCIES
During 1995, Sicor received claims from certain of its customers in
connection with shipments of contaminated product. While to the best of
Sicor's knowledge no lawsuits have been filed against Sicor with respect to this
matter, Sicor has a reserve of $2.8 million at December 31, 1997, which
represents management's best estimate of attorneys' cost and other settlement
costs. Actual costs to be incurred in relation to the ultimate settlement may
vary from the amount estimated.
F-26
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
In a lawsuit related to the contaminated product, entitled Pharmacia &
Upjohn Company v. Great Lakes Chemical Corporation in the State of Michigan,
Kalamazoo County Circuit Court, No. E96-188 NZ, the Court has issued an order
that Sicor may be joined as a party, but it is anticipated that the purpose of
such joinder would be to adjudicate claims by Sicor and its customers.
The Company is also a defendant in various actions, claims, and legal
proceedings arising from its normal business operations. Management believes
they have meritorious defenses and intends to vigorously defend against all
allegations and claims. As the ultimate outcome of these matters is uncertain,
no contingent liabilities or provisions have been recorded in the accompanying
financial statements for such matters. However, in management's opinion, based
on discussions with legal counsel, liabilities arising from such matters, if
any, will not have a material adverse effect on consolidated financial position,
results of operations or cash flows.
F-27
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item (with respect to Directors) is
incorporated by reference from the information under the caption "Election of
Directors" contained in the registrant's definitive proxy statement to be filed
in connection with solicitation of proxies for its Annual Meeting of
Stockholders to be held on June 15, 1998 (the "Proxy Statement"). The required
information concerning Executive Officers of the Company is contained in Part I
of this Form 10-K.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than 10% of the Company's
Common Stock are required to report their initial ownership of the Company's
Common Stock and any subsequent changes in that ownership to the Securities and
Exchange Commission. Specific due dates for these reports have been established
and the Company is required to identify in this document (or documents
incorporated by reference to this document) those persons who failed to timely
file these reports.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information under the caption "Compensation of Executive Officers and Directors"
in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
information under the caption "Stock Ownership of Management and Certain
Beneficial Owners" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporation by reference from
the information contained under the caption "Certain Transactions" in the Proxy
Statement.
59
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report
(1) Financial Statements
Reference is made to the Index to Consolidated Financial Statements
under Item 8 in Part II hereof, where these documents are listed.
(2) Financial Statement Schedules
All schedules are omitted because they are not applicable, not
required, or the information is shown either in the consolidated
financial statements or in the notes thereto.
(3) Exhibits
See (c) below.
(b) Reports on Form 8-K during the fourth quarter:
None
(c) Exhibits
The following documents are exhibits to this Form 10-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
<S> <C>
2.1(17) Stock Exchange Agreement, dated as of November 12, 1996, as amended on December 16, 1996 between Gensia and Rakepoll
Finance N.V.
3(i)(21) Restated Certificate of Incorporation of the Company, as amended by Certificate of Designation of Series A
Convertible Preferred Stock.
3(ii)(18) By-Laws of Gensia.
4.1(5) Warrant Agreement dated November 26, 1991 between the Company and First Interstate Bank, Ltd. (Warrant Agent).
4.2(12) Form of Certificate for Gensia Common Stock with Rights Legend (4.1)*.
4.3(16) Warrant Agreement dated April 10, 1996 between the Company and Domain Partners III, L.P. (4.1)*
4.4(16) Warrant Agreement dated July 22, 1996 between the Company and MMC/GATX Partnership No. 1 (4.2)*
4.5(18) Shareholder's Agreement dated November 12, 1996, as amended on December 21, 1996 and on February 28, 1997, between
Gensia and Rakepoll Finance N.V.
4.6(21) Amendment No. 3, dated May 19, 1997, to the Shareholder's Agreement, dated November 12, 1996, as amended on December
21, 1996 and on February 28, 1997, between the Company and Rakepoll Finance N.V. (4.1)*
4.7(21) Securities Purchase Agreement, dated May 1, 1997, by and between the Company and HCCP. (4.2)*
4.8(21) Registration Rights Agreement, dated May 19, 1997, by and between the Company and HCCP. (4.3)*
4.9(21) Form of 2.675% Subordinated Convertible Notes due May 1, 2004, issued to certain affiliates of HCCP. (4.4)*
4.10(21) Form of Common Stock Purchase Warrant, dated May 19, 1997, issued to certain affiliates of HCCP. (4.5)*
4.11(22) Form of Unit Purchase Agreement between the Company and certain accredited investors, dated as of March 27, 1997.
(4.2)*
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.12(25) Form of Unit Purchase Agreement between the Company and certain accredited investors, dated December 1997. (4.6)*
4.13+ Investor's Rights Agreement among the Company, Metabasis Therapeutics, Inc. and Sankyo Co., Ltd. dated
December 18, 1997.
10.1(1)# Form of Indemnification Agreement entered into between Gensia and its directors. (10.1)*
10.2(9)# Amended and Restated 1990 Stock Plan of Gensia (the "Plan").
10.3(1)# Form of Incentive Stock Option Agreement under the Plan. (10.3)*
10.4(1)# Form of Nonstatutory Stock Option Agreement under the Plan. (10.4)*
10.5(1)+ Development and Supply Agreement dated January 26, 1990 between Gensia and Protocol Systems, Inc. (10.46)*
10.6(2)# Form of Indemnification Agreement entered into between Gensia and its officers and certain key employees. (10.50)*
10.7(3) Partnership Purchase Option Agreement dated June 13, 1991 between Gensia and each of the limited partners of the
Partnership. (10.3)*
10.8(3) Partnership Purchase Agreement dated June 13, 1991 between Gensia and each of the limited partners of the
Partnership. (10.4)*
10.9(4) Form of Limited Partner Warrant. (10.53)*
10.10(4) Form of Investment Executive Warrant. (10.54)*
10.11(4) Form of Warrant issued to MMC/GATX Partnership No. 1. (10.56)*.
10.12(6) Stockholder Rights Plan dated March 9, 1992.
10.13(13) Lease agreement between Gena Property Company and the Company dated as of December 21, 1993.
10.14(10) Registration Rights Agreement dated October 10, 1994 between Gensia, Inc. and Corange International Limited (10.3)*.
10.15(14) Severance Agreement dated October 1995 between Gensia, Inc. and David F. Hale. (10.52)*
10.16(14) Form of Severance Agreement for officers and certain other employees.
10.17(15)+ Collaborative Research Agreement dated as of May 1, 1996 between the Company and Pfizer Inc.
10.18(15)+ License and Royalty Agreement dated as of May 1, 1996 between the Company and Pfizer Inc.
10.19(15)+ Stock Purchase Agreement dated as of May 1, 1996 between the Company and Pfizer Inc.
10.20(19) Amendment No. 1 to Stockholder Rights Agreement dated November 12, 1996.
10.21(20) Factoring agreement, dated September 25, 1997, by and between the Company and Silicon Valley Financial Services (a
division of Silicon Valley Bank). (10.1)*
10.22(22)+ Collaborative Research and Development Agreement between the Company and Sankyo Co., Ltd., dated as of April 18,
1997. (10.1)*
10.23(22)+ Supply Agreement between and among Sicor S.p.A., Alco Chemicals, Ltd. and Boehringer Ingelheim International GmbH,
dated September 23, 1996. (10.2)*
10.24(22)+ Distribution and Supply Agreement between and among the Sicor S.p.A. and Alco Chemicals, Ltd. and The Upjohn
Company, dated as of January 1, 1994. (10.3)*
10.25(22) Agency Agreement between Sintesis Lerma S.A. de C.V. and Alco Chemicals, Ltd., dated September 26, 1996. (10.4)*
10.26(22)+ Agency Agreement between Sicor S.p.A. and Alco Chemicals, Ltd., dated January 1, 1994. (10.5)*
10.27(22) Agreement between Sicor S.p.A. and Alco Chemicals, Ltd., dated September 30, 1996. (10.6)*
10.28(22)+ Agreement between Sicor S.p.A. and Horse Vitality S.A. re: colostrum, dated September 26, 1996. (10.7)*
10.29(22) Distribution Agreement between Sicor S.p.A. and Alco Chemicals, Ltd. re: Budesonide, dated January 1, 1995. (10.8)*
10.30(22) Distribution Agreement between Sicor S.p.A. and Alco Chemicals, Ltd. re: Difluprednate, dated January 1, 1995.
(10.9)*
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.31(22) Distribution Agreement between Sicor S.p.A. and Alco Chemicals, Ltd. re: Etoposide, dated March 1, 1995. (10.10)*
10.32(22)+ License Agreement between Sicor S.p.A. and Alco Chemicals, Ltd., dated January 9, 1989, as amended on June 16, 1992
and October 31, 1996. (10.11)*
10.33(22) Manufacturing Agreement between Sicor S.p.A. and Alco Chemicals, Ltd., dated July 16, 1992. (10.12)*
10.34(22) Service Agreement between Sintesis Lerma and Grupo Fairmex S.A. de C.V., dated January 2, 1995. (10.13)*
10.35(22) Letter Agreement between the Company and Donald E. Panoz, dated March 18, 1997. (10.14)*
10.36(23) Gensia Sicor Inc. 1997 Long-Term Incentive Plan.
10.37(24)+ Cyclosporine Amended and Restated Supply and License Agreement, dated as of March 31, 1997, between and among the
Company, Alco Chemicals, Ltd., Vinchem, Inc. and Sangstat.
10.38(21) Agreement, dated as of April 15, 1997, by and between Sicor de Mexico S.A. de C.V. and Alco Chemicals, Ltd. (10.2)*
10.39(21)+ Agreement, dated as of April 15, 1997, by and between Genchem Pharma, Ltd. and Alco Chemicals, Ltd. (10.3)*
10.40(21) Agreement, dated as of January 1, 1997, by and between Sicor and Alco Chemicals, Ltd. (10.4)*
10.41(26)+ Amendment No. One to Cyclosporine Amended and Restated Supply and License Agreement dated as of December 22, 1997
between the Company and Sangstat Medical Corporation (the Transplant Company).
10.42 Amendment to Severance Agreement, dated December 16, 1997, between the Company and David F. Hale.
10.43 Amendment dated as of December 23, 1997 to Development and Supply Agreement, dated as of January 26, 1990, by and
between the Company and Protocol Systems, Inc.
10.44 Asset and Liability Transfer Agreements by and among Gensia Automedics, Inc., the Company and Gensia Sicor
Pharmaceuticals, Inc. dated December 23, 1997.
21.1 Subsidiaries of Gensia Sicor.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Powers of attorney (see page 64).
27.1 Financial Data Schedule.
</TABLE>
_____________________
(1) Incorporated by reference to Gensia's Registration Statement on Form S-1
(No. 33-34565).
(2) Incorporated by reference to Gensia's Registration Statement on Form S-1
(No. 33-38877).
(3) Incorporated by reference to Gensia's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991 (No. 0-18549).
(4) Incorporated by reference to Gensia's Registration Statement on Form S-1
(No. 33-43221).
(5) Incorporated by reference to Gensia's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991 (No. 0-18549).
(6) Incorporated by reference to Gensia's Current Report on Form 8-K dated
March 16, 1992. (No. 0-18549).
(7) Incorporated by reference to Gensia's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 (No. 0-18549).
(8) Incorporated by reference to Gensia's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992 (No. 0-18549).
(9) Incorporated by reference to Gensia's Registration Statement on Form S-8.
(No. 33-95152).
(10) Incorporated by reference to Gensia's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994 (No. 0-18549).
(11) Incorporated by reference to Gensia's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993 (No. 0-18549).
(12) Incorporated by reference to Gensia's Registration Statement on Form S-4
(No. 33-94778).
(13) Incorporated by reference to Gensia's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 (0-18549).
(14) Incorporated by reference to Gensia's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 (0-18549).
62
<PAGE>
(15) Incorporated by reference to Gensia's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 (0-18549).
(16) Incorporated by reference to Gensia's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 (0-18549).
(17) Incorporated by reference to Annex A to Gensia's Proxy Statement dated
January 15, 1997 (0-18549).
(18) Incorporated by reference to Gensia Sicor's Report on Form 8-K dated
February 28, 1997 (0-18549).
(19) Incorporated by reference to Gensia Sicor's Annual Report of Form 10-K for
the fiscal year ended December 31, 1996 (0-18549)
(20) Incorporated by reference to Gensia Sicor's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 (0-18549)
(21) Incorporated by reference to Gensia Sicor's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997 (0-18549).
(22) Incorporated by reference to Gensia Sicor's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997 (0-18549).
(23) Incorporated by reference to Annex D of the Company's Definitive Proxy
Statement dated January 15, 1997 (0-18549).
(24) Incorporated by reference to Exhibit 10.24 of SangStat Medical
Corporation's (the Transplant Company) Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997 (File No. 000-22890).
(25) Incorporated by reference to the Company's Registration Statement on Form
S-3 (No. 332-44563).
(26) Incorporated by reference to Exhibit 10.26 of Sangstat Medical
Corporation's (the Transplant Company) Annual Report on Form 10-K for the
year ended December 31, 1997 (File No. 000-22890).
* Parenthetical references relate to the exhibit number under which such
exhibit was initially filed.
# Indicates management contract or compensatory plan or arrangement.
+ Certain portions of this exhibit have been omitted pursuant to a request
for confidential treatment.
63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GENSIA SICOR INC.
Date: March 27, 1998 By: /s/ Donald E. Panoz
------------------------------------
Donald E. Panoz, Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Donald E. Panoz and John W. Sayward, with
each of them his attorney-in-fact, with full power of substitution, for him in
any and all capacities, to sign any amendments to the Report, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Donald E. Panoz Chairman of the Board and March 27, 1998
- ------------------------- Chief Executive Officer
(Donald E. Panoz)
/s/John W. Sayward Vice President, Finance, March 27, 1998
- ------------------------- Chief Financial Officer
(John W. Sayward) and Treasurer (Principal
Financial Officer and
Principal Accounting Officer)
/s/ James C. Blair Director March 27, 1998
- -------------------------
(James C. Blair)
/s/Michael D. Cannon Director March 27, 1998
- -------------------------
(Michael D. Cannon)
</TABLE>
64
<PAGE>
SIGNATURES
----------
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Herbert J. Conrad Director March 27, 1998
- -------------------------
(Herbert J. Conrad)
/s/ Carlos A. Ferrer Director March 27, 1998
- -------------------------
(Carlos A. Ferrer)
/s/ David F. Hale Director March 27, 1998
- -------------------------
(David F. Hale)
/s/Carlo Salvi Director March 27, 1998
- -------------------------
(Carlo Salvi)
</TABLE>
65
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
<S> <C>
4.13+ Investor's Rights Agreement among the Company, Metabasis Therapeutics, Inc. and Sankyo Co., Ltd. dated December 18, 1997
(with certain confidential information deleted).
10.42 Amendment to Severance Agreement dated, December 16, 1997, between the Company and David F. Hale.
10.43 Amendment dated as of December 23, 1997 to Development and Supply Agreement, dated as of January 26, 1990,
by and between the Company and Protocol Systems, Inc.
10.44 Asset and Liability Transfer Agreements by and among Gensia Automedics, Inc., the Company and Gensia Sicor
Pharmaceuticals, Inc. dated December 23, 1997.
21.1 Subsidiaries of Gensia Sicor.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (see page 64).
27.1 Financial Data Schedule.
</TABLE>
+ Certain portions of this exhibit have been omitted pursuant to a request
for confidential treatment.
66
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED.
CERTAIN PORTIONS OF THIS AGREEMENT
HAVE BEEN REDACTED AND HAVE BEEN
SEPARATELY FILED WITH THE COMMISSION]
EXHIBIT 4.13
METABASIS THERAPEUTICS, INC.
INVESTOR RIGHTS AGREEMENT
DECEMBER 18, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. GENERAL................................................. 1
1.1. DEFINITIONS........................................ 1
2. REGISTRATION; RESTRICTIONS ON TRANSFER.................. 3
2.1 REQUESTED REGISTRATION............................. 3
2.2 PIGGYBACK REGISTRATION............................. 5
2.3 FORM S-3 REGISTRATION.............................. 6
2.4 EXPENSES OF REGISTRATION........................... 7
2.5 OBLIGATIONS OF THE COMPANY......................... 7
2.6 TERMINATION OF REGISTRATION RIGHTS................. 8
2.7 DELAY OF REGISTRATION; FURNISHING INFORMATION...... 8
2.8 INDEMNIFICATION.................................... 9
2.9 ASSIGNMENT OF REGISTRATION RIGHTS.................. 11
2.10 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS...... 11
2.11 "MARKET STAND-OFF" AGREEMENT...................... 11
2.12 RULE 144 REPORTING................................ 11
3. EXCHANGE RIGHT.......................................... 12
3.1 NOTICE OF EXERCISE................................. 12
3.2 GSI EXCHANGE SHARES................................ 12
3.3 ADJUSTMENT FOR RECAPITALIZATION.................... 13
3.4 ADJUSTMENT FOR REORGANIZATION...................... 13
3.5 CERTIFICATE OF ADJUSTMENT.......................... 13
3.6 EXCHANGE MECHANICS................................. 13
3.7 GSI OBLIGATIONS IN RESPECT OF GSI EXCHANGE SHARES.. 13
3.8 FRACTIONAL SHARES.................................. 14
3.9 PAYMENT OF TAXES................................... 14
4. COVENANTS OF THE COMPANY................................ 14
4.1 BASIC FINANCIAL INFORMATION AND REPORTING.......... 14
4.2 INSPECTION RIGHTS.................................. 15
4.3 CONFIDENTIALITY OF RECORDS......................... 15
4.4 USE OF PROCEEDS.................................... 15
4.5 BOARD OBSERVER RIGHTS.............................. 16
4.6 REAL PROPERTY HOLDING CORPORATION.................. 16
4.7 TERMINATION OF COVENANTS........................... 16
5. MISCELLANEOUS........................................... 16
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
5.1 GOVERNING LAW; ARBITRATION......................... 16
5.2 SURVIVAL........................................... 17
5.3 SUCCESSORS AND ASSIGNS............................. 17
5.4 SEVERABILITY....................................... 17
5.5 AMENDMENT AND WAIVER............................... 17
5.6 DELAYS OR OMISSIONS................................ 18
5.7 NOTICES............................................ 18
5.8 ATTORNEYS' FEES.................................... 19
5.9 SECTION REFERENCES; TITLES AND SUBTITLES........... 19
5.10 COUNTERPARTS...................................... 19
</TABLE>
<PAGE>
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (the "Agreement") is entered into as of
December 18, 1997 (the "EFFECTIVE DATE"), by and among GENSIA SICOR INC., a
Delaware corporation ("GSI"), METABASIS THERAPEUTICS, INC., a Delaware
corporation (the "COMPANY") and SANKYO CO., LTD., a Japanese corporation
("INVESTOR"). GSI, the Company and Investor are sometimes referred to in this
Agreement collectively as the "PARTIES" and each individually as a "PARTY."
RECITALS
WHEREAS, the Company proposes to sell and issue up to 851,939 shares of
Series A Preferred Stock to Investor pursuant to the Stock Purchase Agreement
dated December 18, 1997 by and among the Parties (the "PURCHASE AGREEMENT"); and
WHEREAS, as a condition of entering into the Purchase Agreement, Investor
has requested that GSI and the Company extend to it registration rights,
information rights and other rights as set forth below.
NOW THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement and in the
Purchase Agreement, the Parties mutually agree as follows:
1. GENERAL
1.1 Definitions. As used in this Agreement the following terms shall
have the following respective meanings:
"BOARD OF DIRECTORS" means the Company's Board of Directors.
"COMMON STOCK" means the Company's Common Stock, par value $.01 per
share.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE RIGHT" is defined in Section 3.
"EXERCISE DATE" means the date of the Exercise Notice.
"EXERCISE NOTICE" is defined in Section 3.1.
"FORM S-3" means such form under the Securities Act as in effect on the
date hereof and as hereafter amended, or any successor registration form under
the Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company or GSI, as applicable, with the SEC.
"GSI COMMON SHARES" means shares of GSI Common Stock.
"GSI COMMON STOCK" means GSI's common stock.
"GSI EXCHANGE SHARES" is defined in Section 3.2.
"GSI MARKET PRICE" means the arithmetical average of the closing prices
for the GSI Common Stock as quoted on the Nasdaq National Market for the twenty
(20) consecutive Trading Days ending immediately prior to the Exercise Date.
"HOLDER" means any person owning of record Registrable Securities that
have not been sold to the public or any assignee of record of such Registrable
Securities in accordance with Section 2.9.
<PAGE>
"INITIAL OFFERING" means the Company's first offering of its Common
Stock registered under the Securities Act.
"MTI COMMON PRICE" means $7.09, as proportionately adjusted for any
Recapitalization.
"R&D AGREEMENT" means the Collaborative Research and Development
Agreement dated April 21, 1997 between GSI and Investor, as amended from time to
time.
"RECAPITALIZATION" means a stock split, stock combination, stock
dividend, reclassification or any similar transaction.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
"REGISTRABLE SECURITIES" means (i) shares of Common Stock issuable or
issued upon conversion of the Series A Preferred Stock issued pursuant to the
Purchase Agreement; and (ii) any Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right, or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for, or in
replacement of, such Series A Preferred Stock or Common Stock. Notwithstanding
the foregoing, Registrable Securities shall not include any securities sold by a
person to the public either pursuant to a registration statement or Rule 144 or
sold in a private transaction in which the transferor's rights under Section 2
of this Agreement are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities and (1) are then issued and outstanding
and (2) are issuable pursuant to then exercisable or convertible securities.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company
in complying with Sections 2.1, 2.2 and 2.3 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees, and
disbursements of counsel for the Company, reasonable fees and disbursements of a
single special counsel for the Holders, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
"REORGANIZATION" means a merger, acquisition (whether of the subject
entity or another entity) or sale of substantially all of the subject entity's
assets.
"RESEARCH PROGRAM TERM" is as defined in Section 1.18 of the R&D
Agreement.
"RULE 144" means Rule 144, as amended, under the Securities Act, or any
successor thereto.
"RULE 145" means Rule 145, as amended, under the Securities Act, or any
successor thereto.
"RULE 415" means Rule 415, as amended, under the Securities Act, or any
successor thereto.
<PAGE>
"SEC" or "COMMISSION" means the U.S. Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale.
"TRADING DAY" means any day on which trading of GSI Common Stock is
conducted on the Nasdaq National Market.
"TRIGGER DATE" is defined in Section 3.1.
"TRIGGERING EVENT" is defined in Section 2.1.1.
"VIOLATION" is defined in Section 2.8.
2. REGISTRATION; RESTRICTIONS ON TRANSFER
2.1 Requested Registration.
2.1.1 Holder's registration rights pursuant to this Section 2.1
shall be effective only in the event that (i) (A) the Company has effected the
Initial Offering, (B) the lock-up obligation under Section 2.11 has lapsed and
(C) the Company is not yet eligible to use Form S-3 to register Registrable
Securities for resale or (ii) the Company first becomes subject to the periodic
reporting requirements of Section 13(a) or 15(d) of the Exchange Act (or any
successor provisions thereof), whichever event shall first occur (each, a
"TRIGGERING EVENT"). In the event the Company or GSI, so long as GSI owns at
least eighty percent (80%) of the Company's capital stock, anticipates the
occurrence of the Triggering Event described in clause (ii) of the immediately
preceding sentence, the Company or GSI, so long as GSI owns at least eighty
percent (80%) of the Company's capital stock, shall so notify all Holders in
writing at least 60 days prior to the anticipated date of such Triggering Event.
Subject to the conditions of this Section 2.1, if the Company shall receive a
written request from the Holders of more than fifty percent (50%) of the
Registrable Securities then outstanding (the "INITIATING HOLDERS") that the
Company file a registration statement under the Securities Act covering the
registration of Registrable Securities having an aggregate offering price to the
public in excess of $5,000,000, then the Company shall, within five (5) days of
the receipt thereof, give written notice of such request to all Holders and,
subject to the limitations of this Section 2.1, (i) effect the registration for
resale under the Securities Act of all Registrable Securities that the Holders
request to be registered and (ii) take all steps reasonably practicable to cause
such registration to become effective as soon as practicable.
2.1.2 If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2.1 and the Company shall include such information in the written
notice described in the last sentence of Section 2.1.1. In such event, the right
of any Holder to include its Registrable Securities in such registration shall
be conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the
<PAGE>
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall, along
with the Company, enter into an underwriting agreement in customary form
(including indemnities from the Company as set forth in Section 2.8.1) with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders (which underwriter or underwriters shall be
reasonably acceptable to the Company). Notwithstanding any other provision of
this Section 2.1, if the underwriter advises the Company that marketing factors
require a limitation of the number of securities to be underwritten (including
Registrable Securities) then the Company shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares that may be included in the underwriting shall be
allocated to the Holders of such Registrable Securities on a pro rata basis
based on the number of Registrable Securities held by all such Holders
(including the Initiating Holders). Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from the registration.
2.1.3 The Company shall not be required to effect a registration
pursuant to this Section 2.1:
(i) after the Company has effected two (2) registrations
pursuant to this Section 2.1;
(ii) during the period starting with the date of filing of,
and ending on the date 180 days following the effective date of the registration
statement pertaining to the Initial Offering, provided that the Company is
making reasonable and good faith efforts to cause the registration statement
covering the shares to be sold in the Initial Offering to become effective; or
(iii) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2.1, a certificate signed by an
officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than 90 days after receipt of the request of the Initiating Holders;
provided that such right to delay a request shall only be exercisable following
the Initial Offering and shall be exercised by the Company not more than once in
any twelve (12) month period.
2.2 PIGGYBACK REGISTRATION. The Company shall notify all Holders in
writing at least 30 days prior to the filing of any registration statement under
the Securities Act for purposes of a public offering of securities of the
Company (including, but not limited to, registration statements relating to
secondary offerings of securities of the Company, but excluding registration
statements filed pursuant to Section 2.1 or relating to employee benefit plans
or with respect to corporate reorganizations or other transactions under Rule
145) and will afford each such Holder an opportunity to include in such
<PAGE>
registration statement all or part of such Registrable Securities held by such
Holder. Each Holder desiring to include in any such registration statement all
or any part of the Registrable Securities held by it shall, within 15 days after
the above-described notice from the Company, so notify the Company in writing.
Such notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent such registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
2.2.1 UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 2.2 is for an underwritten offering, the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder to be included in a registration pursuant to this
Section 2.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of the Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of securities to be
underwritten, the number of securities that may be included in the underwriting
shall be allocated, first, to the Company; second, to the Holders and other
holders of the Company's securities with equivalent registration rights on a pro
rata basis based on the total number of Registrable Securities held by the
Holders and such other holders; and third, to any shareholder of the Company
(other than a Holder) on a pro rata basis. No such reduction shall reduce the
securities being offered by the Company for its own account to be included in
the registration and underwriting, and in no event shall the amount of
securities of the selling Holders included in the registration be reduced below
twenty-five percent (25%) of the total amount of securities included in such
registration, unless such offering is the Initial Offering and such registration
does not include shares of any other selling shareholders, in which event any or
all of the Registrable Securities of the Holders may be excluded in accordance
with the immediately preceding sentence.
2.2.2 RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated or withdraw any
registration initiated by it under this Section 2.2 prior to the effectiveness
of such registration whether or not any Holder has elected to include securities
in such registration. The Registration Expenses of
<PAGE>
such withdrawn registration shall be borne by the Company in accordance with
Section 2.4.
2.3 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders of Registrable Securities a written request or requests that
the Company effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
2.3.1 promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of Registrable
Securities; and
2.3.2 as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within 15 days after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.3:
(i) if Form S-3 is not available for such offering by the
Holders;
(ii) if the Holders propose to sell Registrable Securities and
such other securities (if any) at an aggregate price to the public of less than
$500,000;
(iii) if the Company shall furnish to the Holders a certificate
signed by an officer of the Company stating that in the good faith judgment of
the Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such Form S-3 registration to be effected at
such time, in which event the Company shall have the right to defer the filing
of the Form S-3 registration statement for a period of not more than 90 days
after receipt of the request of the Holder or Holders under this Section 2.3;
provided, that such right to delay a request shall be exercised by the Company
not more than once in any 12-month period;
(iv) if the Company has, within the 12 month period preceding
the date of such request, already effected two (2) registrations on Form S-3 for
the Holders pursuant to this Section 2.3; or
(v) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to service
of process in effecting such registration, qualification or compliance.
2.3.3 Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All Registration Expenses incurred in
connection with registrations requested pursuant to this Section 2.3 shall be
paid by the selling Holders pro rata in proportion to the
<PAGE>
number of shares sold by each. As an alternative to filing a series of
registration statements on Form S-3, the Company may fulfill its obligations
under this Section 2.3 by filing and causing to be declared effective under Rule
415 one registration statement on Form S-3 covering all of the Registrable
Securities.
2.4 EXPENSES OF REGISTRATION. Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.1 or any registration under
Section 2.2 herein shall be borne by the Company. All Selling Expenses incurred
in connection with any registrations hereunder, shall be borne by the Holders of
the Registrable Securities so registered pro rata on the basis of the number of
shares which are held by such Holders and so registered. The Company shall not,
however, be required to pay for expenses of any registration proceeding begun
pursuant to Section 2.1, the request of which has been subsequently withdrawn by
the Initiating Holders unless (a) the withdrawal is based upon material adverse
information concerning the Company of which the Initiating Holders were not
aware at the time of such request or (b) the Holders of more than fifty percent
(50%) of the Registrable Securities agree to forfeit their right to one
requested registration pursuant to Section 2.1 in which event such right shall
be forfeited by all Holders. If the Holders are required to pay Registration
Expenses pursuant to the immediately preceding sentence, such expenses shall be
borne by the holders of securities (including Registrable Securities) requesting
such registration in proportion to the number of shares for which registration
was requested. If the Company is required to pay the Registration Expenses of a
withdrawn offering pursuant to clause (a) above, then the Holders shall not
forfeit their rights to one requested registration pursuant to Section 2.1.
2.5 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration hereunder of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
2.5.1 Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and keep such registration
statement effective for up to 60 days or, in the case of Registrable Securities
registered under Form S-3 in accordance with Rule 415, until the Holder or
Holders have completed the distribution related thereto.
2.5.2 Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
2.5.3 Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, and any amendment of or
supplement to the prospectus, in conformity with
<PAGE>
the requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
2.5.4 Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
2.5.5 In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form (including indemnities from the Company as set forth in Section
2.8.1), with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
2.5.6 Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
2.5.7 Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of the closing date of
the offering, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) letters
dated as of (x) the effective date of the registration statement covering such
Registrable Securities and (y) the closing date of the offering, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders requesting registration, addressed to the
underwriters, if any, and if permitted by applicable accounting standards, to
the Holders requesting registration of Registrable Securities.
2.6 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
under this Article 2 shall terminate and be of no further force and effect three
(3) years after the date of a Triggering Event. In addition, a Holder's
registration rights
<PAGE>
shall expire if (i) (A) a Triggering Event has occurred and the Company is
subject to the provisions of the Exchange Act, (B) such Holder (together with
its affiliates, partners and former partners) holds less than 1% of the
Company's outstanding Common Stock (treating all shares of convertible preferred
stock, if any, on an as-converted basis) and (C) all Registrable Securities held
by such Holder may be sold under Rule 144 during any 90 day period; or (ii) the
Exchange Right pursuant to Section 3 shall have been exercised.
2.7 DELAY OF REGISTRATION; FURNISHING INFORMATION.
2.7.1 No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.
2.7.2 It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Sections 2.1, 2.2 or 2.3 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
2.8 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.1, 2.2 or 2.3:
2.8.1 To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers, directors and legal
counsel of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, or liabilities, joint or several, to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "VIOLATION") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
<PAGE>
agreement contained in this Section 2.8.1 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, shareholder,
underwriter or controlling person of such Holder.
2.8.2 To the extent permitted by law, each Holder will, if
Registrable Securities held by Holder are included in the securities as to which
such registration qualifications or compliance is being effected, indemnify and
hold harmless the Company, each of its directors, its officers, and legal
counsel and each person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer or controlling person of such other Holder
may become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder under
an instrument duly executed by such Holder and stated to be specifically for use
in connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, or partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; provided, however,
that the indemnity agreement contained in this Section 2.8.2 shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; and provided further, that in no event shall
any indemnity under this Section 2.8.2 exceed the net proceeds from the offering
received by such Holder.
2.8.3 Promptly after receipt by an indemnified Party under this
Section 2.8 of notice of the commencement of any action (including any
governmental action), such indemnified Party will, if a claim in respect thereof
is to be made against any indemnifying Party under this Section 2.8, deliver to
the indemnifying Party a written notice of the commencement thereof and the
indemnifying Party shall have the right to participate
<PAGE>
in, and, to the extent the indemnifying Party so desires, jointly with any other
indemnifying Party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the Parties; provided, however, that an indemnified
Party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying Party, if representation of such indemnified
Party by the counsel retained by the indemnifying Party would be inappropriate
due to actual or potential differing interests between such indemnified Party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying Party within a reasonable time of
the commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying Party of any liability to
the indemnified Party under this Section 2.8, but the omission so to deliver
written notice to the indemnifying Party will not relieve it of any liability
that it may have to any indemnified Party otherwise than under this Section 2.8.
2.8.4 If the indemnification provided for in this Section 2.8 is
held by a court of competent jurisdiction to be unavailable to an indemnified
Party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying Party, in lieu of indemnifying such indemnified Party
thereunder, shall, to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified Party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying Party on the one hand and of the indemnified
Party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying Party and of the
indemnified Party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying Party or by the indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, however, that in no event shall any
contribution by a Holder hereunder exceed the proceeds from the offering
received by such Holder.
2.8.5 The obligations of the Company and Holders under this
Section 2.8 shall survive completion of any offering of Registrable Securities
in a registration statement and the termination of this Agreement. No
indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified Party
of a release from all liability in respect to such claim or litigation.
2.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 2 may be assigned by
a Holder to a transferee or
<PAGE>
assignee of Registrable Securities that (i) is a wholly-owned subsidiary or the
parent (if any) of such Holder, or (ii) a successor in interest in the event of
Reorganization of the Holder in which the Holder is not the surviving entity;
provided, however, that (A) the transferor shall, within 10 days after such
transfer, furnish to the Company written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned and (B) such transferee shall agree to be
subject to all restrictions set forth in this Agreement.
2.10 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of
this Agreement, the Company shall not, without the prior written consent of the
Holders of at least fifty-one percent (51%) of the Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company that would grant such holder registration rights more favorable than
those granted to the Holders hereunder.
2.11 "MARKET STAND-OFF" AGREEMENT. If requested by the Company as the
representative of the underwriters of Common Stock or other securities of the
Company, the Investor shall not sell or otherwise transfer or dispose of any
shares of Common Stock (or such other securities) held by the Investor (other
than those included in the registration) for a period specified by the
representative of the underwriters not to exceed 180 days following the
effective date of a registration statement filed in connection with the Initial
Offering, and 90 days in the case of subsequent registration statements of the
Company filed under the Securities Act; provided, however, that in each case all
officers and directors of the Company and all holders of at least five percent
(5%) of the Company's voting securities enter into similar agreements.
The obligations described in this Section 2.11 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Rule 145 transaction on Form S-4 or any successor
registration form thereto that may be promulgated in the future. The Company
may impose stop-transfer instructions with respect to the shares of Common Stock
(or other securities) subject to the foregoing restriction until the end of the
180-day period or 90-day period, as the case may be.
2.12 RULE 144 REPORTING. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 or any similar or analogous rule, at
all times after the effective date of the first registration filed by the
Company for an offering of its securities to the general public;
<PAGE>
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request: a written statement by the Company
as to its compliance with the reporting requirements of Rule 144, and of
the Exchange Act (at any time after it has become subject to such reporting
requirements); a copy of the most recent annual or quarterly report of the
Company; and such other reports and documents as a Holder may reasonably
request in availing itself of any rule or regulation of the SEC allowing it
to sell any such securities without registration.
3. EXCHANGE RIGHT
The Holders shall have the right to exchange Registrable Securities for
GSI Common Stock in accordance with this Section 3 (the "EXCHANGE RIGHT").
3.1 NOTICE OF EXERCISE. In the event that (i) a Triggering Event has
not occurred by the last day of the Research Program Term (the "TRIGGER DATE"),
and (ii) within 30 days following the Trigger Date, the Holders of more than
fifty percent (50%) of the Registrable Securities notify GSI and the Company in
writing of their election to exchange their Registrable Securities for GSI
Common Shares (the "EXERCISE NOTICE"), GSI shall cause all Registrable
Securities then owned by all Holders to be exchanged for GSI Common Stock
pursuant to this Section 3. The Exchange Right shall be exercisable only once
and only with respect to all Registrable Securities then owned by all Holders.
3.2 GSI EXCHANGE SHARES. The number of GSI Common Shares which a Holder
shall be entitled to receive upon exercise of the Exchange Right (the "GSI
EXCHANGE SHARES") shall be determined pursuant to the following formula:
***
where
D=Number of GSI Exchange Shares;
A=Number of Registrable Securities held by such Holder as of the Exercise Date;
B=MTI Common Price; and
C=GSI Market Price.
3.3 ADJUSTMENT FOR RECAPITALIZATION. If at any time during the period
from the Effective Date to the Exercise Date, the GSI Common Stock is changed
into the same or a different number of shares of any class or classes of stock,
by any form of Recapitalization other than (i) a subdivision or combination of
shares or stock dividend, for which no adjustment pursuant to
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
this Section 3.3 shall be made and (ii) a Reorganization, for which adjustment
shall be made pursuant to Section 3.4, each Holder shall have the right to
receive upon exercise of the Exchange Right the kind and amount of stock and
other securities and property receivable upon such Recapitalization by holders
of the maximum number of GSI Common Shares into which Registrable Shares could
have been exchanged immediately prior to such Recapitalization (assuming for
purposes of this Section 3.3 that the Exchange Right was exercisable, and such
exchange was completed, immediately prior to the closing of such
Recapitalization), subject to further adjustment as provided with respect to
such other securities or property pursuant the terms thereof.
3.4 ADJUSTMENT FOR REORGANIZATION. If at any time during the period
from the Effective Date to the Exercise Date, GSI effects a Reorganization,
provision shall be made so that each Holder shall have the right to receive upon
exercise of the Exchange Right the kind and amount of stock and other securities
and property receivable upon such Reorganization by holders of the maximum
number of GSI Common Shares into which Registrable Shares could have been
exchanged immediately prior to such Reorganization (assuming for purposes of
this Section 3.4 that the Exchange Right was exercisable, and such exchange was
completed, immediately prior to the closing of such Reorganization), subject to
further adjustment as provided with respect to such other securities or property
pursuant to the terms thereof.
3.5 CERTIFICATE OF ADJUSTMENT. Within 15 days following the completion
of a Recapitalization or Reorganization, GSI, at its expense, shall compute the
adjustment required in connection therewith pursuant to Section 3.3 or Section
3.4, as applicable, and shall deliver to Investor a certificate showing such
adjustment. The certificate shall set forth in reasonable detail GSI's
calculation of the adjustment and the type and amount of other property which
would be received by the Holders upon exchange of the Registrable Securities
pursuant to this Section 3.
3.6 EXCHANGE MECHANICS. Holders shall deliver the certificate(s)
representing all then outstanding Registrable Securities to GSI, together with
the Exercise Notice. Upon receipt of the Exercise Notice and such certificates,
GSI shall calculate the number of GSI Exchange Shares receivable by each such
Holder pursuant to Section 3.2 and, within ten (10) business days of GSI's
receipt of the Exercise Notice, deliver to each such Holder (i) certificates
representing such Holder's GSI Exchange Shares issued as of the Effective Date,
(ii) a reasonably detailed statement indicating such calculation pursuant to
Section 3.2 (which calculation shall be binding upon the Parties in the absence
of manifest mathematical error or misstatement of the closing prices for the GSI
Common Stock for purposes of calculation of the GSI Market Price) and (iii) any
cash payable in respect of fractional GSI Exchange Shares pursuant to Section
3.8.
<PAGE>
3.7 GSI OBLIGATIONS IN RESPECT OF GSI EXCHANGE SHARES. GSI at all times
shall reserve and keep available, solely for issuance and delivery upon exercise
of each Holder's Exchange Right, such number of GSI Exchange Shares as may be
issuable upon such exchange. GSI, at its expense, shall further cause a
registration statement on Form S-3 registering the resale of the GSI Exchange
Shares to be filed and declared effective in accordance with applicable law
(subject to the provisions of Section 2.5, which shall apply mutatis mutandis)
as soon as practicable following GSI's receipt of the Exercise Notice.
3.8 FRACTIONAL SHARES. No fractional GSI Exchange Shares shall be
issued upon exchange of Registrable Securities. All GSI Exchange Shares
(including fractions thereof) issuable upon exchange of Registrable Securities
shall be aggregated for purposes of determining whether the exchange would
result in the issuance of any fractional share. If, after such aggregation, the
exchange would result in any fractional share, GSI shall, in lieu of issuing any
fractional share, pay cash equal to the product of such fraction multiplied by
the GSI Market Price.
3.9 PAYMENT OF TAXES. GSI will pay all taxes (other than taxes based
upon income) and other governmental charges that may be imposed with respect to
the issue or delivery of GSI Exchange Shares upon exchange of Registrable
Securities.
4. COVENANTS OF THE COMPANY
4.1 BASIC FINANCIAL INFORMATION AND REPORTING.
4.1.1 The Company will maintain true books and records of account
in which full and correct entries will be made of all its business transactions
pursuant to a system of accounting established and administered in accordance
with generally accepted accounting principles consistently applied, and will set
aside on its books all such proper accruals and reserves as shall be required
under generally accepted accounting principles consistently applied.
4.1.2 Commencing with the fiscal year ending December 31, 1998, as
soon as practicable after the end of each fiscal year of the Company, the
Company will furnish each Holder a balance sheet of the Company, as of the end
of such fiscal year, and a statement of income and a statement of cash flows of
the Company, for such year, all prepared in accordance with generally accepted
accounting principles consistently applied and setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail. Such financial statements shall be accompanied by a report and opinion
thereon by independent public accountants of national standing selected by the
Company's Board of Directors.
4.1.3 As soon as practicable after the end of the first, second
and third quarterly accounting periods in each fiscal year of the Company, and
in any event within 45 days thereafter (provided, however, that the Company
shall deliver the quarterly financial statements for the period ended March 31,
1998 to Investor by May 30, 1998), the Company will furnish each Holder a
balance sheet of the Company as of the end of each such period, and a statement
of income and a statement of cash flows of the Company for such period and for
the current fiscal
<PAGE>
year to date, in each case prepared in accordance with generally accepted
accounting principles, with the exception that no notes need be attached to such
statements and year-end audit adjustments may not have been made. In each case
where the Company provides financial information pursuant to this Section 4.1,
financial information for the Company's subsidiaries, if any, will be
consolidated with financial information for the Company.
4.1.4 The Company will furnish each such Holder 30 days prior to
the beginning of each fiscal year a capitalization summary, annual budget and
operating plans for such fiscal year (and as soon as available, any subsequent
revisions thereto); provided, however, that (i) the Company shall deliver the
annual budget and operating plan for the fiscal year ending December 31, 1998 to
Investor within 45 days following the Effective Date) and (ii) to the extent
that the Company reasonably concludes that disclosure of the specific
budget/operating plan line items and corresponding dollar amounts would provide
the Holders with competitively sensitive information regarding the Company's
allocation of resources, the Company shall not be obligated to disclose such
information to the Holders on a line-item basis but shall disclose such
information on an aggregate basis.
4.2 INSPECTION RIGHTS. Each Holder shall have the right to visit and
inspect any of the properties of the Company or any of its subsidiaries, and to
discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, and to review such information as is reasonably
requested all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated pursuant
to this Section 4.2 to provide information which the Company determines in good
faith to be a trade secret or subject to the attorney-client privilege.
4.3 CONFIDENTIALITY OF RECORDS. Each Holder hereby represents, warrants
and covenants that it shall maintain in confidence, and shall not use or
disclose without the prior written consent of the Company, any information
identified in writing as confidential that is furnished to it by GSI or the
Company in connection with this Agreement. This obligation of confidentiality
shall not apply, however, to any information (i) in the public domain through no
unauthorized act or failure to act by the Holder, (ii) lawfully disclosed to the
Holder by a third party who possessed such information without any obligation of
confidentiality, (iii) known to the Holder at the time of disclosure by GSI or
the Company, as evidenced by written records of the Holder in existence at the
time of the disclosure in question or (iv) which has been independently
developed by employees or other agents of or independent contractors hired by
the Holder without access to the information described in the first sentence of
this Section 4.3. Each Holder further covenants that it shall return to GSI or
the Company all tangible materials containing such information upon request by
GSI or the Company. Investor agrees that it will restrict access to the
confidential information of GSI or the
<PAGE>
Company among its officers, directors, employees and financial and legal
advisors to those persons with a need to use such information and who are
parties to agreements with Investor to maintain such information as confidential
(or otherwise subject to obligations to maintain such information as
confidential).
4.4 USE OF PROCEEDS. The Company shall use the proceeds from the sale
of Common Stock sold pursuant to the Purchase Agreement solely (i) in connection
with the Company's obligations under the R&D Agreement (as assigned by GSI to
the Company as contemplated in the Purchase Agreement), (ii) for general working
capital purposes, but not for the repayment of debt and (iii) to pay $2,250,000
payable to GSI pursuant to the terms of the Asset and Liability Transfer
Agreement dated as of December 17, 1997 between the Company and GSI.
4.5 BOARD OBSERVER RIGHTS. Investor shall have the right to designate a
representative to attend Board meetings in a non-voting capacity and to receive
prior written notice of, and copies of all materials distributed at, all such
meetings (regardless of whether Investor's representative attends such
meetings); provided, however, that the Company shall not be obligated under this
Section 4.5 to provide information, or include such observer in discussions
relating to information, which the Company determines in good faith (i) to
involve an ongoing commercial relationship, or a proposed transaction, between
the Company and a third party, or (ii) to be a trade secret or to be subject to
the attorney-client privilege.
4.6 REAL PROPERTY HOLDING CORPORATION. The Company covenants that it
will operate in such that it will not become a "United States real property
holding corporation" ("USRPHC") as that term is defined in Section 897(c)(2) of
the Internal Revenue Code of 1986, as amended, and the regulation thereunder.
The Company agrees to make determinations as to its status as a USRPHC, and will
file statements concerning those determinations with the Internal Revenue
Service, in the manner and at the times required under Reg. ' 1.897-2(h), or any
supplementary or successor provision thereto. Within 30 days of a request from a
Shareholder or any of its partners, the Company will inform the requesting
party, in the manner set forth in Reg. ' 1.897- 2(h)(1)(iv) or any supplementary
or successor provision thereto, whether that party's interest in the Company
constitutes a United States real property interest (within the meaning of
Internal Revenue Code Section 897(c)(1) and the regulations thereunder) and
whether the Company has provided to the Internal Revenue Service all required
notices as to its USRPHC status.
4.7 TERMINATION OF COVENANTS. All covenants of the Company contained in
Section 4 (except those set forth in Section 4.4, which shall expire and
terminate upon expiration of the Research Program Term (as defined in the R&D
Agreement)) shall expire and terminate as to each Holder on (i) the date of a
Triggering Event or (ii) the Holder's exercise of its Exchange Right and receipt
of GSI Exchange Shares in accordance with Section 3.
5. MISCELLANEOUS
5.1 Governing Law; Arbitration.
<PAGE>
5.1.1 This Agreement shall be governed by and construed under the
laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
5.1.2 Any disputes arising between the Parties relating to,
arising out of or in any way connected with this Agreement or any term or
condition hereof, or the performance by any Party of its obligations hereunder,
shall be promptly presented to the chief executive officers of the Parties for
resolution and if the chief executive officers cannot promptly resolve such
disputes, then such dispute shall be finally resolved by arbitration. Whenever a
Party shall decide to institute arbitration proceedings, it shall give written
notice to that effect to other Parties. The Party giving notice shall refrain
from instituting the arbitration proceedings for a period of sixty (60) days
following such notice. Any arbitration hereunder shall be conducted pursuant to
the Rules of Arbitration of the International Chamber of Commerce. Each such
arbitration shall be conducted in the English language by a panel of three
arbitrators appointed in accordance with such rules (with GSI and the Company,
on the one hand, and Investor, on the other hand, respectively having the right
to appoint one arbitrator). Any such arbitration shall be held in Los Angeles,
California. The arbitrators shall have the authority to grant specific
performance, and to allocate between the Parties the costs of arbitration in
such equitable manner as they determine. Judgment upon the award so rendered may
be entered in any court having jurisdiction or application may be made to such
court for judicial acceptance of any award and an order of enforcement, as the
case may be.
5.2 SURVIVAL. The agreements made herein shall survive any
investigation made by any Holder and the closing of the transactions
contemplated hereby.
5.3 SUCCESSORS AND ASSIGNS. This Agreement is not assignable except to
(i) a wholly-owned subsidiary or the parent (if any) of Investor which acquires
all of the Registrable Securities or (ii) to a successor in interest in the
event of a Reorganization of Investor in which Investor is not the surviving
entity. Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, assigns,
heirs, executors, and administrators of the Parties and shall inure to the
benefit of and be enforceable by each person who shall be a Holder from time to
time; provided, however, that prior to the receipt by the Company of adequate
written notice of the transfer of any Registrable Securities specifying the full
name and address of the transferee, the Company may deem and treat the person
listed as the holder of such shares in its records as the absolute owner and
holder of such shares for all purposes, including the payment of dividends or
any redemption price.
5.4 SEVERABILITY. In case any provision of the Agreement is held to be
unenforceable, then the meaning of such provision shall be construed, to the
extent feasible, so as to render the provision enforceable, and if no feasible
interpretation would
<PAGE>
save such provision, it shall be severed from the remainder of this Agreement
which shall remain in full force and effect unless the severed provision is
material to the rights and benefits received by any Party. In such event, the
Parties shall use reasonable commercial efforts to negotiate, in good faith, a
substitute, valid and enforceable provision or agreement which most nearly
effects the Parties' intent in entering into this Agreement.
5.5 AMENDMENT AND WAIVER.
5.5.1 Except as otherwise expressly provided, this Agreement may
be amended or modified only by a written instrument expressly referring to this
Agreement and signed by the Company and the Holders of more than sixty-six and
two-thirds (66 2/3%) of the Registrable Securities.
5.5.2 Except as otherwise expressly provided, the obligations of
the Company and the rights of the Holders under this Agreement may be waived
only by a written instrument expressly referring to this Agreement and signed by
the Holders of at least fifty-one percent (51%) of the Registrable Securities.
5.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default, or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default, or noncompliance, or any acquiescence therein, or of any
similar breach, default, or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default, or noncompliance under the Agreement
or any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to the Holders, shall be cumulative and
not alternative.
5.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
Party to be notified, (ii) when sent by facsimile, upon receipt of an error-free
transmittal confirmation, or (iii) when sent by an internationally recognized
courier service, on the third business day following the date of deposit with
such courier service, or such earlier delivery date as may be confirmed to the
sender by such courier service. All communications shall be sent to the Party to
be notified at the address as follows or at such other address as such Party may
designate by 10 days advance written notice to the other Parties.
If to GSI:
Gensia Sicor Inc.
19 Hughes
Irvine, California 92628
Attn: Chief Financial Officer
<PAGE>
Fax: (714) 855-8210
If to the Company:
Metabasis Therapeutics, Inc.
9390 Towne Centre Drive
San Diego, California 92121
Attn: Chief Executive Officer
Fax: 1-619-622-5554
In the case of a notice to either GSI or the Company,
a copy should also be sent to:
Pillsbury Madison & Sutro LLP
P.O. Box 7880
San Francisco, California 94120
Attn: Thomas E. Sparks, Esq.
Fax: 1-415-983-1200
If to Investor:
Sankyo Co., Ltd.
No. 5-1, Nihonbashi Honcho 3-chome
Chuo-ku
Tokyo 140, Japan
Attn: Accounting Department Manager
Fax: 81-3-5255-7069
with a copy to:
Morrison & Foerster LLP
AIG Building, 7th Floor
1-1-3 Marunouchi, Chiyoda-ku
Tokyo 100, Japan
Attn: Ken Siegel, Esq.
Fax: 81-3-3214-6512
5.8 ATTORNEYS' FEES. In the event that any dispute among the Parties
should result in arbitration, the prevailing Party in such dispute shall be
entitled to recover from the losing Party(ies) all fees, costs and expenses of
enforcing any right of such prevailing Party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants.
5.9 SECTION REFERENCES; TITLES AND SUBTITLES. Unless otherwise noted,
all references to Sections herein are to Sections of this Agreement. The titles
of the sections and subsections of this Agreement are for convenience of
reference only and are not to be considered in construing this Agreement.
5.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the Parties have caused their duly authorized
representatives to execute this Agreement as of the Effective Date.
GSI:
GENSIA SICOR INC.
<PAGE>
BY: /s/ John Sayward
John Sayward
Vice President, Finance,
Chief Financial Officer
INVESTOR:
SANKYO CO., LTD.
BY: /s/ Toshiaki Takamatsu
Toshiaki Takamatsu
Director, Accounting Department
COMPANY:
METABASIS THERAPEUTICS, INC.
BY: /s/ Gene Tutwiler
Gene Tutwiler
President and Chief Executive Officer
<PAGE>
EXHIBIT 10.42
AMENDMENT TO SEVERANCE AGREEMENT
THIS AMENDMENT is entered into as of December 16, 1997, by and between
DAVID F. HALE (the "Employee") and GENSIA SICOR INC., a Delaware corporation
(the "Company").
1. Amendment.
---------
Section 7 ("Amount of Severance Pay") of the Severance Agreement dated as
of October, 1995, as amended September 30, 1996 and further amended as of
November 1996, heretofore entered into by the Employee and the Company (the
"Severance Agreement") is hereby amended by adding at the end thereof the
following:
"In lieu of cash, the Company may make any severance payment hereunder in
the form of restricted Company shares ("Restricted Stock") under the Gensia
Sicor 1997 Long-Term Incentive Plan. The number of shares of Restricted
Stock granted shall be determined by dividing the total cash payments
otherwise due during the Continuation Period by the fair market value of a
share of Restricted Stock on the date of grant (as determined by the
Company with or without adjustment for any vesting restrictions). The
Restricted Stock shall become fully vested if the Employee continues
employment with the Company through his or her projected termination date
set forth in a Restricted Stock agreement. The Company may, in its
discretion, increase the award to the extent necessary to make Employee
whole for any decrease in the share price between the date of grant and the
projected termination date."
2. Exercise of Stock Options.
-------------------------
Section 8(a) ("Stock Options and Restricted Stock") of the Severance
Agreement is hereby amended by deleting the thirs sentence thereof and replacing
it with the following:
"The post-termination exercise grace period under the Employee's stock
options shall commence at the end of the Continuation Period and may, at
the election of Employee be extended from ninety (90) days to one (1) year,
subject to the execution of an amendment to Employee's stock option
agreement. The Employee understands that, by agreeing to such an
amendment, Employee's incentive stock options may be treated as non-
qualified stock options."
<PAGE>
3. Other Terms.
-----------
Except as set forth above, all other terms of the Severance Agreement shall
remain in effect.
IN WITNESS WHEREOF, each of the parties has executed this Amendment, in
------------------
the case of the Company by its duly authorized officer, as of the day and year
first above written.
/s/ David F. Hale
________________________________
David F. Hale
GENSIA SICOR INC.
By: /s/ John Sayward
___________________________
Title: Vice President, Finance,
Chief Financial Officer
and Treasurer
__________________________
<PAGE>
EXHIBIT 10.43
AMENDMENT TO DEVELOPMENT AND SUPPLY AGREEMENT
---------------------------------------------
This Amendment (the "Amendment"), dated as of December 23, 1997,to that certain
Development and Supply Agreement (the "Agreement"), dated as of January 26,
1990, by and between Gensia Pharmaceuticals, Inc. (now known as GENSIA SICOR
INC.), a Delaware corporation ("Gensia"), and PROTOCOL SYSTEMS, INC., an Oregon
corporation ("PS").
WITNESSETH:
Whereas Gensia and PS have entered into the Agreement; and
-------
Whereas Gensia and PS, in light of the facts and circumstances which have
-------
developed since the effective date of the Agreement, now wish to amend the
Agreement as set forth in this Amendment;
Now, therefore, the parties hereto agree as follows:
1. Definitions; References. Capitalized terms in this Amendment shall,
-----------------------
unless otherwise defined herein, have the meanings ascribed to them in the
Agreement.
2. Amendment of Section 3.2. Section 3.2(d) of the Agreement is hereby
-------------------------
amended to read as follows:
"(d) purchase at least 2,500 units in total by the end of the five (5)
year period commencing January 1, 1998 and ending on December 31, 2002.
At least 500 Units shall be purchased in each calendar year during such
period, and at least 125 Units shall be purchased in each calendar quarter
during such period, provided that the 100 Units ordered pursuant to
purchase orders issued during 1997 may be credited against the 125 Unit
requirement for the first calendar quarter of 1998."
3. Equity Purchase. In consideration of PS's execution of this
---------------
Amendment, on the date hereof, Gensia Automedics, Inc., a Delaware corporation
("Automedics"), shall issue to PS 400,000 shares of Subordinated Convertible
Preferred Stock (the "Shares") of Automedics, equal to 4% of the outstanding
shares of Automedics on a fully diluted basis. In connection with the issuance
of such shares, PS hereby makes the representations and warranties set forth on
Exhibit A hereto.
4. Consent to Assignment. Pursuant to Section 9.7 of the Agreement, PS
---------------------
hereby consents to the assignment by Gensia of all its rights and obligations
under the Agreement to Automedics, provided, however, that Gensia and Automedics
shall be jointly and
<PAGE>
severally liable to PS for any breach of Section 3.2(d) of the Agreement as
amended hereby.
5. Release. In consideration of Gensia's and Automedics' execution of
-------
this Amendment, PS on its own behalf and on behalf of its officers, directors,
parents, subsidiaries, affiliates, assigns, employees, agents, attorneys, and
representatives, hereby releases Gensia, its officers, directors, parents,
subsidiaries, affiliates, assigns, employees, agents, attorneys and
representatives, and Automedics, its officers, directors, parents, subsidiaries,
affiliates, assigns, employees, agents, attorneys and representatives, from any
and all claims, damages, liability or causes of action of any kind relating to
Gensia's performance to date of its obligations under Section 3.2(d) of the
Agreement. PS specifically waives the provisions of Section 1542 of the
California Civil Code, which provides that, "(a) general release does not extend
to claims which the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must have materially
affected his settlement with the debtor."
6. Full Force and Effect. Except as expressly modified, amended or
---------------------
supplemented above, all rights, terms and conditions of the Agreement shall
remain in full force and effect.
7. Governing Law. This Amendment shall be construed and enforced in
-------------
accordance with, and the rights shall be governed by and construed under, the
laws of the State of Oregon (irrespective of its choice of law principles).
8. Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Agreement as of the date first above written.
GENSIA SICOR INC. PROTOCOL SYSTEMS, INC.
By: /s/ John Sayward By: /s/ Craig M. Swanson
---------------- --------------------
Name: John Sayward Name: Craig M. Swanson
------------ ----------------
Title: V.P. Finance, CFO & Treasurer Title: V.P. Finance & Corp. Secretary
----------------------------- ------------------------------
GENSIA AUTOMEDICS, INC.
By: /s/ Daniel D. Burgess
---------------------
Name: Daniel D. Burgess
-----------------
Title: President
---------
-3-
<PAGE>
EXHIBIT A
---------
Acquisition Entirely for Own Account. The shares of Subordinated
------------------------------------
Preferred Stock to be acquired by PS pursuant to Section 3 hereof are
acquired for investment purposes and for its own account, not as a nominee
or agent, and not with a view to the resale or distribution of any part
thereof, and that PS has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, PS further represents that PS does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or
grant participations to such person or to any third person, with respect to
any of such shares of Subordinated Preferred Stock.
Restricted Securities. PS understands that the shares of Subordinated
---------------------
Preferred Stock it is acquiring are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from Automedics in a transaction exempt from registration under
the Securities Act of 1933, as amended (the "Securities Act"), and that
such shares of Subordinated Preferred Stock may be resold without
registration under the Securities Act only in certain limited
circumstances. In this connection PS represents that it is familiar with
Rule 144 promulgated under the Securities Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities
Act.
Legends. It is understood that the certificates evidencing the
-------
Securities may bear one or all of the following legends:
"These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in
effect with respect to the securities under such Act or an opinion of
counsel satisfactory to Automedics that such registration is not
required or unless sold pursuant to Rule 144 of such Act."
Any legend required by the laws of the State of California or
other jurisdiction.
Accredited Investor. PS is an accredited investor as defined in Rule
-------------------
501(a) of Regulation D promulgated under the Securities Act.
-4-
<PAGE>
EXHIBIT 10.44
ASSET AND LIABILITY TRANSFER AGREEMENT
by and among
GENSIA AUTOMEDICS, INC.,
GENSIA SICOR INC.,
and
GENSIA SICOR PHARMACEUTICALS, INC.
December 23, 1997
<PAGE>
ASSET AND LIABILITY TRANSFER AGREEMENT
--------------------------------------
THIS ASSET AND LIABILITY TRANSFER AGREEMENT (this "Agreement") is made and
entered into as of the 23rd day of December, 1997, by and among GENSIA
------
AUTOMEDICS, INC., a Delaware corporation ("Automedics"), GENSIA SICOR INC., a
- ---------------- -----------------
Delaware corporation ("Gensia Sicor"), and GENSIA SICOR PHARMACEUTICALS, INC., a
----------------------------------
Delaware corporation ("GSPI")(Gensia Sicor and GSPI, collectively, "Gensia").
RECITALS:
(a) Subject to the terms and conditions of this Agreement, Gensia wishes to
sell and transfer certain assets and certain liabilities of its business to
Automedics, and Automedics desires to purchase such assets and assume such
liabilities, all as more fully described and defined below.
(b) It is intended by the parties to obtain independent financing of
Automedics simultaneously with the Closing (as defined below) hereunder so that
Automedics will no longer be a wholly-owned subsidiary or affiliate of Gensia
Sicor.
(c) For federal income tax purposes, it is intended that the exchange of
assets and liabilities of Gensia for shares of Subordinated Convertible
Preferred Stock of Automedics (the "Subordinated Preferred Stock") and certain
royalties as described herein, together with the simultaneous purchase of
certain shares of Series A Preferred Stock of Automedics (the "Series A
Preferred Stock") by certain investors for a certain amount in cash, be part of
an exchange qualifying under (S) 351 of the Internal Revenue Code of 1986, as
amended (the "Code"), provided that such shares of Subordinated Preferred Stock
and Series A Preferred Stock will be treated as non-qualified stock under (S)
351 of the Code.
(d) The parties hereto desire to enter into this Agreement for the purpose
of setting forth certain representations, warranties and covenants made to each
other as an inducement to the execution and delivery of this Agreement and the
conditions precedent to the consummation of the asset and liability transfer and
the transactions related thereto.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto agree as follows:
<PAGE>
ARTICLE 1
PURCHASE AND SALE OF ASSETS
---------------------------
1.1 Purchase and Sale. Subject to the terms and conditions and upon
-----------------
satisfaction of the conditions contained in this Agreement (which term shall
include all exhibits and schedules attached hereto) and in reliance upon the
representations, warranties and covenants contained herein, on the Closing Date
(as hereinafter defined), Gensia shall sell, assign, transfer and deliver to
Automedics, and Automedics shall purchase and acquire from Gensia, all of
Gensia's right, title and interest in, to and under all the franchises, rights,
business, properties and other assets, tangible or intangible, real, personal or
mixed, listed below in this Section 1.1 (collectively, the "Assets"), used in or
accrued or accruing to the businesses relating to (a) the sale of the Laryngeal
Mask Airway and all products related thereto that currently are sold by Gensia
(the "Current LMA Products"), (b) the Feedback Controlled Heparin System, (c)
Brevibloc, (d) the GenESA(R) System, (e) analogs of arbutamine, (f) transdermal
delivery technologies developed or licensed by Gensia and (g) closed loop
technologies developed or licensed by Gensia (each individually, a "Transferred
Business," and collectively, the "Transferred Businesses"), free and clear of
Liens (as hereinafter defined), except Permitted Liens (as hereinafter defined):
(a) All personal property (including, without limitation, all
marketable securities, appliances, furniture, fixtures, machinery and equipment
and other tangible personal property) relating to the Transferred Businesses and
listed on Schedule 1.1(a) hereto;
(b) All inventory of every character and description, other than
Current LMA Products, relating to the Transferred Businesses and listed on
Schedule 1.1(b) hereto, subject to adjustments in the ordinary course of
business since September 30, 1997;
(c) Subject to the provisions of Section 4.2 below, all patents,
patent applications, trademarks, service marks, trade names, logos, copyrights
and royalty rights (including, without limitation, any registrations and any
applications for registration with respect thereto) relating to the Transferred
Businesses and listed on Schedule 1.1(c) hereto (collectively, the "Intellectual
Property");
(d) The goodwill of Gensia associated with the Transferred
Businesses, other than the sale of Current LMA Products;
(e) All customer lists, supplier lists and mailing lists and all
materials owned by Gensia and used for mailing list development, which lists and
materials were prepared, created or acquired by Gensia for use solely in the
Transferred Businesses;
-2-
<PAGE>
(f) All books, records, files and other data (including without
limitation operating manuals and invoices) prepared, created or acquired by
Gensia for use solely in the Transferred Businesses, including without
limitation, (i) all inventory, maintenance and asset history records solely
regarding the Transferred Businesses, (ii) all sales promotion materials
prepared, created or acquired by Gensia for use solely in the Transferred
Businesses, (iii) all customer and supplier lists, mailing lists, materials used
for mailing list development and telephone numbers with respect to past, present
or prospective customers and suppliers for use solely in the Transferred
Businesses, and (iv) all sales and credit records solely relating to the
Transferred Businesses;
(g) All contracts, commitments, purchase orders from customers and
other agreements with respect to the sale, furnishing, purchase, other
acquisition or delivery of any goods or services by Gensia in the Transferred
Businesses, as amended to date, including without limitation those of a material
nature listed on Schedule 1.1(g) hereto, it being expressly acknowledged by the
parties that the inventory of Current LMA Products, the Receivables relating to
the Current LMA Products, and the contracts, commitments, purchase orders and
other agreements relating thereto are excluded from the Assets;
(h) All computer hardware and software owned and used by Gensia in
the Transferred Businesses and listed on Schedule 1.1(h) hereto, and all rights
under any software licenses held and used by Gensia in the Transferred
Businesses regarding the software listed on Schedule 1.1(h) hereto;
(i) To the extent transferable and relating solely to the Transferred
Businesses, all federal, state, local or foreign governmental licenses, permits
and other authorizations necessary or advisable for the conduct of the
Transferred Businesses and listed on Schedule 1.1(i) hereto;
(j) All leases of real property listed on Schedule 1.1(j) hereto;
(k) All leases of personal property, whether as lessor, lessee,
sublessor or sublessee, relating to the Transferred Businesses and listed on
Schedule 1.1(k) hereto;
(l) All service contracts and all maintenance contracts relating to
any of the Assets and listed on Schedule 1.1(l) hereto;
(m) All other contracts, agreements, commitments, options and other
arrangements of Gensia, of every kind and description, relating to the
Transferred Businesses, other than the sale of Current LMA Products, and listed
on Schedule 1.1(m) hereto, as amended to date;
-3-
<PAGE>
(n) All product registrations, approvals and applications therefor of
Gensia, of every kind and description with any governmental entity, relating to
the Transferred Businesses, other than the sale of Current LMA Products, and
listed on Schedule 1.1(n) hereto;
(o) To the extent transferable, all rights and claims under policies
of insurance and warranty, surety, fidelity or other bonding arrangements
relating to the Assets (excluding any rights to refunds of premiums or amounts
paid under such policies of insurance and bonding arrangements) and, all other
claims, demands, judgments, rights, equities, chattel mortgages, security
agreements and choses in action, and the proceeds thereof, relating to the
Assets;
(p) All rights, claims and causes of action against any person
arising out of the disclosure or use, or threatened disclosure or threatened
use, of any proprietary information to the extent relating to any of the Assets
or the Transferred Businesses, including, without limitation, any invention,
process, method, formula, design, treatment, discovery or improvement or
application thereof, or other "know-how," or similar property, or any
compilation of information, list of customers or suppliers, document or record
with respect to any of the foregoing or contained therein;
(q) All shares of the capital stock of Gensia Automedics Limited, a
limited liability company incorporated under the laws of England and Wales
("Gensia Automedics Limited"), and Gensia GmbH, a German corporation ("Gensia
GmbH"), owned by Gensia Sicor;
(r) All accounts, notes, fees, commissions and all other receivables
payable to Gensia in respect of the Transferred Businesses, other than the sale
of Current LMA Products, and listed on Schedule 1.1(r) hereto, subject to
adjustments in the ordinary course of business since September 30, 1997 (the
"Receivables"); and
(s) All cash and cash equivalents on hand at the Closing Date relating
to the Transferred Businesses, other than the sale of Current LMA Products, and
listed on Schedule 1.1(s) hereto, subject to adjustments in the ordinary course
of business since September 30, 1997.
For purposes of this Agreement "Liens" shall mean all title defects,
liens, mortgages, pledges, charges, restrictions, claims, security interests,
rights to acquire title or an interest or other encumbrances of any nature
whatsoever, whether choate or inchoate. For purposes of this Agreement
"Permitted Liens" shall mean Liens listed on Schedule 1.1(t) hereto, Liens for
current taxes, assessments or governmental charges or levies on property not
yet due and delinquent, or which are being contested in good faith and for which
adequate reserves have been established or any
-4-
<PAGE>
Liens subject to which Automedics has specifically agreed in writing with Gensia
to accept relating to any of the Assets.
1.2 Assumption of Disclosed Liabilities.
-----------------------------------
(a) As of the Closing Date, Automedics shall accept the Assets subject
to and shall assume and shall pay, perform and discharge (and shall indemnify
Gensia in respect thereof) only those obligations and liabilities relating to
the Transferred Businesses or the Assets, that are disclosed in this Agreement,
in any Schedule to this Agreement or in any item disclosed herein or therein
(the "Disclosed Liabilities").
(b) Without limiting the generality of the foregoing, the Disclosed
Liabilities shall include, and Automedics shall assume, those certain Balance
Sheet Liabilities (as defined below) listed on Schedule 1.2(b-1) and those other
liabilities listed on Schedule 1.2(b-2) hereto. "Balance Sheet Liabilities"
shall mean those certain liabilities of Gensia, Gensia Automedics Limited and
Gensia GmbH relating to the Transferred Businesses payable as of December 19,
1997, that were previously approved by the Chief Financial Officer of Gensia
Sicor, and that appropriately would be classified as liabilities on a balance
sheet prepared in accordance with generally accepted accounting principles. For
purposes of the foregoing definition, a liability for the purchase of any good
or the performance of any service shall be payable as of such date if such goods
were purchased or such services were performed as of such date, whether or not
Gensia received an invoice therefor as of such date. Notwithstanding the
foregoing, liabilities incurred in connection with the transactions contemplated
by the Agreement (and the other agreements contemplated hereby) shall not
constitute Balance Sheet Liabilities, and the payment of which are addressed in
a separate agreement.
(c) Notwithstanding the foregoing, (i) the Disclosed Liabilities shall
not include Balance Sheet Liabilities in an aggregate amount in excess of
$650,000; (ii) Automedics shall not assume Balance Sheet Liabilities in an
aggregate amount in excess of $650,000; and (iii) Gensia Sicor shall pay any
Balance Sheet Liabilities in an aggregate amount in excess of $650,000 on or
before January 31, 1998, and promptly thereafter shall provide Automedics with a
list of the payees of the Balance Sheet Liabilities so paid.
1.3 Purchase Price. In consideration for the purchase of the Assets,
--------------
Automedics shall pay to Gensia Sicor the following:
(a) Stock Issuance at Closing. On the Closing Date, Automedics shall
-------------------------
issue to Gensia Sicor 1,900,000 shares of Subordinated Preferred Stock with the
rights, preferences and privileges as set forth in the Amended and Restated
Certificate of Incorporation attached hereto as Exhibit A to be filed with the
Secretary of State of the State of Delaware prior to the Closing Date (the
"Restated Certificate") with an aggregate value equal to
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$1,843,000, after giving effect to the transactions contemplated hereby and
consummation of Automedics's proposed private placement of $6,000,000 of Series
A Preferred Stock. The price per share of Subordinated Preferred Stock shall be
$0.97.
(b) Post-Closing Royalties.
----------------------
(i) Automedics shall pay to Gensia Sicor royalties equal to two and
one-half percent (2 1/2%) of Net Sales (as defined below) of all products
sold by Automedics, its Affiliates (as defined below) and (sub)licensees on
or after January 1, 2000, payable on a quarterly basis as set forth below.
(ii) Automedics shall pay to Gensia Sicor a milestone payment of up
to $3,000,000, not more than six (6) months after receipt of United States
Food and Drug Administration approval for marketing in the United States of
the Feedback Controlled Heparin System, whether such approval is achieved
by Automedics, its Affiliates or (sub)licensees.
(iii) The obligations of Automedics under subsections (i) and (ii) of
this Section 1.3(b) shall terminate at such time as Automedics has
irrevocably paid to Gensia Sicor under subsections (i) and (ii) of this
Section 1.3(b) the aggregate amount (the "Cap") equal to $10,000,000, plus
interest at the rate of eight percent (8%) per year on the unpaid amount of
such $10,000,000 from the Closing Date, subject to the following
adjustment. If Automedics and its Affiliates fail to attain at least
$40,000,000 of aggregate Heparin/GenESA System revenue for the fiscal year
ending December 31, 1999, then and in such event, the Cap shall be reduced
to an amount (calculated to the nearest cent) determined by multiplying the
Cap (as determined above) by a fraction, the numerator of which shall be
the number of revenue dollars actually reported by Automedics and its
Affiliates and (sub)licensees representing Heparin/GenESA System revenue in
1999, and the denominator of which shall be 40,000,000. For purposes of
this subsection (iii), Heparin/GenESA System revenue shall include all U.S.
sales revenues realized on sales of the GenESA System and any research and
development royalties or similar fees realized in connection with the
Feedback Controlled Heparin System.
(iv) Automedics shall pay to Gensia Sicor royalties equal to thirty
three percent (33%) of LMA EBIT (as defined below), payable on a quarterly
basis as set forth below. The obligations of Automedics under this
subsection (iv) of Section 1.3(b) shall terminate on the earlier of (A) the
date of the termination of the LMA Services Agreement (as defined below),
or (B) December 31, 2000; provided, however, if the compensations
-------- -------
arrangements to Automedics pursuant to the LMA Services Agreement are
materially modified, then Automedics and Gensia Sicor shall discuss any
mutually acceptable modifications to this subsection (iv) of Section 1.3(b)
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designed to pay Gensia Sicor such amount, on such terms, as is consistent
(to the extent practicable) with the payment provisions described above.
(v) "Affiliate" shall mean, with respect to any person or entity, any
other person or entity which directly or indirectly controls, is controlled
by, or is under common control with, such person or entity. A person or
entity shall be regarded as in control of another person or entity if it
owns, or directly or indirectly controls, at least forty percent (40%) of
the voting stock or other ownership interest of the other person or entity,
or if it directly or indirectly possesses the power to direct or cause the
direction of the management and policies of the other person or entity by
any means whatsoever.
(vi) "LMA EBIT" shall mean, with respect to any calendar quarter, an
amount, which shall not be less than zero, equal to the remainder of (A)(1)
the cumulative gross revenues actually received by Automedics or its
Affiliates pursuant to the LMA Services Agreement during such calendar year
through the end of such calendar quarter, less (2) for the second, third
and fourth calendar quarter of each calendar year, the cumulative gross
revenues actually received by Automedics or its Affiliates pursuant to the
LMA Services Agreement during such calendar year through the end of the
immediately preceding calendar quarter, less (B)(1) the cumulative LMA
Product Sales Expenses (as defined below) during such calendar year through
the end of such calendar quarter, less (2) for the second, third and fourth
calendar quarter of each calendar year, the LMA Product Sales Expenses
during such calendar year through the end of the immediately preceding
calendar quarter. If Automedics or any of its Affiliates is entitled to
receive revenues pursuant to the LMA Services Agreement after termination
of the obligations of Automedics under subsection (iv) of this Section
1.3(b) for goods sold or services performed prior to such termination, then
such earned (but not yet received) revenues additionally shall be included
in the calculation under clause (A)(1) above of the cumulative gross
revenues actually received by Automedics or its Affiliates pursuant to the
LMA Services Agreement for the final calendar quarter of Automedics'
obligation under subsection (iv) of this Section 1.3(b).
(vii) "LMA Product Sales Expenses" shall mean $1,039,000 for each
calendar quarter during 1998, $1,092,000 for each calendar quarter during
1999, and $1,147,000 for each calendar quarter during 2000.
(viii) "LMA Products" shall mean the Laryngeal Mask Airway and all
products related thereto, including without limitation the Current LMA
Products.
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(ix) "LMA Services Agreement" shall mean the Services Agreement dated
December 23, 1997 (as amended, restated, supplemented or otherwise replaced
with a similar or related agreement), between LMA (North America), Inc., a
Delaware corporation ("LMA"), and Automedics, regarding certain services to
be performed by Automedics with respect to the LMA Products.
(x) "Net Sales" shall mean, (A) with respect to any product (other
than LMA Products), the invoiced sales price, or lease or rental charges,
for such product billed to inde pendent customers who are not Affiliates
(and excluding sales to (sub)licensees who are not end users), less to the
extent actually included in the invoiced sales price of such product (1)
credits, allowances, discounts and rebates to, and chargebacks from the
account of, such independent customers for spoiled, damaged, out-dated and
returned product; (2) actual freight and insurance costs incurred in
transporting such product in final form to such customers; (3) cash,
quantity and trade discounts, rebates and other price reduction programs;
(4) sales, value-added and other direct taxes incurred; and (5) customs
duties, surcharges and other governmental charges incurred in connection
with the exportation or importation of such product in final form; plus (B)
the gross revenues to Automedics and its Affiliates reported in connection
with the LMA Services Agreement.
(c) Post-Closing Royalty Reports, Accounting, Etc.
---------------------------------------------
(i) Payment Terms. All royalties shown to have accrued by each
-------------
royalty report provided for under Section 1.3(c)(v) shall be due and
payable on the date such royalty report is due. Payment of such royalties
in whole or in part may be made in advance of such due date.
(ii) Payment Method. All payments by Automedics to Gensia Sicor
--------------
under the Agreement shall be paid in United States dollars, and all such
payments shall be originated from a United States bank located in the
United States and made by bank wire transfer in immediately available funds
to such account as Gensia Sicor shall designate before such payment is due.
(iii) Exchange Control. If at any time legal restrictions prevent
----------------
the prompt remittance of part or all royalties owing under this Section
1.3(b) with respect to any country where the product is sold, payment shall
be made through such lawful means or methods as Gensia Sicor and Automedics
reasonably shall determine.
(iv) Withholding Taxes. Automedics shall be entitled to deduct the
-----------------
amount of any withholding taxes, value-added taxes or other taxes, levies
or charges with respect to such royalties, other than United States taxes,
payable by
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<PAGE>
Automedics, its Affiliates or sublicensees, or any taxes required to be
withheld by Automedics, its Affiliates or sublicensees, to the extent
Automedics, its Affiliates or sublicensees pay to the appropriate
governmental authority on behalf of Gensia Sicor such taxes, levies or
charges. Automedics shall use reasonable efforts to minimize any such
taxes, levies or charges required to be withheld on behalf of Gensia Sicor
by Automedics, its Affiliates or sublicensees. Automedics promptly shall
deliver to Gensia Sicor proof of payment of all such taxes, levies and
other charges, together with copies of all communications from or with such
governmental authority with respect thereto.
(v) Reports, Exchange Rates.
-----------------------
(A) Commencing in 2000, Automedics shall furnish to Gensia Sicor
a quarterly written report showing in reasonably specific detail, on a
product-by-product basis, (1) the gross sales of all products sold by
Automedics, its Affiliates and its (sub)licensees during the reporting
period and the calculation of Net Sales therefrom; (2) the royalties, if
any, which shall have accrued hereunder based upon such Net Sales; (3) the
withholding taxes, if any, required by law to be deducted in respect of
such sales; and (4) the exchange rates used in translating into United
States dollars the gross sales, Net Sales and royalties for gross sales
invoiced in currency other than United States dollars.
(B) Through the earlier of the date of the termination of the LMA
Services Agreement or December 31, 2000, Automedics shall furnish to Gensia
Sicor a quarterly written report showing in reasonably specific detail, (1)
the gross revenues actually received by Automedics or its Affiliates
pursuant to the LMA Services Agreement during such calendar year through
the end of such calendar quarter; (2) the calculation of the LMA EBIT for
such calendar quarter; and (3) the royalties, if any, which shall have
accrued hereunder based upon the LMA EBIT for such calendar quarter.
(C) With respect to sales of products invoiced in United States
dollars, the gross sales, Net Sales and royalties shall be expressed in
United States dollars. With respect to sales of products invoiced in a
currency other than United States dollars, the gross sales, Net Sales and
royalties shall be expressed in the domestic currency of the party making
the sale together with the United States dollar equivalent, calculated
using the average closing buying rate for such currency quoted in the
continental terms method of quoting exchange rates (local currency per
US$1) by Bank of America NT&SA in London, England on each of the last
business day of each month in the quarter prior to the date of payment.
(D) Reports shall be due on the sixtieth (60th) day following
the close of each quarter. Automedics shall keep
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complete and accurate records in sufficient detail to properly reflect all
gross sales and Net Sales and to enable the royalties payable hereunder to
be determined.
(vi) Audits. Upon the written request of Gensia Sicor and not more
------
than once in each calendar year, Automedics shall permit an independent
certified public accounting firm of nationally recognized standing,
selected by Gensia Sicor and reasonably acceptable to Automedics, at Gensia
Sicor's expense, to have access during normal business hours to such of the
records of Automedics as may be reasonably necessary to verify the accuracy
of the royalty reports hereunder for any year ending not more than thirty-
six (36) months prior to the date of such request. The accounting firm
shall disclose to Gensia Sicor only whether the reports are correct or not
and the specific details concerning any discrepancies. No other
information shall be shared. If such accounting firm concludes that
additional royalties were owed hereunder during such period, Automedics
shall pay the additional royalties within thirty (30) days of the date
Gensia Sicor delivers to Automedics such accounting firm's written report
so con cluding. The fees charged by such accounting firm shall be paid by
Gensia Sicor; provided, however, if the audit discloses that the royalties
-------- -------
payable hereunder by Automedics for the audited period are more than one
hundred five percent (105%) of the royalties actually paid hereunder for
such period, then Automedics shall pay the reasonable fees and expenses
charged by such accounting firm. Automedics shall include in each
(sub)license granted by it (excluding (sub)licenses pursuant to
distribution arrangements in existence as of the date hereof) a provision
requiring the (sub)licensee to make reports to Automedics, to keep and
maintain records of sales made pursuant to such (sub)license and to grant
access to such records by Gensia Sicor's independent accountant to the same
extent required of Automedics under the Agreement.
(vii) Confidential Financial Information. Gensia Sicor shall treat
----------------------------------
all financial information subject to review under this Section 1.3(c) as
confidential, and shall cause its accounting firm to retain all such
financial information in confidence.
(d) Payment of Sales or Other Taxes. Any tax (other than taxes
-------------------------------
imposed in respect to the income of Gensia (including, without limitation, gain,
if any, on the sale of Assets)) that may be payable as a result of the execution
of this Agreement or the consummation of the purchase and sale contemplated
hereby, shall be paid by Gensia Sicor. Gensia Sicor shall timely file all tax
returns which may be required in connection with such tax or taxes. Automedics
shall fully reimburse Gensia Sicor for the amount of all such tax or taxes
within thirty (30) days after the payment thereof by Gensia Sicor.
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(e) Allocation of Consideration. The consideration paid by
---------------------------
Automedics for the Assets pursuant to this Section 1.3 shall be allocated among
the Assets for tax purposes as set forth on Schedule 1.3(e) hereto.
1.4 Grant-Back of Certain Oncology Rights. Automedics hereby grants to
-------------------------------------
Gensia Sicor a fully-paid, irrevocable, worldwide nonexclusive right and license
(including the right to grant sublicenses), under the patent applications and
patents listed on Schedule 1.1(c), any and all patents that have issued or in
the future issue from such patent applications, including utility, model and
design patents and certificates of invention, and any and all divisionals,
continuations, continuations-in-part, reissues, renewals, extensions or
additions to any such patent applications and patents, to practice methods and
processes and to conduct research, make, use, offer for sale, sell and import
compositions indicated for use, and materially used, in the diagnosis,
prevention or treatment of cancer.
1.5 Reversion of Certain Assets.
---------------------------
(a) If Automedics fails to duly exercise the option (the "Partnership
Purchase Option") granted pursuant to Section 3.01(a) of the Partnership
Purchase Option Agreement dated as of June 13, 1991 (as amended from time to
time, the "Partnership Purchase Option Agreement"), between Gensia Sicor, the
limited partners named therein (the "Limited Partners") and Gensia Clinical
Partners, L.P., a Delaware limited partnership (the "Partnership"), not less
than ten (10) days prior to the expiration of the Partnership Purchase Option,
and provided that Gensia Sicor has not defaulted in the performance of its
obligations under Section 4.3(a) hereof, then upon written notice from Gensia to
Automedics and without further action by Automedics or Gensia, at the sole
expense of Automedics, Automedics shall assign, transfer and deliver to Gensia
Sicor all the Assets relating to the GenESA System, together with all other
inventory, contracts, commitments and other agreements, product registrations,
approvals and applications therefor and accounts then owned by Automedics
relating to the GenESA System, free and clear of all Liens other than Permitted
Liens. Upon the request of Gensia Sicor, Automedics shall execute such
documents, instruments and agreements, and take such other actions as may be
necessary or useful to effectuate such assignment, transfer and delivery.
Except as otherwise set forth below in this Section 1.5(a), Automedics shall
have no liability for any liabilities or obligations relating to the GenESA
System that are incurred by Gensia or accrue after such reassignment. If Gensia
Sicor reacquires the GenESA System pursuant to this Section 1.5(b) and receives
a bona fide offer (or enters into an agreement granting Gensia Sicor the right)
to exercise the Partnership Purchase Option on terms and conditions more
favorable to Gensia Sicor than those set forth in the Partnership Purchase
Option Agreement, then before Gensia Sicor may exercise the Partnership Purchase
Option, Gensia Sicor shall offer to Automedics the right to do so on such more
favorable terms, subject to the following
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terms and conditions: (i) Gensia Sicor shall use reasonable efforts to give
such notice to Automedics not less than three (3) days prior to the expiration
of the Partnership Purchase Option; (ii) Automedics shall have the right to
exercise the Partnership Purchase Option on such more favorable terms not less
than one (1) day before expiration thereof; (iii) if Automedics timely exercises
the Partnership Purchase Option pursuant to this sentence, and to consummate the
purchase of the limited partnership interests pursuant thereto, Gensia Sicor
shall reassign, transfer and deliver to Automedics all the Assets relating to
the GenESA System, together with all other inventory, contracts, commitments and
other agreements, product registrations, approvals and applications therefor and
accounts previously reassigned by Automedics to Gensia Sicor relating to the
GenESA System; and (iv) Gensia Sicor shall have no liability for any liabilities
or obligations relating to the GenESA System that are incurred or accrue after
the reassignment from Automedics to Gensia Sicor set forth above.
(b) Except as otherwise set forth in the immediately following
sentence, if Automedics breaches any material obligation owing to Protocol
Systems, Inc., an Oregon corporation ("Protocol"), pursuant to the Development
and Supply Agreement dated January 26, 1990 (as amended, the "Protocol
Agreement"), between Gensia Sicor and Protocol, that with notice or the lapse of
time or both would constitute a default giving rise to a termination right (or
otherwise would give rise to a termination right) thereunder, then upon written
notice from Gensia to Automedics and without further action by Automedics or
Gensia, at the sole expense of Automedics, Automedics shall assign, transfer and
deliver to Gensia Sicor all the Assets relating to the GenESA System, together
with all other inventory, contracts, commitments and other agreements, product
registrations, approvals and applications therefor and accounts then owned by
Automedics relating to the GenESA System, free and clear of all Liens other than
Permitted Liens. Notwithstanding the foregoing, Gensia Sicor shall have no
right to require the reassignment of the GenESA System pursuant to this Section
1.5(b) if (i) Automedics has duly exercised the Partnership Purchase Option not
less than ten (10) days prior to the expiration of the Partnership Purchase
Option, and consummated the purchase of the limited partnership interests
pursuant thereto, and (ii)(A) Automedics has not breached any material
obligation under the Protocol Agreement, other than the obligations set forth in
Sections 3.2(c), 3.2(e), 6.2(a), 6.7, 6.8, 8.2, 8.3, 8.4, 9.4, 9.17 (provided
that, with respect to Section 9.17, Automedics has obtained and maintained
current product liability insurance with policy limits of not less than
$8,000,000) and 9.18 thereof, or (B) Automedics in good faith is contesting a
breach of a material non-monetary obligation under the Protocol Agreement
alleged by Protocol and either (1) has received express written agreement from
Protocol not to terminate the Protocol Agreement, or (2) has obtained an
injunction or other court order precluding Protocol from terminating the
Protocol Agreement, in each instance for the term of such agreement, injunction
or court order. Upon the request of Gensia Sicor, Automedics shall execute
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such documents, instruments and agreements, and take such other actions as my be
necessary or useful to effectuate such assignment, transfer and delivery.
Automedics shall have no liability for any liabilities or obligations relating
to the GenESA System that are incurred by Gensia or accrue after such
reassignment.
(c) Automedics promptly shall provide Gensia Sicor with a copy of each
forecast, projection and order required to be provided to Protocol pursuant to
the Protocol Agreement. Automedics shall provide Gensia Sicor with a quarterly
written report of its accounts payable owing to Protocol, and the aging thereof,
in connection with the Protocol Agreement. If Automedics gives written notice
to Gensia Sicor not less than ten (10) days prior to the date on which a breach
of a payment obligation by Automedics could be declared under the Protocol
Agreement, Gensia Sicor shall pay to Protocol, prior to the due date and on
behalf of Automedics, such amount as requested by Automedics owing to Protocol
under the Protocol Agreement. Automedics shall repay to Gensia Sicor the full
amount of each advance by Gensia Sicor hereunder, together with interest thereon
at the rate of fifteen percent (15%) per annum, within four months after the
date of such advance. Notwithstanding the foregoing, Gensia Sicor shall have no
obligation to make cumulative payments to Protocol pursuant to this Section
1.5(c) in excess of $1,000,000 during the term of the Protocol Agreement, and
shall have no obligation to make any further payments to Protocol pursuant to
this Section 1.5(c) if Automedics has not repaid in full the amount of each
advance by Gensia Sicor hereunder, together with interest thereon, within four
months after the date of such advance. If Automedics fails to repay in full the
amount of any advance by Gensia Sicor hereunder, together with interest thereon,
within four months after the date of such advance, then for purposes of Section
1.5(b) above, Automedics shall be deemed to be in breach of its material
obligations, and Gensia Sicor shall have the right to require the reassignment
of the GenESA System pursuant to Section 1.5(b) above.
(d) Automedics shall provide Gensia Sicor with a quarterly written
report of its accounts payable owing to Abbott Laboratories, an Illinois
corporation ("Abbott"), and the aging thereof, in connection with the
Development Agreement or the Supply Agreement both dated January 16, 1992
(collectively, the "Abbott Agreements"), between Gensia Sicor and Abbott. If,
at any time prior to the due exercise of the Partnership Purchase Option, (i)
Automedics breaches any material obligation owing to Abbott pursuant to the
Abbott Agreements, that with notice or the lapse of time or both would
constitute a default giving rise to a termination right (or otherwise would give
rise to a termination right) thereunder, and (ii) at the time of such breach
Automedics does not own sufficient inventory of arbutamine on hand to satisfy
the reasonably foreseeable worldwide market demand therefor for use with the
GenESA System for the period through at least December 31, 1999 (provided that
any failure to have sufficient inventory on hand at such time is not due solely
to (A) a breach by Abbott of its obligation to supply arbutamine under such
agreements, or
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(B) the negligence, recklessness or willful misconduct of GSPI in the storage of
Automedics' arbutamine inventory), then upon written notice from Gensia to
Automedics and without further action by Automedics or Gensia, at the sole
expense of Automedics, Automedics shall assign, transfer and deliver to Gensia
Sicor all the Assets relating to the GenESA System, together with all other
inventory, contracts, commitments and other agreements, product registrations,
approvals and applications therefor and accounts then owned by Automedics
relating to the GenESA System, free and clear of all Liens other than Permitted
Liens. Notwithstanding the foregoing, Gensia Sicor shall have no right to
require the reassignment of the GenESA System pursuant to this Section 1.5(d) if
(iii) Automedics has duly exercised the Partnership Purchase Option not less
than ten (10) days prior to the expiration of the Partnership Purchase Option,
and consummated the purchase of the limited partnership interests pursuant
thereto, and (iv) Automedics in good faith is contesting a breach of a material
non-monetary obligation under the Abbott Agreements alleged by Abbott and either
(A) has received express written agreement from Abbott not to terminate the
Abbott Agreements, or (B) has obtained an injunction or other court order
precluding Abbott from terminating the Abbott Agreements, in each instance for
the term of such agreement, injunction or court order. Upon the request of
Gensia Sicor, Automedics shall execute such documents, instruments and
agreements, and take such other actions as my be necessary or useful to
effectuate such assignment, transfer and delivery. Automedics shall have no
liability for any liabilities or obligations relating to the GenESA System that
are incurred by Gensia or accrue after such reassignment.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 General Representations and Warranties. Except as disclosed or
--------------------------------------
excepted in Schedule 2 hereto (the "Disclosure Schedule"), each of Automedics,
Gensia Sicor and GSPI represents and warrants to the other parties as of the
date hereof as follows:
(a) Organization, Good Standing and Qualification. It is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. It is
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business and properties.
(b) Authorization. All corporate action on its part and on the part
-------------
of its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, and the performance of all obligations
of it hereunder, has been taken or will be taken on or prior to the Closing.
This Agreement constitutes the valid and legally binding obligation of it
except
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(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) to the
extent the indemnification provisions may be limited by applicable federal or
state securities laws.
(c) Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of it is required in connection with the consummation of the
transactions contemplated by this Agreement.
(d) Compliance with Other Instruments. It is not in violation or
---------------------------------
default of any provisions of its Certificate of Incorporation, as amended, or
Bylaws or of any instrument, judg ment, order, writ, decree or contract to which
it is a party or by which it is bound or, to its knowledge, of any provision of
federal or state statute, rule or regulation applicable to it, which violation
or default would be materially adverse to the Transferred Businesses. The
execution, delivery and performance of this Agreement, and the consummation of
the transactions contemplated hereby, will not result in any such violation or
be in conflict with or constitute, with or without the passage of time and
giving of notice, either a default under any such provision, instrument,
judgment, order, writ, decree or contract or an event which results in the
creation of any material lien, charge or encumbrance upon any assets of it or
the suspension, revocation, impairment, forfeiture or non-renewal of a material
permit, license, authorization or approval applicable to it or the Transferred
Businesses.
2.2 Representations and Warranties Regarding the Assets. Except as
---------------------------------------------------
disclosed or excepted in the Disclosure Schedule, Gensia represents and warrants
to Automedics as of the date hereof as follows:
(a) The Assets are owned by Gensia. No person or entity other than
Gensia has any right, title or interest in or to the Assets, other than the
Intellectual Property. To the best knowledge of Gensia, no person or entity
other than Gensia has any right, title or interest in or to the Intellectual
Property.
(b) Except for Permitted Liens, Gensia has, and at the Closing
Automedics will receive, good, valid and marketable title to all of the Assets,
free and clear of any Lien.
(c) The Assets constitute all of the properties and rights, tangible
or intangible, real or personal, owned by Gensia and required for the continued
operation of the Transferred Businesses, other than the sale of Current LMA
Products, in the manner in which they are currently operated, it being
understood
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that on and after the Closing, Automedics intends to engage in the sale of LMA
Products pursuant to the terms of the LMA Services Agreement.
(d) Gensia has not received any communications alleging that Gensia
has violated, by conducting the Transferred Businesses, any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. To the best of Gensia's
knowledge, the Transferred Businesses as conducted do not infringe or conflict
with the rights of others, including rights under patents, trademarks, service
marks, trade names, copyrights, trade secrets or other proprietary rights.
Gensia has not received any communication that any of the Intellectual Property
is being infringed or compromised by others.
(e) There is no action, suit, proceeding or investigation pending or
currently threatened against Gensia which questions the validity of this
Agreement, or the right of Gensia to enter into this Agreement or to consummate
the transactions contemplated hereby, or which might result, either individually
or in the aggregate, in any material adverse change in the Assets or the
Transferred Businesses, nor is Gensia aware that there is any basis for the
foregoing. The foregoing includes, with respect to the Assets and the
Transferred Businesses only but otherwise without limitation, actions, suits,
proceedings or investigations pending or threatened (or any basis therefor known
to Gensia) involving the prior employment of any of Gensia's employees, their
use in connection with Gensia's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. Neither Gensia nor, to the best
knowledge of Gensia, anyone acting for or on its behalf has, since September 30,
1995, paid any amount of damages to any third party for injuries to persons or
property, or paid any cash settlements for breach of warranty, arising out of
any alleged defect in quality, materials, workmanship or design of any of its
products (including any products manufactured by others and distributed by
Gensia) and, except for goods returned for repair or replacement pursuant to the
standard terms and conditions of sale relating to such goods, there is no
pending or, to the best knowledge of Gensia, threatened claim against Gensia for
breach of warranty or seeking damages arising out of any alleged defect in
quality, materials, workmanship or design of any of its products and Gensia has
no knowledge of any basis for any such claim. Gensia is not a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by Gensia currently pending or which Gensia intends
to initiate regarding the Assets or the Transferred Businesses.
(f) Automedics will have no income tax liability as a consequence of
having been a member of Gensia Sicor's consolidated group. Gensia has filed all
tax income returns and reports with respect to the Assets and the Transferred
Businesses as required by
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applicable law. These returns and reports are true and correct in all material
respects. Gensia has paid all income taxes and other assessments with respect
to the Assets and the Transferred Businesses due prior to the time penalties
would accrue thereon. The provision for income taxes of Gensia with respect to
the Assets and the Transferred Businesses is adequate for income taxes due or
accrued as of the date thereof. Gensia has not elected pursuant to the Code to
be treated as a Subchapter S corporation or a collapsible corporation pursuant
to section 1362(a) or section 341(f) of the Code, nor has it made any other
elections pursuant to the Code (other than elections that relate solely to
methods of accounting, depreciation or amortization) that would have a material
effect on the Assets or the Transferred Businesses.
(g) To the knowledge of Gensia, the Receivables are valid and
enforceable claims, and constitute bona fide receivables resulting from the sale
of goods and services in the ordinary course of the Transferred Businesses,
other than the sale of Current LMA Products.
(h) Schedule 1.1(b) hereto sets forth a true and complete list of
inventory of the Transferred Businesses, other than the sale of Current LMA
Products, by category as of the date hereof other than changes in the ordinary
course of business.
(i) To the knowledge of Gensia, the contracts assigned to Automedics
pursuant to this Agreement are binding upon the other parties thereto in
accordance with their terms. Gensia has not received written notice of any
default (or alleged default) under any such contract. To the knowledge of
Gensia, there exists no condition that with notice or the lapse of time or both
would constitute a default of a material obligation (or give rise to a
termination right) under any such contract. Gensia has not received written
notice of cancellation or termination of any such contract.
(j) There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
Gensia who would be entitled to any fee or commission from Automedics upon
consummation of the transactions contemplated hereby.
(k) There exist no facts or circumstances that would give rise to a
claim by any third party for damages resulting from bodily injury, death or
property damage attributable to the manufacture, use or sale by Gensia of
products in the course of the Transferred Businesses prior to the Closing Date.
2.3 Representations and Warranties of Automedics Regarding the
----------------------------------------------------------
Subordinated Preferred Stock. Automedics represents and warrants to Gensia
- ----------------------------
Sicor as of the date hereof as follows:
(a) Subordinated Preferred Stock. The shares of Subordinated
----------------------------
Preferred Stock to be acquired by Gensia Sicor
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pursuant to Section 1.3 hereof (i) have been duly and validly authorized, and
(ii) upon completion of the Closing pursuant to the terms hereof, (A) will be
validly issued to Gensia Sicor and fully paid and nonassessable, (B) based in
part upon the representations of Gensia Sicor in this Agreement, will have been
issued in compli ance with all applicable federal and state securities laws, and
(C) shall be free of all adverse claims and restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable federal and
state securities.
(b) Common Stock. The shares of Common Stock of Automedics issuable
------------
upon conversion of the shares of Subordinated Preferred Stock purchased under
this Agreement (i) have been duly and validly authorized and reserved for
issuance, (ii) upon issuance and in accordance with the terms of the Restated
Certificate, (A) shall be duly and validly issued, fully paid and nonassessable,
(B) based in part upon the representations of Gensia Sicor in this Agreement,
will have been issued in compliance with all applicable federal and state
securities laws, and (C) shall be free of all adverse claims and restrictions on
transfer other than restrictions on transfer under this Agreement and under
applicable federal and state securities.
2.4 Representations and Warranties of Gensia Sicor Regarding the
------------------------------------------------------------
Subordinated Preferred Stock. Gensia Sicor acknowledges that Automedics has
- ----------------------------
entered into this Agreement in reliance upon Gensia Sicor's representations and
warranties to Automedics, and Gensia Sicor hereby confirms, that:
(a) Purchase Entirely for Own Account. The shares of Subordinated
---------------------------------
Preferred Stock to be acquired by Gensia Sicor pursuant to Section 1.3 hereof
are acquired for investment purposes and for its own account, not as a nominee
or agent, and not with a view to the resale or distribution of any part thereof,
and that Gensia Sicor has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, Gensia Sicor further represents that Gensia Sicor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of such shares of Subordinated Preferred Stock.
(b) Restricted Securities. Gensia Sicor understands that the shares
---------------------
of Subordinated Preferred Stock it is acquiring are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from Automedics in a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), and that such shares
of Subordinated Preferred Stock may be resold without registration under the
Securities Act only in certain limited circumstances. In this connection Gensia
Sicor represents that it is familiar with Rule 144 promulgated under the
Securities Act, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
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(c) Legends. It is understood that the certificates evidencing the
-------
Securities may bear one or all of the following legends:
(i) "These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged
or hypothecated in the absence of a registration statement in effect with
respect to the securities under such Act or an opinion of counsel
satisfactory to Automedics that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(ii) Any legend required by the laws of the State of California or
other jurisdiction.
(d) Accredited Investor. Gensia Sicor represents and warrants to
-------------------
Automedics that it is an accredited investor as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act.
2.5 Survival of Representations and Warranties.
------------------------------------------
(a) All representations, warranties and covenants contained in this
Agreement (other than the representations and warranties by Gensia pursuant to
Section 2.2(f) hereof) and any certificate or other instrument delivered by or
on behalf of any of the parties pursuant to this Agreement shall survive the
Closing for a period that will terminate on the third anniversary of the Closing
Date.
(b) All representations and warranties by Gensia pursuant to Section
2.2(f) hereof shall survive the Closing for a period that will terminate on the
date of the applicable statute of limitations with respect to claims therefor.
(c) Thereafter, all such representations, warranties and covenants
shall survive with respect to any claim made on or before the applicable
termination date above until such time as such claim has been finally decided,
settled or adjudicated.
ARTICLE 3
INDEMNIFICATION
---------------
3.1 Indemnification.
---------------
(a) Automedics shall indemnify, defend and hold harmless Gensia from
and against any loss, liability, damage and expense (including all reasonable
attorneys' fees and costs), in each instance in excess of $20,000, incurred or
suffered by Gensia to the extent arising from (i) the Disclosed Liabilities, or
(ii) any breach of any representation, warranty or covenant of Automedics
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under this Agreement, except to the extent that Gensia is obligated to indemnify
Automedics pursuant to Section 3.1(b) for any such losses, liabilities, damages
and expenses to the extent arising from any breach of any representation,
warranty or covenant of Gensia under this Agreement. Notwithstanding the
foregoing, Gensia shall not be entitled to indemnification hereunder for any
loss, liability, damage and expense unless and until the aggregate amount of all
such losses, liabilities, damages and expenses exceeds $50,000, and Gensia's
right to indemnification hereunder shall be limited to the amount of such
losses, liabilities, damages and expenses in the aggregate in excess of $50,000.
(b) Gensia shall indemnify, defend and hold harmless Automedics from
and against any loss, liability, damage and expense (including all reasonable
attorneys' fees and costs), in each instance in excess of $20,000, incurred or
suffered by Automedics to the extent arising from any breach of any
representation, warranty or covenant of Gensia under this Agreement.
Notwithstanding the foregoing, Automedics shall not be entitled to
indemnification hereunder for any loss, liability, damage and expense unless and
until the aggregate amount of all such losses, liabilities, damages and expenses
exceeds $50,000, and Automedics' right to indemnification hereunder shall be
limited to the amount of such losses, liabilities, damages and expenses in the
aggregate in excess of $50,000.
3.2 Procedure.
---------
(a) If Automedics or Gensia (the "Indemnitee") intends to claim
indemnification under this Article 3 with respect to any claim, demand, action
or other proceeding by any third party, the Indemnitee promptly shall notify the
other party (the "Indemnitor") thereof, and the Indemnitor shall have the right
to assume the defense thereof with counsel selected by the Indemnitor; provided,
--------
however, that the Indemnitee shall have the right to retain its own counsel,
- -------
with the fees and expenses to be paid by the Indemnitor, if representation of
the Indemnitee by the counsel retained by the Indemnitor would be inappropriate
due to actual or potential differing interests between the Indemnitee and any
other party represented by such counsel in such proceedings.
(b) The indemnity obligations under this Article 3 shall not apply to
amounts paid in settlement of any claim, demand, action or other proceeding if
such settlement is effected without the consent of the Indemnitor, which consent
shall not be unreasonably withheld or delayed. The failure to deliver notice to
the Indemnitor within a reasonable time after the commencement of any such
action or other proceeding, if prejudicial to its ability to defend such action,
shall relieve the Indemnitor of any liability to the Indemnitee under this
Article 3, but the omission so to deliver notice to the Indemnitor will not
relieve it of any liability that it may have to the Indemnitee otherwise than
under this Article 3.
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(c) The Indemnitee, its employees and agents, shall reasonably
cooperate with the Indemnitor and its legal representatives in the investigation
of any claim, demand, action or other proceeding covered by this
indemnification.
ARTICLE 4
ADDITIONAL AGREEMENTS
---------------------
4.1 Employee Matters.
----------------
(a) For the period from the Closing Date through and including June
30, 1998, neither Automedics nor any of its directors, officers or employees,
directly or indirectly, shall solicit or encourage any employees of Gensia to
leave its employ.
(b) For the period from the Closing Date through and including June
30, 1998, neither Gensia Sicor, GSPI nor any of their respective directors,
officers or employees, directly or indirectly, shall solicit or encourage any
employees of Automedics to leave its employ.
(c) If Automedics terminates (other than for cause) any employee, who
formerly was an employee of Gensia, at any time prior to the first anniversary
of the Closing Date, Automedics shall offer to such person a severance agreement
on terms and conditions no less favorable to such person than the terms and
conditions of the severance agreement to which such person would have been
entitled (as determined in accordance with Gensia Sicor's severance practices
with respect to the severance of similarly situated employees) if terminated by
Gensia Sicor as of the Closing Date.
(d) If Automedics terminates, or causes the termination of, any
employee(s) of Gensia GmbH (other than for cause) on or before March 31, 1998,
then Gensia Sicor shall reimburse Automedics an amount equal to the amount of
the severance pay actually paid to such terminated employee(s) up to an amount
equal to the greater of (i) the amount of the severance pay to which such person
would have been entitled (as determined in accordance with Gensia Sicor's
severance practices with respect to the severance of similarly situated
employees in its European operations) if terminated as of the Closing Date, or
(ii) the amount of the severance pay to which such person is entitled pursuant
to applicable German law.
4.2 Use of Gensia Name and Mark.
---------------------------
(a) On the terms and subject to the conditions of this Section 4.2,
Gensia hereby grants to Automedics a worldwide, nonexclusive license (without
the right to grant sublicenses) to use the name "Gensia" as a part of the
corporate name of Automedics and the corporate name of Gensia Automedics Limited
and Gensia GmbH through December 31, 1998. On or before December 31, 1998,
Automedics shall change its corporate name, shall cause Gensia
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Automedics Limited and Gensia GmbH to change their corporate names, to delete
any reference to the "Gensia" name, and thereafter each shall cease using the
"Gensia" name for any purposes except as required by applicable law or
regulation or as expressly set forth in Section 4.2(b) hereof.
(b) On the terms and subject to the conditions of this Section 4.2,
Gensia hereby grants to Automedics a worldwide, nonexclusive license (with the
right to grant sublicenses solely to its bona fide distributors) to use the name
"Gensia" and the trademark described on Schedule 4.2 hereto (collectively, the
"Gensia Marks") solely in connection with the marketing, sale and distribution
of its products, including the GenESA System, through June 30, 1999.
Thereafter, Automedics shall cease using the Gensia Marks for any purposes
except as required by applicable law or regulation.
(c) The licenses granted to Automedics under this Section 4.2 are
personal to Automedics. Automedics shall not assign, transfer, sublicense or
otherwise convey the license rights granted under this Section 4.2, in whole or
in part, whether voluntarily, by operation of law or otherwise, without the
prior express written consent of Gensia. Any purported assignment, transfer,
sublicense or other conveyance in violation of this Section 4.2(c) shall be
void.
(d) Automedics shall use the Gensia Marks in compliance with all
applicable laws, regulations, rules and practices of each country in which the
Gensia Marks are used, including without limitation the marking with notice of
registration and the registering or recording of Automedics as a registered or
licensed user of the Gensia Marks.
(e) Automedics shall not alter or modify the Gensia Marks. Except as
otherwise expressly authorized by this Agreement, Automedics shall not adopt,
use, register or file any application for registration of the Gensia Marks or
any word, title, phrase, expression, trade name, trademark, service mark,
certification mark, symbol, designation or marking of any type or in any
language whatsoever, which is confusingly similar to or contains in whole or in
part the Gensia Marks, as part of its corporate name, a business name or
otherwise.
(f) Automedics shall maintain the quality of the products with respect
to which Automedics uses the Gensia Marks at the level that meets or exceeds
industry standards therefor.
(g) Automedics hereby acknowledges that the Gensia Marks constitute
highly valuable assets of Gensia. Automedics shall not use the Gensia Marks in
any manner, and otherwise shall take no action, that derogates from, interferes
with or diminishes Gensia's right, title and interest in the Gensia Marks or the
goodwill associated with the Gensia Marks.
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<PAGE>
(h) Automedics hereby acknowledges the validity and exclusive
ownership by Gensia of all right, title and interest in and to the Gensia Marks,
and represents that Automedics owns no right, title or interest in the Gensia
Marks. Any and all right, title and interest that may accrue in the Gensia
Marks (other than the license granted by this Agreement) shall inure solely to
the benefit of Gensia.
4.3 Partnership Purchase Option.
---------------------------
(a) Partnership Purchase Loan. If Automedics duly exercises the
-------------------------
Partnership Purchase Option not less than ten (10) days prior to the expiration
thereof, at the election of Automedics, Gensia Sicor shall fund up to fifty
percent (50%) of the aggregate amount of the payments paid by Automedics to the
Limited Partners to exercise the Partnership Purchase Option as set forth below.
Automedics shall have the right to exercise such election by giving written
notice thereof to Gensia Sicor, not less than ten (10) days prior to the
expiration of the Partnership Purchase Option, stating the aggregate amount of
the payments to paid by Automedics to the Limited Partners to exercise the
Partnership Purchase Option and the funding date (the "Funding Date") fixed
therefor, which shall not be less than forty (40) days, or more than seventy
(70) days, after the date of such notice. If Automedics so elects, Gensia Sicor
shall have the right, at its election, to fund such amounts (i) by paying to
Automedics (in the form of a loan) the amount in cash equal to the lesser of (A)
$11,000,000, or (B) fifty percent (50%) of the amount of the cash payment owing
to the Limited Partners to exercise the Partnership Purchase Option, or (ii) by
issuing to the Limited Partners the number of shares of common stock of Gensia
Sicor equal to the lesser of (A) the number of shares set forth in Section
3.02(b) of the Partnership Purchase Agreement dated June 13, 1991 (the
"Partnership Purchase Agreement"), among Gensia Sicor and each of the Limited
Partners, or (B) the product of (1) the number of shares set forth in Section
3.02(b) of the Partnership Purchase Agreement, times (2) fifty percent (50%) of
the amount of the cash payment owing to the Limited Partners to exercise the
Partnership Purchase Option, divided by $11,000,000. In either event,
Automedics shall execute and deliver to Gensia Sicor a three-year convertible
promissory note, in the original principal amount of the amount in cash paid to
Automedics under clause (i) of this Section 4.3(a), or the aggregate value of
the Gensia Sicor common stock issued to such limited partners under clause (ii)
of this Section 4.3(a), as applicable, bearing interest at the rate of 10% per
annum, in the form attached hereto as Exhibit B (the "Partnership Purchase
Note").
(b) Fixed Share Buyout. If any Limited Partner elects to receive a
------------------
Class A Fixed Share Payment (as defined in the Partnership Purchase Agreement)
upon exercise of the Partnership Purchase Option, Gensia Sicor shall issue to
the Class A Fixed Share Recipients (as defined in the Partnership Purchase
Agreement) the applicable number of shares of common stock of Gensia Sicor
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<PAGE>
pursuant to the Partnership Purchase Agreement. On the date of the issuance of
such shares (the "Issuance Date"), Automedics shall execute and deliver to
Gensia Sicor a Partnership Purchase Note, in the original principal amount equal
to (i) $40,000, times (ii) the number of limited partnership interests tendered
for the Class A Fixed Share Payment; provided, however, if Limited Partners
-------- -------
elect to receive Class A Fixed Share Payments for greater than fifty percent
(50%) of the then outstanding limited partnership interests in the Partnership,
then on the Issuance Date, (iii) Automedics shall pay to Gensia Sicor an amount
in cash equal to the product of (A) $40,000, times (B) the remainder of (1) the
number of limited partnership interests tendered for the Class A Fixed Share
Payment, less (2) fifty percent (50%) of the number of limited partnership
interests outstanding immediately prior to the exercise of the Partnership
Purchase Option, and (iv) the principal amount of such Partnership Purchase Note
shall be reduced by a like amount.
(c) Partnership Purchase Security Agreement. Automedics' obligations
---------------------------------------
under the Partnership Purchase Note will be secured by a first priority security
interest in all of Automedics tangible and intangible property pursuant to a
security agreement to be entered into by and between Gensia Sicor and Automedics
as a condition to the funding of such loan in the form attached hereto as
Exhibit C (the "Partnership Purchase Security Agreement").
(d) Cooperation Regarding Partnership Purchase Option. Gensia Sicor
-------------------------------------------------
shall use all reasonable efforts to cooperate with Automedics in connection with
the exercise of the Partnership Purchase Option, and any and all negotiations of
(and attempts to negotiate) more favorable terms of the Partnership Purchase
Option with the Partnership, Gensia Development Corporation, a Delaware
corporation ("GDC"), PaineWebber R&D Partners III, L.P., a Delaware limited
partnership (or its affiliates), or any Limited Partner. If Automedics duly and
timely exercises the Partnership Purchase Option, then upon consummation of the
purchase by Automedics of the limited partnership interests purchased pursuant
thereto, Automedics shall pay to Gensia Sicor an amount in cash equal to twenty
percent (20%) of the remainder, if any, of (i) $22,000,000, less (ii) the
aggregate amount of the cash payment (or fair market value of any equity
security or other non-cash consideration) owing to the Limited Partners to
exercise the Partnership Purchase Option. Such fair market value shall be
determined by the mutual agreement of the parties, or if the parties are unable
to agree, by the determination of an independent appraisal firm mutually
acceptable to the parties, based upon such assumptions and criteria as such
appraisal firm determines reasonable and appropriate. If the cash payments or
other non-cash consideration to exercise the Partnership Purchase Option is
payable to the Limited Partners in more than one installment, then Automedics
shall pay the amount, if any, owing to Gensia Sicor pursuant to the preceding
sentence in proportionate installments at the time of each payment to the
Limited Partners.
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(e) Exercise of Partnership Purchase Option. Upon Automedics' due
---------------------------------------
exercise of the Partnership Purchase Option in accordance with this Section 4.3,
Gensia Sicor shall transfer to Automedics all of its right, title and interest
in and to the limited partnership interests purchased pursuant to the
Partnership Purchase Option.
4.4 Interim Agreement regarding Assigned Contracts. Until such time as
----------------------------------------------
the parties shall have obtained all consents or approvals required from third
parties relating to any contract, agreement, license, lease and other instrument
constituting an Asset, Gensia hereby grants to Automedics an exclusive
subcontract, sublicense or sublease under such contract, agreement, license,
lease and other instrument, and subject to the provisions of Article 3 hereof,
Automedics shall indemnify Gensia for all liabilities and obligations thereunder
after the Closing Date.
4.5 Adverse Events. Automedics and Gensia each shall notify the other
--------------
immediately of any information concerning any serious or unexpected side effect,
injury, toxicity or sensitivity reaction, or any unexpected incidence, and the
severity thereof, associated with the clinical uses, studies, investigations,
tests and marketing of a product existing as of the Closing Date relating to the
of the Transferred Businesses. For purposes of this Section 4.5, "serious"
shall mean an experience which (a) results in the death, permanent or
substantial disability, in-patient hospitalization or prolongation of
hospitalization, or (b) is a congenital anomaly, cancer, the result of an
overdoes or life threatening. For purposes of this Section 4.5, "unexpected"
shall mean (x) for a non-marketed product, an experience that is not identified
in nature, severity or frequency in the current clinical investigator's
confidential information brochure, and (y) for a marketed product, an experience
which is not listed in the current labeling for such product, and includes an
event that may be symptomatically and pathophysiologically related to an event
listed in the labeling but differs from the event because of increased frequency
or greater severity or specificity. Each party further shall immediately notify
the other of any information received regarding any threatened or pending action
by an agency which may affect the safety and efficacy claims of a product. Upon
receipt of any such information, the parties shall consult with each other in an
effort to arrive at a mutually acceptable procedure for taking appropriate
action; provided, however, that nothing contained herein shall be construed as
-------- -------
restricting either party's right to make a timely report of such matter to any
government agency or take other action that it deems to be appropriate or
required by applicable law or regulation.
4.6 Gensia Development Corporation.
------------------------------
(a) On the Closing Date and at each meeting of the stockholders of GDC
thereafter for the purpose of electing persons to the Board of Directors of GDC,
for such period as Gensia Sicor owns at least a majority of the outstanding
shares of GDC and
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Automedics owns the Assets relating to the GenESA System, Gensia Sicor shall
cause to be nominated and shall vote its shares in favor of the election of one
person (the "Automedics Director") nominated by Automedics and reasonably
acceptable to Gensia Sicor, provided that such person shall have executed and
delivered to Gensia Sicor a confidentiality agreement in the form customarily
used by Gensia Sicor.
(b) Gensia Sicor and Automedics shall cause the Automedics Director
and the other directors of GDC, other than the Automedics Director and the Fund
Directors (as defined in the Voting Agreement dated as of June 13, 1991, between
Gensia Sicor and PaineWebber R&D Partners III, L.P., a Delaware limited
partnership) (the "Gensia Directors"), to vote on all matters for the vote of
the directors in such manner as they mutually agree, and to abstain from voting
on such matters as they fail to mutually agree.
(c) Gensia Sicor shall cause the Gensia Directors to vote on the
adoption of each marketing program in such manner as the Automedics Director
votes, unless to do so would be inconsistent with the fiduciary obligations of
the Gensia Director, GDC or Gensia Sicor.
4.7 Burgess Loan. On January 1, 1998, Gensia Sicor shall forgive the
------------
outstanding principal indebtedness of Daniel D. Burgess in the amount of
$20,000, together with the outstanding interest accrued thereon, owing to Gensia
Sicor pursuant to that certain Second Amended and Restated Promissory Note dated
May 31, 1995, in the original principal amount of $80,000. Promptly thereafter,
Gensia Sicor shall cancel and return such note to Mr. Burgess, release its
security interest in the remaining shares of Gensia Sicor common stock securing
such indebtedness, and return to Mr. Burgess the certificate(s) evidencing such
pledged shares which were not previously returned.
4.8 Partnership Reporting Obligations. Automedics shall assume
---------------------------------
responsibility for reporting on the Partnership effective as of the Closing
Date. Gensia Sicor shall continue to be responsible for reporting on GDC.
Automedics and Gensia Sicor shall, and Gensia Sicor shall cause GDC to,
reasonably cooperate with the others, and provide such information as controlled
by Automedics, Gensia Sicor or GDC (as applicable) and reasonably necessary to
enable Automedics, Gensia Sicor and GDC to satisfy their respective reporting
obligations owing to the Partnership and the Limited Partners.
4.9 Automedics Financial Reports. For so long as Gensia Sicor owns shares
----------------------------
of capital stock of Automedics, Automedics shall provide the following financial
reports to Gensia Sicor:
(a) as soon as practicable, but in any event within 90 days after the
end of each fiscal year of Automedics, a statement of operations for such fiscal
year, a balance sheet of
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Automedics as of the end of such year, and a statement of cash flows for such
year, such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles ("GAAP"), and audited
and certified by independent public accountants of nationally recognized
standing selected by Automedics;
(b) as soon as practicable after the end of each of the first three
quarters of each fiscal year, but in any event within 30 days after the end of
each such quarter, Automedics' unaudited statement of operations, statement of
cash flows and balance sheet for and as of the end of such quarter; and
(c) as soon as practicable after the end of each month but in any
event within 30 days of the end of each month, an unaudited statement of
operations, statement of cash flows and bal ance sheet for and as of the end of
such month, in reasonable detail; such monthly statements shall also contain the
foregoing information on a year-to-date basis and shall also compare actual
performance to budget; and
(d) by January 31 of each year (provided that the operating budget
for fiscal year 1998 will be delivered on or before February 16, 1998), a
comprehensive operating budget for the next fiscal year forecasting Automedics'
revenues, expenses and cash position, prepared on a monthly basis, including
balance sheets and sources and applications of funds statements for such months
and, promptly following approval by the Board of Directors, any other
comprehensive operating budgets or revised such budgets prepared by Automedics.
(e) The covenants set forth in this Section 4.9 shall terminate and be
of no further force or effect when the sale of securities pursuant to a
registration statement filed by Automedics under the Securities Act in
connection with the firm commitment underwritten offering of its securities to
the general public is consummated, or when Automedics first becomes subject to
the periodic reporting requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, whichever event shall first occur.
ARTICLE 5
CONDITIONS PRECEDENT
--------------------
5.1 Conditions to Each Party's Obligation to Effect the Asset Sale. The
--------------------------------------------------------------
respective obligations of each of the parties to effect the Asset Sale and the
transactions contemplated by this Agreement shall be subject to the fulfillment
at or prior to the Closing of the following conditions unless waived by each of
Automedics and Gensia or otherwise provided in Section 5.2 below:
-27-
<PAGE>
(a) Government Approvals. All authorizations, consents, orders or
--------------------
approvals of, or declarations or filings with, any governmental entity deemed
necessary or appropriate by Automedics, or Gensia for the consummation of the
transactions contemplated by this Agreement including, but not limited to, the
Federal Trade Commission, the Department of Justice, applicable federal or state
securities law regulatory bodies, shall have been filed, occurred or been
obtained, in each case subject to no term, condition or restriction unacceptable
to Automedics or Gensia. Automedics and Gensia agree to cooperate with each
other to the fullest extent practicable in satisfying all applicable federal and
state filing requirements, and in obtaining all applicable federal and state
regulatory approvals.
(b) Legal Action. No temporary restraining order, preliminary
------------
injunction or permanent injunction or other order preventing the consummation of
the asset and liability transfer shall have been issued by any federal or state
court and remain in effect, and no litigation seeking the issuance of such an
order or injunction, shall be pending which, in the good faith judgment of
Gensia or Automedics, has a reasonable probability of resulting in such order,
injunction or damages. In the event any such order or injunction shall have
been issued, each party agrees to use its reasonable efforts to have any such
injunction lifted.
(c) Statutes. No statute, rule or regulation shall have been enacted
--------
by the government of the United States or any state or agency thereof which
would make the consummation of the asset and liability transfer illegal.
(d) Third-Party Approvals. Any and all consents or approvals
---------------------
required from third parties relating to contracts, agreements, licenses, leases
and other instruments constituting the Assets shall have been obtained.
(e) Services and Related Agreements. Automedics, Gensia Sicor and
-------------------------------
GSPI (as applicable) shall have duly executed and delivered the following
agreements:
(i) the Transition Services Agreement between Gensia Sicor and
Automedics;
(ii) the Contract Manufacturing Agreement between Automedics and GSPI
relating to Arbutamine; and
(iii) the Sublease Agreement between Gensia Sicor and Automedics.
(f) LMA Services Agreement. LMA and Automedics shall have duly
----------------------
executed and delivered the LMA Services Agreement.
(g) Legal Opinions. Automedics shall have received the legal
--------------
opinion(s) of counsel to Gensia, Gensia Automedics Limited,
-28-
<PAGE>
and Gensia GmbH in such form(s) as reasonably acceptable to Automedics.
(h) Employee Termination Agreements and Releases. Gensia Sicor and
--------------------------------------------
each of Daniel D. Burgess, Paul E. Cayer and Richard A. Sorich, shall have duly
executed and delivered a termination agreement and release of Gensia Sicor with
respect to their respective severance agreements with Gensia Sicor in such form
as reasonably acceptable to Gensia Sicor.
(i) Restated Certificate. The Restated Certificate shall have been
--------------------
duly filed with the Secretary of State of the State of Delaware.
(j) Automedics Financing; Other Transactions. Automedics shall have
----------------------------------------
received financing necessary to complete the asset and liability transfer and
the related transactions on terms and conditions satisfactory to it in its sole
discretion and the remaining transactions necessary for the (S) 351 transaction
contemplated by Automedics shall be ready to close concurrently with the
Closing.
5.2 Further Consents. If, notwithstanding the best efforts of the parties
----------------
to fully satisfy the conditions precedent set forth in Section 5.1(d) above, (a)
the requirement to obtain any consents or approvals described in Section 5.1(d)
above which are not obtained as of the Closing Date shall be waived, and (b) the
parties shall use their best efforts to obtain all consents and approvals
described in Section 5.1(d) above which are not obtained as of the Closing Date
as soon as reasonably practicable after the Closing Date.
5.3 Further Assurances. As soon as reasonably practicable after the
------------------
Closing Date, Gensia shall duly execute and deliver to Automedics all further
documents, instruments and agreements as reasonably requested by Automedics or
otherwise required to transfer any of the Assets to Automedics, including
without limitation, (a) assignments and assumptions of contracts assigning to
Automedics Gensia's interest and rights in contracts regarding the Transferred
Businesses; (b) assignments of the Intellectual Property; and (c) assignments of
real and personal property leases under the leases and subleases referred to in
Sections 1.1(j) and 1.1(k) hereof.
5.4 Capitalization of Subsidiary Debt. All net advances to Gensia
---------------------------------
Automedics Limited and Gensia GmbH, or other indebtedness of such foreign
subsidiaries to Gensia Sicor or its Affiliates, shall have been contributed to
the capital of such foreign subsidiaries effective prior to the Closing. Gensia
Sicor shall be responsible for any tax liability under German or United Kingdom
tax laws, incurred by Automedics or such foreign subsidiaries, arising out of or
on account of such capital contributions.
-29-
<PAGE>
ARTICLE 6
CLOSING
-------
6.1 Closing Date. The Closing under this Agreement (the "Closing") shall
------------
be on the date hereof or such later date as the parties mutually agree. Such
date on which the Closing is to be held is herein referred to as the "Closing
Date." The Closing shall be held at the offices of Pillsbury Madison & Sutro
LLP, 101 West Broadway, Suite 1800, San Diego, California 92101, at 9:00 A.M. on
such date, or at such other time and place as Automedics and Gensia may agree
upon in writing.
6.2 Deliveries at Closing.
---------------------
(a) Deliveries by Gensia. At the Closing, Gensia shall deliver to
--------------------
Automedics:
(i) the original bill of sale, duly executed by Gensia, conveying to
Automedics the personal property Assets; and
(ii) such other instruments and documents as may be reasonably
requested by Automedics or otherwise required to transfer any of the Assets
to Automedics; and
(iii) such other instruments and documents as may be reasonably
requested by Automedics prior to the Closing.
(b) Delivery by Automedics. At the Closing, Automedics shall deliver
----------------------
to Gensia Sicor:
(i) the original bill of sale, duly executed by Automedics, assuming
the Disclosed Liabilities; and
(ii) a share certificate evidencing 1,900,000 shares of Subordinated
Preferred Stock in accordance with Section 1.3(a) above; and
(iii) such other instruments and documents as may be reasonably
requested by Gensia prior to the Closing.
ARTICLE 7
GENERAL
-------
7.1 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
7.2 Successors and Assigns. No part of this Agreement or any rights,
----------------------
duties or obligations described herein shall be assigned or delegated without
the express written consent of the other parties
-30-
<PAGE>
hereto, except that a party may assign its rights, obligations and
responsibilities hereunder only in connection with the transfer or sale of all
or substantially all of its business, or in the event of its merger,
consolidation, change in control or similar transaction. Except as otherwise
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors and assigns of the parties hereto.
7.3 Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and agreement among the parties with regard to the subject hereof
and supersedes all prior agreements and understandings, both written and oral.
7.4 Amendment. This Agreement may not be amended except by an instrument
---------
in writing signed on behalf of each of the parties hereto.
7.5 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or mailed by
registered or certified mail or commercial overnight courier (e.g., Federal
Express, Network Courier, etc.), return receipt or confirmation of delivery
requested, or by facsimile transmission with voice confirmation of receipt, to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to Automedics:
Gensia Automedics, Inc.
9360 Towne Centre Drive
San Diego, CA 92121-3030
Attention: President
(b) If to Gensia Sicor to:
Gensia Sicor Inc.
19 Hughes
Irvine, CA 92618-1902
Attention: Chief Financial Officer
(c) If to GSPI to:
Gensia Sicor Pharmaceuticals, Inc.
19 Hughes
Irvine, CA 92618-1902
Attention: President
7.6 Interpretation. The headings contained in this Agreement are for
--------------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
7.7 Third Party Beneficiaries. The parties hereto acknowledge that it is
-------------------------
their specific intention and agreement that each of Galen Partners III, L.P.,
Galen Partners International III,
-31-
<PAGE>
L.P., Galen Employee Fund III, L.P., and The Wellcome Trust Ltd., as Trustee of
The Wellcome Trust be accorded the rights of third party beneficiaries with
respect to the representations and warranties made by Gensia pursuant to Section
2.2 hereof, and each them shall be entitled to rely upon and independently
enforce any rights derived therefrom in accordance with the provisions of
Article 3 hereof to the same extent as if each of them were a party to this
Agreement.
7.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which may be executed by less than all of the parties,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
first above written.
GENSIA AUTOMEDICS, INC.
By /s/ Daniel D. Burgess
---------------------
Title President
---------
GENSIA SICOR INC.
By /s/ John Sayward
----------------
Title V.P. Finance, CFO & Treasurer
-----------------------------
GENSIA SICOR PHARMACEUTICALS, INC.
By /s/ John Sayward
----------------
Title V.P. Finance
------------
-32-
<PAGE>
LIST OF EXHIBITS
----------------
A Amended and Restated Certificate of Incorporation
B Partnership Purchase Note
C Partnership Purchase Security Agreement
LIST OF SCHEDULES
-----------------
1.1(a) Personal Property
1.1(b) Inventory
1.1(c) Intellectual Property
1.1(g) Contracts Regarding Goods and Services
1.1(h) Computer Hardware and Software
1.1(i) Licenses
1.1(j) Real Property Leases
1.1(k) Personal Property Leases
1.1(l) Service Contracts
1.1(m) Other Contracts
1.1(n) Product Registrations
1.1(r) Receivables
1.1(s) Bank Accounts
1.1(t) Permitted Liens
1.2(b-1) Assumed Balance Sheet Liabilities
1.2(b-2) Certain Other Assumed Liabilities
1.3 Allocation of Purchase Price
2 Disclosure Schedule
4.2 Licensed Gensia Marks
-33-
<PAGE>
Exhibit 21.1
------------
SUBSIDIARIES OF GENSIA SICOR INC.
<TABLE>
<CAPTION>
Subsidiary Corporation Percentage Owned State of Incorporation
- ---------------------- ---------------- ----------------------
<S> <C> <C>
Gensia Development Corporation........ 100% Delaware
Gensia Sicor Pharmaceuticals, Inc..... 100% Delaware
Gensia Automedics, Inc................ 19% Delaware
Metabasis Therapeutics, Inc........... 92% Delaware
Genchem Pharma Ltd.................... 100% Delaware
Aramed, Inc........................... 100% Delaware
Rakepoll Holding B.V.................. 100% The Netherlands
SICOR-Societa Italiana
Corticosteroidi S.p.A............ 100% Italy
Diaspa S.p.A.......................... 50% Italy
Sicor de Mexico, S.A. de C.V.......... 100% Mexico
Lemery, S.A. de C.V................... 100% Mexico
Inmobiliaria Lemery, S.A. de C.V...... 100% Mexico
Lemery Desarrollo y Control,
S.A. de C.V.......................... 100% Mexico
Gensia Sicor de Mexico,
S.A. de C.V........................... 100% Mexico
</TABLE>
<PAGE>
Exhibit 23.1
------------
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-3 No. 33-64662, 33-97950, 333-10235, 333-35719 and 333-27483, and Forms
S-8 No. 33-36488, 33-39972, 33-45597, 33-47202, 33-47203, 33-64698, 33-80882,
33-95152, 33-95114, 333-10651, 333-10653, 333-38811, 333-38813, and 333-38815)
of our report dated March 4, 1998, with respect to the consolidated financial
statements of Gensia Sicor Inc. (formerly known as Gensia, Inc.), included in
the Annual Report (Form 10-K) for the year ended December 31, 1997.
/S/ ERNST & YOUNG LLP
San Diego, California
March 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 41,624
<SECURITIES> 0
<RECEIVABLES> 47,517
<ALLOWANCES> (1,985)
<INVENTORY> 43,952
<CURRENT-ASSETS> 8,373
<PP&E> 118,233
<DEPRECIATION> (22,990)
<TOTAL-ASSETS> 363,205
<CURRENT-LIABILITIES> 100,368
<BONDS> 0
0
16
<COMMON> 786
<OTHER-SE> 186,741
<TOTAL-LIABILITY-AND-EQUITY> 363,205
<SALES> 140,424
<TOTAL-REVENUES> 149,681
<CGS> 99,850
<TOTAL-COSTS> 99,850
<OTHER-EXPENSES> 123,642
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,710
<INCOME-PRETAX> (79,811)
<INCOME-TAX> 2,884
<INCOME-CONTINUING> (82,695)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (82,695)
<EPS-PRIMARY> (1.15)
<EPS-DILUTED> (1.15)
</TABLE>
