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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, 1998.
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
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GENSIA SICOR 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)
(949) 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. _________
At March 24, 1999, the aggregate market value of the voting stock held by
nonaffiliates totaled approximately $169.7 million, based on the last sale price
as reported on the Nasdaq National Market.
At March 24, 1999, there were 79,836,332 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 16, 1999 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. ("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. ("Diaspa"), an Italian company engaged in the
manufacture of certain raw materials used in Sicor's business. In June 1998,
Sicor purchased the remaining 50% of Diaspa. 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 support and 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 oral, parenteral, topical and inhalation therapy products. Almost all of
these products belong to one of four categories: (i) immunosuppression, (ii)
anticancer agents, (iii) steroids or (iv) 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.
The Company's wholly owned subsidiary, Genchem Pharma Ltd. ("Genchem
Pharma") was created in June 1997 to acquire and develop technology and to sell
bulk products manufactured by Sicor and Sicor de Mexico.
Rakepoll Holding created a wholly owned subsidiary, Gensia Sicor de Mexico,
S.A. de C.V., during the third quarter of 1997. Gensia Sicor de Mexico is a
service company with 19 employees located in Mexico that provides administrative
services for Lemery and Sicor de Mexico. This service company enables Lemery
and Sicor de Mexico to utilize common administrative services, thus avoiding any
unnecessary duplication of resources.
In March 1998, Genchem Pharma acquired a research and development branch
("Genchem Vacallo") in Vacallo, Switzerland. Genchem Vacallo conducts research
and development and small-scale manufacturing work with respect to specialty
bulk drug substances.
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In addition, in 1998, Sicor acquired a 50% interest in Zetesis S.p.A.
("Zetesis") of Milan, Italy from private investors. Zetesis holds the patents
relating to UK101, an oncological product under development.
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 built a state of the art oncology manufacturing facility at Irvine,
California and is in the process of requesting the United States Food and Drug
Administration ("FDA") to approve manufacturing site transfers for existing
oncology products. This new facility is also being used for contract
manufacturing opportunities that require sterile manufacturing. 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.
("Pharmacia & Upjohn"). Two of these products, doxorubicin and etoposide, are
approved by the 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.
In addition, product development is continuing for multisource injectable
drugs in anesthesiology and cardiology as well as other selected areas. Gensia
Sicor Pharmaceuticals has sixteen Abbreviated New Drug Applications ("ANDAs")
pending with the FDA and has approximately 27 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 offers approximately 43 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.
There is no assurance that
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such growth will be sustained.
Gensia Sicor Pharmaceuticals entered into a Sales and Distribution
agreement with Abbott Laboratories ("Abbott") in January 1999, under which the
two companies have formed a strategic alliance for marketing and distribution of
oncology products in the United States. This seven year collaboration initially
involves seven of the Company's oncology products (including doxorubicin and
leucovorin calcium) but will expand in the future to include certain of Gensia
Sicor Pharmaceuticals' oncology products currently under development. Under the
agreement, Gensia Sicor Pharmaceuticals will develop and manufacture oncology
products, and Abbott will promote and sell them to hospitals and clinics
throughout the United States. Abbott has a well established market presence
with hospitals and clinics, and had previously co-marketed oncology products
with Pharmacia & Upjohn through November 1998. Gensia Sicor Pharmaceuticals'
oncology product sales during 1998 were approximately $21 million. While
management believes that the Abbott alliance may be an important element in
helping the Company achieve future profitability, there is no assurance that the
alliance will be successful or that the oncology products will help the Company
to achieve profitability.
In January 1999, Gensia Sicor Pharmaceuticals received approval from the
FDA for propofol injectable emulsion, an intravenous sedative hypnotic agent
used for the induction and maintenance of anesthesia or sedation. Pursuant to
the Drug Price Competition and Patent Term Restoration Act of 1984 (the
''Waxman/Hatch Act''), the Company has a 180 day exclusive period in which to
sell the product without other generic competition. The U.S. propofol market in
1997 was estimated by the IMS market research firm to have sales of $257
million. The branded propofol product, DIPRIVAN(R) Injectable Emulsion with
disodium edetate, is marketed by Zeneca Limited ("Zeneca"). Gensia Sicor
Pharmaceuticals has an existing agreement with Baxter International, a leader in
the U.S. anesthesia market segment, which includes the distribution of propofol.
It is anticipated that generic propofol will be launched during the second
quarter of 1999, which will initiate the 180 day exclusivity period. In
February 1999, Zeneca filed suit in the U.S. District Court for the District of
Maryland against the FDA, alleging that the FDA improperly approved Gensia Sicor
Pharmaceuticals' ANDA for propofol injectable emulsion. The complaint seeks an
injunction requiring the FDA to rescind its January 1999 approval of the ANDA,
and Zeneca has moved for a preliminary injunction seeking rescission of the
approval pending resolution of the suit. Gensia Sicor Pharmaceuticals has
intervened as a defendant in the case. On March 26, 1999, the court denied
Zeneca's motion for a preliminary injunction. The Company believes that Zeneca's
claims are without merit, and that the FDA's approval of Gensia Sicor
Pharmaceuticals' ANDA for propofol will be upheld. In the event the court were
to issue a permanent injunction rescinding the approval of the ANDA, there could
be a material adverse effect on the Company's financial position, results of
operations or cash flows.
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. In June 1998, Sicor purchased the remaining 50% of
Diaspa.
The specialty bulk drug substances manufactured by Sicor and Sicor de
Mexico are used in oral, parenteral, topical administration, or inhalation
therapy, and almost all belong to one of four categories: (i) immunosuppression,
(ii) oncolytic agents, (iii) steroids or (iv) non-depolarizing muscle relaxants
used in anesthesia. 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
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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 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 and Sicor de Mexico offer a wide range of oncolytic
specialty bulk drug substances and Lemery offers 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.
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 and in
the second quarter of 1998, Sicor de Mexico successfully completed its initial
FDA facility inspection and commenced shipments of megestrol to Bristol-Myers
Squibb Company. 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. 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.
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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.
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 received FDA marketing approval of its proprietary cyclosporine
formulation for the U.S. market in November 1998, and received European
marketing approval in January 1999. 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 was used to help increase the Company's
capacity for the production of cyclosporine bulk drug substance. The Company
invested approximately $1.4 million during 1998 on capital for manufacturing
cyclosporine and an additional $1.8 million in related utility infrastructure,
at its facilities in Italy (Rho, Santhia and Diaspa), and expects to invest
approximately a total $9 million through 1999 and 2000.
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. In 1998, Sicor acquired a 50% interest in Zetesis. 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
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are now the subject of further study by university researchers in Italy. A
Phase I study with women who have advanced breast cancer was completed in
Italy which demonstrated UK101 to be safe and well tolerated. Phase II clinical
trials started in Mexico by Lemery in coordination with Sicor with patients with
advanced cancer. Thus far, these clinical trials have demonstrated both efficacy
and lack of patient toxicity. UK114 is one of the major components of UK101 and
is thought to be responsible for most of its anti-cancer activity. Pre-clinical
studies and toxicology studies on UK114 are currently under way.
In addition, at its Santhia 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.
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.
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. The research and development expenses incurred by Metabasis
during the three years ended December 31, 1998, 1997 and 1996 were $7.8 million,
$9.1 million and $13.4 million, respectively. In December 1997, Sankyo made a
$7.25 million equity investment in Metabasis for approximately an 8% interest in
Metabasis. Gensia Sicor's strategic direction does not include a significant
commitment to basic research and it is pursuing various alternatives with
respect to Metabasis. These alternatives include the sale of Metabasis, if a
purchaser can be identified, setting Metabasis up as an independent company or
other options.
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.
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
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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, Astra, Bedford Laboratories (a
division of Boerhinger Ingleheim Corp.), Elkins-Sinn (a division of American
Home Products Corp.), American Pharmaceutical Products, 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.
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
Under the Waxman/Hatch Act, the FDA approves certain drugs under an
abbreviated procedure which waives submission of the extensive animal and human
studies of safety and effectiveness normally required to be in an NDA. Instead,
the manufacturer need only 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. Prior to November 1997, antibiotic drugs were classified separately for
purposes of FDA approval, although the approval procedures for such drugs
conformed substantially to the NDA/ANDA procedures.
As compared to an NDA, an ANDA typically involves reduced research and
development costs. 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"
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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 may face 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.
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 completed 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 includes the capability to produce
oncology products in lyophilized or liquid forms and in glass or polymer vials.
The new facility underwent FDA Good Manufacturing Practices ("GMP") inspection
during 1998, and will be used to manufacture oncolytics upon ANDA or ANDA
supplemental approval. The initial approvals are expected during the third
quarter of 1999. This facility will also be used for contract manufacturing
beginning in late 1999.
The principal raw materials to be used in manufacturing Gensia Sicor
Pharmaceuticals' products are
9
<PAGE>
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 of 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.
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 is currently undergoing a significant expansion of its facilities to handle
an anticipated increase in demand for purified cyclosporine and hard to produce
anthracycline products for the U.S. and European markets.
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. In June 1998, Sicor purchased the remaining 50% of Diaspa. The
acquisition of Diaspa is expected to significantly increase 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. In
November 1998, the Company received notification from SangStat that it has been
granted marketing clearance by the FDA for SangCya(TM), SangStat's patented
formulation of cyclosporine. 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.
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 is a modern facility, which is
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 injectable
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.
10
<PAGE>
RISK FACTORS THAT MAY AFFECT RESULTS
Future Capital Needs; Uncertainty of Additional Funding
The Company anticipates that its current capital resources, 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 1999. The Company will continue to evaluate the
need for additional capital and, if appropriate, pursue equity, debt and lease
financing for its capital needs. 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. Such reductions would have a material adverse
effect on the Company. In addition, at December 31, 1998 approximately $115
million of the Company's $372 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.
Uncertainty of Outcome of Legal Proceedings
The Company is a defendant in various actions, claims, and legal
proceedings arising from its business operations. The ultimate outcome of these
matters is uncertain and could have a material adverse effect on the Company's
financial position, results of operations or cash flows. See Legal Proceedings.
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, 1998,
Gensia Sicor had an accumulated deficit of approximately $360.4 million. For the
years ended December 31, 1996, 1997 and 1998, Gensia Sicor had net losses
applicable to common shares of $51.8 million, $82.7 million and $24.6 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. 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. Gensia Sicor may not 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 new
products to the market in a timely manner, to obtain raw materials at
competitive prices and to improve the efficiency of its production capability.
11
<PAGE>
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 other
companies, academic institutions, government entities and other organizations.
In addition, the success of Gensia Sicor will be dependent upon certain key
personnel currently 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. The patents of others may have an adverse
effect on the ability of Gensia Sicor to commercialize 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. Gensia Sicor may not 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.
Potential Inability to Obtain Raw Materials or Manufacture Products
Gensia Sicor depends on third party manufacturers for bulk raw materials
for certain of 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 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.
The products of Gensia Sicor may not be considered cost effective and
reimbursement to the consumer may not be available or may not be sufficient to
allow Gensia Sicor to sell its products on a competitive basis.
12
<PAGE>
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 its technology or products is alleged to have resulted in adverse effects.
This exposure exists even with respect to those 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 it will avoid
significant product liability exposure.
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 in part upon its ability to negotiate
appropriate commercial terms and conditions with its customers and its
customers' manufacturing, quality control and quality assurance practices.
Gensia Sicor may not be able to negotiate satisfactory terms and conditions with
its customers. Gensia Sicor maintains insurance for product liability claims,
which the Company believes is in line with the insurance coverage carried by
other companies in its industry; however, adequate insurance coverage might not
continue to be available at acceptable costs, if at all, and product liability
claims could adversely affect the business or financial condition of Gensia
Sicor.
In September 1998, the Company reached a settlement with Great Lakes
Chemical Corporation ("Great Lakes") regarding liabilities related to the
purchase by Sicor of certain contaminated products from Great Lakes in 1994 -
1995. The settlement resulted in a dismissal of certain litigation between
Sicor, Great Lakes and Pharmacia & Upjohn, Inc. Under the terms of the
settlement, Sicor received a cash payment that is expected to cover
substantially all of the related customer claims against it. At December 31,
1998, Sicor has a reserve of $1.8 million for estimated settlement costs still
outstanding. The settlement also resulted in the dismissal with prejudice of
Sicor's action against Great Lakes filed in the United States District Court in
Arkansas and other related claims against the Company.
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. A large portion of the
finished multisource drug products manufactured by Lemery is sold to the
national health program in Mexico. The national health program in Mexico may not
continue in the future. In addition, although the Mexican government has paid
Lemery on a timely basis, this payment pattern may not continue in the future.
Actions by the Mexican government, future developments in the Mexican economy
and Mexico's political, social or economic situation may adversely affect the
operations of Lemery and Sicor de Mexico.
Risks Related to International Operations
During 1997 and 1998, percentage of total product sales to customers
outside of Western Europe, Japan and the United States was approximately 23%
and 27%, respectively. 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 operations outside of Western
Europe, Japan and the United States and such developments, if they were to
occur, may have a material adverse effect on the results of operations
13
<PAGE>
and financial condition of Gensia Sicor.
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 the Company's
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.
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, there can be no assurance that
such policies and strategies will be effective in preventing significant
negative financial adjustments in the future.
Control by Principal Stockholder
Carlo Salvi, the Company's President and Chief Executive Officer and a
director beneficially owns approximately 41% of the Company's Common Stock. In
addition, pursuant to the Shareholder's Agreement, dated as of November 12,
1996, as amended (the "Shareholder's Agreement") Rakepoll Finance, an entity
controlled by Mr. Salvi, is entitled to designate three of Gensia Sicor's ten
directors, who in turn are entitled to designate (jointly with two executive
officer directors of Gensia Sicor) five 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, Mr.
Salvi 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.
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 life sciences 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 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.
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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, 1998, Gensia Sicor had approximately $7.5 million in
undeclared cumulative preferred dividends on such Convertible Preferred Stock.
The Company made quarterly cash dividend payments in the aggregate amount of
$6.0 million on the Convertible Preferred Stock in 1998. 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.
MANAGEMENT
Executive Officers
- ------------------
The executive officers of Gensia Sicor as of March 24, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Carlo Salvi 62 President and Chief Executive Officer and Director
Michael D. Cannon 53 Executive Vice President and Director
Gianpaolo Colla 61 Executive Vice President, Italian Operations and
Director
John W. Sayward 47 Executive Vice President, Finance, Chief Financial
Officer and Treasurer and Director
Thomas M. Speace 49 Vice President, International Business Development,
Gensia Sicor Pharmaceuticals
Wesley N. Fach 47 Vice President, Senior Legal Counsel and Secretary
</TABLE>
Mr. Salvi has been a director of Gensia Sicor since February 1997 and was
appointed Executive Vice President of the Company in November 1997. He was
named President and Chief Executive Officer of the Company in August 1998.
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
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<PAGE>
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 as Executive Vice President in February
1997. In August 1998 Mr. Cannon was appointed President and Chief Operating
Officer of the Company's wholly-owned subsidiary, Gensia Sicor Pharmaceuticals,
Inc. 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.
Dr. Colla has been a director and the Company's Vice President, Italian
Operations since March 1999. He has also been Managing Director of Sicor and a
member of its Board of Directors since 1996, and has served in various
management capacities with Sicor since its founding in 1983. From 1983 to 1994,
Dr. Colla also collaborated with the Elemond Group, a publishing company, as
Strategic Operating Planning Coordinator, and prior to this period he was
Director of Mergers and Acquisitions with Fides (now KPMG Peat Marwick LLP) from
1982 through 1983. Dr. Colla continues to serve as member of the Statutory
Audit Board for several significant Italian companies. He is a Registered
Statutory Auditor in Italy and graduated from Milan's Catholic University with a
degree in Economics and Business Sciences.
Mr. Sayward has been a director of the Company since June 1998. He joined
Gensia Sicor in 1992 and was named Vice President, Finance, Chief Financial
Officer and Treasurer in February 1997 and Executive Vice President in August
1998. 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 was named Vice President, Marketing and Business Development,
Gensia Sicor Pharmaceuticals in May 1996 and Vice President, International
Business Development, Gensia Sicor Pharmaceuticals in August 1998. 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.
Mr. Fach joined Gensia Sicor as Assistant General Counsel in January 1992
and was named Secretary in January 1993. He was appointed 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.
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Human Resources
As of December 31, 1998, Gensia Sicor Inc. employed a total of
approximately 1200 individuals on a full-time basis. The Company employees 315
individuals 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 890 individuals, of whom approximately 32% work in Italy and 68%
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
Gensia Sicor leases a total of approximately 150,000 square feet of space
in San Diego. Of this amount, approximately 23,000 square feet is subleased to
third-party tenants and 56,000 square feet is occupied by Metabasis. These
spaces include laboratory facilities, used by Metabasis and a third party
tenant, which 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 170,000 square feet of
office, laboratory and manufacturing space in Irvine, California. These
facilities are leased under several lease agreements expiring in 1999 to 2006
with some of the leases including an option to extend an additional five and ten
years.
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 in Santhia, on the outskirts of Turin, and covers
approximately 6,200 square meters of a site over 90,000 square meters. This site
is currently undergoing a significant expansion of its production facilities to
become one of the Company's key manufacturing facilities of strategic bulk
products.
Sicor also leases a 197 square meter sales office in Milan which is
responsible for sales in Italy.
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, which is owned by Diaspa.
Lemery owns a 10,403 square meter manufacturing/office site located in
Mexico City. Sicor de Mexico owns a 22,037 square meter manufacturing/office
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.
Genchem Vacallo leases approximately 870 square meters of office and
laboratory space in Vacallo,
17
<PAGE>
Switzerland. The lease expires in 2006 with an option to renew for an
additional five years.
Item 3. LEGAL PROCEEDINGS
In September 1998, the Company reached a settlement with Great Lakes Chemical
Corporation ("Great Lakes") regarding liabilities related to the purchase by
Sicor of certain contaminated products from Great Lakes in 1994 - 1995. The
settlement resulted in a dismissal of certain litigation between Sicor, Great
Lakes and Pharmacia & Upjohn, Inc. Under the terms of the settlement, Sicor
received a cash payment that is expected to cover substantially all of the
related customer claims against it. At December 31, 1998, Sicor has a reserve
of $1.8 million for estimated settlement costs still outstanding. The
settlement also resulted in the dismissal with prejudice of Sicor's action
against Great Lakes filed in the United States District Court in Arkansas and
other related claims against the Company.
In July 1998, the Company was named as a defendant in a complaint filed by
Protocol Systems, Inc. ("Protocol Systems"). The complaint alleges breach of a
supply agreement (the "Supply Agreement"). Protocol Systems alleges damages
estimated at approximately $10.8 million, plus any amounts which it may owe to
a third-party vendor. Gensia Sicor believes that the amount of the claim is
significantly overstated for a variety of reasons and plans to vigorously
defend itself against this claim. Based on a review of the current facts and
circumstances, management has recorded a provision for its estimate of
liability related to this lawsuit. The ultimate outcome with respect to the
lawsuit could have a material adverse effect on the Company's financial
position, results of operations or cash flows.
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,
liabilities arising from such matters, if any, will not have a material adverse
effect on the consolidated financial position, results of operations or cash
flows of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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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, 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
<CAPTION>
High Low
------ ------
<S> <C> <C>
January 1 - March 31, 1998 $6.00 $4.69
April 1 - June 30, 1998 5.38 3.63
July 1 - September 30, 1998 4.97 2.56
October 1 - December 31, 1998 4.66 3.03
</TABLE>
As of March 24, 1999, there were approximately 867 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 not to make a 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. At March 24, 1999, the Company had undeclared
cumulative Preferred Stock dividends of approximately $7.5 million. Gensia does
not anticipate paying cash dividends on its Common Stock in the foreseeable
future. The Company intends to retain its earnings, if any, for the development
of its business.
In December 1998, the Company sold $10 million of 8% Subordinated
Convertible Notes due in January 2001 to Carlo Salvi, the Company's President,
Chief Executive Officer, director and a principal stockholder. The 8%
Notes are convertible at any time into Common Stock at a $4.50 per share
conversion price.
19
<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,
------------------------------------------------------------------------
1998 1997(2) 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Product sales ............................ $ 168,080 $ 140,424 $ 54,636 $ 53,464 $ 51,830
Contract research and license fees ....... 10,415 9,257 3,666 11,062 17,956
License restructuring fee ................ -- -- -- 50,000 --
Sale of investment ....................... -- -- -- 5,359 --
--------- --------- --------- --------- ---------
Total revenues ...................... 178,495 149,681 58,302 119,885 69,786
Cost and expenses:
Cost of sales ............................ 119,017 99,850 40,654 33,183 30,937
Research and development ................. 23,140 26,118 31,081 38,762 61,201
Selling, general and administrative ...... 35,968 46,993 32,839 31,137 29,006
Amortization expense ..................... 5,982 4,367 -- -- --
Interest and other, net .................. 6,719 2,298 (473) (1,214) (1,240)
Write-down of investment and
restructuring charge ..................... 1,839 14,666 -- 1,092 --
Acquisition of in-process research and
development .............................. -- 29,200 -- 18,269 --
Litigation settlement .................... -- -- -- 4,000 --
--------- --------- --------- --------- ---------
Total costs and expenses ............. 192,665 223,492 104,101 125,229 119,904
--------- --------- --------- --------- ---------
Loss before income taxes ...................... (14,170) (73,811) (45,799) (5,344) (50,118)
Provision for income taxes .................... 5,188 2,884 -- 550 --
--------- --------- --------- --------- ---------
Net loss before minority interest ............. (19,358) (76,695) (45,799) (5,894) (50,118)
Minority interest ............................. 800 -- -- -- --
--------- --------- --------- --------- ---------
Net loss ...................................... (18,558) (76,695) (45,799) (5,894) (50,118)
Dividends on preferred stock, including
undeclared cumulative dividends of
$7,500 as of December 31, 1998 ........... (6,000) (6,000) (6,000) (6,000) (6,000)
--------- --------- --------- --------- ---------
Net loss applicable to common shares .......... $ (24,558) $ (82,695) $ (51,799) $ (11,894) $ (56,118)
========= ========= ========= ========= =========
Basic and diluted net loss per common share (1) $ (.31) $ (1.15) $ (1.41) $ (.36) $ (1.89)
========= ========= ========= ========= =========
Shares used in computing per
share amounts (1) ........................... 79,479 71,800 36,624 33,231 29,670
========= ========= ========= ========= =========
<CAPTION>
December 31,
------------------------------------------------------------------------
1998 1997(3) 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital .......................... $ 17,332 $ 39,113 $ 24,754 $ 67,687 $ 47,439
Total assets ............................. 371,814 363,205 89,550 118,560 109,866
Long-term obligations, less
current maturities .................... 79,597 75,294 585 46 71
Accumulated deficit ...................... (360,389) (341,831) (265,136) (219,337) (213,443)
Stockholders' equity ..................... 169,009 187,543 67,999 102,303 83,778
</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).
20
<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. For the
period from its inception to December 31, 1998, Gensia Sicor has incurred a
cumulative net loss of $360.4 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, 1998, 1997 and 1996
- --------------------------------------------
In 1998, the Company reported a net loss applicable to common shares of
$24.6 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 $82.7 million in 1997 (after preferred stock
dividends of $6.0 million for the year, paid out at approximately $1.5 million
each quarter), and a net loss of $51.8 million in 1996 (after aggregate
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).
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 1998 were $178.5
million as compared to $149.7 million in 1997, and $58.3 million in 1996.
Product sales increased to $168.1 million in 1998, from $140.4 million in
1997 and from $54.6 million in 1996. The increase in product sales in 1998
compared to 1997 is due to the inclusion of operating results for Rakepoll
Holding for the full twelve months in 1998 as opposed to only from February 28,
1997, the date of its acquisition, for the same period in 1997 and increased
sales at Sicor de Mexico principally resulting from megestrol product sales
(Sicor de Mexico successfully completed its initial FDA facility inspection in
the second quarter of 1998 and commenced shipments of megestrol to one major
U.S. customer). The increase is also due to the acquisition of Diaspa in
December 1997 and increased sales at Genchem Pharma and Gensia Sicor
Pharmaceuticals. Partially offsetting these increases was the termination of
the Company's distribution agreement for the Laryngeal Mask Airway ("LMA")
effective January 1, 1998. In 1997 and 1996, the LMA accounted for
approximately $12.1 million and $9.3 million in product sales, respectively.
The increase in product sales in 1997 compared to 1996 is primarily due to the
acquisition of Rakepoll Holding in February 1997. The Company expects product
sales to increase in 1999 compared to 1998 primarily from new product sales,
including continued growth for Gensia Sicor Pharmaceuticals' products approved
for sale in the U.S. during 1998, along with products which the Company expects
to be approved for sale by regulatory agencies during 1999 (e.g. haliperidol
and alprostidil).
In January 1999, Gensia Sicor Pharmaceuticals received approval from the
FDA for propofol injectable emulsion, an intravenous sedative hypnotic agent
used for the induction and maintenance of anesthesia or
21
<PAGE>
sedation. Pursuant to the Waxman/Hatch Act, the Company has a 180 day exclusive
period in which to sell the product without other generic competition. Gensia
Sicor Pharmaceuticals has an agreement with Baxter International, a leader in
the U.S. anesthesia market segment, which includes the distribution of propofol.
It is anticipated that generic propofol will be launched during the second
quarter of 1999, which will initiate the 180 day exclusivity period.
Gensia Sicor Pharmaceuticals also entered into a Sales and Distribution
agreement with Abbott Laboratories in January 1999, under which the two
companies have formed a strategic alliance for marketing and distribution of
oncology products in the United States. Gensia Sicor Pharmaceuticals' oncology
product sales during 1998 were approximately $21 million. While management
believes that the Abbott and Baxter alliances may help the Company achieve
future profitability, there is no assurance that these alliance will be
successful and new product approvals may not be obtained. If Gensia Sicor does
not experience its planned growth, it would have a significant adverse effect on
the results of operations and financial condition of the Company.
Cost of sales in 1998 was $119.0 million which yielded a product gross
margin of 29%, compared to a cost of sales of $99.9 million in 1997 which
yielded a gross margin of 29%, and a cost of sales of $40.7 million in 1996
which yielded a gross margin of 25%. The increase in gross margin in 1997
compared to 1996 was primarily due to the larger product sales base that
resulted from the acquisition of Rakepoll Holding in February 1997, along with
improved margins for certain of Gensia Sicor Pharmaceuticals newer multisource
injectable products launched during 1997.
Contract research and license fees of $10.4 million in 1998 increased from
$9.3 million in 1997, and $3.7 million in 1996. The increase in 1998 compared
to 1997 was primarily due to an up-front non-refundable license fee received in
June 1998 from a major U.S. pharmaceutical company involving a bulk drug
substance. In addition, in the fourth quarter of 1998, Metabasis achieved a
certain milestone with Sankyo which resulted in the Company recording $1 million
in research revenue. These increases were partially offset by a decrease in
license revenue from deferred license revenue that was fully amortized during
1998. The increase in 1997 compared to 1996 was primarily due to the licensing
and research and development 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 research collaboration with Pfizer is scheduled to end in May
1999 and may not be renewed. Metabasis is engaged in discussions with other
pharmaceutical companies concerning collaborations under which these companies
would fund additional Metabasis' research and development efforts; however,
there is no assurance that any such collaborations will be completed.
Research and development expenses decreased to $23.1 million in 1998 from
$26.1 million in 1997, and $31.1 million in 1996. The decrease in expenses in
1998 compared to 1997 was primarily due to the exclusion of Automedics' expenses
as a result of the divestiture of an 81% interest in Automedics in the fourth
quarter of 1997 and lower research spending by Metabasis. This was offset by
increased expenses by the Rakepoll Holding companies as a result of the
inclusion of operating results for Rakepoll Holding for the full twelve month
period ended December 31, 1998 as opposed to only from February 28, 1997, the
date of its acquisition, for the same period in 1997. Additionally, there was
an increase in expenses from several research related milestone payments made
during 1998, including costs incurred by Gensia Sicor Pharmaceuticals related to
the development of leuprolide with ASTA Medica. The decrease in expenses in
1997 compared to 1996 was mostly due to lower research spending by Metabasis and
Automedics offset by the inclusion of operating results for Rakepoll Holding
from February 28, 1997. As discussed in the Research Activities section, the
Company is considering several options, which if accomplished would eliminate
ongoing expenses and contract research revenues from its Metabasis research
operation, causing both future research and development expenses and contract
research revenues to decrease from current levels. See "Research Activities" for
further discussion.
22
<PAGE>
Selling, general and administrative expenses for the years ended December
31, 1998, 1997, and 1996 were $36.0 million, $47.0 million, and $32.8 million,
respectively. The decrease in expenses in 1998 compared to 1997 was primarily
due to the divestiture of Automedics and the settlement of the contamination
lawsuit with Great Lakes Chemical Corporation (see Note 15). These decreases
were partially offset by the inclusion of operating results for Rakepoll Holding
for the full twelve months compared to ten months in the same period of 1997 and
the reserve for the Protocol Systems lawsuit (see Note 15). The increase in
expenses in 1997 compared to 1996 was primarily due to the inclusion of Rakepoll
Holding's operating results which were not included in 1996, along with
increased sales and marketing expenses in support of Automedics' initial
marketing efforts for the GenESA System.
The Company recorded amortization expense of $6.0 million and $4.4 million
for the years ended December 31, 1998 and 1997, respectively. The increase in
expenses in 1998 compared to 1997 was due to the amortization of goodwill
resulting from the acquisition of 50% of Diaspa in December 1997 and the
remaining 50% of Diaspa in 1998, the acquisition of Genchem Vacallo in March
1998 and the inclusion of expenses related to the identified intangibles and
goodwill resulting from the acquisition of Rakepoll Holding for the full twelve
months compared to ten months in the same period of 1997.
The Company had interest and other expenses of $6.7 million and $2.3
million for the years ended December 31, 1998 and 1997, respectively and
interest and other income of $0.5 million for the year ended December 31, 1996.
The increase in expenses in 1998 compared to 1997 was mainly due to higher
interest expenses, expenses from donated products, and a gain recognized on the
sale of a parcel of land in 1997. The increase in expenses in 1997 compared to
1996 was primarily 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 offset partially by the gain on the sale of a parcel of land in
San Diego.
As discussed in Note 6, due to, among other things, the lack of market
acceptance of the GenESA(R) System, the Company wrote off the investment value
of its 19% interest in Automedics from $1.8 million to $0.7 million in the first
quarter of 1998 and subsequently wrote off the remaining balance of $0.7 million
in the fourth quarter of 1998.
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. As discussed in Note 6,
due to the contingent nature of the royalty and milestone payments associated
with this transaction, Gensia Sicor recorded a charge of approximately $11.5
million. 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. 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 in 1997
for the 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 connection with the Rakepoll Holding acquisition in 1997, the assets and
liabilities of Rakepoll Holding were adjusted to their estimated fair values,
and the Company incurred a one-time $29.2 million write-off related to the value
assigned to the acquired in-process research and development. This charge is
not deductible for income tax purposes. The determination of acquired in-
process research and development took under consideration both the costs and
internal resources necessary to advance the in-process technology
23
<PAGE>
to clinical development and eventual approval by regulatory agencies. Management
also considered the risks of possible negative outcomes during clinical
development, as well as changes in the market place with respect to competing
technologies. The Company currently estimates that it will need to expend over
$5 million to develop this in-process technology. The in-process technology may
never be successfully developed.
Income tax expense for 1998 increased to $5.2 million from $2.9 million for
1997, and zero in 1996. The increase in tax expense is attributable to
profitable operations in Italy and Mexico. Although the Company reported a net
loss for 1998, 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, 1998, the Company had a federal tax net operating loss carryforward
of approximately $292.9 million and a credit carryforward of approximately $11.9
million. 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 had a material impact on the
utilization of approximately $238.2 million and $10.3 million of the net
operating loss and credit carryforward, 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 unrealized net
built-in-gains 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.
The Company had minority interest income of $0.8 million for the year ended
December 31, 1998 which represented minority stockholders' proportionate share
of the loss in the Company's consolidated subsidiaries, Diaspa and Metabasis.
In June 1998, Sicor purchased the remaining 50% interest in Diaspa.
Dividends relate to the Company's convertible exchangeable preferred stock
issued in February 1993. Dividends on preferred stock of $6.0 million in 1998
and 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. 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 1999,
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.
Liquidity and Capital Resources
As of December 31, 1998, Gensia Sicor had cash and cash equivalents of
$24.5 million and working capital of $17.3 million compared to $41.6 million and
$39.1 million, respectively, as of December 31, 1997. The decrease in cash and
working capital resulted from cash used in operations of $9.7 million and
investments in long-term assets of $25.7 million, partially offset by $17.3
million from financing activities and $0.9 million from exchange rate changes.
Significant changes in operating assets and liabilities during the year
ended 1998, excluding the net assets acquired from the Genchem Vacallo
acquisition (see Note 1), included a $7.5 million increase in inventories, and a
$5.3 million increase in prepaid expenses and other assets, a $5.3 million
increase in accounts payable and accrued expenses, and a $4.5 million increase
in accounts receivable.
As discussed in Note 15, the Company reached a settlement with Great Lakes
Chemical Corporation ("Great Lakes") regarding liabilities related to the
purchase by Sicor of certain contaminated products from Great Lakes in 1994 -
1995. The settlement resulted in a dismissal of certain litigation between
Sicor, Great Lakes and Pharmacia & Upjohn, Inc. Under the terms of the
settlement, Sicor received a cash payment that is expected to cover
substantially all of the related customer claims against it. The settlement
also resulted in the dismissal with prejudice of Sicor's action against Great
Lakes filed in the United States District Court in Arkansas and other related
claims against the Company.
In March 1998, Genchem Pharma acquired a research and development branch
("Genchem Vacallo") in Vacallo, Switzerland for approximately $1.9 million in
cash. In addition, in 1998, Sicor acquired a 50% interest in Zetesis S.p.A. for
approximately $0.7 million in cash from private investors.
In June 1998, Sicor became the sole owner of Diaspa, S.p.A. by purchasing
the 50% owned by third parties for approximately $5.7 million in cash, including
a $1.3 million payment to a third party for the release of an option on the
Diaspa shares and approximately $1.9 million related to capital contributions
made since the acquisition of the initial 50% interest in Diaspa. Gensia Sicor
purchased the initial 50% interest for approximately $2.7 million in December
1997. The remaining 50% interest in Diaspa was purchased from Archimica
S.p.A., an Italian bulk pharmaceutical company in which Carlo Salvi, who
represents Gensia Sicor's largest stockholder and is a director and President
and Chief Executive Officer of Gensia Sicor, previously had a 50% beneficial
24
<PAGE>
ownership interest. 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.
During 1998, the Company expended approximately $17.9 million on property
and equipment mostly at Gensia Sicor Pharmaceuticals, Sicor, Diaspa and Lemery.
The expenditure related primarily to the following: (i) significant completion
of the oncology facility at Gensia Sicor Pharmaceuticals; (ii) increase in
cyclosporine capacity at Sicor and Diaspa and related utilities at Sicor; (iii)
increase in oncological capacity and upgrade anti-neoplastic production
capability and related utilities at Sicor; and (iv) upgrade in water treatment
facility and the injectables area at Lemery.
The Company's subsidiary, Gensia Sicor Pharmaceuticals, entered into a
short-term financing in the third quarter of 1998 which provides a line of
credit of up to $10 million. This is secured by accounts receivable and
inventory. At December 31, 1998, approximately $4 million of loans were
outstanding under the agreement.
The Company had a net increase in short-term borrowings of $11.5 million in
1998 mainly from an increase in borrowings at Sicor to finance capital
improvements and to acquire the remaining 50% of Diaspa.
In December 1998, the Company sold $10 million of 8% Subordinated
Convertible Notes due in January 2001 to Carlo Salvi, the Company's President,
Chief Executive Officer, director and a principal stockholder. The 8% Notes are
convertible at any time into Common Stock at a $4.50 per share conversion price.
During 1998, the Company paid cash dividends on its preferred stock
totaling $6.0 million. At December 31, 1998, the Company had five cumulative
quarters, or approximately $7.5 million, in undeclared cumulative preferred
dividends. If the Company chooses to not declare preferred 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.
The Company anticipates that its efforts to reduce overall costs and
expenses and working capital requirements, combined with its current cash and
cash equivalents on hand at December 31, 1998 of $24.5 million, and commitments
from third parties, will enable it to maintain its current and planned
operations through at least 1999. 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 evaluate the need for
additional capital and, if appropriate, pursue equity, debt and lease financing,
or a combination of these, for its capital needs. 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 to continue operations.
In connection with the Sales and Distribution agreement entered into
with Abbott Laboratories in January 1999 (as further discussed under Item 1.
Business), the Company received $4.5 million in February 1999. Additionally,
approximately $3.7 million was received in March 1999 for the sale of finished
goods inventory to Abbott Laboratories.
The Company has entered into an amendment to an earlier agreement with
Baxter International under
25
<PAGE>
which a fee of approximately $3.5 million was received in March 1999 from Baxter
to reimburse Gensia Sicor for its investment in propofol research and
development.
Gensia Sicor expects to incur additional costs, including manufacturing and
marketing costs, to support anticipated product launches. The planned
spending on sales and marketing activities during 1999 related to promoting
products is approximately $13.8 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. Significant investment in plant
and equipment is also planned for propofol at Gensia Sicor Pharmaceuticals.
Future commitments relating to these planned capital expenditures in Italy and
Irvine, California, along with other planned capital expenditures, are estimated
to total $24 million during 1999. This capital commitment is anticipated to be
funded from future revenues generated by products manufactured at these sites.
The Company has commitments to finance the completion of the oncology
facility and a portion of the propofol investment 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 May 1998, the Company's Sicor subsidiary received notification from the
Italian Ministry of University, Scientific & Technological Research that it has
been awarded approximately $8.8 million in a grant and subsidized loan package
for a research program in process development with anthracyclines. The receipt
of funding for the research program is contingent upon presentation of a
statement of progress at established "Checkpoints", the first of which is
expected in the second quarter of 1999.
In November 1998, the Company was notified by SangStat Medical Corporation
("SangStat") that it was granted marketing clearance by the U.S. Food and Drug
Administration ("FDA") for SangCya(TM), SangStat's patented formulation of
cyclosporine. With this approval, the Company's subsidiary, Sicor, expects to
provide a majority of cyclosporine bulk material for SangCya(TM). Sicor will be
the primary manufacturer of the cyclosporine bulk drug substance used in the
production of SangCya(TM) for subsequent commercial sale and distribution
worldwide by SangStat. The sales of this product are expected to result in
additional liquidity for the business. There is no assurance that these sales
or additional liquidity will be achieved.
As discussed in Notes 6 and 15, the Company was named as a defendant in a
complaint filed by Protocol Systems. The complaint alleges breach of the Supply
Agreement, and damages estimated at approximately $10.8 million, plus any
amounts which Protocol Systems may owe to a third-party vendor. Gensia Sicor
believes that the amount of the claim is significantly overstated for a variety
of reasons and plans to vigorously defend itself against this claim. Based on a
review of the current facts and circumstances, management has recorded a
provision for its estimate of liability related to this lawsuit. The ultimate
outcome with respect to the lawsuit could have a material adverse effect on the
Company's financial position, results of operations or cash flows.
26
<PAGE>
The Company is continuing to pursue various strategic options with respect
to Metabasis, including the possibility of establishing Metabasis as an
independent company, selling the business to another pharmaceutical company or
other options. The Company's current 1999 operating plan includes continued
funding of basic research activities at Metabasis primarily through
collaborations with Pfizer and Sankyo. The Company's product development efforts
with Pfizer and Sankyo may not be successful, Pfizer and Sankyo may terminate
their respective collaborations and Gensia Sicor may not be able to find a
purchaser for Metabasis or establish Metabasis as an independent entity.
Most of the Company's foreign subsidiaries use foreign exchange currency
contracts to reduce the negative financial impact of currency fluctuations. In
March 1998, the Company's Italian subsidiary, Sicor, entered into ten monthly
U.S. $1 million put options at a strike price of Lira 1,750 per U.S. $1. As of
December 31, 1998, six contracts were exercised.
Impact of Year 2000
The Company has taken actions to understand the nature and extent of the
work required to make its systems and infrastructure Year 2000 compliant.
System hardware, software and microprocessor controlled equipment that support
the Company's infrastructure have been inventoried and assessed for Year 2000
compliance. To the extent necessary to address material Year 2000 issues, the
Company is in the process of obtaining and installing current releases or
upgrades from software vendors. All domestic business systems have been
upgraded and are believed to be compliant.
Work continues on the Company's international facilities systems. Upgrades
and conversions are scheduled for completion by the end of the second quarter of
1999 in Italy and by the end of the fourth quarter of 1999 in Mexico. A failure
by the Company to convert its international systems in a timely fashion could
have a material adverse effect on the Company.
Because third party failures could have a material adverse impact on the
Company's ability to conduct business, the Company is attempting to obtain
written assurances from all material customers and vendors that their systems
are or will be Year 2000 compliant. The Company has received such assurances
from its domestic material customers and vendors; however, this is an on-going
process. The Company anticipates that this process will be completed by mid-
1999 for its international operations. The Company's total sales to
international customers in the year ended December 31, 1998 were approximately
$91.3 million, which represented approximately 54% of the Company's total sales
in such period. One customer, the Mexican hospital program, accounted for
approximately $19.8 million of sales, or 11.8% of the Company's sales. No other
international customer accounted for more than 5% of the Company's sales in the
year ended December 31, 1998. If either the Company or any material customer or
vendor experiences a failure of any critical system, it could have a material
adverse impact on the Company's business or require the Company to incur
unanticipated expenses.
If by mid-1999, the Company has not obtained reasonable assurances from
material vendors as to Year 2000 compliance, the Company will consider
alternatives, including the replacement of material vendors, if possible. The
business interruption of any of the Company's significant customers, resulting
from their Year 2000 issues, could have a material adverse impact on the
Company's revenues and results of operations.
27
<PAGE>
The Company has not completed a formal contingency plan for non-compliance,
but it is developing a plan based on the information obtained from third parties
and an on-going evaluation of the Company's own systems. The Company anticipates
having a contingency plan in place by mid-1999 which will include development of
backup procedures, identification of alternate suppliers and possible increases
in inventory levels. The Company has not identified its most reasonably likely
worst case scenario with respect to possible losses in connection with Year 2000
related problems. The Company plans on completing this analysis in mid-1999.
There are many factors outside the Company's control that could cause the
Year 2000 problem to seriously disrupt its operations. There are risks,
however, for which the Company is preparing and, in so doing, seeking to reduce
its exposure. The scope of the Company's efforts regarding each risk is
limited to the Company's key products, key compounds, subsidiaries, critical
suppliers, and major customers. The most critical of these risks are: - a
disruption in the supply of product with particular emphasis on failures of raw
material suppliers, commercial partners, and external distribution channels
- - internal infrastructure failures such as utilities, communications, internal
information technology services and integrated information technology systems -
non-U.S. government failures, especially as they impact import and export
activity - interruption of the product regulatory filing process - a major
customer failure or interruption.
The cost incurred through December 31, 1998, for the Year 2000 transition
was approximately $0.7 million, which includes software and hardware upgrades
that would have been purchased in the normal course of business to meet the
future growth and worldwide integration. The Company estimates that the
remaining costs to be incurred on upgrading systems, including the Year 2000
transition, will be approximately $1.0 million, and as such will not have a
significant impact on the Company's financial position or operating results.
Based on available information, including assurances from software vendors that
their products are compliant, the Company believes that, barring critical
failures arising from factors beyond the Company's direct control, it will be
able to manage its total Year 2000 transition without any material adverse
effect on its business operations, products, operating results or financial
condition.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk with respect to its debt outstanding
and foreign currency transactions. Most of the Company's long-term borrowings
are based on fixed interest rates and therefore not subject to material risk
from changes in interest rates. Short-term borrowings, however, are based on
prime or other indicative base rates plus a premium. If these indicative base
rates increase, the Company will incur higher relative interest expense and
similarly, a decrease in the rates will reduce relative interest expense. In
recent years, there have not been significant fluctuations in the prime or
other indicative base rates. A 1.0% change in the prime rate or other
indicative base rates would not materially change interest expense assuming
levels of debt consistent with historical amounts. Due to the Company's
international operations, certain transactions are conducted in foreign
currencies. The Company's Italian operations hedge against transactional risks
by borrowing against its receivables and against economic risk by buying monthly
call options to strike at a rate equal to or above the budgeted exchange rate.
28
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Ernst & Young LLP, Independent Auditors F-1
Consolidated Balance Sheets at December 31, 1998 and 1997 F-2
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1998 F-3
Consolidated Statement of Stockholders' Equity for each of
the three years in the period ended December 31, 1998 F-4
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1998 F-5
Notes to Consolidated Financial Statements F-6
<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, 1998 and 1997, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1998. 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, 1998 and 1997, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
March 8, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
GENSIA SICOR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value data)
December 31,
-----------------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 24,461 $ 41,624
Accounts receivable, net ............................................ 51,407 45,532
Inventories, net .................................................... 52,746 43,952
Other current assets ................................................ 11,926 8,373
--------- ---------
Total current assets ........................................... 140,540 139,481
Property and equipment, net .............................................. 105,067 95,243
Other noncurrent assets .................................................. 11,243 10,759
Intangibles, net ......................................................... 46,572 49,825
Goodwill, net ............................................................ 68,392 67,897
--------- ---------
$ 371,814 $ 363,205
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 46,552 $ 38,152
Accrued payroll and related expenses ................................ 3,156 4,094
Other accrued liabilities ........................................... 17,577 18,454
Short-term borrowings ............................................... 49,625 35,581
Current portion of long-term debt ................................... 5,241 3,487
Current portion of capital lease obligations ........................ 1,057 600
--------- ---------
Total current liabilities ...................................... 123,208 100,368
Other long-term liabilities .............................................. 5,826 6,547
Long-term debt, less current portion ..................................... 41,108 42,668
Long-term debt with related party ........................................ 10,000 --
Long-term capital lease obligations, less current portion ................ 1,210 525
Deferred taxes ........................................................... 21,453 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, 79,717
and 78,649 shares issued and outstanding at December 31, 1998
and 1997, respectively ........................................... 797 786
Additional paid-in capital .......................................... 528,545 529,448
Accumulated deficit ................................................. (360,389) (341,831)
Accumulated other comprehensive income (loss) ....................... 40 (876)
--------- ---------
Total stockholders' equity ..................................... 169,009 187,543
--------- ---------
$ 371,814 $ 363,205
========= =========
</TABLE>
See accompanying notes
F-2
<PAGE>
<TABLE>
<CAPTION>
GENSIA SICOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years ended December 31,
------------------------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Revenues:
Product sales .................................... $ 168,080 $ 140,424 $ 54,636
Contract research and license fees ............... 10,415 9,257 3,666
--------- --------- ---------
Total revenues .............................. 178,495 149,681 58,302
Costs and expenses:
Cost of sales .................................... 119,017 99,850 40,654
Research and development ......................... 23,140 26,118 31,081
Selling, general and administrative .............. 35,968 46,993 32,839
Amortization expense ............................. 5,982 4,367 --
Interest and other, net .......................... 6,719 2,298 (473)
Write-down of investment and restructuring charge. 1,839 14,666 --
Acquisition of in-process research and
development ................................... -- 29,200 --
--------- --------- ---------
Total costs and expenses .................... 192,665 223,492 104,101
--------- --------- ---------
Loss before income taxes .............................. (14,170) (73,811) (45,799)
Provision for income taxes ............................ 5,188 2,884 --
--------- --------- ---------
Net loss before minority interest ..................... (19,358) (76,695) (45,799)
Minority interest ..................................... 800 -- --
--------- --------- ---------
Net loss .............................................. (18,558) (76,695) (45,799)
Dividends on preferred stock .......................... (6,000) (6,000) (6,000)
--------- --------- ---------
Net loss applicable to common shares .................. $ (24,558) $ (82,695) $ (51,799)
========= ========= =========
Basic and diluted net loss per common share ........... $ (.31) $ (1.15) $ (1.41)
========= ========= =========
Shares used in computing basic and diluted net loss per
common share ...................................... 79,479 71,800 36,624
========= ========= =========
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
GENSIA SICOR INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the three years ended December 31, 1998
(in thousands)
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, 1995 . 1,600 $ 16 34,641 $ 346 2,875 $ 2,875
Comprehensive income (loss):
Net loss ...............................
Unrealized loss on available for sale ..
securities ............................
Comprehensive loss .....................
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)
------------------------------------------------------------------------------
Balance at December 31, 1996 . 1,600 16 39,658 396 -- --
Comprehensive income (loss):
Net loss ...............................
Foreign currency translation adjustments
Unrealized gain on available for sale ..
securities ............................
Comprehensive loss .....................
Issuance of common stock .................. 38,991 390
Cash dividends on preferred stock .........
Issuance of warrants ......................
Amortization of unearned compensation .....
Investment by Sankyo in Metabasis
Therapeutics, Inc. .....................
----------------------------------------------------------------------------
Balance at December 31, 1997 . 1,600 16 78,649 786 -- --
Issuance of common stock .................. 1,068 11
Comprehensive income (loss):
Net loss ...............................
Foreign currency translation adjustments
Comprehensive loss .....................
Cash dividends on preferred stock .........
----------------------------------------------------------------------------
Balance at December 31, 1998 . 1,600 $ 16 79,717 $ 797 -- $ --
============================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Paid-in Accumulated Unearned Comprehensive Stockholders'
Capital Deficit Compensation Income (Loss) Equity
--------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 . $ 319,503 $(219,337) $ (1,100) $ -- $ 102,303
Comprehensive income (loss):
Net loss ............................... (45,799) (45,799)
Unrealized loss on available for sale
securities ............................ (4) (4)
---------
Comprehensive loss ..................... (45,803)
Issuance of common stock .................. 13,388 13,417
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 --
-----------------------------------------------------------------
Balance at December 31, 1996 . 332,782 (265,136) (55) (4) 67,999
Comprehensive income (loss):
Net loss ............................... (76,695) (76,695)
Foreign currency translation adjustments (876) (876)
Unrealized gain on available for sale
securities ............................ 4 4
---------
Comprehensive loss ..................... (77,567)
Issuance of common stock .................. 191,069 191,459
Cash dividends on preferred stock ......... (6,000) (6,000)
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
-----------------------------------------------------------------
Balance at December 31, 1997 . 529,448 (341,831) -- (876) 187,543
Issuance of common stock .................. 5,097 5,108
Comprehensive income (loss):
Net loss ............................... (18,558) (18,558)
Foreign currency translation adjustments 916 916
---------
Comprehensive loss ..................... (17,642)
Cash dividends on preferred stock ......... (6,000) (6,000)
-----------------------------------------------------------------
Balance at December 31, 1998 . $ 528,545 $(360,389) $ -- $ 40 $ 169,009
=================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
GENSIA SICOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
____________________________________________________
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................... $ (18,558) $ (76,695) $ (45,799)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ......................... 17,947 14,320 5,115
(Gain) loss on disposal of property and equipment ..... 256 (850) 878
Minority interest ..................................... (800) -- --
Deferred income tax ................................... 1,355 (1,652) --
Inventory purchase price allocation adjustments ....... 301 4,416 --
Write-down of investment and restructuring charge ..... 1,839 14,666 --
Charge for acquired in-process research and
development........................................... -- 29,200 --
Changes in operating assets and liabilities, net of
effects from acquisitions and divestitures:
Accounts receivable ................................... (4,549) (10,782) 4,577
Inventories ........................................... (7,499) 1,073 (5,437)
Prepaid expenses and other assets ..................... (5,278) 5,142 (657)
Accounts payable and accrued expenses ................. 5,290 (6,413) 5,493
---------- --------- ---------
Net cash used in operating activities ....... (9,696) (27,575) (35,830)
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired ...... (7,551) (10,975) --
Investment in other business .......................... (697) -- --
Proceeds from short-term investments .................. 2,000 18,747 192,658
Purchases of short-term investments ................... (2,000) (13,651) (186,315)
Acquisition of intangible asset ....................... -- (5,593) --
Purchases of property and equipment ................... (17,572) (24,291) (12,701)
Proceeds from sale of property ........................ 131 2,911 136
Other ................................................. -- 187 641
--------- --------- ---------
Net cash used in investing activities ............ (25,689) (32,665) (5,581)
Cash flows from financing activities:
Payments of cash dividends on preferred stock ......... (6,000) (6,000) (3,008)
Issuance of common stock and warrants, net ............ 1,556 44,848 13,468
Funding from minority shareholder ..................... 972 -- --
Proceeds from Sankyo's investment in Metabasis ........ -- 7,250 --
Change in short-term borrowings ....................... 11,499 10,442 --
Issuance of long-term debt from related party ......... 10,000 -- --
Issuance of long-term debt and capital lease
obligations, net ..................................... 3,420 33,425 206
Principal payments on long-term debt and capital
lease obligations .................................... (4,134) (3,084) (405)
Payments for debt issuance costs ...................... -- (931) --
--------- --------- ---------
Net cash provided by financing activities 17,313 85,950 10,261
--------- --------- ---------
Effect of exchange rate changes on cash .................... 909 (357) --
--------- --------- ---------
Increase (decrease) in cash and cash equivalents ........... (17,163) 25,353 (31,150)
Cash and cash equivalents at beginning of year ............. 41,624 16,271 47,421
--------- --------- ---------
Cash and cash equivalents at end of year ................... $ 24,461 $ 41,624 $ 16,271
========= ========= =========
Supplemental disclosure of cash flow information:
Interest paid .......................................... $ 4,586 $ 2,657 $ 82
Income taxes paid ...................................... 3,564 3,737 605
Supplemental schedule of non-cash investing and
financing activities:
Discount on long-term debt ............................. -- 3,571 --
Common stock issued to settle accrued liabilities....... 3,553 -- --
Common stock issued to acquire net assets of
businesses:
Fair value of assets acquired, other than cash..... -- 206,933 --
Liabilities assumed................................ -- (81,270) --
</TABLE>
See accompanying notes
F-5
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. Basis of Presentation
Organization
Gensia Sicor Inc. ("Gensia Sicor" or the "Company"), a Delaware corporation,
was incorporated November 17, 1986. Gensia Sicor is a specialty pharmaceutical
company focused on the development, manufacture and marketing of products for
worldwide oncology and injectable pharmaceutical markets. The Company is
headquartered in Irvine, California. 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. In June 1998,
Sicor purchased the remaining 50% of Diaspa. Also in December 1997, as part of
a 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.
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 Metabasis
Therapeutics, Inc. ("Metabasis"), which is 92% owned. An affiliated company in
which the Company does not have a controlling interest, or for which control is
expected to be temporary, is accounted for using the equity method. The four
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"), Gensia Development Corporation and Genchem
Pharma Ltd. ("Genchem Pharma"). All significant intercompany accounts and
transactions have been eliminated. The accompanying consolidated balance sheets
at December 31, 1998 and 1997 include 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). Minority
interest at December 31, 1997 represents minority stockholders' proportionate
share of the equity in the Company's consolidated subsidiaries, Diaspa and
Metabasis. Minority interest at December 31, 1998 represents minority
stockholders' proportionate share of the equity in Metabasis only which is
included in other noncurrent assets. As noted above, the remaining 50% of
Diaspa was acquired during the second quarter of 1998, so that Diaspa is now a
wholly-owned subsidiary and was consolidated in the 1997 financial statements as
the Company had an other than temporary controlling financial interest. The
statement of operations and statement of cash flows for the year ended December
31, 1997 do not include the operations of Diaspa as the acquisition was
completed in late December 1997.
In December 1997, the Company sold approximately 8% of the equity of its
wholly-owned subsidiary, Metabasis Therapeutics, Inc., for $7.25 million. The
transaction was accounted for as a capital transaction in the consolidated
financials statements and accordingly, the proceeds were treated as
F-6
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
an addition to the stockholders' equity and no gain or loss was recognized in
the income statement. The Company did not have any other equity issuances of a
subsidiary's stock in 1998 and 1997 or in any prior periods.
In March 1998, Genchem Pharma acquired a research and development branch
("Genchem Vacallo") in Vacallo, Switzerland for $1.9 million. For financial
reporting purposes, the acquisition was accounted for using the purchase method
and the excess of the purchase price over the fair value of identified assets
and liabilities of $1.2 million was recorded as goodwill. The financial
position and results of operations of the acquired company are not material.
In 1998, Sicor acquired a 50% interest in Zetesis, S.p.A. ("Zetesis"). The
investment in Zetesis is accounted for using the equity method. Accordingly,
Sicor's share of the earnings of Zetesis is included in consolidated net income.
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 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 Diaspa, Lemery, Sicor
de Mexico and Gensia Sicor Pharmaceuticals. Cost is determined by the last-in,
first-out (LIFO) method for Sicor.
F-7
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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 10 to 30 years
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. 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.
F-8
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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
Product sales revenues are recorded as products are shipped. Adjustments to
product sales are made for estimated sales discounts offered due to wholesaler
chargebacks, Medicaid-sponsored payor allowance discounts, and early payment
discounts. The Company provides for returns at the time of sale based on
estimated product returns. 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.
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 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
F-9
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
forma disclosures of results of operations as if the fair value-based method
prescribed by SFAS 123 had been applied in measuring compensation expense.
Comprehensive Income (Loss)
As of January 1, 1998, Company adopted the Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). The new
standard established new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this statement had no impact
on the Company's net loss or stockholders' equity. SFAS 130 requires unrealized
gains or losses on the Company's available for sale securities and foreign
currency translation adjustments, which prior to adoption were reported
separately in stockholders' equity, to be included in other comprehensive income
(loss). Prior year financial statements have been reclassified to conform to
the requirements of SFAS 130.
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
accumulated other comprehensive income (loss), 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.
Foreign currency contracts
The Company's Italian operations hedge against transactional risks by
borrowing against its receivables and against economic risk by buying monthly
call options to strike at a rate equal to or above the budgeted exchange rate.
The cost of the borrowing is recorded as interest expense when it is incurred.
The cost of the options is recognized at the time the options are purchased.
Gains on the options are recorded as foreign exchange gains at the time the
options are exercised.
New accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). The Company expects to adopt SFAS 133 effective January 1, 2000. SFAS
133 will require the Company to recognize all derivatives on the balance sheet
at fair value. The Company does not anticipate that the adoption of the
Statement will have a significant effect on its results of operations or
financial position.
F-10
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
Reclassifications
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform to the current year presentation.
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):
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
=========
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 determination of acquired in-process
research and development took under consideration both the costs and internal
resources necessary to advance the in-process technology to clinical development
and eventual approval by regulatory agencies. Management also considered the
risks of possible negative outcomes during clinical development, as well as
changes in the market place with respect to competing technologies. 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 the Company's President, Chief Executive Officer, director and a principal
stockholder, had a 50% beneficial ownership. In June 1998, Sicor purchased the
remaining 50% interest
F-11
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
from Archimica for approximately $5.7 million in cash, including a $1.3 million
payment to a third party for the release of an option on the Diaspa shares and
approximately $1.9 million related to capital contributions made since the
acquisition of the initial 50% interest in Diaspa. For financial reporting
purposes, the acquisition of Diaspa's net assets was accounted for using the
purchase method.
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):
<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>
Genchem Vacallo
In March 1998, Genchem Pharma Ltd. acquired a research and development branch
("Genchem Vacallo") in Vacallo, Switzerland for $1.9 million. For financial
reporting purposes, the acquisition was accounted for using the purchase method
and the excess of the purchase price over the fair value of identified assets
and liabilities of $1.2 million was recorded as goodwill. The financial
position and results of operations of the acquired company are not material.
Pro forma information has been omitted as the amounts are not significant.
Zetesis, S.p.A
In 1998, Sicor acquired a 50% interest in Zetesis, S.p.A. for approximately
$0.7 million in cash. The investment in Zetesis was accounted for using the
equity method. Accordingly, Sicor's share of the earnings of Zetesis since the
acquisition is included in consolidated net income. Pro forma information has
been omitted as the amounts are not significant.
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
President, Chief Executive Officer and a director of the Company and
beneficially owns approximately 41% of the Company's Common Stock.
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 $2.1 million and
$2.0 million for the years ended December 31, 1998 and 1997, respectively, and
the net outstanding payable to Alco at December 31, 1998 and 1997 was $0.7
million and $1.1 million, respectively.
F-12
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
Lemery in Mexico purchases raw materials and supplies from two companies which
Lemery's Managing Director and Director of Operations have beneficial ownership.
The combined material and supply purchases made by Lemery during 1998 and 1997
from these two companies totaled approximately $3.1 million and $2.1 million,
respectively.
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 the Company's President, Chief
Executive Officer, director and a principal stockholder, had a 50% beneficial
ownership. In June 1998, Sicor purchased the remaining 50% interest from
Archimica for approximately $5.7 million in cash, including a $1.3 million
payment to a third party for the release of an option on the Diaspa shares and
approximately $1.9 million related to capital contributions made since the
acquisition of the initial 50% interest in Diaspa. At December 31, 1998 and
1997, the Company had a net payable balance to Archimica of $34,000 and a net
receivable balance from Archimica of $43,000, respectively.
In March 1998, Genchem Pharma Ltd. acquired a research and development branch
in Vacallo, Switzerland for $1.9 million from Alco.
In December 1998, the Company sold $10 million of 8% Subordinated Convertible
Notes due January 10, 2001 to the Company's President, Chief Executive
Officer, director and a principal stockholder. The Notes are convertible at any
time into Gensia Sicor Common Stock at a $4.50 per share conversion price. The
interest is payable quarterly in arrears on the last business day of March,
June, September and December of each year.
5. Composition of Certain Consolidated Financial Statement Captions
<TABLE>
<CAPTION>
December 31,
1998 1997
--------- ---------
<S> <C> <C>
Receivables (in thousands):
Trade receivables .................. $ 53,337 $ 47,517
Less allowance for doubtful accounts (1,930) (1,985)
-------- --------
$ 51,407 $ 45,532
======== ========
</TABLE>
Approximately $30.9 million and $21.1 million of trade receivables at December
31, 1998 and 1997, respectively were pledged as security for short-term
borrowings (see Note 8).
<TABLE>
<S> <C> <C>
Inventories (in thousands):
Raw materials .................... $ 21,543 $ 16,332
Work-in-process .................. 11,154 6,182
Finished goods ................... 22,247 23,363
-------- --------
54,944 45,877
Less reserve ................... (2,198) (1,925)
-------- --------
$ 52,746 $ 43,952
======== ========
</TABLE>
If the FIFO method had been used for the entire consolidated group, they would
have been approximately $1.5 million and $1.7 million higher than reported at
December 31, 1998 and 1997, respectively.
F-13
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
<TABLE>
<CAPTION>
December 31,
1998 1997
---------- ----------
<S> <C> <C>
Other current assets (in thousands):
Prepaid expenses ................................. $ 2,949 $ 2,357
VAT receivable ................................... 1,961 2,230
Other taxes receivable ........................... 3,797 1,492
Other receivables ................................ 3,219 2,294
--------- ---------
$ 11,926 $ 8,373
========= =========
</TABLE>
<TABLE>
<S> <C> <C>
Property and equipment (in thousands):
Land and land improvements ..................... $ 1,738 $ 1,530
Buildings and building improvements ............ 20,074 19,903
Machinery and equipment ........................ 95,336 76,306
Office furniture and equipment ................. 5,942 5,221
Construction in progress ....................... 16,301 15,273
--------- ---------
139,391 118,233
Less accumulated depreciation and amortization . (34,324) (22,990)
--------- ---------
$ 105,067 $ 95,243
========= =========
</TABLE>
At December 31, 1998 and 1997, equipment acquired under capital lease
obligations totaled $5.4 million and $3.2 million, respectively. Such leased
equipment is included in property and equipment, net of accumulated amortization
of $1.0 million and $0.3 million at December 31, 1998 and 1997, respectively.
Depreciation expense, including amortization of capital leases, was $11.0
million, $9.0 million, and $3.3 million for the years ended December 31, 1998,
1997 and 1996, respectively.
<TABLE>
<S> <C> <C>
Other noncurrent assets (in thousands):
Restricted short-term investment .... $ 4,925 $ 4,925
Deferred tax asset .................. 982 1,720
Investment in Gensia Automedics, Inc. -- 1,839
Other ............................... 5,336 2,275
-------- --------
$ 11,243 $ 10,759
======== ========
</TABLE>
<TABLE>
<S> <C> <C>
Intangibles (in thousands):
Developed technology ................ $ 45,293 $ 45,000
Trademarks .......................... 4,600 4,600
Assembled workforce ................. 2,270 2,270
Technology rights ................... 970 912
-------- --------
53,133 52,782
(6,561) (2,957)
-------- --------
Less accumulated amortization ....... $ 46,572 $ 49,825
======== ========
</TABLE>
F-14
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
<TABLE>
<CAPTION>
December 31,
1998 1997
--------- ----------
<S> <C> <C>
Goodwill (in thousands):
Goodwill ...................................... $ 72,753 $ 69,552
Less accumulated amortization ................. (4,361) (1,655)
-------- --------
$ 68,392 $ 67,897
======== ========
<CAPTION>
<S> <C> <C>
Other current accrued liabilities (in thousands):
Deferred tax liability ................... $ 5,108 $ 3,247
Restructuring accrual .................... -- 3,184
Deferred revenue ......................... 729 1,229
VAT and other taxes payable .............. 3,314 4,240
Other .................................... 8,426 6,554
-------- --------
$ 17,577 $ 18,454
======== ========
<CAPTION>
<S> <C> <C>
Other long-term liabilities (in thousands):
Severance indemnities .................... $ 3,089 $ 2,977
Contamination reserve .................... 1,827 2,834
Deferred revenue ......................... 153 611
Other .................................... 757 125
-------- --------
$ 5,826 $ 6,547
======== ========
</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. Write-down of Investment and Restructuring Charge
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
approximately $6.0 million. 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 could exceed $20 million. In
particular, Gensia Sicor assigned its Development and Supply Agreement dated
January 26, 1990, as amended, (the "Supply Agreement") with Protocol Systems,
Inc. ("Protocol Systems") to Automedics. 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. (the "Partnership") to Automedics, if Automedics fails to comply
with the
F-15
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
provisions of these agreements, including using its best efforts to
market the GenESA System and paying royalties on sales of the GenESA System to
the Partnership, the Company remains liable for obligations under these
agreements. 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>
In April 1998, the Company and Automedics announced that they had
determined not to exercise an option granted by the Partnership to repurchase
the technology associated with the GenESA System and had informed Gensia
Development Corporation, the general partner of the Partnership of this
decision. The decision was based on, among other things, the lack of market
acceptance of the GenESA System since its U.S. market introduction in October
1997 and its European market introduction in the second quarter of 1995.
Automedics has discontinued the promotion of the GenESA System in the U.S. and
in Europe.
Gensia Sicor and Automedics also informed Protocol Systems that no
additional GenESA System devices would be purchased under the Supply Agreement.
As noted above, pursuant to the Automedics divestiture, the Company assigned its
rights and obligations under the Supply Agreement to Automedics. This
assignment resulted in transferring the Company's obligation to purchase a
minimum number of GenESA System devices from Protocol Systems totaling
approximately $3.4 million in 1998, and $4.3 million every year for the years
1999 to 2002. The Company remained liable for these obligations. In July 1998,
the Company was named as a defendant in a complaint filed by Protocol Systems,
Inc. The complaint alleges breach of the Supply Agreement. Protocol Systems
alleges damages estimated at approximately $10.8 million, plus any amounts which
it may owe to a third-party vendor. Gensia Sicor believes that the amount of
the claim is significantly overstated for a variety of reasons and plans to
vigorously defend itself against this claim. Based on a review of the current
facts and circumstances, management has recorded a provision for its estimate of
liability related to this lawsuit. The ultimate outcome with respect to the
lawsuit could have a material adverse effect on the Company's financial
position, results of operations or cash flows.
As a result of the lack of market acceptance of the GenESA System, the
Company wrote off the investment value of its 19% interest in Automedics from
$1.8 million to $0.7 million in the first quarter of 1998 and subsequently
wrote-off the remaining balance of $0.7 million in the fourth quarter of 1998.
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.
F-16
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
7. Investments
The following is a summary of available for sale securities classified as
cash and cash equivalents (in thousands):
December 31,
1998 1997
------ ------
U.S. corporate securities $5,423 $ --
U.S. government securities -- 791
------ ------
$5,423 $ 791
====== ======
The amortized cost of available for sale securities approximated fair value at
both December 31, 1998 and 1997. Gross realized gains and losses on sales of
available for sale securities were immaterial in 1998, 1997 and 1996.
At December 31, 1998, the contractual maturities of all of the Company's
available for sale investments are less than 90 days from the balance sheet
date.
8. Short-Term Borrowings
Short-term borrowings consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997
------- -------
<S> <C> <C>
Short-term borrowings under credit line arrangements,
repayable in U.S. dollars and Italian lire ....... $46,061 $29,166
Short-term borrowings, repayable in Swiss francs .... 2,143 --
Short-term borrowings, repayable in U.S. dollars .... 1,421 2,472
Short-term borrowings, repayable in Italian lire .... -- 3,573
Short-term borrowings, repayable in Mexican pesos ... -- 370
------- -------
$49,625 $35,581
======= =======
</TABLE>
The Company's Italian subsidiaries maintain credit line arrangements with
several banks where most are pledged with trade receivables to the banks in
return for short-term borrowings in Italian lire. These transactions
effectively eliminate most of the Company's foreign exchange risk associated
with these receivables. The Company's domestic operations also entered into a
factoring agreement of its receivables during 1997 and 1998. 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 rate on these borrowings
was approximately 5.7% and 6.9% at December 31, 1998 and 1997, respectively.
The short-term borrowings from banks, repayable in Swiss francs, 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 7.2% and 10.2% at December 31, 1998 and 1997, respectively.
F-17
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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.
9. Long-Term Debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997
---------- ---------
<S> <C> <C>
2.675% subordinated convertible notes due 2004, net of
unamortized discount of $2,742 and $3,256 at December 31,
1998 and 1997, respectively, effective interest
rate of 5.9%............................................. $ 17,258 $ 16,744
Mortgage notes payable ................................... 15,854 16,559
Notes payable to bank .................................... 5,997 6,510
Notes payable to suppliers ............................... 5,782 4,923
Notes payable to Italian Ministry of Industry............. 1,232 1,193
Other..................................................... 226 226
-------- --------
46,349 46,155
Less: current portion ................................... (5,241) (3,487)
-------- --------
Long-term debt, net of current portion ................... $ 41,108 $ 42,668
======== ========
</TABLE>
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 cancelled 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 was 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, 1998.
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 2005.
The floating interest rate is based on several financial indicators. The
weighted average interest rate on these loans was 6.1% and 8.0% at December 31,
1998 and 1997, respectively.
F-18
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
The notes payable to a bank are unsecured and are repayable in quarterly
and semi-annual installments of principal and interest through 2003. The
weighted average fixed interest rate on these notes was 7.4% and 7.9% at
December 31, 1998 and 1997, respectively.
Notes payable to suppliers are secured by certain machinery and equipment
with a carrying value of approximately $3.6 million and are repayable in
quarterly and semi-annual installments of principal and interest through 2004.
The weighted average fixed interest rate on these notes was 6.7% and 7.3% at
December 31, 1998 and 1997, respectively.
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, 1998 and 1997.
Interest expense for 1998, 1997, and 1996 was $6.1 million, $3.7 million,
and $0.1 million, respectively.
Maturities of long-term debt during the years subsequent to December
31, 1998 are as follows (in thousands) :
1999 $ 5,241
2000 6,976
2001 6,862
2002 4,774
2003 2,286
Thereafter 20,210
-------
$46,349
=======
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 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
F-19
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
Stock. The Company resumed payment of the Preferred Stock dividend in September
1996. At December 31, 1998, 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. The holder of this Preferred Stock
has no other voting rights.
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. At December 31, 1998, all warrants were outstanding.
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. These warrants expire in December 2002. At December 31, 1998,
warrants to purchase an aggregate of 1,871,000 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. These warrants expire in July 2003. If a purchaser sold
the Common Stock purchased in the Unit offering prior to June 30, 1998, then the
purchaser was not issued the Warrant component of the Unit. At December 31,
1998, warrants to purchase an aggregate of 1,227,000 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 approved 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 authorized 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 authorized for issuance.
F-20
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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. In April 1998, the Board of Directors
approved and in June 1998, the Company's stockholders consented to the further
amendment of the 1997 Stock Plan to increase an additional 1,000,000 shares to a
total of 4,000,000. Accordingly, as of December 31, 1998, 10,383,334 shares
were authorized for issuance under both stock option plans.
In September 1997, the stockholders approved the Chairman's Options (the
"Chairman's Options"). Under the Chairman's Options, 500,000 shares were
authorized for issuance and the full 500,000 shares were issued to the Company's
current Chairman of the Board, 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.
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,
-----------------------------------------------------------
1998 1997 1996
-------------------- ------------------- ------------------
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 ........................... 5,520 $ 4.90 4,154 $ 5.03 4,416 $ 4.96
Granted .............................. 1,175 4.14 2,635 4.44 949 5.02
Exercised ............................ (204) 4.13 (623) 3.90 (523) 4.50
Canceled ............................. (860) 4.84 (646) 4.84 (688) 4.93
------ -------- ----- -------- ----- --------
Outstanding - end of year .............. 5,631 $ 4.76 5,520 $ 4.90 4,154 $ 5.03
====== ======== ===== ======== ===== ========
Exercisable - end of year .............. 3,787 $ 4.99 3,566 $ 5.16 4,142 $ 5.21
====== ======== ===== ======== ===== ========
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
Weighted
Number average
Range of outstanding remaining
exercise prices (in thousands) contractual life
- --------------- -------------- ----------------
$2.00 to $3.38 334 7.5
$3.40 to $5.00 4,682 7.4
$5.06 to $6.00 346 7.6
$6.13 to $10.00 94 7.1
$10.33 to $28.48 175 3.1
------
5,631
======
F-21
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
Shares of Common Stock reserved at December 31, 1998 for the exercise of
available and outstanding stock options including the Chairman's options totaled
7,676,022.
In April 1998, the Company's majority owned subsidiary, Metabasis adopted its
own 1998 Stock Incentive Plan (the "Metabasis Plan") for the benefit of its
eligible employees, consultants and independent directors. The Metabasis Plan
authorized 1,500,000 shares of Metabasis' common stock for issuance. Under the
terms of the Metabasis Plan, non-qualified and incentive options may be granted
to consultants, employees, officers and directors at prices not less than 100%
of the fair value on the date of grant. Options vest over four years and expire
ten years from the date of grant. Metabasis' employees continue to vest with
respect to the Company's stock options issued and may continue to participate in
the Company's Employee Stock Purchase Plan as long as Metabasis remains a
majority owned subsidiary of the Company.
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 canceled. 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 April 1998, the Board of Directors approved and in June 1998, 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 600,000 shares of Common Stock. Any full-time employee of the
Company is eligible to participate in the ESPP after he or 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, 1998,
494,765 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 1998, 1997 and 1996,
respectively: risk-free interest rates of 5.1% to 5.2%, 6.1% to 6.2% and 6.0% to
6.2%; dividend yields of
F-22
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
0% for 1998, 1997 and 1996; volatility factors of the
expected market price of the Company's Common Stock of 36.2% for 1998 and 1997
and 46.9% for 1996; and a weighted-average life of five to six years for 1998,
four to five years for 1997 and three to five years for 1996.
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>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net loss:
As reported ....................... $ (24,558) $ (82,695) $ (51,799)
Pro forma ......................... (26,269) (82,811) (54,781)
Basic and diluted net loss per share:
As reported ....................... $ (.31) $ (1.15) $ (1.41)
Pro forma ......................... (.33) (1.15) (1.50)
</TABLE>
<TABLE>
<CAPTION>
Weighted average Weighted average
fair value exercise price
-------------------------- ------------------------
1998 1997 1996 1998 1997 1996
------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Exercise Price on Date of Grant:
Equal to market price of stock . $ 4.10 $ 4.54 $ 5.09 $ 4.10 $ 4.54 $ 5.09
Less than market price of stock:
Options ..................... $ 4.36 $ 4.66 $ 5.09 $ 4.25 $ 4.18 $ 4.40
Restricted stock ............ $ 4.90 $ 5.52 $ 5.09 $ .01 $ .01 $ .01
Employee stock purchase plan $ 4.26 $ 5.11 $ 4.85 $ 3.40 $ 3.77 $ 4.12
</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
F-23
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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 equipment 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, 1998 and 1997 was $0.4
million and $0.3 million, respectively, deposited under these agreements. Rent
expense for 1998, 1997, and 1996 was $5.4 million, $6.6 million, and $4.7
million, respectively. Rent expense for 1998, 1997 and 1996 were net of $1.2
million, $1.0 million, and $0.4 million 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.
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, 1998, are as follows
(in thousands):
<TABLE>
<CAPTION>
Capital Operating
leases leases
------- -------
<S> <C> <C>
1999 ........................................ $ 1,147 $ 8,741
2000 ........................................ 816 7,465
2001 ........................................ 301 5,057
2002 ........................................ 162 3,888
2003 ........................................ 91 2,987
Thereafter .................................. -- 15,471
------- -------
Total minimum lease payments ................ 2,517 $43,609
Less amount representing interest ........... (250) =======
-------
Present value of net minimum lease payments . 2,267
Less current portion ........................ (1,057)
-------
$ 1,210
=======
</TABLE>
Future minimum rentals to be received under non-cancelable subleases as of
December 31, 1998 totaled approximately $1.1 million.
F-24
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
12. Income Taxes
The provision for income taxes comprises the following (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal..................................... $ -- $ -- $ --
State ...................................... -- -- --
Foreign .................................... 3,091 1,145 --
-------- -------- --------
3,091 1,145 --
Deferred:
Federal..................................... $ -- $ -- $ --
State....................................... -- -- --
Foreign..................................... 2,097 1,739 --
-------- -------- --------
2,097 1,739 --
-------- -------- --------
$ 5,188 $ 2,884 $ --
======== ======== ========
</TABLE>
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>
<S> <C> <C> <C>
Federal income taxes (benefit) at 35% ........... $ (4,956) $(25,834) $(16,016)
Tax effect of non-deductible expenses, including
write-off of acquired in-process research and
development ................................ 306 13,299 582
Increase in valuation allowance and other ....... 7,447 14,486 15,434
Foreign taxes ................................... 2,391 933 --
-------- -------- --------
$ 5,188 $ 2,884 $ --
======== ======== ========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1998 and 1997 are shown below. A valuation allowance of $135.4
million has been recognized as an offset to the deferred tax assets as of
December 31, 1998 as realization of such assets is uncertain. Approximately $9.1
million, $14.3 million, and $20.0 million of the valuation allowance are
related to 1998, 1997, and 1996, respectively. As of December 31, 1998,
approximately $1.0 million of the valuation allowance for deferred tax assets
relates to pre-acquisition tax net operating losses which, when recognized, will
be allocated directly to goodwill.
<TABLE>
<CAPTION>
December 31,
---------------------
(in thousands)
1998 1997
------- --------
<S> <C> <C>
Deferred tax liabilities:
Basis differences in acquired assets $21,258 $22,557
Depreciation ....................... 8,352 7,997
Inventory .......................... 4,870 2,910
Other .............................. 1,553 1,000
------- -------
Total deferred tax liabilities ........ 36,033 34,464
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
December 31,
-------------------------
(in thousands)
1998 1997
--------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ....... 108,622 101,964
Research and development credits ....... 14,823 13,545
Capitalized research and development ... 8,603 9,236
Depreciation ........................... 2,993 3,077
Other .................................. 11,384 9,540
--------- ---------
Total deferred tax assets .................. 146,425 137,362
Valuation allowances for deferred tax assets (135,419) (126,367)
--------- ---------
Net deferred tax assets .................... 11,006 10,995
--------- ---------
Net deferred taxes ......................... $ 25,027 $ 23,469
========= =========
</TABLE>
At December 31, 1998, the Company had federal and California tax net operating
loss carryforwards of approximately $292.9 million and $40.9 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. The
California tax loss carryforwards will begin to expire in 1999 unless previously
utilized. Approximately $8.8 million of California tax loss carryforwards
expired unused in 1998. The Company has Italian and Mexican tax loss
carryforwards of approximately $7.5 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 $11.9
million and $4.5 million, respectively, which will begin to expire beginning 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 is limited because of a
cumulative ownership changes of more than 50% which occurred within the three
year periods ending in 1997. The ownership change in 1997 had a material impact
on the utilization of net operating loss and credit carryforwards.
13. Segment and Geographic Information
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131") was issued effective for fiscal years ending
after December 31, 1998. The information for 1997 and 1996 has been restated
from the prior year's presentation in order to conform to the 1998 presentation.
The Company operates predominantly in one industry segment, that being the
development, manufacture and marketing of injectable pharmaceuticals and the
production of specialty bulk drug substances. The Company evaluates
performances based on operating earnings of the respective business units
primarily by geographic area. The three main geographic areas and the business
units that fall under each geographic areas are as follows: (i) United States:
Gensia Sicor, Gensia Sicor Pharmaceuticals, Metabasis and Gensia Development
Corporation; (ii) Italy: Sicor, Diaspa and Genchem Pharma; and (iii) Mexico:
Lemery, Sicor de Mexico and Gensia Sicor de Mexico. Intergeographic sales
F-26
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
are accounted for at prices that approximate arm's length transactions.
Information regarding geographic areas at December 31, 1998, 1997, and 1996 and
for each of the years then ended is as follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------
1998 1997 1996
---------- --------- --------
<S> <C> <C> <C>
Product sales to unaffiliated customers
United States .................... $ 46,957 $ 58,622 $ 54,636
Italy ............................ 77,870 54,778 --
Mexico ........................... 43,253 27,024 --
--------- --------- ---------
$ 168,080 $ 140,424 $ 54,636
========= ========= =========
Intergeographic sales
United States .................... $ -- $ -- $ --
Italy ............................ 8,560 4,935 --
Mexico ........................... 270 704 --
--------- --------- ---------
$ 8,830 $ 5,639 $ --
========= ========= =========
Income (loss) before income taxes:
United States .................... $ (31,705) $ (84,494) $ (46,096)
Italy ............................ 9,715 7,378 --
Mexico ........................... 9,564 4,150 --
Other ............................ (653) (505) 297
Eliminations and adjustments ..... (1,091) (340) --
--------- --------- ---------
$ (14,170) $ (73,811) $ (45,799)
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31
-------------------------------------------
1998 1997 1996
---------- --------- --------
<S> <C> <C> <C>
Total assets:
United States .................... $ 347,622 $ 386,905 $ 109,151
Italy ............................ 171,345 119,248 --
Mexico ........................... 45,365 35,004 --
Other ............................ 115 60 939
Eliminations and adjustments ..... (192,633) (178,012) (20,540)
--------- --------- ---------
$ 371,814 $ 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
F-27
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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. Sankyo has the right to convert
its Metabasis interest into a variable number of shares of Gensia Sicor Common
Stock based on a formula defined in the agreement.
15. Contingencies
In September 1998, the Company reached a settlement with Great Lakes Chemical
Corporation ("Great Lakes") regarding liabilities related to the purchase by
Sicor of certain contaminated products from Great Lakes in 1994 - 1995. The
settlement resulted in a dismissal of certain litigation between Sicor, Great
Lakes and Pharmacia & Upjohn, Inc. ("Pharmacia & Upjohn"). Under the terms of
the settlement, Sicor received a cash payment that is expected to cover
substantially all of the related customer claims against it. At December 31,
1998, Sicor has a reserve of $1.8 million for estimated settlement costs still
outstanding. The settlement also resulted in the dismissal with prejudice of
Sicor's action against Great Lakes filed in the United States District Court in
Arkansas and other related claims against the Company.
In July 1998, the Company was named as a defendant in a complaint filed by
Protocol Systems, Inc. ("Protocol Systems"). The complaint alleges breach of a
supply agreement (the "Supply Agreement"). Protocol Systems alleges damages
estimated at approximately $10.8 million, plus any amounts which it may owe to a
third-party vendor. Gensia Sicor believes that the amount of the claim is
significantly overstated for a variety of reasons and plans to vigorously defend
itself against this claim. Based on a review of the current facts and
circumstances, management has recorded a provision for its estimate of liability
related to this lawsuit. The ultimate outcome with respect to the lawsuit could
have a material adverse effect on the Company's financial position, results of
operations or cash flows.
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,
liabilities arising from such matters, if
F-28
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
any, will not have a material adverse effect on consolidated financial position,
results of operations or cash flows.
16. Quarterly Financial Information (Unaudited)
Summarized quarterly financial data for 1998 and 1997 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1998 Quarters
Total revenues .............................................. $ 43,604 $ 47,992 $ 43,480 $ 43,419
Total costs and expenses .................................... 47,315 47,894 42,300 55,156
Income (loss) before income taxes ........................... (3,711) 98 1,180 (11,737)
Net loss applicable to common shares ........................ (4,929) (2,461) (3,314) (13,854)
Basic and diluted net loss per common
share ..................................................... (.06) (.03) (.04) (.17)
<CAPTION>
First Second Third Fourth
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1997 Quarters
Total revenues .............................................. $ 22,368 $ 41,248 $ 41,454 $ 44,611
Total costs and expenses .................................... 60,504 47,932 49,809 65,247
Loss before income taxes .................................... (38,136) (6,684) (8,355) (20,636)
Net loss applicable to common shares ........................ (40,251) (10,354) (10,066) (22,024)
Basic and diluted net loss per common
share ..................................................... (.66) (.14) (.13) (.29)
</TABLE>
(1) First quarter 1998 results included a $1.1 million of expenses related to
the write-down of investment
(2) Fourth quarter 1998 results included a $3.7 million of expenses related to
the additional write-down of investment and a charge for the Protocol
Systems lawsuit.
(3) First quarter 1997 results included the results of Rakepoll Holding from
February 28, 1997, the date of acquisition (see Note 1) and a $29.2 million
of in-process research and development.
(4) Third and fourth quarter 1997 results included a restructuring charge of
$3.2 million and $11.5 million, respectively.
17. Subsequent Events
In January 1999, Gensia Sicor Pharmaceuticals entered into a Sales and
Distribution agreement with Abbott Laboratories ("Abbott"), under which the two
companies formed a strategic alliance for marketing and distribution of oncology
products in the United States. This seven year collaboration initially involves
seven of the Company's oncology products (including doxorubicin and leucovorin
calcium) but will expand in the future to include certain of Gensia Sicor
Pharmaceuticals' oncology products currently under development. Under the
agreement, Gensia Sicor Pharmaceuticals will develop and manufacture oncology
products, and Abbott will promote and sell them to hospitals and clinics
throughout the United States. Abbott has a well established market presence
with hospitals and clinics, and had previously co-marketed oncology products
with Pharmacia & Upjohn through November 1998.
F-29
<PAGE>
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
In March 1999, Gensia Sicor Pharmaceuticals granted Baxter Pharmaceutical
Products Inc., a wholly owned subsidiary of Baxter Healthcare Corporation,
exclusive rights to market and sell propofol injectable emulsion manufactured by
Gensia Sicor Pharmaceuticals within the United States under an amendment to a
previously announced manufacturing and distribution agreement. Under the terms
of the amended agreement, Baxter will purchase 100% of its market requirement
from Gensia Sicor Pharmaceuticals.
F-30
<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 16, 1999 (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. In 1998, all directors, executive officers and 10%
stockholders timely filed all such 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.
60
<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:
Exhibit
Number Description of Document
------ -----------------------
2.1(12) Stock Exchange Agreement, dated as of November 12, 1996, as amended
on December 16, 1996 between Gensia, Inc. and Rakepoll Finance N.V.
3(i)(16) Restated Certificate of Incorporation of the Company, as amended by
Certificate of Designation of Series A Convertible Preferred Stock.
3(ii)(13) By-Laws of the Company.
4.1(4) Warrant Agreement dated November 26, 1991 between the Company and
First Interstate Bank, Ltd. (Warrant Agent).
4.2(7) Form of Certificate for Gensia Sicor Common Stock with Rights Legend
(4.1)*.
4.3(11) Warrant Agreement dated April 10, 1996 between the Company and
Domain Partners III, L.P. (4.1)*.
4.4(11) Warrant Agreement dated July 22, 1996 between the Company and
MMC/GATX Partnership No. 1 (4.2)*.
4.5(13) Shareholder's Agreement dated November 12, 1996, as amended on
December 21, 1996 and on February 28, 1997, between Gensia, Inc. and
Rakepoll Finance N.V. (4.1)*.
4.6(16) 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(16) Securities Purchase Agreement, dated May 1, 1997, by and between the
Company and HCCP (4.2)*.
4.8(16) Registration Rights Agreement, dated May 19, 1997, by and between
the Company and HCCP (4.3)*.
4.9(16) Form of 2.675% Subordinated Convertible Notes due May 1, 2004,
issued to certain affiliates of HCCP (4.4)*.
61
<PAGE>
4.10(16) Form of Common Stock Purchase Warrant, dated May 19, 1997, issued
to certain affiliates of HCCP (4.5)*.
4.11(17) Form of Unit Purchase Agreement between the Company and certain
accredited investors, dated as of March 27, 1997 (4.2)*.
4.12(20) Form of Unit Purchase Agreement between the Company and certain
accredited investors, dated December 1997 (4.6)*.
4.13(21)+ Investor's Rights Agreement among the Company, Metabasis
Therapeutics, Inc. and Sankyo Co., Ltd. dated December 18, 1997
(4.13)*.
4.14 Securities Purchase Agreement between the Company and Carlo Salvi
dated December 1, 1998, including the 8% Subordinated Convertible
Notes due January 10, 2001, and Registration Rights Agreement.
10.1(1)# Form of Indemnification Agreement entered into between Gensia and
its directors (10.1)*.
10.2(6)# 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
the Company and Protocol Systems, Inc. (10.46)*.
10.6(2)# Form of Indemnification Agreement entered into between the Company
and its officers and certain key employees (10.50)*.
10.7(3) Form of Limited Partner Warrant (10.53)*.
10.8(3) Form of Investment Executive Warrant (10.54)*.
10.9(3) Form of Warrant issued to MMC/GATX Partnership No. 1 (10.56)*.
10.10(5) Stockholder Rights Plan dated March 9, 1992.
10.11(8) Lease agreement between Gena Property Company and the Company
dated as of December 21, 1993.
10.12(9) Severance Agreement dated October 1995 between Gensia, Inc. and
David F. Hale (10.52)*.
10.13(9) Form of Severance Agreement for officers and certain other
employees.
10.14(10)+ Collaborative Research Agreement dated as of May 1, 1996 between
the Company and Pfizer Inc.
10.15(10)+ License and Royalty Agreement dated as of May 1, 1996 between the
Company and Pfizer Inc.
10.16(10)+ Stock Purchase Agreement dated as of May 1, 1996 between the
Company and Pfizer Inc.
10.17(14) Amendment No. 1 to Stockholder Rights Agreement dated November 12,
1996.
10.18(15) Factoring agreement, dated September 25, 1997, by and between the
Company and Silicon Valley Financial Services (a division of
Silicon Valley Bank) (10.1)*.
10.19(17)+ Collaborative Research and Development Agreement between the
Company and Sankyo Co., Ltd., dated as of April 18, 1997 (10.1)*.
10.20(17)+ Supply Agreement between and among Sicor S.p.A., Alco Chemicals,
Ltd. and Boehringer Ingelheim International GmbH, dated September
23, 1996 (10.2)*.
10.21(17)+ 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)*.
10.22(17) Manufacturing Agreement between Sicor S.p.A. and Alco Chemicals,
Ltd., dated July 16, 1992 (10.12)*.
10.23(17) Service Agreement between Sintesis Lerma and Grupo Fairmex S.A. de
C.V., dated January 2, 1995 (10.13)*.
10.24(17) Letter Agreement between the Company and Donald E. Panoz, dated
March 18, 1997 (10.14)*.
10.25(18) Gensia Sicor Inc. 1997 Long-Term Incentive Plan.
10.26(19)+ 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.
62
<PAGE>
10.27(16) Agreement, dated as of April 15, 1997, by and between Sicor de
Mexico S.A. de C.V. and Alco Chemicals, Ltd. (10.2)*.
10.28(16)+ Agreement, dated as of April 15, 1997, by and between Genchem
Pharma, Ltd. and Alco Chemicals, Ltd. (10.3)*.
10.29(16) Agreement, dated as of January 1, 1997, by and between Sicor and
Alco Chemicals, Ltd. (10.4)*.
10.30(21)+ 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)
(10.41)*.
10.31(21) Amendment to Severance Agreement, dated December 16, 1997, between
the Company and David F. Hale (10.42)*.
10.32(21) 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. (10.43)*.
10.33(21) Asset and Liability Transfer Agreements by and among Gensia
Automedics, Inc., the Company and Gensia Sicor Pharmaceuticals,
Inc. dated December 23, 1997 (10.44).*
10.34 Loan and Security Agreement, dated September 29, 1998, as amended
on October 30, 1998 and November 4, 1998, by and between the
Company and Coast Business Credit (a division of Southern Pacific
Bank).
10.35 Consulting Agreement, dated January 27, 1998, as amended on March
6, 1998, between the Company and Frank C. Becker.
21.1 Subsidiaries of Gensia Sicor.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Powers of attorney (see page 65).
27.1 Financial Data Schedule.
- --------------------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 33-34565).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 33-38877).
(3) Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 33-43221).
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (No. 0-18549).
(5) Incorporated by reference to the Company's Current Report on Form 8-K dated
March 16, 1992 (No. 0-18549).
(6) Incorporated by reference to the Company's Registration Statement on Form
S-8. (No. 33-95152).
(7) Incorporated by reference to the Company's Registration Statement on Form
S-4 (No. 33-94778).
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 (0-18549).
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 (0-18549).
(10) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996 (0-18549).
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 (0-18549).
(12) Incorporated by reference to Annex A to the Company's Proxy Statement dated
January 15, 1997 (0-18549).
(13) Incorporated by reference to the Company's Report on Form 8-K dated
February 28, 1997 (0-18549).
(14) Incorporated by reference to the Company's Annual Report of Form 10-K for
the fiscal year ended December 31, 1996 (0-18549).
(15) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 (0-18549).
63
<PAGE>
(16) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997 (0-18549).
(17) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997 (0-18549).
(18) Incorporated by reference to Annex D of the Company's Definitive Proxy
Statement dated January 15, 1997 (0-18549).
(19) 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).
(20) Incorporated by reference to the Company's Registration Statement on Form
S-3 (No. 332-44563).
(21) Incorporated by reference to the Company's Annual Report of Form 10-K, as
amended by Amendment No. 1, filed on May 6, 1998 and Amendment No. 2,
filed on May 20, 1998, for the fiscal year ended December 31, 1997 (0-
18549).
* 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.
64
<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 29, 1999 By: /s/ Carlo Salvi
------------------------------------
Carlo Salvi, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Carlo Salvi 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.
Signature Title Date
--------- ----- ----
/s/ Carlo Salvi President and March 29, 1999
- ---------------------------- Chief Executive Officer
(Carlo Salvi)
/s/ John W. Sayward Executive Vice President, March 29, 1999
- -------------------------------- Finance, Chief Financial
(John W. Sayward) Officer and Treasurer (Principal
Financial Officer and Principal
Accounting Officer)
/s/ Donald E. Panoz Chairman of the Board March 29, 1999
- --------------------------------
(Donald E. Panoz)
65
<PAGE>
SIGNATURES
----------
Signature Title Date
--------- ----- ----
/s/ Frank C. Becker Director March 29, 1999
- ---------------------------------
(Frank C. Becker)
/s/ Michael D. Cannon Director March 29, 1999
- ---------------------------------
(Michael D. Cannon)
/s/ Gianpaolo Colla Director March 29, 1999
- ---------------------------------
(Gianpaolo Colla)
/s/ Herbert J. Conrad Director March 29, 1999
- ---------------------------------
(Herbert J. Conrad)
/s/ Carlos A. Ferrer Director March 29, 1999
- ---------------------------------
(Carlos A. Ferrer)
/s/ David F. Hale Director March 29, 1999
- ---------------------------------
(David F. Hale)
/s/ Carlo Ruggeri Director March 29, 1999
- ---------------------------------
(Carlo Ruggeri)
66
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
------ -----------------------
4.14 Securities Purchase Agreement between the Company and Carlo Salvi
dated December 1, 1998, including the 8% Subordinated Convertible
Notes due January 10, 2001, and Registration Rights Agreement.
10.34 Loan and Security Agreement, dated September 29, 1998, as amended on
October 30, 1998 and November 4, 1998, by and between the Company and
Coast Business Credit (a division of Southern Pacific Bank).
10.35 Consulting Agreement, dated January 27, 1998, as amended on March 6,
1998, between the Company and Frank C. Becker.
21.1 Subsidiaries of Gensia Sicor.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Powers of Attorney (see page 65).
27.1 Financial Data Schedule.
67
<PAGE>
EXHIBIT 4.14
SECURITIES PURCHASE AGREEMENT
BETWEEN
GENSIA SICOR INC.
AND
CARLO SALVI
Dated as of December 1, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Issuance and Sale of Notes............................................ 1
1.1 Issuance, Purchase and Sale of Notes............................ 1
1.2 Closings........................................................ 1
1.3 Conditions to Closings.......................................... 2
1.4 Deliveries at Closings.......................................... 2
1.5 Definitions..................................................... 2
2. Representations and Warranties of the Company......................... 3
2.1 Organization and Qualification.................................. 3
2.2 Due Authorization............................................... 3
2.3 SEC Reports..................................................... 3
2.4 Financial Statements............................................ 4
2.5 Actions Pending; Compliance with Laws........................... 4
2.6 Title to Properties; Insurance.................................. 5
2.7 Governmental Consents, etc...................................... 5
2.8 Holding Company Act and Investment Company Act.................. 5
2.9 Conflicting Agreements and Charter Provisions................... 5
2.10 Capitalization.................................................. 6
2.11 Disclosure...................................................... 6
2.12 Status of Securities............................................ 6
2.13 Possession of Franchises, Licenses, etc......................... 7
2.14 Environmental Matters........................................... 7
2.15 Offering of Notes............................................... 7
2.16 Use of Proceeds................................................. 8
2.17 No Brokerage or Finder's Fees................................... 8
3. Representations and Warranties of the Purchaser....................... 8
3.1 Due Authorization............................................... 8
3.2 Conflicting Agreements and Other Matters........................ 8
3.3 Acquisition for Investment...................................... 8
3.4 Brokers or Finders.............................................. 9
3.5 Accredited Investor............................................. 9
3.6 HSR Notification................................................ 9
4. Registration, Exchange and Transfer of Notes.......................... 9
4.1 Authorized Denominations of Notes............................... 9
4.2 The Note Register; Persons Deemed Owners........................ 9
4.3 Issuance of New Notes Upon Exchange or Transfer................. 9
4.4 Lost, Stolen, Damaged and Destroyed Notes....................... 9
5. Payment of Notes...................................................... 10
5.1 Home Office Payment............................................. 10
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.2 Limitation on Interest.......................................... 10
5.3 Interest........................................................ 10
6. Covenants of the Company.............................................. 10
6.1 Merger.......................................................... 10
6.2 Compliance with Laws............................................ 11
6.3 Limitation on Agreements........................................ 11
6.4 Preservation of Franchises and Existence........................ 11
6.5 Insurance....................................................... 11
6.6 Payment of Taxes and Other Charges.............................. 12
6.7 Financial Statements and Other Reports.......................... 12
6.8 HSR............................................................. 13
6.9 Certain Tax Matters............................................. 13
6.10 Notice of Breach................................................ 14
6.11 Interest........................................................ 14
7. Events of Default and Remedies........................................ 15
7.1 Events of Default............................................... 15
(a) Nonpayment of Principal of the Notes....................... 15
(b) Cross-Default.............................................. 15
(c) Voluntary Bankruptcy and Insolvency Proceedings............ 15
(d) Adjudication of Bankruptcy................................. 16
(e) Receivership or Sequestration.............................. 16
(f) Covenant Defaults.......................................... 16
(g) Change in Control.......................................... 16
7.2 Acceleration of Maturity........................................ 17
7.3 Other Remedies.................................................. 17
7.4 Conduct No Waiver; Collection Expenses.......................... 18
7.5 Annulment of Acceleration....................................... 18
7.6 Remedies Cumulative............................................. 18
7.7 Limitations..................................................... 19
8. Conversion............................................................ 19
8.1 Holder's Option to Convert into Common Stock.................... 19
8.2 Exercise of Conversion Privilege................................ 19
8.3 Fractions of Shares; Interest................................... 20
8.4 Reservation of Stock............................................ 20
8.5 Adjustment of Conversion Ratio.................................. 20
8.6 Merger or Consolidation......................................... 22
8.7 Notice of Certain Corporate Actions............................. 22
8.8 Reports as to Adjustments....................................... 23
9. Subordination of Notes............................................... 23
9.1 Subordination of Notes to Senior Indebtedness................... 23
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
9.2 Proofs of Claim of Holders of Senior Indebtedness; Voting....... 25
9.3 Rights of Holders of Senior Indebtedness Unimpaired............. 26
9.4 Effects of Event of Default..................................... 26
9.5 Company's Obligations Unimpaired................................ 26
9.6 Subrogation..................................................... 26
10. Interpretation....................................................... 27
10.1 Definitions.................................................... 27
10.2 Accounting Principles.......................................... 32
11. Miscellaneous........................................................ 32
11.1 Payments....................................................... 32
11.2 Severability................................................... 32
11.3 Specific Enforcement........................................... 32
11.4 Entire Agreement............................................... 33
11.5 Counterparts................................................... 33
11.6 Notices and Other Communications............................... 33
11.7 Amendments..................................................... 33
11.8 Cooperation.................................................... 34
11.9 Successors and Assigns......................................... 34
11.10 Expenses and Remedies.......................................... 34
11.11 Survival of Representations and Warranties..................... 35
11.12 Transfer of Securities......................................... 35
11.13 Governing Law.................................................. 35
11.14 Term........................................................... 36
11.15 Publicity...................................................... 36
11.16 Covenant of Purchaser.......................................... 36
11.17 Signatures..................................................... 36
</TABLE>
EXHIBITS
--------
Exhibit A Form of Note
Exhibit B Form of Registration Rights Agreement
Exhibit C Internal Revenue Service Form 1001
iii
<PAGE>
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS SECURITIES PURCHASE AGREEMENT, dated as of December 1, 1998 (this
"Agreement"), between GENSIA SICOR INC., a Delaware corporation (the "Company"),
-----------------
and CARLO SALVI (the "Purchaser"),
-----------
W I T N E S S E T H:
WHEREAS, the Purchaser wishes to purchase from the Company, and the Company
wishes to sell to the Purchaser, 8% Subordinated Convertible Notes due January
10, 2001 in the aggregate principal amount set forth herein (the "Notes"), upon
the terms set forth herein;
WHEREAS, the Notes shall be convertible into the Company's Common Stock,
par value $.01 per share (the "Common Stock") and the Common Stock and the Notes
are referred to collectively as the "Securities"; and
WHEREAS, the Purchaser and the Company desire to provide for such purchase
and sale and to establish various rights and obligations in connection
therewith:
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto agree as follows:
1. Issuance and Sale of Notes.
--------------------------
1.1 Issuance, Purchase and Sale of Notes. Upon the terms set forth
------------------------------------
herein, the Company will sell to the Purchaser, and the Purchaser will purchase
from the Company, Notes in the aggregate principal amount of $10,000,000, of
which $5,000,000 will be purchased at the First Closing (as defined below) and
$5,000,000 will be purchased at the Second Closing (as defined below). The
aggregate amount paid for Notes is referred to as the "Purchase Price". Each
Note shall be in the form of Exhibit A hereto. The initial Conversion Price of
the Notes shall be $4.50 per share.
1.2 Closings. The first closing of the transactions contemplated hereby
--------
(the "First Closing") will take place at the offices of Pillsbury Madison &
Sutro LLP, San Diego, California, at 11:00 a.m. on November 25, 1998 or on such
other date as shall be mutually agreed by the Company and the Purchaser (the
"First Closing Date"). The second closing of the transactions contemplated
hereby (the "Second Closing" and together with the First Closing the "Closings")
will take place at the same office on such date on or prior to December 31, 1998
as is agreed to by the Company and the Purchaser (the "Second Closing Date" and
together with the First Closing Date, the "Closing Dates").
1.3 Conditions to Closings.
----------------------
(a) The obligations of the Company and the Purchaser to consummate the
trans actions contemplated hereby at the Closings are subject to the
satisfaction of the following conditions:
-1-
<PAGE>
no temporary restraining order, preliminary or permanent injunction or other
order or decree which prevents consequences of the consummation of the
transactions contemplated hereby shall have been issued and remain in effect,
and no statute, rule or regulation shall have been enacted by any governmental
authority (of the United States or otherwise) which prevents or substantially
modifies to the detriment of the Purchaser the conditions or the consummation of
the transactions contemplated hereby; provided, however, that the parties shall
use their reasonable best efforts to cause any such decree, ruling, injunction
or other order to be vacated or lifted.
(b) The obligations of the Purchaser to consummate the transactions
contemplated hereby at the Closings are subject to the satisfaction or waiver of
the following conditions:
(i) the representations and warranties of the Company set forth in
Section 2 of this Agreement shall be true and correct in all material
respects as of the date when made and (unless made as of a specified date)
as of the Closing Dates; and the Company shall have performed in all
material respects its covenants set forth in this Agreement to be performed
prior to the Closing Dates and shall not have taken any action which (if
any Notes were outstand ing) would violate any provision of this
Agreement(and at the Closings the Company shall deliver to the Purchaser an
officer's certificate certifying as to the Company's compliance with the
conditions set forth in this clause (i));
(ii) at the First Closing, the Company shall have executed a registra
tion rights agreement in the form of Exhibit B hereto (the "Registration
Rights Agreement"); and
(iii) since the date of this Agreement there shall not have occurred
an event which would have a Material Adverse Effect (as defined in Section
2.1 hereof).
1.4 Deliveries at Closings. At the Closings, the Company shall deliver to
----------------------
the Purchaser, against payment in full of the Purchase Price, Notes in such
denominations as the Purchaser has requested, dated as of the respective Closing
Date and registered in the names requested by the Purchaser, in an aggregate
principal amount corresponding to the Purchase Price.
The Closings shall be deemed to have taken place in the State of
California.
1.5 Definitions. Certain capitalized terms used in this Agreement are
-----------
defined in Section 10 hereof.
2. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants as of the date hereof as follows:
2.1 Organization and Qualification. Each of the Company and its
------------------------------
Subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in
-2-
<PAGE>
which it is incorporated and has the power to own its respective property and to
carry on its respective business as now being conducted. Each of the Company and
its Subsidiaries is duly qualified as a foreign corporation to do business and
in good standing in every jurisdiction in which the nature of the respective
business conducted or property owned by it makes such qualification necessary
and where the failure so to qualify would have a material adverse effect on the
properties, business, results of operations, prospects or condition (financial
or otherwise) of the Company and its Subsidiaries taken as a whole (a "Material
Adverse Effect").
2.2 Due Authorization. The execution and delivery of this Agreement and
-----------------
the Registration Rights Agreement and the issuance and sale of the Securities by
the Company and compliance by the Company with all the provisions of this
Agreement and the Registra tion Rights Agreement (a) are within the corporate
power and authority of the Company; (b) do not or will not require the approval
or consent of the stockholders of the Company; and (c) have been authorized by
all requisite corporate proceedings on the part of the Company. This Agreement
and the Registration Rights Agreement have been duly executed and delivered by
the Company and constitute valid and binding agreements of the Company,
enforceable in accordance with their respective terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights,
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
2.3 SEC Reports. The Company has filed all registration statements, proxy
-----------
statements, reports and other documents required to be filed by it under the
Securities Act and the Exchange Act since January 1, 1997; and the Company has
furnished the Purchaser copies of its Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 (the "1997 Form 10-K") and all proxy statement
filings, registration statements and reports under the Securities Act and the
Exchange Act filed by the Company after such date, each as filed with the
Commission (collectively, the "SEC Reports"). Each SEC Report was in substan
tial compliance with the requirements of its respective report form and did not
on the date of filing contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading and as of the date hereof there is no fact not disclosed in
the SEC Reports which is peculiar to the Company and which materially adversely
affects the properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole.
2.4 Financial Statements.
--------------------
(a) The 1997 10-K includes true and correct copies of the audited
consolidated balance sheet and statements of operations, stockholders' equity
and cash flows of the Company for the year ended December 31, 1997 (including
the related notes thereto), together with the unqualified report of Ernst &
Young LLP ("E&Y") (the "1997 Financial Statements").
(b) The 1997 Financial Statements and the financial statements included in
the SEC Reports (including any related schedules and/or notes) have been
prepared in accordance with
-3-
<PAGE>
generally accepted accounting principles consistently followed (except as
indicated in the notes thereto) throughout the periods involved and fairly
present the consolidated financial condition, results of operations and changes
in stockholders' equity of the Company and its Subsidiaries as of the dates
thereof and for the periods ended on such dates (in each case subject, as to
interim statements, to changes resulting from year-end adjustments, none of
which will be material in amount or effect), and the Company has no material
liabilities or obligations, contingent or otherwise, not reserved against or
otherwise disclosed in the 1997 Financial Statements, other than any such
liabilities which are dis closed or referred to in the SEC Reports or are not
material or were incurred in the ordinary course of business since December 31,
1997. Since December 31, 1997, the Company and its Subsidiaries have operated
their respective businesses only in the ordinary course and there has been no
material adverse change in the properties, business, results of operation,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries taken as a whole, other than changes disclosed or referred to in
the SEC Reports or the 1997 Financial Statements.
2.5 Actions Pending; Compliance with Laws. There is no action, suit,
-------------------------------------
investigation or proceeding pending or, to the knowledge of the Company,
threatened by any public official or governmental authority, against the Company
or any of its Subsidiaries or any of their respective properties or assets by or
before any court, arbitrator or governmental body, department, commission,
board, bureau, agency or instrumentality (collectively, "Litiga tion"), which
questions the validity or enforceability of, or seeks to enjoin or invalidate
this Agreement and the Registration Rights Agreement or any action taken or to
be taken pursu ant hereto or thereto, or, except as set forth in the SEC Reports
or the 1997 Financial Statements, which is reasonably likely to result in any
Material Adverse Effect, and neither the Company nor any of its Subsidiaries is
in default in any material respect with respect to any judgment, order, writ,
injunction, decree or award. To the knowledge of the Company, the Company and
each Subsidiary is in material compliance with, and at all times since December
31, 1997 has been in material compliance with, all applicable federal, state,
local and foreign laws, statutes, orders, rules, regulations, policies or
guidelines promulgated, or judgments, decisions or orders entered by any
governmental authority (collectively, "Applicable Laws") relating to the Company
or any Subsidiary or their respective businesses or properties, including,
without limitation, social security laws, workers' protection laws, laws
regarding the provision of insurance, third party administration and primary
health care services, good manufacturing practices of the Food and Drug
Administration (the "FDA"), the Prescription Drug Marketing Act, the Federal
Controlled Substances Act of 1970, the Food, Drug and Cosmetic Act, any federal
or state Pharmacy Practice Acts, Controlled Substance Acts, Dangerous Drugs Acts
and Food, Drug and Cosmetic Acts, the Occupational Safety and Health Act and the
regulations promulgated thereunder ("OSHA"), the Foreign Corrupt Practices Act
(the "FCPA") and all rules of professional conduct applicable to the Company or
any Subsidiary by which any of its properties are bound or subject, except where
the failure to be in compliance therewith could not reasonably be expected to
have a Material Adverse Effect.
2.6 Title to Properties; Insurance. The Company and its Subsidiaries have
------------------------------
good and valid title to, or, in the case of property leased by any of them as
lessee, a valid and subsisting leasehold interest in, their respective
properties and assets, free of all liens and encumbrances other than those
referred to in the SEC Reports or the 1997 Financial Statements, except in each
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case for such defects in title and such other liens and encum brances which are
disclosed in the SEC Reports or the 1997 Financial Statements or which do not in
the aggregate materially detract from the value to the Company of the properties
and assets of the Company and its Subsidiaries taken as a whole. The Company
and its Subsidiaries maintain insurance in such amounts, including self-
insurance, retainage and deductible arrangements, and of such a character as is
reasonable for companies engaged in the same or similar business, including
directors' and officers' liability and product liability insurance.
2.7 Governmental Consents, etc. The Company is not required to obtain any
--------------------------
consent, approval or authorization of, or to make any declaration or filing
with, any governmental authority as a condition to or in connection with the
valid execution, delivery and performance of this Agreement or the Registration
Rights Agreement and the valid offer, issue, sale or delivery of the Securities,
or the performance by the Company of its obligations in respect thereof, any
filings required to effect any registration pursuant to the Registration Rights
Agreement, and any filings required pursuant to state and federal securities
laws which will be timely made after the Closings hereunder.
2.8 Holding Company Act and Investment Company Act. Neither the Company
----------------------------------------------
nor any Subsidiary is: (a) a "public utility company" or a "holding company,"
as such terms are defined in the Public Utility Holding Company Act of 1935, as
amended, or (b) a "public utility," as defined in the Federal Power Act, as
amended, or (c) an "investment company" or an "affiliated person" thereof as
such terms are defined in the Investment Company Act of 1940, as amended.
2.9 Conflicting Agreements and Charter Provisions. None of (a) the
---------------------------------------------
execution and delivery of this Agreement and the Registration Rights Agreement
and the issuance of the Securities, (b) the fulfillment of and compliance with
the terms and provisions hereof and thereof and of the Securities, and (c) the
conversion of the Notes as contemplated by the Governing Instruments will
conflict with or result in a breach of the terms, conditions or provisions of,
or give rise to a right of termination under, or constitute a default under, or
result in any violation of, the Certificate of Incorporation or Bylaws of the
Company or any mortgage, agreement, instrument, order, judgment, decree,
statute, law, rule or regulations to which the Company or any of its
Subsidiaries or any of their respective property is subject. Neither the Company
nor any of its Subsidiaries is in default under any outstanding indenture or
other debt instrument or with respect to the payment of principal of or interest
on any outstanding obligation for borrowed money, is in default under any of
their respective contracts or agreements, or under any instrument by which the
Company or any of its Subsidiaries is bound, in each case which default
materially and adversely affects the properties, business, results of
operations, prospects or condition (financial or otherwise) of the Company and
its Subsidiaries taken as a whole.
2.10 Capitalization. As of September 30, 1998, the authorized capital
--------------
stock of the Company consists solely of (a) 125,000,000 shares of the Common
Stock of which 79,644,987 shares were issued and outstanding; and (b) 5,000,000
shares of preferred stock, $.01 per share, of which (i) 1,840,000 shares have
been designated as $3.75 Convertible Exchangeable Preferred Stock of which
1,600,000 shares were issued and outstanding or reserved for
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<PAGE>
issuance, (ii) 200,000 shares have been designated as Series A Convertible
Preferred Stock none of which are issued or outstanding and all of which are
reserved for issuance upon conversion of the 2.675% Subordinated Convertible
Notes and (iii) 125,000 shares have been designated as Series I Participating
Preferred Stock, none of which were issued or outstanding, all of which were
reserved for issuance under the Gensia Preferred Stock Purchase Rights. All of
the outstanding shares of Common Stock have been validly issued and are fully
paid and nonassessable. No class of capital stock of the Company is entitled to
preemptive or similar rights. Since September 30, 1998, the Company has not, and
between the date hereof and the Closing Dates, the Company will not, issue any
addi tional shares of capital stock, other than pursuant to the exercise of
outstanding stock options or warrants or pursuant to the Company's Employee
Stock Purchase Plan or pur suant to the conversion of the Company's outstanding
convertible securities. To the extent that any rights, options or warrants to
acquire any securities of the Company are outstanding, none of (A) the issuance
and sale of the Securities pursuant to this Agreement or (B) the conversion of
the Notes into Common Stock will result in an adjustment of the exercise price
or number of shares issuable upon the exercise in respect of any such rights,
options or warrants.
2.11 Disclosure. Neither this Agreement nor any certificate, instrument
----------
or written statement furnished or made to the Purchaser by or on behalf of the
Company in connection with this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein mis leading. There is no fact which the
Company has not disclosed to the Purchaser or its counsel in writing and of
which the Company is aware which materially and adversely affects or which could
reasonably be expected to have a Material Adverse Effect or materi ally and
adversely affect the ability of the Company to perform its obligations under
this Agreement.
2.12 Status of Securities. The Securities have been duly authorized by
--------------------
all necessary corporate action on the part of the Company (no consent or
approval of stockholders being required by law, the Certificate of Incorporation
or the Bylaws of the Company or otherwise), and the Common Stock issuable upon
conversion of the Notes will be validly issued and outstanding, fully paid and
nonassessable, and the issuance of such Common Stock is not and will not be
subject to preemptive rights of any other stockholder of the Company. Such
shares of Common Stock have been validly reserved for issuance.
2.13 Possession of Franchises, Licenses, etc. The Company and its
---------------------------------------
Subsidiaries possess all franchises, certificates, licenses, permits and other
authorizations from governmental or political subdivisions or regulatory
authorities and all patents, trademarks, service marks, trade names, copyrights,
licenses and other rights, free from burdensome restrictions, that are necessary
in any material respect to the Company and its Subsidiaries taken as a whole for
the ownership, maintenance and operation of their respective properties and
assets, and neither the Company nor any of its Subsidiaries is in violation of
any thereof in any material respect.
2.14 Environmental Matters. Except as disclosed in the SEC Reports or
---------------------
otherwise disclosed to Purchaser:
(a) There are, with respect to the Company and each Subsidiary, or any
predecessor of
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the foregoing, no past or present material violations of Environmental Law, nor
any actions, activities, circumstances, conditions, events, incidents, or
contractual obligations which may give rise to any liability pursuant to any
Environmental Law and neither the Company nor any of its Subsidiaries has
received any notice with respect to any of the foregoing, nor is any Litigation
pending or threatened in connection with any of the foregoing.
(b) No Hazardous Materials are present on or about any real property
currently owned, leased or used by the Company or any of its Subsidiaries and no
Hazardous Materials were present on or about any real property previously owned,
leased or used by the Company or any its Subsidiaries during the period the
property was owned, leased or used by the Company or any of its Subsidiaries,
except in the normal course of the Company's or any such Subsidiary's business.
(c) No Hazardous Materials have been released on or about, or where they
may pose a threat of migration to, any real property currently owned, leased or
used by the Company or any of its Subsidiaries and no Hazardous Materials were
released on or about any real property previously owned, leased or used by the
Company or any of its Subsidiaries during the period the property was owned,
leased or used by the Company or any of its Subsidiaries, except as may be
required in the normal course of business and in material compliance with
applicable Environmental Law.
2.15 Offering of Notes. Neither the Company nor any Person acting on its
-----------------
behalf has offered the Notes or any similar securities of the Company for sale
to, solicited any offers to buy the Notes or any similar securities of the
Company from or otherwise approached or negotiated with respect to the Company
with any Person other than the Purchaser and other "Accredited Investors" (as
defined in Rule 501(a) under the Securities Act). Neither the Company nor any
Person acting on its behalf has taken or will take any action (including,
without limitation, any offering of any securities of the Company under
circumstances which would require the integration of such offering with the
offering of the Notes under the Securities Act and the rules and regulations of
the Commission thereunder) which could reasonably be expected to subject the
offering, issuance or sale of the Notes to the registration requirements of
section 5 of the Securities Act.
2.16 Use of Proceeds. The proceeds of the sale of the Securities will be
---------------
used by the Company for general corporate purposes.
2.17 No Brokerage or Finder's Fees. Neither the Company, any Subsidiary
-----------------------------
of the Company, nor any stockholder, director, officer or employee of the
Company or any Subsidiary has incurred or will incur any brokerage, finder's or
similar fee in connection with the transactions contemplated by this Agreement.
3. Representations and Warranties of the Purchaser. The Purchaser
-----------------------------------------------
represents and warrants as to it itself as of the date hereof as follows:
3.1 Due Authorization. The Purchaser has all right, power and authority
-----------------
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and
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<PAGE>
delivery of this Agreement by the Purchaser and the consummation by the
Purchaser of the transactions contemplated hereby have been duly authorized by
all necessary action on behalf of the Purchaser. This Agreement has been duly
executed and delivered by the Purchaser and constitutes a valid and binding
agreement of the Purchaser enforceable in accordance with its terms, except that
(a) such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights, and (b) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
3.2 Conflicting Agreements and Other Matters. Neither the execution and
----------------------------------------
delivery of this Agreement nor the performance by the Purchaser of its
obligations hereunder will conflict with, result in a breach of the terms,
conditions or provisions of, constitute a default under, or require any consent,
approval or other action by or any notice to or filing with any court or
administrative or governmental body pursuant to, the organizational documents or
agreements of the Purchaser or any mortgage, agreement, instrument, order,
judgment, decree, statute, law, rule or regulation to which the Purchaser or any
of its respective properties are subject, except for filings after the Closings
under section 13(d) of the Exchange Act.
3.3 Acquisition for Investment. The Purchaser is acquiring the Securities
--------------------------
being purchased by it for its own account for the purpose of investment and not
with a view to or for sale in connection with any distribution thereof, and the
Purchaser has no present intention or plan to effect any distribution thereof.
The Purchaser acknowledges that the Securities, including the Securities
issuable upon conversion have not been registered under the Securities Act and
may be sold or disposed of in the absence of such registration only pursuant to
an exemption from such registration and in accordance with this Agreement.
3.4 Brokers or Finders. No agent, broker, investment banker or other firm
------------------
or Person, including any of the foregoing that is an Affiliate of the Purchaser,
is or will be entitled to any broker's fee or any other commission or similar
fee from the Purchaser in connection with any of the transactions contemplated
by this Agreement that the Company will be responsible for pursuant to Section
11.10.
3.5 Accredited Investor. The Purchaser is an "accredited investor" within
-------------------
the meaning of Rule 501 promulgated under the Securities Act.
3.6 HSR Notification. If necessary, the Purchaser will cause to be filed
----------------
its notification ("HSR Notification") of the transaction contemplated by this
Agreement pursuant to the HSR Act at the same time as the Company files its HSR
Notification pursuant to Section 6.8.
4. Registration, Exchange and Transfer of Notes.
--------------------------------------------
4.1 Authorized Denominations of Notes. The Notes are issuable only as
---------------------------------
fully registered Notes in denominations of at least $100,000.
4.2 The Note Register; Persons Deemed Owners. The Company shall maintain,
----------------------------------------
at its
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<PAGE>
office designated for notices in accordance with Section 11.6, a register
for the Notes (the "Note Register"), in which the Company shall record the name
and address of the person in whose name each Note has been issued and the name
and address of each transferee and prior owner of each Note. The Company may
deem and treat the person in whose name a Note is so registered as the holder
and owner thereof for all purposes and shall not be affected by any notice to
the contrary, until due presentment of such Note for registration of transfer as
provided in this Article 4.
4.3 Issuance of New Notes Upon Exchange or Transfer. Upon surrender for
-----------------------------------------------
exchange or registration of transfer of any Note at the office of the Company
designated for notices in accordance with Section 11.6, the Company shall
execute and deliver, at its expense, one or more new Notes of any authorized
denominations requested by the holder of the surrendered Note, each dated the
date to which interest, if any, has been paid on the Note so surrendered (or, if
no interest has been paid, the date of such surrendered Note), but in the same
aggregate unpaid principal amount as such surrendered Note, and registered in
the name of such person or persons as shall be designated in writing by such
holder. Every Note surrendered for registration of transfer shall be duly
endorsed, or be accompanied by a written instrument of transfer duly executed,
by the holder of such Note or by his attorney duly authorized in writing. The
Company may also condition the issuance of any new Note or Notes in connection
with a transfer by any person on the payment of a sum sufficient to cover any
stamp tax or other governmental charge imposed in respect of such transfer.
4.4 Lost, Stolen, Damaged and Destroyed Notes. Upon receipt by the
-----------------------------------------
Company of evidence reasonably satisfactory to it of the ownership of and the
loss, theft, destruction or mutilation of any Note (which evidence shall be, in
the case of the Purchaser or any Affiliate of the Purchaser or the general
partner of the Purchaser, notice from the Purchaser or such Affiliate of such
ownership and such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided that if the holder of such Note is, or is a nominee
for, the Purchaser, an Affiliate of the Purchaser or the general partner of the
Purchaser or another holder of a Note with a minimum net worth of at least
$5,000,000, such Person's own unsecured agreement of indemnity shall be deemed
to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note, dated and bearing interest from the date to which interest shall have been
paid on such lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.
5. Payment of Notes.
----------------
5.1 Home Office Payment. The Company will pay to the Purchaser or any
-------------------
trans feree thereof all sums becoming due on the Notes (including all sums which
become due on the Notes at the maturity thereof) at the address specified in
Section 11.6 or at the address specified by such transferee, by wire transfer of
immediately available funds, or at such other address or
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<PAGE>
by such other method as the Purchaser or transferee shall have designated by
notice to the Company, without presentment for notation of payment and without
surrender. Before selling or otherwise transferring any Note, the Purchaser or
transferee will make a notation thereon of the aggregate amount of all payments
of principal, if any, therefore made, and of the date to which interest has been
paid.
5.2 Limitation on Interest. No provision of this Agreement or of any Note
----------------------
shall require the payment or permit the collection of interest, if payable, in
excess of the maximum rate which is permitted by law. If any such excess
interest is provided for herein or in any Note, or shall be adjudicated to be so
provided for, then the Company shall not be obligated to pay such interest in
excess of the maximum rate permitted by law, and the right to demand payment of
any such excess interest is hereby waived, any other provisions in this
Agreement or in any Note to the contrary notwithstanding.
5.3 Interest. Interest, if payable, on the principal amount of the Notes
--------
shall be due and payable as provided in the Notes.
6. Covenants of the Company. The Company covenants that so long as the
------------------------
Purchaser (and/or Affiliates of the Purchaser) hold the Notes:
6.1 Merger. The Company will not merge with or into or consolidate with
------
any other Person or sell or convey all or substantially all of its assets or
property to any other Person unless the Company is the continuing or surviving
entity or the Person (if other than the Company) formed by such merger or
consolidation or into which the Company is merged or to which the assets of the
Company are sold or conveyed (the "Surviving Entity") shall expressly assume the
then outstanding principal amount of the Notes.
6.2 Compliance with Laws. The Company will, and will cause each
--------------------
Subsidiary to, comply with all Applicable Laws with respect to the conduct of
its business and the ownership of its properties, including without limitation,
social security laws, workers' protection laws, environmental laws, human health
and equal employment opportunity laws, laws regarding the provision of
insurance, third party administration and primary health care services, good
manufacturing practices of the FDA, the Prescription Drug Marketing Act, the
Federal Controlled Substances Act of 1970, the Food, Drug and Cosmetic Act, any
federal or state Pharmacy Practice Acts, Controlled Substance Acts, Dangerous
Drugs Acts and Food, Drug and Cosmetic Acts, OSHA, the FCPA and all rules of
professional conduct applicable to the Company or any Subsidiary by which any of
its properties are bound or subject, provided that the Company shall not be
deemed to be in violation of this Section 6.2 as a result of any failure to
comply with any provisions of such statutes, rules, regula tions, and orders,
the noncompliance with which would not result in fines, penalties, injunc tive
relief or other civil liabilities which, in the aggregate, would materially and
adversely affect the properties, business, results of operations, prospects or
condition (financial or otherwise) of the Company and the Subsidiaries taken as
a whole.
6.3 Limitation on Agreements. The Company will not, and will not permit
------------------------
any Subsidiary to, enter into any agreement, or any amendment, modification,
extension or
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<PAGE>
supplement to any existing agreement, which contractually prohibits or in any
other way prevents or limits the Company from paying interest, if any, payable
on the Notes or redeeming the Notes.
6.4 Preservation of Franchises and Existence. Except as otherwise
----------------------------------------
permitted by the Agreement, the Company will (a) maintain its corporate
existence, rights and franchises in full force and effect, and (b) cause the
Subsidiaries to maintain their respective corporate existences, rights and
franchises in full force and effect, provided that nothing in this Section 6.4
shall prevent the Company or any Subsidiary from discontinuing its operations in
any particular state or at any particular location or locations within the
state, or prevent the corporate existence, rights and franchises of any
Subsidiary from being terminated if, in the opinion of the Board of Directors of
the Company, the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Subsidiaries taken as a whole or
implementing the Company's plans with respect to Metabasis.
6.5 Insurance.
---------
(a) The Company will, and will cause each of the Subsidiaries to maintain,
with insurers believed by the Company to be responsible, such insurance, in such
amounts and of such types as are customarily carried under similar circumstances
by companies engaged in the same or a similar business or having similar
properties similarly situated.
(b) The Company shall (i) provide, maintain and perform in the same manner
as prior to the date hereof the Company's existing indemnification provisions
with respect to present and future directors and officers of the Company for all
losses, claims, damages, expenses or liabilities arising out of actions or
omissions or alleged actions or omissions occurring after the Closing Date to
the extent permitted or required under applicable law and the Company's
Certificate of Incorporation and Bylaws in effect at the date hereof (to the
extent consistent with applicable law); and (ii) maintain directors and officers
liability coverage, with limits, terms and conditions no less advantageous than
in effect on the date hereof. Such coverage will be maintained with the current
insurance carriers or insurance carriers of financial strength equal to or
greater than the financial strength of the current insurance carriers. Evidence
of such coverage will be provided to the individual officers and directors upon
request. Any new directors or officers of the Company will be added to such
policies.
6.6 Payment of Taxes and Other Charges. The Company will pay or
----------------------------------
discharge, and will cause each of the Subsidiaries to pay or discharge, before
the same shall become delinquent, (a) all taxes, assessments and other
governmental charges or levies imposed upon it or any of its properties or
income (including, without limitation, such as may arise under section 4062,
4063, or 4064 of ERISA or any similar provision of law), and (b) all claims or
demands of materialmen, mechanics, carriers, warehousemen, landlords and other
like persons which, in the case of either clause (a) or clause (b), if unpaid,
might result in the creation of a material lien upon any of its properties,
provided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith pursuant to
appropriate proceedings.
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<PAGE>
6.7 Financial Statements and Other Reports.
--------------------------------------
(a) The Company will, as soon as practicable and in any event within
forty-five (45) days after the end of each quarterly period (other than the last
quarterly period) in each fiscal year, furnish to the Purchaser statements of
consolidated net income and cash flows and a statement of changes in
consolidated stockholders' equity of the Company and its Subsidiaries for the
period from the beginning of the then current fiscal year to the end of such
quarterly period, and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such quarterly period, setting forth in each case
in comparative form figures for the corresponding period or date in the
preceding fiscal year, all in reasonable detail and certified by an authorized
financial officer of the Company, subject to changes resulting from year-end
adjustments; provided, however, that delivery of a copy of the Quarterly Report
on Form 10-Q of the Company for such quarterly period filed with the Commission
shall be deemed to satisfy the requirements of this clause (a);
(b) it will, as soon as practicable and in any event within ninety (90)
days after the end of each fiscal year, furnish to the Purchaser statements of
consolidated net income and cash flows and a statement of changes in
consolidated stockholders' equity of the Company and its Subsidiaries for such
year, and consolidated balance sheets of the Company and its Subsidiaries as of
the end of such year, setting forth in each case in comparative form the
corresponding figures from the preceding fiscal year, all in reasonable detail
and examined and reported on by independent public accountants of recognized
national standing selected by the Company; provided, however, that delivery of a
copy of the Annual Report on Form 10-K of the Company for such fiscal year filed
with the Commission shall be deemed to satisfy the requirements of this clause
(b);
(c) it will, promptly upon transmission thereof, furnish to the Purchaser
copies of all such financial statements, proxy statements, notices and reports
as it shall send to its stockholders and copies of all such registration
statements (without exhibits), other than registration statements relating to
employee benefit or dividend reinvestment plans, and all such regular and
periodic reports as it shall file with the Commission; and
(d) it will promptly furnish to the Purchaser (i) copies of (A) any
compliance certificates furnished to lenders in respect of Indebtedness of the
Company and its Subsidiaries and (B) any notices of default from lenders in
respect of any such Indebtedness and (ii) notice of (A) the commencement of any
Litigation which, if determined adversely to the Company, would have a Material
Adverse Effect, (B) the issuance by any governmental authority of any
injunction, order, restraint or other decision which has resulted in, or which
is likely, in the reasonable judgment of the Company or any such Subsidiary, to
have a Material Adverse Effect or (C) any development in the business or affairs
of the Company or any of the Subsidiaries which has resulted in, or which is
likely, in the reasonable judgment of the Company or any such Subsidiary, to
result in a Material Adverse Effect.
6.8 HSR. If the Purchaser desires to have the ability to convert some or
---
all of the Notes into Common Stock, each of the Company and the Purchaser, upon
notice from the party
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<PAGE>
desiring to exercise such right to the other party, shall as promptly as
possible file its HSR Notification, if necessary.
6.9 Certain Tax Matters.
-------------------
(a) In the event (i) of a Final Determination (as defined below) that the
Purchaser is required to include in income for any taxable year amounts ("OID")
determined pursuant to the principles of sections 1271-75 of the Code and the
regulations thereunder, including by application of section 305(c) of the Code,
or any successor provisions thereto (collectively, the "OID Rules") with respect
to the Notes (an "OID Inclusion") or (ii) the OID Rules or any similar or
corresponding state or local law is amended to require an OID Inclusion for any
taxable year, the Company shall pay to the Purchaser with respect to each such
OID Inclusion no later than the Payment Due Time (as defined below), an
additional payment (the "Gross-Up Payment") such that the net amount of such
Gross-Up Payment (plus the amount of any interest paid with respect to the
Notes) retained by the Purchaser after payment by such Purchaser of any federal,
state and local income tax actually imposed upon such Gross-Up Payment (plus the
amount of any interest paid with respect to the Notes) shall equal the sum of
(A) the amount of the OID Inclusion for such taxable year (plus the amount of
any interest paid with respect to the Notes) multiplied by the maximum combined
federal, state and local income tax rate for an individual resident in New York
City, after giving due allowance for the deductibility of state and local income
taxes (the "Applicable Tax Rate"), (B) interest on the amount specified in
subclause (A) at the rates in effect from time to time for individual taxpayers
resident in New York City with respect to income tax deficiencies for all
periods from the date with respect to which the deficiency arose until the
payment of the amount specified in subclause (A), and (C) penalties, if any,
actually payable by the Purchaser with respect to the OID Inclusion to the
Internal Revenue Service or any other applicable taxing authority by reason of
such events.
(b) A "Final Determination" with respect to a federal tax liability shall
mean (i) a decision, judgment, decree or other order by any court of competent
jurisdiction, which decision, judgment, decree or other order has become final,
or (ii) a closing agreement entered into under section 7121 (or any successor to
such section) of the Code or any other settlement agreement entered into a
connection with an administrative or judicial proceeding and consented to by the
Purchaser. The "Payment Due Time" shall mean 5:00 p.m. Eastern time, of the
day two (2) banking days before the date on which expires the period allowed by
applicable law for timely payment of the tax liability imposed on the related
OID Inclusion pursuant to an applicable Final Determination.
(c) In the event that the Purchaser is notified formally or informally of
any audit, examination or proceeding by the Internal Revenue Service or other
taxing authority with respect to the includability in income of OID with respect
to the Notes, Warrants or Pre ferred Stock, the Purchaser will promptly notify
the Company of such audit, examination or proceeding; provided, however, that
the Purchaser's failure to give such notice or to keep the Company fully
informed concerning a Contest (as defined below) shall not affect the Company's
obligation to make Gross-Up Payments in accordance with this Section 6.9.
Subject to the requirement that the Purchaser shall proceed in good faith and
shall pursue the issue diligently, the Purchaser shall have exclusive control
and responsibility to conduct any
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<PAGE>
audit, examination, proceeding or litigation (a "Contest") with respect to such
treatment. The Purchaser shall bear all costs and expenses in connection with
such Contest.
(d) The Company expressly acknowledges that Affiliates of the Purchaser
who acquire Notes, Warrants or Preferred Stock as permitted by this Agreement
shall be entitled to the benefits of this Section 6.9. No other subsequent
holder shall be entitled to the benefits of this Section 6.9.
6.10 Notice of Breach. As promptly as practicable, and in any event not
----------------
later than ten (10) Business Days after executive officers of the Company become
aware of any other breach by the Company of any provision of this Agreement,
including, without limitation, any provision of this Article 6, the Company
shall provide the Purchaser with written notice specifying the nature of such
breach and any actions proposed to be taken by the Company to cure such breach.
6.11 Interest. All interest payments on the Notes to the Purchaser shall
--------
be made free of withholding of any nature whatsoever (and at the time that the
Company is required to make such payments of interest upon which any such
withholding will be required, the Company shall pay an additional amount such
that the net amount actually received will, after any such withholding, equal
the full amount of the interest payment due) and shall be free of expense for
collection or other charges associated with such withholding provided that the
Purchaser shall have complied with its obligations to provide the information
required by Section 11.16.
7. Events of Default and Remedies.
------------------------------
7.1 Events of Default. Each of the following shall constitute an Event of
-----------------
Default with respect to the Notes under this Agreement:
(a) Nonpayment of Principal of the Notes. If the Company fails to pay the
------------------------------------
principal of or interest on or any other sum, if any, due on any Note, when and
as the same becomes due and payable, whether at the maturity thereof, on a dated
fixed for a redemption, or otherwise and fails to cure such failure within five
(5) days; or
(b) Cross-Default. If (i) the Company or any Subsidiary (x) fails to make
-------------
any payment in respect of any Indebtedness, having an aggregate principal amount
(including undrawn committed or available amounts and including amounts owing to
all creditors under any combined or syndicated credit arrangement) of more than
$3,000,000 when due (whether by scheduled maturity, required prepayment,
acceleration, demand, or otherwise) and such failure continues after the
applicable grace or notice period, if any, specified in the relevant document on
the date of such failure; or (y) fails to perform or observe any other condition
or covenant, or any other event shall occur or condition exist, under any agree
ment or instrument relating to any such Indebtedness, and such failure continues
after the applicable grace or notice period, if any, specified in the relevant
document on the date of such failure if the effect of such failure, event or
condition is to cause, or to permit the holder or holders of such Indebtedness
or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on
behalf of such holder or holders or beneficiary or beneficiaries) to cause such
Indebtedness to be declared to be due
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<PAGE>
and payable prior to its stated maturity, or collateral in respect thereof to be
demanded; or (ii) there occurs under any Swap Contract an Early Termination Date
(as defined in and provided for in any such Swap Contract that is in the form of
an ISDA Master Agreement) or equivalent termination event (as provided in any
other Swap Contract) resulting from (A) any event of default under such Swap
Contract as to which the Company or any Subsidiary is the Defaulting Party (as
defined in such Swap Contract) or (B) any Termination Event (as so defined in
such Swap Contract) as to which the Company or any Subsidiary is an Affected
Party (as so defined in such Swap Contract), and, in either event, the Swap
Termination Value owed by the Company or such Subsidiary as a result thereof is
greater than $3,000,000; or
(c) Voluntary Bankruptcy and Insolvency Proceedings. If the Company or
-----------------------------------------------
any Subsidiary shall file a petition in bankruptcy or for reorganization or for
an arrangement or any composition, readjustment, liquidation, dissolution or
similar relief pursuant to the Federal Bankruptcy Code of 1978, as amended, or
under any similar present or future federal law or the law of any other
jurisdiction or shall be adjudicated a bankrupt or become insolvent, or consent
to the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of the Company or
such Subsidiary or for all or any substantial part of its respective property,
or the Company or any Subsidiary shall make an assignment for the benefit of its
creditors, or shall admit in writing its inability to pay its debts generally as
they become due, or shall take any corporate action, as the case may be, in
furtherance of any of the foregoing; or
(d) Adjudication of Bankruptcy. If a petition or answer shall be filed
--------------------------
proposing the adjudication of the Company or any Subsidiary as a bankrupt or its
reorganization or arrangement, or any composition, readjustment, liquidation,
dissolution or similar relief with respect to it pursuant to the Federal
Bankruptcy Code of 1978, as amended, or under any similar present or future
federal law or the law of any other jurisdiction applicable to the Company or
such Subsidiary, and the Company or any Subsidiary shall consent to or acquiesce
in the filing thereof, or such petition or answer shall not be discharged or
denied within ninety (90) days after the filing thereof; or
(e) Receivership or Sequestration. If a decree or order is rendered by a
-----------------------------
court having jurisdiction (i) for the appointment of a receiver or custodian or
liquidator or trustee or sequestrator or assignee (or similar official) in
bankruptcy or insolvency of the Company or any Subsidiary or of all or a
substantial part of its property, or for the winding-up or liquidation of its
affairs, and such decree or order shall have remained in force undischarged and
unstayed for a period of ninety (90) days, or (ii) for the sequestration or
attachment of any property of the Company or any Subsidiary without its return
to the possession of the Company or such Subsidiary or its release from such
sequestration or attachment within ninety (90) days thereafter; or
(f) Covenant Defaults. If the Company shall have breached in any material
-----------------
respect any of the covenants set forth herein and such breach shall continue for
sixty (60) days following the date notice is required to be given under Section
6.10.
(g) Change in Control. If a Change of Control (as such term is hereinafter
-----------------
defined)
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<PAGE>
shall have occurred.
For all purposes under this Agreement, "Change in Control" shall mean the
occurrence of any of the following events after the date of this Agreement:
(a) The first purchase of shares of the Company's Common Stock
pursuant to a tender offer or exchange offer (other than an offer by the
Company) for all, or any part, of such Common Stock;
(b) Stock Acquisition (as defined below);
(c) Approval by the Company's stockholders of a merger in which the
Company does not survive as an independent, publicly owned corporation
(other than such a merger that leaves the stockholders of the Company with
substantially the same ownership interest in the new corporation), a
consolidation, or a sale, exchange or other disposition of all or
substantially all the Company's assets; or
(d) A change in the composition of the Company's Board of Directors
(the "Board") during any period of two consecutive years such that
individuals who at the beginning of such period were members of the Board
cease for any reason to constitute at least a majority thereof, unless the
election, or the nomination for election by the Company's stockholders, of
each new director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of the
period.
A "Stock Acquisition" is deemed to occur at the time of any acquisition of
voting securities of the Company by any person or group (as such term is used in
sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, but
excluding (i) the Company or any of its subsidiaries or (ii) any savings,
pension or other benefit plan for the benefit of employees of the Company or any
of its subsidiaries) which theretofore did not beneficially own voting
securities representing more than 30% of the voting power of all outstanding
voting securities of the Company, if such acquisition results in such entity,
person or group owning beneficially securities representing more than 30% of the
voting power of all outstanding voting securities of the Company. As used
herein, "voting power" means ordinary voting power for the election of directors
of the Company.
7.2 Acceleration of Maturity. If any Event of Default shall have occurred
------------------------
and be continuing, the holders of sixty-six and two-thirds percent (66-2/3%) of
the outstanding principal amount of Notes may, by notice to the Company, declare
the entire outstanding principal balance of the Notes, and all accrued and
unpaid interest, if any, thereon, to be due and payable immediately, and upon
any such declaration the entire outstanding principal balance of the Notes, and
said accrued and unpaid interest, if any, shall become and be immediately due
and payable, without presentment, demand, protest or other notice whatso ever,
all of which are hereby expressly waived, anything in the Notes or in this
Agreement to the contrary notwithstanding; provided that if an Event of Default
under clause (c), (d), or (e) of
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<PAGE>
Section 7.1 with respect to the Company shall have occurred, the outstanding
princi pal amount of all of the Notes, and all accrued and unpaid interest, if
any, thereon, shall immediately become due and payable, without any declaration
and without presentment, demand, protest or other notice whatsoever, all of
which are hereby expressly waived, anything in the Notes or this Agreement to
the contrary notwithstanding; and provided, further, that if an Event of Default
under clause (a) of Section 7.1 shall have occurred and be continuing with
respect to any Note, the Purchaser or Affiliate of the Purchaser (but not any
transferee thereof other than an Affiliate of such Purchaser) holding one or
more Notes in an aggregate outstanding principal amount of at least $1,000,000
may, by notice to the Company, declare the entire outstanding principal of such
Notes and all accrued and unpaid interest, if any, thereon, to be due and
payable immediately, and upon any such declaration the entire outstanding
principal of such Notes and said accrued and unpaid interest, if any, shall
become and be immediately due and payable, without presentment, demand, protest
or other notice whatsoever, all of which are hereby expressly waived, anything
in such Notes or in this Agreement to the contrary notwithstanding.
7.3 Other Remedies. If any Event of Default shall have occurred and be
--------------
continuing, from and including the date of such Event of Default to but not
including the date such Event of Default is cured or waived, any holder may
enforce its rights by suit in equity, by action at law, or by any other
appropriate proceedings, whether for the specific performance (to the extent
permitted by law) of any covenant or agreement contained in this Agreement or
the Notes or in aid of the exercise of any power granted in this Agreement or
the Notes, and any holder may enforce the payment of any Note held by such
holder and any of its other legal or equitable rights. From the date that a
Default or Event of Default shall have occurred and during the continuance of
any Default or Event of Default, the Company shall pay interest on the
outstanding principal of, and premium, if any, on the Notes and (to the extent
legally enforceable) on any overdue installment of interest, if any, at the rate
of eleven and three-quarters percent (11.75%) per annum until such overdue
amount is paid or until such Default or Event of Default is cured or waived.
7.4 Conduct No Waiver; Collection Expenses. No course of dealing on the
--------------------------------------
part of any holder, nor any delay or failure on the part of any holder to
exercise any of its rights, shall operate as a waiver of such right or otherwise
prejudice such holder's rights, powers and remedies. If the Company fails to
pay, when due, the principal or the premium, if any, or the interest, if any, on
any Note, the Company will pay to each holder, to the extent permitted by law,
on demand, all costs and expenses incurred by such holder in the collection of
any amount due in respect of any Note hereunder, including reasonable legal fees
incurred by such holder in enforcing its rights hereunder.
7.5 Annulment of Acceleration. If a declaration is made in accordance
-------------------------
with Section 7.2, then and in every such case, the holders of at least sixty-six
and two-thirds percent (66-2/3%) of the outstanding principal amount of the
Notes may, by an instrument delivered to the Company, annul such declaration and
the consequences thereof, provided that at the time such declaration is
annulled:
(a) no judgment or decree has been entered for the payment of any monies
due on the Notes or pursuant to this Agreement;
-17-
<PAGE>
(b) all arrears of interest on the Notes and all other sums payable on the
Notes and pursuant to this Agreement (except any principal of or interest or
premium on the Notes which has become due and payable by reason of such
declaration) shall have been duly paid; and
(c) every other Event of Default shall have been duly waived or otherwise
made good or cured; provided, however, that only the Purchaser or Affiliate of
the Purchaser (but not any transferee thereof other than an Affiliate of such
Purchaser) of the Note or Notes making the declaration permitted by the last
proviso of Section 7.2 may annul such declaration; and provided, further, that
no such annulment shall extend to or affect any subsequent Event of Default or
impair any right consequent thereon.
7.6 Remedies Cumulative. No right or remedy conferred upon or reserved to
-------------------
the holders of Notes under this Agreement is intended to be exclusive of any
other right or remedy, and every right and remedy shall be cumulative and in
addition to every other right and remedy given hereunder or now and hereafter
existing under applicable law. Every right and remedy given by this Agreement or
by applicable law to the holders of Notes may be exercised from time to time and
as often as may be deemed expedient by the holders.
7.7 Limitations. Notwithstanding the foregoing provisions of this Article
-----------
7, the exercise of remedies by the holders of the Notes is subject to the
provisions of Article 9 hereof.
8. Conversion.
----------
8.1 Holder's Option to Convert into Common Stock. Subject to the
--------------------------------------------
provisions for adjustment hereinafter set forth, any Note or any portion of the
outstanding principal amount of such Note shall be convertible at the option of
the holder at any time after the First Closing into shares of Common Stock at a
conversion ratio for each $100 of outstanding principal amount of Notes equal to
the Conversion Ratio.
8.2 Exercise of Conversion Privilege.
--------------------------------
(a) Any conversion by the holders of Notes into Common Stock shall be in
an aggregate outstanding principal amount equal to at least $100,000, unless the
amount so converted shall be such holder's entire outstanding principal amount
of Notes. Conversion of the Notes may be effected by any holder thereof upon
the surrender to the Company at the office of the Company designated for notices
in accordance with Section 11.6 or at the office of any agent or agents of the
Company, as may be designated by the Board of Directors (the "Transfer Agent"),
of the Notes to be converted, accompanied by a written notice stating that such
holder elects to convert all or a specified portion of the outstanding principal
amount of such Notes in accordance with the provisions of this Article 8 and
specifying the name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. In case any holder's
notice shall specify a name or names other than that of such holder, such notice
shall be accompanied by payment of all transfer taxes payable upon the issuance
of shares of Common Stock in such name or names. Other than such taxes, the
Company will pay any and all issue and other taxes (other than taxes based on
income) that
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<PAGE>
may be payable in respect of any issue or delivery of shares of Common Stock on
conversion of Notes pursuant hereto. As promptly as practicable, and in any
event within five (5) Business Days after the surrender of such Notes and the
receipt of such notice relating thereto and, if applicable, payment of all
transfer taxes (or the demonstration to the satisfaction of the Company that
such taxes have been paid), the Company shall deliver or cause to be delivered
(i) certificates representing the number of validly issued, fully paid and
nonassessable full shares of Common Stock to which the holder of the Notes being
converted shall be entitled and (ii) if less than the entire outstanding
principal amount of any Note surrendered is being converted, a new Note in the
principal amount which remains outstanding upon such partial conversion. The
date of delivery of the Notes shall be deemed to be the date of conversion.
(b) Such right of conversion shall cease and terminate as to the Notes at
the close of business on the Business Day preceding January 10, 2001 unless the
Company shall default in the repayment of the Notes.
(c) The Conversion Ratio shall be subject to adjustment from time to time
in certain instances as hereinafter provided.
8.3 Fractions of Shares; Interest. In connection with the conversion of
-----------------------------
any Note into Common Stock, no fractions of shares shall be issued, but in lieu
thereof the Company shall pay a cash adjustment in respect of such fractional
interest in an amount equal to such fractional interest multiplied by the
Current Market Price per share of Common Stock on the Trading Day on which such
Note is deemed to have been converted. If more than one Note shall be
surrendered for conversion by the same holder at the same time, the number of
full shares of Common Stock issuable on conversion thereof shall be computed on
the basis of the aggregate outstanding principal amount of Notes so surrendered.
Promptly upon conversion, the Company shall pay to holders of Notes so converted
an amount equal to any accrued and unpaid interest on the Notes surrendered for
conversion to the date of such conversion, together with cash in lieu of any
fractional share of Common Stock.
8.4 Reservation of Stock.
--------------------
(a) The Company shall at all times reserve and keep available for issuance
upon the conversion of the Notes, free from any preemptive rights, such number
of its authorized but unissued shares of Common Stock as will from time to time
be sufficient to permit the conversion of the entire outstanding principal
amount of the Notes into Common Stock, and shall take all action required to
increase the authorized number of shares of Common Stock, if necessary, to
permit the conversion of the entire outstanding principal amount of the Notes.
(b) If the Company shall issue shares of Common Stock upon conversion of
the Notes as contemplated by this Article 8, the Company shall issue together
with each such share of Common Stock one Right (or other securities in lieu
thereof), or any rights issued to holders of Common Stock in addition thereto or
in replacement therefor, whether or not such rights shall be exercisable at such
time, but only if such rights are issued and out standing and held by other
holders of Common Stock at such time and have not expired.
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<PAGE>
8.5 Adjustment of Conversion Ratio. The Conversion Ratio will be subject
------------------------------
to adjustment from time to time as follows:
(a) In case the Company shall at any time or from time to time after
November __, 1998 (i) pay a dividend, or make a distribution, on the outstanding
shares of Common Stock in shares of Common Stock, (ii) subdivide the outstanding
shares of Common Stock, (iii) combine the outstanding shares of Common Stock
into a smaller number of shares or (iv) issue by reclassification of the shares
of Common Stock any shares of capital stock of the Company, then, and in each
such case, the Conversion Ratio in effect immediately prior to such event or the
record date therefor, whichever is earlier, shall be adjusted so that the holder
of any Note thereafter surrendered for conversion into Common Stock shall be
entitled to receive, for each $100 of outstanding principal amount of Notes, the
number of shares of Common Stock or other securities of the Company which such
holder would have owned or have been entitled to receive after the happening of
any of the events described above, had such Notes been surrendered for
conversion immediately prior to the happening of such event or the record date
therefor, whichever is earlier. An adjustment made pursu ant to this clause (a)
shall become effective (x) in the case of any such dividend or distribu tion,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of such subdivision, reclassification or
combination, at the close of business on the day upon which such corporate
action becomes effective. No adjustment shall be made pursuant to this clause
(a) in connection with any transaction to which Section 8.6 applies.
(b) In case the Company shall at any time or from time to time after
November __, 1998 declare, order, pay or make a dividend or other distribution
(including, without limita tion, any distribution of stock or other securities
or property or rights or warrants to sub scribe for securities of the Company or
any of its Subsidiaries by way of dividend, on its Common Stock, other than
dividends or distributions of shares of Common Stock which are referred to in
Section 8.5(a), then, and in each such case, the Conversion Ratio and the Con
version Price shall be adjusted so that the holder of each Note shall be
entitled to receive, upon the conversion thereof, for each $100 of outstanding
principal amount of Notes, the number of shares of Common Stock determined by
multiplying (i) the applicable Conversion Ratio on the day immediately prior to
the record date fixed for the determination of stock holders entitled to receive
such dividend or distribution by (ii) a fraction, the numerator of which shall
be the Current Market Price of the Common Stock for the period of twenty (20)
Trading Days preceding such record date, and the denominator of which shall be
such Current Market Price of the Common Stock less the Fair Market Value per
share of Common Stock (as determined in good faith by the Board of Directors and
supported by an opinion from an investment banking firm of recognized national
standing acceptable to holders of a majority of the Notes) of such dividend or
distribution. No adjustment shall be made pursuant to this Section 8.5(b) in
connection with any transaction to which Section 8.6 applies.
(c) For purposes of this Section 8.5, the number of shares of Common Stock
at any time outstanding shall not include any shares of Common Stock then owned
or held by or for the account of the Company.
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<PAGE>
(d) The term "dividend," as used in this Section 8.5, shall mean a
dividend or other distribution upon stock of the Company as well as any
consideration granted to a shareholder for the release of a claim against the
Company.
(e) Anything in this Section 8.5 to the contrary notwithstanding, the
Company shall not be required to give effect to any adjustment in the Conversion
Ratio unless and until the net effect of one or more adjustments (each of which
shall be carried forward), determined as above provided, shall have resulted in
a change of the Conversion Ratio by at least one one-hundredth of one share of
Common Stock, and when the cumulative net effect of more than one adjustment so
determined shall be to change the Conversion Ratio by at least one one-hundredth
of one share of Common Stock, such change in Conversion Ratio shall thereupon be
given effect.
(f) The certificate of the Chief Financial Officer of the Company shall be
presumptively correct for any computation made under this Section 8.5.
(g) If the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or other distribution,
and shall thereafter and before the distribution to stockholders thereof legally
abandon its plan to pay or deliver such dividend or distribution, then
thereafter no adjustment in the number of shares of Common Stock issuable upon
exercise of the right of conversion granted by this Section 8.5 or in the
Conversion Ratio or Conversion Price then in effect shall be required by reason
of the taking of such record.
(h) In the case of any event which requires an adjustment to the
Conversion Ratio pursuant to this Section 8.5, the Conversion Price shall also
be appropriately adjusted to reflect such event.
8.6 Merger or Consolidation. In the case of any consolidation or merger
-----------------------
of the Company with or into another corporation, or in case of any sale or
conveyance to another corporation of all or substantially all of the assets or
property of the Company (each of the foregoing being referred to as a
"Transaction") occurring in each case at any time, each Note then outstanding
shall thereafter be convertible into, in lieu of the Common Stock issu able upon
such conversion prior to consummation of such Transaction, the kind and amount
of shares of stock and other securities and property receivable (including cash)
upon the consummation of such Transaction by a holder of that number of shares
of Common Stock into which the principal balance of such Note was convertible
immediately prior to such Transaction. In case securities or property other
than Common Stock shall be issuable or deliverable upon conversion as aforesaid,
then all references in this Article 8 shall be deemed to apply, so far as
appropriate and nearly as may be, to such other securities or property.
8.7 Notice of Certain Corporate Actions. In case at any time or from time
-----------------------------------
to time the Company shall pay any stock dividend or make any other non-cash
distribution to the holders of its Common Stock, or shall offer for subscription
pro rata to the holders of its Common Stock any additional shares of stock of
any class or any other right, or there shall be any capital reorganization or
reclassification of the Common Stock or consolidation or merger of the
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<PAGE>
Company with or into another corporation, or any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company, then, in any one or more of said cases the Company
shall give at least twenty (20) days' prior written notice (the time of mailing
of such notice shall be deemed to be the time of giving thereof) to the
registered holders of the Notes at the addresses of each as shown in the Note
Register of the date on which (a) a record shall be taken for such stock
dividend, distribution or subscription rights or (b) such reorganization,
reclassification, consolidation, merger, sale or conveyance, dissolution,
liquidation or winding up shall take place, as the case may be, provided that in
the case of any Transaction to which Section 8.5 applies the Company shall give
at least thirty (30) days' prior written notice as aforesaid. Such notice shall
also specify the date as of which the holders of the Common Stock of record
shall participate in said dividend, distribution or subscription rights or shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale or conveyance or participate in such dissolution, liquidation or winding
up, as the case may be. Failure to give such notice shall not invalidate any
action so taken.
8.8 Reports as to Adjustments. Upon any adjustment of the Conversion
-------------------------
Ratio then in effect and any increase or decrease in the number of shares of
Common Stock issuable upon the operation of the conversion provisions set forth
in this Article 8, then, and in each such case, the Company shall promptly
deliver to the Transfer Agent of the Notes and Common Stock, a certificate
signed by the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Company setting
forth in reasonable detail the event requiring the adjustment and the method by
which such adjustment was calculated and specifying the Conversion Ratio then in
effect following such adjustment and the increased or decreased number of shares
issu able upon the conversion granted by this Section 8, and shall set forth in
reasonable detail the method of calculation of each and a brief statement of the
facts requiring such adjust ment. Where appropriate, such notice to holders of
the Notes may be given in advance and included as part of the notice required
under the provisions of Section 8.7. In any event notice of any such adjustment
shall be given promptly to the holders of the Notes.
9. Subordination of Notes.
----------------------
9.1 Subordination of Notes to Senior Indebtedness. The Indebtedness
---------------------------------------------
evidenced by the Notes and all renewals and extensions thereof, all obligations
of the Company under this Agreement, and all other instruments and agreements
arising out of or relating to any or all of the foregoing and all renewals and
extensions thereof (collectively called the "Junior Indebtedness") shall at all
times be wholly subordinate and junior in right of payment to any and all Senior
Indebtedness of the Company (including any claims by the holders of such Senior
Indebtedness for interest accruing after any assignment for the benefit of
creditors by the Company or the institution by or against the Company of any
proceedings under the Bankruptcy Code or any law for the relief of or relating
to debtors, or any other claim by such holders for any such interest which would
have accrued in the absence of such assignment or the institution of such
proceedings) in the manner and with the force and effect hereafter set forth:
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<PAGE>
(a) In the event of any liquidation, dissolution or winding up of the
Company, or of any execution, sale, receivership, insolvency, bankruptcy,
liquidation, readjustment, reorgani zation or other similar proceeding relative
to the Company or its property, all sums owing on all Senior Indebtedness of the
Company (including cash collateral and amounts not yet due and payable) shall
first be paid in full before any payment is made upon the Junior Indebtedness;
and in any such event any payment or distribution of any kind or character,
whether in cash, property, or securities which shall be made upon or in respect
of the Junior Indebtedness shall be paid over to the holders of the Senior
Indebtedness of the Company, pro rata, for application in payment thereof unless
and until such Senior Indebtedness shall have been paid or satisfied in full.
In case of any assignment for the benefit of creditors by the Company or in case
any proceedings under the Bankruptcy Code or any other law for the relief of or
relating to debtors are instituted by or against the Company, or in case of the
appointment of any receiver for the Company's business or assets, or in case of
any dissolution or winding up of the affairs of the Company, the Company and any
assignee, trustee in bankruptcy, receiver, debtor in possession or other person
or persons in charge are hereby directed to pay to the holders of the Senior
Indebtedness of the Company the full amount of such holders' claims against the
Company (including interest to the date of payment) before making any payments
to the holders of Junior Indebtedness, and insofar as may be necessary for that
purpose, the Purchaser hereby assign and transfer to the holders of Senior
Indebtedness of the Company all rights to any payments, dividends or other
distributions.
(b) In the event that all or any part of the Junior Indebtedness is
declared or becomes due and payable because of the occurrence of any Event of
Default or otherwise than at the option of the Company (other than pursuant to
its terms at its final maturity), under circumstances when the foregoing clause
(a) shall not be applicable, the holders of the Junior Indebtedness shall be
entitled to payments only after there shall first have been paid in full all
Senior Indebtedness of the Company or payment shall have been provided therefor
in a manner satisfactory to the holders of such Senior Indebtedness.
(c) Upon the occurrence of an event which is, or with the lapse of time or
notice or both would be, an event which gives any holder of any Senior
Indebtedness of the Company the right to demand payment, cash collateral,
accelerate the maturity, or terminate any commitment to further extend credit,
no payment shall be made on any Junior Indebtedness if either:
(i) notice of such default in writing or by telegram has been given
to the Company by any holder of any Senior Indebtedness of the Company,
provided that judicial proceedings shall be commenced with respect to such
default (x) within one hundred eighty (180) days thereafter if such default
consists of the nonpayment of principal, interest, or any other sum due on
such Senior Indebtedness, or (y) within one hundred eighty (180) days after
the earlier of (A) the giving of such notice or (B) the date on which such
holder is entitled to institute judicial proceedings, or
(ii) judicial proceedings shall be pending in respect of such
default.
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<PAGE>
The holder of any portion of Senior Indebtedness of the Company shall not be
entitled to give notice pursuant to this clause (c) more than once with respect
to any default which was specified in such notice and which has continued
without interruption since the date such notice was given, nor shall such holder
be entitled to give a separate notice with respect to any default not so
specified which (to the knowledge of the holder giving notice) was existing on
the date such notice was given pursuant to this clause (c) and which has con
tinued without interruption from the date such notice was given. Upon receipt
of any notice from any holder of any Senior Indebtedness pursuant to this clause
(c), the Company shall forthwith send a copy thereof to each holder of Junior
Indebtedness and each holder of its Senior Indebtedness at the time outstanding.
(d) All payments, cash, or noncash distributions made to the holders of
Junior Indebtedness which should have been made to the holders of Senior
Indebtedness of the Company shall be received and held by the former in trust
for the benefit of the latter, and the holders of Junior Indebtedness shall
forthwith remit such payments, cash, or noncash distributions to the holders of
the Senior Indebtedness of the Company, pro rata, in the form in which it was
received, together with such endorsements or documents as may be neces sary to
effectively negotiate or transfer the same to the holders of the Senior
Indebtedness of the Company.
(e) Each holder of Senior Indebtedness of the Company is hereby authorized
by the Purchaser to:
(i) renew, compromise, extend, accelerate or otherwise change the
time of payment, or any other terms, of any Senior Indebtedness of the
Company held by such holder;
(ii) increase or decrease the rate of interest payable thereon or any
part thereof;
(iii) exchange, enforce, waive or release any security therefor;
(iv) apply such security and direct the order or manner of sale
thereof in such manner as such holder may at its discretion determine;
and/or
(v) release the Company or any guarantor of any Senior Indebtedness
of the Company from liability.
If any such action is taken, the Company shall promptly notify the Purchaser and
any holder of Junior Indebtedness. Notwithstanding anything set forth in this
Section 9.1, nothing set forth herein shall restrict holders of the Notes from
exercising their rights of conversion hereunder.
9.2 Proofs of Claim of Holders of Senior Indebtedness; Voting. The
---------------------------------------------------------
Purchaser undertakes and agrees for the benefit of each holder of Senior
Indebtedness of the Company to execute, verify, deliver and file any proofs of
claim relating to the Junior Indebtedness which any holder of such Senior
Indebtedness may at any time require in order to prove and realize
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upon any rights or claims pertaining to the Junior Indebtedness and to
effectuate the full benefit of the subordination contained herein. Upon failure
of the Purchaser to file the required proof or proofs of claim prior to thirty
(30) days before the expiration of the time to file claims in such proceeding,
each holder of Senior Indebtedness of the Company is hereby irrevocably
appointed by the Purchaser to be such Purchaser's agent to file the appropriate
claim or claims and if such holder of Senior Indebtedness elects at its sole
discretion to file such claim or claims (a) to accept or reject any plan of
reorganization or arrangement on behalf of the Purchaser, and (b) to otherwise
vote the Purchaser's claim in respect of the Junior Indebtedness in any manner
deemed appropriate for the benefit and protection of the holders of the Senior
Indebtedness of the Company.
9.3 Rights of Holders of Senior Indebtedness Unimpaired. No right of any
---------------------------------------------------
holder of any Senior Indebtedness to enforce subordination as herein provided
shall at any time or in any way be affected or impaired by any failure to act on
the part of the Company or the holders of Senior Indebtedness, or by any
noncompliance by the Company with any of the terms, provisions and covenants of
this Agreement, regardless of any knowledge thereof that any such holder of
Senior Indebtedness may have or be otherwise charged with.
9.4 Effects of Event of Default. The Company agrees, for the benefit of
---------------------------
the holders of Senior Indebtedness, that in the event that a Note is declared
due and payable before its maturity because of the occurrence of an Event of
Default, (a) the Company will give prompt notice in writing of such happening to
the holders of Senior Indebtedness and (b) all Senior Indebtedness shall
forthwith become immediately due and payable upon demand, regardless of the
expressed maturity thereof.
9.5 Company's Obligations Unimpaired. The provisions of this Article 9
--------------------------------
are solely for the purpose of defining the relative rights of the holders of
Senior Indebtedness on the one hand, and the Purchaser on the other hand, and
nothing herein shall impair, as between the Company and the Purchaser, the
obligation of the Company which is unconditional and absolute, to pay the
principal, premium, if any, and interest, if payable, on the Notes in accordance
with this Agreement and the terms of the Notes, nor shall anything herein
prevent the Purchaser from exercising all remedies otherwise permitted by
applicable law or under this Agreement or the Notes upon the occurrence of an
Event of Default, subject to the rights of the holders of Senior Indebtedness as
herein provided for.
9.6 Subrogation. Subject to the payment in full of Senior Indebtedness,
-----------
holders of the Notes shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of cash, property or
securities made on the Senior Indebtedness until the Senior Indebtedness shall
be paid in full; and, for the purposes of such subrogation, payments or
distributions to the holders of Senior Indebtedness of any cash, property or
securities to which any holder of Notes would be entitled except for the
provisions of this Agreement shall, as between the Company and its creditors
other than the holders of Senior Indebtedness and holders of the Notes, be
deemed to be a payment by the Company to or on account of the Notes, it being
understood that the provisions of this Agreement are and are intended solely for
the purpose of defining the relative rights of the holders of the Notes on the
one hand, and the holders of Senior Indebtedness, on the other hand. The
purpose of this
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Section 9.6 is to grant to holders of the Notes the same rights against the
Company with respect to the aggregate amount of such payments or distributions
as the holders of Senior Indebtedness would have against the Company if such
aggregate amount were considered overdue Senior Indebtedness.
10. Interpretation.
--------------
10.1 Definitions.
-----------
"Adjustment Period" shall mean the period of five (5) consecutive Trading
Days preceding the date as of which the Fair Market Value of a security is to be
determined.
"Affiliate" and "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act.
"Applicable Tax Rate" shall have the meaning set forth in Section 6.9(a).
"Beneficially Own" or "Beneficial Owners" with respect to any securities
shall mean having "beneficial ownership" of such securities (as determined
pursuant to Rule 13d-3 under the Exchange Act), including pursuant to any
agreement, arrangement or under standing, whether or not in writing.
"Board of Directors" shall mean the board of directors of the Company.
"Business Day" shall mean any day other than a Saturday, Sunday, or a day
on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"Consolidated" or "consolidated," when used with reference to any financial
term in this Agreement (but not when used with respect to any tax return or tax
liability), shall mean the aggregate for two or more persons of the amounts
signified by such term for all such persons, with inter-company items eliminated
and, with respect to earnings, after eliminating the portion of earnings
properly attributable to minority interests, if any, in the capital stock of any
such person or attributable to shares of preferred stock of any such person not
owned by any other such person.
"Conversion Price" shall mean $4.50, subject to adjustment as provided in
Article 8.
"Conversion Ratio" shall mean the ratio obtained by dividing each $100 of
outstand ing principal amount of Notes by the Conversion Price, subject to
adjustment as provided in Article 8.
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"Current Market Price," when used with reference to shares of Common Stock
or other securities on any date, shall mean the closing price per share of
Common Stock or such other securities on such date and, when used with reference
to shares of Common Stock or other securities for any period shall mean the
average of the daily closing prices per share of Common Stock or such other
securities for such period. The closing price for each day shall be the last
quoted bid price in the over-the-counter market, as reported by the Nasdaq Stock
Market or such other system then in use, or, if on any such date the Common
Stock or such other securities are not quoted by any such organization, the
closing bid price as furnished by a professional market maker making a market in
the Common Stock or such other securities selected by the Board of Directors of
the Company. If the Common Stock is listed or admitted to trading on a national
securities exchange, the closing price shall be the closing bid price, regular
way, as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Common Stock or such other securities are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated trans action reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock or such
other securities are listed or admitted to trading. If the Common Stock or such
other securities are not publicly held or so listed or publicly traded, "Current
Market Price" shall mean the Fair Market Value per share of Common Stock or of
such other securities as determined in good faith by the Board of Directors of
the Company based on an opinion of an independent investment banking firm
acceptable to holders of a majority of the Notes, which opinion may be based on
such assumptions as such firm shall deem to be necessary and appropriate.
"Default" shall mean any event which, with or without the passage of time,
would be an Event of Default.
"Environmental Laws" shall mean, at any date, all provisions of federal,
state, local or foreign law (including applicable principles of common and civil
law), statutes, ordinances, rules, regulations, published standards and
directives that have the force and effect of Laws, permits, licenses, judgments,
writs, injunctions, decrees and orders enacted, promulgated or issued by any
Public Authority, and all indemnity agreements and other contractual
obligations, as in effect at such date, relating to (a) the protection of the
environment, including the air, surface and subsurface soils, surface waters,
groundwaters and natural resources, and (b) occupational health and safety and
exposure of persons to Hazardous Materials. Environmental Laws shall include
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601 et seq., and any other Laws imposing or creating liability
with respect to Hazardous Materials.
"Environmental Liability" shall mean any liabilities, obligations, costs,
losses, payments or damages, including compensatory and punitive damages,
incurred (a) to contain, remove, clean up, assess, abate or otherwise remedy any
actual or alleged release or threatened release of Hazardous Materials, any
actual or alleged contamination (by Hazardous Materials) of air, surface or
subsurface soil, groundwater or surface water, or any personal injury or damage
to natural resources or property resulting from any such release or
contamination, pursuant to the requirements of any Environmental Law or in
response to any claim by any Public Authority or
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<PAGE>
other Third Party under any Environmental Law; (b) to modify facilities or
processes or take any other remedial action in response to any claim by any
Public Authority of non-compliance with any Environmental Law; (c) as a result
of the imposition of any civil or criminal fine or penalty by any Public
Authority for the violation or alleged violation of any Environmental Law; or
(d) as a result of any action, suit, proceeding or claim by any Third Party
under any Environmental Law. The term "Environmental Liability" shall include:
(i) reasonable fees of counsel and consultants (but not any corporate allocation
for management time or for the use of similar in-house services or facilities)
and (ii) the costs and expenses of any investigation undertaken to ascertain the
existence or extent of any potential or actual Environmental Liability.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" shall mean each of the happenings or circumstances
enumerated in Section 7.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Securities Exchange Act of 1934, as
amended, shall include reference to the comparable section, if any, of any such
successor federal statute.
"Fair Market Value" shall mean, as to shares of Common Stock or any other
class of capital stock or securities of the Company or any other issuer which
are publicly traded, the average of the Current Market Prices of such shares of
securities for each day of the Adjustment Period. The "Fair Market Value" of
any security which is not publicly traded or of any other property shall mean
the fair value thereof as determined by an independent investment banking or
appraisal firm experienced in the valuation of such securities or property
selected in good faith by the Board of Directors of the Company or a committee
thereof, or, if no such investment banking or appraisal firm is in the good
faith judgment of the Board of Directors or such committee available to make
such determination, as determined in good faith by the Board of Directors of the
Company or such committee.
"Governing Instruments" shall mean, collectively, this Agreement and the
Notes.
"Guarantee" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of any Person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obliga tion of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, all obligations incurred through an agreement, contingent
or otherwise, by such Person: (a) to purchase such Indebtedness or obligation
or any property or assets constituting security therefor, (b) to advance or
supply funds (x) for the purchase or payment of such Indebtedness or obligation,
(y) to maintain working capital or other balance sheet condition or otherwise to
advance or make available funds for the purchase or payment of such
Indebtedness or obligation, (c) to lease property or to purchase securities or
other property or
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<PAGE>
services primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of the primary obligor to make payment of such
Indebtedness or obligation, or (d) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of any computations made under this Agreement, a
Guarantee in respect of any Indebtedness for borrowed money shall be deemed to
be Indebtedness equal to the principal amount of the Indebtedness for borrowed
money which has been guaranteed, and a Guarantee in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"Hazardous Material" shall mean any substance regulated by any
Environmental Law or which may now or in the future form the basis for any
Environmental Liability.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder.
"Indebtedness" shall mean, with respect to any person, (a) all obligations
of such person for borrowed money, or with respect to deposits or advances of
any kind, (b) all obligations of such person evidenced by bonds, debentures,
notes or similar instruments, (c) all obligations of such person under
conditional sale or other title retention agreements relating to property
purchased by such person, (d) all obligations of such person issued or assumed
as the deferred purchase price of property or services (other than accounts
payable to suppliers and similar accrued liabilities incurred in the ordinary
course of business and paid in a manner consistent with industry practice), (e)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any lien or security interest on property owned or acquired by such person
whether or not the obligations secured thereby have been assumed, (f) all
capitalized lease obligations of such person, (g) all Guarantees of such person,
(h) all obligations (including but not limited to reimbursement obligations)
relating to the issuance of letters of credit for the account of such person,
(i) all obligations arising out of foreign exchange contracts, and (j) all Swap
Contracts.
"Liquidation Value" shall mean the outstanding principal amount of any
Note.
"OSHA" shall have the meaning set forth in Section 2.5.
"Outstanding" or "outstanding" shall mean when used with reference to the
Notes at a particular time, all Notes therefore issued as provided in this
Agreement, except (a) Notes therefore reported as lost, stolen, damaged or
destroyed, or surrendered for transfer, exchange or replacement, in respect to
which replacement Notes have been issued, (b) Notes therefore paid in full, and
(c) Notes therefore canceled by the Company except that, for the purpose of
determining whether holders of the requisite principal amount of Notes have made
or concurred in any waiver, consent, approval, notice or other communication
under this Agreement, Notes registered in the name of, or owned beneficially by,
the Company or any Subsidiary of any thereof, shall not be deemed to be
outstanding.
"Person" shall mean any individual, firm, corporation, partnership or other
entity, and
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<PAGE>
shall include any successor (by merger or otherwise) of such entity.
"Public Authority" shall mean any supranational, national, regional, state
or local government court, governmental agency, authority, board, bureau,
instrumentality or regulatory body.
"Rights" shall mean the rights to purchase Preferred Stock issued pursuant
to the Rights Agreement.
"Rights Agreement" shall mean the Gensia Stockholders Rights Agreement,
dated March 16, 1992, as amended, between the Company and ChaseMellon
Shareholder Services, L.L., as successor in interest to First Interstate Bank.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Senior Indebtedness" shall mean and include, as of any date as of which
the amount thereof is to be determined, the principal of and premium, if any,
and interest due on (a) any Indebtedness, whether outstanding on the date of
this Agreement or thereafter created, incurred or assumed, except for any such
Indebtedness that by the terms of the instrument or instruments by which such
Indebtedness was created or incurred expressly provides that it (i) is
subordinated in right of payment to the Notes or (ii) ranks pari passu in right
of payment with the Notes and (b) any amendments, renewals, extensions,
modifications and refundings of any such Indebtedness.
"Subordinated Indebtedness" shall mean all Indebtedness which is not Senior
Indebtedness.
"Subsidiary" of any Person shall mean any corporation or other entity of
which a majority of the voting power or the voting equity securities or equity
interest is owned, directly or indirectly, by such Person.
"Swap Contract" shall mean any agreement whether or not in writing,
relating to any transaction that is a rate swap, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap or
option, bond, note or bill option, interest rate option, forward foreign
exchange transaction, cap, collar or floor transaction, currency swap, cross-
currency rate swap, swaption, currency option or any other similar transaction
(including any option to enter into any of the foregoing) or any combination of
the fore going, and, unless the context otherwise clearly requires, any master
agreement relating to or governing any or all of the foregoing.
"Swap Termination Value" shall mean, in respect of any one or more Swap
Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Contracts, (a) for any date on or after
the date such Swap Contracts have been closed out and termination value(s)
determined in accordance therewith, such termination value(s), and
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(b) for any date prior to the date referenced in subclause (a) the amount(s)
determined as the mark-to-market value(s) for such Swap Contracts, as determined
by the Company based upon one or more mid-market or other readily available
quotations provided by any recognized dealer in such Swap Contracts.
"Third Party" shall mean a person who or which is neither the Company or
its Subsidiaries nor the Purchaser.
"Trading Day" shall mean a Business Day or, if the Common Stock is listed
or admitted to trading on any national securities exchange, a day on which such
exchange is open for the transaction of business.
"Voting Securities" shall mean at any time shares of any class of capital
stock of the Company which are then entitled to vote generally in the election
of directors.
10.2 Accounting Principles. The character or amount of any asset,
---------------------
liability, capital account or reserve and of any item of income or expense
required to be determined pursuant to this Agreement, and any consolidation or
other accounting computation required to be made pursuant to this Agreement, and
the construction of any definition in this Agreement containing a financial
term, shall be determined or made, as the case may be, in accordance with United
States generally accepted accounting principles, to the extent applicable,
unless such principles are inconsistent with the express requirements of this
Agreement.
11. Miscellaneous.
-------------
11.1 Payments. The Company agrees that, so long as the Purchaser shall
--------
hold any Notes, it will make all cash payments thereon in immediately available
funds in such manner as the Purchaser may reasonably request in writing.
11.2 Severability. If any term, provision, covenant or restriction of
------------
this Agreement or any exhibit hereto is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement and such exhibits shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions, covenants
and restrictions without including any of such which may be hereafter declared
invalid, void or unenforceable.
11.3 Specific Enforcement. The Purchaser, on the one hand, and the
--------------------
Company, on the other, acknowledge and agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction to
prevent breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
they may be entitled at law or equity.
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11.4 Entire Agreement. This Agreement (including the documents set forth
----------------
in the exhibits hereto) between the parties contains the entire understanding of
the parties with respect to the transactions contemplated hereby.
11.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each party and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
11.6 Notices and Other Communications. All notices, consents, requests,
--------------------------------
instruc tions, approvals, financial statements, proxy statements, reports and
other communications provided for herein shall be rapidly given, if in writing
and delivered personally, by telecopy or sent by registered mail, postage
prepaid, if to:
<TABLE>
<CAPTION>
<S> <C>
To the Company: Gensia Sicor Inc.
19 Hughes
Irvine, CA 92618
Attention: Legal Department
With a copy to: Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, CA 94104
Attention: Thomas E. Sparks, Jr.
To the Purchaser: Carlo Salvi
Via San Salvatore, 7
Ch 6902 Lugano, Switzerland
With a copy to: Spiess Brunoni Pedrazzini Molino
Via Pioda 14
6901 Lugano, Switzerland
Attention: Massimo Pedrazzini
</TABLE>
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner.
11.7 Amendments. This Agreement may be amended as to the Purchaser and
----------
its successors and assigns, and the Company may take any action herein
prohibited, or omit to perform any act required to be performed by it, if the
Company shall obtain the written consent of the Purchaser and/or such successors
and assigns who are the registered holders of not less than sixty-six and two-
thirds percent (66-2/3%) of the outstanding principal amount of the Notes then
held by the Purchaser and its successors or assigns. This Agree ment may not be
waived, changed, modified, or discharged orally, but only by an agreement in
writing signed by the party or parties against whom enforcement of any waiver,
change, modification or discharge
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is sought or by parties with the right to consent to such waiver, change,
modification or discharge on behalf of such party.
11.8 Cooperation. The Purchaser and the Company agree to take, or cause
-----------
to be taken, all such further or other actions as shall reasonably be necessary
to make effective and consummate the transactions contemplated by this
Agreement.
11.9 Successors and Assigns. All covenants and agreements contained
----------------------
herein shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns, it being understood however that the
covenants set forth in Section 11.10(a) and (c) shall not inure to the benefit
of any assignee of the Purchaser other than Affiliates of the Purchaser.
Neither this Agreement nor any rights hereunder may be transferred prior to the
Closing Date without the consent of the other party.
11.10 Expenses and Remedies.
---------------------
(a) The Company agrees to pay the Purchaser for all of its out-of-pocket
expenses, including reasonable outside legal, accounting and consulting fees of
the Purchaser, incurred in connection with this Agreement and the consummation
of all transactions contemplated hereby, and all costs and expenses relating to
any future amendment or supplement to this Agreement or any of the Securities
(or any proposal by the Company for such amendment or supplement) whether or not
consummated or any waiver or consent with respect thereto (or any proposal for
such waiver or consent) whether or not consummated, and all costs and expenses
of the Purchaser relating to the enforcement of this Agreement, the Registration
Rights Agreement or any of the Securities.
(b) The Company further agrees to indemnify and save harmless the
Purchaser from and against any and all costs, expenses, damages or other
liabilities resulting from any breach of this Agreement by the Company
(including the breach of any covenant or representation or warranty made by the
Company) or any legal, administrative or other proceedings arising out of the
transactions contemplated hereby (other than such costs, expenses, damages or
other liabilities resulting, directly or indirectly, (i) from the breach by such
Purchaser of any of its agreements contained herein or (ii) from the gross
negligence or willful misconduct of the Purchaser); provided, however, that, if
and to the extent that such indemnification is unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
such indemnified liability which shall be permissible under applicable laws.
(c) The indemnified party under this Section 11.10 will, promptly after
the receipt of notice of the commencement of any action against such indemnified
party in respect of which indemnity may be sought from the Company on account of
an indemnity agreement contained in this Section 11.10, notify the Company in
writing of the commencement thereof. The omission of any indemnified party so
to notify the Company of any such action shall not relieve the Company from any
liability which it may have to such indemnified party except to the extent the
Company shall have been materially prejudiced by the omission of such
indemnified party so to notify the Company, pursuant to this Section 11.10. In
case any such action shall be
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brought against any indemnified party and it shall notify the Company of the
commencement thereof, the Company shall be entitled to participate therein and,
to the extent that it may wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice from the
Company to such indemnified party of its election so to assume the defense
thereof, the Company will not be liable to such indemnified party under this
Section 11.10 for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof nor for any settlement
thereof entered into without the consent of the Company; provided, however, that
(i) if the Company shall elect not to assume the defense of such claim or action
or (ii) if the indemnified party reasonably determines (x) that there may be a
conflict between the positions of the Company and of the indemnified party in
defending such claim or action or (y) that there may be legal defenses available
to such indemnified party different from or in addition to those available to
the Company, then separate counsel for the indemnified party shall be entitled
to participate in and conduct the defense, in the case of (i) and (ii)(x), or
such different defenses, in the case of (ii)(y), and the Company shall be liable
for any reasonable legal or other expenses incurred by the indemnified party in
connection with the defense.
(d) The indemnification required by this Section 11.10 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or liability
is incurred.
11.11 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
issuance and delivery of the Securities, regardless of any investigation made by
or on behalf of any party.
11.12 Transfer of Securities. The Purchaser understands and agrees that
----------------------
the Securities have not been registered under the Securities Act or the
securities laws of any state and that they may be sold or otherwise disposed of
only in one or more transactions registered under the Securities Act and, where
applicable, such laws or transactions as to which an exemption from the
registration requirements of the Securities Act and, where applicable, such laws
are available. The Purchaser acknowledges that, except as provided in the
Registration Rights Agreement, the Purchaser has no right to require the Company
to register the Securities. The Purchaser understands and agrees that each Note
or certificate representing the Securities shall bear the following legend:
"[THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE] [THIS NOTE HAS] NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PUR SUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS
OF SUCH ACT OR SUCH LAWS."
11.13 Governing Law. This Agreement shall be governed by and construed
-------------
and
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<PAGE>
enforced in accordance with the laws of the State of Delaware.
11.14 Term. Unless an Event of Default shall have occurred and be
----
continuing, this Agreement shall terminate on January 10, 2001, except that
Sections 6.9 and 11.10 shall survive the termination of this Agreement.
11.15 Publicity. Each of the parties hereto agrees that it will make no
---------
statement regarding the transactions contemplated hereby unless such statement
has been approved by both of the parties hereto. Notwithstanding the foregoing,
each of the parties hereto may, in documents required to be filed by it with the
Commission or other regulatory bodies, make such statements with respect to the
transactions contemplated hereby as each may be advised is legally necessary
upon advice of its counsel.
11.16 Covenant of Purchaser. The Purchaser shall use reasonable efforts
---------------------
to honor all reasonable requests from the Company, to file, or to provide the
Company with, such forms, returns, statements or other documentation as in the
reasonable opinion of the Company and Purchaser shall enable the Purchaser or
the Company, to claim a reduced rate of tax or exemption from tax with respect
to any taxes subject to payment or indemnification by the Company under Section
6.11.
11.17 Signatures. This Agreement shall be effective upon delivery of
----------
original signature pages or facsimile copies thereof executed by each of the
parties hereto.
IN WITNESS WHEREOF, the Company and the Purchaser have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized.
GENSIA SICOR INC.
By /s/ John W. Sayward
-------------------------------------
/s/ Carlo Salvi
-----------------------------------------
Carlo Salvi
-35-
<PAGE>
EXHIBIT A-1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRA TION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
GENSIA SICOR INC.
8% Subordinated Convertible Notes
due January 10, 2001
No. 1 San Diego, CA
$5,000,000 December 1, 1998
GENSIA SICOR INC. (the "Company"), a Delaware corporation, for value
received, hereby promises to pay to CARLO SALVI, or registered assigns, the
principal amount of FIVE MILLION DOLLARS [$5,000,000] on January 10, 2001, with
interest (computed on the basis of a three hundred sixty (360) day year of
twelve (12) thirty (30) day months) on the unpaid balance of such principal
amount at the rate of eight percent (8%) per annum from the date hereof, payable
quarterly, in arrears, on the last business day of March, June, September and
December, until such unpaid balance shall become due and payable (whether at
maturity or at a date fixed for redemption or by declaration or otherwise).
During the continuance of any Default or Event of Default, the Company shall pay
interest on the outstanding principal of, and any other amounts (other than
interest), if any, due on the Notes and (to the extent legally enforceable) on
any overdue installment of interest, at the rate of eleven and three-quarters
percent (11.75%) per annum (computed on the same basis as above) until such
overdue amount is paid or until such Default or Event of Default is cured. All
payments on this Note shall be made in lawful money of the United States of
America at the address specified by the holder hereof for such purpose in the
Purchase Agreement, in the manner set forth in the Purchase Agreement.
This Note is one of the Company's eight percent (8%) Convertible
Subordinated Notes due January 10, 2001 originally issued in the aggregate
principal amount of up to $10,000,000 pursuant to the Purchase Agreement. The
registered holder of this Note is entitled to the benefits of such Purchase
Agreement and may enforce the agreements of the Company contained therein and
exercise the remedies provided for thereby or otherwise available in respect
thereof.
This Note is convertible, upon the terms and subject to the conditions
specified in the Purchase Agreement.
A-1
<PAGE>
This Note is expressly subordinated to the extent and in the manner
provided in Article 9 of the Purchase Agreement to all Senior Indebtedness (as
defined therein) of the Company.
This Note is a registered Note and, as provided in the Purchase Agreement,
is transferable only upon surrender of this Note for registration of transfer,
duly endorsed, or accompanied by a written instrument of transfer duly executed,
by the registered holder hereof or his attorney duly authorized in writing. The
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
In case an Event of Default, as defined in the Purchase Agreement, shall
occur and be continuing, the unpaid balance of the principal, interest and any
other amounts payable on this Note may be declared and become due and payable in
the manner and with the effect provided in the Purchase Agreement.
THIS NOTE IS MADE AND DELIVERED IN SAN DIEGO, CALIFORNIA, AND SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
GENSIA SICOR INC.
By /s/ John W. Sayward
------------------------------------
Title Executive Vice President, Finance
---------------------------------
A-2
<PAGE>
EXHIBIT A-2
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRA TION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
GENSIA SICOR INC.
8% Subordinated Convertible Notes
due January 10, 2001
No. 2 San Diego, CA
$5,000,000 December 21, 1998
GENSIA SICOR INC. (the "Company"), a Delaware corporation, for value received,
hereby promises to pay to CARLO SALVI, or registered assigns, the principal
amount of FIVE MILLION DOLLARS [$5,000,000] on January 10, 2001, with interest
(computed on the basis of a three hundred sixty (360) day year of twelve (12)
thirty (30) day months) on the unpaid balance of such principal amount at the
rate of eight percent (8%) per annum from the date hereof, payable quarterly, in
arrears, on the last business day of March, June, September and December, until
such unpaid balance shall become due and payable (whether at maturity or at a
date fixed for redemption or by declaration or otherwise). During the
continuance of any Default or Event of Default, the Company shall pay interest
on the outstanding principal of, and any other amounts (other than interest), if
any, due on the Notes and (to the extent legally enforceable) on any overdue
installment of interest, at the rate of eleven and three-quarters percent
(11.75%) per annum (computed on the same basis as above) until such overdue
amount is paid or until such Default or Event of Default is cured. All payments
on this Note shall be made in lawful money of the United States of America at
the address specified by the holder hereof for such purpose in the Purchase
Agreement, in the manner set forth in the Purchase Agreement.
This Note is one of the Company's eight percent (8%) Convertible
Subordinated Notes due January 10, 2001 originally issued in the aggregate
principal amount of up to $10,000,000 pursuant to the Purchase Agreement. The
registered holder of this Note is entitled to the benefits of such Purchase
Agreement and may enforce the agreements of the Company contained therein and
exercise the remedies provided for thereby or otherwise available in respect
thereof.
This Note is convertible, upon the terms and subject to the conditions
specified in the Purchase Agreement.
This Note is expressly subordinated to the extent and in the manner
provided in
A-3
<PAGE>
Article 9 of the Purchase Agreement to all Senior Indebtedness (as defined
therein) of the Company.
This Note is a registered Note and, as provided in the Purchase
Agreement, is transferable only upon surrender of this Note for registration of
transfer, duly endorsed, or accompanied by a written instrument of transfer duly
executed, by the registered holder hereof or his attorney duly authorized in
writing. The Company may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
In case an Event of Default, as defined in the Purchase Agreement,
shall occur and be continuing, the unpaid balance of the principal, interest and
any other amounts payable on this Note may be declared and become due and
payable in the manner and with the effect provided in the Purchase Agreement.
THIS NOTE IS MADE AND DELIVERED IN SAN DIEGO, CALIFORNIA, AND SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
GENSIA SICOR INC.
By /s/ John W. Sayward
---------------------------------------
Title Executive Vice President, Finance
------------------------------------
A-4
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
between
GENSIA SICOR INC.
and
CARLO SALVI
Dated as of December 1, 1998
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 1, 1998 between
GENSIA SICOR INC., a Delaware corporation (the "Company"), CARLO SALVI
- ----------------- -----------
("Purchaser").
1. Background. Pursuant to a Securities Purchase Agreement, dated as of
----------
December 1, 1998 (the "Purchase Agreement"), between the Company and Purchaser,
Purchaser has purchased or agreed to purchase from the Company $10,000,000 in
aggregate principal amount of the Company's 8% Subordinated Convertible Notes
due January 10, 2001 (the "Notes") convertible into shares of the Company's
Common Stock, par value $.01 per share ("Common Stock"). The shares of Common
Stock are referred to herein as the "Registrable Securities." The Notes are
referred to herein as the "Convertible Securities."
2. Registration Under Securities Act, etc.
--------------------------------------
2.1 Registration on Request.
-----------------------
(a) Request. Subject to Section 2.7 hereof, at any time and from time to
-------
time after November , 1999, upon the written request of holders (the
"Initiating Holders") of Registrable Securities representing not less than
twenty-five percent (25%) of the number of shares of Common Stock issuable upon
conversion of the Notes that the Company effect the registration under the
Securities Act of all or part of such Initiating Holders' Registrable
Securities, provided that in no event shall the Company be obligated to register
shares of Common Stock pursuant to such request having a Current Market Value on
the date of such request less than $2.5 million, the Company will promptly, and
in any event within ten (10) days, give written notice of such requested
registration to all registered holders of Registrable Securities, and thereupon
the Company will use its best efforts to effect the registration under the
Securities Act of
(i) the Registrable Securities which the Company has been so
requested to register by such Initiating Holders, and
(ii) all other Registrable Securities which the Company has been
requested to register by the holders thereof (such holders together with
the Initiating Holders are hereinafter referred to as the "Selling
Holders") by written request given to the Company within ten (10) days
after the giving of such
B-1
<PAGE>
written notice by the Company, all to the extent requisite to permit
the disposition of the Registrable Securities so to be registered.
(b) [Reserved].
(c) Registration Statement Form. Registrations under this Section 2.1
---------------------------
shall be on such appropriate registration form of the Commission as shall be
selected by the Company.
(d) Effective Registration Statement. A registration requested pursuant
--------------------------------
to this Section 2.1 shall not be deemed to have been effected (i) unless a
registration statement with respect thereto has been declared effective by the
Commission, (ii) if after it has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement of
the Commission or other governmental agency or court for any reason other than
an act or omission of the Selling Holders and has not thereafter become
effective, or (iii) if the conditions to closing specified in the underwriting
agreement, if any, entered into in connection with such registration are not
satisfied or waived, other than by reason of a failure on the part of the
Selling Holders.
(e) Selection of Underwriters. The underwriter or underwriters of each
-------------------------
underwritten offering of the Registrable Securities so to be registered shall be
selected by the Company; provided, however, that such underwriter shall be
reasonably satisfactory to the Selling Holders who hold more than fifty percent
(50%) of the Registrable Securities so to be registered.
(f) Priority in Requested Registration. If the managing underwriter of
----------------------------------
any under written offering shall advise the Company in writing (with a copy to
each Selling Holder of Registrable Securities requesting registration) that, in
its opinion, the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering within a
price range reasonably related to the then current market value of the
securities, the Company will include in such registration, to the extent of the
number which the Company is so advised can be sold in such offering, Registrable
Securities requested to be included in such registration, pro rata among the
Selling Holders requesting such registration on the basis of the percentage of
the Registrable Securities then held by, or issuable upon exercise or conversion
of Convertible Securities then held by, such Selling Holders. In connection
with any such registration to which this Section 2.1(f) is applicable, no
securities other than Registrable Securities shall be covered by such
registration unless the written consent of Selling Holders holding at least a
majority of the Registrable Securities included in such registration shall have
been obtained.
(g) Limitations on Registration on Request. Notwithstanding anything in
--------------------------------------
this Section 2.1 to the contrary, in no event will the Company be required to
effect, in the aggregate pursuant to this Section 2.1, without regard to the
holder of Registrable Securities making such request, (i) more than three
registrations during the term of this Agreement or (ii) more than two (2)
registrations in any twelve (12) month period. Holders of Registrable
Securities shall receive prompt notice of requests for registration and such
notice shall include a specific warning about the restrictions on registration
requests called for by this Section 2.1(g).
B-2
<PAGE>
2.2 Incidental Registration.
-----------------------
(a) Right to Include Registrable Securities. If the Company proposes to
---------------------------------------
register any of its securities under the Securities Act by registration on Forms
S-1, S-2 or S-3 or any successor or similar form(s) (except registrations on
such Forms or similar form(s) solely for registration of securities in
connection with an employee benefit plan or dividend reinvest ment plan or a
merger or consolidation and registrations effected pursuant to Section 6.1 of
the Shareholder's Agreement dated as of November 12, 1996, as amended, between
the Company and Rakepoll Finance unless the written consent of Holders (as
defined in such Shareholder's Agreement) holding at least a majority of the
Registrable Securities (as defined in such Shareholder's Agreement) included in
such registration shall have been obtained to the inclusion of the Registrable
Securities in such registration), whether or not for sale for its own account,
it will, subject to Section 2.9 hereof, each such time give prompt written
notice to all registered holders of Registrable Securities of its intention to
do so and of such holders' rights under this Section 2.2. Upon the written
request of any such holder (a "Requesting Holder") made as promptly as
practicable and in any event within thirty (30) days after the receipt of any
such notice (which request shall specify the Regis trable Securities intended to
be disposed of by such Requesting Holder), the Company will, subject to Section
2.9 hereof, use its best efforts to effect the registration under the Securities
Act of all Registrable Securities which the Company has been so requested to
register by the Requesting Holders thereof; provided, however, that if, at any
time after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to each Requesting Holder of
Registrable Securities and (i) in the case of a determination not to register,
shall be relieved of its obligation to register any Registrable Securities in
connection with such registration (but not from any obligation of the Company to
pay the Registration Expenses in connection therewith), without prejudice,
however, to the rights of any holder or holders of Registrable Securities
entitled to do so to request that such registration be effected as a
registration under Section 2.1 and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable Securities,
for the same period as the delay in registering such other securities. No
registration effected under this Section 2.2 shall relieve the Company of its
obligation to effect any registration upon request under Section 2.1. The
Company will pay all Registration Expenses in connection with registration of
Registrable Securities requested pursuant to this Section 2.2.
(b) Priority in Incidental Registrations. If the managing underwriter of
------------------------------------
any under written offering shall inform the Company by letter of its belief that
the number or type of Registrable Securities requested to be included in such
registration would materially adversely affect such offering, then the Company
will include in such registration, to the extent of the number and type which
the Company is so advised can be sold in (or during the time of) such offering,
(i) first, all securities proposed by the Company to be sold for its
own account or which the Company is required to register on behalf of any third
party exer cising rights similar to those granted in Section 2.1(a), (ii)
second, such Registrable Securities and all other securities of the Company
requested to be included in such registra tion by third parties exercising
rights similar to those granted in Section 2.2(a) pro rata among such holders on
the
B-3
<PAGE>
basis of the estimated gross proceeds of the securities of such holders
requested to be so included, and (iii) third, any other securities of the
Company requested to be included in such registration.
2.3 Registration on Form S-3. If at any time after November , 1999, (a)
------------------------
any holder of Registrable Securities requests in writing that the Company file a
registration statement on Form S-3 or any successor thereto for a public
offering of all or any portion of the Registrable Securities held by such
requesting holder and (b) the Company is a registrant entitled to use Form S-3
or any successor thereto, then, subject to Section 2.9 hereof, the Company shall
use its best efforts to register under the Securities Act on Form S-3 or any
successor thereto, for public sale in accordance with the method of disposition
specified in such request, including, without limitation, pursuant to Rule 415
under the Securities Act, the Registrable Securities specified in such request.
Whenever the Company is required by this Section 2.3 to use its best efforts to
effect the registration of Registrable Securities, each of the limitations,
procedures and requirements of Section 2.1(b), (e) and (f) (including but not
limited to the requirement that the Company notify all holders from whom a
request has not been received and provide them with the opportunity to
participate in the offering) shall apply to such registration. Notwithstanding
the foregoing, the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.3: (i) if
the holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public (net of any underwriters' discounts or commissions) of less than
$5,000,000; (ii) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two registrations on Form
S-3 on behalf of the holders; or (iii) in any 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.
2.4 Registration Procedures.
-----------------------
(a) If and whenever the Company is required to use its best efforts to
effect the registration of any Registrable Securities under the Securities Act
as provided in Sections 2.1, 2.2 and 2.3, the Company will as expeditiously as
possible:
(i) prepare and (as soon as practicable, and in any event within
forty-five (45) days after (A) receipt by the Company of a request under
Section 2.1 or 2.3 or (B) the end of the period within which requests for
registration may be given to the Company under Section 2.2) file with the
Commission the requisite registration statement to effect such registration
and thereafter use its best efforts to cause such registration statement to
become effective; provided, however, that the Company may discontinue any
registration of its securities which are not Registrable Securities (and,
under the circumstances specified in Section 2.2(a), its securities which
are Registrable Securities) at any time prior to the effective date of the
registration statement relating thereto;
(ii) prepare and file with the Commission such amendments and
supple-
B-4
<PAGE>
ments to such registration statement and the prospectus used in connec tion
therewith as may be necessary to keep such registration statement effec
tive and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by such
registration state ment for such period as shall be required for the
disposition of all of such Registrable Securities, provided, that such
period need not exceed (A) one hundred eighty (180) days in the case of
registration required by Section 2.1 or 2.2 or (B) two (2) years in the
case of registration required by Section 2.3;
(iii) furnish to each seller of Registrable Securities covered by
such registration statement and the managing underwriter, if any, such
number of conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities Act,
and such other documents, as such seller may reasonably request;
(iv) use its best efforts (x) to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities or blue sky laws of such States of the United
States of America where an exemption is not available and as the sellers of
Registrable Securities covered by such registration statement shall
reasonably request, (y) to keep such registration or qualification in
effect for so long as such registration statement remains in effect, and
(z) to take any other action which may be reasonably necessary or advisable
to enable such sellers to consum mate the disposition in such jurisdictions
of the securities to be sold by such sellers; provided, however, that the
Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this subdivision (iv) be obligated to be so
qualified or to consent to general service of process in any such
jurisdiction;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved by
such other federal or state governmental agencies or authorities as may be
necessary in the opinion of counsel to the Company and counsel to the
seller or sellers thereof to consummate the disposition of such Registrable
Securities;
(vi) [Reserved];
(vii) notify each seller 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, upon discovery that, or
upon the happening of any event as a result of which, in the judgment of
the Company, the prospectus included in such registration statement, as
then in effect, includes
B-5
<PAGE>
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, in the light of the circumstances under which they were
made, and at the request of any such seller promptly prepare and furnish to
it a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, in the judgment of the Company, as
thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made;
(viii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least twelve (12) months, but not more than eighteen (18)
months, beginning with the first full calendar month after the effective
date of such registration statement, which earnings statement shall satisfy
the provisions of section 11(a) of the Securities Act and Rule 158
promulgated thereunder;
(ix) provide and cause to be maintained a transfer agent and
registrar (which, in each case, may be the Company) for all Registrable
Securities covered by such registration statement from and after a date not
later than the effective date of such registration; and
(x) use its best efforts to list all Registrable Securities covered
by such registration statement on any national securities exchange on which
Registrable Securities of the same class and, if applicable, series,
covered by such registration statement are then listed.
(b) The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing.
(c) Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vii) of this
Section 2.4, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii) of this
Section 2.4 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession, of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice; provided, however,
that any period during which a holder must discontinue disposition of
Registrable Securities shall not be included in determining whether such
registration has been effective for the period required by Section 2.4(a)(ii).
B-6
<PAGE>
2.5 Underwritten Offerings.
----------------------
(a) Requested Underwritten Offerings. If requested by the underwriters
--------------------------------
for any underwritten offering by holders of Registrable Securities pursuant to a
registration requested under Section 2.1 or 2.3, the Company will enter into an
underwriting agreement with such underwriters for such offering, such agreement
to be reasonably satisfactory in substance and form to the Company, each such
holder and the underwriters and to contain such representations and warranties
by the Company and such other terms as are generally prevailing in agreements of
that type, including, without limitation, indemnities to the effect and to the
extent provided in Section 2.8. The holders of the Registrable Securities
proposed to be distributed by such underwriters will cooperate with the Company
in the negotiation of the underwriting agreement and will give consideration to
the reasonable suggestions of the Company regarding the form thereof. Any such
holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
holder, such holder's Registrable Securities, such holder's intended method of
distribution and any other representations required by law.
(b) Incidental Underwritten Offerings. If the Company proposes to
---------------------------------
register any of its securities under the Securities Act as contemplated by
Section 2.2 and such securities are to be distributed by or through one or more
underwriters, the Company will, subject to Section 2.9 hereof, if requested by
any Requesting Holder of Registrable Securities arrange for such underwriters to
include all the Registrable Securities to be offered and sold by such Requesting
Holder among the securities of the Company to be distributed by such
underwriters. Any such Requesting Holder of Registrable Securities shall not be
required to make any representations or warranties to or agreements with the
Company or the under writers other than representations, warranties or
agreements regarding such Requesting Holder, such Requesting Holder's
Registrable Securities and such Requesting Holder's intended method of
distribution or any other representations required by law.
(c) Holdback Agreements. If any registration of Registrable Securities
-------------------
shall be in connection with an underwritten public offering, each holder of
Registrable Securities agrees not to effect any public sale or distribution,
including any sale pursuant to Rule 144 under the Securities Act, of any
Registrable Securities, and not to effect any such public sale or distribution
of any other equity security of the Company or of any security convertible into
or exchangeable or exercisable for any equity security of the Company (in each
case, other than as part of such underwritten public offering) for such
customary period of time (not exceeding one hundred twenty (120) days) as may be
reasonably requested by the underwriter of such offering beginning on the
effective date of such registration statement (except as part of such
registration) provided that each holder of Registrable Securities has received
written notice of such registration at least fifteen (15) days prior to such
effective date.
If any registration of Registrable Securities shall be in connection with
an under written public offering, the Company agrees (i) not to effect any
public sale or distribution of any of its equity securities or of any security
convertible into or exchangeable or exercisable for any
B-7
<PAGE>
equity security of the Company (other than any such sale or distribution of such
securities in connection with any merger or consolidation by the Company or any
subsidiary of the Company of the capital stock or substantially all the assets
of any other person or in connection with an employee stock option or other
benefit plan) during the fifteen (15) days prior to, and during the ninety (90)
day period beginning on, the effective date of such registration statement
(except as part of such registration) and (ii) that any agreement entered into
after the date of this Agreement pursuant to which the Company issues or agrees
to issue any privately placed equity securities shall contain a provision under
which holders of such securities agree not to effect any public sale or
distribution of any such securities during the period referred to in the
foregoing clause (i), including any sale pursuant to Rule 144 under the
Securities Act (except as part of such registration, if permitted).
2.6 Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel and accountants the opportunity to participate
in the preparation of such registration statement, each prospectus included
therein or filed with the Commission, and, to the extent practicable, each
amendment thereof or supplement thereto, and give each of them such access to
its books and records (to the extent customarily given to underwriters of the
Company's securities) and such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
holders' and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
2.7 Company Right to Postpone Registration. The Company shall be entitled
--------------------------------------
to postpone for a reasonable period of time (but not exceeding ninety (90) days
and no more than once in any twelve (12) month period) the filing of any
registration statement otherwise required to be prepared and filed by it
pursuant to this Agreement if the Company deter mines, in its reasonable
judgment, that such registration and offering would interfere with any
financing, acquisition, corporate reorganization or other material transaction
involving the Company or any of its Affiliates or would require premature
disclosure thereof and promptly gives the holders of Registrable Securities
requesting registration thereof pursuant to Section 2.1 or 2.3 written notice of
such delay. If the Company shall so postpone the filing of a registration
statement, such holders of Registrable Securities requesting registra tion
thereof pursuant to Section 2.1 or 2.3 shall have the right to withdraw the
request for registration by giving written notice to the Company within thirty
(30) days after receipt of the notice of postponement and, in the event of such
withdrawal, such request shall not be counted for purposes of the requests for
registration to which holders of Registrable Securities are entitled pursuant to
Section 2.1 or 2.3 hereof.
2.8 Indemnification.
---------------
(a) Indemnification by the Company. In the event of any registration of
------------------------------
any securities of the Company under the Securities Act, the Company will, and
hereby does, indemnify and hold harmless, in the case of any registration
statement filed pursuant to Section 2.1, 2.2 or 2.3,
B-8
<PAGE>
each seller of any Registrable Securities covered by such registration
statement, its directors, officers, partners, agents and affiliates and each
other Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such seller or any such
underwriter within the meaning of the Securities Act, insofar as losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registra tion statement under which such securities were registered under the
Securities Act, any pre liminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, and the Company will
reimburse such seller and each such director, officer, partner, agent or
affiliate, underwriter and controlling Person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided, that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company through an instrument executed by or on behalf of such
seller or underwriter, as the case may be, specifically stating that it is for
use in the preparation thereof; and provided, further, that the Company shall
not be liable to any Person who participates as an underwriter in the offering
or sale of Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or amended,
to the Person asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of the sale
of Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus so long as such final prospectus, and any
amendments or supplements thereto, have been furnished to such underwriter. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such seller or any such director, officer, partner,
agent or affiliate or controlling Person and shall survive the transfer of such
securities by such seller.
(b) Indemnification by the Sellers. As a condition to including any
------------------------------
Registrable Securities in any registration statement, the Company shall have
received an undertaking satisfactory to it from each holder joining in such
registration, severally and not jointly, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in subdivision (a) of this
Section 2.8) the Company, and each director of the Company, each officer of the
Company and each other Person, if any, who controls the Company within the
meaning of the Securities Act, with respect to any statement or alleged
statement in or omission or alleged omission from such registration statement,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in reliance
B-9
<PAGE>
upon and in conformity with written information furnished to the Company through
an instrument duly executed by such seller specifically stating that it is for
use in the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement; provided,
however, that the liability of such indemnifying party under this Section 2.8(b)
shall be limited to the amount of proceeds received by such indemnifying party
in the offering giving rise to such liability. Such indemnity shall remain in
full force and effect, regardless of any investigation made by or on behalf of
the Company or any such director, officer or controlling Person and shall
survive the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
-----------------------
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 2.8, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding subdivisions of this Section 2.8, except to the
extent that the indemnify ing party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties is reasonably likely to exist
in respect of such claim, the indemnifying party shall be entitled to
participate in and, to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation unless in such indemnified party's reasonable judgment a conflict
of interest between such indemnified and indemnifying parties arises in respect
of such claim after the assumption of the defense thereof and the indemnified
party notifies the indemnifying party of such indemnified party's judgment and
the basis therefor. No indemnifying party shall be liable for any settlement of
any action or proceeding effected without its written consent, which consent
shall not be unreasonably withheld. No indemnifying party shall, without the
consent of the 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 of such claim or litigation.
(d) Contribution. If the indemnification provided for in this Section 2.8
------------
shall for any reason be held by a court to be unavailable to an indemnified
party under subparagraph (a) or (b) hereof in respect of any loss, claim, damage
or liability, or any action in respect thereof, then, in lieu of the amount paid
or payable under subparagraph (a) or (b) hereof, the indemnified party and the
indemnifying party under subparagraph (a) or (b) hereof shall contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating the same), (i) in
such proportion as is appropriate to reflect the relative fault of the Company
and the prospective sellers of Registrable Securities covered by the
registration statement which resulted in such loss, claims,
B-10
<PAGE>
damage or liability, or action in respect thereof, with respect to the
statements or omissions which resulted in such loss, claim, damage or liability,
or action in respect thereof, as well as any other relevant equitable
considerations or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as shall be appropriate to
reflect the relative benefits received by the Company and such prospective
sellers from the offering of the securities covered by such registration
statement. No Person guilty of fraudulent misrepresentation (within the meaning
of section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation. Such
prospective sellers' obligations to contribute as provided in this subparagraph
(d) are several in proportion to the relative value of their respective Registra
ble Securities covered by such registration statement and not joint. In
addition, no Person shall be obligated to contribute hereunder any amounts in
payment for any settlement of any action or claim effected without such Person's
consent, which consent shall not be unreasonably withheld.
(e) Other Indemnification. Indemnification and contribution similar to
---------------------
that specified in the preceding subdivisions of this Section 2.8 (with
appropriate modifications) shall be given by the Company and each seller of
Registrable Securities with respect to any required registration or other
qualification of securities under any federal or state law or regulation of any
governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and contribution
------------------------
required by this Section 2.8 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
2.9 Limitations on Registrations of Registrable Securities. The Company
------------------------------------------------------
shall not be required to effect any registration of Registrable Securities
pursuant to Section 2.1, 2.2 or 2.3 hereof if it shall deliver to the holder or
holders requesting such registration an opinion of counsel (which opinion and
counsel shall be reasonably satisfactory to such holder or holders) to the
effect that all Registrable Securities held by such holder may be sold in the
public market without registration under the Securities Act and any applicable
state Securities laws.
2.10 Expenses. The Company will pay the Registration Expenses in
--------
connection with any registration requested pursuant to Section 2.1, 2.2 or 2.3.
3. Definitions. As used herein, unless the context otherwise requires,
-----------
the following terms have the following respective meanings:
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to the comparable section, if any, of any such similar
Federal statute.
B-11
<PAGE>
"Person" means a corporation, an association, a partnership, an
organization, a business, an individual, a governmental or political subdivision
thereof or a governmental agency.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 2, including, without limitation, all
registration, filing and NASD fees, all listing fees, all fees and expenses of
complying with securities or blue sky laws (including, without limitation,
reasonable fees and disbursements of counsel for the underwriters in connection
with blue sky qualifications of the Registrable Securities), all word
processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and disbursements of counsel for the Company and of its independent
public accountants, including the expenses of "cold comfort" letters required by
or incident to such performance and compliance, any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities and the
reasonable fees and expenses of one counsel to the Selling Holders (selected by
Selling Holders representing at least fifty percent (50%) of the Registrable
Securities covered by such registration); provided, however, that Registration
Expenses shall exclude, and the sellers of the Registrable Securities being
registered shall pay, underwriters' fees and underwriting discounts and
commissions, expenses incurred in connection with promotional efforts or
"roadshows" and transfer taxes in respect of the Registrable Securities being
registered.
"Registrable Securities" has the meaning set forth in Section 1 hereof. As
to any particular Registrable Securities, once issued such securities shall
cease to be Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (b) they shall have been sold as permitted by,
and in compliance with, Rule 144 (or successor provision) promulgated under the
Securities Act, (c) they shall have been otherwise transferred, new certificates
for them not bearing a legend restricting further transfer under the Securities
Act shall have been delivered by the Company and subsequent public distribution
of them shall not require registra tion of them under the Securities Act, or (d)
they shall have ceased to be outstanding.
"Securities Act" means the Securities Act of 1933, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time. References to a particular section of the
Securities Act of 1933 shall include a reference to the comparable section, if
any, of any such similar federal statute.
"Selling Holders" has the meaning set forth in Section 2.1(a)(ii).
4. Rule 144. The Company shall take all actions reasonably necessary to
--------
enable holders of Registrable Securities to sell such securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Commission including, without limiting the generality of the foregoing,
using its best efforts to file on a timely basis all reports required to be
filed by the Exchange Act. Upon the request of any holder of Registrable
Securities, the Company will deliver to such
B-12
<PAGE>
holder a written statement as to whether it has complied with such requirements.
5. Amendments and Waivers. This Agreement may be amended with the consent
----------------------
of the Company and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company shall
have obtained the written consent to such amendment, action or omission to act,
of the beneficial owner or owners of at least sixty-six and two-thirds percent
(66-2/3%) of the Registrable Securities. Each beneficial owner of any
Registrable Securities at the time or thereafter outstanding shall be bound by
any consent authorized by this Section 5, whether or not such Registrable
Securities shall have been marked to indicate such consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
------------------------------
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request or other action by any holder or holders of Registrable Securities
pursuant to this Agreement or any determination of any number or percentage of
Registrable Securities held by any holder or holders of Registrable Securities
contemplated by this Agreement. If the beneficial owner of any Registrable
Securities so elects, the Company may require assurances reasonably satisfactory
to it of such owner's beneficial ownership of such Registrable Securities.
7. Notices. All communications provided for hereunder shall be sent by
-------
courier or other overnight delivery service, shall be effective upon receipt,
and shall be addressed as follows:
(a) if to Purchaser, addressed to it in the manner set forth in the
Purchase Agreement, or at such other address as Purchaser shall have furnished
to the Company in writing;
(b) if to any other holder of Registrable Securities, at the address that
such holder shall have furnished to the Company in writing, or, until any such
other holder so furnishes to the Company an address, then to and at the address
of the last holder of such Registrable Securities who has furnished an address
to the Company; or
(c) if to the Company, addressed to it in the manner set forth in the
Purchase Agreement, or at such other address as the Company shall have furnished
to each holder of Registrable Securities at the time outstanding.
8. Assignment; Calculation of Percentage Interests in Registrable
--------------------------------------------------------------
Securities.
- ----------
(a) This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and, with respect to the Company, its
respective successors and assigns and, with respect to Purchaser, any beneficial
owner of any Registrable Securities, subject to the provisions respecting the
minimum numbers of percentages of shares of Registrable Securities required in
order to be entitled to certain rights, or take certain actions, contained
herein. Purchaser (and not any other holder of Registrable Securities or any
other Person) shall be permitted, in connection with a transfer or disposition
of Registrable Securities permitted by
B-13
<PAGE>
the Purchase Agreement, to impose conditions or constraints on the ability of
the transferee, as a holder of Registrable Securities, to request a registration
pursuant to Section 2.1 or 2.3 and shall provide the Company with copies of such
conditions or constraints and the identity of such transferees.
(b) For purposes of this Agreement, all references to a percentage of the
Registrable Securities shall be calculated based upon the number of Registrable
Securities outstanding at the time such calculation is made, assuming the
conversion of all Notes into shares of Common Stock.
9. Descriptive Headings. The descriptive headings of the several sections
--------------------
and paragraphs of this Agreement are inserted for reference only and shall not
limit or otherwise affect the meaning hereof.
10. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Delaware.
11. [Reserved].
12. Recapitalizations, etc. In the event that any capital stock or other
-----------------------
securities are issued in respect of, in exchange for, or in substitution of, any
Registrable Securities by reason of any reorganization, recapitalization,
reclassification, merger, consolidation, spin-off, partial or complete
liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the shares of Registrable Securities or any other
change in the Company's capital structure, appropriate adjustments shall be made
in this Agreement so as to fairly and equitably preserve, as far as practicable,
the original rights and obligations of the parties hereto under this Agreement.
13. Attorneys' Fees. In any action or proceeding brought to enforce any
---------------
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party to such action or proceeding shall be
entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
B-14
<PAGE>
14. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
GENSIA SICOR INC.
By /s/ John Sayward
-----------------------------------------
John Sayward
Executive Vice President, Finance,
Chief Financial Officer and
Treasurer
/s/ Carlo Salvi
--------------------------------------------
Carlo Salvi
B-15
<PAGE>
EXHIBIT 10.34
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
by and between
GENSIA SICOR PHARMACEUTICALS, INC.
and
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank
Dated as of September 29, 1998
- --------------------------------------------------------------------------------
<PAGE>
COAST BUSINESS CREDIT
LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
Page
----
1. DEFINITIONS.......................................................1
Account Debtor.................................................1
Affiliate......................................................1
Audit..........................................................1
Borrower.......................................................1
Borrower's Address.............................................1
Business Day...................................................1
Change of Control..............................................1
Closing Date...................................................1
Coast..........................................................1
Code...........................................................1
Collateral.....................................................2
Credit Limit...................................................2
Default........................................................2
Deposit Account................................................2
Dollars or $...................................................2
Early Termination Fee..........................................2
EBIT...........................................................2
EBITDA.........................................................2
Eligible Finished Goods Inventory..............................2
Eligible Foreign Receivables...................................2
Eligible Raw Material Inventory................................2
Eligible Receivables...........................................2
Equipment......................................................4
Event of Default...............................................4
GAAP...........................................................4
General Intangibles............................................4
Inventory......................................................4
Inventory Loans................................................4
Investment Property............................................4
Loan Documents.................................................4
Loans..........................................................4
Material Adverse Effect........................................4
Maturity Date..................................................4
Maximum Dollar Amount..........................................4
Minimum Monthly Interest.......................................4
Obligations....................................................4
Permitted Liens................................................5
Person.........................................................5
Prime Rate.....................................................5
Real Property..................................................5
Receivable Loans...............................................5
Receivables....................................................5
Renewal Date...................................................5
Renewal Fee....................................................5
Solvent........................................................5
Tangible Net Worth.............................................6
Year 2000......................................................6
Other Terms....................................................6
2. CREDIT FACILITIES.................................................6
2.1 Loans......................................................6
3. INTEREST AND FEES.................................................6
3.1 Interest.....................................................6
3.2 Fees.........................................................7
4. SECURITY INTEREST.................................................6
5. CONDITIONS PRECEDENT..............................................6
5.1 Status of Accounts at Closing................................7
5.2 Minimum Availability.........................................7
5.3 Landlord Waiver..............................................7
5.4 Real Property................................................7
5.5 Executed Agreement...........................................7
5.6 Opinion of Borrower's Counsel................................7
5.7 Priority of Coast's Liens....................................7
5.8 Insurance....................................................7
5.9 Borrower's Existence.........................................7
5.10 Organizational Documents.....................................7
5.11 Taxes........................................................7
5.12 Due Diligence................................................7
5.13 Other Documents and Agreements...............................7
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.........8
6.1 Existence and Authority......................................8
6.2 Name; Trade Names and Styles.................................8
6.3 Place of Business; Location of Collateral....................8
6.4 Title to Collateral; Permitted Liens.........................8
6.5 Maintenance of Collateral....................................8
6.6 Books and Records............................................8
6.7 Financial Condition, Statements and Reports..................9
i
<PAGE>
COAST BUSINESS CREDIT
LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Reports......................................................9
6.8 Tax Returns and Payments; Pension Contributions..............9
6.9 Compliance with Law..........................................9
6.10 Litigation...................................................9
6.11 Use of Proceeds..............................................9
6.12 Year 2000 Problem............................................9
7. RECEIVABLES.......................................................9
7.1 Representations Relating to Receivables......................9
7.2 Representations Relating to Documents and Legal Compliance...9
7.3 Schedules and Documents relating to Receivables.............10
7.4 Collection of Receivables...................................10
7.5 Remittance of Proceeds......................................10
7.6 Disputes....................................................10
7.7 Returns.....................................................10
7.8 Verification................................................11
7.9 No Liability................................................11
8. ADDITIONAL DUTIES OF THE BORROWER................................11
8.1 Financial and Other Covenants...............................11
8.2 Insurance...................................................11
8.3 Reports.....................................................11
8.4 Access to Collateral, Books and Records.....................11
8.5 Negative Covenants..........................................11
8.6 Litigation Cooperation......................................12
8.7 Further Assurances..........................................12
9. TERM.............................................................12
9.1 Maturity Date...............................................12
9.2 Early Termination...........................................12
9.3 Payment of Obligations......................................13
10.EVENTS OF DEFAULT AND REMEDIES...................................13
10.1 Events of Default...........................................13
10.2 Remedies....................................................14
10.3 Standards for Determining Commercial Reasonableness.........15
10.4 Power of Attorney...........................................15
10.5 Application of Proceeds.....................................16
10.6 Remedies Cumulative.........................................17
11.GENERAL PROVISIONS...............................................17
11.1 Interest Computation........................................17
11.2 Application of Payments.....................................17
11.3 Charges to Accounts.........................................17
11.4 Monthly Accountings.........................................17
11.5 Notices.....................................................17
11.6 Severability................................................17
11.7 Integration.................................................17
11.8 Waivers.....................................................18
11.9 No Liability for Ordinary Negligence........................18
11.10 Amendment...................................................18
11.11 Time of Essence.............................................18
11.12 Attorneys Fees, Costs and Charges...........................18
11.13 Benefit of Agreement........................................18
11.14 Publicity...................................................19
11.15 Paragraph Headings; Construction............................19
11.16 Governing Law; Jurisdiction; Venue..........................19
11.17 Confidentiality.............................................19
11.18 Mutual Waiver of Jury Trial.................................19
ii
<PAGE>
COAST BUSINESS CREDIT(R)
LOAN AND SECURITY AGREEMENT
BORROWER: GENSIA SICOR PHARMACEUTICALS, INC.
ADDRESS: 19 HUGHES
IRVINE, CALIFORNIA 92618-1902
DATE: SEPTEMBER 30, 1998
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST
BUSINESS CREDIT, a division of Southern Pacific Bank ("Coast"), a California
corporation, with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles,
California 90025, and the borrower named above ("Borrower"), whose chief
executive office is located at the above address ("Borrower's Address"). The
Schedule to this Agreement (the "Schedule") shall for all purposes be deemed to
be a part of this Agreement, and the same is an integral part of this Agreement.
(Definitions of certain terms used in this Agreement are set forth in Section 1
below.)
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable or General Intangible.
--------------
"Affiliate" means, with respect to any Person, a relative, partner,
---------
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Audit" means to inspect, audit and copy Borrower's books and records and the
-----
Collateral.
"Borrower" has the meaning set forth in the introduction to this Agreement.
--------
"Borrower's Address" has the meaning set forth in the introduction to this
-------------------
Agreement.
"Business Day" means a day on which Coast is open for business.
------------
"Change of Control" shall be deemed to have occurred at such time as a
-----------------
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) (other than the current holders of the
ownership interests in any Borrower) becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, as a result of any single transaction, of more than twenty percent
(20%) of the total voting power of all classes of stock or other ownership
interests then outstanding of any Borrower normally entitled to vote in the
election of directors or analogous governing body.
"Closing Date" means the date of the initial funding under this Agreement.
------------
"Coast" has the meaning set forth in the introduction to this Agreement.
-----
"Code" means the Uniform Commercial Code as
----
1
<PAGE>
COAST BUSINESS CREDIT
LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
adopted and in effect in the State of California from time to time.
"Collateral" has the meaning set forth in Section 4 hereof.
----------
"Credit Limit" means the maximum amount of Loans that Coast may make to
------------
Borrower pursuant to the amounts and percentages shown on the Schedule.
"Default" means any event which with notice or passage of time or both, would
-------
constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
---------------
"Dollars or $" means United States dollars.
------------
"Early Termination Fee" means the amount set forth on the Schedule that
---------------------
Borrower must pay Coast if this Agreement is terminated by Borrower or Coast
pursuant to Section 9.2 hereof.
"EBIT" means, in any fiscal period, Borrower's consolidated net income (other
----
than extraordinary or non-recurring items of Borrower for such period), plus (i)
----
the amount of all interest expense and income tax expense of Borrower for such
period, on a consolidated basis, and plus or minus (as the case may be) (ii) any
-------------
other non-cash charges which have been added or subtracted, as the case may be,
in calculating Borrower's consolidated net income for such period.
"EBITDA" means EBIT computed without deduction of any amount for depreciation
------
or amortization.
"Eligible Finished Goods Inventory" means Inventory which Coast, in its sole
---------------------------------
judgment, deems eligible for borrowing, based on such considerations as Coast
may from time to time deem appropriate. Without limiting the fact that the
determination of which Inventory is eligible for borrowing is a matter of
Coast's discretion, Inventory which does not meet the following requirements
will not be deemed to be Eligible Finished Goods Inventory: Inventory which (i)
consists of finished goods (saleable drugs), in good, new and salable condition
which is not perishable, not obsolete or unmerchantable, and is not comprised of
raw materials, work in process, packaging materials or supplies; (ii) meets all
applicable governmental standards; (iii) has been manufactured in compliance
with the Fair Labor Standards Act; (iv) conforms in all respects to the
warranties and representations set forth in this Agreement; (v) is at all times
subject to Coast's duly perfected, first priority security interest; (vi) is not
product at outside processors; (vii) is not research and development material;
(viii) is situated at a one of the locations set forth on the Schedule; (ix) is
not short-dated Inventory.
"Eligible Foreign Receivables" means Receivables up to ninety (90) days past
----------------------------
invoice arising from Borrower's customers located outside the United States
which Coast otherwise approves for borrowing in its sole and absolute
discretion. Without limiting the foregoing, Coast will consider the following
in determining the eligibility of such receivables: (i) whether the Borrower's
goods are shipped backed by an irrevocable letter of credit satisfactory to
Coast (as to form, substance, and issuer or domestic confirming bank) that has
been delivered to Coast and is directly drawable by Coast, or (ii) whether the
Borrower's customer is a large or rated company having a verifiable credit
history, or (iii) whether Borrower's customer is a foreign subsidiary of a
customer of Borrower that is a company that was formed and has its primary place
of business within the United States, or (iv) whether Borrower's customer is a
large foreign corporation, or (v) whether Borrower's customer is a foreign
company with a Dun & Bradstreet rating, or (vi) whether Borrower's goods are
shipped to a company that has credit insurance.
"Eligible Raw Materials Inventory" means Inventory which Coast, in its sole
--------------------------------
judgment, deems eligible for borrowing, based on such considerations as Coast
may from time to time deem appropriate. Without limiting the fact that the
determination of which Inventory is eligible for borrowing is a matter of
Coast's discretion, Inventory which does not meet the following requirements
will not be deemed to be Eligible Raw Materials Inventory: Inventory which (i)
consists of raw materials (chemical solutions and active ingredients), and is
not comprised of work in process, packaging materials or supplies; (ii) meets
all applicable governmental standards; (iii) has been manufactured in compliance
with the Fair Labor
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Standards Act; (iv) conforms in all respects to the warranties and
representations set forth in this Agreement; (v) is at all times subject to
Coast's duly perfected, first priority security interest; (vi) is not product at
outside processors; (vii) is not research and development material; (viii) is
situated at a one of the locations set forth on the Schedule; (ix) is not short-
dated Inventory.
"Eligible Receivables" means Receivables and Eligible Foreign Receivables
--------------------
arising in the ordinary course of Borrower's business from the sale of goods or
rendition of services, which Coast, in its sole judgment, shall deem eligible
for borrowing, based on such considerations as Coast may from time to time deem
appropriate. Eligible Receivables shall not include the following:
(a) Receivables that the Account Debtor has failed to pay within
ninety (90) days of invoice date or Receivables that are sixty (60) days past
due date, provided they do not exceed one hundred twenty (120) days past invoice
date;
(b) Receivables owed by an Account Debtor or its Affiliates where
twenty-five percent (25%) or more of all Receivables owed by that Account Debtor
(or its Affiliates) are deemed ineligible under clause (a) above;
(c) Receivables with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;
(d) Receivables with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(e) Receivables, other than Eligible Foreign Receivables, that are
not payable in Dollars or with respect to which the Account Debtor: (i) does not
maintain its chief executive office in the United States, or (ii) is not
organized under the laws of the United States or any State thereof, or (iii) is
the government of any foreign country or sovereign state, or of any state,
province, municipality, or other political subdivision thereof, or of any
department, agency, public corporation, or other instrumentality thereof;
(f) Receivables with respect to which the Account Debtor is either
(i) the United States or any department, agency, or instrumentality of the
United States (exclusive, however, of Accounts with respect to which Borrower
has complied, to the satisfaction of Coast, with the Assignment of Claims Act,
31 U.S.C. (S) 3727), or (ii) any State of the United States (exclusive, however,
of Receivables owed by any State that does not have a statutory counterpart to
the Assignment of Claims Act);
(g) Receivables with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Receivables;
(h) Receivables with respect to an Account Debtor whose total
obligations owing to Borrower exceed twenty-five percent (25%) of all Eligible
Receivables, to the extent of the obligations owing by such Account Debtor in
excess of such percentage;
(i) Receivables with respect to which the Account Debtor is subject
to any reorganization, bankruptcy, insolvency, arrangement, readjustment of
debt, dissolution or liquidation proceeding, or becomes insolvent, or goes out
of business;
(j) Receivables the collection of which Coast, in its reasonable
credit judgment, believes to be doubtful by reason of the Account Debtor's
financial condition;
(k) Receivables with respect to which the goods giving rise to such
Receivable have not been shipped and billed to the Account Debtor, the services
giving rise to such Receivable have not been performed and accepted by the
Account Debtor, or the Receivable otherwise does not represent a final sale;
(l) Receivables with respect to which the Account Debtor is located
in the states of New Jersey, Minnesota, Indiana, or West Virginia (or any other
state that requires a creditor to file a Business Activity Report or similar
document in order to bring suit or otherwise enforce its remedies against such
Account Debtor in the courts or through any judicial process of such state),
unless
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Borrower has qualified to do business in New Jersey, Minnesota, Indiana, West
Virginia, or such other states, or has filed a Notice of Business Activities
Report with the applicable division of taxation, the department of revenue, or
with such other state offices, as appropriate, for the then-current year, or is
exempt from such filing requirement; and
(m) Receivables that represent progress payments or other advance
billings that are due prior to the completion of performance by Borrower of the
subject contract for goods or services.
"Equipment" means all of Borrower's present and hereafter acquired machinery,
---------
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dies, jigs, goods and other goods (other
than Inventory) of every kind and description used in Borrower's operations or
owned by Borrower and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions or improvements
to any of the foregoing, wherever located.
"Event of Default" means any of the events set forth in Section 10.1 of this
----------------
Agreement.
"GAAP" means generally accepted accounting principles as in effect from time
----
to time in the United States, consistently applied.
"General Intangibles" means all general intangibles of Borrower, whether now
-------------------
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, investment property, inventions, designs, drawings,
blueprints, patents, patent applications, trademarks and the goodwill of the
business symbolized thereby, names, trade names, goodwill, copyrights,
registrations, licenses, franchises, customer lists, security and other
deposits, rights in all litigation presently or hereafter pending for any cause
or claim (whether in contract, tort or otherwise), and all judgments now or
hereafter arising therefrom, all claims of Borrower against Coast, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information,purchase
orders, and all insurance policies and claims (including without limitation life
insurance, key man insurance, credit insurance, liability insurance, property
insurance and other insurance), tax refunds and claims, computer programs,
discs, tapes and tape files, claims under guaranties, security interests or
other security held by or granted to Borrower, all rights to indemnification and
all other intangible property of every kind and nature (other than Receivables).
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
---------
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit, and
including without limitation all farm products), and all materials and supplies
of every kind, nature and description which are or might be used or consumed in
Borrower's business or used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods, merchandise or other
personal property, and all warehouse receipts, documents of title and other
documents representing any of the foregoing.
"Inventory Loans" means the Loans described in Section 2(b) of the Schedule.
---------------
"Investment Property" has the meaning set forth in Section 9115 of the Code
-------------------
as in effect as of the date hereof.
"Loan Documents" means this Agreement, the agreements and documents listed on
--------------
Section 5 of the Schedule, and any other agreement, instrument or document
executed in connection herewith or therewith.
"Loans" has the meaning set forth in Section 2.1 hereof.
-----
"Material Adverse Effect" means a material adverse effect on (i) the
-----------------------
business, assets, condition (financial or otherwise) or results of operations of
Borrower or any subsidiary of Borrower or any guarantor of any of the
Obligations, (ii) the ability of Borrower or any guarantor of any of the
Obligations to perform its obligations under this Agreement (including, without
limitation, repayment of the Obligations as they come due) or (iii) the validity
or
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enforceability of this Agreement or any other agreement or document entered
into by any party in connection herewith, or the rights or remedies of Coast
hereunder or thereunder.
"Maturity Date" means the date that this Agreement shall cease to be
-------------
effective, as set forth on the Schedule, subject to the provisions of Section
9.1 and 9.2 hereof.
"Maximum Dollar Amount" has the meaning set forth in Section 2 of the
---------------------
Schedule.
"Minimum Monthly Interest" has the meaning set forth in Section 3 of the
------------------------
Schedule.
"Obligations" means all present and future Loans, advances, debts,
-----------
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorneys'
fees (including attorneys' fees and expenses incurred in bankruptcy), expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and any
other sums chargeable to Borrower under this Agreement or under any other
present or future instrument or agreement between Borrower and Coast.
"Permitted Liens" means the following:
---------------
(a) purchase money security interests in specific items of Equipment;
(b) existing and future leases of specific items of Equipment;
(c) liens for taxes not yet payable;
(d) additional security interests and liens consented to in writing by
Coast, which consent shall not be unreasonably withheld;
(e) security interests being terminated substantially concurrently with
this Agreement;
(f) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;
(g) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above in
clauses (a) or (b) above, provided that any extension, renewal or replacement
lien is limited to the property encumbered by the existing lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase; or
(h) liens in favor of customs and revenue authorities which secure payment
of customs duties in connection with the importation of goods.
Coast will have the right to require, as a condition to its consent under
subparagraph (d) above, that the holder of the additional security interest or
lien sign an intercreditor agreement on Coast's then standard form, acknowledge
that the security interest is subordinate to the security interest in favor of
Coast, and agree not to take any action to enforce its subordinate security
interest so long as any Obligations remain outstanding, and that Borrower agree
that any uncured default in any obligation secured by the subordinate security
interest shall also constitute an Event of Default under this Agreement.
"Person" means any individual, sole proprietorship, general partnership,
------
limited partnership, limited liability partnership, limited liability company,
joint venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Prime Rate" means the actual "Reference Rate" or the substitute therefor of
----------
the Bank of America NT & SA whether or not that rate is the lowest interest rate
charged by said bank. If the Prime Rate, as defined, is unavailable,
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"Prime Rate" shall mean the highest of the prime rates published in the Wall
Street Journal on the first business day of the applicable month, as the base
rate on corporate loans at large U.S. money center commercial banks.
"Real Property" means Borrower's real property located at 19 Hughes, Irvine,
-------------
California 92618-1902.
"Receivable Loans" means the Loans described in Section 2(a) of the Schedule.
----------------
"Receivables" means all of Borrower's now owned and hereafter acquired
-----------
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents, securities accounts,
security entitlements, commodity contracts, commodity accounts, investment
property and all other forms of obligations at any time owing to Borrower, all
guaranties and other security therefor, all merchandise returned to or
repossessed by Borrower, and all rights of stoppage in transit and all other
rights or remedies of an unpaid vendor, lienor or secured party.
"Renewal Date" shall mean the Maturity Date if this Agreement is renewed
------------
pursuant to Section 9.1 hereof, and each anniversary thereafter that this
Agreement is renewed pursuant to Section 9.1 hereof.
"Renewal Fee" means the fee that Borrower must pay Coast upon renewal of this
-----------
Agreement pursuant to Section 9.1 hereof, in the amount set forth on the
Schedule.
"Solvent" means, with respect to any Person on a particular date, that on
-------
such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"Tangible Net Worth" means consolidated Borrower's equity plus subordinated
------------------ ----
debt otherwise permitted hereunder, less, goodwill, patents, trademarks,
----
copyrights, franchises, formulas, leasehold interests, leasehold improvements,
non-compete agreements, engineering plans, deferred tax benefits, organization
costs, prepaid items, and any other assets of Borrower that would be treated as
intangible assets on Borrower's balance sheet prepared in accordance with GAAP.
"Year 2000 Problem" means the risk that computer systems, software and
-----------------
applications, used by a Person may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any dates after
December 31, 1999.
"Other Terms." All accounting terms used in this Agreement, unless otherwise
-----------
indicated, shall have the meanings given to such terms in accordance with GAAP.
All other terms contained in this Agreement, unless otherwise indicated, shall
have the meanings provided by the Code, to the extent such terms are defined
therein.
2. CREDIT FACILITIES.
2.1 LOANS. Coast will make loans to Borrower (the "Loans"), in amounts
and in percentages to be determined by Coast in its good faith discretion, up to
the Credit Limit, provided no Default or Event of Default has occurred and is
continuing. In addition, Coast may create reserves against or reduce its
advance rates based upon Eligible Receivables or Eligible Inventory without
declaring a Default or an Event of Default if it determines that there has
occurred a Material Adverse Effect.
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3. INTEREST AND FEES.
3.1 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Coast's discretion, be charged to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans. Regardless of the amount of Obligations that may be
outstanding from time to time, Borrower shall pay Coast Minimum Monthly Interest
during the term of this Agreement with respect to the Receivable Loans and the
Inventory Loans in the amount set forth on the Schedule.
3.2 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Coast and are deemed
fully earned and are nonrefundable.
4. SECURITY INTEREST.
To secure the payment and performance of all of the Obligations when due,
Borrower hereby grants to Coast a security interest in all of Borrower's
interest in the following, whether now owned or hereafter acquired, and wherever
located: All Receivables, Inventory, Equipment (not subject to a lease),
Investment Property, and General Intangibles, including, without limitation, all
of Borrower's Deposit Accounts, and all money, and all property now or at any
time in the future in Coast's possession (including claims and credit balances),
and all proceeds of any of the foregoing (including proceeds of any insurance
policies, proceeds of proceeds, and claims against third parties), all products
of any of the foregoing, and all books and records related to any of the
foregoing (all of the foregoing, together with all other property in which Coast
may now or in the future be granted a lien or security interest, is referred to
herein, collectively, as the "Collateral")
5. CONDITIONS PRECEDENT.
The obligation of Coast to make the Loans is subject to the satisfaction, in
the sole discretion of Coast, at or prior to the first advance of funds
hereunder, of each, every and all of the following conditions:
5.1 STATUS OF ACCOUNTS AT CLOSING. No account payable shall be due and
unpaid one hundred twenty (120) days past its invoice date except for such
accounts payable being contested in good faith in appropriate proceedings and
for which adequate reserves have been provided.
5.2 MINIMUM AVAILABILITY. Borrower shall have minimum availability
immediately following the initial funding in the amount set forth on the
Schedule.
5.3 LANDLORD WAIVER. Coast shall have received duly executed
(a) landlord waivers and access agreements in form and substance
satisfactory to Coast, in Coast's sole and absolute discretion, and, when deemed
appropriate by Coast, in form for recording in the appropriate recording office,
with respect to all leased locations where Borrower maintains any inventory or
equipment.
(b) mortgagee waivers in form and substance satisfactory to Coast, in
Coast's sole and absolute discretion, and when deemed appropriate by Coast, in
form for recording in the appropriate recording office, with respect to all
mortgaged locations where Borrower maintains any inventory or equipment.
(c) warehouse waivers in form and substance satisfactory to Coast, in
Coast's sole and absolute discretion, and when deemed appropriate by Coast, in
form for recording in the appropriate recording office, with respect to all
warehouse locations where Borrower maintains any inventory or equipment.
5.4 REAL PROPERTY. Intentionally omitted.
5.5 EXECUTED AGREEMENT. Coast shall have received this Agreement duly
executed and in form and substance satisfactory to Coast in its sole and
absolute
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discretion.
5.6 OPINION OF BORROWER'S COUNSEL. Coast shall have received an opinion
of Borrower's counsel, in form and substance reasonably satisfactory to Coast in
its sole and absolute discretion.
5.7 PRIORITY OF COAST'S LIENS. Coast shall have received the results of
"of record" searches satisfactory to Coast in its sole and absolute discretion,
reflecting its Uniform Commercial Code filings against Borrower indicating that
Coast has a perfected, first priority lien in and upon all of the Collateral,
subject only to Permitted Liens.
5.8 INSURANCE. Coast shall have received copies of the insurance binders
or certificates evidencing Borrower's compliance with Section 8.2 hereof,
including lender's loss payee endorsements.
5.9 BORROWER'S EXISTENCE. Coast shall have received copies of Borrower's
articles or certificate of incorporation and all amendments thereto, and a
Certificate of Good Standing, each certified by the Secretary of State of the
state of Borrower's organization, and dated a recent date prior to the Closing
Date, and Coast shall have received Certificates of Foreign Qualification for
Borrower from the Secretary of State of each state wherein the failure to be so
qualified could have a Material Adverse Effect.
5.10 ORGANIZATIONAL DOCUMENTS. Coast shall have received copies of
Borrower's By-laws and all amendments thereto, and Coast shall have received
copies of the resolutions of the board of directors of Borrower, authorizing the
execution and delivery of this Agreement and the other documents contemplated
hereby, and authorizing the transactions contemplated hereunder and thereunder,
and authorizing specific officers of Borrower to execute the same on behalf of
Borrower, in each case certified by the Secretary or other acceptable officer of
Borrower as of the Closing Date.
5.11 TAXES. Coast shall have received evidence from Borrower that
Borrower has complied with all tax withholding and Internal Revenue Service
regulations, in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.12 DUE DILIGENCE. Coast shall have completed its due diligence with
respect to Borrower.
5.13 YEAR 2000 PROBLEM ASSESSMENT CERTIFICATE. Coast shall have received a
certificate from the relevant officer of Borrower to the effect that, as the
result of a comprehensive assessment undertaken by Borrower of Borrower's
computer systems, software and applications and after due inquiry made to
Borrower's material suppliers, vendors and customers, Borrower knows of no facts
that would cause Borrower to reasonably believe that the Year 2000 Problem will
cause a Material Adverse Effect.
5.14 OTHER DOCUMENTS AND AGREEMENTS. Coast shall have received such other
agreements, instruments and documents as Coast may require in connection with
the transactions contemplated hereby, all in form and substance satisfactory to
Coast in Coast's sole and absolute discretion, and in form for filing in the
appropriate filing office, including, but not limited to, those documents listed
in Section 5 of the Schedule.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make Loans,
Borrower represents and warrants to Coast as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
6.1 EXISTENCE AND AUTHORITY. Borrower is and will continue to be, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Borrower is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would have a Material Adverse Effect. The execution, delivery and performance
by Borrower of this Agreement, and all other documents contemplated hereby (a)
have been duly and validly authorized, (b) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy,
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insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (c) do not violate Borrower's articles or certificate of
incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (d) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.
6.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Coast thirty (30) days' prior written notice before changing
its name or doing business under any other name. Borrower has complied, and
will in the future comply, with all laws relating to the conduct of business
under a fictitious business name.
6.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in
the heading to this Agreement is Borrower's chief executive office. In
addition, Borrower has places of business and Collateral is located only at the
locations set forth on the Schedule. Borrower will give Coast at least thirty
(30) days' prior written notice before opening any additional place of business,
changing its chief executive office, or moving any of the Collateral to a
location other than Borrower's Address or one of the locations set forth on the
Schedule.
6.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at
all times in the future be, the sole owner of all the Collateral, except for
items of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Coast now has, and
will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Coast and the Collateral against all claims of
others. None of the Collateral now is or will be affixed to any real property
in such a manner, or with such intent, as to become a fixture. Borrower is not
and will not become a lessee under any real property lease pursuant to which the
lessor may obtain any rights in any of the Collateral and no such lease now
prohibits, restrains, impairs or will prohibit, restrain or impair Borrower's
right to remove any Collateral from the leased premises. Whenever any
Collateral is located upon premises in which any third party has an interest
(whether as owner, mortgagee, beneficiary under a deed of trust, lien or
otherwise), Borrower shall, whenever requested by Coast, use its best efforts to
cause such third party to execute and deliver to Coast, in form acceptable to
Coast, such waivers and subordinations as Coast shall specify, so as to ensure
that Coast's rights in the Collateral are, and will continue to be, superior to
the rights of any such third party. Borrower will keep in full force and
effect, and will comply with all the terms of, any lease of real property where
any of the Collateral now or in the future may be located.
6.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in
good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower shall file a patent application on all patentable
material and register any trademarks, copyrights and copyrightable material
which comprises the Collateral and is of sufficient value to warrant such
protection and advise Coast of the acquisition, existence, filing and/or
registration thereof. Borrower will immediately advise Coast in writing of any
material loss or damage to the Collateral.
6.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.
6.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
now or in the future delivered to Coast have been, and will be, prepared in
conformity with GAAP (except, in the case of unaudited financial statements, for
the absence of footnotes and subject to normal year-end adjustments) and now and
in the future will fairly reflect the financial condition of Borrower, at the
times and for the periods therein stated. Between the last date covered by any
such statement provided to Coast and the date hereof, there has been no Material
Adverse Effect. Borrower is now and will continue to be Solvent.
6.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely
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file, all tax returns and reports required by foreign, federal, state and local
law, and Borrower has timely paid, and will timely pay, all foreign, federal,
state and local taxes, assessments, deposits and contributions now or in the
future owed by Borrower. Borrower may, however, defer payment of any contested
taxes, provided that Borrower (i) in good faith contests Borrower's obligation
to pay the taxes by appropriate proceedings promptly and diligently instituted
and conducted, (ii) notifies Coast in writing of the commencement of, and any
material development in, the proceedings, and (iii) posts bonds or takes any
other steps required to keep the contested taxes from becoming a lien upon any
of the Collateral. As of the date hereof, Borrower is unaware of any claims or
adjustments proposed for any of Borrower's prior tax years which could result in
additional taxes becoming due and payable by Borrower. Borrower has paid, and
shall continue to pay all amounts necessary to fund all present and future
pension, profit sharing and deferred compensation plans in accordance with their
terms, and Borrower has not and will not withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any other event
with respect to, any such plan which could result in any liability of Borrower,
including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency. Borrower shall, at all times,
utilize the services of an outside payroll service providing for the automatic
deposit of all payroll taxes payable by Borrower.
6.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all material foreign, federal, state
and local laws and regulations relating to Borrower, including, but not limited
to, the Fair Labor Standards Act, and those relating to Borrower's ownership of
real or personal property, the conduct and licensing of Borrower's business, and
environmental matters.
6.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in a Material Adverse Effect.
Borrower will promptly inform Coast in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or against
Borrower involving an amount set forth on the Schedule.
6.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation G of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
6.12 YEAR 2000 COMPLIANCE. As the result of a comprehensive review and
assessment undertaken by Borrower of Borrower's computer systems, software and
applications and after due inquiry made of Borrower's material suppliers,
vendors and customers, Borrower represents and warrants that the Year 2000
Problem will not result in a Material Adverse Effect.
7. RECEIVABLES.
7.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Coast as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business.
7.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Coast as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations. All
signatures and endorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be
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legally enforceable in accordance with their terms.
7.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Coast via facsimile, unless otherwise directed by Coast, at such
locations and at such intervals as Coast may reasonably request, transaction
reports and loan requests, schedules of Receivables, and schedules of
collections, all on Coast's standard forms; provided, however, that Borrower's
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failure to execute and deliver the same shall not affect or limit Coast's
security interest and other rights in all of Borrower's Receivables, nor shall
Coast's failure to advance or lend against a specific Receivable affect or limit
Coast's security interest and other rights therein. Loan requests received
after 10:30 A.M. Los Angeles, California time, will not be considered by Coast
until the next Business Day. Together with each such schedule, or later if
requested by Coast, Borrower shall furnish Coast with copies (or, at Coast's
request, originals) of all contracts, orders, invoices, and other similar
documents, and all original shipping instructions, delivery receipts, bills of
lading, and other evidence of delivery, for any goods the sale or disposition of
which gave rise to such Receivables, and Borrower warrants the genuineness of
all of the foregoing. Borrower shall also furnish to Coast an aged accounts
receivable trial balance in such form and at such intervals as Coast shall
request. In addition, Borrower shall deliver to Coast the originals of all
instruments, chattel paper, security agreements, guarantees and other documents
and property evidencing or securing any Receivables, upon receipt thereof and in
the same form as received, with all necessary endorsements, all of which shall
be with recourse. Borrower shall also provide Coast with copies of all credit
memos as and when requested by Coast.
7.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect
all Receivables, unless and until an Event of Default has occurred. Borrower
shall hold all payments on, and proceeds of, Receivables in trust for Coast, and
Borrower shall deliver all such payments and proceeds to Coast within one (1)
Business Day after receipt by Borrower, in their original form, duly endorsed to
Coast, to be applied to the Obligations in such order as Coast shall determine.
Coast may, in its discretion, require that all proceeds of Collateral be
deposited by Borrower into a lockbox account, or such other "blocked account" as
Coast may specify, pursuant to a blocked account agreement in such form as Coast
may specify. Coast or its designee may, at any time, notify Account Debtors
that Coast has been granted a security interest in the Receivables.
7.5 REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of
any Collateral shall be delivered to Coast within one (1) Business Day after
receipt by Borrower, in their original form, duly endorsed to Coast, to be
applied to the Obligations in such order as Coast shall determine. Borrower
agrees that it will not commingle proceeds of Collateral with any of Borrower's
other funds or property, but will hold such proceeds separate and apart from
such other funds and property and in an express trust for Coast. Nothing in
this Section limits the restrictions on disposition of Collateral set forth
elsewhere in this Agreement.
7.6 DISPUTES. Borrower shall notify Coast promptly of all disputes or
claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (a) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Coast on the regular reports provided to Coast; (b) no Default or
Event of Default has occurred and is continuing; and (c) taking into account all
such discounts settlements and forgiveness, the total outstanding Loans will not
exceed the Credit Limit. Coast may, at any time after the occurrence of an
Event of Default, settle or adjust disputes or claims directly with Account
Debtors for amounts and upon terms which Coast considers advisable in its
reasonable credit judgment and, in all cases, Coast shall credit Borrower's Loan
account with only the net amounts received by Coast in payment of any
Receivables.
7.7 RETURNS. Provided no Event of Default has occurred and is continuing,
if any Account Debtor returns any Inventory to Borrower in the ordinary course
of its business, Borrower shall promptly determine the reason for such return
and promptly issue a credit memorandum to the Account Debtor in the appropriate
amount. In the event any attempted return occurs after the occurrence of
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any Event of Default, Borrower shall (a) hold the returned Inventory in trust
for Coast, (b) segregate all returned Inventory from all of Borrower's other
property, (c) conspicuously label the returned Inventory as subject to Coast's
security interest, and (d) immediately notify Coast of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on Coast's request deliver such returned Inventory
to Coast.
7.8 VERIFICATION. Coast may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables. Coast shall use its good faith efforts to employ the following
verification method: (i) Select, on a monthly basis, the Receivables from the
Account Debtors that Coast would like to verify; (ii) telephone said Account
Debtors directly but in the name of Borrower and with a representative of
Borrower on the telephone; and (iii) verify, along with Borrower's
representative, the relevant information relating to the Receivables from the
Account Debtor. Notwithstanding the above, Coast shall have the right to
independently verify directly with the Account Debtors by mail, telephone or
otherwise, either in the name of Coast or such other name as Coast may chose,
the validity, amount and other matters relating to the Receivables, if in the
exercise of Coast's reasonable business judgment, such independent verification
is warranted.
7.9 NO LIABILITY. Coast shall not under any circumstances be responsible
or liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Coast be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Coast from liability for its
own gross negligence or willful misconduct.
8. ADDITIONAL DUTIES OF THE BORROWER.
8.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule.
8.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Coast, in such form and amounts as Coast may
reasonably require, and Borrower shall provide evidence of such insurance to
Coast, so that Coast is satisfied that such insurance is, at all times, in full
force and effect. All liability insurance policies of Borrower shall name Coast
as an additional insured, and all property casualty and related insurance
policies of Borrower shall name Coast as a loss payee thereon and Borrower shall
cause a lender's loss payee endorsement in form reasonably acceptable to Coast.
Upon receipt of the proceeds of any such insurance, Coast shall apply such
proceeds in reduction of the Obligations as Coast shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Coast shall release to Borrower insurance proceeds with
respect to Equipment totaling less than the amount set forth in Section 8 of the
Schedule, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Coast may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Coast may, but is
not obligated to, obtain the same at Borrower's expense. Borrower shall
promptly deliver to Coast copies of all reports made to insurance companies.
8.3 REPORTS. Borrower, at its expense, shall provide Coast with the
written reports set forth in Section 8 of the Schedule, and such other written
reports with respect to Borrower (including budgets, sales projections,
operating plans and other financial documentation), as Coast shall from time to
time reasonably specify.
8.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times but not
less frequently than quarterly and on one (1) Business Day's notice, Coast, or
its agents, shall have the right to perform Audits. Coast shall take reasonable
steps to keep confidential all confidential information obtained in any Audit,
but Coast shall have the right to disclose any such information to its auditors,
regulatory agencies, and attorneys, and pursuant to any
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subpoena or other legal process. The Audits shall be at Borrower's expense and
the charge for the Audits shall be Seven Hundred Fifty Dollars ($750) per person
per day (or such higher amount as shall represent Coast's then current standard
charge for the same), plus reasonable out-of-pocket expenses. Borrower will not
enter into any agreement with any accounting firm, service bureau or third party
to store Borrower's books or records at any location other than Borrower's
Address, without first notifying Coast of the same and obtaining the written
agreement from such accounting firm, service bureau or other third party to give
Coast the same rights with respect to access to books and records and related
rights as Coast has under this Loan Agreement. Borrower shall also take all
necessary steps to assure that this material accounting and software systems and
applications, and those of its accounting firm, service bureau or any other
third party vendor or supplier, will, on a timely basis, adequately and
completely address the Year 2000 Problem in all material respects.
8.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior written
consent, do any of the following:
(a) merge or consolidate with another entity, except in a transaction in
which (i) the owners of the Borrower hold at least fifty percent (50%) of the
ownership interest in the surviving entity immediately after such merger or
consolidation, and (ii) the Borrower is the surviving entity;
(b) acquire any assets, except (i) in the ordinary course of business, or
(ii) in a transaction or a series of transactions not involving the payment of
an aggregate amount in excess of the amount set forth in Section 8 of the
Schedule;
(c) enter into any other transaction outside the ordinary course of
business;
(d) sell or transfer any Collateral, except for the sale of finished
Inventory in the ordinary course of Borrower's business, and except for the sale
of obsolete or unneeded Equipment in the ordinary course of business;
(e) store any Inventory or other Collateral with any warehouseman or other
third party unless subject to a warehouseman or other third party agreement in
form and substance acceptable to Coast;
(f) sell any Inventory on a sale-or-return, guaranteed sale, consignment,
or other contingent basis;
(g) make any loans of any money or other assets, except (i) advances to
customers or suppliers in the ordinary course of business, (ii) travel advances,
employee relocation loans and other employee loans and advances in the ordinary
course of business, and (iii) loans to employees, officers and directors for the
purpose of purchasing equity securities of the Borrower;
(h) incur any debts, outside the ordinary course of business, which would
have a Material Adverse Effect;
(i) guarantee or otherwise become liable with respect to the obligations
of another party or entity;
(j) pay or declare any dividends or distributions on the ownership
interests in Borrower (except for dividends or distributions payable solely in
stock form of ownership interests in Borrower);
(k) make any change in Borrower's capital structure which would have a
Material Adverse Effect; or
(l) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default is continuing or would occur as a
result of such transaction.
8.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Coast with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Coast, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
8.7 FURTHER ASSURANCES. Borrower agrees, at its
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expense, on request by Coast, to execute all documents and take all actions, as
Coast, may deem reasonably necessary or useful in order to perfect and maintain
Coast's perfected security interest in the Collateral, and in order to fully
consummate the transactions contemplated by this Agreement.
9. TERM.
9.1 MATURITY DATE. This Agreement shall continue in effect until the
Maturity Date; provided that the Maturity Date shall automatically be extended,
and this Agreement shall automatically and continuously renew, for successive
additional terms of one year each, unless one party gives written notice to the
other, not less than sixty (60) days prior to the Maturity Date or the next
Renewal Date, that such party elects to terminate this Agreement effective on
the Maturity Date or such next Renewal Date. If this Agreement is renewed under
this Section 9.1, Borrower shall pay to Coast a Renewal Fee in the amount shown
in Section 3 of the Schedule. The Renewal Fee shall be due and payable on the
Renewal Date and thereafter shall bear interest at a rate equal to the rate
applicable to the Receivable Loans.
9.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (a) by Borrower, effective three (3) Business Days
after written notice of termination is given to Coast; or (b) by Coast at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Coast under this
Section 9.2, Borrower shall pay to Coast an Early Termination Fee in the amount
shown in Section 3 of the Schedule. The Early Termination Fee shall be due and
payable on the effective date of termination and thereafter shall bear interest
at a rate equal to the rate applicable to the Receivable Loans.
9.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Notwithstanding any termination of this Agreement, all of Coast's security
interests in all of the Collateral and all of the terms and provisions of this
Agreement shall continue in full force and effect until all Obligations have
been paid and performed in full; provided that, without limiting the fact that
Loans are subject to the discretion of Coast, Coast may, in its sole discretion,
refuse to make any further Loans after termination. No termination shall in any
way affect or impair any right or remedy of Coast, nor shall any such
termination relieve Borrower of any Obligation to Coast, until all of the
Obligations have been paid and performed in full. Upon payment and performance
in full of all the Obligations and termination of this Agreement, Coast shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be required to fully terminate Coast's security
interests.
10. EVENTS OF DEFAULT AND REMEDIES.
10.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower shall
give Coast immediate written notice thereof:
(a) Any warranty, representation, statement, report or certificate made or
delivered to Coast by Borrower or any of Borrower's officers, employees or
agents, now or in the future, shall be untrue or misleading and results in a
Material Adverse Effect; or
(b) Borrower shall fail to pay when due any Loan or any interest thereon
or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time shall
exceed the Credit Limit; or
(d) Borrower shall fail to deliver the proceeds of Collateral to Coast as
provided in Section 7.5 above, or shall fail to give Coast access to its books
and records or Collateral as provided in Section 8.4 above, or shall breach any
negative covenant set forth in Section 8.5 above; or
(e) Borrower shall fail to comply with the financial covenants (if any)
set forth in the Schedule or shall fail to perform any other non-monetary
Obligation which by its nature cannot be cured; or
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(f) Borrower shall fail to perform any other non-monetary Obligation,
which failure is not cured within five (5) Business Days after the date due; or
(g) Any levy, assessment, attachment, seizure, lien or encumbrance (other
than a Permitted Lien) is made on all or any part of the Collateral which is not
cured within ten (10) days after the occurrence of the same; or
(h) any default or event of default occurs under any obligation secured by
a Permitted Lien, which is not cured within any applicable cure period or waived
in writing by the holder of the Permitted Lien; or
(i) Borrower breaches any material contract or obligation, which has or
may reasonably be expected to have a Material Adverse Effect; or
(j) Dissolution, termination of existence, insolvency or business failure
of Borrower or any guarantor of any of the Obligations; or appointment of a
receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower or any guarantor of any of the Obligations under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or
(k) the commencement of any proceeding against Borrower or any guarantor
of any of the Obligations under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect, which is (i) not timely
controverted, or (ii) not cured by the dismissal thereof within thirty (30) days
after the date commenced; or
(l) revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations or any attempt to do any of the foregoing,
or commencement of proceedings by any guarantor of any of the Obligations under
any bankruptcy or insolvency law; or
(m) revocation or termination of, or limitation or denial of liability
upon, any pledge of any certificate of deposit, securities or other property or
asset of any kind pledged by any third party to secure any or all of the
Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or
(n) Borrower or any guarantor of any of the Obligations makes any payment
on account of any indebtedness or obligation which has been subordinated to the
Obligations, other than as permitted in the applicable subordination agreement,
or if any Person who has subordinated such indebtedness or obligations
terminates or in any way limits his subordination agreement; or
(o) Except as permitted under Section 8.5(a), Borrower shall suffer or
experience any Change of Control without Coast's prior written consent, which
consent shall be in the discretion of Coast in the exercise of its reasonable
business judgment; or
(p) Borrower shall generally not pay its debts as they become due, or
Borrower shall conceal, remove or transfer any part of its property, with intent
to hinder, delay or defraud its creditors, or make or suffer any transfer of any
of its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or
(q) Borrower shall fail to file a patent application on any patentable
material or register any trademark, copyright or copyrightable material which is
part of the Collateral and is of sufficient value to warrant such protection or
advise Coast of the acquisition, creation, existence, filing on or registration
of any such Collateral.
(r) there shall be any Material Adverse Effect.
Coast may cease making any Loans or extending any credit hereunder during any of
the above cure periods.
10.2 REMEDIES. Upon the occurrence, and during the continuance, of any
Event of Default, Coast, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following:
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(a) Cease making Loans or otherwise extending credit to Borrower under
this Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation;
(c) Take possession of any or all of the Collateral wherever it may be
found, and for that purpose Borrower hereby authorizes Coast without judicial
process to enter onto any of Borrower's premises without interference to search
for, take possession of, keep, store or remove any of the Collateral, and remain
on the premises or cause a custodian to remain on the premises in exclusive
control thereof, without charge for so long as Coast deems it reasonably
necessary in order to complete the enforcement of its rights under this
Agreement or any other agreement; provided, however, that should Coast seek to
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take possession of any of the Collateral by Court process, Borrower hereby
irrevocably waives:
(i) any bond and any surety or security relating thereto required by
any statute, court rule or otherwise as an incident to such possession;
(ii) any demand for possession prior to the commencement of any suit
or action to recover possession thereof; and
(iii) any requirement that Coast retain possession of, and not
dispose of, any such Collateral until after trial or final judgment;
(d) Require Borrower to assemble any or all of the Collateral and make it
available to Coast at places designated by Coast which are reasonably convenient
to Coast and Borrower, and to remove the Collateral to such locations as Coast
may deem advisable;
(e) Complete the processing, manufacturing or repair of any Collateral
prior to a disposition thereof and, for such purpose and for the purpose of
removal, Coast shall have the right to use Borrower's premises, vehicles,
hoists, lifts, cranes, equipment and all other property without charge. Coast
is hereby granted a license or other right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and Borrower's rights under all
licenses and all franchise agreements shall inure to Coast's benefit;
(f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Coast shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Coast deems reasonable, or on Coast's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Coast may directly
or through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes Coast to endorse or sign Borrower's name on all collections,
receipts, instruments and other documents, to take possession of and open mail
addressed to Borrower and remove therefrom payments made with respect to any
item of the Collateral or proceeds thereof, and, in Coast's sole discretion, to
grant extensions of time to pay, compromise claims and settle Receivables and
the like for less than face value; and
(h) Demand and receive possession of any of Borrower's federal and state
income tax returns and the books and records utilized in the preparation thereof
or referring thereto.
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All attorneys' fees, expenses, costs, liabilities and obligations incurred by
Coast (including attorneys' fees and expenses incurred in connection with
bankruptcy) with respect to the foregoing shall be due from the Borrower to
Coast on demand. Coast may charge the same to Borrower's loan account, and the
same shall thereafter bear interest at the same rate as is applicable to the
Receivable Loans. Without limiting any of Coast's rights and remedies, from and
after the occurrence of any Event of Default, the interest rate applicable to
the Obligations shall be increased by an additional three percent per annum.
10.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS . Borrower and
Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable:
(a) Notice of the sale is given to Borrower at least seven (7) days prior
to the sale, and, in the case of a public sale, notice of the sale is published
at least seven (7) days before the sale in a newspaper of general circulation in
the county where the sale is to be conducted;
(b) Notice of the sale describes the collateral in general, non-specific
terms;
(c) The sale is conducted at a place designated by Coast, with or without
the Collateral being present;
(d) The sale commences at any time between 8:00 a.m. and 6:00 p.m Los
Angeles, California time;
(e) Payment of the purchase price in cash or by cashier's check or wire
transfer is required; and
(f) With respect to any sale of any of the Collateral, Coast may (but is
not obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same.
Coast shall be free to employ other methods of noticing and selling the
Collateral, in its discretion, if they are commercially reasonable.
10.4 POWER OF ATTORNEY. Borrower grants to Coast an irrevocable power of
attorney coupled with an interest, authorizing and permitting Coast (acting
through any of its employees, attorneys or agents) at any time, at its option,
but without obligation, with or without notice to Borrower, and at Borrower's
expense, to do any or all of the following, in Borrower's name or otherwise, but
Coast agrees to exercise the following powers in a commercially reasonable
manner:
(a) Execute on behalf of Borrower any documents that Coast may, in its
sole discretion, deem advisable in order to perfect and maintain Coast's
security interest in the Collateral, or in order to exercise a right of Borrower
or Coast, or in order to fully consummate all the transactions contemplated
under this Agreement, and all other present and future agreements;
(b) Execute on behalf of Borrower any document exercising, transferring or
assigning any option to purchase, sell or otherwise dispose of or to lease (as
lessor or lessee) any real or personal property which is part of Coast's
Collateral or in which Coast has an interest;
(c) Execute on behalf of Borrower, any invoices relating to any
Receivable, any draft against any Account Debtor and any notice to any Account
Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into Coast's
possession;
(e) Endorse all checks and other forms of remittances received by Coast;
(f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same;
(g) Grant extensions of time to pay,
17
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COAST BUSINESS CREDIT
LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
compromise claims and settle Receivables and General Intangibles for less than
face value and execute all releases and other documents in connection therewith;
(h) Pay any sums required on account of Borrower's taxes or to secure the
release of any liens therefor, or both;
(i) Settle and adjust, and give releases of, any insurance claim that
relates to any of the Collateral and obtain payment therefor;
(j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give Coast the same rights of
access and other rights with respect thereto as Coast has under this Agreement;
and
(k) Take any action or pay any sum required of Borrower pursuant to this
Agreement and any other present or future agreements.
Any and all sums paid and any and all costs, expenses, liabilities,
obligations and attorneys' fees incurred by Coast (including attorneys' fees and
expenses incurred pursuant to bankruptcy) with respect to the foregoing shall be
added to and become part of the Obligations, and shall be payable on demand.
Coast may charge the foregoing to Borrower's loan account and the foregoing
shall thereafter bear interest at the same rate applicable to the Receivable
Loans. In no event shall Coast's rights under the foregoing power of attorney
or any of Coast's other rights under this Agreement be deemed to indicate that
Coast is in control of the business, management or properties of Borrower.
Borrower shall pay, indemnify, defend, and hold Coast and each of its officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all attorneys fees and disbursements and other
costs and expenses actually incurred in connection therewith (as and when they
are incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person hereunder with respect to any Indemnified Liability that a
court of competent jurisdiction finally determines to have resulted from the
gross negligence or willful misconduct of such Indemnified Person. This
provision shall survive the termination of this Agreement and the repayment of
the Obligations.
10.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale of the Collateral shall be applied by Coast first to the costs, expenses,
liabilities, obligations and attorneys' fees incurred by Coast in the exercise
of its rights under this Agreement, second to the interest due upon any of the
Obligations, and third to the principal of the Obligations, in such order as
Coast shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Coast for any deficiency. If, Coast, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Coast shall have the option, exercisable at
any time, in its sole discretion, of either reducing the Obligations by the
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Coast of the cash therefor.
10.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set
forth in this Agreement, Coast shall have all the other rights and remedies
accorded a secured party in equity, under the Code, and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Coast and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Coast of one or more of its rights or remedies shall not be deemed an election,
nor bar Coast from subsequent exercise or partial exercise of any other rights
18
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COAST BUSINESS CREDIT
LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
or remedies. The failure or delay of Coast to exercise any rights or remedies
shall not operate as a waiver thereof, but all rights and remedies shall
continue in full force and effect until all of the Obligations have been
indefeasibly paid and performed.
11. GENERAL PROVISIONS.
11.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Coast (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Coast on account of the Obligations three (3) Business Days after
receipt by Coast of immediately available funds, and, for purposes of the
foregoing, any such funds received after 10:30 AM Los Angeles, California time,
on any day shall be deemed received on the next Business Day. Coast shall be
entitled to charge Borrower's account for such three (3) Business Days of
"clearance" or "float" at the rate(s) set forth in Section 3 of the Schedule on
all checks, wire transfers and other items received by Coast, regardless of
whether such three (3) Business Days of "clearance" or "float" actually occur,
and shall be deemed to be the equivalent of charging three (3) Business Days of
interest on such collections. This across-the-board three (3) Business Day
clearance or float charge on all collections is acknowledged by the parties to
constitute an integral aspect of the pricing of Coast's financing of Borrower.
Coast shall not, however, be required to credit Borrower's account for the
amount of any item of payment which is unsatisfactory to Coast in its sole
discretion, and Coast may charge Borrower's loan account for the amount of any
item of payment which is returned to Coast unpaid.
11.2 APPLICATION OF PAYMENTS. Subject to Section 10.5 hereof, all
payments with respect to the Obligations may be applied, and in Coast's sole
discretion reversed and re-applied, to the Obligations, in such order and manner
as Coast shall determine in its sole discretion.
11.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to Borrower's
Loan account, in which event they will bear interest from the date due to the
date paid at the same rate applicable to the Loans.
11.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Coast), unless Borrower
notifies Coast in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or omissions.
11.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, facsimile or certified mail return
receipt requested, addressed to Coast or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Coast shall be directed to the Commercial
Finance Division, to the attention of the Division Manager or the Division
Credit Manager. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, faxed (at time of confirmation of
transmission), or at the expiration of one (1) Business Day following delivery
to the private delivery service, or two (2) Business Days following the deposit
thereof in the United States mail, with postage prepaid.
11.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
11.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. There are
---------
no oral understandings, representations or agreements between the parties which
- -------------------------------------------------------------------------------
are not set forth in this Agreement or in other written agreements signed by the
- --------------------------------------------------------------------------------
parties in connection herewith.
- -------------------------------
19
<PAGE>
COAST BUSINESS CREDIT
LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
11.8 WAIVERS. The failure of Coast at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith. Any waiver of any Default shall not waive or affect any other
Default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action taken by
Coast, unless expressly required by this Agreement.
11.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Coast, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast, but nothing herein shall relieve Coast from
liability for its own gross negligence or willful misconduct.
11.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
11.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
11.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse Coast
for all attorneys' fees (including attorneys' fees and expenses incurred
pursuant to bankruptcy) and all filing, recording, search, title insurance,
appraisal, audit, and other costs incurred by Coast, pursuant to, or in
connection with, or relating to this Agreement (whether or not a lawsuit is
filed), including, but not limited to, any attorneys' fees and costs (including
attorneys' fees and expenses incurred pursuant to bankruptcy) Coast incurs in
order to do the following: prepare and negotiate this Agreement and the
documents relating to this Agreement; obtain legal advice in connection with
this Agreement or Borrower; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of Borrower's books and records;
protect, obtain possession of, lease, dispose of, or otherwise enforce Coast's
security interest in, the Collateral; and otherwise represent Coast in any
litigation relating to Borrower. If either Coast or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its costs and attorneys' fees
(including attorneys' fees and expenses incurred pursuant to bankruptcy),
including (but not limited to) attorneys' fees and costs incurred in the
enforcement of, execution upon or defense of any order, decree, award or
judgment. Borrower shall also pay Coast's standard charges for returned checks
and for wire transfers, in effect from time to time. All attorneys' fees, costs
and charges (including attorneys' fees and expenses incurred pursuant to
bankruptcy) and other fees, costs and charges to which Coast may be entitled
pursuant to this Agreement may be charged by Coast to Borrower's loan account
and shall thereafter bear interest at the same rate as the Receivable Loans.
11.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Coast; provided,
--------
however, that Borrower may not assign or transfer any of its rights under this
- -------
Agreement without the prior written consent of Coast, and any prohibited
assignment shall be void. No consent by Coast to any assignment shall release
20
<PAGE>
COAST BUSINESS CREDIT
LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
Borrower from its liability for the Obligations. Coast may assign its rights
and delegate its duties hereunder by the sale of assignment or participation
interests, all without the consent of Borrower. Coast reserves the right to
syndicate all or a portion of the transaction created herein or sell, assign
transfer, negotiate, or grant participations in all or any part of, or any
interest in Coast's rights and benefits hereunder. In connection with any such
syndication, assignment or participation, Coast may disclose all documents and
information which Coast now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Coast assigns its rights and
obligations hereunder to a third Person, Coast thereafter shall be released from
such assigned to Borrower.
11.14 PUBLICITY. Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published announcing
the consummation of this transaction and the aggregate amount thereof.
11.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used
in this Agreement for convenience. Borrower and Coast acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Coast or Borrower under any rule
of construction or otherwise.
11.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the internal laws of the State of California, without
regard to its conflicts of law principles. As a material part of the
consideration to Coast to enter into this Agreement, Borrower (a) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Coast's option, be litigated in courts located within California, and
that the exclusive venue therefor shall be Los Angeles County; (b) consents to
the jurisdiction and venue of any such court and consents to service of process
in any such action or proceeding by personal delivery or any other method
permitted by law; and (c) waives any and all rights Borrower may have to object
to the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
11.17 CONFIDENTIALITY. Coast agrees that it will not disclose confidential
and proprietary information unless required in arbitration/litigation between
the parties or pursuant to an order from a court of competent jurisdiction.
21
<PAGE>
COAST BUSINESS CREDIT
LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
11.18 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
GENSIA SICOR PHARMACEUTICALS, INC.
By: /s/ John Sayward
-----------------------------------------
Name: John Sayward
Title: President or Vice President
By: /s/ Wesley N. Fach
---------------------------------------
Name: Wesley N. Fach
Title: Secretary or Ass't Secretary
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific
Bank
By: /s/ Edward Stepanow
-------------------------------
Name: Edward Stepanow
Title: Vice President
22
<PAGE>
================================================================================
COAST BUSINESS CREDIT(R)
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: GENSIA SICOR PHARMACEUTICALS, INC.
ADDRESS: 19 HUGHES DRIVE
IRVINE, CALIFORNIA 92618-1902
DATE: SEPTEMBER 30, 1998
This Schedule forms an integral part of the Loan and Security Agreement between
Coast Business Credit, a division of Southern Pacific Bank, and the above-
borrower of even date.
===============================================================================
SECTION 2 - CREDIT FACILITIES
SECTION 2.1 - CREDIT LIMIT: Loans in a total amount at any time
outstanding not to exceed the lesser of a
total of Ten Million Dollars ($10,000,000.00)
(the "Maximum Dollar Amount"), or the sum of
(a) and (b) below:
(a) Receivable Loans in an amount not to
exceed the lesser of:
(1) up to 80% of the amount of
Borrower's Eligible Receivables (as
defined in Section 1 of the
Agreement) after establishing an
appropriate reserve for charge-
backs, or
(2) up to 30% of Borrower's Gross
Receivables (as defined in Section
1 of the Agreement), plus
----
(3) up to One Million Dollars
($1,000,000.00) of Borrower's
Eligible Foreign Receivables (as
defined in Section 1 of the
Agreement), plus
----
(b) Inventory Loans in an amount not to
exceed the lesser of:
23
<PAGE>
(1) up to 40% of the value of
Borrower's Eligible Raw Materials
Inventory (as defined in Section 1
of the Agreement), calculated at
the lower of cost or market value
and determined on a first-in,
first-out basis, plus
----
(2) up to 50% of the value of
Borrower's Eligible Finished Goods
Inventory (as defined in Section 1
of the Agreement), calculated at
the lower of cost or market value
and determined on a first-in,
first-out basis, or
(3) Four Million Dollars
($4,000,000.00).
The outstanding loan balance of the Inventory Loans shall be paid in full for a
minimum of one (1) day during each fiscal quarter ("Inventory Loans Repayment
Condition"). In the event borrower is unable to satisfy this repayment
condition, Coast may apply collections received from the lock-box arrangement
against the outstanding balance of the Inventory Loans until it is paid in full.
================================================================================
SECTION 3 - INTEREST AND FEES
SECTION 3.1 - INTEREST RATE: A rate equal to the Prime Rate plus 1.75%
per annum, calculated on the basis of a
360-day year for the actual number of
days elapsed. The interest rate
applicable to all Loans shall be adjusted
monthly as of the first day of each
month, and the interest to be charged for
each month shall be based on the highest
Prime Rate in effect during the prior
month, but in no event shall the rate of
interest charged on any Loans in any
month be less than 9.00% per annum.
SECTION 3.1 - UNUSED LINE
FEE: Quarterly unused line fee of 0.25% will
be charged if the quarterly outstanding
loan balance is less than Three Million
Dollars ($3,000,000.00).
SECTION 3.2 - LOAN FEE: One percent (1.00%) of the Maximum Dollar
Amount, payable concurrently herewith.
SECTION 3.2 - FACILITY FEE: $4,000.00 per quarter, payable on the
Closing Date (prorated for any partial
quarter at the beginning of the term of
this Agreement).
SECTION 9.1 - RENEWAL FEE: 0.50% of the Maximum Dollar Amount per
year.
SECTION 9.2 - EARLY TERMINATION
FEE: An amount equal to two percent (2%) of
the Maximum Dollar Amount (as defined in
the Schedule), if termination occurs on
or before the first anniversary of the
effective date of this Agreement; and one
percent (1%) of the Maximum Dollar
Amount, if termination occurs after the
first anniversary of the effective date
of this Agreement.
24
<PAGE>
================================================================================
SECTION 5 - CONDITIONS PRECEDENT
SECTION 5.2 - MINIMUM
AVAILABILITY: $2,000,000.00
SECTION 5.13 - OTHER DOCUMENTS
AND AGREEMENTS: 1. Continuing Guaranty of Gensia Sicor, Inc.;
2. Assignment of all collections from
Borrower's existing Bank of America lock-
box account;
3. UCC-1 financing statements, fixture
filings and termination statements ;
4. Security Agreements (including those
covering copyrights, patents and
trademarks);
5. Intercreditor and Subordination Agreements
with parent and related companies; and
6. Landlord Waivers and Warehouse Agreements.
===============================================================================
SECTION 6 - REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 6.2 - PRIOR NAMES OF
BORROWER: Gensia Laboratories, Ltd.
SECTION 6.2 - PRIOR TRADE NAMES
OF BORROWER: None.
SECTION 6.2 - EXISTING TRADE NAMES
OF BORROWER: None.
SECTION 6.3 - OTHER LOCATIONS AND
ADDRESSES: 17, 19, 21, 23 and 23 Hughes Drive, Irvine,
CA 92618-1902. Two finished goods
distribution centers operated by independent
third party, DDN Obergfel; 4605 Hickory Hill,
Memphis, TN 38141 and 2660 East 37th Street,
Vernon, CA 90058
SECTION 6.10 - MATERIAL ADVERSE
LITIGATION:
Patent infringement suits involving
Cisplatin
See Exhibit "A" for specifics.
SECTION 6.10 - FUTURE CLAIMS AND
LITIGATION: Borrower will promptly inform Coast in
writing of any claim, proceeding, litigation
or investigation in the future threatened or
instituted by or against Borrower involving
any single claim of Fifty Thousand Dollars
($50,000.00) or more, or involving One
Hundred Thousand Dollars ($100,000.00) or
more in the aggregate.
25
<PAGE>
===============================================================================
SECTION 8 - ADDITIONAL DUTIES OF BORROWER
SECTION 8.1 - OTHER PROVISIONS:
1. Borrower shall have no accounts payable
over sixty (60) days past due date not to
exceed one hundred fifty (150) days past
invoice date at the time of funding, unless
pre approved in writing and reserved for at
funding by Coast.
2. All of Borrower's applicable taxes shall be
paid and current at the time of funding and
at all times during the Term of the Loan
and Security Agreement.
3. Borrower shall ensure that Coast is granted
a first priority and the only perfected
security interest on all of Borrower's
tangible and intangible assets (excepting
therefrom Permitted Liens) including,
without limitation, accounts receivables,
inventory, machinery and equipment, and all
other tangible and intangible assets
including patents, trademarks and/or
copyrights which relate to the sale of
Borrower's inventory.
4. Accounts receivables collections shall be
collected via Borrower's existing Bank of
America lock-box account which shall be
assigned to Coast. These collections shall
be applied to the Accounts Receivable Loans
outstanding balance only, provided Borrower
satisfies the Inventory Loans Repayment
Condition each fiscal quarter. However, in
the event Borrower fails to satisfy the
Inventory Loans Repayment Condition, Coast
may apply collections received from the
lock-box against the outstanding Inventory
Loans balance until paid in full.
5. Review of Comdisco and Mier Mitchell, GATX
equipment financing agreements to ensure
liens are acceptable to Coast. If any of
these equipment liens are unacceptable,
Intercreditor Agreements, in form and
substance acceptable to Coast, are
required.
6. Subordination of parent company and inter-
company debt (and/or accounts payable)
totaling approximately One Hundred Four
Million Dollars ($104,000,000.00) as of
June 30, 1998, in form and substance
acceptable to Coast, which form shall
include, but not be limited to, a complete
prohibition against the making of any
payment on this debt (and/or accounts
payable) during the Term hereof.
7. Satisfactory review of all contracts,
including those involving charge-backs,
return provisions, etc., by Coast and
Coast's legal counsel.
8. Borrower may pay dividends out of after tax
profit only.
9. There shall be no up-streaming and/or side-
streaming of funds.
SECTION 8.2 - INSURANCE: Subject to the limitations set forth in
Section 8.2 of the Agreement, Coast shall
release to Borrower insurance proceeds with
respect to Equipment totaling less than
Fifty Thousand Dollars ($50,000.00).
26
<PAGE>
SECTION 8.3 - REPORTING: Borrower shall provide Coast with the
following:
1. Monthly Receivable agings, aged by
invoice date, within ten (10) days after
the end of each month.
2. Monthly accounts payable agings, aged by
invoice date, outstanding or held check
registers, and with subtotals by vendor,
all within ten (10) days after the end
of each month.
3. Monthly perpetual inventory reports for
the Inventory valued on a first-in,
first-out basis at the lower of cost or
market (in accordance with GAAP),
monthly inventory reports summarizing
significant inventory categories
including short-dated product, and such
other inventory reports as are
reasonably requested and in form and
substance satisfactory to Coast, all
within ten (10) days after the end of
each month.
4. Monthly sales reports by product,
within ten (10) days after the end of
each month.
5. Monthly internally prepared financial
statements including the consolidating
financial statement used in fiscal year
end audits, as soon as available, and in
any event within thirty (30) days after
the end of each month.
6. Quarterly customer lists, including
customer name, address, and phone
number.
7. Quarterly updated inventory appraisals,
in form and substance satisfactory to
Coast, as soon as available, and in any
event within forty-five (45) days after
the end of each fiscal quarter of
Borrower.
8. Ongoing receipt of Gensia Sicor Inc.'s
consolidated 10-Q and 10-K statements,
as soon as available, and in any event
within forty-five (45) days after the
end of each fiscal quarter.
9. Annual audited financial statements of
Gensia Sicor Inc., as soon as available,
and in any event within ninety (90) days
following the end of Borrower's fiscal
year, containing the unqualified opinion
of, and certified by, an independent
certified public accountant acceptable
to Coast.
SECTION 8.5 - NEGATIVE COVENANTS
27
<PAGE>
(ACQUIRED ASSETS): Fifty Thousand Dollars ($50,000.00)
================================================================================
SECTION 9 - TERM
SECTION 9.1 - MATURITY DATE: October 31, 1999, subject to automatic
renewal as provided in Section 9.1 of
the Agreement, and early termination as
provided in Section 9.2 of the Agreement.
28
<PAGE>
COAST BUSINESS CREDIT(R)
FIRST AMENDMENT TO THE LOAN AND SECURITY AGREEMENT
BORROWER: GENSIA SICOR PHARMACEUTICALS, INC.
ADDRESS: 19 HUGHES
IRVINE, CALIFORNIA 92618
DATE: OCTOBER 30, 1998
THIS FIRST AMENDMENT TO THE LOAN AND SECURITY AGREEMENT is entered into as of
the above date between COAST BUSINESS CREDIT, a division of Southern Pacific
Bank ("Coast"), a California corporation, with offices at 12121 Wilshire
Boulevard, Suite 1111, Los Angeles, California 90025, and the borrower named
above ("Borrower") whose chief executive office is located at the above address
("Borrower's Address"). This Amendment shall for all purposes be deemed to be a
part of the Loan and Security Agreement dated as of September 29, 1998
("Agreement") and same is an integral part of the Agreement.
AMENDMENTS
1. Sub-section (a) of the definition of Eligible Receivables contained in
Section 1 of the Agreement is amended to read as follows:
(a) Receivables that the Account Debtor has failed to pay within
ninety (90) days of invoice date;
2. Section 1 of the Agreement is amended to add the following definition:
"Borrowing Base Accounts Receivables" means Eligible Receivables (as
-----------------------------------
defined in Section 1 of the Agreement) of certain Account Debtors
selected by Coast in the exercise of its sole discretion.
3. Sub-section (a) of Section 2.1 of the Schedule to the Agreement is hereby
amended to read as follows:
(a) Receivable Loans in an amount not to exceed the lesser of:
(1) up to 50% of Borrowing Base Accounts Receivables (as
defined in Section 1 of the Agreement), or
29
<PAGE>
(2) one (1) times monthly collections measured on a three (3)
month trailing basis, plus
----
4. Section 8.1 - Other Provisions of the Schedule to the Agreement is hereby
amended to add the following sub-paragraphs:
10. Borrower shall, at the time of funding and at all times during
the Term of the Loan and Security Agreement, maintain a ratio of
monthly gross revenues to monthly collections of that monthly
gross revenue greater than 0.40. Borrower's failure to maintain
said ratio shall be an Event of Default.
11. Borrower shall, at the time of funding and at all times during
the Term of the Loan and Security Agreement, maintain a Net Worth
(as defined by GAPP) of not less than Fifty-five Million Dollars
($55,000,000.00).
12. A re-audit shall be performed post Closing Date and shall start
within seven (7) days after the Closing Date.
TERMS AND CONDITIONS PRECEDENT.
1. Borrower's and Continuing Guarantor's execution and return to Coast of this
First Amendment.
EXCEPT AS EXPRESSLY PROVIDED FOR HEREIN, ALL OF THE TERMS AND CONDITIONS OF THE
LOAN AND SECURITYAGREEMENT AND ALL OTHER DOCUMENTS AND AGREEMENTS BETWEEN COAST
AND BORROWER SHALL CONTINUE IN FULL FORCE AND EFFECT AND THE SAME ARE HEREBY
RATIFIED AND AFFIRMED. THE WAIVERS CONTAINED HEREIN DO NOT CONSTITUTE A WAIVER
OF ANY OTHER PROVISION OR TERM OF THE LOAN AND SECURITYAGREEMENT NOR ANY RELATED
DOCUMENT OR AGREEMENT, NOR AN AGREEMENT TO WAIVE ANY TERM OR CONDITION OF THE
LOAN AND SECURITYAGREEMENT NOR ANY RELATED DOCUMENT OR AGREEMENT IN THE FUTURE.
30
<PAGE>
BORROWER: Coast:
GENSIA SICOR PHARMACEUTICALS, COAST BUSINESS CREDIT, a division of
INC. Southern Pacific Bank
By: /s/ John Sayward By: /s/ Edward Stepanow
----------------------------- ---------------------------
Name: John Sayward Name: Edward Stepanow,
Title: Executive Vice President & CFO Title: Vice President
And by: /s/ Wesley N. Fach
-------------------------
Name: Wesley N. Fach
Title: Secretary
THE GUARANTOR ACKNOWLEDGES THIS FIRST AMENDMENT TO THE AGREEMENT AND HEREBY
REAFFIRM ITS CONTINUING GUARANTY DATED SEPTEMBER 29, 1998.
Guarantor
Gensia Sicor, Inc.
By: /s/ John Sayward
-------------------------------
Name: John Sayward
Title: Executive Vice President & CFO
And by: /s/ Thomas M. Speace
---------------------------
Name: Thomas M. Speace
Title: Vice President, Business Development and International
Signature Page to First Amendment
31
<PAGE>
COAST BUSINESS CREDIT(R)
SECOND AMENDMENT TO THE LOAN AND SECURITY AGREEMENT
BORROWER: GENSIA SICOR PHARMACEUTICALS, INC.
ADDRESS: 19 HUGHES
IRVINE, CALIFORNIA 92618
DATE: NOVEMBER 4, 1998
THIS SECOND AMENDMENT TO THE LOAN AND SECURITY AGREEMENT is entered into as of
the above date between COAST BUSINESS CREDIT, a division of Southern Pacific
Bank ("Coast"), a California corporation, with offices at 12121 Wilshire
Boulevard, Suite 1111, Los Angeles, California 90025, and the borrower named
above ("Borrower") whose chief executive office is located at the above address
("Borrower's Address"). This Amendment shall for all purposes be deemed to be a
part of the Loan and Security Agreement dated as of September 29, 1998
("Agreement") and same is an integral part of the Agreement.
AMENDMENTS
1. The following sub-paragraphs of Section 8.1 - Other Provisions of
the Schedule to the Agreement, as amended, is hereby further amended
to read as follows:
10. Borrower shall, at the time of funding and at all times
during the Term of the Loan and Security Agreement,
maintain a ratio of monthly gross revenues to monthly
collections greater than 0.20, based on an average
three (3) month trailing basis. The ratio shall be
measured on a monthly basis. Borrower's failure to
maintain said ratio shall be an Event of Default.
11. Borrower shall, at the time of funding and at all times
during the Term of the Loan and Security Agreement,
maintain a minimum negative Net Worth (as defined by
GAAP) not to exceed Seventy Million Dollars
([$70,000,000.00]).
TERMS AND CONDITIONS PRECEDENT.
1. Borrower's and Continuing Guarantor's execution and return to Coast
of this Second Amendment.
32
<PAGE>
EXCEPT AS EXPRESSLY PROVIDED FOR HEREIN, ALL OF THE TERMS AND CONDITIONS OF THE
LOAN AND SECURITY AGREEMENT AND ALL OTHER DOCUMENTS AND AGREEMENTS BETWEEN COAST
AND BORROWER SHALL CONTINUE IN FULL FORCE AND EFFECT AND THE SAME ARE HEREBY
RATIFIED AND AFFIRMED. THE WAIVERS CONTAINED HEREIN DO NOT CONSTITUTE A WAIVER
OF ANY OTHER PROVISION OR TERM OF THE LOAN AND SECURITY AGREEMENT NOR ANY
RELATED DOCUMENT OR AGREEMENT, NOR AN AGREEMENT TO WAIVE ANY TERM OR CONDITION
OF THE LOAN AND SECURITY AGREEMENT NOR ANY RELATED DOCUMENT OR AGREEMENT IN THE
FUTURE.
BORROWER: Coast:
GENSIA SICOR PHARMACEUTICALS, COAST BUSINESS CREDIT, a division of
INC. Southern Pacific Bank
By: /s/ John Sayward By: /s/ John Steiner
-------------------------- --------------------------------
Name: John Sayward Name: John Steiner
Title: Executive Vice President & CFO Title: Vice President
And by: Wesley N. Fach
----------------------
Name: Wesley N. Fach
Title: Secretary
THE GUARANTOR ACKNOWLEDGES THIS SECOND AMENDMENT TO THE AGREEMENT AND HEREBY
REAFFIRM ITS CONTINUING GUARANTY DATED SEPTEMBER 29, 1998.
Guarantor
Gensia Sicor, Inc.
By: /s/ John Sayward
--------------------------
Name: John Sayward
Title: Executive Vice President & CFO
And by: /s/ Thomas M. Speace
----------------------
Name: Thomas M. Speace
Title: Vice President, Business Development and International
Signature Page to Second Amendment
33
<PAGE>
EXHIBIT 10.35
CONSULTING AGREEMENT
--------------------
THIS AGREEMENT (the "Agreement"), entered into as of this 27th day of
January, 1998 between GREENFIELD CHEMICAL, INC., with an office at 1409 Newgate,
Libertyville, Illinois 60048 ("Consultant"), and GENSIA SICOR INC., a Delaware
corporation with offices at 19 Hughes, Irvine, California 92618 (the "Company"),
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, the Consultant possesses expertise in the area of pharmaceutical
manufacturing, and desires to make available Consultant's expertise for the
benefit of Company by providing services in such area of expertise; and
WHEREAS, Company desires to utilize such services from time to time during
the term of this Agreement;
NOW, THEREFORE, in view of the foregoing premises which are hereby
incorporated as part of this Agreement, and consideration of the mutual
covenants herein contained, the parties hereto agree as follows:
1. The services to be rendered by Consultant (the "Services") shall
include:
(a) assisting the Company's subsidiaries, including SICOR S.p.A.,
Sicor de Mexico and Gendchem Pharma Ltd., in improving efficiencies of operation
and cooperation among these entities;
(b) assisting the Company's Genchem Pharma Ltd. subsidiary in the
field of contract manufacture of research and development quantities of bulk
active ingredients (drug substances) for third parties with an emphasis in the
area of oncology;
(c) assisting the Company's subsidiaries in the field of contract
manufacture of final dosage forms (drug products); and
(d) assisting the Company in evaluating acquisition opportunities and
conducting due diligence with respect thereto.
2. Consultant agrees that during the term of the Agreement Consultant
shall perform the Services to the best of Consultant's abilities and in
accordance with the Company's reasonable requests. Consultant will determine
the method, details and means of performing the Services.
<PAGE>
3. It is the express intention of the parties that Consultant be an
independent contractor and not an employee, agent joint venturer or partner of
Company. Nothing in this Agreement shall be interpreted or construed as
establishing or creating the relationship of employer and employee between
Company and Consultant or any employee or agent of Consultant. Both parties
acknowledge that Consultant is not an employee of Company for state or federal
tax purposes.
4. This Agreement shall remain in effect until December 31, 2000, and
thereafter as mutually agreed to in writing, provided, however, that this
Agreement may be terminated at the convenience of either party upon thirty (30)
days' written notice.
5. (a) Consultant recognizes and acknowledges that the data collected,
developed and maintained for Company by Consultant is a valuable property right
of the Company and is to be kept confidential and secret and therefore agrees to
keep all information relating to such data in confidence and trust, and will not
use or disclose any such information without the written consent of the Company,
except as such use may be necessary in the ordinary course of Consultant's
performance of the Services for the Company.
(b) Consultant agrees that all documents and other physical property
furnished to Consultant by the Company or produced by Consultant or others in
connection with the performances of the Services shall be and remain the sole
property of the Company, and that Consultant return and deliver all such
documents and property (including any copies thereof) to Company upon request or
upon the termination of this Agreement.
(c) During the term of this Agreement and thereafter, Consultant will
not solicit any employee of the Company to leave the Company for any reason or
to devote less than all of any such employee's efforts to the affairs of the
Company. During the term of this Agreement, Consultant further agrees that
Consultant will not buy or sell Company stock or discuss such subject with any
third parties.
6. In consideration for the Services rendered hereunder, Company shall
compensate Consultant at the rate of One thousand dollars ($1,000.00) per day
(or reasonable portion thereof) spent in performance of the Services, together
with reimbursement for other out-of-pocket expenses, including all travel,
hotel, meal and other expenses incurred in performance of the Services, actually
incurred on behalf of the Company and approved in advance by Company. For all
time spent in travel outside the United States, the Consultant will be paid at
the rate of five hundred dollars ($500.00) per day. Consultant shall invoice
Company not more than ten (10) days after the end of each calendar month, with
each invoice setting forth the days worked and a description of the services
performed during the preceding calendar month. Company shall pay such invoice
within thirty (30) days of receipt by Company. Company agrees that, during the
term of this Agreement, it shall require Consultant's Services for a minimum of
one hundred (100) days per year.
2
<PAGE>
7. Consultant hereby represents that neither the execution of this
Agreement, the consulting relationship with the Company nor the performance of
the Services will violate any obligations of Consultant to any person or entity,
including, without limitation, the obligation to keep confidential any
proprietary information of such person or entity.
8. This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
9. This Agreement cannot be altered or otherwise amended except pursuant
to an instrument in writing signed by Consultant and Company.
IN WITNESS WHEREOF, the Company and Consultant have executed this Agreement
as of the date first above written.
GREENFIELD CHEMICAL, INC. GENSIA SICOR INC.
By: /s/ Frank C. Becker By: /s/ Michael D. Cannon
-------------------------- --------------------------
Frank C. Becker Michael D. Cannon
3
<PAGE>
ADDENDUM TO AGREEMENT
---------------------
The Company and Consultant hereby agree to amend the Consulting Agreement dated
January 24, 1998 by adding the following:
The Company and Consultant agree that Consultant may assign the rights and
obligations of this agreement to XYZ Chemical, Inc. It is expressly understood
that Frank C. Becker will be required to own a majority of the common and voting
stock of the XYZ Chemical, Inc.
IN WITNESS WHEREOF, the Company and Consultant execute this addendum on this day
of February 1998.
GREENFIELD CHEMICAL, INC. GENSIA SICOR INC.
By: /s/ Frank C. Becker By: /s/ Michael D. Cannon
-------------------------- --------------------------
Frank C. Becker Michael D. Cannon
03/06/98
<PAGE>
Exhibit 21.1
------------
Subsidiaries of Gensia Sicor Inc.
Subsidiary Corporation Percentage Owned State of Incorporation
- ------------------------------------ ----------------- ----------------------
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. 92% Delaware
Rakepoll Holding B.V. 100% The Netherlands
SICOR-Societa Italiana 100% Italy
Corticosteroidi S.p.A.
Diaspa S.p.A. 100% 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
Zetesis, S.p.A. 50% Italy
<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. 33-44563, 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 8, 1999, with respect to the consolidated
financial statements of Gensia Sicor Inc., included in the Annual Report (Form
10-K) for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
San Diego, California
March 25, 1999
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<PERIOD-START> JAN-01-1998
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