<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1996
REGISTRATION NO. 33-78016
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
POST-EFFECTIVE
AMENDMENT NO. 2 ON
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
NAPRO BIOTHERAPEUTICS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 2833 84-1187753
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction Classification Code Number) Identification No.)
of Incorporation
or Organization)
6304 SPINE ROAD, UNIT A
BOULDER, COLORADO 80301
TELEPHONE: (303) 530-3891
(Address, Including Zip Code, and Telephone Number, Including Area code, of
Registrant's Principal Executive Offices)
GORDON H. LINK, JR.
CHIEF FINANCIAL OFFICER
6304 SPINE ROAD, UNIT A
BOULDER, COLORADO 80301
TELEPHONE: (303) 530-3891
TELECOPIER: (303) 530-1296
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
LANCE C. BALK, ESQ.
KIRKLAND & ELLIS
CITICORP CENTER
153 EAST 53RD STREET
NEW YORK, NY 10022
TELEPHONE: (212) 446-4950
TELECOPIER: (212) 446-4900
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A) MAY DETERMINE.
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<PAGE>
NAPRO BIOTHERAPEUTICS, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER PROSPECTUS CAPTION
----------- ------------------
<S> <C>
1. Forepart of the
Registration
Statement and
Outside Front Cover
Page of Prospectus.. Outside Front Cover Page
2. Inside Front and
Outside Back Cover
Pages of Prospectus. Inside Front Cover Pages; Outside Front Cover Page
3. Summary Information,
Risk Factors and
Ratio of Earnings to
Fixed Charges....... Prospectus Summary; Risk Factors
4.Use of Proceeds...... Prospectus Summary; Use of Proceeds; Selling
Stockholders and Plan of Distribution
5.Determination of
Offering Price.......... Outside Front Cover Page
6.Dilution............. Dilution
7.Selling Security
Holders................. Selling Stockholders and Plan of Distribution
8.Plan of Distribution. Use of Proceeds; Selling Stockholders and Plan of
Distribution
9.Description of
Securities to be Outside Front Cover Page; Prospectus Summary;
Registered.............. Description of Securities
10.Interests of Named
Experts and Counsel..... Legal Matters; Experts
11.Information with Outside Front Cover Page; Prospectus Summary; Risk
Respect to Registrant... Factors; Price Range of Common Stock; Dividend
Policy; Capitalization; Dilution; Selected Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Principal Stockholders; Selling
Stockholders and Plan of Distribution; Certain
Relationships and Related Transactions; Description of
Capital Stock; Financial Statements
12. Disclosure of
Commission Position
on
Indemnification for
Securities Act
Liabilities......... Not Applicable
</TABLE>
i
<PAGE>
NAPRO BIOTHERAPEUTICS, INC.
UP TO 2,070,000 SHARES OF COMMON STOCK TO BE ISSUED UPON EXERCISE OF
REDEEMABLE WARRANTS TO PURCHASE COMMON STOCK
1,453,615 SHARES OF COMMON STOCK ARE ALSO BEING REGISTERED ON BEHALF OF
CERTAIN STOCKHOLDERS OF THE COMPANY (THE "SELLING STOCKHOLDERS")
The Company is offering hereby up to 2,070,000 shares of Common Stock (the
"Common Stock") to be issued upon exercise of 2,070,000 redeemable warrants
("Redeemable Warrants") to purchase Common Stock at $5.00 per share, issued in
the Company's initial public offering (the "IPO") in August 1994. The
Redeemable Warrant exercise price is subject to adjustment in certain
circumstances. The Redeemable Warrants are redeemable by the Company, upon the
consent of Whale Securities Co., L.P. ("Whale Securities"), at any time upon
notice of not less than 30 days (the "Call Period"), at a price of $.10 per
Redeemable Warrant, provided that the closing bid quotation of the Common
Stock on all 20 trading days ending on the third day prior to the day on which
the Company gives notice has been at least 150% (currently $7.50, subject to
adjustment) of the then effective exercise price of the Redeemable Warrants.
The Redeemable Warrants expire January 31, 1998. As of the date of this
Prospectus, the closing bid quotation of the Common Stock on the last 20
trading days has been at least $7.50. Whale Securities has consented to the
Company's redemption of the Redeemable Warrants on the terms set forth in the
next paragraph.
In the event the Company decides to redeem the Redeemable Warrants, during
the Call Period, each holder of Redeemable Warrants will be allowed to choose
one, or a combination of, the following two options: (i) to exercise
Redeemable Warrants and purchase Common Stock for the exercise price of $5.00
per share (the "Cash Exercise") or (ii) to exercise the Redeemable Warrants in
a cash-less exchange by surrendering the Redeemable Warrants to the Company in
exchange for Common Stock (the "Cash-less Exercise"). If a holder of
Redeemable Warrants elects the Cash-less Exercise, such holder will be
entitled to receive 0.70 shares of Common Stock for each Redeemable Warrant
surrendered to the Company. No holder of Redeemable Warrants is obligated to
exercise Redeemable Warrants. If any holder of Redeemable Warrants does not
choose Cash Exercise or Cash-less Exercise during the Call Period, however,
such holder's Redeemable Warrants will be redeemed by the Company at $0.10 per
Redeemable Warrant. No fractional shares will be issued as a result of the
Cash-less Exercise. Cash-less Exercise will be a taxable event for any holder
who so elects. See "Description of Capital Stock--Redeemable Warrants" and
"Certain Federal Income Tax Consequences."
The Common Stock and Redeemable Warrants are quoted on the Nasdaq Small Cap
Market ("Nasdaq Small Cap") under the symbols "NPRO" and "NPROW,"
respectively.
This Prospectus also relates to the offer and sale by certain persons
(collectively, the "Selling Stockholders") of 1,453,615 shares, (collectively,
the "Selling Stockholders' Shares"), consisting of: (i) 293,615 shares of
Common Stock; (ii) 400,000 shares of Common Stock into which 400,000 shares of
the Company's Nonvoting Common Stock (the "Nonvoting Common Stock") will be
convertible upon disposition; (iii) 400,000 shares of Common Stock issuable
upon exercise of 400,000 redeemable warrants ("Faulding Warrants") with a
$5.00 exercise price to purchase Nonvoting Common Stock and converted into
Common Stock upon disposition and (iv) 360,000 shares of Common Stock issuable
upon exercise of 360,000 warrants (the "Underwriters Warrants") with a $7.50
exercise price issued to Whale Securities, the underwriters in the IPO.
The Redeemable Warrants, Faulding Warrants and Underwriters Warrants are
collectively referred to as the "Warrants."
The Company will not receive any of the proceeds from the sale of the
Selling Stockholders' Shares. The Company will receive $5.00 per share upon
exercise of the Faulding Warrants, $7.50 per share upon exercise of the
Underwriters Warrants and $5.00 per share upon exercise of the Redeemable
Warrants by holders who elect Cash Exercise. See "Description of Capital
Stock" and "Selling Stockholders and Plan of Distribution."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(4)(5)
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<S> <C> <C> <C>
Per Share............. $5.00(2) $0 $5.00
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Per Share............. $7.50(3) $0 $7.50
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Total................. $15,050,000 $0 $15,050,000
</TABLE>
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(1) No underwriting discounts or commissions will be paid. The shares will be
offered directly by the Company.
(2) To be received upon exercise of the Faulding Warrants and Redeemable
Warrants.
(3) To be received upon exercise of Underwriters Warrants.
(4) Before deducting offering expenses estimated at $50,000.
(5) Assumes all of the Warrants are exercised for cash.
The date of this Prospectus is , 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 19
Price Range of Common Stock............................................... 19
Dividend Policy........................................................... 19
Dilution.................................................................. 20
Capitalization............................................................ 21
Selected Financial Data................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 24
Business.................................................................. 28
Management................................................................ 42
Principal Stockholders.................................................... 53
Selling Stockholders and Plan of Distribution............................. 56
Certain Relations and Related Transactions................................ 58
Description of Capital Stock.............................................. 60
Certain Federal Income Tax Consequences................................... 65
Legal Matters............................................................. 66
Experts................................................................... 66
Additional Information.................................................... 66
Index to Financial Statements............................................. F-1
</TABLE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
Prospectus constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements
of the Company, or industry results, to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions; competition;
technological advances; ability to obtain rights to technology; ability to
obtain and enforce patents; ability to commercialize and manufacture products;
results of clinical studies; results of research and development activities;
business abilities and judgment of personnel; availability of qualified
personnel; changes in, or failure to comply with, governmental regulations;
ability to obtain adequate financing in the future; and other factors
referenced in this Prospectus. See "Risk Factors."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. Unless otherwise indicated, all per share data and
information in this Prospectus relating to the number of shares of Common Stock
outstanding have been adjusted to give effect to a 1-for-7.5 reverse stock
split which became effective in March 1994. Special Note: Certain statements
set forth below constitute "forward-looking statements" within the meaning of
the Reform Act. See "Special Note Regarding Forward-Looking Statements" on page
2 for additional factors relating to such statements.
THE COMPANY
NaPro BioTherapeutics, Inc. (the "Company") is engaged in the development and
manufacture of paclitaxel (referred to in some scientific and medical
literature as "taxol"/1/) (the Company's paclitaxel is referred to herein as
"NBT Paclitaxel"), a naturally-occurring cytotoxic agent found in certain
species of yew (Taxus) trees. Bristol-Myers Squibb Company ("BMS") has publicly
announced sales of their formulation of paclitaxel of approximately $580
Million in 1995 and $200 million in the first quarter of 1996. The Company's
objective is to develop its proprietary extraction, isolation and purification
("EIP(TM)") technology in conjunction with securing proprietary sources of
renewable Taxus biomass to become an established manufacturer of NBT Paclitaxel
on a worldwide basis while assigning responsibility for the performance of
clinical trials and regulatory procedures and sales, marketing and distribution
of NBT Paclitaxel to large international pharmaceutical companies. To implement
this strategy, the Company has formed strategic alliances through long-term
exclusive agreements with each of F.H. Faulding & Co., Ltd., Australia's
largest domestic pharmaceutical company with 1995 sales of approximately $1.3
billion ("Faulding"), and Baker Norton Pharmaceuticals, a subsidiary of IVAX
Corporation, a diversified international healthcare company with 1995 sales of
approximately $1.3 billion ("IVAX" and together with Faulding, the "Strategic
Partners").
The Strategic Partners have agreed to fund and, with the Company's input,
oversee the clinical trials required to obtain regulatory approvals for the
commercialization of NBT Paclitaxel in their respective territories. The
Company is responsible for supplying the Strategic Partners with NBT Paclitaxel
for all of their clinical and commercialization purposes. Under the terms of
each respective agreement, IVAX and Faulding pay a fixed price for NBT
Paclitaxel for non-commercial sales. For NBT Paclitaxel sold commercially,
Faulding pays the Company a substantial share of gross revenue. For IVAX's
commercial sales, IVAX pays the Company a payment to cover the Company's cost
of manufacturing NBT Paclitaxel and in addition, pays the Company a substantial
share of defined profit.
Faulding obtained regulatory approval and began marketing NBT Paclitaxel as a
generic pharmaceutical in Australia in January 1995 for the treatment of
refractory (non-responsive) breast and ovarian cancers. Faulding estimates that
during 1995 it captured in excess of one half of the Australian paclitaxel
market. IVAX filed an investigational new drug exemption ("IND") application
for NBT Paclitaxel with the United States Food and Drug Administration ("FDA")
in June 1994. IVAX is currently engaged in Phase II/III clinical trials with
NBT Paclitaxel for treating refractory breast and ovarian cancers and believes
it may be able to submit a new drug application ("NDA") to the FDA for at least
one indication in 1997. There can be no assurance, however, as to the
completion of any clinical trials or as to whether IVAX will meet anticipated
timetables or be successful in obtaining any necessary regulatory approvals or
successfully market NBT Paclitaxel even if approval has been obtained.
The Company's EIP(TM) technology was designed to allow the extraction,
isolation and purification of paclitaxel and other taxanes (compounds
structurally similar to paclitaxel that can be synthesized into paclitaxel)
from renewable sources of biomass such as needles and limbstock harvested from
ornamental yew trees and bushes. In order to ensure a stable and reliable
source of Taxus biomass for use in the production of NBT Paclitaxel, the
Company has entered into an agreement (the "PBI Agreement") with Pacific
Biotechnologies,
--------
/1/TAXOL(R) is a registered trademark of Bristol-Myers Squibb Company for an
anti-cancer pharmaceutical preparation containing paclitaxel.
3
<PAGE>
Inc. ("PBI"), a subsidiary of Pacific Regeneration Technologies, Inc., one of
Canada's largest reforestation companies to grow cloned ornamental yew trees
and bushes on a large scale. The Company intends to supplement its supply of
biomass obtained from PBI by entering into an additional agreement with a
commercial grower of ornamental yew trees in the second quarter of 1996. The
Company is currently constructing a large-scale commercial EIP(TM)
manufacturing facility with planned capacity to meet the commercial needs of
the Strategic Partners through 1999. The Company expects to complete and
validate this facility in 1997. In addition, in order to increase production
yields of NBT Paclitaxel, the Company is developing, and has applied for patent
protection for, a semi-synthesis process for manufacturing NBT Paclitaxel from
certain other taxanes contained in renewable biomass sources. The use of this
semi-synthesis process, which the Company intends to scale-up by 1999, will
require a supplemental NDA ("SNDA").
----------------
The Company was incorporated as a Washington corporation in 1991, and was
reincorporated as a Delaware corporation in 1993. The Company has two
subsidiaries, NaPro BioTherapeutics (Canada) Inc., a British Columbia Company
("NaPro Canada") and NaPro BioTherapeutics (Ireland) Ltd., a Company formed
under the laws of Ireland. All references herein to the "Company" include these
subsidiaries, unless the context requires otherwise.
The Company's principal executive offices are located at 6304 Spine Road,
Unit A, Boulder, Colorado 80301, and its telephone number is (303) 530-3891.
4
<PAGE>
THE OFFERING
SECURITIES OFFERED BY THE COMPANY..... 2,070,000 shares of Common Stock to be
issued upon exercise of Redeemable
Warrants(1).
COMMON STOCK TO BE OUTSTANDING AFTER
THIS OFFERING (ASSUMING EXERCISE FOR
CASH OF ALL WARRANTS).................
11,615,144 shares (1)(2).
CASH-LESS EXERCISE....................
During the Call Period, the Company
will permit Cash-Less Exercise at the
rate of 0.70 shares of Common Stock for
each Redeemable Warrant surrendered. No
fractional shares will be issued. Cash-
less Exercise will be a taxable event
for any holder who so elects. See
"Description of Capital Stock--
Redeemable Warrants" and "Certain
Federal Income Tax Consequences".
USE OF PROCEEDS; PLAN OF
DISTRIBUTION.......................... Any proceeds received by the Company
from the exercise of the Warrants are
expected to be used for capital
expenditures, research and development
and working capital. No underwriting
discounts or commissions will be paid
in connection with this offering. See
"Use of Proceeds" and "Selling
Stockholders and Plan of Distribution."
NASDAQ SMALL CAP SYMBOLS.............. Common Stock--NPRO.
Redeemable Warrants--NPROW.
An additional 1,453,615 shares of Common Stock are being registered on behalf
of certain stockholders of the Company (the "Selling Stockholders"). The stock
to be sold by these Selling Stockholders consists of: (i) 293,615 shares of
Common Stock; (ii) 400,000 shares of Common Stock into which 400,000 shares of
the Company's Nonvoting Common Stock (the "Nonvoting Common") will be
convertible upon disposition; (iii) 400,000 shares of Common Stock issuable
upon exercise of 400,000 redeemable warrants ("Faulding Warrants") with a $5.00
exercise price to purchase Nonvoting Common Stock and converted into Common
Stock upon disposition; and (iv) 360,000 shares of Common Stock issuable upon
exercise of 360,000 warrants (the "Underwriters Warrants") with a $7.50
exercise price issued to Whale Securities, the underwriters in the 1994 initial
public offering.
The Company will not receive any of the proceeds from the sale of the Selling
Stockholders' Shares. The Company will, however, receive $5.00 per share upon
exercise of the Faulding Warrants and $7.50 per share upon exercise of the
Underwriters Warrants. See "Description of Capital Stock", "Principal
Stockholders" and "Selling Stockholders and Plan of Distribution."
--------
(1) The securities offered by the Company and the Common Stock to be
outstanding after this offering would be 1,449,000 and 10,994,144 in the
event 100% of the holders of Redeemable Warrants choose Cash-less Exercise.
(2) Based upon shares outstanding as of March 31, 1996. Includes (i) 8,385,144
shares of Common stock outstanding, (ii) 400,000 shares of Nonvoting Common
Stock outstanding, (iii) 400,000 shares of Nonvoting Common Stock issuable
upon the exercise of the Faulding Warrants, (iv) 2,070,000 shares of Common
Stock issuable upon the exercise of the Redeemable Warrants and (v) 360,000
shares of Common Stock issuable upon the exercise of the Underwriter
Warrants. Does not include: (i) 595,440 shares which were subject to
outstanding options as of March 31, 1996, at exercise prices ranging from
$0.19 to $11.75 per share, with a weighted average exercise price of $5.62
per share, and (ii) 180,446 shares issuable upon exercise of outstanding
warrants with exercise prices ranging from $0.07 to $9.37 per share. See
"Management--Directors' Compensation," "Management--1994 Long- Term
Performance Plan," "Management--1993 Stock Option Plan" and "Description of
Capital Stock--Warrants."
5
<PAGE>
SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
------------------------------------------ ---------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Sales of products..... $ 112 $ 363 $ 1,248 $ 1,002 $ 2,623 $1,148 $ 691
Other................. 12 202 1 5 -- -- --
------ ------- ------- ------- ------- ------ -------
Total revenues...... 124 565 1,249 1,007 2,623 1,148 691
Operating expenses:
Research, development
and cost of
products sold...... 611 1,670 3,505 2,707 4,325 1,074 1,786
General and
administrative.......... 261 1,215 2,690 2,044 2,310 451 704
Faulding royalty...... -- -- -- 1,000 -- -- --
Plantation costs...... -- -- 7 1,238 272 269 --
------ ------- ------- ------- ------- ------ -------
Total operating
expenses................ 872 2,885 6,202 6,989 6,907 1,794 2,490
------ ------- ------- ------- ------- ------ -------
Operating loss.......... (748) (2,320) (4,953) (5,982) (4,284) (646) (1,799)
Other income (expense):
Interest income....... 5 24 79 188 373 49 100
Interest and other
expense................. -- -- (34) (340) (160) (40) (61)
------ ------- ------- ------- ------- ------ -------
Loss before
extraordinary item...... (743) (2,296) (4,908) (6,134) (4,071) (637) (1,760)
Loss on early
extinguishment of debt. -- -- -- (512) -- -- --
------ ------- ------- ------- ------- ------ -------
Loss.................... $ (743) $(2,296) $(4,908) $(6,646) $(4,071) $ (637) $(1,760)
====== ======= ======= ======= ======= ====== =======
Loss Per Share(1):
Before extraordinary
item.................... $(0.22) $ (0.38) $ (0.79) $ (0.91) $ (0.51) $(0.08) $ (0.21)
Extraordinary item.... -- -- -- (0.08) -- -- --
------ ------- ------- ------- ------- ------ -------
Net loss(1)........... $(0.22) $ (0.38) $ (0.79) $ (0.99) $ (0.51) $(0.08) $ (0.21)
====== ======= ======= ======= ======= ====== =======
Weighted average shares
outstanding(1)......... 3,439 6,103 6,201 6,761 7,973 7,713 8,527
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31, 1996
--------------------------------------- ---------------------------
AS ADJUSTED(2)(3)
------------------
CASH-
LESS CASH
1991 1992 1993 1994 1995 ACTUAL EXERCISE EXERCISE
----- ------ ------ ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents
and short-term
securities............. $ 956 $ 86 $ 18 $ 1,400 $ 7,800 $ 5,590 $10,240 $20,590
Accounts receivable..... -- 29 263 148 326 460 460 460
Working capital......... 799 (26) (435) 3,169 8,452 6,731 11,381 21,731
Total assets............ 1,356 918 2,120 4,976 11,953 10,206 14,856 25,206
Long-term obligations,
net of current
maturities............. 152 709 1,435 1,273 1,618 1,739 1,739 1,739
Minority interest....... -- -- -- -- 3,715 3,715 3,715 3,715
Accumulated deficit..... (779) (3,075) (7,983) (14,629) (18,700) (20,460) (20,460) (20,460)
Stockholders' equity
(deficit).............. 909 (190) (944) 3,037 5,424 3,656 8,306 18,656
</TABLE>
6
<PAGE>
--------
(1) See Note 1 of the Notes to Financial Statements for information concerning
the computation of net loss per share. Prior to August 1, 1994, pursuant to
the Securities and Exchange Commission Staff Accounting Bulletin No. 83
"Earnings per Share Computations in an Initial Public Offering," an
aggregate of 3,251,224 common and common equivalent shares issued during
the twelve-month period prior to the IPO at prices below the IPO price have
been included as if they were outstanding for the periods presented.
(2) Gives effect to exercise of 2,070,000 Redeemable Warrants for Common Stock
at $5.00 per share, 360,000 Underwriters Warrants exercisable for Common
Stock at $7.50 per share and 400,000 Faulding Warrants exercisable for Non-
Voting Common Stock at $5.00 per share. If 100% of the holders of
Redeemable Warrants choose Cash Exercise, the total consideration received
by the Company would be $15,050,000 (excluding costs of this offering) and
2,830,000 shares of Common Stock would be issued by the Company. Assuming
100% Cash-less Exercise of the Redeemable Warrants, the number of shares
issued would be reduced by 621,000 and the amount of consideration would be
reduced by $10,350,000.
(3) After deducting offering expenses estimated at $50,000.
7
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully by potential investors in evaluating an
investment in the shares of Common Stock offered hereby. Special Note: Certain
statements set forth below constitute "forward-looking statements" within the
meaning of the Reform Act. See "Special Note Regarding Forward-Looking
Statements" on page 2 for additional factors relating to such statements.
Early Stage of Product Development; Dependence on Paclitaxel. The Company
has a limited relevant operating history upon which an evaluation of its
prospects can be made. Such prospects must be considered in light of the
risks, expenses and difficulties frequently encountered in establishing a
business in the evolving, heavily regulated pharmaceutical industry, which is
characterized by an increasing number of market entrants, intense competition
and a high failure rate. In addition, significant challenges are often
encountered in shifting from development to commercialization of new products.
Since its inception, the Company has devoted its efforts almost entirely to
the development and implementation of its EIP(TM) technology for producing NBT
Paclitaxel, and is currently dependent exclusively on sales of NBT Paclitaxel
for revenues and the Company currently has no other drugs in clinical trials
under development. The majority of the Company's production of NBT Paclitaxel
continues to be limited to small-scale production for use by the Strategic
Partners for research and development and in clinical trials. The Company's
future growth and profitability will depend upon the success of the Strategic
Partners in advancing NBT Paclitaxel through regulatory processes in countries
around the world, in fostering commercial acceptance of NBT Paclitaxel in the
oncological market as a preferred form of chemotherapy. This will require
substantial additional clinical testing and marketing efforts and the
expenditure of significant funds by the Strategic Partners. Although NBT
Paclitaxel is currently approved for commercial sale in Australia, the Company
does not expect NBT Paclitaxel to receive regulatory approvals in most other
countries, including the United States, for at least two years, if at all.
Clinical testing of the safety and efficacy of new drugs takes several years,
and the time required to commercialize new drugs cannot be predicted with
accuracy. Product development of pharmaceuticals is highly uncertain, and
unanticipated developments, clinical or regulatory delays, unexpected adverse
side effects, inadequate therapeutic efficacy or competitive and technological
developments could slow or prevent the product development efforts of the
Company and the Strategic Partners, and have a material adverse effect on the
Company. There can be no assurance that NBT Paclitaxel will complete the
necessary regulatory approvals, prove safe and effective, be capable of being
produced in commercial quantities at acceptable cost or be successfully
marketed by the Strategic Partners in the oncological market. The failure of
NBT Paclitaxel to achieve any of the foregoing would have a material adverse
effect on the Company and could result in the Company being forced to
discontinue operations. See "Business."
Dependence on Strategic Alliances. The Company has entered into long-term
exclusive agreements with the Strategic Partners pursuant to which the Company
will take primary responsibility for the manufacture of NBT Paclitaxel as a
pharmaceutical under current good manufacturing practices ("cGMP") and
pursuant to which the Strategic Partners have been assigned responsibility for
the clinical testing and marketing of NBT Paclitaxel. The Company has limited
independent clinical testing and marketing capabilities and experience. In the
event that either of the agreements with the Strategic Partners were to be
terminated, there can be no assurance that the Company would be able to enter
into new, comparable agreements, or establish its own marketing and sales
force to market NBT Paclitaxel effectively on a global basis and compete with
BMS and others. Sales of NBT Paclitaxel to the Strategic Partners constituted
virtually all of the Company's revenues during the year ended December 31,
1995 and during the three months ended March 31, 1996, and the Company expects
that sales to the Strategic Partners will continue to constitute substantially
all of the Company's revenues for the foreseeable future.
Although the Company believes the Strategic Partners have adequate economic
incentives under their respective agreements, there can be no assurances that
the Strategic Partners will continue to perform their obligations under these
agreements, that they will be successful in their clinical trials or in
receiving the necessary regulatory approvals for NBT Paclitaxel or that they
will be successful in marketing and distributing
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NBT Paclitaxel if regulatory approval is received. The failure of the
Strategic Partners to perform any such obligations would have a material
adverse effect on the Company. Furthermore, there can be no assurance that
business conflicts will not arise between the Strategic Partners or between
the Company and the Strategic Partners over non-paclitaxel anti-cancer drugs
that may be produced by the Strategic Partners. Finally, the agreements with
each of the Strategic Partners provide, among other things, that they may be
terminated by the Strategic Partners under a variety of circumstances, that
IVAX, under limited circumstances, may obtain certain confidential
manufacturing information from the Company, that termination of the agreements
under certain circumstances could prevent the Company from selling NBT
Paclitaxel in the Faulding and IVAX territories for 2 years and 3 years,
respectively and that the Company is obligated to indemnify each of the
Strategic Partners for certain matters. If either of the Strategic Partners
terminates or breaches its agreement, such termination or breach would have a
material adverse effect on the Company and could result in the Company being
forced to discontinue operations. See "Business--Strategic Alliances."
Limited Product Sales; History of Significant Operating Losses; Anticipated
Future Losses. Since its inception, substantially all of the Company's
revenues have come from sales of NBT Paclitaxel to the Strategic Partners to
be used for clinical testing. The Company has generated only limited revenues
and has incurred significant operating losses, including operating losses of
approximately $5.0 million, $6.0 million and $4.3 million for the years ended
December 31, 1993, 1994 and 1995, and $1.8 million for the three months ended
March 31, 1996, resulting in an accumulated deficit of $20.5 million as of
March 31, 1996. In addition, losses are continuing and will continue until
such time, if ever, that the Company is able to generate sufficient revenue
from sales of NBT Paclitaxel to cover its expenses. The Company believes that
its ability to generate sufficient revenues depends primarily on the ability
of the Strategic Partners to obtain required regulatory approvals and
successfully market NBT Paclitaxel and the Company's ability to establish and
operate FDA-approved manufacturing facilities that produce quantities of NBT
Paclitaxel sufficient to supply the Strategic Partners' requirements. There
can be no assurance that any of such events will occur, that the Company's
revenues will increase or that the Company will ever achieve profitable
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and Financial Statements.
Potential Limitations on the Availability of Raw Materials. Through 1994,
the Company harvested bark of the wild Pacific yew tree as the primary raw
material used in the Company's production of NBT Paclitaxel. Harvesting the
bark from Pacific yew trees generally requires cutting down the trees. This
has been the subject of environmental controversy between pharmaceutical
companies, governmental agencies regulating public lands and environmental
activist groups due to the prevalence of some wild Pacific yew located in old
growth forests which are frequently the habitat of the spotted owl and other
endangered species.
To improve its access to raw materials for the production of NBT Paclitaxel
and to help avoid environmental issues, the Company has entered into the PBI
Agreement which requires PBI to grow ornamental yew trees and bushes for the
Company. The Company intends to supplement its supply of biomass obtained from
PBI by entering into an additional agreement with a commercial grower of
ornamental yew trees in the second quarter of 1996. The Company believes the
yew trees and bushes supplied pursuant to these agreements may provide a
dependable and renewable supply of non-bark biomass. There can be no
assurance, however, that using raw materials other than the bark of the wild
Pacific yew will not require additional regulatory approval. The Company made
its first, small-scale harvest from the PBI plantation in the first quarter of
1996. These plantations are expected to be able to supply the biomass required
to support anticipated commercial needs of the Strategic Partners if
regulatory approval is obtained. There can be no assurance that the Company's
technology or the arrangements with PBI will prove successful in supplying
biomass in adequate quantities or of sufficient quality to satisfy the
Strategic Partners' commercial requirements, or that alternate sources of
biomass will be available to the Company on commercially reasonable terms, in
sufficient quantities, or at all, if PBI is not successful in implementing the
PBI Agreement, if such agreement is terminated, or if an additional agreement
is not executed between the Company and another commercial grower of
ornamental yew trees. In addition, there can be no assurance that using raw
materials other than wild Pacific yew tree bark as a biomass source for NBT
Paclitaxel will not require additional FDA or foreign regulatory approval,
which may delay significantly the
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commercialization of NBT Paclitaxel. The biomass used for NBT Paclitaxel may
be difficult to obtain in the future due to many factors, including
environmental regulation and litigation, geographic location, weather
patterns, scarcity, destruction by insects, vandalism, acts of God and other
factors. Moreover, yew biomass is subject to a very long product cycle
(between four and five years) between the planting of the yew trees and bushes
and harvesting and accordingly, any factors that destroy existing yew trees
and bushes may have material adverse effect on the Company if alternative
sources of biomass are not available. The paclitaxel content of the biomass
obtained by the Company may also vary as a result of fluctuations in
temperature, humidity, soil content and age of the biomass source as well as
the geographical area of collection. Such factors may limit the Company's
ability to manufacture NBT Paclitaxel and therefore could have a material
adverse effect on the Company. See "Business--Biomass; Manufacturing."
Limited Manufacturing Experience; Dependence on a Commercial-Scale
Paclitaxel Manufacturing Facility; Technological Challenges. Although the
Company has constructed and currently operates small-scale manufacturing
facilities in the United States and Canada, the Company has limited experience
in producing NBT Paclitaxel in large quantities. Since its inception, the
Company has produced NBT Paclitaxel only in quantities necessary for research
and clinical trials and limited commercial sales by Faulding in Australia. The
Company does not currently have the trained staff or the facilities necessary
to manufacture NBT Paclitaxel in large-scale commercial quantities. The
Company is currently in the process of constructing a large-scale commercial
EIP(TM) manufacturing facility in Boulder, Colorado with the expected capacity
to produce a sufficient volume of NBT Paclitaxel to meet the Strategic
Partners' needs through 1999. In addition, the Company is planning to add a
semi-synthesis manufacturing facility in 1999 which the Company believes may
provide it with an improved production yield. There can be no assurance,
however, that the proposed large-scale commercial EIP(TM) manufacturing
facility and semi-synthesis manufacturing facility will be completed in a
timely fashion, if at all, or be adequate for the Company's long-term
manufacturing needs. In addition, there can be no assurance that the Company
will receive the necessary regulatory approvals for its manufacturing
facilities and for its use of non-bark paclitaxel and other taxanes used in
the production of NBT Paclitaxel. The success of the Company's manufacturing
facilities will depend upon its ability to successfully adapt its EIP(TM)
technology for large-scale production of NBT Paclitaxel. The adaptation of
such technologies to accommodate increased production volumes may result in
significant expense and is subject to numerous risks, including unanticipated
problems and delays. There can be no assurance that the Company will
successfully adapt its EIP(TM) technology to large-scale production on a
timely basis, if at all. There also can be no assurance that the Company will
be able to achieve at any facility the product yields and operating
efficiencies necessary to produce NBT Paclitaxel at a competitive cost. The
Company's failure to adapt its technology for large-scale production and to
establish and successfully operate large-scale commercial manufacturing
facilities at a competitive cost would have a material adverse effect on the
Company. In addition, although the Company performs its own procedures for
isolation and purification of paclitaxel and other taxanes, the Company
currently has a contract with a Canadian company for the extraction of
paclitaxel and other taxanes. This contract provides for only small-scale
extraction. Accordingly, to meet the expected increase in demand for NBT
Paclitaxel, the Company must either contract out its large-scale extraction
requirements or build an extraction facility. There can be no assurance that a
contract can be obtained on commercially reasonable terms or that an
extraction facility can be constructed in a timely fashion and receive the
necessary regulatory approvals. The failure of the Company to secure a large
scale extraction contract or to construct a regulatory-approved extraction
facility on a timely basis would have a material adverse effect on the
Company. See "Business--Biomass; Manufacturing" and "Business--Government
Regulation and Product Approvals."
Government Regulation; No Assurance of Regulatory Approval. The research and
development, manufacture, preclinical and clinical testing, distribution and
marketing of NBT Paclitaxel are subject to extensive regulation by numerous
governmental authorities in the United States and other countries. The process
of obtaining regulatory approval by the FDA and other required regulatory
approvals, is lengthy, expensive and uncertain. Prior to marketing in the
United States, NBT Paclitaxel must undergo extensive preclinical and clinical
testing to satisfy the FDA that it is safe and efficacious in each clinical
indication (the specific condition intended to be treated), dosage, dose
schedule and route of administration for which approval for use is sought. In
addition,
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approval by analogous regulatory authorities in other countries must be
obtained prior to commencing marketing of pharmaceutical products in those
countries. The approval process varies from country to country and approval of
NBT Paclitaxel for sale in one country may facilitate, but does not ensure
approval in other countries. Delays in obtaining regulatory approvals would
adversely affect the development, testing and marketing of NBT Paclitaxel and
the ability of the Company to generate revenues from the sale of NBT
Paclitaxel. While certain of the Company's employees have some experience in
conducting and managing the preclinical and clinical testing necessary to
obtain regulatory approval, the Company is relying almost exclusively on the
Strategic Partners to manage the process of taking NBT Paclitaxel through the
numerous clinical tests and regulatory processes around the world. There can
be no assurance that the Strategic Partners will obtain regulatory approvals
for NBT Paclitaxel in a timely manner, or at all. Even if regulatory clearance
is obtained, NBT Paclitaxel is subject to continual review, and later
discovery of previously unknown defects or failure to comply with the
applicable regulatory requirements may result in restrictions on NBT
Paclitaxel's marketing or withdrawal from the market as well as possible civil
or criminal sanctions.
Before receiving FDA approval to market NBT Paclitaxel, the Company and the
Strategic Partners will have to demonstrate that NBT Paclitaxel represents a
safe and effective therapy. Data obtained from preclinical and clinical
activities are susceptible to varying interpretations which could delay, limit
or prevent regulatory approvals. In addition, delays or rejections may be
encountered based upon additional government regulation from future
legislation or administrative action or changes in FDA policy during the
period of product development, preclinical and clinical trials and FDA
regulatory review. If regulatory approval of NBT Paclitaxel is granted, such
approval will be limited to those disease states and conditions for which the
product is, as demonstrated through clinical studies, safe and effective.
Furthermore, approval may entail ongoing requirements for post-marketing
studies. In order for regulatory approval to be obtained, manufacturers of
therapeutic products sold in the United States are required to satisfy the FDA
that their manufacturing facilities and processes adhere to applicable
standards for and to engage in extensive record keeping and reporting. Failure
to comply with cGMP regulations may result in restrictions on NBT Paclitaxel's
marketing or manufacture and may result in product seizures, product recalls,
or withdrawal of the product from the market. Compliance with such regulations
is costly and requires substantial time and attention. Following an inspection
of the Company's manufacturing facilities in Canada and the United States by
an auditor of the Australian Therapeutic Good Administration ("TGA"),
Australia's equivalent of the FDA, the TGA issued approvals to the Company as
an Australian cGMP compliant paclitaxel manufacturer. None of the Company's
manufacturing facilities, however, have been inspected by the FDA. The Company
is in the process of scaling-up its manufacturing process to commercial
levels. In addition, the Company is developing an advanced semi-synthesis
manufacturing process. There can be no assurance that the FDA or foreign
regulatory authorities will find the degree of compliance with United States
cGMP or analogous foreign standards in the Company's current facilities or its
anticipated large-scale commercial manufacturing facility and semi-synthesis
manufacturing facility to be acceptable. Subsequent discovery of previously
unknown problems regarding the safety, effectiveness or quality of NBT
Paclitaxel or the Company's manufacturing facilities may result in
restrictions, including withdrawal of the approval to market NBT Paclitaxel.
Failure to comply with the applicable regulatory requirements by either the
Company or the Strategic Partners could, among other things, result in
criminal prosecution and fines, product recalls, product seizures, injunction
or other restrictions.
The majority of clinical trials performed with NBT Paclitaxel will utilize
product manufactured from the Company's inventory of bark from the wild
Pacific yew tree. The Company intends, however, to include product
manufactured from needles and limbstock harvested from ornamental yew trees
and bushes in its Drug Master File ("DMF") which the Company will file in
support of IVAX's NDA. United States regulatory approvals by or agreements
with the FDA will be required to make these changes in biomass sources. It
will be necessary to demonstrate that paclitaxel extracted from a different
species, or a different part of the tree is chemically and biologically
equivalent to a reference material which has been previously characterized and
tested. Similarly, the same type of demonstration must be made for paclitaxel
produced using the Company's planned semi-synthesis manufacturing process. It
is anticipated that the production of paclitaxel semi- synthetically will not
be referenced in the initial NDA filing, but rather in an SNDA filed after the
initial approval of NBT Paclitaxel. Each of these changes potentially
introduces additional uncertainty in the FDA review process which could delay
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or inhibit the marketing approval for NBT Paclitaxel. There can be no assurance
that regulatory approval will be received on a timely basis, if at all. Failure
to received such approval would have a material adverse effect of the Company.
The Company is subject to United States laws and regulations applicable to
exporting drugs. On April 26, 1996, the export provisions in the FDC Act were
amended in Chapter 1A of Title II, Supplemental Appropriations For The Fiscal
Year Ending September 30, 1996, in the "FDA Export Reform and Enhancement Act
of 1996" to authorize the export of a drug before marketing approval is
obtained in the United States, to any country, if the drug (i) complies with
the laws of the importing country, and (ii) has valid marketing authorization
by the appropriate authority in a country listed by the statute, one of which
is Australia. The Company has received valid marketing authorization from
Australia. Thus, if the other statutory conditions are met, the Company
believes that future exports from the United States of NBT Paclitaxel labeled
in accordance with the laws of Australia and, for countries other than
Australia, of the importing country, should be permissible without an FDA
permit or other FDA approval.
The Company is also subject to, among others, the regulations of Canada, the
Province of British Columbia, the United States Environmental Protection
Agency, the Department of Interior (United States Fish and Wildlife Services
and the Bureau of Land Management), the Department of Agriculture (United
States Forest Service) and other countries and regulatory agencies. Pursuant to
the National Environmental Policy Act, certain United States agencies have
prepared an Environmental Impact Statement that addresses the impact of
harvesting wild Pacific yew trees, including cutting down wild Pacific yew
trees on federally-managed land. The Company ceased harvesting bark in August
1994, although the Company has biomass in its inventory obtained from the bark
of the wild Pacific yew tree. The Company is also subject to federal, state and
local laws and regulations governing the use and disposal of hazardous
materials as well as regulations imposed by the Occupational Safety and Health
Administration governing worker safety. There can be no assurance that the
Company is at all times in complete compliance with all such requirements. The
Company has made and will continue to make expenditures to comply with
environmental requirements. Compliance with these regulations is time-consuming
and expensive. The failure to comply with these regulations, however, could
have a material adverse effect on the Company.
The adoption by federal, state or local governments of significant new laws
or regulations or a change in the interpretation or implementation of existing
laws or regulations relating to environmental or other regulatory matters,
including FDA requirements, could increase the cost of producing NBT
Paclitaxel, delay regulatory approval, preclude continued marketing, or
otherwise adversely affect the Company's ability to produce or sell NBT
Paclitaxel. Adverse governmental regulations which might arise from future
legislative or administrative regulations or other actions cannot be predicted.
In addition, the Company's activities have been opposed by the Oregon Natural
Resources Council ("ONRC") because of their concern over wild Pacific yew in
old growth forests. Even though the Company no longer harvests biomass from the
bark of the wild Pacific yew and does not intend to do so, there can be no
assurance that the ONRC and other environmental activist groups will not oppose
other activities of the Company, which may have the effect of delaying or
halting production of NBT Paclitaxel, each of which could have a material
adverse effect on the Company. See "Business--Strategic Alliances" and
"Business--Government Regulation and Product Approvals."
Uncertain Efficacy of Paclitaxel; Adverse Side Effects Associated with Use of
Paclitaxel. Paclitaxel is not considered to be a long-term cure for cancer.
Safety and efficacy trials completed by BMS, however, have demonstrated to the
satisfaction of the FDA that paclitaxel is efficacious in treating refractory
ovarian and breast cancers. The Company understands that other clinical trials
have indicated that paclitaxel, individually and in combination with other
chemotherapeutic agents, may be effective in treating several other forms of
cancer. Such trials are ongoing, however, and, accordingly, there is no
conclusive evidence of paclitaxel's effectiveness in treating other forms of
cancer. It may take several years to obtain the final results of such trials
and there can be no assurance that paclitaxel will demonstrate efficacy as a
broad-spectrum anti-cancer agent or that it will prove to be more efficacious
than other chemotherapeutic agents as single agent therapy in treating any form
of cancer. Like chemotherapy agents in general, the present formulation for
administering paclitaxel is believed to cause adverse side effects, which, in
some patients, are extensive. These side effects include hypersensitivity
(allergic) reactions, which require the use of various premedications to
minimize the side effects. In addition, paclitaxel
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has been shown to produce peripheral neuropathy (loss of sensation or pain and
tingling in the extremities) and neutropenia (low white blood cell counts)
which, as a result, may limit its use in certain cases. There can be no
assurance that such side effects or other unintended and/or toxic side effects
will not adversely affect the ability of the Strategic Partners to obtain
regulatory approval for or to market NBT Paclitaxel. See "Business--Paclitaxel
Overview."
Rapid Technological Change; Intense Competition. The biopharmaceutical
industry is subject to rapid and significant technological change, and the
ability of the Company to compete is dependent in large part on its ability to
continually enhance and improve its products and technologies and to compete
for financing, executive talent, intellectual property and product sales. The
Company competes with all entities developing and producing therapeutic agents
for cancer treatment. These include numerous academic and research
organizations and pharmaceutical and biotechnology companies pursuing
production of, among other things, genetically engineered drugs, chemical
synthesis and cell-tissue growth, as well as companies specifically pursuing
the production of paclitaxel for commercial sale from natural product
extraction techniques. In order to compete successfully, the Company must
effectively utilize and expand its research and development capabilities, and,
once developed, expeditiously convert new technology into products and
processes which can be commercialized. The Company's competitors may succeed
in developing technologies, products and processes that render the Company's
processes and/or products obsolete. Many companies and research institutions
are seeking means to obtain paclitaxel and other taxanes from renewable
biomass components of yew trees and other sources in order to increase
potential paclitaxel yields, avoid environmental concerns and reduce the cost
of biomass. Although the Company has engineered a proprietary technology for
the extraction, isolation and purification of NBT Paclitaxel from bark and
renewable parts of yew trees and bushes, the development by others of
manufacturing methods for paclitaxel-containing biomass sources that are
significantly less costly than the Company's could have a material adverse
effect on the Company.
In addition, the Company is aware of several potential competitors that have
developed and patented or are developing various processes for producing
paclitaxel and paclitaxel-related substances semi-synthetically and through
other processes and which have resulted or may result in products that are as
effective or more effective than paclitaxel extracted from the bark of yew
trees. Although the Company is currently conducting research to increase
product yield through a semi-synthesis process incorporating its proprietary
and licensed technology, no assurance can be given that technical problems
will not be encountered in developing such technology for clinical or
commercial use or that any semi-synthesis process that may be developed by the
Company will not be deemed to infringe on the proprietary rights of others. In
addition, although the Company believes the production of fully synthetic
paclitaxel is not currently commercially viable the discovery by a third party
of a cost-effective means to fully synthesize paclitaxel in commercial
quantity or the manufacture of taxane derivatives or analogs that are more
efficacious than NBT Paclitaxel in treating cancer would have a material
adverse effect on the Company. Moreover, some of these competitors, including
BMS who currently dominates the paclitaxel market, have substantially greater
capital resources, research and development capabilities, manufacturing and
marketing resources, and experience than the Company. The Company's
competitors may succeed in developing products that are more effective or less
costly than any that may be developed by the Company, or that gain regulatory
approval prior to the Company's products.
For example, BMS is already marketing paclitaxel commercially in the United
States, Australia, Canada, Europe and certain other territories and Rhone-
Poulenc Rorer ("RPR"), a large multinational pharmaceutical company, has
developed a proprietary analog of paclitaxel called docetaxel, which has a
microtubule binding mechanism of action similar to that of paclitaxel. In May
1996, docetaxel, which is marketed by RPR under the trademark Taxotere,(R) was
approved by the FDA for treatment of anthracycline-resistant breast cancer in
patients without impaired liver function. In addition, upon expiration in
December 1997 of the marketing protection from generic competition currently
afforded to BMS paclitaxel under the 1984 Waxman-Hatch Amendment (the "Waxman-
Hatch Act") to the Food and Drug Cosmetic Act (the "FDA Act"), NBT Paclitaxel,
if approved, will be subject to competition from generic pharmaceuticals in
the United States. Finally, other companies and academic and research
organizations are constantly pursuing production of genetically engineered
drugs, chemical synthesis and cell tissue culture. The success of any of these
methodologies in producing drugs to fight
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cancer that are safer and more efficacious than paclitaxel may make NBT
Paclitaxel obsolete. The success of competitors in entering the market for NBT
Paclitaxel may reduce the Company's potential market share and reduce the
price of NBT Paclitaxel, each of which could have a material adverse effect on
the Company. In addition, the Company's clinical process and marketing is
being handled exclusively by the Strategic Partners. Although the Company
believes the Strategic Partners have capable clinical and marketing abilities,
competitors may succeed in obtaining regulatory approvals of their drugs more
rapidly and marketing their drugs more effectively than the Strategic
Partners, each of which could have a material adverse effect on the Company.
See "Business--Competition" and "Business--Clinical Status of NBT Paclitaxel."
Patents and Proprietary Technology; Legal Proceedings. Where appropriate,
the Company seeks protection of its proprietary technology by applying for
patents in the United States and abroad. The Company owns three issued United
States patents and has several United States patent applications pending. The
Company has filed patent applications in certain other areas of the world and
expects to make additional filings as it believes appropriate. In addition,
the Company has obtained licenses from third parties to use their proprietary
technology, for which patent applications have been filed in the United States
and in certain other areas of the world. There can be no assurance that either
the Company's or its licensors' existing patent applications will become
issued patents, that the Company will be able to obtain any necessary or
desired additional licenses to patents or technologies of others or that the
Company will be able to develop its own additional patentable technologies.
There can be no assurance that any future patent applications or patents
issued to the Company will provide it with competitive advantages or will not
be challenged as infringing upon the patents or proprietary rights of others
or will not be invalidated, or that the patents or proprietary rights of
others will not have a material adverse effect on the ability of the Company
to do business. Patent applications in the United States are maintained in
secrecy until patents are issued and patent applications in certain other
countries generally are not published until more than 18 months after they are
filed. In addition, publication of scientific or patent literature often lags
behind actual discoveries. As a result, the Company cannot be certain it or
any of its licensors was the first creator of inventions covered by the
Company's or its licensors' pending patent applications or that the Company or
its licensors were the first to file such applications. Furthermore, there can
be no assurance that others will not independently develop similar technology
or, if patents are issued to the Company, that others will not design
technology to circumvent the Company's patents or proprietary rights.
A substantial majority of the Company's proprietary technology is not
protected by patents, and is held by the Company as trade secrets. The
Company's success will depend in part on its ability to protect these trade
secrets for extracting, isolating and purifying paclitaxel and other
technology. The Company relies on proprietary know-how and confidential
information and employs various methods, such as entering into confidentiality
and non-compete agreements with its current employees and with third parties
to whom it divulges proprietary information, to protect the processes,
concepts, ideas and documentation associated with its technologies, including
its paclitaxel production process. Such methods may afford incomplete
protection and there can be no assurance that the Company will be able to
protect adequately its trade secrets or that other companies will not acquire
information which the Company considers to be proprietary. In addition, if the
Company is unable to fulfill its contractual obligations to IVAX relating to
its supply of NBT Paclitaxel the Company may, under certain circumstances, be
contractually obligated to disclose proprietary manufacturing information to
IVAX. The inability to maintain its proprietary technologies for its exclusive
use could have a material adverse effect on the Company.
The patent position of pharmaceutical companies generally is highly
uncertain and involves complex legal and factual questions. Paclitaxel is an
unpatentable, naturally occurring compound. Various compositions containing
paclitaxel, and also various processes and other technologies, however,
including those relating to processing paclitaxel and other taxanes and
preparing the drug for finished formulation and administration, are or may be
patented. Certain of these patents are owned by BMS and RPR, two of the
Company's primary competitors. In the event that the Company's technology,
products or activities are deemed to infringe upon the rights of others, the
Company could be subject to damages or enjoined from using such technology, or
the Company could be required to obtain licenses to utilize such technology.
No assurance can be given that any such licenses would be made available on
terms acceptable to the Company, or at all. If the Company was unable
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to obtain such licenses, it could encounter significant delays in product
market introductions while it attempted to design around the patents or rights
infringed upon, or could find the development, manufacture or sale of products
requiring such licenses to be foreclosed. In addition, the Company could
experience a loss of revenues and may incur substantial costs in defending
itself and indemnifying the Strategic Partners in patent infringement or
proprietary rights violation actions brought against it or either of the
Strategic Partners. The Company could also incur substantial costs in the
event it finds it necessary to assert claims against third parties to prevent
the infringement of its patents and proprietary rights by others.
Participation in such infringement proceedings could have a material adverse
effect on the Company, even if the eventual outcome were favorable.
In August 1994, BMS received two Australian petty patents claiming certain
methods of administering paclitaxel. Australian petty patents have a maximum
term at six years, are allowed to contain only three claims (one independent
and two dependent) and are granted on the basis of a prior act search which is
significantly more limited in scope than the searches done prior to issuance
of regular patents. Following publication of these patents, Faulding
instituted legal action to revoke these patents on the grounds that the patent
claims are invalid and that the subject matter claimed in the patents was
already known prior to the claimed date of invention. In February 1995, BMS
brought legal action against Faulding, based upon these patent claims, seeking
an injunction against Faulding to prevent Faulding from marketing NBT
Paclitaxel pursuant to Faulding's generic approval. In March 1995, the
Australian court denied BMS's request to enjoin Faulding from marketing NBT
Paclitaxel. The Company understands, based on communications with Faulding,
that BMS's claims will likely be resolved in conjunction with Faulding's
revocation action later in 1996 or early in 1997 and based upon its review of
the information disclosed publicly prior to the BMS patent application and its
discussions with Faulding, the Company believes that BMS's claims will be
successfully resisted. No assurance can be given, however, that BMS will not
obtain an injunction against Faulding which could prevent Faulding from
marketing NBT Paclitaxel in Australia. If Faulding were prevented from
marketing NBT Paclitaxel in Australia pursuant to its generic approval,
Faulding would be unable to market NBT Paclitaxel for commercial sale in
Australia until such time as Faulding obtains its own non-generic approval
which will require substantial clinical trials and regulatory approval. There
can be no assurances, however, that Faulding will be able to obtain its own
non-generic approval in such circumstances. If BMS is successful in enforcing
its patent claims against Faulding such that Faulding is unable to sell NBT
Paclitaxel in Australia, such a result would have a material adverse effect on
the Company. See "Business--Strategic Alliances" and "Business--Patents and
Proprietary Technology."
Future Capital Needs; Uncertainty of Additional Funding. The Company has
incurred negative earnings and cash flow from operations since its inception.
Substantial expenditures will be required to enable the Company to manufacture
and to continue research and development activities. The Company anticipates
that its existing capital resources, including preclinical and clinical trial
support from the Strategic Partners, together with the net proceeds of this
offering (which will vary depending on whether holders of Redeemable Warrants
choose Cash Exercise or Cash-less Exercise) and interest earned thereon, will
not be sufficient to enable it to maintain its current and planned operations
until such time as the Company generates positive cash from operations. Even
if no holders of Redeemable Warrants choose Cash-less Exercise and the Company
receives the full proceeds of $15,050,000 from the Cash Exercise option
(including $2,700,000 for the Underwriters Warrants and $2,000,000 for the
Faulding Warrants), the Company believes that it will need additional
financing to continue its existing business plan. Although the Company has
announced its intention to offer additional shares of Common Stock in a
primary underwritten offering in 1996, there can be no assurance that such
offering will occur or that the Company will have access to alternative
financing on acceptable terms if such offering is not successful. The
Company's future capital needs, however, will be dependent upon many factors,
including progress in its research and development activities, the magnitude
and scope of these activities, progress with preclinical and clinical trials,
competing technological and market developments, changes in or terminations of
existing strategic alliances and the cost of manufacturing scale-up, including
construction of large-scale commercial EIP(TM) and semi-synthesis
manufacturing facilities.
Depending on the factors described above, the Company will need to raise
substantial additional funds to support its long-term product development and
manufacturing programs. There can be no assurance the
15
<PAGE>
Company will be able to negotiate such agreements in the future on acceptable
terms, or at all. The Company may also seek additional funding through public
or private financings. If additional funds are raised by issuing equity
securities, further dilution to stockholders will result. If adequate funds
are not available, the Company may be required to delay, reduce the scope of
or eliminate one or more of its research and development programs or to obtain
funds through arrangements with Strategic Partners or others that may require
the Company to relinquish rights to certain of its technologies, product
candidates or products that the Company may otherwise seek to develop or
commercialize on its own, any one of which could have a material adverse
effect on the Company's operations. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and Financial Statements.
Reliance on Foreign Sales. For the year ended December 31, 1995, sales of
NBT Paclitaxel into foreign markets accounted for approximately 75% of the
Company's revenues and for the three months ended March 31, 1996, sales of NBT
Paclitaxel into foreign markets accounted for approximately 69% of the
Company's revenues. The Company anticipates that a significant portion of its
revenues will continue to be derived from sales of its products in foreign
markets until such time, if ever, as IVAX receives approval for commercial
sale of NBT Paclitaxel in the United States. A substantial portion of the
Company's revenues and operations will thus continue to be subject to the
risks associated with foreign business, including economic or political
instability, shipping delays, changes in foreign regulatory laws governing
sales of drugs, fluctuations in foreign currency exchange rates and various
trade restrictions, all of which could have a significant impact on the
Company's ability to deliver products on a competitive and timely basis.
Future imposition of, or significant increases in, the level of customs
duties, export quotas, drug regulatory restrictions or other regulatory or
trade restrictions could have a material adverse effect on the Company. See
"Business--Strategic Alliances," "Business--Government Regulations and Product
Approvals," "Business--Marketing and Sales" and "Business--Foreign and
Domestic Operations; Export Sales."
Uncertainty of Third-Party Reimbursement. There is significant national
concern today about the availability and rising cost of health care in the
United States. It is anticipated that new federal and/or state legislation
will be proposed to attempt to provide broader and better health care and to
manage and contain its cost. While the Company cannot predict whether any such
legislative or regulatory proposals will be adopted or the effect such
proposals may have on its business, the pendency of such proposals could have
a material adverse effect on the Company.
In both domestic and foreign markets, sales of the Company's product
candidates will depend in part on the availability of reimbursement from
third-party payors such as government health administration authorities,
private health insurers and other organizations. Third-party payors are
increasingly challenging the price and cost-effectiveness of medical products
and services. Significant uncertainty exists as to the reimbursement status of
newly approved health care products. There can be no assurance that the
Company's product candidates will be considered cost-effective or that
adequate third-party reimbursement will be available to enable the Company to
maintain price levels sufficient to realize an appropriate return on its
investment in product development. Failure to achieve sufficient price levels
for its drugs could have a material adverse effect on the Company. Legislation
and regulations affecting the pricing of pharmaceuticals may change before NBT
Paclitaxel is approved for marketing. Adoption of such legislation or
regulations could further limit reimbursement for medical products and
services.
Risk of Product Liability; Limited Insurance. The Company's business exposes
it to potential product liability risks which are inherent in the testing,
manufacturing, marketing and sale of therapeutic products. While the Company
will continue to take precautions it deems appropriate, there can be no
assurance that it will be able to avoid significant product liability
exposure. Pursuant to the agreements with the Strategic Partners, the Company
will be indemnified by the Strategic Partners against certain product
liability claims brought against the Company to the extent such liability is a
result of actions by the Strategic Partners once they receive NBT Paclitaxel
from the Company. In addition, the Company currently maintains product
liability insurance in the amount of $5.0 million per policy year. Product
liability insurance for the pharmaceutical industry, however, generally is
expensive, to the extent it is available at all. There can be no assurance
that the Company will be
16
<PAGE>
able to maintain such insurance on acceptable terms, that it will be able to
secure increased coverage as the commercial approval process for NBT
Paclitaxel progresses or that its insurance policy will provide adequate
protection against potential claims. A successful claim brought against the
Company in excess of the Company's insurance coverage could have a material
adverse effect on the Company. See "Business--Strategic Alliances."
Dependence on Management and Key Personnel; Ability to Manage Growth. The
Company is highly dependent upon the services of its senior executives and
certain key scientific personnel, particularly its Chairman, Leonard P.
Shaykin, and its President and Chief Executive Officer, Sterling K. Ainsworth.
The Company maintains a key-man life insurance policy on the life of Dr.
Ainsworth in the amount of $3.0 million. Although the Company has entered into
employment contracts with Mr. Shaykin, Dr. Ainsworth, Dr. Patricia A. Pilia,
the Company's Vice President, BioResearch and Toxicology, and Dr. Lawrence
Helson, the Company's Vice President, Clinical Research (collectively, the
"Senior Executives"), which expire in June 1998 (collectively, the "Executive
Agreements"), the loss of the services of any of the Senior Executives or
other of the Company's key employees could have a material adverse impact on
the Company. In addition, Mr. Shaykin and Dr. Helson serve the Company on a
part-time basis and each of them has obligations which could divert their
attention from the Company's affairs to the Company's detriment. The Company's
move to large-scale commercial operations will depend upon, among other
things, the successful recruiting of highly skilled managerial and technical
personnel with experience in business activities such as those contemplated by
the Company. Although the Company has hired a number of individuals which the
Company believes have the requisite skills and experience to allow the Company
to expand its operations to a commercial scale, competition for the type of
highly skilled individuals required by the Company is intense among
pharmaceutical companies, health care companies, government agencies, academic
institutions and other organizations. There can be no assurance that the
Company will be able to retain existing employees or that it will be able to
find, attract and retain other skilled personnel on acceptable terms to help
the Company manage its growth. See "Management."
Continuing Control by Existing Stockholders; Conflict of Interest. The
Company's executive officers and directors beneficially own approximately
30.1% of the Common Stock and will own approximately 24.5% after giving effect
to this offering (assuming 100% of holders of Redeemable Warrants choose Cash
Exercise). In addition, IVAX, one of the Strategic Partners, beneficially owns
approximately 12.8% of the Common Stock. In the event that such stockholders
were to act in concert with respect to the Company's operations, they would be
in a position generally to control the affairs of the Company. In addition,
Phillip Frost, M.D. and Richard C. Pfenniger, Jr., each a director of the
Company, serve as the Chairman and Chief Executive Officer of IVAX and as
President, Health Care Group of IVAX, respectively. There can be no assurance
that conflicts of interest will not arise with respect to the foregoing or
that such conflicts will be resolved in a manner favorable to the Company. See
"Business--Strategic Alliances," "Management," "Principal Stockholders" and
"Selling Stockholders and Plan of Distribution."
Anti-takeover Considerations; Authorization of Preferred Stock. Certain
provisions of the Company's Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation"), Bylaws (the "Bylaws") and Section 203 of
the Delaware General Corporation Law (the "DGCL") could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. The Company is also considering instituting a rights plan (which
would not require stockholder approval) and a staggered board of directors
(which would require stockholder approval). Such provisions could diminish the
opportunities for a stockholder to participate in tender offers, including
tender offers at a price above the then current market value of the Common
Stock. Such provisions may also inhibit fluctuations in the market price of
the Common Stock that could result from takeover attempts. In addition, the
Company's board of directors (the "Board of Directors"), without further
stockholder approval, may issue blank check preferred stock that could have
the effect of delaying or preventing a rapid change in control of the Company
as well as adversely affecting the voting power of the holders of Common Stock
if instituted upon a hostile tender offer, including the loss of voting
control to others. See "Description of Capital Stock--Certain Certificate of
Incorporation, Bylaw and Statutory Provisions Affecting Stockholders."
17
<PAGE>
In addition, the Executive Agreements provide for continuation of salary and
other benefits in the event employment is terminated under certain
circumstances, including a change of control of the Company. This could have
the effect of modestly increasing the cost of an acquisition of the Company if
the acquirer were to terminate all key employees. Furthermore, in connection
with its equity investment in the Company, IVAX agreed that for a period
ending on the earlier of June 7, 2000 or three years after the date IVAX
receives FDA approval to market NBT Paclitaxel commercially in the United
States, neither it nor any affiliate will, without the approval of a majority
of disinterested directors, among other things, (i) acquire, in the aggregate,
more than 20.0% of the Common Stock, (ii) seek control of the Board of
Directors, or (iii) propose an acquisition of all or substantially all of the
Company's assets, a merger or other business combination, or a tender offer
for the Common Stock. See "Management--Executive Compensation," "Certain
Relationships and Related Transactions" and "Description of Capital Stock."
Dilution. Investors receiving shares of Common Stock in this offering will
incur immediate and substantial dilution of $3.81 per share assuming 100% of
the holders of Redeemable Warrants choose Cash Exercise. See "Dilution."
Absence of Dividends. The Company has never paid cash dividends on its
Common Stock. It is the Company's intention to retain earnings, if any, to
finance the operation and expansion of its business and, therefore, it does
not expect to pay cash dividends in the foreseeable future. In addition,
future credit facilities may restrict dividend payments. See "Dividend
Policy."
Volatility of Stock Price. The market price of the Common Stock has been,
and will likely continue to be, volatile. Factors such as the Company's
financial results, introduction of new products by the Company or its
competitors, results of clinical trials, government regulations, changes in
reimbursement policies, developments in patent and other proprietary rights,
developments in the Company's relationships with the Strategic Partners,
public concern as to the safety and efficacy of paclitaxel and various factors
affecting the biotechnology or pharmaceutical industries generally, may have a
significant impact on the market price of the Common Stock. Additionally, in
recent years, the stock market has experienced a high level of price and
volume volatility and market prices for the stock of many companies
(particularly of small and emerging growth companies, the common stock of
which trade in the over-the-counter-market) have experienced wide price
fluctuations which have not necessarily been related to the operating
performance of such companies. See "Price Range of Common Stock."
Shares Eligible for Future Sale; Registration Rights. Upon completion of
this offering, the Company will have 11,615,144 shares of Common Stock
outstanding (including 800,000 shares of Nonvoting Common Stock). The shares
of Common Stock sold in this offering will be freely tradeable by persons
other than "affiliates" of the Company, as that term is defined under the
Securities Act of 1933, as amended (the "Securities Act"), without
restrictions or further registration under the Securities Act. In general,
under Rule 144 as currently in effect, a person (or persons whose shares are
aggregated) who has beneficially owned such shares for at least two years,
including persons who may be deemed "affiliates" of the Company, would be
entitled to sell within any three month period a number of shares that does
not exceed the greater of the average weekly trading volume during the four
calendar weeks preceding such sale or 1% of the then outstanding shares of
Common Stock (approximately 116,151 shares immediately after this offering). A
person who is deemed not to have been an "affiliate" of the Company at any
time during the 90 days preceding a sale by such person, and who has
beneficially owned such shares for at least three years, would be entitled to
sell such shares under Rule 144 without regard to the volume limitations
described above.
In addition, the Company has granted to certain of its security holders,
including the Senior Executives and IVAX, certain registration rights with
respect to an aggregate of up to approximately 3,543,000 shares of Common
Stock and approximately 20,000 shares of Common Stock issuable upon exercise
of warrants. An increase in the number of shares of Common Stock that may
become available for sale in the public market may adversely affect the market
price prevailing from time to time of the Common Stock in the public market
and could impair the Company's ability to raise additional capital through the
sale of its equity securities. See "Principal Stockholders," "Selling
Stockholders and Plan of Distribution" and "Description of Capital Stock--
Registration Rights."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company if all of the Warrants were exercised would
be $15,000,000 (assuming 100% of the holders of Redeemable Warrants elect Cash
Exercise) and $4,650,000 (assuming 100% of the holders of Redeemable Warrants
choose Cash-less Exercise). The proceeds are expected to be used for capital
expenditures, research and development and working capital.
No underwriting discounts or commissions will be paid in connection with
this offering. The Company does not intend to engage Whale Securities to
solicit exercise of the Redeemable Warrants.
PRICE RANGE OF COMMON STOCK
The Company completed its IPO on August 1, 1994. The Common Stock is traded
on the Nasdaq Small Cap under the symbol "NPRO." The following table sets
forth, for the fiscal periods indicated, the high and low sale prices for the
Common Stock on the Nasdaq Small Cap. On May 17, 1996, the last reported sale
price of the Common Stock on the Nasdaq Small Cap was $15.00 per share.
<TABLE>
<CAPTION>
1994 HIGH LOW
---- ---- ------
<S> <C> <C>
Third Quarter (from August 1, 1994)......................... 6 5/8 4 7/8
Fourth Quarter.............................................. 6 3/8 6
<CAPTION>
1995
----
<S> <C> <C>
First Quarter............................................... 6 5/8 6
Second Quarter.............................................. 10 1/8 6 1/8
Third Quarter............................................... 12 3/4 9 3/8
Fourth Quarter.............................................. 12 1/8 8 7/8
<CAPTION>
1996
----
<S> <C> <C>
First Quarter............................................... 13 3/8 8 7/8
Second Quarter (through May 17, 1996)....................... 15 3/8 10 3/4
</TABLE>
On May 17, 1996, there were approximately 147 holders of record of the
Common Stock.
DIVIDEND POLICY
To date, the Company has not paid any dividends on its Common Stock. The
Company intends to retain earnings to finance the operation and expansion of
its business and therefore does not anticipate paying any cash dividends in
the foreseeable future.
19
<PAGE>
DILUTION
The difference between the exercise price of the Redeemable Warrants and the
adjusted net tangible book value per share after this offering, assuming
exercise for cash of all Warrants, constitutes the dilution to investors in
this offering. Net tangible book value per share of Common Stock on any given
date is determined by dividing the net tangible book value of the Company
(total tangible assets less total liabilities) on such date, by the number of
shares of Common Stock outstanding on such date. At March 31, 1996, the net
tangible book value of the Company was $2,656,000 or $0.30 per share of Common
Stock and Common Stock equivalents, excluding $1,000,000 relating to
liquidation of oustanding U.S. Preferred (as defined herein) and including
400,000 shares of Nonvoting Common Stock. After giving effect to the sale of
the 2,070,000 shares of Common Stock being offered hereby (less estimated
expenses of this offering), the adjusted net tangible book value of the
Company at March 31, 1996 would have been $12,956,000 or $1.19 per share,
representing an immediate increase in net tangible book value of $0.89 per
share to existing stockholders and an immediate dilution of $3.81 per share to
purchasers of Common Stock in this offering. The following table illustrates
the foregoing information with respect to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Redeemable Warrant exercise price................................... $5.00
Net tangible book value before the offering......................... 0.30
Increase attributable to new investors.............................. 0.89
----
Adjusted net tangible book value after this offering................ 1.19
-----
Dilution to new investors........................................... $3.81
=====
</TABLE>
The foregoing table excludes (i) 595,440 shares which were subject to
outstanding options as of March 31, 1996, at exercise prices ranging from
$0.19 to $11.75 per share, with a weighted average exercise price of $5.62 per
share, and (ii) 180,446 shares issuable upon exercise of outstanding warrants
with a weighted average exercise price ranging from $.07 to $9.37 per share.
See "Management--Directors' Compensation," "Management--1993 Stock Option
Plan," "Management--1994 Long-Term Performance Plan" and "Description of
Capital Stock--Warrants."
To the extent these securities are exercised there may be further dilution
to new investors. See "Management." The net tangible book value excludes
minority interest of $3,715,000 related to the Canadian Preferred (as defined
herein) which is exchangeable into the Company's Common Stock. If the
Underwriter Warrants and Faulding Warrants are exercised, the Company would
receive additional proceeds of $4,700,000 resulting in an adjusted net
tangible book value per share after this offering of $1.52, reducing the
dilution to new investors to $3.48 per share. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Liquidity and
Capital Resources."
20
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1996, the Company's
capitalization (i) on a historical basis; (ii) adjusted to give retroactive
effect to the sale by the Company of the 1,809,000 shares of Common Stock
issuable upon 100% Cash-less Exercise of the Redeemable Warrants; and (iii)
adjusted to give retroactive effect to the sale by the Company of 2,070,000
shares of Common Stock issuable upon 100% Cash Exercise of the Redeemable
Warrants.
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------
(IN THOUSANDS)
AS ADJUSTED(2)(3)
------------------
CASH-
LESS CASH
ACTUAL EXERCISE EXERCISE
-------- -------- --------
<S> <C> <C> <C>
Long-term debt, net of current portion(1)........ $ 1,739 $ 1,739 $ 1,739
Minority interest................................ 3,715 3,715 3,715
Stockholders' equity:
Preferred Stock--$.001 par value, 2,000,000
shares authorized;
125,000 issued and outstanding................ -- -- --
Common Stock--$.0075 par value, 19,000,000
shares authorized;
8,529,932 issued (actual);
10,338,932 shares issued (as adjusted for
Cash-less Exercise); and 10,959,932 shares
issued
(as adjusted for Cash Exercise)(4)............ 64 77 82
Nonvoting Common Stock--$.0075 par value,
1,000,000 shares authorized; 400,000 shares
issued and outstanding (actual); and 800,000
(as
adjusted)..................................... 3 6 6
Additional paid-in capital..................... 26,681 31,315 41,660
Unearned compensation(5)....................... (7) (7) (7)
Notes receivable from stockholders(5).......... (941) (941) (941)
Treasury Stock--144,788 shares (actual and as
adjusted)........................................ (1,684) (1,684) (1,684)
Accumulated deficit............................ (20,460) (20,460) (20,460)
-------- -------- --------
Total stockholders' equity....................... 3,656 8,306 18,656
-------- -------- --------
Total capitalization............................. $ 9,110 $ 13,760 $ 24,110
======== ======== ========
</TABLE>
--------
(1) See Note 3 of Notes to Financial Statements for a description of the
Company's long-term debt obligations.
(2) Gives effect to Cash Exercise of 2,070,000 Redeemable Warrants for Common
Stock at $5.00 per warrant, 360,000 Underwriters Warrants exercisable for
Common Stock at $7.50 per share and 400,000 Faulding Warrants exercisable
for Non-Voting Common Stock at $5.00 per share. If 100% of the holders of
Redeemable Warrants choose Cash Exercise, the total consideration received
by the Company would be $15,050,000 (excluding costs of this offering) and
2,830,000 shares of Common Stock would be issued by the Company. Assuming
100% Cash-less Exercise of the Redeemable Warrants, the number of shares
issued would be reduced by 621,000 and the amount of consideration would
be reduced by $10,350,000.
(3) After deducting offering expenses estimated at $50,000.
(4) Excludes (i) 595,440 shares which were subject to outstanding options as
of March 31, 1996, at exercise prices ranging from $0.19 to $11.75 per
share, with a weighted average exercise price of $5.62 per share, and (ii)
180,446 shares issuable upon exercise of outstanding warrants with prices
ranging from $0.07 to $9.37 per share. See "Management--Directors'
Compensation," "Management--1994 Long-Term Performance Plan,"
"Management--1993 Stock Option Plan" and "Description of Capital Stock--
Warrants."
(5) See Note 6 of Notes to Financial Statements.
21
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data presented below for each fiscal year in the five-
year period ended December 31, 1995 are derived from the Company's financial
statements, which have been audited by Ernst & Young LLP, independent auditors
and are qualified by reference to such Financial Statements and Notes thereto.
The selected financial data presented below for the three months ended March
31, 1995 and 1996 are derived from the Company's unaudited financial statements
which reflect all adjustments, consisting only of normal recurring adjustments,
the Company considers necessary for a fair presentation of the financial
position of the Company as of those dates and the results of operations of the
Company for those periods. Operating results for the three months ended March
31, 1996 are not necessarily indicative of the results that may be expected for
the entire year ending December 31, 1996. The data presented below should be
read in conjunction with the consolidated financial statements at December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995, related Notes and other financial information and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
------------------------------------------ ---------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
-----------------------
Revenues:
Sales of products..... $ 112 $ 363 $ 1,248 $ 1,002 $ 2,623 $1,148 $ 691
Other................. 12 202 1 5 -- -- --
------ ------- ------- ------- ------- ------ -------
Total revenues...... 124 565 1,249 1,007 2,623 1,148 691
Operating expenses:
Research, development
and cost
of products sold..... 611 1,670 3,505 2,707 4,325 1,074 1,786
General and
administrative.......... 261 1,215 2,690 2,044 2,310 451 704
Faulding royalty...... -- -- -- 1,000 -- -- --
Plantation costs...... -- -- 7 1,238 272 269 --
------ ------- ------- ------- ------- ------ -------
Total operating
expenses................ 872 2,885 6,202 6,989 6,907 1,794 2,490
------ ------- ------- ------- ------- ------ -------
Operating loss.......... (748) (2,320) (4,953) (5,982) (4,284) (646) (1,799)
Other income (expense):
Interest income....... 5 24 79 188 373 49 100
Interest and other
expense................. -- -- (34) (340) (160) (40) (61)
------ ------- ------- ------- ------- ------ -------
Loss before
extraordinary item...... (743) (2,296) (4,908) (6,134) (4,071) (637) (1,760)
Loss on early
extinguishment of debt.. -- -- -- (512) -- -- --
------ ------- ------- ------- ------- ------ -------
Loss.................... $ (743) $(2,296) $(4,908) $(6,646) $(4,071) $ (637) $(1,760)
====== ======= ======= ======= ======= ====== =======
Loss Per Share(1):
Before extraordinary
item.................... $(0.22) $ (0.38) $ (0.79) $ (0.91) $ (0.51) $(0.08) $ (0.21)
Extraordinary item.... -- -- -- (0.08) -- -- --
------ ------- ------- ------- ------- ------ -------
Net loss(1)........... $(0.22) $ (0.38) $ (0.79) $ (0.99) $ (0.51) $(0.08) $ (0.21)
====== ======= ======= ======= ======= ====== =======
Weighted average shares
outstanding(1)......... 3,439 6,103 6,201 6,761 7,973 7,713 8,527
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------
AS ADJUSTED
DECEMBER 31 (2)(3)
-------------------------------------------- ------------------
CASH-
LESS CASH
1991 1992 1993 1994 1995 ACTUAL EXERCISE EXERCISE
------ ------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents
and short-term
securities............. $ 956 $ 86 $ 18 $ 1,400 $ 7,800 $ 5,590 $ 10,240 $ 20,590
Accounts receivable..... -- 29 263 148 326 460 460 460
Working capital......... 799 (26) (435) 3,169 8,452 6,731 11,381 21,731
Total assets............ 1,356 918 2,120 4,976 11,953 10,206 14,856 25,206
Long-term obligations,
net of current
maturities............. 152 709 1,435 1,273 1,618 1,739 1,739 1,739
Minority interest....... -- -- -- -- 3,715 3,715 3,715 3,715
Accumulated deficit..... (779) (3,075) (7,983) (14,629) (18,700) (20,460) (20,460) (20,460)
Stockholders' equity
(deficit).............. 909 (190) (944) 3,037 5,424 3,656 8,306 18,656
</TABLE>
--------
(1) See Note 1 of the Notes to Financial Statements for information concerning
the computation of net loss per share. Prior to August 1, 1994, pursuant
to the Securities and Exchange Commission Staff Accounting Bulletin No. 83
"Earnings per Share Computations in an Initial Public Offering," an
aggregate of 3,251,224 common and common equivalent shares issued during
the twelve-month period prior to the IPO at prices below the IPO price
have been included as if they were outstanding for the periods presented.
(2) Gives effect to exercise of 2,070,000 Redeemable Warrants for Common Stock
at $5.00 per share, 360,000 Underwriters Warrants exercisable for Common
Stock at $7.50 per share and 400,000 Faulding Warrants exercisable for
Non-Voting Common Stock at $5.00 per share. If 100% of the holders of
Redeemable Warrants choose Cash Exercise, the total consideration received
by the Company would be $15,050,000 (excluding costs of this offering) and
2,830,000 shares of Common Stock would be issued by the Company. Assuming
100% Cash-less Exercise of the Redeemable Warrants, the number of shares
issued would be reduced by 621,000 and the amount of consideration would
be reduced by $10,350,000.
(3) After deducting offering expenses estimated at $50,000.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding
of the Company's results of operations and financial condition. This
discussion should be read in conjunction with the Financial Statements and
Notes included elsewhere in this Prospectus. Special Note: Certain statements
set forth below constitute "forward-looking statements" within the meaning of
the Reform Act. See "Special Note Regarding Forward-Looking Statements" on
page 2 for additional factors relating to such statements.
GENERAL
The Company has devoted its efforts primarily to the development and
implementation of its EIP(TM) technology for producing NBT Paclitaxel. The
Company is currently dependent exclusively on sales of NBT Paclitaxel for
revenues. Through March 31, 1996, the Company's production of NBT Paclitaxel
was limited primarily to research and pilot-scale production, and most of the
Company's product sales were for use in clinical trials and for research and
development purposes. Accordingly, the Company has generated only limited
revenues from such activities and has incurred significant operating losses,
including operating losses of approximately $5.0 million, $6.0 million and
$4.3 million for the years ended December 31, 1993, 1994 and 1995,
respectively, and $1.8 million for the three months ended March 31, 1996
resulting in an accumulated deficit of $20.5 million as of March 31, 1996. The
Company expects that it will continue to have a high level of operating
expenses and will be required to make significant up-front expenditures in
connection with its biomass procurement, product development and research and
development activities. The Company anticipates that operating losses will
continue until such time, if ever, as the Company is able to generate
sufficient revenues to support its operations. The Company believes that its
ability to generate such revenues depends primarily on the ability of its
Strategic Partners to obtain regulatory approval for the commercial sale of
NBT Paclitaxel, on the Company's ability to obtain regulatory approval for its
manufacturing facilities and on the Company's ability to construct
manufacturing facilities that produce quantities of paclitaxel sufficient to
supply the Strategic Partners' requirements for commercial sales. Moreover,
the Company's future growth and profitability will depend on the success of
the Strategic Partners in fostering acceptance in the oncological market for
NBT Paclitaxel as a preferred form of chemotherapy to be used alone or in
combination with other chemotherapeutic agents.
In January 1995, Faulding received approval to market NBT Paclitaxel
commercially in Australia under their trade name ANZATAX(TM). Although the
Company's revenues have increased as a result of this approval, the Company
does not currently expect to reach profitability at December 31, 1996. The
ability of Faulding to continue to market NBT Paclitaxel in Australia pursuant
to Faulding's marketing approval and the success of these marketing efforts
will continue to have a material effect on the Company's revenues,
profitability and capital requirements.
In July and August of 1995, the Company completed private placements of two
series of preferred stock. The proceeds of these offerings were used to
establish and upgrade Canadian and United States manufacturing facilities and
to fund the Company's operating expenditures, planned capital expenditures and
additional plantation development.
RESULTS OF OPERATIONS
The Company was in the development stage through December 31, 1994.
Comparison of operations between years and historical trends do not
necessarily indicate future trends and operating results of the Company.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
Revenue. Operating revenues decreased $0.4 million to $0.7 million for the
three months ended March 31, 1996 from $1.1 million for the three months ended
March 31, 1995. This decrease was attributable primarily to the timing of
product deliveries to the Strategic Partners, which may vary significantly
from quarter to quarter.
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Research, Development and Costs of Products Sold. Research, development and
cost of products sold expenses increased $0.7 million to $1.8 million for the
three months ended March 31, 1996 from $1.1 million for the three months ended
March 31, 1995. The increase was due primarily to an increase in process
development and research expenses, as well as higher production costs.
General and Administrative Expenses. General and administrative expenses
("G&A") increased $0.2 million to $0.7 million for the three months ended
March 31, 1996 from $0.5 million for the three months ended March 31, 1995.
This increase was due primarily to an increase in facility costs and an
increase in administrative and support staff.
Plantation Costs. Plantation costs decreased $0.3 million to $0.0 for the
three months ended March 31, 1996 from $0.3 million for the three months ended
March 31, 1995, reflecting the completion of research related to plantation
development as of December 31, 1995. The Company performed a pilot harvest of
the PBI plantation in 1996 and believes the technology has been adequately
developed to assure the plantation can function as a long-term renewable
source of biomass and, consequently, future plantation development payments
will be capitalized and amortized over the expected life of the plantation as
biomass is harvested.
Interest Income. Interest income increased $0.1 million to $0.1 million for
the three months ended March 31, 1996 from $0.0 million for the three months
ended March 31, 1995. This increase was the result of larger free cash
balances. Interest income may become a more significant portion of operations
as a result of the redemption of the Warrants if holders of Redeemable
Warrants choose Cash Exercise and if the planned follow-on offering of Common
Stock which was publicly announced by the Company on April 22, 1996 is
successful.
Interest and Other Expenses. Interest and other expenses increased slightly
for the three months ended March 31, 1996 from the three months ended March
31, 1995. The increase was the result of borrowings under equipment financing
leases which were put in place in the fourth quarter of 1995. Interest expense
is expected to increase as borrowings on the equipment lease line of credit
are expected to increase from approximately $0.3 million at December 31, 1995
to an expected value of approximately $1.5 million at June 30, 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenue. Operating revenues increased $1.6 million to $2.6 million for the
year ended December 31, 1995 from $1.0 million for the year ended December 31,
1994. The increase was attributable primarily to the timing of product
deliveries to the Strategic Partners, as well as changes in pricing associated
with commercial sales of NBT Paclitaxel in Australia. Through December 31,
1995, the majority of product sales had been for use in clinical trials and
for research and development purposes. Such sales are unpredictable in nature.
Although initial commercial sales commenced in January 1995, the Company
expects these sales to be unpredictable until such time as the markets of the
Strategic Partners have been established and proven.
Research, Development and Costs of Products Sold. Research, development and
cost of products sold expenses increased $1.6 million to $4.3 million for the
year ended December 31, 1995 from $2.7 million for the year ended December
31,1994. The increase was due primarily to an increase in the level of process
development and research, including higher production costs due to higher
production volumes.
General and Administrative Expenses. G&A increased $0.3 million to $2.3
million for the year ended December 31, 1995 from $2.0 million for the year
ended December 31, 1994. The increase was due primarily to a general increase
in administrative and related support staff.
Faulding Royalty Expense and Plantation Costs. Plantation costs decreased
$0.9 million to $0.3 million for the year ended December 31, 1995 from $1.2
million for the year ended December 31, 1994. Higher costs during 1994 reflect
the additional cost of establishing the plantation as opposed to ongoing
maintenance in 1995 (see Note 8 to the Financial Statements).
Interest Income. Interest income increased $0.2 million to $0.4 million for
the year ended December 31, 1995 from $0.2 for the year ended December 31,
1994. This increase was the result of larger average free cash balances.
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Interest and Other Expenses. Interest and other expenses decreased $0.2
million to $0.1 million for the year ended December 31, 1995 from $0.3 million
for the year ended December 31, 1994. The decrease was the result of the
absence of interest on bridge loans which were paid off in 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenues. Operating revenues decreased $0.2 million to $1.0 million for the
year ended December 31, 1994 from $1.2 million for the year ended December 31,
1993. The decrease was attributable primarily to the timing of product
deliveries to the Strategic Partners.
Research, Development and Costs of Products Sold. Research and development
expenses decreased $0.8 million to $2.7 million for the year ended December
31, 1994 from $3.5 million for the year ended December 31, 1993. The decrease
was due primarily to decreases in production of NBT Paclitaxel for research
purposes, as well as substantial completion of NBT Paclitaxel product
development efforts.
General and Administrative Expenses. G&A decreased $0.7 million to $2.0
million for the year ended December 31, 1994 from $2.7 million for the year
ended December 31, 1993. The decrease was attributable primarily to decreased
legal costs relating to the negotiation of the agreements with the Strategic
Partners and certain intellectual property dispute proceedings that were
resolved in 1994.
Faulding Royalty Expense and Plantation Costs. During 1994, the Company
recorded a $1.0 million nonrecurring expense for the elimination of the
Faulding royalty (see Note 6 to the Financial Statements) and $1.2 million for
plantation development expenses resulting from the amortization of prepaid
plantation costs (see Note 8 to the Financial Statements).
Extraordinary Expense. During 1994, the Company incurred an extraordinary
loss on early extinguishment of debt totaling $0.5 million (See Note 6 to the
Financial Statements), resulting from one-year bridge notes issued in March
and April of 1994, which were prepaid at a premium in connection with the IPO
in August 1994.
Interest Income. Interest income increased $0.1 million to $0.2 million for
the year ended December 31, 1994 from $0.1 million for the year ended December
31, 1993. The increase was a result of increased average free cash balances.
Interest and Other Expense. Interest and other expenses increased $0.3
million to $0.3 million for the year ended December 31, 1994 from $0.0 million
for the year ended December 31, 1993. The increase was primarily the result of
interest expense recorded on the bridge notes outstanding from March through
August 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements have been and will continue to be
significant. As of March 31, 1996, the Company had a working capital balance
of $6.7 million. This compared to a working capital balance of $2.4 million as
of March 31, 1995. To date, the Company has been dependent primarily on net
proceeds of the IPO of approximately $7.4 million, on private placements of
its equity securities aggregating approximately $18.9 million (including
proceeds of approximately $10.2 million during 1995), and on loans and
advances from its stockholders and the Strategic Partners to fund its capital
requirements.
Working Capital and Cash Flow. Cash and cash equivalents decreased $2.2
million to $4.9 million for the three months ended March 31, 1996 from $7.1
million at December 31, 1995. Net cash provided by financing activities was
offset by $2.1 million used in operating activities and $0.2 million used in
investing activities. Cash and cash equivalents increased $6.2 million to $7.1
million at December 31, 1995 from $0.9 million at December 31, 1994. Net cash
provided by financing activities was partially offset by cash used in
operations of $3.0 million, in capital expenditures totaling $1.2 million and
net purchases of investments of $0.1 million.
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Inventories decreased $0.2 million to $1.2 million at December 31, 1995 from
$1.4 million for the year ended December 31, 1994. The amount of product held
as finished goods equivalents in work-in-progress inventories as well as
finished goods inventories is dependent on a number of factors, including the
shipping requirements of the Strategic Partners and the Company's production
planning for meeting those needs. Inventory balances may vary significantly
during product development and launch periods. The Company plans to make
significant biomass investments during 1996.
Capital Expenditures. The Company expended $0.1 million for capital projects
during the first quarter of 1996. The Company expended $1.2 million and $0.6
million, respectively, during 1995 and 1994, for capital projects. These
expenditures were primarily made to build the Canadian small-scale
manufacturing facility and for expansion and improvements to the Boulder
laboratories and facilities. In 1996, the Company expects to invest the
proceeds of this offering in property, plant and equipment, primarily to
expand the plantations and upgrade its current domestic and foreign
manufacturing capabilities, as well as to begin construction of a new large-
scale commercial EIP(TM) manufacturing facility which is expected to be
completed in 1997.
The Company anticipates that its existing capital resources, including
preclinical and clinical trial support from the Strategic Partners, together
with the net proceeds of this offering (which will vary depending on whether
holders of Redeemable Warrants choose Cash Exercise or Cash-less Exercise) and
interest earned thereon, will not be adequate to fund operations and capital
expenditures until operating revenues are sufficient to fund operations and
capital expenditures. Even if no holders of Redeemable Warrants choose Cash-
less Exercise and the Company receives the full proceeds from the Cash
Exercise option, the Company believes that it will need additional financing
to continue its existing business plan. Although the Company has announced its
intention to offer additional shares of Common Stock in a primary underwritten
offering in 1996, there can be no assurance that such offering will occur or
that the Company will have access to alternative financing on acceptable terms
if such offering is not successful. The amount and timing of expenditures will
depend upon numerous factors, including the progress of the Company's research
and development programs, the magnitude and scope of these activities, the
cost of preparing, filing, prosecuting, maintaining and enforcing patent
claims and other intellectual property rights, competing technological and
marketing developments, changes in or terminations of existing strategic
partnerships, the establishment of additional strategic relationships and the
cost of manufacturing scale-up.
NET OPERATING LOSS CARRYFORWARDS
As of March 31, 1996, the Company had net operating loss carryforwards for
income tax purposes of approximately $17.0 million to offset future taxable
income. Under Section 382 of the Internal Revenue Code of 1986, as amended,
the utilization of net operating loss carryforwards is limited after an
ownership change, as defined in such Section 382, to an annual amount equal to
the value of the loss corporation's outstanding stock immediately before the
date of the ownership change multiplied by the federal long-term tax-exempt
rate in effect during the month the ownership change occurred. Such an
ownership change occurred in September 1993. As a result, the Company will be
subject to an annual limitation on the use of its net operating losses. This
limitation only affects net operating losses incurred up to the ownership
change and does not reduce the total amount of net operating loss which may be
taken, but rather limits the amount which may be used during a particular
year. Therefore, in the event the Company achieves profitability, such
limitation would have the effect of increasing the Company's tax liability and
reducing the net income and available cash resources of the Company if the
taxable income during a year exceeded the allowable loss carried forward to
that year.
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BUSINESS
GENERAL
NaPro BioTherapeutics, Inc. (the "Company") is engaged in the development and
manufacture of paclitaxel (referred to in some scientific and medical
literature as "taxol") (the Company's formulation of paclitaxel is referred to
herein as "NBT Paclitaxel"), a naturally-occurring cytotoxic agent found in
certain species of yew (Taxus) trees. Bristol-Myers Squibb Company ("BMS") has
publicly announced sales of their paclitaxel of approximately $580 Million in
1995 and $200 million in the first quarter of 1996. The Company's objective is
to develop its proprietary extraction, isolation and purification ("EIP(TM)")
technology in conjunction with securing proprietary sources of renewable Taxus
biomass to become an established manufacturer of NBT Paclitaxel on a worldwide
basis while assigning responsibility for the performance of clinical trials and
regulatory procedures and sales, marketing and distribution of NBT Paclitaxel
to large international pharmaceutical companies. To implement this strategy,
the Company has formed strategic alliances through long-term exclusive
agreements with each of F.H. Faulding & Co., Ltd., Australia's largest domestic
pharmaceutical company with 1995 sales of approximately $1.3 billion
("Faulding"), and Baker Norton Pharmaceuticals, a subsidiary of IVAX
Corporation, a diversified international healthcare company with 1995 sales of
approximately $1.3 billion ("IVAX" and together with Faulding, the "Strategic
Partners").
The Strategic Partners have agreed to fund and, with the Company's input,
oversee the clinical trials required to obtain regulatory approvals for the
commercialization of NBT Paclitaxel in their respective territories. The
Company is responsible for supplying the Strategic Partners with NBT Paclitaxel
for all of their clinical and commercialization purposes. Under the terms of
each respective agreement, IVAX and Faulding pay a fixed price for NBT
Paclitaxel for non-commercial sales. For NBT Paclitaxel sold commercially,
Faulding pays the Company a substantial share of gross revenue. For IVAX's
commercial sales, IVAX pays the Company a payment to cover the Company's cost
of manufacturing NBT Paclitaxel and in addition, pays the Company a substantial
share of defined profit.
Faulding obtained regulatory approval and began marketing NBT Paclitaxel as a
generic pharmaceutical in Australia in January 1995 for the treatment of
refractory (non-responsive) breast and ovarian cancers. Faulding estimates that
during 1995 it captured in excess of one half of the Australian paclitaxel
market. IVAX filed an investigational new drug exemption ("IND") application
for NBT Paclitaxel with the United States Food and Drug Administration ("FDA")
in June 1994. IVAX is currently engaged in Phase II/III clinical trials with
NBT Paclitaxel for treating refractory breast and ovarian cancers and believes
it may be able to submit a new drug application ("NDA") to the FDA for at least
one indication in 1997. There can be no assurance, however, as to the
completion of any clinical trials or as to whether IVAX will meet anticipated
timetables or be successful in obtaining any necessary regulatory approvals or
successfully market NBT Paclitaxel even if approval has been obtained.
The Company's EIP(TM) technology was designed to allow the extraction,
isolation and purification of paclitaxel and other taxanes (compounds
structurally similar to paclitaxel that can be synthesized into paclitaxel)
from renewable sources of biomass such as needles and limbstock harvested from
ornamental yew trees and bushes. In order to ensure a stable and reliable
source of Taxus biomass for use in the production of NBT Paclitaxel, the
Company has entered into an agreement (the "PBI Agreement") with Pacific
Biotechnologies, Inc. ("PBI"), a subsidiary of Pacific Regeneration
Technologies, Inc., one of Canada's largest reforestation companies to grow
cloned ornamental yew trees and bushes on a large scale. The Company intends to
supplement its supply of biomass obtained from PBI by entering into an
additional agreement with a commercial grower of ornamental yew trees in the
second quarter of 1996. The Company is currently constructing a large-scale
commercial EIP(TM) manufacturing facility with planned capacity to meet the
commercial needs of the Strategic Partners through 1999. The Company expects to
complete and validate this facility in 1997. In addition, in order to increase
production yields of NBT Paclitaxel, the Company is developing, and has applied
for patent protection for, a semi-synthesis process for manufacturing NBT
Paclitaxel from certain other taxanes contained in renewable biomass sources.
The use of this semi-synthesis process, which the Company expects to scale-up
by 1999, will require a supplemental NDA ("SNDA").
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PACLITAXEL OVERVIEW
Cancer is the second leading cause of death in the United States with over
one million new cases diagnosed each year. Cancer is generally treated by
surgery, radiation and chemotherapy or a combination of these therapies.
Paclitaxel, approved less than four years ago, has become the largest selling
of a class of cancer chemotherapy drugs known as cytotoxic agents.
Paclitaxel is a natural product that was recognized by the National Cancer
Institute (the "NCI") in 1963 as showing cytotoxic activity against leukemia
cells and inhibitory activity against a variety of tumors. Over the next two
decades, researchers working under grants from the NCI conducted studies to
determine paclitaxel's structure and its mechanism of action. The NCI studies
indicated that paclitaxel inhibits the normal action of microtubules in cancer
cell division. Microtubules, located in the cytoplasm of cells, play a vital
role in cellular division. Paclitaxel promotes microtubule assembly and blocks
normal microtubule disassembly in cells, thereby inhibiting cell division and
inducing death of cancer cells. This cytoplasmic mechanism of action contrasts
with the nuclear mechanism of action of the majority of cytotoxic drugs which
kill the cell by attacking nuclear components such as DNA or RNA.
In June 1991, the NCI formalized a Collaborative Research and Development
Agreement for development of paclitaxel with BMS, the world's largest oncology
company. BMS assumed development of paclitaxel which included completion of the
necessary clinical trials and manufacturing scale-up. In June 1992, BMS
submitted an NDA to the FDA. BMS received approval for the sale of paclitaxel
as a treatment for refractory (non-responsive) ovarian cancer in December 1992
and approval for the sale of paclitaxel as a treatment for refractory breast
cancer in April 1994. BMS has publicly announced commercial sales of paclitaxel
of approximately $580 million in 1995 and $200 million in the first quarter of
1996.
Paclitaxel is one of a family of compounds, commonly referred to as taxanes,
which share a hydrocarbon ring (diterpene) structure. Taxanes are found
naturally in many parts of various species of yew trees and bushes. The
concentration of taxanes in yew trees and bushes is very small--generally less
than 500 parts per million each--and accordingly, the process of extracting
taxanes from yew biomass is very complicated and challenging. To arrive at a
final stage paclitaxel product for use in clinical trials and for
commercialization, several production approaches can be utilized. The Company
believes the two most prevalent processes used today are extraction and semi-
synthesis.
In extraction, the manufacturing process must be designed to extract, isolate
and purify paclitaxel from yew biomass leaving behind the other components
including taxanes. The extraction, isolation and purification processes,
however, are very complicated since there are over 100 different taxanes
present in yew biomass. In a semi-synthesis process, the initial extraction,
isolation and purification is similar except that the processes not only
isolate paclitaxel, but also isolate and subsequently convert through a
chemical synthesis certain other taxanes (which are considered waste byproducts
in extraction) into paclitaxel, thereby increasing the supply and yield of
paclitaxel. The final product of either method must have levels of impurity at
or below regulatory standards.
Historically, the wild Pacific yew tree has been the primary source of yew
biomass. Most species of Taxus, including the wild Pacific yew, grow slowly,
requiring a number of years to reach harvestable size. The slow growing pattern
generally contributes to a prevalence of Taxus in the wild which are located in
old growth forests, frequently the habitat of endangered species including the
spotted owl. Biomass from the wild Pacific yew tree has historically been
obtained from its bark which generally requires destroying the tree. As a
result, there has been a considerable amount of public debate in the United
States and other countries by environmental groups and others regarding the
harvesting of bark from the wild Pacific yew tree. The Company halted
harvesting bark from wild Pacific yew trees in 1994. See "--Corporate Strategy"
and "--Biomass; Manufacturing."
Others have developed taxane analogues which are similar, but not identical
chemically, to paclitaxel. For example, Rhone-Poulenc Rorer ("RPR"), a large
international pharmaceutical company, has developed docetaxel, one such taxane
analog, which is being marketed in various parts of the world outside the
United States under the trademark Taxotere(R). Taxotere(R) has a different
toxicity profile from paclitaxel and has side
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effects not seen in paclitaxel. In May 1996, the FDA approved Taxotere(R) for
treatment of anthracycline-resistant breast cancer in patients without impaired
liver function. See "Risk Factors--Rapid Technological Change; Intense
Competition."
CORPORATE STRATEGY
The Company's objective is to be the world's most efficient manufacturer of
high quality paclitaxel. The Company's strategy for achieving its objective
includes the following:
Develop and Commercialize Paclitaxel Through Strategic Alliances. In order to
promote the more rapid development and commercialization of NBT Paclitaxel, the
Company has entered into long-term exclusive agreements with Faulding and IVAX.
Pursuant to these agreements, Faulding and IVAX are responsible for obtaining
regulatory approval, including designing and conducting clinical trials, as
well as marketing NBT Paclitaxel in their respective territories. The Company
is responsible for the manufacture of NBT Paclitaxel using its EIP(TM)
technology. Faulding, Australia's largest domestic pharmaceutical company with
1995 sales of approximately $1.3 billion, actively markets anti-cancer
pharmaceuticals and other health care products in Australia, Southeast Asia and
other countries throughout the world. In 1995, Faulding estimates that it
captured more than half of the Australian paclitaxel market with ANZATAX(TM)
(Faulding's brand name for NBT Paclitaxel). IVAX, a diversified international
health care company with 1995 sales of approximately $1.3 billion, is engaged
in the research, development, manufacture and sale of branded and generic
pharmaceuticals and other related health care and personal products and
specialty chemicals. See "Risk Factors--Dependence on Strategic Alliances" and
"--Strategic Alliances."
Expand and Secure Renewable Biomass Supply Sources. In order to avoid the
environmental issues surrounding the harvesting of wild Pacific yew biomass and
to expand and secure a renewable biomass supply source, the Company implemented
a plantation strategy by entering into the PBI Agreement to grow cloned
ornamental yew trees and bushes. The Company expects to supplement its biomass
obtained from PBI by entering into an additional agreement with a commercial
grower of ornamental yew trees in the second quarter of 1996. Using its EIP(TM)
technology, the Company plans to extract paclitaxel and other taxanes from
renewable biomass components such as needles and limbstock of trees and bushes
grown on the plantations utilizing its proprietary technologies. See "Risk
Factors--Potential Limitations on the Availability of Raw Materials" and "--
Biomass; Manufacturing."
Scale-Up Manufacturing Process. In order to meet the supply needs of the
Strategic Partners through 1999, the Company has commenced construction of a
large-scale commercial EIP(TM) manufacturing facility in the United States
which the Company expects to complete and validate by 1997. The Company expects
to augment its current manufacturing process with semi-synthesis production by
1999 either through the addition of semi-synthesis manufacturing capacity to
its current EIP(TM) facility under construction or the construction of a new
semi-synthesis facility. See "Risk Factors--Limited Manufacturing Experience;
Dependence on a Commercial Scale Paclitaxel Manufacturing Facility;
Technological Challenges" and "--Biomass; Manufacturing."
CLINICAL STATUS OF NBT PACLITAXEL
Pursuant to the agreements with the Strategic Partners, the Strategic
Partners have primary responsibility for conducting clinical trials for
regulatory approval of NBT Paclitaxel throughout the world, and the Company has
primary responsibility for carrying out the procedures for regulatory approval
relating to the Company's manufacturing processes. The Company has filed
confidential Drug Master Files ("DMF") containing certain of the Company's
proprietary manufacturing processes relating to the Company's manufacture of
NBT Paclitaxel with regulatory agencies in the United States, Australia,
Canada, Europe and Singapore. In addition, the Company performed the
toxicological and preclinical characterization necessary for an IND for
extracted paclitaxel.
Existing regulatory approvals and statutes have a direct impact on the
clinical and marketing strategy being pursued by the Company and its Strategic
Partners. In December 1992, BMS obtained NDA approval in the
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United States for paclitaxel. Under the 1984 Waxman-Hatch Amendment (the
"Waxman-Hatch Act") to the Food and Drug Cosmetic Act (the "FDA Act"), a non-
patented drug such as paclitaxel which first gains approval through an NDA
process is granted a five year period of marketing exclusivity which prevents
submission by another party of an Abbreviated New Drug Application ("ANDA") for
generic substitutes. The FDA will accept and review, however, an NDA submitted
by a party during this period of exclusivity if data is generated from the
clinical trials supporting such NDA. A comparable statute to the Waxman-Hatch
Act exists in Europe, although the related period of exclusivity is ten years.
For these reasons, IVAX plans to file NDA(s) for NBT Paclitaxel. See "--
Government Regulation and Product Approvals."
IVAX. IVAX is currently pursuing a strategy to obtain United States NDA
approval of NBT Paclitaxel for the treatment of refractory breast and ovarian
cancers. IVAX filed an IND with the FDA in June 1994. In October 1994, IVAX
initiated its Phase I clinical trials of NBT Paclitaxel in the United States
and in May 1995 initiated Phase II/III clinical trials. IVAX is currently
conducting Phase II/III studies using NBT Paclitaxel in three indications,
including refractory breast and ovarian cancers. The breast cancer trial is
evaluating both a short-term and a long-term dosing schedule. IVAX expects to
finish patient accrual for the breast cancer trial by year-end 1996. Patient
accrual for the ovarian cancer trial has been completed. The clinical trial for
the third undisclosed indication is ongoing. IVAX has publicly disclosed that
it may be able to submit an NDA for NBT Paclitaxel for at least one indication
during 1997. There can be no assurance, however, as to the completion of any
clinical trials or as to whether IVAX will meet anticipated timetables or be
successful in obtaining any necessary regulatory approvals or successfully
market NBT Paclitaxel even if approval has been obtained.
Faulding. In January 1995, Faulding received regulatory approval from
Australian Therapeutic Goods Administration (the "TGA") to market ANZATAX(TM)
in Australia for the treatment of refractory breast and ovarian cancers. Under
Australian law there is no exclusivity period, as is available in the United
States or Europe, and therefore approval of a generic substitute was possible.
Faulding has also conducted clinical investigations with ANZATAX(TM) in order
to support marketing in Australia and to support applications for regulatory
approval in other countries. The Company and Faulding have obtained regulatory
approval from the TGA for the Company to supply NBT Paclitaxel to Faulding from
either its Canadian or United States manufacturing facility. Faulding is also
engaged in ongoing clinical research with NBT Paclitaxel with the goal of
improving the effectiveness of combination therapies utilizing NBT Paclitaxel
and expanding the number of disease indications treatable with NBT Paclitaxel.
Faulding has filed certificates of free sale and requested marketing approval
in various territories including Hong Kong, Cyprus, Egypt, Oman, Turkey,
Kuwait, Saudi Arabia, Malaysia, Thailand, Indonesia and the Philippines.
The Company plans to submit an SNDA for NBT Paclitaxel manufactured through a
semi-synthesis process. Based on the SNDA approval process for BMS, the Company
believes additional toxicological and stability data may be required prior to
submission of an SNDA for manufacturing NBT Paclitaxel through a semi-synthesis
process. Toxicology data may also be required to support production using
different species of Taxus plants other than those in the original NDA filing.
It is not anticipated that an SNDA could be filed before 1998, since an
approved NDA will need to exist before an SNDA can be submitted. The
requirements for an SNDA have not been discussed with the FDA. See "Risk
Factors--Government Regulation; No Assurance of Regulatory Approval" and "--
Government Regulation and Product Approvals."
BIOMASS; MANUFACTURING
Biomass. Paclitaxel and other taxanes necessary for the production of NBT
Paclitaxel are present in many parts of various species of yew trees and
bushes. Historically, the Company used the bark of the wild Pacific yew tree as
a source of biomass from which to manufacture NBT Paclitaxel. The Company's
EIP(TM) technology was designed to allow extraction and purification of
paclitaxel and other taxanes which can be synthesized into paclitaxel from
renewable sources of biomass such as needles and limbstock harvested from
ornamental yew trees and bushes. The Company ceased harvesting bark from the
wild Pacific yew tree in 1994.
In order to ensure a stable supply of biomass used in the production of NBT
Paclitaxel, the Company entered into the PBI Agreement in 1993 and intends to
supplement its supply of biomass obtained from PBI by
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entering into an additional agreement with a commercial grower of ornamental
yew trees in the second quarter of 1996. The Company believes that these
plantations will produce adequate biomass to support the commercial
requirements of the Strategic Partners. By planting and propagating a reliable
and renewable homogeneous biomass source, the Company believes that it may
reduce its raw material costs, currently the Company's largest cost component
in producing NBT Paclitaxel, while at the same time allowing it to increase
the yield of NBT Paclitaxel. The Company made its first small-scale harvest
pursuant to the PBI Agreement in the first quarter of 1996. The Company is
also examining other potential sources of biomass to ensure adequate,
continuous and uninterrupted supply of biomass and to augment the biomass
supplied from the plantations in the event demand exceeds current
expectations. See "Risk Factors--Potential Limitation on the Availability of
Raw Materials."
Manufacturing. The Company's current method of manufacturing NBT Paclitaxel
utilizes its EIP(TM) technology to isolate and pactify paclitaxel from
partially purified paclitaxel in the Company's small-scale manufacturing
facilities in Boulder, Colorado and British Columbia, Canada. Biomass is
harvested from yew trees and bushes and delivered to a Canadian company which,
pursuant to a contract with the Company, utilizes the Company's proprietary
technology to extract paclitaxel. The Canadian company delivers partially
purified paclitaxel to the Company's small-scale manufacturing facilities in
Boulder, Colorado and British Columbia, Canada. At these two facilities, the
impure paclitaxel goes through an isolation and purification process and the
resulting active drug substance is delivered to Faulding's final fill and
finish facility in Australia where NBT Paclitaxel is formulated by Faulding
for final packaging for both itself and IVAX. Each small-scale manufacturing
facility has been inspected by the TGA and approved for the commercial
production of NBT Paclitaxel for sale in Australia. TGA approval applies to
the extraction, isolation and purification of naturally-occurring paclitaxel
from both the bark of the wild Pacific yew tree as well as from other raw
material sources. On a combined basis, these facilities have adequate capacity
to meet clinical and commercial demand through the launch of commercial sales
of NBT Paclitaxel in the United States. The Company plans to seek initial FDA
approval of its manufacturing processes which utilize both bark sources of
biomass as well as non-bark sources of biomass obtained from the needles and
limbstock of ornamental yew trees and bushes in the production of NBT
Paclitaxel. There can be no assurance that such regulatory approval will be
obtained.
The Company is currently refining and scaling-up its EIP(TM) technology for
use in a large-scale commercial manufacturing facility which is being built in
Boulder. The Company plans to complete construction and validation of this
facility in 1997. The Company believes that this facility will have adequate
capacity to meet the demands of the Strategic Partners through the startup of
a semi-synthesis manufacturing facility currently scheduled for completion in
1999. Upon completion of validation, but prior to approval of the NDA for NBT
Paclitaxel, the Company anticipates the facility and process intended to be
used for commercial launch of the production will be inspected by the FDA.
Approval of the facility will be a component of the FDA's approval of the NDA.
There can be no assurance that FDA approval will be received or that a
commercially viable operating facility will be completed or that scale-up of
the facility, once completed, will receive governmental approval.
The Company is also developing, and has applied for patent protection for, a
semi-synthesis process for manufacturing NBT Paclitaxel from certain other
taxanes contained in renewable biomass sources. Semi-synthesis manufacturing,
initially involves extraction of paclitaxel and other taxanes from yew sources
such as renewable needles and limbstock. Unlike extraction, however, which
attempts to isolate and purify only paclitaxel, semi-synthesis isolates and
purifies additional taxanes. Through a chemical synthesis process, these other
taxanes are converted into paclitaxel. Accordingly, since both paclitaxel and
other taxanes are used in semi-synthesis, the Company expects to be able to
increase the paclitaxel yield from its biomass source.
Faulding's final fill and finish facility has been inspected by the FDA for
other products and operates in compliance with United States cGMP standards.
The Company believes that Faulding's facility will have the capacity to meet
the anticipated needs of the Strategic Partners for the foreseeable future.
There is no assurance, however, that a commercially viable operating facility
will be completed or that scale-up of the facility, once completed, will
receive governmental approval.
In addition, the Company's has a contract with the Canadian company for
small-scale extraction. In order for the Company to meet the expected increase
in demand for NBT Paclitaxel once commercialized, the
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Company must either contract out its extraction requirements or build large
scale extraction facility. There can be no assurance that a third party
contract for such extraction can be obtained on commercially reasonable terms
or that an extraction facility can be constructed in a timely fashion and
receive the necessary regulatory approvals. The failure of the Company to
secure a large scale extraction contract or to construct a regulatory-approved
extraction facility on a timely basis would have a material adverse effect on
the Company. See "Risk Factors--Limited Manufacturing Experience; Dependence
on Commercial Scale Manufacturing Facility; Technological Challenges."
STRATEGIC ALLIANCES
The Company's primary strategy is to develop its proprietary EIP(TM)
technology and control the manufacturing process of NBT Paclitaxel and
regulatory procedures associated therewith while assigning responsibility for
the performance of clinical trials and regulatory procedures and the sale,
marketing and distribution of NBT Paclitaxel to large international
pharmaceutical companies. To implement this strategy, the Company has formed
strategic alliances through long-term exclusive agreements with each of
Faulding and IVAX. Pursuant to such arrangements, each Strategic Partner has
agreed to fund and, with the Company's input, oversee the clinical trials
required to obtain regulatory approvals for commercializing NBT Paclitaxel in
their respective territories. The Company is responsible for supplying the
Strategic Partners with NBT Paclitaxel for clinical trials and each Strategic
Partner is required to purchase all of its paclitaxel requirements from the
Company. Under the terms of each respective agreement, IVAX and Faulding each
pay a fixed price for NBT Paclitaxel for non-commercial sales and
approximately 30-40% of revenues for NBT Paclitaxel sold commercially. The
Company believes that through its agreements with Faulding and IVAX, it will
be able to take advantage of their expertise in clinical testing and sales,
marketing and distribution. As a result, the Company believes it may be able
to compete more effectively with BMS, RPR, generic drug manufacturers and
other companies, research organizations and academic institutions that are
developing paclitaxel and are attempting to develop new and advanced forms of
anti-cancer drugs.
Faulding. Faulding, Australia's largest domestic pharmaceutical company with
1995 sales of approximately $1.3 billion, actively markets anti-cancer
pharmaceuticals and other health care products in Southeast Asia and other
countries throughout the world. In 1995, Faulding estimates that it captured
more than half of the Australian paclitaxel market with ANZATAX(TM). In 1992
the Company originally entered into a development and marketing agreement (the
"Faulding Agreement") with Faulding. The Faulding Agreement, as restated and
amended, has an initial term of 20 years and will continue thereafter from
year to year unless terminated in writing by either party.
The Faulding Agreement grants Faulding the exclusive right to develop and
market NBT Paclitaxel in ten countries, including Australia, New Zealand and
much of Southeast Asia. The Faulding Agreement also grants Faulding the non-
exclusive right to sell NBT Paclitaxel in certain countries in the Middle
East. Pursuant to the Faulding Agreement, Faulding is required to purchase all
of its requirements of paclitaxel from the Company, except in certain
circumstances where the Company is unable to supply Faulding's requirements.
In the March 1995 amendment to the Faulding Agreement, Faulding agreed to
convert certain prepaid product sales and deferred revenue in an amount of
$1.1 million which would have become due in 1995 and 1996 into a note in
aggregate principal amount of $1.2 million, maturing in 1997. The terms of the
note provide that the Company will pay interest quarterly on amounts which
would have been payable to Faulding had the conversion not occurred, at an
annual rate of 9%.
Faulding may terminate the Faulding Agreement: (i) upon the reorganization
or insolvency of the Company; (ii) if Faulding becomes controlled by a
pharmaceutical company that sells paclitaxel in the Faulding territory; (iii)
if the Company becomes controlled by IVAX or BMS; (iv) if the Company is
purchased by a pharmaceutical company which sells paclitaxel in the Faulding
territory and that company refuses to be bound by the terms of the Faulding
Agreement; or (v) the Company is unable to meet the paclitaxel supply
requirements of Faulding.
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The Company may terminate the Faulding Agreement: (i) upon the reorganization
or insolvency of Faulding; or (ii) in certain circumstances, upon a change in
control of Faulding.
The Company is required to indemnify Faulding pursuant to the Faulding
Agreement for any defect in the NBT Paclitaxel that is shipped to Faulding and
for uncured breaches of the Company's representations and warranties under the
Faulding Agreement. Faulding is required to indemnify the Company against all
losses resulting from a defect in a product manufactured by Faulding which
contains NBT Paclitaxel and in a product formulated, stored, handled,
promoted, distributed, registered or sold by Faulding which contains NBT
Paclitaxel.
In connection with the Company's IPO in August 1994, Faulding purchased
400,000 shares of the Company's nonvoting common stock (the "Nonvoting Common
Stock") and 400,000 warrants to purchase Nonvoting Common Stock. See
"Description of Capital Stock--Nonvoting Common Stock."
IVAX. IVAX, a diversified international health care company with 1995 sales
of approximately $1.4 billion, is engaged in the research, development,
manufacture and sale of branded and generic pharmaceuticals and other related
health care and personal products and specialty chemicals. In 1993 the Company
entered into a development and marketing agreement (the "IVAX Agreement") with
IVAX (through IVAX's subsidiary, Baker Norton Pharmaceuticals, "BNP"). The
IVAX Agreement has an initial term of 20 years and will continue thereafter
from year to year unless terminated in writing by either party. Pursuant to
the IVAX Agreement, IVAX is required to purchase all of its requirements of
paclitaxel from the Company except in certain circumstances where the Company
is unable to supply IVAX's requirements.
Either IVAX or the Company may terminate the IVAX Agreement if the other
party materially breaches the agreement under certain circumstances. In
addition, IVAX may terminate the IVAX Agreement if the Company fails to meet
the paclitaxel supply requirements of IVAX for a continuing three year period.
The Company is required to indemnify IVAX pursuant to the IVAX Agreement for
any defect in the NBT Paclitaxel that is shipped to IVAX and for uncured
breaches of the Company's representations and warranties under the IVAX
Agreement. IVAX is required to indemnify the Company against all losses
resulting from a defect in a product manufactured by IVAX which contains NBT
Paclitaxel and is a product formulated, stored, handled, promoted,
distributed, registered or sold by IVAX which contains NBT Paclitaxel.
IVAX, through its subsidiary D&N Holding Company ("D&N"), currently owns
1,126,398 shares of the Common Stock. See "Risk Factors--Dependence on
Strategic Alliances" and "Principal Stockholders."
MARKETING AND SALES
All marketing and sales of NBT Paclitaxel will be conducted by the Strategic
Partners. Each of the Strategic Partners have established sales forces with
demonstrated sales capability to effectively market pharmaceutical products.
The Company has no sales force and has only limited marketing capabilities and
has no present intention to establish a sales or marketing force. The Company
expects that sales to the Strategic Partners will account for substantially
all of the Company's revenues for the foreseeable future. As a result, the
loss of either Strategic Partner as a customer, in the absence of a comparable
alternative strategic alliance arrangement, would have a material adverse
effect on the Company. See "Risk Factors--Dependence on Strategic Alliances,
"Risk Factors--Reliance on Foreign Sales" and "--Strategic Alliances."
COMPETITION
The biopharmaceutical industry is an expanding and rapidly changing industry
characterized by intense competition for financing, executive talent,
intellectual property and product sales. The Company competes with all
entities developing and producing therapeutic agents for cancer treatment. The
success of competitors in entering the market for paclitaxel may reduce the
Company's potential market share and reduce the price of NBT Paclitaxel, each
of which could have a material adverse effect on the Company. In addition,
regulatory approval and marketing are being handled exclusively by the
Strategic Partners. Although the Company believes the
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Strategic Partners have capable clinical and marketing abilities, there can be
no assurance that the Strategic Partners will be capable or effective in
gaining regulatory approval on a timely basis, if at all, and competing on a
global basis with existing or new competitors.
BMS, the worlds largest oncology company with 1995 sales of paclitaxel of
approximately $560 million, is already marketing paclitaxel commercially in
the United States, Australia, Canada, Europe and certain other territories. In
addition, RPR has developed a proprietary analog of paclitaxel, docetaxel,
which is marketed under the trademark Taxotere(R). Taxotere(R) has a
microtubule binding mechanism of action similar to that of paclitaxel.
Taxotere(R) is approved in the European Community, Australia, Canada and a
number of other countries. In May 1996, the FDA approved Taxotere(R) for
treatment of anthracycline-resistant breast cancer in patients without
impaired liver function. Treatment with Taxotere(R), however, leads to certain
side effects not found with paclitaxel. It is anticipated, however, that
Taxotere(R) will compete with NBT Paclitaxel, potentially eroding NBT
Paclitaxel sales.
Furthermore, upon expiration in December 1997 of the five-year marketing
protection from generic competition currently provided to BMS paclitaxel by
the Waxman-Hatch Act, the Company will be subject to competition from generic
pharmaceuticals producers. In Europe, a similar exclusivity period will end 10
years after BMS's initial approval. Finally, academic and research
organizations and pharmaceutical and biotechnology companies are pursuing
production of, among other things, genetically engineered drugs, chemical
synthesis and cell-tissue culture. In addition, certain companies are pursuing
the production of paclitaxel and other taxanes from natural product extraction
techniques.
Many of the Company's competitors, most notably BMS and RPR, have
substantially greater capital resources, research and development
capabilities, manufacturing and marketing resources, and experience than the
Company. The Company's competitors may succeed in developing products that are
more effective or less costly than any that may be developed by the Company,
or that gain regulatory approval prior to the Company's products. Many
companies and research institutions are also seeking means to obtain
paclitaxel and taxanes from non-bark renewable biomass components of yew trees
and other sources in order to increase paclitaxel yields, avoid environmental
concerns and reduce the cost of biomass. In addition, the Company is aware of
several potential competitors that have developed and patented or are
developing various processes for producing paclitaxel and paclitaxel-related
substances semi-synthetically, which resulted or may result in products that
are equally as effective as the paclitaxel extracted from bark. Although the
Company believes that production of fully synthetic paclitaxel is not
currently commercially viable, the discovery by a third party of a cost-
effective means to fully synthesize paclitaxel in commercial quantity or the
manufacture of taxane derivatives or analogs that are more efficacious than
Paclitaxel in treating cancer could have a material adverse effect on the
Company. See "Risk Factors--Rapid Technological Change; Intense Competition."
PATENTS AND PROPRIETARY TECHNOLOGY
Where appropriate, the Company seeks protection of its proprietary
technology by applying for patents in the United States and abroad. The
Company owns three issued United States patents and has several United States
patent applications pending. The Company has filed patent applications in
certain other areas of the world and expects to make additional filings as it
believes appropriate. In addition, the Company has obtained licenses from
third parties to use their proprietary technology, for which patent
applications have been filed in the United States and in certain other areas
of the world. There can be no assurance that either the Company's or its
licensors' existing patent applications will become issued patents, that the
Company will be able to obtain any necessary or desired additional licenses to
patents or technologies of others or that the Company will be able to develop
its own additional patentable technologies. In addition, there can be no
assurance that any future patent applications or patents issued to the Company
will provide it with competitive advantages or will not be challenged as
infringing upon the patents or proprietary rights of others or will not be
invalidated, or that the patents or proprietary rights of others will not have
a material adverse effect on the ability of the Company to do
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business. Patent applications in the United States are maintained in secrecy
until patents are issued and patent applications in certain other countries
generally are not published until more than 18 months after they are filed. In
addition, publication of scientific or patent literature often lags behind
actual discoveries. As a result, the Company cannot be certain it or any of
its licensors was the first creator of inventions covered by the Company's or
its licensors' pending patent applications or that the Company or its
licensors were the first to file such applications. Furthermore, there can be
no assurance that others will not independently develop similar technology or,
if patents are issued to the Company, that others will not design technology
to circumvent the Company's patents or proprietary rights.
A substantial majority of the Company's proprietary technology is not
protected by patents, and is held by the Company as trade secrets. The
Company's success will depend in part on its ability to protect these trade
secrets for extracting, isolating and purifying paclitaxel and other
technology. The Company relies on proprietary know-how and confidential
information and employs various methods, such as entering into confidentiality
and non-compete agreements with its current employees and with third parties
to whom it divulges proprietary information, to protect the processes,
concepts, ideas and documentation associated with its technologies, including
its paclitaxel production process. Such methods may afford incomplete
protection and there can be no assurance that the Company will be able to
adequately protect its trade secrets or that other companies will not acquire
information which the Company considers to be proprietary. In addition, if the
Company is unable to fulfill its contractual obligations to IVAX relating to
its supply of NBT Paclitaxel, the Company may, under certain circumstances, be
contractually obligated to disclose proprietary manufacturing information to
IVAX. The inability to maintain its proprietary technologies for its exclusive
use could have a material adverse effect on the Company.
The patent position of pharmaceutical companies generally is highly
uncertain and involves complex legal and factual questions. Paclitaxel is an
unpatentable, naturally occurring compound. Various compositions containing
paclitaxel, and also various processes and other technologies, however,
including those relating to extracting paclitaxel and preparing the drug for
finished formulation, are or may be patented. Certain of these patents are
owned by BMS and RPR, two of the Company's primary competitors. In the event
that the Company's technology, products or activities are deemed to infringe
upon the rights of others, the Company could be subject to damages or enjoined
from using such technology, or the Company could be required to obtain
licenses to utilize such technology. No assurance can be given that any such
licenses would be made available on terms acceptable to the Company, or at
all. If the Company were unable to obtain such licenses, it could encounter
significant delays in product market introductions while it attempted to
design around the patents or rights infringed upon, or could find the
development, manufacture or sale of products requiring such licenses to be
foreclosed. In addition, the Company could experience a loss of revenues and
may incur substantial costs in defending itself and indemnifying the Strategic
Partners in patent infringement or proprietary rights violation actions
brought against it or either of the Strategic Partners. The Company could also
incur substantial costs in the event it finds it necessary to assert claims
against third parties to prevent the infringement of its patents and
proprietary rights by others. Participation in such infringement proceedings
could have a material adverse effect on the Company, even if the eventual
outcome were favorable.
In August 1994, BMS received two Australian petty patents claiming certain
methods of administering paclitaxel. Australian petty patents have a maximum
term of six years, are allowed to contain only three claims (one independent
and two dependent) and are granted on the basis of a prior act search which is
significantly more limited in scope than the searches done prior to issuance
of regular patents. Following publication of these patents, Faulding
instituted legal action to revoke these patents on the grounds that the patent
claims are invalid and that the subject matter claimed in the patents was
already known prior to the claimed date of invention. In February 1995, BMS
brought legal action against Faulding, based upon these patent claims, seeking
an injunction against Faulding to prevent Faulding from marketing NBT
Paclitaxel pursuant to Faulding's generic approval. In March 1995, the
Australian court denied BMS's request to enjoin Faulding from marketing NBT
Paclitaxel. The Company understands, based on communications with Faulding,
that BMS's claims will likely be resolved in conjunction with Faulding's
revocation action later in 1996 or early in 1997 and based upon its review of
the information disclosed publicly prior to the BMS patent application and its
discussions with Faulding, the
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Company believes that BMS's claims will be successfully resisted. No assurance
can be given, however, that BMS will not obtain an injunction against Faulding
which could prevent Faulding from marketing NBT Paclitaxel in Australia. If
Faulding were prevented from marketing NBT Paclitaxel in Australia pursuant to
its generic approval, Faulding would be unable to market NBT Paclitaxel for
commercial sale in Australia until such time as Faulding obtains its own non-
generic approval which will require substantial clinical trials and regulatory
approval. There can be no assurances, however, that Faulding will be able to
obtain its own non-generic approval in such circumstances. If BMS is
successful in enforcing its patent claims against Faulding such that Faulding
is unable to sell NBT Paclitaxel in Australia, such a result would have a
material adverse effect on the Company. See "Risk Factors--Patents and
Proprietary Technology; Legal Proceedings" and "--Strategic Alliances."
GOVERNMENT REGULATION AND PRODUCT APPROVALS
The production and marketing of NBT Paclitaxel and the Company's research
and development activities are subject to extensive regulation by numerous
governmental authorities in the United States and other countries. In the
United States, drugs are subject to FDA regulation. The FDC Act, and the
regulations promulgated thereunder, and other federal and state statutes and
regulations govern, among other things, the testing, manufacture, quality,
safety, efficacy, labeling, storage, advertising and promotion of paclitaxel.
Product development within this regulatory framework takes a number of years
and involves the expenditure of substantial resources. The marketing of drugs
may not begin without FDA approval.
The steps required before a pharmaceutical may be marketed in the United
States include: (i) preclinical laboratory tests, animal pharmacology,
toxicology studies and formulation studies; (ii) the submission to the FDA of
an IND for human clinical testing, which must become effective before human
clinical trials commence; (iii) adequate and well-controlled human clinical
trials to establish the safety and efficacy of the drug; (iv) the submission
of an NDA to the FDA; and (v) FDA approval of the NDA prior to any commercial
sale or shipment of the drug. The FDA may refuse to approve an NDA if the
applicant does not demonstrate to the FDA's satisfaction that it can
manufacture the drug in compliance with the FDA's cGMP regulations. In
addition to obtaining FDA approval for each product, each domestic drug
manufacturing establishment must be registered with the FDA. Domestic drug
manufacturing establishments are subject to regular inspections by the FDA and
must comply with cGMP regulations. To supply products for use in the United
States, foreign manufacturing establishments must comply with cGMP regulations
and are subject to periodic inspection by the FDA or by corresponding
regulatory agencies in their home countries under reciprocal agreements with
the FDA.
Preclinical studies include the laboratory evaluation of in vitro
cytotoxicity, pharmacology, product chemistry and formulation, as well as
animal studies to assess the potential safety and efficacy of the product.
Compounds must be formulated according to cGMP, and preclinical safety tests
must be conducted by laboratories that comply with FDA regulations regarding
good laboratory practices. The results of the preclinical tests are submitted
to the FDA as part of an IND and are reviewed by the FDA prior to the
commencement of human clinical trials. The data in an IND consists of animal
data on safety and efficacy, possibly human data from a related use,
chemistry, formulation and manufacturing data. If the FDA objects, the study
may not commence. There can be no assurance that submission of an IND will
result in FDA authorization to commence clinical trials.
Clinical trials involve the administration of the investigational new drug
to patients under the supervision of a qualified principal investigator.
Clinical trials must be conducted in accordance with good clinical practices
under protocols that detail the objectives of the study, the parameters to be
used to monitor safety and the efficacy criteria to be evaluated. Each
protocol must be submitted to the FDA as part of the IND. Each clinical study
must be conducted under the auspices of an Institutional Review Board ("IRB")
at the institution at which the study will be conducted. The IRB will
consider, among other things, the safety of human subjects and the possible
liability of the institution. The company sponsoring the trials is required to
select qualified investigators to supervise the administration of the drug and
to ensure that the trials are adequately monitored in accordance with FDA
regulations.
Clinical trials typically are conducted in three sequential phases, which
may overlap. In Phase I, the initial introduction of the drug into healthy
subjects, the drug is tested for safety (adverse effects), dosage tolerance,
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metabolism, distribution, excretion and pharmacodynamics (clinical
pharmacology). Phase II involves studies in a limited patient population to:
(i) determine the efficacy of the drug for specific, targeted indications;
(ii) determine dosage tolerance and optimal dosage; and (iii) identify
possible adverse effects and safety risks. When a compound is found to be
effective and to have an acceptable safety profile in Phase II evaluations,
Phase III trials are undertaken to evaluate further clinical efficacy and to
test further for safety within an expanded patient population at
geographically dispersed clinical study sites. Clinical trials require
substantial time and effort. There can be no assurance that Phase I, Phase II
or Phase III testing will be completed successfully within any specific time
period, if at all. Furthermore, although clinical trials have been completed
to date, the Company, the Strategic Partners or the FDA may modify, suspend or
terminate clinical trials at any time if they feel that the subjects or
patients are being exposed to an unacceptable health risk.
The results of the pharmaceutical development, preclinical studies and
clinical studies are submitted to the FDA in the form of an NDA for approval
of the marketing and commercial shipment of the drug. An NDA is a systematic
compilation of data, analysis and conclusions on a new drug product based on
studies conducted under an IND. The NDA testing and approval process requires
substantial time and effort, and there can be no assurance that approval will
be granted on a timely basis, if at all. The FDA may refuse to approve an NDA
if the FDA does not view the NDA as containing adequate evidence of the safety
and efficacy of the drug, or if other applicable regulatory criteria are not
satisfied. In addition, the FDA may require additional testing or information,
or require post-marketing testing and surveillance. Notwithstanding the
submission of complete data, the FDA may ultimately decide that the
application does not satisfy its criteria for approval. Moreover, if
regulatory approval of a drug is granted, such approval may entail limitations
on the indicated uses for which the drug may be marketed. Finally, product
approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems occur following initial marketing or if previously
unknown information demonstrates a lack of safety or effectiveness. Following
an approved NDA, an SNDA may be submitted to the FDA which requests a change
in the existing approval. An SNDA can be for changes in manufacturing, quality
control or clinical data or for changes in product labeling such as
indications or warnings.
Manufacturers of drugs sold in the United States are required to satisfy the
FDA that their manufacturing facilities and processes adhere to applicable
standards for cGMP and to engage in extensive record keeping and reporting.
Thus, even if regulatory approval for NBT Paclitaxel is granted, the Company's
current and any future facilities will be subject to periodic review and
inspections by the FDA or the analogous regulatory authorities of other
countries for compliance with cGMP or similar foreign regulatory standards.
Compliance with cGMP regulations requires substantial time, attention and
financial resources. Following inspections of the Company's United States and
Canadian manufacturing facilities by a cGMP Auditor of the Australian TGA, the
TGA issued approvals to the Company as an Australian cGMP compliant paclitaxel
manufacturer. The Company's facilities, however, have not been inspected by
the FDA for regulatory compliance purposes. There can be no assurance that the
FDA or foreign regulatory authorities other than the TGA will find the
Company's current facilities to be in compliance with United States cGMP
regulations or analogous foreign standards. Subsequent discovery of previously
unknown problems with NBT Paclitaxel or the Company's manufacturing facilities
may result in restrictions, including withdrawal of NBT Paclitaxel from the
market. Failure to comply with the applicable regulatory requirements by
either the Company or its Strategic Partners could, among other things, result
in criminal prosecution and fines, product recalls, product seizures and
operating restrictions.
The Company is also subject to United States laws and regulations applicable
to exporting drugs. On April 26, 1996, the export provisions in the FDC Act
were amended in Chapter 1A of Title II, Supplemental Appropriations For The
Fiscal Year Ending September 30, 1996, in the "FDA Export Reform and
Enhancement Act of 1996" to authorize the export of a drug before marketing
approval is obtained in the United States, to any country, if the drug (a)
complies with the laws of the importing country, and (b) has valid marketing
authorization by the appropriate authority in a country listed by the statute,
one of which is Australia. The Company has received valid marketing
authorization from Australia. Thus, if the other statutory conditions are met,
the Company believes that future exports from the United States of NBT
Paclitaxel labeled in accordance with the laws of Australia and, for countries
other than Australia, of the importing country, should be permissible without
an FDA permit or other FDA approval.
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The Company is also subject to, among others, the regulations of Canada, the
Province of British Columbia, the United States Environmental Protection
Agency, the Department of Interior (United States Fish and Wildlife Services
and the Bureau of Land Management), the Department of Agriculture (United
States Forest Service) and other countries and regulatory agencies. Pursuant
to the National Environmental Policy Act, certain United States agencies have
prepared an Environmental Impact Statement that addresses the impact of
harvesting wild Pacific yew trees, including cutting down wild Pacific yew
trees on federally-managed land. The Company ceased harvesting bark in August
1994, although the Company has in its inventory bark obtained from the wild
Pacific yew tree. The Company is also subject to federal, state and local laws
and regulations governing the use and disposal of hazardous materials as well
as regulations imposed by the Occupational Safety and Health Administration
governing worker safety. There can be no assurance that the Company is at all
times in complete compliance with all such requirements. The Company has made
and will continue to make expenditures to comply with environmental
requirements. Compliance with these regulations is time-consuming and
expensive. The failure to comply with these regulations, however, could have a
material adverse effect on the Company.
The adoption by federal, state or local governments of significant new laws
or regulations or a change in the interpretation or implementation of existing
laws or regulations relating to environmental or other regulatory matters
could increase the cost of producing NBT Paclitaxel, delay regulatory approval
or otherwise adversely affect the Company's ability to produce or sell NBT
Paclitaxel. Adverse governmental regulations which might arise from future
legislative or administrative regulations or other actions cannot be
predicted. In addition, the Company's activities have been opposed by the
Oregon Natural Resources Council ("ONRC") because of their concern over wild
Pacific yew in old growth forests. Even though the Company no longer harvests
biomass from the bark of the wild Pacific yew, there can be no assurance that
the ONRC and other environmental activist groups will not oppose other
activities of the Company, which may have the effect of delaying or halting
production of NBT Paclitaxel, each of which could have a material adverse
effect on the Company.
Outside the United States, the Company's ability to market a product is
contingent upon receiving a marketing authorization from the appropriate
regulatory authority. This foreign regulatory approval process includes all of
the risks associated with FDA approval set forth above.
The Company has filed confidential Drug Master Files ("DMF"s) containing
certain of the Company's proprietary manufacturing processes with regulatory
agencies in the United States, Australia, Canada, Europe and Singapore,
relating to the Company's manufacture of NBT Paclitaxel. Faulding, using the
Company's Australian DMF, has received a marketing approval in Australia for
NBT Paclitaxel for treating refractory ovarian and breast cancers.
Additionally, Faulding has completed clinical trials with NBT Paclitaxel in
Australia, which may form the basis for applications for further marketing
approvals in Australia and other countries where Faulding has the right to
market NBT Paclitaxel. Faulding is also engaged in ongoing clinical research
with NBT Paclitaxel with the goal of improving the effectiveness of paclitaxel
treatment in combination therapies and expanding the number of disease
indications treatable with paclitaxel. There is no assurance that Faulding's
efforts to expand the use of NBT Paclitaxel outside the United States will be
successful.
IVAX, using the Company's United States DMF, filed an IND with the FDA in
June 1994 relating to NBT Paclitaxel and began its Phase I clinical trials
relating to NBT Paclitaxel in the United States in October 1994. IVAX began
Phase II/III clinical trials in May 1995. Based upon communications from IVAX,
it is estimated that the earliest IVAX could file a NDA seeking commercial
approval to sell NBT Paclitaxel in the United States
is 1997. No assurance can be given, however, regarding the timely completion
of any clinical trials or whether any regulatory approvals will be obtained by
IVAX to market NBT Paclitaxel in the United States or other countries. See
"Risk Factors--Government Regulation; No Assurance of Regulatory Approval" and
"Risk Factors--Risk of Product Liability; Limited Insurance."
RESEARCH AND DEVELOPMENT
During the years ended December 31, 1993, 1994 and 1995 the Company spent
approximately $3.5 million, $3.9 million and $4.6 million, respectively, on
Company sponsored research and development activities and to produce NBT
Paclitaxel sold to its Strategic Partners (including $1.2 million and $0.3
million in plantation development fees in 1994 and 1995, respectively).
Research and development is expected to remain a significant
39
<PAGE>
cost component of the Company's business. In the short term, research and
development is expected to concentrate primarily on: (i) improving paclitaxel
yield and reducing production costs; (ii) developing the Company's semi-
synthesis process for paclitaxel production; and (iii) improving the yields of
the Company's production methodology for processing needles and limbstock. The
Company will focus its internal efforts on process development and plans to
contract out research considered essential, but for which it lacks facilities
or staff.
FOREIGN AND DOMESTIC OPERATIONS; EXPORT SALES
The following table sets forth, for the past three fiscal years, and the
three months ended March 31, 1995 and 1996 revenue, profitability (operating
loss), and identifiable assets attributable to the Company's U.S. and foreign
operations (amounts in thousand dollars):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
------------------------ ---------------
1993 1994 1995 1995 1996
------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Sales to Unaffiliated Customers
United States (1).................. $ 1,248 $ 854 $ 2,054 $ 979 $ 214
Foreign............................ -- 148 569 169 477
Operating Loss
United States...................... (4,954) (5,914) (3,851) (620) (1,473)
Foreign............................ -- (68) (433) (26) (325)
Identifiable Assets
United States...................... 2,120 4,304 5,133 3,633 4,660
Foreign............................ -- 672 6,820 818 5,546
</TABLE>
--------
(1) Includes export sales of $998 in 1993 and $1,392 in 1995.
Foreign sales include sales of product manufactured and shipped from NaPro
Canada, the Company's Canadian subsidiary. Such products sold by NaPro Canada
to the Company are then re-sold to Faulding for use outside the United States.
Such "exported" products never physically enter the United States.
Sales of NBT Paclitaxel into foreign markets accounted for approximately 75%
of the Company's revenues for the year ended December 31, 1995 and 69% of the
Company's revenues for the three months ended March 31, 1996. The Company
anticipates that a significant portion of its revenues will continue to be
derived from sales of its products in foreign markets until such time, if
ever, as IVAX receives approval for commercial sale of NBT Paclitaxel in the
United States.
A substantial portion of the Company's revenues and operations will thus
continue to be subject to the risks associated with foreign business,
including economic or political instability, shipping delays, fluctuations in
foreign currency exchange rates and various trade restrictions, all of which
could have a significant impact on the Company's ability to deliver products
on a competitive and timely basis. Future imposition of, or significant
increases in, the level of customs duties, export quotas, drug regulatory
restrictions or other regulatory or trade restrictions could have an adverse
effect on the Company. See "Risk Factors--Reliance on Foreign Sales."
EMPLOYEES
As of March 31, 1996 the Company had 67 full time and four part time
employees, of whom six hold Ph.D. or M.D. degrees. Four employees were engaged
in biological and clinical research, eight in chemistry, 16 in quality
control/quality assurance, 26 in manufacturing and 13 in general
administration and finance. The Company believes that its relations with its
employees are good.
PROPERTIES
The Company leases approximately 54,000 square feet of space in Boulder,
Colorado, which will be used for research and development and commercial-scale
manufacturing upon completion of improvements and
40
<PAGE>
installation and validation of equipment. This facility currently is used for
the Company's executive offices and warehousing of raw materials and
equipment. The Company leases an additional 5,900 square feet of space in
Boulder, of which 1,300 square feet is used for research and development and
4,600 square feet is used for manufacturing. The Company leases a facility of
approximately 3,400 square feet in British Columbia, Canada which is used for
manufacturing. The Company leases an additional 10,090 square foot facility in
British Columbia, Canada which the Company subleases. The Company has an
option to purchase 7.3 acres of land in Longmont, Colorado as a potential site
on which to build a manufacturing facility.
LEGAL PROCEEDINGS
The Company is not currently engaged in any material legal proceedings. See
"Risk Factors--Patents and Proprietary Technology; Legal Proceedings," "Risk
Factors--Risk of Product Liability; Limited Insurance" and "--Patents and
Proprietary Technology."
41
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning directors and
executive officers of the Company as of March 31, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
----- ---- -----------
<S> <C> <C>
Leonard P. Shaykin...... 52 Chairman of the Board of Directors
Sterling K. Ainsworth,
Ph.D.................... 56 President and Chief Executive Officer; Director
Patricia A. Pilia, 47 Vice President, BioResearch and Toxicology;
Ph.D.................... Secretary; Treasurer; Director
Lawrence Helson, M.D.... 65 Vice President, Clinical Research
Gordon H. Link, Jr...... 42 Vice President, Finance and Chief Financial Officer
David L. Denny.......... 44 Vice President, Operations
James D. McChesney,
Ph.D.................... 56 Vice President, Natural Products Chemistry
E. Garrett Bewkes,
Jr.(1)(2)............... 68 Director
Richard C. Pfenniger,
Jr.(2).................. 40 Director
Phillip Frost, M.D...... 59 Director
Arthur H. Hayes, Jr.,
M.D..................... 63 Director
Mark B. Hacken(1)....... 60 Director
Vaughn D. Bryson(2)..... 56 Director
</TABLE>
--------
(1)Member of the Audit Committee
(2)Member of the Compensation Committee
The following is a background description of the directors, executive
officers and certain key employees of the Company.
Mr. Shaykin has served as Chairman of the Board of Directors of the Company
(the "Board of Directors") since June 1993. Pursuant to his Executive
Agreement (as defined herein), Mr. Shaykin is not required to devote more than
20 hours in any week nor more than 80 hours in any month to the Company's
affairs. In 1995, Mr. Shaykin founded Shaykin & Company, a private investment
holding firm. Prior to founding Shaykin & Company, Mr. Shaykin served as a
founding and managing partner of Adler & Shaykin, an equity investment
partnership organized to sponsor leveraged buyouts. Prior thereto, Mr. Shaykin
was Vice President, director and a member of the Investment Committee of
Citicorp Venture Capital Ltd. and Citicorp Capital Investors, Inc., the
venture capital and equity investment subsidiaries of Citicorp and Citibank.
Mr. Shaykin is Chairman of the Board of Directors of Kimeragen, Inc., a
privately-held gene repair company, a director of Avigen, a privately-held
gene therapy company currently in registration, Chairman of the Neuroblastoma
Foundation and a director of the Jerusalem Post, an English-language offshore
newspaper. Mr. Shaykin is also a governing trustee of The Jackson
Laboratories, a privately-held genetic research institute and a trustee of the
University of Chicago Graduate School of Business. Mr. Shaykin is a graduate
of the University of Chicago (B.A., M.A., M.B.A.).
Dr. Ainsworth, a co-founder of the Company, has served as an executive
officer and director of the Company since its inception, as Chief Executive
Officer since November 1991 and as President since October 1992. In 1990, he
co-founded, with Dr. Pilia, Pacific Biotechnology, Inc. (a predecessor of the
Company with no connection to PBI) and served as Chairman and President of
such company until the Company's inception. From 1972 until 1990, Dr.
Ainsworth held various levels of professorships of Pathology with tenure in
the College of Medicine and Dental Medicine and Graduate Studies at the
Medical University of South Carolina ("MUSC"), where he established, developed
and directed MUSC's Immunopathology Diagnostic Laboratory. He has authored
over 150 publications on a variety of research topics, including acute
inflammation, viral pathogenesis, immunopathology, immunodermatology,
autoimmune disease, aging, immunology of allergic and chronic occupational
pulmonary disease and biological response modifiers in cancer therapeutics.
Dr. Ainsworth received
42
<PAGE>
a Bachelor's degree from the University of Mississippi in 1963. He received a
Master's degree in Medical Microbiology in 1965 and a Doctoral degree in
Medical Science in 1969 from the University of Mississippi Medical School. He
completed his post-doctoral fellowship in the Department of Pathology at
Harvard Medical School from 1970 to 1972. Dr. Ainsworth is engaged to marry
Dr. Pilia, a director and executive officer of the Company.
Dr. Pilia, a co-founder of the Company, has served as a director of the
Company since its inception. She was appointed Secretary of the Company in
November 1991, Treasurer of the Company in October 1992 and Vice President of
BioResearch and Toxicology in March 1993. In 1990 she co-founded, with Dr.
Ainsworth, Pacific Biotechnology, Inc. and served as its Vice President and
Director of Biotechnology. From 1973 to 1990 she was involved in independent
research in the fields of renal, pulmonary disease, immunotechnological
therapeutics and biological response modifiers and in the development of
diagnostic and laboratory medicine procedures. From 1983 to 1991, Dr. Pilia
was an Assistant Professor of Pathology in the College of Medicine and Dental
Medicine and the College of Graduate Studies at MUSC. From 1985 to 1991, she
served as the Assistant Director of the MUSC Immunopathology Diagnostic and
Research Laboratories. Prior thereto, Dr. Pilia was a consultant on the design
and development of biomedical devices and treatment modalities and the design
and performance of clinical trials. Dr. Pilia received a Bachelor's degree in
1970 from Boston University, a Master's degree in Immunology/ Microbiology in
1978 and a Doctoral degree in Pathology in 1980 from MUSC. Dr. Pilia is
engaged to marry Dr. Ainsworth, a director and Chief Executive Officer of the
Company.
Dr. Helson joined the Company as a director and in the part-time position of
Vice President, Clinical Research in July 1993. Since July 1988, Dr. Helson
has been head of the Neuro-Oncology Laboratory in the Division of Neoplastic
Diseases, Department of Medicine at New York Medical College. From July 1968
until June 1986, Dr. Helson was an attending physician with Memorial Sloan-
Kettering, a cancer research center in New York. From July 1986 until June
1988, Dr. Helson was an Associate Director with ICI Pharmaceuticals. Dr.
Helson has been involved in oncology research for over 30 years. Pursuant to
his Executive Agreement, Dr. Helson is not required to devote more than 15
hours in any week nor more than 60 hours in any month to the Company's
affairs. Dr. Helson received his B.S. from the College of the City of New York
in 1953, his M.S. from the New York University Graduate School of Arts and
Sciences in 1957 and his M.D. from the University of Geneva (Switzerland)
Medical School in 1962.
Mr. Link, a certified public accountant and a certified management
accountant, joined the Company as Vice President, Finance and Chief Financial
Officer in September 1993. Prior thereto, Mr. Link served concurrently as
Corporate Controller of Synergen, Inc. and of the Syntex-Synergen Neuroscience
Joint Venture. From February 1991 until April 1993 Mr. Link served as
Treasurer of Synergen Development Corporation. All of the Synergen entities
are engaged in biotechnology research and development. From October 1983 to
May 1990, Mr. Link practiced as a certified public accountant, most recently
in the position of Audit Manager, with Deloitte & Touche. He received
undergraduate degrees in chemistry from Rensselaer Polytechnic Institute in
1976 and in accounting from Metropolitan State College in 1983.
Mr. Denny has served as Vice President, Operations since September 1993.
From 1991 to September 1993, Mr. Denny served as Vice President of Operations
for Somatogen, Inc. Prior thereto, Mr. Denny enjoyed a diverse career within
the pharmaceutical industry serving in manufacturing and quality assurance
capacities with Miles Pharmaceutical, Abbott Laboratories and Kabi-Pharmacia.
He received a B.S. in Biological Sciences from Tennessee Technological
University in 1972 and attended graduate school at the same institution from
1972 to 1974.
Dr. McChesney joined NaPro BioTherapeutics as Vice-President of Natural
Products Chemistry in January 1996. From 1987 until June of 1995, he served as
Director of the Research Institute of Pharmaceutical Sciences at University of
Mississippi, specializing in natural product pharmaceutical research and
development. In July of 1993, Dr. McChesney was named Frederick A.P. Barnard
Distinguished Professor of Pharmacognosy at the University of Mississippi. Dr.
McChesney joined the School of Pharmacy at the University of Mississippi in
1978 as Professor and Chair of the Department of Pharmacognosy. Prior thereto,
he served as Professor of
43
<PAGE>
Botany as well as Professor of Medicinal Chemistry at the University of Kansas.
Dr. McChesney has authored more than 160 publications on all aspects of natural
products research and development, including isolation, structure elucidation,
biological activity, analytical methods, metabolism and sourcing. He is the
author of numerous patents on the production and utility of natural products as
pharmaceuticals and agrochemicals. After graduating with honors from Iowa State
University in 1961 with a BS in Chemical Technology, he earned a Masters degree
in Botany (1964) and Doctoral degree in Natural Products Chemistry (1965) at
Indiana University. He has been a Fulbright Lecturer in Brazil and a Visiting
Professor at several South American universities.
Mr. Bewkes has served as a director of the Company since September 1993. Mr.
Bewkes has been a director of Paine Webber Group, Inc. and a consultant and
Chairman of a number of Paine Webber mutual funds since April 1987. From 1982
until 1987 he was Chairman of American Bakeries Corp. and currently serves as a
director of Interstate Bakeries Corp.
Mr. Pfenniger has served as a director of the Company since June 1993. Mr.
Pfenniger has served as Chief Operating Officer of IVAX since April 1994. He
served as Senior Vice President-Legal Affairs, Secretary and General Counsel of
IVAX from 1989 until April 1994 and as Secretary of IVAX from 1990 until April
1994. During the seven year period prior to joining IVAX, Mr. Pfenniger was
engaged in private law practice, most recently as a member of the law firm of
Greer, Homer & Bonner, P.A. in Miami, Florida. Mr. Pfenniger is a director of
Whitman Education Group, Inc. and North American Vaccine, Inc.
Dr. Frost has served as a director of the Company since June 1993. Dr. Frost
has served as Chairman and Chief Executive Officer of IVAX since 1987 and from
July 1981 to January 1995 as President of IVAX. He is the Vice Chairman of the
Board of Directors of North American Vaccine, Inc. Dr. Frost was the Chairman
of the Department of Dermatology at Mt. Sinai Medical Center of Greater Miami
from 1972 to 1990. He was Chairman of the Board of Directors of Key
Pharmaceuticals, Inc. from 1972 to 1986. He is a director of American
Exploration Company (an oil and gas exploration company), Whitman Education
Group and Northrop Grumman Corporation. He is a trustee of the University of
Miami and a member of the Board of Governors of the American Stock Exchange.
Dr. Hayes was appointed a director of the Company in March 1996. He is
currently President and Chief Operating Officer of MediScience Associates,
Inc., a pharmaceutical consulting company and is a Professor of Medicine at New
York Medical College and Pennsylvania State University College of Medicine.
From 1981 to 1983 during the first Reagan administration, Dr. Hayes served as a
Commissioner of Food and Drugs for the FDA. He was President and Chief
Executive Officer of EM Pharmaceuticals as well as a member of their board of
directors from 1986 to 1991. Dr. Hayes served as Provost & Dean at New York
Medical College from 1983 to 1986 and served as the Director of the Institute
of Human Values in Medical Ethics, International Health and Biomedical
Sciences, the latter of which he also served as Chairman. Dr. Hayes has held
several posts with Pennsylvania State University which included Professor of
Medicine and Pharmacology from 1977 to 1981, Dean of Admissions from 1976 to
1979, Associate Professor of Medicine and Pharmacology and Director of the
Division of Clinical Pharmacology from 1972 to 1977. Prior thereto, Dr. Hayes'
employment, appointments and teachings were with Cornell University Medical
College as Assistant Professor of Medicine and Pharmacology as well as
Associate Dean (Academic Programs) in 1972 and Assistant Dean (Academic
Programs) from 1970 to 1972. Dr. Hayes' received his M.D. from Cornell
University Medical College, and also attended Cornell's Graduate School of
Medical Sciences, Department of Pharmacology. He undertook premedical studies,
and attended medical school at Georgetown University. Dr. Hayes received his
M.S. (Philosophy, Politics and Economics) from Oxford University, where he was
a Rhodes Scholar, and his A.B. (Philosophy) from Santa Clara University in
1955.
Mr. Hacken was appointed a director of the Company in March 1996. He is
currently President of MBH International. He is the former Chief Executive
Officer of FHP International Corporation ("FHP International"), a $4 billion
HMO with members in 11 states, and its operating subsidiary, FHP Incorporated
("FHP
44
<PAGE>
Incorporated") (a diversified health care services company). Prior to his
appointment to the Office of the Chief Executive in October 1993, he served on
the FHP International and FHP Incorporated board of directors' for two years
and seven years, respectively. He was co-founder and President of Elliott
Drugs, and President of Drug King after the firm was acquired from DART
Industries. After Drug King was sold to Thrifty Corporation, he was
instrumental in converting them to the Thrifty Jr. drug store concept and was
President of that division. Mr. Hacken received a B.S. in Pharmacy from the
University of Florida.
Mr. Bryson was appointed a director of the Company in March 1996. Mr. Bryson
has been Vice Chairman of Vector Securities International, Inc. ("Vector"), a
specialty health care investment banking firm, since April 1994. Prior to
joining Vector, Mr. Bryson worked in various positions for Eli Lilly and
Company for 32 years, including in sales/market research, human resources,
distribution, sales management and new product planning. Mr. Bryson served as
Eli Lilly's President and Chief Executive Officer from 1991 until June 1993.
Mr. Bryson was a director of Eli Lilly from 1984 until his retirement in 1993.
in 1975, Mr. Bryson became area director for Japan and southeast Asia for Eli
Lilly International Corporation and one year later was named a Vice President
and Canada, Australia, New Zealand and South Africa were added to his
responsibilities. In 1979, Mr. Bryson transferred to London as Vice President
for Europe, the Middle East and Africa and in 1982 became President of Elanco
Products, Eli Lilly's agricultural division. In 1986 Mr. Bryson was made
Executive Vice President of Eli Lilly, overseeing Elanco, Elizabeth Arden and
the Medical Devices and Diagnostics Division. Mr. Bryson is a Director of
three public companies, ARIAD Pharmaceuticals, Inc., Endo Vascular
Technologies, Inc. and Perclose, Inc. Mr. Bryson has a B.S. in Pharmacy from
the University of North Carolina and completed the Stanford Sloan Program at
the Stanford University Graduate School of Business.
BOARD OF DIRECTORS' COMMITTEES
The Board of Directors has established an audit committee (the "Audit
Committee") and a compensation committee (the "Compensation Committee"). The
Audit Committee, which currently consists of Mark B. Hacken, Chairman, and E.
Garrett Bewkes, Jr., meets periodically with representatives of the Company's
independent auditors and the Company's management to obtain an assessment of
the Company's financial condition and results of operations, the results and
scope of the annual audit and other services provided by the Company's
independent auditors, and reports to the Board of Directors with respect
thereto. The Audit Committee held two meetings in 1995 at which all members of
the Audit Committee attended. The Compensation Committee, which currently
consists of Mr. Bewkes, Chairman, Richard C. Pfenniger, Jr. and Vaughn D.
Bryson meets periodically to review and to recommend to the Board of Directors
compensation arrangements for senior management and directors. In addition,
the Compensation Committee is responsible for administering the Company's
existing stock option plans. The Compensation Committee held two meetings in
1995 at which all members of the Compensation Committee attended. The Board of
Directors has not established a nominating committee.
DIRECTORS' COMPENSATION
Pursuant to a proposed amendment to the Company's 1994 Long-Term Performance
Incentive Plan (the "1994 Plan"), non-employee directors automatically will be
granted each year, on the day of the Company's annual meeting of stockholders,
non-qualified options to purchase 10,000 shares of Common Stock. In addition,
any non-employee director who is first appointed or elected other than at an
annual meeting of stockholders will receive non-qualified options to purchase
10,000 shares of Common Stock upon such appointment or election. In addition,
non-employee directors who serve as Chairman of the Audit, Compensation and
strategic planning committees will receive grants of 10,000 shares. All such
options will be exercisable at an exercise price equal to the fair market
value of the Common Stock on the date of grant. Messrs. Bewkes, Frost and
Pfenniger received grants of 5,000 shares on June 3, 1995, the day following
the 1995 shareholders' meeting. Such grants were at an exercise price of $7.66
per share. Messrs. Bryson, Hayes and Hacken each received grants of 5,000
shares on March 29, 1996 at an exercise price of $11.125 per share. Directors
are reimbursed for their costs incurred in attending Board of Directors
meetings. In January 1994, each non-employee director was granted non-plan
45
<PAGE>
options to purchase 5,000 shares of Common Stock and each chairman of the two
standing committees of the Board of Directors, the Audit Committee and the
Compensation Committee, was granted non-plan options to purchase an additional
2,500 shares of Common Stock and each other member of such committees was
granted non-plan options to purchase an additional 1,000 shares of Common
Stock. All such grants were at an exercise price of $2.40 per share. See "--
1994 Long-Term Performance Incentive Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company serves or served on the compensation
committee of another entity during 1995 and no executive officer of the Company
serves or served as a director of another entity who has or had an executive
officer serving on the Compensation Committee, and no executive officer of the
Company serves or served as a member of the compensation committee of another
entity who has or had an executive officer serving on the Board of Directors.
Mr. Shaykin, Chairman of the Board of Directors, was appointed to serve on the
Compensation Committee upon its inception in 1993 and resigned following its
first meeting in January 1994. Mr. Shaykin has been an employee of the Company,
and Chairman of the Board of Directors since 1993. Effective June 7, 1993, Mr.
Shaykin executed a note in favor of the Company to represent the amount owed
for Mr. Shaykin's acquisition of Executive Stock pursuant to the Executive
Agreement (as defined herein). See "Certain Relationships and Related
Transactions--Indebtedness of Management."
46
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Executive Compensation
The following table sets forth compensation paid to Sterling Ainsworth,
Leonard Shaykin, Patricia Pilia and Gordon Link. None of the Company's other
executive officers or directors had annual compensation in excess of $100,000
for services rendered during the year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- -------------------------------
AWARDS PAYOUTS
--------------------- -------
SECURITIES
OTHER RESTRICTED UNDER-
ANNUAL STOCK LYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) ($) SARS (#) ($) ($)
------------------ ---- -------- ------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sterling K. Ainsworth... 1995 $152,077 $20,000 -- $20,000 40,000 -- --
President and C.E.O. 1994 138,111 -- -- -- -- -- --
1993 99,769 -- -- -- -- -- --
Leonard P. Shaykin...... 1995 $152,077 $20,000 -- -- 100,000(1) -- --
Chairman of the Board 1994 106,192 -- -- -- -- -- --
1993 51,402 -- -- -- -- -- --
Patricia A. Pilia....... 1995 $116,592 $15,000 -- $15,000 20,000 -- --
Vice President, 1994 96,077 -- -- -- -- -- --
Secretary and Treasurer 1993 73,662 -- -- -- -- -- --
Gordon H. Link, Jr...... 1995 $101,385 $10,000 -- $10,000 10,000 -- --
Chief Financial Officer 1994 92,480 -- -- -- 16,667 -- --
1993 28,454(2) -- -- -- 26,667 -- --
</TABLE>
--------
(1) Includes options to purchase 50,000 shares of Common Stock granted in
November 1995, subject to approval of stockholders of amendments to the
Company's 1994 Long-Term Incentive Performance Plan.
(2)Reflects compensation paid to Mr. Link from the period September 1993 to
December 1993.
1994 Long-Term Performance Incentive Plan
In May 1994, the Board of Directors adopted the 1994 Plan which was
subsequently approved by the stockholders of the Company prior to the IPO. The
1994 Plan provides for granting to employees and other key individuals who
perform services for the Company ("Participants") the following types of
incentive awards: stock options, stock appreciation rights ("SARs"),
restricted stock, performance units, performance grants and other types of
awards that the Compensation Committee deems to be consistent with the
purposes of the 1994 Plan. In addition, each person who is not an employee of
the Company or one of its subsidiaries and who is elected or re-elected as a
director of the Company by the stockholders at any annual meeting of
stockholders commencing with the 1994 annual meeting, and, if first elected or
appointed other than at an annual meeting, upon such election or appointment,
will receive, as of the business day following the date of each such election
or appointment a non-qualified option to purchase 5,000 shares of the Common
Stock. The 1994 Plan affords the Company latitude in tailoring incentive
compensation to support corporate and business objectives, to anticipate and
respond to a changing business environment and competitive compensation
practices and, in the case of options granted to non-employee directors, to
strengthen further the non-employee directors' linkage with stockholder
interests. The following is a description of the principal features of the
1994 Plan. Pursuant to a proposed amendment to the 1994 Plan, each non-
employee director will receive 10,000 shares of Common Stock and the chairmen
of any committee will receive 10,000 shares of Common Stock.
The Compensation Committee has exclusive discretion to select the
Participants and to determine the type, size and terms of each award, to
modify the terms of awards, to determine when awards will be granted and
47
<PAGE>
paid, and to make all other determinations which it deems necessary or
desirable in the interpretation and administration of the 1994 Plan. The 1994
Plan terminates ten years from the date that it is initially approved and
adopted by the stockholders of the Company, unless extended for up to an
additional five years by action of the Board of Directors. With limited
exceptions, including termination of employment as a result of death,
disability or retirement, or except as otherwise determined by the
Compensation Committee, rights to these forms of contingent compensation will
be forfeited if a Participant's employment or performance of services
terminates within a specified period following the award. Generally, a
Participant's rights and interest under the 1994 Plan will not be transferable
except by will or by the laws of descent and distribution.
Options, which include non-qualified stock options and incentive stock
options, are rights to purchase a specified number of shares of Common Stock
at a price fixed by the Compensation Committee. The option price may not be
less than the fair market value of the underlying shares of Common Stock on
the date of grant. In the case of purchased stock options, a specified number
of non-qualified stock options (with an option price as described above) will
be offered for grant to selected Participants in exchange for a purchase
price, specified by the Compensation Committee, which is payable at the time
of grant. Options generally will expire not later than ten years after the
date on which they are granted. Options will become exercisable at such times
and in such installments as the Compensation Committee shall determine.
Payment of the option price must be made in full at the time of exercise in
such form (including, but not limited to, cash, Common Stock or the surrender
of another outstanding award or any combination thereof) as the Compensation
Committee may determine. Federal income tax payable as a consequence of the
exercise of such options is borne by the grantee.
An SAR may be granted alone, or a holder of an option or other award may be
granted a related SAR, either at the time of grant or by amendment thereafter.
Upon exercise of an SAR, the holder must surrender the SAR and surrender,
unexercised, any related option or other award, and the holder will receive in
exchange, at the election of the Compensation Committee, cash or Common Stock
or other consideration, or any combination thereof, equal in value to (or, in
the discretion of the Compensation Committee, less than) the difference
between the exercise price or option price per share and the fair market value
per share of Common Stock on the last business day preceding the date of
exercise, times the number of shares subject to the SAR or option or other
award, or portion thereof, which is exercised.
A restricted stock award is an award of a given number of shares of Common
Stock which are subject to a restriction against transfer and to a risk of
forfeiture during a period set by the Compensation Committee. During the
restriction period, the Participant generally has the right to vote and
receive dividends on the shares.
Performance grants are awards whose final value, if any, is determined by
the degree to which specified performance objectives have been achieved during
an award period set by the Compensation Committee, subject to such adjustments
as the Compensation Committee may approve based on relevant factors.
Performance objectives are based on such measures of performance, including,
without limitation, measures of industry, the Company, unit or Participant
performance, or any combination of the foregoing, as the Compensation
Committee may determine. The Compensation Committee may make such adjustments
in the computation of any performance measure as it may deem appropriate. A
target value of an award will be established (and may be amended thereafter)
by the Compensation Committee and may be a fixed dollar amount, an amount that
varies from time to time based on the value of a share of Common Stock, or an
amount that is determinable from other criteria specified by the Compensation
Committee. Payment of the final value of an award will be made as promptly as
practicable after the end of the award period or at such other time or times
as the Compensation Committee may determine.
An aggregate of 375,000 shares of Common Stock of the Company are authorized
for issuance under the 1994 Plan. Pursuant to the proposed amendment to the
1994 Plan, the aggregate number of shares will be increased to 875,000. Except
for any other adjustments made by the Compensation Committee relating to a
stock split or certain other changes in the number of shares of Common Stock,
or to reflect extraordinary corporate transactions, further increases in the
number of shares authorized for issuance under the 1994 Plan must be approved
by the stockholders of the Company.
48
<PAGE>
Upon the happening of a liquidation or dissolution of the Company, all
outstanding awards under the 1994 Plan will terminate immediately prior to the
consummation of such liquidation or dissolution, unless otherwise provided by
the Compensation Committee. Upon the happening of certain events, including:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of the
Exchange Act, including a "group" as defined in Section 13(d) of the Exchange
Act but excluding the Company and any subsidiary and any employee benefit plan
sponsored or maintained by the Company or any subsidiary (including any
trustee of such plan acting as trustee), directly or indirectly, becoming the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as
amended from time to time) of securities of the Company representing 25% or
more of the combined voting power of the Company's then outstanding
securities; (ii) individuals who at the beginning of any 12-month period
constituted the Board of Directors ceasing for any reason other than death to
constitute a majority of the Board of Directors; or (iii) approval by the
Company's stockholders of a transaction involving the acquisition of the
Company by an entity other than the Company or any subsidiary through purchase
of assets, by merger, or otherwise, (A) any SARs and any options become
immediately exercisable in full; (B) restrictions and deferral limitations
applicable to any restricted stock and other awards payable in shares of
Common Stock lapse and become immediately exercisable in full; (C) generally,
outstanding performance grants become vested and will be paid out based on the
prorated target results for the awards period in question; and (D) generally,
the value of all outstanding options, SARs, restricted stock, performance
grants and any other type of award payable in shares of Common Stock will be
cashed out.
1993 Stock Option Plan
In 1993, the Company adopted its 1993 Stock Option Plan (the "1993 Plan")
covering up to 146,667 shares of Common Stock. Under the 1993 Plan, statutory
incentive stock options, as provided in Section 422 of the Internal Revenue
Code of 1986, as amended, or nonstatutory options to purchase shares of Common
Stock may be granted to employees of the Company or its subsidiary and certain
other categories of individuals as may be selected and approved by the Board
of Directors. As of December 31, 1995, options to purchase all 146,667 of the
shares of Common Stock reserved for issuance were outstanding at an average
exercise price of approximately $1.75 per share and no shares of Common Stock
had been issued upon exercise of such options.
The 1993 Plan is administered by the Board of Directors. The Board of
Directors has the authority, subject to the terms of the 1993 Plan, to
determine and designate the recipients of the options, dates the options are
granted, number of shares of Common Stock subject to options, option prices,
vesting terms, fair market value of the Common Stock, duration of the options
and whether the options granted to employees are to be incentive stock
options. The purchase price of Common Stock upon exercise of incentive stock
options may not be less than 100% of the fair market value of the Common Stock
on the date of the grant and the purchase price of Common Stock upon exercise
of nonstatutory incentive stock options may be less than, greater than or
equal to such fair market value. Unless otherwise determined by the Board of
Directors, the maximum term of incentive stock options is eight years (or five
years in the case of options issued for fewer than 667 shares) but, in no
event, for longer than ten years from the date of grant. Incentive options are
exercisable only during the holder's employment by the Company or its
subsidiary, and for a period of up to 30 days after the termination of such
holder's employment. Incentive options may not be transferred other than by
will or the laws of descent and distribution. None of the options outstanding
pursuant to the 1993 Plan are statutory incentive stock options. In general,
unless the Board of Directors determines otherwise, options for 667 shares or
more become exercisable as to 25% after each anniversary date of the grant and
are fully vested four years after the grant date. Options for fewer than 667
shares generally become exercisable as to 50% after each anniversary date of
the grant and are fully vested two years after the grant date. Federal income
tax payable as a consequence of the exercise of such options is borne by the
grantee.
Upon the happening of certain events, including: (i) any "person," as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), including a "group" as defined in
Section 13(d) of the Exchange Act but excluding the Company and any subsidiary
and any employee benefit plan sponsored or maintained by the Company or any
subsidiary (including any trustee of such plan acting
49
<PAGE>
as trustee), directly or indirectly, becoming the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act, as amended from time to time) of
securities of the Company representing 25% or more of the combined voting
power of the Company's then outstanding securities; (ii) individuals who at
the beginning of any 12-month period constituted the Board of Directors
ceasing for any reason other than death to constitute a majority of the Board
of Directors; or (iii) approval by the Company's stockholders of a transaction
involving the acquisition of the Company by an entity other than the Company
or any subsidiary through purchase of assets, by merger, or otherwise, all
options outstanding under the 1993 Plan become immediately exercisable in
full.
The following table sets forth information concerning outstanding options
held by Dr. Ainsworth, Mr. Shaykin, Dr. Pilia and Mr. Link for the year ended
December 31, 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SAR'S AT FISCAL THE-MONEY OPTIONS/SARS
YEAR END (#) EXERCISABLE/ AT FISCAL YEAR END ($)
NAME UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
<S> <C> <C>
Sterling K. Ainsworth..... 122,667/40,000 $ 1,042,670/$0
President & C.E.O.
Leonard P. Shaykin........ 0/100,000(1) --
Chairman of the Board
Patricia A. Pilia......... 36,800/20,000 $ 312,800/$0
Vice President, Secretary
and Treasurer
Gordon H. Link, Jr........ 19,167/34,167 $146,465/$162,890
Chief Financial Officer
</TABLE>
--------
(1) Includes options to purchase 50,000 shares of Common Stock granted in
November 1995, subject to approval of stockholders of amendments to the
1994 Plan.
EMPLOYMENT AGREEMENTS
The Company entered into an employment and executive stock agreement with
each of Mr. Shaykin and Drs. Ainsworth, Pilia and Helson (collectively, the
"Senior Executives"), effective as of June 7, 1993 and amended and restated
effective as of May 31, 1994 (collectively, the "Executive Agreements"). Each
Executive Agreement provides for an initial five-year employment term that
expires June 7, 1998 (the "Initial Term") and is renewable each year
thereafter (each, a "Renewal Term") unless either party gives notice of
termination to the other party at least 180 days prior to the commencement of
any Renewal Term.
The Executive Agreements provide for annual base salaries for Mr. Shaykin
and Drs. Ainsworth, Pilia and Helson of $150,000, $150,000, $115,000 and
$75,000, respectively. Under the Executive Agreements, the Senior Executives
may be granted annual bonuses at the discretion of the Compensation Committee.
In addition, $59,573 and $43,932 of unpaid salaries deferred between March
1991 and December 1992 by Drs. Ainsworth and Pilia, respectively, in light of
the Company's financial condition will be payable at such time, if ever, as
the Company achieves its first annual profit. Mr. Shaykin and Dr. Helson are
part-time employees of the Company, and are not required under their
respective Executive Agreements to spend more than 20 and 15 hours in any week
or 80 and 60 hours per month on the Company's affairs, respectively.
Each Executive Agreement provides for certain benefits if, prior to the end
of the Initial Term or any Renewal Term, a Senior Executive's employment is
terminated either by the Company other than for Cause (as defined in the
Executive Agreements) or by the Senior Executive for Good Reason (as defined
in the Executive Agreements). In general, each Senior Executive would be
entitled to: (i) a continuance of their respective salary
50
<PAGE>
and bonus, if any, through the end of the Initial Term (but in no event for
longer than three years in the case of Mr. Shaykin and Dr. Helson) or the
then-current Renewal Term, if applicable, and (ii) health and welfare benefits
as in effect immediately prior to termination for a maximum of 18 months
following termination. The foregoing benefits would be limited by the amount
deductible for income tax purposes under the Internal Revenue Code of 1986, as
amended.
The Executive Agreements also contain provisions: (i) prohibiting disclosure
of confidential information, (ii) granting to the Company rights to
intellectual property developed by the Senior Executives that relate to the
Company's business or developed in the course of employment with the Company
(or that otherwise relate in any way to health care or pharmaceuticals, in the
case of Drs. Ainsworth and Pilia) and (iii) prohibiting competition with the
Company during and for five years after the Senior Executive's employment.
Under the Executive Agreements, Mr. Shaykin and Drs. Ainsworth, Pilia and
Helson acquired 531,864, 578,592, 150,428 and 265,932 shares of Common Stock,
respectively (the "Executive Stock"). The purchase price for such shares was
$1.50 per share and is represented by promissory notes in favor of the Company
(collectively, the "Executive Notes"). The Executive Notes, which were amended
effective as of May 31, 1994, bear interest at the greater of: (i) the prime
rate minus 1% (9% as of June 1995) and (ii) the applicable federal rate (set
annually on June 7). Principal and interest on the Executive Notes are due and
payable upon the receipt of proceeds from a Senior Executive's transfer of any
shares of Executive Stock, in the full amount of such proceeds.
Notwithstanding the foregoing, the outstanding principal amount of, and
accrued and unpaid interest under, an Executive Note shall become immediately
due and payable upon the earliest to occur of: (i) the Sale of the Company (as
defined in the Executive Agreements), (ii) the termination of a Senior
Executive's employment by the Company for Cause (as defined in the Executive
Agreement), by the Senior Executive other than for Good Reason (as defined in
the Executive Agreement), or by reason of a Senior Executive's death,
disability or incapacity and (iii) the Senior Executive's failure to pay any
principal or interest within 15 days of the date due.
The shares of Common Stock acquired by each Senior Executive are pledged to
the Company pursuant to a pledge agreement (the "Executive Stock Pledge
Agreements") as security for payment of such Senior Executive's Executive
Note. In addition, the Executive Notes provide for recourse against the
respective Senior Executives to the extent of 25% of the then outstanding
principal amount. The Executive Agreements also contain provisions restricting
the transfer of Executive Stock and requiring the Senior Executives to sell
their Executive Stock under certain circumstances if the Board approves a Sale
of the Company (as defined in the Executive Agreements). As of May 9, 1995,
each Senior Executive was eligible to repay all or part of the outstanding
principal and/or interest on his or her Executive Note by remitting to the
Company shares of his or her Common Stock, to be valued for such purposes in
an amount equal to the average of the last reported sales price of the Common
Stock for the five trading days prior to remittance multiplied by the number
of shares remitted. During 1995, each of Drs. Ainsworth, Pilia and Helson
remitted shares of Common Stock to the Company in extinguishment of the debt
represented by their respective Executive Notes.
The aggregate outstanding principal of and unpaid interest accrued under the
Executive Note for Leonard Shaykin as of March 31, 1996 was $940,694.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Pursuant to the Certificate of Incorporation, no director shall be liable
personally to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that the Certificate of
Incorporation does not eliminate the liability of a director for: (i) any
breach of the director's duty of loyalty to the Company or its stockholders;
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) acts or omissions in respect
of certain unlawful dividend payments or stock redemptions or repurchases; or
(iv) any transaction from which such director derives improper personal
benefit. The effect of this provision is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
the fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior)
51
<PAGE>
except in the situations described in clauses (i) through (iv) above. The
limitations summarized above, however, do not affect the ability of the
Company or its stockholders to seek non-monetary remedies, such as an
injunction or rescission, against a director for breach of his fiduciary duty.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in
the opinion of the Securities and Exchange Commission (the "Commission"), such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended (the "Securities Act") and is therefore unenforceable.
In addition, the Certificate of Incorporation provides that the Company
shall indemnify all persons whom it may indemnify pursuant to Section 145 of
the DGCL. Section 145 of the DGCL permits a company to indemnify an officer or
director who was or is a party or is threatened to be made a party to any
proceeding because of his or her position, if the officer or director acted in
good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
The Bylaws provide that the Company shall indemnify and advance expenses to
each of the current and former directors, officers, employees and agents of
the Company or of another corporation, partnership, joint venture, trust or
other enterprise if serving at the request of the Company, against judgments
(including derivative actions), fines and amounts paid in settlement arising
in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative when
acting in the capacity as agent for the Company if such person acted in good
faith and in a manner such person reasonably believed to be lawful and in or
not opposed to the best interest of the Company.
The Company has entered into Director and Officer Indemnification Agreements
(the "Indemnification Agreements") with each director and executive officer of
the Company pursuant to which the Company will agree to indemnify each
director and executive officer and hold each director and executive officer
harmless to the full extent permitted or authorized by the DGCL, future
Delaware legislation or current or future judicial or administrative
decisions. The Indemnification Agreements stipulate that directors and
executive officers of the Company are entitled to indemnification unless
applicable law prohibits such indemnification. The termination of a proceeding
against a director or executive officer of the Company by a judgment, order,
settlement, or conviction, or upon a plea of nolo contendere will not
adversely affect the right of the director or executive officer to
indemnification or create a presumption that the director or executive officer
did not meet any applicable standard of conduct. To the extent a director or
executive officer of the Company is successful in defense of a proceeding, the
agreement would prevent the Company from raising a defense to a director's or
executive officer's request for indemnification.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of May 13, 1996
regarding ownership of the Company's voting Common Stock by (i) persons
believed by the Company to be the beneficial owners of more than 5% of its
outstanding Common Stock; (ii) by each director and named executive officer of
the Company; and (iii) by all current directors and executive officers of the
Company as a group. Unless otherwise noted, all addresses are care of: NaPro
BioTherapeutics, Inc., 6304 Spine Road, Unit A, Boulder, Colorado 80301.
<TABLE>
<CAPTION>
PERCENT OF CLASS
ASSUMING CONVERSION OF
NONVOTING COMMON
SHARES OF COMMON PERCENT BENEFICIALLY STOCK INTO COMMON
STOCK BENEFICIALLY OWNED PRIOR TO STOCK AND EXERCISE OF
NAME OWNED(1) OFFERING(1) THE WARRANTS(2)
---- ------------------ -------------------- ----------------------
<S> <C> <C> <C>
5% STOCKHOLDERS
IVAX Corporation
D&N Holding Company
c/o IVAX Corporation
8800 Northwest 36th
Street
Miami, Florida
33178(3)(4)............. 1,126,398 12.8% 9.7%
Knowlton Brothers Inc.
530 Fifth Avenue
New York, New York
10036(5)................ 557,100 6.3 4.8
DIRECTORS AND EXECUTIVE
OFFICERS
Leonard P.
Shaykin(3)(6)........... 1,182,742 12.7 10.1
Sterling K.
Ainsworth(3)(7)......... 1,108,019 12.4 9.4
Patricia A.
Pilia(3)(8)............. 290,079 3.3 2.5
Lawrence Helson(3).... 221,666 2.5 1.9
E. Garrett Bewkes,
Jr.(9).................. 80,167 * *
Gordon Link........... 19,167 * *
Richard C. Pfenniger,
Jr.
c/o IVAX Corporation
8800 Northwest 36th
Street
Miami, Florida
33178(10)............... 11,000 * *
Phillip Frost
c/o IVAX Corporation
8800 Northwest 36th
Street
Miami, Florida
33178(11)............... 10,000 * *
David L. Denny........ 300 *
All Directors and
Executive Officers
as a Group (13
persons)(12)....... 2,923,140 30.1 24.5
</TABLE>
--------
* Represents less than 1% of the total.
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
(2) These percentages assume 100% of holders of Redeemable Warrants choose
Cash Exercise and pay the Company the $5.00 exercise price per share of
Common Stock. See "Description of Capital Stock-- Redeemable Warrants."
(3) IVAX, through D&N, Mr. Shaykin and Drs. Ainsworth, Pilia and Helson (the
"Stockholders") and the Company are parties to an amended Stockholders
Agreement (as defined herein) pursuant to which, among
other things, each of the Stockholders is obligated to vote for the
election of Dr. Ainsworth (as long as he owns beneficially (before taking
into consideration any shares issuable upon exercise or conversion of
outstanding options and warrants or convertible securities, respectively)
10.0% or more of the outstanding
53
<PAGE>
Common Stock) and two individuals designated by IVAX (as long as it owns
beneficially 10.0% or more of the outstanding Common Stock and the IVAX
Agreement is not terminated) to the Board of Directors. These designees
currently are Dr. Frost and Mr. Pfenniger. By virtue of this provision of
the Stockholders Agreement, each of the Stockholders may be deemed to share
the power to vote or direct the vote of the shares deemed beneficially
owned by the parties to the Stockholders Agreement with each of the other
parties to the Stockholders Agreement. Each of the Stockholders disclaims
that it, he, or she and any one or more other parties to the Stockholders
Agreement constitute a group under Rule 13d-5(b)(1) of the Act, pursuant to
which such group may be deemed to beneficially own the shares directly
beneficially owned by each of the Stockholders.
(4) Such shares are held directly by D&N. Mr. Pfenniger is an officer and
director of D&N and Mr. Pfenniger and Dr. Frost are executive officers of
IVAX, and the Company has been advised that Dr. Frost beneficially owns
approximately 12.2% of IVAX's voting securities. Dr. Frost and Mr.
Pfenniger disclaim beneficial ownership of the shares of Common Stock held
by D&N.
(5) Information in the table as to beneficial ownership of Common Stock by
Knowlton Brothers, Inc. ("KBI") is based on a statement of ownership on
Schedule 13D filed by on behalf of KBI and a number of related entities,
namely: The Family Partnership, L.P., The Frontier Partnership, L.P.,
Flagship Partners, Ltd., Family Partners & Co., Frontier Partners & Co.,
Knowlton Brothers, Inc., Knowlton Associates, Inc., Winthrop Knowlton
("WK"), Stanley Knowlton ("SK"), Christopher Knowlton, Hugh Knowlton Trust
For The Benefit of Erica Knowlton and Margaret F. Knowlton as Custodian
for Craig Stanley Knowlton (KBI and each related entity collectively, the
"Reporting Persons"). The Reporting Persons own beneficially an aggregate
amount of 557,100 shares of Common Stock (including 125,000 shares that
may be acquired upon conversion of shares of Convertible Preferred Stock
of the Company and 600 shares that may be acquired upon exercise of
warrants to purchase Common Stock), constituting approximately 6.5 % of
the shares of the Common Stock outstanding. Based on such Schedule 13D,
none of such Reporting Persons individually owns more than 5.0% of the
outstanding Common Stock. As described in such Schedule 13D, KBI, WK and
SK may be deemed to beneficially own greater than 5.0% percent of the
outstanding Common Stock based on the relationships among the Reporting
Persons. According to such Schedule 13D, the Reporting Persons have
acquired such 557,100 shares of Common Stock solely for investment and the
Reporting Persons have no plans to seek control of the Company.
(6) Does not include 43,333 shares gifted by Mr. Shaykin to certain relatives
and other persons, as to which Mr. Shaykin disclaims beneficial ownership.
Includes warrants to purchase 509,778 shares of Common Stock. Such
warrants were purchased by Mr. Shaykin from various third parties
unaffiliated with the Company and from D&N.
(7) Includes 122,667 shares of Common Stock issuable upon exercise of non-plan
options granted to Dr. Ainsworth in connection with the formation of the
Company in 1991 and 42,550 shares of Common Stock gifted by Dr. Ainsworth
to relatives and certain other persons which Dr. Ainsworth may be deemed
to beneficially own by virtue of holding powers of attorney to vote and
take certain other actions with respect to such shares. Dr. Ainsworth, who
is engaged to be married to Dr. Pilia, disclaims beneficial ownership of
the shares of Common Stock beneficially owned by Dr. Pilia and the gifted
shares over which Dr. Ainsworth holds powers of attorney.
(8) Includes 36,800 shares of Common Stock issuable upon exercise of non-plan
options granted to Dr. Pilia in connection with formation of the Company
in 1991, and 10,800 shares of Common Stock gifted by Dr. Pilia to
relatives and certain other persons which Dr. Pilia may be deemed to
beneficially own by virtue of holding powers of attorney to vote and take
certain other actions with respect to such shares. Dr. Pilia disclaims
beneficial ownership of shares of Common Stock beneficially owned by Dr.
Ainsworth and the gifted shares over which Dr. Pilia holds powers of
attorney. See note (6) above.
(9) Includes an aggregate of 8,500 shares of Common Stock issuable upon
exercise of non-plan options granted to Mr. Bewkes as compensation for
serving on the Board of Directors and as Chairman of and as a member of
the Compensation and Audit Committees thereof, respectively. Does not
include options which are not
54
<PAGE>
exercisable within the following six months to purchase 5,000 shares of
stock granted under the 1994 Plan, pursuant to the formula regarding
compensation of non-employee directors.
(10) Represents shares of Common Stock issuable upon exercise of non-plan
options granted to Dr. Frost as compensation for serving on the Board of
Directors. Does not include options which are not exercisable within the
following six months to purchase 5,000 shares of stock granted under the
1994 Plan, pursuant to the formula regarding compensation of non-employee
directors.
(11) Represents shares of Common Stock issuable upon exercise of non-plan
options granted to Mr. Pfenniger as compensation for serving on the Board
of Directors and the compensation committee thereof. Does not include
options which are not exercisable within the following six months to
purchase 5,000 shares of stock granted under the 1994 Plan, pursuant to
the formula regarding compensation of non-employee directors.
(12) Includes an aggregate of 723,912 shares of Common Stock issuable upon
exercise of warrants, non-plan options and options granted under the 1993
Stock Option Plan and 1994 Plan.
55
<PAGE>
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
An aggregate of 1,453,615 shares of Common Stock consisting of (i) 293,615
shares of Common Stock, (ii) 400,000 shares of Common Stock into which 400,000
shares of the Company's Nonvoting Common Stock (the "Nonvoting Common") will
be convertible upon disposition may be offered and sold pursuant to this
Prospectus by the Selling Stockholders, (iii) 400,000 shares of Common Stock
into which 400,000 Faulding Warrants will be exercisable and may be offered
and sold pursuant to this Prospectus and (iv) 360,000 shares of Common Stock
into which 360,000 Underwriter Warrants will be exercisable and may be offered
and sold pursuant to this Prospectus. The Company has agreed to register the
public offering of the Selling Stockholders' Shares under the Securities Act
concurrently with this offering and to pay all expenses in connection
therewith. Other than Leonard P. Shaykin, the Chairman of the Board and a
principal stockholder of the Company, and IVAX (a principal stockholder of the
Company) and Faulding, the Company's two primary strategic business partners
and principal customers, and Whale Securities, the underwriter of the IPO,
none of the Selling Stockholders has ever held any position or office with the
Company or had any other material relationship with the Company. The Company
will not receive any of the proceeds from the sale of the Selling
Stockholders' Shares by the Selling Stockholders. The company will, however,
receive $5.00 per share upon exercise of the Faulding Warrants, $7.50 per
share upon exercise of the Underwriters Warrants and $5.00 per share upon
exercise of the Redeemable Warrant Holders who elect Cash Exercise. If any
holders of Redeemable Warrants choose Cash-less Exercise, the total
outstanding Common Stock will be reduced. See "Description of Capital Stock"
and "Use of Proceeds." The following table sets forth certain information with
respect to the Selling Stockholders:
<TABLE>
<CAPTION>
BENEFICIAL PERCENTAGE
OWNERSHIP BENEFICIAL
SHARES OF OWNERSHIP OF
AMOUNT OF COMMON STOCK COMMON STOCK
BENEFICIAL OWNERSHIP SELLING AFTER SALE OF AFTER SALE OF
OF SHARES OF COMMON STOCKHOLDERS' SELLING SELLING
STOCK SHARES STOCKHOLDERS' STOCKHOLDERS'
SELLING STOCKHOLDERS PRIOR TO SALE(1) OFFERED(1) SHARES(2) SHARES
-------------------- -------------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Merv Adelson............ 145,000 20,000 125,000 1.1%
American High Growth
Equities Retirement
Trust Dated June 22,
1989.................... 10,000 10,000 -0- -0-
Bestin Worldwide
Limited................. 40,615 40,615 -0- -0-
C.B. Equities Retirement
Trust................... 30,000 30,000 -0- -0-
Joel T. Comiteau/Sharon
Comiteau................ 20,000 20,000 -0- -0-
Melvyn J. Estrin/Suellen
Estrin.................. 20,000 20,000 -0- -0-
F.H. Faulding & Co.
Limited................. 850,000 850,000 -0- -0-
Mark B. Fisher.......... 6,000 6,000 -0- -0-
Arie Genger............. 20,000 20,000 -0- -0-
Sagi Genger............. 4,000 4,000 -0- -0-
Orly Genger............. 4,000 4,000 -0- -0-
Globus Family Capital... 4,000 4,000 -0- -0-
IVAX Corporation........ 1,126,398(3) 20,000 1,106,398 9.5
MLC Management Company.. 10,000 10,000 -0- -0-
Pratt Partnership, a
Colorado General
Partnership............ 10,000 10,000 -0- -0-
Arnold E. Prince........ 5,000 5,000 -0- -0-
Leonard P. Shaykin...... 1,182,742(3) 20,000 1,162,742 10.0
Whale Securities........ 360,000 360,000 -0- -0-
</TABLE>
--------
(1) Includes with respect to Faulding 800,000 shares of Common Stock into
which the 400,000 shares of Nonvoting Common acquired by Faulding in the
Faulding Private Placement and the 400,000 Faulding Warrant Shares will
convert upon Faulding's disposition thereof. Such shares of Common Stock
are included in the Registration Statement of which this Prospectus forms
a part.
(2) Assumes all of the Selling Stockholders' Shares are sold by the Selling
Stockholders.
56
<PAGE>
The Selling Stockholders' Shares may be offered and sold from time to time
as market conditions permit in the over-the-counter market, or otherwise,
at prices and terms then prevailing or at prices related to the then-
current market price, or in negotiated transactions. The Selling
Stockholders' Shares may be sold by one or more of the following methods,
without limitation: (a) a block trade in which a broker or dealer so
engaged will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits
purchases; and (d) face-to-face transactions between sellers and purchasers
without a broker/dealer. In effecting sales, brokers or dealers engaged by
the Selling Stockholders may arrange for other brokers or dealers to
participate. Such brokers or dealers may receive commissions or discounts
from Selling Stockholders in amounts to be negotiated. Such brokers and
dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act, in connection with
such sales.
(3) Includes shares of Common Stock and warrants to purchase Common Stock held
other than Selling Stockholders' Shares. Shares beneficially owned by IVAX
are directly beneficially owned by D&N Holding Company, a wholly owned
subsidiary of IVAX. See "Principal Stockholders."
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
IVAX
In June 1993, the Company entered into the IVAX Agreement which provides for
certain exclusive and non-exclusive rights for IVAX to develop and market NBT
Paclitaxel. The Company continues to supply IVAX with NBT Paclitaxel pursuant
to the terms of the IVAX Agreement. During 1995, sales of NBT Paclitaxel to
IVAX were $589,660 or 22% of the Company's revenues and during the first
quarter of 1996, sales of NBT Paclitaxel to IVAX were $204,770 or 30% of the
Company's revenues. IVAX, through D&N, currently beneficially owns 13.2% of
the Common Stock.
Pursuant to the IVAX Agreement, IVAX may, under limited circumstances,
obtain manufacturing information from the Company, or, under some
circumstances, terminate its relationship with the Company or purchase
paclitaxel from third parties if the Company is unable to supply paclitaxel in
sufficient quantities to meet its requirements.
Phillip Frost and Richard C. Pfenniger, Jr., directors of the Company,
serve, respectively, as Chairman and Chief Executive Officer of IVAX and Chief
Operating Officer of IVAX, and hold various other executive positions with
certain IVAX subsidiaries. In addition, the Company has been advised that Dr.
Frost beneficially owns approximately 12.2% of IVAX's voting securities.
IVAX, through D&N, Mr. Shaykin, Dr. Ainsworth, Dr. Pilia and the Company are
parties to the Stockholders Agreement pursuant to which, among other things,
each of such directors and IVAX is obligated to vote for the election of Dr.
Ainsworth (as long as he owns beneficially, before taking into consideration
any shares issuable upon exercise or conversion of outstanding options and
warrants or convertible securities, respectively, 10% or more of the
outstanding Common Stock) and two individuals designated by IVAX (as long as
it owns beneficially 10.0% or more of the outstanding Common Stock and the
IVAX Agreement is not terminated) to the Company's Board of Directors. These
designees currently are Dr. Frost and Mr. Pfenniger.
BRIDGE FINANCING
In April 1994, in connection with a bridge financing transaction, Mr.
Shaykin and IVAX, through D&N, each purchased two units (the "Units") from the
Company, each such unit consisting of: (i) 10,000 shares of Common Stock; and
(ii) an unsecured 9% nonnegotiable convertible Bridge Note in the principal
amount of $50,000. The purchase price per Unit was $50,000.
INDEBTEDNESS OF MANAGEMENT
As of June 7, 1993, the Senior Executives executed the Executive Notes in
favor of the Company to represent the amount owed for such Senior Executive's
acquisition of the Executive Stock pursuant to the Executive Agreements. The
Executive Notes, which were amended effective as of May 31, 1994, bear
interest at the greater of: (i) the prime rate minus 1% (8% as of June 7,
1995) and (ii) the applicable federal rate (set annually on June 7). Principal
and interest on the Executive Notes are due and payable upon the receipt of
proceeds from a Senior Executive's transfer of any shares of Executive Stock,
in the full amount of such proceeds. Notwithstanding the foregoing, the
outstanding principal amount of, and accrued and unpaid interest under, an
Executive Note shall become immediately due and payable upon the earliest to
occur of: (i) the Sale of the Company (as defined in the Executive
Agreements); (ii) the termination of a Senior Executive's employment by the
Company for Cause (as defined in the Executive Agreement), by the Senior
Executive other than for Good Reason (as defined in the Executive Agreement),
or by reason of a Senior Executive's death, disability or incapacity; and
(iii) the Senior Executive's failure to pay any principal or interest within
15 days of the date due.
All amounts due under each Executive Note are secured by a pledge, pursuant
to the Executive Stock Pledge Agreement, of all shares of Executive Stock
acquired by the respective Senior Executives under their Executive
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Agreements. In addition, the Executive Notes provide for recourse against the
respective Senior Executives to the extent of 25% of the then outstanding
principal amount.
As of May 9, 1995, each Senior Executive was eligible to repay all or part
of the then outstanding principal and/or interest on his or her Executive Note
by remitting to the Company shares of his or her Common Stock, to be valued
for such purposes in an amount equal to the average of the last reported sales
price of the Common Stock for the five trading days prior to remittance
multiplied by the number of shares remitted. During 1995, each of Drs.
Ainsworth, Pilia and Helson remitted shares of Common Stock to the Company in
extinguishment of the debt represented by their respective Executive Notes.
The aggregate outstanding principal of, and unpaid interest accrued under,
the Executive Note for Leonard Shaykin as of December 31, 1995 was $940,694.
OTHER
Vaughn D. Bryson is Vice Chairman of Vector, an investment banking firm that
may perform services for the Company in 1996. Mr. Bryson may also provide
consulting services to the Company in the area of pharmaceutical development
in 1996.
The Company and MediScience Associates, Inc. ("MediScience"), entered into a
consulting agreement (the "MediScience Agreement") whereby Dr. Arthur H.
Hayes, who is President and Chief Operating Officer of MediScience, will
provide the Company with consulting services in a variety of areas, including
clinical research planning, strategic positioning and regulatory guidance. The
Company makes quarterly payments to MediScience, under the MediScience
Agreement, of $12,500 for such services. Dr. Hayes is obligated to provide
consulting services under the MediScience Agreement indefinitely, provided
that the MediScience Agreement is terminable by the Company after July 11,
1996 with 90 days prior notice or by MediScience at any time with 90 days
prior notice.
In December 1992, the Board of Directors agreed to purchase certain
laboratory and other equipment used in the Company's business from Drs.
Ainsworth and Pilia, the owners of such equipment. To date, the purchase has
not yet occurred. The purchase price for such equipment will be determined by
an independent appraisal, and is not expected to exceed $60,000.
IVAX, through D&N, Mr. Shaykin, and Drs. Ainsworth, Pilia and Helson (the
"Stockholders") and the Company are parties to an amended Stockholders
Agreement (as defined herein) pursuant to which, among other things, each of
the Stockholders is obligated to vote for the election of Dr. Ainsworth (as
long as he owns beneficially (before taking into consideration any shares
issuable upon exercise or conversion of outstanding options and warrants or
convertible securities, respectively) 10.0% or more of the outstanding Common
Stock) and two individuals designated by IVAX (as long as it owns beneficially
10.0% or more of the outstanding Common Stock and the IVAX Agreement is not
terminated) to the Board of Directors. These designees currently are Dr. Frost
and Mr. Pfenniger.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 19,000,000 shares of
Common Stock, $.0075 par value per share, 1,000,000 shares of nonvoting common
stock, $0.0075 par value per share ("Nonvoting Common Stock") and 2,000,000
shares of preferred stock, $.001 par value per share (the "Preferred Stock").
As of March 31, 1996, there were 8,529,932 shares of Common Stock outstanding,
400,000 shares of Nonvoting Common Stock and 125,000 shares of Preferred
Stock. As of May 17, 1996, the Common Stock was held of record by
approximately 147 stockholders.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders, including the election of
directors. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election if they choose to do so. The Certificate of
Incorporation does not provide for cumulative voting for the election of
directors. Holders of Common Stock will be entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of legally available funds, and will be entitled to receive, pro
rata, all assets of the Company available for distribution to such holders
upon liquidation. Holders of Common Stock have no preemptive, subscription or
redemption rights. All outstanding shares of Common Stock are, and the Common
Stock offered hereby, upon issuance and sale, will be, fully paid and
nonassessable.
NONVOTING COMMON STOCK
The Company has issued to Faulding 400,000 shares of Nonvoting Common Stock,
as well as the 400,000 Faulding Warrants which are exercisable to purchase an
additional 400,000 shares of Nonvoting Common Stock. The Nonvoting Common
Stock generally is identical in all respects to the Common Stock. The holders
of Nonvoting Common Stock, however, have no right to vote on any matters to be
voted on by the Company's stockholders except that such holders have the right
in certain cases to vote as a separate class on any merger or consolidation of
the Company with or into another entity or entities, or any recapitalization
or reorganization, in which shares of Nonvoting Common Stock would receive or
be exchanged for consideration different on a per share basis from the
consideration received with respect to or in exchange for shares of Common
Stock or would otherwise be treated differently from shares of Common Stock.
Each share of Nonvoting Common Stock will be converted into one share of
Common Stock upon any disposition or other transfer thereof by Faulding.
PREFERRED STOCK
Pursuant to the Certificate of Incorporation, the Company is authorized to
issue "blank check" Preferred Stock, which may be issued from time to time in
one or more series upon authorization by the Board of Directors. The Board of
Directors, without further approval of the stockholders, is authorized to fix
the dividend rights and terms, conversion rights, voting rights, redemption
rights and terms, liquidation preferences, and any other rights, preferences,
privileges and restrictions applicable to each series of Preferred Stock. The
issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes could, among other things,
adversely affect the voting power of the holders of Common Stock and, under
certain circumstances, make it more difficult for a third party to rapidly
gain control of the Company, discourage bids for the Common Stock at an
insufficient premium or otherwise adversely affect the market price of the
Common Stock.
In July 1995, the Company closed a private placement of 638,750 shares of
Convertible Preferred Stock, Series A (the "U.S. Preferred") of the Company,
for proceeds of $5,114,111. In July and August 1995, the Company's Canadian
subsidiary NaPro Canada closed a private placement of 725,513 shares of
Convertible Preferred Stock, Series A (the "Canadian Preferred") for proceeds
of $5,959,060.
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The U.S. Preferred has a liquidation preference of $8.00 per share and is
immediately convertible into Common Stock on a share-for-share basis at the
option of the holder. The U.S. Preferred may be redeemed by the Company at its
liquidation value beginning one year after issuance if the average trading
price for the Common Stock over a 20 trading day period has equaled or
exceeded $16.00 and beginning three years after issuance if such trading price
has equaled or exceeded $10.00. Holders may elect to convert their U.S.
Preferred into Common Stock at any time prior to 15 business days before the
date fixed for redemption. The U.S. Preferred also may be redeemed at any time
after September 30, 2000 at the option of the holder. The Company may elect to
pay the redemption price by issuing Common Stock valued at 95.0% of its then
market price. The U.S. Preferred has one vote per share.
The Canadian Preferred has a liquidation preference of CDN$11.00 per share
and may be exchanged for Common Stock on a share-for-share basis at any time
after December 1, 1995. The Company has the option to acquire the Canadian
Preferred at its liquidation value beginning one year after issuance if the
average trading price for Common Stock over a 20 trading day period has
equaled or exceeded the equivalent of CDN$22.00 and beginning three years
after issuance if such trading price has equaled or exceeded the equivalent of
CDN$13.75. Holders may elect to exchange their Canadian Preferred for Common
Stock to acquire the shares under the foregoing option. Holders have the
option to require the Company to purchase the Canadian Preferred for its
liquidation preference at any time after September 30, 2000. The Company may
elect to pay the purchase price of the Canadian Preferred by issuing Common
Stock valued at 95.0% of its then market price. The Canadian Preferred is
entitled to one vote per share in NaPro Canada.
As of May 13, 1996, a total of 513,750 shares of the U.S. Preferred had
converted into 513,750 shares of Common Stock and 266,421 shares of the
Canadian Preferred had been exchanged for 266,421 shares of Common Stock.
The Company registered under the Securities Act the resale of shares of
Common Stock issued upon conversion of the U.S. Preferred or exchange of the
Canadian Preferred. Neither the U.S. Preferred nor the Canadian Preferred has
any dividend requirement.
REDEEMABLE WARRANTS
The Company currently has 2,070,000 redeemable warrants (the "Redeemable
Warrants") outstanding to purchase Common Stock. Each Redeemable Warrant
entitles the registered holder thereof (the "Redeemable Warrant Holder") to
purchase one share of Common Stock at a price of $5.00, subject to adjustment
in certain circumstances, and expires at 5:00 p.m., Eastern Time, on January
31, 1998 (the "Expiration Date"). The Redeemable Warrants are redeemable by
the Company, upon the consent of Whale Securities Co., L.P. ("Whale
Securities"), at any time, upon notice of not less than 30 days (the "Call
Period"), at a price of $.10 per Redeemable Warrant, provided that the closing
bid quotation of the Common Stock on all 20 trading days ending on the third
day prior to the day on which the Company gives notice has been at least 150%
(currently $7.50, subject to adjustment) of the then effective exercise price
of the Redeemable Warrants. As of the date of this Prospectus, the Common
Stock has traded at over $7.50 for the last 20 trading days. Whale Securities
has consented to the Company's redemption of the Redeemable Warrants on the
terms set forth in the next paragraph.
In the event the Company decides to redeem the Redeemable Warrants, during
the Call Period, each holder of Redeemable Warrants will be allowed to choose
one, or a combination of, the following two options: (i) to exercise the
Redeemable Warrants and purchase Common Stock for the exercise price of $5.00
per share (the "Cash Exercise") or (ii) to exercise the Redeemable Warrants in
a cash-less exchange by surrendering the Redeemable Warrants to the Company in
exchange for 0.70 shares of Common Stock (the "Cash-less Exercise"). No holder
of Redeemable Warrants is obligated to exercise Redeemable Warrants. If any
holder of Redeemable Warrants does not choose Cash Exercise or Cash-less
Exercise during the Call Period, however, such holder's Redeemable Warrants
will be redeemed by the Company at $0.10 per Redeemable Warrant. No fractional
shares will be issued as a result of the Cash-less Exercise. Cash-less
Exercise will be a taxable event for any holder who so elects. See "Certain
Federal Income Tax Consequences".
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Prior to the Expiration Date and during such period that is not a Call
Period, holders of Redeemable Warrants may exercise only by purchasing one
share of Common Stock at $5.00 per share for each Redeemable Warrant
exercised. To exercise, such holder of Redeemable Warrants must surrender the
Redeemable Warrant certificate(s) on or prior to the Expiration Date at the
offices of the Warrant Agent, accompanied by full payment of the exercise
price payable to the Company by certified check or bank draft, for the number
of Redeemable Warrants, being exercised.
During the Call Period, the holders of Redeemable Warrants may exercise
using either Cash Exercise or Cash-less Exercise, or a combination thereof. To
choose Cash Exercise or Cash-less Exercise, each holder of Redeemable Warrants
must include with its Redeemable Warrant certificate an election exercise form
(which will be sent to each holder along with a notice of redemption and this
Prospectus) with such holder's choice of Cash Exercise or Cash-less Exercise
as indicated thereon in the appropriate box. If such holder of Redeemable
Warrants chooses Cash Exercise, such holder's Redeemable Warrant
certificate(s) and completed election exercise form shall be sent to the
Warrant Agent, accompanied by full payment of the exercise price payable to
the Company by certified check or bank draft for the number of Redeemable
Warrants being exercised. If such holder of Redeemable Warrants chooses Cash-
less Exercise, no remittance is required and such holder shall send to the
Warrant Agent only the Redeemable Warrant certificate(s) and completed Cash-
less Exercise election exercise form. The holders of Redeemable Warrants do
not have the rights or privileges of holders of Common Stock.
No Redeemable Warrant will be exercisable pursuant to Cash Exercise or Cash-
less Exercise unless at the time of exercise the Company has filed a current
registration statement with the Securities and Exchange Commission covering
the shares of Common Stock issuable upon such exercise of such Redeemable
Warrant and such registration has been declared effective or such shares have
been registered or qualified or deemed to be exempt from registration or
qualification under the securities laws of the state of residence of the
holder of such Redeemable Warrant. The Company will use its best efforts to
maintain a current prospectus relating thereto until the expiration of the
Redeemable Warrants, subject to the terms of the Redeemable Warrant Agreement.
While it is the Company's intention to do so, there can be no assurance that
it will be able to do so.
No fractional shares will be issued upon exercise of the Redeemable Warrants
pursuant to Cash Exercise or Cash-less Exercise. If a Redeemable Warrant
Holder exercises, however, all Redeemable Warrants then owned of record by him
pursuant to Cash Exercise or Cash-less Exercise, the Company will pay to such
Redeemable Warrant Holder, in lieu of the issuance of any fractional share
which is otherwise issuable, an amount in cash based on the market value of
the Common Stock on the last trading day prior to the exercise date.
The Redeemable Warrants were issued in registered form under a warrant
agreement by and among the Company, American Stock Transfer & Trust Company,
as warrant agent (the "Warrant Agent"), and Whale Securities (the "Redeemable
Warrant Agreement"). The exercise price and number of shares of Common Stock
or other securities issuable on exercise of the Redeemable Warrants are
subject to adjustment in certain circumstances, including in the event of a
stock dividend, recapitalization, reorganization, merger or consolidation of
the Company. The Redeemable Warrants are not, however, subject to adjustment
for issuances of Common Stock at prices below the exercise price of the
Redeemable Warrants. Reference is made to the Redeemable Warrant Agreement
(which has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part) for a complete description of the terms and
conditions therein.
CERTAIN CERTIFICATE OF INCORPORATION, BYLAW AND STATUTORY PROVISIONS AFFECTING
STOCKHOLDERS
Stockholder Action by Written Consent. The Certificate of Incorporation
requires that any action required or permitted to be taken by the Company's
stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by consent in writing.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws provide that stockholders seeking to bring business
before or to nominate directors at any meeting of stockholders must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of
the Company not less than 50 days nor more than 75 days prior to such meeting
or, if less than 60 days' notice was given for the meeting, within 10 days
following the date on which such notice was given. The Bylaws also specify
certain requirements for a stockholder's notice to be in
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proper written form. These provisions may preclude some stockholders from
bringing matters before the stockholders or from making nominations for
directors.
Section 203 of Delaware Corporation Law. The Company is subject to the
"business combination" statute of the Delaware General Corporations Law
("DGCL"). In general, such statute prohibits a publicly held Delaware
corporation from engaging in various "business combination" transactions with
any "interested stockholder" for a period of three years after the date of the
transaction in which the person became an "interested stockholder," unless (i)
the transaction in which the interested stockholder obtained such status or
the business combination is approved by the Board of Directors prior to the
date the interested stockholder obtained such status, (ii) upon consummation
of the transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned by (a) persons who are directors and also officers and (b)
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (iii) on or subsequent to such date
the "business combination" is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the "interested stockholder." A "business combination" includes mergers, asset
sales and other transactions resulting in financial benefit to a stockholder.
An "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a
corporation's voting stock. The statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
Rights Plan. The Company is considering to institute a rights plan, (the
"Rights Plan"), which does not require stockholder approval. The Rights Plan
would have both a flip-in and flip-over provision. For the flip-in provision,
existing stockholders as of a record date would be issued the right to
purchase 1/1000 share of a new series of preferred stock at a purchase price
as yet to be determined. The structure of the new series of preferred stock
would be such that 1/1000 share of preferred stock would be equivalent in
voting and economic rights to one share of Common Stock. The rights initially
would not be exercised and would not be transferred separately from the Common
Stock. The rights would become exercisable only if a person or group acquires
beneficial ownership of at least 20% of Common Stock. In that event, all
holders of the rights other than the person or group who acquired the 20%
position would be allowed to purchase common stock with a market value of $200
in exchange for their $100 purchase price. This right would be triggered 10
days following the passing of the 20% threshold. The parties to the
Stockholders' Agreement would be exempt from the 20% limit so long as no
individual has voting control over more than 20%. For the flip-over provision,
if the Company was acquired after the 20% threshold is passed in such a manner
that the Company is not the surviving entity, the acquiring entity would be
required to allow the Company's stockholders to be issued stock in the
acquiring company for one half of the then current market price.
The Board of Directors would be able to redeem the rights for $.001 per
right at any time until the tenth day after a person or group of persons
passed the 20% threshold. Redemption after the threshold date is passed would
require the approval of the Board of Directors that are unrelated to the 20%
stockholder. The Board of Directors would be able to amend the terms of the
Rights Plan at any time, except that certain basic terms such as the exercise
price could not be amended.
Staggered Board of Directors. The Company is considering to institute a
staggered Board of Directors (the "Staggered Board") which would require the
approval of a majority of the stockholders of the Company. Pursuant to the
institution of the Staggered Board, the number of directors would be increased
to nine and three classes of three directors would be established, each class
serving for a three year period.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Common Stock and the warrant agent for the
Warrants is American Stock Transfer and Trust Company, 40 Wall Street, New
York, New York 10005.
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DIVIDENDS
The Company has not paid any cash dividends since its inception and does not
intend to pay any cash dividends on its Common Stock in the foreseeable
future. See "Risk Factors--Absence of Dividends" and "Dividend Policy."
REGISTRATION RIGHTS
The Company is a party to a Registration Agreement dated as of June 7, 1993
(the "Registration Agreement") pursuant to which IVAX and the Senior
Executives were granted certain rights with respect to registration under the
Securities Act of an aggregate of approximately 3,543,000 shares of Common
Stock then beneficially held by such holders plus any shares of Common Stock
such holders thereafter acquired (collectively, the "Registrable Securities").
Under the Registration Agreement, IVAX may demand one underwritten
registration by the Company of all or part of IVAX's Registrable Securities (a
total of 1,126,398 shares), subject to certain limitations. In addition,
whenever the Company proposes to register any of its securities under the
Securities Act (other than pursuant to a demand registration by IVAX), IVAX
and each Senior Executive may require the Company, subject to certain
limitations, to include all or any portion of their Registrable Securities in
such registration at the Company's expense.
Kirkland & Ellis, special counsel to the Company, holds warrants to purchase
20,000 shares of Common Stock. Pursuant to a Registration Agreement dated as
of May 31, 1994 between the Company and Kirkland & Ellis, Kirkland & Ellis may
require the Company, subject to certain limitations, to register all or any
portion of its Registrable Securities at the Company's expense when the
Company proposes to register any of its securities under the Securities Act.
In connection with the IPO, the Company granted to Whale Securities certain
demand and piggyback registration rights in connection with the 360,000 shares
of Common Stock issuable upon exercise of the Underwriter's Warrants and the
warrants included therein. The Company has agreed to pay in most circumstances
substantially all expenses in connection with the foregoing registration
rights.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of certain federal income tax
consequences to a holder of a Redeemable Warrant upon either a Cash Exercise
or a Cash-less Exercise of a Redeemable Warrant. The summary is based on
current law (which is subject to change), is for general information only and
is not tax advice. The summary does not discuss all aspects of federal income
taxation that may be relevant to a particular holder of a Redeemable Warrant
in light of his, her or its particular circumstances, or to certain types of
investors subject to special treatment under federal income tax laws (such as
insurance companies, tax-exempt organizations, financial institutions, broker-
dealers and foreign taxpayers). In addition, the discussion below does not
consider the effect of any foreign, state, local or other tax laws that may be
applicable to particular investors.
EACH HOLDER OF A REDEEMABLE WARRANT SHOULD CONSULT HIS, HER OR ITS OWN TAX
ADVISER AS TO THE PARTICULAR TAX CONSEQUENCES TO THAT HOLDER OF THE CASH
EXERCISE OR CASH-LESS EXERCISE OF A REDEEMABLE WARRANT, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS AND RECENT
CHANGES IN APPLICABLE TAX LAWS.
Cash Exercise
A holder of a Redeemable Warrant will not recognize any taxable income or
loss upon a Cash Exercise of a Redeemable Warrant. The holder will take a tax
basis in the shares of Common Stock received upon the Cash Exercise equal to
the sum of (i) the holder's tax basis in the Redeemable Warrant (generally the
amount the holder paid for the Redeemable Warrant) and (ii) the $5.00 exercise
price of the Redeemable Warrant. The holder's holding period for such Common
Stock will begin on the day after the exercise date.
Cash-less Exercise
A holder of a Redeemable Warrant who opts for a Cash-less Exercise will
likely recognize a taxable capital gain (or loss) equal to the positive (or
negative) difference between (x) the fair market value of the Common Stock
received in exchange for the warrant and (y) such holder's tax basis in the
warrant. This capital gain (or loss) will be short-term or long-term depending
on whether the holder has held the Redeemable Warrant for more than one year.
Redemption
A holder of a Redeemable Warrant who fails to elect either a Cash Exercise
or a Cash-less Exercise with respect to Redeemable Warrants will recognize
capital gain (or loss) upon the Company's redemption of such Redeemable
Warrants equal to the positive (or negative) difference between (i) the
redemption price of $.10 per warrant and (ii) the holder's tax basis in the
Redeemable Warrant. Such capital gain or loss will be short-term or long-term
depending upon whether the holder has held the warrant for more than one year.
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LEGAL MATTERS
The validity of the shares of Common Stock will be passed upon for the
Company by Kirkland & Ellis, 153 East 53rd Street, New York, New York, special
counsel for the Company. Kirkland & Ellis holds warrants to purchase 20,000
shares of Common Stock. In addition, two partners of Kirkland & Ellis hold in
the aggregate 3,868 shares of Common Stock.
EXPERTS
The consolidated financial statements of the Company at December 31, 1995
and 1994, and for each of the three years in the period ended December 31,
1995 included in this Prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere in this
Prospectus, and are included in reliance upon such report, given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Common Stock offered by this Prospectus.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and this offering, reference is made to the
Registration Statement, including the exhibits filed therewith, which may be
inspected without charge at the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of the Registration Statement may
be obtained from the Commission at its principal office upon payment of
prescribed fees. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete and, where the
contract or other document has been filed as an exhibit to the Registration
Statement, each such statement is qualified in all respects by reference to
the applicable document filed with the Commission.
The Company is subject to the reporting requirements of the Exchange Act and
in accordance therewith files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information can
be inspected and copied at the public reference facilities of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549; at its New York Regional
Office, 7 World Trade Center, New York, New York 10048; and at its Chicago
Regional Office, 500 West Madison Street, Chicago, Illinois 60661-2511, and
copies of such material can be obtained from the Commission's Public Reference
Section at prescribed rates. The Company intends to furnish its stockholders
with annual reports containing audited financial statements and such other
periodic reports as the Company deems appropriate or as may be required by
law.
66
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------
<S> <C>
Report of Independent Auditors.............................................. F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-5
Consolidated Statements of Stockholders' Equity............................. F-6
Consolidated Statements of Cash Flows....................................... F-8
Notes to Consolidated Financial Statements.................................. F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
NaPro BioTherapeutics, Inc.
We have audited the accompanying consolidated balance sheets of NaPro
BioTherapeutics, Inc. and subsidiary as of December 31, 1994 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. 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 NaPro
BioTherapeutics, Inc. and subsidiary at December 31, 1994 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
Denver, Colorado Ernst & Young LLP
January 26, 1996
F-2
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 THREE MONTHS ENDED
---------------------- MARCH 31
1994 1995 1996
---------- ----------- ------------------
<S> <C> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents........... $ 892,146 $ 7,133,390 $ 4,922,895
Securities available for sale....... 507,752 -- --
Securities held to maturity......... -- 667,000 667,000
Accounts receivable................. 148,347 325,814 459,700
Inventory:
Raw materials..................... 499,966 286,617 819,918
Work-in-process................... 380,545 432,898 289,066
Finished goods.................... 547,265 492,444 338,565
---------- ----------- -----------
1,427,776 1,211,959 1,447,549
Prepaid expenses and other.......... 859,539 310,451 329,239
---------- ----------- -----------
Total current assets.................. 3,835,560 9,648,614 7,826,383
Property and equipment, at cost:
Laboratory equipment (Note 4)....... 1,093,960 1,312,996 1,359,320
Leasehold improvements.............. 248,729 507,816 495,065
Office equipment and other.......... 113,485 275,902 343,074
Construction in progress............ 122,504 406,948 428,171
---------- ----------- -----------
1,578,678 2,503,662 2,625,630
Accumulated depreciation............ 524,578 721,498 824,596
---------- ----------- -----------
Property and equipment, net........... 1,054,100 1,782,164 1,801,034
Restricted cash....................... -- 123,750 177,399
Receivable from related parties....... 18,487 18,487 24,738
Other assets.......................... 67,805 380,335 376,383
---------- ----------- -----------
Total assets.......................... $4,975,952 $11,953,350 $10,205,937
========== =========== ===========
</TABLE>
F-3
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
-------------------------- --------------
1994 1995 1996
------------ ------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
<S> <C> <C> <C>
Current liabilities:
Accounts payable.................. $ 417,374 $ 662,726 $ 625,958
Accrued payroll and payroll taxes. 112,607 328,032 328,283
Capital lease obligations, current
(Note 4)......................... 16,985 105,454 94,753
Notes payable, current (Note 3)... 83,443 38,801 46,488
Deferred revenue.................. 36,000 51,431 --
------------ ------------ ------------
Total current liabilities........... 666,409 1,196,444 1,095,482
Capital lease obligations, long term
(Note 4)........................... 3,471 298,811 411,352
Notes payable, long term (Note 3)... -- 1,150,000 1,158,333
Deferred revenue (Notes 3 and 8).... 1,100,000 -- --
Compensation due to officers and
directors.......................... 169,358 169,358 169,358
Commitments and contingencies (Notes
1 and 9)
Minority interest................... -- 3,715,139 3,715,139
Stockholders' equity (Note 6):
Series A preferred stock, $.001
par value:
Authorized shares--2,000,000
Issued and outstanding
shares--none in 1994 and
125,000 in 1995 (and 1996
(Unaudited) (preference in
liquidation $1,000,000)........ -- 125 125
Nonvoting common stock,
convertible on disposition into
voting common stock, $.0075 par
value:
Authorized shares--1,000,000
Issued and outstanding
shares--400,000................ 3,000 3,000 3,000
Common stock, $.0075 par value:
Authorized shares--19,000,000
Issued shares--7,713,443 in
1994, 8,525,265 in 1995 and
8,529,932 in 1996
(unaudited).................... 57,851 63,939 63,973
Additional paid-in capital........ 20,123,991 26,675,099 26,681,313
Unearned compensation............. (29,685) (9,426) (7,356)
Notes receivable from
stockholders..................... (2,488,996) (924,789) (940,694)
Deficit........................... (14,629,447) (18,699,803) (20,459,541)
Treasury stock--none in 1994 and
144,788 in 1995 and 1996
(unaudited)...................... -- (1,684,547) (1,684,547)
------------ ------------ ------------
Total stockholders' equity.......... 3,036,714 5,423,598 3,656,273
------------ ------------ ------------
Total liabilities and stockholders'
equity............................. $ 4,975,952 $ 11,953,350 $ 10,205,937
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales of products..... $ 1,247,819 $ 1,002,037 $ 2,623,426 $1,148,181 $ 690,830
Other................. 567 5,176 -- -- --
----------- ----------- ----------- ---------- -----------
1,248,386 1,007,213 2,623,426 1,148,181 690,830
Expenses:
Research, development
and cost of
products sold...... 3,505,465 2,706,767 4,325,274 1,074,669 1,786,137
General and
administrative.......... 2,689,803 2,043,931 2,309,934 450,803 703,513
Faulding royalty (Note
6)...................... -- 1,000,000 -- -- --
Plantation fees (Note
8)...................... 6,976 1,238,256 272,052 268,720 --
----------- ----------- ----------- ---------- -----------
6,202,244 6,988,954 6,907,260 1,794,192 2,489,650
----------- ----------- ----------- ---------- -----------
Operating loss.......... (4,953,858) (5,981,741) (4,283,834) (646,011) (1,798,820)
Other income (expense):
Interest income....... 79,326 188,026 373,306 49,126 100,135
Interest and other
expense................. (33,839) (339,830) (159,828) (40,059) (61,053)
----------- ----------- ----------- ---------- -----------
Loss before
extraordinary item...... (4,908,371) (6,133,545) (4,070,356) (636,944) (1,759,738)
Loss on early
extinguishment of debt
(Note 6)............... -- (512,482) -- -- --
----------- ----------- ----------- ---------- -----------
Net Loss................ $(4,908,371) $(6,646,027) $(4,070,356) $ (636,944) $(1,759,738)
=========== =========== =========== ========== ===========
Loss per share:
Before extraordinary
item.................... $ (0.79) $ (0.91) $ (0.51) $ (0.08) $ (0.21)
Extraordinary item.... -- (0.08) -- -- --
----------- ----------- ----------- ---------- -----------
Net loss.............. $ (0.79) $ (0.99) $ (0.51) $ (0.08) $ (0.21)
=========== =========== =========== ========== ===========
Weighted average shares
outstanding............. 6,201,219 6,761,081 7,972,537 7,713,443 8,527,620
=========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
SERIES A NONVOTING ADDITIONAL UNEARNED RECEIVABLE
PREFERRED COMMON STOCK PAID-IN COMPENSA- FROM TREASURY
STOCK STOCK COMMON CAPITAL TION STOCKHOLDERS DEFICIT STOCK TOTAL
--------- --------- ------- ----------- ----------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1992............. $ $ $22,034 $ 2,913,881 $ (51,000) $ -- $ (3,075,049) $-- $ (190,134)
Issuance of
1,124,398
shares of
common stock at
$2.47 to $5.265
per share and
113,778
warrants for
cash........... -- -- 8,433 3,096,252 -- -- -- -- 3,104,685
Issuance of
1,526,814
shares of
common stock at
$2.47 per share
to officers in
exchange for
notes, unearned
compensation
and cash....... -- -- 11,451 3,755,964 (1,477,203) (2,355,837) -- -- (65,625)
Grant of
employee stock
options........ -- -- -- 114,042 (85,417) -- -- -- 28,625
Issuance of
warrant to
purchase 20,000
shares of
common stock in
exchange for
legal services. -- -- -- 53,950 -- -- -- -- 53,950
Issuance of
warrant to
purchase 13,333
shares of
common stock in
exchange for
employment
services....... -- -- -- 7,900 -- -- -- -- 7,900
Amortization of
unearned
compensation... -- -- -- -- 1,025,003 -- -- -- 1,025,003
Net loss........ -- -- -- -- -- -- (4,908,371) -- (4,908,371)
---- ------ ------- ----------- ----------- ----------- ------------ ---- -----------
Balance at
December 31,
1993............. -- -- 41,918 9,941,989 (588,617) (2,355,837) (7,983,420) -- (943,967)
Issuance of
265,000 shares
of common stock
at $2.40 per
share in
exchange for
cash, net of
offering costs
of $87,022..... -- -- 1,988 546,991 -- -- -- -- 548,979
Issuance of
16,667 common
stock warrants
at $.01 per
share in
exchange for
consulting
services....... -- -- -- 42,500 -- -- -- 42,500
Issuance of
33,333 common
stock warrants
at $1.125 per
share in
exchange for
employment
services....... -- -- -- 39,834 -- -- -- -- 39,834
Issuance of
1,800,000
shares of
common stock at
$5.00 per share
and 2,070,000
warrants at
$0.10 per
warrant for
cash, net of
offering costs
of $1,184,418.. -- -- 13,500 7,339,082 -- -- -- -- 7,352,582
Issuance of
400,000 shares
of nonvoting
common stock at
$5.00 per share
for cash and
warrants to
purchase
400,000 shares
of nonvoting
common stock at
$.10 per
warrant........ -- 3,000 -- 2,037,000 -- -- -- -- 2,040,000
Exercise of
30,667 common
stock warrants
for cash, at
prices ranging
from $.10 to
$2.40 per
share.......... -- -- 230 33,735 -- -- -- 33,965
Issuance of
28,615 shares
of common stock
at $5.00 per
share in
exchange for
notes payable.. -- -- 215 142,860 -- -- -- -- 143,075
Amortization of
unearned
compensation... -- -- -- -- 558,932 -- -- -- 558,932
Interest
receivable on
officers'
notes.......... -- -- -- -- -- (133,159) -- -- (133,159)
Net loss........ -- -- -- -- -- -- (6,646,027) -- (6,646,027)
---- ------ ------- ----------- ----------- ----------- ------------ ---- -----------
Balance at
December 31,
1994............. $-- $3,000 $57,851 $20,123,991 $ (29,685) $(2,488,996) $(14,629,447) $-- $ 3,036,714
==== ====== ======= =========== =========== =========== ============ ==== ===========
</TABLE>
F-6
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(CONTINUED)
<TABLE>
<CAPTION>
NOTES
SERIES A NONVOTING ADDITIONAL UNEARNED RECEIVABLE
PREFERRED COMMON COMMON PAID-IN COMPENSA- FROM TREASURY
STOCK STOCK STOCK CAPITAL TION STOCKHOLDERS DEFICIT STOCK TOTAL
--------- --------- ------- ----------- --------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of
December 31,
1994............ $ -- $3,000 $57,851 $20,123,991 $(29,685) $(2,488,996) $(14,629,447) $ -- $ 3,036,714
Issuance of
1,364,263
shares of
preferred stock
at $8.00 per
share, net of
offering costs
of $846,421
(725,513 shares
in minority
interest)...... 639 -- -- 4,267,051 -- -- -- -- 4,267,690
Conversion of
513,750 shares
of preferred
stock into
513,750 shares
of common stock
and exchange of
266,421 shares
of subsidiary's
preferred stock
for 266,421
shares of
common stock... (514) -- 5,851 2,238,584 -- -- -- -- 2,243,921
Exercise of
31,651 stock
options at
prices ranging
from $.75 per
share to $2.40
per share...... -- -- 237 45,473 -- -- -- -- 45,710
Repurchase of
144,288 shares
of common stock
at $11.675 per
share in
exchange for
cancellation of
indebtedness... -- -- -- -- -- 1,684,547 -- (1,684,547) --
Interest
receivable on
officers'
notes.......... -- -- -- -- -- (120,340) -- -- (120,340)
Amortization of
unearned
compensation... -- -- -- -- 20,259 -- -- -- 20,259
Net loss........ (4,070,356) (4,070,356)
----- ------ ------- ----------- -------- ----------- ------------ ----------- -----------
Balances at
December 31,
1995............. 125 3,000 63,939 26,675,099 (9,426) (924,789) (18,699,803) (1,684,547) $ 5,423,598
Exercise of
4,667 stock
options at
prices ranging
from $.75 per
share to $2.40
per share
(unaudited).... -- -- 34 6,214 -- -- -- -- 6,248
Interest
receivable on
officers' notes
(unaudited).... -- -- -- -- -- (15,905) -- -- (15,905)
Amortization of
unearned
compensation
(unaudited).... -- -- -- -- 2,070 -- -- -- 2,070
Net loss
(unaudited).... -- -- -- -- -- -- (1,759,738) -- (1,759,738)
----- ------ ------- ----------- -------- ----------- ------------ ----------- -----------
Balances at March
31, 1996
(unaudited)..... $ 125 $3,000 $63,973 $26,681,313 $ (7,356) $ (940,694) $(20,459,541) $(1,684,547) $ 3,656,273
===== ====== ======= =========== ======== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
OPERATING ACTIVITIES (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss................ $(4,908,371) $(6,646,027) $(4,070,356) $ (636,944) $(1,759,738)
Adjustments to reconcile
net loss to net cash
used by operating
activities:
Depreciation and
amortization............ 179,453 473,989 269,804 83,945 115,769
Employee termination
expense................. -- 82,334 -- -- --
Compensation for common
stock and options....... 1,025,003 555,497 20,259 5,296 2,070
Loss on disposal of
property and equipment.. 4,298 335,021 174,440 15,249
Loss on early
extinguishment of debt.. -- 512,482 -- -- --
Gain on foreign
currency transactions... -- -- (11,026) -- --
Changes in operating
assets and liabilities:
Accounts receivable... (234,323) 114,679 (177,467) (1,273,181) (133,886)
Inventory............. (552,642) (705,771) 215,817 291,790 (235,590)
Prepaid expenses and
other current assets.... (27,725) (887,314) 116,218 647,624 (24,419)
Accounts payable...... 852,492 (735,613) 245,352 56,280 (52,199)
Accrued liabilities... 55,980 (48,366) 225,425 19,845 (25,654)
Deferred revenue...... 336,600 (300,598) 15,431 (468,816) (36,000)
----------- ----------- ----------- ----------- -----------
Net cash used by
operating activities.... (3,269,235) (7,249,687) (2,976,103) (1,274,161) (2,134,398)
INVESTING ACTIVITIES
Additions to property
and equipment........... (527,446) (575,156) (1,209,326) (145,343) (138,221)
Purchase of securities.. -- (2,932,260) (6,562,600) -- --
Proceeds from sale or
maturity of securities.. -- 2,435,942 6,451,146 503,450
Transfer of restricted
cash.................... -- -- (123,750) (53,649)
Proceeds from sale of
property and equipment.. -- 2,200 250 -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used by) investing
activities.............. (527,446) (1,069,274) (1,444,280) 358,107 (191,870)
FINANCING ACTIVITIES
Increase in deferred
revenue-long term....... 349,998 350,000 -- -- --
Proceeds from notes
payable................. 400,000 1,571,569 171,198 556,567 46,488
Payments under notes
payable................. (126,808) (2,154,590) (165,840) (57,777) (38,801)
Proceeds from sales-type
lease................... -- -- 469,094 -- 160,947
Payments under capital
leases.................. -- -- (85,285) -- (59,109)
Proceeds from sale of
common and preferred
stock................... 3,104,685 10,697,987 5,155,710 -- 6,248
Proceeds from sale of
preferred stock by
subsidiary.............. -- -- 5,959,060 -- --
Offering costs.......... -- (1,271,440) (842,310) -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities.... 3,727,875 9,193,526 10,661,627 498,790 115,773
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............. $ (68,806) $ 874,565 $ 6,241,244 $ (417,264) $(2,210,495)
Cash and cash
equivalents at beginning
of year................. 86,387 17,581 892,146 892,146 7,133,390
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
year.................... $ 17,581 $ 892,146 $ 7,133,390 $ 474,882 $ 4,922,895
=========== =========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock
and granting of common
stock
options, unearned
compensation........... $ 1,653,095 $ -- $ -- $ -- $ --
Notes and related
interest receivable from
stockholders............ 2,355,837 133,158 120,356 35,278 15,905
Repayment of notes
receivable from
stockholders through
transfer of treasury
stock to the Company... -- -- 1,684,547 -- --
Conversion of deferred
revenue to long-term
debt.................... -- -- 1,100,000 -- --
Conversion of preferred
shares of subsidiary to
common
shares of Parent....... -- -- 2,243,921 -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
NaPro BioTherapeutics, Inc. (the "Company") was originally incorporated in
1991 as a Washington corporation. On September 8, 1993, the Company merged
into a wholly-owned subsidiary, a Delaware corporation, and increased its
authorized capital stock to 130,000,000 shares of $.001 par value common stock
and 10,000,000 shares of $.001 par value nonvoting preferred stock. On March
16, 1994, the Company effected a 1-for-7.5 reverse stock split by exchanging
each 7.5 shares of common stock for 1 share of $.0075 par value common stock,
and adjusted its authorized capital stock to 20,000,000 shares of $.0075 par
value common stock, and 2,000,000 shares of $.001 par value nonvoting
preferred stock. On July 24, 1994, the Company adjusted its authorized capital
stock to 19,000,000 shares of $.0075 par value common stock, 1,000,000 shares
of $.0075 par value nonvoting common stock, and 2,000,000 shares of $.001 par
value preferred stock. The accompanying financial statements and related notes
give retroactive effect to the merger, the adjustment to capital stock, and
the reverse stock split.
On November 4, 1994, the Company formed a wholly-owned subsidiary, NaPro
BioTherapeutics (Canada), Inc.
Basis of Presentation
The accompanying financial statements include the consolidated financial
position, consolidated results of operations and consolidated cash flows of
the Company and its Canadian subsidiary, NaPro BioTherapeutics (Canada), Inc.
("NaPro Canada"), of which the Company holds 87.3% of the voting rights. All
transactions have been accounted for at historical cost. All balances and
transactions between these entities have been eliminated in the accompanying
financial statements. Until December 31, 1994, the Company was in the
development stage.
The accompanying unaudited consolidated financial statements for the three
months period ended March 31, 1995 and 1996 have been prepared in accordance
with generally accepted accounting principals for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the period ended March
31, 1996 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1996.
Description of Business
The Company is focused on developing, producing and licensing natural
product pharmaceuticals. To date, the Company has engaged primarily in
developing and applying its proprietary extraction, isolation and purification
technology to manufacture paclitaxel (referred to in some scientific and
medical literature as "taxol"/2/), a naturally occurring cancer-fighting
compound found in certain species of yew (Taxus) trees.
The Company is dependent upon new financing to fund new research and
development as well as its other discretionary working capital requirements.
The Company anticipates, based on its existing available financial
--------
/2/TAXOL(R) is a registered trademark of Bristol-Myers Squibb Company
("Bristol-Myers Squibb") for an anti-cancer pharmaceutical preparation
containing paclitaxel.
F-9
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
resources, on the proceeds obtainable upon exercise of existing warrants and
on its currently proposed plans and assumptions relating to its operations
(including assumptions regarding the progress of its research and development,
the timing and costs associated with obtaining regulatory approvals for, and
the manufacturing and marketing of, its paclitaxel), that it has sufficient
resources to finance its planned operations during 1996. In the future the
Company may require substantial additional financing to construct and
establish a full-scale commercial manufacturing facility for paclitaxel and to
develop, commercialize and manufacture semisynthetic paclitaxel and other
products. Management believes that it will be able to obtain appropriate
financing; however, there can be no assurance that future additional financing
will be available to the Company when desired, on commercially reasonable
terms, or at all. The inability to obtain additional financing may have a
material adverse effect on the Company's development plans.
Cash Equivalents, Securities Available for Sale and Securities Held to
Maturity
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. The Company's cash
equivalents are comprised of money market funds. Securities available for sale
are investment-grade corporate or government securities and are carried at
amortized cost which approximates fair value. Securities held to maturity are
certificates of deposit maturing in July 1997 and are carried at amortized
cost.
Revenue Recognition
Revenues from product sales are recognized at the time of shipment. The
Company's production process is not distinct from its research and development
processes. Accordingly, the cost of products sold is included with the
Company's research and other development expenses. Licensing fees and other
revenues are recognized in accordance with the terms of the applicable
agreements. Payments received in advance under these agreements are recorded
as deferred revenue until earned.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
Research and Development
The Company expenses research and development costs as they are incurred.
These costs include salaries, laboratory supplies, travel, chemicals,
facilities, equipment and other expenditures.
Depreciation
Depreciation of property and equipment is computed on the straight-line
method over estimated useful lives generally between three and seven years.
Leasehold improvements and equipment recorded under capital leases are
amortized over the shorter of their estimated useful lives or the lease term.
Depreciation and amortization expenses are allocated to either general and
administrative or research and development expense, depending on the use of
the related property and equipment.
Net Loss Per Share
Except as noted below, net loss per share is computed using the weighted
average number of shares of common stock outstanding. Common equivalent shares
from stock options and warrants are excluded from the computation as their
effect is antidilutive, except that, pursuant to Securities and Exchange
Commission Staff Accounting Bulletin Number 83, Earnings per Share
Computations in an Initial Public Offering, 315,854 common and common
equivalent shares issued during the 12-month period prior to the Company's
August 1994 initial public offering at prices below the anticipated public
offering price were included in the calculation as if they were outstanding
for all periods presented, up to the close of the initial public offering.
F-10
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS No. 121"),
which requires impairment losses to be recorded on long-lived assets used in
operations when indications of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt SFAS No.
121 in the first quarter of 1996 and, based on current circumstances, does not
believe adoption will have a significant impact on the financial statements.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123, Accounting and Disclosure of Stock-
Based Compensation ("SFAS No. 123"). SFAS No. 123 is applicable to fiscal
years beginning after December 15, 1995 and gives the option to either follow
fair value accounting or to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB No. 25"), and related
interpretations. The Company has determined that it will elect to continue to
follow APB No. 25 and related interpretations in accounting for its employee
stock options.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the 1993 and 1994 financial
statements to conform with the 1995 financial statement presentation.
Foreign and Domestic Operations and Export Sales; Significant Customers
Domestic and foreign financial information is as follows:
<TABLE>
<CAPTION>
UNITED NORTH TOTAL
YEAR STATES AMERICA ELIMINATIONS COMPANY
---- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net sales to affiliated and
unaffiliated customers.... 1993 $1,247,819 $ -- $ -- $ 1,247,819
1994 1,002,037 148,347 (148,347) 1,002,037
1995 2,623,426 569,337 (569,337) 2,623,426
Operating loss............. 1993 4,953,858 -- -- 4,953,858
1994 5,913,420 68,321 -- 5,981,741
1995 3,851,234 432,600 -- 4,283,834
Identifiable assets
December 31,............... 1994 5,019,168 672,226 (715,442) 4,975,952
1995 9,225,725 6,820,044 (4,092,419) 11,953,350
</TABLE>
For the years ended December 31, 1993, 1994 and 1995, approximately 80%, 15%
and 75%, respectively, of the Company's sales were export sales to F.H.
Faulding & Co., Limited ("Faulding"). Further, substantially all of the
Company's accounts receivable at December 31, 1994 and 1995 were from this
corporation (see Note 8). The Company is dependent on sales to its two
development and marketing partners, Faulding and the Baker
F-11
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Norton subsidiary of IVAX Corporation ("IVAX") (see Note 8) and does not
require collateral to secure accounts receivable from these partners. Sales to
these partners as a percent of total sales were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Faulding..................................................... 80% 15% 75%
IVAX......................................................... 1% 71% 22%
</TABLE>
Risks and Uncertainties Related to Distribution
The Company's currently largest customer, Faulding, distributes a
paclitaxel-based drug in Australia. Faulding's main competitor in the
Australian market, Bristol-Myers Squibb, has brought legal action against
Faulding on the basis of infringement of certain Bristol-Myers Squibb patents,
which Faulding is claiming are invalid in a separate suit. Based upon its
review of the prior art and its discussions with Faulding, management of the
Company believes the Bristol Myers-Squibb action will be successfully
resisted. However, litigation is an uncertain process, and no assurances can
be given that Bristol-Myers Squibb will not obtain an injunction against
Faulding which could prevent Faulding from marketing paclitaxel in Australia
pursuant to Faulding's generic approval. If Faulding were to be prevented from
continuing to market paclitaxel in Australia pursuant to its current generic
approval, then Faulding would be unable to continue to market the Company's
paclitaxel until such time as Faulding obtains its own nongeneric approval
which does not rely on the administration methods claimed in the Bristol-Myers
Squibb patents. If Bristol-Myers Squibb is successful in enforcing its patent
claims against Faulding, such a result would have a material adverse effect on
the Company.
2. RELATED PARTY TRANSACTIONS
In conjunction with employment, the Company agreed to loan an officer of the
Company up to $20,000. In January 1994, $18,487 was advanced under this
agreement and remains outstanding at December 31, 1995.
From time to time, certain employees and officers of the Company may enter
into agreements with the Company to defer all or portions of their salaries as
a method to conserve cash in the Company. Such amounts totaled $169,358 at
December 31, 1994 and 1995. The Company has no obligation to repay such
amounts until the Company is profitable.
The Company recorded $707,190 and $589,660 in 1994 and 1995, respectively,
in sales to IVAX, a marketing and development partner which owned 14.3% and
13.2% of the Company's outstanding shares of common stock (see Notes 1 and 8)
at December 31, 1994 and 1995, respectively.
In August 1995, the Company repurchased 144,288 shares of its common stock
from certain executive officers of the Company in exchange for the
cancellation of certain indebtedness owed by such officers of $1,684,547 to
the Company. Included in the canceled indebtedness was $192,867 of accrued
interest (see Note 6).
3. NOTES PAYABLE
In 1992, 1993 and 1994, Faulding made advance payments to the Company
totaling $1,100,000. In March 1995, the Company and Faulding finalized an
agreement to convert the advance payments into a note payable with a face
value of $1,200,000, due in June 1997.
The $100,000 original issue discount is being amortized over the life of the
note and has a remaining balance of $50,000 at December 31, 1995. The portion
of the note on which interest accrues at the rate of 9% increases over time as
deliveries of product are made to Faulding. At December 31, 1995, interest is
being accrued on $700,000 of the principal balance. Interest accrual is
scheduled to commence in the first quarters of 1996 and 1997, with respect to
the remaining $300,000 and $200,000 of principal, respectively.
F-12
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------------ ----------
1994 1995 1996
------- ---------- ----------
<S> <C> <C> <C>
Note payable to Faulding, net of unamortized
original issue discount,
due in June 1997, interest at 9% accruing on
$700,000,
payable quarterly............................... $ -- $1,150,000 $1,158,333
Note payable to stockholder, due in December 1995 40,000 -- --
Note payable, due in March 1996, interest at
6.81%, accruing monthly.......................... -- 38,801 46,488
Note payable, due in March 1995.................. 43,443 -- --
------- ---------- ----------
83,443 1,188,801 1,204,821
Less amounts currently payable................... 83,443 38,801 46,488
------- ---------- ----------
Notes payable--long term......................... $ -- $1,150,000 $1,158,333
======= ========== ==========
</TABLE>
Interest paid approximated interest expense for the years ended December 31,
1993 and 1994. For the year ended December 31, 1995, interest paid was $69,780
and interest expense was $149,869.
Future minimum payments under notes payable are as follows:
<TABLE>
<S> <C>
1996................................................................ $ 38,801
1997................................................................ 1,200,000
----------
Total............................................................... 1,238,801
Less unamortized original issue discount............................ 50,000
----------
$1,188,801
==========
</TABLE>
4. CAPITAL LEASE OBLIGATIONS
The Company's property held under capital leases consisted of the following,
which is included in property and equipment:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1994 1995
------- --------
<S> <C> <C>
Office equipment.............................................. $11,496 $ 72,695
Laboratory equipment.......................................... 83,661 356,468
------- --------
95,157 429,163
Less accumulated depreciation................................. 21,230 96,133
------- --------
$73,927 $333,030
======= ========
</TABLE>
At December 31, 1995, minimum payments under capital lease obligations are:
<TABLE>
<S> <C>
1996................................................................... $170,240
1997................................................................... 162,534
1998................................................................... 155,057
--------
Net minimum lease payments............................................. 487,831
Less amount representing interest...................................... 83,566
--------
Present value of minimum lease payments................................ 404,265
Less current portion................................................... 105,454
--------
$298,811
========
</TABLE>
F-13
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has entered into an irrevocable standby letter of credit
agreement with a financial institution to support a capital lease agreement
for up to $500,000 at an interest rate of prime plus 2%. As of December 31,
1995, no funds have been drawn on the letter of credit.
The Company is required to maintain certificates of deposit for 33% of the
remaining principal outstanding under capital lease obligations ($123,750 at
December 31, 1995) as collateral as long as a letter of credit is outstanding.
Such pledged amounts are classified as restricted cash in the accompanying
consolidated balance sheets.
5. INCOME TAXES
The Company accounts for income taxes in conformity with Financial
Accounting Standards Board Statement No. 109, Accounting for Income Taxes
("SFAS No. 109"). Under the provisions of SFAS No. 109, a deferred tax
liability or asset (net of a valuation allowance) is provided in the financial
statements by applying the provisions of applicable tax laws to measure the
deferred tax consequences of temporary differences that will result in net
taxable or deductible amounts in future years as a result of events recognized
in the financial statements in the current or preceding years.
As of December 31, 1995, the Company has net operating loss carryforwards
for income tax purposes of approximately $15,180,000 and research and
development credits of $159,000 to offset future taxable income in the United
States, expiring as follows:
<TABLE>
<CAPTION>
RESEARCH AND
NET OPERATING DEVELOPMENT
LOSSES CREDITS
------------- ------------
<S> <C> <C>
2006................................................. $ 282,000 $ --
2007................................................. 1,826,000 52,000
2008................................................. 3,328,000 54,000
2009................................................. 4,600,000 38,000
2010................................................. 5,144,000 15,000
----------- --------
$15,180,000 $159,000
=========== ========
</TABLE>
In Canada, the Company has net operating loss carryforwards of approximately
US$225,000, expiring in 2002.
Under Section 382 of the Internal Revenue Code of 1986, as amended, the
utilization of net operating loss carryforwards is limited after an ownership
change, as defined in such Section 382, to an annual amount equal to the value
of the loss corporation's outstanding stock immediately before the date of the
ownership change multiplied by the federal long-term tax-exempt rate in effect
during the month the ownership change occurred. At least one such ownership
change has occurred. As a result, the Company will be subject to an annual
limitation on the use of its net operating losses. This limitation affects net
operating losses incurred up to the ownership change and does not reduce the
total amount of net operating loss which may be taken, but rather limits the
amount which may be used during a particular year. Therefore, in the event the
Company achieves profitability, such limitation would have the effect of
increasing the Company's tax liability and reducing the net income and
available cash resources of the Company if the taxable income during any year
exceeded the allowable loss carried forward to that year.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant
F-14
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
components of the Company's deferred tax liabilities and assets with respect
to United States taxing authorities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation.......................... $ 13,587 $ --
Other............................................... 43,466 41,724
----------- -----------
Total deferred tax liabilities........................ 57,053 41,724
Deferred tax assets:
Tax net operating loss carry forward................ 3,873,693 5,734,815
Deferred compensation............................... 63,510 63,510
Amortization........................................ 376,256 261,884
Deferred revenue.................................... 426,000 19,287
Research and development credits.................... 144,325 158,897
Excess of book over tax depreciation................ -- 72,174
Other............................................... 134,348 113,922
----------- -----------
Total deferred tax assets............................. 5,018,132 6,424,489
Valuation allowance................................... (4,961,079) (6,382,765)
----------- -----------
Net deferred tax assets............................... 57,053 41,724
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
Significant components of the Company's deferred tax assets with respect to
Canadian taxing authorities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1994 1995
---- --------
<S> <C> <C>
Deferred tax assets:
Excess of book over tax depreciation........................... $-- $ 26,062
Valuation allowance............................................ -- (26,062)
---- --------
$-- $ --
==== ========
</TABLE>
6. STOCKHOLDERS' EQUITY
Common Stock Private Placements
On April 29, 1993 and March 8, 1994 (see Note 8), the Company entered into
exclusive long-term contracts with a large reforestation company to develop a
renewable source of biomass. In connection with the March 8, 1994 contract,
the Company sold 18,000 shares of the Company's common stock and a warrant to
acquire an additional 2,667 shares of common stock for $104,685 in cash. The
warrant may be exercised immediately at a price of $9.375 per share and
expires June 30, 1996.
The Subscription Agreement and Executive Agreements
In June 1993, the Company entered into a Subscription Agreement (the
"Subscription Agreement") with IVAX pursuant to which the Company sold
1,106,398 shares of the Company's common stock and a warrant to acquire an
additional 111,111 shares of common stock for $3,000,000 in cash. The warrant
was exercisable immediately at a nominal price, and expires in June 2003 (see
Note 8).
F-15
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the Subscription Agreement, the Company entered into
Employment and Executive Stock Agreements (the "Executive Agreements"),
pursuant to which the Company sold 1,526,814 shares of the Company's common
stock at $1.50 per share to certain officers in exchange for cash and
promissory notes in the aggregate amount of $2,289,076. The notes are secured
by the common stock and accrue interest at the lesser of: (i) the greater of
the prime rate minus 1% and the applicable federal rate, or (ii) the highest
rate per annum permitted by law. The initial term of the Executive Agreements
is five years. If an officer's employment is terminated during the initial
term of the Executive Agreement, the shares held by that officer are subject
to repurchase by the Company at its election. The repurchase price is defined
by the Executive Agreements, but in no case will be less than the original
cost of the shares. The notes receivable and related accrued interest are
recorded as a separate reduction of stockholders' equity. In August 1995, the
Company repurchased 144,288 shares of common stock from certain of these
officers in cancellation of $1,684,547 of this indebtedness (see Note 2).
The Subscription Agreement and Executive Agreements are subject to a
Stockholders Agreement which includes provisions regarding certain matters
including the composition of the Board of Directors, restrictions on the sale,
transfer or other disposition of shares sold in connection with these
agreements, and the Company's first offer right for voluntary election to
purchase all of the shares held by these stockholders.
Bridge Financing and Extraordinary Loss Resulting from Extinguishment
In April 1994, the Company completed the sale (the "Bridge Financing") to
private investors of 26.5 units (the "Units"), each Unit consisting of: (i)
10,000 shares of common stock and (ii) an unsecured 9% nonnegotiable
convertible promissory note of the Company in the principal amount of $50,000,
due on the earlier of the consummation of the Company's initial public
offering or March 31, 1995, unless converted, at the option of the holder,
into shares of common stock upon the consummation of the Company's initial
public offering, at a rate equal to $5.00 per share of common stock (a "Bridge
Note"). The purchase price per Unit was $50,000. The Company received gross
proceeds of $1,325,000 with respect to the sale of such Units. After the
payment of $132,500 in placement fees to the underwriter who acted as
placement agent for the Company with respect to the sale of such Units, and
other offering expenses of approximately $75,000, the Company received net
proceeds of approximately $1,117,500 from the sale of the Units. The Bridge
Financing resulted in the Company's issuance of a total of $1,325,000
principal amount of Bridge Notes and 265,000 shares of common stock. Upon
closing of the Company's initial public offering, $1,185,000 in principal
amount of Bridge Notes was paid in cash and $140,000 was converted to 28,615
shares of common stock. The repayment of the Bridge Notes prior to their one-
year stated maturity resulted in a $512,482 extraordinary loss.
Initial Public Offering of Common Stock and Redeemable Warrants
In August 1994, the Company completed an initial public offering of its
common stock and redeemable warrants to purchase common stock (the "IPO"). The
offering consisted of 1,800,000 shares of common stock and redeemable warrants
to purchase 2,070,000 shares of common stock (including 270,000 redeemable
warrants to purchase common stock issued in connection with the underwriter's
overallotment). The common stock and warrants were purchased separately and
are separately transferable. Each warrant entitles the registered holder
thereof to purchase one share of common stock at a price of $5.00, subject to
adjustment in certain circumstances, for a period of three years, commencing
February 1, 1995. The warrants are redeemable by the Company, upon the consent
of the underwriter, at any time commencing February 1, 1995 upon notice of not
less than 30 days, at a price of $.10 per warrant, provided that the closing
bid quotation of the common stock on all 20 trading days ending on the third
day prior to the day on which the Company gives notice has been at least 150%
of the then effective exercise price of the warrants ($7.50 at December 31,
1994, subject to adjustment). The net proceeds of the offering to the Company
were $7,352,582 (after deduction of the underwriting discount and
F-16
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
expenses of the offering). In connection with the completion of the IPO, the
Bridge Notes and certain notes payable to IVAX Corporation and another
shareholder as well as certain officer salaries which had been deferred since
September 1993 in order to preserve cash were paid. In addition, the normal
vesting of stock sold in conjunction with the Executive Agreements was
accelerated as a result of completion of the IPO, resulting in a charge,
during 1994, of $307,749 to general and administrative expense.
Faulding Private Placement and Elimination of the Faulding Royalty
Contemporaneously with consummation of the IPO, the Company sold to Faulding
in a private transaction (the "Faulding Private Placement") 400,000 shares of
the Company's nonvoting common stock (the "Nonvoting Common") at a price of
$5.00 per share, the initial public offering price per share in the IPO, and
400,000 warrants (the "Faulding Warrants") to purchase an additional 400,000
shares of Nonvoting Common at a price of $.10 per warrant, the initial public
offering price per warrant. Shares of Nonvoting Common will automatically
convert to common stock (with full voting rights), on a share-for-share basis,
upon Faulding's disposition thereof. The Nonvoting Common and the Faulding
Warrants are identical in all respects to the common stock and warrants which
were sold in the IPO, except that, other than in limited circumstances,
Faulding, as the holder, has no voting rights with respect to the Nonvoting
Common, and the Faulding Warrants are exercisable for Nonvoting Common instead
of common stock until Faulding's disposition thereof. The proceeds from
issuance of the Nonvoting Common and Faulding Warrants were as follows:
$1,000,000 was applied directly to eliminate the Company's liability to
Faulding resulting from Faulding's royalty rights under the Faulding Agreement
(the "Faulding Royalty") and cash of $1,040,000 was received by the Company.
Under the Faulding Royalty, the Company would have been obligated to pay
Faulding 4% of the Company's sales price on the first 100,000 grams of
paclitaxel it sold to third parties for commercial use. The cost of
eliminating the Faulding Royalty was expended, and was separately reflected in
the statement of operations for the year ended December 31, 1994.
Preferred Stock Private Placement
In July 1995, the Company closed a private placement of 638,750 shares of
Convertible Preferred Stock, Series A (the "U.S. Preferred") of the Company,
for proceeds of $5,114,111.
In July and August 1995, the Company closed a private placement of 725,513
shares of Convertible Preferred Stock, Series A (the "Canadian Preferred") of
NaPro Canada, for proceeds of $5,959,060.
The U.S. Preferred has a liquidation preference of $8.00 per share and is
immediately convertible into common stock of the Company on a share-for-share
basis at the option of the holder. The U.S. Preferred may be redeemed by the
Company at its liquidation value beginning one year after issuance if the
average trading price for the Company's common stock over a 20 trading day
period has equaled or exceeded $16.00 and beginning three years after issuance
if such trading price has equaled or exceeded $10.00. Holders may elect to
convert their U.S. Preferred into common stock of the Company at any time
prior to 15 business days before the date fixed for redemption. The U.S.
Preferred also may be redeemed at any time after September 30, 2000 at the
option of the holder. The Company may elect to pay the redemption price by
issuing its common stock valued at 95% of its then market price. The U.S.
Preferred has one vote per share.
The Canadian Preferred has a liquidation preference of CDN$11.00 per share
and may be exchanged for common stock of the Company on a share-for-share
basis at any time after December 1, 1995. The Company has the option to
acquire the Canadian Preferred at its liquidation value beginning one year
after issuance if the average trading price for the Company's common stock
over a 20 trading day period has equaled or exceeded the equivalent of
CDN$22.00 and beginning three years after issuance if such trading price has
equaled or
F-17
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
exceeded the equivalent of CDN$13.75. Holders may elect to exchange their
Canadian Preferred for common stock of the Company at any time prior to 15
business days prior to the date fixed for the Company to acquire the shares
under the foregoing option. Holders have the option to require the Company to
purchase the Canadian Preferred for its liquidation preference at any time
after September 30, 2000. The Company may elect to pay the purchase price of
the Canadian Preferred by issuing its common stock valued at 95% of its then
market price. The Canadian Preferred is entitled to one vote per share in
NaPro Canada.
At December 31, 1995, a total of 513,750 shares of the U.S. Preferred had
been converted into 513,750 shares of Common Stock of the Company and 266,421
shares of the Canadian Preferred had been exchanged for 266,421 shares of
common stock of the Company.
The Company registered under the Securities Act of 1933 the resale of shares
of its common stock issued upon conversion of the U.S. Preferred or exchange
of the Canadian Preferred. Neither the U.S. Preferred nor the Canadian
Preferred has any dividend requirement.
7. COMMON STOCK WARRANTS AND OPTIONS
Common Stock Warrants
In December 1992 and June 1993, the Company granted to a consultant warrants
to purchase 20,000 shares of common stock at $1.875 per share. The warrants,
which were fully vested at December 31, 1993, expire in December 2002 (13,333
shares) and June 2003 (6,667 shares). Additionally, the Company granted a
warrant to a director to purchase 13,333 shares of the Company's common stock,
at an exercise price of $1.875 per share. This warrant is exercisable
immediately and expires in June 2003. In June 1993, the Company issued IVAX a
warrant to purchase 111,111 shares of common stock (see Notes 6 and 8).
In January 1994 and May 1994, the Company granted to a former consultant and
former employee warrants to purchase 33,333 and 16,667 shares, respectively,
of the Company's common stock, at exercise prices of $1.125 and $.01 per
share, respectively. The warrant to purchase 33,333 shares is exercisable
immediately and expires in April 1997. The warrant to purchase 16,667 shares
was exercised in conjunction with the Company's initial public offering. As a
result of these transactions the Company recognized $82,334 in expense. The
expense was based on an estimated fair market value of the underlying stock of
$2.40 per share, consistent with the value of the Bridge transaction described
in Note 6. In August 1994, in conjunction with the initial public offering,
1,980 warrants were purchased by the underwriters.
Nonplan Stock Options
In November 1990, Pacific Biotechnology, Inc. ("PB"), one of the Company's
predecessors, granted options to purchase 613,333 shares (reduced to 199,233.6
shares in September 1991) of its common stock to two officers. The exercise
price is $.1875 per share and the options are fully exercisable during the
period from January 1, 1992 to December 31, 1999. In December 1991, when the
Company acquired all of the outstanding common stock of PB, all options to
purchase PB common stock were exchanged for options to purchase 159,143.30
shares of the Company's common stock under the same terms as the PB options.
In January 1994, the Company granted to the four outside directors of the
Company 27,000 nonplan options to purchase shares of common stock which are
immediately exercisable at a price of $2.40 and which expire in January 2002.
The 1993 Stock Option Plan
During 1993, the Board of Directors adopted the NaPro BioTherapeutics, Inc.
1993 Stock Option Plan (the "Plan") to provide stock options to employees and
other individuals as determined by the Board of Directors. The Plan provides
for option grants designated as either nonqualified or incentive stock
options. The Plan provides for the issuance of up to 146,667 shares of the
Company's common stock. The initial term of the Plan
F-18
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
is ten years, and the maximum option exercise period shall be no more than ten
years from the date of grant. The exercise price for the options will be the
fair market value, as determined by any market on which the Company's common
stock is traded, or in the absence of any market, the price shall be as
determined by the Board of Directors, or if the Company has offered and sold
common stock within the preceding sixty days, the price at which such common
stock was sold. The term of an option for 667 or more shares shall be eight
years, and the term of an option for fewer than 667 shares shall be five
years. Options for 667 shares or more shall vest 25% after each anniversary
date of the grant, and options for fewer than 667 shares shall vest 50% after
each anniversary date of the grant. The exercise price for incentive stock
options shall be no less than fair market value. The exercise price for
nonqualified stock options may be less than, equal to, or greater than fair
market value.
1994 Long-Term Performance Incentive Plan
In May 1994, the Board of Directors adopted and in July 1994, the
shareholders approved, the 1994 Long-Term Performance Incentive Plan (the
"Incentive Plan"). An aggregate of 375,000 shares were authorized for issuance
under the Incentive Plan, to be increased to 875,000 shares authorized,
subject to stockholders' approval. The Incentive Plan provides for granting to
employees and other key individuals who perform services for the Company
("Participants") the following types of incentive awards: stock options, stock
appreciation rights ("SARs"), restricted stock, performance units, performance
grants and other types of awards that the Compensation Committee deems to be
consistent with the purposes of the Incentive Plan. In addition, each person
who is not an employee of the Company or one of its subsidiaries and who is
elected or re-elected as a director of the Company by the stockholders at any
annual meeting of stockholders commencing with the 1994 annual meeting, and,
if first elected or appointed other than at an annual meeting, upon such
election or appointment, will receive, as of the business day following the
date of each such election or appointment, a nonqualified option to purchase
5,000 shares of the Company's common stock.
The following summarizes stock option activity and balances:
<TABLE>
<CAPTION>
STOCK EXERCISE
OPTIONS PRICE
-------- -----------
<S> <C> <C>
Outstanding at December 31, 1992.......................... 159,467 $.19
Granted................................................... 79,733 .75
Canceled.................................................. (13,333) .75
-------
Outstanding at December 31, 1993.......................... 225,867 .19-.75
Granted................................................... 144,934 2.40-6.00
Canceled.................................................. (6,667) 2.40
-------
Outstanding at December 31, 1994.......................... 364,134 .19-6.00
Granted................................................... 241,792 6.25-11.75
Canceled.................................................. (6,667) 2.40
Exercised................................................. (31,652) .75-2.40
-------
Outstanding at December 31, 1995.......................... 567,607 .19-11.75
Granted (unaudited)....................................... 36,000 10.13-11.13
Canceled (unaudited)...................................... (3,500) 6.00-10.13
Exercised (unaudited)..................................... (4,667) .75-2.40
-------
Outstanding at March 31, 1996 (unaudited)................. 595,440 .19-11.75
=======
</TABLE>
F-19
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Exercisable shares at December 31, 1995 are 234,252. The above stock options
not already exercisable vest over the next nine years.
8. STRATEGIC ALLIANCES
The Company has entered into strategic alliances with two pharmaceutical
companies, Faulding and IVAX, that have the capabilities to obtain commercial
approval for the Company's paclitaxel and establish the Company's paclitaxel
as a major product in the market. These strategic partners will assume
responsibility for funding the cost of all aspects of the required clinical
and regulatory processes in their respective markets, procedures that would be
too costly for the Company to undertake.
The Faulding Agreement
In 1992, the Company entered into an initial 20-year exclusive agreement
with Faulding, which was amended in June 1993, January 1994 and March 1995
(the "Faulding Agreement"), to develop and market paclitaxel in ten countries,
including Australia, New Zealand, and much of Southeast Asia. The Faulding
Agreement also grants Faulding the nonexclusive right to sell paclitaxel
supplied by the Company in certain countries in the Middle East. Pursuant to
the Faulding Agreement, Faulding paid the Company a $200,000 licensing fee and
also provided the Company $1,100,000 of advances. These amounts were converted
into notes payable upon the delivery by the Company of the corresponding value
of paclitaxel (see Note 3).
The Faulding Agreement provides that the Company shall supply all of
Faulding's requirements for paclitaxel. The Company is paid a fixed sum for
paclitaxel supplied for noncommercial uses, and a fixed percentage of
Faulding's original sales price for paclitaxel supplied for commercial use. In
addition, pursuant to the original Faulding Agreement, the Company would have
been obligated to pay Faulding a royalty of up to 4% on the first 100,000
grams of paclitaxel sold to third parties for commercial use. However, in
1994, the Company exercised its right to eliminate this royalty under the
Faulding Agreement by paying Faulding $1 million (see Notes 3 and 6).
The IVAX Agreement
In June 1993, the Company entered into an initial 20-year exclusive
agreement with IVAX to develop and market paclitaxel in the United States,
Europe, Japan and the rest of the world not covered by the Faulding Agreement,
with the exception of the former Soviet Union countries, China, certain
countries in the Middle East, and the Vatican, territories to which IVAX has
nonexclusive rights. Simultaneously with entering into the IVAX Agreement,
IVAX made a $3 million equity investment in the Company for 19.8% of the
Company's then outstanding common stock (see Note 6) and committed to give the
Company an additional $1.4 million in loans over the next three years for
acquiring yew tree bark. The loan commitment terminated upon completion of the
IPO.
The IVAX Agreement provides that the Company shall supply all of IVAX's
requirements for paclitaxel. The Company is paid a fixed sum for paclitaxel
supplied for noncommercial uses, and a manufacturing payment plus a percentage
of IVAX's sales profit (as defined by the agreement) for paclitaxel sold for
commercial uses.
The PBI Agreement
In March 1994, the Company entered into a ten-year initial-term contract
with Pacific Biotechnologies, Inc. ("PBI"), a subsidiary of PRT, one of the
largest reforestation companies in Canada (the "PBI Agreement"). Under the PBI
Agreement, PBI is planting and maintaining a plantation of yew trees and
bushes designed to provide the Company with a long-term renewable supply of
Taxus biomass. Pursuant to such agreement, the Company is obligated to pay PBI
an annual fee equal to its costs in performing its obligations under the
agreement plus overhead and a specified profit.
F-20
<PAGE>
NAPRO BIOTHERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company applied $1,500,000 of the net proceeds of the IPO to prepay in
full, at a discount, all fees, interest thereon, and all other amounts accrued
and which would accrue and be owed by the Company to PBI under the PBI
Agreement through December 31, 1995. Amounts paid in excess of the amounts due
totaled $268,720 on December 31, 1994 and were recorded on the balance sheet
as prepaid expenses. No corresponding amounts are outstanding at December 31,
1995. In addition, the Company's obligation under the PBI Agreement to secure
a $100,000 letter of credit in favor of PBI was eliminated. Until such time as
plantation cultivation is developed and proven, expenditures under the PBI
Agreement are being expended as research and development and are separately
reported on the statement of operations.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has executed noncancelable operating lease agreements for
office, research and production facilities. As of December 31, 1995, future
minimum lease payments under noncancelable operating lease agreements are as
follows:
<TABLE>
<S> <C>
1996................................................................. $ 495,102
1997................................................................. 515,375
1998................................................................. 498,857
1999................................................................. 510,725
2000................................................................. 438,543
----------
Total................................................................ $2,458,602
==========
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 amounted
to $215,138, $146,400 and $262,332, respectively.
Uncertainty Over the Selling Price Under the Faulding Agreement
Under the Faulding Agreement (see Note 8), the Company is paid a fixed sum
for paclitaxel supplied for noncommercial uses, and a fixed percentage of
Faulding's sales price for paclitaxel supplied for commercial use. The Company
recognizes the corresponding revenue at the time of shipment of paclitaxel to
Faulding, based upon the intended use indicated by Faulding on its purchase
orders. However, Faulding may or may not use the paclitaxel in accordance with
the original intent indicated on its purchase orders. Additionally, Faulding's
actual selling price may differ from the amounts originally budgeted and
indicated to the Company. On or about April 30, 1996, Faulding has agreed to
communicate to the Company the final amount of sales, and an adjustment will
be calculated, which may either increase or decrease the Company's revenue
from sales of products to Faulding for 1995.
F-21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses in connection with the
issuance and distribution of the securities being registered, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $ 6,404
Transfer Agent's Fees and Expenses............................... 1,800
Accounting Fees and Expenses..................................... 15,000
Legal Fees and Expenses.......................................... 20,000
Miscellaneous Expenses........................................... 6,596
-------
Total.......................................................... $50,000
=======
</TABLE>
--------
All such expenses will be borne by the NaPro BioTherapeutics, Inc. (the
"Company").
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware (the "DGCL")
provides that a Delaware corporation may indemnify any person who is, or is
threatened to be made, a party to any threatened, pending or completed action,
suit or proceedings, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the corporation's best interest and, with respect to any criminal action or
proceedings, had no reasonable cause to believe that his conduct was illegal.
A Delaware corporation may indemnify any person who is, or is threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided
such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the corporation's best interests except that no
indemnification is permitted without judicial approval if the officer or is
adjudged to be liable to the corporation. Where an officer or director is
successful on the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses which such
officer or director has actually and reasonably incurred.
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") provides for the indemnification of directors
and officers of the Company to the fullest extent permitted by Section 145 of
the DGCL. In that regard, ARTICLE SIX, subparagraph (d) of the Certificate of
Incorporation provides that the personal liability of a director or officer of
the Company to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director or officer shall be limited to the fullest
extent permitted by the DGCL, as it now exists or may hereafter be amended and
that any repeal or modification of ARTICLE SIX, subparagraph (d) of the
Certificate of Incorporation by the stockholders of the Company shall not
adversely affect any right or protection of a director or officer of the
Company existing at the time of such repeal or modification.
In addition, of the Bylaws of the Company provide indemnification to the
fullest extent permitted by the DGCL as follows:
II-1
<PAGE>
ARTICLE VI
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
1. Indemnification: Third Party Actions. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent, of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgment, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection
with such action, suit or proceeding if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or he conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that is or her
conduct was unlawful.
2. Indemnification: Derivative Actions. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
or she is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit of he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
corporation and, except that no indemnification shall be made in respect of
any claim, issue or matter as to which such personal shall have been adjudged
to be liable to the corporation unless and only to the extent that the court
in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
3. Mandatory Indemnification. To the extent that a director or officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections
1 and 2 of this Article VI or in defense of any claim, issue or matter
therein, he or she shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection therewith.
4. Authorization for Indemnification. Any indemnification under Sections 1
and 2 of this Article VI (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in Section 1 and 2 of this Article VI. Such determination shall be made
(1) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
5. Advance Payment of Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation as authorized in this Article VI. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
II-2
<PAGE>
6. Non-Exclusivity. The indemnification and advancement of expenses provided
by, or granted pursuant to , the other subsections of this Article VI shall
not be deemed exclusive advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action
in unless otherwise provided when authorized or ratified, as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
7. Insurance. The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity,
or arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under the
provisions of this Article VI.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Within the past three years, the Company has issued securities without
registration under the Securities Act of 1933, as amended (the "Securities
Act"), as follows:
On April 29, 1993, the Company issued 18,000 shares of Common Stock to
Pacific Regeneration Technologies Inc. at a price of $5.625 per share.
Pursuant to a Stock Purchase Warrant dated June 3, 1993, the Company granted
to Herbert L. Lucas, a warrant to purchase 2,000 shares of Common Stock at a
price of $2.40 per share. This warrant has been exercised.
Pursuant to the Executive Agreements dated June 7, 1993 between the Company
and each of Leonard P. Shaykin, Dr. Sterling K. Ainsworth, Dr. Patricia A.
Pilia and Dr. Larry Helson, Mr. Shaykin and Drs. Ainsworth, Pilia and Helson
purchased 531,864, 578,592, 150,428 and 265,932 shares of Common Stock,
respectively, at a price of $1.50 per share.
Pursuant to Stock Purchase Warrant dated June 7, 1993, the Company granted
to Kirkland & Ellis, a warrant to purchase 6,667 shares of Common Stock at a
price of $1.875 per share.
Pursuant to a Stock Purchase Warrant dated June 7, 1993, the Company granted
to Arthur D. Harrison, a warrant to purchase 13,334 shares of Common Stock at
a price of $1.875 per share.
In June 1993, D&N Holding Company ("D&N"), a wholly-owned subsidiary of IVAX
Corporation, and the Company entered into a Subscription Agreement pursuant to
which the Company sold to D&N, for the aggregate purchase price of $3,000,000,
1,106,398 shares of Common Stock and a warrant (the "D&N Warrant") to purchase
111,111 shares of Common Stock at an exercise price of $0.75 per share. On
March 29, 1996, Mr. Shaykin purchased the D&N Warrant for a purchase price of
$944,443.50 and paid for the purchase by issuing a note to D&N.
Pursuant to a Settlement Agreement dated as of January 7, 1994 by and
between the Company and Broadmark, the Company issued warrants to Broadmark to
purchase 33,334 shares of Common Stock at an exercise price of $1.125 per
share. In exchange for such warrants, the Company and Broadmark agreed to
release and discharge each other from all claims arising out of matters
occurring before January 7, 1994.
In April 1994, the Company completed the sale to private investors of 26.5
Units (the "Units"), each Unit consisting of (i) 10,000 shares of Common Stock
and (ii) an unsecured 9% non-negotiable convertible promissory note of the
Company in aggregate principal amount of $50,000, convertible into shares of
Common Stock at a rate equal to the initial public offering price per share of
Common Stock. The purchase price per Unit
II-3
<PAGE>
was $50,000. The Company received gross proceeds of $1,325,000 with respect to
the sale of such Units. After the payment of $132,500 in placement fees to the
Underwriter, who acted as placement agent for the Company with respect to the
sale of such Units, and other offering expenses of approximately $75,000, the
Company received net proceeds of approximately $1,117,500 from the sale of the
Units. In August 1994, principal and interests totaling approximately $140,000
were converted into 28,615 shares of Common Stock.
Pursuant to a Settlement Agreement dated May 6, 1994 by and between the
Company and John H. Kreisher ("Kreisher"), the Company issued warrants to
Kreisher to purchase 16,667 shares of Common Stock at an exercise price of
$.01 per share. In exchange for such warrants, the Company and Kreisher
agreed, among other things, to release and discharge each other form all
claims arising out of matters occurring before May 6, 1994. This warrant has
been exercised.
In August 1994, the Company issued and sold to F.H. Faulding & Co., Ltd.
("Faulding"), 400,000 shares of the Company's Nonvoting Common Stock at a
price of $5.00 per share. In consideration for such purchase, $1,000,000 was
applied directly to eliminate Faulding's royalty rights under the Amended and
Restated Master Agreement dated January 19, 1994 between the Company and
Faulding and $1,000,000 was paid in cash to the Company.
In July 1995, the Company closed a private placement of 638,750 shares of
Convertible Preferred Stock, Series A (the "US Preferred") of the Company, for
proceeds of $5,114,111. In July and August 1995, the Company closed a private
placement of 725,513 shares of Convertible Preferred Stock, Series A (the
"Canadian Preferred") of the Company's Canadian subsidiary, NaPro
BioTherapeutics (Canada), Inc. ("NaPro Canada"), for proceeds of $5,959,060.
At December 31, 1995, a total of 513,750 shares of the U.S. Preferred had
converted into 513,750 shares of Common Stock of the Company and 266,421
shares of the Canadian Preferred had been exchanged for 266,421 shares of
common stock of the Company. Subsequent to the private placement, Company
registered under the Securities Act, the resale of shares of Common Stock
issued upon conversion of the U.S. Preferred or exchange of the Canadian
Preferred. Neither the U.S. Preferred nor the Canadian Preferred has any
dividend requirement.
At the times the above-mentioned securities were issued, the foregoing
persons represented to the Company that they were acquiring the securities for
purposes of investment and not with a view to distribution under the
Securities Act and appropriate legends were placed on the certificates
representing the securities so issued. Exemption from registration of such
securities is claimed under Section 4(2) of the Securities Act since no public
offering was involved and the securities had been taken for investment and not
with a view to distribution.
Within the past three years, pursuant to the 1993 Stock Option Plan, the
Company has outstanding options to purchase 100,347 shares of Common Stock
(the "1993 Options") to certain employees, agents and consultants of the
Company. The Company received no consideration for the Options. The Company
issued the 1993 Options without registration because no sale occurred in
connection with the issuance of the 1993 Options.
Within the past three years, pursuant to the 1994 Long Term Performance
Incentive Plan, the Company has outstanding options to purchase 315,828 shares
of Common Stock (the "1994 Options") to certain employees, agents and
consultants of the Company. The Company received no consideration for the 1994
Options. The Company issued the 1994 Options without registration because no
sale occurred in connection with the issuance of the 1994 Options.
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation of the Company.
Incorporated herein by reference from the Registration Statement
on Form S-1 of the Company, filed with the Securities and Exchange
Commission (the "Commission") on July 27, 1994 (File No. 33-
78016).
3.2 -- Certificate of Designation for Convertible Preferred Stock, Series
A. Incorporated herein by reference from the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995 (File No.
0-2430).
3.3 -- Bylaws of the Company. Incorporated herein by reference from the
registration statement on Form S-1 of the Company Filed with the
Commission on July 27, 1994 (File No. 33-78016).
4.1 -- Form of Common Stock Certificate. Incorporated herein by reference
from the registration statement on Form S-1 of the Company, filed
with the Commission on July 27, 1994 (File No.
33-78016).
4.2 -- Underwriter's Warrant Agreement. Incorporated herein by reference
from the registration statement on Form S-1 of the Company, filed
with the Commission on July 27, 1994 (File No.
33-78016).
4.3 -- Warrant Agreement. Incorporated herein by reference from the
registration statement on Form S-1 of the Company, filed with the
Commission on July 27, 1994 (File No. 33-78016).
4.4 -- Warrant Certificate. Incorporated herein by reference from the
registration statement on Form S-1 of the Company, filed with the
Commission on July 27, 1994 (File No. 33-78016).
4.5 -- The Certificate of Incorporation and Bylaws of the Company are
included as Exhibits 3.1 through 3.3
5.1 -- Opinion and consent of Kirkland & Ellis as to the legality of the
shares being registered.
10.1 -- Company's 1993 Stock Option Plan. Incorporated herein by reference
from the registration statement on Form S-1 of the Company, filed
with the Commission on July 27, 1994 (File No. 33-78016).
10.2 -- Company's 1994 Long-Term Performance Incentive Plan. Incorporated
herein by reference from the registration statement on Form S-1 of
the Company, filed with the Commission on July 27, 1994 (File No.
33-78016).
10.3 -- Common Stock Warrant dated as of June 7, 1993 between the Company
and Broadmark Capital Corporation. Incorporated herein by
reference from the registration statement on Form S-1 of the
Company, filed with the Commission on July 27, 1994 (File No. 33-
78016).
10.4 -- Subscription Agreement dated as of June 7, 1993 between the
Company and D&N Holding Company. Incorporated herein by reference
from the registration statement on Form S-1 of the Company, filed
with the Commission on July 27, 1994 (File No. 33-78016).
10.5 -- Stock Purchase Warrant dated as of June 7, 1993 between the
Company and Arthur D. Harrison. Incorporated herein by reference
from the registration statement on Form S-1 of the Company, filed
with the Commission on July 27, 1994 (File No. 33-78016).
10.6 -- Stock Purchase Warrant dated as of June 7, 1993 between the
Company and D&N Holding Company. Incorporated herein by reference
from the registration statement on Form S-1 of the Company, filed
with the Commission on July 27, 1994 (File No. 33-78016).
10.7 -- Stock Purchase Warrant dated as of June 7, 1993 between the
Company and Kirkland & Ellis. Incorporated herein by reference
from the registration statement on Form S-1 of the Company, filed
with the Commission on July 27, 1994 (File No. 33-78016).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.8 -- Stock Purchase Warrant dated as of December 15, 1992 between the
Company and Kirkland & Ellis. Incorporated herein by reference
from the registration statement on Form S-1 of the Company, filed
with the Commission on July 27, 1994 (File No. 33-78016).
10.9 -- Stock Purchase Warrant dated as of June 3, 1992 between the
Company and Herbert L. Lucas. Incorporated herein by reference
from the registration statement on Form S-1 of the Company, filed
with the Commission on July 27, 1994 (File No. 33-78016).
10.10 -- Stock Purchase Warrant dated as of June 3, 1992 between the
Company and H.J. Meyers & Co., Inc. Incorporated herein by
reference from the registration statement on Form S-1 of the
Company, filed with the Commission on July 27, 1994 (File No. 33-
78016).
10.11 -- Stock Purchase Warrant dated as of June 3, 1992 between the
Company and Freshman, Marantz, Orlanski, Cooper, and Klein 1993
Investments. Incorporated herein by reference from the
registration statement on Form S-1 of the Company, filed with the
Commission on July 27, 1994 (File No. 33-78016).
10.12 -- Stock Purchase Warrant dated as of April 30, 1993 between the
Company and Pacific Regeneration Technologies, Inc. Incorporated
herein by reference from the registration statement on Form S-1 of
the Company, filed with the Commission on July 27, 1994 (File No.
33-78016).
10.13 -- Registration Agreement dated as of June 7, 1993 by and among the
Company, D&N Holding Company, Sterling K. Ainsworth, Patricia A.
Pilia, Leonard P. Shaykin, and Lawrence Helson. Incorporated
herein by reference from the registration statement on Form S-1 of
the Company, filed with the Commission on July 27, 1994 (File No.
33-78016).
10.14 -- Amended and Restated Stockholders Agreement dated as of May 31,
1994 by and among the Company, D&N Holding Company, Sterling K.
Ainsworth, Patricia A. Pilia, Leonard P. Shaykin, and Lawrence
Helson. Incorporated herein by reference from the registration
statement on Form S-1 of the Company, filed with the Commission on
July 27, 1994 (File No. 33-78016).
10.15 -- Amended and Restated Employment and Executive Stock Agreement
dated as of June 7, 1993 and amended and restated as of May 31,
1994 between the Company and Leonard P. Shaykin. Incorporated
herein by reference from the registration statement on Form S-1 of
the Company, filed with the Commission on July 27, 1994 (File No.
33-78016).
10.16 -- Amended and Restated Employment and Executive Stock Agreement
dated as of June 7, 1993 and amended and restated as of May 31,
1994 between the Company and Sterling K. Ainsworth. Incorporated
herein by reference from the registration statement on Form S-1 of
the Company, filed with the Commission on July 27, 1994 (File No.
33-78016).
10.17 -- Amended and Restated Employment and Executive Stock Agreement
dated as of June 7, 1993 and amended and restated as of May 31,
1994 between the Company and Patricia A. Pilia. Incorporated
herein by reference from the registration statement on Form S-1 of
the Company, filed with the Commission on July 27, 1994 (File No.
33-78016).
10.18 -- Amended and Restated Employment and Executive Stock Agreement
dated as of June 7, 1993 and amended and restated as of May 31,
1994 between the Company and Larry Helson. Incorporated herein by
reference from the registration statement on Form S-1 of the
Company, filed with the Commission on July 27, 1994 (File No. 33-
78016).
10.19 -- Company's Stock Option Agreement with Sterling K. Ainsworth.
Incorporated herein by reference from the registration statement
on Form S-1 of the Company, filed with the Commission on July 27,
1994 (File No. 33-78016).
10.20 -- Company's Stock Option Agreement with Patricia A. Pilia.
Incorporated herein by reference from the registration statement
on Form S-1 of the Company, filed with the Commission on July 27,
1994 (File No. 33-78016).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.21 -- Services and Supply Agreement dated as of December 1, 1993 between
the Company and Pacific Biotechnologies Inc. Incorporated herein
by reference from the registration statement on Form S-1 of the
Company, filed with the Commission on July 27, 1994 (File No. 33-
78016).
10.22 -- Subscription Agreement dated as of April 29, 1993 between the
Company and Pacific Regeneration Technologies. Incorporated herein
by reference from the registration statement on Form S-1 of the
Company, filed with the Commission on July 27, 1994 (File No. 33-
78016).
10.23 -- Amended and Restated Master Agreement dated as of January 19, 1994
between the Company and F.H. Faulding & Co., Ltd. Incorporated
herein by reference from the registration statement on Form S-1 of
the Company, filed with the Commission on July 27, 1994 (File No.
33-78016).
10.24 -- Amendment No. 1 To Amended and Restated Master Agreement Dated
January 19, 1994, executed as of March 23, 1995. Incorporated
herein by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No. 0-24320).
10.25 -- Agreement dated as of June 7, 1993 between the Company and Baker
Norton Pharmaceuticals, Inc. Incorporated herein by reference from
the registration statement on Form S-1 of the Company, filed with
the Commission on July 27, 1994 (File No. 33-78016).
10.26 -- Lease dated February 28, 1995 between the Company and the Mutual
Life Assurance Company of Canada.
10.27 -- Subscription Agreement and Investment Letter between the Company
and NaPro Canada. Incorporated herein by reference from the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995 (File No. 0-2430).
10.28 -- Put/Call Agreement dated July 12, 1995 between the Company and the
Purchasers of Series A Preferred Shares of NaPro Canada.
Incorporated herein by reference from the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995 (File No.
0-2430).
10.29 -- Side Letter dated July 21, 1995 to Put/Call Agreement.
Incorporated herein by reference from the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995 (File No.
0-2430).
10.30 -- Engagement Letter dated February 16, 1995, between the Company and
Capital West Partners. Incorporated herein by reference from the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995 (File No. 0-2430).
10.31 -- Subscription Agreement between the Company and the purchasers of
Convertible Preferred Stock, Series A, of the Company.
Incorporated herein by reference from the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995 (File No.
0-2430).
10.32 -- Purchase Agreement between the Company and certain purchasers of
Preferred Shares of NaPro Canada. Incorporated herein by reference
from the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995 (File No. 0-2430).
10.33 -- Purchase Agreement between the Company and BPI Capital Management
Corporation as to Preferred Shares of NaPro Canada. Incorporated
herein by reference from the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995 (File No. 0-2430).
10.34 -- Lease between the Company and Gunbarrel Facility L.L.C. dated
October 16, 1995. Incorporated herein by reference from the
Company's Annual Report on Form 10-K for the year ended December
31, 1995.
10.35 -- First Amendment to Lease November 27, 1995, between the Company
and Gunbarrel Facility L.L.C. Incorporated herein by reference
from the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
10.36 -- Agreement between the Company and Pacific Biotechnologies Inc.
dated March 29, 1996. Incorporated herein by reference from the
Company's Annual Report on Form 10-K for the year ended December
31, 1995.
21.1 -- List of Subsidiaries
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 -- Powers of Attorney
</TABLE>
--------
* To be filed by Amendment.
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act,
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The undersigned Company hereby undertakes (i) that for purposes of
determining any liability under the Securities Act, the information omitted
from the form of Prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of Prospectus filed by the
Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be a part of this Registration Statement as of the time it
was declared effective and (ii) that for purposes of determining any liability
under the Securities Act, each post-effective amendment that contains a form
of Prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Post-Effective Amendment No. 2 to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boulder, State of Colorado, as of
May 20, 1996.
NaPro BioTherapeutics, Inc.
By: /s/ Gordon H. Link, Jr.
----------------------------------
Gordon H. Link, Jr.
Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 2 to the Registration Statement has been signed
by the following persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Sterling K. Ainsworth President and Chief Executive May 20, 1996
---------------------------- Officer; Director (Principal
STERLING K. AINSWORTH Executive Officer)
/s/ Leonard P. Shaykin Chairman of the Board of May 20, 1996
----------------------------- Directors
LEONARD P. SHAYKIN
/s/ Gordon H. Link, Jr. Vice President, Chief Financial May 20, 1996
----------------------------- Officer (Principal Financial
GORDON H. LINK, JR. Officer and Principal Accounting
Officer)
/s/ E. Garret Bewkes, Jr. Director May 20, 1996
-----------------------------
E. GARRETT BEWKES, JR.
/s/ Phillip Frost Director May 20, 1996
-----------------------------
PHILLIP FROST
/s/ Richard C. Pfenniger, Jr. Director May 20, 1996
-----------------------------
RICHARD C. PFENNIGER, JR.
/s/ Patricia A. Pilia Director May 20, 1996
-----------------------------
PATRICIA A. PILIA
/s/ Mark B. Hacken Director May 20, 1996
-----------------------------
MARK B. HACKEN
/s/ Vaughn D. Bryson Director May 20, 1996
-----------------------------
VAUGHN D. BRYSON
/s/ Arthur H. Hayes, Jr. Director May 20, 1996
-----------------------------
ARTHUR H. HAYES, JR.
</TABLE>
II-9
<PAGE>
Exhibit 5.1
KIRKLAND & ELLIS
Citicorp Center
153 East 53rd Street
New York, New York 10022
May 17, 1996
NaPro BioTherapeutics, Inc.
6304 Spine Road, Unit A
Boulder, Colorado 80301
Re: Shares of Common Stock, $.0075 par value
Ladies and Gentlemen:
We are acting as counsel to NaPro BioTherapeutics, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended (the "Securities Act"), of Post-Effective Amendment No. 2 on Form
S-1, Registration No. 33-78016 (the "Registration Statement") pertaining to
the registration of up to 3,523,615 shares of the Company's Common Stock,
$.0075 par value per share (the "Common Stock").
We have examined originals, or copies certified or otherwise identified to
our satisfaction, of such documents, corporate records and other instruments
as we have deemed necessary for the purposes of this opinion, including the
following: (i) Amended and Restated Certificate of Incorporation and the
Bylaws of the Company, each as amended to the date hereof; and (ii) certain
resolutions adopted by the Board of Directors of the Company. In addition, we
have made such other and further investigations as we have deemed necessary to
enable us to express the opinions hereinafter set forth.
Based upon the foregoing and having regard to legal considerations that we
deem relevant, and subject to the comments and qualifications set forth below,
it is our opinion that the Common Stock has been duly authorized.
For purposes of this opinion, we have with your permission made the
following assumptions, in each case without independent verification: (i) the
authenticity of all documents submitted to us as originals, (ii) the
conformity to the originals of all documents submitted to us as copies, (iii)
the authenticity of the originals of all documents submitted to us as copies,
(iv) the genuineness of the signatures of persons signing all documents in
connection with which this opinion is rendered, (v) the authority of such
persons signing all documents on behalf of the parties thereto and (vi) the
due authorization, execution and delivery of all documents by the parties
thereto.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent, we do not thereby concede that
we are within the category of persons whose consent is required under Section
7 of the Securities Act or the Rules and Regulations promulgated thereunder.
We do not find it necessary for purposes of this opinion to cover, and
accordingly we do not purport to cover herein, the application of the
securities or "Blue Sky" laws of the various states to the offering and sale
of the Common Stock.
<PAGE>
This opinion shall be limited to the laws of the State of Delaware.
This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.
Very truly yours,
KIRKLAND & ELLIS
<PAGE>
Exhibit 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
NAME INCORPORATION
---- -------------
<C> <S>
NaPro BioTherapeutics (Canada) Inc. British Columbia, Canada
NaPro BioTherapeutics (Ireland) Ltd. Ireland
NaPro West, Inc. Oregon
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated January 26, 1996
in the Post-Effective Amendment No. 2 on Form S-1 to the Registration
Statement (Form S-1 No. 33-78016, Commission File No. 0-24230) and related
prospectus of NaPro BioTherapeutics, Inc.
ERNST & YOUNG LLP
Denver, Colorado
May 17, 1996
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Sterling K. Ainsworth and Gordon H. Link, Jr.,
and each of them, his or her attorneys-in-fact, with full power of
substitution, for him or her in any and all capacities, to sign a registration
statement to be filed with the Securities and Exchange Commission (the
"Commission") on Form S-1 in connection with the issuance and by NaPro
BioTherapeutics, Inc., a Delaware corporation (the "Company"), of shares of
the Company's Common Stock, par value $.0075 per share ("Common Stock"), and
all amendments (including post-effective amendments) thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Commission; and to sign all documents in connection with the
qualification and sale of the Common Stock with Blue Sky authorities; granting
unto said attorneys-in-fact full power and authority to perform any other act
on behalf of the undersigned required to be done in the premises, hereby
ratifying and confirming all that said attorneys-in-fact may lawfully do or
cause to be done by virtue hereof.
Date: May 17, 1996 /s/ Sterling K. Ainsworth
----------------------------------------------
Sterling K. Ainsworth
Date: May 17, 1996 /s/ Leonard P. Shaykin
----------------------------------------------
Leonard P. Shaykin
Date: May 17, 1996 /s/ Gordon H. Link, Jr.
----------------------------------------------
Gordon H. Link, Jr.
Date: May 17, 1996 /s/ E. Garrett Bewkes, Jr.
----------------------------------------------
E. Garrett Bewkes, Jr.
Date: May 17, 1996 /s/ Phillip Frost
----------------------------------------------
Phillip Frost
Date: May 17, 1996 /s/ Richard C. Pfenniger, Jr.
----------------------------------------------
Richard C. Pfenniger, Jr.
Date: May 17, 1996 /s/ Patrica A. Pilia
----------------------------------------------
Patricia A. Pilia
Date: May 17, 1996 /s/ Vaughn D. Bryson
----------------------------------------------
Vaughn D. Bryson
Date: May 17, 1996 /s/ Arthur H. Hayes, Jr.
----------------------------------------------
Arthur H. Hayes, Jr.
Date: May 17, 1996 /s/ Mark B. Hacken
----------------------------------------------
Mark B. Hacken
