<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report under Section 13 of the
Securities Exchange Act of 1934
QUARTER ENDED SEPTEMBER 30, 1997
Commission File Number 0-24320
NAPRO BIOTHERAPEUTICS, INC.
Incorporated in Delaware IRS ID No. 84-1187753
6304 Spine Road, Unit A
Boulder, CO 80301
(303) 530-3891
NaPro BioTherapeutics, Inc. ("NaPro" or "the Company") (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
The number of shares outstanding of each of the issuer's classes of common stock
as of November 5, 1997:
Common Stock, $.0075 par value 12,388,063
Non-voting Common Stock, $.0075 par value 395,000
Total number of pages in document--13
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NaPro BioTherapeutics, Inc.
Table of Contents
Page
Part I Financial Information
Consolidated Financial Statements
Balance Sheet 3
Statement of Operations 5
Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Quantitative and Qualitative Disclosures about Market Risk 11
Part II Other Information
Legal Proceedings 11
Changes in Securities 11
Defaults Upon Senior Securities 11
Submission of Matters to a Vote of Security Holders 12
Other Information 12
Exhibits and Reports on Form 8-K 12
Signatures 13
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Part I. Financial Information
Item 1. Consolidated Financial Statements
NaPro BioTherapeutics, Inc.
Balance Sheet
Assets
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,547,000 $ 9,531,000
Securities available for sale -- 2,669,000
Securities held to maturity -- 2,567,000
Restricted cash 2,500,000 --
Accounts receivable 455,000 662,000
Notes receivable 578,000 --
Inventory 5,025,000 2,281,000
Prepaid expense and other 512,000 500,000
----------- -----------
Total current assets 13,617,000 18,210,000
Property and equipment, net 14,099,000 6,012,000
Restricted cash 327,000 415,000
Receivable from related party 18,000 18,000
Other assets 1,029,000 366,000
----------- -----------
Total assets $29,090,000 $25,021,000
=========== ===========
</TABLE>
See accompanying notes
3
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NaPro BioTherapeutics, Inc.
Balance Sheet
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 4,636,000 $ 1,763,000
Payroll and payroll taxes 724,000 519,000
Long term debt--current portion 762,000 1,669,000
Deferred revenue 559,000 35,000
------------ ------------
Total current liabilities 6,681,000 3,986,000
Senior convertible debt 9,758,000 --
Other long term debt 634,000 751,000
------------ ------------
Total liabilities 17,073,000 4,737,000
Minority interest 3,715,000 3,715,000
Stockholders' equity
Preferred stock, $.001 par value:
Authorized shares--2,000,000
Series A:
Issued and outstanding shares--125,000
in 1997 (unaudited) and 1996
(preference in liquidation $1,000,000) -- --
Non-voting common stock, convertible on disposition
into voting common stock, $.0075 par value:
Authorized shares--1,000,000 shares
Issued and outstanding shares--395,000 in 1997
(unaudited) and 595,000 in 1996 3,000 4,000
Common stock, $.0075 par value:
19,000,000 authorized
12,469,902 shares issued in 1997 (unaudited),
and 11,986,089 in 1996 93,000 89,000
Additional paid-in capital 47,394,000 44,670,000
Notes receivable from stockholders -- (985,000)
Deficit (36,514,000) (25,525,000)
Treasury stock--218,838 shares in 1997 (unaudited) and
144,288 in 1996 (2,674,000) (1,684,000)
------------ ------------
Total stockholders' equity 8,302,000 16,569,000
------------ ------------
Total liabilities and stockholders' equity $ 29,090,000 $ 25,021,000
============ ============
</TABLE>
See accompanying notes
4
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NaPro BioTherapeutics, Inc.
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Sales:
To affiliate $ -- $ 280,000 $ -- $ 646,000
Other sales 879,000 1,202,000 1,978,000 2,297,000
----------- ----------- ------------ ------------
879,000 1,482,000 1,978,000 2,943,000
----------- ----------- ------------ ------------
Expense:
Research, development and cost
of products sold 2,602,000 1,875,000 7,629,000 5,065,000
General and administrative 1,382,000 863,000 4,654,000 2,510,000
(Gain) Loss on sale of assets -- -- (218,000) 15,000
----------- ----------- ------------ ------------
3,984,000 2,738,000 12,065,000 7,590,000
----------- ----------- ------------ ------------
Operating loss (3,105,000) (1,256,000) (10,087,000) (4,647,000)
Other income/(expense):
Interest and other income 119,000 204,000 407,000 410,000
Interest and other expense (935,000) ( 83,000) (1,309,000) (227,000)
----------- ----------- ------------ ------------
Net loss $(3,921,000) $(1,135,000) $(10,989,000) $( 4,464,000)
----------- ----------- ------------ ------------
Loss per common share $ (0.33) $ (0.10) $ (0.92) $ (0.48)
=========== =========== ============ ============
Weighted average shares outstanding 12,055,344 11,125,465 11,994,855 9,347,144
----------- ----------- ------------ ------------
</TABLE>
See accompanying notes.
5
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NaPro BioTherapeutics, Inc.
Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
-------------- -------------
<S> <C> <C>
Operating activities
Net loss $(10,989,000) $(4,464,000)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 1,404,000 446,000
(Gain)/loss on retirement of assets (218,000) 15,000
Changes in operating assets and liabilities:
Accounts receivable 207,000 (406,000)
Inventory (2,744,000) (702,000)
Prepaid expense and other assets (10,000) (317,000)
Accounts payable 3,097,000 345,000
Accrued liabilities 240,000 (23,000)
Deferred revenue 525,000 (36,000)
------------ -----------
Net cash used by operating activities (8,488,000) (5,142,000)
Investing activities
Transfer of restricted cash (2,411,000) 124,000
Additions to property and equipment (9,431,000) (3,167,000)
Proceeds from sale of property and equipment 361,000 --
Purchase of securities held to maturity (3,827,000) (3,701,000)
Proceeds from securities available for sale 2,650,000 (2,397,000)
Proceeds from securities held to maturity 6,476,000 167,000
------------ -----------
Net cash used by investing activities (6,182,000) (8,974,000)
Financing activities
Proceeds from notes payable and senior convertible debt 11,045,000 1,075,000
Debt issue cost (745,000) --
Payments under notes payable (1,786,000) (362,000)
Proceeds from sale of common stock, and exercise of
common stock warrants 1,172,000 17,146,000
------------ -----------
Net cash provided by financing activities 9,686,000 17,859,000
------------ -----------
Net increase/(decrease) in cash and cash equivalents (4,984,000) 3,743,000
Cash and cash equivalents at beginning of period 9,531,000 7,133,000
------------ -----------
Cash and cash equivalents at end of period $ 4,547,000 $10,876,000
============ ===========
</TABLE>
See accompanying notes.
6
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NaPro BioTherapeutics, Inc.
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
1. Basis of Presentation
The accompanying financial statements are unaudited. However, in the opinion of
management, the accompanying financial statements reflect all adjustments,
consisting of only normal recurring adjustments, necessary for fair
presentation. Interim results of operations are not indicative of results for
the full year. These financial statements should be read in conjunction with the
NaPro Annual Report on Form 10-K for the year ended December 31, 1996. Certain
reclassifications have been made to the 1996 financial statements to conform
with the 1997 financial statement presentation.
2. Inventory September 30, December 31,
1997 1996
------------- ------------
Raw materials $ 981,000 $ 495,000
Work-in-process 1,767,000 449,000
Finished goods 2,277,000 1,337,000
---------- ----------
$5,025,000 $2,281,000
========== ==========
3. Deferred Revenue
NaPro and Baker Norton Pharmaceuticals, a subsidiary of IVAX Corporation (IVAX),
have agreed that IVAX will pay to NaPro by March 1998 at least $3,000,000 of
advances against future product sales. As of September 30, 1997, NaPro has
received $525,000 under this agreement. Such proceeds are classified as
deferred revenue.
<TABLE>
<CAPTION>
4. Cash Flow Supplemental Disclosures
Nine Months Ended
September 30,
1997 1996
--------- ---------
<S> <C> <C>
Interest paid $469,000 $144,000
Noncash transactions:
Repayment of note receivable from shareholder through
transfer of NaPro common stock into treasury 990,000 --
Note taken as partial proceeds on sale of asset 578,000
Notes and related interest receivable from stockholders -- 16,000
Issuance of common stock for compensation
previously accrued 40,000 --
Issuance of common stock in exchange for interest
payable 224,025 --
</TABLE>
7
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5. Common Stock
In September 1997, NaPro issued 26,752 shares of common stock as payment of
interest due on senior convertible debt. Also in September, warrants were
exercised for the issuance of 216,992 shares of common stock at prices ranging
from $5.00 to $7.65 per share. In October, a warrant was exercised for the
issuance of 12,000 shares of common stock at a price of $7.50 per share. In
November, 125,000 shares of preferred stock were converted into 125,000 shares
of common stock.
NaPro has an agreement with a consulting firm whereby the firm provides advice
to NaPro regarding the pharmaceutical industry. Through September 30, 1997,
NaPro incurred $117,000 in charges from such firm. The agreement also provides
that the consulting firm earns options expiring in July 2007 to purchase up to
125,000 shares of NaPro common stock at an exercise price of $7.25. Through
September 30, 1997, such firm earned options to purchase 49,598 shares. A NaPro
director is a principal of the consulting firm.
6. Loss per Share
In February 1997, The Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, NaPro will be required to change the method currently used to
compute loss per share and to restate all prior periods presented. Under the new
requirements for calculating basic loss per share, stock options will continue
to be excluded. The impact of Statement No. 128 on these periods is not
expected to be material.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis provide information which NaPro's
management believes is relevant to an assessment and understanding of NaPro's
results of operations and financial condition. This discussion should be read
in conjunction with the consolidated financial statements and notes thereto
appearing elsewhere herein as well as with the consolidated financial
statements, notes thereto and the related management's discussion and analysis
of financial condition and results of operations included in NaPro's Annual
Report on Form 10-K for the year ended December 31, 1996.
General
NaPro is a natural product pharmaceutical company which is focusing primarily on
the development, manufacture and commercialization of paclitaxel, a naturally-
occurring anti-cancer agent found in certain species of yew (Taxus) trees. The
Company's paclitaxel is referred to herein as "NBT Paclitaxel."
NaPro has devoted its efforts primarily to the development and implementation of
its proprietary extraction, isolation and purification (EIP/TM/) technology for
producing NBT paclitaxel. NaPro is currently dependent exclusively on sales of
NBT paclitaxel for revenue. To advance the development and commercialization of
NBT Paclitaxel, NaPro has entered into 20-year, exclusive agreements with each
of F.H. Faulding & Co., Ltd. (Faulding) and IVAX (the "Strategic Partners") for
the clinical development, sales, marketing and distribution of NBT Paclitaxel.
8
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Through September 30, 1997, NaPro's production of NBT paclitaxel was limited
primarily to research and pilot-scale production, and much of NaPro's product
sales were for use in clinical trials and for research and development
purposes. Accordingly, NaPro has generated only limited revenue from such
activities and has incurred significant operating losses, including operating
losses of approximately $6 million, $4.3 million and $7.1 million for the years
ended December 31, 1994, 1995 and 1996, respectively, and $10.1 million for the
nine months ended September 30, 1997, resulting in an accumulated deficit of
$36.5 million as of September 30, 1997. NaPro expects that it will continue to
have a high level of operating expense and will be required to make significant
up-front expenditures in connection with its biomass procurement, product
development and research-and-development activities. NaPro expects that
operating losses will continue until such time, if ever, as NaPro is able to
generate sufficient revenue to support its operations.
NaPro believes that its ability to generate such revenue depends primarily on
the ability of IVAX to obtain regulatory approval in the U.S. or another major
market for the commercial sale of NBT paclitaxel, on NaPro's ability to obtain
regulatory approval for its manufacturing facilities and on NaPro's ability to
construct manufacturing facilities that produce quantities of NBT paclitaxel
sufficient to supply the Strategic Partners' requirements for commercial sales.
In February 1997, Bristol-Myers Squibb Company (BMS) submitted a Supplemental
New Drug Application with orphan drug designation for paclitaxel for the
treatment of Kaposi's sarcoma (KS), ahead of the filing by IVAX of a New Drug
Application for the same indication. The BMS application was approved by the
Food and Drug Administration (FDA) in August 1997. Under the Orphan Drug Act of
1983, this approval could result in IVAX/NaPro being denied marketing approval
for the KS indication for seven years. In September 1997, the IVAX submission
was unanimously recommended for approval by the Oncologic Drugs Advisory
Committee (ODAC) of the FDA. NaPro is awaiting action by the FDA concerning
orphan drug approval for use of paclitaxel in the treatment of KS. Moreover,
NaPro's future growth and profitability will depend on the success of the
Strategic Partners in fostering acceptance in the oncology market for NBT
paclitaxel as a preferred form of chemotherapy to be used alone or in
combination with other chemotherapeutic agents.
Results of Operations
Quarter ended September 30, 1997 compared to the quarter ended September 30,
- ----------------------------------------------------------------------------
1996
- ----
There were no sales to affiliate for the 1997 quarter. Such sales for the 1996
quarter were $280,000. Sales to affiliate were to IVAX, which was not an
affiliate in the 1997 quarter. Other sales for the 1997 quarter were $900,000
representing a decrease of $300,000 from the 1996 quarter that resulted
primarily from the timing of product shipments. Shipments to the Strategic
Partners may vary significantly on a quarter to quarter basis depending on a
number of factors, including the timing and size of any clinical trials
conducted by either company, the level of inventory carried by the Strategic
Partners and changes in approved markets. This quarter to quarter variability
will continue until stable commercial demand has been established for the
product in a major market.
Research and development expense and cost of products sold for the 1997 quarter
was $2.6 million, representing an increase of $700,000 from the 1996 quarter.
The increase resulted primarily from expansion of NaPro's development and
research operations in anticipation of the commencement of commercial production
if IVAX' New Drug Application filed with the FDA is approved.
9
<PAGE>
General and administrative expense for the 1997 quarter was $1.4 million, an
increase of $500,000 from the 1996 quarter. The increase is attributable
primarily to increases of $200,000 in administrative and support staff and
$300,000 in legal expense related to intellectual property matters.
Interest income for the 1997 quarter was $100,000, a decrease of $100,000 from
the 1996 quarter. This decrease is primarily due to the decreased cash balances
available for investment.
Interest and other expense for the 1997 quarter was $900,000, representing an
increase of $800,000 from the 1996 quarter. The increase is attributable to
interest on the senior convertible debt and on increased borrowings on equipment
financing. (See Liquidity and Capital Resources).
Nine months ended September 30, 1997 compared to the nine months ended
- -----------------------------------------------------------------------
September 30, 1996
- ------------------
There were no sales to affiliate for the 1997 period. Such sales for the prior
period were $600,000. Sales to affiliate were to IVAX, which was not an
affiliate in the 1997 period. Sales to IVAX in the 1997 period were $800,000
and are included in other sales. Other sales for the 1997 period were $2
million, representing a decrease of $300,000 from the 1996 period. Total sales
for the 1997 period were $2 million, down $900,000 from the 1996 period. The
decrease was due primarily to the timing of product shipments and to customers'
inventory fluctuations. Shipments to the Strategic Partners may vary
significantly depending on a number of factors, including the timing and size of
any clinical trials conducted by either company, the level of inventory carried
by the Strategic Partners and changes in approved markets. This variability will
continue until stable commercial demand has been established for the product in
one of NaPro's major markets.
Research and development expense and cost of products sold for the 1997 period
was $7.6 million, representing an increase of $2.6 million from the 1996 period.
The increase resulted primarily from expansion of NaPro's development and
research operations in anticipation of possible approval of the New Drug
Application filed with the FDA.
General and administrative expense for the 1997 period was $4.6 million, an
increase of $2.1 million from the 1996 period. The increase is attributable
primarily to increases of $600,000 in administrative and support staff, $1.2
million of legal expense related to intellectual property matters and $300,000
in consulting expense.
Interest income for the 1997 period was $400,000, substantially unchanged from
the 1996 period.
Interest and other expense for the 1997 period was $1.3 million, representing an
increase of $1.1 million from the 1996 period. The increase is attributable to
interest on the senior convertible debt and increased borrowing on equipment
financing. (See Liquidity and Capital Resources).
Liquidity and Capital Resources
NaPro's capital requirements have been and will continue to be significant. At
September 30, 1997, NaPro had working capital of $6.9 million. This compared to
a working capital balance of $14.2 million as of December 31, 1996. To date,
the funding of NaPro's capital requirements has been dependent primarily on the
net proceeds of the issuance of equity securities of $49.3 million, on net
borrowings of $11.8 million, on equipment financing, and on loans and advances
from its stockholders and the Strategic Partners.
10
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Cash and investments totaled $7 million at September 30, 1997, including $2.5
million of restricted cash. The restriction on the restricted cash was released
on October 2, 1997. During the first nine months of 1997, cash provided by
financing activities totaled $9.7 million, while cash used by operating and
investing activities totaled $8.5 million and $6.2 million, respectively.
NaPro expended $9.4 million for capital projects during the first nine months of
1997. For the fourth quarter of 1997, NaPro expects to spend up to a total of
$2 million for property, plant, and equipment, including $1.8 million on the
large scale commercial EIP/TM/ manufacturing facility in Boulder and up to
$200,000 on its plantations. These amounts have been reduced from amounts
planned earlier in the year because of delays caused by the filing by BMS of a
Supplemental New Drug Application for KS, its subsequent approval by the FDA,
and the effects of such approval on the need for and availability of additional
capital resources.
NaPro anticipates significant capital expenditures and increases in inventory
and accounts receivable in the next twelve months in anticipation of possible
approval of the New Drug Application filed with the FDA and similar filings, if
any, for approval in Europe. Therefore, to the extent cash from operations is
inadequate to fund such activity, NaPro will need to obtain additional capital
during the next twelve months in the form of debt, equity, corporate partnering
or some combination thereof. If NaPro is not successful in attracting capital,
it will need to reduce significantly the scope of capital expenditures and
operations.
The amount and timing of future capital expenditures will depend upon numerous
factors, including the approval or non-approval of the New Drug Application
filed with the FDA and the timing of such approval, differences between actual
and projected demand, the progress of NaPro'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.
NaPro and IVAX have agreed that IVAX will pay to NaPro by March 1998 at least
$3,000,000 of advances against future product sales. As of September 30, 1997
NaPro has received $525,000 under this agreement. Such proceeds are classified
as deferred revenue.
Special Note Regarding Forward-looking Statements.
Certain statements in this report constitute "forward-looking statements" within
the meaning of the federal securities laws. In addition, NaPro or persons
acting on its behalf sometimes may make forward-looking statements in other
written and oral communications. Such forward-looking statements may include,
among other things, statements concerning NaPro's plans, objectives or future
economic prospects, such as matters relative to completion of clinical trials
and regulatory filings; prospects for and timing of regulatory approvals; need
for and availability of additional capital; amount and timing of capital
expenditures; plant completion and approval; timing of product introductions and
revenue; availability of raw materials; prospects for breaking even and other
statements of expectations, beliefs, future plans and strategies, anticipated
events or trends and similar expressions concerning matters that are not
historical facts. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause actual results,
performance or achievements of NaPro to be materially different from the
results, performance or achievements expressed or implied by such forward-
looking statements. Such
11
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factors include, among other things, adverse economic and general business
conditions; timing of regulatory filings and approvals relative to those of
competitors; competition from Bristol-Myers Squibb Company and other existing
and new producers of paclitaxel and other drugs; technological advances in
cancer treatment and drug development; ability to obtain rights to technology;
ability to obtain raw materials and commercialize manufacturing processes;
effectiveness of NBT Paclitaxel and other pharmaceuticals developed by NaPro in
treating disease; results of research and development activities; business
abilities and judgment of management and other personnel; availability of
qualified personnel; changes in and compliance with governmental regulations;
effect of financial market conditions and other factors on capital availability
for NaPro and other biopharmaceutical companies; performance of NaPro's
strategic partners of obligations under existing agreements; the financial
health of NaPro's strategic partners; and other factors referred to as risk
factors in NaPro's September 8, 1997 Prospectus.
Item 3. Quantitative and Qualitative Disclosures about Market Risk. Not
applicable.
Part II--Other Information
Item 1. Legal Proceedings.
On May 14, 1997, the Bristol-Myers Squibb Company was issued a European Patent.
The claims of this European Patent relate to certain methods of treatment with
paclitaxel. On the same day, NaPro instituted revocation proceedings in the
United Kingdom against this European Patent as issued in the U.K. and a separate
but related British Patent also owned by Bristol-Myers Squibb. The revocation
action was not in response to any lawsuit or allegations of infringement against
NaPro relating to these patents. Because of the early stage of the revocation
proceedings, and issues regarding the scope and validity of these patents, NaPro
cannot assess the impact which these patents may have on the Company's business.
Item 2. Changes in Securities None.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K
NaPro filed a September 19, 1997 Current Report Form 8-K reporting the
recommendation by the unanimous vote of ODAC that the FDA approve Paxene(R)
(IVAX' formulation of NBT Paclitaxel) for the treatment of KS. There can be no
assurance that the FDA will approve Paxene(R).
Exhibit
Number Description of Exhibit
- ------ ----------------------
10.1 Consulting agreement dated July 2, 1997 between NaPro and Life Science
Advisors, LLP
27.1 Financial Data Schedule
12
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, NaPro has
duly caused this report to be signed on its behalf.
NaPro BioTherapeutics, Inc.
/s/ Sterling K. Ainsworth
November 13, 1997 Sterling K. Ainsworth
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Gordon Link
November 13, 1997 Gordon Link
Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Robert L. Poley
November 13, 1997 Robert L. Poley
Controller
(Principal Accounting Officer)
13
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Exhibit 10.1
Consulting Agreement
This agreement is entered into by and between Life Science Advisors, LLC (LSA)
and NaPro BioTherapeutics, Inc. (NaPro) effective July 2, 1997.
BACKGROUND AND ISSUES
LSA has been contacted by NaPro management with the expressed interest in
assisting NaPro. LSA is a firm that provides senior level management advice in
business strategy and operational assistance in biotechnology development.
Special emphasis has been placed on the manufacturing aspects of this engagement
and people with appropriate skills have been considered for assign ment.
SCOPE OF EFFORT
Based upon discussion among LSA and NaPro management, LSA will provide support
to NaPro in four major areas:
1. Management Systems
2. Pre-Approval Inspection Advice
3. Manufacturing Planning
4. Senior Executive Advice
COST
Our fee for professional services of the LSA Principals and Associates for this
project will be comprised of two elements:
1) Cash payments in the amount of $1,800 per eight-hour person day
($225.00 per person hour) for services of Messrs. Barbee, Bryson and Cook
and cash payments in the amount of $1,500 per eight hour person day
($187.50 per person hour) for services of Dr. Cohn and Messrs. Pock and
Seery. If additional associates are engaged, NaPro and LSA will agree in
advance upon an appropriate per diem cash payment.
2) Initial and ongoing entitlements to options to purchase NaPro common
stock.
In addition to the fee for professional services, we will bill NaPro
BioTherapeutics, Inc. for direct out-of-pocket expenses, at their cost to us,
for travel, accommodation, meals, express document delivery services and other
support services. We will add $300 per month to our expenses bill to
<PAGE>
cover other telecommunications and miscellaneous expenses which cannot
conveniently be tracked to avoid time consuming detailed record keeping for
such. NaPro shall coordinate all travel arrangements for LSA personnel. Any
expenses greater than $1,500 (other than air fare) must be approved by NaPro in
advance.
OPTIONS:
1) On execution of this Agreement, LSA shall vest into options to purchase
30,000 shares of the common stock of NaPro from the Master Grant.
2) Additional options from the Master Grant will be earned and vested
based upon the following rates:
A. For each eight hour person day of services provided by either Mr.
Barbee, Mr. Bryson or Mr. Cook, 1500 options will vest.
Any and all of the 30,000 options which vest pursuant to subparagraph
1 shall be credited against those options which are earned and would
otherwise vest pursuant to this subparagraph 2A. (i.e. No options
shall vest pursuant to this subparagraph 2A unless the number of
earned options exceeds the number of options vested pursuant to
subparagraph 1, in which case, the earned excess shall vest.)
B. For each eight hour person day of services provided by either Dr.
Cohn, Mr. Pock or Mr. Seery, 600 options will vest.
All such options shall be vested from the Master Grant of 125,000 options
attached hereto. The Master Grant does not constitute a vested award of
options; awards shall be earned and vested in accordance with the terms of this
Agreement. Master Grant options not properly vested in accordance with this
Agreement will not be awarded to or exercisable by LSA or its Principals. Once
all 125,000 options provided for in the Master Grant are vested, no further
options shall be due to LSA.
All options earned under the terms of this contract will be awarded to LSA or on
such other basis to be determined by LSA. It is expected that LSA will advise
NaPro about the allocation of options as a part of the normal monthly billing
process. Except as otherwise noted herein, all options will be vested when
issued.
Awards of all options will be subject to an the terms of the Master Grant,
attached hereto.
LSA will keep detailed records of time spent on this work and will submit these
with our invoices. LSA will not charge for unproductive travel time. Invoices
will be submitted monthly in arrears. The cash portion and an acknowledgment of
NaPro's obligations, if any, to LSA with respect to options to purchase shares
will be due on receipt.
In the event of dispute of any amount on an LSA invoice, NaPro and LSA agree to
promptly negotiate in good faith to resolve any disputed amounts.
<PAGE>
OWNERSHIP OF WORK PRODUCT AND CONFIDENTIALITY
All data, reports, and other work products of LSA generated in this assignment ,
as well as any inventions (patentable or unpatentable), trade secrets, and other
intellectual property resulting from LSA's activities in connection with this
assignment, shall be the property of NaPro and shall be delivered and/or
assigned to NaPro on demand.
LSA shall (1) maintain in confidence, (2) not disclose, in whole or in part, to
any other party (other than authorized employees of NaPro) without the prior
written consent of NaPro, and (3) not use except on NaPro's behalf, all business
and technical information provided to LSA and all work product of LSA with
respect to its work for NaPro ("Confidential Information"), unless such
Confidential Information is either (1) already in the public domain when
received by LSA, or (2) comes into the public domain through no act or action
taken by LSA. Notwithstanding the foregoing, LSA may disclose Confidential
Information to the extent it is required to do so by law, governmental
regulation or court order; provided however, that LSA (1) shall give NaPro
written notice of such required disclosure as long in advance as practicable
under the circumstances and (2) provide NaPro an opportunity to obtain a
protective order. The obligations of Confidentiality shall survive the
termination of LSA's work with NaPro for a period of five years.
Neither LSA nor NaPro will use the name of the other for promotional purposes
without the permission of the other.
TERMINATION; CONTROL OF SERVICES PROVIDED.
Either party may terminate this Agreement without penalty upon 10 days' notice
to the other party. Following termination, no further payment obligations shall
accrue, although NaPro shall be responsible for the payment for services and
expenses (including vesting of options) which accrued prior to termination. All
provisions of this Agreement relating to Ownership of Work Product and
Confidentiality shall survive termination of this Agreement.
NaPro shall have the option, at its sole discretion, to decline the services
offered by LSA or any individual(s) providing services on LSA's behalf. "The
Scope of Effort" described above represents only an approximation of what the
parties believe may be the relevant services to be performed. Nothing in this
Agreement shall represent any obligation upon NaPro to accept any level of
services from LSA or any individual(s) providing services on LSA's behalf.
Scheduling of work to be performed by LSA, including site visits to NaPro shall
be approved in advance by NaPro.
Joseph C. Cook, Jr. Principal NaPro BioTherapeutics, Inc.
/s/ Joseph C. Cook, Jr. /s/ Sterling K. Ainsworth
Date: November 11, 1997 Date: November 11, 1997
Dr. Sterling Ainsworth
President and CEO
<PAGE>
Confirmation of the option strike price for the LSA contract dated July 2, 1997.
The strike price for the options reserved by the Master Grant shall be $7.25.
NaPro BioTherapeutics, Inc.:
By: /s/ Sterling K. Ainsworth
Title: Pres. & CEO
Date: July 7, 1997
Life Science Advisors, LLC
By: /s/ Joseph C. Cook, Jr.
Title: Principal
Date: July 2, 1997
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0
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<SALES> 1,978
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