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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Year Ended December 31, 1996, or:
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from to
Commission File Number 0-24320
NaPRO BIOTHERAPEUTICS, INC.
Incorporated in Delaware IRS ID No. 84-1187753
6304 Spine Road, Unit A
Boulder, Colorado 80301
(303) 530-3891
Securities registered pursuant to Section 12(b) of the Act: none
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0075 par value; Preferred Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(b) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of the Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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The aggregate market value of the voting stock held by non-affiliates of the
registrant was $93,507,156 as of March 21, 1997.
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 21, 1997:
Common Stock 11,767,251
Nonvoting Common Stock 595,000
Incorporated by reference in Part III of this report is the information
contained in the NaPro Proxy Statement for the 1997 annual meeting of
stockholders, which will be filed with the SEC within 120 days after
December 31, 1996.
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Part I
Item 1. Business
General
NaPro BioTherapeutics, Inc. ("NaPro" or "the Company") 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."
The market for paclitaxel is dominated by Bristol-Myers Squibb Company
("BMS"). BMS has publicly announced that worldwide sales of their formulation
of paclitaxel were approximately $580 million in 1995 and $813 million in 1996.
BMS's paclitaxel is the only United States Food and Drug Administration ("FDA")
approved formulation of paclitaxel, which approval is for the treatment of
refractory (non-responsive) breast and ovarian cancers. NaPro believes that by
combining its proprietary extraction, isolation and purification ("EIP/TM")
manufacturing technology, the renewable sources of Taxus biomass being
developed by NaPro, and its long-term, exclusive agreements with two major
international pharmaceutical companies, NaPro will be positioned to participate
significantly in the worldwide paclitaxel market. There can be no assurance,
however, that NBT Paclitaxel will prove safe and effective, meet applicable
standards necessary for regulatory approvals, or be successfully marketed.
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 Baker Norton Pharmaceuticals, a subsidiary of IVAX
Corporation ("IVAX" and together with Faulding, the "Strategic Partners") for
the clinical development, sales, marketing and distribution of NBT Paclitaxel.
Under the agreements, Faulding's territory includes Australia, New Zealand and
much of southeast Asia, and IVAX's territory includes much of the rest of the
world including North America, Europe and Japan. Faulding, Australia's largest
domestic pharmaceutical company, had 1996 sales of approximately $1.2 billion,
and IVAX, a diversified international healthcare company, also had 1996 sales of
approximately $1.2 billion.
The Strategic Partners have agreed to fund and undertake the clinical trials
required in order to obtain regulatory approvals for the commercialization of
NBT Paclitaxel in their respective territories. NaPro is responsible for
supplying the Strategic Partners with NBT Paclitaxel for all of their clinical
and
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commercial requirements. Under the terms of each agreement, IVAX and Faulding
pay a fixed price for NBT Paclitaxel for non-commercial sales. For NBT
Paclitaxel sold commercially, Faulding pays NaPro a substantial share of gross
revenue. For IVAX's commercial sales, IVAX has agreed to pay NaPro on a cost
plus basis for NaPro's manufacture of NBT Paclitaxel and in addition to pay
NaPro a substantial share of IVAX's NBT Paclitaxel profit.
Faulding obtained regulatory approval and began marketing NBT Paclitaxel as a
generic pharmaceutical in Australia in January 1995 for the treatment of
refractory breast and ovarian cancers and is seeking approval to sell NBT
Paclitaxel in other countries in its defined territory. IVAX filed an
investigational new drug exemption ("IND") application for NBT Paclitaxel with
the FDA in June 1994. IVAX has completed the treatment phase of the Phase
II/III clinical trials with NBT Paclitaxel for three therapeutic indications
including refractory breast and ovarian cancers and Kaposi's Sarcoma and
submitted a new drug application ("NDA") to the FDA for Kaposi's Sarcoma on
March 31, 1997. There can be no assurance, however, as to whether IVAX will be
successful in obtaining any necessary regulatory approvals or successfully
market NBT Paclitaxel even if approval is obtained.
NaPro's EIP/TM technology is 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 bushes. In
order to have access to a more stable and reliable source of Taxus biomass for
use in the production of NBT Paclitaxel, NaPro has entered into agreements with
Pacific Biotechnologies, Inc. ("PBI"), a subsidiary of Pacific Regeneration
Technologies, Inc., one of Canada's largest reforestation companies (the "PBI
Agreement"), and Zelenka Nursery, Inc. ("Zelenka"), one of the largest
horticulture companies in the United States (the "Zelenka Agreement"), each to
grow cloned ornamental yew bushes on a large scale. NaPro intends to supplement
its supply of biomass obtained from PBI and Zelenka by entering into additional
agreements with commercial growers of ornamental yew bushes. NaPro is currently
constructing a large scale commercial EIP/TM manufacturing facility with planned
capacity to meet the forecasted commercial needs of the Strategic Partners
through 1999. In addition, in order to increase production yields of NBT
Paclitaxel and lower its cost of manufacture, NaPro is developing a semi-
synthetic process for manufacturing NBT Paclitaxel from certain other taxanes
contained in renewable biomass sources.
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 or chemotherapy or a combination of these therapies. Paclitaxel,
approved less than four years ago, has become the largest selling of the 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.
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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 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 that their formulation of paclitaxel has
achieved world-wide commercial sales of approximately $813 million in 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 much
less than 500 parts per million, and accordingly, the process of extracting
taxanes from yew biomass is 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. NaPro believes the two most
prevalent processes used today are conventional extraction and semi-synthesis.
In extraction, the manufacturing process must be designed to extract, isolate
and purify paclitaxel from yew biomass leaving behind other components,
including non-paclitaxel taxanes. The extraction, isolation and purification
processes, however, are 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 to that of the conventional extraction
process, except that the process not only isolates paclitaxel, but also isolates
and subsequently converts through chemical synthesis certain other taxanes
(which are otherwise considered waste byproducts) into paclitaxel, thereby
increasing the yield of paclitaxel from the same biomass source. The final
product of either method must have levels of impurity at or below acceptable
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. As a result of its slow
growing pattern, wild Taxus is generally found 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 the bark, which
generally requires destroying the tree. As a result, there has been a
considerable amount of public debate and controversy in the United States and
other countries by environmental groups and others regarding the harvesting of
bark from the wild tree. NaPro halted harvesting bark from wild Pacific yew
trees in 1994. See "Corporate Strategy" and "Biomass; Manufacturing."
Other companies have developed taxane analogues which are similar, but not
chemically identical, to paclitaxel. For example, Rhone-Poulenc Rorer, Inc.,
("RPR"), a large international pharmaceutical company, has developed docetaxel,
one such taxane analog, which is being marketed in various parts of the world
under the trademark Taxotere/R. Taxotere/R has a different toxicity profile
from paclitaxel and has side effects not observed with paclitaxel. In May 1996,
the FDA approved Taxotere/R for treatment of anthracycline-resistant breast
cancer in patients without impaired liver function.
Clinical Status of NBT Paclitaxel
Pursuant to the agreements between NaPro and the Strategic Partners, the
Strategic Partners have primary responsibility for designing and conducting
clinical trials and for pursuing regulatory approval of NBT Paclitaxel
throughout the world. NaPro has primary responsibility for carrying out the
procedures for regulatory approval relating to NaPro's manufacturing processes.
NaPro has filed confidential Drug Master Files ("DMF") and other information
containing certain of NaPro's proprietary manufacturing processes relating
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to the manufacture of NBT Paclitaxel with regulatory agencies in the United
States, Australia, Canada and Europe. In addition, NaPro 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 NaPro and its Strategic Partners. In
December 1992, BMS obtained NDA approval in the United States for its paclitaxel
compound. Under the Waxman-Hatch 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 until such
period of exclusivity expires. The exclusivity period in the United States
expires in December 1997. The FDA will accept and review, however, an NDA
submitted by another party during this period of exclusivity. A comparable
statute to the Waxman-Hatch Act exists in Europe, although the related period of
exclusivity is generally ten years. For these reasons, IVAX has submitted an
NDA for NBT Paclitaxel. See "Government Regulation and Product Approvals."
IVAX. IVAX is currently pursuing a strategy to obtain NDA approval of NBT
Paclitaxel in the United States for the treatment of refractory breast and
ovarian cancers and Kaposi's Sarkoma. 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 has substantially completed Phase II/III studies using NBT
Paclitaxel in three indications, including refractory breast and ovarian
cancers. IVAX submitted an NDA for NBT Paclitaxel for Kaposi's Sarkoma on March
31, 1997. There can be no assurance that NBT Paclitaxel will prove safe and
effective, meet applicable regulatory standards or be successfully marketed.
Faulding. In January 1995, Faulding received regulatory approval from the
Australian Therapeutic Goods Administration ("TGA") to market ANZATAX/TM
(Faulding's brand name for NBT Paclitaxel) in Australia for the treatment of
refractory breast and ovarian cancers. Under Australian law there is no
exclusivity period comparable to that provided by the Waxman-Hatch Act, and,
therefore, approval of a generic substitute was possible without the need for
additional clinical trials. Faulding did, however, conduct clinical
investigations with ANZATAX/TM (Faulding's brand name for NBT paclitaxel) in
order to support marketing in Australia and to support applications for
regulatory approval in other countries. NaPro and Faulding have obtained
regulatory approval from the TGA for NaPro to supply NBT Paclitaxel to Faulding
from either its Canadian or United States manufacturing facilities. 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 dossiers with 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. There can be no assurance, however, that Faulding will receive
approval in any of these territories or will successfully market NBT Paclitaxel,
even if such approvals are received.
NaPro plans to submit a DMF in support of a Supplemental NDA "SNDA" for NBT
Paclitaxel manufactured through a semi-synthesis process. An SNDA cannot be
filed until such time, if ever, as an NDA is approved for NBT Paclitaxel. Based
on the SNDA approval process for BMS, NaPro believes additional toxicological
and stability data may be required prior to submission of an SNDA for
manufacturing NBT Paclitaxel through a semi-synthesis process. It is not
anticipated that an SNDA could be filed before 1999, 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 and, therefore, are uncertain. As such,
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there can be no assurance that the semi-synthetic process being developed by
NaPro will receive regulatory approval. See "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.
NaPro's EIP/TM technology is 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.
In order to have access to a stable long-term supply of biomass for use in the
production of NBT Paclitaxel, NaPro entered into the PBI Agreement in 1993 and
the Zelenka Agreement in 1996 and may enter into additional agreements to
purchase biomass and mature yew bushes from commercial growers. NaPro believes
that the plantations being developed under these agreements will produce
adequate biomass to support the commercial requirements of the Strategic
Partners for the foreseeable future. By planting and propagating a reliable and
renewable homogeneous biomass source, NaPro believes that it may be able to
reduce its raw material cost, while at the same time allowing it to increase the
yield of NBT Paclitaxel. NaPro made its first small scale harvest pursuant to
the PBI Agreement in the first quarter of 1996 and pursuant to the Zelenka
Agreement in the second quarter of 1996. There can be no assurance that the use
of the ornamental yew bushes and the use of needles and limbstock of such bushes
will be approved by the FDA for use in manufacturing NBT Paclitaxel or that
current sources of biomass will be sufficient to meet NaPro's needs.
Manufacturing. Crude paclitaxel is extracted from cultivated yew bushes by third
party extractors and delivered to NaPro's manufacturing facilities in Boulder,
Colorado and British Columbia, Canada. At these two facilities, the impure
paclitaxel is isolated and purified 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 the Strategic
Partners. On a combined basis, NaPro believes these facilities would have
adequate capacity to meet clinical and commercial demand through the launch of
commercial sales of NBT Paclitaxel in the United States. Each of NaPro's small
scale manufacturing facilities has been inspected by the TGA and approved for
the commercial production of NBT Paclitaxel for sale in Australia. NaPro plans
to seek FDA approval of its manufacturing processes, which utilize non-bark
sources of biomass obtained from the needles and limbstock of ornamental yew
trees and bushes. NaPro has manufactured a number of lots of paclitaxel using
its new process including the use of needles and limbstock from its plantations,
and has submitted data from these lots in the initial NDA filing. There can be
no assurance that such regulatory approval will be obtained.
NaPro is currently constructing a large scale commercial manufacturing facility,
which is being built in Boulder, Colorado. NaPro expects to substantially
complete construction and validation of this facility in 1997. The NDA
submission established NaPro's pilot scale facility as the initial manufacturing
site. The large scale commercial facility has been submitted in the NDA as an
alternate facility, requiring NaPro to prepare two manufacturing facilities for
inspection and inclusion in the NDA. NaPro anticipates the large scale
commercial facility and processes intended to be used for commercial launch of
NBT Paclitaxel in the United States will be inspected by the FDA upon completion
of validation, but prior to approval of the NDA for NBT Paclitaxel .
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There can be no assurance that NaPro will succeed in adapting its EIP/TM
technology for large scale commercial manufacturing, that the facility will be
completed or validated within the time periods indicated, that such facility and
manufacturing processes will receive necessary regulatory approvals or, even if
approved, will be capable of producing NBT Paclitaxel in the quantities
necessary to satisfy the requirements of the Strategic Partners.
NaPro currently contracts with a third party for small-to-mid-scale extraction
of paclitaxel. In order for NaPro to meet the expected increase in demand for
NBT Paclitaxel once commercialized, NaPro must either contract out part of its
extraction requirements or build a large scale commercial extraction facility.
There can be no assurance that a third party contract for such large scale
extraction can be obtained on commercially reasonable terms or that a large
scale extraction facility can be constructed in a timely fashion and receive the
necessary regulatory approvals. The failure of NaPro to secure a large scale
commercial extraction contract or to construct a regulatory-approved large scale
commercial extraction facility on a timely basis may have a material adverse
effect on NaPro.
In order to increase its manufacturing capacity, NaPro 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. Unlike extraction, however,
which attempts to isolate and purify only paclitaxel, semi-synthesis isolates
and purifies certain 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, NaPro expects to be
able to increase the paclitaxel yield from its biomass sources using a semi-
synthesis process. The use of semi-synthesis will require receipt of additional
regulatory approvals, of which there can be no assurance.
Strategic Alliances
NaPro 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 NaPro's input, undertake the clinical
trials required to obtain regulatory approvals for commercializing NBT
Paclitaxel in their respective territories. NaPro is responsible for supplying
the Strategic Partners with NBT Paclitaxel for clinical trials and commercial
purposes and each Strategic Partner is required to purchase all of its
paclitaxel requirements from NaPro. Under the terms of each agreement, IVAX and
Faulding pay a fixed price for NBT Paclitaxel for non-commercial sales. For NBT
Paclitaxel sold commercially, Faulding pays NaPro a substantial share of gross
revenue. For IVAX's commercial sales, IVAX will pay NaPro on a cost plus basis
for NaPro's manufacture of NBT Paclitaxel and in addition will pay NaPro a
substantial share of IVAX's NBT Paclitaxel profit (as determined in accordance
with the IVAX Agreement (as defined herein)). NaPro believes that through its
agreements with Faulding and IVAX, it will be able to take advantage of their
resources, including expertise in clinical testing and sales, marketing and
distribution. As a result of these strategic alliances, NaPro 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. There can be no assurance, however, that the Strategic
Partners will succeed in obtaining the necessary regulatory approvals to market
NBT Paclitaxel in the United States or elsewhere or that they will market NBT
Paclitaxel successfully.
Faulding. Faulding, Australia's largest domestic pharmaceutical company with
1996 sales of approximately $1.2 billion, actively markets anti-cancer
pharmaceuticals and other health care products in Australia, Southeast Asia and
other countries throughout the world. In 1992, NaPro originally entered into a
development and marketing agreement (the "Faulding Agreement") with Faulding.
The Faulding
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Agreement, as amended and restated, 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 Territory"). 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 NaPro, except in certain
circumstances where NaPro is unable to supply Faulding's requirements.
In a March 1995 amendment to the Faulding Agreement, Faulding agreed to convert
certain prepaid product sales and deferred revenue aggregating $1.1 million,
which would have become due in 1995 and 1996, into a note in the aggregate
principal amount of $1.2 million, which matures in 1997. The terms of the note
provide that NaPro 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 NaPro; (ii) if Faulding becomes controlled by a pharmaceutical
company that sells paclitaxel in the Faulding territory; (iii) if NaPro becomes
controlled by IVAX or BMS; (iv) if NaPro 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) if NaPro is
unable to meet the paclitaxel supply requirements of Faulding. NaPro 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.
NaPro 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 NaPro's warranties or obligations under the Faulding Agreement.
Faulding is required to indemnify NaPro against all losses (i) resulting from a
defect in a product containing NBT Paclitaxel manufactured by Faulding except
where such defect is the fault of NaPro, (ii) resulting from a product
containing NBT Paclitaxel formulated, stored, handled, promoted, distributed,
registered or sold by Faulding and (iii) for uncured breaches of Faulding's
representations and warranties under the Faulding Agreement.
In connection with NaPro's initial public offering, completed August 1,
1994, Faulding purchased 400,000 shares of NaPro's Nonvoting Common Stock and
400,000 warrants to purchase Nonvoting Common Stock. In 1996 Faulding exercised
200,000 of the warrants.
IVAX. IVAX, a diversified international health care company with 1996 sales of
approximately $1.2 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, NaPro 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.
The IVAX Agreement grants IVAX the exclusive right to develop and market NBT
Paclitaxel in the United States and in every country outside the Faulding
Territory except for the Vatican City, China, the former Soviet Union and the
Middle East where such right is non-exclusive. Pursuant to the IVAX Agreement,
IVAX is required to purchase all of its requirements of paclitaxel from NaPro
except in certain circumstances where NaPro is unable to supply IVAX's
requirements.
Either IVAX or NaPro may terminate the IVAX Agreement if the other party
materially breaches the
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agreement under certain circumstances. In addition, IVAX may terminate the IVAX
Agreement if NaPro fails to meet the paclitaxel supply requirements of IVAX for
a continuing three year period. Under certain circumstances, IVAX may obtain
certain manufacturing information from NaPro and have NBT Paclitaxel
manufactured by third parties.
NaPro is required to indemnify IVAX pursuant to the IVAX Agreement for any
defect in the NBT Paclitaxel that is shipped to IVAX, for certain claims of
patent or trade secret infringement relating to the manufacture, composition, or
sale of NBT Paclitaxel supplied to IVAX and for uncured breaches of certain of
NaPro's representations and warranties under the IVAX Agreement. IVAX is
required to indemnify NaPro against all losses (i) resulting from a defect in a
product containing NBT Paclitaxel manufactured by IVAX, (ii) resulting from a
product containing NBT Paclitaxel formulated, stored, handled, promoted,
distributed, registered or sold by IVAX, to the extent the defect is caused by
IVAX, and (iii) for uncured breaches of IVAX's representations and warranties
under the IVAX agreement.
IVAX, through its subsidiary D&N Holding Company ("D&N"), currently owns
1,126,398 shares of NaPro's common stock (the "Common Stock"). See "Security
Ownership of Certain Beneficial Owners and Management."
Marketing and Sales
Marketing and sales of NBT Paclitaxel will be conducted by the Strategic
Partners. NaPro has no sales force and has only limited marketing capabilities
and has no present intention to establish a sales or marketing force. NaPro
expects that sales to the Strategic Partners will account for substantially all
of NaPro's revenue 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, may have a material adverse effect on NaPro.
See "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. NaPro competes with all entities
developing and producing therapeutic agents for cancer treatment. The success
of competitors in entering the market for paclitaxel may reduce NaPro's
potential market share and reduce the price of NBT Paclitaxel, each of which
could have a material adverse effect on NaPro. In addition, regulatory approval
and marketing are being handled exclusively by the Strategic Partners. Although
NaPro believes the 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, or
competing on a global basis with existing or new competitors.
BMS, the world's largest oncology company, 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 United States, European Community, Australia,
Canada and a number of other countries. Taxotere/R is approved in the United
States for treatment of anthracycline-resistant breast cancer in patients
without impaired liver function. Treatment with Taxotere/R, however, may cause
certain side effects not observed with paclitaxel. It is anticipated, however,
that Taxotere/R may compete with paclitaxel, and thereby reduce overall
paclitaxel sales.
Furthermore, upon expiration in December 1997 of the five-year marketing
protection from generic competition currently provided to BMS's formulation of
paclitaxel by the Waxman-Hatch Act, NaPro may
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be subject to competition from generic paclitaxel manufacturers. In Europe, a
similar exclusivity period will end in most cases 10 years after BMS' initial
approval. NaPro is aware of several pharmaceutical companies which have stated
that they are in the process of developing generic paclitaxel in the United
States, Canada, Mexico and Europe. Finally, academic and research
organizations and pharmaceutical and biotechnology companies are pursuing, among
other things, genetically engineered drugs, chemical synthesis and cell-tissue
culture which may compete with NaPro's products or technology. In addition,
certain companies are pursuing the production of paclitaxel and other taxanes
from natural product extraction techniques.
Many of NaPro's competitors, most notably BMS and RPR, have substantially
greater capital resources, research and development capabilities, manufacturing
and marketing resources, and experience than NaPro. NaPro expects BMS to
compete intensely to maintain its dominance of the paclitaxel market, including
through pursuit of an aggressive patent strategy. NaPro's competitors may
succeed in developing products that are more effective or less costly than any
that may be developed by NaPro, or that gain regulatory approval prior to
NaPro'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, NaPro 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 may result in a low-
cost, pure paclitaxel. The discovery by a third party of a cost-effective
means to fully synthesize paclitaxel in commercial quantities or the manufacture
of taxane derivatives or analogs that are more efficacious than paclitaxel in
treating cancer could have a material adverse effect on NaPro.
Patents and Proprietary Technology
NaPro's success depends, in part, on its ability to obtain patents, maintain
trade secret protection and operate without infringing on the proprietary rights
of third parties. Where appropriate, NaPro seeks protection of its proprietary
technology by applying for patents in the United States and abroad. NaPro owns
three issued United States patents and has several United States patent
applications pending. NaPro has filed patent applications in certain other
areas of the world and expects to make additional filings as it believes
appropriate. In addition, NaPro 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 NaPro's or its licensors' existing patent applications
will become issued patents or that, if issued, the coverage claimed in the
applications will not be significantly reduced prior to issuance or, that NaPro
will be able to obtain any necessary or desired additional licenses to patents
or technologies of others or that NaPro will be able to develop its own
additional patentable technologies. In addition, there can be no assurance that
any future patents issued to NaPro, if any, will provide it with competitive
advantages or that products or processes covered by such patents will not be
challenged as infringing upon the patents or proprietary rights of others or
that any such patents will not be invalidated, or that the patents or
proprietary rights of others will not have a material adverse effect on the
ability of NaPro 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, NaPro cannot be
certain it or any of its licensors was the first creator of inventions covered
by NaPro's or its licensors' pending patent applications or that NaPro 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 NaPro, that others will not design technology to
circumvent NaPro's patents or proprietary rights.
-10-
<PAGE>
Much of NaPro's proprietary technology, including much of its EIP/TM technology,
is not protected by patents and is held by NaPro as trade secrets. NaPro's
success will depend in part on its ability to protect the trade secrets relating
to extracting, isolating and purifying paclitaxel as well as to other
technology. NaPro 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 NaPro will be able to adequately protect its trade secrets
or that other companies will not acquire information which NaPro considers to be
proprietary. In addition, if NaPro is unable to fulfill its contractual
obligations to IVAX relating to its supply of NBT Paclitaxel, NaPro may, under
certain circumstances, be contractually obligated to disclose proprietary
manufacturing information to IVAX. The inability to maintain its trade secrets
for its exclusive use could have a material adverse effect on NaPro.
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. In addition, certain methods of
administering paclitaxel are or may be patented. Certain of these patents are
owned or controlled by BMS and RPR, two of NaPro's primary competitors. NaPro
is aware of competitors and potential competitors who are pursuing patent
protection for various aspects of the extraction, preparation, administration
and production of natural and semi-synthetic paclitaxel. In the event that
NaPro's technology, products or activities are deemed to infringe upon the
rights of others, NaPro could be subject to damages or enjoined from using such
technology, or NaPro 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 NaPro, or at all. If NaPro were unable to
obtain such licenses or was enjoined from using its technology, 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 to be foreclosed, any of which may
have a material adverse effect on NaPro. In addition, NaPro could experience a
loss of revenue and may incur substantial cost 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. NaPro
could also incur substantial cost 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 NaPro, even if the eventual outcome were
favorable. See "Strategic Alliances," and "Australian Petty Patents."
Australian Petty Patents
In September 1993 and 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 art
search which is significantly more limited in scope than the searches done prior
to issuance of standard 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. NaPro
believes, based on communications with Faulding, that BMS's claims will likely
be resolved in conjunction with Faulding's
-11-
<PAGE>
revocation action in 1997. 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 would 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,
NaPro's business, financial condition and results of operations could be
materially and adversely affected. See "Patents and Proprietary Technology,"
and "Strategic Alliances."
Government Regulation and Product Approvals
The production and marketing of NBT Paclitaxel and NaPro'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 Federal Food, Drug and
Cosmetic Act ("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 pharmaceutical products. Product development within this
regulatory framework takes a number of years and involves the expenditure of
substantial resources. The marketing of drugs in the United States may not
begin without FDA approval.
The steps required before a pharmaceutical product 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. In addition to safety and efficacy requirements, the
FDA requires the applicant to demonstrate to the FDA's satisfaction that it can
manufacture the drug in compliance with the FDA's current Good Manufacturing
Practices ("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 and in vivo
cytotoxicity, pharmacology, product chemistry and formulation, as well as animal
studies to assess the potential safety and activity 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,
possibly human data from a related use, and 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
-12-
<PAGE>
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,
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 likely 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 certain clinical trials have been completed to date,
NaPro, 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, NaPro'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 NaPro's United States and Canadian manufacturing facilities by a
cGMP Auditor of the Australian TGA, the TGA issued approvals to NaPro as an
Australian cGMP compliant paclitaxel manufacturer. NaPro'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 NaPro's current facilities or facilities being constructed to
be in compliance with United States cGMP regulations or analogous foreign
standards. Subsequent discovery of previously unknown problems
-13-
<PAGE>
with a product or NaPro's manufacturing facilities may result in restrictions,
including withdrawal of the product from the market. Failure to comply with the
applicable regulatory requirements by either NaPro or its Strategic Partners
could, among other things, result in criminal prosecution and fines, product
recalls, product seizures and operating restrictions.
NaPro has met with the FDA to discuss technical issues associated with the its
DMF in support of the approval of its bulk drug product as part of IVAX's NDA.
In these meetings, NaPro learned that the pilot scale facility, which
manufactured the drug used in the IVAX clinical trials, needed to be inspected
for approval in the initial NDA. The scaled-up commercial facility will be
submitted in the NDA as an alternate facility. This has resulted in requiring
NaPro to prepare two "commercial" facilities for FDA approval, which was not
anticipated and requires the expenditure of more resources than originally
planned. The biomass strategy employing plantation-grown ornamental yews was
also discussed with the FDA. NaPro believes that the necessary technical and
environmental requirements for approval will be met in the DMF in support of the
NDA.
NaPro 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. NaPro
has received valid marketing authorization from Australia. Thus, if the other
statutory conditions are met, NaPro 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 although no assurance
can be given.
NaPro 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. NaPro 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 NaPro is at all times
in complete compliance with all such requirements. NaPro 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 NaPro's business, financial condition and results of operations.
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 products, delay regulatory approval or otherwise
adversely affect NaPro's ability to produce or sell NBT Paclitaxel or other
products. Adverse governmental regulations which might arise from future
legislative or administrative regulations or other actions cannot be predicted.
In addition, NaPro's activities have been opposed by the Oregon Natural
Resources Council ("ONRC") because of their concern over wild Pacific yew in old
growth forests. The ONRC and the FDA have reached an agreement on the National
Environmental Policy Act ("NEPA") requirements for NDAs, ANDAs and INDs
involving more than 200 patients involving paclitaxel from Pacific yew trees.
The agreement provides that an applicant shall include an Environmental
Assessment
-14-
<PAGE>
("EA") which will identify all sources of Pacific yew which are expected to be
harvested in connection with the manufacture of paclitaxel relating to the
application. The FDA is to subject such EAs to the NEPA process and shall
complete and issue a Finding of No Significant Impact ("FONSI"), or an
Environmental Impact Statement ("EIS") and Record of Decision (ROD) as required
by NEPA before approving any NDA or ANDA involving paclitaxel derived from or
otherwise involving the Pacific yew tree. Because NaPro relies on plantation-
grown ornamental yews, and it will not harvest any Pacific yew trees to
manufacture paclitaxel for a marketed product, it believes that the ONRC-FDA
agreement requirements will be met in the NDA and DMF and that these
requirements will not jeopardize the NDA approval. Even though NaPro 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 NaPro, which may have the effect of delaying or halting
production of NBT Paclitaxel, each of which could have a material adverse effect
on NaPro's business, financial condition and results of operations.
Outside the United States, NaPro'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.
NaPro has filed confidential DMFs and other documents containing certain of
NaPro's proprietary manufacturing processes with regulatory agencies in the
United States, Australia, Canada and Europe, relating to NaPro's manufacture of
NBT Paclitaxel. Faulding, referring to NaPro's Australian DMF, has received
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 can be no
assurance that Faulding's efforts to expand the use of NBT Paclitaxel will be
successful.
IVAX, using NaPro'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 IVAX will file a NDA seeking commercial approval to sell NBT
Paclitaxel in the United States in 1997. No assurance can be given, however,
that NBT Paclitaxel will prove to be safe and effective in clinical trials, that
IVAX will file the NDA within the time period indicated, or that IVAX will
complete any clinical trials or obtain regulatory approvals for NBT Paclitaxel
in a timely manner, or at all, to market NBT Paclitaxel in the United States or
other countries.
Research and Development
During the years ended December 31, 1994, 1995 and 1996, NaPro spent
approximately $3.9 million, $4.6 million and $6.8 million, respectively, on
Company sponsored research and development activities and to produce NBT
Paclitaxel sold to its Strategic Partners. Research and development is expected
to remain a significant cost component of NaPro's business. In the short term,
research and development is expected to concentrate primarily on: (i) improving
paclitaxel yield and reducing production cost; (ii) developing NaPro's semi-
synthesis process for paclitaxel production; and (iii) improving the yields of
NaPro's production methodology for processing needles and limbstock. NaPro will
focus its internal efforts on process development and plans to contract out
research considered essential but for which it lacks facilities or staff. NaPro
also intends to engage in early stage research and development to identify other
potential natural product pharmaceuticals.
-15-
<PAGE>
Foreign and Domestic Operations; Export Sales
The following table sets forth, for the past three fiscal years revenue,
profitability (operating loss),and identifiable assets attributable to NaPro's
U.S. and foreign operations (amounts in thousand dollars):
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Sales to Unaffiliated Customers
United States $ 854 $ 2,054 $ 1,692
Foreign 148 569 1,781
------- ------- -------
Total Sales (1) 1,002 2,623 3,473
Operating Loss
United States (5,914) (3,851) (6,719)
Foreign (68) (433) (384)
Identifiable Assets
United States 4,304 5,133 20,198
Foreign 672 6,820 4,823
</TABLE>
- --------------------
(1) Includes export sales of $1,392 in 1995 and $2,509 in 1996. There were no
export sales in 1994.
Foreign sales include sales of product manufactured and shipped from NaPro
Canada, NaPro's Canadian subsidiary. Such products sold by NaPro Canada to
NaPro 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
NaPro's revenue for the year ended December 31, 1995 and 72% of NaPro's revenue
for the year ended December 31, 1996. NaPro anticipates that a significant
portion of its revenue 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 NaPro'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 NaPro'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 NaPro.
Employees
As of March 21, 1997, NaPro had 114 full-time and three part-time employees, of
whom nine hold Ph.D. or M.D. degrees. Three employees were engaged in
biological and clinical research, 18 in chemical research, 21 in quality
control/quality assurance, 51 in manufacturing and 21 in general administration
and finance. NaPro believes that its relations with its employees are good.
Special Note Regarding Forward-looking Statements
Certain statements under the captions "Business" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and elsewhere in
this report 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
NaPro, 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; ability to obtain raw materials;
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; the ability of NaPro's
strategic partners to perform their obligations under existing agreements with
NaPro; and other factors referenced in this Report and in NaPro's August 1, 1996
Prospectus.
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<PAGE>
Item 2. Properties
NaPro leases approximately 54,000 square feet of space in Boulder, Colorado,
which is used for research and development and will be used for commercial-scale
manufacturing upon completion of improvements and installation and validation of
equipment. This facility is also used for NaPro's executive offices and
warehousing of raw materials and equipment. NaPro leases an additional 5,900
square feet of space in Boulder which is used for research and development and
small scale manufacturing. NaPro leases a facility of approximately 3,400 square
feet in British Columbia, Canada which is used for manufacturing. NaPro leases
an additional 10,090 square foot facility in British Columbia, Canada which the
Company intends to sublease to a third party. NaPro has an option to purchase
7.3 acres of land in Longmont, Colorado as a potential site on which to build a
manufacturing facility and has until May 6, 1997, to exercise this option.
Item 3. Legal Proceedings
NaPro is not currently engaged in any material legal proceedings. See
"Patents and Proprietary Technology" and "Australian Petty Patents."
Item 4. Matters Submitted to Stockholders' Vote
No matters were submitted to a vote of NaPro's security holders during the
quarter ended December 1996.
-17-
<PAGE>
Part II
Item 5. Market Information and Related Stockholder Matters
Market Information
NaPro's Common Stock is traded in the Nasdaq National Market under the symbol
"NPRO." The following table sets forth, for the fiscal periods indicated, the
high and low sale prices for the Common Stock.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1995
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
1996
First Quarter $13 3/8 $ 8 7/8
Second Quarter 17 1/4 11 1/8
Third Quarter 15 1/4 8 5/8
Fourth Quarter 11 3/4 7 1/8
</TABLE>
Stockholders
As of December 31, 1996 there were approximately 138 stockholders of record of
NaPro's Common Stock.
Dividends
To date, NaPro has not paid any dividends on the Common Stock. NaPro intends to
retain future earnings, if any, to finance the operation and expansion of its
business and, therefore, does not anticipate paying any cash dividends in the
foreseeable future, if at all.
-18-
<PAGE>
Item 6. Selected Financial Data
The selected financial data presented below for each year in the five years
ended December 31, 1996, are derived from NaPro'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 data presented
below should be read in conjunction with the consolidated financial statements
at December 31, 1996 and 1995 and for each of the three years in the period
ended December 31, 1996, the related Notes thereto, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other financial
information included elsewhere in this Report.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Statement of Operations Data:
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue:
- ------------------------------------------------------------------------------------------------------------------------------------
Sales of products $ 363 $ 1,248 $ 1,002 $ 2,623 $ 3,473
- ------------------------------------------------------------------------------------------------------------------------------------
Other 202 1 5 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenue 565 1,249 1,007 2,623 3,473
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Expense:
- ------------------------------------------------------------------------------------------------------------------------------------
Research, development and cost of products sold 1,670 3,505 2,707 4,325 6,837
- ------------------------------------------------------------------------------------------------------------------------------------
General and administrative 1,215 2,690 2,044 2,310 3,739
- ------------------------------------------------------------------------------------------------------------------------------------
Faulding royalty - - 1,000 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Plantation cost - 7 1,238 272 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating expense 2,885 6,202 6,989 6,907 10,576
- ------------------------------------------------------------------------------------------------------------------------------------
Operating loss (2,320) (4,953) (5,982) (4,284) (7,103)
- ------------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Income 24 79 188 373 651
- ------------------------------------------------------------------------------------------------------------------------------------
Interest and other expense - (34) (340) (160) (373)
- ------------------------------------------------------------------------------------------------------------------------------------
Loss before extraordinary item (2,296) (4,908) (6,134) (4,071) (6,825)
- ------------------------------------------------------------------------------------------------------------------------------------
Loss on early extinguishment of debt - - (512) - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss $(2,296) $(4,908) $(6,646) $(4,071) $(6,825)
- ------------------------------------------------------------------------------------------------------------------------------------
Loss per share:
- ------------------------------------------------------------------------------------------------------------------------------------
Before extraordinary item $(0.38) $(0.79) $(0.91) $(0.51) $(0.68)
- ------------------------------------------------------------------------------------------------------------------------------------
Extraordinary item - - (0.08) - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss $(0.38) $(0.79) $(0.99) $(0.51) $(0.68)
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 6,103 6,201 6,761 7,973 9,973
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
- ------------------------------------------------------------------------------------------------------------------------------------
Cash, cash equivalents and short-term securities $ 86 $ 18 $1,400 $7,800 $14,767
- ------------------------------------------------------------------------------------------------------------------------------------
Working capital (26) (435) 3,169 8,453 14,224
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 918 2,120 4,976 11,953 25,021
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term obligations, net of current maturities 709 1,435 1,273 1,618 751
- ------------------------------------------------------------------------------------------------------------------------------------
Minority interest - - - 3,715 3,715
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated deficit (3,075) (7,983) (14,629) (18,700) (25,525)
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholder's equity (deficit) (190) (944) 3,037 5,424 16,569
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis provides information which NaPro's
management believes is relevant to an assessment and understanding of NaPro's
results of operations. This discussion should be read in conjunction with the
Financial Statements and Notes included elsewhere in this Report. Special Note:
Certain statements set forth below constitute "forward-looking statements"
within the meaning of the Reform Act. See "Business--Special Note Regarding
Forward-Looking Statements" for additional factors relating to such statements.
General
NaPro has devoted its efforts primarily to the development and implementation of
its EIP/TM/ technology for producing NBT paclitaxel. NaPro is currently
dependent exclusively on sales of NBT paclitaxel for revenue. Through December
31, 1996, 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, resulting in an accumulated deficit of $25.5
million as of December 31, 1996. 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 anticipates 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 its
Strategic Partners to obtain regulatory approval in the U.S. 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. Moreover, NaPro'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 NaPro's
revenue has increased as a result of this approval, NaPro does not currently
expect to reach profitability for the year ending December 31, 1997. 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 significant effect on NaPro's revenue and profitability.
In June 1996 NaPro completed the call of 2,070,000 redeemable warrants,
issuing 630,620 shares of Common Stock with the receipt of cash in the amount of
$3.1 million pursuant to cash exercise elections of 630,620 redeemable warrants,
and issuing 1,007,102 shares of Common Stock pursuant to Cash-less exercise
elections of 1,438,720 redeemable warrants.
In August 1996, NaPro closed a public offering of 1.79 million shares of its
Common Stock, which resulted in net proceeds of $13.8 million to the Company.
The proceeds of this offering are being used to establish and upgrade
manufacturing facilities and to fund NaPro's operations, capital expenditures,
additional plantation development and general corporate purposes.
Results of Operations
NaPro was in the development stage through December 31, 1994. Comparison of
operations between years and historical trends does not necessarily indicate
future trends and operating results of NaPro.
-20-
<PAGE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 Revenue.
- ---------------------------------------------------------------------
Revenue increased $900,000 to $3.5 million for 1996 from $2.6 million for 1995.
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 by nature. Although initial commercial sales commenced in January
1995, and increased in 1996, NaPro expects these sales to be unpredictable until
such time as the markets of the Strategic Partners have been established and
proven.
Research, Development and Cost of Products Sold. Research, development and cost
of products sold increased $2.5 million to $6.8 million for 1996 from $4.3
million for 1995. The increase was due primarily to an increase in the level of
process development and research, including higher production cost due to higher
production volume. NaPro's production process is not distinct from its
research and development processes. Accordingly, the cost of products sold is
included with NaPro's research and development expense.
General and Administrative Expense. General and administrative expense (G&A)
increased $1.4 million to $3.7 million for 1996 from $2.3 million for 1995.
This increase was due primarily to an increase in facility cost and an increase
in administrative and support staff.
Plantation Fees. Plantation fees decreased from $300,000 in 1995 to zero,
reflecting the completion of research related to plantation development as of
December 31, 1995. In 1996, NaPro began capitalizing plantation expenditures
incurred prior to the first commercial harvest and depletes such cost over the
remaining life of the plantation contract using the units-of-production method.
Interest Income. Interest income increased $300,000 to $700,000 for 1996 from
$400,000 for 1995. This increase was the result of larger free cash balances
associated with the completion of NaPro's offering of Common Stock in August
1996 and its warrant call completed in June 1996 (see Liquidity and Capital
Resources).
Interest and Other Expense. Interest and other expense increased $300,000 to
$400,000 for 1996 from $100,000 for 1995. The increase was attributable to
interest on increased borrowings on the equipment lease line and note payable to
Faulding (see Liquidity and Capital Resources).
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 Revenue.
- ---------------------------------------------------------------------
Revenue increased $1.6 million to $2.6 million for 1995 from $1 million for
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.
Research, Development and Cost of Products Sold. Research, development and cost
of products sold increased $1.6 million to $4.3 million for 1995 from $2.7
million for 1994. The increase was due primarily to an increase in the level of
process development and research, including higher production cost due to higher
production volume.
General and Administrative Expense. G&A increased $300,000 to $2.3 million for
1995 from $2 million for 1994. The increase was due primarily to an increase in
administrative and related support staff.
Faulding Royalty Expense and Plantation Fees. Plantation fees decreased
$900,000 to $300,000 for 1995 from $1.2 million for 1994. Higher fees during
1994 reflected the additional expense of establishing the plantation as opposed
to ongoing maintenance in 1995 (see Note 8 to the Financial Statements). The $1
-21-
<PAGE>
million 1994 Faulding royalty expense was a one-time charge.
Interest Income. Interest income increased $200,000 to $400,000 for 1995 from
$200,000 for 1994. This increase was the result of larger free cash
balances.
Interest and Other Expense. Interest and other expense decreased $200,000 to
$100,000 for 1995 from $300,000 for 1994. The decrease was the result of the
absence of interest on bridge loans which were paid off in 1994.
Liquidity and Capital Resources
NaPro's capital requirements have been and will continue to be significant. As
of December 31, 1996, NaPro had a working capital balance of $14.2 million.
This compared to a working capital balance of $8.5 million as of December 31,
1995. To date, the funding of NaPro's capital requirements has been dependent
primarily on net proceeds of public offerings of its common stock of
approximately $21.1 million, on private placements of its equity securities of
approximately $22.8 million, on the exercise of warrants and options of $4.3
million, and on capital leases, loans and advances from its stockholders and the
Strategic Partners.
Working Capital and Cash Flow Cash and cash equivalents increased $2.4 million
- -----------------------------
to $9.5 million for the year ended December 31, 1996 from $7.1 million at
December 31, 1995. Net cash provided by 1996 financing activity was partially
offset by $6.5 million used in operating activities, by capital expenditures of
$4.9 million and net purchases of investments of $4.9 million. Cash and cash
equivalents increased $6.2 million to $7.1 million at December 31, 1995 from
$900,000 at December 31, 1994. Net cash provided by 1995 financing activity was
partially offset by cash used in operations of $3 million, by capital
expenditures of $ 1.2 million and net purchases of investments of $100,000.
Inventory increased $1.1 million to $2.3 million in the year ended December 31,
1996 from $1.2 million at December 31, 1995. 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 NaPro's production planning for
meeting those needs. Inventory balances may vary significantly during product
development and launch periods. NaPro may make significant biomass investments
during 1997.
Capital Expenditures NaPro expended $4.9 million and $1.2 million,
- --------------------
respectively, during 1996 and 1995 for capital projects. These expenditures
primarily included plantation cost, initial work on a new large scale commercial
EIP/TM/ manufacturing facility in Boulder, and expansion and improvement to
NaPro's Boulder laboratories and facilities. In 1997, NaPro expects to invest
capital in property, plant and equipment, primarily to expand its plantation
operations, to complete the large scale commercial EIP/TM/ manufacturing
facility in Boulder and to upgrade and expand its extraction manufacturing
capabilities.
NaPro anticipates a significant increase in capital expenditures and operations
in 1997 in anticipation of possible NDA approval. Therefore, NaPro plans to
obtain additional capital during the year. If NaPro is not successful in
attracting capital, it will need to significantly reduce the scope of capital
expenditures and operations.
The amount and timing of future capital expenditures will depend upon numerous
factors, including 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
-22-
<PAGE>
existing strategic partnerships, the establishment of additional strategic
relationships and the cost of manufacturing scale-up. NaPro may seek additional
long-term financing to fund capital expenditures should such financing become
available on terms acceptable to NaPro.
Net Operating Loss Carryforwards As of December 31, 1996, NaPro had net
- --------------------------------
operating loss carryforwards for income tax purposes of approximately $22
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, NaPro 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 NaPro achieves profitability, such
limitation would have the effect of increasing NaPro's tax liability and
reducing the net income and available cash resources of NaPro if the taxable
income during a year exceeded the allowable loss carried forward to that year.
-23-
<PAGE>
Item 8. Financial Statements and Supplementary Data
The information required by this item begins at Page F-1.
Item 9. Changes in and Disagreements with Accountants
None
Part III
Item 10. Directors and Executive Officers
The information concerning NaPro's directors and executive officers is
incorporated by reference to the section entitled "Election of Directors" in the
Company's definition Proxy Statement with respect to the Company's 1997 Annual
Meeting of Stockholders (the "Proxy Statement").
Item 11. Executive Compensation
The section labeled "Executive Compensation" appearing in NaPro's Proxy
Statement is incorporated herein by reference, except for such information as
need not be incorporated by reference under rules promulgated by the Securities
and Exchange Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The section labeled "Security Ownership of Directors and Executive Officers and
Certain Beneficial Owners" appearing in NaPro's Proxy Statement is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The section labeled "Certain Relationships and related Transactions" appearing
in NaPro's Proxy Statement is incorporated herein by reference.
-24-
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Financial Statements
The Financial Statement Index is found on Page F-1.
Financial Statement Schedules
All schedules are omitted because they are not applicable or not required or
because the information is included in the consolidated financial statements or
the notes thereto.
Exhibits and Reports on Form 8-K
NaPro filed a November 8, 1996, Current Report Form 8-K reporting the adoption
of a Stockholder Rights Plan.
Exhibit
Number Description of Exhibit
- ----- ----------------------
3.1 Amended and Restated Certificate of Incorporation of the Company, as
amended August 2, 1996.
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 filed with the Commission for the quarter ended June 30, 1995 (File No.
0-24320).
3.3 Certificate of Designation for Series B Junior Participating Preferred
Stock. Incorporated herein by reference from the Company's November 8, 1996
Current Report Form 8-K (File No. 0-24320).
3.4 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 24, 1994 (File No. 33-78016).
4.1 Common Stock Certificate. Incorporated herein by reference from the
Registration Statement on Form S-1 of the Company, filed with the Commission on
July 24, 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 24, 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 24, 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 24, 1994 (File No. 33-78016).
4.5 The Certificate of Incorporation and Bylaws of the Company are included as
Exhibits 3.1 through 3.4.
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 24, 1994 (File No. 33-78016).
10.2* Company's 1994 Long-Term Performance Incentive Plan, as amended July 30,
1996.
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 24, 1994 (File No. 33-78016).
10.4 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 24, 1994
(File No. 33-78016).
10.5 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,
-25-
<PAGE>
filed with the Commission on July 24, 1994 (File No. 33-78016).
10.6 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 24, 1994
(File No. 33-78016).
10.7 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 24, 1994
(File No. 33-78016).
10.8 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 24, 1994
(File No. 33-78016).
10.9 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 24, 1994
(File No. 33-78016).
10.10 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 24, 1994 (File No. 33-78016).
10.11 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 24, 1994 (File No. 33-78016).
10.12 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 24, 1994 (File No. 33-78016).
10.13 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 24, 1994 (File No. 33-78016).
10.14 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 24, 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 Sterling K. Ainsworth. Incorporated herein by reference from the
Registration Statement on Form S-1 of the Company, filed with the Commission on
July 24, 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 Patricia A. Pilia. Incorporated herein by reference from the Registration
Statement on Form S-1 of the Company, filed with the Commission on July 24,
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 Lawrence Helson. Incorporated herein by reference from the Registration
Statement on Form S-1 of the Company, filed with the Commission on July 24, 1994
(File No. 33-78016).
10.18* 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 24, 1994 (File No. 33-78016).
10.19* 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 24, 1994 (File No. 33-78016).
10.20 Services and Supply Agreement dated as of December 1, 1993 between the
Company and Pacific
-26-
<PAGE>
BioTechnologies Inc. Incorporated herein by reference from the Registration
Statement on Form S-1 of the Company, filed with the Commission on July 24, 1994
(File No. 33-78016).
10.21 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 24, 1994 (File No. 33-78016).
10.22 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 24, 1994 (File No. 33-78016).
10.23 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).
10.24 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 24,
1994 (File No. 33-78016).
10.25 Lease dated February 28, 1995 between the Company and the Mutual Life of
Canada. Incorporated herein by reference from the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995 (File No. 0-24320).
10.26 Subscription Agreement and Investment Letter between the Company and
NaPro BioTherapeutics (Canada), Inc. Incorporated herein by reference from the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995
(File No. 0-24320).
10.27 Put/Call Agreement dated July 12, 1995 between the Company and the
Purchasers of Series A Preferred Shares of NaPro BioTherapeutics (Canada) Inc.
Incorporated herein by reference from the Company's Quarterly Report on Form 10-
Q for the quarter ended June 30, 1995 (File No. 0-24320).
10.28 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. 0-24320).
10.29 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. 0-24320).
10.30 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. 0-24320).
10.31 Purchase Agreement between the Company and certain purchasers of
Preferred Shares of NaPro BioTherapeutics (Canada) Inc. Incorporated herein by
reference from the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995 (File No. 0-24320).
10.32 Purchase Agreement between the Company and BPI Capital Management
Corporation as to Preferred Shares of NaPro BioTherapeutics (Canada) Inc.
Incorporated herein by reference from the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995 (File No. 0-24320).
10.33 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 (File No. 0-24320).
10.34 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 (File No.
0-24320).
10.35 Agreement between the Company and Pacific BioTechnologies Inc. dated
March 29, 1996. Incorporated herein by reference from the Company's Annual
Report on Form10-K for the year ended December 31, 1995 (File No. 0-24320).
10.36 Culture Agreement dated March 1, 1996 between Zelenka Nursey, Inc.
("Zelenka") and the Company. Incorporated herein by reference from the
Registration Statement on Form S-1 of the Company filed with the Commission on
August 1, 1996 (File No. 333-3051).
10.37 Agreement for Sale, Harvest and Storage of Nursey Stock dated May 1, 1996
between Zelenka
-27-
<PAGE>
and the Company. Incorporated herein by reference from the Registration
Statement on Form S-1 of the Company filed with the Commission on August 1, 1996
(File No. 333-3051).
10.38 Culture Agreement dated as of March 1, 1997 between Zelenka and the
Company. The Company is filing with the Commission a Confidential Treatment
Request with respect to this agreement, and accordingly, certain language has
been redacted.
10.39 Lease Agreement dated as of March 1, 1997 between Zelenka and the
Company. The Company is filing with the Commission a Confidential Treatment
Request with respect to this agreement, and accordingly, certain language has
been redacted.
10.40 Agreement for Sale, Harvest and Storage of Nursey Stock dated as of March
1, 1997 between Zelenka and the Company. The Company is filling with the
Commission a Confidential Treatment Request with respect to this agreement, and
accordingly, certain language has been redacted.
21.1 List of Subsidiaries. Incorporated herein by reference from the
Registration Statement of the Company on Form S-1, filed with the Commission on
May 20, 1996 (File No. 33-78016).
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Powers of Attorney
27.1 Financial Data Schedule.
*A management compensation plan.
-28-
<PAGE>
Signatures
Pursuant to Section 13 of the Securities Exchange Act of 1934, NaPro caused this
report to be signed on its behalf.
<TABLE>
<CAPTION>
NAPRO BIOTHERAPEUTICS, INC.
<S> <C> <C>
/s/ Sterling K. Ainsworth
Sterling K. Ainsworth, Ph.D President, Chief March 31, 1997
Executive Officer;
Director
<CAPTION>
Pursuant to the Exchange Act, this report has been signed on behalf of NaPro and
in the capacities indicated.
<S> <C> <C>
* Chairman of the Board of March 31, 1997
Leonard P. Shaykin Directors
/s/ Sterling K. Ainsworth President, Chief March 31, 1997
Sterling K. Ainsworth, Ph.D Executive Officer;
Director
/s/ Gordon H. Link, Jr. Vice President, Chief March 31, 1997
Gordon H. Link, Jr Financial Officer
(Principal Financial Officer)
/s/ Robert L. Poley Controller March 31, 1997
Robert L. Poley (Principal Accounting Officer)
* Director March 31, 1997
E. Garrett Bewkes, Jr.
* Director March 31, 1997
Vaughn D. Bryson
* Director March 31, 1997
Philip Frost, M.D.
* Director March 31, 1997
Arthur H. Hayes, Jr., M.D.
* Director March 31, 1997
Mark B. Hacken
* Director March 31, 1997
Richard C. Pfenniger, Jr.
/s/ Patricia A. Pilia Director March 31, 1997
Patricia A. Pilia, Ph.D
</TABLE>
*By:/s/ Gordon H. Link, Jr
Gordon H. Link, Jr., Attorney in Fact
-29-
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Financial Statements
Years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Index to Financial Statements
<S> <C>
Report of Independent Auditors......................................... F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheet............................................. F-3
Consolidated Statement of Operations................................... F-5
Consolidated Statement of Stockholders' Equity......................... F-6
Consolidated Statement of Cash Flows................................... F-8
Notes to Consolidated Financial Statements............................ F-10
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
NaPro BioTherapeutics, Inc.
We have audited the accompanying consolidated balance sheet of NaPro
BioTherapeutics, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. 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, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Denver, Colorado
January 26, 1997
F-2
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31
1995 1996
----------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,133,000 $9,531,000
Securities available for sale - 2,669,000
Securities held to maturity 667,000 2,567,000
Accounts receivable 326,000 662,000
Inventory:
Raw materials 287,000 495,000
Work-in-process 433,000 449,000
Finished goods 492,000 1,337,000
----------- ------------
1,212,000 2,281,000
Prepaid expenses and other 311,000 500,000
----------- ------------
Total current assets 9,649,000 18,210,000
Property and equipment, at cost (Note 4):
Plantation cost - 1,923,000
Laboratory equipment 1,359,000 2,086,000
Leasehold improvements 508,000 1,151,000
Office equipment and other 230,000 559,000
Construction in progress 407,000 1,645,000
----------- ------------
2,504,000 7,364,000
Accumulated depreciation 722,000 1,352,000
----------- ------------
Property and equipment, net 1,782,000 6,012,000
Restricted cash 124,000 415,000
Receivable from related parties 18,000 18,000
Other assets 380,000 366,000
----------- ------------
Total assets $11,953,000 $ 25,021,000
=========== ============
</TABLE>
F-3
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
<TABLE>
<CAPTION>
December 31
1995 1996
---- ----
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 663,000 $ 1,763,000
Accrued payroll and payroll taxes 338,000 519,000
Capital lease obligations--current (Note 4) 105,000 444,000
Notes payable--current (Note 3) 39,000 1,225,000
Deferred revenue 51,000 35,000
------------ ------------
Total current liabilities 1,196,000 3,986,000
Capital lease obligations--long term (Note 4) 299,000 751,000
Notes payable--long term (Note 3) 1,150,000 -
Compensation due to officers and directors 169,000 -
Commitments and contingencies (Notes 1 and 9)
Minority interest (Note 6) 3,715,000 3,715,000
Stockholders' equity (Note 6):
Preferred stock, $.001 par value:
Authorized shares - 2,000,000
Series A:
Issued and outstanding shares - 125,000 in
1995 and 1996 (preference in
liquidation $1,000,000) - -
Nonvoting common stock, convertible on disposi-
tion into voting common stock, $.0075 par
value:
Authorized shares - 1,000,000
Issued and outstanding shares - 400,000 in
1995 and 595,000 in 1996 3,000 4,000
Common stock, $.0075 par value:
Authorized shares - 19,000,000
Issued shares - 8,525,265 in 1995 and
11,986,089 in 1996 64,000 89,000
Additional paid-in capital 26,675,000 44,670,000
Unearned compensation (9,000) -
Notes receivable from stockholders (925,000) (985,000)
Deficit (18,700,000) (25,525,000)
Treasury stock - 144,288 shares in 1995 and 1996 (1,684,000) (1,684,000)
------------ ------------
Total stockholders' equity 5,424,000 16,569,000
------------ ------------
Total liabilities and stockholders' equity $ 11,953,000 $ 25,021,000
============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
Napro BioTherapeutics, Inc. and Subsidiaries
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Year ended December 31
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Sales of products $ 1,002,000 $ 2,623,000 $ 3,473,000
Other 5,000 - -
----------- ----------- ------------
1,007,000 2,623,000 3,473,000
Expense:
Research, development and cost of
products sold 2,707,000 4,325,000 6,837,000
General and administrative 2,044,000 2,310,000 3,739,000
Faulding royalty (Note 6) 1,000,000 - -
Plantation fees (Note 8) 1,238,000 272,000 -
----------- ----------- ------------
6,989,000 6,907,000 10,576,000
----------- ----------- ------------
Operating loss (5,982,000) (4,284,000) ( 7,103,000)
Other income (expense):
Interest income 188,000 373,000 651,000
Interest and other expense (340,000) (160,000) (373,000)
----------- ----------- ------------
Loss before extraordinary item (6,134,000) (4,071,000) (6,825,000)
Loss on early extinguishment of debt
(Note 6) (512,000) - -
----------- ----------- ------------
Net loss $(6,646,000) $(4,071,000) $ (6,825,000)
=========== =========== ============
Net loss per share:
Before extraordinary item $ (0.91) $(0.51) $(0.68)
Extraordinary item (0.08) - -
----------- ----------- ------------
Net loss $ (0.99) $(0.51) $(0.68)
=========== =========== ============
Weighted average shares outstanding 6,761,081 7,972,537 9,973,325
=========== =========== ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Series A Nonvoting Additional
Preferred Common Common Paid-in Unearned
Stock Stock Stock Capital Compensation
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ -- $ -- $42,000 $ 9,942,000 $(589,000)
Issuance of 265,000 shares of common stock at
$2.40 per share in exchange for cash, net of
offering cost of $87,000 -- -- 2,000 547,000 --
Issuance of 16,667 common stock warrants at $.01
per share in exchange for consulting services -- -- -- 42,000 --
Issuance of 33,333 common stock warrants at
$1.125 per share in exchange for employment services -- -- -- 40,000 --
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 cost of
$1,184,000 -- -- 14,000 7,339,000 --
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 --
Exercise of 30,667 common stock warrants for
cash, at prices ranging from $.10 to $2.40 per share -- -- -- 34,000 --
Issuance of 28,615 shares of common stock at $5.00
per share in exchange for notes payable -- -- -- 143,000 --
Amortization of unearned compensation -- -- -- -- 559,000
Interest receivable on officers' notes -- -- -- -- --
Net loss -- -- -- -- --
------------------------------------------------------------------------
Balance as of December 31, 1994 -- 3,000 58,000 20,124,000 (30,000)
Issuance of 1,364,263 shares of preferred stock at
$8.00 per share, net of offering cost of
$846,000 (725,513 shares in minority interest) 1,000 -- -- 4,267,000 --
<CAPTION>
Notes
Receivable
From Treasury
Stockholders Deficit Stock Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $(2,356,000) $ (7,983,000) $ - $ (944,000)
Issuance of 265,000 shares of common stock at
$2.40 per share in exchange for cash, net of
offering cost of $87,000 -- -- - 549,000
Issuance of 16,667 common stock warrants at $.01
per share in exchange for consulting services -- -- - 42,000
Issuance of 33,333 common stock warrants at
$1.125 per share in exchange for employment services -- -- - 40,000
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 cost of
$1,184,000 -- -- - 7,353,000
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 -- -- - 2,040,000
Exercise of 30,667 common stock warrants for
cash, at prices ranging from $.10 to $2.40 per share -- -- - 34,000
Issuance of 28,615 shares of common stock at $5.00
per share in exchange for notes payable -- -- - 143,000
Amortization of unearned compensation -- -- - 559,000
Interest receivable on officers' notes (133,000) -- - (133,000)
Net loss -- (6,646,000) - (6,646,000)
------------------------------------------------------------------------
Balance as of December 31, 1994 (2,489,000) (14,629,000) - 3,037,000
Issuance of 1,364,263 shares of preferred stock at
$8.00 per share, net of offering cost of
$846,000 (725,513 shares in minority interest) -- -- - 4,268,000
</TABLE>
F-6
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Consolidated Statement of Stockholders, Equity
Years ended December 31, 1994, 1995 and 1996 (continued)
<TABLE>
<CAPTION>
Series A Nonvoting Additional
Preferred Common Common Paid-in Unearned
Stock Stock Stock Capital Compensation
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 $(1,000) $ -- $ 6,000 $ 2,238,000 $ --
Exercise of 31,651 stock options at prices ranging
from $.75 per share to $2.40 per share -- -- -- 46,000 --
Repurchase of 144,288 shares of common stock at
$11.675 per share in exchange for cancellation
of indebtedness -- -- -- -- --
Interest receivable on officers' notes -- -- -- -- --
Amortization of unearned compensation -- -- -- -- 21,000
Net loss -- -- -- -- --
------------------------------------------------------------------------
Balance at December 31, 1995 -- 3,000 64,000 26,675,000 (9,000)
Exercise of warrants for 200,000 shares of nonvoting
common stock -- 1,000 -- 999,000 --
Exercise of 21,418 stock options at prices ranging from
$ .75 per share to $6.57 per share -- -- -- 66,000 --
Exercise of warrants for 1,640,389 shares of common
stock at prices ranging from $5.00 per share to $9.37
per share net of offering cost of $ 37,000 -- -- 12,000 3,129,000 --
Issuance of 1,790,000 shares of common stock at
$8.75 per share net of offering cost of $1,876,000 -- -- 13,000 13,773,000 --
Contribution of 4,017 shares of common stock at $7.00
per share to retirement plan -- -- -- 28,000 --
Interest receivable on officers' notes -- -- -- -- --
Amortization of unearned compensation -- -- -- -- 9,000
Conversion of 5,000 shares of nonvoting common stock
to 5,000 shares of common stock -- -- -- -- --
Net loss -- -- -- -- --
------------------------------------------------------------------------
Balance at December 31, 1996 $ -- $4,000 $89,000 $44,670,000 $ --
========================================================================
<CAPTION>
Notes
Receivable
From Treasury
Stockholders Deficit Stock Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 $ -- $ -- $ -- $ 2,243,000
Exercise of 31,651 stock options at prices ranging
from $.75 per share to $2.40 per share -- -- -- 46,000
Repurchase of 144,288 shares of common stock at
$11.675 per share in exchange for cancellation
of indebtedness 1,684,000 -- (1,684,000) --
Interest receivable on officers' notes (120,000) -- -- (120,000)
Amortization of unearned compensation -- -- -- 21,000
Net loss -- (4,071,000) -- (4,071,000)
------------------------------------------------------------------------
Balance at December 31, 1995 (925,000) (18,700,000) (1,684,000) 5,424,000
Exercise of warrants for 200,000 shares of nonvoting
common stock -- -- -- 1,000,000
Exercise of 21,418 stock options at prices ranging from
$ .75 per share to $6.57 per share -- -- -- 66,000
Exercise of warrants for 1,640,389 shares of common
stock at prices ranging from $5.00 per share to $9.37
per share net of offering cost of $ 37,000 -- -- -- 3,141,000
Issuance of 1,790,000 shares of common stock at
$8.75 per share net of offering cost of $1,876,000 -- -- -- 13,786,000
Contribution of 4,017 shares of common stock at $7.00
per share to retirement plan -- -- -- 28,000
Interest receivable on officers' notes (60,000) -- -- (60,000)
Amortization of unearned compensation -- -- -- 9,000
Conversion of 5,000 shares of nonvoting common stock
to 5,000 shares of common stock -- -- -- --
Net loss -- (6,825,000) -- (6,825,000)
------------------------------------------------------------------------
Balance at December 31, 1996 $ (985,000) $(25,525,000) $(1,684,000) $ 16,569,000
========================================================================
</TABLE>
See accompanying notes.
F-7
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net loss $(6,646,000) $(4,071,000) $(6,825,000)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization 474,000 270,000 669,000
Employee termination expense 82,000 - -
Compensation for common stock
and options 555,000 21,000 37,000
Loss on retirement of assets 335,000 163,000 28,000
Loss on early extinguishment of
debt 512,000 - -
Changes in operating assets and
liabilities:
Accounts receivable 115,000 (177,000) (336,000)
Inventory (706,000) 216,000 (1,069,000)
Prepaid expenses and other
current assets (887,000) 116,000 (235,000)
Accounts payable (736,000) 245,000 1,100,000
Accrued liabilities (48,000) 226,000 181,000
Deferred revenue (300,000) 15,000 (16,000)
----------- ---------- ----------
Net cash used by operating
activities (7,250,000) (2,976,000) (6,466,000)
Investing activities
Additions to property and
equipment (573,000) (1,209,000) (4,894,000)
Purchase of securities -
available for sale (2,932,000) (5,895,000) (3,439,000)
Purchase of securities - held
to maturity - (667,000) (2,462,000)
Proceeds from securities
available for sale 2,436,000 6,451,000 750,000
Proceeds from securities held
to maturity - - 167,000
Transfer of restricted cash - (124,000) 124,000
----------- ----------- -----------
Net cash used by investing
activities (1,069,000) (1,444,000) (9,754,000)
Financing activities
Increase in deferred
revenue--long term 350,000 - -
Proceeds from notes payable and
capital lease 1,571,000 640,000 1,349,000
Payments under notes payable
and capital leases (2,155,000) (251,000) (555,000)
Payment for compensation due
officers - - (169,000)
Proceeds from sale of common
and preferred stock 10,698,000 5,156,000 19,906,000
Proceeds from sale of preferred
stock by subsidiary - 5,959,000 -
Offering cost of common and
preferred stock (1,271,000) (843,000) (1,913,000)
----------- ----------- -----------
Net cash provided by financing
activities 9,193,000 10,661,000 18,618,000
----------- ----------- -----------
Net increase in cash and cash
equivalents 874,000 6,241,000 2,398,000
Cash and cash equivalents at
beginning of year 18,000 892,000 7,133,000
----------- ----------- -----------
Cash and cash equivalents at end
of year $ 892,000 $ 7,133,000 $ 9,531,000
=========== =========== ===========
</TABLE>
F-8
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended December 31
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Supplemental schedule of noncash investing and
financing activities
Notes and related interest receivable from
stockholders $133,000 $ 120,000 $ 60,000
Repayment of notes receivable from stockholders
through transfer of treasury stock to the Company - 1,684,000 -
Conversion of deferred revenue to long-term debt - 1,100,000 -
Conversion of preferred shares of subsidiary to
common shares of Parent - 2,243,000 -
Reclassification of securities held to maturity,
to restricted cash - - 415,000
</TABLE>
See accompanying notes.
F-9
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 1996
1. Basis of Presentation and Summary of Significant Accounting Policies
Organization
NaPro BioTherapeutics, Inc. ("NaPro" or "the Company") was originally
incorporated in 1991 as a Washington corporation. In September 1993, NaPro
merged into a wholly-owned subsidiary, a Delaware corporation.
In November 1994, NaPro formed a subsidiary, NaPro BioTherapeutics (Canada),
Inc., of which the Company owns 87.3% of the voting rights. In February 1996
NaPro formed a wholly owned subsidiary, NaPro BioTherapeutics (Ireland) Limited.
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 subsidiaries. All transactions have been accounted for at
historical cost. All balances and transactions between these entities have been
eliminated in the accompanying financial statements.
Description of Business
NaPro focuses on the development, manufacture and commercialization of natural
product pharmaceuticals, particularly paclitaxel (referred to in some scientific
and medical literature as "taxol"*), a naturally occurring cancer-fighting
compound found in certain species of yew (Taxus) trees.
NaPro anticipates a significant increase in capital expenditures and operations
in 1997. To fund such activity, it plans to obtain significant amounts of new
capital during the year. If NaPro is not successful in attracting capital, it
will need to significantly reduce the scope of such activity.
- -------------
*TAXOL(R) is a registered trademark of Bristol-Myers Squibb Company
(Bristol- Myers Squibb) for an anticancer pharmaceutical preparation containing
paclitaxel.
F-10
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Basis of Presentation and Summary of Significant Accounting Policies
(continued)
Cash Equivalents, Securities Available for Sale and Securities Held to Maturity
NaPro considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents. Securities available for sale are
investment-grade securities and are carried at fair value. Such securities
available for sale include $1,311,000 which mature in 1998. The remainder mature
in 1997. Securities held to maturity are investment grade securities and are
carried at amortized cost.
Revenue Recognition
Revenue from product sales is recognized at the time of shipment. NaPro's
production process is not distinct from its research and development processes.
Accordingly, the cost of products sold is included with NaPro's research and
development expense. Licensing fees and other revenue 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.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, securities, accounts
receivable and payable, notes payable and capital lease obligations approximate
fair value.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or market.
Research and Development
NaPro expenses research and development cost as it is incurred.
Plantation Cost
In 1996 NaPro determined the cultivation of renewable sources of biomass to be
used in the manufacture of paclitaxel is a technically feasible business
strategy. Prior to 1996 plantation expenditures were expensed as research and
development and were separately reported on the statement of operations. In 1996
NaPro began capitalizing plantation expenditures incurred prior to the first
commercial harvest and depletes such cost over the remaining life of the
plantation contract using the units-of-production method. Plantation
expenditures include the acquisition cost of trees and bushes and the related
cost of planting and growing.
F-11
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Basis of Presentation and Summary of Significant Accounting Policies
(continued)
Depreciation and Amortization
Depreciation of property and equipment, including that recorded under capital
leases, is computed on the straight-line method over estimated useful lives
generally between three and seven years. Leasehold improvements are amortized
over the lesser of estimated useful lives or the lease term. Depreciation and
amortization expense is 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
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.
Long-Lived Assets
Effective January 1996, NaPro adopted Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
("Statement 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. The adoption of Statement 121 had no significant
impact on the financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of management's estimates and
assumptions. Actual results could vary from the estimates used.
Reclassifications
Certain reclassifications have been made to the 1994 and 1995 financial
statements to conform with the 1996 financial statement presentation.
F-12
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Basis of Presentation and Summary of Significant Accounting Policies
(continued)
Foreign and Domestic Operations and Export Sales; Significant Customers
Domestic and foreign financial information is as follows:
<TABLE>
<CAPTION>
United Total
Year States Canada Eliminations Company
---- ------ ------ ------------ -------
<S> <C> <C> <C> <C> <C>
Net sales to affiliated and
unaffiliated customers 1994 $1,002,000 $ 148,000 $ (148,000) $1,002,000
1995 2,623,000 569,000 (569,000) 2,623,000
1996 3,473,000 1,781,000 (1,781,000) 3,473,000
Operating loss 1994 5,914,000 68,000 -- 5,982,000
1995 3,851,000 433,000 -- 4,284,000
1996 6,719,000 384,000 -- 7,103,000
Identifiable assets
December 31, 1995 9,226,000 6,820,000 (4,093,000) 11,953,000
1996 22,587,000 4,823,000 (2,389,000) 25,021,000
</TABLE>
Substantially all of NaPro's accounts receivable at December 31, 1995 and 1996
were from F.H. Faulding & Co., Limited ("Faulding") (see Note 8). NaPro is
dependent on sales to its two development and marketing partners, Faulding and
the Baker 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>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Faulding 15% 75% 72%
IVAX 71% 22% 25%
</TABLE>
2. Other Related Party Transactions
In conjunction with employment, NaPro agreed to loan an officer up to $20,000.
In January 1994, $18,000 was advanced under this agreement and remains
outstanding at December 31, 1996.
NaPro recorded $707,000, $589,000 and $882,000 in 1994, 1995 and 1996,
respectively, in sales to IVAX, a marketing and development partner which owned
14.3%, 13.2% and 9.4% of NaPro's outstanding shares of common stock (see Notes 1
and 8) at December 31, 1994, 1995 and 1996, respectively.
F-13
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Other Related Party Transactions (continued)
In August 1995, NaPro repurchased 144,288 shares of its common stock from
executive officers in exchange for the cancellation of certain indebtedness owed
by such officers of $1,684,000 to NaPro. Included in the canceled indebtedness
was $193,000 of accrued interest (see Notes 6 and 11).
3. Notes Payable
In 1992, 1993 and 1994, Faulding made advance payments to NaPro totaling
$1,100,000. In March 1995, NaPro 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 $16,000 at December 31, 1996. 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, 1996,
interest accrued on $1,000,000 of the principal balance.
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31
1995 1996
---- ----
<S> <C> <C>
Note payable to Faulding, net of unamortized original
issue discount, due in June 1997, interest at 9%
accruing on $1,000,000, payable quarterly $1,150,000 $1,184,000
Note payable, due in March 1997, interest at 5.74%,
accruing monthly - 41,000
Note payable, paid in March 1996. 39,000 -
---------- ----------
1,189,000 1,225,000
Less amounts currently payable 39,000 1,225,000
---------- ----------
Notes payable-long term $1,150,000 $ -
========== ==========
</TABLE>
Interest paid approximated interest expense for the year ended December 31,
1994. For the years ended December 31, 1995 and 1996, interest paid was $70,000
and $197,000 respectively.
F-14
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Capital Lease Obligations
NaPro's property held under capital leases consisted of the following, which is
included in property and equipment:
<TABLE>
<CAPTION>
December 31
1995 1996
---- ----
<S> <C> <C>
Office equipment $ 73,000 $ 321,000
Laboratory equipment 356,000 792,000
--------- ----------
429,000 1,113,000
Less accumulated depreciation 96,000 287,000
--------- ----------
$ 333,000 $ 826,000
========= ==========
</TABLE>
At December 31, 1996, minimum payments under capital lease obligations were:
<TABLE>
<S> <C>
1997 $ 618,000
1998 580,000
1999 185,000
----------
Net minimum lease payments 1,383,000
Less amount representing interest 188,000
----------
Present value of minimum lease payments 1,195,000
Less current portion 444,000
----------
$ 751,000
==========
</TABLE>
NaPro 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, 1996, no funds have been
drawn on the letter of credit.
NaPro is required to maintain certificates of deposit for 33% of the remaining
principal outstanding under capital lease obligations ($415,000 at December 31,
1996) as collateral as long as a letter of credit is outstanding. Such pledged
amounts are classified as restricted cash in the accompanying consolidated
balance sheet.
F-15
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Income Taxes
As of December 31, 1996, NaPro had net operating loss carryforwards for income
tax purposes of $21,968,000 and research and development credits of $209,000 to
offset future taxable income in the United States, expiring as follows:
<TABLE>
<CAPTION>
Net Research and
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
2011 6,788,000 50,000
----------- --------
$21,968,000 $209,000
=========== ========
</TABLE>
The Tax Reform Act of 1986 contains provisions that limit the utilization of net
operating loss and tax credit carryforwards if there has been a "change of
ownership" as described in Section 382 of the Internal Revenue Code. Such a
change of ownership may limit the Company's utilization of its net operating
loss and tax credit carryforwards, and could be triggered by sales of securities
by the Company or its stockholders.
In Canada, NaPro has net operating loss carryforwards of approximately
US$354,000, expiring in 2002 and 2003.
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 components of
NaPro's deferred tax liabilities and assets with respect to United States taxing
authorities are as follows:
F-16
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Income Taxes (continued)
<TABLE>
<CAPTION>
December 31
1995 1996
---- ----
<S> <C> <C>
Deferred tax liabilities:
Stock option compensation $ - $ 97,000
Other 42,000 47,000
----------- ----------
Total deferred tax liabilities 42,000 144,000
Deferred tax assets:
Tax net operating loss carryforward 5,735,000 8,238,000
Deferred compensation 64,000 -
Amortization 262,000 248,000
Research and development credits 159,000 209,000
Excess of book over tax depreciation 72,000 64,000
Other 133,000 124,000
----------- ----------
Total deferred tax assets 6,425,000 8,883,000
Valuation allowance (6,383,000) 8,739,000
----------- ----------
Net deferred tax assets 42,000 144,000
----------- ----------
$ - $ -
=========== ==========
</TABLE>
Significant components of NaPro's deferred tax assets with respect to Canadian
taxing authorities are as follows:
<TABLE>
<CAPTION>
December 31
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Excess of book over tax depreciation $ 26,000 $ 54,000
Valuation allowance (26,000) (54,000)
-------- --------
$ - $ -
======== ========
</TABLE>
6. Stockholders' Equity
In March 1994, NaPro 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 preferred stock. In July
1994, NaPro 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 Subscription Agreement and Executive Agreements
In June 1993, NaPro entered into a Subscription Agreement (the "Subscription
Agreement") with IVAX pursuant to which the Company sold 1,106,398 shares of
F-17
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Stockholders' Equity (continued)
NaPro'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).
In connection with the Subscription Agreement, NaPro 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 $2,289,000. The notes are secured by the common stock and accrue
interest at the greater of the prime rate minus 1% and the applicable federal
rate. 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 NaPro 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, NaPro repurchased 144,288 shares of common
stock from certain of these officers in cancellation of $1,684,000 of this
indebtedness (see Notes 2 and 11).
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 NaPro'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, NaPro 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 in the principal amount of $50,000, due on the earlier of the
consummation of NaPro'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 NaPro'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. NaPro received gross proceeds of $1,325,000 with respect to the sale of
such Units. After the payment of $133,000 in placement fees to the underwriter
who acted as placement agent for NaPro with respect to the sale of such Units,
and other offering expenses of approximately $75,000, NaPro received net
proceeds of approximately $1,117,000 from the sale of the Units. The Bridge
Financing resulted in NaPro's issuance of a total of $1,325,000 principal amount
of Bridge Notes and 265,000 shares of common stock. Upon closing of NaPro'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 $512,000 extraordinary loss.
F-18
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Stockholders' Equity (continued)
Initial Public Offering of Common Stock and Redeemable Warrants
In August 1994, NaPro 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 were
separately transferable. Each warrant entitled 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 net proceeds of the offering to NaPro were $7,353,000 (after deduction of
the underwriting discount and 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 $308,000 to general and administrative expense. In June
1996 NaPro completed the call of the 2,070,000 redeemable warrants, issuing
630,620 shares of common stock with the receipt of cash in the amount of
$3,116,000 (net of offering cost of $37,000) pursuant to Cash exercise elections
of redeemable warrants, and issuing 1,007,102 shares of common stock pursuant to
Cash-less exercise elections of 1,438,720 redeemable warrants.
Faulding Private Placement and Elimination of the Faulding Royalty
Contemporaneously with consummation of the IPO, NaPro sold to Faulding in a
private transaction (the "Faulding Private Placement") 400,000 shares of NaPro'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. In 1996 Faulding exercised 200,000 of the warrants. 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 NaPro's liability to
Faulding resulting from Faulding's royalty rights under the Faulding Agreement
(the "Faulding Royalty") and cash of $1,040,000 was
F-19
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Stockholders' Equity (continued)
received by NaPro. Under the Faulding Royalty, NaPro would have been obligated
to pay Faulding 4% of NaPro'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 expensed, and was separately reflected in the statement
of operations for the year ended December 31, 1994.
Preferred Stock Private Placement
In July 1995, NaPro closed a private placement of 638,750 shares of Convertible
Preferred Stock, Series A (the "US Preferred") of NaPro BioTherapeutics, Inc.,
for net proceeds of $4,268,000.
In July and August 1995, NaPro closed a private placement of 725,513 shares of
Exchangeable Preferred Stock, Series A (the "Canadian Preferred") of NaPro's
Canadian subsidiary, NaPro BioTherapeutics (Canada), Inc. ("NaPro Canada"), for
net proceeds of $5,959,000.
The U.S. Preferred has a liquidation preference of $8.00 per share and is
immediately convertible into common stock of NaPro on a share-for-share basis at
the option of the holder. The U.S. Preferred may be redeemed by NaPro at its
liquidation value beginning one year after issuance if the average trading price
for the NaPro 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 NaPro 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. NaPro 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 CD$11.00 per share and
may be exchanged for common stock of NaPro on a share-for-share basis at any
time after December 1, 1995. NaPro has the option to acquire the Canadian
Preferred at its liquidation value beginning one year after issuance if the
average trading price for the NaPro common stock over a 20 trading day period
has equaled or exceeded the equivalent of CD$22.00 and beginning three years
after issuance if such trading price has equaled or exceeded the equivalent of
CD$13.75. Holders may elect to exchange their Canadian Preferred for common
stock of NaPro at any time prior to 15 business days prior to the date fixed for
NaPro to acquire the shares under the foregoing option. Holders have the option
to require NaPro to purchase the Canadian Preferred for its liquidation
preference at any time after September 30, 2000. NaPro 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.
F-20
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Stockholders' Equity (continued)
At December 31, 1996, a total of 513,750 shares of the U.S. Preferred had been
converted into 513,750 shares of common stock of NaPro and 266,421 shares of the
Canadian Preferred had been exchanged for 266,421 shares of common stock of
NaPro.
NaPro 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.
Public Offering of Common Stock
In August 1996 NaPro closed a public offering of 1,790,000 shares of its common
stock, including 190,000 shares issued to cover over allotments, which resulted
in net proceeds of $13,786,000 to the Company.
Stockholder Rights Plan
In November 1996, NaPro adopted a Stockholder Rights Plan and distributed a
dividend of one Right to purchase one one-hundredth of a share of a new series
of junior participating preferred stock for each share of NaPro common stock.
The objective of the Rights Plan is to secure for stockholders the long term
value of their investment and to protect stockholders from coercive takeover
attempts by strongly encouraging anyone seeking to acquire NaPro to negotiate
with its Board of Directors. The adoption of the Rights Plan was not in response
to any hostile takeover proposal or any other recent events.
The Rights trade with common stock as a unit unless the Rights become
exercisable upon the occurrence of certain triggering events relating to the
acquisition of 20% or more of common stock. In certain events after the Rights
become exercisable they will entitle each holder, other than the acquiror, to
purchase, at the Rights' then current exercise price (currently set at $60), a
number of shares of common stock having market value of twice the Right's
exercise price or a number of the acquiring company's common shares having a
market value at the time of twice the Rights' exercise price. For example, in
the event of an acquisition of greater than 20% of the Company's stock without
approval of the NaPro Board of Directors, the Company's stockholders (other than
the 20% acquiror) would have the right to purchase $120 worth of stock for $60.
A stockholder would have one such right for each share of stock held at the time
the rights become exercisable.
NaPro may amend the Rights except in certain limited respects or redeem the
Rights at $0.01 per Right, in each case at any time prior to the Rights becoming
exercisable. The Rights will expire on November 8, 2006.
F-21
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Common Stock Warrants and Options
Common Stock Warrants
NaPro has granted warrants to purchase shares of its common stock. The following
summarizes warrant activity:
<TABLE>
<CAPTION>
Exercise Expiration
Warrants Price Dates
-------- ----- -----
<S> <C> <C> <C>
Outstanding at December 31, 1994 2,610,446 $0.075-$9.37 1996-2004
Granted -
Exercised
---------
Outstanding at December 31, 1995 2,610,446 $0.075-$9.37 1997-2004
Granted -
Exercised 2,072,007 $5.00-$9.37 1996-1998
---------
Outstanding at December 31, 1996 538,439 $0.075-$7.50 1997-2004
=========
</TABLE>
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 NaPro
acquired all of the outstanding common stock of PB, all options to purchase PB
common stock were exchanged for options to purchase 159,467 shares of NaPro'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 2004.
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 NaPro's common stock.
The initial term of the Plan is ten years, and the maximum option exercise
period shall be no more than ten years from the date of grant. The term of
options for 667 or more shares is eight years, and the term of options for fewer
than 667 shares is five years. Options for 667 shares or more vest 25% after
each anniversary date of the grant, and options for fewer than 667 shares vest
50% after each anniversary date of the grant. The exercise price for stock
options issued under the Plan is equal to the fair market value of NaPro's
common stock.
F-22
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Common Stock Warrants and Options (continued)
1994 Long-Term Performance Incentive Plan
In July 1994, NaPro's stockholders 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, increased to 875,000 shares
with stockholders' approval in July 1996. The Incentive Plan provides for
granting to employees and other key individuals who perform services for NaPro
("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 NaPro or one of its subsidiaries and who is elected or
re-elected as a director of NaPro 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. In July 1996 the stockholders increased this option provision from
5,000 to 10,000 shares.
The following summarizes stock option activity and balances:
<TABLE>
<CAPTION>
Weighted
Average
Stock Exercise Exercise
Options Price Price
------- ----- -----
<S> <C> <C> <C>
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 440,700 7.13 - 11.13 $8.28
Canceled (5,500) 6.00 - 10.13 8.57
Exercised (21,418) .75 - 6.57 3.11
--------
Outstanding at December 31, 1996 981,389 .19 - 11.75 6.55
========
</TABLE>
The weighted-average fair value of options granted during 1996 was $4.94.
Exercisable shares at December 31, 1996 were 353,613 with a weighted-average
exercise price of $3.56. The weighted-average remaining contractual life of the
outstanding options was 8.2 years.
F-23
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Common Stock Warrants and Options (continued)
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting and Disclosure of Stock-Based
Compensation ("Statement 123"). Statement 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. NaPro has elected to continue to follow APB No. 25 and related
interpretations in accounting for its employee stock options.
Pro forma information regarding net income and earnings per share is required by
Statement 123, which also requires that the information be determined as if the
Company had accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1995
and 1996 respectively: risk-free interest rate range of 5.64% to 6.89%; no
expected dividend; volatility factor of .58; and an estimated expected life
range of four to six years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Pro forma net loss $(4,183,000) $(7,610,000)
============ ============
Pro forma loss per share $ (0.52) $ (0.76)
============ ============
</TABLE>
Statement 123 is applicable only to options granted subsequent to December 31,
1994. Because options vest over periods of up to four years, the pro forma
effect of the Statement will not be fully reflected until 1998.
F-24
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Strategic Alliances
NaPro has entered into strategic alliances with two pharmaceutical companies,
Faulding and IVAX, that have the capabilities to obtain commercial approval for
NaPro's paclitaxel and to establish NaPro's paclitaxel as a major product in the
market. These strategic partners have assumed 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 NaPro to undertake.
The Faulding Agreement
In 1992, NaPro 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 NaPro in certain countries in the Middle East. Pursuant to the
Faulding Agreement, Faulding paid NaPro a $200,000 licensing fee and also
provided NaPro $1,100,000 of advances. These amounts were converted into notes
payable upon the delivery by NaPro of the corresponding value of paclitaxel (see
Note 3).
The Faulding Agreement provides that NaPro shall supply all of Faulding's
requirements for paclitaxel. NaPro 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, NaPro 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, NaPro 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, NaPro 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 NaPro for 19.8% of NaPro's then outstanding common stock
(see Note 6).
The IVAX Agreement provides that NaPro shall supply all of IVAX's requirements
for paclitaxel. NaPro 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.
F-25
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Strategic Alliances (continued)
The PBI Agreement
In March 1994, NaPro entered into a ten-year initial-term contract with Pacific
Biotechnol ogies, 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 NaPro with a long-term renewable supply of Taxus biomass.
Pursuant to such agreement, NaPro is obligated to pay PBI an annual fee equal to
its cost in performing its obligations under the agreement plus overhead and a
specified profit.
NaPro applied $1,500,000 of the net proceeds of its August 1994 initial public
offering to prepay in full, at a discount, all fees, interest thereon, and all
other amounts accrued through December 31, 1995.
9. Commitments and Contingencies
Operating Leases
NaPro has executed noncancelable operating lease agreements for office, research
and production facilities. As of December 31, 1996, future minimum lease
payments under noncancelable operating lease agreements are as follows:
<TABLE>
<S> <C>
1997 $ 554,000
1998 499,000
1999 511,000
2000 438,000
----------
Total $2,002,000
==========
</TABLE>
Rent expense for the years ended December 31, 1994, 1995 and 1996 amounted to
$146,000, $262,000 and $564,000, respectively.
Intellectual Property Contingency
NaPro's intellectual property is a key asset. NaPro's intellectual property
rights are subject to legal challenge. Such rights are uncertain and involve
complex legal and factual questions for which important legal principles are
largely unresolved. A number of other entities have developed technologies that
may be related to NaPro's technology. Many of these entities are larger and have
significantly greater resources than NaPro. Some of the technologies may
conflict with NaPro's technologies, and therefore increase the potential of
legal challenge.
F-26
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Commitments and Contingencies (continued)
NaPro relies on trade secret protection for its confidential and proprietary
information. There can be no assurance that competitors or potential competitors
of NaPro will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to NaPro's trade secrets or
disclose such technology, or that NaPro can meaningfully protect its trade
secrets.
Faulding - Bristol-Myers Squibb Litigation
NaPro's 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, NaPro management believes the Bristol-Myers Squibb action will be
successfully resisted.
Uncertainty Over the Selling Price Under the Faulding Agreement
Under the Faulding Agreement (see Note 8), NaPro 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. NaPro 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 NaPro. On
or about April 30, 1997, Faulding will communicate to NaPro the final amount of
sales, and an adjustment will be calculated, which may either increase or
decrease NaPro's revenue from sales of products to Faulding for 1996 and 1997.
Raw Materials Purchase Commitments
NaPro has committed to purchase approximately $1,500,000 of raw materials in
1997.
10. Retirement Plan
During 1996 NaPro adopted a defined contribution retirement plan for its
employees established in accordance with the provisions of Internal Revenue Code
section 401(k) (the "Plan"). Employees over the age of 17 are eligible to
participate in the Plan on the first day of the month immediately following the
completion of six months of continuous service or 1,000 hours of service during
a 12 continuous month period.
Participants may contribute up to 15% of their pay to the Plan. NaPro may make
additional contributions to the Plan on behalf of the participants in the form
of cash or in shares of
F-27
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Retirement Plan (continued)
NaPro's common stock. In 1996, NaPro elected to match 50% of the first $2,000 in
contributions of each participating employee as of December 31, 1996 with NaPro
common stock totaling $28,000.
11. Subsequent Event
Related Party Transaction
In January 1997 NaPro repurchased 74,550 shares of its common stock from a NaPro
executive officer in exchange for the cancellation of indebtedness (including
accrued interest of $192,000) owed by the officer to NaPro of $990,000.
F-28
<PAGE>
Exhibit Index
Exhibit
Number Description of Exhibit
- ----- ----------------------
3.1 Amended and Restated Certificate of Incorporation of the Company, as
amended August 2, 1996.
3.2 Certificate of Designation for Convertible Preferred Stock, Series A.
Incorporated herein by reference from the Company's Quarterly Report on
Form10-Q filed with the Commission for the quarter ended June 30, 1995
(File No. 0-24320).
3.3 Certificate of Designation for Series B Junior Participating Preferred
Stock. Incorporated herein by reference from the Company's November 8,
1996 Current Report Form 8-K (File No. 0-24320).
3.4 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 24, 1994 (File No. 33-78016).
4.1 Common Stock Certificate. Incorporated herein by reference from the
Registration Statement on Form S-1 of the Company, filed with the
Commission on July 24, 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 24, 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 24, 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 24, 1994 (File No. 33-78016).
4.5 The Certificate of Incorporation and Bylaws of the Company are included
as Exhibits 3.1 through 3.4.
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 24, 1994 (File No. 33-78016).
10.2* Company's 1994 Long-Term Performance Incentive Plan, as amended July 30,
1996.
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 24, 1994 (File No. 33-78016).
10.4 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 24, 1994 (File No. 33-78016).
10.5 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,
<PAGE>
filed with the Commission on July 24, 1994 (File No. 33-78016).
10.6 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 24, 1994 (File No. 33-78016).
10.7 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 24, 1994 (File No. 33-78016).
10.8 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
24, 1994 (File No. 33-78016).
10.9 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 24, 1994 (File No. 33-78016).
10.10 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 24, 1994
(File No. 33-78016).
10.11 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 24, 1994 (File No. 33-78016).
10.12 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 24, 1994 (File No. 33-78016).
10.13 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 24, 1994
(File No. 33-78016).
10.14 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 24, 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 Sterling K. Ainsworth. Incorporated herein by reference
from the Registration Statement on Form S-1 of the Company, filed with
the Commission on July 24, 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 Patricia A. Pilia. Incorporated herein by reference from
the Registration Statement on Form S-1 of the Company, filed with the
Commission on July 24, 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 Lawrence Helson. Incorporated herein by reference from the
Registration Statement on Form S-1 of the Company, filed with the
Commission on July 24, 1994 (File No. 33-78016).
10.18* 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 24, 1994
(File No. 33-78016).
10.19* 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 24, 1994 (File No. 33-
78016).
10.20 Services and Supply Agreement dated as of December 1, 1993 between the
Company and Pacific
2
<PAGE>
BioTechnologies Inc. Incorporated herein by reference from the
Registration Statement on Form S-1 of the Company, filed with the
Commission on July 24, 1994 (File No. 33-78016).
10.21 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 24, 1994 (File No. 33-78016).
10.22 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 24, 1994 (File No. 33-
78016).
10.23 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).
10.24 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 24, 1994 (File No. 33-78016).
10.25 Lease dated February 28, 1995 between the Company and the Mutual Life
of Canada. Incorporated herein by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 (File
No. 0-24320).
10.26 Subscription Agreement and Investment Letter between the Company and
NaPro BioTherapeutics (Canada), Inc. Incorporated herein by reference
from the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995 (File No. 0-24320).
10.27 Put/Call Agreement dated July 12, 1995 between the Company and the
Purchasers of Series A Preferred Shares of NaPro BioTherapeutics
(Canada) Inc. Incorporated herein by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 (File
No. 0-24320).
10.28 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. 0-24320).
10.29 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. 0-24320).
10.30 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. 0-24320).
10.31 Purchase Agreement between the Company and certain purchasers of
Preferred Shares of NaPro BioTherapeutics (Canada) Inc. Incorporated
herein by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995 (File No. 0-24320).
10.32 Purchase Agreement between the Company and BPI Capital Management
Corporation as to Preferred Shares of NaPro BioTherapeutics (Canada)
Inc. Incorporated herein by reference from the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995 (File No. 0-
24320).
10.33 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 (File No. 0-
24320).
10.34 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 (File No. 0-24320).
10.35 Agreement between the Company and Pacific BioTechnologies Inc. dated
March 29, 1996. Incorporated herein by reference from the Company's
Annual Report on Form10-K for the year ended December 31, 1995 (File
No. 0-24320).
10.36 Culture Agreement dated March 1, 1996 between Zelenka Nursey, Inc.
("Zelenka") and the Company. Incorporated herein by reference from the
Registration Statement on Form S-1 of the Company filed with the
Commission on August 1, 1996 (File No. 333-3051).
10.37 Agreement for Sale, Harvest and Storage of Nursey Stock dated May 1,
1996 between Zelenka
3
<PAGE>
and the Company. Incorporated herein by reference from the Registration
Statement on Form S-1 of the Company filed with the Commission on
August 1, 1996 (File No. 333-3051).
10.38 Culture Agreement dated as of March 1, 1997 between Zelenka and the
Company. The Company is filing with the Commission a Confidential
Treatment Request with respect to this agreement, and accordingly,
certain language has been redacted.
10.39 Lease Agreement dated as of March 1, 1997 between Zelenka and the
Company. The Company is filing with the Commission a Confidential
Treatment Request with respect to this agreement, and accordingly,
certain language has been redacted.
10.40 Agreement for Sale, Harvest and Storage of Nursey Stock dated as of
March 1, 1997 between Zelenka and the Company. The Company is filling
with the Commission a Confidential Treatment Request with respect to
this agreement, and accordingly, certain language has been redacted.
21.1 List of Subsidiaries. Incorporated herein by reference from the
Registration Statement of the Company on Form S-1, filed with the
Commission on May 20, 1996 (File No. 33-78016).
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Powers of Attorney
27.1 Financial Data Schedule.
*A management compensation plan.
4
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NAPRO BIOTHERAPEUTICS, INC.
(as amended through August 2, 1996)
ARTICLE ONE
-----------
The name of the corporation is NaPro BioTherapeutics, Inc. (the "Corporation").
ARTICLE TWO
-----------
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, County of New Castle, Wilmington, Delaware,
19801. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE THREE
-------------
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE FOUR
------------
I. AUTHORIZED SHARES
-----------------
The total number of shares of stock which the Corporation has
authority to issue is 22,000,000 shares, 19,000,000 of which shall be Common
Stock, with a par value of $.0075 per share, 1,000,000 of which shall be
Nonvoting Common Stock, with a par value of $.0075 per share and 2,000,000 of
which shall be Preferred Stock, with a par value of $.001 per share.
II. COMMON STOCK AND NONVOTING COMMON STOCK
---------------------------------------
Except as otherwise provided in this Section II or as otherwise
required by applicable law, all shares of Common Stock and Nonvoting Common
Stock shall be identical in all respects and shall entitle the holders thereof
to the same rights and privileges, subject to the same qualifications,
limitations, and restrictions.
Part 1. Voting Rights.
-------------
Except as otherwise provided by the General Corporation Law of the
State of Delaware, by this Certificate of Incorporation or any amendments
thereto or by resolutions
1
<PAGE>
adopted by the Board of Directors providing for the issuance of Preferred Stock,
the holders of Common Stock shall be entitled to one vote per share on all
matters to be voted on by the Corporation's stockholders, and the holders of
Nonvoting Common Stock shall have no right to vote on any matters to be voted on
by the Corporation's stockholders; provided, that the holders of the Nonvoting
Common Stock shall have the right to vote as a separate class on any merger or
consolidation of the Corporation 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, except that shares of Nonvoting Common Stock may, without such a separate
class vote, receive or be exchanged for non-voting securities which are
otherwise identical on a per share basis in amount and form to the voting
securities received with respect to or in exchange for the Common Stock so long
as (i) such non-voting securities are convertible into voting securities on the
same terms as the Nonvoting Common Stock is convertible into Common Stock and
(ii) all other consideration is equal on a per share basis.
Part 2. Dividends.
---------
As and when dividends are declared or paid thereon, whether in cash,
property, or securities of the Corporation, the holders of Common Stock and the
holders of Nonvoting Common Stock shall be entitled to participate in such
dividends ratably on a per share basis; provided, that (i) if dividends are
declared which are payable in shares of Common Stock or Nonvoting Common Stock,
then dividends shall be declared which are payable at the same rate on both
classes of stock, the dividends payable in shares of Common Stock shall be
payable to holders of Common Stock, and the dividends payable in shares of
Nonvoting Common Stock shall be payable to holders of Nonvoting Common Stock and
(ii) if the dividends consist of other voting securities of the Corporation, the
Corporation shall make available to each holder of Nonvoting Common Stock, at
such holder's request, dividends consisting of non-voting securities of the
Corporation which are otherwise identical to such voting securities and which
are convertible into or exchangeable for such voting securities on the same
terms as the Nonvoting Common Stock is convertible into the Common Stock. The
rights of the holders of Common Stock and Nonvoting Common Stock to receive
dividends are subject to the provisions of any series of Preferred Stock which
may at the time be outstanding.
Part 3. Liquidation.
-----------
Except as otherwise provided by applicable law, or by any amendments to
this Amended and Restated Certificate of Incorporation, in the event of any
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary, after payment shall have been made, or set apart for such payment,
to the holders, if any, of Preferred Stock at the time outstanding of the full
amounts to which they shall be entitled, the holders of Common Stock and the
holders of Nonvoting Common Stock, to the exclusion of holders, if any, of
Preferred Stock at the time outstanding, shall be entitled to share, ratably
according to the number of shares of
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<PAGE>
Common Stock and Nonvoting Common Stock held by them, in all remaining assets of
the Corporation available for distribution to its stockholders.
Part 4. Conversion.
----------
4A. Conversion of Nonvoting Common Stock.
------------------------------------
Upon the occurrence of any sale, gift or any other transfer
or disposition (each, a "Transfer") of shares of Nonvoting Common by the
original holder thereof, such shares of Nonvoting Common Stock shall be
converted into the same number of shares of Common Stock as the number of shares
of Nonvoting Common Stock being transferred and the person or person sin whose
name(s) any certificate(s) for shares of Common Stock are to be issued upon such
conversion shall be deemed to have become the holder(s) of record of the shares
of Common Stock represented thereby.
4B. Conversion Procedure.
--------------------
(i) Each conversion of shares of Nonvoting Common Stock
into shares of Common Stock pursuant to a Transfer shall be effected by the
surrender of the certificate or certificates representing the shares to be
converted to the Corporation's transfer agent at any time during normal business
hours (or to the Company if at the time the Company has no independent transfer
agent), together with a written notice certified by the original holder and the
transferee of such Nonvoting Common Stock being Transferred stating that such
shares, or a stated number of shares, Nonvoting Common Stock represented by such
certificate or certificates have been Transferred. Each conversion shall be
deemed to have been effected as of the close of business on the date on which
such certificate or certificates have been surrendered and such notice has been
received, and at such time the rights of the holder of the Transferred Nonvoting
Common Stock as such shall cease and the person or persons in whose name or
names the certificate or certificates for shares of Common Stock are to be
issued upon such conversion shall be deemed to have become the holder or holders
of record of the shares of Common Stock represented thereby.
(ii) Promptly after the surrender of such certificates
and the receipt of the written notice pursuant to paragraph (i) above, the
Corporation shall issue and deliver in accordance with the surrendering holder's
instructions (a) the certificate or certificates for the Common Stock issuable
upon such conversion and (b) a certificate representing any Nonvoting Common
stock which was represented by the certificate or certificates surrendered to
the Corporation in connection with such conversion but which was not Transferred
and thus not converted.
(iii) The issuance of certificates for Common Stock upon
conversion of Nonvoting Common Stock will be made without charge to the holders
of such shares for any issuance tax in respect thereof or other cost incurred by
the
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<PAGE>
Corporation in connection with such conversion and the related issuance of
Common Stock.
(iv) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock,
solely for the purpose of issuance upon the conversion of the Nonvoting
Common Stock, such number of shares of Common Stock as may be issuable
upon the conversion of all outstanding shares of Nonvoting Common Stock.
All shares of Common Stock which are so issuable shall, when issued, be
duly and validly issued, fully paid and nonassessable, and free from all
taxes, liens, and charges. The Corporation shall take all such actions as
may be necessary to assure that all such shares of Common Stock may be so
issued without violation of any applicable law or governmental regulation
or any requirements of any domestic securities exchange upon which shares
of Common Stock may be listed (except for official notice of issuance
which will be immediately transmitted by the Corporation upon issuance).
(v) The Corporation shall not close its books against
the transfer of Nonvoting Common Stock or of Common Stock issued or
issuable upon conversion of Common Stock in any manner which would
interfere with the timely conversion of Nonvoting Common Stock.
(vi) If the Corporation in any manner subdivides or
combines the outstanding shares of Common Stock of Nonvoting Common Stock,
then the outstanding shares of the other of such classes of stock shall at
the same time be proportionately subdivided or combined in a similar
manner.
4C. Amendment and Waiver.
--------------------
No amendment or waiver of any provision of this Section II shall
be effective without the prior approval of the holders of a majority of
the then outstanding shares of Nonvoting Common Stock voting as a separate
class.
III. PREFERRED STOCK
---------------
The Board of Directors of the Corporation (the "Board of Directors")
is expressly authorized, at any time and from time to time, to provide for the
issuance of shares of Preferred Stock in one or more series with such
designations, preferences and relative, participating, optional or other special
rights, and such qualifications, limitations or restrictions thereof, as shall
be expressed in the resolution or resolutions providing for the issuance thereof
adopted by the Board of Directors (a "Preferred Stock Designation") and as are
not inconsistent with this Certificate of Incorporation or any amendment hereto,
and as may be permitted by the General Corporation Law of the State of Delaware.
Except as otherwise expressly required by law and except for such voting powers
as may be stated in the Preferred Stock Designation relating to any
-4-
<PAGE>
series of Preferred Stock (a "Preferred Stock Designation"), the holders of any
such series shall have no voting power whatsoever.
ARTICLE FIVE
------------
The Corporation is to have perpetual existence.
ARTICLE SIX
-----------
The following provisions are inserted for the management of the business
and the conduct of the affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the Corporation and of its directors
and stockholders:
(a) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. The Board of Directors shall be
divided into three classes, designated as Class I, Class II and Class III. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board of Directors. At the 1996
annual meeting of stockholders, Class I directors shall be elected for a one-
year term, Class II directors for a two-year term and Class III directors for a
three-Year term. At each succeeding annual meeting of stockholders beginning in
1997, successors to the class of directors whose term expires at such annual
meeting shall be elected to a three-year term. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
and any additional director of any class who is elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that shall
coincide with the remaining term of such class, but in no case will a decrease
in the number of directors shorten the term of any incumbent director.
(b) Except for any directors who may be elected under specified
circumstances set forth in a Preferred Stock Designation by the holders, if any,
of any class or series of Preferred Stock then existing, the exact number of
directors of the Corporation shall be determined from time to time by resolution
of the Board of Directors.
(c) Except as may be otherwise provided pursuant to Part II of Article
Four of the Certificate of Incorporation of the Corporation in connection with
rights to elect additional directors under specified circumstances which may be
granted to the holders of any class or series of preferred stock, any director
or the entire Board of Directors may be removed only for cause by the
affirmative vote of the holders of at least 80% of the voting power of all of
the capital stock of the Corporation entitled to vote generally in the election
of directors, voting together as a single class.
(d) The Board of Directors is expressly authorized to make, alter,
amend, change, add to or repeal the Bylaws of the Corporation. Notwithstanding
anything contained in this Certificate of Incorporation or Bylaws of the
Corporation to the contrary, the stockholders of the Corporation, at a duly
called annual or special meeting of stockholders, may not take any
-5-
<PAGE>
action to alter, amend, repeal or adopt any provision inconsistent with
paragraphs 2, 3, 4 and 6 of the Bylaws of the Corporation without the
affirmative vote of the holders of at least 80% of the voting power of all of
the capital stock of the Corporation entitled to vote generally in the election
of directors, voting together as a single class.
(e) The Corporation shall indemnify, to the fullest extent permitted
by Section 145 of the General Corporation Law of the State of Delaware, as
amended from time to time, all persons whom it may indemnify pursuant thereto.
The personal liability of a director or officer of the Corporation to the
Corporation 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 General Corporation Law of the State of Delaware, as it now exists or may
hereafter be amended. Any repeal or modification of this paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director or officer of the Corporation existing at the time of
such repeal or modification.
(f) In addition to the power and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to the provisions of the General
Corporation Law of the State of Delaware, this Certificate of Incorporation and
any Bylaws adopted by the stockholders; provided, however, that no Bylaws
hereafter adopted by the stockholders shall invalidate any prior act of the
directors which would have been valid if such Bylaws had not been adopted.
(g) Notwithstanding Section 228(a) of the General Corporation Law of
the State of Delaware, no action shall be taken by the stockholders of the
Corporation by written consent in lieu of any annual or special meeting of the
stockholders.
ARTICLE SEVEN
-------------
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors or in the Bylaws
of the Corporation. Election of directors need not be by written ballot unless
the Bylaws of the Corporation so provide.
ARTICLE EIGHT
-------------
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation in the manner now or
hereafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
-6-
<PAGE>
ARTICLE NINE
------------
Notwithstanding anything contained in this Certificate of Incorporation to
the contrary, Article Six hereof shall not be altered, amended or repealed and
no provision inconsistent therewith shall be adopted without the affirmative
vote of the holders of at least 80% of the voting power of all of the capital
stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 80% of the voting power of all of the capital
stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to alter, amend,
repeal or adopt any provision inconsistent with this Article Nine.
-7-
<PAGE>
Exhibit 10.2
NAPRO BIOTHERAPEUTICS, INC.
1994 Long-Term Performance Incentive Plan
1. Purpose. The purpose of the 1994 Long-Term Performance Incentive Plan
of NaPro BioTherapeutics, Inc. (the "Plan") is to advance the interests of NaPro
BioTherapeutics, Inc., a Delaware corporation (the "Company"), and its
stockholders by providing incentives to certain employees of the Company and to
certain other key individuals who perform services for the Company, including
those who contribute significantly to the strategic and long-term performance
objectives and growth of the Company. In the case of options granted to the
Company's non-employee directors, the Plan is intended to more closely align the
interests of such directors with the Company's stockholders.
2. Administration. The Plan shall be administered solely by the Board of
Directors (the "Board") of the Company or, if the Board shall so designate, by a
committee of the Board that shall be comprised of not fewer than two directors
(the "Committee"); provided that if at any time Rule 16b-3 or any successor rule
("Rule 16b-3") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Section 162(m) of the Internal Revenue Code of 1986, as
amended, or any successor statutory provision thereto (the "Code"), and any
implementing regulations (and any successor provisions thereof), so permit
without adversely affecting the ability of the Plan to comply with the
conditions for exemption from Section 16 of the Exchange Act (or any successor
provision) provided by Rule 16b-3 and the exemption from the limitations on the
deductibility of certain executive compensation provided by Section 162(m), the
Committee may delegate the administration of the Plan in whole or in part, on
such terms and conditions, to such other person or persons as it may determine
in its discretion. References to the Committee hereunder shall include the
Board where appropriate. The membership of the Committee or such successor
committee shall be constituted so as to comply at all times with the applicable
requirements of Rule 16b-3 and Section 162(m). No member of the Committee shall
have within one year prior to his appointment received awards under the Plan
("Awards") or under any other plan, program or arrangement of the Company or any
of its affiliates if such receipt would cause such member to cease to be a
"disinterested person" under Rule 16b-3; provided that if at any time Rule 16b-3
so permits without adversely affecting the ability of the Plan to comply with
the conditions for exemption from Section 16 of the Exchange Act (or any
successor provision) provided by Rule 16b-3, one or more members of the
Committee may cease to be a "disinterested person."
The Committee has all the powers vested in it by the terms of the Plan set
forth herein, such powers to include exclusive authority (except as may be
delegated as permitted herein) (i) to select the employees and other key
individuals to be granted Awards under the Plan, (ii) to determine the type,
size and terms of the Award to be made to each individual selected, subject to
the limitations set forth in Paragraph 4(b), (iii) to modify the terms of any
Award that has been granted, (iv) to determine the time when Awards will be
granted, (v) to establish performance objectives, (vi) to make any adjustments
necessary or desirable as a result of the granting of
<PAGE>
Awards to eligible individuals located outside the United States and (vii) to
prescribe the form of the instruments embodying Awards made under the Plan;
provided, however, that the terms of the formula plan set forth in Paragraph 9
shall not be subject to the discretion of the Committee. The Committee is
authorized (A) to interpret the Plan and the Awards granted under the Plan, (B)
to establish, amend and rescind any rules and regulations relating to the Plan,
and (C) to make any other determinations which it deems necessary or desirable
for the administration of the Plan. The Committee (or its delegate as permitted
herein) may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Award in the manner and to the extent the
Committee deems necessary or desirable to carry it into effect. Any decision of
the Committee (or its delegate as permitted herein) in the interpretation and
administration of the Plan, as described herein, shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned. The Committee may act only by a majority of its members in office,
except that the members thereof may authorize any one or more of their members
or any officer of the Company to execute and deliver documents or to take any
other ministerial action on behalf of the Committee with respect to Awards made
or to be made to Plan participants. No member of the Committee and no officer
of the Company shall be liable for anything done or omitted to be done by him,
by any other member of the Committee or by any officer of the Company in
connection with the performance of duties under the Plan, except for his own
willful misconduct or as expressly provided by statute. Determinations to be
made by the Committee under the Plan may be made by its delegates as permitted
herein.
3. Eligibility. Consistent with the purposes of the Plan, the Committee
shall have exclusive power (except as may be delegated as permitted herein) to
select the key employees and other key individuals performing services for the
Company and any of its subsidiaries who may participate in the Plan and be
granted Awards under the Plan. Eligible individuals may be selected
individually or by groups or categories, as determined by the Committee in its
discretion. No non-employee director of the Company shall be eligible to
receive an Award under the Plan, except pursuant to the formula plan set forth
in Paragraph 9.
4. Awards under the Plan.
(a) Types of Awards. Awards under the Plan may include, but need not be
limited to, one or more of the following types, either alone or in any
combination thereof: (i) "Stock Options," (ii) "Stock Appreciation Rights,"
(iii) "Restricted Stock," (iv) "Performance Grants" and (v) any other type of
Award deemed by the Committee in its discretion to be consistent with the
purposes of the Plan (including, but not limited to, Awards of or options or
similar rights granted with respect to unbundled stock units or components
thereof, and Awards to be made to participants who are foreign nationals or are
employed or performing services outside the United States). Stock Options,
which include "Nonqualified Stock Options" (which may be awarded to participants
or sold at a price determined by the Committee ("Purchased Options")) and
"Incentive Stock Options" or combinations thereof, are rights to purchase common
shares of the Company having a par value of $.0075 per share and stock of any
other class into which such shares may thereafter be changed (the "Common
Shares"). Nonqualified Stock Options and Incentive Stock Options are subject to
the terms, conditions and restrictions specified in
<PAGE>
Paragraph 5. Stock Appreciation Rights are rights to receive (without payment
to the Company) cash, Common Shares, other Company securities (which may
include, but need not be limited to, unbundled stock units or components
thereof, debentures, preferred stock, warrants, securities convertible into
Common Shares or other property ("Other Company Securities")) or property, or
other forms of payment, or any combination thereof, as determined by the
Committee, based on the increase in the value of the number of Common Shares
specified in the Stock Appreciation Right. Stock Appreciation Rights are
subject to the terms, conditions and restrictions specified in Paragraph 6.
Shares of Restricted Stock are Common Shares which are issued subject to certain
restrictions pursuant to Paragraph 7. Performance Grants are contingent awards
subject to the terms, conditions and restrictions described in Paragraph 8,
pursuant to which the participant may become entitled to receive cash, Common
Shares, Other Company Securities or property, or other forms of payment, or any
combination thereof, as determined by the Committee.
(b) Maximum Number of Shares that May be Issued. There may be issued under
the Plan (as Restricted Stock, in payment of Performance Grants, pursuant to the
exercise of Stock Options or Stock Appreciation Rights, or in payment of or
pursuant to the exercise of such other Awards as the Committee, in its
discretion, may determine) an aggregate of not more than 875,000 Common Shares,
subject to adjustment as provided in Paragraph 15, of which 180,000 shall be
available for grant pursuant to the formula plan set forth in Paragraph 9. The
maximum number of underlying Common Shares which any participant may be granted
under Stock Options, Stock Appreciation Rights, Restricted Stock, Performance
Grants or any other Award in any one taxable year of the Company shall not
exceed 200,000 Common Shares. Common Shares issued pursuant to the Plan may be
either authorized but unissued shares, treasury shares, reacquired shares, or
any combination thereof. If any Common Shares issued as Restricted Stock or
otherwise subject to repurchase or forfeiture rights are reacquired by the
Company pursuant to such rights, or if any Award is canceled, terminates or
expires unexercised, any Common Shares that would otherwise have been issuable
pursuant thereto will be available for issuance under new Awards.
(c) Rights with respect to Common Shares and Other Securities.
(i) Unless otherwise determined by the Committee in its
discretion, a participant to whom an Award of Restricted Stock has been
made (and any person succeeding to such a participant's rights pursuant to
the Plan) shall have, after issuance of a certificate for the number of
Common Shares awarded and prior to the expiration of the Restricted Period
(as hereinafter defined), ownership of such Common Shares, including the
right to vote the same and to receive dividends or other distributions made
or paid with respect to such Common Shares (provided that such Common
Shares, and any new, additional or different shares, or Other Company
Securities or property, or other forms of consideration which the
participant may be entitled to receive with respect to such Common Shares
as a result of a stock split, stock dividend or any other change in the
corporation or capital structure of the Company, shall be subject to the
restrictions hereinafter described as determined by the Committee in its
discretion), subject, however, to the options, restrictions and limitations
imposed thereon pursuant to the Plan. Notwithstanding the foregoing, a
participant with whom an Award agreement is made to
<PAGE>
issue Common Shares in the future, shall have no rights as a stockholder
with respect to Common Shares related to such agreement until issuance of a
certificate to him.
(ii) Unless otherwise determined by the Committee in its
discretion, a participant to whom a grant of Stock Options, Stock
Appreciation Rights, Performance Grants or any other Award is made (and any
person succeeding to such a participant's rights pursuant to the Plan)
shall have no rights as a stockholder with respect to any Common Shares or
as a holder with respect to other securities, if any, issuable pursuant to
any such Award until the date of the issuance of a stock certificate to him
for such Common Shares or other instrument of ownership, if any. Except as
provided in Paragraph 15, no adjustment shall be made for dividends,
distributions or other rights (whether ordinary or extraordinary, and
whether in cash, securities, other property or other forms of
consideration, or any combination thereof) for which the record date is
prior to the date such stock certificate or other instrument of ownership,
if any, is issued.
5. Stock Options. The Committee may grant or sell Stock Options either
alone, or in conjunction with Stock Appreciation Rights, Performance Grants or
other Awards, either at the time of grant or by amendment thereafter; provided
that an Incentive Stock Option may be granted only to an eligible employee of
the Company or any parent or subsidiary corporation. Each Stock Option
(referred to herein as an "Option") granted or sold under the Plan shall be
evidenced by an instrument in such form as the Committee shall prescribe from
time to time in accordance with the Plan and shall comply with the following
terms and conditions, and with such other terms and conditions, including, but
not limited to, restrictions upon the Option or the Common Shares issuable upon
exercise thereof, as the Committee, in its discretion, shall establish:
(a) Subject to the terms of options granted pursuant to the formula plan
set forth in Paragraph 9, the option price may be equal to or greater than the
fair market value of the Common Shares subject to such Option at the time the
Option is granted, as determined by the Committee, but in no event may such
option price be less than the fair market value of the underlying Common Shares
at the time the Option is granted; provided, however, that in the case of an
Incentive Stock Option granted to an employee who owns stock representing more
than ten percent of the voting power of all classes of stock of the Company or
any parent or subsidiary (a "Ten Percent Employee"), such option price shall not
be less than 110% of such fair market value at the time the Option is granted.
(b) Subject to the per participant limitation set forth in Paragraph 4(b)
and the formula plan set forth in Paragraph 9, the Committee shall determine the
number of Common Shares to be subject to each Option. The number of Common
Shares subject to an outstanding Option may be reduced on a share-for-share or
other appropriate basis, as determined by the Committee, to the extent that
Common Shares under such Option are used to calculate the cash, Common Shares,
Other Company Securities or property, or other forms of payment, or any
combination thereof, received pursuant to exercise of a Stock Appreciation Right
attached to such Option, or to the extent that any other Award granted in
conjunction with such Option is paid.
<PAGE>
(c) The Option may not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of, except by will or the laws of descent and
distribution, and shall be exercisable during the grantee's lifetime only by
him. Unless the Committee determines otherwise, the Option shall not be
exercisable for at least six months after the date of grant, unless the grantee
ceases employment or performance of services before the expiration of such six-
month period by reason of his disability as defined in Paragraph 13 or his
death.
(d) The Option shall not be exercisable:
(i) in the case of any Incentive Stock Option granted to a Ten
Percent Employee, after the expiration of five years from the date it is
granted, and, in the case of any other Option, after the expiration of ten
years from the date it is granted. Subject to the terms of the formula plan
set forth in Paragraph 9, any Option may be exercised during such period
only at such time or times and in such installments as the Committee may
establish;
(ii) unless payment in full is made for the shares being acquired
thereunder at the time of exercise; such payment shall be made in such form
(including, but not limited to, cash, Common Shares, or the surrender of
another outstanding Award under the Plan, or any combination thereof) as
the Committee may determine in its discretion; and
(iii) unless the person exercising the Option has been, at all times
during the period beginning with the date of the grant of the Option and
ending on the date of such exercise, employed by or otherwise preforming
services for the Company, or a corporation, or a parent or subsidiary of a
corporation, substituting or assuming the Option in a transaction to which
Section 424(a) of the Code is applicable, except that
(A) if an employee of the Company or a person performing services
for the Company other than as a director shall cease such employment or
performance of services (other than by a termination or removal for
cause) while holding an Option which has not expired and has not been
fully exercised, such person, at any time within 90 days (or such
period determined by the Committee) after the date he ceased such
employment or performance of services (but in no event after the Option
has expired), may exercise the Option with respect to any shares as to
which he could have exercised the Option on the date he ceased such
employment or performance of services, or with respect to such greater
number of shares as determined by the Committee; or
(B) if a non-employee director of the Company shall resign or
shall otherwise be removed (other than a removal for cause) while
holding an Option which has not expired and has not been fully
exercised, such non-employee director, at any time within three years
(or such period determined by the Committee) after the date he ceased
to be a director (but in no event after the Option has expired), may
exercise the Option with respect to any shares as to
<PAGE>
which he could have exercised the Option on the date he ceased to be a
director, or with respect to such greater number of shares as
determined by the Committee; or
(C) if such person shall cease such employment or performance of
services by reason of his disability as defined in Paragraph 13 or
early, normal or deferred retirement under an approved retirement
program of the Company (or such other plan or arrangement as may be
approved by the Committee, in its discretion, for this purpose) while
holding an Option which has not expired and has not been fully
exercised, such person, at any time within three years (or such period
determined by the Committee) after the date he ceased such employment
or performance of services (but in no event after the Option has
expired), may exercise the Option with respect to any shares as to
which he could have exercised the Option on the date he ceased such
employment or performance of services, or with respect to such greater
number of shares as determined by the Committee; in the event that such
a disabled person, within three years following termination of
employment, resumes his employment or performance of services for the
Company: (i) such person may exercise such Option with respect to all
shares underlying such Option as originally granted; provided that, to
the extent that any of such shares were not exercisable at the time of
such person's termination of employment or performance of services by
reason of disability, such person may exercise such Option with respect
to such unexercisable shares only in accordance with a revised vesting
schedule as determined by the Committee and (ii) the expiration date of
such Option shall be automatically extended by a period of time equal
to the period commencing on the date that such person's employment or
performance of services for the Company was terminated by reason of
disability and ending on the date such person resumed employment or
performance of services for the Company; provided that, notwithstanding
the foregoing, the expiration date of any Incentive Stock Option shall
not in any case be so extended; or
(D) if any person to whom an Option has been granted shall die
holding an Option which has not expired and has not been fully
exercised, his executors, administrators, heirs or distributees, as the
case may be, may, at any time within one year (or such other period
determined by the Committee) after the date of death (but in no event
after the Option has expired), exercise the Option with respect to any
shares as to which the decedent could have exercised the Option at the
time of his death, or with respect to such greater number of shares as
determined by the Committee.
(e) In the case of an Incentive Stock Option, the amount of the aggregate
fair market value of Common Shares (determined at the time of grant of the
Option pursuant to subparagraph 5(a) of the Plan) with respect to which
incentive stock options are exercisable for the first time by an employee during
any calendar year (under all such plans of his employer corporation and its
parent and subsidiary corporations) shall not exceed $100,000.
<PAGE>
(f) It is the intent of the Company that Nonqualified Stock Options granted
under the Plan not be classified as Incentive Stock Options, that the Incentive
Stock Options granted under the Plan be consistent with and contain or be deemed
to contain all provisions required under Section 422 and the other appropriate
provisions of the Code and any implementing regulations (and any successor
provisions thereof), and that any ambiguities in construction shall be
interpreted in order to effectuate such intent.
(g) A Purchased Option may contain such additional terms not inconsistent
with this Plan, including, but not limited to, the circumstances under which the
purchase price of such Purchased Option may be returned to the optionee, as the
Committee may determine in its sole discretion.
6. Stock Appreciation Rights. The Committee may grant Stock Appreciation
Rights either alone, or in conjunction with Stock Options, Performance Grants or
other Awards, either at the time of grant or by amendment thereafter. Each
Award of Stock Appreciation Rights granted under the Plan shall be evidenced by
an instrument in such form as the Committee shall prescribe from time to time in
accordance with the Plan and shall comply with the following terms and
conditions, and with such other terms and conditions, including, but not limited
to, restrictions upon the Award of Stock Appreciation Rights or the Common
Shares issuable upon exercise thereof, as the Committee, in its discretion,
shall establish:
(a) Subject to the per participant limitation set forth in Paragraph 4(b),
the Committee shall determine the number of Common Shares to be subject to each
Award of Stock Appreciation Rights. The number of Common Shares subject to an
outstanding Award of Stock Appreciation Rights may be reduced on a share-for-
share or other appropriate basis, as determined by the Committee, to the extent
that Common Shares under such Award of Stock Appreciation Rights are used to
calculate the cash, Common Shares, Other Company Securities or property, or
other forms of payment, or any combination thereof, received pursuant to
exercise of an Option attached to such Award of Stock Appreciation Rights, or to
the extent that any other Award granted in conjunction with such Award of Stock
Appreciation Rights is paid.
(b) The Award of Stock Appreciation Rights may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, except by will or
the laws of descent and distribution, and shall be exercisable during the
grantee's lifetime only by him. Unless the Committee determines otherwise, the
Award of Stock Appreciation Rights shall not be exercisable for at least six
months after the date of grant, unless the grantee ceases employment or
performance of services before the expiration of such six-month period by reason
of his disability as defined in Paragraph 13 or his death.
(c) The Award of Stock Appreciation Rights shall not be exercisable:
(i) in the case of any Award of Stock Appreciation Rights which is
attached to an Incentive Stock Option granted to a Ten Percent Employee,
after the expiration of five years from the date it is granted, and, in the
case of any other Award of Stock Appreciation Rights, after the expiration
of ten years from the date it is granted. Any
<PAGE>
Award of Stock Appreciation Rights may be exercised during such period only
at such time or times and in such installments as the Committee may
establish;
(ii) unless the Option or other Award to which the Award of Stock
Appreciation Rights is attached is at the time exercisable; and
(iii) unless the person exercising the Award of Stock Appreciation
Rights has been, at all times during the period beginning with the date of
the grant thereof and ending on the date of such exercise, employed by or
otherwise performing services for the Company, except that
(A) if such person shall cease such employment or performance of
services by reason of his disability as defined in Paragraph 13 or
early, normal or deferred retirement under an approved retirement
program of the Company (or such other plan or arrangement as may be
approved by the Committee, in its discretion, for this purpose) while
holding an Award of Stock Appreciation Rights which has not expired and
has not been fully exercised, such person may, at any time within three
years (or such other period determined by the Committee) after the date
he ceased such employment or performance of services (but in no event
after the Award of Stock Appreciation Rights has expired), exercise the
Award of Stock Appreciation Rights with respect to any shares as to
which he could have exercised the Award of Stock Appreciation Rights on
the date he ceased such employment or performance of services, or with
respect to such greater number of shares as determined by the
Committee; or
(B) if any person to whom an Award of Stock Appreciation Rights
has been granted shall die holding an Award of Stock Appreciation
Rights which has not expired and has not been fully exercised, his
executors, administrators, heirs or distributees, as the case may be,
may at any time within one year (or such other period determined by the
Committee) after the date of death (but in no event after the Award of
Stock Appreciation Rights has expired), exercise the Award of Stock
Appreciation Rights with respect to any shares as to which the decedent
could have exercised the Award of Stock Appreciation Rights at the time
of his death, or with respect to such greater number of shares as
determined by the Committee.
(d) An Award of Stock Appreciation Rights shall entitle the holder (or any
person entitled to act under the provisions of subparagraph 6(c)(iii)(B) hereof)
to exercise such Award or to surrender unexercised the Option (or other Award)
to which the Stock Appreciation Right is attached (or any portion of such Option
or other Award) to the Company and to receive from the Company in exchange
thereof, without payment to the Company, that number of Common Shares having an
aggregate value equal to (or, in the discretion of the Committee, less than) the
excess of the fair market value of one share, at the time of such exercise, over
the exercise price (or Option Price, as the case may be), times the number of
shares subject to the Award or the Option (or other Award), or portion thereof,
which is so exercised or surrendered, as the case
<PAGE>
may be. The Committee shall be entitled in its discretion to elect to settle
the obligation arising out of the exercise of a Stock Appreciation Right by the
payment of cash or Other Company Securities or property, or other forms of
payment, or any combination thereof, as determined by the Committee, equal to
the aggregate value of the Common Shares it would otherwise be obligated to
deliver. Any such election by the Committee shall be made as soon as
practicable after the receipt by the Committee of written notice of the exercise
of the Stock Appreciation Right. The value of a Common Share, Other Company
Securities or property, or other forms of payment determined by the Committee
for this purpose shall be the fair market value thereof on the last business day
next preceding the date of the election to exercise the Stock Appreciation
Right, unless the Committee, in its discretion, determines otherwise.
(e) A Stock Appreciation Right may provide that it shall be deemed to have
been exercised at the close of business on the business day preceding the
expiration date of the Stock Appreciation Right or of the related Option (or
other Award), or such other date as specified by the Committee, if at such time
such Stock Appreciation Right has a positive value. Such deemed exercise shall
be settled or paid in the same manner as a regular exercise thereof as provided
in subparagraph 6(d) hereof.
(f) No fractional shares may be delivered under this Paragraph 6, but in
lieu thereof a cash or other adjustment shall be made as determined by the
Committee in its discretion.
7. Restricted Stock. Each Award of Restricted Stock under the Plan shall
be evidenced by an instrument in such form as the Committee shall prescribe from
time to time in accordance with the Plan and shall comply with the following
terms and conditions, and with such other terms and conditions as the Committee,
in its discretion, shall establish:
(a) Subject to the per participant limitation set forth in Paragraph 4(b),
the Committee shall determine the number of Common Shares to be issued to a
participant pursuant to the Award, and the extent, if any, to which they shall
be issued in exchange for cash, other consideration, or both.
(b) Restricted Stock awarded to a participant in accordance with the Award
shall be subject to the following restrictions until the expiration of such
period as the Committee shall determine, from the date on which the Award is
granted (the "Restricted Period"): (i) a participant to whom an award of
Restricted Stock is made shall be issued, but shall not be entitled to, the
delivery of a stock certificate, (ii) the Restricted Stock shall not be
transferable prior to the end of the Restricted Period, (iii) the Restricted
Stock shall be forfeited and the stock certificate shall be returned to the
Company and all rights of the holder of such Restricted Stock to such shares and
as a shareholder shall terminate without further obligation on the part of the
Company if the participant's continuous employment or performance of services
for the Company shall terminate for any reason prior to the end of the
Restricted Period, except as otherwise provided in subparagraph 7(c), and (iv)
such other restrictions as determined by the Committee in its discretion.
<PAGE>
(c) If a participant who has been in continuous employment or performance
of services for the Company since the date on which a Restricted Stock Award was
granted to him shall, while in such employment or performance of services, die,
or terminate such employment or performance of services by reason of disability
as defined in Paragraph 13 or by reason of early, normal or deferred retirement
under an approved retirement program of the Company (or such other plan or
arrangement as may be approved by the Committee in its discretion, for this
purpose) and any of such events shall occur after the date on which the Award
was granted to him and prior to the end of the Restricted Period of such Award,
the Committee may determine to cancel any and all restrictions on any or all of
the Common Shares subject to such Award.
8. Performance Grants. The Award of the Performance Grant ("Performance
Grant") to a participant will entitle him to receive a specified amount
determined by the Committee (the "Actual Value"), if the terms and conditions
specified herein and in the Award are satisfied. Each Award of a Performance
Grant shall be subject to the following terms and conditions, and to such other
terms and conditions, including, but not limited to, restrictions upon any cash,
Common Shares, Other Company Securities or property, or other forms of payment,
or any combination thereof, issued in respect of the Performance Grant, as the
Committee, in its discretion, shall establish, and shall be embodied in an
instrument in such form and substance as is determined by the Committee:
(a) Subject to the per participant limitation set forth in Paragraph 4(b),
the Committee shall determine the value or range of values of a Performance
Grant to be awarded to each participant selected for an Award and whether or not
such a Performance Grant is granted in conjunction with an Award of Options,
Stock Appreciation Rights, Restricted Stock or other Award, or any combination
thereof, under the Plan (which may include, but need not be limited to, deferred
Awards) concurrently or subsequently, granted to the participant (the
"Associated Award"). As determined by the Committee, the maximum value of each
Performance Grant (the "Maximum Value") shall be: (i) an amount fixed by the
Committee at the time the Award is made or amended thereafter, (ii) an amount
which varies from time to time based in whole or in part on the then current
value of the Common Shares, Other Company Securities or property, or other
securities or property, or any combination thereof or (iii) an amount that is
determinable from criteria specified by the Committee. Performance Grants may
be issued in different classes or series having different names, terms and
conditions. In the case of a Performance Grant awarded in conjunction with an
Associated Award, the Performance Grant may be reduced on an appropriate basis
to the extent that the Associated Award has been exercised, paid to or otherwise
received by the participant, as determined by the Committee.
(b) The award period ("Award Period") related to any Performance Grant
shall be a period determined by the Committee. At the time each Award is made,
the Committee shall establish performance objectives to be attained within the
Award Period as the means of determining the Actual Value of such a Performance
Grant. The performance objectives shall be based on such measure or measures of
performance, which may include, but need not be limited to, the performance of
the participant, the Company, one or more of its subsidiaries or one or more of
their divisions or units, or any combination of the foregoing, as the Committee
shall determine, and may be applied on an absolute basis or be relative to
industry or other indices, or
<PAGE>
any combination thereof. The Actual Value of a Performance Grant shall be equal
to its Maximum Value only if the performance objectives are attained in full,
but the Committee shall specify the manner in which the Actual Value of
Performance Grants shall be determined if the performance objectives are met in
part. Such performance measures, the Actual Value or the Maximum Value, or any
combination thereof, may be adjusted in any manner by the Committee in its
discretion at any time and from time to time during or as soon as practicable
after the Award Period, if it determines that such performance measures, the
Actual Value or the Maximum Value, or any combination thereof, are not
appropriate under the circumstances.
(c) The rights of a participant in Performance Grants awarded to him shall
be provisional and may be canceled or paid in whole or in part, all as
determined by the Committee, if the participant's continuous employment or
performance of services for the Company shall terminate for any reason prior to
the end of the Award Period.
(d) The Committee shall determine whether the conditions of subparagraph
8(b) or 8(c) hereof have been met and, if so, shall ascertain the Actual Value
of the Performance Grants. If the Performance Grants have no Actual Value, the
Award and such Performance Grants shall be deemed to have been canceled and the
Associated Award, if any, may be canceled or permitted to continue in effect in
accordance with its terms. If the Performance Grants have any Actual Value and:
(i) were not awarded in conjunction with an Associated Award, the
Committee shall cause an amount equal to the Actual Value of the
Performance Grants earned by the participant to be paid to him or his
beneficiary as provided below; or
(ii) were awarded in conjunction with an Associated Award, the
Committee shall determine, in accordance with criteria specified by the
Committee (A) to cancel the Performance Grants, in which event no amount in
respect thereof shall be paid to the participant or his beneficiary, and
the Associated Award may be permitted to continue in effect in accordance
with its terms, (B) to pay the Actual Value of the Performance Grants to
the participant or his beneficiary as provided below, in which event the
Associated Award may be canceled or (C) to pay to the participant or his
beneficiary as provided below, the Actual Value of only a portion of the
Performance Grants, in which event all or a portion of the Associated Award
may be permitted to continue in effect in accordance with its terms or be
canceled, as determined by the Committee.
Such determination by the Committee shall be made as promptly as
practicable following the end of the Award Period or upon the earlier
termination of employment or performance of services, or at such other time or
times as the Committee shall determine, and shall be made pursuant to criteria
specified by the Committee.
Payment of any amount in respect of the Performance Grants which the
Committee determines to pay as provided above shall be made by the Company as
promptly as practicable after the end of the Award Period or at such other time
or times as the Committee shall determine, and may be made in cash, Common
Shares, Other Company Securities or property, or
<PAGE>
other forms of payment, or any combination thereof or in such other manner, as
determined by the Committee in its discretion. Notwithstanding anything in this
Paragraph 8 to the contrary, the Committee may, in its discretion, determine and
pay out the Actual Value of the Performance Grants at any time during the Award
Period.
9. Formula Plan for Non-Employee Directors.
(a) Nonqualified Stock Options covering 10,000 Common Shares shall be
automatically granted to each person who is not an employee of the Company or
any of its subsidiaries and is (i) elected or re-elected as a director of the
Company at an annual meeting of the Company's stockholders or (ii) appointed as
a director of the Company in accordance with its Bylaws following an annual
meeting (each, an "Eligible Director"), commencing with the Company's 1996
annual meeting of stockholders, on the next business day following each such
election, reelection or appointment, as the case may be.
(b) Nonqualified Stock Options covering 10,000 Common Shares shall be
automatically granted to each Eligible Director who is appointed or reappointed
as the chairman of the Audit, Compensation or Strategic Planning Committee of
the Board of Directors or any additional permanent committees of the Board of
Directors, commencing with the Company's 1996 annual meeting of stockholders, on
the next business day following each such appointment or reappointment, as the
case may be.
(c) Each Nonqualified Stock Option granted to an Eligible Director
pursuant to this Paragraph 9 shall (i) have an option price equal to the fair
market value of the Common Shares on the date of grant, (ii) become exercisable
in full on the first anniversary following the date of grant; provided, however,
that a Nonqualified Stock Option granted to an Eligible Director who is
appointed to the Board will become exercisable in full on the next business day
following the later of (A) the Company's annual meeting of stockholders next
following the grant date or (B) six months following the date of grant and (iii)
have a term of ten years from the date of grant. As used herein, the term
"subsidiary" means any corporation more than 50% of whose voting stock is owned,
directly or indirectly, by the Company.
10. Deferral of Compensation. The Committee shall determine whether or
not an Award shall be made in conjunction with deferral of the participant's
salary, bonus or other compensation, or any combination thereof, and whether or
not such deferred amounts may be
(i) forfeited to the Company or to other participants or any
combination thereof, under certain circumstances (which may include, but
need not be limited to, certain types of termination of employment or
performance of services for the Company),
(ii) subject to increase or decrease in value based upon the
attainment of or failure to attain, respectively, certain performance
measures and/or
<PAGE>
(iii) credited with income equivalents (which may include, but need not
be limited to, interest, dividends or other rates of return) until the date
or dates of payment of the Award, if any.
11. Deferred Payment of Awards. The Committee may specify that the
payment of all or any portion of cash, Common Shares, Other Company Securities
or property, or any other form of payment, or any combination thereof, under an
Award shall be deferred until a later date. Deferrals shall be for such periods
or until the occurrence of such events, and upon such terms, as the Committee
shall determine in its discretion. Deferred payments of Awards may be made by
undertaking to make payment in the future based upon the performance of certain
investment equivalents (which may include, but need not be limited to,
government securities, Common Shares, other securities, property or
consideration, or any combination thereof), together with such additional
amounts of income equivalents (which may be compounded and may include, but need
not be limited to, interest, dividends or other rates of return or any
combination thereof) as may accrue thereon until the date or dates of payment,
such investment equivalents and such additional amounts of income equivalents to
be determined by the Committee in its discretion.
12. Amendment or Substitution of Awards under the Plan. The terms of any
outstanding Award under the Plan may be amended from time to time by the
Committee in its discretion in any manner that it deems appropriate (including,
but not limited to, acceleration of the date of exercise of any Award and/or
payments thereunder); provided that no such amendment shall adversely affect in
a material manner any right of a participant under the Award without his written
consent, unless the Committee determines in its discretion that there have
occurred or are about to occur significant changes in the participant's
position, duties or responsibilities, or significant changes in economic,
legislative, regulatory, tax, accounting or cost/benefit conditions which are
determined by the Committee in its discretion to have or to be expected to have
a substantial effect on the performance of the Company, or any subsidiary,
affiliate, division or department thereof, on the Plan or on any Award under the
Plan. The Committee may, in its discretion, permit holders of Awards under the
Plan to surrender outstanding Awards in order to exercise or realize rights
under other Awards, or in exchange for the grant of new Awards, or require
holders of Awards to surrender outstanding Awards as a condition precedent to
the grant of new Awards under the Plan. This Paragraph 12 shall not apply to
grants of Nonqualified Stock Options to Eligible Directors pursuant to
Paragraph 9.
13. Disability. For the purposes of this Plan, a participant shall be
deemed to have terminated his employment or performance of services for the
Company and any of its subsidiaries by reason of disability, if the Committee
shall determine that the physical or mental condition of the participant by
reason of which such employment or performance of services terminated was such
at that time as would entitle him to payment of monthly disability benefits
under any Company disability plan. If the participant is not eligible for
benefits under any disability plan of the Company, he shall be deemed to have
terminated such employment or performance of services by reason of disability if
the Committee shall determine that his physical or mental condition would
entitle him to benefits under any Company disability plan if he were eligible
therefor.
<PAGE>
14. Termination of a Participant. For all purposes under the Plan, the
Committee shall determine whether a participant has terminated employment with,
or the performance of services for, the Company.
15. Dilution and Other Adjustments. In the event of any change in the
outstanding Common Shares of the Company by reason of any stock split, dividend,
split-up, split-off, spin-off, recapitalization, merger, consolidation, rights
offering, reorganization, combination or exchange of shares, a sale by the
Company of all of its assets, any distribution to stockholders other than a
normal cash dividend, or other extraordinary or unusual event, if the Committee
shall determine, in its discretion, that such change equitably requires an
adjustment in the terms of any Award or the number of Common Shares available
for Awards, such adjustment may be made by the Committee and shall be final,
conclusive and binding for all purposes of the Plan. In the event of the
proposed dissolution or liquidation of the Company, all outstanding Awards shall
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Committee.
16. Change in Control Provisions.
(a) Impact of Event. In the event of a "Change in Control" as defined in
---------------
Paragraph 16(b) hereof the following acceleration and valuation provisions shall
apply:
(i) Any Stock Appreciation Rights and any Stock Options awarded under
the Plan not previously exercisable shall become fully exercisable.
(ii) The restrictions and deferral limitations applicable to any
Restricted Stock and other Awards payable in the form of Common Shares,
shall lapse and such shares and awards shall be deemed fully vested.
(iii) Any outstanding Performance Grants shall be vested and paid out
based on the prorated target results for the Award Periods in question,
unless the Committee provides prior to any Change in Control for a
different payment.
(iv) The value of all outstanding Stock Options; Stock Appreciation
Rights, Restricted Stock, Performance Grants and any other type of Award
payable in the form of Common Shares, in each case to the extent vested,
shall, unless otherwise determined by the Committee in its sole discretion
at or after grant but prior to any Change in Control, be cashed out on the
basis of the "Change in Control Price" as defined in Paragraph 16(c) hereof
as of the date such Change in Control is determined to have occurred or
such other date as the Committee may determine prior to the Change in
Control.
(b) Definition of "Change in Control." For purposes of Paragraph 16(a), a
-----------------------------------
"Change in Control" means the happening of any of the following:
(i) When any "person" as defined in Section 3(a)(9) of the Exchange
Act and as used in Sections 13(d) and 14(d) thereof, including a "group" as
defined in Section
<PAGE>
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, becomes 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 twenty-five percent or more of the combined voting
power of the Company's then outstanding securities;
(ii) When, during any period of 12 consecutive months during the
existence of the Plan, the individuals who, at the beginning of such
period, constitute the Board (the "Incumbent Directors") cease for any
reason other than death to constitute at least a majority thereof,
provided, however, that a director who was not a director at the beginning
of such 12-month period shall be deemed to have satisfied such 12-month
requirement (and be an Incumbent Director) if such director was elected by,
or on the recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors either actually
(because they were directors at the beginning of such 12-month period) or
by prior operation of this Paragraph 16(b)(ii); or
(iii) The approval by the stockholders of the Company 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.
(c) Change in Control Price. For purposes of this Paragraph 16, "Change in
-----------------------
Control Price" means the highest price per share paid in any transaction
reported on any national securities exchange on which the Company's Common
Shares are listed, or paid or offered in any bona fide transaction related to a
Change in Control of the Company at any time during the sixty-day period
immediately preceding the occurrence of the Change in Control, in each case as
determined by the Committee except that, in the case of Incentive Stock Options
and Stock Appreciation Rights relating to Incentive Stock Options, such price
shall be based only on transactions reported for the date on which the optionee
exercises such Stock Appreciation Rights or, where applicable, the date on which
a cashout occurs under Paragraph 16(a)(iv).
17. Designation of Beneficiary by Participant. A participant may name a
beneficiary to receive any payment to which he may be entitled in respect of any
Award under the Plan in the event of his death, on a written form to be provided
by and filed with the Committee, and in a manner determined by the Committee in
its discretion. The Committee reserves the right to review and approve
beneficiary designations. A participant may change his beneficiary from time to
time in the same manner, unless such participant has made an irrevocable
designation. Any designation of beneficiary under the Plan (to the extent it is
valid and enforceable under applicable law) shall be controlling over any other
disposition, testamentary or otherwise, as determined by the Committee in its
discretion. If no designated beneficiary survives the participant and is living
on the date on which any amount becomes payable to such a participant's
beneficiary, such payment will be made to the legal representatives of the
participant's estate, and the term "beneficiary" as used in the Plan shall be
deemed to include such person or persons. If there are any questions as to the
legal right of any
<PAGE>
beneficiary to receive a distribution under the Plan, the Committee in its
discretion may determine that the amount in question be paid to the legal
representatives of the estate of the participant, in which event the Company,
the Board and the Committee and the members thereof, will have no further
liability to anyone with respect to such amount.
18. Financial Assistance. If the Committee determines that such action is
advisable, the Company may assist any person to whom an Award has been granted
in obtaining financing from the Company (or under any program of the Company
approved pursuant to applicable law), or from a bank or other third party, on
such terms as are determined by the Committee, and in such amount as is required
to accomplish the purposes of the Plan, including, but not limited to, to permit
the exercise of an Award, the participation therein, and/or the payment of any
taxes in respect thereof. Such assistance may take any form that the Committee
deems appropriate, including, but not limited to, a direct loan from the
Company, a guarantee of the obligation by the Company, or the maintenance by the
Company of deposits with such bank or third party.
19. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or right to be granted
an Award under the Plan. Determinations made by the Committee under the Plan
need not be uniform and may be made selectively among eligible individuals under
the Plan, whether or not such eligible individuals are similarly situated.
Neither the Plan nor any action taken hereunder shall be construed as giving any
employee or other person any right to continue to be employed by or perform
services for the Company, and the right to terminate the employment of or
performance of services by any participants at any time and for any reason is
specifically reserved.
(b) No participant or other person shall have any right with respect to the
Plan, the Common Shares reserved for issuance under the Plan or in any Award,
contingent or otherwise, until written evidence of the Award shall have been
delivered to the recipient and all the terms, conditions and provisions of the
Plan and the Award applicable to such recipient (and each person claiming under
or through him) have been met.
(c) Except as may be approved by the Committee where such approval shall
not adversely affect compliance of the Plan with Rule 16b-3 under the Exchange
Act, a participant's rights and interest under the Plan may not be assigned or
transferred, hypothecated or encumbered in whole or in part either directly or
by operation of law or otherwise (except in the event of a participant's death)
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner, provided, however, that
any Option or similar right (including, but not limited to, a Stock Appreciation
Right) offered pursuant to the Plan shall not be transferable other than by will
or the laws of descent and distribution and shall be exercisable during the
participant's lifetime only by him.
(d) No Common Shares, Other Company Securities or property, other
securities or property, or other forms of payment shall be issued hereunder with
respect to any Award unless counsel for the Company shall be satisfied that such
issuance will be in compliance with
<PAGE>
applicable federal, state, local and foreign legal, securities exchange and
other applicable requirements.
(e) It is the intent of the Company that the Plan comply in all respects
with Rule 16b-3 under the Exchange Act and Section 162(m) of the Code, that any
ambiguities or inconsistencies in construction of the Plan be interpreted to
give effect to such intention and that if any provision of the Plan is found not
to be in compliance with Rule 16b-3 or Section 162(m), such provision shall be
deemed null and void to the extent required to permit the Plan to comply with
Rule 16b-3 or Section 162(m), as the case may be.
(f) The Company shall have the right to deduct from any payment made under
the Plan any federal, state, local or foreign income or other taxes required by
law to be withheld with respect to such payment. It shall be a condition to the
obligation of the Company to issue Common Shares, Other Company Securities or
property, other securities or property, or other forms of payment, or any
combination thereof, upon exercise, settlement or payment of any Award under the
Plan, that the participant (or any beneficiary or person entitled to act) pay to
the Company, upon its demand, such amount as may be required by the Company for
the purpose of satisfying any liability to withhold federal, state, local or
foreign income or other taxes. If the amount requested is not paid, the Company
may refuse to issue Common Shares, Other Company Securities or property, other
securities or property, or other forms of payment, or any combination thereof.
Notwithstanding anything in the Plan to the contrary, the Committee may, in its
discretion, permit an eligible participant (or any beneficiary or person
entitled to act) to elect to pay a portion or all of the amount requested by the
Company for such taxes with respect to such Award, at such time and in such
manner as the Committee shall deem to be appropriate (including, but not limited
to, by authorizing the Company to withhold, or agreeing to surrender to the
Company on or about the date such tax liability is determinable, Common Shares,
Other Company Securities or property, other securities or property, or other
forms of payment, or any combination thereof, owned by such person or a portion
of such forms of payment that would otherwise be distributed, or have been
distributed, as the case may be, pursuant to such Award to such person, having a
fair market value equal to the amount of such taxes).
(g) The expenses of the Plan shall be borne by the Company.
(h) The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Award under the Plan, and rights to the
payment of Awards shall be no greater than the rights of the Company's general
creditors.
(i) By accepting any Award or other benefit under the Plan, each
participant and each person claiming under or through him shall be conclusively
deemed to have indicated his acceptance and ratification of, and consent to, any
action taken under the Plan by the Company, the Board or the Committee or its
delegates.
(j) Fair market value in relation to Common Shares, Other Company
Securities or property, other securities or property or other forms of payment
of Awards under the Plan, or any
<PAGE>
combination thereof, as of any specific time shall mean such value as determined
by the Committee in accordance with applicable law.
(k) The masculine pronoun includes the feminine and the singular includes
the plural wherever appropriate.
(l) The appropriate officers of the Company shall cause to be filed any
reports, returns or other information regarding Awards hereunder of any Common
Shares issued pursuant hereto as may be required by Section 13 or 15(d) of the
Exchange Act (or any successor provision) or any other applicable statute, rule
or regulation.
(m) The validity, construction, interpretation, administration and effect
of the Plan, and of its rules and regulations, and rights relating to the Plan
and to Awards granted under the Plan, shall be governed by the substantive laws,
but not the choice of law rules, of the State of Delaware.
20. Plan Amendment or Suspension. The Plan may be amended or suspended in
whole or in part at any time from time to time by the Board, but no amendment
shall be effective unless and until the same is approved by stockholders of the
Company where the failure to obtain such approval would adversely affect the
compliance of the Plan with Rule 16b-3 under the Exchange Act and with other
applicable law. No amendment of the Plan shall adversely affect in a material
manner any right of any participant with respect to any Award theretofore
granted without such participant's written consent, except as permitted under
Paragraph 12. The terms of the formula plan set forth in Paragraph 9 relating
to the amount, price and timing of grants of Nonqualified Stock Options to
Eligible Directors shall not be amended more than once every six months, except
to comport with changes in the Code and the Employee
Retirement Income Security Act of 1974, as amended, or the rules and regulations
thereunder.
21. Plan Termination. This Plan shall terminate upon the earlier of the
following dates or events to occur.
(a) upon the adoption of a resolution of the Board terminating the Plan; or
(b) ten years from the date the Plan is initially approved and adopted by
the stockholders of the Company in accordance with Paragraph 22 hereof,
provided, however, that the Board may, prior to the expiration of such ten-year
period, extend the term of the Plan for an additional period of up to five years
for the grant of Awards other than Incentive Stock Options. No termination of
the Plan shall materially alter or impair any of the rights or obligations of
any person, without his consent, under any Award theretofore granted under the
Plan, except that subsequent to termination of the Plan, the Committee may make
amendments permitted under Paragraph 12.
22. Stockholder Adoption. The Plan shall be submitted to the stockholders
of the Company, for their approval and adoption in accordance with applicable
law and Rule 16b-3
<PAGE>
under the Exchange Act and Section 162(m) under the Code. The Plan shall not be
effective and no Award shall be made hereunder unless and until the Plan has
been so approved and adopted.
<PAGE>
Exhibit 10-38
CULTURE AGREEMENT
-----------------
This Agreement is made as of this 1st day of March, 1997 and is between
Zelenka Nursery, Inc. of 16127 Winans, Grand Haven, MI 49417 ("Zelenka") and
NaPro BioTherapeutics, Inc. of 6304 Spine Road, Unit A, Boulder, CO 80301
("NaPro") with respect to the culture of certain Taxus Media Hicksii trees.
STATEMENT OF BACKGROUND INFORMATION
-----------------------------------
A. NaPro has agreed to purchase approximately [TEXT REDACTED] trees from
Zelenka pursuant to an Agreement for Sale and Purchase of Nursery Stock
effective as of the date of this Agreement, between Zelenka Nursery, Inc. and
NaPro BioTherapeutics, Inc. ("Purchase Agreement").
B. NaPro expects to acquire and to deliver to Zelenka approximately [TEXT
REDACTED] trees for culture by Zelenka hereunder.
C. NaPro desires to lease from Zelenka certain real property on which all
of the Zelenka Trees (defined below) and the Non-Zelenka Trees (defined below)
will be transplanted and located. NaPro has agreed to lease such real property
from Zelenka pursuant to a certain Lease ("Lease") of even date herewith.
D. NaPro desires that Zelenka transplant, care for, and culture the
Zelenka Trees and the Non-Zelenka Trees, and that Zelenka harvest, cut, store,
and ship to NaPro all or certain portions of the Zelenka Trees and the Non-
Zelenka Trees, and Zelenka has agreed to do so.
E. NaPro has previously purchased certain other Taxus Media Hicksii Trees
from Zelenka pursuant to a Purchase Agreement dated May 1, 1996. Zelenka is
culturing such trees for NaPro pursuant to a Culture Agreement dated March 1,
1996 and the trees are growing on real property subleased to NaPro by Zelenka
pursuant to certain Subleases dated April 1, 1996. All such agreements are
collectively referred to herein as the "Spring Agreements".
F. The parties desire to set forth the terms of their agreements in this
writing.
<PAGE>
STATEMENT OF AGREEMENT
----------------------
For their mutual convenience and protection, and in consideration of the
mutual covenants and benefits contained in this Agreement, the parties agree as
follows:
SECTION ONE: DEFINITIONS
------------------------
1.1 Definition of Zelenka Trees. The "ZelenkaTrees" for purposes of
---------------------------
this Agreement shall be defined as all of those [TEXT REDACTED] Trees [TEXT
REDACTED] and all of those [TEXT REDACTED] Trees [TEXT REDACTED] purchased by
NaPro from Zelenka under the Purchase Agreement.
1.2 Definition of Non-Zelenka Trees. The "Non-Zelenka Trees" for purpose
-------------------------------
of this Agreement shall be defined as those [TEXT REDACTED] Trees [TEXT
REDACTED] owned by and acquired from sources other than Zelenka which are
delivered by NaPro to Zelenka for transplantation and culture by Zelenka under
this Agreement.
1.3 Definition of Trees. The Zelenka Trees and the Non-Zelenka Trees
-------------------
shall be collectively referred to as the "Trees".
SECTION TWO: CULTURE OBLIGATIONS
---------------------------------
2.1 Transplanting. During the term of this Agreement, Zelenka agrees to
-------------
accept and transplant the Trees pursuant to the instructions of NaPro and
pursuant to the schedule described below in paragraph 5.2.
2.2 Transplant, Care and Culture of Trees. During the term of this
-------------------------------------
Agreement, Zelenka agrees to transplant, grow, maintain, and care for all of the
Trees pursuant to the instructions of NaPro. In the absence of such
instructions, Zelenka agrees that its care of the Trees shall be consistent with
Zelenka's normal reasonable cultural practices. Zelenka shall bear all costs
and expenses in connection with the transplanting, care, and maintenance of the
Trees, provided that Zelenka shall be reimbursed for such expenses as provided
in below under Section Three.
2.3 Harvesting & Storing. In addition to Zelenka's obligations described
--------------------
above in paragraphs 2.1 and 2.2, Zelenka agrees to harvest, cut, place in cold
storage, pack, and prepare for shipping any of the Trees or Tree cuttings in
accordance with the NaPro specifications attached hereto as Exhibit 2.2 ("NaPro
Specifications"). Notwithstanding the foregoing, Zelenka shall not be required
to ship any Trees or Tree cuttings to NaPro if NaPro is not current in all of
its obligations to Zelenka under the Purchase Agreement, this Agreement, the
Lease, and the Spring Agreements.
-2-
<PAGE>
Any schedules for any activities described in this paragraph shall be mutually
agreed upon by Zelenka and NaPro. All Trees or Tree cuttings shall be shipped
to NaPro FOB Zelenka at NaPro's expense. Further, Zelenka shall not be required
to store, after harvest, any Trees or Tree cuttings for a period exceeding six
months, and Zelenka shall be entitled to ship to NaPro any Trees or Tree
cuttings (in accordance with the NaPro Specifications) as necessary to ensure
that such limit is not exceeded, unless the parties have otherwise agreed in
writing.
SECTION THREE: COMPENSATION AND EXCLUSIVITY
--------------------------------------------
3.1 Compensation. As compensation for its services under this Agreement,
------------
Zelenka shall be entitled to receive [TEXT REDACTED]
3.2 Invoices and Payment. Zelenka shall be entitled to invoice NaPro for
--------------------
any sums due hereunder on a monthly basis. Such invoices shall be paid within
thirty (30) days of the invoice date and pursuant to Zelenka's other standard
terms and conditions, which are attached hereto as Exhibit 3.2 ("Zelenka
Terms").
3.3 Exclusivity. During the term of this Agreement, NaPro agrees that
-----------
Zelenka shall be the exclusive provider of all transplanting services, cultural
services, all harvesting and cutting services, all storage services, and any
other services provided hereunder, with respect to all of the Trees, and that
NaPro will not contract or arrange for any other provider of such services with
respect to the Trees or the cuttings thereof. NaPro further agrees that all
products and materials which may be used in connection with the above-described
services shall be purchased and/or acquired exclusively by and through Zelenka
under the terms of this Agreement and that NaPro shall not contract or arrange
for any such materials or products to be provided by any other person or entity
in any other manner.
SECTION FOUR: TERM AND TERMINATION
-----------------------------------
4.1 Term. The term of this Agreement shall commence as of the effective
----
date hereof and shall continue through 11:59 p.m. on February 28, 2006, unless
earlier terminated by the parties hereunder.
4.2 Extensions of Term. NaPro shall be entitled to renew the term of this
------------------
Agreement, on the same terms and conditions set forth herein, for two separate
five year renewal terms; provided,
-3-
<PAGE>
however, that NaPro shall not be entitled to renew this Agreement for any
extended term unless NaPro simultaneously renews the Lease for an extended term
for the same duration. If NaPro desires to exercise any such option, it shall
do so in writing to Zelenka at least 180 days prior to the expiration of the
original or extended term.
4.3 Termination. This Agreement may not be terminated by either party
-----------
hereto except as provided in this paragraph 4.3. If either party fails to pay
any sums due hereunder or any sums due under this Agreement, the Purchase
Agreement, the Lease, or the Spring Agreements within five (5) days after such
sums are due, or if either party defaults under any of its other obligations
under this Agreement, the Purchase Agreement, the Lease, or the Spring
Agreements, and such default continues for ten (10) days after written notice
thereof, then the non-defaulting party shall be entitled to terminate this
Agreement and recover any damages resulting from the breach, in addition to any
other legal or contractual remedy available to the non-defaulting party.
Further, Zelenka shall be entitled to terminate this Agreement, effective
immediately upon written notice to NaPro, if NaPro defaults under any of its
obligations under this Agreement, the Culture Agreement, the Lease, or the
Spring Agreements more than four (4) times during any twelve (12) month period.
4.4 Obligations Upon Termination. Upon the termination or expiration of
----------------------------
this Agreement, all amounts due to either party under this Agreement shall
become due and payable within 10 days following the termination or expiration.
SECTION FIVE: LEASE ISSUES
---------------------------
5.1 Lease. As of the effective date of this Agreement, Zelenka and NaPro
-----
shall enter into a lease with respect to any real property owned by Zelenka on
which the Trees may be located ("Leases"). Such Lease shall be in the form
attached hereto as Exhibit 5.1. The Lease shall form a part of this Agreement
and any breach of the provisions of the Lease shall be deemed a breach of this
Agreement. NaPro's obligations under the Lease and the legal description of
the leased premises thereunder shall not be reduced, limited, or changed even if
NaPro causes the harvest and/or removal of any or all of the Trees from such
leased premises prior to the termination of the Lease.
5.2 Transplanting and Lease. The Lease will initially lease approximately
-----------------------
[TEXT REDACTED] acres of Zelenka-owned real property to NaPro. Zelenka and NaPro
agree that NaPro will instruct Zelenka to transplant on such real property, on
or before June 30, 1997, all
-4-
<PAGE>
of those six year old Trees purchased from Zelenka by NaPro under the Purchase
Agreement, as well as a certain number of trees which have not been purchased by
NaPro from Zelenka. As of the effective date of this Agreement, the parties do
not know whether there will be sufficient space (after the aforementioned
transplanting) on such parcel to transplant any of the [TEXT REDACTED] Trees
purchased from Zelenka by NaPro under the Purchase Agreement. If there is room
to transplant any of the [TEXT REDACTED] Trees, then the parties agree that
Zelenka shall transplant, on or before June 30, 1997, as many of the [TEXT
REDACTED] Trees as possible on the such parcel. If, however, all of the [TEXT
REDACTED] Trees purchased under the Purchase Agreement cannot be transplanted
onto the such parcel prior to June 30, 1997, then Zelenka and NaPro agree to use
good faith efforts to negotiate a lease, with NaPro as lessee and Zelenka as
lessor, pursuant to which NaPro shall lease from Zelenka such real estate as may
be necessary for the transplanting, growing, and culturing of such remaining
[TEXT REDACTED] trees. Such lease shall: (i) commence after January 1, 1998
and before June 30, 1998 and before the transplanting of any such trees on the
land, (ii) expire at 11:59 p.m. on February 28, 2006, (iii) include two five
year renewal options subject to the same terms and conditions of the two five
year renewal options under the Lease, and (iv) include terms substantially
similar to the terms of the Lease. The transplanting of such [TEXT REDACTED]
trees shall occur after January 1, 1998 and before June 30, 1998.
SECTION SIX: GENERAL TERMS
---------------------------
6.1 Arbitration. Any disagreements or dispute between the parties with
-----------
regard to this Culture Agreement shall be resolved exclusively by arbitration
which shall be binding upon both of the parties. The arbitration shall be
conducted by a panel of three arbitrators under the rules of the American
Arbitration Association. One arbitrator shall be selected by Zelenka, one by
NaPro, and one by the two selected arbitrators. Any arbitration shall be
conducted in Grand Haven, Michigan and the arbitrators shall apply Michigan law.
Unless otherwise allocated or assessed by the arbitrators, the parties shall
share equally the fees and expenses of the arbitrators.
6.2 Definition of Zelenka's Costs.
-----------------------------
a. Zelenka's actual costs and expenses shall be calculated based
upon Zelenka's current cost accounting system. Such cost accounting system will
base Zelenka's costs and expenses upon, among other things, the number of hours
of labor times Zelenka's loaded labor rate, plus any other actual costs incurred
by Zelenka such as crate rental, electricity charges,
-5-
<PAGE>
shipping charges, etc. The parties acknowledge and agree that Zelenka's loaded
labor rate includes charges for items related to Zelenka's performance under
this Agreement such as insurance, irrigation costs (including well drilling and
irrigation equipment), acquisition of equipment (including harvesting
equipment), and repair and maintenance charges. Such actual costs and expenses
shall not include: (i) marketing costs or general administrative costs except to
the extent that those costs are part of Zelenka's loaded labor rate, (ii)
monthly rental payments due under the Lease, or (iii) those real estate taxes
which are Zelenka's responsibility under the Lease.
b. NaPro shall have the right to audit Zelenka's books and records
pertaining to calculation of Zelenka's costs. Any such inventory shall be
conducted at reasonable intervals and at reasonable times, and shall not
interfere with the business operations of Zelenka. Furthermore, NaPro agrees to
keep confidential and not to disclose to any other party (except to any
professional advisors or employees who have a need to know) any information or
documents learned or discovered by NaPro in connection with any such audit. If
any such audit uncovers overcharges or undercharges, the parties shall attempt
to agree upon the amounts of such overcharges or undercharges and pay to one
another any such amount as may be necessary to correct the overcharge or
undercharge. If the parties cannot agree on any overcharge or undercharge,
either party shall be entitled to submit their question to arbitration under
paragraph 6.1. If the parties agree or an arbitration determines that Zelenka
has overcharged NaPro an amount greater than ten (10%) percent, then Zelenka
shall bear the cost of the audit by NaPro and the cost of the arbitration.
Otherwise, the cost of the audit and arbitration shall be borne by NaPro.
6.3 Zelenka's Limited Warranty. Zelenka hereby warrants to NaPro that:
--------------------------
(i) ninety two percent (92%) or more of the Zelenka Trees transplanted between
January 1, 1997 and June 30, 1997 by Zelenka hereunder will be alive as of
August 31, 1997, and (ii) 92% or more of the Zelenka Trees transplanted by
Zelenka by January 1, 1998 and June 30, 1998 hereunder will be alive as of
August 31, 1998. . NaPro or its representatives shall be entitled to inspect
all such Zelenka Trees, with a Zelenka representative, at a time mutually agreed
on by Zelenka and NaPro within ten (10) days before or after the above-described
applicable August 31 date for the purpose of determining the survival rates
under this paragraph 6.3. If NaPro notifies Zelenka in writing, on or before
the date 10 days after the above- described applicable August 31 date, , that
the survival rate of the relevant
-6-
<PAGE>
transplanted Zelenka Trees is less than ninety two percent (92%), then Zelenka
shall be required to elect one of the following remedies, in its sole
discretion: (1) Zelenka may reimburse NaPro for the purchase price under the
Purchase Agreement, for the number of Zelenka Trees purchased by NaPro under the
Purchase Agreement multiplied by 92% minus the number of surviving Zelenka
Trees, or (2) Zelenka may replace and transplant (at Zelenka's cost) the non-
surviving Zelenka Trees with a number of comparable Trees which is equal to the
number of Zelenka Trees purchased and paid for by NaPro under the Purchase
Agreement multiplied by 92% minus the number of surviving Zelenka Trees.
Notwithstanding anything to the contrary in this paragraph 6.3, if NaPro (or its
representatives) fails to inspect the Zelenka Trees within 10 days before or
after the above-described applicable August 31 date, or if NaPro fails to
notify Zelenka in writing on or before the date 10 days after the above-
described applicable August 31 date, that the survival rate of the Zelenka Trees
is less than 92%, then NaPro shall be deemed to have waived all of its rights
under this paragraph 6.3.
6.4 No Warranties. Zelenka offers no warranties or guarantees regarding
-------------
any aspect (including survival or viability) of any Non-Zelenka Trees which are
transplanted or cultured by Zelenka under the terms of this Agreement. Further,
except as otherwise provided in paragraph 6.3, Zelenka offers no warranties or
guarantees regarding any aspect (including the survival or viability) of any
Zelenka Trees or the Non- Zelenka Trees which are transplanted or cultured under
the terms of this Agreement. Without limiting the generality of the foregoing,
Zelenka also offers no warrantees or guarantees regarding: (1) the quantity of
Tree cuttings which will be harvested, cut, or produced hereunder, or (2) the
quality or suitability of the Trees or Tree cuttings for any purpose. Finally,
Zelenka offers no warrantees of merchantability or fitness for any particular
purpose.
6.5 Force Majeure. Neither party shall be liable to the other in the
-------------
event that performance of its obligations hereunder shall be prevented by any
cause beyond its reasonable control, including without limitation acts of God,
acts of government, accident, fire, flood, natural disaster, delay or
destruction of means of transport, or other disaster ("events of force
majeure"), but the affected party shall use best efforts to avoid or remove the
cause of such nonperformance and shall continue performance hereunder with the
utmost dispatch whenever such cause is removed.
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<PAGE>
SECTION SEVEN: MISCELLANEOUS
-----------------------------
7.1 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective successors and
assigns. Neither party shall assign any of their rights, privileges, or
obligations under this Agreement without the written consent of the other party,
which shall not be unreasonably withheld.
7.2 Notices. All notices, requests, demands, and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed certified or registered mail, return receipt
requested with postage prepaid, to the parties at their addresses on page one of
this Agreement. Any party may change its address by providing notice hereunder
to all of the other parties.
7.3 Headings. The headings of sections herein and in the exhibits
--------
referred to herein are for convenience only and shall not control of effect any
meaning or interpretation of any provision of this Agreement.
7.4 Entire Agreement; Modifications. This Agreement contains the
-------------------------------
entire agreement among the parties hereto with respect to the transactions
contemplated hereby. This Agreement may be modified only by a written agreement
signed by all of the parties hereto.
7.5 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.6 Applicable Law. This Agreement shall be construed and enforced
--------------
in accordance with the laws of the State of Michigan.
7.7 Severability. In the event that any of the provisions of this
------------
Agreement shall be held to be invalid or unenforceable, the same shall not
affect the validity or enforceability of any other provisions of this Agreement,
unless such validity or unenforceability shall materially affect and frustrate
the intentions of the parties.
7.8 Time is of the Essence. All of the parties hereto agree and
----------------------
acknowledge that time is of the essence in connection with this Agreement.
7.9 No Waiver. No waiver of any rights of either party hereunder
---------
shall be effective against such party unless set forth in writing and signed by
such party. Further, no waiver of any right hereunder shall be construed to be a
waiver of such right or any other right hereunder or in
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<PAGE>
the future.
ZELENKA NURSERY, INC.
-------------------------------------
Paul Zelenka
Vice President
NAPRO BIOTHERAPEUTICS, INC.
-------------------------------------
Sterling K. Ainsworth
President and Chief Executive Officer
A:\Ex10-38Culture.wpd
<PAGE>
Exhibit 10.39
LEASE AGREEMENT
---------------
This is a Lease, which is effective as of the 1st day of March, 1997. The
names and addresses of the parties are as follows:
<TABLE>
<CAPTION>
NAME ADDRESS DESIGNATION
- ---- ------- -----------
<S> <C> <C>
NaPro Bio Therapeutics, Inc. 6304 Spine Road, Unit A Lessee
Boulder, CO 8030l
Zelenka Nursery, Inc. 16127 Winans Lessor
Grand Haven, MI 49417
</TABLE>
BACKGROUND INFORMATION
----------------------
A. Lessor is the owner of a parcel of real property located in Robinson
Township, Ottawa County, Michigan, together with certain improvements located
thereon.
B. Lessee wishes to lease such property, including the improvements, and
the Lessor has agreed to lease such property and improvements to the Lessee.
C. The Lessee has purchased certain [TEXT REDACTED] Trees and [TEXT
REDACTED] Trees from the Lessor pursuant to an Agreement for Sale and Purchase
of Nursery Stock dated March 1, 1997 between the parties ("Purchase
Agreement").
D. The parties have entered into a Culture Agreement of even date
herewith, pursuant to which the Lessor has agreed to transplant and care for the
trees purchased under the Purchase Agreement and for certain additional trees.
The Culture Agreement requires that the Lessee lease the property described
herein from the Lessor for the purpose of transplanting and growing all or
certain of such trees thereon.
E. The parties acknowledge that their obligations hereunder will
commence as soon as the leased premises are needed for the transplanting which
will occur (under the Culture Agreement) between January 1, 1997 and June 30,
1997 and that a substantially similar lease for additional real property may be
executed by the parties for the purpose of transplanting certain
-1-
<PAGE>
trees (under the Culture Agreement) between January 1, 1998 and June 30, 1998.
F. Lessor and Lessee wish to define the terms of their agreement and
commit it to writing.
AGREEMENT
---------
For their mutual convenience and protection, and in consideration of the
mutual covenants and benefits contained in this Agreement, the receipt and
adequacy of which is hereby acknowledged, Lessor and Lessee mutually agree as
follows:
SECTION ONE: GENERAL AGREEMENT
-------------------------------
1.1 Leased Premises. Lessor leases to Lessee and Lessee leases from
---------------
Lessor, the real property described in Exhibit 1.1 (attached hereto and made a
part hereof) together with all improvements located thereon (collectively
referred to as the "Premises").
SECTION TWO: TERM
------------------
2.1 Term. The term of this Lease shall begin immediately and
----
automatically upon the preparation, use, or occupancy of any portion of the
Premises for the purpose specified in paragraph 4.1, but no later than June 30,
1997. The parties shall endeavor to execute a written certification specifying
such date; however, the parties failure to execute such a certification shall
not affect the commencement of the term. The term of this Lease shall expire at
11:59 p.m. on February 28, 2006. The term of this Lease shall also include any
extensions of this Lease for any period of time as agreed to by the parties.
SECTION THREE: RENTAL
----------------------
3.1 Rental. The rent for the Premises is [TEXT REDACTED] per acre
------
for each year during the term of this Lease. The parties have agreed that the
Premises consists of [TEXT REDACTED] acres, and therefore that (I) the total
rent for the Premises for each year of the Lease term is [TEXT REDACTED], and
(ii) that the total rent for the Premises for each month of the Lease term is
[TEXT REDACTED]. Such monthly rental payment shall be paid in addition to any
other sums expressly agreed to be paid by the Lessee under this Lease and shall
be payable in advance on the first day of each month during the term of the
Lease. If the term of the Lease begins on a date other than the first day of
the month, the monthly installments of the rent for the first and last
fractional months of the term of this Lease shall be prorated in the proportion
that
-2-
<PAGE>
the number of days of Lessee's tenancy bears to thirty (30 days).
SECTION FOUR: USE AND COMPLIANCE WITH LAW
------------------------------------------
4.1 Use. The Lessee shall use the Premises for the purpose of
---
transplanting, growing and culturing the Taxus Media Hicksii Trees delivered to
the Lessor under the Culture Agreement (which Trees include those Taxus Media
Hicksii Trees purchased from Zelenka under the Purchase Agreement and those
other Taxus Media Hicksii Trees which have not been purchased from Zelenka but
which have been delivered to Zelenka for care under the Culture Agreement).
Lessee shall comply with the statutes and regulations of Michigan and of the
United States, and any and all ordinances and regulations of any other
governmental body having jurisdiction over the Premises. The Lessee shall
further comply with all health, fire, and police rules and regulations affecting
the Premises.
SECTION FIVE: LESSEE'S IMPROVEMENTS AND PERSONAL PROPERTY
----------------------------------------------------------
5.1 Improvements. The Lessee and the Lessor acknowledge that the
------------
Lessor will be caring for the Premises and all crops and trees thereon pursuant
to the terms of the Culture Agreement. Therefore, the Lessor shall have the
right to construct and erect any fences or other improvements on the Premises as
the Lessor shall deem appropriate and necessary to perform its obligations under
the Culture Agreement. All such fences, buildings, and other improvements shall
remain the property of the Lessor as of the expiration or earlier termination of
this Lease.
5.2 Personal Property. The Lessor shall have the right to place on the
-----------------
Premises any personal property or equipment as the Lessor shall deem necessary
or appropriate to perform its obligations under the Culture Agreement. Any such
property or equipment shall remain the sole property of the Lessee and may be
removed by the Lessee at any time during the Lease or at its termination. Any
such personal property which is not removed as of the termination of this Lease
shall be deemed abandoned by the Lessee and shall thereupon become the absolute
property of the Lessor.
SECTION SIX: LESSEE'S TREES
----------------------------
6.1 Ownership. The Lessee shall have the right to transplant on to
---------
the Premises trees for culture pursuant to the terms of the Culture Agreement.
Subject to the terms of the Purchase Agreement and the Culture Agreement, any
and all trees grown or maintained on the Premises by the Lessee, shall be the
sole property of the Lessee, and may be harvested and removed from the
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<PAGE>
Premises pursuant to the Lessee's instructions under the Culture Agreement at
any time during the term of this Lease.
SECTION SEVEN: QUIET ENJOYMENT
-------------------------------
7.1 General. If the Lessee pays the rent and performs all of the
-------
covenants and agreements on its part to be performed pursuant to this Agreement,
Lessor agrees that Lessee shall have peaceful and quiet enjoyment of the
Premises. Lessor agrees that Lessee's rights to lease the Premises shall be
exclusive and that Lessor will not lease any interest in or portion of the
Premises, including but not limited to any oil, gas, or mineral interests, to
any other party during the term of this Lease.
SECTION EIGHT: ASSIGNMENT AND SUBLETTING
-----------------------------------------
8.1 Prohibition Without Consent. This Lease shall not be assigned,
---------------------------
nor shall any part of the Premises be sublet by the Lessee without the prior
written consent of the Lessor, unless the rights of the Lessee under the
Purchase Agreement and the Culture Agreement have also been assigned with the
consent of the Lessor. If such assignments have occurred with the consent of the
Lessor, then the Lessor's consent to the assignment of this Lease shall not be
unreasonably withheld.
SECTION NINE: TAXES
--------------------
9.1 Real Property. During the term of this Lease, the Lessor shall
-------------
pay promptly, before any penalties or interest charge attach, all general real
estate taxes and installments of special assessment and any other governmental
charges levied upon the Premises; provided, however, that the Lessor reserves
the right to withhold any such payments in the event of a bona fide dispute
(between the Lessor and the taxing authority) regarding the same. The Lessor
shall provide proof of such payments to the Lessee upon request. If the Lessor
fails to make any such payments, then in the absence of a bona fide dispute
(between the Lessor and the taxing authority), Lessee shall have the option to
make such payments on behalf of the Lessor and deduct such amounts from the
rental payable hereunder and/or collect such amounts from the Lessor
immediately.
9.2 Personal Property. Lessor shall pay all personal property taxes
-----------------
assessed against the personal property owned by the Lessor and located on the
Premises which is assessable for
-4-
<PAGE>
personal property tax purposes.
9.3 Trees. Lessee shall pay all personal property taxes assessed
-----
against the Trees located on the Premises which are accessible for personal
property tax purposes.
SECTION TEN: UTILITY SERVICES
-----------------------------
10.1 General. Lessor shall make payment for all gas, electricity,
-------
water, sewer, and any and all other public utilities used or consumed on the
Premises during the term of this Lease. Lessor shall be reimbursed therefor by
the Lessee pursuant to the terms of the Culture Agreement.
SECTION ELEVEN: REPAIRS AND MAINTENANCE
----------------------------------------
11.1 General. Lessor shall make and pay for all repairs, alterations, and
-------
maintenance of the buildings, structures, and improvements owned by the Lessor
on the Premises. Lessor shall be reimbursed therefor by the Lessee pursuant to
the terms of the Culture Agreement.
SECTION TWELVE: EMINENT DOMAIN
------------------------------
12.1 Rent and Termination. In the event that any part of the Premises is
--------------------
taken by condemnation, eminent domain proceedings, the rent payable thereafter
shall be decreased in proportion to the portion of the Premises taken. However,
if all of the Premises are taken, or if the taking precludes the Lessee from
reasonably using the Premises for its farming and growing operations, this Lease
shall terminate at the time possession must be surrendered, and the Lessee shall
be relieved of all future rental payments. Lessor shall not voluntarily sell the
Premises or any part thereof in connection with any such proceedings that may be
threatened or instituted without giving Lessee the opportunity to resist such
condemnation at Lessee's expense, in which case the Lessor shall resist such
proceedings (if requested to do so by Lessee) at Lessee's expense in the court
or forum having jurisdiction thereof .
12.2 Lessee Rights. In addition to the Lessee's rights as provided in
-------------
paragraph 12.1, Lessee shall have the right to collect from the condemning
authority damages by reason of loss of business, business interruption,
depreciation or damage of crops, fixtures and equipment, removal and planting
costs, and such other damages to which it may be legally entitled.
SECTION THIRTEEN: ENVIRONMENTAL CONTAMINATION
----------------------------------------------
13.1 Warranty. The Lessee warrants that it will comply with all federal,
--------
state, and local
-5-
<PAGE>
rules, regulations, statutes, and ordinances pertaining to the protection of the
environment in conducting any activities on the Premises.
13.2 Indemnification. The Lessee agrees to defend and indemnify the
---------------
Lessor against any obligations, costs, and liabilities (including but not
limited to reasonable attorneys' fees) relating to the Premises arising out of
claims for investigation, study, remedial work, monitoring, or other costs or
expenses regarding any environmental contamination of the Premises caused by the
Lessee, including but not limited to groundwater or soil contamination, water
pollution, air pollution, personal injury, or property damage.
SECTION FOURTEEN: INSURANCE
----------------------------
14.1 Public Liability and Indemnity. Lessee shall indemnify and save
------------------------------
harmless Lessor from any liability for any loss, damage, injury, or other
casualty to persons or property caused or occasioned by or arising from any act,
use, occupancy, or negligence by or of Lessee or any of its agents, servants,
visitors, licensees, or employees occurring during the term of this lease or any
extended term. If any action or proceedings are brought against the Lessor by
reason of any such claim, Lessee on timely notice from Lessor shall resist and
defend such action or proceedings by counsel employed by the Lessee, which shall
include the taking of all permissible appeals, unless full release of expense is
obtained by way of settlement of compromise at the expense of Lessee or its
insurance carrier.
The Lessee shall furnish to Lessor a certificate or other evidence
indicating that Lessee has had issued to it a policy or policies of insurance
insuring against damage to property in the minimum amount of One Million Dollars
($1,000,000.00) in bodily injury, including death, and the minimum amount of One
Million Dollars ($1,000,000.00) for injury to one (1) person and One Million
Dollars ($1,000,000.00) for injury to more than one (1) person, in one accident
or occurrence, naming Lessor as additional insured, and the Lessee shall pay all
premiums thereon and furnish evidence of such payments to Lessor, if requested
to do so.
14.2 Insurance on Buildings of Lessor. Lessor shall, at its expense,
--------------------------------
insure any buildings, structures, or improvements owned by Lessor on the
Premises against loss or damage under a policy or policies of fire and extended
coverage insurance, including "additional perils". Such policy or policies shall
contain appropriate clauses or endorsements under which the insurer
-6-
<PAGE>
waives all right of subrogation against Lessee, its agents, employees, invites,
and licensees with respect to losses payable under such policy or policies. In
addition, Lessor hereby waives all rights of recovery which it might otherwise
have against Lessee, its agents, employees, invites, or licensees for any loss
or damage to the property which is covered by said policy or policies,
notwithstanding that such loss or damage may result from the fault or negligence
of Lessee, its employees, invites, or licensees. Such policy or policies shall
be issued in an amount equal to the estimated replacement value of all
buildings, structures, and improvements owned by the Lessor on the Premises.
Lessor shall furnish proof of such policy or policies upon request to the
Lessee.
14.3 Lessee's Personal Property. Any personal property, trees, or
--------------------------
crops kept on the Premises by Lessee shall be at the Lessee's sole risk and
responsibility. Any insurance maintained by Lessee on such personal property
shall contain a clause or endorsement under which the insurer waives all right
of subrogation against Lessor, its agents or employees, with respect to losses
payable under the policy, and Lessee hereby waives all right of recovery which
it might otherwise have against Lessor, its agents or employees for any damage
to its personal property which is covered by a policy of insurance regardless of
the amount of such insurance, notwithstanding that such damage may result from
the negligence or fault of Lessor, its agents or employees.
14.4 Failure to Obtain Insurance. If Lessee or Lessor, at any time
---------------------------
during the term of this Lease, fails to secure or maintain the insurance as
required in this section, the other party shall be permitted to obtain such
insurance and shall be compensated by the defaulting party for the cost of the
insurance premiums immediately, and, in the case of payments made by the Lessee
in such case, shall be entitled to deduct such amounts from the rental payable
hereunder.
SECTION FIFTEEN: RENEWAL AND EXTENSION OF LEASE
------------------------------------------------
15.1 Terms. For and in consideration of the sum of one dollar ($1.00),
-----
paid by the Lessee to the Lessor, the receipt of which hereby acknowledged, the
Lessor hereby grants to the Lessee the exclusive right and option to renew this
Lease for two separate five (5) year renewal terms on the same terms and
conditions of this Lease except as otherwise provided below in paragraph 15.2;
provided, however, that the Lessee shall not be entitled to renew the Lease for
any renewal term unless the Lessee simultaneously renews the Culture Agreement
for a renewal
-7-
<PAGE>
term of the same duration. In the event that the Lessee elects to exercise such
option, the Lessee shall serve the Lessor with a written notice of election to
renew, not less than one hundred eighty (180) days before the end of the
original term of this Lease. Upon receipt of such notice by the Lessor, this
Lease shall remain in full force and effect for the renewal term. If Lessee
elects not to renew this Lease and remains in possession following the end of
the term of this Lease, the Lessee shall be a tenant from month to month, unless
the parties otherwise agree in writing.
15.2 Rental During Renewal Terms. If this Lease is renewed pursuant
---------------------------
to the provisions of paragraph 15.1, the rent for each renewal term shall be
agreed upon by the Lessor and the Lessee, and shall be documented in a writing
signed by the Lessor and the Lessee prior to the beginning of any such renewal
term. If the Lessor and the Lessee cannot agree on the amount of the rent
before the commencement of the renewal term, then the rent hereunder shall be
the fair market rental value of the Premises as determined by an appraiser who
shall be selected as follows: (1) one appraiser shall be selected by the Lessor,
and one shall be selected by the Lessee. The two appraisers shall each agree
upon and select a third appraiser, who shall conduct the appraisal. The
appraisal conducted by the selected appraiser shall be binding upon the Lessor
and the Lessee hereunder and the Lessor and the Lessee shall each be responsible
to pay one-half (1/2) of the costs and fees associated with such appraisal.
SECTION SIXTEEN: DEFAULT
-------------------------
16.1 Default in General. If the Lessee defaults in the payment of rent
------------------
when due, or if the Lessee violates or neglects to fulfill any of the covenants
and agreements under this Agreement or under the Culture Agreement or under the
Spring Agreements, and such default continues for thirty (30) days after written
notice by the Lessor to the Lessee specifying the breach or default, the Lessor
and his attorney(s), heir(s), representative(s), or assign(s) shall have the
right to: (1) terminate this Lease, to re-enter into and to repossess the
Premises and to remove and put out Lessee and each and every other occupant
either by summary proceedings or other lawful means and to recover immediately
those damages permitted by law, and/or (2) terminate the Lessee's right of
possession, repossess the Premises, and without terminating this Lease, relet
the Premises, and recover its damages from time to time as permitted by law.
16.2 Removal Rights. Notwithstanding the foregoing paragraph 16.1,
--------------
if the Lessee
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<PAGE>
defaults and the Lessor invokes its rights under this paragraph, and if the
Lessee pays to the Lessor all past due rental payments and other sums due to the
Lessor hereunder as well as the rentals due hereunder for ninety (90) additional
days, the Lessee shall have the right to care for, harvest, and remove within
ninety (90) days from the date of termination of this Lease, any trees growing
or cared for on the Premises at the time of the termination of this Lease. Any
rights of the Lessor, any subsequent Lessee or, any other party with a
subsequent interest in the Premises, with regard to the Premises shall be
subject to such rights of the Lessee.
16.3 Abandonment. Any trees, crops, or personal property which remain on
-----------
the Premises as of the termination of this Lease (or as of the date 90 days
thereafter if the Lessee invokes its rights under paragraph 16.2) shall be
deemed to be abandoned by the Lessee and the Lessor shall automatically take
title thereto. Even though the Lessor's ownership rights are self-executing, the
Lessee agrees to execute such documents as may be necessary to affirm or give
notice of such transfer of title.
SECTION SEVENTEEN: FIRE AND CASUALTY
-------------------------------------
17.1 General. If any buildings, structures, or improvements owned by
-------
the Lessor are damaged by fire or by the elements or other casualty, Lessor, as
soon as reasonably may be done, shall reconstruct, repair or rebuild the same to
the extent necessary to make them substantially similar in character and value
to their status prior to the damage. If such loss renders the Lessor's
buildings, structures, or improvements totally unusable to the extent that they
cannot be used by the Lessee, rent shall abate until said buildings, structures,
or improvements are put back in a condition substantially similar to their
condition immediately prior to the loss. However, if such buildings,
structures, or improvements are partially destroyed by fire or the elements or
other casualty, and are not rendered totally unusable by Lessee, the Lessee
shall pay that proportion of the rental as the part of the Lessor's buildings,
structures, improvements that may be used for the business of the Lessee bears
to the whole thereof.
SECTION EIGHTEEN: RIGHT OF ENTRY
---------------------------------
18.1 Lessor Rights. Lessor and its agents shall have the right to
-------------
enter the Premises at such reasonable times as will not interfere with the
Lessee's normal use thereof, for the purposes of inspection or repair, or other
purposes as permitted by Lessee.
-9-
<PAGE>
SECTION NINETEEN: SUBORDINATION; ATTORNMENT;
--------------------------------------------
ESTOPPEL CERTIFICATE
--------------------
19.1 Subordination. This Lease shall be subject and subordinate to
-------------
the interests of the holders of any notes secured by mortgages on the Premises,
now or in the future, and to all ground or underlying leases and to all
renewals, modifications, consolidations, replacements and extensions thereof,
and while the provisions of this section are self-executing, Lessee shall
execute such documents as may be necessary to affirm or give notice of such
subordination.
19.2 Attornment. Lessee shall attorn to any foreclosing mortgagee or
to any purchaser of the Premises at any foreclosure sale, or sale in lieu of
foreclosure, for the balance of the term of the Lease on all of the terms and
conditions herein contained.
19.3 Estoppel Certificate. At the Lessor's request, the Lessee shall,
--------------------
within ten (10) days deliver to the Lessor, or anyone designated by the Lessor,
a certificate stating and certifying such information as may be reasonably
requested to verify the status of the Lessor/Lessee relationship established by
the Lease.
LESSOR'S COSTS
--------------
20.1 General. Any costs or expenses hereunder which are required to
-------
be borne by the Lessor hereunder may be charged back to the Lessee to the extent
permitted under the terms of the Culture Agreement.
SECTION TWENTY-ONE: MISCELLANEOUS
-----------------------------------
21.1 Copies. This Lease may be executed in multiple counterparts, each of
------
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
21.2 Captions. The captions in this Lease are for convenience only and
--------
shall not be considered as part of this Lease or in any way limiting or
amplifying the terms and provisions hereof.
21.3 Definitions. Words used in the singular number shall include the
-----------
plural number; words used in the plural number shall include the singular
number. The use of pronouns or other terms referring to the male gender shall
include the female and/or neuter gender, and use of pronouns or other terms
referring to the female gender shall include the male gender. Reference to any
person or gender shall include the male gender. Reference to any person or
entity herein is presumed by any designation of such person or entity. The word
"person" includes a firm, association, partnership,
-10-
<PAGE>
joint venture, corporation, trust or equivalent entity or a combination of them
as well as a natural person.
21.4 Benefit. This Lease shall inure to the benefit of and be binding
-------
upon the Lessor, its or their personal representatives, heirs and assigns, and
the Lessee, its successors and assigns.
21.5 Notice. Any notice, reports or statements required to be given
------
hereunder shall be sufficiently given if sent by certified United States mail,
return receipt requested, to the parties, at their addresses set forth on page
one. The notice shall be effective when deposited in such mail.
21.6 Entire Agreement. This Agreement contains the entire agreement
----------------
between the parties hereto and may be amended or terminated only by a writing
signed by each party unless otherwise set forth herein.
21.8 Michigan Law. This Agreement shall be governed by and construed
------------
according to the laws of the State of Michigan.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year above provided.
ZELENKA NURSERY, INC.
-----------------------------------------
Paul Zelenka
Vice President
NAPRO BIO THERAPEUTICS, INC.
-----------------------------------------
Sterling K. Ainsworth
President and Chief Executive Officer
-11-
<PAGE>
Exhibit 10-40
AGREEMENT FOR SALE AND PURCHASE
-------------------------------
OF NURSERY STOCK
----------------
This Agreement is made as of this 1st day of March, 1997 and is between
Zelenka Nursery, Inc. of 16127 Winans, Grand Haven, MI 49417 ("Zelenka") and
NaPro BioTherapeutics, Inc. of 6304 Spine Road, Unit A, Boulder, CO 80301
("NaPro") with respect to the sale and purchase of certain Taxus Media Hicksii
trees currently owned by Zelenka.
STATEMENT OF BACKGROUND INFORMATION
-----------------------------------
A. Zelenka owns certain [TEXT REDACTED] trees and certain [TEXT REDACTED]
trees which are currently growing in liners on real estate owned or controlled
by Zelenka.
B. NaPro desires to purchase from Zelenka and Zelenka desires to sell to
NaPro approximately [TEXT REDACTED] trees and approximately [TEXT REDACTED]
trees.
C. NaPro desires to have Zelenka transplant, care for, and harvest the
trees purchased by NaPro hereunder and the parties will enter into a separate
Culture Agreement, in the form attached hereto, pursuant to which Zelenka will
transplant, care for, harvest, and store the trees ("Culture Agreement").
D. NaPro has agreed to lease from Zelenka certain real property on which
the trees purchased hereunder will be transplanted and grown, and the parties
will enter into a separate Lease in the form attached hereto.
E. The parties desire to set forth the terms of their agreements in this
writing.
STATEMENT OF AGREEMENT
----------------------
For their mutual convenience and protection, and in consideration of the
mutual covenants and benefits contained in this Agreement, the parties agree as
follows:
SECTION ONE: SALE AND PURCHASE OF TREES
----------------------------------------
1.1 General Agreement. Zelenka hereby agrees to sell to NaPro and NaPro
-----------------
agrees to purchase from Zelenka approximately [TEXT REDACTED] trees (age as of
the date hereof) and approximately [TEXT REDACTED] trees (age as of the date
hereof) on the terms set forth in this Agreement. Such Trees are currently
growing in liners on real estate owned or controlled by Zelenka.
-1-
<PAGE>
1.2 Price and Terms of Sale. NaPro shall pay [TEXT REDACTED]. The total
-----------------------
purchase price (less the Earnest Money described below in paragraph 1.3) shall
be calculated after the exact number of Trees has been identified under
paragraph 1.5, and such sum shall be paid to Zelenka by NaPro in certified funds
at the closing.
1.3 Earnest Money and Execution of Documents. Upon the parties'
----------------------------------------
execution of this Agreement, NaPro shall deposit with Zelenka the sum of One
Hundred Thousand Dollars ($100,000.00) to be held by Zelenka as earnest money
("Earnest Money") to apply on the purchase price of the Trees hereunder. If
Zelenka defaults on any of its obligations under this Agreement, NaPro shall be
entitled to select one of the following options: (i) request a return of the
Earnest Money, in which case : the Earnest Money shall be promptly refunded to
NaPro by Zelenka, this Agreement shall be of no further effect, and neither
party shall owe any liability or obligation to the other in connection with this
Agreement, or (ii) pursue any of NaPro's legal and/or equitable remedies
(including but not limited to specific performance) against Zelenka. If NaPro
defaults on any of its obligations under this Agreement, Zelenka shall be
entitled to select one of the following options: (i) retain the Earnest Money,
in which case the Earnest Money shall be forfeited to Zelenka as liquidated
damages, this Agreement shall be of no further effect, and neither party shall
owe any liability or obligation to the other in connection with this Agreement,
or (ii) pursue any of Zelenka's legal and/or equitable remedies (including but
not limited to specific performance) against NaPro. The Earnest Money shall be
credited against the purchase price for the Trees at the closing. Upon the
parties' execution of this Agreement, the parties shall also execute and deliver
to each other the Culture Agreement attached hereto as Exhibit 1.3A and the
Lease attached hereto as Exhibit 1.3B.
1.4 Matters Beyond Zelenka's Control. If, for any reason beyond its
--------------------------------
reasonable control (including without limitation, acts of God, acts of
government, accident, fire, flood, natural disaster, weather-related causes, or
failure of Comerica Bank to release all of the Trees from its collateral
security interest) Zelenka is, or will be, unable to perform all of its
obligations at closing hereunder, then Zelenka and NaPro shall each be entitled,
by a written notice to the other, to terminate this Agreement, the Culture
Agreement, and the Lease. In such event, Zelenka shall return the Earnest Money
to NaPro, return to NaPro any sums (except sums for goods or services rendered
which inure to the benefit of NaPro notwithstanding the termination of this
Agreement) received by Zelenka under the Culture Agreement or the Lease, and
neither party shall have any continuing obligation to the other under this
Agreement, the Culture Agreement, or the Lease.
-2-
<PAGE>
1.5 Selection and Number of Trees. Zelenka shall be entitled to select,
-----------------------------
at or before the closing, from its total inventory of [TEXT REDACTED] Trees,
those specific [TEXT REDACTED] Trees which will be sold to NaPro under the terms
of this Agreement. The only specifications applicable to such selection shall
be the following: (1) Zelenka shall select approximately [TEXT REDACTED] Trees
and approximately [TEXT REDACTED] Trees, and (2) all such Trees shall be alive
at the time of the closing. Zelenka shall not be entitled to select, and NaPro
shall not be obligated to purchase, any number of [TEXT REDACTED] Trees which is
more than five percent (5%) greater or less than [TEXT REDACTED], nor any number
of [TEXT REDACTED] Trees which is greater or less than five percent (5%) of
[TEXT REDACTED].
1.6 Closing. This sale shall be closed within 21 days after the
-------
transplanting of the six year old trees under the Culture Agreement on a date
agreed upon by Zelenka and NaPro, which date shall be no later than June 30,
1997. If the parties are unable to agree on a date or location for the
closing, the closing shall be held on June 30, 1997 at the offices of Zelenka
Nursery at the address of Zelenka Nursery as set forth on page 1. Zelenka
shall deliver to NaPro at the closing a warranty bill of sale which shall
identify the specific Trees sold pursuant to this Agreement, the number of trees
transferred, and the location of the transferred Trees as of the closing.
1.7 Title and Risk of Loss. Title to the Trees and risk of loss shall
----------------------
pass to NaPro at the closing.
SECTION TWO: GENERAL TERMS
---------------------------
2.1 Arbitration. Any disagreements or dispute between the parties shall
-----------
be resolved exclusively by arbitration which shall be binding upon both of the
parties. The arbitration shall be conducted by a panel of three (3) arbitrators
under the rules of the American Arbitration Association. One (1) arbitrator
shall be selected by Zelenka, one (1) by NaPro, and one (1) by the two (2)
selected arbitrators. Any arbitration shall be conducted in Grand Haven,
Michigan and the arbitrators shall apply Michigan law. Unless otherwise
allocated or assessed by the arbitrators, the parties shall share equally the
fees and expenses of the arbitrators.
2.2 Warranties. Except as expressly set forth in paragraph 6.3 of the
----------
Culture Agreement, Zelenka offers no representations or warranties regarding any
Trees purchased hereunder. Without limiting the generality of the foregoing,
Zelenka offers no representations or warranties to NaPro regarding: (1) the
quality or suitability of any Trees purchased hereunder or the cuttings thereof
for any purpose whatsoever, or (2) the Trees' merchantability or their fitness
-3-
<PAGE>
for any particular purpose.
SECTION THREE: MISCELLANEOUS
-----------------------------
3.1 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective successors,
assigns, heirs, and personal representatives. Neither party shall assign any of
its rights, privileges, or obligations under this Agreement without the written
consent of the other party, which shall not be unreasonably withheld.
3.2 Notices. All notices, requests, demands, and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed certified or registered mail, return receipt
requested with postage prepaid, to the parties at their addresses on page one of
this Agreement. Any party may change its address by providing notice under this
paragraph 4.2 to all of the other parties.
3.3 Headings. The headings of sections herein and in the exhibits
--------
referred to herein are for convenience only and shall not control of effect any
meaning or interpretation of any provision of this Agreement.
3.4 Entire Agreement; Modifications. This Agreement contains the
-------------------------------
entire agreement among the parties hereto with respect to the transactions
contemplated hereby. This Agreement may be modified only by a written agreement
signed by all of the parties hereto.
3.5 Counterparts. This Agreement may be executed in two (2) or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one (1) and the same instrument.
3.6 Applicable Law. This Agreement shall be construed and enforced
--------------
in accordance with the laws of the State of Michigan.
3.7 Severability. In the event that any of the provisions of this
------------
Agreement shall be held to be invalid or unenforceable, the same shall not
affect the validity or enforceability of any other provisions of this Agreement,
unless such validity or unenforceability shall materially affect and frustrate
the intentions of the parties.
3.8 Time is of the Essence. All of the parties hereto agree and
----------------------
acknowledge that time is of the essence in connection with this Agreement.
3.9 No Waiver. No waiver of any rights of any party hereunder shall
---------
be effective
-4-
<PAGE>
against such party unless set forth in writing and signed by such party.
Further, no waiver of any right hereunder shall be construed to be a waiver of
such right or any other right hereunder or in the future.
ZELENKA NURSERY, INC.
-----------------------------
Paul Zelenka
Vice President
NAPRO BIO THERAPEUTICS, INC.
-------------------------------
Sterling K. Ainsworth
President and Chief Executive Officer
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to incorporation by reference in the Registration Statement of Form
S-8 pertaining to the NaPro BioTherapeutics, Inc. 1993 Stock Option Plan and the
NaPro BioTherapeutics, Inc. 1994 Long-Term Performance Incentive Plan of our
report dated January 26, 1997, with respect to the consolidated financial
statements of NaPro BioTherapeutics, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1996.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Denver, Colorado
March 27, 1997
<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 an annual report on Form 10K
for the year ending December 31, 1996 and the associated 1997 Proxy to be filed
with the Securities and Exchange Commission (the "Commission"), 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; 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.
<TABLE>
<S> <C>
Date: March 31, 1997 /s/ Sterling K. Ainsworth
Sterling K. Ainsworth
Date: March 31, 1997 /s/ Leonard P. Shaykin
Leonard P. Shaykin
Date: March 31, 1997 /s/ Gordon H. Link, Jr.
Gordon H. Link, Jr.
Date: March 31, 1997 /s/ E. Garrett Bewkes, Jr.
E. Garrett Bewkes, Jr.
Date: March 31, 1997 /s/ Phillip Frost
Phillip Frost
Date: March 31, 1997 /s/ Richard C. Pfenniger, Jr.
Richard C. Pfenniger, Jr.
Date: March 31, 1997 /s/ Patricia A. Pilia
Patricia A. Pilia
Date: March 31, 1997 /s/ Vaughn D. Bryson
Vaughn D. Bryson
Date: March 31, 1997 /s/ Arthur H. Hayes, Jr.
Arthur H. Hayes, Jr.
Date: March 31, 1997 /s/ Mark B. Hacken
Mark B. Hacken
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,531
<SECURITIES> 5,236
<RECEIVABLES> 662
<ALLOWANCES> 0
<INVENTORY> 2,281
<CURRENT-ASSETS> 18,210
<PP&E> 7,364
<DEPRECIATION> 1,352
<TOTAL-ASSETS> 25,021
<CURRENT-LIABILITIES> 3,986
<BONDS> 751
0
0
<COMMON> 93
<OTHER-SE> 16,476
<TOTAL-LIABILITY-AND-EQUITY> 25,021
<SALES> 3,473
<TOTAL-REVENUES> 3,473
<CGS> 0
<TOTAL-COSTS> 10,576
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 350
<INCOME-PRETAX> (6,825)
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<NET-INCOME> (6,825)
<EPS-PRIMARY> (0.68)
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</TABLE>
