SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 of the Securities Exchange Act of 1934
Year Ended December 31, 1998
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, $0.0075 par value; Preferred Stock Purchase Rights
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, and
(2) has been subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K will be
contained, to the best of registrant's knowledge, in a definitive proxy
statement incorporated by reference in Part III of an amendment to this Form
10-K.
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $30,011,000 as of March 15, 1999.
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 15, 1999:
Common Stock 17,687,212
Nonvoting Common Stock 395,000
Incorporated by reference in Part III of this report is certain information
contained in the NaPro Proxy Statement for its 1999 Annual Meeting of
Stockholders.
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Table of Contents
Item Page
Part I 1 Business 3
2 Properties 18
3 Legal Proceedings 18
4 Matters Submitted to Stockholders' Vote 19
Part II 5 Market Information and Related Stockholder Matters 19
6 Selected Financial Data 20
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
7A Quantitative and Qualitative Disclosures about
Market Risk 28
8 Financial Statements and Supplementary Data 29
9 Changes in and Disagreements with Accountants 29
Part III 10 Directors and Executive Officers 29
11 Executive Compensation 29
12 Security Ownership of Certain Beneficial Owners and
Management 29
13 Certain Relationships and Related Transactions 30
Part IV 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 30
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Part I
Item 1
Business
General
NaPro BioTherapeutics, Inc. (together with its subsidiaries, "NaPro" or "the
Company") is a natural product pharmaceutical company focused primarily on the
development, manufacture and commercializa tion of paclitaxel, a
naturally-occurring anti-cancer agent found in certain species of yew (Taxus)
trees. NaPro'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 $1.2 billion in 1998 and approximately $941
million in 1997. BMS's paclitaxel is the only United States Food and Drug
Administration ("FDA") approved formulation of paclitaxel and is indicated for
the treatment of breast and ovarian cancers, Kaposi's Sarcoma, and non-small
cell lung cancer when used in combination with cisplatin. 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 current as well as future long-term, exclusive agreements with
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 or that NaPro will succeed in entering into the new strategic
development and marketing agreements necessary for its success.
NaPro's strategy for advancing the development and commercialization of NBT
Paclitaxel has been to form strategic alliances through long-term exclusive
agreements with major pharmaceutical companies. NaPro is in substantive
discussions with several companies aimed at forming alliances for the develop
ment, sales, marketing and distribution of NBT Paclitaxel in North America and
Europe. In 1992 NaPro entered into a 20-year exclusive agreement (the "Faulding
Agreement") with F.H. Faulding & Co., Ltd., Australia's largest domestic
pharmaceutical company with 1998 sales of approximately $1.2 billion
("Faulding"), for the clinical development, sales, marketing and distribution of
NBT Paclitaxel in Australia, New Zealand and much of southeast Asia. See
"Strategic Alliances, Faulding".
NaPro supplies NBT Paclitaxel to Faulding, which formulates it into a commercial
drug product named ANZATAX(TM). Faulding has agreed to fund and, with NaPro's
input, perform development work leading to regulatory approvals of ANZATAX(TM)
in its territory. NaPro is responsible for supplying Faulding with NBT
Paclitaxel for clinical and commercial purposes. NaPro is currently receiving
payments from Faulding based on clinical sales, and commercial sales in
territories where sales of ANZATAX(TM) have been approved.
Faulding obtained regulatory approval and began marketing ANZATAX(TM) as a
pharmaceutical for the treatment of refractory breast and ovarian cancers in
Australia in January 1995. Faulding subsequently obtained regulatory approval
and began marketing ANZATAX(TM) in several countries in the Middle East and
southeast Asia, and is seeking approvals to market ANZATAX(TM) in other
countries in its defined territory. See "Clinical Status of NBT Paclitaxel,
Faulding".
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From June 1993 to March 1998, NaPro was party to an exclusive agreement (the
"IVAX Agreement") with IVAX Corporation (together with its subsidiaries,
"IVAX"), for the clinical development, sales, marketing and distribution of NBT
Paclitaxel in much of the world not covered by the Faulding territory, including
North America, Western Europe and Japan.
Under the IVAX Agreement, clinical trials were conducted and IVAX obtained
regulatory approval for and began marketing Taycovit, its commercial formulation
of NBT Paclitaxel, in two South American countries. IVAX filed an
Investigational New Drug ("IND") application for Paxene(R), its formulation of
paclitaxel, with the United States Food and Drug Administration (the "FDA") in
1994, subsequently completed clinical trials of Paxene(R) for three therapeutic
indications, including refractory breast and ovarian cancers and Kaposi's
sarcoma, and on March 31, 1997, submitted a New Drug Application ("NDA") for
Kaposi's sarcoma. On December 24, 1997 the FDA responded, determining that
Paxene(R) was safe and effective in the treatment of Kaposi's sarcoma but under
the Orphan Drug Act of 1983 (the "Orphan Drug Act") could not be marketed due to
BMS's prior approval for the use of paclitaxel in the treatment of Kaposi's
sarcoma. The IVAX agreement was terminated by the parties in March 1998. See
"Strategic Alliances, IVAX".
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. Since gaining
approval in December 1992, paclitaxel 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.
In June 1991, the NCI formalized a Collaborative Research and Development
Agreement ("CRADA") for development of paclitaxel with BMS, the world's largest
oncology company. BMS assumed development of paclitaxel, including 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 subsequently
received approval for the sale of paclitaxel as a treatment for various other
cancer indications.
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. The concentration of
taxanes in yew trees is very small, generally 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 used. NaPro believes the two most prevalent processes used today are
conventional biomass extraction and semi-synthesis.
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With conventional 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 certain other taxanes (which are otherwise
considered waste byprod ucts) and converts these taxanes into paclitaxel through
chemical synthesis. By converting other taxanes into paclitaxel, the
semi-synthesis process increases the yield of paclitaxel from the same quantity
of biomass. Regardless of which process is used, the final product must have
levels of impurities at or below acceptable regulatory standards.
Historically, the Pacific yew tree has been the primary source of biomass. Most
species of Taxus, including the Pacific yew, grow slowly, requiring a number of
years to reach harvestable size. As a result of its slow growing pattern, Taxus
is generally found in old growth forests, frequently the habitat of endangered
species, including the spotted owl. Biomass from the 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; Manufac turing".
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
than 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 Faulding Agreement, Faulding has the primary responsibility for
designing and conducting clinical trials and for pursuing regulatory approval of
NBT Paclitaxel within the Faulding territory. NaPro has primary responsibility
for carrying out the procedures for regulatory approvals 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 to the manufacture of NBT Paclitaxel with regulatory agencies
in the United States, Australia, Canada, Europe and Southeast Asia. In addition,
NaPro performed toxicological and preclinical characterization necessary for
filing an IND for extracted paclitaxel.
Existing regulatory approvals have a direct impact on the clinical and marketing
strategy being pursued by NaPro and Faulding. 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 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 Stated expired in December 1997.
There are also provisions under the Waxman-Hatch Act that may result in an
additional 30 month delay in the review of an ANDA if the sponsor (in this case
BMS) has published a patent related to the product. NaPro believes this
limitation to apply in the case of Taxol(R). Taxol(R) is a registered trademark
of BMS for an anti-cancer pharmaceutical preparation containing paclitaxel. A
comparable statute to the
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Waxman-Hatch Act exists in Europe, although the related period of exclusivity is
ten years. See "Government Regulation and Product Approvals".
NaPro NaPro filed an IND in May 1998, and initiated Phase II/III clinical trials
of NBT Paclitaxel for three indications in June 1998 and March 1999. These
trials are ongoing, and it is too early to anticipate the outcome. There can be
no assurance that these trials will demonstrate NBT Paclitaxel to be safe or
effective.
Faulding In January 1995, Faulding received generic regulatory approval from the
Australian Therapeutic Goods Administration ("TGA") to market ANZATAX(TM) in
Australia. 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) 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 its United States manufacturing facilities. In addition to their
Australian approval, Faulding markets ANZATAX(TM) in Cyprus, Egypt, Kuwait, Hong
Kong, Lebanon, Turkey, Vietnam, China and Singapore. Faulding has marketing
applications pending in five other countries. There can be no assurance,
however, that Faulding will receive approval in any of these countries or will
successfully market NBT Paclitaxel in any of the countries where approvals have
been received.
Biomass; Manufacturing
Biomass Paclitaxel and other taxanes used in the production of NBT Paclitaxel
are present in many parts of various species of yew trees. 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 cultivated yew trees.
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 by planting and
propagating a reliable and renewable homogeneous biomass source. In order to
have access to such a stable, long-term supply of biomass for use in the
production of NBT Paclitaxel, NaPro entered into agreements with, among others,
Pacific BioTechnologies Inc. in 1993 and Zelenka Nursery, Inc. in 1996 (the "PBI
Agreement" and "Zelenka Agreement," respectively). NaPro made its first
small-scale harvest pursuant to the Zelenka Agreement in the second quarter of
1996, and during 1997 completed its initial harvest under the Zelenka Agreement.
In addition, during 1997 NaPro made spot orders with other vendors to obtain
sufficient biomass to support manufacturing demands. During 1998, NaPro
conducted limited harvests under the Zelenka Agreement and began research
related to enhancing paclitaxel production in cultivated yew trees. In July
1998, the PBI Agreement was terminated by notice. Under the terms of
termination, there is up to a 2 year winding down of the agreement. A fair
market value lease of the facilities and contract for ongoing maintenance of the
plantation is currently under negotiation with PBI. NaPro believes that it has
sufficient time to harvest the trees and/or to locate and contract with a new
nursery for the planting and care of the yew trees that had been planted under
the PBI Agreement.
Manufacturing The manufacture of paclitaxel occurs in three steps. In the first
step, a crude paclitaxel extract is extracted from cultivated yew trees and
delivered to one of NaPro's manufacturing facilities. At these facilities, the
extracted crude paclitaxel mixture is isolated and purified and, in the final
step, 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.
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From December 1996 to February 1999, a third party extracted crude paclitaxel
from cultivated yew trees pursuant to a manufacturing agreement with NaPro. In
February 1999 that agreement terminated under an agreement that provided for,
with certain exceptions, mutual releases from the obligations of the
manufacturing agreement and from claims related to such agreement. NaPro
believes that it has sufficient quantities of crude paclitaxel to supply
quantities due to IVAX under the IVAX Termination Agreement and to fulfill
NaPro's requirements for its clinical program. However, at such time as NaPro
needs additional crude paclitaxel, NaPro will be required to find another
third-party extractor or undertake such extraction itself. NaPro believes that
it will be able to develop or obtain adequate extraction operations when needed,
but no assurance thereof can be provided.
NaPro currently operates a pilot-scale manufacturing facility in Boulder,
Colorado and until April 1998 operated another small-scale manufacturing
facility in British Columbia, Canada. In December 1997 the FDA refused to allow
marketing of NBT Paclitaxel in the United States under an NDA previously filed
by IVAX because of a previously granted exclusive right under the Orphan Drug
Act. Such refusal resulted in a decrease in the projected demand for NBT
Paclitaxel. As a result, NaPro decided to suspend manufacturing in British
Columbia in April 1998. Both NaPro's Colorado pilot-scale manufacturing facility
and its British Columbia manufacturing facility have been inspected by the TGA
and approved for the commercial production of NBT Paclitaxel for sale in
Australia. NaPro believes that the Boulder, Colorado facility has adequate
capacity to meet Faulding's clinical and commercial requirements and NaPro's
clinical demands for the near future as well as the amounts NaPro is required to
supply under the Termination Agreement with IVAX. See "Strategic Alliances,
IVAX".
With the possibility of NBT Paclitaxel entering the United States market under
the IVAX NDA, NaPro pursued construction of a large-scale commercial
manufacturing facility in Boulder, Colorado. During 1997, NaPro completed
necessary structural modifications to the facility and began equipment
installation. As a result of the FDA's refusal to allow marketing under the IVAX
NDA, equipment installation was stopped in December 1997. NaPro believes that
construction of this large-scale facility can be resumed and completed at such
time, if ever, as the demand for NBT Paclitaxel requires an increase in
production beyond the capacity of its pilot-scale facility. There can be no
assurance, however, that NaPro will succeed in adapting its EIP(TM) technology
for large scale commercial manufacturing, or that such facility and
manufacturing processes will receive necessary regulatory approvals.
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. NaPro owns or has licensed several issued patents relating to
this process and has applied for others. Semi-synthesis manufacturing initially
involves extraction of paclitaxel and other taxanes from yew sources. Certain of
the taxanes are then converted into paclitaxel through a chemical synthesis
process. Because this semi-synthesis process uses both paclitaxel and other
taxanes, NaPro expects that use of a semi-synthesis process will increase the
paclitaxel yield from its biomass sources. However, the use of semi-synthesis
will require regulatory approvals, of which there can be no assurance.
Furthermore, there can be no assurance NaPro's semi-synthesis process will
perform as expected or that NaPro will be able to effectively adapt the process
to commercial-scale manufacturing. See "Patents and Proprietary Technology".
Strategic Alliances
NaPro's strategy has been to pursue and enter into strategic alliances with
large international pharmaceuti cal companies. In April 1998, NaPro initiated
discussions toward the formation of new strategic alliances. NaPro believes that
new development and marketing agreements may allow NaPro to take advantage of
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its partners' knowledge and expertise in clinical testing and sales, marketing
and distribution. There can be no assurance, however, that NaPro will be able to
enter into such an agreement or agreements or that such other objectives can be
obtained.
NaPro formed a strategic alliance through a long-term exclusive agreement with
Faulding. Pursuant to this agreement, Faulding agreed to fund and, with NaPro's
input, undertake the clinical trials required to obtain regulatory approvals for
commercializing NBT Paclitaxel in its territory. NaPro is responsible for
supplying Faulding with NBT Paclitaxel for clinical trials and commercial
purposes and Faulding is required to purchase all of its paclitaxel requirements
from NaPro. Faulding pays a fixed price for non- commercial sales and a
substantial share of gross revenue for NBT Paclitaxel sold commercially. Under
its agreement with Faulding, NaPro is able to take advantage of Faulding's
resources, including expertise in clinical testing and sales, marketing and
distribution. NaPro believes that its alliance with Faulding enables it to
compete more effectively, within the Faulding territory, 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 Faulding will succeed in obtaining further regulatory approvals to market
NBT Paclitaxel within its territory. Furthermore, if such approvals are gained,
there can be no assurance that Faulding will market NBT Paclitaxel successfully
in these additional countries.
Until March 20, 1998, NaPro and IVAX were parties to a long-term, exclusive
agreement, under which IVAX was responsible for performing clinical trials,
filing for regulatory approvals, and selling, marketing, and distributing
commercial formulations of NBT Paclitaxel. In March 1998, NaPro and IVAX severed
this strategic partnership by terminating the long-term, exclusive agreement.
The termination of this agreement leaves NaPro free to pursue and enter into a
strategic partnership or partnerships in the territories not covered by the
agreement with Faulding, including the United States, Europe and Japan, and
NaPro is currently in negotiations to do so. However, the termination of this
agreement currently leaves NaPro without a strategic partner to assist with
regulatory approval and marketing in countries outside the Faulding territory,
and there can be no assurance that NaPro will be able to find a partner for
these markets on terms acceptable to NaPro, or at all. In addition, even if such
a partnership is secured, there can be no assurance that any such partner will
be successful in gaining the necessary regulatory approvals to market NBT
Paclitaxel in the territories not covered by the Faulding Agreement or that the
partner will be able to market NBT Paclitaxel successfully.
Faulding Faulding, Australia's largest domestic pharmaceutical company with 1998
sales of approxi mately $1.2 billion, actively markets anti-cancer
pharmaceuticals and other health care products in Australia, Southeast Asia and
other countries throughout the world. NaPro entered into a development and
marketing agreement with Faulding in 1992. The Faulding Agreement, as amended
and restated, has an initial term of 20 years, through 2012, 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.
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;
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(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 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.
Faulding currently owns 395,000 shares of NaPro Nonvoting Common Stock. 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. The remaining 200,000 warrants were sold by Faulding in 1997.
Faulding has sold 205,000 shares of Nonvoting Common Stock, which automatically
converted into NaPro common stock upon their sale.
IVAX IVAX, a diversified international health care company with 1998 sales of
$638 million, 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 with IVAX through IVAX's subsidiary, Baker Norton
Pharmaceuticals ("BNP"). On March 20, 1998, NaPro and IVAX entered into an
agreement terminating the IVAX Agreement (the "Termination Agreement").
While effective, the IVAX Agreement granted 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 was non-exclusive. Pursuant to the IVAX
Agreement, IVAX was required to purchase all of its requirements of paclitaxel
from NaPro except in certain circumstances, if NaPro was unable to supply IVAX's
requirements. In addition, under certain circumstances, IVAX could have obtained
NaPro manufacturing information from NaPro and given such information to third
parties so they could manufacture NBT Paclitaxel for IVAX.
Under the Termination Agreement, NaPro is obligated to deliver to IVAX, and IVAX
is required to purchase at a price fixed in the Termination Agreement, a fixed
quantity of NBT Paclitaxel in installments with the final installment due in the
first half of 1999. In addition, the Termination Agreement grants IVAX a
royalty-free, limited, non-exclusive license, for one of NaPro's patents (the
"Patent") in the United States, Europe, and certain other world markets. See
"Competition". As consideration for this licence, NaPro received $4,070,000,
1,126,398 shares of NaPro common stock held by IVAX were returned to NaPro, and
an additional $2,000,000 was placed in escrow to be released in installments
corresponding to delivery of NBT Paclitaxel to IVAX. As a result of deliveries
of NBT Paclitaxel to IVAX, $680,000 of this escrow amount had been released to
NaPro through December 31, 1998. NaPro anticipates that the remainder of the
paclitaxel to be delivered to IVAX pursuant to the Termination Agreement will be
shipped and that, as a result, the remaining $1,320,000 will be released by June
30, 1999. In addition, during 1998 IVAX made the following payments to NaPro:
$3,750,000 upon issuance of the Patent in the United States, and $2,610,000 upon
issuance of the Patent in the European Union. On
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the same day the Termination Agreement was executed, Leonard P. Shaykin, NaPro's
Chairman of the Board of Directors, entered into an agreement with IVAX relating
to a warrant for 111,111 shares of NaPro common stock (the "Warrant Agreement")
that Mr. Shaykin acquired from IVAX in 1996. In exchange for return of the
warrant to NaPro by Mr. Shaykin, the Company agreed to indemnify IVAX for any
loss associated with such transaction.
NaPro is required to indemnify IVAX pursuant to the Termination Agreement for
any defect in the NBT Paclitaxel supplied to IVAX under either the Termination
Agreement or the IVAX Agreement, 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 Termination 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 the formulation, storage,
handling, promotion, distribution, registration, or sale of a product containing
NBT Paclitaxel by IVAX, and (iii) for uncured breaches of IVAX's representations
and warranties under the Termination Agreement.
Termination of the IVAX Agreement leaves NaPro free to seek regulatory approvals
and market NBT Paclitaxel itself or to seek a new partner or partners with which
to pursue regulatory approvals and marketing of NBT Paclitaxel, in either such
case in areas outside the Faulding territory. However, there can be no assurance
that NaPro will be able to form new long-term relationships for the approval,
marketing, and distribution of NBT Paclitaxel in these areas, or that NaPro or
such a partner, if found, will be able to secure regulatory approval or to
effectively market NBT Paclitaxel.
Marketing and Sales
Marketing and sales of NBT Paclitaxel in the Faulding Territory are conducted by
Faulding. Currently, NaPro has no sales force, has only limited marketing
capabilities and has no present intention to establish a sales or marketing
force. NaPro expects that sales to Faulding and, during the first half of 1999,
sales to IVAX under the Termination Agreement will account for substantially all
of NaPro's revenue for the foreseeable future. As a result, the loss of Faulding
as a customer, in the absence of a comparable alternative strategic alliance
arrangement, the failure of Faulding to successfully market NBT Paclitaxel or
the failure of NaPro to obtain a partner to conduct marketing and sales
activities outside the Faulding territory could 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, many of whom
have significantly greater capital resources and research and development
capabilities.
Within the paclitaxel segment of this industry 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 approvals and marketing are being
handled exclusively by Faulding within the Faulding Territory. Although NaPro
believes Faulding has capable clinical and marketing abilities, there can be no
assurance that Faulding will be capable or effective in gaining additional
regulatory approvals on a timely basis, if at all, or be able to compete
effectively with existing or new competitors within the Faulding Territory. In
addition, the Company is currently pursuing strategic alliances for the
development and marketing of NBT Paclitaxel in the countries
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not covered by the Faulding Agreement. There can be no assurance that NaPro will
be able to find any such partners or, if such a partner or partners are found,
there can be no assurance that such a partner or partners will be able to secure
regulatory approval or effectively market NBT Paclitaxel if approval is secured.
BMS, the world's largest oncology company, is 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. While treatment with Taxotere(R) may cause certain side effects
not observed with paclitaxel, it is anticipated that Taxotere(R) may compete
with paclitaxel, and thereby reduce overall paclitaxel sales. In addition, with
the termination of the IVAX Agreement, NaPro licensed one of its patents to
IVAX, and the benefits of the licensed patent may inure to IVAX. See "Strategic
Alliance." NaPro anticipates that IVAX will continue to seek entry to the global
paclitaxel market independently of NaPro and may compete with NaPro in the
future. Furthermore, due to the expiration, in December 1997, of the five-year
marketing protection from generic competition which was provided to BMS's
formulation of paclitaxel by the Waxman-Hatch Act, NaPro may be subject to
competition from generic paclitaxel manufacturers. 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.
In Europe, a similar exclusivity period will end in most cases 10 years after
BMS' initial approval. 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 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 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 allow such competitors to produce 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
14 issued United States patents and has approximately 9 United States patent
applications pending. In addition, NaPro owns 11 issued foreign patents and has
approximately 81 foreign patent applications
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pending. NaPro expects to make additional filings as it believes appropriate.
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. There can be no assurance 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
future patents issued to NaPro, if any, will provide it with competitive advan
tages; 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 affect 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.
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 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. 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, 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,
semi-synthetic and 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, manufac ture or sale of
products to be foreclosed, any of which would likely 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 Faulding or IVAX in
patent infringement or proprietary rights violation actions brought against
them. NaPro could also incur substantial cost in the event it finds it necessary
to assert
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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 "European Patent Litigation".
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 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.
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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.
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. Notwithstand ing 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, a Supplemental NDA
("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 acquired, 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. In addition, NaPro's Boulder,
Colorado pilot-scale facility was found to be in compliance with United States
cGMP regulations by the FDA. These facilities are subject to periodic
reinspection, and there can be no assurance that the FDA or foreign regulatory
authorities will find NaPro's current facilities or facilities being constructed
to be in compliance with United States cGMP regulations or analogous foreign
standards in the future. Subsequent discovery of previously unknown problems
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 NaPro, Faulding, or any future strategic
partner could, among other things, result in criminal prosecution and fines,
product recalls, product seizures and operating restrictions.
During the term of the IVAX Agreement, to the extent required by the terms of
the Termination Agreement, NaPro has supported and is required to continue to
support the IVAX NDA in the United States and an equivalent filing in the
European Union. In this capacity, NaPro has communicated with the
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FDA to discuss the biomass strategy employing plantation-grown yews and
technical issues associated with NaPro's DMF submitted in support of the
approval of its bulk drug product as part of the IVAX NDA. In these meetings,
NaPro learned that the pilot scale facility, which manufactured the drug which
was used in the IVAX clinical trials, would be inspected for approval in the
IVAX NDA. NaPro communicated with the FDA regarding the commercial facility as
an alternate facility, which would have required NaPro to prepare two
"commercial" facilities for FDA approval, resulting in the expenditure of more
resources than originally planned. In addition, during 1998, NaPro's
manufacturing facilities underwent a pre- approval inspection by the European
Agency for the Evaluation of Medicinal Products (the "European Agency") in
support of IVAX's European regulatory submission. Based upon the findings of
that inspection and NaPro's responses, the inspectors recommended to the
European Agency that NaPro's Boulder, Colorado pilot-scale facility be named as
a supplier for paclitaxel.
NaPro is also subject to United States statutes and regulations applicable to
exporting drugs. Such laws 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 law, one
of which is Australia. NaPro's Paclitaxel has received valid marketing
authorization from Australia and NaPro's Boulder, Colorado pilot-scale
manufacturing facility has been found to be compliant with cGMP by the
Australian TGA.
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 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 governmen tal 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 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 ("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, or an
Environmental Impact Statement and Record of Decision 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 yews,
and will not harvest any Pacific yew trees to manufacture paclitaxel for a
marketed product, NaPro believes that
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the ONRC-FDA agreement requirements can be met, and that these requirements will
not jeopardize approval of any NDA which may be filed by NaPro in the future.
Even though NaPro no longer harvests biomass from the bark of the Pacific yew,
there can be no assurance that the ONRC and other environ mental 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.
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. In 1997, IVAX filed the IVAX NDA seeking commercial
approval to sell NBT Paclitaxel in the United States. On December 24,1997, the
FDA ruled on the IVAX NDA, the FDA determined that NBT Paclitaxel was safe and
effective in the treatment of Kaposi's sarcoma, but denied IVAX the authority to
market NBT Paclitaxel due to BMS's prior orphan drug approval for that
indication. No assurance can be given, however, that NBT Paclitaxel will prove
to be safe and effective in future clinical trials, that NaPro will be able to
obtain alternate approval, to market NBT Paclitaxel in the United States or
other countries.
Subsequent to termination of the IVAX Agreement, NaPro submitted an IND to the
FDA. NaPro initiated Phase II/III clinical trials pursuant to that IND in June
1998 and March 1999 for three indications. These trials are ongoing, and it is
too early to anticipate the outcome. There can be no assurance that these trials
will demonstrate NBT Paclitaxel to be safe or effective.
Research and Development
During the years ended December 31, 1996, 1997 and 1998, NaPro spent
approximately $6.8 million, $11.8 million and $10 million, respectively, on
Company sponsored research and development activities and to produce NBT
Paclitaxel sold to Faulding and IVAX. 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.
Foreign and Domestic Operations; Export Sales
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The following table sets forth, for the past three years revenue, profitability
(operating loss), and identifiable assets attributable to NaPro's U.S. and
foreign operations (amounts in thousand dollars):
Year Ended December 31,
1998 1997 1996
---- ---- ----
Sales to Unaffiliated Customers
United States $4,498 $2,684 $ 1,692
Canada 454 1,130 1,781
------- -------- --------
Total Sales (1) 4,952 3,814 3,473
Operating Loss
United States (12,852) (12,854) (6,719)
Canada (526) (952) (384)
Identifiable Assets
United States 23,260 26,419 20,198
Canada 2,406 3,939 4,823
- - ------------
(1) Includes export sales to Australia of $2,189 in 1998, $1,303 in 1997 and
$2,509 in 1996.
Sales from Canada 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 34% of
NaPro's revenue for the year ended December 31, 1997 and 44% of NaPro's revenue
for the year ended December 31, 1998. NaPro anticipates that a significant
portion of its revenue will continue to be derived from sales of its products in
foreign markets for the foreseeable future.
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 a material adverse effect on NaPro.
Employees
On February 17, 1998, NaPro announced a planned layoff of 53 employees, with a
resulting 43% reduction in full time positions. As part of this downsizing,
NaPro(Canada) discontinued production at its British Columbia manufacturing
facility. It was anticipated that this downsizing would produce annualized
savings in personnel costs of about $2.8 million.
As of March 15, 1999, NaPro had 72 full-time employees, 3 part-time employees, 3
project employees, and 7 temporary employees, of whom 10 hold Ph.D. or M.D.
degrees. Two employees were engaged in biological and clinical research, 24 in
chemical research, 18 in quality control/quality assurance, 22 in
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manufacturing, 19 in general administration and finance, and two in legal. NaPro
believes that its relations with its employees are good.
Item 2
Properties
NaPro leases approximately 54,000 square feet of space in Boulder, Colorado,
which is used for research and development and is planned to 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 manufacturing. NaPro leases a facility of approximately 3,400
square feet in British Columbia, Canada which was used for manufacturing until
April 1998, but which is currently inactive. NaPro leases an additional 10,090
square foot facility in British Columbia, Canada, which is currently unused, and
which NaPro is attempting to sublease to a third party.
As part of the downsizing announced by the Company on February 17, 1998, NaPro
temporarily closed its British Columbia manufacturing facility and suspended
construction of its commercial scale manufactur ing facility in Boulder.
Completion of the Boulder facility will require additional financing, which the
Company intends to seek at such time as NaPro anticipates sufficient product
demand to warrant completion of the facility. The British Columbia manufacturing
facility is currently inactive, but the Company believes this facility could be
reactivated, without substantial expense, at such time as additional
manufacturing capacity is required.
Item 3
Legal Proceedings
During 1998, NaPro prevailed in an action challenging the validity of a European
Patent held by BMS. BMS has appealed this decision and that appeal is currently
pending. See "European Patent Litigation". NaPro is not currently engaged in any
other material legal proceedings. See "Patents and Proprietary Technology".
European Patent Litigation
On May 14, 1997, BMS was issued a European patent relating to certain methods of
treatment with paclitaxel. On the same day, NaPro instituted revocation
proceedings in the United Kingdom against this European Patent as issued in the
U.K. and a separate but related British Patent also owned by BMS.
The revocation action was not in response to any lawsuit or allegations of
infringement against NaPro relating to the patents, but BMS subsequently sued
NaPro and Baker Norton Pharmaceuticals, Inc., a subsidiary of IVAX ("BNP") in
the United Kingdom, alleging patent infringement with respect to clinical trials
carried out in the United Kingdom involving paclitaxel. NaPro and BNP
counter-claimed to revoke the patent as invalid. The outcome of the trial of
that action, concerning EP (UK) Patent Number 0,584,001 (the "BMS Patent") (GB
Patent Number 2,269,319 was surrendered by BMS), was a judgement rendered by the
English High Court on October 1, 1998. The Judge held that the BMS Patent was
invalid on the basis of lack of novelty and obviousness.
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BMS has lodged a Notice of Appeal dated November 1998 from the High Court'
decision. It is NaPro's belief that this appeal will be heard some time in 1999.
In view of the minimal activity, if any, by NaPro in the United Kingdom, NaPro
believes that the risk of an award of substantial damages against NaPro, in the
event of an unfavorable Court of Appeal ruling, to be very low. In addition, BNP
is required to indemnify NaPro for any damages (not including payment of
attorneys' fees) suffered as a result of this legal action. However, litigation
is an uncertain process, and an adverse result of the appeal could have a
material adverse effect on NaPro.
Item 4
Matters Submitted to Stockholders' Vote
No matters were submitted to a vote of NaPro's security holders during the
quarter ended December 1998.
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
"NaPro". The following table sets forth, for the periods indicated, the high and
low sale prices for the common stock.
High Low
1998
First Quarter $ 2 $ 27/32
Second Quarter 2 7/32 1 1/16
Third Quarter 2 7/32 31/32
Fourth Quarter 1 29/32 7/8
1997
First Quarter $14 1/2 $ 9 3/4
Second Quarter 13 1/4 6 1/4
Third Quarter 11 7/8 5 7/8
Fourth Quarter 8 7/8 1 3/4
Stockholders
As of December 31, 1998 there were approximately 163 common stockholders of
record.
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.
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Recent Sales of Unregistered Securities
On June 4, 1997, NaPro privately issued $10.3 million of senior convertible
notes due 2000. The notes were sold to private investors. The notes are
convertible into common stock at a 10% discount from the market price of the
common stock during specified periods prior to the conversion. In 1998 NaPro
issued 296,019 shares of common stock in payment of $295,000 interest on the
notes and 2,833,587 shares of common stock on the conversion of $2,900,000
principal of the notes. As a negotiated transaction with sophisticated investors
not involving any public offering, the sale of the notes, and the issuance of
common stock in the payment of interest and upon conversion of the notes, was
exempt under Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Regulation D thereunder.
On December 8, 1997, NaPro closed a private placement of 5,000 shares of Series
C Senior Convertible Preferred Stock (the "C Preferred") for an aggregate
issuance price of $5 million. The C Preferred is convertible into common stock
at a 5% discount from the conversion date. In 1998 NaPro issued 986,666 shares
of common stock in conversion of the C Preferred and 186,656 shares of common
stock in payment of dividends on the C Preferred. As an issuance to a single
sophisticated investor not involving any public offering, the sale of the C
Preferred and the issuance of common stock in the payment of dividends and upon
conversion of the C Preferred was exempt under Section 4(2) of the Securities
Act and Regulation D thereunder.
Certain provisions of the C Preferred may limit the ability of NaPro to pay
dividends on its common stock and to repurchase shares of its common stock.
Item 6
Selected Financial Data
The selected financial data presented below for each year in the five years
ended December 31, 1998, 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, 1998 and 1997 and for each of the three years in the period
ended December 31, 1998, 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.
- 20 -
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except per share data)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Product Sales $ 4,952 $ 3,814 $ 3,473 $ 2,623 $ 1,002
-------- -------- -------- ------- -------
Operating Expense:
Research, development and cost of products sold 9,973 11,769 6,837 4,325 2,707
General and administrative 6,458 5,992 3,712 2,309 2,044
(Gain) loss on retirement of assets 1,899 (141) 27 1 -
Faulding royalty - - - - 1,000
Plantation cost - - - 272 1,238
-------------------------- ------------ --------- --------
Total operating expense 18,330 17,620 10,576 6,907 6,989
--------- ---------- --------- --------- --------
Operating loss (13,378) (13,806) (7,103) (4,284) (5,982)
Other income (expense):
License Fee 11,110 - - - -
Interest income 550 494 651 373 188
Interest and other expense (902) (2,161) (373) (160) (340)
----------- ----------- ---------- --------- ----------
Loss before extraordinary item (2,620) (15,473) (6,825) (4,071) (6,134)
Loss on early extinguishment of debt - - - - (512)
---------------------------------------- ----------- ----------
Net loss $ (2,620) $(15,473) $(6,825) $(4,071) $(6,646)
========= ========= ======== ======== ========
Loss per share:
Before extraordinary item $ (0.22) $ (1.28) $ (0.68) $ (0.51) $ (0.91)
Extraordinary item - - - - (0.08)
--------------------------------------- ----------- ---------
Net loss $ (0.22) $ (1.28) $ (0.68) $ (0.51) $ (0.99)
========== ========== ========= ======== ========
Weighted average shares outstanding 14,642 12,104 9,973 7,973 6,761
========= ========= ========= ======== ========
Year Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term securities $ 7,441 $ 8,102 $14,767 $ 7,800 $ 1,400
Working capital 7,121 (2,485) 14,224 8,453 3,169
Total assets 25,666 30,358 25,021 11,953 4,976
Long-term obligations, net of current maturities 80 480 751 1,618 1,273
Senior convertible debt 5,176 - - - -
Senior convertible redeemable preferred stock 3,805 4,344 - - -
Minority interest 622 2,574 3,715 3,715 -
Accumulated deficit (43,618) (40,998) (25,525) (18,700) (14,629)
Stockholders' equity 10,884 7,262 16,569 5,424 3,037
</TABLE>
Item 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the results of
operations of NaPro. 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 Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). See "Special Note Regarding Forward Looking Statements".
- 21 -
<PAGE>
General
NaPro is a natural product pharmaceutical company which is focusing primarily on
the development, manufacture and commercialization of paclitaxel, a
naturally-occurring anti-cancer agent found in certain species of yew (Taxus)
trees. NaPro's paclitaxel is referred to herein as "NBT Paclitaxel".
NaPro has devoted its efforts primarily to the development and implementation of
its propriety extraction, isolation and purification (EIP(TM)) technology for
producing NBT Paclitaxel. To advance the development and commercialization of
NBT Paclitaxel, NaPro entered into 20-year, exclusive agreements with each of
Faulding and IVAX for the clinical development, sales, marketing and
distribution of NBT Paclitaxel. NaPro is actively seeking one or more partners
to replace IVAX. NaPro is currently dependent for revenue exclusively on sales
of NBT Paclitaxel, on fees from licencing its technology and on amounts payable
by IVAX to NaPro under the Termination Agreement.
Through December 31, 1998, 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 $13.4 million, $13.8 million and $7.1 million for the years ended
December 31, 1998, 1997 and 1996, respectively, resulting in an accumulated
deficit of $43.6 million as of December 31, 1998. 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 to enter into agreements with one or more partners for the clinical
development, sales, marketing and distribution of NBT Paclitaxel, to obtain
regulatory approval in the U.S. or another major market for the commercial sale
of NBT Paclitaxel, to obtain regulatory approval for its manufacturing
facilities and to construct manufacturing facilities that produce quantities of
NBT Paclitaxel sufficient to supply NaPro's current and any future strategic
partners' requirements for commercial sales.
In January 1995, Faulding received approval to market NBT Paclitaxel
commercially in Australia under the trade name ANZATAX(TM). 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 affect on NaPro's revenue and profitability.
In February 1997, Bristol-Myers Squibb Company ("BMS") submitted a Supplemental
New Drug Application with orphan drug designation for paclitaxel for the
treatment of Kaposi's sarcoma ("KS") ahead of the filing by IVAX of a New Drug
Application ("NDA") for the same indication. The BMS application was approved by
the Food and Drug Administration ("FDA") in August 1997. Under the Orphan Drug
Act of 1983, this approval resulted in IVAX/NaPro being denied marketing
approval for the KS indication for seven years.
In February 1998, due to the delay in receiving marketing approval for
paclitaxel, NaPro underwent a restructuring to decrease overall cost, announcing
the planned layoff of 53 employees resulting in a one-time charge of
approximately $250,000. As part of this restructuring, NaPro discontinued
operations at its British Columbia manufacturing facility and suspended
construction of its commercial scale manufactur ing facility in Boulder,
Colorado. Completion of the Boulder facility will require additional financing,
- 22 -
<PAGE>
which NaPro intends to seek at such time as NaPro anticipates sufficient product
demand to warrant completion of the facility. NaPro incurred $434,000 of losses
on asset retirements and $110,000 of other expense as a result of the suspended
construction.
In March 1998, NaPro and IVAX entered into the Termination Agreement.
Termination of the IVAX Agreement leaves NaPro free to seek regulatory approvals
and market NBT Paclitaxel itself or to seek a new partner or partners with which
to pursue regulatory approvals and marketing of NBT Paclitaxel, in either such
case in areas outside the Faulding territory. However, the termination of the
IVAX Agreement currently leaves NaPro without such a partner, and there can be
no assurance that NaPro will be able to secure such approvals or form new
long-term relationships for the approval, marketing, and distribution of NBT
Paclitaxel in these areas, or that NaPro or such a partner, if found, will be
able to secure regulatory approval or effectively market NBT Paclitaxel. NaPro's
future growth and profitability will depend on the success of NaPro's strategic
partners in fostering acceptance in the oncology market for NBT Paclitaxel as a
preferred form of chemotherapy to be used alone or in combination with other
chemotherapeutic agents. Failure to find such a strategic partner could have a
material adverse effect on NaPro.
Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Sales.
1998 sales were $5 million, up $1.2 million from 1997. Sales to IVAX for 1998
were $2.7 million, up $400,000 from 1997. Sales to IVAX, as a result of the
Termination Agreement, are expected to end in the second 1999 quarter. Future
product sales in territory outside that covered by NaPro's agreement with
Faulding (the "Faulding Agreement") may be dependent upon the ability of NaPro
to secure new agreements supporting the development and marketing of NBT
Paclitaxel within that territory. Sales other than to IVAX for 1998 were $2.2
million, up $700,000 from 1997. The increase was due primarily to the timing of
product shipments and to inventory fluctuations of NaPro's strategic partners.
Sales may vary significantly depending on a number of factors, including the
timing and size of any clinical trials, NaPro's obtaining one or more partners
to replace IVAX, changes in demand, the level of inventory carried and changes
in approved markets. This variability will continue until stable commercial
demand has been established for the product in one of NaPro's principal markets.
Research, Development and Cost of Products Sold. Research and development
expense and cost of products sold for 1998 was $10 million, down by $1.8 million
from 1997. The decrease resulted primarily from the benefits of the February
1998 restructuring, a decrease in the level of process development and research,
and lower production cost. NaPro's production process is not distinct from its
research and development processes. Accordingly, the cost of products sold is
included within NaPro's research and development expense.
General and Administrative Expense. General and administrative expense for 1998
was $6.5 million, up $500,000 from 1997. The increase is attributable primarily
to increases of $700,000 in legal expense related to European litigation and
$200,000 of consulting expense primarily related to the IVAX Termination
Agreement, partially offset by a reduction in recruiting and relocation expense.
Interest Income. Interest income for 1998 was $600,000, up $100,000 from 1997.
The increase is attributable to overall higher interest rates realized on
interest bearing investments. See "Liquidity and Capital Resources".
- 23 -
<PAGE>
Interest and Other Expense. Interest and other expense for 1998 was $900,000,
down $1.3 million from 1997. The decrease is primarily attributable to the
non-recurrence of the $1.1 million 1997 expense related to the amortization of
original issue discount on the senior convertible debt, to decreased interest on
the senior convertible debt and to decreased borrowing on equipment financing.
See "Liquidity and Capital Resources".
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Sales.
Sales for 1997 were $3.8 million, up $300,000 from 1996. Sales to IVAX for 1997
were $2.3 million, up $1.7 million from 1996. Sales other than to IVAX for 1997
were $1.5 million, down $1.3 million from 1996. The increase in total sales was
due primarily to the timing of product shipments and to inventory fluctuations
of NaPro's strategic partners.
Research, Development and Cost of Products Sold. Research and development
expense and cost of products sold for 1997 was $11.8 million, up $4.9 million
from 1996. The increase resulted primarily from expansion of NaPro's development
and research operations in anticipation of possible approval of the NDA filed by
IVAX with the FDA.
General and Administrative Expense. General and administrative expense for 1997
was $5.9 million, an increase of $2.2 million from 1996. The increase is
attributable primarily to increases of $1.1 million in administrative and
support staff, $500,000 in legal cost, $100,000 of occupancy cost, and $400,000
in consulting and outside service expense.
Interest Income. Interest income for 1997 was $500,000, a decrease of $200,000
from 1996. The decrease is attributable to smaller free cash balances available
for investment. See "Liquidity and Capital Resources".
Interest and Other Expense. Interest and other expense for 1997 was $2.2
million, up $1.8 million from 1996. Approximately $1.1 million of the 1997
expense related to the amortization of original issue discount, a non-recurring
charge, on the senior convertible debt. The remainder of the increase is
attributable to interest on the senior convertible debt and increased borrowing
on equipment financing. See "Liquidity and Capital Resources".
Liquidity and Capital Resources
NaPro's capital requirements have been and will continue to be significant. As
of December 31, 1998, NaPro had a working capital balance of $7.1 million. This
compared to a negative working capital balance of ($2.5) million as of December
31, 1997, and reflects the 1997 classification as a current liability of $8.1
million of NaPro's senior convertible notes, which are due in 2000 but which
were redeemable by the holders during the early part of 1998 under certain
conditions. To date, the funding of NaPro's capital requirements has been
dependent primarily on the net proceeds of public offerings of its common stock
of approximately $21.1 million, on private placements of its equity securities
of approxi mately $27.8 million, on the exercise of warrants and options of $5.7
million, on net borrowings of $12 million, and on loans and advances from its
stockholders and strategic partners.
NaPro's existing capital and projected 1999 sales are expected to provide
adequate capital to fund its 1999 necessary operations and capital expenditures.
Pharmaceutical development is, however, a costly and time consuming process.
NaPro is actively pursuing partners to assist in the development and marketing
of its products, and may seek other forms of long-term financing should such
financing become available on acceptable terms.
- 24 -
<PAGE>
In June 1997 NaPro privately placed $10.3 million of senior convertible notes.
The notes mature in June 2000 and bear an interest rate of 5%. Interest on the
notes is payable in cash or in common stock at NaPro's option. The notes are
convertible into common stock at a 10% discount from the lowest market price of
the common stock during specified periods prior to the conversion. If not
converted, upon maturity, the notes will be exchanged for 13.75% 5-year
debentures. In 1998 NaPro issued 2,833,587 shares of common stock in conversion
of $2,900,000 principal of the notes, and 296,019 shares of common stock in
payment of $295,000 interest on the notes.
In January and March, 1998 and January and March, 1999 the notes were amended
(see below). In 1998 NaPro redeemed $647,000 in note principal and paid $53,000
premium and interest in connection with the redemption. In January 1999 NaPro
redeemed $633,000 in note principal and paid $162,000 premium and interest in
connection with the redemption. NaPro anticipates that it may elect to pay off
all or part of the notes during 1999.
In December 1997, NaPro closed a private placement of 5,000 shares of Series C
Senior Convertible Preferred Stock (the "C Preferred") for an aggregate issuance
price of $5 million. The C Preferred accrues dividends at 5% per year payable in
common stock or cash at NaPro's option. The C Preferred is convertible into
common stock at a 5% discount from the market price during specified periods
prior to the conversion date. In December 2000, NaPro may force the conversion
of any remaining shares at the conversion price in effect as of December 8,
2000.
In January and March, 1998 and January and March, 1999, NaPro entered into
amendments (the "Amendments") with the C Preferred investor and the holders of
the senior convertible notes (together the "Investors"). The parties agreed to:
(a) limit the number of shares which could be converted in the event the stock
price is below $4.00 per share to no more than 450,000 shares per month through
May 14, 1999 and (b) partially remove the ability of the Investors to force
NaPro to redeem any portion of the securities for cash. In the event there is an
unconverted amount of securities on May 15, 1999, such amount will be
convertible under the original terms of the agreements. At any time, NaPro, at
its option, may redeem all or part of the securities, with 5 days written
notice, for amounts ranging from 130% to 140% of the outstanding principal and
accrued dividends and interest.
In 1998 NaPro issued 986,666 shares of common stock in conversion of the C
Preferred and 186,656 shares of common stock in payment of dividends on the C
Preferred.
In June 1993, NaPro entered into an initial 20 year exclusive agreement with
IVAX to develop and market paclitaxel in the United States, Europe, and other
parts of the world (the "IVAX Agreement"). NaPro and IVAX terminated the IVAX
Agreement on March 20, 1998. Under terms of the termination agreement, IVAX
received a royalty-free, limited, non-exclusive license to one of NaPro's
patents (the "Patent") in the United States, Europe and certain other world
markets. In return, NaPro received a cash payment of $6 million, $2 million of
which was placed in escrow to be released as remaining product is delivered. In
April, 1998, IVAX returned approximately 1.1 million shares of NaPro common
stock. In addition, upon the issuance of the Patent in various countries, IVAX
made additional payments of $6.4 million. NaPro will continue to manufacture a
fixed amount of paclitaxel for delivery to IVAX periodically during the first
half of 1999. In 1998 NaPro received $680,000 of the $2 million escrow. NaPro
expects to receive the remaining $1,320,000 in the first half of 1999.
Working Capital and Cash Flow Cash and cash equivalents decreased $900,000 to
$7.2 million for the year ended December 31, 1998 from $8.1 million at December
31, 1997. Net cash provided by 1998
- 25 -
<PAGE>
operations of $2.1 million was offset by investing activity of $1.6 million and
by financing activity of $1.4 million.
Inventory remained at $4.3 million at December 31, 1998 from December 31, 1997.
The amount of work-in-progress inventory and finished goods inventory is
dependent on a number of factors, including the shipping requirements of NaPro's
strategic partners and NaPro's production planning for meeting those needs.
Inventory balances may vary significantly during product development and launch
periods.
Capital Expenditures NaPro expended $500,000 during 1998 for capital projects.
These expenditures primarily included plantation cost, work on manufacturing
facilities in Boulder, and improvements to NaPro's laboratories.
Since the FDA's determination that NBT Paclitaxel could not be marketed in the
U.S. for Kaposi's Sarcoma during BMS's period of exclusivity under the Orphan
Drug Act, NaPro has significantly reduced the scope of its operations and has
reduced or delayed capital expenditures. NaPro is seeking a new strategic
partner or partners to replace IVAX. The nature of NaPro's relationship with its
strategic partners may significantly change its planned capital expenditures.
The amount and timing of future capital expenditures will depend upon numerous
factors, including the establishment of additional strategic relationships, the
progress of NaPro's research and development programs, the magnitude and scope
of these activities, the cost of preparing, filing, prosecuting, maintaining and
enforcing patent claims and other intellectual property rights, competing
technological and marketing developments, changes in or terminations of existing
strategic 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, 1998, NaPro had net
operating loss carry forwards for income tax purposes of approximately $34
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 incurred prior to that date. 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.
Year 2000 Issue Until recently many computer programs used only the last two
digits to refer to a year. Such programs do not properly recognize a year that
begins with "20" instead of the familiar "19". If not corrected, many computer
applications could fail or create erroneous results. This matter is commonly
referred to as the Year 2000 issue or Y2K.
Two years ago NaPro implemented an assessment of its systems and other assets
which could be subject to Y2K. NaPro has completed the assessment of its primary
systems and has brought all but one of the systems into Y2K compliance. A
compliant upgrade currently exists for the noncompliant system, which will be
brought into compliance no later than June 1999.
- 26 -
<PAGE>
NaPro is assessing its secondary systems and other assets, including
microprocessor-controlled equipment, and expects to complete that assessment no
later than August 1999. The potential for significant interruption from
secondary systems exists, although NaPro believes that the likelihood of
interruption caused by Y2K failures in secondary systems is small.
In addition to its internal systems NaPro is evaluating potential impact on
NaPro of Y2K issues with its vendors and customers. NaPro cannot directly
control Y2K compliance by its vendors and customers. NaPro is communicating with
its key vendors and customers regarding this matter. NaPro knows of no vendor or
customer that has Y2K issues that have a potential of interrupting NaPro in a
manner that could significantly affect NaPro's operations. However, NaPro uses a
number of vendors that NaPro believes to be the best or the only qualified
source of a particular good or service. Sales to NaPro's customers potentially
could be interrupted by customers' Y2K issues. Should a significant customer
incur Y2K problems with its testing, release or other systems, NaPro's sales
could be materially affected. NaPro will continue to monitor the level of Y2K
compliance with respect to its key vendors and customers and will further
develop contingency plans to cover the failure of a key vendor, including
identification and qualification of alternative suppliers. Management believes
that exposure to vendor or customer Y2K issues creates no material risk to
NaPro. However, no assurance can be given with certainty that Y2K issues with
vendors or customers will not significantly affect NaPro.
NaPro's Y2K effort has caused no significant deferral of other information
technology projects.
NaPro's Y2K contingency plan includes completion of the evaluation and
remediation process discussed above, including communication with its key
vendors and customers regarding potential for Y2K issues; identification of the
best alternative vendor for sensitive goods and services; coordination and
planning with such alternative vendors.
Management believes that Y2K issues related to both internal and external
systems will have no material effect on NaPro's business, results of operations
or financial condition, and that NaPro's Y2K risk is not material. However, no
such assurance can be given with certainty. The cost of addressing Y2K has not
been material; management believes that the cost of completing Y2K compliance
will not be material.
Special Note Regarding Forward-looking Statements
Certain statements in this report constitute "forward-looking statements" within
the meaning of the federal securities laws, including the Reform Act. In
addition, NaPro or persons acting on its behalf sometimes make forward-looking
statements in other written and oral communications. Such forward-looking
statements may include, among other things, statements concerning NaPro's plans,
objectives and future economic prospects, such as matters relative to seeking
and obtaining strategic partners; the availability of patent and other
protection for its intellectual property; the completion of clinical trials and
regulatory filings; the prospects for and timing of regulatory approvals; the
need for and availability of additional capital; the amount and timing of
capital expenditures; timing of product introductions and revenue; the
availability of raw materials; prospects for future operations; and other
statements of expectations, beliefs, future plans and strategies, anticipated
events or trends and similar expressions concerning matters that are not
historical facts. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors 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: adverse economic and general business conditions;
competition from BMS and other existing and new producers of paclitaxel and
other drugs; technological advances in cancer treatment and drug development;
- 27 -
<PAGE>
the ability to obtain rights to technology; the ability to obtain and enforce
patents; the ability to obtain raw materials and commercialize manufacturing
processes; the effectiveness of NBT Paclitaxel and other pharmaceuticals
developed by NaPro in treating disease; the results of clinical studies; the
results of research and development activities; the business abilities and
judgment of NaPro's management and other personnel; the availability of
qualified personnel generally; changes in and compliance with governmental
regulations; the effect of capital market conditions and other factors on
capital availability for NaPro and other biopharmaceutical companies; the
ability of Faulding to perform its obligations under its existing agreement with
NaPro; the effect on NaPro's revenue, cash flow and earnings from foreign
exchange rate fluctuations; the ability of NaPro to establish relationships with
capable strategic partners to develop and market NBT Paclitaxel in the
territories not covered by the Faulding Agreement, and other factors referenced
in this Report.
Item 7A
Quantitative and Qualitative Disclosures about Market Risk.
During 1998 all of NaPro's revenue resulted from sales of NBT Paclitaxel to
Faulding and IVAX. NaPro anticipates that the final shipment of NBT Paclitaxel
required by the Termination Agreement will be made to IVAX during the first half
of 1999. Following this final delivery to IVAX, and in the absence of sales to
another strategic partner, sales of NBT Paclitaxel to Faulding will constitute
all or substantially all of NaPro's revenue for the foreseeable future.
Faulding purchases NBT Paclitaxel from NaPro at a price which varies in
proportion to the price at which Faulding sells NBT Paclitaxel. Under the
Faulding Agreement, NaPro is paid a fixed sum for NBT Paclitaxel supplied for
noncommercial uses, and a fixed percentage of Faulding's sales price for NBT
Paclitaxel supplied for commercial use. In March of each year, Faulding
estimates the sales price it will receive for NBT Paclitaxel in the upcoming
year, and, based upon that estimate, NaPro determines the price it will charge
Faulding for NBT Paclitaxel (the "Unadjusted Price"). NaPro recognizes the
corresponding revenue at the time of shipment of NBT Paclitaxel to Faulding,
based upon the intended use indicated by Faulding on its purchase orders.
However, Faulding may or may not use the product in accordance with the original
use stated on its purchase orders. Additionally, Faulding's actual selling price
may differ from the amounts originally budgeted and indicated to NaPro on its
purchase orders. On or about May 31, 1999, Faulding will communicate to NaPro
the final amount and type of sales made during the period beginning on April 1,
1998 and ending on March 31, 1999, and an adjustment will be calculated, which
may either increase or decrease NaPro's revenue from sales of products to
Faulding during this period.
Faulding's sales are made in the currencies of each of the countries in which it
sells NBT Paclitaxel. As a result, NaPro's revenue from sales is affected by
fluctuations in the value of these various foreign currencies relative to the
United States dollar. Faulding's largest single market is Australia, accounting
for approximately 38% of Faulding's commercial sales during the period beginning
March 31, 1997 and ending March 31, 1998. During the same period, fluctuations
in various currencies, especially the Australian dollar, were a major factor in
reducing the Unadjusted Price by 15%. If changes in foreign currency markets
continue to cause a decrease in the price per gram NaPro receives from Faulding,
there could be a material adverse effect on NaPro's earnings and cash flow. For
example, during the period beginning March 31, 1997 and ending March 31, 1998,
NaPro's revenue attributable to sales of NBT Paclitaxel to be resold
commercially by Faulding totaled $1,670,000. Had there been additional negative
pressure on the relevant exchange rates such that the Unadjusted Price had been
reduced by 30% (instead of 15%) NaPro's earnings would have been reduced by
approximately $589,000 and NaPro would have
- 28 -
<PAGE>
experienced materially reduced cash flow. However, while Faulding will continue
to have a significant impact on NaPro's revenue, NaPro's continuation of
operations is dependent upon sources other than revenue from Faulding. NaPro
anticipates that its operations will be dependent upon equity funding and
borrowing until such time, if ever, as NaPro secures one or more partnerships
for the territories outside the Faulding Agreement and secures regulator
approval and begins sales in a major market. There can be no assurance, however,
that NaPro will be able to raise such equity financing and/or find a strategic
partner or that such a partner, if found, will be able to secure regulatory
approval or effectively market NaPro's products.
Certain statements set forth in Item 7A constitute "forward-looking statements"
within the meaning of the Reform Act. See "Special Note Regarding
Forward-looking Statements".
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
NaPro's definitive Proxy Statement with respect to NaPro's 1999 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.
- 29 -
<PAGE>
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.
Part IV
Item 14
Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Financial Statements
The Financial Statement Index is 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 Current Report on Form 8-K dated January 7, 1999 reporting an
agreement between NaPro and the holders of the Convertible Notes and Convertible
Preferred Stock amending the terms of such securities, and a Current Report on
Form 8-K dated January 22, 1999 reporting a letter agreement between NaPro and
holders of warrants originally issued to the underwriter of the Company's
initial public offering which amended the terms of such warrants and reflecting
corresponding changes in information to be included in a prospectus related to
the resale of shares issuable upon exercise of such warrants.
Exhibit
Number Description of Exhibit
3.1 Amended and Restated Certificate of Incorporation of the Company, as
amended August 2, 1996(1)
3.2 Certificate of Amendment dated September 29, 1998 to the Amended and
Restated Certificate of Incorporation of the Company
3.3 Certificate of Designation for Convertible Preferred Stock,
Series A (1)
3.4 Certificate of Designation for Series B Junior Participating Preferred
Stock (2)
3.5 Certificate of Designation of Series C Senior Convertible Preferred
Stock (3)
3.6 Bylaws of the Company (4)
4.1 Common Stock Certificate (4)
4.2 Underwriter's Warrant Agreement (4)
4.3 Warrant Agreement (4)
4.4 Warrant Certificate (4)
4.5 Rights Agreement dated as of November 8, 1996 between the Company and
American Stock Transfer and Trust Company, as Rights Agent (5)
- 30 -
<PAGE>
4.6 The Certificate of Incorporation and Bylaws of the Company are included
as Exhibits 3.1 - 3.5.
10.1* Company's 1993 Stock Option Plan (4)
10.2* Company's 1994 Long-Term Performance Incentive Plan, as amended May 28,
1998
10.3 Stock Purchase Warrant dated as of June 7, 1993 between the Company and
Arthur D. Harrison (4)
10.4 Stock Purchase Warrant dated as of June 7, 1993 between the Company and
D&N Holding Company (4)
10.5 Stock Purchase Warrant dated as of June 7, 1993 between the Company and
Kirkland & Ellis (4)
10.6 Stock Purchase Warrant dated as of December 15, 1992 between the
Company and Kirkland & Ellis (4)
10.7* Employment Agreement effective October 5, 1998 between NaPro and
Leonard P. Shaykin (6) 10.8* Employment Agreement effective October 5,
1998 between NaPro and Sterling K. Ainsworth (6)
10.9* Employment Agreement effective October 5, 1998 between NaPro and
Patricia A. Pilia (6)
10.10* Employment Agreement effective October 5, 1998 between NaPro and Gordon
Link (6)
10.11* Employment Agreement effective October 5, 1998 between NaPro and David
L. Denny (6)
10.12* Employment Agreement effective October 5, 1998 between NaPro and
William D. Fairbairn (6)
10.13* Employment Agreement effective October 5, 1998 between NaPro and James
D. McChesney (6)
10.14* Company's Stock Option Agreement with Sterling K. Ainsworth (4)
10.15* Company's Stock Option Agreement with Patricia A. Pilia (4)
10.16 Services and Supply Agreement dated as of December 1, 1993 between the
Company and Pacific BioTechnologies Inc. (4)
10.17 Amended and Restated Master Agreement dated as of January 19, 1994
between the Company and F.H. Faulding & Co., Ltd. (4)
10.18 Amendment No. 1 To Amended and Restated Master Agreement dated January
19, 1994, executed as of March 23, 1995 (7)
10.19 Agreement dated as of June 7, 1993 between the Company and Baker
Norton Pharmaceuticals, Inc. (4)
10.20 Lease dated February 28, 1995 between the Company and the Mutual Life
of Canada (1)
10.21 Subscription Agreement and Investment Letter between the Company and
NaPro BioTherapeutics (Canada), Inc. (1)
10.22 Put/Call Agreement dated July 12, 1995 between the Company and the
Purchasers of Series A Preferred Shares of NaPro BioTherapeutics
(Canada) Inc. (1)
10.23 Side Letter dated July 21, 1995 to Put/Call Agreement (1)
10.24 Lease between the Company and Gunbarrel Facility L.L.C. dated October
16, 1995 (8)
10.25 First Amendment to Lease November 27, 1995, between the Company and
Gunbarrel Facility L.L.C. (8)
10.26 Agreement between the Company and Pacific BioTechnologies Inc. dated
March 29, 1996 (8)
10.27 Culture Agreement dated March 1, 1996 between Zelenka Nursery, Inc.
("Zelenka") and the Company (9)
10.28 Agreement for Sale, Harvest and Storage of Nursery Stock dated May 1,
1996 between Zelenka and the Company (9)
10.29 Culture Agreement dated as of March 1, 1997 between Zelenka and the
Company (10)
10.30 Lease Agreement dated as of March 1, 1997 between Zelenka and the
Company (10)
10.31 Agreement for Sale, Harvest and Storage of Nursery Stock dated as of
March 1, 1997 between Zelenka and the Company (10)
10.32 Form of Note Purchase Agreement, dated as of June 4, 1997 between
NaPro and each of the Selling Stockholders (11)
10.33 Form of 5% Senior Convertible Note (11)
10.34 Form of Common Stock Purchase Warrant (11)
- 31 -
<PAGE>
10.35 Pledge and Security Agreement dated as of June 4, 1997 between NaPro
and First Trust of New York, National Association, as Collateral Agent
(11)
10.36 Subscription Agreement between the Company and Advantage Fund II,
Ltd., as to Series C Senior Convertible Preferred Stock (3)
10.37 Common Stock Purchase Warrant between the Company and Advantage Fund
II, Ltd. (3)
10.38 Amendment Agreement, dated as of January 28, 1998, by and among the
Company and the noteholders' named therein (12)
10.39 Amendment Agreement, dated as of January 28, 1998, by and among the
Company and Advan tage Fund II, Ltd. (12)
10.40 Letter Agreement, dated as of March 20, 1998, by and among the Company
and the noteholders named therein (13)
10.41 Letter Agreement, dated as of March 31, 1998, by and among the Company
and Advantage Fund II, Ltd. (13)
10.42 Letter Agreement, dated as of January 7, 1999, by and among the
Company and the noteholders named therein (14)
10.43 Letter Agreement, dated as of January 7, 1999, by and among the
Company and Advantage Fund II, Ltd. (14)
10.44 Letter Agreement, dated as of March 24, 1999, by and among the Company
and the noteholders named therein
10.45 Letter Agreement, dated as of March 24, 1999, by and among the Company
and Advantage Fund II, Ltd.
10.46 Termination Agreement dated as of March 20, 1998 among the Company,
IVAX Baker Norton Pharmaceuticals, Inc. ("BNP") and D&N Holding
Corporation ("D&N") (15)
10.47 Escrow Agreement dated as of March 24, 1998 by and between the
Company, BNP and U.S. Bank National Association d/b/a Colorado
National Bank (15)
10.48 Letter Agreement, dated March 20, 1998, by and between the Company,
Leonard P. Shaykin and D&N (15)
10.49 NaPro Release dated as of March 20, 1998 (15)
10.50 IVAX, BNP and D&N Release dated as of March 20, 1998 (15)
21.1 List of Subsidiaries (16)
23.1 Consent of Ernst & Young LLP
24.1 Powers of Attorney
27.1 Financial Data Schedule
- - --------------------------------------------------------------
*A management compensation plan.
(1) 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).
(2) Incorporated herein by reference from the Company's November 8, 1996
Current Report Form 8-K (File No. 0-24320).
(3) Incorporated herein by reference to the Company's Registration
Statement on Form S-3, filed on December 16, 1997 (File No. 333-42419).
(4) 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).
(5) Incorporated herein by reference to the Registration Statement of the
Company on Form 8-A, filed with the Commission on November 26, 1996
(File No. 0-24320).
- 32 -
<PAGE>
(6) Incorporated herein by reference to the Company's Quarter Report on
Form 10-Q for the period ending September 30, 1998 (File No. 0-24320).
(7) 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).
(8) 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).
(9) 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) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1996 (File No. 0-24320).
(11) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the period ending June 30, 1997 (File No. 0-24320).
(12) Incorporated herein by reference to the Company's Current Report on
Form 8-K, dated January 28, 1998 (File No. 0-24320).
(13) Incorporated herein by reference to the Company's Current Report on
Form 8-K dated March 20, 1998 (File No. 0-243201).
(14) Incorporated herein by reference to the Company's Current Report on
Form 8-K dated January 7, 1999. (File No.. 0-243201)
(15) Incorporated herein by reference to the Company's Current Report on
Form 8-K, dated March 20, 1998 (File No.0-24320).
(16) 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).
- 33 -
<PAGE>
Signatures
Pursuant to Section 13 of the Securities Exchange Act of 1934, NaPro caused this
report to be signed on its behalf.
NAPRO BIOTHERAPEUTICS, INC.
/s/ Sterling K. Ainsworth
Sterling K. Ainsworth, Ph.D.
President, Chief March 30, 1999
Executive Officer; Director
Pursuant to the Exchange Act, this report has been signed on behalf of NaPro and
in the capacities indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
* Chairman of the Board of March 30, 1999
- - ---------------------------------------
Leonard P. Shaykin Directors
/s/ Sterling K. Ainsworth President, Chief March 30, 1999
- - -------------------------
Sterling K. Ainsworth, Ph.D. Executive Officer; Director
/s/ Gordon H. Link, Jr. Vice President, Chief March 30, 1999
- - -----------------------
Gordon H. Link, Jr Financial Officer
(Principal Financial Officer)
/s/ Robert L. Poley Controller March 30, 1999
- - -------------------
Robert L. Poley (Principal Accounting Officer)
* Director March 30, 1999
- - ------------------------------------
Arthur H. Hayes, Jr., M.D.
* Director March 30, 1999
- - ------------------------------------
Mark B. Hacken
* Director March 30, 1999
- - ------------------------------------
Stanley Knowlton
/s/ Patricia A. Pilia Director March 30, 1999
- - ------------------------------------
Patricia A. Pilia, Ph.D.
* Director March 29, 1999
- - ------------------------------------
Seth Rudnick, M.D.
*By:/s/ Gordon H. Link, Jr.
Gordon H. Link, Jr., Attorney in Fact
</TABLE>
- 34 -
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Financial Statements
Years ended December 31, 1998, 1997 and 1996
Index to Financial Statements
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 Flow......................................F-9
Notes to Consolidated Financial Statements ............................. F-11
F-1
<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, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flow for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NaPro
BioTherapeutics, Inc. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ERNST & YOUNG LLP
Denver, Colorado
March 24, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
NaPro BioTherapeutics, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31,
1998 1997
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,244,000 $ 8,102,000
Securities available for sale 197,000 -
Restricted cash 1,320,000 -
Accounts receivable 403,000 1,508,000
Inventory:
Raw materials 151,000 412,000
Work-in-process 930,000 1,408,000
Finished goods 1,632,000 1,302,000
------------ -----------
2,713,000 3,122,000
Prepaid expense and other 343,000 481,000
------------- ------------
Total current assets 12,220,000 13,213,000
Property and equipment, at cost:
Plantation cost 4,234,000 4,201,000
Laboratory equipment 2,948,000 3,874,000
Leasehold improvements 4,478,000 4,478,000
Office equipment and other 664,000 673,000
Construction in progress 3,912,000 4,883,000
------------- ------------
16,236,000 18,109,000
Accumulated depreciation 4,678,000 2,922,000
------------- ------------
Property and equipment, net 11,558,000 15,187,000
Restricted cash - 246,000
Inventory:
Raw materials 833,000 347,000
Work-in-process 738,000 288,000
Finished goods - 541,000
------------------ -------------
1,571,000 1,176,000
Other assets 317,000 536,000
------------- -------------
Total assets $25,666,000 $30,358,000
=========== ===========
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
NaPro BioTherapeutics, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31,
1998 1997
Liabilities and stockholders' equity Current liabilities:
<S> <C> <C>
Accounts payable $ 1,317,000 $ 4,361,000
Accrued payroll and payroll taxes 451,000 570,000
Notes payable--current (Note 3) 421,000 743,000
Senior convertible debt (Note 4) - 8,134,000
Deferred revenue 2,910,000 1,890,000
------------- -------------
Total current liabilities 5,099,000 15,698,000
Notes payable--long term (Note 3) 80,000 480,000
Senior convertible debt (Note 4) 5,176,000 -
Commitments and contingencies (Note 9)
Minority interest (Note 7) 622,000 2,574,000
Senior convertible redeemable preferred stock,
Series C (Note 5) 3,805,000 4,344,000
Stockholders' equity (Note 7):
Preferred stock,$.001 par value:
Authorized shares--2,000,000
Nonvoting common stock, convertible on disposition
into voting common stock, $.0075 par value:
Authorized shares--1,000,000
Issued and outstanding shares--395,000
in 1998 and 1997 3,000 3,000
Common stock, $.0075 par value:
Authorized shares--30,000,000 in 1998
and 19,000,000 in 1997
Issued shares--17,902,407 in 1998;
13,134,021 in 1997 134,000 98,000
Additional paid-in capital 58,045,000 50,833,000
Deficit (43,618,000) (40,998,000)
Treasury stock--1,114,525 shares in 1998;
218,838 shares in 1997 ( 3,680,000) (2,674,000)
------------- -------------
Total stockholders' equity 10,884,000 7,262,000
------------- -------------
Total liabilities and stockholders' equity $25,666,000 $30,358,000
============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
NaPro BioTherapeutics, Inc. and Subsidiaries
Consolidated Statement of Operations
Year Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Product sales $ 4,952,000 $ 3,814,000 $ 3,473,000
------------- ------------- ------------
Expense:
Research, development and cost of
products sold 9,973,000 11,769,000 6,837,000
General and administrative 6,458,000 5,992,000 3,712,000
(Gain) loss on retirement of assets 1,899,000 (141,000) 27,000
-------------- -------------- ---------------
18,330,000 17,620,000 10,576,000
------------- ------------- -------------
Operating loss (13,378,000) (13,806,000) (7,103,000)
Other income (expense):
License fee 11,110,000 - -
Interest income 550,000 494,000 651,000
Interest expense (902,000) (2,161,000) (373,000)
-------------- -------------- -------------
Net loss $ (2,620,000) $(15,473,000) $(6,825,000)
============= ============= ============
Basic and diluted net loss per share $ (0.22) $ (1.28) $ (0.68)
================ ================= ===============
Weighted average shares outstanding 14,641,769 12,104,395 9,973,325
============== =============== =============
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
NaPro BioTherapeutics, Inc. and Subsidiaries
Consolidated Statement of Cash Flow
Year Ended December 31,
1998 1997 1996
---- ---- ----
Operating activity
<S> <C> <C> <C>
Net loss $( 2,620,000) $(15,473,000) $ (6,825,000)
Adjustments to reconcile net loss
to net cash provided (used) by operating activity:
Depreciation 1,732,000 1,686,000 635,000
Accretion of debt issue cost, warrant
allocation and conversion rights allocation 429,000 1,447,000 34,000
Compensation paid with common stock,
options and warrants 666,000 216,000 37,000
Interest expense paid with common stock 295,000 344,000 -
(Gain)/loss on retirement of assets 1,896,000 (116,000) 28,000
Changes in operating assets and liabilities:
Accounts receivable 1,104,000 (846,000) (336,000)
Inventory 254,000 (2,017,000) (1,069,000)
Prepaid expenses and other assets 358,000 (138,000) (235,000)
Accounts payable (2,884,000) 2,598,000 1,100,000
Accrued liabilities (95,000) 91,000 181,000
Deferred revenue 1,020,000 1,854,000 (16,000)
------------- ------------- --------------
Net cash provided (used) by operating activity 2,155,000 (10,354,000) (6,466,000)
Investing activity
Additions to property and equipment (474,000) (11,634,000) (4,894,000)
Proceeds from sale of property and equipment 105,000 939,000 -
Purchase of securities held for sale - - (3,439,000)
Purchase of securities held to maturity - (4,227,000) (2,462,000)
Proceeds from securities available for sale - 2,650,000 750,000
Proceeds from securities held to maturity - 6,876,000 167,000
Transfer of restricted cash (1,271,000) 81,000 124,000
------------- ------------- -------------
Net cash used by investing activity (1,640,000) (5,315,000) (9,754,000)
Financing activity
Proceeds from notes payable, net of issuance cost 188,000 10,197,000 1,349,000
Payments on notes payable (1,556,000) (1,959,000) (555,000)
Payment for compensation due officers - - (169,000)
Preferred stock dividend (51,000) - -
Proceeds from sale of common and preferred
stock and exercise of common stock
warrants and options 46,000 6,262,000 19,906,000
Offering cost of common and preferred stock - (260,000) (1,913,000)
----------------- ------------ ------------
Net cash provided (used) by financing activity (1,373,000) 14,240,000 18,618,000
------------ ----------- ------------
Net (decrease) increase in cash and cash equivalents (858,000) (1,429,000) 2,398,000
Cash and cash equivalents at beginning of year 8,102,000 9,531,000 7,133,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 7,244,000 $ 8,102,000 $ 9,531,000
============ ============ ============
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
NaPro BioTherapeutics, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 1996, 1997 and 1998
Nonvoting Number Additional
Common Common of Common Paid-in Unearned
Stock Stock Shares Issued Capital Compensation
------ -------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1995 $ 3,000 $ 64,000 8,525,265 $ 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 - - 21,418 66,000 -
per share
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 - 12,000 1,640,389 3,129,000 -
cost of $ 37,000
Issuance of 1,790,000 shares of common stock at
$8.75 per share net of offering cost of - 13,000 1,790,000 13,773,000 -
$1,876,000
Contribution of 4,017 shares of common stock
at $7.00 per share to retirement plan - - 4,017 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 - - 5,000 - -
stock
Net loss - - - - -
Balance as of December 31, 1996 4,000 89,000 11,986,089 44,670,000 -
Conversion of 200,000 shares non-voting
common stock to 200,000 shares of common (1,000) 1,000 200,000 - -
stock
Interest receivable on officers' notes - - - - -
Repurchase of 74,550 shares treasury
stock at $13.275 in exchange
for cancellation of indebtedness - - - - -
Issuance of 4,268 restricted shares
of common stock for compensation - - 4,268 40,000 -
Exercise of employee stock options for
2,466 shares of common stock at $2.40 - - 2,466 6,000 -
per share
Notes
Receivable
From Treasury
Stockholders Deficit Stock Total
---------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Balance as of 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 - - - 66,000
per share
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 - - - 3,141,000
cost of $ 37,000
Issuance of 1,790,000 shares of common stock at
$8.75 per share net of offering cost of - - - 13,786,000
$1,876,000
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 as of December 31, 1996 (985,000) (25,525,000) (1,684,000) 16,569,000
Conversion of 200,000 shares non-voting
common stock to 200,000 shares of common - - - -
stock
Interest receivable on officers' notes (5,000) - - (5,000)
Repurchase of 74,550 shares treasury
stock at $13.275 in exchange
for cancellation of indebtedness 990,000 - (990,000) -
Issuance of 4,268 restricted shares
of common stock for compensation - - - 40,000
Exercise of employee stock options for
2,466 shares of common stock at $2.40 - - - 6,000
per share
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
NaPro BioTherapeutics, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 1996, 1997 and 1998
Nonvoting Number Additional
Common Common of Common Paid-in Unearned
Stock Stock Shares Issued Capital Compensation
------------ ------------ -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Exercises of warrants for 62,326 shares of common
stock at prices ranging from $1.125 to $7.50 - 1,000 62,326 256,000 -
per share
Convertible debt allocation to conversion
rights and warrant for 323,700 shares - - - 1,773,000 -
Exercise of warrants for 200,000 shares of common
stock at $5.00 per share - 2,000 200,000 998,000 -
Issuance of 47,482 shares of common stock in
payment for interest on debt at prices
ranging from $5.78 to $8.375 - - 47,482 344,000 -
Conversion of 125,000 shares of preferred stock
into 125,000 shares of common stock and
exchange of 140,920 shares of subsidiary's
preferred stock for 140,920 shares of common stock - 2,000 265,920 1,139,000 -
Conversion of senior convertible note to 344,906
shares of common stock at prices ranging from
$2.50 to $5.78 per share - 3,000 344,906 996,000 -
Issuance of option grant to purchase 49,785 shares of
common stock at $7.25 per share in exchange for
consulting services - - - 20,000 -
Convertible preferred stock allocation to conversion
rights and warrant for 175,000 shares - - - 459,000 -
Contribution of 20,564 shares of common stock
at $2.50 per share to retirement plan - - 20,564 51,000 -
Stock option compensation - - - 145,000 -
Accretion of conversion rights and warrant to
convertible preferred stock - - - (64,000) -
Net loss - - - - -
------------ ------------ -------------- ---------------- ---------------
Balance as of December 31, 1997 3,000 98,000 13,134,021 50,833,000 -
Notes
Receivable
From Treasury
Stockholders Deficit Stock Total
---------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Exercises of warrants for 62,326 shares of common
stock at prices ranging from $1.125 to $7.50 - - - 257,000
per share
Convertible debt allocation to conversion
rights and warrant for 323,700 shares - - - 1,773,000
Exercise of warrants for 200,000 shares of common
stock at $5.00 per share - - - 1,000,000
Issuance of 47,482 shares of common stock in
payment for interest on debt at prices
ranging from $5.78 to $8.375 - - - 344,000
Conversion of 125,000 shares of preferred stock
into 125,000 shares of common stock and
exchange of 140,920 shares of subsidiary's
preferred stock for 140,920 shares of common stock - - - 1,141,000
Conversion of senior convertible note to 344,906
shares of common stock at prices ranging from
$2.50 to $5.78 per share - - - 999,000
Issuance of option grant to purchase 49,785 shares of
common stock at $7.25 per share in exchange for
consulting services - - - 20,000
Convertible preferred stock allocation to conversion
rights and warrant for 175,000 shares - - - 459,000
Contribution of 20,564 shares of common stock
at $2.50 per share to retirement plan - - - 51,000
Stock option compensation - - - 145,000
Accretion of conversion rights and warrant to
convertible preferred stock - - - (64,000)
Net loss - (15,473,000) - (15,473,000)
---------------- --------------- -------------- ---------------
Balance as of December 31, 1997 - (40,998,000) (2,674,000) 7,262,000
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
NaPro BioTherapeutics, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 1996, 1997 and 1998
Nonvoting Number Additional
Common Common of Common Paid-in Unearned
Stock Stock Shares Issued Capital Compensation
------------ ------------ -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Issuance of option grants to purchase 30,265 shares
of common stock at prices ranging from $1.00 to
$2.00 per share in exchange for consulting services - - - 23,000 -
Issuance of 186,656 shares of common stock in payment
for dividends on convertible preferred stock at
prices ranging from $0.82 to $1.43 per share - 1,000 186,656 (1,000) -
Compensation relating to repricing warrants - - - 97,000 -
Receipt of 1,126,398 shares treasury stock
as part of contract termination agreement - - - 1,768,000 -
Issuance of 4,264 restricted shares of common stock
for compensation - - 4,264 40,000 -
Exercise of employee stock options for 163,467
shares of common stock at prices ranging from
$0.188 to $0.75 per share - 1,000 163,467 41,000 -
Issuance of 296,019 shares of common stock in
payment for interest on debt at prices ranging
from $0.84 to $1.24 - 2,000 296,019 293,000 -
Contribution of 56,827 shares of common stock
at $1.64 per share to retirement plan - 1,000 56,827 92,000 -
Exchange of 240,900 shares of subsidiary's preferred
stock for 240,900 shares of common stock - 2,000 240,900 1,949,000 -
Conversion of senior convertible note to 2,833,587
shares of common stock at prices ranging from
$0.70 to $1.72 per share - 21,000 2,833,587 2,734,000 -
Accretion of offering cost, conversion rights and
value of warrant as preferred dividends on
redeemable preferred stock - - - (362,000) -
Notes
Receivable
From Treasury
Stockholders Deficit Stock Total
---------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Issuance of option grants to purchase 30,265 shares
of common stock at prices ranging from $1.00 to
$2.00 per share in exchange for consulting services - - - 23,000
Issuance of 186,656 shares of common stock in payment
for dividends on convertible preferred stock at
prices ranging from $0.82 to $1.43 per share - - - -
Compensation relating to repricing warrants - - - 97,000
Receipt of 1,126,398 shares treasury stock
as part of contract termination agreement - - (1,768,000) -
Issuance of 4,264 restricted shares of common stock
for compensation - - - 40,000
Exercise of employee stock options for 163,467
shares of common stock at prices ranging from
$0.188 to $0.75 per share - - - 42,000
Issuance of 296,019 shares of common stock in
payment for interest on debt at prices ranging
from $0.84 to $1.24 - - - 295,000
Contribution of 56,827 shares of common stock
at $1.64 per share to retirement plan - - - 93,000
Exchange of 240,900 shares of subsidiary's preferred
stock for 240,900 shares of common stock - - - 1,951,000
Conversion of senior convertible note to 2,833,587
shares of common stock at prices ranging from
$0.70 to $1.72 per share - - - 2,755,000
Accretion of offering cost, conversion rights and
value of warrant as preferred dividends on
redeemable preferred stock - - - (362,000)
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
NaPro BioTherapeutics, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 1996, 1997 and 1998
Nonvoting Number Additional
Common Common of Common Paid-in Unearned
Stock Stock Shares Issued Capital Compensation
------------ ------------ -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Conversion of redeemable, convertible preferred stock
to 986,666 shares of common stock at prices
ranging from $0.82 to $1.43 - 8,000 986,666 889,000 -
Payment of convertible preferred stock dividends in
cash - - - (51,000) -
Contribution of 230,711 shares of common stock from
the treasury at $2.00 per share to retirement - - - (300,000) -
plan
Net Loss - - - - -
------------ ------------ -------------- ---------------- ---------------
Balance as of December 31, 1998 $ 3,000 $ 134,000 17,902,407 $ 58,045,000 $ -
============ ============ ============== ================ ===============
Notes
Receivable
From Treasury
Stockholders Deficit Stock Total
---------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Conversion of redeemable, convertible preferred stock
to 986,666 shares of common stock at prices
ranging from $0.82 to $1.43 - - - 897,000
Payment of convertible preferred stock dividends in
cash - - - (51,000)
Contribution of 230,711 shares of common stock from
the treasury at $2.00 per share to retirement - - 762,000 462,000
plan
Net Loss - (2,620,000) - (2,620,000)
---------------- --------------- -------------- ---------------
Balance as of December 31, 1998 $ - $(43,618,000) $ (3,680,000) $ 10,884,000
================ =============== ============== ===============
</TABLE>
See accompanying notes.
F-10
<PAGE>
<TABLE>
<CAPTION>
NaPro BioTherapeutics, Inc. and Subsidiaries
Consolidated Statement of Cash Flow (continued)
Year ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Supplemental schedule of noncash investing and
financing activities
Conversion of senior convertible debt to
common stock $2,755,000 $1,059,000 $ -
Conversion of convertible preferred shares
to common stock 897,000 - -
Exchange of preferred shares of subsidiary
for common stock of NaPro 1,951,000 1,141,000 -
Issuance of common stock for compensation
previously accrued 40,000 40,000 -
Issuance of common stock as payment of dividends 179,000 - -
Accretion of convertible preferred stock
conversion rights valuation, offering
cost and warrant valuation 362,000 64,000 -
Receipt of common stock into treasury 1,768,000 - -
Issuance of senior convertible debt for
placement fee - 300,000 -
Notes and related interest receivable from
stockholders - 5,000 60,000
Repayment of notes receivable from stockholders
through transfer of stock into treasury - 990,000 -
</TABLE>
See accompanying notes.
F-11
<PAGE>
December 31, 1998
1. Basis of Presentation and Summary of Significant Accounting Policies
Organization
NaPro BioTherapeutics, Inc. ("NaPro" or "the Company"), a Delaware corporation,
was incorporated in 1991. In November 1994, NaPro formed a subsidiary, NaPro
BioTherapeutics (Canada), Inc., of which the Company owns 98% of the voting
rights. In February 1996 NaPro formed a wholly owned subsidiary, NaPro
BioTherapeutics (Ireland) Limited. In August 1997 NaPro formed a wholly-owned
subsidiary, NBT Ltd., a Cayman Island corporation.
Basis of Presentation
The accompanying financial statements include the consolidated financial
position, consolidated results of operations and consolidated cash flow of NaPro
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 pharma- ceuticals, 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.
Cash Equivalents and Securities Available for Sale
NaPro considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents. Securities available for sale were
investment-grade securities and were carried at fair value.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, securities, accounts
receivable and payable, notes payable and senior convertible debt approximate
fair value. The fair value of notes payable and senior convertible debt are
estimated using discounted cash flow analysis based on NaPro's estimated current
borrowing rate for similar types of arrangements.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or market.
- - --------------
*TAXOL(R) is a registered trademark of Bristol-Myers Squibb Company (Bristol)
for an anticancer pharmaceutical preparation containing paclitaxel.
F-12
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
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 to be a technically feasible business
strategy. Prior to 1996 plantation expenditures were expensed as research and
development. In 1996 NaPro began capitalizing plantation expenditures incurred
prior to the first commercial harvest. Plantation expenditures include the
acquisition cost of trees and the related cost of planting and growing. NaPro
depletes such cost evenly over the expected number of annual harvests, six to
eight, and retains a 20% residual value to be depleted at the time the whole
tree is harvested. If in any year a harvest is not performed, the depletion
would be deferred and added to the depletion that would otherwise be charged to
the next actual harvest, as the harvest would benefit from an additional year's
growth.
Long-Lived Assets
The carrying amount of long-lived assets is reviewed when facts and
circumstances suggest they may be impaired. If this review indicates long-lived
assets will not be recoverable as determined based on the undiscounted cash flow
estimated to be generated by these assets, the carrying amount of these
long-lived assets is reduced to estimated fair value or discounted cash flow, as
appropriate.
Depreciation and Amortization
Depreciation of property and equipment 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
research, development and cost of products sold, or general and administrative
expense, depending on the use of the related property and equipment.
Stock Options
NaPro has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), and related interpretations
in accounting for outstanding stock options. Under APB 25, when the exercise
price of NaPro's stock options equals the fair value of the underlying stock on
the date of grant, no compensation expense is recognized.
Revenue Recognition
Revenue from product sales is recognized at the time of shipment or if shipped
on consignment, at time of draw-down from consignment. 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. Payments received in advance against future sales are
recorded as deferred revenue until earned.
F-13
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
Net Loss Per Share
NaPro's basic and diluted net loss per share is computed using the weighted
average number of shares of common stock outstanding. Potential common shares
from stock options, warrants and convertible securities are excluded from the
computation of diluted earnings per share as their effect is antidilutive.
The following table sets forth the computation of basic and diluted net loss per
share:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net loss $(2,620,000) $(15,473,000) $(6,825,000)
Preferred stock dividends (592,000) (64,000) -
------------ ------------ -----------
Numerator for loss per share--
loss available to common stockholders $(3,212,000) $(15,537,000) $(6,825,000)
=========== ============ ===========
Denominator:
Denominator for loss per share --
weighted average shares 14,641,769 12,104,395 9,973,325
=========== ============ ===========
Basic and diluted net loss per share $ (0.22) $ (1.28) $ (0.68)
============= ============ ===========
</TABLE>
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 1997 and 1996 financial
statements to conform with the 1998 financial statement presentation.
Foreign and Domestic Operations and Export Sales; Significant Customers
Domestic and foreign financial information follows:
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("Statement No. 131"). Statement No. 131
establishes standards for the way that
F-14
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Statement No. 131 is effective for
financial statements for fiscal years beginning after December 15, 1997 and,
therefore, NaPro adopted the new requirements retroactively in 1998. The
adoption of the statement resulted in the reporting of no additional segment
information.
<TABLE>
<CAPTION>
Domestic and foreign financial information follows:
United Elimin-
Year States Canada ations Total
<S> <C> <C> <C> <C> <C>
Net sales to affiliated and unaffiliated customers 1998 $4,952,000 $ 454,000 $ (454,000) $ 4,952,000
1997 3,814,000 1,130,000 (1,130,000) 3,814,000
1996 3,473,000 1,781,000 (1,781,000) 3,473,000
Operating loss 1998 12,852,000 526,000 - 13,378,000
1997 12,854,000 952,000 - 13,806,000
1996 6,719,000 384,000 - 7,103,000
Identifiable assets
December 31, 1998 27,976,000 2,406,000 (4,716,000) 25,666,000
1997 30,054,000 3,939,000 (3,635,000) 30,358,000
1996 22,587,000 4,823,000 (2,389,000) 25,021,000
</TABLE>
NaPro is dependent on sales to its development and marketing partner, Faulding,
and its former marketing partner, the Baker Norton subsidiary of IVAX
Corporation ("IVAX") (see Note 9), and does not require collateral to secure
accounts receivable. Substantially all of NaPro's accounts receivable at
December 31, 1998 and 1997 were from these partners. Sales to these partners as
a percent of total sales were:
1998 1997 1996
---- ---- ----
Faulding 44% 34% 72%
IVAX 55% 60% 25%
Export sales follow:
Sales 1998 1997 1996
---- ---- ----
Australia $2,189 $1,303 $2,509
Other Foreign 193 193 -
------- ------ --------
Total Foreign 2,382 1,496 2,509
United States 2,570 2,318 964
------ ------ ------
Total Sales $4,952 $3,814 $3,473
====== ====== ======
2. Other Related Party Transactions
F-15
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
NaPro recorded $2,722,000, $2,275,000 and $882,000 in 1998, 1997, and 1996,
respectively, in sales to IVAX, a marketing and development partner which owned
0%, 8.7%, and 9.4% of NaPro's outstanding shares of common stock (see Notes 1
and 9) at December 31, 1998, 1997, and 1996, respectively.
In 1997 NaPro used the services of a consulting firm in which a former NaPro
director is a principal. NaPro paid $107,000 in fees and services to the firm
and issued stock options for 49,785 shares of common stock (see Note 8).
3. Notes Payable
Notes payable consist of:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
<S> <C> <C>
Note payable, due in December 1998, interest at
12.73%, principal and interest payable monthly $ - $ 204,000
Note payable, due in May 1999, interest at 13.50%,
principal and interest payable monthly 26,000 99,000
Note payable, due in July 1999, interest at 13.78%,
principal and interest payable monthly 96,000 268,000
Note payable, due in October 1999, interest at
13.25%, principal and interest payable monthly 85,000 176,000
Note payable, due in May 2000, interest at 11.76%,
principal and interest payable monthly 257,000 416,000
Note payable, due in March 1999, interest at 7.16%,
principal and interest payable monthly 37,000 -
Note payable, due in March 1998, interest at 7.90%,
principal and interest payable monthly - 57,000
Note payable, due in May 1998, interest at 12.72%,
principal and interest payable monthly - 3,000
------------- -------------
501,000 1,223,000
Less amounts currently payable 421,000 743,000
--------- -----------
Notes payable - long term $ 80,000 $ 480,000
========= ==========
</TABLE>
Debt maturities, including long term notes payable and senior convertible debt
(see Note 4), for the years ended December 31, 1999 and 2000 are $421,000 and
$5,774,000 respectively. The notes payable are collateralized by NaPro
equipment. For the years ended December 31, 1998, 1997, and 1996, interest paid
in cash was $189,000, $286,000 and $197,000 respectively. Also, 1998 and 1997
interest expense includes $295,000 and $407,000 paid in NaPro common stock on
the senior convertible debt.
NaPro has entered into an irrevocable standby letter of credit agreement with a
financial institution to support a note payable for up to $200,000 at an
interest rate of prime plus 2%. As of December 31, 1998, no funds have been
drawn on the letter of credit.
F-16
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
4. Senior Convertible Debt
In June 1997 NaPro privately issued $10.3 million of senior convertible notes.
The notes mature in June 2000 and bear interest at a rate of 5% per year.
Interest on the notes may be paid in common stock or cash at NaPro's option. The
notes are convertible into common stock at a 10% discount from the lowest market
price of the common stock during specified periods prior to the conversion,
subject to a maximum conversion price of $1.92. If not converted into common
stock, upon maturity in June 2000, the notes will be exchanged for 13.75% 5-year
debentures. As part of this transaction, NaPro has issued warrants to purchase
up to 323,700 shares of common stock at $10.00, including a warrant to purchase
33,700 shares of common stock that was issued to the placement agent. The $10.00
exercise price was subse quently reduced to $1.50 in amendments to the terms of
the notes (see Note 5). NaPro has filed a registration statement with the SEC
for the resale of shares acquired on conversion of notes and exercise of
warrants. Net proceeds from the notes totaled $9.5 million after the placement
agent's fees and other offering cost. Under limited circumstances, NaPro could
be obligated to pay off the notes prior to their maturity.
The placement agent was issued $300,000 of the notes as half of the placement
fee. The remaining half of the fee was paid in cash. The $600,000 placement fee
has been capitalized as a discount to the notes and is being amortized over the
three-year life of the notes. $1.1 million of the face amount of the notes was
assigned to the conversion rights and recorded as a note discount. This note
discount was amortized to interest expense over the 180 days following the date
of sale of the notes.
$662,000 of the face amount of the notes was assigned to the 323,700 warrants
issued in the transaction and was recorded as a note discount. This note
discount is being amortized to interest expense over the life of the notes.
In 1998 and 1997, respectively, NaPro issued 2,833,587 and 344,906 shares of
common stock in conversion of NaPro's senior convertible debt, and 296,019 and
47,482 shares of common stock in payment of interest on the senior convertible
debt.
In January and March, 1998 and January and March, 1999, the notes were amended
(see Note 5). In 1998, NaPro redeemed $647,000 in note principal and paid
$53,000 premium and interest in connection with the redemption. In January 1999,
NaPro redeemed $633,000 in note principal and paid $162,000 premium and interest
in connection with the redemption. NaPro anticipates that it may elect to pay
off all or part of the notes during 1999, although there can be no assurance
that it will have the cash resources necessary to do so.
5. Redeemable, convertible preferred stock
On December 8, 1997 NaPro privately issued $5 million at $1,000 per share (5,000
shares) of nonvoting redeemable, convertible preferred stock, Series C (the "C
Preferred"). The C Preferred accrues dividends at 5% per year, which are
cumulative, payable in common stock or cash at NaPro's option. The C Preferred
is convertible into common stock at a 5% discount from the market price during
specified periods prior to the conversion date (the "Variable Conversion Price")
subject to a maximum conversion price of $1.90. The C Preferred has a
liquidation preference equal to issue price plus accrued dividends.
F-17
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
At December 8, 2000, NaPro may force the conversion of any remaining shares at
the Conversion Price in effect as of December 8, 2000. Additionally, NaPro
issued to the investor a warrant to purchase 175,000 shares of common stock at
$10.00 per share, subsequently amended to $2.50 per share. Under certain
circumstances the C Preferred investor may cause NaPro to redeem for cash a
portion or all of the C Preferred at prices ranging from 115% to 125% of issue
price.
NaPro incurred offering cost of about $260,000, which was recorded as a discount
and is accreted as dividends over three years. NaPro assigned $263,000 of the
proceeds to the value of the conversion rights, which was recorded, as a
discount on the C Preferred, to additional paid-in capital and is being accreted
as preferred dividends over the four months following issuance. NaPro also
assigned $196,000 of the proceeds to the value of the warrant, which was
recorded, as a discount on C Preferred, to additional paid-in capital, and is
being accreted as preferred dividends over three years.
In January and March, 1998 and January and March, 1999, NaPro entered into
amendments (the "Amendments") with the C Preferred investor and the holders of
the convertible notes (together the "Investors"). The parties agreed to limit:
(a) the number of shares which could be converted in the event the stock price
is below $4.00 per share to no more than 450,000 shares per month through May
14, 1999, and (b) the ability of the Investors to force NaPro to redeem any
portion of the securities for cash. In the event there is an unconverted amount
of securities on May 15, 1999, such amount will be convertible under the
original terms of the agreements. At any time, NaPro, at its option, may redeem
all or part of the securities, with 5 days written notice, for amounts ranging
from 130% to 140% of the outstanding principal and accrued dividends or
interest.
In 1998 NaPro issued 986,666 shares of common stock in conversion of the C
Preferred and 186,656 shares of common stock in payment of dividends on the C
Preferred.
6. Income Taxes
As of December 31, 1998, NaPro had the following net operating loss
carryforwards and research and development credits to offset future taxable
income in the United States:
Net Research and
Expiring Operating Development
December 31, Losses Credits
2007 1,692,000 52,000
2008 3,328,000 54,000
2009 4,713,000 38,000
2010 4,960,000 15,000
2011 7,389,000 49,000
2012 11,952,000 140,000
2013 - 315,000
----------------- ---------
$34,034,000 $663,000
=========== ========
F-18
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
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 NaPro's utilization of its net operating loss and
tax credit carryforwards, and could be triggered by sales of securities by NaPro
or its stockholders.
In Canada, NaPro has net operating loss carryforwards of approximately
US$1,442,000, expiring in 2002, 2003, 2004, 2005 and 2006.
Significant components of NaPro's deferred tax assets are:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Tax net operating loss carryforward $12,763,000 $13,118,000 $8,437,000
Research and development credits 663,000 386,000 209,000
Depreciation 637,000 108,000 64,000
Deferred Revenue 596,000 696,000 6,000
Other 217,000 310,000 187,000
------------- ------------ ------------
Total deferred tax assets 14,876,000 14,618,000 8,903,000
Valuation allowance (14,876,000) (14,618,000) (8,903,000)
------------ ------------ ------------
Net deferred tax assets $ - $ - $ -
================================== ================
</TABLE>
7. Stockholders' Equity
The IVAX Subscription Agreement and Executive Agreements
In June 1993, NaPro entered into a Subscription Agreement (the "Subscription
Agreement") with IVAX pursuant to which NaPro sold 1,106,398 shares of common
stock and a warrant to acquire an additional 111,111 shares of common stock for
$3,000,000 in cash (see Note 9). The warrant was exercisable immediately at a
nominal price, and was scheduled to expire in June 2003. In March 1996, a NaPro
officer acquired the warrant. In March 1998, the warrant was returned to NaPro
and canceled in exchange for the Company's indemnification of IVAX with respect
to the warrant. 1,126,398 shares of NaPro common stock were returned by IVAX as
the result of the termination of the IVAX strategic alliance (see Note 9).
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 NaPro officers in exchange for cash and promissory notes in the
aggregate amount of $2,289,000. The notes were secured by the common stock and
accrued interest at the greater of the prime rate minus 1% and the applicable
federal rate. The notes receivable and related accrued interest were 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 (including $193,000 of accrued interest). In
January 1997,
F-19
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
NaPro repurchased 74,550 shares of common stock from one of these officers in
cancellation of the remaining $990,000 of this indebtedness (including $192,000
of accrued interest).
The Subscription Agreement and Executive Agreements were subject to a
Stockholders Agreement that included 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. The Subscription and Stockholder
Agreements were terminated in March 1998 (see Note 9).
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. The common stock and warrants were
purchased separately and were separately transferable. 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, primarily from a NaPro officer, 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 cashless exercise elections of 1,438,720 redeemable warrants.
Faulding Private Placement
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. In 1997 Faulding
sold the remaining 200,000 warrants to an independent third party who exercised
them for common stock. Nonvoting Common shares automatically convert to common
stock (with full voting rights), on a share-for-share basis, upon Faulding's
disposition thereof. The Nonvoting Common is identical in all respects to the
common stock which was 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. Faulding has sold 205,000 shares of the Nonvoting Common.
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. At December 31, 1997, all 638,750 shares of the
U.S. Preferred had been converted into 638,750 shares of common stock of NaPro.
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.
F-20
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
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. NaPro has
the option to acquire the Canadian Preferred at its liquidation value beginning
in 1998 if the average trading price for the NaPro common stock over a 20
trading day period 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.
At December 31, 1998, 648,241 shares of the Canadian Preferred had been
exchanged for 648,241 shares of common stock of NaPro and 77,272 shares of the
Canadian Preferred remained outstanding.
NaPro has registered under the Securities Act of 1933 the resale of the shares
of its common stock to be issued upon exchange of the Canadian Preferred. The
Canadian Preferred has no 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, Series B, 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 acquirer, 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% acquirer) 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.
F-21
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
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.
9,420,631 unissued, authorized shares of common stock are reserved for future
issuance for senior convertible debt; redeemable, convertible preferred stock;
common stock options and warrants.
8. Common Stock Warrants and Options
Warrant Restructuring
On December 4, 1998, NaPro entered into letter agreements with each of the
holders of certain warrants to purchase NaPro common stock (the "Warrants") and
warrants to purchase Warrants (the "Other Warrants"), modifying the terms of the
Warrants and Other Warrants. The Warrants and the Other Warrants were issued to
the underwriters of NaPro's initial public offering in 1994. Pursuant to these
letter agreements, the number of shares of common stock underlying the Warrants
and Other Warrants was reduced by 50%, the exercise price of the Warrants was
reduced from $7.50 to $1.90 and the exercise price of the Other Warrants was
reduced from $.30 to $.15. As a result of these changes, the number of shares of
common stock underlying the Warrants and the Other Warrants was reduced from
331,008 to 165,504.
During 1998 changes were made to warrants issued in connection with the senior
convertible debt and the C Preferred (see Notes 4 and 5).
The following summarizes warrant activity:
<TABLE>
<CAPTION>
Exercise Expiration
Warrants Price Dates
<S> <C> <C> <C>
Outstanding at December 31, 1996 538,439 0.075 - 7.500 1997 - 2004
Granted 498,700 10.000 2001
Forfeited (660) 5.000 1996
Exercised 63,326) 1.125 - 7.500 1997 - 1999
------
Outstanding at December 31, 1997 974,153 $ 0.075 - 7.500 1999 - 2003
Canceled in restructuring (1,153,408) 2.500 - 10.500 1999 - 2001
Issued in restructuring 987,904 1.500 - 2.500 1999 - 2001
Remitted (see Note 7) (111,111) 0.075 2003
-----------
Outstanding at December 31, 1998 697,538 1.125 - 2.500 1999 - 2003
===========
</TABLE>
Option Restructuring
On March 25, 1998 the compensation committee of NaPro's board of directors (the
"Compensation Committee") reviewed the status of NaPro's outstanding options.
The compensation committee deter mined that as a result of the drop in the value
of the common stock at the end of 1997 and beginning of 1998, which was the
result of regulatory issues not within the control of the grantees, the existing
options did not effectively serve their purpose of helping to retain directors,
officers, employees and consultants and to closely align the interests of these
groups with those of NaPro. In order to renew these incentives, the Compensation
Committee approved and recommended to the Board of Directors the Option
Restructur ing Plan. The Option Restructuring Plan gave holders of NaPro's
options the opportunity to change the terms of their existing options having an
exercise price above $3.00 (the "Covered Options"). If the holder of Covered
Options chose to participate, the following changes were made to all that
person's Covered Options: (i) the number of shares of common stock underlying
such options was reduced by 20% or 50% (depending on the participant's
relationship to NaPro); (ii) the exercise price was set at $1.8175 (the closing
price of NaPro's common stock on March 27, 1998); (iii) the vesting schedule of
such options recommenced as of March 27, 1998, with the result that all time
toward vesting was lost as of that date; and (iv) the termination dates of such
options were reset from March 27, 1998, and in the case of consultants no longer
providing services to NaPro and former directors of NaPro, the period during
which such options could be exercised was shortened. Holders of an aggregate of
1,225,910 Covered Options elected to participate in the Option Restructuring
Plan, with the effect that the number of shares of common stock underlying such
options was reduced to 944,899.
Nonplan Stock Options
In November 1990, Pacific Biotechnology, Inc. ("PB"), one of the NaPro'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 (the "Formation Options") under the same terms as the PB options.
In 1998, 143,467 of the Formation Options were exercised, with the result that
16,000 Formation Options remain outstanding.
In January 1994, NaPro granted to the four NaPro outside directors 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. In September
1997, NaPro granted to its employees 20,075 nonplan options to purchase shares
of common stock which vest over two years and which expire in September 2007
(see also Note 2).
As a result of the option restructuring and of employees leaving NaPro, 19,012
of these options were canceled or forfeited, with the result that 1,063 of these
options remained outstanding on December 31, 1998. In addition, during 1997,
third parties were granted nonplan options to purchase an aggregate of 49,785
shares of common stock at an exercise price of $7.25. As a result of the option
restructuring, those options were exchanged for nonplan options to purchase
24,893 shares of common stock at an exercise price of $1.8125.
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.
F-22
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
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 on the day of grant.
1994 Long-Term Performance Incentive Plan
In July 1994, NaPro's stockholders approved the 1994 Long-Term Performance
Incentive Plan (the "Incentive Plan"). Originally, an aggregate of 375,000
shares were authorized for issuance under the Incentive Plan. In July 1996 and
May 1998 NaPro's stockholders approved increases in the number of authorized
shares, and, as a result of these increases, there are currently 1,575,000
shares authorized for issuance under the Incentive Plan. 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 (i) who is elected or re-elected as a director of NaPro by the stockholders
at any annual meeting of stockholders, (ii) who continues as a director
following an annual meeting of NaPro's stockholders at which such director is
not subject to re-election or (iii) is appointed as a director of NaPro in
accordance with its bylaws 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 10,000 shares of
NaPro's common stock. The Incentive Plan also provides for annual automatic
grants of options to purchase 10,000 shares to the chairs of the board of
directors' Audit, Compensation and Strategic Planning Committees.
The 1998 Stock Option Plan
In March 1998, the board of directors adopted the 1998 Stock Option Plan (the
"1998 Plan") to provide stock options for employees and other individuals
performing services for NaPro. An aggregate of 125,000 shares are authorized for
issuance under the 1998 Plan. Under the terms of the 1998 Plan, non-qualified
stock options cannot be granted to persons who are NaPro officers or directors,
as defined by Section 16 of the Securities Exchange Act of 1934.
The following summarizes stock option activity and balances:
F-23
<PAGE>
<TABLE>
<CAPTION>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
Weighted
Average
Stock Exercise Exercise
Options Price Price
<S> <C> <C> <C>
Outstanding at December 31, 1995 567,607 $ 0.188 - $11.750
Granted 440,700 7.125 - 11.125
Forfeited (5,500) 6.000 - 10.125
Exercised (21,418) 0.750 - 6.570
----------
Outstanding at December 31, 1996 981,389 $0.188 - $11.750 $6.55
Granted 262,310 7.125 - 10.250
Forfeited (50,450) 7.125 - 10.125
Exercised (2,466) 2.400 2.40
----------
Outstanding at December 31, 1997 1,190,783 $0.188 - $11.750 $6.57
Granted 978,705 1.000 - 8.313
Forfeited (67,968) 1.000 - 10.250
Exercised (163,467) 0.188 - 0.750
Canceled in restructuring (836,785) 3.650 - 11.750
Issued in restructuring 632,799 1.813 1.81
-----------
Outstanding at December 31, 1998 1,734,067 $0.188 - $10.250 1.71
===========
</TABLE>
The weighted-average fair value of options granted during 1998 was $.97.
Exercisable options at December 31, 1998 were 237,565 with a weighted-average
exercise price of $2.72 and a weighted-aver age remaining contractual life of
8.6 years.
Pro forma information regarding net income and earnings per share is required by
FASB Statement 123, which also requires that the information be determined as if
NaPro 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 1998,
1997 and 1996 respectively: risk-free interest rate ranges of 4.24% to 5.67%,
6.20% to 6.46% and 5.84% to 6.64%; no expected dividend; volatility factor of
.858, .591 to .596, and .580; and an estimated expected life range of three to
six years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. NaPro's pro forma
information follows:
F-24
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Pro forma net loss $(3,104,000) $(16,711,000) $(7,610,000)
============ ============= ============
Pro forma net loss attributable
to common stockholders $(3,696,000) $(16,775,000) $(7,610,000)
============ ============= ============
Pro forma loss per share $ (0.25) $ (1.38) $ (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 was not fully reflected until 1998.
9. Strategic Alliances
NaPro 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. The IVAX Agreement was terminated in March 1998. Faulding has
responsibility for funding the cost of all aspects of the required clinical and
regulatory processes in its markets.
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 Agree
ment also grants Faulding the nonexclusive right to sell paclitaxel supplied by
NaPro in certain countries in the Middle East. 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 (see Note 7).
The IVAX Agreement (terminated in March 1998)
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 (the "IVAX
Agreement"), with the exception of the former Soviet Union countries, China,
certain countries in the Middle East, and the Vatican, territories to which IVAX
had 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. These shares were returned to NaPro as part of the
1998 termination agreement. The IVAX Agreement provided that NaPro was to supply
all of IVAX's requirements for paclitaxel. NaPro was paid a fixed sum for
paclitaxel supplied for noncommer cial uses, and a manufacturing payment plus a
percentage of IVAX's sales profit (as defined by the agreement) for paclitaxel
sold for commercial uses (see Note 7). Under the 1998 termination agreement, all
material is to be sold to IVAX at a fixed price.
F-25
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
NaPro and IVAX terminated the IVAX Agreement on March 20, 1998. Under the
termination agreement, IVAX received a royalty-free, limited, non-exclusive
license to one of NaPro's patents (the "Patent") in the United States, Europe
and certain other world markets. In return, NaPro received a cash payment of $6
million, $2 million of which was placed in escrow to be released as remaining
product is delivered. In April, 1998, IVAX returned approximately 1.1 million
shares of NaPro common stock. In addition, upon the issuance of the Patent in
various countries, IVAX made additional payments of $6.4 million. NaPro will
continue to manufacture a fixed amount of paclitaxel for delivery to IVAX
periodically during the first half of 1999. In 1998 NaPro received $680,000 of
the $2 million escrow. NaPro expects to receive the remaining $1,320,000 in the
first half of 1999. The termination of the IVAX Agreement leaves NaPro free to
seek a new partner or partners with which to pursue regulatory approval and
marketing of its paclitaxel in the area outside the Faulding territory. However,
the termination of this agreement currently leaves NaPro without such a partner,
and there can be no assurance that NaPro will be able to find a strategic
partner or form a new long-term agreement for the approval, marketing, and
distribution of paclitaxel in these territories, or that such a partner, if
found, will be able to secure regulatory approval or effectively market its
paclitaxel. Failure to find such a strategic partner or form such a new
long-term agreement could have a material adverse effect on NaPro.
The PBI Agreement
In March 1994, NaPro entered into a contract with Pacific BioTechnologies, Inc.
("PBI"), a subsidiary of Pacific Regeneration Technologies, Inc., one of the
largest reforestation companies in Canada (the "PBI Agreement"). Under the PBI
Agreement, PBI planted and is maintaining a plantation of yew trees. Pursuant to
such agreement, NaPro is obligated to pay PBI an annual fee equal to its
budgeted (estimated) cost in performing its obligations under the agreement plus
overhead and a specified profit. NaPro and PBI have agreed to wind down the
relationship by July 2001 by harvesting the trees and/or transplanting them to
other properties.
10. Commitments and Contingencies
Operating Leases
NaPro has executed noncancellable operating lease agreements for office,
research and production facilities and for plantations. As of December 31, 1998,
future minimum lease payments under noncancel lable operating lease agreements
are as follows:
1999 $ 709,000
2000 640,000
2001 81,000
2002 12,000
2003 12,000
Thereafter 25,000
------------
Total $1,479,000
F-26
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
Rent expense for the years ended December 31, 1998, 1997 and 1996 was $600,000,
$629,000, 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.
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.
Uncertainty Over the Selling Price Under the Faulding Agreement
Under the Faulding Agreement (see Note 9), 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 commer cial 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 May 31, 1999, Faulding will communicate to NaPro the final amount of
sales for the period April 1, 1998 to March 31, 1999, and an adjustment will be
calculated, which may either increase or decrease NaPro's revenue from sales of
products to Faulding for 1998 and 1999.
Purchase Commitments
NaPro's purchase commitments total approximately $420,000 in 1999, primarily for
acquisition of additional yew trees and plantation maintenance.
11. 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 NaPro's common stock. In 1998, 1997 and 1996, NaPro
elected to match the first $2,000 in contributions of each participating
F-27
<PAGE>
NaPro BioTherapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
employee with NaPro common stock at a rate of 200% for 1998, valued at $164,000;
at a rate of 50% for 1997, valued at $51,000; and at a rate of 50% for 1996,
valued at $28,000. NaPro elected to make a discretionary contribution in the
form of NaPro common stock at the rate of 10% of all eligible employees' pay for
1998, valued at $391,000.
12. Restructuring
On February 17, 1998, NaPro announced the planned layoff of 53 employees
resulting in a one-time charge of approximately $250,000, which reflects the
actual cost incurred, charged to research, develop ment and cost of products
sold expense and to general and administrative expense. The layoff was in
response to the December 24, 1997 ruling by the FDA that IVAX and NaPro could
not market paclitaxel in the U.S. for the treatment of Kaposi's sarcoma due to
Bristol's prior approval, under the Orphan Drug Act, for the use of paclitaxel
in the treatment of Kaposi's sarcoma. As part of the layoff, NaPro temporarily
closed its British Columbia manufacturing facility. NaPro also suspended
construction of a manufacturing facility in Boulder, Colorado. Completion of
this facility will require additional financing which will be sought at the time
NaPro has sufficient product demand to warrant completion of the facility. NaPro
incurred $434,000 of losses on asset retirements and $110,000 of other expense
as a result of the suspended construction.
F-28
<PAGE>
Exhibit 3.2
NAPRO BIOTHERAPEUTICS, INC.
AMENDMENT TO THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
Sterling K. Ainsworth and Patricia A. Pilia, being the duly elected
President and Secretary, respectively, of NaPro BioTherapeutics, Inc. (the
"Corporation"), a corporation organized and existing under and by virtue of the
Delaware General Corporation Law, do hereby certify as follows:
1. That the Board of Directors of the Corporation, in accordance with
Section 242 of the Delaware General Corporation Law, adopted resolutions as of
February 15, 1998, providing for the adoption of such amendment to the
Corporation's Amended and Restated Certificate of Incorporation. The resolution
further directed that the Amendment to the Corporation's Amended and Restated
Certificate of Incorporation be submitted to the stockholders of the corporation
for their consideration and approval.
2. That, in accordance with Section 242 of the Delaware General
Corporation Law, the holders of a majority of the outstanding stock of the
Corporation adopted a resolution providing for the adoption and ratification of
the Amendment. Such resolution was adopted at the Annual Shareholder's meeting
held on May 28, 1998, by a vote of 90.78% of the outstanding voting stock of the
Corporation.
3. That the Corporation was originally incorporated in the State of
Delaware on September 8, 1993, under the name of NB Merger SubCorp.
IN WITNESS WHEREOF, NaPro BioTherapeutics, Inc. has caused these
Amendments to the Amended and Restated Certificate of Incorporation to be
executed by Sterling K. Ainsworth, its President, and Patricia A. Pilia, its
Secretary, as of this 21st day of September, 1998.
NAPRO BIOTHERAPEUTICS, INC.
By: /s/ Sterling K. Ainsworth
--------------------------------
Sterling K. Ainsworth, President
ATTEST:
By: /s/ Patricia A. Pilia
--------------------------------
Patricia A. Pilia, Secretary
<PAGE>
AMENDMENT TO THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NAPRO BIOTHERAPEUTICS, INC.
ARTICLE FOUR
I. AUTHORIZED SHARES
The Corporation shall have authority to issue 33,000,000
shares of capital stock, 30,000,000 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.
Exhibit 10.2
NAPRO BIOTHERAPEUTICS, INC.
1994 LONG-TERM PERFORMANCE INCENTIVE PLAN
(as amended and restated effective May 28, 1998)
1. Introduction and Purpose. NaPro BioTherapeutics, Inc., a Delaware
corporation (the "Company") previously adopted the 1994 Long-Term Performance
Incentive Plan of NaPro BioTherapeutics, Inc. (the "Plan"). In accordance with
the provisions of Paragraph 20 of the Plan, the Plan is hereby amended and
restated in its entirety, effective as of May 28, 1998. The purpose of the Plan
is to advance the interests of 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 the 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
1
<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,
except as otherwise provided in Paragraph 9(a) with respect to automatic grants
of Stock Options to Eligible Directors. 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 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
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thereafter be changed (the "Common Shares"). Nonqualified Stock Options
and Incentive Stock Options are subject to the terms, conditions and
restrictions specified in 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 1,575,000 Common Shares, subject to adjustment as
provided in Paragraph 15. 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
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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 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 provisions of Paragraph 9(a) with respect
to automatic grants of Stock Options to Eligible Directors, 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.
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<PAGE>
(b) Subject to the per participant limitation set forth in
Paragraph 4(b) and the provisions of Paragraph 9(a) with respect to
automatic grants of Stock Options to Eligible Directors, 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.
(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
provisions of Paragraph 9(a) with respect to automatic grants of Stock
Options to Eligible Directors, 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 performing 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
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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 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
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<PAGE>
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.
(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
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<PAGE>
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 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 time 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 service (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
8
<PAGE>
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 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.
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(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.
(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
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<PAGE>
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 difference 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 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.
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(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 other forms of payment, or any
combination thereof or in such 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.
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9.Automatic and Discretionary Stock Options for Non-Employee Directors.
(a) Automatic Stock Options. 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 who (i) is elected or
reelected as a director of the Company at an annual meeting of the Company's
stockholders, (ii) continues service as a director of the Company after an
annual meeting of the Company's stockholders at which the director is not
subject to reelection, or (iii) is appointed as a director of the Company in
accordance with its Bylaws following an annual meeting (each, an "Eligible
Director"), on the next business day following each such annual meeting or
appointment.
In addition, 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, on the next business day following each such appointment
or reappointment, as the case may be.
Each Nonqualified Stock Option automatically granted to an Eligible
Director pursuant to this Paragraph 9(a) 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.
(b) Discretionary Stock Options. In addition to the automatic grant of
Nonqualified Stock Options to Eligible Directors set forth in Paragraph 9(a),
the Committee shall have the authority to grant Eligible Directors Nonqualified
Stock Options at such times and on such terms as it may determine in its sole
discretion, subject however, to the per participant limitation set forth in
Paragraph 4(b) and the applicable provisions of Paragraph 5.
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),
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<PAGE>
(ii) subject to increase or decrease in value based
upon the attainment of or failure to attain, respectively,
certain performance measures and/or
(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
automatic grants of Nonqualified Stock Options to Eligible Directors pursuant to
Paragraph 9(a).
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
14
<PAGE>
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.
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
15
<PAGE>
Change in Control is determined to have occurred or such other
date as the Committee may determine prior to the Change of
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 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).
16
<PAGE>
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 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
17
<PAGE>
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 does 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
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
18
<PAGE>
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 expense 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 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
19
<PAGE>
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.
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; 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.
IN WITNESS WHEREOF, the Company has executed this Plan this 28th day
of May, 1998.
NAPRO BIOTHERAPEUTICS, INC.
Attest:
/s/David Cripe
- - ----------------
David Cripe By: /s/Patricia A. Pilia
Title: Executive Vice President
20
Exhibit 10.44
March 24, 1999
To the Holders of the Senior Convertible Notes of NaPro BioTherapeutics, Inc.
Gentlemen:
Reference is made to (i) the Note Purchase Agreements (as amended by
the January Amendment, the March Amendment and the January 1999 Amendment (each
as defined herein), the "Purchase Agreements"), dated as of May 30, 1997, among
NaPro BioTherapeutics, Inc., a Delaware corporation (the "Company"), and the
various Buyers parties thereto, as amended to date, (ii) the Engagement Letter
dated May 12, 1997 between the Company and Diaz & Altschul Capital, LLC (the
"Engagement Agreement"); (iii) each of the Senior Convertible Notes of the
Company, as amended to date by the January Amendment, the March Amendment and
the January 1999 Amendment (each, a "Note"); (iv) the Amendment Agreement dated
January 28, 1998 by and among the Company and the holders named therein (the
"January Amendment"); (v) the Letter Agreement dated March 20, 1998 by and among
the Company and such holders (the "March Amendment") and (vi) the Letter
Agreement date January 7, 1999 by and among the Company and such holders (the
"January 1999 Amendment"). Capitalized terms used in this letter agreement (this
"Agreement") and not defined shall have the meanings assigned to them in the
Purchase Agreements and the Notes.
1. The holders of the Notes who are parties hereto (the "Holders")
agree severally with the Company as follows:
A. The Holders of Convertible Promissory Note Nos. 1, 5 and 6,
registered in the names of Delta Opportunity Fund, Ltd., OTATO Limited
Partnership and Diaz & Altschul Group, LLC, respectively, hereby agree that such
Notes shall be amended as follows:
1. Section 2.6(a) of each such Note and the definitions of
"Initial Redemption Notice Period" and "Middle Redemption Amount" in
each such Note are hereby amended by changing the date "March 31, 1999"
where it appears therein to "May 14, 1999."
2. The definition of "Middle Redemption Notice Period" in each
such Note is hereby amended by changing the date "April 1, 1999" where
it appears therein to "May 15, 1999."
B. The Holders of Convertible Promissory Note Nos. 2 and 3, registered
in the names of Nelson Partners and Olympus Securities, Ltd., respectively,
hereby agree that such Notes shall be amended as follows:
<PAGE>
Holders of the Senior Convertible Notes of NaPro BioTherapeutics, Inc.
March 24, 1999
Page 2
1. Section 2.6(a) of each such Note is hereby amended by
changing the date "March 31, 1999" where it appears therein to "May 14,
1999."
2. The proviso at the end of the definition of Conversion
Price in Section 7.1 of each such Note is amended and restated as
follows:
provided, however, that (i) on any date on or after March 1, 1998, but
prior to June 1, 1998, the Conversion Price shall not be greater than
110% of the arithmetic average of the Market Price of the Common Stock
for the period of thirty (30) consecutive Trading Days ending one
Trading Day prior to March 1, 1998 (the "March Cap"); (ii) on any date
on or after June 1, 1998, but prior to April 1, 1999, the Conversion
Price shall not be greater than $1.92; (iii) on any date on or after
April 1, 1999, the Conversion Price shall not be greater than the
lesser of (A) 110% of the arithmetic average of the Market Price of the
Common Stock for the period of thirty (30) consecutive Trading Days
ending one Trading Day prior to April 1, 1999 and (B) $1.92; and (iv)
on any date on or after May 15, 1999, the Conversion Price shall not be
greater than the lowest of (A) 110% of the arithmetic average of the
Market Price of the Common Stock for the period of thirty (30)
consecutive Trading Days ending one Trading Day prior to April 1, 1999;
(B) 110% of the arithmetic average of the Market Price of the Common
Stock for the period of thirty (30) consecutive Trading Days ending one
Trading Day prior to May 15, 1999; and (C) $1.92.
2. Except as specifically amended hereby, the Notes, the Purchase
Agreement and the Engagement Agreement shall remain in full force and effect and
the Company hereby confirms to the Holders that the Notes, the Purchase
Agreements and the Engagement Agreement remain binding obligations of the
Company that are not at the time of execution and delivery of this Agreement
subject to any defense, offset, counterclaim or other claim by the Company of
invalidity or unenforceability. If the foregoing correctly sets forth our
agreement, please so indicate by signing the appropriate line below, whereupon,
when executed and delivered by the Company and all of the Holders identified
below, this letter shall constitute a binding agreement between the Company and
each Holder under the laws of the State of New York.; provided, however, that
the effectiveness of this Agreement is conditioned upon the amendment of the
terms of the Company's Series C Convertible Preferred Stock, substantially on
the terms set forth on Exhibit A hereto.
NAPRO BIOTHERAPEUTICS, INC.
By: /s/Gordon H. Link, Jr.
-------------------------
Gordon H. Link, Jr.
Chief Financial Officer
Agreed and accepted:
DELTA OPPORTUNITY FUND, LTD.
By: /s/Arthur G. Altschul, Jr.
- - -------------------------------
Name: Arthur G. Altschul, Jr.
Title: Director
NP PARTNERS (f/k/a Nelson Partners)
By: /s/Kenneth A. Simpler
- - -------------------------------
Name: Kenneth A. Simpler
Title: Authorized Signatory
OLYMPUS SECURITIES, LTD.
By: /s/Kenneth A. Simpler
- - -------------------------------
Name: Kenneth A. Simpler
Title: Authorized Signatory
OTATO LIMITED PARTNERSHIP
By: /s/Richard M. Cayne
- - -------------------------------
Name: Richard M. Cayne
Title: General Counsel
DIAZ & ALTSCHUL GROUP, LLC
By: /s/Renaldo M. Diaz
- - -------------------------------
Name: Renaldo M. Diaz
Title: Member
Exhibit 10.45
March 24, 1999
To the Holder of the Series C Senior Convertible Preferred Stock of NaPro
BioTherapeutics, Inc.
Gentlemen:
Reference is made to (i) the Subscription Agreement (the "Subscription
Agreement") dated as of December 8, 1997 by and between NaPro BioTherapeutics,
Inc., a Delaware corporation (the "Company" or the "Corporation"), and Advantage
Fund II, Ltd. (the "Holder"); (ii) the Certificate of Designations of Series C
Senior Convertible Preferred Stock (the "Certificate"); (iii) the Amendment
Agreement dated January 28, 1998 by and between the Company and the Holder (the
"January Amendment"); (iv) the Letter Agreement dated March 31, 1998 by and
between the Company and the Holder (the "March Amendment"); and (v) the Letter
Agreement dated January 7, 1999 by and between the Company and the Holder (the
"January 1999 Amendment"). Capitalized terms used herein and not defined shall
have the meanings assigned to them in the Subscription Agreement and the
Certificate, as modified by the January, March and January 1999 Amendments.
The Holder and the Company agree as follows:
1. The following definitions in Section 1 of the January 1999 Amendment are
hereby amended and restated to read as follows:
"Initial Redemption Notice Period" means the period that
begins on January 1, 1999 and ends on May 14, 1999.
"Middle Redemption Amount" means a number of shares of Series
C Preferred Stock equal to 2,051 less the sum of (x) the aggregate
number of shares of Series C Preferred Stock that are converted by
holders of shares of Series C Preferred Stock or for which the holders
of shares of Series C Preferred Stock give Conversion Notices on or
after January 1, 1999 and prior to May 14, 1999 plus (y) the aggregate
number of shares of Series C Preferred Stock that have been redeemed or
called for redemption on or after January 1, 1999 and prior to the date
the Company gives the Redemption Notice to redeem shares of Series C
Preferred Stock pursuant to Section 9(a)(5) (together with accrued and
unpaid dividends and Arrearage Interest, if any, on the shares of
Series C Preferred Stock included in the Middle Redemption Amount to
the date of determination).
"Middle Redemption Notice Period" means the period that begins
on May 15, 1999 and ends on June 30, 1999.
2. The following definitions in Section 1 of the January 1999 Amendment are
hereby amended as follows:
(a) The figure "820,600" which appears in the definition of the term
Final Redemption Amount is hereby amended to be "821".
(b) The figure "3,282,400" which appears in the definition of the term
Initial Redemption Amount is hereby amended to be "3,282".
3. Paragraph (iv) of Section 10(c) of the Certificate, which was deemed
to have been added to Section 10 of the Certificate in accordance with Paragraph
7 of the January 1999 Amendment, is hereby amended and restated to read as
follows:
(iv) Notwithstanding any other provision herein, during the
period beginning on January 1, 1999 and ending on May 14, 1999, a
holder of shares of Series C Preferred Stock shall not be entitled to
convert shares of Series C Preferred Stock at a Conversion Price that
is less than $4.00 if such conversion would result in the aggregate
number of shares of Common Stock issued hereunder (whether through
conversion or in payment of dividends or otherwise) at a Conversion
Price (or Computed Price, in the case of shares issued as dividends) of
less than $4.00 during the calendar month of the proposed conversion
for which the determination under this paragraph (iv) is being made
exceeding 150,000 shares of Common Stock. The Conversion Price set
forth in this Section 10(c)(vi) shall be subject to adjustment on the
same basis set forth in the parenthetical phrase in clause (1) of the
definition of the term Conversion Price (as in effect prior to the
January Amendment) for any such events that occur on or after December
31, 1998.
4. Except as specifically amended or deemed amended hereby, the
Subscription Agreement, as previously amended, and the terms of the shares of
Series C Preferred Stock shall remain in full force and effect and the Company
hereby confirms to the Holder that the Subscription Agreement and the terms of
the shares of Series C Preferred Stock, as deemed amended by the January
Amendment, the March Amendment, the January 1999 Amendment and this Agreement,
remain binding obligations of the Company that are not at the time of execution
and delivery of this Agreement subject to any defense, offset, counterclaim or
other claim by the Company of invalidity or unenforceability. If the foregoing
correctly sets forth our agreement, please so indicate by signing the
appropriate line below, whereupon this letter shall constitute a binding
agreement between the Company and the Holder under the laws of the State of New
York.
NAPRO BIOTHERAPEUTICS, INC.
By: /s/ Gordon H. Link
-----------------------------
Gordon H. Link, Jr.
Chief Financial Officer
Agreed and accepted:
ADVANTAGE FUND II, LTD.
By: /s/ Signature of W. R. Weber
------------------------------
Name: InterCaribbean Services Limited
Title: Secretary
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8, No. 333- 05561) pertaining to the 1993 Stock Option Plan and the 1994
Long-Term Performance Incentive Plan, and the Registration Statements (Form S-3,
No. 33-95522, Form S-3, No. 333-42419, Form S-3, No. 333-29477, and Form S-3,
No. 33-78016) of NaPro BioTherapeutics, Inc. and in the related Prospectuses, of
our report dated March 24, 1999 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, 1998.
/s/ Ernst & Young LLP
Denver, Colorado
March 30, 1999
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 the
Annual Report on Form 10-K for NaPro BioTherapeutics, Inc., a Delaware
corporation (the "Company"), for its year ended December 31, 1998, and all
amendments thereto, and a registration statement to be filed with the Securities
and Exchange Commission (the "Commission") on Form S-8 in connection with the
issuance and sale by the Company of shares of the Company's Common Stock, par
value $.0075 per share ("Common Stock"), and all amendments (including
post-effective amendments) thereto, and to file each, with all exhibits thereto,
and other documents in connection therewith, with the Commission; and to sign
all documents in connection with the qualification and sale of the Common Stock
with Blue Sky authorities; granting unto said attorneys-in-fact full power and
authority to perform any other act on behalf of the undersigned required to be
done in the premises, hereby ratifying and confirming all that said
attorneys-in-fact may lawfully do or cause to be done by virtue hereof.
Date: March 30, 1999 /s/Sterling K. Ainsworth
------------------------
Sterling K. Ainsworth
Date: March 30, 1999 /s/Leonard P. Shaykin
------------------------
Leonard P. Shaykin
Date: March __, 1999
------------------------
Gordon H. Link, Jr.
Date: March 30, 1999 /s/Patricia A. Pilia
------------------------
Patricia A. Pilia
Date: March 30, 1999 /s/Arthur H. Hayes, Jr.
------------------------
Arthur H. Hayes, Jr.
Date: March 30, 1999 /s/Mark B. Hacken
------------------------
Mark B. Hacken
Date: March 30, 1999 /s/Stanley Knowlton
-------------------------
Stanley Knowlton
Date: March 29, 1999 /s/Seth Rudnick
-------------------------
Seth Rudnick
Date: March __, 1999
-------------------------
Robert L. Poley
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<S> <C>
<PERIOD-TYPE> YEAR
<PERIOD-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<FISCAL-YEAR-END> Dec-31-1998
<CASH> 7244
<SECURITIES> 197
<RECEIVABLES> 403
<ALLOWANCES> 0
<INVENTORY> 2713
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<PP&E> 16236
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3805
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<COMMON> 134
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<SALES> 4952
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