<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
----------------
Commission file number 0-23012
NEXSTAR PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
----------------
Delaware 84-1173453
-------- ----------
(State of incorporation) (I.R.S. Employer Identification No.)
2860 Wilderness Place
Boulder, Colorado 80301
(Address of principal executive offices)
Registrant's telephone number: (303) 444-5893
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
The number of shares of the registrant's Common Stock, par value $.01 per
share, outstanding as of July 31, 1996 was 26,358,648.
<PAGE> 2
NEXSTAR PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- June 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations -- Three and Six Months Ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows -- Six Months Ended June 30,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 30,178,000 $ 20,893,000
Marketable securities 19,498,000 5,841,000
Accounts receivable 25,125,000 18,315,000
Inventories 13,250,000 9,469,000
Prepaid expenses and other 1,680,000 1,948,000
---------------- -----------------
Total current assets 89,731,000 56,466,000
Equipment and leasehold improvements at cost - net of
accumulated depreciation and amortization 42,480,000 43,001,000
Investments in life science enterprises 3,950,000 3,950,000
Patent and trademark costs, net of accumulated amortization 4,241,000 3,732,000
Purchased technology, net of accumulated amortization 2,513,000 3,015,000
Other noncurrent assets 1,704,000 2,285,000
---------------- -----------------
Total assets $ 144,619,000 $ 112,449,000
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 7,333,000 $ 3,500,000
Accounts payable 6,408,000 6,789,000
Accrued compensation and employee benefits 2,824,000 2,805,000
Other accrued expenses 4,592,000 3,890,000
Long-term obligations due within one year 7,286,000 4,313,000
---------------- -----------------
Total current liabilities 28,443,000 21,297,000
Long-term obligations due after one year 16,317,000 9,848,000
Commitments and contingencies
Stockholders' equity:
Common stock 264,000 244,000
Additional paid-in capital 213,100,000 184,290,000
Deferred compensation (177,000) (235,000)
Accumulated deficit (113,328,000) (102,995,000)
---------------- -----------------
Total stockholders' equity 99,859,000 81,304,000
---------------- -----------------
Total liabilities and stockholders' equity $ 144,619,000 $ 112,449,000
================ =================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- -----------------------------------
1996 1995 1996 1995
---------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Product revenues $ 20,380,000 $ 14,268,000 $ 37,925,000 $ 26,163,000
Collaborative agreements and contracts 357,000 718,000 936,000 1,468,000
Interest income 413,000 447,000 846,000 1,002,000
---------------- --------------- ----------------- ---------------
Total revenues 21,150,000 15,433,000 39,707,000 28,633,000
---------------- --------------- ----------------- ---------------
Expenses:
Cost of goods sold 4,435,000 2,898,000 8,254,000 5,466,000
Research and development 9,493,000 9,097,000 20,669,000 17,221,000
Selling, general and administrative 10,932,000 7,198,000 20,395,000 14,597,000
Interest expense 271,000 277,000 556,000 614,000
---------------- --------------- ----------------- ---------------
Total expenses 25,131,000 19,470,000 49,874,000 37,898,000
---------------- --------------- ----------------- ---------------
Net loss before provision for income taxes (3,981,000) (4,037,000) (10,167,000) (9,265,000)
Provision for income taxes 59,000 59,000 166,000 111,000
---------------- --------------- ----------------- ---------------
Net loss $ (4,040,000) $ (4,096,000) $ (10,333,000) $ (9,376,000)
================ =============== ================= ===============
Net loss per share $ (0.15) $ (0.18) $ (0.40) $ (0.41)
================ =============== ================= ===============
Shares used in computing net loss per share 26,132,000 23,071,000 25,686,000 23,006,000
================ =============== ================= ===============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------------------
1996 1995
------------------ -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (10,333,000) $ (9,376,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 5,815,000 4,585,000
Compensation expense related to grant
of options and sales of stock, including
amortization of deferred compensation 58,000 58,000
Other (154,000) (120,000)
Changes in operating assets and liabilities:
Accounts receivable (6,753,000) (2,352,000)
Inventories (3,781,000) (3,967,000)
Prepaid expenses and other 365,000 1,552,000
Other noncurrent assets (177,000) (8,000)
Short-term borrowings 3,833,000 50,000
Accounts payable (351,000) 837,000
Accrued compensation and employee benefits 15,000 57,000
Other accrued expenses 702,000 8,000
------------------ -----------------
Net cash used in operating activities (10,761,000) (8,676,000)
INVESTING ACTIVITIES
Maturities (purchases) of marketable securities, net (13,657,000) 13,717,000
Additions to equipment and leasehold improvements (4,554,000) (5,210,000)
Deletions to investments in life science enterprises, net -- 236,000
Additions to patent costs (719,000) (335,000)
Deletions (additions) to other noncurrent assets 700,000 (192,000)
------------------ -----------------
Net cash provided by (used in) investing activities (18,230,000) 8,216,000
FINANCING ACTIVITIES
Proceeds from term loan 10,000,000 --
Proceeds from sale-leaseback transactions 1,640,000 1,534,000
Payments on capital lease obligations (2,198,000) (1,679,000)
Proceeds from sale of common stock, net of offering costs 28,834,000 548,000
------------------ -----------------
Net cash provided by financing activities 38,276,000 403,000
------------------ -----------------
Net increase (decrease) in cash and cash equivalents 9,285,000 (57,000)
Cash and cash equivalents at beginning of period 20,893,000 7,605,000
------------------ -----------------
Cash and cash equivalents at end of period $ 30,178,000 $ 7,548,000
================== =================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three and six-month
periods ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1995.
Certain reclassifications have been made to prior year amounts to
agree with the current year presentation.
NOTE 2: Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Finished Goods $ 6,719,000 $2,804,000
Work in Process 4,616,000 4,846,000
Raw Materials 1,915,000 1,819,000
----------- ----------
$13,250,000 $9,469,000
=========== ==========
</TABLE>
NOTE 3: Patent Matters
On May 17, 1993, the Company filed a complaint in the United
States District Court for the District of Delaware against The
Liposome Company ("TLC") asking the court to declare U.S. Patent
No. 4,880,635 (the "TLC '635 Patent") owned by TLC invalid,
unenforceable and not infringed following allegations by TLC that
the freeze drying of AmBisome infringes the TLC '635 Patent. The
United States District Court for the District of Delaware stayed
the lawsuit pending the outcome of a reexamination of the TLC '635
Patent instituted by TLC in the U.S. Patent and Trademark Office
("USPTO"). On July 2, 1996, certain amended claims were allowed
by the USPTO and TLC has publicly stated that it intends to file a
counterclaim against the Company for damages and an injunction
based on infringement of the reexamined patent. The stay was
lifted on July 11, 1996 and an amended complaint was filed by the
Company on July 29, 1996. TLC's answer to the amended complaint
is due August 19, 1996.
Upon review of the claims included in the reexamination
certificate relating to the TLC '635 Patent, the Company has
concluded that no valid claim should be found to be infringed by
the Company. In addition, the Company believes that TLC's efforts
in crafting claims to avoid prior liposome work reported by others
has presented the Company with additional avenues of defense in
any litigation. For example, because of the amendments made to
the TLC '635 Patent during reexamination, the Company would also
have a defense based upon the doctrine of "intervening rights."
This doctrine would provide a clear defense to any damage claim
for any Company activity prior to the actual issuance of the
reexamined patent on July 2, 1996 and would empower the court to
permit the Company to continue its activities to the extent and
under such terms as the court deems equitable for the protection
of investments made by the Company prior to issuance of the
reexamination certificate.
6
<PAGE> 7
However, were the court to determine that the TLC '635 Patent is
both valid and infringed as a result of the freeze drying of
AmBisome, the Company could be enjoined from using its method of
manufacturing and/or could be required to pay damages. In such
event, the Company could experience interruption in its ability to
produce AmBisome and/or incur significant royalty obligations. In
addition, the expense of litigation is expected to be significant
regardless of the outcome.
Although the Company has been successful in its recent litigation
with TLC regarding a different freeze-drying patent, past success
is not a predictor of success in the future and, in general,
adverse results in litigation could have a material adverse effect
on the Company. In addition, the Company has opposed the grant to
TLC of the European and Japanese patents that are counterparts of
the TLC '635 Patent.
Certain statements set forth above with respect to the litigation
and potential litigation with TLC constitute "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such statements involve known and unknown
risks, uncertainties and other factors which may cause the actual
results of the litigation to be materially different from the
results expressed or implied by such forward-looking statements.
Such factors include, among other things: (i) adverse facts
adduced in discovery or at trial; (ii) contrary conclusions of law
by the court; (iii) the court refusing to exercise its equitable
powers in a manner favorable to the Company; and (iv) other
uncertainties of litigation.
NOTE 4: Impairment of Long-Lived Assets
Effective January 1, 1996, the Company adopted Financial
Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" ("Statement No. 121"), which requires impairment
losses to be recorded on long-lived assets used in operations when
indicators of impairment are present. Implementation of Statement
No. 121 was immaterial to the financial statements of the Company.
NOTE 5: Common Stock
On February 13, 1996, the Company completed a private sale of
1,425,000 shares of its common stock to a group of private
investors (the "Private Investors"). The net proceeds to the
Company from the sale were approximately $24.9 million. In
connection with the transaction, the Company filed a "shelf"
registration statement on Form S-3 registering for resale the
shares acquired by the Private Investors. Pursuant to its
agreement with the Private Investors, the Company is required to
keep the "resale" registration statement effective for up to three
years. In addition to the Private Investors, a holder of 297,619
shares of the Company's common stock and two holders of warrants to
acquire 250,481 shares of the Company's common stock exercised
registration rights granted to them by the Company and had their
shares of common stock, or the shares of common stock which relate
to their warrants, included in the registration statement.
During May 1996, the Company filed a registration statement with
the Securities and Exchange Commission for the issuance of 2.5
million shares of the Company's common stock. In June 1996, the
Company withdrew its plans to issue such shares because of a
decline in the Company's stock price and general instability in the
stock market for biotech and biopharmaceutical companies.
In June 1996, one of the Company's warrant holders exercised a
warrant for 232,941 shares of the Company's common stock for
$1,125,000 ($4.83 per share).
NOTE 6. Commitments and Contingencies
In June 1996, the Company entered into a loan agreement for $10
million (the "Loan Agreement"). The Loan Agreement is required to
be repaid in 48 monthly installments beginning July 1996. As of
June 30, 1996, the Company had borrowings of $10 million under the
Loan Agreement. The Loan Agreement requires the Company to meet
certain financial covenants, including maintaining net cash, cash
equivalents and/or investment grade securities equal to the
outstanding principal loan balance plus $10 million of which an
amount of cash, cash equivalents and/or investment grade securities
equal to the outstanding principal loan balance plus
7
<PAGE> 8
three months' interest thereon must be maintained in an
unrestricted account. The Company currently is in compliance with
such covenants.
In May 1996, the Company's Spanish subsidiary entered into an
agreement in connection with which the subsidiary may borrow up to
500 million Spanish Pesetas (approximately $3.9 million) with such
borrowing being secured by the subsidiary's accounts receivable in
Spain. In connection with the agreement, the Company is
maintaining $2.0 million as collateral in an unrestricted account.
As of June 30, 1996, the subsidiary had borrowings of $2.1 million
under the agreement.
In June 1996, the Company's holdings in connection with Phytogen
Life Sciences, Inc. ("PLS") were restructured. Pursuant to the
restructuring, the Company gave up its right to convert a loan (the
"Loan") which it made to PLS into a 49.9% interest in PLS and
converted Can. $968,784 (approximately $707,000) of the Loan into
235,714 preference shares in PLS. In addition, PLS issued a
warrant to the Company to acquire up to 300,000 PLS common shares
for $3 per share and repaid the Company approximately $700,000 in
connection with the Loan.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
NeXstar Pharmaceuticals is a leading biopharmaceutical company engaged
in the discovery, development, manufacture and marketing of proprietary
products to treat life-threatening and other serious diseases.
The Company currently markets AmBisome, a liposomal formulation of
amphotericin B, for the treatment of life-threatening fungal infections when
conventional treatment fails and DaunoXome, a liposomal formulation of the
anticancer agent daunorubicin, which is used as a first line cytotoxic therapy
for the treatment of advanced, HIV-associated Kaposi's sarcoma. The Company
has relied on sales of AmBisome in Europe for a significant portion of its
product revenues and expects sales of AmBisome in Europe to account for a
majority of its revenues in 1996. AmBisome has been approved for sale by the
regulatory authorities in 22 countries for the treatment of life-threatening
fungal infections, including Australia, Turkey and Ireland where it has been
approved as a primary therapy. Sales in Germany, the U.K., Italy and Spain
together accounted for 55% of AmBisome revenues for each of the three months
and six months ended June 30, 1996. In April 1996, the Company received
approval for DaunoXome as a first line treatment for Kaposi's sarcoma from the
U.S. Food and Drug Administration and in late April the Company began marketing
DaunoXome in the U.S. In addition, DaunoXome has been approved for sale by the
regulatory authorities in Canada as a salvage therapy for Kaposi's sarcoma and
in 14 Western European countries as a primary therapy for Kaposi's sarcoma.
Revenue growth will be substantially dependent upon increased penetration of
existing markets, establishing new markets, development of new indications for
AmBisome and DaunoXome and introduction of new products.
In connection with most of its European sales, the Company prices its
products in the currencies of the country into which they are sold (the
"Payment Currencies"), and revenues in the past have been and in the future
could be adversely affected by currency fluctuations. A significant majority of
the Company's manufacturing costs are in U.S. dollars. Therefore, any fall in
the value of the Payment Currencies relative to the U.S. dollar is likely to
negatively impact gross margins for the Company's products since the Company's
manufacturing costs would stay approximately the same while its revenue in
terms of U.S. dollars would decline.
NeXstar Pharmaceuticals hedges certain of its foreign currency
exposures, with respect to its outstanding trade accounts receivable and
accounts payable, through the use of forward contracts. In the future, the
Company may begin currency hedging in connection with anticipated revenues and
expenses and may use options in addition to forward contracts. Such hedging
will be done solely for the purpose of protecting the Company from foreign
currency fluctuations. NeXstar Pharmaceuticals does not enter into speculative
foreign currency transactions and does not write speculative options. The
Company recognizes a gain or loss for each forward contract for the difference
between the contract rate and the market rate on each balance sheet date which
is recorded as a selling, general and administrative expense. Accordingly, no
deferred accounting is used in connection with the Company's hedging
activities. Notwithstanding its hedging activities (which have not always
included fully hedging against potential gains or losses), the Company has in
the past recognized significant foreign exchange gains and losses. There can be
no assurance that significant gains or losses will not be incurred in the
future.
RESULTS OF OPERATIONS
Three months and six months ended June 30, 1996
Product revenues increased 43% and 45% to $20.4 million and $37.9
million for the three months and six months ended June 30, 1996, respectively,
from $14.3 million and $26.2 million for the corresponding periods in 1995,
respectively, primarily due to increased unit sales of AmBisome in existing
markets. Sales of DaunoXome, which was initially approved in the U.S. and
several European countries during the second quarter of 1996, totaled $1.1
million for the three months ended June 30, 1996.
Collaborative and contract agreement revenues decreased to $357,000
and $936,000 for the three months and six months ended June 30, 1996,
respectively, compared to $718,000 and $1.5 million for the three months and
six months ended June 30, 1995, respectively. Collaborative and contract
agreement revenue fluctuations are generally the result of changes in the
number of funded research projects as well as the timing and performance of
contract benchmarks. Certain of the
9
<PAGE> 10
Company's collaborative research agreements with corporate partners, which
provided revenues for the Company during 1995, have expired or been terminated.
Interest income decreased to $413,000 and $846,000 for the three
months and six months ended June 30, 1996, respectively, compared to $447,000
and $1.0 million for the three months and six months ended June 30, 1995,
respectively. The decrease for both the three months and six months ended
June 30, 1996 from the corresponding periods in 1995 was primarily due to
lower average interest rates during such periods compared to the corresponding
periods in 1995.
Cost of goods sold increased to $4.4 million, or 22% of product
revenue, and $8.3 million, or 22% of product revenue, for the three months and
six months ended June 30, 1996, respectively, compared to $2.9 million, or 20%
of product revenue, and $5.5 million, or 21% of product revenue, for the three
months and six months ended June 30, 1995, respectively. The increase was
primarily due to increased sales of AmBisome and DaunoXome. Cost of goods sold
consists primarily of raw materials, allocations of overhead, labor and
equipment costs, and charges associated with lyophilization services provided
by outside vendors.
Research and development expenses increased 4% and 20% to $9.5 million
and $20.7 million for the three months and six months ended June 30, 1996,
respectively, compared to $9.1 million and $17.2 million for the three months
and six months ended June 30, 1995, respectively. The increase in research and
development expenses is primarily attributable to increased product
development, research activities (including an increase in personnel as a
result of the acquisition of Supragen, Inc. in September 1995) and clinical
trials. Included in the research expenses are $216,000 and $576,000 for the
three months and six months ended June 30, 1996, respectively, that were
sponsored by third parties. Research and development expenses consist
primarily of salaries and benefits for scientific, regulatory, quality control
and pilot manufacturing personnel, consultants, supplies, occupancy costs and
depreciation of laboratory equipment and facilities. The Company expects
research and development expenses to continue to increase as personnel and
research and development facilities are expanded.
Selling, general and administrative expenses increased 51% and 40% to
$10.9 million and $20.4 million for the three months and six months ended June
30, 1996, respectively, compared to $7.2 million and $14.6 million for the
three months and six months ended June 30, 1995, respectively. The increase
primarily relates to the expansion of the Company's marketing efforts, in
particular, in connection with the launch of DaunoXome and the expansion of the
Company's international operations. The Company recognized foreign exchange
gains/(losses) of ($153,000) and ($227,000) for the three months and six months
ended June 30, 1996, respectively, compared to ($138,000) and $588,000 for the
corresponding periods in 1995.
Interest expense decreased to $271,000 and $556,000 for the three
months and six months ended June 30, 1996, respectively, from $277,000 and
$614,000 for the three months and six months ended June 30, 1995, respectively.
The decrease was primarily due to a reduction in the average short-term
borrowings outstanding for the three months and six months ended June 30, 1996
as compared to the corresponding periods in 1995.
The Company reported net losses of $4.0 million, or $0.15 per share,
and $10.3 million, or $0.40 per share, for the three months and six months
ended June 30, 1996, respectively, compared to net losses of $4.1 million, or
$0.18 per share, and $9.4 million, or $0.41 per share, for the three months and
six months ended June 30, 1995, respectively.
Patent Matters
On May 17, 1993, the Company filed a complaint in the United States
District Court for the District of Delaware against The Liposome Company
("TLC") asking the court to declare U.S. Patent No. 4,880,635 (the "TLC '635
Patent") owned by TLC invalid, unenforceable and not infringed following
allegations by TLC that the freeze drying of AmBisome infringes the TLC '635
Patent. The United States District Court for the District of Delaware stayed
the lawsuit pending the outcome of a reexamination of the TLC '635 Patent
instituted by TLC in the U.S. Patent and Trademark Office ("USPTO"). On July
2, 1996, certain amended claims were allowed by the USPTO and TLC has publicly
stated that it intends to file a counterclaim against the Company for damages
and an injunction based on infringement of the reexamined patent. The stay was
lifted on July 11, 1996 and an amended complaint was filed by the Company on
July 29, 1996. TLC's answer to the amended complaint is due August 19, 1996.
10
<PAGE> 11
Upon review of the claims included in the reexamination certificate
relating to the TLC '635 Patent, the Company has concluded that no valid claim
should be found to be infringed by the Company. In addition, the Company
believes that TLC's efforts in crafting claims to avoid prior liposome work
reported by others has presented the Company with additional avenues of defense
in any litigation. For example, because of the amendments made to the TLC '635
Patent during reexamination, the Company would also have a defense based upon
the doctrine of "intervening rights." This doctrine would provide a clear
defense to any damage claim for any Company activity prior to the actual
issuance of the reexamined patent on July 2, 1996 and would empower the court
to permit the Company to continue its activities to the extent and under such
terms as the court deems equitable for the protection of investments made by
the Company prior to issuance of the reexamination certificate.
However, were the court to determine that the TLC '635 Patent is both
valid and infringed as a result of the freeze drying of AmBisome, the Company
could be enjoined from using its method of manufacturing and/or could be
required to pay damages. In such event, the Company could experience
interruption in its ability to produce AmBisome and/or incur significant
royalty obligations. In addition, the expense of litigation is expected to be
significant regardless of the outcome.
Although the Company has been successful in its recent litigation with
TLC regarding a different freeze-drying patent, past success is not a predictor
of success in the future and, in general, adverse results in litigation could
have a material adverse effect on the Company. In addition, the Company has
opposed the grant to TLC of the European and Japanese patents that are
counterparts of the TLC '635 Patent.
Certain statements set forth above with respect to the litigation and
potential litigation with TLC constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results of the litigation to be materially different
from the results expressed or implied by such forward-looking statements. Such
factors include, among other things: (i) adverse facts adduced in discovery or
at trial; (ii) contrary conclusions of law by the court; (iii) the court
refusing to exercise its equitable powers in a manner favorable to the Company;
and (iv) other uncertainties of litigation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and marketable securities
position at June 30, 1996 was $49.7 million compared to $26.7 million on
December 31, 1995. The $22.9 million increase in cash and marketable securities
position was primarily the result of the following:
<TABLE>
<S> <C>
Net cash used in operating activities $ (10,761,000)
Investment in equipment and leasehold improvements (4,554,000)
Proceeds from sale-leaseback transactions 1,640,000
Payments on capital lease obligations (2,198,000)
Proceeds from term loan 10,000,000
Proceeds from sale of common stock, net 28,834,000
Other (19,000)
-------------
$ 22,942,000
=============
</TABLE>
The Company invests its cash and cash equivalents and marketable
securities in interest-bearing investment grade securities.
The Company's accounts receivable balance at June 30, 1996 was $25.1
million as compared to $18.3 million on December 31, 1995. The growth in
receivables was primarily due to increased sales of AmBisome. The Company
considers the credit risk of its customers taken as a whole to be low. However,
payment practices between countries vary significantly and increased sales in
countries in which payments tend to be slower, often as a result of the
slowness by governmental entities in reimbursing the Company's customers, may
increase the average length that accounts receivable are outstanding and
increase the financial risk of certain of the Company's customers. The Company
continually seeks improvements in its collection process to maximize its cash
flow from product sales in a timely manner.
As of June 30, 1996, the Company's inventory value was $13.3 million
compared to $9.5 million as of December 31, 1995 which represents a 40%
increase for the period ended June 30, 1996. The increase resulted primarily
from an overall
11
<PAGE> 12
increase in inventory to meet product demand. If the Company is successful in
increasing its product revenues, the Company expects to gain manufacturing
efficiencies from increased production thereby decreasing cost of goods sold
per unit of product.
For the six months ended June 30, 1996, the Company had proceeds from
sales and leaseback transactions of $1.6 million related to the purchase of
capital equipment. As of June 30, 1996, $342,000 was available under equipment
lease agreements relating to the lease of manufacturing equipment, general
laboratory and scientific equipment, office equipment, furniture and fixtures.
At June 30, 1996, the Company had borrowings of $5.0 million under a
$5.0 million unsecured line of credit, which expires on September 1, 1996.
In June 1996, the Company entered into a loan agreement for $10
million (the "Loan Agreement"). The Loan Agreement is required to be repaid in
48 monthly installments beginning July 1996. As of June 30, 1996, the Company
had borrowings of $10 million under the Loan Agreement. The Loan Agreement
requires the Company to meet certain financial covenants, including maintaining
net cash, cash equivalents and/or investment grade securities equal to the
outstanding principal loan balance plus $10 million of which an amount of cash,
cash equivalents and/or investment grade securities equal to the outstanding
principal loan balance plus three months' interest thereon must be maintained
in an unrestricted account. The Company currently is in compliance with such
covenants.
In May 1996, the Company's Spanish subsidiary entered into an
agreement in connection with which the subsidiary may borrow up to 500 million
Spanish Pesetas (approximately $3.9 million) with such borrowing being secured
by the subsidiary's accounts receivable in Spain. In connection with the
agreement, the Company is maintaining $2.0 million as collateral in an
unrestricted account. As of June 30, 1996, the subsidiary had borrowings of
$2.1 million under the agreement.
On February 13, 1996, the Company completed a private sale of
1,425,000 shares of its common stock to a group of private investors (the
"Private Investors"). The net proceeds to the Company from the sale were
approximately $24.9 million. In connection with the transaction, the Company
filed a "shelf" registration statement on Form S-3 registering for resale the
shares acquired by the Private Investors. Pursuant to its agreement with the
Private Investors, the Company is required to keep the "resale" registration
statement effective for up to three years. In addition to the Private
Investors, a holder of 297,619 shares of the Company's common stock and two
holders of warrants to acquire 250,481 shares of the Company's common stock
exercised registration rights granted to them by the Company and had their
shares of common stock, or the shares of common stock which relate to their
warrants, included in the registration statement.
During May 1996, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance of 2.5 million shares of
the Company's common stock. In June 1996, the Company withdrew its plan to
issue such shares because of a decline in the Company's stock price and general
instability in the stock market for biotech and biopharmaceutical companies.
In June 1996, one of the Company's warrant holders exercised a warrant
for 232,941 shares of the Company's common stock for $1,125,000 ($4.83 per
share).
NeXstar Pharmaceuticals believes that the anticipated revenues from
sales of its existing products, together with the Company's existing cash,
should permit the Company to implement currently planned research and
development programs and marketing and manufacturing activities and to
otherwise finance its operations for several years. However, the Company
believes that it is prudent to augment existing cash whenever market conditions
are favorable and is currently exploring alternatives for borrowing funds which
are secured by the Company's accounts receivable. There can be no assurance
that increased costs associated with developing and obtaining regulatory
approval of any future drugs or other currently unanticipated expenses will not
require NeXstar Pharmaceuticals to access the capital markets in the near
future. Such capital may be raised through additional public or private
financing, as well as collaborative relationships, borrowings and other
available sources. The Company's future capital requirements will be
substantial and will depend on, and could increase as a result of, many
factors, including progress of the Company's research, drug discovery and
development programs, whether the Company acquires interests in products
currently held by third parties, the results and costs of preclinical and
clinical testing of the Company's products, if developed, the time and costs
involved in obtaining regulatory approvals, the costs involved in filing,
prosecuting and enforcing patent claims, competing technological and market
12
<PAGE> 13
developments, payments received under collaborative agreements, changes in
collaborative research relationships, the costs associated with potential
commercialization of its products, if any, including the development of
additional manufacturing, marketing and sales capabilities, the cost and
availability of third-party financing for capital expenditures and
administrative and legal expenses. There can be no assurance that additional
or sufficient financing will be available, or, if available, that it will be
available on acceptable terms. If additional funds are raised by issuing
equity securities of the Company, dilution to then existing stockholders may
result. If adequate funds are not available, the Company may be required to
significantly curtail one or more of its research and development programs or
commercialization efforts or obtain funds through arrangements with
collaborative partners or others on less favorable terms than might otherwise
be available. In the course of its business, the Company evaluates products
and technologies held by third parties which, if acquired, could result in the
development of product candidates by the Company or which complement
technologies currently being developed by the Company. The Company expects
from time to time to be involved in discussions with other entities concerning
the Company's potential acquisition of rights to additional pharmaceutical
products. In the event that the Company acquires such products or third-party
technologies, the Company may find it necessary or advisable to obtain
additional funding.
RECENT EVENT
During July 1996, the Company finalized a revised lease for the
Company's executive offices located in Boulder, Colorado. Under the revised
lease, the amount of space, which also includes research laboratories, was
increased from approximately 45,000 square feet to approximately 60,000 square
feet. The lease expires in 2001 and can be renewed at the option of the
Company for two successive five-year periods.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Management's Discussion and Analysis of Financial Condition and
Results Of Operations--Patent Matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to the stockholders for approval
at the Company's Annual Meeting of Stockholders held on May 29, 1996. The
total number of shares present, in person or by proxy, and entitled to vote at
the annual meeting was 17,943,715. For each proposal, the number of shares
voting for and against, the number of shares abstaining, if any, and the number
of broker non-votes, if any, are set forth below:
1. The election of seven directors to serve until the next annual meeting
and until their successors have been elected and qualified. The
following persons were elected as directors of the Company and
received the number of votes set forth below:
<TABLE>
<CAPTION>
Directors For Withheld
- --------- --- --------
<S> <C> <C>
Lawrence M. Gold, Ph.D. 17,613,166 330,549
John D. Baldeschwieler, Ph.D. 17,634,388 309,327
James A. Eskridge 17,621,761 321,954
David I. Hirsh, Ph.D. 17,631,513 312,202
Patrick J. Mahaffy 17,631,969 311,746
Rodman W. Moorhead, III 17,632,053 311,662
Carl F. Pollard 17,633,628 310,087
</TABLE>
2. The amendment of the Company's 1993 Incentive Stock Plan to limit the
number of shares of the Company's common stock which any person may
receive in any year to 200,000; provided that, the Company may make an
additional option grant of up to 200,000 shares to a newly hired
person:
<TABLE>
<S> <C>
For: 17,541,787
Against: 102,753
Abstain: 29,120
Non-vote: 270,055
</TABLE>
3. The amendment of the 1994 NeXstar Pharmaceuticals, Inc. Employee Stock
Purchase Plan to increase the number of shares of the Company's common
stock reserved for issuance by 300,000:
<TABLE>
<S> <C>
For: 17,396,649
Against: 248,628
Abstain: 28,383
Non-vote: 270,055
</TABLE>
4. The approval of the Company's 1995 Director Option Plan:
<TABLE>
<S> <C>
For: 16,642,164
Against: 981,046
Abstain: 50,450
Non-vote: 270,055
</TABLE>
14
<PAGE> 15
5. The approval of an increase in the authorized shares of the Company's
common stock by 15 million and the amendment and restatement of the
Company's Amended and Restated Certificate of Incorporation to
eliminate five series of preferred stock:
<TABLE>
<S> <C>
For: 17,244,447
Against: 614,450
Abstain: 27,246
Non-vote: 57,572
</TABLE>
6. The ratification of the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending December 31, 1996:
<TABLE>
<S> <C>
For: 17,907,697
Against: 14,821
Abstain: 21,197
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Registrant's Second Amended and Restated Certificate
of Incorporation (previously filed, on May 29, 1996,
in the exhibits to the Registrant's Registration
Statement on Form S-3 (File No. 333-04653), which
exhibit is incorporated by reference herein).
4.1 Registrant's Second Amended and Restated Certificate
of Incorporation (filed as Exhibit 3.1 to this
Report).
10.1 Industrial Real Estate Lease, dated July 1, 1996, by
and between Wilderness Place, Ltd. and the
Registrant.
10.2 Loan Agreement, dated as of June 28, 1996, by and
between the Registrant and The Sumitomo Bank, Limited.
27.1 Registrant's Financial Data Sheet.
(b) REPORTS ON FORM 8-K
1. On April 10, 1996, the Company filed a report on Form
8-K, which reported the April 8, 1996 approval by the
U.S. Food and Drug Administration of DaunoXome, the
Company's liposomal formulation of daunorubicin, for
first line treatment of Kaposi's sarcoma.
2. On June 21, 1996, the Company filed a report on Form
8-K, which reported the current status of the
Company's legal dispute involving U.S. Patent
4,880,635 of The Liposome Company.
3. On July 8, 1996, the Company filed a report on Form
8-K, which reported that on June 24, 1996, the
Company announced that it was withdrawing its plan to
issue an additional 2.5 million shares of its common
stock in a public offering.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEXSTAR PHARMACEUTICALS, INC.
Dated: August 13, 1996 By: /s/ PATRICK J. MAHAFFY
-------------------------
Patrick J. Mahaffy
President and Chief
Executive Officer
By: /s/ MICHAEL E. HART
-------------------------
Michael E. Hart
Vice President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----------
<S> <C>
3.1 Registrant's Second Amended and Restated Certificate of Incorporation
(previously filed, on May 29, 1996, in the exhibits to the Registrant's Registration
Statement on Form S-3 (File No. 333-04653), which exhibit is incorporated by
reference herein).
4.1 Registrant's Second Amended and Restated Certificate of Incorporation (filed as
Exhibit 3.1 to the Report).
10.1 Industrial Real Estate Lease, dated July 1, 1996, by and between Wilderness Place,
Ltd. and the Registrant.
10.2 Loan Agreement, dated as of June 28, 1996, by and between the Registrant and The
Sumitomo Bank, Limited.
27.1 Registrant's Financial Data Sheet.
</TABLE>
<PAGE> 1
INDUSTRIAL REAL ESTATE LEASE
(SINGLE TENANT)
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease Agreement between
the Landlord and Tenant named below. Other Articles, Sections and Paragraphs
of the Lease referred to in this Article One explain and define the Basic Terms
and are to be read in conjunction with the Basic Terms.
Section 1.01 DATE OF LEASE: July 1, 1996.
Section 1.02 LANDLORD: Wilderness Place, Ltd., a Colorado limited
partnership having its principal place of business at 2101 31st Street, Denver,
CO 80216.
Section 1.03 TENANT: NeXstar Pharmaceuticals, Inc., a Delaware
corporation having its principal place of business at 2860 Wilderness Place,
Boulder, CO 80301.
Section 1.04 PROPERTY: The Property consists of the certain land and
improvements located in Boulder County, Colorado, more particularly described
on Exhibit A attached hereto, including an existing building containing
approximately 60,000 square feet commonly known as 2860 Wilderness Place,
Boulder, CO 80301 (the "Building").
Section 1.05 LEASE TERM: Five years beginning on the Termination Date
(as defined in paragraph 13.05 below), subject to the right of Tenant to extend
the term for one or two successive five-year option periods as set forth in
Section 2.01 below. The Termination Date shall be the Commencement Date for
all purposes of this lease.
Section 1.06 PERMITTED USES: Laboratory research and development,
light manufacturing and other production activities, and related finance and
administrative office functions.
Section 1.07 TENANT'S GUARANTOR: None.
Section 1.08 BROKERS: None.
Section 1.09 COMMISSIONS: None.
Section 1.10 INITIAL SECURITY DEPOSIT: None.
Section 1.11 VEHICLE PARKING SPACES ALLOCATED TO TENANT: All parking
spaces located on the Property. Landlord acknowledges that Tenant intends to
apply to the City of Boulder to increase the parking areas on the Property, and
agrees to cooperate with such application and to reimburse Tenant for up to
$20,000 of the reasonable and actual cost of modifying the affected areas of
the Property to add the approved parking.
Section 1.12 RENT AND OTHER CHARGES PAYABLE BY TENANT: Tenant shall
pay Base Rent in the initial amount of Thirty-Three Thousand Seven Hundred
Fifty Dollars (US$33,750) per month, calculated at $6.75 per annum for each
square foot of leasable space contained in the Building, subject to adjustment
during the Option Terms as set forth in Section 2.01 below, plus Real Property
Taxes
<PAGE> 2
(see Section 4.02), Utilities (see Section 4.03), Insurance Premiums (see
Section 4.04), Impounds for Insurance Premiums and Property Taxes (see Section
4.08), and Maintenance, Repairs and Alterations (see Article Six).
Section 1.13 LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR SUBLEASE:
Not applicable.
Section 1.14 RIDERS: The following Riders are attached to and made a
part of this Lease: Exhibit A (Legal Description); Exhibit B (Tenant's
Equipment); Exhibit C (Hazardous Materials).
ARTICLE TWO: LEASE TERM
Section 2.01 LEASE OF PROPERTY FOR LEASE TERM. Landlord hereby leases
the Property to Tenant and Tenant leases the Property from Landlord for the
Lease Term specified in Section 1.05 above. Landlord hereby grants to Tenant
an option ("Option") to extend the term of this Lease for one or two successive
terms of five years each (the "Option Terms"). The Option may only be
exercised in the event that Tenant is not in default under any of the
provisions of this Lease. In order to exercise the Option, Tenant must provide
written notice of its exercise of the Option to Landlord (the "Extension
Notice") at least six months prior to the expiration of the initial Lease Term
(or the previously extended Lease Term, if applicable). In the event that
Tenant fails to timely provide the Extension Notice, then Tenant's right to
exercise the Option shall automatically terminate. After exercise of the
second Option as set forth above, Tenant shall have no further right to extend
the term of this Lease.
Section 2.02 HOLDING OVER. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the Property. If Tenant does not vacate the
Property upon the expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall
be a "month-to-month" tenancy, subject to all of the terms of this Lease
applicable to a month-to-month tenancy, except that the Base Rent then in
effect shall be increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
Section 3.01 TIME AND MANNER OF PAYMENT. Tenant shall pay Base Rent
to Landlord in the amount stated in Paragraph 1.12 on the first day of each
month beginning July 1, 1996, and continuing each month thereafter during the
Lease Term, in advance, without offset, deduction or prior demand. Base Rent
shall be payable at Landlord's address or at such other place as Landlord may
designate in writing.
Section 3.02 BASE RENT DURING OPTION TERMS. If Tenant exercises
either or both of its Options to extend the term of this Lease as provided in
Section 2.01 above, Base Rent shall be adjusted as follows:
(a) Base Rent for the first year of the first Option Term shall be
determined as of the date which is three months prior to the expiration
date of the initial Lease Term (the "Comparison Date"), and shall be
increased proportionately to the increase in the United States Department
of Labor, Bureau of Labor Statistics, Consumer Price Index for All Urban
Consumers (Boulder Area, 1982-1984=100) (the "Index") between (i) the
date which is three
2
<PAGE> 3
months prior to the Commencement Date and (ii) the Comparison Date. Base
Rent for each successive year of the first Option Term shall be increased
proportionately to the increase in the Index between the Comparison Date
and each anniversary of the Comparison Date. In no event shall Base
Rent during the first Option Term be less than the amount set forth in
Paragraph 1.12 above. Landlord shall notify Tenant of the amount of
each increase by a written statement which shall include the Index for
the Commencement Date, the Index for the Comparison Date, the percentage
increase between those two Indices and the new Base Rent. If the format
or components of the Index are materially changed after the Commencement
Date, Landlord shall substitute an index which is published by the Bureau
of Labor Statistics or similar agency and which is most nearly equivalent
to the Index in effect on the Commencement Date. The substitute index
shall be used to calculate the increase in Base Rent unless Tenant
objects to such index in writing within fifteen (15) days after receipt
of Landlord's notice. If Tenant objects, Landlord and Tenant shall
submit the selection of the substitute index for binding arbitration in
accordance with the rules and regulations of the American Arbitration
Association at its office closest to the Property. The costs of
arbitration shall be borne equally by Landlord and Tenant.
(b) Base Rent for the first year of the second Option Term shall be
determined by the parties based on the market rate then prevailing in the
Boulder, Colorado area for 5-year leases of industrial properties of
similar size and condition to the Property ("Market Rate"). Landlord
and Tenant shall endeavor in good faith to agree upon Base Rent for the
second Option Term within thirty (30) days after Landlord receives the
Extension Notice provided in Section 2.01 above. If the parties agree
on Base Rent for the second Option Term within such period, they shall
immediately execute an amendment to this Lease stating the Base Rent for
the first year of the second Option Term. If the parties are unable to
agree on Base Rent for the second Option Term within such period,
Landlord and Tenant shall promptly thereafter jointly retain an
independent third party real estate appraiser to determine Market Rate
and establish Base Rent for the first year of the second Option Term
accordingly. Base Rent for each successive year of the second Option
Term shall be increased proportionately to the increase in the Index
between the last anniversary of the Comparison Date which falls in the
first Option Term and each subsequent anniversary of the Comparison Date.
In no event shall Base Rent during the second Option Term be less than
the amount set forth in Paragraph 1.12 above.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01 ADDITIONAL RENT. All charges payable by Tenant other
than Base Rent are called "Additional Rent". Unless this Lease provides
otherwise, Tenant shall pay all Additional Rent then due with the next monthly
installment of Base Rent. The term "Rent" shall mean Base Rent and Additional
Rent.
Section 4.02 PROPERTY TAXES.
(a) REAL PROPERTY TAXES. Tenant shall pay all real property taxes
on the Property (including any fees, taxes or assessments against, or as
a result of, any tenant improvements installed on the Property by or for
the benefit of Tenant) attributable to the Lease Term. Subject to
Paragraph 4.08 below, such payment shall be made at least ten (10) days
prior to the delinquency date of the taxes. Within such 10-day period,
Tenant shall furnish Landlord with satisfactory evidence that the real
property taxes have been paid. If Tenant fails to pay the real
3
<PAGE> 4
property taxes when due, Landlord may pay the taxes and Tenant shall
reimburse Landlord for the amount of such tax payment as Additional Rent.
(b) DEFINITION OF "REAL PROPERTY TAX." "Real property tax" means:
(i) any fee, license fee, license tax, business license fee, commercial
rental tax, levy, charge, assessment, penalty or tax imposed by any
taxing authority against the Property; (ii) any tax on Landlord's right
to receive, or the receipt of, rent or income from the Property or
against Landlord's business of leasing the Property; (iii) any tax or
charge for fire protection, streets, sidewalks, road maintenance, refuse
or other services provided to the Property by any governmental agency;
(iv) any tax imposed upon this transaction or based upon a re-assessment
of the Property due to a change of ownership, as defined by applicable
law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included
within the definition of real property tax. "Real property tax" does
not, however, include Landlord's federal or state income, franchise,
inheritance or estate taxes.
(c) PERSONAL PROPERTY TAXES. Tenant shall pay all taxes charged
against trade fixtures, furnishings, equipment or any other personal
property belonging to Tenant, and shall try to have personal property
taxed separately from the Property.
Section 4.03 UTILITIES. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property.
Section 4.04 INSURANCE POLICIES.
(a) LIABILITY INSURANCE. During the Lease Term, Tenant shall
maintain a policy of commercial general liability insurance (sometimes
known as broad form comprehensive general liability insurance) insuring
Tenant against liability for bodily injury, property damage (including
loss of use of property) and personal injury arising out of the
operation, use or occupancy of the Property, specifically including
Tenant's use of chemicals at the Property. Tenant shall name Landlord
as an additional insured under such policy. The initial amount of such
insurance shall be One Million Dollars ($1,000,000) per occurrence and
shall be subject to periodic increase based upon inflation, increased
liability awards, recommendation of Landlord's professional insurance
advisors and other relevant factors. The liability insurance obtained
by Tenant under this Paragraph 4.04(a) shall (i) be primary and
non-contributing, (ii) contain cross-liability endorsements, and (iii)
insure Landlord against Tenant's performance under Section 5.05, if the
matters giving rise to the indemnity under Section 5.05 result from the
negligence of Tenant. The amount and coverage of such insurance shall
not limit Tenant's liability nor relieve Tenant of any other obligation
under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation,
use or occupancy of the Property. The policy obtained by Landlord shall
not be contributory and shall not provide primary insurance.
(b) PROPERTY AND BUSINESS INTERRUPTION INSURANCE. During the Lease
Term, Tenant shall maintain a policy of insurance covering loss of or
damage to the Property (including Tenant's fixtures, equipment and
leasehold improvements) in the full amount of its replacement value and
including business interruption insurance in an amount sufficient to pay
one year's Base Rent plus estimated real property taxes and insurance
premiums. Landlord and Landlord's mortgagee shall be named loss payee
under such policy, as their interests may
4
<PAGE> 5
appear. Such policy shall contain an Inflation Guard endorsement, shall
not provide for any deductible amount greater than $10,000, and shall
provide protection against all perils included within the classification
of fire, extended coverage (including any perils arising from Tenant's
use of chemicals at the Property), vandalism, malicious mischief, special
extended perils (all risk), sprinkler leakage and any other perils which
Landlord deems reasonably necessary (including flood and earthquake
insurance, if required by any lender holding a security interest in the
Property). Tenant shall not do or permit anything to be done which
invalidates any such insurance policies.
(c) PAYMENT OF PREMIUMS. Subject to Section 4.08, Tenant shall pay
all premiums for the insurance policies described in Paragraphs 4.04(a)
and 4.04(b) when due, except that Landlord shall pay all premiums for
non-primary comprehensive public liability insurance which Landlord
elects to obtain as provided in Paragraph 4.04(a). Before the
Commencement Date, Tenant shall deliver to Landlord a copy of each policy
of insurance which Tenant is required to maintain under this Section
4.04. At lease thirty (30) days prior to the expiration of any such
policy, Tenant shall deliver to Landlord a renewal of such policy. As
an alternative to providing a policy of insurance, Tenant shall have the
right to provide Landlord with a certificate of insurance, executed by an
authorized officer of the insurance company, showing that the insurance
which Tenant is required to maintain under this Section 4.04 is in full
force and effect and containing such other information which Landlord
reasonably requires.
(d) NOTICE OF CANCELLATION. Any insurance which Tenant is required
to maintain under this Lease shall include a provision which requires the
insurance carrier to give Landlord written notice of any cancellation or
modification of coverage not less than thirty (30) days prior to the
effective date of change (or not less than ten (10) days prior to the
effective date of change, if Tenant has used its best efforts to obtain a
longer notice period but has been unable to do so). If any insurance
policy is cancelled on account of the business or activities of Tenant,
Tenant shall immediately cease such activities or secure a replacement
policy acceptable to Landlord.
(e) FAILURE TO OBTAIN OR CONFIRM COVERAGE. If Tenant fails to
deliver any policy, certificate or renewal to Landlord required under
this Lease within the prescribed time period or if any such policy is
cancelled or modified during the Lease Term without Landlord's consent,
Landlord may obtain such insurance, in which case Tenant shall reimburse
Landlord for the cost of such insurance within fifteen (15) days after
receipt of a statement that indicates the cost of such insurance.
(f) MINIMUM STANDARDS. Tenant shall maintain all insurance required
under this Lease with companies holding a "General Policy Rating" of A-12
or better, as set forth in the most current issue of "Best Key Rating
Guide". Landlord and Tenant acknowledge the insurance markets are
rapidly changing and that insurance in the form and amounts described in
this Section 4.04 is for the primary benefit of Landlord. If at any
time during the Lease Term, Tenant is unable to maintain the insurance
required under the Lease, Tenant shall nevertheless maintain insurance
coverage which is customary and commercially reasonable in the insurance
industry for Tenant's type of business, as that coverage may change from
time to time. Landlord makes no representation as to the adequacy of
such insurance to protect Landlord's or Tenant's interests. Therefore,
Tenant shall obtain any such additional property or liability insurance
which Tenant deems necessary to protect Landlord and Tenant.
5
<PAGE> 6
(g) WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive
any and all rights of recovery against the other, or against the
officers, employees, agents or representatives of the other, for loss of
or damage to its property or the property of others under its control, if
such loss or damage is covered by any insurance policy in force (whether
or not described in this Lease) at the time of such loss or damage.
Upon obtaining the required policies of insurance, Landlord and Tenant
shall give notice to the insurance carriers of this mutual waiver of
subrogation.
Section 4.05 MAINTENANCE OF PROPERTY. Tenant shall pay all costs to
maintain the Property as provided in Section 6.04 below.
Section 4.06 LATE CHARGES. Tenant's failure to pay Rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs
are impractical or extremely difficult to ascertain. Such costs may include,
but are not limited to, processing and accounting charges and late charges
which may be imposed on Landlord by any ground lease, mortgage or trust deed
encumbering the Property. Therefore, if Landlord does not receive any Rent
payment within ten (10) days after it becomes due, Tenant shall pay Landlord a
late charge equal to five percent (5%) of the overdue amount. The parties
agree that such late charge represents a fair and reasonable estimate of the
costs Landlord will incur by reason of such late payment.
Section 4.07 INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by
Tenant to Landlord which is not paid when due shall bear interest at the rate
of fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this
Lease is higher than the rate permitted by law, the interest rate is hereby
decreased to the maximum legal interest rate permitted by law.
Section 4.08 IMPOUNDS FOR INSURANCE PREMIUMS AND REAL PROPERTY TAXES.
If requested by any ground lessor or lender to whom Landlord has granted a
security interest in the Property, or if Tenant is more than ten (10) days late
in the payment of rent more than once in any period of 12 consecutive months,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant under this Lease,
together with each payment of Base Rent. Landlord shall hold such payments in
a non-interest bearing impound account. If unknown, Landlord shall reasonably
estimate the amount of real property taxes and insurance premiums when due.
Tenant shall pay any deficiency of funds in the impound account to Landlord
upon written request. If Tenant defaults under this Lease, Landlord may apply
any funds in the impound account to any obligation then due under this Lease.
6
<PAGE> 7
ARTICLE FIVE: USE OF PROPERTY
Section 5.01 PERMITTED USES. Tenant may use the Property only for the
Permitted Uses set forth in Section 1.06 above.
Section 5.02 MANNER OF USE. Tenant shall not cause or permit the
Property to be used in any way which constitutes a violation of any law,
ordinance, or governmental regulation or order, which annoys or interferes with
the rights of owners or occupants of adjacent properties, or which constitutes
a nuisance or waste. Tenant shall obtain and pay for all permits, including a
Certificate of Occupancy, required for Tenant's occupancy of the Property and
shall promptly take all actions necessary to comply with all applicable
statutes, ordinances, rules, regulations, orders and requirements regulating
the use by Tenant of the Property, including the Occupational Safety and Health
Act and all laws and regulations regarding the use, storage and disposal of
anything used in its manufacturing or otherwise. Tenant will provide at least
annually a signed and sworn certificate from its president and chief operating
officer that it is in full compliance with all rules, regulations and laws.
Section 5.03 HAZARDOUS MATERIALS. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state
or local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in
or about the Property by Tenant, its agents, employees, contractors, sublessees
or invitees without the prior written consent of Landlord. Landlord shall be
entitled to take into account such other factors or facts as Landlord may
reasonably determine to be relevant in determining whether to grant or withhold
consent to Tenant's proposed activity with respect to Hazardous Material.
Landlord acknowledges that Tenant will store and use on the Property the
Hazardous Materials listed or described on Exhibit C attached hereto, and
Tenant covenants and agrees that all storage, use or other disposition of all
such Hazardous Materials shall be in strict compliance with all applicable
laws, ordinances and regulations. In no event, however, shall Landlord be
required to consent to the installation or use of any storage tanks on the
Property.
Section 5.04 SIGNS AND AUCTIONS. Tenant shall not place any signs on
the Property without Landlord's prior written consent. Tenant shall not
conduct or permit any auctions or sheriff's sales at the Property.
Section 5.05 INDEMNITY. Tenant shall indemnify Landlord against and
hold Landlord harmless from any and all costs, claims or liability arising from
(i) Tenant's use of the Property, (ii) the conduct of Tenant's business or
anything else done or permitted by Tenant to be done in or about the Property,
including any contamination of the Property or any other property resulting
from the presence of use of Hazardous Material caused or permitted by Tenant,
(iii) any breach or default in the performance of Tenant's obligations under
this Lease, (iv) any misrepresentation or breach of warranty by Tenant under
this Lease, or (v) other acts or omissions of Tenant. Tenant shall defend
Landlord against any such cost, claim or liability at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs incurred by Landlord in
connection with any such claim. As a material part of the consideration to
7
<PAGE> 8
Landlord, Tenant hereby assumes all risk of damage to property or injury to
persons in or about the Property arising from any cause, and Tenant hereby
waives all claims in respect thereof against Landlord, except for any claim
arising out of Landlord's gross negligence or willful misconduct. As used in
this Section, the term "Tenant" shall include Tenant's employees, agents,
contractors and invitees, if applicable, and the term "Landlord" shall include
Landlord's agents, partners, officers, managers, employees and lenders.
Section 5.06 LANDLORD'S ACCESS. Landlord or its agents may enter the
Property at all reasonable times to show the Property to potential buyers,
investors or other parties, to inspect and conduct tests in order to monitor
Tenant's compliance with all applicable environmental laws and all laws
governing the presence and use of Hazardous Material, or for any other purpose
Landlord deems necessary. Except in the case of an emergency, Landlord shall
give Tenant prior notice of such entry and Tenant shall have the right, if it
has reasonable suspicions, to approve who may tour or inspect the Property, to
designate an agent of Tenant to accompany Landlord on any inspection, or to
devise reasonable procedures to ensure that no trade secrets or confidential
information is being misappropriated or taken. Landlord may place customary
"For Sale" or "For Lease" signs on the Property.
Section 5.07 QUIET POSSESSION. If Tenant pays the rent and complies
with all other terms of this Lease, Tenant may occupy and enjoy the Property
for the full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND
ALTERATIONS
Section 6.01 EXISTING CONDITIONS. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation as to the condition of the Property or the suitability
of the Property for Tenant's intended use. Tenant represents and warrants
that Tenant has made its own inspection of and inquiry regarding the condition
of the Property and is not relying on any representations of Landlord with
respect thereto.
Section 6.02 EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not
be liable for any damage or injury to the person, business (or any loss of
income therefrom), goods, wares, merchandise or other property of Tenant,
Tenant's employees, invitees, customers or any other person in or about the
Property, whether such damage or injury is caused by or results from (i) fire,
steam, electricity, water, gas or rain, (ii) the breakage, leakage, obstruction
or other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures or any other cause, or (iii) conditions
arising in or about the Property, or from other sources or places. Landlord
shall not be liable for any such damage or injury even though the cause of or
the means of repairing such damage or injury are not accessible to Tenant. The
provisions of this Section 6.02 shall not, however, exempt Landlord from
liability for Landlord's gross negligence or willful misconduct.
Section 6.03 LANDLORD'S OBLIGATIONS. Except as provided in Article
Seven (Damage and Destruction) and Article Eight (Condemnation), Landlord shall
maintain the foundations, exterior walls (excluding windows, doors, plate glass
and the interior surfaces of exterior walls and painting of the exterior
surfaces of exterior walls) and roof of the Property in good condition and
repair. Landlord shall have no other obligation to bear any expense of
ownership, operation or maintenance of the
8
<PAGE> 9
Property. Landlord shall make repairs under this Section 6.03 within a
reasonable time after receipt of written notice from Tenant of the need for
such repairs. Tenant waives the benefit of any statute in effect now or in
the future which might give Tenant the right to make repairs at Landlord's
expense or to terminate this Lease due to Landlord's failure to keep the
Property in good order, condition and repair as required under this Section
6.03.
Section 6.04 TENANT'S OBLIGATIONS.
(a) Except as provided in Section 6.03, Article Seven (Damage and
Destruction) and Article Eight (Condemnation), Tenant shall keep all
portions of the Property in good order, condition and repair (including
interior repainting and refinishing, as needed). If any portion of the
Property or any system or equipment in the Property which Tenant is
obligated to repair cannot be fully repaired or restored, Tenant shall
promptly replace such portion of the Property or systems or equipment in
the Property, regardless of whether the benefit of such replacement
extends beyond the Lease Term; but if the benefit or useful life of such
replacement extends beyond the Lease Term (as such term may be extended
by exercise of the Options), the useful life of such replacement shall be
prorated over the remaining portion of the Lease Term (as extended), and
Tenant shall be liable only for that portion of the cost which is
applicable to the Lease Term (as extended). Tenant shall maintain a
preventive maintenance contract providing for the regular inspection and
maintenance of the heating and air conditioning system by a licensed
heating and air conditioning contractor. If any part of the Property is
damaged by any act or omission of Tenant, Tenant shall pay Landlord the
cost of repairing or replacing such damaged property, whether or not
Landlord would otherwise be obligated to pay the cost of maintaining or
repairing such property. It is the intention of Landlord and Tenant
that at all times Tenant shall maintain the portions of the Property
which Tenant is obligated to maintain in an attractive, first-class and
fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.04 at Tenant's sole expense. If Tenant fails to maintain,
repair or replace the Property as required by this Section 6.04, Landlord
may, upon ten (10) days prior notice to Tenant (except that no notice
shall be required in the case of an emergency), enter the Property and
perform such maintenance or repair (including replacement, as needed) on
behalf of Tenant. In such case, Tenant shall reimburse Landlord for all
reasonable costs incurred in performing such maintenance or repair
immediately upon demand.
Section 6.05 ALTERATIONS, ADDITIONS AND IMPROVEMENTS.
(a) Tenant shall not make any alterations, additions or improvements
to the Property without Landlord's prior written consent, except for
non-structural alterations which do not exceed Twenty Thousand Dollars
($20,000) in cost cumulatively over the Lease Term and which are not
visible from the outside of the Building. Landlord may require Tenant to
provide demolition and/or lien and completion binds in form and amount
satisfactory to Landlord. Tenant shall promptly remove any alterations,
additions or improvements constructed in violation of this Paragraph
6.05(a) upon Landlord's written request. All alterations, additions and
improvements shall be done in a good and workmanlike manner, in
conformity with all applicable laws and regulations, and by a contractor
approved by Landlord. Upon completion of any such work, Tenant shall
provide Landlord with "as built" plans, copies of all construction
contracts and proof of payment for all labor and materials.
9
<PAGE> 10
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty
(20) days' prior written notice of the commencement of any work on the
Property, regardless of whether Landlord's consent to such work is
required. Landlord may elect to record and post notices of
non-responsibility on the Property.
(c) Landlord acknowledges that Tenant will be utilizing a
substantial amount of equipment on the Property that may be considered
fixtures under certain circumstances. Landlord and Tenant hereby agree
that the equipment previously installed at the Property which is listed
or described on Exhibit B attached hereto ("Tenant's Equipment") shall be
and remain the property of Tenant. Upon termination of this Lease,
Tenant shall have the full right to remove Tenant's Equipment subject to
the provisions of Section 6.06 below, but shall not have the right to
remove any other equipment or fixtures or installed at the Property
unless, prior to installation of any such equipment or fixtures, Tenant
shall notify Landlord in writing of such installation and of Tenant's
intent to retain ownership of such equipment or fixtures and Landlord
agrees in writing that such equipment may be installed at the Property
and shall remain the property of Tenant (which agreement shall not be
unreasonably withheld). Any such additional equipment or fixtures so
installed at the Property with the written agreement of Landlord shall
also be considered to be "Tenant's Equipment" for purposes of Section
6.06 below.
Section 6.06 CONDITION UPON TERMINATION. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required
to repair under Article Seven (Damage or Destruction). In addition, Landlord
may require Tenant to remove any alterations, additions or improvements
(whether or not made with Landlord's consent) prior to the expiration of the
Lease and to restore the Property to its prior condition, all at Tenant's
expense. All alterations, additions and improvements which Landlord has not
required Tenant to remove shall be Landlord's property and shall be surrendered
to Landlord upon the expiration or earlier termination of the Lease, except
that Tenant may remove any of Tenant's Equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any of Tenant's Equipment. In
no event shall Tenant remove any of the following materials or equipment (which
shall be deemed Landlord's property) without Landlord's prior written consent:
any power wiring or power panels; lighting or lighting fixtures; wall
coverings; drapes, blinds or other window coverings; carpets or other floor
coverings; heaters, air conditioners or any other heating or air conditioning
equipment; fencing or security gates; or other similar building operating
equipment and decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01 PARTIAL DAMAGE TO PROPERTY.
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only
partially damaged (that is, less than fifty percent (50%) of the Property
is untenantable as a result of such damage or less than fifty percent
(50%) of Tenant's operations are materially impaired) and can be repaired
within 120 days, and if insurance proceeds are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall
repair the damage to the Property (including Tenant's
10
<PAGE> 11
fixtures, equipment and improvements, to the extent of available
insurance proceeds) as soon as reasonably possible.
(b) If the insurance proceeds are not sufficient to pay the entire
cost of repair, or if the cause of the damage is not covered by the
insurance policies which Tenant maintains under Paragraph 4.04(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect,
or (ii) terminate this Lease as of the date the damage occurred.
Landlord shall notify Tenant within thirty (30) days after receipt of
notice of the occurrence of the damage whether Landlord elects to repair
the damage or terminate the Lease. If Landlord elects to repair the
damage, Tenant shall (subject to the terms of this Lease) pay Landlord
the "deductible amount" (if any) under Tenant's insurance policies and,
if the damage was due to an act or omission of Tenant, or Tenant's
employees, agents, contractors or invitees, the difference between the
actual cost of repair and any insurance proceeds received by Landlord.
If Landlord elects to terminate the Lease, Tenant may elect to continue
this Lease in full force and effect, in which case Tenant shall repair
any damage to the Property and pay the cost of such repairs, except that
upon satisfactory completion of such repairs, Landlord shall deliver to
Tenant any insurance proceeds received by Landlord for the damage
repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination
notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty
(30) days to repair, either Landlord or Tenant may elect to terminate
this Lease as of the date the damage occurred, regardless of the
sufficiency of any insurance proceeds. The party electing to terminate
this Lease shall give written notification to the other party of such
election within thirty (30) days after Tenant's notice to Landlord of the
occurrence of the damage.
(d) Any rights of Tenant hereunder may not be exercised by Tenant if
Tenant or its agents or employees were the cause of the damage.
Section 7.02 SUBSTANTIAL OR TOTAL DESTRUCTION. If the Property is
substantially or totally destroyed by any cause whatsoever (that is, the damage
to the Property is greater than partial damage as described in Section 7.01),
this Lease shall terminate as of the date the destruction occurred, regardless
of whether Landlord receives any insurance proceeds. Notwithstanding the
preceding sentence, if the Property can be rebuilt within 120 days after the
date of destruction, Landlord may elect to rebuild the Property at no expense
to Tenant, in which case this Lease shall remain in full force and effect.
Landlord shall notify Tenant of such election within thirty (30) days after
Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, or Tenant's employees, agents, contractors or invitees, Tenant shall
pay Landlord the difference between the actual cost of repair and any insurance
proceeds received by Landlord. Any rights of Tenant hereunder may not be
exercised by Tenant if Tenant or its agents or employees were the cause of the
damage.
Section 7.03 TEMPORARY REDUCTION OF RENT. If the Property is
destroyed or damaged and Landlord or Tenant repairs or restores the Property
pursuant to the provisions of this Article Seven, Rent shall continue to be due
in accordance with this Lease; however, to the extent that Tenant's insurance
covers one year's Base Rent, insurance premiums and real property taxes, such
sums shall be paid from proceeds of such insurance. Tenant shall not be
entitled to any compensation, reduction or
11
<PAGE> 12
reimbursement from Landlord as a result of any damage, destruction, repair or
restoration of or to the Property.
Section 7.04 WAIVER. Tenant waives the protection of any statute,
code or judicial provision which grants a tenant the right to terminate a lease
in the event of a substantial or total destruction of the leased property.
Tenant agrees that the provisions of Section 7.02 above shall govern the rights
and obligations of Landlord and Tenant in the event of any substantial or total
destruction of the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of eminent
domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs
first. If more than twenty percent (20%) of the floor area of the Building is
taken, either Landlord or Tenant may terminate this Lease as of the date the
condemning authority takes title or possession, by delivering written notice to
the other within ten (10) days after receipt of written notice of such taking
(or, in the absence of such notice, within ten (10) days after the condemning
authority takes title or possession). If neither Landlord nor Tenant
terminates this Lease, this Lease shall remain in effect as to the portion of
the Property not taken, except that the Rent shall be reduced in proportion to
the reduction (if any) in the floor area of the Building. Any Condemnation
award or payment shall be distributed in the following order: (a) first, to
any ground lessor, mortgagee or beneficiary under a deed of trust encumbering
the Property, the amount of its interest in the Property; (b) second, to
Tenant, only the amount of any award specifically designated for loss of or
damage to Tenant's trade fixtures or removable personal property; and (c)
third, to Landlord, the remainder of such award, whether as compensation for
reduction in the value of the leasehold, the taking of the fee, or otherwise.
If this Lease is not terminated, Landlord shall repair any damage to the
Property caused by the Condemnation, except that Landlord shall not be
obligated to repair any damage for which Tenant has been reimbursed by the
condemning authority. If the severance damages received by Landlord are not
sufficient to pay for such repair, Landlord shall have the right to either
terminate this Lease or make such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01 LANDLORD'S CONSENT REQUIRED. No portion of the Property
or of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, mortgage, sublease, transfer, operation of
law, or act of Tenant, without Landlord's prior written consent, except as
provided in Section 9.02 below. Landlord has the right to grant or withhold
its consent as provided in Section 9.05 below. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of this Lease.
Section 9.02 TENANT AFFILIATE. Tenant may assign this Lease or
sublease the Property, without Landlord's consent, to any corporation which
controls, is controlled by or is under common control with Tenant, or to any
corporation resulting from the merger of or consolidation with Tenant
("Tenant's Affiliate"). In such case, any Tenant's Affiliate shall assume in
writing all of Tenant's obligations under this Lease.
12
<PAGE> 13
Section 9.03 NO RELEASE OF TENANT. No transfer permitted by this
Article Nine, whether with or without Landlord's consent, shall release Tenant
or change Tenant's primary liability to pay the Rent and to perform all other
obligations of Tenant under this Lease. Landlord's acceptance of rent from any
other person is not a waiver of any provision of this Article Nine. Consent to
one transfer is not a consent to any subsequent transfer. If Tenant's
transferee defaults under this Lease, Landlord may proceed directly against
Tenant without pursuing remedies against the transferee. Landlord may consent
to subsequent assignments or modifications of this Lease by Tenant's
transferee, without notifying Tenant or obtaining its consent. Such action
shall not relieve Tenant's liability under this Lease.
Section 9.04 OFFER TO TERMINATE. If Tenant desires to assign the
Lease or sublease the Property, Tenant shall have the right to offer, in
writing, to terminate the Lease as of a date specified in the offer. If
Landlord elects in writing to accept the offer to terminate within twenty (20)
days after notice of the offer, the Lease shall terminate as of the date
specified and all the terms and provisions of the Lease governing termination
shall apply. If Landlord does not so elect, the Lease shall continue in
effect until terminated and the provisions of Section 9.05 with respect to any
proposed transfer shall continue to apply.
Section 9.05 LANDLORD'S CONSENT. Tenant's request for consent to any
transfer described in Section 9.01 shall set forth in writing the details of
the proposed transfer, including the name, business and financial condition of
the prospective transferee, financial details of the proposed transfer (such as
the term of and the rent and security deposit payable under any proposed
assignment or sublease), and any other information Landlord deems relevant.
Landlord shall have the right to withhold consent, if reasonable, or to grant
consent, based on the following factors: (i) the business of the proposed
assignee or subtenant and the proposed use of the Property; (ii) the net worth
and financial reputation of the proposed assignee or subtenant; (iii) Tenant's
compliance with all of its obligations under the Lease; and (iv) such other
factors as Landlord may reasonably deem relevant. If Landlord objects to a
proposed assignment solely because of the net worth and/or financial reputation
of the proposed assignee, Tenant may nonetheless sublease (but not assign), all
or a portion of the Property to the proposed transferee, but only on the other
terms of the proposed transfer.
Section 9.06 NO MERGER. No merger shall result from Tenant's
sublease of the Property under this Article Nine, Tenant's surrender of this
Lease or the termination of this Lease in any other manner. In any such event,
Landlord may terminate any or all subtenancies or succeed to the interest of
Tenant as sublandlord under any or all sub-tenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01 COVENANTS AND CONDITIONS. Tenant's performance of each
of Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.02 DEFAULTS. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in
Section 4.04;
13
<PAGE> 14
(b) If Tenant fails to pay Rent or any other charge within ten (10)
days after written notice from Landlord that such payment is due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after
written notice from Landlord (provided, however, that if more than thirty
(30) days are required to complete such performance, Tenant shall not be
in default if Tenant commences such performance within the 30-day period
and thereafter diligently pursues its completion); and
(d) If (i) Tenant makes a general assignment or general arrangement
for the benefit of creditors, (ii) if a petition for adjudication of
bankruptcy or for reorganization or rearrangement is filed by or against
Tenant and is not dismissed within thirty (30) days, (iii) a trustee or
receiver is appointed to take possession of substantially all of Tenant's
assets located at the Property or of Tenant's interest in the Lease and
possession is not restored to Tenant within thirty (30) days, or (iv)
substantially all of Tenant's assets located at the Property or of
Tenant's interest in the Lease is subjected to attachment, execution or
other judicial seizure which is not discharged within thirty (30) days
(provided, however, that if a court of competent jurisdiction determines
that any of the acts described in this subparagraph (d) is not a default
under this Lease, and a trustee is appointed to take possession (or if
Tenant remains a debtor in possession) and such trustee or Tenant
transfers Tenant's interest hereunder, then Landlord shall receive, as
Additional Rent, the excess, if any, of the Rent (or any other
consideration paid in connection with such assignment or sublease) over
the rent payable by Tenant under this Lease.
Notwithstanding the foregoing, Landlord shall not be required to give any
notice of default hereunder if Tenant's failure to perform constitutes a
non-curable breach of this Lease. Any notice required by this Section 10.02
is intended to satisfy any and all notice requirements imposed by law on
Landlord and is not in addition to any such requirement.
Section 10.03 REMEDIES. On the occurrence of any material default by
Tenant, Landlord may take any of the following actions at any time thereafter,
with or without notice or demand and without limiting Landlord in the exercise
of any right or remedy which Landlord may have.
(a) Landlord may terminate Tenant's right to possession of the Property by
any lawful means, in which case this Lease, at Landlord's option and election,
shall terminate and Tenant shall immediately surrender possession of the
Property to Landlord. In such event, Landlord shall be entitled to recover
from Tenant all damages incurred by Landlord by reason of Tenant's default,
including (i) the worth at the time of the award of the unpaid Base Rent and
all Additional Rent and other charges which Landlord has earned at the time of
the termination, (ii) the worth at the time of the award of the amount by which
the unpaid Base Rent and all Additional Rent and other charges which Landlord
would have earned after termination until the time of the award exceed the
amount of such rental loss that Tenant proves Landlord could have reasonably
avoided; (iii) the worth at the time of the award of the amount by which the
unpaid Base Rent and all Additional Rent and other charges which Tenant would
have paid for the balance of the Lease Term after the time of the award exceeds
the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or
expenses Landlord incurs in maintaining or preserving the Property after such
default, the cost of recovering possession of the Property, expenses of
reletting, including necessary renovation or alteration of the Property,
Landlord's
14
<PAGE> 15
reasonable attorney fees incurred in connection therewith, and any real estate
commission paid or payable. As used in subparts (i) and (ii) above, the
"worth at the time of the award" is computed by allowing interest on unpaid
amounts at the rate of fifteen percent (15%) per annum, or such lesser amount
as may then be the maximum lawful rate. As used in subpart (iii) above, the
"worth at the time of the award" is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of the
award plus one percent (1%).
(b) Landlord may maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant has abandoned the
Property. In such event, Landlord shall be entitled to enforce all of
Landlord's rights and remedies under this Lease, including the right to recover
the rent as it becomes due.
(c) Landlord may pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the state in which the
Property is located.
If Tenant has abandoned the Property, Landlord shall have the option of
retaking possession of the Property and recovering from Tenant the amount
specified in subparagraph (a) above, or proceeding under subparagraph (b)
above. All rights and remedies provided to Landlord hereunder are cumulative
with all other rights and remedies provided hereunder or otherwise available at
law or in equity, and Landlord's exercise of any right or remedy shall not
prevent it from exercising any other right or remedy.
Section 10.04 REPAYMENT OF "FREE" RENT. If this Lease provides for a
postponement of any monthly rental payments, a period of "free" rent or other
rent concession, such postponed rent or "free" rent is called the "Abated
Rent." Tenant shall be credited with having paid all of the Abated Rent on
the expiration of the Lease Term only if Tenant has fully, faithfully and
punctually performed all of Tenant's obligations hereunder, including the
payment of all rent (other than the Abated Rent) and all other monetary
obligations and the surrender of the Property in the physical condition
required by this Lease. Tenant acknowledges that its right to receive credit
for the Abated Rent is absolutely conditioned upon Tenant's full, faithful and
punctual performance of its obligations under this Lease. If Tenant defaults
and does not cure within any applicable grace period, the Abated Rent shall
immediately become due and payable in full and this Lease shall be enforced as
if there were no such rent abatement or rent concession. In such case Abated
Rent shall be calculated based on the full initial rent payable under this
Lease.
Section 10.05 AUTOMATIC TERMINATION. Notwithstanding any other term or
provision hereof to the contrary, at Landlord's election, this Lease shall
terminate on the occurrence of any act which affirms Landlord's intention to
terminate the Lease as provided in Section 10.03 hereof, including the filing
of an unlawful detainer action against Tenant. On such termination, Landlord's
damages for default shall include all costs and fees, including reasonable
attorney fees that Landlord incurs in connection with the filing, commencement,
pursuing and/or defending of any action in any bankruptcy court or other court
with respect to the Lease; the obtaining of relief from any stay in bankruptcy
restraining any action to evict Tenant; or the pursuing of any action with
respect to Landlord's right to possession of the Property. All such damages
suffered (apart from Base Rent and other rent payable hereunder) shall
constitute pecuniary damages which must be reimbursed to Landlord prior to
assumption of the Lease by Tenant or any successor to Tenant in any bankruptcy
or other proceeding.
15
<PAGE> 16
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01 SUBORDINATION. Landlord shall have the right to
subordinate this Lease to any ground lease, deed of trust or mortgage
encumbering the Property, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded. Tenant shall cooperate with Landlord and any
lender which is acquiring a security interest in the Property or the Lease.
Tenant shall execute such further documents and assurances as such lender may
require, provided that Tenant's obligations under this Lease shall not be
increased in any material way (the performance of ministerial acts shall not be
deemed material), and Tenant shall not be deprived of its rights under this
Lease. Tenant's right to quiet possession of the Property during the Lease
Term shall not be disturbed if Tenant pays the Rent and performs all of
Tenant's obligations under this Lease and is not otherwise in default. If any
ground lessor, beneficiary or mortgagee elects to have this Lease prior to the
lien of such ground lease, deed of trust or mortgage and gives written notice
thereof to Tenant, this Lease shall be deemed prior to such ground lease, deed
of trust or mortgage whether this Lease is dated prior to subsequent to the
date of such ground lease, deed of trust or mortgage or the date of recording
thereof.
Section 11.02 ATTORNMENT. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of
any statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.03 SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such
attornment or subordination or agreement to do so. If Tenant fails to do so
within ten (10) days after written request, Tenant hereby makes, constitutes
and irrevocably appoints Landlord, or any transferee or successor of Landlord,
the attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.04 ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i)
that none of the terms or provisions of this Lease have been changed (or
if they have been changed, stating how they have been changed); (ii) that
this Lease has not been cancelled or terminated; (iii) the last date of
payment of the Base Rent and other charges and the time period covered by
such payment; (iv) that Landlord is not in default under this Lease (or,
if Landlord is claimed to be in default, stating why); and (v) such other
representations or information with respect to Tenant or the Lease as
Landlord may reasonably request or which any prospective purchaser or
encumbrancer of the Property may require. Tenant shall deliver such
statement to Landlord within ten (10) days after Landlord's request.
Landlord may give any such statement by Tenant to any prospective
purchaser or encumbrancer of the Property, who may rely conclusively upon
such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within
such ten-day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts:
(i) that the terms or provisions of this Lease have not been changed
except as otherwise represented by Landlord; (ii) that this Lease has not
been cancelled or terminated except as otherwise represented by Landlord;
(iii) that not more than one month's Base Rent or other charges have been
paid in advance; and (iv) that Landlord is
16
<PAGE> 17
not in default under this Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
Section 11.05 TENANT'S FINANCIAL CONDITION. Tenant hereby warrants,
represents, and agrees that it has the financial ability to perform all
obligations and covenants hereunder. Tenant agrees that it will immediately
advise Landlord of any adverse financial reports or matter which might
materially impair Tenant's ability to perform its obligations and covenants
hereunder. Tenant shall deliver to any lender designated by Landlord any
financial statements required by such lender to facilitate the financing and
refinancing of the Property. Tenant represents and warrants to Landlord that
each such financial statement will be a true and accurate statement as of the
date thereof. All financial statements shall be confidential and shall be
used only for the purposes set forth in this Lease
ARTICLE TWELVE: LEGAL COSTS
Section 12.01 LEGAL PROCEEDINGS. If Tenant or Landlord shall be in
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach
or default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the court in such action shall award to
the party in whose favor a judgment is entered, a reasonable sum as attorney
fees and costs. The losing party in such action shall pay such attorney fees
and costs. Tenant shall also indemnify Landlord against and hold Landlord
harmless from all costs, expenses, demands and liability Landlord may incur if
Landlord becomes or is made a party to any claim or action which is: (a)
instituted by Tenant against any third party, or by any third party against
Tenant, or by or against any person holding any interest under or using the
Property by license of or agreement with Tenant; (b) for foreclosure of any
lien for labor or material furnished to or for Tenant or such other person; (c)
otherwise arising out of or resulting from any act or transaction of Tenant or
such other person; or (d) necessary to protect Landlord's interest under this
Lease in a bankruptcy proceeding, or other proceeding under Title 11 of the
United States Code, as amended. Tenant shall defend Landlord against any such
claim or action at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs Landlord incurs in any such claim or action.
Section 12.02 LANDLORD'S CONSENT. Tenant shall pay Landlord's
reasonable attorney fees incurred in connection with Tenant's request for
Landlord's consent under Article Nine (Assignment and Subletting), or in
connection with any other act which Tenant proposes to do and which requires
Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01 NON-DISCRIMINATION. Tenant promises, and it is a
condition to the continuance of this Lease, that there will be no
discrimination against, or segregation of, any person or group of persons on
the basis of race, color, sex, creed, national origin or ancestry in the
leasing, subleasing, transferring, occupancy, tenure or use of the Property or
any portion thereof.
Section 13.02 LANDLORD'S LIABILITY; CERTAIN DUTIES.
17
<PAGE> 18
(a) As used in this Lease, the term "Landlord" means only the
current owner or owners of the fee title to the Property or the leasehold
estate under a ground lease of the Property at the time in question.
Each Landlord is obligated to perform the obligations of Landlord under
the Lease only during the time such Landlord owns such interest or title.
Any Landlord who transfers its title or interest is relieved of all
liability with respect to the obligations of Landlord under this Lease to
be performed on or after the date of transfer. However, each Landlord
shall deliver to its transferee all funds that Tenant previously paid if
such funds have not yet been applied under the terms of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any
ground lessor, mortgagee or beneficiary under any deed of trust
encumbering the Property whose name and address has been furnished to
Tenant in writing. Landlord shall not be in default under this Lease
unless Landlord (or such ground lessor, mortgagee or beneficiary) fails
to cure such non-performance within thirty (30) days after receipt of
Tenant's notice. However, if such non-performance reasonably requires
more than thirty (30) days to cure, Landlord shall not be in default if
such cure is commenced within such 30-day period and thereafter
diligently pursued to completion.
(c) Notwithstanding any term of provision herein to the contrary,
the liability of Landlord for the performance of its duties and
obligations under this Lease is limited to Landlord's interest in the
Property, and neither the Landlord nor its partners, shareholders,
officers, members, managers or other principals shall have any personal
liability under this Lease.
Section 13.03 SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.04 INTERPRETATION. The captions of the Articles or
Sections of this Lease are to assist the parties in reading this Lease and are
not a part of the terms or provisions of this Lease. Whenever required by the
context of this Lease, the singular shall include the plural and the plural
shall include the singular. The masculine, feminine and neuter genders shall
each include the others. In any provision relating to the conduct, acts or
omissions of Tenant, the term "Tenant" shall include Tenant's agents,
employees, contractors, invitees, successors or other using the Property with
Tenant's expressed or implied permission.
Section 13.05 INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS.
Landlord and Tenant acknowledge that Tenant currently occupies the major
portion of the space in the Building pursuant to a certain Lease dated October
1, 1991, as previously amended (the "Existing Lease"). The lease under
which Xenometrix, Inc. leases the remainder of the space in the Building (the
"Xenometrix Lease") is being terminated in accordance with a certain Lease
Termination Agreement between Landlord and Xenometrix (the "Termination
Agreement") upon the occurrence of certain conditions. On the Termination
Date (as defined in the Termination Agreement), the Existing Lease and the
Xenometrix Lease shall terminate, and be superseded by this Lease; thereafter,
this Lease shall be the only agreement between the parties pertaining to the
lease of the Property. All amendments to this Lease shall be in writing and
signed by all parties. Any other attempted amendment shall be void.
Section 13.06 NOTICES. All notices required or permitted under this
Lease shall be in writing and shall be personally delivered or sent by
certified mail, return receipt requested, postage prepaid. Notices to Tenant
shall be delivered to the address specified in Section 1.03 above, except that
upon
18
<PAGE> 19
Tenant's taking possession of the Property, the Property shall be Tenant's
address for notice purposes. Notices to Landlord shall be delivered to the
address specified in Section 1.02 above. All notices shall be effective upon
delivery. Either party may change its notice address upon written notice to
the other party.
Section 13.07 WAIVERS. All waivers must be in writing and signed by
the waiving party. Either party's failure to enforce any provision of this
Lease, or Landlord's acceptance of Rent, shall not be a waiver and shall not
prevent such party from enforcing that provision or any other provision of this
Lease in the future. No statement on a payment check from Tenant or in a
letter accompanying a payment check shall be binding on Landlord. Landlord
may, with or without notice to Tenant, negotiate such check without being bound
to the conditions of such statement.
Section 13.08 NO RECORDATION. Tenant shall not record this Lease
without prior written consent from Landlord. However, either Landlord or
Tenant may require that a "Short Form" memorandum of this Lease executed by
both parties be recorded. The party requesting such recording shall pay all
transfer taxes and recording fees.
Section 13.09 BINDING EFFECT; CHOICE OF LAW. This Lease binds any
party who legally acquires any rights or interest in this Lease from Landlord
or Tenant. However, Landlord shall have no obligation to Tenant's successor
unless the rights or interests of Tenant's successor are acquired in accordance
with the terms of this Lease. The laws of the state in which the Property is
located shall govern this Lease, and the exclusive venue for any action
relating to this Lease shall be in Colorado.
Section 13.10 CORPORATE, COMPANY OR PARTNERSHIP AUTHORITY. If Tenant
is an entity, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation, company or partnership, as the case may be. If Landlord so
requests, Tenant shall promptly deliver to Landlord written evidence of such
authority, in form and substance reasonably acceptable to Landlord.
Section 13.11 FORCE MAJEURE. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are
not limited to, acts of God, war, civil commotion, labor disputes, strikes,
fire, flood or other casualty, shortages of labor or material, government
regulation or restriction and weather conditions.
Section 13.12 EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this
Lease to Tenant shall not be deemed to be an offer to lease and shall not be
binding upon either party until executed and delivered by both parties.
Section 13.13 SURVIVAL. All representations and warranties of Landlord
and Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS
Landlord and Tenant each warrant that they have dealt with no real estate
brokers in connection with this transaction.
19
<PAGE> 20
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
date set forth in Section 1.01 above.
LANDLORD:
WILDERNESS PLACE, LTD.,
a Colorado limited partnership
By WOODS TWO VENTURE GROUP LTD.,
a Colorado limited partnership,
General Partner
By THE CHARLES P. WOODS
CORPORATION,
a Colorado corporation,
General Partner
By /s/ CHARLES P. WOODS
-----------------------------
Charles P. Woods, President
TENANT:
NEXSTAR PHARMACEUTICALS, INC.,
a Delaware corporation
By /s/ MICHAEL E. HART
-----------------------------
20
<PAGE> 1
LOAN AGREEMENT
BETWEEN
NEXSTAR PHARMACEUTICALS, INC.
AND
THE SUMITOMO BANK, LIMITED
JUNE 28, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Definitional Provisions . . . . . . . . . . . . 1
ARTICLE II. LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.1. Term Note . . . . . . . . . . . . . . . . . . . 1
Section 2.2. Use of Proceeds . . . . . . . . . . . . . . . . 3
Section 2.3. Payments . . . . . . . . . . . . . . . . . . . 4
Section 2.4. Prepayments . . . . . . . . . . . . . . . . . . 5
Section 2.5. Indemnification; Increased Costs . . . . . . . 5
Section 2.6. Investment Account and Custodian Account . . . . 6
Section 2.7. Change In Legality . . . . . . . . . . . . . . 7
ARTICLE III. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . 8
Section 3.1. Organization . . . . . . . . . . . . . . . . . . 8
Section 3.2. Power, Authority, Consents . . . . . . . . . . . 8
Section 3.3. No Violation of Law or Agreements . . . . . . . 9
Section 3.4. Due Execution, Validity, Enforceability. . . . . 9
Section 3.5. Judgments, Actions, Proceedings . . . . . . . . 9
Section 3.6. No Defaults, Compliance With Laws . . . . . . . 9
Section 3.7. No Materially Adverse Contracts, Etc. . . . . . 10
Section 3.8. Financial Statements. . . . . . . . . . . . . . 10
Section 3.9. Title to Properties; Leases . . . . . . . . . . 10
Section 3.10. Priority of Liens . . . . . . . . . . . . . . . 11
Section 3.11. Patents, Copyrights, Licenses, Etc . . . . . . 11
Section 3.12. Tax Returns . . . . . . . . . . . . . . . . . . 11
Section 3.13. Regulation U; Margin Stock . . . . . . . . . . 11
Section 3.14. Full Disclosure . . . . . . . . . . . . . . . . 11
Section 3.15. ERISA . . . . . . . . . . . . . . . . . . . . . 12
Section 3.16. Environmental Compliance . . . . . . . . . . . 12
Section 3.17. Other Regulations . . . . . . . . . . . . . . . 14
Section 3.18. Compliance with Securities Laws . . . . . . . . 14
Section 3.19. Solvency . . . . . . . . . . . . . . . . . . . 14
Section 3.20. Subsidiaries or Affiliates . . . . . . . . . . 14
Section 3.21. Pending Litigation . . . . . . . . . . . . . . 14
Section 3.22. Compliance With Investment Policy. . . . . . . 14
</TABLE>
i
<PAGE> 3
(continuation) TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.1. Conditions Precedent to the Effectiveness
of this Agreement . . . . . . . . . . . . . . 14
ARTICLE V. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.1. Books and Records . . . . . . . . . . . . . . . . 16
Section 5.2. Inspections and Audits. . . . . . . . . . . . . . 16
Section 5.3. Perform Obligations . . . . . . . . . . . . . . . 16
Section 5.4. Fees and Expenses . . . . . . . . . . . . . . . . 17
Section 5.5. Maintenance of Existence; Conduct of Business . . 17
Section 5.6. Insurance . . . . . . . . . . . . . . . . . . . . 17
Section 5.7. Certain Taxes . . . . . . . . . . . . . . . . . . 18
Section 5.8. Use of Proceeds . . . . . . . . . . . . . . . . . 18
Section 5.9. Further Assurances With Respect To Accounts . . . 18
Section 5.10. Financial Covenants . . . . . . . . . . . . . . . 18
Section 5.11. Deposits Into Custodian Account . . . . . . . . . 19
ARTICLE VI. DELIVERY OF FINANCIAL REPORTS,
DOCUMENTS AND OTHER INFORMATION. . . . . . . . . . . . . . . . 19
Section 6.1. Annual Financial Statements . . . . . . . . . . . 19
Section 6.2. Quarterly Financial Statements. . . . . . . . . . 20
Section 6.3. 10Q and 10K Filings . . . . . . . . . . . . . . . 20
Section 6.4. Cash and Covenant Reports . . . . . . . . . . . . 20
Section 6.5. Other Information . . . . . . . . . . . . . . . . 20
Section 6.6. No Default Certificate . . . . . . . . . . . . . 21
Section 6.7. Notices . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VII.NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 7.1. Liens . . . . . . . . . . . . . . . . . . . . . . 22
Section 7.2. Changes in Business; Merger or Consolidation;
Disposition of Assets . . . . . . . . . . . . 23
Section 7.3. Change of Office Address . . . . . . . . . . . . 23
Section 7.4. Violation of Agreement . . . . . . . . . . . . . 23
ARTICLE VIII. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.1. Events of Default . . . . . . . . . . . . . . . . 23
</TABLE>
ii
<PAGE> 4
(continuation) TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IX. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . 26
Section 9.1. Indemnity; Additional Fees . . . . . . . . . . 26
Section 9.2. Survival of Agreements and Representations. . . 26
Section 9.3. Modifications, Consents and Waivers . . . . . . 26
Section 9.4. Entire Agreement . . . . . . . . . . . . . . . 27
Section 9.5. Remedies Cumulative . . . . . . . . . . . . . . 27
Section 9.6. Further Assurances. . . . . . . . . . . . . . . 27
Section 9.7. Notices . . . . . . . . . . . . . . . . . . . . 27
Section 9.8. Construction; Governing Law . . . . . . . . . . 28
Section 9.9. Waiver of Jury Trial. . . . . . . . . . . . . . 29
Section 9.10. Jurisdiction . . . . . . . . . . . . . . . . . 29
Section 9.11. Relationship of the Borrower and the Bank . . . 29
Section 9.12. Severability . . . . . . . . . . . . . . . . . 29
Section 9.13. Binding Effect; Assignment . . . . . . . . . . 30
Section 9.14. Counterparts . . . . . . . . . . . . . . . . . 31
APPENDIX A TO LOAN AGREEMENT -- DEFINITIONS . . . . . . . . . . . . . . . . . . A-1
</TABLE>
Exhibit 2.1 Form of Note
Exhibit 2.6B Form of Irrevocable Instructions to Custodian
Schedule 3.5 Judgments, Actions, Proceedings
Schedule 3.11 Pending Litigation On Intellectual Property Rights
Schedule 3.15 ERISA
Schedule 3.16 Environmental Compliance
Schedule 3.20 Subsidiary or Affiliate
Schedule 3.21 Pending Litigation and Claims
Schedule 5.6 Insurance In Effect
Schedule 7.1 Security Deposits Under Leases
Schedule 8.1(j) Borrower's Cash Investment Policy
iii
<PAGE> 5
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is made as of June 28, 1996 by and
between NEXSTAR PHARMACEUTICALS, INC., a Delaware corporation ("NeXstar" or the
"Borrower"), and THE SUMITOMO BANK, LIMITED, a Japanese banking corporation
(the "Bank").
The Borrower and the Bank hereby agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1. DEFINITIONAL PROVISIONS.
(a) Capitalized terms used in this Agreement and defined in
Appendix A hereto, which Appendix A is attached to this Agreement and by
this reference made a part hereof, shall have the respective meanings
specified in such Appendix A.
(b) All terms defined in Appendix A shall have such defined
meanings when used in any certificate or any other document made or
delivered pursuant to this Agreement unless otherwise defined in such
other document or certificate.
(c) All accounting terms not specifically defined in this
Agreement or in Appendix A hereto shall be construed in accordance with
generally accepted accounting principles as in effect in the United
States of America on the date of this Agreement.
ARTICLE II.
LOAN
SECTION 2.1. TERM NOTE.
(a) The Bank hereby agrees, on the terms and subject to the
conditions of this Agreement, to loan to the Borrower an aggregate
principal amount of Ten Million Dollars ($10,000,000) (the "Loan"). The
Bank will make an initial Disbursement to the Borrower on the Closing
Date in the amount of Ten Million Dollars ($10,000,000). The obligation
of the Borrower to repay the Loan and to pay interest and all other
costs and charges payable hereunder will be evidenced by a promissory
note in the form of Exhibit 2.1 (the
1
<PAGE> 6
"Note") dated the Closing Date and payable to the order of the Bank in
the original principal amount of Ten Million Dollars ($10,000,000).
(b) The Loan shall bear interest, and the Borrower shall pay
interest on the outstanding principal balance of the Loan from the date
of the initial Disbursement to the Borrower until the Maturity Date, at
the following rates per annum:
(i) with respect to any portion of such Loan which is a
Eurodollar Rate Loan Portion, interest at a rate per annum on
such Eurodollar Rate Loan Portion equal (at all times during each
applicable Interest Period) to the Reserve Adjusted Eurodollar
Rate for such applicable Interest Period plus the Applicable
Margin; and
(ii) with respect to each portion of such Loan which is
not a Eurodollar Rate Loan Portion, interest at a rate per annum
on each such Loan Portion equal to the Prime Rate.
Not later than 12:00 noon (Chicago time) on the third
Business Day prior to the initial funding of the Loan, the Borrower
shall provide written notice ("Initial Notice") to the Bank of the
dollar amount of the initial Disbursement which will be a Eurodollar
Rate Loan Portion for the initial Interest Period. In the event that
the Borrower fails to provide the Initial Notice in accordance with the
preceding sentence, then the outstanding principal balance of the Loan
shall bear interest at the Prime Rate until such time as Borrower has
given an Election Notice in accordance with Section 2.1(c) below.
Computations of interest will be on the basis of a 360 day year, for
actual days elapsed with respect to interest accruing.
(c) The Borrower, upon written notice (the "Election Notice")
given to the Bank by not later than 12:00 noon (Chicago time) on the
third Business Day prior to the expiration of the Interest Period for
any Eurodollar Rate Loan Portion in the case of any continuation of a
Eurodollar Rate Loan Portion as such, and not later than 12:00 Noon
(Chicago time) on the conversion date in the case of any conversion into
a Prime Rate Loan Portion, may elect: (1) to continue such portion or
any part thereof as a Eurodollar Rate Loan Portion for the next
succeeding Interest Period; or (2) to convert such portion or any part
thereof to a Prime Rate Loan Portion; or (3) a combination thereof,
effective the last day of such Interest Period.
At the end of each applicable Interest Period, in the
absence of a timely effective Election Notice to continue the applicable
Loan Portion as a Eurodollar Rate Loan Portion, such Loan Portion shall
bear interest at the Prime Rate. Notwithstanding anything herein to the
contrary, if at the end of an applicable Interest Period for a
Eurodollar Rate Loan Portion, an Event of Default has occurred and is
continuing, then the Borrower shall have no right to give an Election
Notice, and the Bank may ignore any attempt by the Borrower to give an
Election Notice.
2
<PAGE> 7
(d) An Election Notice with respect to any Eurodollar Rate Loan
Portion shall contain the following information:
(i) the dollar amount (if any) which is to be continued as
a Eurodollar Rate Loan Portion; and
(ii) with respect to the dollar amount to be continued as
a Eurodollar Rate Loan Portion, the new Interest Period.
Notwithstanding anything herein to the contrary, the
outstanding Loan balance may not at any time be comprised of more
than five (5) Eurodollar Rate Loan Portions at the same time
without the Bank's consent, which shall be in the Bank's sole and
absolute discretion. Once received by the Bank, any Election
Notice will be irrevocable for the applicable Eurodollar Rate
Loan Portion for the applicable Interest Period.
The Borrower hereby authorizes the Bank to record on
schedule(s) annexed to the Note (a) the date and amount of each Loan
Portion; (b) the term of the Interest Period for each Eurodollar Rate
Loan Portion; (c) the interest rate or rates for each Prime Rate Loan
Portion and the effective date(s) of all changes in such rates; and (d)
the date and amount of each principal and interest payment on each Loan
Portion made by the Borrower, and the Borrower agrees that all such
notations shall constitute prima facie evidence of the matters noted
absent manifest error, provided that the failure of the Bank to record
such information shall not reduce or affect the obligations of the
Borrower hereunder or under the Loan Agreement.
(e) In the event that on the date for determining the Reserve
Adjusted Eurodollar Rate to be paid by the Borrower in respect of any
Interest Period, the Bank determines in good faith (which determination
will be conclusive and binding on the Borrower) that by reason of
circumstances affecting the London interbank Eurodollar market, either
Eurodollar rates are not offered in the London interbank Eurodollar
market or adequate and fair means do not exist for ascertaining the
Reserve Adjusted Eurodollar Rate for such Interest Period, the Bank
shall promptly give to the Borrower telephonic notice (confirmed as soon
as practicable in writing) of such determination. During the existence
of such circumstances, any existing Eurodollar Rate Loan Portion in
respect of which such circumstances exist will convert to a Prime Rate
Loan Portion at the end of the applicable Interest Period.
SECTION 2.2. USE OF PROCEEDS. The proceeds of the Loan shall be used by
the Borrower for the purpose of funding, or replenishing working capital
reserves used to fund, capital expenditures for enhancement of research and
development facilities and acquisition of laboratory equipment and for general
corporate purposes.
3
<PAGE> 8
SECTION 2.3. PAYMENTS.
(a) The Borrower will repay the principal amount of the Loan in
forty-eight (48) equal consecutive monthly installments of principal
(each installment being in an amount sufficient to amortize the
outstanding principal balance of the Loan over a period of forty-eight
(48) months), together with interest thereon commencing from the Closing
Date, payable on the last Business Day of each calendar month commencing
with the first payment due on July 31, 1996 and continuing until the
Maturity Date, on which date the Borrower shall make a final payment in
an amount equal to all the then unpaid principal of the Loan and all
unpaid interest thereon. Notwithstanding the foregoing, repayment of
the Loan and all accrued and unpaid interest thereon may be accelerated
upon the occurrence and continuance of an Event of Default.
(b) The Borrower shall make all payments hereunder in U.S.
Dollars and in immediately available funds at the Bank's office at 233
S. Wacker Drive, Suite 5400, Chicago, Illinois 60606 (or at such other
office as the Bank may notify the Borrower in writing) via wire transfer
to Sumitomo Bank, Limited, Chicago Branch, ABA 071001850, through the
Federal Reserve Bank of Chicago, Reference: NeXstar. Payments not made
prior to 12:00 noon (Chicago time) on the date of payment will be deemed
paid on the next Business Day. Payments which fall due on a day which
is not a Business Day will be payable on the next Business Day, with
interest to accrue to such date of payment. All payments hereunder and
under the Note shall be made without set-off or counterclaim and in such
amounts as may be necessary in order that all such payments shall not be
less than the amounts otherwise specified to be paid under this
Agreement or the Note, as the case may be.
(c) Any installment of interest only or of principal and
interest paid more than five (5) days late or any other amount payable
hereunder which is not paid when due, will bear (and the Borrower shall
pay) interest (to the extent permitted by law) from such due date until
such unpaid amount has been paid in full (whether before or after
judgment) at a rate per annum equal to three and one-half percent (3.5%)
in excess of the rate then applicable to each Loan Portion until the end
of any Interest Period then applicable to such Loan Portion and
thereafter at a rate per annum equal to three and one-half percent
(3.5%) in excess of the Prime Rate ("Default Rate").
(d) In partial consideration for the Bank making the Loan to
the Borrower, the Borrower shall pay to Bank a loan fee ("Loan Fee") in
an amount equal to one and one-and one-eighth percent (1.125%) of the
total loan amount of $10,000,000. Said Loan Fee in the amount of One
Hundred Twelve Thousand Five Hundred Dollars ($112,500) shall be due and
payable to the Bank on the Closing Date. On the Closing Date, Borrower
hereby authorizes Bank to deduct and pay the Loan Fee, together with all
other fees and expenses of the Bank identified in Section 4.1(h) below,
from the available proceeds of the Loan.
4
<PAGE> 9
SECTION 2.4. PREPAYMENTS. Subject to this Section 2.4, the Borrower
may, upon five (5) Business Days' prior notice to the Bank, prepay the
outstanding amount of the Loan in whole or in part. In the event that the
Borrower prepays or is required to prepay any Eurodollar Rate Loan Portion by
acceleration or otherwise or fails to draw down or convert to a Eurodollar Rate
Loan Portion after giving notice thereof, the Borrower agrees to reimburse the
Bank for its expenses, funding losses and loss of anticipated profits due to
such prepayment or failure to draw. The Borrower and the Bank hereby agree
that such expenses, funding losses and loss of anticipated profits shall
consist of the sum of:
(a) Principal amount of each such Eurodollar Rate Loan Portion
times (([number of days between the date of prepayment and the last day
in the applicable Interest Period] divided by 360), times the applicable
Interest Differential); plus
(b) All actual out-of-pocket expenses (other than those taken
into account in the calculation of the Interest Differential) incurred
by the Bank (excluding allocations of any expense internal to the Bank)
and reasonably attributable to such payment or prepayment.
Notwithstanding the foregoing, no prepayment fee shall be payable (and no
credit or rebate shall be required) if the product of the foregoing formula is
not a positive number. The Loan is not in a nature of a revolving loan;
therefore, amounts prepaid or repaid under the Note may not be reborrowed.
SECTION 2.5. INDEMNIFICATION; INCREASED COSTS. If after the date of
this Agreement the Bank reasonably determines that any Regulatory Change, or
compliance by the Bank with any request or directive (whether or not having the
force of law) of any governmental authority, central bank or comparable agency
charged with the interpretation or administration of any applicable law, rule
or regulation which is effective or issued after the date hereof:
(a) Subjects the Bank to any tax, duty or other charge with
respect to the Loan or the Note, or changes the basis of taxation of
payments to the Bank of the principal of or interest on the Loan or any
other amounts due under this Agreement in respect of the Loan except for
changes in the rate of tax on the overall net income of the Bank or its
lending office imposed by the State of California or the jurisdictions
in which the Bank's principal executive office or applicable lending
office is located) (such non-excluded amounts, "Taxes"); or
(b) Imposes, modifies or deems applicable any reserve
(including, without limitation, any reserve imposed by the Board of
Governors of the Federal Reserve System), special deposit, liquidity,
capital maintenance, capital adequacy, capital ratio (including, but
without limitation thereto, any request by or requirement of any
regulatory body or official which affects the manner in which the Bank
allocates capital resources to its obligations hereunder), for the
account of, or credit extended by, the Bank or imposes on the Bank any
other condition affecting the Loan, or the Note;
5
<PAGE> 10
and the result of any of the foregoing is to (A) impose a cost on or increase
the cost to the Bank of making or maintaining the Loan, or (B) cause an
increase in any capital requirement arising out of the making or maintenance of
the Loan or any obligation to the Borrower hereunder or (C) reduce the amount
of any sum received or receivable by the Bank under this Agreement or under the
Note, by an amount deemed by the Bank to be material, then, within ten (10)
days after demand by the Bank, the Borrower shall pay for the account of the
Bank such additional amount or amounts as will compensate the Bank for such
increased cost or reduction as such cost or reduction is incurred by the Bank.
If the Bank makes any claim for compensation under this Section 2.5, the
Borrower may immediately elect by written notice (or telephonic notice
confirmed as soon as practicable in writing) to the Bank to prepay the Loan
(but subject to payment of any other amounts due under Section 2.4 and this
Section 2.5, including any increased cost or reduction incurred through the
date of such prepayment or conversion). The Bank shall promptly notify the
Borrower of any event of which it has knowledge, occurring after the date
hereof, which will entitle the Bank to compensation pursuant to this Section
2.5. The Bank shall provide to the Borrower a certificate claiming
compensation under this Section 2.5, setting forth the additional amount or
amounts to be paid to it hereunder and showing in reasonable detail the Bank's
calculation thereof which shall be presumed to be correct absent manifest
error. In determining such amount, the Bank may use any reasonable averaging
and attribution methods. The Bank shall exercise reasonable efforts to
promptly provide the Borrower with notice of the imposition, or overtly
threatened exercise of, any Regulatory Change set forth in this Section 2.5 of
which the Bank has actual knowledge, provided, however, that the failure by the
Bank to so provide such notice will not relieve the Borrower of any of its
obligations hereunder.
The Bank agrees that it will use reasonable efforts to reduce or
eliminate any claim for compensation pursuant to this Section 2.5, including
designating a different lending office for the Loans, if such designation will
avoid the need for or reduce the amount of any such compensation, provided that
the Bank will not be obligated to take any actions that would, in the sole
opinion of the Bank, be disadvantageous to the Bank in any material respect (it
being understood that the incurrence of any unreimbursed cost or expense by the
Bank that would not have been incurred but for such action is material).
SECTION 2.6. INVESTMENT ACCOUNT AND CUSTODIAN ACCOUNT.
(a) Prior to the occurrence of a Trigger Event, the Borrower
shall hold at all times Cash and Cash Equivalents, which are not subject
to any Lien or claim of any Person other than the Bank, in an amount not
less than an amount equal to the then outstanding principal balance due
under the Loan plus three (3) months interest thereon at the then
applicable rate provided for herein, in a custodial account (the
"Investment Account") with an institution approved by the Bank (such
institution being referred to herein as the "Custodian"). The initial
Custodian will be Smith Barney, Inc. The amounts held in the Investment
Account shall be subject to the investment control of the Borrower. The
Custodian in respect of the Investment Account cannot be changed or a
new Investment
6
<PAGE> 11
Account opened without the Bank's prior written approval, which approval
shall not be unreasonably withheld. The Borrower shall deliver to the
Custodian the Irrevocable Instructions and Power of Attorney in the form
of Exhibit 2.6.B (the "Irrevocable Instructions and Power of Attorney).
(b) On or before the Closing Date, the Borrower, for the
benefit and on behalf of the Bank, shall establish and maintain or cause
to be established and maintained in the name of the Borrower an account
(the "Custodian Account") with Sumitomo Bank of New York Trust Company
(the "Bailee") under the Custodian Agreement and the Collateral Bailment
Agreement. Pursuant to the Restricted Account and Security Agreement by
and between the Bank and the Borrower, the Borrower has granted to the
Bank a security interest in all of its right, title and interest in the
Custodian Account, all deposits or investments held therein and all
proceeds thereof to secure payment and performance of the Borrower's
obligations hereunder. On or before the Closing Date, the Borrower
shall cause to be deposited in the Custodian Account the sum of One
Thousand Dollars ($1,000). So long as the Borrower is indebted to the
Bank hereunder and until payment in full of the Note and the Borrower's
full and complete performance of its obligations hereunder, the
Custodian Account shall at all times have a Restricted Account Balance
of not less than One Thousand Dollars ($1,000). The terms and
conditions of the Restricted Account and Security Agreement, the
Collateral Bailment Agreement, and the Custodian Agreement are
incorporated herein by reference.
SECTION 2.7. CHANGE IN LEGALITY.
(a) In the event that at any time the Bank shall have
reasonably determined (which determination shall be presumed to be
correct until the contrary shall have been established) that by reason
of a change in any law or regulation or in the interpretation thereof by
any governmental authority charged with the interpretation thereof
affecting the Bank or the Eurodollar market and applicable to any
Eurodollar Rate Loan Portion, the making or continuation of a loan at
the applicable Reserve Adjusted Eurodollar Rate plus the Applicable
Margin has become unlawful, the Bank shall forthwith give written notice
(or telephonic notice, confirmed as soon as practicable in writing) to
the Borrower and the obligation of the Bank to make or maintain such
Eurodollar Rate Portion at the applicable Reserve Adjusted Eurodollar
Rate plus the Applicable Margin shall terminate and the Borrower shall
forthwith upon receipt of notice of such determination prepay such
Eurodollar Rate Loan Portion without premium or penalty (subject to
Sections 2.4 and 2.5), together with all interest accrued on the amount
prepaid to the date of prepayment. A certificate, setting forth (X)
each event which the Bank shall have determined makes the continuation
of such Eurodollar Rate Loan Portion unlawful and (Y) any additional
amounts payable by the Borrower under Sections 2.4 and 2.5 (and the
basis therefor and the Bank's computation thereof) upon prepayment of
such Eurodollar Rate Loan Portion, shall be furnished to the Borrower by
the Bank and shall be presumed correct absent manifest error.
7
<PAGE> 12
(b) In the event that the Borrower is obligated to prepay a
Eurodollar Rate Loan Portion pursuant to clause (a) of this Section 2.7,
the Borrower shall have the right, upon written notice (or telephonic
notice confirmed as soon as practicable in writing) to the Bank, in lieu
of such prepayment, to elect to convert such Eurodollar Rate Portion to
a Prime Rate Loan Portion, effective on the date on which such
prepayment would otherwise be required to have been made, provided that
on the effective date of conversion the Borrower also shall pay all
interest accrued on the amount converted to the date of conversion and
such additional amounts, if any, payable by the Borrower under Section
2.4 and 2.5, as specified in the certificate furnished the Borrower
pursuant to said clause (a).
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Bank that:
SECTION 3.1. ORGANIZATION. NeXstar is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
NeXstar has the power to own its assets, to transact the business in which it
is presently engaged and in which it proposes to be engaged and is duly
qualified and in good standing in each jurisdiction in which the failure to
qualify to do business would materially adversely affect its financial
condition and business operations.
SECTION 3.2. POWER, AUTHORITY, CONSENTS.
(a) NeXstar has the power to execute, deliver and to perform
its obligations under the Loan Documents.
(b) NeXstar has the power to borrow hereunder and has taken all
necessary action to authorize the borrowing hereunder on the terms and
conditions of this Agreement.
(c) NeXstar has taken all necessary corporate action to
authorize the execution, delivery and performance of the Loan Documents.
(d) No consent or approval of any Person, no waiver of any Lien
or right of distraint or other similar right and no consent, license,
approval, authorization or declaration of any governmental authority,
bureau or agency is or will be required in connection with the execution
and delivery of the Loan Documents by NeXstar, or the performance by
NeXstar of its obligations thereunder or the validity, enforcement or
priority of the Loan Documents, or any Lien created and granted
thereunder, except such consents as have been obtained and copies of
which have been delivered to the Bank.
8
<PAGE> 13
SECTION 3.3. NO VIOLATION OF LAW OR AGREEMENTS. The execution and
delivery of the Loan Documents and the performance by NeXstar of its
obligations thereunder, will not violate any provision of law and will not
conflict with or result in a breach of any order, writ, injunction, ordinance,
resolution, decree, or other similar document or instrument of any court or
governmental authority, bureau or agency, domestic or foreign, NeXstar's
charter or bylaws or create (with or without the giving of notice or lapse of
time, or both) a default under or breach of any agreement, bond, note or
indenture to which NeXstar is a party, or by which it is bound or any of its
properties or assets is affected, or result in the imposition of any Lien of
any nature whatsoever upon any of the properties or assets owned by or used in
connection with the business of NeXstar.
SECTION 3.4. DUE EXECUTION, VALIDITY, ENFORCEABILITY. This Agreement
and each of the other Loan Documents has been, or upon the execution and
delivery thereof, will be, duly executed and delivered by NeXstar, and each
constitutes, or, upon the execution and delivery thereof, will constitute, the
valid and legally binding obligation of NeXstar, enforceable in accordance with
its terms, except to the extent that the enforcement thereof may be limited by
applicable bankruptcy, moratorium, insolvency, reorganization, or other similar
laws or equitable principles relating to the enforcement of creditors' rights
generally.
SECTION 3.5. JUDGMENTS, ACTIONS, PROCEEDINGS. Except as set forth in
Schedule 3.5, there are no outstanding judgments, actions (including, without
limitation, derivative actions), suits or proceedings pending before any court
or governmental authority, bureau or agency, having a claim or amount in
controversy that exceeds $10,000 in any one instance or $50,000 in the
aggregate at any one time with respect to or, to the best of the Borrower's
knowledge, threatened against or affecting NeXstar.
SECTION 3.6. NO DEFAULTS, COMPLIANCE WITH LAWS. NeXstar is not in
material default under any agreement, ordinance, resolution, decree, bond,
note, indenture, order or judgment to which it is a party or by which it is
bound, or its charter documents or bylaws, or any other agreement or other
instrument by which any of the properties or assets owned by it or used in the
conduct of its business is affected or evidencing, guaranteeing or relating to
any outstanding indebtedness, liability or obligation for borrowed money or
lease obligations, which default could have a material adverse effect on the
business, operations, financial condition or properties of NeXstar, or on
NeXstar's ability to perform its obligations under the Loan Documents. NeXstar
has complied and is in compliance in all material respects with all applicable
laws, ordinances and regulations, including, without limitation, the
regulations of the Food and Drug Administration, the non-compliance with which
could have a material adverse effect on the business, operations, financial
condition or properties of NeXstar, or on the ability of NeXstar to perform its
obligations under the Loan Documents.
SECTION 3.7. NO MATERIALLY ADVERSE CONTRACTS, ETC. NeXstar is not
subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation that has, or is expected in the judgment of
the officers of the Borrower, to have a materially
9
<PAGE> 14
adverse effect on the business, assets or financial condition of the Borrower.
It is understood that the preceding sentence shall not apply to government
rules and regulations which affect Borrower in the same general manner as they
do other companies similar to Borrower such as general tax laws and rules
regulating the sale of pharmaceuticals in countries throughout the world.
NeXstar is not a party to any contract or agreement that has or is expected, in
the judgment of the officers of the Borrower, to have any materially adverse
effect on the business of the Borrower.
SECTION 3.8. FINANCIAL STATEMENTS.
(a) NeXstar has furnished to the Bank its most recent audited
Financial Statements and all subsequent unaudited Financial Statements
which are available to the public. Each of the Financial Statements is
correct and complete in all material respects and presents fairly the
financial condition of the Borrower, at its date or for the respective
period, and has been prepared in accordance with generally accepted
accounting principles.
(b) The Borrower has no material obligation, liability or
commitment, direct or contingent, which is not reflected in the
Financial Statements or in any notes thereto in accordance with
generally accepted accounting principles.
(c) There has been no material adverse change in the financial
position or operations of the Borrower since the date of the Financial
Statement for the fiscal quarter ending March 31, 1996.
(d) The Borrower's fiscal year is the twelve (12) month period
ending on December 31 in each year.
SECTION 3.9. TITLE TO PROPERTIES; LEASES. Except as disclosed in the
footnotes to the Financial Statements, NeXstar owns all of the assets reflected
in the most recent balance sheet or acquired since that date (except property
and assets leased, sold or otherwise disposed of in the ordinary course of
business since that date), subject to no rights of others, including any
mortgages, ordinary or capital leases, conditional sales agreements, title
retention agreements, liens or other encumbrances.
SECTION 3.10. PRIORITY OF LIENS. The Liens which have been or will be
created and granted by the Loan Documents upon the execution and delivery
thereof constitute, or will constitute upon such execution and delivery, valid
first priority Liens on the properties and assets covered by the Loan
Documents, subject to no other liens.
SECTION 3.11. PATENTS, COPYRIGHTS, LICENSES, ETC. NeXstar owns or has a
valid right to use all patents, copyrights, trademarks, trade names, licenses,
franchises, and rights in respect of the foregoing ("Intellectual Property
Rights"), adequate for the conduct of its business substantially as now
conducted without conflict with any rights of others, and there are no suits
10
<PAGE> 15
or claims for infringement with respect to the Intellectual Property Rights
except as set forth in Schedule 3.11. Schedule 3.11 lists all pending suits or
claims for infringement with respect to Intellectual Property Rights.
SECTION 3.12. TAX RETURNS.
(a) The Borrower has filed all federal and state income tax
returns and all other tax returns, reports, and declarations required to
be filed by it and has not failed to pay any taxes, or interest and
penalties relating thereto, on or before the due dates thereof except
for returns, taxes, interest or penalties with respect to which it has
duly filed extensions or is contesting the validity thereof by
appropriate legal proceedings diligently conducted in good faith. No
audits of the federal income tax returns of the Borrower are pending.
(b) Except to the extent that reserves therefor are reflected
in the Financial Statements, (i) there are no material federal, state or
local tax liabilities of the Borrower due or to become due for any tax
year ended on or prior to the date of the most recent balance sheet
included in the Financial Statements, whether incurred in respect of or
measured by the income of such entity, which are not properly reflected
in such balance sheet, and (ii) there are no material claims pending or,
to the knowledge of the Borrower proposed or threatened against the
Borrower for past federal, state or local taxes.
SECTION 3.13. REGULATION U; MARGIN STOCK. No part of the proceeds
received by the Borrower from the Loan will be used directly or indirectly for
the purpose of purchasing or carrying, or for payment in full or in part of
indebtedness which was incurred for the purposes of purchasing or carrying, any
margin stock as such term is defined in Regulation U of the Board of Governors
of the Federal Reserve System, 12 C.F.R., Chapter II, Part 221. The Borrower
does not own margin stock which would, in the aggregate, constitute a
substantial part of the assets of the Borrower.
SECTION 3.14. FULL DISCLOSURE. Neither the Financial Statements nor any
certificate, opinion, or any other statement made or furnished in writing to
Bank by or on behalf of the Borrower in connection with this Agreement or the
transactions contemplated herein, contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements
contained therein or herein, in light of the circumstances under which they
were made, not misleading.
SECTION 3.15. ERISA.
(a) With the exceptions of Borrower's 401(K) plans, certain
other employee benefit plans and Borrower's severance plan in connection
with certain employees who were terminated as a result of the merger
between NeXagen, Inc. and Vestar, Inc., all as set forth in Schedule
3.15, none of the Borrower or any of its Affiliates has pension or other
11
<PAGE> 16
employee benefit plans which are subject to the provisions of Title IV
of ERISA (any such plans which have been or may hereafter be adopted or
assumed by the Borrower are hereinafter referred to individually as a
"Plan" and, collectively, as the "Plans"). In connection with the
Plans, Borrower does not have, or know of any likely event which will
give rise to, any direct or contingent material liabilities of the
Borrower to the Pension Benefit Guaranty Corporation ("PBGC"), the
Department of Labor or the Internal Revenue Service ("IRS").
(b) None of the Borrower or any of its Affiliates is a
participating employer in any Plan under which more than one employer
makes contributions as described in Sections 4063 and 4064 of ERISA.
(c) None of the Borrower or any of its Affiliates is a
participating employer in a multiemployer plan as defined in Section
4001(a) of ERISA, which participation could give rise to material
withdrawal liability on the part of the Borrower, as the case may be
under Subtitle E of Title IV of ERISA.
For purposes of this Agreement, all references to "ERISA" shall be
deemed to refer to the Employee Retirement Income Security Act of 1974
(including any sections of the Code) as heretofore amended and as it may
hereafter be amended or modified, and all regulations promulgated thereunder,
and all references to the Borrower in this Section 3.15, or in any other
Section of this Agreement relating to ERISA, shall be deemed to refer to the
Borrower and all other entities which are part of a Controlled Group with
respect to the Borrower.
SECTION 3.16. ENVIRONMENTAL COMPLIANCE. Except as set forth in Schedule
3.16, the Borrower has taken all necessary steps to comply with Environmental
Laws (as hereinafter defined) and has determined that:
(a) NeXstar is not in violation, or alleged violation, of any
judgment, decree, order, law, license, rule or regulation pertaining to
environmental matters, including without limitation, those arising under
the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 as
amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), the Federal Clean Water Act, the Federal Clean Air Act,
the Toxic Substances Control Act, each as amended as of the date hereof,
or any other federal, state or local statute, regulation, ordinance,
order or decree relating to health, safety or the environment
(hereinafter "Environmental Laws"), which violation would have a
material adverse effect on the environment or the business, assets or
financial condition of the Borrower;
(b) The Borrower has not received notice from any third party
including, without limitation, any federal, state or local governmental
authority, (i) that it has been identified by the United States
Environmental Protection Agency ("EPA") as a potentially responsible
12
<PAGE> 17
party under CERCLA with respect to a site listed on the National
Priorities List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that any
hazardous waste, as defined by 42 U.S.C. Section 9601(5), any hazardous
substances as defined by 42 U.S.C. Section 9601(14), any pollutant or
contaminant as defined by 42 U.S.C. Section 9601(33) and any toxic
substances, oil or hazardous materials or other chemicals or substances
regulated by any Environmental Laws ("Hazardous Substances") which it
has generated, transported or disposed of has been found at any site at
which a federal, state or local agency or other third party has
conducted or has ordered that it conduct a remedial investigation,
removal or other response action pursuant to any Environmental Law; or
(iii) that it is or shall be a named party to any claim, action, cause
of action, complaint, or legal or administrative proceeding (in each
case, contingent or otherwise) arising out of any third party's
incurrence of costs, expenses, losses or damages of any kind whatsoever
in connection with the release of Hazardous Substances;
(c) (i) the properties on which the Borrower conducts its
business have not been used by the Borrower for the handling,
processing, storage or Disposal of Hazardous Substances except in
accordance with applicable Environmental Laws; (ii) in the course of any
activities conducted by the Borrower, no Hazardous Substances have been
generated or are being used on property leased by the Borrower on which
the Borrower conducts its business except in accordance with applicable
Environmental Laws; (iii) there has been no Release or threatened
Release of Hazardous Substances by the Borrower on, upon, into or from
the properties on which the Borrower operates its business, which
Release would have a material adverse effect on the Borrower's business;
(iv) to the best of the Borrower's knowledge, there have been no
Releases on, upon, from or into any real property in the vicinity of any
of the properties on which the Borrower conducts its business, through
soil or groundwater contamination, which may have come to be located on,
and which would have a material adverse effect on the Borrower's
business; and (v) in addition, any Hazardous Substances that have been
generated by the Borrower on the properties on which the Borrower
conducts its business have been transported off-site only by carriers
having an identification number issued by the EPA, treated or Disposed
of only by treatment or disposal facilities maintaining valid permits as
required under applicable Environmental Laws, which transporters and
facilities have been and are, to the best of the Borrower's knowledge,
operating in compliance with such permits and applicable Environmental
Laws; and
(d) none of the properties on which the Borrower conducts its
business is or is expected to be in violation of any applicable
environmental clean-up responsibility law or regulation or environmental
restrictive transfer law or regulation, in regard to which failure to
comply would have a material adverse effect on the environment or the
business, assets or financial condition of the Borrower.
SECTION 3.17. OTHER REGULATIONS. The Borrower is not subject to
regulation under the Investment Company Act of 1940, the Public Utility Holding
Company Act of 1935, the Federal
13
<PAGE> 18
Power Act, the Interstate Commerce Act, any state public utilities code or any
federal or state statute or regulations limiting its ability to incur
Indebtedness.
SECTION 3.18. COMPLIANCE WITH SECURITIES LAWS. All offers and sales of
securities of the Borrower have been made in material compliance with all
applicable federal and state securities laws, including without limitation the
Securities Act of 1933 and the Securities Exchange Act of 1934, both as
amended.
SECTION 3.19. SOLVENCY. The Borrower is solvent and is not the subject
of bankruptcy or insolvency proceedings.
SECTION 3.20. SUBSIDIARIES OR AFFILIATES. The Borrower does not have
any Subsidiary or Affiliate (other than as set forth in Schedule 3.20).
SECTION 3.21. PENDING LITIGATION. Except as set forth in Schedule 3.21,
there are no lawsuits or claims pending against Borrower which could have a
material adverse affect on the Borrower's financial condition.
SECTION 3.22. COMPLIANCE WITH INVESTMENT POLICY. The Borrower is in
compliance with its "Investment Policy" for investment of Cash and Cash
Equivalents (as mandated by the Borrower's Board of Directors and as adopted by
the Board of Directors in 1994). A true and correct copy of such Investment
Policy is attached as Schedule 8.1(j).
ARTICLE IV.
CONDITIONS PRECEDENT
SECTION 4.1. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS
AGREEMENT. The effectiveness of this Agreement and the obligations of the Bank
hereunder shall be subject to the following conditions precedent:
(a) The Borrower will have executed and delivered to the Bank
the Note, the Collateral Bailment Agreement, the Restricted Account and
Security Agreement, the Irrevocable Instructions and Power of Attorney,
the Custodian Agreement, the Financing Statement and an original
counterpart of this Agreement.
(b) The Bailee will have executed and delivered the Collateral
Bailment Agreement, the Custodian Agreement and the Restricted Account
and Security Agreement;
(c) The initial Custodian will have executed and delivered its
consent to the Irrevocable Instructions and Power of Attorney to the
Bank;
14
<PAGE> 19
(d) The Borrower shall have deposited One Thousand Dollars
($1,000) into the Custodian Account;
(e) The Borrower will have otherwise fully complied with all of
the terms and conditions of the Loan Documents;
(f) The Borrower will have delivered to the Bank the following,
in form and substance acceptable to the Bank:
(i) a copy of the Certificate of Incorporation of
NeXstar certified by the Secretary of State of Delaware;
(ii) a copy of the by-laws of the Borrower certified by
its Secretary;
(iii) a copy of resolutions of the Board of Directors of
the Borrower authorizing the execution, delivery and performance
by the Borrower of this Agreement, the Note, the Loan Documents
and all instruments and documents provided for herein or therein,
certified by the Secretary of the Borrower;
(iv) a good standing certificate for the Borrower, dated
as of a date not more than ten (10) days prior to the Closing
Date from the Secretary of State of the State of Delaware; and
(v) an incumbency certificate with respect to the
officers of the Borrower, certified by its Secretary.
(g) The in-house general counsel of the Borrower, will have
delivered to the Bank its favorable legal opinion as to the due
organization, existence, qualification to do business, and good standing
of the Borrower, the due authorization, execution and enforceability of
this Agreement and the other Loan Documents, the absence of pending and
threatened litigation, the non-contravention of other documents,
instruments, laws, and regulations, and such other matters as the Bank
may require, in form and substance reasonably satisfactory to the Bank;
(h) The Bank shall have received the Loan Fee and all other
fees and expenses (including, without limitation, Bank's legal fees and
expenses incurred in the negotiation and preparation of the Loan
Documents and any other fees and expenses of the Bank for UCC searches
or filing fees) required to be paid to Bank on or before the Closing
Date;
(i) All representations and warranties of the Borrower
contained herein are true and correct as of the Closing Date and
Borrower will have executed and delivered to Bank such certificates with
respect thereto as Bank may require; and
15
<PAGE> 20
(j) The Bank shall have received written documentation, in a
form satisfactory to Bank in its sole discretion, that either (i) the
Loan and the Loan Documents are permitted under and in compliance with
the terms and conditions of that certain credit facility in the amount
of Five Million Dollars ($5,000,000) from Bank of America National Trust
and Savings Association to Borrower or (ii) such credit facility has
been terminated by Borrower.
ARTICLE V.
AFFIRMATIVE COVENANTS
So long as the Borrower is indebted to the Bank hereunder, and until
payment in full of the Note and full and complete performance of all of its
other obligations arising hereunder (except for the Borrower's obligations
under Section 5.7 or Section 9.1 to indemnify the Bank under certain
circumstances following the payment of the Note), the Borrower shall in all
material respects:
SECTION 5.1. BOOKS AND RECORDS. Keep proper books of record and account
in a manner reasonably satisfactory to the Bank in which full true and correct
entries shall be made of all dealings or transactions in relation to its
business and activities.
SECTION 5.2. INSPECTIONS AND AUDITS. Permit the Bank to make or cause
to be made reasonable inspections and audits of any books, records and papers
of the Borrower and to make extracts therefrom and copies thereof at all such
reasonable times and as often as the Bank may reasonably require, provided,
however, that certain areas of the Borrower's facilities may be restricted for
reasons of health and safety and the Bank will not be permitted access to such
restricted areas.
SECTION 5.3. PERFORM OBLIGATIONS. Pay and discharge all of its
obligations and liabilities including, without limitation, all taxes,
assessments and governmental charges upon its income and properties, when due,
unless and to the extent only that such obligations, liabilities, taxes,
assessments and governmental charges are contested in good faith and by
appropriate proceedings and that, to the extent required by generally accepted
accounting principles then in effect, proper and adequate book reserves
relating thereto are established by the Borrower, and provided that the Bank is
reasonably satisfied that the Accounts are not in danger of being the subject
of a Lien (except to the extent permitted by Section 7.1) or sold, forfeited or
lost as a result thereof and the Borrower has provided such security or other
assurances as Bank reasonably requests.
SECTION 5.4. FEES AND EXPENSES. Pay on demand: (i) all costs and
expenses (including, without limitation, legal fees, filing fees and UCC search
fees) of the Bank in connection with the preparation, execution and delivery of
this Agreement, and the other Loan Documents; (ii)
16
<PAGE> 21
all costs and expenses of the Bank in enforcing the Borrower's performance of
and compliance with all agreements and conditions contained in the Loan
Documents on its part to be performed or complied with or in connection with
the negotiation, preparation and execution and delivery of any amendment,
modification or supplement of or to, or any consent or waiver under, any such
document (or any such instrument which is proposed but not executed and
delivered) or relating to any claim or action threatened, made or brought
against the Bank arising out of or relating to any extent to the Loan
Documents, or the transactions contemplated hereby or thereby; (iii) all costs
and expenses (including, without limitation, reasonable fees and disbursements
of counsel) suffered or incurred by the Bank in connection with the enforcement
or the payment of the Note or any other sum due to it under any of the other
Loan Documents or any of its other rights hereunder or thereunder; and (iv) any
and all costs and expenses incurred by Bank in conducting lien searches, UCC
searches or other due diligence investigations which the Bank determines are
necessary to monitor the Borrower's performance hereunder and which are
incurred after the Closing Date.
SECTION 5.5. MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. Preserve
and maintain its corporate existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business except
for transfers (including, without limitation, transfers in the form of paid-up
licenses) for reasonably equivalent value in the normal course of its business.
The Borrower shall comply in all material respects with all applicable laws,
rules, regulations, orders, writs, decrees and judgments and its charter and
bylaws, and with the material terms of all mortgages, indentures, leases,
contracts and other agreements and instruments binding upon the Borrower. The
Borrower will continue to engage in business of the same general type as now
conducted by the Borrower.
SECTION 5.6. INSURANCE. Maintain with financially sound and reputable
insurers insurance with respect to its properties and business against such
liabilities, casualties and contingencies and of such types and in such amounts
as shall be customary for businesses engaged in similar activities in similar
geographic areas. Without limiting the foregoing, the Borrower will (i) keep
all of its physical property insured against fire and extended coverage risks
in amounts and with deductibles equal to those generally maintained by
businesses engaged in similar activities in similar geographic areas, (ii)
maintain all such workers' compensation or similar insurance as may be required
by law, and (iii) maintain, in amounts and with deductibles equal to those
generally maintained by businesses engaged in similar activities in similar
geographic areas, general public liability insurance against claims for bodily
injury, death or property damage occurring on, in or about the properties of
the Borrower, business interruption insurance and product liability insurance.
Schedule 5.6 lists insurance of the Borrower currently in effect. The Borrower
shall furnish to the Bank, from time to time upon the Bank's request,
certificates or other evidence satisfactory to the Bank of compliance with the
foregoing.
SECTION 5.7. CERTAIN TAXES.
17
<PAGE> 22
(a) If, under any law in effect on the date hereof, or under
any law subsequently enacted, it is determined that any U.S. federal,
state or local tax is payable in respect of the issuance of the Note, or
in connection with the filing or recording of any assignments,
mortgages, financing statements, or other documents (whether measured by
the amount of indebtedness secured or otherwise) as contemplated by this
Agreement, then the Borrower shall pay any such tax and all interest and
penalties thereon, if any, and shall indemnify the Bank against and save
it harmless from any loss or damage resulting from or arising out of the
nonpayment or delay in payment of any such tax.
(b) If any such tax or taxes shall be assessed or levied
against the Bank or any other holder of the Note, the Bank, or such
other holder, as the case may be, may notify the Borrower and make
immediate payment thereof, together with interest or penalties in
connection therewith, and will thereupon be entitled to and shall
receive immediate reimbursement therefor from the Borrower.
(c) Notwithstanding any other provision contained in this
Agreement, the covenants and agreements of the Borrower in this Section
5.7 will survive for four years following the payment of the Note and
the termination of this Agreement.
SECTION 5.8. USE OF PROCEEDS. Use the proceeds of all Disbursements
made by the Bank hereunder only for the purpose specified in Section 2.2 --
"Use of Proceeds." The Borrower will not use any of the proceeds of such
Loans, directly or indirectly, for the purpose of purchasing or carrying any
margin stock or for the purpose of purchasing or carrying or trading in any
securities under such circumstances as to involve the Borrower or the Bank in a
violation of Regulation G, T, U or X issued by the Federal Reserve Board.
SECTION 5.9. FURTHER ASSURANCES WITH RESPECT TO ACCOUNTS. Promptly
supply the Bank with such information concerning the Investment Account as the
Bank may reasonably request from time to time hereafter, including, without
limitation, Account statements which shall be delivered not less frequently
than quarterly (or more frequently if required pursuant to Section 6.4), which
Account statements will summarize the value of deposits and investments in the
Accounts.
SECTION 5.10. FINANCIAL COVENANTS. The Borrower on a consolidated basis
shall at all times maintain:
(i) A maximum ratio of Total Debt to Net Worth, as
calculated on a quarterly basis, of 0.5:1;
(ii) A minimum Current Ratio, as calculated on a
quarterly basis, of 2.0:1;
(iii) A minimum Net Cash Level equal to the then
outstanding principal balance due under the Note plus Ten Million
Dollars ($10,000,000); and
18
<PAGE> 23
(iv) Cash and Cash Equivalents, which are not subject to
any Lien or claim of any Person other than the Bank, on hand in
the Investment Account equal to at least the sum of the then
outstanding principal balance of the Loan plus three (3) months
interest thereon at the then applicable rate provided herein.
The failure of the Borrower to maintain any of the covenants set forth in this
Section 5.10(i)-(iv) and/or the occurrence of an Event of Default under Section
8.1 of this Agreement shall be a "Trigger Event."
SECTION 5.11. DEPOSITS INTO CUSTODIAN ACCOUNT. Upon the occurrence of a
Trigger Event, the Borrower will make, or, through the Custodian pursuant to
the Irrevocable Instructions and Power of Attorney cause to be made, payments
or deposits to the Custodian Account such that after giving effect to such
payments or deposits the Restricted Account Balance equals or exceeds the
Required Restricted Account Balance. At the time of each such payment, the
Borrower will submit to the Bank a statement setting forth the market values of
marketable securities and the Restricted Account Balance as of the date of
deposit (after giving effect to any deposits made on or before such day).
ARTICLE VI.
DELIVERY OF FINANCIAL REPORTS,
DOCUMENTS AND OTHER INFORMATION
So long as the Borrower is indebted to the Bank hereunder and until
payment in full of the Note and full and complete performance of all of its
other obligations arising hereunder, the Borrower shall deliver to the Bank:
SECTION 6.1. ANNUAL FINANCIAL STATEMENTS. Annually, as soon as
available, but in any event within one hundred and twenty (120) days after the
last day of the fiscal year, the balance sheet of the Borrower as of such last
day of the fiscal year and statements of operations, stockholders' equity and
cash flows, for such fiscal year, on a consolidated basis, prepared in
accordance with generally accepted accounting principles consistently applied,
in reasonable detail, audited and opined on by Ernst and Young LLP or by
another firm of independent public accountants reasonably satisfactory to the
Bank (which audit opinion shall contain no qualification unsatisfactory to the
Bank), to present fairly the financial position and the results of operations
of the Borrower as of the end of such fiscal year and to have been prepared in
accordance with generally accepted accounting principles.
SECTION 6.2. QUARTERLY FINANCIAL STATEMENTS. As soon as available, but
in any event within forty-five (45) days after the end of each fiscal quarter
ended on the last day of each March, June and September, balance sheets for the
Borrower as of the last day of each such quarter and statements of operations,
and cash flows, for such quarter, all in reasonable detail
19
<PAGE> 24
and on a consolidated basis. Each such statement shall be certified on behalf
of the Borrower by the Borrower's controller or chief financial officer as
fairly presenting the financial position and the results of operations of the
Borrower as of the end of such fiscal quarter and as having been prepared in
accordance with generally accepted accounting principles consistently applied
(subject to normal adjustments).
SECTION 6.3. 10Q AND 10K FILINGS. At the time its Form 10-Q is released
to the public (which in all events shall be within forty-five (45) days after
the end of the fiscal quarters ended March, June, and September or, if later,
the date of the filing of the Form 10-Q with the Securities and Exchange
Commission), a copy of each Form 10-Q; and, each year at the time its Form 10K
is released to the public (which in all events shall be within one hundred
twenty (120) days after the end of the Borrower's fiscal year), a copy of its
Annual Report to Stockholders along with its Form 10K.
SECTION 6.4. CASH AND COVENANT REPORTS. The following reports,
statements or certificates: (i) at the same time as it delivers the Financial
Statements required under the provisions of Sections 6.1 -- "Annual Financial
Statements" and 6.2 -- "Quarterly Financial Statements", a report as to the
calculations with respect to, and compliance with, the financial covenants set
forth in Section 5.10(i) through 5.10(iv); and (ii) within fifteen (15) days of
the end of each calendar quarter, a statement listing (A) the Borrower's Net
Cash Level at the end of such calendar quarter and the domicile of such cash
and investments and (B) the cash balances and Cash Equivalent Balances of the
Investment Account as of the end of such calendar quarter, provided that during
any period when the Borrower's Net Cash Level is less than an amount equal to
Twenty-Five Million Dollars ($25,000,000) minus the difference between Ten
Million Dollars ($10,000,000) and the then outstanding principal balance due
under the Loan (i.e. the amount of principal repayment made under the Loan),
the Borrower shall submit to the Bank, within fifteen (15) days of the end of
each calendar month, a compliance statement indicating the Borrower's actual
Net Cash Level and listing all of the Borrower's cash balances and Cash
Equivalent Balances as of month end wherever domiciled, accompanied by
confirming statements of the custodians of such cash balances and Cash
Equivalent Balances.
SECTION 6.5. OTHER INFORMATION. Promptly after a written request
therefor, such other financial data or information evidencing compliance with
the requirements of this Agreement and the other Loan Documents as the Bank may
reasonably request from time to time.
SECTION 6.6. NO DEFAULT CERTIFICATE. At the same time as it delivers
the Financial Statements required under the provisions of Sections 6.1 --
"Annual Financial Statements" and 6.2 -- "Quarterly Financial Statements," a
certificate of the Borrower signed on its behalf by an Authorized Signatory or
its controller, to the effect that, to the best of the Borrower's knowledge, no
Trigger Event hereunder has occurred and is continuing or, if such cannot be so
certified, specifying in reasonable detail the exceptions, if any, to such
statement.
SECTION 6.7. NOTICES.
20
<PAGE> 25
(a) DEFAULTS. As soon as possible and in any event within
seven (7) days after the Borrower has knowledge of the occurrence or
existence of a Trigger Event or any event which with the giving of
notice or passage of time or both, would constitute either an Event of
Default or Trigger Event, the statement of the Borrower setting forth
details of such Trigger Event or event and the action which the Borrower
proposes to take with respect thereto.
(b) LITIGATION AND JUDGMENTS. Promptly after obtaining
knowledge thereof, written notification of any litigation or legal
proceedings instituted against the Borrower, regardless of the subject
matter thereof, having claims or amounts in controversy of more than
$100,000 in any one instance or $100,000 in the aggregate at any one
time, or of one or more judgment(s) not covered by insurance, final or
otherwise, in an aggregate amount of $100,000 or more.
(c) ENVIRONMENTAL EVENTS. Promptly after obtaining knowledge
or receipt thereof, written notice of any of the following which has the
potential to materially adversely affect the assets, liabilities,
financial condition or operations of the Borrower: (i) any violation of
any Environmental Laws regarding the Borrower's operations; (ii) any
potential or known Release, or threat of Release, of any Hazardous
Substances at, from or into the Borrower's place of business which the
Borrower reports in writing or is reportable in writing (or for which
any written report supplemental to any oral report is made) to any
federal, state, or local environmental agency; (iii) any notice of
violation of any Environmental Laws or of any release or threatened
release of Hazardous Substances, including a notice or claim of
liability or potential responsibility from any third party (including
without limitation any federal, state or local governmental officials)
and including notice of any formal inquiry, proceeding, demand,
investigation or other action with regard to the Borrower's business
operation; or (iv) any expense or loss that has been identified by such
governmental authority in connection with the assessment, containment,
removal or remediation of any Hazardous Substances with respect to which
the Borrower may be liable.
ARTICLE VII.
NEGATIVE COVENANTS
So long as the Borrower is indebted to the Bank hereunder, and until
payment in full of the Note and full and complete performance of all of its
other obligations arising hereunder (except for the Borrower's obligations
under Sections 5.7 or Section 9.1 to indemnify the Bank under certain
circumstances following the payment of the Note), the Borrower shall not do, or
permit to be done, any of the following:
21
<PAGE> 26
SECTION 7.1. LIENS. Without the Bank's consent, create or assume or
permit to exist, any Lien upon or with respect to any of its assets, or assign
or otherwise convey any right to receive income except:
(a) Liens in favor of the Bank;
(b) Liens for taxes, assessments or governmental charges or
levies on property of the Borrower if the same shall not at the time be
delinquent or thereafter can be paid without interest or penalty or are
being contested in good faith and by appropriate proceedings which serve
as a matter of law to stay the enforcement thereof and as to which
adequate reserves have been made;
(c) Liens imposed by law, such as carrier's, warehousemen's and
mechanic's liens and other similar Liens arising in the ordinary course
of business for sums not yet due or which are being contested in good
faith and by appropriate proceedings which serve as a matter of law to
stay the enforcement thereof and as to which adequate reserves have been
made;
(d) Liens arising out of pledgor deposits under workers'
compensation laws, unemployment insurance, social security, retirement
benefits or similar legislation;
(e) Permitted Purchase Money Liens (including, without
limitation, Liens arising in connection with equipment leases);
(f) Rights of other parties under technology licenses from the
Borrower granted in connection with the development, manufacture or
marketing of pharmaceutical or other products, or otherwise in the
ordinary course of business;
(g) Rights of the United States government in certain
technology, the development of which is or was funded in whole or in
part by the United States government;
(h) Security deposits under leases of the Borrower's premises
set forth on Schedule 7.1 hereto; and
(i) Liens against Foreign Accounts Receivable to secure
Indebtedness up to a maximum amount of Fifteen Million Dollars
($15,000,000).
SECTION 7.2. CHANGES IN BUSINESS; MERGER OR CONSOLIDATION; DISPOSITION
OF ASSETS. Without the Bank's consent:
(a) Consolidate with, merge into or convey or transfer its
properties substantially as an entirety to, any Person, except that the
Borrower may participate in any merger in
22
<PAGE> 27
which the Borrower is the surviving entity so long as after giving
effect to such merger the Borrower remains in compliance with all
covenants and conditions of this Agreement.
(b) Make any material change in the nature of its business, or
in the nature of its operations, or liquidate or dissolve itself (or
suffer any liquidation or dissolution).
(c) Effect any disposition of all or any material portion of
its assets (whether in one or more transactions) except that (i) the
Borrower may dispose of obsolete or worn out equipment, (ii) the
Borrower may replace equipment with upgraded equipment and may
thereafter dispose of the equipment so upgraded and replaced, (iii) the
Borrower may engage in research and development transactions (each, an
"R&D Transaction") involving the licensing of the Borrower's rights in
certain technology to other persons and the licensing back of such
rights to the Borrower, provided that after giving effect to each such
R&D Transaction, the Borrower remains in compliance with all covenants
and conditions of this Agreement; and (iv) dispose of other assets in
the ordinary course of Borrower's business provided that Borrower
receives equivalent value on such disposition of assets.
SECTION 7.3. CHANGE OF OFFICE ADDRESS. Except upon five (5) days' prior
written notice to the Bank, change the address of its principal office or place
of business or the place where it maintains its records with respect to the
Accounts.
SECTION 7.4. VIOLATION OF AGREEMENT. Take any action the effect of
which would constitute a breach or violation of any provision of this
Agreement.
ARTICLE VIII.
EVENTS OF DEFAULT
SECTION 8.1. EVENTS OF DEFAULT. If any one or more of the following
events ("Event of Default") shall occur and be continuing, the entire unpaid
balance of the principal of and interest on the Note and all other obligations
and Indebtedness of the Borrower to the Bank arising hereunder and under the
other Loan Documents will, in the case of any Event of Default of the types
referred to in subparagraph (e) hereinbelow, immediately become due and payable
without notice and in the case of any other Event of Default, will immediately
become due and payable upon written notice to that effect given to the Borrower
by the Bank, without presentment or demand for payment, notice of non-payment,
protest or further notice or demand of any kind, all of which are expressly
waived by the Borrower. Upon an Event of Default, the Bank shall have the
rights and remedies provided for herein and in the other Loan Documents and
under applicable law and in equity, and the rights and remedies provided for
herein shall be cumulative and in addition to the rights and remedies provided
for therein. Each of the following shall constitute an Event of Default:
23
<PAGE> 28
(a) Failure by the Borrower to make any payment when due of any
amount payable under the Loan Documents, which failure is not cured
within five (5) days of the occurrence thereof.
(b) Failure by the Borrower to make any mandatory payments
under any borrowing agreement (other than the Loan Documents) to which
the Borrower is a party within any applicable grace period provided in
such agreement or any other default by the Borrower under any such
borrowing agreement and the failure of the Borrower to cure such default
within any applicable grace period, but in any event not later than
thirty (30) days after such default, provided that no Event of Default
will be deemed to have occurred under this paragraph (b) with respect to
any indebtedness under any borrowing agreement if payment of such
indebtedness, after notice thereof having been given to the Bank, is
being contested by the Borrower in good faith and by appropriate
proceedings and such contest operates to prevent the other party to such
agreement from exercising its remedies against the Borrower or any of
its properties and the amount in dispute is in the aggregate less than
$50,000.
(c) Failure by the Borrower to perform or observe any material
term, condition or covenant of this Agreement or of any of the Loan
Documents (other than the financial covenants set forth in Section 5.10
which shall constitute a Trigger Event instead) which failure (other
than a failure which by its nature is not capable of cure and other than
a failure to perform or observe any term, condition or covenant referred
to or set forth in Subparagraphs (a), (b) and (c) hereinabove) is not
cured within thirty (30) days of the occurrence thereof.
(d) Any representation or warranty made in writing to the Bank
in any of the Loan Documents or in connection with the making of the
Loan or a certificate, statement or report made or delivered in
compliance with this Agreement, will have been false or misleading in
any material respect when made or delivered.
(e) The Borrower makes an assignment for the benefit of
creditors, files a petition for bankruptcy, petitions or applies to any
tribunal for the appointment of a receiver, custodian, or any trustee
for it or a substantial part of its assets, or commences any proceeding
under any bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect; or there will have been filed any such
petition or application, or any such proceeding has been commenced
against it, which remains undismissed for a period of sixty (60) days or
more; or any order for relief is entered in any such proceeding; or the
Borrower by any act or omission indicates its consent to, approval of or
acquiescence in any such petition, application or proceeding or the
appointment of a custodian, receiver or any trustee for it or any
substantial part of any of its properties; or the Borrower suffers any
custodianship, receivership or trusteeship to continue undischarged for
a period of sixty (60) days or more.
24
<PAGE> 29
(f) Any single judgment of $100,000 or more or a combination of
unsecured judgments aggregating $100,000 or more against the Borrower
not covered by insurance or any attachment or levy of execution against
any substantial part of the Borrower's properties for any amount (not
covered by insurance) remains unpaid, unstayed on appeal, undischarged,
unbonded or undismissed for a period of thirty (30) days or more.
(g) Any Loan Document ceases to be in full force and effect in
all material respects for any reason (other than due to the payment in
full of all amounts secured or evidenced thereby or due to discharge in
writing by the Bank).
(h) After the occurrence of a Trigger Event under Section 5.10,
the failure of the Borrower and/or the Custodian to make the requisite
transfer to the Custodian Account as provided in Section 5.11 such that,
not later than 5:00 P.M. in New York, New York on the first Business Day
following the occurrence of the Trigger Event, the Restricted Account
Balance equals or exceeds the Required Restricted Account Balance.
(i) After the occurrence of a Trigger Event under Section 5.10,
the failure of the Borrower to execute and deliver, or cause to be
executed and delivered, any additional documents requested by the Bank
in connection with the transfer by the Borrower and/or Custodian to the
Custodian Account as provided in Section 5.11 (including without
limitation any additional documents requested by the Bank in order to
further implement or perfect the pledge of assets held in the Custodian
Account and any additional opinion of the Borrower's counsel on such
matters the Bank may require, in a form and substance satisfactory to
Bank).
(j) Failure by the Borrower to comply with its "Investment
Policy", for investment of all Cash and Cash Equivalents (as mandated by
the Borrower's Board of Directors and as adopted by the Board of
Directors in 1994) or the Borrower's making a material change to such
investment policy without the Bank's prior written approval, which
approval shall not be unreasonably withheld. A copy of the Borrower's
Investment Policy is attached hereto as Schedule 8.1.(j).
(k) After the occurrence of a Trigger Event and the initial
transfer to the Custodian Account as provided in Section 5.11, the
failure of the Borrower and/or the Custodian to make, within one
Business Day following the request of the Bank, such additional
transfers to the Custodian Account as may be necessary, from time to
time, to increase the Restricted Account Balance so that it equals the
Required Restricted Account Balance.
(l) The failure by the Borrower, at any time, to maintain a Net
Cash Level equal to the greater of (y) an amount equal to the sum of:
(i) Six Million Dollars ($6,000,000) plus (ii) the then outstanding
principal balance due under the Note, and (z) an amount equal to the
Actual Cash Burn for the two preceding calendar quarters multiplied by
two-third (2/3).
25
<PAGE> 30
(m) After the Closing Date, a material adverse change in the
business or financial condition of the Borrower occurs.
ARTICLE IX.
MISCELLANEOUS PROVISIONS
SECTION 9.1. INDEMNITY; ADDITIONAL FEES. The Borrower shall indemnify
Bank against, and hold it harmless from, any loss, liabilities, damages,
claims, and reasonable costs and expenses (including attorneys' fees and
disbursements) suffered or incurred by the Bank arising out of, resulting from
or in any manner connected with, the Loan Documents, or any transaction related
hereto or thereto, except any such loss arising solely from the Bank's own
gross negligence or willful misconduct. The provisions of this Section 9.1
will survive for a period of three (3) years following the repayment of the
Note and the termination of this Agreement.
SECTION 9.2. SURVIVAL OF AGREEMENTS AND REPRESENTATIONS. All
agreements, representations and warranties made herein will survive the
delivery of the Loan Documents and shall be in full force and effect during the
term of this Agreement.
SECTION 9.3. MODIFICATIONS, CONSENTS AND WAIVERS. No modification,
amendment or waiver of or with respect to any provision of the Loan Documents,
nor consent to any departure by a party from any of the terms or conditions
thereof shall in any event be effective unless it is in writing and signed by
the party against whom such modification, amendment, waiver or consent is
sought to be enforced. Any such waiver or consent will be effective only in
the specific instance and for the purpose for which given. No consent to or
demand on the Borrower in any case will, of itself, entitle it to any other or
further notice or demand in similar or other circumstances.
SECTION 9.4. ENTIRE AGREEMENT. This Agreement and the other Loan
Documents embody the entire agreement and understanding between the Bank and
the Borrower and supersede all prior agreements and understandings relating to
the subject matter hereof.
SECTION 9.5. REMEDIES CUMULATIVE. Each and every right granted to the
Bank hereunder or under any other document delivered hereunder or in connection
herewith, or allowed it by law or equity, is cumulative and may be exercised
from time to time. No failure on the part of the Bank or the holder of the
Note to exercise, and no delay in exercising, any right shall operate as a
waiver thereof, nor will any single or partial exercise of any right preclude
any other or future exercise thereof or the exercise of any other right.
SECTION 9.6. FURTHER ASSURANCES. At any time and from time to time,
upon the request of the Bank, the Borrower shall execute, deliver and
acknowledge or cause to be executed, delivered and acknowledged such further
documents and instruments and do such other acts and
26
<PAGE> 31
things as the Bank may reasonably request to fully effect the purposes of the
Loan Documents and any other agreements, instruments and documents delivered
pursuant hereto or in connection with the Loan.
SECTION 9.7. NOTICES. All notices, requests, reports and other
communications pursuant to this Agreement must be in writing, either by letter
(delivered by hand or commercial delivery service or sent by certified mail,
return receipt requested, except for routine reports which may be by ordinary
first class mail) or facsimile or telecopier, addressed as follows:
If to Borrower: NeXstar Pharmaceuticals, Inc.
2860 Wilderness Place
Boulder, Colorado 80301
Attn: Lauri Harker, Treasurer
Telephone: (303) 444-5893
Facsimile: (303) 444-0672
If to Borrower's counsel: NeXstar Pharmaceuticals, Inc.
2860 Wilderness Plan
Boulder, Colorado 80301
Attn: Adam Cochran, General Counsel
Telephone: (303) 444-5893
Facsimile: (303) 444-0672
27
<PAGE> 32
If to Bank: The Sumitomo Bank, Limited
Pine Street Center
100 Pine Street, Suite 3300
San Francisco, CA 94111-5219
Attn: Carole A. Daley, Vice President
Telephone: (415) 394-0868
Facsimile: (415) 394-9797
If to Bank's Counsel: Griffinger, Freed, Heinemann,
Cook & Foreman
One Market
Steuart Street Tower, Suite 2400
San Francisco, CA 94105-1415
Attn: Peter M. Heinemann, Esq.
Telephone: (415) 243-0300
Facsimile: (415) 777-9366
Any notice, request or communication hereunder will be deemed to have been
given (i) on the day on which it is delivered by hand to such party at its
address specified above, (ii) if sent by mail, on the third (3rd) Business Day
following the day it was deposited in the mail, postage prepaid, or (iii) if
sent by telecopy, when transmitted addressed as aforesaid on a Business Day
during normal business hours and receipt is confirmed, on such Business Day.
Any party may change the person or address to whom or which notices are to be
given hereunder, by notice duly given hereunder, provided, however, that any
such notice will be deemed to have been given hereunder only when actually
received by the party to which it is addressed.
SECTION 9.8. CONSTRUCTION; GOVERNING LAW.
(a) The headings used in this Agreement and the table of
contents are for convenience only and will not be deemed to constitute a
part hereof. All uses herein of the masculine gender or of singular or
plural terms will be deemed to include uses of the feminine or neuter
gender or plural or singular terms, as the context may require. All
references herein (including the definitions set out in Appendix A
hereto) to any agreements shall be to such agreement as amended or
modified to the date of reference. All references to a particular entity
shall include a reference to such entity's successors and permitted
assigns. The words "herein," "hereof" and "hereunder" refer to this
Agreement as a whole and not to any particular section or subsection of
this Agreement. "Including" means "including, without limitation".
(b) THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
WITHOUT REFERENCE TO ITS CONFLICT OF LAWS RULES.
28
<PAGE> 33
SECTION 9.9. WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE BANK
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING
OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, ANY LOAN DOCUMENT OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR
ACTIONS OF THE BORROWER OR THE BANK. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE BANK PROVIDING THE LOAN DESCRIBED HEREIN.
SECTION 9.10. JURISDICTION.
(a) Each of the Borrower and the Bank hereby irrevocably and
unconditionally submits, for itself and its property, to service of
process (directly or on an agent) in California to the nonexclusive
jurisdiction of any California state court or Federal court of the
United States of America in each case sitting in San Francisco, and any
appellate court handling an appeal from any thereof, in any action or
proceeding arising out of or relating to this Agreement or any other
Loan Agreement, or for recognition or enforcement of any judgment, and
the Borrower and the Bank hereby irrevocably and unconditionally agree
that all claims in respect of any such action or proceeding may be heard
and determined in such California state or, to the extent permitted by
law, in such Federal court. Each of the Borrower and the Bank agrees
that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that a party may otherwise have to
bring any action or proceeding relating to this Agreement or any other
Loan Agreement against any other party or its respective properties in
the court of any jurisdiction.
(b) Each of the Borrower and the Bank hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection which it may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement in any such California state or Federal
court. Each of the Borrower and the Bank hereby irrevocably waives, to
the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
SECTION 9.11. RELATIONSHIP OF THE BORROWER AND THE BANK. The Borrower
and the Bank agree that nothing contained in this Agreement or any other
document executed in connection with the Loan is intended or shall be construed
to establish the Borrower and the Bank as joint venturers or partners; and the
Borrower hereby indemnifies and agrees to hold the Bank, its officers,
directors, agents and employees harmless from any and all damages resulting
from such a construction of the relationship of the parties hereto, except any
such damage arising solely from the Bank's own gross negligence or willful
misconduct.
SECTION 9.12. SEVERABILITY. The provisions of this Agreement are
severable, and if any clause or provision hereof shall be held invalid or
unenforceable in whole or in part in any
29
<PAGE> 34
jurisdiction, then such invalidity or unenforceability will affect only such
clause or provision, or part thereof, in such jurisdiction and will not in any
manner affect such clause or provision in any other jurisdiction, or any other
clause or provision in this Agreement in any jurisdiction. Each of the
covenants, agreements and conditions contained in this Agreement is independent
and compliance by the Borrower with any of them will not excuse noncompliance
by the Borrower with any other.
SECTION 9.13. BINDING EFFECT; ASSIGNMENT.
(a) This Agreement will be binding upon and inure to the
benefit of the Borrower and its successors and its assigns as permitted
herein and to the benefit of Bank and its successors and assigns.
(b) The rights and obligations of the Borrower under this
Agreement may not be assigned or delegated without the prior written
consent of the Bank, and any purported assignment or delegation without
such consent shall be void.
(c) Bank, without the consent of the Borrower, may at any time
assign or grant participations to any other Person in all or part of its
rights and obligations under the Loan Documents; provided, however, that
no such assignment or participation may be made or shall be effective
unless the Bank shall have delivered prior notice thereof to the
Borrower of the proposed effective date and amount of such assignment or
participation and the identity of the proposed assignee or participant.
The Bank shall be the agent of all such assignees and participants for
the purpose of the receipt and delivery of funds and notices under the
Loan Documents unless the Borrower otherwise consents (which consent
will not unreasonably be withheld).
30
<PAGE> 35
SECTION 9.14. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
NEXSTAR PHARMACEUTICALS, INC.
By: /s/ PATRICK J. MAHAFFY
-----------------------------------
Name: Patrick J. Mahaffy
---------------------------------
Title: President
--------------------------------
By: /s/ MICHAEL E. HART
-----------------------------------
Name: Michael E. Hart
---------------------------------
Title: Vice President and Chief
--------------------------------
Financial Officer
--------------------------------
THE SUMITOMO BANK, LIMITED
By: /s/ ANDREA B. SARGENT
-----------------------------------
Name: Andrea B. Sargent
---------------------------------
Title: Vice President and Manager
--------------------------------
By: /s/
-----------------------------------
Name: Carole A. Daley
---------------------------------
Title: Vice President
--------------------------------
31
<PAGE> 36
APPENDIX A TO LOAN AGREEMENT -- DEFINITIONS
The following words shall have the meanings specified below in the
Section of the Agreement referred to below.
"ACCOUNTS" -- the Investment Account and the Custodian Account.
"ACTUAL CASH BURN" -- the amount of the actual reduction in the
Borrower's Cash and Cash Equivalents (including short-term and long-term
investments) as calculated as of the last day of each calendar quarter for the
period commencing with the first day of such quarter and ending on the last day
of such calendar quarter and as determined by the Bank, in its sole discretion,
based upon the financial reports delivered to Bank by Borrower pursuant to
Article VI (including without limitation the reports provided pursuant to
Section 6.4).
"AFFILIATE" -- as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean
possession directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise). The term "Affiliate"
shall not include any Person who controls another Person solely by virtue of
such Person's position as a corporate officer or director of such other Person.
"AGREEMENT" -- is defined in the Preamble.
"APPLICABLE MARGIN" -- for any Eurodollar Rate Loan portion shall be one
and one-half percent (1.5%).
"AUTHORIZED SIGNATORY" -- with respect to a corporation, any officer of
such corporation.
"BAILEE" -- is defined in Subsection 2.6(b).
"BANK" -- is defined in the Preamble.
"BORROWER" -- is defined in the Preamble.
"BUSINESS DAY" -- a day when commercial banks in both San Francisco,
California and Chicago, Illinois and, in the case of setting the Reserve
Adjusted Eurodollar Rate, London, England, are open for business with respect
to transactions of the kind contemplated in this Agreement.
"CERCLA" -- is defined in Subsection 3.16(a).
A-1
<PAGE> 37
"CASH AND CASH EQUIVALENTS" -- liquid investments, consisting of cash
and cash equivalents and other investments in investment grade securities, that
are classified on the Borrower's consolidated balance sheet as current,
noncurrent, long-term or restricted.
"CASH EQUIVALENT BALANCES" -- the aggregate amount of the lower of cost
or market value of Cash Equivalents, as reported in the Financial Statements.
"CLOSING DATE" -- June 28, 1996.
"CODE" -- the Internal Revenue Code of 1986, as amended.
"COLLATERAL BAILMENT AGREEMENT" -- the Collateral Bailment Agreement of
even date herewith by and between the Bank and Sumitomo Bank of New York Trust
Company.
"CONTROLLED GROUP" -- all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414(b), 414(c) or 414(m) of the Code and Section 4001(a)(2) of ERISA.
"CURRENT RATIO" -- the ratio of total current assets to total current
liabilities.
"CUSTODIAN ACCOUNT" -- is defined in Subsection 2.6(b).
"CUSTODIAN" -- is defined in Subsection 2.6(a).
"CUSTODIAN AGREEMENT" -- Custodian Agreement of even date herewith by
and between the Borrower and Sumitomo Bank of New York Trust Company.
"DEFAULT RATE" -- is defined in Subsection 2.3(c).
"DISBURSEMENT" -- a disbursement of available proceeds of the Loan.
"DISPOSAL," "DISPOSE(D)" -- as specified in RCRA and in the regulations
promulgated thereunder.
"ELECTION NOTICE" -- is defined in Subsection 2.1(c).
"EPA" -- is defined in Subsection 3.16(b).
"ENVIRONMENTAL LAWS" -- is defined in Subsection 3.16(b).
"ERISA" -- is defined in Section 3.15.
A-2
<PAGE> 38
"EUROCURRENCY RESERVE PERCENTAGE" -- with respect to each Interest
Period, a percentage (expressed as a decimal) equal to the percentage (if any)
in effect two Business Days prior to the first day of such Interest Period, as
prescribed by the F.R.S. Board, for determining reserve requirements applicable
to "Eurocurrency liabilities" pursuant to Regulation D or any other then
applicable regulation of the F.R.S. Board which prescribes reserve requirements
applicable to "Eurocurrency liabilities," as presently defined in said
Regulation D. For purposes of this definition, Eurodollar Rate Loan Portions
hereunder shall be deemed to be "Eurocurrency liabilities" as defined in said
Regulation D.
"EURODOLLAR RATE LOAN PORTION -- any portion of the Loan, which the
Borrower has notified the Bank (in accordance with the provisions of Section
2.1) is to bear interest at the Reserve Adjusted Eurodollar Rate plus the
Applicable Margin for the applicable Interest Period.
"EURODOLLAR RATE" -- for any Eurodollar Rate Loan Portion, with respect
to the applicable Interest Period relating to such Eurodollar Rate Loan
Portion, the rate per annum (rounded up to the next whole multiple of 1/16 of
1%) equal to the rate at which United States dollar deposits are offered to the
Bank in the London interbank Eurodollar market as of approximately 11:00 a.m.,
London, England time, on the second Business Day prior to the first day of such
Interest Period for delivery in immediately available funds on the first day of
such Interest Period for the number of days in such Interest Period and in an
amount equal to the amount of the Eurodollar Rate Loan Portion.
"EVENT OF DEFAULT" -- is defined in Section 8.1.
"FINANCIAL STATEMENTS"
(a) the audited consolidated balance sheet and consolidated
statements of operations, shareholders' equity and cash flows of NeXstar
for the fiscal year then ended, together with the unqualified opinion of
the independent public accountants preparing such statements; and
(b) the quarterly unaudited consolidated balance sheet and
unaudited consolidated statements of operations, and cash flows for
NeXstar for the fiscal quarters ended June, September and December,
certified as to accuracy by the Chief Financial Officer or controller of
NeXstar, provided, however, that such quarterly unaudited financial
statements may not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements.
"FINANCING STATEMENT" -- a financing statement or statements on form
UCC-1, signed by the Borrower and describing the property in which the Bank has
a security interest under the Restricted Account and Security Agreement, all in
form and substance suitable for filing as a financing statement under Article 9
of the Uniform Commercial Code as enacted in California and/or New York and/or
Delaware.
A-3
<PAGE> 39
"FOREIGN ACCOUNTS RECEIVABLE" -- shall mean amounts payable to the
Borrower by any Person domiciled in or resident of any country outside of the
United States of America.
"HAZARDOUS SUBSTANCES" -- is defined in Subsection 3.16(b).
"INDEBTEDNESS" -- with respect to any Person, all:
(a) all indebtedness, liabilities or other obligations of such
Person for borrowed money or for the deferred purchase price of property
or services (excluding trade accounts payable and accrued obligations
incurred in the ordinary course of business) and any other liabilities,
which in accordance with generally accepted accounting principles would
be included in determining total liabilities as shown on the liability
side of a balance sheet of such Person at the date as of which such
Indebtedness is to be determined, excluding all operating lease
obligations, as determined in accordance with generally accepted
accounting principles consistently applied and any other contingent
liabilities of such Person;
(b) all indebtedness, liabilities or obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations
so evidenced incurred in connection with the acquisition of property,
assets or businesses;
(c) all reimbursement and other obligations of such Person in
respect of letters of credit and bankers acceptance and all net
obligations in respect of interest rate swaps, caps, floors and collars,
currency swaps, and other similar financial products;
(d) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property
acquired by such Person;
(e) all obligations under leases which shall have been or
should be, in accordance with GAAP, recorded as capital leases; and
(f) all indebtedness of another Person of the types referred to
in clauses (a) through (e) guaranteed directly or indirectly in any
manner by the Person for whom Indebtedness is being determined, or in
effect guaranteed directly or indirectly by such Person through an
agreement to purchase or acquire such indebtedness, to advance or supply
funds for the payment or purchase of such indebtedness or otherwise
assure a creditor against loss, or secured by any Lien upon or in
property owned by the Person for whom Indebtedness is being determined,
whether or not such Person has assumed or become liable for the payment
of such indebtedness of such other Person.
"INTELLECTUAL PROPERTY RIGHTS" -- is defined in Section 3.11.
A-4
<PAGE> 40
"INTEREST DIFFERENTIAL" -- with respect to any prepayment of a
Eurodollar Rate Loan Portion on a day other than an Interest Payment Date
falling at the end of the applicable Interest Period, the sum of: (a) the per
annum interest rate payable with respect to such Eurodollar Rate Loan Portion
as the date of the prepayment minus (b) the Reserve Adjusted Eurodollar Rate
plus the Applicable Margin on, or as near as practicable to, the date of the
prepayment for a Eurodollar Rate Loan Portion commencing on such date and
ending on the last day of the applicable Interest Period. The determination of
the Interest Differential by the Bank shall be conclusive in the absence of
manifest error.
"INTEREST PAYMENT DATE" -- with respect to any Loan Portion, the earlier
to occur of (a) the last Business Day of each calendar month occurring within
an Interest Period; or (b) the last day of each applicable Interest Period; or
(c) the date that the Loan Portion is due by either the occurrence of Maturity
Date or an Event of Default having occurred and the maturity of the Loan having
been accelerated pursuant to the terms of the Loan Documents.
"INTEREST PERIOD" -- as to any Eurodollar Rate Loan Portion, the period
commencing on the date of the initial funding of such Eurodollar Rate Loan
Portion or the last day of the immediately preceding Interest Period for any
Eurodollar Rate Loan Portion that is to be continued as a Eurodollar Rate Loan
Portion and ending, with respect to such Eurodollar Rate Loan Portion, on the
numerically corresponding day (or if there is no numerically corresponding day,
on the last day), in the calendar month that is one, two, three, six or, if
available, twelve months thereafter, in each case as the Borrower may elect in
the Election Notice; provided however, that (a) no Interest Period with respect
to any Eurodollar Rate Loan Portion shall end later than the Maturity Date, (b)
if an Interest Period would end on a day that it is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless
such next succeeding day would fall in the next calendar month, in which case,
such Interest Period shall end on the immediately preceding Business Day, and
(c) interest shall accrue from and including the first day of an Interest
Period to but excluding the last Business Day of such Interest Period.
"INTEREST RESERVE" -- on any date of determination means an amount equal
to the interest that would accrue in three months on an amount equal to the
principal balance of the Loan outstanding on such date of determination.
"INVESTMENT ACCOUNT" -- is defined in Subsection 2.6(a).
"IRREVOCABLE INSTRUCTIONS AND POWER OF ATTORNEY" -- is defined in
Subsection 2.6(b).
"IRS" -- is defined in Subsection 3.15(a).
"LIEN" -- any mortgage, deed of trust, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement and any
lease in the nature of a security interest or lien).
A-5
<PAGE> 41
"LOAN" -- is defined in Section 2.1.
"LOAN DOCUMENTS" -- this Agreement, the Note, the Restricted Account and
Security Agreement, the Collateral Bailment Agreement, the Irrevocable
Instructions and Power of Attorney, the Custodian Agreement, and all other
documents executed and delivered in connection herewith or therewith, including
all amendments, modifications and supplements of or all such documents.
"LOAN FEE" -- is defined in Subsection 2.3(d).
"LOAN PORTION" -- as the circumstances or context warrants, the portion
of the Loan which is a Eurodollar Rate Loan Portion, or Prime Rate Loan
Portion.
"MATURITY DATE" -- June 30, 2000.
"NET CASH LEVEL" -- the aggregate amount of the market value of Cash and
Cash Equivalents less (i) restricted cash and amounts which may be restricted
or pledged in the future pursuant to agreements between the Borrower and third
parties and (ii) twenty-five percent (25%) of the amounts outstanding on any
Indebtedness secured by a Lien on Foreign Accounts Receivable.
"NET WORTH" -- an amount equal to the Total Assets minus Total
Liabilities.
"NEXSTAR" -- is defined in the Preamble.
"NOTE" -- is defined in Section 2.1.
"PBGC" -- is defined in Subsection 3.15(a).
"PERMITTED PURCHASE MONEY LIENS" -- purchase money security interests in
personal property acquired after the date hereof to secure purchase money
Indebtedness, to the extent that the amount of money borrowed does not exceed
the value of the personal property purchased, and the security interest granted
does not extend beyond the personal property purchased.
"PERSON" -- an individual, a corporation, a partnership, a joint
venture, a trust or unincorporated organization, a joint stock company or other
similar organization, a government or any political subdivision thereof, a
court, or any other legal entity, whether acting in an individual, fiduciary or
other capacity.
"PLAN(S)" -- is defined in Subsection 3.15(a) hereof.
"PRIME RATE" -- the interest rate which the Bank announces from time to
time as its floating prime rate in the United States.
A-6
<PAGE> 42
"PRIME RATE LOAN PORTION" -- any portion of the Loan which bears
interest at the Prime Rate as provided in Section 2.1 or 2.7.
"RCRA" -- is defined in Subsection 3.16(a).
"R&D TRANSACTION" -- is defined in Subsection 7.2(c).
"REGULATORY CHANGE" -- any change after the date of this Agreement in
United States federal, state or local laws or regulations or the adoption or
making after such date of any interpretations, directives or requests applying
to a class of banks including the Bank of or under any United States federal,
state, or local laws or regulations (whether or not having the force of law) by
any court or governmental or monetary authority charged with the interpretation
or administration thereof.
"RELEASE" -- as specified in CERCLA.
"REPORTING PERIOD" -- a fiscal quarter of the Borrower.
"REQUIRED RESTRICTED ACCOUNT BALANCE" -- on and after a Trigger Event
has occurred, the sum of the Borrower's then outstanding principal balance of
the Loan plus the Interest Reserve.
"RESERVE ADJUSTED EURODOLLAR RATE" -- with respect to any Eurodollar
Rate Loan Portion for any Interest Period, a rate per annum (rounded upwards,
if necessary, to the nearest 1/100 of 1%) determined pursuant to the following
formula:
Reserve Adjusted = Eurodollar Rate
Eurodollar Rate ------------------------
Percentage 1 - Eurocurrency Reserve
"RESTRICTED ACCOUNT AND SECURITY AGREEMENT" -- the Restricted Account
and Security Agreement of even date herewith by and between the Bank and the
Borrower.
"RESTRICTED ACCOUNT BALANCE" -- the sum of all Cash and Cash Equivalents
and any other investments on deposit in the Custodian Account, the amount of
such Cash Equivalents or investments to be calculated at the lower of cost or
market value.
"SARA" -- is defined in Subsection 3.16(a).
"SUBSIDIARY" -- any person of which the Borrower owns directly or
indirectly: (i) sufficient capital stock to enable it to elect at least a
majority of the board of directors or similar managing body of such person, or
(ii) capital stock with rights under the charter documents of
A-7
<PAGE> 43
such Person to elect a director or similar managing official with the power to
veto material business decisions and organizational changes.
"TAXES" -- is defined in Subsection 2.5(a).
"TOTAL ASSETS" -- total assets as determined in accordance with
generally accepted accounting principles, consistently applied; provided,
however, that Total Assets shall be reduced by the amount (if any) of
intangible assets (other than intangible assets consisting of patent and
trademark costs as shown on the Company's Financial Statements and determined
in accordance with, and consistent with, both generally accepted accounting
principals consistently applied and the Company's accounting practices prior to
the date hereof.
"TOTAL DEBT" -- the aggregate amount of the Borrower's Indebtedness.
"TRIGGER EVENT" -- is defined in Section 5.10.
"UCC" -- the Uniform Commercial Code in effect from time to time in the
relevant jurisdiction.
A-8
<PAGE> 44
SCHEDULES HAVE BEEN OMITTED
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 30,178,000
<SECURITIES> 19,498,000
<RECEIVABLES> 25,625,000
<ALLOWANCES> 500,000
<INVENTORY> 13,250,000
<CURRENT-ASSETS> 89,731,000
<PP&E> 64,647,000
<DEPRECIATION> 22,167,000
<TOTAL-ASSETS> 144,619,000
<CURRENT-LIABILITIES> 28,443,000
<BONDS> 16,317,000
<COMMON> 264,000
0
0
<OTHER-SE> 99,595,000
<TOTAL-LIABILITY-AND-EQUITY> 144,619,000
<SALES> 37,925,000
<TOTAL-REVENUES> 39,707,000
<CGS> 8,254,000
<TOTAL-COSTS> 8,254,000
<OTHER-EXPENSES> 41,620,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 556,000
<INCOME-PRETAX> (10,167,000)
<INCOME-TAX> 166,000
<INCOME-CONTINUING> (10,333,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,333,000)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
</TABLE>
