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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-23012
NEXSTAR PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 84-1173453
(State of incorporation) (I.R.S. Employer Identification No.)
2860 WILDERNESS PLACE 80301
BOULDER, COLORADO (Zip Code)
(Address of principal executive offices)
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REGISTRANT'S TELEPHONE NUMBER: (303) 444-5893
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of March 24, 1997, was $185,889,019.
The number of shares of the registrant's common stock, par value $.01 per
share, outstanding as of March 24, 1997, was 26,430,896.
DOCUMENTS INCORPORATED BY REFERENCE:
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PART(S) INTO
DOCUMENT WHICH INCORPORATED
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Proxy Statement to be used in connection with the Annual Part III
Meeting of Stockholders to be held May 28, 1997 (the "Proxy
Statement"). With the exception of the pages of the Proxy
Statement specifically incorporated by reference herein, the
Proxy Statement is not deemed to be filed as a part of this
Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
NeXstar Pharmaceuticals, Inc., a Delaware corporation ("NeXstar
Pharmaceuticals" or the "Company"), is a leading biopharmaceutical company
engaged in the discovery, development, manufacture and marketing of proprietary
pharmaceutical products to treat life-threatening and other serious diseases.
NeXstar Pharmaceuticals employs a broad range of proprietary technologies in the
discovery and formulation of pharmaceutical products, including the Company's
liposome drug delivery technology; a powerful proprietary combinatorial
chemistry technology, known as the SELEX process, that rapidly identifies novel
oligonucleotide compounds with potential therapeutic and diagnostic benefits;
and the Parallel SELEX process, designed to rapidly discover small organic
molecules to serve as orally available drugs. The Company's technologies have
already produced two approved drugs and several drug candidates that are in
clinical or preclinical development and have provided the basis for a
significant pipeline of developmental drug candidates.
Currently, the Company markets AmBisome, an antifungal agent, and
DaunoXome, an anticancer drug, which had combined 1996 revenues of $80.2 million
compared to 1995 revenues of $57.8 million. AmBisome has been approved for sale
by the regulatory authorities in 25 countries, including four countries in which
it has been approved as a primary therapy. In November 1996, a New Drug
Application ("NDA") was submitted to the U.S. Food and Drug Administration (the
"FDA") for the use of AmBisome in the United States as a primary treatment for
confirmed and presumptive fungal infections, prophylaxis in liver transplant
patients, empiric therapy in neutropenic patients and visceral leishmaniasis and
as a secondary treatment for fungal infections refractory to amphotericin B
treatment. DaunoXome has been approved for sale as a primary therapy for
HIV-associated Kaposi's sarcoma in 18 countries, including the United States,
Canada and most significant European markets. The Company is also conducting
clinical trials with a third product, the antibiotic MiKasome, for use in
serious gram-negative and mycobacterial infections. The Company's fourth
liposomal product, the anticancer drug VincaXome, is in the preclinical
development stage.
Each of AmBisome, DaunoXome, MiKasome and VincaXome was developed using the
Company's liposomal technology. Liposomes are subcellular-sized spheres composed
primarily of molecules called phospholipids. By encapsulating in liposomes
certain drugs that in their free state are dosed at, or close to, toxic levels,
it is possible to increase the therapeutic index of the active drug (i.e., to
increase the efficacy of the active drug relative to the severity of its side
effects).
The Company utilizes two other powerful proprietary technologies for drug
discovery and delivery. The first, a proprietary combinatorial chemistry
technology, is known as the SELEX process. The SELEX process can rapidly
identify novel oligonucleotide compounds with potential therapeutic and
diagnostic benefits. After selection of a disease target (e.g., a cancer causing
growth factor), the SELEX process can rapidly identify (in weeks or months
rather than years) oligonucleotide compounds (also referred to as aptamers) with
a high affinity for the specified disease target and therefore potential use as
a drug candidate.
The Company has tested SELEX process-derived aptamers against numerous
disease targets since the Company's inception and currently has various aptamers
(or potential drug candidates) resulting from SELEX process experiments in the
research and early preclinical/preclinical development stages. In particular,
using the SELEX process, the Company has identified a number of aptamer
antagonists to cancer and other disease causing growth factors, including an
antagonist to vascular endothelial growth factor ("VEGF") (VEGF contributes to
disease progression by inducing the formation of blood vessels associated with
the particular disease state) and an inhibitor to platelet-derived growth factor
("PDGF") (PDGF appears to be a causative factor in certain cancers and other
proliferative diseases). Through the SELEX process, the Company has also
identified aptamers that recognize and inhibit the activity of L-selectin and
P-selectin (cell surface receptors thought to be involved in inflammation and
reperfusion injury).
The Company's other proprietary drug discovery process is known as the
Parallel SELEX process. The Parallel SELEX process is designed to rapidly
identify small organic molecules intended to serve as orally
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available drugs. The potential advantages of the Parallel SELEX process as
compared to current combinatorial chemistry drug-discovery methodologies
include: tagging chemistries are not necessary, high reaction yields are not
required and laborious screening steps are avoided.
The Company also has developed a new proprietary technology called Product
Anchored Sequential Synthesis ("PASS"), which is a new method for synthesizing
the oligonucleotides (or aptamers) that are the basis for the products being
developed by the Company using the SELEX process. The Company's PASS technology
is expected to significantly lower the cost of oligonucleotide compounds (fewer
raw materials are needed) and improve the chemical reactions needed to create
these compounds. These new technologies are a significant improvement over the
traditional methods of making oligonucleotides and add to the Company's body of
proprietary technology for drug development and delivery.
NeXstar Pharmaceuticals was formed in 1991 as NeXagen, Inc. On February 21,
1995, the Company was merged (the "Merger") with Vestar, Inc. ("Vestar"), a
Delaware corporation founded in 1981, and changed its name to NeXstar
Pharmaceuticals, Inc. Prior to the Merger, NeXstar Pharmaceuticals was primarily
engaged in the discovery and development of novel oligonucleotide-based
pharmaceuticals. As a result of the Merger, the Company combined its drug
discovery program and financial resources with Vestar's proprietary drug
delivery technology, existing products and product pipeline and Vestar's
manufacturing, marketing and regulatory capabilities.
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PRODUCTS AND PRODUCT DEVELOPMENT
The following table summarizes the principal products and certain product
development activities of the Company. Except as specifically noted below, all
commercial rights to such products are held exclusively by the Company.
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PRODUCT INDICATION STATUS
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LIPOSOMAL PRODUCTS
AmBisome* Systemic fungal infections Approved for marketing in 25 countries;
submitted as part of NDA to FDA.
First line therapy for fungal Approved for marketing in 4 countries;
infections submitted as part of NDA to FDA.
Prophylaxis in liver transplant Approved for marketing in 2 countries;
patients submitted as part of NDA to FDA.
Visceral leishmaniasis Approved for marketing in several
countries; submitted as part of NDA
to FDA.
Therapy in neutropenic patients Submitted as part of NDA to FDA.
Treatment of fever of unknown origin Submitted as part of NDA to FDA;
(FUO) confirmatory Phase III clinical trial
completed in the U.S.; preliminary
results are supportive.
Histoplasmosis Phase III clinical trial ongoing in the
U.S.
DaunoXome First line therapy for advanced Approved for marketing in U.S., Canada
Kaposi's sarcoma and 16 European countries.
Non-Hodgkin's lymphoma Phase II clinical trials ongoing;
preliminary results are supportive.
Breast cancer Phase II clinical trials ongoing.
Multiple myeloma, leukemia, sarcomas, Phase II clinical trials ongoing as
cancers of the prostate, ovary and single agent and in combination
brain chemotherapy.
MiKasome Serious gram-negative and mycobacterial Phase I clinical trial ongoing.
infections
VincaXome Cancer of various forms Preclinical development.
SELEX PROCESS-DERIVED PRODUCTS
VEGF Aptamers Macular degeneration, cancer Preclinical development (all
indications).
PDGF Aptamer Restenosis, fibrosis, cancer Early preclinical development (all
indications).
L-Selectin Aptamers Inflammation, reperfusion injury Early preclinical development (all
indications).
P-Selectin Aptamers Inflammation, post-stroke tissue damage Late research/early preclinical
development (all indications).
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* Fujisawa USA, Inc. and the Company co-develop and will, if and when AmBisome
is approved, co-promote AmBisome in the United States pursuant to a
collaborative relationship. Fujisawa USA, Inc. has sole marketing rights to
AmBisome in Canada and Sumitomo Pharmaceuticals Co., Ltd. has marketing rights
to AmBisome in Japan.
PRODUCTS AND MARKETS
AMBISOME
AmBisome is a liposomal formulation of amphotericin B, a well-established
antifungal agent that is effective against a broad spectrum of fungi. NeXstar
Pharmaceuticals has received marketing approval for AmBisome as a treatment for
life-threatening fungal infections in 25 countries, four of which have granted
approval as a first line therapy and the remainder of which have granted
approval for use when conventional amphotericin B treatment fails. AmBisome has
also been approved as a treatment for visceral leishmaniasis in several
countries and is approved in two countries for prophylactic treatment to prevent
fungal infection after liver transplantation. The Company is also selling
AmBisome through physician purchase requests in several
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countries that permit special license or named-patient purchases prior to
obtaining regulatory approvals. In November 1996, a New Drug Application ("NDA")
was submitted to the U.S. Food and Drug Administration (the "FDA") for the use
of AmBisome as a primary treatment for confirmed and presumptive fungal
infections, prophylaxis in liver transplant patients, empiric therapy in
neutropenic patients and visceral leishmaniasis and as a secondary treatment of
fungal infections refractory to amphotericin B treatment. Additionally, NeXstar
Pharmaceuticals has submitted requests for approval with regulatory authorities
in a number of countries worldwide in which AmBisome has not been approved.
Regulatory procedures and review times vary from country to country.
AmBisome was the subject of a joint venture formed in 1987 with Lyphomed
Corporation, which was subsequently acquired by Fujisawa USA, Inc. ("Fujisawa").
In August 1991, the Company and Fujisawa dissolved their joint venture and
distributed its assets. Under the terms of the dissolution agreement, as later
amended, Fujisawa owned the marketing rights for AmBisome in the United States
and Canada, and the Company retained the marketing rights in all other
territories of the world. Pursuant to an April 1995 amendment to their
agreement, the Company and Fujisawa have agreed to co-promote AmBisome in the
United States if and when AmBisome is approved. If AmBisome is ultimately
approved for commercial sale by the FDA, the Company will manufacture AmBisome
for sale in the United States. In addition, the Company will be reimbursed for
the cost of the product sold to Fujisawa and will receive 20% of the gross
profits from all U.S. sales of AmBisome.
NeXstar Pharmaceuticals also has licensed the right to develop and market
AmBisome in Japan to Sumitomo Pharmaceuticals Co., Ltd. ("Sumitomo"). Under the
terms of the license, Sumitomo is required to make payments to the Company if
certain clinical and commercial milestones are met and to pay the Company
royalties on all Japanese sales of AmBisome.
Product Profile. Amphotericin B, an antifungal agent used to treat a broad
spectrum of fungal infections, has been a commonly used drug for the treatment
of systemic fungal infections. The clinical usefulness of amphotericin B is
limited, however, because serious toxicity can occur at doses that are only
marginally effective. NeXstar Pharmaceuticals has used its proprietary
technology to develop AmBisome, a liposomal product that incorporates
amphotericin B. The maximum tolerated dose of AmBisome in some animal models is
up to 75 times that of the free drug, permitting higher daily and cumulative
doses of amphotericin B to be delivered to the diseased tissues, while
simultaneously greatly reducing the normal acute and chronic toxicity often
associated with conventional amphotericin B therapy. NeXstar Pharmaceuticals
believes that the increased safety profile of AmBisome is due to a proprietary
manufacturing process that tightly binds amphotericin B into the membrane of the
liposome, preventing the free drug from escaping into the blood stream.
AmBisome is sold as a lyophilized (freeze-dried) cake that is easily
reconstituted by adding sterilized water and has an approved shelf life in most
countries of 30 months. However, some countries which originally approved
AmBisome with only a 12-month shelf life have yet to approve the longer period.
The Company is in the process of developing new formulations of AmBisome that do
not require lyophilization. However, no assurance can be given that any new
formulation will receive necessary governmental approvals or will be
commercially successful.
Market. The Company's marketing efforts for AmBisome are primarily directed
at patients with systemic fungal infections, including for use as primary and
secondary therapy, presumptive fungal infections and as antifungal prophylaxis.
Systemic fungal infections are serious infections with a mortality rate of up to
70% and are commonly caused by species of Candida, Aspergillus or Cryptococcus,
as well as a variety of less common organisms. These infections can occur in
patients whose immune systems have been compromised by other diseases or by the
treatment of other medical conditions. The largest population of immune-impaired
patients consists of organ/bone marrow transplant patients, heavily treated
cancer patients (principally those with leukemias or lymphomas) and AIDS
patients. The product is also currently used in a number of countries for the
treatment of visceral leishmaniasis and has been demonstrated to be effective
against fungi and certain parasites that reside in macrophages.
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DAUNOXOME
DaunoXome is a liposomal formulation of daunorubicin, a well-characterized
and long-used chemotherapeutic agent. The Company has demonstrated in animal
studies that its formulation delivers significantly more drug to malignant
tumors than do equal doses of the conventional drug. DaunoXome has been approved
in the U.S., Canada and 16 European countries as a primary therapy for Kaposi's
sarcoma ("KS").
Product Profile. DaunoXome uses a proprietary tumor targeting technology
for delivering daunorubicin into tumor cells. This targeted liposomal delivery
system consists of small liposomes that encapsulate the daunorubicin in their
internal aqueous space. The size of the liposomes used in DaunoXome was
selected, in part, so that the liposomes can escape from circulation through the
more porous blood vessels that are generally found in tumors. In animal models,
DaunoXome's formulation permits a concentration of the therapeutic agent in
tumors of 5 to 10 times the concentration achieved with intravenous
administration of the free drug. Animal tests have also demonstrated up to 10
times the efficacy as the equivalent level of daunorubicin in its free drug
form. Further, these animal models have demonstrated a substantial reduction in
certain toxicities associated with daunorubicin.
DaunoXome has an approved shelf life of 36 weeks in the United States, 40
weeks in the United Kingdom and between 20 and 26 weeks in most other European
countries. While the Company is attempting to obtain a longer shelf life than
those currently approved in most European countries, there can be no assurance
that the extension of the shelf life will be approved by any European regulatory
authority.
Market. The Company's initial targeted market for DaunoXome has been AIDS
patients who suffer from KS, a malignant disease characterized by widely
disseminated lesions in the skin, mucous membranes, lymph nodes and viscera. KS
occurs in AIDS patients and alternative therapies are limited.
CLINICAL TRIALS, PRECLINICAL TRIALS AND REGULATORY STATUS
The Company currently has a number of liposomal and SELEX process-derived
products in clinical trials or early preclinical development. No assurance can
be given that any clinical trials or preclinical development work will result in
any commercially successful new drugs, or, in the case of AmBisome and
DaunoXome, approval of any additional indications for the drugs.
AMBISOME
NeXstar Pharmaceuticals continues to conduct clinical trials with AmBisome
in a variety of settings with the aim of expanding the uses of this antifungal
drug. The Company has recently concentrated its clinical development of AmBisome
on empiric therapy for presumed fungal infections among patients at high risk
for such infections, first line therapy of systemic and/or deep fungal
infections and prophylaxis against systemic fungal infections following
chemotherapy and in patients receiving bone marrow transplantation. Toward these
ends, the Company has completed two randomized clinical trials comparing the
safety and efficacy of AmBisome to conventional amphotericin B in the empiric
treatment of patients with fever of unknown origin (FUO) and severe neutropenia
(a low white blood cell count), who have a presumed fungal infection. These
patients were receiving intensive chemotherapy or had underlying hematological
disease. One clinical trial enrolled adults (134 patients) and the other had
pediatric subjects (214 patients). These two clinical trials indicated that
AmBisome had an improved safety profile compared with amphotericin B and there
was a trend towards improved efficacy for AmBisome.
The Company has also completed a double-blind, placebo-controlled,
randomized clinical trial in 85 patients of the efficacy and safety of AmBisome
as prophylaxis following liver transplantation. The clinical trial showed a
trend towards improved efficacy for AmBisome compared to amphotericin B.
Additionally, the Company has completed five clinical trials in which
patients with confirmed systemic and/or deep fungal infections were treated with
AmBisome. In these trials, the overall fungal eradication rate in patients
treated with AmBisome was significantly greater than for amphotericin B, while
the clinical success rate was as great as amphotericin B. All of these studies
were filed as part of the NDA submitted to the FDA in November 1996.
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A Phase III clinical study conducted by Fujisawa in the U.S. with over 700
extremely ill patients has evaluated the use of AmBisome compared to
amphotericin B as empiric therapy in febrile neutropenia. The results of this
study are being reviewed and evaluated.
NeXstar Pharmaceuticals, in conjunction with Fujisawa, is conducting a
Phase III clinical trial of AmBisome in the U.S. for the treatment of
histoplasmosis. The trial is being monitored and analyzed by the Mycology Study
Group of the National Institutes of Health. The European Organization for
Research and Treatment of Cancer (EORTC) has offered to perform a multicenter
trial of early versus late treatment of febrile neutropenia using AmBisome
versus amphotericin B at over 30 sites throughout Europe.
DAUNOXOME
The Company is seeking to expand the number of approved indications for
DaunoXome using a four-pronged approach. First, the Company has completed
clinical trials and is continuing to perform additional studies aimed at
optimizing the treatment of KS. The completed clinical trials in KS have
evaluated the safety and efficacy of higher dose regimens, the treatment of the
pulmonary manifestations of KS and the degree of cardiac toxicity associated
with the use of DaunoXome. Additional studies are ongoing or are planned to
include the use of DaunoXome as part of combination chemotherapy in KS and
further refinement of the dosing regimen to improve both safety and efficacy.
Second, the Company has embarked on a series of clinical trials aimed at
determining the maximum tolerated dose of DaunoXome for different clinical
indications. The safety profile of DaunoXome suggests that higher doses of this
drug may be tolerated as compared with daunorubicin and other conventional
anthracyclines.
Third, the Company is pursuing an aggressive strategy to gain approval of
expanded clinical indications for DaunoXome in a number of well-defined
malignancies, especially those in which daunorubicin has established safety and
efficacy. These include hematologic malignancies such as lymphoma, leukemia and
multiple myeloma as well as a broad range of sarcomas. In addition, the Company,
in a Phase II clinical trial, has substituted DaunoXome for doxorubicin in a
CHOP (cyclophosphamide, doxorubicin, vincristine and prednisone) regimen (COP-X)
in the treatment of high grade lymphomas. A COP-X protocol in the United Kingdom
has had response rates equivalent to or better than for the CHOP regimen. The
Company is currently planning Phase III clinical trials for the use of DaunoXome
against non-Hodgkin's lymphomas.
Finally, the Company is conducting clinical trials with DaunoXome to
evaluate the susceptibility of a range of solid tumors, including cancers of the
breast, prostate, ovary and brain, to DaunoXome-containing regimens. Overall,
the Company is currently supporting the study of DaunoXome by numerous clinical
investigators. Many of these investigators are involved in multicenter trials in
the indications mentioned above.
MIKASOME
MiKasome is a liposomal formulation of amikacin, which is a member of a
class of antibiotic compounds called aminoglycosides. To date, the therapeutic
use of aminoglycosides has been limited by significant dose-limiting toxicities;
specifically, kidney damage and hearing loss. The target product profile for
MiKasome, as compared to free amikacin, includes significantly improved safety,
extended circulation times, increased penetration to sites of infection and a
broader range of antimicrobial activity.
In October 1996, the FDA approved the Company's Investigational New Drug
Application ("IND") for MiKasome. The IND included a Phase I protocol that built
upon the results of earlier studies conducted by the Company in Europe. As well,
the Company completed a major toxicological and pharmacokinetic study in support
of the MiKasome IND prior to submission of the IND. This toxicological and
pharmacokinetic study consisted of three dose levels of MiKasome administered
repeatedly over a 30-day period in animal models. In this study, MiKasome was
found to be safer at higher doses and showed much higher circulation and tissue
levels of the drug than free amikacin. There were also several in vitro and in
vivo studies conducted during 1996 in support of the MiKasome IND, including
models in endocarditis, pneumonia, tuberculosis and other mycobacterial
infections. In preclinical studies, the pathogens against which MiKasome has
shown at least
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equivalent, if not improved efficacy compared to free amikacin, are Pseudomonas
aeruginosa, Staphylococcus aureus, Klebsiella pneumoniae, Mycobacterium avium
complex and Mycobacterium tuberculosis.
In February 1997, a Phase I clinical trial of MiKasome was initiated. The
development plan for MiKasome includes indications in patients with moderate,
severe and life-threatening gram-negative bacterial infections including, but
not limited to, those infections which are the focus of the first planned Phase
II clinical trials (pulmonary exacerbations in cystic fibrosis,
hospital-acquired pneumonia, bacterial endocarditis and urinary tract
infections), as well as tuberculosis, intra-abdominal infections and
osteomyelitis.
VINCAXOME
VincaXome is a liposomal formulation of vincristine, an approved anticancer
agent that is presently used against several types of cancer, both as a single
agent and in combination drug regimens. Vincristine, as with many other cancer
chemotherapies, has severe dose-limiting toxicities, the most serious of which
is peripheral neuropathy, a side effect which causes numbness and pain in
patients' extremities. VincaXome has been shown to have reduced overall toxicity
compared to free vincristine in animal studies. Specific studies to evaluate
neurotoxicity are being designed.
During 1996, NeXstar conducted various preclinical efficacy studies with
VincaXome. In one study, VincaXome demonstrated activity, in both single dose
and multiple dose studies, in inhibiting the growth of metastases in an animal
tumor model that was relatively resistant to free vincristine. In another animal
model study, VincaXome was shown to have efficacy similar to free vincristine,
with some reduction in toxicity, when dosed once per week or once every two
weeks. In the same study, VincaXome was shown to be significantly more effective
than free vincristine when administered on a once every three weeks dosing
schedule.
The preclinical package needed to support a decision to pursue an IND for
VincaXome will continue to be developed during 1997.
GROWTH FACTOR ANTAGONISTS
Using its proprietary SELEX process, the Company has identified numerous
aptamer antagonists of growth factors. Growth factors are proteins capable of
stimulating the growth of various cells and tissues, including tumors and blood
vessels. The Company is currently developing aptamer antagonists of several
growth factors. The Company's VEGF aptamer antagonists and its PDGF aptamer
antagonist have advanced to the stage of preclinical/early preclinical
development.
VEGF APTAMERS. Vascular endothelial growth factor ("VEGF") is a growth
factor that promotes the growth of new blood vessels (a process known as
angiogenesis). In healthy adults, angiogenesis is rare and tightly controlled.
However, in certain pathological conditions, such as macular degeneration and
cancer, angiogenesis is believed to contribute to disease progression. In
macular degeneration, blood vessels grow in an abnormal manner behind the
retina, resulting in a progressive loss of visual acuity and eventual blindness.
Recently published reports have implicated VEGF as the major angiogenesis
stimulator in the eye. Currently, there is no effective treatment for macular
degeneration. In cancer, it is now well established that in order for tumors to
grow beyond the size of a few cubic millimeters, there must be simultaneous
growth of blood vessels. Inhibitors of angiogenesis (including inhibitors of
VEGF) may impair tumor growth. Using its SELEX process, the Company has
identified several aptamers that bind to VEGF very tightly, in a manner that
inhibits the binding of VEGF to its cell-surface associated receptor, therefore
assisting in inhibiting angiogenesis and impairing tumor growth. The Company has
developed VEGF binding aptamers with improved pharmacokinetic properties and is
currently testing these aptamers in animal models of angiogenesis and tumor
growth. The preliminary results from these animal model studies have been
encouraging.
PDGF APTAMER. Platelet-derived growth factor ("PDGF") is a growth factor
which promotes the growth of many cells and tissues. Like VEGF, PDGF promotes
tumor growth by causing angiogenesis associated with tumors. In addition, and as
a consequence of the expression of PDGF receptors on tumor cells, PDGF can be
directly responsible for stimulation of tumor cell growth. PDGF appears to be a
causative factor in cancer and other proliferative diseases such as restenosis
and fibrosis. Using its SELEX process, the Company has
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identified a specific PDGF binding aptamer that potently inhibits PDGF activity
in vitro. The Company is currently testing this PDGF aptamer in animal models of
restenosis, fibrosis, cancer and angiogenesis. The preliminary results from
these animal model studies have been encouraging.
SELECTIN INHIBITORS
Using its proprietary SELEX process, the Company has identified aptamers
which inhibit L-selectin mediated activity in vivo and which inhibit P-selectin
mediated activity in vitro. Selectins are a family of three closely related cell
surface receptors that mediate adhesion between different types of cells. In
both normal and disease states the selectins participate in the movement
(extravasation) of white blood cells from the blood stream into tissues. Because
the extravasation of white blood cells into certain types of tissue may, if
uncontrolled, lead to host tissue damage, selectins are thought to play an
important role in inflammation and reperfusion injury (inflammation is a natural
response to injury; however, if uncontrolled, it can produce reactions which are
life threatening). In certain circumstances, such as severe trauma and coronary
bypass surgery, experimental evidence supports the theory that white blood cells
are involved in much of the cell injury that can trigger multi-organ failure. It
is believed that if the attraction of white blood cells to injury sites can be
blocked, or at least reduced, by inhibiting the activity of the selectins
involved in the extravasation of white blood cells into the injury site, the
adverse reactions which lead to cell death and organ failure might be prevented.
The Company currently has inhibitors of L-selectin in the early preclinical
development stage and inhibitors of P-selectin in the research/early preclinical
development stage.
L-SELECTIN APTAMERS. L-selectin, one of the family of selectins, is found
on the surface of white blood cells (also known as leukocytes) and is thought to
be involved in the early stages of inflammation. Using its SELEX process, the
Company has identified a series of aptamer antagonists of L-selectin. The
Company has conducted in vitro experiments that have demonstrated that the
Company's L-selectin antagonists bind to L-selectin on the surface of certain
white blood cells (at least 10,000-fold more tightly to L-selectin than certain
other antagonists and 500-1,000 times less tightly to related cell adhesion
molecules). The Company has also conducted in vivo experiments that have
demonstrated that in animal models these L-selectin antagonist aptamers are able
to bind to leukocyte surfaces and inhibit the L-selectin mediated trafficking of
lymphocytes (a type of white blood cell) from the blood stream into tissue. The
results of these in vitro and in vivo experiments suggest that in inflammatory
reactions, L-selectin mediated leukocyte migration may be blocked by the
Company's L-selectin antagonist and life-threatening inflammation and
reperfusion injury prevented.
P-SELECTIN APTAMERS. P-selectin, the second in the family of selectins,
like L-selectin, plays a significant role in the movement of white blood cells
from the blood stream into tissue and is thought to be involved in the early
stages of inflammation. Using its SELEX process, the Company has identified a
series of aptamer antagonists of P-selectin. The Company has conducted in vitro
experiments that have shown that these P-selectin antagonists have binding
affinities for P-selectin that are far greater than carbohydrate-based
antagonists and that block P-selectin mediated cell-cell adhesion. The Company
is designing animal models to evaluate the in vivo activity of these P-selectin
antagonists. If the Company's P-selectin antagonists can inhibit P-selectin
mediated migration of leukocytes to the sites of tissue injury, inflammation may
be reduced. The primary clinical indication for the Company's P-selectin
antagonists is tissue reperfusion injury after a cerebral ischemic event
(stroke).
RESEARCH AND DEVELOPMENT
The Company focuses its research and development activities on its two
significant proprietary technologies (the SELEX process and the Parallel SELEX
process), on the identification, through these processes, of novel
oligonucleotide and small-molecule compounds that have potential as drug
candidates and on the development of the most suitable compounds into
oncological, immunological, hematological and infectious disease drug
candidates. In addition, the Company, in collaboration with other pharmaceutical
companies, is pursuing the development of SELEX process-derived oligonucleotide
compounds as other commercial products, including diagnostic agents. The Company
also conducts research involving its proprietary liposome technology (including
the encapsulation of compounds derived from the SELEX process in liposomes). The
Company devotes significant efforts to the efficient development of the
oligonucleotide
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compounds that are the basis for the products being developed by the Company
using the SELEX process, including the development of the Company's new Product
Anchored Sequential Synthesis ("PASS") technology.
SELEX: SYSTEMATIC EVOLUTION OF LIGANDS BY EXPONENTIAL ENRICHMENT
GENERAL
Drug discovery efforts focus on the identification of compounds that can
bind and inhibit molecular targets that cause disease. NeXstar Pharmaceuticals
has developed and patented a proprietary combinatorial chemistry technology
called the SELEX process and is utilizing this process to rapidly identify
compounds that bind tightly and selectively to molecular (i.e., disease)
targets.
Complementary shape (sometimes described as a "lock and key") is
fundamental to drug discovery research. In searching for potential drug
candidates, the scientist is looking for the drug candidate (key) that best fits
the disease causing molecular target (lock). In this search, it is advantageous
to have a large library of potential drug candidates (keys) to test against the
target molecule (to attempt to fit into the lock). In developing effective drug
products, it is also advantageous to have a drug candidate that binds tightly to
the target molecule and not to other molecules (a drug compound with high
affinity binding properties is more likely to be effective at low doses and
induce fewer side effects than a drug compound with low affinity for the disease
target; high specificity also reduces the likelihood of potential side effects
since the drug compound is unlikely to interact with targets not involved in the
particular disease). The SELEX process generates an enormous library of
oligonucleotide compounds (keys) and then rapidly searches this library of
compounds to identify the compounds that bind tightly and with a high degree of
specificity to the chosen disease causing molecular target.
The SELEX process can be used to screen a pool of up to one million billion
(10(15)) oligonucleotides and to select from this pool the compounds that have
the highest affinity for a specified molecular target. The SELEX process begins
by creating in a test tube a pool containing a million billion candidate
oligonucleotides (molecules belonging to the same family as DNA and RNA, but
modified to resist degradation by DNA- and RNA-destroying enzymes). When this
pool is mixed with a molecular (i.e., disease) target whose biological activity
is to be altered or inhibited, a small subset of the larger pool binds to this
target. The oligonucleotides in this smaller subset are then amplified. The new
copies of the surviving candidates form an enriched pool containing more high
affinity oligonucleotides than the prior pool. This second generation pool is
again exposed to the molecular/disease target and those oligonucleotides with
the best binding properties are again selected and amplified. These steps of
binding, selection and amplification are repeated several times with each round
of the SELEX process generating a smaller pool of oligonucleotides that bind to
the target molecule with increasing specificity and affinity. Typically, the
SELEX process creates drug candidates in a matter of weeks or months, rather
than years. The lead oligonucleotide compound resulting from the application of
the SELEX process to a particular disease target is also sometimes referred to
as an aptamer.
NeXstar Pharmaceuticals has demonstrated that the SELEX process is
applicable to a broad range of molecular targets, including proteins, peptides,
organic compounds, lipids, polysaccharides, carbohydrates, glycoproteins,
hormones, receptors, growth factors, whole cells and tissue.
The Company believes that its SELEX process technology has certain
advantages over existing drug discovery technologies, including the creation of
large libraries of oligonucleotide compounds, rapid identification of lead
compounds, high affinity and high specificity of target recognition and lack of
requirement of knowledge of the target molecule's structure. As a result, the
Company believes that its SELEX process technology will reduce the time and cost
involved in identifying lead compounds and ultimately will reduce the time and
cost involved in discovering and developing effective pharmaceutical products.
SCIENTIFIC ADVANCES WITH SELEX PROCESS-DERIVED APTAMERS
During 1996, the Company made significant progress in improving the
stability and the pharmacokinetic activity of aptamers which are developed using
the SELEX process.
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STABILITY. A major challenge to the development of SELEX process-derived
aptamers as drug candidates has been the rapid clearance of the drug from the
body due to enzymatic degradation. In living systems, there are families of
nucleic acid destroying enzymes, called nucleases, which attack and break down
RNA and DNA molecules. This activity of nucleases (i.e., degradation of the RNA
or DNA-based drug product) leads to clearance of the drug from the body and
therefore, in many cases, ineffectiveness of the drug. During 1996, the Company
focused its stability enhancement efforts on making its RNA-based aptamers
resistant to degradation. To this end, the Company created an assortment of
proprietary nucleotides (the building blocks for RNA and DNA), modified at the
primary point of entry of the nuclease attack. Compared to natural RNA, the
SELEX process-derived RNA (modified) aptamers have now been shown to be up to
200 times more stable in the blood of test animals. These advances have given
the Company the ability to achieve an array of circulation times for its
aptamers to match the circulation time best suited for the specific disease
target. Using its modified aptamers, the Company has demonstrated specific
pharmacologic activity in animal models representing different types of
simulated disease processes.
PHARMACOKINETICS. A second major challenge to the development of SELEX
process-derived aptamers as drug candidates is also the rapid clearance of the
drug from the body, this time due to excretion by the kidneys. During 1996, the
Company achieved improved pharmacokinetic performance of SELEX process-derived
aptamers through a variety of formulation modifications which alter the size of
the aptamers and therefore alter the circulation time of the drug products (the
rate of kidney excretion is, among other things, dependent on the size of the
drug molecule). The formulation modifications made to the aptamers are, for the
most part, made after completion of the SELEX process and alter the size and
weight of the aptamers. The increased size and weight of the modified aptamers
reduce the rate at which they are cleared from circulation, primarily by
blocking filtration of the aptamers by the kidneys.
During 1996, the Company encapsulated aptamers into liposomes using the
Company's proprietary liposomal technology. This liposomal encapsulation of
SELEX process-derived aptamers also led to improved pharmacokinetic performance
of aptamers and has contributed to the demonstrated activity of the aptamers in
animal models.
The Company will continue to study the behavior of aptamers in the body and
will continue to attempt to engineer the aptamers to be cleared at various rates
that might be desirable for different medical applications.
THERAPEUTIC APPLICATIONS OF SELEX PROCESS-DERIVED COMPOUNDS
DISEASES IMPACTED BY GROWTH FACTORS. Growth factors are proteins capable of
stimulating the growth of various cells and tissues, including tumors and blood
vessels. Using its SELEX process, the Company has identified several aptamers
that bind to VEGF very tightly, in a manner that inhibits the binding of VEGF to
its cell-surface associated receptor and therefore assists in the inhibiting of
angiogenesis and the impairment of tumor growth. Using its SELEX process, the
Company has also identified a specific PDGF aptamer that potently inhibits PDGF
activity in vitro and therefore has potential to inhibit tumor growth and the
progression of other proliferative diseases such as restenosis and fibrosis. See
"Clinical Trials, Preclinical Trials and Regulatory Status." The Company is also
conducting research on other growth factors implicated in various disease
states. Using its SELEX process, the Company has identified antagonists to basic
Fibroplast Growth Factor (bFGF) (implicated in restenosis, fibrosis and cancer),
Transforming Growth Factor beta (TGFb) (believed to play a role in restenosis,
fibrosis and cancer) and Keratinocyte Growth Factor (KGF) (involved in certain
skin related cancers and psoriasis). The Company is continuing to test and
develop these growth factor antagonists.
SELECTINS. Selectins are cell surface receptors that mediate adhesion
between different types of cells. In both normal and disease states selectins
participate in the movement (extravasation) of white blood cells from the blood
stream into tissues. Because the extravasation of white blood cells into certain
types of tissue may, if uncontrolled, lead to host tissue damage, selectins are
thought to play an important role in inflammation and reperfusion injury. Using
its SELEX process, the Company has identified a series of aptamer antagonists of
L-selectin and P-selectin. The results of experiments with these antagonists
suggest that in inflammatory reactions, L-selectin and P-selectin mediated white
blood cell migration may be blocked by the Company's
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aptamers and life-threatening inflammation and reperfusion injury prevented. See
"Clinical Trials, Preclinical Trials and Regulatory Status."
HUMAN NEUTROPHIL ELASTASE. Human neutrophil elastase ("hNE") is a protease
(enzyme) that is capable of degrading a wide variety of connective tissue
proteins. Because of its potentially destructive effects, hNE activity is
tightly controlled or regulated under normal circumstances. The failure of the
body to regulate hNE is thought to be a major factor in the pathology of
inflammation. Excessive hNE activity has been implicated in emphysema, cystic
fibrosis, rheumatoid arthritis, ischemia-reperfusion injury and acute
respiratory distress syndrome ("ARDS").
Using a variation on the SELEX process called a blended SELEX process (a
small organic molecule is linked to a SELEX process library), the Company has
isolated irreversible inhibitors of hNE that are faster and more potent than any
other inhibitors of hNE described in scientific literature. The results of the
Company's experiments show that low doses of this hNE inhibitor completely
suppress lung injury in an ex vivo animal lung model of ARDS and that lung
injury can also be suppressed in vivo by intratracheal administration to
animals. It is thought that an effective hNE inhibitor could significantly
reduce inflammation and subsequent tissue damage thought to be impacted by hNE
activity.
IN VIVO SELEX PROCESS
The Company has extended its SELEX process to identify aptamers that bind
to complex targets in vivo, i.e., instead of using its SELEX process to target
disease molecules in vitro, the Company is using this In vivo SELEX process to
target diseased or damaged tissue such as arterial plaque or malignant tumors in
living animals and in humans. The aptamers obtained by the Company from this In
vivo SELEX process are useful as specific in vivo imaging agents (in vivo
imaging agents are the subject of a collaboration between the Company and
Schering A.G. See "Collaborative Relationships and License Agreements"). The
Company is exploring the application of aptamers identified through the In vivo
SELEX process as a therapeutic option, including chemically linking the aptamers
to appropriate cell killing compounds for indirect killing of malignant cells.
During 1996, a demonstration of the In Vivo SELEX process was made in an
animal model of restenosis (re-blockage of the artery) following balloon
angioplasty. In this demonstration, the Company used the In Vivo SELEX process
to target an isolated, damaged artery. After identification and enrichment of
those aptamers having the highest affinity for the target, the aptamer pool was
injected into an animal with the damaged artery. This demonstration eventually
led to identification of an aptamer with high affinity and greater than ten-fold
specificity for the damaged artery, results consistent with requirements for in
vivo imaging agents.
The Company is continuing to work to extend its In Vivo SELEX process in an
effort to identify aptamers against human atherosclerotic plaque (hardening of
the arteries) and to develop aptamers for in vivo diagnosis and treatment of
major human cancers.
OTHER COMMERCIAL APPLICATIONS OF SELEX PROCESS-DERIVED COMPOUNDS
In addition to research and development efforts aimed at the potential use
of SELEX process-derived products as therapeutic targets, the Company is
devoting significant research and development efforts to demonstrating that
products derived from its SELEX process have utility in other commercial
applications and, in particular, in the development of SELEX process-derived
aptamers as laboratory reagents and diagnostic agents as more specifically set
forth below.
TAQ (THERMUS AQUATICUS) POLYMERASE APTAMERS. The development of the
polymerase chain reaction ("PCR") has revolutionized many aspects of modern
molecular biology. PCR allows the rapid and efficient amplification of specific
sequence DNA molecules. The molecule responsible for PCR is the thermostable DNA
Polymerase enzyme Taq Polymerase. While the utility of PCR is high, it is also
flawed (it can function at low temperatures, allowing the DNA primers to
non-specifically bind to each other and to the target DNA
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molecule to be amplified, resulting in undesirable amplification of DNA and
making interpretation of the PCR results difficult).
In collaboration with Roche Molecular Systems, Inc., NeXstar
Pharmaceuticals has identified and developed SELEX process-derived DNA aptamers
that bind to Taq Polymerase and inhibit its activity at low temperatures where
the non-specific binding problem described above occurs. At low temperatures
(where non-specific primer binding is problematic), the DNA aptamers bind to Taq
Polymerase and prevent it from undesirable DNA amplification. Then, at high
temperatures (where primer binding is highly specific for the DNA to be
amplified and where Taq Polymerase functions in the manner desired), the DNA
aptamers lose their structure and no longer bind and inhibit Taq Polymerase,
allowing this enzyme to amplify only the desired DNA target. The Company's DNA
aptamers have been shown to provide substantial advantages to PCR applications,
especially in clinical diagnostics. The Company will continue to work, in
collaboration with its partner, towards commercialization of these DNA aptamers.
ELONA: ENZYME-LINKED OLIGONUCLEOTIDE ASSAY. Using its SELEX process, the
Company has identified aptamers that can be used for diagnostic applications.
For example, the Company has demonstrated that a SELEX process-derived aptamer
that binds to VEGF can be used in place of an antibody in a diagnostic assay
commonly used in the clinical laboratory. The common diagnostic assay used in
this demonstration is known as a sandwich enzyme-linked immunosorbant assay
(ELISA) and usually requires two antibodies that bind simultaneously to the
molecule to be assayed. The first antibody captures the target and the second
antibody is used for detection (the two antibodies are thought of as two pieces
of bread that "sandwich" the target molecule). The use of two antibodies greatly
reduces the probability of misdiagnosis. In the Company's demonstration, the
detection antibody in the diagnostic assay was replaced with a SELEX
process-derived aptamer specific for VEGF. The demonstration, known as
enzyme-linked oligonucleotide assay ("ELONA"), demonstrates that SELEX
process-derived aptamers may be effective and useful diagnostic reagents.
SELEX process-derived aptamers have several advantages over antibodies for
use as clinical diagnostic reagents, including: aptamers are approximately ten
times smaller than antibodies and are completely chemically defined (allowing
for more consistent manufacturing, at least at the research level, and ease of
modification); "rational" design is possible with aptamers, i.e., the SELEX
process can be designed so that the resulting aptamer is capable of binding to
the target molecule in the desired assay solution or with the desired target
specificity; and, because the entire SELEX process is in vitro, aptamers can be
developed for any target, including those for which it is difficult to obtain
antibodies. The Company also believes that it will be able to use its PASS
technology for inexpensive, large-scale manufacturing of these aptamers (another
advantage of aptamers over antibodies).
In addition to ELONA, the Company will continue to explore the development
of SELEX process-derived aptamers for a wide range of in vitro diagnostic
applications.
APTAMER AFFINITY CHROMATOGRAPHY. Monoclonal antibody technology has made
immunoaffinity purification a powerful and routine laboratory technique. With
proper experimentation, 1,000 to 10,000-fold purifications can routinely be
achieved from complex mixtures. However, there are major constraints that reduce
the effectiveness of antibody-based purifications, especially for large-scale or
industrial applications, including: antibody cross-reactivity; linkage of
antibodies to columns that often results in couplings that are not uniform,
leading to reduced capacity; inability of antibodies to survive cleaning; harsh
elution conditions (leading sometimes to destruction of the purified target, as
well as the antibody); and difficulty of large-scale manufacturing of monoclonal
antibodies.
To alleviate the problems associated with monoclonal antibody affinity
purification, scientists are exploring alternative affinity purification
reagents created through combinatorial chemistry technologies. The new reagents
being developed are generally smaller in size and complexity than antibodies,
easier to manufacture, offer gentler elution schemes and are generally more
resistant to sanitation procedures.
Using its SELEX process, the Company is developing an alternative affinity
purification reagent, specifically, aptamers for the purification of recombinant
human proteins from complex mixtures. Preliminary results indicate that the
Company's aptamers can be as effective as antibodies in their ability to purify
target
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molecules from complex mixtures (1,500 to 4,500-fold purifications) and these
aptamers are currently being used for protein purifications required for the
Company's own research efforts. On a larger scale, the Company believes that its
PASS technology may allow for the inexpensive, large-scale manufacturing of
aptamer affinity reagents and therefore potential commercialization of these
aptamers.
The Company is also continuing to focus its development activities in this
area on the requirements of the biotechnology industry for a synthetic affinity
purification reagent.
PARALLEL SELEX PROCESS
The Parallel SELEX process is a proprietary process being developed by the
Company to discover small-molecule drug candidates. The potential advantages of
the Parallel SELEX process as compared to current combinatorial chemistry
drug-discovery methodologies are several, including: tagging chemistries are not
necessary and high reaction yields are not required, so that both known and
unknown reaction chemistries (with numerous regiochemical and stereochemical
outcomes) currently inaccessible with combinatorial chemistry can be utilized to
provide extended small-molecule libraries and laborious and database-intensive
screening steps common in other combinatorial chemistry approaches are avoided.
The focus of research efforts of the Parallel SELEX process group at the
Company has been to expand the repertoire of reactions that may be used to form
chemically diverse small-molecule libraries. Of the numerous bond-forming
reactions that could be useful for the assembly of small-molecule
pharmacophores, those which have been proven to work using the Parallel SELEX
process technology are amidation, peptide acylation and Diels-Alder cyclization.
These reactions have been used in traditional medicinal chemistry for the
assembly of small-molecule pharmaceuticals and their use for lead compound
identification using the Parallel SELEX process is being explored. During 1996,
scientists at the Company succeeded in showing the applicability of these
chemistries to the Parallel SELEX process. These reactions represent only a
subset of possibly useful reactions and further efforts to prove the
applicability of the Parallel SELEX process methodology to other classes of
reactions, especially those with diverse regiochemical and stereochemical
possibilities, are ongoing.
During 1997, the Company will continue to expand the chemistries available
for drug discovery using the Parallel SELEX process and will begin to construct
small-molecule libraries for the discovery of new orally available
pharmaceuticals to treat oncological and infectious diseases.
PASS: PRODUCT ANCHORED SEQUENTIAL SYNTHESIS
All products produced by the SELEX process are oligonucleotide based. An
oligonucleotide is a chain of nucleotides (or monomers). During the SELEX
process, billions of oligonucleotides are put through the repeat steps of
binding, selection and amplification. The lead oligonucleotide compound
resulting from the application of the SELEX process to a particular disease
target is also sometimes referred to as an aptamer.
Traditional methods for the manufacture of oligonucleotides are suitable
for research-scale production of these compounds, but are severely limited for
larger-scale or commercial production. Limitations to traditional manufacturing
methods include: the solid phase synthetic methods used are not capable of scale
up in a predictable fashion; the adaptation of traditional manufacturing methods
to a particular oligonucleotide (aptamer) is laborious and costly; and the crude
product which results from traditional manufacturing methods is contaminated and
requires further purification.
The Company has developed a new proprietary technology called Product
Anchored Sequential Synthesis ("PASS"), which is a new method for synthesizing
oligonucleotides (aptamers). The PASS technology allows for predictable scale-up
of oligonucleotide products, using conventional chemical engineering techniques.
The PASS technology improves the economics of oligonucleotide synthesis in
several ways. The PASS technology uses fewer (costly) monomers in each step
needed to construct an oligonucleotide chain (monomers are the raw materials
used to make oligonucleotides). The PASS technology also reduces purification
costs associated with oligonucleotide synthesis as a result of the removal of
contaminants, using a proprietary product anchoring process, after each monomer
is added to the chain. The PASS technology also
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uses newly identified chemical activators to speed up the chemical reactions
that assemble monomers into a chain (the use of these chemical activators is
proprietary to the Company). In addition, the in-process controls and
documentation of PASS-manufactured oligonucleotides (not present with
traditional manufacturing methods) are believed to be another advantage of this
process and may prove beneficial in obtaining regulatory approval for
oligonucleotide-based products.
The Company's PASS technology is expected to add to the Company's ability
to make oligonucleotide-based drugs in commercial quantities in a predictable
and cost-effective manner. As well, the PASS technology may be adaptable to the
production of other polymeric compounds, including drug molecules, peptides,
peptide nucleic acids, polysaccharides and carbohydrates.
LIPOSOME TECHNOLOGY
NeXstar Pharmaceuticals believes that it has substantial technological
strengths in the development of liposome products. The Company's proprietary
liposome drug delivery technology enables it to develop products with
significant advantages over intravenous administration of a conventional drug,
including concentrating the drug on the targeted disease, extending the time the
drug remains in the blood stream to prolong the therapeutic effect and reducing
toxic side effects. The Company's liposome technology may be used as a method of
drug delivery in connection with drugs developed or being developed pursuant to
the Company's other technologies. The use of liposomes may have the potential
for increasing the efficacy and safety of such drugs.
NeXstar Pharmaceuticals intends to continue to develop products based on
its liposome platforms for oncological, immunological, hematological and
infectious diseases. The Company has identified certain generic and proprietary
oncological compounds that may benefit substantially from encapsulation in
tumor-targeted liposomes and has begun formulation studies for these compounds.
Other liposomal compounds are being investigated for use in treating microbial,
viral and parasitic infections.
The Company is also testing liposomes for use in delivering SELEX
process-derived aptamers to specific targets. In vivo experiments involving a
VEGF antagonist aptamer developed by the Company have demonstrated that a
liposomal formulation of the aptamer bound with high affinity to VEGF and
inhibited the growth of endothelial cells and cancer cells. In all experiments,
the liposomal formulation substantially enhanced the inhibitory activity of the
aptamer.
COLLABORATIVE RELATIONSHIPS AND LICENSE AGREEMENTS
To apply and develop its technologies as widely as possible, NeXstar
Pharmaceuticals has entered into and expects to enter into strategic
collaborative research agreements, joint ventures and licensing arrangements
with pharmaceutical and other health care companies and research institutions
directed at expanding the scope of its technologies and applying those
technologies toward a wide variety of specific molecular targets or disease
indications. NeXstar Pharmaceuticals is currently a party to collaborative
research agreements with major pharmaceutical companies which relate to the
SELEX process technology, including the development of aptamers for certain
types of diagnostic products and devices.
In February 1997, Schering A.G. ("Schering AG") agreed to increase its
annual funding to the Company to $2.4 million from $1.0 million in connection
with a collaborative research agreement first entered into in 1993. Under the
terms of their arrangement, the Company and Schering AG are using the Company's
SELEX process to discover and develop aptamers for use as in vivo imaging
agents. If successfully developed, the aptamers would be capable of binding to
specific targets in the body and could then be detected by a number of imaging
techniques, including gamma camera imaging.
Schering AG has specified that aptamers be developed for certain cardiac
and oncology targets. NeXstar Pharmaceuticals has already developed an aptamer
capable of identifying arteries undergoing restenosis, a condition that often
develops after angioplasty to open arteries clogged by fat and cholesterol
deposits. As part of the work to create an aptamer that binds with high
specificity to arteries undergoing restenosis, the
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Company has developed a procedure for using the SELEX process to discriminate
between diseased and healthy tissue, including tumors.
The license agreement entered into in connection with the collaborative
research agreement requires Schering AG to make milestone and royalty payments
to the Company upon commercialization and sale of any of the products developed
in the collaboration. If an aptamer identified during the research is utilized
by the Company outside of the field of in vivo imaging, the Company will be
required to pay a royalty to Schering AG.
NeXstar Pharmaceuticals has a significant ongoing collaborative
relationship with the University of Colorado at Boulder ("CU") relating to the
SELEX process technology. The relationship is formally with University Research
Corporation ("URC"), a for-profit, wholly owned subsidiary of the University of
Colorado Foundation, Inc. URC is designed to serve as the corporate vehicle for
commercial exploitation of inventions by the CU faculty. URC has assigned to
NeXstar Pharmaceuticals all of URC's present and future rights to (i) inventions
falling within the scope of the claims contained in issued patents and pending
patent applications for the SELEX process technology, (ii) improvements to such
technology made or discovered by researchers at CU, (iii) oligonucleotides or
other molecules that are derived through the application of such technology by
researchers at CU, (iv) results of certain sponsored research and (v) computer
software related to such technology. In connection with the rights assigned by
URC to the Company, URC is to receive certain royalties on the Company's net
sales of products and on royalties received by the Company from non-affiliates.
The Company's rights to market AmBisome are pursuant to an agreement
between the Company and Fujisawa. Under the terms of the agreement, as amended,
the Company has the sole marketing rights to AmBisome in all countries except
the United States and Canada and subject to the Company's obligation to pay
royalties in connection with sales in most significant Asian markets. The
agreement provides that the Company and Fujisawa will co-promote AmBisome in the
United States, if AmBisome is ultimately approved for commercial sale by the
FDA, and that the Company will manufacture AmBisome for sale in the U.S. In
addition, the Company will be reimbursed for the cost of the product sold to
Fujisawa and will receive 20% of the gross profits from the sales of AmBisome in
the United States.
NeXstar Pharmaceuticals has also licensed the right to develop and market
AmBisome in Japan to Sumitomo. Under the terms of the license, Sumitomo is
required to make payments to the Company if certain clinical and commercial
milestones are met and to pay the Company royalties on all Japanese sales of
AmBisome.
MARKETING
NeXstar Pharmaceuticals has established marketing subsidiaries in the
United Kingdom, Germany, Italy, Spain, France, Portugal, The Netherlands and
Australia and a marketing branch operation in Greece to promote and sell its
existing products. In addition, NeXstar Pharmaceuticals has agreements with
third-party distributors, including distributors in certain of the countries in
which the Company has marketing operations, to promote, sell and distribute its
products.
In certain countries, AmBisome and DaunoXome can be prescribed by
individual physicians, who request the products, even though a regulatory
approval in that country has not yet been obtained. In those cases, the
Company's marketing professionals provide information and assistance requested
by physicians.
NeXstar Pharmaceuticals has created a U.S. sales and marketing organization
in connection with the sale of DaunoXome, which was approved by the FDA in
mid-1996, and in anticipation of the approval of AmBisome by the FDA. The
Company is considering a number of other options in connection with marketing
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its products throughout the world and may hire additional personnel and/or seek
additional partners to assist with sales and distribution.
MANUFACTURING
The Company's existing products are manufactured at its current facility in
San Dimas, California (the "650 Facility"), which has been inspected by the FDA
and by the Medicines Control Agency of the United Kingdom (the "MCA") and
licensed for the commercial production of AmBisome and DaunoXome by the MCA and
for DaunoXome by the FDA. In addition, the local FDA district office has
indicated that it will recommend approval of the application to permit the use
of the 650 Facility for the manufacture of AmBisome. The 650 Facility has also
been inspected by the State of California for compliance with "current Good
Manufacturing Practices" and must be licensed annually by the State of
California for pharmaceutical manufacture.
AmBisome is sold as a lyophilized (freeze-dried) cake. Although the Company
has internal capacity to perform lyophilization in smaller clinical batches,
larger commercial batches of the Company's products are sent to third parties to
perform the filling and lyophilization processes. NeXstar Pharmaceuticals also
utilizes a manufacturer in Europe to perform certain quality control testing and
final labeling and packaging of both DaunoXome and AmBisome. The Company has
agreed to acquire the European facility where the quality control testing,
labeling and packaging are currently being conducted and expects, beginning in
the third quarter of 1997, to be solely responsible for these manufacturing
functions. The Company's manufacturing operations utilize no more than 50% of
current capacity of the 650 Facility.
NeXstar Pharmaceuticals is manufacturing DaunoXome in quantities sufficient
to support current sales and clinical trials and the Company believes that it
has sufficient capacity for its anticipated DaunoXome sales. However, the
Company has limited experience in the larger-scale manufacture of DaunoXome and
there can be no assurance that the Company will be able to scale up its
manufacture of DaunoXome. The Company has received an approved shelf life for
DaunoXome of 36 weeks in the United States, 40 weeks in the United Kingdom and
between 20 and 26 weeks in most other European countries. While the Company is
attempting to obtain a longer shelf life than those currently approved in most
European countries, there can be no assurance that the extension of the shelf
life will be approved by any European regulatory authority.
NeXstar Pharmaceuticals has leased and completed construction and equipping
of a manufacturing facility adjacent to the 650 Facility in San Dimas,
California (the "502 Facility"). The 502 Facility provides in excess of 70,000
square feet of space, including approximately 45,000 square feet of
manufacturing space. Various regulatory authorities, including the MCA and the
FDA, require NeXstar Pharmaceuticals to validate the 502 Facility prior to its
use for commercial production. Validation is designed to establish, through
documented evidence, that a specific manufacturing process will consistently
produce a product meeting its pre-determined specifications and quality
characteristics with a degree of assurance acceptable to such regulatory
authorities. The Company has completed the work necessary to apply for MCA, FDA
and state approval to manufacture AmBisome at the 502 Facility. It is
anticipated that the Company will also seek, through appropriate application
amendments, approval from these agencies to manufacture larger-scale batches of
DaunoXome at this site. The MCA has determined that the 502 Facility is in
general compliance with the principles and guidelines of good manufacturing
practice and has indicated that it will support the licensing of AmBisome and
DaunoXome in the 502 Facility. The 502 Facility has lyophilization capability
that will limit the need for third parties to perform the filling and
lyophilization of larger batches of product. There can be no assurance that the
regulatory approvals, which the Company is currently seeking in connection with
its manufacturing facilities, will be granted.
NeXstar Pharmaceuticals currently leases 5,260 square feet of industrial
space in Boulder, Colorado. This space is used for the manufacture of bulk drug
candidate materials for eventual use in clinical trials and product development
programs in connection with oligonucleotide-based compounds derived using the
SELEX process. The Company intends to use this facility for piloting a qualified
pre-production process on at least one-tenth of the ultimate expected production
scale. In addition, this facility can be utilized for the initial full scale
production of clinical trial material. Although construction of the facility,
utilities and selected
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environmental qualifications has been completed, there can be no assurance that
the production facility will ultimately obtain "current Good Manufacturing
Practices" status or that any drug substance proposed to be manufactured there
will be suitable for larger-scale production. In November 1996, the Company
entered into a lease for 9,800 square feet of space near its principal executive
offices in Boulder, Colorado. Following renovation this space will be used as a
development lab in connection with drug candidates discovered using the
Company's SELEX process.
NeXstar Pharmaceuticals concentrates on developing internal manufacturing
capabilities for its products at the same time as it develops those products.
The Company anticipates that its existing capacity for the manufacture of
AmBisome and DaunoXome will support commercial needs until the various
regulatory amendments needed to manufacture at the 502 Facility are approved.
While each liposomal formulation requires unique variations in process methods,
NeXstar Pharmaceuticals believes that it possesses the necessary technical
skills to design and implement scaled-up manufacturing capabilities for the
liposomal products it is currently developing. However, there can be no
assurance that the Company will be able to achieve such capabilities in
connection with new liposomal products or will be able to cost-effectively
manufacture any compounds derived using the Company's non-liposomal
technologies.
All of the component steps of the manufacturing process use equipment that
is commercially available and that can be obtained in larger sizes if required.
Currently, high quality amphotericin B, daunorubicin HCl and high quality
cholesterol, each of which is used in the Company's manufacture of liposome
products, are obtained only from single approved suppliers. Additional suppliers
of each of these components are presently under evaluation. In the event that
the materials become unavailable from their respective suppliers, the Company
believes that alternative supplies of such materials are or will become
available at reasonable prices. Other lipid materials and other raw materials
are available from a number of suppliers and NeXstar Pharmaceuticals believes
that supplies are adequate for the foreseeable future.
COMPETITION
Generally, competition in the pharmaceutical field is based on such factors
as product performance, safety, acceptance by doctors, patient compliance,
patent protection, ease of use, price, distribution, marketing and adaptability
to various modes of administration. The Company's products compete or may
compete with new chemical substances as well as improved delivery of current
drugs. The Company's products and potential products are in various stages of
development and no assurance can be given that any of these products or
potential products will be sufficiently more effective than existing treatment
alternatives to generate meaningful commercial demand.
NeXstar Pharmaceuticals anticipates that it will face increased competition
in the future as new products enter the market and advanced technologies become
available. Many of the Company's existing or potential competitors have
substantially greater financial, technical and human resources than NeXstar
Pharmaceuticals and may be better equipped to develop, manufacture and market
products. In addition, many of these companies have extensive experience in
research, preclinical testing and human clinical trials; obtaining FDA and other
regulatory approvals; and manufacturing and marketing their products. As a
result, these companies may develop and introduce products and processes more
rapidly than, and competitive with or superior to, those of NeXstar
Pharmaceuticals. There can be no assurance that existing products or new
products developed by the Company's competitors will not be more effective than
any that may be developed by NeXstar Pharmaceuticals. Competitive products may
render the Company's technology and products obsolete or noncompetitive.
The current regulatory approvals for AmBisome principally relate to
situations in which traditional amphotericin B therapy has failed. However, if
the Company succeeds in its effort to expand the approved indications for
AmBisome, such as it has in obtaining approval as a primary therapy in four
countries, AmBisome will increasingly compete with traditional amphotericin B
therapy. Amphotericin B is currently produced and marketed by Bristol-Myers
Squibb Company. Moreover, if the Company succeeds in broadening the indications
for AmBisome, it will also face competition from other antifungal products,
including those produced by major pharmaceutical companies. In addition, there
are a number of other
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<PAGE> 19
companies that are focused on the development of lipid-based products. In the
antifungal area, two companies have lipid-based amphotericin B products that
have been approved in the United States and in several European countries. These
products are offered at prices that are less than AmBisome's price on a
milligram for milligram basis, although the Company believes that the total cost
of therapy for the competitive products is substantially equal to or greater
than that of AmBisome. In the anticancer area, another company has a lipid-based
anticancer drug which competes with DaunoXome and which has been approved by the
FDA and in a number or European countries for use as second line therapy for the
Kaposi's sarcoma indication. If the Company is successful in broadening the
indications for DaunoXome, it will face competition from a number of oncology
drugs, some of which are owned by companies with substantially greater resources
than the Company's.
The Company believes that earlier entry into a market is an advantage for a
new drug, but it also believes that therapeutic index and cost-effectiveness are
important to a product's success. Ultimately, therefore, the Company believes
that its products and those of its competitors, whether or not lipid-based, will
compete on their merits in the markets where they are approved.
PATENTS, TRADE SECRETS AND LICENSES
NeXstar Pharmaceuticals believes that patents and other proprietary rights
are important to the Company's business. NeXstar Pharmaceuticals also relies
upon trade secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position. NeXstar
Pharmaceuticals actively seeks patent protection both in the U.S. and
internationally. As of December 31, 1996, NeXstar Pharmaceuticals had 136
pending U.S. patent applications and had 48 issued U.S. patents to protect its
technology. Corresponding applications for certain of the U.S. applications have
been or will be filed in other countries. The Company, as of December 31, 1996,
had 469 issued foreign patents. The patents and patent applications primarily
relate to the Company's liposome products and liposome technology and various
aspects of its SELEX and Parallel SELEX processes.
NeXstar Pharmaceuticals believes that its foreign and U.S. patents and
patent applications are soundly based, but the extent of protection provided may
vary in individual countries and no assurance can be given that any patent will
provide commercially significant protection or will not be challenged,
invalidated or circumvented. Litigation could be necessary to protect the
Company's patent position, which would result in substantial cost to, and
diversion of efforts by, the Company. NeXstar Pharmaceuticals has in the past
been involved, and is currently involved, in litigation involving patent and
infringement claims with respect to the Company's products. NeXstar
Pharmaceuticals is aggressively defending its interests and seeking appropriate
relief in such proceedings.
NeXstar Pharmaceuticals has licensed certain technology from and pays
royalties to the Regents of the University of California in connection with the
production and sale of AmBisome. The royalty rate varies depending on the amount
of revenues, among other things. Currently, the royalty rate is approximately 1%
of net sales. NeXstar Pharmaceuticals has also licensed technology from and
agreed to pay royalties to The City of Hope National Medical Center in
connection with the production and sale of DaunoXome. The royalty rate varies
depending on the amount of revenues. The Company has entered into license
agreements with various medical and educational institutions and an individual
to obtain certain exclusive and nonexclusive patent rights. Under these
agreements, NeXstar Pharmaceuticals will pay royalties of varying rates based
upon levels of revenues from the licensed products, as defined in the
agreements. The Company intends to continue to seek other such rights as
appropriate.
European and Japanese patents have a defined term following grant during
which opposition to the grant can be filed, and both NeXstar Pharmaceuticals and
certain of its competitors have filed such oppositions against each other with
respect to certain patents in Europe and Japan. Specifically, NeXstar
Pharmaceuticals has opposed the grant to The Liposome Company ("TLC") of the
European and Japanese counterparts of U.S. Patent No. 4,880,635 and U.S. Patent
No. 5,578,320. See "Legal Proceedings." NeXstar Pharmaceuticals has also opposed
the grant of other TLC European and Japanese patents, and is involved in an
interference proceeding with a U.S. patent application owned by the University
of California, relating to
18
<PAGE> 20
certain active drug loading techniques that the owners of this patent or
application could claim are used in the manufacture of products such as
DaunoXome.
Although patents are enforceable from the date of issuance and presumed to
be valid, future litigation or reexamination proceedings regarding the
enforcement or validity of the Company's existing patents or future patents, if
issued, could result in a ruling adverse to the Company that could invalidate
such patents or substantially reduce the scope of the protection afforded by
such patents. As to any issued patent or patent application, it is also possible
that the U.S. Patent and Trademark Office ("USPTO") could declare an
interference proceeding to determine, inter alia, priority of inventorship
between applications claiming the same invention. An adverse ruling in any such
interference proceeding could result in cancellation of claims in issued patents
or patent applications, limitations on the scope of issued patents or claims in
patent applications or in the awarding of the rights to third parties
participating in such interference. If the Company elects to, or is required to
participate in, interference proceedings declared by the USPTO, substantial cost
to the Company could result.
The Company also relies on trade secrets, proprietary know-how and
continuing technological innovation which it seeks to protect with
confidentiality agreements with its collaborators, employees and consultants.
There can be no assurance that these agreements will not be breached, that the
Company will have adequate remedies for any breach or that the Company's trade
secrets and proprietary know-how will not otherwise become known or be
independently discovered by competitors. Under certain of the Company's research
and development agreements, inventions discovered in certain cases become
jointly owned by the Company and the corporate partner or research institution
and in other cases become the exclusive property of the Company or the corporate
partner or research institution. Disputes may arise with respect to ownership of
any such inventions.
GOVERNMENT REGULATION
The production and marketing of the Company's products, developed through
the Company's technologies, and its ongoing research and development activities,
including its preclinical studies and clinical trials, are subject to regulation
by numerous federal, state and local governmental authorities in the United
States and by similar regulatory agencies in other countries where the Company
tests and markets, or intends to test and/or market, its current or potential
products. There can be no assurance that the Company will obtain further
regulatory approvals to conduct clinical trials or to market its products, or
that the Company will obtain regulatory approvals to conduct clinical trials or
to market products developed in the future, if any, on a timely basis. Prior to
marketing any drug developed by the Company or marketed under license, the
Company must undergo an extensive regulatory approval process by the FDA and
comparable regulatory authorities in foreign countries. The regulatory process,
which includes preclinical testing and clinical trials of each compound to
establish its safety and efficacy, can take many years and require the
expenditure of substantial resources.
Before obtaining regulatory approvals for the commercial sale of any of its
products under development, the Company must demonstrate through preclinical
studies and clinical trials that the product is safe and efficacious for use in
each target indication. The results from preclinical animal studies and early
clinical trials may not be predictive of results that will be obtained in large
scale testing, and there can be no assurance that the Company's clinical trials
will demonstrate the safety and efficacy of any products or will result in
marketable products. A number of companies in the biotechnology industry have
suffered significant setbacks in advanced clinical trials, even after
experiencing promising results in early animal and human testing. In addition,
the rate of completion of the Company's clinical trials is dependent upon, among
other factors, the rate of patient enrollment. Patient enrollment is a function
of many factors, including the size of the patient population, the nature of the
protocol, the Company's ability to manage the clinical trial, the proximity of
patients to clinical sites and the eligibility criteria for the study. Several
factors, such as delays in planned patient enrollment, may result in increased
costs and delays or termination of clinical trials prior to completion, which
could have a material adverse effect on the Company. Preclinical studies must
also be conducted in conformity with the FDA's good laboratory practice
regulations. Clinical trials generally must meet requirements for institutional
review board oversight and informed consent, as well as regulatory agency prior
review, oversight and good clinical practice requirements.
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<PAGE> 21
The procedure for obtaining regulatory approval for a new human
pharmaceutical product involves many steps. Initially, NeXstar Pharmaceuticals
conducts animal studies to secure data relevant to potential safety and
efficacy. Based on the data from these animal studies, NeXstar Pharmaceuticals
files applications to conduct clinical trials of the products in humans. Such
applications, known as Investigational New Drug Applications (IND) in the United
States, must be made in each country in which NeXstar Pharmaceuticals proposes
to conduct clinical trials. Once such applications have been approved, NeXstar
Pharmaceuticals can commence clinical trials.
Clinical trials are generally conducted in three phases. Phase I trials are
designed to test basic human safety. Phase II trials test dosage and involve a
detailed evaluation of human efficacy and safety. Phase III trials involve
large-scale evaluation of general efficacy and safety and a comparison with
existing alternative therapies. To the extent possible, NeXstar Pharmaceuticals
designs such clinical trials to meet the standards of both foreign and U.S.
regulatory authorities, but there can be no assurance that the authorities in
any country will be satisfied with the conduct of any particular clinical trial.
Data obtained from preclinical and clinical activities are susceptible to
varying interpretations which could delay, limit or prevent regulatory approval.
In addition, delays or rejections may be encountered based upon changes in the
policies of regulatory authorities for drug approval during the period of
product development and regulatory review of each submitted new drug application
or product license application. The Company may be required to demonstrate that
the proposed product represents an improved form of treatment over existing
therapies. There can be no assurance that, even after such time and
expenditures, regulatory approvals will be obtained for any drugs developed or
discovered by the Company or its collaborative partners utilizing the Company's
technologies.
Based on the results of clinical trials, NeXstar Pharmaceuticals may file
for regulatory approvals of the product. Such filings, which in the United
States are known as New Drug Applications ("NDA") and in Europe as Product
License Applications, are made in each country in which NeXstar Pharmaceuticals
intends to sell its products. In November 1996, an NDA was submitted to the FDA
for AmBisome. There can be no assurance that the FDA will grant product approval
based on the current database for AmBisome and the FDA may require additional
clinical trials in the United States before approving AmBisome. Also, there can
be no assurance that, if approved, AmBisome will be commercially successful in
the U.S.
When a regulatory authority approves the sale of a drug, regulations also
govern the manufacturing process and marketing activities, including the types
of information that the Company may provide to health care providers, and may
require post-marketing testing and surveillance programs to monitor the effects
of the Company's products. Moreover, if regulatory approval of a drug is
granted, such approval is likely to entail limitations on the indicated uses for
which it may be marketed. Further, even if such regulatory approval is obtained,
a marketed drug and its manufacturer are subject to continual review, and
discovery of previously unknown problems with a product or manufacturer may
result in restrictions on such product or manufacturer, including withdrawal of
the product from the market. The Company is currently responding to an FDA
warning concerning certain promotional materials supplied by the Company in
connection with the sale of DaunoXome in the U.S. While the Company does not
believe that any action, which the Company is required to take in connection
with its promotions of DaunoXome, will be material to the operations of the
Company, no assurance can be given.
Regulatory approval of prices is generally required in most foreign
countries. In particular, certain European countries will condition their
approval of a product on the agreement of the seller not to sell that product
for more than a certain price in that country and in the past have required
price reductions after or in connection with product approval. There can be no
assurance that European regulatory authorities in the future will not establish
lower prices or that any regulatory action reducing the price of AmBisome or
DaunoXome in any one European country will not have the practical effect of
requiring the Company correspondingly to reduce its prices in other European
countries. There can be no assurance that the resulting prices would be
sufficient to generate an acceptable return on the Company's investment in its
products.
NeXstar Pharmaceuticals is aggressively pursuing worldwide
commercialization of its products. In some countries, regulatory procedures
allow for product sales under certain circumstances before final regulatory
approvals are obtained. The Company has submitted and will continue to submit
requests for approval of
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<PAGE> 22
AmBisome and DaunoXome with regulatory authorities worldwide. Regulatory
procedures and review times vary from country to country. There can be no
assurance that any of the Company's pending applications for approvals will be
granted or that regulatory actions will be taken in a timely fashion.
The Company has received an approved shelf life for DaunoXome of 36 weeks
in the United States, 40 weeks in the United Kingdom and between 20 and 26 weeks
in most other European countries. While the Company is attempting to obtain a
longer shelf life than those currently approved in most European countries,
there can be no assurance that the extension of the shelf life will be approved
by any European regulatory authority. The Company in the past has replaced, and
in the future expects, under certain circumstances, to replace, vials of
DaunoXome with expired shelf lives and the likelihood that customers would seek
to return material amounts of DaunoXome to the Company because of the expiration
of its shelf life may be increased if shelf lives longer than those currently
approved are not obtained.
In addition, the Company's manufacturing facilities are subject to
inspection and regulation by U.S., foreign and state regulatory agencies. The
Company's facilities in San Dimas, California have been inspected by the FDA,
the MCA and the State of California. These agencies may reinspect at any time,
and other countries' regulatory authorities may inspect the Company's facilities
as well. Furthermore, although the Company's current products do not require an
export license, there can be no assurance that export licenses will not be
required in the future. See "Manufacturing."
The Company's research and development involves the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standards prescribed by state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for any damages that result and any such liability
could exceed the resources of the Company or otherwise adversely affect the
Company. NeXstar Pharmaceuticals is subject to numerous environmental and safety
laws and regulations, including those governing the use of hazardous materials.
In June 1995, the Company was contacted by the U.S. Environmental Protection
Agency (the "EPA") informing the Company that it is a potentially responsible
party relating to the disposal of the Company's waste products by a third party
at a hazardous waste disposal facility. The Company has complied with all
requests by the EPA relating to this matter and believes that its environmental
liability with respect to this matter is not material; however, there can be no
assurance that this matter or any violation of, or the cost of compliance with,
environmental and safety laws and regulations will not adversely impact the
Company's operations.
EMPLOYEES
As of March 1, 1997, NeXstar Pharmaceuticals and its subsidiaries employed
543 persons on a full-time basis, of whom 315 were engaged in research,
development, clinical research, regulatory affairs, quality control and
manufacturing and 228 were engaged in marketing, finance and administration.
There can be no assurance that NeXstar Pharmaceuticals will be able to continue
to attract and retain qualified personnel in sufficient numbers to meet its
needs. NeXstar Pharmaceuticals believes that it maintains good relations with
its employees.
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<PAGE> 23
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information with respect to the
executive officers, directors and key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lawrence M. Gold, Ph.D.............. 55 Chairman of the Board, Chief Scientific Officer
Patrick J. Mahaffy.................. 34 President, Chief Executive Officer and Director
Michael E. Hart..................... 44 Vice President and Chief Financial Officer
Raymond A. Bendele, D.V.M., Ph.D.... 51 Vice President, Life Sciences
Michael T. Burke.................... 50 Vice President, Business Development
Anthony D. Caracciolo............... 40 Vice President, Manufacturing
Adam Cochran........................ 56 Vice President and General Counsel
Bruce E. Eaton, Ph.D................ 43 Vice President, Chemistry
Crispin G.S. Eley, D. Phil.......... 39 Vice President, Pharmaceutical Operations
David W. Flamberg................... 52 Vice President, Compliance
George B. Herron.................... 49 Vice President, Sales and Marketing
Barbara B. Kazmier.................. 40 Vice President, Human Resources
Barry A. Polisky, Ph.D.............. 51 Vice President, Drug Discovery
Paul G. Schmidt, Ph.D............... 52 Vice President, Drug Delivery Research
John D. Baldeschwieler, Ph.D........ 63 Director
James A. Eskridge................... 54 Director
David I. Hirsh, Ph.D................ 57 Director
Rodman W. Moorhead, III............. 53 Director
Carl F. Pollard..................... 58 Director
</TABLE>
Dr. Gold, a founder of the Company, has been a director of the Company
since its inception in 1991 and has served as Chairman of the Board of Directors
since February 1993. He was Executive Vice President of Research and Development
of NeXstar Pharmaceuticals from March 1991 to February 1995. In February 1995,
Dr. Gold was named Chief Scientific Officer of the Company. Dr. Gold was
Chairman of the Department of Molecular, Cellular and Developmental Biology at
the University of Colorado at Boulder ("CU") from 1988 to 1992. In addition to
his full-time duties at the Company, Dr. Gold has been a professor at CU since
1970 and has received the CU Distinguished Lectureship Award. From January 1981
to June 1988, Dr. Gold served as Founder and Co-Director of Research for
Synergen, Inc., a biopharmaceutical company located in Boulder, Colorado. Dr.
Gold is a recipient of the National Institutes of Health Merit Award and Career
Development Award. Dr. Gold received an A.B. in Biochemistry from Yale
University and a Ph.D. in Biochemistry from the University of Connecticut. Dr.
Gold is a member of the National Academy of Sciences.
Mr. Mahaffy has been President and Chief Executive Officer of NeXstar
Pharmaceuticals since June 1992 and has served as a director since the Company's
inception in 1991. Prior to joining NeXstar Pharmaceuticals, Mr. Mahaffy was
employed beginning in 1986 by E.M. Warburg, Pincus & Co., LLC ("Warburg"), a
specialized financial services firm, where he last served as a Vice President.
Mr. Mahaffy received a B.A. in International Affairs from Lewis and Clark
College and an M.A. in International Affairs from Columbia University.
Mr. Hart served as Executive Vice President and Chief Financial Officer of
Vestar, Inc. ("Vestar") from November 1990 to February 1995. In February 1995,
Mr. Hart was named Vice President and Chief Financial Officer of NeXstar
Pharmaceuticals. He was employed by Avantek, Inc. as Treasurer and Director of
Finance from June 1982 through November 1990. From May 1980 to June 1982, he was
employed by Magnuson Computer Systems as Assistant Treasurer. Prior to 1980, Mr.
Hart was employed by Memorex Corporation where he held various financial
positions. Mr. Hart received a B.A. in Business Economics and a B.A. in
Geography from the University of California at Santa Barbara. He received an
M.B.A. from California State University, Fresno.
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<PAGE> 24
Dr. Bendele has been Vice President, Life Sciences of NeXstar
Pharmaceuticals since December 1996 after serving as the Senior Director, Life
Sciences of the Company from September 1995 to December 1996. From February 1993
until August 1995, Dr. Bendele was the Company's Director of Pharmacology and
Toxicology. From 1979 to 1993, he worked at Eli Lilly and Company where he
served in numerous capacities, including Director of Pharmaceutical Projects
Management and Director of Pathology. Dr. Bendele received a B.S. in Veterinary
Science, a D.V.M. and a Ph.D. in Veterinary Pathology from Texas A&M University.
Mr. Burke was President and Director of Supragen, Inc. from November 1994
until he became Vice President, Business Development of the Company in September
1995. From 1974 until November 1994, he was with Burroughs Wellcome Co., serving
in a number of positions including Licensing Director from May 1993 until
November 1994 and Licensing Manager from January 1990 until May 1993. Mr. Burke
has a B.S. in Chemistry from the New Mexico Institute of Mining and Technology
and an M.S. in Chemistry from the University of Colorado.
Mr. Caracciolo became the Company's Vice President, Manufacturing in March
1997. From September 1991 to February 1997, Mr. Caracciolo was the Vice
President, Operations of Bausch & Lomb Pharmaceuticals Inc., after having been
the Vice President and General Manager of Sterling Pharmaceuticals Inc. from
1989 to 1991. Mr. Caracciolo has over 18 years of pharmaceutical experience and
has held various positions in manufacturing and operational management. Mr.
Caracciolo has a B.S. in Pharmaceutical Science from St. John's University.
Mr. Cochran has served as Vice President and General Counsel of NeXstar
Pharmaceuticals since February 1995, after serving as Vice President and General
Counsel of Vestar from 1994 to February 1995. From 1988 until 1994, he was
Vestar's Patent Counsel. Prior to August 1988, Mr. Cochran was a partner in the
law firm of Nilsson, Robbins in Los Angeles. He received a B.A. in Chemistry and
in Business Administration from Hanover College in 1962 and has a Master's
degree from Purdue University and a Juris Doctor from Loyola University of
Chicago.
Dr. Eaton has been Vice President, Chemistry of NeXstar Pharmaceuticals
since January 1, 1995. During 1994, he was the Company's Director of Medicinal
Chemistry. From 1989 to 1994, he was an Assistant Professor and in 1995 an
Associate Professor of Chemistry at Washington State University. From 1986 to
1989, Dr. Eaton was a Research Chemist at Amoco Corporation studying the
computer aided design and synthesis of macromolecules. From 1981 to 1986, he was
a consultant and Research Associate in bioconjugate chemistry with HANA
Biologics. Dr. Eaton has a B.S. degree in Biology, a B.S. in Chemistry and an
M.S. in Organic Chemistry from the University of Oregon, Eugene. He received a
Ph.D. in Organic Chemistry from the University of California, Berkeley.
Dr. Eley served as the Vice President of Product Development of Vestar from
March 1993 until February 1995 when he was appointed the Vice President,
Pharmaceutical Operations of NeXstar Pharmaceuticals. From August 1985 until
March 1993, Dr. Eley held the following positions with Vestar: Senior Research
Scientist (August 1985 until March 1988), Director, Chemistry Research (March
1988 until March 1989), Director, Chemistry (March 1989 until January 1992) and
Senior Director, Product Development (January 1992 until March 1993). Dr. Eley
has a B.A. in Chemistry and a D.Phil. in Chemistry from Oxford University.
Mr. Flamberg served as Vice President of Compliance of Vestar from January
1994 until February 1995 when he was appointed Vice President, Compliance of
NeXstar Pharmaceuticals. Mr. Flamberg served as Director, QA/QC of Vestar from
1986 to 1990 and as Vestar's Senior Director of Compliance from 1990 to 1994.
Prior to joining Vestar in 1986, Mr. Flamberg spent 20 years serving in a
variety of posts in pharmaceutical quality operations and product development
for Ben Venue Laboratories, Inc. in Bedford, Ohio. Mr. Flamberg holds a B.S. in
Chemistry-Biology from Bucknell University and an M.B.A. from Baldwin-Wallace
College.
Mr. Herron has been Vice President, Sales and Marketing of the Company
since July 1995 after having served as Senior Director, Marketing of the Company
from February 1995 until June 1995. From April 1990 until March 1993, he was the
General Manager of Vestar's United Kingdom office and from April 1993 until
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<PAGE> 25
February 1995, he was Senior Director, Marketing of Vestar. Prior to joining
Vestar, Mr. Herron held several senior marketing positions for various
pharmaceutical companies, including Kirby-Warrick Pharmaceuticals Ltd. (August
1986 until November 1989), Schering Corporation (September 1984 until August
1986), Novo Laboratories (November 1982 until July 1984) and Smith Kline &
French Laboratories (January 1975 until November 1982). Mr. Herron received a
B.S. from Queen's University in Belfast, Northern Ireland.
Ms. Kazmier has been Vice President, Human Resources of the Company since
December 1995 after having served as Director, Human Resources of the Company
from August 1994 until December 1995. From October 1987 until August 1994, Ms.
Kazmier served in various human resources management positions at Syntex
Chemicals, Inc. Ms. Kazmier has a B.A. from Metropolitan State College and an
M.S. in Management and Organization from the University of Colorado.
Dr. Polisky served as Vice President of Research of NeXstar Pharmaceuticals
from August 1993 to February 1995 when he was named Vice President, Drug
Discovery. Prior to that time, he was Associate Director of Research at NeXstar
Pharmaceuticals beginning in July 1992. Prior to coming to NeXstar
Pharmaceuticals, Dr. Polisky was an Assistant, Associate, then full Professor of
Biology at Indiana University during the period 1977 to 1992, where he also
chaired the Molecular, Cell and Developmental Biology Program. Dr. Polisky
received a B.A. in Biochemistry from the University of Chicago and his Ph.D. in
Molecular Biology from the University of Colorado at Boulder.
Dr. Schmidt served as Executive Vice President, Research Operations of
Vestar from March 1993 to February 1995. In February 1995, Dr. Schmidt was named
Vice President, Drug Delivery Research of NeXstar Pharmaceuticals. From December
1988 to July 1991, Dr. Schmidt was Vestar's Vice President, Research and
Development and from July 1991 until March 1993, he was Vestar's Executive Vice
President, Research and Development. Prior to joining Vestar in 1983, he served
as Associate Professor of Biochemistry and Molecular Biology at Oklahoma Medical
Research Foundation where he received a Research Career Development Award from
the National Institutes of Health, and as Assistant Professor of Chemistry and
Biochemistry at the University of Illinois, Urbana. Dr. Schmidt received a B.S.
in chemistry from Pomona College and a Ph.D. in Physical Chemistry from Stanford
University. He is a member of the American Chemical Society and the American
Society of Biochemistry and Molecular Biology. From 1984 until 1992, Dr. Schmidt
was a Visiting Associate at the California Institute of Technology.
Dr. Baldeschwieler is a founder of Vestar and served as Chairman of the
Vestar Board of Directors from Vestar's inception in April 1981 to January 1993
and as a director through February 1995. He has served as a director of NeXstar
Pharmaceuticals since February 1995. He is currently a Professor of Chemistry at
the California Institute of Technology and was Chairman of the Division of
Chemistry and Chemical Engineering from 1973 to 1978. Dr. Baldeschwieler was
Deputy Director of the Office of Science and Technology, Executive Office of the
President from 1971 to 1973, and previously served on the faculties of Stanford
and Harvard Universities. He received a Ph.D. in Physical Chemistry from the
University of California at Berkeley. Dr. Baldeschwieler is a member of the
National Academy of Sciences and the American Philosophical Society.
Mr. Eskridge served as a director of Vestar from July 1992 to February
1995. He was appointed a director of NeXstar Pharmaceuticals in February 1995.
Mr. Eskridge has been Senior Consultant for Mattel, Inc. since March 1996 and
from January 1996 to March 1996, he was Group President, Mattel Worldwide. From
April 1995 to December 1995, he was the Group President-U.S., Mattel, Inc. and
Fisher-Price, Inc. and from November 1993 until April 1995 he was the President
and Chief Executive Officer of Fisher-Price, Inc. From 1988 to November 1993,
Mr. Eskridge served as the Executive Vice President and Chief Financial and
Administrative Officer of Mattel, Inc. Mr. Eskridge is a director of Golden
Family Entertainment. Mr. Eskridge has notified the Company that he does not
intend to continue as a director of the Company after the Company's Annual
Meeting of Stockholders on May 28, 1997.
Dr. Hirsh has been a director of NeXstar Pharmaceuticals since February
1993. He currently is the Robert Wood Johnson Professor and Chairman of the
Department of Biochemistry and Molecular Biophysics at Columbia University's
College of Physicians and Surgeons. Dr. Hirsh has been a professor at Columbia
24
<PAGE> 26
University since July 1990. Dr. Hirsh received a B.A. in Biology from Reed
College and a Ph.D. in Biochemistry from Rockefeller University.
Mr. Moorhead has served as a director of NeXstar Pharmaceuticals since June
1992 and was a director of Vestar from 1984 to February 1995. He has been
employed since 1973 by Warburg, where he currently serves as a Senior Managing
Director. He is a director of Value Health, Inc., a managed health care company,
Transkaryotic Therapies, Inc., Xomed Surgical Products and a number of privately
held companies. Mr. Moorhead received an A.B. and an M.B.A. from Harvard
University. He is a trustee of The Taft School and a member of the Overseers'
Committee on University Resources, Harvard College.
Mr. Pollard served as a director of Vestar from October 1989 to February
1995. He was appointed a director of NeXstar Pharmaceuticals in February 1995.
Since January 1995, Mr. Pollard has been the owner and operator of Hermitage
Farm, a thoroughbred breeding operation. From 1991 to 1993, Mr. Pollard served
as President and Chief Operating Officer of Humana, Inc. ("Humana"). In March
1993, Mr. Pollard was elected Chairman and Chief Executive Officer of Galen
Health Care, Inc., a hospital company spun-off from Humana. In connection with a
reorganization of Galen Health Care, Mr. Pollard served as the Chairman of
Columbia/HCA Healthcare Corporation from September 1993 to February 1994. From
1984 to 1991, Mr. Pollard was the Senior Executive Vice President of Humana.
Prior to his association with Humana, Mr. Pollard was a partner with Coopers &
Lybrand, an international public accounting firm. Mr. Pollard is also a member
of the Board of Directors of Churchill Downs Incorporated, National City Bank,
Kentucky, and the University of Kentucky's Business Partnership Foundation and
is President of the Kentucky Derby Museum Board. Mr. Pollard has notified the
Company that he does not intend to continue as a director of the Company after
the Company's Annual Meeting of Stockholders on May 28, 1997.
ITEM 2. PROPERTIES
The Company's corporate headquarters, including its principal executive
offices, are located in Boulder, Colorado. The Company leases three significant
facilities and subleases one other facility in Boulder which consist of: a
sublease of approximately 32,000 square feet of space (the "Subleased Office
Space"), which space is being used as administrative offices; a lease of
approximately 60,000 square feet of space (the "Research Facilities"), which
space is being used as administrative offices and as research laboratories; a
lease of approximately 9,800 square feet of space (the "Development Lab"), which
space the Company is renovating for use as a development lab in connection with
drug candidates discovered using the Company's SELEX process; and a lease of
5,260 square feet of industrial space (the "Manufacturing Facility"), which
space is being prepared for piloting a qualified pre-production process on at
least one tenth of the ultimate expected production scale and which will be used
for the manufacture of bulk drug substance pharmaceuticals in connection with
oligonucleotide-based compounds derived using the SELEX process. The sublease to
the Subleased Office Space expires in July 2003. The lease for the Research
Facilities expires in October 2001, but can be renewed at the option of the
Company for two successive five-year periods. The lease to the Development Lab
expires in November 2001, but can be renewed by the Company for an additional
three years. The lease for the Manufacturing Facility expires in January 2002,
but may be renewed at the option of the Company for two successive seven-year
periods.
NeXstar Pharmaceuticals also occupies a facility in San Dimas, California
(the "650 Facility") under a noncancelable operating lease which expires in May
2003 and has two five-year renewal options. This plant provides 51,500 square
feet of space and houses research and development activities, manufacturing and
certain administrative functions. The 650 Facility has been inspected by the
State of California for compliance with "current Good Manufacturing Practices"
and is licensed by the State of California for pharmaceutical manufacturing. The
license is renewable annually. The 650 Facility has been licensed for the
commercial production of AmBisome and DaunoXome by the MCA and for DaunoXome by
the FDA. In addition, the local FDA district office has indicated that it will
recommend approval of the application to permit the use of the 650 Facility for
the manufacture of AmBisome.
In April 1992, the Company entered into a long-term lease agreement for a
manufacturing facility adjacent to the 650 Facility in San Dimas, California
(the "502 Facility"). The 502 Facility, the lease to
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<PAGE> 27
which expires in November 2003 and has two five-year renewal options, provides
in excess of 70,000 square feet of space including approximately 45,000 square
feet of manufacturing space, and will become the Company's primary injectable
pharmaceutical production plant. Construction of the 502 Facility has been
completed and the product specific validation processes required by various
regulatory authorities in connection with AmBisome and DaunoXome are ongoing. In
addition, the Company has agreed to acquire the European facility, located in
Dublin, Ireland, where the EU quality control testing, final labeling and
packaging are currently being conducted for AmBisome and DaunoXome. The Company
has agreed to pay 1 million Irish Punts (approximately $1.6 million) for the
facility and expects to finalize the acquisition in the third quarter of 1997.
ITEM 3. LEGAL PROCEEDINGS
The Company believes that its patents and applications are soundly based,
but the extent of protection may vary in different countries and no assurance
can be given that any patent will provide commercially significant protection or
will not be challenged, invalidated, or circumvented. Litigation could be
necessary to protect the Company's patent position, which would result in
substantial cost to, and diversion of efforts by, the Company.
Additionally, a number of other patents have issued to other persons, some
to competitors, relating to technology similar to that used by the Company. Both
the Company and certain of its competitors have filed oppositions against each
other as to patents granted by the European Patent Office (the "EPO") and
patents granted by the Japanese Patent Office. The Liposome Company ("TLC") and
the University of California each have patents or patent applications relating
to active drug loading techniques that the owners could claim are used in the
manufacture of products such as DaunoXome. The Company has opposed the grant of
a European and a Japanese patent owned by TLC and is involved in an interference
proceeding with a U.S. patent application owned by the University of California
relating to such loading technology.
Competitors or other patent holders could bring legal actions against the
Company involving the Company's patents, patent applications or rights to use
proprietary technology. If any actions are successful, in addition to any
potential liability for damages, the Company could be enjoined from selling the
affected product, or be required to obtain a license in order to continue to
manufacture or market the product. There can be no assurance that the Company
would prevail in any such action or that any license required under any such
patent would be made available on acceptable terms, if at all. There has been,
and the Company believes that there will continue to be, significant litigation
in the pharmaceutical industry regarding patent and other intellectual property
rights. Any additional litigation could consume a substantial portion of the
Company's resources regardless of the outcome.
On May 17, 1993, the Company filed a complaint in the United States
District Court for the District of Delaware asking the court to declare U.S.
Patent No. 4,880,635 (the "TLC '635 Patent") invalid, unenforceable and not
infringed following allegations by TLC that freeze-dried 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. The stay was lifted on
July 11, 1996 and an amended complaint was filed by the Company on July 29,
1996. On August 16, 1996, TLC answered the amended complaint and filed a
counterclaim against the Company for damages and an injunction based on
infringement of the reexamined patent. On January 17, 1997, TLC filed an amended
complaint asserting that the Company's method of lyophilizing AmBisome also
infringes U.S. Patent 5,578,320 (the "TLC '320 Patent") which was granted by the
USPTO to TLC on November 26, 1996. The TLC '635 Patent and the TLC '320 Patent
(collectively, the "TLC Patents") cover essentially the same subject matter. On
February 26, 1997, the Company filed an amended and supplemental complaint
asserting antitrust and business tort actions against TLC. The amended complaint
states that TLC had fraudulently obtained the TLC Patents by withholding
information from, and intentionally misleading, the USPTO and has attempted to
use the TLC Patents in order to injure NeXstar Pharmaceuticals and competition
generally, including attempting to affect the Company's proposed stock offering
in June 1996. Trial for the TLC Patents is currently scheduled for October 1997.
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<PAGE> 28
Upon review of the claims included in the reexamination certificate
relating to the TLC '635 Patent and the claims of the TLC '320 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
for the TLC Patents 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.
In addition, the Company has opposed the grant to TLC of the European and
Japanese patents that are counterparts of the TLC Patents. The European
opposition is expected to be heard in the EPO in the spring or summer of 1997.
At the opposition hearing, the EPO will rule on the validity of all of the
European Union counterparts to the TLC Patents. TLC initiated legal actions
against the Company on October 18, 1996 in the Chancery Division of the Patents
Court in the United Kingdom, on November 4, 1996 in the Regional Court of The
Hague, The Netherlands and on October 18, 1996 in the Regional
Court -- Dusseldorf in Germany for alleged infringement of the respective
national counterparts to the TLC Patents. In connection with each suit, TLC is
seeking an injunction and damages. The Company anticipates that TLC may bring
additional actions against the Company in connection with its other European
counterparts to the TLC Patents and, even if the EPO determines that the
European counterparts to the TLC Patents are invalid, TLC may pursue its
European patent suits pending an appeal of the EPO's decision.
If the U.S. or a European court were to determine that the TLC '635 Patent
or the TLC '320 Patent or one of their European counterparts, as applicable, is
both valid and infringed as a result of the freeze drying of AmBisome, the
Company could be enjoined from using its current method of manufacturing and/or
could be required to pay damages in connection with sales in the applicable
country or countries. In such event, the Company could experience substantial
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.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote by the Company's security holders
during the fourth quarter of the Company's fiscal year ending December 31, 1996.
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<PAGE> 29
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Market (Symbol:
NXTR). The following table sets forth, for the periods indicated, the high and
low closing sales prices per share of the Company's common stock as reported on
the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1995:
First Quarter............................................. $ 8 5/8 $ 5 1/2
Second Quarter............................................ 9 1/4 6 1/8
Third Quarter............................................. 17 8 1/2
Fourth Quarter............................................ 18 5/8 10 5/8
1996:
First Quarter............................................. $26 3/4 $15 1/2
Second Quarter............................................ 25 1/2 16 3/4
Third Quarter............................................. 22 3/4 16 3/8
Fourth Quarter............................................ 21 13 1/16
</TABLE>
As of March 24, 1997, there were approximately 537 stockholders of record
of the Company.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its common stock
since its inception. The Company does not anticipate paying any cash dividends
on its common stock in the next several years. One of the Company's current loan
agreements does not permit the Company to pay cash dividends. In addition,
certain of the Company's other bank and equipment lease facilities require the
Company to maintain financial ratios and levels of cash and/or stockholders'
equity which may have the effect of limiting the Company's ability to pay
dividends.
SALES OF UNREGISTERED SECURITIES
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") for $18.50 per share. 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.
During 1996, two of the Company's warrant holders exercised their warrants
and received unregistered shares of the Company's common stock. On February 21,
1996 and March 31, 1996, respectively, a company, which in the past has provided
equipment leasing to the Company, exercised its warrants for 17,540 and 6,619
shares of the Company's common stock, respectively, for the per share exercise
prices of $6.20 and $11.21, respectively. The warrant exercise for 17,540 shares
was for $108,748 in cash and the 6,619 shares were acquired in a cashless
exercise using the leasing company's rights to acquire additional shares of the
Company's common stock. On June 10, 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).
On August 26, 1996, the Company issued a warrant exercisable for 50,000
shares of its common stock at $15 per share to an educational institution. The
warrant, which had a term of seven years, was issued in consideration for the
institution's transferring to the Company certain potential interests in
patents.
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<PAGE> 30
In selling the shares of common stock to the Private Investors and in
connection with the issuance and exercise of its warrants, the Company relied on
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933, as amended, since the shares of common stock and warrant were
transferred to a small number of sophisticated investors, none of whom was an
individual.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data are derived from the
Consolidated Financial Statements of NeXstar Pharmaceuticals, Inc. which have
been audited by Ernst & Young LLP, independent auditors. The selected
consolidated financial data give retroactive effect to the merger of NeXagen,
Inc. and Vestar, Inc. on February 21, 1995, which has been accounted for as a
pooling of interests. The selected consolidated financial data also include the
acquisition of Supragen, Inc., a research-oriented biotechnology company, on
September 8, 1995, which has been accounted for using the purchase method of
accounting. Certain reclassifications, including adjustments to conform
accounting practices, have been made to prior year amounts to agree with the
current year presentation. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Consolidated Financial Statements of the Company and
related notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Product revenues........................ $ 80,153 $ 57,770 $ 43,967 $ 30,518 $ 25,999
License fee............................. 7,000 -- -- -- --
Collaborative agreements and
contracts............................ 1,548 2,920 4,054 2,098 591
Interest income......................... 1,821 1,736 2,409 2,424 2,518
--------- --------- -------- -------- --------
Total revenues............................ 90,522 62,426 50,430 35,040 29,108
Expenses:
Cost of goods sold...................... 18,320 13,246 8,091 5,024 3,896
Research and development................ 47,760 37,356 31,595 24,574 13,067
Selling, general and administrative..... 44,939 35,300 22,108 16,279 11,627
Purchased research and development...... -- 11,824 -- -- --
Retirement agreement expense............ -- -- 4,097 -- --
Interest expense........................ 1,558 1,148 587 308 48
--------- --------- -------- -------- --------
Total expenses............................ 112,577 98,874 66,478 46,185 28,638
--------- --------- -------- -------- --------
Income (loss) before provision for income
taxes................................... (22,055) (36,448) (16,048) (11,145) 470
Provision for income taxes................ 926 183 159 167 392
--------- --------- -------- -------- --------
Net income (loss)......................... $ (22,981) $ (36,631) $(16,207) $(11,312) $ 78
========= ========= ======== ======== ========
Net income (loss) per share............... $ (0.88) $ (1.57) $ (0.71) $ (0.53) $ 0.00
========= ========= ======== ======== ========
Shares used in computing net income (loss)
per share............................... 26,029 23,374 22,825 21,336 21,891
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities.............................. $ 41,965 $ 26,734 $ 40,284 $ 54,495 $ 72,015
Working capital........................... 48,199 35,029 44,099 62,094 79,373
Total assets.............................. 144,500 112,449 126,927 103,912 97,633
Long-term obligations..................... 15,206 9,848 10,500 2,107 1,899
Accumulated deficit....................... (125,976) (102,995) (66,364) (50,157) (38,845)
Total stockholders' equity................ 87,622 81,164 97,374 91,135 89,841
</TABLE>
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<PAGE> 31
ITEM 7. 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
pharmaceutical products to treat life-threatening and other serious diseases.
The Company 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 therapy for the treatment of
advanced, HIV-associated Kaposi's sarcoma ("KS"). The Company currently relies
on sales of AmBisome in Europe for a substantial majority of its product
revenues and expects sales of AmBisome in Europe to account for a majority of
its revenues in 1997. AmBisome has been approved for sale by the regulatory
authorities in 25 countries for the treatment of fungal infections, including
four countries in which it has been approved as a primary therapy. In November
1996, a New Drug Application was filed with the U.S. Food and Drug
Administration (the "FDA") for the use of AmBisome as a primary treatment for
confirmed and presumptive fungal infections, prophylaxis in liver transplant
patients, empiric therapy in neutropenic patients and visceral leishmaniasis and
as a secondary treatment for fungal infections refractory to amphotericin B
treatment. In April 1996, the Company received approval for DaunoXome as a first
line treatment for KS from the FDA and formally launched the drug in the U.S. on
May 1, 1996. In addition, DaunoXome has been approved for sale as a primary
therapy for KS in Canada and 16 European countries. 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 countries 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. Sales in Germany, the U.K., Italy and Spain
together accounted for 58% of AmBisome revenues for the year ended December 31,
1996. The Company prices its products in each of these four countries in the
local currency. Between January 1, 1997 and March 24, 1997, the value of the
U.S. dollar increased 9%, 6%, 10% and 9%, respectively, against the German Mark,
the British Pound, the Italian Lira and the Spanish Peseta. Absent an increase
in the price of the Company's products throughout Europe or a general decline in
the value of the U.S. dollar versus most leading European currencies, the
continued strength of the U.S. dollar may significantly impact the Company's
revenues as denominated in U.S. dollars.
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. At present, 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 foreign
exchange gains and losses. There can be no assurance that significant gains or
losses will not be incurred in the future.
NeXstar Pharmaceuticals was formed in 1991 as NeXagen, Inc. The Company is
the result of a merger (the "Merger") between NeXagen, Inc. and Vestar, Inc.
("Vestar") on February 21, 1995. In connection with the Merger, NeXagen, Inc.
changed its name to NeXstar Pharmaceuticals, Inc. The Merger was
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<PAGE> 32
accounted for as a pooling of interests. Except where otherwise indicated, the
following Management's Discussion and Analysis of Financial Condition and
Results of Operations gives effect to the Merger and the pooling-of-interests
accounting treatment, and thus includes the results of Vestar for all periods
discussed.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
Product revenues increased 39% to $80.2 million, 31% to $57.8 million and
44% to $44.0 million in 1996, 1995 and 1994, respectively, primarily due to
increased unit sales of AmBisome in existing markets. Sales of DaunoXome, which
was initially approved in the U.S. during the second quarter of 1996, totaled
$3.9 million for 1996.
During 1996, the Company recorded as revenue an initial $7.0 million
licensing fee (less withholding taxes of $700,000) in connection with a
licensing agreement with Sumitomo Pharmaceuticals Co., Ltd. ("Sumitomo")
pursuant to which Sumitomo will develop and market AmBisome in Japan.
Collaborative agreement and contract revenues were $1.5 million, $2.9
million and $4.1 million for 1996, 1995 and 1994, respectively. Collaborative
agreement and contract 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 Company's collaborative research
agreements with corporate partners, which provided revenues for the Company
during 1995, expired or were terminated in 1996.
Interest income was $1.8 million, $1.7 million and $2.4 million in 1996,
1995 and 1994, respectively. Interest income generally fluctuates as a result of
the average amount of cash available for investment and prevailing interest
rates.
Cost of goods sold was $18.3 million, or 23% of product revenues, $13.2
million, or 23% of product revenues, and $8.1 million, or 18% of product
revenues, in 1996, 1995 and 1994, respectively. The increase in cost of goods
sold was primarily due to increased sales of AmBisome and DaunoXome. The
increase in cost of goods sold as a percentage of product revenues in 1996 and
1995 compared to 1994 was primarily the result of (i) an increase in sales of
AmBisome at cost to Fujisawa USA, Inc., the Company's U.S. promotion and
development partner, for use in clinical trials and (ii) validation costs and
overhead expenses attributable to the Company's new manufacturing facility in
San Dimas, California. In 1995 and 1994, the Company recorded charges for
certain AmBisome lots produced in prior years which subsequently failed to pass
certain of the Company's stringent internal quality control specifications of
$932,000 and $1.4 million, respectively. Since 1993, NeXstar Pharmaceuticals has
incurred manufacturing scale-up costs for the production of DaunoXome which have
negatively impacted cost of goods sold as a percentage of product revenues.
Additional scale-up costs are expected to be incurred in 1997. If the Company is
successful in increasing its product revenues, the Company expects to gain
manufacturing efficiencies from increased production thereby decreasing its cost
of goods sold per unit of product. 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 28% to $47.8 million, 18% to
$37.4 million and 29% to $31.6 million for 1996, 1995 and 1994, respectively.
The increase in research and development expenses is primarily attributable to
increased product development and research activities (including an increase in
personnel as a result of the acquisition of Supragen, Inc., a research-oriented
biotechnology company, in September 1995). In addition, in 1996 the Company had
a charge to research and development of $1.2 million in connection with a write
down of an investment that the Company holds in a biotechnology company, an
expense of $1.0 million in connection with the Company's decentralization of its
medical/regulatory operations in Europe and an expense of $1.2 million in
connection with the acquisition of additional laboratory facilities. In 1996,
$1.2 million of research expenses was sponsored by third parties, as compared to
$2.1 million and $2.6 million in 1995 and 1994, respectively. 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
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<PAGE> 33
expects research and development expenses, including those for clinical trials,
to continue to increase as personnel and research and development facilities are
expanded.
Selling, general and administrative expenses increased 27% to $44.9
million, 60% to $35.3 million and 36% to $22.1 million, or 56%, 61% and 50% of
product revenues in 1996, 1995 and 1994, respectively. The increase for 1996
primarily relates to (i) the expansion of the Company's marketing efforts, in
particular, in connection with the launch of DaunoXome and the continued
expansion of the Company's international operations; (ii) increased litigation
costs in connection with two U.S. patents and their European and Japanese
counterparts held by The Liposome Company; (iii) an expense of $741,000 in
connection with the termination of distribution agreements in Australia and
France; and (iv) an increase of $520,000 in the Company's allowance for doubtful
accounts due to an increase in accounts receivable resulting primarily from
increased sales of the Company's products. The increase in 1995 was primarily
due to (a) merger-related costs of $2.7 million; (b) costs due to expansion of
the Company's sales and marketing distribution network of $4.2 million,
including establishment of a sales force in the U.S. in anticipation of final
marketing approval for DaunoXome; (c) a $2.4 million note receivable allowance
relating to a loan previously made to Phytogen Life Sciences Inc., a Canadian
company in which the Company owns a minority interest; and (d) $584,000 related
to the cost of a registration statement filed in September 1995 for the sale of
the Company's common stock, which was withdrawn in October 1995. The 1995
increase was also due to other expenses incurred in connection with increased
sales of AmBisome and to an increase in legal expenses, including expenses
related to the Company's European operations and other corporate matters. In
addition, the Company recognized foreign exchange gains (losses) of
approximately ($362,000), $371,000 and $272,000 in 1996, 1995 and 1994,
respectively, principally due to the revaluation of the Company's accounts
receivable denominated in foreign currency.
Interest expense was $1.6 million, $1.1 million and $587,000 in 1996, 1995
and 1994, respectively. The increase for 1996 was primarily due to interest
payable under the term loan agreement for $10 million entered into by the
Company in June 1996, other short-term borrowings and additional borrowings in
connection with several equipment lease arrangements. The increase for 1995 was
due primarily to additional borrowings in connection with several equipment
lease arrangements.
Results for 1994 were impacted by a charge to earnings of $4.1 million, as
a result of an agreement with Dr. Roger Crossley who retired on May 25, 1994 as
the President and Chief Executive Officer of Vestar. Vestar and Dr. Crossley
entered into an agreement effective May 25, 1994 in connection with his
retirement (the "Agreement"). Under the terms of the Agreement, the Company
during 1994 and 1995 paid Dr. Crossley (i) approximately $2.1 million in
connection with his sale of certain shares of the Company's common stock, (ii)
approximately $158,000 for health insurance and (iii) a salary through June 1995
at an annual rate of $300,000. The $2.1 million payment in 1995 related to the
Company's guarantee to him that in the event that prior to May 25, 1997 he sold
certain shares of the Company's common stock which he owned at a price less than
$15.77 per share, the Company would pay him the difference between the sales
price and $15.77 per share. During June and July, 1995, Dr. Crossley sold all
but 44,000 of the shares covered by the Agreement. In March 1996, he sold the
remaining 44,000 shares covered by the Agreement at no cost to the Company.
The Company reported a net loss for 1996 of $23.0 million, or $0.88 per
share, compared to a net loss of $36.6 million, or $1.57 per share, and a net
loss of $16.2 million, or $0.71 per share, for 1995 and 1994, respectively. The
net loss for 1995 included a one-time, non-cash charge of $11.8 million for
purchased research and development in connection with the Supragen, Inc.
acquisition.
PATENT MATTERS
The Company is currently involved in litigation matters and interference
proceedings involving patent and infringement claims with respect to the
Company's products. To date, the outcomes of these litigation matters and
interference proceedings have been favorable to the Company although they have
resulted in significant litigation expenses. The Company believes that there
will continue to be significant litigation in the pharmaceutical industry
regarding patents and other intellectual property rights, but cannot predict the
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likelihood of it being involved in any additional disputes. Any additional
litigation could consume a substantial portion of the Company's resources
regardless of the outcome of such litigation.
On May 17, 1993, the Company filed a complaint in the United States
District Court for the District of Delaware asking the court to declare U.S.
Patent No. 4,880,635 (the "TLC '635 Patent") invalid, unenforceable and not
infringed following allegations by The Liposome Company ("TLC") that
freeze-dried 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. The stay was lifted on July 11, 1996 and an amended complaint was
filed by the Company on July 29, 1996. On August 16, 1996, TLC answered the
amended complaint and filed a counterclaim against the Company for damages and
an injunction based on infringement of the reexamined patent. On January 17,
1997, TLC filed an amended complaint asserting that the Company's method of
lyophilizing AmBisome also infringes U.S. Patent 5,578,320 (the "TLC '320
Patent") which was granted by the USPTO to TLC on November 26, 1996. The TLC
'635 Patent and the TLC '320 Patent (collectively, the "TLC Patents") cover
essentially the same subject matter. On February 26, 1997, the Company filed an
amended and supplemental complaint asserting antitrust and business tort actions
against TLC. The amended complaint states that TLC had fraudulently obtained the
TLC Patents by withholding information from, and intentionally misleading, the
USPTO and has attempted to use the TLC Patents in order to injure NeXstar
Pharmaceuticals and competition generally, including attempting to affect the
Company's proposed stock offering in June 1996. Trial for the TLC Patents is
currently scheduled for October 1997.
In addition, the Company has opposed the grant to TLC of the European and
Japanese patents that are counterparts of the TLC Patents. The European
opposition is expected to be heard in the EPO in the spring or summer of 1997.
At the opposition hearing, the EPO will rule on the validity of all of the
European Union counterparts to the TLC Patents. TLC initiated legal actions
against the Company on October 18, 1996 in the Chancery Division of the Patents
Court in the United Kingdom, on November 4, 1996 in the Regional Court of The
Hague, The Netherlands and on October 18, 1996 in the Regional
Court -- Dusseldorf in Germany for alleged infringement of the respective
national counterparts to the TLC Patents. In connection with each suit, TLC is
seeking an injunction and damages. The Company anticipates that TLC may bring
additional actions against the Company in connection with its other European
counterparts to the TLC Patents and, even if the EPO determines that the
European counterparts to the TLC Patents are invalid, TLC may pursue its
European patent suits pending an appeal of the EPO's decision.
If the U.S. or a European court were to determine that the TLC '635 Patent
or the TLC '320 Patent or one of their European counterparts, as applicable, is
both valid and infringed as a result of the freeze drying of AmBisome, the
Company could be enjoined from using its current method of manufacturing and/or
could be required to pay damages in connection with sales in the applicable
country or countries. In such event, the Company could experience substantial
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. The Company does not believe that the TLC
Patents present a material risk to the Company. See "Legal Proceedings" in Part
I of this Report and "Risk Factors" in Part II of this Report.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities position at
December 31, 1996 was $42.0 million, compared to $26.7 million on December 31,
1995. The $15.2 million increase in cash, cash equivalents and marketable
securities position was primarily the result of the following:
<TABLE>
<S> <C> <C>
Net loss.................................................. $(22,981,000)
Depreciation and amortization............................. 11,300,000
Write down of investment in life science enterprise....... 1,241,000
Other non-cash items...................................... 391,000
Working capital........................................... (10,282,000)
------------
Net cash used in operating activities........... $(20,331,000)
Investment in equipment and leasehold improvements........ (11,198,000)
Proceeds from short-term borrowings, net.................. 9,436,000
Proceeds from sale-leaseback transactions................. 2,978,000
Payments on capital lease obligations..................... (4,258,000)
Proceeds from issuance of long-term debt.................. 11,527,000
Repayments on long-term debt.............................. (1,667,000)
Proceeds from sale of common stock, net................... 29,364,000
Other..................................................... (620,000)
------------
Total increase in cash, cash equivalents and
marketable securities......................... $ 15,231,000
============
</TABLE>
The Company invests its cash in interest-bearing investment grade
securities.
The Company's accounts receivable balance at December 31, 1996 was $30.0
million as compared to $18.3 million on December 31, 1995. The growth in
receivables was primarily due to increased sales of AmBisome and proportionately
increased sales of the Company's products in countries in which payments tend to
be slower than the average payment periods historically experienced by the
Company. 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, have in the past increased, and in the future may increase, the
average length that accounts receivable are outstanding and may increase the
financial risk of certain of the Company's customers. During 1996, the Company
was granted a security interest in accounts receivable owed to one of the
Company's distributors by hospitals in the country in which such distributor
operates. The Company continually seeks improvements in its collection process
to maximize its cash flow from product sales in a timely manner. As a result of
the growth of accounts receivable, the Company increased its allowance for
doubtful accounts by $520,000 during 1996.
As of December 31, 1996, the Company's inventory value was $15.6 million
compared to $9.5 million as of December 31, 1995 which represents a 65% increase
for the period ended December 31, 1996. The increase resulted primarily from an
overall 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 year ended December 31, 1996, the Company had proceeds from sales
and leaseback transactions of $3.0 million related to the purchase of capital
equipment. As of December 31, 1996, $601,000 was available under equipment lease
agreements relating to the lease of manufacturing equipment, general laboratory
and scientific equipment, office equipment, furniture and fixtures.
At December 31, 1996, the Company had borrowings of $10 million under a $10
million unsecured line of credit. The line of credit was terminated in March
1997. The line of credit was entered into in November 1996 and replaced a prior
credit facility with the same bank that was for borrowings of up to $7 million.
The amount, which the Company was permitted to borrow under the prior credit
facility, was raised from $5 million to $7 million in September 1996.
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<PAGE> 36
In June 1996, the Company entered into a term loan agreement for $10
million (the "Loan Agreement"). The loan is being repaid in 48 monthly
installments with the first installment having been paid in July 1996. As of
December 31, 1996, the Company had borrowings of $8.75 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.
In May 1996, the Company's Spanish subsidiary entered into an agreement to
borrow up to 500 million Spanish Pesetas (approximately $3.5 million) with such
borrowing being secured by the subsidiary's accounts receivable in Spain. In
February 1997, the agreement was amended to increase the amount that the
subsidiary may borrow up to 750 million Spanish Pesetas (approximately $5.2
million). In connection with the agreement, the Company is maintaining $2.0
million in an unrestricted account. As of December 31, 1996, the subsidiary had
borrowings of 338 million Pesetas (approximately $2.6 million on December 31,
1996) under the agreement. The Company's Spanish subsidiary is required to repay
the borrowings under the agreement in May 1997.
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.
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).
The Company in the past several years has had substantial costs in
connection with building and equipping its facilities, including spending
approximately $22 million for the development of its new manufacturing facility
in San Dimas, California and obtaining approximately $12 million of equipment
for use therein. The Company anticipates significant additional cash outlays
during 1997 in connection with developing and equipping additional laboratory
space in Boulder, Colorado.
The Company believes that it is advisable to augment its existing cash in
order to fund all of the activities, including conducting clinical trials, which
the Company believes are necessary to continue its growth. Therefore, the
Company anticipates raising cash whenever market conditions are favorable and is
currently exploring alternatives for obtaining funds. Such capital may be raised
through additional public or private financing, as well as collaborative
relationships, borrowings and other available sources. In addition, 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.
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
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<PAGE> 37
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 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. In particular, the Company expects to have
significant cash requirements in the near future as a result of, but not limited
to: (i) increased clinical studies which are required in order to expand the
indications and markets for AmBisome and DaunoXome; (ii) the cost of obtaining
approval for pharmaceuticals which have been and are being developed by the
Company, including MiKasome (the Company's liposomal formulation of amikacin, a
potent aminoglycoside antibiotic); (iii) the cost of equipping new facilities;
and (iv) costs in connection with the Company's litigation involving the TLC
Patents and their European and Japanese counterparts. 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.
RECENT EVENTS
The Company has entered into an agreement with its European toll
manufacturer to acquire for one million Irish Punts (approximately $1.6 million)
the Dublin, Ireland facilities at which the toll manufacturer is providing
quality control testing, final labeling and packaging for the Company's products
in Europe. The Company anticipates acquiring the facilities in the third quarter
of 1997.
In February 1997, Schering A.G. agreed to increase its annual funding to
the Company to $2.4 million from $1.0 million in connection with a collaborative
research agreement first entered into in 1993.
In March 1997, the Company substantially restructured its bank financing by
(a) terminating an unsecured line of credit pursuant to which it had a right to
borrow up to $10 million, (b) entering into a credit agreement pursuant to which
the Company and certain of its subsidiaries may borrow up to $15 million, with
the borrowings being collateralized by certain of the non-U.S. accounts
receivable of the Company and the subsidiaries and (c) entering into a revolving
line of credit (the "Credit Line") pursuant to which the Company may borrow up
to $15 million. An affiliate of Warburg, Pincus Investors, L.P. ("WPI"), a
beneficial owner of more than 5% of the Company's common stock, is a guarantor
of the Credit Line in return for WPI's receipt of a warrant to acquire 125,000
shares of the Company's common stock at a purchase price of $12.50 per share.
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<PAGE> 38
RISK FACTORS
The following risk factors should be read in conjunction with information
appearing elsewhere in this Report. Special Note: Certain statements set forth
below constitute "forward-looking statements" that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the "forward-looking statements." See "Special Note
Regarding Forward-Looking Statements" on page 45 for additional factors relating
to such statements.
DEPENDENCE ON PRINCIPAL PRODUCT
The Company has relied on sales of AmBisome for most of its product
revenues with a substantial majority of those sales occurring in European
countries. A reduction in demand for AmBisome could have a material adverse
effect on the Company's results of operations. Additional regulatory approvals
will be needed in order to market AmBisome in the United States and to expand
the indications for which it may be marketed in the countries where it is
already approved. There can be no assurance as to whether or when such approvals
will be obtained.
The Company has only one other product, DaunoXome, that has received
regulatory approval and such approvals were generally obtained during 1996.
Sales to date for DaunoXome have been limited and there can be no assurance as
to the volume of sales that will be achieved. The Company will seek to expand
the market for DaunoXome by obtaining approvals for indications in addition to
Kaposi's sarcoma. However, there can be no assurance that the drug will be
effective for the treatment of other diseases or that such additional approvals
will be obtained.
The Company has one other product that has reached clinical development,
MiKasome, for which Phase I clinical trials are currently being initiated in the
United States. While the results of animal and early human tests have been
encouraging, the results of animal studies may not be indicative of efficacy in
humans, and further human testing of MiKasome may not achieve the desired
result, may reveal unduly harmful side effects or may be less efficacious than
other drug entities or delivery systems for the desired indication. No assurance
can be given that MiKasome will be more effective than existing drugs or other
technologies that may be developed in the future or that MiKasome will reach
commercialization or be accepted by the medical community.
The Company's other potential products that are based on liposomal or other
technologies are in development, and there can be no assurance that such
potential products will be successfully developed, achieve therapeutic efficacy,
be approved by regulatory authorities or be successfully marketed. Nor can there
be any assurance that the Company will be able to develop any additional
products, that the approval of its current products will not be revoked or that
named-patient purchases will be permitted to continue in countries that have not
granted approval for AmBisome or DaunoXome.
RISK OF CURRENCY FLUCTUATIONS
Substantially all of the sales of AmBisome occurred in Europe with 58% of
the Company's AmBisome sales for the year ending December 31, 1996 occurring in
the United Kingdom, Germany, Italy and Spain. In most significant European
markets, the Company prices AmBisome and DaunoXome in the currency of the
country in which such products are sold. Accordingly, the prices of such
products in dollars will vary as the value of the dollar fluctuates against such
local currencies. Increases in the value of the dollar against such currencies
as have occurred during the first quarter of 1997 may reduce the dollar return
to the Company on the sale of its products. Furthermore, there can be no
assurance that significant additional fluctuations in foreign currency values
will not occur that will create substantial differences in the relative prices
of the Company's products in different countries. In addition, although the
Company implements hedging techniques with respect to its foreign currency
accounts receivable and accounts payable, these techniques have not completely
eliminated the effects of foreign currency fluctuations in the past, and there
can be no assurance that such techniques will be successful in the future. The
Company currently 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
37
<PAGE> 39
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 and not for the
purpose of speculating in foreign currency.
TECHNOLOGICAL UNCERTAINTY
A significant portion of the Company's research is focused upon the
discovery and development of novel pharmaceuticals based upon oligonucleotides.
There can be no assurance that any of the Company's approaches to drug discovery
will result in commercially successful drugs. Although the Company has
demonstrated an ability to efficiently identify oligonucleotides that bind with
high affinity to and inhibit selected molecular targets, the Company has not
successfully demonstrated the efficacy of such oligonucleotides as human
therapeutic agents, nor have any human clinical trials been initiated with
products based upon such oligonucleotides. Additionally, the Company has yet to
demonstrate the efficacy or therapeutic usefulness of any compounds derived from
its SELEX process or Parallel SELEX process. There remain numerous challenges
which the Company must address to successfully develop commercial products from
the lead compounds which it identifies through its SELEX process or Parallel
SELEX process. These challenges include developing and implementing appropriate
clinical protocols and developing manufacturing methods which are efficient,
cost-effective and capable of meeting stringent regulatory standards. In
addition, although many targets with potential therapeutic significance have
already been identified, there can be no assurance that the targets selected by
the Company will ultimately prove to have the requisite medical significance
such that a compound binding tightly to such target will prove to be a useful
pharmaceutical product. There can be no assurance that the Company will
successfully address any of these or other challenges that may arise in the
course of its research and development.
In addition to developing products based on its liposome, SELEX process and
Parallel SELEX process technologies the Company has a longer-term strategy of
providing pharmaceuticals to treat patients with cancer, infectious diseases and
immunological and hematological disorders by employing other technologies.
However, there can be no assurance that the Company will be successful in
developing marketable products using such technologies or will have the
scientific or financial resources necessary to develop all of the potential drug
candidates or technologies which its scientists may discover or the Company may
acquire.
UNCERTAINTY OF HEALTH CARE REIMBURSEMENT
The Company's ability to commercialize its current and any future products
depends in part on the extent to which reimbursement for the cost of such
products and related treatments are available from government health agencies,
private health insurers and other third-party payors. Third-party payors are
increasingly challenging the price and cost-effectiveness of medical products.
Significant uncertainty exists as to the reimbursement status of newly-approved
health care products, and there can be no assurance that adequate third-party
coverage will be available for the Company to obtain satisfactory price levels
for its products. Government and other third-party payors are increasingly
attempting to contain health care costs by a variety of means, including
limiting both the degree of coverage and the level of reimbursement for new
therapeutic products or new indications for therapeutic products. If adequate
coverage and reimbursement levels are not provided by government and third-party
payors for use of the Company's existing and potential products, the market
acceptance of these products would be adversely affected.
RELIANCE ON PROPRIETARY RIGHTS
The Company's success depends in part on its ability to continue to obtain
patent protection in the United States and other countries for its technologies
and the products, if any, resulting from the application of such technologies.
The patent positions of pharmaceutical and biotechnology firms, including the
Company, are uncertain and involve complex legal and factual questions. The
Company intends to continue to file applications as appropriate for patents
covering its technologies and any products resulting from the application of
such technologies. No assurance can be given that patents will issue from any of
the Company's applications or that patents will be issued in connection with
technology licensed by the Company or, if patents do issue, that the claims
allowed will be sufficiently broad to protect the Company's proprietary rights,
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<PAGE> 40
that such patents will not be challenged, invalidated or circumvented or that
the rights granted pursuant to such patents will provide competitive advantages
to the Company.
The commercial success of the Company will also depend in part on the
Company not infringing patents or proprietary rights of third parties nor
breaching any technology licenses that relate to the Company's technologies and
products. A number of pharmaceutical and biotechnology companies and research
and academic institutions have developed technologies, filed patent applications
or received patents on various technologies that may be related to the Company's
business. In addition, such entities may file applications for or be issued
future patents with respect to technology potentially necessary or useful to the
Company. The Company is aware of third parties that have filed patent
applications with claims allegedly covering technologies similar to the basic
aspects of the Company's SELEX process. Some of these technologies, applications
or patents may conflict with the Company's technologies and existing or future
patents, if any, or patent applications. Such conflict could limit the scope of
the patents that NeXstar Pharmaceuticals has obtained or may be able to obtain
or result in the Company's patent applications failing to issue as patents. In
addition, if patents that cover the Company's activities are issued to other
companies, there can be no assurance that NeXstar Pharmaceuticals would be able
to obtain licenses to these patents at a reasonable cost, or at all, or be able
to develop or obtain alternative technology. In addition, as more patents are
issued to third parties, the risk increases that the Company's products may give
rise to claims that they infringe the patents of others.
LITIGATION RISKS RELATED TO PROPRIETARY RIGHTS
See "Business -- Patents, Trade Secrets and Licenses" and "Legal
Proceedings" in Part I of this Report.
MANUFACTURING RISKS
The Company is manufacturing AmBisome in commercial quantities in its 650
Facility in San Dimas, California and is in the process of completing the
validation of the 502 Facility in San Dimas, California, in part, to increase
its production capacity for AmBisome and DaunoXome. However, the manufacture of
AmBisome and DaunoXome in the 502 Facility has not yet been approved by the
Medicines Control Agency of the United Kingdom (the "MCA") or the U.S. Food and
Drug Administration (the "FDA") and the Company has limited experience in
operating this facility. While the Company currently has internal capacity to
perform lyophilization (product freeze-drying) in smaller clinical batches, it
relies on third parties to lyophilize larger commercial batches. There can be no
assurance that problems with such lyophilization vendors will not occur and have
an adverse effect on the Company's results of operations or that the product
manufacturing operations in the 502 Facility will be approved by the MCA and FDA
and provide the Company with its own lyophilization capability.
The Company in the past has manufactured DaunoXome in quantities sufficient
to support clinical trials and has increased batch sizes in connection with
commercial sales. The Company currently has regulatory approval from the MCA to
manufacture both AmBisome and DaunoXome for commercial distribution at the 650
Facility. The Company has obtained FDA approval to manufacture DaunoXome for
commercial distribution in the 650 Facility and has sought MCA, FDA and state
approval to manufacture AmBisome and DaunoXome at the 502 Facility and FDA
approval to manufacture AmBisome at the 650 Facility. The local FDA district
office has indicated that it will recommend approval of the application to
permit the use of the 650 Facility for the manufacture of AmBisome. In addition,
the MCA has determined that the 502 Facility is in general compliance with the
principles and guidelines of good manufacturing practice and has indicated that
it will support the licensing of AmBisome and DaunoXome in the facility. The
Company has limited experience in the larger-scale manufacture of DaunoXome and
there can be no assurance that the Company will be successful in the
larger-scale manufacture of DaunoXome or that the regulatory approvals which the
Company is currently seeking in connection with its manufacturing facilities
will be granted.
Additionally, to import its products into the European Union (the "EU"),
the Company must receive quality control release of its products in the EU. The
Company currently obtains quality control release of its products through a toll
manufacturer which it uses in Ireland pursuant to an agreement which terminates
on
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June 30, 1997. NeXstar Pharmaceuticals has entered into an agreement with its
toll manufacturer to acquire the manufacturer's current toll manufacturing
facility in Dublin, Ireland for one million Irish Punts (approximately $1.6
million). The Company currently anticipates acquiring the Dublin facility in the
third quarter of 1997 and expects its current toll manufacturer to continue
providing services until then. Although no assurance can be given, the Company
anticipates that it will be able to timely obtain all of the validations which
it may need to perform its own quality control release after its acquisition of
the Dublin facility. In the event that the Company is unable to complete the
acquisition of the Dublin facility or is delayed in receiving all necessary
validations for such facility, the Company will be required to obtain quality
control release in the EU through other means. While the Company believes that
it will be able to continue to obtain quality control release for its products
in the EU through other means, no assurances can be given.
The manufacture of AmBisome and DaunoXome involves a number of technical
steps and requires meeting stringent quality control specifications imposed by
government regulatory bodies and by the Company itself. Additionally, such
products can only be manufactured in facilities that comply with applicable
regulatory standards. Because of these factors, the Company may not be able to
quickly and efficiently replace its manufacturing capacity in the event that it
is unable to manufacture its products at one or more of its facilities. In the
event of a natural disaster (including an earthquake), equipment failure, strike
or other difficulty, the Company may be unable to manufacture its products in a
manner necessary to fulfill the demand for the products. If the Company does not
receive approval to manufacture its products in the 502 Facility, it could
become unable to meet its manufacturing requirements, which could have a
material adverse effect on the Company's business and results of operations.
The Company depends on single suppliers for high quality amphotericin B,
daunorubicin HCl and high quality cholesterol, each of which is used in the
Company's manufacture of its liposome products. Additional suppliers of these
components are presently under evaluation. If any of these materials becomes
unavailable from its respective supplier, the Company would be unable to
manufacture at least some of its liposome products until alternative sources of
supply are obtained and the substitution of such replacement supplies has been
granted by the appropriate regulatory authorities. The Company believes that
alternative supplies of such materials are or will become available at
reasonable prices. However, no assurance as to the availability of such supplies
can be given.
While the Company has experience in manufacturing drug products based on
liposome technologies, it lacks experience in the manufacture of other
pharmaceuticals, including oligonucleotide-based products. The Company has
leased 5,260 square feet and 9,800 square feet of space for use as a bulk
pharmaceutical manufacturing facility and as a development lab, respectively, in
connection with compounds derived using the SELEX process. The manufacturing
facility has not been validated for the production of any product and there can
be no assurance that it will ultimately obtain "current Good Manufacturing
Practices" status. The Company has not yet determined which, if any, drug
substances it will attempt to develop or produce at the facilities, and there is
no assurance that any drug substance selected for development and/or production
at the facilities will be suitable for production on a larger scale. To the
extent that the Company's current facilities are unsuitable for the manufacture
on an adequate scale of new drug substances developed by the Company, the
Company will need to develop additional facilities or contract with third
parties for the manufacture of drug substances, if any, that it may develop for
its own account or in connection with collaborative arrangements in which it has
retained manufacturing rights. If the Company is unable to develop needed
manufacturing facilities or to obtain or retain third party manufacturing on
acceptable terms, the Company's ability to conduct preclinical and clinical
testing will be adversely affected and it will be unable to obtain regulatory
approval for or supply commercial quantities of products it may successfully
develop. There can be no assurance that the Company will be successful in the
further development of its manufacturing capabilities for its potential
products.
MARKETING RISKS
The Company has formed a network of subsidiaries in Europe to promote and
sell AmBisome and DaunoXome. The Company has also entered into a number of
agreements with distributors for the promotion, sale and/or distribution of
AmBisome and DaunoXome. To date, the Company has not relied on larger
40
<PAGE> 42
corporate partners in its primary markets to perform these functions. The
Company competes with many other companies that currently have extensive and
well-funded marketing and sales operations. There can be no assurance that
either the Company's marketing or sales efforts will compete successfully
against other companies. The Company has assembled a marketing group for the
sale of the Company's products in the United States, where DaunoXome was
approved in mid-1996, and in other countries worldwide. The Company has had
limited experience in the marketing of pharmaceuticals in the United States and
there can be no assurance that the Company's marketing and sales efforts in the
United States will be successful.
COMPETITION
See "Business -- Competition" in Part I of this Report.
EUROPEAN PRICING CONSTRAINTS
As a result of deriving most of its revenues from European countries, the
Company is subject to the risk of parallel imports, governmental regulation of
prices and potential price competition.
Under European Union laws, the Company is limited in its ability to
restrict the distributors of its products and third parties from selling the
Company's products in other countries when customers from such other countries
offer to buy the product from such distributors or third parties. To the extent
that the Company's product prices vary among countries, the Company is
susceptible to parallel importing between the countries. To date, the Company
does not believe that its revenues have been significantly reduced by parallel
import activities among European countries.
Differing product prices among countries occur in part because many foreign
countries require regulatory approval of prices. In particular, certain European
countries will condition their approval of a product on the agreement of the
seller not to sell that product for more than a certain price in the country.
There can be no assurance that any regulatory action reducing the price of
AmBisome or DaunoXome in any one European country will not have the practical
effect of requiring the Company to correspondingly reduce its prices in other
European countries as a result of government mandated price reductions or price
pressures resulting from the potential of parallel importing. If the Company is
successful in developing additional products or obtaining approval for
additional indications for its current drugs, the Company may also face
increased price competition from potential competitors, including European-based
companies.
HISTORY OF LOSSES; FUTURE CAPITAL NEEDS ANTICIPATED
The Company has incurred substantial losses during its history. At December
31, 1996, the Company's accumulated deficit was $126.0 million. There can be no
assurance that the Company will ever achieve or maintain profitability.
The Company believes that it is advisable to augment its existing cash in
order to fund all of the activities, including conducting clinical trials, which
the Company believes are necessary to continue its growth. Therefore, the
Company anticipates raising cash whenever market conditions are favorable and is
currently exploring alternatives for obtaining funds. Such capital may be raised
through additional public or private financing, as well as collaborative
relationships, borrowings and other available sources. In addition, 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.
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
41
<PAGE> 43
obtaining regulatory approvals; the costs involved in filing, prosecuting and
enforcing patent claims; competing technological and market 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. In
particular, the Company expects to have significant cash requirements in the
near future as a result of, but not limited to: (i) increased clinical studies
which are required in order to expand the indications and markets for AmBisome
and DaunoXome; (ii) the cost of obtaining approval for pharmaceuticals which
have been and are being developed by the Company, including MiKasome (the
Company's liposomal formulation of amikacin, a potent aminoglycoside
antibiotic); (iii) the cost of equipping new facilities; and (iv) costs in
connection with the Company's litigation involving the TLC '635 Patent and the
TCL '320 Patent and their European and Japanese counterparts. 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.
IMPACT OF GOVERNMENT REGULATION
See "Business -- Government Regulation" in Part I of this Report.
POTENTIAL PRODUCT LIABILITY CLAIMS AND UNINSURED RISKS
Although the Company is not currently a party to any product liability
litigation, the use of any of the Company's products or potential products in
clinical trials and the sale of such products may expose the Company to
liability claims. These claims may be made directly by consumers, health care
providers, pharmaceutical companies or others selling such products. While the
Company currently has liability insurance in amounts that it believes to be
adequate for its business as currently conducted, such insurance is expensive
and may be difficult (or impossible) to obtain in the future. In the event
liability insurance becomes unobtainable, the Company's ability to clinically
test and to market its products could be significantly impaired. Moreover, the
amount and scope of any coverage may be inadequate to protect the Company in the
event of a successful product liability claim.
Additionally, with the approval of DaunoXome in the United States, the
Company has significantly greater risk in connection with product liability
claims due to the greater frequency of lawsuits and higher damages awarded in
courts in the United States as opposed to most other countries. The Company is
required by governmental regulations to test its products even after they have
been sold and used by patients. As a result of such tests, the Company may be
required to, or may determine that, it should recall products when most of such
products have already been sold or used. Such later testing and product recalls
may increase the Company's potential exposure to product liability claims.
LIKELY VOLATILITY OF STOCK PRICE
The market prices for securities of biopharmaceutical and biotechnology
companies, including the Company, have been highly volatile, and it is likely
that the market price of the Company's common stock will continue to be highly
volatile. Announcements of technological innovations or new commercial products
by the Company, its collaborative partners or its present or potential
competitors, announcements by the Company or its present or potential
competitors of results in preclinical testing and clinical trials, developments
or disputes concerning patent or proprietary rights, developments in the
Company's relationships with its collaborative partners, adverse litigation,
changes in reimbursement policies, adverse legislation, regulatory decisions or
public concern regarding the safety, efficacy or other implications of the drugs
sought to be developed or biotechnology in general and economic and other
external factors, as well as period-to-period fluctuations in the Company's
operating results have had, and may continue to have, a significant impact on
the market price of the Company's common stock.
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<PAGE> 44
REGISTRATION RIGHTS, OPTIONS AND WARRANTS
As of March 27, 1997, the holders of 6,792,877 outstanding shares of the
Company's common stock were entitled to certain piggyback and demand
registration rights with respect to such shares. If such holders, by exercising
their demand registration rights, cause a large number of shares to be
registered and sold in the public market, such sales may have an adverse effect
on the market price for the common stock. In addition, if the Company is
required to include in a Company initiated registration shares held by such
holders pursuant to the exercise of their piggyback registration rights, the
sale of such shares may have an adverse effect on the Company's ability to raise
needed capital. As of March 27, 1997, there were warrants outstanding to
purchase an aggregate of 1,338,972 shares of common stock at a weighted average
exercise price of $6.34 per share. There are piggyback and/or demand
registration rights in connection with such warrants which can be exercised for
an aggregate of 1,272,252 shares. As of March 24, 1997, there were outstanding
stock options for an aggregate of 2,598,072 shares of the Company's common stock
at a weighted average exercise price of $12.25 per share.
INFLUENCE BY EXISTING STOCKHOLDER
E.M. Warburg, Pincus & Co., LLC ("Warburg") and its affiliates own or have
the right to acquire a substantial minority of the common stock of NeXstar
Pharmaceuticals and may influence corporate actions, including influencing
elections and significant corporate events. One of the Company's directors is a
Senior Managing Director of Warburg.
RELIANCE ON RELATIONSHIPS AND EFFECTS OF INVESTMENTS
The Company has entered into collaborative arrangements pursuant to which
other companies are entitled to certain product, manufacturing, marketing and
royalty rights, including collaborative arrangements relating to aspects of the
SELEX process. Although the agreements with these companies provide for the
funding by such companies of certain research and development efforts conducted
by the Company, such funding may be terminated by such companies under certain
circumstances. Furthermore, there can be no assurance that any of the Company's
current collaborative arrangements will be successful.
The Company may seek future collaborative relationships with corporate
partners to fund certain research and development expenses and to develop and
commercialize certain of its potential products. Further, the Company's receipt
of revenues from collaborative agreements will be affected by the timing of
efforts expended by the Company under existing agreements, as well as by the
timing of drug development programs of the Company's collaborators. There can be
no assurance that the Company will be able to negotiate acceptable collaborative
arrangements in the future, or that such collaborative arrangements will be
successful. To the extent that the Company elects not to or is unable to
establish such relationships it could incur increased capital expenditures as it
is required to undertake research, development, marketing and manufacturing of
its proposed products at its own expense. In addition, there can be no assurance
that existing or future collaborative partners will have sufficient economic
motivation to continue their funding or to develop any products to which they
may have rights, or that such partners will not pursue alternative technologies
or attempt to develop alternative compounds either independently or in
collaboration with others.
In the past, the Company has invested in privately held entities and at
December 31, 1996 recorded these investments as investment in life science
enterprise with a book value of $2.7 million. Most of the value of these
entities is based on unproven technology. Additionally, the Company does not
have significant control over these entities. In the event that these entities
are unsuccessful, the Company may incur significant future accounting
write-offs. Currently, the Company has no obligation to make any additional
investments in any of these entities. The Company periodically undertakes a
review of the value of its investment in life science enterprise to determine if
the value of its investments has been permanently impaired. In connection with
the Company's review for the year ending December 31, 1996, the Company incurred
a write down of $1.2 million with regard to an investment in a biotechnology
company.
The Company's rights to market AmBisome are pursuant to an agreement
between the Company and Fujisawa. Under the terms of the agreement, as amended,
the Company has the sole marketing rights to
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<PAGE> 45
AmBisome in all countries except the United States and Canada and subject to the
Company's obligation to pay royalties in connection with sales in most
significant Asian markets. The agreement provides that the Company and Fujisawa
will co-promote AmBisome in the United States, if AmBisome is ultimately
approved for commercial sale by the FDA, and that the Company will manufacture
AmBisome for sale in the U.S. In addition, the Company will be reimbursed for
the cost of the product sold to Fujisawa and will receive 20% of the gross
profits from the sale of AmBisome in the United States. In the event that the
Company and Fujisawa are unable to cooperate in obtaining approval for AmBisome
in the U.S. or in connection with the promotion of the product, the Company's
potential revenues from the sale of AmBisome in the U.S. may be substantially
reduced.
NeXstar Pharmaceuticals has licensed the right to market and develop
AmBisome in Japan to Sumitomo Pharmaceuticals, Co., Ltd. ("Sumitomo"). Under the
terms of the license, Sumitomo is required to make payments to the Company if
certain clinical and commercial milestones are met and to pay the Company
royalties on all Japanese sales of AmBisome. There can be no assurance that
Sumitomo will be required to pay any of the milestone payments or will be
successful in selling AmBisome in Japan.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Submitted elsewhere in this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information involving the election of Directors is, in part, contained in
Part I of this Report under the caption "Executive Officers, Directors and Key
Employees" and, in addition, is incorporated herein by reference to the
Company's definitive proxy statement for the Annual Meeting of Stockholders to
be held on May 28, 1997, to be filed pursuant to Regulation 14A.
Information concerning the Executive Officers of Registrant is contained in
Part I of this Report under the caption "Executive Officers, Directors and Key
Employees."
ITEM 11. EXECUTIVE COMPENSATION
The information with respect to executive compensation is incorporated
herein by reference to the Company's definitive proxy statement for the Annual
Meeting of Stockholders to be held on May 28, 1997, to be filed pursuant to
Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information with respect to security ownership of certain beneficial
owners and management is incorporated herein by reference to the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be held on
May 28, 1997, to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information with respect to certain relationships and related
transactions is incorporated herein by reference to the Company's definitive
proxy statement for the Annual Meeting of Stockholders to be held on May 28,
1997, to be filed pursuant to Regulation 14A.
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<PAGE> 46
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions; competition; technological
advances; ability to obtain rights to technology; ability to obtain and enforce
patents; ability to commercialize and manufacture products; results of clinical
studies; results of research and development activities; business abilities and
judgment of personnel; availability of qualified personnel; changes in, or
failure to comply with, governmental regulations; ability to obtain adequate
financing in the future; and other factors referenced in this Report. See "Risk
Factors" in Part II of this Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE IN
FORM 10-K
---------
<S> <C>
Report of Independent Auditors.............................. F-1
Consolidated Balance Sheets as of December 31, 1996 and
1995...................................................... F-2
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995, and 1994......................... F-3
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995, and 1994............. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994......................... F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>
2. INDEX TO FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable, or not required,
or because the required information is included in the Consolidated Financial
Statements or notes thereto.
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of October 30,
1994, among the Registrant, Neptune Merger-Sub Corp. and
Vestar, Inc.(1).
2.2 -- Agreement and Plan of Merger, dated as of August 29,
1995, among the Registrant, Supra-Sub Merger Corp. and
Supragen, Inc.(2).
3.1 -- Second Amended and Restated Certificate of Incorporation
of the Registrant(3).
3.2 -- Amended and Restated Bylaws of the Registrant(4).
4.1 -- Second Amended and Restated Certificate of Incorporation
of the Registrant (filed as Exhibit 3.1 to this Report).
4.2 -- Form of Common Stock certificate of the Registrant(4).
10.1 -- License Agreement between University Research Corporation
and the Registrant, effective as of July 17, 1991, as
amended on October 26, 1992(5).
</TABLE>
45
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.2 -- Amendment No. 2, effective April 5, 1996, and Amendment
No. 3, dated September 5, 1996, to the License Agreement
between University Research Corporation and the
Registrant, effective as of July 17, 1991, as amended on
October 26, 1992.
10.3 -- Stock Purchase Agreement among the Registrant, Warburg,
Pincus Investors, L.P., University Research Corporation
and Lawrence M. Gold, dated as of July 17, 1991, as
amended on December 4, 1992, and as amended by letter
agreement on November 19, 1993(5).
10.4 -- Employment Agreement, dated July 1, 1991, between the
Registrant and Lawrence M. Gold(5).
10.5 -- Letter Agreement, dated May 1, 1992, between the
Registrant and Patrick J. Mahaffy(5).
10.6 -- Master Equipment Lease Agreement between MMC/GATX
Partnership No. 1 and the Registrant, dated as of
November 23, 1992(5).
10.7 -- Research and License Agreement between Eli Lilly and
Company and the Registrant, effective as of September 15,
1992, and Amendment No. 1 thereto dated as of April 1,
1994(4).
10.8 -- Stock Purchase Agreement among the Registrant, Eli Lilly
and Company and Warburg, Pincus Investors, L.P., dated as
of September 15, 1992(5).
10.9 -- Supplement to Stock Purchase Agreement among the
Registrant, Eli Lilly and Company, Warburg, Pincus
Investors, L.P. and certain additional investors, dated
as of September 30, 1992(5).
10.10 -- Second Supplement to Stock Purchase Agreement among the
Company, Accel III, L.P., Accel Japan L.P., Accel
Investors '92 L.P., New Enterprise Associates V Limited
Partnership, Ven Sed I, Eli Lilly and Company and
Warburg, Pincus Investors, L.P., dated as of December 4,
1992(5).
10.11 -- Collaborative Research Agreement between the Registrant
and Becton, Dickinson and Company, dated as of May 28,
1993(5).
10.12 -- License Agreement between the Registrant and Becton,
Dickinson and Company, dated as of May 28, 1993(5).
10.13 -- Amendment to the Collaborative Research Agreement and
License Agreement, effective as of June 1, 1995, between
the Registrant and Becton, Dickinson and Company(6).
10.14 -- Collaborative Research Agreement between the Registrant
and Schering A.G., dated as of November 16, 1993(5).
10.15 -- Letter Agreement between the Registrant and Schering
A.G., effective February 1, 1997, amending the
Collaborative Research Agreement between the Registrant
and Schering A.G., dated as of November 16, 1993.
10.16 -- License Agreement between the Registrant and Schering
A.G., dated as of November 16, 1993(5).
10.17 -- Master Equipment Lease Agreement between Phoenix Leasing
Incorporated and the Registrant, dated November 15,
1993(5).
10.18 -- Master Lease Agreement between USL Capital Corporation
and the Registrant, dated as of November 9, 1995(7).
10.19 -- Letter Agreement, dated January 24, 1994, between Eli
Lilly and Company and the Registrant(5).
</TABLE>
46
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.20 -- Common Stock Purchase Warrant issued to Warburg, Pincus
Capital Partners, L.P., dated May 11, 1990(8).
10.21 -- Letter Agreement, dated April 20, 1995, between Warburg,
Pincus Capital Partners, L.P. and the Registrant
regarding amendments to warrants held by Warburg, Pincus
Capital Partners, L.P.(9).
10.22 -- Vestar, Inc. 401(k) Retirement Savings Plan and Trust,
Amendment No. 1 thereto and the related adoption
agreement thereto, dated March 27, 1995(4).
10.23 -- Supragen, Inc. 401(k) Profit Sharing Plan and Adoption
Agreement(2).
10.24 -- Registrant's 401(k) Retirement Savings Plan, effective
January 1, 1996, and related adoption agreement(10).
10.25 -- Adoption Agreement of the NeXagen, Inc. 401(k) Retirement
Plan, dated January 1, 1993(5).
10.26 -- NeXagen, Inc. 1993 Incentive Stock Plan, adopted February
8, 1993, as amended(2).
10.27 -- Amendment No. 4 to NeXagen, Inc. 1993 Incentive Stock
Plan, adopted February 8, 1993(3).
10.28 -- Registrant's 1995 Director Option Plan, adopted July 25,
1995(2).
10.29 -- Vestar, Inc. 1988 Stock Option Plan(4).
10.30 -- Registrant's 1994 Employee Stock Purchase Plan, adopted
June 9, 1994(4).
10.31 -- Amendment No. 1 to Registrant's 1994 Employee Stock
Purchase Plan, adopted June 9, 1994(3).
10.32 -- Lease, dated March 26, 1987, between Vestar, Inc. and
Majestic Realty Co. and Patrician Associates, Inc. and
Amendment No. 1 thereto and Amendment No. 2 thereto,
dated as of June 8, 1992(4).
10.33 -- Third Amendment, dated January 11, 1996, between Majestic
Realty Co. and Patrician Associates, Inc. and the
Registrant, to Lease, dated March 26, 1987, between
Vestar, Inc. and Majestic Realty Co. and Patrician
Associates, Inc.(7).
10.34 -- Agreement, dated January 6, 1993, between Vestar, Inc.
and Vical Incorporated(7).
10.35 -- Assignment and Royalty Agreement, dated December 21,
1990, effective as of June 2, 1989, between Vestar, Inc.
and City of Hope National Medical Center(8).
10.36 -- License Agreement, effective as of August 12, 1986,
between Vestar, Inc. and The Regents of the University of
California(7).
10.37 -- Agreement by and between Fujisawa USA, Inc. and Vestar,
Inc., dated August 9, 1991, and Amendment No 1 thereto,
dated as of May 17, 1994(4).
10.38 -- Amendment No 2 to agreement between Fujisawa USA, Inc.
and Vestar, Inc., dated as of April 3, 1995, between
Fujisawa USA, Inc. and Vestar, Inc. (9) [Part of this
document has been redacted for purposes of
confidentiality pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934, as amended].
10.39 -- Amendment No. 3 to Agreement between Fujisawa USA, Inc.
and the Registrant, dated March 4, 1996, to the Agreement
by and between Fujisawa USA, Inc. and Vestar, Inc., dated
August 9, 1991(7).
10.40 -- Lease, dated April 13, 1992, between Vestar, Inc. and
Majestic Realty Co. and Patrician Associates, Inc.(4).
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.41 -- First Amendment to Lease, dated April 10, 1993, between
Majestic Realty Co. and Patrician Associates, Inc. and
Vestar, Inc. amending Lease, dated April 13, 1992,
between Majestic Realty Co. and Patrician Associates,
Inc. and Vestar, Inc.(7).
10.42 -- Master Lease Agreement, dated June 29, 1994, between
Vestar, Inc. and Comdisco, Inc.(4).
10.43 -- Lease Agreement, dated September 28, 1994, between the
Registrant and Deane Investment Co., Ltd.(4).
10.44 -- License Agreement, dated December 23, 1992, between
Supragen, Inc. and National Jewish Center for Immunology
and Respiratory Medicine, as amended(2).
10.45 -- Employment Agreement, dated November 4, 1994, between
Supragen, Inc. and Michael T. Burke(2).
10.46 -- Royalty Agreement, dated October 30, 1995, between the
Registrant and Amplimed Corporation(7).
10.47 -- Pharmaceutical Pricing Agreement between the Secretary of
Veterans Affairs and the Registrant, dated April 30,
1996(11).
10.48 -- Master Agreement between Secretary of Veterans Affairs
and the Registrant, dated April 30, 1996(11).
10.49 -- Pharmaceutical Pricing Agreement between the Secretary of
Health and Human Services and the Registrant, dated April
30, 1996(11).
10.50 -- Rebate Agreement between the Secretary of Health and
Human Services and the Registrant, dated April 30,
1996(11).
10.51 -- Industrial Real Estate Lease, dated July 1, 1996, by and
between Wilderness Place, Ltd. and the Registrant(12).
10.52 -- Loan Agreement, dated as of June 28, 1996, by and between
the Registrant and The Sumitomo Bank, Limited(12).
10.53 -- Sublease Agreement, dated July 31, 1996, between Sybase,
Inc. and the Registrant(13).
10.54 -- Lease Agreement, dated November 6, 1996, between Avalon
Investment Company and the Registrant(13).
10.55 -- Commercial Factoring Agreement between Santander de
Factoring, S.A. and NeXstar Farmaceutica, S.A., entered
into on May 21, 1996, as amended.
10.56 -- License and Distribution Agreement, dated September 26,
1997, by and between Sumitomo Pharmaceuticals Co., Ltd.
and the Registrant. [Part of the document has been
redacted for purposes of confidentiality pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as
amended.]
10.57 -- Credit Agreement, entered into as of March 24, 1997,
between Wells Fargo Bank (Colorado), National
Association, the Registrant and certain of the
Registrant's subsidiaries.
10.58 -- Securities Purchase Agreement among Warburg, Pincus
Capital Partners, L.P., Humana Inc. and Vestar, Inc.,
dated May 11, 1990.
11.1 -- Statement Re: Computation of Net Loss Per Share.
21.1 -- Subsidiaries of Registrant.
23.1 -- Consent of Independent Auditors.
27.1 -- Financial Data Schedule.
</TABLE>
48
<PAGE> 50
(1) Previously filed on January 26, 1995, as Annex A to the Registration
Statement on Form S-4 (File No. 33-88786), which exhibit is incorporated by
reference herein.
(2) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
Registrant for the quarterly period ended September 30, 1995, and
incorporated by reference herein.
(3) Previously filed in the Exhibits to the Registration Statement on Form S-3
(File No. 333-04653), declared effective by the Securities and Exchange
Commission on June 19, 1996, which exhibit is incorporated by reference
herein.
(4) Previously filed in the Exhibits to Form 10-K (File No. 0-23012) for the
Registrant for the fiscal year ended December 31, 1994, and incorporated by
reference herein.
(5) Previously filed in the Exhibits to the Registration Statement on Form S-1
(File No. 33-72142), declared effective by the Securities and Exchange
Commission on January 28, 1994, which exhibit is incorporated by reference
herein.
(6) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
Registrant for the quarterly period ended June 30, 1995, and incorporated
by reference herein.
(7) Previously filed in the Exhibits to Form 10-K (File No. 0-23012) for the
Registrant for the fiscal year ended December 31, 1995, and incorporated by
reference herein.
(8) Previously filed, on March 22, 1991, in the Exhibits to the Registration
Statement on Form S-2 (File No. 33-39549), which exhibit is incorporated by
reference herein.
(9) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
Registrant for the quarterly period ended March 31, 1995, and incorporated
by reference herein.
(10) Previously filed in the Exhibits to the Registration Statement on Form S-3
(File No. 333-00758) declared effective by the Securities and Exchange
Commission on February 9, 1996, which exhibit is incorporated by reference
herein.
(11) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
Registrant for the quarterly period ended March 31, 1996, and incorporated
by reference herein.
(12) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
Registrant for the quarterly period ended June 30, 1996, and incorporated
by reference herein.
(13) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
Registrant for the quarterly period ended September 30, 1996, and
incorporated by reference herein.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1996.
49
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ PATRICK J. MAHAFFY
----------------------------------
Patrick J. Mahaffy
President and Chief Executive
Officer
Date: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LAWRENCE M. GOLD Chairman of the Board and Chief March 28, 1997
- ----------------------------------------------------- Scientific Officer
Lawrence M. Gold
/s/ PATRICK J. MAHAFFY Director, President and Chief March 28, 1997
- ----------------------------------------------------- Executive Officer (Principal
Patrick J. Mahaffy Executive Officer)
/s/ JOHN D. BALDESCHWIELER Director March 28, 1997
- -----------------------------------------------------
John D. Baldeschwieler
/s/ JAMES A. ESKRIDGE Director March 28, 1997
- -----------------------------------------------------
James A. Eskridge
/s/ DAVID I. HIRSH Director March 28, 1997
- -----------------------------------------------------
David I. Hirsh
/s/ RODMAN W. MOORHEAD, III Director March 28, 1997
- -----------------------------------------------------
Rodman W. Moorhead, III
/s/ CARL F. POLLARD Director March 28, 1997
- -----------------------------------------------------
Carl F. Pollard
/s/ MICHAEL E. HART Vice President and Chief March 28, 1997
- ----------------------------------------------------- Financial Officer (Principal
Michael E. Hart Financial Officer and
Principal Accounting Officer)
</TABLE>
50
<PAGE> 52
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
NeXstar Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of NeXstar
Pharmaceuticals, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NeXstar
Pharmaceuticals, Inc. at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Denver, Colorado
February 27, 1997,
except for Note 13, as to which the
date is March 27, 1997
F-1
<PAGE> 53
NEXSTAR PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 21,542,000 $ 20,893,000
Marketable securities..................................... 20,423,000 5,841,000
Accounts receivable, net of allowance for doubtful
accounts of $1,025,000 and $505,000 at December 31,
1996 and 1995, respectively............................ 30,001,000 18,315,000
Inventories............................................... 15,629,000 9,469,000
Prepaid expenses and other................................ 2,276,000 1,948,000
------------- -------------
Total current assets........................................ 89,871,000 56,466,000
Equipment and leasehold improvements, net of accumulated
depreciation and amortization............................. 43,960,000 43,001,000
Investment in life science enterprise....................... 2,709,000 3,950,000
Patent and trademark costs, net of accumulated amortization
of $880,000 and $461,000 at December 31, 1996 and 1995,
respectively.............................................. 4,633,000 3,732,000
Purchased technology, net of accumulated amortization of
$2,490,000 and $1,485,000 at December 31, 1996 and 1995,
respectively.............................................. 2,010,000 3,015,000
Other noncurrent assets, net of allowance of $1,737,000 and
$2,430,000 at December 31, 1996 and 1995, respectively.... 1,317,000 2,285,000
------------- -------------
Total assets................................................ $ 144,500,000 $ 112,449,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................... $ 12,936,000 $ 3,500,000
Accounts payable.......................................... 10,483,000 6,789,000
Accrued compensation and employee benefits................ 3,544,000 2,805,000
Other accrued expenses.................................... 7,174,000 4,030,000
Long-term obligations due within one year................. 7,535,000 4,313,000
------------- -------------
Total current liabilities................................... 41,672,000 21,437,000
Long-term obligations due after one year.................... 15,206,000 9,848,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; 5,000,000 shares
authorized
Common stock, $.01 par value; 50,000,000 shares
authorized; issued and outstanding shares -- 26,410,811 in
1996 and 24,377,192 in 1995............................... 264,000 244,000
Additional paid-in capital................................ 213,931,000 184,290,000
Deferred compensation..................................... (367,000) (235,000)
Cumulative translation adjustment......................... (230,000) (140,000)
Accumulated deficit....................................... (125,976,000) (102,995,000)
------------- -------------
Total stockholders' equity.................................. 87,622,000 81,164,000
------------- -------------
Total liabilities and stockholders' equity.................. $ 144,500,000 $ 112,449,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 54
NEXSTAR PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Product revenues............................... $ 80,153,000 $ 57,770,000 $ 43,967,000
License fee.................................... 7,000,000 -- --
Collaborative agreements and contracts......... 1,548,000 2,920,000 4,054,000
Interest income................................ 1,821,000 1,736,000 2,409,000
------------ ------------ ------------
Total revenues................................... 90,522,000 62,426,000 50,430,000
------------ ------------ ------------
Expenses:
Cost of goods sold............................. 18,320,000 13,246,000 8,091,000
Research and development....................... 47,760,000 37,356,000 31,595,000
Selling, general and administrative............ 44,939,000 35,300,000 22,108,000
Purchased research and development............. -- 11,824,000 --
Retirement agreement expense................... -- -- 4,097,000
Interest expense............................... 1,558,000 1,148,000 587,000
------------ ------------ ------------
Total expenses................................... 112,577,000 98,874,000 66,478,000
------------ ------------ ------------
Loss before provision for income taxes........... (22,055,000) (36,448,000) (16,048,000)
Provision for income taxes....................... 926,000 183,000 159,000
------------ ------------ ------------
Net loss......................................... $(22,981,000) $(36,631,000) $(16,207,000)
============ ============ ============
Net loss per share............................... $ (0.88) $ (1.57) $ (0.71)
============ ============ ============
Shares used in computing net loss per share...... 26,029,000 23,374,000 22,825,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 55
NEXSTAR PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE
------------------ --------------------- PAID-IN DEFERRED TRANSLATION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION ADJUSTMENTS DEFICIT
------- -------- ---------- -------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993.................... 22,898 $ 22,000 15,155,242 $152,000 $141,721,000 $(470,000) $(133,000) $ (50,157,000)
Issuance of common stock
for cash.............. -- -- 2,147,784 21,000 21,115,000 -- -- --
Conversion of preferred
stock upon initial
public offering....... (22,898) (22,000) 5,655,396 56,000 (34,000) -- -- --
Stock repurchases....... -- -- (50,422) -- -- -- -- --
Employee stock purchase
plan.................. -- -- 6,009 -- 29,000 -- -- --
Option exercises........ -- -- 13,600 -- 15,000 -- -- --
Amortization of deferred
compensation.......... -- -- -- -- -- 117,000 -- --
Compensation expense.... -- -- -- -- 1,120,000 -- -- --
Foreign currency
translation
adjustment............ -- -- -- -- -- -- 29,000 --
Net loss................ -- -- -- -- -- -- -- (16,207,000)
------- -------- ---------- -------- ------------ --------- --------- -------------
Balance at December 31,
1994.................... -- -- 22,927,609 229,000 163,966,000 (353,000) (104,000) (66,364,000)
Issuance of common stock
for cash.............. -- -- 309,861 3,000 5,093,000 -- -- --
Retirement agreement
transfer.............. -- -- -- -- 1,688,000 -- -- --
Issuance of common stock
for purchase of
Supragen, Inc......... -- -- 751,597 8,000 12,018,000 -- -- --
Stock repurchases....... -- -- (1,156) -- -- -- -- --
Employee stock purchase
plan.................. -- -- 46,600 1,000 306,000 -- -- --
Option exercises........ -- -- 198,328 2,000 553,000 -- -- --
Warrant exercises....... -- -- 144,353 1,000 666,000 -- -- --
Amortization of deferred
compensation.......... -- -- -- -- -- 118,000 -- --
Foreign currency
translation
adjustment............ -- -- -- -- -- -- (36,000) --
Net loss................ -- -- -- -- -- -- -- (36,631,000)
------- -------- ---------- -------- ------------ --------- --------- -------------
Balance at December 31,
1995.................... -- -- 24,377,192 244,000 184,290,000 (235,000) (140,000) (102,995,000)
Issuance of common stock
for cash.............. -- -- 1,429,268 14,000 24,982,000 -- -- --
Stock repurchases....... -- -- (136) -- -- -- -- --
Employee stock purchase
plan.................. -- -- 58,357 1,000 807,000 -- -- --
Option exercises........ -- -- 289,030 3,000 2,320,000 -- -- --
Warrant exercises....... -- -- 257,100 2,000 1,231,000 -- -- --
Deferred compensation
related to grants of
stock options......... -- -- -- -- 301,000 (301,000) -- --
Amortization of deferred
compensation.......... -- -- -- -- -- 169,000 -- --
Foreign currency
translation
adjustment............ -- -- -- -- -- -- (90,000) --
Net loss................ -- -- -- -- -- -- -- (22,981,000)
------- -------- ---------- -------- ------------ --------- --------- -------------
Balance at December 31,
1996.................... -- $ -- 26,410,811 $264,000 $213,931,000 $(367,000) $(230,000) $(125,976,000)
======= ======== ========== ======== ============ ========= ========= =============
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance at December 31,
1993.................... $ 91,135,000
Issuance of common stock
for cash.............. 21,136,000
Conversion of preferred
stock upon initial
public offering....... --
Stock repurchases....... --
Employee stock purchase
plan.................. 29,000
Option exercises........ 15,000
Amortization of deferred
compensation.......... 117,000
Compensation expense.... 1,120,000
Foreign currency
translation
adjustment............ 29,000
Net loss................ (16,207,000)
------------
Balance at December 31,
1994.................... 97,374,000
Issuance of common stock
for cash.............. 5,096,000
Retirement agreement
transfer.............. 1,688,000
Issuance of common stock
for purchase of
Supragen, Inc......... 12,026,000
Stock repurchases....... --
Employee stock purchase
plan.................. 307,000
Option exercises........ 555,000
Warrant exercises....... 667,000
Amortization of deferred
compensation.......... 118,000
Foreign currency
translation
adjustment............ (36,000)
Net loss................ (36,631,000)
------------
Balance at December 31,
1995.................... 81,164,000
Issuance of common stock
for cash.............. 24,996,000
Stock repurchases....... --
Employee stock purchase
plan.................. 808,000
Option exercises........ 2,323,000
Warrant exercises....... 1,233,000
Deferred compensation
related to grants of
stock options......... --
Amortization of deferred
compensation.......... 169,000
Foreign currency
translation
adjustment............ (90,000)
Net loss................ (22,981,000)
------------
Balance at December 31,
1996.................... $ 87,622,000
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 56
NEXSTAR PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(22,981,000) $(36,631,000) $(16,207,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of equipment and leasehold
improvements............................................ 9,759,000 8,490,000 3,781,000
Amortization of intangible assets......................... 1,541,000 1,301,000 379,000
Compensation expense related to grant of options and sales
of stock, including amortization of deferred
compensation............................................ 169,000 118,000 1,237,000
Retirement agreement expense.............................. -- -- 3,939,000
Write down of investment in life science enterprise....... 1,241,000 -- --
Purchased research and development........................ -- 11,824,000 --
Allowance for loan loss................................... -- 2,430,000 --
Other..................................................... 222,000 487,000 140,000
Changes in operating assets and liabilities:
Accounts receivable..................................... (11,499,000) (4,361,000) (4,811,000)
Inventories............................................. (6,160,000) (3,571,000) 163,000
Prepaid expenses and other.............................. (328,000) 1,082,000 (430,000)
Other noncurrent assets................................. 151,000 (141,000) (88,000)
Accounts payable........................................ 4,174,000 2,527,000 (742,000)
Accrued compensation and employee benefits.............. 735,000 846,000 912,000
Accrued retirement agreement............................ -- (2,150,000) --
Other accrued expenses.................................. 2,645,000 671,000 (1,156,000)
------------ ------------ ------------
Net cash used in operating activities....................... (20,331,000) (17,078,000) (12,883,000)
INVESTING ACTIVITIES
Maturities (purchases) of marketable securities, net........ (14,582,000) 26,838,000 (4,577,000)
Additions to equipment and leasehold improvements........... (11,198,000) (8,663,000) (23,695,000)
Cash acquired from purchase of Supragen, Inc................ -- 418,000 --
Deletions (additions) to deposits........................... -- 5,606,000 (5,633,000)
Additions to investments in life science enterprises, net... -- -- (3,286,000)
Additions to patent costs................................... (1,320,000) (702,000) (626,000)
Deletions (additions) to other noncurrent assets............ 700,000 -- (2,309,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities......... (26,400,000) 23,497,000 (40,126,000)
FINANCING ACTIVITIES
Proceeds from short-term borrowings, net.................... 9,436,000 550,000 2,950,000
Proceeds from sale-leaseback transactions................... 2,978,000 2,363,000 12,197,000
Payments on capital lease obligations....................... (4,258,000) (3,592,000) (2,106,000)
Proceeds from issuance of long-term debt.................... 11,527,000 1,019,000 --
Repayments on long-term debt................................ (1,667,000) -- --
Proceeds from sale of common stock, net of offering costs... 29,364,000 6,529,000 21,180,000
------------ ------------ ------------
Net cash provided by financing activities................... 47,380,000 6,869,000 34,221,000
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents........ 649,000 13,288,000 (18,788,000)
Cash and cash equivalents at beginning of period............ 20,893,000 7,605,000 26,393,000
------------ ------------ ------------
Cash and cash equivalents at end of period.................. $ 21,542,000 $ 20,893,000 $ 7,605,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid......................................... $ 1,030,000 $ 235,000 $ 111,000
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Purchase of equipment and leasehold improvements through
accounts
payable................................................. 1,020,000 1,500,000 1,300,000
Issuance of stock through director deferred compensation
plan.................................................... 32,000 96,000 --
Accrued retirement agreement.............................. -- 1,688,000 --
DETAILS OF SUPRAGEN, INC. ACQUISITION:
Fair value of assets acquired............................. -- $ 1,248,000 --
Purchased research and development........................ -- 11,824,000 --
Liabilities assumed....................................... -- (1,046,000) --
Stock issued.............................................. -- (12,026,000) --
------------ ------------ ------------
Cash paid................................................. -- -- --
Add: cash acquired........................................ -- 418,000 --
------------ ------------ ------------
-- $ 418,000 --
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 57
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
NeXstar Pharmaceuticals, Inc., a Delaware corporation ("NeXstar
Pharmaceuticals" or the "Company"), is a leading biopharmaceutical company
engaged in the discovery, development, manufacture and marketing of proprietary
pharmaceutical products to treat life-threatening and other serious diseases.
NeXstar Pharmaceuticals was formed in 1991 as NeXagen, Inc. On February 21,
1995, the Company was merged (the "Merger") with Vestar, Inc. ("Vestar"), a
Delaware corporation founded in 1981, and changed its name to NeXstar
Pharmaceuticals, Inc. Prior to the Merger, NeXstar Pharmaceuticals was primarily
engaged in the discovery and development of novel oligonucleotide-based
pharmaceuticals. As a result of the Merger, the Company combined its drug
discovery program and financial resources with Vestar's proprietary drug
delivery technology, existing products and product pipeline and Vestar's
manufacturing, marketing and regulatory capabilities. The Merger was accounted
for as a pooling of interests.
On September 8, 1995, the Company acquired all of the equity interests of
Supragen, Inc. ("Supragen"), a research-oriented biotechnology company, for
approximately $12 million in the form of 751,597 shares of the Company's common
stock. The acquisition was accounted for as a purchase. As a result of the
Supragen acquisition, the Company recorded a one-time, non-cash charge of
purchased research and development in its 1995 third quarter results of
operations of $11.8 million.
The following unaudited pro forma consolidated results of operations give
effect to the Supragen acquisition as though it had occurred at the beginning of
the periods presented:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Total revenues.......................................... $ 62,484,000 $ 50,449,000
Net loss................................................ (39,832,000) (18,968,000)
Net loss per share...................................... (1.67) (0.80)
</TABLE>
The unaudited pro forma information is not necessarily indicative either of
results of operations that would have occurred had the purchase been made on
January 1, 1994, or future results of operations of the Company.
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly and majority-owned subsidiaries; significant
intercompany transactions have been eliminated. Certain reclassifications,
including adjustments to conform accounting practices, have been made to prior
year amounts to agree with the current year presentation.
Long-Lived Assets
Effective January 1, 1996, the Company adopted Financial Accounting
Standards Board ("FASB") 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.
F-6
<PAGE> 58
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounting Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
It is possible that the future economic life of the Company's technologies,
the amount of anticipated future revenues or both could be reduced significantly
in the future due to alternate products or technologies being developed by other
biotechnology or pharmaceutical companies. As a result, the carrying amount of
patent and trademark costs and purchased technology costs could be reduced in
the future.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are provided by the
straight-line method over the shorter of the lease term or the estimated useful
life, which is as follows:
<TABLE>
<S> <C>
Laboratory and manufacturing equipment.............. 5-7 years
Office furniture and equipment...................... 3-7 years
Capitalized lease equipment......................... 3-5 years
Leasehold improvements.............................. Shorter of useful life or lease term
</TABLE>
Patent Costs
Effective January 1, 1996, the Company began amortizing its patent costs
over a period of ten years. Prior to January 1, 1996, patent costs were deferred
pending the outcome of patent applications. Successful patent costs were
amortized by the straight-line method over the lesser of the estimated useful
life or the patent life. Unsuccessful patent costs were expensed when so
determined. This change did not have a significant impact on the Company's
financial condition or results of operations.
Product Revenues/Accounts Receivable
Product revenues are recognized upon passage of legal title of the
inventory.
A substantial majority of the Company's product revenues are export sales
of AmBisome primarily through Company subsidiaries and to distributors in
Europe. The Company performs credit evaluations of its customers' financial
condition and generally has not required collateral. The Company's accounts
receivable are predominantly trade receivables, and to date, the Company has
experienced only modest losses with respect to the collection of its accounts
receivable. During 1996, the Company increased its allowance for doubtful
accounts by $520,000 to $1,025,000 due to an increase in accounts receivable
resulting primarily from increased sales in the Company's products. During 1995,
the allowance for doubtful accounts was unchanged at $505,000.
In 1996 and 1995, sales to one distributor accounted for approximately 18%
and 27% of product revenues, respectively. In 1994, sales to two distributors
accounted for approximately 22% and 18% of product revenues.
In connection with most of its European sales, the Company prices its
products in the currencies of the country into which it is 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
F-7
<PAGE> 59
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 U.S. dollars would decline.
Foreign Currency Transactions and Contracts
Foreign exchange transaction gains (losses) included in the Consolidated
Statements of Operations in 1996, 1995 and 1994 were ($362,000), $371,000 and
$272,000, respectively.
The Company 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. The Company 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. At present, 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 foreign exchange gains and
losses. There can be no assurance that significant gains or losses will not be
incurred in the future.
At December 31, 1996 and 1995, the Company had forward exchange contracts
outstanding of $17.9 million and $11.4 million, respectively. These contracts
have maturities that do not exceed one year, and gains/losses resulting from
these contracts were not material.
The Company does not hedge any balance sheet exposure of its foreign
subsidiaries.
Research and Development
Expenditures for research and development, including costs related to
contract and collaborative agreements and technology defense costs, are charged
to operations as incurred.
Net Loss per Share
Beginning on April 1, 1994, net loss per share is computed using the
weighted average number of shares of common stock outstanding. Common equivalent
shares from stock options and warrants are excluded from the computation as
their effect is antidilutive. Prior to April 1, 1994, pursuant to the Securities
and Exchange Commission Staff Accounting Bulletins and Staff Policy, common and
common equivalent shares issued during the 12-month period prior to the initial
public offering at prices below the public offering price are presumed to have
been issued in contemplation of the public offering, even if antidilutive, and
have been included in the calculation as if they were outstanding for all
periods presented (using the treasury stock method and the initial public
offering price for common stock, stock options and warrants and the as converted
method for convertible preferred stock).
Cash and Cash Equivalents
Cash and cash equivalents represent highly liquid debt instruments with a
maturity of three months or less when purchased.
Fair Value of Financial Instruments
FASB Statement No. 107, "Disclosure about Fair Value of Financial
Instruments," requires disclosures of fair value information about financial
instruments for which it is practicable to estimate that value. The Company's
financial instruments consist principally of cash and cash equivalents,
marketable securities,
F-8
<PAGE> 60
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounts receivable, forward contracts, short-term borrowings, accounts payable
and long-term obligations. The Company believes all of the financial
instruments' recorded values approximate current values.
NOTE 2. MARKETABLE SECURITIES
Management determines the appropriate classification of debt securities at
the time of purchase and re-evaluates such designation as of each balance sheet
date. Available-for-sale securities are carried at fair value, adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Realized gains and losses and
declines in value judged to be other than temporary are included in income. At
December 31, 1996 and 1995, aggregate amortized cost of marketable securities
approximates their aggregate fair value (based on dealer quotations).
The following is a summary of the amortized cost of available-for-sale
marketable securities, which approximates estimated fair value:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
----------- ----------
<S> <C> <C>
Corporate securities....................................... $ 9,421,000 $4,897,000
U.S. government agency securities.......................... 7,007,000 --
U.S. government securities................................. 1,995,000 --
Other debt securities...................................... 2,000,000 944,000
----------- ----------
Total marketable securities................................ $20,423,000 $5,841,000
=========== ==========
</TABLE>
The following is a summary of the amortized cost, which approximates
estimated fair value of marketable securities available for sale, by contractual
maturity:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
----------- ----------
<S> <C> <C>
Due in one year or less.................................... $13,517,000 $4,897,000
Due after one year through three years..................... 6,906,000 944,000
----------- ----------
Total marketable securities................................ $20,423,000 $5,841,000
=========== ==========
</TABLE>
At December 31, 1996 and 1995, $0 and approximately $5,841,000,
respectively, of marketable securities were held and managed by an affiliate of
Warburg, Pincus Investors, L.P. ("WPI"), a beneficial owner of more than 5% of
the Company's common stock.
NOTE 3. INVENTORIES
Raw materials, work in process and finished goods inventories are recorded
at the lower of cost or market, based on currently adjusted standard costs,
which approximates cost on a first-in, first-out basis.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
----------- ----------
<S> <C> <C>
Finished goods............................................. $ 4,092,000 $2,804,000
Work in process............................................ 8,358,000 4,846,000
Raw materials.............................................. 3,179,000 1,819,000
----------- ----------
Total inventories.......................................... $15,629,000 $9,469,000
=========== ==========
</TABLE>
F-9
<PAGE> 61
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Laboratory and manufacturing equipment.................. $ 13,060,000 $ 7,536,000
Office furniture and equipment.......................... 8,991,000 4,859,000
Capitalized leased equipment............................ 21,027,000 20,891,000
Leasehold improvements.................................. 27,335,000 25,586,000
Construction-in-progress................................ 524,000 1,251,000
------------ ------------
70,937,000 60,123,000
Less accumulated depreciation and amortization.......... (26,977,000) (17,122,000)
------------ ------------
Net equipment and leasehold improvements................ $ 43,960,000 $ 43,001,000
============ ============
</TABLE>
NOTE 5. INVESTMENT IN LIFE SCIENCE ENTERPRISE
At December 31, 1996, the Company recorded a $1,241,000 write-down to an
investment in a biotechnology company accounted for under the cost method due to
a permanent decline in value.
NOTE 6. PURCHASED TECHNOLOGY
In 1992, the Company and Vical, Incorporated ("Vical") entered into an
agreement under which the Company purchased (for $3,000,000) exclusive rights to
develop applications of Vical's lipid conjugate technology for a limited number
of applications. This agreement was expanded in 1993 (for an additional
$1,500,000) to grant the Company exclusive rights to Vical's entire portfolio of
lipid conjugate technologies for all potential therapeutic applications. The
cost of such base-core technology has been capitalized and is included in
purchased technology on the accompanying Consolidated Balance Sheets. Prior to
January 1, 1995, the Company amortized the technology over the estimated life of
the related patents. Effective January 1, 1995, the Company began amortizing the
remaining value of the technology over a four-year period. The Company evaluates
the carrying amount of the technology for impairment at least quarterly by,
among other things, reviewing the status of applicable ongoing development
activities, as well as the progress of patent applications and issuances.
NOTE 7. OTHER ACCRUED EXPENSES
Other accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Commissions, distribution fees and royalties................ $2,346,000 $1,457,000
Other....................................................... 4,828,000 2,573,000
---------- ----------
Total other accrued expenses................................ $7,174,000 $4,030,000
========== ==========
</TABLE>
F-10
<PAGE> 62
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Term loan: 48 monthly installments through June 30, 2000;
interest payable monthly at LIBOR plus 1.50% or floating
prime rate of bank (7.125% at December 31, 1996)........ $ 8,750,000 $ --
Capital lease obligations: interest payable monthly at
6.89% to 12.43%......................................... 11,861,000 13,142,000
Other debt: monthly installments through 2000; secured by
equipment; interest payable monthly at 9.69% to
10.26%.................................................. 2,130,000 1,019,000
----------- -----------
Total long-term obligations............................... 22,741,000 14,161,000
Less current portion...................................... (7,535,000) (4,313,000)
----------- -----------
Long-term obligations due after one year.................. $15,206,000 $ 9,848,000
=========== ===========
</TABLE>
Maturities of all long-term obligations, including capital lease
obligations, due subsequent to December 31, 1996 are as follows:
$7,535,000 -- 1997; $6,895,000 -- 1998; $5,848,000 -- 1999; $1,994,000 -- 2000;
and $469,000 -- 2001. Cash paid for interest approximates interest expense.
In June 1996, the Company entered into a term loan agreement with a bank
for $10 million (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.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Leases
The Company has entered into three long-term noncancelable operating leases
and one long-term noncancelable operating sublease for office, research and
manufacturing facilities in Boulder, Colorado and two long-term lease agreements
for office, research and manufacturing facilities in San Dimas, California. The
five leases and one sublease contain the following terms:
<TABLE>
<CAPTION>
LOCATION TERMINATION DATE RENEWAL OPTIONS
-------- ---------------- ---------------
<S> <C> <C>
Boulder, CO October 2001 2 5-year terms
Boulder, CO November 2001 1 3-year term
Boulder, CO January 2002 2 7-year terms
Boulder, CO July 2003 N/A
San Dimas, CA November 2003 2 5-year terms
San Dimas, CA May 2003 2 5-year terms
</TABLE>
The Company has entered into certain sale-leaseback transactions and
related master equipment lease agreements for manufacturing equipment, general
laboratory and scientific equipment, office equipment, furniture and fixtures.
At December 31, 1996, $601,000 was available under such agreements. Title to
assets acquired under the lease lines of credit resides with the lessor. The
Company has the option to purchase the assets at the end of the lease term for
the fair market value. The leases have terms ranging from three to five years.
One of the master lease agreements required a security deposit of $5,476,000 to
be held by the lessor.
F-11
<PAGE> 63
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The agreement was amended in September 1995 and the security deposit was
returned to the Company. The interest rates on borrowings under these lease
lines of credit range between 6.89% and 12.43% per annum.
Rent expense for the years ended December 31, 1996, 1995 and 1994 was
approximately $3,485,000, $2,618,000 and $1,685,000, respectively.
Future minimum rental payments under noncancellable operating and capital
leases with initial or remaining terms of more than one year as of December 31,
1996 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING OPERATING CAPITAL
DECEMBER 31, LEASES LEASES
- ------------ ----------- -----------
<S> <C> <C> <C>
1997...................................................... $ 3,884,000 $ 5,112,000
1998...................................................... 3,175,000 4,189,000
1999...................................................... 2,847,000 2,791,000
2000...................................................... 2,626,000 611,000
2001...................................................... 2,353,000 486,000
Thereafter................................................ 3,221,000 --
----------- -----------
$18,106,000 13,189,000
===========
Less amount representing interest......................... (1,328,000)
-----------
Total capital lease obligations........................... 11,861,000
Less current portion...................................... (4,450,000)
-----------
Capital lease obligations due after one year.............. $ 7,411,000
===========
</TABLE>
Loan Receivable
The Company owns a 13.9% equity interest in Phytogen Life Sciences Inc.
("PLS"), a Canadian corporation incorporated in British Columbia. In June 1996,
the Company's holdings in connection with PLS were restructured. Pursuant to the
restructuring, the Company gave up its right to convert a Canadian $4,500,000
loan (the "Loan") (approximately $3,285,000 at the time of conversion and
approximately $3,348,000 at December 31, 1995), which it made to PLS, into a
49.9% interest in PLS, converted Canadian $968,784 (approximately $707,000 at
the time of conversion) of the Loan into 235,714 preference shares in PLS and
converted the Loan to a United States dollar-based loan. 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.
The face amount of the Loan at December 31, 1996 was $2,443,000 with an
outstanding allowance for loan loss of $1,737,000. On December 31, 1995, the
Company recorded an allowance for loan loss of $2,430,000 for the Loan and
ceased accruing interest.
Short-Term Borrowings
At December 31, 1996, the Company had a $10.0 million unsecured line of
credit with a domestic bank. The short-term borrowings outstanding at December
31, 1996 included borrowings under this line of credit. The Company's working
capital needs were fulfilled by borrowing under this line of credit agreement
and the terms and interest rate were similar to those generally extended to
companies of comparable creditworthiness. This line of credit was terminated
subsequent to December 31, 1996 (See Note 13).
In May 1996, the Company's Spanish subsidiary entered into an agreement to
borrow up to 500 million Spanish Pesetas (approximately $3.5 million) with such
borrowing being secured by the subsidiary's accounts receivable in Spain. In
February 1997, the agreement was amended to increase the amount that the
subsidiary may borrow up to 750 million Spanish Pesetas (approximately $5.2
million). In connection with the agreement, the Company is maintaining $2.0
million in an unrestricted account. As of December 31, 1996, the subsidiary had
borrowings of 338 million Pesetas (approximately $2.6 million on December 31,
1996) under
F-12
<PAGE> 64
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the agreement. The Company's Spanish subsidiary is required to repay the
borrowings under the agreement in May 1997.
The weighted average interest rates on short-term borrowings as of December
31, 1996 and 1995 were 8.13% and 8.50%, respectively.
Licenses and Royalties
The Company has entered into license agreements with various medical and
educational institutions to obtain certain exclusive and nonexclusive patent
rights for the purpose of developing, manufacturing and selling potential
products using these patented technologies. Under these agreements, the Company
will pay royalties at varying rates based upon levels of revenues from the
licensed products, as defined. Generally, the agreements continue as long as any
licensed patents remain in force.
In September 1996, the Company and Sumitomo Pharmaceuticals Co., Ltd.
("Sumitomo") entered into an agreement (the "Sumitomo License") pursuant to
which Sumitomo will develop and market AmBisome in Japan. Under the terms of the
Sumitomo License, Sumitomo paid the Company an initial $7.0 million licensing
fee (less withholding taxes of $700,000) in October 1996. Sumitomo also is
required to make additional payments to the Company if certain clinical and
commercial milestones are met and to pay the Company royalties on all Japanese
sales.
Patent Matters
On May 17, 1993, the Company filed a complaint in the United States
District Court for the District of Delaware asking the court to declare U.S.
Patent No. 4,880,635 (the "TLC '635 Patent") invalid, unenforceable and not
infringed following allegations by The Liposome Company ("TLC") that
freeze-dried 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. The stay was lifted on July 11, 1996 and an amended complaint was
filed by the Company on July 29, 1996. On August 16, 1996, TLC answered the
amended complaint and filed a counterclaim against the Company for damages and
an injunction based on infringement of the reexamined patent. On January 17,
1997, TLC filed an amended complaint asserting that the Company's method of
lyophilizing AmBisome also infringes U.S. Patent 5,578,320 (the "TLC '320
Patent") which was granted by the USPTO to TLC on November 26, 1996. The TLC
'635 Patent and the TLC '320 Patent (collectively, the "TLC Patents") cover
essentially the same subject matter. On February 26, 1997, the Company filed an
amended and supplemental complaint asserting antitrust and business tort actions
against TLC. The amended complaint states that TLC had fraudulently obtained the
TLC Patents by withholding information from, and intentionally misleading, the
USPTO and has attempted to use the TLC Patents in order to injure NeXstar
Pharmaceuticals and competition generally, including attempting to affect the
Company's proposed stock offering in June 1996. Trial for the TLC Patents is
currently scheduled for October 1997.
In addition, the Company has opposed the grant to TLC of the European and
Japanese patents that are counterparts of the TLC Patents. The European
opposition is expected to be heard in the European Patent Office (the "EPO") in
the spring or summer of 1997. At the opposition hearing, the EPO will rule on
the validity of all of the European Union counterparts to the TLC Patents. TLC
initiated legal actions against the Company on October 18, 1996 in the Chancery
Division of the Patents Court in the United Kingdom, on November 4, 1996 in the
Regional Court of The Hague, The Netherlands and on October 18, 1996 in the
Regional Court -- Dusseldorf in Germany for alleged infringement of the
respective national counterparts to the TLC Patents. In connection with each
suit, TLC is seeking an injunction and damages. The Company anticipates that TLC
may bring additional actions against the Company in connection with its other
European
F-13
<PAGE> 65
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
counterparts to the TLC Patents and, even if the EPO determines that the
European counterparts to the TLC Patents are invalid, TLC may pursue its
European patent suits pending an appeal of the EPO's decision.
The Company does not believe that the TLC Patents present a material risk
to the Company nor, based on factors currently known, does the Company believe
that the legal proceedings involving TLC will have a material adverse effect on
the financial position of the Company. However, no assurance can be given at
this time. If the U.S. or a European court were to determine that the TLC '635
Patent or the TLC '320 Patent or one of their European counterparts, as
applicable, is both valid and infringed as a result of the freeze-drying of
AmBisome, the Company could be enjoined from using its current method of
manufacturing and/or could be required to pay damages in connection with sales
in the applicable country or countries. In such event, the Company could
experience substantial 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.
Legal Proceedings Generally
In addition to the legal proceedings involving TLC, the Company is
involved, from time to time, in legal proceedings arising in the ordinary course
of its business. In the opinion of management, none of these matters, based on
factors currently known to management, is expected to have a material adverse
effect on the financial position of the Company.
Accrued Retirement Agreement Expense
Results for the year ended December 31, 1994 were impacted by a charge to
earnings of $4,097,000 as a result of an agreement with Dr. Roger Crossley who
retired on May 25, 1994 as the President and Chief Executive Officer of Vestar.
Vestar and Dr. Crossley entered into an agreement effective May 25, 1994, in
connection with his retirement (the "Agreement"). Under the terms of the
Agreement, during 1995 Dr. Crossley was paid approximately $2.1 million in
connection with his sale of certain shares of the Company's Common Stock. Such
payment related to a guarantee that in the event that prior to May 25, 1997 he
sold certain shares of the Company's Common Stock which he owned at a price less
than $15.772 per share, the Company would pay him the difference between the
sales price and $15.772 per share. During June and July 1995, Dr. Crossley sold
all but 44,000 of the shares covered by the Agreement. In March 1996, he sold
the remaining 44,000 shares covered by the Agreement at no cost to the Company.
The Company accounted for its liability to Dr. Crossley in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" and related Interpretations ("APB 25"). Because of the price
guarantee of $15.772 per share, the Company recorded compensation expense at
December 31, 1994 based on the amount the Company would have been required to
pay Dr. Crossley based on the market value of the Company's Common Stock at
December 31, 1994. In accordance with APB 25, following the $2.1 million payment
to Dr. Crossley, the Company transferred $1.7 million from accrued retirement
agreement expenses to additional paid-in capital.
NOTE 10. STOCKHOLDERS' EQUITY
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
F-14
<PAGE> 66
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
On December 22, 1995, the Company sold 297,619 shares of its common stock
in a private offering for $5 million ($16.80 per share).
In February 1994, the Company completed an initial public offering of its
common stock, whereby 2,000,000 shares of the Company's common stock were sold
at $11.50 per share, resulting in net proceeds of approximately $20,617,000.
As a result of the Company's initial public offering, all preferred shares
outstanding (excluding preferred shares issuable upon exercise of outstanding
warrants), including the Series B preferred shares held by WPI, a beneficial
owner of more than 5% of the Company's common stock, automatically converted
into an aggregate of 5,655,396 shares of common stock upon consummation of the
offering.
On November 19, 1993, the Company's Board of Directors approved the
conversion of the Company's Series B redeemable preferred stock into common
stock in connection with any public offering by the Company. The Series B
redeemable preferred stock was converted by dividing $4,000,000 by $11.50, the
price per share in the Company's public offering, with the holder waiving rights
to any dividends. In connection with the initial public offering, the Series B
stockholder, WPI, transferred to Lawrence M. Gold, the Chairman of the Company,
approximately 28% of the shares of common stock WPI acquired as a result of the
conversion in consideration for the termination of certain of his rights. At the
time of the transfer, the Company recorded non-cash compensation expense and a
corresponding credit to additional paid-in capital equal to the fair value of
the shares transferred (approximately $1,120,000).
Warrants
Common stock warrant activity was as follows:
<TABLE>
<CAPTION>
RANGE OF SHARES EXPIRATION
WARRANTS EXERCISE PRICES RESERVED DATE
--------- --------------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1995.......... 1,431,774 $4.09 - $32.54 1,431,774 1996 - 2003
Granted............................... 50,000 $15.00 50,000 2003
Exercised............................. (257,100) $4.83 - $11.21 (257,100) 1998 - 2003
Expired............................... (6,301) $11.21 (6,301) 1996
--------- ---------
Outstanding, December 31, 1996.......... 1,218,373 1,218,373
========= =========
</TABLE>
In 1990, the Company issued to Warburg, Pincus Capital Partners, L.P.
("WPCP"), a beneficial owner of more than 5% of the Company's common stock, a
warrant to purchase 220,000 shares of common stock with a purchase price of
$4.09 per share in connection with the issuance of a letter of credit on behalf
of the Company, which has expired. In April 1995, the warrant was exercised for
40,000 shares of common stock and the warrant expired for the remaining 180,000
shares of common stock. In addition, WPCP has a warrant to purchase 1,035,294 of
the Company's common stock at an exercise price of $4.83 per share, which was
issued in 1990 in connection with the sale of certain equity securities of the
Company. In April 1995, WPCP's warrant was amended to change the expiration date
to December 31, 1997.
Registration Rights
Under certain circumstances, the Company's common stockholders and holders
of warrants to purchase common stock of the Company may require a registration
of the outstanding common shares or the shares underlying warrants, the cost of
which would be borne by the Company.
F-15
<PAGE> 67
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Options and Stock-Based Compensation
On February 8, 1993, the Company adopted the 1993 Incentive Stock Plan (the
"1993 Plan") for employees, directors, and consultants of NeXstar
Pharmaceuticals which provides for the sale of shares or the issuance of
incentive and nonstatutory stock options of up to 2,404,847 shares of common
stock. Options issued under the 1993 Plan are exercisable under conditions as
determined by the Board of Directors, with the term of each option being a
maximum of ten years from the date of grant. The Company has reserved 2,404,847
shares of its authorized common stock under its 1993 Plan.
During the year ended December 31, 1996, the Company granted options to
purchase 72,500 shares of common stock under the 1993 Plan to executive officers
of the Company. Options granted prior to November 1993 vest 20% immediately and
20% on the grant date anniversary each year thereafter for four years. Options
granted after October 1993 generally vest 25% on each anniversary date of the
four years following the grant date. The option exercise prices range from $0.69
to $25.00 per share.
The Company has reserved for issuance 1,204,904 shares of its common stock
to allow for the exercise of options under its 1988 Stock Option Plan (the "1988
Plan"). Options granted under the 1988 Plan are exercisable upon conditions
determined by the Board of Directors of the Company, and expire no later than
ten years from the date of grant. The Company does not intend to issue
additional options under the 1988 Plan.
On July 25, 1995, the Company adopted the 1995 Director Option Plan (the
"Director Plan"). Under the Director Plan, each outside director of the Company
is entitled to receive an option for 10,000 shares of the Company's common stock
on the later of the effective date of the Director Plan or the date on which
such person first becomes an outside director. In addition, each outside
director who has served on the Board of Directors for at least six months
automatically is entitled to receive an option grant for 5,000 shares on the
last business day prior to each annual meeting of stockholders of the Company.
The options have a term of ten years, an exercise price equal to 100% of the
fair market value of the common stock on the date of grant and vest 50% on each
anniversary date of the two years following the grant date. Options for up to
500,000 shares of common stock may be issued under the Director Plan. In 1996
and 1995, options for 15,000 and 30,000 shares, respectively, were issued to
three outside directors.
F-16
<PAGE> 68
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock option activity was as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF EXERCISE
OPTIONS EXERCISE PRICES PRICE
--------- --------------- --------
<S> <C> <C> <C>
Outstanding, December 31, 1993........................ 1,618,225 $ 0.69 - $18.47 $ 6.49
Granted............................................. 574,330 $ 5.54 - $ 9.00 $ 8.90
Exercised........................................... (161,084) $ 1.12 - $ 3.55 $ 3.26
Forfeited........................................... (80,699) $ 2.56 - $17.33 $10.76
---------
Outstanding, December 31, 1994........................ 1,950,772 $ 0.69 - $18.47 $ 7.29
Granted............................................. 783,640 $ 5.65 - $16.50 $13.79
Exercised........................................... (249,980) $ 0.69 - $13.92 $ 3.92
Forfeited........................................... (294,098) $ 0.69 - $15.91 $ 8.74
---------
Outstanding, December 31, 1995........................ 2,190,334 $ 0.69 - $18.47 $ 9.80
Granted............................................. 654,300 $15.00 - $25.00 $19.20
Exercised........................................... (290,615) $ 0.69 - $18.47 $ 5.43
Forfeited........................................... (130,385) $ 1.12 - $25.00 $17.91
---------
Outstanding, December 31, 1996........................ 2,423,634 $ 0.69 - $25.00 $12.43
=========
Exercisable, December 31, 1994........................ 1,020,853 $ 6.98
Exercisable, December 31, 1995........................ 997,798 $ 7.89
Exercisable, December 31, 1996........................ 1,090,662 $ 8.75
Weighted-average fair value of options granted during
1995................................................ $ 8.02
Weighted-average fair value of options granted during
1996................................................ $12.05
</TABLE>
The options outstanding at December 31, 1996 have been segregated into
ranges for additional disclosure as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- -------------------------
WEIGHTED
OPTIONS AVERAGE WEIGHTED OPTIONS WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1996 LIFE IN YEARS PRICE 1996 PRICE
- --------------- -------------- ------------- -------- -------------- --------
<C> <C> <C> <C> <C> <C>
$ 0.69 - $ 7.96 613,240 4.09 $ 4.06 441,148 $ 3.77
$ 8.38 - $14.75 1,074,114 5.99 $12.61 583,059 $11.73
$14.77 - $23.00 619,280 6.54 $16.88 66,455 $15.60
$23.75 - $25.00 117,000 7.53 $24.42 -- --
--------- ---------
$ 0.69 - $25.00 2,423,634 5.72 $12.11 1,090,662 $ 8.75
========= =========
</TABLE>
At December 31, 1996, options for 1,073,925 shares were available for
future grants.
The Company has elected to follow APB 25 in accounting for its employee
stock options because, as discussed below, the alternative fair value accounting
provided for under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("Statement No. 123") requires use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Statement No. 123 requires disclosure of pro forma net income and pro forma
earnings per share determined as if the Company has accounted for its employee
stock options granted subsequent to
F-17
<PAGE> 69
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994 under the fair value method of Statement No. 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996
and 1995, respectively: risk-free interest rates of 5.49% and 5.51%; a dividend
yield of 0%; volatility factors of the expected market price of the Company's
common stock of .7240 and .6206; and an expected life of the option after
vesting date of 1.23 years and 0.90 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Pro forma net loss.................................... $(26,080,000) $(37,269,000)
Pro forma net loss per share.......................... $ (1.00) $ (1.59)
</TABLE>
Because Statement No. 123 is applicable only to options granted subsequent
to December 31, 1994, its pro forma effect will not be fully reflected until the
fiscal year ended December 31, 1998.
As a result of nonstatutory stock options granted to consultants in 1996,
the Company recorded deferred compensation of $301,000, which is being amortized
over a period of four years. The Company recognized $51,000 as a non-cash charge
to earnings during 1996 as a result of this amortization.
As a result of compensatory stock issuances and option grants in 1993, the
Company recorded deferred compensation, non-cash charges to earnings and a
credit for additional paid-in capital of $470,000, $319,000 and $789,000,
respectively. The Company is amortizing the deferred compensation over a period
of four years.
Restrictions on Payment of Dividends
One of the Company's outstanding debt agreements does not permit the
Company to pay dividends in cash during the term of the agreement. In addition,
another of the Company's debt agreements requires the Company to maintain
certain financial ratios and levels of cash which may have the effect of
limiting the Company's ability to pay dividends.
NOTE 11. EMPLOYEE BENEFIT PLANS
Employee Stock Purchase Plan
On June 9, 1994, the Company adopted an employee stock purchase plan (the
"Stock Purchase Plan") with an effective date of August 1, 1994, under Internal
Revenue Code Section 423, which provides for the sale to employees of up to
500,000 shares of common stock. The Company has reserved 500,000 shares of its
authorized common stock in connection with the Stock Purchase Plan. Employees
who work at least twenty hours per week and at least five months per calendar
year may participate. The granting of rights to purchase common stock of the
Company shall be determined by the Board of Directors. As of December 31, 1996,
a total of 110,966 shares were purchased at prices per share from $4.78 to
$15.30, which represented 85% of the fair market value of the common stock on
the lower of the offering date or the date of exercise. Expenses associated with
the Stock Purchase Plan are not material.
F-18
<PAGE> 70
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Purchase Plan activity was as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF EXERCISE
OPTIONS EXERCISE PRICES PRICE
------- --------------- --------
<S> <C> <C> <C>
Outstanding, December 31, 1993.................. -- -- --
Granted....................................... 6,009 $4.78 $4.78
Exercised..................................... (6,009) $4.78 $4.78
Outstanding, December 31, 1994.................. -- -- --
Granted....................................... 46,600 $4.78 - $7.23 $6.60
Exercised..................................... (46,600) $4.78 - $7.23 $6.60
Outstanding, December 31, 1995.................. -- -- --
Granted....................................... 58,357 $12.75 - $15.30 $13.85
Exercised..................................... (58,357) $12.75 - $15.30 $13.85
-------
Outstanding, December 31, 1996.................. -- -- --
=======
Weighted-average fair value of options granted
during 1995................................... $ 15.71
Weighted-average fair value of options granted
during 1996................................... $ 18.11
</TABLE>
Retirement Savings Plan
The Company maintains a retirement savings plan pursuant to which eligible
employees aged 21 or older may defer compensation for income tax purposes under
Section 401(k) of the Internal Revenue Code of 1986 (the "Savings Plan").
Employee contributions are discretionary, but are not to exceed 12% of eligible
annual compensation. The Savings Plan includes a Company match of 50% of
employee contributions up to a maximum of 6% of eligible annual compensation.
For the years ended December 31, 1996, 1995, and 1994, the Company recorded
expenses related to the Savings Plan of approximately $513,000, $160,000 and
$135,000, respectively. At December 31, 1996, approximately $1.5 million
representing 101,834 shares of the Company's common stock, was held by the
Savings Plan in trust for plan participants. Additional contributions of Company
stock are not allowed under the Savings Plan.
NOTE 12. INCOME TAXES
For financial reporting purposes, loss before income taxes includes the
following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Pretax loss:
United States.............................. $(20,890,000) $(35,128,000) $(14,543,000)
Foreign.................................... (1,165,000) (1,320,000) (1,505,000)
------------ ------------ ------------
$(22,055,000) $(36,448,000) $(16,048,000)
============ ============ ============
</TABLE>
F-19
<PAGE> 71
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The current provision for income taxes includes the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Federal income taxes................................. $ -- $ -- $ 16,000
State income taxes................................... -- -- --
Foreign income taxes................................. 926,000 183,000 143,000
-------- -------- --------
$926,000 $183,000 $159,000
======== ======== ========
</TABLE>
The difference between the Company's current provision for income taxes and
the federal statutory rate of 34% is reconciled as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
Statutory rate applied to loss before income
taxes...................................... $(7,499,000) $(12,392,000) $(5,565,000)
Tax effect of subsidiary losses without
benefit.................................... 396,000 296,000 144,000
Effect of foreign tax rates.................. 926,000 183,000 41,000
In-process purchased research and
development................................ -- 4,020,000 --
Merger-related costs not deductible for tax
purposes................................... -- 1,023,000 --
Net operating loss unused/(net of operating
loss carryforwards utilized)............... 5,276,000 6,470,000 4,525,000
Other........................................ 1,827,000 583,000 1,014,000
----------- ------------ -----------
$ 926,000 $ 183,000 $ 159,000
=========== ============ ===========
</TABLE>
At December 31, 1996, the Company had net operating loss and tax credit
carryforwards available to reduce future taxable income. Utilization of these
losses and credits may be subject to substantial annual limitations due to the
separate return limitation years ("SRLY") and ownership change limitations
provided by the Internal Revenue Code of 1986. The annual limitation may result
in the expiration of the net operating losses and credits before utilization.
Tax loss and tax credit carryforwards are as follows:
<TABLE>
<CAPTION>
FEDERAL STATE
--------------------------- ---------------------------
RESEARCH AND RESEARCH AND
NET DEVELOPMENT NET DEVELOPMENT
OPERATING AND OTHER OPERATING AND OTHER
EXPIRES DECEMBER 31, LOSS CREDITS LOSS CREDITS
-------------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
2002...................... $ 3,732,000 $ -- $ 3,636,000 $ --
2003...................... 6,442,000 -- 3,153,000 --
2004...................... 7,287,000 -- 3,646,000 --
2005...................... 6,815,000 -- 3,717,000 --
2006...................... 2,943,000 -- 2,943,000 --
2007...................... 8,002,000 463,000 8,002,000 --
2008...................... 14,857,000 4,669,000 12,403,000 1,431,000
2009...................... 5,284,000 710,000 5,391,000 6,000
2010...................... 15,803,000 517,000 6,564,000 371,000
2011...................... 15,519,000 1,391,000 10,702,000 500,000
----------- ---------- ----------- ----------
$86,684,000 $7,750,000 $60,157,000 $2,308,000
=========== ========== =========== ==========
</TABLE>
F-20
<PAGE> 72
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the Company's deferred tax asset and related valuation
allowance as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
------------ -----------
<S> <C> <C>
Net operating loss carryforwards
Federal.............................................. $ 29,473,000 $26,295,000
State................................................ 1,985,000 1,811,000
Tax credit carryforwards
Federal.............................................. 7,750,000 6,379,000
State................................................ 2,308,000 1,513,000
Other -- net.......................................... 7,266,000 3,846,000
------------ -----------
48,782,000 39,844,000
Valuation allowance.................................... (48,782,000) (39,844,000)
------------ -----------
Deferred tax asset recognized.......................... $ -- $ --
============ ===========
</TABLE>
NOTE 13. SUBSEQUENT EVENTS
In February 1997, the Company entered into an agreement with its European
toll manufacturer to acquire for one million Irish Punts (approximately $1.6
million) the Dublin, Ireland facilities at which the toll manufacturer is
providing quality control testing, final labeling and packaging for the
Company's products in Europe. The Company anticipates acquiring the facilities
in the third quarter of 1997.
In March 1997, the Company substantially restructured its bank financing by
(a) terminating an unsecured line of credit pursuant to which it had a right to
borrow up to $10 million, (b) entering into a credit agreement pursuant to which
the Company and certain of its subsidiaries may borrow up to $15 million with
the borrowings being collateralized by certain of the non-U.S. accounts
receivable of the Company and the subsidiaries and (c) entering into a revolving
line of credit (the "Credit Line") pursuant to which the Company may borrow up
to $15 million. An affiliate of WPI, a beneficial owner of more than 5% of the
Company's common stock, is a guarantor of the Credit Line in return for WPI's
receipt of a warrant to acquire 125,000 shares of the Company's common stock at
a purchase price of $12.50 per share.
F-21
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of October 30,
1994, among the Registrant, Neptune Merger-Sub Corp. and
Vestar, Inc.(1).
2.2 -- Agreement and Plan of Merger, dated as of August 29,
1995, among the Registrant, Supra-Sub Merger Corp. and
Supragen, Inc.(2).
3.1 -- Second Amended and Restated Certificate of Incorporation
of the Registrant(3).
3.2 -- Amended and Restated Bylaws of the Registrant(4).
4.1 -- Second Amended and Restated Certificate of Incorporation
of the Registrant (filed as Exhibit 3.1 to this Report).
4.2 -- Form of Common Stock certificate of the Registrant(4).
10.1 -- License Agreement between University Research Corporation
and the Registrant, effective as of July 17, 1991, as
amended on October 26, 1992(5).
10.2 -- Amendment No. 2, effective April 5, 1996, and Amendment
No. 3, dated September 5, 1996, to the License Agreement
between University Research Corporation and the
Registrant, effective as of July 17, 1991, as amended on
October 26, 1992.
10.3 -- Stock Purchase Agreement among the Registrant, Warburg,
Pincus Investors, L.P., University Research Corporation
and Lawrence M. Gold, dated as of July 17, 1991, as
amended on December 4, 1992, and as amended by letter
agreement on November 19, 1993(5).
10.4 -- Employment Agreement, dated July 1, 1991, between the
Registrant and Lawrence M. Gold(5).
10.5 -- Letter Agreement, dated May 1, 1992, between the
Registrant and Patrick J. Mahaffy(5).
10.6 -- Master Equipment Lease Agreement between MMC/GATX
Partnership No. 1 and the Registrant, dated as of
November 23, 1992(5).
10.7 -- Research and License Agreement between Eli Lilly and
Company and the Registrant, effective as of September 15,
1992, and Amendment No. 1 thereto dated as of April 1,
1994(4).
10.8 -- Stock Purchase Agreement among the Registrant, Eli Lilly
and Company and Warburg, Pincus Investors, L.P., dated as
of September 15, 1992(5).
10.9 -- Supplement to Stock Purchase Agreement among the
Registrant, Eli Lilly and Company, Warburg, Pincus
Investors, L.P. and certain additional investors, dated
as of September 30, 1992(5).
10.10 -- Second Supplement to Stock Purchase Agreement among the
Company, Accel III, L.P., Accel Japan L.P., Accel
Investors '92 L.P., New Enterprise Associates V Limited
Partnership, Ven Sed I, Eli Lilly and Company and
Warburg, Pincus Investors, L.P., dated as of December 4,
1992(5).
10.11 -- Collaborative Research Agreement between the Registrant
and Becton, Dickinson and Company, dated as of May 28,
1993(5).
10.12 -- License Agreement between the Registrant and Becton,
Dickinson and Company, dated as of May 28, 1993(5).
10.13 -- Amendment to the Collaborative Research Agreement and
License Agreement, effective as of June 1, 1995, between
the Registrant and Becton, Dickinson and Company(6).
10.14 -- Collaborative Research Agreement between the Registrant
and Schering A.G., dated as of November 16, 1993(5).
</TABLE>
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.15 -- Letter Agreement between the Registrant and Schering
A.G., effective February 1, 1997, amending the
Collaborative Research Agreement between the Registrant
and Schering A.G., dated as of November 16, 1993.
10.16 -- License Agreement between the Registrant and Schering
A.G., dated as of November 16, 1993(5).
10.17 -- Master Equipment Lease Agreement between Phoenix Leasing
Incorporated and the Registrant, dated November 15,
1993(5).
10.18 -- Master Lease Agreement between USL Capital Corporation
and the Registrant, dated as of November 9, 1995(7).
10.19 -- Letter Agreement, dated January 24, 1994, between Eli
Lilly and Company and the Registrant(5).
10.20 -- Common Stock Purchase Warrant issued to Warburg, Pincus
Capital Partners, L.P., dated May 11, 1990(8).
10.21 -- Letter Agreement, dated April 20, 1995, between Warburg,
Pincus Capital Partners, L.P. and the Registrant
regarding amendments to warrants held by Warburg, Pincus
Capital Partners, L.P.(9).
10.22 -- Vestar, Inc. 401(k) Retirement Savings Plan and Trust,
Amendment No. 1 thereto and the related adoption
agreement thereto, dated March 27, 1995(4).
10.23 -- Supragen, Inc. 401(k) Profit Sharing Plan and Adoption
Agreement(2).
10.24 -- Registrant's 401(k) Retirement Savings Plan, effective
January 1, 1996, and related adoption agreement(10).
10.25 -- Adoption Agreement of the NeXagen, Inc. 401(k) Retirement
Plan, dated January 1, 1993(5).
10.26 -- NeXagen, Inc. 1993 Incentive Stock Plan, adopted February
8, 1993, as amended(2).
10.27 -- Amendment No. 4 to NeXagen, Inc. 1993 Incentive Stock
Plan, adopted February 8, 1993(3).
10.28 -- Registrant's 1995 Director Option Plan, adopted July 25,
1995(2).
10.29 -- Vestar, Inc. 1988 Stock Option Plan(4).
10.30 -- Registrant's 1994 Employee Stock Purchase Plan, adopted
June 9, 1994(4).
10.31 -- Amendment No. 1 to Registrant's 1994 Employee Stock
Purchase Plan, adopted June 9, 1994(3).
10.32 -- Lease, dated March 26, 1987, between Vestar, Inc. and
Majestic Realty Co. and Patrician Associates, Inc. and
Amendment No. 1 thereto and Amendment No. 2 thereto,
dated as of June 8, 1992(4).
10.33 -- Third Amendment, dated January 11, 1996, between Majestic
Realty Co. and Patrician Associates, Inc. and the
Registrant, to Lease, dated March 26, 1987, between
Vestar, Inc. and Majestic Realty Co. and Patrician
Associates, Inc.(7).
10.34 -- Agreement, dated January 6, 1993, between Vestar, Inc.
and Vical Incorporated(7).
10.35 -- Assignment and Royalty Agreement, dated December 21,
1990, effective as of June 2, 1989, between Vestar, Inc.
and City of Hope National Medical Center(8).
10.36 -- License Agreement, effective as of August 12, 1986,
between Vestar, Inc. and The Regents of the University of
California(7).
10.37 -- Agreement by and between Fujisawa USA, Inc. and Vestar,
Inc., dated August 9, 1991, and Amendment No 1 thereto,
dated as of May 17, 1994(4).
</TABLE>
<PAGE> 75
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.38 -- Amendment No 2 to agreement between Fujisawa USA, Inc.
and Vestar, Inc., dated as of April 3, 1995, between
Fujisawa USA, Inc. and Vestar, Inc. (9) [Part of this
document has been redacted for purposes of
confidentiality pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934, as amended].
10.39 -- Amendment No. 3 to Agreement between Fujisawa USA, Inc.
and the Registrant, dated March 4, 1996, to the Agreement
by and between Fujisawa USA, Inc. and Vestar, Inc., dated
August 9, 1991(7).
10.40 -- Lease, dated April 13, 1992, between Vestar, Inc. and
Majestic Realty Co. and Patrician Associates, Inc.(4).
10.41 -- First Amendment to Lease, dated April 10, 1993, between
Majestic Realty Co. and Patrician Associates, Inc. and
Vestar, Inc. amending Lease, dated April 13, 1992,
between Majestic Realty Co. and Patrician Associates,
Inc. and Vestar, Inc.(7).
10.42 -- Master Lease Agreement, dated June 29, 1994, between
Vestar, Inc. and Comdisco, Inc.(4).
10.43 -- Lease Agreement, dated September 28, 1994, between the
Registrant and Deane Investment Co., Ltd.(4).
10.44 -- License Agreement, dated December 23, 1992, between
Supragen, Inc. and National Jewish Center for Immunology
and Respiratory Medicine, as amended(2).
10.45 -- Employment Agreement, dated November 4, 1994, between
Supragen, Inc. and Michael T. Burke(2).
10.46 -- Royalty Agreement, dated October 30, 1995, between the
Registrant and Amplimed Corporation(7).
10.47 -- Pharmaceutical Pricing Agreement between the Secretary of
Veterans Affairs and the Registrant, dated April 30,
1996(11).
10.48 -- Master Agreement between Secretary of Veterans Affairs
and the Registrant, dated April 30, 1996(11).
10.49 -- Pharmaceutical Pricing Agreement between the Secretary of
Health and Human Services and the Registrant, dated April
30, 1996(11).
10.50 -- Rebate Agreement between the Secretary of Health and
Human Services and the Registrant, dated April 30,
1996(11).
10.51 -- Industrial Real Estate Lease, dated July 1, 1996, by and
between Wilderness Place, Ltd. and the Registrant(12).
10.52 -- Loan Agreement, dated as of June 28, 1996, by and between
the Registrant and The Sumitomo Bank, Limited(12).
10.53 -- Sublease Agreement, dated July 31, 1996, between Sybase,
Inc. and the Registrant(13).
10.54 -- Lease Agreement, dated November 6, 1996, between Avalon
Investment Company and the Registrant(13).
10.55 -- Commercial Factoring Agreement between Santander de
Factoring, S.A. and NeXstar Farmaceutica, S.A., entered
into on May 21, 1996, as amended.
10.56 -- License and Distribution Agreement, dated September 26,
1997, by and between Sumitomo Pharmaceuticals Co., Ltd.
and the Registrant. [Part of the document has been
redacted for purposes of confidentiality pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as
amended.]
10.57 -- Credit Agreement, entered into as of March 24, 1997,
between Wells Fargo Bank (Colorado), National
Association, the Registrant and certain of the
Registrant's subsidiaries.
</TABLE>
<PAGE> 76
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.58 -- Securities Purchase Agreement among Warburg, Pincus
Capital Partners, L.P., Humana Inc. and Vestar, Inc.,
dated May 11, 1990.
11.1 -- Statement Re: Computation of Net Loss Per Share.
21.1 -- Subsidiaries of Registrant.
23.1 -- Consent of Independent Auditors.
27.1 -- Financial Data Schedule.
</TABLE>
(1) Previously filed on January 26, 1995, as Annex A to the Registration
Statement on Form S-4 (File No. 33-88786), which exhibit is incorporated by
reference herein.
(2) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
Registrant for the quarterly period ended September 30, 1995, and
incorporated by reference herein.
(3) Previously filed in the Exhibits to the Registration Statement on Form S-3
(File No. 333-04653), declared effective by the Securities and Exchange
Commission on June 19, 1996, which exhibit is incorporated by reference
herein.
(4) Previously filed in the Exhibits to Form 10-K (File No. 0-23012) for the
Registrant for the fiscal year ended December 31, 1994, and incorporated by
reference herein.
(5) Previously filed in the Exhibits to the Registration Statement on Form S-1
(File No. 33-72142), declared effective by the Securities and Exchange
Commission on January 28, 1994, which exhibit is incorporated by reference
herein.
(6) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
Registrant for the quarterly period ended June 30, 1995, and incorporated
by reference herein.
(7) Previously filed in the Exhibits to Form 10-K (File No. 0-23012) for the
Registrant for the fiscal year ended December 31, 1995, and incorporated by
reference herein.
(8) Previously filed, on March 22, 1991, in the Exhibits to the Registration
Statement on Form S-2 (File No. 33-39549), which exhibit is incorporated by
reference herein.
(9) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
Registrant for the quarterly period ended March 31, 1995, and incorporated
by reference herein.
(10) Previously filed in the Exhibits to the Registration Statement on Form S-3
(File No. 333-00758) declared effective by the Securities and Exchange
Commission on February 9, 1996, which exhibit is incorporated by reference
herein.
(11) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
Registrant for the quarterly period ended March 31, 1996, and incorporated
by reference herein.
(12) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
Registrant for the quarterly period ended June 30, 1996, and incorporated
by reference herein.
(13) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
Registrant for the quarterly period ended September 30, 1996, and
incorporated by reference herein.
<PAGE> 1
EXHIBIT 10.2
AMENDMENT NO. 2
TO
LICENSE AGREEMENT
This Amendment is made to the License Agreement dated July 17, 1991
between UNIVERSITY RESEARCH CORPORATION ("URC") and NEXAGEN, INC. ("Licensee").
Capitalized terms in this Amendment shall have the meanings set forth in the
License Agreement. URC and Licensee hereby agree that Sections 2.8 and 2.9 are
hereby added to the License Agreement and that Sections 5.2 and 6.1 of the
License Agreement are hereby amended and restated in their entirety as
follows:
2.8 "License Fees" means payments made by sublicensees to Licensee
in connection with any sublicense that are consideration for granting
the rights in such sublicense and are not royalties on Net Sales,
advances against royalties on future Net Sales, or Milestone Payments.
2.9 "Milestone Payments" means payments made by sublicensees to
Licensee in connection with any sublicense that are paid upon the
occurrence of specified research, development, or clinical events.
5.2 (a) Licensee shall pay URC earned royalties on Net Sales by
non-Affiliate sublicensees equal to Fifteen Percent (15%) of any earned
royalties received by Licensee from the sublicensee with respect to such
Net Sales. In the event of sublicenses providing for multiple earned
royalty rates (e.g., for different products or as a result of a sliding
scale), the earned royalty payable to URC shall be calculated on the
basis of the royalties actually received by Licensee from such
sublicensee during each calendar quarter reporting period.
(b) Licensee shall pay URC earned royalties equal to Five
Percent (5%) of any advances received by Licensee from sublicensees that
are credited against royalties on future Net Sales, and Licensee shall
have no additional liability to URC when royalties are credited on such
future Net Sales.
(c) Licensee shall pay URC earned royalties equal to Five
Percent (5%) of any License Fees received by Licensee from sublicensees.
(d) Licensee shall pay URC earned royalties equal to Five
Percent (5%) of any Milestone Payments received by Licensee from
sublicensees that are credited against royalties on future Net Sales,
and Licensee shall
<PAGE> 2
have no additional liability to URC when royalties are credited on such
future Net Sales.
(e) Licensee shall have no obligation to pay URC any
percentage of any Milestone Payments received by Licensee that are not
credited against royalties on future Net Sales.
6.1 Quarterly Royalty Payments and Report. Commencing with the
calendar quarter ending March 31, 1992, Licensee shall make written
reports and, to the extent such reports reflect Net Sales, License Fees,
or Milestone Payments, royalty payments to URC within ninety (90) days
after the end of each calendar quarter. If Net Sales, License Fees, or
Milestone Payments were recorded during the quarter, this report shall
state the number, description, and aggregate Net Sales of Licensed
Product(s) during such completed calendar quarter, the amount of any
License Fees, the amount of any Milestone Payments, and the resulting
calculation pursuant to Section 5 above of earned royalty payments due
URC for such completed calendar quarter. Concurrent with the making of
such report, Licensee shall include payments due URC of royalties for
the calendar quarter covered by such report.
Except as so amended, all other terms and conditions of the License
Agreement shall remain in full force and effect. This Amendment is executed to
be effective as to all sublicense agreements entered into on, before, or after
this date.
NEXAGEN, INC. UNIVERSITY RESEARCH CORPORATION
By: /s/ PATRICK J. MAHAFFY By: JOHN P. HOLLOWAY
----------------------- --------------------------
Patrick J. Mahaffy John P. Holloway
President and Chief President
Executive officer
Date: 3/30/94 Date: 4/5/94
----------------------- -----------------------
ACCEPTED AND APPROVED:
UNIVERSITY OF COLORADO
FOUNDATION INC.
By: /s/ CHARLES McCORD
-----------------------
Charles McCord
President
Date: 3/30/94
-----------------------
2
<PAGE> 3
AMENDMENT NO. 3
TO
LICENSE AGREEMENT
This Amendment No. 3 is made to the License Agreement dated July 17,
1991 between UNIVERSITY RESEARCH CORPORATION ("URC") and NEXSTAR
PHARMACEUTICALS, INC. (formerly NEXAGEN, INC.) ("LICENSEE"). Except as
specified herein, capitalized terms in this Amendment shall have the meanings
set forth in the License Agreement.
BACKGROUND
During the course of prosecuting patent applications directed to the
Licensed Technology and patent applications directed to LICENSEE's follow on
developments to the Licensed Technology, it has become apparent that the scope
of protection to the Licensed Technology and follow on developments to the
Licensed Technology can be maximized, and patent prosecution expedited by
transferring ownership of all patents and patent applications with claims
covering all Licensed Technology to LICENSEE.
WHEREFORE, for good and valuable consideration, the sufficiency of
which is hereby acknowledged, the License Agreement is hereby amended as
follows:
1. Paragraph 3.1 is hereby amended and restated in its entirety
as follows:
3.1 URC hereby assigns to LICENSEE and LICENSEE accepts all of URC's
right, title and interest to any patent applications claiming the Licensed
Technology and all Licensed Patents in the Licensed Territory now owned or
hereafter acquired by URC. The Licensed Patents and patent applications subject
to this assignment shall include, but not be limited to, those set forth in
Schedule A, any continuation, divisional or continuation-in-part applications
depending for priority upon the licensed patents and patent applications set
forth in Schedule A and any related patents and patent applications
<PAGE> 4
filed within the Licensed Technology. URC further grants and LICENSEE accepts
an Exclusive license in the Licensed Territory of all URC's rights to the
Licensed Technology, now owned or hereafter acquired by URC, which is not
subject to a patent application or patent, including the Exclusive right to
exploit, use and practice the Licensed Technology and the Exclusive right under
any Licensed Patents to make, have made, use and sell Licensed Products in the
Licensed Territory.
2. Paragraph 3.2 is hereby amended and restated in its entirety
as follows:
3.2 The assignment set forth in Paragraph 3.1 shall be subject
to the obligations of Paragraphs 3.3, 3.4 and 5.5 with regard to any license
granted by LICENSEE to a third party (hereinafter a "sublicense"). The license
granted in Paragraph 3.1, which includes the right to sublicense in compliance
with Paragraphs 3.3, 3.4 and 5.5 below, shall be Exclusive for a term
commencing as of the effective date of this License Agreement and ending seven
(7) years after the date of first commercial sale of the last Licensed Product
to be introduced that embodies such Licensed Technology or is produced using
such Licensed Technology.
3. Paragraph 3.4 is hereby amended and restated in its entirety
as follows:
3.4 In the event that this Agreement is terminated: (i) any
granted sublicenses shall remain in full force and effect, provided that the
sublicensee is not then in breach of its sublicense agreement and the
sublicensee agrees to be bound to URC as a licensor under the terms and
conditions of the sublicense agreement, and (ii) URC shall enter into
appropriate agreements or amendments to the sublicense agreements to substitute
itself for LICENSEE as the licensor thereunder.
4. Paragraph 11.2 is hereby amended and restated in its
entirety as follows:
11.2 The LICENSEE shall have complete control over the
prosecution of all domestic and foreign patent applications covering any
aspect of the Licensed Technology,
<PAGE> 5
including decisions regarding patent strategy, the content of patent
applications, continuations or continuations-in-part, the selection of the
jurisdictions(s) in which such applications shall be filed, and the timing of
the filing of all such applications or continuations, but the LICENSEE shall
keep URC advised as to the status thereof by supplying to URC copies of
actions, amendments, responses and correspondence, including copies of patents
and other material referred to or cited therein, within a reasonable period of
time after receipt or filing therefore. LICENSEE may allow all patents
assigned under this Agreement to issue in its name. Upon submission thereof to
URC by the LICENSEE, URC shall promptly execute any documents relating to the
Licensed Technology as patent counsel to the LICENSEE shall reasonably request.
In addition, URC shall assist, and use its best efforts to cause faculty
members and employees of the University to assist LICENSEE in assembling
inventorship information and data and in obtaining the execution of documents
by faculty members and employees of the University for the filing and
prosecution and maintenance of patent applications and patents on inventions
relating to the Licensed Technology and for vesting in LICENSEE all right and
title in such applications and patents. All costs relating to the prosecution
of patent applications contemplated by this paragraph, as well as all ongoing
patent maintenance costs, shall be borne by the LICENSEE.
5. New Paragraph 13.4 is added as follows:
13.4 In the event of termination of this Agreement under this
Section 13, LICENSEE hereby grants and LICENSOR hereby accepts an exclusive
license in the Licensed Territory of all LICENSEE'S rights in and to the patent
applications and licensed patents assigned to LICENSEE by LICENSOR under
Paragraph 3.1 of this Agreement, including the exclusive right under any
Licensed Patents to make, have made, use and sell Licensed Products in the
Licensed Territory. As part of this exclusive license, LICENSEE hereby agrees
to stop making, using or selling Licensed Products covered by claims in such
patent applications and Licensed Patents. The exclusive
<PAGE> 6
license granted herein shall be subject only to the limitations of Paragraph
3.4 pertaining to sublicenses.
Except as so amended, all other terms and conditions of the License
Agreement shall remain in full force and effect. The Amendment No. 3 is
executed on the dates set forth below, to be effective as to all research,
development and license agreements or joint venture agreements entered into on,
before or after this date.
NEXSTAR PHARMACEUTICALS, UNIVERSITY RESEARCH
INC. CORPORATION
By: /s/ ADAM COCHRAN By: /s/ CHARLES G. McCORD
----------------------- -----------------------
Name: Adam Cochran Charles G. McCord
Title: Vice President and Chairman
General Counsel
Date: 9-5-96 Date: 9-5-96
--------------------- ---------------------
ACCEPTED AND APPROVED:
UNIVERSITY OF COLORADO
FOUNDATION, INC.
By: /s/ CHARLES G. McCORD
-----------------------
Charles G. McCord
President
Date: 9-5-96
---------------------
<PAGE> 7
SCHEDULE A TO AMENDMENT NO. 3
TO LICENSE AGREEMENT
<TABLE>
<CAPTION>
Docket U.S. Application Date Filed U.S. Patent Date Issued Reel/Frame
Serial No. No.
<S> <C> <C> <C> <C>
NEX01 07/536,428 (06/11/90) 5774/0162
NEX01/C 07/714,131 (06/10/91) 5,475,096 (12/12/95) 6329/0385
NEX01/C2 08/412,110 (03/27/95) 6329/0385
NEX01/C3 08/409,442 (03/24/95) 6329/0385
NEX01/C4 08/428,964 (04/25/95) 6329/0385
NEX01/C5 08/469,609 (06/06/95) 6329/0385
NEX01/D 07/931,473 (08/17/92) 5,270,163 (12/14/93) 6363/0807
NEX02 07/561,968 (08/02/90) 5774/0165
NEX04 07/960,093 (10/14/92) 6874/0376
NEX04/C 08/198,670 (02/22/94) 6874/0376
NEX10 08/123,935 (09/17/93) 6798/0943
NEX1O/FWC 08/443,959 (05/18/95) 6798/0943
NEX10/PCT-USPCT/US94/10562 (09/16/94)
NEX12 08/143,564 (10/25/93) 6860/0782
NEX12/FWC 08/461,069 (06/05/95) 6860/0782
NEX17 08/238,863 (05/06/94) 5,503,978 (04/02/96) 7258/0310
NEX17/C 08/443,407 (05/17/95) 7258/0310
NEX17/PCT PCT/US95/05600 (05/03/95)
NEX18 08/248,632 (05/24/94) 7307/0899
NEX18/C1 08/442,573 (05/16/95) 7307/0899
NEX19 08/284,063 (08/02/94) 7198/0050
NEX19/C1 08/464,102 (06/05/95) 7198/0050
NEX19/PCT PCT/US95/09446 (07/26/95)
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
NEX21 08/303,362 (09/09/94) 7359/0532
NEX21/C1 08/441,591 (05/16/95) 7359/0532
NEX25 08/361,795 (12/21/94) 7549/0600
NEX25/C1 08/442,572 (05/16/95) 7549/0600
NEX28 08/400,440 (03/08/95) 7499/0527
NEX28/C1 08/460,888 (06/05/95) 7499/0527
NEX28/C2 08/463,093 (06/05/95) 7499/0527
NEX28C/PCT PCT/US96/03097 (03/05/96)
NEX30-1 08/434,425 (05/03/95)
NEX30-2 08/437,667 (05/03/95)
NEX30-3 08/434,001 (05/03/95)
NEX30-4 08/433,585 (05/03)/95) 7621/0754
NEX44-1 08/477,830 (06/07/95) 7680/0185
NEX44-2 08/477,530 (06/07/95)
NEX45 08/521,515 (08/30/95) 7809/0529 and
7809/0546
NEX45/PR 60/000,872 (07/11/95)
NEX51/PR 60/011,095 (02/02/96)
</TABLE>
<PAGE> 9
ASSIGNMENT
WHEREAS, the undersigned UNIVERSITY RESEARCH CORPORATION ("URC")
has agreed to transfer all of its right, title and interest in the United
States and foreign patent rights in each of the patents and patent applications
set forth in Schedule A to NEXSTAR PHARMACEUTICALS, INC. (formerly NEXAGEN,
INC., hereinafter NEXSTAR);
NOW, THEREFORE, URC, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, does hereby sell,
assign, convey and transfer unto NEXSTAR all right, title and interest in and
to the patents and patent applications set forth in Schedule A, together with
all corresponding foreign applications and patents which may be filed thereon,
including the right to claim priority from any application identified in
Schedule A; and URC hereby agrees that URC will sign all lawful papers,
including, without limitation, all divisional, continuation, renewal, extension
and reissue applications, and make all rightful oaths in execution thereof, and
will generally do everything possible to aid NEXSTAR, its successors, assigns
and nominees to obtain and enforce proper protection for the invention in all
countries, this obligation to be binding upon URC and upon URC's personal
representative or other legal successor.
IN TESTIMONY WHEREOF, URC has signed below.
ACCEPTED AND APPROVED:
UNIVERSITY RESEARCH UNIVERSITY OF COLORADO
CORPORATION FOUNDATION
By: /s/ CHARLES G. McCORD By: /s/ CHARLES G. McCORD
---------------------- -------------------------
Charles G. McCord Charles G. McCord
Chairman President
Date: 9-5-96 Date: 9-5-96
--------------- ----------------
<PAGE> 10
SCHEDULE A TO ASSIGNMENT
<TABLE>
<CAPTION>
Docket U.S. Application Date Filed U.S. Patent Date Issued Reel/Frame
Serial No. No.
<S> <C> <C> <C> <C> <C>
NEX01 07/536,428 (06/11/90) 5774/0162
NEX01/C 07/714,131 (06/10/91) 5,475,096 (12/12/95) 6329/0385
NEX01/C2 08/412,110 (03/27/95) 6329/0385
NEX01/C3 08/409,442 (03/24/95) 6329/0385
NEX01/C4 08/428,964 (04/25/95) 6329/0385
NEX01/C5 08/469,609 (06/06/95) 6329/0385
NEX01/D 07/931,473 (08/17/92) 5,270,163 (12/14/93) 6363/0807
NEX02 07/561,968 (08/02/90) 5774/0165
NEX04 07/960,093 (10/14/92) 6874/0376
NEX04/C 08/198,670 (02/22/94) 6874/0376
NEX10 08/123,935 (09/17/93) 6798/0943
NEX10/FWC 08/443,959 (05/18/95) 6798/0943
NEX10/PCT-US PCT/US/94/10562 (09/16/94)
NEX12 08/143,564 (10/25/93) 6860/0782
NEX12/FWC 08/461,069 (06/05/95) 6860/0782
NEX17 08/238,863 (05/06/94) 5,503,978 (04/02/96) 7258/0310
NEX17/C 08/443,407 (05/17/95) 7258/0310
NEX17/PCT PCT/US95/05600 (05/03/95)
NEX18 08/248,632 (05/24/94) 7307/0899
NEX18/C1 08/442,573 (05/16/95) 7307/0899
NEX19 08/284,063 (08/02/94) 7198/0050
NEX19/C1 08/464,102 (06/05/95) 7198/0050
NEX19/PCT PCT/US95/09446 (07/26/95)
</TABLE>
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
NEX21 08/303,362 (09/09/94) 7359/0532
NEX21/C1 08/441,591 (05/16/95) 7359/0532
NEX25 08/361,795 (12/21/94) 7549/0600
NEX25/C1 08/442,572 (05/16/95) 7549/0600
NEX28 08/400,440 (03/08/95) 7499/0527
NEX28/C1 08/460,888 (06/05/95) 7499/0527
NEX28/C2 08/463,093 (06/05/95) 7499/0527
NEX28C/PCT PCT/US96/03097 (03/05/96)
NEX30-1 08/434,425 (05/03/95)
NEX30-2 08/437,667 (05/03/95)
NEX30-3 08/434,001 (05/03/95)
NEX30-4 8/433,585 (05/03/95) 7621/0754
NEX44-1 08/477,830 (06/07/95) 7680/0185
NEX44-2 08/477,530 (06/07/95)
NEX45 08/521,515 (08/30/95) 7809/0529 and
7809/0546
NEX45/PR 60/000,872 (07/11/95)
NEX51/PR 60/011,095 (02/02/96)
</TABLE>
2
<PAGE> 1
EXHIBIT 10.15
[SCHERING LETTERHEAD]
NeXstar Pharmaceuticals, Inc. Schering AG
Attn. Mr. Mahaffy
2860 Wilderness Place
Boulder, CO 80301
USA
<TABLE>
<S> <C> <C> <C> <C>
Your Ref. Your letter dated Our Ref. (please indicate when replying) Telephone: (030)488-0/468 4380 Date
Legal Department Telefax: (030) 468 4086 1997-02-12
Christiane Seiler/Pa
(7B2801-2)
</TABLE>
AMENDMENT TO THE COLLABORATIVE RESEARCH AGREEMENT AND LICENSE AGREEMENT
OF NOVEMBER 1993
Dear Mr. Mahaffy:
We refer to your discussions with Dr. Scholz about an amendment of the above
referenced Agreements with respect to additional research funding. We have
further noted that a few of the terms of the Collaborative Research Agreement
and of the License Agreement should be clarified. We propose to agree to the
provisions set forth below. All capitalized terms in this letter shall, if not
otherwise expressly indicated, have the meaning defined in the Collaborative
Research Agreement.
1. SCHERING AKTIENGESELLSCHAFT ("SCHERING") and NEXAGEN, INC, a
predecessor to NEXSTAR PHARMACEUTICALS, INC ("NEXSTAR"), entered
into a Collaborative Research Agreement and a License Agreement in
November, 1993. SCHERING and NEXSTAR now wish to enter into this
letter agreement to amend certain provisions of the Collaborative
Research Agreement and the License Agreement effective February 1,
1997.
2. SCHERING and NEXSTAR wish to intensify their research collaboration
under the Collaborative Research Agreement with respect to certain
projects for tumor imaging within the Field (the "New Projects").
The parties acknowledge that the New Projects may or may not be
successful and may be terminated prematurely.
2.1 SCHERING agrees to make additional annual payments of U.S.
$1,400,000 (one million and four hundred thousand U.S. dollars) to
NEXSTAR for each twelve (12) month period beginning on February 1st
of a calendar year ("Amendment Year") which is intended to
compensate NEXSTAR for the research performed by seven (7)
additional FTE's. The first Amendment Year will begin on February
1, 1997. The seven (7) additional FTE's shall focus on the New
Projects which New Projects shall be incorporated in the Research
Program and the Annual Research Plan.
<PAGE> 2
SCHERING
- --------------------------------------------------------------------------------
Address Our Ref. Date Page
NeXstar Pharmaceuticals, Inc. RA/Se/Pa 1997-02-12 2
Attn. Mr. Mahaffy
2.2 SCHERING shall make the annual payments of U.S. $1,400,000 (one
million and four hundred thousand U.S. dollars) per Amendment
Year in four (4) equal instalments of U.S. $350,000 (three hundred
and fifty thousand U.S.dollars) to be made quarterly within five
(5) days of the beginning of the calendar months February, May,
August and November of each Amendment Year. However, the first
instalment shall only be due ten (10) days after receipt of the
counter-signed original of this letter by SCHERING.
2.3 SCHERING's obligation to make the payments referenced in Section
2.1 and 2.2 of this letter shall terminate:
(a) completely in the event that the Collaborative Research
Agreement is terminated by either party for whatever reason;
or
(b) completely or partially if the Joint Management Committee or
either SCHERING or NEXSTAR determines and gives the other
party six (6) months notice of such determination in writing
that any of the New Projects shall not be further pursued; or
(c) at the latest and automatically, without requiring
a termination notice, on January 31, 1999 if it has not been
terminated previously according to this Section 2.3.
3. In the event NEXSTAR incurs extraordinary expenses relating to
oligonucleotide synthesis for any Research Program carried out
under the Annual Research Plans, SCHERING and NEXSTAR agree that
they will discuss and SCHERING will reasonably consider
reimbursement to NEXSTAR of some or all of these extraordinary
expenses. However, the parties understand that SCHERING shall be
under no obligation to make such reimbursement to NEXSTAR.
4. The parties also wish to clarify the following with respect to the
Collaborative Research Agreement:
4.1 For reference purposes, the date of the Collaborative
Research Agreement shall be deemed to be November 16, 1993.
4.2 Effective Date means November 16, 1993.
4.3 Commitment Year means a twelve month period commencing each
November 16.
4.4 Notwithstanding the provisions of Section 1.2 of
the original form of the Collaborative Research Agreement
(providing that after the first three Commitment Years the
amount per FTE for each Commitment Year shall increase by the
percentage increase in the Consumer Price Index, National,
All Products, for the prior Commitment Year), the Annual
Commitment shall continue to be U.S. $1,000,000 (one million
U.S. dollars) for each subsequent Commitment Year effective
November 17, 1996 and is intended to continue to compensate
NEXSTAR for the research performed by five (5) FTE's per
year.
<PAGE> 3
SCHERING
- --------------------------------------------------------------------------------
Address Our Ref. Date Page
NeXstar Pharmaceuticals, Inc. RA/Se/Pa 1997-02-12 3
Attn. Mr. Mahaffy
5. All terms of the License Agreement between the parties of November 16, 1993
shall remain in full force and effect, except that the date of October 1,
1998 set out in the first line of Section 4.2 (a) of the License Agreement
shall not be applicable for any result deriving from a New Project. With
respect to New Projects, the date referred to in the first line of Section
4.2 (a) of the License Agreement shall be January 31, 2002.
6. All terms and conditions of the Collaborative Research Agreement and the
License Agreement which are not expressly changed by this letter shall
remain in full force and effect and shall govern the provisions set forth
in this amendment letter. Effective February 1, 1997 the Collaborative
Research Agreement and the License Agreement shall be amended as set out
in this amendment letter.
If you agree with the provisions set forth above, please countersign the
attached original and return it to us.
Yours sincerely,
SCHERING AKTIENGESELLSCHAFT
ppa.
/s/ PROF. STOCK /s/ DR. SCHOLZ
Prof. Stock DR. Scholz
Date:
Accepted by:
/s/ PATRICK J. MAHAFFY
-----------------------------
NEXSTAR PHARMACEUTICALS, INC.
<PAGE> 1
EXHIBIT 10.55
NOTE: The following Commercial Factoring Agreement, as amended, is translated
from Spanish. The following is a fair and accurate English translation.
/s/ LARRY W. SMITH
Corporate Secretary
No. 2.833
COMMERCIAL FACTORING AGREEMENT
This agreement is made in Madrid, on May 21, 1996, certified by the Public
Stockbroker, Mr. Carlos J. Torres Diz.
BETWEEN
OF THE FIRST PART: SANTANDER DE FACTORING, S.A., ENTIDAD DE FINANCIACION,
entered under number 6 on the Special Register of the Directorate General for
the Treasury and Financial Policy as a financial institution specializing in
factoring. It was incorporated by means of a public deed certified by the Notary
Public of the Association of Notaries Public of Madrid, Mr. Antonio Vazquez
Presado, on May 30, 1986 under number 2,114 of his records. The company has its
registered offices in Madrid, Plaza de Manuel Gomez Moreno no. 2, Edificio
Alfredo Mahou (Postal District 28020). The company's Tax Identification Code
(N.I.F.) number is A-78/287582. It is entered on the Madrid Commercial Register
- -1, volume 1,034 general, 1001 of section three of the Companies Register, folio
55, sheet number 70,685-1, first entry. The company is represented in the
execution of this agreement by Mr. Javier Rodriquez-Mantinan, attorney in fact
of Banco Santander by virtue of a deed of power of attorney conferred on the
said bank by the company (hereinafter referred to as "the FACTOR") before the
Notary Public of the Association of Notaries Public of Madrid, Mr. Roberto
Parejo Gamir, on May 18, 1993, under number 1,000 of his records. The power of
attorney is entered at the Madrid Commercial Registry.
OF THE OTHER PART: NEXTAR FARMACEUTICA, S.A., a company incorporated by virtue
of a public deed certified by the Notary Public of the Association of Notaries
Public of Madrid, Mr. Jose Maria Alvarez Vega, on December 17, 1993, under
number 7,553 of his records. The company is entered in volume 7,553 of the
Madrid Commercial Register and its Tax Identification Code (N.I.F.) number is
A-80754799. Its registered offices are located at Paseo de la
1
<PAGE> 2
Castellana, 139, Madrid. It is represented in the execution of this agreement by
Mrs. Mercedes Garica Bravo, a Director and attorney in fact of the company by
virtue of a deed of power of attorney conferred on him by the company before the
Notary Public of the Association of Notaries Public of Madrid, Mr. Jose Maria
Alvarez Vega, on December 30, 1993, under number 5,367 of his records. The power
of attorney is entered at the Madrid Commercial Registry.
(This latter party shall hereinafter be referred to as "THE CLIENT").
THEY DO HEREBY STATE THAT
1.-The FACTOR is a factoring company included in the Order of May 13, 1981, of
the Ministry for the Economy, issued by virtue of the authorization contained
in Royal Decree 896/1977, of March 28, and its main purpose consists of credit
collection management operations and advance payment of funds thereon, to
which the said provisions refer.
2.-The CLIENT carries out the commercial activities included in its corporate
purpose and is interested in arranging with the FACTOR the performance of
factoring services in connection with the commercial operations that it carries
out with its clients.
3.-Both institutions, through their respective representatives, have decided to
make and, in this act, do hereby make a factoring agreement, for which purpose
they consent to the following
CLAUSES
ONE.-PURPOSE OF THIS AGREEMENT.
The purpose of this agreement is the assignment of all credits and rights held
by the CLIENT vis-a-vis the entities (hereinafter referred to as DEBTORS) listed
in annex number 1 hereto, by virtue of commercial transactions that the CLIENT
has carried
2
<PAGE> 3
out or that it may carry out from the date hereof, with the following
exceptions:
1. - Purchases, sales or other commercial transactions with a cash price.
2. - Deliveries of merchandise in respect of a purchase and sale agreement
subject to any condition, or transactions of other types subject to any
condition.
Without prejudice to that established above, the assignment of the credits and
rights that the CLIENT holds vis-a-vis DEBTORS that, at the date hereof, are
not included in Annex no. 1 hereto may be subject to the agreement, provided
that the FACTOR expressly accepts the assignment of the said credits. For these
purposes, the FACTOR, after carrying out such analyses as it may see fit, shall
approve or otherwise all the DEBTORS proposed by the CLIENT. Approval, as
appropriate, or rejection by the FACTOR, as assignee of the credits charged to
the DEBTOR, shall be indicated by notice given by the FACTOR to that effect in
any of the forms established in point one of Clause twelve hereof.
The CLIENT assigns to the FACTOR its credits and such rights as may derive from
agreements made by it with its DEBTORS, including that of termination, as
appropriate.
The assignment of credits referred to in the preceding section is governed by
this agreement and, in that not provided herein, by articles 347 and 348 of the
Commercial Code and, in a subsidiary manner, by articles 1,529 and articles
concerning the same matter of the Civil Code and article 101 and articles
concerning the same matter of the Public Administration Contracts Act, Act
13/1995 of May 18.
The CLIENT guarantees, under its liability, the effectiveness, legitimacy,
validity, transferability and enforceability of all the credits assigned,
whatever their type (certificates invoices, provisional and final settlements,
etc.) declaring that both the credit and the cause from which it derives
conform to the rules currently in force and to the principles of the Legal
System for Public Contracts applicable to the DEBTOR Administration, regarding
its preparation and legality, regarding both execution and liquidation. It
likewise guarantees that the public rules governing the legal system for
credits themselves and their cause have been fulfilled.
The CLIENT likewise guarantees, under its liability, that there is no
encumbrance,
3
<PAGE> 4
incident or conduct relating to the agreement giving rise to the credit, its
cause or the credit itself that allows the validity, amount and full or partial
enforceability of the assigned credit to be affected or damaged.
Any infringement or default of this agreement shall be considered to damage the
presupposed objectives of the assignment of the credit, annulling its validity
or being permitted to be considered as sufficient default of the agreement on
the part of the CLIENT, thus conferring on the FACTOR the right to receive the
amount paid in advance on account of such credits, together with any loss and
damage that it may have incurred due to the assignment that is resolved to be
invalid or annulled.
The CLIENT is likewise liable for the solvency of the DEBTORS and states that
under no circumstances have the said credits been assigned to any other
institution.
The CLIENT agrees, in the terms provided in clause two hereof, to inform the
DEBTORS listed in annex number 1, from the date when this contract is made,
that the payment of their obligation shall only be considered legitimate if it
is made to the FACTOR, in the capacity that it holds.
Without prejudice to the provisions contained in the following clause, the
FACTOR shall furnish to the CLIENT notice of the assignment of the credits,
which the CLIENT must send to its DEBTORS. The CLIENT shall deliver to the
FACTOR a copy of the instrument that is sent.
2. - RECORDING OF THE ASSIGNMENT OF CREDITS.
A) With regard to the credits arising from the date of execution hereof:
1. - The CLIENT agrees to deliver to the FACTOR, within a maximum term of 30
days from the date of their creation, documents proving the credits assigned.
For this purpose, it shall send to the FACTOR, within the time-limit stated
above, a letter of assignment conforming to annex number 2 hereof and, together
with the said letter, original copies of the invoices pertaining to the credits
assigned.
The letter of assignment referred to in the preceding section, and the
originals and original copies of the invoices must be signed by a person with
sufficient power of
4
<PAGE> 5
attorney to represent the CLIENT. This person's signature must be included on
the sheet of authorised signatures attached hereto as annex number 3.
The CLIENT shall likewise include delivery notes and/or such other commercial
documents, including, as appropriate, bills of exchange -whether accepted or
otherwise-, promissory notes or commercial drafts issued, in accordance with
that established in the second Particular Condition hereof.
This Particular Condition shall not be of a restrictive nature and the FACTOR,
as appropriate, may therefore demand from the CLIENT any other document
relating to each credit assigned that is not included in the said condition and
that proves or represents the credits assigned. Similarly, by means of notice
to that effect to the CLIENT, the FACTOR may, in certain cases, alter or remove
any of the documents that, at the date of execution hereof, are established in
the said particular condition.
2.-The CLIENT likewise agrees:
2.1.-To include the following expression in the agreements that it makes with
the DEBTORS included in the scope hereof, in its delivery notes that in such
invoices as it may issue to its DEBTORS:
"the credit right to demand the price of this merchandise or these services has
been assigned, within the framework of a factoring agreement, to SANTANDER DE
FACTORING, S.A., with registered offices in Madrid, (Postal District 28020),
Plaza de Manuel Gomez Moreno 2, "Edificio Alfredo Mahou", and therefore the
purchaser shall only be released from its payment obligation by paying the
amount of this invoice or bill to the said assignee in its current account
number 2,740 of branch 0533, Madrid, of BANCO SANTANDER."
3.-The obligations assumed by the FACTOR hereunder may only be enforced when
the FACTOR has received from the CLIENT the letter of assignment referred to in
section 1 above, a copy of the invoice authorised by the signature of the
CLIENT and the FACTOR in the terms provided in sections 1 and 2 above and such
other documents as are stated in the second particular condition hereof. In any
case, each credit assigned must fulfil all the conditions established herein,
and in particular those relating to the deferment of payment agreed with the
DEBTORS, as is described in Annex no. 1.
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The FACTOR shall immediately send to the CLIENT acknowledgement of receipt of
these documents and of the consequent consummation of the assignment of the
credits to which they refer.
B) With regard to the credits that have originated prior to the date of
execution hereof:
For these purposes the CLIENT must send to the FACTOR the letter of assignment
referred to in the preceding sections, along with the original copies of the
invoices giving rise to the assigned credits. Nevertheless, without prejudice
to the assignment in favour of the FACTOR, payment shall only be advanced on
the said credits, in accordance with the provisions contained in section 3 of
the following clause, once the FACTOR has proof that the invoice or invoices
proving the credits are registered at the DEBTOR's Accounts Department and have
been approved.
3.-FACTORING SERVICES.
The FACTOR agrees with the CLIENT to provide it with the following services:
1.-The FACTOR shall take responsibility for managing the collection of the
assigned credits.
The FACTOR does not assume the risk of insolvency on the part of the DEBTORS.
Therefore, the debts accumulated by a debtor with the FACTOR shall be demanded
by the FACTOR, but this latter shall not assume the risk of insolvency on the
part of the DEBTOR, so that non-payment of these credits by the DEBTOR shall
allow the FACTOR to withhold payment of the amount of the same to the CLIENT,
without prejudice to the fact that it may manage their collection in the terms
established herein.
The CLIENT agrees to place immediately at the FACTOR's disposal any commercial
drafts or any other methods or instrument of payment issued by the DEBTORS for
credits assigned by the CLIENT to the FACTOR that the DEBTORS may have sent or
delivered directly to the CLIENT.
2.-The FACTOR agrees to pay the CLIENT the amount of the credits assigned, for
which payment has not been advanced, after deducting the counter-payment
established
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herein, on the working day after the day when the FACTOR pays in the amount of
the credit.
3.- The FACTOR may advance to the CLIENT an amount up to the percentage,
established in the sixth particular condition, of the total amount of the
credits assigned although under no circumstances may the total amount of the
advance payment exceed the amount stated in section a) of the fourth Particular
Condition hereof.
For this advance payment, the CLIENT shall pay to the FACTOR the interest
provided in the first Particular Condition hereof in the manner established in
clause six.
When these credits have been paid, the FACTOR shall be reimbursed for the
advance payment that it has made.
The CLIENT shall acknowledge receipt of notices made to it by the FACTOR
relating to the credits selected by this latter for advance payment of their
amounts.
The FACTOR shall exclude the following credits from the advance payment:
a) Credits that the FACTOR has not collected within a term of three hundred and
sixty-five days (365), reckoned from the date of their assignment.
b) Credits regarding which the DEBTOR has filed any exception, either in or out
of
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Court, based on its causal relationship with the CLIENT, whatever agreement or
legal link exists in the relationship between the CLIENT and the DEBTOR.
In the event that the credit subject to advance payment has not been paid by
the DEBTOR when the term referred to in section a) above has expired and/or in
the event that the credit paid in advance is included in the case contemplated
in section b) above, the FACTOR shall replace the credit subject to advance
payment by one or more other credits, up to its full amount and, as
appropriate, the amount of the interest payable, by means of the appropriate
notices to the CLIENT, or it shall choose to demand from this latter immediate
reimbursement of the advance payment, with such surcharges as may be payable,
as appropriate.
FOUR.-COLLECTION OF CREDITS.
1.- In view of its capacity as legitimate assignee of the credits, for the
purposes of collection of the same, the FACTOR shall be authorised and
expressly empowered by the CLIENT, as widely as possible in Law, during the
full period in force hereof, to issue, endorse, collect or by any other means
certify any commercial drafts of traffic or trade as may be issued for payment
of the assigned credits.
2.- In the event that any debtor should incorrectly pay the CLIENT the credit
assigned, this latter agrees to deliver the amount incorrectly collected to the
FACTOR immediately; in any case, the said sum may never be offset by any sum
that the FACTOR may owe to the CLIENT in any respect. The CLIENT shall be
considered as a mere depository of the amount received for the minimum time
necessary for its reimbursement to the FACTOR. The above is without prejudice
to the fact that the FACTOR may bring any action against the DEBTOR to claim
legitimate payment.
3.- In cases where the DEBTOR fails to pay the credit that the FACTOR demands
of it, arguing causes that are based on its relationship with the CLIENT
- - whether or not such causes concern the purchase and sale agreement that gave
rise to the credit-, the FACTOR shall notify the CLIENT of the reasons that the
DEBTOR has given and, acting on instructions from the CLIENT, it shall defend
its right to receive the credit, either in or out of court. The extra-judicial
or judicial claim conform with the system provided in this agreement and, in
particular, in the provisions contained in the following section.
4.- Should the DEBTOR file against the FACTOR, when this latter attempts, by
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extra-judicial means, to collect a credit, any exception referring to its
relationship with the CLIENT, the FACTOR shall immediately notify the CLIENT of
such circumstance. The FACTOR shall thenceforth act on instructions that it
receives from the CLIENT in order to achieve payment of the credit in question
and it shall exercise, in its own name but on behalf of the CLIENT, such act
as, by mutual agreement, they may decide on for settlement of the credit.
Should such actions mean the institution of any judicial proceedings, the FACTOR
may demand that the CLIENT deliver to it an amount in respect of a provision of
funds.
If, when a dispute with the DEBTOR has arisen, the CLIENT and the FACTOR should
fail to reach agreement on what actions must be brought, when three months have
passed from the notice by the FACTOR to the CLIENT or the exception filed by
the DEBTOR the FACTOR may withdraw the credit and shall be released from any
other obligation. Such withdrawal of the credit shall not confer on the CLIENT
any right whatsoever to demand refund of the counter-payments agreed herein
deriving from by the original assignment, the services provided by the FACTOR
or any other service contemplated herein.
In any event, when one year has passed from when the FACTOR notified the CLIENT
of the fact of the DEBTOR's non-payment, for any reason other than insolvency
on the part of the DEBTOR, should the credit continue outstanding and should no
judicial proceedings whatsoever have been instituted for its collection, the
FACTOR may withdraw the credit from the CLIENT, who shall once again become
the legitimate holder of the same, the FACTOR being released from any other
obligation. Such withdrawal of the credit shall not confer on the CLIENT any
right whatsoever to demand the refund of the counter-payments agreed herein
deriving by the original assignment, the services provided by the FACTOR or any
other service contemplated herein.
FIVE. - OTHER RIGHTS AND OBLIGATIONS OF THE FACTOR AND THE CLIENT.
1.- The CLIENT may agree with its DEBTOR to issue a credit note in the event
that the invoice originally issued includes, by error, a greater amount of
merchandise than was actually supplied. There may be any other cause for a
credit note. Whenever a credit note is issued, the CLIENT shall be obliged to
notify that fact to the FACTOR within ten days from the issue of the said
note by sending it a copy of the document that was sent to the DEBTOR. The
FACTOR, provided that it is notified a sufficient length of time in advance,
shall notify the DEBTOR that the invoice has been reduced by the amount of the
credit note.
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2.- The FACTOR may, at any time, examine the CLIENT's administrative and
accounts books and documents, through a person expressly authorized for that
purpose, who is bound by professional secrecy. The FACTOR expressly accepts
that the said examination be carried out by the CLIENT's external auditor,
provided that such auditor is of acknowledged prestige. The only purpose of
granting this right to examine the CLIENT's books is to guarantee to the FACTOR,
who is actually the assignee of all the credits, that the CLIENT is the holder
as a result of its relationship with the DEBTORS listed in annex number 1, with
no exceptions other than those provided in clause one hereof.
3.- The CLIENT shall be obliged to place at the FACTOR's disposal, at this
latter's request, when the annual accounts have been approved and deposited at
the Commercial Registry, a copy of the said accounts, the management report and
the auditor's report when the CLIENT, due to circumstances established in Law,
is obliged to submit the said auditors' report.
4.- If the DEBTOR is a public body or institution, the CLIENT shall assume
responsibility for any denouncement and intimation due to delay in payment of
over two months, referred to in the articles of the State Contracts Act, and the
FACTOR shall have no liability whatsoever for the omission of such, even though
the credits are formally transferred.
SIXTH - COUNTERPRESENTATION IN FAVOR OF FACTOR
1. Commission
At the time, and in conformity of the present contract, that the granting of
each credit, and in respect to the first credits given up to the amount of six
hundred million pesetas the FACTOR will earn the commission established under
condition third, given that (a) it will be applied to the whole amount of the
credit granted, including: the taxes generated by the operation of the above
mentioned credit.
Once the amount of six hundred million pesetas is reached the FACTOR will earn
the commission established under the third condition, numeral (b) applicable to
the whole amount of the credit granted including taxes generated by the
operation.
The amount of the commission owed to the FACTOR will be considered earned and
payable from the moment that the credit is granted, given this the FACTOR can
compensate the amount against any debits that at the moment they could have
against the CLIENT.
The FACTOR will earn the commission, having the option to credit the account
that they called "Prepaid Payment" to which is made reference in the Seventh
stipulation or credit the amount to the current account or credit account of
the CLIENT referenced in Condition Fifth.
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the amount in the CLIENT's current or credit account referred to in the fifth
Particular Condition.
2.-Interest:
Should the CLIENT claim advance payments from the FACTOR, the CLIENT shall be
obliged to pay interest to the FACTOR, accrued on a day-to-day basis at an
annual rate based on a year of 360 days, as stated in the first Particular
Condition, for the period between the date of the said advance payment and the
date when the FACTOR is reimbursed for the full amount of the credit paid in
advance, both inclusive.
Interest shall be settled per month in arrears, making the settlement coincide
with the last day of each calendar month. The first settlement may refer,
therefore, to a period of less than one month, whereas successive settlements
shall refer to the calendar month ending on the day for settlement of interest.
The settlement shall be carried out according to the average balance of advance
payments during the period subject to settlement.
The interest rate referred to in the first particular condition may be reviewed
at any time by the FACTOR due to alterations in the interest rate on the
interbank market, and it may in any case be reviewed quarterly.
The review, which shall affect the balance of advance payments drawn down at
that moment, must be notified to the CLIENT, which must give notice of its
acceptance or rejection of the new interest rate proposed by the FACTOR. In
this latter case, non-acceptance by the CLIENT of the rates of interest
proposed by the FACTOR shall mean that the CLIENT waives the possible advance
payment of the amount of other credits until the CLIENT expressly accepts the
rates successively notified by the FACTOR.
Any alteration in the nominal rate of interest shall give rise to the
corresponding alteration in the TAE calculated in the manner stated in the
first Particular Condition.
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SEVEN. - ACCOUNTS
1. - Accounts relating to this agreement
For the purposes hereof, the CLIENT and the FACTOR shall keep two special
accounts to which all debts that may arise between the parties both in the act
of execution of this agreement and in the course of its performance shall be
charged and paid.
The first account, with the name of "collateral" shall function as follows: the
account shall be credited with the assignment of credits by the CLIENT to the
FACTOR and debited when the said credits are collected by the FACTOR. The
second account, with the name of "advance payments" shall function as follows:
amounts collected by the FACTOR shall be credited to the account and the
account shall be debited with the funds that the FACTOR sends to the CLIENT and
other counter-payments or costs that may accrue charged to the CLIENT. The
average debit balance of this second account of "advance payments" shall
represent the advance payments for the purposes of the provisions contained in
section 2 of clause six.
2. - Execution:
For the purposes of the provisions contained in article 1,435 of the Civil
Procedural Act, the parties hereto expressly agree that the assessment to
establish the debt to be claimed in enforcement proceedings shall be carried out
by the FACTOR, issuing the appropriate certificate that contains the balance of
the special accounts at the closing date. By virtue of this, it shall be
sufficient for the exercise of enforcement action to submit this agreement
together with the certificate contemplated in article 1,429, number 6 of the
Civil Procedural Act and to furnish another certificate, issued by the FACTOR,
of the balance charged to the CLIENT. The said certificate shall state the
Broker acting at the FACTOR's request and that the said balance coincides with
the balance of the account opened for the CLIENT and that the assessment of the
debt has been carried out in the manner agreed herein.
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EIGHT - COSTS AND TAXES
1. - Taxes:
All taxes, rates, stamps and any other encumbrance of the State,
Autonomous Communities, provinces or localities of any other type, of whatever
nature, class or type, without any limit whatsoever, that, either at present or
in future, may be levied, as appropriate, for the execution, performance and
cancellation of this agreement shall be at the CLIENT's expense.
2. - Costs:
All costs derived from the execution, certification and recording of this
agreement shall also be at the CLIENT's expense. In particular, the fees of the
public certifying official acting in the operation and the costs (including the
fees and expenses of lawyers and Court Solicitors) caused in the event that the
FACTOR demands fulfilment of this agreement shall be payable by the CLIENT.
3. - Settlement of taxes and costs:
Taxes and costs that, as appropriate, may have been paid by the FACTOR or that
may have accrued to it, shall be reimbursed to it by the CLIENT within two
working days, when the FACTOR submits an assessment of the same to the CLIENT,
giving reasons for such.
NINE. - PAYMENTS
1. - Place and method of payment:
On each date when the CLIENT must, in accordance with the provisions contained
herein, pay to the FACTOR any amount in respect of any item, the CLIENT
expressly and irrevocably authorises the FACTOR to debit the relevant amounts to
the current or credit account in the Banco Santander referred to in Particular
Condition number five (or to any other account that the CLIENT may hold in Banco
Santander, even though such account is not expressly mentioned in the said
condition). The CLIENT
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agrees to make sufficient provision of funds in the said accounts.
On each date when the FACTOR must, by virtue of this agreement, pay any amount
to the CLIENT, it shall do so by a payment into the account stated in the
preceding section.
2.-Compensation:
The CLIENT, without prejudice to any other clause hereof, irrevocably
authorizes the FACTOR to apply to the payment of any amount that the CLIENT
owes to it and that is due, any amount from any credit belonging to the CLIENT
that may be in the possession of the FACTOR or that this latter must pay it,
deriving from any type of operation. For this purpose, the CLIENT also
irrevocably authorizes the FACTOR to carry out any operation or activity that
may be necessary to apply the said amounts to the payment of the sums owed.
TEN.-DURATION
Without prejudice to the provisions contained in the following clause, this
agreement shall have a duration of one year, reckoned from its date of
execution. When the said term has expired, the agreement should be considered
as extended for successive periods of like duration, unless either of the
parties state a wish to the contrary fifteen days in advance of the initial
expiry date or the expiry date of any extension hereof. Nevertheless, after
the first year in force, the agreement may be terminated at any time at the
wish of either party, provided that at least fifteen calendar days' advance
notice is given.
Should this agreement be cancelled normally, the FACTOR shall retain the
obligations imposed on it hereunder with regard to the collection of credits
outstanding and to payment, as appropriate, of their amount to the CLIENT who,
in turn, shall be obliged to make the counter-payments outstanding at the
moment when the agreement is cancelled.
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ELEVEN. - PREMATURE TERMINATION OF THE AGREEMENT.
The FACTOR may, at any time, without prejudice to the term stated in the
preceding clause, consider the agreement as terminated when any of the
following circumstances occur:
A).- Termination due to reduction in the CLIENT's solvency: the CLIENT's
solvency shall be considered to be reduced, thus giving rise to a right on the
part of the FACTOR in prematurely terminate this agreement, giving notice of
this to the CLIENT, should the CLIENT carry out or, even without any fault on
its part, be affected by any of the following:
1.- If the CLIENT submits an application to be declared in suspension of
payments or bankrupt or if an application is submitted by a third party and is
accepted by a judicial ruling, or if the CLIENT is subject to judicial
administration or if it is subject to confiscation of its assets or if the
CLIENT acknowledges its inability to meet its debts when due or if
renegotiation of all or some of its payment liabilities is begun.
2.- If any judicial proceedings are carried on against the CLIENT that entail
enforcement or attachment.
3.- If the CLIENT ceases to protest acceptances or if default occurs on its
part of any type of payment obligation with third parties.
4.- If, for any reason, the CLIENT ceases to carry on its business, resolves
dissolution, liquidation or closure of the greater part of its establishments.
The CLIENT agrees to notify the FACTOR immediately of the occurrence of any of
the situations listed above.
In the above cases, the FACTOR shall retain ownership of the credits assigned
and it shall take possession of the amount of such credits as have been subject
to advance payment to the CLIENT in the terms provided in clause three hereof.
It shall likewise take possession of the remaining credits, as far as they
extend, to cover interest, commission and other debts that may be payable by
the debtor. The FACTOR shall deliver the surplus to the person legally
authorised to receive it. Without prejudice to
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the provisions above, the FACTOR may choose to demand immediate reimbursement of
the amounts that it may have advanced to the CLIENT and withdraw, when it has
been reimbursed, the assigned credits.
B).-Termination due to default by the CLIENT and universal succession in the
CLIENT's company:
In the event of default by the CLIENT of any of the obligations established
herein, or in the case of universal succession in the CLIENT's company
resulting from operations of merger sale, absorption, concentration or
spin-off, the FACTOR shall have the same right to premature termination of this
agreement and may choose to withdraw the assigned credits and demand from the
CLIENT the immediate reimbursement of any amounts that it may have advanced on
account of such credits.
TWELVE.-SUNDRY
1.-Notices and intimations:
All notices (including notification of change of domicile) that must be made
between the parties, unless specifically stated otherwise herein, shall be made
by registered mail with acknowledgement of receipt, telegram with
acknowledgement of receipt or telex, or in cases of urgency, fax, although in
this latter case the notice must be confirmed in writing within the following
five calendar days.
For the purposes hereof, the parties state that the respective domiciles given
for them in this agreement are their valid domiciles for all pertinent notices,
intimations and formalities.
2.-Working days:
For the purposes hereof, days on which the Madrid banks are open and working
normally, excluding Saturdays, shall be considered as working days.
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3.-Delivery of a brochure and delivery of the agreement:
The FACTOR delivers to the CLIENT in this act, who states that it has received
it, its brochures of tariffs for commissions and costs to be shifted that are
applicable to this operation, and an original copy of this agreement.
4.-Subrogation and transfer:
The FACTOR may subrogate any third party in its legal position in this
agreement, and must inform the CLIENT in writing of the said subrogation.
Likewise, the FACTOR may at any time transfer to a third party the credits
assigned to it by the CLIENT.
THIRTEEN.-GUARANTEE CLAUSE
The following shall be attached to this agreement and shall form an integral
and single part hereof.
1.-The agreement known as the "Escrow Agreement", signed on May 7, 1996, an
original copy of which is attached hereto, whereby Nextar Pharmaceuticals Inc.
has agreed with Norwest Bank Colorado, National Association, to deposit in
favour of the FACTOR, and at its request, the amount corresponding to
U.S. $2,010,000 to meet the payment of any amounts that the CLIENT may owe
to the FACTOR.
Nevertheless, by virtue of this clause, the FACTOR has agreed with the CLIENT
that it shall previously demand the amount owed to it from Nextar
Pharmaceuticals Inc. and if, within the maximum term of 30 calendar days,
Nextar Pharmaceuticals Inc. has not paid the said amount, it shall withdraw the
amount deposited in its favour by virtue of the "Escrow Agreement".
When the FACTOR has collected the full amount owed to it, it shall notify
Norwest Bank Colorado so that, as appropriate, it may place at the disposal of
Nextar Pharmaceuticals Inc. the amounts that may continue in deposit.
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2. The document known as the "Comfort Letter" or "letter of intent" signed by
Nextar Pharmaceuticals Inc. in May 1996, an original copy of which is
attached hereto.
FOURTEEN.-JURISDICTION
The parties hereto, for such matters and disputes as may arise in connection
herewith, and for the exercise of actions other than those pertaining to
enforcement proceedings, expressly renounce any other forum to which they may
have a right, and submit to the jurisdiction and competence of the courts of
Madrid.
PARTICULAR CONDITIONS OF THIS AGREEMENT
1) Nominal interest rate at which the advance payments are granted: MIBOR AT
NINETY DAYS (90) PLUS A DIFFERENTIAL OF ONE PER CENT (1%). THIS INTEREST RATE
IS FIXED ON THE DATE WHEN THIS AGREEMENT IS SIGNED, TAKING AS A REFERENCE RATE
THE MIBOR, MAXIMUM RATE, PUBLISHED ON THE DAY OF SIGNING, FOR THE SAME TERM,
OR, IN ITS ABSENCE, THE LAST RATE PUBLISHED.
THIS INTEREST RATE SHALL BE REVIEWED ON THE FIRST WORKING DAY OF EACH CALENDAR
QUARTER.
AS A RESULT, FOR THE FIRST PERIOD IN FORCE OF THE AGREEMENT. THE INTEREST RATE
IS ESTABLISHED AT EIGHT AND FIFTY FIVE HUNDRED PERCENT (8.55%) AND SUCH IS
AGREED BY THE PARTIES.
For the purposes of information and in fulfilment of the provisions contained
in Circular of the Bank of Spain 8/1990, of September 7, the ANNUAL EQUIVALENCE
RATE ("Tasa Anual Equivalente" - TAE) for this operation is
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eight and eighty nine hundred percent (8.89%), in accordance with the formula
for obtaining such rate, calculated pursuant to that established in the said
circular, Official State Gazette of September 20, 1990, or in the provisions in
force at any given time.
2) Documents that should be attached to each invoice copy: ORIGINAL COPY OF THE
INVOICE ISSUED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN POINTS 1 AND 2 OF
CLAUSE TWO.
3) Commission referred to in point number 1 of clause six: (a) one percent
(1%). (b) ONE POINT FIVE PERCENT (1.5%).
4) Maximum amounts referred to in section 3, paragraph one of clause three:
FIVE HUNDRED MILLION PESETAS (500,000,000 PTS)
5) The CLIENT's current or credit account for domiciling all payments, to which
clause nine, point 1 refers:
BANCO SANTANDER
Branch: 137
Account number: 15.282
Town or city: Madrid
6) Percentage of the advance payment referred to in paragraph one of point four
of clause three: EIGHTY PER CENT (80%)
The persons who are appointed to represent the parties, as appropriate, read
the above, confirm the consent granted and sign this agreement in two
counterparts, to a sole effect, the certifying Broker bears witness to the
identity and legal status of the parties hereto and the legitimacy of their
signatures.
SANTANDER DE FACTORING, S.A. NEXSTAR FARMACEUTICA, S.A.
ENTIDAD DE FINANCIACION-FACTORING
P.P. /s/ Mercedes Garcia Bravo
P.P. /s/ SIGNATURE ILLEGIBLE
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COMPLEMENTARY DOCUMENT TO THE DE FACTORING CONTRACT ENTER BETWEEN NEXSTAR
PHARMACEUTICAL S.A. AND SANTANDER DE FACTORING S.A.
DATED 21 OF MAY 1996
Madrid February 25, 1997
PRESENT
In the name of SANTANDER DE FACTORING, S.A. F.F.C. (from here on referred as
FACTOR) represented by Mr. Alfonso Madurga and Mr. Javier Blanco attorney to
Banco de Santander and the company according to Power of Attorney issued to the
name of Banco de Santander in the presence of the Notary of the College of
Madrid Mr. Roberto Parejo Gamir, dated May 19, 1987 with protocol number 1,192
register in the civil/commercial registry of Madrid.
And for the other part, NEXSTAR FARMACEUTICA, S.A. (from here on named THE
CLIENT) Represented by Mrs. Mercedes Garcia Bravo legal representative by the
power of attorney conferred to her favor by the society in the presence of the
Notary Mr. Jose Maria Alvarez Vega, dated December 30, 1993 with protocol
number 3,367 in the commercial registry of Madrid.
Both parties recognize legal capacity to get in Contract with common agreement.
EXPRESSED
1. That dated May 21, 1996 the entities granting the present document
formalized a contract of factoring in the presence of the Agent, Commercial
College Member Mr. Carlos J. Torres Diz.
2. That the entities here represented have come to the agreement make some
modifications to the conditions before established in the factoring contract to
the effect of
AGREED
FIRST To modify the condition fourth of the main contract increasing by two
hundred and fifty million pesetas the maximum amount of advances to which
number three refers to on the third stipulation of the contract.
To this effect the Factor can advance the Client up to 80% of the total amount
of credits granted considering that the total amount of advances can never
exceed the amount of seven hundred and fifty million pesetas (750,000,000 PTS)
SECOND To ratify the complete validity of the rest of the stipulations of the
main contract to the extend that they are not modified by this document which is
part of the same.
After we read this document in the presence of the individuals that are
representatives of the parties, and expressing their approval and consent, sign
in duplicate this document giving faith of the same in the presence of the
Agent and in the capacity of the representatives and their legal signatures.
SANTANDER DE FACTORING, S.A.
p.p. /s/ Signature illegible
NEXSTAR FARMACEUTICA, S.A.
p.p. /s/ Mercedes Garcia Bravo
Page 1
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EXHIBIT 10.56
LICENSE AND DISTRIBUTION AGREEMENT
This Agreement is between Sumitomo Pharmaceuticals Co., Ltd. ("Sumitomo") and
NeXstar Pharmaceuticals, Inc. ("NeXstar") in connection with registration, sale
and marketing of NeXstar's product AmBisome in Japan. The term "AmBisome"
shall mean, for the purpose of this Agreement, a liposomal antifungal agent
having amphotericin B as an effective substance and other compositions as
defined in Exhibit A attached to this Agreement. NeXstar has developed and is
now selling AmBisome elsewhere in the world. NeXstar has generated, and will
continue to generate, data (the "Product Data") which in its present form is
sufficient to have obtained product registrations for AmBisome from medicines
control agencies in 23 countries. AmBisome is protected in Japan by Patent No.
1890276 and Patent Application No. 284828/88 (Patent Rights), and the trademark
AmBisome is protected in Japan by registered No. 2430891 (Trademark), all in
the name of NeXstar Pharmaceuticals, Inc. NeXstar and Sumitomo desire to have
the AmBisome product, as it is registered in various countries elsewhere in the
world, developed, registered and marketed in the Japanese market, and therefore
agree as follows.
1. LICENSED RIGHTS. NeXstar grants to Sumitomo an exclusive license with a
right to sublicense under the Patent Rights and Trademark in Japan for
the sale and use of AmBisome in Japan for the term of this Agreement.
Before Sumitomo exercises its right to sublicense AmBisome to another
party, Sumitomo obtains NeXstar's prior approval, such approval not
being unreasonably withheld.
2. SUPPLY OF PRODUCT. All AmBisome to be transferred to Sumitomo under the
terms of this Agreement (Product) shall be manufactured by NeXstar and
supplied by NeXstar in nude vials at NeXstar's price of vial in U.S.
dollars, C.I.F. Osaka.
<PAGE> 2
2-1. [Confidential Material omitted and filed separately with the
Securities and Exchange Commission pursuant to Section 24b-2 of
the Securities Exchange Act of 1934.]
2-2. All the product will be packaged and labeled by Sumitomo in
accordance with all regulatory requirements for use and/or sale
of AmBisome in Japan.
2-3. Order and Forecast
At the beginning of April and October in every year, Sumitomo
shall provide to NeXstar a forecast of the number of vials of
AmBisome required for its sales in the next six (6) months
starting in April and October respectively. Sumitomo shall place
firm orders based upon such forecast two (2) months before
deliveries.
2-4. Specification
All the Product shall meet the specifications set forth in
Exhibit B attached to this Agreement ("Specification"). The
analytical test method of Product (Analytical Test Method) for
the Specification shall be specified in the Exhibit C attached
to this Agreement. If such Product is found not to meet the
Specification by Sumitomo using Analytical Test Method and by
NeXstar with a confirmatory test using the same method, NeXstar
shall supply Sumitomo with new AmBisome for the replacement at
NeXstar's cost. In case the test results are different between
<PAGE> 3
Sumitomo and NeXstar, both parties shall discuss the cause of
the difference and decide how to handle the matter. In case
any revision or supplement to the Specification and/or
Analytical Test Method, the parties shall discuss and agree on
the revision of Exhibit B and C. In case an unexpected incident,
whatsoever it is, is caused by anything not being prescribed by
Specification, both parties shall meet and discuss how to deal
with the situation. NeXstar shall not change or modify the
manufacturing process of AmBisome without prior written consent
of Sumitomo.
2-5. Sumitomo shall make payment of the Product in U.S. dollars
within thirty (30) days after the confirmation that Product
meets the Specification by Sumitomo.
2-6. Sumitomo shall have the right to inspect NeXstar's plant to
check GMP conformance.
3. INFORMATION AND CLINICAL TRIALS. Sumitomo, with the Product Data and
cooperation from NeXstar, will seek the registration of AmBisome as a
licensed pharmaceutical with the Japanese Ministry of Health and Welfare
(the "Registration") at its own cost. Sumitomo will conduct any
additional preclinical studies and clinical trials required for the
Registration. NeXstar will supply up to 63,000 vials of Product for such
preclinical and/or clinical studies to Sumitomo free of charge. Should
Sumitomo require more than 63,000 vials for such preclinical and/or
clinical testing, such further Product will be supplied at a cost to
Sumitomo of twenty-five dollars ($25.00) per vial. The Product Data to
be supplied to Sumitomo will be used solely for the purpose of the
Registration.
3-1. Information Exchange
Until the launch of AmBisome in Japan, both parties will meet at
least annually to discuss and to exchange information on the
AmBisome. During the development period Sumitomo shall send to
NeXstar progress reports semiannually. Sumitomo shall provide
NeXstar with copies of all data, analyses and reports of
additional
<PAGE> 4
studies conducted by Sumitomo solely for NeXstar's use in
seeking additional or expanded registrations of AmBisome in the
territories outside Japan.
3-2. Sumitomo shall be responsible for decisions concerning the
design and execution of the application for the Registration,
and the conduct of additional preclinical and clinical studies
required for the Registration. NeXstar shall collaborate with
Sumitomo for such decision making.
3-3. Manufacturing Information
NeXstar shall provide Sumitomo with sufficient manufacturing
information on AmBisome for the Registration in Japan. Sumitomo
agrees to maintain manufacturing information in strict
confidence and not to disclose the same to any other party
without NeXstar's prior written consent and not to use such
information for any other purpose than Registration.
3-4. Adverse Event Report
Each party shall provide to the other adverse event reports at
the same time they are provided to the regulatory authorities as
required by law.
4. [Confidential Material omitted and filed separately with the
Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
5. ROYALTIES.
5-1. [Confidential Material omitted and filed separately with the
Securities and Exchange Commission pursuant to Section 24b-2 of
the Securities Exchange Act of 1934.]
<PAGE> 5
5-2. When Patent Rights no longer exists, the royalty will be
reduced to two (2) percent of Net Sales. In the event that a
true generic form of AmBisome were to be marketed in Japan the
royalty would drop to 1%.
5-3. Net Sales
Net Sales shall mean the total of the invoiced sales price of
AmBisome to wholesalers recorded as revenue by Sumitomo, less
(1) actual credited allowances to, and
(2) chargebacks from the account of such unaffiliated
customers for damaged or out-dated and returned
product, to the extent such amounts are included in the
invoiced sales price,
(3) rebates and
(4) discount.
5-4. Withholding tax.
All payments to be made under this Agreement shall where
required by the applicable laws of Japan be made after deduction
of withholding and other taxes.
6. MARKETING. Sumitomo shall distribute the AmBisome only under the
AmBisome Trademark in Japan, and shall not gain any vested trademark
rights in the Trademark thereby. NeXstar shall be responsible for
keeping the Trademark effective at NeXstar's expense in Japan. By the
end of March and September in every year, Sumitomo shall submit to
NeXstar a marketing plan, which shall explain Sumitomo's proposed
marketing and distribution efforts for AmBisome for the next 12 months.
This marketing plan will be formulated with the advice of NeXstar and,
where possible, will
<PAGE> 6
make use of promotional materials developed by NeXstar for use in its
current markets. Sumitomo shall market AmBisome in accordance with the
marketing plan.
7. PAYMENTS. Payment of royalties by Sumitomo to NeXstar from sales of
AmBisome shall be made within two (2) weeks after reports in section 8
are sent to NeXstar. Payments by Sumitomo to NeXstar shall be made in
U.S. dollars. Payments shall be calculated for each calendar quarter at
the exchange rate (T.T.S.) on the last business day of such calendar
quarter published in the United States Edition of the Wall Street
Journal under the Foreign Exchange listings. Sumitomo agrees at most
once in each calendar year, if necessary, to permit an independent
certified public accounting firm representing NeXstar and which is
reasonably acceptable to Sumitomo, upon NeXstar's written request, to
have access during normal business hours to such of the records of
Sumitomo as may be reasonably necessary to verify the accuracy of the
determination of royalties for any year ending not more than thirty-six
(36) months prior to the date of such request at NeXstar's cost. Such
firm shall report to NeXstar only the information necessary to verify
the accuracy of royalty payment.
8. REPORTS. Sumitomo shall furnish NeXstar with quarterly written reports
showing
(a) the gross sales of all AmBisome sold by Sumitomo and the
calculation of Net Sales from such gross sales.
(b) the royalties payable to NeXstar in U.S. dollars, if any, which
have accrued based upon Net Sales of AmBisome.
(c) withholding taxes, if any, required by law to be deducted in
respect of such sales.
(d) the exchange rates used in determining the amount of U.S.
dollars. Reports will be sent to NeXstar within one (1) month
after the end of each quarter.
<PAGE> 7
All records which Sumitomo must maintain under this Agreement shall be
full, true and accurate and shall contain all information and data which
may be necessary to ascertain and verify the royalties payable
hereunder. Such records shall be maintained for a period of seven (7)
years from the date of each payment.
9. CONFIDENTIALITY. Neither Sumitomo nor NeXstar will make any public
statement or other disclosure of information concerning any aspect of
this Agreement without the approval of the other party hereto, except
that each party may make such disclosures as may be required by
applicable law, including U.S. or Japanese securities laws. For the term
of this Agreement and five (5) years after the expiration or termination
of this Agreement, each Party shall hold all financial and technical
data, know-how or other information received from the other Party in
connection with the development, or sale of the AmBisome in confidence
and shall not use such information, except for;
(1) information that must be disclosed to government agencies for
the purpose of registering AmBisome
(2) information that is disclosed pursuant to any order or
requirement of a court, administrative agency, or other
governmental body
(3) information that is or becomes part of the public domain
through no fault of the receiving party
(4) information that is previously known to the receiving party
at the disclosure as shown by written records
(5) information which becomes known to the receiving party from
another source without breach of secrecy obligation to the
disclosing party, or
(6) information that was or is independently developed by the
receiving party.
<PAGE> 8
10. PATENT PROSECUTION AND MAINTENANCE. NeXstar shall take best efforts to
continue patent prosecution and maintain patent protection as regards
Patent Rights in Japan at NeXstar's cost.
11. INFRINGEMENT OF THE PATENT RIGHTS AND TRADEMARK. NeXstar shall have the
right to initiate an infringement or other appropriate suit or
proceeding against a third party that has infringed any of the Patent
Rights and Trademark. NeXstar shall have the sole right to elect counsel
and, except as provided in the following sentence, shall pay all
expenses of the suit or proceeding including without limitations
attorney's fees and court costs. Sumitomo has the right to participate
and, wherever necessary in order for NeXstar to adequately litigate such
suit or proceeding, Sumitomo shall offer reasonable assistance to
NeXstar in connection with any such proceeding at no charge to NeXstar
except for reimbursement of reasonable out-of-pocket expenses incurred
in rendering such assistance. Any damages, royalties, settlement fees or
other consideration received in any such suit or other proceeding shall
be allocated first to cover the out-of-pocket expenses, including
reasonable attorney fees, incurred by either party in connection with
any such suit or other proceeding, with the remainder to NeXstar.
If NeXstar decides not to assume responsibility for the conduct such
suit or other proceeding, Sumitomo shall have the right, but not
obligation, to conduct it for the infringement claim. In such event
NeXstar shall pay all expenses of the suit or proceeding including
without limitations attorney's fees and court costs, and the indemnity
from the third party shall belong to Sumitomo.
12. CLAIMED INFRINGEMENT BY OTHERS. NeXstar shall indemnify, defend and hold
Sumitomo harmless from any claim by any third party that the sale, the
offer to sell, or use of AmBisome for the approved indication(s) in
Japan infringes any patent held or licensed by
<PAGE> 9
such third party. NeXstar shall bear any and all expenses, costs of
defense (including without limitation attorney's fees, witness fees,
damages, judgments, fines, amount paid in settlement or royalties paid
to any third party) and any amounts Sumitomo becomes legally obligated
to pay because of any claimed infringement or claims, provided that
Sumitomo promptly notifies NeXstar such claimed infringement and agrees
to cooperate with NeXstar in the defense thereof. This indemnity shall
survive the termination of this Agreement.
13. DUE DILIGENCE. Sumitomo shall devote the same degree of attention,
resources and diligence to its respective obligations in this Agreement
and its efforts to develop, manufacture, market and sell AmBisome in
Japan as it devotes to other products of its own development.
14. TERM AND TERMINATION.
14-1. This Agreement shall become effective from the date of the last
signature set forth herein below and shall continue till the
later of the expiration date of the last of the patents in the
Patent Rights or a period of ten (10) years after Sumitomo's
launch of the Product in the Territory. After such expiration
date, this Agreement will be automatically extended for every
succeeding 1 year unless Sumitomo notifies NeXstar of its desire
to terminate this Agreement at least six (6) months prior to the
expiry.
14-2. Each party may terminate this Agreement without payment of any
compensation by giving a written notice of termination
(i) if the other party files a petition in bankruptcy or a
petition to take advantage of any insolvency or
reorganization act or, if the other party be adjudicated
a bankruptcy, or a court of complete jurisdiction shall
enter an order of decree
<PAGE> 10
appointing a receiver of property of the party, and such
adjudication, order or decree shall not be vacated or
set aside or stayed within thirty (30) days from its
entry.
(ii) if the other party has failed to perform a material
provision of this Agreement and has not corrected such
failure within sixty (60) days after receipt of notice
describing such failure.
14-3. Sumitomo may terminate this Agreement at any time upon six (6)
months' prior notice to NeXstar and payment of all amounts due
to NeXstar in such six (6) month period.
14-4. In the event that this Agreement is terminated by Sumitomo,
except for the termination by the reason of NeXstar's failure
(which shall include the termination by Sumitomo pursuant to
14-2), Sumitomo will assign and/or transfer any IND, NDA and/or
Registration for AmBisome to NeXstar of NeXstar's designee. In
the event of termination under paragraph 14-3, Sumitomo agrees
to effect the assignment and/or transfer prior to the
termination date.
15. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their permitted successors and
assigns; provided, however, that neither party shall assign any of its
rights and obligations hereunder except (i) as incident to the merger,
consolidations, reorganization, or acquisition of stock or assets
affecting substantially all of the assets or actual voting control of
the assigning party, or (ii) to an Affiliate; provided, however, that in
no event shall either party's obligations under the Agreement be
assigned to an Affiliate without prior written consent of the other
party. Affiliate shall mean a company of which at least fifty percent
(50%) of the voting stock is owned or controlled by the party concerned.
<PAGE> 11
16. GOVERNING LAW AND ARBITRATION. This Agreement shall be governed by the
laws of Germany. Any and all disputes, controversies or differences
which may arise between the parties hereto in relation to the
interpretation or administration of this Agreement shall finally be
settled by arbitration in accordance with the rules of the International
Chamber of Commerce, by which each party hereto is bound. The
arbitration shall be held in Tokyo, Japan, if demanded by NeXstar, in
Denver, U.S.A., if demanded by Sumitomo.
17. NO WARRANTY. NeXstar shall not be liable to Sumitomo, Sumitomo's
Affiliates, successors or any third party with respect to any claim
arising from the use of AmBisome, or any claim for loss of profits, loss
or interruption of business, or for indirect, special or consequential
damages of any kind, except stipulated otherwise in this Agreement and
except any claim directly resulted from the willful misconduct or
failure in manufacturing AmBisome by NeXstar.
18. FORCE MAJEURE. Neither party shall be responsible for failure or delay
in the performance of any of its obligations hereunder due to Force
Majeure. Force Majeure shall mean any circumstance which, due to an
event or a legal position beyond the parties' reasonable control,
renders impossible the fulfillment of any of the parties' obligations
hereunder, such as, but not limited to, acts of God, acts, regulations
and laws of any government, wars, civil commotions, destructions of
production facilities or materials by fires, earthquakes or storms,
labour disturbances, shortages of public utilities, common carriers or
raw materials, or any other causes of similar effects. The obligations
hereunder which are rendered impossible by any case of Force Majeure
shall not be discharged, but only be suspended and the party so affected
shall continue to perform its obligations as soon as such case of Force
Majeure is removed or alleviated.
<PAGE> 12
19. NOTICES. All notices, reports, requests or demands required or permitted
under this Agreement shall be forwarded, charges prepaid, by registered
air mail or by air courier or may be sent by facsimile, with confirmed
transmission, properly addressed to the respective Parties as follows:
If to NeXstar:
NeXstar Pharmaceuticals, Inc.
2860 Wilderness Place
Boulder, Colorado 80301
U.S.A.
(fax) 1-303-444-0672
Attention: Michael T. Burke
Vice President, Business Development
With a copy to: Adam Cochran
Vice President and General Counsel
Same address as set forth above
If to Sumitomo:
Sumitomo Pharmaceuticals Co. Ltd.
2-8, Doshomachi 2-chome Chuo-ku
Osaka 541, Japan
(fax) 81-6-233-2399
Attention: Mr. Shigeru Sakai
Manager, R & D Coordination Department
With a copy to: Mr. Yoshinori Takashima
Manager, Corporate Planning Department
Same address as set forth above
20. INDEPENDENT CONTRACTORS. No agency, partnership or joint venture is
hereby established. Each Party shall act hereunder as an independent
contractor. Neither Party shall enter into, or incur, or hold itself out
to third parties as having authority to enter into or incur on behalf of
the other Party any contractual obligations, expenses or liabilities
whatsoever.
<PAGE> 13
Sumitomo Pharmaceuticals Co., Ltd. NeXstar Pharmaceuticals Inc.
By: /s/ MASAYASU TAKEUCHI By: /s/ PATRICK J. MAHAFFY
--------------------------- ---------------------------
Masayasu Takeuchi
Title: President Title: President and Chief
------------------------ ------------------------
Executive Officer
------------------------
Date: September 26, 1996 Date: September 20, 1996
------------------------- ------------------------
<PAGE> 14
EXHIBIT A
AMBISOME PRODUCT DESCRIPTION
AmBisome for injection is a sterile lyophilized product for intravenous
infusion. Each vial contains 50 mg of amphotericin B, U.S.P., Ph. Eur.
encapsulated in liposomes consisting of approximately 213 mg hydrogenated soy
phosphatidylcholine, 52 mg cholesterol, U.S.N.F., 84 mg
distearoylphosphatidylglycerol, 0.64 mg alpha tocopherol, U.S.P., Ph. Eur.
together with 900 mg sucrose, U.S.P., Ph. Eur. and 27 mg disodium succinate
hexahydrate as buffer. AmBisome is presented in sterile 50 cc and 30 cc, type
I, USP, EP glass vials. The closure consists of an elastomer stopper and a
crimped aluminum sealing ring fitted with removable plastic cap.
EXHIBITS B AND C
[Confidential Material omitted and filed separately with the Securities and
Exchange Commission pursuant to Section 24b-2 of the Securities Exchange Act
of 1934.]
<PAGE> 1
EXHIBIT 10.57
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of March 24, 1997, by and between
NEXSTAR PHARMACEUTICALS, INC., ("NeXstar") a Delaware corporation, and NEXSTAR
PHARMACEUTICALS ITALIA, S.r.1., an Italian corporation, and NEXSTAR
PHARMACEUTIQUE SARL, a French corporation, ("Borrower"), and WELLS FARGO BANK
(COLORADO), NATIONAL ASSOCIATION ("Bank"). Unless otherwise designated, each
reference herein to "Borrower" shall mean each and every party collectively and
individually, defined above as a Borrower.
RECITALS
Borrower has requested from Bank the credit accommodation described
below, and Bank has agreed to provide said credit accommodation to Borrower on
the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as
follows:
ARTICLE I
THE CREDIT
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including March 24, 1998, not to exceed at any time the aggregate
principal amount of Fifteen Million Dollars ($15,000,000.00) ("Line of
Credit"), the proceeds of which shall be used for working capital requirements.
Borrower's obligation to repay advances under the Line of Credit shall be
evidenced by a promissory note substantially in the form of Exhibit A attached
hereto ("Line of Credit Note"), all terms of which are incorporated herein by
this reference.
Notwithstanding any provision to the contrary in this Agreement or the
Line of Credit Note, the joint and several liability of any Foreign Borrower
(as hereinafter defined), for principal under the Line of Credit Note shall be
limited to the greater of the aggregate outstanding advances made to or for the
benefit of such Foreign Borrower or the amount of the collateral provided to
Bank by such Foreign Borrower pursuant to this Agreement and the Loan Documents
(as hereinafter defined). NeXstar shall be jointly and severally liable for
all indebtedness and obligations under the Line of Credit Note and the Loan
Documents.
(b) Limitation on Borrowings. Outstanding borrowings under the
Line of Credit, to a maximum of the principal amount set forth above, shall not
at any time exceed an aggregate of one hundred percent (100%) of Borrower's
eligible accounts receivable.
As an additional limitation, at no time may outstanding borrowings to
or for the benefit of an individual Borrower other than NeXstar (each, a
"Foreign Borrower"), exceed the country limits of such Foreign Borrower's
location as set forth in an Approved Insurance Policy (as hereinafter defined),
or may outstanding borrowings to or for the benefit of NeXstar exceed the
aggregate of the country limits, other than the country limits
1
<PAGE> 2
applicable to the Foreign Borrowers and the Country of Portugal, as set forth
in an Approved Insurance Policy, with the understanding that no account debtor
of a Foreign Borrower is located outside of the country in which such Foreign
Borrower is located and that no account debtor of NeXstar is located in a
country in which any Foreign Borrower is located.
All the foregoing shall be determined by Bank upon receipt and review
of all collateral reports required hereunder and such other documents and
collateral information as Bank may from time to time require. Borrower
acknowledges that said borrowing base was established by Bank with the
understanding that, among other items, the aggregate of all returns (except
replacement of expired product which does not affect any account debtor's
obligation to pay an account), rebates, discounts, credits and allowances for
the immediately preceding three (3) months at all times shall be less than five
percent (5%) of Borrower's gross sales for said period excluding replacement of
expired product which does not affect any account debtor's obligation to pay an
account. If such dilution of Borrower's accounts for the immediately preceding
three (3) months at any time exceeds five percent (5%)of Borrower's gross sales
for said period, or if there at any time exists any other matters, events,
conditions or contingencies which Bank reasonably believes may affect payment
of any portion of Borrower's accounts, Bank, in its sole discretion, may reduce
the foregoing advance rate against eligible accounts receivable to a percentage
appropriate to reflect such additional dilution and/or establish additional
reserves against Borrower's eligible accounts receivable.
As used herein, "eligible accounts receivable" shall consist solely of
trade accounts with respect to debtors located outside of the United States
(such location to be determined by the location of such account debtor's chief
executive office) other than an obligation from an account debtor located in
Spain, Australia or Japan, created in the ordinary course of Borrower's
business, which accounts are insured under a policy of foreign credit insurance
(with Bank named as loss payee), in form, substance and issued by a party
acceptable to Bank in its sole and absolute discretion ("Approved Insurance
Policy"), upon which Borrower's right to receive payment is absolute and not
contingent upon the fulfillment of any condition whatsoever, and in which Bank
has a security interest, with such a perfected priority lien position as Bank
may require, and shall not include:
(i) any account, which is past due more than (a) two
hundred seventy (270) days with respect to accounts from account
debtors located in Greece, Saudi Arabia or Kuwait, (b) two hundred ten
(210) days with respect to acounts from account debtors located in
Italy and (c) more than ninety (90) days past due with respect to all
other such accounts, and in each case, with respect to which no
extension for payment has been granted;
(ii) that portion of any account for which there exists
any right of setoff, defense or discount (except regular discounts
allowed in the ordinary course of business to promote prompt payment)
or for which any defense or counterclaim has been asserted;
(iii) any account which represents an obligation of an
account debtor located in a foreign country, except to the extent any
such account, in Bank's determination, is (a) supported by a letter of
credit in form substance and issued by a party acceptable to Bank in
its sole and absolute discretion or, (b) insured under an Approved
Insurance Policy, with the understanding that such account shall not
be deemed insured to the extent of any deductible or risk retention;
(iv) any account which arises from the sale or lease to or
performance of services for, or represents an obligation of any
Borrower or, an employee, affiliate, partner, member, parent or
subsidiary of any Borrower;
2
<PAGE> 3
(v) that portion of any account which represents interim
or progress billings or retention rights on the part of the account
debtor;
(vi) that portion of any account from an account debtor
which represents the amount by which Borrower's total accounts from
said account debtor exceeds twenty-five percent (25%) of Borrower's
total accounts;
(vii) any account which is not payable in U.S. Dollars
except to the extent such account is payable in U.S. Dollars under an
Approved Insurance Policy;
(viii) any portion of any account which is subject to any
deduction or withholding on account of any tax imposed, levied,
collected, withheld or assessed by or within the United States of
America or any political subdivision in or of the United States of
America, or any other jurisdiction from or to which a payment is made
by or on behalf of Borrower or an account party or by any federation
or organization of which the United States of America, or any such
jurisdiction is a member at the time of payment;
(ix) any account deemed ineligible by Bank when Bank, in
its sole discretion, deems the creditworthiness or financial condition
of the account debtor, or the industry unsatisfactory.
(c) Borrowing and Repayment. Borrower may from time to time
during the term of the Line of Credit borrow, partially or wholly repay its
outstanding borrowings, and reborrow, subject to all of the limitations, terms
and conditions contained herein or in the Line of Credit Note; provided
however, that the total outstanding borrowings under the Line of Credit shall
not at any time exceed the maximum principal amount available thereunder, as
set forth above.
SECTION 1.2. INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line of
Credit shall bear interest at the rate set forth in the Line of Credit Note.
(b) Computation and Payment. Interest shall be computed on the
basis of a 360-day year, actual days elapsed. Interest shall be payable at the
times and place set forth in the Line of Credit Note.
(c) Commitment Fee. Borrower shall pay to Bank a non-refundable
commitment fee for the Line of Credit equal to Thirty Seven Thousand Five
Hundred Dollars ($37,500.00), which fee shall be due and payable in full upon
execution of this agreement.
(d) Unused Commitment Fee. Borrower shall pay to Bank a fee equal
to one eighth percent (1/8%) per annum (computed on the basis of a 360-day
year, actual days elapsed) on the average daily unused amount of the Line of
Credit, which fee shall be calculated on a monthly basis by Bank and shall be
due and payable by Borrower in arrears on the first business day of each month.
SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to
make advances under the Line of Credit only into Borrower's demand deposit
account number 4439821356 with Bank, and to collect all interest and fees due
under the Line of Credit by charging said demand deposit account, or any other
demand deposit account maintained by Borrower with Bank, for the full amount
thereof. Should there be
3
<PAGE> 4
insufficient funds in any such demand deposit account to pay all such sums when
due, the full amount of such deficiency shall be immediately due and payable by
Borrower.
SECTION 1.4 CERTAIN TAXES.
(a) All payments made to or for the benefit of Bank pursuant to
any Loan Document will be made without setoff, counterclaim or deduction for
and free and clear of any Taxes, but excluding those Taxes imposed on income or
capital of Bank by the jurisdiction (or any political subdivision thereof)
under the laws of which Bank is organized or in which its principal place of
business or lending office is located.
(b) If any Borrower is required by any applicable law to withhold
any Taxes from any amounts payable to Bank hereunder or thereunder,
respectively, (i) the amounts so payable to Bank shall be increased to the
extent necessary to yield to Bank (after payment of all Taxes) the amounts
payable in the full amounts so to be paid, (ii) Borrower, as applicable, will
make such withholdings, and (iii) Borrower, as applicable, will pay the full
amount required to be withheld to the appropriate tax or other authority in
accordance with such applicable laws. Whenever a Tax is paid by Borrower, as
promptly as possible thereafter, such Borrower will deliver to Bank an official
receipt showing payment of such Tax, together with such additional documentary
evidence as Bank from time to time may require.
(c) Borrower will pay any present or future Taxes that arise from
any payment made pursuant to any Loan Document or from the execution, delivery,
registration, performance or enforcement of any Loan Document.
(d) Borrower will indemnify Bank, and reimburse Bank promptly upon
demand, for the full amount of any Taxes (including, without limitation, any
Taxes imposed by any jurisdiction on amounts payable under this Section) paid
by Bank and any liability (including, without limitation, penalties, interest
and expenses) arising therefrom or with respect thereto, regardless of whether
such Taxes were correctly and legally asserted.
(e) Without prejudice to the survival of any other agreement or
obligation of Borrower under this Agreement or any other Loan Document, the
agreements and obligations of Borrower contained in this Section shall survive
the payment in full of all amounts due under the Loan Documents.
"Tax" or "Taxes" shall mean any one or more taxes, levies, imposts, duties,
charges, fees, deductions, withholdings or restrictions or conditions of any
nature whatsoever now or hereafter imposed, levied, collected, withheld, or
assessed by any country or by any political subdivision or taxing authority
thereof or therein, including, without limitation, any present or future stamp
or documentary taxes or other excise or property taxes, charges or similar
levies.
SECTION 1.5. COLLATERAL.
As security for all indebtedness of Borrower to Bank subject hereto,
Borrower hereby grants to Bank security interests of first priority in all
Borrower's trade accounts and other rights to payment now or hereafter owing by
an account debtor located outside of the United States, other than Spain,
Australia and Japan.
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All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements, deeds of trust and other
documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand
for all costs and expenses incurred by Bank in connection with any of the
foregoing security, including without limitation, filing and recording fees and
costs of appraisals, audits and title insurance.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly
organized and existing and in good standing under the laws of the jurisdiction
of its incorporation, and is qualified or licensed to do business (and is in
good standing as a foreign corporation, if applicable) in all jurisdictions in
which such qualification or licensing is required or in which the failure to so
qualify or to be so licensed could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Line
of Credit Note, and each other document, contract and instrument required
hereby or at any time hereafter delivered to Bank in connection herewith
(collectively, the "Loan Documents") have been duly authorized, and upon their
execution and delivery in accordance with the provisions hereof will constitute
legal, valid and binding agreements and obligations of Borrower or the party
which executes the same, enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and
performance by Borrower of each of the Loan Documents do not violate any
provision of any law or regulation, or contravene any provision of the Articles
of Incorporation or By-Laws or other organizational or governing documents of
Borrower, or result in any breach of or default under any contract, obligation,
indenture or other instrument to which Borrower is a party or by which Borrower
may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The consolidated
financial statement of Borrower dated September 30, 1996, a true copy of which
has been delivered by Borrower to Bank prior to the date hereof, (a) is
complete and correct and presents fairly the financial condition of Borrower,
(b) discloses all liabilities of Borrower that are required to be reflected or
reserved against under generally accepted accounting principles, whether
liquidated or unliquidated, fixed or contingent, and (c) has been prepared in
accordance with generally accepted accounting principles consistently applied.
Since the date of such financial statement there has been no material adverse
change in the financial condition of Borrower, nor has Borrower mortgaged,
pledged, granted a security interest in or otherwise encumbered any of the
collateral required under this Agreement except in favor of Bank or as
otherwise permitted by Bank in writing.
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SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to
any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will
hereafter possess, all permits, consents, approvals, franchises and licenses
required and rights to all trademarks, trade names, patents, and fictitious
names, if any, necessary to enable it to conduct the business in which it is
now engaged in compliance with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material
respects with all applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended or recodified from time to time ("ERISA") or
similar laws or regulations which apply to Borrower; Borrower has not violated
any provision of any defined employee pension benefit plan (as defined in
ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable
Event as defined in ERISA has occurred and is continuing with respect to any
Plan initiated by Borrower; Borrower has met its minimum funding requirements
under ERISA with respect to each Plan; and each Plan will be able to fulfill
its benefit obligations as they come due in accordance with the Plan documents
and under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation. All premiums
under any Approved Insurance Policy have been fully paid and Bank is entitled
to the benefits as a loss payee under any such Approved Insurance Policy.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by
Borrower to Bank in writing prior to the date hereof, Borrower is in compliance
in all material respects with all applicable federal, state or governmental
environmental, hazardous waste, health and safety statutes, and any rules or
regulations adopted pursuant thereto, which govern or affect any of Borrower's
operations and/or properties, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Resource Conservation
and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any
of the same may be amended, modified or supplemented from time to time. None
of the operations of Borrower is the subject of any federal, state or
governmental investigation evaluating whether any remedial action involving a
material expenditure is needed to respond to a release of any toxic or
hazardous waste or substance into the environment. Borrower has no material
contingent liability in connection with any release of any toxic or hazardous
waste or substance into the environment.
SECTION 2.12 VALIDITY OF ACCOUNTS. Each eligible account, upon
its creation, is a genuine obligation enforceable against the account debtor in
accordance with its terms, and represents an undisputed bona fide indebtedness
owing to Borrower, without defense, set off or counterclaim, free and clear of
all liens or claims other than Bank's, and no payment has been received with
respect to such eligible account.
SECTION 2.13 SECURITY INTERESTS. The Loan Documents create legal,
valid and enforceable security interests in and liens on all of the collateral
required under this Agreement and when all proper filings and actions required
to perfect such security
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interests and to provide a continuing perfected security interest have been
made, the Loan Documents and such filings and actions will create a perfected
and continuing first priority security interest in favor of Bank upon all such
collateral required with respect to NeXstar, and in such other collateral as
the Bank may request, and enforceable against the Borrower and all third
parties.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The
obligation of Bank to extend any credit contemplated by this Agreement is
subject to the fulfillment to Bank's satisfaction of all of the following
conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
extension of credit by Bank shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and
substance satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Line of Credit Note.
(ii) Continuing Security Agreements with respect to the
collateral required under this Agreement, executed by
each Borrower.
(iii) Financing Statements for the United States
jurisdiction.
(iv) Evidence of the existence of all insurance policies
required under this Agreement, and as applicable,
showing Bank as additional insured and loss payee.
(v) Opinion of local counsel of Borrower in form and
substance satisfactory to Bank, regarding
authorization, validity, enforceability, collateral
perfection and such other matters as may be requested
by Bank.
(vi) Corporate resolutions or other evidence of due
authorization with respect to each Borrower.
(vi) Such other documents as Bank may require under any
other Section of this Agreement.
(c) Financial Condition. There shall have been no material
adverse change, as determined by Bank, in the financial condition or business
of Borrower, nor any material decline, as determined by Bank, in the market
value of any collateral required hereunder or a substantial or material portion
of the assets of Borrower.
(d) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Approved Insurance Policies, in form, substance,
amounts, covering risks
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and issued by companies satisfactory to Bank, and with loss payable
endorsements in favor of Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The
obligation of Bank to make each extension of credit requested by Borrower
hereunder shall be subject to the fulfillment to Bank's satisfaction of each of
the following conditions:
(a) Compliance. The representations and warranties contained
herein and in each of the other Loan Documents shall be true on and as of the
date of the signing of this Agreement and on the date of each extension of
credit by Bank pursuant hereto, with the same effect as though such
representations and warranties had been made on and as of each such date, and
on each such date, no Event of Default as defined herein, and no condition,
event or act which with the giving of notice or the passage of time or both
would constitute such an Event of Default, shall have occurred and be
continuing or shall exist.
(b) Documentation. Bank shall have received all additional
documents which may be required in connection with such extension of credit.
(c) Audit. Within thirty (30) days from the date of this
Agreement Bank shall have received a satisfactory audit of the books and
records of NeXstar Pharmaceuticals Italia, S.r.1., which shall be conducted by
Bank's internal auditors.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in
writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal,
interest, fees or other liabilities due under any of the Loan Documents at the
times and place and in the manner specified therein, and immediately upon
demand by Bank, the amount by which the outstanding principal balance of the
Line of Credit at any time exceeds any limitation on borrowings applicable
thereto.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and
records on a consolidated basis in accordance with generally accepted
accounting principles consistently applied, and permit any representative of
Bank, at any reasonable time, to inspect, audit and examine such books and
records, to make copies of the same, and to inspect the properties of Borrower.
SECTION 4.3. FINANCIAL AND OTHER STATEMENTS. Provide to Bank all
of the following, in form and detail satisfactory to Bank:
(a) not later than 100 days after and as of the end of each fiscal
year, an audited consolidated financial statement of NeXstar, prepared by a
certified public accountant or firm acceptable to Bank (Bank acknowledges Ernst
& Young to be an acceptable firm), to include balance sheet, income statement
and applicable footnotes;
(b) not later than 50 days after and as of the end of each fiscal
quarter, a consolidated financial statement of NeXstar, prepared by NeXstar, to
reasonably include balance sheet, income statement and applicable footnotes;
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(c) not later than 15 days after and as of the end of each month,
a compliance certificate with respect to the continued effectiveness of
Approved Insurance Policies, a summary of foreign exchange exposure and
corresponding hedging contracts, a schedule of outstanding advances by each
individual Borrower and applicable country limit, a borrowing base certificate,
an aged listing of accounts receivable (by country and account debtor) and
accounts payable, and a reconciliation of accounts, and immediately upon each
request from Bank, a list of the names and addresses of all Borrower's account
debtors;
(d) not later than five (5) days after filing, a copy of each Form
10-Q and 10-K report filed by NeXstar with the Securities and Exchange
Commission pursuant to Sections 13 or 15(d) of the Securities Exchange Act of
1934 and Rules issued thereunder;
(e) contemporaneously with each annual and quarterly consolidated
financial statement of Borrower required hereby, a certificate of the president
or chief financial officer of NeXstar that said financial statements are
accurate and that there exists no Event of Default nor any condition, act or
event which with the giving of notice or the passage of time or both would
constitute an Event of Default;
(f) notification to Bank, of all of the countries in which account
debtors are required to withhold taxes or the Borrower is required to collect
taxes from such account debtors and the rates of such taxes. If, after the
date of this Agreement, additional countries require such collection or
withholding taxes, then, within five (5) days of notice thereof, provide Bank
with the name of the country and the rate of such taxes; and
(g) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses,
permits, governmental approvals, rights, privileges and franchises necessary
for the conduct of its business; and comply with the provisions of all
documents pursuant to which Borrower is organized and/or which govern
Borrower's continued existence and with the requirements of all laws, rules,
regulations and orders of any governmental authority applicable to Borrower
and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of
the types and in amounts customarily carried in lines of business similar to
that of Borrower, including but not limited to fire, extended coverage, public
and product liability, flood, property damage and workers' compensation, with
all such insurance carried with companies and in amounts satisfactory to Bank,
and deliver to Bank from time to time at Bank's request schedules setting forth
all insurance then in effect.
Maintain at all times one or more Approved Insurance Policies and not
amend the same without Bank's consent, with an aggregate coverage amount of at
least Fifteen Million Dollars ($15,000,000.00) and comply at all times with all
requirements thereunder, including without limitation the payment in full of
all premiums. Borrower shall promptly file claims arising under such Approved
Insurance Policies, , and concurrently therewith, deliver copies of such claims
to Bank. Additionally, Borrower shall promptly deliver to Bank copies of all
reports and other information as may be required under such Approved Insurance
Policies or by such insurers thereunder, and all correspondence to or from
insurers under Approved Insurance Policies.
Borrower will promptly notify Bank of, and promptly settle, all
Disputes with account parties, at Borrower's expense and costs, including
attorneys' fees and other expenses. However, if any Dispute is not settled by
Borrower during the Waiting Period (as such term is defined in an Approved
Insurance Policy) or within such shorter period as Bank may determine, in its
sole discretion, Bank may settle, compromise or litigate such
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dispute in Bank's or Borrower's name, upon such terms as Bank in its sole
discretion deems advisable and for Borrower's account and risk.
"Dispute", as used in this Section, shall mean any dispute, deduction,
claim, offset, defense or counterclaim of any kind relating to an account
party, regardless of whether the same (i) is in an amount greater than, equal
to or less than the account concerned, (ii) is bona fide or not, or (iii)
arises by reason of an act of God, civil strife, war, currency restrictions,
foreign political restrictions or regulations or any other circumstance beyond
the control of Borrower or the applicable account party.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary
to Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when
due any and all indebtedness, obligations, assessments and Taxes, both real or
personal, including without limitation federal and state income taxes and state
and local property taxes and assessments, and any tax imposed, levied, withheld
or assessed with respect to payments made by or on behalf of account debtors or
Borrower, except such (a) as Borrower may in good faith contest or as which a
bona fide dispute may arise, and (b) for which Borrower has made provision, to
Bank's satisfaction, for eventual payment thereof in the event Borrower is
obligated to make such payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank
of any litigation pending or threatened against Borrower with a claim in excess
of $500,000.00.
SECTION 4.9. FINANCIAL CONDITION. Maintain, on a consolidated
basis, NeXstar's financial condition as follows using generally accepted
accounting principles consistently applied and used consistently with prior
practices (except to the extent modified by the definitions herein):
(a) At all times:
(i) a Quick Ratio not at any time less than 1.40 to 1.0, with
"Quick Ratio" defined as the aggregate of unrestricted cash,
unrestricted marketable securities and receivables convertible
into cash divided by total current liabilities.
(ii) maintain within the United States, unrestricted liquid
assets not subject to any liens, ( with liquid assets defined
as cash, cash equivalents and/or publicly traded/quoted
marketable securities accceptable to Bank) with an aggregate
fair market value not at any time less than Twenty Million
Dollars ($20,000,000.00).
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than
five (5) days after the occurrence of each such event or matter) give written
notice to Bank in reasonable detail of: (a) the occurrence of any Event of
Default, or any condition, event or act which with the giving of notice or the
passage of time or both would constitute an Event of Default; (b) any change in
the name or the organizational structure of Borrower; (c) the occurrence and
nature of any Reportable Event or Prohibited Transaction, each as defined in
ERISA, or any funding deficiency with respect to any Plan; or (d) any
termination or cancellation of any insurance policy which Borrower is required
to maintain, or any uninsured or partially uninsured loss through liability or
property damage, or through fire, theft or any other cause affecting Borrower's
property in excess of an aggregate of $1,000,000.00.
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SECTION 4.11. PERFECTION OF SECURITY INTERESTS/ATTORNEY OPINIONS.
Execute and deliver such documents and take such actions as Bank deems
necessary to create, perfect and continue the security interests of Bank
required under this Agreement. Additionally, upon request of Bank from time to
time as Bank and Bank's counsel determine as necessary, Borrower shall provide
an opinion of Borrower's local country counsel, in form and substance
satisfactory to Bank, addressed to Bank, pertaining to validity and
enforceability of, and any other matter regarding, any of the Loan Documents
relevant to Borrower domiciled in such country, or the perfection of any
collateral required under this Agreement. All of the foregoing shall be at
Borrower's expense.
SECTION 4.12. FOREIGN CURRENCY HEDGING. Establish and maintain
foreign exchange hedging on outstanding accounts of Borrower as Bank may
require.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct
or contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit
extended hereunder except for the purposes stated in Article I hereof.
SECTION 5.2. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge
into or consolidate with any other entity; make any substantial change in the
nature of Borrower's business as conducted as of the date hereof; acquire all
or substantially all of the assets of any other entity which, in the aggregate,
exceed $5,000,000.00; sell, assign, transfer, pledge, hypothecate or grant a
security interest in any of the capital stock of any Borrower other than
NeXstar, nor sell, lease, transfer or otherwise dispose of all or a substantial
or material portion of Borrower's assets except in the ordinary course of its
business.
SECTION 5.3. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any portion of the collateral required
under this Agreement as security for, any liabilities or obligations of any
other person or entity, except any of the foregoing in favor of Bank or as
previously disclosed in writing to Bank.
SECTION 5.4. LOANS, ADVANCES, INVESTMENTS. Make any loans or
advances to or investments in any person or entity, except any of the foregoing
existing as of, and disclosed to Bank prior to the date hereof, and
(a) Investments which comply, at all times, with Borrower's
existing Investment Policy, attached herto as Exhibit A and
incorporated herein;
(b) Stock, obligations or securities received from customers in
connection with debts created in the ordinary course of
business owing to the Borrower;
(c) Continued ownership by NeXstar of the existing capital stock
the Foreign Borrowers and NeXstar Farmaceutica Portugal, LDA,
EuroNex
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Pharmaceuticals Limited, NeXstar Pharmaceuticals Limited
(U.K.), NeXstar Pharmaceuticals GmbH, NeXstar Farmaceutica,
S.A., NeXstar Pharmaceuticals Int'l B.V., NeXstar
Pharmaceuticals B.V. and NeXstar Pharmaceuticals Limited
(Ireland), NeXstar Pharmaceuticals Pty Limited (Australia)
(collectively, the "Subsidiaries");
(d) Endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business;
(e) Subsidiaries may make or permit to remain outstanding advances
from such Subsidiaries to NeXstar;
(f) Loans or advances to Subsidiaries, employees, or entities or
persons related to Borrower in an aggregate amount for all
such loans and advances not exceeding $4,000,000.00, at any
one time.
(g) Cash investments in the ordinary course of business to any
person or entity other than a Subsidiary, in an aggregate
amount for all such investments not exceeding $5,000,000.00,
at any one time.
SECTION 5.5. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit
to exist a security interest in, or lien upon, all or any portion of the
collateral required under this Agreement.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. DEFAULT. The occurrence of any of the following
shall constitute an "Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest,
fees or other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by
Borrower or any other party under this Agreement or any other
Loan Document shall prove to be incorrect, false or misleading
in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or
in any other Loan Document (other than those referred to in
subsections (a) and (b) above), and with respect to any such
default which by its nature can be cured, such default shall
continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation,
or any defined event of default, under the terms of any
contract or instrument (other than any of the Loan Documents)
pursuant to which Borrower has incurred debt or other
liability to Bank or to any other person or entity in excess
of $5,000,000.00.
(e) The filing of a notice of judgment lien against Borrower; or
the recording of any abstract of judgment against Borrower in
any county in which Borrower
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has an interest in real property; or the service of a notice
of levy and/or of a writ of attachment or execution, or
other like process, against the assets of Borrower; or the
entry of a judgment against Borrower; to the extent that any
of the above may result in an adverse financial impact on
Borrower in excess of $500,000.00.
(f) Borrower shall become insolvent, or shall suffer or consent to
or apply for the appointment of a receiver, trustee, custodian
or liquidator of itself or any of its property, or shall
generally fail to pay its debts as they become due, or shall
make a general assignment for the benefit of creditors;
Borrower shall file a voluntary petition in bankruptcy, or
seeking reorganization, in order to effect a plan or other
arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time ("Bankruptcy Code"),
or under any state or federal law granting relief to debtors,
whether now or hereafter in effect; or any involuntary
petition or proceeding pursuant to the Bankruptcy Code or any
other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or
commenced against Borrower, or Borrower shall file an answer
admitting the jurisdiction of the court and the material
allegations of any involuntary petition; or Borrower shall be
adjudicated a bankrupt, or an order for relief shall be
entered against Borrower by any court of competent
jurisdiction under the Bankruptcy Code or any other applicable
state or federal law relating to bankruptcy, reorganization or
other relief for debtors.
(g) There shall exist or occur any event or condition which Bank
in good faith believes impairs, or is substantially likely to
impair, the prospect of payment or performance by Borrower of
its obligations under any of the Loan Documents.
(h) The dissolution or liquidation of Borrower; or Borrower, or
any of its directors, stockholders or members, shall take
action seeking to effect the dissolution or liquidation of
Borrower.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of
Default: (a) all indebtedness of Borrower under each of the Loan Documents,
any term thereof to the contrary notwithstanding, shall at Bank's option and
without notice become immediately due and payable without presentment, demand,
protest or notice of dishonor, all of which are hereby expressly waived by each
Borrower; (b) the obligation, if any, of Bank to extend any further credit
under any of the Loan Documents shall immediately cease and terminate; and (c)
Bank shall have all rights, powers and remedies available under each of the
Loan Documents, or accorded by law, including without limitation the right to
resort to any or all security for any credit accommodation from Bank subject
hereto and to exercise any or all of the rights of a beneficiary or secured
party pursuant to applicable law. All rights, powers and remedies of Bank may
be exercised at any time by Bank and from time to time after the occurrence of
an Event of Default, are cumulative and not exclusive, and shall be in addition
to any other rights, powers or remedies provided by law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of
Bank in exercising any right, power or remedy under any of the Loan Documents
shall affect or
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operate as a waiver of such right, power or remedy; nor shall any single or
partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must
be in writing and shall be effective only to the extent set forth in such
writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any
party is required or may desire to give to any other party under any provision
of this Agreement must be in writing delivered to each party at the following
address:
BORROWER:
NEXSTAR PHARMACEUTICALS, INC.
2860 Wilderness Place
Boulder, CO 80301
Attention: Lauri R. Harker
With a copy to:
Vice President and General Counsel
At the address set forth above
BANK: WELLS FARGO BANK (COLORADO),
NATIONAL ASSOCIATION
633 17th Street, 3rd floor
Denver, CO 80202
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit
in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall
pay to Bank immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Bank's in-house counsel),
expended or incurred by Bank in connection with (a) the negotiation and
preparation of this Agreement and the other Loan Documents, Bank's continued
administration hereof and thereof, and the preparation of any amendments and
waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the
collection of any amounts which become due to Bank under any of the Loan
Documents, and (c) the prosecution or defense of any action in any way related
to any of the Loan Documents, including without limitation, any action for
declaratory relief, whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, and including any of the foregoing
incurred in connection with any bankruptcy proceeding (including without
limitation, any adversary proceeding, contested matter or motion brought by
Bank or any other person) relating to any Borrower or any other person or
entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the heirs, executors, administrators,
legal representatives, successors and assigns of the parties; provided however,
that Borrower may not assign or transfer its interest hereunder without Bank's
prior written consent. Bank reserves the right to sell, assign, transfer,
negotiate or grant participations in all or
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any part of, or any interest in, Bank's rights and benefits under each of the
Loan Documents. In connection therewith, Bank may disclose all documents and
information which Bank now has or may hereafter acquire relating to any credit
extended by Bank to Borrower, Borrower or its business, or any collateral
required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the
other Loan Documents constitute the entire agreement between Borrower and Bank
with respect to any extension of credit by Bank subject hereto and supersede
all prior negotiations, communications, discussions and correspondence
concerning the subject matter hereof. This Agreement may be amended or
modified only in writing signed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made
and entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person or
entity shall be a third party beneficiary of, or have any direct or indirect
cause of action or claim in connection with, this Agreement or any other of the
Loan Documents to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every
provision of this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement and the other Loan
Documents may be executed in any number of counterparts, each of which when
executed and delivered shall be deemed to be an original, and all of which when
taken together shall constitute one and the same agreement, as the case may
be..
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Colorado.
SECTION 7.11. JURISDICTION AND SERVICE OF PROCESS, VENUE, IMMUNITY/
JUDGMENT CURRENCY. Subject to the provisions of Section 7.13, any suit, action
or proceeding against any Borrower with respect to the Agreement may be brought
in (a) the courts of the State of Colorado, (b) the United States District
Court for the District of Colorado, or (c) the courts of the country of any
Borrower's incorporation, as Bank may elect in its sole discretion, and
Borrower hereby submits to any such suit, action, proceeding or judgment and
waives any other preferential jurisdiction by reason of domicile. Borrower
hereby agrees that service of all writs, processes and summonses in any suit,
action or proceeding brought in the State of Colorado may be made upon NeXstar
Pharmeceuticals, Inc. and/or its successors, presently located at 2860
Wilderness Place, Boulder, CO 80301, U.S.A. (the "Process Agent"). Borrower
hereby irrevocably appoints the Process Agent its agent and true and lawful
attorney-in-fact while any of the Borrower's obligations under the Agreement
remain unsatisfied, in its name, place and stead only to accept such service of
any and all such writs, processes and summonses, and agrees that the failure of
the Process Agent to give any notice of any such service of process to the
Borrower shall not impair or affect the validity of such service or of any
judgment based thereon. The Borrower hereby further irrevocably consents to
the service of process in any suit, action or proceeding in the above specified
courts by the mailing thereof by Bank by registered or certified mail, postage
prepaid, to the Borrower at the address specified in this Agreement. Nothing
herein shall in any way be deemed to limit the ability of Bank to serve any
writs, processes or summonses in any other manner, as may be permitted by
applicable law. Borrower irrevocably waives any objection which it may now
15
<PAGE> 16
or hereafter have to the laying of the venue of any suit, action or proceeding
arising out of or relating to the Agreement brought in the courts of the State
of Colorado or of the United States District Court for the District of
Colorado, or the courts in the country of the Borrower's incorporation, and
also irrevocably waives any claim that any such suit, action or proceeding
brought in any of those courts has been bought in an inconvenient form.
Notwithstanding any judgment rendered in a currency other than United States
Dollars, the Borrower shall not be relieved of any obligations with respect to
any amount owed by it to Bank under the Agreement except to the extent of the
amount in United Sates Dollars which Bank is able to acquire with such amount
of such currency on the Banking Day (a day when Bank is open for business in
Denver, Colorado, U.S.A.) following receipt of such amount by Bank. If the
amount in United States Dollars so acquired is less than the amount initially
due to Bank, the Borrower shall indemnify Bank by paying the difference
between such amounts in United States Dollars. The payment of any additional
amount so required of the Borrower under this Section shall constitute an
independent obligation of the Borrowers, the enforcement of which obligation
may not be impeded by the Borrower.
SECTION 7.12. JOINT AND SEVERAL LIABILITY. As used in this Section
7.12, the term "Joint Credit" shall mean the Line of Credit.
(a) Each Borrower has determined and represents to Bank that it is
in its best interests and in pursuance of its legitimate business purposes to
induce Bank to extend credit pursuant to this Agreement. Each Borrower
acknowledges and represents that its business is related to the business of the
other Borrowers, the availability of the commitments provided for herein
benefits each Borrower, and advances and other credit extensions made hereunder
will inure to the benefit of Borrowers, individually and as a group.
(b) Each Borrower has determined and represents to Bank that it
has, and after giving effect to the transactions contemplated by this Agreement
will have, assets having a fair saleable value in excess of its debts (other
than inter-company debt), after giving effect to any rights of contribution or
subrogation which may be available to such Borrower, and each Borrower has, and
will have, access to adequate capital for the conduct of its business and the
ability to pay its debts as such debts mature.
(c) Each Borrower agrees that it is jointly and severally liable
to Bank for, and each Borrower agrees to pay to Bank when due the full amount
of, all indebtedness now existing or hereafter arising to Bank under or in
connection with the Joint Credit and all modifications, extensions and renewals
thereof, including without limitation all advances disbursed to any Borrower
under the Joint Credit, all interest which accrues thereon and all fees, costs
and expenses chargeable to any Borrower in connection therewith.
(d) The liability of each Borrower for the Joint Credit shall be
reinstated and revived and the rights of Bank shall continue if and to the
extent that for any reason any amount at any time paid on account of any of the
Joint Credit is rescinded or must otherwise be restored by Bank, whether as a
result of any proceedings in bankruptcy or reorganization or otherwise, all as
though such amount had not been paid.
(e) Each Borrower authorizes Bank, without notice to or demand on
such Borrower, and without affecting such Borrower's liability for the Joint
Credit, from time to time to: (a) alter, compromise, extend, accelerate or
otherwise change the time for payment of, or otherwise change the terms of, the
liabilities and obligations of any other Borrower to Bank on account of any of
the Joint Credit; (b) take and hold security from any other Borrower for the
payment of any of the Joint Credit, and exchange, enforce, waive, subordinate
or release any such security; (c) apply such security and direct the order or
manner of sale thereof, including without limitation, a non-judicial sale
permitted by the
16
<PAGE> 17
terms of the controlling security agreement or deed of trust, as Bank in its
discretion may determine; (d) release or substitute any one or more of the
endorsers or any guarantors of any of the Joint Credit, or any other party
obligated thereon; and (e) apply payments received by Bank from any other
Borrower to indebtedness of such other Borrower to Bank other than the Joint
Credit.
(f) Each Borrower represents and warrants to Bank that it has
established adequate means of obtaining from any other Borrower on a continuing
basis financial and other information pertaining to such other Borrower's
financial condition, and each Borrower agrees to keep adequately informed from
such means of any facts, events or circumstances which might in any way affect
its risks hereunder Each Borrower further agrees that Bank shall have no
obligation to disclose to it any information or material about any other
Borrower which is acquired by Bank in any manner.
(g) Each Borrower waives any right to require Bank to: (i) proceed
against any other Borrower or any other person; (ii) proceed against or exhaust
any security held from any other Borrower or any other person; (iii) pursue any
other remedy in Bank's power; (iv) apply payments received by Bank from any
other Borrower to any of the Joint Credit; or (v) make any presentments or
demands for performance, or give any notices of nonperformance, protests,
notices of protest or notices of dishonor in connection with any of the Joint
Credit.
(h) Each Borrower waives any defense to its liability for the
Joint Credit based upon or arising by reason of: (i) any disability or other
defense of any other Borrower or any other person; (ii) the cessation or
limitation from any cause whatsoever, other than payment in full, of the
liability of any other Borrower for the Joint Credit; (iii) any lack of
authority of any officer, director, partner, agent or other person acting or
purporting to act on behalf of any other Borrower or any defect in the
formation of any other Borrower; (iv) the application by any other Borrower of
the proceeds of any of the Joint Credit for purposes other than the purposes
intended or understood by Bank or any Borrower; (v) any act or omission by Bank
which directly or indirectly results in or aids the discharge of any other
Borrower by operation of law or otherwise, or which in any way impairs or
suspends any rights or remedies of Bank against any other Borrower; (vi) any
impairment of the value of any interest in any security for any of the Joint
Credit, including without limitation, the failure to obtain or maintain
perfection or recordation of any interest in any such security, the release of
any such security without substitution, and/or the failure to preserve the
value of, or to comply with applicable law in disposing of, any such security;
or (vii) any modification of the obligations or liabilities of any other
Borrower for any of the Joint Credit, including without limitation the renewal,
extension, acceleration or other change in time for payment of, or other change
in the terms of, the indebtedness of any other Borrower for any of the Joint
Credit, including increase or decrease of the rate of interest thereon. Until
the Joint Credit and all indebtedness of each Borrower to Bank arising under or
in connection with this Agreement shall have been paid in full, no Borrower
shall have any right of subrogation. Each Borrower waives all rights and
defenses it may have arising out of (A) any election of remedies by Bank, even
though that election of remedies, such as a non-judicial foreclosure with
respect to any security for any of the Joint Credit, destroys its rights of
subrogation or its rights to proceed against any other Borrower for
reimbursement, or (B) any loss of rights it may suffer by reason of any rights,
powers or remedies of any other Borrower in connection with any anti-deficiency
laws or any other laws limiting, qualifying or discharging any Borrower's
indebtedness for any of the Joint Credit, whether by operation of law or
otherwise. Until the Joint Credit and all indebtedness of each Borrower to Bank
arising under or in connection with this Agreement shall have been paid in
full, each Borrower waives any right to enforce any remedy which Bank now has
or may hereafter have against any other Borrower or any other person, and
waives any benefit of, or any right to participate in, any security now or
hereafter held by Bank.
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<PAGE> 18
(i) If any of the waivers herein is determined to be contrary to
any applicable law or public policy, such waiver shall be effective only to the
extent permitted by law.
(j) It is the position of the Borrowers that each Borrower
benefits from the Joint Credit that have been made available by Bank under this
Agreement and from each extension of credit thereunder, regardless of whether
such credit is disbursed to a joint account of Borrowers or to or for the
account of any Borrower.
SECTION 7.13. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall
be resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "Dispute," as used in this
Section, shall mean any action, dispute, claim or controversy of any kind,
whether in contract or tort, statutory or common law, legal or equitable, now
existing or hereafter arising under or in connection with, or in any way
pertaining to, any of the Loan Documents, or any past, present or future
extensions of credit and other activities, transactions or obligations of any
kind related directly or indirectly to any of the Loan Documents, including
without limitation, any of the foregoing arising in connection with the
exercise of any self-help, ancillary or other remedies pursuant to any of the
Loan Documents. Any party may by summary proceedings bring an action in court
to compel arbitration of a Dispute. Any party who fails or refuses to submit
to arbitration following a lawful demand by any other party shall bear all
costs and expenses incurred by such other party in compelling arbitration of
any Dispute.
(b) Governing Rules. Arbitration proceedings shall be
administered by the American Arbitration Association ("AAA") or such other
administrator as the parties shall mutually agree upon in accordance with the
AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall
be resolved in accordance with the Federal Arbitration Act (Title 9 of the
United States Code), notwithstanding any conflicting choice of law provision in
any of the Loan Documents. The arbitration shall be conducted at a location in
Colorado selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant to
the Dispute being arbitrated. Judgment upon any award rendered in an
arbitration may be entered in any court having jurisdiction; provided however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 U.S.C. Section 91 or any
similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure.
No provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary
remedies, including without limitation injunctive relief, sequestration,
attachment, garnishment or the appointment of a receiver, from a court of
competent jurisdiction before, after or during the pendency of any arbitration
or other proceeding. The exercise of any such remedy shall not waive the right
of any party to compel arbitration hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators
must be active members of the Colorado State Bar or retired judges of the state
or federal judiciary of Colorado with expertise in the substantive law
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of Colorado, (ii) may grant
any remedy or relief that a court of the state of Colorado could order or grant
within the scope hereof
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and such ancillary relief as is necessary to make effective any award, and
(iii) shall have the power to award recovery of all costs and fees, to impose
sanctions and to take such other actions as they deem necessary to the same
extent a judge could pursuant to the Federal Rules of Civil Procedure, the
Colorado Rules of Civil Procedure or other applicable law. Any Dispute in
which the amount in controversy is $5,000,000 or less shall be decided by a
single arbitrator who shall not render an award of greater than $5,000,000
(including damages, costs, fees and expenses). By submission to a single
arbitrator, each party expressly waives any right or claim to recover more than
$5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000
shall be decided by majority vote of a panel of three arbitrators; provided
however, that all three arbitrators must actively participate in all hearings
and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the
contrary, in any arbitration in which the amount in controversy exceeds
$25,000,000, the arbitrators shall be required to make specific, written
findings of fact and conclusions of law. In such arbitrations (i) the
arbitrators shall not have the power to make any award which is not supported
by substantial evidence or which is based on legal error, (ii) an award shall
not be binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the state of Colorado, and (iii) the parties shall have in
addition to the grounds referred to in the Federal Arbitration Act for
vacating, modifying or correcting an award the right to judicial review of (A)
whether the findings of fact rendered by the arbitrators are supported by
substantial evidence, and (B) whether the conclusions of law are erroneous
under the substantive law of the state of Colorado. Judgment confirming an
award in such a proceeding may be entered only if a court determines the award
is supported by substantial evidence and not based on legal error under the
substantive law of the state of Colorado.
(f) Miscellaneous. To the maximum extent practicable, the AAA,
the arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose
the existence, content or results thereof, except for disclosures of
information by a party required in the ordinary course of its business, by
applicable law or regulation, or to the extent necessary to exercise any
judicial review rights set forth herein. If more than one agreement for
arbitration by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to the Loan Documents or the
subject matter of the Dispute shall control. This arbitration provision shall
survive termination, amendment or expiration of any of the Loan Documents or
any relationship between the parties.
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<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first written above.
<TABLE>
<CAPTION>
NEXSTAR PHARMACEUTICALS, INC. WELLS FARGO BANK (COLORADO),
<S> <C>
NATIONAL ASSOCIATION
By: /s/ PATRICK J. MAHAFFY
-----------------------------------------
Patrick J. Mahaffy By: /s/ TRACEY A. HANSON
President and Chief Executive Officer -------------------------------------
Tracey A. Hanson
Vice President
By: /s/ MICHAEL E. HART
-----------------------------------------
Michael E. Hart
Vice President, Chief Financial Officer
NEXSTAR PHARMACEUTICALS ITALIA, S.r.1.,
an Italian corporation
By: /s/ ANTONIO SPAGNA
-----------------------------------------
Antonio Spagna
Managing Director, General Manager
NEXSTAR PHARMACEUTIQUE SARL,
a French corporation
By: /s/ GERARD LAMPERTI
-----------------------------------------
Gerard Lamperti
Managing Director, General Manager
</TABLE>
20
<PAGE> 1
EXHIBIT 10.58
================================================================================
SECURITIES PURCHASE AGREEMENT
among
WARBURG, PINCUS CAPITAL PARTNERS, L.P.,
HUMANA INC.
and
VESTAR, INC.
----------------
May 11, 1990
----------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
SECTION 1. AUTHORIZATION OF SERIES D CONVERTIBLE
PREFERRED STOCK AND WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. PURCHASE AND SALE OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 3. REPRESENTATIONS AND WARRANTIES OF
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.4 Corporate Proceedings, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.6 Absence of Defaults, Conflicts, etc . . . . . . . . . . . . . . . . . . . . . . . . 4
3.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.8 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 5
3.9 Absence of Certain Developments . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.10 SEC Disclosure Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.11 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.12 Pending Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.14 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.15 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.16 Patents, Licenses, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.17 Title to Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.19 Interest in Competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.20 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.21 Private Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.22 Confidential Memorandum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.23 Material Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.24 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . . . . . . . 11
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Increase in Number of Authorized Shares of Common Stock . . . . . . . . . . . . . . 13
5.2 Certificate of Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 Resale of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Covenants Pending Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.5 Further Assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
SECTION 6. PURCHASERS' CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Compliance with Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.3 Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.4 Counsel's Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.5 Approval of Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.6 Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.7 Adverse Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.8 Legal Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 7. COMPANY CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 8. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.2 Requested Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.3 Company Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.4 Form S-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.5 Expenses of Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.6 Other Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.7 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.8 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.9 Information about the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.10 Conditions to Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.11 Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 9. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.1 Financial and Business Information . . . . . . . . . . . . . . . . . . . . . . . . 30
9.2 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.3 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.4 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.6 Keeping of Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.7 Lost, etc. Certificates Evidencing Convertible Preferred Stock; Exchange . . . . . 32
SECTION 10. INTERPRETATION OF THIS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.1 Terms Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.2 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.3 Directly or Indirectly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.5 Paragraph and Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.2 Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.3 Reproduction of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.4 Termination and Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.6 Entire Agreement; Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . 36
11.7 Limitation on Enforcement of Remedies . . . . . . . . . . . . . . . . . . . . . . . 37
11.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Schedule 3.1 Jurisdictions Qualified to do Business
Schedule 3.2 Subsidiaries, Joint Ventures, Etc.
Schedule 3.3 Warrants and Options
Schedule 3.5 Consents and Filings
Schedule 3.9 Developments Since December 31, 1989
Schedule 3.11 Compliance with Law
Schedule 3.13 Tax Audits
Schedule 3.14 Employment Contracts, Collective Bargaining Agreements, Labor Organization
Activity; Pending Employee Departures
Schedule 3.15 Employee Benefit Plans
Schedule 3.16 Encumbered Patents, Licenses, Etc.
Schedule 3.17 Encumbered Tangible Assets
Schedule 3.18 Insurance Policies
Schedule 3.19 Interest in Competitors
Schedule 3.20 Registration Rights
EXHIBIT A Purchasers, Securities Purchased and Purchase Price
EXHIBIT B Form of Certificate of Designations, Number, Voting Powers,
Preferences and Rights of Series D Convertible Preferred Stock
EXHIBIT C Form of Common Stock Purchase Warrants
EXHIBIT D Certificate of Incorporation of Vestar, Inc.
EXHIBIT E By-Laws of Vestar, Inc.
</TABLE>
(iii)
<PAGE> 5
VESTAR, INC.
SECURITIES PURCHASE AGREEMENT
Dated as of May 11, 1990
To: Each of the Purchasers named
on Exhibit A hereto
Dear Sirs:
Vestar, Inc. (the "Company"), a Delaware corporation having offices at
650 Cliffside Drive, San Dimas, California 91773, hereby agrees with each of
the Purchasers listed on Exhibit A hereto severally (the Purchasers listed on
Exhibit A hereto are hereinafter referred to individually as a "Purchaser" and
collectively as "Purchasers") as follows:
SECTION 1. AUTHORIZATION OF SERIES D CONVERTIBLE PREFERRED
STOCK AND WARRANTS
(a) The Company has authorized and created a series of its
preferred stock consisting of 6,500 shares, $.01 par value per share,
designated as its "Series D Convertible Preferred Stock" (the "Convertible
Preferred Stock"). The terms, limitations and relative rights and preferences
of the Convertible Preferred Stock are set forth in the Certificate of
Designations, Number, Voting Powers, Preferences and Rights of Series D
Convertible Preferred Stock of the Company, a copy of which is annexed hereto
as Exhibit B (the "Certificate of Designation").
(b) The Company has authorized the issuance of warrants to
purchase an aggregate of 1,529,411 shares of the Company's Common Stock, par
value $.01 per share, substantially in the form of Exhibit C hereto (the
"Warrants").
SECTION 2. PURCHASE AND SALE OF SECURITIES
(a) Subject to the terms and conditions set forth in this
Agreement and in reliance upon the Company's and the Purchasers'
representations set forth below, on the Closing Date (as defined below) the
Company shall sell to each Purchaser, and each Purchaser shall purchase from
the Company severally and not jointly, the aggregate number of shares of
Convertible Preferred Stock and Warrants set forth opposite each Purchaser's
name for an aggregate cash purchase price set forth opposite such name on
<PAGE> 6
Exhibit A. Such sales and purchases shall be effected on the Closing Date by
the Company executing and delivering to each Purchaser, duly registered in such
Purchaser's name, a duly executed stock certificate evidencing the shares of
Convertible Preferred Stock to be purchased and a duly executed Warrant
certificate against delivery by such Purchaser to the Company of the amount set
forth opposite such Purchaser's name on Exhibit A by wire transfer of
immediately available funds to such account as the Company shall designate, not
less than three Business Days prior to the Closing Date.
(b) The closing of such sales and purchases shall take place at
11:00 A.M., Eastern Standard Time, on May 11, 1990, or such other date as the
Purchasers and the Company agree in writing (the "Closing Date"), at the
offices of Willkie Farr & Gallagher, 153 East 53rd Street, New York, New York,
or such other location as the Purchasers and the Company shall mutually select.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that:
3.1 Corporate Organization
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Annexed hereto as
Exhibits D and E, respectively, are true and complete copies of the Certificate
of Incorporation and By-Laws of the Company, as amended through the date
hereof.
(b) The Company has all requisite power and authority and has all
necessary approvals, licenses, permits and authorization to own its properties
and to carry on its business as now conducted.
(c) The Company has filed all necessary documents to qualify to do
business as a foreign corporation in, and the Company is in good standing under
the laws of, each jurisdiction listed on Schedule 3.1 hereto, and such
jurisdictions constitute the only jurisdictions in which the conduct of the
Company's business or the nature of the property owned require such
qualification, except where the failure to so qualify would not have a material
adverse affect on the business or financial position of the Company.
3.2 Subsidiaries
Except as set forth on Schedule 3.2, the Company does
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<PAGE> 7
not own, directly or indirectly, any capital stock or other equity securities
of any corporation nor does it have any direct or indirect ownership interest
in any business. The Company is not a participant in any joint venture or
partnership, or a party to any license agreement other than as disclosed in
Schedule 3.2.
3.3 Capitalization
(a) The Company's authorized capital stock consists of 3,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock") and
10,000,000 shares of common stock, par value $.01 per share (the "Common
Stock"). As of April 15, 1990, the issued and outstanding capital stock of the
Company consisted of 6,424,368 shares of Common Stock and no shares of
Preferred Stock. All the issued and outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid and
non-assessable. As of April 15, 1990, the Company had reserved for issuance:
1,046,787 shares of Common Stock upon the exercise of outstanding options
granted under the Company's stock option plans; 478,000 shares of Common Stock
upon the exercise of outstanding warrants; and 77,846 shares of Common Stock
under the Company's Retirement Savings Plan.
(b) Upon issuance, sale and delivery as contemplated by this
Agreement, the Warrants will be validly issued by the Company and entitled to
the rights described therein and the shares of Convertible Preferred Stock will
be duly authorized, validly issued, fully paid and non-assessable shares of the
Company, free of all preemptive or similar rights, and entitled to the rights
therein described. The Company has reserved for issuance the number of shares
of Common Stock initially issuable upon exercise of the Warrants and conversion
of the Convertible Preferred Stock (including without limitation, temporary
suspension of stock option grants pursuant to Section 5.1(b) hereof). Upon
their issuance in accordance with the terms of the Warrants or the Convertible
Preferred Stock, the shares of Common Stock issuable upon exercise of the
Warrants or upon conversion of the Convertible Preferred Stock will be duly
authorized, validly issued, fully paid and non-assessable shares of Common
Stock of the Company, free of all preemptive or similar rights.
(c) Except for the rights which attach to the warrants and options
which are listed on Schedule 3.3 hereto and to the Convertible Preferred Stock,
there are no shares of Common Stock issuable upon conversion of any security of
the Company nor are there any rights, options or warrants outstanding or other
agreements to acquire shares of Common Stock nor is the Company contractually
obligated to purchase, redeem or otherwise acquire any of its outstanding
shares of Common Stock. No shareholder of
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<PAGE> 8
the Company is entitled to any preemptive or similar rights to subscribe for
shares of capital stock of the Company.
3.4 Corporate Proceedings, etc.
(a) The Board of Directors of the Company has duly authorized the
execution and delivery of this Agreement and the performance by the Company of
its obligations hereunder. The Board has authorized the creation and
designation of the Convertible Preferred Stock and the issuance and delivery of
the Convertible Preferred Stock and the Warrants in accordance with this
Agreement and has reserved for issuance the shares of Common Stock initially
issuable upon conversion of the Convertible Preferred Stock and upon exercise
of the Warrants (including without limitation, temporary suspension of stock
option grants pursuant to Section 5.1(b) hereof). No other corporate action
(except for an amendment to the Company's Certificate of Incorporation
increasing the number of authorized shares of Common Stock to 15,000,000
shares, as contemplated by Section 5.1(a) hereof) is necessary to authorize the
performance by the Company of its obligations hereunder.
(b) This Agreement constitutes the valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms.
3.5 Consents and Approvals
Except for the consents and filings described in Schedule 3.5 hereto,
the execution and delivery by the Company of this Agreement, the performance by
the Company of its obligations hereunder and the consummation by the Company of
the transactions contemplated hereby do not require the Company to obtain any
consent, approval or action of, or make any filing with or give any notice to,
any corporation, person or firm or any public, governmental or judicial
authority.
3.6 Absence of Defaults, Conflicts, etc.
The execution and delivery of this Agreement and the adoption by the
Board of Directors of the Company of the Certificate of Designation do not, and
the fulfillment of the terms hereof and thereof by the Company, and the
issuance of the Convertible Preferred Stock and the Warrants (and the Common
Stock upon conversion of the Convertible Preferred Stock and upon exercise of
the Warrants) as herein contemplated, will not result in a breach of any of the
terms, conditions or provisions of, or constitute a default under, or permit
the acceleration of rights under or termination of, any material indenture,
mortgage, deed of trust, credit agreement, note or other evidence of
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<PAGE> 9
indebtedness, or other material agreement of the Company (collectively, the
"Key Agreements and Instruments"), or the Certificate of Incorporation or
By-Laws of the Company, or any rule or regulation of any court or federal or
state regulatory board or body or administrative agency having jurisdiction
over the Company or over its properties or businesses. No event has occurred
and no condition exists which, upon notice or the passage of time, would
constitute a material default under any such Key Agreements and Instruments or
in any material license, permit or authorization to which the Company is a
party or by which it may be bound.
3.7 Financial Statements
The Company has previously delivered to the Purchasers the Company's
balance sheets as at December 31, 1989 and December 31, 1988, and the related
statements of operations, stockholders' equity and cash flows for the fiscal
periods ended on such dates, in each case certified by Touche Ross & Co.,
independent certified public accountants. The financial statements and
schedules (including the related notes) of the Company present fairly the
financial condition of the Company and the results of operations and cash flows
for the periods therein indicated. All such financial statements and schedules
(including the related notes) have been prepared in conformity with generally
accepted accounting principles ("GAAP") consistently applied.
3.8 Absence of Undisclosed Liabilities
As of the respective dates of the balance sheets referred to in
Section 3.7 hereto, the Company had no material liabilities (fixed, accrued,
contingent or otherwise, including without limitation any tax liabilities due
or to become due) which were not fully reflected or provided for in such
balance sheets.
3.9 Absence of Certain Developments
Except as set forth on Schedule 3.9 hereto, since December 31, 1989,
there has been no (i) material adverse change in the condition, financial or
otherwise, of the Company or in its assets, liabilities, properties, or
business or prospects, (ii) declaration, setting aside or payment of any
dividend or other distribution with respect to the capital stock of the
Company, (iii) issuance of any capital stock (other than pursuant to the
exercise of options, warrants or convertible securities outstanding at such
date) or options, warrants or rights to acquire capital stock (other than the
rights granted to the Purchasers hereunder), (iv) material loss, destruction or
damage to any property of the Company, whether or not insured, (v)
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<PAGE> 10
acceleration or prepayment of any indebtedness for borrowed money or the
refunding of any such indebtedness, (vi) labor trouble involving the Company or
any material change in its personnel or the terms and conditions of employment,
(vii) waiver of any valuable right, (viii) loan or extension of credit to any
officer or employee of the Company or (ix) acquisition or disposition of any
material assets (or any contract or arrangement therefor), or any other
material transaction by the Company otherwise than for fair value in the
ordinary course of business.
3.10 SEC Disclosure Materials
All documents required to be filed by the Company with the Securities
and Exchange Commission (the "SEC") have been filed on a timely basis since
January 1, 1987, and when such documents were filed or became effective they
complied in all material respects with the Securities Act of 1933, as amended
(the "1933 Act") and the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), and the Rules and Regulations thereunder. At the time such
documents were filed they did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
3.11 Compliance with Law
Except as set forth on Schedule 3.11 hereto, the Company:
(a) is not in material violation of any laws, ordinances,
governmental rules or regulations to which it is subject, including without
limitation, federal or state securities laws and laws or regulations relating
to the environment or to occupational health and safety, and no material
expenditures are or will be required in order to cause its current operations
or properties to comply with any such law, ordinances, governmental rules or
regulations; and
(b) has all licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its property or to the conduct of
its business, which if violated or not obtained might materially adversely
affect the properties, business, prospects, profits or condition (financial or
otherwise) of the Company. The Company has not finally been denied any
application for any such licenses, permits, franchises or other governmental
authorizations necessary to its business.
3.12 Pending Actions
There is no action, suit, investigation or proceeding
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<PAGE> 11
pending or threatened, against the Company or its properties or assets by or
before any court, arbitrator or governmental body, department, commission,
board, bureau, agency or instrumentality, which questions the validity of this
Agreement, the Certificate of Designation, the Convertible Preferred Stock or
any action taken or to be taken pursuant hereto or thereto, or which is
reasonably likely to result in any material adverse change in the business,
financial condition or prospects of the Company, and the Company is not in
default in any material respect with respect to any judgment, order, writ,
injunction, decree, or award having applicability to it or its business or
properties.
3.13 Tax Matters
There are no federal, state, county or local taxes due and payable by
the Company which have not been paid. The provisions for taxes on the audited
and unaudited balance sheets described in Section 3.7 are sufficient for the
payment of all accrued and unpaid federal, state, county and local taxes of the
Company whether or not assessed or disputed as of the respective dates of such
balance sheets. The Company has duly filed all federal, state, county and local
tax returns required to have been filed by it and, except as set forth on
Schedule 3.13, there are in effect no waivers of applicable statutes of
limitations with respect to taxes for any year. Except as set forth on Schedule
3.13, the Company has not been subject to a federal or state tax audit of any
kind.
3.14 Employees
Except as set forth on Schedule 3.14 hereto, the Company does not have
any employment contract with any of its employees which Is not terminable for
cause or otherwise terminable on no more than sixty (60) days advance notice,
any collective bargaining agreements covering any of its employees, or been
subject to any material labor organization activity. There are no material
controversies or labor troubles pending or threatened between the Company and
any of its employees. The Company has complied in all material respects with
all applicable federal and state laws and regulations respecting employment and
employment practices, terms and conditions of employment, wages and hours and
other laws related to employment, and there are no arrears in the payments of
wages, withholding or social securities taxes, unemployment insurance premiums
or other similar obligations. The Company has in force written confidentiality
and non-disclosure agreements and patent/invention agreements with, and
requires as a condition of employment the execution of such agreements by, all
of its scientific and research employees, all research consultants, all of its
officers and such other members of its staff as in the regular course of their
duties may receive
-7-
<PAGE> 12
confidential information regarding the Company, its products, its technology,
its research and its current and prospective business plans. Except as listed
on Schedule 3.14, no employee or consultant of the Company, the loss of whose
services could materially and adversely affect the Company or the business or
prospects of the Company has given any indication that he or she intends to
leave the employ of the Company or is considering doing so, or is being
terminated.
3.15 Employee Benefit Plans
All employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974 ("ERISA")) covering former and current
employees of the Company, or under which the Company has any obligation or
liability (each, a "Benefit Plan") are listed on Schedule 3.15. No Benefit Plan
is a multi-employer plan (as defined in Section 3(37) of ERISA) or is a defined
benefit plan (as defined in Section 3(35) of ERISA) subject to Title IV of
ERISA. The Benefit Plans are and have been administered in substantial
compliance with their terms and with the requirements prescribed by ERISA and
the applicable provisions of the Code. Each Benefit Plan which is an employee
pension benefit plan, as defined in Section 3(2) of ERISA (each, a "Pension
Plan"), which is intended to be "qualified" under Section 401(a) of the Code,
has received a favorable determination letter from the Internal Revenue Service
as to its qualified status. The Company has not incurred any liability under
Title IV of ERISA, including any liability to the Pension Benefit Guaranty
Corporation. No Benefit Plan (other than a Pension Plan) provides retirement or
other post-termination benefits. No Benefit Plan has engaged in a transaction
which would subject the Company to a material tax, penalty or liability under
the Code or ERISA. There is no material litigation pending or threatened with
respect to any Benefit Plan. Schedule 3.15 lists all material plans, contracts,
bonuses, commissions, profit-sharing, savings, stock options, insurance,
deferred compensation or other similar fringe or employee benefits, other than
the Benefit Plans, covering former or current employees of the Company or under
which the Company has any obligation or liability (each, a "Benefit
Arrangement"). True and complete copies of all Benefit Arrangements have been
provided or made available to the Purchasers prior to the date hereof. The
Benefit Arrangements are and have been administered in substantial compliance
with their terms and with the requirements of applicable law. The Company's
payments to current or former employees pursuant to the Benefit Plans and
Benefit Arrangements are and have been fully deductible under the Code.
3.16 Patents, Licenses, etc.
The Company possesses all patents, patent rights,
-8-
<PAGE> 13
trademarks, trademark rights, trade names, trade name rights and copyrights
necessary to conduct its business as now being conducted and as planned to be
conducted without conflict with or infringement upon any valid rights of others
and the lack of which could materially and adversely affect the operations or
condition, financial or otherwise, of the Company, and has not received any
notice of infringement upon or conflict with the asserted rights of others,
except as set forth in Schedule 3.16. The Company has all third party licenses
necessary for the conduct of its business as now being conducted by it and as
planned to be conducted, the lack of which could materially and adversely
affect the operations or condition, financial or otherwise, of the Company, and
it is not in default in any material respect under any of such third party
licenses, except as set forth on Schedule 3.16.
Except as provided for on Schedule 3.16, the Company is not currently
obligated or under any existing liability to make royalty or other payments to
any owner of, licensor of, or other claimant to, any patent, trademark, service
names, trade names, copyrights or other intangible asset, with respect to the
use thereof or in connection with the conduct of its business as now conducted
or proposed to be conducted, or otherwise. To the Company's best knowledge, no
employee of the Company has violated any employment agreement or proprietary
information agreement which he had with a previous employer or any patent
policy of such employer, or is a party to or threatened by any litigation
concerning any patents, trademarks, trade secrets, service names, trade names,
copyrights, licenses and the like.
3.17 Title to Tangible Assets
Except as set forth on Schedule 3.17 hereto, the Company has good
title to its properties and assets, in each case subject to no mortgage,
pledge, lien, lease, encumbrance or charge, other than or resulting from taxes
which have not yet become delinquent and minor liens and encumbrances which do
not in any case materially detract from the value of the property subject
thereto or materially impair the operations of the Company and which have not
arisen otherwise than in the ordinary course of business. The Company enjoys
peaceful and undisturbed possession under all material leases in which the
Company is a lessee, and all of such leases are valid and subsisting and none
of them is in default in any material respect.
3.18 Insurance
The Company and its properties are insured in such amounts, against
such losses and with such insurers as are prudent when considered in light of
the nature of the properties
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<PAGE> 14
and businesses of the Company. Schedule 3.18 sets forth a true and complete
listing of the insurance policies of the Company as in effect on the date
hereof, including in each case the applicable coverage limits, deductibles and
the policy expiration dates. No notice of any termination or threatened
termination of any of the Company's insurance policies has been received and
such policies are in full force and effect.
3.19 Interest in Competitors
Except as set forth on Schedule 3.19, neither the Company, nor any of
its officers or, to the best of its knowledge, directors, has any interest,
either by way of contract or by way of investment (other than as holder of not
more than 5% of the outstanding capital stock of a publicly traded Person) or
otherwIse, directly or indirectly, in any Person other than the Company that
(i) provides any services or designs, produces or sells any product or product
lines or engages in any activity similar to or competitive with any activity
currently proposed to be conducted by the Company or (ii) has any direct or
indirect interest in any asset or property, real or personal, tangible or
intangible, of the Company.
3.20 Registration Rights
Except as otherwise provided by Section 8 and as described in Schedule
3.20 hereto, the Company will not, as of the Closing Date, be under any
obligation to register any of its securities under the 1933 Act.
3.21 Private Offering
Neither the Company nor anyone acting on its behalf shall offer the
Convertible Preferred Stock or Warrants for issue or sale to, or solicit any
offer to acquire any of the same from, anyone so as to bring the issuance and
sale of the Convertible Preferred Stock and Warrants or shares of Common Stock
issuable upon conversion of the Convertible Preferred Stock and upon exercise
of the Warrants, or any part thereof, within the provisions of Section 5 of the
1933 Act. Based upon the representations of the Purchasers set forth in Section
4, the offer, issuance and sale of the Convertible Preferred Stock and the
Warrants, and the shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock or upon exercise of the Warrants are and will be
exempt from the registration and prospectus delivery requirements of the 1933
Act, and have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of
all applicable state securities laws.
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<PAGE> 15
3.22 Confidential Memorandum
The Company has heretofore furnished the Purchasers with a
Confidential Offering Document, dated December 1989 (the "Confidential
Memorandum"). The materials presented in the Confidential Memorandum have been
prepared in a good faith effort by the Company to describe the Company's
present and proposed products, operations and projected growth. The
Confidential Memorandum also contains forecasts which, to the best of the
Company's belief and knowledge, present the expected future financial
condition, results of operations and cash flows of the Company for the
forecasted periods based upon assumptions that the Company believes to be
reasonable, provided that the Company makes no representation that the results
shown in such forecasts will in fact be realized; and the Purchasers
acknowledge that actual results may differ materially from those shown.
3.23 Material Facts
The Confidential Memorandum, this Agreement, the schedules and
exhibits furnished contemporaneously herewith, and the other agreements,
documents, certificates or written statements furnished or to be furnished to
the Purchasers through the Closing Date by or on behalf of the Company in
connection with the transactions contemplated hereby, taken as a whole, do not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements contained therein or herein, in light of
the circumstances in which they were made, not misleading. There is no fact
which is known to the Company and which has not been disclosed in the
Confidential Memorandum, this Agreement or otherwise by the Company to the
Purchasers which may materially adversely affect the business, properties,
assets or condition, financial or otherwise, of the Company.
3.24 Brokerage
There are no claims for brokerage commissions or finder's fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement made by or on behalf of the Company and the
Company agrees to indemnify and hold the Purchasers harmless against any costs
or damages incurred as a result of any such claim.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Each of the Purchasers severally represents and warrants to the
Company as follows:
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<PAGE> 16
(a) The Purchaser is acquiring the Convertible Preferred Stock and
the Warrants (and will acquire the Common Stock upon conversion of the
Convertible Preferred Stock or upon exercise of the Warrants) for its own
account for investment and not with a view towards the resale, transfer or
distribution thereof, nor with any present intention of distributing the
Convertible Preferred Stock or the Warrants (or the Common Stock acquired upon
conversion of the Convertible Preferred Stock or upon exercise of the Warrants),
but subject, nevertheless, to any requirement of law that the disposition of
Purchaser's property shall at all times be within Purchaser's control, and
without prejudice to Purchaser's right at all times to sell or otherwise dispose
of all or any part of such securities under a registration under the 1933 Act or
under an exemption from said registration available under the 1933 Act.
(b) The Purchaser has full power and legal right to execute and
deliver this Agreement and to perform its obligations hereunder.
(c) The Purchaser is a validly existing legal entity, duly
organized under the laws of the jurisdiction of its organization.
(d) The Purchaser has taken all action necessary for the
authorization, execution, delivery, and performance of this Agreement and its
obligations hereunder, and upon execution and delivery by the Company, this
Agreement shall constitute a valid and legally binding obligation of the
Purchaser, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights.
(e) There are no claims for brokerage commissions or finder's fees
or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement made by or on behalf of the Purchaser
and the Purchaser agrees to indemnify and hold the Company harmless against any
costs or damages incurred as a result of any such claim.
(f) The Purchaser has such knowledge and experience in financial
and business matters that the Purchaser is capable of evaluating the merits and
risks of the investment by the Purchaser in the Company as contemplated by this
Agreement, and the Purchaser is able to bear the economic risk of such
investment for an indefinite period of time. The Purchaser has been furnished
access to such information and documents as the Purchaser has requested and has
been afforded an opportunity to ask questions of and receive answers from
representatives of the
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<PAGE> 17
Company concerning the terms and conditions of this Agreement and the purchase
of securities contemplated hereby.
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES
5.1 Increase in Number of Authorized Shares of Common Stock
(a) The Company shall promptly take all action necessary to amend
the Company's Certificate of Incorporation by increasing the number of
authorized shares of Common Stock from 10,000,000 to at least 15,000,000 and
shall submit such amendment to the Company s. shareholders for their approval
at a meeting to be convened no later than July 31, 1990.
(b) Until the foregoing amendment to the Company's Certificate of
Incorporated shall have been effected, the Company shall not (without the prior
written consent of Warburg, Pincus Capital Partners, L.P. and Humana Inc.)
grant any additional stock options under its existing stock option plans or
issue any additional shares of Common Stock, rights to acquire Common Stock, or
securities convertible into Common Stock, 'except pursuant to the valid
exercise of stock options or warrants outstanding on April 15, 1990.
(c) The Company shall at all times subsequent to the increase in
the number of authorized shares of Common Stock set forth in Section 5.1(a),
reserve and keep available out of its authorized but unissued stock, solely for
the issuance and delivery upon the conversion of the Convertible Preferred
Stock and the exercise of the Warrants, such number of its duly authorized
shares of Common Stock as from time to time shall be issuable upon conversion
of the Convertible Preferred Stock and the exercise of the Warrants.
5.2 Certificate of Designation
The Company shall use its best efforts to reach an agreement with
General Electric Pension Trust by June 11, 1990, pursuant to which the Company
shall issue up to 1,000 shares of Series D Convertible Preferred Stock and up
to 235,294 Warrants on terms substantially similar to the terms hereof. If such
an agreement is not consummated by June Il, 1990, the Company shall file an
amendment to the Certificate of Designation to reduce the number of authorized
shares of Series D Convertible Preferred Stock to 5,500.
5.3 Resale of Securities
(a) Each Purchaser covenants that it will not sell or otherwise
transfer the Convertible Preferred Stock or the Warrants (or any shares of
Common Stock acquired upon conversion
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of the Convertible Preferred Stock or upon exercise of the Warrants) except
pursuant to an effective registration under the 1933 Act or in a transaction
which, in the opinion of counsel reasonably satisfactory to the Company,
qualifies as an exempt transaction under the 1933 Act and the rules and
regulations promulgated thereunder.
(b) The certificates evidencing the Warrants, and the shares of
Convertible Preferred Stock and shares of Common Stock issuable upon conversion
of the Convertible Preferred Stock or upon exercise of the Warrants will bear
the following legend reflecting the foregoing restrictions on the transfer of
such securities:
"The securities evidenced hereby have not been registered
under the Securities Act of 1933, as amended (the "Act") and may not
be transferred except pursuant to an effective registration under the
Act or in a transaction which, in the opinion of counsel reasonably
satisfactory to the Company, qualifies as an exempt transaction under
the Act and the rules and regulations promulgated thereunder."
5.4 Covenants Pending Closing
Pending the closing the Company will not, without each Purchaser's
prior written consent, take any action which would result in any of the
representations or warranties contained in this Agreement not being true at and
as of the time immediately after such action, or in any of the covenants
contained in this Agreement becoming incapable of performance. The Company will
promptly advise the Purchasers of any action or event of which it becomes aware
which has the effect of making incorrect any of such representations or
warranties or which has the effect of rendering any of such covenants incapable
of performance.
5.5 Further Assurance
Each of the parties shall execute such documents and other papers and
take such further actions as may be reasonably required or desirable to carry
out the provisions hereof and the transactions Contemplated hereby. Each such
party shall use its best efforts to fulfill or obtain the fulfillment of the
conditions to the Closing as promptly as practicable.
SECTION 6. PURCHASER'S CLOSING CONDITIONS
The obligation of each Purchaser to purchase and pay for the
Convertible Preferred Stock and the Warrants to be purchased by such Purchaser
on the Closing Date, as provided in Section 2
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hereof, shall be subject to the performance by the Company of its agreements
theretofore to be performed hereunder and to the satisfaction, prior thereto or
concurrently therewith, of the following further conditions:
6.1 Representations and Warranties
The representations and warranties of the Company contained in this
Agreement shall be true on and as of the Closing Date as though such warranties
and representations were made at and as of such date, except as otherwise
affected by the transactions contemplated hereby.
6.2 Compliance with Agreement
The Company shall have performed and complied with all agreements,
covenants and conditions contained in this Agreement which are required to be
performed or complied with by the Company prior to or on the Closing Date.
6.3 Officers' Certificate
Each Purchaser shall have received a certificate, dated the Closing
Date, signed by each of the President and the Chief Operating Officer of the
Company, certifying that the conditions specified in the foregoing Sections 6.1
and 6.2 hereof have been fulfilled.
6.4 Counsel's Opinion
Each Purchaser shall have received from the Company's counsel, Wilson,
Sonsini, Goodrich & Rosati, an opinion, dated the Closing Date, substantially
to the effect that:
(i) The Company is duly organized and existing in good
standing under the laws of the jurisdiction in which it is
incorporated, has the requisite power and authority and has all
necessary approvals, licenses, permits and authorization to own its
properties and to carry on its business as now conducted.
(ii) The Company is duly qualified as a foreign
corporation in every jurisdiction in which such qualification is
necessary, except where the only consequence of a failure to do so
would not have a material adverse affect on the Company.
(iii) Section 3.3(a) of the Agreement accurately sets forth
the authorized and issued capital stock of the Company immediately
prior to the Closing Date and upon the adoption of the proposed
resolution to increase the number of authorized shares of Common Stock
as provided in Section
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5.1(a), the Company will have adequately reserved for issuance shares
of Common Stock issuable upon exercise or conversion of all
outstanding options and warrants. All the outstanding shares of
capital stock of the Company have been duly and validly issued and are
fully paid and non-assessable.
(iv) Except for the conversion rights which attach to the
Convertible Preferred Stock and the rights which attach to the
Warrants and to the warrants and the options which are listed on
Schedule 3.3 hereto, to the best of such counsel's knowledge, there
are no shares of Common Stock issuable upon conversion of any security
of the Company nor are there any rights, options or warrants
outstanding or other agreements to acquire shares of Common Stock from
the Company nor is the Company contractually obligated to purchase,
redeem or otherwise acquire any of its outstanding shares of Common
Stock. No shareholder of the Company is entitled to any preemptive or
similar rights to subscribe for shares of capital stock of the
Company.
(v) When issued in accordance with the terms of this
Agreement, the Warrants will be validly issued and entitled to the
rights therein described and shares of Convertible Preferred Stock
will be duly authorized, validly issued, fully paid and non-assessable
shares of the Company, free of all preemptive or similar rights and
entitled to the rights therein described. Upon their issuance in
accordance with the terms of the Convertible Preferred Stock or the
Warrants, the shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock or upon exercise of the Warrants will be
duly authorized, validly issued, fully paid and non-assessable shares
of Common Stock of the Company, free of all preemptive or similar
rights.
(vi) The Company has duly authorized the execution, delivery,
and performance of this Agreement and each of the transactions and
agreements contemplated hereby, and no other corporate action is
necessary to authorize such execution, delivery or performance. This
Agreement has been duly executed and delivered on behalf of the
Company and constitutes the valid and binding obligation of the
Company, except as its enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and to general
principles of equity. The Company has authorized the issuance and
delivery of the Convertible Preferred Stock and the Warrants in
accordance with this Agreement and the Company has duly reserved for
issuance shares of Common Stock initially issuable upon conversion of
the Convertible Preferred Stock and upon exercise of the Warrants.
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<PAGE> 21
(vii) The execution and delivery by the Company of this
Agreement, the performance by the Company of its obligations hereunder
and the consummation by the Company of the transactions contemplated
hereby do not require the Company to obtain any consent, approval or
action of, or make any filing with or give any notice to, any
corporation, person or firm or any public, governmental or judicial
authority except: (A) such as have been duly obtained or made, as the
case may be, and are in full force and effect; (B) such as are
disclosed on Schedule 3.5; and (C) routine filings after the date of
this Agreement with the one or more regulatory authorities.
(viii) The execution and delivery of this Agreement and the
adoption by the Board of Directors of the Company of the Certificate
of Designation and the Warrants do not, and the fulfillment of the
terms hereof and thereof by the Company, and the issuance of Common
Stock upon conversion of the Convertible Preferred Stock and upon
exercise of the Warrants as herein contemplated will not, (A) result
in a breach of any of the terms, conditions or provisions of, or
constitute a default under, any material indenture, mortgage, deed of
trust, credit agreement, note or other evidence of indebtedness, or
other material agreement to which the Company is a party and of which
such counsel is aware, or (B) violate the Certificate of Incorporation
or By-Laws of the Company, or any rule or regulation known to such
counsel of any court or federal, state or other regulatory board or
body or administrative agency having jurisdiction over the Company or
over its properties or businesses. To the best knowledge of such
counsel, no event has occurred and no condition exists other than as
disclosed in the Company's report on Form 10K for the fiscal year
ended December 31, 1989, which would constitute a default or an event
of default under any material agreement, contract, or indenture to
which the Company is a party or in any material license, permit or
authorization to which the Company is a party or by which it is bound
and of which such counsel is aware.
(ix) To the best knowledge of such counsel, there is no
action, suit, investigation or proceeding pending or threatened
against the Company or any of its properties or assets by or before
any court, arbitrator or governmental body, department, commission,
board, bureau, agency or instrumentality, which questions the validity
of this Agreement, the Certificate of Designation, the Convertible
Preferred Stock, the Warrants or any action taken or to be taken
pursuant hereto or thereto, and the Company is not in default in any
material respect with respect to any judgment, order, writ,
injunction, decree or award having applicability
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to the Company or its business or properties.
6.5 Approval of Proceedings
All proceedings to be taken in connection with the transactions
contemplated by this Agreement, and all documents incident thereto, shall be
Satisfactory in form and substance to each Purchaser and each Purchaser's
counsel, Willkie Farr & Gallagher; and each Purchaser shall have received
copies of all documents or other evidence which each Purchaser and Willkie Farr
& Gallagher may request in connection with such transactions and of all records
of corporate proceedings in connection therewith in form and substance
satisfactory to each Purchaser and Willkie Farr & Gallagher.
6.6 Injunction
There shall be no effective injunction, writ, preliminary restraining
order or any order of any nature issued by a court of competent jurisdiction
directing that the transactions provided for herein or any of them not be
consummated as herein provided.
6.7 Adverse Development
There shall have been no developments in the business of the Company
since December 31, 1989 which in the opinion of each Purchaser would have a
materially adverse effect upon the value of such business or on the financial
condition, goodwill or prospects of the Company.
6.8 Legal Investment
At the time of the Closing, the purchase of the Shares to be purchased
by each Purchaser hereunder shall be legally permitted by all laws and
regulations to which each Purchaser and the Company are subject.
SECTION 7. COMPANY CLOSING CONDITIONS
The obligation of the Company to issue and deliver the Convertible
Preferred Stock and the Warrants to be sold by the Company on the Closing Date,
as provided in Section 2 hereof, shall be subject to the performance by each
Purchaser of its agreements theretofore to be performed hereunder and to the
satisfaction, prior thereto or concurrently therewith, of the following further
conditions:
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<PAGE> 23
7.1 Representations and Warranties
The representations and warranties of each Purchaser contained in this
Agreement shall be true on and as of the Closing Date as though such warranties
and representations were made at and as of such date, except as otherwise
affected by the transactions contemplated hereby.
7.2 Fairness Opinion
On or immediately prior to the date hereof, Alex. Brown & Sons
Incorporated shall have rendered its opinion to the Board of Directors of the
Company that the terms of this transaction are fair to the shareholders of the
Company from a financial point of view.
7.3 Injunction
There shall be no effective injunction, writ, preliminary restraining
order or any order of any nature issued by a court of competent jurisdiction
directing that the transactions provided for herein or any of them not be
consummated as herein provided.
SECTION 8. REGISTRATION RIGHTS
8.1 Definitions
As used in this Section 8:
(a) the terms "register," "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the 1933 Act (and any post-effective amendments filed or
required to be filed) and the declaration or ordering of effectiveness of such
registration statement;
(b) the term "Registrable Securities" means (A) the shares of
Common Stock issuable on conversion of the Convertible Preferred Stock and upon
exercise of the Warrants, (B) any shares of Common Stock issued as a dividend
on the Convertible Preferred Stock, (C) any shares of Common Stock held by the
Purchasers and (D) any capital stock of the Company issued as a dividend or
other distribution with respect to, or in exchange for or in replacement of,
the shares of Common Stock referred to in clauses (A), (B) and (C) above;
(c) the term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof; and
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<PAGE> 24
(d) the number of shares of "Registrable Securities then outstanding"
shall be determined by adding the number of shares of Common Stock outstanding
which are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which upon issuance would be, Registrable
Securities.
8.2 Requested Registration
(a) Request for Registration. If the Company shall receive at any
time a written request from the Holder or Holders of a majority of the
Registrable Securities then outstanding and entitled to registration rights
under this Section 8 (the "Initiating Holders") that the Company effect a
registration, qualification or compliance with respect to all or a part of the
Registrable Securities, the Company will, within five days of the receipt
thereof, give written notice of such request to all Holders and shall within
sixty (60) days of its receipt of such written request, file a registration
statement on a form deemed appropriate by the Company's counsel with the SEC
covering all the Registrable Securities which the Holders shall in writing
request (given within 20 days of receipt of the notice given by the Company
pursuant to this Section 8.2(a)) to be included in such registration and the
Company shall use its diligent best efforts to cause such registration statement
to become effective no later than 120 days after the receipt of such request.
The Company shall also, as soon as practicable, use its diligent best
efforts to effect all such other registration, qualification and compliance
(including, without limitation, the execution of an undertaking to file post-
effective amendments, appropriate qualification under the applicable blue sky,
or other state securities laws, and appropriate compliance with exemptive
regulations issued under the 1933 Act) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of the
Registrable Securities of such Holders as are specified in such request. No
request under this Section 8.2(a) may be made, however, during the 120 day
period immediately following the date on which the Company has given the
Holders notice pursuant to Section 8.3 of any registration statement with
respect to which the Holders can cause Registrable Securities to be included
therein.
The Company shall not be obligated to effect such registration,
qualification or compliance pursuant to Section 8.2(a) hereof (A) after the
Company already has effected two (2) such registrations pursuant to this
Section 8.2(a) and such registrations have been declared or ordered effective
or (B) in any particular jurisdiction in which the Company would be required to
execute a general consent to service of process in
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<PAGE> 25
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required
by the 1933 Act or applicable rules or regulations thereunder.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Section 8.2(b) below,
include other securities of the Company which are held by officers or directors
of the Company, or which are held by persons who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration
(the "Other Shareholders"), but the Company shall have no absolute right to
include any of its securities in any such registration.
The registration rights set forth in this Section 8.2 shall be
assignable at the option of each of the Holders, in whole or in part, to any
transferee of the Convertible Preferred Stock or Registrable Securities (i) so
long as such transferee owns at least 2% of the Common Stock (computed on a
fully diluted basis) of the Company or (ii) the transferee is an Affiliate of a
Purchaser; provided, that the Company is given written notice by such Holder at
the time or within a reasonable time after said transfer, stating the name and
address of such transferee or assignee and identifying the securities with
respect to which such registration rights are assigned.
(b) Underwriting. If the Initiating Holders intend to distribute the
Registrable Securities covered by such request by means of an underwriting,
they shall so advise the Company as a part of such request made pursuant to
Section 8.2(a). The Company shall enter into an agreement in customary form for
a secondary distribution with the underwriter or underwriters selected by such
Initiating Holders for such underwriting, provided such underwriters are
reasonably acceptable to the Company, but the Company shall not be required to
pay any commission to the underwriter in respect of the sale of Registrable
Securities.
If officers or directors of the Company holding other securities of
the Company shall request inclusion in any registration pursuant to this
Section 8.2, or if Other Shareholders request such inclusion, the Holders shall
offer to include the securities of such officers, directors and Other
Shareholders in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Section 8. The Company
shall (together with all officers, directors and Other Shareholders proposing
to distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
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underwriter or underwriters selected for such underwriting by the Initiating
Holders reasonably acceptable to the Company. Notwithstanding any other
provision of this Section 8.2, if the representative advises the Holders in
writing that marketing factors require a limitation on the number of shares to
be underwritten, the securities of the Company held by officers or directors of
the Company and the securities held by Other Shareholders shall be excluded
from the underwriting by reason of the underwriter's marketing limitation to
the extent so required by such limitation. No Registrable Securities or any
other securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If any officer,
director or Other Shareholder who has requested inclusion in such registration
as provided above disapproves of the terms of the underwriting, such person may
elect to withdraw therefrom by written notice to the Company, the underwriter
and the Initiating Holders. The securities so withdrawn shall also be withdrawn
from registration. If the underwriter has not limited the number of Registrable
Securities or other securities to be underwritten, the Company may include its
securities for its own account in such registration if the underwriter so
agrees and if the number of Registrable Securities and other securities which
would otherwise have been included in such registration and underwriting will
not thereby be limited.
8.3 Company Registration
(a) Inclusion in Registration. If the Company shall determine to
register any of its securities on a form (other than Form S-8 or Form S-4 or
their successor forms) which would permit the registration of any Registrable
Securities, or the Company shall be requested to register any of its securities
by any holder of any securities entitled to registration upon such request
(other than the Holders or their nominees or assignees), the Company will:
(i) promptly give to the Holders written notice thereof
(which shall include a list of the jurisdictions, if any, in which the
Company intends to qualify such securities under the applicable blue
sky or other state securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein which must be a firm commitment
underwriting, all the Registrable Securities specified in a written
request or requests made by each of the Holders, within 30 days after
receipt of the written notice from the Company described in clause (i)
above; provided, however, that
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if the offering is underwritten and relates only to securities to be
sold by the Company and the Holders are advised in writing by the
managing underwriter that the sale of Registrable Securities by the
Holders within 120 days of the effective date of such registration
statement, due to market conditions, will materially adversely affect
such underwriting, the Holders shall not sell any of their Registrable
Securities for 120 days after the effective date of such registration
statement (or such shorter time as the managing underwriter may
request).
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 8.3(a). In such event the right of the Holders to
registration pursuant to the Section 8.3 shall be conditioned upon the Holders'
participation in such underwriting and the inclusion of the Holders'
Registrable Securities in the underwriting to the extent provided herein. The
Holders shall (together with the Company and the Other Shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for underwriting by the Company and shall use their best efforts to
arrange for all documents and opinions required to be delivered thereunder in
respect of their participation as selling shareholders. Notwithstanding any
other provision of this Section 8.3, if the underwriter determines that
marketing factors require a limitation on the number of shares to be
underwritten, then the Company shall include in the underwriting only that
number of such securities, including Registrable Securities, which the managing
underwriter believes will not jeopardize the success of the offering (the
securities so included to be apportioned as follows: first all securities which
stockholders other than: (i) the Holders and (ii) holders of other registration
rights of the Company ("Other Registration Rights Holders") seek to include in
the offering shall be excluded from the offering to the extent limitation on
the number of shares included in the underwriting is required, then the number
of shares held by Holders and Other Registration Rights Holders that may be
included in the underwriting shall be apportioned pro rata among them according
to the total amount of securities entitled to be included therein owned by each
selling Holder and Other Registration Rights Holder or in such other apportions
as shall be mutually agreed to by such selling Holders and Other Registration
Rights Holders but in no event shall the amount of securities of the selling
Holders included in the offering be reduced below 25% of the total amount of
securities included in such offering. If any of the Holders or Other
Registration
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Rights Holders or any officer, director or Other Shareholder disapproves of the
terms of any such underwriting, he may elect to withdraw therefrom by written
notice to the Company and the underwriter. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be withdrawn from
such registration.
(c) Number and Transferability. The Holders shall be entitled to
have their shares included in an unlimited number of registrations pursuant to
this Section 8.3. The registration rights granted pursuant to this Section
shall be assignable at the option of each of the Holders, in whole or in part,
to any transferee of the Convertible Preferred Stock or Registrable Securities
(i) so long as such transferee owns at least 2% of the Common Stock (computed
on a fully diluted basis) of the Company or (ii) the transferee is an Affiliate
of a Purchaser; provided, that the Company is given written notice by such
Holder at the time or within a reasonable time after said transfer, stating the
name and address of such transferee or assignee and identifying the securities
with respect to which such registration rights are assigned.
8.4 Form S-3
The Company shall use its best efforts to qualify for registration on
Form S-3 for secondary sales. After the Company has qualified for the use of
Form S-3, Holders of Registrable Securities shall have the right to request up
to 3 registrations on Form S-3 (such requests shall be in writing and shall
state the number of shares of Registrable Securities to be disposed of and the
intended method of disposition of shares by such holders), subject only to the
following:
(A) The Company shall not be required to effect a
registration pursuant to this Paragraph 8.4 unless the Holder or
Holders of Registrable Securities requesting registration propose to
dispose of shares of Registrable Securities having an aggregate price
to the public (before deduction of underwriting discounts and expenses
of sale) of more than $1,000,000.
(B) The Company shall not be required to effect a
registration pursuant to this Paragraph 8.4 within 180 days of the
effective date of the most recent registration pursuant to this
Section 8 in which securities held by the requesting Holder could have
been included for sale or distribution.
The Company shall give written notice to all Holders of Registrable
Securities of the receipt of a request for
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registration pursuant to this Paragraph 8.4 and shall provide a reasonable
opportunity for other Holders of Registrable Securities to participate in the
registration, provided that if the registration is for an underwritten
offering, the terms of Paragraph 8.2(b) shall apply to all participants in such
offering. Subject to the foregoing, the Company will use its best efforts to
effect promptly the registration of all shares of Registrable Securities on
Form S-3 to the extent requested by the Holder or Holders thereof for purposes
of disposition.
8.5 Expenses of Registration
All expenses incurred in connection with the registration,
qualification or compliance pursuant to this Section 8 including, without
limitation, all registration, filing and qualification fees, accounting fees
and printing expenses, fees and disbursements of counsel for the Company and
the reasonable fees and expenses of one counsel for the selling Holders and
expenses incidental to or required by such registration shall be borne by the
Company. Underwriting discounts and commissions shall be borne and paid ratably
by the Holders of the Registrable Securities included in any such registration.
8.6 Other Obligations of the Company
In connection with the Company's obligations to the Holders with
respect to the sale of Registrable Securities pursuant to a public offering
thereof as provided in this Section 8, the Company shall use its best efforts
to register Registrable Securities as required, or permitted if any Holder so
requests, under Section 12 of the Exchange Act and, if the Registrable
Securities to be sold meet the criteria for listing on any exchange on which
the Common Stock is then listed, apply for listing of such Registrable
Securities on such exchange.
8.7 Registration Procedures
In the case of each registration, qualification or compliance effected
by the Company pursuant to this Section 8, the Company shall:
(i) Notify each Holder as to the filing of the
Registration Statement and of all amendments or supplements thereto
filed prior to the effective date of said Registration Statement;
(ii) Notify each Holder, promptly after it shall receive
notice thereof, of the time when said Registration Statement becomes
effective or when any amendment or
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supplement to any prospectus forming a part of said Registration
Statement has been filed;
(iii) Notify each Holder promptly of any request by the SEC
for the amending or supplementing of such Registration Statement or
prospectus or for additional information;
(iv) Prepare and promptly file with the SEC and promptly
notify each Holder of the filing of any amendments or supplements to
such Registration Statement or prospectus as may be necessary to
correct any statements or omissions if, at any time when a prospectus
relating to the Registrable Securities is required to be delivered
under the 1933 Act, any event with respect to the Company shall have
occurred as a result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements made, in the light of the circumstances under
which they were made, not misleading; and, in addition, prepare and
file with the SEC, promptly upon the written request of any Holder,
any amendments or supplements to such Registration Statement or
prospectus which may be reasonably necessary or advisable in
connection with the distribution of the Registrable Securities;
(v) Advise each Holder promptly after the Company shall
receive notice or obtain knowledge of the issuance of any stop order
by the SEC suspending the effectiveness of any such Registration
Statement or amendment thereto or of the initiation or threatening of
any proceeding for that purpose, and promptly use its best efforts to
prevent the issuance of any stop order or obtain its withdrawal
promptly if such stop order should be issued;
(vi) Use its best efforts to qualify as soon as reasonably
practicable the Registrable Securities included in the Registration
Statement for sale under the securities or blue-sky laws of such
states and jurisdictions within the United States as shall be
reasonably requested by any Holder; provided that the Company shall
not be required in connection therewith or as a condition thereto to
qualify to do business, to become subject to taxation or to file a
consent to service of process generally in any of the aforesaid states
or jurisdictions; and
(vii) Furnish each Holder, as soon as available, copies of any
Registration Statement and each preliminary or final prospectus, or
supplement or amendment required to be prepared pursuant hereto, all
in such quantities as any Holder may from time to time reasonably
request.
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At its expense, the Company shall keep such registration effective for
a period of one hundred twenty (120) days or until each Holder has completed
the distribution described in the registration statement relating thereto,
whichever first occurs; provided, however, that in the case of any registration
of Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 120-day period shall be extended, if
necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 415, or any successor rule
under the 1933 Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the 1933 Act governing the
obligation to file a post-effective amendment which reflects facts or events
representing a material or fundamental change in the information set forth in
the registration statement, permits the incorporation by reference of
information required to be included above to be contained in periodic reports
filed pursuant to Section 13 or 15(d) of the Exchange Act in the registration
statement.
8.8 Indemnification
(a) The Company shall indemnify each Holder on whose behalf
registration, qualification or compliance has been effected pursuant to this
Section 8, each of such Holder's officers, directors and general and limited
partners, and its Affiliates, and each underwriter of Registrable Securities
held by or issuable to such Holder and each officer, director or Affiliate of
such underwriter, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
the 1933 Act or any rule or regulation promulgated thereunder applicable to the
Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each Holder, each of its officers, directors and partners and each of
its Affiliates, and each such underwriter and each of its Affiliates, for any
legal or other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action; provided, however,
that the Company shall not be liable to a Holder in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of or
-27-
<PAGE> 32
is based on any untrue statement or omission based upon written information
furnished to the Company by such Holder or the underwriter of any such Holder
and stated to be specifically for use therein.
(b) Each of the Holders shall, if Registrable Securities held by
them are included in the securities as to which such registration, qualification
or compliance is being effected, severally indemnify the Company, each of its
directors and officers who sign such registration statement, each Affiliate of
the Company, each underwriter, if any, of the Company's securities covered by
such registration statement, each other Holder and each Affiliate thereof
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such directors, officers, employees, Affiliates, other Holders or
underwriters for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for use
therein; provided, however, that the obligations of each Holder hereunder shall
be limited to an amount equal to the proceeds to each Holder of securities sold
as contemplated herein.
(c) Each party entitled to indemnification under this Section 8
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party, and
the Indemnified Party may participate in such defense at such party's expense,
and; provided further that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying
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<PAGE> 33
Party of its obligations under this Section 8. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of the
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
8.9 Information about the Purchaser
Each Holder shall promptly furnish to the Company such information
regarding itself, its Affiliates or subsidiaries and the distribution proposed
by it as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 8.
8.10 Conditions to Registration
As a condition to the Company's obligation hereunder to cause a
registration statement to be filed or Registrable Securities to be included in
a registration statement, each Holder shall provide such information and
execute such documents as may reasonably be required in connection with such
registration. In addition, the Company shall not be obligated to file a
registration statement or to include Registrable Securities in a registration
statement hereunder, (i) if the Company shall have received opinions of counsel
reasonably satisfactory to each Holder and the Company to the effect that the
proposed disposition of such Registrable Securities may be effected without
registration under the 1933 Act or (ii) to the extent all such Registrable
Securities can then be sold during a single three month period pursuant to Rule
144 under the 1933 Act.
8.11 Rule 144
With a view to making available the benefits of certain rules and
regulations of the SEC which may permit the sale of the restricted securities
to the public without registration, the Company agrees to:
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the 1933 Act at all times;
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<PAGE> 34
(b) Use its best efforts to file with the SEC in a timely manner
all reports and other documents required of the Company under the Exchange Act
at any time after it has become subject to such reporting requirements;
(c) So long as each Holder owns any Registrable Securities,
furnish to each Holder forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144, and
of the 1933 Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
as each Holder may reasonably request in availing itself of any rule or
regulation of the SEC allowing each Purchaser to sell any such securities
without registration.
SECTION 9. COVENANTS
9.1 Financial and Business Information
From and after the date hereof, the Company shall deliver to each
Purchaser so long as it holds any shares of the Convertible Preferred Stock or
at least ten percent (10%) of the outstanding Common Stock or securities which
may be converted into a number of shares of Common Stock as would equal at
least ten percent (10%) of the Common Stock outstanding upon such conversion:
(a) Reports - promptly upon their becoming available, one copy of
each financial statement, report, notice or proxy statement sent by the Company
to stockholders generally, of each financial statement, report, notice or proxy
statement sent by the Company to the SEC or any successor agency, if
applicable, of each regular or periodic report and any registration statement,
prospectus or written communication (other than transmittal letters) in respect
thereof filed by the Company with, or received by such Person in connection
therewith from, any securities exchange or the SEC or any successor agency, of
any press release issued by the Company, and of any material of any nature
whatsoever prepared by the SEC, or any successor agency thereto or any state
blue sky or securities law commission which relates to or affects in any way
the Company;
(b) Requested Information - with reasonable promptness, the
Company shall furnish each Purchaser with such other data and information as
from time to time may be reasonably requested.
9.2 Inspection
As long as each Purchaser holds any shares of the
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<PAGE> 35
Convertible Preferred Stock or at least ten percent (10%) of the Common Stock
or holds securities convertible into a number of shares of Common Stock that if
converted would equal at least ten percent (10%) of the Common Stock
outstanding upon conversion, the Company shall permit each Purchaser, its
nominee, assignee, and its representative to visit and inspect any of the
properties of the Company, to examine all its books of account, records,
reports and other papers not contractually required of the Company to be
confidential or secret, to make copies and extracts therefrom, and to discuss
its affairs, finances and accounts with its officers, directors, key employees
and independent public accountants or any of them (and by this provision the
Company authorizes said accountants to discuss with each Purchaser, its
nominees, assignees and representatives the finances and affairs of the Company
and its subsidiaries), all at such reasonable times and as often as may be
reasonably requested.
9.3 Confidentiality
As to so much of the information and other material furnished under or
in connection with this Agreement (whether furnished before, on or after the
date hereof, including without limitation information furnished pursuant to
Sections 9.1 and 9.2 hereof) as constitutes or contains confidential business,
financial or other information of the Company, each Purchaser covenants for
itself and its directors, officers and partners that it will use due care to
prevent its officers, directors, partners, employees, counsel, accountants and
other representatives from disclosing such information to persons other than
their respective authorized employees, counsel, accountants, shareholders,
partners, limited partners and other authorized representatives; provided,
however, that each Purchaser may disclose or deliver any information or other
material disclosed to or received by each Purchaser should the Purchaser be
advised by its counsel that such disclosure or delivery is required by law,
regulation or judicial or administrative order. In the event of any termination
of this Agreement prior to the Closing Date, each Purchaser shall return to the
Company all confidential material previously furnished to each Purchaser or its
directors, counsel, accountants and other representatives in connection with
this transaction.
For purposes of this Section 9.3(a), "due care" means at least the
same level of care that each Purchaser would use to protect the confidentiality
of its own sensitive or proprietary information, and this obligation shall
survive termination of this Agreement.
-31-
<PAGE> 36
9.4 Compliance with Laws
The Company will comply in all material respects with all applicable
rules, regulations and orders except where the failure to comply would not have
a material adverse effect on the business, properties, operations, prospects or
financial condition of the Company.
9.5 Insurance
The Company will maintain insurance (including without limitation
directors and officers liability insurance) with responsible and reputable
insurance companies or associations in such amounts and covering such risks as
is usually carried by companies of similar size and credit standing engaged in
similar business and owning similar properties.
9.6 Keeping of Books
The Company will keep proper books of record and account, in which
full and correct entries shall be made of all financial transactions and the
assets and business of the Company in accordance with GAAP consistently
applied.
9.7 Lost, etc. Certificates Evidencing the Warrant and Convertible
Preferred Stock; Exchange
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any certificate evidencing the
Warrants or any Convertible Preferred Stock owned by each Purchaser, and (in
the case of loss, theft or destruction) of an unsecured indemnity satisfactory
to it, and upon reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of such certificate, if
mutilated, the Company will make and deliver in lieu of such certificate a new
certificate of like tenor and for the number of shares evidenced by such
certificate which remain outstanding. The Purchaser's agreement of indemnity
shall constitute indemnity satisfactory to the Company for purposes of this
Section 9.7. Upon surrender of any certificate representing the Warrants or the
Convertible Preferred Stock for exchange at the office of the Company, the
Company at its expense will cause to be issued in exchange therefor new
certificates in such denomination or denominations as may be requested for the
same aggregate number of shares of Convertible Preferred Stock, as the case may
be, represented by the certificate so surrendered and registered as such holder
may request. The Company will also pay the cost of all deliveries of
certificates for Convertible Preferred Stock to the office of
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<PAGE> 37
each Purchaser (including the cost of insurance against loss or theft in an
amount satisfactory to the holders) upon any exchange provided for in this
Section 9.7.
SECTION 10. INTERPRETATION OF THIS AGREEMENT
10.1 Terms Defined
As used in this Agreement the following terms have the respective
meanings set forth below or set forth in the Section hereof following such
term:
Affiliate: shall mean a Person (other than a subsidiary) (l) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, a Person, (2) which
beneficially owns or holds 5% or more of any class of the Voting Stock of a
Person or (3) 5% or more of the Voting Stock (or in the case of a Person which
is not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by another Person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
Business Day: shall mean a day other than a Saturday, Sunday or other
day on which banks in the State of New York are not required or authorized to
close.
Certificate of Designation: shall have the meaning set forth in
Section 1.
Closing Date: shall mean the consummation of the purchase and sale of
the Convertible Preferred Stock and the Warrants described in Section 2(a).
Code: shall mean the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.
Common Stock: shall have the meaning set forth in Section 3.3.
Convertible Preferred Stock: shall have the meaning set forth in
Section 1.
ERISA: shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
Exchange Act: shall mean the Securities Exchange Act of 1934, as
amended.
-33-
<PAGE> 38
GAAP: shall have the meaning set forth in Section 3.7
Person: shall mean an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political
subdivision thereof.
Preferred Stock: shall have the meaning set forth in Section 3.3.
SEC: shall mean the Securities and Exchange Commission.
Voting Stock: shall mean securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
Persons performing similar functions).
1933 Act: shall mean the Securities Act of 1933, as amended.
10.2 Accounting Principles
Where the character or amount of any asset or amount of any asset or
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, this shall be done in accordance with generally
accepted accounting principles at the time in effect, to the extent applicable,
except where such principles are inconsistent with the requirements of this
Agreement.
10.3 Directly or Indirectly
Where any provision in this Agreement refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision
shall be applicable whether such action is taken directly or indirectly by such
Person.
10.4 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
10.5 Paragraph and Section Headings
The headings of the sections and subsections of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part
thereof.
-34-
<PAGE> 39
SECTION 11. MISCELLANEOUS
11.1 Notices
(a) All communications under this Agreement shall be in writing
and shall be mailed by first class mail, postage prepaid:
(1) if to the Purchasers, at the address(es) shown on Exhibit A of
this Agreement or at such other address as such Purchaser may have
furnished the Company in writing, with a copy to:
Peter H. Jakes, Esq.
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
(2) if to the Company, at the address shown at the beginning of
this Agreement, marked for the attention of Randall M. Gates, Vice
President and Chief Financial Officer, or at such other address as it
may have furnished in writing to the Purchasers, with a copy to:
Alan K. Austin, Esq.
Wilson, Sonsini, Goodrich & Rosati
Two Palo Alto Square
Palo Alto, California 94306
(b) Any notice so addressed and mailed by registered or certified
mail shall be deemed to be given on the third Business Day after the date the
same is so mailed.
11.2 Expenses and Taxes
The Company will pay, and save and hold the Purchasers harmless from
any and all liabilities (including interest and penalties) with respect to, or
resulting from any delay or failure in paying, stamp and other taxes (other
than income taxes), if any, which may be payable or determined to be payable on
the execution and delivery or acquisition of the Warrants and the Convertible
Preferred Stock, or the Common Stock issuable upon conversion of the
Convertible Preferred Stock or upon exercise of the Warrants.
11.3 Reproduction of Documents
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications which may hereafter be
executed, (b) documents received by the Purchasers on the Closing Date (except
for certificates evidencing the Convertible Preferred Stock itself),
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<PAGE> 40
and (c) financial statements, certificates and other information previously or
hereafter furnished to the Purchasers, may be reproduced by the Purchaser by
any photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process and the Purchaser may destroy any original document so
reproduced. All parties hereto agree and stipulate that any such reproduction
shall be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by the Purchasers in the regular
course of business) and that any enlargement, facsimile or further reproduction
of such reproduction shall likewise be admissible in evidence.
11.4 Termination and Survival
Unless the Closing has occurred prior thereto, this Agreement and,
except as herein provided, all the rights of the parties hereto, shall
terminate on May 31, 1990 (unless such date is extended by mutual written
consent). Notwithstanding the foregoing, Section 9.3 hereof shall survive the
termination of this Agreement. All warranties, representations, and covenants
made by the Purchasers and the Company herein or in any certificate or other
instrument delivered by the Purchasers or the Company under this Agreement
shall be considered to have been relied upon by the Company or the Purchasers,
as the case may be, and shall survive all deliveries to the Purchasers of the
Convertible Preferred Stock and the Warrants or payment to the Company for such
Convertible Preferred Stock and the Warrants, regardless of any investigation
made by the Company or the Purchasers, as the case may be, or on the Company's
or the Purchasers' behalf. All statements in any such certificate or other
instrument shall constitute warranties and representation by the Company
hereunder.
11.5 Successors and Assigns
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties. The Purchasers may assign its
rights under Section 8 hereof to any person and may assign any or all of its
rights under this Agreement (including Section 8) to any Affiliate; provided,
however, that the Company is furnished within a reasonable time of its request,
such information as it shall reasonably request relating to such assignees.
11.6 Entire Agreement; Amendment and Waiver
This Agreement and the Schedules and Exhibits attached hereto
constitute the entire understandings of the parties hereto
-36-
<PAGE> 41
and supersede all prior agreements or understandings with respect to the
subject matter hereof between such parties. This Agreement may be amended, and
the observance of any term of this Agreement may be waived, with (and only
with) the written consent of the Company and the holders of at least two-thirds
(66 2/3%) of the Convertible Preferred Stock.
11.7 Limitation on Enforcement of Remedies
The Company hereby agrees that it will not assert against the limited
partners of any Purchaser any claim it may have under this Agreement by reason
of any failure or alleged failure by any Purchaser to meet its obligations
hereunder.
11.8 Counterparts
This Agreement may be executed in one or more counterparts with the
same effect as if the parties executing the counterparts had each executed one
instrument as of the day and year first above written.
Very truly yours,
VESTAR, INC.
By: (ILLEGIBLE)
--------------------------------------
WARBURG, PINCUS CAPITAL PARTNERS, L.P.
By: WARBURG, PINCUS & CO.,
General Partner
By: (ILLEGIBLE)
--------------------------------------
HUMANA INC.
By: (ILLEGIBLE)
--------------------------------------
-37-
<PAGE> 42
Exhibit A to Securities Purchase Agreement
<TABLE>
<CAPTION>
Column 1 Column 2 Column 3
Number of Shares
of Convertible Number of Aggregate Cash
Purchasers Preferred Stock Warrants Purchase Price
- ---------- --------------- -------- --------------
<S> <C> <C> <C>
Warburg, Pincus 5,000 1,176,470 $5,000,000
Capital Partners, L.P.,
466 Lexington Avenue
New York, NY 10017
Humana Inc. 500 117,647 $500,000
500 West Main Street
Louisville, KY 40202
</TABLE>
-38-
<PAGE> 1
EXHIBIT 11.1
NEXSTAR PHARMACEUTICALS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net loss......................................... $(22,981,000) $(36,631,000) $(16,207,000)
============ ============ ============
Weighted average shares outstanding during the
period......................................... 26,029,000 23,374,000 22,825,000
============ ============ ============
Net loss per common share........................ $ (0.88) $ (1.57) $ (0.71)
============ ============ ============
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF NEXSTAR PHARMACEUTICALS, INC.
<TABLE>
<S> <C>
NeXstar Pharmaceuticals GmbH................................ (Germany)
NeXstar Farmaceutica, S.A................................... (Spain)
NeXstar Pharmaceuticals Italia, Srl......................... (Italy)
NeXstar Pharmaceuticals Limited............................. (United Kingdom)
NeXstar Farmaceutica Portugal, LDA.......................... (Portugal)
NeXstar Pharmaceuticals B.V................................. (The Netherlands)
NeXstar Pharmaceutique Sarl................................. (France)
NeXstar Pharmaceuticals PTY Limited......................... (Australia)
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8, No. 33-80938) pertaining to the 1993 Incentive Stock Plan, the
Registration Statements (Forms S-8, No. 33-88074 and No. 333-07887) pertaining
to the 1994 Stock Purchase Plan, the Registration Statement (Form S-8, No.
333-07889) pertaining to the 1995 Director Option Plan and the Registration
Statement (Form S-3, No. 333-00758) of NeXstar Pharmaceuticals, Inc., and in the
related Prospectus of our report dated February 27, 1997, except for Note 13, as
to which the date is March 27, 1997, with respect to the consolidated financial
statements of NeXstar Pharmaceuticals, Inc. included in this Annual Report (Form
10-K) for the year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Denver, Colorado
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 21,542,000
<SECURITIES> 20,423,000
<RECEIVABLES> 31,026,000
<ALLOWANCES> 1,025,000
<INVENTORY> 15,629,000
<CURRENT-ASSETS> 89,871,000
<PP&E> 70,937,000
<DEPRECIATION> 26,977,000
<TOTAL-ASSETS> 144,500,000
<CURRENT-LIABILITIES> 41,672,000
<BONDS> 15,206,000
0
0
<COMMON> 264,000
<OTHER-SE> 87,358,000
<TOTAL-LIABILITY-AND-EQUITY> 144,500,000
<SALES> 80,153,000
<TOTAL-REVENUES> 90,522,000
<CGS> 18,320,000
<TOTAL-COSTS> 18,320,000
<OTHER-EXPENSES> 92,699,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,558,000
<INCOME-PRETAX> (22,055,000)
<INCOME-TAX> 926,000
<INCOME-CONTINUING> (22,981,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,981,000)
<EPS-PRIMARY> (.88)
<EPS-DILUTED> (.88)
</TABLE>
