<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------------------
Commission file number 0-23012
NEXSTAR PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
-------------------
Delaware 84-1173453
(State of incorporation) (I.R.S. Employer Identification No.)
2860 Wilderness Place
Boulder, Colorado 80301
(Address of principal executive offices)
Registrant's telephone number: (303) 444-5893
-------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of the registrant's Common Stock, par value $.01 per share,
outstanding as of October 31, 1997 was 27,362,476.
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<PAGE> 2
NEXSTAR PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- September 30, 1997 and December 31, 1996.....................................3
Condensed Consolidated Statements of Operations -- Three Months and Nine Months Ended September 30, 1997
and 1996..............................................................................................................4
Condensed Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 1997 and 1996......................5
Notes to Condensed Consolidated Financial Statements..................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................................16
Item 2. Changes in Securities........................................................................................16
Item 6. Exhibits and Reports on Form 8-K.............................................................................16
SIGNATURES .............................................................................................................17
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 48,685,000 $ 21,542,000
Marketable securities 18,922,000 20,423,000
Accounts receivable 38,715,000 30,001,000
Inventories 13,643,000 15,629,000
Prepaid expenses and other 3,027,000 2,276,000
------------- -------------
Total current assets 122,992,000 89,871,000
Property, plant and equipment, net of
accumulated depreciation and amortization 45,119,000 43,960,000
Investment in life science enterprise -- 2,709,000
Patent and trademark costs, net of accumulated amortization 5,248,000 4,633,000
Purchased technology, net of accumulated amortization -- 2,010,000
Other noncurrent assets 2,885,000 1,317,000
------------- -------------
Total assets $ 176,244,000 $ 144,500,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 6,129,000 $ 12,936,000
Accounts payable 5,417,000 10,483,000
Accrued compensation and employee benefits 3,833,000 3,544,000
Accrued litigation settlement and related expenses due within
one year 2,304,000 1,010,000
Accrued interest payable 833,000 --
Other accrued expenses 6,749,000 6,164,000
Long-term obligations due within one year 5,283,000 7,535,000
------------- -------------
Total current liabilities 30,548,000 41,672,000
Accrued litigation settlement expenses due after one year 8,588,000 --
Long-term obligations due after one year 8,127,000 15,206,000
Convertible subordinated debentures 80,000,000 --
Commitments and contingencies
Stockholders' equity:
Common stock 273,000 264,000
Additional paid-in capital 215,305,000 213,931,000
Deferred compensation (208,000) (367,000)
Cumulative translation adjustment (410,000) (230,000)
Accumulated deficit (165,979,000) (125,976,000)
------------- -------------
Total stockholders' equity 48,981,000 87,622,000
------------- -------------
Total liabilities and stockholders' equity $ 176,244,000 $ 144,500,000
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Product revenues $ 23,054,000 $ 20,963,000 $ 65,150,000 $ 58,888,000
License fees -- 7,000,000 -- 7,000,000
Collaborative agreements and other revenue 614,000 375,000 1,773,000 1,311,000
Interest income 742,000 502,000 1,571,000 1,348,000
------------- ------------- ------------- -------------
Total revenues 24,410,000 28,840,000 68,494,000 68,547,000
------------- ------------- ------------- -------------
Expenses:
Cost of goods sold 5,625,000 4,821,000 15,601,000 13,075,000
Research and development 15,952,000 9,845,000 41,289,000 30,514,000
Selling, general and administrative 11,102,000 9,724,000 32,554,000 30,010,000
Litigation settlement and related expenses 12,424,000 476,000 16,080,000 585,000
Interest expense 1,295,000 517,000 2,823,000 1,073,000
------------- ------------- ------------- -------------
Total expenses 46,398,000 25,383,000 108,347,000 75,257,000
------------- ------------- ------------- -------------
Income (loss) before provision for income taxes (21,988,000) 3,457,000 (39,853,000) (6,710,000)
Provision for income taxes 31,000 711,000 150,000 877,000
------------- ------------- ------------- -------------
Net income (loss) $ (22,019,000) $ 2,746,000 $ (40,003,000) $ (7,587,000)
============= ============= ============= =============
Net income (loss) per share $ (0.83) $ 0.10 $ (1.51) $ (0.29)
============= ============= ============= =============
Shares used in computing net income (loss) per share 26,524,000 28,130,000 26,465,000 25,913,000
============= ============= ============= =============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(40,003,000) $ (7,587,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization of property, plant and equipment 7,013,000 7,583,000
Amortization of intangible assets 2,932,000 1,157,000
Compensation expense related to grant of options and sales of stock,
including amortization of deferred compensation 203,000 88,000
License fee receivable -- (6,300,000)
Other 98,000 56,000
Changes in operating assets and liabilities:
Accounts receivable (8,872,000) (9,457,000)
Inventories 1,986,000 (4,932,000)
Prepaid expenses and other (351,000) (309,000)
Other noncurrent assets (29,000) (187,000)
Accounts payable (6,139,000) 681,000
Accrued compensation and employee benefits 289,000 580,000
Accrued interest 833,000 --
Accrued litigation settlement and related expenses 9,882,000 100,000
Other accrued expenses 491,000 95,000
------------ ------------
Net cash used in operating activities (31,667,000) (18,432,000)
INVESTING ACTIVITIES
Maturities (purchases) of marketable securities, net 1,501,000 (16,614,000)
Additions to property, plant and equipment (7,099,000) (8,458,000)
Proceeds from sale of investment in life science enterprise 2,683,000 --
Additions to patent costs (1,029,000) (982,000)
Deletions to other noncurrent assets 706,000 700,000
------------ ------------
Net cash used in investing activities (3,238,000) (25,354,000)
FINANCING ACTIVITIES
Proceeds from (payments on) short-term borrowings, net (6,807,000) 6,751,000
Proceeds from sale-leaseback transactions 1,997,000 2,028,000
Payments on capital lease obligations (3,394,000) (3,194,000)
Proceeds from issuance of long-term debt 16,404,000 10,000,000
Repayments on long-term debt (24,338,000) (794,000)
Proceeds from issuance of convertible subordinated debentures,
net of offering costs 77,200,000 --
Proceeds from sale of common stock, net of offering costs 986,000 28,905,000
------------ ------------
Net cash provided by financing activities 62,048,000 43,696,000
------------ ------------
Net increase in cash and cash equivalents 27,143,000 (90,000)
Cash and cash equivalents at beginning of period 21,542,000 20,893,000
------------ ------------
Cash and cash equivalents at end of period $ 48,685,000 $ 20,803,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
NOTE 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three-month and
nine-month periods ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the year ended
December 31, 1996.
Certain reclassifications have been made to prior year amounts to
agree with the current year presentation.
NOTE 2: Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Finished Goods $ 5,166,000 $ 4,092,000
Work in Process 5,386,000 8,358,000
Raw Materials 3,091,000 3,179,000
----------- -----------
$13,643,000 $15,629,000
=========== ===========
</TABLE>
NOTE 3: Patent Matters
On August 11, 1997, the Company and The Liposome Company ("TLC")
reached a settlement in which the two companies agreed to dismiss
all legal proceedings involving TLC's reexamined U.S. Patent No.
4,880,635 (the "TLC `635 Patent") and U.S. Patent No. 5,578,320
(the "TLC `320 Patent") and their international counterparts. The
legal proceedings related to whether AmBisome, the Company's
liposomal formulation of amphotericin B, infringed TLC's patents
because of the manner in which it is freeze dried (lyophilized).
In the settlement agreement between the parties (the "Settlement
Agreement"), TLC granted the Company immunity from suit in
connection with the worldwide production and sales of AmBisome and
a worldwide right to use the TLC `635 Patent and the TLC `320
Patent.
The Company originally initiated legal proceedings on May 17,
1993, when it filed a complaint in the United States District
Court for the District of Delaware against TLC asking the court to
declare the TLC `635 Patent invalid, unenforceable and not
infringed, following allegations by TLC that AmBisome infringed
the TLC `635 Patent because of the manner in which it is freeze
dried. 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 infringed 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
6
<PAGE> 7
tort actions against TLC. The amended complaint stated that TLC
had fraudulently obtained the TLC Patents by withholding
information from, and intentionally misleading, the USPTO and had
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. In
connection with the Settlement Agreement, the parties dismissed
all claims.
In addition, the Company had opposed the grant to TLC of the
European and Japanese patents that are counterparts of 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 sought an injunction and damages. In
connection with the Settlement Agreement, the three European
lawsuits were dismissed and the Company withdrew its opposition in
the European and Japanese patent offices to the grant of the
applicable counterparts to the TLC Patents.
NOTE 4: Earnings per Share
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement No. 128, "Earnings Per Share"
("Statement No. 128"), which the Company is required to adopt on
December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement No. 128 on
the calculations of primary earnings per share and fully diluted
earnings per share for the three months and nine months ended
September 30, 1997 and 1996, respectively, is not expected to be
material.
NOTE 5: Commitments and Contingencies and Sales of Unregistered Securities
During the third quarter of 1997, the Company completed the sale
of $80 million of 6 1/4% Convertible Subordinated Debentures due
2004 (the "Debentures") in a private offering to SBC Warburg Inc.
and Oppenheimer & Co., Inc. (the "Initial Purchasers"). The sale
to the Initial Purchasers was made pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the "Act"). The Initial
Purchasers resold the Debentures in reliance on Rule 144A under
the Act and outside the United States to certain persons in
offshore transactions in reliance on Regulation S under the Act.
The Debentures were issued pursuant to an indenture and are
convertible into a total of up to 4,740,740 shares of the
Company's common stock, $.01 par value (the "Common Stock"), at
$16.875 per share. As required by the terms of a registration
rights agreement (the "Registration Rights Agreement") entered
into by the Company in connection with the sale of the Debentures,
the Company filed a "shelf" registration statement registering for
resale the Debentures and the shares of Common Stock into which
the Debentures may be converted. The registration statement was
declared effective on October 6, 1997. Pursuant to the
Registration Rights Agreement, the Company is required to keep the
"resale" registration statement effective for up to two years.
The Company used the net proceeds of $77.2 million (after
deducting a 3% commission of $2.4 million received by the Initial
Purchasers and transaction expenses of approximately $400,000)
from the sale of the Debentures, in part, to repay outstanding
bank borrowings of the Company in the principal amount of $28.6
million, including repaying (a) the outstanding principal amount
of $7.5 million under a term loan (the "Term Loan"); (b) the
outstanding principal balance of $10.0 million under a revolving
line of credit (the "Credit Line") pursuant to which the Company
was permitted to borrow up to $15 million; and (c) the outstanding
principal amount of $11.1 million under a credit agreement (the
"Accounts Receivable Loan") pursuant to which the Company and
certain of its subsidiaries were permitted to 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. Following the repayment of the bank borrowings, the
Term Loan and the Credit Line were terminated. As a result of the
termination of the Credit Line, the Company incurred a non-cash
charge to earnings of $309,000 in connection with a warrant for
125,000 shares of Common Stock issued to Warburg, Pincus
Investors, L.P. ("WPI"), a
7
<PAGE> 8
beneficial owner of more than 5% of the Common Stock, in return
for an affiliate of WPI having guaranteed the Credit Line.
In September 1997, the Company terminated the Accounts Receivable
Loan and simultaneously entered into a $10 million unsecured line
of credit (the "Credit Agreement") with the same financial
institution. As of September 30, 1997, the Company had borrowings
of $2.5 million under the Credit Agreement with an average
interest rate of 8.25%. The Credit Agreement, which includes a
foreign exchange facility, terminates on September 1, 1998. Under
the terms of the Credit Agreement, the Company is required to
maintain certain financial ratios and there are limitations on the
Company's ability to incur additional debt or to engage in certain
significant transactions.
On September 29, 1997, the Company completed the acquisition of
the toll manufacturing facility in Dublin, Ireland in which a
contract manufacturer had previously performed labeling and
quality control release for the Company's products in the European
Union. The total acquisition price was one million Irish Punts
(approximately $1.5 million on September 30, 1997). Upon the
completion of the acquisition, the Company began performing its
own quality control release in the European Union.
On September 29, 1997, a broker/investment banking firm exercised
a warrant and received 14,893 shares of the Company's Common Stock
and on September 30, 1997, Warburg, Pincus Capital Partners, L.P.
("WPCP") exercised a warrant and received 753,577 shares of the
Company's Common Stock. The shares issued pursuant to the exercise
of both warrants were acquired in cashless exercises using the
warrantholders' rights to acquire additional shares of the
Company's Common Stock. In connection with the issuance of its
Common Stock pursuant to the exercise of the warrants, the Company
relied on the exemption from registration provided by Section 4(2)
of the Act.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. 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, risks associated with the
following: reliance on a single product for a substantial portion of the
Company's revenues; general economic and business conditions, including
fluctuations in currency exchange rates; 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; 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
under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
NeXstar Pharmaceuticals is a fully integrated biopharmaceutical company
engaged in the discovery, development, manufacture and marketing of proprietary
pharmaceutical products to treat life-threatening and other serious oncological,
immunological, hematological and infectious diseases.
The Company markets AmBisome, a liposomal formulation of amphotericin
B, for the treatment of life-threatening fungal infections 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. On August 11, 1997,
the U.S. Food and Drug Administration (the "FDA") approved AmBisome for use in
the United States as a primary therapy for patients with a low blood cell count
(febrile neutropenia) who have a presumed fungal infection, also known as fever
of unknown origin or FUO, and with visceral leishmaniasis and as a secondary
treatment for fungal infections refractory (that do not respond) to amphotericin
B treatment. Besides being approved in the United States, AmBisome has been
approved for sale by the regulatory authorities in 29 countries for the
treatment of life-threatening fungal infections, including thirteen countries in
which it has been approved as a primary therapy for some form of fungal
infection. DaunoXome has been approved for sale as a primary therapy for KS in
the U.S., Canada and 17 other countries. The Company's revenue growth will be
substantially dependent upon increased penetration of existing markets,
establishing new markets, approval of additional indications for its current
products and introduction of new products.
The Company is currently conducting Phase I clinical trials in the U.S.
for MiKasome, the Company's liposomal formulation of amikacin, a potent
aminoglycoside antibiotic. Data from one study completed in the third quarter
revealed that at the doses studied, MiKasome maintained a significant half-life
in the body, did not cause toxicity or impairment to the kidneys and did not
affect hearing function or balance. Also, relatively constant antibiotic levels
appear to have been maintained with a single weekly dosing of MiKasome. Phase II
clinical trials of MiKasome are scheduled to begin during the fourth quarter of
1997. The first of these trials is expected to assess the effect of MiKasome in
patients with chronic urinary tract infections. Additional Phase II clinical
trials planned for early 1998 include studies against bacterial infections
contracted by patients with cystic fibrosis and in patients with
hospital-acquired pneumonia.
Several of the Company's SELEX process-derived compounds (including
aptamer antagonists to vascular endothelial growth factor (VEGF) and
platelet-derived growth factor (PDGF) and aptamers which inhibit the activity of
L-selectin and P-selectin) are in preclinical or early preclinical development.
The Company plans to file an Investigational New Drug (IND) application in 1998
for its VEGF inhibitor. The timing of the IND application for the VEGF inhibitor
and the Phase II clinical trials for MiKasome may be affected by many factors
including, among others, unanticipated delays; unexcepted preclinical or Phase I
clinical trial results, as applicable; and difficulties in enrolling patients.
There can be no assurance that the Company will be able to meet the time
schedule which it has established for any of its products.
9
<PAGE> 10
In connection with a majority 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 53% and 55% of the Company's product revenues for the
three months and nine months ended September 30, 1997, respectively. The Company
prices its products in each of these four countries in the local currency.
Between January 1, 1997 and September 30, 1997, the value of the U.S. Dollar
increased 14%, 6%, 13% and 15%, 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. NeXstar Pharmaceuticals
does not currently enter into speculative foreign currency transactions and does
not write speculative options. 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 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.
RESULTS OF OPERATIONS
Three months and nine months ended September 30, 1997
Product revenues increased 10% and 11% to $23.1 million and $65.2
million for the three months and nine months ended September 30, 1997,
respectively, from $21.0 million and $58.9 million, for the corresponding
periods in 1996 primarily due to an increase in unit sales of AmBisome in
non-U.S. markets. Gains from increased unit sales were offset by a reduction in
the average selling price (as calculated in U.S. Dollars) compared to the
corresponding periods of 1996 due, in significant part, to a substantial
appreciation in the value of the U.S. Dollar compared to the leading European
currencies. A significant majority of the Company's product sales are in
European currencies. 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.
During the third quarter of 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 is developing and intends to market
AmBisome in Japan.
Collaborative agreement and contract revenues increased to $614,000 and
$1.8 million for the three months and nine months ended September 30, 1997,
respectively, compared to $375,000 and $1.3 million for the corresponding
periods of 1996. The increase was primarily due to Schering A.G., in February
1997, agreeing 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. 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.
Interest income increased to $742,000 and $1.6 million for the three
months and nine months ended September 30, 1997, respectively, compared to
$502,000 and $1.3 million for the corresponding periods of 1996. Interest income
generally fluctuates as a result of the average amount of cash available for
investment and prevailing interest rates.
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<PAGE> 11
Cost of goods sold was $5.6 million and $15.6 million, or 24% of
product revenues, for the three months and nine months ended September 30, 1997,
compared to $4.8 million and $13.1 million, or 23% and 22% of product revenues,
for the corresponding periods of 1996, respectively. The increase in cost of
goods sold was primarily due to increased sales of the Company's products. The
increase in cost of goods sold as a percentage of product revenues was primarily
the result of a reduction in the average revenue per vial of product sold due to
(i) a substantial appreciation of the U.S. Dollar compared to leading European
currencies and (ii) increased sales of AmBisome to Fujisawa USA, Inc.
("Fujisawa") at cost in connection with the October 1, 1997 sales launch of
AmBisome in the U.S. These increases were partially offset by a reduction in the
average manufacturing cost of the products sold by the Company. Pursuant to an
agreement between the two firms, the Company and Fujisawa co-promote AmBisome in
the United States and the Company sells AmBisome to Fujisawa at cost for sale in
the U.S. In addition, the Company receives 20% of the gross profits from all
U.S. sales. As the Company's sales of AmBisome to Fujisawa increase as a
percentage of total AmBisome sales, the cost of goods sold as a percentage of
revenues is expected to increase. 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 63% and 35% to $16.0
million and $41.3 million for the three months and nine months ended September
30, 1997, respectively, compared to $9.8 million and $30.5 million for the
corresponding periods of 1996. The increase in research and development expenses
is primarily attributable to (i) a charge in the third quarter of 1997 of $1.4
million for validation expenses related to product scale-up; (ii) an expense of
$1.3 million related to the write off of capitalized purchased technology which
the Company had been amortizing over a four-year period, but which the Company
has decided not to pursue; (iii) $500,000 in reorganizational expenses related
to research and development consolidation activities, including certain staff
reductions; (iv) expanded clinical trial activity for the Company's products;
(v) additional preclinical spending on aptamer drug candidates developed using
the SELEX process, the Company's proprietary combinatorial chemistry technology;
and (vi) costs associated with developing alternative presentations of AmBisome.
For the three months and nine months ended September 30, 1997, $656,000 and $1.7
million, respectively, of research and development expenses were sponsored by
third parties compared to $297,000 and $873,000 for the corresponding periods in
1996. 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.
Selling, general and administrative expenses increased 14% and 9% to
$11.1 million and $32.6 million for the three months and nine months ended
September 30, 1997, respectively, compared to $9.7 million and $30.0 million for
the corresponding periods of 1996. The increase was primarily related to (i) an
increase of $500,000 in the Company's allowance for doubtful accounts due to an
increase in accounts receivable and (ii) a charge of $309,000 in connection with
the Company's termination of a $15 million revolving line of credit. The Company
recognized a foreign exchange loss of $130,000 and $219,000 for the three months
and nine months ended September 30, 1997, respectively, compared to a loss of
$64,000 and $291,000 for the corresponding periods in 1996.
For the three months and nine months ended September 30, 1997, the
Company reported litigation settlement and related expenses of $12.4 million and
$16.1 million, respectively, compared to $476,000 and $585,000 for the
corresponding periods in 1996. The increase was primarily related to the August
11, 1997 settlement between the Company and The Liposome Company ("TLC") in
which the two companies agreed to dismiss all legal proceedings involving two
U.S. patents owned by TLC and their international counterparts. Under the terms
of the settlement agreement, the Company made an initial payment to TLC of $1.75
million and is required to make future payments based on AmBisome sales. Because
the payments are subject to certain minimum and maximum payments, the Company
recorded an accounting charge in the third quarter of 1997 of $11.5 million, of
which $9.8 million represents the net present value of all future minimum
payments required to be made by it and $1.75 million represents the cash payment
in the third quarter of 1997. The Company does not expect the difference between
the annual minimum and maximum payments to be material. In addition to the
charge related to the settlement, the Company reported associated litigation
expenses of $900,000 and $4.6 million for the three months and nine months ended
September 30, 1997, which consisted primarily of legal fees and expenses.
Interest expense increased to $1.3 million and $2.8 million for the
three months and nine months ended September 30, 1997, respectively, from
$517,000 and $1.1 million for the corresponding periods of 1996. The increase
was primarily due to interest payable under (i) $80 million of 6 1/4%
Convertible Subordinated Debentures due 2004, on which interest was payable from
July 31, 1997; (ii) the term loan agreement for $10 million entered into by the
Company in
11
<PAGE> 12
September 1996; (iii) the credit agreement entered into by the Company in March
1997; (iv) the accounts receivable loan entered into by the Company in March
1997; and (v) additional borrowings in connection with several equipment lease
arrangements.
The Company reported a net loss of $22.0 million and $40.0 million, or
$0.83 and $1.51 per share, for the three months and nine months ended September
30, 1997, respectively, compared to a net profit of $2.7 million, or $0.10 per
share, and a net loss of $7.6 million, or $0.29 per share, for the corresponding
periods of 1996.
Patent Matters
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 likelihood of it being
involved in any disputes. Any new litigation could consume a substantial portion
of the Company's resources regardless of the outcome of such litigation.
On August 11, 1997, the Company and The Liposome Company ("TLC")
reached a settlement in which the two companies agreed to dismiss all legal
proceedings involving TLC's reexamined U.S. Patent No. 4,880,635 (the "TLC `635
Patent") and U.S. Patent No. 5,578,320 (the "TLC `320 Patent") and their
international counterparts. The legal proceedings related to whether AmBisome,
the Company's liposomal formulation of amphotericin B, infringed TLC's patents
because of the manner in which it is freeze dried (lyophilized). In the
settlement agreement between the parties (the "Settlement Agreement"), TLC
granted the Company immunity from suit in connection with the worldwide
production and sales of AmBisome and a worldwide right to use the TLC `635
Patent and the TLC `320 Patent.
The Company originally initiated legal proceedings on May 17, 1993,
when it filed a complaint in the United States District Court for the District
of Delaware against TLC asking the court to declare the TLC `635 Patent invalid,
unenforceable and not infringed, following allegations by TLC that AmBisome
infringed the TLC `635 Patent because of the manner in which it is freeze dried.
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 infringed 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 stated that TLC had fraudulently obtained the
TLC Patents by withholding information from, and intentionally misleading, the
USPTO and had 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. In connection with the
Settlement Agreement, the parties dismissed all claims.
In addition, the Company had opposed the grant to TLC of the European
and Japanese patents that are counterparts of 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
sought an injunction and damages. In connection with the Settlement Agreement,
the three European lawsuits were dismissed and the Company withdrew its
opposition in the European and Japanese patent offices to the grant of the
applicable counterparts to the TLC Patents.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and marketable securities
position at September 30, 1997 was $67.6 million compared to $42.0 million on
December 31, 1996. The $25.6 million increase in cash and marketable securities
position was primarily the result of the following:
<TABLE>
<S> <C>
Net cash used in operating activities ($31,667,000)
Investment in property, plant and equipment (7,099,000)
Proceeds from sale of investment in life science enterprise 2,683,000
Payments on short-term borrowings, net (6,807,000)
Proceeds from sale-leaseback transactions 1,997,000
Payments on capital lease obligations (3,394,000)
Proceeds from issuance of long-term debt 16,404,000
Repayments on long-term debt (24,338,000)
Proceeds from issuance of convertible subordinated debentures, net 77,200,000
Proceeds from sale of common stock, net 986,000
Other (323,000)
------------
$ 25,642,000
============
</TABLE>
The Company invests its cash and cash equivalents and marketable
securities in interest-bearing investment grade securities.
The Company's accounts receivable balance at September 30, 1997 was
$38.7 million as compared to $30.0 million on December 31, 1996. The growth in
accounts receivable was primarily due to increased sales of AmBisome over the
past year 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. Payment practices vary significantly
between countries 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. In
particular, the Company's Greek distributor, which owes a significant portion of
the accounts receivable to the Company, has been slow in making payments to the
Company because of the slowness of government-funded institutions in making
payments to it. During 1996, the Greek distributor granted the Company a
security interest in accounts receivable owed to the distributor by the
institutions to which it sells the Company's products. Additionally, the Greek
government has indicated that it is considering procedures which would expedite
payments by Greek hospitals. 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 during 1997, the
Company increased its allowance for doubtful accounts by $500,000 during the
third quarter of 1997.
As of September 30, 1997 and December 31, 1996 the Company's inventory
value was $13.6 million and $15.6 million, respectively. 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 nine months ended September 30, 1997, the Company had proceeds
from sales and leaseback transactions of $2.0 million related to the purchase of
capital equipment and $1.4 million in proceeds from facilities improvement and
capital equipment financing transactions. As of September 30, 1997, $7.0 million
was available under agreements relating to the financing of manufacturing
equipment, general laboratory and scientific equipment, office equipment,
furniture and fixtures and facilities improvements.
In June 1997, the Company sold all of its holdings in a life science
enterprise for $2.7 million following that company's initial public offering. As
a result of the sale, the Company recorded a loss of $26,000. For the three
months and nine months ended September 30, 1997, the Company had a non-cash
expense of $1.3 million related to the write off of capitalized purchased
technology which the Company had been amortizing over a four-year period, but
which the Company has decided not to pursue.
13
<PAGE> 14
During the third quarter of 1997, the Company completed the sale of $80
million of 6 1/4% Convertible Subordinated Debentures due 2004 (the
"Debentures") in a private offering to SBC Warburg Inc. and Oppenheimer & Co.,
Inc. The Company used the net proceeds of $77.2 million (after deducting a 3%
commission of $2.4 million received by the Initial Purchasers and transaction
expenses of approximately $400,000) from the sale of the Debentures, in part, to
repay outstanding bank borrowings of the Company in the principal amount of
$28.6 million, including repaying (a) the outstanding principal amount of $7.5
million under a term loan (the "Term Loan"); (b) the outstanding principal
balance of $10.0 million under a revolving line of credit (the "Credit Line")
pursuant to which the Company was permitted to borrow up to $15 million; and (c)
the outstanding principal amount of $11.1 million under a credit agreement (the
"Accounts Receivable Loan") pursuant to which the Company and certain of its
subsidiaries were permitted to 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. Following the repayment of the bank borrowings,
the Term Loan and the Credit Line were terminated.
In September 1997, the Company terminated the Accounts Receivable Loan
and simultaneously entered into a $10 million unsecured line of credit (the
"Credit Agreement") with the same financial institution. As of September 30,
1997, the Company had borrowings of $2.5 million under the Credit Agreement with
an average interest rate of 8.25%. The Credit Agreement, which includes a
foreign exchange facility, terminates on September 1, 1998. Under the terms of
the Credit Agreement, the Company is required to maintain certain financial
ratios and there are limitations on the Company's ability to incur additional
debt or to engage in certain significant transactions.
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 the Accounts
Receivable Loan and (c) entering into the Credit Line.
In May 1996, the Company's Spanish subsidiary entered into an agreement
to borrow up to 500 million Spanish Pesetas (approximately $3.4 million on
September 30, 1997) 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 to 750 million Spanish
Pesetas (approximately $5.0 million on September 30, 1997). In connection with
the agreement, the Company is maintaining $2.0 million in an unrestricted
account. As of September 30, 1997, the subsidiary had borrowings of 539 million
Spanish Pesetas (approximately $3.6 million on September 30, 1997) under the
agreement. The Company's Spanish subsidiary is required to repay the borrowings
under the agreement in May 1998.
On August 11, 1997, the Company and The Liposome Company ("TLC")
reached a settlement in connection with their patent litigation. In connection
with the settlement, the Company recorded an accounting charge of $11.5 million
of which $1.75 million represents payments in the third quarter of 1997 and the
remainder represents the net present value of all future minimum payments
required to be made by the Company to TLC. See "Three months and nine months
ended September 30, 1997" and "Patent Matters."
On September 29, 1997, the Company completed the acquisition of the
toll manufacturing facility in Dublin, Ireland in which a contract manufacturer
had previously performed labeling and quality control release for the Company's
products in the European Union. The total acquisition price was one million
Irish Punts (approximately $1.5 million on September 30, 1997). Upon the
completion of the acquisition, the Company began performing its own quality
control release in the European Union. The Company anticipates significant
expenditures during the remainder of 1997 and the first half of 1998 in
connection with developing and equipping additional facilities.
The Company believes that in the future it may be advisable to augment
its cash in order to fund all of its activities, including potential product
acquisitions. Therefore, the Company will consider raising cash whenever market
conditions are favorable. 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.
14
<PAGE> 15
The Company's future capital requirements will be substantial and will
depend on, and could increase as a result of, many factors, including progress
of the Company's research, drug discovery and development programs; whether the
Company acquires interests in products currently held by third parties; the
results and costs of preclinical and clinical testing of the Company's products,
if developed; the time and costs involved in obtaining regulatory approvals; the
costs involved in filing, prosecuting and enforcing patent claims; competing
technological and market developments; the Company's success in entering into
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, increased clinical studies, which are required in order to
obtain approvals and expand the indications and markets for the Company's
products, and the cost of equipping new facilities. 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.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Management's Discussion and Analysis of Financial Condition and
Results of Operations--Patent Matters.
ITEM 2. CHANGES IN SECURITIES
See Note 5 to the Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Settlement Agreement, dated August 11, 1997, by and among
Registrant, Fujisawa U.S.A., Inc. and The Liposome Company,
Inc. [Confidential treatment has been requested in
connection with provisions of this Agreement].
10.2 Credit Agreement, dated September 1, 1997, by and between
the Registrant and Wells Fargo Bank, National Association.
11.1 Statement Re: Computation of Earnings Per Share.
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
1. On July 29, 1997, the Company filed a report on Form 8-K
with regard to the entering into of a Purchase Agreement by
the Company on July 28, 1997 to sell $75 million of 6 1/4%
Convertible Subordinated Debentures due 2004.
2. On August 11, 1997, the Company filed a report on Form 8-K
with regard to the settlement of its litigation proceedings
with The Liposome Company.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEXSTAR PHARMACEUTICALS, INC.
Dated: November 12, 1997 By: /S/PATRICK J. MAHAFFY
----------------------
Patrick J. Mahaffy
President and Chief
Executive Officer
Dated: November 12, 1997 By: /S/MICHAEL E. HART
------------------
Michael E. Hart
Vice President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
10.1 Settlement Agreement, dated August 11, 1997, by and among
Registrant, Fujisawa U.S.A., Inc. and The Liposome Company, Inc.
[Confidential treatment has been requested in connection with
provisions of this Agreement].
10.2 Credit Agreement, dated September 1, 1997, by and between the
Registrant and Wells Fargo Bank, National Association.
11.1 Statement Re: Computation of Earnings Per Share.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (hereinafter "this Agreement") is entered
into as of the 11th day of August, 1997 (hereinafter "the Effective Date"), by
and among NeXstar Pharmaceuticals, Inc. (hereinafter "NeXstar"), a Delaware
corporation having a principal place of business at 2860 Wilderness Place,
Boulder, Colorado 80301, Fujisawa U.S.A., Inc. (hereinafter "FUSA"), a Delaware
corporation having a place of business at Parkway North Center, 3 Parkway
North, Deerfield, Illinois 60015, and The Liposome Company, Inc. (hereinafter
"TLC"), a Delaware corporation having a principal place of business at One
Research Way, Princeton Forrestal Center, Princeton, New Jersey 08540-6619.
SECTION I - BACKGROUND
1.1 On May 17, 1993, NeXstar sued TLC in the U.S. District
Court for the District of Delaware (Civil Action No. 93-232 (RRM)) seeking a
declaration that U.S. Patent No. 4,880,635 (hereinafter the "Janoff I Patent")
was not infringed by NeXstar's manufacture, use, and sale of liposomal products
and was invalid and/or unenforceable.
1.2 TLC thereafter requested that the U.S. Patent and Trademark
Office (hereinafter "USPTO") reexamine the Janoff I Patent. The Court stayed
further proceedings upon NeXstar's declaratory judgment action during the
pendency of the reexamination proceeding.
1.3 On July 2, 1996, the USPTO issued a Reexamination
Certificate for the Janoff I Patent, referred to as U.S. Patent No. B1
4,880,635 (hereinafter the "Reexamined Janoff I Patent").
1.4 On July 29, 1996, NeXstar filed an Amended Complaint
seeking a declaration that the Reexamined Janoff I Patent was not infringed by
NeXstar's manufacture, use, and sale of liposomal products and was invalid
and/or unenforceable.
1.5 On August 16, 1996, TLC answered and counterclaimed,
alleging that NeXstar's and FUSA's manufacture, use, sale, and offer for sale
of certain liposomal products infringed the Reexamined Janoff I Patent and
denying NeXstar's allegations.
1.6 On November 26, 1996, the USPTO issued U.S. Patent No.
5,578,320 (hereinafter the "Janoff II Patent").
<PAGE> 2
1.7 On January 17, 1997, TLC filed a First Amended
Counterclaim, alleging that NeXstar's and FUSA's manufacture, use, sale, and
offer for sale of certain liposomal products infringed the Reexamined Janoff I
Patent and the Janoff II Patent.
1.8 On February 25, 1997, NeXstar filed a Second Amended and
Supplemental Complaint (a) seeking a declaration that both the Reexamined
Janoff I Patent and the Janoff II Patent were not infringed by NeXstar's and
FUSA's manufacture, use, and sale of liposomal products and were invalid and/or
unenforceable, and (b) stating claims under federal law for antitrust injury
and under state law for tortious injury based, inter alia, on TLC's filing and
maintenance of infringement counterclaims based on the Reexamined Janoff I
Patent and Janoff II Patent.
1.9 On March 18, 1997, TLC answered NeXstar's Second Amended
and Supplemental Complaint and refiled its counterclaims against NeXstar and
FUSA and again denied NeXstar's allegations.
1.10 On October 27, 1993, European Patent No. 0190 315 B1
(hereinafter the "European Janoff Dehydration Patent") was granted to TLC. On
July 8, 1994, NeXstar filed an opposition to the European Janoff Dehydration
Patent. That opposition presently is pending.
1.11 On February 28, 1996, Japanese Patent No. 18973/1996
(hereinafter the "Japanese Janoff Dehydration Patent") was granted to TLC. On
May 28, 1996, NeXstar filed an opposition to the Japanese Janoff Dehydration
Patent. That opposition is presently pending.
1.12 On October 16, 1996, TLC filed suit in the Chancery
Division of the Patents Court in the United Kingdom charging NeXstar and
NeXstar Pharmaceuticals Ltd. with infringement of the European Janoff
Dehydration Patent (hereinafter "TLC's British Legal Action"). On January 15,
1997, NeXstar answered and counterclaimed for a declaration of invalidity of
the European Janoff Dehydration Patent.
1.13 On October 18, 1996, TLC filed suit in the Regional Court,
Dusseldorf, Germany charging NeXstar Pharmaceuticals GmbH with infringement of
the European Janoff Dehydration Patent (hereinafter "TLC's German Legal
Action"). On April 30, 1997, NeXstar Pharmaceuticals GmbH filed an answer in
TLC's German Legal Action.
-2-
<PAGE> 3
1.14 On or about November 4, 1996, TLC filed suit in the
Regional Court of The Hague, The Netherlands, charging NeXstar, NeXstar
Pharmaceuticals Ltd., NeXstar Pharmaceuticals B.V., and Brocacef Intramuraal
B.V. with infringement of the European Janoff Dehydration Patent (hereinafter
"TLC's Dutch Legal Action").
1.15 On February 8, 1995, European Patent No. 0282 405 B1
(hereinafter "TLC's European High Drug Lipid Complex Patent") was granted to
TLC. On November 3, 1995, NeXstar filed an opposition to TLC's European High
Drug Lipid Complex Patent. That opposition presently is pending.
1.16 Since at least November 14, 1989, subject to the
appropriate regulatory approvals, NeXstar has manufactured liposomal products,
including its AmBisome (R) liposomal amphotericin B (hereinafter defined in
Section 2.8) in the United States, and thereafter has made, used, sold, and/or
offered such products for sale in the United States and/or in numerous foreign
countries. NeXstar presently intends, subject to the appropriate regulatory
approvals, in the future to continue and/or to commence making, using, selling,
and/or offering for sale such products in the United States and/or in foreign
countries.
1.17 Subject to the appropriate regulatory approvals, FUSA
presently intends to commence using, selling, and offering for sale AmBisome in
the United States and Canada.
1.18 Subject to the appropriate regulatory approvals, TLC has
manufactured, used, sold, and/or offered for sale its Abelcet (R)
lipid-associated amphotericin B (hereinafter defined in Section 2.12) in the
United States and in numerous foreign countries. TLC presently intends,
subject to the appropriate regulatory approvals, in the future to continue
and/or to commence making, using, selling, and/or offering for sale such
products in the United States and in foreign countries.
1.19 Subject to the appropriate regulatory approvals, TLC has
manufactured and/or used in the United States and in foreign countries a
liposomal doxorubicin product presently known as D-99 (hereinafter defined in
Section 2.13). TLC presently intends, subject to the appropriate regulatory
approvals, in the future to continue and/or to commence making, using, selling,
and/or offering for sale such D-99 products, or products based thereon, in the
United States and in foreign countries.
-3-
<PAGE> 4
SECTION II - DEFINITIONS
2.1 The "Janoff Dehydration Patents" shall mean all United
States patents issuing from U.S. Patent Application Serial No. 638,809, filed
August 8, 1984, and/or Serial No. 749,161, filed June 26, 1985, and/or Serial
No. 749,419, filed July 26, 1985, and/or issuing from any continuation,
continuation-in-part, and/or divisional applications thereof, and/or issuing
from any reissue and/or reexamination proceedings relating thereto (including
but not limited to U.S. Patents Nos. 4,880,635; B1 4,880,635; and 5,578,320),
and further shall mean any and all foreign patent applications and/or foreign
patents or similar rights claiming priority to any of the applications,
continuations, continuations-in-part, and/or divisional applications identified
above (including but not limited to European Patent No. 0190 315 B1 and all
corresponding national patents, Japanese Patent No. 18973/1996, and Canadian
Patent No. 1,270,197), to the extent such patents claim dehydrated liposomes
and/or methods of dehydrating (including lyophilization) and/or rehydrating
liposomes, except that "Janoff Dehydration Patents" shall not include patents
defined as "Gradient Loading Patents" in Section 2.5 below.
2.2 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
2.3 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
2.4 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
2.5 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
2.6 "TLC's European High Drug Lipid Complex Patent" shall mean
European Patent No. 0282 405 B1.
2.7 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
-4-
<PAGE> 5
2.8 "AmBisome" shall mean liposomal amphotericin B products
made by NeXstar, or made by FUSA under license from NeXstar pursuant to the
FUSA Agreement as amended, that are lyophilized/dehydrated and in which sugar
is present in protective concentrations at the inside and the outside of the
bilayer membrane of the liposomes prior to lyophilization/dehydration and
rehydration.
2.9 "AmBisome SL" shall mean liposomal amphotericin B products
made by NeXstar that are lyophilized/dehydrated and in which sugar is present
in protective concentrations only at the outside of the bilayer membrane of the
liposomes prior to lyophilization/dehydration and rehydration.
2.10 "Liquid AmBisome" shall mean liposomal amphotericin B
products made by NeXstar that have not been lyophilized or dehydrated.
2.11 "AmBisome Product" shall mean any liposomal Amphotericin B
product made by NeXstar or made by FUSA under license by NeXstar pursuant to
the FUSA Agreement as amended.
2.12 "Abelcet" shall mean lipid-associated amphotericin products
made by TLC.
2.13 "D-99" shall mean liposomal doxorubicin products made by
TLC.
2.14 "Marketing Partner" shall mean and be limited to FUSA for
AmBisome sold in the United States and Canada and to Sumitomo Pharmaceutical
Co., Ltd. (hereinafter "Sumitomo") for AmBisome sold in Japan.
2.15 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
2.16 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
2.17 "Controlling Interest" shall mean, with respect to a
patent, the ability to prevent the filing of a suit for patent infringement
whether by controlling the decision of whether to file suit or by the ability
to grant a license, sublicense, or immunity from suit.
2.18 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
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SECTION III - DISMISSALS
3.1 For and in consideration of the covenants, terms, and
conditions set forth herein, NeXstar, FUSA, and TLC, within three (3) business
days after the Effective Date of this Agreement, will cause to be executed and
TLC will file in the U.S. District Court for the District of Delaware (Civil
Action No. 93-232 (RRM)) a stipulated dismissal with prejudice of TLC's
Counterclaim against NeXstar and FUSA.
3.2 For and in consideration of the covenants, terms, and
conditions set forth herein, NeXstar, FUSA, and TLC, within three (3) business
days after the Effective Date of this Agreement, will cause to be executed and
NeXstar will file in the U.S. District Court for the District of Delaware
(Civil Action No. 93-232 (RRM)) a stipulated dismissal with prejudice of
NeXstar's Second Amended and Supplemental Complaint.
3.3 For and in consideration of the covenants, terms, and
conditions set forth herein, within ten (10) business days after the Effective
Date of this Agreement, NeXstar will file in the European Patent Office a
withdrawal of its opposition to the grant of TLC's European Janoff Dehydration
Patent.
3.4 For and in consideration of the covenants, terms, and
conditions set forth herein, within ten (10) business days after the Effective
Date of this Agreement, NeXstar will file in the Japanese Patent Office a
withdrawal of its opposition to the grant of TLC's Japanese Janoff Dehydration
Patent.
3.5 For and in consideration of the covenants, terms, and
conditions set forth herein, NeXstar and TLC, within ten (10) business days
after the Effective Date of this Agreement, will cause to be executed and TLC
will file a stipulated dismissal with prejudice of TLC's British Legal Action
in the Chancery Division of the Patents Court, United Kingdom.
3.6 For and in consideration of the covenants, terms, and
conditions set forth herein, NeXstar and TLC, within ten (10) business days
after the Effective Date of this Agreement, will cause to be executed and
NeXstar will file a stipulated dismissal with prejudice of the
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<PAGE> 7
Counterclaim of NeXstar and NeXstar Pharmaceuticals Limited in the British
Legal Action in the Chancery Division of the Patents Court, United Kingdom.
3.7 For and in consideration of the covenants, terms, and
conditions set forth herein, NeXstar and TLC, within ten (10) business days
after the Effective Date of this Agreement, will cause to be executed and TLC
will file a stipulated dismissal with prejudice of TLC's German Legal Action
and NeXstar's counterclaims therein, if any, in the Regional Court, Dusseldorf,
Germany.
3.8 For and in consideration of the covenants, terms, and
conditions set forth herein, NeXstar and TLC, within ten (10) business days
after the Effective Date of this Agreement, will cause to be executed and TLC
will file a stipulated dismissal with prejudice of TLC's Dutch Legal Action and
NeXstar's counterclaims therein, if any, in the Regional Court of The Hague,
The Netherlands.
3.9 For and in consideration of the covenants, terms, and
conditions set forth herein, within ten (10) business days after the Effective
Date of this Agreement, NeXstar will file in the European Patent Office a
withdrawal of its opposition to the grant of TLC's European High Drug Lipid
Complex Patent and shall not oppose foreign counterparts in other
jurisdictions.
SECTION IV - RELEASES
4.1 For and in consideration of the covenants, terms, and
conditions set forth herein, TLC and each of its subsidiaries and affiliates
hereby releases (a) NeXstar, its subsidiaries, and NeXstar's and its
subsidiaries' affiliates, officers, employees, agents, customers, distributors,
and others in privity with NeXstar (for purposes of Section 4.1 only,
hereinafter collectively "NeXstar"), and (b) FUSA, its subsidiaries, and FUSA's
and its subsidiaries' affiliates, officers, employees, agents, customers,
distributors, and others in privity with FUSA (for purposes of Section 4.1
only, hereinafter collectively "FUSA"), from any and all liability, past,
present or future, for infringement of the Janoff Dehydration Patents,
including but not limited to all matters raised or that could have been raised
in TLC's First Amended Counterclaim, TLC's British, German, and Dutch Legal
Actions, and any and all other proceedings and/or all other legal action(s)
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<PAGE> 8
in any other jurisdiction that could have been asserted against either NeXstar
or FUSA for past, present, or future infringement of the Janoff Dehydration
Patents.
4.2 For and in consideration of the covenants, terms, and
conditions set forth herein, NeXstar and its subsidiaries and affiliates
(including but not limited to NeXstar Pharmaceuticals Ltd., NeXstar
Pharmaceuticals GmbH, and NeXstar Pharmaceuticals B.V.), and FUSA and its
subsidiaries hereby release TLC, its subsidiaries, and TLC's and its
subsidiaries' affiliates, officers, employees, agents, customers, distributors,
and others in privity with TLC (for purposes of Section 4.2 only, hereinafter
collectively "TLC"), from any and all liability for all matters raised or that
could have been raised in NeXstar's Second Amended and Supplemental Complaint
(including, but not limited to the procurement and enforcement of the Janoff
Dehydration Patents, and all statements and other actions relating thereto),
and NeXstar only further releases TLC from any and all counterclaims raised or
that could have been raised against TLC in response to TLC's British, German,
and Dutch Legal Actions, and any other proceeding or other legal action(s) in
any other jurisdiction that could have been asserted by NeXstar against TLC
based on TLC's procurement and/or enforcement of the Janoff Dehydration
Patents.
4.3 NeXstar represents that Brocacef Intramuraal, B.V.
(Brocacef), a party to the Dutch Legal Actions, acts solely as an independent
distributor of AmBisome and is not an affiliate or subsidiary of NeXstar;
therefore in consideration of the covenants, terms, and conditions set forth
herein, NeXstar hereby agrees to use, in good faith, commercially reasonable
efforts to obtain from Brocacef a release of TLC, its subsidiaries, and TLC's
and its subsidiaries' affiliates, officers, employees, agents, customers,
distributors, and others in privity with TLC (for purposes of Section 4.3 only,
hereinafter collectively "TLC"), from any and all liability for all matters
raised or that could have been raised in the Dutch Legal Actions and from any
other claims or counterclaims that could have been asserted by Brocacef against
TLC relating to the subject matter of the Dutch Legal Actions. Notwithstanding
the provisions of Section 3.8, above, TLC shall not be required to dismiss its
action against Brocacef only unless and until Brocacef provides to TLC the
release set forth in this Section.
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<PAGE> 9
SECTION V - IMMUNITIES FROM SUIT AND OPTIONS
5.1 Subject to Section 5.9, TLC grants to NeXstar, its
subsidiaries, and NeXstar's and its subsidiaries' affiliates, officers,
employees, agents, customers, distributors, and others in privity with NeXstar
(including, but not limited to FUSA and Sumitomo and their subsidiaries,
affiliates, officers, employees, agents, customers, distributors, and others in
privity with them), a worldwide immunity from suit for all NeXstar products,
past, present, and future, under any of the Janoff Dehydration Patents, whether
such patents now are issued or shall issue in the future from the USPTO or from
any foreign patent office. The grant of immunity to Sumitomo under this
Section shall be in force and effect only so long as Sumitomo remains a
Marketing Partner, licensee, or is in privity with NeXstar.
5.2 Subject to Sections 5.8 and 5.9, TLC grants to NeXstar, its
subsidiaries, and NeXstar's and its subsidiaries' affiliates, officers,
employees, agents, customers, distributors, and others in privity with NeXstar
(including, but not limited to FUSA and Sumitomo and their subsidiaries,
affiliates, officers, employees, agents, customers, distributors, and others in
privity with them), a worldwide immunity from suit for all AmBisome Products,
including but not limited to AmBisome, AmBisome SL, and Liquid AmBisome, under
all patents owned by TLC or in which TLC presently has or hereafter acquires a
Controlling Interest [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934], whether such patents now are issued from the
USPTO or from any foreign patent office or shall issue in the future from the
USPTO or from any foreign patent office based on applications with an effective
filing date or priority date with respect to the subject matter claimed therein
on or prior to the Effective Date of this Agreement. The grant of immunity to
Sumitomo under this Section shall be in force and effect only so long as
Sumitomo remains a Marketing Partner, licensee, or is in privity with NeXstar.
5.3(a) Subject to Sections 5.8 and 5.9, NeXstar grants to TLC, its
subsidiaries, and TLC's and its subsidiaries' affiliates, officers, employees,
agents, customers, distributors, and others in privity with TLC, a worldwide
immunity from suit for D-99 and Abelcet under all patents owned
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<PAGE> 10
by NeXstar or in which NeXstar presently has or hereafter acquires a
Controlling Interest [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934], whether such patents now are issued from the
USPTO or from any foreign patent office or shall issue in the future based on
applications with an effective filing date or priority date with respect to the
subject matter claimed therein on or prior to the Effective Date of this
Agreement.
5.3(b) Subject to Sections 5.8 and 5.9, FUSA grants to TLC, its
subsidiaries, and TLC's and its subsidiaries' affiliates, officers, employees,
agents, customers, distributors, and others in privity with TLC, a worldwide
immunity from suit for Abelcet in the form presently approved for sale in the
United States and Canada under all patents owned by FUSA or in which FUSA
presently has or hereafter acquires a Controlling Interest, whether such
patents now are issued from the USPTO or from any foreign patent office or
shall issue in the future based on applications with an effective filing date
or priority date with respect to the subject matter claimed therein on or prior
to the Effective Date of this Agreement.
5.3(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.]
5.4 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
5.5 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
5.6 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
5.7 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
5.8 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
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<PAGE> 11
5.9 The immunities from suit granted in Sections 5.1 through
5.3 of this Agreement shall not extend to transactions with third parties in
which the party that has been granted the immunity is so peripherally involved
that an extension of the immunity would be tantamount to a transfer of the
immunity to said third party. Any dispute regarding the degree of involvement
of the party that has been granted the immunity in such transaction shall be
resolved by arbitration under Section 9.10.
5.10 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
SECTION VI - PAYMENTS
6.1 NeXstar will pay to TLC $1,750,000 within five (5) days of
the Effective Date of this Agreement.
6.2 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
6.3 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
6.4 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
6.5 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
6.6 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
6.7 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
6.8 [Confidential Material omitted and filed separately with
the Securities and Exchange Commission pursuant to Section 24b-2 of the
Securities Exchange Act of 1934.]
6.9 NeXstar, FUSA, and TLC (if applicable) shall keep good and
accurate books of account sufficient to permit determination of any payments
due hereunder and shall make such books of account available for inspection by
an independent accountant not otherwise rendering
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<PAGE> 12
services to the party to which the payment is due and mutually agreeable to all
parties. Such inspections shall be no more frequent than once each calendar
year during which a payment is due and once within six months after cessation
of any obligation to make payments under this Agreement. The designated
accountant shall retain in confidence the information in the books of account
and shall report to the party to which the payment is due only the accuracy or
inaccuracy in the calculation of such payment. Such inspections will be at the
expense of the party requesting the inspection unless the designated accountant
identifies an underpayment of the payment due by five percent (5%) or more, in
which event the party obligated to make the payment shall pay for such
inspection. Any party's failure to inspect shall not constitute a waiver of
its right to object to the accuracy of the calculations or payments made under
this Agreement. Notwithstanding the foregoing, no inspection shall occur for
any calendar year in which the maximum payment pursuant to Section 6.4 has been
made.
6.10 If TLC desires to have conducted an inspection of the
Sumitomo books of account, NeXstar hereby agrees to request such an inspection
in accordance with all of the provisions, and subject to all of the
limitations, of Paragraph 7 of the Sumitomo Agreement, provided that TLC agrees
to reimburse NeXstar within 30 days of the completion of such inspection for
the entire cost associated therewith.
6.11 All payments made under this Agreement shall be in U.S.
dollars and shall be paid by check or by wire to a bank in the United States
that shall be designated in writing by the party to which such payment is due.
SECTION VII - WARRANTIES AND REPRESENTATIONS
7.1 Nothing in this Agreement shall be construed as (a) a
warranty or representation by either TLC or NeXstar as to the validity,
enforceability or scope of any of the patents described herein, or (b) granting
by implication, estoppel, or otherwise, any license or rights under any
patents, trade secrets, knowhow, copyrights, trademarks, or other intangible
rights of either TLC or NeXstar other than those specifically granted under
this Agreement.
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<PAGE> 13
7.2 No party to this Agreement makes any representations, extends
any warranty of any kind, either express or implied, or assumes any
responsibility whatever with respect to manufacture, use, sale or other
disposition by any other party or its customers or transferees or their
customers of products or methods incorporating or made by use of any inventions
claimed in any patent described herein.
7.3 NeXstar, FUSA, and TLC hereby warrant that they have all
necessary authority to enter into this Agreement and to convey the rights
granted hereunder.
7.4 [Confidential Material omitted and filed separately with the
Securities and Exchange Commission pursuant to Section 24b-2 of the Securities
Exchange Act of 1934.]
7.5 [Confidential Material omitted and filed separately with the
Securities and Exchange Commission pursuant to Section 24b-2 of the Securities
Exchange Act of 1934.]
SECTION VIII - ASSIGNMENT
8.1 All rights granted under this Agreement shall be assignable
only upon (1) written consent of the grantor, or (2) the sale or transfer
(including by merger or spin-off) of all or substantially all of the assets of
that portion of the business involved in making, marketing, selling, or
distributing AmBisome, Abelcet, and/or D-99, as the case may be, or (3) a
corporate reorganization for tax or similar corporate restructuring purposes.
SECTION IX - MISCELLANEOUS
9.1 Each party hereto agrees to execute, acknowledge, and deliver
all such further instruments, and to do all such further acts, as may be
necessary or appropriate to carry out the intent and purposes of this
Agreement. This Agreement shall be binding upon all successors in interest to,
and upon all assignees of, each of the parties hereto.
9.2 Nothing herein shall be deemed to create an agency, joint
venture or partnership relation between any of the parties hereto.
9.3 This Agreement and the attachments thereto constitute the
entire agreement and understanding of the parties with regard to the subject
matter hereof and merges and supersedes all prior discussions, negotiations,
understandings and agreements between the parties concerning the subject matter
hereof. No party shall be bound by any definition, condition, warranty, right,
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<PAGE> 14
duty or covenant other than as expressly stated in this Agreement or as
subsequently set forth in a written document signed by all parties.
9.4 This Agreement shall be interpreted and construed, and the
legal relations created herein shall be determined, in accordance with the laws
of the State of Delaware (excluding conflicts of laws) and the United States.
9.5 This Agreement may be amended only by a written document
signed by authorized representatives of all parties.
9.6 The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.7 The parties shall prepare and issue a joint press release, to
be approved by all parties to this Agreement prior to its issuance, stating the
fact of the settlement and the dismissal and/or withdrawal of the various
actions and proceedings described in Section III, above. Although the joint
press release may state that, under this Agreement, NeXstar will make certain
payments to TLC, the amount, terms, and conditions of such payments shall
remain confidential, except to the extent that certain disclosures may be
required by law, compelled by judicial or administrative order, or are believed
in good faith by the disclosing party to be necessary to comply with any
applicable federal, state, or foreign law regarding the sale or regulation of
securities. In the case of such a disclosure, the disclosing party shall make
all reasonable efforts to limit such disclosure and to maintain the
confidentiality of the terms and conditions of this settlement.
9.8 Except to the extent disclosed by Section 9.7, all other
information concerning this Agreement and/or the terms thereof and all
financial and sales information disclosed by each party shall be maintained as
confidential by the receiving party on an ongoing basis. If a receiving party
desires to disclose such confidential financial and sales information to
another party to this Agreement or to a third party, the receiving party must
notify the owner of the confidential information in writing at least ten days
prior to such disclosure. An agreement to disclose such information must be
reached in writing prior to any such disclosure. If the receiving party is
legally obligated by Court Order or by any applicable federal, state, or
foreign law regarding the sale or
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<PAGE> 15
regulation of securities to disclose the confidential financial information,
the receiving party will immediately notify the owner of such confidential
information. If possible, the receiving party will notify the owner of such
confidential information as soon as it is aware of the possibility of legally
obligated disclosure in a timely manner so that the owner of the confidential
information can object to such disclosure. If an agreement cannot be reached
between the parties as to whether confidential information can be disclosed,
the parties will make all reasonable efforts to resolve such disagreement
(e.g., the independent accountants will discuss the issues).
9.9 Any and all notices or other communications required or
permitted by this Agreement or by law to be served on or given to either party
hereto by the other party shall be in writing and delivered or sent to the
addresses set forth below:
To NeXstar:
NeXstar Pharmaceuticals, Inc.
2860 Wilderness Place
Boulder, Colorado 80301
Attn: Adam Cochran, Esq.
To TLC:
The Liposome Company, Inc.
One Research Way
Princeton Forrestal Center
Princeton, New Jersey 08540-6619
Attn: General Counsel
To FUSA:
Fujisawa U.S.A., Inc.
Parkway North Center
3 Parkway North
Deerfield, Illinois 60015
Attn: Linda Friedman, Esq.
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<PAGE> 16
Any party to this Agreement may change its address for purposes of
this Agreement by written notice to the other party. All notices or other
communications shall be deemed duly served and given on the date when
personally delivered to the party to whom it is directed, when transmitted
electronically by telex or facsimile, provided that a confirming copy is sent
by United States mail as set forth hereafter, or when deposited in the United
States mail, first class, postage prepaid, and addressed to the party at the
address on the first page hereof.
9.10 Any controversy or claim arising out of or relating to this
Agreement, or any alleged breach thereof, shall be settled by binding
arbitration, before a panel of three (3) arbitrators, administered by the
American Arbitration Association under its Commercial Arbitration Rules, or by
such other procedures as to which the parties may agree, and judgment on the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. If an arbitration is commenced pursuant to this Section,
the losing party will be obligated to pay all arbitration costs (but not
attorney fees) incurred by each of the parties to such arbitration.
9.11 (a) FUSA hereby agrees to indemnify and hold TLC
harmless for any liability associated with the manufacture, use, or sale by
FUSA of any products with respect to which an immunity from suit, option to
license, license, or sublicense is granted by TLC under this Agreement.
(b) NeXstar hereby agrees to indemnify and hold TLC
harmless for any liability associated with the manufacture, use, or sale by
NeXstar of any products with respect to which an immunity from suit, option to
license, license, or sublicense is granted by TLC under this Agreement.
9.12 TLC hereby agrees to indemnify and hold FUSA and/or NeXstar
harmless for any liability associated with the manufacture, use, or sale by TLC
of any products with respect to which an immunity from suit, option to license,
license, or sublicense is granted by FUSA and/or NeXstar under this Agreement.
9.13 Neither FUSA nor NeXstar guarantees that TLC will have the
ability to make, use, sell, or offer to sell free from liability for
infringement of third party patents any product with
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<PAGE> 17
respect to which an immunity from suit, option to license, license, or
sublicense is granted by FUSA and/or NeXstar under this Agreement.
9.14 TLC does not guarantee that FUSA and/or NeXstar will have
the ability to make, use, sell, or offer to sell free from liability for
infringement of third party patents any product with respect to which an
immunity from suit, option to license, license, or sublicense is granted by TLC
under this Agreement.
9.15 NeXstar, TLC, and FUSA mutually covenant that they neither
will instigate nor encourage legal action against the other by third parties
with respect to products for which an immunity from suit is granted under
Section 5.1, 5.2, or 5.3 of this Agreement. NeXstar and FUSA further agree not
to oppose, seek to invalidate, or to have revoked, or to have held or rendered
unenforceable any of the U.S. or foreign Janoff Dehydration Patents.
9.16 None of the parties shall be responsible or liable to
another party for nonperformance or delay in performance of any terms or
conditions of this Agreement due to acts or occurrences beyond the control of
the nonperforming or delayed party, including but not limited to, acts of God,
acts of government, wars, riots, strikes or other labor disputes, shortages of
labor or materials, fires and floods, provided the nonperforming or delayed
party provides to the other party written notice of the existence and the
reason for such nonperformance or delay.
9.17 This Agreement shall be executed by each party in
triplicate originals, each of which shall be deemed an original, but the three
originals together shall constitute only one and the same instrument.
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<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Agreement in
triplicate on the signature page hereof.
The Liposome Company, Inc. NeXstar Pharmaceuticals, Inc.
By: /s/ CHARLES A. BAKER By: /s/ PATRICK J. MAHAFFY
------------------------------- ---------------------------------
Typed Name: Charles A. Baker Typed Name: Patrick Mahaffy
----------------------- ---------------------------
Title: Chairman & CEO Title: President & CEO
---------------------------- --------------------------------
Date: 8/13/97 Date: 8/11/97
---------------------------- ---------------------------------
Fujisawa USA, Inc.
By: /s/ B. RICHARD VOGT
-------------------------------
Typed Name: B. Richard Vogt
-----------------------
Title: Vice President, Business
Development
---------------------------
Date: 8/11/97
---------------------------
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<PAGE> 1
EXHIBIT 10.2
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of September 1, 1997, by and between
NEXSTAR PHARMACEUTICALS, INC., a Delaware corporation ("Borrower"), and WELLS
FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodations described
below (each, a "Credit" and collectively, the "Credits"), and Bank has agreed
to provide the Credits 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 CREDITS
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 September 1, 1998, not to exceed at any time the aggregate
principal amount of Ten Million Dollars ($10,000,000.00) ("Line of Credit"),
the proceeds of which shall be used for working capital requirements or product
purchases. 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.
(b) Letter of Credit Subfeature. As a subfeature under the Line
of Credit, Bank agrees from time to time during the term thereof to issue
standby and sight commercial letters of credit for the account of Borrower to
finance purchase of merchandise inventory or other business purposes as
approved by Bank (each, a "Letter of Credit" and collectively, "Letters of
Credit"); provided however, that the form and substance of each Letter of
Credit shall be subject to approval by Bank, in its sole discretion; and
provided further, that the aggregate undrawn amount of all outstanding Letters
of Credit shall not at any time exceed Ten Million Dollars ($10,000,000.00).
Each standby Letter of Credit shall be issued for a term not to exceed three
hundred sixty-five (365) days, and each sight commercial Letter of Credit shall
be issued for a term not to exceed one hundred and twenty (120) days, as
designated by Borrower; provided however, that no Letter of Credit shall have
an expiration date more than ninety (90) days beyond the maturity date of the
Line of Credit. The undrawn amount of all Letters of Credit shall be reserved
under the Line of Credit and shall not be available for borrowings thereunder.
Each Letter of Credit shall be subject to the additional terms and conditions
of the Letter of Credit Agreement and related documents, if any, required by
Bank in connection with the issuance thereof (each, a "Letter of Credit
Agreement" and collectively, "Letter of Credit Agreements"). Each draft paid
by Bank under a Letter of Credit shall be deemed an advance under the Line of
Credit and shall be repaid by Borrower in accordance with the terms and
conditions of this Agreement applicable to such advances; provided however,
that if advances under the Line of Credit are not available, for any reason, at
the time any draft is paid by Bank, then Borrower shall immediately pay to Bank
the full amount of such draft, together with interest thereon from the date
such amount is paid by Bank to the date such amount is fully repaid by
<PAGE> 2
Borrower, at the rate of interest applicable to advances under the Line of
Credit. In such event Borrower agrees that Bank, in its sole discretion, may
debit any demand deposit account maintained by Borrower with Bank for the
amount of any such draft.
(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. FOREIGN EXCHANGE FACILITY.
(a) Foreign Exchange Facility. Subject to the terms and
conditions of this Agreement, Bank hereby agrees to make available to Borrower
a facility (the "Foreign Exchange Facility") under which Bank, from time to
time up to and including September 1, 1998, will enter into foreign exchange
contracts for the account of Borrower for the purchase and/or sale by Borrower
in United States dollars of Australian dollars, Italian lira, Danish krone,
Irish pounds, Belgian francs, Finnish markka, British pounds, Netherlands
gilder, Austrian schilling, Deutsche marks, French francs, Portuguese escudo,
Spanish peseta, Swiss francs and Swedish krona; provided however, that the
maximum amount of all outstanding foreign exchange contracts shall not at any
time exceed an aggregate of Thirty-five Million United States Dollars
(US$35,000,000.00). No foreign exchange contract shall be executed for a term
in excess of seven (7) months or for a term which extends beyond November 1,
1998. Borrower shall have a "Delivery Limit" under the Foreign Exchange
Facility not to exceed at any time the aggregate principal amount of Seven
Million United States Dollars (US$7,000,000.00), which Delivery Limit reflects
the maximum principal amount of Borrower's foreign exchange contracts which may
mature during any two (2) day period. All foreign exchange transactions shall
be subject to the additional terms of a Foreign Exchange Agreement,
substantially in the form of Exhibit B attached hereto ("Foreign Exchange
Agreement"), all terms of which are incorporated herein by this reference.
(b) Settlement. Each foreign exchange contract under the Foreign
Exchange Facility shall be settled on its maturity date by Bank's debit to any
demand deposit account maintained by Borrower with Bank.
SECTION 1.3. INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line of
Credit shall bear interest at the rate of interest 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 $5,200.00, which fee shall be
due and payable in full on execution of these documents.
(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.
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(e) Letter of Credit Fees. Borrower shall pay to Bank fees upon
the issuance of each Letter of Credit, upon the payment or negotiation by Bank
of each draft under any Letter of Credit and upon the occurrence of any other
activity with respect to any Letter of Credit (including without limitation,
the transfer, amendment or cancellation of any Letter of Credit) determined in
accordance with Bank's standard fees and charges then in effect for such
activity.
SECTION 1.4. COLLECTION OF PAYMENTS. Borrower authorizes Bank to
make advances under the Line of Credit only into Borrower's demand deposit
account number 4439-821356 with Bank, and to collect all interest and fees due
under each 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 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.
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 state of
Delaware, 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
Notes, 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
Certificate of Incorporation or By-Laws 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.
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SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial
statement of Borrower dated June 30, 1997, as set forth in Borrower's quarterly
report on Form 10-G for the quarterly period ending June 30, 1997, 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 except for the exclusion of footnotes. 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 its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing. Bank
acknowledges that Borrower has issued $80,000,000.00 in 6.25% Convertible
Subordinated Debentures, due 2004.
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");
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.
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 or 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 or State or
governmental investigation evaluating whether any remedial action involving a
material expenditure is needed to respond to a release of any
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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, except as disclosed in
Borrower's 10-Q dated June 30, 1997.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The
obligation of Bank to grant any of the Credits 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
granting of each of the Credits 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) Corporate Resolution: Borrowing.
(iii) Certificate of Incumbency.
(iv) Foreign Exchange Agreement.
(v) Facsimile Transmissions of Applications for Issuance of, and
Amendments to, Letters of Credit.
(vi) Continuing Standby and Commercial Letter of Credit Agreement.
(vii) 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.
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.
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
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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.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and
records 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 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 Borrower, 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 Borrower, prepared by Borrower,
to reasonably include balance sheet, income statement and applicable footnotes;
(c) not later than five (5) days after filing, a copy of each Form
10-Q and 10-K report filed by Borrower with the Securities and Exchange
Commission pursuant to Sections 13 or 15 (d) of the Securities Exchange Act of
1934 and Rules issued thereunder;
(d) contemporaneously with each annual and quarterly consolidated
financial statement of Borrower required hereby, a certificate of the president
or chief financial officer of Borrower 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
(e) 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
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.
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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, except such (a) as Borrower may in
good faith contest or as to 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 Borrower'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 2.0 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 acceptable 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 without concurrently entering into a policy with substantially the
same or greater coverage, 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.
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:
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SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the
Credits except for the purposes stated in Article I hereof.
SECTION 5.2. OTHER INDEBTEDNESS. Promptly notify Bank, in
writing, of any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
and (b) any other liabilities of Borrower existing as of, and disclosed to
Bank prior to the date hereof.
SECTION 5.3. 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, except the Existing
Subsidiaries (as hereinafter defined) 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 of the Subsidiaries (as hereinafter
defined), 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 5.4. 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 assets of Borrower as security
for, any liabilities or obligations of any other person or entity, except (a)
any of the foregoing in favor of Bank or as previously disclosed in writing to
Bank, and (b) guaranties on behalf of Subsidiaries in the ordinary course of
business.
SECTION 5.5. 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 hereto as Exhibit C 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 Borrower of the existing capital stock
NeXstar Farmaceutica Portugal, LDA, NeXstar Pharmaceuticals
Italia, S.r.1., NeXstar Pharmaceutique Sarl, EuroNex
Pharmaceuticals Limited, NeXstar Pharmaceuticals Limited
(U.K.), NeXstar Pharmaceuticals GmbH, NeXstar Farmaceutica,
S.A., NeXstar Pharmaceuticals Int'l B.V., NeXstar
Pharmaceuticals B.V., NeXstar Pharmaceuticals Limited
(Ireland) ("NeXstar Ireland") and NeXstar Pharmaceuticals Pty
Limited (Australia) (collectively, the "Existing
Subsidiaries"), and such additional subsidiaries as may be
necessary in the ordinary course of Borrower's business
(collectively, with the Existing Subsidiaries, the
"Subsidiaries");
(d) Endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business;
(e) Loans or advances to Subsidiaries (other than NeXstar
Ireland), employees, or entities or persons related to
Borrower in an aggregate
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amount for all such loans and advances not exceeding
$4,000,000.00, at any one time; or loans or advances to
NeXstar Ireland in an aggregate amount not exceeding
$1,500,000.00, at any one time.
(f) 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 5.6. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit
to exist a security interest in, or lien upon, all or any portion of Borrower's
or any of the Subsidiaries accounts receivable (other than NeXstar
Farmaceutica, S.A.), now owned or hereafter acquired, except any of the
foregoing in favor of Bank or which is existing as of, and disclosed to Bank in
writing prior to, the date hereof.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. 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
any debt or other liability to any person or entity, including Bank, 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 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
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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 of the Credits 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 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
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BANK: WELLS FARGO BANK, 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 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 of the Credits, 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 the Credits 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
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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 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.
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. 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" 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. '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
-12-
<PAGE> 13
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 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first written above.
WELLS FARGO BANK,
NEXSTAR PHARMACEUTICALS, INC. NATIONAL ASSOCIATION
By: /s/ PATRICK J. MAHAFFY By: /s/ TRACEY A. HANSON
--------------------------- -------------------------------
Tracey A. Hanson
Title: President and CEO Vice President
---------------------------
By: /s/ MICHAEL E. HART
---------------------------
Title: Vice President and CFO
---------------------------
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<PAGE> 1
EXHIBIT 11.1
NEXSTAR PHARMACEUTICALS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PRIMARY:
Net income (loss) $(22,019,000) $ 2,746,000 $(40,003,000) $ (7,587,000)
============ ============ ============ ============
Applicable common shares:
Weighted average shares outstanding
during the period 26,524,000 26,361,000 26,465,000 25,913,000
Shares assumed issued for warrants -- 1,185,000 -- --
Shares assumed issued for stock options -- 1,900,000 -- --
Less: treasury stock assumed purchased -- (1,316,000) -- --
------------ ------------ ------------ ------------
Total 26,524,000 28,130,000 26,465,000 25,913,000
============ ============ ============ ============
Net income (loss) per common share $ (0.83) $ 0.10 $ (1.51) $ (0.29)
============ ============ ============ ============
FULLY DILUTED:
Net income (loss) $(22,019,000) $ 2,746,000 $(40,003,000) $ (7,587,000)
============ ============ ============ ============
Applicable common shares:
Weighted average shares outstanding
during the period 26,524,000 26,361,000 26,465,000 25,913,000
Shares assumed issued for warrants -- 1,185,000 -- --
Shares assumed issued for stock options -- 1,900,000 -- --
Less: treasury stock assumed purchased -- (1,214,000) -- --
------------ ------------ ------------ ------------
Total 26,524,000 28,232,000 26,465,000 25,913,000
============ ============ ============ ============
Net income (loss) per common share $ (0.83) $ 0.10 $ (1.51) $ (0.29)
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 48,685,000
<SECURITIES> 18,922,000
<RECEIVABLES> 37,171,000
<ALLOWANCES> 1,541,000
<INVENTORY> 13,643,000
<CURRENT-ASSETS> 122,992,000
<PP&E> 78,397,000
<DEPRECIATION> 33,278,000
<TOTAL-ASSETS> 176,244,000
<CURRENT-LIABILITIES> 39,136,000
<BONDS> 88,127,000
0
0
<COMMON> 273,000
<OTHER-SE> 48,708,000
<TOTAL-LIABILITY-AND-EQUITY> 176,244,000
<SALES> 65,150,000
<TOTAL-REVENUES> 68,494,000
<CGS> 15,601,000
<TOTAL-COSTS> 15,601,000
<OTHER-EXPENSES> 89,923,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,823,000
<INCOME-PRETAX> (39,853,000)
<INCOME-TAX> 150,000
<INCOME-CONTINUING> (40,003,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,003,000)
<EPS-PRIMARY> (1.51)
<EPS-DILUTED> (1.51)
</TABLE>
