<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 MARCH 31, 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 April 30, 1997 was 26,436,579.
<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 -- March 31, 1997 and December 31, 1996 . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations -- Three Months Ended March 31, 1997 and 1996 . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows -- Three Months Ended March 31, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 30,610,000 $ 21,542,000
Marketable securities 11,605,000 20,423,000
Accounts receivable 32,894,000 30,001,000
Inventories 15,540,000 15,629,000
Prepaid expenses and other 2,745,000 2,276,000
------------- -------------
Total current assets 93,394,000 89,871,000
Equipment and leasehold improvements, net of
accumulated depreciation and amortization 42,713,000 43,960,000
Investment in life science enterprise 2,257,000 2,709,000
Patent and trademark costs, net of accumulated amortization 4,921,000 4,633,000
Purchased technology, net of accumulated amortization 1,759,000 2,010,000
Other noncurrent assets 1,958,000 1,317,000
------------- -------------
Total assets $ 147,002,000 $ 144,500,000
============= =============
Liabilities and stockholders' equity
Current liabilities:
Short-term borrowings $ 14,617,000 $ 12,936,000
Accounts payable 6,532,000 10,483,000
Accrued compensation and employee benefits 3,155,000 3,544,000
Other accrued expenses 7,032,000 7,174,000
Long-term obligations due within one year 7,860,000 7,535,000
------------- -------------
Total current liabilities 39,196,000 41,672,000
Long-term obligations due after one year 30,004,000 15,206,000
Commitments and contingencies
Stockholders' equity:
Common stock 264,000 264,000
Additional paid-in capital 214,478,000 213,931,000
Deferred compensation (346,000) (367,000)
Accumulated unrealized loss on investment (452,000) --
Cumulative translation adjustment (445,000) (230,000)
Accumulated deficit (135,697,000) (125,976,000)
------------- -------------
Total stockholders' equity 77,802,000 87,622,000
------------- -------------
Total liabilities and stockholders' equity $ 147,002,000 $ 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
March 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Product revenues $ 20,008,000 $ 17,545,000
Collaborative agreements and contracts 521,000 579,000
Interest income 338,000 433,000
------------ ------------
Total revenues 20,867,000 18,557,000
------------ ------------
Expenses:
Cost of goods sold 4,456,000 3,819,000
Research and development 12,757,000 11,176,000
Selling, general and administrative 12,827,000 9,463,000
Interest expense 524,000 285,000
------------ ------------
Total expenses 30,564,000 24,743,000
------------ ------------
Loss before provision for income taxes (9,697,000) (6,186,000)
Provision for income taxes 24,000 110,000
------------ ------------
Net loss $ (9,721,000) $ (6,296,000)
============ ============
Net loss per share $ (0.37) $ (0.25)
============ ============
Shares used in computing net loss per share 26,424,000 25,065,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (9,721,000) $ (6,296,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization of equipment and leasehold improvements 2,405,000 2,718,000
Amortization of intangible assets 418,000 385,000
Compensation expense related to grant of options and sales of stock,
including amortization of deferred compensation 65,000 28,000
Other 94,000 (60,000)
Changes in operating assets and liabilities:
Accounts receivable (3,072,000) (1,480,000)
Inventories 89,000 (903,000)
Prepaid expenses and other (469,000) 395,000
Other noncurrent assets 1,000 142,000
Accounts payable (3,404,000) (1,082,000)
Accrued compensation and employee benefits (389,000) (266,000)
Other accrued expenses (272,000) 366,000
------------ ------------
Net cash used in operating activities (14,255,000) (6,053,000)
INVESTING ACTIVITIES
Maturities (purchases) of marketable securities, net 8,818,000 (17,515,000)
Additions to equipment and leasehold improvements (1,705,000) (2,837,000)
Additions to patent costs (426,000) (322,000)
Additions to other noncurrent assets (318,000) --
------------ ------------
Net cash provided by (used in) investing activities 6,369,000 (20,674,000)
FINANCING ACTIVITIES
Proceeds from short-term borrowings, net 1,681,000 1,500,000
Proceeds from sale-leaseback transactions 1,313,000 1,091,000
Payments on capital lease obligations (1,093,000) (1,112,000)
Proceeds from issuance of long-term debt 15,668,000 --
Repayments on long-term debt (765,000) --
Proceeds from sale of common stock, net of offering costs 150,000 27,162,000
------------ ------------
Net cash provided by financing activities 16,954,000 28,641,000
------------ ------------
Net increase in cash and cash equivalents 9,068,000 1,914,000
Cash and cash equivalents at beginning of period 21,542,000 20,893,000
------------ ------------
Cash and cash equivalents at end of period $ 30,610,000 $ 22,807,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 period
ended March 31, 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.
NOTE 2: Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Finished Goods $ 3,076,000 $ 4,092,000
Work in Process 9,606,000 8,358,000
Raw Materials 2,858,000 3,179,000
----------- -----------
$15,540,000 $15,629,000
=========== ===========
</TABLE>
NOTE 3: Patent Matters
On May 17, 1993, the Company filed a complaint in the United
States District Court for the District of Delaware against The
Liposome Company ("TLC") asking the court to declare U.S. Patent
No. 4,880,635 (the "TLC '635 Patent") owned by TLC invalid,
unenforceable and not infringed, following allegations by TLC that
AmBisome infringes 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
infringes U.S. Patent 5,578,320 (the "TLC '320 Patent") which was
granted by the USPTO to TLC on November 26, 1996. The TLC '635
Patent and the TLC '320 Patent (collectively, the "TLC Patents")
cover essentially the same subject matter. On February 26, 1997,
the Company filed an amended and supplemental complaint asserting
antitrust and business tort actions against TLC. The amended
complaint states that TLC had fraudulently obtained the TLC
Patents by withholding information from, and intentionally
misleading, the USPTO and has attempted to use the TLC Patents in
order to injure NeXstar Pharmaceuticals and competition generally,
including attempting to affect the Company's proposed stock
offering in June 1996. Trial on these issues is currently
scheduled for October 1997.
Upon review of the claims included in the reexamination
certificate relating to the TLC '635 Patent and the claims of the
TLC '320 Patent, the Company has concluded that no valid claim
should be found to be infringed by the Company. In addition, the
Company believes that TLC's efforts in crafting claims for the TLC
Patents to avoid prior liposome work reported by others has
presented the Company with additional avenues of defense in any
litigation. For example, because of the amendments made to the
TLC '635 Patent during reexamination, the Company would also have
a defense based upon the doctrine of "intervening rights." This
doctrine would provide a clear defense to any damage claim for any
Company activity prior to the actual issuance of the
6
<PAGE> 7
reexamined patent on July 2, 1996 and would empower the court to
permit the Company to continue its activities to the extent and
under such terms as the court deems equitable for the protection
of investments made by the Company prior to issuance of the
reexamination certificate.
In addition, the Company has opposed the grant to TLC of the
European and Japanese patents that are counterparts of the TLC
Patents. The European opposition is scheduled to be heard in the
European Patent Office ("EPO") in November 1997. At the
opposition hearing, the EPO will rule on the validity of all of
the European Union counterparts to the TLC Patents. TLC initiated
legal actions against the Company on October 18, 1996 in the
Chancery Division of the Patents Court in the United Kingdom, on
November 4, 1996 in the Regional Court of The Hague, The
Netherlands and on October 18, 1996 in the Regional Court --
Dusseldorf in Germany for alleged infringement of the respective
national counterparts to the TLC Patents. In connection with each
suit, TLC is seeking an injunction and damages. The Company
anticipates that TLC may bring additional actions against the
Company in connection with its other European counterparts to the
TLC Patents and, even if the EPO determines that the European
counterparts to the TLC Patents are invalid, TLC may pursue its
European patent suits pending an appeal of the EPO's decision.
The Company does not believe that the TLC Patents present a
material risk to the Company nor, based on factors currently
known, does the Company believe that the legal proceedings
involving TLC will have a material adverse effect on the financial
position of the Company. However, no assurance can be given at
this time. If the U.S. or a European court were to determine that
the TLC '635 Patent or the TLC '320 Patent or one of their
European counterparts, as applicable, is both valid and infringed
as a result of the freeze drying of AmBisome, the Company could be
enjoined from using its current method of manufacturing and/or
could be required to pay damages in connection with sales in the
applicable country or countries. In such event, the Company could
experience interruption in its ability to produce AmBisome and/or
incur significant royalty obligations. In addition, the expense
of litigation is expected to be significant regardless of the
outcome.
Certain statements set forth above with respect to the litigation
and potential litigation with TLC constitute "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements involve known and
unknown risks, uncertainties and other factors which may cause the
actual results of the litigation to be materially different from
the results expressed or implied by such forward-looking
statements. Such factors include, among other things: (i)
adverse facts adduced in discovery or at trial; (ii) contrary
conclusions of law by the court; (iii) the court refusing to
exercise its equitable powers in a manner favorable to the
Company; and (iv) other uncertainties of litigation.
NOTE 4: Commitments and Contingencies and Sales of Unregistered Securities
In March 1997, the Company substantially restructured its bank
financing by (a) terminating an unsecured line of credit pursuant
to which it had a right to borrow up to $10 million, (b) entering
into a credit agreement pursuant to which the Company and certain
of its subsidiaries may borrow up to $15 million, with the
borrowings being collateralized by certain of the non-U.S.
accounts receivable of the Company and the subsidiaries and (c)
entering into a revolving line of credit (the "Credit Line")
pursuant to which the Company may borrow up to $15 million. An
affiliate of Warburg, Pincus Investors, L.P. ("WPI"), a beneficial
owner of more than 5% of the Company's common stock, is a
guarantor of the Credit Line in return for WPI's receipt of a
warrant to acquire 125,000 shares of the Company's common stock at
a purchase price of $12.50 per share. The warrant, which has a
term of three years, cannot be exercised until March 1998.
During March 1997, a warrant holder, which in the past has
provided equipment leasing to the Company, exercised a warrant and
acquired 4,400 unregistered shares of the Company's common stock
for $6.25 per share. In issuing the warrant to WPI and issuing
the shares of common stock upon the exercise of the warrant by the
equipment leasing company, the Company relied on the exemption
from registration provided by Section 4(2) of the Securities Act
of 1933, as amended, since the warrant and the shares of common
stock were acquired by sophisticated investors.
During the first quarter of 1997, the Company entered into an
agreement with its European toll manufacturer to acquire for one
million Irish Punts (approximately $1.6 million on March 31, 1997)
the Dublin, Ireland facilities at which the toll manufacturer is
providing quality control testing, final labeling and packaging
for the
7
<PAGE> 8
Company's products in Europe. The Company anticipates acquiring
the facilities in the third quarter of 1997 at which time the
Company will be required to make a final payment of 800,000 Irish
Punts (approximately $1.3 million on March 31, 1997).
NOTE 5: Earnings per Share
In February 1997, the Financial Accounting Standards Board 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 ended March 31, 1997 and 1996, respectively,
is not expected to be material.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
NeXstar Pharmaceuticals is a leading biopharmaceutical company engaged
in the discovery, development, manufacture and marketing of proprietary
pharmaceutical products to treat life-threatening and other serious diseases.
The Company markets AmBisome, a liposomal formulation of amphotericin
B, for the treatment of life-threatening fungal infections when conventional
treatment fails and DaunoXome, a liposomal formulation of the anticancer agent
daunorubicin, which is used as a first line therapy for the treatment of
advanced, HIV-associated Kaposi's sarcoma ("KS"). The Company currently relies
on sales of AmBisome in Europe for a substantial majority of its product
revenues and expects sales of AmBisome in Europe to account for a majority of
its revenues in 1997. AmBisome has been approved for sale by the regulatory
authorities in 25 countries for the treatment of fungal infections, including
four countries in which it has been approved as a primary therapy. In November
1996, a New Drug Application was filed with the U.S. Food and Drug
Administration (the "FDA") for the use of AmBisome as a primary treatment for
confirmed and presumptive fungal infections, prophylaxis in liver transplant
patients, empiric therapy in neutropenic patients and visceral leishmaniasis
and as a secondary treatment for fungal infections refractory to amphotericin B
treatment. DaunoXome has been approved for sale as a primary therapy for KS in
the U.S., Canada and 16 European countries. The Company's revenue growth will
be substantially dependent upon increased penetration of existing markets,
establishing new markets, development of new indications for AmBisome and
DaunoXome and introduction of new products.
In October 1996, the FDA approved the IND filing for MiKasome, the
Company's liposomal formulation of amikacin, a potent aminoglycoside antibiotic
that is employed against bacterial infections. The Company is currently
conducting a Phase I clinical trial for MiKasome in the U.S. In addition,
VincaXome, the Company's liposomal formulation containing the anticancer drug
vincristine, and 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.
In connection with most of its European sales, the Company prices its
products in the currencies of the countries into which they are sold (the
"Payment Currencies"), and revenues in the past have been and in the future
could be adversely affected by currency fluctuations. A significant majority of
the Company's manufacturing costs are in U.S. Dollars. Therefore, any fall in
the value of the Payment Currencies relative to the U.S. Dollar is likely to
negatively impact gross margins for the Company's products since the Company's
manufacturing costs would stay approximately the same while its revenue in
terms of U.S. Dollars would decline. Sales in Germany, the U.K., Italy and
Spain together accounted for 56% of the Company's product revenues for the
three months ended March 31, 1997. The Company prices its products in each of
these four countries in the local currency. Between January 1, 1997 and March
31, 1997, the value of the U.S. Dollar increased 8%, 4%, 9% and 9%,
respectively, against the German Mark, the British Pound, the Italian Lira and
the Spanish Peseta. Absent an increase in the price of the Company's products
throughout Europe or a general decline in the value of the U.S. Dollar versus
most leading European currencies, the continued strength of the U.S. Dollar may
significantly impact the Company's revenues as denominated in U.S. Dollars.
NeXstar Pharmaceuticals hedges certain of its foreign currency
exposures, with respect to its outstanding trade accounts receivable and
accounts payable, through the use of forward contracts. 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.
9
<PAGE> 10
RESULTS OF OPERATIONS
Three months ended March 31, 1997
Product revenues increased 14% to $20.0 million for the three months
ended March 31, 1997 from $17.5 million for the corresponding period in 1996
primarily due to a 23% increase in unit sales of AmBisome in overseas markets.
Gains from increased unit sales were offset by a 12% reduction in the average
selling price (as calculated in U.S. Dollars) compared to the first quarter of
1996, primarily due 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.
Collaborative agreement and contract revenues decreased to $521,000
for the three months ended March 31, 1997 compared to $579,000 for the three
months ended March 31, 1996. 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.
The Company expects collaborative agreement and contract revenues to increase
due to an agreement by Schering A.G., in February 1997, 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.
Interest income decreased to $338,000 for the three months ended March
31, 1997 compared to $433,000 for the three months ended March 31, 1996.
Interest income generally fluctuates as a result of the average amount of cash
available for investment and prevailing interest rates.
Cost of goods sold was $4.5 million, or 22% of product revenue, for
the three months ended March 31, 1997 compared to $3.8 million, or 22% of
product revenue, for the three months ended March 31, 1996. The increase in
cost of goods sold was primarily due to increased sales of AmBisome and
DaunoXome. Cost of goods sold consists primarily of raw materials, allocations
of overhead, labor and equipment costs and charges associated with
lyophilization services provided by outside vendors.
Research and development expenses increased 14% to $12.8 million for
the three months ended March 31, 1997 compared to $11.2 million for the three
months ended March 31, 1996. The increase in research and development expenses
is primarily attributable to (i) expanded clinical trial activity for both
DaunoXome and MiKasome; (ii) additional preclinical spending on aptamer drug
candidates developed using the SELEX process, the Company's proprietary
combinatorial chemistry technology; and (iii) costs associated with developing
alternative presentations of AmBisome. For the three months ended March 31,
1997, $488,000 of research and development expenses was sponsored by third
parties compared to $360,000 for the corresponding period 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. The Company expects research and development expenses to
continue to increase as clinical trials and preclinical studies are expanded.
Selling, general and administrative expenses increased 35% to $12.8
million for the three months ended March 31, 1997 compared to $9.5 million for
the three months ended March 31, 1996. The increase was primarily related to
(i) litigation costs of $2.1 million during the three months ended March 31,
1997 in connection with two U.S. patents and their European and Japanese
counterparts held by The Liposome Company and (ii) increased expenses in
connection with the continued expansion of the Company's domestic and
international marketing operations. The Company recognized a foreign exchange
loss of $38,000 for the three months ended march 31, 1997 compared to a loss of
$74,000 for the corresponding period in 1996.
Interest expense increased to $524,000 for the three months ended
March 31, 1997 from $285,000 for the three months ended March 31, 1996. The
increase was primarily due to interest payable under the term loan agreement
for $10 million entered into by the Company in June 1996, short-term
borrowings and additional borrowings in connection with several equipment lease
arrangements.
10
<PAGE> 11
The Company reported a net loss of $9.7 million, or $0.37 per share,
for the three months ended March 31, 1997 compared to a net loss of $6.3
million, or $0.25 per share, for the three months ended March 31, 1996.
As of March 31, 1997, the Company recorded a reduction of
$452,000 in the balance sheet account investment in life science enterprise to
adjust an investment classified as available-for-sale to fair value. This
adjustment was excluded from earnings and reported in a separate component of
stockholders' equity.
Patent Matters
On May 17, 1993, the Company filed a complaint in the United States
District Court for the District of Delaware against The Liposome Company
("TLC") asking the court to declare U.S. Patent No. 4,880,635 (the "TLC '635
Patent") owned by TLC invalid, unenforceable and not infringed, following
allegations by TLC that AmBisome infringes 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 infringes U.S. Patent 5,578,320 (the "TLC '320
Patent") which was granted by the USPTO to TLC on November 26, 1996. The TLC
'635 Patent and the TLC '320 Patent (collectively, the "TLC Patents") cover
essentially the same subject matter. On February 26, 1997, the Company filed
an amended and supplemental complaint asserting antitrust and business tort
actions against TLC. The amended complaint states that TLC had fraudulently
obtained the TLC Patents by withholding information from, and intentionally
misleading, the USPTO and has attempted to use the TLC Patents in order to
injure NeXstar Pharmaceuticals and competition generally, including attempting
to affect the Company's proposed stock offering in June 1996. Trial on these
issues is currently scheduled for October 1997.
Upon review of the claims included in the reexamination certificate
relating to the TLC '635 Patent and the claims of the TLC '320 Patent, the
Company has concluded that no valid claim should be found to be infringed by
the Company. In addition, the Company believes that TLC's efforts in crafting
claims for the TLC Patents to avoid prior liposome work reported by others has
presented the Company with additional avenues of defense in any litigation.
For example, because of the amendments made to the TLC '635 Patent during
reexamination, the Company would also have a defense based upon the doctrine of
"intervening rights." This doctrine would provide a clear defense to any
damage claim for any Company activity prior to the actual issuance of the
reexamined patent on July 2, 1996 and would empower the court to permit the
Company to continue its activities to the extent and under such terms as the
court deems equitable for the protection of investments made by the Company
prior to issuance of the reexamination certificate.
In addition, the Company has opposed the grant to TLC of the European
and Japanese patents that are counterparts of the TLC Patents. The European
opposition is scheduled to be heard in the European Patent Office ("EPO") in
November 1997. At the opposition hearing, the EPO will rule on the validity of
all of the European Union counterparts to the TLC Patents. TLC initiated legal
actions against the Company on October 18, 1996 in the Chancery Division of the
Patents Court in the United Kingdom, on November 4, 1996 in the Regional Court
of The Hague, The Netherlands and on October 18, 1996 in the Regional Court --
Dusseldorf in Germany for alleged infringement of the respective national
counterparts to the TLC Patents. In connection with each suit, TLC is seeking
an injunction and damages. The Company anticipates that TLC may bring
additional actions against the Company in connection with its other European
counterparts to the TLC Patents and, even if the EPO determines that the
European counterparts to the TLC Patents are invalid, TLC may pursue its
European patent suits pending an appeal of the EPO's decision.
If the U.S. or a European court were to determine that the TLC '635
Patent or the TLC '320 Patent or one of their European counterparts, as
applicable, is both valid and infringed as a result of the freeze drying of
AmBisome, the Company could be enjoined from using its current method of
manufacturing and/or could be required to pay damages in connection with sales
in the applicable country or countries. In such event, the Company could
experience interruption in its ability to produce AmBisome and/or incur
significant royalty obligations. In addition, the expense of litigation is
expected to be significant regardless of the outcome.
Although the Company has been successful in its recent litigation with
TLC regarding a different freeze drying patent, past success is not a predictor
of success in the future and, in general, adverse results in litigation could
have a material adverse effect on the Company.
11
<PAGE> 12
In addition to proceedings involving the TLC Patents, the Company has
opposed the grant of other TLC European and Japanese patents, and is involved
in an interference proceeding with a U.S. patent application owned by the
University of California, relating to certain active drug loading techniques
that the owners of this patent or application could claim are used in the
manufacture of products such as DaunoXome. In the event that any of the
patents opposed by the Company are granted, additional costly litigation could
result.
Certain statements set forth above with respect to the litigation and
potential litigation with TLC constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results of the litigation to be materially different
from the results expressed or implied by such forward-looking statements. Such
factors include, among other things: (i) adverse facts adduced in discovery or
at trial; (ii) contrary conclusions of law by the court; (iii) the court
refusing to exercise its equitable powers in a manner favorable to the Company;
and (iv) other uncertainties of litigation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and marketable securities
position at March 31, 1997 was $42.2 million compared to $42.0 million on
December 31, 1996. The $250,000 increase in cash and marketable securities
position was primarily the result of the following:
<TABLE>
<S> <C>
Net cash used in operating activities $(14,255,000)
Investment in equipment and leasehold improvements $ (1,705,000)
Proceeds from short-term borrowings 1,681,000
Proceeds from sale-leaseback transactions 1,313,000
Payments on capital lease obligations (1,093,000)
Proceeds from issuance of long-term debt 15,668,000
Repayment of long-term debt (765,000)
Other (594,000)
------------
$ 250,000
============
</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 March 31, 1997 was $32.9
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 of March 31, 1997, the Company's inventory value was $15.5 million
compared to $15.6 million as of December 31, 1996 which represents a 1%
decrease for the period ended March 31, 1997. 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.
12
<PAGE> 13
For the three months ended March 31, 1997, the Company had proceeds
from sales and leaseback transactions of $1.3 million related to the purchase
of capital equipment and proceeds from facilities improvement financing
transactions of $668,000. As of March 31, 1997, $8.4 million was available
under agreements relating to the lease of manufacturing equipment, general
laboratory and scientific equipment, office equipment, furniture and fixtures
and facilities improvements.
In March 1997, the Company substantially restructured its bank
financing by (a) terminating an unsecured line of credit pursuant to which it
had a right to borrow up to $10 million, (b) entering into a credit agreement
(the "Accounts Receivable Agreement") pursuant to which the Company and certain
of its subsidiaries may borrow up to $15 million, with the borrowings being
collateralized by certain of the non-U.S. accounts receivable of the Company
and the subsidiaries and (c) entering into a revolving line of credit (the
"Credit Line") pursuant to which the Company may borrow up to $15 million. An
affiliate of Warburg, Pincus Investors, L.P. ("WPI"), a beneficial owner of
more than 5% of the Company's common stock, is a guarantor of the Credit Line
in return for WPI's receipt of a warrant to acquire 125,000 shares of the
Company's common stock at a purchase price of $12.50 per share. As of March
31, 1997, the Company had borrowings of $10.2 million under the Accounts
Receivable Agreement and $15.0 million under the Credit Line.
In June 1996, the Company entered into a term loan agreement for $10
million (the "Loan Agreement") which is being repaid in 48 monthly
installments. As of March 31, 1997, the Company had borrowings of $8.1 million
under the Loan Agreement. The Loan Agreement requires the Company to meet
certain financial covenants, including maintaining net cash, cash equivalents
and/or investment grade securities equal to the outstanding principal loan
balance plus $10 million of which an amount of cash, cash equivalents and/or
investment grade securities equal to the outstanding principal loan balance
plus three months' interest thereon must be maintained in an unrestricted
account.
In May 1996, the Company's Spanish subsidiary entered into an
agreement to borrow up to 500 million Spanish Pesetas (approximately $3.5
million on March 31, 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 $5.3 million on March 31, 1997). In connection
with the agreement, the Company is maintaining $2.0 million in an unrestricted
account. As of March 31, 1997, the subsidiary had borrowings of 616 million
Spanish Pesetas (approximately $4.3 million on March 31, 1997) under the
agreement. The Company's Spanish subsidiary is required to repay the
borrowings under the agreement in May 1998.
The Company anticipates significant expenses during 1997 in connection
with developing and equipping additional laboratory space in Boulder, Colorado.
In addition, the Company has entered into an agreement with its European toll
manufacturer to acquire for one million Irish Punts (approximately $1.6 million
on March 31, 1997) the Dublin, Ireland facilities at which the toll
manufacturer is providing quality control testing, final labeling and packaging
for the Company's products in Europe. The Company anticipates acquiring the
facilities in the third quarter of 1997 at which time the Company will be
required to make a final payment of 800,000 Irish Punts (approximately $1.3
million on March 31, 1997).
The Company believes that it is advisable to augment its existing cash
in order to fund all of its activities, including conducting clinical trials,
which the Company believes are necessary to continue its growth. Therefore,
the Company anticipates raising cash whenever market conditions are favorable
and is currently exploring alternatives for obtaining funds. Such capital may
be raised through additional public or private financing, as well as
collaborative relationships, borrowings and other available sources. In
addition, in the course of its business, the Company evaluates products and
technologies held by third parties which, if acquired, could result in the
development of product candidates by the Company or which complement
technologies currently being developed by the Company. The Company expects
from time to time to be involved in discussions with other entities concerning
the Company's potential acquisition of rights to additional pharmaceutical
products. In the event that the Company acquires such products or third-party
technologies, the Company may find it necessary or advisable to obtain
additional funding.
The Company's future capital requirements will be substantial and will
depend on, and could increase as a result of, many factors, including progress
of the Company's research, drug discovery and development programs; whether the
Company acquires interests in products currently held by third parties; the
results and costs of preclinical and clinical testing of the Company's
products, if developed; the time and costs involved in obtaining regulatory
approvals; the costs involved in filing, prosecuting and enforcing patent
claims; competing technological and market developments; payments received
under collaborative agreements; changes in collaborative research
relationships; the costs associated with potential commercialization of its
products, if any, including the development of additional manufacturing,
marketing and sales capabilities; the cost and availability of third-party
financing for capital expenditures; and administrative and legal expenses.
13
<PAGE> 14
In particular, the Company expects to have significant cash requirements in the
near future as a result of, but not limited to: (i) increased clinical studies
which are required in order to expand the indications and markets for AmBisome
and DaunoXome; (ii) the cost of obtaining approval for pharmaceuticals which
have been and are being developed by the Company, including MiKasome; (iii) the
cost of equipping new facilities; and (iv) costs in connection with the
Company's litigation involving the TLC Patents and their European and Japanese
counterparts. There can be no assurance that additional or sufficient
financing will be available, or, if available, that it will be available on
acceptable terms. If additional funds are raised by issuing equity securities
of the Company, dilution to then existing stockholders may result. If adequate
funds are not available, the Company may be required to significantly curtail
one or more of its research and development programs or commercialization
efforts or obtain funds through arrangements with collaborative partners or
others on less favorable terms than might otherwise be available.
14
<PAGE> 15
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 4 to the Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Common Stock Purchase Warrant issued to Warburg,
Pincus Investors, L.P., dated March 27, 1997.
10.2 Employment Agreement, dated March 14, 1997, between
the Registrant and Nicole Onetto, M.D.
10.3 Revolving Loan Agreement, dated March 27, 1997,
between Bank of Boston Connecticut and the
Registrant.
11.1 Statement Re: Computation of Net Loss Per Share.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEXSTAR PHARMACEUTICALS, INC.
Dated: May 14, 1997 By: /s/PATRICK J. MAHAFFY
-----------------------
Patrick J. Mahaffy
President and Chief
Executive Officer
Dated: May 14, 1997 By: /s/MICHAEL E. HART
--------------------
Michael E. Hart
Vice President and Chief Financial
Officer (Principal Financial
Officer and Principal Accounting
Officer)
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ------------
<S> <C> <C>
10.1 Common Stock Purchase Warrant issued to Warburg, Pincus
Investors, L.P., dated March 27, 1997.
10.2 Employment Agreement, dated March 14, 1997, between the
Registrant and Nicole Onetto, M.D.
10.3 Revolving Loan Agreement, dated March 27, 1997, between
Bank of Boston Connecticut and the Registrant.
11.1 Statement Re: Computation of Net Loss Per Share.
27.1 Financial Data Schedule.
</TABLE>
17
<PAGE> 1
EXHIBIT 10.1
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION
STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR
OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT
SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-
ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES,
OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7
OF THIS WARRANT.
NEXSTAR PHARMACEUTICALS, INC.
WARRANT TO PURCHASE 125,000 SHARES
OF COMMON STOCK
THIS CERTIFIES THAT, for value received, WARBURG, PINCUS INVESTORS,
L.P. and its assignees are entitled to subscribe for and purchase 125,000
shares of the fully paid and nonassessable Common Stock (as adjusted pursuant
to Section 4 hereof, the "Shares") of NEXSTAR PHARMACEUTICALS, INC., a Delaware
corporation (the "Company"), at the price of $12.50 per share (such price and
such other price as shall result, from time to time, from the adjustments
specified in Section 4 hereof is herein referred to as the "Warrant Price"),
subject to the provisions and upon the terms and conditions hereinafter set
forth. As used herein, (a) the term "Date of Grant" shall mean the Date of
Grant listed on the signature page hereof, and (b) the term "Other Warrants"
shall mean any other warrants issued by the Company in connection with the
transaction with respect to which this Warrant was issued, and any warrant
issued upon transfer or partial exercise of this Warrant. The term "Warrant"
as used herein shall be deemed to include Other Warrants unless the context
clearly requires otherwise.
1. Term. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time during the period on or after the
first anniversary of the Date of Grant until the third anniversary of the Date
of Grant.
2. Method of Exercise; Payment; Issuance of New Warrant. Subject
to Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, at
the election of the holder hereof, by (a) the surrender of this Warrant (with
the notice of exercise substantially in the form attached hereto as Exhibit A
duly completed and executed) at the principal office of the Company and by the
payment to the Company, by certified or bank check, or by wire transfer to an
account designated by the Company (a "Wire Transfer") of an amount equal to the
then applicable Warrant Price multiplied by the number of Shares then being
purchased, or (b) exercise of the right provided for in Section 9 hereof. The
person or persons in whose name(s) any certificate(s) representing the Shares
shall be issuable upon exercise of this Warrant shall be deemed to have become
the holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall be deemed
to have been issued) immediately prior to the close of business on the date or
dates upon which this Warrant is exercised. In the event of any exercise of
the rights represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to the holder hereof as soon as possible and in
any event within thirty (30) days after such exercise and, unless this Warrant
has been fully exercised or expired, a new Warrant representing the portion of
the Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof as soon as possible and in
any event within such thirty-day period.
-1-
<PAGE> 2
3. Stock Fully Paid; Reservation of Shares. All Shares that may
be issued upon the exercise of the rights represented by this Warrant will,
upon issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) Reclassification or Merger. In case of any
reclassification or change of securities of the class issuable upon exercise of
this Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), or in case of any merger of the Company with or into another
corporation (other than a merger with another corporation in which the Company
is the acquiring and the surviving corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), or in case of any sale of all or substantially all of the assets
of the Company, the Company, or such successor or purchasing corporation, as
the case may be, shall duly execute and deliver to the holder of this Warrant a
new Warrant (in form and substance satisfactory to the holder of this
Warrant), so that the holder of this Warrant shall have the right to receive,
at a total purchase price not to exceed that payable upon the exercise of the
unexercised portion of this Warrant, and in lieu of the shares of Common Stock
theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change or merger by a holder of the number of shares of
Common Stock then purchasable under this Warrant. Such new Warrant shall
provide for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 4. The provisions
of this subparagraph (a) shall similarly apply to successive reclassifications,
changes, mergers and transfers.
(b) Subdivision or Combination of Shares. If the Company
at any time while this Warrant remains outstanding and unexpired shall
subdivide or combine its outstanding shares of Common Stock, the Warrant Price
shall be proportionately decreased in the case of a subdivision or increased in
the case of a combination, effective at the close of business on the date the
subdivision or combination becomes effective.
(c) Stock Dividends and Other Distributions. If the
Company at any time while this Warrant is outstanding and unexpired shall (i)
pay a dividend with respect to Common Stock payable in Common Stock, or (ii)
make any other distribution of Common Stock with respect to Common Stock
(except any distribution specifically provided for in Sections 4(a) and 4(b)),
then the Warrant Price shall be adjusted, from and after the date of
determination of shareholders entitled to receive such dividend or
distribution, to that price determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
(d) Adjustment of Number of Shares. Upon each adjustment
in the Warrant Price, the number of Shares purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by multiplying
the number of Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.
-2-
<PAGE> 3
5. Notice of Adjustments. Whenever the Warrant Price or the
number of Shares purchasable hereunder shall be adjusted pursuant to Section 4
hereof, the Company shall make a certificate signed by its president or chief
financial officer setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the Warrant Price and the number of Shares purchasable
hereunder after giving effect to such adjustment, and shall cause copies of
such certificate to be mailed (without regard to Section 12 hereof, by first
class mail, postage prepaid) to the holder of this Warrant at such holder's
last known address.
6. Fractional Shares. No fractional shares of Common Stock will
be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor based on the
fair market value of the Common Stock on the date of exercise as reasonably
determined in good faith by the Company's Board of Directors.
7. Compliance with Securities Act; Disposition of Warrant or
Shares of Common Stock.
(a) Compliance with Securities Act. The holder of this
Warrant, by acceptance hereof, agrees that this Warrant, and the Shares to be
issued upon exercise hereof are being acquired for investment and that such
holder will not offer, sell or otherwise dispose of this Warrant, or any Shares
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended (the "Act"), or any applicable state
securities laws. Upon exercise of this Warrant, unless the Shares being
acquired are registered under the Act and any applicable state securities laws
or an exemption from such registration is available, the holder hereof shall
confirm in writing that the Shares so purchased are being acquired for
investment and not with a view toward distribution or resale in violation of
the Act and shall confirm such other matters related thereto as may be
reasonably requested by the Company. This Warrant and all Shares issued upon
exercise of this Warrant (unless registered under the Act and any applicable
state securities laws) shall be stamped or imprinted with a legend in
substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION
STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER
EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS
FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH
THESE SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY."
Said legend shall be removed by the Company, upon the request of a
holder, at such time as the restrictions on the transfer of the applicable
security shall have terminated. In addition, in connection with the issuance
of this Warrant, the holder specifically represents to the Company by
acceptance of this Warrant as follows:
(1) The holder is aware of the Company's business
affairs and financial condition, and has acquired information about
the Company sufficient to reach an informed and knowledgeable decision
to acquire this Warrant. The holder is acquiring this Warrant for its
own account for investment purposes only and not with a view to, or
for the resale in connection with, any "distribution" thereof in
violation of the Act.
-3-
<PAGE> 4
(2) The holder understands that this Warrant
has not been registered under the Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things,
the bona fide nature of the holder's investment intent as expressed
herein.
(3) The holder further understands that this
Warrant must be held indefinitely unless subsequently registered under
the Act and qualified under any applicable state securities laws, or
unless exemptions from registration and qualification are otherwise
available. The holder is aware of the provisions of Rule 144,
promulgated under the Act.
(b) Disposition of Warrant or Shares. With respect to
any offer, sale or other disposition of this Warrant or any Shares acquired
pursuant to the exercise of this Warrant prior to registration of such Warrant
or Shares, the holder hereof agrees to give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such holder's counsel, or other evidence, if reasonably requested by the
Company, to the effect that such offer, sale or other disposition may be
effected without registration or qualification (under the Act as then in effect
or any federal or state securities law then in effect) of this Warrant or the
Shares and indicating whether or not under the Act certificates for this
Warrant or the Shares to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order to
ensure compliance with such law. Promptly upon receiving such written notice
and reasonably satisfactory opinion or other evidence, if so requested, the
Company, as promptly as practicable but no later than fifteen (15) days after
receipt of the written notice, shall notify such holder that such holder may
sell or otherwise dispose of this Warrant or such Shares, all in accordance
with the terms of the notice delivered to the Company. If a determination has
been made pursuant to this Section 7(b) that the opinion of counsel for the
holder or other evidence is not reasonably satisfactory to the Company, the
Company shall so notify the holder promptly with details thereof after such
determination has been made. Notwithstanding the foregoing, this Warrant or
such Shares may, as to such federal laws, be offered, sold or otherwise
disposed of in accordance with Rule 144 or 144A under the Act, provided that
the Company shall have been furnished with such information as the Company may
reasonably request to provide a reasonable assurance that the provisions of
Rule 144 or 144A have been satisfied. Each certificate representing this
Warrant or the Shares thus transferred (except a transfer pursuant to Rule 144
or 144A) shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with such laws, unless in the
aforesaid opinion of counsel for the holder, such legend is not required in
order to ensure compliance with such laws. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions.
(c) Applicability of Restrictions. Neither any
restrictions of any legend described in this Warrant nor the requirements of
Section 7(b) above shall apply to any transfer or grant of a security interest
in, this Warrant (or the Common Stock obtainable upon exercise thereof) or any
part hereof (i) to a partner of the holder if the holder is a partnership, (ii)
to a partnership of which the holder is a partner, or (iii) to any affiliate of
the holder if the holder is a corporation; provided, however, in any such
transfer, if applicable, the transferee shall take this Warrant subject to the
terms and provisions hereof and, further, shall on the Company's request agree
in writing to be bound by the terms of this Warrant as if an original signatory
hereto.
8. Rights as Shareholders; Information. No holder of this
Warrant, as such, shall be entitled to vote or receive dividends or be deemed
the holder of Shares, nor shall anything contained herein be construed to
confer upon the holder of this Warrant, as such, any of the rights of a
shareholder of the Company or any right to vote for the election of directors
or upon any matter submitted to shareholders at any meeting thereof, or to
receive notice of meetings, or to receive dividends or subscription rights or
otherwise until this Warrant shall have been exercised and the Shares
purchasable upon the exercise hereof shall have become deliverable, as provided
herein.
-4-
<PAGE> 5
9. Right to Convert Warrant into Stock: Net Issuance.
(a) Right to Convert. In addition to and without
limiting the rights of the holder under the terms of this Warrant, the holder
shall have the right to convert this Warrant or any portion thereof (the
"Conversion Right") into shares of Common Stock as provided in this Section 9
at any time or from time to time during the term of this Warrant. Upon
exercise of the Conversion Right with respect to a particular number of shares
subject to this Warrant (the "Converted Warrant Shares"), the Company shall
deliver to the holder (without payment by the holder of any exercise price or
any cash or other consideration) (X) that number of shares of fully paid and
nonassessable Common Stock equal to the quotient obtained by dividing the value
of this Warrant (or the specified portion hereof) on the Conversion Date (as
defined in subsection (b) hereof), which value shall be determined by
subtracting (A) the aggregate Warrant Price of the Converted Warrant Shares
immediately prior to the exercise of the Conversion Right from (B) the
aggregate fair market value of the Converted Warrant Shares issuable upon
exercise of this Warrant (or the specified portion hereof) on the Conversion
Date (as herein defined) by (Y) the fair market value of one share of Common
Stock on the Conversion Date (as herein defined).
Expressed as a formula, such conversion shall be computed as follows:
X = B - A
--------
Y
Where: X = the number of shares of Common Stock that may
be issued to holder
Y = the fair market value (FMV) of one share of
Common Stock
A = the aggregate Warrant Price (i.e., Converted
Warrant Shares x Warrant Price)
B = the aggregate FMV (i.e., FMV x Converted
Warrant Shares)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to
the holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined).
(b) Method of Exercise. The Conversion Right may be
exercised by the holder by the surrender of this Warrant at the principal
office of the Company together with a written statement specifying that the
holder thereby intends to exercise the Conversion Right and indicating the
number of shares subject to this Warrant which are being surrendered (referred
to in Section 9(a) hereof as the Converted Warrant Shares) in exercise of the
Conversion Right. Such conversion shall be effective upon receipt by the
Company of this Warrant together with the aforesaid written statement, or on
such later date as is specified therein (the "Conversion Date"). Certificates
for the shares issuable upon exercise of the Conversion Right and, if
applicable, a new warrant evidencing the balance of the shares remaining
subject to this Warrant, shall be issued as of the Conversion Date and shall be
delivered to the holder within thirty (30) days following the Conversion Date.
(c) Determination of Fair Market Value. For purposes of this
Section 9, "fair market value" of a share of Common Stock as of a particular
date (the "Determination Date") shall mean:
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<PAGE> 6
(i) If traded on a securities exchange, the fair
market value of the Common Stock shall be deemed to be the average of
the closing prices of the Common Stock on such exchange over the
ten-day period ending on the last trading day of the Common Stock
prior to the Determination Date and including such last trading day as
one of the ten days;
(ii) If traded over-the-counter, the fair
market value of the Common Stock shall be deemed to be the average of
the closing bid prices of the Common Stock over the ten- day period
ending on the last trading day of the Common Stock prior to the
Determination Date and including such last trading day as one of the
ten days; and
(iii) If there is no public market for the
Common Stock, then fair market value shall be determined by mutual
agreement of the holder of this Warrant and the Company.
10. Representations and Warranties. The Company represents and
warrants to the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by
the Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and
other equitable remedies;
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof
will be validly issued, fully paid and non-assessable;
(c) The rights, preferences, privileges and restrictions
granted to or imposed upon the Shares and the holders thereof are as set forth
in the Company's Restated Certificate of Incorporation, as amended to the Date
of the Grant, a true and complete copy of which has been delivered to the
original holder of this Warrant and is attached hereto as Exhibit B (the
"Charter");
(d) The execution and delivery of this Warrant are not,
and the issuance of the Shares upon exercise of this Warrant in accordance with
the terms hereof will not be, inconsistent with the Company's Charter or by-
laws, do not and will not contravene any law, governmental rule or regulation,
judgment or order applicable to the Company, and do not and will not conflict
with or contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument of which the Company is a
party or by which it is bound or require the consent or approval of, the giving
of notice to, the registration or filing with or the taking of any action in
respect of or by, any Federal, state or local government authority or agency or
other person, except for the filing of notices pursuant to federal and state
securities laws, which filings will be effected by the time required thereby;
and
(e) There are no actions, suits, audits, investigations
or proceedings pending or, to the knowledge of the Company, threatened against
the Company in any court or before any governmental commission, board or
authority which, if adversely determined, will have a material adverse effect
on the ability of the Company to perform its obligations under this Warrant.
11. Modification and Waiver. This Warrant and any provision
hereof may be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of the same is sought.
12. Notices. Any notice, request, communication or other document
required or permitted to be given or delivered to the holder hereof or the
Company shall be delivered, or shall be sent by
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<PAGE> 7
certified or registered mail, postage prepaid, to each such holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor on the signature page of this Warrant.
13. Binding Effect on Successors. This Warrant shall be binding
upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof.
14. Lost Warrants or Stock Certificates. The Company covenants to
the holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
15. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
Warrant.
16. Governing Law. This Warrant shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the
laws of the State of Delaware.
17. Survival of Representations, Warranties and Agreements. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained
herein shall survive indefinitely until, by their respective terms, they are no
longer operative.
18. Remedies. In case any one or more of the covenants and
agreements contained in this Warrant shall have been breached, the holders
hereof (in the case of a breach by the Company), or the Company (in the case of
a breach by a holder), may proceed to protect and enforce their or its rights
either by suit in equity and/or by action at law, including, but not limited
to, an action for damages as a result of any such breach and/or an action for
specific performance of any such covenant or agreement contained in this
Warrant.
19. No Impairment of Rights. The Company will not, by amendment
of its Charter or through any other means, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder of this Warrant against impairment.
20. Severability. The invalidity or unenforceability of any
provision of this Warrant in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction, or affect any other
provision of this Warrant, which shall remain in full force and effect.
21. Recovery of Litigation Costs. If any legal action or other
proceeding is brought for the enforcement of this Warrant, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any
of the provisions of this Warrant, the successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.
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<PAGE> 8
22. Registration Rights. The registration rights granted to
Warburg, Pincus Investors, L.P. in connection with the Stock Purchase
Agreement, dated July 1991, by and among NeXagen, Inc., Warburg, Pincus
Investors, L.P., University Research Corporation and Dr. Lawrence M. Gold, as
amended, shall apply to any Common Stock issuable upon the exercise of any
Warrant and any capital stock of the Company issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
shares of Common Stock issuable upon the exercise of any Warrant.
23. Entire Agreement; Modification. This Warrant constitutes the
entire agreement between the parties pertaining to the subject matter contained
in it and supersedes all prior and contemporaneous agreements, representations,
and undertakings of the parties, whether oral or written, with respect to such
subject matter.
NEXSTAR PHARMACEUTICALS, INC.
By: /s/ MICHAEL E. HART
---------------------------------
Title: VP/CFO
------------------------------
Address: 2860 Wilderness Place
Suite 200
Boulder, Colorado 80301
Date of Grant: March 27, 1997
-8-
<PAGE> 1
EXHIBIT 10.2
[NEXSTAR PHARMACEUTICALS, INC. LETTERHEAD]
March 14, 1997
Nicole Onetto, MD
11 Clos De L'Ecureuil
1410 Waterloo
Belgium
Dear Nicole,
Per our discussions, we would like to restate the offer of employment
with NeXstar Pharmaceuticals Inc. and hope the changes we have made will
satisfy your concerns. As Vice President, Medical Affairs, the terms
described in this letter would apply to your employment.
1. COMPENSATION. Your compensation package is as follows:
(a) Salary. You will receive a salary at the annual
equivalent rate of $240,000.00, payable in substantially equal installments at
the intervals regularly established by NeXstar. As a senior member of the
management team you will also be eligible for an annual bonus of up to 35% of
base pay, depending on your performance against individual and corporate goals.
(b) Benefits. In addition to your cash compensation, you
will also receive all benefits generally available to all employees of NeXstar
which currently includes vacation and sick leave, health insurance, disability
insurance, death benefits, and any other benefit plans offered by the Company.
Continuation or termination of any of such benefit plans is subject to the
discretion of NeXstar. NeXstar will reimburse the cost of the COBRA premium
from your previous employer for up to six months as needed to cover gaps in
coverages and/or until any pre-existing condition waiting periods are satisfied
for you or your dependents.
(c) Stock Options. You will be granted options to
purchase an aggregate of 50,000 shares of NeXstar Common Stock, subject to
approval by the Board of Directors. The options will be exercisable at a price
equal to the closing fair market value of the Common Stock on the date the
grant is approved. The options will be exercisable 25% on each of the first
four anniversary dates of the date of grant.
The NeXstar stock option agreement will be provided to you for signature after
the grant is approved.
<PAGE> 2
(d) Relocation. Relocation expenses will be reimbursed
upon receipt of appropriate documentation and will cover the following:
1. Reimbursement for any documented expenses
associated with the cancellation of the lease on
your home in Belgium.
2. Reimbursement of reasonable costs normally paid by
the buyer in connection with the purchase of a
home in the Boulder area. Normally this
includes:
-Recording costs
-Normal transfer fees and taxes
-Mortgage processing and loan fees up to a
maximum of two points
-Appraisal fees required by lending institutions
-Title insurance
-Settlement fees
-Improvement Location Certificate fees, if
required by lending institution
-Engineering, structural or other inspection
reports to a maximum of $300
-Escrow fees
3. Packing, moving and storage of household goods
including your piano and one car, to be arranged
through our corporate contract. Unusual items
such as boats are generally not included in this
coverage. Please let us know of any special
circumstances that apply.
4. Travel expenses for you and your family at the
time of your move.
5. Temporary living expenses in Boulder for up to
90 days with a possible extension to be
mutually agreed upon. These normally include
meals, lodging, laundry and telephone at the new
location for up to two days after the arrival of
the household goods. A rental car will be
provided until the employee's personal car has
been shipped or other arrangements made.
6. A miscellaneous expense allowance of $40,000.00
which will be grossed up to cover taxes.
Examples of these expenses are automobile
registration and licensing fees, house cleaning,
remodeling of drapes, telephone installations,
etc. This amount does not require documentation
through receipts.
7. Immigration fees associated with your relocation
to the United States, maintenance of your
residency status, and application for citizenship.
8. Tax Information: All reimbursements received by
the employee from the Company that are related to
relocation are treated as taxable earned income.
The Internal Revenue Code states that all
reimbursements made by the Company are to be
treated as "compensation for services" and, as
such, they will be included in the annual Form
W-2 and must be reported on federal and state
income tax returns. When the employee files tax
returns, the following five categories of moving
expenses may be claimed as deductions, subject to
certain limitations:
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<PAGE> 3
(a) Expenses incurred in traveling from the old
location to the new location including meals
and lodging
(b) Movement of household goods
(c) Expenses of one pre-move house-hunting trip
(d) Temporary living expenses for up to 30 days
at the new location
(e) Expenses incidental to the sale, purchase, or
lease of a principal residence
The employee may incur an increase tax liability
if reimbursement exceeds the amount of expected
allowable deduction on his/her tax return. The
Company will compensate the employee for these
additional federal and state income tax
liabilities by "grossing up" relocation
reimbursements that are not deductible or in
excess of maximum deductible amounts. This tax
gross up will be added to the Form W-2 for the
year as additional compensation and as additional
tax withheld. The Company will report and pay to
the Internal Revenue Service and to the
applicable state tax authority such additional
tax withheld attributable to the tax gross up.
The employee should review the tax implications
of relocation with a tax advisor of their choice.
9. NeXstar will pay for professional preparation
of your income tax filings for calendar year 1997.
In the event you choose to resign from your employment with
NeXstar within one year after your commencement date, you
agree to repay such relocation amounts on a pro rated basis to
NeXstar upon request.
2. TERMINATION INDEMNITY. You will be eligible for 12 months of
severance pay in the event NeXstar Pharmaceuticals, Inc. should decide to
terminate your employment for any reason beyond your control.
3. CONFIDENTIALITY AND INTELLECTUAL PROPERTY AGREEMENT. As a
condition of your employment by NeXstar, you agree to sign the agreement
previously provided to you.
4. EMPLOYMENT ELIGIBILITY. Federal law requires that you provide
documentation within 3 days of employment to verify your identity and
eligibility to work in the United States. We will provide you with additional
information for employment verification when you join NeXstar.
5. MISCELLANEOUS. This offer letter sets forth all the terms and
conditions for your employment by NeXstar. An amendment or waiver of any
rights or obligations under this offer letter shall only be effective if
reflected in writing and signed by appropriate parties.
I would be happy to discuss the details of this offer with you at your
convenience. When we agree that the offer is acceptable to you, please sign
and return one copy of this letter to me and keep the other copy and the
enclosed documents with your records. As discussed, we will expect your
decision on or before March 25, 1997. We are excited about your employment with
NeXstar and look forward to a mutually beneficial relationship.
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<PAGE> 4
Best regards,
/s/ B. KAZMIER FOR
PATRICK J. MAHAFFY
Patrick J. Mahaffy
President Chief
Executive Officer
AGREED TO AND ACCEPTED BY:
I understand that my employment is terminable at will so both the
Company and I are free to end our work relationship at any time with or without
notice. Nothing in this letter creates an expressed or implied contract of
employment between the Company and you.
/s/ N. ONETTO April 4, 1997
- -------------------------------- --------------------------------
Signature Date
Social Security Number: ###-##-####
--------------------------------
Date of Birth: 6 January 1953
----------------------------------
I will report to work on or before depending on actual date of termination at
------------------------------------------
Bristol Myers Squibb
------------------------------------------
Page 4
<PAGE> 1
EXHIBIT 10.3
REVOLVING LOAN AGREEMENT
This REVOLVING LOAN AGREEMENT (this "LOAN AGREEMENT") is made as of
March 27, 1997, by and between NEXSTAR PHARMACEUTICALS, INC., a Delaware
corporation (the "BORROWER"), having its principal place of business at 2860
Wilderness Place, Boulder, Colorado 80301 and, BANK OF BOSTON CONNECTICUT (the
"BANK"), a Connecticut state chartered bank with its head office at 31 Pratt
Street, Hartford, Connecticut 06103.
1. DEFINITIONS: Certain capitalized terms are defined below:
Availability: With respect to the WP Loan Agreement, the difference
between the Total Commitment (as defined in the WP Loan Agreement) minus the
sum of (a) the outstanding Loans (as defined in the WP Loan Agreement), (b) the
Letter of Credit Outstandings (as defined in the WP Loan Agreement) and (c)
Contingent Obligations (as defined in the WP Loan Agreement) to the extent that
the Total Commitment (as defined in the WP Loan Agreement) is reduced by the
amount of such Contingent Obligations.
Base Rate: The higher of (a) the annual rate of interest announced from
time to time by the First National Bank of Boston at its head office in Boston,
Massachusetts, as its "BASE RATE" or (b) one-half of one percent (1/2%) above
the Federal Funds Effective Rate. For the purposes of this definition, "FEDERAL
FUNDS EFFECTIVE RATE" shall mean for any day, the rate per annum equal to the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for such day on such transactions received by the Bank from three
funds brokers of recognized standing selected by the Bank.
Base Rate Loans: Loans bearing interest calculated by reference to the
Base Rate.
Business Day: Any day on which banks in Hartford, Connecticut are open
for business generally.
Charter Documents: With respect to any Person, the certificate or
articles of incorporation or organization and the by-laws of such Person, or
other constitutive documents of such entity.
Closing Date: March 27, 1997.
<PAGE> 2
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Commitment: The obligation of the Bank to make Loans to the Borrower
up to an aggregate outstanding principal amount not to exceed $15,000,000, as
such amount may be reduced from time to time or terminated hereunder.
Consent: In respect of any Person, any permit, license or exemption
from, approval, consent of, registration or filing with any local, state or
federal governmental or regulatory agency or authority, required under
applicable law.
Consolidated Current Assets: All assets of the Borrower and its
Subsidiaries on a consolidated basis that, in accordance with GAAP, are
properly classified as current assets.
Consolidated Current Liabilities: All liabilities of the Borrower and
its Subsidiaries on a consolidated basis maturing on demand or within one (1)
year from the date as of which Consolidated Current Liabilities are to be
determined, and such other liabilities as may properly be classified as current
liabilities in accordance with GAAP.
Consolidated Shareholders' Equity: The consolidated shareholders'
equity of the Borrower and its Subsidiaries as determined in accordance with
GAAP.
Conversion Request: A notice given to the Bank by the Borrower after
Borrower's election to convert or to continue a Loan in accordance with Section
4 hereof.
Default: An event or act which with the giving of notice and/or the
lapse of time, would become an Event of Default.
Distribution: The declaration or payment of any dividend on or in
respect of any shares of any class of capital stock of the Borrower or any
other distribution on or in respect of any shares of any class of capital stock
of the Borrower, other than dividends and distributions payable solely in
shares of capital stock of the Borrower; the purchase, redemption, or other
retirement of any shares of any class of capital stock of the Borrower,
directly or indirectly through a Subsidiary of the Borrower or otherwise; or
the return of capital by the Borrower to its shareholders as such.
Dollars or $: Dollars in lawful currency of the United States of
America.
Drawdown Date: In respect of any Loan, the date on which such Loan is
made to the Borrower.
Environmental Laws: All laws pertaining to environmental matters,
including without limitation, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act of 1986, the Federal
<PAGE> 3
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Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act,
in each case as amended, and all rules, regulations, judgments, decrees, orders
and licenses arising under all such laws.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended, and all rules, regulations, judgments, decrees, and orders arising
thereunder.
Eurocurrency Reserve Rate. For any day with respect to a Eurodollar
Rate Loan, the maximum rate (expressed as a decimal) at which any lender
subject thereto would be required to maintain reserves under Regulation D of
the Board of Governors of the Federal Reserve System (or any successor or
similar regulations relating to such reserve requirements) against
"Eurocurrency Liabilities" (as that term is used in Regulation D), if such
liabilities were outstanding. The Eurocurrency Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in the Eurocurrency
Reserve Rate.
Eurodollar Business Day: Any day on which commercial banks are open
for international business (including dealings in Dollar deposits) in the
London interbank market.
Eurodollar Lending Office: Initially, the office of the Bank, if any,
that shall be making or maintaining Eurodollar Rate Loans.
Eurodollar Rate. For any Interest Period with respect to a Eurodollar
Rate Loan, the rate of interest equal to (a) the arithmetic average of the rates
per annum for the Bank (rounded upwards to the nearest 1/16 of one percent) of
the rate at which the Bank's Eurodollar Lending Office is offered Dollar
deposits two Eurodollar Business Days prior to the beginning of such Interest
Period in the interbank eurodollar market where the eurodollar and foreign
currency and exchange operations of such Eurodollar Lending Office are
customarily conducted, for delivery on the first day of such Interest Period for
the number of days comprised therein and in an amount comparable to the amount
of the Eurodollar Rate Loan of the Bank to which such Interest Period applies,
divided by (b) a number equal to 1.00 minus the Eurocurrency Reserve Rate, if
applicable.
Eurodollar Rate Loans: Loans bearing interest calculated by reference
to the Eurodollar Rate.
Event of Default: Any of the events listed in Section 14 hereof.
Financials: With respect to any Person for any period, the
consolidated balance sheet of such Person as at the end of such period, and the
related
<PAGE> 4
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consolidated statement of operations and statement of cash flows of such Person
for such period, each setting forth in comparative form the figures for the
previous comparable fiscal period, all in reasonable detail and prepared in
accordance with GAAP.
GAAP: Generally accepted accounting principles consistent with those
adopted by the Financial Accounting Standards Board and its predecessor, (a)
generally, as in effect from time to time, and (b) for purposes of determining
compliance by the Borrower with the financial covenants set forth herein, as in
effect for the fiscal year ended December 31, 1996.
Indebtedness: With respect to any Person, all obligations of such
Person, contingent and otherwise, that in accordance with GAAP should be
classified as liabilities, including without limitation (a) all debt
obligations, (b) all guarantees and (c) all liabilities in respect of bankers'
acceptances or Letters of Credit.
Interest Payment Date. (a) As to any Base Rate Loan, the last day of
each calendar quarter which includes the Drawdown Date thereof; and (b) as to
any Eurodollar Rate Loan in respect of which the Interest Period is (i) 3
months or less, the last day of such Interest Period and (ii) more than 3
months, the date that is 3 months from the first day of such Interest Period
and, in addition, the last day of such Interest Period.
Interest Period: With respect to each Loan, (a) initially, the period
commencing on the Drawdown Date of such Loan and ending on the last day of one
of the periods set forth below, as selected by the Borrower in a request for a
Loan (i) for any Base Rate Loan, the last day of the calendar quarter; (ii) for
any Eurodollar Rate Loan, 1, 2, 3 or 6 months; and (b) thereafter, each period
commencing on the last day of the next preceding Interest Period applicable to
such Loan and ending on the last day of one of the periods set forth above, as
selected by the Borrower in a Conversion Request; provided that all of the
foregoing provisions relating to Interest Periods are subject to the following:
(c) if any Interest Period with respect to a Eurodollar
Rate Loan would otherwise end on a day that is not a Eurodollar Business Day,
that Interest Period shall be extended to the next succeeding Eurodollar
Business Day unless the result of such extension would be to carry such
Interest Period into another calendar month, in which event such Interest
Period shall end on the immediately preceding Eurodollar Business Day;
(d) if any Interest Period with respect to a Base Rate
Loan would end on a day that is not a Business Day, that Interest Period shall
end on the next succeeding Business Day;
<PAGE> 5
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(e) if the Borrower shall fail to give notice as provided
in Section 4, the Borrower shall be deemed to have requested a conversion of
the affected Eurodollar Rate Loan to a Base Rate Loan on the last day of the
then current Interest Period with respect thereto;
(f) any Interest Period relating to any Eurodollar Rate
Loan that begins on the last Eurodollar Business Day of a calendar month (or on
a day for which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Eurodollar Business
Day of a calendar month; and
(g) any Interest Period relating to any Eurodollar Rate
Loan that would otherwise extend beyond the Maturity Date shall end on the
Maturity Date.
Loans: Any loan made or to be made to the Borrower pursuant to Section
2 hereof, including, without limitation, any Base Rate Loans or Eurodollar
Loans.
Loan Documents: This Loan Agreement, the Note, the WP Guaranty, and any
other documents, instruments or agreements executed and/or delivered in
connection with this Loan Agreement on or after the date hereof, in each case
as from time to time amended or supplemented.
Materially Adverse Effect: Any materially adverse effect on the
financial condition or business operations of the Borrower and its Subsidiaries
taken as a whole or material impairment of the ability of the Borrower or any
of its Subsidiaries to perform its obligations hereunder or under any of the
other Loan Documents, provided, that under no circumstances shall operating
losses of the Borrower and its Subsidiaries taken as a whole incurred in the
ordinary course of business constitute a Materially Adverse Effect hereunder.
Maturity Date: The earlier to occur on (a) March 31, 1999 and (b) ten
(10) Business Days prior to the "Final Maturity Date" under and as defined in
the WP Loan Agreement.
Note: See Section 2(a).
Obligations: All indebtedness, obligations and liabilities of the
Borrower to the Bank, existing on the date of this Loan Agreement or arising
thereafter, direct or indirect, joint or several, absolute or contingent,
matured or unmatured, liquidated or unliquidated, secured or unsecured, arising
by contract, operation of law or otherwise, arising or incurred under this Loan
Agreement or any other Loan Document or in respect of any of the Loans, the
Note or other instruments at any time evidencing any thereof.
<PAGE> 6
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Person: Any individual, corporation, partnership, trust,
unincorporated association, business, or other legal entity, any government or
any governmental agency or political subdivision thereof.
Requirement of Law: With respect to any Person, any law, treaty, rule,
regulation or determination of an arbitrator, court, or other governmental
authority, in each case applicable to or binding upon such Person or affecting
any of its property.
Subscription Agreements: Collectively, (a) the Put Agreement dated as
of February 2, 1996 by and between Warburg, Pincus and WP and (b) any and all
documents, agreements and instruments executed in connection therewith.
Subsidiary: Any Person with respect to which the Borrower at any time
owns or controls, directly or indirectly, more than fifty percent (50%) of the
outstanding shares of stock or other equity securities or interests having
voting power, regardless of whether such right to vote depends upon the
occurrence of a contingency.
Type: As to any Loan, its nature as a Base Rate Loan or a Eurodollar
Rate Loan.
Warburg, Pincus: Warburg, Pincus Investors, L.P., a Delaware limited
partnership, a significant shareholder of the Borrower.
WP: WP Finance, Inc., a Delaware corporation and wholly-owned
subsidiary of Warburg, Pincus.
WP Event of Default: An Event of Default under and as defined in the WP
Loan Agreement.
WP Guaranty: The Guaranty of even date herewith from WP to the Bank, as
amended from time to time.
WP Loan Agreement: The Credit Agreement dated as of August 3, 1994
among WP, The Chase Manhattan Bank, N.A. and certain lending institutions, as
amended in accordance with the terms hereof.
WP Loan Documents: The WP Loan Agreement and all documents, agreements
and instruments executed in connection therewith, in each case as amended.
2. REVOLVING CREDIT FACILITY.
(a) Upon the terms and subject to the conditions of this
Loan Agreement, the Bank agrees to make Loans to the Borrower that the Borrower
<PAGE> 7
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may request from the date hereof until but not including the Maturity Date;
provided that the sum of the outstanding principal amount of all Loans (after
giving effect to all amounts requested) shall not exceed the Commitment. Loans
shall be in the minimum aggregate amount of $50,000 or an integral multiple
thereof. With respect to any Base Rate Loan, the Borrower shall notify the Bank
in writing or telephonically not later than 2:00 p.m. Hartford time on the
proposed Drawdown Date of such Base Rate Loan being requested, of the Drawdown
Date (which must be a Business Day) and the principal amount of such Base Rate
Loan. With respect to any Eurodollar Rate Loan, the Borrower shall notify the
Bank in writing, no less than three (3) Eurodollar Business Days prior to the
proposed Drawdown Date of such Eurodollar Rate Loan being requested, of the
Drawdown Date (which must be a Eurodollar Business Day), the principal amount
of such Eurodollar Rate Loan and the Interest Period for such Eurodollar Rate
Loan. Subject to the foregoing, so long as the Commitment is then in effect and
the conditions set forth in Section 12 hereof have been met, the Bank shall
advance the amount requested to the Borrower's bank account at the Bank in
immediately available funds not later than the close of business on such
Drawdown Date. The obligation of the Borrower to repay to the Bank the
principal of the Loans and interest accrued thereon shall be evidenced by a
promissory note, in the original principal amount of $15,000,000, executed and
delivered by the Borrower and payable to the order of the Bank, and in
substantially the form attached hereto as Exhibit A (the "NOTE").
(b) Subject to the terms of Section 6 hereof and the
terms of any written cash management agreements between the Bank and the
Borrower, the Borrower may elect to prepay the outstanding principal of all or
any part of any Loan, without premium or penalty, in a minimum amount of
$50,000 or an integral multiple thereof, upon written notice to the Bank given
by 2:00 p.m. Hartford time on the proposed date of such prepayment, of the
amount to be prepaid and the date of such prepayment. The Borrower shall be
entitled to reborrow before the Maturity Date such amounts, upon the terms and
subject to the conditions of this Loan Agreement. Each repayment or prepayment
of principal of any Loan shall be accompanied by payment of the unpaid interest
accrued to such date on the principal being repaid or prepaid.
(c) If at any time the outstanding principal amount of
the Loans shall exceed the Commitment, the Borrower shall, immediately upon the
Borrower's receipt of written notice of such excess, pay the amount of such
excess to the Bank for application to the Loans. The Borrower may elect to
reduce or terminate the Commitment by a minimum principal amount of $50,000 or
an integral multiple thereof, upon written notice to the Bank given by 2:00
p.m. Hartford time on the proposed date of such reduction or termination. The
Borrower shall not be entitled to reinstate all or any portion of the
Commitment following such reduction or termination.
<PAGE> 8
- 8 -
3. INTEREST.
(a) So long as no Event of Default is continuing, the
Borrower shall pay interest on the Loans outstanding as follows:
(i) Each Base Rate Loan shall bear interest for
the period commencing with the Drawdown Date thereof and
ending on the date such Base Rate Loan is repaid with respect
thereto at the rate of the Base Rate.
(ii) Each Eurodollar Rate Loan shall bear interest
for the period commencing with the Drawdown Date thereof and
ending on the last day of the Interest Period with respect
thereto at the rate of one and one-half of one percent (1.5%)
per annum above the Eurodollar Rate determined for such
Interest Period.
(iii) Interest on Loans shall be payable in arrears
on each Interest Payment Date, commencing with the first such
day following the date hereof. While an Event of Default is
continuing under Section 14(a) hereof, amounts payable with
respect to any Loans shall bear interest (compounded monthly
and payable on demand in respect to overdue amounts) at a rate
per annum which is equal to (A) with respect to each Base Rate
Loan, the sum of (1) the Base Rate and (2) two percent (2.0%)
and (B) with respect to each Eurodollar Rate Loan, the sum of
(1) the Eurodollar Rate and (2) three and one- half of one
percent (3.5%), until such amount is paid in full or (as the
case may be) such Event of Default has been cured or waived in
writing by the Bank (after as well as before judgment).
4. CONVERSION OPTIONS; CONTINUATION OF LOANS.
(a) The Borrower may elect from time to time to convert
any outstanding Loan to a Loan of another Type, provided that (i) with respect
to any such conversion or extension, as the case may be, of a Loan to a Base
Rate Loan, the Borrower shall give the Bank at least three (3) Business Days'
prior written notice of such election; (ii) with respect to any such conversion
of a Eurodollar Rate Loan to a Base Rate Loan, the Borrower shall give the Bank
at least three (3) Eurodollar Business Days' prior written notice of such
election; (iii) with respect to any such conversion of a Eurodollar Rate Loan
to a Base Rate Loan, such conversion shall only be made on the last day of the
Interest Period with respect thereto; and (iv) no Loan may be converted into a
Eurodollar Rate Loan when any Default or Event of Default has occurred and is
continuing. All or any part of outstanding Loans of any Type may be converted
into a Loan of another Type as provided herein, provided that (1) any partial
conversion shall be in an aggregate principal amount of $50,000 or an integral
multiple
<PAGE> 9
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thereof and (2) the Borrower may not request or elect a Eurodollar Rate Loan,
elect to convert a Base Rate Loan to a Eurodollar Rate Loan or elect to
continue a Eurodollar Rate Loan pursuant to the terms hereof if, after giving
effect thereto, there would be greater than five (5) Eurodollar Rate Loans
outstanding. Each Conversion Request relating to the conversion of a Loan to a
Eurodollar Rate Loan shall be irrevocable by the Borrower.
(b) Any Loan of any Type may be continued as a Loan of
the same Type upon the expiration of an Interest Period with respect thereto by
compliance by the Borrower with the notice provisions contained in Section
4(a); provided that no Eurodollar Rate Loan may be continued as such when any
Default or Event of Default has occurred and is continuing, but shall be
automatically converted to a Base Rate Loan on the last day of the first
Interest Period relating thereto ending during the continuance of any Default
or Event of Default of which officers of the Bank active upon the Borrower's
account have actual knowledge.
(c) Any conversion to or from Eurodollar Rate Loans shall
be in such amounts and be made pursuant to such elections so that, after giving
effect thereto, the aggregate principal amount of all Eurodollar Rate Loans
having the same Interest Period shall not be less than $50,000 or an integral
multiple of $50,000 in excess thereof.
5. INABILITY TO DETERMINE EURODOLLAR RATE. In the event, prior to
the commencement of any Interest Period relating to any Eurodollar Rate Loan,
the Bank shall determine that adequate and reasonable methods do not exist for
ascertaining the Eurodollar Rate that would otherwise determine the rate of
interest to be applicable to any Eurodollar Rate Loan during any Interest
Period, the Bank shall promptly give telephonic notice (promptly confirmed in
writing) of such determination (which shall be conclusive and binding on the
Borrower) to the Borrower's treasurer or chief financial officer. In such event
(a) upon receipt of notice, the Borrower may revoke any pending request for any
Loan or Conversion Request with respect to Eurodollar Rate Loans, (b) if the
Borrower does not revoke such request or Conversion Request, the Bank shall
make, convert or continue Loans, as proposed by the Borrower, in the amount
specified in the request or the Conversion Request submitted by the Borrower,
but such Loans shall be made, converted or continued as Base Rate Loans instead
of Eurodollar Rate Loans, (c) each Eurodollar Rate Loan will automatically, on
the last day of the then current Interest Period relating thereto, become a
Base Rate Loan, and (d) the obligations of the Bank to make Eurodollar Rate
Loans shall be suspended until the Bank determines that the circumstances
giving rise to such suspension no longer exist, whereupon the Bank shall so
notify the Borrower.
<PAGE> 10
- 10 -
6. INDEMNITY. The Borrower agrees to indemnify Bank and to hold
Bank harmless from and against any loss, cost or expense (including loss of
anticipated profits) that the Bank may sustain or incur as a consequence of (a)
default by the Borrower in payment of the principal amount of or any interest
on any Eurodollar Rate Loans as and when due and payable, including any such
loss or expense arising from interest or fees payable by the Bank to lenders of
funds obtained by it in order to maintain the Eurodollar Rate Loans, (b)
default by the Borrower in making a borrowing or conversion after the Borrower
has given (or is deemed to have given) a request for a Loan or a Conversion
Request relating thereto in accordance with Section 4 (other than as a result
of the operation of Section 5 or Section 7 hereof) or (c) the making of any
payment of a Eurodollar Rate Loan or the making of any conversion of any such
Loan to a Base Rate Loan on a day that is not the last day of the applicable
Interest Period with respect thereto, including interest or fees payable by the
Bank to lenders of funds obtained by it in order to maintain any such Loans.
7. ILLEGALITY. Notwithstanding any other provisions herein, if
any present or future law, regulation, treaty or directive or in the
interpretation or application thereof shall make it unlawful for the Bank to
make or maintain Eurodollar Rate Loans, the Bank shall forthwith give notice of
such circumstances to the Borrower and thereupon (a) the commitment of the Bank
to make Eurodollar Rate Loans or convert Loans of another Type to Eurodollar
Rate Loans shall forthwith be suspended and (b) the Bank's Loans then
outstanding as Eurodollar Rate Loans, if any, shall be converted automatically
to Base Rate Loans on the last day of each Interest Period applicable to such
Eurodollar Rate Loans or within such earlier period as may be required by law.
The Borrower hereby agrees promptly to pay the Bank upon demand, any additional
amounts necessary to compensate the Bank for any reasonable costs incurred by
the Bank in making any conversion in accordance with this Section 7, including
any interest or fees payable by the Bank to lenders of funds obtained by it in
order to make or maintain its Eurodollar Loans hereunder.
8. ADDITIONAL COSTS, ETC. If any present or future applicable
law, which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon
or otherwise issued to the Bank by any central bank or other fiscal, monetary
or other authority (whether or not having the force of law), shall:
(a) subject the Bank to any tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature with respect to this Loan
Agreement, the other Loan Documents, the Commitment or the Loans (other than
taxes based upon or measured by the income or profits of the Bank), or
<PAGE> 11
- 11 -
(b) materially change the basis of taxation (except for
changes in taxes on income or profits) of payments to the Bank of the principal
of or the interest on any Loans or any other amounts payable to the Bank under
this Loan Agreement or any of the other Loan Documents, or
(c) impose or increase or render applicable (other than
to the extent specifically provided for elsewhere in this Loan Agreement) any
special deposit, reserve, assessment, liquidity, capital adequacy or other
similar requirements (whether or not having the force of law) against assets
held by, or deposits in or for the account of, or loans by, or letters of
credit issued by, or commitments of an office of the Bank, or
(d) impose on the Bank any other conditions or
requirements with respect to this Loan Agreement, the other Loan Documents, the
Loans, the Commitment, or any class of loans or commitments of which any of the
Loans or the Commitment forms a part,
and the result of any event described in clause (a), (b), (c) or (d) is
(i) to increase the cost to the Bank of making,
funding, issuing, renewing, extending or maintaining any of
the Loans or the Commitment, or
(ii) to reduce the amount of principal, interest
or other amount payable to the Bank hereunder on account of
the Commitment or any of the Loans, or
(iii) to require the Bank to make any payment or to
forego any interest or other sum payable hereunder, the amount
of which payment or foregone interest or other sum is
calculated by reference to the gross amount of any sum
receivable or deemed received by the Bank from the Borrower
hereunder,
then, and in each such case, the Borrower will, upon demand made by the Bank at
any time and from time to time and as often as the occasion therefor may arise,
pay to the Bank such additional amounts as will be necessary to compensate the
Bank for such additional cost, reduction, payment or foregone interest or other
sum.
9. CHANGES IN CIRCUMSTANCES. If any change in banking law or
regulation or the administration thereof (whether or not having the force of
law) affects the amount of capital required or expected to be maintained by the
Bank or any entity controlling it, and such amount is increased by reason of
the Commitment or the Loans, the Bank may notify the Borrower thereof. The
Borrower and the Bank shall negotiate an adjustment payable to the Bank to
<PAGE> 12
- 12 -
compensate for such increase. If no agreement is reached within thirty (30)
days, the Bank may increase the fees payable hereunder by the amount determined
by the Bank to be necessary to provide such compensation.
10. FEES AND PAYMENTS.
(a) The Borrower shall pay to the Bank, on the first day
of each calendar quarter hereafter, and upon the Maturity Date or the date upon
which the Commitment is no longer in effect, a commitment fee calculated at a
rate per annum which is equal to one-quarter of one percent (0.25%) of the
average daily difference by which the Commitment amount exceeds the aggregate
sum of the outstanding Loans during the preceding calendar quarter or portion
thereof.
(b) All payments to be made by the Borrower hereunder or
under any of the other Loan Documents shall be made in U.S. dollars in
immediately available funds at the Bank's office at 31 Pratt Street, Hartford,
Connecticut 06103, without set-off or counterclaim and without any withholding
or deduction whatsoever. The Bank shall be entitled (but shall not be
obligated) to charge any account of the Borrower with the Bank for any sum due
and payable by the Borrower to the Bank, hereunder or under any of the other
Loan Documents. If any payment hereunder is required to be made on a day which
is not a Business Day, it shall be paid on the immediately preceding Business
Day. All computations of interest or of the closing or commitment fees payable
hereunder shall be made by the Bank on the basis of actual days elapsed and on
a 360-day year.
11. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to the Bank on the date hereof, on the date of any request for any
Loan, and on each Drawdown Date that: (a) the Borrower and each of its
Subsidiaries is duly organized, validly existing, and in good standing under
the laws of its jurisdiction of incorporation and is duly qualified and in good
standing in every other jurisdiction where it is doing business, except where
the failure to so qualify does not have a Materially Adverse Effect, and the
execution, delivery and performance by the Borrower of the Loan Documents (i)
is within its corporate authority, (ii) has been duly authorized, (iii) does
not conflict with or contravene its Charter Documents; (b) upon execution and
delivery thereof, each Loan Document shall constitute the legal, valid and
binding obligation of the Borrower, enforceable in accordance with its terms
except as enforceability is limited by laws regarding bankruptcy or insolvency
or generally the enforcement of creditors' rights; (c) the Borrower and each
Subsidiary have good and marketable title to (or, to the best knowledge of the
Borrower after reasonable inquiry, valid licenses of) all of their respective
material properties, and possess (or to the best knowledge of the Borrower
after reasonable inquiry, have valid licenses for) all assets, including
intellectual properties, franchises and Consents, adequate for the conduct of
their respective
<PAGE> 13
- 13 -
businesses as now conducted, without any conflict with any rights of others;
(d) the Borrower has provided to the Bank its audited Financials as at December
31, 1996 and for the period then ended and its unaudited management prepared
Financials as at February 28, 1997, and such Financials are complete and
correct and fairly present the position of the Borrower and its Subsidiaries as
at such dates and for such periods in accordance with GAAP consistently applied
(except, in the case of unaudited Financials, with respect to the notes thereto
and year-end adjustments); (e) except as otherwise disclosed in writing to the
Bank by the Borrower, since December 31, 1996, there has been no materially
adverse change of any kind in the Borrower or any of its Subsidiaries which
would have a Materially Adverse Effect; (f) except as set forth on Schedule
11(f), there are no legal or other proceedings or investigations pending or
threatened against the Borrower, any of its Subsidiaries or WP before any
court, tribunal or regulatory authority which would, if adversely determined,
alone or together, have a Materially Adverse Effect; (g) the execution,
delivery, performance of its obligations, and exercise of its rights under the
Loan Documents by the Borrower, including borrowing under this Loan Agreement
(i) do not require any Consents; and (ii) are not and will not be in conflict
with or prohibited or prevented by (A) any Requirement of Law, or (B) any
Charter Document, corporate minute or resolution, instrument, agreement or
provision thereof, in each case binding on it or affecting any of its property
or the property of any of its Subsidiaries; (h) neither the Borrower nor any
Subsidiary is in violation of (i) any Charter Document, corporate minute or
resolution, (ii) any instrument or agreement, in each case binding on it or
affecting its property, in a manner which would have a Materially Adverse
Effect, or (iii) any Requirement of Law in a manner which would have a
Materially Adverse Effect, including, without limitation, all applicable
federal and state tax laws, ERISA and Environmental Laws; (i) except as set
forth on Schedule 11(i) hereof, the Borrower has no Subsidiaries and is not a
party to any partnership or joint venture, (j) each fiscal year of the Borrower
begins on January 1 of each calendar year and ends on December 31 of each
calendar year; and (k) both before and immediately after giving effect to the
transactions contemplated hereby, the Borrower and each of its Subsidiaries
(except for intercompany balances owed by Subsidiaries of the Borrower to the
Borrower to the extent permitted hereunder) is and shall be solvent on a going
concern basis (after taking into account the value of all tangible and
intangible assets, including without limitation goodwill, patents, trademarks,
copyrights and other intellectual property), has assets (after taking into
account the value of all tangible and intangible assets, including without
limitation goodwill, patents, trademarks, copyrights and other intellectual
property) having a fair value in excess of the amount required to pay its
probable liabilities on its existing debts as they become absolute and matured,
and has, and will have, access to adequate capital (including the Commitment)
(i) for the conduct of its business and (ii) to pay its debts from time to time
incurred in connection therewith as such debts mature.
<PAGE> 14
- 14 -
12. CONDITIONS PRECEDENT. In addition to the making of the
foregoing representations and warranties and the delivery of the Loan Documents
and such other documents and the taking of such actions as the Bank may require
at or prior to the time of executing this Loan Agreement, the obligation of the
Bank to make any Loan to the Borrower hereunder is subject to the satisfaction
of the following further conditions precedent: (a) each of the representations
and warranties of the Borrower and WP to the Bank shall be true and correct in
all material respects as of the time made or claimed to have been made; (b) no
Default or Event of Default shall be continuing; (c) all proceedings in
connection with the transactions contemplated hereby shall be in form and
substance reasonably satisfactory to the Bank, and the Bank shall have received
all information and documents as it may have reasonably requested; (d) no WP
Event of Default shall be continuing; (e) the Subscription Agreements shall be
in full force and effect; and (f) WP shall have Availability of not less than
the aggregate amount of all Contingent Obligations (under and as defined in the
WP Loan Agreement on the date hereof without regard to any future amendment or
modification thereof).
13. COVENANTS.
(a) The Borrower agrees that as long as any Loan or the
Note is outstanding and until the termination of the Commitment and the payment
and satisfaction in full of the Loans and all of the other Obligations, the
Borrower will, and where applicable, will cause each of its Subsidiaries to
comply with its obligations as set forth throughout this Loan Agreement and to:
(i) furnish the Bank: (A) within five (5)
Business Days of the filing or mailing thereof, copies of
financial statements, reports and proxy statements filed with
the Securities and Exchange Commission (or any successor
thereto) or any national securities exchange by the Borrower
or sent to the stockholders of the Borrower, including,
without limitation, copies of all registration statements and
Forms 10-K, 10-Q and amendments thereto; and (B) together with
such quarterly and annual financial information, a certificate
of the Borrower setting forth computations demonstrating
compliance with the Borrower's financial covenants set forth
herein, and certifying that no Default or Event of Default has
occurred, or if a Default or an Event of Default has occurred,
the actions taken by the Borrower with respect thereto;
(ii) keep true and accurate books of account in
accordance with GAAP and, upon reasonable prior notice and at
reasonable intervals (unless a Default or an Event of Default
shall be continuing, whereupon such notice shall not be
required), to permit the Bank or its designated
representatives (at the expense of the
<PAGE> 15
- 15 -
Borrower if a Default or Event of Default has occurred and is
continuing and at the expense of the Bank at all other times),
to inspect the Borrower's premises, activities, books and
records, to examine and be advised as to such or other
business records upon the request of the Bank and cause
Borrower's officers and employees to give full cooperation and
assistance in connection therewith;
(iii) maintain the Borrower's corporate existence,
business and assets, to keep its business and assets
adequately insured, to maintain its chief executive office in
the United States, to continue to engage in substantially the
same lines of business or businesses related thereto, and to
comply in all material respects with all Requirements of Law,
including ERISA and Environmental Laws;
(iv) notify the Bank promptly in writing (A) of
the occurrence of any Default or Event of Default, (B) of any
noncompliance with ERISA or any Environmental Law or
proceeding in respect thereof which could have a Materially
Adverse Effect, (C) of any change of address or name of the
Borrower, (D) of any threatened or pending litigation or
similar proceeding affecting the Borrower or any of its
Subsidiaries involving claims in excess of $500,000 in the
aggregate or any material change in any such litigation or
proceeding previously reported, or (E) of claims in excess of
$500,000 in the aggregate against any assets or properties of
the Borrower or any of its Subsidiaries;
(v) use the proceeds of the Loans only for
working capital purposes, and not for the purchasing or
carrying of "margin security" or "margin stock" within the
meaning of Regulations U and X of the Board of Governors of
the Federal Reserve System, 12 C.F.R. Parts 221 and 224; and
(vi) cooperate with the Bank, take such action,
execute such documents, and provide such information as the
Bank may from time to time reasonably request in order further
to effect the transactions contemplated by and the purposes of
the Loan Documents.
(b) The Borrower agrees that as long as any Loan or the
Note is outstanding and until the termination of the Commitment and the payment
and satisfaction in full of the Loans and all of the Obligations, the Borrower
will not, and where applicable, will not permit any or its Subsidiaries to:
<PAGE> 16
- 16 -
(i) make any investments other than investments
in (A) marketable obligations of the United States maturing
within one (1) year, (B) certificates of deposit, bankers'
acceptances and time and demand deposits of United States
banks having total assets in excess of $1,000,000,000, (C)
investments that are consistent with the investment guidelines
attached hereto as Schedule 13(b)(i), (D) investments in
Subsidiaries of the Borrower in an aggregate amount not to
exceed (1) during the period commencing on the Closing Date
through the first anniversary date of the Closing Date,
$30,000,000 at any time and (2) thereafter, $32,500,000
(measured on a cumulative basis) at any time, or (E) such
other investments as the Bank may from time to time approve in
writing;
(ii) make any Distributions of any nature
whatsoever without the prior written consent of the Bank;
(iii) (A) become party to a merger or consolidation
(other than a merger of a Subsidiary of the Borrower with and
into the Borrower upon thirty (30) days' prior written notice
to Bank), (B) make any change in Borrower's corporate
structure or identity which has a Materially Adverse Effect;
or (C) enter into any agreement to do any of the foregoing; or
(iv) change its or any of its Subsidiaries fiscal
year without the prior written consent of the Bank.
(c) The Borrower agrees that as long as any Loan or Note
is outstanding and until the termination of the Commitment and the payment and
satisfaction in full of all of the Obligations, the Borrower will not:
(i) permit the Consolidated Shareholders' Equity
to be less than $50,000,000 at any time; or
(ii) permit the ratio of Consolidated Current
Assets to Consolidated Current Liabilities (excluding the
outstanding principal amount of the Loans) to be less than
1.25 to 1.00 at any time.
14. EVENTS OF DEFAULT; ACCELERATION. If any of the following
events ("EVENTS OF DEFAULT") shall occur: (a) the Borrower shall fail to pay
within five (5) days of when due and payable any interest on the Loans or any
other sum due under any of the Loan Documents when the same becomes due; (b)
the Borrower shall fail to pay when due and payable any principal on the Loans
when the same becomes due; (c) the Borrower shall fail to perform any term,
covenant or agreement contained in Section 13(c) hereof; (d) the Borrower shall
<PAGE> 17
- 17 -
fail to perform any term, covenant or agreement contained in Section 13(b)
hereof and such failure shall continue for five (5) days after its occurrence;
(e) WP shall fail to comply with any term or condition set forth in its
Guaranty or such Guaranty shall cease to be in full force and effect without
the prior written consent of the Bank (except if the Obligations have been paid
in full in cash and the Commitment has terminated); (f) the Borrower or any of
its Subsidiaries or WP shall fail to perform any other term, covenant or
agreement contained in the Loan Documents within thirty (30) days after the
Bank has given written notice of such failure to the Borrower; (g) any
representation or warranty of the Borrower, any of its Subsidiaries or WP in
the Loan Documents or in any certificate or notice given in connection
therewith shall have been false or misleading in any material respect at the
time made or deemed to have been made; (h) the Borrower, any of its
Subsidiaries or WP shall fail to pay when due or within any applicable period
of grace any Indebtedness owing to the Bank or any affiliates of the Bank or
any other Indebtedness for borrowed money to any other third party in an
aggregate principal amount greater than $500,000; (i) any of the Loan Documents
shall cease to be in full force and effect, (j) the Borrower, any of its
Subsidiaries or WP (i) shall make an assignment for the benefit of creditors,
(ii) shall be adjudicated bankrupt or insolvent, (iii) shall seek the
appointment of, or be the subject of an order appointing, a trustee, liquidator
or receiver as to all or part of its assets, (iv) shall commence, approve or
consent to, any case or proceeding under any bankruptcy, reorganization or
similar law and, in the case of an involuntary case or proceeding, such case or
proceeding is not dismissed within forty-five (45) days following the
commencement thereof, or (v) shall be the subject of an order for relief in an
involuntary case under federal bankruptcy law; (k) the Borrower, any of its
Subsidiaries or WP shall be unable to pay debts as they mature; (l) there shall
remain undischarged for more than thirty (30) days any final judgment or
execution action against the Borrower, any of its Subsidiaries or WP that,
together with other outstanding claims and execution actions against the
Borrower, such Subsidiary or WP, exceeds $250,000 in the aggregate; (m) a WP
Event of Default shall have occurred and be continuing; (n) any of the
Subscription Agreements shall terminate or cease to be in full force and
effect; or (o) the Availability under the WP Loan Agreement shall be less than
one hundred percent (100%) of all Contingent Obligations (as defined in the WP
Loan Agreement on the date hereof without regard to any future amendment or
modification thereof) of WP outstanding at any time;
THEN, or at any time thereafter:
1. In the case of any Event of Default under clause (j) or (k),
the Commitment shall automatically terminate, and the entire unpaid principal
amount of the Loans, all interest accrued and unpaid thereon, and all other
amounts payable hereunder and under the other Loan Documents shall
<PAGE> 18
- 18 -
automatically become forthwith due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived by the
Borrower; and
2. In the case of any Event of Default other than (j) and (k),
the Bank may, by written notice to the Borrower, terminate the Commitment
and/or declare the unpaid principal amount of the Loans, all interest accrued
and unpaid thereof, and all other amounts payable hereunder and under the other
Loan Documents to be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by the Borrower.
No remedy herein conferred upon the Bank is intended to be exclusive
of any other remedy and each and every remedy shall be cumulative and in
addition to every other remedy hereunder, now or hereafter existing at law or
in equity or otherwise.
15. SETOFF. Regardless of the adequacy of any collateral for the
Obligations, any deposits or other sums credited by or due from the Bank to the
Borrower may be applied to or set off against any principal, interest and any
other amounts due from the Borrower to the Bank at any time without notice to
the Borrower, or compliance with any other procedure imposed by statute or
otherwise, all of which are hereby expressly waived by the Borrower.
16. MISCELLANEOUS. The Borrower agrees to indemnify and hold
harmless the Bank against all claims and losses of every kind arising out of
the Loan Documents, including without limitation against those in respect of
the application of Environmental Laws to the Borrower and its Subsidiaries;
provided, however, Borrower shall not be obligated to indemnify the Bank from,
and hold it harmless against, any such claims or losses arising out of the
gross negligence or willful misconduct of the Bank. The Borrower shall pay to
the Bank promptly on demand all reasonable costs and expenses (including any
taxes and legal and other professional fees and fees of its commercial finance
examiner) incurred by the Bank in connection with the preparation, negotiation,
execution, amendment, administration or enforcement of any of the Loan
Documents. Any communication to be made hereunder shall (i) be made in writing,
but unless otherwise stated, may be made by telex, facsimile transmission or
letter, and (ii) be made or delivered to the address of the party receiving
notice which is identified with its signature below (unless such party has by
five (5) days' written notice specified another address), and shall be deemed
made or delivered the next Business Day after dispatched, or left at that
address, or five (5) days after being mailed, postage prepaid, to such address.
This Loan Agreement shall be binding upon and inure to the benefit of each
party hereto and its successors and assigns, but the Borrower may not assign
its rights or obligations hereunder. This Loan Agreement may not be amended or
<PAGE> 19
- 19 -
waived except by a written instrument signed by the Borrower and the Bank, and
any such amendment or waiver shall be effective only for the specific purpose
given. No failure or delay by the Bank to exercise any right hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege preclude any other right, power or privilege. The
provisions of this Loan Agreement are severable and if any one provision hereof
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
such invalidity or unenforceability shall affect only such provision in such
jurisdiction. This Loan Agreement, together with all Exhibits and Schedules
hereto, expresses the entire understanding of the parties with respect to the
transactions contemplated hereby. This Loan Agreement and any amendment hereby
may be executed in several counterparts, each of which shall be an original,
and all of which shall constitute one agreement. In proving this Loan
Agreement, it shall not be necessary to produce more than one such counterpart
executed by the party to be charged. THIS LOAN AGREEMENT AND THE NOTE ARE
CONTRACTS UNDER THE LAWS OF THE STATE OF CONNECTICUT AND SHALL BE CONSTRUED IN
ACCORDANCE THEREWITH AND GOVERNED THEREBY. THE BORROWER AGREES THAT ANY SUIT
FOR THE ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS
OF THE STATE OF CONNECTICUT OR ANY FEDERAL COURT SITTING THEREIN. The Borrower,
as an inducement to the Bank to enter into this Loan Agreement, hereby waives
its right to a jury trial with respect to any action arising in connection with
any Loan Document.
17. PREJUDGMENT REMEDY WAIVER. THE BORROWER ACKNOWLEDGES THAT
THE FINANCING EVIDENCED HEREBY IS A COMMERCIAL TRANSACTION WITHIN THE MEANING
OF CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES. THE BORROWER HEREBY WAIVES
ITS RIGHT TO NOTICE AND PRIOR COURT HEARING OR COURT ORDER UNDER CONNECTICUT
GENERAL STATUTES SECTIONS 52-278a ET. SEQ. AS AMENDED OR UNDER ANY OTHER STATE
OR FEDERAL LAW WITH RESPECT TO ANY AND ALL PREJUDGMENT REMEDIES THE BANK MAY
EMPLOY TO ENFORCE ITS RIGHTS AND REMEDIES HEREUNDER. MORE SPECIFICALLY, THE
BORROWER ACKNOWLEDGES THAT THE BANK'S ATTORNEY MAY, PURSUANT TO CONN. GEN.
STAT. Section 52-278F, ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT SECURING A
COURT ORDER. THE BORROWER ACKNOWLEDGES AND RESERVES ITS RIGHT TO NOTICE AND A
HEARING SUBSEQUENT TO THE ISSUANCE OF A WRIT FOR PREJUDGMENT REMEDY AS
AFORESAID AND THE BANK ACKNOWLEDGES THE BORROWER'S RIGHT TO SAID HEARING
SUBSEQUENT TO THE ISSUANCE OF SAID WRIT.
<PAGE> 20
- 20 -
18. CONFIDENTIALITY. The Bank agrees to take normal and
reasonable precautions and exercise due care to maintain the confidentiality of
all information identified as "confidential" or "secret" by the Borrower and
provided to it by the Borrower or any of its Subsidiaries under this Loan
Agreement or any of other Loan Document, and the Bank shall not use any such
information other than in connection with or in the administration or
enforcement of this Loan Agreement and the other Loan Documents, except to the
extent such information (i) was or becomes generally available to the public
other than as a result of disclosure by the Bank, (ii) was or becomes available
on a non-confidential basis from a source other than the Borrower; provided,
that such source is not bound by a confidentiality agreement with the Borrower
known to the officers of the Bank handling the transaction contemplated hereby;
and provided, further, that the Bank may disclose such information (A) at the
request or pursuant to any requirement of any governmental authority or
regulator to which the Bank is subject or in connection with an examination of
the Bank by any such authority or regulator, (B) pursuant to subpoena or other
court process, (C) when required to do so in accordance with the provisions of
any applicable law, (D) to the extent reasonably required in connection with
any
[Intentionally Left Blank]
<PAGE> 21
- 21 -
litigation or proceeding to which the Bank may be party, (E) to the extent
reasonably required in connection with the exercise of any remedy hereunder or
under any other Loan Document, (F) to the Bank's independent auditors,
attorneys, accountants and other professional advisors, (G) to any affiliate of
the Bank provided that such Person agrees in writing to keep such information
confidential to the same extent required of the Bank hereunder and (H) in
accordance with Robert Morris Associates guidelines.
IN WITNESS WHEREOF, the undersigned have duly executed this Loan
Agreement as of the date first above written.
NEXSTAR PHARMACEUTICALS, INC.
/s/ MICHAEL E. HART
By: /s/ PATRICK J. MAHAFFY
-----------------------------------
2860 Wilderness Place
Boulder, Colorado 80301
Attention: Lauri Harker
Tel: (303) 546-7848
Fax: (303) 413-5311
BANK OF BOSTON CONNECTICUT
By: /s/ GARTH COLLINS
-----------------------------------
Garth Collins
Its Vice President
81 West Main Street
Waterbury, Connecticut 06702
Tel: (203) 575-3946
Fax: (203) 574-7599
<PAGE> 1
EXHIBIT 11.1
NEXSTAR PHARMACEUTICALS, INC.
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net loss $(9,721,000) $(6,296,000)
=========== ===========
Weighted average shares outstanding
during the period 26,424,000 25,065,000
=========== ===========
Net loss per common share $ (0.37) $ (0.25)
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 30,610,000
<SECURITIES> 11,605,000
<RECEIVABLES> 33,923,000
<ALLOWANCES> 1,029,000
<INVENTORY> 15,540,000
<CURRENT-ASSETS> 93,394,000
<PP&E> 71,664,000
<DEPRECIATION> 28,951,000
<TOTAL-ASSETS> 147,002,000
<CURRENT-LIABILITIES> 39,196,000
<BONDS> 30,004,000
0
0
<COMMON> 264,000
<OTHER-SE> 77,538,000
<TOTAL-LIABILITY-AND-EQUITY> 147,002,000
<SALES> 20,008,000
<TOTAL-REVENUES> 20,867,000
<CGS> 4,456,000
<TOTAL-COSTS> 4,456,000
<OTHER-EXPENSES> 25,584,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 524,000
<INCOME-PRETAX> (9,697,000)
<INCOME-TAX> 24,000
<INCOME-CONTINUING> (9,721,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,721,000)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
