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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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NEXSTAR PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1173453
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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2860 WILDERNESS PLACE
BOULDER, CO 80301
(303) 444-5893
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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PATRICK J. MAHAFFY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEXSTAR PHARMACEUTICALS, INC.
2860 WILDERNESS PLACE
BOULDER, CO 80301
(303) 444-5893
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copy to:
PETER H. JAKES, ESQ.
WILLKIE FARR & GALLAGHER
ONE CITICORP CENTER
153 EAST 53RD STREET
NEW YORK, NY 10022-4669
(212) 821-8000
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of the Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE (1) FEE
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<S> <C> <C> <C> <C>
6 1/4% Convertible Subordinated Debentures
Due 2004 $80,000,000 100% $80,000,000 $24,242
Common Stock, $.01 par value (2) (2) ----- ------- (2)
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rules 457(c) and 457(i).
(2) Such indeterminate number of shares of Common Stock as shall be issuable
upon conversion of the Convertible Debentures being registered hereunder.
No additional consideration will be received for the Common Stock and
therefore no registration fee is required pursuant to Rule 457(i).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE> 3
Subject to Completion, dated September 17, 1997
PROSPECTUS
$80,000,000
NEXSTAR PHARMACEUTICALS, INC.
6 1/4% CONVERTIBLE SUBORDINATED DEBENTURES
INTEREST PAYABLE FEBRUARY 1 AND AUGUST 1
AND
SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF
This Prospectus relates to the proposed sale from time to time by
certain holders named herein (the "Selling Securityholders") of $80,000,000
principal amount of 6 1/4% Convertible Subordinated Debentures Due 2004 (the
"Debentures") of NeXstar Pharmaceuticals, Inc. ("NeXstar Pharmaceuticals" or
the "Company") and the shares of Common Stock, par value $.01 per share (the
"Common Stock"), of the Company into which the Debentures may be converted (the
"Conversion Shares"). The Debentures are convertible into the Conversion
Shares at any time at or before maturity, unless previously redeemed, at a
conversion price of $16 7/8 per share, subject to adjustment upon the
occurrence of certain events. The Common Stock of the Company is traded on The
Nasdaq National Market under the symbol "NXTR." On September 16, 1997, the
closing price of the Common Stock as reported by The Nasdaq National Market
was $ per share.
The Debentures do not provide for a sinking fund and are not
redeemable by the Company prior to August 10, 2000. The Debentures are
redeemable thereafter at the option of the Company, in whole or in part, at the
redemption prices set forth in this Prospectus, together with accrued interest.
Upon a Repurchase Event (as defined), each holder of the Debentures shall have
the right, at the holder's option, to require the Company to repurchase such
holder's Debentures at a price equal to 100% of the principal amount thereof,
plus accrued interest. See "Description of Debentures -- Certain Rights to
Require Repurchase of Debentures."
The Debentures are unsecured obligations of the Company and are
subordinate to all present and future Senior Indebtedness (as defined) of the
Company and are effectively subordinated to all indebtedness and liabilities of
subsidiaries of the Company. As of June 30, 1997, after giving effect to the
Company's repayment of $28.6 million of indebtedness with proceeds from the
Company's initial offering of the Debentures, the Company had approximately
$23.4 million of indebtedness outstanding which constituted Senior
Indebtedness. The Indenture does not restrict the incurrence of any other
indebtedness or liabilities by the Company or its subsidiaries. See
"Description of Debentures -- Subordination."
Sales of the Debentures and the Conversion Shares (collectively, the
"Securities") may be effected by or for the account of the Selling
Securityholders from time to time in transactions (which may include block
transactions in the case of the Conversion Shares) on any exchange or market on
which such securities are listed or quoted, as applicable, in negotiated
transactions, through a combination of such methods of sale, or otherwise, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market price, or at negotiated prices.
The Selling Securityholders may effect such transactions by selling the
Debentures or the Conversion Shares directly to purchasers, through
broker-dealers acting as agents for the Selling Securityholders, or to
broker-dealers who may purchase Debentures or Conversion Shares as principals
and thereafter sell the Debentures or Conversion Shares from time to time in
transactions (which may include block transactions in the case of the
Conversion Shares) on any exchange or market on which Securities are listed or
quoted, as applicable, in negotiated transactions, through a combination of
such methods of sale or otherwise. In effecting sales, broker-dealers engaged
by Selling Securityholders may arrange for other broker-dealers to participate.
Such broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers of the Debentures or Conversion Shares for whom such broker-dealers
may act as agents or to whom they may sell as principals, or both (which
compensation as to a particular broker-dealer might be in excess of customary
commissions). See "Selling Securityholders"
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and "Plan of Distribution."
None of the proceeds from the sale of the Securities by the Selling
Securityholders will be received by the Company. The Company has agreed to
bear all expenses (other than selling commissions) in connection with the
registration and sale of the Securities being offered by the Selling
Securityholders. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including certain liabilities
under the Securities Act of 1993, as amended (the "Securities Act of 1993").
The Debentures have been designated for trading in the Private
Offering, Resales and Trading through Automated Linkages ("PORTAL") Market.
Debentures sold pursuant to this Prospectus will not remain eligible for
trading on the PORTAL Market. For a description of certain income tax
consequences to holders of the Debentures, see "Certain United States Federal
Income Tax Consequences."
The Selling Securityholders and any broker-dealers or agents that
participate with the Selling Securityholders in the distribution of the
Securities may be deemed to be "underwriters" within the meaning of the
Securities Act of 1993, and any commissions received by them and any profit on
the resale of the Securities purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act of 1933.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" COMMENCING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is September ___, 1997
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, the Company's Quarterly Reports on Form 10-Q for the
quarterly periods ended March 31, 1997 and June 30, 1997, respectively, the
Company's Current Reports on Form 8-K dated as of July 29, 1997 and August 11,
1997, respectively, and the Company's Form 8-A as declared effective on January
28, 1994 filed with the Securities and Exchange Commission (the "Commission")
are hereby incorporated by reference in this Prospectus except as superseded or
modified herein or therein.
All documents filed with the Commission by NeXstar Pharmaceuticals
pursuant to Section 13(a), 13 (c), 14 or 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), after the date of this Prospectus and
prior to the termination of the offering shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in any document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this Prospectus.
NeXstar Pharmaceuticals will provide without charge to each person, including
any beneficial owner, to whom this Prospectus is delivered, upon written or
oral request of such person, a copy of any and all of the documents that have
been or may be incorporated by reference herein (other than exhibits to such
documents which are not specifically incorporated by reference into such
documents). Such requests should be directed to the Director, Corporate
Communications, at the Company's principal executive offices at 2860 Wilderness
Place, Boulder, Colorado 80301, telephone number (303) 444-5893.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and
other information filed may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D. C. 20549 and may be available at the
following Regional Offices of the Commission: Chicago Regional Office,
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621;
and New York Regional Office, 7th World Trade Center, 14th Floor, New York, New
York 10048. Copies of such materials can be obtained at prescribed rates from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, the Commission maintains a
web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding companies, including the Company,
that file electronically with the Commission. The Company's Common Stock is
traded on The Nasdaq National Market. The foregoing materials are also
available for inspection at the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
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ADDITIONAL INFORMATION
The Company has filed with the Commission under the Securities Act of
1933, a Registration Statement on Form S-3 with respect to the Securities
offered hereby, of which this Prospectus forms a part. This Prospectus omits
certain information contained in the Registration Statement, and reference is
made to the Registration Statement, including the exhibits thereto, for further
information with respect to the Company and the securities offered hereby.
Statements contained in this Prospectus concerning the provisions of such
documents are necessarily summaries of such documents and each such statement
is qualified in its entirety by reference to the copy of the applicable
document filed with the Commission. Copies of the Registration Statement and
the exhibits and schedules thereto may be inspected, without charge, at the
offices of the Commission, or obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, risks associated with the following: reliance on a single
product for a substantial portion of the Company's revenues; general economic
and business conditions, including fluctuations in currency exchange rates;
competition; technological advances; ability to obtain rights to technology;
ability to obtain and enforce patents; ability to commercialize and manufacture
products; results of clinical studies; results of research and development
activities; availability of qualified personnel; changes in, or failure to
comply with, governmental regulations; ability to obtain adequate financing in
the future; and other factors referenced in this Prospectus. See "Risk
Factors."
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THE COMPANY
NeXstar Pharmaceuticals, Inc., a Delaware corporation ("NeXstar
Pharmaceuticals" or the "Company"), is a fully integrated biopharmaceutical
company engaged in the discovery, development, manufacture and marketing of
proprietary pharmaceutical products to treat life-threatening and other serious
oncological, immunological, hematological and infectious diseases.
The Company markets AmBisome, a liposomal formulation of amphotericin
B, for the treatment of life-threatening fungal infections and DaunoXome, a
liposomal formulation of the anticancer agent daunorubicin, which is used as a
first line therapy for the treatment of advanced, HIV-associated Kaposi's
sarcoma ("KS"). The Company currently relies on sales of AmBisome in Europe
for a substantial majority of its product revenues and expects sales of
AmBisome in Europe to account for a majority of its revenues in 1997. On
August 11, 1997, the U.S. Food and Drug Administration (the "FDA") approved
AmBisome for use as a primary therapy for patients with a low blood cell count
(febrile neutropenia) who have a presumed fungal infection, also known as fever
of unknown origin or FUO, and with visceral leishmaniasis and as a secondary
treatment for fungal infections refractory (that do not respond) to
amphotericin B treatment. Besides being approved in the United States,
AmBisome has been approved for sale by the regulatory authorities in 29
countries for the treatment of life-threatening fungal infections, including
thirteen countries in which it has been approved as a primary therapy for some
form of fungal infection. DaunoXome has been approved for sale as a primary
therapy for KS in the U.S., Canada and 17 other countries. The Company's
revenue growth will be substantially dependent upon increased penetration of
existing markets, establishing new markets, approval of additional indications
for AmBisome and DaunoXome and introduction of new products.
The Company is currently conducting Phase I clinical trials in the
U.S. for MiKasome, the Company's liposomal formulation of amikacin, a potent
aminoglycoside antibiotic. In addition, several of the Company's SELEX
process-derived compounds (including aptamer antagonists to vascular
endothelial growth factor (VEGF) and platelet-derived growth factor (PDGF) and
aptamers which inhibit the activity of L-selectin and P-selectin) are in
preclinical or early preclinical development.
The principal executive offices of the Company are located at 2860
Wilderness Place, Boulder, Colorado 80301. Its telephone number is (303)
444-5893.
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RISK FACTORS
In evaluating the Company and its business, prospective investors
should carefully consider the following risk factors in addition to the other
information appearing in or incorporated by reference in this Prospectus.
Special Note: Certain statements set forth below constitute "forward-looking
statements" that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in the "forward-looking
statements." See "Special Note Regarding Forward-Looking Statements" on page 3
for additional factors relating to such statements.
DEPENDENCE ON PRINCIPAL PRODUCT
The Company has relied on sales of AmBisome for most of its product
revenues with a substantial majority of those sales occurring in European
countries. A reduction in demand for AmBisome or the failure to obtain
additional regulatory approvals could have a material adverse effect on the
Company's results of operations including its ability to make required payments
on the Debentures. Regulatory approvals will be needed in order to expand the
indications for which AmBisome may be marketed in the countries where it is
already approved. There can be no assurance as to whether or when such
approvals will be obtained.
The Company's rights to market AmBisome are subject to an agreement
between the Company and Fujisawa USA, Inc. ("Fujisawa"). Under the terms of
the agreement, as amended, the Company has the sole marketing rights to
AmBisome in all countries except the United States and Canada and subject to
the Company's obligation to pay royalties in connection with sales in most
significant Asian markets, including Japan. The agreement provides that the
Company and Fujisawa co-promote AmBisome in the United States, and that the
Company is required to manufacture AmBisome for sale in the U.S. The Company is
reimbursed for the cost of the product sold to Fujisawa and receives 20% of the
gross profits from the sale of AmBisome in the United States. In the event
that the Company and Fujisawa are unable to cooperate in connection with the
promotion of the product, the Company's potential revenues from the sale of
AmBisome in the U.S. may be substantially reduced. In addition, the Company
and Fujisawa have limited experience in selling AmBisome in the U.S. and there
can be no assurance as to the volume of sales that will be achieved in the U.S.
The Company has only one other product, DaunoXome, that has received
regulatory approvals and such approvals were generally obtained during 1996.
Sales to date for DaunoXome have been limited and there can be no assurance as
to the volume of sales that will be achieved. The Company will seek to expand
the market for DaunoXome by obtaining approvals for indications in addition to
Kaposi's sarcoma. However, there can be no assurance that the drug will be
effective for the treatment of other diseases or that such additional approvals
will be obtained.
The Company has one other product that has reached clinical
development, MiKasome, for which Phase I clinical trials have been initiated in
the United States. While the results of animal and early human tests have been
encouraging, the results of animal studies may not be indicative of efficacy in
humans, and further human testing of MiKasome may not achieve the desired
result, may reveal unduly harmful side effects or may show the drug to be less
efficacious than other drug entities or delivery systems for the desired
indication. No assurance can be given that MiKasome will be more effective
than existing drugs or other technologies that may be developed in the future
or that MiKasome will reach commercialization or be accepted by the medical
community.
The Company's other potential products that are based on liposomal or
other technologies are in development, and there can be no assurance that such
potential products will be successfully developed, achieve therapeutic
efficacy, be approved by regulatory authorities or be successfully marketed.
Nor can there be any assurance that the Company will be able to develop any
additional products, that the approval of its current
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products will not be revoked or that named-patient purchases will be permitted
to continue in countries that have not granted approval for AmBisome or
DaunoXome.
RISK OF CURRENCY FLUCTUATIONS
A substantial majority of the Company's product sales have occurred in
Europe, with 56% of the Company's product sales for the year ending December
31, 1996 and the six months ending June 30, 1997 occurring in the United
Kingdom, Germany, Italy and Spain. In most significant European markets, the
Company prices AmBisome and DaunoXome in the currency of the country in which
such products are sold. Accordingly, the prices of such products in dollars
will vary as the value of the dollar fluctuates against such local currencies.
Increases in the value of the dollar against such currencies, as occurred
during the first eight months of 1997, may reduce the dollar return to the
Company on the sale of its products. Furthermore, there can be no assurance
that significant additional fluctuations in foreign currency values will not
occur that will create substantial differences in the relative prices of the
Company's products in different countries. In addition, although the Company
implements hedging techniques with respect to its foreign currency accounts
receivable and accounts payable, these techniques do not eliminate the effects
of foreign currency fluctuations with respect to anticipated revenues, and
therefore the Company's future results will continue to be affected by foreign
currency fluctuations. The Company hedges certain of its foreign currency
exposures, with respect to its outstanding trade accounts receivable and
accounts payable, through the use of forward contracts. 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.
HISTORY OF LOSSES; FUTURE CAPITAL NEEDS ANTICIPATED
The Company has incurred substantial losses during its history. At
June 30, 1997, the Company's accumulated deficit was $144.0 million. There can
be no assurance that the Company will ever achieve or maintain profitability.
In addition, the Company's earnings have historically not been sufficient to
cover its fixed charges from operations. Earnings (not taking into account the
effect of taxes) were deficient by $11.1 million, $16.0 million, $36.4 million
and $22.1 million for each of the years ended December 31, 1993, 1994, 1995 and
1996, respectively, and by $10.2 million and $17.9 million for each of the
six-month periods ended June 30, 1996 and 1997, respectively. See "Ratio of
Earnings to Fixed Charges."
The Company believes that in the future it may be advisable to augment
its cash in order to fund all of its activities, including potential product
acquisitions. Therefore, the Company will consider raising cash whenever
market conditions are favorable. Such capital may be raised through additional
public or private financing, as well as collaborative relationships, borrowings
and other available sources. In addition, in the course of its business, the
Company evaluates products and technologies held by third parties which, if
acquired, could result in the development of product candidates by the Company
or which complement technologies currently being developed by the Company. The
Company expects from time to time to be involved in discussions with other
entities concerning the Company's potential acquisition of rights to additional
pharmaceutical products. In the event that the Company acquires such products
or third-party technologies, the Company may find it necessary or advisable to
obtain additional funding.
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
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regulatory approvals; the costs involved in filing, prosecuting and enforcing
patent claims; competing technological and market developments; the Company's
success in entering into collaborative agreements; changes in collaborative
research relationships; the costs associated with potential commercialization
of its products, if any, including the development of additional manufacturing,
marketing and sales capabilities; the cost and availability of third-party
financing for capital expenditures; and administrative and legal expenses. In
particular, the Company expects to have significant cash requirements in the
near future as a result of, but not limited to, increased clinical studies
which are required in order to obtain approvals and expand the indications and
markets for the Company's products and the cost of equipping new facilities.
There can be no assurance that additional or sufficient financing will be
available or, if available, that it will be available on acceptable terms. If
additional funds are raised by issuing equity securities of the Company,
dilution to then existing stockholders may result. If adequate funds are not
available, the Company may be required to significantly curtail one or more of
its research and development programs or commercialization efforts or to obtain
funds through arrangements with collaborative partners or others on less
favorable terms than might otherwise be available.
If the Company does not achieve or maintain profitability, or if the
Company is otherwise unable to raise additional funds through the issuance of
debt or equity securities, the Company may not be able to make required
payments on the Debentures and may have to refinance the Debentures in order to
repay these obligations. There can be no assurance that the Company would be
able to refinance the Debentures.
TECHNOLOGICAL UNCERTAINTY
A significant portion of the Company's research is focused upon the
discovery and development of novel pharmaceuticals based upon
oligonucleotides. There can be no assurance that any of the Company's
approaches to drug discovery will result in commercially successful drugs.
Although the Company has demonstrated an ability to efficiently identify
oligonucleotides that bind with high affinity to and inhibit selected molecular
targets, the Company has not successfully demonstrated the efficacy of such
oligonucleotides as human therapeutic agents, nor have any human clinical
trials been initiated with products based upon such oligonucleotides. There
remain numerous challenges which the Company must address to successfully
develop commercial products from the drug candidates which it identifies
through its SELEX process or Parallel SELEX process. These challenges include
developing and implementing appropriate clinical protocols and developing
manufacturing methods which are efficient, cost-effective and capable of
meeting stringent regulatory standards. In addition, although many targets
with potential therapeutic significance have already been identified, there can
be no assurance that the targets selected by the Company will ultimately prove
to have the requisite medical significance such that a compound binding tightly
to such target will prove to be a useful pharmaceutical product. There can be
no assurance that the Company will successfully address any of these or other
challenges that may arise in the course of its research and development.
In addition to developing products based on its liposome, SELEX
process and Parallel SELEX process technologies, the Company has a longer-term
strategy of providing pharmaceuticals to treat patients with cancer, infectious
diseases and immunological and hematological disorders. However, there can be
no assurance that the Company will be successful in developing marketable
products using its technologies or will have the scientific or financial
resources necessary to develop all of the potential drug candidates or
technologies which its scientists may discover or the Company may acquire.
UNCERTAINTY OF HEALTH CARE REIMBURSEMENT
The Company's ability to commercialize its current and any future
products depends in part on the extent to which reimbursement for the cost of
such products and related treatments are available from government health
agencies, private health insurers and other third-party payors. Third-party
payors are increasingly challenging the
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price and cost-effectiveness of medical products. Significant uncertainty
exists as to the reimbursement status of newly-approved health care products,
and there can be no assurance that adequate third-party coverage will be
available for the Company to obtain satisfactory price levels for its products.
Government and other third-party payors are increasingly attempting to contain
health care costs by a variety of means, including limiting both the degree of
coverage and the level of reimbursement for new therapeutic products or new
indications for therapeutic products. If adequate coverage and reimbursement
levels are not provided by government and third-party payors for use of the
Company's existing and potential products, the market acceptance of these
products would be adversely affected.
RELIANCE ON PROPRIETARY RIGHTS
The Company's success depends in part on its ability to continue to
obtain patent protection in the United States and other countries for its
technologies and the products, if any, resulting from the application of such
technologies. The patent positions of pharmaceutical and biotechnology firms,
including the Company, are uncertain and involve complex legal and factual
questions. The Company intends to continue to file applications as appropriate
for patents covering its technologies and any products resulting from the
application of such technologies. No assurance can be given that patents will
issue from any of the Company's applications or that patents will issue in
connection with technology licensed by the Company or, if patents do issue,
that the claims allowed will be sufficiently broad to protect the Company's
proprietary rights, that such patents will not be challenged, invalidated or
circumvented or that the rights granted pursuant to such patents will provide
competitive advantages to the Company.
The Company also relies on trade secrets, proprietary know-how and
continuing technological innovation which it seeks to protect with
confidentiality agreements with its collaborators, employees and consultants.
There can be no assurance that these agreements will not be breached, that the
Company will have adequate remedies for any breach or that the Company's trade
secrets and proprietary know-how will not otherwise become known or be
independently discovered by competitors. Under certain of the Company's
research and development agreements, inventions discovered in certain cases
become jointly owned by the Company and the corporate partner or research
institution and in other cases become the exclusive property of the Company or
the corporate partner or research institution. Disputes may arise with respect
to ownership of any such invention.
The commercial success of the Company will also depend in part on the
Company not infringing patents or proprietary rights of third parties nor
breaching any technology licenses that relate to the Company's technologies and
products. A number of pharmaceutical and biotechnology companies and research
and academic institutions have developed technologies, filed patent
applications or received patents on various technologies that may be related to
the Company's business. In addition, such entities may file applications for
or be issued future patents with respect to technology potentially necessary or
useful to the Company. The Company is aware of third parties that have filed
patent applications with claims allegedly covering technologies similar to the
basic aspects of the Company's liposomal technology and SELEX process. Some of
these technologies, applications or patents may conflict with the Company's
technologies and existing or future patents, if any, or patent applications.
Such conflict could limit the scope of the patents that NeXstar Pharmaceuticals
has obtained or may be able to obtain or result in the Company's patent
applications failing to issue as patents. In addition, if patents that cover
the Company's activities are issued to other companies, there can be no
assurance that NeXstar Pharmaceuticals would be able to obtain licenses to
these patents at a reasonable cost, or at all, or be able to develop or obtain
alternative technology. In addition, as more patents are issued to third
parties, the risk increases that the Company's products may give rise to claims
that they infringe the patents of others.
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LITIGATION RISKS RELATED TO PROPRIETARY RIGHTS
The Company believes that its patents and applications are soundly
based, but the extent of protection may vary in different countries and no
assurance can be given that any patent will provide commercially significant
protection or will not be challenged, invalidated or circumvented. Litigation
could be necessary to protect the Company's patent position, which would result
in substantial cost to, and diversion of efforts by, the Company.
Additionally, a number of other patents have issued to other persons,
some to competitors, relating to technology similar to that used by the
Company. Both the Company and certain of its competitors have filed
oppositions against each other as to patents granted by the European Patent
Office (the "EPO") and patents granted by the Japanese Patent Office. The
Liposome Company ("TLC") and the University of California each have patents or
patent applications relating to active drug loading techniques that the owners
could claim are used in the manufacture of products such as DaunoXome. The
Company has opposed the grant of a European and a Japanese patent owned by TLC
and is involved in an interference proceeding with a U.S. patent application
owned by the University of California relating to such loading technology.
Competitors or other patent holders in the past have brought, and in
the future could bring, legal actions against the Company involving the
Company's patents, patent applications or rights to use proprietary technology.
If any actions are successful, in addition to any potential liability for
damages, the Company could be enjoined from selling the affected product, or be
required to obtain a license in order to continue to manufacture or market the
product. There can be no assurance that the Company would prevail in any such
action or that any license required under any such patent would be made
available on acceptable terms, if at all. There has been, and the Company
believes that there will continue to be, significant litigation in the
pharmaceutical industry regarding patent and other intellectual property
rights. Any additional litigation could consume a substantial portion of the
Company's resources regardless of the outcome.
Although patents are enforceable from the date of issuance and
presumed to be valid, future litigation or reexamination proceedings regarding
the enforcement or validity of the Company's existing patents or future
patents, if issued, could result in a ruling adverse to the Company that could
invalidate such patent or substantially reduce the scope of the protection
afforded by such patents. As to any issued patent or patent application, it is
also possible that the United States Patent and Trademark Office ("USPTO")
could declare an interference proceeding to determine, inter alia, priority of
inventorship between applications claiming the same invention. An adverse
ruling in any such interference proceeding could result in cancellation of
claims in issued patents or patent applications, limitations on the scope of
issued patents or claims in patent applications, or in the awarding of the
rights to third parties participating in such interference. If the Company
elects or is required to participate in interference proceedings declared by
the USPTO, substantial cost to the Company could result.
MANUFACTURING RISKS
The Company is manufacturing AmBisome in commercial quantities in its
initial facility in San Dimas, California (the "650 Facility") and in the
Company's newer facility in San Dimas, California (the "502 Facility"), which
is adjacent to the 650 Facility. The Medicines Control Agency of the United
Kingdom (the "MCA") has approved the manufacture of AmBisome for commercial
distribution at the 650 Facility and for commercial distribution through final
lyophilization at the 502 Facility. The U.S. Food and Drug Administration (the
"FDA") has inspected both the 650 Facility and the 502 Facility for the
manufacture of AmBisome and has approved a New Drug Application for U.S.
distribution of AmBisome listing both manufacturing sites. While the Company
currently uses internal capacity to perform lyophilization, it also relies on
third parties to lyophilize some commercial batches. There can be no assurance
that problems with such lyophilization vendors will not occur and have an
adverse effect on the Company's results of operations.
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The Company in the past has manufactured DaunoXome in quantities
sufficient to support clinical trials and has increased batch sizes in
connection with commercial sales. The Company currently has regulatory
approval from the MCA and the FDA to manufacture DaunoXome for commercial
distribution at the 650 Facility. The Company intends to seek MCA and FDA
approval to manufacture DaunoXome at the 502 Facility. The MCA has determined
that the 502 Facility is in general compliance with the principles and
guidelines of good manufacturing practice and has indicated that it will
support the licensing of DaunoXome in the facility. The Company has limited
experience in the larger-scale manufacture of DaunoXome and there can be no
assurance that the Company will be successful in the larger-scale manufacture
of DaunoXome or that the regulatory approvals, which the Company is currently
seeking in connection with DaunoXome at the 502 Facility, will be granted.
Additionally, to import its products into the European Union (the
"EU"), the Company must receive quality control release of its products in the
EU. NeXstar Pharmaceuticals has entered into an agreement with a contract
manufacturer, which has provided toll manufacturing services for the Company in
the past and which continues to provide limited services for the Company, to
acquire the manufacturer's current toll manufacturing facility in Dublin,
Ireland for one million Irish Punts (approximately $1.5 million on June 30,
1997). The Company expects to acquire the Dublin facility prior to the end of
1997. The Company has received a manufacturing license from the Irish
regulatory authorities to allow it to distribute its current products
throughout the European Union from this facility and, although no assurance can
be given, the Company anticipates that it will be able to timely obtain all of
the additional approvals and validations which it may need to perform its own
quality control release after its acquisition of the Dublin facility. In the
event that the Company is unable to complete the acquisition of the Dublin
facility or is delayed in receiving all necessary approvals and validations for
such facility, the Company will be required to obtain quality control release
in the EU through other means. While the Company believes that it will be able
to continue to obtain quality control release for its products in the EU
through other means, no assurances can be given.
The manufacture of AmBisome and DaunoXome involves a number of
technical steps and requires meeting stringent quality control specifications
imposed by government regulatory bodies and by the Company itself.
Additionally, such products can only be manufactured in facilities that comply
with applicable regulatory standards. Because of these factors, the Company
may not be able to quickly and efficiently replace its manufacturing capacity
in the event that it is unable to manufacture its products at one or more of
its facilities. In the event of a natural disaster (including an earthquake),
equipment failure, strike or other difficulty, the Company may be unable to
manufacture its products in a manner necessary to fulfill the demand for the
products.
The Company depends on single suppliers for high quality amphotericin
B, daunorubicin HCl and high quality cholesterol, each of which is used in the
Company's manufacture of its liposome products. Additional suppliers of these
components are presently under evaluation. If any of these materials becomes
unavailable from its respective supplier, the Company would be unable to
manufacture at least some of its liposome products until alternative sources of
supply are obtained and the substitution of such replacement supplies has been
granted by the appropriate regulatory authorities. The Company believes that
alternative supplies of such materials are or will become available at
reasonable prices. However, no assurance as to the availability of such
supplies can be given
While the Company has experience in manufacturing drug products based
on liposome technologies, it lacks experience in the manufacture of other
pharmaceuticals, including oligonucleotide-based products. The Company has
leased 5,260 square feet and 9,800 square feet of space in Boulder, Colorado
for use as a bulk pharmaceutical manufacturing facility and as a development
lab, respectively, in connection with compounds derived using the SELEX
process. The manufacturing facility has not been validated for the production
of any product and there can be no assurance that it will ultimately obtain
"current Good Manufacturing Practices" status.
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The Company has not yet determined which, if any, drug substances it will
attempt to develop or produce at the facilities, and there is no assurance that
any drug substance selected for development and/or production at the facilities
will be suitable for production on a larger scale. To the extent that the
Company's current facilities are unsuitable for the manufacture on an adequate
scale of new drug substances developed by the Company, the Company will need to
develop additional facilities or contract with third parties for the
manufacture of drug substances, if any, that it may develop for its own account
or in connection with collaborative arrangements in which it has retained
manufacturing rights. If the Company is unable to develop needed manufacturing
facilities or to obtain or retain third-party manufacturing on acceptable
terms, the Company's ability to conduct preclinical and clinical testing will
be adversely affected and it will be unable to obtain regulatory approval for
or supply commercial quantities of products it may successfully develop. There
can be no assurance that the Company will be successful in the further
development of its manufacturing capabilities for its potential products.
MARKETING RISKS
The Company has formed a network of subsidiaries in Europe and
Australia to promote and sell its products. The Company has also entered into
a number of agreements with distributors for the promotion, sale and/or
distribution of AmBisome and DaunoXome. To date, the Company has not relied on
larger corporate partners in its primary markets to perform these functions.
The Company competes with many other companies that currently have extensive
and well-funded marketing and sales operations. There can be no assurance that
either the Company's marketing or sales efforts will compete successfully
against other companies. The Company has assembled a marketing group for the
sale of the Company's products in the United States, where DaunoXome was
approved in mid-1996 and AmBisome was approved in August 1997, and in other
countries worldwide. The Company has had limited experience in the marketing
of pharmaceuticals in the United States and there can be no assurance that the
Company's marketing and sales efforts in the United States will be successful.
The Company's rights to market AmBisome are subject to an agreement
between the Company and Fujisawa USA, Inc. ("Fujisawa"). Under the terms of
the agreement, as amended, the Company has the sole marketing rights to
AmBisome in all countries except the United States and Canada and subject to
the Company's obligation to pay royalties in connection with sales in most
significant Asian markets, including Japan. The agreement provides that the
Company and Fujisawa co-promote AmBisome in the United States and that the
Company is required to manufacture AmBisome for sale in the U.S. The Company is
reimbursed for the cost of the product sold to Fujisawa and receives 20% of the
gross profits from the sales of AmBisome in the United States. In the event
that the Company and Fujisawa are unable to cooperate in connection with the
promotion of the product, the Company's potential revenues from the sale of
AmBisome in the U.S. may be substantially reduced. In addition, the Company
and Fujisawa have limited experience in selling AmBisome in the U.S. and there
can be no assurance as to the volume of sales that will be achieved in the U.S.
COMPETITION
Generally, competition in the pharmaceutical field is based on such
factors as product performance, safety, acceptance by doctors, patient
compliance, patent protection, ease of use, price, distribution, marketing and
adaptability to various modes of administration. The Company's products
compete or may compete with new chemical substances as well as improved
delivery of current drugs. The Company's products and potential products are
in various stages of development and no assurance can be given that any of
these products or potential products will be sufficiently more effective than
existing treatment alternatives to generate meaningful commercial demand.
NeXstar Pharmaceuticals anticipates that it will face increased
competition in the future as new products enter the market and advanced
technologies become available. Many of the Company's existing or potential
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competitors have substantially greater financial, technical and human resources
than NeXstar Pharmaceuticals and may be better equipped to develop, manufacture
and market products. In addition, many of these companies have extensive
experience in research, preclinical testing and human clinical trials;
obtaining FDA and other regulatory approvals; and manufacturing and marketing
their products. As a result, these companies may develop and introduce
products and processes more rapidly than, and competitive with or superior to,
those of NeXstar Pharmaceuticals. There can be no assurance that existing
products or new products developed by the Company's competitors will not be
more effective than any that may be developed by NeXstar Pharmaceuticals.
Competitive products may render the Company's technology and products obsolete
or noncompetitive.
As a result of its approval in several countries, including the U.S.,
for use as a primary therapy, AmBisome is expected to increasingly compete with
traditional amphotericin B therapy. Amphotericin B is currently produced and
marketed by Bristol-Myers Squibb Company. AmBisome is also likely to face
competition from other antifungal products, including those produced by major
pharmaceutical companies. In addition, there are a number of other companies
that are focused on the development of lipid-based products, some of which have
lipid-based amphotericin B products that have been approved in the United
States and throughout Europe. These products are offered, in some cases, at
prices that are less than AmBisome's price. Other drugs have been approved, or
are awaiting approval, for the treatment of KS in the U.S. and Europe,
including one lipid-based anticancer drug, and these drugs compete or are
expected to compete with DaunoXome. If the Company is successful in broadening
the indications for DaunoXome, it will face competition from a number of
oncology drugs. Some of the drugs, which currently or may in the future
compete with DaunoXome, are owned by companies with substantially greater
resources than the Company's.
EUROPEAN PRICING CONSTRAINTS
As a result of deriving most of its revenues from European countries,
the Company is subject to the risk of parallel imports, governmental regulation
of prices and potential price competition.
Under European Union laws, the Company is limited in its ability to
restrict the distributors of its products and third parties from selling the
Company's products in other countries when customers from such other countries
offer to buy the product from such distributors or third parties.
Differing product prices among countries occur in part because many
foreign countries require regulatory approval of prices. In particular,
certain European countries will condition their approval of a product on the
agreement of the seller not to sell that product for more than a certain price
in the country. There can be no assurance that any regulatory action reducing
the price of AmBisome or DaunoXome in any one European country will not have
the practical effect of requiring the Company to correspondingly reduce its
prices in other European countries as a result of government mandated price
reductions or price pressures resulting from the potential of parallel
importing. Additionally, the price set for AmBisome in one country for
competitive reasons may have an effect on AmBisome prices worldwide. If the
Company is successful in developing additional products or obtaining approval
for additional indications for its current drugs, the Company may also face
increased price competition from potential competitors, including
European-based companies.
IMPACT OF GOVERNMENT REGULATION
The production and marketing of the Company's products, developed
through the Company's technologies, and its ongoing research and development
activities, including its preclinical studies and clinical trials, are subject
to regulation by numerous federal, state and local governmental authorities in
the United States and by similar regulatory agencies in other countries where
the Company tests and markets, or intends to test and/or market, its current or
potential products. There can be no assurance that the Company will obtain
further
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regulatory approvals to conduct clinical trials or to market its products, or
that the Company will obtain regulatory approvals to conduct clinical trials or
to market products developed in the future, if any, on a timely basis. Prior
to marketing any drug developed by the Company or marketed under license, the
Company must undergo an extensive regulatory approval process by the FDA and
comparable regulatory authorities in foreign countries. The regulatory
process, which includes preclinical testing and clinical trials of each
compound to establish its safety and efficacy, can take many years and require
the expenditure of substantial resources.
Before obtaining regulatory approvals for the commercial sale of any
of its products under development, the Company must demonstrate through
preclinical studies and clinical trials that the product is safe and
efficacious for use in each target indication. The results from preclinical
animal studies and early clinical trials may not be predictive of results that
will be obtained in large scale testing, and there can be no assurance that the
Company's clinical trials will demonstrate the safety and efficacy of any
products or will result in marketable products. A number of companies in the
biotechnology industry have suffered significant setbacks in advanced clinical
trials, even after experiencing promising results in early animal and human
testing. In addition, the rate of completion of the Company's clinical trials
is dependent upon, among other factors, the rate of patient enrollment.
Patient enrollment is a function of many factors, including the size of the
patient population, the nature of the protocol, the Company's ability to manage
the clinical trial, the proximity of patients to clinical sites and the
eligibility criteria for the study. Several factors, such as delays in planned
patient enrollment, may result in increased costs and delays or termination of
clinical trials prior to completion, which could have a material adverse effect
on the Company. Preclinical studies must also be conducted in conformity with
the FDA's good laboratory practice regulations. Clinical trials generally must
meet requirements for institutional review board oversight and informed
consent, as well as regulatory agency prior review, oversight and good clinical
practice requirements.
Data obtained from preclinical and clinical activities are susceptible
to varying interpretations which could delay, limit or prevent regulatory
approval. In addition, delays or rejections may be encountered based upon
changes in the policies of regulatory authorities for drug approval during the
period of product development and regulatory review of each submitted new drug
application or product license application. The Company may be required to
demonstrate that the proposed product represents an improved form of treatment
over existing therapies. There can be no assurance that, even after such time
and expenditures, regulatory approvals will be obtained for any drugs developed
or discovered by the Company or its collaborative partners utilizing the
Company's technologies.
Moreover, if regulatory approval of a drug is granted, such approval
is likely to entail limitations on the indicated uses for which it may be
marketed. Further, even if such regulatory approval is obtained, a marketed
drug and its manufacturer are subject to continual review, and discovery of
previously unknown problems with a product or manufacturer may result in
restrictions on such product or manufacturer, including withdrawal of the
product from the market. The Company has responded to an FDA warning
concerning information supplied by the Company in connection with the sale of
DaunoXome in the U.S. While the Company does not believe that the actions which
it has taken in connection with the warning letter will adversely affect the
operations of the Company, no assurances can be given.
The Company has submitted and will continue to submit requests for
approval of AmBisome and DaunoXome with regulatory authorities worldwide.
Regulatory procedures and review times vary from country to country. There can
be no assurance that any of the Company's pending applications for approvals
will be granted or that regulatory actions will be taken in a timely fashion.
The Company has received an approved shelf life for DaunoXome of 36
weeks in the United States and 40 weeks in Canada and most European countries.
While the Company is attempting to obtain longer shelf lives than those
currently approved, there can be no assurance that the extension of any shelf
lives will be approved by
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any regulatory authority. The Company in the past has replaced, and in the
future expects, under certain circumstances, to replace, vials of DaunoXome
with expired shelf lives and the likelihood that customers would seek to return
material amounts of DaunoXome to the Company because of the expiration of its
shelf life may be increased if shelf lives longer than those currently approved
are not obtained.
In addition, the Company's manufacturing facilities are subject to
inspection and regulation by U.S., foreign and state regulatory agencies. The
Company's facilities in San Dimas, California have been inspected by the FDA,
the MCA and the State of California. These agencies may reinspect at any time,
and other countries' regulatory authorities may inspect the Company's
facilities as well. Furthermore, although the Company's current products do
not require an export license, there can be no assurance that export licenses
will not be required in the future.
Failure to comply with applicable regulatory requirements can, among
other things, result in fines, suspension of regulatory approvals, product
recalls, seizure of products, imposition of operating restrictions and criminal
prosecutions. Further, FDA policy or similar policies of regulatory agencies
in other countries may change and additional government regulations may be
established that could prevent or delay regulatory approval of the Company's or
a collaborative partner's potential products.
POTENTIAL PRODUCT LIABILITY CLAIMS AND UNINSURED RISKS
Although the Company is not currently a party to any product liability
litigation, the use of any of the Company's products or potential products in
clinical trials and the sale of such products may expose the Company to
liability claims. These claims may be made directly by consumers, health care
providers, pharmaceutical companies or others selling such products. While the
Company currently has liability insurance in amounts that it believes to be
adequate for its business as currently conducted, such insurance is expensive
and may be difficult (or impossible) to obtain in the future. In the event
liability insurance becomes unobtainable, the Company's ability to clinically
test and to market its products could be significantly impaired. Moreover, the
amount and scope of any coverage may be inadequate to protect the Company in
the event of a successful product liability claim.
As additional products are approved in the U.S., the Company will have
significantly greater risk in connection with product liability claims due to
the greater frequency of lawsuits and higher damages awarded in courts in the
United States as opposed to most other countries. The Company is required by
governmental regulations to test its products even after they have been sold
and used by patients. As a result of such tests, the Company may be required
to, or may determine that, it should recall products when most of such products
have already been sold or used. Such later testing and product recalls may
increase the Company's potential exposure to product liability claims.
RISKS ASSOCIATED WITH THE USE OF HAZARDOUS MATERIALS
The Company's research and development involves the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standards prescribed by state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for any damages that result and any such
liability could exceed the resources of the Company or otherwise adversely
affect the Company. NeXstar Pharmaceuticals is subject to numerous
environmental and safety laws and regulations, including those governing the
use of hazardous materials. In June 1995, the Company was contacted by the
U.S. Environmental Protection Agency (the "EPA") informing the Company that it
is a potentially responsible party relating to the disposal of the Company's
waste products by a third party at a hazardous waste disposal facility. The
Company has complied with all requests by
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the EPA relating to this matter and believes that its environmental liability
with respect to this matter is not material; however, there can be no assurance
that this matter or any violation of, or the cost of compliance with,
environmental and safety laws and regulations will not adversely impact the
Company's operations.
VOLATILITY OF STOCK PRICE
The market prices for securities of biopharmaceutical and
biotechnology companies, including the Company, have been highly volatile, and
it is likely that the market price of the Company's common stock will continue
to be highly volatile. Announcements of technological innovations or new
commercial products by the Company, its collaborative partners or its present
or potential competitors, announcements by the Company or its present or
potential competitors of results in preclinical testing and clinical trials,
developments or disputes concerning patent or proprietary rights, developments
in the Company's relationships with its collaborative partners, adverse
litigation, changes in reimbursement policies, adverse legislation, regulatory
decisions or public concern regarding the safety, efficacy or other
implications of the drugs sought to be developed or biotechnology in general
and economic and other external factors, as well as period-to-period
fluctuations in the Company's operating results have had, and may continue to
have, a significant impact on the market price of the Company's common stock.
REGISTRATION RIGHTS, OPTIONS AND WARRANTS; MARKETABILITY
As of August 31, 1997, the holders of 6,974,049 outstanding shares of
the Company's common stock were entitled to certain piggyback and demand
registration rights with respect to such shares. If such holders, by
exercising their demand registration rights, cause a large number of shares to
be registered and sold in the public market, such sales may have an adverse
effect on the market price for the common stock. In addition, if the Company
is required to include in a Company initiated registration shares held by such
holders pursuant to the exercise of their piggyback registration rights, the
sale of such shares may have an adverse effect on the Company's ability to
raise needed capital. As of August 31, 1997, there were warrants outstanding
to purchase an aggregate of 1,331,052 shares of common stock at a weighted
average exercise price of $6.31 per share. There are piggyback and/or demand
registration rights in connection with such warrants which can be exercised for
an aggregate of 1,272,252 shares. As of August 31, 1997, there were
outstanding stock options for an aggregate of 2,585,735 shares of the Company's
common stock at a weighted average exercise price of $12.23 per share. All of
the Company's currently outstanding shares of common stock have been registered
(or are registered for resale) pursuant to the Securities Act of 1933 or may be
sold in the public market in reliance on Rule 144 under the Securities Act of
1933, subject to volume limitations in the case of affiliates of the Company.
See "Description of Capital Stock."
INFLUENCE BY EXISTING STOCKHOLDER
Affiliates of E.M. Warburg, Pincus & Co., LLC ("Warburg") as of
August 31, 1997 owned approximately 33.2% of the Company's outstanding common
stock and warrants exercisable for an additional 1,160,294 shares of the
Company's common stock. As a result, Warburg may influence the Company's
corporate actions, including influencing elections and significant corporate
events. One of the Company's directors is a Senior Managing Director of
Warburg.
RELIANCE ON RELATIONSHIPS AND EFFECTS OF INVESTMENTS
The Company has entered into collaborative arrangements pursuant to
which other companies are entitled to certain product, manufacturing, marketing
and royalty rights, including collaborative arrangements relating to aspects of
the SELEX process. Although the agreements with these companies provide for
the funding by such
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companies of certain research and development efforts conducted by the Company,
such funding may be terminated by such companies under certain circumstances.
Furthermore, there can be no assurance that any of the Company's current
collaborative arrangements will be successful.
The Company may seek future collaborative relationships with corporate
partners to fund certain research and development expenses and to develop and
commercialize certain of its potential products. Further, the Company's
receipt of revenues from collaborative agreements will be affected by the
timing of efforts expended by the Company under existing agreements, as well as
by the timing of drug development programs of the Company's collaborators.
There can be no assurance that the Company will be able to negotiate acceptable
collaborative arrangements in the future, or that such collaborative
arrangements will be successful. To the extent that the Company elects not to
or is unable to establish such relationships it could incur increased capital
expenditures as it is required to undertake research, development, marketing
and manufacturing of its proposed products at its own expense. In addition,
there can be no assurance that existing or future collaborative partners will
have sufficient economic motivation to continue their funding or to develop any
products to which they may have rights, or that such partners will not pursue
alternative technologies or attempt to develop alternative compounds either
independently or in collaboration with others.
The Company's rights to market AmBisome are subject to an agreement
between the Company and Fujisawa. Under the terms of the agreement, as
amended, the Company has the sole marketing rights to AmBisome in all countries
except the United States and Canada and subject to the Company's obligation to
pay royalties in connection with sales in most significant Asian markets,
including Japan. The agreement provides that the Company and Fujisawa
co-promote AmBisome in the United States and that the Company is required to
manufacture AmBisome for sale in the U.S. The Company is reimbursed for the
cost of the product sold to Fujisawa and receives 20% of the gross profits from
the sale of AmBisome in the United States. In the event that the Company and
Fujisawa are unable to cooperate in connection with the promotion of the
product, the Company's potential revenues from the sale of AmBisome in the U.S.
may be substantially reduced.
NeXstar Pharmaceuticals has licensed the right to market and develop
AmBisome in Japan to Sumitomo Pharmaceuticals Co., Ltd. ("Sumitomo"). Under
the terms of the license, Sumitomo is required to make payments to the Company
if certain clinical and commercial milestones are met and to pay the Company
royalties on all Japanese sales of AmBisome. There can be no assurance that
Sumitomo will be required to pay any of the milestone payments or will be
successful in selling AmBisome in Japan.
RISKS RELATING TO THE DEBENTURES
LEVERAGE
The Company's indebtedness is significant in relation to its
stockholders' equity. As of June 30, 1997, the Company's stockholders' equity
was $70.7 million, which was $9.3 million less than the principal amount of the
Debentures. See "--History of Losses; Future Capital Needs Anticipated."
SUBORDINATION OF DEBENTURES
The Debentures are subordinate in right of payment to all current and
future Senior Indebtedness (as defined in the Indenture pursuant to which the
Debentures were issued (the "Indenture")) of the Company. Senior Indebtedness
includes all indebtedness of the Company for money borrowed, whether existing
on or created or incurred after the date of the issuance of the Debentures,
that is not made subordinate to or pari passu with the Debentures by the
instrument creating the indebtedness. As of June 30, 1997, after giving effect
to the repayment of $28.6 million of indebtedness with proceeds from the
Company's initial offering of the Debentures, the
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Company had approximately $23.4 million of indebtedness outstanding which
constituted Senior Indebtedness. The Indenture does not limit the amount of
additional indebtedness, including Senior Indebtedness, which the Company can
create, incur, assume or guarantee. By reason of such subordination of the
Debentures, in the event of insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up of the business of the Company or
upon a default in payment with respect to any Senior Indebtedness of the
Company or an event of default with respect to such indebtedness resulting in
the acceleration thereof, the assets of the Company will be available to pay
the amounts due on the Debentures only after all Senior Indebtedness of the
Company has been paid in full. In addition, holders of the Debentures are
effectively subordinated to the claims of creditors of the Company's
subsidiaries, to the extent of the assets of such subsidiaries. In the event
of the insolvency, bankruptcy, liquidation, reorganization, dissolution or
winding up of the business of any subsidiary of the Company, creditors of such
subsidiary generally will have the right to be paid in full before any
distribution is made to the Company or the holders of the Debentures. See
"Description of Debentures."
LIMITATIONS ON REPURCHASE OF DEBENTURES UPON A REPURCHASE EVENT
In the event of a Repurchase Event (as defined in the Indenture),
which includes a Change in Control and a Termination of Trading (each as
defined in the Indenture), each holder of the Debentures will have the right,
at the holder's option, to require the Company to repurchase all or a portion
of such holder's Debentures at a purchase price equal to 100% of the principal
amount thereof plus accrued interest to the repurchase date. The Company's
ability to repurchase the Debentures upon a Repurchase Event may be limited by
the terms of the Company's Senior Indebtedness and the subordination provisions
of the Indenture. Further, the ability of the Company to repurchase Debentures
upon a Repurchase Event will be dependent on the availability of sufficient
funds and compliance with applicable securities laws. Accordingly, there can
be no assurance that the Company will be able to repurchase the Debentures upon
a Repurchase Event. The term "Repurchase Event" is limited to certain
specified transactions and may not include other events that might adversely
affect the financial condition of the Company nor would the requirement that
the Company offer to repurchase the Debentures upon a Repurchase Event
necessarily afford holders of the Debentures protection in the event of a
highly leveraged reorganization, merger or similar transaction involving the
Company. See "Description of Debentures."
ABSENCE OF PUBLIC MARKET
The Debentures are not currently traded on any securities exchange
and there can be no assurance as to the liquidity of any markets that exist or
may develop for the Debentures, the ability of the holders to sell their
Debentures or the price at which holders of the Debentures may be able to sell
their Debentures. Future trading prices of the Debentures will depend on many
factors, including, among other things, prevailing interest rates, the
Company's operating results, the price of the Company's common stock and the
market for similar securities. The Initial Purchasers (as defined in the
Indenture) are making a market in the Debentures offered hereby; however, the
Initial Purchasers are not obligated to do so and such market making activity
may be terminated at any time without notice to the holders of the Debentures.
See "Description of the Debentures--Registrations Rights; Liquidated Damages."
The Debentures have been designated for trading in the Private Offering,
Resales and Trading through Automated Linkages ("PORTAL") Market; however, the
Company does not intend to apply for listing of the Debentures on any
securities exchange.
RATIO OF EARNINGS TO FIXED CHARGES
For the year ended December 31, 1992, the Company's ratio of earnings
to fixed charges was 10.79 times. Earnings were insufficient (not taking into
account the effect of taxes) to cover fixed charges by $11.1 million, $16.0
million, $36.4 million and $22.1 million for each of the years ended December
31, 1993, 1994, 1995 and 1996, respectively, and by $10.2 million and $17.9
million for the six-month periods ended June 30, 1996 and
17
<PAGE> 21
1997, respectively. For purposes of calculating the ratio of earnings to fixed
charges, earnings represent pre-tax earnings from continuing operations, plus
fixed charges, less interest capitalized. Fixed charges represent interest
(including amounts capitalized), the portion of rent expense deemed to be
interest and amortization of financing costs.
SELLING SECURITYHOLDERS
The following table sets forth the name of certain of the Selling
Securityholders and (i) the amount of Debentures owned by each such Selling
Securityholder as of September 16, 1997 (assuming no Debentures have been sold
under this Prospectus as of such date), (ii) the maximum amount of Debentures
which may be offered for the account of such Selling Securityholder under this
Prospectus, (iii) the amount of Common Stock owned by each such Selling
Securityholder as of September 16, 1997, and (iv) the maximum amount of Common
Stock which may be offered for the account of such Selling Securityholder under
this Prospectus.
<TABLE>
<CAPTION>
Shares of Common Shares of Common
Principal Amount Principal Amount of Stock Owned Stock Offered
of Debentures Owned Debentures Offered Hereby Prior to Offering (1) Hereby (2)
------------------- ------------------------- --------------------- ----------------
<S> <C> <C> <C> <C>
NAME OF SELLING SECURITYHOLDER
- ------------------------------
BNP Arbitrage SNL . . . . . . . . . . . . . . $3,000,000 $3,000,000 183,578 177,778
AIM Balanced Fund . . . . . . . . . . . . . . 2,500,000 2,500,000 148,148 148,148
Dean Witter Convertible Securities Trust . . 2,500,000 2,500,000 148,148 148,148
Millennium Trading Co., L.P. . . . . . . . 1,500,000 1,500,000 88,889 88,889
Silverton International Fund Limited . . . . 1,300,000 1,300,000 77,037 77,037
The Glen Eagles Fund Company . . . . . . . . 1,050,000 1,050,000 62,222 62,222
Deeprock & Co. . . . . . . . . . . . . . . . 1,000,000 1,000,000 59,259 59,259
AAM/Zazove Institutional Income Fund, L.P. 900,000 900,000 53,333 53,333
The Northwestern Mutual Life Insurance
Company . . . . . . . . . . . . . . . . . . 750,000 750,000 44,444 44,444
Castle Convertible Fund, Inc. . . . . . . . . 500,000 500,000 29,630 29,630
Colonial Penn Insurance Co. . . . . . . . . . 250,000 250,000 14,815 14,815
Colonial Penn Life Insurance . . . . . . . . 250,000 250,000 14,815 14,815
Unnamed holders of Debentures or any future
transferees, pledgees, donees or successors
of or from any such unnamed holders(3) . . 64,500,000 64,500,000 N/A 3,822,223
---------- ---------- --- ---------
Total . . . . . . . . . . . . . . . . . . . . $80,000,000 $80,000,000 N/A 4,740,741
=========== =========== ========= =========
</TABLE>
- -------------------
(1) Includes the shares of Common Stock into which the Debentures held by such
Selling Securityholder are convertible at the initial conversion price. The
conversion price and the number of shares of Common Stock issuable upon
conversion of the Debentures are subject to adjustment under certain
circumstances. See "Description of Debentures - Conversion Rights."
Accordingly, the number of shares of Common Stock issuable upon conversion
of the Debentures may increase or decrease from time to time.
(2) Assumes conversion into Common Stock of the full amount of Debentures held
by such Selling Securityholder at the initial conversion price. The
conversion price and the number of shares of Common Stock issuable upon
conversion of the Debentures are subject to adjustment under certain
circumstances. See "Description of Debentures - Conversion Rights."
Accordingly, the number of shares of Common Stock issuable upon conversion
of the Debentures may increase or decrease from time to time. Fractional
shares will not be issued upon conversion of the Debentures; rather, cash
will be paid in lieu of fractional shares, if any.
(3) No such holder may offer Debentures pursuant to this Prospectus until such
holder is included as a Selling Securityholder in a supplement to this
Prospectus in accordance with the Registration Rights Agreement (as
defined). Assumes that the unnamed holders of Debentures or any future
transferees, pledgees, donees or successors of or from any such unnamed
holder do not beneficially own any Common Stock other than the Common
Stock issuable upon conversion of the Debentures at the initial conversion
price.
Because the Selling Securityholders may, pursuant to this Prospectus,
offer all or some portion of the Debentures and Common Stock they presently
hold or, with respect to Common Stock, have the right to acquire upon
conversion of such Debentures, no estimate can be given as to the amount of the
Debentures and Common Stock that will be held by the Selling Securityholders
upon termination of any such sales. In addition, the Selling
18
<PAGE> 22
Securityholders identified above may have sold, transferred or otherwise
disposed of all or a portion of their Debentures and Common Stock since the
date on which they provided the information regarding their Debentures and
Common Stock, in transactions exempt from the registration requirements of the
Securities Act of 1933. See "Plan of Distribution."
Only Selling Securityholders identified above who beneficially own the
Debentures and Common Stock set forth opposite each such Selling
Securityholder's name in the foregoing table on the effective date of the
Registration Statement may sell such Debentures and Common Stock pursuant to
this Prospectus. The Company may from time to time, in accordance with the
Registration Rights Agreement, include additional Selling Securityholders in
supplements to this Prospectus.
None of the Selling Securityholders listed above had any material
relationship with the Company other than as a result of ownership of the
Debentures, within the three-year period ending on the date of this Prospectus.
USE OF PROCEEDS
The Company will receive no proceeds from the sale of the Securities
covered by this Prospectus.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares
of common stock, par value $.01 per share (the "Common Stock"), and 5,000,000
shares of Preferred Stock, par value $1.00 per share (the "Preferred Stock").
At August 31, 1997, there were 26,527,155 shares of Common Stock issued and
outstanding and an additional 3,916,787 shares of Common Stock were subject to
outstanding warrants and options (of which 2,406,650 are currently
exercisable), and no shares of Preferred Stock were outstanding. In addition,
4,740,741 shares of Common Stock are reserved for issuance upon conversion of
the Debentures.
COMMON STOCK
Subject to such preferential rights as may be determined by the Board
of Directors in the future in connection with the issuance of shares of
Preferred Stock, holders of the Common Stock are entitled to cast one vote on
all matters, to receive such dividends as may be declared by the Board of
Directors out of legally available funds and to share ratably in any
distribution of the Company's assets, after payment of all debts and other
liabilities, upon liquidation, dissolution or winding up. The holders of the
Common Stock have no preemptive or other subscription or conversion rights.
There are no redemption or sinking fund provisions applicable to the Common
Stock. The Common Stock currently outstanding is, and the Common Stock which
may be sold hereunder will be, duly and validly issued, fully paid and
nonassessable. As of August 31, 1997, there were approximately 526 holders of
record of the Common Stock.
PREFERRED STOCK
The Certificate of Incorporation of the Company provides that the
Board of Directors has the authority, without further action of stockholders,
to issue up to 5,000,000 shares of Preferred Stock in one or more series, of
which 4,977,102 shares are available for issuance by the Company. The Company
previously issued a total of 22,898 shares of Preferred Stock which were
converted into shares of Common Stock in connection with the Company's initial
public offering and are no longer available for issuance by the Company. The
Board of Directors is authorized to determine the rights, preferences,
privileges and restrictions granted to and imposed
19
<PAGE> 23
upon the Preferred Stock or any series thereof with respect to any wholly
unissued class or series of the Preferred Stock, and to fix the number of
shares of any series of the Preferred Stock and the designation of any such
series of Preferred Stock. These rights and privileges could adversely affect
the voting power of holders of the Common Stock, and the authority of the Board
of Directors to issue the Preferred Stock without further stockholder approval
could have the effect of delaying, deferring or preventing a change in control
of the Company.
WARRANTS
As of August 31, 1997, there were warrants outstanding to purchase an
aggregate of 1,331,052 shares of Common Stock at an average weighted exercise
price of $6.31 per share. The exercise price of the warrants ranges from $4.09
to $32.54 per share of Common Stock with expiration dates from December 31,
1997 until November 30, 2003. The warrants include a warrant to acquire
1,035,294 shares of Common Stock held by Warburg, Pincus Capital Partners, L.P.
which terminates on December 31, 1997.
REGISTRATION RIGHTS; MARKETABILITY
As of August 31, 1997, the holders of 6,974,049 shares of the Common
Stock were entitled to certain demand and piggyback registration rights. The
registration rights relate to stock sold by the Company prior to its initial
public offering in January 1994. Additionally, there are certain piggyback
registration rights in connection with warrants which can be exercised for an
aggregate of 89,974 shares of Common Stock, demand registration rights in
connection with warrants which can be exercised for an aggregate of 19,526
shares of Common Stock and demand and piggyback registration rights in
connection with warrants which can be exercised for 1,162,752 shares of Common
Stock. The exercise price of the warrants with registration rights ranges from
$4.09 to $32.54 per share with expiration dates from December 31, 1997 until
November 19, 2003. All of the Company's currently outstanding shares of Common
Stock have been registered (or are registered for resale) pursuant to the
Securities Act of 1933 or may be sold in the public market in reliance on Rule
144 under the Securities Act of 1933, subject to volume limitations in the case
of affiliates of the Company.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is a Delaware corporation and is subject to Section 203 of
the Delaware General Corporation Law ("Delaware Law"). In general, Section 203
prevents an "interested stockholder" (defined generally as a person owning 15%
or more of a corporation's outstanding voting stock) from engaging in a
"business combination" (as defined in the Delaware Law) with a Delaware
corporation for three years following the date such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination; (ii) upon consummation of the transaction that resulted
in the interested stockholder becoming an interested stockholder, the
interested stockholder owns at least 85% of the voting or stock of the
corporation outstanding at the time the transaction commenced (excluding shares
owned by persons who are both officers and directors of the corporation and
shares held by certain employee stock ownership plans); or (iii) following the
transaction in which such person became an interested stockholder, the business
combination is approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of at least two-thirds of the outstanding voting stock of the corporation not
owned by the interested stockholder.
LIMITATION OF LIABILITY
The Company's Certificate of Incorporation provides that to the
fullest extent permitted by Delaware Law, a Director of the Company shall not
be liable to the Company or its stockholders for monetary damages for breach
20
<PAGE> 24
of fiduciary duty as a Director. Under current Delaware Law, liability of a
director may not be limited (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock
redemptions or repurchases and (iv) for any transaction from which the director
derives an improper personal benefit. The effect of the provision of the
Company's Certificate of Incorporation is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
the fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior), except in the situations described in
clauses (i) through (iv) above. This provision does not limit or eliminate the
rights of the Company or any stockholder to seek nonmonetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
In addition, the Company's Certificate of Incorporation provides that the
Company shall indemnify its directors, officers, employees and agents against
losses incurred by any such person by reason of the fact that such person was
acting in such capacity.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services.
DESCRIPTION OF DEBENTURES
The Debentures are issued under an indenture dated as of July 31, 1997
(the "Indenture") between the Company and IBJ Schroder Bank & Trust Company, as
trustee (the "Trustee"). The following summaries of certain provisions of the
Indenture do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all of the provisions of the Indenture,
including the definition therein of certain terms. Wherever particular
sections or defined terms of the Indenture are referred to, such sections or
defined terms are incorporated herein by reference. Copies of the Indenture
are available from the Company upon request.
GENERAL
The Debentures are unsecured obligations of the Company, are limited
to $80,000,000 in aggregate principal amount and will mature on August 1, 2004.
The Debentures have an interest rate of 6 1/4% per annum from July 31, 1997, or
from the most recent Interest Payment Date to which interest has been paid or
provided for, payable semi-annually on February 1 and August 1 of each year,
commencing February 1, 1998, to the Person in whose name the Debenture (or any
predecessor Debenture) is registered at the close of business on the preceding
January 15 or July 15, as the case may be. Interest on the Debentures will be
paid on the basis of a 360-day year of twelve 30-day months.
Principal of, and premium, if any, and interest on, the Debentures are
payable (i) in respect of Debentures held of record by The Depository Trust
Company ("DTC") or its nominee in same day funds on or prior to the payment
dates with respect to such amounts and (ii) in respect of Debentures held of
record by holders other than DTC or its nominee at the office of the Trustee in
New York, New York, and the Debentures may be surrendered for transfer,
exchange or conversion at the office of the Trustee in New York, New York. In
addition, with respect to Debentures held of record by holders other than DTC
or its nominee, payment of interest may be made at the option of the Company by
check mailed to the address of the persons entitled thereto as it appears in
the Register for the Debentures on the Regular Record Date for such interest.
The Debentures were issued only in registered form, without coupons
and in denominations of $1,000 or any integral multiple thereof. No service
charge will be made for any transfer or exchange of the Debentures, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge and any other
21
<PAGE> 25
expenses (including the fees and expenses of the Trustee) payable in connection
therewith. The Company is not required (i) to register the transfer of or
exchange any Debentures during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption and ending at the
close of business on the day of such mailing or (ii) to register the transfer
of or exchange any Debenture selected for redemption in whole or in part,
except the unredeemed portion of Debentures being redeemed in part.
All monies paid by the Company to the Trustee or any Paying Agent for
the payment of principal of and premium and interest on any Debenture which
remain unclaimed for two years after such principal, premium or interest become
due and payable may be repaid to the Company. Thereafter, the Holder of such
Debenture may, as an unsecured general creditor, look only to the Company for
payment thereof.
The Indenture does not contain any provisions that would provide
protection to Holders of the Debentures against a sudden and dramatic decline
in credit quality of the Company resulting from any takeover, recapitalization
or similar restructuring, except as described below under "Certain Rights to
Require Repurchase of Debentures."
CONVERSION RIGHTS
The Debentures are convertible into Common Stock at any time prior to
redemption or final maturity, initially at the conversion price of $16 7/8 per
share. The right to convert Debentures, which have been called for redemption,
will terminate at the close of business on the second business day preceding
the Redemption Date. See "Optional Redemption" below.
The conversion price is subject to adjustment upon the occurrence of
any of the following events: (i) the subdivision, combination or
reclassification of outstanding shares of Common Stock; (ii) the payment in
shares of Common Stock of a dividend or distribution on any class of capital
stock of the Company; (iii) the issuance of rights or warrants to all holders
of Common Stock entitling them to acquire shares of Common Stock at a price per
share less than the Current Market Price; (iv) the distribution to holders of
Common Stock of shares of capital stock other than Common Stock, evidence of
indebtedness, cash or assets (including securities, but excluding dividends or
distributions paid exclusively in cash and dividends, distributions, rights and
warrants referred to above); (v) a distribution consisting exclusively of cash
(excluding any cash distributions referred to in (iv) above) to all holders of
Common Stock in an aggregate amount that, together with (A) all other cash
distributions (excluding any cash distributions referred to in (iv) above) made
within the 12 months preceding such distribution and (B) any cash and the fair
market value of other consideration payable in respect of any tender offer by
the Company or a subsidiary of the Company for the Common Stock consummated
within the 12 months preceding such distribution, exceeds 10% of the Company's
market capitalization (being the product of the Current Market Price times the
number of shares of Common Stock then outstanding) on the date fixed for
determining the stockholders entitled to such distribution; and (vi) the
consummation of a tender offer made by the Company or any subsidiary of the
Company for the Common Stock which involves an aggregate consideration that,
together with (X) any cash and other consideration payable in respect of any
tender offer by the Company or a subsidiary of the Company for the Common Stock
consummated within the 12 months preceding the consummation of such tender
offer and (Y) the aggregate amount of all cash distributions (excluding any
cash distributions referred to in (iv) above) to all holders of the Common
Stock within the 12 months preceding the consummation of such tender offer,
exceeds 10% of the Company's market capitalization at the date of consummation
of such tender offer. No adjustment of the conversion price will be required
to be made until cumulative adjustments amount to at least one percent of the
conversion price, as last adjusted. Any adjustment that would otherwise be
required to be made shall be carried forward and taken into account in any
subsequent adjustment.
In addition to the foregoing adjustments, the Company is permitted to
reduce the conversion price as it
22
<PAGE> 26
considers to be advisable in order that any event treated for federal income
tax purposes as a dividend of stock or stock rights will not be taxable to the
holders of the Common Stock or, if that is not possible, to diminish any income
taxes that are otherwise payable because of such event. In the case of any
consolidation or merger of the Company with any other corporation (other than
one in which no change is made in the Common Stock), or any sale or transfer of
all or substantially all of the assets of the Company, the Holder of any
Debenture then outstanding will, with certain exceptions, have the right
thereafter to convert such Debenture only into the kind and amount of
securities, cash and other property receivable upon such consolidation, merger,
sale or transfer by a holder of the number of shares of Common Stock into which
such Debenture might have been converted immediately prior to such
consolidation, merger, sale or transfer; and adjustments will be provided for
events subsequent thereto that are as nearly equivalent as practical to the
conversion price adjustments described above.
Fractional shares of Common Stock will not be issued upon conversion,
but, in lieu thereof, the Company will pay a cash adjustment based upon the
then Closing Price at the close of business on the day of conversion. If any
Debentures are surrendered for conversion during the period from the close of
business on any Regular Record Date through and including the next succeeding
Interest Payment Date (except any such Debentures called for redemption), such
Debentures when surrendered for conversion must be accompanied by payment in
next day funds of an amount equal to the interest thereon which the registered
Holder on such Regular Record Date is to receive. Except as described in the
preceding sentence, no interest will be payable by the Company on converted
Debentures with respect to any Interest Payment Date subsequent to the date of
conversion. No other payment or adjustment for interest or dividends is to be
made upon conversion.
SUBORDINATION
The payment of the principal of and premium, if any, and interest on
the Debentures is, to the extent set forth in the Indenture, subordinated in
right of payment to the prior payment in full of all Senior Indebtedness. If
there is a payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of the Company, the holders of all Senior Indebtedness will be
entitled to receive payment in full of all amounts due or to become due thereon
or provision for such payment in money or money's worth before the Holders of
the Debentures will be entitled to receive any payment in respect of the
principal of or premium, if any, or interest on the Debentures. In the event
of the acceleration of the Maturity of the Debentures, the holders of all
Senior Indebtedness will first be entitled to receive payment in full in cash
of all amounts due thereon or provision for such payment in money or money's
worth before the Holders of the Debentures will be entitled to receive any
payment for the principal of or premium, if any, or interest on the Debentures.
No payments on account of principal of or premium, if any, or interest on the
Debentures or on account of the purchase or acquisition of Debentures may be
made if there has occurred and is continuing a default in any payment with
respect to Senior Indebtedness, any acceleration of the maturity of any Senior
Indebtedness or if any judicial proceeding is pending with respect to any such
default.
Senior Indebtedness is defined in the Indenture as (a) all
indebtedness of the Company for money borrowed, whether outstanding on the date
of execution of the Indenture or thereafter created, incurred or assumed,
except any such indebtedness that by the terms of the instrument or instruments
by which such indebtedness was created or incurred expressly provides that it
(i) is junior in right of payment to the Debentures or (ii) ranks pari passu in
right of payment with the Debentures, and (b) any amendments, renewals,
extensions, modifications, refinancings and refundings of any of the foregoing.
The term "indebtedness for money borrowed" when used with respect to the
Company is defined to mean (i) any obligation of, or any obligation guaranteed
by, the Company for the repayment of borrowed money (including without
limitation fees, penalties and other obligations in respect thereof), whether
or not evidenced by bonds, debentures, notes or other written instruments,
(ii) any deferred payment obligation of, or any such obligation guaranteed by,
the Company for the payment of the purchase price of
23
<PAGE> 27
property or assets evidenced by a note or similar instrument and (iii) any
obligation of, or any such obligation guaranteed by, the Company for the
payment of rent or other amounts under a lease of property or assets which
obligation is required to be classified and accounted for as a capitalized
lease on the balance sheet of the Company under generally accepted accounting
principles.
The Debentures are obligations exclusively of the Company. A portion
of the operations of the Company are currently conducted principally through
subsidiaries, which are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Debentures or to make any funds available therefor, whether by dividends, loans
or other payments. In addition, the payment of dividends and certain loans and
advances to the Company by such subsidiaries may be subject to certain
statutory or contractual restrictions, are contingent upon the earnings of such
subsidiaries and are subject to various business considerations.
The Debentures will be effectively subordinated to all indebtedness
and other liabilities and commitments (including trade payables and lease
obligations) of the Company's subsidiaries to the extent of the assets of such
subsidiaries. Any right of the Company to receive assets of any such
subsidiary upon the liquidation or reorganization of any such subsidiary (and
the consequent right of the Holders of the Debentures to participate in those
assets) will be effectively subordinated to the claims of that subsidiary's
creditors, except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would
still be subordinate to any security in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by the Company.
The Indenture does not limit or prohibit the incurrence of Senior
Indebtedness. As of June 30, 1997, after giving effect to the repayment of
$28.6 million of indebtedness with proceeds from the Company's initial offering
of the Debentures, the Company had approximately $23.4 million of indebtedness
outstanding which constituted Senior Indebtedness. The Company also expects to
incur Senior Indebtedness from time to time in the future.
OPTIONAL REDEMPTION
The Debentures are redeemable, at the Company's option, in whole or
from time to time in part, at any time on or after August 10, 2000, upon not
less than 15 nor more than 60 days' notice mailed to each Holder of Debentures
to be redeemed at its address appearing in the Security Register and prior to
Maturity at the following Redemption Prices (expressed as percentages of the
principal amount) plus accrued interest to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date).
If redeemed during the 12-month period beginning August 1, in the year
indicated (August 10, in the case of 2000), the redemption price shall be:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE YEAR REDEMPTION PRICE
---- ---------------- ---- ----------------
<S> <C> <C> <C>
2000 . . . . . . . .103.0% 2002 . . . . . . . . .100%
2001 . . . . . . . .101.5% 2003 . . . . . . . . .100%
</TABLE>
No sinking fund is provided for the Debentures.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with or merge into any other Person
or convey, transfer or lease its
24
<PAGE> 28
properties and assets substantially as an entirety to any Person, or permit any
Person to consolidate with or merge into the Company or convey, transfer or
lease its properties substantially as an entirety to the Company, unless (a) if
applicable, the Person formed by such consolidation or into which the Company
is merged or the Person or corporation which acquires the properties and assets
of the Company substantially as an entirety is a corporation, partnership or
trust organized and validly existing under the laws of the United States or any
state thereof or the District of Columbia and expressly assumes payment of the
principal of and premium, if any, and interest on the Debentures and
performance and observance of each obligation of the Company under the
Indenture, (b) after consummating such consolidation, merger, transfer or
lease, no Default or Event of Default will occur and be continuing, (c) such
consolidation, merger or acquisition does not adversely affect the validity or
enforceability of the Debentures and (d) the Company has delivered to the
Trustee an Officer's Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, conveyance, transfer or lease complies with the
provisions of the Indenture.
CERTAIN RIGHTS TO REQUIRE REPURCHASE OF DEBENTURES
In the event of any Repurchase Event (as defined below) occurring
after the date of issuance of the Debentures and on or prior to Maturity, each
Holder of Debentures will have the right, at the Holder's option, to require
the Company to repurchase all or any part of the Holder's Debentures on the
date (the "Repurchase Date") that is 30 days after the date the Company gives
notice of the Repurchase Event as described below at a price (the "Repurchase
Price") equal to 100% of the principal amount thereof, together with accrued
and unpaid interest to the Repurchase Date. On or prior to the Repurchase
Date, the Company shall deposit with the Trustee or a Paying Agent an amount of
money sufficient to pay the Repurchase Price of the Debentures which are to be
repaid on or promptly following the Repurchase Date.
Failure by the Company to provide timely notice of a Repurchase Event,
as provided for below, or to repurchase the Debentures when required under the
preceding paragraph will result in an Event of Default under the Indenture
whether or not such repurchase is permitted by the subordination provisions of
the Indenture.
On or before the 15th day after the occurrence of a Repurchase Event,
the Company is obligated to mail to all Holders of Debentures a notice of the
occurrence of such Repurchase Event and identifying the Repurchase Date, the
date by which the repurchase right must be exercised, the Repurchase Price for
Debentures and the procedures which the Holder must follow to exercise this
right. To exercise the repurchase right, the Holder of a Debenture must
deliver, on or before the close of business on the Repurchase Date, written
notice to the Company (or an agent designated by the Company for such purpose)
and to the Trustee of the Holder's exercise of such right, together with the
certificates evidencing the Debentures with respect to which the right is being
exercised, duly endorsed for transfer.
A "Repurchase Event" shall have occurred upon the occurrence of a
Change in Control (as defined below) or a Termination of Trading (as defined
below).
A "Change in Control" shall occur when: (i) all or substantially all
of the Company's assets are sold as an entirety to any person or related group
of persons; (ii) there shall be consummated any consolidation or merger of the
Company (A) in which the Company is not the continuing or surviving corporation
(other than a consolidation or merger with a wholly owned subsidiary of the
Company in which all shares of Common Stock outstanding immediately prior to
the effectiveness thereof are changed into or exchanged for the same
consideration) or (B) pursuant to which the Common Stock would be converted
into cash, securities or other property, in each case other than a
consolidation or merger of the Company in which the holders of the Common Stock
immediately prior to the consolidation or merger receive, directly or
indirectly in consideration of such Common Stock, capital stock having at least
a majority of the total voting power of all classes of capital stock entitled
to vote generally in the
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election of directors of the continuing or surviving corporation immediately
after such consolidation or merger in substantially the same proportion as
their ownership of Common Stock immediately before such transaction; (iii) any
person, or any persons acting together which would constitute a "group" for
purposes of Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"), together with any affiliates thereof, shall beneficially own (as defined
in Rule 13d-3 under the Exchange Act) at least 50% of the total voting power of
all classes of capital stock of the Company entitled to vote generally in the
election of directors of the Company; (iv) at any time during any consecutive
two-year period, individuals who at the beginning of such period constituted
the Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the
Company then in office; or (v) the Company is liquidated or dissolved or adopts
a plan of liquidation or dissolution.
The definition of Change of Control includes a phrase relating to the
conveyance, transfer or lease of "all or substantially all" of the assets of
the Company. Although there is a developing body of case law interpreting the
phrase "substantially all," there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a holder of
Debentures to require the Company to repurchase such Debentures as a result of
a conveyance, transfer or lease of less than all of the assets of the Company
to another person or group may be uncertain.
A "Termination of Trading" shall occur if the Common Stock (or other
common stock into which the Debentures are then convertible) is neither listed
for trading on a U.S. national securities exchange nor approved for trading on
an established automated over-the-counter trading market in the United States.
The right to require the Company to repurchase Debentures as a result
of the occurrence of a Repurchase Event could create an event of default under
Senior Indebtedness of the Company, as a result of which any repurchase could,
absent a waiver, be blocked by the subordination provisions of the Debentures.
See "Subordination." Failure by the Company to repurchase the Debentures when
required will result in an Event of Default with respect to the Debentures
whether or not such repurchase is permitted by the subordination provisions.
The Company's ability to pay cash to the Holders of Debentures upon a
repurchase may be limited by certain financial covenants contained in the
Company's Senior Indebtedness.
In the event a Repurchase Event occurs and the Holders exercise their
rights to require the Company to repurchase Debentures, the Company intends to
comply with applicable tender offer rules under the Exchange Act, including
Rules 13e-4 and 14e-1, as then in effect, with respect to any such purchase.
The foregoing provisions would not necessarily afford Holders of the
Debentures protection in the event of highly leveraged or other transactions
involving the Company that may adversely affect Holders. In addition, the
foregoing provisions may discourage open market purchases of the Common Stock
or a non-negotiated tender or exchange offer for such stock and, accordingly,
may limit a stockholder's ability to realize a premium over the market price of
the Common Stock in connection with any such transaction.
RULE 144A INFORMATION REQUIREMENT
The Company has agreed to furnish to the Holders or beneficial holders
of the Debentures and prospective purchasers of the Debentures designated by
the holders of the Debentures, upon their request, the information required to
be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933 until
such time as the Company registers the Debentures and the underlying Common
Stock for resale under the Securities Act of 1933.
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EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect
to the Debentures: (a) default in the payment of principal of or any premium on
any Debenture when due (even if such payment is prohibited by the subordination
provisions of the Indenture); (b) default in the payment of any interest on any
Debenture when due, which default continues for 30 days (even if such payment
is prohibited by the subordination provisions of the Indenture); (c) failure to
provide timely notice of a Repurchase Event as required by the Indenture; (d)
default in the payment of the Repurchase Price in respect of any Debenture on
the Repurchase Date therefor (even if such payment is prohibited by the
subordination provisions of the Indenture); (e) default in the performance of
any other covenant of the Company in the Indenture which continues for 60 days
after written notice as provided in the Indenture; (f) default under any bond,
debenture, note or other evidence of indebtedness for money borrowed by the
Company or any subsidiary of the Company or under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed by the Company or any subsidiary
of the Company, whether such indebtedness now exists or shall hereafter be
created, which default shall constitute a failure to pay the principal of
indebtedness in excess of $5,000,000 when due and payable after the expiration
of any applicable grace period with respect thereto or shall have resulted in
indebtedness in excess of $5,000,000 becoming or being declared due and payable
prior to the date on which it would otherwise have become due and payable,
without such indebtedness having been discharged, or such acceleration having
been rescinded or annulled, within a period of 30 days after there shall have
been given to the Company by the Trustee or to the Company and the Trustee by
the Holders of at least 25% in aggregate principal amount of the Outstanding
Debentures a written notice specifying such default and requiring the Company
to cause such indebtedness to be discharged or cause such acceleration to be
rescinded or annulled; and (g) certain events in bankruptcy, insolvency or
reorganization of the Company or any significant subsidiary of the Company.
If an Event of Default with respect to the Debentures shall occur and
be continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Debentures then outstanding may declare the
principal of and premium, if any, on all such Debentures to be due and payable
immediately, but if the Company cures all Events of Default (except the
nonpayment of accelerated principal of any Debentures) and certain other
conditions are met, such declaration may be canceled and past defaults may be
waived by the holders of a majority in principal amount of Outstanding
Debentures. If an Event of Default shall occur as a result of an event of
bankruptcy, insolvency or reorganization of the Company or any significant
subsidiary of the Company, the aggregate principal amount of the Debentures
shall automatically become due and payable. The Company is required to furnish
to the Trustee annually a statement as to the performance by the Company of
certain of its obligations under the Indenture and as to any default in such
performance. The Indenture provides that the Trustee may withhold notice to
the Holders of the Debentures of any continuing default (except in the payment
of the principal of or premium, if any, or interest on any Debentures) if the
Trustee considers it in the interest of Holders of the Debentures to do so.
MODIFICATION, AMENDMENTS AND WAIVERS
Modifications and amendments of the Indenture may be made by the
Company and the Trustee without the consent of the Holders to: (a) cause the
Indenture to be qualified under the Trust Indenture Act; (b) evidence the
succession of another Person to the Company and the assumption by any such
successor of the covenants of the Company herein and in the Debentures; (c) add
to the covenants of the Company for the benefit of the Holders or any
additional Event of Default, or surrender any right or power conferred upon the
Company; (d) secure the Debentures; (e) make provision with respect to the
conversion rights of Holders in the event of a consolidation, merger or sale of
assets involving the Company, as required by the Indenture; (f) evidence and
provide for the acceptance of appointment by a successor Trustee with respect
to the Debentures; (g) cure any ambiguity, correct or
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supplement any provision which may be defective or inconsistent with any other
provision, or make any other provisions with respect to matters or questions
arising under the Indenture which shall not be inconsistent with the provisions
of the Indenture, provided, however, that no such modifications or amendment
may adversely affect the interest of Holders in any material respect.
SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Indenture while
Debentures remain Outstanding if (a) all Outstanding Debentures will become due
and payable at their scheduled maturity within one year or (b) all Outstanding
Debentures are scheduled for redemption within one year, and in either case the
Company has deposited with the Trustee an amount sufficient to pay and
discharge all Outstanding Debentures on the date of their scheduled maturity or
the scheduled date of redemption.
FORM, DENOMINATION AND REGISTRATION
The Debentures were issued in fully registered form, without coupons,
in denominations of $1,000 in principal amount and integral multiples thereof.
Global Notes; Book-Entry Form. Debentures, which were offered in
reliance on Rule 144A, are evidenced by a global note (hereinafter referred to
as the "Restricted Global Note") and Debentures, which were offered in reliance
on Regulation S under the Securities Act of 1933, are evidenced by a global
note (hereinafter referred to as the "Regulation S Global Note," and together
with the Restricted Global Note, the "Global Notes"). The Global Notes were
deposited with, or on behalf of, the Depository Trust Company, New York, New
York ("DTC") and registered in the name of Cede & Co. ("Cede") as DTC's
nominee. Except as set forth below, the Global Notes may be transferred, in
whole or in part, only to another nominee of DTC or to a successor of DTC or
its nominee.
Transfers of beneficial interests in the Global Debentures are subject
to the applicable rules and procedures of DTC and its direct or indirect
participants (including, if applicable, those of Euroclear and CEDEL), which
may change from time to time.
Except as set forth below, the Global Debentures may be transferred,
in whole and not in part, only to another nominee of DTC or to a successor of
DTC or its nominee. Beneficial interests in the Global Debentures may not be
exchanged for Debentures in certificated form except in the limited
circumstances described below under "--Exchanges of Book-Entry Debentures for
Certificated Debentures." In addition, beneficial interests in the Restricted
Global Debentures may not be exchanged for beneficial interests in the
Regulation S Global Debentures or vice versa except in accordance with the
transfer and certification requirements described below under "--Exchanges
between the Restricted Global Debentures and the Regulation S Global
Debentures."
EXCHANGES BETWEEN THE RESTRICTED GLOBAL DEBENTURES AND THE REGULATION
S GLOBAL DEBENTURES. Beneficial interests in the Restricted Global Debentures
may be exchanged for beneficial interests in the Regulation S Global Debentures
and vice versa only in connection with a transfer of such interest. Such
transfers are subject to compliance with the certification requirements
described below.
A beneficial interest in the Restricted Global Debentures may be
transferred to a person who takes delivery in the form of an interest in the
Regulation S Global Debentures only upon receipt by the Trustee of a written
certification on behalf of the transferor (in the form provided in the
Indenture) to the effect that such transfer is being made in accordance with
Rule 904 of Regulation S or (if available) Rule 144 under the Securities Act of
1933 (a "Regulation S Global Debenture Certificate").
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Any beneficial interest in one of the Global Debentures that is
exchanged for an interest in the other Global Debenture will cease to be an
interest in such Global Debenture and will become an interest in the other
Global Debenture. Accordingly, such interest will thereafter be subject to all
transfer restrictions and other procedures applicable to beneficial interests
in such other Global Debenture for as long as it remains such an interest.
Any exchange of a beneficial interest in the Regulation S Global
Debenture for a beneficial interest in the Restricted Global Debenture or vice
versa will be effected in DTC by means of an instruction originated by the
Trustee through the DTC Deposit/Withdraw at Custodian ("DWAC") system.
Accordingly, in connection with any such exchange, appropriate adjustments will
be made in the records of the Security Registrar to reflect a decrease in the
principal amount of such Regulation S Global Debenture and a corresponding
increase in the principal amount of such Restricted Global Debenture or vice
versa, as applicable.
Exchanges of Book-Entry Debentures for Certificated Debentures. A
beneficial interest in a Global Debenture may not be exchanged for a Debenture
in certificated form unless (i) DTC (x) notifies the Company that it is
unwilling or unable to continue as Depositary for the Global Debenture or (y)
has ceased to be a clearing agency registered under the Exchange Act and in
either case the Company thereupon fails to appoint a successor Depositary, (ii)
the Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of the Debentures in certificated form or (iii) there shall
have occurred and be continuing an Event of Default or any event which after
notice or lapse of time or both would be an Event of Default with respect to
the Debentures. In all cases, certificated Debentures delivered in exchange
for any Global Debenture or beneficial interests therein will be registered in
the names, and issued in any approved denominations, requested by or on behalf
of the Depositary (in accordance with its customary procedures). Any
certificated Debenture issued in exchange for an interest in the Global
Debenture will bear the legend restricting transfers that is borne by such
Global Debenture. Any such exchange will be effected through the DWAC system
and an appropriate adjustment will be made in the records of the Security
Registrar to reflect a decrease in the principal amount of the relevant Global
Debenture.
Certain Book-Entry Procedures for Global Debentures. The descriptions
of the operations and procedures of DTC, Euroclear and CEDEL that follow are
provided solely as a matter of convenience. These operations and procedures
are solely within the control of the respective settlement systems and are
subject to changes by them from time to time. The Company takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants ("participants") and facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system is available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
DTC has advised the Company that its current practice, upon the
issuance of the Restricted Global Debenture and the Regulation S Global
Debenture, is to credit, on its internal system, the respective principal
amount of the individual beneficial interests represented by such Global
Debentures to the accounts with DTC of
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the participants through which such interests are to be held. Ownership of
beneficial interests in the Global Debentures will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC or its nominees (with respect to interests of participants) and the records
of participants and indirect participants (with respect to interests of persons
other than participants).
As long as DTC, or its nominee, is the registered Holder of a Global
Debenture, DTC or such nominee, as the case may be, will be considered the sole
owner and Holder of the Debentures represented by such Global Debenture for all
purposes under the Indenture and the Debentures. Except in the limited
circumstances described above under "--Exchanges of Book-Entry Debentures for
Certificated Debentures," owners of beneficial interests in a Global Debenture
will not be entitled to have any portions of such Global Debenture registered
in their names, will not receive or be entitled to receive physical delivery of
Debentures in definitive form and will not be considered the owners or Holders
of the Global Debenture (or any Debentures represented thereby) under the
Indenture or the Debentures.
Investors may hold their interests in the Restricted Global Debenture
directly through DTC, if they are participants in such system, or indirectly
through organizations (including Euroclear and CEDEL) which are participants in
such system. Investors may hold their interests in the Regulation S Global
Debenture through CEDEL or Euroclear, if they are participants in such systems,
or indirectly through organizations which are participants in such systems.
Investors may also hold their interests in the Regulation S Global Debenture
through organizations other than CEDEL and Euroclear that are participants in
the DTC system. CEDEL and Euroclear will hold interests in the Regulation S
Global Debenture on behalf of their participants through customers' securities
accounts in their respective names on the books of their respective
depositories. The depositories, in turn, will hold such interests in the
Regulation S Global Debenture in customers' securities accounts in the
depositories' names on the books of DTC. All interests in a Global Debenture,
including those held through Euroclear or CEDEL, will be subject to the
procedures and requirements of DTC. Those interests held through Euroclear and
CEDEL will also be subject to the procedures and requirements of such system.
Transfers and exchanges of interests in a Global Debenture will also be subject
to the procedures described above under "--Exchanges between the Restricted
Global Debentures and the Regulation S Global Debentures," if applicable.
The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Debenture to such persons
may be limited to that extent. Because DTC can act only on behalf of its
participants, which in turn act on behalf of indirect participants and certain
banks, the ability of a person having beneficial interests in a Global
Debenture to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate evidencing
such interests.
Payments of the principal of, premium, if any, and interest on Global
Debentures will be made to DTC or its nominee as the registered owner thereof.
Neither the Company, the Trustee nor any of their respective agents will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Debentures or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any
payment of principal or interest in respect of a Global Debenture representing
any Debentures held by it or its nominee, will immediately credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Debenture for such Debentures
as shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global
Debenture held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name." Such payments will
be the
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responsibility of such participants.
Except for trades involving only Euroclear and CEDEL participants,
interests in the Global Debentures will trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will
therefore settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its participants. Transfers between
participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds. Transfers between participants in Euroclear
and CEDEL will be effected in the ordinary way in accordance with their
respective rules and operating procedures.
Subject to compliance with the transfer and exchange restrictions
applicable to the Debentures described elsewhere herein, cross-market transfers
between DTC participants, on the one hand, and Euroclear or CEDEL participants,
on the other hand, will be effected by DTC in accordance with DTC's rules on
behalf of Euroclear or CEDEL, as the case may be, by its respective depository;
however, such cross-market transactions will require delivery of instructions
to Euroclear or CEDEL, as the case may be, by the counterparts in such system
in accordance with the rules and procedures and within the established
deadlines (Brussels time) of such system. Euroclear or CEDEL, as the case may
be, will, if the transaction meets its settlement requirements, deliver
instructions to its respective depository to take action to effect final
settlement on its behalf by delivering or receiving interests in the relevant
Global Debenture in DTC, and making or receiving payment in accordance with
normal procedures for same-day funds settlement applicable to DTC. Euroclear
participants and CEDEL participants may not deliver instructions directly to
the depositories for Euroclear or CEDEL.
Because of time zone differences, the securities account of a
Euroclear or CEDEL participant purchasing an interest in a Global Debenture
from a DTC participant will be credited, and any such crediting will be
reported to the relevant Euroclear or CEDEL participant, during the securities
settlement processing day (which must be a business day for Euroclear and
CEDEL) immediately following the DTC settlement date. Cash received in
Euroclear or CEDEL as a result of sales of interests in a Global Debenture by
or through a Euroclear or CEDEL participant to a DTC participant will be
received with value on the DTC settlement date but will be available in the
relevant Euroclear or CEDEL cash account only as of the business day for
Euroclear or CEDEL following the DTC settlement date.
DTC has advised the Company that it will take any action permitted to
be taken by a holder of Debentures (including the presentation of Debentures
for exchange as described below and the conversion of Debentures) only at the
direction of one or more participants to whose account with DTC interests in
the Global Debentures are credited and only in respect of such portion of the
aggregate principal amount of the Debentures as to which such participant or
participants has or have given such direction. However, if there is an Event
of Default under the Debentures, DTC reserves the right to exchange the Global
Debentures for legended Debentures in certificated form, and to distribute such
Debentures to its participants.
Although DTC, Euroclear and CEDEL have agreed to the foregoing
procedures in order to facilitate transfers of beneficial ownership interests
in the Global Debentures among participants of DTC, Euroclear and CEDEL, they
are under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. None of the Company, the
Trustee nor any of their respective agents will have any responsibility for the
performance by DTC, Euroclear and CEDEL, their participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations, including maintaining, supervising or reviewing the
records relating to, or payments made on account of, beneficial ownership
interests in Global Debentures.
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PAYMENTS OF PRINCIPAL AND INTEREST
The Indenture requires that payments in respect of the Debentures
(including principal, premium, if any, and interest) held of record by DTC
(including Debentures evidenced by the Restricted Global Note) be made in same
day funds. Payments in respect of the Debentures held of record by holders
other than DTC may, at the option of the Company, be made by check and mailed
to such holders of record as shown on the register for the Debentures.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Under the terms of a Registration Rights Agreement between the Company
and the Initial Purchasers, the Company is permitted to prohibit offers and
sales of Transfer Restricted Securities pursuant to the registration statement
(the "Registration Statement") of which this Prospectus is a part under certain
circumstances and subject to certain conditions (any periods during which
offers and sales are prohibited being referred to as a "Suspension Period").
"Transfer Restricted Securities" means each Debenture and any underlying share
of Common Stock until the date on which such Debenture or underlying share of
Common Stock has been effectively registered under the Securities Act of 1933
and disposed of in accordance with the Registration Statement, the date on
which such Debenture or underlying share of Common Stock is distributed to the
public pursuant to Rule 144 under the Securities Act of 1933 or the date on
which such Debenture or share of Common Stock may be sold or transferred
pursuant to Rule 144(k) (or any similar provisions then in force).
If the Registration Statement ceases to be effective (without being
succeeded immediately by an additional registration statement filed and
declared effective) or usable for the offer and sale of Transfer Restricted
Securities for a period of time (including any Suspension Period) which shall
exceed 60 days in the aggregate in any of the one-year periods ending on the
first or second anniversaries of the Closing Date, or which shall exceed 30
days in any calendar quarter within either of such one-year periods (each such
event being referred to herein as a "Registration Default"), the Company will
pay such liquidated damages to each Holder of Transfer Restricted Securities.
The amount of liquidated damages payable during any period during which a
Registration Default shall have occurred and be continuing is that amount which
is equal to $0.05 per week per $1,000 principal amount, or $0.001 per week per
share (subject to adjustment in the event of stock splits, stock
recombinations, stock dividends and the like) constituting Transfer Restricted
Securities, increasing by $0.05 per week per $1,000 principal amount (or $0.001
per week per share) for each 90-day period or part thereof until the
Registration Statement again becomes effective or usable up to a maximum amount
of liquidated damages of $0.25 per week per $1,000 principal amount of
Debentures or $0.05 per week per share (subject to adjustments as set forth
above) of Common Stock constituting Transfer Restricted Securities. All
accrued liquidated damages shall be paid to holders of Debentures by wire
transfer of immediately available funds or by federal funds check by the
Company on each Damages Payment Date (as defined in the Registration Rights
Agreement). Following the cure of a Registration Default, liquidated damages
will cease to accrue with respect to such Registration Default.
The foregoing summary of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the provisions of the Registration Rights
Agreement. Copies of the Registration Rights Agreement are available from the
Company or the Initial Purchasers upon request.
GOVERNING LAW
The Indenture and Debentures are governed by and construed in
accordance with the laws of the State of New York, without giving effect to
such State's conflicts of laws principles.
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INFORMATION CONCERNING THE TRUSTEE
The Company and its subsidiaries may maintain deposit accounts and
conduct other banking transactions with the Trustee in the ordinary course of
business.
ABSENCE OF PUBLIC TRADING MARKET; TRANSFER RESTRICTIONS
The Debentures are not currently traded on any securities exchange and
there can be no assurance as to the liquidity of any markets that exist or may
develop for the Debentures, the ability of the holders to sell their Debentures
or at what price holders of the Debentures will be able to sell their
Debentures. Future trading prices of the Debentures will depend upon many
factors including, among other things, prevailing interest rates, the Company's
operating results, the price of the Common Stock and the market for similar
securities. The Initial Purchasers are making a market in the Debentures
offered hereby; however, the Initial Purchasers are not obligated to do so, and
any such market making activity may be terminated at any time without notice to
the holders of the Debentures. The Debentures have been designated for trading
in the PORTAL Market; however, the Company does not intend to apply for listing
of the Debentures on any securities exchange. Debentures sold pursuant to this
Prospectus will not remain eligible for trading on the PORTAL Market.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain United States federal
income tax considerations to holders of the Debentures. This discussion is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings, and judicial decisions
now in effect, all of which are subject to change (possibly with retroactive
effect) or different interpretations.
This discussion does not deal with all aspects of United States
federal income taxation that may be important to holders of the Debentures or
shares of Common Stock and does not deal with tax consequences arising under
the laws of any foreign, state or local jurisdiction. This discussion is for
general information purposes only, and does not purport to address all tax
consequences that may be important to particular purchasers in light of their
personal circumstances, or to certain types of purchasers (such as certain
financial institutions, insurance companies, tax-exempt entities, dealers in
securities or persons who hold the Debentures or Common Stock in connection
with a straddle) that may be subject to special rules. This discussion assumes
that each holder holds the Debentures and the shares of Common Stock received
upon conversion thereof as capital assets.
For the purpose of this discussion, a "Non-U.S. Holder" refers to any
holder who is not a United States person. The term "United States person"
means a citizen or resident of the United States, a corporation or partnership
created or organized in the United States or any state thereof, an estate the
income of which is includable in income for United States federal income tax
purposes regardless of its source, or a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States fiduciaries have the authority to control
all substantial decisions of the trust.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR
PARTICIPATION IN THIS OFFERING, THE OWNERSHIP AND DISPOSITION OF THE
DEBENTURES, INCLUDING CONVERSION OF THE DEBENTURES, AND THE EFFECT THAT THEIR
PARTICULAR CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
OWNERSHIP OF THE DEBENTURES
Interest on Debentures. Interest paid on Debentures is taxable to a
holder as ordinary interest income in accordance with the holder's regular
method of tax accounting at the time that such interest is accrued or (actually
or constructively) received. The Debentures were not issued with original
issue discount ("OID") within the
33
<PAGE> 37
meaning of the Code.
Constructive Dividend. Certain corporate transactions, such as
distributions of assets to holders of Common Stock, may cause a deemed
distribution to the holders of the Debentures if the conversion price or
conversion ratio of the Debentures is adjusted to reflect such corporate
transaction. Such deemed distributions will be taxable as a dividend, return
of capital, or capital gain in accordance with the earnings and profits rules
discussed under "Dividends on Shares of Common Stock."
Sale or Exchange of Debentures or Shares of Common Stock. In general,
a holder of Debentures will recognize gain or loss upon the sale, redemption,
retirement or other disposition of the Debentures measured by the difference
between the amount of cash and the fair market value of any property received
(except to the extent attributable to the payment of accrued interest) and the
holder's adjusted tax basis in the Debentures. A holder's tax basis in
Debentures generally will equal the cost of the Debentures to the holder
increased by the amount of market discount, if any, previously taken into
income by the holder or decreased by any bond premium theretofore amortized by
the holder with respect to the Debentures. (For the basis and holding period
of shares of Common Stock, see "Conversion of Debentures.") In general, each
holder of Common Stock into which the Debentures have been converted will
recognize gain or loss upon the sale, exchange, redemption, or other
disposition of the Common Stock under rules similar to those applicable to the
Debentures. Special rules may apply to redemptions of the Common Stock which
may result in the amount paid being treated as a dividend. Subject to the
market discount rules discussed below, the gain or loss on the disposition of
the Debentures or shares of Common Stock will be capital gain or loss and will
be long-term gain or loss if the Debentures or shares of Common Stock have been
held for more than one year at the time of such disposition.
Conversion of Debentures. A holder of Debentures will not recognize
gain or loss on the conversion of the Debentures into shares of Common Stock.
The holder's tax basis in the shares of Common Stock received upon conversion
of the Debentures will be equal to the holder's aggregate basis in the
Debentures exchanged therefor (less any portion thereof allocable to cash
received in lieu of a fractional share). The holding period of the shares of
Common Stock received by the holder upon conversion of Debentures will
generally include the period during which the holder held the Debentures prior
to the conversion.
Cash received in lieu of a fractional share of Common Stock should be
treated as a payment in exchange for such fractional share rather than as a
dividend. Gain or loss recognized on the receipt of cash paid in lieu of such
fractional shares generally will equal the difference between the amount of
cash received and the amount of tax basis allocable to the fractional shares.
Market Discount. The resale of Debentures may be affected by the
"market discount" provisions of the Code. For this purpose, the market
discount on a Debenture will generally be equal to the amount, if any, by which
the stated redemption price at maturity of the Debentures immediately after its
acquisition exceeds the holder's tax basis in such Debentures. Subject to a de
minimis exception, these provisions generally require a holder of a Debenture
acquired at a market discount to treat as ordinary income any gain recognized
on the disposition of such Debenture to the extent of the "accrued market
discount" on such Debenture at the time of disposition. In general, market
discount on a Debenture will be treated as accruing on a straight-line basis
over the term of such Debenture, or, at the election of the holder, under a
constant yield method. A holder of a Debenture acquired at a market discount
may be required to defer the deduction of a portion of the interest on any
indebtedness incurred or maintained to purchase or carry the Debenture until
the Debenture is disposed of in a taxable transaction, unless the holder elects
to include accrued market discount in income currently.
Dividends on Shares of Common Stock. Distributions on shares of
Common Stock will constitute dividends for United States federal income tax
purposes to the extent of current or accumulated earnings and
34
<PAGE> 38
profits of the Company as determined under United States federal income tax
principles. Dividends paid to holders that are United States corporations will
qualify for the dividends-received deduction subject to generally applicable
limitations.
To the extent, if any, that a holder receives a distribution on shares
of Common Stock that would otherwise constitute a dividend for United States
federal income tax purposes but that exceeds current and accumulated earnings
and profits of the Company, such distribution will be treated first as a
non-taxable return of capital reducing the holder's basis in the shares of
Common Stock. Any such distribution in excess of the holder's basis in the
shares of Common Stock will be treated as capital gain.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
Interest on Debentures. Generally, interest paid on the Debentures to
a Non-U.S. Holder will not be subject to United States federal income tax if:
(i) such interest is not effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Holder; (ii) the Non-U.S.
Holder does not actually or constructively own 10% or more of the total voting
power of all classes of stock of the Company entitled to vote and is not a
controlled foreign corporation with respect to which the Company is a "related
person" within the meaning of the Code; and (iii) the beneficial owner, under
penalty of perjury, certifies that the owner is not a United States person and
provides the owner's name and address. If certain requirements are satisfied,
the certification described in paragraph (iii) above may be provided by a
securities clearing organization, a bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business.
For this purpose, the holder of Debentures would be deemed to own
constructively the Common Stock into which it could be converted. A holder
that is not exempt from tax under these rules will be subject to United States
federal income tax withholding at a rate of 30% unless the interest is
effectively connected with the conduct of a United States trade or business, in
which case the interest will be subject to the United States federal income tax
on net income that applies to United States persons generally. Non-U.S.
Holders should consult applicable income tax treaties, which may provide
different rules.
Sale or Exchange of Debentures or Shares of Common Stock. A Non-U.S.
Holder generally will not be subject to United States federal income tax on
gain recognized upon the sale or other disposition unless (i) the gain is
effectively connected with the conduct of a trade or business within the United
States by the Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is a
nonresident alien individual and holds the Common Stock as a capital asset,
such holder is present in the United States for 183 or more days in the taxable
year and certain other circumstances are present, (iii) the non-U.S. Holder is
subject to tax pursuant to the provisions of the United States federal tax law
applicable to certain United States expatriates, or (iv) in certain
circumstances, the Company is or has been a "United States real property
holding corporation" for United States federal income tax purposes. The
Company believes that it is not currently (and does not expect to become in the
future) a United States real property holding corporation.
Conversion of Debentures. A Non-U.S. Holder generally will not be
subject to United States federal income tax on the conversion of a Debenture
into shares of Common Stock. To the extent a Non-U.S. Holder receives cash in
lieu of a fractional share on conversion, such cash may give rise to gain that
would be subject to the rules described above with respect to the sale or
exchange of a Debenture or Common Stock.
Dividends on Shares of Common Stock. Generally, any distribution on
shares of Common Stock to a Non-U.S. Holder will be subject to United States
federal income tax withholding at a rate of 30% unless the dividend is
effectively connected with the conduct of trade or business within the United
States by the Non-U.S. Holders, in which case the dividend will be subject to
the United States federal income tax on net income that applies to United
States persons generally (and, with respect to corporate holders and under
certain circumstances for branch profits
35
<PAGE> 39
tax). Non-U.S. Holders should consult any applicable income tax treaties,
which may provide for a lower rate of withholding or other rules different from
those described above. A Non-U.S. Holder may be required to satisfy certain
certification requirements in order to claim a reduction of or exemption from
withholding under the foregoing rules.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. Holders. Information reporting and backup withholding may apply
to payments of interest or dividends on or the proceeds of the sale or other
disposition of the Debentures or shares of Common Stock made by the Company
with respect to certain noncorporate U.S. Holders. Such U.S. Holders generally
will be subject to backup withholding at a rate of 31% unless the recipient of
such payment supplies a taxpayer identification number, certified under
penalties of perjury, as well as certain other information, or otherwise
establishes, in the manner prescribed by law, an exemption from backup
withholding. Any amount withheld under backup withholding is allowable as a
credit against the U.S. Holder's federal income tax, upon furnishing the
required information.
Non-U.S. Holders. Generally, information reporting and backup
withholding of United States federal income tax at a rate of 31% may apply to
payments of principal, interest and premium (if any) to Non-U.S. Holders if the
payee fails to certify that the holder is a Non-U.S. person or if the Company
or its paying agent has actual knowledge that the payee is a United States
person. The 31% backup withholding tax generally will not apply to dividends
paid to foreign holders outside the United States that are subject to the 30%
withholding tax discussed above or that are subject to a tax treaty that
reduces such withholding.
The payment of the proceeds on the disposition of Debentures or shares
of Common Stock to or through the United States office of a United States or
foreign broker will be subject to information and backup withholding unless the
owner provides the certification described above or otherwise establishes an
exemption. The proceeds of the disposition by a Non-U.S. Holder of Debentures
or shares of Common Stock to or through a foreign office of a broker will not
be subject to backup withholding. However, if such broker is a U.S. person, a
controlled foreign corporation for United States tax purposes, or a foreign
person 50% or more of whose gross income from all sources for certain periods
is from activities that are effectively connected with a United States trade or
business, information reporting will apply unless such broker has documentary
evidence in its files of the owner's foreign status and has no actual knowledge
to the contrary or unless the owner otherwise establishes an exemption. Both
backup withholding and information reporting will apply to the proceeds from
such dispositions if the broker has actual knowledge that the payee is a U.S.
Holder.
These information reporting and backup withholding requirements are
under review by the IRS and their application to the Debentures or Common Stock
could be changed by future Treasury Regulations.
PLAN OF DISTRIBUTION
Pursuant to a Registration Rights Agreement dated as of July 31, 1997
(the "Registration Rights Agreement") between the Company and the initial
purchasers named therein entered into in connection with the initial offering
of the Debentures, the Registration Statement of which this Prospectus forms a
part was filed with the Securities and Exchange Commission covering the resale
of the Debentures and the Common Stock issuable upon conversion of the
Debentures (the "Conversion Shares") (the Debentures and the Conversion Shares
are referred to, collectively, as the "Securities"). The Company has agreed to
use all reasonable efforts to keep the Registration Statement effective until
two years from the date of this Prospectus (or such earlier date when the
holders of the Securities are able to sell all such Securities immediately
without restriction pursuant to Rule 144(k)
36
<PAGE> 40
under the Securities Act of 1933 or any successor rule thereto or otherwise).
The Company will be permitted to suspend the use of this Prospectus (which is a
part of the Registration Statement) in connection with sales of Securities by
holders during certain periods of time under certain circumstances set forth in
the Registration Rights Agreement. The specific provisions relating to the
registration rights described above are contained in the Registration Rights
Agreement, and the foregoing summary is qualified in its entirety by reference
to the provisions of such agreement.
Sales of the Debentures and the Conversion Shares may be effected by
or for the account of the Selling Securityholders from time to time in
transactions (which may include block transactions in the case of the
Conversion Shares) on any exchange or market on which the Securities are listed
or quoted, as applicable, in negotiated transactions, through a combination of
such methods of sale, or otherwise, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to prevailing
market prices, or at negotiated prices. The Selling Securityholders may effect
such transactions by selling the Debentures or Conversion Shares directly to
purchasers, through broker-dealers acting as agents for the Selling
Securityholders, or to broker-dealers who may purchase Debentures or Conversion
Shares as principals and thereafter sell the Debentures or Conversion Shares
from time to time in transactions (which may include block transactions in the
case of the Conversion Shares) on any exchange or market on which the
Securities are listed or quoted, as applicable, in negotiated transactions,
through a combination of such methods of sale or otherwise. In effecting
sales, broker-dealers engaged by Selling Securityholders may arrange for other
broker-dealers to participate. Such broker-dealers, if any, may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders and/or the purchasers of the Debentures or Conversion
Shares for whom such broker-dealers may act as agents or to whom they may sell
as principals, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions).
The Selling Securityholders and any broker-dealers, agents or
underwriters that participate with the Selling Securityholders in the
distribution of the Debentures or Conversion Shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933. Any
commissions paid or any discounts or concessions allowed to any such persons,
and any profits received on the resale of the Debentures or Conversion Shares
offered hereby and purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act of 1933.
In addition, any Debentures or Conversion Shares covered by this
Prospectus which qualify for sale pursuant to Rule 144 or Rule 144A under the
Securities Act of 1933 may be sold under Rule 144 or Rule 144A rather than
pursuant to this Prospectus. There is no assurance that any Selling
Securityholder will sell any Debentures or Conversion Shares described herein,
and any Selling Securityholder may transfer, devise or gift the Debentures or
Conversion Shares by other means not described herein.
At the time a particular offering of the Debentures and/or the
Conversion Shares is made and to the extent required, the aggregate principal
amount of Debentures and number of Conversion Shares being offered, the name or
names of the Selling Securityholders and the terms of the offering, including
the name or names of any underwriters, broker- dealers or agents, any
discounts, concessions or commissions and other terms constituting compensation
from the Selling Securityholders, and any discounts, concessions or commissions
allowed or reallowed or paid to broker-dealers, will be set forth in an
accompanying Prospectus Supplement.
Pursuant to the Registration Rights Agreement, the Company has agreed
to bear all expenses (other than selling commissions) in connection with the
registration and sale of the Securities being offered by the Selling
Securityholders, estimated to be approximately $124,000. The Company has
agreed to indemnify the Selling Securityholders against certain liabilities,
including liabilities under the Securities Act of 1933.
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<PAGE> 41
To comply with the securities laws of certain jurisdictions, if
applicable, the Debentures and Conversion Shares offered hereby will be offered
or sold in such jurisdictions only through registered or licensed brokers or
dealers. In addition, in certain states the Securities may not be sold unless
they have been registered or qualified for sale in the applicable state or an
exemption from the registration or qualifications requirement is available and
is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Debentures or the Conversion Shares may
be limited in its ability to engage in market activities with respect to the
Debentures or the Conversion Shares. In addition and without limiting the
foregoing, each Selling Securityholder will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, which provisions
may limit the timing of purchases and sales of any of the Debentures and
Conversion Shares by the Selling Securityholders. The foregoing may affect the
marketability of the Debentures and the Conversion Shares.
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock
offered hereby will be passed upon for the Company by Willkie Farr & Gallagher,
New York, New York. A member of the firm of Willkie Farr & Gallagher owns
2,440 shares of Common Stock.
EXPERTS
The consolidated financial statements of NeXstar Pharmaceuticals, Inc.
appearing in the Company's Annual Report (Form 10-K) for the year ended
December 31, 1996, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
38
<PAGE> 42
================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Incorporation of Certain Documents by
Reference 2
Available Information 2
Additional Information 3
Special Note Regarding Forward-Looking
Statements 3
The Company 4
Risk Factors 5
Ratio of Earnings to Fixed Charges 17
Selling Securityholders 18
Use of Proceeds 19
Description of Capital Stock 19
Description of Debentures 21
Certain United States Federal Income Tax
Consequences 33
Plan of Distribution 36
Legal Matters 38
Experts 38
</TABLE>
================================================================================
<PAGE> 43
================================================================================
$80,000,000
NEXSTAR
PHARMACEUTICALS, INC.
6 1/4% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2004
AND
SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION THEREOF
--------
PROSPECTUS
--------
SEPTEMBER __, 1997
================================================================================
<PAGE> 44
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of Securities being registered. All
amounts are estimates, except the SEC registration fee and The Nasdaq National
Market listing fee.
<TABLE>
<S> <C>
SEC registration fee $ 24,242
Nasdaq National Market Listing Fee 17,500
Printing, shipping and engraving expenses 10,000
Legal fees and expenses 30,000
Accounting fees and expenses 20,000
Blue Sky fees and expenses 2,000
Transfer Agent and Registrar and Trustee fees and expenses 17,500
Miscellaneous expenses 3,000
--------
Total $124,242
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's By-Laws require the Company to indemnify any and all of
its directors or officers or directors or officers who serve at the request of
the corporation as a director or officer of another corporation, to the full
extent permitted by the Delaware General Corporation Law (the "DGCL").
The Company's Second Amended and Restated Certificate of Incorporation
(the "Company Certificate of Incorporation") also provides that:
The Company shall indemnify to the fullest extent permitted
under and in accordance with the laws of the State of Delaware any
person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of
the fact that he is or was a director, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a
director, officer, trustee, employee or agent of or in any other
capacity with another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company,
and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Expenses incurred in defending a civil or criminal action,
suit or proceeding shall (in the case of any action, suit or
proceeding against a director of the Company) or may (in the case of
any action, suit or proceeding against an officer, trustee, employee
or agent) be paid by the Company in advance of the final disposition
of such action, suit or proceeding as authorized by the NeXstar
Pharmaceuticals Board of Directors upon receipt of an undertaking by
or on behalf of the indemnified person to repay such amount
II-1
<PAGE> 45
if it shall ultimately be determined that he is not entitled to be
indemnified by NeXstar Pharmaceuticals as authorized in the Company
Certificate of Incorporation.
The indemnification and other rights set forth in the Company
Certificate of Incorporation shall not be exclusive of any provisions
with respect thereto in the By-Laws or any other contract or agreement
between the Company and any officer, director, employee or agent of
the Company.
Neither the amendment nor repeal of the provisions (described
above) in the Company Certificate of Incorporation regarding
indemnification, nor the adoption of any provision of the Company
Certificate of Incorporation inconsistent with such provisions, shall
eliminate or reduce the effect of such provisions, in respect of any
matter occurring prior to such amendment, repeal or adoption of an
inconsistent provision or in respect of any cause of action, suit or
claim relating to any such matter which would have given rise to a
right of indemnification or right to receive expenses pursuant to such
provisions, if such provision had not been so amended or repealed or
if a provisions inconsistent therewith had not been so adopted.
No director shall be personally liable to the Company or any
stockholder for monetary damages for breach of fiduciary duty as a
director, except for any matter in respect of which such director (A)
shall be liable under Section 174 of the DGCL or any amendment thereto
or successor provision thereto, or (B) shall be liable by reason that,
in addition to any and all other requirements for liability, he:
(i) shall have breached his duty of loyalty to the Company or
its stockholders;
(ii) shall not have acted in good faith or, in failing to act,
shall not have acted in good faith;
(iii) shall have acted in a manner involving intentional
misconduct or a knowing violation of law or, in failing to act, shall
have acted in a manner involving intentional misconduct or a knowing
violation of law; or
(iv) shall have derived an improper personal benefit.
If the DGCL is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the Company shall be eliminated or limited
to the fullest extent permitted by the DGCL, as so amended.
Section 145 of the DGCL empowers a Delaware corporation to indemnify
any persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person is or was an officer
or director of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided that such officer or director acted in good faith and in a manner
reasonably believed to be in or not opposed to the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe
his conduct was illegal. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation
in the performance of his duty. Where an officer or
II-2
<PAGE> 46
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director actually and reasonably incurred.
ITEM 16. EXHIBITS.
4.1 -- Second Amended and Restated Certificate of Incorporation of
the Registrant (Previously filed as an exhibit to the
Registrant's Registration Statement on Form S-3 (File No.
333-04653), declared effective by the Commission on June 19,
1996, and incorporated herein by reference).
4.2 -- Form of Common Stock Certificate of the Registrant (Previously
filed as an exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, and
incorporated herein by reference).
4.3 -- Indenture, dated as of July 31, 1997, between the Registrant
and IBJ Schroder Bank & Trust Company, as Trustee, for the
Registrant's 6 1/4% Convertible Subordinated Debentures Due
2004 (Previously filed as an exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1997, and incorporated herein by reference).
4.4 -- Registration Rights Agreement, dated July 31, 1997, among the
Registrant and SBC Warburg Inc. and Oppenheimer & Co., Inc.
(Previously filed as an exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1997, and incorporated herein by reference).
5.1 -- Opinion of Willkie Farr & Gallagher.
12.1 -- Statement re: Computation of Ratio of Earnings to Fixed
Charges.
23.1 -- Consent of Ernst & Young LLP, independent auditors
23.2 -- Consent of Willkie Farr & Gallagher (contained in its opinion
filed as Exhibit 5.1 to this Registration Statement).
24.1 -- Powers of Attorney (included on the signature page).
25.1 -- Statement of Eligibility and Qualification Under Trust
Indenture Act of 1939 of IBJ Schroder Bank & Trust Company, as
Trustee, on Form T-1.
- ------------------
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1)To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
II-3
<PAGE> 47
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) above do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that tine shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant pursuant to the provisions described in Item 15 or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-4
<PAGE> 48
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boulder, State of Colorado, on September 16,
1997.
NEXSTAR PHARMACEUTICALS, INC.
By: /s/ Patrick J. Mahaffy
---------------------------------------
Patrick J. Mahaffy
President and Chief Executive Officer
POWER OF ATTORNEY
The undersigned officers and directors of NeXstar Pharmaceuticals,
Inc. hereby severally constitute and appoint Patrick J. Mahaffy, Michael E.
Hart, and Adam Cochran and each of them singly, as attorneys-in-fact for the
undersigned, in any and all capacities, each with the power of substitution, to
sign any amendments to this Registration Statement, and to file the same with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated..
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ Lawrence M. Gold Chairman of the Board and Chief September 16, 1997
- -------------------------------------- Scientific Officer
Lawrence M. Gold
/s/ Patrick J. Mahaffy Director, President and Chief September 16, 1997
- -------------------------------------- Executive Officer (Principal Executive
Patrick J. Mahaffy Officer)
/s/ Michael E. Hart Vice President and Chief Financial September 16, 1997
- -------------------------------------- Officer (Principal Financial Officer
Michael E. Hart and Principal Accounting Officer)
/s/ John D. Baldeschwieler Director September 16, 1997
- --------------------------------------
John D. Baldeschwieler
/s/ Judith A. Hemberger Director September 16, 1997
- --------------------------------------
Judith A. Hemberger
/s/ David I. Hirsh Director September 16, 1997
- --------------------------------------
David I. Hirsh
/s/ Roger G. Kennedy Director September 16, 1997
- --------------------------------------
Roger G. Kennedy
/s/ Rodman W. Moorhead, III Director September 16, 1997
- --------------------------------------
Rodman W. Moorhead, III
</TABLE>
II-5
<PAGE> 49
EXHIBIT INDEX
4.1 -- Second Amended and Restated Certificate of Incorporation of
the Registrant (Previously filed as an exhibit to the
Registrant's Registration Statement on Form S-3 (File No.
333-04653), declared effective by the Commission on June 19,
1996, and incorporated herein by reference).
4.2 -- Form of Common Stock Certificate of the Registrant (Previously
filed as an exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, and
incorporated herein by reference).
4.3 -- Indenture, dated as of July 31, 1997, between the Registrant
and IBJ Schroder Bank & Trust Company, as Trustee, for the
Registrant's 6 1/4% Convertible Subordinated Debentures Due
2004 (Previously filed as an exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1997, and incorporated herein by reference).
4.4 -- Registration Rights Agreement, dated July 31, 1997, among the
Registrant and SBC Warburg Inc. and Oppenheimer & Co., Inc.
(Previously filed as an exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1997, and incorporated herein by reference).
5.1 -- Opinion of Willkie Farr & Gallagher.
12.1 -- Statement re: Computation of Ratio of Earnings to Fixed
Charges.
23.1 -- Consent of Ernst & Young LLP, independent auditors
23.2 -- Consent of Willkie Farr & Gallagher (contained in its opinion
filed as Exhibit 5.1 to this Registration Statement).
24.1 -- Powers of Attorney (included on the signature page).
25.1 -- Statement of Eligibility and Qualification Under Trust
Indenture Act of 1939 of IBJ Schroder Bank & Trust Company, as
Trustee, on Form T-1.
<PAGE> 1
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
September 16, 1997
NeXstar Pharmaceuticals, Inc.
2860 Wilderness Place
Boulder, Colorado 80301
Ladies and Gentlemen:
We are delivering this opinion in connection with the Registration Statement on
Form S-3 to be filed by NeXstar Pharmaceuticals, Inc. (the "Company") on
September 17, 1997 (the "Registration Statement") covering the resale of
$80,000,000 in aggregate principal amount of the Company's 6 1/4% Convertible
Subordinated Debentures Due 2004 (the "Debentures") and the shares of common
stock, par value $0.01 each, of the Company issuable upon conversion of the
Debentures (the "Conversion Shares"). The Debentures were issued under the
Indenture, dated as of July 31, 1997 (the "Indenture"), between the Company and
IBJ Schroder Bank & Trust Company, as trustee.
We have examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments relating to the incorporation of the Company and to the
authorization and issuance of the Debentures, and have made such investigations
of law as we have deemed necessary and advisable. In such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity to authentic originals of all
documents submitted to us as copies.
Based upon the foregoing, we are of the opinion that:
1. The Company is duly incorporated and validly existing under the laws of the
State of Delaware;
2. The execution and delivery of the Indenture have been duly authorized by the
Company and the Indenture constitutes a valid and binding obligation of the
Company
<PAGE> 2
NeXstar Pharmaceuticals, Inc.
September 16, 1997
Page 2
enforceable against the Company in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization
and other similar laws affecting the enforcement of creditor's rights
generally and except as enforcement thereof is subject to general principles
of equity (regardless of whether enforcement is considered in a proceeding
in equity or at law).
3. The Debentures have been duly authorized and constitute valid and binding
obligations of the Company and are entitled to the benefits of the
Indenture, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization and other similar laws affecting the enforcement
of creditor's rights generally and except as enforcement thereof is subject
to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
4. The Conversion Shares have been duly authorized and, when issued upon
conversion of the Debentures pursuant to the terms of the Indenture, will be
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement referred to above and to the reference to our firm under
the heading "Legal Matters" in the Prospectus included in the Registration
Statement. We do not admit by giving this consent that we are in the category
of persons whose consent is required under Section 7 of the Act.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE> 1
Exhibit 12.1
STATEMENT RE:
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges (1) 48 308 587 1,148 1,558 556 1,572
Income (loss) before 470 (11,145) (16,048) (36,448) (22,055) (10,167) (17,865)
provision for income
taxes
Ratio of earnings to 10.79x --- --- --- --- --- ---
fixed charges (1)
</TABLE>
(1) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent pre-tax earnings from continuing operations plus fixed
charges, less interest capitalized. Fixed charges represent interest
(including amounts capitalized), the portion of rent expense deemed to be
interest and amortization of financing costs. Earnings were insufficient (not
taking into account the effect of taxes) to cover fixed charges by $11.1
million, $16.0 million, $36.4 million and $22.1 million for each of the years
ended December 31, 1993, 1994, 1995 and 1996, respectively, and by $10.2
million and $17.9 million for the six-month periods ended June 30, 1996 and
1997, respectively.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of NeXstar
Pharmaceuticals, Inc. for the registration of $80,000,000 of 6 1/4% Convertible
Subordinated Debentures Due 2004 and 4,740,741 shares of its common stock and to
the incorporation by reference therein of our report dated February 27, 1997,
except for Note 13, as to which the date is March 27, 1997, with respect to the
consolidated financial statements of NeXstar Pharmaceuticals, Inc. included in
its Annual Report (Form 10-K) for the year ended December 31, 1996, filed
with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Denver, Colorado
September 17, 1997
<PAGE> 1
EXHIBIT 25.1
______________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
____________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305 (B) (2)
____________________
IBJ SCHRODER BANK & TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
New York 13-5375195
(State of Incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
Barbara McCluskey, Vice President
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
(212) 858-2000
(Name, Address and Telephone Number of Agent for Service)
NEXSTAR PHARMACEUTICALS, INC.
(Exact name of obligor as specified in its charter)
Delaware 84-1173453
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2860 Wilderness Place
Boulder, CO 80301
(Address of principal executive office) (Zip code)
6 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2004
(Title of Indenture Securities)
________________________________________
1
<PAGE> 2
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
New York State Banking Department
Two Rector Street
New York, New York
Federal Deposit Insurance Corporation
Washington, D.C.
Federal Reserve Bank of New York Second District
33 Liberty Street
New York, New York
(b) Whether it is authorized to exercise corporate trust
powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
The obligor is not an affiliate of the trustee.
Item 3. Voting securities of the Trustee.
Furnish the following information as to each class of voting
securities of the trustee:
As of September 16, 1997
Col. A Col. B
Title of class Amount Outstanding
Not Applicable
2
<PAGE> 3
Item 4. Trusteeships under other indentures.
If the trustee is a trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, furnish the following information:
(a) Title of the securities outstanding under each such
other indenture
Not Applicable
(b) A brief statement of the facts relied upon as a basis
for the claim that no conflicting interest within the
meaning of Section 310 (b) (1) of the Act arises as
a result of the trusteeship under any such other
indenture, including a statement as to how the
indenture securities will rank as compared with the
securities issued under such other indenture.
Item 5. Interlocking directorates and similar relationships with the
obligor or underwriters.
If the trustee or any of the directors or executive officers
of the trustee is a director, officer, partner, employee,
appointee, or representative of the obligor or of any
underwriter for the obligor, identify each such person having
any such connection and state the nature of each such
connection.
Not Applicable
Item 6. Voting securities of the trustee owned by the obligor or its
officials.
Furnish the following information as to the voting securities
of the trustee owned beneficially by the obligor and each
director, partner, and executive officer of the obligor:
As of September 16, 1997
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned beneficially Percent of voting securities
represented by amount given in
Col. C
<S> <C> <C> <C>
------------------------- ----------------------------- ----------------------------- ---------------------------------
</TABLE>
Not Applicable
3
<PAGE> 4
Item 7. Voting securities of the trustee owned by underwriters or their
officials.
Furnish the following information as to the voting securities
of the trustee owned beneficially by each underwriter for the
obligor and each director, partner and executive officer of
each such underwriter:
As of September 16, 1997
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting securities
beneficially represented by amount given in
Col. C
<S> <C> <C> <C>
------------------------------ ------------------------------ ------------------------------ ---------------------------------
</TABLE>
Not Applicable
Item 8. Securities of the obligor owned or held by the trustee
Furnish the following information as to securities of the
obligor owned beneficially or held as collateral security for
obligations in default by the trustee:
As of September 16, 1997
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned beneficially or Percent of voting securities
held as collateral security represented by amount given in
for obligations in default Col. C
<S> <C> <C> <C>
------------------------------ ----------------------------- ------------------------------ ---------------------------------
</TABLE>
Not Applicable
4
<PAGE> 5
Item 9. Securities of underwriters owned or held by the trustee.
If the trustee owns beneficially or holds as collateral security
for obligations in default any securities of an underwriter
for the obligor, furnish the following information as
to each class of securities of such underwriter any of which
are so owned or held by the trustee:
As of September 16, 1997
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned beneficially or Percent of voting securities
held as collateral security represented by amount given in
for obligations in default Col. C
<S> <C> <C> <C>
------------------------------ ------------------------------ ------------------------------ ---------------------------------
</TABLE>
Not Applicable
Item 10. Ownership or holdings by the trustee of voting securities of
certain affiliates or Securityholders of the obligor.
If the trustee owns beneficially or holds as collateral
security for obligations in default voting securities of a
person who, to the knowledge of the trustee (1) owns 10
percent or more of the voting securities of the obligor or (2)
is an affiliate, other than a subsidiary, of the obligor,
furnish the following information as to the voting securities
of such person:
As of September 16, 1997
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned beneficially or Percent of voting securities
held as collateral security represented by amount given in
for obligations in default Col. C
<S> <C> <C> <C>
----------------------------- ----------------------------- ------------------------------ ---------------------------------
</TABLE>
Not Applicable
Item 11. Ownership or holdings by the trustee of any securities of a
person owning 50 percent or more of the voting securities of
the obligor.
5
<PAGE> 6
If the trustee owns beneficially or holds as collateral
security for obligations in default any securities of a person
who, to the knowledge of the trustee, owns 50 percent or more
of the voting securities of the obligor, furnish the following
information as to each class of securities of such any of
which are so owned or held by the trustee:
As of September 16, 1997
<TABLE>
<CAPTION>
Col. A Col. B Col. C
Nature of Indebtedness Amount Outstanding Date Due
<S> <C> <C>
----------------------------------------- -------------------------------------- -------------------
</TABLE>
Not Applicable
Item 12. Indebtedness of the Obligor to the Trustee.
Except as noted in the instructions, if the obligor is
indebted to the trustee, furnish the following information:
As of September 16, 1997
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned beneficially or Percent of voting securities
held as collateral security represented by amount given in
for obligations in default Col. C
<S> <C> <C> <C>
---------------------------- ------------------------------ ------------------------------ ---------------------------------
</TABLE>
Not Applicable
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with
respect to the securities under this indenture.
Explain the nature of any such default.
Not Applicable
(b) If the trustee is a trustee under another indenture
under which any other securities, or certificates of
interest or participation in any other securities, of
the obligor are outstanding, or is trustee for more
than one outstanding series of securities under the
indenture, state whether there has been a
6
<PAGE> 7
default under any such indenture or series, identify
the indenture or series affected, and explain the
nature of any such default.
Not Applicable
Item 14. Affiliations with the Underwriters
If any underwriter is an affiliate of the trustee, describe
each such affiliation.
Not Applicable
Item 15. Foreign Trustees.
Identify the order or rule pursuant to which the foreign
trustee is authorized to act as sole trustee under indentures
qualified or to be qualified under the Act.
Not Applicable
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust
Company as amended to date. (See Exhibit 1A to Form
T-1, Securities and Exchange Commission File No.
22-18460).
*2. A copy of the Certificate of Authority of the Trustee
to Commence Business (Included in Exhibit I above).
*3. A copy of the Authorization of the Trustee, as
amended to date (See Exhibit 4 to Form T-1,
Securities and Exchange Commission File No.
22-19146).
*4. A copy of the existing By-Laws of the Trustee, as
amended to date (See Exhibit 4 to Form T-1,
Securities and Exchange Commission File No.
22-19146).
7
<PAGE> 8
5. A copy of each Indenture referred to in Item 4, if
the Obligor is in default. Not Applicable.
6. The consent of the United States institutional
trustee required by Section 321(b) of the Act.
7. A copy of the latest report of condition of the
trustee published pursuant to law or the requirements
of its supervising or examining authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a
reference to the copy of the Exhibit heretofore filed with the
Securities and Exchange Commission, to which there have been no
amendments or changes.
NOTE
In answering any item in this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor and its
directors or officers, the trustee has relied upon information
furnished to it by the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base responsive answers to Item 2,
the answer to said Item are based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an
amendment to this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items
1, 2 and 16 of this form since to the best knowledge of the trustee as
indicated in Item 13, the obligor is not in default under any
indenture under which the applicant is trustee.
8
<PAGE> 9
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of
1939, as amended, the trustee, IBJ Schroder Bank & Trust
Company, a corporation organized and existing under the laws
of the State of New York, has duly caused this statement of
eligibility and qualification to be signed on its behalf by
the undersigned, thereunto duly authorized, all in the City of
New York, and State of New York, on the 16th day of September,
1997.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Barbara McCluskey
-------------------------------
Barbara McCluskey
Vice President
9
<PAGE> 10
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939, as amended, in connection with the
proposed issue of Nexstar Pharmaceuticals, Inc. 6 1/4%
Convertible Subordinated Debentures due 2004, we hereby
consent that reports of examinations by Federal, State,
Territorial, or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon
request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Barbara McCluskey
----------------------------
Barbara McCluskey
Vice President
Dated: September 16, 1997
10
<PAGE> 11
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
OF NEW YORK, NEW YORK
AND FOREIGN AND DOMESTIC SUBSIDIARIES
REPORT AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN THOUSANDS
--------------
<S> <C> <C>
ASSETS
------
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin . . . . . . . . . . . . . . . . . . . . . $ 41,319
Interest-bearing balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 314,579
Securities: Held-to-maturity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 180,111
Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,600
Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank
and of its Edge and Agreement subsidiaries and in IBFs:
Federal Funds sold and Securities purchased under agreements to resell . . . . . . . . . . . . $ 694,859
Loans and lease financing receivables:
Loans and leases, net of unearned income . . . . . . . . . . . . . . . . . . . $ 1,955,686
LESS: Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . $ 62,876
LESS: Allocated transfer risk reserve . . . . . . . . . . . . . . . . . . . . . $ -0-
Loans and leases, net of unearned income, allowance, and reserve . . . . . . . . . . . . . . . $ 1,892,810
Trading assets held in trading accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 603
Premises and fixed assets (including capitalized leases) . . . . . . . . . . . . . . . . . . . . . $ 3,709
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 202
Investments in unconsolidated subsidiaries and associated companies . . . . . . . . . . . . . . . . $ -0-
Customers' liability to this bank on acceptances outstanding . . . . . . . . . . . . . . . . . . . $ 81
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -0-
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,092
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,242,965
</TABLE>
11
<PAGE> 12
LIABILITIES
<TABLE>
<S> <C> <C>
Deposits:
In domestic offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,694,675
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 263,641
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,431,034
In foreign offices, Edge and Agreement subsidiaries, and IBFs . . . . . . . . . . . . . . . . . $ 1,121,075
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,535
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,103,540
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBFs:
Federal Funds purchased and Securities sold under agreements to repurchase . . . . . . . . . . $ 25,000
Demand notes issued to the U.S. Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,000
Trading Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 140
Other borrowed money:
a) With a remaining maturity of one year or less . . . . . . . . . . . . . . . . . . . . . . . $ 38,369
b) With a remaining maturity of more than one year . . . . . . . . . . . . . . . . . . . . . . $ 1,763
c) With a remaining maturity of more than three years . . . . . . . . . . . . . . . . . . . . . $ 2,242
Bank's liability on acceptances executed and outstanding . . . . . . . . . . . . . . . . . . . . . $ 81
Subordinated notes and debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -0-
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 69,908
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,013,253
Limited-life preferred stock and related surplus . . . . . . . . . . . . . . . . . . . . . . . . . $ -0-
EQUITY CAPITAL
Perpetual preferred stock and related surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -0-
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,649
Surplus (exclude all surplus related to preferred stock) . . . . . . . . . . . . . . . . . . . . . $ 217,008
Undivided profits and capital reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (17,000)
Net unrealized gains (losses) on available-for-sale securities . . . . . . . . . . . . . . . . . . $ 55
Cumulative foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . $ -0-
TOTAL EQUITY CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 229,712
TOTAL LIABILITIES AND EQUITY CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,242,965
</TABLE>
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