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================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________.
Commission file number 0-26866
SONUS PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 95-4343413
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
22026 20TH AVE. SE, BOTHELL, WASHINGTON 98021
(Address of Principal Executive Offices)
(425) 487-9500
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Class Outstanding at October 31, 1999
----- -------------------------------
Common Stock, $.001 par value 8,986,146
Page 1 of 16 Pages
Exhibit Index appears on Page 15
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SONUS PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Item 1. Financial Statements
Balance Sheets as of September 30, 1999 (unaudited) and December, 1998...... 3
Statements of Operations (unaudited) for the three and nine months ended
September 30, 1999 and September 30, 1998.............................. 4
Statements of Cash Flows (unaudited) for the nine months ended
September 30, 1999 and September 30, 1998.............................. 5
Notes to Financial Statements............................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................... 8
Item 3. Market Risk................................................................. 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 14
Item 5. Other Events................................................................ 15
Item 6. Exhibits and Reports on Form 8-K............................................ 15
Items 2, 3 and 4 are not applicable and therefore have been omitted.
SIGNATURES................................................................................. 16
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SONUS PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and marketable securities ........... $15,148,735 $16,954,842
Other current assets ....................................... 165,499 419,018
----------- -----------
Total current assets .................................... 15,314,234 17,373,860
Equipment, furniture and leasehold improvements, net of
accumulated depreciation of $3,061,399 and $2,552,786 ...... 974,575 1,444,090
----------- -----------
Total assets .................................................. $16,288,809 $18,817,950
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit ........................................ $ 5,000,000 $ 5,000,000
Accounts payable and accrued expenses ...................... 3,974,792 2,954,530
Accrued clinical trial expenses ............................ 230,381 1,226,335
Capital lease obligations .................................. 31,022 93,178
----------- -----------
Total current liabilities ............................... 9,236,195 9,274,043
Long-term debt ................................................ -- 2,049,221
Commitments and contingencies
Stockholders' equity:
Preferred stock; $.001 par value;
5,000,000 authorized; no shares issued or outstanding ... -- --
Common stock; $.001 par value;
30,000,000 shares authorized; 8,984,550 and 8,632,225
shares issues and outstanding at September 30, 1999 and
December 31, 1998, respectively ......................... 37,131,042 35,009,368
Accumulated deficit ........................................ (30,078,428) (27,514,682)
----------- -----------
Total stockholders' equity .............................. 7,052,614 7,494,686
----------- -----------
Total liabilities and stockholders' equity .................... $16,288,809 $18,817,950
=========== ===========
</TABLE>
See accompanying notes.
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SONUS PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------ ------------------------------
1999 1998 1999 1998
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Contract revenue .................... $5,000,000 $ 2,700,000 $ 7,050,000 $ 5,100,000
Operating expenses:
Research and development ............ 1,214,740 2,988,347 4,406,223 8,709,665
General and administrative .......... 1,916,067 1,922,184 5,499,311 5,401,714
---------- ----------- ----------- -----------
Total operating expenses ............... 3,130,807 4,910,531 9,905,534 14,111,379
---------- ----------- ----------- -----------
Operating income (loss) ................ 1,869,193 (2,210,531) (2,855,534) (9,011,379)
Other income (expense):
Interest income ..................... 63,471 231,118 355,662 776,706
Interest expense .................... (20,335) (69,235) (91,814) (178,803)
---------- ----------- ----------- -----------
Net income (loss) ...................... $1,912,329 $(2,048,648) $(2,591,686) $(8,413,476)
========== =========== =========== ===========
Net income (loss) per share:
Basic ............................... $ 0.21 $ (0.24) $ (0.29) $ (0.98)
Diluted ............................. $ 0.21 $ (0.24) $ (0.29) $ (0.98)
Shares used in computation of net income
(loss) per share:
Basic ............................... 8,984,550 8,626,253 8,786,465 8,619,125
Diluted ............................. 9,089,663 8,626,253 8,786,465 8,619,125
</TABLE>
See accompanying notes.
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SONUS PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ....................................................... $ (2,591,686) $ (8,413,476)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ............................... 508,613 627,959
Amortization of premium (discount) on marketable securities . (29,600) (123)
Realized loss (gain) on marketable securities ............... 5,139 (7,881)
Changes in operating assets and liabilities:
Other current assets ..................................... 253,520 308,859
Accounts payable and accrued expenses .................... 1,020,262 554,290
Accrued clinical trial expenses .......................... (995,954) (127,371)
------------ ------------
Net cash used in operating activities .......................... (1,829,706) (7,057,743)
INVESTING ACTIVITIES:
Purchases of equipment, furniture and leasehold improvements ... (39,098) (400,803)
Purchases of marketable securities ............................. (15,350,254) (23,419,722)
Proceeds from sale of marketable securities .................... 12,613,763 17,772,969
Proceeds from maturities of marketable securities .............. 7,049,147 13,292,590
------------ ------------
Net cash provided by investing activities ...................... 4,273,558 7,245,034
FINANCING ACTIVITIES:
Proceeds from bank line of credit .............................. 15,000,000 15,000,000
Repayment of bank line of credit ............................... (15,000,000) (15,000,000)
Increase in long-term debt ..................................... 30,783 1,173,802
Repayment of capitalized lease obligations ..................... (62,156) (123,743)
Proceeds from issuance of common stock ......................... 41,668 134,824
------------ ------------
Net cash provided by financing activities ...................... 10,295 1,184,883
------------ ------------
Increase in cash and cash equivalents for the period ........... 2,454,147 1,372,174
Cash and cash equivalents at beginning of period ............... 5,203,925 5,253,227
------------ ------------
Cash and cash equivalents at end of period ..................... 7,658,072 6,625,401
Marketable securities at end of period ......................... 7,490,663 13,690,045
------------ ------------
Total cash, cash equivalents and marketable securities ......... $ 15,148,735 $ 20,315,446
============ ============
Supplemental cash flow information:
Conversion of long-term debt to equity ...................... $ 2,080,005 $ --
Interest paid ............................................... $ 39,729 $ 50,584
Income taxes paid ........................................... $ -- $ 7,500
</TABLE>
See accompanying notes.
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SONUS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited financial statements of SONUS Pharmaceuticals, Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and footnotes
required to be presented for complete financial statements. The accompanying
financial statements reflect all adjustments (consisting only of normal
recurring items) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
The financial statements and related disclosures have been prepared with
the assumption that users of the interim financial information have read or have
access to the audited financial statements for the preceding fiscal year.
Accordingly, these financial statements should be read in conjunction with the
audited financial statements and the related notes thereto included in the Form
10-K for the year ended December 31, 1998 and filed with the SEC on March 25,
1999.
2. LONG-TERM DEBT
Pursuant to the Company's collaborative agreement with Abbott
Laboratories ("Abbott"), Abbott agreed to fund certain clinical trials of the
Company during 1997 and 1998. Of the total clinical trial funding received from
Abbott, 50% was to be paid back to Abbott within five years of the receipt of
funds, plus accrued interest, in either cash or exchange for common stock of the
Company at the then fair market value. In June 1999, the liability to Abbott of
$2,080,005, representing 50% of clinical trial funding plus interest, was
converted into 343,802 shares of common stock of the Company.
3. NYCOMED AGREEMENT
In the third quarter of 1999, the Company closed a license agreement
with Nycomed Imaging AS ("Nycomed") for the cross-license of certain proprietary
ultrasound contrast agent technologies. Under the agreement, Nycomed has agreed
to pay the Company a $10.0 million up-front license fee, of which $5.0 million
was received in the third quarter of 1999 and the remaining $5.0 million was
received in October 1999. In addition to the up-front license fee, both
companies have agreed to pay royalties to each other based on future sales of
their ultrasound contrast agents. Under the terms of the agreement, the Company
provides Nycomed with an exclusive license to the Company's ultrasound contrast
patents except as related to perfluoropentane which is the gas used by the
Company in its contrast products. Under the exclusive license to the patents,
Nycomed also has the right to freely sublicense to other companies with a
portion of any sublicense fees to be paid to the Company. In addition, the
Company has a worldwide, non-exclusive license to certain of Nycomed's
ultrasound contrast agent patents. The Company also has the right to sublicense
these patents to its collaborative partners.
4. CONTINGENCIES
In May 1993, the Company entered into a manufacturing and supply
agreement with Abbott. In the event that EchoGen(R) (perflenapent injectable
emulsion) is approved by the U.S. Food and Drug Administration ("FDA"), the
Company is obligated to purchase certain minimum quantities of materials from
Abbott or make cash payments for the shortages from the predetermined purchase
level over a five-year period.
In March 1998, the Company entered into a commercial supply agreement
for certain medical grade raw materials for the Company's initial product in the
U.S., EchoGen. In the event that EchoGen is
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approved by the FDA, the Company is obligated to purchase certain minimum
quantities of the material over a five-year period.
The Company is also party to certain litigation related to its business.
The Company notes that (i) litigation in general, and intellectual property and
securities litigation in particular, can be expensive and disruptive to normal
business operations, and (ii) the results of complex legal proceedings can be
very difficult to predict with any certainty. There can be no assurance that
these litigation proceedings will be resolved in the Company's favor. See "Part
II. Other Information; Item 1. Legal Proceedings."
5. SUBSEQUENT EVENT
In 1996, we entered into two agreements with Abbott for the marketing
and selling of ultrasound contrast agents, including EchoGen, in: (1) the U.S.
and; (2) certain international territories including Europe, Latin America,
Canada, Middle East, Africa and certain Asia/Pacific countries ("Abbott
International Territories"). Subsequent to September 30, 1999, the Company and
Abbott Laboratories International Division ("Abbott International") restructured
their agreement related to the Abbott International Territories. The Company has
commenced discussions with new potential marketing partners for the Abbott
International Territories with the goal of having arrangements for certain
countries in Europe in place by early 2000. Under the restructured agreement,
Abbott International has returned all exclusive marketing rights to EchoGen to
the Company. In addition, for the Abbott International Territories, the Company
agreed to share with Abbott International, 21% of the Company's net profits from
the sale of EchoGen and will also share 50% of any up-front license fees paid to
the Company by new partners, of which 50% is credited against the share of net
profits the Company will pay to Abbott International.
With the agreement Abbott International also retains a five-year option
to elect to become a co-marketer of QW7437, the Company's second contrast agent
under development. Abbott International has also agreed not to market or sell a
competing ultrasound contrast product during the option period and thereafter,
if it elects its option to co-market QW7437.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In Management's Discussion and Analysis we explain the general financial
condition and the results of operations for our company, SONUS Pharmaceuticals,
Inc., including:
- overview of our Company's business
- regulatory progress
- contractual agreements
- results of operations and why those results are different from the
prior year period
- what capital resources our Company currently has and possible sources
of additional funding for future capital requirements
- the market risk of our investment portfolio; and
- our progress related to the "Year 2000" issue
OVERVIEW
Our Company is engaged in the research, development and
commercialization of ultrasound contrast agents and drug delivery systems based
on our proprietary technology. Our products are being developed for use in the
diagnosis and treatment of heart disease, cancer and other debilitating
conditions. We have financed our research and development and clinical trials
through payments received under contractual agreements, private equity and debt
financings, and an initial public offering ("IPO") of common stock completed in
October 1995. Clinical trials of our initial ultrasound contrast product under
development, EchoGen(R) (perflenapent injectable emulsion), began in January
1994. In 1996, we filed a New Drug Application ("NDA") with U.S. Food and Drug
Administration ("FDA") for EchoGen as well as a Marketing Authorization
Application ("MAA") with the European Medicines Evaluation Agency ("EMEA").
REGULATORY PROGRESS
In April 1999, we received an "approvable letter" from the FDA for
EchoGen. The FDA letter gave the conditions that must be satisfied before final
approval. In September 1999, we filed a formal response to the conditions of the
approvable letter. The FDA has notified us that it expects to complete its
review on our response by March 2000. Although it is inappropriate for us to
speculate on the outcome of the FDA review, we believe we have thoroughly
addressed the conditions of the letter to achieve final approval. No assurance
can be given that the FDA will review the response to the approvable letter in a
timely manner or that the FDA will ultimately approve the NDA.
In March 1998, the EMEA's Committee for Proprietary Medicinal Products
("CPMP") issued a positive opinion on EchoGen for use as a transpulmonary
echocardiographic contrast agent in patients with suspected or established
cardiovascular disease who have had previous inconclusive non-contrast studies.
In July 1998, the EMEA ratified the CPMP recommendation and granted a marketing
authorization for EchoGen in the 15 countries of the European Union ("E.U."). We
are seeking approval of variations to our marketing license to bring the
manufacturing process and specifications for European product in line with the
process and specifications submitted for approval with the FDA in the U.S. No
assurance can be given that the variations to our marketing license will
ultimately be approved.
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CONTRACTUAL AGREEMENTS
In the third quarter of 1999, we closed a license agreement with Nycomed
Imaging AS ("Nycomed") for the cross-license of certain of our proprietary
ultrasound contrast agent technologies. Under the agreement, Nycomed has agreed
to pay us a $10.0 million up-front license fee, of which $5.0 was received in
the third quarter of 1999 and the remaining $5.0 million was received in October
1999. In addition to the up-front license fee, both companies have agreed to pay
royalties to each other based on future sales of our ultrasound contrast agents.
Under the terms of the agreement, we provided Nycomed with an exclusive license
to our ultrasound contrast patents except as related to perfluoropentane which
is the gas we use in our contrast products. Under the exclusive license to the
patents, Nycomed also has the right to freely sublicense to other companies with
a portion of any sublicense fees to be paid to us. In addition, we have a
worldwide, non-exclusive license to certain of Nycomed's ultrasound contrast
agent patents. We also have the right to sublicense these patents to our
collaborative partners.
In 1996, we entered into two agreements with Abbott Laboratories
("Abbott") for the marketing and selling of ultrasound contrast agents,
including EchoGen, in: (1) the U.S. and; (2) certain international territories
including Europe, Latin America, Canada, Middle East, Africa and certain
Asia/Pacific countries ("Abbott International Territories"). Under these
agreements, Abbott agreed to make certain payments to us, primarily conditioned
upon the achievement of milestones, of which $37.7 million has been paid as of
September 30, 1999. In addition, Abbott purchased in 1996, for $4.0 million,
warrants to acquire 500,000 shares of our common stock. The warrants are
exercisable over five years at $16.00 per share.
Subsequent to September 30, 1999, we and Abbott Laboratories
International Division ("Abbott International") restructured our agreement
related to the Abbott International Territories. We have commenced discussions
with new potential marketing partners for the Abbott International Territories
with the goal of having arrangements for certain countries in Europe in place by
early 2000. Under the restructured agreement, Abbott International has returned
all exclusive marketing rights to EchoGen to us. In addition, for the Abbott
International Territories, we have agreed to share with Abbott International,
21% of our net profits from the sale of EchoGen and will also share 50% of any
up-front license fees paid to us by new partners, of which 50% is credited
against the share of net profits the we will pay to Abbott International. No
assurance can be given that we will secure new marketing partners for the Abbott
International Territories.
With the agreement Abbott International also retains a five-year option
to elect to become a co-marketer of QW7437, our second contrast agent under
development. Abbott International has also agreed not to market or sell a
competing ultrasound contrast product during the option period and thereafter,
if it elects its option to co-market QW7437.
RESULTS OF OPERATIONS
Our results of operations have varied and will continue to vary
significantly from quarter to quarter and depend on, among other factors:
- timing of payments under contractual agreements
- timing of regulatory approvals
- entering into additional contractual agreements; and
- timing and costs of clinical trials
Abbott can terminate the U.S. agreement on short notice, and we cannot give
assurance that we will receive any additional funding or milestone payments
under the Abbott U.S. agreement.
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To date, our reported revenues have been derived from payments received
under contractual agreements with third parties. Revenue was $5.0 million for
the third quarter of 1999 compared to $2.7 million in the prior year period.
Revenue received in the third quarter of 1999 was derived from our agreement
with Nycomed. Revenue received in the prior year period was derived from
payments received under our agreements with Abbott. Revenue received for the
nine months ended September 30, 1999 was $7.1 million compared to $5.1 million
in the prior year period. Revenue for the nine months ended September 30, 1999
represents $5.0 million of payments under our agreement with Nycomed and $2.1
million of payments under our agreements with Abbott. All revenue during the
nine months ended September 30, 1998 represented payments under our agreements
with Abbott.
Research and development expenses were $1.2 million for the third
quarter of 1999 compared with $3.0 million for the same period of the prior
year. Research and development expenses were $4.4 million for the nine months
ended September 30, 1999 compared to $8.7 million in the prior year period. The
decrease from the prior year periods was primarily due to a reduction in
clinical trial activity on our products.
General and administrative expenses were $1.9 million for the third
quarters of 1999 and 1998. General and administrative expenses were $5.5 million
for the nine months ended September 30, 1999 compared to $5.4 million in the
prior year period. The slight increase in the nine-month period was primarily
due to an increase in intellectual property legal costs offset in part by
decreases in marketing and medical education expenses.
We anticipate total operating expenses will increase in future quarters
due to ongoing and planned clinical trials to study additional indications for
EchoGen, future products and higher marketing and administrative expenses as we
prepare for commercialization of EchoGen. We may also incur significant expenses
relating to legal matters - see "Legal Proceedings."
Interest income, net of interest expense, was $43,000 for the third
quarter of 1999 compared to $162,000 for the same period of the prior year and
$264,000 and $598,000 for the nine months ended September 30, 1999 and 1998,
respectively. The decrease in both periods was primarily due to the lower levels
of invested cash.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed operations with payments from contractual
agreements with third parties, proceeds from equity financings and our bank line
of credit. At September 30, 1999, we had cash, cash equivalents and marketable
securities of $15.1 million, compared to $17.0 million at December 31, 1998. The
decrease was primarily due to cash used in operations during the nine-month
period ended September 30, 1999.
We have a bank loan agreement which provides for a $5.0 million
revolving line of credit facility and bears interest at the prime rate plus 1.0%
per annum. At September 30, 1999 we had borrowings of $5.0 million outstanding
under the line of credit. The line of credit expires August 30, 2000 and is
secured by our tangible assets. In order to borrow under the line of credit, we
are required to maintain certain minimum cash balances. We cannot give assurance
that we will be able to maintain the minimum balances necessary to borrow under
the line of credit.
We expect that our cash needs will increase significantly in future
periods due to pending and planned clinical trials and higher administrative and
marketing expenses as we prepare for commercialization of EchoGen, if and when
approved for marketing. Based on our current operating plan, we estimate that
existing cash and marketable securities will be sufficient to meet our cash
requirements through the next 12 months. We may need to seek additional funding
in 2000 through available means, which may include debt and/or equity financing
or additional third party contractual agreements. We cannot give assurance
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that financing will be available on acceptable terms, if at all. Our future
capital requirements depend on many factors including:
- the ability to obtain continued funding under existing contractual
agreements
- the ability to attract and retain new partners
- the ability to maintain our bank line of credit
- the time and costs required to gain regulatory approvals
- the progress of our research and development programs and clinical
trials
- the costs of filing, prosecuting and enforcing patents, patent
applications, patent claims and trademarks
- the costs of marketing and distribution
- the status of competing products; and
- the market acceptance and third-party reimbursement of our products,
if and when approved
We cannot give assurance that regulatory approvals will be achieved in the
near-term or at all or that, in any event, additional financing will be
available on acceptable terms, if at all. Any equity financing would likely
result in substantial dilution to our existing stockholders. If we are unable to
raise additional financing, we may be required to curtail or delay the
development of our products and new product research and development, which
could seriously harm our business.
YEAR 2000 COMPLIANCE
The "Year 2000" issue is the result of computer programs being unable to
differentiate between the year 1900 and the year 2000 because computer code was
written to recognize two digits rather than four digits to define the applicable
year. This inability to recognize the correct century could result in system
failures or miscalculation with respect to current software programs.
In response to the Year 2000 issue, we undertook a comprehensive review
of our Company's business systems. We focused on the following four areas:
- software systems
- hardware systems
- facility systems
- significant third party vendors and business partners
Based on our review of these four areas, we believe that the Year 2000 issue
does not pose significant operational problems. A majority of our software,
computer and facilities equipment has been purchased within the last five years
from third-party vendors who have already provided upgrades intended to bring
their products into Year 2000 compliance. In addition, we surveyed significant
vendors and business partners to determine any possible Year 2000 risks. The
results of our survey determined that 93% of our vendors responded that they
would be Year 2000 ready by December 31, 1999. For the 7% that failed to
respond, we have developed contingency plans for their services. However, if
unforeseen Year 2000 issues arise with these third parties, it could affect the
ability of vendors to satisfy their obligations to us or for us to
electronically communicate with such parties, which could have an adverse effect
on our business, financial condition and results of operations.
We have established contingency plans to address "high-risk" processes
and services that could affect day-to-day operations or delay our efforts to
bring products to market if unforeseen Year 2000 issues arise. If needed, we are
prepared and will have personnel on-site on January 1, 2000 to implement these
contingency plans.
To date, based upon our review of the four areas noted above, we
estimate that the full cost of correcting the Year 2000 issue will not exceed
$100,000. While we believe we have brought our own
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systems into compliance and have been given assurance that critical third party
relationships will be ready for the Year 2000, we cannot give assurance that we
will not encounter unforeseen Year 2000 issues. If such issues are encountered,
this could result in a material adverse effect on our business, financial
condition and results of operations.
FORWARD-LOOKING STATEMENTS
This Report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and we intend that such
forward-looking statements be subject to the safe harbors created thereby.
Examples of these forward-looking statements include, but are not limited to:
- the submission of applications for and the timing or likelihood of
marketing approvals for one or more indications
- market acceptance of our products
- our anticipated future capital requirements and the terms of any
capital financing
- the progress and results of clinical trials
- the timing and amount of future payments under contractual agreements;
and
- the anticipated outcome or financial impact of legal matters
While these statements made by us are based on our current beliefs and
judgement, they are subject to risks and uncertainties that could cause actual
results to vary.
In evaluating such statements, stockholders and investors should
specifically consider a number of factors and assumptions, including those
discussed in the text and the financial statements and their accompanying
footnotes in this Report and the risk factors detailed from time to time in our
filings with the Securities and Exchange Commission. As discussed in our Annual
Report on Form 10-K for the year ended December 31, 1998, actual results could
differ materially from those projected in the forward-looking statements as a
result of the following factors, among others:
- uncertainty of governmental regulatory requirements and lengthy
approval process
- unproven safety and efficacy of products and uncertainty of clinical
trials
- history of operating losses and uncertainty of future financial
results
- future capital requirements and uncertainty of additional funding
- dependence on third parties for funding, clinical development and
distribution
- dependence on patents and proprietary rights
- competition and risk of technological obsolescence
- limited manufacturing experience and dependence on limited contract
manufacturers and suppliers
- lack of marketing and sales experience
- limitations on third-party reimbursement
- uncertainty of market acceptance
- continued listing on the Nasdaq National Market
- uncertainty of legal matters
- dependence on key employees; and
- shares eligible for future sale
There can be no assurance that we can meet the conditions set forth by the FDA
in its "approvable letter" or any subsequent conditions in a timely manner, if
at all, or that EchoGen will ultimately receive FDA approval.
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ITEM 3. MARKET RISK
There has been no material change during the quarter ended September 30,
1999, from the disclosures about market risk provided in our Annual Report on
Form 10-K for the year ended December 31, 1998.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January 1998, we announced that we had filed a patent infringement
action in the U.S. District Court in Seattle, Washington, against Molecular
Biosystems Inc. ("MBI") and Mallinckrodt Medical. The suit alleges that one of
MBI's ultrasound contrast agents infringes one or more of our patents. MBI has
filed counterclaims alleging that the patents asserted by us are invalid and not
infringed, and that we have made false public statements and engaged in other
actions intended to damage MBI and one of its ultrasound contrast agents. We do
not believe there is any merit to these counterclaims and intend to defend our
position vigorously. In October 1998, the court granted our motion to stay the
litigation until the U.S. Patent and Trademark Office ("PTO") had completed its
re-examination of the patents in this lawsuit (see below). The stay was lifted
in January 1999. A trial date has been set for this lawsuit in April 2000.
Under the agreement between Nycomed Imaging AS ("Nycomed") and SONUS,
Nycomed is an exclusive licensee of our patents in a field of use including
non-perfluoropentane ultrasound contrast agents. Nycomed has the right to
control the patent infringement portion of our lawsuit against MBI and
Mallinckrodt Medical. The court has authorized Nycomed to be joined as a party
in this lawsuit.
Four separate re-examination proceedings directed to the two SONUS
patents at issue in the patent infringement lawsuit, U.S. 5,558,094 (`094) and
U.S. 5,573,751 (`751) were initiated by the PTO beginning in July 1997 at the
request of MBI. In December 1998, we announced that we received decisions from
the PTO indicating the patentability of claims in all four re-examination
proceedings. The PTO confirmed the patentability of a number of the claims
included in the original `094 and `751 patents as well as some claims that were
amended during re-examination, and has issued re-examination certificates for
each patent. Certain claims, which included reference to fluorinated chemicals
other than perfluoropropane, perfluorobutane and perfluoropentane, were
cancelled during the re-examination process.
In August and September 1998, various class action complaints were filed
in the Superior Court of Washington (the "State Action") and in the U.S.
District Court for the Western District of Washington (the "Federal Action")
against SONUS and certain of our officers and directors, alleging violations of
Washington State and U.S. securities laws. In October 1998, we, and the
individual defendants, moved to dismiss and stay the State Action. In the State
Action state law claims were later brought in the Federal Action and the State
Action was dismissed. In February 1999, plaintiffs filed a consolidated and
amended complaint in the Federal Action, alleging violations of Washington State
and U.S. securities laws. In March 1999, we, and the individual defendants,
filed a motion to dismiss the consolidated amended complaint in the Federal
Action. In July 1999, the Court entered an order denying in part and granting in
part the motion to dismiss the complaint in the Federal Action. In November
1999, we filed motions for summary judgement and to stay discovery. These
motions are currently scheduled for hearing in December 1999. We do not believe
there is any merit to the claims in these actions and we intend to defend our
position vigorously. Although we do not believe that we or any of our current or
former officers or directors have engaged in any wrongdoing, there can be no
assurance that this stockholder litigation will be resolved in our favor.
14
<PAGE> 15
ITEM 5. OTHER EVENTS
In August 1999, the Company entered into an Agreement for Part-Time
Employment and Mutual Release with the Company's founder and former Chief
Executive Officer, Steven C. Quay, M.D., Ph.D. Under the agreement, Dr. Quay
will provide services to the Company as a part-time employee for a period of
three years from the date of the agreement. In September 1999, Dr. Quay
resigned as a member of the Company's Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
10.21C Loan Modification Agreement dated August 30, 1999 to Loan
and Security Agreement by and between the Company and
Silicon Valley Bank
10.37 Agreement for Part-time Employment and Mutual Release,
effective August 25, 1999 by and between the Company and
Steven C. Quay, M.D., Ph.D.
10.38 Mutual Rescission Agreement dated October 11, 1999 by and
between the Company and Abbott International, Ltd.
27.1 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
We filed a report on Form 8-K on October 14, 1999 in connection
with the closing on September 28, 1998 of our License Agreement with
Nycomed Imaging AS.
ITEMS 2, 3, AND 4 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
15
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SONUS PHARMACEUTICALS, INC.
Date: November 16, 1999 By: /s/ Gregory Sessler
---------------------------------
Gregory Sessler
Chief Financial Officer and Assistant
Secretary (Principal Financial and
Accounting Officer)
16
<PAGE> 1
Exhibit 10.21C
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of August 30, 1999,
by and between Sonus Pharmaceuticals, Inc. ("Borrower") and Silicon Valley Bank
("Silicon").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to Silicon, Borrower is indebted to Silicon pursuant to, among
other documents, a Loan and Security Agreement, dated August 11, 1995, together
with all Schedules attached thereto, as such agreement may be amended from time
to time (the "Loan Agreement"). The Loan Agreement provided for, among other
things, a Secured Line of Credit in the original principal amount of Five
Million and 00/100 Dollars ($5,000,000.00). Capitalized terms used but otherwise
defined herein shall have the same meaning as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Silicon shall be referred to
as the "Indebtedness".
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
secured by the Collateral as defined in the Loan Agreement.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to Loan Agreement.
1. The defined term "Maturity Date" shall mean August 30, 2000, at which
time all unpaid principal and accrued but unpaid interest shall be
due and payable.
2. Beginning with the month ending September 30, 1999, the paragraph
entitled "Minimum Cash Balance" under paragraph entitled "Other
Covenants" shall be amended to read as follows:
Borrower shall maintain at all times cash and cash equivalents of not
less than $10,000,000 net of outstanding advances under the Credit
Limit. However, if Borrower has less than $10,000,000 but more than
$4,000,000, any advance of the funds under Credit Limit shall be
subject to the following conditions:
(i) any advance of funds under the Credit Limit shall be
deposited directly into Borrower's account with Silicon. Such
account will only be allowed access to use for paying down the
amounts outstanding under the Credit Limit; and
(ii) Borrower shall pay Silicon an additional fee in the amount
of Two Thousand Five Hundred and 00/100 Dollars ($2,500.00).
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
5. PAYMENT OF LOAN FEE. Borrower shall pay to Silicon a fee in the amount of
Fifteen Thousand and 00/100 Dollars ($15,000.00) (the "Loan Fee") plus all
out-of-pocket expenses.
<PAGE> 2
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that it has no defenses against the obligations to pay any amounts
under the Indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing below)
understands and agrees that in modifying the existing Indebtedness, Silicon is
relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Silicon's agreement to
modifications to the existing Indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Silicon to make any future modifications to
the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the Indebtedness. It is the intention of Silicon and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Silicon in writing. Except as
otherwise expressly provided herein, no maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement. The terms of this
paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
8. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon Borrower's payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: SILICON:
SONUS PHARMACEUTICALS SILICON VALLEY BANK
By: /s/ Gregory Sessler By: /s/ Peter Palsson
-------------------------------- --------------------------------
Name: Gregory Sessler Name: Peter Palsson
------------------------------ ------------------------------
Title: Chief Financial Officer Title: Vice-President
----------------------------- -----------------------------
2
<PAGE> 1
EXHIBIT 10.37
AGREEMENT FOR PART-TIME EMPLOYMENT
AND MUTUAL RELEASE
This Agreement for Part-Time Employment and Mutual Release is made and
entered into by and between Sonus Pharmaceuticals, Inc., a Delaware corporation
(the "Company"), and Steven C. Quay, M.D., Ph.D., an individual ("Dr. Quay"), as
of this 25th day of August, 1999.
RECITALS
WHEREAS, Dr. Quay was the founder of the Company and served as its Chief
Executive Officer since its inception in 1991; and
WHEREAS, Dr. Quay is the inventor of certain inventions within the
Company's intellectual property estate; and
WHEREAS, Dr. Quay is holder of a substantial amount of the Company's
common stock; and
WHEREAS, Dr. Quay and the Company were party to an Employment Agreement
dated February 11, 1999 (the Employment Agreement"), which, except as relates to
its paragraphs 6, 7 and 9 as provided herein, has been terminated and is no
longer in force and effect; and
WHEREAS, Dr. Quay and the Company desire to resolve amicably all
disputes and controversies between them and enter a Mutual Release; and
WHEREAS, the Company desires Dr. Quay to provide services for it as a
part-time employee; and
WHEREAS, Dr. Quay desires to provide services to the Company as a
part-time employee;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, Dr. Quay and the Company, intending
to be legally bound, hereby agree as follows:
1. Part-Time Employment. Dr. Quay will, as a part-time employee, provide
services to the Company or to others such as Nycomed Imaging A/S as reasonably
directed by the Company consistent with the terms of this Agreement, for a
period of thirty-six (36) months on such projects which are consistent with Dr.
Quay's expertise and which are reasonably requested by the Company from time to
time, pertaining to the following: (A) obtaining issuance of suitable patents on
its currently pending patent applications, as well as subsequent continuation or
continuation-in-part applications of the Company, and any applications that may
be filed by or for the Company on recent discoveries relating to * (herein,
collectively, the "Sonus Patents"), including providing assistance in connection
with proceedings in the U.S. Patent and Trademark Office, (B) asserting rights
*Confidential portions omitted and filed separately with the Commission.
-1-
<PAGE> 2
against potential infringers of the Sonus Patents, including providing
cooperation and assistance in proceedings and litigation relating thereto, (C)
participating and providing assistance in the design and development of research
projects and associated intellectual property strategies relating to the Sonus
Patents, and (D) participating and providing assistance in strategies relating
to licensing and maximizing the economic value of the Company's intellectual
property estate as it currently exists. Dr. Quay's activities may address other
matters as the parties may mutually agree.
(A) Through December 31, 1999, Dr. Quay will be available to provide
these services for up to 144 hours per calendar quarter (or a pro rata amount
for any partial calendar quarter) as requested by the Company consistent with
"C" below. During the remainder of the part-time employment, Dr. Quay will be
available for up to 80 hours per calendar quarter (or a pro rata amount for any
partial calendar quarter) as requested by the Company consistent with "C" below.
(B) In consideration for providing these services, Dr. Quay will receive
salary/wages as follows:
(i) Through December 31, 1999, Dr. Quay will receive
his salary in effect under the Employment Agreement on and prior
to July 7, 1999, payable on the normal Company pay days (and the
Company shall pay Dr. Quay on the first pay day after execution
of this Agreement an amount equal to any unpaid salary for any
portion of 1999 to the date of this Agreement) so that, by the
end of 1999, or by the first regular Company pay day thereafter,
Dr. Quay shall have received an amount of salary paid heretofore
to him in the first portion of 1999 and to be paid to him
hereunder for the second portion of 1999 equal to what his
salary would have been for all of 1999 under the Employment
Agreement.
(ii) For the remainder of the part-time employment, Dr.
Quay shall receive wages in the amount of $250 per hour for
services requested by the Company, with a minimum service period
of one hour per inquiry (i.e. for each request by the Company
and each additional inquiry by the Company requiring separate
devotion of time by Dr. Quay).
(C) The Company and Dr. Quay shall work together in scheduling his
services as a part-time employee at times mutually convenient to Dr. Quay and
the Company and which will accommodate Dr. Quay's other commitments and
activities. Dr. Quay will generally provide these services from his home or
other location of his choice during regular business hours. Subject to such
accommodation, the Company may request, from time to time, that Dr. Quay provide
the services at other locations or travel to other locations; for example, in
connection with negotiations or proceedings with third parties. In connection
with the rendering of any services as a part-time employee, travel time shall be
considered employment time and Dr. Quay will be reimbursed for all of his
reasonable travel, lodging, meals and other expenses upon submission of
reasonable documentation thereof and subject to such reasonable limitations on
first class travel or accommodations as the Company may impose on all of its
executive officers and directors and
-2-
<PAGE> 3
communicate in writing to Dr. Quay.
2. Stock Options. The Company confirms that during Dr. Quay's part-time
employment hereunder those options under Dr. Quay's existing stock option
agreements (which shall remain in full force and effect) will continue to vest
and will remain exercisable for the period of such part time employment and for
the period thereafter provided in such option agreements. Dr. Quay shall not be
deemed a full-time employee under the Change in Control Agreement dated February
11, 1999 and, accordingly, that agreement shall be deemed to have terminated as
of July 7, 1999.
3. Benefits. Dr. Quay will retain the employee welfare benefits under
the Company's health, dental or other welfare benefit plans (or the equivalent
thereof), through December 31, 1999. Dr. Quay will be deemed to satisfy a 24
hour or more per week requirement under such plans. After December 31, 1999, Dr.
Quay and his family may continue such coverage at his/their own expense if and
for as long as such coverage may be permitted under COBRA.
4. Dr. Quay's Shares of Common Stock of Sonus.
(A) Dr. Quay confirms that for so long as he remains a Director of the
Company, he shall be subject to the Company's uniform blackout policies
regarding sales of shares by insiders to the extent they are applicable to all
Directors. The Company represents: (i) that those policies, as currently in
effect and applicable to all directors, are set forth in Exhibit A hereto; (ii)
that the Company will provide Dr. Quay promptly after the date hereof with
revised versions of Exhibit A which shall set forth such policies applicable to
all Directors with any changes and amendments as may be made from time to time
and any exceptions as may be made for any other Directors; (iii) that such
policies shall be enforced uniformly as to all Directors. In addition, to the
extent that Dr. Quay is aware of or possesses material inside information as a
result of his directorship or part-time employment with the Company, he shall
comply with all applicable securities laws.
-3-
<PAGE> 4
(B) In the event Dr. Quay desires to sell any of his shares of common
stock of the Company, including without limitation, shares of common stock
issuable upon exercise of options, the Company and Dr. Quay agree to mutually
consult and cooperate in effecting any such resales of shares by Dr. Quay with a
view to minimizing any material adverse impact on the market for the shares to
the extent practicable, provided that the Company shall not be entitled to block
or prevent sales Dr. Quay intends to make consistent with paragraph (A) above.
In this regard, the Company agrees to use its reasonable efforts to assist Dr.
Quay in any such sales, including without limitation, facilitating off-market
block trades with the assistance of the Company's market makers. In addition,
the parties agree to mutually consult on a continual basis as to means and
methods by which sales of shares of common stock may be most readily made
consistent with obtaining the best price and not materially adversely impacting
the market price and otherwise render reasonable assistance to Dr. Quay in
connection therewith.
(C) The Company confirms the existing Fourth Amended and Restated
Registration Rights Agreement dated 1999 ("Registration Rights Agreement") as it
applies to shares of common stock held by Dr. Quay. In addition, the Company
confirms the effectiveness of one or more S-8 registration statements relating
to the shares of common stock subject to options held by Dr. Quay; it being
understood, however, that such S-8 registration statements may not be available
for resale of shares by "affiliates" as provided under the Securities Act of
1933, as amended, and regulations thereunder (collectively, the "Act"). The
Company agrees to use its commercially reasonable best efforts to maintain the
effectiveness of such registration statements. In the event that Dr. Quay wishes
to sell shares of the Company in a manner not available to an "Affiliate" as
defined under the Act, he will so inform the Company. In such event, if the
Company, after consultation with counsel, advises Dr. Quay in writing that it
believes in good faith that "Affiliate" status under the Act quite possibly
continues to exist as to Dr. Quay, Dr. Quay may provide to the Company an
opinion of counsel (which may be from Blanc Williams Johnston & Kronstadt, LLP,
or other counsel reasonably acceptable to the Company), stating that Dr. Quay is
not, at that time, an "Affiliate" under the Act, and the Company will act
accordingly. The Company shall pay fifty percent (50%) of the reasonable costs
actually incurred in obtaining such legal opinion. The Company agrees not to
assert that Dr. Quay is an "Affiliate" of the Company under the Act solely
because of his part-time employment with the Company.
(D) In the event that the Company proposes to effect any private
placement of shares in a capital raising transaction, during the term of this
Agreement for Part-Time Employment, the Company shall use its reasonable efforts
to include a portion of the shares of common stock held by Dr. Quay to the
extent practical; provided, however, that the Company shall have no obligation
to include such shares held by Dr. Quay to the extent (i) the Company certifies
in writing to Dr. Quay that such inclusion would have a materially adverse
impact on the Company's working capital requirements or jeopardize the Company's
satisfaction of listing requirements under the Nasdaq National Market System or
(ii) the placement agent retained by the Company in connection with the private
placement certifies in writing to Dr. Quay that such inclusion would otherwise
jeopardize the completion of the private placement.
5. Publicity. The parties hereby agree not to disparage each other. In
addition, neither party shall make any public announcement relating to the
transactions provided for herein
-4-
<PAGE> 5
or the change of Dr. Quay's relationship with the Company from full-time to
part-time employment without the prior written consent of the other party, which
shall not be unreasonably withheld; provided, however, that the Company may,
after affording Dr. Quay 48 hours after his receipt thereof to review and
comment, make such public disclosures concerning these matters as may be
required under the applicable securities laws, including without limitation, the
filing of this Agreement as an exhibit to the Company's filings under the Act if
it first provides Dr. Quay with written advice from its securities counsel that
such counsel, after review, believes such filing is required.
6. Covenants Against Actions Damaging the Company; Noncompetition. Dr.
Quay hereby confirms that the covenants set forth in paragraphs 6, 7 and 9 of
the Employment Agreement remain in full force and effect during the 36 month
term of part-time employment and for the periods thereafter as specifically
provided in such sections, except that Dr. Quay shall not be required to
disclose to the Company any inventions which he develops or discovers during the
term of this Agreement for Part-Time Employment or thereafter. In addition, for
the purposes of paragraph 9, the business of the Company shall mean ultrasound
contrast agents and Vitamin E emulsion technology for drug delivery (hereinafter
referred to as the "Business"); and Dr. Quay shall not be deemed to be in
violation of the paragraph 9 non-compete merely because of entering into a
business arrangement, including a licensing, partnership, employment,
consulting, agency or similar arrangement, with an established entity whose
business does not primarily consist of but includes activities competitive with
the Business, provided that Dr. Quay's activities with respect to such entity do
not directly or indirectly relate to the Business. Dr. Quay confirms that the
provisions of paragraph 9 of the Employment Agreement shall preclude any
activities by Dr. Quay that may assist any third party in challenging the
patents or intellectual property estate of the Company, provided however, that
truthful testimony given by Dr. Quay pursuant to subpoena, court order or other
compulsory legal process shall not violate the provisions of paragraph 9 of the
Employment Agreement and, provided further, that nothing herein is intended to
prevent Dr. Quay from providing truthful testimony pursuant to such process. Dr.
Quay further specifically agrees not to assist or otherwise take any actions on
behalf of any third party that are adverse to the Company with respect to the
Sonus Patents or that are adverse, with respect to the Sonus Patents, to the
Company's current or future licensees and/or licensors, in any litigation or
administrative proceeding relating to those Patents. The Company acknowledges
that it has been provided with a copy of U.S. Patent No. 5,798,266, entitled,
"Methods and Kits for Obtaining and Assaying Mammary Fluid Samples from Breast
Diseases, Including Cancer," Inventors: Quay, SC, Quay DL; issued August 25,
1998 (assigned to K-QUAY Enterprises, LLC, a Delaware LLC formed by Dr. Quay)
and has asserted no interest therein.
7. Mutual Releases. Except for the obligations arising under this
Agreement (including the provisions of paragraphs 6, 7 (as amended above) and 9
(as amended above) of the Employment Agreement and the Registration Rights
Agreement and the stock option agreements described in Section 2 above) and the
indemnity agreement between Dr. Quay and the Company, (and any indemnity
provisions in the Company's charter documents) Dr. Quay, for himself and for his
heirs, executors, legal successors and assigns, hereby releases and absolutely
and forever discharges the Company and its affiliates, and each of their
respective past and present officers, directors, shareholders, employees,
insurers, attorneys and agents, and each of them, and each of
-5-
<PAGE> 6
their respective legal predecessors, successors and assigns ("Sonus Releasees")
of and from any and all claims, demands, promises, contracts, damages, debts,
liabilities, accounts, costs, actions and causes of action of every kind and
nature, whether now known or unknown, accrued or unaccrued, suspected or
unsuspected, matured or unmatured, liquidated or unliquidated, contingent or
noncontingent, which he may now have, has had, or may hereafter have against
Sonus Releasees arising out of any matter or event occurring prior to the date
of this Agreement, including but not limited to, claims arising out of or with
respect to the Employment Agreement, his employment by the Company and/or other
Sonus Releasees, and any purported termination of such employment thereafter,
including (a) any discrimination claim, or (b) any claim, known or unknown, for
wrongful termination, or (c) any other claim, whether in tort, contract or
otherwise; and the Company and its affiliates, for themselves and their
respective legal predecessors, successors and assigns, hereby release and
absolutely and forever discharge Dr. Quay and his heirs, legal successors,
assigns, of and from any and all claims, demands, damages, promises, contracts,
debts, liabilities, accounts, costs, actions and causes of action of every kind
and nature, whether now known or unknown, accrued or unaccrued, suspected or
unsuspected, matured or unmatured, liquidated or unliquidated, contingent or
noncontingent, which they may now have, have had, or may hereafter have against
Dr. Quay and his heirs, legal successors, assigns, insurers, attorneys, and/or
agents, and each of them and each of their respective legal predecessors,
successors and assigns arising out of any matter or event occurring prior to the
date of this Agreement including but not limited to, all claims whether in tort,
contract or otherwise. The Company represents that as of the date hereof, it
does not have knowledge of any claim or facts giving rise thereto, against Dr.
Quay under the Sections 6, 7 or 9 of the Employment Agreement.
Dr. Quay and the Company hereby agree that they will not make, assert or
maintain against any entity or person that has been released in this Agreement,
any claim, demand, action, suit or proceeding thereof, arising out of or in
connection with the matters herein so released. Furthermore, Dr. Quay and the
Company hereby represent and warrant that they have not heretofore assigned or
transferred or purported to assign or transfer to any person, firm, or other
entity, any claim, demand, debt, liability, account, cost, action or cause of
action hereinabove released.
The parties hereto acknowledge that statutory and/or case law in some
states limits the effectiveness of releases of unknown claims. Nevertheless,
they have bargained for such a broad and effective release and hereby waive the
benefits of such statutory and/or case law, intending that the above releases
have broad effect consistent with their wording.
8. Miscellaneous Provisions.
(A) Notices. Any notice given hereunder to the Company
or to Dr. Quay shall be deemed sufficiently given if mailed by
registered or certified mail, return receipt requested, postage
prepaid, or sent by overnight delivery service, or by facsimile
(with machine confirmation and hard copy following by mail) as
follows:
If to the Company:
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<PAGE> 7
Sonus Pharmaceuticals, Inc.
22026 Twentieth Avenue, S.E.
Bothell, WA 98021
Attention: President and Chief Executive Officer
Facsimile number: 425 489-3936
If to Steven C. Quay, M.D., Ph.D.:
23632 Highway 99, Suite F-454
Edmonds, WA 98026
Facsimile number: [603] 816-9696
or to such other address or fax number as shall have been
provided by the party to whom such notice is directed by notice
to the other party hereto in accordance with this section.
Except as otherwise provided herein, such notice shall be deemed
effective when delivered in person (including by express
courier), when sent by facsimile (with machine confirmation and
with hard copy following by mail) or three days after being
mailed.
(B) Governing Law. This Agreement is made under and
shall be governed by and construed in accordance with the laws
of the State of Washington, applicable to agreements made
between residents of that state and providing for performance
there.
(C) Assignment. Neither this Agreement nor any duties
or obligations under this Agreement may be assigned to by either
party without the prior written consent of the other party,
provided however, the Company may assign this Agreement in
connection with any sale or transfer of the business to which it
relates, whether by merger, sale of assets, sale of stock or
otherwise.
(D) Attorneys' Fees. If any action is brought to
enforce or interpret the provisions of this Agreement, the
prevailing party in such action will be entitled to its
reasonable attorneys' fees and costs incurred, in addition to
any other relief to which such party may be entitled.
(E) Waiver of Breach. The waiver of either party of a
breach of any provision of this Agreement shall not operate or
be construed as a waiver of any subsequent breach of this
Agreement.
(F) Severability. To the extent any provision of this
Agreement shall be invalid or unenforceable, it shall be
considered deleted herefrom and the remainder of such provision
and of this Agreement shall be unaffected and shall continue in
full force and effect. In furtherance and not in limitation of
the foregoing, should the duration or the geographical extent of
or business activities covered by any provision of this
Agreement be in excess of that which is valid and enforceable
under applicable law, then such provision shall be construed to
cover only the maximum duration, extent or activities which may
validly and enforceably be covered under applicable law. Dr.
Quay acknowledges the uncertainty of the law
-7-
<PAGE> 8
in this respect and expressly stipulates that this Agreement
shall be given the construction which renders its provisions
valid and enforceable to the maximum extent (not exceeding its
express terms) possible under applicable law.
(G) Authority. Each individual signing for each of the
parties herein warrants and represents that he is an authorized
agent of such party, for whose benefit he is executing this
Agreement, and is authorized to execute the same.
(H) Further Assurances. Each party agrees to execute
such other and further instruments and documents as may be
necessary or proper in order to complete the transactions
contemplated by this Agreement.
(I) Amendments. No amendment or modification of this
Agreement shall be deemed effective unless made in writing
signed by the parties hereto.
(J) Counterparts. This Agreement may be executed and
delivered by facsimile, in which case it shall be effective when
so executed and delivered, and the parties agree to exchange
hard copy signature pages as soon thereafter as feasible. This
Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together
shall constitute one in the same instrument.
(K) Integration. Dr. Quay and the Company agree that
this Agreement for Part-Time Employment and Mutual Release is
the sole agreement between them regarding the subject matter
herein and embodies all terms, promises, representations, and
understanding regarding the subject matter herein, and that no
representations, inducements, or promises have been made except
as expressly stated herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year set forth above.
SONUS PHARMACEUTICALS, INC., a Delaware
corporation
By: /s/ Michael A. Martino
-----------------------------------
Michael A. Martino, President and
Chief Executive Officer
STEVEN C. QUAY, M.D., Ph.D.
/s/ Steven c. Quay
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EXHIBIT 10.38
October 11, 1999
Michael A. Martino
President and Chief Operating Officer
SONUS Pharmaceuticals, Inc.
22026 20th Avenue, S.E.
Bothell, WA 98021
RE: International License Agreement dated October 1, 1996
Dear Mr. Martino:
This letter is to confirm our mutual decision to rescind the
International License Agreement dated October 1, 1996 between Abbott
International, Ltd., a Delaware corporation with principal offices at 100 Abbott
Park Rd., Abbott Park, IL 60064-3500 ("Abbott") and SONUS Pharmaceuticals, Inc.,
a Delaware corporation with principal offices at 22026 20th Avenue, S.E., Suite
102, Bothell, WA 98021 ("Sonus"), as amended by the First Amendment dated
January 31, 1999, as well as the Trademark License Agreement between Sonus and
Abbott referenced therein (collectively referred to herein as "the International
Agreement"), in consideration of the premises and the mutual promises and
covenants set forth in this letter. The consideration for our mutual decision to
rescind includes, but is not limited to, the relinquishment of disputed claims
and the resolution of outstanding issues between the parties arising from the
International Agreement. Unless otherwise defined herein, all capitalized terms
shall have the meanings ascribed to such terms under the International
Agreement. This rescission is effective as of the date of this letter and as of
such date, Sonus and Abbott shall not have any further liability or obligation
to each other, financial or otherwise, except as expressly set forth in this
letter.
1. For a period of ten (10) years from the date of this letter, Sonus and Abbott
shall indemnify, defend and hold harmless each other from and against all
claims, causes of action, settlement costs (including reasonable attorney's fees
and expenses), losses or liabilities of any kind which (a) are asserted by a
third party, (b) arise from or are attributable to any negligent act or omission
or willful misconduct on the part of Sonus or Abbott (as the case may be) or
their respective directors, employees, agents or representatives, and (c) which
relate to (i) the obligations, representations and warranties of Sonus or Abbott
(as the case may be) under the International Agreement or this letter, or (ii)
the mutual decision of Sonus and Abbott to rescind the International Agreement,
or (iii) any public statement or disclosure relating to the International
Agreement or the subject matter thereof or this letter of the subject matter
hereof. Any party seeking indemnification ("the indemnified party") under this
paragraph shall promptly notify the other party ("the indemnifying party") in
writing and shall fully cooperate with the indemnifying party in the defense of
such claim. If the indemnifying party wishes to
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enter into any settlement, consent to any judgment, or otherwise resolve such
claim in any manner which includes any obligation, loss, or cost to the
indemnified party, the indemnifying party must first obtain the written consent
of the indemnified party before finalizing such settlement, judgment or
resolution.
2. Except for third party liability arising under section 1 above, in no event
shall Sonus or Abbott be liable for loss of profits or other economic loss, or
for indirect or incidental penalties or consequential damages, or other similar
damages arising out of anything relating to the International Agreement or the
subject matter thereof, or to this letter or the subject matter hereof.
3. Within thirty (30) days of the date of this letter, Sonus and Abbott shall
return or destroy all Confidential Information provided to each other under the
International Agreement or the Confidential Disclosure Agreement between the
parties dated August 6, 1996 ("CDA"), and for a period of five (5) years from
the date of this letter, neither party shall use or disclose the other party's
Confidential Information, except that: (a) each party may retain one archival
copy of such Confidential Information; and (b) any Confidential Information
which was also provided under any other agreement presently in effect between
Sonus and Abbott Laboratories may be retained and used by Sonus and Abbott
Laboratories under the terms and conditions of such agreement(s).
4. For a period of ten (10) years from the date of this letter, neither Sonus
nor Abbott shall (a) originate any publicity, news release or other public
announcement or make any public statement or response to questions, written or
otherwise, whether to the public press, stockholders, investment analysts or
otherwise, relating to the Confidential Information, to the International
Agreement or the subject matter thereof or to this letter or the subject matter
hereof, or (b) use the name of the other party in any publicity, news release,
public statement or response or other announcement, except (i) with the prior
written consent of the other party after affording such other party no less than
three (3) business days to review such proposed disclosure, or (ii) as required
by law, regulation or court order, in which case the originating party shall
give the other party no less than three (3) business days notice of such
proposed disclosure and the reason(s) requiring it so that the other party may
review the proposed disclosure and determine its response to such proposed
disclosure, provided that, if the operation of law, regulation or court order
requiring such disclosure does not allow the disclosing party itself three (3)
business days notice, the disclosing party shall give the other party as much
prior written notice as is practicable. The disclosing party shall, if requested
by the other party in the event of a proposed disclosure under subparagraph
(4)(ii) above, fully cooperate with the other party in taking or in assisting
the other party to take any actions, consistent with applicable law, which the
other party deems necessary or desirable to prevent, protect or modify the
disclosure. Consent by either party to a specific public disclosure shall also
be deemed to be consent to future disclosures of the same facts.
5. Promptly following the date of this letter, Abbott shall cooperate in good
faith with Sonus to transition the duties and responsibilities of Abbott under
the International Agreement to Sonus as described in this Section 5. Within
ninety (90) days of the date of this letter, Abbott shall deliver to Sonus the
following:
(i) all clinical trial data, reports and protocols prepared by
or on behalf of Abbott in connection with the International Agreement; and
*Confidential portions omitted and filed separately with the Commission.
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(ii) all filings, written information and materials relating to
the approval for price and reimbursement of the Product with all regulatory
agencies located in the Territory.
6. Subject to the provisions of sections 7 and 8 below, for a period of three
(3) years from the date of this letter, Sonus may request that Abbott provide to
Sonus, for the benefit of Sonus and/or Sonus's designated third-party partners
or distributors for the Product ("Sonus Partners"), certain services in
connection with the Product, as set forth in the following subsections. For the
purposes of this letter, "Product" means a colloidal dispersion ultrasound agent
for intravenous injection containing the active ingredient dodecafluoropentane,
constituted as the product Echogen(R) in the form for which Sonus has received
marketing authorization in the European Union (the "EU"). If Sonus so requests,
then within the same three (3) year period, Abbott shall provide such services
(or similar lesser services as the parties may agree, always provided that
Abbott shall not be required to provide greater or additional services beyond
those set forth in the subsections below).
(a) Upon the request of Sonus, Abbott shall transport the Product
intended for sale in the EU, from Abbott Laboratories's manufacturing *. The
Product shall then be held at such distribution center to be ready for pickup by
or further transport arranged by, and at the cost of, Sonus and/or Sonus
Partners, provided that Abbott shall not be required to release any such Product
to Sonus or any third party unless and until Abbott has (i) determined in its
reasonable discretion that such Product is acceptable for release under
applicable regulatory provisions and under the test results resulting from the
testing performed under Paragraph 6(b) below, and (ii) received written
instructions from Sonus which are sufficient to enable Abbott properly to
identify the Sonus Partner(s) to whom Abbott is to release the Product and the
amount of Product to be released to such Sonus Partner. The parties acknowledge
and agree that at no time after the shipment of Product from Abbott Laboratories
manufacturing facility * and during the transport, holding and release of the
Product by Abbott pursuant to this Section 6(a) shall Abbott have title to, or
any ownership interest or risk of loss in, such Product.
(b) Upon the request of Sonus, Abbott shall assist Sonus in connection
with quality assurance release testing of the Product intended for sale in the
EU, by conducting such testing in Abbott's laboratory facility * and by
providing the results of such testing to Sonus and/or Sonus Partners in the EU
(as Sonus may direct), and by determining in its reasonable discretion whether
such Product is acceptable for release based upon such test results; and
provided further that Abbott's obligations under this Paragraph 6(b) shall cease
as of the earlier of (i) the date upon which Abbott employee(s) are no longer
designated as "responsible persons" in connection with the Product in the EU
and/or in EU member states, or (ii) the end of the three-year period applicable
to this Paragraph 6.
(c) Abbott shall assist Sonus in connection with the transition of
regulatory activities for the Product, by:
*Confidential portions omitted and filed separately with the Commission.
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(i) convening, within thirty (30) days of the date of this
letter, a meeting with Sonus to review the status of all pending regulatory
activities regarding the Product in the Territory in which Abbott is involved as
of the date of this letter and to hand off responsibility for such activities to
Sonus (including but not limited to *;
(ii) providing advice to Sonus in connection with Sonus's taking
over such activities; and
(iii) continuing such activities as are legally required by
virtue of the designation of certain Abbott employees within the EU, as of the
date of this letter, as "responsible persons" in connection with the Product in
the EU and/ or in EU member states.
7. In consideration for the obligations undertaken by Abbott pursuant to this
letter, and in partial recognition of the value added to the Product by virtue
of Abbott's performance under the International Agreement, Sonus shall make the
following payments to Abbott:
(a)
(i) If Sonus requests and Abbott provides services pursuant to
section 6 above, then in consideration for the provision by Abbott of such
services, Sonus shall pay to Abbott a fee for services equal to *. If Sonus
requests, Abbott shall provide Sonus with an estimate of the costs prior to
providing services and shall promptly advise Sonus of any material variance from
the estimate.
(ii) Abbott shall invoice Sonus for Abbott's services (and, if
applicable, for Abbott's cost for engaging additional resources) on a quarterly
basis, and Sonus shall make each payment to Abbott within thirty (30) days of
Sonus's receipt of such invoice.
(iii) Notwithstanding any provision elsewhere in this letter,
Sonus acknowledges and agrees that, since the assistance to be rendered by
Abbott pursuant to section 6(c)(iii) above arises from legal requirement, Abbott
shall render such assistance, and Sonus shall pay for such assistance as
provided in this section 7(a), regardless of whether Sonus specifically requests
such assistance, until such time as Sonus removes the designation of Abbott and
Abbott's employees as "responsible persons" in connection with the Product in
the EU and in EU member states pursuant to section 9 below.
(b) (i) Regardless of whether Sonus requests and Abbott provides
services pursuant to section 6 above, for a period commencing on the date of
this letter ("Profit Sharing Commencement Date") and ending on the later of (i)
five (5) years from the Profit Sharing Commencement Date, or (ii) the date
Abbott should cease co-marketing SonoGen (as defined in Paragraph 10 below) in
the event Abbott exercises its option to co-market as provided in Paragraph 10
below, Sonus shall pay to Abbott twenty-one percent (21%) of Sonus Net Profit on
Sonus and Sonus Partner sales of the Product in the Territory for so long as
that certain Agreement dated May
*Confidential portions omitted and filed separately with the Commission.
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14, 1996 between Sonus and Abbott Laboratories, as amended on January 31, 1999
by that certain First Amendment to Agreement (collectively, the "HPD Agreement")
is in full force and effect under the terms currently set forth therein. In the
event that the terms of the HPD Agreement as currently set forth therein should
be modified or amended in any material respect which is financially adverse to
Sonus, Abbott and Sonus agree to renegotiate, in good faith, a reduction of the
rate of the Abbott Profit Split set forth above to reflect the changed nature of
the HPD Agreement resulting from such modification or amendment. In the event
the parties are unable to agree upon the reduction in the Abbott Profit Split
within thirty (30) days of the commencement of negotiations, the matter shall be
resolved by the Alternative Dispute Resolution ("ADR") procedure as provided in
Section 14 below, provided that in no event shall Abbott be entitled to the
Abbott Profit Split if the HPD Agreement is cancelled or rescinded by Abbott. In
the event that any reduction to the Abbott Profit Split becomes necessary under
this Section 7(b), the twenty-one percent (21%) Abbott Profit Split shall
continue to be applicable until the date on which the parties agree as to the
reduced Abbott Profit Split or the date on which the ADR neutral has issued his
or her final decision determining such reduced Abbott Profit Split, whichever
occurs sooner. As used herein Sonus Net Profit shall mean the net revenues
received by Sonus from sales of the Product in the Territory determined in
accordance with generally accepted accounting principles (including revenues
received by Sonus from Sonus Partners relating to the sale of the Product in the
Territory), net of sales, use, value-added or other similar taxes,
transportation, shipping or delivery charges, and discounts actually granted,
and less direct expenses associated with the manufacturing, marketing, sale and
distribution of the Product, including without limitation any fees payable to
Abbott under paragraph 7(a) above. Anything herein to the contrary
notwithstanding, the obligations of Sonus to make payments to Abbott under this
Paragraph 7(b) shall terminate in the event Abbott or its Affiliates and/or
third party agents or representatives should market or sell a competing product
in the Territory. For the purpose of this Paragraph 7(b), a "competing product"
means an ultrasound contrast agent for intravenous injection.
The following examples are provided by way of illustration only:
Scenario #1 (Abbott performs services requested by Sonus; current HPD
Agreement in effect)
*
Scenario #2 (Abbott does not perform services; current HPD Agreement in
effect)
*
*Confidential portions omitted and filed separately with the Commission.
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*
Scenario #3 (Abbott performs services requested by Sonus; current HPD
Agreement in effect, Sonus Partners pay royalties)
*
(ii) Sonus shall pay the Abbott Profit Split to Abbott on a
quarterly basis, and shall make each payment to Abbott within thirty (30) days
after the end of each calendar quarter in which any Sonus Partner makes any
sales of the Product in the Territory.
(iii) At the same time as Sonus makes each Abbott Profit Split
payment to Abbott, Sonus shall provide Abbott with a report setting forth the
calculation of the Abbott Profit Split for the calendar quarter in question,
showing: the aggregate net revenues of Sonus, in the Territory; Sonus's
aggregate direct costs, Abbott's aggregate fees for services (if any), Sonus's
aggregate payment(s) to Sonus Partners (net of any rebate received by Sonus from
Sonus Partners), and Sonus Net Profit. The net revenues of Sonus shall be
translated from local currency into United States dollars at the average
exchange rate published in International Financial Statistics by the
International Monetary Fund for the month ending in the calendar quarter covered
in the report.
(c) Sonus shall pay to Abbott fifty percent (50%) of any prepaid
royalties or other upfront, fees or consideration which are paid by Sonus
Partners to Sonus upon or in connection with the initiation of the relationship
and/or any other cash payments received by Sonus during the term of the
agreement with any Sonus Partner which are based upon the occurrence of
milestones or events and which are not in the nature of recurring royalties
based upon the sales or profits from sales of the Product by Sonus Partners in
the Territory, excluding any payments for equity of Sonus or which are in the
nature of payments or reimbursement for Sonus's actual cost plus a reasonable
markup for research and development, including without limitation, clinical
studies, performed or directed by Sonus for the benefit of such Sonus Partner
(the "Sonus Partner Fees"). Any amounts received by Sonus which are paid by
Sonus Partners but which are not Sonus Partner Fees, shall nonetheless
constitute revenue of Sonus if appropriate under generally accepted accounting
principles for the purpose of determining Sonus Net Profit under Paragraph 7(b)
above. Sonus shall be obligated to make payments under this Paragraph 7(c)
during the same period Sonus is obligated to make payments to Abbott under
Paragraph 7(b) above. Payments of the percentage of Sonus Partner Fees shall be
made within thirty (30) days after the end of the calendar quarter in which
Sonus receives each such Sonus Partner Fees from Sonus Partners. One half of the
amounts paid by Sonus to Abbott under this Paragraph 7(c) shall be applied as a
credit against any obligation of Sonus to make payments to Abbott under
Paragraph 7(b) above.
*Confidential portions omitted and filed separately with the Commission.
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8. (a) All payments made by Sonus to Abbott pursuant to this letter shall
be in United States dollars by wire transfer. Abbott shall provide Sonus with
all necessary wire transfer instructions and information.
(b) If any payment by Sonus is more than 30 days overdue, then Sonus
shall also pay to Abbott interest on the overdue payment, running from the date
on which payment was due, at the United States prime rate of interest then
prevailing as published in the Wall Street Journal (Midwest Edition).
(c) Where any sum due to be paid to Abbott hereunder is subject to any
withholding or similar tax, the parties shall use their commercially reasonable
best efforts to do all such acts and things and to sign all such documents as
will enable them to take advantage of any applicable double taxation agreement
or treaty. In the event there is no applicable double taxation agreement or
treaty, or if an applicable double taxation agreement or treaty reduces but does
not eliminate such withholding or similar tax, Sonus shall pay such withholding
or similar tax to the appropriate government authority, deduct the amount paid
from the amount due Abbott and secure and send to Abbott the best available
evidence of such payment.
(d) Sonus shall keep complete copies of all agreements with Sonus
Partners and all records relating to the payments made and/or owing to Abbott
pursuant to this letter, and to the calculation of such payments, and shall
maintain copies of such agreements and such records for a period of four (4)
years after the sales period to which such records relate. During this period,
copies of such agreements and such records shall be open to inspection upon
reasonable written notice by Abbott to Sonus. Such inspection shall be performed
by an independent certified public accountant, selected by Abbott and approved
by Sonus (such approval not to be unreasonably withheld). Abbott shall bear the
cost of such inspection, except that if an inspection reveals that payments to
Abbott have been understated by five percent (5%) or more, and if the
understatement is greater than $25,000, Sonus shall pay the cost of such
inspection, the understated amount, and interest on the understated amount
running from the date on which the payment was originally due at United States
prime rate of interest then prevailing as published in the Wall Street Journal
(Midwest Edition). Any independent certified public accountant engaged by Abbott
shall for an inspection hereunder shall sign a confidentiality agreement prior
to any audit and then shall have the right to examine the agreements and records
kept pursuant to this subsection 8(d) and report findings (but not disclosure of
the specific terms of the agreements or the underlying data) of the examination
to Abbott as is necessary to evidence that the records were or were not
maintained and used in accordance with this section 8(d) and to evidence that
the calculation of the payments to be made and/or owing to Abbott pursuant to
this letter was or was not made in accordance with the terms of this letter. A
copy of any report provided to Abbott by the independent certified public
accountant hereunder shall be given concurrently to Sonus.
(e) Sonus represents and warrants to Abbott that: (i) any and all
agreements between Sonus and Sonus Partners in connection with the Product shall
be entered into in good faith with terms and conditions negotiated at arms'
length and not in any way structured, written or otherwise devised so as to
avoid any part or all of Sonus's obligations to pay Abbott pursuant to section 7
above
(f) Sonus acknowledges and agrees that Sonus shall bear all
responsibility and liability with respect to any and all third parties in
connection with any services provided by Abbott to Sonus and/or Sonus Partners
under this letter, subject only to paragraph 1 above.
*Confidential portions omitted and filed separately with the Commission.
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9. Notwithstanding any provision elsewhere in this letter, Sonus shall use its
commercially reasonable best efforts, as expeditiously as possible, to replace
Abbott's employees in the EU as designated "responsible persons" in connection
with the Product in the EU and in EU member states, with Sonus employees, Sonus
Partners, or any other Sonus representative, agent or contractor (at Sonus's
sole discretion as to the specific choice of replacement individuals) ("Sonus
Replacements"), including but not limited to the prompt submission of any and
all such applications, notifications, variations and other materials or
information required by the relevant EU and EU member state authorities in order
to end any legal responsibility on the part of Abbott and/or Abbott's employees
in the EU as "responsible persons" in connection with the Product in the EU and
in EU member states. Abbott shall fully cooperate with Sonus in such transition
and shall provide Sonus with such assistance as Sonus may reasonably request in
connection therewith, pursuant to section 6(c)(iii) above. On a country by
country basis, Abbott's obligations under section 6(c)(iii) above shall cease as
Abbott's employees in the EU are removed as "responsible persons" in connection
with the Product in the EU and in EU member states. Sonus acknowledges and
agrees that, if Sonus has not replaced all of Abbott's employees in the EU who
are such "responsible persons" as of the date of this letter with Sonus
Replacements, by at least twelve (12) months prior to the end of the three (3)
year period applicable to section 6 above, then Sonus shall, no later than
eleven (11) months prior to the end of such three (3) year period, submit any
and all such applications, notifications, variations and other materials or
information required by the relevant EU and EU member state authorities, in
order to end any legal responsibility on the part of Abbott and Abbott's
employees in the EU and in EU member states as "responsible persons" in
connection with the Product in the EU and in EU member states, regardless of
whether or not any Sonus Replacement(s) have been identified or submitted at
that time.
10. Sonus hereby grants to Abbott the option to co-market that product
identified by Sonus as "QW7437" and also known as SonoGen(R), including all
improvements thereon ("SonoGen"), in the Territory, subject to the terms and
conditions of a separate agreement to be negotiated in good faith by the
parties, which terms shall be no less, nor no more, favorable in any material
respect from the terms of any agreement between Sonus and any third party in the
applicable country included within the Territory, or, if there is no such
agreement in the relevant country in the Territory, on terms and conditions
substantially similar to those of the International Agreement. Abbott shall have
the right to exercise this option for a period (the "Option Period") commencing
on the date of this letter and ending on the earlier to occur of (i) five (5)
years from the date of this letter, or (ii) the date the obligations of Abbott
under Section 11 below should terminate. The option to co-market may be
exercised only one time for the entire Territory. Abbott may irrevocably
terminate its option to co-market upon notice to Sonus at any time after the
date of this letter in which event the rights of Abbott under this Paragraph 10
and the obligations of Abbott under Paragraph 11 shall terminate. Sonus shall
not grant any rights to market, distribute or sell SonoGen in the Territory to
more than one (1) other third party in a given country in the Territory and
shall not, by itself or through any Sonus Affiliate, market, distribute or sell
SonoGen in a given country in the Territory if such action by Sonus would cause
there to be more than two entities (one of which being Abbott) marketing,
distributing or selling SonoGen in such country in the Territory at the same
time.
11. For a period commencing on the date of this letter and continuing until the
later to occur of: (i) the end of the Option Period or (ii) the end of the
period of time during which Abbott is exercising its co-marketing rights as
provided in paragraph 10 above, Abbott shall not (nor shall Abbott cause its
Affiliates and/or third party agents or representatives to) market or sell a
competing product in the Territory. The above notwithstanding, the obligations
of Abbott under this paragraph 11 shall
*Confidential portions omitted and filed separately with the Commission.
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terminate at such date on which Abbott notifies Sonus that it has terminated its
option to co-market under paragraph 10 above or the expiration of the Option
Period. For the purposes of this section 11, a "competing product" means an
ultrasound contrast agent for intravenous injection.
12. Either party may terminate the rights and obligations of sections 1 through
18 of this letter (not including the rescission of the International Agreement)
in accordance with the following provisions (in addition to any other rights and
remedies which may be available to that party):
(a) By notice by one party to the other party upon (i) the insolvency of
the other party, or the appointment of a receiver by the other party for all or
any substantial part of its properties, provided that such receiver is not
discharged within sixty (60) days of his/her appointment; (ii) the adjudication
of the other party as a bankrupt; (iii) the admission by the other party in
writing of its inability generally to pay its debts as they become due; (iv) the
execution by the other party of an assignment for the benefit of its creditors;
or (v) the filing by the other party of a petition to be adjudged a bankrupt, or
a petition or answer admitting the material allegations of a petition filed
against the other party in any bankruptcy proceeding, or the act of the other
party in instituting or voluntarily being or becoming a party to any other
judicial proceeding intended to effect a discharge of the debts of the other
party, in whole or in substantial part.
(b) By ninety (90) days notice by one party to the other party of the
other party's breach of a material provision of this letter, provided that the
other party has failed to remedy such breach to the notifying party's reasonable
satisfaction within such ninety (90) day period.
13. Neither party may assign or transfer its obligations under this letter, by
operation of law or otherwise, except that either party may assign this letter
to any of its Affiliates, or to any successor by merger or sale of substantially
all of its business unit to which this letter relates without the consent of the
other party. This letter and the rights and obligations hereof shall inure to
the benefit of and be binding upon the parties hereto and their permitted
assigns.
14. Any dispute that arises in connection with this letter shall first be
presented to the respective presidents of Abbott and of Sonus, or their
designees, for resolution. If no resolution is reached, then such dispute shall
be resolved by binding ADR in the manner described in Appendix 14 attached
hereto and made a part hereof.
15. The relationship of the parties under this letter is that of independent
contractors. Nothing in this letter shall be construed or is intended so as to
constitute the parties as partners, joint venturers, or either party as an agent
or employee of the other. Neither party has any express or implied right under
this letter to assume or create any obligation on behalf of or in the name of
the other, or to bind the other party to any contract, agreement or undertaking
with any third party, and no conduct of the parties shall be deemed to infer
such right.
16. This letter sets forth the entire understanding and agreement of the parties
with respect to the subject matter hereof and supercedes any and all prior
agreements, written and oral, between the parties. No modification of any of the
terms of this letter shall be valid, including any course of dealing or usage of
trade, unless it is made in writing and signed by both parties. If any term or
provision of this letter shall for any reason be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other term or provision hereof.
*Confidential portions omitted and filed separately with the Commission.
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17. No waiver by either party of any default, right or remedy shall be effective
unless in writing, nor shall any such waiver operate as a waiver of any other or
of the same default, right or remedy respectively, on a future occasion.
18. This letter shall be governed by the laws of the state of Washington,
excluding its choice of laws provisions.
If you are in agreement, please sign both originals of this letter and
return one fully-executed original to me.
Very truly yours,
/s/ William Dempsey
William Dempsey
ACCEPTED:
SONUS PHARMACEUTICALS, INC.
By: /s/ Michael A. Martino
--------------------------
Title: President and CEO
-----------------------
*Confidential portions omitted and filed separately with the Commission.
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ALTERNATIVE DISPUTE RESOLUTION
The parties recognize that a bona fide dispute as to certain matters may arise
from time to time during the term of this Agreement which relates to either
party's right and/or obligations. To have such a dispute resolved by this
Alternative Dispute Resolution ("ADR") provision, a party first must send
written notice of the dispute to the other party for attempted resolution by
good faith negotiations between their respective presidents (or their
equivalents) of the affected subsidiaries, divisions, or business units within
twenty-eight (28) days after such notice is received (all references to "days"
in this ADR provision are to calendar days).
If the matter has not been resolved within twenty-eight (28) days of the notice
of dispute, or if the parties fail to meet within such twenty-eight (28) days,
either party may initiate an ADR proceeding as provided herein. The parties
shall have the right to be represented by counsel in such a proceeding.
1. Initiation of ADR Proceeding. To begin an ADR proceeding, a party shall
provide written notice to the other party of the issues to be resolved
by ADR. Within fourteen (14) days after its receipt of such notice, the
other party may, by written notice to the party initiating the ADR, add
additional issues to be resolved within the same ADR.
2. Selection of Neutral. Within twenty-one (21) days following receipt of
the original ADR notice, the parties shall select a mutually acceptable
neutral to preside in the resolution of any disputes in this ADR
proceeding. If the parties are unable to agree on a mutually acceptable
neutral within such period, either party may request the President of
the CPR Institute for Dispute Resolution ("CPR"), 366 Madison Avenue,
14th Floor, New York, New York 10017, to select a neutral pursuant to
the following procedures:
(a) The CPR shall submit to the parties a list of not less than five
(5) candidates within fourteen (14) days after receipt of the
request, along with a Curriculum Vitae for each candidate. No
candidate shall be an employee, director, or shareholder of
either party or any of their subsidiaries or affiliates.
(b) Such list shall include a statement of disclosure by each
candidate of any circumstances likely to affect his or her
impartiality.
(c) Each party shall number the candidates in order of preference
(with the number one (1) signifying the greatest preference) and
shall deliver the list to the CPR within seven (7) days following
receipt of the list of candidates. If a party believes a conflict
of interest exists regarding any of the candidates, that party
shall provide a written explanation of the conflict to the CPR
along with its list showing its order of preference for the
candidates. Any party failing to return a list of preferences on
tie shall be deemed to have no order of preference.
(d) If the parties collectively have identified fewer than three (3)
candidates deemed to have conflict, the CPR immediately shall
designate as the neutral the candidate
*Confidential portions omitted and filed separately with the Commission.
11
<PAGE> 12
for whom the parties collectively have indicated the greatest
preference. If a tie should result between two candidates, the
CPR may designate either candidate. If the parties collectively
have identified three (3) or more candidates deemed to have
conflicts, the CPR shall review the explanations regarding the
conflicts and, in its sole discretion, may either (i)
immediately designate as the neutral the candidate for whom the
parties collectively have indicated the greatest preference, or
(ii) issue a new list of not less than five (5) candidates, in
which case the procedures set forth in subparagraphs 2(a) - 2(d)
shall be repeated.
3. Hearing. No earlier than twenty-eight (28) days or later than fifty six
(56) days after selection, the neutral shall hold a hearing to resolve
each of the issues identified by the parties. The ADR proceeding shall
take place at a location agreed upon by the parties. If the parties
cannot agree, the neutral shall designate a location other than the
principal place of business of either party or any of their subsidiaries
or affiliates.
4. Exchange of Information Within thirty-five (35) days following receipt
of the original ADR notice, each party shall submit the following to the
other party and neutral:
(a) a copy of all documents on which such party intends to rely in
any oral or written presentation to the neutral; and
(b) a list of any witnesses such party intends to call at the
hearing, and a short summary of the anticipated testimony of each
witness.
At least fourteen (14) days prior to the hearing, each party shall
submit the following to the other party and the neutral:
(c) a proposed ruling on each issue to be resolved, together with a
request for a specific damage award or other remedy for each
issue. The proposed rulings and remedies shall not contain any
recitation of the facts or any legal arguments and shall not
exceed one (1) page per issue.
(d) a brief in support of such party's proposed rulings and remedies,
provided that the brief shall not exceed twenty (20) pages. This
page limitation shall apply regardless of the number of issues
raised in the ADR proceeding.
Except as expressly set forth in subparagraphs 4(a) - 4(d), no discovery
shall be required or permitted by any means, including depositions,
interrogations, request for admissions or production of documents.
5. Conduct of Hearing. The hearing shall be conducted on two (2)
consecutive days and shall be governed by the following rules:
12
<PAGE> 13
(a) Each party shall be entitled to five (5) hours of hearing time to
present its case. The neutral shall determine whether each party
has had the five (5) hours to which it is entitled.
(b) Each party shall be entitled, but not required, to make an
opening statement to present regular and rebuttal testimony,
documents or other evidence, to cross-examine witnesses, and to
make a closing argument. Cross-examination of witnesses shall
occur immediately after their direct testimony, and
cross-examination time shall be charged against the party
conducting the cross-examination.
(c) The party initiating the ADR shall begin the hearing and, if it
chooses to make an opening statement, shall address not only
issues it raised but also any issues raised by the responding
party. The responding party, if it chooses to make an opening
statement, also shall address all issues raised in the ADR.
Thereafter, the presentation of regular and rebuttal testimony
and documents, other evidence, and closing arguments shall
proceed in the same sequence.
(d) Except when testifying, witnesses shall be excluded from the
hearing until closing arguments.
(e) Settlement negotiations, including any statements made therein,
shall not be admissible under any circumstances. Affidavits
prepared for purposes of the ADR hearing also shall not be
admissible. As to all other matters, the neutral shall have sole
discretion regarding the admissibility of any evidence.
6. Post-Hearing Brief. Within seven (7) days following completion of the
hearing, each party may submit to the other party and the neutral a
post-hearing brief in support of its proposed rulings and remedies,
provided that such brief shall not contain or discuss any new evidence
and shall not exceed ten (10) pages. This page limitation shall apply
regardless of the number of issues raised in the ADR proceeding.
Within eleven (11) days following completion of the hearing, each party
may submit to the other party and the neutral a post-hearing rebuttal
brief, responding to the matters raised in the other party's post
hearing brief, provided that such rebuttal brief shall only respond to
matters raised in the other party's post-hearing brief, shall not
contain or discuss any new evidence, and shall not exceed five (5)
pages.
7. Ruling. The neutral shall rule on each disputed issue within seventeen
(17) days following completion of the hearing. Such ruling shall adopt
in its entirety the proposed rulings and remedy of one of the parties on
each disputed issue but may adopt one party's proposed rulings and
remedies on some issues and the other party's proposed rulings and
remedies on other issues. The neutral shall not issue any written
opinion or otherwise explain the basis of the ruling.
*Confidential portions omitted and filed separately with the Commission.
13
<PAGE> 14
8. Neutral's Fees. The neutral shall be paid a reasonable fee plus
expenses. These fees and expenses, along with the reasonable legal fees
and expenses of the prevailing party (including all expert witness fees
and expenses), the fees and expenses of a court reporter, and any
expenses for a hearing room, shall be paid as follows:
(a) If the neutral rules in favor of one party on all disputed issues
in the ADR, the losing party shall pay 100% of such fees and
expenses.
(b) If the neutral rules in favor of one party on some issues and the
other party on other issues, the neutral shall issue with the
rulings a written determination as to how such fees and expenses
shall be allocated between the parties. The neutral shall
allocate fees and expenses in a way that bears a reasonable
relationship to the outcome of the ADR, with the party prevailing
on more issues, or on issues of greater value or gravity,
recovering a relatively larger share of its legal fees and
expenses.
9. Binding Ruling. The rulings of the neutral and the allocation of fees
and expenses shall be binding, non-reviewable, and non-appealable, and
may be entered as a final judgement in any court having jurisdiction.
10. Confidentiality. Except as provided in Section 9 above or as required by
law, the existence of the dispute, any settlement negotiations, the ADR
hearing, any submissions (including exhibits, testimony, proposed
rulings, and briefs), and rulings shall be deemed Confidential
Information. The neutral shall have the authority to impose sanctions
for unauthorized use or disclosure of Confidential Information.
*Confidential portions omitted and filed separately with the Commission.
14
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