-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BPYi5oHqTfXhHT7NzVd3iWbnoqZZXIFnhGjY8B/RsdrkLqDXykHNmUZgjBGYGrHN 1P82RP5vRHNx2RT9CLB4bw== 0000912057-99-004531.txt : 19991111 0000912057-99-004531.hdr.sgml : 19991111 ACCESSION NUMBER: 0000912057-99-004531 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE PHARMACEUTICAL CORP CENTRAL INDEX KEY: 0000736994 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 141644018 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12950 FILM NUMBER: 99746092 BUSINESS ADDRESS: STREET 1: 3040 SCIENCE PARK RD CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6195584300 MAIL ADDRESS: STREET 1: 3040 SCIENCE PARK ROAD CITY: SAN DIEGO STATE: CA ZIP: 92121 FORMER COMPANY: FORMER CONFORMED NAME: OTISVILLE BIOPHARM INC DATE OF NAME CHANGE: 19890310 FORMER COMPANY: FORMER CONFORMED NAME: OTISVILLE BIOTECH INC DATE OF NAME CHANGE: 19861216 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) 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 0-12950 ALLIANCE PHARMACEUTICAL CORP. (Exact name of Registrant as specified in its charter) New York 14-1644018 - --------------------------- --------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 3040 Science Park Road San Diego, California 92121 - --------------------------- --------------------------- (Address of principal Zip Code executive offices) Registrant's telephone number, including area code: (858) 410-5200 --------------------------- Indicate by a check whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes X No --------------- -------------- As of November 4, 1999, Registrant had 44,649,224 shares of its Common Stock, $.01 par value, outstanding. ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
INDEX Page No. - ----- -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II - OTHER INFORMATION Item 1. Legal Proceedings 12 Item 6. Exhibits and Reports on Form 8-K 13
2 PART I FINANCIAL INFORMATION: ITEM 1. FINANCIAL STATEMENTS ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------
SEPTEMBER 30, JUNE 30, 1999 1999 ------------ ------------ ASSETS (UNAUDITED) (NOTE) CURRENT ASSETS: Cash and cash equivalents $ 9,171,000 $ 19,081,000 Research revenue receivable 2,239,000 4,875,000 Other current assets 467,000 413,000 ------------ ------------ Total current assets 11,877,000 24,369,000 PROPERTY, PLANT AND EQUIPMENT - NET 23,336,000 24,621,000 PURCHASED TECHNOLOGY - NET 10,981,000 11,361,000 RESTRICTED CASH 5,000,000 5,000,000 OTHER ASSETS - NET 623,000 633,000 ------------ ------------ $ 51,817,000 $ 65,984,000 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,171,000 $ 4,910,000 Accrued expenses 4,522,000 4,280,000 Current portion of long-term debt 4,336,000 4,170,000 ------------ ------------ Total current liabilities 11,029,000 13,360,000 LONG-TERM DEBT 9,222,000 10,499,000 STOCKHOLDERS' EQUITY: Preferred stock - $.01 par value; 5,000,000 shares authorized; 500,000 shares of Series D issued and outstanding at September 30, 1999 and June 30, 1999 5,000 5,000 Common stock - $.01 par value; 75,000,000 shares authorized; 43,511,286 and 43,510,049 shares issued and outstanding at September 30, 1999 and June 30, 1999, respectively 435,000 435,000 Additional paid-in capital 368,570,000 368,409,000 Accumulated deficit (337,444,000) (326,724,000) ------------ ------------ Total stockholders' equity 31,566,000 42,125,000 ------------ ------------ $ 51,817,000 $ 65,984,000 ------------ ------------ ------------ ------------
Note: The balance sheet at June 30, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3 ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999 1998 ------------- ------------ (Unaudited) REVENUES: License and research revenue $ 1,568,000 $ 5,100,000 OPERATING EXPENSES: Research and development 10,413,000 13,546,000 General and administrative 1,712,000 2,185,000 ------------- ------------ 12,125,000 15,731,000 ------------- ------------ LOSS FROM OPERATIONS (10,557,000) (10,631,000) INVESTMENT INCOME 210,000 635,000 INTEREST EXPENSE (373,000) (193,000) ------------- ------------ NET LOSS (10,720,000) (10,189,000) IMPUTED DIVIDEND ON SERIES E-1 PREFERRED STOCK - (483,000) ------------- ------------ NET LOSS APPLICABLE TO COMMON SHARES $ (10,720,000) $(10,672,000) ------------- ------------ ------------- ------------ NET LOSS PER COMMON SHARE: Basic and diluted $ (0.25) $ (0.33) ------------- ------------ ------------- ------------ WEIGHTED AVERAGE SHARES OUTSTANDING: Basic and diluted 43,510,000 32,021,000 ------------- ------------ ------------- ------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999 1998 ------------- ------------- (UNAUDITED) OPERATING ACTIVITIES: Net loss $ (10,720,000) $ (10,189,000) Adjustments to reconcile net loss to net cash used in operations: Depreciation and amortization 1,811,000 1,360,000 Expense associated with warrant issuance 144,000 - Changes in operating assets and liabilities: Research revenue receivable 2,636,000 808,000 Other assets (44,000) 21,000 Accounts payable and accrued expenses and other (2,497,000) (1,834,000) ------------- ------------- Net cash used in operating activities (8,670,000) (9,834,000) ------------- ------------- INVESTING ACTIVITIES: Purchases of short-term investments - (13,955,000) Sales and maturities of short-term investments - 28,069,000 Property, plant and equipment (83,000) (2,213,000) ------------- ------------- Net cash provided by (used in) investing activities (83,000) 11,901,000 ------------- ------------- FINANCING ACTIVITIES: Issuance of common stock 17,000 - Issuance of convertible preferred stock - 5,621,000 Principal payments on long-term debt (1,174,000) (143,000) ------------- ------------- Net cash provided by (used in) financing activities (1,157,000) 5,478,000 ------------- ------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,910,000) 7,545,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,081,000 11,809,000 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,171,000 $ 19,354,000 ------------- ------------- ------------- ------------- SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Deferred interest expense on long-term debt $ 63,000 $ - Imputed dividend on preferred stock - 483,000
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5 ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Alliance Pharmaceutical Corp. and its subsidiaries (collectively, the "Company" or "Alliance") are engaged in identifying, designing, and developing novel medical products. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Alliance Pharmaceutical Corp., its wholly owned subsidiary Astral, Inc., its wholly owned subsidiary MDV Technologies, Inc. ("MDV") from the acquisition date of November 1996, its wholly owned subsidiary Alliance Pharmaceutical GmbH, from its inception in December 1998, and its majority-owned subsidiary, Talco Pharmaceutical, Inc. All significant intercompany accounts and transactions have been eliminated. Certain amounts in 1999 have been reclassified to conform to the current year's presentation. INTERIM CONDENSED FINANCIAL STATEMENTS The condensed consolidated balance sheet as of September 30, 1999, the condensed consolidated statements of operations for the three months ended September 30, 1999 and 1998, and the condensed consolidated statements of cash flows for the three months ended September 30, 1999 and 1998 are unaudited. In the opinion of management, such unaudited financial statements include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results for the periods presented. Interim results are not necessarily indicative of the results to be expected for the full year. The financial statements should be read in conjunction with the Company's consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended June 30, 1999. PURCHASED TECHNOLOGY The purchased technology was primarily acquired as a result of the merger of Fluoromed Pharmaceutical, Inc. into a subsidiary of the Company in 1989. The technology acquired is the Company's core perfluorochemical ("PFC") technology and was valued based on an analysis of the present value of future earnings anticipated from this technology at that time. The Company identified alternative future uses for the PFC technology, including the OXYGENT-TM- (temporary blood substitute) and LIQUIVENT-Registered Trademark- (intrapulmonary oxygen carrier) products. Purchased technology also includes $2 million for technology capitalized as a result of the acquisition of BioPulmonics, Inc. ("BioPulmonics") in December 1991. Since the acquisition, an alternative future use of the acquired technology has been pursued by the Company. An intrapulmonary drug delivery system using the PFC-based liquid as a carrier (or dispersing agent) is being developed by Alliance from the liquid ventilation technology. The PFC technology is the basis for the Company's main drug development programs and is being amortized over a 20-year life. The PFC technology has a net book value of $10.9 million and $11.2 million, and is reported net of accumulated amortization of $12.3 million and 6 $12 million at September 30 and June 30, 1999, respectively. The technology acquired from BioPulmonics has a net book value of approximately $43,000 and $129,000, is being amortized over five to seven years, and is reported net of accumulated amortization of $2 million and $1.9 million at September 30 and June 30, 1999, respectively. The carrying value of purchased technology is reviewed periodically based on the projected cash flows to be received from license fees, milestone payments, royalties, and other product revenues. If such cash flows are less than the carrying value of the purchased technology, the difference will be charged to expense. COMPREHENSIVE INCOME AND LOSS Effective July 1, 1998, the Company adopted the Financial Accounting Standards Board's Statement No. 130, Comprehensive Income ("SFAS No. 130"). SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS No. 130 had no impact on the Company's net loss or stockholders' equity. SFAS No. 130 requires unrealized gains and losses on the Company's available-for-sale securities to be included in comprehensive income. During the three months ended September 30, 1999 and 1998, the total comprehensive loss, which includes the unrealized loss on available-for-sale securities, was $10,720,000 and $10,206,000, respectively. NET INCOME (LOSS) PER SHARE The Company computes net loss per common share in accordance with Financial Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128"). SFAS No. 128 requires the presentation of basic and diluted earnings per share amounts. Basic earnings per share is calculated based upon the weighted average number of common shares outstanding during the period while diluted earnings per share also gives effect to all potential dilutive common shares outstanding during the period such as common shares underlying options, warrants, and convertible securities, and contingently issuable shares. All potential dilutive common shares have been excluded from the calculation of diluted earnings per share as their inclusion would be anti-dilutive. 2. SUBSEQUENT EVENT In November 1999, the Company completed the sale of certain aspects of its PulmoSpheres-Registered Trademark-technology to Inhale Therapeutic Systems, Inc. ("Inhale") for $15 million in cash and $5 million in common stock of Inhale, plus additional future milestone and royalty payments. In consideration for retaining certain rights to use the technology, Alliance issued $5 million in Alliance common stock to Inhale. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (References to years are to the Company's fiscal years ended June 30.) Alliance has devoted substantial resources to research and development related to its medical products. The Company has been unprofitable since inception and expects to incur operating losses for at least the next several years due to substantial spending on research and development, preclinical testing, clinical trials, regulatory activities, and commercial manufacturing start-up. The Company has collaborative research and development agreements 7 for IMAGENT-Registered Trademark- and RODA-TM-. Under the arrangement for IMAGENT, Schering AG, Germany ("Schering") has agreed to reimburse the Company for some of its development expenses. Schering will also make milestone payments to the Company upon the achievement of certain product development events, followed by royalties on sales at commercialization. With respect to RODA, the Company has agreed to reimburse VIA Medical Corporation ("VIA") for substantially all of its development expenses and to share revenues from the sale of products. Due to the termination of the license agreement (the "HMRI License Agreement") with Hoechst Marion Roussel, Inc. ("HMRI") in December 1997, the restructuring of the license agreement (the "Ortho License Agreement") with Ortho Biotech, Inc. and The R.W. Johnson Pharmaceutical Research Institute, a division of Ortho Pharmaceutical Corporation, both affiliates of Johnson & Johnson (collectively referred to as "Ortho") in May 1998, and the reduction in the on-going reimbursements from Schering, Alliance has incurred a substantial increase in development expenses related to LIQUIVENT and OXYGENT and a substantial decrease in related research revenue relative to prior years. There can be no assurance that the Company will be able to achieve profitability at all or on a sustained basis. LIQUIDITY AND CAPITAL RESOURCES Through September 1999, the Company financed its activities primarily from public and private sales of equity and funding from collaborations with corporate partners. To date, the Company's revenue from the sale of products has not been significant. In January 1997, the Company entered into a loan and security agreement with a bank under which the Company received $3.5 million. In June 1998, the Company restructured the loan to provide for up to $15 million. Amounts borrowed are secured by certain fixed assets and patents and are to be repaid over four years. If certain financial covenants are not satisfied, the outstanding balance may become due and payable. On September 30, 1999, the balance outstanding on this loan was approximately $12.4 million. In September 1997, the Company entered into a license agreement (the "Schering License Agreement") with Schering, which provides Schering with worldwide exclusive marketing and manufacturing rights to Alliance's drug compounds, drug compositions, and medical devices and systems related to perfluorocarbon ultrasound imaging products, including IMAGENT. The product is being developed jointly by Alliance and Schering. Under the Schering License Agreement, Schering paid to Alliance in 1998 an initial license fee of $4 million, and agreed to pay further milestone payments and royalties on product sales. Schering is also providing funding to Alliance for some of its development expenses related to IMAGENT. In conjunction with the Schering License Agreement, Schering Berlin Venture Corp., an affiliate of Schering, purchased 500,000 shares of the Company's convertible Series D Preferred Stock for $10 million. From February 1996 through June 1997, HMRI was responsible for most of the costs of development and marketing of LIQUIVENT. In June 1997, the Company sold $2.5 million in clinical trial supplies to HMRI and recorded it as deferred revenue. As of July 1997, Alliance assumed responsibility for the costs of development of LIQUIVENT worldwide. In December 1997, the HMRI License Agreement was terminated and HMRI has no continuing rights to the development or marketing of LIQUIVENT. In September 1999, HMRI and Alliance dismissed a related arbitration proceeding that was filed in September 1998. HMRI agreed to sell and Alliance 8 agreed to purchase the clinical trial supplies from HMRI for up to $3 million over time and under certain circumstances. No other payments will be made by either party. From September 1994 until May 1998, under the Ortho License Agreement, Ortho was responsible for substantially all the costs of developing and marketing OXYGENT. In May 1998, Ortho and the Company restructured the Ortho License Agreement and Alliance assumed responsibility for worldwide development of OXYGENT at its expense. Under the restructured agreement, Ortho retained certain rights to be the exclusive marketing agent for the product, which rights have been re-acquired by the Company. As a result of the restructuring, Alliance incurred a substantial increase in development expenses related to OXYGENT and a substantial decrease in related research revenue over prior years. The Company had net working capital of $848,000 at September 30, 1999, compared to $11 million at June 30, 1999. The Company's cash, cash equivalents, and short-term investments decreased to $9.2 million at September 30, 1999 from $19.1 million at June 30, 1999. The decrease resulted primarily from cash used in operations of $8.7 million and principal payments on long-term debt of $1.2 million. The Company's operations to date have consumed substantial amounts of cash and are expected to continue to do so for the foreseeable future. The Company continually reviews its product development activities in an effort to allocate its resources to those product candidates that the Company believes have the greatest commercial potential. Factors considered by the Company in determining the products to pursue include projected markets and need, potential for regulatory approval and reimbursement under the existing healthcare system, status of its proprietary rights, technical feasibility, expected and known product attributes, and estimated costs to bring the product to market. Based on these and other factors, the Company may from time to time reallocate its resources among its product development activities. Additions to products under development or changes in products being pursued can substantially and rapidly change the Company's funding requirements. The Company expects to incur substantial additional expenditures associated with product development, particularly for LIQUIVENT and OXYGENT as they continue through pivotal clinical trials. The Company is seeking additional collaborative research and development relationships with suitable corporate partners for its non-licensed products. There can be no assurance that such relationships, if any, will successfully reduce the Company's funding requirements. Additional equity or debt financing may be required, and there can be no assurance that such financing will be available on reasonable terms, if at all. If adequate funds are not available, the Company may be required to delay, scale back, or eliminate one or more of its product development programs, or obtain funds through arrangements with collaborative partners or others that may require the Company to relinquish rights to certain of its technologies, product candidates, or products that the Company would not otherwise relinquish. Alliance anticipates that its current capital resources, expected revenue from the Schering License Agreement, proceeds from the recent Inhale transaction, and investments will be adequate to satisfy its capital requirements through March 2000. The Company's future capital requirements will depend on many factors, including, but not limited to, continued scientific progress in its research and development programs, progress with preclinical testing and clinical 9 trials, the time and cost involved in obtaining regulatory approvals, patent costs, competing technological and market developments, changes in existing collaborative relationships, the ability of the Company to establish additional collaborative relationships, and the cost of manufacturing scale-up. While the Company believes that it can produce materials for clinical trials and the initial market launch for OXYGENT and IMAGENT at its existing San Diego facilities and for LIQUIVENT at its Otisville, New York facility, it may need to expand its commercial manufacturing capabilities for its products in the future. Any expansion for any of its products may occur in stages, each of which would require regulatory approval, and product demand could at times exceed supply capacity. The Company has not selected a site for such expanded facilities and cannot predict the amount it will expend for the construction of such facilities. There can be no assurance as to when or whether the U.S. Food and Drug Administration ("FDA") will determine that such facilities comply with Good Manufacturing Practices. The projected location and construction of such facilities will depend on regulatory approvals, product development, and capital resources, among other factors. The Company has not obtained any regulatory approvals for its production facilities for these products, nor can there be any assurance that it will be able to do so. The Schering License Agreement requires the Company to manufacture products at its San Diego facility for a period of time after market launch at a negotiated price. Schering will be responsible for establishing production capacity beyond the maximum capacity of the San Diego facility. YEAR 2000 Many currently installed computer systems and software products are coded to accept only two-digi t entries in the date code field. Beginning in the year 2000, these date code fields will need to accept four-digit entries to distinguish the 21st century dates from 20th century dates. As a result, computer systems and/or software used by many companies may need to be upgraded to comply with such "Year 2000" requirements. Management has a continuing Year 2000 program which it believes has identified most, if not all, critical internal systems, software and embedded chips. The Company currently believes that at least 90% of its identified critical and non-critical internal systems, software and embedded chips are now compliant; however, no assurances can be given that operating problems will not occur. The Company continues to evaluate and remedy the remaining identified critical and non-critical internal systems. The Company has compliance confirmations from approximately 75% of its critical third-party suppliers, contractors and vendors (collectively, "contractors") with respect to their computers, s oftware and systems, and it believes that most of the remaining contractors will be compliant by December 31, 1999. However, no assurances can be given that the Company's contractors will be compliant. Many systems have already been replaced over the past two years in the ordinary course of Company plans for upgrading its equipment, software and systems. The Company has removed and exchanged several non-compliant systems and expects to continue such replacement or other remedial programs to assure that its computers, software and other systems will continue to operate in the Year 2000. Additionally, the Company has contingency plans for some of its external contractors, although there can be no assurance that such contingency plans will work or that there are contingency plans for all contractors whose equipment or systems may fail. The Company's cost to date to resolve its Year 2000 problems is not material and is expected to total less than $400,000; however, the actual total amount it will spend to remediate such issues 10 remains uncertain. The Company believes such costs will not have a material effect on the Company's consolidated financial position or results of operations. There can be no assurance, however, that the Company's computer systems and applications of other companies on which the Company's operations rely, will be timely converted, or that any such failure to convert by another company will not have a material adverse effect on the Company systems. Moreover, a failure of (i) the Company's scientific, manufacturing and other equipment to operate at all or operate accurately, (ii) clinical trial site medical equipment to perform properly, (iii) necessary materials or supplies to be available to the Company when needed, or (iv) other equipment, software or systems to perform properly, as a result of Year 2000 problems, could have a material adverse effect on the Company's business or financial condition. Except for historical information, the statements made herein and elsewhere are forward-looking. The Company wishes to caution readers that these statements are only predictions and that the Company's business is subject to significant risks. The factors discussed herein and other important factors, in some cases have affected, and in the future could affect, the Company's actual results and could cause the Company's actual consolidated results for 2000, and beyond, to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. These risks include, but are not limited to, the inability to obtain adequate financing for the Company's development efforts; the inability to enter into collaborative relationships to further develop and commercialize the Company's products; changes in any such relationships, or the inability of any collaborative partner to adequately commercialize any of the Company's products; the uncertainties associated with the lengthy regulatory approval process; the uncertainties associated with obtaining and enforcing patents important to the Company's business; possible competition from other products; and Year 2000 issues. Furthermore, even if the Company's products appear promising at an early stage of development, they may not reach the market for a number of important reasons. Such reasons include, but are not limited to, the possibilities that the potential products will be found ineffective during clinical trials; failure to receive necessary regulatory approvals; difficulties in manufacturing on a large scale; failure to obtain market acceptance; and the inability to commercialize because of proprietary rights of third parties. The research, development, and market introduction of new products will require the application of considerable technical and financial resources, while revenues generated from such products, assuming they are developed successfully, may not be realized for several years. Other material and unpredictable factors which could affect operating results include, without limitation, the uncertainty of the timing of product approvals and introductions and of sales growth; the ability to obtain necessary raw materials at cost-effective prices or at all; the effect of possible technology and/or other business acquisitions or transactions; and the increasing emphasis on controlling healthcare costs and potential legislation or regulation of healthcare pricing. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1999 AS COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 1998 The Company's license and research revenue decreased by 69% to $1.6 million for the three months ended September 30, 1999, compared to $5.1 million for the three months ended September 30, 1998. The decrease was primarily a result of the decreased research revenue from the Schering License Agreement and decreased development expense reimbursement from the 11 Ortho License Agreement. The Company expects revenue to increase in 2000 compared to 1999, due to the revenue from the Inhale transaction. Research and development expenses decreased by 23% to $10.4 million for the three months ended September 30, 1999, compared to $13.5 million for the three months ended September 30, 1998. The decrease in expenses was primarily due to a $1.6 million decrease in payments to outside researchers for preclinical and clinical trials and other product development work, a $1.2 million decrease in staffing costs for employees engaged in research and development activities, as well as other decreases related to the Company's research and development activities. General and administrative expenses decreased by approximately 23% to $1.7 million for the three months ended September 30, 1999, compared to $2.2 million for the three months ended September 30, 1998. The decrease in general and administrative expenses was primarily due to decreased salaries and wages and professional fees. Investment income was $210,000 for the three months ended September 30, 1999, compared to $635,000 for the three months ended September 30, 1998. The decrease was primarily a result of lower average cash and short-term investment balances. Interest expense was $373,000 for the three months ended September 30, 1999, compared to $193,000 for the three months ended September 30, 1998. The increase was primarily a result of higher average long-term debt balances. Alliance expects to continue to incur substantial expenses associated with its research and development programs. Operating losses may fluctuate from quarter to quarter as a result of differences in the timing of revenues earned and expenses incurred and such fluctuations may be substantial. The Company's historical results are not necessarily indicative of future results. PART II OTHER INFORMATION: ITEM 1. LEGAL PROCEEDINGS In September 1999, HMRI dismissed arbitration proceedings filed against the Company in September 1998 in connection with its termination of the HMRI License Agreement, seeking up to $16.8 million, plus interest and punitive damages. Additionally, at any time during the next two years HMRI has agreed to sell to Alliance raw materials (perflubron) for up to $3 million that Alliance can use for it is products. Alliance has committed to purchase such materials for its use under certain circumstances. This constitutes the only payments to be made by either party. 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits are being filed herewith: 10(a) Split Dollar Life Insurance Agreement between the Company and Duane J. Roth dated November 12, 1998 (1) 10(b) Collateral Assignment of Life Insurance Policy between the Company and Duane J. Roth dated November 25, 1998 (1) 10(c) Split Dollar Life Insurance Agreement between the Company and Theodore D. Roth dated November 12, 1998 (1) 10(d) Collateral Assignment of Life Insurance Policy between the Company and Theodore D. Roth dated November 12, 1998 (1) 10(e) Eleventh Amendment to Lease Agreement dated September 1, 1999 between the Company and HUB Properties Trust (1) Management contract compensatory plan required to be filed. (b) There was no report on Form 8-K. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALLIANCE PHARMACEUTICAL CORP. (Registrant) \s\ Tim T Hart --------------------- Tim T. Hart Chief Financial Officer and Treasurer Date: November 10, 1999 13 EX-10.A 2 EXHIBIT 10(A) Exhibit 10(a) SPLIT DOLLAR LIFE INSURANCE AGREEMENT THIS AGREEMENT is entered into effective as the 12th day of November, 1998, by and between ALLIANCE PHARMACEUTICAL CORPORATION (hereinafter "APC"), and DUANE JOSEPH ROTH (hereinafter referred to as the "Insured"). WITNESSETH THAT: WHEREAS, Insured is Chairman of the Board and Chief Executive Officer of APC, and is a valued executive employee of APC who has provided significant and substantial past services to APC, and APC wishes to retain Insured in its employ to provide continuity in the management of APC, and to continue to develop the management capabilities of APC; and WHEREAS, APC, as an inducement to such continued employment, wishes to assist Insured with his personal life insurance program, while at the same time providing APC with key man life insurance coverage on Insured; and WHEREAS, this Agreement is intended to qualify as a life insurance employment benefit as described in the Internal Revenue Service Revenue Ruling 64-328, 1964-2 C.B. 11; and WHEREAS, APC has previously purchased a policy of life insurance insuring the life of Insured (hereinafter referred to as the "Policy"), which is described in Exhibit "A" attached hereto and by this reference made a part hereof, and which was issued by General American Life Insurance Company (hereinafter referred to as the "Insurer"); and WHEREAS, APC and the Insured are willing to continue to pay the premiums due on the Policy, on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and of the mutual promises contained herein, the parties hereto agree as follows: 1. INSURANCE POLICY. Effective with the date of this Agreement, APC will transfer the ownership of the Policy from APC to Insured. The parties hereto agree to take all necessary action to cause the Insurer to transfer ownership of the Policy to Insured, and agree to take any further action which may be necessary to cause the Policy to conform to the provisions of this Agreement. The parties hereto agree that the Policy shall be subject to the terms and conditions of this Agreement. 1 2. POLICY OWNERSHIP. Except as otherwise provided in this Agreement, the Insured shall be the sole and exclusive owner of the Policy and may exercise without the consent of APC all of the ownership rights granted to the owner thereof by the terms of the Policy, including, but not limited to, the right to designate beneficiaries and select settlement options. APC shall have only the right to receive certain death benefit proceeds in the event of the death of the Insured as provided in Section 5 of this Agreement; and to the return of the cash surrender value of the Policy as of the date of this Agreement, together with the unreimbursed premiums paid under this Agreement, less the "Economic Benefit", in the event of the termination of this Agreement as provided in Section 6 of this Agreement. As used in this Agreement, the term "Economic Benefit" shall mean the cumulative value to APC of maintaining the $4,000,000 of key man life insurance coverage on the life of the Insured, which shall be calculated annually by using the PS-58 rates multiplied by the current death benefit payable to APC under Section 5B(1)(a) of this Agreement. Insured shall have the limited right to borrow against the cash surrender value of the Policy, or otherwise receive a distribution from the Insurer, so long as said loan or distribution does not reduce the cash surrender value of the Policy to an amount less than the amounts which would be payable to APC under Section 6B of this Agreement had the Agreement then terminated. Insured shall not have the right to cancel or surrender the Policy as long as this Assignment has not been terminated. 3. ASSIGNMENT. The Insured shall have the right to assign any part or all of his interest in the Policy and this Agreement to any person, entity or trust by execution of a written assignment delivered to the Insurer and APC. Insured agrees to execute a collateral assignment in favor of APC for its interests as set forth in this Agreement. 4. PREMIUM PAYMENTS. On or before the due date of each Policy premium, APC shall pay the full amount of the premium due on the Policy to the Insurer which the parties anticipate will be approximately One Hundred Seventy Thousand Dollars ($170,000) for the balance of the policy year ending May 23, 1999, and approximately One Hundred Five Thousand Dollars ($105,000) per year thereafter. APC shall promptly furnish to the Insured evidence of timely payment of such premium. Within sixty (60) days of receipt of evidence of timely premium payment, the Insured will reimburse APC for his share of the annual premium, which the parties anticipate will be approximately Five Thousand Dollars ($5,000) per year. APC's obligation to make premium payments shall cease as of the date of the termination of this Agreement; provided, however, that APC shall not be entitled to a refund for any portion of the prepaid annual premium for the policy year in which this Agreement terminates, except as otherwise provided in Sections 5 or 6 hereof. 5. DEATH OF INSURED. A. Upon the death of the Insured, APC and the personal 2 representative of the Insured shall promptly take any and all actions necessary to obtain the death benefit proceeds provided under the Policy. B. In the event of the death of the Insured before this Agreement has otherwise terminated, the death benefit proceeds shall be divided and paid in the following manner and order of priority: (1) APC shall have the unqualified right to receive a portion of such death benefit equal to the following: (a) Four Million Dollars ($4,000,000); PLUS (b) Ninety Nine Thousand Five Hundred Fifteen Dollars and 06/100's ($99,515.06), reflecting the cash surrender value of the Policy as of November 12, 1998; PLUS (c) the total amount of the unreimbursed premiums paid by APC during the term of this Agreement; LESS (d) the Economic Benefit. Notwithstanding the above, in no event shall the amount payable to APC exceed the Policy proceeds payable at the death of the Insured. (2) After payment of the death benefit to APC as provided under paragraph B(1) of this Section 5, the remaining death benefit provided under the Policy shall be paid to such beneficiary or beneficiaries as the Insured may designate, in the manner and in the amount or amounts provided in the beneficiary designation provision of the Policy. 6. TERMINATION. A. This Agreement shall terminate on the earliest to occur of the following: (1) the death of the Insured, in which event the respective rights of the parties shall be as provided in Section 5 of this Agreement, or 3 (2) the first to occur of: (a) the date of termination of employment of Insured, (b) December 1, 2014, or (c) the thirtieth (30th) day following written notice by APC to the Insured of its intent to terminate this Agreement, and in each such event the respective rights of the parties shall be as provided in paragraph B of this Section 6, unless otherwise mutually agreed by the parties in writing. B. The rights of the parties upon termination of this Agreement as provided under paragraph A(2) of this Section 6 shall be as follows: (1) APC shall have no further obligation to make the premium payments set forth in Section 4 of this Agreement. APC's interest in the Policy shall be limited to the LESSER of: (a) the cash surrender value of the Policy as of the date of the termination of this Agreement; OR (b) (i) Ninety Nine Thousand Five Hundred Fifteen Dollars and 06/100's ($99,515.06), reflecting the cash surrender value of the Policy as of November 12, 1998; PLUS (ii) the total amount of the unreimbursed premium paid by APC during the term of this Agreement; LESS (iii) the Economic Benefit. (2) For ninety (90) days following termination of this Agreement, the Insured shall have the option of purchasing APC's interest in the Policy. To purchase such interest, the Insured shall pay 4 to APC the sum of Ninety Nine Thousand Five Hundred Fifteen Dollars and 06/100's ($99,515.06), reflecting the cash surrender value of the Policy as of November 12, 1998; PLUS the total amount of the unreimbursed premium payments made by APC hereunder, LESS the Economic Benefit. Upon receipt of such amount, APC shall transfer all of its interest in the Policy to Insured and agrees to take such actions required by the Insurer (including the execution of any and all documents or instruments) to transfer all of the interest of APC in the Policy to the Insured. Thereafter, neither APC nor any of its respective successors and assigns shall have any further interest in the Policy under the terms thereof or under this Agreement. (3) If the Insured fails to exercise such option under paragraph B(2) of this Section 6 within such ninety (90) day period, then APC may enforce its rights to be paid the amount due under paragraph B(1)(b) of this Section 6 from the cash surrender value of the Policy. In the event the cash surrender value of the Policy exceeds the amount due to APC under this Agreement, the Policy and the right to such excess shall be retained by the Insured. Upon receipt of such amount, APC shall transfer all of its interest in the Policy to Insured and agrees to take such actions required by the Insurer (including the execution of any and all documents or instruments) to transfer all of the interest of APC in the Policy to the Insured. Thereafter, neither APC nor any of its respective successors and assigns shall have any further interest in the Policy under the terms thereof or under this Agreement. 7. AMENDMENT. This Agreement may not be amended, altered or modified, except by a written instrument signed by both parties hereto, or their respective successor or assigns, and may not be otherwise terminated except as provided herein. 8. BINDING AGREEMENT. This Agreement shall be binding upon and inure to the benefit of APC, and its successors and assigns, and the Insured and his successors, assigns, heirs, beneficiaries, executor, administrator, or other personal representative. 9. NOTICE. Any notice, consent or demand required or permitted to be given under the provisions of this Agreement shall be in writing, and shall be signed by the party giving or making the same. If such notice, consent or demand is mailed to a party hereto, it shall be sent by United States certified mail, postage prepaid, addressed to such party's last known address. The date of such mailing shall be deemed the date of notice, consent or demand. 5 10. SPECIAL PROVISIONS. The following provisions are part of this Agreement and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"): A. The named fiduciary shall be the Treasurer of APC (unless this position is held by Insured in which event APC shall designate a new named fiduciary and the parties shall amend this Agreement accordingly). B. The funding under this Agreement is that all premiums on the Policy be remitted by APC to the Insurer as billed and when due. C. Direct payment by the Insurer is the basis of payment of benefits under this Agreement, with those benefits in turn being based on the payment of premiums and the Economic Benefit. D. For claims procedure purposes, the "Claims Manager" shall be the Treasurer of APC, (unless this position is held by Insured, in which event APC shall designate a new Claims Manager and the parties shall amend this Agreement accordingly). (1) If for any reason a claim for benefits under this Agreement is denied by APC, the Claims Manager shall deliver to the claimant a written explanation setting forth the specific reasons for the denial, pertinent references to the Agreement section on which the denial is based, such other data as may be pertinent, and information on the procedures to be followed by the claimant in obtaining a review of his claim, written in a manner calculated to be understood by the claimant. For this purpose: (a) The claimant's claim shall be deemed filed when presented orally or in writing to the Claims Manager. (b) The Claims Manager's explanation shall be in writing delivered to the claimant within ninety (90) days of the date the claim is filed. 2. The claimant shall have sixty (60) days following his receipt of the denial of the claim to file with the Claims Manager a written request for review of the denial. For such review, the claimant or his representative may submit pertinent documents and written issues 6 and comments. 3. The Claims Manager shall decide the issue on review and furnish the claimant with a copy within sixty (60) days of receipt of the claimant's request for review of his claim. The decision on review shall be in writing and shall include specific reasons for the decision written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Agreement provisions on which the decision is based. If a copy of the decision is not so furnished to the claimant within such sixty (60) days, the claim shall be deemed denied on review. 11. GOVERNING LAW. This Agreement, and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the State of California, except to the extent preempted by ERISA. 12. INSURER NOT A PARTY TO THIS AGREEMENT. With respect to any Policy of insurance issued pursuant to this Agreement, General American Life Insurance Company shall have no liability except as set forth in the Policy. Such Insurer shall not be bound to inquire into or take notice of any of the covenants herein contained as to policies of life insurance, or as to the application of the proceeds of such Policies. 13. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which constitute one and the same Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the day and year first above written. ALLIANCE PHARMACEUTICAL CORPORATION By: -------------------------------- Title: ----------------------------- INSURED ----------------------------------- Duane Joseph Roth 7 EXHIBIT "A" A summary of the Policy attached hereto is as follows: Insurer: General American Life Insurance Company Insured: Duane Joseph Roth Policy Number: 016035054 Date of Issue: May 23, 1996 Cash Surrender Value as of November 12, 1998: $99,515.06 8 EX-10.B 3 EXHIBIT 10(B) Exhibit 10(b) COLLATERAL ASSIGNMENT OF LIFE INSURANCE POLICY THIS ASSIGNMENT is made effective this 25th day of November, 1998, by and between ALLIANCE PHARMACEUTICAL CORPORATION (hereinafter "APC"), and DUANE JOSEPH ROTH (hereinafter referred to as the "Insured"). WITNESSETH THAT: WHEREAS, APC and the Insured have entered into a Split Dollar Life Insurance Agreement (hereinafter "Agreement") effective November 12, 1998; and WHEREAS, pursuant to said Agreement, APC is entitled to receive certain death benefit proceeds in the event of the death of the Insured and to certain sums in the event of termination of said Agreement; NOW, THEREFORE, in consideration of the covenants contained herein, and in furtherance of the Agreement between the parties, it is further mutually agreed that: 1. POLICY. General American Life Insurance Company has issued a Policy of insurance on the life of Insured. See EXHIBIT "A" of the attached Agreement for a description of the Policy. The ownership of said Policy has been transferred to the Insured and beneficiaries thereof shall be as designated by the Insured. 2. SPLIT-DOLLAR LIFE INSURANCE AGREEMENT. The Policy is subject to the Agreement between APC and the Insured. Said Agreement, along with its Exhibit "A" which is attached thereto, is hereby incorporated into and made a part of this Assignment. 3. PREMIUMS. Premiums paid on the Policy shall be allocated as set forth in the Agreement. 4. COLLATERAL ASSIGNMENT. The Insured hereby assigns, transfers, and sets over to APC only the following specific limited rights in the Policy, and subject to the following terms and provisions: a. This Assignment is made, and the Policy is held simply as collateral for the purpose of providing APC with security for the payments to be made to APC under the terms of the Agreement. b. APC shall have an interest in the Policy limited to that necessary to secure the payments to be made to APC with respect to the Policy under the terms of the Agreement. 1 c. APC shall have the right to be repaid from and to the extent of the proceeds or the cash surrender value of the Policy, as the case may be, to the extent of its interest as set forth in the Agreement: 1) in the event of the death of the Insured; 2) in the event the Policy is lapsed, canceled or surrendered by the Insured; or 3) in the event of the termination of the Agreement. 5. RIGHTS OF OWNERSHIP OF APC. a. APC shall have no right to obtain from the Insurer any loans or advances against its interest in the Policy, except as specifically provided in the Agreement. Likewise, APC does not possess any "incidents of ownership" in the Policy, unless specifically provided in the Agreement. b. APC is specifically prohibited: 1) from surrendering the Policy for cancellation; 2) from designating a beneficiary or assigning its rights to any person other than to the Insured or some other person as the Insured may direct, or to a successor of the business of APC; and 3) in general, from taking any action which would endanger the interest of the Insured or endanger the payment of the death proceeds in excess of APC's interest in the Policy. c. Notwithstanding any provisions of this Assignment to the contrary, APC shall, when its interest has been satisfied, be obligated to release this Assignment, or make a reassignment of its interest in the Policy to the Insured or his successors or assigns. 6. RIGHTS OF OWNERSHIP OF INSURED. Except as specifically provided herein, the Insured shall retain and possess all other incidents of ownership in the Policy, including but not limited to: 1. the sole and exclusive right to cancel or surrender the Policy for its cash surrender value, if any, but only after the termination of the Agreement; 2 b. the right to designate and change the beneficiary of the death proceeds on the Policy; 3. the right to elect and exercise any optional mode of settlement permitted by the Policy. However, all rights retained by the Insured shall be subject to the terms and conditions of the Agreement. 7. EXERCISE OF RIGHTS. The exercise of any right given herein to APC, or retained by Insured, shall be solely at the option of each party respectively, and shall not require notice or consent of one party to the other, except as otherwise set forth in the Agreement. 8. RELEASE AND REASSIGNMENT. APC shall release and reassign all of its specific rights in the Policy transferred by this Assignment upon payment of the amounts required in the Agreement, without unreasonable delay. 9. INSURER NOT A PARTY TO THIS ASSIGNMENT. The Insurer is not a party to this Collateral Assignment. 10. CONSTRUCTION. It is the expressed intention of the parties that this Assignment be construed so that APC has absolutely no right of ownership in the Policy, except as specifically provided in the Agreement. [The balance of this page is intentionally left blank.] 3 IN WITNESS WHEREOF, this assignment is hereby executed, and is effective as of this 25th day of November, 1998. ALLIANCE PHARMACEUTICAL CORPORATION By ______________________________________ Its _______________________________________ _________________________________________ Duane Joseph Roth Attest: ___________________________ 4 EX-10.C 4 EXHIBIT 10(C) Exhibit 10(c) SPLIT DOLLAR LIFE INSURANCE AGREEMENT THIS AGREEMENT is entered into effective as the 12th day of November, 1998, by and between ALLIANCE PHARMACEUTICAL CORPORATION (hereinafter "APC"), and THEODORE D. ROTH (hereinafter referred to as the "Insured"). WITNESSETH THAT: WHEREAS, Insured is President of APC, and is a valued executive employee of APC who has provided significant and substantial past services to APC, and APC wishes to retain Insured in its employ to provide continuity in the management of APC, and to continue to develop the management capabilities of APC; and WHEREAS, APC, as an inducement to such continued employment, wishes to assist Insured with his personal life insurance program, while at the same time providing APC with key man life insurance coverage on Insured; and WHEREAS, this Agreement is intended to qualify as a life insurance employment benefit as described in the Internal Revenue Service Revenue Ruling 64-328, 1964-2 C.B. 11; and WHEREAS, the parties have purchased a policy of life insurance insuring the life of Insured (hereinafter referred to as the "Policy"), which is described in Exhibit "A" attached hereto and by this reference made a part hereof, and which was issued by Security Life of Denver (hereinafter referred to as the "Insurer"); and WHEREAS, APC and the Insured are willing to continue to pay the premiums due on the Policy, on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and of the mutual promises contained herein, the parties hereto agree as follows: 1. INSURANCE POLICY. The parties hereto have taken all necessary action to cause the Insurer to issue the Policy. The Insured agrees to execute a collateral assignment of the Policy in favor of APC and the parties agree to take any further action which may be necessary to cause the Policy to conform to the provisions of this Agreement. The parties hereto agree that the Policy shall be subject to the terms and conditions of this Agreement. 1 2. POLICY OWNERSHIP. Except as otherwise provided in this Agreement, the Insured shall be the sole and exclusive owner of the Policy and may exercise without the consent of APC all of the ownership rights granted to the owner thereof by the terms of the Policy, including, but not limited to, the right to designate beneficiaries and select settlement options. APC shall have only the right to receive certain death benefit proceeds in the event of the death of the Insured as provided in Section 5 of this Agreement; and to the return of unreimbursed premiums paid under this Agreement, less the "Economic Benefit," in the event of the termination of this Agreement as provided in Section 6 of this Agreement. As used in this Agreement, the term "Economic Benefit" shall mean the cumulative value to APC of maintaining the $4,000,000 of key man life insurance coverage on the life of the Insured, which shall be calculated annually by using the PS-58 rates multiplied by the current death benefit payable to APC under Section 5B(1)(a) of this Agreement. Insured shall have the limited right to borrow against the cash surrender value of the Policy, or otherwise receive a distribution from the Insurer, so long as said loan or distribution does not reduce the cash surrender value of the Policy to an amount less than the amounts which would be payable to APC under Section 6B of this Agreement had the Agreement then terminated. Insured shall not have the right to cancel or surrender the Policy as long as this Agreement has not been terminated in accordance with its terms. 3. ASSIGNMENT. The Insured shall have the right to assign any part or all of his interest in the Policy and this Agreement to any person, entity or trust by execution of a written assignment delivered to the Insurer and APC. Insured agrees to execute a collateral assignment in favor of APC for its interests as set forth in this Agreement. 4. PREMIUM PAYMENTS. On or before the due date of each Policy premium, APC shall pay the full amount of the premium due on the Policy to the Insurer, which the parties anticipate will be approximately Sixty Two Thousand Dollars ($62,000) per year. APC shall promptly furnish to the Insured evidence of timely payment of such premium. Within sixty (60) days of receipt of evidence of timely premium payment, the Insured will reimburse APC for his share of the annual premium, which the parties anticipate will be approximately Two Thousand dollars ($2,000) per year. APC's obligation to make premium payments shall cease as of the date of the termination of this Agreement; provided, however, that APC shall not be entitled to a refund for any portion of the prepaid annual premium for the policy year in which this Agreement terminates, except as otherwise provided in Sections 5 or 6 hereof. 5. DEATH OF INSURED. A. Upon the death of the Insured, APC and the personal representative of the Insured shall promptly take any and all actions necessary to obtain the death benefit proceeds provided under the Policy. 2 B. In the event of the death of the Insured before this Agreement has otherwise terminated, the death benefit proceeds shall be divided and paid in the following manner and order of priority: (1) APC shall have the unqualified right to receive a portion of such death benefit equal to the following: (a) Four Million Dollars ($4,000,000); PLUS (b) the total amount of the unreimbursed premiums paid by APC during the term of this Agreement; LESS (c) the Economic Benefit. Notwithstanding the above, in no event shall the amount payable to APC exceed the Policy proceeds payable at the death of the Insured. (2) After payment of the death benefit to APC as provided under paragraph B(1) of this Section 5, the remaining death benefit provided under the Policy shall be paid to such beneficiary or beneficiaries as the Insured may designate, in the manner and in the amount or amounts provided in the beneficiary designation provision of the Policy. 6. TERMINATION. A. This Agreement shall terminate on the earliest to occur of the following: (1) the death of the Insured, in which event the respective rights of the parties shall be as provided in Section 5 of this Agreement, or (2) the first to occur of: (a) the date of termination of employment of Insured, (b) April 1, 2016, or 3 (c) the thirtieth (30th) day following written notice by APC to the Insured of its intent to terminate this Agreement, and in each such event, the respective rights of the parties shall be as provided in paragraph B of this Section 6, unless otherwise mutually agreed by the parties in writing. B. The rights of the parties upon termination of this Agreement as provided under paragraph A(2) of this Section 6 shall be as follows: (1) APC shall have no further obligation to make the premium payments set forth in Section 4 of this Agreement. APC's interest in the Policy shall be limited to the LESSER of: (a) the cash surrender value of the Policy as of the date of the termination of this Agreement; OR (b) the total amount of the unreimbursed premium paid by APC during the term of this Agreement, LESS the Economic Benefit. (2) For ninety (90) days following termination of this Agreement, the Insured shall have the option of purchasing APC's interest in the Policy. To purchase such interest, the Insured shall pay to APC the total amount of the unreimbursed premium payments made by APC hereunder, LESS the Economic Benefit. Upon receipt of such amount, APC shall transfer all of its interest in the Policy to Insured and agrees to take such actions required by the Insurer (including the execution of any and all documents or instruments) to transfer all of the interest of APC in the Policy to the Insured. Thereafter, neither APC nor any of its respective successors and assigns shall have any further interest in the Policy under the terms thereof or under this Agreement. (3) If the Insured fails to exercise such option under paragraph B(2) of this Section 6 within such ninety (90) day period, then APC may enforce its rights to be paid the amounts due under paragraph B(1)(b) of this Section 6 from the cash surrender value of the Policy. In the event the cash surrender value of the Policy exceeds the amount due to APC under this Agreement, the Policy and the right to such excess shall be retained by the Insured. Upon receipt of such 4 amount, APC shall transfer all of its interest in the Policy to Insured and agrees to take such actions required by the Insurer (including the execution of any and all documents or instruments) to transfer all of the interest of APC in the Policy to the Insured. Thereafter, neither APC nor any of its respective successors and assigns shall have any further interest in the Policy under the terms thereof or under this Agreement. 7. AMENDMENT. This Agreement may not be amended, altered or modified, except by a written instrument signed by both parties hereto, or their respective successor or assigns, and may not be otherwise terminated except as provided herein. 8. BINDING AGREEMENT. This Agreement shall be binding upon and inure to the benefit of APC, and its successors and assigns, and the Insured and his successors, assigns, heirs, beneficiaries, executor, administrator, or other personal representative. 9. NOTICE. Any notice, consent or demand required or permitted to be given under the provisions of this Agreement shall be in writing, and shall be signed by the party giving or making the same. If such notice, consent or demand is mailed to a party hereto, it shall be sent by United States certified mail, postage prepaid, addressed to such party's last known address. The date of such mailing shall be deemed the date of notice, consent or demand. 10. SPECIAL PROVISIONS. The following provisions are part of this Agreement and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"): A. The named fiduciary shall be the Treasurer of APC (unless this position is held by Insured in which event APC shall designate a new named fiduciary and the parties shall amend this Agreement accordingly). B. The funding under this Agreement is that all premiums on the Policy be remitted by APC to the Insurer as billed and when due. C. Direct payment by the Insurer is the basis of payment of benefits under this Agreement, with those benefits in turn being based on the payment of premiums and the Economic Benefit. D. For claims procedure purposes, the "Claims Manager" shall be the Treasurer of APC (unless this position is held by Insured, in which event APC shall designate a new Claims Manager and the parties shall amend this Agreement accordingly). 5 (1) If for any reason a claim for benefits under this Agreement is denied by APC, the Claims Manager shall deliver to the claimant a written explanation setting forth the specific reasons for the denial, pertinent references to the Agreement section on which the denial is based, such other data as may be pertinent, and information on the procedures to be followed by the claimant in obtaining a review of his claim, written in a manner calculated to be understood by the claimant. For this purpose: (a) The claimant's claim shall be deemed filed when presented orally or in writing to the Claims Manager. (b) The Claims Manager's explanation shall be in writing delivered to the claimant within ninety (90) days of the date the claim is filed. 2. The claimant shall have sixty (60) days following his receipt of the denial of the claim to file with the Claims Manager a written request for review of the denial. For such review, the claimant or his representative may submit pertinent documents and written issues and comments. 3. The Claims Manager shall decide the issue on review and furnish the claimant with a copy within sixty (60) days of receipt of the claimant's request for review of his claim. The decision on review shall be in writing and shall include specific reasons for the decision written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Agreement provisions on which the decision is based. If a copy of the decision is not so furnished to the claimant within such sixty (60) days, the claim shall be deemed denied on review. 11. GOVERNING LAW. This Agreement, and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the State of California, except to the extent preempted by ERISA. 6 12. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which constitute one and the same Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the day and year first above written. ALLIANCE PHARMACEUTICAL CORPORATION By:___________________________________ Title:________________________________ INSURED ______________________________________ Theodore D. Roth Attest: __________________________ 7 EXHIBIT "A" A summary of the Policy attached hereto is as follows: Insurer: Security Life of Denver Insured: Theodore D. Roth Policy Number: 610009778 Date of Issue: September 21, 1998 8 EX-10.D 5 EXHIBIT 10(D) Exhibit 10(d) COLLATERAL ASSIGNMENT OF LIFE INSURANCE POLICY THIS ASSIGNMENT is made effective this 12th day of November, 1998, by and between ALLIANCE PHARMACEUTICAL CORPORATION (hereinafter "APC"), and THEODORE D. ROTH (hereinafter referred to as the "Insured"). WITNESSETH THAT: WHEREAS, APC and the Insured have entered into a Split Dollar Life Insurance Agreement (hereinafter "Agreement") effective November 12, 1998; and WHEREAS, pursuant to said Agreement, APC is entitled to receive certain death benefit proceeds in the event of the death of the Insured and to certain sums in the event of termination of said Agreement; NOW, THEREFORE, in consideration of the covenants contained herein, and in furtherance of the Agreement between the parties, it is further mutually agreed that: 1. POLICY. Security Life of Denver has issued a Policy of insurance on the life of Insured. See EXHIBIT "A" of the attached Agreement for a description of the Policy. The ownership of said Policy has been issued to the Insured and beneficiaries thereof shall be as designated by the Insured. 2. SPLIT-DOLLAR LIFE INSURANCE AGREEMENT. The Policy is subject to the Agreement between APC and the Insured. Said Agreement, along with its Exhibit "A" which is attached thereto, is hereby incorporated into and made a part of this Assignment. 3. PREMIUMS. Premiums paid on the Policy shall be allocated as set forth in the Agreement. 4. COLLATERAL ASSIGNMENT. The Insured hereby assigns, transfers, and sets over to APC only the following specific limited rights in the Policy, and subject to the following terms and provisions: a. This Assignment is made, and the Policy is held simply as collateral for the purpose of providing APC with security for the payments to be made to APC under the terms of the Agreement. b. APC shall have an interest in the Policy limited to that necessary to secure the payments to be made to APC with respect to the Policy under the terms of the Agreement. 1 c. APC shall have the right to be repaid from and to the extent of the proceeds or the cash surrender value of the Policy, as the case may be, to the extent of its interest as set forth in the Agreement: 1) in the event of the death of the Insured; 2) in the event the Policy is lapsed, canceled or surrendered by the Insured; or 3) in the event of the termination of the Agreement. 5. RIGHTS OF OWNERSHIP OF APC. a. APC shall have no right to obtain from the Insurer any loans or advances against its interest in the Policy, except as specifically provided in the Agreement. Likewise, APC does not possess any "incidents of ownership" in the Policy, unless specifically provided in the Agreement. b. APC is specifically prohibited: 1) from surrendering the Policy for cancellation; 2) from designating a beneficiary or assigning its rights to any person other than to the Insured or some other person as the Insured may direct, or to a successor of the business of APC; and 3) in general, from taking any action which would endanger the interest of the Insured or endanger the payment of the death proceeds in excess of APC's interest in the Policy. c. Notwithstanding any provisions of this Assignment to the contrary, APC shall, when its interest has been satisfied, be obligated to release this Assignment, or make a reassignment of its interest in the Policy to the Insured or his successors or assigns. 6. RIGHTS OF OWNERSHIP OF INSURED. Except as specifically provided herein, the Insured shall retain and possess all other incidents of ownership in the Policy, including but not limited to: 1. the sole and exclusive right to cancel or surrender the Policy for its cash surrender value, if any, but only after the termination of the Agreement; 2 b. the right to designate and change the beneficiary of the death proceeds on the Policy; 3. the right to elect and exercise any optional mode of settlement permitted by the Policy. However, all rights retained by the Insured shall be subject to the terms and conditions of the Agreement. 7. BENEFICIARY. Insured hereby irrevocably designates APC as a beneficiary to the Policy until such time as the collateral interest assigned hereby is released or otherwise terminated. 8. EXERCISE OF RIGHTS. The exercise of any right given herein to APC, or retained by Insured, shall be solely at the option of each party respectively, and shall not require notice or consent of one party to the other, except as otherwise set forth in the Agreement. 9. RELEASE AND REASSIGNMENT. APC shall release and reassign all of its specific rights in the Policy transferred by this Assignment upon payment of the amounts required in the Agreement, without unreasonable delay. 10. INSURER NOT A PARTY. The Insurer is not a party to the Agreement. 11. CONSTRUCTION. It is the expressed intention of the parties that this Assignment be construed so that APC has absolutely no right of ownership in the Policy, except as specifically provided in the Agreement. [The balance of this page is intentionally left blank.] 3 IN WITNESS WHEREOF, this assignment is hereby executed, and is effective as of this 12th day of November, 1998. ALLIANCE PHARMACEUTICAL CORPORATION By ______________________________________ Its _______________________________________ _________________________________________ Theodore D. Roth Attest: ___________________________ 4 EX-10.E 6 EXHIBIT 10(E) EXHIBIT 10(e) ELEVENTH AMENDMENT This Eleventh Amendment (this "ELEVENTH AMENDMENT") is entered into as of the 1st day of September, 1999 with respect to that certain lease between HUB PROPERTIES TRUST, a Maryland real estate investment trust ("LANDLORD"), and ALLIANCE PHARMACEUTICAL CORP., a New York corporation ("TENANT"). WHEREAS, Hartford Accident and Indemnity Company (the "ORIGINAL LANDLORD") and Tenant entered into a certain lease dated March 28, 1989 for a portion of the premises located at 3040 Science Park Road, San Diego, California (the "3040 BUILDING"); as amended by a certain Lease Amendment dated March 23, 1990, which Amendment increased the size of the leased premises to the entire rentable portion of the 3040 Building (the "3040 PREMISES"); and as amended by a certain Lease Amendment dated March 29, 1990; and WHEREAS, Original Landlord and Tenant entered into a Third Lease Amendment dated December 12, 1990; Fourth Lease Amendment dated December 12, 1991, which Amendment increased the size of the leased premises to include a portion of the premises located at 3030 Science Park Road, San Diego, California (the "3030 PREMISES"); Fifth Lease Amendment dated March 5, 1992; Sixth Lease Amendment dated April 15, 1992; Seventh Lease Amendment dated January 25, 1993; and Eighth Amendment dated February 5, 1993; and Ninth Lease Amendment dated April 23, 1993; WHEREAS, Hartford Fire Insurance Company ("HARTFORD") succeeded to the interest of the Original Landlord; and WHEREAS, Hartford and Tenant entered into a Tenth Lease Amendment dated June 5, 1995; and WHEREAS, Landlord has succeeded to the interest of Hartford; and WHEREAS, for purposes of this Eleventh Amendment, the above-referenced lease dated March 28, 1989 as amended on March 23, 1990; March 29, 1990; December 12, 1990; December 12, 1991; March 5, 1992; April 15, 1992; January 25, 1993; February 5, 1993; April 23, 1993; and June 5, 1995 shall be hereinafter defined collectively as "the LEASE"; and WHEREAS, Tenant desires to exercise its first option to extend the term of the Lease only with respect to the 3040 Premises, and Landlord is willing to agree to such extension upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing and for other consideration, the receipt and sufficiency of which are hereby mutually acknowledged, Landlord and Tenant agree that the Lease is hereby amended as follows: 1. The 3040 Premises shall be deemed to contain 38,670 rentable square feet. 2. Landlord and Tenant acknowledge that, pursuant to Section II.F.1 of the Lease, Tenant hereby exercises its first option to extend the Term with respect to the 3040 Premises, and that Tenant has two such remaining options (one pursuant to Section II.F.2 of the Lease and one pursuant to Section II.F.3 of the Lease) with respect to the 3040 Premises. Landlord and Tenant further acknowledge that Tenant has three unexercised options (one each pursuant to Sections II.F.1, II.F.2 and II.F.3 of the Lease) with respect to the 3030 Premises. 3. The definition of "BASE RENT" set forth in Section II.G of the Lease shall be amended by adding the following regarding the 3040 Premises: BASE RENT
"LEASE PERIOD PER ANNUM 09/01/99 to 08/31/00: $1,197,223.20 09/01/00 to 08/31/01: $1,238,986.80 09/01/01 to 08/31/02: $1,280,750.40"
4. The definition of "MONTHLY INSTALLMENTS OF BASE RENT" set forth in Section II.H of the Lease shall be amended by adding the following regarding the 3040 Premises: BASE RENT
"LEASE PERIOD PER MONTH 09/01/99 to 08/31/00: $ 99,768.60 09/01/00 to 08/31/01: $103,248.90 09/01/01 to 08/31/02: $106,729.20"
5. Section II.D of the Lease shall be amended by inserting the following definition: "3040 Premises First Extended Term Commencement and Termination Dates. The commencement date of the first extended term with respect to the 3040 Premises (the "3040 Premises First Extended Term") shall be September 1, 1999 (the 3040 Premises First Extended Term Commencement Date") and the termination date of the 3040 Premises First Extended Term shall be August 31, 2002 (the "3040 Premises First Extended Term Termination Date"). Tenant shall, at its sole cost and expense, have plans ("Tenant's Plans") prepared for improvements solely to the 3040 Premises (the "Tenant's 3040 Premises Improvements"), and shall submit Tenant's Plans and the name of Tenant's proposed contractor(s) to Landlord for its approval (which approvals shall not be unreasonably withheld or delayed). Any disapproval shall be accompanied by a specific statement of reasons therefor and Tenant shall promptly revise and resubmit Tenant's Plans and, if necessary, submit additional proposed contractors in order to obtain Landlord's approval t On September 30, 1999, Landlord shall pay to Tenant the amount of $487,500 (the "Landlord's Contribution"). Landlord's Contribution shall be used in its entirety to pay for the cost of Tenant's 3040 Premises Improvements, to be performed between September 30, 1999 and February 1, 2002 in accordance with the terms of the Lease. Tenant shall provide Landlord with copies of paid invoices for the Tenant's 3040 Premises Improvements on or before March 1, 2002. To the extent that the sum of the paid invoices for Tenant's 3040 Premises Improvements -2- provided to Landlord on or before March 1, 2002 shall be less than Landlord's Contribution, then Tenant shall pay such difference, including interest thereon from September 1, 1999 to the last day of the 3040 Premises First Extended Term at the rate of ten percent (10%) per annum, to Landlord upon the expiration of the 3040 Premises First Extended Term. If Tenant provides documentation acceptable to Landlord that it has exceeded Landlord's Contribution in the course of performing Tenant's 3040 Premises Improvements, Tenant may request that Landlord make a loan (the "Loan") to Tenant in an amount equal to the lesser of such excess or $130,000, which Loan Tenant shall repay to Landlord, as additional rent, over the period commencing on the date such Loan is made available to Tenant and continuing over the remainder of the 3040 Premises First Extended Term, in level monthly installments, due on the first day of each such remaining months, including interest on the unpaid amount at the rate of ten percent (10%) per annum." 6. The Security Deposit, in the form of Letters of Credit in the aggregate amount of $778,820 previously deposited with Landlord, shall remain in place during the 3040 Premises First Extended Term. 7. Effective from and after the First Extended Term Commencement Date, the provisions of Section (f) of Rider 1 of the Lease shall not apply with respect to the 3040 Premises and the following shall be inserted in their place: Tenant's Proportionate Share of Real Estate Taxes and Operating Expenses with respect to the 3040 Building shall be one hundred percent (100%); provided, however, that from and after the 3040 Premises First Extended Term Commencement Date, the costs of interior cleaning, window cleaning, parking lot cleaning, exterior landscape maintenance, extermination, fire protection monitoring and servicing, security system monitoring and servicing, elevator maintenance and uniforms shall be included in Operating Expenses in an amount equal to the lesser of the actual cost thereof and the costs therefor incurred in 1998, increased by the Index. "Index" shall mean the Consumer Price Index for Urban Wage Earners and Clerical Workers, San Diego, California, All Items, 1982-1984=100, or the Consumer Price Index for the smallest geographic area which includes San Diego, California. The Index is presently published by the Bureau of Labor Statistics of the United States of the United States Department of Labor. In the event publication of the Index ceases, the computation of the Annual Cap during each year shall be computed upon the basis of whatever index published by the United States Department of Labor at that time is most nearly comparable as a measure of general changes in price levels for the area in which the 3040 Premises are located. In the event that the Index ceases to use 1982-1984=100 as the basis of calculation, then the Index shall be converted to the amount(s) that would have resulted had the manner of calculating the Index not been altered. Tenant's Proportionate Share of Real Estate Taxes and Operating Expenses with respect to the 3030 Building shall continue to be calculated and administered as provided in Section (f) of Rider 1 of the Lease. 8. In addition to all other limitations contained in the Lease, Landlord hereby notifies Tenant that the Declaration of Trust of Hub Properties Trust provides, and Tenant -3- agrees, that no trustee, officer, director, general or limited partner, member, shareholder, beneficiary, employee or agent (including any person or entity from time to time engaged to supervise and/or manage the operation of Landlord) of Landlord shall be held to any liability, jointly or severally, for any debt, claim, demand, judgment, decree, liability or obligation of any kind (in tort, contract or otherwise) of, against or with respect to Landlord or arising out of any action taken or omitted for or on behalf of Landlord. 9. Except as herein specifically amended, this Lease is hereby ratified and confirmed. IN WITNESS WHEREOF, the parties have hereto executed this Eleventh Amendment as of the date first above-written. LANDLORD: HUB PROPERTIES TRUST, a Maryland real estate investment trust By: ---------------------------- Name: David M. Lepore Its: Sr. Vice President TENANT: ALLIANCE PHARMACEUTICAL CORP., a New York corporation By: ---------------------------- Name: Its: :9/13/99 -4- EX-27 7 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEETS AND THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS JUN-30-2000 JUL-01-1999 SEP-30-1999 9,171,000 0 0 0 0 11,877,000 0 0 51,817,000 11,029,000 0 0 5,000 435,000 31,126,000 51,817,000 0 1,568,000 0 0 12,125,000 0 373,000 (10,720,000) 0 (10,720,000) 0 0 0 (10,720,000) (0.25) (0.25)
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