-----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, Lr0OzYW16VLJRv9sdxDMws2hRnFC3puuj8EUkK2fWInzb/s8R7AgTH7dXz+0nyfe j3WldoDnEMZuUejg8/5c0w== 0000950133-97-002966.txt : 19970815 0000950133-97-002966.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950133-97-002966 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NASTECH PHARMACEUTICAL CO INC CENTRAL INDEX KEY: 0000737207 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 112658569 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13789 FILM NUMBER: 97663527 BUSINESS ADDRESS: STREET 1: 45 DAVIDS DR CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5162730101 MAIL ADDRESS: STREET 1: 45 DAVIDS DRIVE CITY: HAUPPAUGE STATE: NY ZIP: 11788 10-Q 1 NASTECH PHARMACEUTICAL FORM 10-Q. 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1997 COMMISSION FILE NUMBER 0-13789 NASTECH PHARMACEUTICAL COMPANY INC. (Exact name of registrant as specified in its charter) DELAWARE 11-2658569 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 45 DAVIDS DRIVE, HAUPPAUGE, NEW YORK 11788 (Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 273-0101 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Name of each exchange Title of each class on which registered ------------------- ------------------------- Common Stock, $.006 par value Nasdaq National Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
DATE CLASS SHARES OUTSTANDING 06/30/97 Common stock - $.006 par value 6,086,158
================================================================================ 2 NASTECH PHARMACEUTICAL COMPANY INC. TABLE OF CONTENTS PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS PAGE Balance Sheets as of June 30, 1997 and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . 1 Statements of Operations for the six months ended June 30, 1997 and 1996 and the three months ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Statements of Stockholders' Equity for the six months ended June 30, 1997, and year ended December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Statements of Cash Flows for the six months ended June 30, 1997 and 1996 . . . . . . . . . . . . . . 4 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . 6-8 PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
- i - 3 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS NASTECH PHARMACEUTICAL COMPANY INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31, 1997 1996 ------------- -------------- (Unaudited) (Audited) ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 25,308 $ 4,494 Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . 1,989 7,025 Royalties and fees receivable . . . . . . . . . . . . . . . . . . . . . . 1,100 798 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474 - Prepaid expenses and sundry . . . . . . . . . . . . . . . . . . . . . . . 158 80 ------------- -------------- Total current assets 29,029 12,397 ------------- -------------- Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 949 513 Less: Accumulated depreciation and amortization . . . . . . . . . . . . . 217 128 ------------- -------------- Property and equipment, net . . . . . . . . . . . . . . . . . . . . 732 385 ------------- -------------- Other assets: Deferred offering costs . . . . . . . . . . . . . . . . . . . . . . . . . - 98 Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 14 ------------- -------------- Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . 15 112 ------------- -------------- Total assets $ 29,776 $ 12,894 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 820 $ 587 Royalties payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540 236 Accrued expenses and sundry liabilities . . . . . . . . . . . . . . . . . 372 216 Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . 13 15 ------------- -------------- Total current liabilities 1,745 1,054 ------------- -------------- Long-term debt, net of current maturities . . . . . . . . . . . . . . . . . . 21 27 ------------- -------------- Stockholders' equity: Common stock, $.006 par value; authorized: 25,000,000 shares; issued and outstanding: 6,086,158 shares at June 30, 1997 and 4,706,158 shares at December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 28 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 35,785 18,325 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,812) (6,540) ------------- -------------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 28,010 11,813 ------------- -------------- Total liabilities and stockholders' equity . . . . . . . . . . . . . $ 29,776 $ 12,894 ============= ==============
See accompanying notes to financial statements. -1- 4 NASTECH PHARMACEUTICAL COMPANY INC. STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30, ----------------------------- ------------------------------ 1997 1996 1997 1996 --------------- ------------ -------------- -------------- Revenues License fee, royalty and research income . $ 1,946 $ 2,107 $ 1,108 $ 1,098 Interest income . . . . . . . . . . . . . . 697 113 395 57 --------------- ------------ -------------- -------------- Total revenues . . . . . . . . . . . . . 2,643 2,220 1,503 1,155 --------------- ------------ -------------- -------------- Costs and expenses: Research and development . . . . . . . . . . 1,524 459 935 205 Royalties . . . . . . . . . . . . . . . . . 945 939 541 521 Sales and marketing . . . . . . . . . . . . 757 93 587 69 General and administrative . . . . . . . . . 685 411 346 245 Interest expense . . . . . . . . . . . . . 4 20 2 11 --------------- ------------ -------------- -------------- Total costs and expenses . . . . . . . . 3,915 1,922 2,411 1,051 --------------- ------------ -------------- -------------- Net income (loss) . . . . . . . . . . . . . . . $ (1,272) $ 298 $ (908) $ 104 =============== ============ ============== ============== Net income (loss) per common share . . . . . . $ (.22) $ .07 $ (.15) $ .02 =============== ============ ============== ============== Average shares outstanding . . . . . . . . . . 5,859,749 4,297,536 6,086,158 4,297,536 =============== ============ ============== ==============
See accompanying notes to financial statements. -2- 5 NASTECH PHARMACEUTICAL COMPANY INC. STATEMENTS OF STOCKHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 1997 AND YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL TOTAL --------------------- PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT EQUITY --------- ----------- ------------ ------------- ---------------- BALANCE, DECEMBER 31, 1995 . . . . . . . . . . . . . . 3,221,447 $ 19 $ 10,575 $ (6,486) $ 4,108 Shares issued in connection with exercise of warrants . 605,173 4 3,158 --- 3,162 Fractional shares redeemed in connection with reverse stock split . . . . . . . . . . . . . . . . . . . . (187) --- --- --- --- Shares issued in connection with exercise of warrants . 879,817 5 4,592 --- 4,597 Fractional shares redeemed in connection with reverse stock split . . . . . . . . . . . . . . . . . . . . (92) --- --- --- --- Net loss year ended December 31, 1996 . . . . . . . . . --- --- --- (54) (54) --------- ----------- ------------ ------------- -------------- BALANCE, DECEMBER 31, 1996 . . . . . . . . . . . . . . 4,706,158 28 18,325 (6,540) 11,813 Additional shares issued in connection with public offering at $14.00 per share, net of issuance costs 1,380,000 9 17,460 --- 17,469 Net loss six months ended June 30, 1997 . . . . . . . . --- --- --- (1,272) (12) --------- ----------- ------------ ------------- -------------- BALANCE, JUNE 30, 1997 . . . . . . . . . . . . . . . . 6,086,158 $ 37 $ 35,785 $ (7,812) $ 28,010 ========= =========== ============ ============= ==============
See accompanying notes to financial statements. -3- 6 NASTECH PHARMACEUTICAL COMPANY INC. STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, --------------------------- 1997 1996 ------------ ------------ OPERATING ACTIVITIES: Net (loss) income $ (1,272) $ 298 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 89 24 Changes in assets and liabilities: Royalties and fees receivable . . . . . . . . . . . . . . . . . . . . . (302) (382) Prepaid expenses and sundry . . . . . . . . . . . . . . . . . . . . . . (78) (277) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (474) Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 (41) Royalties payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 304 174 Accrued expenses and sundry liabilities . . . . . . . . . . . . . . . . 156 136 ------------ ------------ Net cash (used in) provided by operating activities . . . . . . . . . . . . . (1,344) 182 ------------ ------------ INVESTING ACTIVITIES: Short-term investments -- acquisitions . . . . . . . . . . . . . . . . . . (969) (6,139) Short-term investments -- redemptions . . . . . . . . . . . . . . . . . . 6,005 6,400 Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . (436) (5) ------------ ------------ Net cash provided by investing activities . . . . . . . . . . . . . . . . . . 4,600 256 ------------ ------------ FINANCING ACTIVITIES: Net proceeds from sale of common stock . . . . . . . . . . . . . . . . . . 17,566 Exercise of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,162 Addition (repayment) of long-term debt . . . . . . . . . . . . . . . . . . (8) 11 ------------ ------------ Net cash provided by financing activities . . . . . . . . . . . . . . . . . . 17,558 3,173 ------------ ------------ Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . 20,814 3,611 Cash and cash equivalents--beginning . . . . . . . . . . . . . . . . . . . . 4,494 420 ------------ ------------ Cash and cash equivalents--ending . . . . . . . . . . . . . . . . . . . . . . $ 25,308 $ 4,031 ============ ============
See accompanying notes to financial statements. -4- 7 NASTECH PHARMACEUTICAL COMPANY INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- GENERAL The accompanying financial information should be read in conjunction with the audited financial statements, including the notes thereto, as of and for the six months ended December 31, 1996. The information furnished in this report reflects all adjustments (consisting of only normal recurring accruals) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods. NOTE 2 -- PUBLIC OFFERING The Company completed a public offering of 1,380,000 shares of common stock at $14.00 per share in February, 1997. The proceeds to the Company of $17,469,000 was net of direct expenses of the offering totaling $1,851,000. In connection with this public offering, the Company has agreed to issue to the representatives of the underwriters warrants to purchase in the aggregate up to 69,000 shares of Common Stock (the "Representatives' Warrants") at an exercise price per share equal to 120% of the public offering price per share. The Representatives' Warrants are exercisable for a period of four years commencing January 24, 1998. The holders of the Representatives' Warrants will have no voting, dividend or other stockholder rights until the Representatives' Warrants are exercised. The Company has granted the Representatives certain registration rights related to the Representatives' Warrants. NOTE 3 -- INVENTORIES At June 30, 1997, inventories are stated at the lower of cost (first- in, first- out basis) or market and consists of raw materials. NOTE 4 -- NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE Net income per common and common equivalent share are calculated using the weighted average number of common shares outstanding during the period and the net additional number of shares which would be issuable upon the exercise of stock options and warrants, assuming that the Company used the proceeds received to purchase additional shares at market value. For the six and three months ending June 30, 1997, the effect of stock options and warrants is not included because it would be anti-dilutive. NOTE 5 -- INCOME TAXES At June 30, 1997, the Company has net operating loss carryforwards of approximately $5,300,000 for income tax purposes, available to reduce future taxable income, expiring from 2000 through 2012. Federal income taxes normally provided for income have been offset by the effects of the reduction of the valuation allowance for the six and three months ended June 30, 1996. -5- 8 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Except for historical information contained herein, the statements in this Item are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties which may cause the Company's actual results in future periods to differ materially from forecasted results. Those include, among others, risks associated with the Company's business strategy, product development, plans concerning the commercialization of products, certain financial information and other statements that are not historical facts. The Company is engaged in the research, development, manufacturing and commercialization of nasally administered forms of prescription and over-the-counter pharmaceuticals that are currently delivered in oral, injectable or other dosage forms. The nasal delivery of certain pharmaceuticals can enable more rapid systemic absorption, lower required dosages, quicker onset of desired effect, and painless, convenient patient self-administration. In December 1991, Bristol-Myers Squibb Company ("BMS") received marketing approval from the FDA for a nasal formulation of Stadol NS(TM), a narcotic analgesic, which was sublicensed to BMS by the Company. Since 1992, the Company received royalties from BMS, and these royalties represent a significant portion of revenues for the Company. The Company is aware that Stadol NS(TM) may be classified by the FDA as a scheduled drug, which could negatively affect future sales by BMS and royalties to the Company. In November 1996, the Company received FDA marketing clearance for Nascobal(TM), its vitamin B-12 nasal gel. In July 1997, the Company entered into an exclusive licensing agreement in the U.S. with Schwarz Pharma, Inc. and anticipates the launch of Nascobal(TM) in the U.S. by January, 1998. The Company will receive royalties on domestic sales of Nascobal(TM), including a minimum royalty in 1998, and a manufacturing profit on its transfer of the product to Schwarz Pharma Inc. The Company's pipeline includes nine additional drugs, five of which are being developed under collaborative agreements with other pharmaceutical companies. In the past, the Company's product development strategy has generally been to seek strategic alliances in order to minimize the risk, time and cost typically associated with the early stages of commercializing a family of pharmaceuticals. The Company believes it is now able to leverage its product development experience and broad product pipeline to pursue internally funded development projects. The Company believes that postponing the establishment of strategic alliances until later stages of product development will allow the Company to negotiate more favorable collaborative agreements and retain product rights. Therefore, the Company intends to commit significant financial resources to research, development and sales and marketing with the goal of achieving greater economic benefit from product sales. On February 11, 1997, the Company changed its year end from June 30 to December 31. RESULTS OF OPERATIONS Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996 Revenues. Revenues for the six months ended June 30, 1997 increased by $423,000 to $2,643,000, or 19%, more than such revenues for the six months ended June 30, 1996. This increase was due to decreases in license fee, royalty and research income, which for the six months ended June 30, 1997 decreased by $161,000 to $1,946,000, or 8%, less than such income for the six months ended June 30, 1996 which were more than offset by an increase in interest income. The license fee, royalty and research income decrease primarily was due to a decrease in research income of $150,000. Royalty income received from BMS for the current six-month period increased by $21,000 to $1,929,000, from such income for the similar period in 1996. Interest income for the current six-month period increased by $584,000 to $697,000, or 517%, compared to such income for the similar period in 1996 due to an increase in the amount of excess funds invested from proceeds received from the 1997 public offering and exercise of warrants from the 1993 offering. Research and development expense. In the six months ended June 30, 1997, the Company continued to conduct pharmaceutical and pharmacological research and assemble the technical and reference data required to gain -6- 9 marketing approval from the appropriate regulatory agencies for nine new drug products. Research and development expense for the six months ended June 30, 1997 increased by $1,065,000 to $1,524,000, or 232%, over such expense for the six months ended June 30, 1996. Such increase was due to the execution of the Company's strategy to accelerate development of its nasal pharmaceutical formulations. Royalties expense. Royalties expense for the six months ended June 30, 1997 increased by $6,000 to $945,000, or 1%, from such expense for the six months ended June 30, 1996. Such increase was due to the increase in royalties paid by the Company to the University of Kentucky Research Foundation ("UKRF") in connection with sales of Stadol NS(TM) by BMS. Pursuant to a separate license agreement between the Company and UKRF, the Company pays UKRF royalties based on royalty income received by the Company from BMS. Accordingly, royalties expense payable to the UKRF increases or decreases approximately in proportion to royalty income received from BMS. Sales and Marketing. Sales and marketing expense for the six months ended June 30, 1997 increased by $664,000 to $757,000, or 714%, as compared to the 1996 period primarily as a result of expenses associated with the planned launch of the Company's Nascobal(TM) product later this year. As a result of the licensing agreement with Schwarz Pharma, Inc. noted above, however, the Company anticipates that sales and marketing expense will decrease during the remainder of 1997. Sales and marketing costs also include expenses incurred related to development of the Company's collaborative agreements. General and administrative expense. General and administrative expense for the six months ended June 30, 1997 increased by $274,000 to $685,000, or 67% over such expense for the six months ended June 30, 1996 due to increased staffing costs and other support costs associated with the accelerated development of the Company's nasal pharmaceutical formulations and strategic planning. RESULTS OF OPERATIONS Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996 Revenues. Revenues for the three months ended June 30, 1997 increased by $348,000 to $1,503,000, or 30%, more than such revenues for the three months ended June 30, 1996. This increase was due to increases in license fee, royalty and research income, which for the three months ended June 30, 1997 increased by $10,000 to $1,108,000, or 1%, more than such income for the three months ended June 30, 1996 and by an increase in interest income. Royalty income received from BMS for the current three-month period increased by $43,000, or 4%, to $1,100,000, from such income for the similar period in 1996. Interest income for the current three-month period increased by $338,000 to $395,000, or 593%, compared to such income for the similar period in 1996 due to an increase in the amount of excess funds invested from proceeds received from the 1997 public offering and exercise of warrants from the 1993 offering. Research and development expense. In the three months ended June 30, 1997, the Company continued to conduct pharmaceutical and pharmacological research and assemble the technical and reference data required to gain marketing approval from the appropriate regulatory agencies for nine new drug products. Preclinical and clinical research and development expense for the three months ended June 30, 1997 increased by $730,000 to $935,000, or 356%, over such expense for the three months ended June 30, 1996. Such increase was due to the execution of the Company's strategy to accelerate development of its nasal pharmaceutical formulations. Royalties expense. Royalties expense for the three months ended June 30, 1997 increased by $20,000 to $541,000, or 4%, from such expense for the three months ended June 30, 1996. Such increase was due to the increase in royalties paid by the Company to the UKRF in connection with sales of Stadol NS(TM) by BMS. Pursuant to a separate license agreement between the Company and UKRF, the Company pays UKRF royalties based on royalty income received by the Company from BMS. Accordingly, royalties expense payable to the UKRF increases or decreases approximately in proportion to royalty income received from BMS. Sales and Marketing. Sales and marketing expense for the three months ended June 30, 1997 increased by $518,000 to $587,000, or 751%, as compared to the 1996 period primarily as a result of expenses associated with the planned launch of the Company's Nascobal(TM) product later this year. As a result of the licensing agreement with Schwarz Pharma, Inc. noted above, however, the Company anticipates that sales and marketing expense will decrease during the remainder of 1997 until another product in its pipeline is ready for commercialization. Sales and marketing costs also include expenses incurred related to development of the Company's collaborative agreements. -7- 10 General and administrative expense. General and administrative expense for the three months ended June 30, 1997 increased by $101,000 to $346,000, or 41% over such expense for the three months ended June 30, 1996 due to increased staffing costs and other support costs associated with the accelerated development of the Company's nasal pharmaceutical formulations and strategic planning. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1997, the Company's liquidity included cash and cash equivalents and short-term investments of $27.3 million compared to $11.5 million at December 31, 1996. These amounts consisted primarily of the funds received from the recent 1997 public offering and the exercise of warrants outstanding from the Company's December 1993 public offering. Royalties and fees receivable at June 30, 1997, consists principally of royalty income receivable from BMS. The Company anticipates that the availability of funds provided by the net royalties received from BMS as well as the liquidity provided by the public offerings noted above will be used for (i) research and development, including clinical trials, (ii) capital expenditures, principally for manufacturing, (iii) license or acquisition of products and technologies for product development and (iv) working capital and other general corporate purposes. At June 30, 1997, the Company had working capital of $27.3 million. Management anticipates that its current cash position, together with cash generated from operations will provide adequate funds for the Company's anticipated needs, including working capital, through 1998. Based upon the anticipated future financing requirements of the Company, management expects that the Company may, from time to time, engage in additional financings of a character and in amounts to be determined. The foregoing Management's Discussion and Analysis of Financial Condition and Results of Operations contains various "forward looking statements" within the meaning of Section 27A of the Securities Act which represent the Company's intentions, expectations or beliefs concerning future events, including, but not limited to, statements regarding management's expectations with respect to FDA approval of new products, technology and product development milestones, the ability of the Company to leverage its product development and negotiate favorable collaborative agreements, the commencement of sales and the sufficiency of the Company's cash flow for the Company's future liquidity and capital resource needs. These forward looking statements are qualified by important factors that could cause actual results to differ materially from those in the forward looking statements. -8- 11 PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: EXHIBIT NUMBER 10J LICENSE AND SUPPLY AGREEMENT BY AND BETWEEN NASTECH PHARMACEUTICAL COMPANY INC. AND SCHWARZ PHARMA, INC. DATED JULY 15, 1997 (b) Reports on Form 8-K: NONE -9- 12 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, duly authorized, in the City of Hauppauge, State of New York, on August 13, 1997. NASTECH PHARMACEUTICAL COMPANY INC. By: /s/ Vincent D. Romeo, Ph.D. ---------------------------------------- Vincent D. Romeo, Ph.D. President and Chief Executive Officer (Principal Executive Officer) By: /s/ Andrew Zinzi ------------------------------------------------ Andrew Zinzi Chief Financial Officer (Principal Financial and Accounting Officer) -10- EX-10.J 2 LISCENSE AND SUPPLY AGREEMENT. 1 [EXECUTION COPY] LICENSE AND SUPPLY AGREEMENT by and between NASTECH PHARMACEUTICAL COMPANY INC. and SCHWARZ PHARMA, INC. dated as of July 15, 1997 2 LICENSE AND SUPPLY AGREEMENT This LICENSE AND SUPPLY AGREEMENT ("Agreement"), dated as of July 15, 1997, is by and between NASTECH PHARMACEUTICAL COMPANY INC., a Delaware corporation ,("Nastech"), and SCHWARZ PHARMA, INC., a Delaware corporation ("Schwarz"). WITNESSETH WHEREAS, Nastech is engaged, among other things, in the business of research, development, manufacturing and commercialization of nasally administered forms of pharmaceutical products; WHEREAS, Schwarz is engaged, among other things, in the business of marketing and selling of pharmaceutical products; and WHEREAS, subject to the terms and conditions set forth in this Agreement, Nastech wishes to license to Schwarz and Schwarz wishes to license from Nastech certain rights under certain of the assets which Nastech uses in the conduct of its intranasal pharmaceutical business; NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: SECTION 1 DEFINITIONS For purposes of this Agreement, the following terms shall have the meanings set forth below: "Activities" shall mean the manufacturing, promoting, marketing, selling and distributing of Nascobal in the Territory as contemplated by this Agreement. "Affiliates" shall mean, with respect to any Person, any Persons directly or indirectly controlling, controlled by, or under common control with, such other Person. For purposes hereof, the term "controlled" (including the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the direct or indirect ability or power to direct or cause the direction of management policies of such Person or otherwise direct the affairs of such Person, whether through ownership of voting securities or otherwise. "Annual Net Sales" shall mean, for any Year, the Net Sales for such Year; provided, however, that the aggregate amounts calculated pursuant to clauses (a), (b) and (c) of the definition of "Net Sales" for any of Years 1997, 1998 and 1999 shall not exceed 10% of the gross amount invoiced to unrelated third parties for Nascobal in the Territory during such Year. 3 "Closing Date" shall have the meaning given in Section 4.3 hereof. "Copyrights" shall mean all of Nastech's copyright rights in the Territory that are used or exercised by Nastech solely in connection with the Activities, including, without limitation, Nastech's copyright rights in the Marketing and Pricing Data and the Marketing Materials. "Damages" shall mean any and all actions, costs, losses, claims, liabilities, fines, penalties, demands, damages and expenses, court costs, and reasonable fees and disbursements of counsel, consultants and expert witnesses incurred by a party hereto (including interest which may be imposed in connection therewith). "Defective" shall mean, as to any Nascobal Unit, the failure of such Nascobal Unit to strictly conform to the Specifications, the NDA, this Agreement and all applicable law, including, without limitation, PDMA. "FDA" shall mean the United States Food and Drug Administration. "GMP" shall mean Good Manufacturing Practices, as determined by the FDA. "Improved Nascobal Unit" shall mean an improved version of the Nascobal Unit that is approved for marketing by the FDA. "Indemnified Party" shall have the meaning given in Section 9.2 hereof. "Indemnifying Party" shall have the meaning given in Section 9.2 hereof. "Intellectual Property" shall mean, collectively, (i) the Copyrights, (ii) the Trademarks, and (iii) the Marketing Materials. "Licensed Assets" shall have the meaning set forth in Section 2.1 hereof. "Marketing and Research Data" shall mean, with respect to Nascobal, all Nastech customer lists, price lists and, subject to confidentiality obligations to third parties, all other pricing information in the possession or control of Nastech relating solely to sales of Nascobal occurring in the most recent 12-month period prior to the date of this Agreement for which such information is available, together with all studies, research data and reports with respect to Nascobal. "Marketing Materials" shall mean all labeling, marketing and promotional materials and inserts currently used by Nastech solely in connection with the Activities. "Nascobal" shall mean an intranasal form of cyanocobalamin/vitamin B-12 in all dosage strengths and sizes that may, pursuant to applicable laws and regulations, be manufactured, marketed and sold in the Territory under the approved NDA, together with all expansions and -2- 4 improvements to Nascobal which may be included in any supplement, modification or addition to the NDA. "Nascobal Unit" shall mean a ready for sale packaged unit containing (i) a sealed prescription vial containing a metered dose actuator and a dust cover, (ii) a 5 ml glass bottle containing Nascobal gel solution, (iii) a patient instruction sheet and (iv) a product package insert. The actuator, following priming, will deliver 0.1 ml of the Nascobal gel solution. One bottle will deliver eight 500 mcg doses. "Nastech" shall have the meaning given in the preamble and shall include its Affiliates. "NDA" shall have the meaning set forth in Section 2.1(a). "Net Average Sales Price" shall, for any period, mean (i) Net Sales for such period, divided by (ii) the number of Nascobal Units sold during such period. "Net Sales" shall mean, with respect to Nascobal, the gross amount invoiced to unrelated third parties for Nascobal in the Territory, less: (a) trade and reasonable and customary cash discounts allowed; (b) refunds, rebates, chargebacks, retroactive price adjustments and any other allowances which effectively reduce the net selling price; and (c) returns, credits and allowances. Such amounts shall be determined from books and records maintained in accordance with GAAP, consistently applied. "Patents" shall mean those United States patent applications pending or filed by Nastech or its Affiliates (or the rights to which have been assigned to Nastech) as of the date hereof relating to Nascobal and those patents set forth on Schedule 6.4 hereto including any patent application or patent which constitutes an extension, registration, confirmation, reissue, renewal, reexamination or continuation-in-part of such patent application or patent. "PDMA" shall mean the Prescription Drug Marketing Act of 1987, as amended from time to time, together with any rules or regulations promulgated thereunder. "Person" shall mean a natural person, a corporation, a partnership, a trust, a joint venture, a limited liability company, any governmental authority or any other entity or organization. "Promotional Materials" shall mean any tangible advertising and promotional labeling bearing a name (trade name or generic name) used in the promotion of Nascobal, including, without limitation, promotional materials produced by Schwarz (examples include, but are not -3- 5 limited to, journal ads, brochures, service items, managed care pull through sheets, formulary presentations, price lists, monographs, Internet pages and telephone or television advertisements) and materials produced by outside sources (examples include, but are not limited to, medical reprints, textbooks and CME materials) to the extent funded by, created in cooperation with, reviewed, or distributed by Schwarz. The definition of Promotional Materials shall also include press releases and other releases of information to the media regarding Nascobal. "Quarter" shall mean, as the case may be, the three months ending on March 31, June 30, September 30 or December 31 in any Year. "Regulatory Problem" shall have the meaning given in Section 8.2(b). "Schwarz" shall have the meaning given in the preamble and shall include its Affiliates. "Shelf Life Extension" shall have the meaning given in Section 4.1(b). "Technology" shall mean all of Nastech's Patents, technology, know-how and all other information necessary to the manufacture of Nascobal. "Territory" shall mean the fifty (50) states, the District of Columbia and the territories and possessions comprising the United States of America, including Puerto Rico. "Trademarks" shall mean all of Nastech's right, title and interest in and to: (a) the United States trademark NASCOBAL; and (b) all registrations thereof, all variations thereof and logos used in connection therewith, and all goodwill associated therewith. "Year" shall mean a calendar year during the term of this Agreement. SECTION 2 GRANT OF LICENSES; LICENSE OPTION 2.1 Grant of Marketing and Sales Licenses. Nastech hereby grants to Schwarz an exclusive, even as to Nastech (except as set forth in Section 2.4), license under the following assets solely for the purpose of promoting, marketing, selling and distributing Nascobal in the Territory (such assets are referred to herein collectively as the "Licensed Assets"): (a) all of Nastech's rights under the approved New Drug Applications filed by Nastech with the FDA for Nascobal, and all subsequent submissions thereto (collectively, the "NDA"), which NDA is described in Schedule 2.1(a); -4- 6 (b) the Intellectual Property; and (c) the Marketing and Research Data. 2.2 Grant of Technology Licenses. Nastech hereby grants to Schwarz an exclusive, even as to Nastech (except as set forth in Section 2.4 of this Agreement), license to the Patents and Technology solely for the purposes of promoting, marketing, selling and distributing Nascobal within the Territory, and, subject to Section 4.8, for the purposes of manufacturing and having manufactured Nascobal for sale within the Territory. 2.3 Sublicenses. The licenses granted herein shall not be sublicensed by Schwarz without the prior written consent of Nastech, which consent shall not be unreasonably withheld. 2.4 Nastech Retained Rights. Anything herein contained to the contrary notwithstanding, Nastech shall retain at all times during the term of this Agreement, and shall bear all costs associated with, all rights necessary: (a) to manufacture, or to have manufactured, Nascobal for Schwarz hereunder and otherwise fulfill its obligations under this Agreement, (b) to manufacture or have Nascobal manufactured in the Territory, (c) subject to Section 2.6, to manufacture, have manufactured, use or sell Nascobal outside of the Territory, and (d) subject to Section 8.3, to make such changes as Nastech may deem reasonably appropriate in connection with any differing approach to manufacturing it may adopt in a facility(ies) in which any of the components of Nascobal are produced. 2.5 Marketing. Schwarz agrees to the marketing plan set forth on Schedule 2.5. 2.6 Option. Nastech grants Schwarz the exclusive option (the "Option") (i) to license the Licensed Asset, the Patents and the Technology and (ii) to be supplied with its requirements for Nascobal Units by Nastech, in each case in any or all countries outside the Territory (other than England and Ireland) where Schwarz, in its sole discretion, determines it is commercially reasonable to pursue such licenses and supply arrangements, with the terms and conditions of such licenses and supply arrangements to be mutually agreed. The Option shall terminate on August 1, 1997. -5- 7 SECTION 3 ROYALTY PAYMENTS 3.1 Royalty Payments. Schwarz shall make the royalty payments set forth on Schedule 3.1. 3.2 Records and Audit. (a) Schwarz and its Affiliates shall keep full, true and accurate books of account containing all particulars that may be necessary for the purpose of showing the amounts payable to Nastech hereunder. Such books of account shall be kept at Schwarz's principal place of business or the principal place of business of the appropriate Affiliate of Schwarz to which this Agreement relates. Such books and the supporting data shall be open, at all reasonable times and upon reasonable notice during the term of this Agreement and for 2 years after its termination, to the inspection of a firm of certified public accountants selected by Nastech and reasonably acceptable to Schwarz, for the limited purpose of verifying Schwarz's royalty statements; provided, however, that such examination shall not take place more often than once each Year and shall not cover more than the preceding 3 Years, with no right to audit any period previously audited. Except as otherwise provided in this Section, the cost of any such examination shall be paid by Nastech. In the event that any such inspection reveals a deficiency in excess of 5% of the reported royalty for the period covered by the inspection, Schwarz shall promptly pay Nastech the deficiency, plus interest, and shall reimburse Nastech for the fees and expenses paid to such accountants in connection with their inspection. The parties agree that neither party shall be required to retain books and records with respect to the above other than books and records relating to the current Year and the immediately preceding 3 Years. (b) Nastech and its Affiliates shall keep full, true and accurate books of account containing all particulars that may be necessary for the purpose of showing the cost of manufacturing the Nascobal samples supplied hereunder. Such books of account shall be kept at Nastech's principal place of business or the principal place of business of the appropriate Affiliate of Nastech to which this Agreement relates. Such books and the supporting data shall be open, at all reasonable times and upon reasonable notice during the term of this Agreement and for 2 years after its termination, to the inspection of a firm of certified public accountants selected by Schwarz and reasonably acceptable to Nastech, for the limited purpose of verifying the cost of manufacturing the Nascobal samples supplied hereunder; provided, however, that such examination shall not take place more often than once each Year and shall not cover more than the preceding 3 Years, with no right to audit any period previously audited. Except as otherwise provided in this Section, the cost of any such examination shall be paid by Schwarz. In the event that any such inspection reveals that the amount charged for Nascobal samples -6- 8 exceeds the cost of manufacturing the Nascobal samples by more than 5% during the period covered by the inspection, Nastech shall promptly pay Schwarz the excess, plus interest, and shall reimburse Schwarz for the fees and expenses paid to such accountants in connection with their inspection. The parties agree that neither party shall be required to retain books and records with respect to the above other than books and records relating to the current Year and the immediately preceding 3 Years. 3.3 Quarterly Reports of Royalties. In any Year, Schwarz shall, within 30 days after the end of each Quarter, deliver to Nastech true and accurate reports, certified by an authorized official of Schwarz, setting forth the estimated or actual Annual Net Sales and total royalties due under Section 3.1(a) for such Year. If no royalties shall be due, Schwarz shall so report. 3.4 Late Payments. Any amounts not paid by Schwarz when due under this Agreement shall be subject to interest from and including the date payment is due through and including the date upon which Nastech has collected immediately available funds in an account designated by Nastech at a rate equal to the sum of one and one half percent (1 1/2%) per month plus the prime rate of interest quoted in the Money Rates section of The Wall Street Journal, calculated daily on the basis of a 365-day year, or similar reputable data source. SECTION 4 SUPPLY OF NASCOBAL UNITS 4.1 Supply of Nascobal Units. (a) During the term of this Agreement, Schwarz agrees to purchase from Nastech and Nastech agrees to supply Schwarz with all of its requirements for Nascobal Units and Nascobal samples for their subsequent use, sale, lease or transfer by Schwarz. In case Nastech develops Improved Nascobal Units, Nastech may, with Schwarz's consent, to be given or withheld in Schwarz's sole discretion, supply Improved Nascobal Units instead of Nascobal Units under this Agreement. (b) Schwarz agrees to initiate purchases of Nascobal Units and Nascobal samples hereunder by issuing Nastech purchase orders not less than 60 days prior to the required delivery date set forth therein. Nastech agrees to accept any order issued in accordance with this Section 4.1(b) which specifies quantities reasonably consistent with those set forth in the purchase forecasts for such Quarter and to meet the delivery dates specified thereon. All purchase orders hereunder shall be on Schwarz's standard purchase order form (a copy of which has been delivered to Nastech) and shall be directed to Nastech at the address set forth below. The terms and conditions of purchase enumerated on the reverse side of such standard purchase order form shall prevail over any inconsistent or conflicting language as may exist on invoices, confirmation or order acknowledgment forms of Nastech, provided, however, that in the event any terms -7- 9 thereof are in conflict, or are inconsistent with any terms of this Agreement, the terms and conditions hereof shall prevail. Nastech agrees that, in order to maximize the remaining shelf life of all reagents supplied under this Agreement, it shall not produce Nascobal Units for delivery to Schwarz until a purchase order therefor has been received from Schwarz. In addition, Nastech further agrees to use its best efforts to maximize the shelf life of Nascobal Units transferred to Schwarz pursuant to this Agreement, the goal being a 34 month shelf life upon delivery to Schwarz; provided, however, that during the initial 6 month period following the Closing Date, such Nascobal Units shall have at least a 21 month shelf life upon delivery to Schwarz and, after the initial 6 month period following the Closing Date, such Nascobal Units shall have at least a 22 month shelf life upon delivery to Schwarz; and provided further that, if Nastech receives FDA approval to extend the shelf life for Nascobal (the "Shelf Life Extension"), such Nascobal Units shall have at least a 24 month shelf life upon delivery to Schwarz. (c) Schwarz may increase, without payment of any penalty or premium, the quantities of Nascobal specified on any purchase order by up to thirty-five percent (35%) from the forecasts provided under Section 4.5, provided, however, that notice of such increase is received by Nastech on a supplemental purchase order not less than 45 days prior to the requested delivery date for such increased quantity of Nascobal. Subject to conformity with the manufacturing lead times for Nascobal ordered on such supplemental purchase order, Nastech agrees to accept supplemental purchase orders for increased quantities issued in accordance with this Section 4.1(c). 4.2 Minimum Annual Net Sales. (a) Schwarz shall guarantee minimum Annual Net Sales equal to 50% of the sales forecast set forth on Schedule 4.2(a). (b) In the event that (i) the Net Average Sales Price falls below $50.00, (ii) any Patent is unenforceable, (iii) a generic drug competitor with an intranasal vitamin B-12 product emerges, (iv) there is an interruption in the supply of the Nascobal Units for a period of either 20 days if prior to the Shelf Life Extension or 30 days thereafter, or (v) any circumstance that has a materially adverse effect on Nascobal which is beyond the control of Schwarz, then, in each case, the minimum Annual Net Sales requirements under Section 4.2(a) shall terminate and be deemed waived by Nastech and shall be promptly renegotiated in good faith by Schwarz and Nastech. 4.3 Identification. Schwarz may market Nascobal under its name, with its packaging and logo; Schwarz will, however, identify Nastech as the supplier in a fair manner, reasonably acceptable to Nastech. Nastech will retain title to its own product names, which will be displayed in an appropriate manner on Nascobal. Nastech will bear all the costs of labeling Nascobal so as to appropriately display the Schwarz name provided Schwarz supplies all the appropriate graphics, designs, logos and related and appropriate artwork, provided that such labeling costs will reasonably approximate Nastech's existing labeling costs. Schwarz may use -8- 10 Nastech's name and derivations thereof in promoting, marketing and selling Nascobal in the Territory; provided, however, that the particular formulation of any reference to Nastech's name in any promotional material shall be subject to Nastech's review and consent; and provided, further, that once the formulation of any such reference has been reviewed and consented to by Nastech, any subsequent reference to Nastech's name using such formulation or a substantially similar formulation shall not be subject to the review or consent of Nastech. All samples shall be clearly marked "for sample use only". 4.4 Price, Nastech shall supply Nascobal Units to Schwarz at the fixed price of $6.00 per Nascobal Unit. Nastech shall supply Nascobal samples to Schwarz at the fixed price of $4.00 during Years 1997, 1998 and 1999 and, thereafter, at Nastech's cost for such samples, provided that such cost shall not exceed $6.00 per sample. 4.5 Forecasts, Delivery and Quality. (a) Schwarz shall provide Nastech with non-binding forecasts a minimum of two Quarters prior to anticipated delivery dates: These forecasts will be revised and extended in each succeeding Quarter. (b) Delivery of Nascobal Units shall be in accordance with the destination and dates set forth in Schwarz's purchase order. Delivery shall be F.O.B. point of shipment, and identification and delivery of Nascobal shall be deemed to have occurred when they have been packed for shipment and delivered to a common or contract carrier, at which time title and risk of loss shall pass to Schwarz. (c) All deliveries of Nascobal Units hereunder shall include a certificate of analysis provided by the quality control manager of Nastech attesting to the fact that such Nascobal Units (i) have been manufactured by a process which complies with GMP and has as its goal compliance with ISO 9002 standards and (ii) are of quality which is in accordance with criteria established in the specifications set forth on Schedule 4.5(c) (the "Specifications"), the NDA and all FDA requirements. (d) The Nascobal Units supplied hereunder shall have been manufactured by a process which complies with the quality assurance addendum set forth on Schedule 4.5(d). 4.6 Rejection and Replacement. (a) In the event Schwarz determines that any Nascobal Units as manufactured are Defective, then, within 60 days after delivery of such Nascobal Units to Schwarz, Schwarz shall provide to Nastech a written notice of rejection, specifying in reasonable detail the manner in which Nascobal are Defective (the "Notice of Rejection"). If no written Notice of Rejection is given to Nastech by Schwarz within such 60 day period, such Nascobal Units shall be deemed to have been accepted by Schwarz, provided, -9- 11 however, that nothing contained in this Section 4.6(a) shall be deemed to relieve Nastech of its obligations under the warranties set forth in Section 6 below. (b) Upon receipt of a Notice of Rejection from Schwarz and in order to minimize any hardship to Schwarz's customers, Nastech shall use its best efforts to promptly supply to Schwarz a quantity of replacement Nascobal Units meeting the Specifications equal to the size of the lot which Schwarz claims was Defective so that such replacement Nascobal Units shall be received by Schwarz within 60 days following Nastech's receipt of Schwarz's Notice of Rejection. All costs and expenses relating to any rejection and replacement pursuant to this Section 4.6 shall be paid by Nastech. 4.7 Invoice and Payment. Upon delivery of any Nascobal shipment, Nastech shall be entitled to submit invoices therefor to Schwarz, and Schwarz agrees to remit payment within 30 days from receipt of the invoice. 4.8 Supply Disruption; Alternate Manufacturing Site. (a) Nastech shall use its best efforts to supply Schwarz with Nascobal Units in a timely manner in accordance with the orders and forecasts received by Nastech pursuant to Sections 4.1(b) and 4.5(a), respectively, such efforts to include the maintenance of (i) if after the Shelf Life Extension, a stock of Nascobal Units equal to 50% of the quantity shipped to Schwarz during the immediately preceding Quarter and (ii ) at all times, a stock of the glass bottles and pumps from NDA approved vendors sufficient to produce 100% of the quantity of Nascobal Units shipped to Schwarz during the immediately preceding Quarter. In any Quarter, should Nastech fail to supply Schwarz with the greater of (x) 90% of the quantity of Nascobal Units forecasted for such Quarter pursuant to Section 4.5(a) and (y) 90% of the quantity of Nascobal Units shipped to Schwarz during the immediately preceding Quarter (if at least so many are ordered for such Quarter pursuant to Section 4.1(b)), Schwarz shall have the right to manufacture Nascobal Units and Schwarz and Nastech shall transfer the manufacture of the Nascobal Units to Schwarz. Should Nastech cure its failure to supply, Nastech shall have the right to resume the manufacture of Nascobal Units and Schwarz and Nastech shall transfer the manufacture of the Nascobal Units back to Nastech within a commercially reasonable amount of time. (b) Nastech and Schwarz shall, as soon as practicable following the Closing Date, qualify a manufacturing plant designated by Schwarz as an alternate FDA approved manufacturing and packaging site for the Nascobal Units. The costs of obtaining such approval shall be borne equally by Nastech and Schwarz. -10- 12 SECTION 5 CONDITIONS PRECEDENT TO THE CLOSING; CLOSING DATE; TERM OF AGREEMENT 5.1 Conditions Precedent to Schwarz's Obligations. Subject to waiver as set forth in Section 11.3, all obligations of Schwarz to close the transactions contemplated under this Agreement are subject to the fulfillment or satisfaction of each of the following conditions precedent: (a) Representations and Warranties True as of the Closing Date. The representations and warranties of Nastech contained in this Agreement or in any schedule, certificate or document delivered by Nastech to Schwarz pursuant to the provisions hereof shall have been true on the date hereof and shall be true on the Closing Date with the same effect as though such representations and warranties were made as of such date. (b) Compliance with this Agreement. Nastech shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or by the Closing Date. (c) Closing Certificate. Schwarz shall have received a certificate from Nastech, executed by an officer of Nastech, certifying in such detail as Schwarz may reasonably request that the conditions specified in Sections 5.1(a) and 5.1(b), above, have been fulfilled and certifying that Nastech has obtained all consents and approvals required hereunder. (d) No Threatened or Pending Litigation. On the Closing Date, no suit, action or other proceeding, or injunction or final judgment relating thereto, shall, to the best of Nastech's knowledge, be threatened or be pending before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding shall be pending or, to the best of Nastech's knowledge, threatened. 5.2 Conditions Precedent to Nastech's Obligations. Subject to waiver as set forth in Section 11.3, all obligations of Nastech to close the transactions contemplated under this Agreement are subject to the fulfillment or satisfaction of each of the following conditions precedent: (a) Representations and Warranties True as of the Closing Date. The representations and warranties of Schwarz contained in this Agreement or in any schedule, certificate or document delivered by Schwarz to Nastech pursuant to the -11- 13 provisions hereof shall have been true on the date hereof and shall be true on the Closing Date with the same effect as though such representations and warranties were made as of such date. (b) Compliance with this Agreement. Schwarz shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or by the Closing Date. (c) Closing Certificate. Nastech shall have received a certificate from Schwarz, executed by an officer of Schwarz, certifying in such detail as Nastech may reasonably request that the conditions specified in Sections 5.2(a) and 5.2(b), above, have been fulfilled and certifying that Schwarz has obtained all consents and approvals required hereunder. (d) No Threatened or Pending Litigation. On the Closing Date, no suit, action or other proceeding, or injunction or final judgment relating thereto, shall, to the best of Schwarz's knowledge, be threatened or be pending before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding shall be pending or, to the best of Schwarz's knowledge, threatened. 5.3 Closing Date. (a) Subject to Section 5.3(b), below, the closing of the transactions contemplated by this Agreement shall take place at 3:00 p.m., local time, on July 15, 1997, or on such other date as may be mutually agreed upon in writing by the parties (the "Closing Date"), at the offices of Mayer, Brown & Platt, 1675 Broadway, New York, New York 10019. (b) Each party hereby agrees to use its best efforts to consummate the transactions contemplated herein, as modified, on or before July 15, 1997; provided, however, that if the parties are unable to close the transactions contemplated hereby by July 15, 1997, or such later date as shall be mutually agreed to in writing by Nastech and Schwarz, then all of the rights and obligations of the parties under this Agreement shall terminate without liability. -12- 14 SECTION 6 REPRESENTATIONS AND WARRANTIES OF NASTECH Nastech hereby represents and warrants to Schwarz that: 6.1 Organization, Power and Authority. Nastech is a corporation duly organized and validly existing under the laws of the State of Delaware. Nastech has all necessary corporate power and authority to enter into, and be bound by the terms and conditions of, this Agreement, and to license the Licensed Assets, the Patents and the Technology to Schwarz pursuant hereto. 6.2 Due Authority; No Breach. The execution, delivery and performance by Nastech of this Agreement and each agreement or instrument contemplated by this Agreement, and the performance of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action by Nastech. This Agreement is, and each agreement or instrument contemplated by this Agreement, when executed and delivered by Nastech in accordance with the provisions hereof, will be (assuming the due execution and delivery hereof and thereof by Schwarz) the legal, valid and binding obligation of Nastech, in each case enforceable against Nastech in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization, or similar laws from time to time in effect which affect the enforcement of creditors' rights generally and by legal and equitable limitations on the availability of specific performance and other equitable remedies against Nastech. All persons who have executed this Agreement on behalf of Nastech, or who will execute on behalf of Nastech any agreement or instrument contemplated by this Agreement, have been duly authorized to do so by all necessary corporate action. Neither the execution and delivery of this Agreement or any such other agreement or instrument by Nastech, nor the performance of the obligations contemplated hereby and thereby, will (i) conflict with or result in any violation of or constitute a breach of any of the terms or provisions of, or result in the acceleration of any obligation under, or constitute a default under any provision of the Articles of Incorporation or By-laws of Nastech or any material contract or any other material obligation to which Nastech is a party or to which it is subject or bound, or (ii) violate any judgment, order, injunction, decree or award of any court, administrative agency, arbitrator or governmental body against, or affecting or binding upon, Nastech or upon the securities, property or business of Nastech, or (iii) constitute a violation by Nastech of any applicable law or regulation of any jurisdiction as such law or regulation relates to Nastech, or to the property or business of Nastech except for such conflict, acceleration, default, breach or violation that is not reasonably likely to have a material adverse effect on Nastech's ability to perform its obligations under this Agreement or under any agreement or instrument contemplated hereby. 6.3 NDA. Nastech has furnished Schwarz with access to a complete copy of the NDA, including all material amendments and supplements thereto. Nastech is the lawful holder of all rights under the NDA. Nastech has complied in all material respects with all applicable laws and regulations in connection with the preparation and submission to the FDA of the NDA, -13- 15 and the NDA has been approved by, and nothing has come to the attention of Nastech which has, or reasonably should have, led Nastech to believe that the NDA is not in good standing with, the FDA. Nastech has filed with the FDA all required notices, supplemental applications and annual or other reports, including adverse experience reports, with respect to the NDA which are material to the ability of Nastech to conduct the Activities. There is no pending or threatened action by the FDA which will have a material adverse effect on the Activities and no future action by the FDA is required to lawfully market Nascobal Units in the Territory. Other than pursuant to this Agreement, Nastech has neither independently marketed, nor has it made arrangements for others to market Nascobal or Nascobal Units in the Territory. 6.4 Intellectual Property. Set forth on Schedule 6.4 hereto is a list of all Intellectual Property and Patents. Except as set forth on Schedule 6.4 hereto, (i) Nastech is the lawful owner of the Intellectual Property, Patents and Technology, (ii) Nastech can license the Intellectual Property, Patents and Technology without the consent of any third party, (iii) there is no pending or overtly threatened claim against Nastech asserting that any of the Intellectual Property, Patents or Technology infringes or violates the rights of third parties or that Schwarz, by practicing under the Licensed Assets or Technology in running the Activities, would violate any of the intellectual property rights of any third party, and (iv) nothing has come to the attention of Nastech which has, or reasonably should have, led Nastech to believe that any of the Intellectual Property, Patents or Technology infringes or violates the right of third parties. Except as set forth on Schedule 6.4 hereto, Nastech has not given any notice to any third parties asserting infringement by such third parties upon any of the Intellectual Property, Patents or Technology. Nastech is not aware of and has not received any communications challenging the ownership, validity or effectiveness of any of the Intellectual Property, Patents or Technology, or any other intellectual property rights relating to the Activities. Nastech has not granted any right to any third party relating to the Activities which would violate the terms of or conflict with the rights granted to Schwarz pursuant to this Agreement. 6.5 Technology Rights. The Patents and the Technology contain all the technology, patents, know-how, trade secrets and other intellectual property necessary to manufacture Nascobal. 6.6 Litigation. There are no pending or, to the best of Nastech's knowledge, threatened judicial, administrative or arbitral actions, claims, suits or proceedings pending as of the date hereof against Nastech relating to the Activities, the Licensed Assets, Patents or the Technology which, either individually or together with any other, would have a material adverse effect on the Activities, the Licensed Assets, the Patents, Technology or the ability of Nastech to perform its obligations under this Agreement or any agreement or instrument contemplated hereby. There are no pending, and Nastech does not presently contemplate bringing, any actions or suits relating to the Activities, the Licensed Assets, the Patents or the Technology brought by Nastech against others. 6.7 Governmental Approval. Other than FDA approval of Schwarz's trade dress of the Nascobal Units, no consent, approval, waiver, order or authorization of, or registration, -14- 16 declaration or filing with, any governmental authority is required in connection with the execution, delivery and performance of this Agreement, or any agreement or instrument contemplated by this Agreement, by Nastech or the performance by Nastech of its obligations contemplated hereby and thereby. 6.8 Brokerage. Other than Mazier Partners LLC, no broker, finder or similar agent has been employed by or on behalf of Nastech, and no Person with which Nastech has had any dealings or communications of any kind is entitled to any brokerage commission, finder's fee or any similar compensation, in connection with this Agreement or the transactions contemplated hereby. Nastech shall bear any brokerage commission, finder's fee or any similar compensation owed to Mazier Partners LLC. 6.9 Implied Warranties. EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 6, NASTECH MAKES NO REPRESENTATION OR WARRANTY AS TO THE LICENSED ASSETS, THE PATENTS, THE TECHNOLOGY OR THE ACTIVITIES, EITHER IN FACT OR BY OPERATION OF LAW, AND NASTECH SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR STATUTORY WARRANTIES. SECTION 7 REPRESENTATIONS AND WARRANTIES OF SCHWARZ Schwarz represents and warrants to Nastech that: 7.1 Organization, Power and Authority. Schwarz is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Schwarz has all necessary corporate power and authority to enter into, and be bound by the terms and conditions of, this Agreement, and to license the Licensed Assets, the Patents and the Technology from Nastech pursuant hereto. 7.2 Due Authority; No Breach. The execution, delivery and performance by Schwarz of this Agreement, and each agreement or instrument contemplated by this Agreement, and the performance of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action by Schwarz. This Agreement is, and each agreement or instrument contemplated by this Agreement, when executed and delivered by Schwarz in accordance with the provisions hereof, will be (assuming due execution and delivery hereof and thereof by Nastech) the legal, valid and binding obligation of Schwarz, in each case enforceable against Schwarz in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization, or similar laws from time to time in effect which affect the enforcement of creditors' rights generally and by legal and equitable limitations on the availability of specific performance and other equitable remedies against Schwarz. All persons who have executed this Agreement on behalf of Schwarz, or who will execute on behalf of Schwarz any agreement or instrument contemplated by this Agreement, -15- 17 have been duly authorized to do so by all necessary corporate action. Neither the execution and delivery of this Agreement by Schwarz, or any such other agreement or instrument by Schwarz, nor the performance of the obligations contemplated hereby and thereby, will (i) conflict with or result in any violation of or constitute a breach of any of the terms or provisions of, or result in the acceleration of any obligation under, or constitute a default under any provision of the Articles of Incorporation or By-laws of Schwarz or any material contract or any other material obligation to which Schwarz is a party or to which it is subject or bound, or (ii) violate any judgment, order, injunction, decree or award of any court, administrative agency, arbitrator or government body against, or affecting or binding upon, Schwarz or upon the securities, property or business of Schwarz, or (iii) constitute a violation by Schwarz of any applicable law or regulation of any jurisdiction as such law or regulation relates to Schwarz or to the property or business of Schwarz, except for such conflict, acceleration, default, breach or violation that is not reasonably likely to have a material adverse effect on Schwarz's ability to perform its obligations under this Agreement or any agreement or instrument contemplated hereby. 7.3 Brokerage. No broker, finder or similar agent has been employed by or on behalf of Schwarz and no Person with which Schwarz has had any dealings or communications of any kind is entitled to any brokerage commission, finder's fee or any similar compensation, in connection with this Agreement or the transactions contemplated hereby. 7.4 Litigation. There are no pending or, to the best of Schwarz's knowledge, threatened judicial, administrative or arbitral actions, claims, suits or proceedings pending as of the date hereof against Schwarz which, either individually or together with any other, will have a material adverse effect on the ability of Schwarz to perform its obligations under this Agreement or any agreement or instrument contemplated hereby. 7.5 Governmental Approval. No consent, approval, waiver, order or authorization of, or registration, declaration or filing with, any governmental authority is required in connection with the execution, delivery and performance of this Agreement, or any agreement or instrument contemplated by this Agreement, by Schwarz or the performance by Schwarz of its obligations contemplated hereby and thereby. SECTION 8 ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES 8.1 Governmental Filings. Nastech and Schwarz each agree to prepare and file whatever filings, requests or applications are required to be filed with any governmental authority in connection with this Agreement and to cooperate with one another as reasonably necessary to accomplish the foregoing. -16- 18 8.2 Responsibility for NDA. (a) Nastech shall remain responsible for fulfilling all regulatory requirements with respect to Nascobal that are imposed upon Nastech as the owner of the NDA. Nastech shall provide Schwarz, upon request after reasonable notice from Schwarz, with access to copies of all filings submitted by Nastech to the NDA. Schwarz shall, on a timely basis, provide to Nastech all information that Schwarz has that Nastech does not have that is reasonably necessary and relevant to Nastech's obligations hereunder to fulfill such requirements including, but not limited to, sales distribution information concerning Nascobal, and shall otherwise cooperate with Nastech as reasonably necessary in connection therewith. Nastech shall have the final decision-making authority in every case on whether and how to supplement, amend or otherwise alter the NDA and any other issues in connection with the NDA and on whether and how to communicate with the FDA in connection therewith. Schwarz shall submit to Nastech for Nastech's prior review and approval any request by Schwarz to pursue approval of any new indication for Nascobal, to conduct any studies with respect to Nascobal, and to make any submissions to the FDA with respect to Nascobal; provided, however, that Nastech shall have the right, in its reasonable judgment and based solely on the scientific merit of the request, to refuse any such request. If Schwarz elects to undertake a regulatory obligation, such election shall be subject to Nastech and Schwarz mutually agreeing upon the terms and conditions (including, but not limited to, compensation to Schwarz) of any such obligation. (b) Anything to the contrary in Section 8.2(a) notwithstanding, Nastech may, and in the event of any regulatory problem that disrupts the promotion, marketing or sale of Nascobal or Nascobal Units or has a materially adverse effect on the Activities (each a "Regulatory Problem"), Nastech shall pay Schwarz $75,000 per annum to assume responsibility for fulfilling all regulatory requirements with respect to Nascobal that are imposed upon Nastech as the owner of the NDA. In any such case, Nastech shall, on a timely basis, perform any action and provide to Schwarz all information and materials that Nastech can or has that Schwarz can not or does not have that are reasonably necessary and relevant to Schwarz's obligations hereunder to fulfill such requirements, including providing copies of Form 356(h) or other letter required by the FDA or applicable law to be received from the NDA owner, and Nastech shall otherwise cooperate with Schwarz as reasonably necessary in connection therewith. Schwarz shall have the final decision-making authority in every case on whether and how to supplement, amend or otherwise alter the NDA and any other issues in connection with the NDA and on whether and how to communicate with the FDA in connection therewith. Nastech shall submit to Schwarz for Schwarz's prior review and approval any request by Nastech to pursue approval of any new indication for Nascobal, to conduct any studies with respect to Nascobal, and to make any submissions to the FDA with respect to Nascobal; provided, however, that Schwarz shall have the right, in its reasonable judgment and based solely on the scientific merit of the request, to refuse any such request. -17- 19 (c) If Nastech is forced pursuant to Section 8.2(b) to transfer the responsibility for fulfilling regulatory requirements with respect to Nascobal to Schwarz because of a Regulatory Problem, then Nastech shall, upon its development of procedures and/or the capability to cure such Regulatory Problem, have the right to reassume such responsibility and Schwarz and Nastech shall transfer such responsibility back to Nastech within a commercially reasonable amount of time; provided, however, that Nastech shall pay all reasonable costs and expenses of Schwarz associated with such transfer, including, without limitation, the cost of terminating any employees of Schwarz specifically hired to fulfill the regulatory requirements with respect to Nascobal. (d) Schwarz and Nastech shall jointly develop written procedures and define responsibilities for (i) the reporting of adverse drug experiences, (ii) the submission by Schwarz to Nastech and by Nastech to FDA of labeling and promotional materials related to Nascobal, (iii) the administration of and response to medical inquiries concerning Nascobal by consumers, physicians, pharmacists and other health care professionals, (iv) the administration and analysis of and response to complaints concerning Nascobal, and (v) the development of training materials related to Nascobal. Schwarz and Nastech shall each comply with the provisions of such written procedures. (e) Nastech shall use its best efforts to take the regulatory steps set forth on Schedule 8.2(e). 8.3 Compliance with Law. Schwarz and Nastech shall each comply with all federal, state and local laws and regulations applicable to manufacturing, marketing and selling Nascobal in the Territory, the Licensed Assets, the Patents and the Technology or the performance of their respective obligations hereunder. Nastech and Schwarz each shall keep all records and reports required to be kept by applicable laws and regulations, and each shall make its facilities available at reasonable times during business hours for inspection by representatives of governmental agencies. Nastech and Schwarz each shall notify the other within twenty-four (24) hours of receipt of any notice or any other indication whatsoever of any FDA or other governmental agency inspection, investigation or other inquiry, or other material notice or communication of any type, involving Nascobal. Schwarz and Nastech shall cooperate with each other during any such inspection, investigation or other inquiry including, but not limited to, allowing upon request a representative of the other to be present during the applicable portions of any such inspection, investigation or other inquiry and providing copies of all relevant documents. Schwarz and Nastech shall discuss any response to observations or notifications received in connection with any such inspection, investigation or other inquiry and each shall give the other an opportunity to comment upon any proposed response before it is made. In the event of disagreement concerning the form or content of such response, however, Nastech shall be responsible for deciding the appropriate form and content of any response with respect to any of its cited activities and Schwarz shall be responsible for deciding the appropriate form and content of any response with respect to any of its cited activities. -18- 20 8.4 Recall. Schwarz and Nastech shall consult with one another as to all decisions concerning recall or withdrawal of Nascobal from the market, including, but not limited to, determining whether or not to make any such recall or withdrawal, the timing and scope thereof, and the means of conducting any recall or withdrawal. The party requesting any recall or withdrawal must receive the prior written consent of the other party, such consent not to be unreasonably withheld, prior to initiating such recall or withdrawal. No consent shall be necessary if the recall or withdrawal is required by the FDA or other governmental authority. Nastech shall bear the costs (including but not limited to, shipping and product credits) for any recall or withdrawal primarily due to the failure of the product integrity of the Nascobal Units, including but not limited to, Nastech's failure to comply with this Agreement, GMP, federal regulations or the FDA approved specifications. The costs for any other recall or withdrawal shall be the responsibility of Schwarz. In the event of any recall or withdrawal of Nascobal due to the failure of the product integrity of the Nascobal Units, the minimum Annual Net Sales requirements pursuant to Section 4.2 shall terminate and be deemed waived by Nastech and shall be renegotiated in good faith by Nastech and Schwarz. Each party will cooperate fully with the other in connection with any recall or withdrawal. 8.5 Confidentiality. Schwarz shall treat as confidential the Licensed Assets, the Patents, the Technology, and all other information of Nastech of which Schwarz becomes aware in connection with this Agreement (collectively, "Nastech Proprietary Information"). Schwarz shall neither disclose Nastech Proprietary Information to any third party nor use Nastech Proprietary Information for any purpose other than as set forth in this Agreement. Nastech shall treat as confidential all information of Schwarz of which Nastech becomes aware in connection with this Agreement (collectively, "Schwarz Proprietary Information"). Nastech shall neither disclose Schwarz Proprietary Information to any third party nor use Schwarz Proprietary Information for any purpose other than as set forth in this Agreement. Nothing contained herein will in any way restrict or impair either party's (the "Using Party's") right to use, disclose or otherwise deal with any Proprietary Information of the other party which: (a) at the time of disclosure is known to the public or thereafter becomes known to the public by publication or otherwise through no fault of the Using Party; (b) the Using Party can establish was in its possession prior to the time of the disclosure and was not obtained directly or indirectly from the other party; (c) is independently made available as a matter of right to the Using Party by a third party who is not thereby in violation of a confidential relationship with the other party; (d) is developed by the Using Party independently of the Proprietary Information received from the other party and the Using Party can establish such development; or -19- 21 (e) is information required to be disclosed by legal or regulatory process; provided, in each case the Using Party timely informs the other party and uses reasonable efforts to limit the disclosure and maintain confidentiality to the extent possible and permits the other party to intervene and contest or attempt to limit the disclosure. Schwarz shall obtain no right or license of any kind under the Nastech Proprietary Information except as set forth in this Agreement. Nastech shall obtain no right or license of any kind under the Schwarz Proprietary Information except as set forth in this Agreement. 8.6 Expenses. Nastech and Schwarz shall each bear their own direct and indirect expenses incurred in connection with the negotiation and preparation of this Agreement and, except as set forth in this Agreement, the performance of the obligations contemplated hereby. 8.7 Reasonable Efforts. Nastech and Schwarz each hereby agrees to use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done all things necessary or proper to make effective the transactions contemplated by this Agreement, including such actions as may be reasonably necessary to obtain approvals and consents of governmental Persons and other Persons (including, without limitation, all applicable drug listing and NDA notifications to the FDA identifying Schwarz as a distributor of Nascobal). 8.8 Publicity. The parties agree that no publicity release or announcement concerning the transactions contemplated hereby shall be issued without the advance written consent of the other, except (i) as such release or announcement may be required by law, in which case the party making the release or announcement shall, before making any such release or announcement, afford the other party a reasonable opportunity to review and comment upon such release or announcement and (ii) on or promptly after the Closing Date, the press release set forth on Schedule 8.8. 8.9 Cooperation. If either party shall become engaged in or participate in any investigation, claim, litigation or other proceeding with any third party, including the FDA, relating in any way to Nascobal or any of the Licensed Assets, the Patents or the Technology, the other party shall cooperate in all reasonable respects with such party in connection therewith, including, without limitation, using its reasonable efforts to make available to the other such employees who may be helpful with respect to such investigation, claim, litigation or other proceeding, provided that, for purposes of this provision, reasonable efforts to make available any employee shall be deemed to mean providing a party with reasonable access to any such employee at no cost for a period of time not to exceed 24 hours (e.g., three 8-hour business days). Thereafter, any such employee shall be made available for such time and upon such terms and conditions (including, but not limited to, compensation) as the parties may mutually agree. 8.10 Competition; No Sale for Resale. (a) Nastech agrees that, commencing on the Closing Date and continuing for the term of this Agreement, it shall not directly or indirectly, engage in any -20- 22 activity in competition with the Activities in the Territory. It is understood that Nastech may manufacture or have manufactured Nascobal in the Territory for sale outside the Territory. It is further understood that the remedies at law are inadequate in the case of any breach of this covenant and that Schwarz shall be entitled to equitable relief, including the remedy of specific performance, with respect to any breach of such covenant. (b) Neither Schwarz nor any sublicensee of Schwarz shall knowingly sell any Nascobal Units to anyone in the Territory for subsequent distribution or resale outside the Territory and each shall take all reasonable precautions to prevent such distribution or resale outside the Territory. Nastech shall not knowingly sell any Nascobal Units to anyone in the Territory or outside the Territory for subsequent distribution or resale in the Territory and Nastech shall take all reasonable precautions to prevent such distribution or resale in the Territory. 8.11 Product Returns. Schwarz shall be responsible for all rebates, chargebacks and returns of Nascobal Units sold on or after the date of this Agreement and Nastech shall be responsible for all rebates, chargebacks and returns of Nascobal Units sold prior to the date of this Agreement. 8.12 Conflicting Rights. Nastech shall not grant any right to any third party relating to the Activities which would violate the terms of or conflict with the rights granted to Schwarz pursuant to this Agreement. 8.13 Patent and Trademark Maintenance. (a) Nastech shall be solely responsible for filing, prosecuting, and maintaining all of the Patents and Trademarks, and Nastech shall pay the costs associated therewith. Nastech shall file, prosecute, and maintain all Patents and Trademarks so as to fully continue the benefits under the licenses granted to Schwarz hereunder. In the event that any extension, registration, confirmation, reissue, renewal, reexamination or continuation-in-part is to be filed with respect to a Patent or a Trademark, Nastech shall provide Schwarz with the opportunity to review such extension, registration, confirmation, reissue, renewal, reexamination or continuation-in-part and provide input thereto. (b) Schwarz and Nastech agree that, where applicable, all packaging of the Nascobal Units shall identify (i) the number of the Patents and (ii) Nastech as the owner of the Trademarks. 8.14 Infringement; Enforcement of Proprietary Rights. (a) Infringement of Patent Rights. Each party shall promptly notify the other of any alleged infringement by third parties of any Patent and provide any information -21- 23 available to that party relating to such alleged infringement. Nastech shall have the responsibility to investigate such alleged infringement and act diligently to end any infringement of such rights, including, but not limited to, bringing suit against such third party infringer. (b) Procedures. No settlement, consent judgment or other voluntary final disposition of the suit may be entered into without the consent of each party, which consent shall not be unreasonably withheld or delayed. Any recovery of damages in any such suit shall be retained by the party bearing the costs of such suit. In the event of any infringement suit against a third party brought by either party pursuant to this Section 8.14, the party not bringing such suit shall cooperate in all respects, execute any documents reasonably necessary to permit the other party to prosecute such suit, and to the extent reasonable shall make available its employees and relevant records to provide evidence for such suit. (c) Infringement of Third Party Rights. If, during the term of this Agreement, any third party (other than an Affiliate of Schwarz) claims that Schwarz's marketing or selling of Nascobal Units hereunder infringes on a third party patent based upon claims that dominate claims in the Patents, within 120 days after notice by Schwarz, Nastech shall (i) initiate an action for a declaratory judgment of invalidity and/or noninfringement of any such patents, or (ii) procure for Schwarz the right to exercise all rights licensed under this Agreement without any additional payment therefor by Schwarz. 8.15 Supply of Nascobal Units. Nastech shall maintain the capacity throughout the term of this Agreement to meet the requirements of Schwarz for Nascobal Units hereunder. 8.16 Technology. Nastech shall be solely responsible for maintaining the Technology in accordance with the terms set forth in this Agreement. 8.17 Liability Insurance. Nastech shall obtain and carry in full force and effect product liability insurance in respect of Nascobal in the amount of $1,000,000 per occurrence, $3,000,000 in the aggregate. Schwarz shall obtain and carry in full force and effect product liability insurance in respect of Nascobal in the amount of $10,000,000 per occurrence, $10,000,000 in the aggregate. 8.18 Referral of Orders and Inquiries. Nastech shall refer all Persons sending orders or making inquiries regarding Nascobal or Nascobal Units within the Territory to Schwarz and shall promptly notify Schwarz of the name of each such Person and the nature of the inquiry of such Person. 8.19 Deemed Breach of Covenant. Neither Nastech nor Schwarz shall be deemed to be in breach of any covenant contained in this Section 8 if such party's deemed breach is the result of any action or inaction on the part of the other party. -22- 24 SECTION 9 INDEMNIFICATION 9.1 Indemnification. (a) Nastech shall indemnify, defend and hold Schwarz (and its directors, officers, employees, and Affiliates) harmless from and against any and all Damages incurred or suffered by Schwarz (and its directors, officers, employees, and Affiliates) as a consequence of: (i) any breach of any representation or warranty made by Nastech in this Agreement or any agreement, instrument or document delivered by Nastech pursuant to the terms of this Agreement; (ii) any failure to perform duly and punctually any covenant, agreement or undertaking on the part of Nastech contained in this Agreement; (iii) any act or omission of Nastech with respect to the operation of Nastech's business, or the handling, manufacturing, sale, consumption or use of Nascobal by Nastech; or (iv) the infringement of the Licensed Assets, the Patent or the Technology of any patent, trademark, copyright, trade secret or other intellectual property right of any person other than Nastech or Schwarz. (b) Schwarz shall indemnify, defend and hold Nastech (and its directors, officers, employees, and Affiliates) harmless from and against any and all Damages incurred or suffered by Nastech (and its directors, officers, employees, and Affiliates) as a consequence of: (i) any breach of any representation or warranty made by Schwarz in this Agreement or any agreement, instrument or document delivered by Schwarz pursuant to the terms of this Agreement; (ii) any failure to perform duly and punctually any covenant, agreement or undertaking on the part of Schwarz contained in this Agreement; or (iii) any act or omission of Schwarz with respect to the operation of Schwarz's business or the handling, manufacturing, sale, consumption or use of Nascobal by Schwarz. -23- 25 9.2 Notice and Opportunity To Defend. Promptly after receipt by a party hereto of notice of any claim which could give rise to a right to indemnification pursuant to Section 9.1. such party (the "Indemnified Party") shall give the other party (the "Indemnifying Party") written notice describing the claim in reasonable detail. The failure of an Indemnified Party to give notice in the manner provided herein shall not relieve the Indemnifying Party of its obligations under this Section, except to the extent that such failure to give notice materially prejudices the Indemnifying Party's ability to defend such claim. The Indemnifying Party shall have the right, at its option, to compromise or defend, at its own expense and by its own counsel, any such matter involving the asserted liability of the party seeking such indemnification. If the Indemnifying Party shall undertake to compromise or defend any such asserted liability, it shall promptly (and in any event not less than 10 days after receipt of the Indemnified Party's original notice) notify the Indemnified Party in writing of its intention to do so, and the Indemnified Party agrees to cooperate fully with the Indemnifying Party and its counsel in the compromise or defense against any such asserted liability. All reasonable costs and expenses incurred in connection with such cooperation shall be borne by the Indemnifying Party. If the Indemnifying Party elects not to compromise or defend the asserted liability, fails to notify the Indemnified Party of its election to compromise or defend as herein provided, fails to admit its obligation to indemnify under this Agreement with respect to the claim, or, if in the reasonable opinion of the Indemnified Party, the claim could result in the Indemnified Party becoming subject to injunctive relief or relief other than the payment of money damages that could materially adversely affect the ongoing business of the Indemnified Party in any manner, the Indemnified Party shall have the right, at its option, to pay, compromise or defend such asserted liability by its own counsel and its reasonable costs and expenses shall be included as part of the indemnification obligation of the Indemnifying Party hereunder. Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnified Party may settle or compromise any claim over the objection of the other; provided, however, that consent to settlement or compromise shall not be unreasonably withheld. In any event, the Indemnified Party and the Indemnifying Party may participate, at their own expense, in the defense of such asserted liability. If the Indemnifying Party chooses to defend any claim, the Indemnified Party shall make available to the Indemnifying Party any books, records or other documents within its control that are necessary or appropriate for such defense. Notwithstanding anything to the contrary in this Section 9.2, (i) the party conducting the defense of a claim shall (A) keep the other party informed on a reasonable and timely basis as to the status of the defense of such claim (but only to the extent such other party is not participating jointly in the defense of such claim), and (B) conduct the defense of such claim in a prudent manner, and (ii) the Indemnifying Party shall not cease to defend, settle or otherwise dispose of any claim without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld). 9.3 Indemnification Payment Obligation. No Indemnifying Party will have any obligations under Sections 9.1(a) or 9.1(b) until the cumulative aggregate amount of Damages incurred or suffered by the Indemnified Party which the Indemnifying Party is otherwise subject to under this Agreement exceeds $50,000 at which time the entire cumulative aggregate amount of such Damages shall be covered. The provisions of this Section 9.3 shall not limit or otherwise affect the obligations of any Indemnifying Party under any other Section of this Agreement. -24- 26 9.4 Indemnification Payment Adjustments. The amount of any Damages for which indemnification is provided under this Section 9 shall be reduced to take account of any net tax benefit and shall be increased to take account of any net tax detriment arising from the incurrence or payment of any such Damages or from the receipt of any such indemnification payment and shall be reduced by the insurance proceeds received and any other amount recovered, if any, by the Indemnified Party with respect to any Damages; provided, however, that an Indemnified Party shall not be subject to an obligation to pursue an insurance claim relating to any Damages for which indemnification is sought hereunder. If any Indemnified Party shall have received any payment pursuant to this Section 9 with respect to any Damages and shall subsequently have received insurance proceeds or other amounts with respect to such Damages, then such Indemnified Party shall pay to the Indemnifying Party an amount equal to the difference (if any) between (i) the sum of the amount of those insurance proceeds or other amounts received and the amount of the payment by such Indemnifying Party pursuant to this Section 9 with respect to such Damages and (ii) the amount necessary to fully and completely indemnify and hold harmless such Indemnified Party from and against such Damages; provided, however, in no event will such Indemnified Party have any obligation pursuant to this sentence to pay to such Indemnifying Party an amount greater than the amount of the payment by such Indemnifying Party pursuant to this Section 9 with respect to such Damages. 9.5 Indemnification Payment. Upon the final determination of liability and the amount of the indemnification payment under this Section 9, the appropriate party shall pay to the other, as the case may be, within 10 business days after such determination, the amount of any claim for indemnification made hereunder. 9.6 Survival. The provisions of Section 9 shall survive any termination of this Agreement. Each Indemnified Party's rights under Section 9 shall not be deemed to have been waived or otherwise affected by such Indemnified Party's waiver of the breach of any representation, warranty, agreement or covenant contained in or made pursuant this Agreement, unless such waiver expressly and in writing also waives any or all of the Indemnified Party's right under Section 9. SECTION 10 TERMINATION 10.1 Termination. The term of this Agreement shall begin upon the Closing Date and, unless sooner terminated as hereinafter provided, shall end upon the later of (i) the fifteenth anniversary of the Closing Date and (ii) the expiration of the Patents (including any continuation thereof). Notwithstanding the foregoing, this Agreement may be terminated as follows: (a) Termination for Insolvency. If either Schwarz or Nastech -25- 27 (i) makes a general assignment for the benefit of creditors or becomes insolvent; (ii) files an insolvency petition in bankruptcy; (iii) petitions for or acquiesces in the appointment of any receiver, trustee or similar officer to liquidate or conserve its business or any substantial part of its assets; (iv) commences under the laws of any jurisdiction any proceeding involving its insolvency, bankruptcy, reorganization, adjustment of debt, dissolution, liquidation or any other similar proceeding for the release of financially distressed debtors; or (v) becomes a party to any proceeding or action of the type described above in (iii) or (iv) and such proceeding or action remains undismissed or unstayed for a period of more than 60 days, then the other party may by written notice terminate this Agreement in its entirety with immediate effect. (b) Termination for Default. (i) Schwarz and Nastech each shall have the right to terminate this Agreement for default upon the other's failure to comply in any material respect with the terms and conditions of this Agreement. At least 30 days prior to any such termination for default, the party seeking to so terminate shall give the other written notice of its intention to terminate this Agreement in accordance with the provisions of this Section 10.1(b), which notice shall set forth the default(s) which form the basis for such termination. If the defaulting party fails to correct such default(s) within 30 days after receipt of notification, or if the same cannot reasonably be corrected or remedied within 30 days, then if the defaulting party has not commenced curing said default(s) within said 30 days and be diligently pursuing completion of same, then such party immediately may terminate this Agreement. (ii) This Section 10.1(b) shall not be exclusive and shall not be in lieu of any other remedies available to a party hereto for any default hereunder on the part of the other party. (c) Continuing Obligations. Termination of this Agreement for any reason shall not relieve the parties of any obligation accruing prior thereto with respect to the Nascobal and any ongoing obligations hereunder with respect to the remaining Product and shall be without prejudice to the rights and remedies of either party with respect to any antecedent breach of the provisions of this Agreement. Without limiting the generality of the foregoing, no termination of this Agreement, whether by lapse of time or otherwise, shall serve to terminate the obligations of the parties hereto under Sections 8.4, 8.5, 8.6, 8.8, 8.11, 8.17, 9, 10.1(c) and 11 hereof, and such obligations shall survive any such termination. -26- 28 SECTION 11 MISCELLANEOUS 11.1 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns; provided, however, that neither Nastech nor Schwarz may assign any of its rights, duties or obligations hereunder without the prior written consent of the other, which consent shall not be unreasonably withheld, except that no prior written consent shall be required in the event that a third party acquires substantially all of the assets or outstanding shares of, or merges with, Schwarz or Nastech, as the case may be. 11.2 Notices. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or facsimile and confirmed in writing, or mailed first class, postage prepaid, by registered or certified mail, return receipt requested (mailed notices and notices sent by facsimile shall be deemed to have been given on the date received) as follows: If to Nastech, as follows: Nastech Pharmaceutical Company Inc. 45 Davids Drive Happauge, New York 11788 Facsimile: 516-273-0252 Attention: President If to Schwarz, as follows: Schwarz Pharma, Inc. 5600 County Line Road Mequon, Wisconsin 53092 Facsimile: 414-242-1641 Attention: Sandra Kallis or in any case to such other address or addresses as hereafter shall be furnished as provided in this Section 11.2 by any party hereto to the other party. 11.3 Waiver; Remedies. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument executed by such party. No delay on the part of Nastech or Schwarz in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of either Nastech or Schwarz of any right, power or privilege hereunder operate as a waiver of any other right, power or privilege hereunder nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power -27- 29 or privilege hereunder. The indemnification provided in Section 9 shall be the sole remedy available for any Damages arising out of or in connection with this Agreement except for any rights or remedies which the parties hereto may otherwise have in equity. 11.4 Survival of Representations. Each of the representations and warranties made in this Agreement shall continue for the term of this Agreement and shall thereafter be extinguished. 11.5 Independent Contractors. The parties hereto are independent contractors, and nothing contained in this Agreement shall be deemed to create the relationship of partners, joint venturers, or of principal and agent, franchisor and franchisee, or of any association or relationship between the parties other than as expressly provided in this Agreement. Schwarz acknowledges that it does not have, and Schwarz shall not make representations to any third party, either directly or indirectly, indicating that Schwarz has any authority to act for or on behalf of Nastech or to obligate Nastech in any way whatsoever. Nastech acknowledges that it does not have, and it shall not make any representations to any third party, either directly or indirectly, indicating that it has any authority to act for or on behalf of Schwarz or to obligate Schwarz in any way whatsoever. 11.6 Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements or understandings of the parties relating thereto. 11.7 Amendment. This Agreement may be modified or amended only by written agreement of the parties hereto. 11.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute a single instrument. 11.9 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York excluding any choice of law rules which may direct the application of the law of another state. 11.10 Arbitration. Any dispute, controversy or claim arising out of or in connection with this Agreement shall be determined and settled by arbitration in New York, New York, pursuant to the Rules of Arbitration then in effect of the American Arbitration Association. Any award rendered shall be final and conclusive upon the parties and a judgment thereon may be entered in a court having competent jurisdiction. Any arbitration hereunder shall be (i) submitted to an arbitration tribunal comprised of three (3) independent members knowledgeable in the pharmaceutical industry, one of whom shall be selected by Schwarz, one of whom shall be selected by Nastech, and one of whom shall be selected by the other two arbitrators; (ii) allow for the parties to request discovery pursuant to the rules then in effect under the Federal Rules of Civil Procedure for a period not to exceed 90 days; and (iii) require the -28- 30 award to be accompanied by findings of fact and a statement of reasons for the decision. Each party shall bear its own costs and expenses, including attorney's fees incurred in any dispute which is determined and/or settled by arbitration pursuant to this Section. Except where clearly prevented by the area in dispute, both parties agree to continue performing their respective obligations under this Agreement while the dispute is being resolved. Arbitration shall not prevent any party from seeking injunctive relief where such remedy is an appropriate form of remedy under the circumstances. 11.11 Captions. All section titles or captions contained in this Agreement, in any Schedule referred to herein or in any Exhibit annexed hereto, and the table of contents, if any, to this Agreement are for convenience only, shall not be deemed a part of this Agreement and shall not affect the meaning or interpretation of this Agreement. 11.12 No Third-Party Rights. No provision of this Agreement shall be deemed or construed in any way to result in the creation of any rights or obligation in any Person not a party or not affiliated with a party to this Agreement. 11.13 Severability. If any provision of this Agreement is found or declared to be invalid or unenforceable by any court or other competent authority having jurisdiction, such finding or declaration shall not invalidate any other provision hereof, and this Agreement shall thereafter continue in full force and effect. 11.14 Attachments. All Schedules, Exhibits and other attachments to this Agreement are by this reference incorporated herein and made a part of this Agreement. -29- EX-27 3 FINANCIAL DATA SCHEDULE.
5 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 25,308 1,989 1,100 0 474 29,029 949 217 29,776 1,745 21 0 0 37 27,473 29,776 0 2,643 0 0 3,911 0 4 (1,272) 0 0 0 0 0 (1,272) (.22) (.22)
-----END PRIVACY-ENHANCED MESSAGE-----