<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 0-15847
SEQUUS PHARMACEUTICALS, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3031834
- ------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
960 Hamilton Court, Menlo Park, CA 94025
----------------------------------------
(Address of principle executive offices)
(415) 323-9011
----------------------------------------------------
(Registrant's telephone number, including area code)
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 [ ]
As of July 10, 1997, the number of outstanding shares of the Company's common
stock, par value $.0001, was 30,440,073.
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SEQUUS PHARMACEUTICALS, INC.
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION Page No.
--------
ITEM 1. Condensed Financial Statements (unaudited)
Condensed Balance Sheets
June 30, 1997 and December 31, 1996.................................................... 1
Condensed Statements of Operations for the
Three and Six Months Ended June 30, 1997 and 1996...................................... 2
Condensed Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996................................................ 3
Notes to Condensed Financial Statements ............................................... 4
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................... 7
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to Stockholder.................................................. 21
ITEM 6. Exhibits and Reports on Form 8-K........................................................ 21
Signature............................................................................................ 22
</TABLE>
i
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SEQUUS PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(in thousands except par value)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 6,994 $ 9,997
Short-term marketable investments 22,606 22,949
Trade accounts receivable 4,713 8,972
Inventories 5,494 5,697
Prepaid expenses and other current assets 1,705 1,601
--------- ---------
Total Current Assets 41,512 49,216
Equipment and improvements, net 6,099 5,564
Other assets 299 188
--------- ---------
Total Assets $ 47,910 $ 54,968
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,583 $ 4,539
Accrued compensation 2,641 3,149
Accrued clinical costs 1,382 1,014
Other accrued liabilities 1,675 1,939
--------- ---------
Total Current Liabilities 9,281 10,641
Long Term Debt 5,000 -
Stockholders' Equity:
Common stock 3 3
Additional paid-in capital 199,105 194,948
Accumulated deficit (165,479) (150,624)
--------- ---------
Total Stockholders' Equity 33,629 44,327
--------- ---------
Total Liabilities and Stockholders' Equity $ 47,910 $ 54,968
========= =========
</TABLE>
See accompanying notes to condensed financial statements
1
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SEQUUS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 7,916 $ 5,485 $ 14,404 $ 9,942
Royalties and fees 530 32 2,365 69
-------- -------- -------- --------
Total Revenues 8,446 5,517 16,769 10,011
Expenses:
Cost of goods sold 1,657 690 2,971 1,221
Research and development 8,433 5,799 15,845 11,728
Selling, general and administrative 6,128 4,400 13,490 8,858
-------- -------- -------- --------
Total Expenses 16,218 10,889 32,306 21,807
Interest income 374 199 671 846
-------- -------- -------- --------
Net Loss $ (7,398) $ (5,173) $(14,866) $(10,950)
======== ======== ======== ========
Net loss per common share $ (0.24) $ (0.18) $ (0.49) $ (0.39)
======== ======== ======== ========
Common shares used in calculation of net loss 30,360 28,944 30,180 28,426
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed financial statements
2
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SEQUUS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(14,866) $(10,950)
Adjustment to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 1,039 901
Issuance of common stock to 401(k) Plan 287 174
Changes in operating assets and liabilities:
Trade accounts and interest receivable 4,259 (813)
Inventories 203 (2,064)
Prepaid expenses and other current assets (104) 168
Other assets (151) (29)
Accounts payable (956) (338)
Accrued compensation (508) (617)
Accrued clinical costs 368 (55)
Other accrued liabilities (264) (72)
Deferred revenue - (716)
-------- --------
Net cash used in operating activities (10,693) (14,411)
-------- --------
Cash flows from investing activities:
Available-for-sale securities
Purchases (36,144) (21,911)
Sales 13,319 25,217
Maturities 23,179 8,429
Capital expenditures (1,534) (1,300)
-------- --------
Net cash provided by investing activities (1,180) 10,435
-------- --------
Cash flows from financing activities:
Increase in Long Term Debt 5,000 -
Sale of common stock 3,870 7,879
-------- --------
Net cash provided by financing activities 8,870 7,879
-------- --------
Net increase (decrease) in cash and cash equivalents (3,003) 3,903
Cash and cash equivalents at beginning of the period 9,997 6,770
-------- --------
Cash and cash equivalents at end
of the period $ 6,994 $ 10,673
======== ========
</TABLE>
See accompanying notes to condensed financial statements
3
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SEQUUS PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1997
(unaudited)
1. BASIS OF PRESENTATION
SEQUUS Pharmaceuticals, Inc. ("SEQUUS" or the "Company") is
engaged in the development, manufacture, marketing and sale of
proprietary liposome and lipid-based products primarily to treat cancer
and certain fungal infections. The Company's strategic emphasis is on
injectable pharmaceutical products designed to improve the efficacy and
reduce the toxicity of selected existing and new drugs used to treat
cancer and infectious diseases.
In the opinion of management, the accompanying unaudited condensed
financial statements of SEQUUS contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the
financial position as of June 30, 1997, and the results of operations
for the three and six month periods ended June 30, 1997 and 1996, and
the changes in cash flows for the six month periods ended June 30, 1997
and 1996, in accordance with generally accepted accounting principles.
These condensed financial statements should be read in conjunction with
the Company's audited financial statements for the year ended December
31, 1996, which were filed with the Securities and Exchange Commission
on Form 10-K/A.
Although the nature of the business is not seasonal, the results of
operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
2. CASH AND CASH EQUIVALENTS AND MARKETABLE INVESTMENTS
The Company invests its excess cash principally in government
securities and high-grade investment paper. The Company maintains its
cash, cash equivalents and investments in several different instruments
with various banks and brokerage houses. The diversification of risk is
consistent with Company policy to maintain liquidity and ensure the
safety of principal.
Management determines the appropriate classification of debt securities
at the time of purchase and reevaluates such designation as of each
balance sheet date. At June 30, 1997, all investments are classified as
available-for-sale securities and are carried at fair value, with the
unrealized gains and losses reported as a component of accumulated
deficit. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in net income. Realized gains
and losses and declines in value judged to be other than temporary on
available-for-sale securities are included in net income. The cost of
securities sold is based on the specific identification method.
4
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The following is a summary of available-for-sale securities (in
thousands):
<TABLE>
<CAPTION>
As of June 30, 1997 GROSS UNREALIZED
AMORTIZED ---------------------- ESTIMATED
COST GAINS LOSSES FAIR VALUE
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
United States government securities... $ 15,093 $ 9 - $ 15,102
United States corporate securities.... 5,444 2 (1) 5,445
Foreign debt securities............... 2,059 - - 2,059
-------- -------- -------- --------
$ 22,596 $ 11 ($ 1) $ 22,606
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1996 GROSS UNREALIZED
AMORTIZED ---------------------- ESTIMATED
COST GAINS LOSSES FAIR VALUE
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
United States government securities... $ 7,434 $ 1 ($ 1) $ 7,434
United States corporate securities.... 7,399 1 - 7,400
Foreign debt securities............... 8,114 1 - 8,115
-------- -------- -------- --------
$ 22,947 $ 3 ($ 1) $ 22,949
======== ======== ======== ========
</TABLE>
The gross realized gains and losses on sales of available-for-sale
securities were immaterial for the quarters ended June 30, 1997 and
1996. As of June 30, 1997 the average portfolio duration was
approximately 81 days.
3. INVENTORIES
Inventories are stated at the lower of cost (principally first-in,
first-out) or market. The inventory detail is as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------ ------
<S> <C> <C>
Raw materials ...... $2,906 $2,801
Work-in-process .... 66 2,223
Finished goods ..... 2,522 673
------ ------
$5,494 $5,697
====== ======
</TABLE>
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted
on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating
basic earnings per share, the dilutive effect of stock options will be
excluded. The impact of Statement 128 on the calculation of earnings
per share is not expected to be material due to the antidilutive nature
of the Company's common stock equivalents.
5. LONG TERM DEBT
During June 1997, the Company obtained $5.0 million from a total $10
million working capital loan with Silicon Valley Bank of Santa Clara,
California. Payment terms for the $5 million obtained in June, 1997 are
interest only for 12 months and principal and interest over the
remaining 44 months. The remaining $5 million can be drawn down against
eligible accounts receivable.
5
<PAGE> 8
6. STOCKHOLDERS EQUITY
During the three months ended March 31, 1997, the Company received
approximately $3.4 million from the exercise of warrants issued to
investors in private placements and employee stock options. Of this,
approximately $2.1 million was due to the exercise of warrants to
purchase approximately 500,000 shares of Common Stock at $4.25 per
share.
6
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that relate to future plans, events or performance
are forward-looking statements which involve risks and uncertainties. Actual
results, events or performance may differ materially from those anticipated in
these forward-looking statements as a result of a variety of factors, including
those set forth under "Factors That May Affect Future Results, Events or
Performance" below. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be needed to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
OVERVIEW
The Company is a leader in developing and commercializing lipid-based
biopharmaceutical products primarily to treat cancer and infectious diseases.
The Company formulates its proprietary STEALTH(R) liposomes with existing drugs,
or with therapeutics under development, to develop new products with improved
safety and efficacy profiles. The Company developed and is marketing DOXIL(R),
an anticancer drug, and AMPHOTEC(TM), an antifungal drug, in the United States
through its direct sales organization and internationally through its marketing
partners. The Company is currently conducting additional clinical trials for the
use of DOXIL in the treatment of certain solid tumors, including a Phase III
clinical trial in refractory ovarian cancer and a number of breast cancer
trials. In addition, SEQUUS is currently conducting a Phase I trial of its
STEALTH cisplatin formulation, SPI-077, for the treatment of cancer.
SEQUUS developed DOXIL, a proprietary STEALTH liposome formulation
encapsulating a leading anticancer drug, doxorubicin. In November 1995, SEQUUS
received marketing clearance from the United States Food and Drug Administration
("FDA") for DOXIL for the treatment of Kaposi's sarcoma ("KS") in people with
AIDS whose KS has progressed on prior chemotherapy or in patients who are
intolerant to such therapy. In December 1995, the Company launched DOXIL in the
United States, using its own marketing and sales team. In June 1996, the Company
was granted marketing authorization for DOXIL under the tradename CAELYX(TM) in
the 15 member states of the European Union ("EU") for the treatment of
first-line and refractory KS in patients with low CD4 counts and extensive
mucocutaneous or visceral disease. The drug may be used as first-line systemic
chemotherapy, or as second-line chemotherapy, in KS patients with disease that
has progressed with, or in patients who are intolerant to, prior combination
chemotherapy comprising at least two of the following agents: a Vinca alkaloid,
bleomycin, and doxorubicin (or other anthracycline). In June 1997, the Company
was granted marketing authorization for DOXIL in Australia and New Zealand.
In September 1996, the Company entered into a distribution agreement with
Schering-Plough Corporation ("Schering-Plough") under which Schering-Plough has
rights to market and sell CAELYX worldwide, except for the United States, Japan
and certain other countries. As of June 30, 1997, Schering-Plough had launched
CAELYX in Germany, United Kingdom, Sweden, Austria, Denmark, Finland and the
Netherlands. Pricing discussions are underway with the appropriate agencies in
those European countries where pricing approval is required. In addition, the
Company and Schering-Plough are jointly planning the clinical development of
DOXIL for the treatment of solid tumors in the United States and certain
international markets. Schering-Plough will be responsible for conducting
certain of these clinical trials. The Company received fees of $7.3 million and
$2.3 million from Schering-Plough in 1996 and through the first six months of
1997, respectively.
The Company used its first-generation lipid-based delivery technology to
develop AMPHOTEC, a proprietary formulation of a leading antifungal drug,
amphotericin B. In November 1996, SEQUUS received marketing clearance from the
FDA for AMPHOTEC for the treatment of invasive aspergillosis, a life-threatening
fungal infection, in patients where renal impairment or unacceptable toxicity
precludes the
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use of conventional amphotericin B therapy in effective doses and in patients
where prior amphotericin B therapy has failed. In December 1996, the Company
launched AMPHOTEC in the United States, using its own marketing and sales
organization. The Company recently elected to reduce the contract price of
AMPHOTEC in response to feedback from its hospital customers that the relative
cost of lipid-based amphotericin B therapy, compared to generic amphotericin B
therapy, limited the broad use of AMPHOTEC in managed care environments.
AMPHOTEC has also received marketing clearance in a number of other countries
for the treatment of systemic fungal infections in patients for whom
conventional amphotericin B is contraindicated due to toxicity or renal failure
or for whom previous antifungal therapy was unsuccessful. The Company's strategy
is to commercialize AMPHOTEC in international markets, under the tradename
AMPHOCIL(TM), through distribution partners. The Company has entered into a
number of distribution agreements, including agreements with Zeneca Limited
("Zeneca") and Bayer, Inc. ("Bayer") in selected countries. A liposome-based
amphotericin B product which targets indications similar to those targeted by
AMPHOCIL has been first to market and has captured a significant share of the
market in many foreign markets. Another competitor launched the first
lipid-based antifungal agent in the United States. Competition from these two
competitors could have an adverse effect on the market penetration and pricing
of AMPHOTEC in both Europe and in the United States.
The Company recognizes product sales upon shipment of product to its
distribution partners and agents internationally and to its distributors in the
United States. The Company's quarterly operating results depend upon a variety
of factors, including the price, volume and timing of sales of the Company's
approved products; variations in payments under collaborative agreements,
including royalties, fees and other contract revenues; the availability of
third-party reimbursement; and the regulatory approvals of new products, or
expanded labeling of existing products. The Company's quarterly operating
results may also fluctuate significantly depending on other factors, including
the timing of the expansion of clinical trials for DOXIL and the level of
clinical trials for SPI-077; changes in the Company's level of research and
development; changes in manufacturing capabilities; and variations in gross
margins of the Company's products which may be caused by cost increases from
third-party manufacturers, availability and cost of raw materials, competitive
pricing pressures and the mix between product sales in the United States and
sales to the Company's international marketing partners. In addition, sales of a
product in any given period, including the quarter in which a new product is
initially introduced to the market, may include a significant amount of orders
for inventory by distributors and wholesalers and may not necessarily be
indicative of actual demand for that product by physicians and patients. There
can be no assurance that distributors or wholesalers will be able to forecast
demand for product accurately. Fluctuations in operating results will occur to
the extent that demand by physicians and patients does not meet distributors' or
wholesalers' expectations. The Company expects quarter to quarter fluctuations
to continue in the future. In addition, the Company expects operating expenses
to increase in 1997, and there can be no assurance that the Company's revenues
will not decline or that the Company will ever achieve profitability.
The Company has incurred losses in each year since its inception and has
accumulated approximately $165.5 million in net losses through June 30, 1997,
including a net loss of approximately $14.9 million in the first six months of
1997. Although the Company and its marketing partners have commenced marketing
DOXIL in the United States and certain international markets and AMPHOTEC in the
United States and 19 other countries, there can be no assurance that revenues
from product sales or other sources will be sufficient to fund operations or
that the Company will achieve profitability or positive cash flow.
The Company expects its research and development expenses to increase as a
result of expanded clinical trials of DOXIL in a variety of solid tumors and
expanded clinical trials of SPI-077. The Company expects its marketing and sales
expenses to increase as it proceeds with the commercialization of DOXIL and
AMPHOTEC through its United States direct sales and marketing organization. As
of June 30, 1997, SEQUUS had a United States sales team of 39 individuals
experienced in the sale of pharmaceutical and biopharmaceutical products, with
particular emphasis on oncology and infectious disease.
The Company's business is subject to significant risks, including, but not
limited to, the risks inherent in seeking market acceptance of current and
future products; managing a marketing and sales
8
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organization; depending on third-party distributors, manufacturers and
sole-source suppliers; obtaining and enforcing patents; uncertainties relating
to product development, clinical trials and the regulatory approval process;
uncertainties relating to the patent rights of others; and uncertainties
relating to pharmaceutical pricing and reimbursement.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1997 and 1996
Revenues
Total revenues were $8.4 million, of which $7.9 million were product sales,
during the quarter ended June 30, 1997 compared with $5.5 million of revenues
during the quarter ended June 30, 1996, substantially all of which were product
sales. DOXIL product sales represented 85% of total product sales in the second
quarter of 1997 compared to 93% in the second quarter of 1996. In the second
quarter of 1997, the Company recognized revenues of approximately $ 0.5 million
under its agreement with Schering-Plough.
Operating Expenses
The Company's gross margin decreased to 79% of product sales in the second
quarter of 1997 from 87% of product sales in the comparable quarter of the prior
year. This decrease in the gross margin is due to the mix of products sold. The
Company anticipates that its gross margin will continue to fluctuate depending
on the proportion of product sales in the United States relative to sales to the
Company's international distribution partners and agents and the product mix.
The Company generally recognizes higher margins on direct product sales in the
United States than it does on sales to the Company's international distribution
partners and agents. Depending on the mix of international versus domestic sales
and the product mix in the United States, the Company anticipates that margin
rates could decline.
The principal items of research and development ("R&D") expense are
personnel costs, costs of clinical trials, clinical production and supplies. R&D
expense increased to $8.4 million in the second quarter of 1997, from $5.8
million in the comparable quarter of 1996. This increase in R&D expenses was
primarily due to expanded clinical trials of DOXIL in solid tumors, clinical
trial expenses for SPI-077 and increased spending on R&D projects. The Company
anticipates that future clinical trial expenses will increase due to expanded
clinical trials of DOXIL in a variety of solid tumors and to expanded clinical
trials of SPI-077.
Selling, general and administrative ("SG&A") expenses increased to $6.1
million in the second quarter of 1997 from $4.4 million in the second quarter of
1996. The increase in SG&A expenses was primarily due to the second full quarter
of marketing AMPHOTEC in combination with expanded marketing of DOXIL which
required the hiring of 15 additional sales personnel. The Company anticipates
continued efforts to expand the market for DOXIL and AMPHOTEC in the United
States.
Interest Income
Interest income remained relatively the same at $0.4 million in the second
quarter of 1997 as compared to $0.2 million in the second quarter of 1996.
Net Loss
The Company's net loss increased to $7.4 million for the three month period
ended June 30, 1997 from $5.2 million for the same period of 1996, an increase
of $2.2 million. The net loss per share was $0.24 for the three month period
ended June 30, 1997 compared to a net loss of $0.18 per share in the same period
of 1996. The increase in net loss per share for the second quarter of 1997 was
due primarily
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to an increase in marketing and sales expenses associated with the second full
quarter of AMPHOTEC sales and an increase in clinical trial expenses partially
offset by an increase in product sales and revenues recognized under the
Schering-Plough agreement.
Six Months Ended June 30, 1997 and 1996
Revenues
Total revenues were $16.8 million, of which $14.4 million were product
sales, during the six month period ended June 30, 1997 compared with $10.0
million of revenues during the six month period ended June 30, 1996,
substantially all of which were product sales. DOXIL product sales represented
85% of total product sales in the second quarter of 1997 compared to 95% in the
same period of 1996. For the six month period ended June 30, 1997, the Company
recognized revenues of approximately $2.3 million under its agreement with
Schering-Plough.
Operating Expenses
The Company's gross margin decreased to 79% of product sales in the six
month period ended June 30, 1997 from 88% of product sales in the comparable
period of the prior year. This decrease in the gross margin is due to the
increase in sales through distribution partners and the mix of products sold in
the first six months of 1997 versus the same period of 1996. The Company
generally recognizes higher margins on direct product sales in the United States
than it does on sales to the Company's international distribution partners and
agents. Direct product sales were 84% of product sales in the first six months
of 1997 and were 89% of product sales in the same period of 1996. The Company
anticipates that its gross margin will continue to fluctuate depending on the
proportion of product sales in the United States relative to sales to the
Company's international distribution partners and agents and the product mix.
Depending on the mix of international versus domestic sales and the product mix
in the United States, the Company anticipates that margin rates could decline.
The principal items of R&D expense are personnel costs, costs of clinical
trials, clinical production and supplies. R&D expense increased to $15.8 million
for the six months ended June 30, 1997, from $11.7 million in the comparable
period of 1996. This increase in R&D expenses was primarily due to expanded
clinical trials of DOXIL in solid tumors, clinical trial expenses for SPI-077
and increased spending on R&D projects. The Company anticipates that future
clinical trial expenses will increase due to expanded clinical trials of DOXIL
in a variety of solid tumors and to expanded clinical trials of SPI-077.
SG&A expenses increased to $13.5 million in the six month period ended June
30, 1997 from $11.7 million in the same period of 1996. This $1.8 million
increase in selling, general and administrative expenses was primarily due to
the first full six months of marketing AMPHOTEC in combination with expanded
marketing of DOXIL which required the hiring of 15 additional sales personnel.
The Company anticipates continued efforts to expand the market for DOXIL and
AMPHOTEC in the United States.
Interest Income
Interest income remained relatively the same at $0.7 million in the six
month period ended June 30, 1997 as compared to $0.8 million in the same period
of 1996.
Net Loss
The Company's net loss increased to $14.9 million for the six month period
ended June 30, 1997 from $11.0 million for the same period of 1996, an increase
of $3.9 million. The net loss per share was $0.49 for the six month period ended
June 30, 1997 compared to a net loss of $0.39 per share in the same period of
1996. The increase in net loss per share for the six months ended June 30, 1997
was due primarily to an increase in marketing and sales expenses associated with
the first full six months of AMPHOTEC sales
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and an increase in clinical trial expenses partially offset by an increase in
product sales and revenues recognized under the Schering-Plough agreement.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at June 30, 1997 were $7.0 million,
a decrease of $3.0 million from $10.0 million at December 31, 1996. This
decrease represents $9.2 million of cash provided by marketable investments,
debt and equity financing offset by $10.7 million of net cash used by operating
activities and $1.5 million in capital expenditures. Short Term marketable
investments remained relatively the same at $22.6 million as of June 30, 1997 as
compared to $22.9 million as of December 31,1996. During June 1997, the Company
obtained $5.0 million from a total $10 million working capital loan with Silicon
Valley Bank of Santa Clara, California. Payment terms for the $5 million
obtained in June, 1997 are interest only for 12 months and principal and
interest over the remaining 44 months. The remaining $5 million can be drawn
down against eligible accounts receivable. During the three months ended March
31, 1997, the Company received approximately $3.4 million from the exercise of
warrants issued to investors in private placements and employee stock options.
Of this, approximately $2.1 million was due to the exercise of warrants to
purchase approximately 500,000 shares of Common Stock at $4.25 per share.
The Company believes that the Company's existing cash balances, interest
income, revenues from operations will be adequate to fund its planned activities
at least through 1997. The Company may decide to raise additional financing
sooner. There can be no assurance that adequate financing will be available on
satisfactory terms, if at all.
11
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FACTORS THAT MAY AFFECT FUTURE RESULTS, EVENTS OR PERFORMANCE
SEQUUS wishes to caution readers that the following important factors,
among others, may affect the Company's future results, events or performance and
could cause actual results, events or performance to differ materially from
those expressed in any forward-looking statements made by the Company in this
report or presented elsewhere by the Company from time to time.
UNCERTAINTY OF MARKET ACCEPTANCE
The Company's future financial performance depends on revenues from and
market acceptance of DOXIL in the United States and international markets. To
date, DOXIL can only be promoted for KS and cannot be promoted for the treatment
of solid tumors. In order for the Company to promote DOXIL for any solid tumor
indications, it must establish the clinical benefit of DOXIL in clinical trials
for each tumor type and gain regulatory clearance to market for such use. The
Company does not expect sales of DOXIL to grow significantly, if at all, for KS
in the United States because the population of persons with KS is relatively
small and may decline, particularly if recent developments in the treatment of
AIDS are successful, and subsequently decrease the incidence of KS. In the
United States, the Company is prohibited from marketing DOXIL for indications
other than refractory KS. Physicians and patients are often limited in their use
of pharmaceutical products for indications that have not been cleared by the
FDA, as reimbursement by third-party payors for off-label use may be
unavailable. There can be no assurance that clinical trials will demonstrate
that DOXIL is safe and efficacious for the treatment of solid tumors, that the
Company will receive regulatory approval for any solid tumor indications or that
the Company will be able to achieve reimbursement for or market acceptance of
DOXIL in the treatment of solid tumors.
The Company is also dependent on market acceptance of AMPHOTEC in the
United States and in international markets. To date, the Company has had very
limited sales of AMPHOTEC in the United States and internationally. The Company
faces intense competition and price pressure in marketing and selling AMPHOTEC
and recently has elected to cut prices of AMPHOTEC in the United States. A
number of factors may limit the market acceptance of DOXIL and AMPHOTEC and any
other products developed by the Company, including the timing of regulatory
approval and market entry relative to competitive products, the availability of
alternate therapies, the price of the Company's products relative to alternative
therapies, the availability of third-party reimbursement and the extent of
marketing efforts by third-party distributors or agents retained by the Company,
as well as the success of the marketing efforts by the Company's sales team
which was organized within the last two years. In addition, therapeutic products
based on liposome or lipid-based technology have become commercially available
only in the last few years. As a result, unanticipated side effects or
unfavorable publicity concerning any product incorporating liposome or
lipid-based technologies could have an adverse effect on the Company's ability
to obtain physician, patient or third-party payor acceptance and to sell the
Company's products. There can be no assurance that physicians, patients or
third-party payors will accept liposome products or any of the Company's
products as readily as traditional forms of medication or at all.
INTENSE COMPETITION; UNCERTAINTY OF TECHNOLOGICAL CHANGE
The Company's current and potential products compete with existing and new
drugs offered by or under development by pharmaceutical, biopharmaceutical and
biotechnology companies. Many of these companies, both in the United States and
international markets, are developing products based on improved drug delivery
technologies as well as novel therapeutics for the treatment of cancer,
infectious diseases and other indications targeted by the Company. Some of these
companies are active in liposome and lipid-based research and product
development, and many have financial and technical resources and production and
marketing capabilities substantially greater than those of the Company. In
addition, many of these companies have significantly greater experience than the
Company in preclinical and clinical development activities, in obtaining
regulatory approval, and in manufacturing and marketing biopharmaceutical
products.
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A number of large pharmaceutical companies, including Bristol-Myers Squibb
Company ("Bristol-Myers") and Pfizer Inc., have established strong market
positions for oncology and infectious diseases. For example, AMPHOTEC competes
with traditional amphotericin B therapy, which is currently produced and
marketed by Bristol-Myers and others. The Company also faces competition from
two companies specializing in liposome drug delivery, NeXstar Pharmaceuticals,
Inc. ("NeXstar") and The Liposome Company ("TLC"), both of which have received
regulatory approvals in the United States and internationally for products
competitive with the Company's products. In some cases, the competing liposomal
products have obtained significant market share in certain territories by being
the first to market, have been introduced at lower prices than the Company's
competing products, or have received marketing clearance covering a broader
range of indications than the Company's competing products. For example, TLC
recently received FDA clearance to market its amphotericin B lipid formulation
for treating a broader range of indications than the indications for which
AMPHOTEC has received marketing clearance.
SEQUUS believes that competition in pharmaceutical products and in drug
delivery will continue to be intense as new products enter the market and
advanced technologies become available for drug discovery and development.
Existing products or new products developed by the Company's competitors may be
more effective, or be more effectively marketed and sold, than any that have
been or may be developed by the Company. Competitive products may render the
Company's technology and products obsolete or noncompetitive prior to the
Company's recovery of research, development or commercialization expenses
incurred with respect to any such products, which could have a material adverse
effect on the Company's business, financial condition or results of operations.
LIMITED MARKETING AND SALES EXPERIENCE; DEPENDENCE ON THIRD-PARTY DISTRIBUTORS
AND AGENTS
The Company has limited experience marketing and selling its products. The
Company currently markets and sells its products in the United States with a
recently expanded sales team of 39 persons. The Company's ability to generate
future revenue in the United States is dependent on the success of its direct
sales team in marketing DOXIL and AMPHOTEC. Future development of its marketing
and sales organization may require significant additional expenditures,
management resources and time. In addition, the loss of certain key sales
personnel could adversely affect the sales effort and have a material adverse
effect on the Company's business, financial condition and results of operations.
Several biotechnology and pharmaceutical companies have recently expanded their
sales forces, particularly in the field of oncology, which has increased
competition for experienced personnel. Furthermore, if the Company enters into
marketing partnerships with other companies to augment its own sales
organization, the Company's margins on these products would be significantly
reduced.
In September 1996, the Company announced an exclusive arrangement with
Schering-Plough under which Schering-Plough has rights to market and sell DOXIL
worldwide (except for the United States, Japan and certain other countries)
under the tradename CAELYX. The Company has also entered into distribution
agreements with a number of corporate partners covering the marketing and
distribution of AMPHOCIL in various international markets. The Company's future
sales of CAELYX and AMPHOCIL outside of the United States will depend upon the
success of marketing efforts by Schering-Plough and other distribution partners,
the continuation of existing distribution arrangements, market acceptance of the
products, availability of third-party reimbursement, as well as the timing of
additional approvals, including pricing approvals, in other countries, if any.
Schering-Plough has the right to terminate the agreement with the Company at any
time if certain clinical results relating to CAELYX are not achieved, if certain
adverse events occur regarding patent matters and in certain other
circumstances. If Schering-Plough or any other distributor were to terminate its
agreement with the Company or be unsuccessful in meeting its sales objectives,
the Company's business, financial condition and results of operations could be
materially adversely affected. There can be no assurance that the Company will
be able to successfully market its products through its sales team, partners,
agents or at all.
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DEPENDENCE ON THIRD-PARTY MANUFACTURING AND SOLE-SOURCE SUPPLIERS; MANUFACTURING
RISKS
The Company's internal manufacturing capabilities are limited to producing
products for preclinical development. The Company is dependent on Ben Venue
Laboratories, Inc. to manufacture commercial-scale quantities of AMPHOTEC and
DOXIL pursuant to supply agreements. There can be no assurance that Ben Venue
will continue to meet FDA or product specification standards or that the
Company's manufacturing requirements can be met in a consistent and timely
manner. Only a limited number of contract manufacturers are capable of
manufacturing AMPHOTEC and DOXIL, and any alternative manufacturer would require
regulatory approval to manufacture the product which would likely take several
months, if at all. The Company is in the process of identifying an alternative
manufacturer, but to-date has not sought approval of an alternative manufacturer
for its products. The Company has in the past experienced batch failures in the
manufacturing process for AMPHOTEC and DOXIL. Any batch failures in the future
could result in a material increase in cost of goods sold or in the Company's
inability to deliver products on a timely basis. In addition, the Company may be
unable to obtain sufficient contract manufacturing capacity due to competing
demands on the contract manufacturer's capacity or other reasons. In the event
of any interruption of supply from the contract manufacturer due to regulatory
reasons, significant batch failures, capacity constraints or other causes, there
can be no assurance that the Company could make alternative manufacturing
arrangements on a timely basis, if at all. Such an interruption would have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company relies on certain suppliers of key raw materials to provide an
adequate supply of such materials for production of finished products. Certain
materials are purchased from single sources. In particular, amphotericin B and
doxorubicin are currently each supplied to the Company by single sources, and
the number of alternative sources is limited. The Company has a sole-source
supply agreement with Meiji Seika Pharma International, Ltd., which expires in
1999, to supply the Company with doxorubicin for DOXIL. The Company also has a
sole-source supply agreement with A.L. Laboratories, Inc. which expires in 1999,
to supply the Company with amphotericin B for AMPHOTEC. There can be no
assurance that the doxorubicin or the amphotericin B supplied under these
agreements will continue to meet FDA requirements applicable to DOXIL or
AMPHOTEC, which could delay or prevent future sales of DOXIL or AMPHOTEC, if
any, by the Company. The number of alternative qualified suppliers of key raw
materials required for the manufacture of DOXIL and AMPHOTEC is limited. The
disqualification or loss of a sole-source supplier could have a material adverse
effect on the Company because of a delay or inability in obtaining and
qualifying an alternate supplier and the costs associated with such delay and in
finding and qualifying an alternate supplier. Regulatory requirements applicable
to pharmaceutical products tend to make the substitution of suppliers costly and
time consuming. The unavailability of adequate commercial quantities, the loss
of a supplier's regulatory approval, the inability to develop alternative
sources, a reduction or interruption in supply or a significant increase in the
price of materials could impair the Company's ability to manufacture and market
its products which would have a material adverse effect on the Company's
business, financial condition and results of operations.
UNCERTAINTY OF PRODUCT DEVELOPMENT
The development of new pharmaceutical products is subject to a number of
significant risks. Potential products that appear to be promising at various
stages of development may not receive regulatory approval, reach the market or
achieve widespread use for a number of reasons. For example, DOXIL is being
clinically tested in various types of solid tumors. The Company's clinical data
in treatment of solid tumors are derived from a limited number of patients and
are not necessarily predictive of future results obtained in subsequent clinical
trials. Moreover, even when a drug does demonstrate activity, it may not be
sufficiently efficacious to replace existing therapies. There can be no
assurance that the Company's research and development efforts will be
successful, that any given product will be approved by appropriate regulatory
authorities or that any product candidate under development will be safe,
effective
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<PAGE> 17
or capable of being manufactured in commercial quantities at an economical cost,
will not infringe the proprietary rights of others or will achieve market
acceptance.
There are a number of challenges the Company must address successfully to
develop commercial products in each of its development programs. The Company's
potential products will require significant additional research and development
efforts, including process development and significant additional clinical
testing, prior to any commercial use. There can be no assurance that the Company
will have sufficient resources or will successfully address any of these
technological challenges, or others that may arise in the course of development.
NO ASSURANCE OF REGULATORY APPROVALS; UNCERTAINTY OF GOVERNMENT REGULATION
The production and marketing of the Company's products are subject to
rigorous manufacturing requirements, preclinical testing and clinical trials and
approval by the FDA, by comparable agencies in other countries and by state
regulatory authorities prior to marketing. The process of conducting clinical
trials and obtaining regulatory approval for a product typically takes a number
of years and involves substantial expenditures. In addition, product approvals
may be withdrawn or limited for noncompliance with regulatory standards or the
occurrence of unforeseen problems following initial marketing. The Company has
received regulatory clearance in the United States for the commercial sale of
only two of its products, DOXIL and AMPHOTEC, and such clearance is only for
limited indications. The Company may encounter significant delays or excessive
costs in its efforts to secure and maintain necessary approvals or licenses.
Future federal, state, local or foreign legislative or administrative acts could
also prevent or delay regulatory approval of the Company's products. There can
be no assurance that the Company will be able to obtain or maintain the
necessary approvals for manufacturing or marketing the Company's products for
current or expanded indications or that the data it obtains in clinical trials
will be sufficient to establish the safety and efficacy of its products. Even if
the Company obtains regulatory approval for any particular product, there can be
no assurance that it will be economically feasible for the Company to
commercialize its products. In addition, identification of certain side effects
after a drug is on the market or the occurrence of manufacturing problems could
cause subsequent withdrawal of approval, reformulation of the drug, additional
preclinical testing or clinical trials, and changes in labeling of the product.
Failure to obtain or maintain requisite governmental approvals, failure to
obtain approvals of the clinically intended uses or the identification of side
effects could delay or preclude the Company from further developing particular
products or from marketing its products, or could limit the commercial use of
its products, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's regulatory clearances to market DOXIL in the United States
for refractory KS and in certain European countries and in Australia and New
Zealand for first-line and refractory KS were based on extensive clinical data.
In 1996, the Company submitted data from its two randomized clinical trials to
the FDA to obtain clearance to market DOXIL as a first-line therapy. The FDA has
informed the Company that it would require additional information that addresses
the methodology of assessing the response rates seen in the trials in order to
approve DOXIL for a first-line indication. The Company is currently re-analyzing
its existing clinical data, analyzing data not previously submitted, and
considering expanding ongoing trials, if necessary, to support a first-line
indication. There can be no assurance that the Company will provide such data to
the FDA or that any such submission would result in clearance for a KS
first-line indication. The marketing clearance for DOXIL in the United States
was provided in accordance with the FDA's procedures for Accelerated Approval of
New Drugs for Serious or Life-Threatening Illnesses. Accelerated approval
regulations require that an applicant study an investigational drug following
product launch to verify and describe the drug's clinical benefit. The Company
is conducting a post-marketing clinical trial designed to meet accelerated
approval requirements. Under FDA accelerated approval regulations, the FDA may
withdraw approval following product launch if the Company fails to show due
diligence in conducting the post-marketing clinical trial or if this clinical
trial fails to demonstrate clinical benefit to the FDA's satisfaction. There can
be no assurance that the Company will be able to conduct a satisfactory
post-marketing clinical trial or that the results will be satisfactory to the
FDA. If the Company is
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<PAGE> 18
unable to successfully complete the post-marketing clinical trials or if the
results are not satisfactory to the FDA, the Company's business, financial
condition and results of operations could be materially adversely affected.
The Company is also subject to regulation under numerous federal, state and
local laws regarding, among other things, occupational safety, laboratory
practices, the use and handling of radioisotopes and hazardous chemicals,
prevention of illness and injury, environmental protection and hazardous
substance control. Failure to comply with such regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations.
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Before obtaining regulatory approvals for the commercial sale of any of its
products under development, the Company must demonstrate through preclinical
studies and clinical trials that the product is safe and efficacious for use in
each target indication. The results from preclinical studies and early clinical
trials may not be predictive of results that will be obtained in large-scale
testing, and there can be no assurance that the Company's clinical trials will
demonstrate the safety and efficacy of any products or will result in marketable
products. For example, the Company has only conducted clinical trials for the
use of DOXIL in certain solid tumors on a limited number of patients. The
Company must conduct additional clinical testing in larger patient populations
to expand the indications for DOXIL. Many pharmaceutical and drug delivery
companies have suffered significant setbacks in advanced clinical trials, even
after obtaining promising results in earlier trials.
The rate of completion of the Company's clinical trials is dependent upon,
among other factors, the rate of patient enrollment. The Company is dependent on
third parties including hospitals and physicians to conduct the clinical trials.
In addition, the Company is reliant on Schering-Plough to conduct certain
clinical trials for the use of DOXIL in treatment of solid tumors. There is
substantial competition to enroll patients in clinical trials for oncology
products. Delays in planned patient enrollment can result in increased costs and
delays. If the Company is unable to successfully complete its clinical trials,
its business, financial condition and results of operations could be materially
adversely affected. See
UNCERTAINTY OF FUTURE FINANCIAL RESULTS; FLUCTUATIONS IN OPERATING RESULTS
The Company's quarterly operating results depend upon a variety of factors,
including the price, volume and timing of sales of the Company's approved
products; variations in payments under collaborative agreements, including
royalties, fees and other contract revenues; the availability of third-party
reimbursement; and the regulatory approvals of new products, or expanded
labeling of existing products. The Company's quarterly operating results may
also fluctuate significantly depending on other factors, including the timing of
the expansion of clinical trials for DOXIL and AMPHOTEC and the level of
clinical trials for SPI-077; changes in the Company's level of research and
development; changes in manufacturing capabilities; and variations in gross
margins of the Company's products which may be caused by cost increases from
third-party manufacturers, availability and cost of raw materials, competitive
pricing pressures and the mix between product sales in the United States and
sales to the Company's international marketing partners. In addition, sales of a
product in any given period, including the quarter in which a new product is
initially introduced to the market, may include a significant amount of orders
for inventory by distributors and wholesalers and may not necessarily be
indicative of actual demand for that product by physicians and patients. There
can be no assurance that distributors or wholesalers will be able to forecast
demand for product accurately. Fluctuations in operating results will occur to
the extent that demand by physicians and patients does not meet distributors' or
wholesalers' expectations. The Company expects quarter to quarter fluctuations
to continue in the future. In addition, the Company expects operating expenses
to increase in 1997, and there can be no assurance that the Company's revenues
will not decline or that the Company will ever achieve profitability.
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RISKS ASSOCIATED WITH INTERNATIONAL SALES
There are significant challenges and risks to the Company associated with
selling products and conducting business in international markets, including,
but not limited to, varying government regulation of pharmaceutical products,
varying third-party and government reimbursement policies, uncertain
intellectual property protections, delays in establishing international
distribution channels and difficulties in collecting international accounts
receivable. The Company does not have extensive experience in international
sales and is relying on third parties to address these markets. The Company's
international business and financial performance could also be adversely
affected by matters such as currency controls, tariff regulations, foreign
duties and taxes, pricing controls and regulations and difficulties in obtaining
export licenses. In addition, the Company's products are priced in the currency
of the country in which such products are sold. Accordingly, the prices of such
products in dollars will vary as the value of the dollar fluctuates against such
local currencies. Increases in the value of the dollar against such currencies,
therefore, will reduce the dollars realized by the Company on the sale of its
products. The Company does not presently engage in any hedging or other
transactions intended to manage the risks relating to foreign currency exchange
rates or interest rate fluctuations. However, the Company may in the future
undertake such transactions if it determines that it is advisable to offset such
risks, although no assurance can be given that these efforts will be successful.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT
The Company's business may be materially adversely affected by the
continuing efforts of worldwide governmental and third-party payors to contain
or reduce the costs of health care in general and drugs in particular. For
example, in most international markets, including markets the Company is seeking
to enter, pricing of prescription pharmaceuticals is subject to government price
controls. In these markets, once marketing approval is received, pricing
negotiation could take another six to 12 months or longer. In the United States
there have been, and there may continue to be, federal and state proposals to
implement similar government price controls. In addition, an increasing emphasis
on managed care and consolidation of hospital purchasing in the United States
has and will continue to put pressure on pharmaceutical pricing. Such proposals,
if adopted, and such initiatives could decrease the price that the Company
receives for any current or future products and thereby have a material adverse
effect on the Company's business, financial condition and results of operations.
Further, to the extent that such proposals or initiatives have a material
adverse effect on pharmaceutical companies that are collaborators or prospective
collaborators for certain of the Company's products, the Company's ability to
commercialize its products may be materially adversely affected. In addition,
price competition may result from competing product sales, attempts to gain
market share or introductory pricing programs, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's ability to commercialize DOXIL, AMPHOTEC and other products
may depend in part on the extent to which reimbursement for such products and
related treatments will be available from government health administration
authorities, private health insurers and other third-party payors. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and third-party payors are increasingly challenging the prices charged
for medical products and services. There can be no assurance that any
third-party insurance coverage will be available to patients for any of the
Company's products. Government and other third-party payors are increasingly
attempting to contain health care costs by limiting the level of reimbursement
for new therapeutic products, and by refusing, in some cases, to provide
coverage or reimbursement for indications for which the FDA has not granted
marketing clearance. Moreover, reimbursement may be denied even for FDA-approved
indications. If adequate coverage and reimbursement levels are not provided by
the government and third-party payors for the Company's products, the Company's
business, financial condition and results of operations would be materially
adversely affected.
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PRODUCT LIABILITY
Testing, manufacturing, marketing and use of the Company's products will
entail substantial risk of product liability. The Company currently maintains
product liability insurance in an amount of $10 million per occurrence and $10
million in the aggregate. A single product liability claim could exceed the $10
million coverage limit, and there is a possibility of multiple claims. There can
be no assurance that the amount of insurance the Company has obtained against
the risk of product liability will be adequate, that the amount of such
insurance can be renewed at acceptable cost or at all, or that the amount and
scope of any coverage obtained will be adequate to protect the Company in the
event of a successful product liability claim. The Company's business, financial
condition and results of operations could be materially adversely affected by
one or more successful product liability claims.
In addition, with respect to the sale of products in the United States, the
Company believes it has significantly greater risk in connection with product
liability claims due to the greater frequency of lawsuits and higher claims paid
in courts in the United States as opposed to most other countries. The Company
is required by government regulations to test its products even after they have
been sold and used by patients. As a result of such tests, the Company may be
required to, or may determine that it should, recall products when such products
have already been sold. Such testing and any product recalls could increase the
Company's potential exposure to product liability claims and may have a material
adverse effect on the Company's business, financial condition and results of
operations.
UNCERTAINTIES REGARDING PATENTS AND TRADE SECRETS
There has been increasing litigation in the biomedical, biotechnology and
pharmaceutical industries with respect to the manufacture, use and sale of new
therapeutic products that are the subject of conflicting patent rights. A
substantial number of patents relating to liposomes have been issued to, or are
controlled by, other public and private entities, including academic
institutions. In addition, others, including competitors of SEQUUS, have filed
applications for, or have been issued patents or may obtain additional patents
and proprietary rights relating to products or processes competitive with those
of SEQUUS. The patent positions of pharmaceutical, biopharmaceutical,
biotechnology and drug delivery companies, including SEQUUS, are uncertain and
involve complex legal and factual issues. Additionally, the coverage claimed in
a patent application can be significantly reduced before the patent is issued.
As a consequence, the Company does not know whether any of its patent
applications will result in the issuance of patents or whether any of the
Company's existing patents will provide significant proprietary protection or
will be circumvented or invalidated. Since patent applications in the United
States are maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature often lag behind actual
discoveries, the Company cannot be certain that it was the first inventor of
inventions covered by its pending patent applications or that it was the first
to file patent applications for such inventions. Moreover, the Company may have
to participate in interference proceedings to determine priority of invention,
which could result in substantial cost to the Company, even if the eventual
outcome is favorable to the Company. There can be no assurance that any patents
owned or controlled by the Company will protect SEQUUS against infringement
litigation or afford commercially significant protection of the Company's
technology. Almost none of the Company's patents has been tested in court to
determine their validity and scope. Moreover, the patent laws of foreign
countries differ from those of the United States and the degree of protection,
if any, afforded by foreign patents may therefore be different.
The Company has in the past been a party to litigation regarding
intellectual property rights. In prior litigation in the Patents County Court in
the U.K., a suit brought by NeXstar alleging that the Company's anticancer drug,
DOXIL, infringes NeXstar's EPO Patent No. 0,179,444 was settled by the parties
dropping their respective claims against one another. The U.K. Patent Court
dismissed all claims in the case with prejudice.
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The Company has a practice of monitoring patents and other developments in
the liposome field. To the extent that the Company becomes aware of patents of
other parties which the Company's processes or products might infringe, it is
the Company's practice to seek review of such patents by the Company's patent
counsel. With respect to DOXIL, SEQUUS is aware of TLC's United States Patent
No. 5,077,056 (the "056 Patent") relating to the loading of therapeutic drugs
into liposomes. The Company's patent counsel has rendered an opinion that DOXIL
would not infringe any valid claim of this patent. International equivalent
patents to the 056 Patent issued to TLC are now undergoing opposition
proceedings in the European and Japanese patent offices and the Company is party
to such proceedings. Adverse results in such opposition proceedings could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company is also aware of recently issued United
States Patent No. 5,562,925 (the "925 Patent") covering therapeutic cisplatin
compositions held by Research Corporation Technologies Inc., which the Company
believes has been licensed exclusively to Bristol-Myers. The Company's patent
counsel has rendered an opinion that its STEALTH cisplatin formulation would not
infringe any valid claims of the 925 Patent. The Company is also aware of TLC's
United States Patent No. 5,008,050 relating to reducing liposome size by
extrusion, and NeXstar's United States Patent No. 5,435,989 relating to
targeting of liposomes to solid tumors. The Company's patent counsel has
rendered an opinion that DOXIL would not infringe any valid claim of either of
these patents. The Company is also aware of United States Patent Nos. 4,426,330
and 4,534,899 assigned to Lipid Specialties, Inc., relating to conjugates of
phospholipids and polyethyleneglycol. The Company's patent counsel has rendered
an opinion that DOXIL would not infringe any valid claims of these patents.
In November 1991, the Company received a letter from TLC bringing to the
Company's attention TLC's United States Patent No. 5,059,591 for "Reduced
Toxicity" (the "591 Patent") containing claims directed to amphotericin B/sterol
compositions and their method of use. Subsequently, the Company's patent counsel
delivered an opinion to the Company that, among other things, AMPHOTEC does not
infringe any valid claim of the 591 Patent. The Company has not received any
further written correspondence with respect to this issue. However, no assurance
can be given that TLC will not make a claim against SEQUUS with respect to the
591 Patent, which could have a material adverse effect on the Company's ability
to commercialize AMPHOTEC.
Even if the Company's patent counsel renders advice that the Company's
products do not infringe any valid claim under such patents, there can be no
assurance that any third party will not commence litigation to enforce such
patents. The Company has been required to defend itself in patent litigation in
the past and uncertainties inherent in any other lawsuit that may be commenced
in the future with respect to any alleged patent infringement by the Company
make the outcome of any such litigation difficult to predict. If another company
were to successfully bring legal actions against the Company claiming patent or
other intellectual property right infringements, in addition to any liability
for damages, the Company could be enjoined by a court from selling such products
or processes or might be required to obtain a license to manufacture or sell the
affected product or process. There can be no assurance that the Company would
prevail in any such action or that the Company could obtain any license required
under any such patent on acceptable terms, if at all. Any litigation, whether or
not resolved in favor of the Company, could be expensive and time-consuming,
could consume substantial management resources, could have a material adverse
effect on the Company's product distribution arrangements and could otherwise
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company relies on unpatented trade secrets and proprietary know-how to
protect certain aspects of its production and other technologies. Although
SEQUUS has entered into confidentiality agreements with its employees,
consultants, representatives and other business associates, there can be no
assurance that trade secrets and know-how will remain undisclosed or that
similar trade secrets or know-how will not be independently developed by others.
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HISTORY OF OPERATING LOSSES; NEED FOR ADDITIONAL FINANCING
The Company has incurred losses in each year since its inception and has
accumulated approximately $165.5 million in net losses through June 30, 1997,
including a net loss of approximately $7.4 million in the quarter ended June 30,
1997. There can be no assurance that revenues from product sales or other
sources will be sufficient to fund operations or that the Company will achieve
profitability or positive cash flow. Additional financing may be required to
fund the Company's continuing operations and product and business development
activities in the form of debt or equity securities or bank financing. There can
be no assurance that such financing will be available on acceptable terms, if at
all. The unavailability of such financing could delay or prevent the
development, testing, regulatory approval, manufacturing or marketing of some or
all of the Company's products and could have a material adverse effect on the
Company's business, financial conditions or results of operations.
DEPENDENCE ON KEY PERSONNEL; MANAGEMENT TRANSITION
The Company's success depends largely upon its ability to attract and
retain qualified scientific, medical, engineering, manufacturing, sales and
marketing and management personnel. The Company faces competition for such
personnel from other companies, academic institutions, government entities and
other organizations. There can be no assurance that the Company will be
successful in hiring or retaining such personnel. Three of the key executive
officers of the Company have joined the management team in the past two years.
The new management team will face significant challenges in transitioning the
Company from research and development to manufacturing and marketing of the
Company's products that have received regulatory approval. There can be no
assurance that the management team can successfully manage the transition of the
Company's business.
HAZARDOUS MATERIALS
As with many biopharmaceutical companies, the Company's research and
development involves the controlled use of hazardous materials and chemical
compounds. There can be no assurance that the Company's safety procedures for
handling and disposing of such materials will comply with the standards
prescribed by federal, state and local regulations or that it will not be
subject to the risk of accidental contamination or injury from these materials.
In the event of such an accident, the Company could be held liable for any
damages that result and any such liability could materially adversely affect the
Company's business, financial condition and results of operations.
VOLATILITY OF STOCK PRICE
The market price of the Company's securities, like the stock prices of many
publicly traded biopharmaceutical companies, has been and may continue to be
highly volatile. A variety of events, both concerning and unrelated to the
Company and the biopharmaceutical industry, such as the level of sales of the
Company's products, problems with clinical development of the Company's
potential products, announcements of technological innovations, regulatory
developments or new commercial products by the Company or its competitors,
government regulation, delays or other developments relating to regulatory
approvals, developments or disputes relating to patent or proprietary rights,
comments and reports by securities analysts, product liability claims, as well
as period-to-period fluctuations in the Company's financial results, may have a
significant negative impact on the market price of the Company's securities. Any
large sale of securities of the Company could have a significant adverse effect
on the market price Company's securities.
20
<PAGE> 23
PART II - OTHER INFORMATION
ITEM 4.
Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting on June 4, 1997, which was adjourned with
respect to the stockholders' vote on a proposed Equity Incentive Plan. The
Annual Meeting was reconvened on June 18, 1997 at which time the Equity
Incentive Plan was considered. At the Annual Meeting, the matters discussed
below were considered.
Each of the nominees for election as a director was elected as follows:
<TABLE>
<CAPTION>
Number of Votes Cast
-------------------------------------
Name For Withheld
- ---- --- --------
<S> <C> <C>
Robert G. Faris 23,364,284 1,005,017
I. Craig Henderson, M.D. 23,386,918 982,383
Scott Minick 23,362,677 1,006,624
Richard C. E. Morgan 23,390,625 978,676
E. Donnall Thomas 23,367,072 1,002,229
</TABLE>
The stockholders approved an amendment to the Company's Employee Stock Purchase
Plan to increase the number of shares reserved for issuance thereunder from
250,000 to 778,000. The amendment was approved by a vote of 14,869,360 shares
For, 3,257,960 shares Against, 468,301 shares Abstaining and 5,773,680 Broker
Non-Votes. The stockholders also approved the Company's Equity Incentive Plan.
The Plan was approved by a vote of 10,943,676 shares For, 480,238 shares
Abstaining, and 10,194,137 shares Against.
ITEM 6.
Exhibits and Reports on Form 8-K
Exhibits
10.1 Equity Incentive Plan
10.2 Employee Stock Purchase Plan
27 Financial Data Schedule
Reports on Form 8-K
During the six months ended June 30, 1997, a report relating to the adoption of
a Stockholders Rights Plan was reported on Form 8-K.
21
<PAGE> 24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEQUUS PHARMACEUTICALS, INC.
----------------------------
(Registrant)
Date: August 14, 1997 By: /s/ Anthony T. Hendrickson
--------------------------------------
Anthony T. Hendrickson
Corporate Controller
(Principal Accounting Officer)
By: /s/ L. Scott Minick
--------------------------------------
L. Scott Minick
President and Chief Operating Officer
22
<PAGE> 25
EXHIBIT INDEX
10.1 Equity Incentive Plan
10.2 Employee Stock Purchase Plan
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
SEQUUS PHARMACEUTICALS, INC.
EQUITY INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
(a) Purpose. The purpose of the Plan is to provide selected eligible
employees and directors of, and consultants to, SEQUUS Pharmaceuticals, Inc., a
Delaware corporation, its subsidiaries and affiliates an opportunity to
participate in the Company's future by offering them an opportunity to acquire
stock in the Company so as to retain, attract and motivate them.
(b) Definitions. For purposes of the Plan, the following terms have the
following meanings:
(i) "Award" means any award under the Plan, including any
Option, Restricted Stock, Stock Purchase Right or Performance Share Award.
(ii) "Award Agreement" means, with respect to each Award, the
signed written agreement between the Company and the Plan participant setting
forth the terms and conditions of the Award.
(iii) "Board" means the Board of Directors of the Company.
(iv) "Change in Control" has the meaning set forth in Section
9(a).
(v) "Change in Control Price" has the meaning set forth in
Section 9(c).
(vi) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute.
(vii) "Commission" means the Securities and Exchange Commission
and any successor agency.
(viii) "Committee" means the Committee referred to in Section 2,
or the Board in its capacity as administrator of the Plan in accordance with
Section 2.
(ix) "Company" means SEQUUS Pharmaceuticals, Inc., a Delaware
corporation.
(x) "Disability" means permanent and total disability as
determined by the Committee for purposes of the Plan.
(xi) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, and any successor statute.
(xii) "Fair Market Value" means as of any given date (a) if the
Stock is listed on any established stock exchange or a national market system,
the closing sales price for the Stock or the closing bid if no sales were
reported, as quoted on
<PAGE> 2
such system or exchange, as reported in the Wall Street Journal; or (b) in the
absence of an established market for the Stock, the fair market value of the
Stock as determined by the Committee in good faith.
(xiii) "Incentive Stock Option" means any Option intended to be
and designated as an "incentive stock option" within the meaning of Section 422
of the Code.
(xiv) "Nonqualified Stock Option" means any Option that is not
an Incentive Stock Option.
(xv) "Option" means an option granted under Section 5.
(xvi) "Performance Period" means the period determined by the
Committee under Section 8(a).
(xvii) "Performance Share" means the equivalent, as of any time
such assessment is made, of the Fair Market Value of one share of Stock.
(xviii) "Performance Share Award" means an Award under Section
8.
(xix) "Plan" means this SEQUUS Pharmaceuticals, Inc. Equity
Incentive Plan, as amended from time to time.
(xx) "Restricted Stock" means an Award of Stock subject to
restrictions, as more fully described in Section 6.
(xxi) "Restriction Period" means the period determined by the
Committee under Section 6(b).
(xxii) "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the
Exchange Act, as amended from time to time, and any successor rule.
(xxiii) "Stock" means the no par value Common Stock of the
Company, and any successor security.
(xxiv) "Stock Purchase Right" means an Award granted under
Section 7.
(xxv) "Subsidiary" has the meaning set forth in Section 424 of
the Code.
(xxvi) "Tax Date" means the date defined in Section 10(f).
(xxvii) "Termination" means, for purposes of the Plan, with
respect to a participant, that the participant has ceased to be, for any reason,
employed by, consulting to, or a director of, the Company, a subsidiary or an
affiliate; provided, that for purposes of this definition, if so determined by
the President of the Company, in his sole discretion, Termination shall not
include a change in status from an employee
2
<PAGE> 3
of, to a consultant to or director of, the Company or any subsidiary or
affiliate, or vice versa.
SECTION 2. ADMINISTRATION.
(a) Committee. The Plan shall be administered by the Board or, upon
delegation by the Board, by a committee of the Board appointed by the Board that
will satisfy Rule 16b-3 and Section 162(m) of the Code, as in effect with
respect to the Company from time to time. In connection with the administration
of the Plan, the Committee shall have the powers possessed by the Board. The
Committee may act only by a majority of its members, except that the Committee
may from time to time select another committee or one or more other persons to
be responsible for any matters so long as such selection comports with the
requirements of Section 162(m) of the Code and Rule 16b-3. The Board at any time
may abolish the Committee and revest in the Board the administration of the
Plan.
(b) Authority. The Committee shall grant Awards to eligible employees
and consultants. In particular and without limitation, the Committee, subject to
the terms of the Plan, shall:
(i) select the directors, officers, other key employees and
consultants to whom Awards may be granted;
(ii) determine whether and to what extent Awards are to be
granted under the Plan;
(iii) determine the number of shares to be covered by each Award
granted under the Plan;
(iv) determine the terms and conditions of any Award granted
under the Plan and any related loans to be made by the Company, based upon
factors determined by the Committee; and
(v) determine to what extent and under what circumstances any
Award payments may be deferred by a participant.
(c) Committee Determinations Binding. The Committee may adopt, alter and
repeal administrative rules, guidelines and practices governing the Plan as it
from time to time shall deem advisable, may interpret the terms and provisions
of the Plan, any Award and any Award Agreement and may otherwise supervise the
administration of the Plan. Any determination made by the Committee pursuant to
the provisions of the Plan with respect to any Award shall be made in its sole
discretion at the time of the grant of the Award or, unless in contravention of
any express term of the Plan or Award, at any later time. All decisions made by
the Committee under the Plan shall be binding on all persons, including the
Company and Plan participants.
3
<PAGE> 4
SECTION 3. STOCK SUBJECT TO PLAN.
(a) Number of Shares. The total number of shares of Stock reserved and
available for issuance pursuant to Awards under this Plan shall be 2,000,000
shares. Such shares may consist, in whole or in part, of authorized and unissued
shares or treasury shares or shares reacquired in private transactions or open
market purchases, but all shares issued under the Plan regardless of source
shall be counted against the 2,000,000 share limitation. If any Option
terminates or expires without being exercised in full or if any shares of Stock
subject to an Award are forfeited, or if an Award otherwise terminates without a
payment being made to the participant in the form of Stock, the shares issuable
under such Option or Award shall again be available for issuance in connection
with Awards. To the extent an Award is paid in cash, the number of shares of
Stock representing, at Fair Market Value on the date of the payment, the value
of the cash payment shall not be available for later grant under the Plan. Any
Award under this Plan shall be governed by the terms of the Plan and any
applicable Award Agreement.
(b) Adjustments. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split or other change in
corporate structure affecting the Stock, such substitution or adjustments shall
be made in the aggregate number of shares of Stock reserved for issuance under
the Plan, in the number and exercise price of shares subject to outstanding
Options, and in the number of shares subject to other outstanding Awards, as may
be determined to be appropriate by the Committee, in its sole discretion;
provided, however, that the number of shares subject to any Award shall always
be a whole number.
SECTION 4. ELIGIBILITY.
Awards may be granted to directors, officers and other key employees of,
and consultants to, the Company, its subsidiaries and affiliates.
SECTION 5. STOCK OPTIONS.
(a) Types. Any Option granted under the Plan shall be in such form as
the Committee may from time to time approve. The Committee shall have the
authority to grant to any participant Incentive Stock Options, Nonqualified
Stock Options or both types of Options. Incentive Stock Options may be granted
only to employees of the Company, its parent (within the meaning of Section
424(e) of the Code) or Subsidiaries. Any portion of an Option that is not
designated as, or does not qualify as, an Incentive Stock Option shall
constitute a Nonqualified Stock Option.
(b) Terms and Conditions. Options granted under the Plan shall be
subject to the following terms and conditions:
(i) Option Term. The term of each Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten (10)
years after the date the Option is granted, and no Nonqualified Stock Option
shall be exercisable more than fifteen (15) years after the date the Option is
granted. If, at
4
<PAGE> 5
the time the Company grants an Incentive Stock Option, the optionee owns
directly or by attribution stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company, or any parent or Subsidiary
of the Company, the Incentive Stock Option shall not be exercisable more than
five (5) years after the date of grant.
(ii) Grant Date. The Company may grant Options under the Plan at
any time and from time to time before the Plan terminates. The Committee shall
specify the date of grant or, if it fails to, the date of grant shall be the
date of action taken by the Committee to grant the Option. However, if an Option
is approved in anticipation of employment, the date of grant shall be the date
the intended optionee is first treated as an employee for payroll purposes.
(iii) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be equal to at least 85% of the Fair Market
Value on the date of grant, and in the case of Incentive Stock Options shall be
equal to at least the Fair Market Value on the date of grant; provided, however,
that if, at the time the Company grants an Incentive Stock Option, the optionee
owns directly or by attribution stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, or any parent or
Subsidiary of the Company, then the exercise price shall be not less than 110%
of the Fair Market Value on the date the Incentive Stock Option is granted.
(iv) Exercisability. Subject to the other provisions of the
Plan, an Option shall be exercisable in its entirety at grant or at such times
and in such amounts as are specified in the Award Agreement evidencing the
Option. The Committee, in its absolute discretion, at any time may waive any
limitations respecting the time at which an Option first becomes exercisable in
whole or in part.
(v) Method of Exercise; Payment. To the extent the right to
purchase shares has accrued, Options may be exercised, in whole or in part, from
time to time, by written notice from the optionee to the Company stating the
number of shares being purchased, accompanied by payment of the exercise price
for the shares.
(vi) No Disqualification. Notwithstanding any other provision in
the Plan, no term of the Plan relating to Incentive Stock Options shall be
interpreted, amended or altered nor shall any discretion or authority granted
under the Plan be exercised so as to disqualify the Plan under Section 422 of
the Code or, without the consent of the optionee affected, to disqualify any
Incentive Stock Option under such Section 422.
SECTION 6. RESTRICTED STOCK.
(a) Price. The Committee may grant to a participant Restricted Stock.
The grantee shall pay no consideration therefor.
(b) Restrictions. Subject to the provisions of the Plan and the Award
Agreement, during the Restriction Period set by the Committee, commencing with,
and not exceeding ten (10) years from, the date of such Award, the participant
shall not be
5
<PAGE> 6
permitted to sell, assign, transfer, pledge or otherwise encumber shares of
Restricted Stock. Within these limits, the Committee may provide for the lapse
of such restrictions in installments and may accelerate or waive such
restrictions, in whole or in part, based on service, performance or such other
factors or criteria as the Committee may determine.
(c) Dividends. Unless otherwise determined by the Committee, with
respect to dividends on shares of Restricted Stock, dividends payable in cash
shall be automatically reinvested in additional Restricted Stock, and dividends
payable in Stock shall be paid in the form of Restricted Stock.
(d) Termination. Except to the extent otherwise provided in the Award
Agreement and pursuant to Section 6(b), in the event of a Termination during the
Restriction Period, all shares still subject to restriction shall be forfeited
by the participant.
SECTION 7. STOCK PURCHASE RIGHTS.
(a) Price. The Committee may grant Stock Purchase Rights which shall
enable the recipients to purchase Stock at a price equal to not less than 85% of
its Fair Market Value on the date of grant.
(b) Exercisability. Stock Purchase Rights shall be exercisable for a
period determined by the Committee not exceeding 30 days from the date of the
grant.
SECTION 8. PERFORMANCE SHARES.
(a) Awards. The Committee shall determine the nature, length and
starting date of the Performance Period for each Performance Share Award, which
period shall be at least one (1) year (subject to Section 9) and not more than
six (6) years. The consideration payable by a participant with respect to a
Performance Share Award shall be an amount determined by the Committee in the
exercise of the Committee's discretion at the time of the Award; provided, that
the amount of consideration may be zero and may in no event exceed 50% of the
Fair Market Value at the time of grant. The Committee shall determine the
performance objectives to be used in awarding Performance Shares and the extent
to which such Performance Shares have been earned. Performance Periods may
overlap and participants may participate simultaneously with respect to
Performance Share Awards that are subject to different Performance Periods and
different performance factors and criteria. At the beginning of each Performance
Period, the Committee shall determine for each Performance Share Award subject
to such Performance Period the number of shares of Stock (which may consist of
Restricted Stock) to be awarded to the participant at the end of the Performance
Period if and to the extent that the relevant measures of performance for such
Performance Share Award are met. Such number of shares of Stock may be fixed or
may vary in accordance with such performance or other criteria as may be
determined by the Committee. The Committee may provide that (i) amounts
equivalent to interest at such rates as the Committee may determine, or (ii)
amounts
6
<PAGE> 7
equivalent to dividends paid by the Company upon outstanding Stock shall be
payable with respect to Performance Share Awards.
(b) Termination. Except as otherwise provided in the Award Agreement or
determined by the Committee, in the event of a Termination during a Performance
Period, the participant shall not be entitled to any payment with respect to the
Performance Shares subject to the Performance Period.
(c) Form of Payment. Payment shall be made in the form of cash or whole
shares of Stock, as the Committee, in its discretion, shall determine.
SECTION 9. CHANGE IN CONTROL.
(a) Definition of "Change in Control". For purposes of Section 9(b), a
"Change in Control" means the occurrence of any one of the following:
(i) Any "person", as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, a subsidiary, an affiliate,
or a Company employee benefit plan, including any trustee of such plan acting as
trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's then
outstanding securities;
(ii) the solicitation of proxies (within the meaning of Rule
14a-1(k) under the Exchange Act and any successor rule) with respect to the
election of any director of the Company where such solicitation is for any
candidate who is not a candidate proposed by a majority of the Board in office
prior to the time of such election; or
(iii) the dissolution or liquidation (partial or total) of the
Company or a sale of assets involving 30% or more of the assets of the Company,
any merger or reorganization of the Company whether or not another entity is the
survivor, a transaction pursuant to which the holders, as a group, of all of the
shares of the Company outstanding prior to the transaction hold, as a group,
less than 70% of the shares of the Company outstanding after the transaction, or
any other event which the Board determines, in its discretion, would materially
alter the structure of the Company or its ownership.
(b) Impact of Event. In the event of a "Change in Control" as defined in
Section 9(a), subject to Section 5(b)(iv), any Options outstanding as the dates
such Change in Control is determined to have occurred and not then exercisable
and vested shall become fully exercisable and vested and any rights of
repurchase with respect to the shares purchasable thereunder shall lapse. In
addition, if and to the extent so specifically determined by the Board in its
discretion, which determination may be amended or reversed only by the
affirmative vote of a majority of the persons who were directors at the time
such determination was made, the following acceleration provisions may apply:
7
<PAGE> 8
(i) The restrictions and limitations applicable to any
Restricted Stock and Stock Purchase Rights shall lapse, and such Restricted
Stock shall become fully vested.
(ii) The value (net of any exercise price) of all outstanding
Restricted Stock and Stock Purchase Rights, unless otherwise determined by the
Committee at or after grant and subject to Rule 16b-3, shall be cashed out on
the basis of the "Change in Control Price", as defined in Section 9(c), as of
the date such Change in Control is determined to have occurred or such other
date as the Board may determine prior to the Change in Control.
(iii) Any outstanding Performance Share Awards shall be vested
and paid in full as if all performance criteria had been met.
(c) Change in Control Price. For purposes of this Section 9, "Change in
Control Price" means the highest price per share paid in any transaction
reported on the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System or paid or offered in any bona fide
transaction related to a potential or actual Change in Control of the Company at
any time during the preceding 60-day period as determined by the Board, except
that, in the case of Incentive Stock Options, such price shall be based only on
transactions reported for the date on which the Board decides to cash out such
Options.
SECTION 10. GENERAL PROVISIONS.
(a) Award Grants. Any Award may be granted either alone or in addition
to other Awards granted under the Plan. Subject to the terms and restrictions
set forth elsewhere in the Plan, the Committee shall determine the
consideration, if any, payable by the participant for any Award and, in addition
to those set forth in the Plan, any other terms and conditions of the Awards.
The Committee may condition the grant or payment of any Award upon the
attainment of specified performance goals or such other factors or criteria,
including vesting based on continued employment or consulting, as the Committee
shall determine. Performance objectives may vary from participant to participant
and among groups of participants and shall be based upon such Company,
subsidiary, group or division factors or criteria as the Committee may deem
appropriate, including, but not limited to, earnings per share or return on
equity. The other provisions of Awards also need not be the same with respect to
each recipient. Unless specified otherwise in the Plan or by the Committee, the
date of grant of an Award shall be the date of action by the Committee to grant
the Award. The Committee may also substitute new Options for previously granted
Options, including previously granted Options having higher exercise prices.
(b) Award Agreement. As soon as practicable after the date of an Award
grant, the Company and the participant shall enter into a written Award
Agreement identifying the date of grant, and specifying the terms and conditions
of the Award. Options are not exercisable until after execution of the Award
agreement by the Company and the Plan participant, but a delay in execution of
the agreement shall not affect the validity of the Option grant.
8
<PAGE> 9
(c) Certificates. All certificates for shares of Stock or other
securities delivered under the Plan shall be subject to such stock transfer
orders, legends and other restrictions as the Committee may deem advisable under
the rules, regulations and other requirements of the Commission, any market in
which the Stock is then traded and any applicable federal, state or foreign
securities law.
(d) Termination. Unless otherwise provided in the applicable Award
Agreement or by the Committee, in the event of Termination for any reason other
than death, retirement or Disability, Awards held at the date of Termination
(and only to the extent then exercisable or payable, as the case may be) may be
exercised in whole or in part at any time within three (3) months after the date
of Termination, or such lesser period specified in the Award Agreement (but in
no event after the expiration date of the Award), but not thereafter. If
Termination is due to retirement or to death or Disability, Awards held at the
date of Termination (and only to the extent then exercisable or payable, as the
case may be) may be exercised in whole or in part by the participant in the case
of retirement or Disability, by the participant's guardian or legal
representative or by the person to whom the Award is transferred by will or the
laws of descent and distribution, at any time within two (2) years from the date
of Termination or any lesser period specified in the Award Agreement (but in no
event after the expiration of the Award).
(e) Delivery of Purchase Price. If and only to the extent authorized by
the Committee, participants may make all or any portion of any payment due to
the Company
(i) with respect to the consideration payable for an Award,
(ii) upon exercise of an Award, or
(iii) with respect to federal, state, local or foreign tax
payable in connection with an Award, by delivery of (x) cash, (y) check, or (z)
any property other than cash (including a promissory note of the participant or
shares of Stock or securities) so long as, if applicable, such property
constitutes valid consideration for the Stock under, and otherwise complies
with, applicable law. No promissory note under the Plan shall have a term
(including extensions) of more than five years or shall be of a principal amount
exceeding 90% of the purchase price paid by the borrower. In addition, with
respect payment due to the Company upon to the exercise of an Award, a
participant may, at the participant's election, surrender or direct the Company
to withhold such number of shares issuable upon exercise of the Award with a
Fair Market Value equal to some or all of the exercise price of the shares being
acquired, together with such documentation as the Committee may require.
(f) Tax Withholding. Any shares or other securities so withheld or
tendered will be valued by the Committee as of the date they are withheld or
tendered; provided, however, that Stock shall be valued at Fair Market Value on
such date. The value of the shares withheld or tendered may not exceed the
required federal, state, local and foreign withholding tax obligations as
computed by the Company. Unless the Committee permits otherwise, the participant
shall pay to the Company in cash,
9
<PAGE> 10
promptly when the amount of such obligations becomes determinable (the "Tax
Date"), all applicable federal, state, local and foreign withholding taxes that
the Committee in its discretion determines to result, (i) from the lapse of
restrictions imposed upon an Award, (ii) upon exercise of an Award, or (iii)
from a transfer or other disposition of shares acquired upon exercise or payment
of an Award, or otherwise related to the Award or the shares acquired in
connection with an Award.
A participant who has received an Award or payment under an Award
may, to the extent, if any, authorized by the Committee in its discretion, make
an election to (x) deliver to the Company a promissory note of the participant
on the terms set forth in Section 10(e), or (y) tender any such securities to
the Company to pay the amount of tax that the Committee in its discretion
determines to be required to be withheld by the Company; provided, however, that
such election shall be subject to the disapproval of the Committee.
(g) No Transferability. No Award shall be assignable or otherwise
transferable by the participant other than by will or by the laws of descent and
distribution. During the life of a participant, an Award shall be exercisable,
and any elections with respect to an Award may be made, only by the participant
or participant's guardian or legal representative.
(h) Adjustment of Awards; Waivers. Subject to Section 5(b)(vi), the
Committee may adjust the performance goals and measurements applicable to Awards
(i) to take into account changes in law and accounting and tax rules, (ii) to
make such adjustments as the Committee deems necessary or appropriate to reflect
the inclusion or exclusion of the impact of extraordinary or unusual items,
events or circumstances in order to avoid windfalls or hardships, and (iii) to
make such adjustments as the Committee deems necessary or appropriate to reflect
any material changes in business conditions. In the event of hardship or other
special circumstances of a participant and otherwise in its discretion, the
Committee may waive in whole or in part any or all restrictions, conditions,
vesting, or forfeiture with respect to any Award granted to such participant.
(i) Non-Competition. The Committee may condition its discretionary
waiver of a forfeiture, the acceleration of vesting at the time of Termination
of a participant holding any unexercised or unearned Award, the waiver of
restrictions on any Award, or the extension of the expiration period to a period
not longer than that provided by the Plan upon such participant's agreement (and
compliance with such agreement) to (i) not engage in any business or activity
competitive with any business or activity conducted by the Company and (ii) be
available for consultations at the request of the Company's management, all on
such terms and conditions (including conditions in addition to (i) and (ii)) as
the Committee may determine.
(j) Dividends. The reinvestment of dividends in additional Stock or
Restricted Stock at the time of any dividend payment pursuant to Section 6(c)
shall only be permissible if sufficient shares of Stock are available under
Section 3 for such reinvestment (taking into account then outstanding Awards).
10
<PAGE> 11
(k) Regulatory Compliance. Each Award under the Plan shall be subject to
the condition that, if at any time the Committee shall determine that (i) the
listing, registration or qualification of the shares of Stock upon any
securities exchange or for trading in any securities market or under any state
or federal law, (ii) the consent or approval of any government or regulatory
body or (iii) an agreement by the participant with respect thereto, is necessary
or desirable, then such Award shall not be consummated in whole or in part
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained free of any conditions not acceptable to
the Committee.
(l) Rights as Stockholder. Unless the Plan or the Committee expressly
specifies otherwise, an optionee shall have no rights as a stockholder with
respect to any shares covered by an Award until the stock certificates
representing the shares are actually delivered to the optionee. Subject to
Sections 3(b) and 6(c), no adjustment shall be made for dividends or other
rights for which the record date is prior to the date the certificates are
delivered.
(m) Beneficiary Designation. The Committee, in its discretion, may
establish procedures for a participant to designate a beneficiary to whom any
amounts payable in the event of the participant's death are to be paid.
(n) Additional Plans. Nothing contained in the Plan shall prevent the
Company, a subsidiary or an affiliate from adopting other or additional
compensation arrangements for its employees and consultants.
(o) No Employment Rights. The adoption of the Plan shall not confer upon
any employee any right to continued employment nor shall it interfere in any way
with the right of the Company, a subsidiary or an affiliate to terminate the
employment of any employee at any time.
(p) Rule 16b-3. Notwithstanding any provision of the Plan, the Plan
shall always be administered, and Awards shall always be granted and exercised,
in such a manner as to conform to the provisions of Rule 16b-3.
(q) Governing Law. The Plan and all Awards shall be governed by and
construed in accordance with the laws of the State of California.
(r) Use of Proceeds. All cash proceeds to the Company under the Plan
shall constitute general funds of the Company.
(s) Unfunded Status of Plan. The Plan shall constitute an "unfunded"
plan for incentive and deferred compensation. The Committee may authorize the
creation of trusts or arrangements to meet the obligations created under the
Plan to deliver Stock or make payments; provided, however, that unless the
Committee otherwise determines, the existence of such trusts or other
arrangements shall be consistent with the "unfunded" status of the Plan.
11
<PAGE> 12
(t) Assumption by Successor. The obligations of the Company under the
Plan and under any outstanding Award may be assumed by any successor
corporation, which for purposes of the Plan shall be included within the meaning
of "Company".
(u) Limitation on Award Grants to Certain Executive Officers. The
Company may not grant Awards under the Plan for more than 750,000 shares to any
executive officer whose compensation is required to be disclosed under Item 402
of Regulation S-K.
SECTION 11. AMENDMENTS AND TERMINATION.
The Board may amend, alter or discontinue the Plan or any Award, but no
amendment, alteration or discontinuance shall be made which would impair the
rights of a participant under an outstanding Award without the participant's
consent. No amendment, alteration or discontinuance shall require stockholder
approval except (a) an increase in the total number of shares reserved for
issuance pursuant to Awards under the Plan, (b) with respect to provisions
solely as they relate to Incentive Stock Options, to the extent required for the
Plan to comply with Section 422 of the Code, (c) to the extent required by other
applicable laws, rules or regulations or (d) to the extent that the Board
otherwise concludes that stockholder approval is advisable.
SECTION 12. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on the date it is adopted by the Board but
all Awards shall be conditioned upon approval of the Plan (a) at a duly held
stockholders' meeting by the affirmative vote of the holders of a majority of
the voting power of the shares of the Company entitled to vote and represented
in person or by proxy at the meeting, or (b) by an action by written consent of
the holders of a majority of the voting power of the shares of the Company
entitled to vote.
SECTION 13. TERM OF PLAN.
No Award shall be granted on or after April 17, 2007, but Awards granted
prior to April 17, 2007 may extend beyond that date.
12
<PAGE> 1
EXHIBIT 10.2
SEQUUS PHARMACEUTICALS, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. Purpose
The Employee Stock Purchase Plan (the "Plan") is designed to
encourage and assist employees of SEQUUS Pharmaceuticals, Inc., its parent and
participating subsidiaries, if any (collectively, the "Company") to acquire an
equity interest in the Company through the purchase of shares of Common Stock.
2. Administration
The Plan shall be administered by the Board of Directors (or a
committee of two or more "disinterested" directors, which in either case is
referred to as the "Board") in accordance with Rule 16b-3 of the Securities and
Exchange Commission, as in effect from time to time. Any committee or persons as
the Board may from time to time select (the "Administrator") shall be
responsible for any matters for which a "disinterested administrator" is not
required by Rule 16b-3. Subject to the express provisions of the Plan, to the
overall supervision of the Board, and to the limitations of Section 423 or any
successor provision of the Internal Revenue Code of 1986, as amended (the
"Code"), the Administrator may administer and interpret the Plan in any manner
it believes to be desirable, and any such interpretation shall be conclusive and
binding on the Company and all participants.
3. Number of Shares
The Company has reserved for sale under the Plan 778,000 shares
of Common Stock. Shares sold under the Plan may be newly issued shares or shares
reacquired in private transactions or open market purchases, but all shares sold
under the Plan regardless of source shall be counted against the 778,000-share
limitation.
In the event of any reorganization, recapitalization, stock
split, reverse stock split, stock dividend, combination of shares, merger,
consolidation, offering of rights, or other similar change in the capital
structure of the Company, the Administrator may make such adjustment, if any, as
it deems appropriate in the number, kind, and purchase price of the shares
available for purchase under the Plan and in the maximum number of shares
subject to any option under the Plan.
4. Eligibility Requirements
Each employee, except those described in the next paragraph,
shall become eligible to participate in the Plan in accordance with Section 5 on
the first Enrollment Date following employment by the Company. Participation in
the Plan is entirely voluntary.
<PAGE> 2
The following employees are not eligible to participate in the
Plan:
(i) employees who would, immediately upon enrollment in the
Plan, own directly or indirectly (including options or rights to acquire), an
aggregate of more than five percent of the total combined voting power or value
of all outstanding shares of all classes of the Company or any subsidiary; and
(ii) employees who are customarily employed by the Company less
than 20 hours per week or less than five months in any calendar year.
"Employee" shall mean any individual who performs services for SEQUUS
Pharmaceuticals, Inc. or any participating subsidiary pursuant to an employment
relationship described in Treasury Regulations Section 31.3401(c)-l or any
successor provision. "Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with SEQUUS Pharmaceuticals, Inc. if, as of the
applicable Enrollment Date, each of the corporations other than the last
corporation in the chain owns stock possessing 50% or more of the combined
voting power of all classes of stock in one of the other corporations in the
chain. A "participating subsidiary" shall mean a subsidiary which has been
designated by the Administrator as covered by the Plan.
5. Enrollment
Any eligible employee may enroll or re-enroll in the Plan as of
the first trading day of any January, April, July, and October, or such other
specific trading days established by the Administrator from time to time
("Enrollment Dates"). In order to enroll an eligible employee must complete,
sign, and submit to the Company an enrollment form. Any enrollment form received
by the Company before the 15th day of the month preceding an Enrollment Date, or
such other date established by the Administrator from time to time ("Cut-Off
Date"), will be effective on that Enrollment Date. As a condition to
participation, each enrollee agrees to inform the Company promptly of the sale
or other disposition of shares acquired under the Plan within either of the
periods specified in Section 423(a)(1) of the Code (currently, two years from
the date of grant of the option pursuant to which such shares were acquired and
one year after the Purchase Date for such shares).
6. Grant of Options on Enrollment
Enrollment by a participant in the Plan on an Enrollment Date
will constitute the grant by the Company to the participant of options to
purchase shares of Common Stock from the Company under the Plan. The number of
options granted will equal the number of percentage points of salary that the
participant elects to have withheld. An increase (but not a decrease) in the
level of payroll withholding also constitutes the grant of new options for the
incremental change in the percentage withheld but does not cancel outstanding
options. Any participant whose options expire and who has not withdrawn from the
Plan will automatically be re-enrolled in the Plan and granted new options
(equal in number to the number of expiring options) on the Enrollment Date
immediately following the Purchase Date on which his then-current
-2-
<PAGE> 3
options expire. Any date on which a participant is granted options under the
Plan is referred to as a "Grant Date."
Each option granted under the Plan shall have the following
terms:
(i) whether or not all shares have been purchased thereunder,
the option will expire on the earlier to occur of (A) the completion of the
purchase of shares on the last Purchase Date occurring within 27 months of the
Grant Date for such option, or such shorter option period as may be established
by the Board from time to time prior to an Enrollment Date for all options to be
granted on such Enrollment Date, or (B) the date on which participation of such
participant in the Plan terminates for any reason;
(ii) payment for shares purchased under the option will be made
only through payroll withholding in accordance with Section 7;
(iii) purchase of shares upon exercise of the option will be
accomplished only in installments in accordance with Section 8;
(iv) the price per share under the option will be determined as
provided in Section 8;
(v) unless otherwise established by the Board from time to time
prior to an Enrollment Date, the number of shares available for purchase under
each option will be the quotient of (a) 75,000, divided by (b) the then fair
market value of the Common Stock subject to option for all options to be granted
on such Enrollment Date; provided, however, that in no event shall an option
give the participant the right to purchase shares at a rate which accrues in
excess of $75,000 of fair market value of such shares (determined at the Grant
Date of such option) in any calendar year during which the option is
outstanding;
(vi) notwithstanding clause (v), the option (taken together with
all other options then outstanding under this Plan and under all other similar
stock purchase plans of SEQUUS Pharmaceuticals, Inc. or any parent or
subsidiary) will in no event give the participant the right to purchase shares
at a rate which accrues in excess of $25,000 of fair market value of such shares
(determined in accordance with Section 423(b)(8) of the Code at the applicable
grant dates) in any calendar year during which such participant is enrolled in
the Plan at any time; and
(vii) the option will in all respects be subject to the terms
and conditions of the Plan, as interpreted by the Administrator from time to
time.
7. Payroll Withholding
Each participant may elect to make contributions at a rate equal
to any whole percentage up to a maximum of 10%, or such other maximum percentage
as the Board may establish from time to time before an Enrollment Date for all
options to be
-3-
<PAGE> 4
granted on such Enrollment Date, of his or her monthly earnings from the
Company. The rate of contribution shall be designated by the participant in the
enrollment form. A participant may change the contribution rate effective as of
any Enrollment Date by delivery to the Company not later than the related
Cut-Off Date of a new enrollment form indicating the revised rate. An increase
(but not a decrease) in the contribution rate constitutes the grant of new
options. If the rate is decreased and there is more than one option outstanding,
the participant may specify the option to which such decrease should apply.
Contributions shall be credited to a participant's account as
soon as administratively feasible after payroll withholding. The Company shall
be entitled to use of the contributions immediately after payroll withholding
and shall have no obligation to pay interest on the contributions to any
participant.
8. Purchase of Shares
On the last trading day of each March, June, September, and
December, or on such other specific trading days as may be established by the
Board from time to time prior to an Enrollment Date for all options to be
granted on such Enrollment Date ("Purchase Dates"), the Company shall apply the
funds then credited to each participant's account to the purchase of whole and
fractional shares of Common Stock. The cost to the participant for the shares
purchased under any option shall be 85% of the lower of:
(i) the closing price of Common Stock on the NASDAQ National
Market System on the Grant Date for such option;
(ii) the closing price of Common Stock on the NASDAQ National
Market System on that Purchase Date; or
(iii) if no closing price is reported on either of such dates,
the closing price of the Common Stock on the NASDAQ National Market System on
the date next preceding such Grant Date or such Purchase Date, as the case may
be, on which a closing price is reported.
Certificates evidencing shares purchased on any Purchase Date shall be delivered
as soon as administratively feasible, but participants shall be treated as the
owners of their shares effective as of the Purchase Date. Any cash equal to less
than the price of the smallest fractional share of Common Stock which may be
purchased under the Plan left in a participant's payroll deduction account on a
Purchase Date shall be carried forward in such participant's account for
application on the next Purchase Date.
9. Transfer of Shares
A participant purchasing shares pursuant to the Plan on any
Purchase Date on or after July 1, 1997 may not transfer, assign or otherwise
sell or dispose of any of such shares for a period of six months commencing on
the Purchase Date for such shares, other than by will or by the laws of descent
and distribution.
-4-
<PAGE> 5
10. Withdrawal From the Plan
A participant may withdraw from the Plan in full (but not in
part) at any time. All funds credited to a participant's payroll deduction
account shall be distributed to the participant without interest as soon as
administratively feasible after the Company receives the withdrawal notice. An
employee who has withdrawn may not return funds to the Company and require the
Company to apply those funds to the purchase of shares. Any eligible employee
who has withdrawn from the Plan may, however, enroll in the Plan again on any
subsequent Enrollment Date in accordance with Section 5.
11. Termination of Employment
Participation in the Plan terminates immediately when a
participant ceases to be employed by the Company for any reason whatsoever
(including death or disability) or otherwise becomes ineligible to participate
in the Plan. As soon as administratively feasible after termination, the Company
shall pay to the participant or his or her beneficiary or legal representative
all amounts credited to the participant's payroll deduction account.
12. Leave of Absence
Unless a participant has voluntarily withdrawn from the Plan,
shares will be purchased for his or her account on the Purchase Date next
following commencement of a leave of absence of such participant. Participation
in the Plan will terminate immediately after the purchase of shares on such
Purchase Date, however, unless:
(i) the leave of absence is of less than 90 days' duration and
is due to illness, injury, or other cause approved by the Administrator; or
(ii) the participant's right to reemployment after such leave is
guaranteed by contract or statute.
13. Designation of Beneficiary
Each participant may designate one or more beneficiaries in the
event of death and may, in his or her sole discretion, change such designation
at any time. Any such designation shall be effective upon receipt by the Company
and shall control over any disposition by will or otherwise.
As soon as administratively feasible after the death of a
participant, amounts credited to the participant's payroll deduction account
shall be paid in cash to the designated beneficiaries or, in the absence of a
designation, to the executor, administrator, or other legal representative of
his or her estate. Such payment shall relieve the Company of further liability
with respect to the Plan on account of the deceased participant. If more than
one beneficiary is designated, each beneficiary shall receive an equal portion
of the account unless the participant has given express contrary instructions.
-5-
<PAGE> 6
14. Assignment
No participant may assign his or her rights under the Plan by
operation of law or otherwise. No participant may create a lien on any funds,
securities, rights, or other property held by the Company for the account of the
participant under the Plan, except to the extent that there has been a
designation of beneficiaries in accordance with the Plan, and except to the
extent permitted by the laws of descent and distribution if beneficiaries have
not been designated.
A participant's right to purchase shares under the Plan shall be
exercisable only during the participant's lifetime and only by him or her,
except that a participant may direct the Company in the enrollment form to issue
share certificates to the participant jointly with one or more other persons
with right of survivorship, in spousal community property, or to certain forms
of trusts approved by the Administrator.
15. Administrative Assistance
If the Administrator in its discretion so elects, it may retain
a brokerage firm, bank, or other financial institution to assist in the purchase
of shares, delivery of reports, or other administrative aspects of the Plan. If
the Administrator so elects, each participant shall be deemed upon enrollment in
the Plan to have authorized the establishment of an account on his or her behalf
at such institution. Shares purchased by a participant under the Plan shall be
held in the account in the participant's name, or if the participant so
indicates in the enrollment form, in the participant's name together with the
name of one or more other persons, in joint tenancy with right of survivorship,
in spousal community property, or in certain forms of trusts approved by the
Administrator.
16. Costs
The Company shall pay all costs and expenses incurred in
administering the Plan excepting stamp duties or transfer taxes applicable to
participation in the Plan, which it may charge to the participant's account. The
Company shall pay brokerage fees for the purchase of shares by a participant,
but brokerage fees for the resale of shares by a participant shall be borne by
the participant.
17. Reports
The Company shall provide or cause to be provided to each
participant a report of his or her contributions and the shares purchased by the
participant on each Purchase Date.
18. Equal Rights and Privileges
All eligible employees shall have equal rights and privileges
with respect to the Plan so that the Plan qualifies as an "employee stock
purchase plan" within the meaning of Section 423 of the Code and the Treasury
Regulations thereunder. Any
-6-
<PAGE> 7
provision of the Plan which is inconsistent with Section 423 of the Code shall
without further act or amendment by the Company or the Board be reformed to
comply with the requirements of Section 423 of the Code. This Section 18 shall
take precedence over all other provisions in the Plan.
19. Applicable Law
The Plan shall be governed by the substantive laws (excluding
the conflict of laws rules) of the State of California.
20. No Right of Employment
Neither the grant nor the exercise of any right to purchase
shares under this Plan nor anything in this Plan shall impose upon the Company
or any subsidiary any obligation to employ or continue to employ any
participant. The right of the Company and any subsidiary to terminate any
employee shall not be diminished or affected because any right to purchase
shares has been granted to such employee.
21. Requirements of Law
(a) The Company shall not be required to sell, issue or deliver
any shares of Common Stock under this Plan if such sale, issuance or delivery
might constitute a violation by the Company or the participant of any provision
of law. Unless a registration statement under the Securities Act of 1933 (the
"Act") is in effect with respect to the shares of Common Stock proposed to be
delivered under the Plan, the Company shall not be required to issue such shares
if, in the opinion of the Company or its counsel, such issuance would violate
the Act. Regardless of whether such shares of Common Stock have been registered
under the Act or registered or qualified under the securities laws of any state,
the Company may impose restrictions upon the hypothecation or further sale or
transfer of such shares (including the placement of appropriate legends on stock
certificates) if, in the judgment of the Company or its counsel, such
restrictions are necessary or desirable to achieve compliance with the
provisions of the Act, the securities laws of any state, or any other law,
including the Internal Revenue Code. As a condition precedent to the issuance of
any shares of Common Stock under the plan, the Company may require evidence
satisfactory to it or its counsel to the effect that the purchase of such shares
is acquiring the shares for investment and not with a view to their
distribution. Any determination by the Company or its counsel in connection with
any of the foregoing shall be final and binding on all parties.
(b) If, in the opinion of the Company and its counsel, any
legend placed on a stock certificate representing shares of Common Stock issued
under the plan is no longer required or desirable in order to comply with
applicable securities or other laws,
-7-
<PAGE> 8
the holder of such certificate shall be entitled to exchange such certificate
for a certificate representing a like number of shares lacking such legend.
(c) The Company may, but shall not be obligated to, register or
qualify any securities covered by the Plan. The Company shall not be obligated
to take any other affirmative action in order to cause the grant or exercise of
any right or the issuance, sale, or delivery of shares pursuant to the exercise
of any right to comply with any law.
22. Corporate Transactions
New option rights may be substituted for the option rights under
the Plan, or the Company's outstanding obligations under the Plan may be
assumed, by an employer corporation other than the Company, or by a parent or
subsidiary corporation of such employer corporation, in connection with any
merger, consolidation, acquisition, separation, reorganization or liquidation,
or like occurrence in which the Company is involved.
23. Modification, Term, and Termination
The Board may amend, alter, or terminate the Plan or any option
at any time. No amendment shall be effective unless within 12 months after it is
adopted by the Board it is approved by the holders of a majority of the voting
power of the Company's outstanding shares, if such amendment would:
(i) increase the number of shares reserved for purchase under
the Plan;
(ii) materially increase the benefits to participants; or
(iii) modify the requirements for participation.
In the event the Plan is terminated, the Board may elect to
terminate all outstanding options immediately or upon completion of the purchase
of shares on the next Purchase Date, or may elect to permit options to expire in
accordance with their terms (and participation to continue through such
expiration dates). If the options are terminated prior to expiration, all funds
contributed to the Plan that have not been used to purchase shares shall be
returned to the participants as soon as administratively feasible.
24. Board and Stockholder Approval
This Plan was approved by the Board of Directors on March 20,
1990. This Plan shall be subject to and conditioned upon approval of the Plan by
the affirmative vote of the holders of a majority of the outstanding shares of
Common stock of the Company within 12 months of the date the Plan is approved by
the Board. No right to purchase shares may be exercised in whole or in part
unless and until such stockholder approval is obtained.
-8-
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0
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