<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 1-10392
---------------------------------------------------------
U.S. Bioscience, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified on its charter)
Delaware 23-2460100
- --------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Tower Bridge, One Hundred Front St., West Conshohocken, PA 19428
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 832-0570
- --------------------------------------------------------------------------------
(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 November 5, 1996, there were 22,795,300 shares of common stock
outstanding.
-1-
<PAGE>
U.S. BIOSCIENCE, INC.
INDEX
Page
Part I - Financial Information ----
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Consolidated Statement of Changes in Stockholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II - Other Information
Item 2. Changes in Securities 14
Item 4. Submission of Matters to a Vote of Securities Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Exhibit Index 17
-2-
<PAGE>
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 34,344,300 $ 41,618,800
Investments 1,004,600 3,977,400
Accounts receivable, net 502,700 802,500
Interest receivable 132,900 60,000
Inventories 2,961,000 2,165,100
Other 6,084,500 6,922,200
---------------- ----------------
Total current assets 45,030,000 55,546,000
Property, plant and equipment at cost, less accumulated depreciation 6,182,900 6,334,300
---------------- ----------------
Total assets $ 51,212,900 $ 61,880,300
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation and related payroll taxes payable $ 1,319,900 $ 1,937,600
Accrued clinical grants payable 1,214,900 716,300
Accrued product manufacturing costs payable 667,000 384,300
Accrued marketing costs payable 320,600 125,900
Accrued professional fees payable 314,000 393,200
Line of Credit 633,900 676,000
Current Maturities of long-term debt 719,300 721,300
Accounts payable and other accrued liabilities 2,292,900 8,014,400
---------------- ----------------
Total current liabilities 7,482,500 12,969,000
Long-term liabilities:
Long-term debt, net of current maturities 1,289,000 2,587,600
Convertible Debentures -- 16,500,000
Other long-term liabilities 2,030,100 1,035,800
---------------- ----------------
Total long-term liabilities 3,319,100 20,123,400
---------------- ----------------
Total liabilities 10,801,600 33,092,400
Stockholders' equity:
Preferred stock, $.005 par value-5,000,000 shares authorized;
none issued -- --
Common stock, $.01 par value-50,000,000 shares authorized; 22,793,300
shares issued and outstanding at September 30, 1996, and 21,046,900 shares
issued and outstanding at December 31, 1995 227,900 210,500
Additional paid-in capital 150,813,400 133,157,700
Deficit accumulated during the development stage (110,708,300) (104,929,800)
Foreign currency translation adjustment 78,300 349,500
---------------- ----------------
Total stockholders' equity 40,411,300 28,787,900
---------------- ----------------
Total liabilities and stockholders' equity $ 51,212,900 $ 61,880,300
================ ================
</TABLE>
-3-
<PAGE>
U.S. BIOSCIENCE, INC.
( A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- ------------
1996 1995 1996 1995
---- ---- ---- ----
<S>
Revenues:
Net sales $ 1,785,100 $ 2,271,500 $ 8,430,300 $ 6,631,800
Net investment income 538,600 256,600 1,801,900 926,400
Licensing, royalty and other income 4,331,500 89,300 5,094,100 1,313,200
-------------- -------------- -------------- --------------
6,655,200 2,617,400 15,326,300 8,871,400
Expenses:
Cost of sales 563,000 885,000 2,259,000 2,075,900
Selling, general and administrative costs 2,015,800 4,662,100 8,968,000 10,548,600
Research and development costs 3,569,200 2,904,500 9,387,100 8,670,700
Provision for litigation - - - -
Interest expense 61,300 53,300 490,700 93,600
-------------- -------------- -------------- -------------
6,209,300 8,504,900 21,104,800 21,388,800
-------------- -------------- -------------- -------------
Net income (loss) $ 445,900 $ (5,887,500) $ (5,778,500) $ (12,517,400)
============== ============== ============== =============
Net income (loss) per common outstanding share $ 0.02 $ (0.29) $ (0.26) $ (0.61)
============== ============== ============= =============
Weighted average number of common shares outstanding 22,781,900 20,430,100 22,251,400 20,401,400
============== ============== ============= =============
PERIOD MAY 7, 1987
(INCEPTION)
THROUGH
SEPTMEBER 30, 1996
------------------
<S> <C>
Revenues:
Net sales $ 33,583,500
Net investment income 26,851,900
Licensing, royalty and other income 30,833,400
-------------
91,268,800
Expenses:
Cost of sales 8,785,400
Selling, general and administrative costs 86,618,000
Research and development costs 94,550,200
Provision for litigation 10,165,000
Interest expense 1,858,500
-------------
201,977,100
-------------
Net income (loss) $ (110,708,300)
=============
</TABLE>
<PAGE>
U.S. BIOSCIENCE, INC.
( A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
1996 1995
----------- ------------
<S> <C> <C>
Change in Cash and Cash Equivalents
Cash flows provided by (used in) operating activities:
Net loss $ (5,778,500) $ (12,517,400)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 854,000 875,900
Compensation element of stock option grants -- --
Loss (gain) on investments (4,600) --
Amortization of debenture interest 154,300 --
Change in accounts receivable 299,700 (100,900)
Change in interest receivable (72,800) 51,500
Change in inventories (844,400) (97,900)
Change in other current assets 824,000 (435,600)
Change in current liabilities (5,406,300) 1,145,900
Provision for litigation -- (59,500)
Change in other long-term liabilities 253,300 97,100
----------- ------------
Total adjustments (3,942,800) 1,476,500
----------- ------------
Net cash provided by (used in) operating activities (9,721,300) (11,040,900)
Cash flows provided by (used in) investing activities:
Proceeds from investments matured and sold 36,314,500 12,754,200
Purchase of investments (33,337,200) (4,508,200)
Purchase of property, plant and equipment (1,002,800) (624,800)
----------- ------------
Net cash provided by (used in) investing activities 1,974,500 7,621,200
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock and private placement of securities 191,900 --
Proceeds from exercise of stock options 826,900 188,700
Proceeds from loan -- 2,841,700
Proceeds from line of credit -- --
Repayment of long-term debt (518,700) --
----------- ------------
Net cash provided by (used in) financing activities 500,100 3,030,400
Foreign currency translation adjustment (27,800) (476,800)
----------- ------------
Net (decrease) increase in cash and cash equivalents (7,274,500) (866,100)
Cash and cash equivalents-beginning of period 41,618,800 11,681,900
----------- ------------
Cash and cash equivalents-end of period $ 34,344,300 $ 10,815,800
Supplemental cash flow disclosure: =========== ============
Interest paid to affiliate -- --
<CAPTION>
PERIOD MAY 7, 1987
(INCEPTION)
THROUGH
SEPTEMBER 30, 1996
------------------
<S> <C>
Change in Cash and Cash Equivalents
Cash flows provided by (used in) operating activities:
Net loss $ (110,708,300)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 4,852,200
Compensation element of stock option grants 5,303,400
Loss (gain) on investments 134,800
Amortization of debenture interest 198,700
Change in accounts receivable (502,600)
Change in interest receivable (132,800)
Change in inventories (3,019,700)
Change in other current assets (6,061,100)
Change in current liabilities 6,058,000
Provision for litigation 10,000,000
Change in other long-term liabilities 1,289,000
------------------
Total adjustments 18,119,900
------------------
Net cash provided by (used in) operating activities (92,588,400)
Cash flows provided by (used in) investing activities:
Proceeds from investments matured and sold 3,150,718,600
Purchase of investments (3,151,853,200)
Purchase of property, plant and equipment (10,837,000)
------------------
Net cash provided by (used in) investing activities (11,971,600)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock and private placement of securities 128,496,200
Proceeds from exercise of stock options 7,043,100
Proceeds from loan 3,219,100
Proceeds from line of credit 676,000
Repayment of long-term debt (733,400)
------------------
Net cash provided by (used in) financing activities 138,701,000
Foreign currency translation adjustment 203,300
------------------
Net (decrease) increase in cash and cash equivalents 34,344,300
Cash and cash equivalents-beginning of period --
------------------
Cash and cash equivalents-end of period $ 34,344,300
==================
Supplemental cash flow disclosure:
Interest paid to affiliate $ 1,005,800
</TABLE>
See accompanying notes.
-5-
<PAGE>
U.S. BIOSCIENCE, INC.
( A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD MAY 7, 1987 (INCEPTION) THROUGH SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK CLASS B STOCK
NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Issuance of shares for initial cash contribution
of capital ($.005 per share of common stock
and $.005 per share of Class B stock) 9,000,000 $ 45,000 500,000 $ 5,000
Net loss for the period May 7, 1987 (inception)
through December 31, 1987 -- -- -- --
----------- -------- -------- --------
Balance at December 31, 1987 9,000,000 45,000 500,000 5,000
Net loss for the year ended December 31, 1988 -- -- -- --
----------- -------- -------- --------
Balance at December 31, 1988 9,000,000 45,000 500,000 5,000
Proceeds from exercise of stock options 2,500 -- -- --
Compensation related to stock options -- -- -- --
Issuance of shares ($6.00 per share, less costs) 2,500,000 12,500 -- --
Conversion of class B stock to common stock 1,000,000 5,000 (500,000) (5,000)
Net loss for the year ended December 31, 1989 -- -- -- --
----------- -------- -------- --------
Balance at December 31, 1989 12,502,500 62,500 -- --
Proceeds from exercise of stock options 285,800 1,400 -- --
Compensation related to stock options -- -- -- --
Issuance of shares ($9.00 per share, less costs) 4,025,000 20,200 -- --
Net loss for the year ended December 31, 1990 -- -- -- --
----------- -------- -------- --------
Balance at December 31, 1990 16,813,300 84,100 -- --
Proceeds from exercise of stock options 500,700 2,500 -- --
Compensation related to stock options -- -- -- --
Issuance of shares ($28.50 per share, less costs) 2,300,000 11,500 -- --
Issuance of shares for a 2 for 1 stock dividend 19,614,000 98,000 -- --
Net loss for the year ended December 31, 1991 -- -- -- --
----------- -------- -------- --------
Balance at December 31, 1991 39,228,000 196,100 -- --
Proceeds from exercise of stock options 264,400 1,400 -- --
Compensation related to stock options -- -- -- --
Net loss for the year ended December 31, 1992 -- -- -- --
----------- -------- -------- --------
Balance at December 31, 1992 39,492,400 197,500 -- --
Proceeds from exercise of stock options 106,500 500 -- --
Compensation related to stock options -- -- -- --
Net loss for the year ended December 31, 1993 -- -- -- --
Foreign currency translation adjustment -- -- -- --
----------- -------- -------- --------
Balance at December 31, 1993 39,598,900 198,000 -- --
Proceeds from exercise of stock options 75,300 400 -- --
Class Action Settlement 1,096,600 5,500 -- --
Compensation related to stock options -- -- -- --
Net loss for the year ended December 31, 1994 -- -- -- --
Foreign currency translation adjustment -- -- -- --
----------- -------- -------- --------
Balance at December 31, 1994 40,770,800 203,900 -- --
Proceeds from exercise of stock options 202,900 1,000 -- --
Class Action Settlement -- -- -- --
Proceeds from private placement of securities 1,120,100 5,600 -- --
Net loss for the year ended December 31, 1995 -- -- -- --
Foreign currency translation adjustment -- -- -- --
----------- -------- -------- --------
Balance at December 31, 1995 42,090,800 210,500 -- --
Proceeds from exercise of stock options 265,900 1,600 -- --
Conversion of warrants 200 -- -- --
Conversion of debentures 2,655,000 15,800 -- --
Net loss for the nine months ended September 30, 1996 -- -- -- --
Foreign currency translation adjustment -- -- -- --
Conversion of shares to reflect the 1 for 2 reverse
stock split effective April 22, 1996 (22,221,600) -- -- --
----------- -------- -------- --------
Balance at September 30, 1996 22,793,300 $ 227,900 -- $ --
=========== ======== ======== ========
<CAPTION>
TOTAL
ADDITIONAL ACCUM- STOCK-
PAID-IN ULATED OTHER HOLDERS'
CAPITAL DEFICIT EQUITY EQUITY
---------- --------- -------- ---------
<S> <C> <C> <C> <C>
Issuance of shares for initial cash contribution
of capital ($.005 per share of common stock
and $.005 per share of Class B stock) $ 1,000,000 $ -- $ -- $ 1,050,000
Net loss for the period May 7, 1987 (inception)
through December 31, 1987 -- (1,030,500) -- (1,030,500)
------------- ------------ -------- ------------
Balance at December 31, 1987 1,000,000 (1,030,500) -- 19,500
Net loss for the year ended December 31, 1988 -- (1,556,800) -- (1,556,800)
------------- ------------ -------- ------------
Balance at December 31, 1988 1,000,000 (2,587,300) -- (1,537,300)
Proceeds from exercise of stock options 400 -- -- 400
Compensation related to stock options 305,900 -- -- 305,900
Issuance of shares ($6.00 per share, less costs) 14,061,400 -- -- 14,073,900
Conversion of class B stock to common stock -- -- -- --
Net loss for the year ended December 31, 1989 -- (5,743,300) -- (5,743,300)
------------- ------------ -------- ------------
Balance at December 31, 1989 15,367,700 (8,330,600) -- 7,099,600
Proceeds from exercise of stock options 143,500 -- -- 144,900
Compensation related to stock options 269,000 -- -- 269,000
Issuance of shares ($9.00 per share, less costs) 33,009,700 -- -- 33,029,900
Net loss for the year ended December 31, 1990 -- (4,924,900) -- (4,924,900)
------------- ------------ -------- ------------
Balance at December 31, 1990 48,789,900 (13,255,500) -- 35,618,500
Proceeds from exercise of stock options 3,349,600 -- -- 3,352,100
Compensation related to stock options 1,038,900 -- -- 1,038,900
Issuance of shares ($28.50 per share, less costs) 61,444,300 -- -- 61,455,800
Issuance of shares for a 2 for 1 stock dividend (98,000) -- -- --
Net loss for the year ended December 31, 1991 -- (6,540,100) -- (6,540,100)
------------- ------------ -------- ------------
Balance at December 31, 1991 114,524,700 (19,795,600) -- 94,925,200
Proceeds from exercise of stock options 1,336,400 -- -- 1,337,800
Compensation related to stock options 1,452,400 -- -- 1,452,400
Net loss for the year ended December 31, 1992 -- (20,225,800) -- (20,225,800)
------------- ------------ -------- ------------
Balance at December 31, 1992 117,313,500 (40,021,400) -- 77,489,600
Proceeds from exercise of stock options 614,300 -- -- 614,800
Compensation related to stock options 906,900 -- -- 906,900
Net loss for the year ended December 31, 1993 -- (40,629,600) -- (40,629,600)
Foreign currency translation adjustment -- -- (291,800) (291,800)
------------- ------------ -------- ------------
Balance at December 31, 1993 118,834,700 (80,651,000) (291,800) 38,089,900
Proceeds from exercise of stock options 404,900 -- -- 405,300
Class Action Settlement 7,753,200 -- -- 7,758,700
Compensation related to stock options 1,330,300 -- -- 1,330,300
Net loss for the year ended December 31, 1994 -- (24,041,000) -- (24,041,000)
Foreign currency translation adjustment -- -- 395,700 395,700
------------- ------------ -------- ------------
Balance at December 31, 1994 128,323,100 (104,692,000) 103,900 23,938,900
Proceeds from exercise of stock options 359,900 -- -- 360,900
Class Action Settlement 2,241,200 -- -- 2,241,200
Proceeds from private placement of securities 2,233,500 -- -- 2,239,100
Net loss for the year ended December 31, 1995 -- (237,800) -- (237,800)
Foreign currency translation adjustment -- -- 245,600 245,600
------------- ------------ -------- ------------
Balance at December 31, 1995 133,157,700 (104,929,800) 349,500 28,787,900
Proceeds from exercise of stock options 825,300 -- -- 826,900
Conversion of warrants 4,500 -- -- 4,500
Conversion of debentures 16,825,900 -- -- 16,841,700
Net loss for the nine months ended September 30, 1996 (5,778,500) -- (5,778,500)
Foreign currency translation adjustment -- -- (271,200) (271,200)
Conversion of shares to reflect the 1 for 2 reverse
stock split effective April 22, 1996 -- -- -- --
------------- ------------ -------- ------------
Balance at September 30, 1996 $ 150,813,400 $(110,708,300) $ 78,300 $ 40,411,300
============= ============ ======== ============
</TABLE>
See accompanying notes.
- 6 -
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
The company is a pharmaceutical company specializing in the development and
commercialization of products for patients with cancer and allied diseases. For
accounting purposes, the company is considered a "development stage enterprise."
Through September 30, 1996, the company's revenues have been derived principally
from product sales of Hexalen(R), NeuTrexin(R) and Ethyol(R), licensing fees for
rights to develop and market certain products principally in the United States,
and investment income. Expenses incurred have been primarily for the
development of its drugs and related therapies, marketing and sales activities,
and corporate organizational and administrative activities.
2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited information -- The financial information for the three and nine
month periods ended September 30, 1996 and 1995, and the period from May 7, 1987
(inception) through September 30, 1996 included herein is unaudited. The
accompanying consolidated financial statements have been prepared in accordance
with generally accepted accounting principles applicable to interim periods.
Such information includes all adjustments, consisting of adjustments of a normal
and recurring nature, which, in the opinion of the company, are necessary for a
fair presentation of the company's consolidated financial position and the
results of its operations and cash flows.
Principles of Consolidation -- The consolidated financial statements
include the accounts of U.S. Bioscience, Inc. and its wholly owned subsidiaries,
USB Pharma B.V., and USB Pharma Ltd. All significant intercompany accounts and
transactions are eliminated in consolidation.
Inventories -- Inventories are stated at the lower of cost (first in, first
out) or fair value.
Inventories consist of:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Raw Materials $ 902,100 $ 813,300
Work-in-progress 1,575,600 893,000
Finished Goods 483,300 458,800
---------- ----------
Total $2,961,000 $2,165,100
========== ==========
</TABLE>
Property, Plant and Equipment -- Buildings, furniture, equipment and
leasehold improvements are stated at cost less accumulated depreciation and
amortization. Buildings, furniture and equipment are depreciated by the
straight-line method over their useful lives. Leasehold improvements are
depreciated by the straight-line method over the shorter of their useful lives
or the life of the lease. All assets are depreciated under accelerated methods
for federal income tax purposes.
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---------------- --------------
<S> <C> <C>
Land, buildings, and leasehold improvements $ 1,961,000 $ 2,106,500
Equipment, furniture and fixtures 8,941,300 8,173,500
Accumulated depreciation (4,719,400) (3,945,700)
---------------- --------------
Property, plant and equipment, net $ 6,182,900 $ 6,334,300
================ ==============
</TABLE>
-7-
<PAGE>
Reverse Stock Split -- On April 22, 1996 the stockholders of the company,
at the annual meeting of stockholders, approved an amendment to the company's
Certificate of Incorporation pursuant to which the number of authorized shares
of common stock was reduced from 100,000,000 shares to 50,000,000 shares, and
the par value of a share of common stock was increased from $.005 per share to
$.01 per share. In connection with that amendment, there was a 1-for-2 reverse
split of the common stock, thereby reducing the number of outstanding shares of
common stock by 50%. All "share" and "per share" amounts reflected in this
report on Form 10-Q have been adjusted to reflect the 1-for-2 reverse stock
split.
Long-Term Debt -- Long-term debt consists of:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------------- -------------
<S> <C> <C>
MELF Equipment Loan $ 270,600 $ 323,600
Mortgage Loan 607,300 685,300
Term Loan 1,850,000 2,300,000
Convertible Debentures 0 16,500,000
Capital Lease Obligations 21,500 0
-------------- -------------
2,749,400 19,808,900
Less Current Portion 719,300 721,300
-------------- -------------
Long-Term Debt $2,030,100 $19,087,600
============== =============
</TABLE>
During the first half of 1996, the investors who purchased the unsecured
convertible debentures in the company's December 1995 private placement,
converted the entire $16,500,000 of principal and accrued interest into
1,577,366 shares of the company's Common Stock.
Additionally, all information should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Financial Statements and Notes to Financial Statements
included in the company's Annual Report on Form 10-K for the year ended
December 31, 1995 and in the company's quarterly reports on Form 10-Q for the
interim periods ended March 31, 1996 and June 30, 1996. Operating results for
the three and nine month interim periods ended September 30, 1996 are not
necessarily indicative of the results that may be obtained for any other interim
period or the entire year.
-8-
<PAGE>
U.S. BIOSCIENCE, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
This report on Form 10-Q contains forward-looking statements concerning the
business and financial conditions of the company, which are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those anticipated in any forward-looking statements. Factors that could
cause such differences include, but are not limited to, the success of the
company and its collaborative partners in marketing, manufacturing and selling
company's products, the availability of adequate funds for the company's
operations, the success of the company in obtaining timely regulatory approvals
to market its potential products in the United States and other major markets,
the success of the company in obtaining rights to new compounds for commercial
development, policies relating to product pricing and reimbursement levels in
the markets where the company's products are or may be commercialized,
technological change and competition, the incidence of diseases for which the
company's products are indicated, the product liability risks associated with
being the manufacturer or seller of pharmaceutical products, and the company's
reliance on its key personnel and collaborative partners.
Operations for the nine months ended September 30, 1996, consisted
primarily of activities relating to the launch of Ethyol(R) in the United States
with co-promotion partner ALZA Corporation ("ALZA"), the marketing of Hexalen(R)
and NeuTrexin(R) in the United States, regulatory filings for Ethyol(R) in the
United States, Canada and Europe, continuing clinical trials of Ethyol and
NeuTrexin and product development of Ethyol, Neutrexin, AZQ and FddA, and
business development in the United States, Europe and Japan.
The company received United Stated Food and Drug Administration ("FDA")
approval of it's New Drug Application ("NDA") for Ethyol in December 1995 for
use in Ovarian Cancer and an accelerated approval for use in Lung Cancer in
March, 1996 and the company began co-promotion of the product with co-promotion
partner ALZA in April 1996 concurrent with the commercial availability of Ethyol
in the U.S. market.
The company has also received regulatory approval for Ethyol in several
European countries, and received approval to expand the labelled indication in
July 1996. The company's marketing partner for European territories, Scherico
Ltd. ("Scherico"), an affiliate of Schering-Plough Corporation, has launched
Ethyol in Germany, the United Kingdom, France, Austria, Belgium, Portugal,
Sweden, Switzerland and The Netherlands, and plans to begin sales in other
European countries when regulatory approvals and, if necessary, local pricing
and reimbursement approvals, are received. Ethyol was approved by Canadian
regulatory authorities in late April 1996, where Eli Lilly has marketing rights
to the product, and launched Ethyol during the third quarter of 1996.
The company believes that its expenditures for research and development,
marketing and administration, capital equipment and facilities will continue to
exceed revenues as a result of (i) further clinical trials and the pursuit of
regulatory approvals for Ethyol and NeuTrexin, (ii) the marketing of Hexalen,
NeuTrexin and Ethyol, (iii) expansion of clinical and preclinical testing of
drug compounds, including expanded indications for existing drugs and (iv)
development and enhancement of manufacturing and analytical capabilities.
-9-
<PAGE>
Results of Operations
Three months ended September 30, 1996
Product sales declined 21% to $1,785,100 in the three months ended
September 30, 1996 as compared to $2,271,500 in the prior year period,
principally resulting from reduced sales of Hexalen and Neutrexin. The company
believes that the reduction in sales resulted primarily from the promotional
emphasis placed on Ethyol, the company's cytoprotective product, which was
launched in the United States with co-promotion partner ALZA in April 1996. In
addition, the company believes that during 1996, the launch of competitive
products may have had a negative impact on sales of Hexalen. The company
further believes that sales of Neutrexin have been adversely affected by a
decline in the incidence of Pneumocystis carinii pneumonia ("PCP") due to
improvements in treatment for human immunodeficiency virus (HIV) and
prophylactic treatment for patients at risk for PCP.
Net investment income increased to $538,600 in the third quarter of 1996
as compared to $256,600 in the corresponding 1995 period due to increased
interest income resulting from the increased portfolio balance. The increased
portfolio balance reflects the initial distribution fees received from ALZA as
part of the U.S. co-promotion agreement for Ethyol and funds the company raised
in a private placement completed in December 1995.
Licensing, royalty and other income increased to $4,331,500 in the three
months period ended September 30, 1996 from $89,300 in the prior year period, as
a result of a $4.2 million accrual reflecting the amount due from Scherico under
the amendment to the company's 1993 European distribution agreement for Ethyol
(the "Scherico Amendment"). In addition, as part of a separate agreement,
another Schering-Plough affiliate paid the company a $200,000 milestone payment
related to the regulatory approval of Ethyol in Australia which was received
during the third quarter.
Cost of sales, which consists of product manufacturing, testing, delivery
and royalty expenses, decreased due to the decline in sales. As a percentage of
sales, cost of sales in the three month period decreased to 31% of net sales as
compared to 39% of net sales in the prior year period due principally to
additional Ethyol sales revenue that was recorded as a result of the Scherico
Amendment.
Selling, general and administrative costs for the third quarter of 1996
decreased to $2,015,800 from $4,662,100 in the corresponding 1995 period. The
decrease is principally due to the reversal of $892,000 in accrued 1996
European losses as a result of the Scherico Amendment. Additionally, the third
quarter 1995 amount included a charge of $2.3 million for European losses
generated under the original Scherico agreement. Excluding these two items,
selling, general and administrative costs increased over the prior year period
by $586,500 due to higher personnel costs of $451,200 and increased Hexalen and
NeuTrexin marketing expenditures of $264,800.
Research and development costs increased to $3,569,200 in the third
quarter of 1996 as compared to $2,904,500 in the prior year period. The
$664,700 increase is principally attributable to increased personnel costs of
$367,800 and increased clinical grant expenses of $243,000 relating to the
company's Phase III clinical trial programs which are designed to support
applications for expansion of the therapeutic indications for Ethyol in
radiation protection and other chemotherapy regimes and for NeuTrexin in
colorectal cancer.
Net income for the three months ended September 30, 1996 was $445,900 or
$0.02 earnings per common share outstanding as compared to a net loss of
$5,887,500 or $0.29 loss per common share outstanding in the 1995 period.
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<PAGE>
Nine months ended September 30, 1996
Product sales increased 27% to $8,430,300 in the nine months ended
September 30, 1996 as compared to $6,631,800 in the prior year period. The
$1,798,500 increase is principally due to initial sales of Ethyol to ALZA in the
first half of 1996 in preparation for the launch of Ethyol in the United States
in April of this year. Sales of the company's other two products, Hexalen and
NeuTrexin, declined from the prior year period. The company believes that this
decline is principally due to the promotional emphasis placed on the Ethyol
launch in 1996. In addition, the company believes that during 1996, the launch
of competitive products may have had a negative impact on sales of Hexalen. The
company further believes that sales of Neutrexin have been adversely affected by
a decline in the incidence of Pneumocystis carinii pneumonia ("PCP") due to
improvements in treatments for human immunodeficiency virus (HIV) and
prophylactic treatment for patients at risk for PCP.
Net investment income increased to $1,801,900 for the first nine months of
1996 as compared to $926,400 in the corresponding 1995 period due to increased
interest income resulting from the increased portfolio balance. The higher
balance reflects the initial distribution fees received from ALZA as part of the
U.S. co-promotion agreement for Ethyol and funds the company raised in a
December 1995 private placement.
Licensing, royalty and other income increased to $5,094,100 in the nine
month period ended September 30, 1996 from $1,313,200 in the prior year period,
as a result of a $4.2 million accrual reflecting the amount due to the company
under the Scherico Amendment.
Cost of sales, as a percentage of sales, decreased to 27% of net sales in
the nine month period as compared to 31% of net sales in the prior year period
due principally to the initial sales of Ethyol to ALZA in the first half of
1996.
Selling, general and administrative costs for the first nine months of 1996
decreased to $8,968,000 from $10,548,600 in the corresponding 1995 period. The
decrease is principally due to the inclusion in the 1995 period of a charge of
$2.3 million for European losses generated under the original Scherico
agreement. Excluding this item, selling, general and administrative costs
increased over the prior year period by $760,500 primarily the result of higher
personnel costs of $512,200, increased corporate expenses of $313,200 and higher
Hexalen and NeuTrexin marketing expenditures of $224,827.
Research and development costs increased to $9,387,100 in the nine month
period ended September 30, 1996 as compared to $8,670,700 in the prior year
period. The $716,400 increase is principally attributable to increased
personnel costs of $594,000, higher travel costs of $149,500 and increased
clinical grant expenses of $215,000 relating to the company's Phase III clinical
trial programs for Ethyol and NeuTrexin.
The net loss for the first nine months of 1996 was $5,778,500 or $0.26 per
common share outstanding as compared to a net loss of $12,517,400 or $0.61 per
common share outstanding in the 1995 period.
Liquidity and Capital Resources
Since its inception in 1987, the company has financed operations
principally through the sale of equity capital, issuance of unsecured and
secured debt, investment income, sales of its drug products, Hexalen, NeuTrexin
and Ethyol, and revenues received through distribution and sublicense
agreements. As of September 30, 1996, the company's cash and investments
totaled $35,348,900. The company's investment portfolio consists of securities
issued by the U.S. Government or its agencies and investment grade corporate
debt instruments.
During the first nine months of 1996, net cash used by operations amounted
to $9,721,300 principally due to the net effect of the factors discussed above
under "Results of Operations" and the $4.2 million accrual for the amount due
under the Scherico Amendment which was paid to the company in early October
1996. Until such time
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<PAGE>
as the company receives significantly increased revenues, the company's cash
position will continue to be reduced due principally to expenditures in
research, clinical development, product development, marketing, and selling and
administrative activities. Failure to achieve significant sales from the
company's currently approved products and to obtain additional regulatory
approvals on products currently in development will have a material adverse
effect on the company. The level of future product sales will depend on several
factors, including product acceptance, market penetration, competitive products,
the incidence of diseases for which the company's products are indicated, the
performance of the company's licensees and distributors, and the health care and
reimbursement system existing in each market where the company's products are or
may become commercially available.
The company's net capital expenditures were $1,002,800 in the first nine
months of 1996 and total $10,837,000 since inception. In April 1993, the
company purchased a sterile products production facility in The Netherlands.
Validation work and pilot production on this new facility were completed in
1995. The facility received regulatory approval for product manufacture and
distribution from the Dutch regulatory authority in June 1994 to manufacture the
company's products for distribution in the European Community, and the facility
was approved by the FDA to manufacture NeuTrexin for the U.S. market in May
1995. The manufacturing facilities of the company and its third party suppliers
used to produce its products are required to continually comply with all
applicable FDA requirements and those of regulatory authorities in other
countries including Good Manufacturing Practices, and are subject to inspection
by governmental agencies to determine compliance with those requirements. There
can be no assurance that the manufacturing facilities for the company's products
will comply with applicable requirements. A mortgage loan of approximately
$680,000 relating to the company's facility in The Netherlands was obtained in
May 1994. The purchase price for this facility was $2,250,000 and $2,980,600 in
capital improvements have been made since its purchase to make the facility
operational and expand its production capacity. Further capital expenditures,
estimated at $200,000, are planned during the remainder of 1996.
The funds raised in the December 1995 private placement ($19 million, net)
and the initial distribution fees from ALZA provided the company with
approximately $39 million in working capital, which the company believes will
remain sufficient to cover operating expenses at current levels for the
foreseeable future. The company is hopeful that its products will, in the near
future, generate sufficient sales to provide meaningful cash resources, although
no assurance can be given that they will do so. The company is also hopeful
that it will in the future receive further regulatory approvals and that such
approvals will increase sales. However, no assurance can be given that further
regulatory approvals will be obtained in a timely manner, if ever, or that
product sales will be sufficient to cover operating expenses or that the company
will have adequate financial resources to commercialize its products. Although
the company will from time to time explore additional sources of financing,
there can be no assurance that the company will be successful in obtaining such
financing on terms acceptable to the company.
The company's future liquidity and capital requirements are dependent upon
several factors, including, but not limited to, its success in generating
significant revenues from sales; the performance of its sublicensees and
distributors under sublicense and distribution arrangements for sales of its
products; the time and cost required to manufacture and market its products; the
time and cost required for clinical development of products to obtain regulatory
approvals, including expanded labelling for its products which are already
commercially available; obtaining the rights to additional commercially viable
compounds; competitive technological developments; additional government-imposed
regulation and control; and changes in health care systems which affect
reimbursement, pricing or availability of drugs and market acceptance of drugs.
The above factors may also affect realization of certain assets currently
held by the company, principally investments in plant, equipment and inventory.
In 1995, Scherico, the company's European distributor for Ethyol, launched
Ethyol in several European markets where regulatory approvals had been received.
Under the terms of its original agreement with Scherico, the company was to
share in operating profits/losses generated from marketing and sales of Ethyol
in Germany, the United Kingdom, Spain, Italy and France for a period of up to
two years from November 23, 1994. The company
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<PAGE>
paid its share of the 1995 operating losses ($4.2 million) in April 1996 and had
accrued $892,000 during the first six months of 1996, for its estimated share of
operating losses through the period. In September 1996, the Scherico Amendment
was executed pursuant to which retroactive to January 1, 1996, Scherico began to
purchase Ethyol from the company at a price based on a percentage of net sales
and the company no longer shared in operating profits/losses previously shared
by the parties. In addition, as noted above, Scherico paid the company $4.2
million under the Amendment during October 1996.
In April of 1996, ALZA and the company launched Ethyol in the United
States. ALZA has exclusive rights to market the product in the United States for
five years and will be responsible for sales and marketing. The company's U.S.
sales force will co-promote the product with ALZA during this period. After the
initial five-year period, ALZA has an option to extend its exclusive rights for
one year. At the end of ALZA's exclusive period, all U.S. marketing rights to
Ethyol will revert to the company, and ALZA will receive payments from the
company for ten years based on net sales of the product. ALZA paid the company
an up-front payment and initial distribution fee totaling $20 million and the
agreement provides for $15 million in additional distribution fees during the
next few years based on the achievement of certain milestones related to the
company's clinical development of Ethyol.
As the company sells Ethyol to its partners, Scherico and ALZA, in
quantities, which may or may not correspond to the product's resale to the
pharmaceutical trade, the company's sales may fluctuate from period to period
dependent upon the timing of its partners' sales and delivery requirements as
well as the levels of inventory they stock and maintain. Sales of Ethyol are
also affected by the same factors noted elsewhere in this section on liquidity
and capital resources. The company is hopeful that the commercialization of
Ethyol in the United States and Europe will be successful. However, no
assurances can be given that the company will achieve meaningful revenues under
its agreements with ALZA and Scherico.
The company has been unprofitable since its inception and expects to incur
additional operating losses until such time as substantial sales are realized
and further regulatory approvals are obtained, although the distribution fees
from ALZA Corporation did bring the company close to a break-even position for
calendar 1995 and the Company reported net earnings this quarter as a result of
non-recurring items relating to the Scherico Amendment noted herein. As the
company continues its commercialization, research and development activities,
such losses are expected to continue and may fluctuate from period to period.
There can be no assurance that the company will achieve significant revenues or
profitable operations. For the period from May 7, 1987 (inception) through
September 30, 1996, the company had an accumulated deficit of $110,708,300.
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<PAGE>
PART II - Other Information
Item 1. Legal Proceedings.
Not applicable
Item 2. Changes in Securities.
On April 22, 1996 the stockholders of the company, at the annual meeting of
stockholders, approved an amendment to the Company's Certificate of
Incorporation pursuant to which the number of authorized shares of common stock
was reduced from 100,000,000 shares to 50,000,000 shares, and the par value of a
share of common stock was increased from $.005 per share to $.01 per share. In
connection with that amendment, there was a 1-for-2 reverse split of the common
stock, thereby reducing the number of outstanding shares of common stock by 50%.
All "share" and "per share" amounts reflected in this report on Form 10-Q have
been adjusted to reflect the 1-for-2 reverse stock split.
Each stock certificate representing outstanding shares of common stock of
the company also represents the same number of Rights (to purchase, under
certain circumstances, shares of Series A Junior Preferred Stock of the Company)
as the number of shares of common stock represented by such stock certificate.
Pursuant to the terms of the Rights Agreement governing the Rights, the effect
of the 1-for-2 reverse split of the Company's common stock was to increase the
number of shares of Series A Junior Preferred Stock of the Company purchasable
upon exercise of a Right, should it become exercisable, from one one-hundredth
(1/100) of a share of Series A Junior Preferred Stock to two one-hundredths
(2/100) of a share of Series A Junior Preferred Stock, and to increase the
exercise price of a Right from $15 to $30.
There are currently outstanding Warrants to purchase shares of common stock
of the Company. As a consequence of the 1-for-2 reverse split of the Company's
common stock, pursuant to the terms of the Warrant Agreement between the Company
and Chemical Mellon Shareholder Services, L.L.C., the warrant agent, dated as of
June 6, 1994, the Warrant exercise price and the number of Warrant shares
exercisable upon exercise of a Warrant certificate were automatically
proportionally adjusted to double the exercise price to purchase one share of
common stock from $9.20 per share to $18.40 per share, and to reduce the number
of shares purchasable upon exercise of a Warrant by one-half.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
10.20 Non-Executive Stock Option Plan,
as amended and restated
10.31 U.S. Bioscience, Inc. 1992
Stock Option Plan, as amended and restated
27 Financial Data Schedule
b. The company filed the following report on Form 8-K during the
quarter ended September 30, 1996:
Date of Report Items Covered
-------------- -------------
September 26, 1996 5
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<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
U.S. BIOSCIENCE, INC.
Date: November 13, 1996 By: /s/ Robert I. Kriebel
----------------------------------
Robert I. Kriebel
Executive Vice President and
Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE NO.
------- --------
10.20 Non-Executive Stock Option Plan, 18
as amended and restated
10.31 U.S. Bioscience, Inc. 1992 35
Stock Option Plan as amended and
restated
27 Financial Data Schedule 60
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<PAGE>
EXHIBIT 10.20
Adopted 5/26/94
Amended 2/20/96
Restated as of 9/26/96
(reflecting post-split numbers
resulting from reverse stock
split approved 4/22/96)
U.S. Bioscience, Inc.
NON-EXECUTIVE STOCK OPTION PLAN
-------------------------------
1. Purpose. U.S. Bioscience, Inc. (the "Company") hereby adopts the
-------
U.S. Bioscience, Inc. Non-Executive Stock Option Plan (the "Plan"). The Plan is
intended to recognize the contributions made to the Company by employees of the
Company or any Affiliate (as defined below) (including employees who are members
of the Board of Directors of any Affiliate but who are not directors or
Executive Officers (as hereinafter defined) of the Company), and certain
consultants or advisors to the Company or an Affiliate, to provide such persons
with additional incentive to devote themselves to the future success of the
Company or an Affiliate, and to improve the ability of the Company or an
Affiliate to attract, retain, and motivate individuals upon whom the Company's
sustained growth and financial success depend, by providing such persons with an
opportunity to acquire or increase their proprietary interest in the Company
through receipt of rights to acquire the Company's Common Stock, par value $.01
per Share (the "Common Stock"). Options granted pursuant to the Plan shall not
be options intended to qualify as "incentive stock options" within the meaning
of Section 422 of the Code (as hereinafter defined).
18
<PAGE>
Options granted pursuant to the Plan may not be granted to Executive Officers or
non-employee members of the Company's Board of Directors. Notwithstanding the
foregoing, an option may be granted hereunder for consulting services to a
consultant who is also a member of the Company's Board of Directors.
2. Definitions. Unless the context clearly indicates otherwise, the
-----------
following terms shall have the following meanings:
(a) "Affiliate" means a corporation which is a parent corporation
or a subsidiary corporation with respect to the Company within the meaning of
Section 424(e) or (f) of the Code.
(b) "Board of Directors" or "Board" means the Board of Directors
of the Company.
(c) "Change of Control" shall have the meaning as set forth in
Section 10 of the Plan.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall have the meaning set forth in Section 3 of
the Plan.
(f) "Company" means U.S. Bioscience, Inc. a Delaware corporation.
(g) "Disability" shall have the meaning set forth in Section
22(e)(3) of the Code.
(h) "Executive Officers" means persons who are "officers" within
the meaning of Rule 16a-1(f) promulgated under
19
<PAGE>
the Securities Exchange Act of 1934, as amended, or any successor rule.
(i) "Fair Market Value" shall have the meaning set forth in
Subsection 8(b) of the Plan.
(j) "Non-qualified Stock Option" means an Option granted under the
Plan which is not intended to qualify, or otherwise does not qualify, as an
"incentive stock option" within the meaning of Section 422(b) of the Code.
(k) "Option" means a Non-qualified Stock Option granted under the
Plan.
(l) "Optionee" means a person to whom an Option has been granted
under the Plan, which Option has not been exercised and has not expired or
terminated.
(m) "Option Document" means the document described in Section 8 of
the Plan, as applicable, which sets forth the terms and conditions of each grant
of Options.
(n) "Option Price" means the price at which Shares may be
purchased upon exercise of an Option, as calculated pursuant to Subsection 8(b)
of the Plan, as applicable.
(o) "Shares" means the shares of Common Stock of the Company which
are the subject of Options.
3. Administration of the Plan. The Plan shall be administered by the
--------------------------
Board of Directors of the Company; however, the Board of Directors may designate
a committee composed of two or more of its directors to operate and administer
the Plan in its stead. Any such committee designated by the Board of
20
<PAGE>
Directors, and the Board of Directors itself in its administrative capacity with
respect to the Plan, is referred to as the "Committee."
(a) Meetings. The Committee shall hold meetings at such times and
--------
places as it may determine. Acts approved at a meeting by a majority of the
members of the Committee or acts approved in writing by the unanimous consent of
the members of the Committee shall be the valid acts of the Committee.
(b) Grants. The Committee shall from time to time at its discretion
------
direct the Company to grant Options pursuant to the terms of the Plan. The
Committee shall have plenary authority to (i) determine the Optionees to whom,
the times at which, and the price at which Options shall be granted, (ii)
determine the type of Option to be granted and the number of Shares subject
thereto, and (iii) approve the form and terms and conditions of the Option
Documents; all subject, however, to the express provisions of the Plan. In
making such determinations, the Committee may take into account the nature of
the Optionee's services and responsibilities, the Optionee's present and
potential contribution to the Company's success and such other factors as it may
deem relevant. The interpretation and construction by the Committee of any
provisions of the Plan or of any Option granted under it shall be final, binding
and conclusive.
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<PAGE>
(c) Exculpation. No member of the Board of Directors shall be
------------
personally liable for monetary damages for any action taken or any failure to
take any action in connection with the administration of the Plan or the
granting of Options under the Plan, provided that this Subsection 3(c) shall not
apply to (i) any breach of such member's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law, (iii) acts or omissions that would
result in liability under Section 174 of the General Corporation Law of the
State of Delaware, as amended, and (iv) any transaction from which the member
derived an improper personal benefit.
(d) Indemnification. Service on the Committee shall constitute
---------------
service as a member of the Board of Directors of the Company. Each member of
the Committee shall be entitled without further act on his or her part to
indemnity from the Company to the fullest extent provided by applicable law and
the Company's Certificate of Incorporation and/or By-laws in connection with or
arising out of any action, suit or proceeding with respect to the administration
of the Plan or the granting of Options thereunder in which he or she may be
involved by reason of his or her being or having been a member of the Committee,
whether or not he or she continues to be such member of the Committee at the
time of the action, suit or proceeding.
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<PAGE>
(e) Limitations on Grants of Options to Consultants and Advisors.
------------------------------------------------------------
With respect to the grant of Options to consultants or advisors, bona fide
services shall be rendered by consultants or advisors and such services must not
be in connection with the offer or sale of securities in a capital-raising
transaction.
4. Grants under the Plan. Grants under the Plan must be in the form
---------------------
of a Non-qualified Stock Option.
5. Eligibility. All employees of the Company or an Affiliate (other
-----------
than Executive Officers), and consultants or advisors to the Company or an
Affiliate who satisfy the requirements set forth in Subsection 3(e), shall be
eligible to receive Options hereunder. The Committee, in its sole discretion,
shall determine whether an individual is eligible to receive Options under the
Plan.
6. Shares Subject to Plan. The aggregate maximum number of Shares
----------------------
for which Options may be granted pursuant to the Plan is One Million Two Hundred
Fifty Thousand (1,250,000), subject to adjustment as provided in Section 11 of
the Plan. The Shares shall be issued from authorized and unissued Common Stock
or Common Stock held in or hereafter acquired for the treasury of the Company.
If an Option terminates or expires without having been fully exercised for any
reason, the Shares for which the Option was not exercised may again be the
subject of one or more Options granted pursuant to the Plan.
-23-
<PAGE>
7. Term of the Plan. The Plan is effective as of May 26, 1994, the
----------------
date on which it was adopted by the Board of Directors. No Option may be
granted under the Plan after May 25, 2004.
8. Option Documents and Terms. Each Option granted under the Plan
--------------------------
shall be a Non-qualified Stock Option. Options granted pursuant to the Plan
shall be evidenced by the Option Documents in such form as the Committee shall
from time to time approve, which Option Documents shall comply with and be
subject to the following terms and conditions and such other terms and
conditions as the Committee shall from time to time require which are not
inconsistent with the terms of the Plan.
(a) Number of Option Shares. Each Option Document shall state the
-----------------------
number of Shares to which it pertains.
(b) Option Price. Each Option Document shall state the Option
------------
Price which may be less than, equal to, or greater than the Fair Market Value of
the Shares on the date the Option is granted. If the Common Stock is traded in a
public market, then the Fair Market Value per share shall be, if the Common
Stock is listed on a national securities exchange or included in the NASDAQ
National Market System, the last reported sale price thereof on the relevant
date, or, if the Common Stock is not so listed or included, the mean between the
last reported "bid" and "asked" prices thereof on the relevant date, as reported
on NASDAQ or, if not so reported, as reported by the
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<PAGE>
National Daily Quotation Bureau, Inc. or as reported in a customary financial
reporting service, as applicable and as the Committee determines.
(c) Exercise. No Option shall be deemed to have been exercised
--------
prior to the receipt by the Company of written notice of such exercise and
payment in full of the Option Price for the Shares to be purchased. Each such
notice shall specify the number of Shares to be purchased and shall (unless the
Shares are covered by a then current registration statement or a Notification
under Regulation A under the Securities Act of 1933, as amended (the "Act")),
contain the Optionee's acknowledgment in form and substance satisfactory to the
Company that (a) such Shares are being purchased for investment and not for
distribution or resale (other than a distribution or resale which, in the
opinion of counsel satisfactory to the Company, may be made without violating
the registration provisions of the Act), (b) the Optionee has been advised and
understands that (i) the Shares have not been registered under the Act and are
"restricted securities" within the meaning of Rule 144 under the Act and are
subject to restrictions on transfer and (ii) the Company is under no obligation
to register the Shares under the Act or to take any action which would make
available to the Optionee any exemption from such registration, (c) such Shares
may not be transferred without compliance with all applicable federal and state
securities laws, and (d) an appropriate legend referring to the foregoing
restrictions on transfer and any other restrictions imposed under the Option
Documents may be endorsed
-25-
<PAGE>
on the certificates. Notwithstanding the foregoing, if the Company determines
that issuance of Shares should be delayed pending (A) registration under federal
or state securities laws, (B) the receipt of an opinion of counsel acceptable to
the Company that an appropriate exemption from such registration is available,
(C) the listing or inclusion of the Shares on any securities exchange or an
automated quotation system or (D) the consent or approval of any governmental
regulatory body whose consent or approval is necessary in connection with the
issuance of such Shares, the Company may defer exercise of any Option granted
hereunder until any of the events described in this Subsection 8(c) has
occurred.
(d) Medium of Payment. An Optionee shall pay for Shares (i) in
-----------------
cash, (ii) by certified or cashier's check payable to the order of the Company,
or (iii) by such other mode of payment as the Committee may approve, including
payment through a broker in accordance with procedures permitted by Regulation T
of the Federal Reserve Board. Without limiting the foregoing, the Committee may
provide in an Option Document that payment may be made in whole or in part in
shares of the Company's Common Stock. If payment is made in whole or in part in
shares of the Company's Common Stock, then the Optionee shall deliver to the
Company certificates registered in the name of such Optionee representing the
shares owned by such Optionee, free of all liens, claims and encumbrances of
every kind and having an aggregate Fair Market
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<PAGE>
Value on the date of delivery that is at least as great as the Option Price of
the Shares (or relevant portion thereof) with respect to which such Option is to
be exercised by the payment in shares of Common Stock, accompanied by stock
powers duly endorsed in blank by the Optionee. In the event that certificates
for shares of the Company's Common Stock delivered to the Company represent a
number of shares in excess of the number of shares required to make payment for
the Option Price of the Shares (or relevant portion thereof) with respect to
which such Option is to be exercised by payment in shares of Common Stock, the
stock certificate issued to the Optionee shall represent (i) the Shares in
respect of which payment is made, and (ii) such excess number of shares.
Notwithstanding the foregoing, the Committee may impose from time to time such
limitations and prohibitions on the use of shares of the Common Stock to
exercise an Option as it deems appropriate.
(e) Termination of Options.
----------------------
(i) No Option shall be exercisable after the first to occur
of the following:
(A) Expiration of the Option term specified in the Option
Document, which shall not occur after ten years from the date of grant.
(B) Expiration of three months from the date the
Optionee's employment or service with the Company or its Affiliates terminates
for any reason other than Disability or
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<PAGE>
death or as otherwise specified in Subsection 8(e)(i)(D) or 8(e)(i)(E) below;
(C) Expiration of one year from the date such employment
or service with the Company or its Affiliates terminates due to the Optionee's
Disability or death;
(D) A finding by the Committee, after full consideration
of the facts presented on behalf of both the Company and the Optionee, that the
Optionee has breached his or her employment or service contract with the Company
or an Affiliate, or has been engaged in disloyalty to the Company or an
Affiliate, including, without limitation, fraud, embezzlement, theft, commission
of a felony or proven dishonesty in the course of his employment or service, or
has disclosed trade secrets or confidential information of the Company or an
Affiliate. In such event, in addition to immediate termination of the Option,
the Optionee shall automatically forfeit all Shares for which the Company has
not yet delivered the share certificates upon refund by the Company of the
Option Price. Notwithstanding anything herein to the contrary, the Company may
withhold delivery of share certificates pending the resolution of any inquiry
that could lead to a finding resulting in a forfeiture; or
(E) The date, if any, set by the Board of Directors as an
accelerated expiration date in the event of the liquidation or dissolution of
the Company.
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<PAGE>
With respect to Subsections 8(e)(i)(B) and (C) above, the
only Options which may be exercised during the three-month or one-year period,
as the case may be, following the date of Optionee's termination of employment
or service with the Company or its Affiliates are Options which were exercisable
on the last date of such employment or service and not Options which, if the
Optionee were still employed or rendering service during such three-month or
one-year period, would become exercisable, unless the Option Document
specifically provides to the contrary.
(ii) Notwithstanding the foregoing, the Committee may extend
the period during which all or any portion of an Option may be exercised to a
date no later than the Option term specified in the Option Document pursuant to
Subsection 8(e)(i)(A). The terms of an executive severance agreement or other
agreement between the Company and an Optionee, approved by the Committee,
whether entered into prior or subsequent to the grant of an Option, which
provide for Option exercise dates later than those set forth in Subsection
8(e)(i) but permitted by this Subsection 8(e)(ii) shall be deemed to be Option
terms approved by the Committee and consented to by the Optionee.
(f) Transfers. An Option granted under the Plan may not be
---------
transferred, except by will or by the laws of descent and distribution, except
as follows: If the terms of the Option specifically so permit, an Option may be
transferred by the
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<PAGE>
Optionee by bona fide gift, with no consideration for the transfer, to a lineal
descendent, sibling, lineal descendent of a sibling, in each case whether by
blood or adoption, a spouse or former spouse (collectively "family members"), to
a trust for the benefit of one or more family members or to a partnership in
which family members are the only partners. Notwithstanding the foregoing, an
Option may be transferred pursuant to the terms of a "qualified domestic
relations order," within the meaning of Sections 401(a)(13) and 414(p) of the
Code or within the meaning of Title I of the Employee Retirement Income Security
Act of 1974, as amended.
(g) Other Provisions. Subject to the provisions of the Plan, the
----------------
Option Documents shall contain such other provisions including, without
limitation, provisions authorizing the Committee to accelerate the
exercisability of all or any portion of an Option granted pursuant to the Plan,
additional restrictions upon the exercise of the Option or additional
limitations upon the term of the Option, as the Committee shall deem advisable.
9. Amendment of Option Documents. Subject to the provisions of the
-----------------------------
Plan, the Committee shall have the right to amend Option Documents issued to an
Optionee, subject to the Optionee's consent if such amendment is not favorable
to the Optionee, except that the consent of the Optionee shall not be
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<PAGE>
required for any amendment made under Subsection 8(e)(i)(E) or Section 10 of the
Plan, as applicable.
10. Change in Control. Notwithstanding anything to the contrary in
-----------------
any Option Document, upon a Change in Control, the exercise date of all Options
then outstanding under the Plan and held by Optionees who are then employees of
the Company or an Affiliate, or members of the Board of Directors of an
Affiliate, shall, and in the case of consultants and advisors to the Company or
an Affiliate shall (unless the exercisability of the Options held by such an
Optionee is subject to some condition other than the lapse of time (including
within the term "lapse of time" the provisions of Section 8(e) of the Plan)),
automatically accelerate to the date of the Change of Control. Any amendment of
this Section 10 which diminishes the rights of Optionees shall not be effective
with respect to Options outstanding at the time of adoption of such amendment,
whether or not such outstanding Options are then exercisable.
A "Change in Control" shall be deemed to have occurred if: (i) there
has been a change in control of a nature that would be required, if the Company
would be subject to reporting requirements under the Securities Exchange Act of
1934 (the "Exchange Act"), to be reported in response to Item 6(e) of Schedule
14A of Regulation 14A promulgated under the Exchange Act or Item 1 of Form 8-K
promulgated under the Exchange Act; or (ii) any person, entity or group (within
the meaning of
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<PAGE>
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any subsidiary of the Company, is or becomes the beneficial owner, directly
or indirectly, of securities of the Company representing 30% or more of the
combined voting power in the election of directors; or (iii) during any period
of two consecutive years, individuals who at the beginning of such period
constitute the Board cease for any reason to have authority to cast at least a
majority of the votes which all directors on the Board are entitled to cast,
unless the election, or the nomination for election by the Company's
stockholders, of each new director was approved by a vote of at least two-thirds
of the votes entitled to be cast by the directors then still in office who were
directors at the beginning of the period.
11. Adjustments on Changes in Capitalization. The aggregate
----------------------------------------
number of Shares and class of shares as to which Options may be granted
hereunder, the number and class or classes of shares covered by each outstanding
Option and the Option Price thereof shall be appropriately adjusted in the event
of a stock dividend, stock split, recapitalization or other change in the number
or class of issued and outstanding equity securities of the Company resulting
from a subdivision or consolidation of the Common Stock and/or, if appropriate,
other outstanding equity securities or a recapitalization or other capital
adjustment (not
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<PAGE>
including the issuance of Common Stock on the conversion of other securities of
the Company which are convertible into Common Stock) affecting the Common Stock
which is effected without receipt of consideration by the Company. The
Committee shall have authority to determine the adjustments to be made under
this Section, and any such determination by the Committee shall be final,
binding and conclusive; provided, however, that no adjustment shall be made
which will cause an ISO to lose its status as such without the consent of the
Optionee, except for adjustments made pursuant to Section 10 hereof.
12. Amendment of the Plan. The Board of Directors of the Company
---------------------
may amend the Plan from time to time in such manner as it may deem advisable. No
amendment to the Plan shall adversely affect any outstanding Option, however,
without the consent of the Optionee that holds such Option.
13. No Commitment to Retain. The grant of an Option pursuant to
------------------------
the Plan shall not be construed to imply or to constitute evidence of any
agreement, express or implied, on the part of the Company or any Affiliate to
retain the Optionee in the employ of the Company or an Affiliate and/or as a
member of the Company's Board of Directors or in any other capacity.
14. Withholding of Taxes. Whenever the Company proposes or is
--------------------
required to deliver or transfer Shares in connection with the exercise of an
Option, the Company shall have the right to (a) require the recipient to remit
or otherwise
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<PAGE>
make available to the Company an amount sufficient to satisfy any federal, state
and/or local withholding tax requirements prior to the delivery or transfer of
any certificate or certificates for such Shares or (b) take whatever other
action it deems necessary to protect its interests with respect to tax
liabilities. The Company's obligation to make any delivery or transfer of
Shares shall be conditioned on the Optionee's compliance, to the Company's
satisfaction, with any withholding requirement.
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<PAGE>
EXHIBIT 10.31
Adopted 4/15/92
Amended 12/16/92
Amended 3/1/94
Amended 5/26/94
Amended 4/22/96
(by reverse stock split)
Amended 9/26/96
Restated as of 9/26/96
(showing amendments and post-split
numbers and deleting certain
inoperative terms)
U.S. Bioscience, Inc.
1992 STOCK OPTION PLAN
----------------------
1. Purpose. U.S. Bioscience, Inc. (the "Company") hereby adopts the
-------
U.S. Bioscience, Inc. 1992 Stock Option Plan (the "Plan"). The Plan is intended
to recognize the contributions made to the Company by employees (including
employees who are members of the Board of Directors) of the Company or any
Affiliate (as defined below) and certain consultants or advisors to the Company
or an Affiliate, to provide such persons with additional incentive to devote
themselves to the future success of the Company or an Affiliate, and to improve
the ability of the Company or an Affiliate to attract, retain, and motivate
individuals upon whom the Company's sustained growth and financial success
depend, by providing such persons with an opportunity to acquire or increase
their proprietary interest in the Company through receipt of rights to acquire
the Company's Common Stock, par value $.01 per Share (the "Common Stock"). In
addition, the Plan is intended as an additional incentive to certain directors
of the Company who are
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<PAGE>
not employees of the Company or an Affiliate to serve on the Board of Directors
and to devote themselves to the future success of the Company by providing them
with an opportunity to acquire or increase their proprietary interest in the
Company through the receipt of Options to acquire Common Stock.
2. Definitions. Unless the context clearly indicates otherwise, the
-----------
following terms shall have the following meanings:
(a) "Affiliate" means a corporation which is a parent corporation
or a subsidiary corporation with respect to the Company within the meaning of
Section 424(e) or (f) of the Code.
(b) "Board of Directors" or "Board" means the Board of Directors
of the Company.
(c) "Change of Control" shall have the meaning as set forth in
Section 10 of the Plan.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall have the meaning set forth in Section 3 of
the Plan.
(f) "Company" means U.S. Bioscience, Inc. a Delaware corporation.
(g) "Disability" shall have the meaning set forth in Section
22(e)(3) of the Code.
(h) "Eligible Non-employee Directors" means the Non-employee
Directors other than those members who serve on the
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<PAGE>
Board of Directors as a result of their designation by Marion Merrill Dow, Inc.
or U.S. Healthcare Financial Services, Inc., as nominees for election to the
Board of Directors.
(i) "Fair Market Value" shall have the meaning set forth in
Subsection 8(b) of the Plan.
(j) "ISO" means an Option granted under the Plan which is intended
to qualify as an "incentive stock option" within the meaning of Section 422 of
the Code.
(k) "Non-employee Director" means a member of the Board of
Directors who is not an employee of the Company or an Affiliate.
(l) "Non-qualified Stock Option" means an Option granted under the
Plan which is not intended to qualify, or otherwise does not qualify, as an
"incentive stock option" within the meaning of Section 422(b) of the Code.
(m) "Option" means either an ISO or a Non-qualified Stock Option
granted under the Plan.
(n) "Optionee" means a person to whom an Option has been granted
under the Plan, which Option has not been exercised and has not expired or
terminated.
(o) "Option Document" means the document described in Section 8 or
Section 9 of the Plan, as applicable, which sets forth the terms and conditions
of each grant of Options.
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<PAGE>
(p) "Option Price" means the price at which Shares may be
purchased upon exercise of an Option, as calculated pursuant to Subsection 8(b)
or Subsection 9(a) of the Plan, as applicable.
(q) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended.
(r) "Shares" means the shares of Common Stock of the Company which
are the subject of Options.
3. Administration of the Plan. The Plan shall be administered by the
--------------------------
Board of Directors of the Company; however, the Board of Directors may (i)
designate a committee composed of two or more of its Non-employee Directors to
operate and administer the Plan in its stead, (ii) designate two committees to
operate and administer the Plan in its stead, one of such committees composed of
two or more of its Non-employee Directors to operate and administer the Plan
with respect to the Company's "Principal Officers" (as defined below), and the
other such committee composed of two or more directors (which may include
directors who are also employees of the Company) to operate and administer the
Plan with respect to persons other than Principal Officers and Eligible Non-
employee Directors or (iii) designate only one of the two committees referred to
in subparagraph (ii) and itself operate and administer the Plan with respect to
persons not within the jurisdiction of such committee. Any of such committees
designated by the Board of Directors, and the
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<PAGE>
Board of Directors itself in its administrative capacity with respect to the
Plan, is referred to as the "Committee." With respect to Eligible Non-employee
Directors, who are to be granted Options in accordance with the provisions of
Section 9, the directors to whom Options will be granted, the timing of grants
of Options, the price at which Shares may be purchased and the number of Shares
covered by Options granted to each Optionee shall be as specifically set forth
herein, and subject to the foregoing and the other provisions set forth herein,
the Plan, as it pertains to Eligible Non-employee Directors, shall be
administered by the Board of Directors. As used herein, the term "Principal
Officers" means the Chairman of the Board of Directors (if the Chairman of the
Board of Directors is a payroll employee), President, Executive Vice President,
Senior Vice President, Vice President, Treasurer, and any other person who is an
"officer" within the meaning of Rule 16a-1(f) promulgated under the Securities
Exchange Act of 1934, as amended, or any successor rule.
(a) Meetings. The Committee shall hold meetings at such times and
--------
places as it may determine. Acts approved at a meeting by a majority of the
members of the Committee or acts approved in writing by the unanimous consent of
the members of the Committee shall be the valid acts of the Committee.
(b) Grants. Except with respect to Options granted to Eligible
------
Non-employee Directors pursuant to Section 9
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<PAGE>
of the Plan, the Committee shall from time to time at its discretion direct the
Company to grant Options pursuant to the terms of the Plan. The Committee shall
have plenary authority to (i) determine the Optionees to whom, the times at
which, and the price at which Options shall be granted, (ii) determine the type
of Option to be granted and the number of Shares subject thereto, and (iii)
approve the form and terms and conditions of the Option Documents; all subject,
however, to the express provisions of the Plan. In making such determinations,
the Committee may take into account the nature of the Optionee's services and
responsibilities, the Optionee's present and potential contribution to the
Company's success and such other factors as it may deem relevant.
Notwithstanding the foregoing, grants of Options to Eligible Non-employee
Directors shall be made only in accordance with Section 9 of the Plan. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Option granted under it shall be final, binding and conclusive.
(c) Exculpation. No member of the Board of Directors shall be
------------
personally liable for monetary damages for any action taken or any failure to
take any action in connection with the administration of the Plan or the
granting of Options under the Plan, provided that this Subsection 3(c) shall not
apply to (i) any breach of such member's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or
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<PAGE>
involving intentional misconduct or a knowing violation of law, (iii) acts or
omissions that would result in liability under Section 174 of the General
Corporation Law of the State of Delaware, as amended, and (iv) any transaction
from which the member derived an improper personal benefit.
(d) Indemnification. Service on the Committee shall constitute
---------------
service as a member of the Board of Directors of the Company. Each member of
the Committee shall be entitled without further act on his or her part to
indemnity from the Company to the fullest extent provided by applicable law and
the Company's Certificate of Incorporation and/or By-laws in connection with or
arising out of any action, suit or proceeding with respect to the administration
of the Plan or the granting of Options thereunder in which he or she may be
involved by reason of his or her being or having been a member of the Committee,
whether or not he or she continues to be such member of the Committee at the
time of the action, suit or proceeding.
(e) Limitations on Grants of Options to Consultants and Advisors.
------------------------------------------------------------
With respect to the grant of Options to consultants or advisors, bona fide
services shall be rendered by consultants or advisors and such services must not
be in connection with the offer or sale of securities in a capital-raising
transaction.
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<PAGE>
4. Grants under the Plan. Grants under the Plan may be in the form
---------------------
of a Non-qualified Stock Option, an ISO or a combination thereof, at the
discretion of the Committee.
5. Eligibility. All employees of the Company or an Affiliate
-----------
(including employees who are members of the Board of Directors), consultants or
advisors to the Company or an Affiliate who satisfy the requirements set forth
in Subsection 3(e), and all Eligible Non-employee Directors shall be eligible to
receive Options hereunder. However, Eligible Non-employee Directors may receive
Options only pursuant to Section 9. The Committee, in its sole discretion,
shall determine whether an individual is eligible to receive Options under the
Plan.
6. Shares Subject to Plan. The aggregate maximum number of Shares
----------------------
for which Options may be granted pursuant to the Plan is One Million Seven
Hundred Fifty Thousand (1,750,000), subject to adjustment as provided in Section
11 of the Plan. The Shares shall be issued from authorized and unissued Common
Stock or Common Stock held in or hereafter acquired for the treasury of the
Company. If an Option terminates or expires without having been fully exercised
for any reason, the Shares for which the Option was not exercised may again be
the subject of one or more Options granted pursuant to the Plan.
7. Term of the Plan. The Plan is effective as of April 15, 1992, the
----------------
date on which it was adopted by the Board of
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<PAGE>
Directors (the stockholders having duly approved the Plan on or before April 14,
1993). With respect to the initial 1,000,000 Shares for which Options may be
granted pursuant to the Plan, no Option may be granted under the Plan after
April 14, 2002. With respect to the amendment to Section 6 of the Plan on March
1, 1994 which increased the number of Shares for which Options may be granted
pursuant to the Plan from One Million Shares to One Million Seven Hundred Fifty
Thousand Shares, such amendment is effective as of March 1, 1994, the date on
which it was adopted by the Company's Board of Directors (the stockholders
having duly approved such amendment on or before February 28, 1995). No Options
may be granted under the Plan for Shares authorized by such amendment after
February 28, 2004.
8. Option Documents and Terms. Each Option granted under the Plan
--------------------------
shall be a Non-qualified Stock Option unless the Option shall be specifically
designated at the time of grant to be an ISO for Federal income tax purposes.
If any Option designated as an ISO is determined for any reason not to qualify
as an incentive stock option within the meaning of Section 422 of the Code, such
Option shall be treated as a Non-qualified Stock Option for all purposes under
the provisions of the Plan. Options granted pursuant to the Plan shall be
evidenced by the Option Documents in such form as the Committee shall from time
to time approve, which Option Documents shall comply with and be subject to the
following terms and conditions and such other
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<PAGE>
terms and conditions as the Committee shall from time to time require which are
not inconsistent with the terms of the Plan. However, the provisions of this
Section 8 shall not be applicable to Options granted to Eligible Non-employee
Directors, except as otherwise provided in Subsection 9(c).
(a) Number of Option Shares. Each Option Document shall state the
-----------------------
number of Shares to which it pertains. An Optionee may receive more than one
Option, which may include Options which are intended to be ISO's and Options
which are not intended to be ISO's, but only on the terms and subject to the
conditions and restrictions of the Plan. No Optionee may receive in any one
year option grants for 150,000 or more Shares (such maximum number to be
appropriately adjusted in the manner described in Section 11 of the Plan); the
foregoing shall not limit the number of Options which become exercisable in any
one year by reason of Option grants made in earlier years.
(b) Option Price. Each Option Document shall state the Option
------------
Price which, for a Non-qualified Stock Option, may be less than, equal to, or
greater than the Fair Market Value of the Shares on the date the Option is
granted and, for an ISO, shall be at least 100% of the Fair Market Value of the
Shares on the date the Option is granted; provided, however, that if an ISO is
granted to an Optionee who then owns, directly or by attribution under Section
424(d) of the Code, shares possessing more than ten percent of the total
combined voting power of all
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<PAGE>
classes of stock of the Company or an Affiliate, then the Option Price shall be
at least 110% of the Fair Market Value of the Shares on the date the Option is
granted. If the Common Stock is traded in a public market, then the Fair Market
Value per share shall be, if the Common Stock is listed on a national securities
exchange or included in the NASDAQ National Market System, the last reported
sale price thereof on the relevant date, or, if the Common Stock is not so
listed or included, the mean between the last reported "bid" and "asked" prices
thereof on the relevant date, as reported on NASDAQ or, if not so reported, as
reported by the National Daily Quotation Bureau, Inc. or as reported in a
customary financial reporting service, as applicable and as the Committee
determines.
(c) Exercise. No Option shall be deemed to have been exercised
--------
prior to the receipt by the Company of written notice of such exercise and
payment in full of the Option Price for the Shares to be purchased. Each such
notice shall specify the number of Shares to be purchased and shall (unless the
Shares are covered by a then current registration statement or a Notification
under Regulation A under the Securities Act of 1933, as amended (the "Act")),
contain the Optionee's acknowledgment in form and substance satisfactory to the
Company that (a) such Shares are being purchased for investment and not for
distribution or resale (other than a distribution or resale which, in the
opinion of counsel satisfactory to the Company, may
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<PAGE>
be made without violating the registration provisions of the Act), (b) the
Optionee has been advised and understands that (i) the Shares have not been
registered under the Act and are "restricted securities" within the meaning of
Rule 144 under the Act and are subject to restrictions on transfer and (ii) the
Company is under no obligation to register the Shares under the Act or to take
any action which would make available to the Optionee any exemption from such
registration, (c) such Shares may not be transferred without compliance with all
applicable federal and state securities laws, and (d) an appropriate legend
referring to the foregoing restrictions on transfer and any other restrictions
imposed under the Option Documents may be endorsed on the certificates.
Notwithstanding the foregoing, if the Company determines that issuance of Shares
should be delayed pending (A) registration under federal or state securities
laws, (B) the receipt of an opinion of counsel acceptable to the Company that an
appropriate exemption from such registration is available, (C) the listing or
inclusion of the Shares on any securities exchange or an automated quotation
system or (D) the consent or approval of any governmental regulatory body whose
consent or approval is necessary in connection with the issuance of such Shares,
the Company may defer exercise of any Option granted hereunder until any of the
events described in this Subsection 8(c) has occurred.
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<PAGE>
(d) Medium of Payment. An Optionee shall pay for Shares (i) in
-----------------
cash, (ii) by certified or cashier's check payable to the order of the Company,
or (iii) by such other mode of payment as the Committee may approve, including
payment through a broker in accordance with procedures permitted by Regulation T
of the Federal Reserve Board. Without limiting the foregoing, the Committee may
provide (and in the case of Options granted to Eligible Non-employee Directors,
shall provide) in an Option Document that payment may be made in whole or in
part in shares of the Company's Common Stock. If payment is made in whole or in
part in shares of the Company's Common Stock, then the Optionee shall deliver to
the Company certificates registered in the name of such Optionee representing
the shares owned by such Optionee, free of all liens, claims and encumbrances of
every kind and having an aggregate Fair Market Value on the date of delivery
that is at least as great as the Option Price of the Shares (or relevant portion
thereof) with respect to which such Option is to be exercised by the payment in
shares of Common Stock, accompanied by stock powers duly endorsed in blank by
the Optionee. In the event that certificates for shares of the Company's Common
Stock delivered to the Company represent a number of shares in excess of the
number of shares required to make payment for the Option Price of the Shares (or
relevant portion thereof) with respect to which such Option is to be exercised
by payment in shares of Common Stock, the stock
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<PAGE>
certificate issued to the Optionee shall represent (i) the Shares in respect of
which payment is made, and (ii) such excess number of shares. Notwithstanding
the foregoing, the Committee may impose from time to time such limitations and
prohibitions on the use of shares of the Common Stock to exercise an Option as
it deems appropriate.
(e) Termination of Options.
----------------------
(i) No Option shall be exercisable after the first to occur
of the following:
(A) Expiration of the Option term specified in the
Option Document, which, in the case of an ISO, shall not occur after (1) ten
years from the date of grant, or (2) five years from the date of grant of an ISO
if the Optionee on the date of grant owns, directly or by attribution under
Section 424(d) of the Code, shares possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of an
Affiliate;
(B) Expiration of three months from the date the
Optionee's employment or service with the Company or its Affiliates terminates
for any reason other than Disability or death or as otherwise specified in
Subsection 8(e)(i)(D) or 8(e)(i)(E) below;
(C) Expiration of one year from the date such employment
or service with the Company or its Affiliates terminates due to the Optionee's
Disability or death;
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<PAGE>
(D) A finding by the Committee, after full consideration
of the facts presented on behalf of both the Company and the Optionee, that the
Optionee has breached his or her employment or service contract with the Company
or an Affiliate, or has been engaged in disloyalty to the Company or an
Affiliate, including, without limitation, fraud, embezzlement, theft, commission
of a felony or proven dishonesty in the course of his employment or service, or
has disclosed trade secrets or confidential information of the Company or an
Affiliate. In such event, in addition to immediate termination of the Option,
the Optionee shall automatically forfeit all Shares for which the Company has
not yet delivered the share certificates upon refund by the Company of the
Option Price. Notwithstanding anything herein to the contrary, the Company may
withhold delivery of share certificates pending the resolution of any inquiry
that could lead to a finding resulting in a forfeiture; or
(E) The date, if any, set by the Board of Directors as
an accelerated expiration date in the event of the liquidation or dissolution of
the Company.
With respect to Subsections 8(e)(i)(B) and (C) above, the
only Options which may be exercised during the three-month or one-year period,
as the case may be, following the date of Optionee's termination of employment
or service with the Company or its Affiliates are Options which were exercisable
on the last date of such employment or service and not Options
-49-
<PAGE>
which, if the Optionee were still employed or rendering service during such
three-month or one-year period, would become exercisable, unless the Option
Document specifically provides to the contrary.
(ii) Notwithstanding the foregoing, the Committee may extend
the period during which all or any portion of an Option may be exercised to a
date no later than the Option term specified in the Option Document pursuant to
Subsection 8(e)(i)(A), provided that any change pursuant to this Subsection
8(e)(ii) which would cause an ISO to become a Non-qualified Stock Option may be
made only with the consent of the Optionee. The terms of an executive severance
agreement or other agreement between the Company and an Optionee, approved by
the Committee, whether entered into prior or subsequent to the grant of an
Option, which provide for Option exercise dates later than those set forth in
Subsection 8(e)(i) but permitted by this Subsection 8(e)(ii) shall be deemed to
be Option terms approved by the Committee and consented to by the Optionee.
(f) Transfers. An ISO granted under the Plan may not be
---------
transferred, except by will or by the laws of descent and distribution. A Non-
qualified Stock Option granted under the Plan may not be transferred, except by
will or by the laws of descent and distribution, except as follows: If the terms
of the Non-qualified Stock Option specifically so permit, a Non-qualified Stock
Option may be transferred by the Optionee by bona
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fide gift, with no consideration for the transfer, to a lineal descendent,
sibling, lineal descendent of a sibling, in each case whether by blood or
adoption, a spouse or former spouse (collectively "family members"), to a trust
for the benefit of one or more family members or to a partnership in which
family members are the only partners. If the Optionee receiving such an Option,
or having an outstanding Option amended to provide for such transferability, is
a Principal Officer, such Option or Option amendment must be approved by the
committee of disinterested persons (as defined in Rule 16b-3) which administers
the Plan with respect to Principal Officers. Notwithstanding the foregoing, a
Non-qualified Stock Option may be transferred pursuant to the terms of a
"qualified domestic relations order," within the meaning of Sections 401(a)(13)
and 414(p) of the Code or within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, as amended.
(g) Limitation on ISO Grants. In no event shall the aggregate
------------------------
Fair Market Value of the Shares of Common Stock (determined at the time the ISO
is granted) with respect to which incentive stock options under all incentive
stock option plans of the Company or its Affiliates are exercisable for the
first time by the Optionee during any calendar year exceed $100,000.
(h) Other Provisions. Subject to the provisions of the Plan, the
----------------
Option Documents shall contain such other provisions including, without
limitation, provisions authorizing
-51-
<PAGE>
the Committee to accelerate the exercisability of all or any portion of an
Option granted pursuant to the Plan, additional restrictions upon the exercise
of the Option or additional limitations upon the term of the Option, as the
Committee shall deem advisable.
(i) Amendment. Subject to the provisions of the Plan, the
---------
Committee shall have the right to amend Option Documents issued to an Optionee,
subject to the Optionee's consent if such amendment is not favorable to the
Optionee or if such amendment has the effect of converting an ISO to a Non-
qualified Stock Option, except that the consent of the Optionee shall not be
required for any amendment made under Subsection 8(e)(i)(E) or Section 10 of the
Plan, as applicable.
9. Special Provisions Relating to Grants of Options to Eligible Non-
----------------------------------------------------------------
employee Directors. Options granted pursuant to the Plan to Eligible Non-
- ------------------
employee Directors shall be granted, without any further action by the
Committee, in accordance with the terms and conditions set forth in this Section
9. Options granted pursuant to this Section 9 shall be evidenced by Option
Documents in such form as the Committee shall from time to time approve, which
Option Documents shall comply with and be subject to the following terms and
conditions and such other terms and conditions as the Committee shall from time
to time require which are not inconsistent with the terms of the Plan.
-52-
<PAGE>
(a) Timing of Grants; Number of Shares Subject of Options;
------------------------------------------------------
Exercisability of Options; Option Price. Each Eligible Non-employee Director on
- ---------------------------------------
the effective date of the Plan was granted, on November 16, 1993, an Option to
purchase 15,000 Shares. Each Eligible Non-employee Director first elected to
the Board of Directors after the effective date of the Plan and prior to
September 26, 1996 was granted an Option to purchase 15,000 Shares on the date
he or she became a director. Each Eligible Non-employee Director first elected
to the Board of Directors on or after September 26, 1996 shall be granted an
Option to purchase 30,000 Shares on the date he or she becomes a director.
Subsequent to the grants of Options to Eligible Non-employee Directors pursuant
to the preceding three sentences (each such grant of Options hereinafter
referred to as the "Initial Grant"), each Eligible Non-employee Director
thereafter has been or shall be granted an Option (each such grant of Options
hereinafter referred to as a "Subsequent Grant") to purchase additional Shares
on the third anniversary of the date of the Initial Grant and on the third
anniversary of the date of each grant after the Initial Grant. Each Subsequent
Grant granted prior to September 26, 1996 was an Option to purchase 15,000
Shares, and each Subsequent Grant granted on or after September 26, 1996 shall
be an Option to purchase 30,000 Shares. Subject to Section 10, each such Option
shall be a Non-qualified Stock Option becoming exercisable over a period of
three (3) years, so that the
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<PAGE>
Optionee shall have the right to exercise the Option with respect to one third
(1/3) of the Shares covered thereby commencing on the first anniversary of the
date of grant, and the right to exercise the Option with respect to an
additional one third (1/3) of such Shares commencing on each of the following
two anniversaries of the date of grant. The Option Price shall be equal to the
Fair Market Value of the Shares on the date the Option is granted.
(b) Termination of Options Granted Pursuant to Section 9.
----------------------------------------------------
All Options granted pursuant to this Section 9 shall be exercisable
until the first to occur of the following:
(i) Expiration of ten (10) years from the date of grant;
(ii) Expiration of three months from the date the Optionee's
service as a Non-employee Director terminates for any reason other than
Disability or death; or
(iii) Expiration of one year from the date the Optionee's
service with Company as a Non-employee Director terminates due to the Optionee's
Disability or death.
(c) Applicability of Provisions of Section 8 to Options Granted
-----------------------------------------------------------
Pursuant to Section 9. The following provisions of Section 8 shall be
- ---------------------
applicable to Options granted pursuant to this Section 9: Subsection
8(a)(provided that all Options
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<PAGE>
granted pursuant to this Section 9 shall be Non-qualified Stock Options); the
last sentence of Subsection 8(b); Subsection 8(c); Subsection 8(d); Subsection
8(f); and Subsection 8(i).
10. Change in Control. Notwithstanding anything to the contrary in
-----------------
any Option Document, upon a Change in Control, the exercise date of all Options
then outstanding under the Plan and held by Optionees who are then employees of,
or members of the Board of Directors of, the Company or an Affiliate, shall, and
in the case of consultants and advisors to the Company or an Affiliate shall
(unless the exercisability of the Options held by such an Optionee is subject to
some condition other than the lapse of time (including within the term "lapse of
time" the provisions of Sections 8(e) and 9(b) of the Plan)), automatically
accelerate to the date of the Change of Control. An Option granted to a
consultant or advisor who is also a member of the Board of Directors shall be
deemed for purposes of the preceding sentence to be an Option granted to a
consultant or advisor and not to a member of the Board of Directors if such
Option is granted for services as a consultant or advisor. Any amendment of
this Section 10 which diminishes the rights of Optionees shall not be effective
with respect to Options outstanding at the time of adoption of such amendment,
whether or not such outstanding Options are then exercisable.
A "Change in Control" shall be deemed to have occurred if: (i) there
has been a change in control of a nature that
-55-
<PAGE>
would be required, if the Company would be subject to reporting requirements
under the Securities Exchange Act of 1934 (the "Exchange Act"), to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act or Item 1 of Form 8-K promulgated under the Exchange Act; or (ii)
any person, entity or group (within the meaning of Section 13(d)(3) or Section
14(d)(2) of the Exchange Act), other than any employee benefit plan (or related
trust) sponsored or maintained by the Company or any subsidiary of the Company,
is or becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 30% or more of the combined voting power in the election of
directors; or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board cease for any reason to
have authority to cast at least a majority of the votes which all directors on
the Board are entitled to cast, unless the election, or the nomination for
election by the Company's stockholders, of each new director was approved by a
vote of at least two-thirds of the votes entitled to be cast by the directors
then still in office who were directors at the beginning of the period.
11. Adjustments on Changes in Capitalization. The aggregate number
----------------------------------------
of Shares and class of shares as to which Options may be granted hereunder, the
number and class or classes of shares covered by each outstanding Option and the
Option Price
-56-
<PAGE>
thereof shall be appropriately adjusted in the event of a stock dividend, stock
split, recapitalization or other change in the number or class of issued and
outstanding equity securities of the Company resulting from a subdivision or
consolidation of the Common Stock and/or, if appropriate, other outstanding
equity securities or a recapitalization or other capital adjustment (not
including the issuance of Common Stock on the conversion of other securities of
the Company which are convertible into Common Stock) affecting the Common Stock
which is effected without receipt of consideration by the Company. The
Committee shall have authority to determine the adjustments to be made under
this Section, and any such determination by the Committee shall be final,
binding and conclusive; provided, however, that no adjustment shall be made
which will cause an ISO to lose its status as such without the consent of the
Optionee, except for adjustments made pursuant to Section 10 hereof.
12. Amendment of the Plan. The Board of Directors of the Company may
---------------------
amend the Plan from time to time in such manner as it may deem advisable.
Nevertheless, the Board of Directors of the Company may not change the class of
individuals eligible to receive an ISO or increase the maximum number of Shares
as to which Options may be granted without obtaining approval, within twelve
months before or after such action, by vote of a majority of the votes cast at a
duly called meeting of the stockholders at which a quorum representing a
majority of all outstanding voting
-57-
<PAGE>
stock of the Company is, either in person or by proxy, present when the meeting
is convened. In addition, the provisions of Section 9 that determine (i) which
directors shall be granted Options pursuant to Section 9; (ii) the amount of
Shares subject to Options granted pursuant to Section 9; (iii) the price at
which Shares subject to Options granted pursuant to Section 9 may be purchased
and (iv) the timing of grants of Options pursuant to Section 9 shall not be
amended more than once every six months, other than to comport with changes in
the Code or the Employee Retirement Income Security Act of 1974, as amended. No
amendment to the Plan shall adversely affect any outstanding Option, however,
without the consent of the Optionee that holds such Option.
13. No Commitment to Retain. The grant of an Option pursuant to the
------------------------
Plan shall not be construed to imply or to constitute evidence of any agreement,
express or implied, on the part of the Company or any Affiliate to retain the
Optionee in the employ of the Company or an Affiliate and/or as a member of the
Company's Board of Directors or in any other capacity.
14. Withholding of Taxes. Whenever the Company proposes or is
--------------------
required to deliver or transfer Shares in connection with the exercise of an
Option, the Company shall have the right to (a) require the recipient to remit
or otherwise make available to the Company an amount sufficient to satisfy any
federal, state and/or local withholding tax requirements prior to
-58-
<PAGE>
the delivery or transfer of any certificate or certificates for such Shares or
(b) take whatever other action it deems necessary to protect its interests with
respect to tax liabilities. The Company's obligation to make any delivery or
transfer of Shares shall be conditioned on the Optionee's compliance, to the
Company's satisfaction, with any withholding requirement.
15. Interpretation. The Plan is intended to enable transactions
--------------
under the Plan with respect to directors and officers (within the meaning of
Section 16(a) under the Securities Exchange Act of 1934, as amended) to satisfy
the conditions of Rule 16b-3; to the extent that any provision of the Plan, or
any provisions of any Option granted pursuant to the Plan, would cause a
conflict with such conditions or would cause the administration of the Plan as
provided in Section 3 to fail to satisfy the conditions of Rule 16b-3, such
provision shall be deemed null and void to the extent permitted by applicable
law.
-59-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS OF U.S.
BIOSCIENCE, INC. FOR THE PERIOD(S) INDICATED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 34,344,300
<SECURITIES> 1,004,600
<RECEIVABLES> 610,600
<ALLOWANCES> 107,900
<INVENTORY> 2,961,000
<CURRENT-ASSETS> 45,030,000
<PP&E> 10,902,300
<DEPRECIATION> 4,719,400
<TOTAL-ASSETS> 51,212,900
<CURRENT-LIABILITIES> 7,482,500
<BONDS> 3,319,100
0
0
<COMMON> 227,900
<OTHER-SE> 40,183,400
<TOTAL-LIABILITY-AND-EQUITY> 40,411,300
<SALES> 8,430,300
<TOTAL-REVENUES> 15,326,300
<CGS> 2,259,000
<TOTAL-COSTS> 20,614,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 490,700
<INCOME-PRETAX> (5,778,500)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,778,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,778,500)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
