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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 in its charter)
Delaware 23-2460100
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Tower Bridge
100 Front Street
West Conshohocken, PA 19428
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 832-0570
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock ($.01 par value) American Stock Exchange
Warrants to purchase Common Stock ($.01 par value) American Stock Exchange
Preferred Stock Purchase Rights American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
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.
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 4, 1997, the aggregate market value of the voting stock held
by non-affiliates of the registrant was $286,927,000*.
As of March 4, 1997, the number of outstanding shares of the registrant's
Common Stock was 22,916,680.
DOCUMENTS INCORPORATED BY REFERENCE
Part III--Portions of the registrant's definitive Proxy Statement with
respect to the registrant's 1997 Annual Meeting of Stockholders, to
be filed not later than 120 days after the close of the
Registrant's fiscal year.
- - ------
* Calculated by excluding all shares held by executive officers, directors
and five percent shareholders of the registrant without conceding that all
such persons are "affiliates" of the registrant for purposes of the federal
securities laws.
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PART I
Item 1. Business.
Forward-Looking Statements.
This report on Form 10-K 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 the 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 disease 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.
The following discussion should be read in conjunction with Part II of
this Form 10-K and the Consolidated Financial Statements and notes to the
Consolidated Financial Statements on pages F-1 to F-20.
General
U.S. Bioscience, Inc., a Delaware corporation (the "company"), is a
pharmaceutical firm established in 1987 which seeks to develop and market drugs,
principally drugs for treating patients with cancer, acquired immune deficiency
syndrome ("AIDS") and allied diseases and infections. The company has, through
licensing agreements, rights to nine drugs for the treatment of these diseases.
Three drugs have received approval for marketing in the United States by the
United States Food and Drug Administration ("FDA"), Hexalen(R) (altretamine),
NeuTrexin(R) (trimetrexate glucuronate for injection) and Ethyol(R)
(amifostine); three are in various stages of clinical trials, AZQ, PALA and
FddA; and three are in preclinical testing, WR-151327, Third Generation
Platinums and Mitomycin-C Analogues. For a description of the steps required
before a drug may be marketed in the United States see "Government Regulation."
In December 1990, the FDA approved the company's New Drug Application
("NDA") for Hexalen(R), a drug for the treatment of advanced ovarian cancer.
Commercial sales of Hexalen commenced in the United States in January 1991. See
"Principal Products - Hexalen."
On February 1, 1993, the company filed an NDA for NeuTrexin(R) for the
treatment of Pneumocystis carinii pneumonia ("PCP"), an infection primarily
associated with AIDS. This application was the subject of a joint review by the
FDA and the Canadian regulatory authority, the Health Protection Branch ("HPB").
The application was approved by the FDA and the HPB in December of 1993, and
commercial sales of NeuTrexin commenced in the United States in January 1994. At
its September 1994 meeting, the European Union's ("EU") Committee for
Proprietary Medicinal Products ("CPMP") recommended NeuTrexin for approval in
the EU. As of February 28, 1997, NeuTrexin has received local health regulatory
approval in many EU countries. See "Principal Products - NeuTrexin."
In September 1991, the company submitted to the FDA an NDA for a
chemotherapy protection indication for Ethyol. The NDA was approved by the FDA
on December 8, 1995 for reducing the cumulative renal (kidney) toxicity
associated with repeated administration of cisplatin in patients with advanced
ovarian cancer. On March 15, 1996, the company's supplemental NDA was approved
by the FDA under the Accelerated Approval Regulations to include use in patients
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with non-small cell lung cancer for the reduction of cumulative renal damage
associated with repeated administration of cisplatin-based chemotherapy. For a
discussion of approval under the Accelerated Approval Regulations see
"Government Regulation." A dossier describing Ethyol's chemoprotection
properties was submitted to the CPMP in September 1992. At its September 1994
meeting, the CPMP recommended Ethyol for approval by its member countries to
reduce the neutropenia related risk of infection (e.g. neutropenic fever) due to
the combination regimen cyclophosphamide and cisplatin in patients with advanced
(FIGO Stage III or IV) ovarian cancer. The CPMP recommended an expanded
indication on July 29, 1996, to include protection of patients with advanced
solid tumors of non-germ cell origin from cumulative nephrotoxicity of cisplatin
and cisplatin-containing regimens, where unit doses of cisplatin range from
60-120 mg/m2, in conjunction with adequate hydration measures. As of February
28, 1997, Ethyol has received local health regulatory approval in many EU
countries. See "Principal Products - Ethyol."
The objective of the company is to become an important participant in
the worldwide pharmaceutical market for oncologic and AIDS drugs. To achieve
this objective, the company's strategy to date has been to acquire exclusive
licenses in the United States and certain other markets for therapeutic agents
that the company believes have potentially significant commercial and clinical
value in the treatment of cancer, AIDS and allied diseases. The company's
primary emphasis has been on "late-stage" drugs, which are drugs having an
established preclinical or clinical database and for which development by the
company will consist largely of further preclinical testing, clinical trials and
the preparation of applications for regulatory approval. By acquiring rights to
drugs that have undergone some degree of development and for which preclinical
and clinical information exists, the company believes that it will be able to
reduce the costs, risks and time involved in bringing drugs to market. The
company's long-term strategy focuses on the licensing, development and
commercialization of anticancer and AIDS drugs currently in the early stages of
research.
The three most common methods of treating patients with cancer are
surgery, radiation therapy and systemic therapy. Systemic therapy consists
principally of chemotherapy and hormonal therapy. Chemotherapy involves the
administration of cytotoxic drugs designed to kill cancer cells. In addition to
seeking to develop these types of cancer-killing drugs, the company, like some
of its competitors, is seeking to develop drugs that augment the efficacy or
reduce the toxicity of other chemotherapeutic agents.
Hormonal therapy is based on the fact that the growth of certain
tumors, such as breast cancer, prostate cancer and endometrial cancer, is
dependent upon the availability of endogenous hormones, such as estrogen and
androgen. The use of measures to either reduce the production of, or block the
action of, these hormones represents a form of systemic treatment for these
diseases. Typically, when compared to chemotherapy, hormonal therapy produces a
lower incidence and severity of side effects.
Anticancer drugs can be toxic to normal cells as well as cancer cells,
causing unwanted side effects. For many cancer drugs, therapeutic dosage for
cancerous tissue is close to the toxic dose. Thus, drugs that could selectively
protect normal cells could be of significant medical benefit. Development of
systemic therapeutic products for treating cancer or used in connection with
treatment of cancer requires laborious preclinical and clinical testing to
satisfy government regulation and medical ethics. As a consequence, the
development of successful drugs for these purposes often requires five to ten
years of preclinical and clinical testing. See "Government Regulation."
The Human Immunodeficiency Virus ("HIV")/Acquired Immune Deficiency
Syndrome ("AIDS") treatment market can be divided into two segments. The
antiretroviral segment includes those therapies which specifically target the
HIV virus, such as nucleoside analogues like zidovudine (AZT), didanosine (ddI),
zalcitabine (ddC) and lamivudine (3TC), and protease inhibitors, such as
saquinavir, ritonavir and indinavir. The second segment of the HIV/AIDS
treatment market includes those agents which prevent or treat AIDS-related
opportunistic infections, including, PCP, tuberculosis, candidiasis etc.
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During the last two decades, significant advances in molecular biology,
immunology and other related fields of biotechnology have led to an improved
understanding of how malfunctioning genes lead to the development of certain
tumors, and to an appreciation of the body's own regulatory systems to control
this process. It is hoped that this area of biotechnology will lead to better
ways to diagnose cancer, to identify those predisposed to develop the disease
and to prevent tumors from forming or becoming malignant. The company believes,
however, that systemic therapy will continue to make an important contribution
to the treatment of cancer. It is also hoped that this area of biotechnology
will lead to better ways to treat HIV/AIDS and the opportunistic infections
associated with AIDS. In view of ongoing developments in the oncologic market
and the general nature of scientific research, no assurance can be given that
the nature of the oncologic market or the HIV/AIDS market or the method of
treating cancer patients or AIDS patients will not undergo significant change.
Marketing and Distribution
The company has entered into an exclusive distribution and marketing
agreement with ALZA Corporation ("ALZA") for its drug Ethyol for the U.S.
market. Under the terms of this agreement the company will co-promote Ethyol
with ALZA in the United States. See "Principal Products - Ethyol - Distribution
and Marketing Agreements". The company currently co-promotes Hexalen and
NeuTrexin in the United States under an agreement with ALZA. See "Principal
Products - Hexalen - Distribution and Marketing Agreements". It is the company's
intention to determine the most appropriate commercial arrangements for
marketing its drugs in various territories on a case-by-case basis.
Opportunities exist for the registration and commercialization of the
company's products in some foreign countries. Since the company cannot, at this
time, practically market drugs on its own in most territories outside of the
United States, the company has, with respect to certain of its drugs, entered
into licensing and distribution arrangements, covering markets where the company
does not currently plan to utilize its own sales organization. Some of these
agreements provide signing fees and/or milestone payments to the company, some
provide that the company will sell its drug product at pre-negotiated prices
under the agreement and some provide royalties to the company based upon future
sales, if any, of licensed drugs. The extent to which the company derives
meaningful revenues from these arrangements will be dependent upon, among other
things, the ability to obtain product approvals and the licensees' and
distributors' ability to market and sell the licensed drugs in their respective
markets.
Principal Products
The company's products reflect its strategy of building a portfolio of
drugs for the treatment of patients with cancer that represent a diverse group
of modalities, including cancer-attacking cytotoxics (Hexalen, NeuTrexin, AZQ,
third generation platinum anticancer agents, and Mitomycin-C analogues);
cytoprotectors (Ethyol and WR-151327); and modulators (NeuTrexin and PALA). The
company's products also reflect its strategy of building a portfolio of drugs
for the treatment of AIDS and AIDS-related diseases or infections. The
company's drug NeuTrexin is commercially available for treatment of PCP, an
infection primarily associated with AIDS. The company has licensed FddA, and its
active metabolite FddI, which are reverse transcription inhibitors being
evaluated for use in the treatment of HIV and AIDS. See "Principal Products -
FddA."
Hexalen(R) (altretamine/hexamethylmelamine)
General Description. Hexalen is an orally administered cytotoxic drug
that was cleared for marketing by the FDA in December 1990 for use as a single
agent in the palliative treatment of patients with persistent or recurrent
ovarian cancer following first-line therapy with cisplatin and/or alkylating
agent-based combination chemotherapy. Until December 26, 1997, Hexalen has
marketing exclusivity in the United States for advanced ovarian cancer under the
Orphan Drug provisions of the Food, Drug and Cosmetic Act. See "Orphan Drug
Status."
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Marketing. The company co-promotes Hexalen with ALZA Corporation under
the terms of a Co-Promotion Agreement dated May 21, 1996. Under the terms of
that agreement, the company directs the marketing program. The company's
approximately fifteen-person sales force and ALZA's approximately
forty-five-person sales force co-promote Hexalen to health care providers who
treat ovarian cancer. The marketing program consists of direct mail, symposia
and promotion to prescribing physicians. Hexalen is distributed through
pharmaceutical wholesalers and is prescribed by oncologists treating ovarian
cancer. Sales of Hexalen were adversely affected in 1996 due, the company
believes, to the promotional emphasis placed on the launch of Ethyol and new
therapies that were introduced in the United States during 1996 which compete
with Hexalen for ovarian cancer patients. There can be no assurance that sales
of Hexalen will recover to the level achieved prior to the introduction of these
competitive products. In the United States the company has obtained a registered
trademark for Hexalen, the company's brand of altretamine. The company is also
pursuing trademark registrations for Hexalen in a number of foreign countries.
As of February 28, 1997, Hexalen has been approved outside the United
States for treatment of ovarian cancer in 18 countries, including Germany,
Canada, the United Kingdom, Australia, Israel, Sweden, China, South Korea, Egypt
and Hong Kong. Commercial sales of Hexalen in these countries will be through
distribution or license arrangements. To date, commercial sales of Hexalen
outside the United States have not been material.
License of Hexalen to the company. The company's rights to Hexalen are
derived from an assignment of rights regarding Wyeth Laboratories, Inc.'s
("Wyeth") NDA. In return, the company is required to pay royalties to Wyeth on
worldwide sales by the company or its licensees of any product containing
altretamine. The company also has a licensing agreement with Rhone-Poulenc Rorer
for rights to applications, registrations and approvals relating to their brand
of altretamine (Hexastat(R)) in Canada, Germany, Italy, The Netherlands, Israel
and the Czech Republic. The licenses expire in 2001 with respect to Canada and
2002 with respect to the other countries. In commercializing Hexalen in these
markets, if and when regulatory approvals are obtained, the company will be
required to pay royalties to Rhone-Poulenc Rorer on sales of Hexalen by the
company or its licensees or distributors in countries covered by the licensing
or distribution agreements. There can be no assurance that dossiers will be
submitted in those countries or that regulatory approvals will be obtained.
Orphan Drug Status. Under the terms of the Orphan Drug Act, Hexalen has
United States marketing exclusivity for its FDA approved indication for a period
of seven years from approval of its NDA (i.e., the FDA may not approve another
altretamine product for that indication during the seven-year period). Such
exclusivity expires in December, 1997. See "Orphan Drug Status," "Government
Regulation," and "Patents, Trademarks, and Trade Secrets."
Distribution and Marketing Agreements. In May 1996, the company entered
into a co-promotion agreement with ALZA Corporation to co-promote the company's
products, Hexalen and NeuTrexin, in the United States. Under the terms of this
agreement, the company pays ALZA a commission, which is based upon a percentage
of net sales of Hexalen and NeuTrexin in the United States above a base level of
sales. The commission payment is subject to an annual minimum and the commission
percentage increases as net sales increase. Under the terms of the agreement,
ALZA's sales force co-promotes Hexalen and NeuTrexin and the company makes sales
of both products to wholesalers and distributors. The agreement may be
terminated at any time on six months notice by either party after June 30, 1998.
At the end of the co-promotion term, the agreement provides for ALZA to be paid
residual commission payments for a term which varies based on the reasons for
termination. The residual commissions are based on a percentage of net sales
during the residual period, subject to a maximum payment of a decreasing
percentage of actual commission payments made to ALZA under the agreement during
the co-promotion period.
The company has entered into distribution or licensing agreements for
Hexalen with a number of pharmaceutical companies for territories outside of the
United States. The company has licensed its rights for Hexalen in Scandinavia to
Swedish Orphan AB ("Swedish Orphan"). Commercial sales of Hexalen commenced in
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Sweden during the second quarter of 1993. The company has licensed its Hexalen
rights in Australia and New Zealand to F.H. Faulding & Co. Limited ("Faulding").
It has licensed its rights in Israel to Teva Pharmaceutical Industries, Ltd.
("Teva"). In addition, the company has licensed its rights for Japan, South
Korea and Taiwan to Kanebo, Ltd. ("Kanebo"). The licensees are required to pay
the company royalties based on their net sales for up to ten years after their
first commercial sale of the product. In 1996, the company entered into a
distribution agreement with Teva for the sale of Hexalen in 14 eastern European
and three South American countries. Under the agreement with Teva, the company
will supply Hexalen to Teva at an agreed upon supply price. In January 1997, the
company signed an agreement with Canton Pharmaceuticals (USA), Inc. ("Canton")
for distribution of Hexalen in China and Hong Kong. Under the terms of that
agreement, the company sells Hexalen to Canton at a supply price which decreases
as volume sales of Hexalen increase in China.
The company has entered into an exclusive marketing and distribution
agreement for Hexalen with Societe de Conseils, de Recherches et d'Applications
Scientifiques ("SCRAS"), an affiliate of Beaufour IPSEN, for the United Kingdom,
Germany and The Netherlands with rights of SCRAS to extend the territory to
Belgium, Ireland, Italy, Luxembourg, Portugal, and Spain for a term of up to
seven years. Under the terms of the agreement, the company supplies Hexalen to
SCRAS at negotiated prices.
The company has entered into an exclusive distribution and marketing
agreement with Eli Lilly InterAmerica, Inc., an affiliate of Eli Lilly and
Company, for Hexalen in Canada. Under the terms of the agreement another
affiliate of Eli Lilly and Company, Eli Lilly Canada Inc. ("Eli Lilly Canada")
has rights to distribute and market Hexalen in Canada for five years and under
certain circumstances will have the right to extend the agreement for an
additional five years. The company supplies Hexalen to Eli Lilly Canada at an
agreed upon supply price.
There can be no assurance that the company will derive meaningful
revenues from any of these arrangements.
Manufacturing. The company is dependent on third party suppliers for
the manufacture of Hexalen. The company has one approved source of altretamine
drug substance and two approved sources for the finished dosage form of Hexalen.
See "Government Regulation."
NeuTrexin(R) (trimetrexate glucuronate for injection)
General Description. NeuTrexin is a lipid-soluble intravenously
administrable analogue of methotrexate, a commonly-used anticancer agent. In
December 1993, the FDA approved the company's NDA, and the HPB granted
commercial clearance, for NeuTrexin with concurrent leucovorin administration
(leucovorin protection) as an alternative therapy for the treatment of
moderate-to-severe PCP in immunocompromised patients, including patients with
AIDS, who are intolerant of, or are refractory to, trimethoprim-sulfamethoxazole
therapy or for whom trimethoprim-sulfamethoxazole is contraindicated. In
September 1994, the CPMP recommended approval for NeuTrexin with concurrent
leucovorin administration (leucovorin protection) as an alternative therapy for
the treatment of moderate-to-severe Pneumocystis carinii pneumonia in patients
with AIDS who are intolerant of or refractory to standard therapy or for whom
standard therapy is contraindicated. NeuTrexin was designated a "high tech" drug
under the CPMP's Concertation Procedure which provided for concurrent review of
the dossier by the then twelve members of the EU and provides up to ten years of
regulatory exclusivity in the EU markets upon approval. Following the positive
CPMP recommendation, the company has applied for local regulatory approvals in
the EU member countries. As of February 28, 1997, local health regulatory
approvals for NeuTrexin have been received in Denmark, France, Germany, Ireland,
Luxembourg, the United Kingdom, Spain, Greece, Sweden, Portugal and The
Netherlands.
Marketing. The company launched its NeuTrexin marketing program in the
United States during early 1994. During 1996, the company entered into a
co-promotion agreement with ALZA Corporation to co-promote NeuTrexin in the
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United States. Under the terms of that agreement, the company directs the
marketing program. The company's approximately fifteen-person sales force and
ALZA's approximately forty-five-person sales force promote NeuTrexin to health
care providers who treat PCP. The marketing program consists of direct mail,
symposia and promotion to prescribing physicians by the company's and ALZA's
sales representatives. NeuTrexin is distributed through pharmaceutical
wholesalers and is prescribed by physicians treating PCP. Commercial sales of
NeuTrexin in the United States commenced in January 1994. Sales of NeuTrexin
declined in 1996 compared to 1995 due, the company believes, to the promotional
emphasis placed on the launch of Ethyol, and a decline in the incidence and
severity of PCP due to improvements in treatment for HIV and prophylactic
treatment for patients at risk for PCP. In the United States the company has
obtained a registered trademark for NeuTrexin, the company's brand of
trimetrexate glucuronate. The company is also pursuing trademark registrations
for NeuTrexin in a number of foreign countries.
Clinical Trials. The company is investigating NeuTrexin as an
anticancer agent. A Phase II study of escalating doses of NeuTrexin in
combination with 5-FU and leucovorin in patients with colorectal cancer who had
previously failed 5-FU based chemotherapy was conducted at Memorial
Sloan-Kettering Cancer Institute. Based on positive results from this trial, a
multicenter Phase II trial of NeuTrexin in combination with 5-FU and leucovorin
in 36 patients with metastatic colorectal cancer was conducted. This study also
provided positive results and the company is continuing to investigate NeuTrexin
for colorectal cancer. In follow-up, two Phase II trials in previously treated
colorectal cancer patients and two randomized controlled Phase III trials of
5-FU and leucovorin with and without NeuTrexin have been initiated. There can be
no assurance that these trials will result in data sufficient to support any
application for regulatory approval of NeuTrexin for cancer treatment.
Pharmacologic properties of NeuTrexin also suggest possible applications in the
management of non-neoplastic diseases such as psoriasis and rheumatoid
arthritis. Research into topical and oral formulations of NeuTrexin is underway.
The development of these dosage forms will facilitate clinical research not only
in patients with diseases such as AIDS and cancer, but may also allow for an
extended role for NeuTrexin in patients with benign diseases (such as psoriasis
and rheumatoid arthritis), although no assurance can be given that such trials,
if conducted, will yield approved indications.
Licenses of NeuTrexin to the Company. The company has obtained an
exclusive license to the United States Government's U. S. patent claiming a
method of treating PCP with trimetrexate. The term of exclusivity is seven years
from the first commercial use of the product. After this period of exclusivity,
the company also has a non-exclusive license until the last of the licensed
patents expires. Under the terms of its agreement with the United States
Government, the company is required to pay royalties based on net sales of
NeuTrexin. Pursuant to an agreement with Warner-Lambert Company
("Warner-Lambert"), the company has obtained an exclusive worldwide license to
manufacture and market NeuTrexin for use in cancer or PCP under the patent
rights and know-how held by Warner-Lambert, including a composition of matter
patent on the form of NeuTrexin approved for commercial sale. Under the
agreement, the company is required to pay to Warner-Lambert royalties based on
net sales of NeuTrexin. The agreement may be terminated by Warner-Lambert in a
country outside the United States if commercial sales are not commenced in such
country by the first anniversary of the date on which NeuTrexin could legally be
sold in such country.
Patents and Orphan Drug Status. As noted above, the company has
licensed, on an exclusive basis, Warner-Lambert's NeuTrexin patents, including
those relating to composition of matter and manufacturing processes. One of
those patents, a composition of matter patent on the form of NeuTrexin approved
for commercial sale, was issued March 15, 1983 and, pursuant to new legislation,
will be entitled to a term of 20 years from the date of the first U.S. filed
application for that patent, October 31, 1980. Pursuant to the Drug Price
Competition and Patent Term Restoration Act of 1984, an application has been
filed and a certificate granted which extends the term of the patent for 1,286
days, a period relating to the time NeuTrexin was under review by the FDA.
Therefore, the extended expiration date for this patent is May 9, 2004. The
company has rights to the foreign counterparts of this U.S. Patent in many
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European markets. These foreign counterpart patents were filed in 1981 and are
due to expire in 2001. The company is applying for supplementary patent
protection in the EU countries where health regulatory approvals for NeuTrexin
have been received and where there is a foreign counterpart patent. Such
supplementary protection may be granted for a period of up to five additional
years; however, there can be no assurance that supplementary protection will be
granted for any such patent or that, if granted, the extension will be for the
full term requested. As of January 15, 1997, supplementary protection has been
granted in France, Luxembourg, the United Kingdom and Sweden each for a five
year term.
The company also has an exclusive license in the United States for a
U.S. Government patent claiming a method of treating PCP infection with
trimetrexate. See "Principal Products --NeuTrexin-- Licenses of Trimetrexate to
the Company."
Upon approval of the NDA for NeuTrexin in December 1993, the product
received seven years' marketing exclusivity under the Orphan Drug Act for the
approved PCP indication. NeuTrexin is also designated as an orphan drug for the
treatment of metastatic colorectal adenocarcinoma, metastatic carcinoma of the
head and neck, pancreatic adenocarcinoma and advanced non-small cell carcinoma
of the lung. If the company obtains the first NDA approval for the product for
any of these indications, NeuTrexin would be eligible for seven years of orphan
marketing exclusivity for such approved indications. See "Government
Regulation," "Patents, Trademarks, and Trade Secrets," and "Orphan Drug Status."
Distribution and Marketing Agreements. In May 1996, the company entered
into a co-promotion agreement with ALZA Corporation to co-promote the company's
products NeuTrexin and Hexalen in the United States. See "Principal Products -
Hexalen - Distribution and Marketing Agreements."
The company has entered into an exclusive distribution agreement with
Eli Lilly InterAmerica, Inc. for the sale of NeuTrexin in Canada. The company
has entered into an exclusive distribution agreement with SCRAS for NeuTrexin
for the PCP indication for Belgium, France, Germany, Greece, Ireland, Italy,
Luxembourg, The Netherlands, Portugal, Spain and the United Kingdom. Under both
of those agreements, the company sells NeuTrexin at an agreed upon supply price.
The company has licensed its rights for NeuTrexin in Scandinavia to Swedish
Orphan for seven years. Swedish Orphan is required to pay royalties to the
company based on net sales of the product. In addition, the company has licensed
its rights in over 35 countries in Latin America and Asia, the "Latin
America/Asia Territories" to an affiliate of Schering-Plough Corporation
("Schering"), Schering Overseas Ltd. ("Schering Overseas"). Under the terms of
this agreement, Schering Overseas is required to pay the company royalties and
consulting fees based on net sales of NeuTrexin for up to ten years after first
commercial sale of the product. Under certain circumstances, Schering Overseas
may incur certain payment obligations for an additional five years after such
ten year period.
There can be no assurance that the company will derive meaningful
revenues from any of these arrangements.
Manufacturing. The company partially relies on third party
manufacturers to supply NeuTrexin. The company has contracted with an approved
source of drug substance as well as an approved source of finished product for
NeuTrexin. In addition, the company's manufacturing plant located in Nijmegen,
The Netherlands has received Dutch regulatory approval to manufacture the
finished dosage form of NeuTrexin. The company supplies the EU markets with
NeuTrexin manufactured at its Nijmegen manufacturing plant. The company has
received FDA approval of its Nijmegen facility as a drug manufacturer for
NeuTrexin for commercial sale in the United States. The company supplies the
United States market with NeuTrexin manufactured primarily at its Nijmegen
manufacturing plant and continues to purchase NeuTrexin for the United States
market from its approved third party manufacturer.
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Ethyol(R) (Amifostine/WR-2721)
General Description. Ethyol is an injectable agent for which the
company's NDA was approved by the FDA in December 1995 as a selective
cytoprotective agent to reduce the cumulative renal (kidney) toxicity associated
with repeated administration of cisplatin in patients with advanced ovarian
cancer.
On March 15, 1996, the company's supplemental NDA was approved by the
FDA under the Accelerated Approval Regulations as a modification of the Ethyol
indication to include treatment of patients with non-small cell lung cancer for
the reduction of cumulative renal toxicity associated with repeated
administration of cisplatin. Products approved under the Accelerated Approval
Regulations require further adequate and well-controlled studies to verify and
describe clinical benefit. The company has a clinical trial ongoing which the
company anticipates may fulfill this requirement; however, there can be no
assurance that the company's ongoing clinical trial will verify the clinical
benefit of Ethyol for this indication. In the event the clinical trial fails to
verify the clinical benefit of Ethyol for this indication, the FDA may, under
certain circumstances, withdraw approval of this indication. See "Government
Regulation."
The CPMP originally recommended the company's drug Ethyol for approval
at the CPMP meeting held on September 13, 1994. Ethyol was recommended to reduce
the neutropenia related risk of infection (e.g. neutropenic fever) due to the
combination regimen cyclophosphamide and cisplatin in patients with advanced
(FIGO State III or IV) ovarian cancer. On July 26, 1996, the CPMP approved an
expanded indication to include protection of patients with advanced solid tumors
of non-germ cell origin from cumulative nephrotoxicity of cisplatin and
cisplatin-containing regimens, where unit doses of cisplatin range from 60-120
mg/m2, in conjunction with adequate hydration measures. As of February 28, 1997,
Ethyol has received approvals from EU member countries from the local health
regulatory authorities in Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Luxembourg, The Netherlands, Portugal, Spain and the United Kingdom.
Ethyol was approved for commercial sale in Canada in April, 1996 and
launched by an affiliate of Eli Lilly and Company in August, 1996. See
Ethyol--Distribution and Marketing Agreements.
In December 1996, after reviewing a chemistry and manufacturing
supplement to the Ethyol NDA, the FDA cleared for marketing a room temperature
crystalline form of Ethyol. This crystalline form of Ethyol is claimed in issued
United States patents. See "Ethyol - Patents, Orphan Drug Status and NDA
Exclusivity." The company intends to make crystalline Ethyol commercially
available in the United States in 1997 through its exclusive distributor in the
United States, ALZA.
Marketing. Through an agreement with ALZA, Ethyol was launched in the
United States in April, 1996. Under the terms of the agreement with ALZA, ALZA
has exclusive marketing rights to Ethyol in the United States. ALZA's marketing
program consists of direct mail, journal advertising, symposia and promotion to
prescribing physicians by ALZA's approximately forty-five-person sales force
with co-promotion by the company's approximately fifteen-person sales force.
Ethyol is sold by the company to ALZA, and then ALZA sells Ethyol to
distributors and wholesalers which supply Ethyol for prescription sales. In the
United States the company has obtained a registered trademark for Ethyol, the
company's brand of amifostine. The company is also pursuing trademark
registrations for Ethyol in a number of foreign countries.
Clinical Trials. The company has an ongoing clinical trial it is
hopeful will fulfill the FDA's requirement that products approved under the
Accelerated Approval Regulations undergo further adequate and well-controlled
studies to verify and describe clinical benefit. See "Principal Products -
Ethyol - General Description" and "Government Regulation." The company is also
continuing to investigate the use of Ethyol to protect normal tissues from the
toxic effects of certain forms of chemotherapy and radiation therapy in a number
of tumor types without reducing the antitumor effects of these modalities. The
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company is also investigating Ethyol's potential role as a bone marrow stimulant
in myelodysplastic bone marrow syndromes ("MDS"). MDS is a condition in which
the bone marrow is typically ineffective in its production of the major
elements-red blood cells, neutrophils and platelets. No assurance can be given
that the results of these clinical studies will support additional regulatory
filings or approvals for Ethyol.
Additional Phase II and Phase III trials investigating Ethyol as a
radio-protective agent are ongoing in the United States and Europe. The company
anticipates filing regulatory dossiers for Ethyol's use as a radio-protective
agent, if satisfactory data results, when these studies are complete. No
assurance can be given that the results of these clinical trials will support
regulatory filings or that an application for regulatory approval for Ethyol as
a radiation protectant, if submitted, will be approved.
Additional International New Drug Submissions. In Europe, the company
is in the process of seeking registration of an Ethyol dossier in the countries
comprising the European Free Trade Association ("EFTA") (Austria, Finland,
Iceland, Liechtenstein, Norway, Sweden and Switzerland). As of February 28,
1997, within the EFTA region, the company has achieved approval for Ethyol in
Switzerland, Austria and Finland (Austria and Finland are now member states of
the EU). No assurance can be given that the remaining EFTA applications, if
submitted, will be approved. Through its marketing partner for the Far
East/Latin American Territory, Schering Overseas, dossiers have been submitted
in numerous countries in that territory. Within the Far East/Latin American
Territory, as of February 28, 1997, Ethyol was approved for commercial sale in
Argentina, Chile, Hong Kong, India, Mexico and Uruguay. While additional
regulatory approvals for Ethyol are being pursued throughout the Far East/Latin
American Territory, there can be no assurance that additional approvals will be
received. Ethyol was approved in South Africa in March, 1996, Australia in
August, 1996 and Israel in October, 1996.
License of Ethyol to the company. The company's exclusive rights to
develop and market Ethyol on a worldwide basis were derived from an agreement
with the Southern Research Institute ("Southern Research"), a not-for-profit
research institution. Effective May 1, 1993, the agreement was amended and
restated to clarify the company's royalty obligations to Southern Research under
various sublicense and distribution arrangements (the "Restated and Amended
Ethyol Agreement"). Pursuant to the Restated and Amended Ethyol Agreement, the
company is required to pay Southern Research a royalty on net sales of Ethyol or
any pharmaceutical composition containing Ethyol for a period of ten years
following the first commercial sale in a given country. Under certain
circumstances, the company is required to pay Southern Research a reduced
royalty rate on net sales of Ethyol for an additional five years. The agreement
is for a term of fifteen (15) years from the date of first commercial sale on a
country-by-country basis.
Patents, Orphan Drug Status and NDA Exclusivity. The original United
States composition of matter patent on Ethyol expired in July 1992. The company
has developed proprietary new dosage forms of crystalline amifostine and a novel
method for manufacturing crystalline amifostine. The company has a patent from
the U.S. Patent and Trademark Office for a method of manufacturing crystalline
amifostine and the resulting dosage form utilizing such method of manufacture of
crystalline amifostine. The company also has a U.S. patent on crystalline
amifostine dosage forms which patent claims are independent of the method of
manufacture. Both patents expire in July 2012. The company has foreign
counterpart patent applications pending, however there can be no assurance that
such patent applications will result in issued patents in foreign jurisdictions.
Upon approval of the NDA for Ethyol in December 1995, the product
received seven years' marketing exclusivity under the Orphan Drug Act for the
approved indication, ovarian cancer. Ethyol has also been designated as an
orphan drug for use as a chemoprotective agent for cyclophosphamide in the
treatment of advanced ovarian carcinoma, and as a chemoprotective agent for
cisplatin in the treatment of metastatic melanoma. If the company obtains the
first NDA approval for the product for either of these indications, Ethyol would
be eligible for seven years of orphan marketing exclusivity for such approved
indication.
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In addition, upon approval of the NDA for Ethyol, the product became
entitled to a period of marketing exclusivity under the Food, Drug, and Cosmetic
Act. Under the relevant provision of that Act, if an NDA is approved for a drug
that has not been the subject of any prior NDA approval, no Abbreviated New Drug
Application ("ANDA") referring to that drug may be submitted for five years from
the date of the NDA approval (or four years if the drug is covered by a patent,
unless the ANDA applicant challenges the patent). Because Ethyol is the first
amifostine product to receive an NDA approval, it is entitled to protection
against FDA approval of an ANDA for a period of five years, plus the time
required for the FDA to review and approve an ANDA for the product. This
exclusivity does not, however, prohibit the submission or FDA approval of
subsequent full NDA's by other sponsors based on such sponsors' separate
clinical investigations. See "Government Regulation," "Patents, Trademarks and
Trade Secrets," and Orphan Drug Status."
Distribution and Marketing Agreements. The company has entered into an
exclusive marketing and distribution agreement with ALZA for Ethyol in the
United States. Under the terms of the Agreement, ALZA has exclusive rights to
market Ethyol in the United States for five years and is responsible for sales
and marketing; the company's sales force co-promotes the product with ALZA.
Under the terms of this agreement, the company sells Ethyol to ALZA at a price
based on a percentage of the net sales price of Ethyol in the United States.
After the five-year period, which ALZA has an option to extend for one year,
marketing rights to Ethyol revert to the company, and ALZA will receive payments
from the company for ten years based on sales of Ethyol in the United States.
The company has entered into an exclusive marketing and distribution
agreement with Scherico Ltd., ("Scherico") a subsidiary of Schering, for Ethyol
in the countries comprising the EU and EFTA (the "European Territories"). Under
the original terms of its agreement with Scherico, the company was to share in
operating profits/losses (as defined in the agreement) generated from marketing
and sales of Ethyol in Germany, United Kingdom, Spain, Italy and France (the
"Major Markets") for a period of up to two years from November 23, 1994, the
date of approval of Ethyol in the United Kingdom. As of August 31, 1996, the
company and Scherico amended their agreement. Under this amendment, the company
no longer shares in operating profits/losses, but rather, Scherico purchases
Ethyol from the company at a price based on a percentage of the net sales of
Ethyol in the Major Markets. Under the amendment, Scherico paid the company $4.2
million.
Under the terms of the agreement, as amended, Scherico's exclusive
rights to market the product will continue for seven years from January 1, 1997.
The company may co-promote Ethyol with Scherico for the two years following such
seven year period. Thereafter, the company will reacquire sole marketing rights.
Under certain circumstances Scherico is required to pay the company milestone
payments as regulatory approvals, if any, are obtained. There can be no
assurance that milestone payments will be made to the company under the
agreement. After reacquiring sole marketing rights, the company will pay
Scherico a percentage of net sales, if any, from the European Territory for a
period of three years. Under the terms of the agreement, the company supplies
Ethyol to Scherico. The contract provides that Scherico may terminate the
agreement at any time by providing 180 days written notice to the company of its
desire to terminate the agreement. There can be no assurance that the agreement
will not be terminated by Scherico. Sales of Ethyol to Schering for the European
Territory have been gradually increasing, however, there can be no assurance
that sales will continue to grow.
In a separate agreement, the company has licensed Ethyol to Scherico
for territories comprising Eastern Europe, Australia, New Zealand, Iran, Iraq,
South Africa, Botswana, Namibia and Zimbabwe (the "Eastern
Europe/Africa/Australia/New Zealand Territories"). Under this agreement,
Scherico is required to pay the company royalties and consulting fees for
fifteen years following the date of first commercial sale of Ethyol in these
territories. Scherico paid milestone payments to the company upon approval of
Ethyol in Australia and South Africa. The agreement provides Scherico with the
right to negotiate for additional products the company wishes to introduce into
those territories.
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The company has licensed Ethyol to Schering Overseas in the Latin
America/Asia Territories. Schering Overseas purchases Ethyol from the company
and is required to pay the company royalties and consulting fees for ten years
following the first commercial sale of the product. Schering Overseas may incur
certain payment obligations for an additional five years under certain
circumstances.
The company has granted exclusive distribution rights for Ethyol in
Canada to Eli Lilly Interamerica, Inc. an affiliate of Eli Lilly and Company and
Eli Lilly Canada Inc., ("Eli Lilly Canada"). Under the terms of the agreement,
Eli Lilly has exclusive rights to distribute Ethyol in Canada for five years and
under certain circumstances will have the right to extend the agreement for an
additional five years. The company supplies Ethyol to Eli Lilly Canada at an
agreed upon supply price.
In Israel, the company has licensed Ethyol to Teva. Ethyol was approved
in Israel in October, 1996. Under this license, Teva is required to pay the
company royalties on net sales of Ethyol in Israel for a period of ten years
following the first commercial sale of the product.
The company is seeking a marketing partner for Ethyol for Japan, South
Korea and Taiwan.
There can be no assurance that the company will derive meaningful
revenues from any of these arrangements.
Manufacturing. The company relies on an approved third party source for
supply of drug substance for Ethyol. The company's facility located in Nijmegen,
The Netherlands has been approved by the FDA to manufacture Ethyol for the
United States market. The company's Nijmegen facility has also been approved by
the Dutch regulatory authorities to manufacture Ethyol for commercial sale in
Europe. In addition, the company has an agreement with an approved contract
manufacturer to produce the finished dosage form of Ethyol for the United States
and international markets.
AZQ (Diaziquone)
General Description. AZQ is an intravenously administered anticancer
agent which crosses the "blood-brain barrier" and penetrates the central nervous
system. AZQ has been under investigation in clinical studies as a treatment for
gliomas (brain tumors) and acute leukemia.
Clinical Trials. Clinical trials of AZQ have been conducted under the
auspices of the National Cancer Institute ("NCI") for the treatment of gliomas
and adult acute leukemia, and as an agent for treating patients prior to bone
marrow transplantation. The company is evaluating the data from the NCI trials
to ascertain its usefulness in a possible regulatory submission. It may also
elect to initiate additional clinical trials for AZQ for these indications, but
no decision has been reached as to whether such trials will be conducted. There
can be no assurance that the results of these clinical trials or the NCI data
will lead to the filing or approval of an NDA.
License of AZQ to the company. The company obtained an exclusive
license from the United States Government to market AZQ in the United States.
The term of exclusivity is until March 1998. Thereafter, the company will have a
non-exclusive license until the last of the licensed patents expires. The
company is required to pay royalties to the United States government based on
net sales of AZQ.
Patents. A composition of matter patent for AZQ and two patents for the
use of AZQ as an antitumor agent are held by the United States Government. The
composition of matter patent will expire in 1997 and the use patents expired in
March, 1996. See "Government Regulation," "Patents, Trademarks and Trade
Secrets."
Manufacturing. AZQ for investigational use has been produced by third
party contractors for the NCI. The company has identified a source for
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development and manufacture of AZQ drug substance for commercial supply with
which the company is negotiating a supply agreement. No assurance can be given
that the company will reach agreement with a third party for supply of AZQ. To
date all AZQ used in clinical trials has been supplied by the NCI.
FddA
General Description. Under the terms of an agreement with the National
Institutes of Health of the United States Public Health Service, the company
received a worldwide exclusive license to the United States government's patent
rights for use of the compounds FddA and its active metabolite, FddI, for the
treatment of HIV infection, HIV-related infection or HIV-related disease in
humans. FddA is an acid stable, purine-based reverse transcriptase inhibitor
that in preclinical studies compared favorably to AZT against HIV in comparative
studies conducted in SCID (immune-deprived) mice. In in vitro laboratory studies
of HIV, FddA has not demonstrated cross-resistance to three commercially
available treatments for AIDS (AZT, ddI, ddC) and has shown synergistic activity
with AZT.
Clinical Trials. Both the company and the NIH intend to pursue the
clinical development of FddA. The NCI has filed an Investigation New Drug
Application and initiated a phase I clinical study of FddA in 1996. The company
has not yet begun a clinical trial of FddA. There can be no assurance that the
clinical trials will lead to the filing of a regulatory application for approval
of FddA, and if such an application is filed, that any such application would be
approved. FddA is in the very early stages of clinical development. There are
numerous risks associated with development of a new drug. For a description of
the steps required before a drug may be marketed in the United States see
"Government Regulation."
License of FddA to the Company. The Company obtained a worldwide
exclusive license from the United States Government for FddA for the field of
use for treatment of HIV infection, HIV-related infection or HIV-related disease
in humans using FddA or FddI. The license extends until the expiration of the
last to expire of the Licensed Patents under the agreement. Under the terms of
the agreement, the company is required to pay the government royalties on sales
of FddA and FddI.
Patents. The government has filed patent applications covering, inter
alia, FddA and FddI in the United States Patent and Trademark Office and in
certain foreign jurisdictions. A United States patent has issued to the
government on February 27, 1996 covering compositions of matter for, inter alia,
FddA and FddI. A United States Patent issued to the United States government on
October 15, 1996 covering methods of using FddA to treat a human infected with
HIV and/or AIDS. A United States Patent issued to the United States government
on August 9, 1994 covering synthesis of FddA. The company has an exclusive
license to these patents. See "License of FddA to the Company."
See "Government Regulation," "Patents, Trademarks and Trade Secrets"
and "Orphan Drug Status."
Manufacturing. The company has had FddA manufactured in limited
quantities to prepare for early clinical trials. The company intends to rely on
a third party source for supply of FddA. The company is in the process of
identifying a drug substance and drug product manufacturer for larger quantities
of FddA for any larger clinical studies that might be conducted.
PALA Disodium Salt (Sparfosate Sodium)
General Description. PALA disodium salt ("PALA") is an injectable drug
for which clinical studies to evaluate its ability to enhance the activity of
certain chemotherapeutic agents, in particular, fluorinated pyrimidines have
been conducted. The most extensively used fluorinated pyrimidine is 5-
fluorouracil ("5-FU"), which is employed in the treatment of colorectal, breast
and upper gastrointestinal (stomach and pancreas) cancers.
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Clinical Trials. Both the company and the NCI initiated Phase III
clinical trials of PALA plus 5-FU in the United States in 1989. The company has
also conducted a Phase II clinical trial of PALA and 5-FU in Canada, and a Phase
III clinical trial of 5-FU/ methotrexate plus PALA in the United Kingdom and
other European countries for patients with advanced colorectal cancer. To date,
the company has not filed any application for regulatory approval of PALA and
there can be no assurance that the company will file any application for
regulatory approval for PALA or that, if any such application is filed, that
regulatory approval will be obtained for PALA.
License of PALA to the company. Under an agreement with Warner-Lambert,
the company has been assigned all of Warner-Lambert's United States patent
rights (to the extent that such rights exist) and international patent rights to
the PALA Patents (as defined below). The company has also obtained a
non-exclusive license to the United States Government rights. The company is
required to pay certain royalties to the United States Government and
Warner-Lambert under these agreements.
Patents and Orphan Drug Status. The United States Government and
Warner-Lambert have asserted the United States rights to a United States
composition of matter patent for PALA which expires in 1997 and to three other
patents, two of which are composition of matter patents and one of which is a
process patent, which expire from 1996 to 1999 (collectively, the "PALA
Patents"). In addition, the company has filed patent applications in the United
States and certain foreign countries to cover the use of PALA for the treatment
of the viral conditions described above. A patent issued in the United States on
February 13, 1996 covering methods of using PALA in the treatment of certain
primary and secondary viral infections. In addition, the company has filed a
divisional application in the United States directed to compositions of matter
containing PALA and other therapeutic agents, and to methods of treating or
preventing certain viral infections. However, there can be no assurance that the
company will continue to pursue these patent applications or if pursued, that
patent(s) will be granted for the subject matter in the PALA foreign patent
applications or the United States divisional patent application.
Distribution and Marketing Agreements. The company has granted Teva an
option to license PALA for Israel. If the option is exercised, Teva will be
required to pay the company royalties on its net sales of PALA until the later
of (i) ten years after their first commercial sale of the product or (ii) the
expiration of any patent with respect to PALA held by the company on the date of
first commercial sale. The company has licensed PALA to Schering Overseas in the
Latin America/Asia Territories. Schering Overseas is required to pay the company
royalties and consulting fees for ten years following the first commercial sale
of the product. Schering Overseas may incur certain payment obligations for an
additional five years under certain circumstances.
There can be no assurance that the company will derive meaningful
revenue from any of these arrangements.
Manufacturing. The company has a development agreement with Ganes
Chemicals Inc. to manufacture the PALA drug substance and with Ben Venue
Laboratories for the manufacture and testing of the finished dosage form.
Drugs in Preclinical Development
The following drugs are in varying stages of preclinical development by
the company. While the company believes that these drugs may have efficacy in
the treatment of cancer, significant research and development, including
clinical testing, will be required to develop these drugs. There can be no
assurance that these drugs will prove to be safe and effective in clinical
trials. Moreover, other obstacles, including the ability to manufacture the
drugs, must also be surmounted. In addition, in certain cases, licenses under
which the company has obtained the drugs require the achievement of development
milestones by the company. There is no assurance that these milestones will be
met.
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WR-151327. WR-151327 is a second generation chemotherapy and radiation
therapy protective agent. Unlike Ethyol, a first generation protective agent
that has been administered intravenously, WR-151327 is administered orally. The
United States, European, Canadian and Australian patent offices have allowed a
patent application claiming the use of WR-151327 to reduce toxicities of certain
forms of chemotherapy.
Third Generation Platinum Anticancer Agents. The company's third
generation platinum anti-cancer agents comprise a group of cytotoxic drugs
intended for use in treating ovarian, testicular, head and neck, lung and
certain other cancers. Although the two approved platinum compounds currently on
the market have demonstrated efficacy as anticancer agents, widespread usage of
these compounds has been limited by their toxicity to normal cells. The company
has licensed the rights to four U.S. patents owned by Georgetown University with
respect to its series of third generation platinum anticancer agents.
The company has granted an option to license certain of its foreign
rights to WR-151327 and third generation platinum anticancer agents to Teva in
Israel and granted certain of its foreign rights to WR-151327 to Schering
Overseas in the Latin America/Asia Territories.
Mitomycin-C Analogues. Under the terms of an agreement with the Vincent
T. Lombardi Cancer Center at Georgetown University, the company received a
worldwide exclusive field of use license to a series of analogues of
mitomycin-C. Mitomycin-C is an anticancer agent used for the treatment of
gastrointestinal cancer and breast cancer. The company has licensed the rights
to two Georgetown University U.S. patents relating to Mitomycin-C analogues.
However, under the terms of its agreement with Georgetown, if the company did
not meet certain development benchmarks, Georgetown retained the right to revoke
such license rights. The company has not met those benchmarks and there can be
no assurance that the failure to meet the benchmarks will not result in a
revocation of such license rights by Georgetown.
Other License Options
Pursuant to its license agreement with Scherico, the company has
granted to Scherico a right to negotiate in good faith to license company
products for the Eastern Europe/Africa/Australia/New Zealand Territories covered
by the license agreement.
Pursuant to its distribution agreement with SCRAS, the company has
granted SCRAS an option to commercialize Hexalen in six EU countries.
Research and Development
Research. The company does not currently have proprietary research and
preclinical development facilities since its initial strategy has emphasized the
acquisition of drugs and related therapies that have demonstrated some potential
value in preclinical testing or clinical trials. The company does have
facilities where the company conducts analytical chemistry in support of its
regulatory applications and product development. The company's clinical studies,
designed to provide the rigorous clinical testing required before a new drug can
be approved by the FDA, are conducted by physicians, generally under clinical
study agreements with the company. The company is dependent upon the ability of
the investigating physicians to accrue patients to its sponsored clinical
studies.
Development. The company has established relationships with numerous
preclinical programs in the United States and Europe for the purpose of
conducting its preclinical research and development programs.
Research and development expenses were $14,383,300 for 1996,
$12,186,000 for 1995, $17,607,900 for 1994, and $99,546,400 for the period May
7, 1987 (inception) to December 31, 1996.
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Marketing
The market for chemotherapeutic drugs is highly concentrated and
comprised principally of oncologists practicing in cancer treatment centers,
large hospitals and private medical practices. The decision to use such drugs is
primarily an individual physician's decision, and marketing efforts are focused
on individual oncologists who prescribe such drugs. The market for intravenous
therapies for PCP is concentrated in about 120 hospitals which are found
primarily in major metropolitan areas. The use of such drugs may require
acceptance onto an individual hospital's formulary. The company's marketing
efforts are directed at prescribing physicians, pharmacists, and members of the
formulary committees at these hospitals.
In the United States, the company's marketing efforts are focused on
approximately 5,500 physicians. This audience is comprised of two general
physician groups, oncologists and physicians who treat PCP. With respect to
Hexalen, the company has directed most of its marketing efforts to approximately
4,000 physicians who have prescribed Hexalen at some point since its
introduction or have reasonable potential to prescribe Hexalen. With respect to
NeuTrexin, the company has directed its marketing efforts to approximately 1,500
specialists who treat PCP. Under the terms of its co-promotion agreement with
ALZA for Hexalen and NeuTrexin, the company is responsible for directing the
marketing program for these products. See "Principal Products - Hexalen -
Marketing." The company uses its own sales force of approximately fifteen
representatives plus ALZA's approximately forty-five person sales force to
personally contact as many of those physicians as possible. Under the terms of
its agreement with ALZA for Ethyol, ALZA has exclusive marketing rights to
Ethyol. Thus, ALZA directs the marketing program in the United States for
Ethyol. See "Principal Products - Ethyol - Marketing."
Hexalen and NeuTrexin are supplied through pharmaceutical wholesalers
in the United States. Representatives of the company have contacted wholesalers
by mail and have visited major wholesalers personally to establish account
relationships and distribution channels. It is normal and customary in the
pharmaceutical business in the United States for wholesalers and distributors to
be able to return pharmaceutical products that remain unsold at their expiration
date. It is generally the company's policy to accept return of out-of-date
pharmaceutical products which the company has sold to the wholesalers and
distributors for direct end-market sales. These returns are accepted under terms
and conditions set by the company.
To commercialize its products outside the United States, the company
has entered into agreements with other companies. See "Principal Products -
NeuTrexin - Distribution and Marketing Agreements" "Principal Products - Hexalen
- - - Distribution and Marketing Agreements" and "Principal Products - Ethyol -
Distribution and Marketing Agreements."
The company had five employees engaged in marketing and business
development activities in addition to its specialty-oriented sales force in
1996. Staff expansions may be required upon the expansion of indications for
previously approved drugs or the approval of other products currently in
development.
Competition
The sales potential of a pharmaceutical product is dependent upon
numerous variables, including efficacy, toxicity, trends in current treatment
regimens, established treatment algorithms, ease of incorporation into
combination regimens, reimbursement, pharmacoeconomic impact, clinical data,
price, acceptance by physicians, marketing, distribution and competitive
products. The availability of patent protection or marketing exclusivity
afforded by orphan drug status or regulatory exclusivity afforded by the Food,
Drug and Cosmetic Act, and the ability to obtain expanded labeling are also
critical. See "Government Regulation."
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The company is engaged in a business that is highly competitive. Many
companies, including well known pharmaceutical companies, are marketing
anticancer drugs and drugs for the treatment of AIDS and allied diseases and
seeking to develop new products and technologies for the treatment of cancer,
AIDS and allied diseases. Many of these drugs, products and technologies are, or
may be, in the future, competitive with the company's drugs. Many of these
companies have substantially greater financial, technical, manufacturing,
marketing and other resources than the company and may be better equipped than
the company to develop, market and manufacture these therapies. In addition,
many such companies have had significantly greater experience both in
undertaking preclinical testing and human clinical trials of new or improved
pharmaceutical products and in obtaining the approval of the FDA or other
regulatory authorities to market products for health care. Accordingly, the
company's competitors may succeed in obtaining regulatory approval of such
products before the company obtains approval of its own products. The company is
also competing with respect to marketing capabilities and manufacturing
efficiency. No assurance can be given that drugs developed by the Company will
be able to compete successfully against therapies already established in the
marketplace or against therapies which may result from advances in biotechnology
or other forms of therapy that may render the company's drugs less competitive
or obsolete. In addition, the company's drug may become subject to generic
competition at such times that generic applications for drug approval may be
filed and approved by the FDA.
In the United States, the company believes that Bristol-Myers Squibb
Company holds the largest share of the chemotherapy market both in terms of
approved products and annual sales, and therefore dominates the market place.
Other companies maintaining an active oncology marketing and sales presence
include Schering-Plough Corporation, Pharmacia & Upjohn, Zeneca (a subsidiary of
Imperial Chemical Industries PLC), Hoffman-La Roche, Immunex Inc. (a subsidiary
of American Home Products), Amgen, Inc., Chiron Corporation, Rhone-Poulenc Rorer
S.A., Eli Lilly and Company and SmithKline Beecham p.l.c.
In the United States, Glaxo Wellcome, Inc., Hoffman-LaRoche, Inc.,
Pharmacia & Upjohn, Inc., Gensia, Inc. and Fujisawa Pharmaceutical Co., Ltd.
participate in the PCP market.
Other groups active in anticancer and AIDS research include
universities and public and private research institutes. These institutions are
becoming increasingly competitive in recruiting personnel from the limited
supply of highly qualified clinical physicians, academic scientists and other
professionals. However, the company believes that such institutions represent an
important source of novel compounds for in-licensing, since often their mission
does not include bringing compounds to market and/or they generally lack the
capabilities to do so.
Manufacturing
The company has a small volume parenteral manufacturing facility in
Nijmegen, The Netherlands, to manufacture the company's injectable drug
supplies. The plant has undergone an intense validation and qualification
program aimed at regulatory approval for commercial manufacturing and testing.
The Nijmegen manufacturing facility received approval of the Dutch regulatory
authorities and is now able to manufacture Ethyol and NeuTrexin for commercial
sale in Europe. The Nijmegen manufacturing facility has also been inspected by
the FDA and approved as a manufacturing site for NeuTrexin and Ethyol for
commercial sale in the United States. The company relies on third parties to
manufacture drug substance for all of its products and to a decreasing, but
still important extent, on third parties to manufacture its finished drug
products under contract. There can be no assurance that third party
manufacturers will give the company's orders highest priority, or that the
company would be able to readily find a substitute manufacturer if one were
needed on short notice. See "Principal Products" for information regarding
manufacturing of the company's products.
16
<PAGE>
Distribution and Marketing Agreements
The company commercializes all three of its marketed products through
various contractual arrangements with other companies and, therefore, the
company is highly dependent on its contractual partners for sale of its drug
products. No assurance can be given that the companies with which the company
has entered into contractual arrangements to sell its products will give the
company's products sufficiently high priority. See "Principal Products." In
addition, there may be disagreements or disputes that may arise between the
company and its commercial partners which could materially adversely affect the
sale of the company's products.
Patents, Trademarks and Trade Secrets
Proprietary protection for the company's products is important for the
company's business. The patents obtained by the company's licensors and those
obtained by the company are expected to provide some degree of protection for
the company's products, although the scope and validity of patent protection is
uncertain.
The company actively seeks patent protection both in the United States
and abroad for its proprietary technology. In addition to seeking its own
patents, the company has entered into license agreements with various
pharmaceutical companies and research, educational and governmental institutions
to obtain certain patent rights from them for the purpose of developing,
manufacturing and selling potential products using the compounds and
technologies protected by these patents. See discussion of the patent rights
under "Principal Products." Under these agreements, the company is obligated to
pay royalties of varying rates based upon, among other things, levels of
revenues from the licensed products. Generally, the agreements continue for a
specified number of years or as long as any licensed patents remain in force,
absent breach of the terms of the agreements or termination of the agreements.
See the discussion of the various license agreements under "Principal Products."
A number of significant changes in the United States patent laws were
mandated by the North American Free Trade Agreement ("NAFTA") and the General
Agreement on Tariffs and Trade ("GATT"). Legislation enacting these treaties has
been passed into law. The term of exclusive rights afforded by a United States
patent has historically been a period of 17 years measured from the date of
grant. Under the new legislation, the new term of United States patents will
commence on the date of grant, and terminate 20 years from the date on which the
patent application was filed in the United States. Existing patents and future
patents granted on an application filed before June 8, 1995, will have a term
that is the longer of twenty years from the filing date or seventeen years from
the date of grant. If a patent issues from a continuation-in-part, divisional or
continuing application, the 20-year patent expiration date is measured from the
filing date of the earliest United States priority application relied on by the
applicant. This change will affect the term of any patent granted on
applications filed subsequent to June 8, 1995, including patents which
ultimately mature from existing applications, if they are refiled as
continuations or continuations-in-part after June 8, 1995.
Under the Drug Price Competition and Patent Term Restoration Act of
1984, a United States product patent or use patent may be extended for up to
five years under certain circumstances to compensate the patent holder for the
time required for FDA regulatory review of the product. The benefits of the Act
are available only to the first approved use of the active ingredient in the
drug product and may be applied only to one patent per drug product. See
"Principal Products -- NeuTrexin -- Patents and Orphan Drug Status." This law
also establishes a period of time following FDA approval of certain new drug
applications during which other sponsors may not submit an ANDA for the drug.
There can be no assurance that the company will be able to take advantage of
either the patent term extension or market exclusivity provisions of this law.
17
<PAGE>
No assurance can be given that any patent issued to, or licensed by,
the company will provide protection that has commercial significance. In this
regard, the patent position of pharmaceutical compounds is particularly
uncertain. No assurance can be given that the company's patents will afford
protection against competitors with similar compounds or technologies, that
others will not obtain patents claiming aspects similar to those covered by the
company's patents or applications or that the patents of others will not have an
adverse effect on the ability of the company to do business. Moreover, the
company believes that obtaining foreign patents may be more difficult than
obtaining domestic patents because of differences in patent laws and recognizes
that its patent position, therefore, may be stronger in the United States than
abroad. In addition, the protection provided by foreign patents, once they are
obtained may be weaker than that provided by domestic patents.
In addition to seeking the protection of patents and licenses, the
company also relies on trade secrets to maintain its competitive position. It is
the practice of the company to enter into confidentiality agreements with
employees, consultants and licensees. No assurance can be given, however, that
these measures will prevent the unauthorized disclosure or use of such
information.
Hexalen, Ethyol and NeuTrexin are registered United States trademarks
of the company.
Orphan Drug Status
Pursuant to the Orphan Drug Act, the FDA may designate a drug intended
to treat a "rare disease or condition" as an "orphan drug". "Rare disease or
condition" is one which affects less than 200,000 people in the United States,
or which affects more than 200,000 people but for which the cost of development
and making available the drug will not be recovered from sales of the drug in
the United States. Upon approval of an NDA for an orphan drug, such drug may be
eligible for exclusive marketing rights in the United States for designated and
approved indications for seven years. Orphan drugs may also be eligible for
federal income tax credits for certain clinical trial expenses. The company
holds orphan drug designations for Hexalen for advanced ovarian cancer; for
Ethyol for use as a chemoprotective agent against cisplatin and cyclophosphamide
in the treatment of ovarian cancer and for use as a chemoprotective agent for
cisplatin in the treatment of metastatic melanoma; and for NeuTrexin for PCP,
metastatic colorectal cancer, metastatic head and neck cancer, non-small cell
lung cancer and pancreatic cancer. See "Principal Products."
The company may receive marketing exclusivity for an orphan drug only
if it is the sponsor of the first NDA approved for the drug for an indication
for which the drug was designated as an orphan drug prior to the approval of the
NDA. Therefore, unlike patent protection, orphan drug status does not prevent
other manufacturers from attempting to develop the drug for the designated
indication or from obtaining NDA approval prior to approval of the company's
NDA. If another sponsor's NDA for the same drug and the same indication is
approved first, that sponsor is entitled to exclusive marketing rights if that
sponsor has received orphan drug designation for the drug. In that case, the FDA
would be prohibited from approving the company's application to market the
product for the relevant indication for a period of seven years. If another
sponsor's NDA for the same drug and the same indication is approved first, but
that drug has not been designated as an orphan drug, the FDA would still be
permitted to approve the company's NDA.
The company believes that several of its products in addition to
Hexalen, Ethyol, and NeuTrexin may qualify for designation as orphan drugs.
There can be no assurance, however, that such other products will receive orphan
drug status. Moreover, possible amendment of the Orphan Drug Act by the United
States Congress and possible reinterpretation by the FDA are the subject of
frequent discussion. Legislation to limit exclusivity in some respects was
passed by Congress, but vetoed by the President in 1990. FDA regulations
reflecting certain other limitations and procedures went into effect in January
1993. Therefore, there is no assurance as to the precise scope of protection
that may be afforded by orphan drug status in the future, or that the current
level of exclusivity and tax credits will remain in effect.
18
<PAGE>
Government Regulation
The production and marketing of the company's products and its research
and development activities are subject to comprehensive regulation by various
federal, state and local authorities in the United States and governmental
authorities of other countries. In particular, the FDA exercises regulatory
authority over the development, testing, formulation, manufacture, labeling,
storage, record keeping, quality control, advertising and promotion of the
company's products.
A new drug may not be marketed in the United States until it has
undergone rigorous testing and been approved by the FDA. The drug may then be
marketed only for the specific indications, uses, formulation, dosage forms, and
strengths approved by the FDA. Similar requirements are imposed by foreign
regulators upon the marketing of a new drug in their respective countries.
The steps required before a drug may be marketed in the United States
include (a) preclinical laboratory and animal tests, (b) submission to the FDA
of an application for an Investigational New Drug exemption (an "IND"), which
must become effective before human clinical trials may commence, (c) human
clinical trials to establish the safety and efficacy of the drug, (d) the
submission of a detailed NDA to the FDA, and (e) FDA approval of the NDA. In
addition to obtaining FDA approval for each product, each establishment where
the drug is to be manufactured for sale in the United States must be registered
with the FDA. Domestic manufacturing establishments must comply with current
good manufacturing practices ("GMP") and are subject to periodic inspections by
the FDA. Foreign manufacturing establishments also must comply with GMP and are
subject to periodic inspection by the FDA and/or by local authorities under
agreement with the FDA.
Preclinical tests include laboratory evaluation of product chemistry
and animal studies to assess the potential safety and efficacy of the product.
Products must be formulated according to GMP, and preclinical tests must be
conducted by laboratories that comply with FDA regulations regarding Good
Laboratory Practices. The results of preclinical tests are submitted to the FDA
as part of an IND, which must become effective before the sponsor may conduct
clinical trials in human subjects. Unless the FDA objects to an IND, the IND
becomes effective 30 days following its receipt by the FDA. There is no
certainty that submission of an IND will result in FDA authorization to commence
clinical trials.
Clinical trials involve the administration of the investigational drug
to patients. Clinical trials typically are conducted in three phases which
generally are conducted sequentially. Drugs are first tested in Phase I for
safety, side effects, dosage tolerance, metabolism and clinical pharmacology.
With respect to anticancer agents, testing typically is done with a small group
of patients with advanced cancers that have proved unresponsive to other forms
of therapy. Phase I testing typically takes one year to complete. Phase II
involves tests in a larger but still limited patient population to determine the
efficacy of the drug for specific indications, to determine optimal dosage and
to identify possible side effects and safety risks. Phase II testing for an
indication typically takes from one and one-half to two and one-half years to
complete. When a drug shows efficacy in Phase II evaluations, expanded Phase III
trials are generally undertaken to evaluate the overall risks and benefits of
the drug in relationship to the treated disease in light of other available
therapies. Phase III studies generally take from two and one-half to five years
to complete. There can be no assurance that Phase I, Phase II or Phase III
testing will be completed successfully within any specified time period, if at
all. Furthermore, company and/or the FDA may suspend clinical trials at any time
if it decides that patients are being exposed to a significant health risk.
The company is engaged in an extensive program of clinical trials which
hopefully will demonstrate the efficacy, safety and benefit of these drugs to
patients. However, there are risks inherent in each stage of drug development
and there can be no assurance that the findings in Phase I or Phase II clinical
trials will be confirmed in Phase III clinical trials.
19
<PAGE>
The company is and will continue to be dependent upon and require that
the laboratories and medical institutions conducting its preclinical studies and
clinicals trials maintain both good laboratory and good clinical practices and
that the manufacturers of its compounds maintain compliance with current GMP
requirements. Data obtained from preclinical studies and clinical trials are
subject to varying interpretations that could delay, limit, or prevent FDA
regulatory approval. Delays or rejections may be encountered based upon changes
in FDA policy for drug approval during the period of development and FDA
regulatory review. Similar delays also may be encountered in foreign countries.
Any delay in obtaining, or failure to obtain, such approvals would adversely
affect the company's ability to generate product revenues or royalties. There
can be no assurance that regulatory approval will be obtained for a product
under development by the company. Moreover, even if approval is granted, such
approval may entail commercially unacceptable limitations on the labeling claims
for which a product may be marketed.
The results of the preclinical studies and clinical trials are
submitted to the FDA as part of an NDA for approval of the marketing and
commercial shipment of the drug. The NDA also includes information pertaining to
the chemistry, formulation, activity and manufacture of the drug and each
component of the final product, as well as details relating to the sponsoring
company. The NDA review process takes more than two years on average to
complete, although reviews of treatments for cancer and other life-threatening
diseases may be accelerated. However, the process may take substantially longer
if the FDA has questions or concerns about a product. In general, the FDA
requires at least two adequate and well-controlled clinical studies
demonstrating efficacy in order to approve an NDA. The FDA may however, request
additional information, such as long term toxicity studies or other long-term
studies relating to product safety or efficacy. Notwithstanding the submission
of such data, the FDA ultimately may decide that the application does not
satisfy its regulatory criteria for approval. Finally, the FDA may require
additional clinical tests following NDA approval.
In December of 1992, the FDA issued regulations (Accelerated Approval
Regulations) under which the agency will accelerate approval of certain drugs
and biological products for serious or life-threatening illnesses, with
provisions for any necessary continued study of the drugs' clinical benefit,
after approval or with restrictions on use, if necessary. Accelerated approval
is considered in two situations: (1) when approval can be reliably based on
evidence from adequate and well-controlled studies of the drug's effect on a
surrogate endpoint that reasonably suggests clinical benefit or on evidence of
the drug's effect on a clinical endpoint other than survival or irreversible
morbidity, pending completion of studies to establish and define the degree of
clinical benefits to patients; and (2) when FDA determines that a drug,
effective for the treatment of a disease, can be used safely only if
distribution or use is modified or restricted. Drugs approved under the
Accelerated Approval Regulations will have met the requisite standards for
safety and effectiveness under the Federal Food, Drug, and Cosmetic Act, and
thus will have full approval for marketing. Under these regulations, FDA has the
authority to withdraw approval, following a hearing, if: (1) a postmarketing
clinical study fails to verify clinical benefit; (2) the applicant fails to
perform the required postmarketing study with due diligence; (3) use after
marketing demonstrates that postmarketing restrictions are inadequate to assure
safe use of the drug product; (4) the applicant fails to adhere to the
postmarketing agreed upon; (5) promotional materials are false or misleading;
and (6) other evidence demonstrates that the drug product is not shown to be
safe or effective under its conditions of use.
Under the regulations governing accelerated approvals, promotional
materials must be submitted to the FDA at least 30 days prior to the intended
time of initial dissemination of such materials. This is in contrast to the
FDA's requirement for drugs approved by the FDA not under the Accelerated
Approval Regulations, where promotional materials must be provided to FDA upon
first use.
Among the requirements for product approval is the requirement that
prospective manufacturers conform to the FDA's current GMP standards, which also
must be observed at all times following approval. Accordingly, manufacturers
must continue to expend time, money and effort in production, record keeping and
quality control to ensure compliance with GMP standards. Failure to so comply
subjects the manufacturer to possible FDA action, such as the suspension of
manufacturing or seizure of the product. The FDA may also request a voluntary
recall of a product.
20
<PAGE>
The product testing and approval process is likely to take a
substantial number of years, and involves the expenditure of substantial
resources. There can be no assurance that any approval will be granted on a
timely basis, or at all. The FDA also may require post-marketing testing and
surveillance to monitor the product and its continued compliance with regulatory
requirements. Upon approval, a drug may only be marketed for the approved
indications in the approved dosage forms and at the approved levels. In
addition, for commercial sales in the United States, the drug must be
manufactured at manufacturing sites approved by the FDA for the manufacture of
the particular drug. Therefore, the company is highly dependent on the ability
of the approved facility or facilities to manufacture the particular drug. A
fire or other disaster affecting an approved manufacturing site could have a
materially adverse effect on the ability of the company to supply a particular
drug product. In addition, foreign regulatory authorities also require that
manufacturing sites for drugs be approved to manufacture the particular drug.
Adverse experiences with the product must be reported to the FDA and
other regulatory authorities. The FDA also may require the submission of any lot
of the product for inspection and may restrict the release of any lot that does
not comply with FDA standards, or may otherwise order the suspension of
manufacture, recall or seizure if non-compliant product is discovered. Product
approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems concerning safety or efficacy of the product are
discovered following approval.
The Prescription Drug User Fee Act of 1992 was enacted to expedite FDA
review and approval of new drugs by providing the FDA additional funds through
the imposition of user fees. The Act imposes three kinds of user fees on
manufacturers prescription drugs: (1) a one time fee for each single source
prescription drug application submitted on or after September 1, 1992; (2) an
annual fee for each establishment that produces single source prescription
drugs; and (3) an annual fee for each single source prescription drug product
marketed.
The company also will be subject to foreign regulatory requirements
governing clinical trials, manufacturing of products, marketing of products,
product approvals, and pricing approvals. Whether or not FDA approval has been
obtained, approvals by the comparable regulatory authorities of foreign
countries must be obtained prior to the commencement of marketing of the product
in those countries. The approval process varies from country to country and the
time required may be longer or shorter than that required for FDA approval.
Under its agreement with licensees and distributors in foreign countries, the
company may require the licensee or the distributor to be responsible for
obtaining regulatory approvals in their respective territories.
The company's research and development activities and manufacturing
activities involve the controlled use of hazardous materials and chemicals. The
risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, the company could be
held liable for any resulting damages, and any such liability could exceed the
resources of the company which would have a material adverse effect on the
company's business, financial condition, and results of operation.
There continue to be significant changes in health care and the way
health care is delivered. The company is unable to predict the effect of future
changes to health care and its delivery on the future operation of the company's
business. Changes affecting drug pricing, drug reimbursement, prescription
benefits, and levels of reimbursement for drugs, among others, could have a
materially adverse effect on the company's business.
21
<PAGE>
Employees
As of January 31, 1997, the company employed 151 persons full-time, of
whom 52 were engaged in research and development; the others were in
manufacturing, administrative, sales and marketing or executive positions. A
significant percentage of the company's management and employees have had prior
experience with other pharmaceutical companies.
None of the company's employees is covered by a collective bargaining
agreement. Management considers the company's relations with its employees to be
good.
Consultants
The company's Scientific Advisory Board consists of prominent
physicians and preclinical scientists who are experts in various areas of
research and who the company believes may make a contribution to the development
of the company's business. The Scientific Advisory Board advises management of
advances in relevant science, assists in identifying specific product
opportunities and aids in recruiting personnel and procuring research contracts.
In addition to the individuals serving on the Scientific Advisory
Board, the company has retained the services of physicians and preclinical
scientists (the "Scientific Consultants") representing a broad spectrum of
scientific disciplines in medicine, as well as consultants in such areas as
preclinical drug development and marketing. These consultants are paid
principally on a per diem fee basis and in some cases have been granted options
to purchase the company's common stock under the company's stock option plans.
The company also pays for preclinical studies and for human clinical trials in
the academic laboratories of several of the Scientific Consultants. Certain of
the company's agreements with Scientific Consultants require them to disclose
and assign to the company all ideas, discoveries and inventions developed by
them in the course of providing consulting services to the company.
Product Liability Insurance
The testing, marketing and sale of human health care products by the
company entails an inherent risk that product liability claims may be asserted
against the company. The company's therapies may be carcinogenic or toxic. The
testing and sale of human health care products by the company entails inherent
risk that product liability claims may be asserted against the company. The
company currently carries product liability coverage on a claims made and
reported basis in the aggregate amount of $20,000,000 per policy year. The
company believes such coverage is commercially reasonable in light of its
current operations, although there can be no assurance that such coverage will
ultimately be adequate. As the company expands the scope of its clinical testing
and marketing of its products, the company will be exposed to far greater
potential liabilities.
The pharmaceutical industry has in the past experienced difficulty in
maintaining product liability insurance coverage at reasonable levels, and
substantial increases in insurance costs may render coverage economically
impractical. Although the company will seek to carry reasonable levels of
product liability insurance, it is not certain that such coverage can be
obtained on reasonable terms, or, if obtained, that such amounts ultimately will
prove adequate or will be renewable for any period. If any product liability
claim against the company were sustained, its business and prospects could be
materially adversely affected.
Item 2. Properties.
The company's principal offices comprise approximately 26,400 square
feet of space in West Conshohocken, Pennsylvania. The space is rented pursuant
to a lease which expires on October 31, 1998. The company also leases 10,000
square feet of laboratory space in Exton, Pennsylvania which is used as an
22
<PAGE>
analytical laboratory conducting small scale product analysis, testing and
development. This laboratory space is leased pursuant to a lease that expires
June 30, 1998, subject to the company's option to extend the lease for an
additional two-year term.
The company's United Kingdom operations are conducted through its
subsidiary, USB Pharma Limited and are presently housed in an 8,689 square foot
office in an office building in Watford, Hertfordshire, England. This space is
rented pursuant to a ten-year lease the term of which begins March 25, 1997.
This lease can be terminated at the end of five years subject to an early
termination fee of (pound)50,000.
The company's manufacturing facilities are held in its Dutch
subsidiary, USB Pharma B.V., and are located in The Netherlands in an 18,000 sq.
ft. facility designed to manufacture sterile products. The facility was
purchased in March 1993 for $2,250,000. The company has invested approximately
$3,158,800 in renovations to the facility. The facility became subject to a
mortgage of approximately $680,000 in March 1994. The company leases warehouse
space in Nijmegen, The Netherlands of approximately 9,000 sq. feet. This space
is subject to a lease that is subject to termination by the company in 1998.
The company believes that its present facilities are satisfactory for
its current operations.
Item 3. Legal Proceedings.
On February 28, 1996, Ichthyol Gesellschaft Cordes, Hermanni & Co.
filed a complaint for refrain, information and damages with the Regional Court
of Hamburg against U.S. Bioscience, Inc. on the grounds of trademark
infringement in respect of the use of the trademark "Ethyol" in Germany. On
April 29, 1996, U.S. Bioscience filed a reply to plaintiff's complaint stating
U.S. Bioscience's position that the trademark "Ethyol" does not infringe
plaintiff's trademark rights in the trademark "Ichthyol" nor the plaintiff's
firm right in the slogan "Ichthyol." The suit was dismissed on January 29, 1997,
by the Regional Court of Hamburg at which time the plaintiff was given leave to
appeal against the judgment rendered in favor of U.S. Bioscience, Inc. The
plaintiff will have a month to file an appeal from the date of service of the
grounds for the judgment, which, as of March 15, 1997, have not been issued by
the court. It is not possible to evaluate whether the plaintiff will appeal and,
if the plaintiff appeals, how the case will be decided on appeal.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
23
<PAGE>
Executive Officers of the Registrant
The executive officers of the company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Philip S. Schein, M.D. 57 Chairman, Chief Executive Officer, and
Director
C. Boyd Clarke 48 President, Chief Operating Officer and
Director
Robert I. Kriebel 54 Executive Vice President, Chief Financial
Officer, Treasurer and Director
Barbara J. Scheffler 45 Senior Vice President, Corporate and
Scientific Affairs
Wolfgang Oster, M.D. 40 Senior Vice President, Worldwide Clinical
Research
Donald O. Brown 54 Senior Vice President,
Pharmaceutical Operations
Martha E. Manning 42 Senior Vice President, General Counsel
and Secretary
</TABLE>
Dr. Schein has been Chief Executive Officer and a Director of the
company since its formation in May 1987 and Chairman since May 1990. He held the
office of President of the company from its formation until April 1992 and again
from May 1995 to September, 1996. From April 1987 to May 1987 he was employed by
U.S. Healthcare, Inc., then a publicly-owned operator of health maintenance
organizations ("HMO's") to commence the business undertaken by the company. From
January 1987 to February 1987 Dr. Schein was a consultant in drug development to
Unimed, Inc., a pharmaceutical company, and Professor of Medicine and
Pharmacology at the University of Pennsylvania. Dr. Schein served as Vice
President of Worldwide Clinical Research and development, Smith, Kline & French
Laboratories, the pharmaceutical division of SmithKline Beckman Corporation,
from October 1983 to December 1986. Dr. Schein was the Scientific Director of
the Vincent T. Lombardi Cancer Research Center at Georgetown University School
of Medicine in Washington, D.C. from July 1982 to October 1983, Chief of the
Division of Medical Oncology from August 1974 to October 1983 and Professor in
the Departments of Medicine and Pharmacology from August 1974 to October 1983.
From July 1971 to August 1974 he was a senior investigator at the NCI and head
of the Clinical Pharmacology Section. Dr. Schein is a former President of the
American Society of Clinical Oncology and a former Chairman of the FDA Oncologic
Drugs Advisory Committee, where he received the Commissioner's Special Citation
and the Wiley Medal for outstanding service. In September 1994 Dr. Schein was
appointed by President Clinton to a six year term on the National Cancer
Advisory Board. He has published more than 350 articles and texts relating to
basic and clinical research and drug development and is the recipient of
numerous scientific and medical awards and honors. He is a Director of Oncor
Inc., a biotechnology-based diagnostics company and Medicis Pharmaceutical
Corporation, a research intensive pharmaceutical company focused on dermatology.
Mr. Clarke was elected to the Board of Directors in September 1996 when
he joined the company as President and Chief Operating Officer. From 1977 until
he joined the Company, Mr. Clarke held various positions with Merck & Co. and
its affiliates, including Vice President, Strategy, Alliance Management and
24
<PAGE>
Development of Merck Vaccines from 1995 to 1996; President of Pasteur-Merieux
MSD, from 1993 to 1994; General Manager, Pasteur-Merieux - Merck Affairs of
Merck & Co., Inc., from 1992 to 1993; and Executive Director, Corporate Planning
of Merck & Co., Inc., from 1988 to 1992. In March, 1997, Mr. Clarke was elected
to the board of directors of OraVax, Inc., a biopharmaceutical company engaged
in the discovery and development of oral vaccines and noninjected antibody
products.
Mr. Kriebel joined the company in April 1991 as Senior Vice President -
Finance and Administration and Treasurer and was elected Director in May 1991.
On September 26, 1996, Mr. Kriebel was promoted to the position of Executive
Vice President, Chief Financial Officer and Treasurer. He held various positions
with Rhone-Poulenc Rorer Inc. (formerly Rorer Group Inc.) from 1974 until
November 1990. From 1987 to November 1990 he was Vice President and Controller
of Rorer Group Inc.'s Armour Pharmaceutical Company. In 1986, Mr. Kriebel was
Vice President - Investor Relations of Rorer Group Inc. and from 1979 to 1985 he
was Treasurer of Rorer Group Inc.
Ms. Scheffler was named Senior Vice President, Corporate and Scientific
Affairs in August 1996. From February 1995 to August 1996 she had been Senior
Vice President Project Management. From November 1991 to February 1995, she was
Senior Vice President, Clinical Operations and Regulatory Affairs. She was Vice
President-Clinical Operations from July 1987 to November 1991 and Secretary from
May 1987 to August 1991 and from January 1993 to May 1993. From September 1973
to April 1987, she held various positions in the Biostatistics and Clinical
Information Departments of Worldwide Clinical Research and Development at Smith,
Kline & French Laboratories, including Manager, Worldwide Clinical Sciences
Administration.
Dr. Oster joined the company on December 10, 1992 and early in 1993
became Vice President, Clinical Research, located in the company's Watford,
United Kingdom office. Effective December 11, 1996, Dr. Oster was promoted to
the position of Senior Vice President, Worldwide Clinical Research and relocated
to the company's United States offices in West Conshohocken, Pennsylvania. Prior
to joining U.S. Bioscience, he served as director of clinical research and
development for oncology at Behringwerke/Hoechst in Marburg, Germany from 1989
to 1992. He continues as adjunct professor and member of the faculty of the
Albert-Ludwig University, Freiburg, Germany. He is a graduate of the University
of Mainz, Germany, where he earned the degree of Bachelor of Science and a
graduate of the University of Mainz Medical School as well. He did post-doctoral
training at the University of Mainz and the Memorial Sloan-Kettering Cancer
Center in New York.
Mr. Brown joined U.S. Bioscience as Senior Vice President of
Pharmaceutical Operations in April, 1992. From 1982 through 1992, he served in
numerous capacities with Alcon Laboratories, Inc., including Group Director,
International Quality Assurance, and Director of Manufacturing, Alcon Munich
operations and at the World Headquarters facilities in Ft. Worth, Texas. Mr.
Brown's oncology background was developed during his five year tenure with
Bristol-Myers Squibb where he served as Manager of Process Engineering and Plant
Manager, Sterile Operations.
Ms. Manning joined U.S. Bioscience as Vice President, General Counsel
and Secretary in May 1993. In December, 1996, Ms. Manning was promoted to Senior
Vice President, General Counsel and Secretary. From July 1988 until joining U.S.
Bioscience, she had served as General Counsel for The Wistar Institute of
Anatomy and Biology, the nation's oldest independent basic biomedical research
institute. From 1983 until joining Wistar, Ms. Manning had been an associate
with the law firm Morgan, Lewis & Bockius.
25
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The company's Common Stock is traded on the American Stock Exchange
(the "AMEX") under the symbol "UBS." The following table sets forth the high and
low sale prices for the Common Stock, adjusted for the 1 for 2 reverse stock
split effected April 23, 1996, reported by the AMEX for the periods indicated.
High Low
---- ---
Year ended December 31, 1996
First Quarter 15 1/2 9 3/8
Second Quarter 19 7/8 12 5/8
Third Quarter 13 7/8 8 1/2
Fourth Quarter 15 1/2 9 1/4
Year ended December 31, 1995
First Quarter 7 1/8 4
Second Quarter 11 1/2 4 1/8
Third Quarter 11 1/8 7
Fourth Quarter 11 1/8 7 1/4
On March 4, 1997, there were 5,104 holders of record of Common
Stock.
The company has not paid any dividends on the Common Stock since
its inception and does not intend to pay any dividends in the foreseeable
future. It is the present policy of the Board of Directors to retain all
earnings, if any, to finance the development of the company's business.
26
<PAGE>
Item 6. Selected Financial Data.
The selected financial data presented below for each of the five
years in the period ended December 31, 1996, and the period May 7, 1987
(inception) through December 31, 1996, is derived from the company's audited
financial statements. The selected financial information presented below should
be read in conjunction with the consolidated financial statements, including the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
For the
period
May 7, 1987
(inception)
through
YEAR ENDED DECEMBER, 31 December
------------------------------------------------------- 31,
Statement of Operations Data:(1) 1996 1995 1994 1993 1992 1996
---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales $10,785 $8,724 $7,210 $2,361 $3,511 $35,938
Net investment income 2,335 1,223 1,234 3,776 7,294 27,385
Licensing, royalty and research income 7,344 21,398 102 2,067 618 33,083
-------- -------- --------- ---------- --------- -----------
Total revenues 20,464 31,345 8,546 8,204 11,423 96,406
Expenses:
Cost of sales 2,956 2,559 1,694 626 886 9,482
Selling, general and administrative 12,275 16,583 13,233 18,639 14,028 89,925
Research and development costs 14,383 12,186 17,608 19,404 16,735 99,546
Provision for litigation -- -- -- 10,165 -- 10,165
Interest expense 537 255 52 -- -- 1,905
-------- -------- --------- ---------- --------- -----------
Total expenses 30,151 31,583 32,587 48,834 31,649 211,023
-------- -------- --------- ---------- --------- -----------
Net loss ($9,687) ($238) ($24,041) ($40,630) ($20,226) ($114,617)
======== ======== ========= ========== ========= ===========
Net loss per common share ($0.43) ($0.01) ($1.19) ($2.05) ($1.03) --
======== ======== ========= ========== ========= ===========
Weighted average number of common shares 22,396 20,436 20,127 19,802 19,704 --
outstanding(2)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
Balance Sheet Data:(1) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and investments $36,677 $45,596 $24,428 $48,364 $ 77,191
Working capital 34,126 42,577 21,536 43,377 74,683
Total assets 49,111 61,880 34,464 57,787 83,272
Long-term debt 1,845 19,088 997 387 --
Provision for litigation -- -- 2,301 10,165 --
Other long-term liabilities 1,462 1,036 788 588 438
Deficit accumulated during the development stage (114,617) (104,930) (104,692) (80,651) (40,021)
Stockholders' equity 36,894 28,788 23,939 38,090 77,490
</TABLE>
(1) In Thousands, except per share amounts
(2) After giving effect to the 1 for 2 reverse stock split effected April 23,
1996.
27
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
This report on Form 10-K 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 the 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.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the Notes to the Consolidated Financial
Statements on pages F-1 to F-20.
Since its inception in 1987, the company has devoted its efforts
primarily to raising capital, recruiting personnel, identifying and acquiring
drugs for further research and development, clinical development of such drugs
and, since 1991, selling and marketing its drugs in the United States and
commercializing its products in foreign markets through distribution agreements
with established pharmaceutical companies. The company currently sells and
markets, in conjunction with a co-promotion partner, three compounds in the
United States: Hexalen, introduced in January 1991, NeuTrexin, introduced in
January 1994 and Ethyol, which was made commercially available in April 1996.
The company received regulatory approval to market Ethyol in the United States
in December 1995. Ethyol is a cytoprotective agent for reducing cumulative renal
toxicity associated with administration of cisplatin in patients with advanced
ovarian and non-small cell lung cancers. Ethyol was launched by the company's
U.S. distribution partner ALZA Corporation ("ALZA") in April 1996.
The company has also received regulatory approval for Ethyol in several
European countries, and received approval to expand the labeled 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, Spain, Austria, Portugal,
Switzerland, Finland, Greece 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 an affiliate of Eli
Lilly and Company 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, capital equipment and facilities will continue to exceed
revenues as a result of (i) continuing further clinical trials aimed at label
expansion and regulatory approvals for Ethyol and NeuTrexin in the United States
and Europe, (ii) the marketing of Hexalen, NeuTrexin and Ethyol in the United
States and further Ethyol product introductions in Europe, (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.
Commercial activities during 1996 centered around the launch of Ethyol
in the United States with distribution partner ALZA, continued promotion and
sale of Hexalen and NeuTrexin in the United States, support of Ethyol marketing
in Europe with Scherico and the conclusion of an amendment to the marketing
28
<PAGE>
and distribution agreement for Ethyol in Europe with Scherico ("Scherico
Amendment"). The company also entered into a co-promotion arrangement in the
United States with ALZA for its drug products Hexalen and NeuTrexin. The company
further pursued clinical programs to expand the approved indications for Ethyol
and NeuTrexin, principally in cancer treatment regimens, achieve regulatory
approvals for the use of Ethyol in non-small cell lung cancer in the United
States and several European countries, and obtain the initial regulatory
approvals for Ethyol in Canada, Australia and other foreign markets.
Additionally, third party contract manufacturing was conducted at the company's
manufacturing plant in The Netherlands and product development activities were
continued on drug products Ethyol, NeuTrexin, FddA and AZQ.
The stockholders of the company approved, at the company's 1996 annual
meeting, a 1 for 2 reverse stock split effected April 23, 1996. Accordingly all
references to the number of shares and per share amounts included in this annual
report reflect this 1 for 2 reverse stock split.
As part of a plan to enhance the company's ability to pursue its
long-term commercial and research objectives, in December 1995, the company
raised approximately $19 million in a private placement consisting of 560,056
shares of common stock and the issuance of $16.5 million in 4% three-year
unsecured convertible debentures. The entire issue of convertible debentures was
converted into 1,577,366 shares of the company's common stock during the first
half of 1996.
The company, in January 1995, following the December 1994 meeting of
the Oncologic Drug Advisory Committee of the FDA, which withheld recommendation
for the U.S. approval of Ethyol, went through an internal restructuring and
downsizing in an effort to reduce expenditures so as to preserve financial
resources for its research, product development and commercial objectives. This
restructuring resulted in a reduction in the company's staffing levels and
expenditures and a re-prioritization of research efforts focusing on near-term
projects, which management believes may be capable of providing additional
revenues. A one-time restructuring charge of approximately $600,000 principally
to cover severance payments, was charged to earnings in the first quarter of
1995. The company's principal research activity in 1995 centered on the
company's goal in achieving regulatory approval of Ethyol by the FDA. As noted
above, the company was successful in achieving marketing approval of Ethyol by
the FDA in December 1995. Commercial activities during 1995 primarily included
the promotion and sale of Hexalen and NeuTrexin in the United States, the launch
of Ethyol in Europe by marketing partner Scherico and the conclusion of a
marketing and distribution agreement for Ethyol in the United States with ALZA.
The company also pursued clinical programs to expand the label indications for
Ethyol, NeuTrexin and Hexalen and to obtain initial regulatory approvals for
Ethyol in several European countries and Canada. Additionally, start-up and
validation efforts were completed at the company's manufacturing plant in The
Netherlands. The company also acquired FddA, a product for the treatment of AIDS
developed by the National Cancer Institute.
In 1994, the company's principal commercial activity was the launch of
NeuTrexin in the United States. The launch of NeuTrexin and the refocused
marketing activity related to Hexalen, resulted in a 200% increase in sales over
the 1993 year sales. Additionally, during 1994, as in 1993, the company's
operations also centered around regulatory submissions and follow-up activities
on Ethyol, NeuTrexin and Hexalen in the United States, Canada and Europe;
start-up and validation work at the company's newly acquired manufacturing plant
in The Netherlands; continued clinical development of late-stage compounds,
Ethyol, PALA and Rogletimide; expanded preclinical testing and product
development; and licensing and business development activities.
During and prior to 1992, the company's operations focused on the
research and development of its product portfolio via continued clinical
programs, primarily related to Ethyol, NeuTrexin, Hexalen and PALA; sales and
marketing of Hexalen in the United States; monitoring and/or preparing
regulatory filings for Ethyol in the United States and Europe, NeuTrexin in the
United States and Hexalen in the United Kingdom, and enhancements to product
manufacturing, quality assurance and testing methods including the start-up of
its own analytical laboratory and clinical operation in Europe and business
development activities.
29
<PAGE>
Results of Operations
1996 Compared with 1995
Sales revenue increased by 24% to $10,785,200 for the year ended
December 31, 1996 from $8,724,000 in the prior year. The $2.1 million increase
was principally due to the launch of Ethyol in the United States in April 1996.
The company sells Ethyol for use in the United States to ALZA under an exclusive
distribution agreement and co-promotes Ethyol with ALZA utilizing its own sales
force. Ethyol sales to the wholesale trade amounted to $9.4 million (as reported
by ALZA)from the date of launch to December, 1996. Sales of the company's other
two products, Hexalen and NeuTrexin declined in 1996 due, in part, to the
promotional emphasis placed on the launch of Ethyol. In addition, the company
believes that during 1996, the launch of competitive new products 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 and severity of
Pneumocystis carinii pneumonia ("PCP") due to improvements in the treatment for
human immunodeficiency virus (HIV) and prophylactic treatment for patients at
risk for PCP.
Net investment income increased to $2,335,300 in the year ended
December 31, 1996 from $1,223,100 in the same period of 1995. The $1.1 million
increase is attributable to the increased portfolio balance resulting from the
company's December 1995 private placement and the initial distribution fee
received from ALZA as part of the U.S. distribution and co-promotion agreement
for Ethyol consummated in late 1995.
Licensing, royalty and other income decreased to $7,343,500 for the
year ended December 31, 1996 as compared to $21,398,000 for the year ended
December 31, 1995. The decrease is principally due to the $20 million recognized
in 1995 for U.S. marketing and distribution rights for Ethyol from ALZA. During
1996 the company received $6.2 million from Scherico related to the Scherico
Amendment. The company also received milestone payments from Eli Lilly and
Schering-Plough related to regulatory approvals of Ethyol in Canada and
Australia.
Cost of sales, which consists of product manufacturing, testing,
delivery and royalty expenses, increased in line with sales. As a percentage of
sales, cost of sales in the year ended December 31, 1996, decreased to 27% from
29% in the prior year due principally to the sales of Ethyol to ALZA and
additional sales revenue as a result of the above noted amendment to the
Scherico European distribution agreement for Ethyol.
Selling, general and administrative costs for the year ended December
31, 1996 decreased to $12,274,800 from $16,583,400 in 1995. The $4.3 million
decrease is principally due to the inclusion in the 1995 period of a charge of
$4.2 million for European losses generated under the original Scherico agreement
and a $2.0 million charge accrued for marketing expenditure commitments under
the U.S. Ethyol distribution agreement with ALZA. Excluding these items,
selling, general and administrative costs increased over the prior year by $1.9
million primarily the result of higher personnel costs of $1.1 million and
increased marketing and corporate expenses of $816,300.
Research and development costs increased to $14,383,300 in the year
ended December 31, 1996 as compared to $12,186,000 in the prior year. The $2.2
million increase is principally attributable to increased clinical grant
expenses of $667,500, reflecting higher costs per trial and increased patient
enrollment in the company's phase III clinical trial programs for Ethyol and
NeuTrexin, higher product development costs of $505,300 primarily relating to
drug products FddA and AZQ, increased personnel and facility costs of $589,000
and $163,600 respectively, higher travel costs of $256,600 and increased FDA
fees of $203,400 resulting from fees imposed by the FDA on the company's
manufacturing facility in The Netherlands.
30
<PAGE>
The net loss for 1996 was $9,687,400 or $0.43 loss per common share.
This compares to a net loss in 1995 of $237,800 or $0.01 loss per common share.
Excluding the $20 million payment from ALZA related to the U.S. Ethyol
distribution agreement, the $4.2 million in accrued European losses related to
the original Scherico Agreement and the $2 million charge accrued for marketing
commitments related to the U.S. Ethyol distribution agreement, the 1995 loss
would have been $14,037,800 or $0.69 loss per common share.
1995 Compared with 1994
Sales revenue increased by 21% to $8,724,000 for the year ended
December 31, 1995 from $7,209,700 in the prior year. The $1,514,300 increase was
primarily due to increased sales of Hexalen in the United States and sales of
initial launch quantities of Ethyol to Scherico for European distribution.
Net investment income declined to $1,223,100 in the year ended December
31, 1995 from $1,234,700 in the same period of 1994. The $11,600 decrease
resulted from a $510,600 decrease in interest income in the 1995 period due to a
lower portfolio balance which was largely offset by an $88,800 gain on the
portfolio as compared to a $410,200 loss recorded in the 1994 period.
Licensing, royalty and other income increased to $21,398,000 for the
year ended December 31, 1995 as compared to $102,000 for the 1994 period. The
increase is principally due to the $20 million recognized from ALZA for U.S.
marketing and distribution rights for Ethyol. The company also received in 1995
one-time payments for product distribution rights in Canada and Europe.
Cost of sales, which consists of product manufacturing, testing,
delivery and royalty expenses, increased in line with sales. As a percentage of
sales, cost of sales in the year ended December 31, 1995, increased to 29% from
24% in the prior year period due principally to the sale of Ethyol to Scherico
at approximately cost of manufacture under the original Scherico agreement.
Selling, general and administrative costs for the year ended December
31, 1995 increased to $16,583,400, an increase of $3,350,700 over the 1994
expenditure of $13,232,700. The increase is principally due to the accrual of
$4.2 million for the company's share of operating losses resulting from the
launch of Ethyol in Europe by Scherico and the accrual of a one-time $2
million charge related to Ethyol U.S. launch expenses as part of the company's
co-promotion arrangement with ALZA. These expenses were partly offset by
reductions in U.S. marketing costs for NeuTrexin of $1.7 million, lower facility
costs of $204,700 and reduced legal and consulting expenses of $383,500.
Research and development costs for the year ended December 31, 1995
were $12,186,000 as compared to $17,607,900 in 1994. The $5.4 million reduction
is principally due to the capitalization of manufacturing expenses with the
start of commercial production at the company's manufacturing plant in The
Netherlands of $2 million, lower personnel costs of $1.9 million, reduced
professional and outside services expenses of $504,400 and reductions in travel
costs of $141,700. In addition, lower clinical and product development
expenditures of $752,500 resulted from the completion and scale-down of several
development programs. These expense reductions were achieved principally as a
result of the company's January 1995 internal restructuring.
The net loss for 1995 was $237,800 or $0.01 loss per common share. This
compares to a net loss in 1994 of $24,041,000 or $1.19 loss per common share.
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,
31
<PAGE>
NeuTrexin and Ethyol, and revenues received through distribution and
sublicense agreements. As of December 31, 1996, the company's cash and
investments totaled $36,676,600. The company's investment portfolio consists of
securities issued by the U.S. Government or its agencies and investment grade
corporate debt instruments.
During 1996, net cash used in operations amounted to $8,664,800
principally reflecting the net effect of the factors discussed above under
"Results of Operations" and offsetting decreases in current assets and
liabilities. In current assets, the decrease reflects the receipt in January
1996 of a portion of the distribution fee paid by ALZA as part of the U.S.
Ethyol distribution agreement. The decrease in current liabilities is due to the
payment to Scherico, in April 1996, of the company's share of 1995 operating
losses related to the original Ethyol European distribution agreement. Until
such time 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 and severity of diseases and side effects for which the
company's products are indicated, the performance of the company's licensees and
distributors, and the healthcare and reimbursement system existing in each
market where the company's products are or may become commercially available.
In February 1997, the company entered into a Stock Purchase Agreement
with ALZA pursuant to which the company agreed to sell to ALZA, subject to
certain closing conditions, including, inter alia, Hart-Scott-Rodino clearance,
1,178,882 shares of the company's Common Stock for gross consideration of
$21,526,400. The company believes its current cash and investments coupled with
the funds to be received under the Stock Purchase Agreement with ALZA and
anticipated revenues generated from product sales and other sources, will be
sufficient to cover the company's anticipated level of cash requirements for a
period in excess of three years. However, the company's funding requirements may
change due to numerous factors, including but not limited to, sales of the
company's products, manufacturing costs, reimbursement policies, regulatory and
intellectual property requirements, capital expenditure and other factors as
discussed herein. 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 the
return on product sales will be sufficient to cover operating expenses or that
the company will have adequate financial resources to commercialize its
products.
To meet its capital requirements, the company may from time to time
seek to access public or private financing markets by issuing debt, common or
preferred stock, warrants or other securities, either separately or in
combination. The company may also seek additional funding through corporate
collaborations or other financing vehicles, potentially including "off-balance
sheet" financing through partnerships or corporations. There can be no assurance
that such financings will be available at all or on terms acceptable to the
company. In addition, market reaction to any such financings may adversely
affect the price of the company's outstanding securities or debt.
The company's net capital expenditures were $1,057,200 for the year
ended December 31, 1996 and total $10,891,400 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
and to manufacture Ethyol for the U.S. market in December 1996. The
manufacturing facilities of the company and its third party suppliers used to
32
<PAGE>
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 $3,158,800 in capital
improvements have been made since its purchase to make the facility operational
and expand its production capacity. Further capital expenditures, estimated at
$640,000, are planned during 1997.
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 labeling 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 healthcare 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 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 in-market net sales and the
company no longer participates in operating profits/losses previously shared by
the parties. In addition, as noted above, Scherico paid the company a total of
$6.2 million under the Scherico Amendment in the fourth quarter of 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 in-market 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 to be
paid to the company 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' delivery requirements and sales to
the pharmaceutical trade 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 or its other
distribution arrangements.
33
<PAGE>
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 in
the third quarter of 1996 as a result of non-recurring items relating to the
Scherico Amendment noted herein. As the company continues its commercialization,
research and development activities, 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 December 31, 1996, the company had an accumulated
deficit of $114,617,200.
34
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Financial statements are set forth in this report beginning at page
F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
35
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 10 is contained in the company's
definitive Proxy Statement with respect to the company's Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission within 120
days following the end of the company's fiscal year, and is incorporated herein
by reference thereto.
Item 11. Executive Compensation.
The information required by Item 11 is contained in the company's
definitive Proxy Statement with respect to the company's Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission within 120
days following the end of the company's fiscal year, and is incorporated herein
by reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is contained in the company's
definitive Proxy Statement with respect to the company's Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission within 120
days following the end of the company's fiscal year, and is incorporated herein
by reference thereto.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is contained in the company's
definitive Proxy Statement with respect to the company's Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission within 120
days following the end of the company's fiscal year, and is incorporated herein
by reference thereto.
36
<PAGE>
PART IV
Item 14. Exhibits and Financial Statement Schedules.
Financial Statements
The following is a list of the consolidated financial statements of
the company and its subsidiaries and supplementary data included in the report
under Item 8.
Report of independent auditors
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 and the period May 7, 1987
(inception) through December 31, 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 and the period May 7, 1987
(inception) through December 31, 1996
Consolidated Statement of Stockholders' Equity for the period
May 7, 1987 (inception) through December 31, 1996
Notes to Consolidated Financial Statements
Schedules
All financial schedules required to be filed in Part IV, Item 14(a)
have been omitted because they are not applicable, not required or
because the required information is included in the financial
statements or notes thereto.
Reports on Form 8-K
The company filed the following reports on Form 8-K during the fiscal
year ended December 31, 1996:
Date of Report Items Covered
-------------- -------------
December 12, 1995 7
September 19, 1996 5, 7
September 19, 1996 7
37
<PAGE>
3. Exhibits
The following is a list of exhibits filed as part of this annual report on
Form 10-K. Where so indicated by footnote, exhibits which were previously filed
are incorporated by reference. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated in parentheses.
3.1 Restated Certificate of Incorporation (incorporated by reference
to Exhibit 3(a) to the Registrant's Registration Statement on
Form S-1 (File No. 33-39576), filed with the Securities and
Exchange Commission on March 22, 1991)
3.1.1 Certificate of Amendment to Certificate of Incorporation
(incorporated by reference to Exhibit 3.1.1 to the Registrant's
Registration Statement on Form S-3 (File No. 33-00077), filed
with the Securities and Exchange Commission on January 5, 1996)
3.1.2 Certificate of Designations of Series A Junior Preferred Stock
(incorporated by reference to Exhibit 1 to the Registrant's
Current Report on Form 8-K dated June 7, 1995)
3.2 Bylaws, as amended
4.1 Warrant Agreement dated as of June 6, 1994 by and between the
Registrant and Melon Bank, N.A. (incorporated by reference to
Exhibit 4.1 to the Registrant's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 28, 1995)
4.2 Rights Agreement dated as of May 19, 1995 by and between the
Registrant and Chemical Melon Shareholder Services L.L.C.
(incorporated by reference to Exhibit 1 to Registrant's Current
Report on Form 8-K dated June 7, 1995)
10.1* Agreement dated August 9, 1991, between the Registrant and
Warner-Lambert Company, as amended by Amendment No. 1 dated
December 12, 1991, Amendment No. 2 dated March 10, 1994 and
Amendment No. 3 dated March 11, 1994 (incorporated by reference
to Exhibit 10.1 to the Registrant's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 28,
1994)
10.2 Office Lease Agreement, dated September 1990, between U.S.
Bioscience, Inc. and Tower Bridge Associates (incorporated by
reference to Exhibit 10(k) to the Registrant's Registration
Statement on Form S-1 (File No. 33-39576), filed with the
Securities and Exchange Commission on March 22, 1991)
10.2.1 Amendment No. 1, dated August 31, 1991, to Office Lease
Agreement between U.S. Bioscience, Inc. and Tower Bridge
Associates (incorporated by reference to Exhibit 10(I)(ii) to
the Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 27, 1992)
10.2.2 Addendum, dated April 8, 1992, to Amendment No. 1 of Office
Lease Agreement between U.S. Bioscience and Tower Bridge
Associates (incorporated by reference to Exhibit 10.2.2 to the
Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 31, 1993)
10.2.3 Amendment No. 2, dated June 30, 1995, to Office Lease Agreement
between U.S. Bioscience, Inc. and Tower Bridge Associates
(incorporated by reference to Exhibit 10.2.3 to the Registrant's
Annual Report on Form 10-K, filed with the Securities and
Exchange Commission on March 20, 1996)
38
<PAGE>
10.3 Lease Agreement, dated June 15, 1992, between U.S. Bioscience,
Inc. and Pickering Acquisition Associates (incorporated by
reference to Exhibit 10.3 to the Registrant's Annual Report on
Form 10-K, filed with the Securities and Exchange Commission on
March 31, 1993)
10.3.1 Amendment No. 1, dated March 17, 1993, to Lease Agreement
between the Registrant and Pickering Acquisition Associates
(incorporated by reference to Exhibit 10.3.1 to the Registrant's
Annual Report on Form 10-K, filed with the Securities and
Exchange Commission on March 31, 1993)
10.3.2 Second Amendment to Lease Agreement between the Registrant and
Pickering Acquisition Associates dated February 8, 1995
(incorporated by reference to Exhibit 10.3.2 to the Registrant's
Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 28, 1995)
10.4 Research Agreement, dated May 14, 1987, between the Registrant
and Georgetown University, as amended May 27, 1988 (incorporated
by reference to Exhibit 10.13 to the Registrant's Registration
Statement on Form 10, filed with the Securities and Exchange
Commission on September 21, 1989)
10.4.1 Amendment No. 2, dated as of January 23, 1990, to Research
Agreement, dated May 14, 1987, between the Registrant and
Georgetown University (incorporated by reference to Exhibit
10.13.1 to the Registrant's Registration Statement on Form S-1,
filed with the Securities and Exchange Commission on February 5,
1990)
10.5 Letter agreement, dated January 22, 1992, between the Registrant
and Chemsyn Science Laboratories (incorporated by reference to
Exhibit 10(k) to the Registrant's Annual Report on Form 10-K,
filed with the Securities and Exchange Commission on March 27,
1992)
10.6 License Agreement dated January 30, 1995 between the Registrant
and National Institutes of Health (incorporated by reference to
Exhibit 10.6 to the Registrant's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 28,
1995)
10.7 Agreement for Assignment of Rights, dated January 8, 1988,
between the Registrant and Wyeth Laboratories, Inc.
(incorporated by reference to Exhibit 10.18 to the Registrant's
Registration Statement on Form 10, filed with the Securities and
Exchange Commission on September 21, 1989)
10.8* Amended and Restated License Agreement, effective as of May 1,
1993, between the Registrant and Southern Research Institute
(incorporated by reference to Exhibit 10.8 to the Registrant's
Annual Report on Form 10-K, filed with the Securities and
Exchange Commission on March 28, 1994)
10.9 Agreement, dated as of November 25, 1988, between the Registrant
and Warner-Lambert Company (incorporated by reference to Exhibit
10.23 to the Registrant's Registration Statement on Form 10,
filed with the Securities and Exchange Commission on September
21, 1989)
10.9.1 Amendment No. 1, dated March 13, 1992 to Agreement dated as of
November 25, 1988,between the Registrant and Warner-Lambert
Company (incorporated by reference to Exhibit 10(o)(ii) to the
Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 27, 1992)
39
<PAGE>
10.10 License Agreement, dated as of December 6, 1990, between the
National Technical Information Service and the Registrant
(incorporated by reference to Exhibit 10(t) to the Registrant's
Registration Statement on Form S-1 (File No. 33-39576), filed
with the Securities and Exchange Commission on March 25, 1991)
10.11 Agreement, dated as of January 1, 1995, between the Registrant
and Applied Analytical Industries, Inc. (incorporated by
reference to Exhibit 10.11 to the Registrant's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on
March 28, 1995)
10.11.1 Amendment, dated April 12, 1995, to Agreement dated January 1,
1995 between Registrant and Applied Analytical Industries, Inc.
10.11.2 Second Amendment, dated May 6, 1996, to Agreement dated January
1, 1995 between Registrant and Applied Analytical Industries,
Inc.
10.12 Agreement, dated as of September 23, 1993, between the
Registrant and Ben Venue Laboratories, Inc. (incorporated by
reference to Exhibit 10.12 to the Registrant's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on
March 28, 1994)
10.12.1 Amendment, dated April 11, 1995, to Agreement dated September
23, 1993 between the Registrant and Ben Venue Laboratories, Inc.
10.12.2 Amendment, dated December 12, 1995, to Agreement dated September
23, 1993 between the Registrant and Ben Venue Laboratories, Inc.
10.13 U.S. Bioscience/Ganes PALA Research Agreement between the
Registrant and Ganes Chemicals, Inc., signed by the Registrant
on April 25, 1991 and countersigned by Ganes Chemicals, Inc. on
April 29, 1991 (incorporated by reference to Exhibit 10(t) to
the Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 27, 1992)
10.14 License Agreement, dated February 14, 1992, between the
Registrant and Schering Overseas Limited (incorporated by
reference to Exhibit 10.14 to the Registrant's Annual Report on
Form 10-K, filed with the Securities and Exchange Commission on
March 31, 1993)
10.14.1 Amendment dated October 15, 1993 to License Agreement between
the Registrant and Schering Overseas Limited (incorporated by
reference to Exhibit 10.14.1 to the Registrant's Annual Report
on Form 10-K filed with the Securities and Exchange Commission
on March 28, 1994)
10.15 License Agreement dated May 10, 1994 between the Registrant and
Scherico, Ltd. (incorporated by reference to Exhibit 10.15 to
the Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1995)
10.16* Distribution and Supply Agreement, dated as of May 10, 1993
between the Registrant and Scherico, Ltd. (incorporated by
reference to Exhibit 10.16 to the Registrant's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on
March 28, 1995)
10.16.1* Amendment to Distribution and Supply Agreement, dated as of
August 31, 1996 between the Registrant and Scherico, Ltd.
(incorporated by reference to Exhibit 10.16.1 to the
Registrant's Current Report on Form 8-K/A dated September 19,
1996, filed with the Securities and Exchange Commission on
December 19, 1996)
40
<PAGE>
10.17 Agreement, dated as of March 10, 1994 between the Registrant and
Sipsy S.A. (incorporated by reference to Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1994)
10.18 License Agreement, effective November 28, 1990 between
Registrant and National Technical Information Service
(incorporated by reference to Exhibit 10.18 to the Registrant's
Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 28, 1994)
10.19 Stipulation of Settlement Civil Action No. 92-0678 (Dalzell, J.)
dated January 19, 1994 (incorporated by reference to Exhibit
10.19 to the Registrant's Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 28, 1995)
10.20 Non-Executive Stock Option Plan (incorporated by reference to
Exhibit 10.20 to the Registrant's Quarterly Report on Form 10-Q
for the period ended September 30, 1996)
10.21 Form of Subscription Agreement for sale of Common Stock by the
Registrant to investors in December 1995 (incorporated by
reference to Exhibit 1 to the Registrant's Current Report on
Form 8-K dated December 22, 1995)
10.22 Form of Note Purchase Agreement for sale of convertible notes by
the Registrant to investors in December 1995 (incorporated by
reference to Exhibit 2 to the Registrant's Current Report on
Form 8-K dated December 22, 1995)
10.23 Form of Convertible Note issued pursuant to Note Purchase
Agreements for sale of convertible notes by the Registrant to
investors in December 1995 (incorporated by reference to Exhibit
3 to Registrant's Current Report on Form 8-K dated December 22,
1995)
10.24 Form of Registration Rights Agreement with purchasers of Common
Stock and convertible notes issued by the Registrant to
investors in December 1995 (incorporated by reference to Exhibit
4 to the Registrant's Current Report on Form 8-K dated December
22, 1995)
10.25* Ethyol (Amifostine) Distribution and Marketing Collaboration
Agreement between the Registrant and ALZA Corporation dated
December 12, 1995 (incorporated by reference to Exhibit 5 to the
Registrant's Current Report on Form 8-K/A dated December 12,
1995, filed with the Securities and Exchange Commission on April
29, 1996)
10.25.1 Amendment No. 2 to Distribution and Marketing Collaboration
Agreement between the Registrant and ALZA Corporation dated as
of February 3, 1997 (incorporated by reference to Exhibit
10.25.2 to the Registrant's Current Report on Form 8-K dated
February 3, 1997)
10.26 Stock Purchase Agreement between the Registrant and ALZA
Corporation dated as of February 3, 1997 (incorporated by
reference to Exhibit 10.25.1 to the Registrant's Current Report
on Form 8-K dated February 3, 1997)
Executive Compensation Plans and Arrangements
10.27 Employment Agreement, dated as of March 1, 1993 between the
Registrant and Philip S. Schein, M.D. (incorporated by reference
to Exhibit 10.21 to the Registrant's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 28,
1995)
10.28 U.S. Bioscience, Inc. 1987 Incentive Stock Option Plan
(incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-8 (File No. 33-43981), filed
with the Securities and Exchange Commission on November 15,
1991)
41
<PAGE>
10.29 U.S. Bioscience, Inc. 1987 Non-Statutory Stock Option Plan
(incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-8 (File No. 33-43981), filed
with the Securities and Exchange Commission on November 15,
1991)
10.30 U.S. Bioscience, Inc. 1987 Special Non-Statutory Stock Option
Plan (incorporated by reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form S-8 (File No.
33-43981), filed with the Securities and Exchange Commission on
November 15, 1991)
10.31 U.S. Bioscience, Inc. 1991 Special Non-Statutory Stock Option
Plan (incorporated by reference to Exhibit 4.5 to the
Registrant's Registration Statement on Form S-8 (File No.
33-43981), filed with the Securities and Exchange Commission on
November 15, 1991)
10.32 U.S. Bioscience, Inc. 1992 Stock Option Plan, as amended
10.33 Executive Benefits Plan and related Form of Split Dollar
Agreement (incorporated by reference to Exhibit 10.28 to the
Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1995)
10.34 Pension Restoration Plan (incorporated by reference to Exhibit
10.29 to the Registrant's Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 28, 1995)
10.34.1 Amendment 1996-1 to Pension Restoration Plan (incorporated by
reference to Exhibit 10.33.1 to the Registrant's Annual Report
on Form 10-K filed with the Securities and Exchange Commission
on March 20, 1996)
10.35 U.S. Bioscience, Inc. Income Deferral Plan
10.36 U.S. Bioscience, Inc. 1996 Non-Employee Directors Stock Option
Plan
10.37 Executive Severance Agreement, dated October 14, 1991, between
the Registrant and Philip S. Schein, M.D. (incorporated by
reference to Exhibit 10(v) to the Registrant's Annual Report on
Form 10-K, filed with the Securities and Exchange Commission on
March 27, 1992)
10.38 Amendment dated September 22, 1992 to Executive Severance
Agreement between the Registrant and Philip S. Schein, M.D.
(incorporated by reference to Exhibit 10.25.1 to the
Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 31, 1993)
10.39 Executive Severance Agreement, dated October 14, 1991, between
the Registrant and Robert L. Capizzi, M.D. (incorporated by
reference to Exhibit 10(w) to the Registrant's Annual Report on
Form 10-K, filed with the Securities and Exchange Commission on
March 27, 1992)
10.39.1 Amendment dated September 22, 1992 to Executive Severance
Agreement between the Registrant and Robert L. Capizzi, M.D.
(incorporated by reference to Exhibit 10.26.1 to the
Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 31, 1993)
10.40 Agreement, dated March 4, 1996, between the Registrant and
Robert L. Capizzi, M.D. (incorporated by reference to Exhibit
10.37 to the Registrant's Annual Report on Form 10-K, filed with
the Securities and Exchange Commission on March 20, 1996)
42
<PAGE>
10.41 Form of Executive Severance Agreement executed with each Senior
Vice President, each Vice President, and the Controller of the
Registrant (incorporated by reference to Exhibit 10.28 to the
Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 31, 1993)
10.42 Executive severance arrangement, dated March 4, 1997, between
the Registrant and C. Boyd Clarke.
10.43 Executive severance arrangement, dated March 4, 1997, between
the Registrant and Wolfgang Oster, M.D.
22 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
- - --------------
*Confidential portions have been omitted and have been separately filed with the
Commission.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
U.S. BIOSCIENCE, INC.
Date: March 21, 1997 By: /s/ PHILIP S. SCHEIN, M.D.
--------------------------
Philip S. Schein, M.D.
Chief Executive Officer,
and Chairman
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Each person in so signing also makes, constitutes and appoints Philip S.
Schein, M.D. and Robert I. Kriebel, and each of them acting alone, his true and
lawful attorney-in-fact, with full power of substitution, to execute and cause
to be filed with the Securities and Exchange Commission any and all amendments
to this report.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ PHILIP S. SCHEIN, M.D. Principal Executive Officer and March 21, 1997
- - -------------------------------------- Director
Philip S. Schein, M.D.
/s/ C. BOYD CLARKE Principal Operating Officer and March 21, 1997
- - -------------------------------------- Director
C. Boyd Clarke
/s/ ROBERT I. KRIEBEL Principal Financial Officer and March 21, 1997
- - -------------------------------------- Director
Robert I. Kriebel
/s/ MARK R. BAUSINGER Principal Accounting Officer March 21, 1997
- - --------------------------------------
Mark R. Bausinger
/s/ PAUL CALABRESI, M.D. Director March 21, 1997
- - --------------------------------------
Paul Calabresi, M.D.
/s/ ROBERT L. CAPIZZI, M.D. Director March 21, 1997
- - --------------------------------------
Robert L. Capizzi, M.D.
/s/ DOUGLAS J. MACMASTER Director March 21, 1997
- - --------------------------------------
Douglas J. MacMaster
/s/ ALLEN MISHER, Ph.D. Director March 21, 1997
- - --------------------------------------
Allen Misher, Ph.D.
/s/ JONAH SHACKNAI, Esq. Director March 21, 1997
- - --------------------------------------
Jonah Shacknai, Esq.
Director
- - --------------------------------------
Ellen V. Sigal, Ph.D.
/s/ BETSEY WRIGHT Director March 21 1997
- - --------------------------------------
Betsey Wright
</TABLE>
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors....................................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1995............................ F-3
Consolidated Statements of Operations for the years ended December 31, 1996,
1995 and 1994 and the period May 7, 1987 (inception) through
December 31,1996..................................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994 and the period May 7, 1987 (inception) through
December 31, 1996.................................................................... F-5
Consolidated Statement of Stockholders' Equity for the period May 7, 1987
(inception) through December 31, 1996................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
U.S. Bioscience, Inc.
We have audited the accompanying consolidated balance sheets of U.S. Bioscience,
Inc. (a development stage enterprise) as of December 31, 1996 and 1995, and the
related consolidated statements of operations, cash flows and stockholders'
equity for each of the three years in the period ended December 31, 1996, and
for the period May 7, 1987 (inception) through December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of U.S.
Bioscience, Inc. (a development stage enterprise) at December 31, 1996 and 1995,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, and for the period May 7,
1987 (inception) through December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 13, 1997
F-2
<PAGE>
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,054,800 $ 41,618,800
Investments 23,621,800 3,977,400
Accounts receivable, net 1,926,200 802,500
Interest receivable 220,700 60,000
Inventories 2,592,000 2,165,100
Other 1,620,400 6,922,200
------------- -------------
Total current assets 43,035,900 55,546,000
Property, plant and equipment at cost, less accumulated depreciation 6,075,200 6,334,300
------------- -------------
Total assets $ 49,111,100 $ 61,880,300
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation and related payroll taxes payable $ 1,717,700 $ 1,937,600
Accrued clinical grants payable 1,611,600 716,300
Accrued product manufacturing costs payable 747,300 384,300
Accrued marketing costs payable 448,500 125,900
Accrued professional fees payable 658,000 393,200
Line of credit 664,600 676,000
Current maturities of long-term debt 732,200 721,300
Accounts payable and other accrued liabilities 2,329,700 8,014,400
------------- -------------
Total current liabilities 8,909,600 12,969,000
Long-term liabilities:
Long-term debt, net of current maturities 1,845,400 2,587,600
Other long-term liabilities 1,461,800 1,035,800
Convertible debentures -- 16,500,000
------------- -------------
Total long-term liabilities 3,307,200 20,123,400
------------- -------------
Total liabilities 12,216,800 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; 22,879,900
shares issued and outstanding at December 31, 1996, and 21,046,800 shares
issued and outstanding at December 31, 1995 228,800 210,500
Additional paid-in capital 151,244,400 133,157,700
Deficit accumulated during the development stage (114,617,200) (104,929,800)
Foreign currency translation adjustment 48,200 349,500
Unrealized loss on investments (9,900) --
------------- -------------
Total stockholders' equity 36,894,300 28,787,900
------------- -------------
Total liabilities and stockholders' equity $ 49,111,100 $ 61,880,300
============= =============
</TABLE>
See accompanying notes.
F-3
<PAGE>
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------- FOR THE PERIOD
MAY 7 ,1987
(INCEPTION) TO
1996 1995 1994 DECEMBER 31, 1996
------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 10,785,200 $ 8,724,000 $ 7,209,700 $ 35,938,400
Net investment income 2,335,300 1,223,100 1,234,700 27,385,300
Licensing, royalty and other income 7,343,500 21,398,000 102,000 33,082,800
------------- ------------- ------------- -------------
20,464,000 31,345,100 8,546,400 96,406,500
Expenses:
Cost of sales 2,955,700 2,558,500 1,694,400 9,482,100
Selling, general and administrative costs 12,274,800 16,583,400 13,232,700 89,924,800
Research and development costs 14,383,300 12,186,000 17,607,900 99,546,400
Provision for litigation -- -- -- 10,165,000
Interest expense 537,600 255,000 52,400 1,905,400
------------- ------------- ------------- -------------
30,151,400 31,582,900 32,587,400 211,023,700
------------- ------------- ------------- -------------
Net loss $ (9,687,400) $ (237,800) $ (24,041,000) ($114,617,200)
============= ============= ============= =============
Net loss per common share $ (0.43) $ (0.01) $ (1.19)
============= ============= =============
Weighted average number of common shares outstanding 22,395,600 20,436,100 20,127,200
============= ============= =============
</TABLE>
See accompanying notes.
F-4
<PAGE>
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD MAY 7, 1987
------------------------------------------------ (INCEPTION)
THROUGH
1996 1995 1994 DECEMBER 31, 1996
-------------- ------------ ------------- -------------------
<S> <C> <C> <C> <C>
Change in Cash and Cash Equivalents
Cash flows provided by (used in) operating activities:
Net loss $ (9,687,400) $ (237,800) $ (24,041,000) $ (114,617,200)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 1,054,800 1,031,300 1,015,000 5,053,000
Compensation element of stock option grants -- -- 1,330,300 5,303,400
Loss (gain) on investments 8,700 (1,200) 140,600 148,100
Amortization of debenture interest 154,300 44,400 -- 198,700
Change in accounts receivable (1,123,700) (10,800) (537,400) (1,926,000)
Change in interest receivable (160,700) 64,100 55,400 (220,700)
Change in inventories (482,900) (325,500) 266,900 (2,658,200)
Change in other current assets 5,312,500 (6,142,600) 278,200 (1,572,600)
Change in current liabilities (4,166,400) 5,106,200 (2,199,400) 7,297,900
Provision for litigation -- (59,500) (105,500) 10,000,000
Change in other long-term liabilities 426,000 (69,700) 130,500 1,461,700
------------- ------------ ------------- ---------------
Total adjustments 1,022,600 (363,300) 374,600 23,085,300
------------- ------------ ------------- ---------------
Net cash provided by (used in) operating
activities (8,664,800) (601,100) (23,666,400) (91,531,900)
Cash flows provided by (used in) investing activities:
Proceeds from investments matured and sold 43,212,500 25,197,200 516,460,100 3,157,616,600
Purchase of investments 62,875,300) 16,427,100) 481,137,300) (3,181,391,300)
Purchase of property, plant and equipment (1,057,200) (516,600) (1,281,400) (10,891,400)
------------- ------------ ------------- ---------------
Net cash provided by (used in) investing
activities 20,720,000) 8,253,500 34,041,400 (34,666,100)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock and
private placement of securities 191,900 18,694,700 -- 128,496,200
Proceeds from exercise of stock options 1,258,800 360,900 405,300 7,475,000
Proceeds from loan -- 2,400,000 646,000 3,219,100
Proceeds from line of credit 92,100 676,000 -- 768,100
Repayment of long-term debt (689,200) (214,700) -- (903,900)
------------- ------------ ------------- ---------------
Net cash provided by (used in) financing
activities 853,600 21,916,900 1,051,300 139,054,500
Effect of exchange rate changes on cash (32,800) 367,600 96,700 198,300
------------- ------------ ------------- ---------------
Net increase (decrease) in cash and cash equivalents 28,564,000) 29,936,900 11,523,000 13,054,800
Cash and cash equivalents-beginning of period 41,618,800 11,681,900 158,900 --
------------- ------------ ------------- ---------------
Cash and cash equivalents-end of period $ 13,054,800 $ 41,618,800 $ 11,681,900 $ 13,054,800
============= ============ ============= ===============
Supplemental cash flow disclosure:
Interest paid to affiliate -- -- -- $ 1,005,800
Interest paid $ 629,100 $ 210,900 $ 26,300 $ 878,400
Subordinated debentures and accrued interest
converted to common stock $ 16,841,700 -- -- $ 16,841,700
</TABLE>
See accompanying notes.
F-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 DECEMBER 31, 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 ($.01 per share of common stock
and $.005 per share of Class B stock) 4,500,000 $ 45,000 1,000,000 $ 5,000
Net loss for the period May 7, 1987 (inception)
through December 31, 1987 -- -- -- --
------------- ------------- ------------- -------------
Balance at December 31, 1987 4,500,000 45,000 1,000,000 5,000
Net loss for the year ended December 31, 1988 -- -- -- --
------------- ------------- ------------- -------------
Balance at December 31, 1988 4,500,000 45,000 1,000,000 5,000
Proceeds from exercise of stock options 1,300 -- -- --
Compensation related to stock options -- -- -- --
Issuance of shares ($12.00 per share, less costs) 1,250,000 12,500 -- --
Conversion of class B stock to common stock 500,000 5,000 (1,000,000) (5,000)
Net loss for the year ended December 31, 1989 -- -- -- --
------------- ------------- ------------- -------------
Balance at December 31, 1989 6,251,300 62,500 -- --
Proceeds from exercise of stock options 142,900 1,400 -- --
Compensation related to stock options -- -- -- --
Issuance of shares ($18.00 per share, less costs) 2,012,500 20,200 -- --
Net loss for the year ended December 31, 1990 -- -- -- --
------------- ------------- ------------- -------------
Balance at December 31, 1990 8,406,700 84,100 -- --
Proceeds from exercise of stock options 250,300 2,500 -- --
Compensation related to stock options -- -- -- --
Issuance of shares ($57.00 per share, less costs) 1,150,000 11,500 -- --
Issuance of shares for a 2 for 1 stock dividend 9,807,000 98,000 -- --
Net loss for the year ended December 31, 1991 -- -- -- --
------------- ------------- ------------- -------------
Balance at December 31, 1991 19,614,000 196,100 -- --
Proceeds from exercise of stock options 132,200 1,400 -- --
Compensation related to stock options -- -- -- --
Net loss for the year ended December 31, 1992 -- -- -- --
------------- ------------- ------------- -------------
Balance at December 31, 1992 19,746,200 197,500 -- --
Proceeds from exercise of stock options 53,300 500 -- --
Compensation related to stock options -- -- -- --
Net loss for the year ended December 31, 1993 -- -- -- --
Foreign currency translation adjustment -- -- -- --
------------- ------------- ------------- -------------
Balance at December 31, 1993 19,799,500 198,000 -- --
Proceeds from exercise of stock options 37,600 400 -- --
Class action settlement 548,200 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 20,385,300 203,900 -- --
Proceeds from exercise of stock options 101,400 1,000 -- --
Class action settlement -- -- -- --
Proceeds from private placement of securities 560,100 5,600 -- --
Net loss for the year ended December 31, 1995 -- -- -- --
Foreign currency translation adjustment -- -- -- --
------------- ------------- ------------- -------------
Balance at December 31, 1995 21,046,800 210,500 -- --
Proceeds from exercise of stock options 255,500 2,500 -- --
Conversion of warrants 200 -- -- --
Conversion of debentures 1,577,400 15,800 -- --
Net loss for the year ended December 31, 1996 -- -- -- --
Foreign currency translation adjustment -- -- -- --
Unrealized loss on investments -- -- -- --
------------- ------------- ------------- -------------
Balance at December 31, 1996 22,879,900 $ 228,800 -- $ --
============= ============= ============= =============
</TABLE>
<PAGE>
RESTUBBED FROM ABOVE
<TABLE>
<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 ($.01 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 ($12.00 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 ($18.00 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 ($57.00 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 1,256,300 -- -- 1,258,800
Conversion of warrants 4,500 -- -- 4,500
Conversion of debentures 16,825,900 -- -- 16,841,700
Net loss for the year ended December 31, 1996 -- (9,687,400) -- (9,687,400)
Foreign currency translation adjustment -- -- (301,300) (301,300)
Unrealized loss on investments -- -- (9,900) (9,900)
------------- ------------- ------------- -------------
Balance at December 31, 1996 $ 151,244,400 $(114,617,200) $ 38,300 36,894,300
============= ============= ============= =============
</TABLE>
See accompanying notes.
F - 6
<PAGE>
U.S. BIOSCIENCE, INC.
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. Organization
U.S. Bioscience, Inc. (the "company"), was incorporated in the State of
Delaware on May 7, 1987. Following the initial issuance of its shares in August
1987, the company was 80% owned by U.S. Healthcare, Inc., ("USHC"). In October
1987, USHC paid a special dividend to its stockholders in the form of the
company's common stock. USHC distributed 46% of the company's common stock and
retained a 34% equity interest in the company. In August 1992, USHC distributed
its remaining shares in the company to USHC shareholders as a dividend.
The company entered into an agreement with Marion Laboratories, Inc.
("Marion"), in September 1989 pursuant to which Marion purchased 1,250,000
shares of newly issued U.S. Bioscience common stock pursuant to a Stock Purchase
Agreement for a total investment of $15,000,000; net proceeds to the company,
after related costs, were $14,073,900. By January 1996, Marion had sold its
entire holding of U.S. Bioscience common stock.
In February 1990, the company completed a public offering of 2,012,500
shares of common stock, realizing net proceeds of $33,029,900. In May 1991, the
company completed a second public offering of 1,150,000 shares of common stock,
realizing net proceeds of $61,455,800.
In December 1995, the company consummated a private placement of
securities pursuant to which it sold a total of 560,056 shares of common stock
for an aggregate price of $3.5 million and issued $16.5 million in three year,
4% unsecured convertible debentures for an aggregate price of $16.5 million, for
a total financing of $20 million, excluding related fees and expenses. Net
proceeds realized by the company in this private placement were $18,739,100. The
investors who purchased the convertible notes converted the entire issue into
1,577,366 shares of the company's common stock during the first half of 1996.
At the company's annual stockholders meeting on April 22, 1996, the
company's stockholders approved a 1 for 2 reverse stock split effected April 23,
1996. Accordingly all references to the number of shares and per share amounts
included in the financial statements and related notes thereto, reflect the 1
for 2 reverse stock split.
The company established in 1993 two wholly-owned operating
subsidiaries; USB Pharma B.V. incorporated in The Netherlands and USB Pharma
Limited incorporated in the United Kingdom. USB Pharma B.V. operates the
company's manufacturing plant located in Nijmegen, The Netherlands, and USB
Pharma Limited manages the company's European clinical research activities. In
1995 the company established two wholly-owned subsidiaries in the State of
Delaware, USB Resources, Inc. and USB Technologies, Inc., both of which were
inactive during 1995 and 1996.
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 December 31, 1996, the company's revenues have been derived
principally from investment income, from the sale of drug products, Hexalen,
NeuTrexin and Ethyol, licensing of rights to develop and market certain
products, and from contract development activities. Expenses incurred have been
primarily for the development of its drugs and related therapies, marketing and
sales activities and corporate organizational and administrative activities.
F-7
<PAGE>
U.S. BIOSCIENCE, INC.
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of U.S.
Bioscience, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The company generally classifies as cash equivalents all highly liquid
instruments with a maturity of three months or less at the time of purchase.
Investments
The company follows Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Under this
standard management determines the appropriate classifications of debt
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. The investments held by the company at December 31, 1996 and
1995 were classified as available for sale, with the unrealized gains and losses
reported as a separate component of stockholders' equity. At December 31, 1995,
the fair value approximated cost and accordingly there was no adjustment to
stockholders' equity.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
fair value.
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
for financial reporting purposes and under an accelerated method for federal
income tax purposes. Leasehold improvements are depreciated by the straight-line
method over the shorter of their useful lives or the life of the lease for
financial reporting purposes and under an accelerated method for federal income
tax purposes.
Product Revenues
Product revenues are recognized upon shipment of inventory to the
customer. The company's product revenues to date have principally been domestic
sales of drug products Hexalen and NeuTrexin primarily to drug wholesalers in
the United States and sales of Ethyol to the company's distribution partners.
During 1996 a significant portion of the company's sales were to ALZA
Corporation, the company's US distribution partner for Ethyol.
F-8
<PAGE>
U.S. BIOSCIENCE, INC.
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Research and Development Costs
For financial reporting purposes, all costs of research and development
activities are expensed as incurred.
Patents and Trademarks
It is the company's practice to seek patent and trademark protection on
processes and products in various countries. Patent and trademark application
costs are expensed as incurred.
Income Taxes
Income taxes have been provided using the liability method in
accordance with FASB Statement No. 109, "Accounting for Income Taxes".
Foreign Currency Translation
The financial statements of foreign subsidiaries have been translated
into U.S. dollars in accordance with FASB Statement No. 52, "Foreign Currency
Translation." All balance sheet accounts have been translated using exchange
rates in effect at the balance sheet date. Income statement amounts have been
translated using monthly average exchange rates for the year. The gains and
losses resulting from the changes in exchange rates from year to year have been
reported separately as a component of stockholders' equity.
Net Loss per Share
Net loss per share is calculated based on the weighted average number
of common shares outstanding. Stock options outstanding have not been included
in the net loss per share calculations since their effect would be antidilutive.
All such calculations have been restated to reflect the 1 for 2 reverse stock
split approved at the company's annual meeting and effected April 23, 1996.
Accounting for Stock Options
The company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for stock options. Note 11 of these notes to
consolidated financial statements includes the required disclosure and pro forma
information provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation" ("FASB 123"). Under APB 25, because the exercise price
of the company's stock options equals the market price of the underlying common
stock on the date of grant, no compensation expense is recognized.
F-9
<PAGE>
U.S. BIOSCIENCE, INC.
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Investments
Investments are comprised of the following:
<TABLE>
<CAPTION>
Fair Value at
Name of Issuer Principal Amortized Balance Sheet
and Title of Each Amount Cost Date
- - ----------------------------------------------------------------------------------------------
December 31, 1996
<S> <C> <C> <C>
U.S. Government obligations
Treasury Notes $ 6,990,700 $ 6,991,300 $ 6,980,000
Treasury Bills 1,948,300 1,948,300 1,948,300
Federal Home Loan Bank 1,000,000 1,000,000 999,700
----------- ----------- -----------
9,939,000 9,939,600 9,928,000
Corporate Bonds 1,002,600 1,000,500 1,002,200
Corporate Discount Notes 12,690,200 12,697,900 12,691,600
----------- ----------- -----------
Total $23,631,800 $23,638,000 $23,621,800
=========== =========== ===========
December 31, 1995
U.S. Government obligations
Treasury Bills $ 974,400 $ 974,400 $ 974,400
Corporate Bonds 3,002,600 3,001,200 3,003,000
----------- ----------- -----------
Total $ 3,977,000 $ 3,975,600 $ 3,977,400
=========== =========== ===========
</TABLE>
The investments held at December 31, 1996 will all mature during 1997
4. Inventories
Inventory balances at December 31, are as follows:
1996 1995
----------------- -----------------
Raw Materials $ 850,500 $ 813,300
Work in process 1,121,500 893,000
Finished goods 620,000 458,800
----------------- -----------------
Total $ 2,592,000 $ 2,165,100
================= =================
F-10
<PAGE>
U.S. BIOSCIENCE, INC.
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Property, Plant and Equipment
Property, plant and equipment balances at December 31, are as follows:
1996 1995
----------- -------------
Land, buildings, and leasehold improvements $ 2,071,900 $ 2,106,500
Equipment, furniture and fixtures 9,079,700 8,173,500
Accumulated depreciation (5,076,400) (3,945,700)
----------- -------------
Property, plant and equipment, net $ 6,075,200 $ 6,334,300
=========== =============
6. Long-Term Debt
Long-term debt at December 31, consisted of:
1996 1995
------------- ------------
MELF equipment loan $ 252,800 $ 323,600
Mortgage loan 589,400 685,300
Term loan 1,700,000 2,300,000
Convertible debentures -- 16,500,000
Capital lease obligations 35,400 --
------------- ------------
$ 2,577,600 $ 19,808,900
Less current portion 732,200 721,300
------------- ------------
Long-term debt $ 1,845,400 $ 19,087,600
============= ============
Maturities of long-term debt for each of the five years succeeding
December 31, 1996 are; 1997-- $732,200; 1998--$733,600; 1999--$625,400;
2000--$81,400; 2001--$49,700; and thereafter $355,300.
In April 1993, the company received $500,000 from the Commonwealth of
Pennsylvania Machinery and Equipment Loan Fund Program (MELF), which provides
financing for companies expanding employment in the Commonwealth. Proceeds of
this loan were used to purchase laboratory equipment for the company's
analytical laboratory located in Exton, Pennsylvania. The loan will amortize
over a seven-year term and bears interest at a rate of 2% per annum.
In May 1994, USB Pharma B.V., entered into a mortgage loan with
Cooperatieve Rabobank B.A. in the amount of Dutch Guilders 1,180,000
(approximately $680,000) secured by the land and buildings of its manufacturing
facility in Nijmegen, The Netherlands and guaranteed by U.S. Bioscience, Inc.
Proceeds of this loan were used to partly fund the purchase of additional
equipment for the company's manufacturing facility in The Netherlands. The
mortgage loan has a 15-year term, requires quarterly Dutch Guilder installments
of principal repayment which began in March 1995 and bears a quarterly variable
interest rate. Interest is payable quarterly in Dutch Guilders and the current
interest rate is 5.75%.
F-11
<PAGE>
U.S. BIOSCIENCE, INC.
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In June 1995, the company received a term loan from its principal bank
in the amount of $2,400,000. This loan will amortize monthly over four years,
bears an annual interest rate of 6.86% and is collateralized by a portion of the
company's investment portfolio.
In December 1995, the company issued a $20 million private placement of
securities which consisted of 560,056 common shares issued for an aggregate
price of $3.5 million and $16.5 million in unsecured convertible debentures
("Debentures"). The Debentures were to mature on December 6, 1998 and bore
interest at the rate of 4% per annum. The company had the right to prepay the
Debentures upon payment of a 21.21% premium. The company also had the right to
require the conversion of the Debentures, which right the company could have
exercised at any time or from time to time on or after March 27, 1996. During
the first half of 1996, the investors who purchased the Debentures, converted,
in six separate conversions, the entire issue receiving 1,577,366 shares of the
company's Common Stock. The shares issued in the conversions also included
15,316 shares in payment of accrued interest on the converted principal. The
conversion price was 82.5% of the average market price for the Common Stock for
the five consecutive trading days ending one trading day prior to the date that
each conversion notice was received by the company. The net proceeds from this
placement in the amount of $18,739,100 were added to the company's working
capital.
7. Line of Credit
In June 1995, the company established a $1,000,000 credit line with an
international financial institution. This line of credit is denominated in Dutch
Guilders, currently bears an annual interest rate of 4.56% and is utilized by
the company's subsidiary, USB Pharma B.V., for funding working capital
requirements. As of December 31, 1996 approximately $665,000 of this credit line
has been utilized. The credit line is guaranteed by U.S. Bioscience, Inc. and
collateralized by a portion of the company's investment portfolio.
8. Commitments
The company leases office, warehouse and laboratory space under four
operating leases, the last of which terminates in March 2002. Future minimum
annual lease payments total $2,196,500 and are as follows: 1997 -- $889,400;
1998 -- $758,700; 1999 -- $162,400, 2000 and 2001 -- $133,500 in each year and
$119,000 in 2002. Rent expense for the year ended December 31, 1996 was
$911,400; 1995 -- $989,800; 1994 -- $1,187,700; and May 7, 1987 (inception)
through December 31, 1996 was $6,532,700. As part of the company's January 1995
internal restructuring, the company reduced its office space in the company's
principal office in West Conshohocken, Pennsylvania from 38,000 sq. ft. to
approximately 26,400 sq. ft. The lease on the company's principal office expires
in October 1998.
The company has entered into various license agreements with unrelated
parties which provide the company with rights to develop, produce and market
drugs and related therapies which the company believes demonstrate effectiveness
in the treatment of cancer and allied diseases. The agreements allow the company
to use certain knowledge and patent rights of the licensors. Terms of the
agreements require the company to pay percentage fees and royalties of varying
amounts based upon defined future net sales, if any, and in general, variable
percentages of any royalty income received from foreign licensees. Some of the
agreements also require minimum annual payments and the payment of lump sums
upon the achievement of certain milestones in the clinical development of the
chemical compound.
F-12
<PAGE>
U.S. BIOSCIENCE, INC.
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the years ended December 31 listed below, the company has incurred
sales related royalty expense as follows:
Royalty
Year Expense
---- -------
Prior to 1994 $ 183,600
1994 260,300
1995 328,800
1996 488,700
----------
Total $1,261,400
==========
As of December 31, 1996, the company had contracted and continues to
contract with third parties to serve as clinical investigators of certain
investigational drugs through terms, in general, expiring in 1997 and 1998. The
clinical investigators are compensated on a percentage of completion basis,
subject to compliance with other elements of the agreements. As of December 31,
1996, the clinical investigator agreements, in the aggregate, provide for
minimum payments of approximately $2,844,400 over the terms of the agreements,
of which approximately $922,500 had been paid through December 31, 1996.
9. Major Distribution and Marketing Agreements
In December 1995, the company entered into an exclusive marketing and
distribution agreement with ALZA Corporation ("ALZA") for Ethyol in the United
States. Under the terms of this Agreement, ALZA has exclusive rights to market
Ethyol in the United States for five years and is responsible for sales and
marketing; the company's sales force co-promotes the product with ALZA. After
the five-year period, which ALZA has an option to extend for one year, marketing
rights to Ethyol revert to the company, and ALZA will receive payments from the
company for ten years based on sales of Ethyol in the United States. ALZA paid
the company $14 million in December 1995 and $6 million in January 1996 as
initial fees for the rights noted above. The company recorded as income the
entire initial $20 million fee in the fourth quarter of 1995. The $6 million
January payment was reflected in "Other Current Assets" in the December 31, 1995
consolidated balance sheet. The company also accrued, in the fourth quarter of
1995, a one-time $2.0 million charge related to Ethyol U.S. launch expenses as
part of the company's co-promotion arrangement with ALZA. This accrual was
reflected in "Other Accrued Liabilities" in the December 31, 1995 consolidated
balance sheet. There can be no assurance that the marketing of Ethyol in the
United States will result in meaningful revenues to the company.
In May 1996, the company entered into a co-promotion agreement with
ALZA to co-promote the company's products, Hexalen and NeuTrexin in the United
States. Under the terms of this agreement, the company pays ALZA a commission,
which is based upon a percentage of net sales of Hexalen and NeuTrexin in the
United States above a base level of sales. The commission payment is subject to
an annual minimum and the commission percentage rises as net sales increase.
Under the terms of the agreement, ALZA's sales force co-promotes Hexalen and
NeuTrexin and the company makes sales of both products to wholesalers and
distributors. The agreement may be terminated at any time on six months notice
by either party after June 30, 1998. At the end of the co-promotion term, the
agreement provides for ALZA to be paid residual commission payments for a term
which varies based on the reason for termination. The residual commissions are
based on a percentage of net sales during the residual period subject to a
maximum payment of a decreasing percentage of actual commission payments made to
ALZA under the agreement during the co-promotion period. There can be no
assurance that the marketing of Hexalen and NeuTrexin in the United States will
result in meaningful revenues to the company.
F-13
<PAGE>
U.S. BIOSCIENCE, INC.
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The company has entered into an exclusive marketing and distribution
agreement ("Agreement") with Scherico Ltd., ("Scherico") a subsidiary of
Schering Plough Corporation, for Ethyol in the countries comprising the EU and
EFTA (the "European Territories"). Under the original terms of its Agreement
with Scherico, the company would have shared in operating profits/losses (as
defined in the Agreement) generated from marketing and sales of Ethyol in
Germany, United Kingdom, Spain, Italy and France (the "Major Markets") for a
period of up to two years from November 23, 1994, the date of approval of Ethyol
in the United Kingdom. With respect to 1995, Scherico invoiced the company $4.2
million for the company's share of operating losses. This amount was recorded as
an expense in 1995 and reflected as "Other Accrued Liabilities" in the December
31, 1995 consolidated balance sheet and was paid in April of 1996.
In September 1996, the company and Scherico entered into an amendment
to the original agreement ("Scherico Amendment") pursuant to which, retroactive
to January 1, 1996, Scherico began to purchase Ethyol from the company at a
price based on a percentage of in-market net sales and the company stopped
participating in operating profits/losses previously shared by the parties. In
conjunction with the Scherico Amendment, Scherico paid the company a total of
$6.2 million in the fourth quarter of 1996.
Under the terms of the amended Agreement, Scherico's exclusive rights
to market the product will continue for seven years from January 1, 1997. During
such seven-year period the company will sell Ethyol to Scherico at a price based
upon a percentage of in-market net sales. The company may co-promote Ethyol with
Scherico for the two years following such seven-year period. Thereafter, the
company will reacquire sole marketing rights subject to the reverse royalty
payable to Scherico as described below. Under certain circumstances Scherico is
required to pay the company milestone payments when regulatory approvals, if
any, are obtained. There can be no assurance that all milestone payments will be
made to the company under the amended Agreement.
After reacquiring sole marketing rights, the company will pay Scherico
a percentage of its Ethyol sales, if any, from the European Territory for a
period of three years. The company will supply Ethyol to Scherico throughout the
term of the Agreement. Scherico may terminate the Agreement at any time by
providing 180 days written notice to the company of its desire to terminate the
agreement. There can be no assurance that the Agreement will not be terminated
by Scherico. There can be no assurance that the marketing of Ethyol in the
European Territories will result in meaningful revenues to the company.
10. Common Stock
Voting rights of common stock are one vote per share and voting rights
of the Class B stock were fifty votes per share, respectively. In connection
with Marion's purchase of common stock, all outstanding Class B stock was
converted into common stock on a share-for-share basis in September 1989. The
authorization of the Class B stock was eliminated in February 1990.
In December 1991, the Board of Directors, by unanimous vote, authorized
a 100% common stock dividend on the outstanding shares of common stock. The
company issued 9,807,000 shares of common stock in connection with this
dividend.
In May 1992, the company's Certificate of Incorporation was amended to
increase the number of authorized shares of common stock of the company from
50,000,000 shares to 100,000,000 shares. Adoption of this amendment permits the
company's Board of Directors, without further approval of the company's
stockholders, except as may be required by Delaware law or the rules of the
American Stock Exchange, to
F-14
<PAGE>
U.S. BIOSCIENCE, INC.
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
issue additional shares of the company's common stock, from time to time as the
Board of Directors may determine, for such consideration as the Board of
Directors establishes. This amendment was adopted to replace the shares
previously issued in the stock dividend described above and to provide
flexibility in structuring possible acquisitions of other businesses, to enable
the company to raise additional equity capital if and when needed and allow the
Board of Directors, in its discretion, to declare stock splits or stock
dividends in the future. The company has no present definitive plans,
arrangements or understandings, other than shares to be issued pursuant to the
exercise of stock options pursuant to the company's stock option plans and the
exercise of the 1,096,500 warrants currently outstanding which were issued in
1995 under a class-action litigation settlement and the issuance of the
1,178,882 shares of common stock to ALZA pursuant to the terms of the February
1997 stock purchase agreement described in Note 14 below, with respect to
possible acquisitions, financings, stock splits or dividends requiring the
availability of additional authorized common stock.
In April 1995, the company, as part of a class action litigation
settlement, issued 1,096,634 warrants to purchase from the company one share of
U.S. Bioscience common stock for each warrant. The warrants are exercisable for
three years from date of issuance, April 24, 1995, at an exercise price of
$9.20. Upon issuance of the warrants, the company transferred to stockholders'
equity $2,241,200 representing the remainder of a $10,165,000 litigation
provision established in 1993 to provide for the cost of these warrants. During
1994, $7,758,700 of the provision was transferred to stockholders' equity upon
issuance into escrow of a common stock component of the settlement. Pursuant to
the Warrant Agreement between the company and ChaseMellon Shareholder Services,
L.L.C., the number of outstanding warrants was unaffected by the April 23, 1996
1 for 2 reverse stock split. The warrant exercise price and the number of
warrant shares exercisable upon exercise of a warrant certificate were
automatically proportionally adjusted. Warrants exercised subsequent to the 1
for 2 reverse stock split will require the warrant holder to present two
warrants and an exercise price of $18.40 in order to receive one share of the
company's common stock. Fractional shares will not be issued upon the exercise
of warrants. Warrant certificates that upon exercise would produce a fractional
share will receive, in place of the fractional share, cash equal to the
exercise price of a whole share on the day immediately preceding the day the
warrant certificate is presented for exercise multiplied by such fraction.
In May 1995, the company adopted a Preferred Stock Purchase Rights Plan
(the "Rights Plan") designed to protect company stockholders in the event of
takeover actions that would deny them the full value of their investment. 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 (the
"Rights"). The Rights will become exercisable only in the event, with certain
exceptions, a person or group of related persons accumulates 15 percent or more
of the company's voting stock. The Rights will expire on May 29, 2005.
Subsequent to the reverse stock split, each Right will entitle the holder to buy
two one-hundredths of a share of the new Series A Junior Preferred Stock at a
price of $30. In addition, upon the occurrence of certain events, holders of the
Rights will be entitled to purchase either company stock or shares in an
"acquiring entity" at half the market value. The company generally will be
entitled to redeem the Rights at one-twentieth of one cent ($.0005) per Right at
any time until the tenth day following the acquisition by any person or group of
related persons of 15 percent or more of the company's outstanding voting stock.
Until such time, the Rights automatically trade with the underlying common
stock.
On April 22, 1996, the company's stockholders, at the company's annual
meeting, approved an amendment to the company's Certificate of Incorporation to
effect a 1 for 2 reverse stock split in which each two shares of the company's
Common Stock, par value $.005 per share, whether issued and outstanding or held
in treasury, were reclassified into one new share of Common Stock, par value
$.01 per share. The
F-15
<PAGE>
U.S. BIOSCIENCE, INC.
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
amendment to the company's Certificate of Incorporation reduced the number of
authorized shares of Common Stock from 100,000,000 to 50,000,000 shares and
increased the par value of the Common Stock from $.005 per share to $.01 per
share. No fractional shares were issued and any stockholder of record entitled
to a fractional share by reason of the reverse stock split received, in lieu
thereof, cash in an amount determined on a weighted average basis by the
consolidation of fractional shares, aggregated and sold in the open market by
ChaseMellon Shareholder Services, L.L.C., as agent for the holders of fractional
shares. The effect of the 1 for 2 reverse stock split on the Rights was to
increase the portion of a share 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.
At December 31, 1996, 3,769,100 shares of common stock were reserved
for issuance pursuant to company stock option plans and 548,182 shares of common
stock were reserved for issuance pursuant to the exercise of outstanding
warrants.
11. Stock Option Plans
The company has adopted various stock option plans, primarily as
incentives for recipients to remain affiliated with the company. Except for a
limited number of option grants where the ability to exercise is based upon the
achievement of benchmarks, options outstanding under the option plans are
exercisable at rates from 20% to 33 1/3% per year, generally beginning one year
from the date of grant. With the exception of options granted to certain
consultants and advisors all options expire 10 years from the date of grant.
The company currently grants stock options under three stock option
plans: the Non-Executive Stock Option Plan, which was established in 1994 and is
used to provide option incentives to employees who are not officers or directors
of the company for purposes of Section 16 of the Securities Exchange Act of
1934, as amended and the regulations thereunder, and consultants and advisors to
the company; the 1992 Stock Option Plan, which is used to provide option
incentives to Section 16 officers and directors; and the 1996 Non- employee
Directors Plan, which is used to provide options in lieu of fees to electing
non-employee directors.
Detail information concerning all stock option plans is as follows:
<TABLE>
<CAPTION>
1987 1987 1987 1990 1991 1992 NON-EXECUTIVE 1996
INCENTIVE NON-STATUTORY SPECIAL SPECIAL SPECIAL STOCK OPTION STOCK OPTION NON-
STOCK OPTION STOCK OPTION NON-STATUTORY DIRECTORS NON-STATUTORY PLAN PLAN EMPLOYEE
PLAN PLAN STOCK OPTION STOCK OPTION STOCK OPTION DIRECTORS
PLAN PLAN PLAN STOCK OPTION
PLAN
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPTIONS AUTHORIZED 1,000,000 1,000,000 500,000 250,000 1,000,000 1,750,000 1,250,000 50,000
======================================================================================================
OPTIONS OUTSTANDING 327,200 748,700 90,000 40,000 517,400 872,400 0 0
DECEMBER 31, 1993
GRANTED 0 0 0 0 0 373,300 80,800 0
EXERCISED (14,300) 0 (2,900) (10,000) 0 (10,400) 0 0
CANCELED (39,200) 0 (35,700) 0 (63,100) (135,700) (2,500) 0
-------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING 273,700 748,700 51,400 30,000 454,300 1,099,600 78,300 0
DECEMBER 31, 1994
GRANTED 0 0 0 0 0 123,000 338,400 0
EXERCISED (11,700) (20,000) 0 0 (14,800) (45,600) (9,300) 0
CANCELED (61,600) (144,400) (2,800) (30,000) (121,100) (220,400) (39,200) 0
-------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING 200,400 584,300 48,600 0 318,400 956,600 368,200 0
DECEMBER 31, 1995
GRANTED 0 0 0 0 0 687,800 505,700 0
EXERCISED (24,500) (30,500) (11,700) 0 (36,700) (121,800) (30,300) 0
CANCELED (3,800) 0 0 0 (57,000) (26,500) (143,800) 0
- - -----------------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING 172,100 553,800 36,900 0 224,700 1,496,100 699,800 0
DECEMBER 31, 1996
=============================================================================================================================
</TABLE>
F-16
<PAGE>
U.S. BIOSCIENCE, INC.
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A summary of stock option prices and exercisable shares is as follows:
<TABLE>
<CAPTION>
TOTAL OPTION OPTION WEIGHTED SHARES
ACTIVITY PRICE PER PRICE PER AVERAGE EXERCISABLE
ALL PLANS SHARE SHARE EXERCISE AT
(SHARES) (LOW) (HIGH) PRICE YEAR-END
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPTIONS OUTSTANDING DECEMBER 31, 1993 2,595,700 $0.15 $36.20 $10.05 785,600
GRANTED 454,100 $0.15 $16.50 $7.77 --
EXERCISED (37,600) $0.15 $15.75 $10.77 --
CANCELED (276,200) $0.15 $27.80 $17.26 --
-----------------------------------------------------------------------
OPTIONS OUTSTANDING DECEMBER 31, 1994 2,736,000 $0.15 $36.20 $8.95 1,145,300
GRANTED 461,400 $4.62 $10.26 $5.80 --
EXERCISED (101,400) $0.15 $4.88 $3.55 --
CANCELED (619,500) $4.88 $30.20 $17.10 --
-----------------------------------------------------------------------
OPTIONS OUTSTANDING DECEMBER 31, 1995 2,476,500 $4.62 $30.20 $6.51 1,180,850
GRANTED 1,193,500 $10.00 $16.75 $13.07 --
EXERCISED (255,500) $4.88 $10.25 $4.93 --
CANCELED (231,100) $4.88 $30.20 $13.63 --
- - --------------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING DECEMBER 31, 1996 3,183,400 $4.62 $30.20 $8.66 1,283,400
==========================================================================================================================
</TABLE>
The price range of outstanding and exercisable stock options as at December 31,
1996 is as follows:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED WEIGHTED OPTIONS WEIGHTED
OUT- AVERAGE AVERAGE EXERCIS- AVERAGE
RANGE OF OPTION EXERCISE PRICES STANDING REMAINING EXERCISE ABLE EXERCISE
AT CONTRACT PRICE AT PRICE
YEAR-END LIFE YEAR-END
(YEARS)
- - ----------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$4.62 - $4.88 1,808,800 5.93 $4.87 1,148,700 $4.87
$5.25 - $10.00 115,600 9.20 $8.38 12,800 $6.40
$10.13 - $12.75 535,000 9.26 $11.90 28,900 $11.21
$13.25 - $22.00 679,000 9.40 $15.00 51,000 $21.00
$22.75 - $30.20 45,000 5.41 $27.72 42,000 $27.54
- - ----------------------------------------------------------------------------------------------------------
$4.62 - $30.20 3,183,400 7.34 $8.66 1,283,400 $6.42
==========================================================================================================
</TABLE>
The exercise price of options currently granted under the plans is
equal to the fair market value of the underlying share of common stock at the
time of grant. Options for which the exercise price is less than the fair market
value at the time of grant are considered compensatory and the difference in
value is charged to operations over the vesting period of the option.
The company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("FASB 123") requires the use of
option valuation models that were not developed for use in valuing stock
options. Under APB 25, because the exercise price of the company's stock options
equals the market price of the underlying common stock on the date of grant, no
compensation expense is recognized.
F-17
<PAGE>
U.S. BIOSCIENCE, INC.
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pro forma information regarding net income and earnings per share is
required by FASB 123, which also requires that the information be determined as
if the company has accounted for stock options granted subsequent to December
31, 1994 under the fair value method of FASB 123. The fair value for the
company's stock options granted subsequent to December 31, 1994 is estimated at
the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1995 and 1996; risk-free interest rate of
6.28%; no expected dividend payments; volatility factors of the expected market
price of the company's common stock, based on historical volatility, of 0.8999
and 0.4252, respectively; and a weighted-average expected life of the option of
8 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. As noted above, the company's stock options are
vested over an extended period. In addition, option models require the input of
highly subjective assumptions including future stock price volatility. Because
the company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective assumptions can
materially affect the fair value estimates, in managements opinion, the Black-
Scholes model does not necessarily provide a reliable measure of the fair value
of the company's stock options.
For purposes of pro forma disclosure under FASB 123, the estimated fair
value of the company's options is amortized over the option's vesting period.
The company's pro forma information is as follows:
1996 1995
-------------- -------------
Net loss as reported under APB 25 ($9,687,400) ($237,800)
Stock option expense per FASB 123 (1,304,400) (297,200)
Pro forma net loss ($10,991,800) ($535,000)
------------ ---------
Pro forma net loss per common share ($0.49) ($0.03)
Because FASB 123 is applicable only to options granted subsequent to
December 31,1994, its pro forma effect will not be fully reflected until the
year 2000 due to the five year vesting period of options granted in 1995, the
initial year implementation of stock option accounting under FASB 123 is
required for disclosure by the company.
12. Employee Benefit Plans
The company has a defined contribution pension plan covering
substantially all of its U. S. employees, subject to age and service
requirements. In addition, the company has an Employee Savings Plan 401(k)
available for all of its U.S. employees subject to age and service requirements
and matches employee contributions in an amount equal to the lesser of one-third
of the employee's contribution or 2% of the employee's compensation subject to
government tax regulation limits. The company also provides a deferred
compensation program for certain executives of the company. The company funded
Employee Savings Plan 401(k) costs during 1996 on a monthly basis. The company
funded pension costs on a quarterly basis in 1996. Amounts accrued under the
deferred compensation plan are reflected as "Long-term Liabilities" in the
company's consolidated balance sheet. Costs of the Employee Pension Plan, the
Employee Savings Plan 401(k) and the deferred compensation plans were for the
years ended December 31, 1994--$876,400, 1995--$949,200 and 1996--$993,000.
Employee benefit plan costs for the period May 7, 1987 (inception) through
December 31, 1996 total $5,248,600.
F-18
<PAGE>
U.S. BIOSCIENCE, INC.
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Income Taxes
As of December 31, 1996, the company had a net operating loss carry
forward of approximately $123,729,000 for federal income tax purposes. In
addition, the company had a research and development tax credit carry forward of
$4,630,000.
The company records deferred tax assets and liabilities for the tax
effects of temporary differences between carrying amounts of assets and
liabilities for financial reporting purposes and amounts used for income tax
purposes. A valuation allowance equal to the net deferred tax asset has been
recorded on the basis of the uncertainty with respect to the ultimate
realization of the net deferred tax assets. Due to this uncertainty, no benefit
has been recorded for the year ended December 31, 1996 or any prior period for
any net operating loss carryforwards or other deferred tax assets generated
during the year.
Significant components of the company's estimated deferred tax assets
and liabilities as at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------- -----------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards(1) $ 45,783,100 $ 42,179,200
Book over income tax depreciation 155,500 94,800
Research and development tax credits 4,630,000 4,043,000
Other non-salary compensation and benefits 676,200 501,800
Other, principally reserves 283,200 237,500
------------ ------------
Total deferred tax assets 51,528,000 47,056,300
Deferred tax liabilities
Prepaid expenses (121,600) (97,000)
------------ ------------
Total deferred tax liabilities (121,600) (97,000)
------------ ------------
51,406,400 46,959,300
Valuation allowance for net deferred tax assets (51,406,400) (46,959,300)
------------ ------------
Net deferred tax assets $ 0 $ 0
============ ============
</TABLE>
(1) Includes estimated state and foreign net operating loss carryforwards of
$1,746,600.
Approximately $10,153,200 of tax benefits related to the exercise of
stock options is included in the net operating loss carryforwards listed above.
Although not a component of tax expense, the reserve for the future realization
of this asset is reflected in the valuation allowance and will be credited to
additional paid-in capital if and when realized.
The reconciliation of the expected tax benefit for the years ended
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
Tax benefit at expected rate $ 3,728,000 $ 80,850
Permanent differences (271,900) (206,450)
Research and development tax credit 587,700 448,640
State and foreign taxes, net (428,200) 918,320
Stock option benefit recorded in equity 739,000
Other 92,500 48,040
4,447,100 1,289,400
---------------- ----------------
Increase in valuation allowance (4,447,100) (1,289,400)
---------------- ----------------
Tax benefit $ 0 $ 0
================ ================
</TABLE>
F-19
<PAGE>
U.S. BIOSCIENCE, INC.
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The federal income tax carryforwards expire as follows:
Research and
Net Operating Development
Losses Credits
------------- -----------
2002 $ 1,000 $ 0
2003 1,250,000 46,000
2004 5,206,000 140,000
2005 6,750,000 192,000
2006 23,486,000 545,000
2007 21,993,000 889,000
2008 27,367,000 1,072,000
2009 24,430,000 710,000
2010 3,659,000 473,000
2011 9,587,000 563,000
---------------- --------------
$ 123,729,000 $ 4,630,000
================ ==============
The timing and manner in which the company will utilize net operating
loss and research and development tax credit carryforwards in any year, or in
total, may be limited by provisions of the Internal Revenue Service Tax Code
regarding changes in the ownership of the company. Such limitations may have an
impact on the ultimate realization of these federal income tax carryforwards.
14. Subsequent Event
In February 1997, the company and ALZA entered into a Stock Purchase
Agreement pursuant to which ALZA agreed to purchase and the company agreed to
sell, subject to certain closing conditions, including, inter alia,
Hart-Scott-Rodino clearance, 1,178,882 shares of the company's Common Stock for
an aggregate investment of $21,526,400. The purchase price was set at 120% of
the average closing price of the company's Common Stock as traded on the
American Stock Exchange for the 10 days preceding the date of the agreement. The
company is committed to invest a portion of the proceeds in programs supporting
Ethyol. The purchase and sale of these shares of common stock is expected to
occur upon completion of the closing conditions.
F-20
<PAGE>
U.S. BIOSCIENCE, INC.
FORM 10-K
EXHIBIT INDEX
EXHIBIT
3.2 Bylaws, as amended
10.11.1 Amendment, dated April 12, 1995, to Agreement dated
January 1, 1995 between Registrant and Applied
Analytical Industries, Inc.
10.11.2 Second Amendment, dated May 6, 1996, to Agreement
dated January 1, 1995 between Registrant and Applied
Analytical Industries, Inc.
10.12.1 Amendment, dated April 11, 1995, to Agreement dated
September 23, 1993 between the Registrant and Ben
Venue Laboratories, Inc.
10.12.2 Amendment, dated December 12, 1995, to Agreement
dated September 23, 1993 between the Registrant and
Ben Venue Laboratories, Inc.
10.32 U.S. Bioscience, Inc. 1992 Stock Option Plan, as amended
10.35 U.S. Bioscience, Inc. Income Deferral Plan
10.36 U.S. Bioscience, Inc. 1996 Non-Employee Directors Stock Option Plan
10.42 Executive severance arrangement, dated March 4,
1997, between the Registrant and C. Boyd Clarke.
10.43 Executive severance arrangement, dated March 4,
1997, between the Registrant and Wolfgang
Oster, M.D.
22 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
<PAGE>
EXHIBIT 3.2
As amended through 2/27/97
Section 2-2 amended 6/1/88
Section 7-1 amended 2/22/90
Sections 2-3(b), 2-4 and 3-4
amended 12/16/94
Section 2-8 added and Section 6-2 amended 2/27/97
BY-LAWS OF
U.S. BIOSCIENCE, INC.
ARTICLE I - OFFICES
Section 1-1. Registered Office and Registered Agent. The
corporation shall maintain a registered office and registered agent within the
State of Delaware, which may be changed by the Board of Directors from time to
time.
Section 1-2. Other Offices. The Corporation may also have
offices at such other places, within or without the State of Delaware, as the
Board of Directors may from time to time determine.
ARTICLE II - STOCKHOLDERS' MEETINGS
Section 2-1. Place of Stockholders' Meetings. Meetings of
stockholders may be held at such place, either within or without the State of
Delaware, as may be designated by the Board of Directors from time to time. If
no such place is designated by the Board of Directors, meetings of the
stockholders shall be
<PAGE>
held at the registered office of the corporation in the State of Delaware.
Section 2-2. Annual Meeting. A meeting of the stockholders of
the Corporation shall be held in each calendar year, commencing with the year
1988, as determined by the Board of Directors. The Board of Directors shall
designate the date, time and location of the meeting.
At such annual meeting, there shall be held an election for a
Board of Directors to serve for the ensuing year and until their respective
successors are elected and qualified, or until their earlier resignation or
removal.
Unless the Board of Directors shall deem it advisable,
financial reports of the Corporation's business need not be sent to the
stockholders and need not be presented at the annual meeting. If any report is
deemed advisable by the Board of Directors, such report may contain such
information as the Board of Directors shall determine and need not be certified
by a Certified Public Accountant unless the Board of Directors shall so direct.
Section 2-3. Special Meetings. Except as otherwise
specifically provided by law, special meetings of the
stockholders may be called at any time:
2
<PAGE>
(a) By the Board of Directors; or
(b) By the Chief Executive Officer of the
Corporation; or
(c) By the holders of record of not less than a
majority of all the shares outstanding and entitled to vote.
Upon the written request of any person entitled to call a
special meeting, which request shall set forth the purpose for which the meeting
is desired, it shall be the duty of the Secretary to give prompt written notice
of such meeting to be held at such time as the Secretary may fix, subject to the
provisions of Section 2-4 hereof. If the Secretary shall fail to fix such date
and give notice within ten (10) days after receipt of such request, the person
or persons making such request may do so.
Section 2-4. Notice of Meetings and Adjourned Meetings.
Written notice stating the place, date and hour of any meeting shall be given
not less than ten (10) nor more than sixty (60) days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, notice
is given when deposited in the United States Mail, postage prepaid, directed to
the stockholder at his address as it appears on the records of the Corporation.
Such notice may be given in the name
3
<PAGE>
of the Board of Directors, Chief Executive Officer, President, Vice President,
Secretary or Assistant Secretary.
When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. If the adjournment
is for more than thirty (30) days, or if after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 2-5. Quorum. Unless the Certificate of Incorporation
provides otherwise, the presence, in person or by proxy, of the holders of a
majority of the outstanding shares entitled to vote shall constitute a quorum
but in no event shall a quorum consist of less than one-third (1/3) of the
shares entitled to vote at a meeting. The stockholders present at a duly
organized meeting can continue to do business until adjournment notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. If a meeting
cannot be organized because of the absence of a quorum, those present may,
except as otherwise provided by law, adjourn the meeting to such time and place
as they may determine. In the case of any meeting for the
4
<PAGE>
election of Directors, those stockholders who attend the second of such
adjourned meetings, although less than a quorum as fixed in this Section, shall
nevertheless constitute a quorum for the purpose of electing Directors.
Section 2-6. Voting List; Proxies. The officer who has charge
of the stock ledger of the Corporation shall prepare and make, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
5
<PAGE>
Upon the willful neglect or refusal of the Directors to
produce such a list at any meeting for the election of Directors, they shall be
ineligible to any office at such meeting.
Each stockholder entitled to vote at a meeting of stockholders
or to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy. All
proxies shall be executed in writing and shall be filed with the Secretary of
the Corporation not later than the day on which exercised. No proxy shall be
voted or acted upon after three (3) years from its date, unless the proxy
provides for a longer period.
Except as otherwise specifically provided by law, all matters
coming before the meeting shall be determined by a vote by shares. All elections
of Directors shall be by written ballot unless otherwise provided in the
Certificate of Incorporation. Except as otherwise specifically provided by law,
all other votes may be taken by voice unless a stockholder demands that it be
taken by ballot, in which latter event the vote shall be taken by written
ballot.
Section 2-7. Informal Action by Stockholders. Unless otherwise
provided by the Certificate of Incorporation, any action required to be taken at
any annual or special meeting of
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stockholders, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
Prompt notice of the taking of corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders or members, who have not consented in writing.
Section 2-8. Notice of Certain Nominations Required.
(a) Nominations for election of directors may be made
by any stockholder entitled to vote for the election of directors if written
notice (the "Stockholder's Notice") of the stockholder's intent to nominate a
director at the meeting is given by the stockholder and received by the
Secretary of the Corporation in the manner and within the time specified in this
section. The Stockholder's Notice shall be delivered to the Secretary of the
Corporation not less than 14 days nor more than 50 days prior to any meeting of
the stockholders called for the
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<PAGE>
election of directors; except that if less than 21 days' notice of the meeting
is given to stockholders, the Stockholder's Notice shall be delivered to the
Secretary of the Corporation not later than the earlier of the seventh day
following the day on which notice of the meeting was first mailed to
stockholders or the fourth day prior to the meeting. In lieu of delivery to the
Secretary, the Notice may be mailed to the Secretary by certified mail, return
receipt requested, but shall be deemed to have been given only upon actual
receipt by the Secretary.
(b) The requirements of Section 2-8(a) shall not
apply to a nomination for directors made to the stockholders by
the Board of Directors.
(c) The Notice required under Section 2-8(a)
shall be in writing and shall contain or be accompanied by:
(i) the name and residence address of the
nominating stockholder;
(ii) a representation that the stockholder
is a holder of record of voting stock of the Corporation and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the Notice;
(iii) such information regarding each
nominee as would have been required to be included in a proxy
8
<PAGE>
statement filed pursuant to Regulation 14A of the rules and regulations
established by the Securities and Exchange Commission under the Securities
Exchange Act of 1934 (or pursuant to any successor act or regulation) had
proxies been solicited with respect to such nominee by the management or Board
of Directors of the Corporation;
(iv) a description of all arrangements or
understandings among the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant
to which the nomination or nominations are to be made by the
stockholder; and
(v) the consent of each nominee to serve as
a director of the Corporation if so elected.
ARTICLE III - BOARD OF DIRECTORS
Section 3-1. Number. The business and affairs of the
Corporation shall be managed by a Board of Directors consisting of no less than
three (3) Directors and no more than twelve (12) Directors. The initial number
of Directors shall be three (3) and thereafter the number of Directors shall be
fixed by resolution of the Board of Directors.
Section 3-2. Place of Meeting. Meetings of the Board of
Directors may be held at such place either within or without
9
<PAGE>
the State of Delaware, as a majority of the Directors may from time to time
designate or as may be designated in the notice calling the meeting.
Section 3-3. Regular Meetings. A regular meeting of the Board
of Directors shall be held annually, immediately following the annual meeting of
stockholders, at the place where such meeting of the stockholders is held or at
such other place, date and hour as a majority of the newly elected Directors may
designate. At such meeting the Board of Directors shall elect officers of the
Corporation. In addition to such regular meeting, the Board of Directors shall
have the power to fix, by resolution, the place, date and hour of other regular
meetings of the Board.
Section 3-4. Special Meetings. Special meetings of the Board
of Directors shall be held whenever ordered by the Chief Executive Officer, by a
majority of the members of the executive committee, if any, or by a majority of
the Directors in office.
Section 3-5. Notices of Meetings of Board of Directors.
(a) Regular Meetings. No notice shall be required to
be given of any regular meeting, unless the same be
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<PAGE>
held at other than the time or place for holding such meetings as fixed in
accordance with Section 3-3 of these by-laws, in which event one (1) day's
notice shall be given of the time and place of such meeting.
(b) Special Meetings. At least one (l) day's notice
shall be given of the time, place and purpose for which any special meeting of
the Board of Directors is to be held.
Section 3-6. Quorum. A majority of the total number of
Directors shall constitute a quorum for the transaction of business, and the
vote of a majority of the Directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors. If there be less than a
quorum present, a majority of those present may adjourn the meeting from time to
time and place to place and shall cause notice of each such adjourned meeting to
be given to all absent Directors.
Section 3-7. Informal Action by the Board of Directors. Any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
11
<PAGE>
Section 3-8. Powers.
(a) General Powers. The Board of Directors shall have
all powers necessary or appropriate to the management of the business and
affairs of the Corporation, and, in addition to the power and authority
conferred by these by-laws, may exercise all powers of the Corporation and do
all such lawful acts and things as are not by statute, these by-laws or the
Certificate of Incorporation directed or required to be exercised or done by the
stockholders.
(b) Specific Powers. Without limiting the general
powers conferred by the last preceding clause and the powers conferred by the
Certificate of Incorporation and by-laws of the Corporation, it is hereby
expressly declared that the Board of Directors shall have the following powers:
(i) To confer upon any officer or officers
of the Corporation the power to choose, remove or suspend assistant officers,
agents or servants.
(ii) To appoint any person, firm or
corporation to accept and hold in trust for the Corporation any property
belonging to the Corporation or in which it is interested, and to authorize any
such person, firm or corporation
12
<PAGE>
to execute any documents and perform any duties that may be requisite in
relation to any such trust.
(iii) To appoint a person or persons to vote
shares of another corporation held and owned by the Corporation.
(iv) By resolution adopted by a majority of the
full Board of Directors, to designate one (1) or more of its number to
constitute an executive committee which, to the extent provided in such
resolution, shall have and may exercise the power of the Board of Directors in
the management of the business and affairs of the Corporation and may authorize
the seal of the Corporation to be affixed.
(v) By resolution passed by a majority of the
whole Board of Directors, to designate one (1) or more additional committees,
each to consist of one (1) or more Directors, to have such duties, powers and
authority as the Board of Directors shall determine. All committees of the Board
of Directors, including the executive committee. shall have the authority to
adopt their own rules of procedure. Absent the adoption of specific procedures,
the procedures applicable to the Board of Directors shall also apply to
committees thereof.
(vi) To fix the place, time and purpose of
meetings of stockholders.
13
<PAGE>
(vii) To purchase or otherwise acquire for the
Corporation any property, rights or privileges which the Corporation is
authorized to acquire, at such prices, on such terms and conditions and for such
consideration as it shall from time to time see fit, and, at its discretion, to
pay any property or rights acquired by the Corporation, either wholly or partly
in money or in stocks, bonds, debentures or other securities of the Corporation.
(viii) To create, make and issue mortgages, bonds,
deeds of trust, trust agreements and negotiable or transferable instruments and
securities, secured by mortgage or otherwise, and to do every other act and
thing necessary to effectuate the same.
(ix) To appoint and remove or suspend such
subordinate officers, agents or servants, permanently or temporarily, as it may
from time to time think fit, and to determine their duties, and fix, and from
time to time change, their salaries or emoluments, and to require security in
such instances and in such amounts as it thinks fit.
(x) To determine who shall be authorized on the
Corporation's behalf to sign bills, notes, receipts, acceptances, endorsements,
checks, releases, contracts and documents.
14
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Section 3-9. Compensation of Directors. Compensation of
Directors and reimbursement of their expenses incurred in connection with the
business of the Corporation, if any, shall be as determined from time to time by
resolution of the Board of Directors.
Section 3-10. Removal of Directors by Stockholders. The entire
Board of Directors or any individual Director may be removed from office without
assigning any cause by a majority vote of the holders of the outstanding shares
entitled to vote. In case the Board of Directors or any one (1) or more
Directors be so removed, new Directors may be elected at the same time.
Section 3-11. Resignations. Any Director may resign at any
time by submitting his written resignation to the Corporation. Such resignation
shall take effect at the time of its receipt by the Corporation unless another
time be fixed in the resignation, in which case it shall become effective at the
time so fixed. The acceptance of a resignation shall not be required to make it
effective.
Section 3-12. Vacancies. Vacancies and new created
directorships resulting from any increase in the authorized number of Directors
elected by all of the stockholders having the right to vote as a single class
may be filled by a majority of
15
<PAGE>
the Directors then in office, although less than a quorum, or by a sole
remaining Director, and each person so elected shall be a Director until his
successor is elected and qualified or until his earlier resignation or removal.
Section 3-13. Participation by Conference Telephone. Directors
may participate in regular or special meetings of the Board by telephone or
similar communications equipment by means of which all other persons at the
meeting can hear each other, and such participation shall constitute presence at
the meeting.
ARTICLE IV - OFFICERS
Section 4-1. Election and Office. The Corporation shall have a
President, a Secretary and a Treasurer who shall be elected by the Board of
Directors. The Board of Directors may elect such additional officers as it may
deem proper, including a Chairman and a Vice Chairman of the Board of Directors,
one (1) or more Vice Presidents, and one (1) or more assistant or honorary
officers. Any number of offices may be held by the same person.
Section 4-2. Term. The President, the Secretary and the
Treasurer shall each serve for a term of one (1) year and until their respective
successors are chosen and qualified, unless removed from office by the Board of
Directors during their
16
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respective tenures. The term of office of any other officer shall be as
specified by the Board of Directors.
Section 4-3. Powers and Duties of the President. Unless
otherwise determined by the Board of Directors, the President shall have the
usual duties of an executive officer with general supervision over and direction
of the affairs of the Corporation. In the exercise of these duties and subject
to the limitations of the laws of the State of Delaware, these by-laws, and the
actions of the Board of Directors, he may appoint, suspend and discharge
employees and agents, shall preside at all meetings of the stockholders at which
he shall be present, and, unless there is a Chairman of the Board of Directors,
shall preside at all meetings of the Board of Directors and, unless otherwise
specified by the Board of Directors, shall be a member of all committees. He
shall also do and perform such other duties as from time to time may be assigned
to him by the Board of Directors.
Unless otherwise determined by the Board of Directors, the
President shall have full power and authority on behalf of the Corporation to
attend and to act and to vote at any meeting of the stockholders of any
corporation in which the Corporation may hold stock, and, at any such meeting,
shall possess and may
17
<PAGE>
exercise any and all of the rights and powers incident to the ownership of such
stock and which, as the owner thereof, the Corporation might have possessed and
exercised.
Section 4-4. Powers and Duties of the Secretary. Unless
otherwise determined by the Board of Directors, the Secretary shall record all
proceedings of the meetings of the Corporation, the Board of Directors and all
committees, in books to be kept for that purpose, and shall attend to the giving
and serving of all notices for the Corporation. He shall have charge of the
corporate seal, the certificate books, transfer books and stock ledgers, and
such other books and papers as the Board of Directors may direct. He shall
perform all other duties ordinarily incident to the office of Secretary and
shall have such other powers and perform such other duties as may be assigned to
him by the Board of Directors.
Section 4-5. Powers and Duties of the Treasurer. Unless
otherwise determined by the Board of Directors, the Treasurer shall have charge
of all the funds and securities of the Corporation which may come into his
hands. When necessary or proper, unless otherwise ordered by the Board of
Directors, he shall endorse for collection on behalf of the Corporation checks,
notes and other obligations, and shall deposit the same to the
18
<PAGE>
credit of the Corporation in such banks or depositories as the Board of
Directors may designate and shall sign all receipts and vouchers for payments
made to the Corporation. He shall sign all checks made by the Corporation,
except when the Board of Directors shall otherwise direct. He shall enter
regularly, in books of the Corporation to be kept by him for that purpose, a
full and accurate account of all moneys received and paid by him on account of
the Corporation. Whenever required by the Board of Directors, he shall render a
statement of the financial condition of the Corporation. He shall at all
reasonable times exhibit his books and accounts to any Director of the
Corporation, upon application at the office of the Corporation during business
hours. He shall have such other powers and shall perform such other duties as
may be assigned to him from time to time by the Board of Directors. He shall
give such bond, if any, for the faithful performance of his duties as shall be
required by the Board of Directors and any such bond shall remain in the custody
of the President.
Section 4-6. Powers and Duties of the Chairman of the Board of
Directors. Unless otherwise determined by the Board of Directors, the Chairman
of the Board of Directors, if any, shall preside at all meetings of Directors
and shall serve ex officio
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<PAGE>
as a member of every committee of the Board of Directors. He shall have such
other powers and perform such further duties as may be assigned to him by the
Board of Directors.
Section 4-7. Powers and Duties of Vice Presidents and
Assistant Officers. Unless otherwise determined by the Board of Directors, each
Vice president and each assistant officer shall have the powers and perform the
duties of his respective superior officer. Vice Presidents and assistant
officers shall have such rank as shall be designated by the Board of Directors
and each, in the order of rank, shall act for such superior officer in his
absence, or upon his disability or when so directed by such superior officer or
by the Board of Directors. Vice Presidents may be designated as having
responsibility for a specific aspect of the Corporation's affairs, in which
event each such Vice President shall be superior to the other Vice Presidents in
relation to matters within his aspect. The President shall be the superior
officer of the Vice Presidents. The Treasurer and the Secretary shall be the
superior officers of the Assistant Treasurers and Assistant Secretaries,
respectively.
Section 4-8. Delegation of Office. The Board of
Directors may delegate the powers or duties of any officer
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<PAGE>
of the Corporation to any other officer or to any Director from time to time.
Section 4-9. Vacancies. The Board of Directors shall have the
power to fill any vacancies in any office occurring from whatever reason.
Section 4-10. Resignations. Any officer may resign at any time
by submitting his written resignation to the Corporation. Such resignation shall
take effect at the time of its receipt by the Corporation, unless another time
be fixed in the resignation, in which case it shall become effective at the time
so fixed. The acceptance of a resignation shall not be required to make it
effective.
ARTICLE V - CAPITAL STOCK
Section 5-1. Stock Certificates. Shares of the Corporation
shall be represented by certificates signed by or in the name of the Corporation
by (a) the Chairman or Vice Chairman of the Board of Directors, or the President
or a Vice President, and (b) the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, representing the number of shares
registered in certificate form. If such certificate is countersigned (i) by a
transfer agent other than the Corporation or its employee, or (ii) by a
registrar other than the
21
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Corporation or its employee, the signatures of the officers of the Corporation
may be facsimiles. In case any officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer at the date of issue.
Section 5-2. Determination of Stockholders of Record. The
Board of Directors may fix, in advance, a record date to determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action. Such date shall be not more than sixty (60) nor less than
ten (10) days before the date of any such meeting, nor more than sixty (60) days
prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if
22
<PAGE>
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 5-3. Transfer of Shares. Transfer of shares shall be
made on the books of the Corporation only upon surrender of the share
certificate, duly endorsed and otherwise in proper form for transfer, which
certificate shall be cancelled at the time of the transfer. No transfer of
shares shall be made on the books of this Corporation if such transfer is in
violation of a lawful restriction noted conspicuously on the certificate.
Section 5-4. Lost, Stolen or Destroyed Share Certificates. The
Corporation may issue a new certificate of stock or uncertified shares in place
of any certificate therefore issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen, or
23
<PAGE>
destroyed certificate, or his legal representative to give the Corporation a
bond sufficient to indemnify it against claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
ARTICLE VI - NOTICES
Section 6-1. Contents of Notice. Whenever any notice of a
meeting is required to be given pursuant to these by-laws or the Certificate of
Incorporation or otherwise, the notice shall specify the place, day and hour of
the meeting and, in the case of a special meeting or where otherwise required by
law, the general nature of the business to be transacted at such meeting.
Section 6-2. Method of Notice. All notices shall be given to
each person entitled thereto, either personally or by sending a copy thereof
through the mail, postage prepaid, or by telegraph, telex or courier service,
charges prepaid, or by facsimile transmission, to the address (or to the telex
or facsimile number) of the person as it appears on the records of the
Corporation, or supplied by the person to the Corporation for the purpose of
notice. If notice is sent by mail, telegraph or courier service, it shall be
deemed to have been given to the person entitled thereto when deposited in the
United States Mail
24
<PAGE>
or with the telegraph office or courier service for delivery to that person, or
in the case of telex, when dispatched, or in the case of facsimile transmission,
when received. If no address for a stockholder appears on the books for the
Corporation and such stockholder has not supplied the Corporation with an
address for the purpose of notice, notice deposited in the United States Mail
addressed to such stockholder care of General Delivery in the city in which the
principal office of the Corporation is located shall be sufficient.
Section 6-3. Waiver of Notice. Whenever notice is required to
be given under any provision of law or of the Certificate of Incorporation or
by-laws of the Corporation, a written waiver, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, Directors, or members of a
committee of Directors need be specified in any written waiver
25
<PAGE>
of notice unless so required by the Certificate of Incorporation.
ARTICLE VII - INDEMNIFICATION
Section 7-1. Indemnification. The Board of Directors of the
Corporation may indemnify any person, and take action with respect to any
matter, to the fullest extent contemplated by Section 145 of the General
Corporation Law of the State of Delaware except to the extent, if at all,
specifically restricted by the Certificate of Incorporation of the Corporation
as it may exist from time to time.
ARTICLE VIII - SEAL
The form of the seal of the
Corporation, called the corporate seal [Form of Seal]
of the Corporation, shall be as impressed adjacent hereto.
ARTICLE IX - FISCAL YEAR
The Board of Directors shall have the power by resolution to
fix the fiscal year of the Corporation. If the Board of Directors shall fail to
do so, the President shall fix the fiscal year.
ARTICLE X - AMENDMENTS
The original or other by-laws may be adopted, amended or
repealed by the stockholders entitled to vote thereon at any regular or speciaL
meeting or, if the Certificate of
26
<PAGE>
Incorporation so provides, by the Board of Directors. The fact that such power
has been so conferred upon the Board of Directors shall not divest the
stockholders of the power nor limit their power to adopt, amend or repeal
by-laws.
ARTICLE XI - INTERPRETATION OF BY-LAWS
All words, terms and provisions of these by-laws shall be
interpreted and defined by and in accordance with the General Corporation Law of
the State of Delaware, as amended, and as amended from time to time hereafter.
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Exhibit 10.11.1
AMENDMENT TO MANUFACTURING AGREEMENT
This amendment ("AMENDMENT"), dated April 12, 1995, is by and between
U.S. Bioscience, Inc. ("USB"), a corporation organized and existing under the
laws of the state of Delaware and Applied Analytical Industries, Inc., a
corporation organized and existing under the laws of Delaware, having a place of
business at 1206 North 23rd Street, Wilmington, North Carolina 28405 ("AAI").
WHEREAS, USB and AAI entered into a Manufacturing Agreement dated
January 1995 (the "Agreement"), relating to the manufacture of Hexalen(R)
(Altretamine);
WHEREAS, USB and AAI desire to amend certain provisions of the
Agreement as hereinafter provided; and
NOW, THEREFORE, in consideration of the mutual promises contained
herein and intending to be legally bound hereby, the parties hereby agree as
follows:
1. Definitions: Except as otherwise specifically provided herein, all
capitalized terms used herein and not defined herein shall have the meaning
assigned to such terms in the Agreement.
2. Inspection: Section 8.2 of the Agreement shall be amended by
deleting Section 8.2 in its entirety and in its place inserting the following
Section 8.2:
"8.2 INSPECTION. USB and those of its distributors, licensees
and sub-licensees and their respective affiliates with rights
to market or sell the PRODUCT identified to AAI by USB and
satisfactory to AAI (collectively, the "USB Affiliates"), upon
reasonable notice, shall have the right, at their sole cost
and expense, to conduct periodic inspections of AAI's
facilities to inspect and observe AAI's manufacturing, quality
control and quality assurance procedures. AAI shall make
available to USB and the USB Affiliates during on-site
inspection all records and documentation addressing the
PREPARATION and quality control of the PRODUCT. AAI shall also
provide USB and the USB Affiliates, at their request, copies
of such records during such inspection at the sole cost and
expense of the party initiating the inspection."
<PAGE>
3. Effect of Amendment: Other than the specific amendment set forth
above, all other terms and conditions of the Agreement shall remain in full
force and effect. This Amendment embodies the full and complete understanding of
the parties hereto with respect to the matters addressed herein and supersedes
all prior understandings and agreements whether oral or written.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute this Agreement.
U.S. BIOSCIENCE, INC.
BY:
- - --------------------------------------------------------
TITLE: Senior Vice President, Pharmaceutical Operations
- - --------------------------------------------------------
DATE: April 11, 1995
- - --------------------------------------------------------
APPLIED ANALYTICAL INDUSTRIES, INC.
BY:
- - --------------------------------------------------------
TITLE:
- - --------------------------------------------------------
DATE:
- - --------------------------------------------------------
<PAGE>
Exhibit 10.11.2
SECOND AMENDMENT TO MANUFACTURING AGREEMENT
This second amendment, dated May ____, 1996, is by and between U.S.
Bioscience, Inc. ("USB"), a corporation organized and existing under the laws of
the State of Delaware, having a place of business at One Tower Bridge, 100 Front
Street, West Conshohocken, Pennsylvania 19428 and Applied Analytical Industries,
Inc. ("AAI"), a corporation organized and existing under the laws of the State
of Delaware, having a place of business at 1206 North 23rd Street, Wilmington,
North Carolina 28405.
WHEREAS, USB and AAI entered into a Manufacturing Agreement dated
January 1, 1995 (the "Agreement"), relating to the manufacture of Hexalen(R)
(Altretamine);
WHEREAS, USB and AAI amended the Agreement by an Amendment to
Manufacturing Agreement dated April 12, 1995; and
WHEREAS, USB and AAI desire to further amend the Agreement to extend
the term of the Agreement for five (5) years and as hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and intending to be legally bound hereby, the parties hereby agree as
follows:
1. Definitions: Except as otherwise specifically provided herein, all
capitalized terms used herein and not defined herein shall have the meaning
assigned to such terms in the Agreement.
2. Current Good Manufacturing Practice. Section 1.2 of the Agreement
shall be amended by deleting Section 1.2 in its entirety and in its place
inserting the following Section 1.2:
"1.2 CURRENT GOOD MANUFACTURING PRACTICE" or "cGMP" shall mean
those current Good Manufacturing Practice regulations required by the
FDA in the production of pharmaceutical products as published in Title
XXI Code of Federal Regulations and, for PRODUCTS to be manufactured
for distribution in the European Economic Community, those current Good
Manufacturing Practice regulations required by the European Economic
Community as referred to in Article 16 of Directive 75/319/EEC and
Article 24 Directive 81/85/EEC as modified."
3. PRODUCT. Section 1.10 of the Agreement shall be amended by adding
the following immediately after the word "bulk" in the third line of that
section:
"Prepared for bottled presentation."
<PAGE>
Section 1.10 shall be further amended by adding the following as the last
sentence of that Section:
"PRODUCT shall not include Hexalen for presentations other
than bottled presentations, including without limitation Hexalen in
capsules for blister packaging."
4. Services Performed by Third Parties. A new Section 3.11 shall be
added to the Agreement as follows:
"3.11 Services Performed by Third parties. AAI shall be
prohibited from subcontracting out any of the services to be provided
by AAI hereunder; provided, however, that AAI may subcontract out such
services to third parties upon receipt of USB's prior written consent
and that the results of such services are available for inspection by
USB."
5. Warranties. Section 8.1 of the Agreement shall be amended by
deleting Section 8.1 in its entirety and in its place inserting the following
Section 8.1:
"8.1 WARRANTIES. AAI warrants that it will PREPARE the PRODUCT
in accordance with cGMPs and the requirements established for PRODUCT
in the SPECIFICATIONS and that it will not manufacture any PRODUCT for
distribution in the United Kingdom until such time as it has received
manufacturing details and specifications set forth in the applicable
product license."
6. Term. Section 11.1 of the Agreement shall be amended by deleting the
word "two (2)" in the first sentence and in its place inserting the word "seven
(7)".
7. Manufacturing Schedule. Section 2.1A of the Agreement shall be
amended by inserting in the first sentence immediately following "AAI and USB
shall mutually agree upon the annual price," the following:
"which shall be no higher than the price in effect under this Agreement
on the date of this Amendment; provided however, that AAI shall be
entitled to an increase in its annual price for PRODUCT hereunder
beginning in calendar year 1997, which increase shall be limited to the
percentage increase in the Producer Price Index for Pharmaceuticals
prepared by the Labor Department's Bureau of Labor Statistics for the
calendar year immediately preceding the calendar year for which the
price increase applies."
2
<PAGE>
Section 2.1A of the Agreement shall be further amended by adding the following
sentence:
"AAI agrees that from time to time under this Agreement in the event
USB materially reduces its market price of Hexalen to meet competitive
market conditions, USB and AAI shall negotiate in good faith a price
for PRODUCT hereunder which is mutually acceptable to both parties. In
the event the parties are unable to negotiate a price acceptable to
both parties, USB shall have the right, without penalty, to terminate
this Agreement upon 60 days prior written notice to AAI."
8. Primary Supplier. A new section 2.4 shall be added to the Agreement
as follows:
"2.4 During the term of this Agreement USB agrees to use AAI
as its primary supplier of PRODUCT for the United States commercial
market. For purposes of this Agreement, primary supplier shall mean AAI
will, as primary supplier for the United States commercial market for
PRODUCT, PREPARE all but such quantities as shall be reasonably
required to qualify and maintain a secondary supplier of PRODUCT for
the United States commercial market. Provided however, that USB shall
no longer be required to use AAI as its primary supplier for PRODUCT
for the United States commercial market if AAI at any time under this
Agreement is unable to supply PRODUCT to USB in compliance with USB
orders for PRODUCT. USB shall have the right unrestricted by this
Agreement to have others manufacture Hexalen for presentations other
than bottled presentations, including without limitation, Hexalen in
capsules for blister packaging, for commercial sale in the United
States. USB reserves the right at any time to discontinue commercial
sale of PRODUCT in the United States and to sell in its place Hexalen
in any other form or presentation."
9. Non-Compete. A new section 12.10 shall be added to the Agreement as
follows:
"12.10 Non-Compete. Except for the manufacture of Hexalen
(altretamine) for USB pursuant to the terms of this Agreement, AAI
agrees that during the term of this Agreement and for a period of five
(5) years thereafter AAI will not make, develop, use, promote, market,
distribute or sell (or otherwise commercialize) directly or indirectly
(including but not limited to activities conducted through an
AFFILIATE) any product containing altretamine as an active ingredient.
This obligation shall survive the termination or expiration of this
AGREEMENT."
10. Construction. A new section 12.11 shall be added to the Agreement
as follows:
3
<PAGE>
"12.11 Construction. If any provision or clause of this
Agreement, or portion thereof, shall be held by any court or other
tribunal of competent jurisdiction to be illegal, void, or
unenforceable, the remainder of the Agreement shall not be affected and
shall be given full force and effect. It is the intention of the
parties that, if any court or other tribunal construes any provision or
clause of this Agreement, or any portion thereof, to be illegal, void,
or unenforceable because of the duration of such provision or the area
or matter covered thereby, such court shall reduce the duration, area
or matter of such provision and enforce such provision in its reduced
form."
11. Effect of Amendment. Other than the specific amendment set forth
above, all other terms and conditions of the Agreement shall remain in full
force and effect. This Amendment embodies the full and complete understanding of
the parties hereto with respect to the matters addressed herein and supersedes
all prior understanding and agreements whether oral or written.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute this Amendment.
APPLIED ANALYTICAL INDUSTRIES, INC.
By:_____________________________________________
Anthony F. Arato
Vice President, Manufacturing and Engineering
U.S. BIOSCIENCE, INC.
By:_____________________________________________
Donald O. Brown
Senior Vice President, Pharmaceutical Operations
4
<PAGE>
Exhibit 10.12.1
AMENDMENT TO MANUFACTURING AND SUPPLY AGREEMENT
This amendment ("AMENDMENT"), dated April , 1995, is by and between
U.S. Bioscience, Inc. ("USB"), a corporation organized and existing under the
laws of the State of Delaware and Ben Venue Laboratories, Inc., a corporation
organized and existing under the laws of Pennsylvania, with principal
manufacturing facilities at 300 Northfield Road, Bedford, Ohio 44146 ("BVL").
WHEREAS, USB and BVL entered into a Manufacturing and Supply Agreement
dated September 23, 1993 (the "Agreement"), relating to the manufacture and
supply of Neutrexin(R) (trimetrexate glucumate and Ethyol(R) (amifostine);
WHEREAS, USB and BVL desire to amend certain provisions of the
Agreement as hereinafter provided; and
NOW, THEREFORE, in consideration of the mutual promises contained
herein and intending to be legally bound hereby, the parties hereby agree as
follows:
1. Definitions: Except as otherwise specifically provided herein, all
capitalized terms used herein and not defined herein shall have the meaning
assigned to such terms in the Agreement.
2. Quality: Section 6.1 of the Agreement shall be amended by deleting
the first two sentences of Section 6.1 and replacing those sentences with the
following:
"6.1 Quality USB and its distributors, licensees and
sub-licensees and their respective affiliates shall have the
right, but not the obligation, to inspect BVL's quality
control procedures and records and to obtain specimens of
Product(s) from BVL's production for analysis to confirm
quality. USB, its distributors, licensees, sublicensees and
their respective affiliate employees may perform inspections
of BVL's manufacturing facilities."
3. Effect of Amendment: Other than the specific amendment set forth
above, all other terms and conditions of the Agreement shall remain in full
force and effect. This Amendment embodies the full and complete understanding of
the parties hereto with respect to the matters addressed herein and supersedes
all prior understandings and agreements whether oral or written.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute this Agreement.
U.S. BIOSCIENCE, INC.
BY:
- - --------------------------------------------------------
TITLE: Senior Vice President, Pharmaceutical Operations
- - --------------------------------------------------------
DATE: April 10, 1995
- - --------------------------------------------------------
BEN VENUE LABORATORIES, INC.
BY:
- - --------------------------------------------------------
TITLE:
- - --------------------------------------------------------
DATE:
- - --------------------------------------------------------
<PAGE>
Exhibit 10.12.2
AMENDMENT TO MANUFACTURING AND SUPPLY AGREEMENT
This amendment ("AMENDMENT"), dated December , 1995, is by and
between U.S. Bioscience, Inc. ("USB"), a corporation organized and existing
under the laws of the State of Delaware and Ben Venue Laboratories, Inc., a
corporation organized and existing under the laws of Pennsylvania, with
principal manufacturing facilities at 300 Northfield Road, Bedford, Ohio 44146
("BVL").
WHEREAS, USB and BVL entered into a Manufacturing and Supply Agreement
dated September 23, 1993, and amended April 11, 1995, relating to the
manufacture and supply of Neutrexin(R) (trimetrexate glucuronate) and Ethyol(R)
(amifostine) (the "Agreement");
WHEREAS, USB and BVL desire to amend certain provisions of the
Agreement as hereinafter provided; and
NOW, THEREFORE, in consideration of the mutual promises contained
herein and intending to be legally bound hereby, the parties hereby agree as
follows:
1. Definitions: Except as otherwise specifically provided herein, all
capitalized terms used herein and not defined herein shall have the meaning
assigned to such terms in the Agreement.
2. Section 1.1 is hereby amended to delete from the last sentence of
that section:
"but if RA approval is not obtained within eighteen (18)
months after the date of this Agreement, BVL and USB agree to
meet and renegotiate in good faith all or any part of this
Agreement which may be affected by the delay of such RA
approval."
It is the intention of the parties that this Agreement shall be effective under
its current terms notwithstanding that RA in the United States was not received
within such eighteen (18) months.
3. The parties acknowledge that it will be extremely difficult to
predict required quantities of Product in the first two years of commercial sale
and they will work closely together to attempt to assure that required
quantities of Product are made available as quickly and efficiently as possible.
1
<PAGE>
4. Section 4.2 is hereby amended to delete from that section the
following sentences:
"USB shall provide its best estimate for the first commercial
order six (6) months in advance of the expected approval date.
USB's first commercial order shall be placed with BVL four (4)
months in advance of the expected approval date."
and in its place, the following shall be inserted:
"USB shall provide its best estimate for the first commercial
order for Ethyol ninety (90) days in advance of the expected
commercial launch of Ethyol in the United States. USB's first
commercial order for Ethyol shall be placed with BVL not less
than sixty (60) days in advance of the expected commercial
launch of Ethyol in the United States."
5. Section 4.3 is hereby deleted and in its place the following shall
be inserted:
"USB shall submit to BVL in advance of USB's first commercial
order, its estimate for both volumes and delivery dates for
Ethyol from expected commercial launch in the United States
through the end of the calendar year in which such launch is
expected to occur."
6. Section 4.4 is hereby amended to delete the first sentence of that
section:
"For the years subsequent to the period of Section 4.3, USB
shall submit to BVL not less than three (3) months prior to
each anniversary of the date of this Agreement, revised
estimates for both volumes and delivery dates of its annual
requirements,"
and in its place the following shall be inserted:
"For the years subsequent to the period of Section 4.3, USB
shall submit to BVL in each calendar year by October 1 for the
subsequent calendar year, revised estimates for both volumes
and delivery dates of its annual requirements."
7. Section 5.1 is hereby amended by deleting the second sentence of
that section and its place the following shall be inserted:
"BVL shall notify USB of price adjustments, if any, at least
120 days in
2
<PAGE>
advance of each calendar year during which this Agreement is
in place with such price becoming effective at the beginning
of the calendar year subsequent to the notification of any
such price increase."
8. Effect of the Amendment: Other than the specific amendments set
forth above, all other terms and conditions of the Agreement shall remain in
full force and effect. This Amendment embodies the full and complete
understanding of the parties hereto with respect to the matters addressed herein
and supersedes all prior understandings and agreements whether oral or written.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute this Agreement.
U.S. BIOSCIENCE, INC.
By:______________________________
Title:_____________________________
Date:_____________________________
BEN VENUE LABORATORIES, INC.
By:______________________________
Title:____________________________
Date:____________________________
3
<PAGE>
EXHIBIT 10.32
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)
Amended 2/27/97
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
<PAGE>
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 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.
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<PAGE>
(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
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
-3-
<PAGE>
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.
(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,
-4-
<PAGE>
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
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
-5-
<PAGE>
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 of the Plan, the Committee
shall from time to time at its discretion direct the Company to grant Options
pursuant to the
-6-
<PAGE>
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
-7-
<PAGE>
(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.
(e) Limitations on Grants of Options to Consultants
and Advisors. With respect to the grant of Options
-8-
<PAGE>
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 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 Two Million
Eight Hundred Fifty Thousand (2,850,000)" are substituted for the words "One
Million Seven Hundred Fifty
-9-
<PAGE>
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 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
-10-
<PAGE>
Options may be granted under the Plan for Shares authorized by such amendment
after February 28, 2004. With respect to the amendment to Section 6 of the Plan
on February 27, 1997 which increased the number of Shares for which Options may
be granted pursuant to the Plan from One Million Seven Hundred Fifty Thousand
Shares to Two Million Eight Hundred Fifty Thousand Shares, such amendment is
effective as of February 27, 1997, the date on which it was adopted by the
Company's Board of Directors, subject to approval of such amendment, on or
before February 26, 1998, by a majority of the votes cast at a duly convened
meeting of the stockholders at which a quorum representing a majority of all
outstanding voting stock of the Company is, either in person or by proxy,
present when the meeting is convened. If such amendment to the 1992 Plan is not
so approved on or before February 26, 1998, all Options granted under the Plan
for Shares authorized by such amendment shall be null and void; no Options may
be granted under the Plan for Shares authorized by such amendment after February
26, 2007.
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
-11-
<PAGE>
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 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 300,000 or more Shares (such maximum number to
be appropriately adjusted in the manner described in Section 11 of the Plan);
the foregoing shall not
-12-
<PAGE>
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 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
-13-
<PAGE>
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 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
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<PAGE>
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.
(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
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<PAGE>
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
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<PAGE>
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, 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
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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
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<PAGE>
(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 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
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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 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
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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 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
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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.
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(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
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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 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;
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(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 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
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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 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
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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
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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
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which a quorum representing a majority of all outstanding voting 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.
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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 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
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to satisfy the conditions of Rule 16b-3, such provision shall be deemed null and
void to the extent permitted by applicable law.
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EXHIBIT 10.35
U.S. BIOSCIENCE, INC.
INCOME DEFERRAL PLAN
The Board of Directors of U.S. Bioscience Inc. ("USB") wishes to make
additional retirement benefits available to certain key executive employees of
USB whose retirement benefits are otherwise restricted because of the
limitations imposed on contributions to the USB Savings Plan by the Federal tax
laws. Such benefits shall be provided to those individuals under the terms and
conditions hereinafter set forth.
ARTICLE 1
Definitions
1.1 "Account" means a bookkeeping account established pursuant to Section
3.1 which reflects the amount standing to the credit of the Participant
under the Plan.
1.2 "Affiliated Company" means any subsidiary of USB.
1.3 "Base Compensation" means the annual amount of base salary and wages
paid by the Employer to an Executive for any Plan Year, including
amounts contributed under an arrangement maintained by the Employer
pursuant to Section 125 or 401(k) of the Code as well as under this
Plan, but excluding all Employer contributions to benefit plans and all
other forms of compensation; provided, however, that the amount of the
Social Security Wage Base for the Plan Year of determination shall be
subtracted in order to determine a Participant's Base Compensation.
1.4 "Beneficiary" means the person(s) designated by a Participant to
receive any benefits payable under this Plan subsequent to the
Participant's death. In the event a Participant has not filed an
effective Beneficiary designation with the Committee, in such form as
the Committee shall specify, the Beneficiary shall be the Participant's
surviving spouse or, if there is no surviving spouse, the Participant's
estate.
1.5 "Board" means the Board of Directors of USB, the Compensation Committee
of the Board or other committee designated by the Board to act under
this Plan on behalf of USB or an Employer.
1.6 "Bonus" means bonus compensation awards that may become due to the
Executive under any incentive plan of an Employer.
1.7 "Code" means the Internal Revenue Code of 1986, as the same may be
amended from time to time.
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1.8 "Committee" means the committee appointed by the Board to administer
the Plan.
1.9 "Disability" means a condition resulting in permanent and total
disability within the meaning of the Employer's group long term
disability plan (or a condition that would qualify the Participant for
a benefit under such plan if such Participant were employed by the
Employer).
1.10 "Effective Date" means April 1, 1997.
1.11 "Executive" means any individual employed by an Employer, on a regular,
full-time basis, in a key management or other highly compensated
position, within the meaning of Section 201(2) of ERISA (as determined
in accordance with the personnel policies and practices of the
Employer), or who is an officer or otherwise considered to be a member
of the Employer's senior management, but shall not include any
individual who is a member of the Board but is not employed by USB.
1.12 "Employer" means USB and/or any Participating Employer, either
collectively or individually, as the context requires.
1.13 "ERISA" means the Employee Retirement Income Security Act of 1974, as
the same may be amended from time to time.
1.14 "Participant" means any Executive who is designated as eligible to
participate, pursuant to Section 2.1. In the event of the death or
incompetency of a Participant, the term shall mean his or her personal
representative or guardian. An individual shall remain a Participant
until a full distribution of any amount credited to the Participant's
Account has occurred.
1.15 "Participating Employer" means each Affiliated Company that the Board
has authorized to cover its Executives under the terms of the Plan and
which has elected to do so by resolutions of its board of directors.
1.16 "Plan" means the U.S. Bioscience, Inc. Income Deferral Plan as the same
is set forth in this text, and as it may be amended from time to time.
1.17 "Plan Year" means each calendar year during which the Plan is in effect
commencing on the Effective Date.
1.18 "Separates from Employment" means the Executive's termination of
employment from the Employer for any reason other than a Disability.
Except as otherwise provided herein, a Separation from Employment shall
be deemed to have occurred on the last day of the Executive's service
to the Employer and shall be determined without reference to any
compensation continuation arrangement or severance benefit
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arrangement that may be applicable. With respect to an Executive who is
a member of the Board but who is not otherwise employed by the
Employer, such individual's Separation from Employment shall mean the
last day such individual serves as a member of the Board.
1.18 "USB" means U.S. Bioscience, Inc., a Delaware corporation and its
successors.
ARTICLE 2
Eligibility
2.1 Each Executive may participate if so designated by the Board on such
date as is specified by the Board. A list of the Participants in the
Plan on the Effective Date is attached hereto as Exhibit A; such list
may be modified from time to time by the Board.
ARTICLE 3
Deferrals
3.1 Prior to the commencement of a Plan Year, or, for the Plan Year which
includes the Effective Date or the date on which an Executive first
becomes a Participant, within 30 days of becoming a Participant, a
Participant may elect to have the Employer credit to the Participant's
Account (as a result of a written salary or bonus deferral election) an
amount equal to (i) any whole percentage or dollar amount of the
Participant's Bonus, if any, to be earned for that Plan Year or (ii)
any whole percentage or dollar amount of the Participant's Base
Compensation to be earned during that Plan Year; provided, however,
that the minimum amount that a Participant may elect to defer for any
Plan Year is $3,600. Such election shall remain in effect until
prospectively discontinued by the Participant in the manner specified
by the Committee. If an election is made to have a contribution
credited to the Participant's Account for a Plan Year, the credit shall
be made at the time that such amount would otherwise have been paid and
shall reduce the Participant's Bonus or Base Compensation, as
applicable, with respect to that Plan Year by a corresponding amount.
The Board may establish other minimum or maximum amounts that may be
deferred under this Section and may change such standards from time to
time. Any such limits shall be communicated by the Board to the
Committee and by the Committee to the Participants prior to the
commencement of a Plan Year. A Participant who wishes to receive a
distribution of all or a portion of the amount so deferred prior to the
date that the Participant Separates from Employment must also make the
election described in Section 4.2 at the time the Participant elects a
deferral under this Section, in the manner specified by the Committee.
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3.2 The Board shall cause the Employer to create and maintain on its books
an Account for each of its Participants to which it shall credit
amounts contributed to the Plan pursuant to this Article 3. The
Employer shall also credit each Participant's Account with deemed
earnings for each Plan Year in accordance with the provisions of
Article 8.
3.3 Any elections under this Article shall be made in writing on such form
as the Committee shall specify. Subject to the provisions of Section
4.3, any election by a Participant pursuant to this Article shall be
irrevocable and may be modified only prospectively.
ARTICLE 4
Distributions to Participants
4.1 Unless a Participant makes the election described in Section 4.2, the
Participant's benefit under the Plan shall be paid in one lump sum as
soon as practicable (but no later than 60 days) following the
completion of the valuation of the Participant's Account for the last
business day of the second Plan Year following the Plan Year in which
the Participant Separates from Employment. A Participant who incurs a
Disability shall not be deemed to have Separated from Employment until
180 days have elapsed after incurring the Disability. Notwithstanding
anything herein to the contrary, at the time of the deferral election
under Section 3.1 or no later than the end of the Plan Year (or within
30 days thereafter, if later) in which the Participant Separates from
Employment, the Participant may elect, in the manner specified by the
Committee, to (i) defer the distribution of the Participant's total
Account until the Plan Year in which the Participant attains age 65 (or
later date of actual retirement, if employed beyond age 65) or (ii)
receive distribution in annual installments over a period not to exceed
3 years if the amount to be distributed is over $30,000 but less than
$100,000 or 10 years if the amount to be distributed is $100,000 or
over (with the balance to be distributed continuing to be deemed
invested pursuant to Article 8 and distributed by dividing the
remaining Account balance by the number of installments remaining);
provided, that in the event that a Participant fails to make an
election, distribution shall be in one lump sum at the time specified
in the first sentence of this Section 4.1.
4.2 Pursuant to the in-service distribution option provision specified in
Section 3.1, in the event that a Participant wishes to receive a
distribution of deferred amounts credited to the Participant's Account
prior to Separation from Employment, the Participant may make an
in-service distribution election; provided, however, that no
Participant may make more than two in-service distribution elections
during the Participant's participation in the Plan. The election, as to
any one Plan Year's deferral, shall be made at the time the Participant
first makes the election to defer under Section 3.1, or
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as of the beginning of any new Plan Year thereafter as to deferrals for
a Plan Year made on or after such election. Such election shall be to
receive all or the portion of the balance credited to the Participant's
Account that is attributable to the in-service distribution election
for the Plan Year of the election on the date in the future specified
in the in-service distribution election. The in-service distribution
election shall specify a percentage of the amount so deferred
(including earnings) to be distributed and the year in which such
distribution is to be made which may not be earlier than 5 years
following the Plan Year in which the deferral is credited to the
Participant's Account. The in-service distribution shall be paid in the
form of a lump sum or in up to three annual installments (with the
balance to be distributed continuing to be deemed invested under
Article 8 and distributed by dividing the remaining Account balance by
the number of installments remaining), as elected by the Participant,
in the manner and at the time specified by the Committee, to be made or
commence by the last day of January of the Plan Year specified based on
the value of the Participant's Account as of the last day of the
preceding Plan Year.
4.3 The Committee, in its sole discretion, may accelerate the time of
distribution of all or a portion of the Participant's Account, if the
Participant experiences a severe financial hardship due to illness,
accident or death in the immediate family, loss of or damage to
property due to casualty, or other extraordinary and unforeseeable
circumstances. Such Participant shall provide the Committee with a
statement in reasonable detail as to the nature of such financial
hardship together with a statement that such acceleration is necessary
to alleviate such hardship. In addition, the Committee shall accelerate
the time of distribution of all or a portion of the Participant's
Account in accordance with the provisions of Section 7.1.
4.4 The Board, in its sole discretion, may override any election made by a
Participant under the Plan and direct a distribution of all or a
portion of the balance credited to a Participant's Account at any time.
ARTICLE 5
Death Benefit
5.1 In the event of the death of a Participant prior to commencement of any
payments due pursuant to Article 4, the Participant's Beneficiary shall
receive a distribution equal to the balance of the Participant's
Account on the date of death. The benefit payment to the Beneficiary
shall be made in lump sum as soon as practicable (but no later than 60
days) following the completion of the valuation of the deceased
Participant's Account as of the last day of the month in which the
Participant's death occurs. In the event of the death of a Participant
after payment of a benefit has commenced in installments, pursuant to
Section 4.1, the Participant's Beneficiary shall receive a lump sum
payment of all amounts remaining due following the Participant's death
as soon as
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practicable (but no later than 60 days) following the completion of the
valuation of the deceased Participant's Account as of the last day of
the month in which the Participant's death occurs.
ARTICLE 6
Vesting
6.1 The balance credited to a Participant's Account shall be fully vested
at all times.
ARTICLE 7
Funding
7.1 The Board may, but shall not be required to, authorize the
establishment of a trust by USB to serve as the payment vehicle for the
benefits due under the Plan in accordance with the provisions of
Articles 4 and 5 and for the deemed investment of the amounts credited
to a Participant's Account under Article 8. Notwithstanding anything
herein to the contrary, a Participant may make a written election, at
the time and in the manner specified by the Committee, to withdraw
amounts credited to the Participant's Account for which the trust is to
serve as the payment vehicle upon the forfeiture of 10% of the balance
credited to the Participant's Account that is to be withdrawn and the
value of the Participant's Account shall be reduced accordingly. In any
event, the Employers' obligations hereunder shall constitute a general,
unsecured obligation, payable solely out of general assets, and no
Participant shall have any right to any specific assets of the
Employer. In addition, it is the intention of the Employer that the
Plan be unfunded for tax purposes and for purposes of Title I of ERISA.
USB shall not be required to provide any Participant with information
with respect to its financial condition.
ARTICLE 8
Investments
8.1 The balance credited to a Participant's Account shall be deemed to be
invested, as elected by the Participant in one or more of the
investments or investment funds designated as available under the Plan
for the purposes hereof by the Committee, as listed on Exhibit B
hereto, as it may be changed by the Board from time to time. A
Participant may make changes in the deemed investment elections in
accordance with procedures specified by the Committee. USB shall credit
the Participant's Account with the interest, earnings or losses with
respect to the balance then credited to the Participant's Account,
equal to the investment return produced by the Participant's deemed
investments under this Section, based on the assumption that the
contributions
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attributable to the Participant's Base Compensation for each calendar
month of a Plan Year are credited to the Participant's Account on the
last day of each such calendar month and the portion of the
contribution attributable to the Participant's Bonus is credited to the
Participant's Account within 30 days after such Bonus would otherwise
have been paid.
8.2 In no event shall any Participant be entitled to have any investments
under Section 8.1 actually made other than on a deemed basis as
provided in Section 8.1. The Committee shall inform each eligible
Participant as to (i) how such elections may be made, (ii) the manner
and the time it has prescribed for making deemed investment changes and
(iii) how to make prospective changes in deemed current investments of
contributions. The Committee shall provide each Participant with
periodic statements as to the value of the Participant's Account and
shall be responsible for furnishing appropriate election forms to each
Participant and for keeping appropriate records.
ARTICLE 9
Administration and Other Actions
9.1 The Committee shall have full power and authority to interpret the
Plan, to prescribe, amend and rescind any rules, forms and procedures
as it deems necessary or appropriate for the proper administration of
the Plan and to make any other determinations, including factual
determinations, and to take any other such actions as it deems
necessary or advisable in carrying out its duties under the Plan. All
action taken by the Committee arising out of, or in connection with,
the administration of the Plan or any rules adopted thereunder, shall,
in each case, lie within its sole discretion, and shall be final,
conclusive and binding upon the Employer, the Board, all Executives and
Beneficiaries and all persons and entities having an interest therein.
9.2 The Committee shall serve without compensation for their services
unless otherwise determined by the Board. All expenses of administering
the Plan shall be paid by the Employer.
9.3 USB shall indemnify and hold harmless each member of the Committee from
any and all claims, losses, damages, expenses (including counsel fees)
and liability (including any amounts paid in settlement of any claim or
any other matter with the consent of the Board) arising from any act or
omission of such member, except when the same is due to gross
negligence or willful misconduct.
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9.4 Any decisions, actions or interpretations to be made under the Plan by
USB, the Employer or the Board shall be made in its respective sole
discretion, not as a fiduciary, need not be uniformly applied to
similarly situated individuals and shall be final, binding and
conclusive on all persons interested in the Plan.
9.5 In the case of any Participant (whether active, retired or terminated)
or Beneficiary who wishes to file a claim as to the payment of a
benefit under this Plan, the Committee shall provide adequate notice in
writing of any adverse determination setting forth the specific reasons
for such denial in a manner calculated to be understood by the
recipient thereof. Such Participant or Beneficiary shall be afforded a
reasonable opportunity for a full and fair review of the decision
denying the claim by the Board.
ARTICLE 10
Amendment
10.1 The Board, acting on behalf of USB, and not as a fiduciary, may at any
time, and from time to time, amend this Plan in any respect without
restriction and without the consent of any Participant; provided that
any such amendment shall not, without the consent of any Participant
then entitled to a benefit under the Plan, impair such Participant's
right to receive that benefit accrued hereunder prior to such
amendment.
ARTICLE 11
Termination
11.1 Continuance of the Plan is completely voluntary and is not assumed as a
contractual obligation of the Employer. The Board, acting on behalf of
USB and not as a fiduciary, shall have the right to terminate the Plan
in whole or in part at any time all without the consent of, or notice
to, any person or entity; provided, however, that such termination
shall not have the effect of divesting a Participant of the benefit
which the Participant would otherwise receive hereunder at the time the
termination is approved. In the event of the termination of the Plan,
USB may distribute a benefit to a Participant as if such Participant
had a Separation from Service as of the date of the termination of the
Plan or postpone distribution until such time as distribution would
ordinarily be made to the Participant under the terms of the Plan.
ARTICLE 12
Miscellaneous
8
<PAGE>
12.1 Nothing contained herein (i) shall be deemed to exclude a Participant
from any compensation, bonus, pension, insurance, severance pay or
other benefit to which he or she otherwise is or might become entitled
as an Executive or (ii) shall be construed as conferring upon an
Executive the right to continue in the employ of the Employer.
12.2 Any amounts payable hereunder shall not be deemed salary or other
compensation to a Participant for the purposes of computing benefits to
which the Participant may be entitled under any other arrangement
established by the Employer for the benefit of its employees. All
payments of benefits shall be reduced by any withholding required by
applicable Federal, state and local law.
12.3 The rights and obligations created hereunder shall be binding on a
Participant's heirs, executors and administrators and on the successors
and assigns of the Employer.
12.4 The masculine pronoun whenever used shall include the feminine and the
singular shall be construed as the plural, where applicable.
12.5 The provisions of the Plan shall be construed and applied under the
laws of the Commonwealth of Pennsylvania.
12.6 The rights of any Participant under this Plan are personal and may not
be assigned, transferred, pledged or encumbered. Any attempt to do so
shall be void. In addition, a Participant's rights hereunder are not
subject, in any manner, to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment or garnishment by creditors
of the Participant or the Participant's Beneficiary.
12.7 If any provision of the Plan shall be held invalid or unenforceable,
such invalidity or unenforceability shall not effect any other
provisions hereof and the Plan shall be construed and enforced as if
such provisions had not been included.
12.8 The headings and captions herein are provided for convenience only, and
shall not be construed as part of the Plan, and shall not be employed
in the construction of the Plan.
12.9 Any benefit payable to or for the benefit of a payee who is a minor, an
incompetent person, or is otherwise incapable of receipting therefor
shall be deemed paid when paid to such person's guardian or to the
party providing, or reasonably appearing to provide, the care for such
person, and such payment shall fully discharge the Employer, the
Committee, the Board and all other parties with respect thereto.
ARTICLE 13
Claims Procedure
9
<PAGE>
13.1 Each Participant or Beneficiary believing himself or herself eligible
for a benefit under the Plan shall apply for such benefits by
completing and filing with the Committee an application for benefits on
a form supplied by the Committee. In the event that any claim for
benefits is denied in whole or in part, the Participant or Beneficiary
whose claim has been so denied shall be notified of such denial in
writing by the Committee. The notice advising of the denial shall
specify the reason or reasons for denial, make specific reference to
pertinent Plan provisions, describe any additional material or
information necessary for the claimant to perfect the claim (explaining
why such material or information is needed), and shall advise the
Participant or Beneficiary of the procedure for the appeal of such
denial. All appeals shall be made by the following procedure:
(a) The Participant or Beneficiary whose claim has been denied shall
file with the Committee a notice of desire to appeal the denial. Such
notice shall be filed within 60 days of notification by the Committee
of claim denial, shall be made in writing, and shall set forth all of
the facts upon which the appeal is based. Appeals not timely filed
shall be barred.
(b) The Committee shall consider the merits of the claimant's written
presentations, the merits of any facts or evidence in support of the
denial of benefits, and such other facts and circumstances as the
Committee shall deem relevant.
(c) The Committee shall ordinarily render a determination upon the
appealed claim within 60 days after receipt which determination shall
be accompanied by a written statement as to the reasons therefor.
However, in special circumstances the Committee may extend the response
period for up to an additional 60 days, in which event it shall notify
the claimant in writing prior to commencement of the extension. The
determination so rendered shall be binding upon all parties.
10
<PAGE>
EXHIBIT A
PARTICIPANTS ON THE EFFECTIVE DATE:
All Executives with title of Director or above.
11
<PAGE>
EXHIBIT B
INVESTMENT FUNDS ON THE EFFECTIVE DATE:
Vanguard Money Market Reserves Prime Portfolio
Fidelity Investor Asset Manager Fund
Vanguard Index Trust 500 Portfolio
Fidelity Advisor Equity Income Fund
Vanguard Fixed Income Securities Fund Intermediate-Term Corporate Portfolio
12
<PAGE>
EXHIBIT 10.36
U.S. Bioscience, Inc.
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. Purpose. U.S. Bioscience, Inc. (the "Company") hereby adopts the
U.S. Bioscience, Inc. 1996 Non-Employee Directors Stock Option Plan (the
"Plan"). The Plan is intended to encourage ownership of the stock of the Company
by directors of the Company who are not employees of the Company and to enhance
the Company's ability to retain highly qualified persons to serve as its
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) "Annual Fees" means the dollar amount that a Non-Employee
Director is entitled to receive for serving as a member of the Company's Board
of Directors and on any committee of the Company's Board of Directors during the
period of approximately one-year beginning on the day after an Annual
<PAGE>
Meeting Date and ending on the next Annual Meeting Date (which dollar
amount is in addition to the automatic grants of stock options which such
Non-Employee Director may be entitled to receive under any other stock option
plan of the Company).
(c) "Annual Meeting Date" means the date of the annual meeting
of stockholders of the Company held for the election of directors in any
calendar year, commencing in 1997.
(d) "Board of Directors" or "Board" means the Board of
Directors of the Company.
(e) "Change of Control" shall have the meaning as set forth in
Section 8 of the Plan.
(f) "Code" means the Internal Revenue Code of 1986, as
amended.
(g) "Committee" shall have the meaning set forth in Section 3
of the Plan.
(h) "Common Stock" means the common stock, par value $.01 per
share, of the Company.
(i) "Company" means U.S. Bioscience, Inc. a Delaware
corporation.
(j) "Fair Market Value" of a share of Common Stock on any date
means the average of the closing sales prices of a share of Common Stock on the
American Stock Exchange (or
<PAGE>
such other national securities exchange on which the Common Stock may then be
listed) for the ten trading days prior to the date of determination, as
published in The Wall Street Journal or in any other publication selected by the
Committee.
(k) "Non-employee Director" means a member of the Board of
Directors who is not an employee of the Company or an Affiliate.
(l) "Option" means an option granted pursuant to the Plan to
purchase shares of Common Stock. Options granted pursuant to the Plan shall not
be incentive stock options as defined in Section 422 of the Code.
(m) "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.
(n) "Option Document" means the document described in Section
7 of the Plan, which sets forth the terms and conditions of each Option grant.
(o) "Purchase Price" means the price at which Shares may be
purchased upon exercise of an Option, as calculated pursuant to Section 7(a) of
the Plan.
(p) "Shares" means the shares of Common Stock of the Company
which are the subject of Options.
<PAGE>
3. Administration of the Plan. The grant of Options under the Plan
shall be automatic. The Plan shall be administered by the Board of Directors;
however, the Board of Directors may designate a committee composed of two or
more of its members to administer the Plan. Any such committee designated by the
Board of 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) Interpretation. The Committee shall be authorized to
interpret the Plan and the Options granted under the Plan and to make any
determinations it believes necessary or advisable for the administration 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
<PAGE>
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.
<PAGE>
4. Shares Subject to Plan. The aggregate maximum number of Shares for
which Options may be granted pursuant to the Plan is Fifty Thousand (50,000),
subject to adjustment as provided in Section 9 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.
5. Grant of Options.
(a) Day of Grant and Determination of Number of Shares. An
Option shall be granted automatically, on the day after each Annual Meeting
Date, to each Non-employee Director who shall have duly elected to receive
options instead of Annual Fees in respect of the period of approximately one
year, ending on the next Annual Meeting Date. The number of Shares subject to
such an Option shall be equal to the nearest whole number of shares of Common
Stock determined according to the following formula:
Number of Shares = Amount of Annual Fees
------------------------------------
(Fair Market Value - Purchase Price)
<PAGE>
For purposes of this formula, the Fair Market Value of a share of Common Stock
shall be determined as of the date of the grant of the Option, and the Purchase
Price of a Share subject to the Option shall be that determined in accordance
with Section 7(a).
(b) Annual Elections. To elect to receive an Option instead of
Annual Fees for services to be rendered during the period between successive
Annual Meeting Dates, a Non-employee Director who is an incumbent member of the
Board on a December 15 shall file a written election with the Secretary of the
Company by such December 15 with respect to the period of approximately one year
commencing on the next Annual Meeting Date. A person who is not a Non-employee
Director on a December 15 and is, prior to the next Annual Meeting Date,
nominated and upon election would become a Non-employee Director, may elect to
receive an Option instead of Annual Fees for services to be rendered during the
period of approximately one year commencing on such next Annual Meeting Date by
filing a written election with the Secretary of the Company prior taking office
as a Non-employee Director. Each election made under this Section 5(b) shall be
irrevocable and in a form approved by the Committee.
(c) Limitations. The following limitations shall apply to the
grant of Options pursuant to this Section 5:
<PAGE>
(i) No Options shall be granted pursuant to the Plan
prior to the day after the 1997 Annual Meeting Date.
(ii) If on any date on which Options are to be
granted to any Non-employee Directors pursuant to this Section 5 there is an
insufficient number of shares of Common Stock available, pursuant to Section 4,
for the grant of Options to all electing Non-employee Directors as provided in
this Section 5, then the number of Shares subject to each Option granted
pursuant to this Section 5 on such date shall equal the number of shares of
Common Stock that otherwise would be subject to such Option except for this
limitation, multiplied by a fraction, the numerator of which shall be the total
number of shares of Common Stock then available pursuant to Section 4 for the
grant of Options under the Plan and the denominator of which shall be the
aggregate number of shares of Common Stock that otherwise would be subject to
Options granted pursuant to this Section 5 on such date, such product to be
rounded down to the nearest whole number. To the extent that this Section
5(c)(ii) reduces the number of Shares subject to an Option granted to a
Non-employee Director pursuant to this Section 5 on any given date, the
Non-employee Director's election of an Option instead of Annual Fees shall be
ineffective to the same extent, and the Non-employee
<PAGE>
Director shall receive in cash that proportion of his or her Annual Fees which
was not replaced by the Option.
6. Term of the Plan. The Plan is effective as of December 11, 1996. No
Option may be granted under the Plan after December 11, 2006.
7. Option Documents and Terms. Each Option granted pursuant to the Plan
shall for the number of Shares determined in accordance with Section 5(a) and
shall be evidenced by an Option Document in such form as the Committee shall
from time to time approve, which Option Document shall include 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) Purchase Price. The Purchase Price of each Share shall be
equal to 30% of the Fair Market Value of a share of Common Stock on the date the
Option is granted, rounded to the nearest whole cent.
(b) Exercise. An Option shall be fully
exercisable at the Purchase Price six months after the grant of the Option, and
may thereafter be exercised in whole or in part from time to time. No Option
shall be deemed to have been exercised prior to the receipt by the Company of
written notice
<PAGE>
of such exercise and payment in full of the Purchase 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
<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 7(b) has
occurred.
(c) Medium of Payment. An Optionee shall pay the Purchase
Price for Shares (i) in cash, (ii) by certified or cashier's check payable to
the order of the Company, (iii) in whole or in part in shares of the Common
Stock, or (iv) 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. 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
<PAGE>
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 Purchase 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 Purchase 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.
(d) Termination of Options. No Option shall be exercisable
after the first to occur of the following:
(i) the tenth anniversary of the date of grant; or
<PAGE>
(ii) 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.
(e) 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 an Option specifically so permit, an Option may be
transferred by the 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.
(f) Amendment. Subject to the provisions of the Plan, the
Committee shall have the right to amend any Option Documents issued to an
Optionee, subject to the Optionee's consent if such amendment is not favorable
to the Optionee, except that the
<PAGE>
consent of the Optionee shall not be required for any amendment made under
Subsection 7(d)(ii) or Section 8 of the Plan, as applicable.
8. 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 members of the
Board of Directors of the Company or an Affiliate shall automatically accelerate
to the date of the Change of Control. Any amendment of this Section 8 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 Section 13(d)(3) or Section 14(d)(2) of
the Exchange Act), other
<PAGE>
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.
9. 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
<PAGE>
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.
10. Amendment and Termination 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, and may terminate the Plan at any time as it may deem advisable. If
the Plan is terminated after an election has been made pursuant to Section 5(b)
but before the related Option has been granted, the Option shall not be granted
and the Non-employee Director shall receive his or her Annual Fees in cash
instead. If the Plan is amended after an election has been made pursuant to
Section 5(b) but before the related Option has been granted, such amendment
shall be effective with respect to such election in the manner contemplated by
such amendment.
<PAGE>
11. 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 as a member of the Company's Board of Directors or in any other
capacity.
12. 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 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.
13. Interpretation. The Plan is intended to enable transactions under
the Plan to satisfy the conditions of Rule 16b-3 (adopted under the Securities
and Exchange Act of 1934, as amended) or any successor provision; to the extent
that any
<PAGE>
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.
<PAGE>
EXHIBIT 10.42
M E M O R A N D U M
TO: C. Boyd Clarke
FROM: H. Charles Ford
RE: Severance Arrangement
DATE: March 4, 1997
- - ------------------------------------------------------------------------------
This will confirm the arrangement between you and U.S. Bioscience, Inc. (the
"Company") whereby you will receive a severance payment equal to the amount of
your annual salary (exclusive of bonus) in the event of your involuntary
termination by the Company for any reason other than serious misconduct (which
is defined for this purpose as fraud, embezzlement, excessive unauthorized
absences, or other serious acts of impropriety). If such an involuntary
termination occurs, the Company will continue to provide medical coverage for
you for one year following such termination and your then-outstanding stock
options will continue to vest and remain exercisable during such one-year
period.
H.C.F.
<PAGE>
EXHIBIT 10.43
M E M O R A N D U M
TO: Wolfgang Oster, M.D.
FROM: H. Charles Ford
RE: Severance Arrangement
DATE: March 4, 1997
- - ------------------------------------------------------------------------------
This will confirm the arrangement between you and U.S. Bioscience, Inc. (the
"Company") whereby the Company will provide not less than six months notice
prior to termination for any reason other than serious misconduct (which is
defined for this purpose as fraud, embezzlement, excessive unauthorized
absences, or other serious acts of impropriety).
H.C.F.
<PAGE>
Exhibit 22
U.S. BIOSCIENCE, INC.
Subsidiaries
Jurisdiction of
Incorporation
-------------
USB Pharma B.V. The Netherlands
USB Pharma Limited United Kingdom
USB Resources, Inc. Delaware, USA
USB Technology, Inc. Delaware, USA
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-43981, Form S-8 No. 33-63456, Form S-8 No. 33-82108 and Form S-8 No.
33-12611) pertaining to the Stock Option Plans of U.S. Bioscience, Inc., the
Registration Statement (Form S-3 No. 33-77376) and related prospectus of U.S.
Bioscience, Inc. for the registration of 1,096,634 shares of its common stock
issuable upon exercise of certain warrants issued pursuant to the January 19,
1995 settlement of certain class-action suits and derivative litigations brought
against U.S. Bioscience, Inc. and the Registration Statement (Form S-3 No.
33-00077) and related prospectus of U.S. Bioscience, Inc. for the registration
of 8,142,578 shares of its common stock issuable in connection with the December
1995 private placement, of our report dated February 13, 1997 with respect to
the consolidated financial statements of U.S. Bioscience, Inc. included in this
Annual Report (Form 10-K) for the year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 21, 1997
<TABLE> <S> <C>
<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>
<CIK> 0000847562
<NAME> US BIOSCIENCE
<MULTIPLIER> 1,000
<CURRENCY> $00,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1,000
<CASH> 13,054,800
<SECURITIES> 23,621,800
<RECEIVABLES> 2,183,200
<ALLOWANCES> 257,000
<INVENTORY> 2,595,000
<CURRENT-ASSETS> 43,035,900
<PP&E> 11,151,600
<DEPRECIATION> 5,076,400
<TOTAL-ASSETS> 49,111,100
<CURRENT-LIABILITIES> 8,909,600
<BONDS> 3,307,200
0
0
<COMMON> 228,800
<OTHER-SE> 36,665,500
<TOTAL-LIABILITY-AND-EQUITY> 49,111,100
<SALES> 10,785,200
<TOTAL-REVENUES> 20,464,000
<CGS> 2,955,700
<TOTAL-COSTS> 29,613,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 537,600
<INCOME-PRETAX> (9,687,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,687,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,687,400)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
